Oftentimes, conference call analyst participants tend to hold back on asking more obvious straightforward in-your-face type questions. They instead avoid them for fear of breaking decorum and instead dive into minute details. But it doesn’t happen that way all the time, and perhaps Wall Street needs more female analysts who will cut through the nonsense.
Case in point, a small up-and-coming technology company with a specific focus on mobile communications software, Smith Micro Software, Inc [NASDAQ:SMSI].
Lauren Ye, a sell-side analyst at JP Morgan, couldn’t help herself but to ask a simple obvious question on why the company did not raise full year revenue guidance even though they beat all analyst earnings and revenue expectations for the quarter:
My next [question] is just around guidance. So, Q1 you exceeded, it sounds like your internal expectations. I know you are reiterating guidance. I just want to make sure is this a function of you just trying to stick to the plan and you wanted to give new guidance at the midpoint of the year, or is there some business-oriented change that might have required you to move some revenue forward, I guess?
Bill Smith, the co-founder and CEO whose name the company retains, responded by suggesting that their guidance wasn’t all that dependable:
[T]he key point is that we said we would review it at the midpoint of the year. We tend to be a little conservative at times and don't want to get in front of the market. Obviously we're pretty excited about getting off to such a strong start, and we'll see where we are at the end of Q2, and we'll speak to that question then.
She continues to persist:
But there isn't anything business-wise where you are a little softer in the back half?
Bill Smith: No, no. …kind of your questions are, do we expect anything bad given we had such a good Q1? The answer is no. But in the same regard, we want to keep people grounded.
Later, he summarizes his remarks to her:
We are very confident with the guidance we provided at the start of the year. We have reiterated it a number of times. We'll review it at the mid-year, and we'll take it from there.
Her simple question managed to retrieve for herself and investors some crucial information: that the company had not even reviewed guidance despite reiterating it. That information managed to tell me (and I would expect many others) that the company’s value is worth more than how I would have valued it given just the available information in the company’s press release. In asking a bold question and receiving a blunt answer from management, conference call listeners wasted no time listening in. They learned that the company is behaving in a conservative manner when it comes to guidance and now seems to intend on beating the guidance that they reiterated in the next quarter, when it will be formally reviewed.
As an investor who is often critical of company managements and their analysts, Lauren Ye of JP Morgan and Bill Smith, CEO of Smith Micro, earn my respect today for this frank exchange.
Disclosure: author holds shares of Smith Micro Software, Inc.
