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t has been a tumultuous few years for public companies, with front-and-center challenges including COVID-19, the war in Ukraine, bank implosions, supply chain disruptions, and the threat of a recession, all hitting in


quick succession. As the landscape has shifted, investor relations officers (IROs), company executives, and board members have found themselves flexing new muscles, acting as everything from therapists to experts in supply chain management. Te uncertainty has profoundly impacted one


fundamental responsibility of leaders of public companies: accurate forecasts. In the latter half of the 1990s Congress enacted legislation that protected companies from liability if they made statements about their projected performance. Forecasting and guidance have since become a


mainstay: Te NIRI 2023 Earnings Process Practices Research Report found that 97% of respondents provide guidance, whether it is financial, non-financial, or both. When companies communicate their guidance


parameters and long-term growth prospects, they can benefit from enhanced communication with key stakeholders, lower volatility, and improved liquidity, and they can achieve higher valuations. Yet the landscape has been so volatile in recent


years that many companies have paused or even discontinued their full-year guidance and other financial metrics at some point in the earnings cycle. Dismantling guidance practices, however, doesn’t alleviate the pressure to meet consensus numbers. Public companies are left facing a quandary: Either stick with established guidance practices and risk being wrong (or even very wrong) or lose the confidence of investors by abandoning guidance altogether and risk seeing their stock price impacted by the lack of visibility. In times of shifting visibility, there are a few


strategies you can employ to assist Wall Street with understanding your short- and long-term growth prospects and assist them with modeling.


Be Conservative and Transparent During uncertain times, it is crucial to be prudent with guidance methodologies. For short-term guid-


2 0 S UMMER 2 0 2 3 ■ IR UPDAT E


ance, keep ranges conservative enough to reflect possible headwinds. For example, use a wider range and be transparent about the assumptions and key considerations that may impact the range or guid- ance parameters. During the height of the pandemic, many executive


teams made it clear that hitting the guidance ranges depended on not having another shutdown. Further, many companies noted that the outlook was based on a specific point in time and could deviate materially.


Provide Qualitative Guidance In addition to financial estimates, adding color to guidance and the parameters for the assumptions at that point in time can be incredibly beneficial for key stakeholders. Explaining the factors that underpin figures builds trust and educates investors. No one likes to be surprised. Wall Street tends to be far more forgiving if investors are clear about potential issues on the horizon, such as shipping delays or a shift in large customer order patterns in a particular quarter. Keep this in mind, too: The 2023 NIRI report


found that the largest percentages of non-financial guidance provided were estimates or forecasts of fac- tors that may drive earnings (21%), industry-specific information (20%), and qualitative statements about market conditions (18%). Te majority of those that report non-financial guidance do so on an annual basis, except for when reporting environmental, social and governance (ESG) factors, which is typically done on a longer- term basis (greater than one year).


Take the Long View Quarterly earnings guidance can have intangible benefits and negative unintended consequences when visibility is very low. While it is important to emphasize that you are executing on what you can control, there can be global factors few could anticipate. Terefore, it is imperative companies highlight


what they expect in a “normalized” environment. For example, many companies that had supply chain issues indicated that once the situation stabilized, they could expect a return to a normalized long-term growth rate.


niri.org/ irupdate


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