Earnings Calls - Customer Intelligence Overview

Ever wonder how the finance laden jargon in your vendors earnings calls to investors impact you?  Not only should you be interested, but you should use that information to your organizations advantage.  Here is an high level overview of sections and terms to watch for and guidance on each to leverage the information in your own organization.

• New bookings - This is usually at the front end of the conference call and gives you a strong indication of sales.  Keep in mind that this may not be new customer sales, but just a generalized term about new contracts.  Public companies want to exceed their bookings projections so they attempt to cram sales into the end of quarters - this is sometimes where the best negotiating time is for you as a customer.  Know when your vendors end of quarter is and use that to your advantage.

• Backlog - The company will usually report what their work backlog stands after new bookings.  Backlog is work that the company is generally obligated to complete that will bring future payments from customers.  From an investor standpoint a larger backlog the better as it shows future profit potential.  The key for customers is to know how the backlog has changed recently.  I larger backlog means that there is a lot of work in the hopper that will compete for what you are trying to get the vendor to complete.  As an example, the backlog of EHR vendors right now is very high due to Meaningful Use work.  While you are negotiating for new products, talk opening about the vendor's backlog number and how this will impact your project.  Tie key milestones to payment terms to ensure the vendor doesn't get paid until the key work is complete and accepted.

• Revenue - I'm rarely interested in the overall revenue direction, but very interested in the breakout of revenue.  If the vendor is making a substantial portion of new revenue on support instead of new system sales you might assume that they are finding ways to squeeze more support dollars from customers to make up revenue shortfalls.  You can also get directional understanding of where your vendor is focusing its future.  Are they selling new systems, which means they are adding more customers to the support pot?  Are they ramping up staffing if the sales of new systems are significantly increasing?  Stay in front of support problems by talking with the vendor early about support expectations in the future quarter if you see a large increase in system sales.

• Various detail around revenue from the CFO - You can always pick up nuggets about what product lines are selling (or not), and if the vendors margin is increasing substantially which could mean they are increasing cost to the customer while controlling expenses themselves.  Listen carefully for things that give you guidance on the products you already use or are thinking about purchasing.

• Sales guidance - Many times the Chief of Sales or the CEO will update investors about the landscape of sales and projections.  It frequently amazes me how much information is buried in these sections of the calls.  You can hear about other customers, sometimes named, that have signed up for the vendors newest products or about product categories the vendor believes will sell well in the future.  The vendor also likes to highlight "the big fish" that they landed this sales cycle.  This can help you identify if you are on the leading edge of new products, where the focus might be for their best talent (focusing on the "big fish",  and if your sales person is trying to oversell what the organization needs to push for its next investor call.

• Operations Guidance - The Chief Operating Officer usually talks about various operations within the business. The most interesting portion of this section relates to employees.  Additional hirings or reductions are highlighted and any concerns are outlined.  This can give you advance warning if there will be a talent shortage.  Large backlogs, new system sales and zero or negative employee growth is a receive for a happy investor, but an unhappy customer.  You can also get a sense for any new product direction or diversion with the COO comments.

• Q&A - This is the time when investors get to ask management the tough questions.  Many questions relate to guidance on various revenue issues, but within these you can get additional nuggets of information.  They might divulge guidance on the capital expenditure and research and development that could give you an indication if they are going to drive new product or product refreshes.

So don't miss an opportunity to gain fruitful intelligence on your vendors.  Finally, you don't have to listen to the call as you can find transcripts of the earnings calls online for free. 

Happy listening!