The Ultimate Guide to Earnings Calls
What is an earnings call and why is it necessary?
What is an earnings call and how does it benefit the business, shareholders, analysts, and investors?
Earnings calls are basically conducted to provide a valuable backstory behind the figures of the company after a certain period. If the business did well, it’s the perfect chance to report on achievements and notable goals reached. At the same time, if it didn’t go as planned, the organization is given a chance to better clarify the predicament and explain where they’re standing and how they plan to get back to their feet in the following quarter. This is important because this call can definitively affect the public perception of the company.
Other than providing context, earnings conference calls are also conducted to keep shareholders up-to-date with company developments to attract potential investors and for analysts to create decent consensus and earnings estimate reports.
What is an Earnings Conference Call and Why is it Important?
An earnings call is a quarterly conference call, typically held in the form of either a teleconference or a webcast, during which company executives discuss their company’s latest financial performance, provide insight on possible future undertakings, and answer questions from analysts, investors, shareholders, and the public. It is accompanied by an official press release that is usually issued days before the call and will include the date and time of the call, how to access the it, and where the public can go on the company website to refer to financial and statistical information which will be discussed during the call.
Conducting earnings calls are important because they are the first pieces of definitive information that investors and analysts can get their hands on. It’s this time of the year where analysts and investors get to ask about a company’s financial results from the last quarter which will help them decide whether or not to invest or plan trades with them. At the same time, this call gives the company executives a chance to stay transparent and provide context for the financial standing of the organization.
Are These Calls Required?
There is no legal requirement for a company to conduct an earnings conference call. In fact, some public companies prefer not to conduct these calls and would instead release quarterly performance reports, which they are required to disclose. Although there are no regulations that require them to do so, many public companies still host earnings calls to stay transparent, keep their shareholders up-to-date with the latest developments and attract potential investors.
What is the Structure of an Earnings Report in a Call?
Safe Harbor Statement
An earnings call will start with a Safe Harbor Statement to remind the participants and the listeners that the discussion of the company’s financial performance will include a disclaimer on the forward-looking statements that will be released which should not be taken as a guarantee of future performance. This portion lasts for 2 to 5 minutes only.
Presentation and discussion
The presentation and discussion proper are headed by executives after the Safe Harbor Statement. The number of involved executives may vary but the chief executive officer (CEO) and the chief financial officer (CFO) are always present to discuss earnings per share, revenue, gross margin, dividend announcements, et cetera. Milestones and future plans are also discussed in this section. The CFO is typically tasked to talk about the financial details of the report, while the CEO is focused on discussing the bigger picture such as the strategic vision of the company moving forward, new initiatives or products, new enhancements, and the overall business standing. This section usually lasts 15 to 25 minutes.
During this portion, analysts, potential investors, shareholders, and other call participants are given the chance to voice out their questions and ask the management about the presented financial results. However, do take note that the company executives have the right to decline certain questions especially if they do not have sufficient information on their end yet. The Q&A session usually lasts 30 to 40 minutes long.
While it is not required, some companies would end on a closing note where executives would briefly summarize the whole presentation and highlight the key points of the call.
How Long Do These Calls Last?
A report shows that earnings calls typically last anywhere between 46 to 60 minutes long for 68% of the respondents, while 20% reported that calls last 30 to 45 minutes long. Also, the length of the call often depends on the company’s market capitalization – the larger the company’s market capitalization is, the more analysts and investors are interested, which then results into a lengthier Q&A session by the end of the call.
How to Listen to an Earnings Conference Call
If you have been itching to invest in a public company but have no idea where to start, you can begin by listening in on earnings calls. These calls give you an opportunity to peek into a company’s performance and future plans. Listening to these calls will help you understand industry trends, company developments, and financial data to make sound decisions and predictions as you pursue investment. However, it’s not as easy as it sounds. Believe it or not, you would have to undergo preparations and a lot of research if you wish to participate as a potential investor because you need to learn what to listen out for and how to properly scrutinize the right factors during an earnings call.
Follow these steps to make the most out of an earnings conference call:
Check the previous earnings call
You can either listen to an archive of the previous call or read through the transcribed document. It would help if you go through analysts’ reports as well and take note of crucial details such as the estimated earnings per share and the revenue so you can understand how these factors have changed over the period of time since the last quarter’s earnings call. In addition to that, you can also check other resource materials such as sales statements, new product releases, company updates, management changes, and other corporate developments or initiatives. The more references you have, the better you get at making an informative decision about investments.
Read the earnings release
Obtain and read through the earnings press release as soon as it’s been made public. You can access the press release both from the company’s website or on financial websites. As you go about reading it, take a real good look at the metrics, earnings per share, and stated benchmarks, pay close attention to new announcements and future plans such as stock buyback authorization or dividend changes, and also take note of any discontinued operations, new accounting treatments, special tax items, etcetera. Lastly, take a look at the balance sheet as well and be sure to check on the inventory, debt, investments, deferred sales, and the share count.
Listen to the earnings call
Being that these calls are open to the public, you can easily access it by telephone with a toll-free number that you can get from the company’s website, usually under the ‘Investor Relations’ section, or just check the earnings press release. Remember to keep a pen and paper, or in today’s digital age, your smartphone or laptop’s notepad, by your side to quickly take down notes when the executives from the call starts talking about the numbers, figures, and facts to avoid missing a key note or two. The same goes for the question-and-answer session.
Analyze the call
As soon as the earnings call ended, gather all the information that you have on hand – your notes, the press release, previous call recordings or transcripts, analysts’ reports, and from it, you can start formulating an investment or a trading strategy that you think will work best for you.
It’s only after the call when you can finally compare the official results with your initial expectations based on the research that you did and then interpret these findings so you can finish strategizing for your investment plans accordingly.
How Are Earnings Releases Made Accessible to the Public?
While it is a common knowledge that every publicly traded company issues a press release regarding their earnings conference call details, not everyone who’s interested to join have the time and means of joining in on the call as scheduled.
That being said, there are two more ways to access the call aside from the live call:
Earnings call recording
Every company who has released an earnings call has also made an audio recording link available on its website so potential investors and analysts who weren’t able to listen can still do so at their earliest convenience. This is also helpful because then you can easily rewind the recording should you need to go back to some confusing portions of the call and double check it yourself.
Apart from the call recording, some companies also release call transcripts. In fact, some analysts and investors prefer to read through the transcript instead of rewinding the call over and over again. After all, an earnings call transcript makes it easier for interested individuals to skim through the document and spot specific keywords and information. A popular online publisher of earnings call transcripts is SeekingAlpha.
Benefits of Transcribing Earnings Calls
Whether you’re an investor, an analyst, or a shareholder, it’s crucial for you to fully grasp the fine details of an earnings call. You may think that a transcript is just a piece of document but transcribing earnings calls is beneficial both to interested individuals and the business.
What are the advantages of transcribing earnings calls?
- The company will ultimately satisfy the public’s need for information about the business. If you’re a business owner or an entrepreneur and you hope to gain more investors and spread brand awareness, give them access to your earnings call transcript so they can get a sense of what the company is doing to further expand and grow in the future. Earnings call transcripts will help the public review the call content in the most efficient means possible.
- By releasing an earnings transcript, executives are certain that the public is given accurate information about the company’s financial state because there is no guarantee that participants would be able to catch every detail as intended during the call. With the help of a transcript, it’ll be easier to look for particular keywords and sections.
- This transcript is an accessible format to be archived for easy referencing and analysis, even in the future. Companies can retain previous earnings call transcripts on their websites to avoid confusion and allow the public access to old ones if they wish to compare them to the present ones.
Given how useful an earnings call transcript can be, it is also therefore critical to look for a transcription service provider that values quality, accuracy, and the security of your files. Make sure to look for a transcription service with highly experienced professionals armed with a diverse background in business and finance.