Cubic Corporation (NYSE:CUB) Q4 2019 Earnings Conference Call - Final Transcript

Nov 20, 2019 • 05:00 pm ET


Cubic Corporation (NYSE:CUB) Q4 2019 Earnings Conference Call - Final Transcript


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Brad Feldmann

Department of Defense's Internet of Battlefield Things artificial intelligence strategy. Turning to Slide 5. As we've discussed on prior calls, Cubic owns a minority stake in Delerrok, a leading fare collection as a service and platform solution for small to mid market public transportation agencies.

Today, we announced that Cubic has exercised our option to acquire the remaining 82.5%. This acquisition accelerates NextCity 2.0 by enabling our immediate entry into small and mid-sized cities in North America. By combining Delerrok with Cubic's NextBus solution, we can offer an integrated vehicle information, operations and one account payment solution as a subscription-based service at an affordable price point.

Today, this market is largely unaddressed with over 70% of transit agencies in North America still dependent on cash and paper-based fare products, having already secured more than 15 customers, Delerrok has demonstrated that they have a proven solution to capture a significant share of upcoming procurements, which we anticipate being in excess of $200 million over the next five years while Delerrok is not expected to have a meaningful financial impact in the near term at scale, which we would anticipate getting to in less than five years, we expect Delerrok to deliver as a service economics with adjusted EBITDA margins north of 30%.

Turning to Slide 6, we continue to deliver on our key priority of winning the customer. Over the last several quarters, we have been investing in our ISR as a service capabilities and recently conducted a successful first flight and endurance testing of Cubic's unmanned aerial vehicle. We also signed a Cooperative Research and Development Agreement with the United States Special Operations Command to mature this capability.

In defense training, I'd like to recognize our teammate Greg Franklin, who received an award from our customer in Japan in recognition of his outstanding support for over 10 years. In transportation we are collaborating with Miami-Dade transit to launch Cubic Interactive ahead of the Super Bowl.

Cubic Interactive is a digital loyalty and advertising platform capable of displaying advertising on any digital device from a ticket vending machine, gate, TV screen and on the transit agency mobile application. Cubic Interactive is -- at its core technology, a software as a service loyalty platform that enables transit agencies to incentivize utilization of public transportation and reward user loyalty.

We are very excited about this collaboration and the launch of Cubic Interactive, a key foundational pillar for our digital pivot in transportation.

Turning to Slide 7, our major transportation projects in New York, Brisbane and the Bay Area are all progressing to plan. Following a very successful public pilot, we will soon begin further installations at the New York omni system. We have also made significant progress with restructuring the Boston contract.

In October, we were awarded a five-year extension to upgrade Chicago's Ventra fare collection system. The services extension together with the system upgrade, increases the value of our contract by $377 million. Ventra 3.0 will continue to position the Chicago Transit