Earnings season is officially here again. As corporate communications to the Street begin to taper off ahead of quiet periods and management teams grapple with the near- and long-term impacts from COVID-19, investors and analysts are preparing their lists of hard-hitting questions to ask you on your next earnings call.

In this upcoming earnings cycle, we expect shareholders to pivot their attention away from forward-looking guidance and focus on near-term impacts on production shutdowns, store closures, lower consumer demand and ultimately, how a prolonged period of shelter in place mandates will hit the top-line and earnings. Add on to that, investors will have a deep interest in understanding current liquidity positions, access to additional cash, covenant restrictions and a recession plan to withstand this extraordinary environment we all find ourselves navigating.

Striking the right balance between a dire outlook based on the worst-case scenario and a tone-deaf message implying that, “we are almost through it,” is critical. The overarching goal over the next few weeks is to be pragmatic, but still illustrate there is likely an end to this draconian environment and a path forward to execute long-term strategies will separate the winners and losers from an access to capital standpoint.

As you begin to tackle your earnings preparation processes, now is the time to get your investor narrative and tactical items in place to prepare for what is expected to be an uncertain earnings period.

Time to Reframe Your Investment Narrative

This unique earnings cycle presents a compelling opportunity for companies across all market capitalizations and industries to reframe your investor narrative so that it is better aligned with the environment we are now operating in. Here are five tips to consider as you start to think through your company’s updated story.

1. Start with shifting from an offensive to a defensive messaging strategy. Investors are foregoing outlook targets and are now laser-focused on evaluating a company’s financial health, ability to operate both in the near- and long-term and maintaining cash flow generation. It is imperative that your messaging strategies are informed by the company’s ability to defend itself during this downturn.

2. Next, provide a sharp focus on the fundamentals of your story. During your upcoming earnings call, remember to carve out time to explain the bedrock components of your story that remain in play, regardless of the cycle. For example, highlight your longstanding, strong customer relationships, and remind investors of the ongoing need and support for your products. Discuss the overall flexibility of the business and detail the available cost levers that are at your fingertips. Already pulled some of these levers? Point out which ones. Finally, layer in messaging on the strength of your balance sheet and ability to shore up cash if and when you need it.

3. Underscore confidence in the long-term history and nature of your business, as well as the practical experience of those leading it, to level-set your proven ability to navigate efficiently in these uncertain times. Remind investors of how the company has successfully managed through downturn scenarios in the past and recovered quickly. If you’ve emerged from times of crises faster and stronger than your industry peers, be sure to weave this into your messaging and highlight this as a competitive advantage. While these are unheard of times, there is no harm in providing consistent reminders that you have operated through challenging environments before and you came out better for it.

4. Face any misperceptions of the company or its operating risks head-on. Use this next earnings period as an opportunity to clear the air on common misperceptions investors and analysts have on your story. Have you consistently received questions on your business model, end markets, operations, cash flow, etc.? Start by clarifying those and how the current situation does or does not impact them.

5. Finally, practice transparency every step of the way. Share what you know and for anything you don’t have a clear picture of, tell investors when you expect to have more information. Explain how you are addressing and managing through unknown risks. Then, don’t forget to highlight your constants, what you’ve already prepared for and what your plan is going forward.

Remember, it’s a stock-pickers playground right now, and your investors care about cash flow, safer balance sheets and less operating risk than what is currently believed. Collaborate with your team to brainstorm the leading questions you’re anticipating from investors and analysts and get ahead of them. And above all, instill confidence when and how you can.

Owning Your New Process

While you’re reframing your current investor narrative and crafting the messaging for your upcoming earnings call, your team will also need to overprepare for managing the preparation process during this earnings season. COVID-19 has changed the world as we know it, and you should expect changes to your earnings process as a result. Whether your team is working remotely, unable to call in from the same room the day of earnings or you’re fielding more questions from analysts and investors than ever before, there are going to be new challenges and obstacles you need to consider when outlining your earnings process.

Remote working adds a layer of complexity to your earnings prep, especially if your team isn’t used to working from home. The social distancing and quarantine measures that have been put in place by local and global health authorities also complicate the process of putting together SEC disclosures. The additional disclosures related to the impact of COVID-19 on business operations, risks and uncertainties, future liquidity and capital resources will likely add days onto the close calendar, while consolidating the financial results might prove to be more challenging and time consuming.

And what does the audit look like amid an environment that includes social distancing and heightened uncertainty? To the extent reasonable, in-person auditing functions will be done remotely or via video conference, thereby changing the logistics of submitting requested sampling data for testing. These challenges will inevitably alter the way your team normally prepares for earnings.

To alleviate some of these challenges, we recommend incorporating the following actionable steps into your usual earnings prep process:

  1. Schedule a regular cadence of meetings to maintain team continuity and to ensure the team is on track with the timing of deliverables, in sync with messaging and knows next steps.
  2. Get ahead of potential timing issues by pushing the earnings date by a few days. If you decide to delay reporting, communicate this change early to avoid spooking investors into thinking something is wrong.
  3. If your company plans to take advantage of the SEC’s grace period for hardship filing delays, which provides public companies with up to a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020, be prepared that investors might view this as a concern. To help mitigate uncertainty among stakeholders, you’ll want to carefully craft the messaging behind this decision and communicate it early.

Earnings Call

With the increased need for and acceptance of social distancing, this next earnings period will likely include many earnings calls where the speakers are remote. If you are not doing the call from the same room as the other speakers, you need to be cognizant of open speaker lines when it is not your talking turn. You don’t want to be that person.

For the Q&A portion of the call, prep must be a priority this earnings season. Since many teams may not physically be in the same room for the next earnings call, the executive team won’t be able to rely on the non-verbal cues they’re used to using when it comes to deciding who will answer a question first, telling someone to wrap up their answer and so on. Analysts and investors alike will be asking tough questions about the future of the company. However, forward-looking statements and commentary will be difficult to make given the vast uncertainty surrounding the impact of COVID-19. To ensure your team is well prepared, consider incorporating these steps into your Q&A preparation and facilitation:

  1. There is no such thing as “overpreparing” when it comes to Q&A this earnings season. Do your research—listen to what questions analysts are asking on other companies’ earnings calls and how they are responding to better help you gauge what is top of mind.
  2. Create a running list of potential questions you could be asked and craft a thoughtful response to each. Be sure to include prep questions that address investor / analyst hot buttons such as liquidity, cash flow and operating risks. These responses should be reviewed and approved by all the speakers on the call to ensure the entire team is aligned on messaging.
  3. Schedule an earnings rehearsal call with all of the speakers to practice in a real-world environment and dedicated time for a mock Q&A. Decide on a system that works for your team to determine who will answer what question, whether it be each speaker owning a certain theme or having the same person respond first to each question. Especially in situations where the team will be remote, it is critical to determine who will take each question, so the team is not talking over one another.
  4. Consider doing a prep call the day before with all speakers and the call provider to rehearse and ensure service is strong if speakers are calling in remote.
  5. Be prepared in case of emergencies. In the event that no one is responding to a question, you should designate one person ahead of time who will always answer the question first if no one has responded for an agreed upon amount of time, i.e. 5 seconds. You should also explore alternative methods of communication to use while the Q&A is taking place—consider utilizing a group IM system or texting chain with all of the call’s speakers so you can communicate in real-time.
  6. To ensure consistent messaging across speakers, circulate a key messaging document among the speakers so they can refer to it throughout the call.
  7. Be ready to discuss how quickly your operations can ramp up after a shut down.
  8. If your line of sight into the short term is unclear, you may need to lay some ground rules at the beginning of the Q&A session indicating the team will not be answering any forward-looking questions. However, be prepared to be pressed and proactively offer an explanation as to why the line of sight remains cloudy.

Post Earnings

Post-earnings calls with analysts and top holders could be strained based on how much transparency the company can provide. Therefore, we recommend:

  1. Holding calls with more top holders than usual to ensure you’re broadening your engagement among your shareholder base; and,
  2. After the call, post a “Top 5 Questions from Earnings” document to your IR website to ensure consistent dissemination of information.

Prepare Early, Prepare Well and Prepare Together (While Apart)

Amidst all the chaos and uncertainty, companies need to use this earnings cycle as an opportunity to thoughtfully communicate their reframed investor narrative and continue to engage with investors and analysts by answering questions transparently, mitigating concerns where you can, openly addressing the unknowns and reiterating your confidence in the long-term strategy of the business. The best way to get ahead of this is to prepare as a team, early and often.