Is it Time to Bring Back Guidance for 2021?
When the COVID-19 pandemic started to affect the world in early 2020, nearly every business saw an immediate and meaningful impact on revenue. Public companies began withdrawing financial guidance that was previously provided for the fiscal year 2020 as well as any outlook leading into 2021 due to lockdown restrictions, social distancing mandates and growing uncertainty.
As the year progressed, resurgences in COVID-19 cases were occurring all over the country, and even into 2021, we continue to see the impact. With fourth quarter earnings reporting wrapping up, as we close in on the end of the first quarter for 2021, there are notable trends that public companies must consider when deciding whether or not to reintroduce formal guidance for 2021.
Keep it Conservative
Looking toward healthcare, hospitals are remaining open to elective surgeries and the singular focus on COVID-19 has slowly started to shift back towards normalcy. Concurrently, we have noticed the reintroduction of guidance by a large portion of medical technology and diagnostics companies for fiscal year 2021. While sentiment in returning to pre-COVID growth is high, reporting companies are taking a conservative approach.
Through February, more than 75% of these reporting companies have reinstated some form of formal guidance for the year. On average, those providing guidance have given a range of approximately 3.5% and have kept their estimates conservative. The large range stems from concerns looming around new potential shutdowns, vaccine efficacy and the development of new strains which may lead to further drawbacks on revenues.
If you are reinstating guidance, consider providing a larger than normal range with a focus towards the lower end to maintain a conservative outlook. Additionally, develop messaging around the guidance that will help the investment community understand the ongoing constraints that may impact the business. While quarter-over-quarter growth through the pandemic has been promising, the comparison to recovery to pre-COVID numbers should be front of mind.
If you have not yet reinstated guidance for 2021 and your business is trending back towards predictability, it is time to consider doing so.
If Unsure, Wait
While many large and mid-cap companies have started to provide guidance as they report fourth quarter financials, there are still small-cap and sector specific companies that remain impacted by COVID-19.
Ongoing pandemic impacts only fuel uncertainty when taking COVID-19 resurgence, potential low vaccine efficacy, and new strains into consideration. If your business continues to see a substantial impact through the first quarter of 2021, it is best to hold off providing guidance until predictability is reached.
Keep in mind that a conservative approach is best. If management remains committed to providing guidance, consider a larger range with a focus towards the lower end, coupled with transparency.
Wall Street is understanding of the ongoing headwinds companies are facing due to COVID-19. It is no surprise that industry leading giants with stable businesses have been able to provide guidance earlier than most. As recovery continues among all companies, the thought of providing financial guidance should be front of mind.
If your company has found predictable growth over the last few months and financial guidance has not been implemented, it should be. With a majority of companies seeing growth trends into the first quarter of 2021, guidance is to be expected. If your company continues to face obstacles due to COVID-19, maintain the position of no guidance.
It is better to under promise and over deliver than to over promise and under deliver. No matter your decision, remain conservative in your estimates and be transparent with the investment community. Increased transparency and a conservative approach in discussions can provide Wall Street with color on the current state of the company in lieu of formal guidance for the year.
The team at Gilmartin is experienced in helping companies prepare meaningful financial guidance. Contact us today for help with preparing guidance for your company.
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Collin Beloin, Associate