Framing the Quarter: 10 Areas of Interest for the Q2 2023 Earnings Season

Breakwater Strategy is proud to present the second edition of our “Framing the Quarter” earnings guide, crafted to support C-Suite executives and Investor Relations Officers as they navigate the Q2 2023 earnings season.

“Framing the Quarter” covers 10 areas of interest to today’s investors, providing a foundation for effective communications before, during, and after Q2 earnings calls. By preparing for these topics –– and their anticipated areas of interest –– your company’s leaders can demonstrate confidence, adaptability, and resilience. In doing so, your firm will be better positioned to prosper against the test of time.

1. Margin Resiliency: How will the likely increase in interest rates impact margins? How will the company manage its margin resiliency in the face of these changing market conditions? What strategies or measures does the company have in place to protect its margins during periods of economic downturn? What steps does the company take to mitigate margin pressures from factors including critical and raw material fluctuations or supply chain disruptions? 

2. China’s Revised Counter-Espionage Laws: How will China’s revised Counter-Espionage Law, which took effect on July 1st, impact your business? How are you thinking about your current footprint in China? What is the potential impact to your China operations in 2023 and 2024 and impact of financials?

3. Free Cash Flow Impact of Artificial Intelligence: How will your investment in Artificial Intelligence contribute to free cash flow? What is the timeline for implementation and adoption of AI, and when can we expect to see the impact on cash flow? What are the key assumptions or variables that underpin the projected improvement in free cash flow? Once implemented, how does the company plan to capture and protect the value created by the new technology to ensure sustained improvements in free cash flow? What is the expected impact of this new technology on operating costs, working capital and capital expenditures, and how does this contribute to an improvement in free cash flow?

4. Supreme Court Decision on Affirmative Action: How does the recent Supreme Court decision on affirmative action impact the company’s current and future diversity, equity and inclusion initiatives? What steps has the company taken to assess and understand the implications of the Supreme Court decision on its hiring, promotion, and talent acquisition processes? How does the company plan to ensure that its commitment to diversity and inclusion remains strong?

5. Chip Shortage: How has the ongoing global chip shortage affected the company’s ability to source and acquire the necessary components for its products? Can you quantify the financial impact on the company’s operations, such as increased costs, production delays, or lost sales opportunities? How does the shortage impact the company’s supply chain and manufacturing processes? Have there been any disruptions or adjustments made to mitigate that impact? What specific measures has the company taken to manage and navigate the shortage? Are there any alternative sourcing strategies or partnerships in place to secure a reliable supply of chips? How has it impacted the company’s ability to introduce and implement new technologies or innovations?

6. Merger and Acquisition Environment: How would you characterize the mergers and acquisition environment? Now that the M&A environment appears to be loosening, how would you characterize your appetite for new transactions? How has the legal and regulatory environment in the past two years changed the strategic framing of M&A for the company; what are those changes? How are you thinking about the balance of growth between organic and M&A and what are the considerations between these two strategies going forward? How are you thinking about the company’s long-term M&A strategy? How does the company envision M&A contributing to its future growth and value proposition?

7. Inflation: How does the company anticipate that future inflation will impact its cost structure and profitability? Are there any specific input costs or raw materials that are particularly vulnerable to inflationary pressures? How does the company plan to mitigate these cost increases? Can you provide insights into the company’s pricing strategy in light of potential inflationary trends? How does the company plan to balance the need to pass on increased costs to customers while remaining competitive in the market? How does the company evaluate and manage the potential impact of inflation on its supply chain and procurement processes? Does the company have any hedging strategies or financial instruments in place to manage inflation risks, such as derivatives or fixed-price contracts? What impact does the company expect inflation to have on consumer demand for its products or services? Are there any specific market segments or geographies that may be more sensitive to inflationary pressures?

8. Global Sustainability Reporting Standards: How has the company assessed the potential impact of changing global sustainability reporting standards on its business operations? What timeline and associated cost would you estimate with compliance? How does the company incorporate these types of regulatory risks and uncertainties into its strategic planning framework? Are there other types of sustainability standards the company anticipates will shape its approach in the coming years? How is the company positioned to proactively respond to these trends?

9. Global Geopolitical Stability: How does the company assess and monitor the potential impact of global geopolitical instability on its business operations and financial performance? Are there any specific countries or regions where the company operates that are particularly vulnerable today, or strategically, that are particularly vulnerable to geopolitical risks? Can you provide insights into how changing geopolitical dynamics may affect the company’s market access, customer base of expansion plans? What are changes in terms of specific geopolitical risks or events that could significantly impact your financial performance in 2023 and beyond? Are there any specific industries or sectors that the company views as more or less vulnerable to geopolitical instability? How does the company adapt its strategy and resource allocation and sales focus accordingly?

10. Resource Nationalism: How does the company assess and monitor the potential impact of resource nationalism on its business operations and financial performance? Are there any specific regions or countries where the company operates that are particularly susceptible to resource nationalism? How does the company manage these risks? Can you provide insights into any recent instances of resource nationalism that have affected the company’s operations or industry as a whole? What steps has the company taken to diversify its resource base and reduce its dependence on regions or countries with a higher risk of resource nationalism? How does the company engage with local governments, communities, and other stakeholders to navigate the potential risks of resource nationalism and ensure a mutually beneficial relationship? Are there any regulatory or policy factors related to resource nationalism that the company views as potential risks or opportunities?

As investor expectations continue to evolve, Breakwater Strategy equips you with the essential tools to engage in meaningful dialogues and foster trust across the Four Vectors. Reach out to chart your course ahead.