In many ways, a crisis such as COVID-19 demands immediate action. Since January, and particularly over the past few weeks, we have seen a tremendous mobilization of government and private resources in response to the novel coronavirus that has upended society and markets around the globe. This mobilization, along with the implementation of mitigation policies like social distancing and the deferral of elective procedures, have forced healthcare companies to grapple with how to best respond operationally. In turn, it has become obvious that expectations and messaging for 2020 need to be reassessed. Therefore, from an IR perspective, while transparency is key, immediate action, or reaction, is likely not the best prescription for this situation.
In our view, companies should consider the following when planning their response to COVID-19:
- Don’t hide. Focus investors on the fundamentals and your long-term value proposition. As investors have made a lurch toward cash, there has been immense pressure on the share prices and relative valuations of SMID cap companies. Management teams should remain in close touch with their investors, particularly top holders, as they assess their portfolios and make difficult decisions in the weeks and months ahead. Consider providing high level context around how your company is managing these unprecedented headwinds while dispelling misguided concerns and reasserting that the fundamentals of your business are intact. Executives should also convey that nothing about their business model has changed and that they remain optimistic about the durability of their business. This is especially true for generally countercyclical healthcare companies, which are more likely to emerge as buying opportunities for well-positioned investors. While most elective procedures are being postponed, many physicians and hospital administrators are signaling their belief that a relatively small proportion will be lost indefinitely. This means that healthcare companies will likely benefit later in 2020 and into 2021 from pent-up demand as we emerge from the worst of the crisis. Keep in mind that current valuations may have created a buying opportunity for institutional investors who have been eagerly awaiting a liquidity event or more reasonable valuation to enter a name.
- Communicate your commitment to both your employees and shareholders. In times such as these, strong leadership is critical. As you engage with various stakeholders, be sure to convey confidence while making your priorities clear. In the nearest term, your company will be focused on the health and safety of your employees. While this may translate into higher than expected cash utilization despite a decrease in revenues, human capital will remain critical to weathering the storm and ensuring shareholder value in the medium to longer term. That said, make it known that tough decisions may need to be made in the months ahead and that you are willing to make them. Remaining transparent about these realities and your priorities will help maintain credibility internally and externally while also levelling expectations from a financial perspective.
- Avoid quantifying specific short-term impacts. The impact of COVID-19 on global supply chains and on the demand for medical procedures and products is constantly evolving and will impact every business differently. Investors and analysts understand this. While some investors may pressure you to quantify short-term impacts, most understand that a comprehensive assessment takes time and will likely not be possible until the worst of the initial outbreak of the virus has passed. While providing context on mitigation strategies (assuming they are already in the implementation phase) is encouraged, avoid commenting on and/or quantifying specifics.
- Contemplate suspending FY 2020 guidance. A number of mid and large caps in the healthcare space have already either suspended or signaled their intent to suspend their full year 2020 guidance. Just as investors and analysts have demonstrated their willingness to hold tight for commentary on the specifics of the virus’s impact, they also seem willing to accept guidance suspension. This forgiveness is atypical—companies of all sizes should take advantage.
- Consider a letter to stakeholders. As investors, customers, patients, and employees all seek information related to your expectations and response to the crisis, a simple letter to all stakeholders may be the most appropriate channel to communicate broadly. Unless there is a need to disclose material information, a letter outlining your latest thinking can be immensely helpful while avoiding the formality of a typical press release. Some key messages could include:
- “We are watching the global policy responses closely and working with our suppliers and customers to work through this difficult, transitory period.”
- “We are following the direction of local authorities with regard to public gatherings, and we are working to ensure our employees are compliant but operational.”
- “As we learn more about the direct and indirect impact from policy decisions and macroeconomic developments around the globe, we will be more informed about the ultimate impact on our business operations and will communicate them appropriately.”
A letter like this conveys transparency and proactivity while providing reassurances that you are focused and able to tackle the hurdles ahead.
- Carefully consider the extent to which you will provide prepared remarks and/or Q&A on your next earnings call. If you are still processing the impact of COVID-19 to your business and contemplating your response, it may make sense to keep your next quarterly earnings call short and sweet. Now there is more flexibility to delay the timing of your quarterly reporting—see SEC guidance here. Discuss your options with company counsel and your IR team to ascertain the best strategy for your company. Sometimes less truly is more.
- Don’t forget Reg FD requirements. As executives and communications professionals at public companies continue to respond to external audiences, it is critical to keep Reg FD requirements in mind. Carefully plan your talking points to avoid disclosing any material non-public information (MNPI), and keep company counsel looped in. Operating and messaging through evolving times of uncertainty creates even more opportunities to unwittingly provide MNPI and selective disclosure. Remain particularly cognizant of SEC regulations as you continue to engage with key stakeholders.
- Wash your hands and stay safe. This one should be self-explanatory!
For more information on best practices for responding to this crisis, or if you would like for us to review your COVID-19 response strategy, contact our team today.
Brian Johnston, Vice President
Leave a Reply