Cubic Reports Second Quarter Fiscal Year 2013 Results

Cubic Reports Second Quarter Fiscal Year 2013 Results

  • Sales increased 7 percent over second quarter 2012 to $364.3 million
  • Net income of $27.2 million compared to $23.4 million in the same period last year
  • Earnings per share of $1.02 compared to $0.88 in the same period last year
  • Total backlog of $2.80 billion at March 31, 2013 compared to $2.83 billion at September 30, 2012
  • Net Income was positively impacted by retroactive federal R&D tax credit of $1.9 million
  • Results were negatively impacted by restructuring and other charges totaling $7.4 million, before taxes

SAN DIEGO--(BUSINESS WIRE)-- Cubic Corporation (NYS: CUB) today reported its results for the second quarter of fiscal year 2013. Sales for the second quarter of 2013 were $364.3 million, an increase of 7 percent compared to $339.6 million in the second quarter of 2012. Net income attributable to Cubic shareholders rose 16 percent to $27.2 million, or $1.02 per share, from $23.4 million, or $0.88 per share, in the second quarter of 2012. The benefit from retroactive renewal of the U.S. federal research and development tax credit was approximately $1.9 million and contributed $0.07 to earnings per share. Operating income was $34.6 million, up 6 percent from $32.5 million last year. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA), a non-GAAP measure (as described below), was $41.5 million in this year's second quarter compared to $38.0 million last year, an increase of 9 percent.

The second quarter of 2013 included a charge of $6.1 million, before applicable income taxes, for restructuring costs due to workforce reductions at Cubic Defense Systems. The global realignment was necessitated due to delayed U.S. government procurement decisions and a change in business mix. The realignment is expected to result in operating profit margin improvements during the remainder of the fiscal year.


"Overall we had a good quarter led by a strong performance in our transportation segment," said William W. Boyle, Chief Executive Officer of Cubic Corporation. "Despite the unsettling DoD environment, we continue to win U.S. defense contracts and expand our transportation segment into new market areas. We remain encouraged for the remainder of the year due to our strong pipeline of international opportunities."

Reportable Segment Results

Transportation Systems (38% of consolidated sales)

Cubic Transportation Systems (CTS) develops and delivers innovative fare collection systems and services for public transit authorities worldwide. In the second quarter of this year, CTS sales increased 5 percent to $138.8 million compared to $131.7 million in the same period last year. The increase resulted from higher sales on contracts in the U.K., including an annual system usage incentive, as well as higher U.S. sales on a bus contract and sales from the recently acquired NextBus, Inc.

Operating income from CTS in the second quarter this year increased 38 percent to $32.2 million from $23.4 million in the second quarter of last year, primarily due to higher sales in the U.K. and Australia, an increase in the annual system usage incentive mentioned above, and a more favorable mix of higher margin sales in the quarter compared to last year.

 
 Six Months Ended Three Months Ended
March 31,March 31,
2013 2012 % Change2013 2012 % Change
(in millions)(in millions)
Transportation Systems Segment Sales$257.4$257.50%$138.8$131.75%
 
Transportation Systems Segment Operating Income$45.4$41.310%$32.2$23.438%
 

CTS total backlog decreased from $1,663.7 million as of September 30, 2012 to $1,616.3 million at March 31, 2013, primarily due to negative changes in currency translation.

Mission Support Services (34% of consolidated sales)

Mission Support Services (MSS) is a leading provider of highly specialized support services to the U.S. government and allied nations. Sales from MSS decreased 4 percent to $122.2 million in the second quarter this year, compared to $126.9 million in the second quarter of last year. The decrease in sales was primarily due to lower activity at the Joint Readiness Training Center (JRTC) in Fort Polk, Louisiana, which was partially offset by higher sales on contracts for the national security community and from NEK Special Programs Group LLC (NEK), a company acquired in December 2012 that provides training to the Special Forces community.

MSS operating income was $3.6 million in the second quarter this year compared to $4.6 million in the second quarter of last year. The decrease was from increased personnel costs on a flight simulator training contract and an operating loss of $0.3 million from NEK inclusive of acquisition-related costs of $0.4 million.

 
 Six Months Ended Three Months Ended
March 31,March 31,
2013 2012 % Change2013 2012 % Change
(in millions)(in millions)
Mission Support Services Segment Sales$235.6$234.41%$122.2$126.9-4%
 
Mission Support Services Segment Operating Income$7.8$9.1-14%$3.6$4.6-22%
 

Total backlog for MSS increased 9 percent or $69.6 million from $737.0 million to $806.6 million, partially due to the addition of backlog from the acquisition of NEK and the recently won U.S. Navy training services contract valued at $134.0 million.

Defense Systems (28% of consolidated sales)

Cubic Defense Systems (CDS) is focused on two primary lines of business: training systems and secure communications. In the second quarter, training systems sales were up 25 percent to $87.6 million from $70.3 million last year while operating income was down 10 percent to 7.0 million this year from $7.8 million last year.

Certain CDS product lines previously categorized as "Other" have been reclassified into "Secure communications" due to a management realignment. Secure communications sales increased 50 percent from $10.4 million last year to $15.6 million this year, reflecting higher sales from personnel locator systems. Secure communications operating loss decreased to $0.6 million in the second quarter from $1.7 million last year primarily due to the increase in higher margin personnel locator system sales, which was partially offset by a loss on a data link contract.

 
 Six Months Ended Three Months Ended
March 31,March 31,
2013 2012 % Change2013 2012 % Change
(in millions)(in millions)

Defense Systems Segment Sales

Training systems$153.2$135.013%$87.6$70.325%
Secure communications 31.2  29.0 8% 15.6  10.4 50%
$184.4 $164.0 12%$103.2 $80.7 28%

 

Defense Systems Segment Operating Income

Training systems$8.9$12.3-28%$7.0$7.8-10%
Secure communications(1.3)(0.2)550%(0.6)(1.7)-65%
Restructuring costs (6.1) -  (6.1) - 
$1.5 $12.1 -88%$0.3 $6.1 -95%
 

CDS backlog is being negatively impacted by delays in contract awards and extensions, which are due in part to the budgetary uncertainties that our U.S. government customers are experiencing. CDS backlog was $381.1 million at March 31, 2013, down from $430.9 million at September 30, 2013.

Conference Call

Cubic management will host a conference call to discuss the company's second quarter fiscal year 2013 results today, Thursday, May 2, 2013 at 4:30 p.m. ET (1:30 p.m. PT) that will be simultaneously broadcast over the Internet. William W. Boyle, chief executive officer, and John "Jay" D. Thomas, chief financial officer, will host the call. Listeners may access the conference call live over the Internet at the company's website under the "Investor Relations" tab at www.cubic.com.

Please allow 15 minutes prior to the call to visit our website to download any necessary audio software. For those unable to listen to the live broadcast, an archived version will be available at the same location through June 3, 2013.

About Cubic

Cubic Corporation is globally diversified in transportation and defense markets. The company's Transportation segment is a leading systems integrator that develops and provides fare collection infrastructure, services and technology for public transit authorities and operators worldwide. Cubic's Mission Support Services segment is a leading provider of training, operations, maintenance, technical and other support services to the U.S. and allied nations. The Defense Systems segment is a leading provider of realistic combat training systems, cyber technologies, asset tracking solutions, and defense electronics. For more information about Cubic, see the company's web site atwww.cubic.com .

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by such Act. Forward-looking statements include, among others, statements about our expectations regarding future events or our future financial and/or operating performance. These statements are often, but not always, made through the use of words or phrases such as "may," "will," "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "predict," "potential," "opportunity" and similar words or phrases or the negatives of these words or phrases. These statements involve risks, estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in these statements, including, among others: our dependence on U.S. and foreign government contracts; delays in approving U.S. and foreign government budgets and cuts in U.S. and foreign government defense expenditures; the ability of certain government agencies to unilaterally terminate or modify our contracts with them; our ability to successfully integrate new companies into our business and to properly assess the effects of such integration on our financial condition; the U.S. government's increased emphasis on awarding contracts to small businesses, and our ability to retain existing contracts or win new contracts under competitive bidding processes; the effects of politics and economic conditions on negotiations and business dealings in the various countries in which we do business or intend to do business; competition and technology changes in the defense and transportation industries; our ability to accurately estimate the time and resources necessary to satisfy obligations under our contracts; the effect of adverse regulatory changes on our ability to sell products and services; our ability to identify, attract and retain qualified employees; business disruptions due to cyber security threats, physical threats, terrorist acts, acts of nature and public health crises; our involvement in litigation, including litigation related to patents, proprietary rights and employee misconduct; our reliance on subcontractors and on a limited number of third parties to manufacture and supply our products; our ability to comply with our development contracts and to successfully develop, introduce and sell new products, systems and services in current and future markets; defects in, or a lack of adequate coverage by insurance or indemnity for, our products and systems; and changes in U.S. and foreign tax laws, exchange rates or our economic assumptions regarding our pension plans. In addition, please refer to the risk factors contained in our SEC filings available atwww.sec.gov, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Because the risks, estimates, assumptions and uncertainties referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements, you should not place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof.

Use of Non-GAAP Financial Information

To supplement our consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we use Adjusted EBITDA which represents net income attributable to Cubic before interest, taxes, non-operating income, depreciation and amortization. We believe that the presentation of Adjusted EBITDA provides useful information to investors with which to analyze our operating trends and performance and ability to service and incur debt. Also, Adjusted EBITDA is a factor we use in measuring our performance and compensating certain of our executives. Further, we believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation and the age and book depreciation of property, plant and equipment (affecting relative depreciation expense), and non-operating expenses which may vary for different companies for reasons unrelated to operating performance. In addition, we believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income as a measure of performance. In addition, other companies may define Adjusted EBITDA differently and, as a result, our measure of Adjusted EBITDA may not be directly comparable to Adjusted EBITDA of other companies. Furthermore, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally. You are cautioned not to place undue reliance on Adjusted EBITDA.

The following table reconciles Adjusted EBITDA to net income attributable to Cubic, which we consider to be the most directly comparable GAAP financial measure to Adjusted EBITDA.

 
 Six Months Ended  Three Months Ended
March 31,March 31,
2013 20122013 2012
(in thousands)
Reconciliation:
Net income attributable to Cubic$39,604$44,091$27,158$23,397
Add:
Provision for income taxes12,44318,2007,0439,847
Interest expense (income), net767(1,048)342(633)
Other income, net(49)(1,045)53(122)
Noncontrolling interest in income of VIE125965251
Depreciation and amortization 11,597  11,297  6,879 5,465 
ADJUSTED EBITDA$64,487 $71,591 $41,527$38,005 
 
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CUBIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)
 
 Six Months Ended  Three Months Ended
March 31,March 31,
2013 20122013 2012
 
Net sales:
Products$300,669$309,086$164,968$155,776
Services 377,007  347,325  199,337  183,869 
677,676656,411364,305339,645
 
Costs and expenses:
Products218,018220,133117,123106,684
Services297,617277,050153,766145,642
Selling, general and administrative82,31778,25941,32043,039
Restructuring costs6,084-6,084-
Research and development12,92012,9687,0988,072
Amortization of purchased intangibles 7,830  7,707  4,266  3,668 
 624,786  596,117  329,657  307,105 
 
Operating income52,89060,29434,64832,540
 
Other income (expense):
Interest and dividend income7491,726312964
Interest expense(1,516)(678)(654)(331)
Other income (expense) - net 49  1,045  (53) 122 
 
Income before income taxes52,17262,38734,25333,295
 
Income taxes 12,443  18,200  7,043  9,847 
 
Net income39,72944,18727,21023,448
 
Less noncontrolling interest in income of VIE