All right. Welcome to a new episode of Power Players. Really excited to welcome in my next guest because I'm a big fan of taking care of my lawn. That is Scott's Miracle-Gro, uh, CEO Nate Baxter. Good to see you here.

Great

to be here.

Thanks for having me. I,

I reallyjust invited you here so I could ask about like lawn tips, man. Like, you know, I don't want to ask about profit margins or the free cash flow. I just want to talk about like, what am I not doing with my lawnthat I should be doing?

Are you feeding it 4 times a year?

No, I'm not, but your product is so good that I've been only, I've been, I use it once a year, and then maybe in the fall, so twice a year, like it works.

All right, that's a start. I mean, you're, you're actually, you embody the challenge we have right now, which is when, when, when we talk to our scientists in R&D and we say, hey, what do you do to take care of your lawn?They say it's simple. We feed it 4 times a year. If you do that, you crowd out weeds, you, you can avoid insect problems, and, and that actually has a benefit where you're not putting down insecticides and herbicides as much, right, to control those problems.Um, and it's a healthy lawn, so we just need to get you feeding 4 times a year.

You

do.

Oh, I promise you I'm gonna get into the business. How do you take care of your lawn? I mean, as the CEO of a very large company, I mean, do you have time to take care of yourlawn?

Believe it or not, I, I obviously, I have somebody who mows it because I don't have time to do that. Um, I do all my own applications with my own spreader. Um, I'm pretty maniacal about it. It's actually part of the culture.We really want people who work at the company to live the culture, um, and even younger folks who aren't homeowners, um, as long as they're eager to learn about the products we use, um, but no, I, I do a spring application in March or April, sort of depending on when the weather cooperates, um, usually a halts with our pre-emergent, right, to avoid crab grass and.Um, I just did my 3rd application. Yeah, you're way ahead of me. I probably do 5 or 6 because I'll do the last one in November, which is, as we were talking earlier, you pointed out, um, actually the fall. If you're only gonna do it once a year, uh, the fall is the best time, uh, but I recommend 4 times.

What, what arepeople, you know, I'm ahead of this interview, I was thinking back to how my dad used to take care of the lawn. He used to put down the fertilizer.Um, but I think like lime his lawn, his pants would be all dirty. Like, what are people not doing with their lawn today that theyshould be doing?

You know, it's funny you say that one of the things we are talking about now in the innovation space is soil health. It's something we, we haven't traditionally talked about. The lime is really a soil amendment, and we're actually working on a line of products that will make it easy for consumers who don't understand whether they need to lime or not. I'll be honest, I've never done it. Probably my lawn care provider in the past has done it.Um, but it, it, you know, there's a level of complication that the consumer doesn't have time to figure out, and so we're gonna try to help with that in the next couple of years where not only are you feeding your lawn 3 or 4 times a year, you're feeding your soil beneficial microbes, balancing the pH, um, so that is an important thing, but it tends to be.More in the, in the power user space, I'll say. You know, I don't think the average consumer is thinking about that. Um, but if you have a good lawn care provider, though, well,

you bring upa good point because you own a home, you know, or I think to my house where I live now, and I don't know anything about my lawn. It's most of my property, but it's not like, you know, this health tracker. It's tracking my health real-time. I don't know.I don't know if my, my lawn is hurting right now. I don't know if it needs more feet. Like, could that everbe solved for?

Well, that's what we're working on, uh, you know, uh, it, it is something, you know, we ask ourselves, can we create a test kit that's easy to use, right? Not something that you have to send away. I mean, every, I think almost every county in the country, um, you can send in for a soil test kit and 6 weeks later you'll get your results. But, you know, by the time you think about it, it's summertime by the time you get the results, right? So,We're working on ways either to um come up with a basic test kit or maybe using some of the government data maps soil um type across the country, which you can find today and guide consumers depending on where they live, what type of soil amendments that they would need to help improve the soil.

Let's say like how canI prevent prevent a weed if like from ever even happening.

Well, a healthy lawn will crowd out weeds, um, and I, so, uh, I just redid my lawn two years ago at my place in Massachusetts, um, started from scratch, just use so, not sod, no, no, grass seed, just used a standard, um, sun and shade grass seed, uh.I think we did it in April. I put another layer of seed down, uh, in late May, um, and I have never treated that lawn with a product that has both the fertilizer and the weed control because it started off so weed free. I just use a, a liquid, um, weed for lawns. I use our Roundup for lawns product and walk around.No way you have a weed in your lawn. I, I walk around, well, they pop up, you know, I walk around, but it's, it's less than 1 dozen in my yard. It's, so it's counting, right? You know, maybe you grab a beer and grab your, your bottle of Roundup for lawns and go out and, and shoot weeds, um, but, you know, I, I, I think what we're preaching and, and, you know, this, the irony is Scott's created, you know, the turf Builder lineup in the 1940s, and we created the four-step program, um, and then we got away from it. We started creating these all in one.Solutions and so I think in many ways it's our fault that we've gotten consumers to use one bag because you have a bag that does 3 different things. People think, why do I need to use anything else? And what we're learning in a world where we're very sensitive to, um, the safety of kids and pets, we're very sensitive from a sustainability standpoint of.Well, you know, herbicides and insecticides are, there's a use for them, and they're helpful, and we do include in our products in a perfect world, you wouldn't have to use them. So we're now preaching, if you feed your lawn regularly, yes, you might have problems, we have a solution for that, um, but if you feed it regularly, it should be a nice thick green lawn and it should crowd out weed.

Are you going toget away from some of these all in one products? And immediately when you said that, I'm thinking.Yeah, I mean, I'd have these big bags at Home Depot and Lowe's. It has the grass seed and various fertilizer, and it's made my life easy, but is that really the best for my lawn?

Right? Well, that, that's a great product that we probably won't get away from that. But what we will start to de-emphasize, I don't know that we'll ever, um, completely eliminate the SKUs because there are customers that like them, but we have a, um, a SKUW called Triple Action.And it's, you know, a weed to feed an insecticide. You, yeah, that's yours. OK. Um, well, one of the challenges, how much did you pay for that bag? It's, uh,

I think the last time I paid maybe just over100. Yeah,

they, they've gotten really expensive because of the ingredients, um, especially the last few years with inflation accelerating.So one of the things we're trying to do is bring affordability back to the market. So we've released just a straight up lawn food. It's called Turf Builder lawn food. It's 25 bucks a bag at retail. That's good, yeah. And you know, if, if you think about it, you use that. And then if you do have a weed problem, you can buy a liquid and just do spot treatment. If you have a significant weed problem, we then have our weed and feed, uh, which does have an herbicide in it.And, and look, the country is varied. Lawns are varied. People's amount of time that they are able to put in their lawn varies. So some people do like the all in ones, but what we're really trying to move towards is a higher frequency of a lower priced product, and you can probably put less herbicide and insecticide if you, if you really are diligent about doing that and building a thick lawn.

I'm a, I call myself an aging millennial, and I lookMy brother who's a couple of years younger, and he's, he's not like me. He's OK with the lawn just existing, being what it is. It drives me up the freaking wall because I know he's never going to do the lawn like I do. Like, is that a problem forScott's?

It is. It, it, it, well, it's a problem and an opportunity, right? So our core consumer that has been with us for decades, you know, they're homeowners, uh, or renters who care about their lawn.Um, they are dedicated just like you, and they care about weeds. They don't want them, they want the perfect lawn strike. What we are seeing with the next generation of consumer, uh, is, um, a real interest in going natural.Uh, less of an interest, you know, they, they don't mind an occasional dandelion in their lawn, so we are going to meet those consumers where they are. In fact, we have a whole new line called OM Scott. They're in recyclable paper bags. Um, there's a lawn food, just a pure straight up all natural lawn food, and then we have a whole bunch of native grass seeds which have become popular and actually I did it at my house.At my house, right, I would say immediately around the house I have our proper um sun and shade grass seed, but as it sort of peters off into the woods, I, I did the edges with um our, our sheep fescue, and I really like it. No maintenance, you don't have to water it, you don't have to fertilize it. It looks great, comes back every year, uh, it does occasionally have weeds which if you, if you care, you have to go pick out by hand, um, but we're finding a lot of younger consumers are gravitating towards those products cause, cause good enough. It's, it's not about.I would say the legacy consumer, it's all about the aesthetics. It's the lawn. It's the perfectly manicured roses. If I sort of harken back to like our grandparents, uh, era, the next gen consumer, they just want a space that's fun and safe and good.

They don'teven sometimes they don't even want a lawn. I mean, they're just putting rocks down in their yard

or just makes me sad

or just asphalting it over

or in out west we're seeing, which I think is criminal, we're seeing, um, municipalities pay people to take their lawn out and put in fake, fake grass, plastic, you know.Yeah, and so in a world of microplastics, it feels like putting down plastic turf, which it, it also, they create heat islands. It can be dangerous for your kids, um, and we are doing a lot of work, uh, out in the Southwest with consumers to understand because er escaping is a thing, um, and lawns are maybe not as sustainable out there. So that's why we're bringing native grass seeds into the mix because in regions like those, you can plant these native grasses again, low or no maintenance, um, green is good, it absorbs heat.Um, it cools your property, uh, and it obviously, you know, contributes to the environment being a living thing versus just covering your lawn in rocks or plastic, covering your space in rocks or plastic turf.

Ipromise you I won't get into the business now. Um, I don't think a lot of people realize this is a business founded in 1868,

1868. That's right. Almost 160 years.

How, how has that legacy been preserved?

We talked about that, um, during our recent investor day, and we have a really neat video that takes us all the way back to, um, 1868. We've got a picture of our founder OM Scott in front of his hardware store. By the way, we still own that hardware store in Marysville, Ohio. It's the company store, uh, and it's open to the public. You can come in and, and,

and it's almost like the Walton5 and Dime. They still it

is exactly like that, um, you know, part of what I talked about with investors is.We've been reinventing ourselves for 160 years. Uh, if you look at our legacy, I mean, the original disruptor was OM Scott. He figured out a way to create weed-free grass seed in the late 1860s, um, and we try to sort of reinvent ourselves every day. That's a, that's the attitude we have if we're gonna survive for another 160 years. And what does that mean? It means maybe in a world, um, where people are more focused on natural and organic, we pivot our portfolio.Um, I believe we're the only company with the, the scale and the R&D dollars to figure out how to bring biologicals into the mix, right? So, what I tell people internally is, is there a world where we can be mostly free of synthetic chemicals in our products?The reality is they work and there's a need for them, but the spirit is, hey, let's challenge ourselves to think differently, um, and one of our most successful lines of business has been organic soils over the last couple of years. Um, so pivoting to safer chemistries, chemistries that are easier to use but just as effective, that's the.Challenge. Yeah, like,

I mean, I'm all fororganic soil. I just, I'm not putting it down there if I'm gonna have a weed come out of it. I'm just saying,

no, exactly. Well, we, we're very, uh, we promise no weeds in our soils. Um, it, but, but, but we're seeing a, a tale of two consumers. We're seeing our legacy consumer again who trusts our products. They've been around for a long time. We're continuously evolving them to make it more effective, but there's a next-gen consumer, and to be quite honest, I wouldn't say we know exactly what they want.We know the trends, organic, natural, easy to use, don't take a lot of time, right? I think time is sort of the most precious commodity right now and so we're, we're, we're trying to do both and that's a big part of what SMG 2.0 is all about, which is.You know, a little bit taking a step back and asking ourselves who are we and what do we stand for, you know, this was a question I posed internally about 18 to 24 months ago.We've, we've, to your point, we've been around for almost 160 years.How do we imagine ourselves moving forward? What should we look like as a company? What should we care about? And what we decided is we're really a lifestyle company, and I got a lot of smirks when I said that.

Icould, I, I know, I, I listened to the, the investor day, and I'm like, wait, lifestyle company? Like how so? ButI did get it. So

if, if, if you listen to what we said, you know, we, we wanna.Shift away from product functionality or talking about product functionality. I mean that that information is still there, but we want to talk about the end result, not necessarily the journey, and I'd use this example during investor day. I was sitting with my sister, she lives just outside of Chicago in a in a suburb, so small lots, and we were, you know, having a glass of wine at the end of the day and I was watching her kids kick the soccer ball around.And I was trying to talk to her about her grass and her flower beds, of course, and she didn't really bite, you know what she wanted to talk about was how that entire outdoor space which included a pizza oven, a hot tub, a little pergola, really brought joy to her family all year round, you know, she was telling me how in the winter in Chicago they'll use the hot tub and they'll still use the pizza oven.And it just dawned on me that what we're doing is we're creating, we're helping people take care of the spaces that take care of them, and that, and it's one of the, the, that's our new purpose that we put out there, which is, you know, we help people take care of the living spaces. You're not, you're not in the cannabis business anymore. We're not in the cannabis sold that, what was it, Hawthorne? We sold Hawthorne, uh, we just closed that deal in April, uh, sold it to Vireo Holdings, so, um, we're, we're eager to watch them be successful.Uh, but we're not focused on that business anymore. Uh, we have an ownership, an indirect ownership as a result of that transaction, and we hope they're successful, but we are now focused purely on the consumer lawn and garden space, um, and there's a lot of excitement, you know, I would say that that business, um, while very, very successful at its peak, uh, the cannabis industry just could not get to a point where the regulatory environment was friendly and oversupplied oversupply, um, and so.We're, we're gonna, we're gonna stay focused on what we do best, which is the consumer lawn and garden.

Now, you just took over officially as CEO, but you're not from outside the company. I mean, how, how has that been able, how have you been able to just move quicker because of the

Well, the reality is that my team and I were the architects of SMG 2.0. We, we brought that to the board, um, a little over a year ago. I would call, um, this fiscal year sort of year one of that plan for us. Um, so I've been at the company for just over 3 years. Um, I spent my whole career in tech, so for me this was quite a transition, but I actually think it's been that beneficial not only to me because I love learning new things and, and that's a little bit why, uh, what motivated me to take the job.But really to bring in a new perspective, right? Uh, just to, to come in and say, wait a minute, have you guys thought about doing things differently? And it, it started with technology. I said, you know,You guys don't know it yet, but we're a technology company, and they looked at me almost as side eyes as they did when I called ourselves a lifestyle company. But, but the, the point was that we have every right to leverage the technology that's out there and we're living in an unprecedented era, right? Chat GPT was just released when I joined the company. Uh, we're now regularly using AI all over the company and, and not in.You know, a big swing for the fences way, you know, you're never going to hopefully see a headline where we, where we spent millions of dollars on AI and it was a bust. We just look for little use cases and more importantly, training our associates how to use it to take the workload off of them, so.You know, for me, um, the journey from tech, uh, to joining the company 3 years ago to becoming CEO in the last, call it 5 or 6 weeks, it was all pretty smooth and natural for me, um, you know, we had been planning this transition. I joined with the idea that I was eventually gonna transition with Jim, um, and when Jim and the board finally decided now is the time, and I think the timing of SMG 2.0 had something to do with it. It was really my strategy and my team's strategy and.Um, so now is the right time. So for me, people ask me, Well, it's your first investor day. I said, Well, it's not. It's my first investor day with the title, but we've been running this playbook, you know, for the better part of 1 year or 18 months. And so for me the transitions

you're, you're, you're takingthe baton, um, from really a legendary CEO and iconic. I mean, I was thinking this is kind of like.The Steve Jobs, the Tim Cook type of handoff here. I mean, is ithard to, well,

I think you're giving me more credit.

No, I wish I was following like this iconic person in this, in this industry really who's helpedcreate Jimdory.

I, I really think Jim created the industry. Um, if you look back to the humble beginnings of Miracle-Gro, it was Jim's vision to merge with Scott's. He then consummated the Ortho deal, which we own, and then the, the partnership with, um, Monsanto on, on Roundup.Uh, and you know, has had a string of successful acquisitions like Tomcat, um, expanding our, uh, we're the only company in the space that has a nationwide manufacturing footprint, you know, we don't ship a bag of dirt or mulch more than 150 miles. Most people don't know that.It's not only a great sustainability story, um, actually every bag of dirt you buy is manufactured with local materials because we upcycle north of 5 billion pounds of green waste from communities. So, while we promise the soil will, uh, behave consistently across the country, the reality is the soil you get in the Northeast probably has hardwood, bark finds or bark fiber or fiber in it.And the same soil you get in the South probably has pine bark finds in it because we just use what's locally available. So Jim really deserves the credit for, for building this, and, and I said it in investor day, you know, any CEO would be just honored to inherit, uh, these iconic, you know, 100+ year old brands. Um, and so what our job is not to screw it up.Um, you know, I'll never try to be Jim. He, he's, he's, they broke the mold when they made him. He had very entertaining earnings calls. Yes, uh, you gotta love Jim, uh, but he's passionate, you know, the guy came in every day, uh, for almost 40 years and really lived and breathed this business, and so I learned a lot from him. Um, I'm honored that, you know, he and the board, um, handed the reins over to me, uh, and now our job is how to make it better, how do we survive for the next 160 years, and.It goes back to some of the innovation we're talking about. It's knowing your consumer and understanding where that consumer is headed, and, and that's what we're trying

to do right now. I imagine when those 4 in 1 products or 3 in 1, when they came out, that was a big innovation at the time. Is there that type of innovation left in thisindustry?

You know, it's a good question. It's one that we ask ourselves and, and our board pushes us on because I do think innovation is, is hard to come by in this space.Uh, an area we are focused on, and, and I mentioned it earlier, is the soil health. We really think there's something there, um, you know, we have not as an industry talked about it a lot. Um, Consumers are starting, uh, to, to think about soil health. It's something that Big Ag has thought about for a long time.Uh, and we're fortunate enough to have, we have the scale where we have big partners, you know, we're not going to invent a molecule, uh, but we can partner with the Cortevas, the Syngentas, you know, the big molecule developers out there, um, and they're, they're really focused on biologicals, you know, if you really follow big ag at all, they're trying to move away from synthetic chemistry more into biologicals. So my belief is that we have a, a, a, a right given the size and scope.Um, to work with them to figure out how to bring those to the consumer market. Might be 10 years, to be, to be honest with you. I mean, we, we do have some biological products that'll be coming out next year, um, but to realize what I see is moving away from synthetic into full bio biologics, it could, it could take a decade.But that, that, that would be building on Jim's legacy by figuring out how to evolve the company and and meet that new consumer where they are. This,

thispivot to a lifestyle company, if we're having this conversation a year from now, how does the company look different with that as your lens?

You know, the, the way we look at it isEvery associate has to um live and breathe that lifestyle, and let let me sort of peel away the onions when we peel peel away the layers of the onion. When we look at that, what do we really mean? Cause lifestyle is just sort of a word and, you know, quite frankly, we don't get to choose if we're a lifestyle company, our consumers do.But when we look at the mental and physical wellness benefits of gardening, uh, whether it's to grow your own food or just, um, you know, maybe when you're taking care of your lawn, it's a mental break for you, you know, you have a high pressure job, is a mental you talk to people all day, you know.Behind that lawnmower or spreader, um, and you sort of forget about things and, and that's important, um, creating an environment that you can feel comfortable, your kids and pets are safe in is important and, um, using products that are net good for the environment, sustainability and packaging, that is important. So when we say lifestyle, what we really mean is enabling people.To enjoy their space however they want, you know, whether it's for the aesthetics, whether it's for the mental break, whether it's for growing their own food, um, and we just want to make sure we're there and we're, um, using our scale and scope to try to, try to bring that sustainable piece into play. And it's hard, you know, our products, I mean, they use synthetic chemistry, they're in plastic bags, but, you know, today what sustainability looks like is, can we use a little less plastic? Can we work with partners to pioneer, um,Uh, curbside recyclable paper, which we've, we've now done in our OM Scott line. Um, can we, with the, with the rise of ECO, and I talked a lot about that at Investor Day, you know, we're seeing challenges in certain segments of brick and mortar.Um, EO is, you know, the, the competition between the Walmarts, the Amazons, and quite frankly, our big box retailers. Um, I wouldn't count them out, you know, Home Depot and Lowe's and Walmart are, are excellent in their ecom programs. So

is it just like when I go online, there's now a proliferation of choiceson these websites?

There are, so the endless shelf is the challenge we're facing. That's the competitor we have online as opposed to the one or two key competitors you see in retail.Um, but there's an opportunity there for us to win if we can create packaging, uh, so the big thing now is ship in own package, meaning instead of taking a bag of seed or fertilizer, wrapping in bubble wrap, putting it in a box, you know, you lose margin every time someone touches it. Can you put it in a, in a container that, um, is sturdy enough to be shipped in.And you essentially take those steps out of the process and, and we're being challenged by our retailers to do that. Also, how do you take water out? You know, a lot of what we ship from the liquids, whether it's the fertilizer or the ortho we were talking about earlier, those have liquids in them. Can we, can we, um, follow the tide playbook and figure out a way to take liquid out either in concentrates or

orthopods,

yes.

Yeah, howfar away from that? Like,is that near?

We have plant food pods that are coming out next year. Like an Alka-Seltzer. You just drop it in your watering can and they work they'll dissolve, and they work the same. So we're working on all those things, and I, I don't know if all of them will be, um, you know, accepted by consumers, but again, that's the beauty of the digital world we're in today, you know, the old world, you would have to go convince a retailer and a line review.If they said they were going to put it on the shelf, well, you know, let's say they do a third of their stores or half their stores. You're now building inventory for 50, 6, 700 stores. What if it doesn't go well? What if the consumer doesn't, um,Uh, take to it. So what we're doing now is launching most of our products digitally. We can test them in the market. We can get consumer feedback. We're not putting a lot of working capital into inventory. Um, now it might slow the ramp, right, but it also, uh, provides us, um, a protection on the downside of, you know, being left with inventory that didn't, didn't go well with the consumer. Hi,

lastly, um, before I run out of time, so I, you have an iconic, I mean an iconic brand, uh.Great innovation. You've now sold that Hawthorne business.Help me understand why the market cap is where it is, because from the outside looking in, it doesn't make a lot of sense. I get there was oversupply with the Canada business and that was some concern, sure, but this isa good business.

It's a great business and we really believe in it. Look, I think the fundamental thing is our leverage remains high. Our debt, our debt load is still high acquisition from prior acquisitions associated with Hawthorne.Now in the high 3s, uh, 1 of the big changes we announced yesterday in our capital allocation strategy is we're gonna endeavor in the next couple of years to get down into the low 3s, but we really feel, um, that being around 3 or even slightly under 3 in the 2s, it gives us a profile that, um, higher quality investors will be interested in the equity, and we believe if we can do that, we'll see, we'll see an earnings, uh, multiple or a multiple on the, on the equity.Um, and you know, once we pay debt down, we'll be able to use that cash flow for shareholder friendly um activities. You know, we, we're a big believer in our own equity and so right now we're, uh, we have a 500 million share buyback that's been authorized by the board. Obviously we're using most of our cash flow to pay down debt and fund the operation. We're not going to starve the business, but we're going to start to make small acquisitions on the market, you know, it'll initially offset shareholder base comp.Um, but at the end of the day, we believe in our business. And so I think a combination of getting debt paid down, investing in the business, bringing new products to market, I'm comfortable that, um, you know, investors will, will, will see the value in the stock in the future.

Thank you for that. Uh, thank you for all the, uh, lawn tips. Uh, I will now be contacting you regularly. Like I, I'm going through that annoying, always happy to answer questions. I appreciate it. Good to see you. Good luck on your CEO journey. Look forward to talking again soon. That's it for the latest episode of Power Players.