Results from the 2014 Earnings Call Practices Survey conducted by the National Investor Relations Institute (NIRI), a professional association of corporate officers and investor relations consultants, confirm that an overwhelming majority of public companies hold quarterly earnings calls—97 percent of the companies that responded to the survey report holding such calls. This number represents a significant increase from almost 20 years ago, when only 80 percent of respondents to a similar NIRI survey reported that they held quarterly earnings calls. Although federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission (SEC) generally do not require the release of financial results for a completed fiscal period before the applicable quarterly and annual report filing deadlines, most public companies provide their financial results in advance of such deadlines by issuing an earnings press release and discussing the announced financial results in a related earnings conference call and/or webcast.
The latest NIRI earnings call survey also reveals that most companies holding earnings calls have embraced very similar call practices. Even though notable variations do exist, the majority of earnings call practices have become somewhat standardized.
While the Sarbanes-Oxley Act of 2002 and other recent regulatory reforms have transformed the historically modestly regulated earnings call (and the related earnings release) into highly regulated activities, public companies still have a considerable amount of flexibility in complying with the applicable rules and regulations, and certain best practices have emerged. Corporate executives and managers may be interested to learn how their company’s approach to earnings calls compares to that of their peers, and how earnings call practices have been evolving. This On the Subject offers some insight into those issues based on 233 survey responses collected by NIRI from a sample of 1,000 corporate investor relations officers (IROs) working at publicly traded companies ranging from micro-cap to mega-cap. NIRI members can read the full survey here, and highlights for non-members are accessible here.
When are quarterly earnings calls held?
Unsurprisingly, very few companies hold their calls on Mondays (3 percent). Most IROs surveyed reported holding calls on Wednesdays or Thursdays (71 percent), with Thursday being the more popular of the two. For 75 percent of companies responding to the survey, the call is held on the same day that earnings are released. IROs reported an almost even split between holding calls during and outside of market hours (46 percent and 53 percent, respectively). Those holding it before the market open comprised 29 percent of respondents, while those holding it after the market close comprised 24 percent.
How are calls announced?
Applicable rules, including Regulation FD and the safe harbor in Item 2.02(b) of Form 8-K for oral disclosures made during an earnings call, require companies to provide advance notice of earnings calls. Companies share approaches when it comes to making these earnings call announcements: press releases and posts on company websites are the most common methods (93 percent and 83 percent, respectively). While the Regulation FD adopting release indicates that providing notice of a conference call for Regulation FD purposes may be satisfied by posting the notice on the company’s website only, one of the conditions of the safe harbor in Item 2.02(b) is that the earnings call be announced by a widely disseminated press release.
E-mail blasts to investors are also popular, with 55 percent of IROs reporting their use, and 9 percent of companies use Twitter to announce the call to their followers. The latter figure could increase in coming years as the use of social media in the corporate environment matures.
In terms of advance notice, 86 percent of companies make their announcements anywhere from one week to one month in advance of the call, with two to three weeks prior being the most popular lead time (35 percent), followed by one to two weeks prior (27 percent). Of the respondents, 6 percent reported announcing more than one month prior. Only 2 percent reported waiting until after the end of the quarter to make their announcement. This stands in contrast to respondents surveyed in 2001, of which 16 percent reported waiting until the week of the call to announce it.
How long do calls last?
For 68 percent of respondents, calls typically last 46 to 60 minutes, while 20 percent report calls lasting 30 to 45 minutes. The length of the call often depends on a company’s market capitalization—the survey reveals that as company market cap size increases, so does the length of the earnings call. For example, no mega-cap respondents reported holding calls lasting less than 46 minutes. The larger a company’s market capitalization, the more analyst coverage and other interest it generally receives, which typically translates into lengthier Q&A segments of earnings calls.
What formats are used to broadcast calls to listeners?
Most companies offer more than one method for listeners to access the call. Telephonic calls remain king for the time being (94 percent of IROs reported their use), but almost 90 percent of respondents reported also using webcasts. While almost all commentators and practitioners interpreted the Regulation FD adopting release to approve adequately noticed toll-free telephonic calls as satisfying Regulation FD’s public disclosure requirement, some (at least initially) questioned whether the adopting release also deemed webcasting alone, unaccompanied by a press release containing related substantive disclosure, to also constitute an adequate means to satisfy Regulation FD’s public dissemination requirement. Regardless of how the SEC staff’s view or public company practice may have evolved on this point, the survey results indicate that many companies continue to make the earnings call available in both conference call and webcast formats. A very small minority of respondents reported use of in-person meetings, live-streaming video or podcasts (1 percent each, respectively). Those methods seem to be employed exclusively by small- and mid-cap companies (although 3 percent of mega-caps surveyed also reported using live-streaming video).
What practices are followed when developing call scripts?
In most instances, preparation for an earnings call begins three weeks in advance or less (63 percent). Slightly less than a third (30 percent) of IROs reported preparing four weeks out. Of the respondents, 22 percent reported that during this preparatory period prior to the earnings call, they ask the Street which topics it would like the company to address during the call.
Respondents identified the IRO, CFO and CEO as the employees most involved in both script development and review. More than 90 percent of companies reported involvement of each of those executives in either script development or review.
Internal counsel were involved in call script development at 37 percent of survey respondents, and in script review before the call at 71 percent of respondents. Outside counsel assisted with script development for 4 percent and reviewed scripts for 14 percent of respondents.
What practices are followed when rehearsing call scripts?
Earnings call rehearsal practices are more diverse than development practices. Almost one quarter of respondents do not rehearse at all (22 percent), while 24 percent spend one to two hours, 12 percent spend two to three hours, 14 percent spend three to four hours, and 13 percent spend more than five hours rehearsing. Additionally, 10 percent of respondents said they pre-recorded their prepared remarks portion of the call, instead of reading them live.
When asked what challenges they had faced and overcome (or are still facing), the IROs surveyed frequently mentioned their ability to predict caller questions. To help prepare for the Q&A segment, 81 percent of IROs script answers to possible questions.
Which personnel are most likely to participate in the call?
Any number of company personnel might participate in an earnings call, but the roster of participants stays fairly uniform from quarter to quarter in most companies. In 97 percent or more of reported cases, the participants consist of the IRO, CFO and CEO every quarter. Additionally, 83 percent of respondents report involving their COOs every quarter, 70 percent their CMOs and 78 percent their internal counsel.
With regard to participants lower down on the organizational chart, 49 percent of companies reported involving their “line-of-business heads” on an “as needed” basis, while an equal number reported involving them every quarter. Of the respondents, 67 percent reported using non-CFO finance and accounting staff every quarter, compared to 31 percent that reported involving them only on an “as needed” basis.
What practices do companies follow prior to calls?
Companies appear to be uniformly averse to publishing their call scripts ahead of time (97 percent don’t do it). There is a split, however, on the approach taken once earnings results are published. During the brief period between an earnings release and the earnings call, 43 percent of the companies surveyed take questions from analysts, while 57 percent do not take any calls from the Street. Those respondents that do accept calls are split on the topics discussed. Half reported that they place no restrictions on topics discussed, which seems perilous from a Regulation FD perspective.
What screening practices do companies follow during calls?
Screening call participants during earnings calls is common practice. Three quarters (76 percent) of respondents admitted using screening tactics for such varied reasons as avoiding surprising questions, prioritizing particular callers over others, ensuring that a wider variety of analysts are given an opportunity to ask questions over the course of a year, restricting media members and employees from asking questions during a call, and meeting time constraints. Half of respondents have deleted a participant from the Q&A queue. Reasons provided by respondents for doing so include that the caller was unknown to the company, that the caller was not on the approved list to ask questions, that the caller was a member of the media, or time constraints.
How do companies use social media to supplement calls?
During calls, the majority of companies (almost 80 percent) do not supplement the call itself with additional media. However, a few companies (5 percent of respondents) are warming to the practice of live-tweeting their calls on Twitter. Use of other media, such as Facebook or LinkedIn, is rare. Any use of social media to supplement calls requires careful Regulation FD analysis because the SEC has confirmed that company communications made through social media channels could constitute selective disclosures. Further, despite recent SEC guidance in another context (securities offerings, proxy solicitations and tender offers) on satisfying legend requirements in communications distributed through social media platforms that limit the number of characters or amount of text that can be included in communications (e.g., Twitter), use of such media during earnings calls will continue to be challenging in the absence of specific SEC guidance.
How common is it for companies to prepare closing remarks?
At call-end, 67 percent of respondents offer closing remarks following the Q&A session.
What archival practices do companies follow?
After the call’s conclusion, most respondents opt to archive the call’s content and make it accessible in some form. Companies may provide “ongoing website access” or “archive” content after an earnings call for a variety of reasons, including compliance with Regulation FD or the safe harbor in Item 2.02(b) of Form 8-K, as a best practice, or a combination of the foregoing. Some companies limit the period of access because of staleness issues and/or concern for liability under the Securities Act of 1933 during a securities offering. Of those surveyed, 73 percent archive a webcast and 73 percent archive the audio on a company’s website, while 57 percent archive a slide presentation. The full text of call scripts are archived by only 25 percent of respondents. Length of time to keep archived content depends heavily on the media format used. For call audio, less than 90 days was the most popular response (40 percent). Scripts and slide presentations were far more likely to be archived for longer than one year, compared to either call audio or webcasts (46 percent and 51 percent, versus 17 percent and 21 percent, respectively).
While the NIRI data indicates that most companies have adopted similar earnings call practices, a small but growing number are experimenting with new forms of communication to increase public interest, make participation easier and sometimes even to provide an additional level of commentary. It will be interesting to see how these practices evolve in the coming years as recently developed communication technologies continue to mature.