Henry Schein, Inc. (HSIC) Earnings Call Transcript & Summary

Good morning, and welcome to Henry Schein's 2021 Annual Meeting of Stockholders. I would now like to introduce Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein. Mr. Bergman, please go ahead.

Thank you very much, operator. Good morning, everyone. I'm Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. It is indeed my great pleasure to welcome you to the company's 26th Annual Meeting of Stockholders, which is being conducted virtually via the Internet. Due to the public health impact of the coronavirus pandemic and to support the health and well-being of our employees, directors and stockholders, this meeting is being held entirely online. My thanks to all stockholders voting today, whether by proxy in advance of the meeting or online during the virtual meeting. Please note the polls are indeed open. I will act as Chairman of this meeting; and Michael Ettinger, Senior Vice President of Corporate and Legal Affairs, Chief of Staff and Secretary of the company, will act as secretary of the meeting to record the minutes. On the website in which you registered, you will find the rules of conduct for the annual meeting to facilitate an orderly meeting, we ask that all participants abide by these rules. At this time, I would like to introduce the current directors of the company who are participating virtually, beginning with our independent directors. Mohamad Ali, CEO of International Data Group; Barry Alperin, Retired Chairman of Hasbro; Paul Brons, Former President of Organon International; Deborah Derby, Former President of Horizon Group USA; Shira Goodman, Advisory Director of Child's Bank Capital Partners and former CEO of Staples; Joseph Herring, former CEO of Covance; Kurt Kuehn, Former CFO of United Parcel Service. Philip Laskawy, Retired Chairman and CEO of EY, formerly known as Ernst & Young and Lead Director for Henry Schein; Anne Margulies, Vice President and Chief Information Officer of Harvard University; Carol Raphael, Senior Adviser for Manatt Health Solutions, and Former President and CEO of the Visiting Nurses Services of New York; Dr. Dianne Rekow, Professor Emeritus and Fellow at King's College London; Dr. Bradley Sheares, Former CEO of Reliant Pharmaceuticals, and Former President of U.S. Human Health at Merck; Gerry Benjamin, Executive Vice President and Chief Administrative Officer of Henry Schein; Jim Breslawski, Vice Chairman and President of Henry Schein; Mark Mlotek, Executive Vice President and Chief Strategic Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer of Henry Schein. Also, I'm indeed happy and pleased to advise our stockholders that joining us virtually is Dr. Reed Tuckson, a director nominee. Dr. Tuckson is Managing Director of Tuckson Health Connections, LLC and the Founder and Convener of the Black Coalition Against COVID-19, and Dr. Tuckson was the former Executive Vice President and Chief Medical Officer; medical -- and Chief of Medical Affairs at United Healthcare Group -- United Health Group. In addition, joining us online today from BDO USA., Henry Schein's independent registered accounting firm, are Mark Giamo and Charles Cuesta. Joining us online from outside legal counsel, Proskauer Rose are Steve Kirshenbaum; and Michael Ellis. Please note that the floor is open for questions to be submitted now and during our formal remarks, we have allocated time to answer those questions later in the meeting. If we are unable -- if you're unable to get your questions through to us, please send an e-mail to [email protected], that's [email protected], after the meeting, so we may follow up with you. In fact, if the investors have any questions, we'll be delighted to follow-up with you. We will now turn the business of the meeting over to Michael Ettinger. Michael, please.

Thank you, Stanley. We'll now begin the formal portion of the annual meeting. As stated in the rules of conduct, we ask that you restrict your questions to the items on the agenda that are before us today. [Operator Instructions] Questions pertinent to meeting matters will be answered following the formal portion of the meeting subject to time constraints. I now place before the meeting a copy of the notice of Annual Meeting of Stockholders and proxy statement dated March 30, 2021, made available to all stockholders of record as of the close of business on March 15, 2021. I also place before the meeting the affidavit of distribution from Broadridge Financial Solutions, attesting to the distribution of the notice of Internet availability of proxy materials, the notice of this meeting and the proxy statement to all stockholders entitled to such documents. Stanley?

Thank you, Michael. The affidavits will be filed with the minutes of the meeting together with a notice of Annual Meeting of Stockholders and the proxy statement, a list of registered stockholders as of March 15, 2021, duly certified by Continental Stock Transfer and Trust Company, is available on the virtual meeting website for inspection by any stockholder during the meeting. Anna Hagberg of Carl T. Hagberg & Associates been designated to act as inspector of election, and she has previously filed her oath as inspector of election with the secretary. The polls will remain open until it is formally announced that the polls are closed. Stockholders who logged into the meeting using their 16-digit control number included in the notice of Internet availability of proxy materials or on the proxy card may vote their shares during the meeting by clicking the Vote Here, that's clicking the Vote Here button on their screen. If you previously voted, that will not limit to your right to vote online during the meeting through the virtual meeting platform, and your online vote will supersede the vote you submitted previously. No online votes, ballots or proxies or revocations of or changes in online votes, ballots or proxies will be accepted after the polls are closed. I will announce the preliminary voting results on each matter after voting is closed. I've received a certificate of quorum from inspector of election, which states that on March 15, 2021, the record date, the total number of issued and outstanding shares of common stock of the company entitled to vote at this meeting was 142,268,492 shares. It further states that there are present in person of our proxy at least 71,134,247 shares, which is a sufficient number of shares to constitute a quorum. So the first order of business is the election of 16 directors of the company for terms expiring in 2022 as set forth in proposal 1 of the notice of annual meeting of stockholders. I would entertain the motion to nominate the 16 persons for whom proxies were solicited for election as directors of the company, each to serve until the 2022 Annual Meeting of Stockholders. They are alphabetically, in alphabetical order by last name: Mohamad Ali, Barry Alperin, Gerald Benjamin, Stanley Bergman, James Breslawski, Deborah Derby, Joseph Herring, Kurt Kuehn, Philip Laskawy, Anne H. Margulies, Mark Mlotek, Steven Paladino, Carol Raphael, Dr. Dianne Rekow, Dr. Bradley Sheares and Dr. Reed Tuckson. Will someone please move the approval of this proposal, and will someone please second the motion?

I so move.

I second the motion.

Thank you, Michael and Jennifer. The second motion to consider is the approval by nonbinding vote of the 2020 compensation paid to the named executive Officers as defined in the proxy statement, commonly known as the say-on-pay proposal. I would entertain a motion to approve, by nonbinding vote, the 2020 compensation paid to the company's named executive officers. Will someone please move the approval of this proposal and will someone please second the motion?

I so move.

I second the motion.

Thank you, Mr. Ettinger and Ms. Ferrero. I have the third and final order of business to discuss, which is the proposal to ratify the selection of BDO USA as the company's independent registered public accounting firm for the fiscal year ending December 25, 2021. I would entertain a motion to approve the ratification of BDO USA as the company's independent registered public accounting firm. Will someone please move the approval of this proposal and will someone please second the motion?

I so move.

I second the motion.

Stan, you may be on mute.

Can you hear me? Okay.

Yes.

So as this was the last matter called for to vote, and with everyone now having had the opportunity to vote, I declare voting closed. We will now take matters from stockholders related to annual meeting matters, any matters that stockholders may have. [Operator Instructions] Michael, are there any questions related to matters properly brought before the meeting.

Yes. We have 2 questions, which come from the council representative of the North Atlantic States Regional Council of Carpenters. I'll read the first question. Mr. Chairman, the Carpenters Pension funds hold shares of the company's stock. As long-term investors, we strongly believe the company's executive compensation plan should be designed primarily to drive the successful execution of the Board's long-term strategic business plan. Today's public company executive compensation plans are largely formulaic peer-related plans with simplistic annual say-on-pay voting reinforcing planned homogeneity. Would you or the chair of the Compensation Committee speak to whether Henry Schein might be better served by an executive compensation plan tailored specifically to the company's particular circumstances and unique long-term strategic business plan?

Thank you very much for that question. I understand that Anthony Villa has called in that question on behalf of our shareholders. Henry Schein's executive compensation plans are, in fact, designed to support the company's long-term strategic plan. Our short-term bonus plan or what we call internally P-I-P, PIP plan measures Henry Schein's overall performance, the participant's business unit performance and the participant's individual MBO goals. Each year, the goals of our long-term strategic plan are reflected in the bonus plans, corporate earnings per share, EPS goal, the participant's business unit financial goals and the participants individual MBO goals. Our long-term incentive plan also supports Henry Schein's long-term strategic plan -- the goals in that plan. We believe the successful execution of our long-term strategic business plan will result in increased shareholder value and an increase in -- accordingly in the stock price. As such, a portion of our 2021 long-term incentive program is awarded in stock options designed to reward our executives only if there is an increase in shareholder value above the level which the options are granted at. In a typical year other than 2021, we also award performance-restricted stock units to our executives based on achieving 3-year cumulative EPS goals that are aligned with our long-term strategic plan. To be clear, unlike some other public company long-term incentive plans, our long-term incentive program does not measure relative to peer performance. We believe our executive compensation plans serve to align our executives' interest with that of the shareholders. Each year, the Compensation Committee reviews our plans to make sure they continue to support our long-term business strategy. Michael, can you please read the second question from the council representative of the North Atlantic States Regional Council of Carpenters?

Thank you, Stanley. The second question Mr. Villa submitted is as follows: Mr. Chairman, the topic of stakeholder capitalism as an alternative to shareholder capitalism has received considerable attention recently. As long-term pension investors, the Carpenters Funds appreciate the sentiment embodied in the stakeholder capital perspective, we feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism? And what principles the Board would use to balance the interest of various stakeholders and to develop and implement the company's long-term business strategy?

Thank you very much, Mr. Villa, for that question. It's really an important question and goes to the essence of the purpose of the company and the fact that we have increased shareholder value consistently on a compounded annual growth rate at 12% since we went public -- since the IPO in the year 1995. Henry Schein's sense of purpose, a commitment to values was part of our founding in 1932 by Henry and Esther Schein. If you go to our website, you'll see the history of Henry Schein, and you'll see exactly that purpose runs through the essence of the company's being and success. Three decades ago, we adopted the stakeholder base, what we called internally and actually externally the mosaic of success of Henry Schein, which is based on our commitment to balancing the needs of our 5 constituents: our customers, our team, our suppliers, our shareholders, and yes, society in general. This purpose-driven stakeholder model has proven to be very effective in driving shareholder value for us over the past 30 years because of the trust this model builds. And of course, trust is at the center and having the 5 constituents that make up the Henry Schein mosaic of success, work together to advance the interest of society, with the role our company plays in society and shareholder value. The events in the past year underscore that the business -- our business is no longer only business, and that alignment with the needs of society is critical to the long-term preservation, and yes, corporate resilience as we, no doubt, experienced over the last 14 months. Our Board of Directors is fully supportive of this model and indeed, this alignment to the needs of our constituents is directly integrated into our strategic planning efforts and the Board has oversight of what is now termed ESG and D&I work. Also, please see our 2020 Sustainability and Corporate Responsibility Report for further information. This report is on our website. Michael, are there any other questions?

Thanks, Stanley. At this time, there are no other questions. I'll turn it back to you.

Thank you, Michael. I will now turn back to the voting matters under consideration. I've received the preliminary report of the inspector of election, who has certified the results of voting to the time of the report. The results state that each of the 16 persons nominated as directors for a term expiring in 2022 have been duly elected, the 2020 compensation pay to the company's named executive officers has been approved on a nonbinding basis and the selection of BDO USA as the company's independent registered accounting firm for the fiscal year ending December 25, 2021, has been ratified. Final voting results will be timely filed with the Securities and Exchange Commission on the Form 8-K. The final report of the inspector of election will be filed with the records of this meeting. At this time, I would entertain a motion to adjourn the meeting and ask someone to please second that motion.

I so move.

I second the motion.

Thank you, Mr. Ettinger. Thank You, Ms. Ferrero. The motion is carried. The meeting is adjourned. Thank you. Thank you. The meeting has now come to an end. Thank you for attending.

Thank you. The meeting has now come to an end. You may now disconnect.