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Robert R. Falconi’s
ascension to CEO of Precision Auto Care has been an evolution and a smooth transition
Services
Business Services
(PACI-NASDAQ)
Precision Auto Care, Inc.
748 Miller Drive, SE, Suite G-1
Leesburg, VA 20175
Phone: 703-777-9095
Robert R. Falconi
President and CEO
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
August 3, 2006
BIO:
Robert R. Falconi
President and CEO
Robert R. Falconi was promoted on May 18, 2006 to CEO of Precision Auto Care, Inc. Falconi
joined PACI in September, 2000, as Chief Financial Officer. In March 2002, he was named
Executive Vice President and Chief Operating Officer. The former CFO of Intellisys
Technology Corp. also served as CFO/Vice President of Finance & Administration for
several government contracting firms in the Washington, DC area. Falconi holds several
professional designations and earned an MBA from George Mason University (Fairfax, VA),
after receiving his BBA from the University of Texas (Austin).
Company Profile:
Precision Auto Care, Inc. (NASD: PACI) provides automotive maintenance services through
franchised Precision Tune Auto Care centers. Precision Tune Auto Care has been a national
leader for 30 years in providing car owners with a one-stop-shop for diagnostics, factory
scheduled maintenance service and repairs for autos, SUVs and MiniVans. The centers offer
certified technicians who can perform the same services a dealer can, only at a much
greater value.
What began in 1976 as a tune-up specialist is today an advanced auto care system with a
modern focus on complex auto systems. Servicing over a million vehicles each year and
providing the driving public with education of car care for personal safety and the health
of the environment, PTAC is a global player with more than 440 computerized service
centers throughout the United States and in 8 countries.
CEOCFO: Mr. Falconi, you recently became CEO, could you tell
us when and how that occurred?
Mr. Falconi: “I became CEO in June of this year (2006),
although I had been serving as President since November of 2004. My promotion to CEO was a
natural evolution of events. As time has gone along, Lou Brown, who was serving as CEO has
turned over more and more of the management of the company even as he stays involved as
Chairman of the Board. Lou has been very gracious and supportive of putting me into this
role. I want to point out that Lou has a tremendous amount of experience as CEO of a
number of other companies and has been a wonderful mentor and invaluable resource to me
and the company.”
CEOCFO: Have you brought in a new CFO from the outside or
promoted from within?
Mr. Falconi: “We promoted from within. Our new CFO was
working here as Controller and he has evolved into the CFO role, which was critical in my
becoming CEO in that we had someone who could step-up into the CFO position. Neither of
the moves was a surprise to anyone.”
CEOCFO: Has there been any major changes since you have taken
over as CEO or are you continuing a strategy that was in place?
Mr. Falconi: “It has been a slow transition and we are
basically continuing the same game plan in that we are going to focus on generating
positive cash flow and profitability. On June 30, we completed FY06, and although we don’t
have our final results and can’t talk about the earnings yet; the earnings through
March 31st (2006) were profitable. While we have been operating at a very
steady pace for the last 4 years, I will say that we are ready to do some things a little
bit differently in terms of trying to generate the pace at which we grow. One of the
things that we will do going forward is to look at acquisitions. We also might even look
at running company owned stores. This is the first time that we have been open to that
kind of idea since I’ve been here, but now we are operating smoothly and we are ready
to do some variations on this smooth operation to make it grow a little more rapidly than
we have been.”
CEOCFO: Do you get very involved with your franchises or are
you just farming out your name and concept?
Mr. Falconi: “The franchisors run the stores, but I can
tell you that our involvement is much more than just farming out the name and the concept.
Corporate has a very interactive relationship with the franchisees. At corporate, we lead
the way in terms of training and getting our franchisees to add on new services. For
example, we are now encouraging our stores to sell tires and provide tire related
services. I think that ultimately the overwhelming majority of our stores will be involved
selling tires; so we are doing research and working with people in the tire industry. One
of our stores in Minnesota is doing a trial in terms of selling tires and although I say
it is a trial, there is no question that when the trial period is over he will continue to
sell tires. We believe that it adds a lot to the center in terms of attracting new
customers, as well as keeping customers coming back. With regard to our training, we have
developed computer based training modules that we’ve disseminated to the franchisee
community which allows them to train at their own pace and in a schedule that suits them.
In the marketing arena we lead the way there as well through the marketing entity which
works closely with corporate, Precision Marketing Fund. Through Precision Marketing Fund,
we’ve gotten involved with NASCAR for the first time in the company’s history
through a relationship with a company called The Championship Group. They have introduced
us to Bill Lester, who is the first African American to drive at the NEXTEL Cup Series in
NASCAR. We’ve done some promotions with Bill, so we are very proud of the association
and affiliation with Bill and NASCAR. I have just given you three recent initiatives that
we have taken. There are many, many more. Therefore, corporate is doing a lot more than
just farming out our name.”
CEOCFO: You mentioned tires; are these major brands?
Mr. Falconi: “At this specific center, we are selling
some of the major brands as well as some of the minor brands. We are new to the game and
we are learning as we go, but I do feel that we will ultimately be into it in a much
bigger way. We are never going to compete on price basis with some of the bigger chains,
but on the other hand, we can offer the tires at a competitive price. Further, the thing
that we can do is offer convenience to the consumer, because when the consumer comes into
one of our stores, they will be able to take care of all of their automotive maintenance
and repair needs. Let’s face it. The number one commodity that none of us have enough
of is time. People don’t want to go to one store to have their oil changed and
another to have some one look at their brakes and then another to get their tires. You
want to go to one spot and get everything taken care of at once because it is inconvenient
enough to have to get these things done in the first place, you don’t want to have to
do it at three or four different places.”
CEOCFO: Tell us about the revenue model, both at the store
level and corporate.
Mr. Falconi: “At the store level, more of the revenue is
generated through the sale of services rather than the products as the products are
becoming more of a commodity. Therefore, our stores can differentiate us from the
competition by offering a superior customer service experience coupled with a high level
of technical expertise. At corporate, we live primarily off of royalties; we get income
from sales of new licenses, but the overwhelming majority of our income comes from
royalties paid by our franchisee. Therefore, it is important to us that the individual
stores do well. ”
CEOCFO: Tell us about the locations of your stores and the
states that you are in and where future growth will come from.
Mr. Falconi: “We have roughly 325 locations here in the United
States and another 100 or so internationally. Talking about where we have a number of
locations; the Atlanta market where we have 27 or 28 stores, is a market where we are very
strong. Throughout North Carolina, where we have about another 28 stores, we are also
strong along with South Carolina and Florida, where we have a number of stores. Overall,
we are relatively strong in the southeastern part of the United States. However, there is
a lot of room for growth there. We also have a number of stores on the west coast, in the San
Diego, San Francisco and Seattle markets and a strong presence in Minneapolis. We are a
national firm but we are scattered and we have plenty of room for growth. For example, in Texas,
we have a good presence in the Austin market; we have a few stores in Dallas, but no
stores in San Antonio and only 2 stores in Houston and none in El Paso. Hence, we have
room for growth in every market. You asked where we can expect future growth. I think one
of the places where we expect to grow is in Arizona where we have just added a new area
developer, Dick Lippert, who has Al Unser Jr. as his partner. Al Unser Jr. is the former
Indy Racecar driver who has won the Indianapolis 500, two or three times and his family
has won it 9 times. We are hoping that with that affiliation, the two of them will be able
to grow the Arizona markets and so I see that as a market where we are going to have some
immediate growth. In addition, as I mentioned earlier, we are looking at acquisitions and
where we can do an acquisition, we will do our best to make it happen.”
CEOCFO: What about the northeast?
Mr. Falconi: “In the northeast we do not have a strong
presence; it is interesting however, that we have 2 stores in Massachusetts and the one
that is in Billerica, near Boston, has been the number one store in our system for three
of the last four years. That store has an outstanding operator and is a wonderful example
for the rest of the system, but we haven’t grown in that market they way that I would
like. That could be a market where we do an acquisition.”
CEOCFO: How do you attract new franchise prospects?
Mr. Falconi: “There is a number of ways that you can do
it; one of the vehicles that we use is by working through some of the strong broker
organizations in the United States. We have relationships with at least 5 different broker
organizations and they are a good source for leads. They do a lot of pre-screening;
therefore, the leads that we get from brokers tend to be relatively well qualified.
Another source is through franchise trade shows and those are particularly effective in
markets where we already have a presence. When we attend a show in a new market, where we
don’t have a presence, it is harder to sell a license. We have an affiliation with an
organization called VetFran that attracts veterans. In fact, we have several veterans in
the system and veterans get a discount off the price of the franchise license as well as
off the royalties in the first year. Of course, we have a website and we do get leads from
some of the advertising that we do on the internet. There is also word of mouth and often
you will get friends and relatives of existing franchisees to become new franchisees.”
CEOCFO: Do you get involved in promoting the new franchisees?
Mr. Falconi: “The short answer is “yes.” We
are a three-tiered system and between us and the franchisees are Area Developers and the
area developers will work very hard to help promote new franchisees. The Area Developers
almost always have stores themselves and understand what it takes to operate a new store.
Therefore, they will work closely with the franchisees in terms of getting the store off
on the right foot. Corporate also provides a Grand Opening kit to new franchisees and we
work closely with them in the early days.”
CEOCFO: Could you elaborate on the company’s financial
picture?
Mr. Falconi: “I can tell you that we’ve been a very
stable organization; you can look at our top line and bottom line and see that they have
been very stable for the last four years. That’s good news, but just looking at it by
itself is not all that exciting; what is exciting is the fact that we have an organization
that is tightly run and it will be relatively easy I believe, to grow the top line without
adding a lot of cost. Therefore, we will be able to do a lot to increase our net profit
once we can get this growth engine moving. The other exciting news is the fact that we
have had more and more international interest in the Precision Tune brand over the past
year. We are currently talking with an individual about developing the Precision Tune
brand in Ireland and we are talking to another group about Malaysia. Our master franchisee
in Portugal has actually grown and expanded into Spain. They have put up 27 stores in Portugal
and Spain over the last 3 years, and they have very aggressive growth plans for the next 3
years. We have a strong presence in Taiwan, where we have 50 stores and a master franchise
in mainland China, who is getting the ball rolling there. Therefore, I’m excited
about that. It usually doesn’t require a lot of expense on our end to help support
international franchisees. We obviously have to provide some support, but the point that I’m
making is that we can grow the top line without having to spend a lot in additional
operating cost to make that happen and much of that growth should go to the bottom line.
We have a strong infrastructure and over the last couple of years, we have developed a
point-of-sales system that is unique for Precision Tune Auto Care franchisees. It has been
well received by the Precision Tune Auto Care community and I think that it will help them
to grow as it provides better marketing data. It will also help them improve their bottom
line by offering the tools to help them better analyze their finances from week to week
and month to month.”
CEOCFO: You are showing movement into new products and your
international franchisees have increased since we last spoke to you in 2003; in closing,
is there anything that you would like to say to the investment community?
Mr. Falconi: “I would only say that the financial
results indicate that we are a well run and stable company. We will stay focused on
remaining profitable but we are also going to make the investment in growth. We are very
determined to make growth happen. Time will tell if we are able to do it. Having said, I
feel very confident about our future and I would like to say that the trend in the world
bodes well for Precision Tune in that there are fewer bays out there to service cars even
as there are more cars on the road. On top of that, the cars on the road are getting
older. The average age of cars continues to increase and the average age of cars is now
pushing 10 years. These trends tell us that there is virtually an unlimited opportunity
for Precision Tune Auto Care.”
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