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Jun 11, 2019

Comment: How companies drive earnings

The Chrysler minivan of reporting will get you to your destination safe and sound but, wouldn’t it be nice to arrive in the type of style only a Ferrari can offer?

Quarterly earnings represent the four times each year management can offer an uncensored narrative, providing context to the quarterly results, setting the stage and influencing how it would like investors to think about the future prospects of the company.

Over time, however, the idea of just issuing an earnings release and hosting a conference call has become archaic and is seen as a lost opportunity. It’s akin to owning a Ferrari and driving around New York stuck in first gear in bumper-to-bumper traffic. Isn’t it time to upgrade your earnings horsepower?

Minivan earnings: Before having children, my wife and I agreed that we would never own a minivan. They’re easy to drive and can accommodate a boat- load of children, toys and pets. They are practical – and not much else. This is the car equivalent of firms that issue only earnings press releases. Not only are they simply checking the box on disclosure, they’re also hurting themselves in the process.

Mid-size SUV earnings: While practical like a minivan, mid-size SUVs offer more bang for your buck, without the embarrassment equivalent of your old high school sweetheart seeing you at a fast food drive-through munching on a giant burger. Issuing an earnings release and hosting a live conference call has long been considered the gold standard of financial communications, and checks most boxes.

The quarterly earnings press release covers the basics: highlights of the quarter and access to a company’s income statement and balance sheet. The earnings conference call allows management to provide greater insight and detail. There’s nothing wrong with this approach, but is it enough? Alas, no.

Luxury SUV earnings: This approach may also include a pre-recording of management’s formal remarks. Unlike live events – often maligned by the sound of shuffling papers – companies that prerecord their formal remarks benefit from being able to rerecord (and rewrite) sections until they are satisfied the final recording is crisp and clear. Prerecorded presentations are still followed by a live Q&A but the initial piece flows exactly as management wants it to.

Exotic vehicle earnings: These turn heads with a differentiated approach to transparent earnings communications. Some exotic vehicle-style tactics include short-form CEO interviews of five to seven minutes – companies like Criteo are using news-format interviews of their CEOs to highlight results – and long-form Q&A sessions of 30-40 minutes. Companies like Netflix have replaced scripted management comments with live video sessions in which managers take turns asking each other questions in a roundtable format, allowing multiple members of senior management to participate.

Live-tweeting highlights during a conference call is another tactic firms like Attunity and Cryoport are using. It allows management to draw investors’ attention to key corporate highlights and use the power of the internet to broaden the reach of its messages.

Just as choosing a car is highly personal, so is how companies approach earnings – and it’s time to splash out on the Ferrari. Vroom, vroom!

Jeffrey Goldberger is principal of KCSA Strategic Communications

This article originally appeared in the Summer 2019 issue of IR Magazine.

Jeffrey Goldberger

Jeffrey Goldberger

Managing partner at KCSA Strategic Communications