Case Study

$14bn Software Company in Model Transition

Jason Gold
February 7, 2023
10 min read

The problem the client identified

An investor in another company, who saw a significant return on his investment partially due to our work, referred us to the CFO of this client (under NDA). The client’s company wasn’t getting proper credit for their growth and outlook. 

The problem identified

After many years of disappointing results, investors lost interest in this company. Additionally, the company’s financial disclosures made it impossible to see all the changes going on “under the surface.”

We scrapped their old disclosures and KPIs and replaced them with an entirely new set that highlighted the exciting growth and future opportunity in a highly strategic area of the business. We also changed how the story was told to focus investors on this key area of the business and to show them where the company was going in the medium-to-long term. We gave investors a roadmap and then provided disclosures that enabled investors to evaluate the company’s progress toward achieving these goals every quarter.

The work we did

The key changes were made within the first 6 months of our engagement, but the company came to rely on our guidance and counsel and kept us on for three years until they were sold. We changed everything about how they talked about their company: from the numbers they disclosed and the timeframe of the storyline they followed to writing their earnings call scripts, drafting their investor presentations, and prepping them for Q&A sessions (both for earnings calls and investor conferences). We also listened in to many of their calls with investors and, just like how Cyrano wrote letters to Roxanne on Christian’s behalf, we scripted management’s answers to all potential investor questions.

The solution

There are three important elements for a properly valued stock:

1) telling the right story
2) providing the numbers to support that story
3) management credibility.

When we first began, none of these three elements were present, and the stock’s valuation appropriately reflected this. We dug into each element of the business, quickly figured out where the growth was coming from, and changed management’s talk track to focus exclusively on this part of the business (getting item #1 in place). We then adjusted the company’s financial disclosures and KPIs to demonstrate this business’s  growth and its potential (putting item #2 in place). We also worked with the client to set guidance appropriately low so we could begin the process of “beating and raising numbers” with a predictable cadence. Coupled with the management’s new ability to answer all investor questions clearly and articulately, the client began to develop strong credibility with the Street (putting item #3 in place).

Half-way through engagement, this company also needed a new internal IR leader. We developed the job specification for this person and worked with the search firm to vet candidates. We then interviewed all candidates, presented them to management and helped them decide. We then spent the next year training this new IR person to build a best-in-class IR program.

The result

Investors began to take note of the story, since the headline metrics were bullish, and it was told to them in a way they could finally decipher and understand. They quickly recognized the value of the strategic business and applied lofty multiples to it, materially pulling up the sum-of-the-parts valuation.

Our engagement began when the company’s market cap was $5 billion, which was 14x the following year’s consensus Free Cash Flow estimate. The company was sold 3 years later for approximately $20 billion, which was 45x the next year’s Free Cash Flow.

The feedback from the client

CEO: “I loved how Jason pulled no punches when critiquing how I talked to investors. At one point he told me that my answers made him want to short my stock. That was a huge eye-opener and made me realize just how much I didn’t understand about how I sounded to investors. Jason’s insights in our boardroom discussion were amazing - we renewed his contract so many times because we learned to rely upon his insight and guidance for everything IR-related. We almost couldn’t live without him.”
CFO: “After an investor referred Jason to us, we engaged him to help change the way we tell our story to the investment community. We were going through a very complicated business transformation and Jason helped streamline our talk-track to the most important elements, gave us a new reporting format for our financials, and coached us on what would become very complex Q&A. He also helped write our earnings scripts, prepared us for sell-side conferences, and helped us hire and train a new investor relations officer. We renewed with Jason several times and have recommended him to others.”
IR Officer: “Jason was a huge help to me as the company’s IRO because he understands how investors think and act and was able to role play with me how investors would react to our results. This really helped us prepare for Q&A and made me better at my job.
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Jason Gold
February 7, 2023