In my last years as a sell-side tech analyst, I covered 17 companies. That meant that I was accountable for 68 quarterly earnings calls during a 12-month period. Throw in another 10 companies whose calls I would listen to for relevant information that pertained to my coverage list, and I was over 100 calls a year.
Many of these calls were bunched in the same 3-week, anxiety-filled “earnings season”. I spent hours modeling each company, so I’d always be edgy about the accuracy of my estimates and stock recommendations.
My biggest worry was that a company whose stock I was recommending would miss and/or guide below expectations, which would cause their stock to tank in after-hours trading and the next day. This happens to virtually every company at some point – especially in “Techland” – but it still stings.
For the buy-side, anxiety was about the impact company results could have on their portfolio performance. If a client bought the stock on my recommendation, and then the company missed, I’d first hear about it from them; then my sales force would pile on.
My earnings season was fueled with coffee by day and 5-hour energy drinks by night. On those afternoons where I had multiple companies report, I’d pull all-nighters because I modeled with fine detail and then had to write up my notes. Is it any wonder then that – like all of my peers – I dreaded earnings season?
What Makes a Good Call?
A well-executed earnings call benefits everyone. Attention spans are shorter than usual and patience is tested. Analysts want the most relevant information delivered in the most efficient way.
Give it to them. Both the CEO’s and CFO’s prepared remarks should consist of three brief parts. Regardless of who speaks first, here are tips for what should be covered:
CEO:
- Begin with a quick summary of the results, including how they are relative to previous guidance and how you compare to a year ago. Don’t over-embellish the good or sugarcoat the bad. Neither will last.
- Provide color on the state of business, including market conditions, customer and competitor activity. If your press release mentions specific customer wins during the quarter, briefly call them out with the use cases that led to those wins. If you’ve recently done a material acquisition or product launch, provide a quick progress report and update on the rationale. If it’s transformational, skip the customer wins and devote more time to the acquisition or product and how it helps customers.
- Conclude by reinforcing your strategic message. This includes vision, strategy, portfolio and value proposition. Delivery here will greatly influence analysts and investors perception.
CFO:
- Focus listeners on those metrics that best explain performance. Skip the line-by-line review of the actuals, unless there are outliers. I’ve written about metrics that analysts and investors find most valuable. If there was a material acquisition, update targets and metrics you gave when the transaction was announced. As for metrics in general, stick with the ones you’ve chosen to give out. Suddenly changing or eliminating a metric raises a flag for analysts and investors, unless you can justifiably explain why it’s no longer relevant.
- Provide guidance. Include a short commentary on the reasoning behind the numbers to help analysts’ understanding and modeling. Keep providing acquisition related metrics for at least four quarters so analysts can make apples-to-apples comparisons and model the business after the anniversary of the deal’s closing.
- Reinforce the strategic message. Be consistent with the CEO’s comments, perhaps with some financial shading using the metrics provided.
Budget 10-12 minutes for the CEO’s section. That’s all you need to make your key points. A rambling CEO starts to raise suspicions among analysts: they’ll think that there is bad news coming, that the CEO is trying to shorten the Q&A time, or that s/he simply talks too much. None are positive.
The CFO’s section should also take 10-12 minutes. By focusing on outliers and key metrics, the CFO can dive deeper into the results, acquisition, and any nuances in the business that may be one-time or short-term in nature.
The Purpose Your Call Serves
Your call is not just about results and guidance. True, both are critical to how your stock performs after hours and tomorrow. But analysts and investors are listening for nuance, tone and pitch, which are often the main determinants to stock movements. Work on these.
What you say and how you say it will have a greater impact on your stock price – now and beyond tomorrow – than only the numbers will.
Your call serves as the window to “the Street” about your company’s health and competitiveness. It gives you the opportunity to shape the conversation. That includes Q&A, because if you prepare, you can anticipate most of the questions. And with help, you can read between the lines of the questions.
What Do You Want Analyst Notes to Say?
This is key, because those notes will carry your message. Or not. The call is where you shape the reaction and opinion.
If the results and guidance are good, say less. But still focus on what you want analysts to take from the call and build their notes around, such as business dynamics or metrics. Stay on message. It will flow through to the notes.
If the news is bad, address it head on. Explain carefully why you missed or why your guidance is disappointing. Nothing puts more downward pressure on your stock than “credibility issues” that arise when analysts and investors perceive that you are tap dancing around the explanation or worse, lying. Unless your message needs to be altered, stay on it. Good messaging can really soften the blow.
How you handle delivery and Q&A definitely has influence. Don’t let the numbers just speak for themselves.
This article originally appeared on LinkedIn.
