August 18th, 2009
Prepping for an Earning Call – CFO/CEO must-do’s
Several of the Enterprise Irregulars were floundering around last week trying to make sense of a SaaS vendor’s recent financial results. Several serious rounds of conversations transpired as to how these earnings numbers could be understood but I think we need to start with the process of how execs get prepared for these calls.
Now, I’m not saying how I got a hold of this confidential transcript between a SaaS CEO and CFO but read and learn:
CEO: “Okay team, how’d we do this quarter?”
CFO: “We didn’t manage earnings so we’re going to have to really manage this earnings call”
CEO: “Like what?”
CFO: “Well, to start with, we blew our revenue targets. So - on the call - you’ll need to describe revenues as ‘bookings’ not ‘earnings’. Got it?!!
CEO: “Yeah, I think I got that”
CFO: “Oh, and when you talk about our pipeline make sure you say ‘we’re in discussions with a major industrial firm’ for a seven figure deal”
CEO: “We are?”
CFO: “Sure, we are – if you count the two digits behind the decimal point as part of the seven figures”
CEO: “What else do I need to be careful about?”
CFO: “Well, let’s see. Oh – be sure to say everything we’re covering is non-GAAP. That way no one can ding us”
CEO: “Gotcha!”
CFO: “Oh – be sure to mix Cash with Accrual numbers during your part of the call. I’ve identified the best bits in each set of books. Use the numbers I highlighted in yellow for you. That way, no one can tic & tie our numbers and it’ll take half of the next quarter before they figure out what’s actually going on”
CEO: “So, let me try this out. (ahem) ‘Thank you everyone for attending our 16th quarterly earning call. We’ve got some (pick one: outstanding, superb, challenging, unexpected, positive, market-beating) numbers to share with you today. First, I’d like to say that revenues, oops, I mean bookings, are ten times last quarter’s revenues on a pre-GAAP accrual basis”
CFO: “You’re doing great boss, keep going!”
CEO: “And, if that wasn’t good enough, we’re in discussions to potentially close what may someday become a seven-figure deal for our firm. Of course, we can’t release details on this pending transaction just yet.”
CFO: “Keep going boss, you’re on a roll!”
CEO: “Just a glance at our highly transparent, straightforward and solid revenue numbers show, we’re booking an exceptional number of deals in spite of this recession”.
CFO: “Amen, boss!”
CEO: “Now, let’s look at our operating expenses. On an accrual vs. cash basis, we’re actually 200 basis points lower than our pro forma internal plan and 320 basis points higher than the Street’s original consensus estimate. However, that estimate was based on a number of IFRS interpretations that we’ve yet to rationalize in our own books at this time. Nonetheless, when compared to our anticipated subscription revenue growth rate, as we’ve trended against current period bookings, you can clearly see our cost structure is in-line or better than plan.”
CFO: “You’re on fire, boss. Even I couldn’t follow that bit of obfuscation!”
CEO: “Now, our competitors are still selling on-premise products and you can see that their new product license revenues are stagnating. Our superior SaaS model makes these comparisons irrelevant as we’ve created variable terms, variable length contracts and other contracting nuances that do not permit these unfavorable comparisons to on-premise firms. We do not provide guidance as to renewal rates, average backlog, average deal size, etc. as these are artifacts of an older way of selling and servicing software. We refuse to be shackled with the accounting artifacts of an older software generation!
We, instead, use a more relevant if a bit more complex method of accounting that mixes Cash, Accrual, GAAP, non-GAAP, IFRS, pro forma, budget, actual and other methods to create what we call ‘excitement accounting’. We believe this style of financial reporting puts the zing in the earnings calls that SaaS vendors deserve. Leave the old, stodgy accounting for the old, stodgy ERP firms. We’re new, we’re different and we’re on fire!”
CFO: “uh, boss, I don’t think you can say that. It may be what we’re doing but you can’t say it publicly”
CEO: “Yeah, you’re right. We can’t say this on this earnings call – but let’s re-visit that next quarter”
Heard some ‘excitement accounting’ lately? Drop me a line and share your favorite spin phrase or technique!
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
Subscribe to Software & Services Safari via Email alerts or RSS.
