How to Host Great Earnings Calls
Insights from 1,000 investor calls
In the full spectrum of engagement opportunities between listed companies and investors, quarterly earnings calls probably rank somewhere in the bottom half of the list. The main reason for this is that the majority of noteworthy news has already been priced in (most companies communicate their earnings release in the form of a press release or regulatory announcement before the call). The actual call then provides an opportunity to gain additional insights and, crucially, to answer any questions from the top management. In some capital markets, notably the US, the presentation part (often called ‘prepared remarks’) of the call lasts only a minute or two, and the call itself is primarily a Q&A / discussion between analysts and company management—almost like an open group meeting for analysts1.
It is fair to generalise that the main audience for these calls are sell-side analysts covering the company or sector, with some attendance from the buy-side. In most calls, the mix is generally skewed towards sell-side analysts, who have coverage on a group of companies (historically less than 10, now often much more) and are required to write reports and generally know the company ‘inside out’. Institutional investors, whose active funds tend to have between 50-70 positions and who have a much larger addressable universe, typically attend calls only when "something is going on” and they need insights right away (e.g. to explain to their investment committee when the share price dipped 10% last week) or when they don’t have another obvious or near term opportunity to interact with management. Generally speaking the earnings call are for the initiated investors and analysts, and this is also the reason why most companies do not actively ‘target’ new people to join the call.
Most institutional investors engage with management either on roadshows or as part of a conference circuit, where they go over the earnings release and discuss any topics of interest, perhaps outside of the quarterly horizon time span. These investors would also likely have some contact with sell-side analysts (or their own research teams) and the chance to read research reports, particularly paying attention to any out-of-consensus opinions or movements in target price or recommendations. I've also seen examples of companies post short updates to investors (or even 2 minute video summaries) along the lines of "key takeaways from our Q2 analyst call," focusing on key discussion topics and accompanying these with a transcript or a "chaptered recording" of the call.
With that said, how to host an earnings conference call adds the most value to participants?
As part of our conference call feature at Closir, my team and I have helped companies around the world prepare for and host hundreds of calls each quarter. In doing so, we've been able to pick up on great (and not-so-great!) examples of how companies engage with the market during these events. Here are some takeaways (and recommendations) I’d like to share that could be useful for both new and seasoned companies:
Engaging Insights: Investors and analysts join the call for insights that go beyond the ‘stiff’ press release. Unfortunately, during the calls, many companies still opt to read out the press release or prepared remarks. On other hand, many companies often have talking points but prefer to speak more naturally rather than reading directly, which appears more engaging for the audience. We’ve also seen some companies embed a video (e.g., a real estate company showcasing their new shopping mall) to provide a slightly more immersive experience. Others invite senior team members, every now and then, to provide colour on other lines of business. I have seen examples where the presentation ends with a “if there is anything we want you to remember, it is this:” slide. I always try to remind myself: a listed company competes for capital (and calendar time!) with thousands of other companies within its addressable universe. Isn’t it a good idea to ensure that when we have their time, it is well spent? Conversely, if an incremental investor feels their time was wasted once, will they engage again?
Sound Quality: A vast majority of the earnings calls we host are voice-only with an accompanying presentation slide deck, which is a standard for these types of events. This means that the quality of the voice is key. Quite often, speakers are far from the boardroom phone or speak softly, which significantly impacts the quality of the call (regardless of the conference call provider). Some companies purchase a good quality external microphone that improves the quality of a call tremendously. It may sound extremely trivial, but you’d be surprised how many calls by world class companies are still hosted with poor audio!
‘IR-hosted’ Calls: Even though we always provide an operator for our calls, it is appreciated when the company’s IR team takes on the role of host, instead of relying on a third party operator or in some markets, a broker. The introduction is warm by the head of investor relations, who knows the audience, the subject matter, with text questions that are read out with precision—no industry acronyms are overlooked, and local analyst surnames are correctly pronounced. The queue is managed according to management’s preferences, duplicate questions skipped, all signaling that the company is in charge and directly managing its relationship (and the wider investment case narrative) with the market, without relying too much on third parties.
Q&A: After the presentation, the heart of the call shifts to the Q&A session, where ideally companies offer multiple formats for asking questions (e.g., voice and text) to accommodate different preferences. The number of questions often varies—from more than there is time for to, in rare cases, none at all depending on market, company size, shareholder base, coverage etc . Many foreign investors and analysts like to listen in to hear what local ‘on the ground’ analysts are asking, not just to get the answers but also to gauge the tone of the discussion (this is even more prominent in face-to-face meetings). In cases where there is extra time, we’ve seen companies fill in the gaps by posing and answering their own questions. For example, we have heard IR teams say: "Given that we have no questions, here are the most frequently asked questions we received at the conference last week…" thereby supplementing the discussion for the analysts with more useful content.
Post-call materials: Giving investors access to material (e.g., the presentation, transcript and recording of the call) on the IR website (e.g. ‘Results Centre’) is generally considered good practice. Some companies fear that publishing a transcript might hurt them in the future. However, the truth of the matter is that representatives from various large financial data companies regularly attend, record, and transcribe all earnings calls and put them on their terminals (many of those transcriptions are auto generated and contain mistakes). Isn’t it better for the company’s IR team to control the narrative of what was said during the call?
Earnings calls are an important piece of the puzzle of the "curriculum"2 for analysts and investors, the long-term "students" of the companies they invest in. They complement other engagement opportunities, including roadshows, capital market days, site visits, and other events. It is our responsibility as IR professionals to ensure that the quarterly earnings call neatly fit to the rest of the curriculum and ensure that ‘students’ are engaged and interested enough to keep coming back !
A somewhat valid question is: why do earnings calls have to include a presentation if it contains no new material information and can be pre-recorded and made available on the IR website along with the press release, leaving the call for higher value Q&A / discussion ?