You’ve likely heard the same questions time and time again.

What should we expect for revenues this year? Do you have any earnings projections for the next quarter? What can you deliver out of your backlog in the next six months?

As tempting as it may be to provide guidance to the market, I believe this is a risky proposition for Canadian microcaps. There’s likely limited upside in the short-term to satisfy the needs of investors or traders, but it presents a significant credibility hit if you’re not able to achieve your guidance.

One of the things I constantly remind clients is the pursuit of “under promising and overdelivering”.

I believe that by providing guidance, you create asymmetric downside risk and hinder your ability to build trust with the market and overdeliver on expectations. 

In addition, the ability to forecast and achieve guidance for microcap companies is challenging versus larger and more established largecaps. Even then, many largcaps don’t get it right.

As a result, my recommendation for most clients is to not provide guidance or stop if you already are. 

Here’s why providing guidance is not a good idea…

Most microcaps are emerging growth companies and as such, have much less certainty in their business models and go-to-market plans. While a smaller company profile usually enables more agility, it comes at the cost of stability and more certainty with execution. 

Furthermore, there are a plethora of factors that you as a company don’t control in the overall macroeconomic environment which could influence your execution and results.

Just this year alone, Canadian companies are experiencing unprecedented uncertainties including the threat of U.S. tariffs, proposed reductions in U.S. government spending, and increased geopolitical tensions.

These uncertainties make it difficult to predict what your revenues, margins, and profitability will be in a quarter or year out. The longer the time horizon, the more difficult it becomes to forecast with any level of precision.

When most companies provide guidance, it is usually financial in nature and focused on the next quarter and fiscal year.

Here’s an example of what guidance could look like:

Microcap companies are distinct in that, due to their small public size, they often do not receive coverage from sell-side analysts.

Investors must rely on themselves and the company for information, which drives the demand for a company to provide guidance. You will likely have people constantly asking you for this.

However, I believe that having people focus on the next quarter or year attracts more transient shareholders. These shareholders lack strong conviction, do not hold long-term, and focus on short-term price changes, often trading around quarterly earnings.

As a microcap, you want to build a base of quality shareholders who share similar levels of conviction and concentration that you have as a management team.

This means focusing more on the business fundamentals like strategy, competitive moat, capital allocation, human capital, etc…

Not what the company is expected to deliver in the next quarter…

The most important commodity an issuer has with its investor base is trust.

Investors trust a company that can deliver on what it says, which includes financial projections within any guidance. The best-case scenario is when a company can consistently beat market expectations from time to time.

However, the Canadian venture space is fraught with exuberant expectations, often driven by the emerging nature of these companies. Even with specific guidance, there’s no guarantee that the market will interpret it appropriately and the resulting expectations could be higher than anticipated.

When a company doesn’t consistently live up to its expectations, it usually ends up orphaned and in the penalty box. It’ll take forever to get out of it.

This could also make it more difficult to execute on corporate objectives that are reliant on new infusions of capital.

While this broadens into a larger topic of expectation management, which we’ll discuss in a future issue, guidance is one layer of expectation setting.

Many times, you get one chance to build a relationship with an investor. You want to avoid the common mistakes associated with poor communication and execution, resulting in their loss of trust in you, and consequently the relationship.

An alternative to providing quarterly or annual guidance is to offer a multi-year strategic plan with financial goals, helping investors understand your long-term trajectory. 

This approach can still backfire but offers more leeway and focuses investors on your broader vision. Typically, companies press release their overarching strategy to the investment community and might host a capital markets or investor day to complement this approach.

Providing guidance can be risky for Canadian microcap companies due to the many uncertainties and the potential to attract transient shareholders. The unpredictable nature of emerging growth companies and external macroeconomic factors make accurate forecasting challenging. 

Additionally, failing to meet guidance can harm a company's credibility and trust with investors. We also haven’t covered the potential legal and regulatory risks.

As a result, I recommended avoiding giving guidance altogether to better manage expectations and foster longer-term shareholder relationships.

If you must provide something, and have good visibility, an alternative could be multi-year targets as part of a strategic plan. 

Simplify your business, maintain flexibility, and help your team focus on the long term without being distracted or weighed down by the short-term pressures that you would have set on yourself.

Below are the latest announcements of investor relations and promotion agreements by Canadian listed companies (TSX-V, CSE, and NEO).

Although each contract varies, I have highlighted the cash component of the disclosed agreements and provided the monthly equivalent if the agreement covers a longer specified period. It also does not include any stock-based compensation such as options.

⁽¹⁾Amounts have been converted to Canadian Dollars, and if applicable, do not include stock-based compensation.

Legal Disclosure 

This newsletter is provided solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein should not be construed as legal, tax, investment, or financial advice. It is imperative to understand that some of the companies mentioned may be retained investor relations clients of Panolia Investor Relations Inc. Readers are strongly encouraged to perform their own due diligence and consult a registered advisor or broker-dealer before making any investment decisions.