Financial reports for Cubic 2020-2021 https://www.investing.com/equities/cubic-corp-financial-summary
10k form https://www.sec.gov/Archives/edgar/data/26076/000155837020013974/cub-20200930x10k.htm
At its core Cubic Corporation is a tech company. All of their products and services revolve around cutting edge technology. There are two main divisions within cubic that run somewhat independently of one another. Cubic transportation is geared towards public transportation solutions. Cubic defense is aimed towards military technology including but not limited to flight training simulators, aerial surveillance, image and video enhancing and many other types of military tech.
Cubic has 75 plus offices in more that 20 countries around the world. Their headquarters can be found in San Diego California. Cubic defense’s corporate objectives include being an industry front runner in tactical solutions for mission control, communications, and surveillance. When it comes to transportation Cubic is dedicated to improving fare collection through RFID payments and their integration in public transportation. Cubic aims to not only improve upon existing technology but they want to pioneer the future. This is a very ambitious undertaking that is incredibly expensive and risky. Until new tech is proven it can be unreliable.
As far as markets go if it involves cyber security or cutting-edge software Cubic is likely already there. Their most popular products are related to mission control and military intelligence. This accounts for roughly 70% of their revenue. Cyber security is their next largest venture and they work along side many different government committees to develop products that will fill these needs. Globally they install systems for clients every day and this is one aspect that really sets Cubic apart from their competition. They see their product through from the creation to the implementation. They are also always on immediate standby to address any buggy type of issues that advanced technology is prone to having.
Cubic’s customer base is primarily government organizations. Their products are meant to aid in the training of military personnel. The technology that cubic develops is used to improve support of personnel by increasing the quality of intelligence and better securing sensitive communications. There are very few companies in this sector so there are not many companies to compete with. The industry however is very competitive due to the constant need for more advanced tech. Likewise in their transportation department they are constantly creating new ways to pay for fares and improve the overall experience of mass transportation. This industry is expanding rapidly out of need for better mass transit solutions worldwide and Cubic has put themselves on the front lines of what is possible.
Cubic is a global leader in cutting edge technology. They provide innovative products and solutions to clients all over the globe. Cubic is an industry leader in secured communication and computing products. If there is a device that relies on a secured network Cubic likely had a hand in the creation of the software that went into the device. Many of the systems that people rely on every day like the internet is protected with software that was developed by Cubic and put in place by the U.S. Government. On the bigger scheme of things Cubic is an invaluable company to not only the government but also the safety of tens of millions of internet users.
One of Cubic’s biggest customers is the U.S. government, more specifically the department of defense. This key client is the main reason that Cubic has to be constantly evolving its technology to be able to give the U.S. a competitive edge when it comes to mission control. The U.S. armed forces rely heavily on systems that Cubic develops for their daily operations. This relationship is beneficial to both parties because it keeps business in the U.S. as well as protects proprietary technology that many lives depend on.
Luis Part B Strategic Risks
In March 2020, COVID-19 was categorized as a pandemic by the World Health Organization. The pandemic has brought a reduction of the on-person working operations and a big disordering on the business side with customers, suppliers, and subcontractors having to adjust to such unprecedented times. The pandemic has also brought a slow production from the suppliers due to the supplier’s personnel being unable to work effectively, because of the facilities shutdown, illnesses, staff isolation, and government restrictions. With a low production of supplies, it hindered the manufacturing process for the company and it forced the company to increase costs and they were not able to comply with the contracted production obligations for their customers. The pandemic also decreased the company transportation agency revenues and funding since many other facilitation based businesses were forced to shutdown to comply with government guidelines.
The company depends on government contracts for significantly all their revenues and the loss of government contracts or a setback or dwindle in funding of existing or future government contracts could decline our backlog or abnormally influence on the company sales and cash flows and the ability to fund their growth.The revenues from the company’s contracts, directly or indirectly, with foreign and U.S. state, regional and local governmental agencies constituted considerately all of the total revenues in fiscal year 2020. Correspondingly, due to the concentration of business with governmental agencies, we are endangered to unpleasant changes in the revenues, income and cash flows if a significant number of the government contracts, subcontracts or prospects are delayed or canceled for budgetary or other reasons.
Human Capital: The company may not be able to recognize, attract or hold on to qualified technical personnel, including engineers, computer programmers and personnel for the company transportation business or with security clearances vital for classified work, or management personnel to supervise such activities that are necessary for maintaining and growing their existing businesses, which could abnormally affect their financial circumstances and results of operations. A number of the company employees sustain a top-secret clearance level. Acquiring and prolonging security clearances for employees entails an extensive process, and it is difficult to identify, recruit and retain employees who already hold security clearances.
Intellectual Property: Cubic Corporation may experience significant costs in protecting their intellectual property which could otherwise affect their profit margins. The corporation’s inability to procure, preserve and enforce their patents and other proprietary rights could otherwise affect their businesses’ prospects and competitive positions.
The company seeks to protect their proprietary technology and innovations through patents and other proprietary-right protection, and also depend on trademark laws to protect their brand. However, they may fail to obtain the intellectual property rights necessary to provide them with a competitive advantage.
Common Stock: Cubic Corporation’s price of their common stock may oscillate significantly.
An active, liquid and trimley market for their common stock may not be sustained, which could depress the trading price of our common stock.
The unsteadiness in the market price of their common stock may avert them from being able to sell their shares at or above the price you paid for their shares or at all. The market price of their common stock could fluctuate significantly for various reasons, which include:
our quarterly or annual earnings or those of our competitors;
changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of our competitors;
inaccuracy of our guidance regarding future operating results;
litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors;
new laws or regulations or new interpretations of laws or regulations applicable to our business; and
changes in accounting standards, policies, guidance, interpretations or principles.
In addition to the rapid accumulation of the company’s stock by an investor, their board of directors adopted a shareholder rights plan which may harm a takeover strive and speculation regarding potential settlements or their failure to enter into any transaction at all may cause significant fluctuations in their share price.
On September 20, 2020, in response to the rapid accumulation of their stock by an investor, their board of directors adopted a shareholder rights plan (Rights Plan) and declared a dividend of one preferred stock purchase right for each outstanding share of their common stock to shareholders of record on October 1, 2020. The dividend distribution was made to such shareholders on October 1, 2020. In general terms, and subject to certain exceptions, the Rights Plan restricts any person or group of affiliated or associated persons from acquiring, or obtaining the right to acquire, beneficial ownership of 15% (20% in the case of a Passive Institutional Investor, as such term is defined in Rights Plan) or more of shares of our common stock (including certain synthetic equity positions created by derivative securities) (an Acquiring Person), and any person or group of affiliated or associated persons from making a tender offer or exchange offer, the consummation of which would result in a person or group becoming an Acquiring Person.
Significant Accounting Policy
The significant accounting policy Cubic Corporation makes use of in their financial statements includes revenue recognition. Revenue recognition is part of GAAP that shows how and when revenue would be recognized. This requires that revenues are recognized when they’re realized and earned, not when the cash is received. Cubic Corporation typically generates revenue from the sale of products that include transit fare collection systems, air and ground combat training programs, and secure communications products. They use the cost-to-cost method of accounting to recognize revenue on a percentage-of-completion basis. This is computed by the ratio of costs incurred to the total costs that is estimated at the completion of the performance obligation. The guidance that is correlated with revenue recognition is ASC 606, which provides a structure to recognize revenue from contracts with customers. To correlate, a significant portion of their revenues come from long-term fixed price contracts. This means that their customers require Cubic to help design, develop, modify, test and incorporate complex systems based on the customer’s needs. With the use of ASC 606, there was an increase in shareholders’ equity of $24.5 million along with net sales of $114.9 million, and cost of sales of $90.4 million. Though, with the changes to transition provisions of ASC 606, Cubic will not be recognizing any accelerated net sales or related cost of sales through October 1, 2018 and any future period. One of Cubic’s competitors is Boeing. When Boeing adopted ASC 606, the new standard didn’t affect their revenue recognition, but rather accelerated the timing when the revenue would be recognized. This would result in a decrease to their inventories for long-term contracts. The revenue recognition that Cubic utilizes would be considered conservative. This is because Cubic reports their revenue in the same period. An alternative to this would be aggressive accounting. Cubic would instead record revenue before a sale has been made.