Taking the Long View

Jim Hansen

› Chairman and CEO
› Ciprico, Inc., Plymouth
› Digital-media storage systems
› Nasdaq: CPCI
› Market Capitalization*: $30.9 million

››› We stopped providing guidance last year because of the volatility involved in being a small public company. It’s too difficult to do. Instead, we focus the discussion on strategy and what benchmarks to look for as we make progress toward executing our strategy. There was a short-term drop in the price of our stock and increased volatility when we took this action that lasted for about six months. However, the stock has recovered even though our financial results have not changed that much. Investors have begun to focus on the long-term value of the company.

Anonymous

Local Hedge Fund Manager

››› I am on the side of ‘less is more.’ I think companies should put out enough information to help investors value the stock, which includes long-term targets for growth, margins, capital expenditures, et cetera, and any material financial changes this year from last . . . . If a company wants to put out detailed projections, more power to them, but we all know the amount of ‘visibility’ the typical CEO has on their business.

Bob Kleiber

› Vice President of Investor Relations
› Digital River, Inc., Eden Prairie
› E-commerce outsourcing 
› Nasdaq: DRIV
› Market Capitalization: $1.6 billion

››› It’s an admirable objective [to move away from quarterly earnings estimates], but without guidance, analysts are free to run wild. It puts a fence around estimates and serves your constituents well to do it.   ››› You are thinking about your investors here. Analysts with estimates out of range create a problem and more volatility.  Sound-bite focus on the estimates has been created, and we have to live with it . . . . However, idealistically, only giving annual guidance would be the best thing to do, as it would allow management more flexibility.

Phil Ankeny

› Senior Vice President and CFO
› SurModics, Inc., Eden Prairie
› Surface modification and drug delivery technologies for the health care industry
› Nasdaq: SRDX
› Market capitalization: $729 million

››› Doing away with quarterly earnings guidance is a healthy trend. Increasing assets in the hands of hedge funds has created an unhealthy environment on Wall Street. It has encouraged companies to play the game of earnings management for the short term, which is likely to be inconsistent with making the right long-term decisions for shareholders. SurModics gives no guidance whatsoever. We take an extreme position, because the potential revenue from one of our products [royalties on another company’s sales] can swing revenues and earnings greatly. As such, the board decided to do away with earnings guidance . . . . We will give some dollar-directional comments on expenses.  

››› We get some pushback from analysts and portfolio managers. Some say they cannot own our stock because of lack of visibility, and that’s a risk we have to take. But long-term investors are focused on the business model . . . . As we get bigger, more diversified, and more predictable, maybe we would consider some annual guidance, but that is up to the board . . . . Finally, not giving earnings guidance leads to better work by analysts and better understanding of the business model.