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.
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