The United States Securities and Exchange Commission (SEC) requires that public companies, whose securities trade on an exchange in the U.S., file quarterly and annual financial reports. According to the National Investor Relations Institute (NIRI), a U.S.-based association of corporate officers and investor relations consultants, 92% of companies represented by their members conduct quarterly earnings calls and webcasts as part of their earnings release process.
Traditionally, these conference calls and webcasts begin with management reading scripted comments about the financial results of their most recent fiscal period, followed by a question and answer (Q&A) period. This dynamic presents a scheduling nightmare for many organizations—arranging for management teams to be in the same location at the same time, or arranging the technology to make this appear to be the case, is often easier said than done. Over the years, though, technological advances have allowed conference call providers to offer a prerecording service to their clients. This enables management to prerecord their scripted comments of the conference call.
Before taking advantage of this technology, it’s important to first consider the pros and cons. Here are some factors to consider when thinking about prerecording an earnings call:
Smoother Speech
Based on the current trend, the length of a typical medtech quarterly earnings script is between 2,500-3,000 words and takes approximately 22 minutes to read. Prerecording this section of the call allows management the opportunity to eliminate any misread words or verbal stumbles, potentially making the call sound more professional.
Location Illusion
A potential issue that can be resolved via the prerecording process is the difference in speaker volumes. With the potential of “C-Suite” employees working in different office locations around the globe, having an edited prerecorded earnings script can make it sound like every speaker is in the same room.
Increased Cost
Quarterly conference calls and webcasting services can be expensive. Adding a prerecording service can increase overall costs by 20-50%.
Inflexible Schedule
Prerecording services typically require recordings to occur 48 hours prior to the actual earnings call, allowing time for editing. This requirement forces companies to have a completed and internally-approved script two days before their earnings call. Prerecording services might make exceptions to their timing requirements, but at an additional charge.
Differences between the Prerecorded Segment and Live Q&A
Sometimes technology can do too good of a job. Crystal-clear audio quality of a prerecorded portion of the call might differ drastically from that of the live Q&A. This may throw off some investors, and make them question the content.
Management Warm-up
Many of the management teams we have spoken with about prerecording believe that reading the script live during the conference call is a nice warm-up for the Q&A. Reading the script live sets the tone and gets management in the right state of mind for the second half of the earnings conference call, which is an advantage that prerecording doesn’t offer.
After considering these factors, we’d like to present a third option that’s being utilized by Amazon.com, Inc. and Tesla, Inc., which is to eliminate the scripted section of their conference calls altogether. Both companies release comprehensive earnings reports and only hold a Q&A session during their conference calls. This change in conference call practice has not yet been adopted by any medtech company, but we would not be surprised if several large cap companies implement this change in the next few years.
While the SEC requires public companies to file quarterly and annual financial reports, it’s up to the companies to decide whether to host a corresponding conference call, how it should be conducted, and what information should be included. In our opinion, it’s still the best practice to include management commentary and a Q&A session. As to whether or not to prerecord the management segment, contact us to further review your options and decide what is right for your company.
Greg Chodoczek, Managing Director
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