Ladies and gentlemen welcome to Cubic Corporation's Fourth Quarter Fiscal Year 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Today’s webcast includes a slide presentation as part of the formal presentation, followed by a question-and-answer session. You can advance the slides by using the left and right arrows, located in the upper right corner of the slide window. [Operator Instructions] As a reminder this conference is being recorded, if any1 has any objections you may disconnect at this time. Now I would like to turn the call over to Jim Edwards, Cubic’s Senior Vice President and General Counsel. Thank you, you may begin.

Thank you, operator. Hello everyone and thank you for joining Cubic's webcast. Today, before market hours we reported our fourth quarter fiscal year 2016 results. We encourage you to refer to the Company's press release and most recent reports filed with the SEC as well as today's presentation slides. You can access these documents on the Investor Relations tab of Cubic's website at www.cubic.com or on the SEC's website. On today's call, Brad Feldmann, Cubic's President and CEO, and Jay Thomas, Executive Vice President and CFO will comment on Cubic's fourth quarter 2016 results. Mark Harrison, Cubic's Senior Vice President and Corporate Controller, will join us for the Q&A session. Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call Cubic management will be making forward-looking statements about future events or Cubic's future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the Company's business. These forward-looking statements should be considered in conjunction with and are qualified by the cautionary statements contained in Cubic's earnings press release and SEC filings including its annual report on Form 10-K and quarterly reports on Form 10-Q. The conference call contains time-sensitive information that is accurate only as of the date of this broadcast, November 21, 2016. Cubic undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. This conference call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Cubic believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the actual and forecasted operating performance of the Company's business, and the Company's cash flows. Any discussion of non-GAAP measures is not intended to detract from the importance of comparable GAAP measures. With that said, I'll turn the call over to Brad Feldmann, our President and CEO.

Thank you Jim Thank you for joining us on the call. Today, I will discuss our year-end results for fiscal year 2016 along with fourth quarter highlights and a strategy update. Jay will cover our consolidated operating and financial results in detail as well as provide our fiscal year 2017 guidance that shows improved financial performance. On Slide 3, you will find an overview of our consolidated operating results. Sales for fiscal year 2016 were $1.46 billion, up slightly from last year due to our recent defense acquisitions and growth in our transportation segment offset by currency headwinds of $32 million. Adjusted EBITDA for the year was $118.0 million, down from last year due to an expected decrease in profits in our transportation segment from the transition to the new contract in London as well as lower profits in our defense systems segment on ground training related work. We'd anticipated recovering most of the shortfall in Q4 in our defense system segment, but we experienced funding and shipment delays that deferred sales and profits to fiscal year 2017. These results are consistent with our preannouncement on October 13, 2016. First, I will give a progress update on the major items that caused the Q4 shortfall. In training systems, we now anticipate receiving a settlement for an equitable adjustment from Littoral Combat Ship customer no later than Q2 FY ‘17. We have previously written off the excess costs and the recovery will have a positive impact on profits once finalized. For DTECH, we are making progress on an order that was delayed due to a funding reprioritization. We had met with the customer and expect increased demand because we believe our DTECH tactical data center solutions best address our customers’ needs. We now expect these orders to occur in the second…

Thanks Brad. Now turning to Slide 5, consolidated sales were $1.462 billion, which were 2% higher compared to last year despite 32.2 million of FX headwinds. Sales in our two defense segments were negatively impacted this year due to funding shifts or customer requested delays which impacted the year and Q4 especially. Q4 sales were $406.6 million compared to $425.9 million or down 5%. Operating income was $7.2 million compared to $75.4 million last year. Operating income was lower this year due to lower margins in our defense systems and transportation segments, somewhat offset by an increase in defense service profits. I will discuss those specifics a little later. Also negatively impacting operating income this year were purchase accounting charges and operating losses from recent acquisitions in our defense system segment totaling $32.7 million and expenses related to the new One Cubic ERP system totaling $36.8 million. Adjusted EBITDA was $118 million for the year, down from $140.5 million last year. GAAP EPS was $0.06 for the year, down from $0.85 cents in the prior year. EPS was lower due to lower operating income, higher interest costs resulting from increased leverage on recent acquisitions and a pension settlement somewhat offset by a positive income tax benefit of $9.2 million. We offered a lump sum buyout payment to retired employers in our US pension plan in lieu of regular monthly payments. This resulted in a curtailment loss of $2.7 million. The lump sum payment buyout reduces our exposure to rising PBGC premiums and exposure to investment volatility. The lump sum was paid from planned assets. The $9.2 million tax benefit resulted primarily from a partial reversal of the deferred tax valuation allowance set up last year for US taxes. Now turning to Slide 6, I will discuss our transportation segment or…

Thank you, Jay. Now turning to Slide 11, our summary slide. We believe our Goal 2020 strategy is sound and we're making great progress on winning the customer, NextCity, C4ISR, NextTraining and One Cubic. While we’re disappointed by the shortfall in our fiscal year 2016 financial results, we fully expect the delayed orders to be received in fiscal year 2017. We anticipate improved financial performance in fiscal year 2017, especially in our defense systems, C4ISR businesses. The next few years are pivotal for Cubic’s future as we rebuild our infrastructure and increase our productivity and efficiency, and work towards our Goal 2020 vision. Together, our team continues its intense focus on implementing our strategy and providing superior value to our shareholders and customers. We're very excited for the future and appreciate your partnership in the company. Now let's proceed to the Q&A session.

[Operator Instructions] Our first question comes from the line of Julian Mitchell from Credit Suisse. Please go ahead.

Hi, this is actually Lee Sandquist on for Julian Mitchell. The positive benefits from the election outcome such as defense and infrastructure spend and then also corporate taxes were discussed and you mentioned 2018 for defense services but, how soon do you think you could see the potential impact from these policies on the order book and P&L for the other segments?

Probably in late ’17 and in ’18.

Understood and could you also walk us through the path from 11.5% margins to the 15% to 20% guide that you just announced for CTS.

So that's in the out year, so in the short term as we bid and win some new systems work those have lower than median margins and as those contracts get towards completion and we start shifting towards the services cycle that's when we see our margins picking up. So I think in the last two years, we've seen services running 55% to 60% of sales and products have been the difference or systems. In the next few years, assuming we win New York, we start on some other projects that shift is going to go back to products. And then by ‘18 and ’19 then we see the shift back into the services when the risk levels come down and we start getting back to our normalized margins.

Let me just add, in the CTS business, we're putting a lot of emphasis on reusability of software code and if you will building legos [ph] that we can reuse. So we see going forward the modularity of our code will allow us to have a lower cost base and therefore greater margins and Matt and his team are working on that very, very hard.

And then just one clarifying question and then I'll pass along, but does your fiscal year ‘17 sales guidance embed the anticipated benefit from the potential New York City contract that's coming up? Thank you.

So, in all of our forecasts we always factor various contract activities, so there is a very low factored value in our number.

Thank you. Our next question comes from the line of Jim Ricchiuti from Needham & Company. Please go ahead.

So the R&D levels that we are looking at, should we assume this kind of R&D spend going forward. It was up quite a bit from obviously from fiscal Q3 levels but is this - where we should be thinking about R&D going forward, Jay?

I’m going to let Brad answer that question.

So we've increased our R&D particularly in C4ISR, we think we have some breakthrough products that can lead to large revenue streams. So we've intentionally increased there. We've also increased in CTS there a lot of products that we're trying to improve. And we think that will really help us in particularly in the domestic market going forward. So, I think there will be somewhat of an increase on a going forward basis, but probably not to quite the level that we have been doing.

And I’ll just add that this year we're spending money in advance of winning some contracts and we can't predict what quarter these contracts are going to come in. So, take for example, in the York, we're doing some things in advance to sort of derisk the project. So that is actually - it’s hitting the P& L and because of the scale of that contract it's more material than we've seen in the past.

We’re also doing something similar on our training system contract as well. Both of those contracts were obviously fairly savvy that we'll win and get in backlog.

Brad, if we put aside New York for a minute. It sounds like you're looking at a number of other open payment opportunities, maybe without being specific on individual contracts, if we were to aggregate those, can you give us a sense of the opportunity, just putting aside New York, which we all know is a fairly large contract.

Let me say it this way, at the end of the script or in the CTS portion I said the teams working to get to $900 million in revenue. Today they are in the six band [ph], New York will add some obviously, Sydney open payment upgrade and the rest are a bunch of contracts particularly in North America. So we see good growth in the next few years within CTS.

And then last question for me, I'll jump back in the queue. A while back, you had talked about targeting operating margin improvement of 200 to 250 basis points by fiscal ’18, where does that stand or are you just seeing whether it's timing issues on the defense side and increased investment in transportation, does that push that out?

No, we have to get ERP fully implemented across the enterprise. As we proudly stated, we got the second phase done at the beginning of the fiscal year, which was ERP and our defense systems business in North America. We have a quarterly rollout period to get the rest of the business and in early ’18, we’ll be done with that. We've already started to see some savings in supply chain, we've seen between $10 million and $15 million. So we're still pretty savvy that between supply chain and SG&A savings, we’ll be able to increase the overall earnings of the company more than 2% starting in FY ’18 and it will be somewhat phased.

Thank you. Our next question comes from the line of Brian Gesuale from Raymond James. Please go ahead.

A few thoughts on guidance here, wondering if you can - I think be LCS settlement is embedded in guidance in the second quarter if I heard your comment and read the script correctly. Could you confirm that? And then maybe also talk a little bit about the quarterly cadence and when we might start to see some incremental margin improvement on the incremental revenue. Thank you.

Yeah we have embedded that that by the second quarter. The first quarter for us will be weaker than when we get to the sort of the third and fourth quarters, a lot of it has to do with the cadence around the continuing resolution. The latest reading is that funding would get released once they get the budget approved on new starts and so everything we're hearing sort of suggests that that gets done by March. And since we're on a fiscal year that's at the end of our second quarter. So, definitely a stronger third and fourth quarter, probably like last year a weak start in Q1.

And then maybe just a broader kind of question on the market. We’ve kind of hit the lull in the training cycle over the last three or four years with talk about incremental force levels, maybe some incremental training in Europe and force protection over there. Can you maybe talk about maybe the outlook for that business, how it's kind of come off the bottom here over the last, well with the election I guess? Thank you.

As we have read and heard the new administration is interested in rebuilding defense, the force levels we think are good for us in terms of increased training. I think time will tell a little bit but we're optimistic that most parts of the services business will get on a rebounded growth.

In regards to your comment on Europe, we are actively out there in the market today trying to sell in now the C4ISR products and so we’re - we've actually set up a European sales organization to go after that market. So hopefully that starts turning into some orders during the next couple of quarters.

Thank you. [Operator Instructions] Our next question comes from the line of Ken Herbert from Canaccord. Please go ahead.

I just wanted to follow up on the revenue guidance, when you look at the DTECH and LCS, and the other one-time items that slipped out of ‘16 to ’17, can you give a little more specific guidance by segment and where we actually you know how the revenues flow through for ’17. I mean it looks like when I back those out; you're looking at maybe low-single 1% to 2% organic growth from a revenue standpoint. But can you give a little more specifics on a segment level.

As we said earlier, the biggest growth is going to be in the defense systems and a lot of that has to do with having full-year results. We had partially year results last year on the acquisitions. So we expect growth across C4ISR because we’re going to go from low rate initial production to full rate production later in the year on the GATR products. Probably a little muted growth in defense services and that's just a tougher environment because of the CR. We’ve seen just delays in funding there, so not expecting a lot of growth. And in transportation, it really is sort of driven by when we get contract decisions later in the year, say in a New York or a follow on work in Sydney but we're definitely expecting growth in transportation.

I think we've been a little cautious and the reason is we don't know the exact timing of New York, we anticipated in the second quarter and CR, what the impacts of that are.

I think that's prudent and it definitely looks like there's some conservatism in the guidance. If I take the adjusted EBITDA guidance and the bridge from the 118 this year to the 130 at the midpoint for ‘17 and I make the adjustments for looks like a little ERP and obviously lower acquisition related costs. Is it fair to say from a revenue standpoint at the operating segment level you should be looking at sort of flat adjusted EBITDA from ’16 to ‘17.

Yeah and that's - but that's after taking consideration, this higher R&D and this pre-spend that we're doing and those numbers, you can assume that's about 1% of sales for those two categories between the R&D and the pre-spend that’s built into our numbers.

And then finally, on the GRTC, the recomplete, can you just remind us when you might expect to hear about a contract award there or some of the milestones we should watch out for?

This is Brad, it's in the middle of store selection. We haven't as of yet got renewed questions. People are anticipating in the next few months, it seems like it's on track for that.

So you don't see any timing risk around that award considering expected sort of March resolution to the CR.

I think potentially they’ll continue us under the existing contract and I think once they get a full budget they'll do the award, I think that's right.

They keep it - they've extended us again, I think right now we’re extended through about Q3 on our original contract.

Thank you. Our next question comes from the line of Josephine Millward from The Benchmark Company. Please go ahead.

Let's say you win New York City in Q2, which is extremely likely, when can we start seeing revenue contribution?

We're assuming right now that that's going to be accounted for under our potential completion accounting. So as we incur costs then we would start to accrue revenues against that. So it, you know, again it's a ramp up on spending. Most of these projects, the initial phase is engineering before you start going into production. So when you have production, then you’re obviously you’re spending more money and incurring higher revenues. So early on, the revenues are going to be a little light and then it will build as we get into ’18 and ‘19.

And on Sydney, if they decide full implementation upgrade of the system, can you help us quantify the opportunity set?

There actually it appears going to do a phased rollout over time and the amount of incremental revenue add is in the tens of millions of dollars category.

Brad, can you give us an update on your [Technical Difficulty] what other award decisions are you expecting in the coming year?

Well, the big ones of course we went through was New York, the Sydney add-on, the full rate production decision for T2C2, there are a number of opportunities in training systems as well and Matt's area there are some domestic fare collection opportunities also.

, :

Would Boston be in the hundreds of millions or are we talking about tens of millions?

Hundreds, it’s a combination of products and services.

Thank you. Ladies and gentlemen we have no further questions in queue at this time. I would like to turn the floor back over to Mr. Bradley Feldmann for closing comments.

Thank you for joining us on the call today, we’re excited about Cubic’s future. Thank you very much for your continued interest and support of our great company.