Traditionally, earnings calls are tightly run and few get to participate in them. For that reason, companies may drive less engagement among investors, potentially resulting in misunderstandings and turnover.
That’s according to Litquidity, a brand that is now seeking to disrupt investor relations.
On May 9, Litquidity will facilitate RCI Hospitality Holdings Inc’s (NASDAQ:RICK) first-ever earnings call on Twitter Inc’s (NYSE:TWTR) Spaces, the place where communities can engage their audiences with live audio conversations.
Benzinga spoke with Litquidity’s head of growth and operations Mark Moran and RCI’s president and CEO Eric Langan to learn more about the meaning of this event.
Context: Benzinga featured Litquidity before on its intentions to disrupt traditional finance media and become “a case study in journalism school.”
Its newest endeavor is centered around democratizing the flow of information between companies and their investors.
Traditionally, investors dial a 1-800 number every quarter to hear, directly from management, the viability and prospects of a company publicly traded.
“These earnings calls are only open to the equity research analysts and maybe a few of the top holders,” said Moran, a licensed attorney, and ex-Wall Street banker.
Langan added that “it’s difficult to expand reach and you’re limited to 45 minutes or so of Q&A … [with] most of the time, everybody wanting the call to end.”
Graphic: Eric Langan.
To better amplify its message to a broader investor audience, RCI hired Litquidity as its investor’s relationship manager.
During ideation, Moran and Langan thought to leverage Twitter’s new Spaces feature for an upcoming earnings call. Through Spaces, live audio conversations can be hosted with up to 13 people speaking at the same time.
Any person can join, listen, and speak in a Space on Twitter’s iOS and Android apps. If an audience member wants to speak, they request, and, then, the attempt is approved by the host.
The Why: Previously, when time would run out during an earnings call, investors would be told to circle back with management either physically, online or over the phone. Additionally, calls aren’t advertised in real-time and that leads to smaller turnouts.
With Spaces, conversations have none of these limits, and “there are reminders that constantly pop up in people's feeds during the event and as people share,” Langan says.
That means, if Litquidity was able to solicit the engagement of some active members on Twitter, such as Tesla Inc’s (NASDAQ:TSLA) Elon Musk or Ramp Capital, the turnout could be many times larger.
“Imagine if Elon Musk saw what we were doing and was intrigued,” said the RCI executive. “If he commented, 83 million or so on Twitter would see that in a matter of hours.”
Through this new initiative, RCI may reach an investor base not traditionally catered to by equity research analysts which often focus on markets with higher capitalizations.
“With that visibility, if I were to get nine million people to buy one share, that’s my entire outstanding share count that will be traded in one day,” Langan added.
Messaging: In 2016, Langan’s perspective on leadership and capital allocation was forever changed after he read the book “The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success.”
RCI strategized and began investing money, better.
“Our free cash flow yield was like 24%. We thought: ‘Why not just buy back our own stock. We’re guaranteed 24% free cash flow yield,’” Langan explained. “We also started selling off underperforming assets and replacing them.”
If unfamiliar with the model of adult entertainment facilities like strip clubs, which are core to RCI’s business, governments are highly restrictive of expansion.
That means RCI has “an unbelievable moat because no new licenses are being given out,” Langan says. “On top of that, we diversified and founded Bombshells restaurants.”
However, RCI did not communicate these changes well and the stock had difficulty moving.
Through Twitter Spaces, among other investor relations initiatives like an NFT project that allows customers to write feedback to a private Discord room with management, RCI thinks it will better be able to quickly implement and communicate change.
Impact: The retail investor, who is more engaged, is putting out better and differentiated research products, and, ultimately, it’s going to be the unbundling of this information at a cheaper cost that disrupts the traditional equity research business model.
Many of the analysts follow each other's price targets, Moran explained: “You’re paying people six or seven figures to essentially do excel [calculations] and no original thought. I think we’re going to help further facilitate this democratization of information.”
“Once we execute on it well, you’ll start to see all of the dominoes fall.”
The two-tiered earnings Q&A is set to happen on May 9 at 4:30 p.m. ET. Both equity research analysts and top shareholders will have a chance to talk, first. Later, Litquidity will moderate a discussion between RCI management and listeners on Twitter, only. Investors can tune in via a listen-only 1-800 number.
