Today’s Investor Relations Officer is a leader required to have expertise in multiple areas – shareholder relations, strategy, finance, sustainability, communications, capital markets, ESG, and competitive intelligence. Nasdaq’s IntroToAnIRO feature highlights the IROs who perform this beyond the traditional role. In our first feature of the year, Bill Choi, Senior Vice President of Investor Relations & Strategic Finance at Zscaler, brings us along his IR journey.
Bill joined Zscaler in 2017 to prepare the company for its initial public offering and to establish its IR program. Prior to making the transition to investor relations, Bill spent over 20 years leading and building technology sector research practices at various investment banks, including Jefferies, Janney, Merrill Lynch, and PaineWebber. Bill specialized in thought-leadership research across high-growth companies in networking, hardware, infrastructure software and cybersecurity industries. Bill is currently on the board of the National Investor Relations Institute’s (NIRI) Silicon Valley chapter. Bill graduated with honors from the Wharton School of the University of Pennsylvania, with a concentration in finance and management. Bill is a CFA Charterholder.
We spoke with Bill to get his insights on the challenges facing IROs and the skills needed to be successful.
How have you established your company’s priorities amid the Coronavirus pandemic?
My primary focus was to make IR more visible, available and transparent to both the investors and to our corporate leadership. IR has a strategic seat, serving as an intermediary between investors and the company. I often refer to IRO as a corporate ambassador to investors, and to be effective in this role, you need to establish credibility and trust. You need to be an expert and be in the information loop by having a network of contacts inside the company. This is something that an effective IR team does on an ongoing basis, but in times of uncertainty, it truly differentiates the best IR programs.
In the week that the stock market tripped the circuit breakers two days in a row, I wrote our leadership team providing an update on the stock, investor feedback and concerns. Zscaler is a cloud security company with large, Global 2000-type customers. Investors were concerned about our ability to take our high-touch enterprise sales model to an effective virtual engagement and maintain our sales productivity. I sent the update letter on Friday, and over the weekend, I got together with our CRO to review the feedback and discuss our go-to-market initiatives. Having this sort of real-time access to information adds to the confidence you can deliver in your message to investors.
Working with our Communications and Legal team, I was also an advocate for using corporate blogs and webinars to provide publicly accessible updates. These updates include information on how we transitioned our employees to work from home, the surge in customer usage, and how we remotely turned up additional capacity in new data center locations. We were creating resources for investors, which helped us as we scaled our investor engagements.
Now, with vaccinations, investors are focused on the reopening of offices and the economy. Investors will always be asking how new trends potentially impact your company. In order to be helpful, you need to be on top of your game at all times and proactively seek information from your internal network.
How has the spread of COVID-19 affected your strategy as an IRO? Specifically, have you had to answer significant questions from investors around supply-chain impact?
Yes, we were being asked at the time if we had the capacity to meet customer demand. Zscaler is a cloud security company purpose-built to secure the world of cloud and mobile, and overnight, everyone moved to that world where employees were working from anywhere, and businesses were adopting the cloud to ensure business continuity and agility. We enabled our customers to work securely from home, literally overnight, as quarantine orders went into effect around the globe. As a cloud-delivered service, we were able to handle a 10x increase in usage of one of our core services. We’ve been able to continue to add significant capacity to our cloud.
Investor interest in Zscaler has been very high, and we had to scale our IR program to meet the demand. Since March of last year, we had approximately a 3x increase in the number of engagements with the buy-side and sell-side, when we were already in the top quartile among our peer group for investor activity, according to Nasdaq IR Intelligence benchmark. I recall the first month of pandemic lockdowns, there was a lot of uncertainty and fear from investors, and we partnered with the sell-side to host six fireside chats with investors in 30 days. Our sell-side coverage also increased from 22 to 27 currently. As a result, we added two additional members to our IR team and took in-house some of the support functions that were handled by an outside IR advisor. I expect the volume of investor activity to remains high. As you know, cybersecurity is top of mind with recent SolarWinds and Microsoft Exchange Server breaches.
How can an IRO best engage the investment community?
I think IR has to be proactive in engaging with the sell-side and in nurturing the ideal investor base for the long-term. With our expanded IR team, we have been able to be more proactive about having multiple touch points with our large investors and sell-side analysts outside of the quarterly earnings. These short conversations help us to address any remaining questions before we head into a quiet period and for us to ask them for feedback and their views. These calls help us stay grounded on the latest investor perspectives. Of course, for them to want to take this call, we have to provide a helpful perspective. Our IR team works hard to stay abreast of the latest developments and what it means for us so that we can handle 95% of the inquiries ourselves. We try to be a one-stop-shop for information regarding the company, including products and technology, with minimal need to pull in someone from another team to join us for a call. When conducting these calls with investors, we are mindful of complying with Reg FD and making material information available to all market participants at the same time.
With a dynamic industry like cybersecurity, investor education is a continual process. I view investor education as the key to our premium stock valuation. It takes a certain amount of effort to show that Zscaler is not a better mousetrap but that we transform how businesses secure their employees, applications and devices. So, we had to be 1) purposeful and proactive with our messaging, and 2) we need to meet the investors where they are. With ongoing changes to how the buy-side and sell-side work together, we have been supporting more investors coming directly to us. We are also hosting briefings at major industry conferences, our customer showcase events, product launches and analyst days, as well as the usual mix of sell-side conferences, bus tours, and NDRs.
What are your top priorities and biggest challenges as an Investor Relations Officer?
I have two priorities I’m working on right now. First, I am building out our Strategic Finance function, which is an added role for me and it goes hand-in-hand with the IR role. As I mentioned, IR is a very strategic seat where you become the central hub of information. You are given a lot of latitude to learn about the company and your industry, and you become an important resource not only to Wall Street but also to your management team. By forming partnerships broadly across the company and with finance and corporate development specifically, you have the opportunity to influence the strategic direction of the company. My Strategic Finance responsibilities include long-term financial planning, M&A finance, and market intelligence.
The second initiative is ESG reporting. We recognize the growing importance of ESG disclosures to help investors assess material risks and opportunities to how a business generates its financial results. As a software company, material disclosures include information on intangible assets like our people and culture and the environmental efficiency of our cloud operations and associated benefits to carbon footprint reductions for our customers. Sustainability has to be at the core of the company’s operations and values, and ESG requires sponsorship from the top, including the board of directors. I have seen ESG programs sit under the CEO, CFO, legal, or IR. Regardless of where it sits, ESG is cross-functional, and investors are a major stakeholder. Hence, IR has an important role to play – we have the necessary context and relationships to help define and shape ESG reporting. Plus, ESG will give you a point of engagement with passive funds, which are growing as a share of the investor base.
What is one important initiative that you’ve championed or experience that you’ve had as an IRO?
We had a challenge of properly articulating our total addressable market. We are a market leader and pioneer of a new security approach called Zero-Trust. It flips the existing security model on its head – we protect the users, devices and apps, not the networks. When it’s a new market, there’s not much available data. So, when Zscaler went public three years ago, we decided to reference our opportunity to disrupt a large and existing market of network security products. However, it was the market we were disrupting. That was like forecasting the market for automobiles by counting the horses and buggy-whips. This situation left something missing in our IR messaging. I started to feel that it overly focused people on the disruption and not the new opportunity. So, for our Analyst Day in January, we spent a few months preparing a new, bottoms-up serviceable available market (SAM) analysis that combined credible third-party data on our target customer segments with new disclosure on the effective prices we were getting on each of our growing product lines. When you can quantify your market opportunity using actual business metrics, your IR and financial message get a lot simpler and much more powerful. A well-articulated SAM analysis will have the impact of both informing investors about the business while also opening their eyes to the longer-term potential of the company.
What are some benefits you have seen from being an IR Intelligence client?
Nasdaq has been a great partner for us since our IPO. Our strategic IR program requires access to a lot of information to work properly. We probably use most of the IR services that Nasdaq offers. It has become a one-stop-shop for many of the tools we use to run our program daily, including IR Insight for events, personalized emailing, shareholder analysis and ConnectIR for scheduling meetings. I see stock surveillance as a critical tool to increase IR credibility with management and the board. Knowing your investor base makes you credible when you speak about the effectiveness of your IR messaging or anticipated reaction to corporate development. I have also been using Nasdaq’s targeting service, which allows us to dig into fund-level detail within large buy-side firms and to get insights into who is actually buying and selling. I see tremendous potential to use the service to build the right investor base. What’s been great about Nasdaq is that we get a dedicated team that is extremely responsive to our requests and suggestions. I find this to be one of the most important factors when choosing the right partner for us.
Zscaler (ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SASE-based Zero Trust Exchange is the world’s largest in-line cloud security platform.