When things are going great, investor relations may just be a tool in a company’s overall communications plan. But when the market turns more volatile, IR takes on an even more strategic role.
Consider Cisco’s quarterly conference call. The preparation is always an intense process and a huge team effort. But for Cisco’s May 8 call our role was even more vital as it came amid the most difficult period in the company’s history. Less than six months before we had been growing at 70 percent year-over-year. Now Cisco was down 30 percent from the previous quarter, flat to down 5 percent on the year. That’s a huge swing. We also had a workforce reduction for the first time. In this environment, IR is incredibly challenging.
Cisco’s seven-person IR group coordinates the conference call, partnering with Cisco’s CEO and CFO as well as the corporate PR and executive communications teams. While the strategy and the content of the call are being determined, the IR team is managing the many logistics required to ensure the call runs smoothly, which is usually does. Ironically, the previous quarter – the first time Cisco ever missed consensus – the line went down for half an hour and the call had to start over. It made life slightly more stressful than normal!
A month before the conference call, Cisco’s IR group distributes a three-page checklist to prepare for the event, assigning tasks to the IR team as well as the finance department, executive communications department and PR. Cisco also has two competitive financial analysts in the IR group who track 20-25 of our competitors, adding a lot of value to our own quarterly call. They maintain an intranet, making their analysis available for the whole company to utilize.
It is rare for Cisco to comment on its business during the quarter, however we held a business update on April 16, and that made the end-of-quarter teleconference a bit easier, as we were already prepared for questions on several issues.
Cisco’s conference call: A day-by-day account
Monday, April 23
We held our initial brainstorming session with the executive communications and corporate PR groups, discussing the key issues we were hearing from the media and Wall Street – good, bad or indifferent.
I later had calls with a couple of sell-side analysts to talk about our inventory charge, which, along with Cisco’s restructuring, were hot topics for the sell-side.
Tuesday, April 24
I had morning coffee with Maria Quillard, head of investor relations at Xilinx and a Niri board member. It’s good to be able to compare notes with other IROs. Besides, Xilinx is a key supplier to Cisco and we often talk to the same people on Wall Street about the same issues.
Later on Tuesday, members of the IR team met with the manufacturing finance group to talk about Cisco’s inventory plans and its impact. This formed the core of our planning for the conference call along with our workforce reduction, which was announced that week. Putting emotions aside, we knew that whatever we communicated to our 43,000 employees had to be consistent in case the information for employees made it to Wall Street.
Monday, April 30
With a lot of the background research in place and the issues defined, we began putting together the large conference call binder that’s used by our CEO, John Chambers, our CFO, Larry Carter, executive communications and the IR team. We had key financial information quickly available because of Cisco’s ‘virtual close’ – a web-based application that allows us to close our books straight after the quarter, which ended April 28.
Wednesday, May 2
I received a package from our corporate finance department that included about 20 different schedules, ranging from our headcount to our balance sheet and P&L statements. With this information available quickly, we hammered out the issues with the core executive team and developed the content for the call.
We also sketched out the call’s ‘wild card’ topics – issues outside our results that are either forward-looking or focused on a strategic issue. This quarter we had three: a summary of Cisco’s realignment (including the workforce reduction) and its impact on the company, a discussion of Cisco’s excess inventory charge, and finally the assumptions behind Cisco’s 30-50 percent growth projections.
By the weekend we had the content for the call just about complete. I even had time on Sunday morning to relax down at the beach with my husband and our yellow labrador, Kylee!
Monday, May 7
Last minute changes are inevitable. The day before our conference call, our CEO, John Chambers, always looks for new ways to analyze the quarterly results. We often think we are ready for everything, but he wouldn’t be where he is today if he didn’t ask new questions and request different cuts of the data and research.
We also discussed Cisco’s guidance model with our CFO, Larry Carter. Each quarter we do this so our team has the background to explain the company’s plans to Wall Street.
Tuesday, May 8
The big day, or the ‘fat day’, as we call it! We have a tradition of having glazed donuts (our CEO’s favorite breakfast) every quarter on earnings day. We also have a tradition of ordering cheeseburgers and fries for lunch – which we usually feel the next day!
IR reviews the content of the call one last time with senior management, while corporate PR distributes the release at 1:15 pm Pacific Time and quickly briefs the media on the numbers. Then, like clockwork, at 1.45 pm, (the same time every quarter), we begin the conference call, with all the information in the massive binders at our side. The operations room which handles the logistics and operations of the call is next door to the conference call. Meanwhile, a member of the IR team is on a separate line with our conference call vendor, making sure our 35-40 sell-side analysts call in on the right number. The public gains access to the call either via the web or on the teleconference, but only sell-side analysts may ask questions. Due to technology constraints, Cisco limits the teleconference to 1,500 participants. In addition to the call, we have anything up to 30,000 people tuned into the webcast.
While the primary focus of the quarterly teleconference is Wall Street, the message also plays a major role with employees, suppliers, partners, the media and even competitors. Similarly, the call may be coordinated by IR, but it’s a huge team effort involving practically all of Cisco’s parts – especially corporate PR and executive communications. These three communications groups are very well integrated – it’s something I’ve never seen before in my experience in IR.’
New initiatives
‘During the same time that we were preparing for the quarterly conference call, our investor relations team met to establish our ‘initiatives’. Usually this is done in the summer, at the start of the fiscal year, but the whole business environment has changed so we’ve had to shift our IR focus.
Cisco has always had a strong growth story to share. When things are going well, our job is easier because we can be proactive without a lot of bumps in the road.
Unfortunately, the business environment over the past few months has meant being more reactive than proactive, as we respond to shareholders’ new thinking.
In the past, our goal was simply to communicate a growth story, maintain open communications with every investor, and provide a level of competitive intelligence that could benefit both internal and external parties. We didn’t do a lot of targeting before, because we had more than enough investors trying to understand the company. Lately, we’ve seen a huge growth in the number of individual investors calling with questions. Additionally, a lot of Cisco’s institutional investors have shifted their portfolios, which means there are new investors who don’t know Cisco as well. Cisco also have some very large institutions like Capital Research & Management, Alliance and Putnam that have moved into our stock. As a result, the team developed a new set of initiatives to manage the new environment:
1. To manage Wall Street’s expectations externally and communicate them internally. We’re now communicating with our management team more than ever before.
2. To evaluate Cisco’s new shareholder profile and implement a targeted outreach program to current and prospective investors. We did an aggressive analysis of the providers of targeting services, and selected an excellent service provider – their web-based data management system is ideal because we travel so often.
3. To try and identify then communicate new success metrics for Wall Street so they can understand and evaluate our new growth expectations.
4. Provide a strategic contribution to Cisco’s overall corporate communications efforts.
5. Leverage the internet for broader internal and external delivery of Cisco-specific and wider industry information.
6. Provide competitive insight and market intelligence for internal and external audiences.
