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Cubic Corp  (NYSE:CUB)
Q2 2019 Earnings Call
May. 02, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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.

Kirsten Nielsen -- Vice President of Investor Relations

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.

Brad Feldmann -- Chairman, President and Chief Executive Officer

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 4 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, as we continue to transform our Company.

Turning to slide 4 to discuss our most recent acquisition, on March 14th, we completed the acquisition of Nuvotronics, an innovator of high frequency millimeter wave and wide band RF communications technologies for defense primes, government agencies and commercial markets. Nuvotronics' unique PolyStrata technology provides exceptional performance with unmatched size, weight and power SWaP parameters and allows Cubic to offer best-in-class solutions to our customers. We are particularly excited about the supply chain benefits. We expect this will create as we integrate their products into Cubic's protected communications solutions. We see substantial upside opportunity as this acquisition strategically positions Cubic to address a wide array of high growth markets. Including some that have both military and commercial applications.

This investment is aligned with our strategy to build technology driven market-leading businesses with strong growth potential.

Turning to Slide 5, during the past 5 years, we have made a number of strategic acquisitions of technology driven market-leading businesses that align with our overall capital allocation strategy. I wanted to take a moment to provide an overview of those acquisitions, including the strategic rationale and how they are performing today. The Mission Solutions we have acquired businesses that align with our strategy to serve our customers' mission chain needs. In aggregate, these acquisitions have grown at a CAGR of nearly 30% and -- but we believe they will continue to drive value for our shareholders for years to come.

We continue to see strong demand for GATR Cubic's next generation satellite antenna system, which is the program of record for the United States Army's Transportable Tactical Command Communications T2C2 program. Beyond T2C2, we believe that GATR has the potential to replace the Army's satellite ground terminals for other networks. Additionally, we are also seeing strong and synergistic demand for DTAC rugged Internet of Things IoT capabilities with many wins allowing our customers to network satellite communications around the battlefield. In Transportation, our recent acquisitions of Trafficware and GRIDSMART are consistent with our NextCity vision to apply technologies and services to optimize urban mobility and reduced congestion.

Controlling the intersections with leading technology, allows us to optimize the flow of people in traffic and cities and is a key part of the NextCity vision to link mobility payments to both predictive, personalized information and regional congestion management, which clearly involves intersections. Also as these businesses led the transition to smart infrastructure that will support the increased use of connected and autonomous cars. They will also open up further adjacent applications such as road usage charging and other smart city applications. We are pleased with the integration and early progress of these acquisitions, which I'll discuss further in a moment, and we remain very confident in the long-term value this will bring to our customers and shareholders.

Turning to Slide 6, we continue to deliver on our winning the customer value proposition. Our Mission Solutions business continues to see robust demand across the portfolio, which is a reflection of our technical vision, strategic investments and strong customer demand for superior SWaP performance. DTAC, our product line under our Rugged IoT offering received contracts from the United States Military, including award for the new fifth generation technology insertion 5gTI for the US Army Command post upgrade. Additionally, received an award for the United States Marine Corps Combat Data Network program. We are preparing for the build and delivery of our first pilot order in support of fielding. We also want to secure communications contracts, one on the MH-60 and one on the navy's new MQ-25 platform. We expect these platform contracts will grow over time. And include Cubic's first airborne SATCOM software definable radio.

We are also pleased that we're able to recruit Kevin Eagan to join Cubic as our Chief Digital Officer. Kevin's remet is to develop and leverage new digitally enabled business models to provide our customers with superior insights, is now leading Cubic's Digital Pivot, which is our shift to focusing on unlocking breakthrough value and insights for our customers using the power of intelligent digital platforms. Digital platforms are the engine behind unprecedented business disruption and new value creation, occurring in every industry, because of our market leadership in defense training and transportation, Cubic has unique Trusted Access to immense volumes of mission critical real-time data at a global scale. By combining our expertise and partnerships in IoT, mobile, cloud computing, digital commerce and cognitive analytics, we believe we are well positioned to deliver a multisided digital platform optimized for real-time data rich offerings with AI at their core. As we pivot from products digitally enabled platforms, we can accelerate innovation cycles, expand our market reach and grow revenue and margins, using the power of platform economics.

For example, in the transportation market, our digital platform for NextCity will enable us to rapidly and cost effectively extend the reach of our market leading Transportation Solutions to smaller and mid-sized markets. In the near term, Kevin is working closely with our business unit presidents and their engineering teams to design and conduct platform and data offering experiments. These experiments will inform our platform business models, technology partnerships, intellectual property requirements and platform investment strategies going forward.

Lastly, we are very pleased to announce another critical milestone in the digital pivot of our Transportation business. In March, Apple CEO, Tim Cook, announced customers will be able to use Apple Pay on their iPhone and Apple Watch to ride trends in major U.S cities, which includes the ability to add Chicago's Ventra Card from Cubic system to Apple Wallet and our upcoming launch of open payment in New York.

Cubic is committed to improving with our integrated payment technology and we're excited passengers in Chicago and New York, we'll be able to use their iPhone to ride Transit later this year. The Chicago Transit Authority, one of our key customers, has led the way and open payment utilizing Cubic transit payment solutions. As you will recall, we have secured over 60% of the mass-transit market in the United States using our mobile solutions. We firmly believe that our mobile payment market position will expand, because of our high market share, global footprint and existing customer back offices, which must interface with mobile solutions and physical equipment, gates and terms styles, which are necessary in the mass-transit environment. We believe our growth will also be driven by our commitment to growing value creating partnerships with respect to mobile wallets and new mobility modes such as ride sharing. Consistent with our NextCity vision, we are making investments to create a superior traveler experience across all modes of transportation in the city.

This leads to Slide 7. And Transportation, as I just described, we believe Cubic is positioned as the go to partner for the integration of transit into the mobile applications of new mobility operations as a result of our market presence and our unique ability to provide turnkey integration of mobile applications to the back office systems and physical hardware of the transit environment. Such turnkey integration is simply not possible without a partnership with Cubic in those cities where we are the provider of the Fare Collection System. One account, the integration of multiple mobility payments through our single account has consistently been part of our NextCity strategy from the very beginning and the integration of new mobility providers to create mobility as a service is very much aligned with the direction we are on with our NextCity vision and our digital pivot plans.

On Slide 8, we continue to execute on our strategic priorities in all three businesses. Last week, we were awarded a $68 million contract extension with the Los Angeles County MTA to provide tap system support services. We also successfully delivered on our mobile for merchant app to our Los Angeles Metro customer. This Android-based mobile application, allows agencies to sell fare collection products through a dedicated network of participating retailers. Cubic's revenue is derived from the volume of sales through the retail channel. Meaning, that Cubic's revenue will scale as the retail network expands across the LA region. This is part of Cubic's overall mobile solutions suite, which is designed to improve the traveler experience and this is another step toward greater convenience. Our traffic management acquisitions of Trafficware and GRIDSMART have been successfully integrated and we are expecting good growth this year with wins, such as the recently announced contract in Cupertino and a string of other wins in FY19 including Santa Cruz, Livermore, Portland, New Jersey, and several other cities across the United States. We continue to be extremely confident that Trafficware and GRIDSMART will not only continue to be high growth, strong margin businesses in their own right but will also be able to harness short-term cross sell synergies with the first GRIDSMART sales through Trafficware, occurring in Q2. We also see synergistic opportunities within Cubic's broader transportation footprint, where we have already seen strong demand for these products in our international footprint.

In the long-term, as I described earlier. We continue to believe that further synergies can be derived from the intersection management technology is being integrated with our broader regional traffic and congestion management platforms such as the ICMP project that we won in Sydney last year, which will provide controllers and operators, situational understanding to optimize the transportation network and give travelers vital information to allow them to navigate end-to-end more efficiently across the city. Thereby, reducing congestion.

In New York, we completed the final testing. For the first new fair payment system milestone and entered the pilot phase in March. We are optimistic that we will achieve the initial public launch milestone later this month. At that time, riders ill be able to use your contactless card or mobile wallet to tap and go on board all Staten Island buses and at select subway stations in New York City. In Boston, we successfully submitted all of our system preliminary design documents and continue to work with the customer toward their launch milestones.

As a reminder, each of these contracts include service extension options that are not currently part of our backlog. And this is typical of our contracts, where we enjoy a high rate of exercise of the extension options as well as upgrades. We also believe that our Transportation business continues to enjoy long-term growth prospects with new cities such as Toronto, Hong Kong and Dublin. Expansion of the mid-market through the digitization of mobility payments through mobile apps and from adjacent market growth in road usage charging and congestion management. Since our last earnings call, our Mission Solutions team has been competitively selected for two secure communications contracts that we expect will increase in value as production quantities increase. The first award is from the Naval Air Systems command NAVAIR to provide full-motion video dabbling and visualization for the MH-60S multi-mission helicopter program. Our full-motion video system will significantly increase the fleet's operational capability to send and receive video information. The second award is to support Boeing's MQ-25 unmanned tanker for the US Navy with Cubic's airborne SATCOM and common data link software defined radio. This first of its kind software defined radio, enhances mission reliability and reduces size, weight and power, by processing wideband beyond line of sight SATCOM and common data link line of sight data links.

Our initial award will include test and engineering design model systems. Additionally, the mission solutions business was awarded a contract from the New Zealand Ministry of Defense to deliver command and control capabilities to support the network enabled army's program, tactical network project. The NEA program is a transformational program to be delivered in four tranches over 12 years and will benefit the New Zealand Army's land forces and special operations forces.

Finally, during the quarter we received additional orders, totaling $80 million for inflatables satellite communication system for T2C2 and other US Army needs. Our Mission Solutions team has been winning a lot due to the synergistic superior value missions change that we have created through a string of acquisitions and customer centric R&D. In defense training, we were awarded an army training contract with a key customer in Southeast Asia to provide logistics operations and maintenance support services. The multi-year program solidifies our position as the ground training incumbent and leader in the region. Over the course of this program, we will work with the customer to deliver our enhanced and innovative training solutions.

In the United Kingdom, we are contracting with the British Army to provide our Synthetic Wrap Microscopic training to enhance LVC integration. This advances product sales of our innovative synthetic overlay for ground training. The only capability like it in the world. In Australia, the Chemical Biological Radioactive Nuclear CBRN program is expanding our simulation offerings for nuclear, biological, chemical warfare, enabling us to provide an even greater high fidelity training environment. Our Training segment is well positioned to return to growth as a result of our LVC innovation investments and the recent LVC ACMI market transforming demo. In addition, our innovative LVC data analytics and visualization platforms software was recently successfully demonstrated at Red Flag. The United States Air Force's largest annual multi-domain large force training exercise. The success of these products, coupled with our investments in data driven real-time analytics is driving strong demand. We have multiple upcoming LVC bids in the US, coupled with a very robust international opportunity pipeline.

On Slide 9, we continue to drive toward our goal of One Cubic. We are optimizing our ERP implementation and have created several dashboards to provide us with deep insights to improve running our business. We are making progress implementing product lifecycle management, that will help us instantiate engineering workflows, ensure superior design reviews work in an integrated fashion with common tool sets, propagate best of breed technology across business units and engineering disciplines, and provided the configuration management repository to the SAP ERP system. We partnered with Main Point and Deloitte to help reduce our infrastructure costs and overhead, SG&A and supply chain.

We continue to co-invest with our customers to create superior solutions. With our One Cubic priority, we are enhancing our infrastructure and completing the implementation of our hybrid sharing strategy. We are on the one hand, we are decentralized with customer intimacy, speed and innovation. And on the other hand, our centralized for support to cost effectively scale and leverage shared resources and systems. We are implementing common platforms, processes, and shared services and are sharing best of breed common technology and talent across Cubic.

Now, I'll ask Anshooman to describe our financial results in more detail.

Anshooman Aga -- Executive Vice President & Chief Financial Officer

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 toSslide 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 $481 million for the Boston Transportation award. As Brad discussed CMS achieved strong order activity this quarter. Adjusted net income was $7.6 million or $0.24 per share compared to $6.1 million or $0.22 per share in Q2 of last year. This reflects adjusted EBITDA growth, partially offset by slight increases in depreciation and interest expense, and a higher share count. You can find additional information in the appendix, including a reconciliation to GAAP net income and a reconciliation of adjusted EBITDA to adjusted net income.

Moving to the Transportation segment results on Slide 12, sales grew 24% on a constant currency basis, driven by our major fare collection projects and the inclusion of Trafficware and GRIDSMART. Adjusted EBITDA margin was 10.2% comparable to Q2 last year, and up approximately 60 basis points year-to-date.

Moving to Slide 13. Our Mission Solutions business reported good results with robust growth in bookings across the segment and sales growth of 71%. Adjusted EBITDA improved despite a $2.3 million increase in R&D expense and the accelerated recognition of cost from a new contract award in Protected Communications, which we discussed on our last earnings call.

Turning to Slide 14, similar to what we discussed last quarter performance in Cubic Global Defense is being impacted by the delay of international orders. We expect improvement in the second half.

Turning to Slide 15, for our fiscal 2019 guidance. We are on track to achieve our full year guidance that we set at the beginning of the fiscal year and updated in February to include the GRIDSMART acquisition. We're expecting another year of strong growth in sales and adjusted EBITDA, driven by the ramp up of transportation projects. The impact of the Trafficware and GRIDSMART acquisitions and continued growth in C4ISR.

The third quarter, we expect adjusted EBITDA to be slightly higher year-on-year. We expect a very strong fourth quarter driven by the timing of Mission Solutions shipments and the project schedule for New York and Boston. Because of this, we expect to generate more than 50% of our full-year adjusted EBITDA in the fourth quarter. Lastly, we have added and adjusted earnings per share guidance range of $2.85 to $3.50, which is in line with our adjusted EBITDA range of $140 million to $260 million.

Now I'll turn the call back over to Brad.

Brad Feldmann -- Chairman, President and Chief Executive Officer

Thank you, Anshooman. Tturning 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.

Questions and Answers:

Operator

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.

Jim Ricchiuti -- Needham & Company -- Analyst

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?

Anshooman Aga -- Executive Vice President & Chief Financial Officer

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 fiscl 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.

Jim Ricchiuti -- Needham & Company -- Analyst

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?

Brad Feldmann -- Chairman, President and Chief Executive Officer

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

Jim Ricchiuti -- Needham & Company -- Analyst

Hi, Brad.

Brad Feldmann -- Chairman, President and Chief Executive Officer

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 2 to 3 years.

Jim Ricchiuti -- Needham & Company -- Analyst

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?

Brad Feldmann -- Chairman, President and Chief Executive Officer

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.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. Thanks very much.

Operator

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

Ken Herbert -- Canaccord Genuity -- Analyst

Hi, good afternoon, Brad and Anshuman.

Brad Feldmann -- Chairman, President and Chief Executive Officer

Hey, Ken.

Anshooman Aga -- Executive Vice President & Chief Financial Officer

Hey, Ken.

Ken Herbert -- Canaccord Genuity -- Analyst

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. Yeah, 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?

Brad Feldmann -- Chairman, President and Chief Executive Officer

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.

Ken Herbert -- Canaccord Genuity -- Analyst

Okay, that's helpful. So there's no I guess incremental spend associated or I guess that's not factored in the fiscal '19 or Goal 2020 guidance?

Unidentified Speaker --

Yeah. 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.

Ken Herbert -- Canaccord Genuity -- Analyst

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 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.

Brad Feldmann -- Chairman, President and Chief Executive Officer

Yeah. 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

Anshooman Aga -- Executive Vice President & Chief Financial Officer

Yeah, 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 milllion, $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 build up, 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

Ken Herbert -- Canaccord Genuity -- Analyst

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 '20, 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?

Anshooman Aga -- Executive Vice President & Chief Financial Officer

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

Ken Herbert -- Canaccord Genuity -- Analyst

Okay. So the impact on '19 should be minimal, if at all potentially?

Anshooman Aga -- Executive Vice President & Chief Financial Officer

O.

Ken Herbert -- Canaccord Genuity -- Analyst

Okay, perfect. Awesome. Thanks, Brad.

Brad Feldmann -- Chairman, President and Chief Executive Officer

Yeah.

Operator

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

Louie DiPalma -- William Blair -- Analyst

Good afternoon, Brad, Anshooman and Kirsten.

Brad Feldmann -- Chairman, President and Chief Executive Officer

Hey, Louie. Louie, how you are doing?

Louie DiPalma -- William Blair -- Analyst

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?

Anshooman Aga -- Executive Vice President & Chief Financial Officer

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 2 or 3-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.

Louie DiPalma -- William Blair -- Analyst

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?

Brad Feldmann -- Chairman, President and Chief Executive Officer

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.

Louie DiPalma -- William Blair -- Analyst

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 (inaudible) constructor product is Goal 2020 a greater than $400 million in revenue, still attainable for the defense training division?

Brad Feldmann -- Chairman, President and Chief Executive Officer

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.

Louie DiPalma -- William Blair -- Analyst

Thanks, Brad.

Operator

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.

Brad Feldmann -- Chairman, President and Chief Executive Officer

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

Operator

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

Duration: 47 minutes

Call participants:

Kirsten Nielsen -- Vice President of Investor Relations

Brad Feldmann -- Chairman, President and Chief Executive Officer

Anshooman Aga -- Executive Vice President & Chief Financial Officer

Jim Ricchiuti -- Needham & Company -- Analyst

Ken Herbert -- Canaccord Genuity -- Analyst

Louie DiPalma -- William Blair -- Analyst

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