Stoneridge, Inc. (SRI) Earnings Call Transcript & Summary

Good day, and welcome to the Stoneridge, Inc. 2020 Annual Meeting of Shareholders. At this time, I would like to turn the meeting over to Jon DeGaynor, President and Chief Executive Officer of Stoneridge. Please go ahead.

Thank you, and good morning. On behalf of the entire Board of Directors, our officers and our employees, I would like to thank you for attending our 2020 Annual Meeting of Shareholders. I'm Jon DeGaynor, President and Chief Executive Officer of Stoneridge. It is my pleasure to welcome you to this year's annual meeting of shareholders. We are excited to be hosting this year's annual meeting as a virtual meeting. We are holding a virtual annual meeting instead of a physical annual meeting as we have done in the past to address the concerns and recent government orders related to the COVID-19 pandemic. In addition to concerns related to COVID-19, holding a virtual annual meeting should provide expanded assets, improve communication and provide potential cost savings to our shareholders and our company. We believe that holding a virtual annual meeting will enable more shareholders to attend and participate in the meeting because our shareholders can fully participate from any location with Internet access. It is now shortly after 11:00 a.m. Eastern Time on Tuesday, May 19, 2020. Accordingly, I call the meeting to order, and I will act as the Chairman of the meeting. In these uncertain times, our leadership team is focused on the safety and security of our employees, and we remain committed to doing everything we can to lessen the impact that the COVID-19 pandemic is having on our employees, both in the workplace and at home. As the situation evolves, we are following both national and local guidelines. Where possible, we have instituted a work-from-home policy to ensure we do our part to slow the spread of the virus. While work-from-home arrangements are not possible, we are implementing safety measures and strictly adhering to CDC and other applicable guidelines. We are in communication with our customers and suppliers around the world and are actively adjusting our operating model and cost structure to address the needs of our customers in any limitations due to the pandemic. As is our custom, we will conduct the business portion of our meeting first and answer general questions regarding the company and our performance after the official business of the meeting is concluded. Although we may not be able to answer every question, we will do our best to provide a response to as many as practical. Today's meeting will address the agenda items set forth on the notice of annual meeting of shareholders and described in the company's proxy statement. This meeting will be conducted in accordance with the regulations for conduct at the annual meeting of shareholders. The regulations are available to all shareholders on the meeting webcast page. Tom Dono, Chief Legal Officer and Secretary of the company, will act as Secretary of the meeting and recording minutes. Please note that this meeting is being recorded. However, no one attending via the audio webcast is permitted to use any recording device. Will the secretary present a list of shareholders of record at the close of business on March 20, 2020?

Thank you, Mr. Chairman. I have and hereby present to you a complete list of the shareholders of record at the close of business on March 20, 2020, the record date fixed by the directors -- by the Board of Directors for the determination of the shareholders entitled to notice of the annual meeting of shareholders and to vote their common shares held on the record date at this meeting. A certified list of shareholders of record as of the close of business on the record date, March 20, 2020, is available for inspection by shareholders during the meeting using the certified shareholders list link found on the meeting webcast page.

Will the secretary present to the meeting a copy of the notice of annual meeting of shareholders, together with the proof of the mailing of such notice?

Mr. Chairman, I have and hereby present a copy of the notice of annual meeting of shareholders, proxy statement and form of proxy with the affidavit of distribution and mailing by Broadridge Financial Solutions, Inc., the company's mailing agent, showing the distribution mailing of the notice of Internet availability on April 2, 2020, which provides instructions on how to access the proxy materials on the Internet, or if desired, instructions on how to request paper copies of the proxy materials to each shareholder of record at the close of business on March 20, 2020. The proxy statement, the notice of annual meeting and the 2019 annual report to shareholders are available on the meeting webcast page. The notice provides that the meeting will be held for the following purposes: one, to elect 8 directors, each for a term of 1 year; to ratify -- two, to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020; three, to vote on an advisory resolution to approve executive compensation; four, to vote on a proposal to approve an amendment to the 2016 long-term annual incentive plan to increase common shares available for issuance; and five, to transact such other business as may be properly brought before the annual meeting and any postponement or adjournment thereof. A copy of the 2020 Stoneridge, Inc. notice of annual meeting of shareholders, proxy statement and the form of proxy as well as an affidavit of mailing and distribution of Broadridge Financial Solutions shall be made part of the record of this meeting.

I direct to Secretary to cause the affidavit distribution and mailing of the notice of Internet availability and proxy materials to be filed and preserved with the records of the company. As set forth in the proxy statement, the Board has nominated the following persons for election as directors: Jonathan B. DeGaynor, Jeffrey P. Draime, Douglas C. Jacobs, Ira C. Kaplan, Kim Korth, William M. Lasky, George S. Mayes, Jr., and Paul J. Schlather. The company has appointed Mr. Greg Malatia of Broadridge Financial Services to act as an Inspector of Election for the meeting. Mr. Malatia is with us today and has taken the oath of Inspector of Elections earlier today. A word about submitting appropriate questions. After the official items of business are presented, we will respond to appropriate questions about the proposals before the polls close. After the official business is concluded and the meeting has been adjourned, we will also provide time for general questions concerning the company. The questions tab on the meeting's webcast page will remain open during the meeting. Only validated shareholders on the meeting webcast page can submit questions. I would also like to take this opportunity to report that Clare Willett of Ernst & Young LLP, the company's independent registered public accounting firm for 2019, is attending the meeting at the company's invitation. Later in the meeting, Ms. Willett will be available to make a statement if she so desires and answer any questions you may have with respect to the company's audited financial statements for the fiscal year ended December 31, 2019.

The Inspector of Election has reported that a quorum of outstanding common shares is present, either represented in person or by proxy, at the meeting out of a total of 26,986,857 common shares outstanding and entitled to vote.

The minutes of last year's annual meeting of the shareholders held on May 14, 2019, are available to any registered shareholder for examination. Please contact our Corporate Secretary, Thomas Dono, after the meeting at the company's address listed on the notice of annual meeting if you'd like to see a copy. I direct the Secretary to incorporate with the records of the company a copy of the annual report for the fiscal year ended December 31, 2019, together with the affidavit of mailing and distribution. And I further direct the Secretary to file with the records of the company the reports of the inspectors of election of the action of the shareholders taken at this meeting, together with the list of the shareholders as certified by Computershare Communication Services and the proxies and ballots cast at the meeting. The polls are now open to vote at the annual meeting and will remain open until all items of business have been presented and discussed. A substantial majority of the outstanding common shares on record -- on the record date have submitted proxies, either by mail, by telephone or by the Internet. But if you still need to vote or you would like to change your vote, you can do so through the Vote Here button on your screen. You do not have to vote through the meeting if you have already submitted a proxy, either by mail, by phone or by the Internet. At this time, any shareholders that are logged in and who have not already submitted a proxy and wish to vote their company shares may do so by clicking on the Vote Here button on your screen. The preliminary final vote totals will be reported after the items of business have been presented and the polls have been closed. If any shareholder would like to make a comment or ask a question regarding any of the proposals, please submit your comment or question through the meeting webcast quarterly. The first order of business is the election of 8 directors. As indicated by the company's proxy statement, the following individuals were nominated by the Board of Directors to serve as directors of the company for a term expiring in 2021. Jonathan B. DeGaynor, Jeffrey P. Draime, Douglas C. Jacobs, Ira C. Kaplan, Kim Korth, William M. Lasky, George S. Mayes, Jr., and Paul J. Schlather. The Board recommends a vote for each of the nominees. Each nominee is currently serving as a company director. The second order of business is to vote on a proposal to ratify the selection of Ernst & Young LLP as the company's independent accountants for the company's fiscal year ending December 31, 2020. The Board recommends a vote for this proposal. The next order of business is an advisory vote on a resolution to approve executive compensation, the so-called say-on-pay vote. It is a nonbinding vote, although the Compensation Committee and the Board will certainly take the results of the vote into account when making future compensation decisions. The Board recommends a vote for this proposal. The final order of business is to vote on proposal to approve the amendment of the Stoneridge, Inc. 2016 long-term incentive plan to increase the number of common shares available for issuance. The Board recommends a vote for this proposal. Each of the proposals is described in detail in the proxy statement. Are there any questions on the proposals? There will now be a short pause to allow shareholders to vote if they so desire. A reminder that if you've already submitted a proxy by mail or by telephone or by the Internet, there is no need to vote at the meeting. [Voting]

I now declare the polls closed. Will the Inspector of Election count the votes and report to the Secretary?

The report of the Inspector of Election on the election of 8 directors for a term expiring in 2021 is that the following nominees received the greatest number of votes: Jonathan B. DeGaynor, Jeffrey P. Draime, Douglas C. Jacobs, Ira C. Kaplan; Kim Korth, William M. Lasky; George S. Mayes, Jr., Paul J. Schlather.

I declare each of the persons just referred to by the Secretary as having received the greatest number of votes to have been duly elected a director of the company to serve until the next annual meeting of shareholders and until his or her successor has been duly elected and qualified.

We have also been informed by the Inspector of Election that preliminary vote tabulations show: one, the ratification of the selection of Ernst & Young LLP as the company's independent accountants for the company's fiscal year ending December 31, 2020, has been approved; two, the compensation of the named executive officers has been approved by an advisory vote; and three, the amendment to the 2016 long-term incentive plan, increasing the number of common shares available for issuance has been approved.

I now declare that each of the proposals discussed by the Secretary is approved. Based on the final reports of the Inspector of Election, the company will be reporting the final vote results on a Form 8-K to be filed with the SEC within 4 business days. Operator, please open Ms. Willett to the line. Ms. Willett, would you like to make a statement regarding the company's 2019 financial statements or any other relevant topic?

Thank you, Mr. Chairman, for having me here today. And thank you to the Board and shareholders for entrusting EY to serve as the company's independent registered public accounting firm.

Are there any questions for Ms. Willett concerning the financial statements? If no questions, this concludes the formal part of the meeting. After the meeting is adjourned today, we will open up the meeting for general questions regarding the company. The meeting is adjourned. Are there any questions about the company?

Yes. Mr. Chairman, we've received a question from the carpenter union. And the question reads as follows. Mr. Chairman, the carpenter union pension funds with combined assets of USD 70 billion have a collective ownership position of 166,382 shares of the company's common stock. Our funds are strong advocates of majority voting in uncontested director elections. The company presently uses a plurality vote standard which essentially ensures the election of all candidates standing for election. Has the Board ever considered the adoption of a majority vote standard? And if so, why has it chosen to retain a plurality standard? In response to that question, we refer you to the discussion on Page 5 of our proxy statement regarding majority voting principle. Furthermore, as an explanation, directors are elected by a plurality of the votes cast at the annual meeting. Broker non-votes and abstaining votes will be counted as present for purposes of determining whether a quorum has been achieved at the annual meeting, but will not be counted as for or withheld from any nominee. Plurality means that the director nominees who receive the greatest number of votes cast are elected up to the maximum number of directors to be elected at the meeting. The maximum number to be elected is 8. Shares not voted will have no impact on the election of directors. Unless proper voting instructions are to withhold authority for any or all nominees, the proxy given will be voted for each of the nominees for Director. Majority voting principle, under our corporate governance guidelines, any nominee for Director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for his or her election must promptly offer his or her resignation. The Board's Nominating and Corporate Governance Committee will then consider the resignation and recommend to the Board whether to accept or reject it. The Board will act on the committee's recommendation within 90 days after the annual meeting, and the Board's decision will be publicly disclosed on Form 8-K. Any director who offer his or her resignation may not participate in the Board's discussion or vote.

There's a second question. And the question reads, Mr. Chairman, the recent dramatic growth in the size of passive mutual funds corporate ownership interest in U.S. corporation raises important public policy and corporate governance issues. Currently, BlackRock holds 7.4%, and Vanguard holds 5.9% of the company's outstanding shares. Vanguard is an investment manager for a portion of the assets of the company's retirement plan. Does the Board see this growing ownership concentration as a positive or negative development as regards long-term corporate planning and performance? And also, are there potential conflicts of interest when a 5% holder is managing company retirement plan assets? Thank you for the question. We value all of our relationships with our shareholders and do not consider Vanguard's status as a shareholder conflict of interest. Being there are no additional questions, I want to thank you all for participating in our -- in the 2020 Annual Meeting of Shareholders. Thank you very much.