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Confronting the Quarterly Quiet Period Dilemma

By Jim Buckley

One of the investor relations issues that companies often struggle with is the “quiet period.” Here I’m not talking about the SEC mandated quiet period related to IPOs, other public offerings or around the release of lock-up agreements. Those all have defined legal parameters and lines drawn around what companies can and can’t do. I’m referring to the quarterly quiet period – where individual companies determine if, when and how they want to stop talking to the investment community as they approach the end of the quarter.

The quarterly quiet period is one of those gray areas that investor relations is famous for, and there is certainly no one-size-fits-all approach for companies. The fundamental principle behind the quarterly quiet period (or QQP) is straightforward. At some point around quarter end, management has knowledge of the company’s quarterly performance. So investors start calling in the last two weeks of every quarter and asking “How are things going?” They want to get a read on upcoming results through tone and demeanor. As a result, over time, companies began to institute a quiet period with the Street to avoid taking these calls. Makes sense, right? But how does each company handle its QQP? That’s where things start to get a little fuzzy.

Companies have adopted different QQP approaches because there are no legal mandates. First off, when does it start? Some companies – particularly in the technology space – opted for QQPs to commence two weeks before the quarter ends. The thinking behind this is that they tend to have a hockey stick revenue model where sales are heavily weighted to the end of quarter. Some will say it starts in the last month of the quarter and some at quarter end when their books are finally closed. Others have no clear delineations on timing – it really depends on when management has a good sense of the quarter. For every company that has a QQP, it runs until financial results are finally announced. Practically speaking though, that means some companies may technically be in a quiet period as much as seven weeks or more every quarter, which is cumbersome and can hinder open communications with the Street. That means more than half of the year they can’t talk to investors!

The next big question is what does a QQP mean to an individual company? Again, it’s a potpourri of answers. For some companies, it means full radio silence – no conferences, meetings or investor phone calls during that period. The problem with this communications shutdown approach – particularly with small, underfollowed companies – is that it doesn’t curry you any favor with the Street and clearly inhibits your visibility.

That is ultimately why many companies adopt a more flexible approach to the QQP. Some will agree to go to conferences, but not attend one-on-one meetings. Some companies will pre-release quarterly results or confirm/update guidance in conjunction with their conference participation. This is a sensible approach that we often recommend. Other companies will restrict certain members of management during the QQP – particularly those that cannot keep a poker face. Other companies will lay down ground rules at the start of any one-on-ones or phone calls during the QQP that the discussion of the quarter is off limits and they will not address anything related to it.

However, that is the challenge of even talking during the QQP. Members of Wall Street don’t necessarily need to ask you about the quarter to quickly decipher how it went, particularly if they are in the same room as you. As my colleague David Calusdian wrote about in a previous Podium post, the Street is being trained by former CIA and FBI agents to read body language and detect discomfort/insecurity even when no answer is given. It’s only natural to be less enthusiastic about your company when you’re preparing to announce a lousy or even a lukewarm quarter. Conversely, it’s hard to not to be brimming with confidence when you have a homerun quarter waiting in the wings to be announced.

Wall Street knows this. Why do you think so many of the sell-side firms insist on scheduling their conferences during a time when many companies are in their QQP? They know information will be more current and buy-side interest for attending those conferences will be higher. Along the same lines, why else would some of your shareholders or prospective investors just happen to be coming to your city right around or just after quarter end? They promise upfront not to even ask about the quarter, because they know they don’t need to. Those last minute “love to drop by” visits just happen to cluster around quarter end. Coincidence? I think not.

So what’s a company to do? There’s no simple answer. Ultimately, you have to strike a balance between avoiding selective disclosure and maintaining your Street relationships. Whatever you decide – radio silence, some hybrid form of that or no official QQP at all – it’s important to be consistent. Don’t say you have a formal QQP policy one quarter and then appear at a conference or take calls the next. Wall Street takes note of these inconsistencies. Also, you shouldn’t turn down one investor because “we’re in our quiet period” and then accept a meeting with a top five holder because you want to keep them happy. If you are consistent, over time your analysts and investors will know what to expect rather than looking for erratic or inconsistent behavior, which provides clues about your quarterly performance. Consistency helps you stay in compliance with securities regulations and equally as important, can lower your stress level around quarterly time. What CFO doesn’t want that?

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