Greetings, and welcome to the Cubic Corporation Second Quarter Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Kirsten Nielsen, Vice President of Investor Relations. Thank you. You may begin.

Hello, everyone, and thank you joining Cubic's webcast. I'm joined today in by Brad Feldmann, Chairman, President and Chief Executive Officer; and Anshooman Aga, Executive Vice President and Chief Financial Officer. Before we begin, I'll remind everyone that our presentation considered forward-looking statements. You can find risk factors that could cause the company's actual results to differ materially from our expectations listed in our most recent SEC filings. In addition, we have included non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the Appendix to today's presentation. With that, I'd like to turn the call over to Brad.

Thank you, Kirsten. Thank you, everyone, for joining us today. On today's call, I will start by discussing our second quarter and first half results for fiscal year 2019, followed by an update on our strategic priorities. Then I'll turn the call over to Anshooman, who will cover our financial results and outlook in more detail. Starting with Slide 3. Sales for the second quarter were $337.3 million, a 21% increase compared to the second quarter last year. Sales for the first half were $642.6 million, a 22% increase compared to the first half of last year. Adjusted EBITDA for Q2 was $19.4 million, a 23% increase compared to the second quarter of last year. And $39.4 million for the first half, a 44% increase compared to the first half of last year. Our year-to-date performance reflects strong growth from our transportation projects and ongoing robust demand across the mission solutions portfolio. We expect this growth to continue based on our high backlog of $3.8 billion, plus the additional $640 million of unused T2C2 contract ceiling, which together amounted to approximately four times last year's revenue. In line with our efforts to provide additional insight into our operating performance, we have introduced adjusted earnings per share to our quarterly disclosures in guidance. Adjusted EPS excludes items that we do not believe are part of our core operating performance. We believe it indicates a more consistent measure of our financial performance on a comparative basis, from quarter-to-quarter and year-to-year. And therefore we'll be a helpful metric for analysts and investors. Lastly, we are pleased to be featured among Forbe's best large employers in America. This year Cubic ranked 103rd out of 500 companies, in the overall large employers list. I would like to thank my Cubic teammates for their great efforts,…

Thank you, Brad. Please turn to Slide 10 to cover the financial highlights for the quarter. Sales in Q2 were $337 million, up 24% on a constant currency basis, driven by organic growth from Transportation and Mission Solutions and the impact of the Trafficware and GRIDSMART acquisitions. The impact from the new revenue recognition standard ASC 606, had favorable impact on quarterly sales of roughly $28 million, including $15 million for Boston. Adjusting for Boston to account as organic growth as other percent complete contracts, the ASC 606 impact was $13 million. Adjusted EBITDA for the quarter was $19.4 million, up from the $15.8 million in the second quarter of last year, or an increase of 32% after adjusting for FX headwinds. Free cash flow was negative $32.7 million in the second quarter and adjusted free cash flow was negative $23 million. The cash flow was impacted by the timing of milestone payments in CTS and inventory buildup related to expected shipments in Mission Solutions for later this fiscal year. As previously mentioned, we continue to expect cash flow to improve in the second half of the year. Earlier this week, we closed on a new credit agreement, which increases our revolver, provides a better pricing grid and improved flexibility for the repayment of a private placement. Lastly, as Brad noted, we are now reporting adjusted earnings per share as we believe this metric indicates a more consistent and clear measure of our financial performance on a comparative basis from quarter-to-quarter and year-to-year. We are also introducing full year adjusted earnings per share guidance, which I'll discuss in a moment. Turning to Slide 11 for the consolidated second quarter results. I'll be brief since I've already discussed sales, EBITDA and cash. I'll point out that last year's Q2 bookings, included…

Thank you, Anshooman. Turning to Slide 16. In summary, our revenue visibility remains very high. We are pleased with our year-on-year growth in sales and adjusted EBITDA. But we remain on track to achieve our financial targets for this year-end and Goal 2020. We continue to make solid progress, advancing our strategic priorities and delivering strong performance across the company. Our Transportation business is teaming up with Apple to integrate virtual transit cards in Apple Wallet in Chicago and implement New York's open-loop system, so passengers in those cities can use Apple Pay to ride transit systems. Our acquisition of Nuvotronics will strengthen our protected communications capabilities and we look forward to integrating their unique technologies, which are highly synergistic with our existing products. Our training business continues to lead internationally in the design and operation of integrated training centers. In closing, I'd like to thank my Cubic teammates, for being laser focused on meeting our commitments as we move into the second half of this fiscal year. Now, let's proceed to the Q&A session.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is from the line of Jim Ricchiuti of Needham & Company. Please proceed with your question.

Thank you. Good afternoon. I'm wondering, there are lot of moving parts in the revenue line. Is there a way for you to help us understand what the organic growth rate is excluding some of the adjustments and the acquisitions?

Sure, Jim. First of all, let's talk about ASC 606. So when you look at ASC 606 and if you look at the first half of the year, $56 million of the revenue came from the change in accounting standard. However, $29 million of that was tied to Boston. Boston is a percent complete project like any other project and when we structured the contract, we knew about ASC 606 and the change where we'd be able to recognize revenue, which impacted how we structured it. And also it was part of our Goal 2020 guidance. So when you strip out Boston, there is $27 million for the first half that came from ASC 606, $22 million of that goes to revenue -- would have been revenue under ASC 605, this fiscal year anyway. So the true impact this fiscal year of ASC 606 is $5 million for us. When you look at acquisitions for the first half, we had about $19 million of revenue coming from our acquisitions. So, the organic growth, including Boston is about 12% in the second quarter of this fiscal year, so strong growth organically within the business, Jim.

Perfect. Thank you. And in your discussion about some of the programs or projects that are out in the Transportation business, you mentioned Toronto dabbling, didn't hear you mention Montreal, has that been awarded? And in general, what would you say is the timing for some of these other three that you alluded to?

Yes, this is Brad. Hi Jim, how are you?

Hi, Brad.

Montreal still on the list, we just picked a few of them. There will be increase in revenue, winning these new projects next year, the year after and the year after that. So it's over the next two to three years.

Got it. And last question, I'll jump back in the queue. Nuvotronics, when would you begin to see some of their technology to embedded in your product portfolio?

So, as we mentioned, when we had done the acquisition. We expect some of the supply chain benefits to start toward the end of this calendar year. Going into next fiscal year, we need to integrate the products into our supply chain and go through the approvals, certifications. And so we expect that will be through the end of this year-end. We will start seeing benefits next calendar year. There's great opportunities for us Jim, with Nuvotronics. The technology is game changing, it allows you to pass RF signals and isolate them and do it at about a 100th the size of what other people do. And so when you think about space aircraft or spacecraft, they're very interested in saving weight. When you think of airplanes for electronic warfare, they want to save weight. And so we've just started to put out some very big bids. So we're very optimistic about this acquisition.

Thank you. Our next question is from the line of Ken Herbert with Canaccord Genuity. Please proceed with your question.

Hey, I just wanted to Brad start off first. If you could talk a little bit more about the agreement regarding Apple iPay and the any potential investments involved in this or strategically. Yes, I mean it seems to make a lot of sense and potentially provide a lot of opportunity, but how do we think about investments or potential revenue opportunities on this or was this really just sort of a necessity to maintain market position. I mean any more detail around this would be helpful?

So, obviously we're interested in the user experience and people carry around smartphones today. So and as you know, we've already won contracts for a little more than 60% for mobile ticketing in the United States. So clearly, that is part of our offering, we've been working on the integration, actually for some time, we will see our brand new app in Chicago, rolling out very shortly. We think that's best of breed. But when we think about it in the longer-term, that platform and other smartphones will allow us to provide personalized predictive analytics to people in cities. So they can get from here to there most easily, and we think there's an opportunity. You'll notice, we hired a Chief Digital Officer. We think there's an opportunity to create platforms that potentially can change our revenue model to be much more recurring revenue. It will take us some time to do that, but we see it, not only the user experience in the short-term, but also creating these recurring revenue platforms in the mid-term.

Okay, that's helpful. So there's no I guess incremental spend associated or I guess that's not factored in the fiscal 2019 or Goal 2020 guidance?

Yes. We've been -- we've been investing all along and it's encapsulated in our guidance and Goal 2020. We just haven't been talking directly about it here before.

Okay, very helpful. And if I could just one final question, it sounds like the transportation programs are on track. The full-year adjusted EBITDA plays very substantial sort of fourth quarter growth relative to last year. Are there specific milestone payments on either CTS or CMS that that you could maybe point to or other specific milestones on the projects on either segments that are sort of critical to hitting that with obviously a such a back-end loaded EBITDA for the full year? Thank you.

Yes. So I'll address part of that and I'll let Anshooman to address the cash part. So we're very excited that we're in the pilot phase in New York, and we're about ready for the first public launch later this month. So that's on track in both us and the customer, are very excited about that. In Boston, we've delivered the preliminary design documentation, we'll probably adjust some of the milestones. We're in conversations with the customers now, but the project is -- we'll do well and we're excited about the progress we've made there. And then next, of course, ramping up is -- is in Brisbane and San Francisco. So there will be increased revenue there in the second half and I'll let Anshooman, discuss the cash

Yes, on cash there significant cash tied to certain milestones that happens in the second half of the year. When we look at New York and Boston combined, we're expecting north of $45 million, $50 million of net cash being generated by these projects in the second half of the year, just based on the milestone payments. And then the second thing on cash, that happened in the first half of the year. But I mentioned it briefly during the prepared remarks was we had inventory buildup, especially related to our Mission Solutions business. As you saw, we got robust order entry in Q2. Lot of that shipped in Q4. So we had buildup of inventory as we convert that into revenue, build the customer. We hope to start collecting that starting in Q4 also, which will improve our cash position

That's helpful. If I could just one final point is a potential CR I know obviously, your fiscal year ends when the government fiscal year ends. But if we are in fact, any CR into fiscal 2020 would that potentially put any of the CMS either cash receipts or revenue you could book at risk or how are you thinking about that?

Clearly a CR has some impact, but in terms of Goal 2020 as you know we have most of it in backlog and we expect good order intake through the second half of the year. So you know CR depending on how long it is, if it's a few months. It won't be a problem for us.

Okay. So the impact on 2019 should be minimal, if at all potentially?

Zero.

Okay, perfect. Awesome. Thanks Brad.

Yes.

Thank you. [Operator Instructions]. Our next question comes from the line of Louie DiPalma with William Blair. Please proceed with your question.

Good afternoon, Brad, Anshooman and Kirsten.

Hey, Louie. Louie, how you are doing?

Very well. Thank you. Cubic in March 2018, today reviewed it's Goal 2020 targets for revenue and EBITDA margin by segment. With the SAP migration completed last year and the PLM upgrade expected to be done in fiscal 2019, and Anshooman, just briefly alluded to the drawdown in inventory. I was wondering, how should investors think about free cash flow generation in the next fiscal year?

So Louie, cash flow obviously is going to start getting a lot stronger as we get through some of these projects. Quarter-to-quarter, it can be lumpy. But overall, CTS projects start getting toward execution. Lot of the customer milestones are tied to actual hardware being delivered, which is going to start happening pretty soon. So overall cash should be pretty good from that. Over time, I always encourage investors to look at our cash flow, over a two or three year time horizon and average that out because of some lumpiness, but we should be converting a significant piece of our net income into cash.

Thanks. And as it relates to the Boeing MQ-25 order, is that related to the multi-beam SATCOM technology that you've been developing for a while?

No, it's not the halo which I think you're referring to its capability of having a software definable radio that has the ability to both, speak SATCOM, waveforms as well as common data link. So if you think about someone being concerned about weight in an airplane. If you have a radio that can speed -- speak both dilects if you will, you save in the fact that you don't have to buy extra boxes. So it's a very good deal very good solution, but our first implementation in a program of record, and we think that there will be demand for that kind of capability on other platforms as well.

Okay. Thanks Brad. And one last one for your training division, you indicated that you expect a return to growth in the second half of the year and you cited international momentum and a successful demo for your Live Virtual & Constructive product, is Goal 2020 a greater than $400 million in revenue, still attainable for the defense training division?

Yes, we think so there are some big orders that were very close on. We're in negotiations on. And so we'll be able to turn those in the revenue in the near-term.

Thank you. [Operator Instructions]. It appears we have no additional questions at this time. Allow me to pass the floor back over to Mr. Feldmann for any additional concluding comments.

Thank you. We are pleased with our progress through the first half of the fiscal year and we remain very excited about our future. Thank you for joining us today on the call.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.