Every public company must decide whether and to what extent to give the market guidance about future operating results. Questions from the buy side will begin at the IPO road show and will likely continue on every quarterly earnings call and at investor meetings and conferences between earnings calls. The decision whether to give guidance and how much guidance to give is an intensely individual one.
Every public company giving guidance should keep the following 10 considerations in mind to avoid making mistakes that can have significant economic consequences under the federal securities laws and in the financial markets.
- Designate a limited number of company personnel to communicate with analysts and investors about future plans and prospects.
- Adopt an appropriate guidance policy early and follow it.
- Do not rely on boilerplate. Explain the assumptions underlying each forward-looking statement and disclose the risks that may cause anticipated results not to be realized — the cautionary statements should be tailored to fit the guidance.
- Have prepared remarks reviewed by counsel and stick to the script.
- Remember Regulation FD: Disclose guidance and other material information only in an FD-compliant manner.
- Do not be afraid to say “no comment” in response to questions or to deflect uncomfortable questions by restating the company’s guidance policy.
- Do not comment on or redistribute analysts’ reports, and only review advance copies of analysts’ reports for factual errors.
- Remember Regulation G: Include appropriate disclosure for non-GAAP financial measures where required.
- Continually evaluate whether changed circumstances argue in favor of an update of prior disclosures.
- Be particularly sensitive to Rules 1 through 9 in the context of an intervening event between quarterly earnings releases and calls such as an offering of securities, share repurchase program or acquisition, or when insiders are buying or selling company securities.
For More Information About Giving Good Guidance
Download and read “Giving Good Guidance: What Every Public Company Should Know” by Latham & Watkins’ Nathan Ajiashvili, Alexander Cohen, Kirk Davenport, Jeff Hammel, Steven Stokdyk and Joel Trotter.