By Will Dyke, Senior Associate
An often overlooked but crucially important piece of a company’s investor relations program is the quarterly quiet period. This is not the same as the SEC-mandated “quiet period” for IPOs, which lasts from the initial S-1 filing to 40 days after listing (although the language is admittedly similar). Nor is it the “trading blackout” period prior to the disclosure of material news, such as quarterly results or an acquisition. Rather, it refers to the period leading up to the filing of a company’s quarterly earnings results, during which company spokespeople will pull back from communicating with Wall Street in various ways.
The fundamental principle behind the quarterly quiet period (or “QQP” for brevity) is straightforward. At some point around quarter end, management most likely has a higher level of knowledge of the company’s quarterly performance. So, during this period, those who could benefit from an inside lane begin to call on management to “check in.” They are eager for verbal slip ups as well as more subtle tells in mannerisms, tone, and body language – anything for an edge. In response to these tactics, public company IR teams commonly institute periods of restrictive communications policies to protect against the inadvertent disclosure of Material Nonpublic Information (MNPI).
Instituting a QQP can not only reinforce your Regulation FD compliance, but also help to signal management’s capital markets sophistication and support the construction of your broader IR calendar. As strategic advisors, we frequently counsel clients on how to think about and implement their disclosure practices. Like most IR policies, there is not a “one-size-fits-all” approach. The following 6-step framework outlines the key details to consider when planning your quarterly quiet period.
1. Educate your team on the importance of MNPI and Reg FD
Prior to developing a QQP, make sure everyone who will be speaking to Wall Street has a base level understanding of MNPI and Reg FD. The legal stakes around these issues are quite high, so it’s prudent to make sure everyone is informed on these topics. Of course, the degree to which you will need to spend time on disclosure education will vary by team.
2. Understand when you will know numbers and results.
From a practical standpoint, the length and timing of your QQP will depend on when your finance and accounting departments come to a solid understanding of quarterly results. Relatedly, your executive team members will often have knowledge of results earlier than these departments due to their proximity to material issues.
In general, the timing of earnings knowledge at both levels is driven by your business profile, which is made up of such factors as industry type as well as company size, growth stage, and more. For example, those with recurring revenue or in the growth-stage tech category will often have a solid grasp of results 1-2 weeks prior to quarter end, while others require more time to get their accounts in order and won’t know their results until 2-3 weeks into the new quarter.
3. Determine length and scope of your QQP.
After you understand your internal processes, your next step will be to determine the length and scope of your QQP. Most companies traditionally have enforced a quiet period that begins about two weeks prior to the end of the quarter. Nonetheless, progressive IR programs are increasingly taking a nuanced approach, segmenting their QQPs and utilizing proven tactics to avoid remaining completely silent.
Part of this process involves looking at the bigger picture. Are you a small cap vying for attention with eyes to grow your overall valuation? Are you a stable, dividend paying value play? These factors, along with other considerations, such as the current market cycle, your “sizzle factor” in attracting Street interest, and your IR goals, will influence just how much or how little you restrict communications with Wall Street. It also often helps to speak with qualified outside IR counsel for additional perspective.
4. Implement a hybrid approach.
Today, we generally recommend companies aim to strike a balance, as complete radio silence can be overly conservative and cause you to miss out on real IR opportunities. At the extreme, a company that reports earnings six weeks into the quarter and stops communicating with investors two weeks prior to quarter end is effectively only speaking with Wall Street one month per quarter, or four months per year! This is exacerbated during the fourth quarter earnings cycle, when a company could be in a quiet period for nearly three months. Hardly ideal for those looking to build relationships, drive the investment narrative and shore up their valuation.
Before we provide some examples of what a hybrid approach can look like, it’s important to recall that anything you do must be within the confines of Reg FD. While a complete run through of the topic is beyond this article’s scope, Reg FD dictates that Street-facing personnel should always make it clear that they will not take questions on the status of their non-disclosed results nor any other content that could be considered MNPI. If you are uncertain of any of these practices, it’s always prudent to speak with your legal and investor relations counsel.
With that reminder, the following are some effective practices we have seen companies utilize for a hybrid QQP approach.
- Bar spokespeople or executives with less Wall Street experience from interacting with investors while allowing those with more experience to remain on the IR offensive.
- Be open to presenting at an investor conference during your QQP. Consider the following options.
- Enable a high-level conversation by preannouncing select quarterly results (e.g., revenue, EBITDA, net income) prior to presenting.
- Present at the conference but do not take any individual meetings.
- For presentation Q&A and fireside chats, make sure to share the parameters of the discussion with sell-side analysts prior to the event. Obtain a question list if possible.
- Provide investors with “off-limits” topics prior to individual meetings.
- Restrict meetings to reviews of investor decks only.
We are increasingly seeing forward-thinking IR groups utilize some combination of these factors in their QQPs. For many management teams new to the capital markets, it makes sense to start off conservative and to slowly weave in more advanced strategies.
5. Disseminate your approved QQP.
Once you have done your research and formulated a QQP policy, make sure you take the time to adequately communicate it to all Street-facing team members. Typically, this requires sign off from the CFO and in-house legal counsel, as these individuals have the most knowledge on what is and is not feasible.
6. Aim for consistency.
Consistency is a core feature of strong QQP policies. This not only relates to minimizing changes to the policy on a quarterly basis (although you will certainly need to adapt it as your company evolves) but also in the actions of your Street-facing personnel.
The last thing you want is to have your CFO and CTO pushing off meetings until after you report results, only to have your CEO schedule a coffee with one of your largest shareholders. If word gets out that you are selectively applying a QQP to some investors and not others, your reputation with the investment community will be shot. Not to mention the significant legal liability you will be exposing yourself too.
Score points, stay in compliance, and lower your stress
In the end, building the optimal QQP requires time, consideration, and an understanding of the capital markets landscape. We believe it is generally in a company’s best interest to opt for a blended approach to avoid selective disclosure while also maintaining Street relationships. Investors today know and expect the “rules of the road.” They may push back, but as long as the company is consistent and all investors get the same treatment, they will respect your position.
Is your quarterly quiet period aligned with your broader IR goals and objectives? Are your communications programs suffering from a lack of capital markets expertise? Sharon Merrill has been a trusted adviser for public companies in investor relations for more than 35 years. Reach out today for more information.