Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
Welcome Inside the ICE House. In one of our recent episodes, New York Stock Exchange President, Stacey Cunningham, talked about the different exchanges that operate under NYSE group. Our guest today is from Cubic Corporation, a company founded in 1951 by Walter J. Zable. It listed on the NYSE American in 1959, back then it was called the American Stock Exchange, under the ticker symbol CUB. In 2008, CUB moved to the NYSE and is in the building today to celebrate their 10th anniversary of up-listing. Our guest today, Bradley Feldmann, was elected chairman of Cubic this year, succeeding Walter J. Zable's son, Walter C. Zable, becoming the first non-family member in Cubic's seven decades to lead the company.
Josh King:
Today, Cubic operates three divisions, Cubic Transportation Systems, Cubic Global Defense and Cubic Mission Solutions. This allows the company to offer integrated solutions that increase situational understandings for transportation, decrease urban congestion and improve the military's effectiveness and operational readiness. This also means that our topic today will stretch from improving your subway riding experience to talking about Tom Cruise and Top Ggun. Our conversation with Bradley Feldmann right after this.
Speaker 1:
Inside the ICE House is presented this week by ICE Futures Europe and the ICE Brent Crude Oil Complex. Have you ever rolled up to the pump or heard a news report on rapid changes to the price of a barrel of oil and wondered why the price is different than yesterday? Most of the world's oil is price relative. The ICE Brent Complex and ICE is where a large percentage of the world's crude oil derivatives are traded.
Josh King:
Brad Feldmann, chairman, president and CEO of Cubic Corporation was named CEO in 2014. He's a graduate of the United States Air Force Academy and the Stanford Executive Institute. We're recording this conversation Inside the ICE House. before Brad kicks off Cubic's investor day in Freedom Hall right here at the New York Stock Exchange at the Big Board Club. He'll end his day ringing the closing bell of the exchange. Welcome to the ICE House, sir.
Bradley Feldmann:
Thank you so much.
Josh King:
First time to the exchange? Have you been here before?
Bradley Feldmann:
Second time.
Josh King:
What was the first time you were here for?
Bradley Feldmann:
So the first time we had an investor day in town surrounded by... We got to ring the bell. We had been traded for 50 years. Publicly, we've been traded since 1959. So we rung the bell to celebrate that 50 years being publicly traded.
Josh King:
So you're coming back again today for investor day. Expect to see a lot of the regular faces you talk to on a quarterly basis. What's the different message that they're going to be hearing from Cubic relative to what they hear from you about quarterly results?
Bradley Feldmann:
I think they're going to get to see our fabulous team and our fabulous technology. So there's some show and tell today and they'll get a chance to meet the management. We're thrilled by how well the company is doing, so in some sense for me to celebrate that.
Josh King:
It was, Brad, the height of the Cold War in 1960, President Eisenhower is in office and Cubic was just launching its geodetic sequential collation of range satellite. You can correct me if I'm wrong, but I'm seeing a publicity photo of what looks like a model at the time. I'm reading about the history of your company and it feels very much like a Howard Hughes-like story, but one that stayed on the straight narrow for 50 years.
Bradley Feldmann:
Our founder, Walter J. Zable, was an innovator, and he pushed us to have state of the art offerings for our customers. So there are many, many firsts in the company, that first geodetic satellite that you talked about was a first. We had the best surveying equipment on the planet. We could find things on the planet better than anyone else. We were the first ones to put magnetic stripe for automated fare collection. Of course that's moved along and we have it on smartphones now. We were the first to invent the TOPGUN system in the early '70s. So Walter did a great job of causing the team and being an entrepreneur to create new things. My mission is to accelerate that.
Josh King:
When did you come to the company?
Bradley Feldmann:
I originally came to the company in 1989. I was with the company from 1989 to 1999. Had a number of jobs, positions. I ended up being the chief operating officer of the defense business at the time. It was smaller then. I was gone for nine years and I never thought I would go back. In 2008, I showed back up to run the defense company. So what a great company. People ask me, "Why'd you go back?"
Josh King:
What did you do during your hiatus first?
Bradley Feldmann:
I call it my sabbatical.
Josh King:
Yeah.
Bradley Feldmann:
Yeah. So I had a few stops. The first one was I went to an electronic warfare company. What was interesting about that assignment is my boss, the CEO at the time, came into my office one day and said we were pursuing strategic alternatives. I was younger then, I didn't know what that meant. That sounded good. Anyway, we sold our company. We were a public company. It was called Comtech Research. We sold the company to Northrop Grumman in 1999. Then I moved to ManTech International and I worked on strategy and ran a piece of the company and helped bring the company public post 9/11, just after that. Then I was CEO of a security company and then I was COO of another security company.
Josh King:
We should skip back a little bit because you graduated from Air Force in 1983, you told me?
Bradley Feldmann:
I did.
Josh King:
Obviously, like so many of the other graduates, a degree in engineering, but you actually had to stay focused on engineering because you couldn't get up in the air because of what happened to your eyes.
Bradley Feldmann:
Yeah. So I've always been a pretty good student and pretty good at math. So when I was a cadet, I studied mathematics and electrical engineering. My eyes went bad, as you pointed out, somewhere in between there, maybe it was from studying hard. I don't know. So I've always been an enthusiastic person. Whatever I'm working on, I'm interested in it. So it wasn't a burden. I mean, other than being a cadet can be a burden from time to time.
Josh King:
But the '80s, you're a young lieutenant moving up the ranks in the Air Force. It's the Reagan administration. What kind of projects are you doing from a perspective on the ground in the Air Force?
Bradley Feldmann:
Yeah, so I spent five years in the Air Force and I worked in Europe before the Berlin Wall came down. We had mobile radars and we would move of those mobile radars around to see, if you will, what the Soviet Union was going to be doing. My job was to figure out where to put those radars and then figure out the communications from the radar back to NATO bunkers. I had that job. I had geodetic surveyors and we went out and shot angles and did the mathematics to figure all that stuff out, create a database. Then I went to the staff at Rammstein, the USAF staff, and I was involved in buying new generation communications equipment for the sort of same mission. So I was involved in program management kinds of things. So that was helpful as I transitioned from the military.
Josh King:
As you reflect on all the things Brad Feldmann that happened this week, President Trump in Singapore talking to north Korean Chairman Kim, that surprise announcement at the end of the summit that the United States would, at least as long as things continue on the track that Trump imagines going well, suspending what he would call war games, the joint training that allies have always done in the Korean Peninsula. This must, as you watch the news, sort of amplify the mission of Cubic in a great way, because what you've specialized in is simulated training in many ways. If you can't do live fire stuff up in the air or in the ground near Panmunjom, you've got to figure out how to do it in ways that sort of are around four walls.
Bradley Feldmann:
Yeah. So simulation is one of the few things where you actually can save the government money. There's always a trade-off between fidelity and cost and live training's very expensive. So simulation is very helpful to teach soldiers, fighter pilots, sailors, marines to get reps at the different things that they have to do.
Josh King:
What are some of the systems that would replicate the kind of multinational training exercises that would happen in live situations that Cubic provides?
Bradley Feldmann:
So we've been in the training business a long time since the early '70s with the invention of the TOPGUN System, and we've been fortunate to train fighter pilots around the world, all fighter pilots in the United States and its allies since then. In the mid-'90s, we made a shift ground forces and we won a program called MILES, which is an acronym, but in essence, we shoot lasers instead of bullet. We are involved in today training about 25 armies around the world and 40 air forces around the world. Recently, we've won some work with the Navy with the littoral combat ship.
Bradley Feldmann:
So we're all over the world today training people. The equipment we make, we try to ensure there's interoperability between "one set of kit and another". There are lots of combined and joint exercises around the world. In Australia, for instance, there's a major exercise every couple of years and they actually have forces from the United States flying, attacking forces in Australia, using wide communications pipes and simulation and the like, and you can actually see the effects on both sides.
Josh King:
On every new model of the F-35 Joint Strike Fighter, y supply the air combat at maneuvering instrumentation system. Talk a little bit about how that allows pilots to do things different than Pete Maverick Mitchell was able to do an F-14 in Top Gun.
Bradley Feldmann:
Yeah, so the system is somewhat similar. The fourth generation airplanes that are non-low observable airplanes, we hang pods on the airplanes that have that same ACMI functionality. The box that goes in the F-35 provides the same functionality. So what this will allow is for newer generation airplanes to fight against newer generation and older airplanes and actually to fight together. So compared to the Tom Cruise days, you can have mixes of different kinds of airplanes. In those days, it was pretty singularly focused. The beauty is is that when we do fight going forward, the reality is we're going to use a mix of these airplanes. So we have an opportunity to hone our skills before doing it "for real".
Josh King:
How does your technology and equipment fit in with what the next 20 years might hold in terms of unmanned aerial vehicles that move from surveillance ordinance dropping to actual air combat?
Bradley Feldmann:
Yeah. So a couple things about the future, we have a contract with the Air Force Research Lab today to develop the next generation of air combat maneuvering instrumentation. So today, the way the pod works is the fighter pilot will fire a weapon in the cockpit. That signal will trigger the pod to run that weapons engagement simulation. So the communications go from the, if you will, from the cockpit out to the pod. What we're doing in this program, it's another acronym, but it's involving combining live virtual and constructive simulation techniques. So we're actually changing the software on airplanes to allow the pod to talk to the cockpit.
Bradley Feldmann:
The advantage of that is you can create synthetic threats in the pod and you actually can put them on the heads up display for the fighter pilot so that the fighter pilot will not know if it's a real airplane or it's a synthetic airplane. So if you think about it, you don't have to launch the synthetic airplane so the government can save money, and you can put a whole bunch more stress on fighter pilots by having a whole bunch of adversaries that they have to fight against. So we're working on that. In fact, we're doing some testing and we think that will be a very big deal for the future of HMI. With regard to your question regarding UAVs and the like-
Josh King:
Unmanned aerial vehicles.
Bradley Feldmann:
Right, sorry for that. Unmanned-
Josh King:
It's been a few minutes since we talked about it, so.
Bradley Feldmann:
Unmanned aerial vehicles. I think in the future, there'll be instrumentation. I think there'll be swarms of manned and unmanned. We're not using those tactics today. So I would expect HMI to instrument all of the air players, the interactions, the weapons engagement simulations, getting around electronic warfare and all the different things that are fighter pilots and our UAV operators have to deal with.
Josh King:
So Brad, this begs the obvious question, Jerry Bruckheimer announces earlier this year, working along with Tom Cruise, that there will be a sequel to Top Gun, low these many decades after the original was out. The pilots convened at Miramar Naval Air Station at the TOPGUN Training School. Will Cubics Instrumentation and what you're describing right now, will these synthetic adversaries be in the air against whoever Cruise is trying to train in the next generation of pilots?
Bradley Feldmann:
They should. I don't know the answer to that.
Josh King:
Bruckheimer, if you're listening, get in touch with Brad Feldmann.
Bradley Feldmann:
We're here to help.
Josh King:
The responsibility of you and your fellow engineers at Cubic to both keep pilots safe and keep your customers, most of whom are United States pilots successful in the air is an awesome responsibility.
Bradley Feldmann:
One that we take very, very seriously and one that motivates us, because if we don't do a good job, then people's lives are at stake.
Josh King:
Changing gears, because what I do find fascinating about Cubic is how many different things the company does. Odds are that one of our guests today arriving for your investor day is coming via the New York Subway or another MTA system. They may be using a card like this that I use to get to work every day. About six months ago, Cubic earned a $539 million contract to replace this card with the next generation fare payment system. Is my commute going to get any easier?
Bradley Feldmann:
Absolutely.
Josh King:
Tell me about it.
Bradley Feldmann:
There'll be a phase rollout we're working with the MTA. In fact, I was there yesterday with leadership reviewing the program. The program is on track. So the MTA has a phased rollout and we're going to move from magnetic stripe to smartphones. There'll also be some other media, smart cards and the like, and it will be much easier to get around the system. Our ambition is to put all modes of transport in a city on that app. You'll be able to use contactless credit cards. You'll be able to use bar codes. So we're trying to really improve the user experience for folks using the transit system here in New York City.
Josh King:
I mean, I was looking over your website. Your history of doing this in different cities, from San Francisco to Sydney and London with its Oyster card, you must be at the heart of transportation systems in the major capitals all over the world. How did this become such a focus and expertise of Cubic?
Bradley Feldmann:
So thank you for that. We're involved, if you look at the United Kingdom, North America and Australia, we have the privilege of interacting with 70% of all the people in those areas using mass transit. So how we became so important to us, again, it's an opportunity to use technology. Our strategy is to leverage technology to build market leading positions. We've been winning a lot, gaining more and more market share. We expect that to continue. The beauty of that for our customers is the fact that lessons we learn in New York can be applied to Boston, can be applied to Brisbane, can be applied to San Francisco and the like. Quite frankly, it can be more cost effective for our customers in the sense that we don't have to do the engineering four times.
Josh King:
One thing that I noticed recently taking the subway was not only did I slide my Metro card and the turnstile opens, but the guy next to me with strong set of forearms is vaulting over the turnstile not paying their fare. I look at some of the pictures of the other systems that you've employed in certainly London with the Oyster card, a pretty effective anti-fare jumping hardware that goes along with the software. How can New York City collect more of the fare it's owed through what you understand walking through the subway as a fairly antiquated system?
Bradley Feldmann:
I don't want to speak for the MTA about how they do that, but generally around the world, the way people do that is they have penalties and they have enforcement. The more severe they make those monetary penalties, the less that that happens.
Josh King:
Shortly after you got this New York contract, Boston awarded Cubic a contract to complete an even more complex project. As a kid who grew up in the Boston suburbs taking the Green Line from Riverside and Woodland into Park Street every day, putting my dime in the box, how does the Boston and New York contracts that you have differ?
Bradley Feldmann:
Yeah, I think that Boston will leverage the lessons in New York. There are subtle differences, but there aren't major differences between the systems.
Josh King:
Both of those cities do have a reputation of product timeline and budgets that get a little bit off the rails, as we say. What is your delivery date and are you on target for both the Boston and New York systems?
Bradley Feldmann:
We're on target for both systems to be sure. Off the top of my head, I don't know those dates. But one of the things that we put a lot of emphasis on in the company, in fact, our key strategic point, we have five of them, but the first is this notion of winning the customer. One of the points under winning the customer is to deliver the kit early. So we're on that. We intend to do that. We try to risk mitigate all the projects we work on. Murphy transcends all cultures. So the only way to slay Murphy is to think about how we might arise and to do things early so that you can risk mitigate.
Josh King:
You're headquartered in San Diego. Where do you do all your manufacturing?
Bradley Feldmann:
We do it in a few places. We used to have seven facilities. We've collapsed those in recent days. So we have one in the U.S. in Tullahoma, Tennessee. We have one in Mexico in Tijuana, which is very convenient for our San Diego location. An acquisition we did called GATR in Huntsville, we're making in antennas in Huntsville.
Josh King:
It's getting to be hurricane season, Brad. Cubic Mission Solutions also plays a role in supporting relief missions. As many of the areas hit last hurricane season are still struggling to recover, how quickly was Cubic on the scene last year after hurricane Harvey hit Houston or hurricane Maria affected Puerto Rico?
Bradley Feldmann:
We were on the ground in hours. We were the ones who actually helped provide communications for people in those areas to their families and friends. So GATR, how that works, it's an inflatable satellite communications ground antenna. Inside this balloon is a parabolic dish and you actually tether it to the ground, sort of like your pop tent. So what that allows, in fact, units like the 82nd Airborne jump out of airplanes with a few Pelican cases and set this communications up, and you can have communications anywhere on the planet in as short as 15 minutes.
Bradley Feldmann:
So our team, and I'm thrilled to be on our team, many of our teammates actually volunteered to go to these hurricane areas. I'll tell you one sort of story that I found very compelling. I was at a transportation show conference and I was at a table and interacting. This lady actually was from Houston. I told her about GATR, and a few days later, she sent me an email that the communications that Cubic had provided, her family was from Puerto Rico, the communications that Cubic had provided allowed her to talk to her loved ones. So that was a thrilling story for us. Our team is very focused on helping humanity and what a great story.
Josh King:
So as you're watching the meteorological reports come in about where landfall is going to hit, do you stage a team within striking distance of where the problem area is going to be or you just mobilize out of San Diego and fly as soon as you can?
Bradley Feldmann:
Mobilize out of Huntsville and we go on a dime.
Josh King:
After the break, we talk about the role Cubic Corporation played in making Tom Cruise a household name.
Speaker 1:
Crude oil is one of the most widely used and actively traded commodities in the world. ICE Brent Futures was developed as a waterborne contract in 1988 to protect against price movements of crude oil produced in the growing Norwegian and UK North Sea. The contract quickly grew to become the global price benchmark for crude oil. Today, the Brent Complex includes a family of more than 400 related Brent based hedging instruments, including the benchmark for diesel fuel ICE gas oil. Visit theice.com/global-cruise for more information.
Josh King:
Welcome back to the ICE House. Our guest today is Brad Feldmann, chairman and CEO of Cubic Corporation. Cubic, celebrating its 10th anniversary of up-listing to the New York Stock Exchange. Before the break, we were discussing two of the company's three divisions. The most famous thing Cubic has ever produced came from Cubic Global Defense, the United States Navy Fighter Tactics Instructor program. Our listeners would know it by a different name.
Speaker 4:
Do something. I still can't believe it. I got to give you your dream shot. You two characters are going to Top Gun.
Speaker 5:
You are the top 1% all naval aviators.
Speaker 6:
The elite, we'll make it better.
Speaker 7:
You figured it out yet?
Speaker 8:
Who's the best pilot.
Josh King:
We were talking a little bit earlier, Brad, about Top Gun. But as a former Air Force officer, can you give a little behind the scenes information on how close that movie is to the actual training program?
Bradley Feldmann:
So there's a scene in the movie where Kelly McGillis is instructing Tom Cruise about aggressive move in the air. So those displays in the movie where she's showing the various angles was actually our system. Those geometries between airplanes, obviously the display of that today with gaming technology and the like, is much, much better visually, but that capability is absolutely in the middle of TOPGUN training and has been since the early '70s.
Josh King:
I was reading about several of your recent acquisitions. You are on the hunt for better and better gaming technology.
Bradley Feldmann:
We are. We've bought a couple of companies in recent years. One is called Intific. They're a research and development gaming company that's DARPA focused. So they've created games for DARPA. One interesting one was they created a synthetic test bed for intelligence surveillance and reconnaissance assets. In addition, what we've done in our Orlando operation is we, through R&D, created the amalgamation of training and gaming technology and we delivered that to a program called the littoral combat ship.
Bradley Feldmann:
What happens in that training environment is we've actually created a synthetic game for the exact ship, that serial number, and a sailor learns operation and maintenance skills. There's a avatar sort of senior NCO dude that yells at you to teach you and then you move into tech manuals and then there's free play. You put emergencies. The system actually keeps track of what skills you learn and which ones you don't and then there's an intelligent tutor to help you. What we've noticed is we've sped up training for the Navy by 100%. It used to take six months for a given task. It went down to three months. We've noticed that skill fade is less, and believe it or not, younger students love games as opposed to sitting in and hearing boring PowerPoint.
Josh King:
The LCS doesn't have much deck space or portals either. So you're basically keeping them in their training modules all day long and because they're not seeing much of the horizon of the ocean anyway, are they?
Bradley Feldmann:
Yeah. So these training facilities are unsure before they deploy. The idea with the littoral combat ship program is they actually move certified crews around the planet to the ship. So there is an opportunity to put sort of refresher training on the ship, and I'm sure in the future we'll be doing that.
Josh King:
Another experience that Cubic is all over is what happens when you show up at the Joint Readiness Training Center in Fort Polk, Louisiana, the JRTC. You have, over the years, become more and more important to making sure that facility is state of the art?
Bradley Feldmann:
Yeah, so we did have a number of people at the Joint Readiness Training Center and we provide equipment there. The reason I used the past tense is recently we sold the defense training services business within the last month or so. The reason was is it didn't fit with our strategy. Our strategy is to build technology-driven market leading businesses. Although JRTC is fantastic and we have great friends there and the like, the way the U.S. government procures JRTC is they split the services from the equipment. So we had to decide if we were going to stay in the service business and scale for non-OEM services, or we're going to double down on technology and we're doubling down on technology.
Josh King:
As you double down on technology and kids coming up through middle school, high school college, whether they're going to the service academies or not, are much more indoctrinated into gaming, and whether it is ground combat, air combat, sea combat or medieval combat, does the technology that kids are exposed to today prepare them to be better warriors, soldiers, or does it create a sense of virtual reality that you need to sort of deprogram people from as they get into more real situations?
Bradley Feldmann:
No. I think there's alignment. I think as we're in this world of internet of things, that world of internet of things is moving into the military. So I think all of those skills and practice and eye-hand coordination and thinking and interacting is very, very applicable to the future of warfare.
Josh King:
What role is artificial intelligence playing in the development of Cubic's integrated solutions, whether it's managing transportation systems or preparing these soldiers for combat in the future?
Bradley Feldmann:
So now that we are in the internet of things and we have a trusted relationship with our customers and we have lots of data, and if we can use that data to provide better information for our customers, we're all about that. So we have been shifting to machine learning, computer vision kinds of things, some specific areas where we're applying artificial intelligence or machine learning. So in the transportation domain today, we're involved in predicting when buses will show up to the bus stop.
Bradley Feldmann:
In the older days, the algorithms were fairly simple, things we may have learned as a sophomore in college, but today what we're doing is we're collecting thousands of data points each and every night and running them through machine learning algorithms to come up with a better predictor on when the bus will show up.
Bradley Feldmann:
In defense, we're very involved in trying to figure how to make it easier for analysts to look at full motion video. So one of the acquisitions we recently did is called MotionDSP. So they can make full motion video better looking. They can take out haze and fog and snow, but they also can pick out objects within a scene. So the idea is this computer assist will help not only the user, but people interacting with the system so that they actually can work on harder tasks, why not let the computer do routine tasks?
Josh King:
You're going to be in front today, Brad Feldmann, of all of the major investors who hold shares in Cubic, ticker symbol, NYSE CUB. Usually, end these investor sessions, other CEOs do anyway, with sort of a look toward the future and what investors might see either five, 10 or 15 years hence from the company. You've got this storied past goes back to Walters Zable in 1958. But if you're thinking about Brad Feldmann's Cubic in 2020, 2025, what should investors see from you?
Bradley Feldmann:
So I think they'll see that we're using our success and moving it forward. Our strategy today is to have market leading technology driven positions in markets where we're interacting with human beings and they have to make decisions in their domains. So today we're in transportation. We're in C4ISR. We're in defense training. So I would expect that to accelerate. I would expect us to make a shift towards machine learning, towards creating platforms so that we can help our customers get keen insights. As we'll make a transformation towards platforms, I do believe that the economic model will change. I believe that over time, we'll become much more of a company that's paid by the drink, paid by subscription, paid by every turn of the turnstile. So for our shareholders, I think that will accelerate our margins going forward.
Josh King:
Well, best of luck for you today in front of the investors and ringing the bell of the New York Stock Exchange as we close trading on this day. It's a pleasure to have you Inside the ICE House.
Bradley Feldmann:
Thank you so much.
Josh King:
That's our conversation for this week. Our guest was Brad Feldmann, chairman and CEO of Cubic Corporation. If you like what you heard, please rate us on iTunes so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at ICEHouse.theice.com or tweet at us at NYSE. Our show is produced by Pete Ash and Ian Wolff with production assistance from Ken Abel and Steven Portner. I'm Josh King, your host requesting another flyby. Signing off from the library of the New York Stock Exchange. Thanks for listening. See you next time.
Speaker 1:
Information containing in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor it's affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of this information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
