June 25, 2019

Earnings Calls: Zoom Shakes Things Up

Zoom Video Communications is one of the year’s better performing tech IPOs, & now the video conferencing software provider is earning kudos for its effective use of technology to liven up the typically lackluster quarterly earnings call ritual. Here’s an excerpt from this recent Quartz article:

Earlier this month, Zoom disclosed its first quarterly results as a public company. After its press release went out, founder and CEO Eric Yuan and other senior executives hopped onto a Zoom video call to discuss the earnings with analysts, press, and investors. The interactive webinar showed off the company’s technology—and reinvented notions of what a quarterly earnings call should be.

The format introduced a greater degree of transparency between the company and analysts. It wasn’t just the executives whose faces appeared on the screen; when asking questions, the analysts on the call could also be seen—both by the executives and by everyone else on the call.

“You’re not just sort of talking into a box or a handheld—you’re actually looking at each other in the eye and you’re actually talking to feel like we’re connecting with a lot more people,” says Tom McCallum, Zoom’s head of investor relations.

The dynamics transformed the call from a presentation to more of a conversation, with executives and analysts essentially chatting face-to-face via video screens (journalists on the call were in view-only mode). The ability to see each speaker’s face brought a distinctly human touch to something that, with other companies, often feels like an anonymous, formulaic encounter steered by barely-human-sounding teleconference operators reading from scripts and frequently betraying their lack of familiarity with either the presenters or the callers on the line.

Here’s the presentation, which – while not exactly Avengers: Endgame – is more interesting to look at than the standard call.  The Q&A is what you want to see, and that starts around the 20 minute mark. My one beef is that you have to rummage around the IR website a bit to find the presentation – while a link to the earnings release appears on the home page, the earnings presentation itself does not.  You have to click on the “events” link to find it.

Board Recruitment: Assessing First Time Director Candidates

Many companies are finding themselves moving beyond the traditional pool of current & former CEOs to identify new directors – and many of these non-traditional candidates have never served on a public company board. So, how do you assess their qualifications? This SpencerStuart article has some suggestions. Here’s an excerpt about questions that nominating committees should ask covering areas that are key to the success of a new director:

Interpersonal skills — Has the person demonstrated an ability to build relationships with all kinds of people? To influence and to gain trust and support from others? Can the candidate use diplomacy and tact? Listen and adjust appropriately to others’ input?
Intellectual approach — Can the candidate handle complexity, or simplify issues to the essence to make sound, logical decisions? What is their comfort level with ambiguity? Does he or she have the
ability to look ahead? To transfer knowledge and experience to different environments?
Integrity — Will the candidate adhere to an appropriate and effective set of core values and live by them? Is she or he honest and truthful? Is the person authentic, self-aware and confident enough to “be oneself”?
Independent mindedness — Can the candidate set out and defend a position, even when this means going it alone? What about the ability to maintain positive relationships amid conflicts about ideas?
Inclination to engage — Is the candidate motivated to invest time and effort in learning about the organization and staying up to date with it? Is she or he diligent enough to follow through with commitments?

A prospective director’s financial competence is also an important issue, and the article suggests that companies include the chair of the audit committee in interviews of a prospective candidate, in order to better assess the financial sophistication revealed by the questions the candidate asks.

D&O for Unicorns: Insurers Move to Public Company Model

High value private companies – i.e., “Unicorns” – are making insurers nervous. These are private companies, but their huge and volatile valuations, significant financing and resale transactions & other characteristics make them appear much riskier to insurers than the typical private company.

As a result, insurers are increasingly moving to public company-style policies for these companies. This Woodruff Sawyer blog reviews the implications of that trend. This excerpt says the biggest issue is the reduced scope of entity coverage found in the typical public company policy:

To be clear, both public and private company forms provide for entity coverage if the corporation is named in a securities claim. The definition of “securities claim” typically includes breach of fiduciary duty suits. As a practical matter, these are the types of claims for which D&O insurance is being purchased for high-value private companies (and public companies, too).

What you lose, however, when you move to the public company form is the expanded coverage for the corporation for other suits that name the corporate entity. For example, on the private company form, defense costs coverage may exist for the corporate entity if a regulator decides to take an enforcement interest in a corporation. Another example is corporate entity coverage for antitrust claims. These scenarios are almost entirely excluded from the public company form.

On the other hand, public company policies may provide greater coverage for D&Os, enhanced ability for the company to select its own counsel, broader coverage for regulatory investigations, and other more favorable policy terms.

John Jenkins