by The Notified Team on Oct 11, 2023 1:54:20 PM
Want to know the basics of how publicly traded companies communicate financial results to investors, analysts and regulators? Or maybe you’re already familiar with earnings calls and are looking for the latest best practices.
Regardless, you've come to the right place!
In this blog, we'll dive deep into the topic of earnings and explain how it works, why it matters and how to ensure flawless IR communications. Keep reading to learn more.
What Are Earnings Calls?
An earnings call, also known as a quarterly earnings call or earnings conference call, is a scheduled teleconference or IR webcast where the leadership team of a publicly traded company provides an in-depth discussion of the company's financial performance for a specific period – usually on a quarterly basis.
Companies use these events to tell investors, analysts and the public about how well they're doing financially and what plans they have for the future.
Key components of an earnings call typically include:
- Financial Results: The company's CEO, CFO or other executives will present financial statements including revenue, earnings, expenses and any other relevant financial metrics - for the quarter or year.
- Discussion of Performance: Management will often provide insights into the factors that influenced the company's financial performance during the period – both positive and negative.
- Outlook and Guidance: Companies may offer guidance or projections for future performance, including revenue targets, expectations and strategic plans.
- Question and Answer Session: Analysts and investors are given the opportunity to ask questions, seeking clarifications or additional information regarding the company's financial results, strategy or any other relevant topics.
Why Are Earnings Calls Important?
Earnings calls play a central role in guiding investment decisions, influencing market sentiment and ensuring transparency in the financial markets.
Earnings calls matter for several significant reasons:
- Financial Transparency: Earnings calls provide transparency into a company's financial health and performance. They allow investors and stakeholders to see the company's actual financial results, which are crucial for making informed decisions.
- Investment Decisions: Investors rely on earnings calls to assess whether a company is a good investment. Positive earnings reports can lead to increased stock prices, while negative reports can result in declines. These calls help investors decide whether to buy, hold or sell stocks.
- Market Sentiment: Earnings calls can influence overall market sentiment. If many companies report strong earnings, it can boost confidence in the broader market, potentially leading to market gains. Conversely, disappointing results can lead to market volatility.
- Benchmarking: Earnings calls allow analysts and investors to compare a company's performance with expectations and with its historical results. This benchmarking helps assess whether the company is meeting its goals.
- Forward Guidance: Many companies provide guidance during earnings calls about their future performance. This guidance can shape market expectations and influence stock prices. It's also valuable for long-term investors who want to understand a company's outlook.
- Risk Assessment: Earnings calls often highlight potential risks and challenges facing a company. This information is crucial for assessing and managing investment risks.
- Industry Trends: Analyzing multiple earnings calls within the same industry can reveal broader industry trends. This insight helps investors understand the health and challenges facing specific sectors.
- Corporate Strategy: Earnings calls often include discussions about a company's strategic plans and initiatives. This insight into a company's direction is valuable for investors and can impact stock prices.
- Regulatory Compliance: Publicly traded companies are required to hold earnings calls and disclose their financial results in a timely and transparent manner to comply with regulatory requirements.
How Long Are Earnings Calls?
While there is no set length for earnings calls, most are less than an hour (45-60 minutes).
The duration of the call also depends on the amount of time given to the question-and-answer session.
Where Do You Find Earnings Call Transcripts?
Earnings call transcripts are posted on a company’s investor relations website. This will include the most recent webcasts or audio of the earnings calls.
What Is an Earnings Release?
An earnings release, also known as an earnings report, is a document issued by a publicly traded company to communicate its financial performance for a specific period - typically a quarter (three months).
This press release provides detailed information about the company's revenue, earnings, expenses, profits, losses and other key financial metrics - the actual financial content that will be disclosed during the call. It’s usually distributed, at a minimum, an hour before the earnings call itself.
Key components of an earnings release include:
- Company Information: The company’s name, logo and ticker symbol.
- Release Date and Time: The date and, if applicable, the time of the earnings release.
- Contact Information: Contact details for media and investor inquiries.
- Headline: Concise and attention-grabbing headline.
- Opening Paragraph: Brief introductory paragraph summarizing the quarter's performance.
- Financial Results: The prominent content of the release.
- Management Commentary: Quotes or statements from company executives discussing the results.
- Outlook/Guidance: Guidance or projections for future performance.
- Quotes: Quotes from key executives for context and credibility.
- Additional Information: Any additional significant events, developments or initiatives.
- Earnings Call Details: The date, time and registration information.
- GAAP Metrics: Generally Accepted Accounting Principles (GAAP).
- Forward-Looking Statements Disclaimer: Statement noting that certain parts in the release may be forward-looking and subject to risks and uncertainties.
When Is Earnings Season?
Earnings season refers to specific periods throughout the year when publicly traded companies release their financial performance. It occurs four times a year, corresponding to the end of each financial quarter.
The specific timing of earnings season may vary slightly from year to year and depends on the financial calendar of the company and the region in which it operates.
However, in general, earnings seasons typically align with the following schedule:
- Q1 Earnings Season: Occurs in April and May, with companies reporting their results for the first quarter of the year (January to March).
- Q2 Earnings Season: Occurs in July and August, with companies reporting their results for the second quarter of the year (April to June).
- Q3 Earnings Season: Occurs in October and November, with companies reporting their results for the third quarter of the year (July to September).
- Q4 Earnings Season: Occurs in January and February of the following year, with companies reporting their results for the fourth quarter of the year (October to December).
It's important to note that not all companies follow this exact schedule, and some companies may have different fiscal year-end dates - which can lead to variations in their earnings reporting dates.
Earnings Call Best Practices
Earning calls are not just about reporting numbers – they’re a chance to showcase a company's full story that includes financial health, strategy and overall outlook. And they are incredibly important.
Here are some top tips to make your next earnings call effective and flawless:
- Use a Landline - Or at Least a Highly Reliable Internet Connection. You need crisp, clear audio and a connection that won’t drop. Don’t call in from a remote location - and don’t even think about using your mobile phone.
- Use a Headset or a High-Quality, Noise-Cancelling Microphone. Speakerphones have poor audio quality and can pick-up all kinds of background noise like heating/cooling, traffic or construction noise. Avoid them if possible.
- Be Accessible. Offer captions in multiple languages, let your audience send in their questions via online Q&A functionality and, if offering a webcast experience, make sure your IR Event Platform is accessible and follows the Web Content Accessibility Guidelines.
Earnings Release Best Practices
On top of earnings calls, writing and distributing an earnings release is a critical task for reporting financial performance to regulators, investors and the public.
Here's a seven-step guide on how to write and send an earnings release:
- Plan the Release Date: Determine the date and time for the earnings release. Ensure it aligns with your company's reporting schedule and regulatory requirements. Common release times are before or after the stock market opens or closes.
- Gather Financial Data: Collect all relevant financial data for the reporting period. This includes revenue, net income, earnings per share (EPS) and any other significant financial metrics.
- Draft the Release: Begin drafting the earnings release.
- Review and Edit: Carefully review and edit the earnings release for accuracy, clarity and tone. Ensure that it complies with relevant regulatory requirements and follows best practices.
- Compliance: Verify that the release adheres to all applicable regulatory requirements, such as those set by the Securities and Exchange Commission (SEC) in the United States.
- Distribution: Determine how you will distribute the earnings release. Common methods are press release distribution services, company website, email distribution, social media and more.
- Earnings Call: Schedule and promote an earnings conference call or webcast to discuss the results in more detail. Include the date, time and registration details in the earnings release.
What Should You Avoid in an Earnings Release?
Earnings releases are a double-edged sword. Done right, they enhance transparency and investor trust. However, errors can lead to confusion and even legal trouble.
Here are some pitfalls to avoid when preparing your earnings release:
- Selective Disclosure: Don't share financial info selectively before the general release.
- Misleading Statements: Never include false or misleading financial info.
- Non-GAAP Overemphasis: Balance non-GAAP metrics with GAAP and explain adjustments.
- Selective Highlighting: Present both positive and negative aspects transparently.
- Late Release: Adhere to timing requirements to maintain investor trust.
- Lack of Transparency: Be transparent about challenges, risks and uncertainties.
- Non-Compliance: Ensure regulatory compliance.
- Unapproved Forward-Looking Statements: Avoid unauthorized forward-looking statements.
- Complex Language: Use clear, understandable language.
- Overhyping the Results: Avoid exaggerating your company's financial results.
- Confidential Information: Don't disclose sensitive data.
How To Distribute an Earnings Release
Distributing an earnings release is a crucial step in ensuring that your company's financial performance information reaches the intended audience, including investors, analysts and regulators.
Here's how to effectively distribute an earnings release:
- Use a Press Release Distribution Service: Consider using a reputable press release distribution service (such as GlobeNewswire). These services have extensive networks of journalists, media outlets and investors. They can also help ensure distribution of your financial performance to regulatory authorities.
- Post on Your Company Website: Publish the earnings release on your investor relations website. Ensure that it is easily accessible to all stakeholders. Provide a clear link or prominently feature the release on the investor relations section of your website.
- Utilize Social Media: Share the earnings release on your company's official social media channels, such as X (formerly Twitter), LinkedIn, Instagram and Facebook.
- Email Distribution List: Send the earnings release directly to your company's email distribution list, including analysts, investors and media contacts. Use email subject lines that clearly convey the importance and relevance of the release.
- Engage with Financial News Websites: Contact financial news websites and business publications to ensure that they receive and consider your earnings release for coverage. Develop relationships with journalists who cover your industry or sector.
- Include Visuals and Multimedia: If applicable, include multimedia elements such as images, infographics, or videos to make the earnings release more engaging.
- Follow Up: After distributing the earnings release, consider following up with key media contacts or analysts to check interest and answer any questions. Provide additional information or interviews if requested.
- Track and Analyze Engagement: Use tools such as Newswire Analytics to track the reach and engagement of your earnings release. Monitor website traffic, social media shares and media coverage.
Thank you for reading! We hope you found this article informative and beneficial when it comes to earnings and how to effectively tell your company’s investment story.
About Notified's Investor Relations Services
Don’t stress about earnings season. We understand it can get hectic – but rest assured, we’re here to help as your trusted partner.
Notified can help you tell your best investment story with IR services that enable powerful, effective and flawless communication with global stakeholders.
Notified lets you manage all your IR communications through one partner, seamlessly. We support news distribution, regulatory filings, earnings calls and webcasts, investor days, IR websites, ESG communications and more.
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