Chandler Wooley (Facilitator) [0:02]
Hi, everyone. Welcome to credit tech 2020 And thank you for joining the session. My name is Chandler Wooley and I will be the facilitator today, all participants will be on mute. So if you have a question, please enter it in the Q&A section below your attendee screen. The recording of today’s session will be available next week. We strongly encourage you to check out the credit tech LinkedIn page to get a copy of your presentation deck, participate and participate in multiple discussions at some polls, we are running on there explicitly for all event attendees. With all that being said, We now welcome everyone to this discussion on Warner Brothers’ guide to working capital management in a recessionary economy. This discussion is being led by Jacob Matthew, Vice President of enterprise financial services at the Warner Brothers Entertainment Group company. Jacob is a seasoned account executive with progressive experience in planning, reporting, analysis, and accounting and audit. He is experienced in managing multiple projects, building and training teams managing outside service providers executing the departmental reorganization, and creating process improvements. Jacob also specializes in process efficiencies, project management, media accounting, internal audit, FAS 133, derivatives, and Treasury accounting. Now, Jacob, I’ll hand it over to you.
Jacob [1:19]
Great, thank you, Chandler. Appreciate it. Thank you, everybody, for joining. And we’ll jump into things and first start with maybe an overview of Warner Brothers and tell you a little bit more about our operations. We’ll talk about the impacts of COVID-19. And really, you know how Warner Brothers approached the activity at that time. And then ultimately, that led to a variety of different actions that we put in place in order to address the situation at hand. And then we’ll talk about how we came out of COVID-19? And how do we come out of a stronger organization? And finally, we’ll leave sometime in the end for questions and answers for folks to chime in. So about Warner Brothers, Warner Brothers, I think many folks are very familiar with Warner Brothers, you’ve probably seen our content. You’ve probably experienced different things in theaters, games and videos, and whatnot. But Warner Brothers basically creates and distributes video, theatrical content, television content, and also games across both physical and digital media. And we do it across the world, we’ve got locations in many different places. And we’ve been around for quite a bit of time, close to 100 years. Within my team, I’ve got roughly a little over 200 people across the globe. And we’ve got regional hubs in China, India, Poland, Amsterdam, and also in Burbank and Guatemala. And ultimately, the way that we do this is we serve our customers in a very geographic type of mapping, we centralize activities where it can be over in India when it’s back-office functions, but front office functions are organized in a regional manner. Across the globe, we’ve got roughly about 30,000 customers that we engage with, we’re typically not dealing with the direct to consumer space, we’re dealing with businesses, and so they require maybe a little bit of a different approach than you would with the customer, a unique customer at the consumer side. Now, for the working capital impact, during COVID-19, there were a variety of different things that we had to look at. And what we had thought about initially was that we felt that there was going to be a very distinct chance of bankruptcies. We felt that many of the customers that we do deal with although they are business-to-business customers, that may be challenged within the credit environment, they’ll have to delay payments. And you know, ultimately, that that might also increase deductions that we do have within our retail space in the business. And one of the things that caused the uncertainty at that time, I’m sure many folks who are present, acknowledge and understand that uncertainty and they’re still going through it right now. And we don’t expect ourselves to be fully coming out of this until well into 2021. Given all of this uncertainty, many CFOs are really looking at risk management as a critical component for what needs to occur within the company. Our balance sheet Our receivables balances are a significant portion of our balance sheet, it’s a significant risk, and we need to do whatever we can in order to mitigate those risks. And then ultimately, in mitigating those risks, we also need to try to reduce our DSL or ensure that it’s not growing.
Now, within the COVID framework, the key thing that we did when considering our overall approach to COVID, was that we first had to look at our internal collaboration across the various students that interact with the customers that involved us working with sales, with legal, and also our finance counterparts and making sure that we’re addressing the customer needs. And the key point being is that within the situation, to are the customers didn’t even know whether or not they would be coming out of the situation intact. And so when we’re thinking about all of those, we really needed to ensure that we filled in process gaps, that we’ve made sure that if there are certain things that we needed to beef up, whether it be in reporting, analysis, things like that, but we really don’t address those things firsthand. We’ll be talking later about the credit and collections and also our payment processing approach. And ultimately, how do you roll that out across a global scene? So when you’re dealing with an individual territory, it becomes a lot more straightforward. But then when you’re approaching it from a global perspective, there are so many different components to think about whether it be regulatory, whether it be cultural norms, or the various ways that color consumers and customers behave in various territories. So those are things that we really need to consider when we develop our approach. And then ultimately, technology is a huge enabler for this. And the usage of our technology, infrastructure is a critical component in making sure that we’re enabling all of the different processes and pulling everything together. So those are the things that we looked at. And so we’ll dig a little bit deeper into the different components as we go forward. Now, before we jump in, we’ve got a question for folks. And we’d love it if you provided some input. And, you know, thinking about that, if you can exit your full-screen mode, there’s a question that will pop up. And if you could answer the question as far as what is your primary area of concern when approaching the COVID crisis. And we’ll take a look and be laid out to the broader team. So if you can escape from the poll screen and answer in the pop-up box, we’ll give it a minute or two.
Chandler Wooley (Facilitator) [8:17]
Jacob, if you want to, you can move forward to the next slide, and then come back to it just to give the answer.
Jacob [8:24]
Okay, wonderful. Sounds good. So when we’re thinking about the internal collaboration, what we actually saw was the related I needed to make sure that the credit and finance team that we are enabling the different business groups to see what the risks are. And we needed to organize it in a manner to help them understand where they should be concerned. And so that was the first step. And then the other thing is that the sales relationships, but the folks on the sales side, have deeper relationships with our customers, Warner Brothers is probably not unique, and the sales have a very routine touchpoint with the customer. They’re talking to them on a weekly basis. They’re really understanding what the needs of the customers are. So we wanted to make sure that we were leveraging the sales team and really thinking about how to approach that customer in a manner that was going to be feeling like we were trying to solve the problem for the customer. And then additionally, as we looped in the legal teams, they also assisted us in really looking at the unique requirements for various territories. What types of commercial arrangements can we do if we’re trying to organize payment structures, payment plans, things like that, that we didn’t really get ourselves in hot water, and ultimately pulling all of those groups together on a routine basis on a weekly basis, many times because we’re working with global groups entailed calls, conference calls late at night or very early in the morning, and really ensuring that we’re engaging directly with the customers to address this need. And the next thing, and this is the area that really becomes, and we’ll talk about it over multiple slides, it, there’s a lot of different pieces around the process gaps, really making sure that you’ve got a strong process associated with your credit and collections activities. So you’ve got to make sure that you’re routinely assessing the customers and you’ve got a structure where you can bucket various customers into high medium low risk, and then approach the collections of activity in different manners depending upon the customer. And then also having a credit policy really helps. Those are the types of things to make sure that you know, at the end of the day, that we’re engaging consistently with our customers. The other thing is that engaging with capital markets, reaching outside and whether it be having AR sales programs, for Warner Brothers, we participate in, arguably the largest securitization program around accounts receivable, through at&t, we’ve sold different AR balances across the company, we have also worked directly with our customers in order to accelerate payments, through different web-enabled platforms that enable us to collect our cash faster and reduce our risk. The other thing is making sure that we’re routinely touching base with finance, legal and sales, and helping them understand what our concerns and issues are associated with that. Now, on the collection side, we’ve caught a segment of customers, we’ve got to really make sure that we’re approaching customers in the right way. And interestingly enough, as we were looking at COVID, you know, getting the right data, and the right people involved is a critical component. What we did was that we really leveraged the sales, the sales teams, because they’re talking with the customers, because the customers feel that they are more about the solution. On the collector side, we actually took a backseat. And we allowed sales to take more of a front seat and drive those negotiations. And really, you know, understanding what the unique needs are. And then we would work behind the scenes with the sales team and really make sure that we’re addressing what the needs are that occurred in the theatrical business because we’ve got roughly 15,000 customers across the globe, we just don’t have enough collectors to deal with all of the volumes of communications. And so we really needed to make sure that we’re utilizing the organization around us. And then as we were modifying payment terms, we really needed to make sure that we have mechanisms in place in order to capture what those payment terms are. Those are, that’s critical because when we also need to communicate the legal, which are the customers that are that we’re concerned about, those are the key pieces of information that’s necessary across the globe. And especially when you’re communicating out to the finance community, and you need to determine bad debt reserves and things like that. And then, obviously, prioritize worklists. Now how do you prioritize the work across the entire world, that’s definitely a component to consider. And then as far as payments, the key thing that we needed to do was that we needed to make it easy for the customers to pay us. And at the end of the day, it’s theirs. As outputs and operations were closed, it made it very difficult for customers to cut tax and remit it back to us. So easy access to invoices, allowing them to get information that they need in order to go ahead and pay us, was a very critical component to streamlining and reducing the friction around the payment process and making it easy for the customer. And, you know, that also entails secure payment methods. There’s a variety of different ways that you can do that. You can do that through the EIPP, like websites, payment portals, things like that, there are very different methods that you can do. Fortunately for us, we’ve established close relationships with our customers and so they continued to pay Warner Brothers throughout that time, but I don’t think that that would have been possible. Had we not actively reached out to the customers, had we not talked to them a lot about what their specific needs are and organized payment plans and not necessarily been very rigid around our practices. And that really enabled us to move forward. So before we jump forward to that, why don’t we talk about what the results were? So we can, the team has mentioned that internal collaboration is the top one. As far as all the different groups working together, 44% of the respondents indicated that as the number one priority, the second being settling in process gaps, 38% and the third of deployment of technology 60%. Okay, great. So then we’ll jump forward into the customer-first approach. We need to negotiate better payment terms, be empathetic, really understand what their needs are, and really stay aware of their financial health. Many times what we did was that for critical customers, retailers, or customers on our side, we did liquidity and our analyses if they were shut down for X period of time, would they be able to withhold that their financial structure before declaring bankruptcy? Do they have enough cash on hand? Do they have a line of credit, do you know, do they have excessive debt where they’ve got to make interest payments, that just really won’t move the needle. So those are the kinds of things that we looked at. And especially in the theatrical business, when the operations were completely shut down. That was a very big consideration. As we were looking at that, we found many customers, they had enough liquidity to address their operations for several months, anywhere up to six months, even up to a year. And so we felt like we were able to tailor our approaches to them based upon their situation. Managing global teams, we had to think about making sure that we’ve got data and access across all the different groups, we had to have guidelines, and then also the understanding of business cultures and regulatory requirements across the groups. Then finally, usage of technology. What, we don’t have a central collections tool, we’re in the process of working on that. But we do have a variety of different systems that we use. We also utilized our Business Warehouse to gather the data across the world. But really, the ability to communicate and get different groups working across the globe was a critical component for us and getting that information out, there is definitely a huge component, then, you know, when you’re thinking about the credit function, that if we’ve got the ability to think about, okay, well, do we have credit limits that we can manage as far as if customers are getting in front of that, those are definitely different things that we are mindful of and making sure that we utilize those concepts to mitigate our risk. We also automate a lot of our functions. And so that helps us focus our effort, not on the processing side, but really on the value-added task, which is on the collections and engaging with the customers. So those types of things are definitely important and really thinking about how you leverage technology. So ultimately, you know, the key thing is that art technology should be an enabler, we shouldn’t have to spend a ton of time thinking about where we direct our energy and effort, provided that the technology and the collections activity is structured properly. We’re really addressing what the critical tasks and the skill sets are, and what we need to do on any particular day and make it easier for the collector. Okay, so we have the next question for the audience. Which of the following AR teams do you think needs automation? So in the areas that need the most automation, the credit management, collections management, billing, and payments, or all of the above? So we’ll open this up for the next. Next group, so if you escape from your full screen, then you should see a pop-up and you can vote at that time. Okay, so at this point, I’ll move to keep on moving forward. I want to be mindful of time, and we’ll leave a few minutes in the end for questions and answers. So, thinking forward, as far as what we do next? After COVID, so we really have to rethink our collection strategies, we’ve got to think about, are we addressing the right areas, we found that in our home entertainment business where we deal with big-box retailers, we’ve actually made some really great progress in reducing our deductions days outstanding, you know, the engagement directly with the customers because they were still open. And their need to get our product, which was, which was a very fortunate thing for us, enabled us to close out a lot of deductions and disputes. We’ve also found that on the theatrical side, it’s really important for us to engage directly with the consumer, the customer side, excuse me, and really understand more of their, their nuances, and ultimately working very closely with sales. And I think this entire exercise has helped us understand that much better than five finally, thinking about technology, and what are the different gaps that you may have, in order to, to address the needs for the future. For us, we had identified reporting and analysis as an area of focus for ourselves. Because the key thing, you know, several years ago was that we didn’t have a great line of sight into our global AR numbers. And so we dedicate a lot of time and energy in really developing the infrastructure and the reporting necessary to manage that. And that turned out to be a godsend for ourselves. And we’re thinking about the COVID situation, and, you know, ultimately trying to mitigate our risk across the entire globe, we wanted to make sure that we had a consistent approach around that across the company. So when we think about rethinking collection strategies, you know, the different things that you might need to consider our payment terms are certain customers, would we need to change payment terms? Should we think about cash discounts, many, many times for Warner Brothers, we hesitate to offer cash discounts. But that’s something that we’re also considering for different areas of the business. And then other risk mitigation strategies, such as AR sales programs, such as securitization, such as you know, getting credit insurance and things like that. So there’s a variety of different methods where you can mitigate and reduce the risk to your AR exposure. The other thing is sales interaction, making sure and I think many credit teams already do this, but really getting much more integrated with the sales team is always a plus making sure that we understand what the needs and the impacts are. And that it’s not a one-way flow of information. It’s two ways. Right. And then ultimately, you know, the key thing for ourselves is on the credit side, is to help them identify needs that might be out there, right. So then, when we’re looking at the receivable balances, there might be insights that we can provide to the sales team, but they may not necessarily be aware of knowing your customer better. I mean, I don’t think we need to go too much into that. But I mean, it’s imperative that you understand what your customers are, what their situations are, and really how to approach them. And ultimately, what their needs are. Because the more flexible we are, the more customer-focused we are, the more the higher the likelihood of them really making sure that they’re supporting the relationship and paying off on time. And then all of those things really come together when you’re thinking about technology, right? Because technology is that critical component that brings all those pieces together. And so, you know, when you’re thinking about, okay, what are the processes that you need to fix that are creating a lot more challenges? What are the WHO ARE THE RIGHT vendors that we should be doing business with, you know, are some more of a challenge where we might want to do a different sales model with them, right. So that there’s a variety of different things that we can do, and we should do as far as going forward in this environment. So in summary, what you really want to think about is that you want to think about internal collaboration, want to think about filling in process gaps, the technology, which is the critical component that pulls all the different processes together in order to approach your customer and really create a great experience for them. And then now before we jump into the question and answer session, I’ll take a look at the poll. As far as which AR process needs the most automation 8% said credit management 18% said collections management, billing and payments, and Cash Forecasting 6% and the vast majority 68% said all of the above. So now what I’ll do is I’ll go ahead and open this up to question and answer. And Chandler, I’ll let you go ahead and moderate.
Chandler Wooley (Facilitator) [25:15]
Perfect. Thank you so much. So the first question we got from the audience is, how do you balance being lenient with customers who have genuine cash flow constraints versus protecting your company’s DSO and avoiding a credit loss?
Jacob [25:30]
Yeah, I think the biggest challenge is, if the customer does go bankrupt, then your DSO is going to get shot, right? One of the critical things that we looked at was Can we get some type of payment and concessions from the customers, right? So we needed to have the customer, so some intent to go ahead and pay us. And where we had critical risk, we really looked at it from the perspective of financial risk. And those are the critical components that we looked at. So it’s a very fine line because I think taking too strong an approach may turn off the customer and they may work with somebody else who is a little bit more flexible with them. So Warner Brothers have been known to be very customer-friendly, and working with our customers and really trying to address their needs. And I think it’s proven out very well for us. Because initially, when we were concerned, in the theatrical space when all the exhibitors were closed, we were worried that we wouldn’t collect a huge chunk of our money. And through those relationships, through arranging for flexible payment terms, and, and really keeping consistent contact with the customer. And having those discussions about what the future looks like and how we can help them open up again, enabled the customers to feel more secure and pay us versus possibly other folks.
Chandler Wooley (Facilitator) [27:01]
Yeah, great answer. Thank you so much. The next question we have is, modifying payment term terms. Did you also consider reducing the discount percentage?
Jacob [27:14]
Yeah, so that’s for us, we typically don’t discount. And that’s one thing that we avoided. And so if we were going to definitely do that, we would definitely look at reduced discounts. We’re fortunate in that we don’t apply discounts too, our invoices, that is something that we’re considering when we’re looking at other components. But it hasn’t been actively pushed out there. In certain territories. There are certain cultural norms where they offer discounts, depending upon certain payment terms, like Germany, but outside of that, that’s not really utilized for us.
Chandler Wooley (Facilitator) [27:56]
Yeah, great answer. Um, I guess we have time for one more quick question. So what happens if there’s no collaboration between sales and finance teams?
Jacob [28:06]
I think we struggle. And I think that’s a critical component that needs to really be developed. Because the thing is that in order for sales and finance to work, well, I think they’ve got to work well together. Now, on the collection side, if sales are continuing to sell to a customer, or they don’t know, then, we call it the back office challenges, that’s going to create problems downstream, right? And then similarly, on the finance side, if you’re not engaging closely with sales and understanding what their needs are, the policies or practices that you put in may create undesired obstacles for the sales team. And I think that the challenge really becomes a dissatisfied customer. And I think that one of the biggest risks that you do face is that the more dissatisfied customers, the less willing they are to accommodate what your needs are. And that when you have an ask in a situation such as, you know, COVID, the less likely they’ll be to really support what it is that you need to have the collections team. So I’d highly encourage each and every collections team to work super closely with sales. It’s, I’d say, a requirement of this function.
Chandler Wooley (Facilitator) 29:27
Awesome. Thank you so much. Seems like that’s all the time that we have today.
But I just want to say thank you to everyone for participating in the discussion today. If there are additional questions that you might have regarding today’s topic that we didn’t cover, where you would like to connect with me to know more about the subject, please feel free to reach out to us. Also, don’t forget to check out the credit tech event LinkedIn page, the link to which is available in the Attachments section on your screen.
Jacob [29:57]
Great, thank you, guys.
Chandler Wooley (Facilitator) [29:59]
Yeah, thanks. You have one more quick note, I would like to take a moment to invite everybody to our happy hour session with Sam the Sommelier as she takes us on an adventure about wines in the old world versus the new world. Not starting right now at 2:30 pm Central time, you can register for the session using the link populated in the attachment section. So we’re looking forward to seeing you guys there right now. But thank you, and have a great rest of your day. Great. Take care.
