By Allison Malkin
COVID-19 has changed the way we work and how we communicate. As a result, ahead of earnings, we felt it would be helpful to outline where, how and what companies should consider before reporting results. It is important to remember that there is no precedent to the current environment and companies now have a lot more flexibility regarding the amount and type of information they share. However, this flexibility should be balanced with the goal of continuing to make it easy for investors to assess the Company’s current operations, ability to navigate during this time of uncertainty, as well as the potential to better position the business for success as conditions stabilize (See “Building a Wish List” here). For many companies that have been significantly impacted by the COVID-19 crisis, investors are much more focused on cash, debt maturities, covenant triggers and cash flow information than in normal times, so prepared comments should weigh these areas more heavily.
Where and How
Assuming management teams are remote when reporting, below is a list of items to consider in an effort to deliver a seamless earnings call.
Pre-recording prepared remarks
While speakers can dial in from different locations for the live earnings call, a pre-recorded call will eliminate some stress as issues are less likely to occur.
Evaluating whether technology will be helpful for Q&A
Assuming speakers will not be in the same location, answering analyst and investor questions without talking over one another is key. To achieve this:
Assumes the company is able to finalize prepared remarks in advance; and that there are no changes to final release that would cause a corresponding edit to the prepared remarks (ie: last minute changes to financials).
Live call option
If remarks cannot be finalized in advance, then a live call is the only option.
Evaluating whether or not to hold a live Q&A session or post-earnings callbacks
While we suggest holding a Q&A session, there may be times when management is uncomfortable speaking beyond what is outlined on the call and in the release. If this is the case consider:
If eliminating the Q&A session:
What to Report
For the current quarter – For many it will seem like the tale of two halves, as companies with the majority of their operations in the U.S. did not see a significant impact until the second half of the period. ICR suggests transparent disclosure and consistent disclosure of metrics:
Companies can begin prepared remarks with the current state of operations, which can include:
Financial Liquidity/Balance sheet/Capital Allocation
While many companies have suspended guidance given lack of visibility, Consider commenting on:
Conference Call Dial-in and Advisory Release Best Practice
Due to COVID-19, most conference call providers will have limited operators available to handle the upcoming earnings season, causing extremely long wait times which will most likely frustrate investors dialing into the call. We have listed several options below to reduce the risk of delays and keep your earnings conference call going smoothly.
Option #2 – If you still want to include the dial in information in the press release:
With either of these two options, we suggest the following:
Finally, ensuring you are reporting when you have information that allows for transparent communication is important. Therefore, reporting later than typical is preferred if that will give the company more insight into critical areas that investors will focus on, such as liquidity. Waiting to report in order to relax a debt covenant or secure financing is a better option than reporting and indicating that those activities are still being evaluated and finalized. Additionally, if companies have material information to provide after quarter-end that they believe is relevant to share with the investment community but are not able to provide full financial results, they can consider pre-announcing preliminary results and providing the material information. This is a time where additional timely disclosures are helpful.
In conclusion, the COVID-19 pandemic has changed how, when and what we communicate. The uncertainty of the length of this crisis and its impact on the economy is weighing on stocks across sectors. ICR believes, it is imperative that companies maintain transparent communication regarding their efforts to maintain liquidity as sales are low or non-existent. While the focus will be on the near term proactive measures to manage for cash flow, companies should also continue to highlight long term goals and areas of strength that separate them from peers, as well as their efforts to evolve their operating model to come out of this crisis in a position to win.