The Ins and Outs of Earnings Calls
The quarterly earnings call is one of the most important tools public companies use to communicate with shareholders, analysts, journalists and other interested parties about their financial results. Typically, these calls are accompanied (or preceded) by a press release that summarizes the company’s financial results and, in many cases, provides more detailed financial information filed with the SEC.
Earnings calls should be carefully scripted and, preferably, well rehearsed to ensure compliance with Regulation FD (Reg. FD) and other SEC rules. The company’s counsel should be actively involved in overseeing the process and should be available before and during the call to address any last-minute issues or questions that come up.
Fortunately, there are several strategies and best practices you can adopt before, during and after a call.
Regulation FD Requirements
Reg. FD prohibits public companies from selectively disclosing material nonpublic information, including earnings information, to institutional investors or other favored shareholders. Under the reg, if a company intentionally discloses such information to a select few, it must simultaneously disclose the information publicly. As a result, Reg. FD aims to promote the full and fair disclosure.
Methods of public disclosure include 1) public filings with the SEC, such as Form 8-K, and 2) other methods that are reasonably designed to achieve broad, nonexclusionary distribution to the public, such as press releases, publicly announced conference calls, or postings on a company website or social media platform (provided they constitute “recognized channels of distribution”).
Preparing for the Call
It’s critical for counsel and executive management to review and fine-tune the earnings call script and the earnings press release to ensure that all disclosures are accurate and unambiguous. It’s particularly important to scrutinize any disclosures that provide forward-looking guidance — or could be construed as providing such guidance. The company should take steps to ensure that these disclosures are covered under the SEC’s safe harbor for forward-looking statements, which requires that they be accompanied by appropriate qualifying language.
If a company plans to use social media (“live Tweeting,” for example) to disseminate information during an earnings call, it should prepare hyperlinks to any relevant disclaimers or cautionary language before the call.
Scheduling and Announcing the Call
Companies typically announce the date of their earnings press release and earnings call a few weeks in advance. Generally, it’s advisable to announce the call in a press release, which is one of the safe harbor conditions available for oral disclosures made in an earnings call.
The announcement should provide instructions for accessing the call or webcast, if applicable, and locating any related materials on the company’s website. It should also specify whether the call audio and webcast will be available on the company’s website after the call. The company is required to file or furnish a Form 8-K, on or before the day the earnings press release is distributed, which includes the earnings release as an exhibit.
Although not required, many companies hold calls outside of market trading hours. This helps prevent listeners from trading the company’s securities before the information has reached nonlisteners.
During the Call
Management should announce the location of relevant materials and rebroadcast information. Live Tweeting or other social media broadcasting should be handled with care. These practices are still relatively new and the SEC hasn’t provided guidance on using Twitter or other character-limited channels for disseminating financial information.
A call typically starts with the presenter from the company informing participants that certain statements included in the call may be forward-looking. And relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in the earnings release and the company’s SEC filings.
If non-GAAP measures will be discussed, there should be a disclaimer stating that a reconciliation is available in the earnings press release or on the company’s website.
After the Call
Most companies provide earnings call audio or recorded webcasts on their websites. They should remain available long enough to ensure the information is widely distributed, but not so long that forward-looking guidance becomes stale or raises potential liability concerns.