Public healthcare companies often question the best course of action during quiet periods — those stretches of time during which they should limit their interaction with Wall Street due to their knowledge of material and timely information that has not yet been disclosed. Specifically, management teams struggle to figure out what the quiet period means for their investor relations (IR) efforts.
Should they bring to a halt all communications with the investment community or move forward with limited interaction? Should they answer only fact-based (or historical) questions or avoid inquiries altogether?
While the formal quiet period regulated by the Securities and Exchange Commission (SEC) comes with clear guidelines and regulations, informal quiet periods (e.g., those at the end of each quarter) are far less defined, and variation exists in how much (or little) a company communicates with investors and analysts.
How can companies determine the right approach? Here, we answer some of the most common questions about quiet periods and share strategies to help you figure out the best quiet period policy for your organization.
1. What Is a Quiet Period?
Essentially, there are two kinds of quiet periods for publicly traded companies. The first surrounds a company’s initial public offering (IPO) and is heavily regulated by the SEC, while the second is more loosely defined and refers to the period of time in which a company limits its interaction with investors and analysts immediately preceding or following the quarter-end, but before results are actually released.
2. Why Do Quiet Periods Exist?
The purpose of a quiet period is for a public company to avoid making any comments about information that could cause investors to change their position on the company’s stock.
IPO quiet periods were created by the SEC to prohibit analysts who are lead and co-lead underwriters from issuing positive research reports that might influence security prices during the first few weeks of a new IPO. In addition, quiet periods exist to protect companies from inadvertently violating Regulation Fair Disclosure (Reg FD) during the sensitive time in which they are aware of their quarterly financial results (or any material, non-public information), but have not yet publicly communicated this information.
3. When Is the Unofficial, Quarterly Quiet Period, and How Long Does it Last?
There isn’t a standard length of time for unofficial quiet periods. These quarterly periods end, of course, with the earnings conference call and/or press release, but it’s up to each company to determine when they begin. Constructing the optimal quiet period will vary, depending on how quickly earnings are determined and how experienced executives are with analyst and investor interactions.
4. How Do Companies Maintain Shareholder Communications During a Quiet Period?
The communications policy a company adopts helps frame how they communicate with the investment community and Wall Street. Some companies may still wish to communicate by simply avoiding off-limit topics, such as quarterly results, and sticking with fact-based responses. Other companies may comment on topics that have already been publicly disclosed, and still others may elect a period of time in which they go radio-silent. It really depends on the company comfort level and view of its stakeholders within the company.
5. How Can Companies Navigate Investor Calls, Conference Participation, and Tradeshows Around Quiet Periods?
Depending on the communications policy a company adopts, the level of communication at conferences and tradeshows will range widely. Some companies choose to eliminate participation in conferences, meetings, or investor phone calls during that period, while others agree to go to conferences but not attend one-on-one meetings — with the caveat that all communications are webcast to be Reg FD compliant. In other cases, some companies may pre-release quarterly results or confirm/update guidance with a press release in parallel with their conference participation.
Regardless of the communications plan a company takes, the most important part is for a company to outline its policy, adhere to it, and be consistent.
6. What Is Standard Practice, and What Is Recommended?
As we’ve discussed, company disclosure policies in a quiet period depend on a number of factors. What practices are the most common? Typically, a company will opt to do one of the following:
- Provide no formal or informal communications at all
- Provide limited communication and interaction with Wall Street by primarily:
- Answering only fact-based inquiries
- Imparting information only on overall long-term business and market trends
- Make an announcement if it expects results to differ materially from earlier forecasts, and answer questions about information already made public
In the interest of fairness and to mitigate the risk of inadvertent disclosures of material information, the policy should reflect a company’s comfort level with the amount of disclosure it wants to provide Wall Street and the investment community. It is important to strike a balance. For example, going completely silent may not be in the best interest of small-cap companies that are thinly covered, or even for some larger companies.
If a company chooses to take investor and analyst calls during their quiet period, it needs to be clear and consistent in communicating the topics that are on and off limits. It is also important that all designated spokespersons adopt the policy and remain consistent quarter-over-quarter.
As you develop your quiet period policy, remember that there is no one right way to approach an unofficial quiet period. Ask yourself what’s in the best interest of your company, and then plan accordingly. Need help strategizing the right approach? Download our Investor Relations Primer for an in-depth look into the elements you need for a successful investor relations strategy.