Preparing and presenting an earnings report is sometimes about sleight of hand: Dazzle the audience with magic and hope the rickety props go unnoticed. At one extreme is Bernie Ebbers, who bossed WorldCom to broadband stardom before regulators decided he was not so much a magician as an outright fraudster, and slapped him with a 25-year jail sentence for accounting crimes (he entered the Oakdale Federal Correctional Institution about 12 years ago).
Then you have the showmen undone by their honesty. Outside telecom, Gerald Ratner managed an eponymous, low-cost jeweler that was a feature of nearly every British high street in the 1980s. Seemingly tired of the illusionist's routine, Ratner decided to have a go at blunt, stand-up comedy during a presentation in 1991. "People say 'how can you sell this for such a low price?'" he reportedly chuckled. "I say 'because it's total crap.'" Investors weren't so amused. Ratner was fired after his joke triggered a collapse in the company's share price. (His speech was actually delivered at a conference, but the circumstances were similar to those of an earnings call, with investors and journalists present.)
The vast majority of CEOs inside and outside telecom steer a safer path on the right side of the law. But their investment teams have devised a lexicon of financial terms that operators can pull out of the bag when audited numbers don't add up in the desired fashion. While some of this financial jargon is not exclusive to the telecom industry, it has become so commonplace in telco earnings that it warrants inclusion in this second edition of Light Reading's jargonosaurus. (See Telecom Jargonosaurus Part 1: Repeat Offenders.)
Organic: To the average consumer, organic means fruit and veggies that haven't been doused in Monsanto chemicals before they arrive at the store. To the average C-suite telco executive, it means financials that haven't been exposed to similarly toxic phenomena, like, er, foreign exchange rates, takeover activity, regulation, "one-off" payments for spectrum and other essentials and just about anything else that makes investors gag. Some telcos appear to have enjoyed organic growth for years, even though headline sales always seem to fall.
Adjusted: Don’t like the look of those reported profits? Why not "adjust" them, rave about that tweaked figure in the first few paragraphs of your earnings update and bury the reported number in a table on page ten? The flip side of organic, adjusted has become a dependable means of giving those profitability numbers a shine. It usually appears in front of a profitability measure known as "EBITDA," which already strips out so many confusing items that any further tinkering should remain unfathomable to most casual observers.
Underlying: "He missed a couple of penalties, plus that sitter in front of goal, but his underlying performance was good." Had former Manchester United manager Alex Ferguson uttered those words, supporters would have assumed madness had taken hold. But its telecom equivalent turns up with alarming regularity. Underlying is the mutant love child of organic and adjusted and should have been exterminated at birth. Any telco that says "the underlying performance was good, but the overlying one looks shit" is excused further censure.
Synergies: Jargonosaurus readers may recall that synergies turned up in the inaugural edition as one of the most hideous words in the business vocabulary. Given its pertinence to the financial report, its non-appearance in a follow-up dedicated to earnings jargon would have seemed remiss. As Light Reading previously established, synergies usually translates as cost-cutting, which usually means the unpleasantness of staff layoffs. Sometimes, however, it turns up after revenues, when it generally indicates the sales target for newly merged companies.
Revenue-generating unit (RGU): Beloved of cable and satellite operators, revenue-generating unit sounds like it should be clear enough, and even gets a straightforward description in Investopedia, a handy online guide for, well, investors. "Revenue-generating units (RGUs) are subscribers -- either individuals or businesses -- who pay for monthly services such as mobile phone or cable," said the authors. A customer, in other words? If only it were that simple. Some companies, including one very large cable operator in Europe, use RGU to mean subscription to a specific product, like a TV service. An actual customer, then, could equal several RGUs, and the overall number of households subscribing to services often remains unclear. This is really no different from telcos disclosing details of fixed, broadband, TV and mobile customers, without indicating the overlap between them. But it's annoying, nevertheless.
ABPU: No, you didn't misread the acronym. ABPU, or average billings per user, was conceived by long-haired telco superhero John Legere and his team of Uncarrier avengers at T-Mobile US. It is supposed to provide a better indication of cash collection from subscribers than the more orthodox measure of ARPU (average revenue per user). But deciphering the T-Mobile US Inc. ABPU definition is like trying to figure out a math problem that stumped Einstein: "Average monthly branded postpaid service revenues earned from customers plus monthly equipment installment plan (EIP) billings and lease revenues divided by the average branded postpaid customers during the period, further divided by the number of months in the period." Thanks, John, but we'll stick with ARPU. (See T-Mobile & Sprint: Marriage Made in Hell.)
Earnings reports and jargon I would say that all earnings reports accentuate the positive and obfuscate the negative. My favourite jargon is from a UK retailer that used to talk about investing in gross margin when they actually meant discounting prices.
While we are on the topic I thought it interesting that Trump is advocating 6 monthly reporting instead of 3 monthly. There might be some cost savings and it would free time for management to focus on running the business instead of doing investor roadshows. Not often I agree with Mr Trump.
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