CHAPTER 23 Meeting The Street

Whereas the Delivery stage of IR dealt with basic disclosures like earnings

releases and conference calls, the Dialogue stage includes in-person

events geared toward interaction with the sell-side and the buy-side.

Through these events, most savvy management teams are able to maintain a

sound relationship with The Street and offer systematic information that

benefits existing analysts and portfolio managers as well as those who are

new to the story.

THE NON-DEAL ROAD SHOW

At the top of the list of these events is the non-deal road show. This is a series

of one-on-one meetings with the buy-side over a one-day period or over

multiple days in several cities. As the “non-deal” aspect of the name implies,

management is not raising money at the time (unlike an IPO or secondary

offering). It’s simply a forum to update money managers on the company’s

progress.

The non-deal road show is the most effective forum to develop interest

in a stock because the portfolio manager can ask questions, look management

in the eye, and share concerns in a private setting. This is very different

from a well-attended conference call where a portfolio manager might not

even be able to ask a question, let alone five or six like she wants. The oneon-

one meeting usually lasts 45 minutes to an hour, and there can be anywhere

from five to eight meetings in a given day.

Management and its IR department should plan the year in advance and

specify which dates work best for the non-deal road show. Four times per

year, directly after each quarterly conference call, is a good start, although

management may want to layer in one or two other opportunities. The reason

post–conference call road shows are best is basically for Reg FD purposes.

Because all new company information and financials will have been

released and discussed on the call, management will be free to talk about the

latest developments and do so without disclosure risk.

However, circumstances may cause management to hit the road intraquarter.

A small acquisition may have to be explained or the stock may have

fallen without any change to the underlying financials. Under either of these

scenarios, management can elect to meet with the buy-side. However, if any

chance exists that a material initiative will be discussed, a press release announcing

that initiative should be distributed prior to the meetings.

With dates in hand and topics fresh, IR must then decide which buy-side

accounts to target. This task can be daunting for IR, but a capital markets

perspective makes it easy.

Analysts increase their compensation levels in a variety of ways. They

can be good stock pickers, publish volumes of research, or call 300 portfolio

managers every month with their latest idea. One of the biggest determinants

of compensation, however, is the non-deal road show: delivering management

teams to the buy-side on a regular basis. This helps the buy-side

cost-effectively meet management teams and of course helps the company

tell its story. It also helps the sell-side, because after the meeting, if the portfolio

manager likes the company and management, and buys the stock, he or

she will usually buy it through the sponsoring investment bank.

This outcome is much more likely for smaller, over-the-counter stocks,

where only a handful of sell-side investment banks make a market. In that

scenario, if Fidelity were to buy the stock they’d have to go through one of

the handful of firms anyway. However, with NYSE-listed companies, the

buy-side will find a way to pay back the sponsoring firm in all likelihood.

For example, if Fidelity ends up buying stock in a company that Wachovia

Securities brought through town on the non-deal roadshow, but didn’t execute

the trade with Wachovia for whatever reason, odds are that another

large trade will come Wachovia’s way. More than ever, with investment

banking fees eliminated from analyst compensation, these commissions are

invaluable.

Therefore, in the case of a non-deal road show, a company should never

target the buy-side directly (unless there is no current analyst coverage) and

certainly never use a third-party, outside IR agency looking to take ownership

of the process. Unfortunately, this scenario happens all the time, and results

from a lack of capital markets expertise on management’s part and a

total lack of expertise on the part of the outside IR agency. Whenever possible

the company should enlist the sell-side to shepherd the process and create

an economic event. That economic event, in this case, is commissions

that will invariably be steered to the sponsoring bank. Multiplied by 300

non-deal road shows annually, the economics become fairly powerful.

Once the company has determined which analyst or analysts will put the

one-on-ones together, IR must ensure that the meeting schedule is optimized,

which means double-checking the quality of the appointments that the sellside

has made and adding any others that may seem appropriate. Because of

the lack of a relationship, the sell-side can sometimes leave critical meetings

off the agenda. Through its own search, IR must have the appropriate investors

in each city at hand, and insert one or two as the schedule permits.

Once those meetings are set, however, IR should make sure that the sponsoring

bank gets credit because it will likely lead to a solid relationship and

commission business down the road.

IR that has this perspective, always looking to create paydays for the

sell-side, is much more inclined to garner coverage and have a better, more

interactive relationship with the analyst. This latter point can mean the difference

in an upgrade or a downgrade or simply receiving the benefit of the

doubt in a situation where an analyst might otherwise reduce the rating.

If the road show is in multiple cities, IR must quarterback the process.

We would suggest giving the larger investment banks New York and Boston

(one city for each analyst), and if the company intends to visit Philadelphia,

Baltimore, Chicago, Denver, or the West Coast, split those dates with the remaining

sell-siders. This approach allows the company to keep an auction

atmosphere with multiple sell-side firms vying for time. It also serves to create

an economic event for every analyst involved. If, for example, management

visited every city with its two largest investment banks, the smaller analysts

wouldn’t have much incentive to recommend the stock and might

become disengaged. Make no mistake that investment banks exist to make

money, and for many smaller firms with no notable investment banking

business, the non-deal road show is a primary source of their top-lines.

Therefore, when orchestrating the road show process, IR should maximize

the event, which tends to maximize value over the long run.

One more point on choosing investment banks for road shows. Through

a summary of the trading reports of the investment banks, IR departments

can see on a week-to-week basis which investment banks are trading the

highest volumes in their stock. Year-to-date results might show SG Cowen to

have traded the most and Piper Jaffray close behind. However, Lehman

Brothers also covers the stock, is constantly tenth or below in trading volume,

yet is always asking to escort the company to premier cities like New

York or Boston. Our view is that an investment bank must earn that right,

and trading volume can be a great indicator of the investment bank’s willingness

to support a stock. In this hypothetical example, IR could split New

York and Boston with Cowen and Piper, and give Lehman Brothers a secondary

city until it shows improving numbers.

TEACH-INS

Another important event that all companies should adopt is the teach-in. Before

explaining the actual teach-in, however, a review of how analysts

launch coverage on stocks would be helpful.

After discussing the investment idea with the director of research and

after writing his or her report, a time is usually scheduled with the institutional

sales force to present the idea, almost always after market hours.

The analyst steps to the podium and makes his or her argument on why

the company and the stock are interesting, and a question-and-answer session

ensues.

As stated in earlier chapters, a lot rides on each stock pick. Certainly the

analyst’s reputation with the buy-side and the analyst’s reputation with his

or her own sales force is at stake. Also, those stakes move up a notch if the

analyst’s last pick went awry, with investors losing money and the sales force

losing points with buy-side accounts.

For that reason, management should actually be part of the teach-in

when a new analyst launches coverage. This is not only a show of support

for the analyst by management (impressing his or her bosses), but it can

temper any existing ill will with the sales force, particularly if the analyst’s

last pick was a poor one.

In this scenario, the analyst would conduct the teach-in like any other

stock pick, but management could conduct its own brief presentation after

the fact, or simply be available for the question-and-answer session.

This IR technique can markedly help the analyst in terms of credibility

and compensation and invigorate the sales force to call accounts and recommend

the stock. It gives the sales force increased motivation if they are able

to make a call and say “we met with management today,” which is not very

common.

A teach-in takes the risk out of a launch and maximizes the event for

everyone involved. In addition, because management will be in town after

the teach-in anyway, IR should schedule, along with the launching analyst,

a series of one-on-one meetings in that city to further maximize the time and

money spent traveling.

CONFERENCES

Throughout the year, numerous investment banks hold large investor conferences.

Often centered around industry themes, they attract many important buy-side players. Management teams should, selectively, make themselves

available for these sell-side gatherings to present or even fill slots in an

industry panel or topical discussion.

This effort creates awareness and helps investors better understand the

company. Management’s presence also supports the analyst and the investment

bank by indirectly generating a payday. After all, analysts are paid on

commissions, and a great conference line-up leads to high buy-side attendance

and increased commissions.

Therefore, IR should track which conferences are well attended and by

whom and which are not. To that point, if there are six people in the room,

it may not be worth the CEO’s time, unless those six people are from Fidelity,

Capital Research, T. Rowe Price, Dreyfus, Trust Company of The

West, and State Street Asset Management. Similarly, there could be 50 “investors”

in the room, but they are individual brokers offered a free lunch to

fill the seats. IR’s responsibility is to screen and prioritize management’s

time, and conference planning must be highly selective.

One last point: to maximize management’s time at the event, IR can use

the sponsoring investment bank to set up one-on-ones, and then utilize another

investment bank to set up the following day should management elect

to stay. This could be in-filled with media opportunities so that the time and

money spent to attend the conference are maximized with events that the

CEO would have to travel again to do.

INVESTOR DAYS

Investor days that feature tours of the company’s operating facilities and a

schedule of meetings with senior management members can be highly

successful methods of building bonds with the investment community.

Not only do these days get the investor or analyst into the business environment,

but they allow management to describe the business with visual

references.

For example, a CEO can take a group of analysts and portfolio managers

through his headquarters to explain a new initiative. Upon seeing the

plan and the workers executing the plan, they are much more likely to have

a better recollection of the concept, versus seeing it explained on a presentation

slide. After the tour, the head of design might speak about plans, trends,

and the competitive market. Then, off to marketing and distribution, where

the products are physically packed and stored.

These visits also provide the investment community with the opportunity to meet company personnel beyond the CEO and CFO, which is especially

helpful for a company that may not have the most dynamic executive

at the helm, but has an exciting and enthusiastic team of professionals and

employees and a depth of management that puts the company in a positive

light.

All of these images are highly valuable for the sell- and buy-sides and

tend to stay in their minds. For this reason alone, companies should plan one

or two investor days per year and open the day to new and existing investors.

Finally, the event should be Web cast to ensure that material information

isn’t being selectively disclosed.

TRADE SHOWS

Trade shows are a good arena for management to meet various stakeholders

and capital markets players and usually offer a more relaxed environment

than an industry conference. To make the most of the event and all the attendees,

IR should engineer a cocktail hour or dinner, sponsored by one of

the sell-side analysts in attendance to foster better relationships. The company

gets the visibility, the buy-side attends another meeting where he or she

can access management, the analyst gets credit for the event and positions

his or her firm for a commission payday, and IR slips away, knowing the job

was well done.

CANCELING AN APPEARANCE

Management should never cancel a scheduled appearance. Management

teams sometimes become aware, just before a road show or panel, of a problem

that will hit their earnings. The instinct is to not attend, thinking no

news was better news. But if a company cancels a scheduled appearance,

The Street assumes something is wrong. As a result, even if in actuality

everything is fine, the stock is likely to take a hit.

This scenario happened with a company in the branded consumer products

sector prior to its scheduled appearance at a conference. IR strongly advised

them to pre-announce the earnings miss on the morning of the conference

and still show up for their presentation, which they did. Their stock

took a small hit, but after they stood up and faced a room full of analysts

and portfolio managers to discuss the issues, the dust quickly settled. Management

also earned significant credibility points.

THE PRESENTATION

IR must always have up-to-date presentation slides with which to attend

these types of meetings. Unfortunately, after numerous uses and revisions,

these presentations can often evolve into something that’s long and unmanageable,

ending the interaction process with Wall Street before it begins. For

this reason, IR needs to keep the presentation fresh and current and practice

delivering it in no more than 25 minutes. This time limit holds for one-onones,

but these days, some sell-side conferences allow only 15 minutes and

in some cases, 10. It goes without saying then that the Wall Street time

crunch is behind this compression, and most analysts and portfolio managers

believe that if management can’t present its business in 15 minutes,

then there is a communications problem.

Contrary to this thinking, management teams sometimes show up with

a 55-page slide presentation that lists each company’s product, backed up by

pages of the technology and management bios. This sure sign of an inexperienced

management team will more likely than not result in the analyst or

portfolio manager tuning out, politely showing management the door, and

not buying the stock. Unfortunately, snap judgments are made every day on

Wall Street, and IR’s job is to know in advance how the sell- and the

buy-sides are used to seeing management presentations. In other words, IR

must package the product for Wall Street, or the result will often be reflected

in valuation.

In addition, presentation skills are important because The Street naturally

judges one management team relative to the next. Management should

be enthusiastic and dynamic, yet avoid being promotional. In addition, companies

should always refrain from addressing valuation. In other words,

hearing management make an argument that its stock is undervalued is a

turnoff. This is the domain of the professionals in the audience, and conclusions

on valuation should be left to them. Management’s job is to generate

financial performance and deliver results in the most consistent and transparent

manner possible.

Below is a suggested outline for the presentation slides and is by no

means the only way to construct them. However, it might be a successful

guide in tailoring a presentation for a specific company. A solid presentation

should include:

Market data: stock symbol, exchange, current price, and shares outstanding,

which leads the viewer to market capitalization.

Company overview: the description of the business, management and

experience, market position or niche, and historic EPS growth.

Strategic initiatives: the plan for earnings growth.

Company financials: a snapshot of the numbers with quarterly, year-todate,

and historical (last three years) information. It also includes

gross margins and operating margins (sometimes by segment), and

current status of the balance sheet. For companies that use significant

debt to expand their business, this might be interest coverage,

while debt-free businesses, like retailers, might profile the current

ratio (current assets divided by current liabilities).

Key investment highlights: The five or six points on why the company is

a good investment.

MEETING MANAGEMENT IN BAD TIMES TOO

No matter the forum, nothing builds management credibility more than

showing up and facing the music when things are bad. When an event occurs

that pushes the stock down, management should consider going on the road

with an analyst to visit institutions or attending a conference.

This might seem counterintuitive, but the action itself can add to longterm

valuation. A portfolio manager who knows that management will be

available during bad times knows he’ll be able to have access and get the information

needed to make a decision. Management teams that hide when

times are bad may never get a second chance with an experienced investor.

Also, in many of these meetings, the audience will be welcoming, because

they’ll likely see the drop in the stock as an opportunity and potentially soak

up some of the share supply as its being dumped on the market. Therefore,

as unpleasant as it may seem, organizing a road show when the company

may be at its worst can make management look its best.

THE STREET AND THE COMPANY

Meeting The Street is about building and maintaining the dialogue, in good

times and bad. A solid relationship between management and the investment

community can only help a company when the inevitable, unpredictable

event occurs.

Whereas the Delivery stage of IR dealt with basic disclosures like earnings

releases and conference calls, the Dialogue stage includes in-person

events geared toward interaction with the sell-side and the buy-side.

Through these events, most savvy management teams are able to maintain a

sound relationship with The Street and offer systematic information that

benefits existing analysts and portfolio managers as well as those who are

new to the story.

THE NON-DEAL ROAD SHOW

At the top of the list of these events is the non-deal road show. This is a series

of one-on-one meetings with the buy-side over a one-day period or over

multiple days in several cities. As the “non-deal” aspect of the name implies,

management is not raising money at the time (unlike an IPO or secondary

offering). It’s simply a forum to update money managers on the company’s

progress.

The non-deal road show is the most effective forum to develop interest

in a stock because the portfolio manager can ask questions, look management

in the eye, and share concerns in a private setting. This is very different

from a well-attended conference call where a portfolio manager might not

even be able to ask a question, let alone five or six like she wants. The oneon-

one meeting usually lasts 45 minutes to an hour, and there can be anywhere

from five to eight meetings in a given day.

Management and its IR department should plan the year in advance and

specify which dates work best for the non-deal road show. Four times per

year, directly after each quarterly conference call, is a good start, although

management may want to layer in one or two other opportunities. The reason

post–conference call road shows are best is basically for Reg FD purposes.

Because all new company information and financials will have been

released and discussed on the call, management will be free to talk about the

latest developments and do so without disclosure risk.

However, circumstances may cause management to hit the road intraquarter.

A small acquisition may have to be explained or the stock may have

fallen without any change to the underlying financials. Under either of these

scenarios, management can elect to meet with the buy-side. However, if any

chance exists that a material initiative will be discussed, a press release announcing

that initiative should be distributed prior to the meetings.

With dates in hand and topics fresh, IR must then decide which buy-side

accounts to target. This task can be daunting for IR, but a capital markets

perspective makes it easy.

Analysts increase their compensation levels in a variety of ways. They

can be good stock pickers, publish volumes of research, or call 300 portfolio

managers every month with their latest idea. One of the biggest determinants

of compensation, however, is the non-deal road show: delivering management

teams to the buy-side on a regular basis. This helps the buy-side

cost-effectively meet management teams and of course helps the company

tell its story. It also helps the sell-side, because after the meeting, if the portfolio

manager likes the company and management, and buys the stock, he or

she will usually buy it through the sponsoring investment bank.

This outcome is much more likely for smaller, over-the-counter stocks,

where only a handful of sell-side investment banks make a market. In that

scenario, if Fidelity were to buy the stock they’d have to go through one of

the handful of firms anyway. However, with NYSE-listed companies, the

buy-side will find a way to pay back the sponsoring firm in all likelihood.

For example, if Fidelity ends up buying stock in a company that Wachovia

Securities brought through town on the non-deal roadshow, but didn’t execute

the trade with Wachovia for whatever reason, odds are that another

large trade will come Wachovia’s way. More than ever, with investment

banking fees eliminated from analyst compensation, these commissions are

invaluable.

Therefore, in the case of a non-deal road show, a company should never

target the buy-side directly (unless there is no current analyst coverage) and

certainly never use a third-party, outside IR agency looking to take ownership

of the process. Unfortunately, this scenario happens all the time, and results

from a lack of capital markets expertise on management’s part and a

total lack of expertise on the part of the outside IR agency. Whenever possible

the company should enlist the sell-side to shepherd the process and create

an economic event. That economic event, in this case, is commissions

that will invariably be steered to the sponsoring bank. Multiplied by 300

non-deal road shows annually, the economics become fairly powerful.

Once the company has determined which analyst or analysts will put the

one-on-ones together, IR must ensure that the meeting schedule is optimized,

which means double-checking the quality of the appointments that the sellside

has made and adding any others that may seem appropriate. Because of

the lack of a relationship, the sell-side can sometimes leave critical meetings

off the agenda. Through its own search, IR must have the appropriate investors

in each city at hand, and insert one or two as the schedule permits.

Once those meetings are set, however, IR should make sure that the sponsoring

bank gets credit because it will likely lead to a solid relationship and

commission business down the road.

IR that has this perspective, always looking to create paydays for the

sell-side, is much more inclined to garner coverage and have a better, more

interactive relationship with the analyst. This latter point can mean the difference

in an upgrade or a downgrade or simply receiving the benefit of the

doubt in a situation where an analyst might otherwise reduce the rating.

If the road show is in multiple cities, IR must quarterback the process.

We would suggest giving the larger investment banks New York and Boston

(one city for each analyst), and if the company intends to visit Philadelphia,

Baltimore, Chicago, Denver, or the West Coast, split those dates with the remaining

sell-siders. This approach allows the company to keep an auction

atmosphere with multiple sell-side firms vying for time. It also serves to create

an economic event for every analyst involved. If, for example, management

visited every city with its two largest investment banks, the smaller analysts

wouldn’t have much incentive to recommend the stock and might

become disengaged. Make no mistake that investment banks exist to make

money, and for many smaller firms with no notable investment banking

business, the non-deal road show is a primary source of their top-lines.

Therefore, when orchestrating the road show process, IR should maximize

the event, which tends to maximize value over the long run.

One more point on choosing investment banks for road shows. Through

a summary of the trading reports of the investment banks, IR departments

can see on a week-to-week basis which investment banks are trading the

highest volumes in their stock. Year-to-date results might show SG Cowen to

have traded the most and Piper Jaffray close behind. However, Lehman

Brothers also covers the stock, is constantly tenth or below in trading volume,

yet is always asking to escort the company to premier cities like New

York or Boston. Our view is that an investment bank must earn that right,

and trading volume can be a great indicator of the investment bank’s willingness

to support a stock. In this hypothetical example, IR could split New

York and Boston with Cowen and Piper, and give Lehman Brothers a secondary

city until it shows improving numbers.

TEACH-INS

Another important event that all companies should adopt is the teach-in. Before

explaining the actual teach-in, however, a review of how analysts

launch coverage on stocks would be helpful.

After discussing the investment idea with the director of research and

after writing his or her report, a time is usually scheduled with the institutional

sales force to present the idea, almost always after market hours.

The analyst steps to the podium and makes his or her argument on why

the company and the stock are interesting, and a question-and-answer session

ensues.

As stated in earlier chapters, a lot rides on each stock pick. Certainly the

analyst’s reputation with the buy-side and the analyst’s reputation with his

or her own sales force is at stake. Also, those stakes move up a notch if the

analyst’s last pick went awry, with investors losing money and the sales force

losing points with buy-side accounts.

For that reason, management should actually be part of the teach-in

when a new analyst launches coverage. This is not only a show of support

for the analyst by management (impressing his or her bosses), but it can

temper any existing ill will with the sales force, particularly if the analyst’s

last pick was a poor one.

In this scenario, the analyst would conduct the teach-in like any other

stock pick, but management could conduct its own brief presentation after

the fact, or simply be available for the question-and-answer session.

This IR technique can markedly help the analyst in terms of credibility

and compensation and invigorate the sales force to call accounts and recommend

the stock. It gives the sales force increased motivation if they are able

to make a call and say “we met with management today,” which is not very

common.

A teach-in takes the risk out of a launch and maximizes the event for

everyone involved. In addition, because management will be in town after

the teach-in anyway, IR should schedule, along with the launching analyst,

a series of one-on-one meetings in that city to further maximize the time and

money spent traveling.

CONFERENCES

Throughout the year, numerous investment banks hold large investor conferences.

Often centered around industry themes, they attract many important buy-side players. Management teams should, selectively, make themselves

available for these sell-side gatherings to present or even fill slots in an

industry panel or topical discussion.

This effort creates awareness and helps investors better understand the

company. Management’s presence also supports the analyst and the investment

bank by indirectly generating a payday. After all, analysts are paid on

commissions, and a great conference line-up leads to high buy-side attendance

and increased commissions.

Therefore, IR should track which conferences are well attended and by

whom and which are not. To that point, if there are six people in the room,

it may not be worth the CEO’s time, unless those six people are from Fidelity,

Capital Research, T. Rowe Price, Dreyfus, Trust Company of The

West, and State Street Asset Management. Similarly, there could be 50 “investors”

in the room, but they are individual brokers offered a free lunch to

fill the seats. IR’s responsibility is to screen and prioritize management’s

time, and conference planning must be highly selective.

One last point: to maximize management’s time at the event, IR can use

the sponsoring investment bank to set up one-on-ones, and then utilize another

investment bank to set up the following day should management elect

to stay. This could be in-filled with media opportunities so that the time and

money spent to attend the conference are maximized with events that the

CEO would have to travel again to do.

INVESTOR DAYS

Investor days that feature tours of the company’s operating facilities and a

schedule of meetings with senior management members can be highly

successful methods of building bonds with the investment community.

Not only do these days get the investor or analyst into the business environment,

but they allow management to describe the business with visual

references.

For example, a CEO can take a group of analysts and portfolio managers

through his headquarters to explain a new initiative. Upon seeing the

plan and the workers executing the plan, they are much more likely to have

a better recollection of the concept, versus seeing it explained on a presentation

slide. After the tour, the head of design might speak about plans, trends,

and the competitive market. Then, off to marketing and distribution, where

the products are physically packed and stored.

These visits also provide the investment community with the opportunity to meet company personnel beyond the CEO and CFO, which is especially

helpful for a company that may not have the most dynamic executive

at the helm, but has an exciting and enthusiastic team of professionals and

employees and a depth of management that puts the company in a positive

light.

All of these images are highly valuable for the sell- and buy-sides and

tend to stay in their minds. For this reason alone, companies should plan one

or two investor days per year and open the day to new and existing investors.

Finally, the event should be Web cast to ensure that material information

isn’t being selectively disclosed.

TRADE SHOWS

Trade shows are a good arena for management to meet various stakeholders

and capital markets players and usually offer a more relaxed environment

than an industry conference. To make the most of the event and all the attendees,

IR should engineer a cocktail hour or dinner, sponsored by one of

the sell-side analysts in attendance to foster better relationships. The company

gets the visibility, the buy-side attends another meeting where he or she

can access management, the analyst gets credit for the event and positions

his or her firm for a commission payday, and IR slips away, knowing the job

was well done.

CANCELING AN APPEARANCE

Management should never cancel a scheduled appearance. Management

teams sometimes become aware, just before a road show or panel, of a problem

that will hit their earnings. The instinct is to not attend, thinking no

news was better news. But if a company cancels a scheduled appearance,

The Street assumes something is wrong. As a result, even if in actuality

everything is fine, the stock is likely to take a hit.

This scenario happened with a company in the branded consumer products

sector prior to its scheduled appearance at a conference. IR strongly advised

them to pre-announce the earnings miss on the morning of the conference

and still show up for their presentation, which they did. Their stock

took a small hit, but after they stood up and faced a room full of analysts

and portfolio managers to discuss the issues, the dust quickly settled. Management

also earned significant credibility points.

THE PRESENTATION

IR must always have up-to-date presentation slides with which to attend

these types of meetings. Unfortunately, after numerous uses and revisions,

these presentations can often evolve into something that’s long and unmanageable,

ending the interaction process with Wall Street before it begins. For

this reason, IR needs to keep the presentation fresh and current and practice

delivering it in no more than 25 minutes. This time limit holds for one-onones,

but these days, some sell-side conferences allow only 15 minutes and

in some cases, 10. It goes without saying then that the Wall Street time

crunch is behind this compression, and most analysts and portfolio managers

believe that if management can’t present its business in 15 minutes,

then there is a communications problem.

Contrary to this thinking, management teams sometimes show up with

a 55-page slide presentation that lists each company’s product, backed up by

pages of the technology and management bios. This sure sign of an inexperienced

management team will more likely than not result in the analyst or

portfolio manager tuning out, politely showing management the door, and

not buying the stock. Unfortunately, snap judgments are made every day on

Wall Street, and IR’s job is to know in advance how the sell- and the

buy-sides are used to seeing management presentations. In other words, IR

must package the product for Wall Street, or the result will often be reflected

in valuation.

In addition, presentation skills are important because The Street naturally

judges one management team relative to the next. Management should

be enthusiastic and dynamic, yet avoid being promotional. In addition, companies

should always refrain from addressing valuation. In other words,

hearing management make an argument that its stock is undervalued is a

turnoff. This is the domain of the professionals in the audience, and conclusions

on valuation should be left to them. Management’s job is to generate

financial performance and deliver results in the most consistent and transparent

manner possible.

Below is a suggested outline for the presentation slides and is by no

means the only way to construct them. However, it might be a successful

guide in tailoring a presentation for a specific company. A solid presentation

should include:

Market data: stock symbol, exchange, current price, and shares outstanding,

which leads the viewer to market capitalization.

Company overview: the description of the business, management and

experience, market position or niche, and historic EPS growth.

Strategic initiatives: the plan for earnings growth.

Company financials: a snapshot of the numbers with quarterly, year-todate,

and historical (last three years) information. It also includes

gross margins and operating margins (sometimes by segment), and

current status of the balance sheet. For companies that use significant

debt to expand their business, this might be interest coverage,

while debt-free businesses, like retailers, might profile the current

ratio (current assets divided by current liabilities).

Key investment highlights: The five or six points on why the company is

a good investment.

MEETING MANAGEMENT IN BAD TIMES TOO

No matter the forum, nothing builds management credibility more than

showing up and facing the music when things are bad. When an event occurs

that pushes the stock down, management should consider going on the road

with an analyst to visit institutions or attending a conference.

This might seem counterintuitive, but the action itself can add to longterm

valuation. A portfolio manager who knows that management will be

available during bad times knows he’ll be able to have access and get the information

needed to make a decision. Management teams that hide when

times are bad may never get a second chance with an experienced investor.

Also, in many of these meetings, the audience will be welcoming, because

they’ll likely see the drop in the stock as an opportunity and potentially soak

up some of the share supply as its being dumped on the market. Therefore,

as unpleasant as it may seem, organizing a road show when the company

may be at its worst can make management look its best.

THE STREET AND THE COMPANY

Meeting The Street is about building and maintaining the dialogue, in good

times and bad. A solid relationship between management and the investment

community can only help a company when the inevitable, unpredictable

event occurs.