Company Helps Spacehab Boost Share Price, Reputation

By Brian Berger, Washington

Under pressure to get its stock trading above $1 per share or risk being de-listed from the NASDAQ exchange, Spacehab Inc. enlisted outside help to boost the space services firm’s sagging reputation among investors.

Evidence suggests the strategy is paying off for the company, whose main businesses are building and operating research and logistics modules that fly aboard the space shuttle and providing support services to NASA’s human space flight programs.

On Feb. 28, after several months in which Spacehab’s stock on most days traded below NASDAQ’s $1-per-share threshold, the Webster, Texas-based company announced it had retained Investor Relations Partners, which specializes in helping publicly traded firms boost their share price.

Less than two weeks later, the press releases started flowing. There were seven issued over 10 consecutive trading days, mostly touting Spacehab’s existing business and future opportunities. With the exception of an agreement of undisclosed value with NASA to ship international space station provisions to Russia, there were no new contracts announced in the releases.

Nevertheless, by the end of the day March 25, when Spacehab issued a release announcing a planned buyback of $1 million worth of its outstanding stock, the company’s share price had closed above $1 for 10 straight business days. Companies who have received a de-listing warning from NASDAQ typically must achieve a 10-daystretch of trading above $1 per share to get back in the exchange’s good graces.

Julia Pulzone, Spacehab’s chief financial officer, characterized the timing of these events as coincidence.

Spacehab did not retain an investor relations firm to help pump up its stock price and avoid de-listing, Pulzone said in an interview. That decision to hire an outside investor relations firm was made last year, before NASDAQ warned Spacehab that it was in danger of being de-listed, she said.

The idea, Pulzone said, was to share news with investors about Spacehab’s recovery. During the last three months of 2002, Spacehab recorded its first profit in several years and wanted to make sure investors knew about it, she said.

Pulzone said she is pleased with how the company’s stock has performed in March.

By all appearances, 2003 has been a tough year for Spacehab. The company has lost three key NASA support contracts and its Research Double Module was destroyed in the Feb. 1 Space Shuttle Columbia disaster, which also took the lives of seven astronauts. The shuttle fleet has since been grounded pending the outcome of the accident investigation, depriving Spacehab of another key source of revenue.

The Research Double module was insured, but only for a fraction of its 2002 book value of $67.2 million, Spacehab’s president, Michael Kearney, told Space News in February. Spacehab was able to arrange just $17.7 million in coverage for the module, which cost about $100 million to build, he said.

Pulzone said Spacehab is seeking reimbursement from NASA for the loss of its module while at the same time going after three space station support contracts that will be awarded later this year.

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The Best Delisting Defense

A good story is the best way to achieve small-cap longevity

If you want your company to stay in the market for the long run, there’s no substitute for the basics: having a solid story and getting Wall Street to hear it. Bad things happen to good companies in a bear market. Revenues, profits and balance sheet strength that would have assured double digit share prices in the boom years may not be enough to keep a stock above the $1 mark today. Too many solid companies are in danger of being delisted. And there are ways to ward off this threat without resorting to quick fixes like reverse splits.

Nasdaq has been somewhat more lenient with listing standards since 9/11. Delistings for ‘regulatory non-compliance’ fell from 390 in 2001 to 280 in 2002. That’s up from the low of 240 in 2000 but well below totals for 1998 (596) and 1999 (440). The exchange has also extended the grace period for out-of-compliance companies from 90 days to 180 days, at least until the end of 2004.

Still, plenty of companies have been delisted recently or are fighting to stay in the market. To stay listed, companies need to take a long-term approach and deliver on the two essential goals of IR. First, they need to produce strong financial results and give shareholders a reasonable expectation that this performance will continue. Second, they need to reach investors with this story – investors with enough money to create new, sustained demand for the stock.

It all starts with having a solid story. Start by demonstrating profitability. If that’s not possible, show that the process is underway. Businesses need a growth strategy that makes sense. Evidence of competitive strength like high barriers to entry, unique products or long-term relationships with Fortune 500 customers is also crucial.

Then you have to make sure the story is heard by investors who can help. For most small caps, which get little or no attention from analysts or money managers, this crucial step may be the most challenging. But being below the radar can actually bring certain advantages. For instance, it will be a fresh stock story for most investors, so when they do learn about it, they will be positively surprised.

Also, a small float means that a fairly small boost in buying demand can move the price up sharply. By marketing to a well-selected group of sophisticated investors with sufficient capital to risk, a company can move out of delisting danger and begin a sustained rise to price levels where it appeals to the broader investing public.

The stock market, like any other market, is essentially about supply and demand. If you control or manage the supply (by marketing to existing holders) and increase the demand (by marketing to potential new investors), you should have a rising stock price. This works especially well in delisting situations with stocks trading below $1.

Your IR consulting firm or in-house IR team should have a clear idea of who these investors are and how they can be reached, whether through brokers, money managers, specialized news outlets or general news releases. You should also actively market to current holders to keep them on board and encourage them to add to their positions.

Nasdaq won’t delist a stock that stays above $1 if certain other requirements are met. So why not just hike the price by exchanging, say, five or ten shares for one? Many companies have used such reverse splits to raise their prices to more attractive levels, at least in the short term. But this tactic has a questionable record, and for many it may not even be possible. For example, in some cases, a reverse split would reduce the number of shares outstanding to below
required Nasdaq levels.

Even if a reverse split ends the delisting threat for a while, the company can be left with something of a stigma. Reverse splits have traditionally been associated with companies headed toward oblivion, and for good reason. Too often, companies get a temporary price pop out of it but fail to solve their operational problems.

The sophisticated investors who can really save a stock will see straight through the cosmetic split to the company’s essential business picture. Smart investors don’t ignore the basics, and neither should your company.

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The Best Delisting Defense

By Harry Tajyar of Investor Relations Partners

If you want your company to stay in the market for the long run, there’s no substitute for the basics: Having a solid story to tell, and getting Wall Street to hear it. Bad things can happen to good companies in a bear market such as the current one. Revenues and profits that would have fetched double-digit share prices – at least – during the boom years may not be enough these days to keep a stock above the $1 bid mark. A strong balance sheet is no sure delisting defense, either. It’s not unheard-of to see a profitable NASDAQ company trading below a dollar when its cash and equivalents, less debt, are actually worth more than its entire market cap.

Just as the bubble market of 1999 and early 2000 was far too friendly to the flaky and fly-by-night, the present market seems to be going overboard to punish the virtuous. Too many solid companies are in danger of being delisted. But they can do something about this. To be more exact, they can do more than just buy time until the NASDAQ grace period runs out. But they can’t do this with quick fixes such as reverse splits.

The good news, at least for the near future, is that NASDAQ seems to have been more lenient on delistings in the wake of the Sept. 11, 2001 terror attacks. It initially suspended its minimum bid price and market value requirements for continued listings, though it restored its rules (including a 90-day grace period for National Market companies) at the beginning of 2002. NASDAQ delistings for “regulatory non-compliance” fell from 390 in 2001 to 280 in 2002. That’s up from the low of 240 in 2000, but well below totals for 1998 (596) and 1999 (440).

But plenty of companies, who’ve been delisted recently or are fighting to stay in the market, can testify that the delisting threat hasn’t gone away. And NASDAQ has not back off from its basic bid price and market value requirements. So firms should take the long view about their listing status. They may be off the hook right now, but to stay listed for the duration, however, companies need to carry out the two essential tasks of investor relations. First, they need to produce strong financial results and give shareholders a reasonable expectation that this performance will continue. Second, they need to reach investors with this story – enough investors, controlling enough money, to create new, sustained demand for the stock.

Let’s look at these two elements in more detail.
Have a solid story to tell. Get your house in order. If it’s not in order, show that the process is at least under way. After flirting with alternative notions of value late in the 90s, investors have returned to the basics. This is true of all investing, from early-stage venture capitalists right up the ladder. To raise money, businesses need to show profit-making potential in the here and now, as well as liquidity and a clear path to future revenue and earnings growth. Other evidence of competitive strength, such as high barriers to entry, unique products or long-term relationships with Fortune 500 customers, is also good to have. If a company can’t meet a basic threshold of viability, delisting is actually an appropriate fate for it. Investors in the NASDAQ National or Small-Cap Markets have a right to assume that their buying shares of real, sustainable businesses.

Make sure the story gets heard – by those who can help. For most small companies, this crucial step may seem the hardest one. With thousands of stocks trading on the NASDAQ National Market alone, how is a sub-$1 stock with a few thousand shares of average daily volume and no dedicated IR department going to get the attention of anyone with serious money? In fact, though, a company that makes the right, properly targeted effort has a good chance of success. Being below the radar (with relatively low volume and float) actually gives a company some advantages. First, most investors won’t be aware of the company or its story, so when they do learn about it, they will be surprised in a positive way. Second, most companies languishing in the sub-$1 shadows don’t seem to be trying very hard to get noticed (perhaps because they would not benefit from the scrutiny). So the competition for attention is not as great as one might think.

Finally, a small float means that a fairly small boost in buying demand can move the price up sharply. By finding suitable investors and targeting the message to them, a company can quickly move out of delisting danger and begin a sustained rise to price levels where it appeals to a broader range of investors. To do this, that initial corps of investors have to be willing to stick with it. Otherwise, its IR push is little better than a pump-and-dump scheme. But such investors are out there. They just have to be located, and then targeted by an intelligent campaign. The stock market, like any other market, is essentially about supply and demand. If you control or manage the supply (by marketing to existing shareholders) and increase the demand for the stock (by marketing to potential new investors), you should have a rising stock price. This especially works in delisting situations with stocks that trade below $1.

An IR consulting firm (such as our company, Investor Relations Partners) or an in-house IR department should have a clear idea of who these investors are and how they can be reached, whether through brokers, money managers, specialized news outlets or general news releases. It also should market the stock actively to current shareholders, to keep them on board and encourage them to add to their positions. Investor Relations Partners has used such methods to help five companies avoid a NASDAQ delisting just over the past couple of years. We’ve also never failed a delisting candidate; despite operating in one of the worst bear markets Wall Street has ever experienced.

Granted, most of the investing public will ignore individual small-cap stocks that have been on long price declines. But a significant group of investors, who are both sophisticated about risk and willing to invest for the long run, is interested in finding quality companies that have been punished too harshly by the bear market. The best delisting defense is to get them in touch with your company.

The reverse-split short cut. Since NASDAQ generally won’t delist a stock that stays above $1 (if certain other requirements are met), why not just hike the price by exchanging, say, five or ten shares for one? A number of companies, not just struggling micro-caps, have used such reverse splits to raise their prices to more attractive levels. AT&T did a one-to-five late last year, for instance, to keep from sinking into single-digit territory after the Comcast spin-off. In the short term, reverse splits can work.

But their overall record is questionable, and for small-cap companies they may not solve the delisting problem. The NASDAQ National Market requires that a listed firm have 750,000 publicly held shares (that is, shares outstanding less shares owned by officers, directors and other insiders) with a market value of at least $5 million. If a company with 3 million of these shares tried a one-to-five split, it would raise its share price but fall below the 750,000-share minimum. Even if it could still meet NASDAQ standards, it would be lending its stock something of a stigma. Reverse splits have traditionally been associated with companies headed to oblivion; studies of post-split performance suggest that this reputation hasn’t gone away. One Merrill Lynch report last year said tech companies after reverse splits tended to beat the market in the first month but underperformed it (21% below Merrill’s index) over a year. In another study, covering 260 tech stocks that used reverse splits in the past decade, Morgan Stanley analyst Steven Milunovich found the same pattern.

These results suggests that the companies trying the reverse-split tactic were able to make some news with it – and get a temporary price pop – but they didn’t solve their operational problems in any fundamental way. The sophisticated investors who can really save a stock, in other words, saw through the split to the company’s real business picture, which wasn’t pretty. They don’t ignore the basics, and neither should your company.

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Off the Market?

By Julie Monahan

No one likes rejection, but when Nasdaq’s the one giving the boot, it’s more than hurt feelings. When the Nasdaq drops a company for not maintaining stock price and market value minimums, it faces an uphill battle for survival. Most wind up on Over the Counter (OTC) bulletin boards, a riskier market that’s scary to investors. Lenders don’t like it either and often demand payment in full from delisted businesses.

Many companies avoided exile when Nasdaq suspended delisting for three months starting in September. The market has since proposed looser requirements, pending SEC approval, to give small-cap companies six months instead of three to lift prices to the $1 minimum-and conditional extensions.

But that grace period only helps if the troubled companies use it to build a solid defense to keep from being delisting. Strategies typically include overhauling management and trying to lift share prices using either a dividend issue, a stock buyback or a reverse stock split.

But what companies do externally can make the biggest difference. “The first step is to communicate with your best customers and your current shareholders,” says Harry Tajyar, Managing Partner at Investor Relations Partners, a Los Angeles investor relations firm. A letter from the president should outline your strategy for staying listed and improving earnings. A publicity drive can also work to combat investor uncertainty, as long as the news is good. A reverse stock split helped J2 Global Communications of Hollywood avoid delisting in early 2001, attracting media attention. “Any press is good press, and we leveraged that as an opportunity to talk about us,” says president Scott Jarus.

Delisting may be inevitable for some companies, but OTC trading doesn’t necessarily lead to bankruptcy. Again, communication is key and should focus on soothing jittery shareholders until your business turns around, says Jeff Lambert, a principal of Lambert, Edwards & Associates, an investor relations firm in Grand Rapids, Michigan, who points out, “Delisting is not the end of the world.”

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To stay listed, have a good story and tell it

By Harry Tajyar

If you want your company to stay listed in the stock exchanges for the long run, there’s no substitute for the basics: Having a solid story, and getting Wall Street to hear it.

Bad things happen to good companies in a bear market. Revenues, profits and balance-sheet strength that would have assured double-digit share prices-at least-during the boom years may not be enough these days to keep a stock above the S1 bid mark. Too many solid companies are in danger of being delisted.

There are ways to ward off this threat, but not with quick fixes such as reverse splits. To stay listed for the duration, companies need to carry out the two essential tasks of investor relations. First, they need solid results and a promise of continued strength in the future. Second, they need to reach new investors with this story- enough investors, controlling enough money, to create new, sustained demand for the stock.

Lets look at these two elements in more detail.
First, have a solid story to tell. Get your financial house in order. If it’s not in order, show that the process is at least under way.

Businesses need to show current profit or a clear path to it in the near future. They need a growth strategy that makes sense. Evidence of competitive strength – such as high barriers to entry, unique products or long-term relationships with Fortune 500 customers – is also crucial.
Second, make sure the story gets heard by those who can help. For most small companies, who get little or no attention from analysts or money managers, this crucial step may seem the hardest one. But being below the radar actually give a company certain advantages.

It will be a fresh stock story for most investors, who are unaware of it now. When they do learn about it, they will be surprised in a positive way. A small float means that a fairly small boost in buying demand can move the price up sharply.

By marketing to a well-selected group of sophisticated investors with sufficient capital to risk, a company can move out of delisting danger and begin a sustained rise to price levels where it appeals to the broader investing public.

An investor-relations consulting firm or an in-house IR department should have a clear idea who these investors are and how they can be reached, whether through brokers, money managers, specialized news outlets or general news releases. The IR consultant or department also should, actively market the stock to current shareholders to keep them on board and encourage them to add to their positions.

There is a third, less attractive tactic: the reverse-split shortcut. The Nasdaq generally won’t delist a stock that stays above $1 if certain other requirements are met. If your stock is in danger of falling below $1, why not just hike the price by exchanging say, five or ten shares for one? Many companies have used such reverse splits to raise their prices to more attractive levels, at least in the short term.

But this tactic has a questionable record, and for many firms it may not even be possible. (These are cases in which a reverse split would reduce the number of shares outstanding below required Nasdaq levels.) Even if it ends the delisting threat for a time, the company can be left with something of a stigma.