Tim Human talks with US satellite communications company Iridium about its targeting strategy
A loyal group of long-term shareholders is every IRO’s dream. But if the investor base is highly concentrated, it creates its own challenges. That’s the situation at Iridium, the satellite communications company headquartered in McLean, Virginia, which offers global voice and data services. With the top 20 shareholders holding 70 percent of the stock, trading volumes tend to be low. This can put off other investors from buying in, especially those with a short time horizon.
Much of Iridium’s targeting work is about finding that next major institutional buyer, explains Kenneth Levy, vice president of IR at the firm. But the company is also focused on retail investors in a bid to improve liquidity. To support his engagement efforts, Levy publishes a regular IR newsletter that mixes industry and company news. ‘My goal is to have readers feel like it’s not a cold-call, but free information from a person they trust,’ he says.
Here, IR Magazine talks with Levy about targeting goals, boosting liquidity and doing IR in a niche sector.
We have a very heavily concentrated shareholder base. Our top 10 shareholders own about 50 percent of the stock; our top 20 own 70 percent.
That is an enviable position – most IROs would love to make only 20 calls every quarter, rather than managing a larger pool of investors. For me, however, it’s a bit more complicated.
I have between 10 and 20 investors that have owned shares for a decade, so my challenge is finding a large, incremental shareholder that has the power to move the needle.
I have to reach generalist investors, which may need to get up to speed on telecom and, likely, have no understanding of satellite communications. Plus I need to keep them engaged or interested enough in our story to track our performance and invest additional time in due diligence. We have strong, free cash flow generation, so I need to understand whether that is a relevant metric for the analyst or fund I am targeting.
Finding the correct point of contact at a firm is often the biggest hurdle. It requires a lot of time and research. If that person hasn’t found me, I need to find him or her, which often it involves a lot of cold-calling or emailing with an enticing note to strike up a conversation.
I’ve instituted an ongoing IR e-blast in which I update investors on things going on at the company and within the industry. And then I annotate that with company-specific news articles. It delivers my information to investors’ inboxes. But they have to have enough familiarity with my name or our company to want to look at that email.
The e-blast can’t always be about my firm or what we’re doing. It can’t be patting ourselves on the back. It has to be relevant to the industry or sector. Sometimes I’ll pick things like the explosion of special purpose acquisition companies or the increasing democratization of space via low-cost launchers.
And then I’ll lead [the readers] back to our business. I always try to leave them with something that reflects positively on my company.
I want to ensure that, if people want to get up to speed on the space or satellite industry, I’m in the Rolodex as a credible person they can speak to. Even if they don’t want to buy my stock, the goal is to have them value my opinion, feel comfortable reaching out by phone and continue to receive and read my emails. Then, at the appropriate time, maybe they will buy the stock because it’s good value for them or has the right dynamics for their portfolio. I want to keep that option available.
For a company like ours – with significant recurring revenue – which already trades at a premium to industry peers, you really have to convince investors that we are worth paying a large premium for.
The risk of us missing earnings or materially slowing growth during a recession is relatively small and an investor may capture incremental upside by staying in our shares for several years, rather than trying to time the economic cycle.
We’ve seen a lot of institutions that already own us add to their positions, which increases the concentration risk issue I mentioned earlier. We’ve also seen a lot of quantitative funds add us in the first and second quarter – you can’t really target them, even if you want to open up dialogue: their models drive their investment decisions.
It’s come up as I’ve approached large hedge funds. They say there’s not enough liquidity for them to trade in or out. These investors are always looking to manage risk. They may like our story and the upside in our shares but if we disappoint and the stock goes down, they would stand to lose a lot of money because of the illiquidity of our shares.
That’s become an obstacle for attracting some hedge funds to our story. And generally, hedge funds are the ones that are more frequently trading, so they would be the ones to add liquidity on a regular basis.
We have two sell-side firms that cover us, each with a large retail investor unit: Raymond James and William Blair. Both analysts are supportive of our shares. I’m not sure if I can discern that trading volume increases when they publish on our story, but it’s clear that they are writing for and touching that retail population, which I just don’t have the ability to reach directly.
There are also conferences and magazines that touch the retail population. In addition, we have been in a couple of newsletters that target high-net-worth individuals. And we're continuing to work with an outside marketing company to get us a little bit more traction with those newsletters and financial news firms. We’re in the early stages, but it’s one of those longer-term projects I’m working on.
I find my biggest opportunities and tailwinds come from sell-side analysts, who have a bigger megaphone than me, broadcasting us as a viable and strong investment opportunity.
Other champions include members of our board and existing shareholders – whether big or small – that have informal networks where they talk to analysts and portfolio managers at different companies.
I’m always trying to cultivate those champions of our story, while also doing the heavy lifting of cold-calling, emailing and just keeping my funnel as big as possible.
You often go back to people who have longevity at a firm or a fund because they generally stay in place. But for me, the incremental opportunity may be the analysts who loved our story, couldn’t sell the idea to the portfolio managers at one company, and have now moved on to a different firm.
That’s where my opportunity is: essentially getting in front of a new company or fund I don’t personally know, but where I know the person who is now influencing that portfolio manager’s investments.
