Confluence hits another snag with layoffs and pay cuts

CEO John Bergeron has been manning the helm of the good ship Confluence for less than seven months, and despite his and his teams’ best efforts, he still can’t seem to steer clear of icebergs. This time, layoffs and pay cuts mandated by lack of liquid cash have thrown the company into turmoil.

SNEWS began getting emails (some clearly sourced from competitors) wondering about Confluence’s financial health and future, with a few offering us not-so-subtle hints the company was doomed and we should write about it. On the heels of those, and following an initial conversation we had with Bergeron to squelch the going out of business rumors, we began receiving frustrated phone calls and emails from insiders. Clearly, things were not as they should be.

Once again, we got on the phone with both Bergeron and company sales and marketing vice president, Kelley Woolsey, to clear the air.

Is the company cash poor?
Yes, it is true the company is cash-poor right now. How the company got there is no secret really. Tired of not being able to deliver boats on the heels of an American Capital Strategies-mandated decision to trim production, Confluence has been firing all ovens all the time since July and currently has 8,000 boats in inventory. Bergeron told us that last year the company had only 2,000 at this time. That means the burn rate on available cash is quite high requiring boats to be selling currently to keep the cash coming in — something that wasn’t happening because dealers either didn’t want or didn’t need deliveries right now. Bottom line is, with idle boats sitting in a warehouse, the cash is disappearing faster than ice on a hot pavement.

In fact, things were so bad that Confluence missed its September numbers by nearly $1 million, according to inside sources — this after firing on all cylinders during July and August and on the heels of what most thought was a phenomenal show for the company.

What led to the September number shortage was a direct result of Confluence’s delivery problems earlier in the year. As a result of later shipments and missed sales earlier, dealers are currently sitting on sufficient stock and don’t need to reorder to replenish stock levels right now. A dealer is only going to take boats into backstock now if Confluence offers sweet delivery terms.

Woolsey told us that when he came back from Outdoor Retailer, nearly every dealer was ordering as much product or more product than before and things looked very rosy, but within a few weeks, delivery times for orders were being adjusted and pushed into 2004 because current stock hadn’t sold through. Suddenly, Woolsey and Bergeron were hit with the realization the company would not have enough cash to continue operating.

It wasn’t that Confluence didn’t try to get dealers to take boats early, but without bank support, Confluence wasn’t going to get dealers to budge.

“Why should a dealer want to take a boat early just to help out Confluence, especially when we were going to ask them to pay for the boats well before our competition?” Bergeron asked.

That situation has changed, thankfully. Bergeron told SNEWS the bank is now allowing 270-day dating, which will allow Confluence to ask the company’s dealers to take boats in early but not have to pay for them until July or August. This is important because Confluence can borrow 85 cents on the dollar for boats they have shipped, but only 50 cents on the dollar for boats still sitting in the warehouse.

The human cost
Bergeron confirmed to SNEWS that the company initiated layoffs affecting 25 employees. In addition, Scott Robards, marketing director for the company since June, was fired. Add to that the sudden resignation of highly respected Bo Colbert, former general manager of Wavesport under the Chan Zwanzig era. Factor in staff that is being furloughed and it would not be hard to argue that up to 90 folks who count on Confluence for a paycheck are affected. Any way you slice it, the human cost is high.

Then there is the mandated pay cut. Bergeron also confirmed what SNEWS had heard — that all employees, including Bergeron and the rest of the executive team, were subjected to a 20-percent cut in pay. The company tried to soften the blow by saying it was actually only a 10-percent cut since all employees could take an extra day of vacation, but that’s sprinkling rose petals on a garbage pile — underneath, it still smells.

Bergeron acknowledges that his staff is upset.

“Any time you monkey with people’s compensation, they are going to get pissed,” Bergeron said. “This is different than past cuts and layoffs, but still rings the same to the staff and I realize that. However, the fundamentals of our business are extremely robust and orders continue to come in either even or significantly above last year’s levels, so the future looks very good.”

To his credit, Bergeron is putting his own money where his mouth is — which you can’t say for a lot of executives these days. He told SNEWS he has loaned the company a significant chunk of money (we have heard it is as much as $200,000).

“I want you, our employees and our vendors to know that I am confident we are making the right decisions for the future and that I believe in our business plan and that I am here for more than just my own financial gain,” said Bergeron. “This is an unsecured loan and the company now owes me more money than most of our vendors.”

Who’s to blame?
That depends on whom you speak with and in what context. Bergeron stoutly defends his boss, American Capital Strategies (ACS) and points out that without the company, Confluence would have gone bankrupt last year when a former hostile bank and investment partner wanted to pull the plug. ACS bought them out and, along with other minority investment partners, has committed $32 million to Confluence’s future.

Still, he does not duck when asked if ACS is holding his feet to the proverbial fire.

“Of course they are, and they should,” Bergeron told us.

Other insiders who spoke with us on the condition of anonymity were less kind. To a person, Woolsey is stoutly defended as the reason the company is still here, and Bergeron also receives strong backing as a leader who inherited a bad deck of cards to deal.

Most fingers of accusation point toward ACS. From a passionate paddler’s point of view, that may not be far off. Like any other investment bank, ACS has invested in Confluence to make a profit selling a particular product. It could be garbage cans for all ACS cares. ACS and the company’s bean counters don’t see or feel the soul of the business, and they make decisions based on what they see and know — financial history and financial records. That’s not right or wrong, just different and without passion.

There is little doubt in our minds that Confluence is where it is right now because ACS management did not listen to the Confluence team regarding production needs last year. And, chances are, it is not listening very well right now. ACS probably believes that any person can be brought in to do the jobs needed at Confluence and, from a financial perspective, layoffs are no big deal. On the surface, management there may be right. But there are the intangibles that keep the passion alive in a company and keep the creative juices flowing, the smiles spreading, and the energy level high. And it is those intangibles ACS is playing with right now.

While we have heard Bo might decide (at the behest of Bergeron) to restructure his resignation and stay on longer, the Confluence staff can only take so much. The talented and passionate staff at Confluence deserve better than it is getting right now from ACS, but unfortunately, there’s not much Bergeron and Woolsey can do about it other than turn on the cash-flow spigot.

What of the future?
Let’s see — 8,000 boats in a warehouse with boat production right now only filling orders as needed. That’s a lot of boats in storage and that could mean quite a few blems unless storage methods and conditions are ideal — and that’s very hard with that many boats.

Short term, the weather looks stormy, but not deadly, for Confluence. Retailers we spoke with say they will begin taking in product under the new terms Woolsey and Bergeron are offering. That is good for the company. Once the money starts to flow, Bergeron can look at bringing some folks back in, assuming they still want to work with the company — our guess is a few will. Bergeron has also told us that the 20-percent reduction in pay will end mid-December if all goes well — just in time for Christmas, but probably not in time to make much of a difference to hourly employees who will really feel the pay cut.

And that takes us to next year: Bergeron insists that the delivery problems, as well as the questionable distribution problems which we reported on early this year, are a thing of the past.

“We recently dropped a major account because they would not agree to our new distribution terms designed to protect our specialty dealers,” Bergeron said. “The Dick’s team is also working very well with us to keep our other dealers happy. The moves we are making are to our short-term detriment, but are absolutely the right thing to do in terms of long-term relationship building and future growth.”

IF Confluence can avoid any more surprises for both the company’s staff and its dealers, then the future does seem quite bright. Now, if ACS will just listen to those who know the business…nah, that’s asking too much.