Somero Enterprises, Inc. (SOM) Earnings Call Transcript & Summary

Hello, and welcome to the Somero Enterprises 2026 Annual General Meeting. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the meeting over to Mr. Robert Scheuer, Chairman of the Board. Mr. Chairman, please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to this Annual General Meeting of Somero Enterprises Inc. at which all shareholders are entitled to be present and vote on the resolutions to be proposed at the meeting. The quorum for an Annual General Meeting is 1/3 of the outstanding voting shares of the company in person or by their duly appointed proxy and entitlement to vote. As the requisite quorum is present, I declare the meeting open. Assuming that everyone has a copy of the notice convening the meeting, with your permission, we will take the notice convening the meeting as read. Is this agreed? All agreed, say Aye. All oppose, say no. Okay. We will now proceed to convene the meeting is scheduled. The item on the agenda for today's meeting is for shareholders to consider and, if thought fit, to pass the following resolutions in the form set out in the notice convening this meeting. One, to ratify the director's report and the annual report and the company's audited financial statements for the year ended December 31, 2025. Two, to ratify the directors remuneration report, excluding the directors' remuneration policy for the year ended December 31, 2025. And three, to ratify the director's remuneration policy as set out in the Directors' remuneration report; four, to reelect Lawrence L. Horsch as a Class II director; five, to reelect Thomas M. Anderson as a Class II Director; six, to reelect Vincenzo LiCausi as Class II Director; and to ratify the appointment of Whitley Penn LLP as the auditors of the company for the fiscal year ending December 31, 2026. I will now put the resolution to the meeting. As the company is a Delaware corporation in accordance with the company's bylaws, the outcome of the resolutions shall be determined by a majority vote provided that the resolutions relating to reelection of directors shall be determined by plurality vote. I will announce the results of the proxy votes received on each resolution. If any shareholder present at the meeting has not previously delivered a proxy, please let me know, and we will take account of votes represented by your shares as appropriate. I now propose resolution #1 to ratify the director's report and the annual report and the company's audited financial statements for the year ended December 31, 2025, as stated in the form set out in the notice convening this meeting. I would ask Vincenzo LiCausi to second the resolution.

I second.

The proxy votes received regarding this resolution were for 14,013,747 against 14,150,066. Chairman's discretion 0. I now propose resolution #2 to ratify the director's remuneration report for the year ended December 31, 2025, as stated in the form set out in the notice convening this meeting. I would ask Tim Averkamp to second the resolution.

I second the resolution.

The proxy votes received regarding this resolution were for 13,974,428 against 14,184,134. Chairman's discretion zero.

I now propose resolution #3 to ratify the director's remuneration policy as set out in the directors' remuneration report as stated in the form set out in the notice convening this meeting. I would ask Tom Anderson to second the resolution.

I second. The proxy votes received regarding this resolution were for 10,884,339 against 17,274,223. Chairman's discretion zero.

I now propose resolution #4 to reelect Lawrence Horsch as a Class II Director as stated in the form set out in the notice convening this meeting. I would ask Anne Ellis to second the resolution.

I second the resolution.

The proxy votes received regarding this resolution were for 8,049,411 against 17,293,897. Chairman's discretion 0.

I now propose resolution #5 to reelect Thomas M. Anderson as a Class II director as stated in the form set out in the notice convening this meeting. I would ask Anne Ellis to second the resolution.

I second the resolution.

The proxy votes received regarding this resolution were for 8,072,085 against 17,271,223. Chairman's discretion 0.

I now propose resolution #6 to reelect Vincenzo LiCausi as a Class II Director, as stated in the form set out in the notice convening this meeting. I would ask Tim Anderson to -- Tom Anderson to second resolution.

I second.

The proxy votes received regarding this resolution were for 14,009,060 against 14,150,753. Chairman's discretion 0.

I now propose resolution #7 to ratify the appointment of Whitley Penn LLP as the auditors of the company for the fiscal year ended December 31, 2026, as stated in the form set out of the notice convening this meeting. I would ask Vincenzo LiCausi to second the resolution.

I second.

The proxy votes received regarding this resolution were for 12,147,217 against 16,016,596. Chairman's discretion 0.

As the company is a Delaware corporation in accordance with the company's bylaws, the outcome of the resolutions contained in the notice of Annual General Meeting of stockholders shall be determined by majority vote provided that the resolutions relating to reelection of directors shall be determined by plurality vote. Accordingly, each of the directors standing for reelection were reelected. Resolutions 1, 2, 3 and 7 were not approved by a majority vote. As stated in the notice, those resolutions are not mandatory under Delaware law, and the Board will reconsider its approval of the relevant matters. Before we move on to questions, though, I want to take a moment to address the significant number of votes that were cast against the resolutions today. From the conversations we've had with shareholders, we understand that the votes cast against the resolution principally reflect concerns regarding the company's governance arrangements and legal constitution and its capital allocation strategy. In our AGM statement, we announced a thorough review of our governance arrangements and our constitution. That review is underway already, and it's a priority for me and for this Board. We will keep talking with shareholders as part of it because we want a full range of views. And if or where the review leads to changes that meet your approval, those changes will come back to you to vote on. We're committed to report on progress in mid-July, and our intention is to have the review completed as soon as possible. Alongside that, our search for a new independent director continues, which is part of keeping this Board fresh and effective. Let me leave you with 1 final thought before I hand it over to Tim. The Board remains confident in the company. We lead our markets, we generate cash through the cycle, and we have a balance sheet that gives us real strength and real choices. Tim will take you through the business in a moment. To everyone who voted and to those who've taken the time to speak with us, thank you. My door and this Board's door remains open. I will now turn the meeting over to Tim Averkamp, CEO, to say a few words.

Thank you, Bob. I'll keep this short, but I want to leave you with a clear picture of how the business is performing. That's where my focus is on every single day. Hearing so far this year is in line with our plan. That doesn't happen by chance. It's our team executing well as markets show early signs of stabilization, staying close to our customers and remaining focused on our long-term strategy. I want to thank our people for that. The other reason I can stand here confidently about where the business is and where it's going. We continue to return cash to shareholders. We're about halfway through this year's $6 million buyback in this to our dividend. We'll keep weighing the right balance between investing in the business and returning capital to you. The Board has heard the views on that clearly, and I'd stress is an active conversation not a closed one. As we look to the rest of the year, the focus is straightforward, stay disciplined, execute and build on the momentum that we have. We look forward to providing a full update with our half year results in July. Thank you all for joining us today and for your continued support of Somero.

That concludes the formal business of the Annual General Meeting, which I now declare close. The Board will now take questions.

Thank you. We will now begin the question-and-answer session. To ask a question you may register as a participant and submit your question via the webcast registration link found at www.somero.com.investors under the latest updates manner. At this time, we will pause momentarily to assemble our roster. And we will turn it back to management for their questions. And once again, everyone to ask a question, you may register as a participant and submit your question via the webcast registration link found at www.somero.com investors under the latest update scanner. At this time, we'll pause for a moment to assemble a roster, and I'll hand it back to management for their questions.

We will now begin the question-and-answer session to ask a question. You may register as a participant and submit your question via the webcast registration link found at www.somero.com/investors under the latest updates banner. At this time, we will pause momentarily to assemble our roster. At this time, we are showing no questions. We will now turn it back over to management for closing remarks. I apologize. We do have questions that have been inbound. So we'll take those questions, and we'll plan to respond to them. So Vincenzo LiCausi is going to read off the questions that we have, and then, we'll do our best to answer those as best we can.

Yes. So first question, can you talk us through what management is focused on to build value from here and whether you see a catalyst on the horizon?

This is Tim Averkamp. I'll take that question. Like I noted in my closing statement, our focus right now is on the current business focused on execution, staying close to our customers and executing our long-term strategy. As we talked about in our previous RNS and today, we are trading within our plan right now. We see some signs, positive signs of market stabilization. As we know, there's still a geopolitical risk that's out there. But as the market changes, we're ready to go with that, right, over time. In terms of our long-term strategy in our full year results, we talked about the strategy of Fortify, Innovate and Amplify. As I noted at that time, we have a number of strategic initiatives that are already in play and really addressing a lot of those issues. So we're focused on things that we can control and making good progress on that right now.

Next question. M&A appears to be a more important part of Sommerein the past. What specific experience in management break to acquisition underwriting capital allocation and who will be accountable for ensuring Somero's value-destructive deals. Correct. It certainly -- and this is Andecaltyagain, M&A is a greater part of our long-term strategy in the sense that we're broadening our view on potential acquisition targets. Historically, we've only considered companies that would have high IP and very high gross margins comparable to Somero. As we all know, Somero is a unique company in this space. there are other synergistic opportunities that potentially an acquisition can bring to the table. Relative to the experience in the company, the Board has extensive experience in M&A. Bob was the former CFO, and at Dover Corporation with hundreds of acquisitions under their belt. And Ellis has also been a consultant consulting firms on M&A strategy. Larry has been in the VC world for many years. And of course, Tom has had a long career with -- in the construction concrete space in particular, going through a couple of acquisitions of his own. As you all have Tim's biography, he's been through a number of acquisitions and post integration, which obviously is a critical element to the M&A strategy. And so we feel we have a pretty good breadth of experience. We did bring in an additional adviser really to help us build the muscle, rigor and process around considering and scoring various target opportunities in the event that an opportunity does arise. So we're just building the muscle to be able to undertake an acquisition when that opportunity comes up.

I'll just add to that. And of course, with the tools and the process, we also have strong governance right? So our Board is part and part to any opportunity to review and make sure we meet the financial thresholds and make sure it's truly accretive to the business. We're focused on that.

Next question. Could you please provide an update on the benefits you're seeing in the expansion of the Belgium facility and what feedback from customers you've had.

I'll speak to that. So our Belgian facility has really been tilted up 2 to 3 years here over time. That was an opportunity for us when Brexit happened to add to our facility that we have in the U.K. to really serve that European customer base. Myself and a couple of other leadership team members had a chance to visit that facility in December. And it's really an opportunity where we can have parts there, sales training and service training. During the time that we were there in December, we had a dealer open house. And in fact, we introduced the Hammerhead, the new product that we talked about to that dealer group and talked about the pros and cons, the benefits of that machine versus the competitive environment, the dealers and we see that as a great showcase for us. Again, it's about staying closer getting closer to our customers and serving them as best we can.

Next is not a question, but a comment. Individual says, well done with the way you've delivered the message about taking investment feedback and reacting to it. So thank you for that comment. We also have a question from a shareholder that's present here at the meeting. The first question is, how have your customers' needs change over time. And I'll let Howard Holeman, our Executive Vice President of Sales, to address that for 1.

Thank you. As we always say that we want to get a customer into the family, into the business, and they start off with a smaller machine as they grow the business, they need larger equipment. So we have a breadth of equipment inside exterior concrete paving, 3D applications. So we have the right products for them to grow the business. And as you look at our larger customers, their need to upgrade to new technology. So we have the benefit products to support a new up and coming company and growing their business and also maintain existing business as well for larger customers.

Thank you, Howard. Next question is, what hasn't changed about Somero? Why are customers continue to choose Somero.

What hasn't changed? Yes. I think the faster and flatter fewer, as Harry indicated, I think we continue to provide quality equipment that outperform our customers' expectations. And I think that's key on maintaining customer loyalty, market leadership. So we continue to maintain that as we did day 1, and our customers see that, right? The serviceability and everything that.

Yes, I think it's continuing with the core values that we established 4 years ago and really reflected in our mission that we work hard to ensure our customer success and that continuation -- we have another question that just came in. The elected directors feel that they have a mandate to continue to serve even though there were twice as many nooks as those in favor.

First of all, I think we do take all voting on resolution seriously. We are in the process right now of reviewing our governance arrangements and legal constitution. And we're going to have something back to you by July. So we'll be able to talk through that at that point.

At this point, there are no other questions in the queue. I'll hand it back over to the operator at this time, Rocco.

Yes, sir, that concludes our question-and-answer session. And that does -- are there any closing remarks from your side, sir?

Again, thank you for everybody's participation and support, and we look forward to giving you that update in July. Thank you.

Thank you. That does conclude our conference for today, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.