Communicating with investors and potential investors can feel like walking a tightrope. Investors want to know how you’re going to protect and ideally increase their investment. Investors and analysts don’t appreciate uncertainty and surprises can add volatility into your stock’s trading.
Enter the Investor Relations expert.
First things first: Investor relations is not about pumping up the share price or sweeping surprises under the rug. It’s about supporting an accurate valuation and understanding of the firm.
IR professionals are there to keep your investors and analysts grounded. They are the first point of contact between investors, the Street, and the company. And their job is to effectively communicate the management’s mission, vision, and strategy, while being prepared for anything any stakeholder might ask.
Do you know what your investors are thinking? Or are you walking a tightrope?
Interview with Managing Director of Investor Relations and Financial Transformation, Mike Pici
To get you started down the IR road, Audacia Strategies CEO, Katy Herr, sat down with Managing Director of Investor Relations and Financial Transformation, Mike Pici, to talk about the what, the why, and best practices for coming up with an investor relations strategy.
Mike brings to Audacia 20+ years of financial and capital markets experience including investor relations, business modeling, budgeting, forecasting, and planning processes, as well as thorough experience with financial statements, i.e., 10-Qs and 10-Ks. He has also been a key internal advisor on portfolio transformation activities including $1B+ of acquisitions, multiple corporate spin-offs, asset divestitures, integrations and associated stranded cost mitigation planning, strategic portfolio reviews, and transformation messaging.
To find out how your firm can benefit from working with an Investor Relations and Financial Transformation expert, check out these highlights from Katy’s interview with Mike.
Q | Can you talk a bit about what a Managing Director of Investor Relations does and how Financial Transformation fits into the picture?
Investors and potential investors naturally have a lot of questions about the companies in which they’re investing. Of course, they’d love to talk to the C-suite directly, but this isn’t always feasible. So IR steps in to answer investor questions between earnings calls or annual shareholder meetings.
Now, when your IR professional is doing their job well, they are on the same page as the managers and effectively communicate the managers’ narrative in a way that puts investors at ease. Credibility and transparency are key here. When investors trust the IR liaison, they can better weather any storms that may affect the company. It’s a win-win.
For example, if the IR manager can explain how a CEO transition fits into the broader business model and overall big picture, investors will feel more grounded and comfortable staying the course. Without earning their trust, though, IR and leadership will face a barrage of questions that could trigger significant turmoil.
Here’s where the financial transformation piece fits in:
What kinds of questions do investors ask most often? Questions about the financials, of course.
Clearly, IR professionals have to know their numbers. But they also need to be able to communicate about the numbers in a way that makes sense to investors.
There’s no degree in IR. Typically, you’re either a finance person or a communications person. I have a financial background (Financial Planning & Analysis (FP&A)), so I’m often falling back on the numbers. This is helpful because the Street is always trying to build a model. So my financial background gives me the ability to think like an analyst and communicate in a way that steadies the waters for investors.
The real advantage in working with an IR strategist, though, is that they are always focused on the reality on the ground and how to best communicate about it in a way that aligns with your overarching messaging. Everything I do. Everything I look at. I always ask, how does this affect the numbers?
And this one-pointed focus is important because people get really emotional about money. So if you’re facing a potentially destabilizing situation, your IR professional can look past the perceived impact to the reality of the situation and be able to talk about the reality in a way that grounds your investors.
For example, right now there are shipping containers on ships stuck outside the port in L.A. How does or could this affect your bottom line? When investors inevitably call up and start asking how much of your product is stuck in that port, don’t you want someone who can help you answer that question in the most diplomatic and accurate way?
The ability to answer questions like these during some of the most trying times in the lifecycle of a firm makes working with IR a game changer. Yes, IR must align with the management team while finding a way to connect with investors. But the trust needs to flow from management to the IR person as well.
It’s true that sometimes I have to speak truth to power. Part of the job is bringing messages back from the Street or from investors to managers and telling them hard truths. I often start these conversations saying, “I think this is what you pay me to do,” which is code for “I’m going to tell you something you don’t want to hear.”
When management and IR can find common ground, managers trust IR, and investors trust the IR professional, then you have a streamlined system that sets everyone up for success.
Q | How does a typical IR process work? Are there best practices that companies should follow when coming up with an IR strategy?
When I start working with a new client, the first thing I do is gather information. Firms need to know, first and foremost, where they stand. So, I call up the analysts to get a sense of their perception of the company. I also call up the top 10 investors to get their perspective. Then I take this information to the managers and have a conversation about what I’m hearing.
This allows me to start shaping the narrative that can be proven out over time during quarterly earnings calls. We figure out what makes you different from your peers and why that counts in your favor. Then we make sure every earnings call references your special sauce.
But this early process only scratches the surface. To keep the momentum going, each quarter I approach quarterly earnings calls in the following way:
- About a month away from the end of the quarter, I get in touch with the FP&A group and ask them how the forecast is shaping up. This gives me a sense of how the firm is performing relative to the Street’s expectations.
- Then I get the analysts’ models — the most invaluable piece of information. I lay out all the models and compare them to the forecast. And I compare them not just on the metrics we guide (e.g., revenue, earnings per share (EPS), or cash), but also on what they’re expecting throughout the P&L.
- So suppose I see that our margins (profitability) are coming in a little lighter than what they’re expecting. I can also see, we’re bridging the gap because we have fewer Selling, General, and Administrative (SG&A) expenses than they’re expecting.
- Now I can start to frame a narrative that the firm can build on each quarter.
- Armed with all this information, I’ll have a meeting with my management team two or three weeks before the end of the quarter to talk about key themes for the next earnings call. Obviously, we will always talk about the financial results. But we can also discuss major program wins or new product launches. And of course, I’ll ask management what they want to deliver during the call. Often we discuss market trends or the competitive environment. There will be some give and take here.
- Within hours after each earnings call, I do follow up calls with analysts to correct the record and make sure the note reflects what we want.
- Prior to the earnings call, I proactively extend an invitation to the top 10 active shareholders to meet after the call as well.
- Because accessibility is key, I also go on the road with management once a quarter immediately after each earnings call.
The above process reflects what I see as best practices in IR: consistency and transparency. Knowing where your firm stands is imperative, but you also want to have a plan for where you’re going, knowing that you may need to pivot, but all the while maintaining continuity of your messaging. When you maintain a credible message with the Street and with investors and you support that message with facts, then you have a brilliant IR strategy.
Remember, good numbers can fix a bad message, but a bad message can hurt good numbers.
IR is all about communicating the future and getting others to see your vision. So how do you know you have a strong IR message? You know you have a strong IR message when the questions on the earnings calls and in conversation with buy-side investors become more strategic, than tactical. At this point, you know they see your vision and they’re with you.
Other key questions to ask:
- Who’s investing in our peers and not in our firm?
- Who do we want to be investing in our firm? Which rooms do we need to be in to make this happen?
- Which analysts are tracking our peers and not tracking our firm?
- Who should management meet with when they do the next roadshow?
Q | If there were one thing you wish your clients knew to get better outcomes or something that would make the process easier, what would it be?
Keep your audience at the forefront. To get the best outcome possible, you have to make sure you’re hitting on the points that are most important to the person on the other end of the call. Whether that’s an investor, an analyst, or a member of the media, you have to understand how they perceive you, meet them where they are, and get them to walk the path with you.
For managers, this takes an incredible amount of situational awareness. It means proactively reaching out to the right people and addressing the right issues. But it also means considering key components of communication that often get overlooked.
Consider your tone of voice when talking to investors, for instance, it’s not just the words that you say, but how you say them. If your numbers are off and you’re calling down your guidance for the quarter or year, you know it’s going to hurt. But when you’re in this situation, call down the guidance, acknowledge it, own it, offer a solution, and show investors how you plan to move forward. And if you deliver even a less than stellar message with confidence, you’re far more likely to get the outcome you’re hoping for.
Q | So what can an IR professional do for your firm that even a combination of PR, media relations, and marketing can’t do?
An IR professional offers your firm the unique blend of communications skills and financial prowess that allows you to gain the trust of analysts and investors alike. Like it or not, successfully wooing investors is a game of controlling the narrative around the numbers.
The unique thing about IR is that it forces you to look at ordinary events in an extraordinary way.
If you’re ready to look at ordinary events in your firm in an extraordinary way, schedule a consultation and let’s talk about your next business transformation.
Photo credit: Businesswoman leading a video conference call from her tv screen by Jacob Lund Photography from NounProject.com