The BestCalls.com Conference Call Glossary of Terms

Smart investors attend conference calls. But even if you've been investing for years, you may not recognize all the terms, jargon and acronyms bandied about in conference calls and press releases. This glossary will help you get up to speed ASAP.

Annual report - Following the conclusion of each fiscal year, most publicly held companies issue an annual report, which may be as simple as a 10K with a cover to something as fancy as a four color high quality bound book. While the annual report contains a lot of useful information, be aware that the information is nearly always at least 5 months old, since most annual reports are not published until about 5 months after the close of the company's fiscal year. Therefore, if you want to stay abreast of the latest earnings news, read the press releases.

Cash and cash equivalents - This term can be found on the balance sheet, and represents the total amount of cash, plus short term investments that will be converted to cash within three months.

Conference call - A conference call, sometimes referred to as an "earnings conference call," a "quarterly conference call," or an "analyst call," is an event in which investors can call into a special phone number and hear the management of their company comment on the financial results of the recently completed quarter. Most publicly held companies hold four conference calls per year. Many companies are beginning to offer audiocasts of their calls over the Internet.

In the past, these calls were only made available to Wall Street analysts and large institutional investors, but now, more and more companies are actively encouraging participation from individual investors.

Conference calls offer investors a valuable sources of information about a company. During the calls, management will speak about the results of the just-completed quarter, comment on notable corporate developments, and provide insight into the future prospects of the company.

Most conference calls follow a fairly predictable flow. The calls usually starts with the company welcoming participants to the call, followed by a discussion of the business by both the CFO and CEO. Following management's discussion of the business, the call is opened up to questions from the audience.

The question and answer session of the call is often the most revealing. Analysts and institutional investors are usually allowed to ask questions first, followed by questions from other participants such as individual investors. Be advised, however, that not all companies allow individual investors to ask questions. One reason for this policy is that there simply isn't enough time to answer hundreds of questions. But if you're an individual investor, don't be discouraged. If you listen carefully to the answers to the questions that are asked by analysts and institutional investors, your question will probably be answered.

Conference calls usually occur two to five weeks following the completion of a quarter. To receive information on upcoming calls, be sure to create a BestCalls conference call tracking portfolio, called CallTracker. Once you tell CallTracker which calls you want to attend, CallTracker will automatically email you as soon as it knows when an call is scheduled. As a BestCalls member, you can also share conference call schedules with fellow investors simply by entering the information into the BestCalls database.

BestCalls offers the Internet's most complete directory of conference calls, largely thanks to the volunteer efforts of it members.

Earnings - Earnings, also commonly referred to as "net income," measure the profits of the company. Earnings equal revenues (also commonly referred to as sales), minus all the expenses of the company. Also see Earnings per Share.

Earnings per share - Earnings per share, also commonly abbreviated as "EPS," is one of the most closely watched metrics of any company's performance. EPS is computed by dividing earnings, often called net income, by the total number of Shares Outstanding. If you own one share of stock, then EPS represents your theoretical share of the company's profits. A new term that has appeared recently is called "Diluted Earnings per Share," which measures the earnings per share assuming full dilution caused by unexercised stock options. An EPS number by itself means relatively little. The figure has its most meaning when used to compute other important metrics such as EPS Growth and Price/Earnings Ratio.

EPS Growth - The most important long term determinant of stock price appreciation is EPS growth. During a conference call, or within an earnings press release, the management of the company will note EPS and its relative growth or decline. There are two EPS growth metrics to monitor:

One is year-over-year growth, such as EPS for the first quarter of 1999 compared to EPS for the same period one year ago (the first quarter of 1998). To compute the growth rate, subtract the previous EPS from the most recent EPS, then divide that sum by the previous EPS. A number of .31, for example, implies a growth rate of 31 percent.

The second EPS metric to monitor is sequential EPS growth. Sequential growth (or decline) represents the change from one quarter to the next, such as the second quarter of 1999 compared to the first quarter of 1999. Sequential growth can be an important metric because it provides a short term indication as to whether or not the company is growing. But be careful! A sequential decline may not be as negative as it might seem. Many companies, especially retailers, have seasonal fluctuations in earnings which could cause one quarter's earnings to be lower than the previous quarter. Earnings during the fourth quarter, for example, which is the Christmas season, are usually higher than the following quarter.

To fully grasp the importance of year-over-year and sequential growth rates, you'll want to analyze the historical trends of the company, and this information can be found in annual reports, 10Ks and 10Qs.

Full Service Broker - Full service brokers, such as Merrill Lynch, employ teams of analysts who conduct original investment research and make buy and sell recommendations. As a customer of a full service brokerage firm, you will often be notified of these recommendations by your personal stock broker. If you don't want access to the broad range of services provided by a full service brokerage firm, you'll probably want to consider the services of a online broker, commonly referred to as a "discount broker."

Hockey Stick - If company management says their quarterly revenues usually come in like a hockey stick, they mean that they book most of their revenues in the final days of each quarter. Hockey stick quarters are fairly typical for most companies, because corporate sales forces are often given incentives to achieve sales quotas before the end of each quarter. Their customers, who know that the sales people need to "make their numbers for the quarter," will often postpone purchases until the last minute as a negotion ploy so that they can get the best possible price. The downside of a hocky stick quarter is that it increases the chances that a big order slips a few days and doesn't get booked in the current quarter, possibly causing revenues and earnings to come in below expectations. If your company missed earnings expectations, listen to see if it was because one big order slipped into the next quarter. If that's the case, then the earnings miss may not be all that important.

Individual Investor - Individual investors, often called "retail investors" are individuals who buy and sell stocks for their own personal portfolio. Individual investors may trade stocks with a full-service broker or an online broker. Individual investors hold hundreds of billions of dollars worth of stock.

Over the last few years, Individual investors have become one of the most important forces in the stock market. With the advent of the Internet and online financial information services such as BestCalls.com, the Motley Fool and others, individual investors have been empowered with information that helps them conduct their own investment research and make their own investment decisions.

Lumpy - If a CEO says revenues or orders were "lumpy," it means sales were uneven during the quarter, marked potentially by weeks of low order rates and days of high order rates. Listen to learn why sales were lumpy. Is this normal for the company, or is some new happening?

Net Income - See Earnings.

Online broker - Commonly referred to as a "discount broker," online brokers allow you to place your own buy and sell trades. Although most discount brokers don't conduct proprietary stock research, many do offer their customers access to research reports from the full service firms, as well as a wealth of other free information which can assist in your investment decision making process.

Unlike full service brokers, it's against the policy of online brokers for them to make investment recommendations, which is fine if you want to make your own decisions. Online brokers also offer dramatically lower fees to buy and sell stock, usually between $5.00 and $30.00 for the average trade.

There are dozens of online brokers, although some of the better know firms include Charles Schwab, ETRADE, and Datek. For a large list of online brokers, vist the BestCalls Portal.

Open Conference Call Movement - BestCalls helped launch the open conference call movement in early 1999. The movement, which gained the support of thousands of investors and media, raised public awareness about the problem of closed conference calls and helped shine a bright light on the widespread problem of selective disclosure. The open conference call movement was one of many catalysts that fueled support for the SEC's Regulation FD.

Press release - Most companies issue a press release immediately prior to the start of the conference call. If it's an earnings press release, the release will discuss the financial results of the company for the recently completed quarter and may provide additional comment by management. Remember that press releases are written by the companies, and not by a reporter. Often, as you search online news databases, it may be difficult to distinguish between a press release and a news story written by a journalist. The best way to distinguish the two is by looking closely at the first couple words of the story, which is where the source of the story is usually identified. If the source is identified as "BusinessWire" or "PR Newswire" then it is a press release issued by a company.

Press releases often list valuable contact information that can assist you in your research, such as the company's web address. Many companies have investor relations sections on their web sites, where you can access press releases, annual reports and other investor information.

Many press releases also list public relations and investor relations contacts at the company. If given the choice, always contact the investor relations people first, since their job is to work with investors. Public relations contacts, despite the word "public" in their name, are usually responsible for working only with the media.

Tip: Just because a press release mentions your company does not mean the release was issued by your company. Sometimes, the press release may be written by a competitor or some other organization that has a relationship with your company. To learn which company issued the press release, read the first paragraph, or, go the bottom of the press release, which is where the source of the press release is usually identified.

Regulation FD - Regulation FD, or "Regulation Fair Disclosure," was first implemented by the Securities and Exchange Commision (SEC) in October 2000. Regulation FD mandates that all publicly traded companies disclose material, market-moving information to all investors at the same time. Regulation FD is arguably one of the most significant regulations ever implemented by the SEC.

Run-rate - Run-rate is a term used to describe how financial performance would look if you were to extrapolate current performance out over a certain period of time. Run-rate helps put the company's current performance in perspective. For example, if a company just announced quarterly revenues of $250 million, a CEO might say "This quarter's revenues put us at a billion dollar run-rate." In other words, it's like saying, "If we were to perform at this level for 12 months straight, we'd have annual revenues of $1 billion." Think about your car's speedometer. If you're going 60 miles per hour, you know you'll travel 60 miles in one hour. So 60 mph is your run-rate. So a run-rate can sometimes tell you how fast a company's engines are revving. Keep in mind, however, that run-rate only provides a snapshot at one point in time. Run-rate analysis is most meaningful for companies that are not severely affected by seasonal factors. For example, if a retailer books 80% of its annual revenues in the fourth quarter because of Christmas, a run-rate analysis of the fourth quarter's performance would not be meaningful. The run-rate term is commonly used by growth companies to convey the significance of their growth.

Selective Disclosure - Selective disclosure, which is illegal, occurs whenever a public company deliberately or accidently discloses material, market moving information to a select individual or group of individuals (often analysts or institutional investors), who then profit from that information before the rest of the public. Regulation FD (see definition above) has dramatically reduced the occurance of selective disclosure by providing public companies clear guidelines on how best to manage their investor communications.

Stock options - During conference calls, you will sometimes hear management speak about earnings per share dilution caused by stock options. Stock options are issued by companies to their employees as an added compensation incentive. When these options are exercised, or purchased, they increase the number of shares outstanding, which serves to decrease the earnings per share. Stock options are the primary factor that cause Earnings per Share to differ from Diluted Earnings Per Share.

Wall Street analysts - There are two types of Wall Street analysts, usually referred to as "buy-side" and "sell-side." Buy Side analysts are those that manage large institutional portfolios, such as pension funds and mutual funds. The "Buy" in their name refers to the fact that they are responsible for managing the stock holdings of their fund.

Sell-side analysts are the analysts that issue "analyst reports" on public companies. As part of these analyst reports, they often issue earnings forecasts and stock recommendations. The "Sell" in their names refers to the fact that their organizations often employ teams of stockbrokers, who will often call their clients and try to sell stock based upon the recommendations of their analysts.

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