Dear AEM Members,

I hope you all are managing through the daily surprises of this crisis, and everyone in your families continues to be safe and healthy.

During last month’s conference call meeting of the AEM Board of Directors, I briefly explained that we would be realigning our priorities and reviewing our budget as we focus on supporting our members through this crisis and preparing for difficult economic times and possibly a recession.

With that in mind, here is our current budget outlook and plans for budget management and the realignment of the Strategic Plan:

2020 AEM Budget Outlook & Management

  • Our budgeted Net Operating Income (NOI) is $3.2 million, with revenue of $64.5 million and expense of $61.3 million.
  • We are currently projecting an $800,000 loss, or a deficit to budget of $4.0 million. The change is based on the CONEXPO-CON/AGG and IFPE estimated financial results.
  • While CONEXPO-CON/AGG and IFPE were surprising successes overcoming the uncertainty of COVID-19 issues, net revenue will be down from $23.2 million to about $19.1 million. The additional costs of COVID-19 cancellation refunds for space and registrations from China and other affected areas, added on-site safety measures, higher IFPE cancellations and the cost of the new Festival Grounds exhibit area lowered our net results.
  • With the Board’s support, we are planning to implement a budget management plan to address the deficit and the negative impact of COVID-19 on our other activities for the remainder of the year.
  • Our initial “tier 1” plan will be a reduction of $1.8 to $2.0 million in (non-Strategic Plan) spending, moving our $800,000 forecasted deficit to a NOI of $1.0 to $1.2 million.
  • Our remaining top revenue areas of dues ($5.5 million), HAI ($2.17 million) and ICUEE ($1.5 million) should meet budget.
  • Risk areas for revenue are safety materials ($1.5 million) and Annual Conference ($738,600), which probably represent a risk to net of $300,000 or more.
  • For expenses, I have examined all the areas and I feel confident we can meet our spending reduction target, while still delivering the value and needed services to members.
  • Note the point about these reductions not including Strategic Plan spending.
  • Reductions in spending for Strategic Plan initiatives will not improve our NOI, since reductions in Plan spending also reduces the funds from reserves going into our budget. So, if we reduce Strategic Plan spending by $500,000, the funds from reserves will be reduced from $2.5 million to $2.0 million. These reductions still need to happen for a number of reasons, it just won’t help our NOI.
  • These reductions of $1.8 to $2.0 million in spending is a first step and would be coupled with a reduction in Strategic Plan spending of $1.25 million for 2020 as noted below, putting overall budget reductions of $3.05 to $3.25 million.
  • “Tier 1” reductions would include a hiring freeze, 15-20% reduction in travel and meetings, plus deeper reductions as offered by several departments, and significant reductions in dues, subscriptions, and outside services.
  • “Tier 2” and “tier 3” plans are also being developed if the crisis continues and the recession deepens.

Strategic Plan Implementation

  • With the Board’s support, we are putting a pause on the Strategic Plan implementation and shifting the 3-year plan (2020-2022) to a 4-year plan (2020-2023).
  • We need to put our Strategic Plan spending in line with the current economic challenges.
  • The bigger question becomes how fast the economy and our finances recover to allow for the Plan implementation to ramp back up.
  • Current Plan implementation is as follows: 2020 -- $2.5 million, 2021 -- $2.5 million, 2022 -- $3.0 million, Total -- $8.0 million (Annual investment = $2.67 million)
  • New proposed 4-year Plan implementation would be: 2020 -- $1.25 million, 2021 -- $1.5 million, 2022 -- $2.5 million, 2023 -- $2.75 million, Total -- $8.0 million (Annual investment = $2.0 million)
  • A more conservative option for 4 years: 2020 -- $1.25 million, 2021 -- $1.25 million, 2022 -- $2.0 million, 2023 -- $2.0 million, Total -- $6.5 million (Annual investment = $1.625 million)
  • A plan will also be implemented to spread out the 2020 Strategic Plan initiatives and budgeted spending over 2020 and 2021.

2021 Budget Development

  • Early work is under way to develop the first draft of the 2021 budget, including the development of the list of revenue and spending assumptions.
  • This work will be challenging in such uncertain times. Where will our members and the economy be in 2021, and also in the fall as we present our next budget?
  • At this stage, the assumptions will be conservative and many of the reduction measures being implemented (as noted above) will be considered for 2021.
  • Once the assumptions are finalized, we will get the first look at a projected NOI for 2021. Then we need to decide if this projection becomes our target to achieve.

These are uncertain and difficult times we are living in, but I remain confident that, through working together, we will overcome our present challenges and continue to build momentum for our industry.

As always, please continue to think of AEM as an extension of your team, and don’t hesitate to reach out to us for support, information or assistance. 

 

Sincerely,

Dennis Slater, AEM President

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