How to Leverage Your IR Calendar for Success

The IR calendar is a vital tool used by any investor relations professional. One of the most important aspects of IR is making sure that your management team is regularly in front of investors without limiting their ability to run their business. Ultimately, it is a delicate balance. The IR calendar allows the IR team, management, the company’s board, and other relevant stakeholders to look at the program holistically and understand where management should be spending their time with investors throughout the year.

Key Events to Include on Your Calendar

There are a few aspects of the IR calendar that are relevant for all companies: earnings reporting dates, press releases, industry events, investor conferences, and Board of Director meetings. As we have previously discussed, companies with larger market caps are more likely to be covered by more sell-side analysts than their smaller counterparts, and, in-turn, will likely be invited to more investor conferences. As such, management will likely draw a large investor audience. Smaller companies, on the other hand, are less likely to have broader sell-side coverage and won’t be invited to as many conferences. This is where it is up to the IR team to be creative in its approach to filling up the IR calendar. One option could be a conference in which the company pays the investor conference provider to participate. Another option could be asking your sell-side analyst to host a Key Opinion Leader (KOL) call in order to highlight a specific product or product line. This will drive investor awareness to your company’s story by allowing an independent voice to opine on use and efficacy of your company’s offerings.

Timing is Everything 

After you add earnings dates, investor conferences, and Board meetings to the calendar, it is useful to look at timeframes in which the company can participate in a non-deal roadshow. A good timeframe is typically after the company reports its earnings results and before the close of the quarter and/or in conjunction with key company events, like a new product launch or FDA clearance of a new drug. Additionally, it is beneficial to look at companies that are covering banking industry conferences for the year. If your company is invited to participate in a covering bank’s conference in March, a non-deal roadshow with the same bank in April might not be the best idea, as the same investors would likely be targeted by that bank. Instead, see if the covering bank has the ability to host a non-deal roadshow in August or September, so that if the bank targets the same investors, they will have had a chance to do more research on the company and take a position in the stock.

A regular news flow is important for all companies. However, releasing news too frequently or too infrequently may have negative effects on your company. Issuing news too frequently can dilute your messaging, so that when you do have news that will move the needle, investors won’t pay attention. Conversely, if you release news too infrequently, investors won’t pay any attention to the company, and those who were on the fence about taking a position might be discouraged by the lack of news. The IR calendar allows the IR team and management to think strategically about timing and frequency of issuing press releases. It is often a good idea to issue a press release prior to an investor conference in order to leverage the news in conversation with both existing and potential shareholders.

Another way to keep a steady news flow is to issue press releases outside of the regular earnings cycle. For example, if you report your quarter in early May, it might be beneficial to wait a month before issuing news so that your company’s name is in front of investors outside of the busy earnings season.  Additionally, if your company plans on hosting an analyst or R&D day throughout the year, use the IR calendar to find the best time to attract the best audience possible.

Conclusion

In all, you can add just about anything to the IR calendar, even if at first it has a note of Date TBD, Target Event, or Potential Press Release. In fact, it is beneficial to add these target events to the calendar as it reminds management what is on the horizon so that they can plan accordingly.

In recent years, the IR calendar has become even more flexible as many meetings have become virtual. We have discussed this in a past blog post, Revisiting Your IR Calendar. At Gilmartin, we have created countless IR calendars for companies of all sizes. If you would like to learn more about how to leverage your IR calendar for success, contact us today.

Jack Droogan, Analyst

 

Impacts of Labor Dynamics on Hospital Finances and the Healthcare Industry

Labor—salaries and wages for physicians, nurses, and other healthcare professionals—has historically represented a significant portion of hospitals’ operating expenses. For HCA Healthcare, one of the largest healthcare systems in the US, the ratio of salaries and benefits expenses to revenues consistently approximated 46% from 2019-2021. By comparison, supplies as a percent of revenues approximated 16% over that time period, while other operating expenses ranged from 17-18.5% of revenues.

Clearly, labor represents an outsized portion of hospitals’ overall operating expenses. As such, the past two years of disruption in the labor market, particularly among healthcare professionals, has been reflected in hospitals’ financial conditions. In a report they published in October 2021, Premier concluded that hospitals and health systems in the US are paying $24 billion more per year for qualified clinical labor than before the COVID-19 pandemic began. Further, their analysis indicates that clinical labor costs are up by an average of 8% per patient per day, compared to 2019 (pre-COVID) baseline levels.

As the healthcare system continues to experience an influx of patients being treated for COVID-19, hospitals have found themselves competing for qualified labor, particularly nurses. In addition to the added cost for finding and recruiting nurses (often through agencies), hospitals have relied on existing staff to work overtime hours to care for the increased patient load. These dynamics bore out in Premier’s data as well; according to their report, overtime hours were up 52% (as of September of 2021) when compared to a pre-COVID baseline. Within the same comparison framework, use of agency and temporary labor increased 132% for full-time and 131% for part-time workers. Additionally, the use of contingency labor rose nearly 126%.

In addition to the increase in working hours, the rates for these positions are materially higher than standard arrangements – that is, overtime and agency staff typically add 50% or more to a standard hourly rate. Anecdotal commentary from public hospital companies has cited even higher multiples, further highlighting the extent to which labor dynamics impact overall finances for health systems.

In the early days of the pandemic, the federal government acted swiftly to provide support to health systems nationwide. The CARES Act and subsequent measures aided in shoring up hospital finances to mitigate the disruptive impacts of the pandemic. Now two years into the pandemic, US hospitals have experienced ebbing and flowing waves of COVID patients, while nurses and other healthcare professionals have remained dedicated to providing the necessary care. Through these experiences, hospital systems have learned to manage their operations to treat COVID and non-COVID patients simultaneously. By comparison, in the earlier days of the pandemic and in subsequent surges, hospitals often forewent (either by choice or mandate) ‘elective’ or ‘non-essential’ procedures to preserve capacity in their systems. Much of the conversation during those periods focused on preserving hospital beds. It soon became apparent that the capacity of care provided by nurses and other professionals was just as essential, if not more so, to maintain.

Today, nationwide COVID cases and hospitalizations are lower than they were during the Omicron peak earlier in 2022. However, hospitals across the country continue to admit and care for COVID patients every day, while nurses and other professionals are leaving the profession, due to burnout or other reasons. In October 2021, data from Morning Consult found that 18% of healthcare workers had quit their jobs during the COVID-19 pandemic. Among healthcare workers who kept their jobs during the pandemic, 31% considered leaving. Additionally, the report notes that 79% of healthcare professionals said the national worker shortage has affected them and their place of work.

As we cross the two-year anniversary of COVID-19’s declaration as a pandemic, the US healthcare workforce has experienced a broad disruption, upending operations of hospitals and health systems across the country. Hospitals have in turn developed and executed strategies to operate in this environment, including examining ways to reduce other costs to offset the impact of increased expenses for labor. As the COVID-19 pandemic continues and hospitals continue to experience wage inflation pressures, suppliers, medical technology and device companies, and staffing agencies are seeing the downstream effects across the industry.

Gilmartin diligently monitors and analyzes trends across the healthcare sector and macro environment, in order to better inform our clients of developments that may impact their companies directly or indirectly. Contact our team today to learn how our combined knowledge and experience can benefit you.

Alex Khan, Vice President

 

Virtual Marketing Learnings

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The global COVID-19 pandemic is changing the way things are done across society. How companies market themselves to Wall Street is taking a new form as well. Investment banks, like medical and trade organizations, are utilizing online platforms to power virtual events to keep clients and members connected during these trying times. Now, with six months of experience helping facilitate corporate presentations and investor meetings through a variety of virtual forums including conferences, non-deal roadshows and IPO roadshows, we have learned how to optimize the experience to generate nearly the same value these events were designed to deliver in person.

  1. Video > Audio – The video calls certainly took getting used to, and now it appears they are here to stay. We have found that they increase engagement and interaction, especially in the presentation or fireside chat setting at conferences and investor days. At this point, video has gone from “optional” to “strongly recommended” by banks because it is generally believed to be more interesting and captivating.
  2. Video Conferencing Platforms – There are many software solutions for video conferencing and presenting available now – Zoom, Teams, BlueJeans, Issuer Direct, Open Exchange and the list goes on. Because we are using so many different platforms, it is important to understand this presents another logistical hurdle that needs to be addressed by taking time to learn and use them properly. It is always important to test these platforms with your computer, microphone and camera to avoid any delays or coming off as unorganized or unprofessional in meetings and presentations. Without a consensus choice platform for presentations, we need to be sure to always take advantage of any speaker ready or dry runs configuration checks offered by event hosts. If you plan to use a presentation, make sure you can share your screen and are familiar with the projection software.
  3. Participation – Removing the burden of travel makes events more accessible to both companies and investors. This increased participation has been demonstrated over the past six months. It is now easier for companies and investors to participate in multiple days of a conference. Another factor contributing to increased company participation is the expanded communication from companies regarding updates around COVID, as well as strategic responses serving as pertinent discussion points. This is a top concern of investors trying to get a handle on the current environment and future trends.
  4. Schedule – With the aforementioned increased participation rates, creating efficient schedules that balance interactions between top holders, potential investors and larger funds without repeating too often becomes more challenging. Banks do not have visibility into companies’ schedules at other conferences, and the fact that investors are not guaranteed meetings with companies makes it challenging for them to manage their individual schedules and requests at different conferences. We continue to play an active role here to ensure top holders can have appropriate access, while accommodating new investor requests and being mindful that repeated meetings without news from a company will not be the most productive. We collaborate with the banks to help ensure schedules are optimized for companies and investors. Another layer of logistics is created by participating companies and investors in different time zones. West Coast companies probably do not want to present at 8am EST. On the other hand, East Coast investors probably do not want to have their last meeting at 4pm PST. Lastly, different management teams have different preferences around breaks; who really wants to be in back-to-back meetings without scheduled breaks for eight hours?
  5. Targeting – When companies are participating in virtual non-deal roadshows hosted by banks, investor targeting becomes less geographically focused as there are no longer physical constraints dictating companies’ ability to meet with certain investors on a specific day. This has created opportunities to meet with investors in less concentrated regions like Seattle, Portland, Atlanta and Charlotte. It also means it is more important for IR teams to collaborate with corporate access teams so that if multiple events are being coordinated, banks can avoid duplicating targeting efforts in certain regions.
  6. IPO Roadshows – Finally, as a result of the ease and increased accessibility afforded by virtual meetings, IPO roadshows have been condensed to around four action packed days of video meetings. Banks are seeing added value to this model beyond the previous “fly back and forth across the country for two weeks” approach. Part of the reason roadshows have been condensed is because an increased number of test-the-water meetings can be conveniently conducted before the IPO process officially kicks off. Investors have gotten comfortable with this model so companies with an IPO in their future should expect this to be the norm for the time being and beyond.

This new investor meeting landscape is filled with nuance and its own logistical hurdles. We hope this helps you prepare for your next event and would be happy to discuss optimizing your approach. Contact our team today.

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Philip Taylor, Vice President

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Celebrating Your IPO During a Pandemic

The process of an initial public offering typically requires tons of work and can take months or even years to complete. The day a company begins trading on a national stock exchange is a great reason to celebrate, and what better way to celebrate than ringing the opening or closing bell at the New York Stock Exchange or Nasdaq MarketSite in New York City? Standing on the podium overlooking the bustling NYSE trading floor or being in the Nasdaq MarketSite in Times Square on the first day of trading are experiences no one should pass up. Unfortunately, the COVID-19 pandemic has forced the NYSE and Nasdaq to temporarily postpone their usual in-person bell ringing ceremonies. While these virtual events may not be the same experience as physically being in New York City, both the NYSE and Nasdaq have developed excellent alternative programs so that companies can still celebrate their big day.

NEW YORK STOCK EXCHANGE
The New York Stock Exchange has taken a hybrid approach to its bell ringing. The NYSE has incorporated two large monitors behind the bell ringing podium that can display company artwork and a live video feed from the invited company. There is also the option of having a small number of people visit the NYSE and be on the podium to ring the bell. NYSE photographers are present for photos, and the bell ringing is live streamed via the NYSE’s website.

NASDAQ
The virtual Nasdaq MarketSite bell-ringing and first trade ceremony has been designed to be very similar to its in-person ceremony, with brief speeches given by an executive from Nasdaq and a member of the invited company, streaming of corporate videos and photos, and lots and lots of clapping. In order to make this process run as smoothly as possible, Nasdaq has developed an event app tailored for this virtual experience. This app allows up to 3,000 guests to log in and participate in the virtual ceremony. One very cool feature of the virtual ceremony and corresponding app is the ability to upload photos and short videos and have them displayed the Nasdaq tower in Times Square. Not only will this app live stream the Nasdaq tower, but Nasdaq will also take videos and photos of the tower while the company’s media are being displayed. To commemorate the day, Nasdaq will send the participating company digital versions on the video and photos taken of the Nasdaq Tower during the celebration. Nasdaq is also offering a hybrid version of its bell ringing ceremonies, with one or two people from the company ringing the bell at the Nasdaq MarketSite and the remaining group participating virtually via the event app.

CONCLUSION
Ringing the opening or closing bell in-person at the NYSE or Nasdaq is an event that should not be missed. However, the virtual ceremonies the exchanges have designed are excellent, and we recommend our clients take advantage of these programs to celebrate their hard work. As a side note, ask your listing exchange to add your company to the list of in-person bell ringing ceremonies, as the participation of a virtual bell ringing ceremony does not preclude your company from future bell ringing ceremonies.

For additional information on how to arrange an exchange bell ringing ceremony, please contact our team. Visiting the NYSE and Nasdaq and watching the excitement of our clients during these celebrations never gets old.

FUN FACT
The New York Stock Exchange bells ring for different durations: the opening bell sounds for 10 seconds, and the closing bell rings for 15 seconds.

Greg Chodaczek, Managing Director

Serge Yusim, Analyst

Revisiting Your IR Calendar

The COVID-19 pandemic has transformed the way we interact with everyone, including investors. Virtual meetings and conferences have become the new normal. While the personal, face-to-face conversations are missed, this format is likely to continue to some degree even after the current climate changes.

Earlier in the pandemic, IHS Markit reported the results of a survey of investor relations officers in which 97 percent stated that the emergence of COVID-19 has changed their IR plans for the next 12 months; 94 percent showed an interest to implement a virtual investor activity as part of their calendar. As we look to the second half of the year, the evolving dynamics of this pandemic, coupled with associated adjustments to virtual settings, prompt a suggested revisiting of your IR activities for the rest of this year and beyond. We highlight some of our own recommendations below.

EVALUATE YOUR CURRENT CALENDAR
In looking back at the first half of this year, consider how many days you have spent meeting with the investment community. How many investment banking conferences have you attended each quarter? Were these conferences held by covering banks or targeted banks? What are the remaining banking conferences for the year? Are they virtual? Are there any that are sponsored by banks that you are targeting? Have you gone on the road virtually? And for how many days? Did you have group meetings or one-on-ones, and were they productive? How many top shareholders and new or targeted investors were you able to meet? Did you have a preference on the different settings or the number of investors attending? These are just a handful of questions to ask.

BE SELECTIVE
A key benefit of the virtual setting is efficiency – simply put, planning for investor meetings and conferences is more flexible and cost-effective without travel as a variable to consider.

Additionally, geography is no longer a limiting barrier. As a result, management teams have more latitude in choosing events they wish to take part in, along with more leeway when it comes to investor targeting. We recommend taking advantage of this versatility and meeting with investors who you may not have met with before due to time and location (e.g., consider international institutional investors or institutional investors based in unexplored geographic regions within the U.S.).

The flipside of this level of flexibility is the potential for meetings to overlap. We suggest that you continue with the traditional approach of targeting investors geographically. But if you feel that a schedule is lackluster or scant in meetings, we encourage targeting additional regions as part of investor outreach. Expanding to different areas can lead to more productive schedules.

At the same time, we recommend keeping track of any meetings held or regions targeted. In this way, any overlaps in areas or with investor meetings can be prevented, while time can be maximized and expanded geographic outreach can be achieved.

EXPAND EVENTS TO INCLUDE A BROADER TEAM BEYOND THE CEO AND CFO
With travel out of the equation, related cost savings, along with more availability, consider adding more of your team beyond your CEO and CFO to join these events. Think about holding an investor/analyst day in conjunction with a data release, trade conference seminar or new product launch. As part of this day, consider having different team members from product development, clinical or commercial speak alongside your CEO and/or CFO. Shaking up events in this way could provide them with more color, and more importantly, showcase your teams’ expertise in their respective fields. Ultimately, this helps build confidence in your company’s general mission.

FINAL TIPS
Finally, we recommend that you target at least two to three events each quarter with one-half to two days maximum spent on each event. Make sure that you request breaks and/or lunch built into each day and stick with video conference settings, if possible, to try and capture a more personal exchange.

For additional information on how to most effectively adjust or plan out your IR calendar, contact our team. We have helped our clients revisit IR calendars in this new virtual world we are navigating, and we would be happy to support and guide you through this strategic planning as well.

Ji-Yon Yi, Associate 

S-1 Business Section Drafting 101

Pre-Org Meeting IPO Prep: S-1 Drafting
The S-1 is comprised of business and financial information designed to inform prospective investors and outline all material business risks. It offers an in-depth, first look at a private company, and analysts and portfolio managers often comb through the public document carefully when considering an investment.

General S-1 Drafting & Filing Execution Timeline:

Business Section Overview
Generally, the business section is where you will have the most latitude to tell your story and make the case to prospective investors regarding why they should make an investment in the IPO. It’s important to remember that the S-1 serves two purposes: to market your IPO and to disclose risks and satisfy other legal requirements. As a management team, you should generally focus on including what you’d like to say. Leave it to your underwriter and legal teams to guide you in satiating legal requirements and mitigating risk. As a reminder, everything included in your roadshow deck must be included in the S-1, and every data point included in both must be well-sourced and factually supported.

Outline/Structure
In terms of content, most S-1 business sections will follow the same general outline, with some nuance depending on management’s preference and investment thesis specifics. It’s also worth noting that much of the business section will be repetitive by nature.

The time it takes to turn an outline into a more thoughtful draft will vary, but the iterative process typically takes about 1-2 months prior to the Org Meeting and another month or two following the Org Meeting. Leveraging your IR partners to coordinate the drafting process and “manage the master” can significantly mitigate the burden on your internal team.

Illustrative Guidelines for the Flow and Structure:

1. Overview – “The Box”

  1. Goal: This section is a comprehensive yet high-level overview of the entire business section where companies make their strongest case, in their own voice, on the attractiveness of the offering.
  2. Length: 4-6 paragraphs
  3. Topics:
    • Mission/vision
    • Brief product overview
    • Market highlights/opportunity
    • Growth/progress to date

2. Competitive Strengths

  1. Goal: This is effectively a more thorough version of the investment thesis slide found in the beginning of roadshow decks where the company highlights the most compelling components of the offering.
  2. Length: 4-6 bulleted (short) paragraphs, each formatted with a bolded highlight plus additional support copy
  3. Potential Topics:
    • Technology
    • Clinical validation
    • Payor value
    • Established reimbursement
    • IP
    • Management team

3. Growth Strategy

  1. Goal: This is effectively a summary of the drivers behind your success (answering the question why/how are we going to be successful?); may also include your commercial strategy, pipeline and short term/long term growth drivers
  2. Length: 4-6 bulleted (short) paragraphs, each formatted with a bolded highlight plus additional support copy
  3. Potential Topics:
    • Strength of product
    • Initial strategy
    • Mid-term commercial strategy
    • Longer term commercial and growth strategy
    • Pipeline
    • Market expansion

4. Market Opportunity

  1. Goal: To convey the size and scope of the addressable market(s) and how management is approaching it. How you discuss the opportunity should align with the commercial strategy.
  2. Length: Variable – typically 3-6 pages
  3. Topics:
    • Unmet needs
      • Existing alternatives/competition
      • Limitations
    • Addressable market
      • Disease overview(s)
      • Market segments
      • TAM ($) – Theoretical vs Attainable

5. Product(s) Overview/Our Solution

  1. Goal: To demonstrate that you have the solution to address the unmet needs outlined previously and take share aggressively.
  2. Length: 3-6 pages, including images/graphics
  3. Topics:
    • Procedure/technology overview
    • Mechanism of Action (MoA)
    • Advantages
      • Patient
      • Provider
      • Payor

6. Clinical Data

  1. Goal: To provide a succinct and compelling overview of clinical data demonstrating the safety and efficacy of the product/solution.
  2. Length: 3-5 pages
  3. Topics:
    • Overview
    • Trial results
      • Explanation of endpoints
      • Data tables
      • Comparative data sets

7. Reimbursement

  1. Goal: To demonstrate the current and expected status of reimbursement for the product/solution.
  2. Length: 2-6 paragraphs depending on level of nuance
  3. Topics:
    • Covered lives
    • Coding
    • Payment
    • Go forward strategy

8. Commercial/Growth Strategy (placement is variable, sometimes earlier)

  1. Goal: To convey what you’re doing to capitalize on market now and in the future. Consider modelling implications for how you outline your strategy.
  2. Length: 2-5 pages
  3. Topics:
    • Sales and marketing strategy
    • Salesforce expansion
    • Clinical pipeline
    • Product pipeline

9. Intellectual Property

  1. Goal: To explicitly state details relative to IP portfolio.
  2. Length: 2-4 paragraphs
  3. Topics:
    • Patents by geography
    • Issues/pending

10. Manufacturing & R&D

  1. Goal: To provide details around current and expected manufacturing strategy. To convey focus on specific product development.
  2. Length: 1-2 page
  3. Topics:
    • Facilities
    • Contract manufacturer relationships
    • Quality management
    • Supply chain

11. Government Regulation

  1. Goal: Provide boilerplate type details to satisfy disclosure requirements.
  2. Length: 1-2 pages
  3. Topics:
    • FDA approval process/timeline
    • Continuing regulation
    • OUS regulatory authorities
    • HIPAA, CMS, private payers, etc.
    • Other relevant regulations

12. Additional Details

  1. Goal: To explicitly state factual details.
  2. Length: 1 paragraph per topi
  3. Topics:
    • Employees
    • Facilities
    • Legal proceedings/ongoing litigation

Post Org Meeting Expectations
After your org meeting, your bookrunners will typically manage the remainder of the S-1 drafting process, scheduling a number of calls each week for the month or two following your org meeting–with the goal to complete and confidentially file the S-1 around 3-4 months prior to anticipated IPO pricing.

The SEC will typically provide comments to the confidentially filed Form S-1 in approximately 30 days. Corporate and underwriter counsel will work to address any issues and will coordinate with management and bankers to respond and amend the S-1 accordingly. This process continues until the SEC approves the S-1, typically after 1 to 2 rounds of comments, at which point the filing can “flip” to public and the IPO roadshow can commence. Typically, S-1s flip public 2-3 weeks prior to the roadshow.

Conclusion
In all, coming to your Org Meeting with a thoughtful first draft of the S-1 business section is time effective and allows your team to focus on other more pressing matters through the early stages of the IPO prep timeline. For more information on S-1 drafting or to learn more about Gilmartin and how we strategically partner with our clients, contact our team today.

Brian Johnston, Vice President

Navigating Investor Meetings During A Crisis

Many aspects of the business world have been affected by the COVID-19 pandemic, and plans for investor interactions in 2020 is no exception. Planning for scheduled investor interactions, such as non-deal roadshows, generally takes place well in advance. This gives you time to reserve windows for travel during times when there are no quiet period restrictions that might limit discussions or events that might occupy a large portion of the investment community’s attention (investment bank conferences, industry events, etc.). Given the current scheduling challenges, we expect most companies to simply change these meetings to phone calls, but, before your company makes a decision, consider an alternative option in this new business landscape.

Old vs. New Ways of Meeting 

Beginning in March, essentially all investment bank conferences and industry events scheduled in the near future were either canceled outright, postponed, or moved to a virtual setting to abide by federal and local mandates and company policies. Unfortunately, this takes in-person meetings out of the picture, at least for the foreseeable future, which means management teams and the investors lose out on valuable time to build relationships. In-person meetings have been for many years and will likely remain the preferred meeting type for many reasons, including the nature of the meeting and the opportunity to build a rapport. This is especially true when meeting with an investor who is looking to make an initial investment and has not yet met the management team in person. Luckily, video communication platforms offer creative ways to mitigate this issue.

COVID-19 and the travel restrictions that came with it have undoubtedly sped up the adoption curve for video communication platforms. With in-person meetings out of the picture, the question remains: should companies schedule phone calls in place of in-person meetings or should they join the trend of hosting investor meetings on WebEx, Zoom, Microsoft Teams, etc.?

A New Option in a New Environment

Video calls combine the face-to-face interaction of in-person meetings with the flexibility of a phone call. Both of these things have become increasingly imperative as investors navigate a highly volatile stock market and fluid economic outlook and essentially all employees are required to work from home.

Before COVID-19, it was standard practice to limit non-deal roadshows to one city per day or possibly two depending on the proximity, but video calls negate that limitation. Instead of being constrained to a select group of investors based on your location, you now have the liberty to expand your outreach. This allows for a much more targeted approach and increases the convenience of meetings with funds located outside of an investor “hotspot,” where dedicating a day of travel would have previously been difficult to justify. Similarly, without the requirement of travel, it now becomes very realistic to include a physician, KOL, or a member of senior management on the video call. Such attendees can add much needed clarity, and they most likely would have been unable to attend an in-person meeting due to the logistics and scheduling required for a full day of travel and meetings.

Lastly, reviewing a deck during an investor meeting is much more convenient on a video call, due to the ability to share your screen with the rest of the group.

Go Virtual or Wait for Clarity?

Given the widespread guidance suspensions and the fluidity of COVID-19 developments, it is fair to consider postponing the majority of your investor interactions until you have more clarity surrounding your business and market outlook. However, it is important to remain opportunistic now that there is no burden of dedicating an entire day to back-to-back meetings and red eye flights. In the vast majority of cases, business fundamentals remain intact for the long term, so despite an unclear outlook for the remainder of 2020, it is still worthwhile to share your story with new investors. With the first quarter 2020 earnings season underway, it is a great time to revisit your meeting history and peer ownership to determine ideal target funds for the remainder of your 2020 investor interactions.

Keep in mind that the vast majority of investors are likely in the same position as you— working from home—so take advantage of the flexible schedules and the unique opportunities presented during this unprecedented time.

If you need a partner in your investor outreach or investor targeting, contact our team today.

Hunter Cabi, Analyst

Hiring an Outside Writer for Your S-1

One of the many decisions confronting a private company management when they begin contemplating accessing the public markets is how to write the S-1 document. The scope, complexity and legal requirements of the S-1 can make this process feel very daunting, particularly for managements who are undergoing it for the first time. And, while there are many outside advisors available to help with portions of the document, the primary responsibility of producing the initial draft of the S-1 will always fall on senior management. More and more companies are hiring ghostwriters to write the initial management draft of the S-1. Over the past year, Gilmartin Group has begun managing the S-1 drafting process for an increasing number of clients; this service has become one of our core competencies. As the number of clients we have worked with on S-1s has grown, we have observed a number of ways that ghostwriting benefits managements.

They Optimize Management’s Time

Writing an S-1 is a painstaking and time-consuming process, as the document must help create investor interest while also standing up to legal and regulatory scrutiny. Using an experienced outside writer will optimize management’s time during the document’s creation, review, and edit periods, resulting in a higher quality document in a shorter period of time. Before the writer drafts the documents, management should share what information must be included and who from management will provide and validate it. This allows senior management to continue devoting the majority of their time to their “day jobs” (aka running the business) and only involve themselves in the drafting process on an as-needed basis. The review process is also streamlined for management due to the fact that editing an existing draft is a far less burdensome process that creating one from scratch. It also allows individuals to edit sections of the document that fall under their areas of expertise while maintaining strict “version control.” This is a very necessary and elusive aspect of creating an S-1. We have found that our involvement allows for many more revisions, or “turns”, of the document in a short period, greatly enhancing its quality. This time management benefit is extremely popular with our clients.

They Are Natural Liaisons with Legal and Financial Advisors

After creating an internal draft of the S-1, the management passes the draft to the lead underwriters and legal team, typically at the org meeting. Then the bank-led drafting sessions begin. During this roughly month-long process, the document is scrutinized and edited to the satisfaction of all parties prior to submission to the SEC for comment. An outside writer can play a valuable role at this stage. He or she can act as management’s interface with the other advisors while ensuring that management’s vision of the document, and all subsequent marketing efforts around the financing, is preserved to the greatest degree possible during the legal review.

Another benefit that we have observed from participating in this process is bringing the bank’s lead drafter up to speed much more rapidly, as we are able to advise him or her on the work that has gone into the document and provide insights that may not be obvious upon initial review. It is also important to note that due to the high volume of S-1s being created, the investment banks are experiencing capacity constraints in terms of their ability to create documents simultaneously, and our mutual clients have welcomed any ability to expedite this process.

They Become Experts Who Don’t Go Away After the IPO

From a holistic perspective, hiring an outside S-1 writer, particularly if it is part of a broader IR relationship, creates the opportunity for the external consultant to immerse themselves deeply in the overall corporate culture in a very short period of time. The knowledge and relationships gained during this intense period create a skill factor that has long-lasting corporate benefits pertaining to the overall IPO process and beyond. All subsequent corporate messaging and connectivity with Wall St. will now be entrusted to someone who has truly become an expert in the opportunities, challenges and competition that the company will face. This distinct advantage becomes even more apparent in the post-IPO period when interaction with the banks decreases measurably. The inherent structure of the relationship between IR consultant and senior management is intended to last longer than that with banks and therefore becomes a very natural fit to fill the gap post-IPO as the bank moves on to other deals.

Gilmartin Can Be Your Ghostwriter

Gilmartin Group is providing S-1 writing as a service to a growing number of our clients, and we are very excited about offering it more broadly. It is a unique skill that is hard to find and allows us to provide our clients with a valuable service and form the basis of a long-term relationship. Contact us today to learn more.

Matt Lane, Managing Director

A Guide to Rule 10b5-1 Plans

Insider trading restrictions can be a constant headache for companies and their executive officers. Executives who receive a significant portion of their compensation in the form of options, restricted stock, or stock grants have a continual need to sell stock. Yet Securities and Exchange Commission’s (SEC) regulations, company insider trading policies, and fears of allegations of insider trading keep many executives from properly diversifying their holdings. As briefly discussed in our recent blog post on insider training, 10b5-1 trading plans are an ideal solution to this problem. The plan gives executives the flexibility to sell stock without regard to limitations imposed by a company’s insider trading policies, while still complying with SEC regulations. The structured nature of these plans provides an affirmative defense to allegations of insider trading, while helping to limit misinterpretations by investors.

Given the SEC’s increased focus on insider trading by executives, and the complicated determinations needed to decide if an executive or director has material non-public information (MNPI), it is anticipated that the use of 10b5-1 plans will continue to grow. Since the adoption of Rule 10b5-1 in 2000, the number of plans has grown steadily, with more than 50 percent of S&P 500 companies having executives who utilize 10b5-1 plans.

What is Rule 10b5-1?

Rule 10b5-1, established by the SEC, prohibits the purchase or sale of a security on the basis of MNPI. It is a clarification of Rule 10b-5, created under the Securities and Exchange Act of 1934, which is the primary vehicle for investigation of securities fraud. Although the rule creates more liability by prohibiting trades made while someone is merely “aware” of MNPI (rather than “using” such information), the rule also provides the affirmative defense of a 10b5‐1 plan, which is available to any person or entity.

What is a 10b5-1 plan?

Under Rule 10b5-1, large stockholders, directors, officers, and other insiders who regularly possess MNPI, but who nonetheless wish to buy or sell stock, may establish an affirmative defense to an illegal insider trading charge by adopting a written plan to buy or sell at a time when they are not in possession of MNPI. Under such plans, insider buying and selling are limited to predetermined shares at scheduled times, so that information possessed by insiders is less of an influence on their decision to trade. The plan must:

  1. Specify the amount, price (which may include a limit price), and specific dates of purchases or sales; or
  2. Include a formula or similar method for determining amount, price, and date; or
  3. Give the broker the exclusive right to determine whether, how, and when to make purchases and sales, as long as the broker does so without being aware of MNPI at the time the trades are made.

The protections of Rule 10b5-1 are not limited to publicly traded stocks. Private equity funds and other investment managers can benefit from Rule 10b5-1, such as by using a 10b5-1 plan to make future acquisitions or dispositions of company equity or debt without violating insider trading restrictions. Distressed debt investors also may use 10b5-1 plans to make future acquisitions or dispositions of company debt.

Benefits of 10b5-1 Plans

The most important benefit of these plans is that a properly structured plan provides affirmative defense for companies and those presumed to be insiders transacting in the relevant company’s securities. Other benefits include:

  • Greater certainty to insiders in planning securities transactions;
  • Potentially more opportunities for insiders to sell their shares, especially if the issuer’s trading policy permits trading under a plan during a trading or earnings blackout period;
  • Potentially less negative publicity associated with insider sales; and
  • Decreased burden on counsel or trading compliance officers who otherwise would have to make subjective determinations about the availability or possession of MNPI each time an insider seeks to buy or sell shares.

Who can establish a 10b5‐1 plan?

Any person or entity can establish a 10b5‐1 plan to sell or buy securities at a time when the person is not aware of MNPI, so long as the plan is not part of a scheme to evade the insider trading prohibitions of the rule. For example:

  • An executive who receives a significant portion of his compensation in stock options may set up a 10b5‐1 plan to diversify his holdings
  • An executive who needs liquidity to pay for the college expenses of her children might set up a 10b5‐1 plan to sell stock several weeks before each tuition payment is due
  • A director may establish a 10b5‐1 plan to purchase issuer shares to satisfy stock ownership guidelines
  • Any entity that may be an affiliate of the issuer or that may become privy to MNPI
  • A corporation interested in buying back its stock may set up a 10b5‐1 plan to repurchase its shares at certain prices

Practice varies as to whether companies permit, encourage, or require the use of 10b5-1 plans. Properly designed and implemented plans are at least as prudent as discretionary trading under normal insider trading policies. When handled correctly, 10b5-1 plans can be an effective way to deal with the misinterpretations by investors that are often posed by insider selling.

Should a 10b5‐1 plan be publicly announced?

There is no requirement to publicly disclose the adoption, amendment, or termination of a 10b5-1 plan, although in some cases, public announcement may be advisable due to the identity of the insider, the magnitude of the plan, or other special factors. With that said, announcing the adoption of a 10b5-1 plan may be a useful way to head off future public relations issues since such an announcement prepares the market and should help investors understand the reasons for insider sales when trades are later reported. Because Rule 10b5-1 does not obviate the need for insiders to file Forms 4 and 144, the market will often quickly learn of the 10b5-1 plan once trading commences. If a company decides to announce the adoption of a 10b5-1 plan, it is recommended to not disclose plan details, other than, perhaps, the aggregate number of shares involved; this is to diminish the ability of market professionals to front-run the insider’s transactions. A company can choose whether to announce the existence of a 10b5‐1 plan by a press release followed by a Form 8‐K or solely by a Form 8‐K.

Litigation

Nonetheless, 10b5-1 trading plans have been a source of controversy ever since the SEC adopted the rule in 2000, and they continue to be heavily litigated. In December, two senators called on the SEC and the Department of Justice to investigate Intel’s CEO, Brian Krzanich, for selling stock under a 10b5-1 plan shortly before the company announced a serious flaw in its processing chip. E-Trade, Lululemon, and Cigna Corporation have also each faced shareholder lawsuits for sales made under 10b5-1 plans. Shareholders also brought a suit against CBS for stock sales its executives made under 10b5-1 plans shortly before public disclosure of sexual-harassment allegations against the company’s then-chairman and CEO, Leslie Moonves.

To avoid the appearance that insiders are engaging in abusive practices, it is important for companies to establish best practices when implementing a 10b5-1 plan, such as requiring company approval of any 10b5‐1 plan, imposing a mandatory waiting period, considering minimum and maximum terms for plans, and disallowing any modification, termination, or suspension other than during open trading windows. In addition, companies should develop robust training programs regarding its insider trading and disclosure policies and the use of a 10b5‐1 plan. They should also consider periodic reviews of insiders’ trading plans to ensure compliance with the securities laws and company policies.

In summary, the 10b5-1 plan offers a straightforward way for executives to manage their shares while retaining an affirmative defense against insider trading. With proper communication among the participant, broker, and issuer, the plan can be a tool that enables insiders to diversify their investment opportunities without being circumscribed by restricted trading windows or threats of liability, while mitigating incorrect interpretations by the investment community.

Looking for guidance with your company’s 10b5-1 plan? Contact our team today.

Audrey Gibson, Analyst

Should All Companies Prepare Quarterly Earnings Slides?

As we have stated in multiple blogs, quarterly earnings calls are possibly the most important form of communication that companies have with the investment community. With the advent of Regulation Fair Disclosure (Reg FD), the earnings call is an ideal opportunity for management teams to avoid selective disclosure and provide company information to all investors at the same time. Because of the importance of these calls, investors now expect corporate management to not only provide a quarterly financial update, but also offer business updates.

Over the past several years, many mega and large-capitalization companies have started incorporating PowerPoint slides into their quarterly earnings reports and conference calls. While adding a presentation to an earnings call can help alleviate some investor questions, should every public company utilize this tool?

Below are some of the pros and cons of quarterly earnings slides.

Pros of Quarterly Earnings Slides

  • The financials are clearly displayed. A quarterly earnings presentation will typically include quarterly financials and company-specific metrics. Having these numbers in a presentation allows investors and analysts to concentrate on what management is saying instead of spending a large portion of time writing down financial measures and metrics. While there are several services available that can transcribe earnings calls for you, they typically take several hours to have the “revised” transcripts available.
  • Reconciliation between GAAP and non-GAAP earnings. All public companies in the United States are required to report quarterly earnings according to generally accepted accounting principles (GAAP) developed by the Financial Accounting Standards Board (FASB). Through acquisitions, corporate restructurings, etc., a company’s “true” quarterly performance may not be represented by GAAP reporting.  The Securities and Exchange Commission (SEC) allows public companies to report non-GAAP measures as long as these companies report comparable GAAP financial measures and a step-by-step reconciliation of the two reporting methodologies. While these measures and their non-GAAP to GAAP reconciliations must be included in the quarterly financial statements, a quarterly earnings slide deck that includes an earnings reconciliation can be very helpful to investors.

Cons of Quarterly Earnings Slides

  • You will likely set a precedent. Investors like quarterly earnings presentations because they help ease the burden of listening and note taking during earnings conference calls. Unfortunately, once a company begins down the path of supplying a quarterly earnings presentation, investors will expect one every quarter.
  • Metrics. As stated above, earnings presentations typically contain quarterly business metrics. Companies should be very careful about which metrics should be given as investors will expect to see them each quarter.
  • Creating a slide deck can be time consuming. Putting together a quarterly earnings PowerPoint slide deck takes time, and adding another “to-do” to a quarterly earnings cycle may be too difficult for some smaller companies.

Supplemental quarterly earnings presentations are appreciated by investors and analysts because they consolidate important financial measures into one, easy-to-read document. It is possible that adding another document to the financial reporting cycle could put an unnecessary burden on some companies. However, as companies become larger, offer more products, or make acquisitions and divestitures, having a concise earnings presentation can be very helpful in understanding the “true” financial state of a company. If your team is looking for guidance in creating a quarterly earnings presentation, or simply looking for advice on strategy for a slide deck, we’d love to help. Contact Gilmartin today to get started.

Greg Chodaczek, Managing Director