April 14, 2020

Initial Disclosures About Earnings Guidance Amid Covid-19

Last week, John blogged about what companies are going to do about guidance when issuing first quarter earnings.  As a follow-on to that, Bass Berry & Sims surveyed initial disclosures in earnings releases for off-calendar year-end companies furnished on or after March 16, 2020 to see how companies handled earnings guidance in light of Covid-19.  The findings say a majority of companies withdrew or suspended guidance.  Here’s an excerpt:

67% (22 companies) either withdrew their existing guidance (in full or in part) or suspended their practice of providing quarterly guidance

The companies that provided either updated guidance or new quarterly guidance generally did so with a significantly greater gap between the high and low range of their guidance compared to prior disclosures

The survey highlights what the firm has been hearing from its clients—the unfolding COVID-19 pandemic and the resulting economic turmoil make it difficult to predict what the future will look like.  As reflected in the survey results above, there will be many public companies that elect to suspend or withdraw guidance as a result of the tremendous economic uncertainty arising from COVID-19, but approaches will differ, and there will continue to be some public companies (albeit, potentially, a minority) that elect to continue to provide guidance during these uncertain times.  Ultimately, the determination of whether to continue to provide guidance will require judgment and be very fact-specific (depending on, among other things, the industry of the public company and how COVID-19 has impacted such industry).

The blog discussing survey findings also includes links to notable disclosures – one being a company that made projections based on three recovery scenarios along with qualitative and quantitative assumptions about what such recoveries would look like for three of the company’s four operating segments.

Covid-19 & Earnings Calls: Logistical Considerations

Social distancing and stay-at-home orders resulting from Covid-19 will make this quarter’s earnings calls different for many companies – for most it will be difficult, if not impossible, to gather executives in one place for the call.  Companies will likely need to put more effort into earnings call prep sessions with additional time devoted to logistical considerations to help ensure the calls go smoothly.  With earnings kicking off this week, one resource that might help is this ICR blog that offers practical considerations and tips.  Some of the considerations include:

– Pre-record opening, prepared remarks – some companies likely already pre-record opening, prepared remarks, but if not, it’s suggested that companies do so

– Evaluate whether technology like video capabilities will be helpful for Q&A

– Evaluate whether to hold a live Q&A session, ICR suggests companies do so, but if not:

    • Consider posting anticipated Q&As on the company website next to webcast link or earnings release
    • Have management speak to questions and provide key messages related to those questions as part of the call
    • Let listeners know that the company won’t be holding an interactive Q&A session at the beginning of the prepared remarks and that topics the company believes will be of further interest will be posted to its website

– Most conference call providers will have limited operators available right now, which could cause long wait times likely frustrating investors dialing in to the call.  ICR provides options to help reduce risk of delays, one being not to include dial-in information in the advisory release and including only the webcast link.  With this option, companies would email the dial-in information separately to sell-side analysts that would allow them to ask questions during the call.

– In any event, ICR recommends avoiding “internet-based” phones due to increased internet activity that can reduce call quality.  Most analysts will be working remotely, so consider sending the release or presentation in an email ahead of the call.

– Last, consider reporting later than usual to give the company more insight into critical areas that investors will focus on, the blog also outlines considerations for current quarter reporting, including the current state of operations, financial liquidity/balance sheet/capital allocation and guidance.

Covid-19: Anticipated Enforcement Trends

As the Covid-19 crisis continues, it’s still early to know how enforcement activity will really play out, but this Gibson Dunn memo reviews early enforcement activity, as well as previous post-disaster enforcement activity, as possible indicators for areas where regulator activity might pick up.

The SEC has reminded us more than once that it remains “laser-focused” on enforcement efforts – Chairman Clayton and Corp Fin Director Hinman, included mention of this in their joint statement last week and the recent statement from the Co-Directors of the Enforcement Division serves as another reminder.  The SEC’s website for individual investors,, also recently sent an Alert warning investors to be aware of current investment frauds, including Covid-19 related scams.  So what should companies be on the lookout for?

If past activity serves as an indicator, the memo says distributions from government assistance programs like the CARES Act will dominate much of the enforcement agenda for the next decade.  The memo also covers enforcement actions in the U.K., EU and Asia.

Areas where the memo says increased enforcement activity is likely: insider-trading, state-level focus on consumer protection and price-gauging and expansion of state regulatory powers, and False Claims Act enforcement.  With increased government spending, the memo says its important for companies to document communications with, and decisions by, government contractors to help reduce False Claims Act exposure after the crisis.

And, if a company receives an internal whistleblower report, the memo reminds companies to respond thoroughly.  This Gibson Dunn memo addresses whistleblower claims in particular, and says companies should anticipate an onslaught of whistleblower claims.  The memo reviews steps companies can take to prepare and reiterates the importance of making sure a whistleblower action plan reflects current operations and to then stick to the action plan by following it to a tee.

– Lynn Jokela