Cubic CEO Discusses Priorities at AUSA

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Bradley Feldmann, President and CEO of Cubic Corporation discusses priorities, investments, and the company’s key role in the air sector during an interview with Defense & Aerospace Report Editor Vago Muradian at the 2018 AUSA Annual Meeting in Washington, DC. Our AUSA coverage is brought to you by Bell, a Textron Company, Elbit System of America, L3 Technologies, Leonardo DRS, and Safran.

Bradley Feldmann

Chairman, President and CEO, Cubic Corporation

AUSA Annual Meeting

October 2018

Vago Muradian:  Welcome to the Defense and Aerospace Report.  I’m Vago Muradian here in Washington, DC at the Association of the United States Army’s Annual Meeting, the largest gathering of Army leaders from around the world to talk about the service’s strategy, budgets, future, technology and all the technologies that the industries that serve the Army can provide. Our coverage here is sponsored by Bell, a Textron company; Elbit Systems of America; L3 Technologies; Leonardo DRS; and SAFRAN.  And we’re here on the Cubic stand to talk to Brad Feldmann who is the Chairman, President, and CEO of Cubic.

Brad, always great seeing you.

Bradley Feldmann: Good to see you, Vago.

Mr. Muradian:  Great seeing you.  We’ll talk about Air Force football in a little while.  You were a distinguished graduate of the United States Air Force Academy and I think they had a game against Navy that despite a concussion —

Mr. Feldmann:  [Inaudible].

Mr. Muradian:  That’s right. [Laughter].  That’s the unvarnished way, what was it 35-7 as I recall?

Mr. Feldmann:  Huge.

Mr. Muradian:  Huge. And DJ Hammond had a concussion which makes it even more dramatic.

But first, let’s talk about some of your priorities here at AUSA.  Your presence has been growing, your stock price is up 70 percent over the last year to date.  Extraordinary performance.  I’m going to ask you about that in a minute also.

But what are your priority efforts at this AUSA?  The first one with the new Army Vision that Secretary Esper has put out. The Futures Command is new.  Great power competition, everybody’s trying to execute to the National Security and Defense Strategies.  Talk to us about your priorities here over the next couple of days.

Mr. Feldmann:  We have a couple of broad priorities.  The first has to do with expeditionary communications.  As you can see here, this is our GATR capability and we have an ability to provide satellite communications anywhere on the planet within 15 minutes. We have networking gear that’s very small.  We have a killer app that processes full motion video.  And we recently entered the UAV business.  We have a Group 2 that provides Group 3 capability, so we’re very excited about that.

In training, we’re showing the amalgamation of live and virtual training and we’re very excited about that.  And we think that what we are working on aligns very well with a couple of the cross-functional teams.

We’ve seen some speed improvement with those, and we’re anxious to work with the new structure in the Army.

Mr. Muradian:  It’s an interesting budgetary time.  Almost everybody is looking at a nice 2019 budget, but a lot of concerns about what happens in 2020 and beyond.  Does it flatten?  Does it go down?  There are some folks who still say hey, you know what, it will still remain strong because everybody understands the need for the capability of a rejuvenated armed forces, particularly in the Army’s case, that hasn’t done as much modernization in a great power context.

Talk to us as somebody, as the CEO of a company that does a lot of its own investments, to skate to where the customer puck’s going to be.  How does that change how you think about investment in this particular sector?  You’ve got a great transportation segment that’s gangbusters and giving you tremendous returns.  Where are some of the places where you’re going to be investing over the next couple of years for the ground systems business?

Mr. Feldmann:  Nonetheless, $700 billion is still a lot of money and so there’s great opportunity by focusing on innovation and new solutions to, quite frankly, take market share away from others.

A lot of our solutions we think are best of breed.  As you pointed out very generously, we try to do where the puck is going, try to skate there ahead of time.

We think the expeditionary communications is absolutely what the Army needs.  We’re doing some stuff with protective SATCOM and we’re trying to, in partnership with the cross-functional teams, their priorities, come up with winning solutions.

So we’ll continue to invest.  Again, $700 billion is a lot of money.

Mr. Muradian:  Yes. It’s only at a defense conference where $700 billion is not seen as real money.

You mentioned the cross-functional teams, and there is a concern or a question at least that’s been going around the floor even in these early hours of the show that the Army hasn’t been clear enough on its priorities, and that there are questions about how these cross-functional teams and Futures Command is going to work with the classical acquisition system.

As the CEO of a company, is there that clarity?  Can the Army be more clear about its priorities?  And do you fully understand how this new system is going to work given that the cross-functional teams are crosscutting in what they do, right? It’s not all requirements.  There is acquisition associated with it.  So give us your sense on both of those.

Mr. Feldmann:  I think the cross-functional teams are new, of course.  So there’s always kinks that have to get worked out.  But I’m very confident that they’ll cause that to happen. And speed is very, very important. I think by combining the requirements people with the acquisition people, you know, you’ll get speed.

So I think it’s a very good thing for the Army and I think you also learn by doing and engaging.  So we’re absolutely engaged with the cross-functional teams.  We’re doing a lot of experimentation on our own nickel to come up with new solutions, if you will, to shape upcoming procurements and to have the very best solutions for Army customers.

Mr. Muradian:  Do you think the Army leadership has been clear enough about its priorities?

Mr. Feldmann:  I think clarity gets better over time.  I think this is new.  I think in fairness there will be more clarity as we go.

Mr. Muradian:  Let me take you to the extraordinary share price increase you’ve had.  You’re justifiably proud of that and so is the management team.  Talk to us, what do you attribute that to aside from, you know, clean living in San Diego and you guys’ investment.

Mr. Feldmann:  About ten quarters ago we said we would get six things done.  We said in our transportation business we would win New York. We said we would win Boston.  We said we would win Brisbane.  We would win San Francisco.  We said we would move the enterprise to SAP.  And we said that T2C2, the Transportable Tactical Command Communications program for the Army would move to full-rate production.  So all of those were achieved in fiscal ’18. I think that’s the reason.

And that led to us having the highest backlog in the history of the company. So we’re going to be growing in the next few years, north of 10 percent organically, and not many people are talking about things like that.

Mr. Muradian:  You already said that you’re targeting a little bit of other folks’ market share in order to try to get that even if the budget flattens out.  You’re a very competitive guy.  You made that clear.

What are going to be some of the priorities going forward?  Investors can be very, very fickle so they absolutely love that you delivered against promises, but they have also a short attention span and they have a tendency of, you know, going to the next shiny object. What are some of the priorities you’re setting?  What are some of the messages you’re delivering to them about what you’re going to be doing in the next few years that will keep them aboard as investors?

Mr. Feldmann:  In FY19 with the huge backlog that we have, we, of course, have to deliver the backlog well. So FY19 we’re focused very specifically on meeting our commitments, so our teams are working hard to do that backlog extremely well and very profitably.

In terms of what’s next, there’s a lot of opportunities continuing in transport. There’s a lot of opportunities in C4ISR. We see an inflection in training. So there’s plenty of runway to continue to grow the company.

And after that, we collect all this data in our systems and we’re moving towards using that data to exploit that for our customers.

Mr. Muradian:  You mentioned runway, which led me to the Air Force Association show recently.  We didn’t have an opportunity to stop by there, but you guys had a very, very interesting new product that made it there from China Lake. Talk to us a little bit about on the air side of the business, because folks have a tendency of thinking about some of the classical things that you guys do for ground systems and for transportation.  But sometimes not as much about the key role you guys play in the air sector.

Mr. Feldmann:  As you know, we invented the Top Gun system in the early ‘70s, so that system, of course, is in the movie.  And we’ve done multiple generations of training fighter pilots, if you will.  We deploy an electronic umpire sort of war-game in the air where fighter pilots, where we grade their paper in dogfighting. And so what we were able to do recently at Nellis was to in the cockpit put virtual and constructive entities, in addition, to live entities so the fighter pilot can now fight against synthetic threats, whether it be an F-16 on the ground that’s in a simulator or it be constructive threats that are created.

And modeling and simulation is one of the few places that the government can actually save money.  Every sortie the government flies costs north of 20 grand, as much as 50 grand per sortie. So if you can create some of those threats synthetically you can put more sweat on the fighter pilot and do it more cost-effectively.

Mr. Muradian:  And now let me take you to football.  Air Force has been doing pretty well judging by the performance over the weekend.

Mr. Feldmann:  I think we’re very fortunate.  I didn’t anticipate that, but we’re very glad that we won.  So as a result of that I changed my plans and I will be at the West Point game rooting very loudly so that we can bring home our 20thCommanders and Chief Trophy, and we’ve brought more home than the other service academies combined.

Mr. Muradian:  Justifiably proud.

Brad Feldmann, Chairman, President, CEO of Cubic.  Sir, it’s always a pleasure.

Mr. Feldmann:  Thank you so much.

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