Earnings Calls As A Competitive Tool

Inside The Buy-Side

速

Earnings Calls as a Competitive Tool

90%

Financial professionals who assert the earnings call is one of the most “meaningful” sources of information (when executed well)

CorbinPerception

The quarterly earnings call is one of the most powerful means a public company has within its control to broadly and clearly disseminate essential information to the financial community. Four times a year, management has the ability to demonstrate execution against its communicated plan, reinforce strategy and set expectations. And in the event operating performance falls short of expectations, the call, when executed well, serves as an ideal platform to address key issues and begin to rebuild credibility.

In this report, we cover all aspects of the earnings process – from preparation to execution and followthrough, and include both best and worst practices based on investor and IRO experiential perspectives.

Our research identifies several opportunities for companies to refine and improve the way they conduct their earnings calls, serving to differentiate the IR program and further capture investor and analyst mindshare.

2 | Inside T he Buy-Sid e ®

Proven Methodology, Proven Results Corbin Perception, a leading investor research and investor relations advisory firm, performed a comprehensive analysis on the earnings call process based on a three-pronged approach: 1.

We surveyed 165 investors and analysts1, referred to herein as “investor survey”; 2. We surveyed 145 IR professionals, referred to herein as “IRO survey”; and, 3.

We analyzed a sample of 200 companies across diverse sectors and market-caps, referred to herein as “sample”; 40% are recognized as best-in-class by the broader financial community 1

• Investors

encourage companies to consider time zones and competing calendar slates when scheduling earnings calls, while IROs concede they more often abide by internal management preferences

• Results

underscore a disconnect regarding from whom and about what investors want to hear on earnings calls; one area of opportunity for many is the inclusion of key assumptions and risks to guidance

• Lastly,

we’ve reaffirmed that striking the right balance between reporting the past and providing a roadmap for the future is a key determinant when investors evaluate the quality of an earnings call and management team during the earnings release process

Buy side (72%) and sell side (28%)

Before the Call Key Themes & Findings • Survey

participants find it important and helpful when companies tie their strategic goals to their operating results and capital allocation policy every time they communicate with the financial community vast majority of investors and analysts report the earnings call and, more importantly, the corresponding earnings deck, are extremely “meaningful” sources of information; yet less than one-third of investor relations professionals deem the earnings deck “valuable”

The Earnings Quiet Period Excluding the 25% of surveyed IR professionals who report they do not adhere to a quiet period, the majority maintain a policy with 61% indicating the timeframe is three weeks or longer.

• The

• The

majority of investors are keen on companies pre-announcing results when earnings are expected to deviate considerably (+/- 10%) from expectations; while less than half of IROs surveyed adhere to this practice

How Long is Your Quiet Period?

• 1 week

3%

• 2 weeks

11%

• 3 weeks

10%

• 4 weeks

26%

• 5+ weeks

21%

• End of Quarters to Release 4% • No quiet period

25%

C o r bi n P e r c e pti o n .c o m

While the informal earnings quiet period is not regulated by the SEC, it is a highly recommended precautionary measure. The typical quiet period commences at the end of the fiscal quarter and lasts until that quarter’s results are announced. Thus, the average length of the quiet period is highly correlated to the time it takes a company to close its books and report earnings.

A thoughtful and prudent approach to managing both formal and informal quiet periods is critical and such topics concerning the quarter or nearterm trends should be avoided with discussions focusing on long-term strategy and business drivers.

“We do a soft quiet period where we do not talk about upcoming earnings but do talk about previously disclosed items.” IRO “We do not have a scheduled quiet period. When IR has visibility to results, comments become much more focused on long-term drivers than near-term results.” IRO

CorbinPerception

Corbin Perception and analysts on companies employ earnings conference

polled investors best practices ahead of the call.

“I reach out to the sell side to avoid scheduling conflicts for release dates with other companies in my sector.” IRO “I review prior year’s earnings timing and note any questions regularly asked by investors/ analysts since the last quarter and historically.” IRO

Interestingly, only 31% of surveyed IR professionals reach out to their industry counterparts to coordinate the timing of their earnings calls.

“Regardless of when you intend to report, tell us in advance and then stick to the schedule you laid out.”

Sell Side

What Do You Value Most/What Do You Do as Part of the Earnings Process?

Avoid Scheduling Calls Same Time as Peers

86%

31%

Email Press Release & Slides

69%

Schedule Time w/ Mgmt. Post-Calls

78%

64% 60%

Available for Questions Post-Release but Pre-Call

40% 44%

Reach Out Ahead to Asses Sentiment Email Key Takeaways

Scheduling

“I monitor peer company earnings dates to minimize schedule conflicts.” IRO

The vast majority, 86%, said scheduling was the most important consideration, encouraging companies to avoid arranging calls at the same time as peers. As well, they encourage advance notice and that companies remain committed to the date and time.

36% 39% 36%

13%

Allocate Time w/ Mgmt.

Post-Release but Pre-Call

27%

Investor Survey

36%

IRO Survey

86%

Financial professionals who are keen on companies avoiding scheduling conflicts

3 | Inside T he Buy-Sid e ®

C o r bi n P e r c e pti o n .c o m

“We have a call with each segment leader to discuss quarterly results and they review related press release comments, script comments and prepared Q&A.” IRO

Pre-call Outreach Who is the Primar y Owner of the Press Release?

• IR

85%

• Corp Comm.

10%

• Legal

1%

• Other

4%

Do Segment Leaders Provide Input on the Press Release?

• Yes

67%

• No

33%

Writing the Press Release IR being a team sport, most surveyed practitioners confirm that while they are the primary owner, they seek contribution from a cross section of management in developing the press release.

CorbinPerception

For those companies with more than one reporting segment, 67% utilize a process to secure input from various business leaders on key highlights, drivers and forward-looking trends.

“Segment leaders are asked to provide developments and highlights in each of their areas.

IR then decides what should be included in the press release.

Segment leaders are asked to review the press release throughout the writing process.” IRO

As for outreach efforts ahead of the call, 39% of IROs maintain they reach out by phone or e-mail to shareholders and analysts ahead of the call to inquire about key issues, questions and points of interest. Notably, only 36% of surveyed financial professionals appreciate this proactive effort, underscoring the need to be thoughtful and selective when pulsing ahead of the call. A more common practice, 60% say they contact investors and analysts before the earnings call to schedule individual follow-up sessions afterward, adding that these conversations do not always include senior management.

Continuing, a large number of investors and analysts, 64%, value the opportunity for telephonic followup with the management team and/ or the IRO after the earnings call.

Further, 40% assert they like to be able to call the IRO with questions directly following the press release but before the call. Notably, 44% of IR participants maintain this practice.

“We schedule calls in advance with both the sell side and buy side (largest holders) post-call. With the

Timing Taking into consideration the various constituencies, 59% of financial professionals prefer a pre-market release with 39% of the sell side favoring before 7 AM, largely so they have enough time to digest and publish their alert/initial take. For IROs, the key consideration is establishing a cadence and predictability that investors and analysts can plan around whether a company reports an in line, better or worse than expected quarter. Buy side constituents largely prefer a release post-close over any other window, while the sell side is keen on early morning releases.

Meanwhile, more surveyed IROs report they wait until after the market close to release earnings. A more crucial consideration, however, is the timing of the earnings call, to which investment professionals across the board express an aversion to aftermarket hours (see: The Conference Call, Timing).

What is Your Timing Preference for/When Do You Issue the Press Release?

Before 7 AM

27%

During Market Hours

35%

24% 22%

Before Market Open

1%

6% 28%

After Market No Preference

50%

7% NA%

Investor Survey

4 | Inside T he Buy-Sid e ®

sell side, it helps to clear up any misperceptions right away and can filter through their networks quickly. With the buy side, it goes a long way towards solidifying a relationship. Only 15 minutes per person is needed, and you can divide and conquer using your CEO and CFO (assuming you have more than one IR person).” IRO

IRO Survey

C o r bi n P e r c e pti o n .c o m

Best Practice: • While

executive calendars can be challenging, IROs should contact industry peers and/or sell side analysts to ensure their earnings calls don’t occur at the same time as sector peers

• Schedule

in advance follow-up calls with large shareholders/key sell side analysts

• Fielding

calls between the time the press release is issued and the commencement of the conference call can serve to inform of any concerns and provide the opportunity to proactively address issues that may arise during the call

• Maintain

a consistent cadence for press release issuance

Preparing for the Call Pre-recording Calls The vast majority of IR professionals, 84%, report that they do not prerecord prepared remarks, with most pointing to the “game time flexibility” that “going live” provides.

“We meet in the morning before the call after IR has discussed the earnings release with most of the sell side and determine what key points might need to be emphasized. These small tweaks to the message have proven valuable in the past and that wouldn’t be possible with pre-recorded remarks.” IRO “A lot of times we are updating the earnings script last minute. Our executives are good speakers and this allows us to be flexible.” IRO “Last minute changes are very hard to accommodate.” IRO Those that do pre-record management remarks, 16%, suggest there is value in limiting the stress and “avoiding stumbles”, adding that this approach yields a more polished conference call while allowing management to spend more time preparing for Q&A. “It allows for smoother and more professional prepared remarks and allows management to focus on the Q&A session at the time of the call.” IRO “Pre-recording allows us to edit out stumbles if necessary; helps relax our management team ahead of Q&A.” IRO

CorbinPerception

“It allows us to stop thinking about the call and to focus on the Q&A prep.” IRO

Do You Pre-record Management’s Remarks?

• Yes

16%

• No

84%

While the more common practice is to communicate live on the call, management capabilities and comfort levels should be taken into consideration when deciding whether or not to pre-record.

The Press Release While investors and analysts have strong views on earnings press release best and worst practices, 80% of the combined group generally find it to be informative.

89%

Investors who read the release “as soon as it comes out” Investors encourage IR professionals to be proactive and email the press release and earnings slide deck (if applicable) ahead of the call, and include a summary of the key takeaways. Financial professionals are “drinking out of a fire hydrant” and IROs can differentiate their efforts by making it easier for them to digest the “so-whats”. Of note, 27% of surveyed financial professionals maintain that receiving a PDF of the combined documents (press release and slide deck) is preferred, as it eliminates the hassle of clicking on a link or going to the company website to download the relevant materials.

Continuing, a significant 89% of the group, and 81% of buy side participants, specifically, report they read the earnings press release “as soon as it comes out” with the remainder digesting it within 24 hours. About two-thirds of polled financial professionals say they read the press release in its entirety with the remainder admitting that they “skim it”.

Not one asserted that they do not read the earnings press release, suggesting the purposeful messaging that goes into it is constructive.

5 | Inside T he Buy-Sid e ®

C o r bi n P e r c e pti o n .c o m

“When the release discusses more than just the reported numbers, it can be helpful. Discussion of outlook, end market demand, etc., helps to add context to the reported numbers.” Sell Side

“I generally read the full press release but it depends how much time there is before the call.”

Sell Side

“I like to read the whole thing.”

Sell Side

How Do You Typically Access Earnings-related Information?

Company Website

89%

73% 67%

Company-generated Email Desktop Financial Information Tool (i.e., Bloomberg, Thomson)

44%

83%

55%

22% 20%

Intranet Buy Side

The majority of buy side participants, 89%, report accessing earnings information from the company website whereas most sell side analysts, 83%, maintain they receive an email from the company. Of note, 27% assert they do not like receiving a link to the information and prefer receiving a PDF file.

Form and Structure The headline in a press release is important and companies have the opportunity to incorporate meaningful messages that may be used by sell side analysts and media as sound bites. Indeed, they are better-served by a headline that reads, “Company

Sell Side

X Reports First Quarter 2015 Results; Strong Operational Performance More Than Offsets Rising Commodity Input Prices” than one that simply says, “Company X Reports First Quarter Earnings Results.”

Bullets in a press release also serve to create messages the investment community and financial media can grasp quickly by setting apart the main points and making the release clearer and easier to follow. As for what a press release should include structurally, the most important element cited by surveyed readers are financial tables. Segment highlights and section breaks are also helpful formatting elements that aid the digestion of information.

“Best practice = a comprehensive earnings release with all data they’re comfortable releasing on a consistent basis.” Buy Side “Clean, easy to interpret GAAP to non-GAAP reconciliation tables are very important.” Sell Side “Companies that talk about what they are seeing within the competition, pricing, customer behavior, etc., is very beneficial to me. Those questions will be answered on the call but discussing them in the press release gives a solid reference point.” Sell Side “Large companies give way too much information. The average length of press releases has grown over the years yet they don’t appear to be well organized, easily readable or terribly informative.”

Sell Side

Best Practice: • E nsure

earnings announcement with participation information (call and/ or webcast) is easy to find and accessible via both the company’s main and IR webpage

• E mail

blast one PDF document including the press release, slides and summary takeaways to investors and analysts ahead of the earnings call

• I ssue

press releases before or after, not during, market hours a headline that informs; include bulleted sound bites

CorbinPerception

• U se

What Elements Are of Interest/Do You Provide in the Press Release?

Segment Highlights (As Applicable)

100%

70%

98% 92%

Financial Tables Section Breaks

87% 82%

YoY Comps

81% 80%

Bullets Both QoQ and YoY Comps

53%

67% 61% 61%

QoQ Comps Investor Survey

6 | Inside T he Buy-Sid e ®

96%

63%

• M ake

it easy to interpret; include section breaks, financial tables, business segment highlights and non-GAAP reconciliations

Preannouncing To pre-announce or not to pre-announce – that is the question. While more than half of surveyed IROs, 63%, do not have a formal policy, those employing a disciplined approach to preannouncing largely fall into two camps:

IRO Survey

C o r bi n P e r c e pti o n .c o m

• P olicy

based on a qualitative assessment

• P olicy

based on a quantifiable delta (i.e., actual versus guide)

Survey respondents that have preannounced represent the following sectors: Industrial Goods (27%), Technology (18%), Financials and Consumer Goods (12%).

Interestingly, 62% of investors are in favor of pre-announcing a miss –

either positive or negative. Indeed, the financial community does not like surprises – good or bad – and investors encourage companies to be transparent and communicate the divergence “when they know”.

However when weighing this feedback, it’s important to self-assess your company’s ability to make the revised estimate, which may lead to preannouncing a revised range to incorporate unknowns.

“It should be a larger threshold for more operationally geared companies.” Sell Side “I don’t think it’s symmetrical; a smaller miss is probably more important to convey than a smaller beat.” Sell Side “The threshold can vary for different companies that are more or less lumpy.” Sell Side

Are You In Favor of/When Have You Pre-announced?

Yes, Both Positive and Negative News

32%

Yes, Only Negative News

17%

62%

31%

Yes, Only 0% 5% Positive News Not In Favor/ Have Not

21%

Investor Survey

“Getting out front on a miss will generally boost companies’ credibility with investors. One exception may be if a factor has uniformly affected the entire sector, there’s probably not any real benefit in putting the news out there early.” Sell Side

CorbinPerception

“If you are going to miss by 20%, you better pre-announce. I don’t see a big benefit to preannouncing good results unless you report so far

32%

IRO Survey

after everybody else. The problem is, a lot of these companies don’t even know until a week or two after the quarter is done.” Buy Side “I rarely like pre-announcements, and only if estimates are far above where actuals should be.” Sell Side Continuing, the two groups are aligned on the size of the miss that would warrant an earnings preannouncement: largely +/- 10% actual versus company guidance.

At What Threshold Does a BEAT or MISS vs. Company Guidance Warrant a Pre-announcement? +/– 3%

1% 3%

+/– 5% +/– 7%

17%

26%

8% 9% 43%

+/– 10% +/– 15%

11% 9%

+/– 20%

11% 9%

Investor Survey

7 | Inside T he Buy-Sid e ®

53%

IRO Survey

C o r bi n P e r c e pti o n .c o m

The Conference Call Timing Financial and IR professionals are aligned on conference call timing with

both groups more in favor of hosting the call during market hours, closely followed by those that prefer calls premarket open. Few prefer hosting the call after the market close, regardless of when the press release is issued.

What Is Your Preference/Practice Regarding Conference Call Timing?

35% 32%

Before Market Open

• P rovide

enough time for investors and analysts to process the earnings press release prior to hosting your conference call

Sample Company Analysis •

5% | Prepared remarks 4 average 15 to 25 minutes

•

0% | Number of sell side 5 asking questions during Q&A averages 8 to 12

•

0% | Q&A lasts an average 5 of 25 to 40 minutes; 32% of the time, it extends past 40 minutes

43% 49%

During Market 11%

After Market Close No Preference

Best Practice:

NA

19%

11%

Investor Survey

IRO Survey

• I f

releasing results after market hours, consider hosting the call the next morning or during market hours

• The

Those Who Release Pre-market Open, Hold the Call...

Those Who Release Post-market Close, Hold the Call...

• Before Market Open

38%

• Before Market Open

30%

• During Market Hours

59%

• During Market Hours

33%

• After Market Close

37%

• After Market Close

CorbinPerception

investment community values consistency and will read into changes in schedule, whether relevant or not

3%

“Best is during market hours early morning after release; it provides analysts/investors time to review materials prior to call.” IRO

“The most important consideration is that there is a substantial amount of time after the press release and/ or 10K.” Buy Side

“Definitely do not have the call after the close; during market hours is fine.” Sell Side

“A good time is between 4 PM and 5 PM. If they put out their release right after market close and give investors about 20 minutes to read and digest that news that should be good enough.” Buy Side

“Anything goes in the name of not landing on top of other calls.”

Sell Side

8 | Inside T he Buy-Sid e ®

Call Participants In terms of company participants, research indicates this is an area where practices diverge somewhat from investor preferences. While 63% of IROs report the call includes only their CEO and CFO (and 40% of investors and analysts prefer this approach), a larger number of investors, 55%, are also keen on hearing from divisional business leaders versus just 15% of IR professionals who report their company makes them available. The COO, where applicable, is also seen as a valued contributor.

C o r bi n P e r c e pti o n .c o m

“It depends highly on the industry as to who should be on the call. For example, marketing people are key in certain industries.” Buy Side “We get good feedback on the earnings calls given that we have the division presidents on every call for Q&A. We have our CEO and CFO handle the scripted remarks, which have shortened over time.

We get great feedback from the investment community about their [division presidents] accessibility and availability on the call as they do not get a chance to hear from them or see them much during the quarter.” IRO

Our research also looked at buy side and sell side earnings consumption habits. Two themes emerged: 1.

The majority of call participants, both buy and sell side, consistently read the transcript in addition to listening to the earnings call; and 2. When available, participants even more often review the earnings presentation.

These findings underscore the multitude of ways investors and analysts are following and accessing your company’s earnings release materials and further corroborates the importance of having a high quality earnings deck.

What Is Your Typical Process for Consuming Earnings Materials?

Dial into Call (vs. Webcast) Access Webcast (vs. Call) Review Earnings Deck (When Available) Read Transcript Review Sell Side Notes

CorbinPerception

Never

Sometimes

Most of the Time

Always

Best Practice:

Subject Matter

• I nclude

Clearly, the most important part of any earnings call is the strategic content discussed. Corbin Perception’s research indicates companies should include a concise review of their financials with color limited to metrics that deviate from expectations or are otherwise noteworthy. In addition, investors are interested in updates on capital allocation plans, guidance and how the company will create long-term shareholder value. An important consideration is the amount of time allocated to the quarter that is being reported (the past) versus time spent framing expectations for the future.

a cross-section of senior leadership on the call, particularly division presidents, when appropriate, who can provide additional granularity and answer more targeted questions; this practice also serves to increase bench strength awareness, a leading management differentiator

• I ncorporate

management sentiment and tone, crisp and clear messaging and takeaways, as well as strategic highlights and themes into the earnings conference call materials, as they are repeatedly accessed and analyzed by investment community participants

9 | Inside T he Buy-Sid e ®

In addition to earnings, leading performance metrics to address include: •

71% | Organic growth

•

70% | Margin progress

•

59% | Cash flow

“What really bugs me is companies that read a monologue for 40 minutes. If you are just going to read a script, post the script and then just have a conference call for Q&A.” Buy Side “One thing I don’t like to hear is companies discussing the results too much; wasting too much time explaining the results because we’ve already read the release.

We’ve already seen the numbers.

Give a brief overview of what happened and the outlook in 5 to 10 minutes maximum and then save the rest of the time for Q&A because that’s probably the most important part of the call.”

Buy Side

“Don’t reread the income statement on the call. Highlight relevant changes and provide context. I live-tweet the earnings call for the increasing number of analysts who have four or five earnings calls at the same time.” IRO

C o r bi n P e r c e pti o n .c o m

What Information Are You Most Interested in Hearing/Do You Provide on the Call?

Business

99%

59%

End Market

70%

Strategy

70%

Business Drivers

89%

Hot Button Issues

78%

Risks to Guidance Capital Allocation

63%

Annual Guidance

63%

Investor Survey

Organic growth and drivers of margin expansion or contraction are by far the leading topics of interest. Cash flow generation and conversion also score highly. The IRO survey also found that the topics their executives address during earnings calls are more or less in keeping with what investors want to hear, except in the case of risks to guidance, or providing key assumptions, to which only 25% of IR professionals report their companies adhere. As well, there remains opportunity to expand on the more “strategic” and qualitative aspects (e.g., overarching strategy, business outlook and end market trends).

CorbinPerception

Best Practice:

96%

• A ddress

95%

93%

92% 91% 92%

Industry Outlook

10 | Inside T he Buy-Sid e ®

97%

92%

25%

“I want any general color on what’s driving trends and what management is seeing in the market as headwinds or tailwinds in their respective business lines.” Sell Side

91%

IRO Survey

Finally, financial professionals encourage executives to be more transparent and long-term oriented, adding that some tend to focus too much on short-term factors.

“big-picture” topics, such as long-term strategy and how current quarter/year fits into the path forward

• P rovide

color commentary on organic growth, margin rate progression/opportunity, as well as sources and uses of cash

• P rovide

a preview of material upcoming events, such as investor days and preferred stock offerings and/or debt tenders (if applicable)

• O ptimize

time spent between where you’ve been and where you’re going

“We need details on why the numbers are what they are and why the outlook is what it is.”

Sell Side

“I want to know where the growth is coming from as well as how healthy the company is or can become.”

Buy Side

C o r bi n P e r c e pti o n .c o m

Guidance Nearly half of the investment community surveyed, or 45%, prefer both quarterly and annual guidance, while 31% assert that furnishing guidance annually is the appropriate cadence. Of note, only 6% of investors prefer that companies refrain from giving guidance. This compares to only 30% of sample companies that give annual numeric earnings guidance, where only half of those provide quarterly guidance.

Beyond earnings, companies generally do a good job of providing data on metrics of high relevance to investors. Still, our research shows that investors are underwhelmed overall by the amount and quality of forward-looking insight on margins, both gross and operating, free cash flow (FCF) and return on invested capital (ROIC); companies providing these performance metrics can and do stand to capture greater mindshare, all the while keeping investors focused on the longer-term.

Long-term targets generally span any period longer than one year (i.e., they are not to be considered guidance), and investors report being most keen on companies providing: •

Revenue

•

Leverage Ratio

•

Operating Margins

•

ROIC

•

Gross Margin

Best Practice: • G uidance

can lend itself to being more quantitative or qualitative in form, and depending upon your company’s preference, it’s important to consider the precedence established every time you disclose or guide on a new metric

In Addition to Earnings (EPS), On What Metrics Are You Keen on Receiving Guidance/Do You Provide?

Revenue

94%

71%

Gross Margin

80%

38%

CapEx FCF

guidance on key performance metrics of interest to investors, particularly revenue and organic growth, margin rates and cash flow expectations

76%

31%

Operating Margins

• O ffer

77%

62%

69%

37%

61% 66%

Tax Rate ROIC

12%

OpEx

38%

Investor Survey

• R ecognize

long-term targets can serve to re-focus investors beyond the quarter and help to mitigate short-term gyrations

61% 51%

IRO Survey

“In regard to long-term targets, we do not update progress on every target but provide color when asked.” IRO

CorbinPerception

Long-term Targets Another tool increasingly used by best-in-class companies to encourage investors to focus beyond a given quarter is the use of long-term targets.

More often, these take the form of rate-of-change type measures versus absolutes, and feature ranges around growth and margin rates, while some add components of cash deployment, leverage and return metrics.

Notably, there is no reliable one-sizefits-all criteria for long-term targets; rather, consideration must be given to sector norms, company profile and maturity.

11 | Inside T he Buy-Sid e ®

“Quarterly versus annual guidance depends on stability of the company’s business environment.”

Buy Side

What is Your Preferred Timeframe for Long-term Targets?

• 2-year • 3-year

10%

• 5-year • > 5-year

58% 25% 7%

“Annual guidance is fine. It is good to at least have some guidance but it does not have to be super specific. That way there is a reasonable way to think about how the company has progressed.

Things may come up that would cause them to change the basic outlook. We should be able to get an idea of what they are looking for.” Buy Side

C o r bi n P e r c e pti o n .c o m

• L ay

Q&A In addition to the surveys administered to IR and finical professionals, 200 companies across diverse industries and market-caps were analyzed with findings revealed below: companies devoted at least 25 minutes to Q&A and some more than 50 minutes

Sample Company Analysis •

9% | On average, the number 1 of questions with follow-ups being asked

•

8% | Questions related to 2 growth

•

5% | Questions on capital 2 allocation

• M ost

• 7 8%

of participants claim questions range from 6 to 15 in number

“We feel our post-earning release and pre-call touch points with sell side help get a lot of issues resolved before the call.” IRO Number of Questions Asked on a Typical Earnings Call n = 200 • 0 to 5

16%

• 6 to 10

46%

• 11 to 15

32%

• 16+

6%

CorbinPerception

Polled analysts said companies can damage credibility when there is a “lack of availability for meaningful Q&A, plus lack of awareness of issues that management is likely to be asked,” and “defensiveness and cutting off Q&A time early because management wants to get off the phone.”

IR professionals assert the Q&A prep is one of the most important and time consuming aspects of the earnings release process. Output ranges from crib sheets (2-4 pages in length) to others that publish nearly 100 pages of tables and commentary for management’s review ahead of the big call. In nearly all cases, IR professionals prefer the management teams utilize more time “studying” and preparing for the Q&A session.

12 | Inside T he Buy-Sid e ®

“We look at consensus models, line by line, and compare to our numbers. It helps frame the discussion and areas of focus.” IRO Further, analysis reveals that only 25% of these companies provided a summary at the end of the conference call reiterating key messages. For those who did, the summary was usually provided by the CEO. “Worst practices include spending too long on prepared remarks; allowing sell side to moderate call; cutting a call off after 30 min; talking too fast on numbers without publishing script.” Sell Side “I do not like it when companies constantly have the same 10 analysts ask questions that are mostly softballs like, ‘tell me how great you are’ and that favor big banks’ analysts.” Sell Side

Best Practice: • E nsure

ample time preparing management for Q&A during the earnings preparation process, including input from subject matter experts

out ground rules for Q&A during IR’s introductory remarks; limit each participant to one question and one follow-up

• L eave

enough time for Q&A so that all participants have an opportunity to ask a question

• B e

mindful of management response time; being concise and on-target allows for more audience participation and limits potential for analysts to feel slighted due to time constraints

Earnings Slide Decks The vast majority of investors and analysts, 90%, report the earnings call and, more importantly, the corresponding earnings deck, are extremely “meaningful” sources of information. To be clear, one of the biggest disconnects we uncovered is the inaccurate IRO perception that the earnings slide deck is not as valuable a tool as investors believe it to be.

Read between the lines: if you don’t have an earnings deck, you should strongly consider developing one as it is a growing best practice [See: Breaking Down the Earnings Deck].

These company-generated “guides” are second in importance only to investor day presentations2.

Access our website for thought leadership papers on Investor Days and Investor Presentations

2

88%

Financial professionals who find earnings decks valuable

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In Your View, How Meaningful Are the Following Communication Channels?

Investor Deck (On Website)

94%

53%

Earnings Conference Calls

84%

Earnings Deck

59%

Investor Day

61%

Press Release w/ Highlights

58%

Investor Survey

Regarding the slide deck, there are two generally adhered-to approaches: 1.

Slide decks that serve as supplemental information to management’s prepared remarks 2.

Slide decks that serve as the framework for management’s prepared remarks

CorbinPerception

We are staunch advocates of utilizing the earnings deck for a variety of reasons. When executed well, it is both a powerful communication tool and a best practice. The framework approach more actively engages the participant and also is more easily followed when reviewed later. As an IRO at a best-in-class company notes, “Posting slide decks keeps people engaged on the point at hand rather than just flipping around pages on their own and not really listening to what you’re saying.”

13 | Inside T he Buy-Sid e ®

88%

39%

Conference Call w/ Mgmt

90%

81% 79% 78%

IRO Survey

Of further note, corporate issuers/ management teams are increasingly recognizing the benefits of publishing investor materials that are deemed “furnished, not filed” by the SEC. These documents are not only viewed as insightful, investor-friendly documents with more relevant market-moving information, but also hold lower levels of liability as a non-filed document, unlike the earnings press release (issued as Form 8-K) and quarterly/ annual filings (Forms 10-Q/K).

”We just used slides for our earnings call for the first time and the positive feedback was overwhelming. This is a blessing and a curse as it is much more work every quarter!” IRO “Yes, investor presentations have changed my opinion but it is often more about how the management team explains it.” Buy Side “A worst practice is not differentiating between cyclical and secular factors affecting business performance. Providing incomplete disclosure of why a business performed better or worse than expectations and failing to fully disclose or discuss competitive threats is worst practice.” Buy Side “Worst practices include no slide deck, confusing message, too much data that is not presented well and a call focused on topics that are not important to investors.” Sell Side “A worst practice is withholding the earnings slide deck until very close to the call and not releasing it alongside the PR.” Sell Side

C o r bi n P e r c e pti o n .c o m

Breaking Down the Earnings Deck Corbin Perception analyzed earnings decks from a selection of perceived best-in-class companies (n=15). This group consistently leverages the earnings deck to reinforce strategy with one-third to half of their content incorporating messaging that underscores their execution track record (i.e., “This is what we said.

This is what we did.”).

• 5 8%

of slide content is devoted to current quarter results, including: highlights, financial results, segment and geographic drivers and balance sheet and capital deployment metrics

• 6 2%

leverage non-GAAP or “adjusted” earnings metrics, and supplement the appendix with appropriate GAAP reconciliations and additional supporting material

• 2 5%

devote one-quarter to one-third of their earnings presentation to setting expectations for the future by providing next quarter and full-year outlook updates

• O n

average, the number of core slides is 12 (high is 20, low is 4)

• 3 0%

reiterate long-term targets

Typical Earnings Deck Elements Financial Highlights

100%

Segment/Product Financials

87%

Company Highlights

60%

Guidance

60%

Geographic Breakdown

47%

Operational Excellence

47%

Capital Allocation

47%

CorbinPerception

After the Call Investors and analysts were asked their views on the most important information companies should post on their websites. A webcast of the

From an IRO perspective, research indicates varying practices regarding earnings call post-mortems. For many best-in-class companies, professionals acknowledge a proactive approach to providing regular and thorough feedback to their senior management teams following their post-call discussions with buy and sell side analysts. These synopses typically include: • P re-market

and daily trading trends versus market and peers

• I nvestor

sentiment summaries, including both positive and constructive feedback

• O verview

of key questions and areas of clarification

53%

Industry Trends

With any earnings call, inevitably, there will be investors and analysts with conflicts who are unable to participate live. Therefore, it’s important IROs post at least a transcript of the call to the IR website as soon as possible. Note, if your company has paid for the transcript, it’s important to proofread the initial draft for errors prior to publishing.

• R ecommendations

for how to address questions/points of clarification in future interactions

• R elevant

earnings call ranked highly; 84% of financial professionals said it was important or very important. IROs are responsive to this – about 93% said they consistently posted earnings call webcasts online.

excerpts from key sell side reports and/or distribution of all reports to management (and, in some cases, board members)

How Important is Posting/Do You Post the Following Information on the IR Website?

84%

Earnings Call Webcast Earnings Slide Deck

39%

Earnings Transcript

62%

29%

Investor Survey

14 | Inside T he Buy-Sid e ®

92%

67%

IRO Survey

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Best Practices from IROs •

Be prepared

– Prep speakers; discuss messaging and potential Q&A – Formalize the process and set deadlines – Assess investor sentiment/analyst models ahead of call • M ake

the dialogue meaningful and consistent

– Address important topics in script; “if you wait for Q&A you may miss an opportunity” • D o

not report during market hours or host call at the same time as peers

• S chedule

calls with investors in advance for post-meeting call with management

• M onitor

Q&A line-up

the user experience; differentiate your IR site with content and functionality

“Talk to your analysts and large investors before the call to get a sense of what is on their mind and then answer some of those questions in the prepared remarks.

Hold a financial review to qualify statements only. No one wants to hear the CFO read the press release; 10 to 12 minutes of prepared remarks is plenty in most cases.” IRO “Educate the CFO that the CFO script on quarterly call DOES NOT require a recitation of the data in the release. Why not add value?”

IRO

CorbinPerception

feedback loop with management team by providing constructive feedback following discussions with key buy- and sellside analysts

“Always monitor Q&A for who is in the queue. If you don’t know someone, knock them out.” IRO

“Be inclusive with your functional partners [finance, legal, communications, etc.] and standardize the process based on workdays to the best of your ability.

Be proactive to loop in others on an as-needed basis.” IRO “[Utilize] a multi-paged checklist of tasks associated with earnings.

I call it my ‘hit by a bus’ list. It consists of everything from who to call to set up the call and the specifics of the call, to scheduling follow up calls with analysts, notifying the exchange, filing the 8-K, etc.” IRO

15 | Inside T he Buy-Sid e ®

content; press release

• W aiting

too long after market close to host the call

• P roviding

guidance in the call but not in the release

“Worst practices include not providing descriptive information in the press release with regard to what fueled business segment performance, not providing the necessary reconciling data when using non-GAAP measures and not providing cash flow statements.”

regurgitating

“Having a press release that provides just bare bones information. Not discussing all issues of interest to analysts. Not providing clear information about unusual items (e.g., providing after-tax but not pre-tax numbers, not stating where in the income statement the items are).” Sell Side “Repeating data that is already in releases and filings while the presentation lacks market data and strategy.” Buy Side

Worst Practices from Investors and Analysts • S tale

giving investors enough time to digest information

Sell Side

“Give some guidance about what you will do and then report on what you did, on a regular basis (annually).” IRO

• C onsider

• C lose

• N ot

the

– Not discussing key drivers and financials in a crisp manner – Not being forthright (inconsistent financials, not addressing challenges) – Focusing too much on the shortterm • Q &A

– Screening who gets to asks questions – Not leaving enough time for Q&A (or no Q&A) – Not being prepared for Q&A/ lack of meaningful insight

“Over-promising and underdelivering. Focusing too much on the stock price relative to peers and being too promotional.” Buy Side “Latency between reporting earnings and either emailing a PDF or posting the earnings report on the company website is very annoying. Another terrible practice is not posting the conference call slides a least a few minutes before the call starts.” Sell Side “Worst practices include screening questioners so that only fatuous, supportive questions get asked and cutting off non-supportive sell side.”

Sell Side

• S lide

deck and transcripts not available (not available ahead of call or hard to get) C o r bi n P e r c e pti o n .c o m

Summary

Methodology

Earnings calls, while historically rote in nature, are increasingly becoming a more strategic tool as companies vie for investor mindshare. Corbin Perception’s research identifies both alignment and gaps in financial community preferences and corporate practices. To be clear, earnings calls are a crucial channel for companies to tell their story, dispel misperceptions, communicate long-term strategies, showcase management strength – senior and bench – and demonstrate traction on outlined goals.

Three-pronged research approach:

CorbinPerception

Companies differentiate themselves through both consistent execution and effective messaging. As a leading resource to inform investors and stay abreast of current trends, the earnings materials should remain consistent, include robust content and relate what’s happening near-term to what to expect over the long-term framework.

16 | Inside T he Buy-Sid e ®

1. Investor/analyst-based survey (“Investor Survey”) a. n = 165 b. Buy side (72%) / sell side (28%) c. Total assets under management: $2.5 trillion 2. IR professional-based survey (“IRO Survey”) a. n = 145 3. Analysis of 200 companies; screen selection incorporated: a. Index participation (i.e., S&P 500, Dow 30, Russell 2000), performance, sector and market-cap b. Best-in-class status based on1) qualitative feedback from financial community and/or 2) award-winning IR programs (e.g., Institutional Investor, IR Magazine) Market-cap

IRO

Sample 200

Small-cap Mid-cap Large-cap

29% 20% 39% 30% 32% 50%

Sector Representation

IRO

Biotech Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Materials REIT Technology Telco Utilities

3% 3% 15% 10% 2% 6% 7% 8% 20% 10% 5% 13% 12% 15% 9% 6% 1% 4% 16% 18% 4% 3% 6% 4%

Regional Breakdown

IRO

North America Europe Asia Latin America

95% 2% 2% 1%

Sample 200

Investor

60% 20% 16% 4%

Sample 200

90% 7% 1% 2%

C o r bi n P e r c e pti o n .c o m

Our expertise is the buy side.

Corbin Perception is a leading investor research and IR advisory firm assisting public companies with creating long-term shareholder value. We recognize the favorable impact best-in-class investor relations has on valuation and collaborate with our clients to develop strategies that positively influence investor sentiment.

We leverage our broad company and industry experience, knowledge of best practices and benchmarking capabilities to provide researchdriven counsel that enables our clients to differentiate their company as an investment.

Our advisory services include: • Perception Studies

• Investor Days

• Investor Presentations

• Investor Targeting

• Strategic Communication • Special Situation/Retainer Consulting

CorbinPerception

Our quarterly investor survey, Inside The Buy-side®, tracks investor sentiment heading into earnings season and is covered by major financial news organizations globally and regularly featured on CNBC’s Squawk on the Street. In addition, we are engaged in extensive topical IR research and publish thought leadership papers on best practices incorporating investor perspectives.

Visit our website or contact us to learn more: www.corbinperception.com (860) 321-7309 info@corbinperception.com

PROVEN METHODOLOGY, PROVEN RESULTS 17 | Inside T he Buy-Sid e ®

C o r bi n P e r c e pti o n .c o m