Disclosing Quarterly Financial Results

Of all the disclosures made by public companies, quarterly financial results are among the most anticipated and potentially have the greatest impact on shareholder value. Quarterly reporting offers management a forum to discuss strategy, interpret results, provide industry commentary and share thoughts about the future. For small cap companies in particular, the quarterly call also is an opportunity to gain broader exposure, as oftentimes this is the vehicle prospective investors use to take a first look.

Executives rightly spend considerable time analyzing financial results and operating performance, and then formulating external messages, drafting the news release and conference call prepared remarks, and rehearsing potential questions.

That said, several recent occurrences demonstrate complacency with regard to information control.

Examples gaining the most attention involve unintended access to the quarterly news release or other files through a corporate website prior to the scheduled distribution time. The companies in question, which include Dell, Disney and NetApps, each reportedly used a “hidden” portion of their website where executives could view and comment on working drafts.

However, these so-called DarkSites did not sufficiently protect access to the undisclosed information. WebCrawlers used by one or more news outlets found and reported the information during live trading hours and before it had been disclosed over a commercial newswire. The news then spread rapidly, resulting in erratic trading and corporate embarrassment. In some instances the quarterly news release was subsequently rushed to market – also during live trading hours – yet interestingly the exchanges did not halt trading, which might have brought some breathing room.

Another example of flawed disclosure practice is Microsoft’s recent decision to forego commercial newswire distribution of its earnings news release, opting instead to post the results on its website. Unfortunately, Microsoft informed the public of this “limited access” plan just one day prior to the posting, and did not specify what time the results would be available. Clearly the company assumed investors would come to it, or perhaps deduce the posting time from past practices.

At LHA our view is different: No company, not even Microsoft, should take for granted the attention of the investment community and cut corners on full and disciplined disclosure of material news.

LHA recommends companies regularly evaluate their disclosure practices to ensure internal communications are secure, news is disseminated to the widest audience simultaneously and announcements of material news are made outside live market hours. There is every reason to be diligent and transparent with content and distribution, and a price to pay in terms of reputational and real damage when you are not. We stand ready to ensure your quarterly process has maximum positive impact and runs smoothly.