Earnings Calls: Keep It Simple, or Get Creative?
When I started working in investor relations (IR) more than 25 years ago, little did I realize that “creative writing” would often boil down to finding clever synonyms for words like opportunity, growth, and transition — rather than drafting colorful, superlative-rich descriptions of corporate events and milestones. Is it possible to find a new way to express year-over-year financial comparisons or do the numbers in the financial tables mostly speak for themselves?
We are often faced with management teams that seek to fill their perceived “air time” and make their conference call stand out from the hundreds of other calls taking place. If this sounds familiar, and you find yourself wondering how much creative leeway to take with your own quarterly earnings calls, then keep reading as I explain where it’s possible to truly add value, and where it actually detracts from your objective.
Stick with an earnings call script template
Analysts and investors appreciate a traditional format when they listen to your quarterly earnings calls. This might make your earnings call feel like Groundhog Day to you, but sticking with a template each quarter can go a long way in helping analysts and investors track key messages, metrics, and progress on the strategies that should be laid out at the beginning of each fiscal year. The goal here is to make tracking your company’s progress as easy as possible.
We typically recommend that your CEO start the call by outlining your agenda and providing high-level business highlights of the quarter, followed by a more detailed description of those events. If your company has different business units, then we suggest that your CEO provide a few highlights or metrics for each line of business, without just repeating what was said in each press release. Instead, relate business and financial events back to your strategy and the metrics your company tracks as meaningful indications of progress in the business.
Next up is your CFO, whose script needs to highlight your company’s P&L and balance sheet in a way that doesn’t merely repeat what’s in your press release tables. This is the time and place for you to explain the numbers and add any color that can’t be found elsewhere. If you are providing guidance, then you’ll want the CFO’s script to conclude with that new, updated, or reiterated guidance specifically relating it back to what was previously provided, highlighting the changes with their explanations.
At this point, some companies choose to turn the script back to the CEO to reinforce the key business messages, put into context the financial guidance, and reiterate where the business is headed. It is also a good place to highlight key strategies, particularly if it is setting up metrics for a new fiscal year. These are the last comments your audience will hear before opening for Q&A, so use the time opportunistically to cover your key take-away messages, but don’t drag it out.
As your team prepares its script, make sure you include transition sentences that allow the reader to follow the agenda outline presented at the start of the call. As I tell my clients, when you’re doing your dry run, have the people in the room put the printed script away and just listen to the speakers — as your audience will be doing on the call. It becomes much easier to pick up on where you need a transition, where phrases seem out of place, or where information is missing and language becomes cumbersome.
Consider a guest speaker
While it is fairly common that both the CEO and CFO have speaking roles on the earnings call, if a major event has occurred that had a significant impact on the quarter — such as a major new product launch, a new marketing campaign, or a new partnership or material customer — then you might want to dedicate a few minutes to the person who led that event. A few minutes of scripted commentary from that individual can brighten the call, give analysts something to highlight in their notes, and draw attention to an event that might otherwise be lost within the other business remarks. Just be sure the speaker is also prepared to directly answer questions after the call if you open for Q&A.
Another option I’ve suggested to clients is to add a customer quote, a personal story about how a device or drug has impacted a patient’s life, or even an anecdote from the CEO about meeting a customer while out in the field. These types of stories lend color and depth — and often break up the comments just enough to keep the listener engaged.
Know when to use visual aids
We are often asked about adding supporting slides to the earnings webcast. My response is to really evaluate the word “supporting.” Is there information that truly supplements what is being said, or just visuals of the highlights? In the latter example, I recommend skipping visuals altogether. But if you have a difficult topic to cover, such as a complicated financial structure or a challenging concept to convey without images, then a slide presentation to support your remarks on the webcast can be especially helpful.
A recent study on conference call webcast participation found that only about 18 percent of listeners actually took the time to download the supporting slides. Keep this statistic in mind, along with the extra work involved, before you add it to you “to do” list.
Be consistent, but not static, with your dates
While the temptation can be there to establish a specific date each quarter for the conference call, such as “the fourth Thursday following the end of the quarter,” we advise against being this predictable. Third-party websites will often post a company’s anticipated release date based on historical patterns. Unfortunately, we’ve seen too many instances in which timing gets changed for one reason or another, and speculation grows as to why the date hasn’t been publicly released or why it’s happening later than usual, when in reality, it’s something as minor as vacation planning. Establish a general window for when you want to report and try to fall within that timeframe, but avoid being static.
Consider your location
Location is another “creative” option that clients bring up from time to time. Earnings calls can fall during industry events, investor conferences, and national sales meetings. The tendency of some management teams is to want to use this as an opportunity to add color to their earnings call. My advice: don’t.
Certainly, travel and timing sometimes make it impossible to host the call from the comfort of your corporate conference room. In this instance, we recommend finding a very quiet venue at your off-site location, renting a Polycom, renting or buying an inexpensive printer, and setting up shop for the day to prepare and host your call. I’ve seen companies try to hold the call from their tradeshow booth, from their sales meetings in Idaho, and from inside their labs. Each time, it added unnecessary stress, and the sound quality was so poor that analysts and investors couldn’t hear the information they truly needed. If you ever doubt the sound quality or have little control over ambient noise, then be sure to pre-tape the event and test the quality.
Is there any room for thinking outside of the box? Yes, of course. However, a guiding principle in investor relations is to be clear and accurate in your financial communications. You get accolades for being precise and concise, not for having a transcript that reads like a New York Times bestseller.
That said, your earnings calls are much more than the numbers — they’re about adding qualitative commentary by presenting your financials in the context of your business today and explaining what the numbers indicate that investors can expect over the next year, three years, and five years down the road. So use your “creative thinking” in that direction, rather than attempting to augment the news by being clever in your delivery.
To learn more about holding an effective earnings call, read a blog post by my colleague Mike Piccinino, “Best Practices for Earnings Call Preparation.”
ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.
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