CFOB | Investor Relations | AK

Using investor relations to accurately communicate company value

It’s often said that failure is the best teacher. Especially when a botch job could mean a double-digit dip in a company’s stock value. Jason Gold, CEO of IR consulting firm Resurge, recalled a conversation he had with a friend who just had their first earnings call as CEO of a publicly traded company. The vibes were not good that Friday evening, as the company’s stock price was down 10% a day removed from that call. Gold, then an analyst for an investment firm, grilled his friend as to why company leaders let the call veer in an unintended direction. Eventually, Gold’s friend asked him, “Where were you on Wednesday? I could have used you earlier this week to prepare me for Thursday.” Beyond this being the origin story of Gold as an IR consultant, it shows in a nutshell what is at stake when thinking about your company’s investor relations strategy. Aim for equilibrium A successful IR program should achieve the ultimate goal of a “fair and accurate” company valuation, according to Jeff Corbin, who has decades of experience in IR and, more recently, employee communications, and is the author of the book, Investor Relations: The Art of Communicating Value. “As a public company, if you get out there and tell your story the right way, and speak to your financials the right way, and then expose that story to the right people, [then] you should achieve a fair and accurate valuation,” Corbin told CFO Brew. How does an organization reach this valuation equilibrium? Corbin said a successful IR strategy does two things. The first is ensuring accuracy and transparency in all communications. The second is getting the story in front of the right people.

“The thing that I think that public companies need to realize is, if you don’t talk to anyone, then no one knows who you are.” –Jeff Corbin

Lyft recently learned the importance of accurate communications. The rideshare company initially stated in a press release it would expand margins by 500 basis points, or 5%, in 2024. It turns out, an extra zero slipped into that number, which was only meant to read as 50 basis points, or 0.5%. This left Lyft CFO Erin Brewer needing to correct the record during an earnings call. “This is actually a correction from the press release,” Brewer told analysts in February. “In my prepared remarks, I referenced 50 basis points of margin expansion.” The result? Lyft stock saw the gains it made from the error mostly wiped out after the company corrected itself, according to CNBC. While the Lyft mistake was apparently an innocent typo (although a bad one), some organizations are deliberately dishonest or misleading in their communications, according to Corbin. “People will catch you in a lie, and when they do catch you in a lie, if your stock is going up this high, it’s coming right back down,” he said. Pick up the phone As to Corbin’s second crucial point, companies have myriad ways to get their message out to investors and analysts. They include press releases, an IR website, and analyst days, to name a few. A challenge for small-cap companies is getting their story in front of investors without the attention of investment firms that the largest companies enjoy, Corbin said.

What CFOs need to know for a sound IR strategy.

“You have to punch investors in the face with what you want them to know.” –Jason Gold, CEO of IR consulting firm Resurge

In those situations, smaller firms should identify the type of investor who may be interested in them, such as an investor looking for companies that they feel are undervalued, Corbin explained. Then, whether it be the company itself or a third party, someone needs to start “smiling and dialing” to make an introduction. “The thing that I think that public companies need to realize is, if you don’t talk to anyone, then no one knows who you are,” he said. “When they [small companies] get in front of investors is they…identify who the right investors are, whether they are small-cap investors or investors who are looking for value opportunities,” he said. “Whether a company is doing it themselves or working with a third-party consulting firm, that’s another way to get the message out there is someone smiling and dialing…and make the case for why a certain company is worthy of this investor’s time to meet with them and potentially to invest.” Keep it simple Gold stressed that companies need to craft a simple message to investors. He recommended companies simplify their message down to just a few points people should remember.

A successful HR strategy

Ensures accuracy and transparency in all communications

Gets the story in front of the right people

“I like to say my catchphrase, and all of my clients have heard me say it a million times, is [that] you have to punch investors in the face with what you want them to know,” he said. “And earnings calls in particular are not a time for subtlety.” Company leaders, when writing the script for their next earnings call, tend to lean on memories of recent conversations with investors they’d recently visited, according to Gold. He said firms should not fall into the trap of writing to that audience of recent acquaintances and focus on a much broader, general audience. “Make believe you’re talking to your grandma,” he recommended. Executives who get too into the weeds with numbers also run the risk of losing the audience. “Investors don’t want to listen to the CFO about revenue growth rates,” Gold said. “They want to hear the CFO explain why revenue accelerated or decelerated, and why they expect this to be the peak or the trough or whatever. The actual numbers get spoken to us in spreadsheets; investors speak the language of spreadsheets.” Prepare for questions The question-and-answer portion of earnings calls also require much preparation, according to Corbin and Gold. A good IR pro will know what analysts will likely ask “weeks in advance,” and will have executives practicing their response ahead of the call itself, Gold said, “so that by the time you get to the live call, No. 1, most analyst questions have already been addressed in prepared remarks, but questions you do get, you are totally prepared for and you’ve practiced them over and over again.” Gold said he practices with clients on both substance and tone of their responses. “I could answer your questions in a way that shuts you down and forces you to move on to the next question, or I can act more meekly and give you a half-hearted answer that is going to ask you to probe more deeply,” he said. Companies should also be up-front with analysts when presenting bad news, such as a missed revenue goal, Corbin advised. “Just say it as it is,” he said. “You got to put your positive spin on it, of course, but tell the story fairly, correctly, honestly, and transparently. I think, in the long term, that probably is a better recipe for achieving the right shareholder valuation.”

Amelia Kinsinger

By Alex Zank April 29, 2024