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