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Cubic’s Transport Arm Ready for Battle in NYC

Matt Cole has New York on his mind.

Cole runs the transportation equipment business at Kearny Mesa-based Cubic Corp., a company that wants to use the world of fare cards and subway gates as a stepping stone toward bigger things.

Right now Cole is looking at a must-win contract: renewal of a deal to supply fare collection technology to the transit system that serves New York City’s five boroughs.

An unworn necktie meant for an in-person pitch later this year hangs on the back of Cole’s office door.

“Everything is about New York City right now,” Cole said. The deal “could represent a major driver of future growth in 2018 and beyond,” analyst Brian Gesuale of Raymond James wrote in a May research note.

Transportation means a lot but it’s not everything to Cubic (NYSE: CUB).

Under its unique business model, the $1.4 billion corporation gets 40 percent of its revenue from transportation and 60 percent from defense contracting.

Over on the defense side of the house, CEO Brad Feldmann is bringing two other executives up to speed, following the sudden departure of sector president Bill Toti in late May.

“Dave and Mike are great guys,” Feldmann said in a recent interview, referring to retired U.S. Navy Vice Adm. David Buss and Michael Twyman, a seasoned defense executive. Buss will be president of Cubic’s defense businesses while Twyman will lead one of its most promising divisions.

With both men serving as understudies at Cubic for one and two years, respectively, “it felt like it was time to put these guys on the point of leadership,” the CEO said.

“Bill was leaving to pursue other opportunities, which gave us the opportunity to do this,” Feldmann said. “I’ve been thinking about this.”

A New Generation

Walter J. Zable founded Cubic Corp. in 1951 and was chief executive for more than 60 years. He was synonymous with the business until his death in 2012 at age 97.

Today, Cubic’s leadership is young and still emerging from the ranks. Feldmann, 54, will mark his second anniversary as CEO in July. He leads an even fresher group of lieutenants in the executive suite, including Cole, who took the top job on the transportation side of the house in October.

With Toti’s departure from the defense unit, Cole quickly gained the distinction of being the longest-serving unit president.

Toti arrived at Cubic in June 2014. In early 2015 he was tapped to restructure the defense business, merging two units into one. Cubic announced Toti’s departure in late May.

Taking his place is Toti’s senior vice president, Buss. Not long ago, the retired vice admiral was the “air boss” at Naval Air Station North Island, in charge of naval aviation and carriers.

In an interview, Buss said there will be “absolutely no change in strategy” in Cubic’s defense business. As a Navy aviator, he added, he has been flying with Cubic’s training technology for more than three decades. Training is a major part of Cubic’s defense business.

Buss understands military readiness really well, Feldmann said.

In addition, Twyman — who spent more than 30 years at Northrop Grumman Corp. and a Northrop predecessor — will move up to oversee a group of new acquisitions in the C4ISR space. C4ISR is a military abbreviation for command, control, communications, computers, intelligence, surveillance and reconnaissance.

Though two executives are now leading the defense units and reporting to Feldmann, Cubic is not going back to the days before Toti restructured, Feldmann said.

Twyman is the architect behind Cubic’s recent communications and C4ISR acquisitions, the CEO said, and those businesses promise growth. Recently acquired businesses include DTECH Labs, TeraLogics and GATR Technologies.

Cubic is looking to grow both its top line and bottom line, Feldmann said.

Grand Central, Granite State

The lab where Cubic’s transportation unit tests its products is part electronics workshop and part United States in miniature. Over here are subway gates from Chicago; Miami is a few steps away. Los Angeles and Atlanta are across the room. Cole wants to show off the gates for New York City’s transit system.

Each city’s gates and other equipment varies, as do Cubic’s fare-collection technologies. Some systems use specialized cards while others charge a bank card. A few systems let people pay with their smartphones.

Depending on how you measure it, New York City represents 35 percent to 70 percent of the U.S. market for fare collection, Cole says. It is on par with London — another very big Cubic customer.

One of Cubic’s most significant recent wins, however, is relatively small. In the fourth quarter of 2015, the Kearny Mesa business won a $50 million deal to provide back-office technology for New Hampshire’s toll roads.

“That’s kind of our stepping stone into that business,” Cole said. The toll road market is likely to grow faster than the transit fare-collection market because cars have become much more fuel-efficient. Local and state governments are no longer collecting as much gas tax as they did, and are now searching for other ways to fund roadwork.

Cubic plans to bid on road toll systems in Ireland, the United Arab Emirates and San Diego.

Cole and his fellow executives see only a few steps between the company’s current status as a fare collection-equipment provider and its desired status as wider transportation services provider. It is growing its business providing transportation operators (and commuters) with analytical tools to show how well or how badly the overall system is behaving.

All the while, Cubic must keep revenue coming and keep competitors at bay. Those competitors include Thales, Xerox, Kapsch, Imtech, Accenture, IBM, Indra, Siemens, Transcore, Trapeze and Scheidt & Bachmann.

Large teams in San Diego and New York are working “ferociously” to meet New York’s proposal deadline of July 13, Cole said.

Once that proposal is safely with the customer, Cubic management will turn its attention to cities soliciting similar bids. They include Boston, Seattle, Edmonton and the San Francisco Bay Area.

“We’re going to have our hands full,” Cole said.

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