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A public company’s first earnings call is an opportunity to set a precedent with Wall Street on how it plans to report. It is important to be intentional, consistent, and thoughtful with key performance indicators (KPIs).
Metrics & KPIs
Revenue is important for growth companies, but the strategy is in demonstrating metrics beyond revenue to show the business’ traction and acceleration. Metrics are quantifiable measures used to gauge performance or progress. KPI metrics are essentially the kinds of metrics that will help you track your company’s performance over key goals. Most KPIs tend to be specific and measurable so that you can easily gauge your performance. In short, KPIs track whether you hit business objectives/targets, and metrics track processes.
Why are KPIs important?
KPIs help you evaluate your company’s performance where it matters most. As these performance indicators highlight how well you’re achieving your core business objectives, you can easily monitor your organization’s and team’s performance in achieving those key goals.
KPIs show a company’s holistic progress through time and performance. As you transition to a public company, focus on the metrics that best represent how you think about the business. You should be mindful of the balance between choosing metrics that show traction, growth, and momentum in the first year versus the longer-term outlook. For example, you may be excited about providing metrics that are currently showing traction, but do these make sense to be reporting on a few years down the road? Could these metrics become less relevant?
KPIs should be consistent, and you should only retire metrics when you can make an argument that they are no longer the right way to think about the business. Use year-end to reevaluate metrics and see if anything has changed or needs to be retired. This is the time when you can also introduce new metrics.
Changing KPIs
Firstly, it is important to be consistent when giving KPIs (no cherry-picking based on a good or bad quarter). Retiring a metric without explanation can indicate a bad signal, such as not having a good line of sight into the business.
The year-end call is an opportunity to reassess KPIs and determine if anything needs to be changed moving into the next fiscal year. As you grow, the business will change. Your metrics you choose to report on will need to reflect this change, and this is normal. In order for Wall Street to understand (and accept) this, you have to give convincing reasoning as to why this isn’t the right way to think about the business anymore. Being transparent and clear of what to expect going forward will address investor expectations.
For example, due to a shift in core business or revenue mix, previous metrics may not be the right proxy for traction. Point out the factors you are considering or how working with customers has changed, and point to the new metric as a better way to note acceleration and progress.
Here at Gilmartin, we have extensive experience helping our clients through the intricacies of their quarterly reporting. For additional information on navigating the reporting as a newly public company, please contact our team.
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Carrie Mendivil, Principal
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