Transcript presentation file

Guiding Organizations
Through Troubled Times
Mark Bonney
Board Member
Private Investor
September 23, 2013
What we will cover
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Introduction/Background
Troubles I have experienced
Case Studies
Lessons learned
Mistakes
Guiding Principles
Questions
Introduction/Background
Roles
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CFO
COO
Interim CEO
Consultant
Board Member
Mostly in turnaround situations
Broad Industry Experience
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Over 35 years experience in high technology
industries:
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High precision components and assemblies
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Capital equipment
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Automotive components
Motors and motion control components
Optical components and systems
Telecommunications equipment
Home control semiconductors
Petrochemical process equipment
Semiconductor capital equipment
Direct Marketing
Software (SAAS)
Personal Drivers
 Passionate/high energy/hard working/love to
learn and teach.
 Strong desire to understand technology,
markets and customers. Customers are key!
 Decisions driven by facts and data.
 Integrity and credibility are critical.
 Strong working relationships inside and
outside the company are imperative.
Current Roles
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Board Member of three public
companies
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MRV Telecommunications (MRVC:OTC) [1,2]
Sigma Designs (SIGM:NASDAQ) [1,2,3]
Zix Corp. (ZIXI:NASDAQ) [1]
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1 – Audit; 2 – Compensation; 3 – Nominating and Governance;  - Chair
Current Roles
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Philanthropic Boards
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Community Health Center, Inc. - Board Chair
Capuchin Province of St. Mary
Types of Troubles I’ve Faced
Types of Troubles I’ve Faced
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Default on debt securities
Management “fraud”
Loss of major customer
Dramatic market contraction
Product Failure
Law suits (Product liability, patent infringement,
shareholder/proxy fights, class action, etc…)
CEO’s health issue
Owners death
Resignation of public accountants
A few Case Studies
Case Study 1 - Troubles
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Joined as CFO (Recruited by new CEO)
Major issue – a patent suit against a competitor became
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As a result:
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management’s total focus for 3 years.
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60 R&D projects and no mgt. direction
No new products past 4 years
Poor IT infrastructure
Throwing people at problems
Losses
Needed cash
The street no longer cared
Case Study 1 - Actions
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Met with everyone to openly discuss current situation
Developed financial model that would build credibility
Sold a product line to raise cash
Met with R&D and prioritized 60 projects to 6
Met with Operations to determine priorities
Invested in fully integrated IT platform
Reduced HC by 30% over two years
Managed the litigation process with one dedicated
resource
Case Study 1 – More Troubles
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CEO heath issue
In the middle of restructuring
 Met with BOD Day 2
 Held Town Hall Day 2
 Assured people that we would follow through on the stated
strategy and the restructuring to avoid back peddling.
 Established and communicated the process allowing CEO to
recover/rehab and mgt. to know where to go for approvals,
etc.
 CEO back in 5 months; we never missed a beat and the
stock price rose 14% during CEO’s absence
Case Study 1 – Outcome
Small Public Company – too small; very broken
 Sold product line – Raised Cash
FIX
 Business Process Redesign, new IT structure, reduced HC
30% - returned the company to profitability by end year 2.
RE-MARGIN  Pruned product line, increased GM 10 pts. by year 3.
 Pruned R&D projects from 60 to 6
 Secondary offering – raised significant cash
GROW
 Launched 4 new products, acquired 4 businesses
 Grew the core business to $80MM and the company to
$100MM (23% EBIT) in five years.
 Stock price grew from $1.67 to $38.50 (post-splits)
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What about the lawsuit?
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Won a judgment 6 years after launching the
suit
Defendant appealed
Company prevailed; awarded $1.0M 2 years
after the appeal
Litigation Lesson Learned
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Company spent nearly $3M on the litigation
Distraction was more costly
Lessons:
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Your case is not as strong as you think
Their case is not as weak as you think
Courts don’t like to award big wins
Patent litigation often detracts much more value
than you can possibly be awarded especially
troublesome for SMB’s
Case Study 2 - Troubles
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Hired as COO to transform the company
Issues:
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Holding Company structure
Weak divisional leadership
No new products in several years
Stagnant sales and profits
Needed cash to transform the company
Case Study 2 - Actions
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Actions:
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Met with CEO and the Board - Not a quick fix, requires a 3
year implementation, secured buy-in
Met with management and employees at every division
every month
Determined where divisions could work together
Sold the best performing division to raise cash
Changed 5 of 7 GM’s
Implemented Lean Principles
Consolidated and closed a high cost business unit
Redirected a new product to focus on a high growth market
Case Study 2 - Outcome
$100MM Multi-divisional Technology Company
 Identified core competencies, sold best performing business
– raised cash
FIX
 Restructured leadership team, implemented Lean, closed
high cost business, increased GM 7 pts., returned company
RE-MARGIN
to profitability, cash flow positive year 2.
 Launched new venture, acquired company introduced four,
high margin, products in year two.
GROW
 Company initially Shrunk to $85MM by design then grew
back to >$140MM
 Share price rose from $15.00 to $70.00. Sold to a strategic
buyer for $64.00/share.
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Case Study 3 - Troubles
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Small public company in the security products field
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FIX
RE-MARGIN
GROW
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Joined as CFO. Restructured operations, Closed two facilities and
relocated to one modern facility – retained or found jobs for all
employees.
Used ISO and SOX processes to drive process improvements and
streamline closing process, staff and order to cash processes.
Gross margins increased 12 pts. in 3 years driving consistent
profitability and cash flow.
Introduced new product and doubled revenues in 2 years.
On track for doubling again in 2 years.
Case Study 3 - Troubles
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Customer reports product failures on our new product
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Immediately notified our manufacturing partner of the issue and
created a cross company task force to develop a solution
Pulled together a team of experts; bought equipment to test our
product under every conceivable set of environmental conditions
CEO traveled to every region of the world to ease fears
Our data and customer data indicated the failure rate averaged 1
failure in 10 million uses
Three months later, despite the data, customer cancels
orders and threatens litigation
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Product development discovered a solution; New product
introduced within 5 months of first notice, eliminated the issue
completely
Signed a new customer and renewed a second
Litigation threat is lifted, customer agrees to pay for certain
inventory….crisis averted!
Case Study 3 – More Trouble
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Issues:
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Actions:
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Share price declined >30%.
Activist shareholder demands replacement of board
Negotiated a settlement - board increased by 3 activist
appointees.
Led the Company through an auction process
Result:
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Fixed the product issues.
Sales more than doubled to $30MM.
Sold to a strategic buyer -- nearly a 1000% return for
shareholders.
Case Study 4 - Troubles
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Distributer of Books, Movies and Music
Hired as CFO by new CEO
Issues:
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Introduction of the iPod
iPad causing erosion in Book market
DVD sales shrinking fast
Company nearly out of cash
High cost business model and infrastructure
Case Study 4 - Actions
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Met with everyone that knew the business, what had
been done before? What should we try now?
Took control of everything affecting cash
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Implemented Policy and Governance improvements…know what
we are doing.
Direct marketing is all about analysis and testing…Restructured
Financial and Marketing Analysis operations.
Changed the payments model to credit card…immediate cash.
Implemented a major restructuring.
Closed two facilities, sublet 200,000 sq ft.
Exited the music biz
Stopped the bleeding
Case Study 4 - Outcome
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FIX
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RE-MARGIN
GROW –
Not this time
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Stopped the bleeding – cash at $60M within 9 months.
Restructuring yielded > $25M annual savings.
Changed the payments model to all credit card…immediate cash.
Sublet 200,000 sq ft. – generated nearly $2M annual rent.
Outsourced non-strategic activities saving > $10M annually.
Worked with Marketing to optimize mail dates, drive revenue and cash.
Increased gross margins by 4 pts. to drive profitability and cash flow.
More troubles:
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Customer acquisition couldn’t outpace attrition without greater investment
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IT systems were fixable and were key to growth but PE wouldn’t write the
check
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Found an equity partner and Owners exited…6x return on investment….and
I exited too.
Case Study 5 - Troubles
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$80M profitable business
Owner dies without a spouse or a will
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Two sons in business want out; one not in wants in
IRS claims business is worth >$120M
Requires ≈$80M immediate cash to buy out sons and pay
estate taxes
Bank lines are exceeded without this requirement
CFO Fired
Case Study 5 – Action Plan
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Asked by auditors to see what I could do
Met with CEO and his team
I agreed to become acting CFO for four months and:
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Get the IRS and CT DRS off their backs
Get the bank off their backs
Higher a permanent CFO
Case Study 5 – Actions/Results
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Actions/Results:
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Step 1: Negotiated the business valuation from >$100M to
$60M; Tax drops to $30M from >$60M
Step 2: IRS agreed to 10 year payment plan with a one year
moratorium. Paid State Tax in full
Step 3: Negotiated new term loan and bank lines with
existing bank
Step 4: Hired a new CFO started 4 months to the day after I
arrived….still there 10 years later
Company received a clean opinion that year
CEO able to keep the business in the family
Lessons Learned
Lessons Learned
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In a crisis, time is not on your side
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Ask “what’s the worst that can happen”
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Important to differentiate between a crisis and a CRISIS,
amount of time to fix is very different
Plan for worst but develop all possibilities
Fully develop alternatives
I use a Fix, Re-Margin and Grow model
Communicate the possible outcomes
Create an atmosphere of confidence
Find out who can really help you
Lessons Learned
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Know who you can count on and rely on them
Act decisively
Adjust rapidly and own the changes
Communicate often and directly with the board,
employees, customers, analysts, etc.
Use your learning in future situations
Teach through examples, stories convince
Major mistakes
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Impatience while learning
Firing too fast
Firing too slow
Not respecting history
Giving history to much credence
Over-achieving
Under communicating
Over communicating (not quantity but content)
Not believing in a potential outcome
Not managing expectations upward
Guiding Principles
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People will watch your every move!
Be respectful of everyone.
Work harder than anyone.
Be visible. Be accessible. Talk with people about their
lives not just their work.
Communicate and cascade appropriately. Expression
needs to match words.
Base decisions on facts and data.
Guiding Principles Cont’d
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When you know what to do “do it”.
Good results come from your team’s efforts.
Bad results come from bad decisions…don’t be afraid
to say that you made a mistake…makes you
human…earns respect.
Managing up is as important as managing across and
down.
It’s not “just business”. It is about people and the
relationships that you form and maintain that will
define you.
Trust your gut, enjoy the ride and have fun.
Questions