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How To Run An Innovative Earnings Call

innovative_earnings_call

One of the most common criticisms of earnings conference calls is that they’re just too dry. Financial analysts can read the content of an earnings release themselves. During a call, they’re really trying to dig down on the thinking behind management decisions. So with all the things you have to cover on a call, how do you make the content engaging enough that people will want to listen? This quarter, we suggest using these six methods to improve your earnings call and make it genuinely useful to both buy and sell-side analysts. In short, if you want to run an innovative earnings call that gets noticed, here’s how.

1. Do it on video

If you want to push boundaries, this is where you can have the biggest impact right now. Since so few companies are actually using video earnings calls, getting in early will provide you a noticeable competitive advantage. Last year, Yahoo and Netflix led the way. But using video in announcements is by no means a new idea. Apple have been using live events to announce products for years. The original iPhone release event (below) was back in 2007. If you know your IR timeline, you’ll notice this was well before the SEC’s disclosure on using websites for disclosure.

It’s not surprising that tech firms have been the first to embrace video earnings calls. No call was spectacular in terms of content, but they were excellent starting points. The management teams held themselves well, some looking like news anchors and others a little uncertain. Overall though, the media coverage they received from the events was extensive. And, ultimately, that’s what we want: exposure. Just because the tech giants went first doesn’t mean you need to wait 5 years to catch up – budgeting for a video earnings call is no more expensive than a non-deal roadshow or even having a junior IRO attend an event. If you’re looking to incorporate non-GAAP metrics in your earnings announcement (as Netflix regularly does), the trust gained from having your management team on camera is worth the relatively minor expense.

2. Prepared remarks don’t really matter

Most earnings calls today run over a two day period and we approach it that way when we’re planning. We alert the markets after close and then the next morning the management team is on the phone laying out their vision and taking questions during the Q&A period. Strangely, day #2 generally starts with an exact re-hash of the data from day #1. Granted there are regulatory implications here, but the earnings release is already out there and the data is freely available to the public. Why then, do we spend so much time focusing on prepared remarks?

If you want to improve earnings call quality this quarter, be ‘prepared’ to ditch your prepared remarks. Or at least reduce the focus on them. Why? Analysts don’t really care about them. It’s sad to say, but the formula we’ve all been working with just doesn’t resonate. Buy-side analysts in particular are going over your earnings release with a fine-tooth comb, they don’t need to have them read out. We’ve already mentioned the dryness of the conference call; keeping the attention of your audience is paramount. If they’re re-listening to information they already have, there’s a good chance they’ll tune out. If you can’t keep their attention until the Q&A period, then you’ve just missed one of the four times during the year when analysts most want to hear from your management team.

3. Make your analysts’ lives easy

The really fascinating thing about earnings calls is their interactivity. Since we started in 2011, we’ve spent considerable time analyzing the questions asked by analysts, and to be honest, they’re not very good on balance. Which kind of makes sense though, doesn’t it? They’re not journalists, actors or radio personalities. Asking simple, well crafted questions under pressure is not really what they’re paid for.

This makes your life as an IRO slightly difficult during an earnings call. The content and your company’s message is being driven by someone with clear knowledge and understanding of the topic, but who isn’t asking good questions. Why is this happening? Time. We just don’t give analysts enough time to create and deliver quality questions. Put yourself in their shoes: they have other earnings calls that day, they’re trying to read your release, four others and listen to five calls while being insightful during all of them. It’s a tough ask.

If you want to improve the quality of your earnings call, make the lives of your analysts easier. Give them the prepared remarks in advance. Pre-record your earnings call intro and release it with the press release on day #1 of earnings. This gives the analysts time to listen (or watch) and formulate their questions the day before they need to ask them. Rather than ad-libbing on the spot, they’ll have it written down. Another idea we haven’t mentioned before is to create a public repository of the questions that will be asked on the call. Your call producer already has this list and is curating it. As they decide on questions that will be asked and answered on the call, push them to a live page of your IR website so that other participants can see them. This avoids one analyst formulating the same question as another and lets them focus on areas of the business and operational metrics that might otherwise not have been touched.

4. Diversify your sources of input

We discussed above how important quality call questions are. Despite your best efforts, they aren’t always forthcoming. All too often, sell-side are analysts are only asking questions to get into the post-call transcript and grab some Seeking Alpha visibility. The buy-side are largely silent hoping not to give away anything about their investment strategy. This leaves the door open for the odd retail investor to sneak through who doesn’t really understand the macro impact of their simple request.

Fortunately, there are ways to get genuine, intelligent, third party questions from outside the call.

First on the list is supposed to be me selling you on the ‘huge impact of Twitter’ on the earnings call process. I’m not going to do that. In fact, if you’re not ready to Live Tweet your earnings, then monitoring Twitter for questions probably isn’t your bag either. We maintain that social media monitoring should be done in all cases, but to work the dynamic medium properly in both directions, you need to keep a social CRM and really understand not only who your Twitter followers are but the audiences they’re writing for. There’s a lot of social engagement and business intelligence work that goes into this process.

Fortunately, there are other, more direct sources of social data that can help drive the conversation on your quarterly earnings call. In this case, we’re talking about the crowd-sourced financial estimates platform, Estimize.

While you’re likely not familiar with it yet, you soon will be. Our most conservative clients have told us to leave Estimize alone, but considering that it’s 63% more accurate at earnings than Wall Street, we suspect they’re keeping an eye on it internally.

From their latest email newsletter: ‘for the 91 companies that have reported from our coverage universe, Estimize has been more accurate 63% of the time compared to Wall Street on both revenue and EPS estimates combined, 64% more accurate on EPS alone, and 62% more accurate on revenues alone.’

Estimize matters for its accuracy, but also because the network provides a degree of anonymity. This isn’t something that all companies are comfortable with. Anonymity means that the estimates and associated comments could be from students looking to make a name for themselves, activists hoping to grab a management sound bite for use in a proxy dispute, or even employees. It won’t all be useful on the call, but Estimize users often have thoughtful and unique perspectives on a company’s performance. That’s exactly what you’re looking for on the call. Grabbing a couple of these and having your moderator read them aloud for management can be a great way to show you’re open to new ideas and sources of information. What’s more, management can prepare answers in advance. Remember, you can curate this information as with any other source of questions, so the risk is very limited.

5. Forget EPS already

Little known fact: non-US companies and investors place significantly less importance on EPS than we do. GAAP principles don’t tell much of a story so its odd that we place such importance on them. Yes, they’re useful for benchmarking, but beyond that, GAAP utility drops quickly. Management accounting is increasingly considered the key to more functional and efficient businesses, and it stands to reason that those principles apply to understanding businesses just as well. So long as the requisite GAAP numbers are provided, most GCs will agree that providing operating metrics on a call is both kosher and good business. At this year’s NIRI Conference, we heard that 62% of long-term investors care more about operational metrics than EPS or basic GAAP metrics [1].

There’s a right way and a wrong way to do this. For example, Ebay generally reports on the value of their total online stock. That is, the total sale value of all products in the online store on the day of reporting. Yes, that’s an operating number, but there’s so little context for what this means that it’s hard to see its importance from an investor’s perspective. On the other hand, figures like those released by Reed Hastings in his now industry-changing Facebook post about the amount of data being streamed by Netflix users are easy to use and provide a clear picture of growth and customer acquisition. Total data streamed is hardly a GAAP principle, but it’s as important to the Netflix story as total gross tonnage is to Rio Tinto. Netflix performed well the day of Mr. Hastings’ Facebook post. Reed correctly pointed out after the SEC threw a flag on the play that the trade-up started after a favorable research report by Citigroup earlier in the day, but it isn’t hard to imagine the graphic driving a large retail base to get financially involved with one of their favorite brands, and institutional trading desks climbing aboard for a ride.

Not every industry can use a gross metric like ‘Total Data Streamed’ and have it be meaningful. But within your sector, try to formalize operating metrics that investors can quickly make sense of and compare.

6. Re-purpose your call for marketing

Too may IROs seem not to understand how valuable the content of an earnings call is from an online marketing perspective. Audio & video content, powerpoint decks, and live social messages are all incredibly good tools for marketing your earnings call after it’s happened. Remember, not all analysts can get to your live call. And not all who do will stay for the duration. Re-purposing your earnings calls into bite-size chunks makes them easier for analysts and investors to digest after the fact.

Audio calls can quickly be made into Audio FAQs and Podcasts. PowerPoints can be uploaded to SlideShare to drive passive investor leads, or hosted on your IR website to give you accurate download statistics. The earnings release itself is prime source material for an infographic. If you think your work is done when the moderator says it is, you’re dead wrong. We’ve been able to increase analyst turnout for client earnings calls by over 100% using these simple strategies. That means more longevity, more exposure and hopefully more liquidity moving forward. Better yet, if you understand how social media and investor relations intersect, you can do all this with very little time commitment on your part.

Conclusion

Any or all of these six methods will get your earnings call noticed, and will make it genuinely useful to both buy and sell-side analysts. Checklists are seldom talked about in IR, but they have a huge amount of value as an investor relations tool. Using a checklist is a guaranteed way to increase the minimum standards of investor relations firm or teams. If our worst-case outcome is the industry standard, then we have a great base to improve the quality of our earnings call and innovate. The checklist below will help you do this.

data visualization wins investors

Tim Howard

Tim is our CEO at IR Smartt Inc. He leads the strategy and business development teams, driving the company forward. Tim's previous professional experience included extensive work in Journalism and Online Publishing.