2022 Outlook Series: Technology Outlook
Craig Jeffery, Strategic Treasurer
Todd Yoder, Fluor Corporation
Episode Transcription - Episode 183: 2022 Outlook Series: Technology Outlook
Welcome to The Treasury Update Podcast presented by Strategic Treasurer. Your source for interesting treasury news, analysis, and insights in your car at the gym, or wherever you decide to tune in.
On this episode of the 2022 Outlook Series host Craig Jeffrey sits down with Todd Yoder, Global Director of Treasury at Fluor Corporation, for an in-depth conversation on technology. They take a look back at 2021 treasury trends, and fast forward to 2022 to discuss mergers and acquisitions, market trends, technology and security, staffing shifts and more. Listen in to this dynamic discussion to learn valuable insights for the year ahead.
Craig Jeffery 1:00
Welcome to The Treasury Update Podcast, Todd.
Todd Yoder 1:02
Good morning, Craig. It’s great to be here.
Craig Jeffery 1:05
Before we get into this, today’s discussion series, maybe you could give everyone a quick background on your career and your role at Fluor.
Todd Yoder 1:16
Yes, I’ve been at Fluor for 10 years, over 10 years, was hired into the treasury group to work in capital markets and strategic finance for the treasury organization. Also, to set up a derivatives and hedging strategy department, discipline for the company. And so that was back in 2011 and focusing on FX risk, interest rate risks, and commodity price risk. And so, I spent quite a bit of time on that, in addition to, I serve on a few different finance committees for some Fluor’s mega projects in the billions and then for some of our joint ventures that we have globally around the world, and then also serve as innovation technology catalyst for the world headquarters. We’re based here in beautiful Dallas, Texas. Also serve on DE&I in our supply chain and work on a council for the company to make improvements there. Exciting times that we’re living in and definitely exciting times at Fluor as well.
Craig Jeffery 2:27
Glad you’re keeping busy. As we start to look forward, maybe we could actually begin by looking back at 2021. We had a conversation, episode 135, about this topic, this look ahead. We talked about API’s, open treasury, data aggregation, analytics, visualization, open-source program. We talked about a lot of things technical, maybe you could highlight some of the summary points or summary items from that discussion before we look ahead to 2022.
Todd Yoder 3:00
I remember I had to laugh when I came across the lack of knowledge is paradise. And that was related to you know, the lack of knowledge is paradise, but it’s also very dangerous. And so, we talked last year, we went pretty in depth into the dangers of not knowing what your risk is, the quantification. So, the identification, I guess, first, of the risk you have related to foreign currencies, interest rates, and commodities. And then we took an even deeper dive into the components of FX risks of cash flow, transactional based versus balance sheet, and translation and consolidation and how that all rolls up. I would highly recommend that podcast if some of your listeners are interested in those topics. The other one was API’s, so, and I think 2021 has been a strong year for continued growth in API’s. It has definitely been an enabler to get us closer to real-time treasury and solving a lot of the interoperability challenges that we have as treasurers. So, APIs have been good, our RPA has also been a tool in toolbox for those but yeah, as part of the great acceleration that we’ve talked about in the past on some of our other podcasts we’ve done together. So, the four components driving the great acceleration, so storage and compute power, and then data and metadata and then all the new innovative applications, kind of the four key drivers and I think 2021 brought a lot of progress in all four of those categories, which is, I think, continuing to make the great acceleration that much more exponential. And then we talked a little bit about the project I was working on for Fluor, the treasury team, when I say “I” it was definitely a very collaborative team effort from Fluor’s treasury group and Fluor has an amazing IT group and developers. And so, it was a lot of fun to work with them on a project, treasury data warehouse, and so building that out and adding a lot of automation and data aggregation, so internal data, and external data, and then building out the analytics and then wrapping that up with the data visualization. So, a lot of dashboarding and we spoke about Power BI and how effective that tool’s been for us in those efforts. And how that just allowed us to take a instead of the typical bottom up approach to take a top down approach to treasury and data and what the machines are doing and what the humans are doing. The human when it’s bottom up, right in the old days before we had a lot of the technologies that we do now, you know, a lot of pulling data from internal sources, different systems, and external from different outlets and then pulling that data together manually and then starting to build up and in the goal was to summarize that data into easy to read, understand and actionable reporting. But with the technology in the automation and this project that we worked on, it allowed us to do the top down, so the machines the technology doing the aggregation, the assimilation of the data, both internal and external, and then the compute, letting machines do the computing the analytics piece to look for outliers and trends. And then put that into, you know, reporting to highlight the key points of interest. So then as the human, you can come in instead of spending all that time bottoms up and you’re exhausted by the time you get to the summary data, you can come in and run the machines.
Craig Jeffery 7:15
If you get the summary data.
Todd Yoder 7:17
Yeah, yeah, before you burn out or lose version control or all the things that can happen right, but the top down allows machines to do a lot of that work and then the human can come in and you know, see the points of interest right away and highlighted and spend more time analyzing and looking into the anomalies and the trends, and do they make sense or do we think there are any fat fingers along the way that may have caused certain things, seasonality in the business or a change in a business division? So, those are the notes I took when I look back at our kickoff podcast last year.
Craig Jeffery 7:57
And you’ve been busy for the last couple of years. You know that story that you were just telling or an account of gathering the data, normalizing it, analyzing it, and making it more actionable is what many, many companies are going through. So, thanks for that update. As we as we look out to the rest of 2022. There’s a couple areas I wanted to talk about. I want to talk about the M&A market, tech, and security, also want to talk about staffing and staff. But let’s begin with the M&A market for the treasurer. You have a project underway. Maybe you could talk about that a little bit. I think there’s some changes that not everyone’s involved in SPAC or de-SPACing, but maybe you could tell us what you’re going through.
Todd Yoder 8:48
So, SPAV are a Special Purpose Acquisition Company is what’s SPAC stands for and just a very high level, you know a SPAC is a company that is formed, and it does an IPO and lists on an exchange. It has no operations. So, it is a shell company, and it typically gives itself 24 months to go out and find a target company to conduct a business combination with, so a merger reverse merger with, and it could be a private company or could be a public company. There’s been some very creative things that SPAC’s have done, and I think it’ll continue to be creative. So, the SPAC is formed, it goes public, there’s no operations, let’s say it raises 200 million in its IPO. It puts that 200 million into a trust account and pretty much invest that at treasuries more similar. And then and then it goes out and starts to look for a target company. It looks for a company that is either a very well-developed name that is profitable and has been in business for quite a while. But it’s just looking for an opportunity to become public and to maybe raise capital at the same time or some of these SPAC have looked for more startup companies, more companies that will be a little more traditional to kind of a private equity, even a VC type environment. So, they may be pre-revenue. But that’s what we saw a lot in late 2020, early 2021 was the electric vehicle I think was the most popular by far. There’s other a lot of popular areas, but that’s one that had a whole lot of attention and a lot of deals. Deals got done. So, what you do is you have that SPAC and then they identify that target company, and then they move towards a business combination, and making the company public. Along the way, the SPAC investors have the opportunity to have basically a put option on the shares that they invested in at the launch of the SPAC IPO. The tradition is $10 a share. So, you have a $200 million back you have 20 million shares. The SPAC founders will dilute that somewhat to take a 20% stake in those shares. So, you have a little bit of dilution from that, but there also be some warrants that get issued, both public and private warrants. So, to entice investors to invest in this SPAC that has no operations and is just a lot of times indicated an area of interest that they want to go after you know, maybe a technology company, a fintech or an ESG type company, you know technology, energy, EV–different focus. So to entice investors they also will typically issue warrants and those warrants are part of a unit that you get when you invest initially into that SPAC and then you know, there’s a lot more to it but just 52 days after those units are made public and trading, traders will have the option to bifurcate the share from the warrants and then the warrants will start trading separately from the shares. And so, you can have a SPAC that has units which include a share and a warrant and then also has publicly trading shares and then publicly trading warrants. And so, I think one of the reasons these facts have been so successful in raising large amounts of capital is because of this, you know, put option that you have as an investor. So, if you come in and buy units for $10, you know, at IPO of this back, you can then bifurcate and that share you can always put back for $10. At the same time can retain your warrant that you have, so, and warrants are they’re all a little bit different. But initially in the early days they were, let’s say one half warrant, or in a five-year duration to exercise that but, you know, now there’s 1/3, there’s 1/9 there’s half there’s different structures on the warrants and even some of them that aren’t doing the warrants they’re just doing the shares. But yeah, so it’s you have different perspectives on SPAC you have kind of the entrepreneur who maybe has a business that is pre-revenue, and this may give them an opportunity to become public and become public much faster than a traditional IPO. So, you know, in the past you have your traditional IPO, you have direct listing as an option to go public. And now SPACs, you know, have taken over. So last year, there were 100 or 1058 companies that went public last year and over half of them went public via a SPAC transaction.
Craig Jeffery 14:45
Let’s shift to technology and security. Some of the things that I wanted to touch on were platform as a service, cybersecurity, blockchains, 5G, FX asset clearing, CME activities. Maybe we’ll begin with platform as a service this idea there’s these containers and micro services that are easy to develop how big of a how big of a deal do you see this being in 2022 and beyond? Is this moderate? Significant? Very significant? I’m not gonna say minor, because we wouldn’t be talking about if either of us thought it was minor. Any comments on that or…
Todd Yoder 15:26
It’s going to be major, definitely not minor. You know software, you have some of the definitely of the futuristic thinkers that software will go away, or it will have the next generation. I don’t think that’s 2022 but I think that’s you know, we’re just at the dawn of those and cybernetics, closed loop systems, you know, with no human intervention. You have the system doing the observation, orientation, decision, and action without a human in that so it’s kind of the next gen of information systems. But I think that’s, that’s gonna be I think we’re at the front end of that. So, I think that’s not a 2022 but probably 2, 3, 5 years before we see that start to fully…but, you know, as it relates to software as a service, infrastructure as a service, platform as a service. I was kind of interested in you know from our discussion last week is kind of what your thoughts are actually on that.
Craig Jeffery 16:31
I guess there’s a couple things and I did enjoy our conversation last week too, as we prepped for it, but you know, the idea of there is one direction where technology’s heading and it heads to smaller and faster. So, these smaller containers where these micro services are. This idea of micro services or smaller component parts smaller Lego blocks are put together. What does that mean? It means faster development. Instead of every year and a half. There’s an update it became every three months, twice a year, every three months. Now, there’s oftentimes monthly rollouts in traditional SAS systems. Well, you know, in some of the most modern architecture, you’re seeing people roll out updates every week. Sometimes they’re being rolled out live to bring the system down because the components can be isolated. They can drop in and so this area just in terms of outlook for 2022, I think they see how much will happen in 2022. It may be hard to see and say what’s going to happen within this year, but everything’s moving towards faster and smaller. This quicker scale. So, it is a massive deal because it’s this whole trend that we’ve seen for over a decade, but just using different types of tech. But with that, Todd, you know, cybersecurity as we look at the threat has continued to increase. The criminals are far more automated. They’re leveraging tech maybe we can talk about that a little bit too. I know. We spoke about how do we put patches in more quickly in the past, well, things like platform as a service and micro services enables us to roll these out more quickly. And then we had a discussion about fraud, and we use a service called BitSight and I didn’t know if you had any comments on that or maybe you have questions for me on that too. And then we spent some time talking about cybersecurity and how important is.
Todd Yoder 18:32
BitSight. Definitely very interesting. My prediction, my thought actually on this area is that just how we’re seeing ESGE, more and more a part of the corporations, disclosure and investors want to know, and they want to metric it, they want quantitative and qualitative, both. So, as far I think in the future, as part of, you know, sustainability reporting, and cybersecurity has definitely been a part of that in the past, but I think it’ll become more and more a part of that and BitSight, I think, is one of the leading technologies in that space that will help corporations to really start to metric you know, what they’re doing, what they have in place, what their plans are for sustainability as it relates to cybersecurity and ransomware attacks, right? I think last year was the largest by far for these type of attacks, and they’re very dangerous, this kind of action when you think of COVID, right, and the COVID pandemic and viruses and how we fight viruses and what we use and what we do and I think cybersecurity is has some similarity. So, there might be some learnings that we have from COVID that we can take into the cybersecurity space to help be you know, stronger and more resilient as it relates to these to these areas of vulnerability. But I thought it was interesting here. What you shared with me last week on BitSight. Did I understand correctly that you have some experience with that site and using their technology?
Craig Jeffery 20:18
Yeah, so in terms of we do a lot of work with insurance companies, banks, and they require an ever-increasing amount of validation of what goes on and so a number of years ago, we started doing monthly vulnerability scans at with these organizations were asking do you do annual vulnerability scans? Well, we just started running them monthly just showed so many items and issues, right? You’d have to fix them and so it gave us this monthly cadence and initially there was a ton of things to fix. I mean, both false positives, you know, you have a presentation with the credit card number in the presentation and thinks it’s a real problem. And so, you have to go through and solve all these issues. But once you work through that, it becomes extremely manageable because it’s doing a complete end-to-end check for vulnerabilities with your system, whether it’s patches or data across the board. So, it’s an inward look. And so, we just started doing that. But the requirement to do a penetration test where you pay an outside organization to come and try to compromise a system to land somewhere and then move laterally, whether it’s coming through HR, an open printer, whatever, they’re trying to compromise your system or your people and so that’s something you do, it may run from two weeks to six months depending on what you’re doing. Where there is a real world external test to see how that things are going to those become have become standard but BitSight is this ongoing monitoring tool that checks everything from the tools that you’re using, so if there’s some kind of vulnerability shown it identifies those it tracks everything from your website, to your patching process, to the assets that you have, and it gives you this dashboard everything is scaled and ranked, and we have a score. And like you said there might be there’s something ESG scores well this technology and cybersecurity scores are becoming more common because everyone’s wanting their partners to be secured. And so we look at these things and say it’s essential to have them because you’ve got a friendly if you will, continually probing everything you have, identified items and it gives you workflow for assigning who’s going to fix whatever issue, your SPF record isn’t completely up to date, you’ve got a header problem, we’ve got other items that have various levels of severity from very, very minor to something that would be considered significant. And then it allows you to just continually tighten up your infrastructure, your hardware, and so that combined with the people processes is neat. We’ll put a link down there in the chat box about BitSight. They just were huge investment was made into him by a NRSRO just recently to support some of their evaluation activity. So, we see this as becoming much more that will become more common. Will that happen in 2022? Maybe 2023. I think within those two years, we’ll see people asking for scores like this, that are more robust than some of the other scores that are out there for security.
Todd Yoder 23:44
One of the other things you know ransomware I think I mentioned in the past I was asked to write an article on Bitcoin on the corporate balance sheet which I haven’t done yet. But you know, back in 2018, I did a presentation co presented with Bloomberg at AFP on Bitcoin and I so my point was I wanted to, I dove into it to completely understand all the mechanics of bitcoin and how it works, why it works. From private keys to public keys to encryption, really understand the mechanics of Bitcoin from a very deep perspective, but then, you know, as it relates to ransomware I had one of the banks mentioned, maybe you should have some bitcoin on the balance sheet in case there’s some sort of cyber-attack and, and you need that and so to actually to learn more on that, I don’t know if you know, Fung, he’s MicroStrategy CFO and President and so I have a discussion with him next week, a call with him next week to just for me to learn more as you know, they have extremely large position in Bitcoin and have even leveraged the business somewhat to invest more. So, I’m pretty excited about that conversation with him to learn more about that side of it. So, I’ve got the mechanics down, but the use cases as it relates to money, yeah, a medium of exchange, or a unit of account or a store of value. And those are the three kind of core things that money define money. So better understand what his thoughts are on.
Craig Jeffery 25:35
So, on from Bitcoin to blockchain and blockchains, CBDC Central Bank digital currency, anything you’ve observed, or you’d predict for 2022?
Todd Yoder 25:47
Yeah, I, you know, I probably wouldn’t have said they’ll be CBDC’s launched. I wrote an article, I was part of an article I contributed to an article, I think it was March or April, on Central Bank, digital currencies and at that point, I would have said it’s, you know, probably a good three years away. But now, last check there were 56 different central banks that had programs exploring and not just talking about it, but actual programs in place, and everything from Britcoin for the UK, the ECB, China, Canada, Switzerland, Indonesia, India, Japan, Israel. So, a lot of you know, large, very sophisticated countries that are working on this and then over the weekend, Mexico came out. I don’t know if you saw that 2024, they plan to launch a central bank digital currency. To my understanding, there’s only two that have actually launched something then Guadalajara as the Hoozies that they have pegged to the Mexican peso one to one. And so, I think that is a very small test. There are some social aspects to earnings Hoozies, so that’s really interesting. And then Nigeria, my understanding is Nigeria has launched something so I guess all that said, I think we’ll see a lot more in 2022 and we could be surprised if we talk again, January 2023, we may want to update that. So, we’ll bookmark that.
Craig Jeffery 27:39
As I look at some of the things like blockchain, some of the other maybe less common ones like Litecoin and then I see what central bank digital currency can offer. I tend to be more favorable towards those where there is a built-in tracking mechanism. Some of the ones that might be more virtual that are great for paying for ransomware we continue to see this growth of, of tracking and reporting requirements from different governments taxing authorities, and how they’re treated. I’m still pretty open on all of them that maybe more conceptually favorable to the CBDC’s that are in process.
Todd Yoder 28:29
Yeah, it’ll be interesting to see exactly what the use cases are and how they change things. I know, some economists that I talked to on occasion, you know, they say that, you know, we’ve had digital currencies, since the Euro dollar system kind of was born back in the late 50s-60s. With US dollars, offshore and lending offshore, kind of that Euro dollar system and with US dollars is you know, the hegemonic in the world reserve currency. We had digital currencies then and how does this CBDC really change? What we have, and I think my response to them is just the efficiency of some of these platforms to make transactions much faster than with the digital settlement, actually, between different currencies.
Craig Jeffery 29:30
I mean, it almost sounded like you were talking about the use of blockchain for things like smart contracts where there’s activity, certain tasks are completed, and then settlement comes out from that. I think there’s a significant amount of value in some of those use cases. If that’s what you’re talking about.
Todd Yoder 29:51
Yeah, absolutely. That and I think when we talked last week, you mentioned Cobalt and Definity and their partnership and we talked a little bit about FX asset clearing. So, I think that the definitely going to be an area of growth and some good developments and partnerships, not just for FX but for all sorts of digital assets and contracts. Just kind of like with these NFT’s which non fungible tokens I kind of think of them when we were kids, Craig and we had baseball card collections, then some of those had quite a bit of value, right? At some point not as much as probably, we thought back then that they would have in 2022, but these contracts where it’s written into the blockchain, let’s just say it’s a piece of artwork that’s an NFT that every time it’s sold the artist can get a percentage of the sale price every time it’s sold. So, and that’s written into the contract. And that’s a really interesting, very, very, very cool, and then I also like the tokenization of real estate. So real estate, obviously is a huge business, and there’s a lot of great, great products. And but, you know, I’ve heard some discussions on tokenizing. And we’ve talked in the past about tokenizing, large infrastructure projects, but just from a real-estate perspective, if there is a new building that to put up, let’s say $100 million building, and investors want to, not just own a piece of a REIT, or an ETF or an index, but they want to actually own a piece of a particular asset to be able to tokenize that and so you’re seeing that in a lot of different areas, creative areas. I like rare whiskies and there’s some work being done there on investing in actual barrels of whiskey and so yeah, I think there’s gonna be a lot of really cool stuff that comes from the blockchains and not just talk of cryptocurrencies, which, you know, I don’t think we really have a cryptocurrency period at this point, we have crypto assets and I think so more of a store value and people have to decide how good of a store of value they think it is, but you know, just the latency with trends. You know, when it comes to the three functions of money, you know, a medium of exchange, I don’t think that, you know, crypto would fall into, you know, a quick, fast way of conducting transactions. So, I think there’s, there’s work to do there, but I think blockchain is there’s a whole lot of really interesting ideas and ecosystems that are being built out with it.
Craig Jeffery 33:12
I am most interested in your comments about the rare whiskey, you can invest in it without having a giant cellar and rolling these barrels and that’s an interesting way to broaden it up. It’s like the it’s like the money market funding for the mutual fund equivalent for some of these other assets. Todd, just in terms of time, we’ve been having a great conversation, I’m gonna leave off the staffing part. I know there’s a lot we wanted to talk about there, but maybe you could maybe you could finish up with any final thoughts. I know you talked about this Chicago Mercantile Exchange, a record on open interest contracts, maybe get finished with that and any final thoughts for the outlook on 2022.
Todd Yoder 33:55
What I was talking about last week was they reached a record level of open interest in FX on the CME and it’s an area that I’m interested in and looking more into it, but many of us have a PhD in Dodd Frank, and we got back in 2012 2013 as it relates to uncleared margin rules and standardizing the approach to counterparty risk and measuring counterparty risks. I think that’s what’s driving this. And so, I think it’s definitely an interesting area and something that I’m sure gonna be diving into a little deeper to understand how that might impact effects as a whole and the OTC markets as well. So, for future predictions, I didn’t know if we wanted to have fun, and both predict make a prediction on the price of Bitcoin or something for the end of 2022. Maybe bet a bottle of whiskey. But the other things I had, or you know, 5G and how that that’s coming, I think 2022 is going to be a big year for 5G, bigger than 2021. And there’ll be a lot more discussions about web 3.0 and, and how you know, more real-time with 5g can help enable a lot of the benefits that are going to come from web 3.0 more real-time and 3D portals and Avatar representations and just games, businesses, and virtual worlds. And so, of course, I think a buzzword for 2022 is going to be metaverse. Omniverse and multiverse which whichever you want to call it, but just these virtual worlds and I think it’s a very interesting space. I think a lot of complacent treasures, non-futurist, non-innovator type personalities may get left behind on this. I was lucky enough to be invited to a conference of treasurers, 60 treasures in the Americas, and we did the conference on a virtual platform, and we were avatars. And I’m not a gamer, but I found that extremely interesting and interactive, and so, so from a human perspective, I think there’s definitely some interesting…now there were no hologram holograms or anything like that, you know, showing up in my office here at home but it was definitely interesting and, and a lot of fun.
Craig Jeffery 36:55
Todd, thank you so much for your time today. Looking back at 2021 a bit and also out to 2022.
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