Earnings Call
A teleconference or webcast where a company summarizes its performance over the reporting period
What is an Earnings Call?
An earnings call is a teleconference or webcast where a company summarizes its performance over the reporting period. This is an opportunity for anyone to learn about a public company's quantitative and qualitative elements.
These calls are also an opportunity to ask questions and hear upper management discuss the company's performance. Typically, a call will include the CEO, CFO, and head of investor relations.
These calls can provide valuable insight into what the future looks like for the company. However, it's important to remember that the past does not always resemble the future.
These teleconferences can have significant impacts on the performance of the stock as well. A noticeable change in the stock price is not uncommon following the release of the company's financials.
The term "earnings call" comes from a company reporting its earnings and the platform where the discussion of results occurs on a call.
These calls, on average, occur nearly every three months and are open to the public. This includes shareholders, reporters, analysts, and any other individuals. As a result, everyone is learning about this information simultaneously, ensuring no one has an advantage.
Key Takeaways
- Earnings calls are teleconferences or webcasts where companies summarize their performance and offer quantitative and qualitative insights, with upper management participation.
- They usually occur every 3 months and are open to the public. That includes shareholders, reporters, analysts, and other individuals.
- The call includes a safe harbor statement (disclaimer about future projections.), a financial results overview, and a Q&A session.
- Stock prices often react to earnings call outcomes due to the release of financials, which are crucial for investors' fundamental analysis and trading decisions.
- It's beneficial to research the company and its financials prior to joining the earnings call to understand what's going on.
Understanding Earnings Call
The call is typically held over the telephone or webcast but is sometimes held in person and accompanied by a live broadcast.
An official press release is issued about an hour before the call. However, the press release will sometimes be issued after the market closes, and the call will follow the next morning.
This earnings report summarizes the key points of a company's financial performance in the reporting period. In addition, this document highlights key financial metrics and commentary from upper management that will be discussed in the call.
This is a valuable document to review before the call because it will allow you to follow the discussion better. Examples of earnings reports in the United States are SEC forms 10-Q and 10-K.
In addition to providing an analysis of past performance, management will discuss the company's future outlook. It is important to do your due diligence and not blindly follow the advice of management.
The Securities and Exchange Commission (SEC) requires earnings statements that disclose financial information for all public companies.
Companies must release three financial reports in the first three fiscal quarters of the year, summarizing each quarter, and then a fourth, summarizing the entire year, at the end of the fourth quarter.
Importance of Earnings Calls
These calls are one of the primary resources investors and analysts use in the fundamental analysis of a company. In addition, the information provided in the call and the earnings report can give analysts and investors a good idea of how to trade the stock.
Quantitative information provided in the report enables analysts to update their forecasts and earnings estimates. These reports can give basic insight into whether the company is performing to your liking for casual investors.
Awareness of the date of a company's earnings call is critical because investors frequently plan their trades to revolve around the date of the call. This is because investors often react to a company's performance by selling or buying more shares, which will affect the stock price.
These calls inform the public of quantitative performance, such as the company's profitability. Additionally, management will provide insight into qualitative elements, such as their plan to grow the company for the future.
Some of the advantages are:
- Provides information for fundamental analysis of the company
- Guides investors' decisions on trading
- Opportunity for the public to ask questions to management
The disadvantages are:
- Strains normal business operations because preparing for the call requires significant company time and resources.
- The Q&A section could produce unfavorable results if asked about topics management does not want to confront, damaging their image.
Structure of an Earnings Call
The announcement about an upcoming call is usually released weeks in advance. The information for accessing the call will be included in the announcement.
This information for the call can be found on the company's investor relations website. On this website, you can also input your email address to get notified of an upcoming call.
The call has three elements:
- A safe harbor statement
- An overview of financial results
- A Q&A session
An abundance of such call examples can be listened to or read on websites such as The Motley Fool and MarketBeat. In addition, some companies will also have the transcripts of the calls on their website.
If you cannot attend the live call, it can often be valuable to read the transcript later to aid in your evaluation of a company. Examples for each section will be at the link provided from the NVIDIA Q1 2023 (05/25/2022) Earnings Call Transcript.
Safe harbor statement
This statement always occurs at the beginning of the call. This is delivered by a representative from the company, often the head of investor relations. It serves as a disclaimer about some of the comments executives will make. This specifically concerns:
- Statements about the future
- Future revenue
- Future margins
- Future income
- Future expenses
- Overall business outlook
This statement serves as legal protection from lawsuits because no company knows what will happen in the future regarding earnings or company success. Therefore, this warning is also required by the SEC.
This statement is generally consistent with most companies as it contains legal content that applies to all public companies.
The harbor statement emphasizes that there is risk in investing and that the company only makes future projections based on what they know. In reality, the future is uncertain.
The speaker will likely refer you to their 10-Q, 10-K, and 8-K filings.
An example of NVIDIA's harbor statement can be read here.
Overview of financial results
The discussion of financial results is often led by C-level executives such as the CEO and CFO. However, other executives may also have a role in the call.
The executives present and discuss the company's financial performance over the given reporting period (quarter or year). Additionally, they will discuss future goals and upcoming milestones.
The discussion often begins with the driving factor behind their performance, like what sector is overperforming or what market is underperforming.
This will likely include quantitative statements such as total revenue, revenue growth, GAAP gross margin, non-GAAP gross margin, stock valuation, and expected future revenue.
Management may also share some risks and how they plan to confront them.
This is a section that is often more important for analysts as opposed to the average investor because it can get technical. However, understanding the company's revenue growth for the fiscal period and expected revenue for the future can be very valuable.
An example of NVIDIA's financial results can be read here.
Q&A session
Finally, the question and answer section is generally the longest portion of the call. Investors, analysts, and other participants can ask questions during this time. However, management has the right not to answer or defer certain questions. As a result, not everyone will be able to ask a question.
The executives generally do not have time to answer more than ten questions, so analysts at prominent firms get priority for asking questions.
There is no required amount of time the call must last, but most generally last less than an hour.
During the call, analysts and other people hit a code on the conferencing system to enter themselves into the question queue.
Employees at the company and investor relations team members see the list and can adjust the queue.
The final queue is sent to the operator at the beginning of the Q&A section.
While the order of who can ask a question varies on the company, many firms will start the Q&A section off with an analyst who they expect to be bullish. Then, they will put the bearish analysts in the middle and finally finish it off with analysts they expect to be more positive.
Each company usually has preferences for determining who asks questions.
So, unless you work for a well-known firm or are a well-established analyst, it is unlikely you would be able to ask a question.
An example of NVIDIA's financial results can be read here.
Preparing for an earnings call as a shareholder
Researching the company and looking at previous earnings reports may be beneficial before joining the call to ensure you understand what is going on. However, this is not required.
Starting with the prior quarter's call transcript and financials can be beneficial to see if the company has made any changes. In addition, noting the Wall Street analyst consensus estimates and how they have changed over time can be helpful.
Where to find this call info?
Companies will send out announcements about when their earnings call is scheduled for. If you go to the investor relations page online for a company, there will likely be somewhere you can put your email to get these updates.
For example, at the bottom of the investor relations site for NVIDIA is the following:
Additionally, NASDAQ and Yahoo Finance keep updated calendars of calls. Finally, if you cannot attend the call, most companies will post the audio recording and transcript of the call.
Most of the information discussed by the executives can be found in their earnings release and on SEC's Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).
If there is a company you are thinking about investing in, it can be valuable to either join their upcoming earnings call or listen to the most recent fiscal quarter's call.
The calls are free to access and take less than an hour to listen to.
What to listen for?
While valuable information is abundant in the call, it does not offer the complete picture. Therefore, the goal for executives during these calls is to present the information in the best light possible.
Although it may be difficult to ask a question if you're not an analyst, the questions professionals ask are generally well-thought-out and comprehensive.
Some key elements to listen to in a call are:
- How the company has performed in relation to analysts' expectations
- The causes of the company's recent financial performance
- Changes or plans for the future
- Significant challenges or risks that the company is facing
- How management responds to questions
Listening to how a company responds to changes in the global economy and its adaptability can provide insight into whether it can withstand potential risks in the future.
How management answers questions can be a sign of the success of the company. For example, in a Tesla earnings call following a lackluster quarter, Elon Musk was defensive and slightly hostile when answering analysts' questions.
Earnings Call FAQs
An earnings call has no specified time limit but usually lasts less than an hour. The question and answer section is usually the longest portion of the call, so it depends on how many questions the operator takes.
SEC Form 10-Q is a quarterly report, while the 10-K is an annual report. In the first three quarters of the fiscal year, the 10-Q will be released, and then the 10-K is issued in the fourth quarter.
The SEC requires certain information to be provided in these forms including quantitative financial results and qualitative discussion.
The management discussion and analysis (MD&A) section generally provides the most comprehensive analysis of the company’s performance.
This section will explain the reasons for growth or loss in revenue. It will also contain an in-depth analysis of the company’s income statement, balance sheet, and statement of cash flows.
Earnings calls are not legally required, so a company has no legal obligation to hold one. However, public companies are required to release the details of their financial performance.
Some companies do not have such calls at all and some companies will skip having them for a quarter.
Many companies do have these calls anyways because they allow management to highlight successes during prosperous times and attempt to calm fears during adverse times.
or Want to Sign up with your social account?