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Quarterly Earnings – Do We Really Need to Read The Script?

As we think about best practices for earnings and quarterly reporting, we focus on the message in its totality and how to best prepare. This means the press release, scripted remarks, Q&A preparation, analyst after-call preparation, and slides (if relevant). We spend time reviewing perception, consensus expectations, specific analyst areas of focus, and competitive commentary as well as sector sentiment – all in relation to current and expected future performance.

That said, we have been recently asked about the necessity of actually reading a script of prepared remarks to analysts and investors. In an increasingly digital world, it seems a bit inefficient to force the Street to furiously take notes and quickly draw conclusions on relevant information and metrics…then form their questions so they can ask provocative questions in the Q&A session. We decided to explore this further and here is what we learned.

Here is the question we posed: Would it be better to post management commentary in the form of a shareholder letter, give the analysts 30-60 minutes to read it, then host only a Q&A session which is shorter and to the point? The answer is not necessarily – at least not in the healthcare sector. But, we do see value in making prepared remarks available to your analysts and the Street by disseminating them after the webcast and/or posting them on your IR website. We also think supplemental materials can be valuable, especially for companies with multiple business segments and/or clinical data sets.

1 | The data – a recent NIRI thread. NIRI recently published results of a survey¹ on best practices for earnings, and a related question was posed – specifically, “Which companies with a $1 billion market cap or greater issue prepared remarks in written format and host a call for Q&A only?” Below was the answer:

Ciena Corp (CIEN; $6B Mkt Cap) – Beginning Dec. 2017 Ciena Corp posted their prepared remarks 90 minutes before their conference call, then hosted a very brief segment of CEO and CFO comments with a longer Q&A session. We would characterize this as a “light version” of the Q&A only approach
Five Below, Inc. (FIVE; $7B Mkt Cap) – Five Below is interesting in that Q2 2018 was a traditional call; in Q3 2018, the company posted their prepared remarks and only hosted Q&A, but in Q4 2018 reverted back to the traditional format. We aren’t sure what to make of this.
Greif, Inc. (GEF; $2B Mkt Cap) – From 2015 to 2017 Greif posted prepared remarks and hosted a call with Q&A only. As of 2H 2017 through the present, the company is following the traditional format of reading prepared remarks and hosting a Q&A session
Netflix, Inc. (NFLX; $160B Mkt Cap) – Netflix is interesting because they host Q&A only with a twist – they have sell-side analysts ask questions sent in by investors
Tesla, Inc. (TSLA; $46B Mkt Cap) – Beginning in 2011, shortly after its 2010 IPO, Tesla has posted prepared comments and hosted Q&A only. Now, however, Elon Musk is taking a few minutes to emphasize key highlights at the start of the call, before Q&A
Ubiquiti Networks, Inc. (UBNT $11B Mkt Cap) – Ubiquiti posts prepared remarks then hosts a call for Q&A only

So, while a small number of companies, mostly in the tech sector, have migrated away from the traditional earnings call format, there aren’t many. And in certain situations, whether it be to address a complicated message or for other reasons, a few of these have migrated back to providing prepared remarks in addition to the Q&A session. As we consider precedent setting – we would caution that if a company decides to evolve in this direction, they are confident they won’t want to revert back to the more traditional format in subsequent quarters to address potential confusion.

2 | Disseminating prepared remarks – regardless of call format. As analyst time is becoming increasingly stretched, we are competing for mindshare. With that in mind, we believe that if we can make it easier for the analysts to understand quarterly results, messaging and guidance, then companies will get a better result. On busy days, analysts will have as many as six companies reporting earnings at the same time and will be juggling calls. And we know that if forced to choose, they will migrate to the most controversial situation as opposed to a conference call with straightforward looking results and guidance. With that in mind, we view it as best practice to disseminate the prepared remarks to covering analysts as soon as the call ends. This gives them a chance to read the commentary and come to the after-call with more informed questions. It also means that they are hopefully less apt to misinterpret something and print a mistake or have line items in their models that are inconsistent with management commentary. We also suggest posting the prepared remarks on the IR website. In fact – in a recently published NIRI survey, of the companies that post their scripts online, roughly 80% keep them archived for at least a year.

3 | Materials – what supplemental materials are helpful? For SMID-caps, we generally believe that the press release (including financial tables) and prepared remarks will suffice – with the 10Q and 10K documents on file with the SEC shortly after or simultaneous with the call. That said, for large diversified businesses and/or those with multiple clinical data sets, it can be beneficial to include a slide deck with the earnings report. In the recently published NIRI survey on Earnings Best Practices, roughly 40% of mid ($2-10bn) and large ($10-25bn) cap companies – across all sectors – included slides in their quarterly earnings presentations.

4 | Healthcare analysts – their feedback. We queried several healthcare analysts at bulge bracket, emerging growth and boutique banks on this topic. A couple of them were receptive to the idea of companies posting their prepared remarks online, with the caveat that the call should necessarily be shorter (i.e. limited to 30 minutes). More, however, felt that they are inundated with written and digital material to read. The process of being required to dial into a conference call, while seemingly “old fashioned,” forces them to prioritize time and pay attention (rather than skimming). They also commented that posting prepared remarks might seem impersonal and could detract from the analyst-management partnership and relationship that they work to develop. All in, we found that meaningfully more analysts would rather stick with the status quo than switch to a model where companies post their comments online and only entertain questions (despite their acknowledgment that this could be more efficient). Across the board, they voiced positive receptivity to receiving the scripted comments at the conclusion of the call.

5 | How important is tone? This is one of the more frustrating (and seemingly inane) topics for many of our management teams – the fact that they are being judged on how energetic or dour they sound on a call. What if the CEO was up all night with a sick child, received bad (or good) personal news moments before the call or is sick herself!? That said, as we talk to investors and analysts – they routinely comment on management’s tone: how they sounded during prepared remarks, Q&A and in the after-calls. They also talk to each other about tone, “…the CEO sounded generally more upbeat about the market than he did last quarter…” Really? We are pretty sure most management teams have a long-term view on their market opportunities, but OK. We have a lot of opinions on this topic, but one thing is certain – analysts will comment on tone. So, is it important? Yes. Practice the prepared remarks and Q&A – especially the thorny questions – with your IR team so you can get feedback on how you sound.

In conclusion, there are interesting trends shaping up in how management teams communicate with shareholders and analysts. We try hard not to default to the most comfortable approach, or the “it’s always been done that way” plan, rather to be innovative and forward thinking – often drawing from the tech sector for our healthcare companies. We think for some companies, posting prepared remarks online (and disseminating them) then hosting a thorough Q&A session may be a good, efficient approach to reporting earnings. But, it’s not yet mainstream and this approach does have some drawbacks, so tread carefully!

We have worked with hundreds of healthcare companies as they handle quarterly earnings and what will be most effective and impactful. With our Street backgrounds, coupled with our immersion in the sector, we are uniquely positioned to share our experiences with similar situations as well as to look ahead to be more forward thinking. We roll up our sleeves to help both strategically and logistically to ensure the message is clean and delivered in the best way possible with the ultimate goal of maintaining and building credibility to create shareholder value. Give us a call or check out our website at www.gilmartinIR.com for more information on how we partner with our clients.

Lynn Lewis
Founder & CEO

Investor Outreach: Keeping Up with a Changing Landscape

Marketing your company to investors can be extremely stressful and time consuming. Constant traveling to get your company in front of investors is not ideal, from both a budgetary and quality of life standpoint. That’s why it’s important to utilize the available tools and tricks of the ever-changing marketplace, which can help save your company time and money. Below, we will discuss some ideas to bolster investor outreach for companies either looking to reach new investors or maximize the time spent communicating with shareholders and prospective investors.

Consistency

Consistency is key in investor communications. Whether it’s the amount of times you touch base or the publication frequency of investor-related news, focus on tracking all communication to ensure you are maintaining the interest of investors. Business is fast-paced as it is, so prioritize publishing the most imperative pieces of information to maintain a steady flow of updates.

In addition to frequency, consistency in messaging is also important. For example, if you fail to highlight certain company aspects that are usually discussed on earnings calls, there’s a big chance of setting off warning signals to investors. Regardless of why you choose to eliminate expected information, it’s likely that investors will assume the worst until otherwise clarified. Keeping investor messaging consistent will save you time in the long run. When you are hosting your first earnings call or expanding your business, talk through with your team beforehand as to what news will be the best to highlight regularly going forward.

Customer-Relationship Management

Customer-relationship management (CRM) is the process of building up a database to log meetings or pitches with current, past, and prospective investors (or customers/patients). Think of it like a diary for your past meetings. The database should at least detail your meeting history, the person(s) with whom you spoke, and location of the fund. Depending on your resources and available time, you can go as far as tracking the topics discussed, action items to follow up with, the investor’s investment style, and assets under management. Logging this information keeps the rest of your team aware of completed tasks and outstanding assignments regarding customer relationships. But more importantly, it can be used to create a list for the future when your company is looking to target specific funds and fund managers in order to create a more diverse investor base. CRM is time consuming in the early stages of investor communications, but the long-term benefits are well worth the hours spent on the front end.

Technology

Technology has revolutionized the workplace, and investor outreach is far from an exception. Take advantage of technological resources to reach your investor audience. One way you can do this is by sending out investor newsletters either by wire service and/or a distribution list, which can be built from your CRM database and list of existing shareholders. In addition to a quarterly earnings call, this is a great tool to help your retail investor base stay up to date with the business. The options for newsletter dissemination are endless, but we recommend email. Wire service has the ability to attract new retail investors, but it can cost a lot of money. While the email distribution list won’t reach new people by default, this free resource allows investors to respond directly with questions. As you create your newsletter list, be sure to communicate how often investors can expect to receive the newsletter throughout the year.

Another tool to consider is webcasting. As you know, earnings season is a very busy time of year and can result in days with several earnings calls on the same day at the same time. This can put investors in a tough position, making them prioritize which calls they will listen to. To make their lives easier, and potentially draw a larger audience, consider hosting your earnings call via webcast in addition to a conference call. Webcasts allows investors to quickly switch between calls by using tabs on their computer as opposed to dialing in and out, saving them time and enabling them to not prioritize another call over yours.

Conclusion

Investor communication practices are constantly changing, but in an effort to reach your audience, it’s important to stay up to date with the nuances. Not every company has the time or resources to keep track of these changes, but that’s where our team at Gilmartin Group comes in. We stay up to date with best practices for investor outreach and use them to leverage our wide-ranging investor database. Whether your company is looking to more efficiently communicate its progress, optimize investor communications, or researching alternatives methods to reach investors, we can help. You can find us at www.gilmartinir.com.

Hunter Cabi, Analyst

Quarterly Earnings Calls: Key Components and Flow

Financial results announcements can have a meaningful impact on stock price and analysts’ sentiment, particularly for well-followed large caps and profile sector specific stocks. For publicly traded companies on major exchanges, the SEC requires a 10K (annual) or 10Q (quarterly) filing. But what adds color and context is the optional–yet highly used–conference call following the earnings release. In fact, one survey showed that more than 80% of publicly traded companies in the U.S. host a quarterly conference call to discuss results. Additionally, our research shows that in the Med Tech/Diagnostics sector, more than 90% of the publicly traded companies across all market caps host regular conference calls to discuss their quarterly results.

For a routine quarter, we suggest preparing remarks using the general outline below:

Operator Introduction

The conference call service will offer generic language and instructions for the call, or you can email specific language directly to the service provider in advance of the call or email the operator directly once you have initiated the call.

Forward Looking Statements

Your legal counsel should initially write the required Forward Looking Statements language provided before the discussion of the results and guidance begins. The statement doesn’t need to be long, but it should be updated and reviewed each quarter for relevance to cover the specific language that cites forward looking commentary.

CEO Remarks

Agenda

Most often, the CEO kicks off the call welcoming attendees. He/she can offer an agenda for the rest of the call that includes upcoming speakers and material covered. While not required, it does provide the audience with queues to listen for along the way.

Mission statement, operational goals, key metrics

In a routine quarter, we advise that the CEO’s prepared remarks begin with a reminder of the company’s mission statement, operational goals for the year, or other metrics that have been publicly discussed as performance objectives. This sets the stage – or an outline – for the content that can be repeated each quarter. It’s important to note that there is no harm in repeating certain key messages quarter after quarter. While it might seem redundant to you, keep in mind that your audience is likely listening to multiple calls a day and may not be entirely up to speed on content shared in prior calls.

Recent highlights: operational and financial (high level only)

Next up, provide a brief summary of the most topical or recent operational highlights. There’s no need to repeat the contents of every press release issued since the last call, but it is important to capture the activity of the prior three months to demonstrate operational traction and bracket the contents. Also use this time to cover details on recent events, even if they happened subsequent to quarter close. For a year-end call, a very brief summary of the year’s highlights is often a good reminder of earlier events that set the stage for subsequent quarters. It might even be useful to note a significant event that impacted the comparable quarter in the prior year, such as an acquisition, financing activity, or product launch.

Deeper dive into key operational highlights

Here’s the meat of the script, but again, no need to cut & paste text from press releases. This is your opportunity to provide color around operational progress in the quarter and what it means to the business going forward. This is also a chance to discuss events in the quarter that didn’t necessitate a press release, but would be helpful for your stakeholders to know. It’s also a chance for the CEO to share his/her enthusiasm for recent events or to put into context something that perhaps didn’t go as planned.

Remember to reference back to the stated objectives for the year and note meaningful updates against those objectives. You may not have updates on each objective every quarter, but consider using this section of the script as a reminder that the company still sees it as a priority and is making progress. The absence of commentary on a stated objective may signal that it is no longer such.

Upcoming events of note

Do you plan to attend a major industry event, tradeshow, or panel presentation? Do you have an update on the clinical trials status or FDA approvals in process? Use this section to signal what investors should be expecting in the next quarter. Put things on investors’ radar without disclosing anticipated outcomes or pigeon-holing the company into a timeline or additional guidance.

Reminder of milestones and goals

We encourage the CEO to close his/her remarks with a summary of the important factors impacting the business. This can be brief, but should provide some visionary language that supports long-term goals as well as the company’s mission statement.

CFO Remarks

Quarterly financial review

Unfortunately, this section of the call is often a regurgitation of press release contents and 10Q MD&A, but it doesn’t have to be. As you review the P&L (we suggest including revenue, gross margin, OPEX, EBITDA or net income, and EPS) and balance sheet highlights, be sure highlight significant or unexpected trends. This section also gives you the opportunity to mention tracked metrics such as shipments, geographic mix, FX impacts or other macro and seasonal events that have an impact on your results.

The financial section offers the opportunity to describe one-time events, mix shifts that impacted outcomes, or important highlights from a financing activity. On a recent call, a CFO used his comments to drive home how a restructured debt facility was a real long-term win for them – details that didn’t easily translate into the previously filed 8K. Had he not done this, investors may have missed important points.

Also use this time to discuss one-time events that occurred in the quarter such as capital raise, debt facility, and option grants, among other topics.

Guidance

If you are providing guidance for the first time, or if there are no changes to previously stated guidance, say as much. Or if you are making changes to previously stated guidance, provide the prior guidance and rationale for the change. Do the math for your listeners and make it easy for them to follow.

CEO Closing Remarks (optional)

Some management teams like to close the call with a thank you from the CEO and allow him/her to officially open the call for questions. Others are ready to move on with Q&A. We don’t have a strong opinion here, but if you do decide to turn the call back to the CEO, have the CEO summarize the highlights and close the formal remarks.

A Final Note on Word Count

In an effort to provide a baseline for word count, we researched the prepared remarks from earnings call scripts of 55 publicly traded med tech and Dx/Tools companies across all market caps. The word count ranged from as high as 4,700 to as low as 1,400. On average, most prepared remarks (including forward looking statements) were in the 2,800 word range and were completed in an average of 20 minutes.

For a previous piece on structuring an earnings call, see our FAQ blog here and for more help in preparing the key components and flow of your earnings calls, contact us.

Leigh Salvo, Managing Director

Quarterly Earnings Calls: Planning & Preparation

Publicly-traded companies are required to report their financial results on a Form 10-Q no later than 45 days following the end of the quarter. Depending on the size and complexity of your company, you will likely also plan to issue an earnings press release and host a conference call around the same time. While there is no legal requirement to do either, investor relations best practices suggest that these are important communications tools to add more color and commentary to the numbers.

The four to six weeks between quarter close and filing the 10-Q provide a great opportunity to not only gather and confirm your financial results, but to assess how they signal your company is progressing against internal and external expectations. Importantly, conference calls can provide an optimum forum for refining and updating your company’s messaging, and if necessary, resetting or redirecting expectations.

Consider that quarterly conference calls are your best opportunity to provide current and prospective shareholders the opportunity to gauge the strength, growth trajectory and direction of your company in context of the competition, the industry, the market, and their own investment objectives. Planning and preparation are critical – even in seemingly “routine” quarters.

Don’t enter this process in a vacuum. There are many potential resources for gathering intelligence to make the most of your time in the spotlight. If this is your first conference call or your fiftieth, here are few quick suggestions to consider as you prepare for your next earnings call.

Connect with your covering analysts and review consensus financial expectations

A covering sell-side analyst spends significant time understanding your company’s business model, how you are positioned in the competitive landscape, key differentiators and general market sentiment. Part of that process is building a financial model that they believe projects how your company will perform over time. They are your best external resource for quarterly prep. Don’t hesitate to engage them in your process. Before you enter your quiet period, try to touch base with your covering analysts to learn what key themes they will be focusing on. If you’ve already entered your quiet period, engage IR counsel to gather input. Ask if they have any questions that they want to be sure you cover. Check their financial model against that of other covering analysts. What are their assumptions? Read their research report on your company and that of any others that might be pertinent to your sector.

If your company has multiple covering analysts, look at where the consensus numbers are coming in for the quarter and for the year. Are they generally in line with your expectations? Are there outlier analysts skewing consensus? If so, consider how to use your prepared remarks to generally redirect assumptions and open the door to a post-call dialogue that enables you to re-align external expectations with internal projections. Preparing ahead will exponentially increase the strength of the messaging and reception of the remarks.

Finally, look at consensus numbers for the following several quarters and year. Consider adding any qualitative language that may be helpful in guiding analysts as they update their longer-term models to avoid missed expectations and the need to materially update a financial model.

Review calls from competitors and other comparable companies with similar investment profiles

Determine a set of companies to track during each earnings period. Think beyond just direct competitors – although those are certainly at the top of the list. Look at the companies that your analysts also cover and how they are being characterized in research notes. Listen to their earnings call and be prepared to address implications on your company either in your prepared remarks or in Q&A. What are analyst expectations for the sector? Consider these factors as you prepare your conference call commentary. Beyond just your competition, look for companies that have a comparable profile – e.g., market cap, growth rate, or general industry sector. Also, consider reading the remarks and research reports of companies that impact your sector for macro themes. For example, if severe weather was a factor noted as a reason for lower quarterly revenues, is this a factor that investors might be concerned about for your company? Be prepared to address that.

Post-call analyst reports are also very useful in understanding what themes are emerging. Also, listen or grab a transcript and review the questions posed in the Q&A session of earnings calls. Often, key themes and similar questions are posed across the sector. Be prepared to answer on any topic touched on in a competitors Q&A session that implicates the entire industry/sector. These questions will most likely come from 1×1 investor meetings, recent conferences, and questions received via email from shareholders, analysts, etc.

Practice, practice, practice

A well-executed earnings call and Q&A session, including key messages delivered confidently, ties the whole earnings process together. Dry runs of prepared remarks and practicing Q&A with an internal team or your IR counsel can be the difference between a successful outcome and a mixed message – or worse – the wrong message. As you practice the script, ask the audience not to read the script along with you, but rather, to listen as if they were hearing you as an analyst or investor would on the call. This provides an opportunity to hear wording that sounds awkward or does not get the message across clearly. Another option is to tape the prepared remarks, listen, and make any adjustments before the call is live. Q&A can be practiced the same way. Ask your analysts what questions they might have in advance, canvass your internal team for what they are hearing, and review questions asked during conferences and in 1×1 meetings. This will provide plenty of material to practice responding to questions. We recommend setting a date to complete the process several days in advance of the actual call. This will provide an opportunity for a few prep sessions, as well as entering the actual call calmly without the need for last minute, rushed changes.

Earnings call preparation processes are critical every quarter and require thought, planning and preparation. For help in understanding sell-side sentiment and expectations, call preparation and practice, contact us.

Hunter Cabi, Analyst

Communicating A Shortfall

All companies find a time when they need to deliver bad news – this could be on a myriad of topics: clinical trial data that falls short of expectations, litigation rulings that go the other way, product recalls, manufacturing problems, and many other possibilities. In addition, and what draws most attention on a quarterly basis, are financial results and guidance. For the purposes of this article, we will focus our commentary on how to convey a financial shortfall, whether it be in revenues, earnings, or forward guidance.

After 20 years on Wall Street and over a decade of working with companies on their investor relations strategies, one thing rings true for me across almost all management teams. When they set guidance, they intend to hit or beat it. Companies don’t set out to report a disappointment. When revenues fall short, it generally doesn’t mean the business is fundamentally flawed or that we are headed for Armageddon. Dealing with the Street can be difficult, painful, and (frankly) frustrating – especially when faced with the need to report a shortfall which is an aberration to an otherwise compelling trajectory, or worse, when underlying performance is incredibly strong but guidance was just set too high at the beginning of the year.

5 Questions: Guidance in Communicating

Below are five questions to consider when faced with the need to message a shortfall:

1 | How, When, Where Should this be Communicated? Once companies know that results are falling short of expectations, they are invariably faced with the question of how to convey the information. Do we wait for the earnings call, issue a standalone press release, or have a separate call to discuss the issue? At a high level, we would prefer the information to be disseminated on a regularly scheduled earnings conference call and press release. This way, we can also talk about forward-looking expectations and the assumptions behind them, and we can answer questions in a public forum. That said, the honest answer is that sometimes we don’t immediately know what is best. Often how we decide to proceed is to write the press release – inserting color in the quote to shed some light on what happened. Then, we draft language in the script where we explain in a bit more detail and talk more about the financial implications. During this process, we are amassing a list of anticipated questions and inserting the not-for-public answers (with the public disclosure still in process). Often, it is through an in-depth Q&A preparation process that we ultimately circle back to what language is included in the press release and the earnings call script – both in describing the shortfall, as well as communicating expectations. And again, most often in our view, it’s preferable to communicate the information on a regularly scheduled earnings call.

2 | How Much Information to Share? This is always a difficult conundrum because it often seems as if Wall Street would like the reason for a shortfall to be packaged up with a neat wrapper and a bow – it’s a salesforce issue; an execution issue with a product launch; competition; or a challenging market environment. In reality, each quarter is filled with many puts and takes across the business within Operations, R&D, Sales & Marketing as well as personnel changes across the entire organization. There are also nuances among customers, which for our client companies, are typically clinicians that have their own lives and situations. And then there are factors simply out of control of the company – weather, vendor challenges, the political environment, etc. At the end of the day, there are a host of things that will never be publicly communicated, as they don’t reach the bar of materiality. In addition, when delving into the root cause of any issue – say, a salesforce challenge – its multifactorial. So, how do we package this in a neat little box? We start with the premise that transparence is imperative, but to also keep the message at a fairly high level and not confuse matters by oversharing. There are anecdotes which can help illustrate the situation, but in general, we would save these for Q&A session on the conference call. Most important to the Street is that you (a) have identified the problem; (b) have identified a solution and are on a path to fix it; and (c) that you realistically understand how it will impact your financials for upcoming periods.

3 | How Much Optimism to Convey? More often than not, weakness within an individual quarter is not indicative of the underlying fundamentals of the business, which in all likelihood, remain strong. And while it’s important to be transparent and honest, it’s also important to convey confidence in the business. What we want to avoid is sending one of two messages that tend to evoke anger among Wall Street: (1) that this was expected and planned; or (2) that these results don’t matter, rather other aspects of the business are more important. For the former – companies have ample opportunity to set expectations, and they have full knowledge of analyst estimates. It is the management team’s responsibility to help provide guideposts and information if expectations are unreasonable. For the latter, there are indeed other aspects of the business that might be better indicators of future success, but we want to avoid the perception of calling out, “Look over here…look over here!” in an effort to distract the Street from the issue at hand. So, again, our advice is to strike a balance.

4 | What to do with Guidance? When quarterly results miss by a small amount, or it’s the result of something transitory, the natural temptation is to think, “hey – we will make it up in the next quarter.” As most of you know, that’s easier said than done. But even if it is possible – should you maintain guidance, or even consider raising it? While we don’t have a blanket answer to this question, our philosophy to setting guidance is simply to err on the side of conservatism. The Street will be disappointed in the shortfall, but once they get over their disappointment, they care about (a) why did it happen and most importantly, (b) will it happen again. Your best path at this time is to offer an explanation with transparency and credibility and then look to convey why your future expectations (whether they be raised, lowered, or maintained) are reasonable. When companies raise guidance in hopes of keeping the Street optimistic in the business, it not only sets the bar higher for the next quarter, but it’s unnecessary. Said differently, you generally won’t get credit for it as they are digesting the bad news de jour. So, in the interest of saving your good news for when it counts, as well as keeping credibility strong, we would take a hard look, and either leave guidance as-is or (potentially) lower it to what is more reasonable and attainable.

5 | What Matters Most? To sum up what matters most to the Street, it’s that you, as a management team, maintain credibility. In our view, this is achieved through transparency and balance. Specifically, through a balance of high-level commentary with anecdotal examples as well as through a balance of owning the shortfall with conveying confidence in your strategy. It’s especially important that you articulate the implications on future expectations and how assumptions underlying your guidance may be impacted. To accomplish this, preparation is imperative. Crafting the language in the press release and conference call script can be tedious, but well worth the effort. Similarly, anticipating questions and drafting answers is probably the most important part of the preparation process. It is here that we suggest offering more details and anecdotal evidence by either explaining the issue, or in conveying confidence in the solution.

And lastly, give yourself as much time as you can to learn more internally, to spend time with the message, and to practice providing answering to the Street. We have worked with hundreds of healthcare companies as they handle communications on a variety of topics, which are sometimes shy of expectations. Between our Street backgrounds coupled with our immersion in the sector, we are uniquely positioned to share our experiences with similar situations, as well as to anticipate the thorniest of questions. We will roll up our sleeves to help both strategically and logistically to ensure the message as cleanly as possible. Our ultimate goal is to maintain and build credibility to create shareholder value. For more ideas and help in communicating a shortfall, contact us.

Lynn Lewis, Founder and CEO

FAQs on How to Structure an Earnings Script

Collectively, we have written, edited and read hundreds – if not thousands – of earnings scripts. So, today we are highlighting some of our most frequently asked questions and sharing our best practices for earnings call scripts.

How long should our prepared remarks be?
Over the past few years, we have tracked word count from a number of companies reporting in the health care sector. The average word count for an earnings script is around 2,500 words, or about 20 minutes, with a large number of companies hovering around this range. The majority of companies ranged between about 2,000 and 3,000 words (or about 15 and 25 minutes). Keep in mind that most earnings calls are completed within 60 minutes. If you have a large number of analysts covering your company, brevity will be important to leave adequate time for Q&A.

Who should speak on the call?
For large-cap companies with diverse business segments, it is common for multiple speakers to participate in the scripted comments and Q&A. However, for a small- or mid-cap company, the CEO can typically speak to developments and progress across the entire business portfolio with the CFO joining for the financial discussion. There are unique situations (e.g. discussion of intricate clinical data) where it may be helpful for another member of the senior management team to join the prepared remarks and/or Q&A.

When should we discuss guidance?
Whenever a company is issuing new guidance or updating their current expectations, we find it helpful to highlight this news at the top of the call. For a small- or mid-cap growth company, the CEO would typically issue or update topline guidance, and the CFO would delve into further detail during the financial remarks.

When can we change our metrics?
A year-end call is an excellent time to reset expectations on what metrics the Street can expect in the coming year. A metric reset may be around what type of guidance you plan to provide in the coming year, the introduction or removal of additional qualitative and quantitative metrics, or the cadence at which these metrics will be updated (e.g. quarterly, annually, or sporadically). That said, if a metric is no longer an accurate way to think about your business, you can always make this change on a quarterly update, provided you give adequate context as to why a metric is being pulled or replaced.

Can we prerecord our prepared remarks?
Definitely. While the majority of companies continue to read their prepared remarks live, there are a number of reasons to consider prerecording. Prerecorded remarks provide more situational control, which can be helpful with less comfortable speakers. They also eliminate the risk of background noise or disruption during the call and offer more time for Q&A preparation. On the downside, scheduling a prerecording can be difficult amidst busy management schedules, and it removes flexibility if something in the script changes in the final moments leading up to an earnings call.

Should we use slides?
Large-cap companies will often include an earnings presentation that details financials and strategic updates across each business segment. For small- and mid-cap companies, slides are typically only necessary if the company is presenting complicated messages (e.g. complex financial tables or transactions). Keep in mind that a smaller audience will likely be more focused on viewing your slides than listening to your prepared remarks. If you opt to use slides, be sure your prepared remarks can stand alone without slide support.

Can we skip the call and just issue an earnings release?
Companies are not legally required to host an earnings call. In fact, federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) generally do not require the release of financial results for a completed fiscal period before the applicable quarterly and annual report filing deadlines. However, an earnings call is an excellent opportunity to provide color on financial results and business updates while remaining compliant with Reg FD requirements.

Results from the 2014 Earnings Call Practices Survey, conducted by the National Investor Relations Institute (NIRI), indicate that 97 percent of the companies that responded to the survey reported holding such calls.

Conclusion
Establishing best practices concerning your earnings calls and prepared remarks ensures your company’s news and updates are communicated coherently, factually and in a timely manner. Utilizing the timing of calls to convey new guidance, metric resets or even a management change can all be done strategically to continue fostering an open and transparent relationship between management and your investors.

Carrie Mendivil, Principal

10 Ways to Improve the Quality of Your Webcasts and Extend Investor Reach

Webcasts of conference presentations and quarterly earnings calls have become a routine part of most public company IR programs. They offer a means for ensuring Reg FD compliance, extend the reach to those who can’t attend the event, reach investors in regions that aren’t on their regular NDR schedule, and provide a resource for new investors/analysts who want to get up to speed on the story. But how often do you consider the content and delivery of a webcast, beyond recording the live event?

Keep in mind that the material you present in person is the same as what you are presenting to your virtual audience, but capturing and maintaining their attention can be a challenge for a variety of reasons:

Distractions – As captivating as your remarks might be, your virtual audience is most likely doing something else while listening to your presentation.

Presence – Because the listener can’t see you speaking, body language is not an available cue, and some of the subtlety of your remarks may be missed (especially if they are multi-tasking as noted above).

Visuals – If you are using slides, there is no guarantee they are displayed properly or in sync as you show them live. Furthermore, there’s a chance they do not include the fancy transitions, builds, and embedded graphics you worked so hard on.

As you prepare for any presentation that will have a webcast component, keep these tips in mind to optimize and enhance the quality of delivery for the audience:

1 | Determine if the material you are presenting requires a visual component to get the message across to anyone who is not in the actual meeting room with you. If so, check if the webcast has the capability to add video. If a visual component is not necessary, determine if any slides should advance with you to get the message across. In that case, opt for speaker-controlled slides rather than user-controlled.

2 | Script or outline your remarks, and then practice all the way through as you would for the actual call. Time the presentation. Remember, speakers tend to speed up when talking on the phone, especially if they are nervous. Listeners expect that you are reading from a script, but there is no reason to sound like it. Underline or bold phrases to emphasize; add gaps or commas in the text to take a breath; even written cues to “slow down” can help manage your presentation cadence.

3 | If you are not giving the presentation to a live audience, then select someone from your team to be in the room when you present. This will help you speak more conversationally rather than robotically, which often happens when reading from a script.

4 | At the start, provide an outline of the presentation– who will be speaking and in what order, and when there will be an opportunity to ask questions. This helps audience members who aren’t in the room know when they will have the opportunity to ask questions.

5 | If you are doing the call on your own from your office, conference room, or hotel, be sure to use or rent a good speaker phone, and find a very quiet place where there will not be any distractions. If your only option is a cell phone, use the handset and not the speaker phone. Don’t forget to check the sound quality before the call starts.

6 | Have a team member log in to the webcast and monitor the quality of the audio. Then, have a way for them to reach someone in the room with the speaker to adjust the quality of the audio, notify the webcast service provider, or signal to the speaker to move closer or further from to the microphone.

7 | Determine a protocol for taking questions, especially if everyone isn’t in the same room. For example, we often suggest that the CEO acknowledge the question, perhaps even repeat it for clarity, and then turn it over to the CFO or management on the call to answer. This enables one person to maintain control over the call and keeps people from talking over each other.

8 | Longer is not better. We’ve never had someone complain that a presentation was too short, provided all the key messages were covered. There is no need to rehash the details of press releases or bios of new hires. Brief comments with highlights and how they are important to the big picture are typically what’s most important. Remember, your audience can leave or tune out whenever they want, so keep the remarks crisp, and use plain English.

9 | If you do decide that slides are necessary to augment the remarks, keep them simple and remember not everyone will have access to them. Often, because they are multi-tasking or listening to the replay on their way home from work, listeners may not be viewing the slides as you are speaking. If they are, the device they are using could be very small. Simplify the content – one or two messages per slide – and try to keep the font size at least 24pts. Detailed graphics, embedded files, and slide transitions may not come through as you planned.

10 | If you have opted to have user-controlled slides, be sure to give cues to your audience as to which slide you are on. There’s no need to say “next slide” after each section, but try to include comments that help the listener stay on track, such as, “I’d like to talk a bit about our technology. As we’ve noted here on slide 6….” Or consider putting transition slides into your deck and referencing those slides verbally in your script.

A lot goes into preparing quarterly conference calls and conference presentations. The content lasts a quarter or more and is accessed by a much wider audience than you might engage on the day of the event. Maximizing that reach and delivering a presentation that suits many audiences and has a longer shelf life is a valuable tool in any quality IR program.

Leigh Salvo, Managing Director

Important Timing Considerations for Earnings Calls

Following the end of a quarter, depending on public float and certain exceptions following IPOs, the Securities and Exchange Commission (SEC) requires companies to file quarterly and annual results via the respective 10-Q or 10-K forms. Typically, companies have 35-45 days to report their quarterly results, and year-end results are due within 60-90 days. Companies that host earnings conference calls will schedule them after the quarterly results are fully audited and before the filing deadline. For some companies, that is a big window of time, and for others it’s quite narrow.

So, provided you have some flexibility in selecting a date, how do you know the optimal timing for releasing those results? Is it better to be first out of the gate, or to wait until your peers and competitors have reported? Does timing really make a difference?

In general, larger companies will report quarterly results first, followed by mid-cap companies, and the smallest companies will report towards the end of the earnings cycle. This is largely due to timing of audit completion. Regardless of where you fall in terms of market cap size, consider these factors when determining a reporting date that works best for your company:

The sooner you report, the quicker you can have a more open dialogue in investor meetings. This opens the window to a longer investor marketing cycle. That said, a few weeks of additional time might provide important information about current quarterly trends, which could impact annual guidance and/or commentary about short term expectations. For large, diversified companies who provide high-level annual guidance, a few weeks will not likely shape the overall outlook given the many variables and inputs factored into guidance. But, for smaller companies that tend to have more concentrated businesses and volatility, a few weeks could provide valuable insight.

Ending your quiet period as soon as possible enables you to begin responding to inquiries and eliminates any potential speculation on your performance that may stem from competitors’ comments. On the other hand, following a competitor provides the advantage of listening to their prepared remarks – particularly regarding industry dynamics such as utilization, reimbursement, pricing trends, and competition – as well as listening to questions from analysts. With this, you can be better prepared to anticipate and address questions or potential concerns from Wall Street.

There is sometimes the perception that the longer a company waits to report its results, the worse those results will be and/or the less organized the finance department is. This really only rears its head when a company normally reports results within a certain timeframe, and on any given quarter there is a relative delay. Data aggregators and the Street track “normal” report dates for most companies and expectations are set based on historical reporting dates. With this in mind, some companies choose to report on the same day each quarter (i.e. the third Tuesday following quarter-end) to establish predictability; others choose to report on a slightly different day each quarter to avoid this potential issue. We typically advise our clients to report within a general timeframe but not to be so consistent as to raise a flag if the date varies by a few days.

Finally, consider the conference calendar in certain quarters. Key industry tradeshows and investor conferences often fall within earnings windows. If you plan to participate in an investor conference after your quarter has closed, we strongly recommend you try to report results beforehand to enable productive conversations. If this isn’t possible, then each conversation needs to be prefaced with the date of your last public update and commentary that makes it clear you aren’t providing an update on the quarter.

Regardless of when you decide to report quarterly earnings, we believe it’s often worth checking with a few of your key analysts to ensure you aren’t overlapping with a competitor or industry event such as a large cap analyst meeting. While all companies issue advisory press releases with the details of their call, the timing of those releases can vary. This can make it difficult to get a full picture of how crowded a certain date or time may be.

If you can’t avoid going out on a crowded day, consider moving the timing of your call up or back by 30 minutes. If that’s not an option, send a PDF of your script to covering analysts immediately after the call so they can begin preparing a note before an official transcript is available. This will ensure the analyst gets the facts correct and in a timely manner.

Conclusion
We can help you establish best practices surrounding your communications efforts with your investors. Putting simple guidelines in place ensures your message is getting across accurately in a timely manner, and ultimately, fosters a stronger relationship with the investment community. Managing expectations surrounding earnings season is key to building trust, and we would love to partner with you to maximize the benefits of this process.

Leigh Salvo, Managing Director