What is an Earnings Call?
An earnings call is a conference call (typically held in the form of a teleconference or a webcast) during which the management of a public company announces and discusses the financial results of a company for a quarter or a year. Generally, the earnings call is accompanied by an official press release that summarizes the key points of a company’s financial performance.
Earnings calls are usually hosted after the publication of earnings reports for the given period (quarter or year). Examples of earnings reports are SEC 10-Q and 10-K forms in the United States.
Importance of Earnings Calls
Earnings calls are considered one of the key resources for investors and equity analysts. The information provided during earnings calls can be incorporated into the fundamental analysis of a company. In fundamental analysis, analysts can combine the information obtained during the event with the information presented in the management, discussion, and analysis (MD&A) section of the company’s reports.
The importance of earnings calls is acknowledged by the fact that investors frequently plan their trades close to the date of an upcoming conference. Meanwhile, equity analysts use the information provided during such events to update their earnings estimates.
The records of earnings guidance and announcements are available to the public on a company’s website. Commonly, many companies also publish transcripts of their earnings calls. On the image below, you can see an example of an earnings announcement by automaker Tesla that is available on the company’s website.
Structure of an Earnings Call
Generally, public companies announce their upcoming earnings calls several days or even several weeks prior to the event. The early announcement is vital to draw the attention of the parties interested in attending the event. Typical participants are investors, equity analysts, and business journalists. Note that the earnings calls of large companies are often heavily covered in business news.
1. Safe harbor statement
A typical earnings call starts with the safe harbor statement made by the company’s management. The safe harbor statement generally warns the participants of the earnings presentation that the discussion of financial results may include forward-looking statements. Thus, the estimates of results based on the forward-looking statements may substantially differ from the actual results. The disclaimer is intended to limit the company’s liability if the forward-looking assumptions made by the company’s management would drastically differ from the actual results in the future.
2. Presentation and discussion of the financial results
After the safe harbor statement has been made, the company’s managers take over the call. Commonly, a company is represented by C-level executives. Depending on a company and its corporate hierarchy, the number of participating executives may vary. However, the two key executives that are always present in the earnings call are the chief executive officer (CEO) and chief financial officer (CFO).
The executives present and discuss the financial results for the given reporting period (quarter or year). In addition, the managers provide an overview of upcoming company’s goals and milestones, as well as discuss how the plans will impact the future financial performance of the company.
3. Q&A session
The final portion of the earnings call is reserved for the Q&A session. During the session, investors, analysts, and other participants in the call have an opportunity to ask the company’s management questions regarding the presented financial results. Note that the company’s managers have the right to decline or defer their answers for certain questions if they do not possess sufficient information to do so.
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