Untie the CFO’s Hands


As Seen in CFO Studio Magazine Q3 2016 Issue


One of the best ways to know if declared strategies are real or were just words is to look at what the CFO is doing a few months after the strategic planning retreat.

For example, when executives of a regional distribution company proclaim that they want rapid growth and strongly prefer organic growth over acquisition, their CFO would evaluate possible branch locations, address real estate and financing options, establish models for scaling new locations, and set standards for capacity utilization and profitability. The controller would oversee the budget process, serve as a resource to the purchasing department, generate standard reports, and be the primary steward over gross and net profit.

The overwhelming majority of CFOs I know can readily generate a logical list of priorities that flow from strategy. But there would clearly be a lot more highly successful companies if a similar overwhelming percentage of CFOs were actually executing those priorities. It’s amazing how many CFOs’ hands become tied when they don’t delegate to controllers the preparation of financial reports about the past or when they work for a CEO who assumes the CFO can’t do future-oriented thinking, projections, and problem-solving.

CFOs who focus on strategic priorities:

Are purposeful in their continuing education and seek compatibility between areas of interest, skills, and employment. It is awkward to be a CFO in a company that really should be considering acquisitions if you lack appropriate M&A experience.

Translate vision and strategy into action steps. Members of an executive team are more likely to support one another and follow through when each of them has declared where his or her focus should be to ensure success.

Provide a plan for the CEO that demonstrates and measures the ROI from adjusting the CFO’s focus.

Empower the controller to ensure the company’s consistent profitability and positive cash flow.

Allocate funds for training and/or coaching for the executive team. One of the reasons that executives and/or department heads make requests that distract a CFO from high-priority tasks is the fear or insecurity that a new strategy brings to the surface. If the CEO is not accessible, others may direct their questions and concerns to a bright CFO.

Don’t confuse the need to follow through with analysis paralysis. More than other executives, CFOs do not like to be wrong, but expending days and weeks developing precise numbers does not pay off for growth companies. Few growth strategies come with black/white clarity or ironclad guarantees of success. Make a wager on success by gauging the probability and making an educated bet, and meanwhile keep playing.

Review how they use their time on a quarterly basis.

If you aren’t focused enough on the top tasks that flow from strategy, address any doubts about the strategy, update your approach to professional development, and resolve barriers to delegation.

Raising Capital


As Seen in CFO Studio Magazine Q1/Q2 2016 Issue



Peter Pfreundschuh, 46, is the Chief Financial Officer of Immunomedics, a Morris Plains, NJ–based clinical-stage biopharmaceutical company that develops antibody-based products for the targeted treatment of cancer, autoimmune diseases (including Lupus and Rheumatoid Arthritis), and other serious diseases. He’s the kind of CFO who can juggle multiple responsibilities while maintaining a laser-like focus on lifeblood targets of any emerging growth biotech business, like raising and managing cash to achieve the target end goals.

Pfreundschuh is not a one-hit wonder. At Immunomedics and other companies across a string of industries, he has successfully closed more than $500 million of corporate financings, initial public offerings, debt refinancing, and other private placements.

“My primary focus is financing and business development, but a significant part of my job involves building relationships,” says Pfreundschuh, who joined Immunomedics in September 2013. This kind of duality has played a big role in the company’s growth, and has also been a significant component in his own professional development.

Immunomedics, for example, started out strictly as a diagnostic company many years ago — developing imaging and other products — but about 10 years ago the company revised its focus to concentrate primarily on antibody-based therapeutics.

“It can be a long path to develop and commercialize therapeutics, and you need a tremendous amount of capital,” Pfreundschuh notes, adding that the process of moving products from research and development through clinical trial is a winding path that can eat up funds at a staggering pace.

So it’s no surprise that Pfreundschuh has spent a considerable amount of his time helping Immunomedics to tap the capital markets, an effort that involves a lot of due diligence, a sharp eye on regulatory compliance, and a lot of face-to-face communication to help build trust.

“In May 2014, we had a successful capital offering that raised about $35 million,” he explains. “In that same year, at the annual meeting, shareholders approved a new shelf offering that gave us the ability to float a $100 million convertible debt to equity offering, which was completed in February 2015. This kind of funding enables Immunomedics to continue the drug discovery and commercialization activities that are vital to the company’s long-term future and success.”

Pfreundschuh says the 2015 debt offering was underpinned by relationships with two well-known investment banks: Goldman Sachs and Jefferies. “We had a preexisting relationship with Jefferies that was reinforced by this second financing, but we also had to help build the initial relationship with Goldman Sachs.”

He started the “getting to know you” dance right after joining Immunomedics; meeting with Goldman Sachs’ investment bankers and giving them an in-depth look at the company and its prospects.

To Capture Attention

In order for Immunomedics to float these kinds of offerings, “You have to know a great deal about your own business and its relationship to the capital markets,” he says. “But at the same time, you have to be a bit of a generalist, since you want to cast a wide net for investors, beyond specific biotech investors. You want to be able to capture the attention and interest of funds and other sources as well.”

During a career that has spanned about two decades since earning an MBA with a concentration in finance from Rider University and a BS in accounting from Rutgers University School of Business, Pfreundschuh has developed a lot of experience through his involvement in multiple capital-market financings.

Still, the September 28, 2008 stock market crash, which knocked out approximately $1.2 trillion in market value, also knocked the wind out of the sails of biotech and other financing for a long time, Pfreundschuh notes. It meant that CFOs like Pfreundschuh had to be even more aware of their company’s strengths and weaknesses, and the market in which they operate. So, before he made the rounds of potential funding sources, Pfreundschuh worked with management and the Board of Directors of Immunomedics to develop a long-term plan that reflected “a range of scenarios, and then we built our financing pitch around those bookends.”

It’s all about establishing credibility with the capital market, he explains. As part of the pitch, he helped to create a schedule of realistic milestones, or guideposts — including drug development milestones — that demonstrated awareness of the market, of his company’s own cash flow, and of the business’ development abilities. “Then we had to meet those milestones,” he says. “I was deeply involved in the road show, and had to understand the fundamentals of the business.”

He also had to understand the point of view of the potential investors, so he could anticipate their questions and ensure he had answers.

“It’s a bit like dating,” Pfreundschuh relates. “Each time you see each other you share a little more.”

If capital financing is like dating, Immunomedics is likely to be invited to a lot of dances. The company’s focus, oncology, continues to be a hot area, especially as traditional chemotherapy treatments are increasingly being replaced by targeted therapeutic agents that deliver drug treatment in an efficient, less painful manner.

“Large pharmaceutical companies need smaller, nimble ones like Immunomedics,” says Pfreundschuh. “Large pharmaceutical companies are good at developing and commercializing products, but need innovative growth companies like ours to develop the next new therapy from basic research, and investment money follows innovation.” Since 2013, for example, Immunomedics has been collaborating with giant multinational Bayer AG on oncology research in a business relationship that Pfreundschuh manages.

Immunomedics’ next big project involves expanding the company’s oncology portfolio. As CFO, Pfreundschuh will be tasked with securing funds to advance the company’s R&D efforts, and to find additional partners that can help to commercialize its products.

“We want to have more of a hand in the commercialization process,” he explains. “It’s the next logical step.”

The process also means that Pfreundschuh will be adding another hat, business development, to his portfolio of responsibilities. But that doesn’t bother him.

“It’s good that CFOs continue to get even more involved in the business,” he says. “At the end of the day I can go home and say I made a difference in people’s lives.”

Retail Strategy


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As Seen in CFO Studio Magazine Q1/Q2 2016 Issue



In 2012, Ulta Beauty, a retail business carrying everything beauty-related— from mass cosmetics to high-end anti-aging creams and services for hair, brows, and skin—had come to a fork in the road, according to CFO Scott Settersten. “We were executing well in areas to drive revenue growth, such as building new stores and adding exciting new products, but we had not taken a holistic view of what investments in people, process, and systems would sustain those revenue-driving tactics and a healthy business over the long term.”

Settersten, who had been with the company since 2005, was appointed Acting Chief Financial Officer in October 2012, when the CFO resigned. Settersten got the CFO job permanently in March 2013. The CEO’s office was also in transition that year; current CEO Mary Dillon came aboard that July. So, late that year, the new leadership team undertook to create a long-term strategic plan.

Investor expectations did not necessarily align with “how the business was actually operating,” nor with “what we thought we really needed to do to support the long-term health of the company,” says Settersten.

The Process

Rather than bring in a consultant like McKinsey or Bain to direct, develop, and craft a strategy, Bolingbrook, IL–based Ulta Beauty developed its own hybrid model with a small internal strategy group that reports up through Finance. They brought in a third party to help facilitate the strategy development with the senior team at various touch points throughout the process. “Senior management was going to own the strategy-development process, because at the end of the day, we were the ones who would have to implement it,” says Settersten. “As a leadership team, we needed to better define What is Ulta Beauty? What do we stand for? What are the strengths and weaknesses of our business model? Then we needed some external subject-matter experts to help us think about competition, our positioning in the marketplace, what the future of retail and beauty might look like from a guest [Ulta Beauty’s term for customer] perspective, and how consumer expectations might also change.”

Brand partners spoke to the group about the beauty category and the competition and where they saw future growth levers. Other subject-matter experts helped the group think through real estate strategies and how to meet guest expectations on the e-commerce side.

The company had been growing rapidly for many years, both through opening new stores and e-commerce growth of 40 to 50 percent each year. “You’re so focused on managing the day-to-day business to support the high growth that you don’t often have time to sit back and think about the future. At the same time, we had made certain assumptions about business drivers that had never been formally tested,” says Settersten.

For example, Ulta Beauty’s now roughly 875 stores include full-service salons, and provide brow and skin services as well. “We had theorized that guests using our service offerings were our most valuable, because of the repeat nature of the service business and the retail product attachment. But we didn’t fully understand how much each guest spent at Ulta Beauty on an annual basis or exactly what types of products they purchased. We also wanted to determine what percentage of our guests used our services and what we could do to get more of our loyalty members to try our services —a huge opportunity.”

The strategy group led the leadership team through a fact-finding exercise, which included a review of historical operating metrics and a deep dive into Ulta Beauty’s data-rich loyalty program. Then Ulta Beauty’s financial planning and analysis (FP&A) team, which also reports to Settersten, got involved, gathering future-looking data from the business units. “We believe it works best for us to have the linkage between strategy and FP&A under the Finance umbrella,” he says. “You eliminate confusion and inefficiencies when everyone is using the same numbers and metrics, and it makes it much easier to link past performance with future financial targets.”

Finally, with the strategy group facilitating, senior leadership created six “strategic imperatives.” These spelled out what future growth would depend upon, from acquiring new guests and deepening loyalty with existing ones, to investing in infrastructure to support growth. And then the team agreed to a timeline to communicate the strategy to its stakeholders.

Countdown to Investor Day

“During the one-year-plus window, job No. 1 for me, the CEO, and our Vice President of Investor Relations, was to manage investor expectations,” says Settersten. “Oftentimes the word ‘investment’ carries a negative connotation to investors, especially when the company’s share price is based on a high earnings multiple.”

In each of the quarterly earnings calls and in meetings with investors during this period, the company fielded questions about the type of investments needed, how much they would cost, and what the implications were to the long-term financial guidance. “We can’t share that with you until we complete the strategy work,” Settersten told them. He promised that the leadership team would announce the complete financial picture at an Investor Day in the Fall of 2014— the company’s first such event.

Some of the investments would be large, such as the cost to reengineer Ulta Beauty’s supply chain, including several new distribution centers with IT systems to help the company better forecast and more rapidly replenish the more than 20,000 products it stocks in each of its stores. These investments would involve, too, large down payments, so there would be short-term deleverage in the profit-and-loss statement in order to capture long-term operating efficiencies.

“We were concerned with how investors would react,” says Settersten. “Of course, we believed the good news was that these investments would improve the guest experience and make us a stronger and more profitable business over the long term.”

Ulta Beauty’s Board of Directors was uneasy too. (See sidebar at right to learn how Settersten worked to calm their fears.) With management and the Board aligned, the investor communications were finalized. The Investor Day was held in Chicago in October 2014, and management’s presentations, including Settersten’s summary of investments, benefits, and long-term financial outlook, were well received. Wall Street’s response was very positive. The verdict? Ulta Beauty’s growth story was strong and clearly communicated.

Ulta Beauty’s stock price soon reached all-time highs. Recently the company’s stock price was in the $185 range, which Settersten attributes to the team’s successful execution against a well-constructed and -communicated long-term strategic plan.

Meanwhile, he and his team have quickly refocused on ensuring the strategy process becomes part of the company’s day-to-day operating activities and now are engaged in a long-term strategy refresh. Ulta Beauty, thanks to the exercise of creating a long-term strategic plan, has a good sense of what it takes to be effective in 21st century retailing.

Copyright 2017