The COVID-19 crisis has thrown all market participants – buy-side, sell-side, and corporate issuers – into a tailspin of uncertainty. This lack of clarity will only increase the scrutiny around earnings calls as the investment community looks for direction and meaningful company updates. Additionally, employees, customers, and other stakeholders are also looking for answers.
IROs and management teams are in the midst of preparing for their earnings calls in this increasingly complicated environment. To help prepare teams for reporting in these uncertain times, we spoke with Q4’s VP of Customer Experience, Karen Greene, about key issues and best practices in this very unique earnings season.
Positioning your story during prepared remarks
As we move into this earning season, it’s unlikely the standard narrative from prior quarters still applies. In addition to the messaging challenges resulting from this global health crisis, companies across the market are facing significant technical and logistical challenges. And while industries and organizations are facing unique obstacles, IROs should begin with some common challenges in preparing for their first earnings call following the onset of COVID-19.
Given the environment, organizations must reframe their investor narrative and consider new script structures to address current considerations. With all of the additional complexities of this earnings season, experts recommend developing a one-page messaging sheet to focus the team before developing script structure. Past that, IROs should consider addressing several high-level themes as they begin creating earnings materials, including:
- The health and well-being of employees, customers and partners, as well as any steps the company is taking to give back to the broader community
- Updates on the company’s response to the pandemic such as employee precautions, supply chain
- Cybersecurity/IT infrastructure
- Any positive impact on the company/market trends
- The organization’s ability to weather the storm (balance sheet, liquidity preservation, dividend suspension, revolving credit facilities)
- Focusing on financial metrics that point to revenue stability and visibility into the business or future outlook (recurring revenue)
- Updates to guidance and guidance assumptions
Setting the right tone
“This upcoming earnings call is a very different type of call and an opportunity to demonstrate strong leadership. Investors are going to derive confidence from those companies that make it through this by taking aggressive actions to protect their business, illustrating the flexibility to navigate these trying times and continuing to proactively communicate the long term investment appeal of the business.”
Beyond updating stakeholder the impact of this pandemic on the business – bifurcating quarterly performance into the first 10 weeks prior to the crisis and the last two weeks which were clearly impacted – and the company’s overall ability to weather the storm, IROs should look for opportunities to pivot to a discussion of long-term vision and investment appeal. IRO’s are urged to remind investors of the company’s differentiators, such as the revenue model, the market opportunity, unique efficiencies that support a high gross margin profile and other key themes that draw investors to their story. Additionally, it is paramount to strike a balance between a review of the business and a focus on how the company is taking care of employees, partners, customers and the broader community. Those able to balance empathy, transparency and strength will be rewarded in the future.
The tone will also be impacted by potential changes to the audience make-up on this next earnings call. This will require a shift from shareholder to stakeholder communications.
“Given these unprecedented times, I absolutely believe this next earnings call will be attended by record numbers of stakeholders, including employees, customers, suppliers, regulators, equity and debt holders and the media – all who bring slightly different perspectives and questions. With these critical messaging requirements, IROs must look for ways to balance these diverse needs either on the call or in follow up communications and calls that break earnings details into more tailored and consumable takeaways, especially for those who represent the company. Nothing should be left for interpretation.” Karen explained.
Managing the complexities of a dispersed team
And if the challenges of messaging through a global pandemic and complete economic shut down aren’t enough, IR and management teams face additional complexities as a result of their teams being dispersed across geographies.
Given these tech and logistical challenges, Karen shared some practical tips to help ensure a smooth earnings process:
- Give your vendor plenty of notice, booking your call at least a week in advance to account for any potential delays in processing
- Should you need to delay your call, reschedule as quickly as possible
- Provide your vendor with the number of speakers and participants so they can address any limitations on how many participants can be on the line: remember to account for a larger audience
- It’s strongly recommended that teams consider pre-recording prepared remarks to mitigate tech issues and at least some of the anxiety
- Ask speakers to use a landline whenever possible
- If IR team typically manages the Q&A queue, rather than operator, have a non-speaking member assigned to this role to cut down on distractions
- Use hard wired internet connections for presenter controlled slides rather than risk Wi-Fi issues
- Clear your cache and close all other tabs before logging on for the live webcast to optimize browser speed
- Consider a way for the team to communicate during the call – especially the Q&A section. Using the chat function of a video conference on mute in the background is one suggestion
This last point is absolutely the most important. More than ever rehearsals must be prioritized to ensure everyone is using the same messaging and it’s clear who will answer which questions. Fumbling through the Q&A can have a huge impact on the tone of the call and read like there are issues that don’t exist in reality, or that management doesn’t have its act together. In fact, Karen cautions, “The more difficult or sensitive the question, the more important the delivery of its answer.”
Given the complexities of this rapidly evolving situation, anticipating and preparing for analyst questions during the earnings call has never been more important.
“Every analyst wants to know about liquidity preservation and the general health and viability of the business. But IROs should also prepare for questions around CapEx flexibility, cash burn expected under various scenarios, debt covenants, access to additional capital, key customers, the supply chain, changes in contract structures and likely a host of other topics which will be at the forefront of your Q&A session. Extensive preparation is critical this quarter.”
Once key questions have been identified, look for ways to carefully craft and incorporate as many of the answers as possible into your prepared remarks to best control the positioning, tone and context of these topics.
Updating or suspending guidance
These are uncharted waters from a guidance perspective, with guidance assumptions changing weekly or even daily. It’s imperative to consider the best way to communicate changes to both.
“Companies shouldn’t feel compelled to provide updated guidance if they’re not currently capable of doing so,” Karen explains. “The worst thing a company can do is make assumptions that won’t hold true, forcing multiple recasts and refinement. Know that it’s OK to suspend guidance and focus the discussion on scenario analysis, cash burn, liquidity preservation, capital availability and any qualitative guidance you have available.”
While we’ll all likely face these challenges, risk factors will differ significantly across industries, so decisions around guidance must be tailored to the company’s level of visibility. Some companies may be in a position that necessitates suspending full year guidance but are still able to provide some sort of quarterly guidance. Karen indicates this can be a good alternative but recommends keeping things simple, for example sticking to forecasting only an EBITDA range or otherwise reducing the number of components the organization typically guides to.
Watching how peers manage guidance is a great way to prepare for the questions facing the industry – especially if your company is taking a different approach. Karen joined other industry experts to address many of these themes in a recent webinar with IR Magazine. Watch the recording here.