The earning calls between the management of a public company, analysts, investors and the media, which dedicated conference calls transcription services are available, are a routine exercise to discuss quarterly or annual financial results. Today, public companies put a considerable amount of time and efforts into the preparation of earnings calls. This is necessary given that the investor community wants more and better information. According to Deloitte, investors and analysts are looking for key information such as:
- comparisons to prior performance
- a clear idea of why businesses are trending a certain way
- how organizations compare against their peers
- how financial scenario is likely to change in the future
Industry experts like Deloitte and Mckinsey say there is a lot of scope for improving earnings calls for better investor relations (IR) and offer the following tips.
- Improve information: The time gap between the written announcement of earnings and the earnings call has shrunk. The final numbers come in at the last minute which means that there is little time to dedicate for earnings calls. Improving information flow is therefore necessary to deliver a more effective message to stakeholders during earnings calls. The typical procedure involves a senior executive reading out a prepared script which is followed by a Q&A session. Experts recommend two strategies to improve this approach:
- Ditch the prepared text, says Mckinsey. This approach has little value as investors and analysts hardly have the time to study the data. Mckinsey says a better strategy would be to release detailed tables and exhibits, a targeted overview in text, and even full quarterly filings before the earnings call. This will give stakeholders more time to understand and analyze the data and go straight to the Q&A session. Volatility in day-to-day stock prices should not be a concern for executives as longer-term value appreciation is more important. Moreover, volatility can be avoided if data are presented clearly in a consistent and meaningful way.
- Both Mckinsey and Deloitte say that the presentation can be improved by providing information that is important to investors and analysts. For this, internal analytics teams would have to restructure the preparation process and produce information that will help address investor concerns. For instance, the call can start with a focus on top-line growth drivers such as the revenue drivers and cost drivers, and balance sheet, and end with the net income results.
Companies also need accurate, professional and timely earnings calls conference transcription services. Posting the transcripts of earnings calls online will ensure that stakeholders can conveniently review them.
- Streamline data production: Data production can be improved only through proper coordination between the departments. If data flow processes are not synchronized properly, data cannot be produced in a timely manner and senior executives will have little time to glean meaningful insights from the data. Properly synchronized data processes can result in a focused presentation that highlights the organization’s performance and vision of the future. Companies need to develop systems that will allow for the analytics team to more easily line up, share and compare financial and business data. Improving information production also means not overloading executives with data that is not relevant to investors.
- Be proactive in preparing the Q&A: The idea should be to enable investors to ask more pertinent questions and ensure that executives can answer the ones that are most important. In fact, there are new technologies that facilitate this. If a company sends out data to investors and analysts days in advance of a call, this would encourage investors and analysts to submit questions online – with their names included – and then have an online vote on which are the most important. For instance, in 2013, Zillow set up a system where it could take questions via Twitter in real-time during earnings calls. This ensured that everyone could see which questions the management chose not to answer. In 2009, Google also experimented with a system that brought greater transparency to the earnings call question queue.
Mckinsey also says that by releasing more pertinent and transparent data, managers can eliminate endless clarifying questions that typically take up most of earnings calls’ time. Such data would include full operating-income statements and key operating-balance-sheet items for business units, preferably on a geographic basis, reconciled to the consolidated statements.
- Don’t focus too much on earnings per share (EPS): Mckinsey says that US companies focus too much on EPS both in earnings calls, press releases, and announcements. Investors are not interested in EPS, and in many cases, Generally Accepted Accounting Principles (GAAP) are nowhere near true operating metrics. Instead, experts say that senior executives should focus on operation-oriented statistics such as true pre- or posttax operating-earnings numbers, adjusted for amortization of intangibles, other nonoperating charges like the nonoperating portion of pension costs, and nonrecurring charges. Such information will make investors happier.
With management on increased pressure to perform higher, a major challenge that companies face is to develop productive earning calls that resonate with the market. As they focus on delivering an effective message, they can rely on a business transcription company to deliver accurate and timely earnings conference calls transcripts to ensure transparency with investors and the public.