Paul Giannamore: [00:00:00] My first trip to Waco, Texas. We get to sit down with CEO of Terminix, Brett Ponton. Welcome to Waco.
Brett Ponton: Thank you, Paul. Thank you, Patrick. It's great to be back in Texas, by the way. And it's great to be here in Waco.
Thanks for having me.
Paul Giannamore: Absolutely. Brett, you've been, now, at Terminix for about a year. In September, it will be a year. So what's been your largest or your biggest surprise since coming on board with the company?
Brett Ponton: Yeah. Great question. But maybe to give that some context, maybe let me back up a little bit and just take you through why I chose to come to Terminix.
Paul Giannamore: Great.
Brett Ponton: And look, as I assess the opportunity, given my past experience last 10, 15 years has been primarily in automotive services, one of the first things, naturally you look at, is the health of the industry, the growth rates of the industry, et cetera. And as I assessed the industry, I really got excited about the industry. It's tough to not [00:01:00] get excited about 4-6% organic growth rates with some pretty nice tailwinds in this industry. And still a lot of runway for industry growth, with fairly low penetration rates that we all know exist in this industry.
And so it just felt like the backdrop here in this industry was very favorable. Then when you look at the company, Terminix, I've always been a big brand guy, been attracted to working for companies with big brands. My days at Goodyear and certainly Jiffy Lube and AAMCO, I think, are all good brands in their own rights.
So as I looked at the Terminix opportunity, absolutely loved the brand 94, 95 year old company now. A great brand, a great positioning within a great industry. And I looked at the company itself. I felt, as I read through some of the history and some of the challenges maybe the company has had over the years, I felt like the experiences that I've had in my career lined up pretty well with the opportunities I felt like Terminix had.
And, so getting to the company, I wouldn't necessarily characterize them [00:02:00] as surprises, per se, because it was pretty much what I expected and let me walk through those things. But the culture is great here. I love what we call Terminix nation. There's a great, deep love that our team has out in our field organization for this company.
So love for this brand. There's a deep passion for the work that we do every day. And you see that, so no surprises there. What probably surprised me a little bit is, look, we all know we've got some operational opportunities here. We've been quite public about our intentions around launching Terminix Way on the investments we need to make there.
As I traveled out, spent a lot of time with our team, you see it clearly.
The opportunities that we have to basically put in their hands, I think, better tools and improve the capability to help them execute at a much higher level. And it's pretty clear to you, right? We're on a journey. This isn't going to happen overnight. Now, there's some significant work that we've got to do here, but the team's committed, I think, to the strategy here. We've got it mapped out, but we're early innings in our transformational journey here.
Paul Giannamore: But when I look at [00:03:00] Monroe, where you came from, obviously you were very successful running that business. The investors in that business were very happy with your performance. So you're running that business. There's no perceived problems. All of a sudden, what do you get a phone call? "Hey, Brett, there's an opportunity at Terminix." Is that how that happened?
Brett Ponton: Yeah, normally that's how it happens. Got a phone call, of course, from the recruiter representing the board. And, at the time, of course, it was still ServiceMaster and went through that assessment process. I was quite pleased with the work that we were doing at Monroe, by the way, just to come back to that point.
I think the team did a heck of a job in the three years that I was there. We always joke while I was at Monroe, we did roughly 15 years worth of work in three years. Significant operational investments that we made there, improving our stores, investments in our team training, installed significant technology at our stores, and really started to just revolutionize that business.
And so we were on a good trajectory there. But as I listened to the opportunity and I got to know a couple of key board members really [00:04:00] well, I think that relationship between board and management is so important. And when you couple the attractiveness of the industry with the brand and the opportunity with a really solid board that I really felt like I could work well with, the stars aligned and I ended up in Memphis.
Paul Giannamore: And here you are.
Brett Ponton: Yeah. Probably one other point I would add to that though, Paul is, look, I've I consider myself a southerner now, too. I like being in the south and, of course, the previous company was up in upstate New York, and there's nothing bad about Rochester, New York, but the winters can be a little tough and getting the opportunity to get back down south, which is where I'm a little bit more comfortable. Certainly Memphis checks that box and I'm glad to be back down south.
Paul Giannamore: Yeah.
Patrick Baldwin: Brett, I appreciate you making the trip to Waco for more than one reason, but is this where I get to throw - someone's handed me these. See that?
Paul Giannamore: Terminix commercial. Look at you, Patrick. He's already got Terminix sunglasses.
Brett Ponton: Welcome to the team.
Paul Giannamore: Welcome to the nation, right? They call it.
Patrick Baldwin: Thank you. Definitely. It's been a great week and thank you for making the trip and [00:05:00] big announcement. Yeah. 855 Bugs. Me and Bobby's business is part of Terminix now. Thank you for that and for making the trip.
Brett Ponton: First of all, welcome aboard, by the way. We are thrilled to have this company and this team now joining our organization. It goes without saying but I, some of the things we're obviously very attracted to is great geographies, great management teams, great businesses that have built great brands and great reputations in the markets they serve.
And you guys have done an exceptional job of doing that here in Waco, and we're thrilled to have your brand and team as part of our organization, so welcome aboard.
Paul Giannamore: We're going to talk about this acquisition and we'll get to this a little bit later in the interview because there's a lot of things that I want to talk about. With Brett - one being the fact that your partner, Bobby, was a former Terminix guy. And when we started this process, he didn't want to sell the Terminix.
And after what he saw? Terminix has been doing in Texas, after he got an opportunity to meet the people, it became, at a point in the process, that there was no other choice than Terminix. So we're going to get to that.
But for now, Patrick,[00:06:00]
let's
Patrick Baldwin: I know
Paul Giannamore: You're super excited now, transaction week, but let's talk a little bit. I know you
had some questions for Brett with regard to some of his plans.
Patrick Baldwin: Yeah. Background, Brett, automotive, between transmissions and tires and retail, I think, brick and mortar. And then I see, hey, made a change to service industry pest control, right? Small brick and mortar, lots of vehicles on the road and a totally different industry.
What does that bring? And what's that change look like? What do you bring to pest control as well, with those eyes?
Brett Ponton: Let's talk first about the similarities, right? Cause I think it's, and the more I learn about pest candidly, the more similarities I see between the two models and let's first start with, I'll talk more about consumer versus commercial here residential. But that starts that we're in automotive services as a service business.
And at the end of the day we were taking care of a consumers second most valuable asset. You know, beyond their home, which is their car. Building trust with the [00:07:00] customer base is essential in that model. Our mission in that business was to drive retention and higher customer lifetime value.
And it's a little bit harder in that format because you don't have the benefit of contracts and regular service agreements. So you had to build lifetime relationships with people at a pure execution of delivering a great experience when they're in your store. And then also do a great job of marketing to those customers when they leave your store to get them back in the next time.
So a lot of similarities in terms of it's all about building trust and leveraging your professionalism and your expertise in that business and deliver that great experience to your customers. If you do that consistently and you do that well, every time, they'll reward you with their loyalty over a lifetime.
So I think all of those things certainly parlay into the pest business here. The difference, I think, for us is consumers aren't coming to our store, we're going to the homes or the businesses, but we have to execute that same high level on every visit, every touch point along the way.
So I think, similar [00:08:00] playbook to what we did at Monroe, right? It was all about investing in our team, our frontline team to make certain that they are equipped with all the tools and the training and the technology to help them perform at the highest level. And that's my job, candidly, as the CEO of the company.
We allocate resources for the business and make choices on where we invest. As you've probably seen in our public disclosures, we're quite committed to invest in our team here. So through Terminix Way and Terminix University and, of course, the CXP platform, all three of those things coming together, we think gives us a chance to fully
now take advantage of the brand strength that we have built over 95 years and give our team the tools to execute at the highest level that I think customers come to expect from a brand like Terminix that's been around for 95 years. And let me just talk a little bit about commercial because, candidly, there's a lot of similarities to the commercial model.
We like 10, 15% of our business in that format was actually B2B national accounts that we develop relationships with national accounts and we would service their fleet from [00:09:00] point to point. So also we had to learn, commercial standards can be a little bit higher than consumer standards.
We've got to execute a little bit higher level, but it's also about delivering consistent experiences from location to location. In my past company, we had 1300 locations. So our challenge was making certain the experience you had in 1300 locations was the same from coast to coast and no different from what we're all about here, which is how do we make certain that the experience we deliver to our commercial customers or our residential customers is consistent?
Whether you're in Portland, Maine, or Portland, Oregon, you get the same level of experience from.
Patrick Baldwin: You mentioned the Terminix Way. I see it - it is a significant investment. What is the Terminix Way?
Brett Ponton: Let me back up a little bit and just take you through the genesis that's behind it. If you look at Terminix and our history, not surprising to you guys, right? We grew over the years, primarily by buying back our franchisees and we've grown primarily from acquisition. So when I got to the company and one of the things I think we all realized here is look Terminix, even though we [00:10:00] have a national brand that's more standardized behind, we have a little bit different twist to our operating model based upon the geography that we're in, not surprising when you grow through acquisition, you're going to have that and a little different twist to the culture or the operating model, varies by where you're at.
So the opportunity for Terminix Way is really how do we get our team now operating on one standard platform. That we train our team to execute against and then support it with technology. And I know we've talked about this as a company in the past, but probably a little bit different approach here is the answers to any issues or problems that we have in our company today, or already have been solved in our company today.
If you look at our highest performing branches with our highest performing technicians. They have perfected the best practices that have worked extremely well in their areas. And our team is out now learning from them, taking those best practices and that's what we'll use to scale through the Terminix Way. We'll come in behind that and train our team to those standards through Terminix University and Terminix University is not [00:11:00] just about developing the technical skills for our team to be successful, but also really making investments and helping improve our selling skills.
Our managerial skills, and, of course, our leadership skills. All essential, I think, when you run a multiunit distributed services model like we have. We've got to have a great leaders at every level of the organization, but it's coming upon us to invest in them and their leadership skills to do that.
Look, if we do that well, as part of the Terminix Way as well, it gives us a chance to leverage our scale as a company to create well-defined career paths for people. So you can start off as an entry level technician, and we're going to train you and develop you and give you multiple opportunities to grow in your career.
Because that's one of the things we want people to, when they think about joining Terminix or selling their company to Terminix, want them to see this is not just the job, but a career opportunity. And we have significant opportunities for people here to get promoted, but we've got to facilitate that.
We've got to empower that. We've got to enable that through Terminix University.
Paul Giannamore: So when you think about this Terminix Way and all these initiatives that you [00:12:00] guys are focused on over there, in recent years, Terminix had publicly stated or ServiceMaster that there was going to be a focus on the retention of employees and derivatively, the retention of customers. It looks like you guys have made some progress on that, so when you came in as CEO and you started to look at the organization to determine where you were going to focus your efforts, what sort of things popped in your mind? How do you prioritize your initiatives? What sort of focus have you had, I guess, in the first year?
Brett Ponton: Yeah. Great, great question. And you're right. The team has been very focused on improving retention, both with our teammates, as well as our customers and have done a really nice job of that over the last 18 months in particular. I think it just shows you the power of focus and get the right metrics in place and align the incentives in a place you can drive good improvement here.
I think the encouraging thing for me is there's still runway for us to continue to improve there. I think we've been quite public about the fact that, if you look at our three service lines, residential, pests, we're [00:13:00] probably, we've got some significant opportunities to improve our consistency there. Termite, I think we're performing at a pretty high level today, but I also see the opportunity to improve and commercial, we probably got a little bit more runway to improve our service consistency from location. So that's still going to be a primary focus for our businesses. How do we drive retention with customers?
How do you drive customer lifetime value? And you do that by keeping the customers that you have, of course. And so that's still going to be a focus and it's certainly a cornerstone of the Terminix Way is how do you build a platform here that we can empower and enable our team to deliver that consistent experience from point to point?
So I think there was a little bit of a continuity play here with previous strategy under the interim CEO, who is now our chairman, I think, did a nice job of getting the team focused on those core areas. And what I brought to the table, I think, is maybe a little longer term view with more investments in the support mechanisms that's required to support that scalable model that ultimately leads to customer retention. The other area of focus that we've teed up pretty quickly here is just a [00:14:00] reinvestment in our marketing capability. Look, it's one thing to retain customers, which is the lifetime or lifeblood of this business, but also we have to have a really strong demand generation engine on the front end of this business.
And then we hired a new marketing leader who has brought in a different set of agencies that we've got, they're going through the learning process now of, learn our industry a little bit and they're certainly ramping up quickly in terms of building capability there, but we've got some opportunities there as we've commented on publicly, launched a new website, this little more consumer friendly to improve that I'll call it the omni-channel experience, whether you call our call centers or interact with us online, like we're doing in a way that we meet the customer where they want to be met in the marketplace.
So I think, in terms of focus, I think our organization is hyper-focused on the initiatives that lead to better retention for their customers, which is all about consistent service delivery and better retention of our teammates, which is all about Terminix Way, Career Pathing, Terminix University, et cetera.
And we think bringing those two things together [00:15:00] creates the sustainability. I think that comes in those metrics versus, maybe 18 months of improvement. We want to see that sustain over the lifetime and they can come through just building that organizational capability that allows us to unlock that value.
Paul Giannamore: So as the CEO, you're charged with setting strategy and effectively designing the organization, right? Then marshalling all the resourcing capabilities and, you think about it from a strategy perspective of people, architecture, routines, culture. And when I think about the architecture of a business, I often think about incentive structures.
So how big of a lever in Terminix is the incentive effectively aligning and changing these incentive structures? I think for me personally, having been in the industry for a while, some of the issues that I've seen, or at least internalized, when I look at Terminix, it's really been related to incentive structures and architecture.
So how do you look at that? What sort of changes are you making in the architecture of your business?
Brett Ponton: It's a great question, by the way. I think it's well said. In almost any industry, that [00:16:00] people are going to get what you incent them to do in most cases. And I think we're thinking about this in a bifurcated way. The first step is make certain you have the right operating metrics in place that you use to manage and drive performance with your team.
And then you have to incent your team to achieve the operating KPI objectives that you
Paul Giannamore: So you're saying first figure out what it is you're trying to do. What are we targeting here?
Brett Ponton: KPIs. Cause I think mistakes companies can make and not saying Terminix did, but if you try to use your compensation plans to drive operational KPI improvement, sometimes those things can be incongruent.
And if you over rely on a comp plan to manage your operations, you can create some bad behaviors in the business. So I think we're crystallized on the core operating metrics here. I think we've stabilized on the right incentive plan, certainly for our technicians here that creates the balance score card for our techs around productivity and customer satisfaction are two key elements of that and also reward them, I think, for incremental selling. I think there's [00:17:00] opportunities to tweak on the margins there, but I've learned this over time. Look, this is a people business and in our team that works for us, goes home every night to their family and asked to explain to them how they're providing for their family.
And I think the important point behind that is look, we're going to be very thoughtful about any changes that we would ever make to comp plans given how impactful it is to people's lives. And I've made comp plan changes in my past company, but we were always very thoughtful about thinking about that through the lens of the impacted teammate in our case, to make certain that this is, creates positive win-win opportunities for both the company, as well as the teammate.
Paul Giannamore: How do you think about the organization in general from, you've been at Monroe and Goodyear in a variety of different companies. When I look at the industry, I see on the one end of the spectrum, you have Terminix and Orkin, which tend to be more machine bureaucracy, command and control centralized operations.
And then of course, the Anticimex crew had made light of the fact that they're focused on more of a de-centralized [00:18:00] business. When you came into Terminix, how would you define the level of centralization at Terminix? Vis-a-vis some of the other companies you led in the past, and then where's your mind, going forward? Do you focus on more centralization, less?
Brett Ponton: Yeah.
Paul Giannamore: Or is it irrelevant?
Brett Ponton: First of all, it's a great question. We debate this as a team a lot as well, and I think it depends on the functional area of the business, too, and I'll get to that in a second. But when I got here, I think, look, I think it's fair to say as we talk about the importance of Terminix Way and installing standardized training and installing consistency with technology, we've been pretty decentralized, right?
We're operating on multiple technology platforms today and we've got disparate training and, some disparate operating procedures based upon the locations we're in. So my belief is, it's incumbent upon Terminix to establish the brand standards. So when we communicate to customers or consumers, there is a level of service excellence that they can expect from us, whether you're in the food industry or in Portland, Maine, or Portland, Oregon, going back to that.
But I think it's important to make certain that you can't, you [00:19:00] don't overly prescribe for the team. So I use the term "freedom" within a framework. You create the non-negotiables and say, if we're going to commit to the consumer that we're going to do these eight things on every stop, we got to do those eight things on every stop.
But outside of that, I think it's important to give the branch level people and the technicians some freedom to deal with day-to-day dynamics that always happen in a business that's route-based and schedule-based like ours is. I think what our team is working really hard on though, is to strengthen the technology that we're using so the product that our corporate team delivers to our field, hopefully it doesn't require a lot of refinement because we're delivering them a product and I'll use the example of routing and scheduling. We're delivering them a route in a schedule that they look at it and they say, "wow, that route really helps me be efficient and effective. And if I was designing it myself, I couldn't design it any better than the corporate team did for me." That's our vision in terms of wanting to get to that point. But until we're there, I think we've got to create enough flexibility in the model that allows our team on the front lines to execute what they [00:20:00] have to do everyday to take care of their customers.
Paul Giannamore: When you talk about implementing technology, when I look at Terminix and Rentokil and all these large companies in this industry, I think about you guys have Mission, Rentokil has Iris. Some of these computer systems make the IRS computer system look like 25th century technology.
So that's part of one of the initiatives you guys have been going through with Salesforce and a variety of other things. Can you talk a little bit about that?
Brett Ponton: Yeah, sure. When I did my first field visits and ride alongs it was quickly apparent to me how painful the process currently can be for our technicians, our branches, and our call center teams and, candidly, the customer. Given the fact, we have a lot of constraints due to technology today, as we talked about, it's been well-publicized and I think the strategy around investing in salesforce.com/our CXP platform, absolutely the right thing to do and a necessity in this business and will allow us to unlock significant value, I think, going forward. Because one of the things we lack today is that 360 degree view of the customer and delivering [00:21:00] great customer experiences is all about making certain you are informed and armed with every piece of information about that customer and where they're at in their journey with us.
And today that isn't exactly as fluid as we would like that to be in our company. So it creates workarounds and challenges, et cetera, not only for our team, but also our customers. So we're excited about getting CXP off the ground. In Q4 of this year, we intend to start to roll that out to our service organization.
We have made some incremental launches already though. We got our commercial sales team using the front end of Salesforce to help them better manage their sales territories and their prospect list on the commercial sales side. We just launched elements of our CXP platform for our branch management team to deal with quality escalations with our national account customers, which again, it's all about enabling them to get them the information that they need to deliver better customer experiences to their customers.
And then phase three will be starting in Q4 of this year. We start to roll out the full platform, company-wide to our [00:22:00] service organization. Look, I'm thrilled about it because it's just, it's going to give our team the opportunity to execute at a much higher level because they're armed now with a 360 degree view of the customer. It's going to unlock in a very big way, our ability to cross sell across market today, where we have a holistic customer view of our business versus maybe individualized service lines that we currently have through Mission. So it's just going to unlock a lot of value, I think, for our team to drive deeper relationships with our current customer base.
Paul Giannamore: And when you say CXP, you're talking about this platform that resides on Salesforce, is that
how
Brett Ponton: Salesforce certainly is the backbone and that's going to be the CRM platform, but there are back office systems that integrate with these systems that are part of the purview here. We had to make some modifications to our backend financial systems, AR/AP systems, et cetera, to create a much more efficient experience for the customer.
And can we create some efficiency for us in the back office that will allow us to operate a little bit more efficiently, in a more simplistic way going [00:23:00] forward?
Patrick Baldwin: Brett, in the past, it sounded like some of your stops work turnarounds is you were that first call, if you will "Hey, would you consider becoming CEO Terminix?" Was it introduced to you as, "Hey, this is a turnaround opportunity" and now, in it, is this the turnaround? Is that the frame of mind?
Brett Ponton: Yeah, it's interesting, but let me go back a little bit in my career here. I said there's two parts of my career. I spent the first part at a Goodyear, large company, and had lots of great opportunities there and got the pleasure and the fortune of working for great people and got a lot of great development there.
Second half has been primarily private equity backed companies with the exception of Monroe - was publicly traded, but in those private equity backed companies, no doubt, there were turnarounds. And I don't know where in my career I got labeled as a turnaround guy, I guess it just happened. I always liked tough situations, challenging environments, difficult problems to solve. Those are all things that I get excited about and helping the team transform and create value for all stakeholders, not just the investors, but everybody on the team. So a few of the stops [00:24:00] along the way, I would say were more financial and operational turnarounds, where you had balance sheet issues, as well as operational challenges.
And, for people that have done turnarounds, no. Those are like dog years sometimes when you're doing those opportunities, cause they're really hard and they require a lot of effort but can be quite rewarding. Terminix certainly isn't a turnaround by those standards. We've got a wonderful balance sheet, certainly with us selling ServiceMaster brands, we've got a balance sheet now it's leveraged, less than one and a half times.
Great cashflow in business as you guys both know extremely well. So we are in a great place financially, capacity here to do anything that we want to do as a business. So this is what I would consider a operational transformation here. We got a lot of great people on our team executing at a high level, given the tools and the capability that we've given them to execute over our first 95 years.
So the excitement for me is walking into a business, got great balance sheet, great cash flow. If we can focus a hundred percent of your energy on getting the operational infrastructure, right? To [00:25:00] unlock the value of the team to perform at higher levels.
Patrick Baldwin: From that operational perspective, what, in your first year, what are some of the quick wins that you've already got under your belt?
Brett Ponton: Yeah. I think the team's done a good job of really getting their arms around labor staffing and just building a strong competency across the network of the organization to better and more efficiently manage labor. So they've done a great job there. They continue to make great progress on improving retention, lower cancel rates through better consistent performance, deliver. And that's really driven by, the leadership team's done a nice job there. We're strenthening our marketing capability, as we talked about, we're seeing, improvements incrementally there as we mature. But I think, the areas that we're focused on is how do we do this in scale and a much bigger way that can drive sustainable performance over the longterm, but certainly I'd point to better staffing management, because we all know in this business, all roads lead to staffing, right?
We're a people business. You've got to get your staffing models and lined up because it's possible to deliver great [00:26:00] service excellence without proper staffing here. So we built a lot of capabilities short term to do just that. And, of course, get your staffing models right, teams can deliver the right service experience. You're going to see retention rates improve as a result of that. So good progress on that continuum that's translated quite nicely. The other area I think we've done a nice job of most recently here is we've gotten much more sophisticated, I think, in terms of how we price leverage and better analytics and a little bit more sophistication on how we price.
We all know we're in an inflationary environment here and certainly have to be attentive to that and make certain we're adequately pricing for cost structure to protect the margins in our business. And the team's built a lot of nice capability the last six months to improve our efficacy.
Paul Giannamore: On that topic of, potentially increasing inflation, we're in a very different era now than we have been over the last 30, some odd, almost 40 years. Clearly we have a labor availability issues. We have commodity price inflation, not particularly Terminix, but just in general as a CEO of a large business, what sort of [00:27:00] concerns do you have about, look at fuel, right, as a primary example. What sort of concerns do you have about inflation going up?
Brett Ponton: First of all, yeah. Top of mind for us, we're thinking about it. Certainly the labor side more so probably than the inflation, but there's certainly wage inflation considerations. When you think about shortages of labor, but going back to the industry a little bit, just for a second. One of the things I like about our industry is I think we do have the ability to pass on a lot of inflationary costs to the consumer or to the customer in many cases.
That's a great thing about our industry, right? A fairly low price point on the services we provide. Taking a 3, 4 or 5% increase is, can be digestible by consumers and customer. So we, I liked that about the model, by the way. So our focus right now is, I would say, largely focused on staffing.
So a few things that we've done that we bifurcate discussion around staffing. Our sales professionals has been an area that's we commented on our last call that was a little bit light for us. We've had significant vacancies in that area. And of course [00:28:00] those resources are the ones primarily doing inspections and sell a lot of our termite and home services business, so came up a little light in Q2, probably driven a little bit by some challenges there on the technician side. And our value proposition is pretty strong there as a national player. Certainly we're seeing pockets around the country where we got a little bit more wage inflation and staff availability issues there.
But generally speaking, I think we're in pretty good shape there, but having said that we've improved our marketing capability on how we market to people or HR teams that are really nice job. I think of presenting the value proposition on "why come work at Terminix." And I think in a more simplified way that hopefully is resonating better and we're seeing that translate into improved candidate flow into our brand today. Certainly Terminix Way, Terminix University, Career Pathing, supported by technology, are going to be core tenants of our value proposition going forward as those things launch in 2022. Just enhances our value proposition on why you [00:29:00] want to come to Terminix and, candidly, why you want to stay working in Terminix because of the career opportunities we're going to develop you to move along the career continuum by being part of our team.
But coming back to the point, all I'd say is certainly staffing is top of mind for our team right now, and the team's hyper focused on improving our capability there.
Patrick Baldwin: I have a question from the operations standpoint. Can you tell us more - in the last year I've noticed Terminix commercial, the split went away. There's no commercial, residential, it's brought together and in that experience to the customer and the other is the termite typically has been an annual renewal and I've seen you've made the switch to a monthly model there. Can you tell us about that?
Brett Ponton: So let's first start talking about maybe the motivation behind us bringing in commercial and resi under one leader. By the way, we still are separate down at the field level, the execution level. We recognize there's distinct differences in commercial and residential, and we're very committed to both models here and we're going to continue to be, and I think Terminix Way and Terminix [00:30:00] University will demonstrate that in a big way. So, reason why we brought them together, at least near term, is when we sold ServiceMaster brands, we were still left with a back office infrastructure that was there to support ServiceMaster at multiple divisions.
So to get at simplifying our back office, it was important for us to get to one Terminix, one team, at the senior level of the organization. And the intent was simplify the back office to free up some SGNA dollars for us that we could reinvest in areas that's more revenue facing or field facing, pricing team, marketing team, routing and scheduling team, training and technology are all getting invested by simplifying our back office in our business so that was really the motivation behind that. So we're still separate out in the field organization and we recognize the need to do that.
Patrick Baldwin: In the termite, you also made a move to monthly?
Brett Ponton: Yeah. Termite, monthly, which by the way, if you look at Q2 last year, when the team, I thought the team was really thoughtful about [00:31:00] putting that together. The intent, of course, was how do simplify the value proposition to the consumer? How do you promote more bundling between our standard pest and our termite value proposition?
And also, how do you address the concern a lot of people have, which is price point? And, of course, we looked at the data historically, cancellation spike, usually in year two or year three, when they're faced with that renewal invoice, and, as you migrate and move things to a monthly pay, it certainly becomes a bit more palatable for consumers to pay that over time, rather than face that step up in that expense once a year that they saw before.
So we're still pretty committed to that play, going forward. Obviously, it's worked well for us and we think the monthly subscription pay model just makes predictability with the consumer, much more transparent in their eyes. And there's certainly evidence with a lot of other companies and a lot of other industries that have executed that model pretty well.
Paul Giannamore: And would you guys do that on baiting and liquid renewals? Is that how that'll work?
Brett Ponton: Yeah.
It applies for both your termite [00:32:00] customer, termite evolution. It's monthly pay is the option there. And of course we're, our primary service method is the methodologies what we're using today for our primary treatment method.
Paul Giannamore: Okay.
Patrick Baldwin: In selling the brands business, I know that was very early. I didn't even, it was already going
Paul Giannamore: It was half in the bag. Yeah.
Patrick Baldwin: I think your name was on the announcement. Was it October it was finalized?
What does that do, as far as getting away from - you just spoke about it, being able to focus, but now you're pure play pest control.
So what does,
What changes have you.
Brett Ponton: It's great, great question by the way. By the way, it was a topic of conversation I had with the board before I joined the organization, cause I knew the board was evaluating strategic options there and they were kind enough to ask for my input on that because they knew I had a lot of franchising experience in my past life.
AAMCO was a franchise model and when I was at Heartland Jiffy Lube, we were a franchisee. So I've got experience on both sides of that transaction in the franchising world. But my point of view with the board. Look, I think you have to choose on where you want your expertise to be. Do you [00:33:00] want to be a world-class franchise or do you want to be a world-class operator?
And it can be very difficult doing both really well. And so given the valuations and the opportunity in the marketplace to create value for our stakeholders and get our balance sheet streamlined, but also I think the benefit of executing that transaction was, to your point, Patrick, getting the organization focused on one thing and be world-class at that one thing. And, certainly as we now exited ServiceMaster brands, we have one team, one Terminix, one focus as an organization. And that's the great, a company here that is the global leader in pest management. And we're setting out on a journey to become that.
Paul Giannamore: But you raised an interesting point. So some of my friends in the industry, who I've had for years and years are franchisees, are Terminix franchisees. And there's been some great years of relationships between Memphis and the franchisees and then there's been some strained years.
You, I guess now though, [00:34:00] that I think about it, bring a very unique background because you come from that world, whereas some of your predecessors did not. So how do you view the relationship between Terminix in Memphis with the franchisees going okay?
Brett Ponton: I think there's opportunities to improve. There is everywhere. We still have, I think, 21 franchisees that are operating the brand. And by the way, of those that I have met, they're wonderful operators. They run great businesses, great family businesses, and they have done a great job of representing our brand in the regions that they are responsible for. And I look forward to getting out and spending more time with them. And every time I go out and spend time with them, they have built world-class capability around training and operating procedures that, candidly, the franchise or in this case can learn a lot from and take best practices from them.
But I think our visionary here, going forward as we strengthen our capability with Terminix University in particular and training capability, certainly over time, we want to make that available to our franchisees if they want to take advantage of those things, because as a franchise or it's all [00:35:00] about making the brand stronger and better on a national basis in this case.
And I think we have opportunities to collaborate more with them to help do that. So our objective here is to create more value for them to where they see more value in the value of the franchise. But also I think selfishly here there's opportunities for us to learn a lot from what they built as a franchisee that I think they've been quite receptive to you, by the way, in sharing those best practices with us.
So I have been on both sides of them when I was a large franchisee for Jiffy Lube, where their largest shallow oil company own the brand. And I've been in meetings and conference rooms. There's always a debate on who's creating the value for the brand, right? The operators are always closest to it and they see firsthand what things you've got to do to really create operational value in the business.
It's a little harder when you're just a pure play franchise or to get that close to it. And that always creates, I think the fun debate you had between franchisee and franchisor that I've seen in the past life. Here, though, look, I just got nothing but higher respect for our complete [00:36:00] franchisee network here. Look forward to getting to know them better. And I'm so proud of how well they've represented our brand in the regions that they own for us as a business today.
Patrick Baldwin: I know you that you are a strong marketer, just looking at your bio. And so we've heard Jiffy Lube, AAMCO, Goodyear. You grew up, your dad, if I remember, grew up through Goodyear and you looked up to that from just a, maybe a nostalgia perspective and how they took care of your dad. Terminix, I think, is a great marketing organization. How do you come in and take Terminix to the next level?
Paul Giannamore: Arguably one of the better marketers in the industry, right? I mean, Terminix never had a problem with marketing.
Brett Ponton: Yeah. I I think it's an evolution of the channels you use for marketing rights or, like we all know, the world has evolved where everything is virtually digital, right? So we're on this journey to become world-class marketers through the digital channel. And that means you gotta be outstanding at SEO and you gotta be outstanding at SEM.
And be outstanding at SEO, you got to really build really [00:37:00] strong websites that are designed for SEO. And you got to make certain that this business, albeit a national brand, it's a very local business, as we all know. You've got to make that brand come to life at a very local level. So optimizing our SEO at a localized level is top of mind and of the utmost importance right now, our marketing team.
So we think that's going to be your biggest source of lead gen. At least online is from that. We talked earlier about the opportunity to unlock a lot of potential through deeper penetration with our existing customers. And we're constrained a little bit with our systems there to be able to do that a very high level in terms of marketing to our customers to cross sell, and then, candidly, unlock the potential, the full potential of our 6,000 technicians that are touching our customers, four or five, six times a year to unlock their potential to cross sell.
So all those things will start to come together as we get CXP off the ground and put those tools in the hands of not only our marketing team, but certainly our technicians and our sales team out in the field. But in terms of marketing look great-great brand but our focus is really about how we [00:38:00] build out that world-class digital marketing capability to build upon the wonderful legacy that this organization has had in building great brands.
So, I think at the end of the day, it's know marketing 101 a little bit. We got really strong brand awareness in this business. We've got to translate the brand awareness into making certain you're part of that consideration set that a consumer chooses and then ultimately chooses your brand. And we know that all happens at a very localized basis.
And we also know that happens usually on a mobile device when you're searching for pest control near me or termite control near me, you got to win that first moment of truth when that consumer searches on those key words. We've got to be top three and we've got to have a five-star rating in every market that we're in.
And if you do that well, your SEO ranking is gonna improve and you're going to win that online search, a battleground that we certainly are competing in everyday, today.
Paul Giannamore: Yeah.
So about one of your prior roles, you were in a marketing role, but if we go all the way back, where did you really get your start?
Brett Ponton: Well, if you want him to go all the way back, [00:39:00] Paul, I guess look, I grew up in a small town in Nebraska and Patrick mentioned this before. My father worked for Goodyear Tire, but he was in a factory. He was a labor worker in the factory. My mom was a small business owner, so I saw firsthand a humble background working class family - father worked in the factory. My mom was trying to run a small business and so I thought it was a great foundation for me and my career. So that's the reason why I started at Goodyear, candidly. I had an affinity for the brand and loved the heritage and, candidly, the company was good for me. It was good to have my family provided. I think everything that we ever wanted in life, at that stage, certainly was provided in large part from that company.
So there's always I'm always going to have a deep love for that company because of what it did for my family, but that's where I started my career. And while at Goodyear, that company was wonderful in terms of how it developed leaders. They have wonderful leadership training. And I had the really fortunate experience to work for really great people.
Every person that I had the pleasure of working for there, I [00:40:00] learned from. And I just believe good leaders make a habit of being lifelong learners. And you can take away something from everybody that you had the opportunity to work for along the way. So when people ask me a lot around, what's your leadership style, I always tell them I'm a little bit of this person. I'm a little bit of that person and a little bit of that person, because I took best practices from every leader I work for and developed my own style, from that. And Goodyear gave me the opportunity to do that. And the reality is I had every intention of probably retiring from Goodyear with the gold watch, 35 year career. But probably in the mid-2000s , I got intrigued by private equity, this really vogue and Goodyear had some relationships with a couple of private equity people that were helping out on a couple of projects. So I got intrigued by the model and the intensity that the PE guys and they brought to those discussions.
And at the time, the Carlisle group bought Goodyear's engineer products division from the company and I spent 10 years of my formidable years in that division. I was asked to go over and run the Asia [00:41:00] Pacific division from that company. And it gave me the opportunity to move overseas, get some experience outside the country, running a business, working for a blue chip private equity firm, like Carlisle, and that led to an opportunity to run a Blackstone-backed company with Jiffy Lube and then a company that American Capital owned, that'd be in AAMCO.
Paul Giannamore: Which was my former employer, American Capital, out of Chicago.
Brett Ponton: So great firm, by the way. They were a great firm to work with. Great. Really felt a partnership between the private equity sponsor and the management team there. Better so than any other firm that I've worked for. So that's how I got my start there, but it all started from very humble beginnings.
And I think that helped frame me and my mindset towards the service industry in particular which is why, I guess I gravitate more towards either automotive or our services space because I like the people that I'm working with. And as, I'll give you a couple of examples, when I would travel and visit stores, in particular, Monroe or Jiffy Lube or others, I'd always spend time talking to the techs in the back of the shop and people would always ask me, "why do you spend so much [00:42:00] time talking to those guys?"
And my response always was, I saw how the management at the Goodyear factory treated my father. You know, he was just a worker on the line and they said, made a note to myself that if I were get into a role where I get a chance to lead people, I'm going to treat them like people have treated my father and that's always framed in my attitude towards people and I guess an affinity I always have for frontline people. They're the ones making the model work day in and day out. And so anyway, so that's how I got to where I got to.
Paul Giannamore: Your father was working on the factory floor, though. That's not how you came into Goodyear, right? I What was your first - what were you doing on day one?
Brett Ponton: So actually I was working on the factory floor on day one. So I, in the summers, when I was going to school, I played football in college for the first couple of years. And then, but after that, I worked at a Goodyear factory in the summer months and my father pulled some strings to get me into the worst jobs that you have in a tire factory or rubber factory.
And that's [00:43:00] the Banbury. And the Banbury is where you mixed the rubber. And the temperature in the Banbury is 120 degrees in the summer months.
It's a very black job, where you're black, head to toe, worst possible job you can have. And in the factory, I had it for two or three summers, so that's where I started with them.
He did it for a reason, right? He said, " I want you to see how tough this is, obviously keep you pretty committed to getting your education and moving on with your life." But my first actual full-time job at Goodyear was I was a manufacturing supervisor so I oversaw 50 people on a factory floor at our Lincoln Nebraska plant at the time.
And a strong union environment is where my first job was. So from there I moved into sales/ marketing roles within Goodyear and got beyond my finance education and went up the path through sales/marketing roles and, ultimately, into general management. And then I was vice-president of the marketing division at Goodyear when I left the organization.
Patrick Baldwin: Lot of history and private equity. And now this is your second stop - CEO of a publicly traded [00:44:00] firm. What similarities and differences? It sounds stressful just saying, asking you about it.
Brett Ponton: Well, look, obviously very structured environment with the public markets, right? The SCC does a good job of creating transparency and visibility for investors, which is great, right? Look at having access to the public markets is great from a liquidity point of view. Yeah, you get access to what a lot of private companies don't have, which is all good.
And investor basis that come and go, of course. Probably one of the challenges, of course, is you have multiple stakeholders you've got to manage, right? You have a wide array of different investors with different thesis on the company and different entry points. When they enter the investment, if you will, and certainly private equity, you don't have that. Most cases, you have one investor that's got usually the same basis, cost basis, on the investment as the management team does. You align on a strategy and a vision and you execute quite efficiently there, but I think both habits have their strengths and weaknesses. And [00:45:00] look, this is my second stand, as you've said, so I'm quite comfortable in both environments here. Wouldn't say I prefer one over the other necessarily, but I think I've learned a lot in the private equity space that certainly has translated, I think, in navigating the public markets.
Patrick Baldwin: After selling off brands last year, a lot of cash on the balance sheet. I think 1.2, 1.3 billion after tax. I'm asking this from a very ignorant, because I can, because he's smart and I'm not. I think, you know that. You bought back stock from the shareholders recently. I don't - tell me what that means. What is that signaling?
Paul Giannamore: Yeah.
Brett Ponton: Yeah. So let's move up a level and just talk about capital allocation for a second. So I guess that's the other role of management here is to allocate the capital here and what's great in our business is it's great cash flowing business, right? Terminix will generate $250 million of free cash, this year, take away.
So we've got a ton of cash to allocate, not to mention the cash we have on our balance sheet post-sale. So the first thing we did though, is we delevered the balance sheet, right? We paid off some term [00:46:00] loans at higher rates, which we thought was the best use of funds at the time, but from an allocation point of view, going forward, our primary focus is going to be on growth.
Look, it's a great industry growing, right? We're a growth company. We want to grow. And if you look at the first half M&A deals we've done this year, we've already done the first half, more deals this year that we did all of 2020. So we're pretty active. We expect to be pretty active, but we're trying to strike this balance between be active in the M&A market while we are building a strong operating platform that we're confident we can generate a higher return on the investments we're making to our shareholders. And that only comes with having world-class service delivery across every location, supported with training and technology. So reenter Terminix Way, Terminix U., CXP, constant theme on building this platform out.
So while we're building that platform out, we've gotta be pretty measured on where we make these investments. So we're still generating a lot of cash, still have a lot of cash. So we elected in the first half to give some of that back to shareholders. So at least at [00:47:00] this time, there's not a better use for us right now.
Given the work that we're doing right now on building out Terminix Way and doing the accretive add on tuck-in deals we've done in the first half here. That's going to change. That's going to ebb and flow. We've certainly got the capacity to do something much bigger and transformational if it comes along, but in the interim, we think it's prudent to give, share a cash back shareholders by buying our shares back to do that.
Now, having said that, we'll say we're August, the September timeframe, is our time where we review capital allocation with our board. So we'll revisit that. And, I think when you look at a company that generates the kind of cash that we do certainly we'll be evaluating a dividend policy here at some point as another mechanism to return some of the great cash flow that this business generates back to our shareholders.
But just coming back to the point though, like our primary focus here is on growth though. We're going to continue to be active on growth.
Patrick Baldwin: Yeah. You've, in previous stints, you spent time overseas and in China and Australia to Terminix, I [00:48:00] remember it operates in at least 20 countries. Is the goal to continue to expand to more countries?
Brett Ponton: Yeah, I think you're going to see us try to be very focused in, call it North America and Western Europe. Those are great, very attractive markets. And I think it's coming upon us to build a business model here that's growing at the rate of growth in those markets. There's not a lot of value in adding a ton of complexity to your business while you still have plenty of runway to grow in the markets that you're in, so you'll see our focus primarily there. Love the investments we've made in the Nordic region in Western Europe. Our platform in the UK is performing well. We've got a beachhead in Spain. We'll continue to develop out Western Europe in a bigger way while we're building out North America, of course. Having said that, in other regions, we have a wide array of relationships with joint venture partners, et cetera, that we've done in those other regions.
And we'll continue to use those as opportunities to get exposure into those other geographies without taking on the operational burden exclusively while we're [00:49:00] building out the platform here in North America.
Paul Giannamore: Now, as you talk about capital allocation at M&A, clearly, I think by any objective measure, the market's absurd from a pricing perspective, right? And so we had somewhat of a law in '20, obviously due to the COVID crisis, but now we're back. Government is blowing a ton of money. You've got fiscal policy, monetary policy. Everyone's throwing money on stuff. Prices have now ratcheted up. As the CEO of a publicly traded company, trying to allocate capital, I would imagine it's very difficult. When you look at the prices of these assets, when you consider your cell phone, if I've got to pay X, why not just take that cash and redeploy it elsewhere either and hand it back to the shareholders or invested in marketing.
So when you start to think about, I guess my main question for you is twofold. I want to talk a little bit about how you said the future growth via acquisition, maybe over the next three to five years. And then I also want to talk to you a little bit about what [00:50:00] type of acquirer you aspire for Terminix to be, what sort of partner you want Terminix to be for other independents out in the market.
Brett Ponton: A capital allocation. Yeah, no doubt. The multiples are very lofty levels and, having sold three or four companies in private equity transactions, I wish I was selling in this environment as we all know, timing is everything and, people that truly understand and appreciate that are quite intelligent by exiting now, given the multiples where they're at. Having said that, I think, given where we're trading at as public traded company, the deals that we look at and given our scale and the leverage we have as a national player, look, they're still accretive for us in a big way. So it still makes sense for now, I think, for us to be pretty active in the marketplace, although it's not without its trepidation and hand-wringing a little bit over some of the lofty multiples that we've seen here, but so we're going to be pretty disciplined and selective about that, which kind of segues into the next point around what do we look for? And I think we'll use the Waco [00:51:00] opportunities as an example, because I think it's a great example of what we're looking for, which is look, we love great management teams that build a great business and a great brand in their local market.
And because we recognize one of the things that we were acquiring here, in some cases, a brand, but it's a business model. We're buying a culture and we're buying a team in most cases. And I think it's important to make certain that all those things line up and are congruent with the culture that we're trying to create here.
And so I think when we look at deals, we go through an assessment process and try to check the box and say, do those things fit. Having said that, we're also evolving as a culture at Terminix. I think we're trying to be and want to be a little bit more open-minded and humble in our approach here, recognizing that even though we may be one of the largest players in the industry, there's lots of smaller companies out there that have perfected best practices that we can learn a lot from. So I always like to think about deals as more of a merger of ideas and team versus an acquisition per se. But I recognize we've got some work to do with our organization here to [00:52:00] make sure, culturally, we're creating that environment that's receptive to those ideas here as well. I think part of the other reason why we're investing so much in our team through Terminix Way, Terminix U., and the technology, is I want people to be excited about joining Terminix to see, hey, look, we realize, as a large $2 billion company, we can afford to invest in more things than a smaller business can.
And certainly, the scale of our organization creates more management opportunities. So if you have young people in companies, we're buying part of our value proposition here is, hey, you've got a great career here and the reason to believe that this can translate into a career is number one, you've got hundreds of opportunities to get promoted at Terminix, number one, but also we're going to put you on a path through a career path with the right training development to help develop you, to take on those incremental opportunities in your career. So bringing all these things together, I think creates the power in this business because I do realize right, in some cases, and I saw this in my past companies as well, sometimes with the large national, in [00:53:00] our case, global company, your biggest strengths can be your biggest weaknesses and that's scale. And so the opportunity here is how do you take a national brand, global brand, but make it still feel pretty local by empowering the team to perform at a very high level.
And I think you get that when you have the opportunity to acquire companies and teams that have that local connect, that can bring your brand to life in very strong way. It's so important, I think, in this industry, in this model, going forward.
Paul Giannamore: Yeah. When I look at it, I always think to myself, when you're doing an M&A deal, not really doing a deal with a company, you're doing a deal with the people.
All the way from your level, all the way down to the floor. And one of the things that was acutely apparent to me in this Project Black Bear - was internal name for this transaction - but your guys on the ground in Texas actually saved the day. They're the ones that not, was it not Bruce?
Patrick Baldwin: That was Bruce around, a hundred percent.
Paul Giannamore: It was
Patrick Baldwin: I could put Bruce [00:54:00] behind the desk or in Bob's seat or any, and you would not know he was a different company. He is such an incredible culture fit.
Paul Giannamore: talk a little bit about this. As we went through this whole M&A process, these are competitive processes and we go out and we deal with you and Rentokil and Orkin and everyone. And, we had some great meetings. Your M&A team has been retooled and is very efficient and effective and been a joy to work with over the last year.
But the rubber meets the road when the principals start to meet the operators. And there was a lot of apprehension, right? Like when you guys, before you met with Bruce, Bobby was like, "ah, I'm not sure. I'm a former Terminix guy. I'm not sure if we're going to fit in culturally."
Patrick Baldwin: And even to back up my two years before, I connected with Bob and I did not like pest control, but inside of not liking pest control, I remember my old boss being like, "I would sell to anyone but Terminix and Orkin when he decides to sell." And so that was stuck in my head all along. And Bob built [00:55:00] 855 Bugs based on his training and experience from termite helper all the way up to managing over 50 people. And so he would say, a lot of people throw stones at Terminix, but he'd be quick to say, hey, they do a lot of things - they wouldn't be a successful company if it wasn't doing X, Y, and Z.
And so we looked at Terminix as far as local competition and make sure that we're staying on our A game, but it was an interesting experience hearing it from Paul all these years and especially the last year and a half to experiencing it internally and actually seeing it and so it was more than just a dollars and cents and it was, started all the way from having those initial teams meetings.
And, candidly, it was tough, and having those calls and it wasn't the first one that we had. There wasn't a good connection on it and maybe it's cause it was virtual. And maybe that was just the environment we're in now. But actually Bruce being about four hours away, your division VP, and making, deciding to make the drive to Waco [00:56:00] and spend an hour and a half or two hours with us at a TexMex restaurant in town - night and day difference. It was in. I don't think it was anything canned.
Yeah.
If we really believed in the opportunities that Terminix gives, would give, is giving to our now former employees and the way they could move up and they could sell more and do more and safety. And it was an answer to so many questions.
Brett Ponton: First of all, I'm glad to hear you say your experience with Bruce has been great because, by the way, he was one of the first people that I met when I went with Terminix and Bruce is a product, candidly, of a nice career path here, by the way. He, when Lance Martin moved up to our senior VP of field ops, we promoted Bruce up to run the south central division here for us.
So Bruce was a wonderful leader, great servant leader who, he would be a model leader for our company. And I think we want all leaders to aspire to lead at that level. Really enjoy having Bruce on the team and glad to hear you felt the same way. But I think, let me just come back for a second. Cause I think I want to anchor on a point you made. I'll give you my own personal experience. When I [00:57:00] sold my first company, I sold the private equity transaction. It was maybe a little bit of a similar dynamic where the deal team did most of the work and I built a relationship with the deal team.
And then I didn't even get to know the operators until after the transaction closed. And that was really hard for me to go through that journey. Cause I'm, like, I've built the relationship here and then it completely flipped. And it changed the dynamics a lot. And I think, with the feedback you're giving us here, which is important feedback, which has engaged the operators early on. And I think It's also very important to me and my past companies. We did that a lot just because the minute the transaction closes, you're part of that team. And it's important to get to know Bruce and his team because that's going to be the support mechanisms and the support organization that's going to onboard you and orient you to the culture and hopefully learn the best practices that you guys have developed nicely here, that we can apply those best practices and Terminix. And so that's good feedback. And I'm really glad to hear, though, that you have great connection with our local operators. And in many cases, it takes just that getting operators in the room, talking to operators [00:58:00] about how we run the business and deal with localized issues that are always incumbent and inherent, I think, in the regions that we participate.
Patrick Baldwin: It's powerful also to transition the employees and the onboarding when you have Bruce, a product of an acquisition some 30 years ago. And you've got Andrew Klein that made the trip down to Waco, also a product of acquisition. And I can say, I feel having these back off, almost off the record conversations with a lot of your people, Terminix employees, just saying this is, the last year has been great direction. Like I was trying to find something that came about just give me something to throw at a brand yours.
Spoken, well-spoken of from your employees. And look forward just to the leadership for Terminix as a whole, but also locally. These are people still, I'm going to have to run into at HEB or Walmart or wherever, like I'm gonna see these people around town or see their truck. And I still want to be able to greet them and be like, man, I'm sure it's going awesome.
Brett Ponton: At that point, they're just bringing up a point. I've learned this, my [00:59:00] four last stops where we were highly acquisitive in those industries and their own and we probably bought over a hundred companies probably in total. But you learn a lot about the psychology that goes into a deal, right?
And you guys know this probably a lot better than I do, but I saw it firsthand. These are emotional decisions for people. They built a wonderful lifelong business. They got plugged into the community. They built great lives for their employees. And now they're making a life change.
And you go through a whole emotional roller coaster as you go through that process. And, but I also know there's a decision tree y'all go through. And it's course, you've got to get there on value and assuming everybody's gonna get there on value, then it comes down to how do you differentiate yourself?
Do I sell to this company or another company? and I firmly believe it's so important to use that in your assessment. And that's why I think we're so invested now in let's get the right culture right at Terminix. And let's make certain we're investing in our team and [01:00:00] creating those career paths because I want you to feel good as an owner, as you hand the keys over to your business and your employees. That you lay awake at night and feel good that they're in good hands in our organization, given the investments we're making in them and their careers. So we still got a lot of work to do there. We're clearly not perfect there, but as we get these tools rolled out, we're going to be a very strong acquirer and integrator, I think, and opportunity creator for people that we acquire going forward.
Patrick Baldwin: It's just been two months ago or less than three months ago, we had lunch with Bruce and I'm thinking about the emotions walking into lunch versus the emotions walking out of lunch. Just, it was so like Bob and I were just looking at each other like, "oh, wow. I think that's it."
I think this is in just the offer, it was exciting. And I want to know whose idea was it for Bruce to come to Waco? That's the person I need to thank.
Brett Ponton: Yeah, I think she's sitting right over there.
Patrick Baldwin: Thank you, Christie.
Brett Ponton: Christie's got a lot of experience as part of the change with our M&A team. Christie Grumbos has done a great job of leading a [01:01:00] team, rebuilding a team, and a team focused, I think, on humility and listening, and also making certain that the people that are considering selling get access to the people that will help them make those decisions in a much more informed way.
It's, by the way, this is a marriage, right? At the end of the day, we don't want failure in that marriage. It's not good reflection on our brand. Lastly, we want is you guys saying, wow, I made a mistake. I wish I never would have done that. And if I had to do it all over again, I never would've sold to Terminix.
That's the last thing we want. So we want this to be a good fit and it's gotta be a good marriage. And I'm glad to hear that we were able to put that together and we're excited to have the team join our team.
Patrick Baldwin: Yeah. And to think, too, just one more thing about Bruce and the conversation. I know he manages a lot of revenue, right? Roughly a quarter of the nation, is the way I have it pictured in my head, and knowing how big 855 Bugs was, I never felt like it was about numbers. For just the employees and the opportunities and just, I know it pales in comparison to what, it's a small change in his revenue he's responsible for, [01:02:00] but I never felt like.
Brett Ponton: One of the things I'm passionate about is, you know, servant leadership model, and I'm a big fan of Jim Collins. Remember his book, "Good to Great"? He talks a lot about level five leadership, right? And level five leadership is all about how you build team leaders that can lead. And how do you build a model here that will survive leadership change?
And I'm passionate about both of those things. And so we're highly committed to developing leaders in building leadership infrastructure, but overlaying that as the importance of servant leadership. And I just feel strongly about flipping the org chart upside, right where I'm here to support my team, that's supporting their team, et cetera.
And it's my job to invest in the tools, the training, the technology to unlock their full potential. And I think, when I look at Bruce Wren as an example, he is a, he's the epitome of a servant leader. He lives it, breathes it, every day and how he leads his organization and you saw that firsthand. And authenticity is important too, I think, in this business, transparency, authenticity and check the box on both of those with Bruce as well. He's [01:03:00] quite authentic in his approach. And if you look at his background - very, very similar to my background in the sense that pretty humble beginnings and quite grateful in terms of what he's enjoyed in life and is very respectful of the values that were created with him, through his upbringing. That all comes out in his leadership style that you saw firsthand.
Paul Giannamore: Yeah.
Patrick Baldwin: And about leadership, and I think maybe this was in part of the Terminix Way. It's not just, Hey, you're going to go out and treat for bugs, but what leadership skills are you imparting on your frontline leaders or your branch managers?
Brett Ponton: Yeah. I think it's go back to the servant leadership model, right? I think we all have to realize in the organization, our success at Terminix is a hundred percent dependent upon those 6,000 technicians, those outside sales professionals, our inside sales group. Those people touching the customer every day are what drive value in this business. Everybody above that, candidly, is overhead. And the value that we create here is not telling them what to do but how do we coach them? How do we develop them? How do we encourage them, inspire them? That's the [01:04:00] role of the leaders. And we have to build a suite of leadership training to help enable that. I'll give you a couple of examples.
Some of the best leadership courses I've been through in my career start with listening skills, right? Being great listeners and being really attentive to what your people are telling you to be responsive to how you can help them. And if you have this mindset where you flip the org chart upside down and say, my reason for being in this organization is to support you, it starts to shift the mindset versus the traditional hierarchical way of leading, which is, "Hey, I'm the boss. And you do what I tell you to do." And look, we're on it. We're going to be on our journey here. But I think what's great about the company is we have got a lot of servant leaders already in Terminix.
And you saw one, in particular, with Bruce Wren. And so we got a playbook here that we intend to develop and scale. But it starts with those principles. I think that we'll be developing out with our team. And, as with leaders, you knew this running your own business, and it's all about problem solving, right?
That's really our role as leaders is to knock down barriers and to solve problems for them. And how do you help make their [01:05:00] life easier, more efficiently so they can execute their job to the highest level and the best leaders out there assess, analyze, help them solve problems. And that's why I think transparency is so important and we're driving for that at Terminix because we can't solve problems unless we know about them.
And, in many cases, you've got to get visibility at more senior levels to where we can solve problems and more scale to really help our team out on the front lines. And I think we've made a lot of good progress over the last year in improving transparency with our team that gets us a bit more visibility to where we can help our team perform by addressing some of the challenges they encounter day in and day out.
Paul Giannamore: So we've covered a lot of ground today. The one question that's popped into my mind, you live in Memphis. What's your day-to-day look like besides talking to Patrick about Bruce, right? What do you do on a normal day to day?
Brett Ponton: Yeah. Look, as you might expect, a lot of time with investor relations. I spend a good percentage of my time there as we get introduced to the investment community is a big part, but spent a lot of time on strategy work. [01:06:00] But an area I don't spend enough time in, I want to spend more time, is out in the field. That's my passion is I want to get out in the field, ride-alongs with techs and branches. Certainly COVID has limited our ability to do that.
And, by the way, even in the office today, we're limited. We only have probably less than 50 people that are in our headquarters cause we're still working remotely as well.
So as you might expect, spend a lot of time, currently today, refining strategy. Really getting the roadmap built for Terminix Way, making certain CXP is on the roadmap or on its roadmap and aligning the organization right on the right operational metrics and cadence that gives us the visibility we need to make certain that the metrics are moving in the direction that we want to see them.
And probably lastly, I would say probably spending a little bit more time in the marketing area, just given my passion for that and expertise. I think I can help Alex and his team with. That has been an area of focus for me as well. And we probably saw it as well, we've been pretty active. We brought in two new directors on our board recently and just [01:07:00] onboard a couple of two members of our new team with Deidre Richardson, our new GC and joy Waldo, our new CIO.
So we've had some new folks into the Terminix brand that were getting oriented and getting stabilized so we can get the entire organization inclusive of the board, a hundred percent focused on Terminix Way and execution of our new term plan.
Patrick Baldwin: Now with COVID and putting people it's almost a forced de-centralized model, safety, I'm sure, is number one. Is there move to get people back or is there something that's missing? Because everyone's not together?
Brett Ponton: Yeah, look, I'm a big believer in collaboration, right? I'm a big, and it's tough to do that, on a zoom call or a
Paul Giannamore: It had to suck for you - new organization, and you can't see anyone in person.
Brett Ponton: It was really difficult. My style, at least at the headquarters, is more managed by walking around. I love popping into people's offices and getting to know them and understand what they're working on.
And I think the more time you spend together as a leadership team in particular, you get aligned on how people think. And that's so important is get aligned on people's thinking style. Cause once you understand [01:08:00] how people process, think through issues, it creates more efficiency in that relationship going forward.
And you're right. It's been a little difficult. We haven't had people together to get aligned on thinking style and approach to problem solving, et cetera. So where we're at, I guess we got our senior team is in the office for the most part, full-time, we've got most of our finance people are in on occasion, but our plans are guess mid-September we'll look to bring our team back in.
It's a little bit up in the air now with the Delta variant, of course. So wouldn't surprise me if that doesn't a slip to January 1 before we get everybody back together. We've loosened our protocols a little bit out in the branch locations to where we're allowing a little bit more team meeting environment there that the team is longing for, candidly. They love their community and they love their teams and they've longed for getting the opportunity to get back together as a team at the local branch level. So that's evolving, as well in Q3, Q4, as well.
Patrick Baldwin: I have a question. I know, I believe you really thrive and enjoy the time that you spend on the front line, riding with a [01:09:00] technician. I see from a branch manager perspective, you get caught up and you're thinking about all the extra stuff, just HR and payroll and all the stuff that really doesn't move the needle. Is there a quota to the branch managers to ride along with technicians or ride along with salespeople? And, if so, what conversations would you have to a branch manager? Like here's the things you need to be talking about when you ride with them
Brett Ponton: today?
Yeah. Great question, by the way. So two things on that. I think, first of all, my job and the rest of the senior team's job is to create the organizational capability that takes a lot of that administrative burden off the plates of the local leaders that will free up capacity to do what we want them to do, which is do the ride-alongs, provide the coaching, providing the insights and ensuring we're delivering the quality to our customers that we need to.
So certainly with COVID and the fact that CXP is not yet rolled out, we're somewhat limited there. So there is an expectation on what they are expected to do in terms of ride-alongs, service managers with techs, et [01:10:00] cetera. But I would say, probably inconsistently executed, just given the fact that, part of the role of Terminix Way is to establish, not only just the service standards, but the leadership standards on what we want branch managers to do, service managers to do, and the protocols and the coaching tools that they'll be equipped to do to effectively do their role at a much, much higher level, so that's all forthcoming with Terminix Way.
So today I'd say we're a little bit regionalized on that. And the opportunity that we're doing right now is taking the best practices from the leaders like Bruce Wren and say, we'd like Bruce's best practice here. We're going to scale that nationally and make that the standard for how we lead, coast to coast.
Patrick Baldwin: What you said about really supporting the frontline employees, it sticks with me because I think, early on in my pest control career, maybe even before that it was, I'm a manager, I have direct reports and they're here to support me and do what I tell them to do. Bobby finally said it enough that it beat into my head, like we're here for them, right? The office is here to [01:11:00] support them. How can we get them get more production done in the day and all that. How can we make them more money? What you said, you have a very listener, attentive, learning style. So what are you listening for to hear what someone's philosophy is on? Who reports to who's answering it?
Brett Ponton: Yeah, look, when I do the ride alongs, I'm looking for, look, I'm not out there to be critical. And I tell the team that all the time. If I'm out here pointing out operational issues or gaps in the checklist, or, you're following, we've got bigger issues of the company, right? So I try to find his themes, right?
I look for themes, patterns of behavior, but I'm looking for structural things, right? Things that aren't working as efficiently, structurally, that, at my level, that can require significant organizational investment to be able to knock down those barriers everywhere. So I look for those themes and I, going back to our discussion around CXP, when I rode along with techs early on, you immediately see how challenging their lives are on the front lines because of gaps in information flow.
And that's why I'm so passionate about [01:12:00] CXP launching because that will take a big burden off their shoulders and allow them to deliver much better experiences for their customers as a result of that. Part of what informed Terminix Way and Terminix University was ride-alongs, so you quickly see we're consistent in how we train and onboard people in the branch. So Terminix University is so paramount to help create a standardized onboarding and, career path in, and you don't have to spend much time riding along talking with techs about their family and their career aspirations to know that they want more out of life and they want to create a better life for their kids. And they're eager about getting put on a path that allows them to grow and develop and earn more and provide better lives for their family, so all those things, I think, I've listened and learned from discussions with our internal team that's helped inform Terminix Way. And, by the way, just to maybe to add to a point, just coming back to the industry just for a second.
The other thing that I, that we've done a good job over the last six months of is just, look, we've assessed a lot of [01:13:00] what our industry does, and, not being critical of our team, but I think sometimes when you're a division of a larger company, you can become a little bit insular, only look internally here.
I have a tendency, I guess it's my marketing disposition here of always think externally, right? What are the consumers doing? What are the commercial customers doing? What do they value? And what's the competition doing? And I think there's a lot of wonderful operators in this industry that have done a lot of great things in this business.
I wouldn't be authentic here if I didn't say we've assessed a lot of the competitive go to market models and learned a lot about what they do and do really well. And look, we're going to execute a little bit of a second mover advantage here, because I think at the end of the day, it's about delivering the fundamentals in this business, right? You gotta have a good solid foundation that delivers consistent service delivery and equip your sales team to perform to level. And you'll unlock greater organic growth out of this business. And we shouldn't have a pride of authorship here, right? If it's working somewhere else, a company like the one we're getting ready to buy, [01:14:00] we should steal shamelessly those great ideas and apply them to the rest of our organization.
Paul Giannamore: As an example, when you were talking about, when you go on those ride-alongs you said there's some inconsistency, some gaps that I'm looking for, I was curious as to one example of something you may have noticed while you were out in the field that you thought warranted change.
Brett Ponton: It would be dishonest to say that I'm an expert on how to treat homes and pests. So I look at, it's just the operational procedures. I look at process. Huge fan of Nick Saban. Saban - it's tough to argue with Saban's record, but Saban's a process driven leader, right? It's all about the underlying process that delivers the results.
And I firmly believe in that. So I look at the process and even though I can't perfect the process per se, I can look for where I don't see the process being executed consistently from ride-along to ride-along. So that's what I look to. But one area of our process I think the team's done a nice job of building out over last year and a half, that we are not consistently executing, and that's that home inspection process, when our techs go to the home, we'll use a residential example here. We have [01:15:00] a process where we want to take pictures around the home. Those elements just do great things for building trust and implying expertise with your customer base and if we did that consistently everywhere, the perceived value of the full value proposition, what Terminix has to offer, would go up dramatically. So it really becomes a matter of consistent execution versus the actual process. But having said that, Terminix Way is out now, finding our best service processes that we will scale and then develop a leadership model that makes certain we do it the same way from Portland to Portland.
But not overly prescribed, right? That's not going to be, you must do 287 steps in this time period, right? It's, hey, we got 15 or 20 non-negotiables we want to have happen at every visit and we expect you to do that to these standards. The rest, take the freedom within that framework. And we want to encourage, I think, our techs, when they're visiting homes and customers, to go the extra mile, do the differentiators.
Feel free to carry the groceries in [01:16:00] and build relationships with your customers because at the end of the day, this is a relationship business and if you form those deep relationships with the customers, it creates pretty sticky relationships from a retention point of view, and certainly enables deeper household penetration as we advise them on a mosquito issue or a exclusion opportunity. They'll certainly be much more receptive to our insights if we build those relationships.
Paul Giannamore: As CEO, you clearly have your own KPIs and indicators that you like to look at, but what are some main ones that you look at least from a leading indicator perspective? Are you focused on your retention rates or your sales numbers or
Brett Ponton: Yeah. Look, it's, the lifeblood of any business is retention, right? So at the forefront is retention metrics and it's not just customer, it's team retention because we know how important that relationship is. So those two in tandem are clearly metrics. But I would, Paul, even call those a lagging metric when you think about it, because once you lose people they're gone.
So on both fronts, our leading indicators are we're looking at customer [01:17:00] stat scores, NPS scores, that leads to cancel rates and your cancels becoming retention. So we're looking upstream at the leading indicators on the teammate side. Team's done a nice job of doing engagement surveys in our organization to get a pulse for what's the temperature like and different branches culturally, so I think we've got a good feeling where there may be hotspots thrown out, leading in a way that leads to the right culture. We want to see that we get a chance to react to that. And I think that one in particular has helped inform me just how critical staffing is in to this model. And when I say that, when you're light on staffing, the pressure that puts on a branch manager or service manager when they're lightly staffed to still complete the routes and start the new ads.
And if we don't equip them with the right playbook to deal with that, that can create undesirable behavior with those leaders. So you start to connect all these dots downstream and all roads lead to make certain that they're staffed [01:18:00] and make certain they're trained to the standards. And the rest takes care of itself if they got the right tools and technology to bring that process to life.
So I feel like we're zeroed in and going back to where we started this morning. Staffing is clearly at a very focused point for us as an organization, not just because of the support of the model, but because of the macro backdrop that we're certainly all navigating through in this country in the current labor market.
Patrick Baldwin: From my previous occupation as a pest control owner, operating it has the same locale as the Orkins and the Terminix. And it was always, it was an easy selling point to a potential client. Hey, we're not knocking out 12, 16, 20 stops a day pointing at the national player. I know you have to make returns. You have shareholders to report to. Where's the balance on, and you said you're not counting steps, but how many stops a day? Employee retention? Where's that happen?
Brett Ponton: We are counting stops, by the way. I didn't, and if I said that, I misspoke, but I think we're still trying to work through what is that right balance between driving productivity, [01:19:00] but also unlocking the potential of our technicians building deeper relationships and also, doing maybe creating a, more of an opportunity to inspect and drive more cross selling if you will, and drive deeper household penetration.
So we're in the throes of working through what is the right go to market model on that front and look beyond just at the home and say, how can we leverage our technicians in the home to penetrate the neighborhood right. Since we know our role in the truck to the neighborhood, how do you drive neighborhood penetration, cause we know how important density is to this model.
So we understand what drives the model here and I think we're in the process of still refining what that looks like. But today, our three metrics primarily are, stops, productivity base with the customer stat component, as well as there's a cancel rate component to their comp plans, but I will say we're evaluating that cause I think there's opportunities here to, again, drive deeper household penetration in order to do that, you gotta give your techs the capacity to free up the time to be able to do that. And I think that opens up the door for another discussion where [01:20:00] we're investing pretty significantly in now, right now, which is routing and scheduling.
So I think we have the ability to improve the efficiency in how we set routes up and schedule that can unlock more time and that tech schedule to where they can spend more time at home, but also more time and neighborhood to drive deeper penetration. So team's working pretty hard now on refining that approach. That will be executed under the Terminix Way as we talk at Q1 next year.
Paul Giannamore: That's great. Patrick, Brett, we've covered a lot of things from management and leadership to operational philosophies today, but I guess, at the end of the day, the core of what I do is M&A transactions. And on the Buzz, we like to talk to guys like you about M&A. And so, what would you say to folks out there who own a pest control business and why they might consider Terminix as the acquirer of choice for that business?
Brett Ponton: I guess I'm in an interesting place because I'm only one year with Terminix, so I'm relatively new to the brand. And I would give you the same talk that I would, I gave myself, a year ago, which is, it's certainly been refined now and certainly more focused but it's this: you've got a great [01:21:00] brand, right? We got one of the industry leading brands. Great. I think penetration from a brand awareness point of view that's much better than a lot of regional players, certainly to a commitment to. We're trying to create the culture that's built on servant leadership principles, recognizing, starting with me, my job is to ensure that our team has the tools, technology, and training, so they can do their job at eye level.
We're investing in people in terms of clear playbooks to allow them to be successful in the job that they're in through the Terminix Way, support them with the right training through Terminix University and give them the industry leading best technology platform through CXP that allows that process to come to life day in and day out and, I think significant investments in marketing to drive demand in this business creates unique opportunities to continue to grow organically as part of our company. And I think the final pitch would be, look, we're committed to your employees. If you don't choose to stay on with us, for whatever reason it doesn't work, [01:22:00] but your team is, and we want you to have confidence knowing that we're committed to people. We want to create a lifelong career for them to continue to grow and develop. And we have hundreds of opportunities in this company to do that. And we're committed to making those investments that enable that over the longterm.
Paul Giannamore: It's you close the transaction on Monday and you haven't lost a single employee, have you?
There you go.
Patrick Baldwin: Perfect retention.
Paul Giannamore: Brett, thank you for coming down to Waco and spending time with us. I really enjoyed this conversation.
Brett Ponton: Me too, Paul. Patrick, thanks for having me and to your team. Welcome aboard. We're glad to have you part of the Terminix family.
Patrick Baldwin: Thank you. It's quite an honor. Welcome to Waco.
Brett Ponton: Yeah. Thank you. It's great to be back in Texas.