Behind the Scenes of Quarterly Earnings Releases

When companies gear up to release their quarterly earnings, they delve deep into analyzing their competitors’ statements, the inquiries posed by analysts, and the overall market sentiment. This meticulous process involves collaboration between investor relations teams, consultants, the CFO, and even the CEO. Tasks entail crafting press releases, regulatory filings, slide presentations, recording management’s comments for earnings calls, and managing live analyst queries during these crucial events. As noted by Nick Mazing, director of research at AlphaSense, an earnings release is likened to the "Super Bowl" for corporate investor relations.

Mistakes in Earnings Reports

Despite rigorous preparations, errors can still slip through the cracks for companies and financial media alike. Over the last couple of years, there have been approximately 150 corrections issued for corporate earnings press releases, as per AlphaSense's analysis. These blunders vary from misprinting the dial-in number for earnings calls to inaccuracies triggering fluctuations in stock prices.

Fluctuations in Error Rates

Mazing highlighted that the frequency of mistakes has ebbed and flowed throughout recent quarters, showing no clear trend upwards or downwards. However, he emphasized that it is not unusual to issue corrections for earnings press releases, with incidents occurring more than once per week.

Trends in Late Filings

AlphaSense's data also highlighted a rise in the number of billion-dollar companies notifying regulators about delays in filing their annual reports. This year, 16 such companies have reported delays compared to nine from the previous year. Mazing indicated that there is no specific cause identified for this uptick.

Lyft's Error

In a recent instance with Lyft Inc., an error originated from a typographical error in a projected figure for adjusted EBITDA margin (earnings before interest, taxes, depreciation, and amortization).

Earnings Release Errors Shake Market Confidence

Shares of the ride-hailing platform, for one reason or another, shot more than 60% higher after hours, before paring gains. Lyft later corrected the error on its earnings call, earnings release and in a filing.

Rise of Earnings Release Errors

Since then, Mazing said, other companies have had also had errors in earnings releases. AlphaSense’s analysis, he said, was based on a search of its own database for the phrases “correcting and replacing,” “corrects and replaces,” or the word “correction” with spaces between the letters.

Correction Stories

Fitness-center chain Planet Fitness Inc. corrected a release to say it expected a full-year same-store sales gain “in the 5% to 6% percentage range.” Electric-truck maker Rivian Inc. had to change a release regarding deliveries. The car-wash chain Mister Car Wash Inc. adjusted its full-year same-store sales outlook.

Lessons Learned

As with Lyft, all three of those companies attributed the mistakes to “clerical error.” This situation raises questions about the use of jargon in earnings releases and the impact on different types of investors.

Legal Implications

While errors might frustrate investors, legally there might be little they can do if companies promptly correct minor mistakes.

"The reality is that people make mistakes, and mistakes are not securities fraud," noted Brad Foster, a securities litigation partner at the law firm Haynes Boone.