Resolving Inventory Imbalance

Challenge

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Design and manufacture of electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications

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• COVID pandemic caused slow-downs and stock-outs of electronic components and other materials needed to manufacture finished products.
• Delays in completing projects were further impacted by a difficult labor environment and COVID-related employee absences.
• The disruption of production caused WIP Inventory to increase and deliveries/invoicing to be deferred.
• Delivery dates were not achieved; to appease customers AR collections were deferred, increasing DSO
• Part shortages began to ease. However, the Company decided to increase “safety stock” of inventories to mitigate any future product shortages.
• To fund increased inventory levels, AP was stretched, and the credit facility was increased and fully drawn, reducing liquidity to critical levels.

Solution

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• MorrisAnderson engaged by the Company as Financial Advisor.
• As deliveries improved, worked with customers to bring AR balances back to contract terms.
• Established protocols for a stricter approval process for Sales Managers to approve project quotes outside of pricing guidelines.
• Reviewed inventory by major SKU categories and standing purchase orders, identifying $20M of parts in a significant over-stocked

position or “orphaned.“ Started to wind down over-stocked inventory.

• Initiated weekly calls with Purchasing to better control inventory levels and to reduce Inventory “safety margin” orders.
• Developed a process to better track parts and equipment delivery timing to assembly facilities.
• Identified a significant increase in Net Contract Liabilities (deposits received prior to work performed) that would require $26M of

additional capital to reduce to historical averages.

Results

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• Company was able to improve its Cash Conversion Cycle (DSO + DIO – DPO) by 20%-30% and was on target to reduce working capital by $35M.
• Validated plan to improve working capital, and liquidity enabled the Company to refinance the Bank Facility and avoid a sale-leaseback on a key manufacturing site, which management wanted to avoid.
• Subsequently, due to the improving balance sheet the Company was able to issue a $25M cost-effective 2nd lien convertible

note to partial fund the reduction of Net Contract Liabilities and provide liquidity to support the growth of the business.