EuroFinance

In the ever-evolving landscape of corporate treasury, liquidity management remains a crucial concern, commanding the attention of industry leaders and shaping the strategic direction of organisations across various sectors. At the 2024 EuroFinance Global Treasury Americas West Coast conference, treasury executives from Juniper Networks, Bloom Energy, and Air Lease Corporation shared their perspectives and strategies on navigating liquidity in challenging times.

Capital intensive dynamics

California-based Bloom Energy, a global leader in the clean energy sector, utilises advanced solid oxide fuel cell technology to produce energy servers powered by hydrogen, natural gas, or biogas. The company faces unique liquidity management challenges driven by seasonal sales cycles and a complex regulatory environment. To manage surges in demand during peak periods, Bloom Energy strategically maintains high inventory levels, which significantly ties up capital. Additionally, navigating a complex regulatory environment that can lead to unexpected delays in permits and contracts can disrupt operations, adversely affecting cash flows.

To address these challenges, Bloom Energy’s treasury team, led by Treasurer Arun Batra, has implemented several strategic measures, including the significant restructuring of financial instruments. The company transitioned from using letters of credit to adopting performance bonds, which generally offer more favourable terms. 

This shift allows Bloom Energy to manage its financial guarantees more efficiently and with less immediate financial burden—key for maintaining cash flow stability and supporting growth initiatives amid high operational costs. Performance bonds also tend to be more cost-effective than letters of credit, which involve substantial fees for establishing and maintaining. By switching to performance bonds, Bloom Energy benefits from lower bank fees and reduced costs over time, significantly enhancing its financial operations’ cost management.

This strategic conversion of $160 million in letters of credit into performance bonds freed approximately $90 million in restricted cash. This proactive move not only bolstered liquidity but also demonstrated the treasury’s capability to generate substantial value through savvy contract management.

On the other hand, Air Lease Corporation operates within the highly capital-intensive domain of aviation leasing, a sector where managing liquidity is as crucial as it is challenging. Laura Nova, Assistant vice president, at Air Lease Corporation, shed light on the nuanced dynamics of managing finances in an industry reliant on significant capital investments for both wide and narrow-body jets. These investments, particularly for wide-body jets, often exceed $150 million per aircraft, while narrow-body aircraft typically range from $75-100 million, underlining the sheer scale of capital required.

The organisation’s business model involves signing long-term leases with airlines, which provides a predictable revenue stream. However, this predictability in revenue contrasts sharply with the unpredictability of expenses, primarily due to production delays and fluctuations in interest rates. Such financial unpredictability often complicates cash flow management, making sophisticated liquidity strategies essential.

To navigate these complexities, Air Lease Corporation has employed several innovative financial practices, with the strategic use of pay cards being a key component. These cards streamline payment processes and extend payment terms, enabling the company to maintain cash longer and utilise it more efficiently. This method not only centralises and automates transactions, thereby reducing administrative burdens, but also enhances cash flow forecasting by providing real-time access to expenditure data. The use of pay cards also reduces transaction costs and processing fees, significantly contributing to cost efficiency in this capital-intensive sector. These benefits are crucial for bolstering financial agility and ensuring robust financial planning amidst industry volatility.

In addition to pay cards, Air Lease Corporation has improved liquidity management by implementing a Treasury Management System (TMS). This system has significantly enhanced the accuracy and efficiency of their financial reporting and management, enabling the company to extend payment terms and maintain liquidity without the need to renegotiate existing contracts. Together, these financial strategies support the organisation’s ability to handle economic fluctuations and maintain a competitive edge.

Juniper Networks: Adapting to supply chain disruptions

Juniper Networks, a leader in secure, AI-Native Networking, has faced significant challenges related to supply chain disruptions, particularly exacerbated by global events such as the COVID-19 pandemic. Sonia Shah, Head of treasury at Juniper Networks, detailed how these disruptions have had a profound impact on the organisation’s liquidity management.

Historically, Juniper Networks has been cash flow positive, with working capital needs predominantly financed through its cash flow generation. However, supply chain issues resulted in elevated levels of inventory and cash usage. 

In response to these challenges, the treasury team implemented several strategic measures to strengthen liquidity management. They optimised their global cash management to ensure liquidity was available where and when it was needed, leveraging an efficient tax and bank account structure that facilitated a prompt international cash movements. This agility was crucial in mitigating the impact of the supply chain disruptions on operations.

Moreover, the company placed an increased emphasis on cash flow forecasting accuracy. In a move to improve this, Juniper Networks integrated advanced treasury management systems and utilised data analytics to better predict and manage cash flows. The focus on enhancing forecasting capabilities was not only a technical upgrade but also involved significant collaboration across various departments, including supply chain operations and financial planning and analysis. This cross-functional engagement was essential in refining the accuracy of cash forecasts, aligning the operational needs with financial strategies to maintain stability and support continued growth despite ongoing external pressures.

These efforts by the treasury team underscore the critical importance of adaptability and strategic foresight in treasury functions, especially in times of global supply chain volatility. By adjusting its strategies in response to external shocks, Juniper Networks maintained a resilient financial posture, ensuring it continues to meet its operational and strategic objectives.

Fostering cross-departmental collaboration

The shift towards technological integration is complemented by a strengthened focus on collaboration across various departments. This holistic approach is essential as liquidity management intersects with multiple business functions, including operations, sales, procurement, and compliance. 

Shah further emphasised the importance of involving multiple departments in financial forecasting, stating, ‘We couldn’t just rely on all historical trends and data, we needed real live data about what was happening on the ground working with our supply chain operations team or working with our FP&A teams, credit and collections teams in terms of what are the customer challenges, and what was causing us to miss on our collections forecast. This approach has significantly improved the accuracy of financial forecasts, aligning operational realities with financial strategies more effectively.”

By fostering cross-departmental collaboration, Juniper Networks ensures that its liquidity management strategy is robust and reflective of the entire organisation’s activities, thereby enabling more strategic decision-making and planning. This methodological shift towards inclusive financial planning is pivotal in adapting to the dynamic market conditions and maintaining financial stability.

Meanwhile, at Air Lease Corporation, the treasury team maintains close relationships with partners at Boeing and Airbus to stay updated on plane production schedules, directly influencing their financial forecasting. Regular interactions and information exchanges between treasury and operational teams ensure that financial planning accurately reflects real-time production dynamics and potential delays.

The insights shared by the panellists underline a multi-faceted approach to liquidity management, involving innovative financial strategies, advanced technological tools, and strategic banking relationships. As companies continue to face varied challenges, the role of the treasurer evolves, requiring continuous adaptation and proactive management of liquidity to ensure organisational resilience and strategic growth.