As government officials now focus on reactivating economies as the Coronavirus pandemic levels off, companies are now grappling with how to communicate in the upcoming quarterly call the earnings and overall outlook going forward. Our advice to most companies is to cancel earnings guidance for now, and avoid making any numerical predictions given how uncertain the outlook is, since some social distancing measures are sure to remain in place throughout 2020.
At most, companies can manage scenarios. In so far as it is possible, we recommend communicating how a company is strategically positioning for the post COVID-19 world, without quantifying this numerically. Bear in mind that attendance at earnings calls is unusually high right now, so this is a great opportunity to communicate the company’s vision for the future. Also, Media are joining IR calls to a greater extent than before, so do not say anything that you do not want printed in the press. And as we have said many times now, we also think it’s a great time to manage calls via Video (let us know if interested and we can arrange). The world has become accustomed to managing video calls by now, and so if there is ever a time to take the plunge, it is now.
In the notes below we summarize some of the advice on managing the COVID-19 earnings call being given by the IR trade publications. None of these messages are especially new, and are in line with what we have been recommending for a while now.
IR Magazine Webinar Notes – How to prepare for earnings during Covid-19 crisis.
Ben Ashwell, IR Magazine – Coordinator / Author
Karen Greene, Q4 – VP of Customer Service
Nicole Noutsios, NMN Advisors – Founder
How to position your story? What is the best way of going about this earnings call?
Karen: The upcoming earnings call will be much different than what anything companies has prepared for in the last decade. Right now isn’t just a review of the business, but really an opportunity to demonstrate leadership by highlighting what is done to protect the employees, community, and operations of the business that will survive and maybe even thrive in the short-term
Nicole: Key themes in earnings material:
- CEO statement – health and well-being of employees, customers and partners
- Company response to pandemic, such as employee precautions, supply chain, cybersecurity/IT infrastructure, & business continuity measures
- Any positive impact on the business, including market trends
- Balance sheet/ability to weather the storm, such as sufficiency of liquidity and revolving credit facilities
- Focus on financial metrics that point to revenue stability and level of visibility in the business or future outlook, such as recurring revenue
- Guidance and guidance assumptions
Quarterly and annual guidance is being abandoned more and more, how do companies manage the message surrounding this issue?
Karen: Worst thing a company can do is issue a guidance that isn’t true and having to constantly revise their guidance. Scenario analysis is becoming the most common replacement instead of guidance and focus on liquidity levels, capital availability, and qualitative guidance. For companies that can’t do annual guidance can instead provide some short-term guidance as long as it’s simple.
Nicole: Companies that have already reported show that they are all mentioning high levels of uncertainty due to the Covid crisis and creating sever volatility on the revenue stream. Not providing guidance is ok, but it’s important to replace that guidance with highlighting information that’s more useful to analysts such as an in-depth balance sheet analysis that answers key questions such as, can this company weather the storm?
As for the Q&A session, what can management do for the questions that are anticipated to be asked but difficult to answer?
Karen: Every analyst and PM is going to want to know the health and viability of the company, which will tend to orient questions around Capex flexibility, liquidity preservation, debt obligations, working capital and so on. Are there any policy changes affecting the balance sheet, has credit terms changed that affect the supply of capital? Management needs to provide answers in the forms of steps taken or to be taken, that focuses on the key topics the audience is expected to ask. Finishing answers with proof of the way the Company has come out the other side stronger than expected is good, as long as it’s applicable. There is a strong shift from shareholder communication to stakeholder communication. So senior management needs to be able to answer these questions not just for analysts, but for a much broader audience.
Nicole: Balance sheet will be a big target for the Q&A session. I think emphasizing the long-term market drivers will be a good way to direct the answers and overall sentiment in a more positive light. Obviously short-term metrics will be acutely affected and that will cause concern, but unless there is pressing evidence of bankruptcy than an eye for long-term strategy will help keep the future of the company in perspective
Companies are expecting a much larger audience on the earnings call, including employees. How does this change the message of the script?
Karen: Local media, employees, suppliers, customers, regulators are all new demographics that come to the table with slightly different needs of information. So addressing all these concerns is going to have to be more of a balance, of what needs to be mentioned outside of the typical protocol. Obviously, all the regular metrics will be mentioned, in more than usual detail. I’ve been looking into hosting an internal town-hall meeting for employees that can later be found on the Company site, as well as updating the FAQ section. Dividing the audience by hosting several calls will help keep the message targeted to a specific audience in-tact.
Nicole: I am finding that in a lot of the material includes pointed comments on the employee and appreciation of the employee base, by mentioning whatever policy has been implemented on that topic by the Company. Next, having a few words on what will be done to support customers and retain their support and loyalty is another way of addressing a wider stakeholder audience.
Managing a dispersed executive team. Are there any recommendations when it comes to running remote earnings call a bit differently?
Karen:
- In booking the call, give vendors at least a week’s notice to account for any potential delays in processing the bookings due to volume
- Have all speakers use a landline, if possible.
- If your time chooses to manage the Q&A queue rather than the operator, have one non-speaking member assigned to this role to avoid multitasking or distractions for the other speakers on the call
- Clear your cache and close all other tabs before logging in for the live webcast. This will optimize your browser speed and ensure optimum functionality.
Nicole: Prepping for the Q&A is critical. They can either designate topics of each question to a certain member. Or, what we’ve been seeing is for management to have a separate video call that is on mute, with a chat bar on the side where they can give each other signals and ways to keep call fluidity without having long moments of silence.
How should Companies be prepared for Q&A sessions for hard hit industries?
Karen: First it’s best to field as many of the top questions analysts have been asking prior to the call. There should still be a Q&A session, and answer what you can answer. Come up with an elegant way of not being able to answer the really tough question.
Nicole: It could definitely be useful to try and collect as many questions analysts have prior to the call, and come up with talking points for each. Also organizing these questions by common factor could help influence the tone of the script that better adapts to the views analysts already have. I think it’s better to have the Q&A session than not, mainly because not doing one could see as an attempt to not become more transparent, or that the company is hiding something.
Should investor presentations have a COVID section?
Karen: Yes absolutely, the way we look at business will be Covid impacted, and Q1 is the first example of that. So, adding a Covid section is definitely going to be useful because in a way, since most companies are withdrawing their guidance, Covid will be a sort of replacement for that. It’s extremely important to now being completely on top of Covid. There is so much material out there about Covid that not having a strategy that mirrors the overall practices of the industry could be interpreted negatively by investors.
Nicole: Well it’s good to maintain fluidity in the presentation, have simple talking points in the presentation. I think more important than having a Covid section in every presentation and part of the website is establishing a direct line of contact that can address financial or operational concerns.
What form of scenario analysis are companies using?
Karen: I would start designing best, worst, bearable and base scenarios in order to provide some parameters for analysts. A big factor that dictates a lot of the business cycle right now are industry targeted regulations, some of which are easy to follow and can see the progress of how close they are to being implemented, and communicating that to the investment community should help provide a better framework for answering guidance or strategy related questions
Title: What to Say on Your Next Earnings Call in the Time of COVID-19: Providing Insights, Disclosing Scenarios and Managing Risks. Author:
Date: 23/04/2020. Source: Harvard Law Forum on Corporate Governance
Link: Visit Here
Summary:
- The following has forced companies to highlight their responses to:
- Critical incident and systemic risk management concerns.
- Traditional ESG concerns such as human capital issues.
- Business model and supply chain resilience.
- Consumer welfare and social impact.
- In the absence of guidance, Companies are providing scenario analysis by identifying short and long-term challenges.
- Explain as many internal and external factors that provide insight into where the company stands, and what the corresponding strategy is.
- Provide heightened transparency regarding current and past actions, as well as future conditions, without providing guidance.
- Discuss progress towards larger goals and objectives and articulate higher priorities.
- Financial measures or trends that the company believes helpful to discuss publicly and specific external developments that management is monitoring.
- Companies that do not provide guidance may signal that qualitative or quantitative updates could come later in the year and that guidance might be further addressed in the second half of the year.
- Companies should also be able to describe the specific steps they have taken to deal with the crisis including:
- Shoring up liquidity and corporate health.
- Protecting stakeholders.
- Enhancing supply chain integrity or addressing other operational needs.
- Human capital-related decisions made to support employees, as well as difficult cost reduction actions needed to preserve the viability or health of the enterprise.
- Reiterate historical investments (e.g., in technology or in geographical diversification), rigorous past work on the balance sheet and deleveraging and a diversified business model.
- A company should discuss its financial condition and liquidity status under various downside scenarios, highlighting how much contraction the company can absorb.
- Provide economic recovery analysis for Q3 vs. Q4 vs. 2021.
