Exclusive Interview With The VP Of Finance And Corporate Development: Cubic Corporation (CUB) - Mr. John D. Thomas
January 5, 2012 - The Wall Street Transcript has just published Aerospace and Defense Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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John D. Thomas is Vice President of Finance and Corporate Development at Cubic Corporation. His responsibilities include finance and risk management, corporate communications, investor relations, strategy and corporate development. During his career at Cubic, Mr. Thomas has played a key role in the company's growth initiatives, including acquisitions, joint ventures and international expansion. Before joining Cubic, he held financial positions with Aramark Corporation and Crocker Bank, which is now part of Wells Fargo. He earned an MBA at the University of San Diego and a B.S. in finance from San Diego State University.
TWST: To start, please introduce us to the company by giving us a brief history of Cubic and an overview of your operations today.
Mr. Thomas: Cubic (CUB) has been around for a long time. The company was founded in 1951, went public in 1959 and raised $1 million. Today, the company has three primary business areas. Two of them are in the defense marketplace. We are a defense systems integrator, and we also provide services to the DoD market. Our third segment is in the transportation space, where we design, build, operate and maintain automated fare-collection systems for transit authorities worldwide. So it's a fairly diverse base of business. What makes Cubic unique is that for a company of our size, we're doing business in 30 or 40 countries around the world in these different segments, so it's a very diversified customer base. Cubic is not totally dependent upon what happens in the U.S.
TWST: How does revenue break down in terms of those three major business segments?
Mr. Thomas: The biggest piece is mission support. That's our services business in the defense space, which is 35% to 40% of total Cubic sales. This year, we are on track for about $1.2 billion, maybe $1.3 billion, somewhere in that range. The next biggest piece is our transportation systems business. That's also our fastest-growing business. Transportation is on track to be more than 30% of sales. Then the last piece is our defense systems business. That's also growing. The defense systems and the transportation systems businesses are about equal in size. They are each about $400 million in sales.
TWST: What's driving growth particularly for the defense systems segment?
Mr. Thomas: Our defense systems business is primarily focused on training technologies. That's their biggest piece of sales. What's really driving their growth is expansion into the international marketplace. We're building air combat systems and ground combat solutions in many different allied nations. The international markets are still very strong. We have a very high market share position in the U.S. markets. Basically, we are the sole source in the live air combat-training business in the U.S. On the ground side, we have competition, but we've been very successful in increasing our market share. In the last year, our ground combat-training business has picked up additional business in what is called MILES, which is like laser tag.
We're now providing MILES equipment for the Marines and on vehicles and for soldiers. The transportation business is characterized by a smaller number of contracts, but they are very large contracts. In the last 18 months, we won a contract in Sydney, Australia, that could ultimately reach $600 million to $700 million. It's a 10-year combination of design/build and services. We also won a significant contract in Vancouver. In London, where we run the Oyster card system, we won more work to help them ramp up for the 2012 Olympics.
TWST: Are there any other factors or trends driving Cubic's business today, such as technological advances or changing customer needs?
Mr. Thomas: At the end of the day, our defense training systems fulfill a need the military has to be ready, and we provide the newest technology to make doing that very cost efficient for the end customer. So we have to stay on top of newer technologies. We're seeing a shift from live to virtual. A live training exercise involves a soldier in a live situation where he is shooting a weapon or flying a plane. Virtual training is where he's doing that same activity as man versus computer.
In the transportation business, we're seeing a shift toward outsource services. Customers are finding it's cheaper for them to outsource services than to do it themselves. When they look at the total cost of having employee pension schemes, it's a better value for them to contract that work to us. So that's been a big growth push for us. On the technology side in transportation, there are new payment technologies that are coming, which we're integrating into our solutions using contactless credit cards and cell phones.
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