Mitigating Against the Perils of Typos in Earnings Communications

In financial communications, one errant key stroke can become a major, market-moving gaffe. Take, for example, Lyft’s fourth quarter and full-year 2023 earnings press release issued earlier this month, which included an errant “0” tacked onto the end of its profit margin guidance for 2024.

The ride-share company stated in its earnings release that adjusted EBITDA margin was expected to expand by 500 basis points – reflecting a huge improvement that was quickly picked up by investors and analysts, sending the stock soaring 67% in after-hours trading. The only problem? Margins were expected to grow by 50 basis points – not 500, which put the Lyft leadership team in a precarious position on its investor call.

Shortly after the erroneous release set off frenetic after-hours trading activity, analysts on the call questioned the discrepancy between the press release and management’s prepared commentary and slides, which reflected the correct EBITDA margin metric of 50 basis points.

It quickly became clear the press release was inaccurate, and the stock price began to decline and lose some of its earlier gains. Bloomberg’s Matt Levine reported that, all told, after-hours activity in Lyft’s stock was about triple the volume Lyft sees during a full typical trading day.

While it’s impossible for outsiders to know the genesis of the error, the magnitude of its impact is a cautionary tale that underscores the importance of having a thoughtful and coordinated earnings preparation process. Preparing for earnings can be a Herculean process, and some degree of human error is inevitable. But you can take steps to ensure the occasional nit never sees the light of day.

  • Allow adequate time. Develop a detailed workplan before the quarter ends. Set clear milestones to ensure the team stays on track, and – no matter how early you start the process – be prepared to spend the final lead-up to your announcement double checking that i’s are dotted and t’s are crossed. Realizing that working groups tend to use the full amount of time allotted, some companies call “pencils down” and pre-record their prepared remarks a day or two before the earnings call to instill a sense of discipline on the process. This approach also provides an opportunity to catch – and more importantly – correct mistakes.
  • Delegate clear responsibilities. Establish owners for each set of data and be prescriptive about timing expectations. Develop a workback plan for each deliverable, including the earnings release, slides, management script and Q&A to ensure all materials can benefit from a robust review process. Make clear who “holds the pen” at various stages in the process.
  • Establish a rigorous final review process. Pay close attention to key metrics analysts will be drawn to first, including guidance, revenue and EPS. Be vigilant about any changes late in the process – if someone decides to convert a metric communicated as a percentage into basis points at the last minute, double and triple check the math. Designate proofreading responsibilities – someone with fresh eyes who has not been close to the prep process may be more adept at catching mistakes.
  • Check for consistency across each deliverable. Aligning messaging and metrics in advance is imperative, but quantifiers and metrics often change throughout the drafting and reviewing process. Before publishing the final release, confirm that its content mirrors that of the slide deck and prepared commentary.

Lyft, for its part, did a great job alleviating market concerns and ultimately preserving focus on what had been a very strong quarter, with earnings-per-share surpassing the street’s EPS estimates by 12%. In the end, the stock opened the following day up 23.5% from the prior day’s close. But something tells us the company will be layering in some additional time for proofreading in future quarters…

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