Journey to an ESOP & Beyond

EP22 - ESOPs for the Construction Industry – interview with Joe Hurt of RLH Construction, a 100 percent ESOP

Phillip Hayes / Joe Hurt Season 5 Episode 22

This episode represents the 2nd interview with Joe Hurt of RLH Construction.  Joe discusses some of the challenges and opportunities of an established ESOP.  A few years into their ESOP, RLH Construction has experienced very strong results from the ESOP.  Joe is the CEO of the company and has worked through issues such as leadership transition, retiring a large portion of the initial senior debt, managing bonding issues, as well as a myriad of other specifics.  For Joe and his team, the ESOP has been a tremendously valuable took to strengthen their efforts in the industry and has helped the company reach new heights.

[0:10] Welcome to our podcast the journey to an ESOP and Beyond I'm the ESOP guy and we're so excited to be with you guys today thank you for tuning in and you can find all of our episodes on journey to an ESOP cam. As we go through this this podcast really for a brand new people to the podcast this is designed as a resource to. Provide information if you're thinking about becoming an ESOP and even now if you are existing ESOP, um what happens on the and Beyond part is like what do I do with some of these issues that come up as an ESOP company so that's really what the podcast is all about today we get the opportunity to interview an ESOP company that we had the privilege of helping, um work through their transaction a few years ago. And to do that we're going to interview Joe hurt who is the CEO of rlh construction out of Florida, and Joe and I had worked together on this transaction specifically and this is going to be Joe's second time on the podcast so a couple years ago after the transaction we did we did a kind of an ESOP. Process transaction episode where we kind of walk through the expectations now they've had a couple years and and so it'll be interesting to kind of walk through those things with Joe so Joe thanks for for joining the podcast today.

[1:28] Yeah great great to be here Phil it's good to good to hear your voice again we don't get to talk very much anymore not anymore yeah but, but but just going through this as we get you as you get going as um we start thinking about what we want to talk about today um tell us Joe what is your favorite movie and why.

[1:48] You know that's kind of a. That's going to be an odd 1 because it's going to seem odd to probably do your listeners and favorite movie of all time is Animal House okay great we could do, it has nothing to do with business whatsoever obviously but it it takes me back to umyou know coming out of high school I was a Wallflower. I mean I didn't I didn't have a lot of friends I wasn't very uh outgoing or gregarious and so. You know I got invited to a fraternity party and boy it walked up and I could hear the music and I'm like yeah this just isn't me. In a couple of guys grabbed me and pulled me into The Fray uh ohthat that kind of. All of a sudden I kind of snapped out of my shell and and I was a little bit older than a lot of kids you know I've been in college a few years and. So I I was voted as in this president of the pledge classand and I look backthat movie kind of. It was a toga party believe it or not and so it it was all aroundAnimal House so. These guys just took me in and kind of brought me out of my shell and I'm still friends with most of those guys today and some of them business relationships even wow so wow I think back to that 1 Night where I could have turned and walked away.

[3:14] Um but the guys wouldn't let me and that's that's kind of in the Catalyst for getting me to where I am today, that's cool I got an odd transition there but that's no I think that's really come up with quite interesting um I only had 1 question about that is that a pledge pin on your uniform.

[3:32] Do you remember that part all right anyway remember that line I don't remember is is a retort to that yeah I don't know but it's just it it's a funny movie um toga toga okay so jumping into our um, you know our our interview so 1 of 1 of the first questions is so people kind of get and frame out like. Who you guys are as a company and then how you know we we did the ESOP and everything else so just kind of some general General overview. Um and I'll kind of start with like your construction company and you do have um some some very specific niches that you guys do in your business what kind of LED you first to consider the ESOP when we went when we go back in time a little bit, when you were looking at the options as at that point you were your CEO now but were you operation coo at that point. I I was coo when I was when I came on board and you know 1 of the things when when I came on board I was brought on to, you know review processes and put processes in place to help process and procedures in place to help move the company forward, um a lot of the things we did were kind of antiquated and on paper and not that I'm a a tech genius but I did start getting some things, tend to place on the technical side um equipment technical equipment side and.

[4:55] So when I came on board you know that was my primary role and you know Richard the owner. You know he had told me that you know 1 day he'd like to retire. And believe it or not back then I thought about an ESOP and that was almost 11 years ago now. AndI didn't have a full knowledge of an ESOP and what it was all about but I'm like well what about an ESOP. And we talked a little bit about it and I'm like you know at the time I think we had 50 employees and I said yeah you really don't want 50 Partners rich that's that's going to be a nightmare that's kind of what I thought about an ESOP right when you're taking on Partners yeah and and obviously that's.

[5:39] It's a very different in reality right yeah they're not really owners they're beneficial owners as you've as you've gathered already right, yeah so so several years down into my employment here I I we started talking about other ways for him to retire you know do take some. Take some chips off the table if you would and you know we we looked at outside broker uh we had 1 company that kind of made an offer on us and then kind of disappeared and and and then the ESOP. That the company that made an offer on us we were talking to them they were actually an ESOPand. So we're like well tell us about it so started talking to these guys and it was I mean their story was great and I think they've been an ESOP for probably 25 years or so and the more I learned. About their ESOPthe more I went to Richmond so you know maybe this is a good alternative, and maybe I was completely wrong you know 5 years ago and uh so the more we looked into it just decided it was a good way for him to uh. Takes chips off the table and retire at a relatively young age absolutely.

[6:49] So it became it became and you you guys as your journey went on it became like the best option I think 1 of the things I remember from your story is you you guys had a lot of different things on the table and it kind of it just seemed like it kind of converged into like that's the best. As we went through the whole um options that you know you were looking at for Richard. Uh obviously in my experience too like you added a lot of um 1 of the things that comes up with a lot of esops is you had, added a lot early in the process of leadership transition for Richard as opposed to some of the some of the times you get into it and it's like they're still building their leadership team and then you are kind of you were really representing that at the time we were going through your process.

[7:33] Yeah the management team I was at that at that time I wasthe last tenure of all the senior managersum which, you know when I came in I kind of you know turned a few heads and it's like well you know here's the new guy on the Block kind of stepping into the leadership role and and but, you know the way I manage I don't manage like top down it's kind of a a team management deal um you know I'm not I'm not hung up on titles. Big titles because I think they get in the way of the people progressing through companies because they get so hung up on it but. You know putting the the good management team in place.

[8:15] And elevating people to an executive level umyou know once we had done that and it was perfecttime to get into the ESOP. You know we went through a few generations of you know Phantom stock and and stuff like that that we were going to do and we spent tons of money on you know getting everything put together but we never really. We never settled in on it andnever settled in on anything until the ESOP we decided on the ESOP and once we started in that direction there was no turning back it just seemed like the right right direction. What Richard and the company yeah and I and I think that this this category that we're talking about just leadership in general so pre-op then you're in the ESOP and now we're 2 years down the road, um when we got into the ESOP you you did have a lot of the management kind of figured out but there's still elements to that that weren't figured out so. Can you can you speak to like you know how did the ESOPyou know either help you or hinder you and and continuing to I guess, you know strengthen your leadership team work through the challenges you guys had maybe before the ESOP and then after the ESOP and then how is it now 2 years later in terms of your management team.

[9:32] Well the first big hurdle was you know we had a leader here that had been here 30 30 plus years. And you know he's basically the first year he basically stepped aside. He was you know our founder and CEO but he really he didn't come around the office too much um. It it it took people a while to get used to him not being aroundand. You know even the management team that you know since they've been here some of them 20 plus years and not seeing him or not having him you know readily get their disposal. To answer questions or solve problems umit caused a little bit of a stir at the beginning.

[10:14] But I think what really happened is people started stepping up to the plate. In in realizing they didn't need him to answer the questions they they knew the answers they could find the answer on by themselves um.

[10:28] And I think that went a long ways of him stepping aside and letting other people Elevate themselves to you know to the senior levelum. You know we we got to a point whereyou know the meetings we wouldn't have Richard there. And the first couple were a little like okay where's Richard well he's he's really not he's part of our team but he's not part of the management team anymore but we make the decisions now we own the company he doesn't own the company. They still are a leaderand obviously give us guidance when we need it but umand once you start getting that mentality inside those meetings, you know people start to realize okay it is our companyand we make the important decisions on a daily basis on how to move this company forward how to pay our bills how to hire the right people I mean I I don't have to go to him for that. And so the the team kind of over the first year and a half just kind of. Molded into place and you know we we changed our structure a little bit created some divisions and what I was trying to do when I did that was to. I I wanted to see who was going to elevate themselves to fall into my role.

[11:44] Um so you know we we went down that path for probably 9 months and. We got to a point where I'm like okay it it's time for me to, either step into the CEO role or just stay on the board and and and uh I decided you know I'm not I'm too young to to leave, um I'm enjoying it way too much and so we decided to uh we elevated myself to CEO and then we brought in an outside consultant, to penalize.

[12:19] You know sit with our senior guys and and we asked him to tell us who he thought would be the best candidate for the president role. And you know he spent about 3 months interviewing employees the executives themselves and, and then I asked him to you know have his findings ready for a board meeting and you know he came into the board meeting and we we went through the assessment of each individual and and at that time he said this is who I recommend wow, and yeah the board was right there and we voted on it right then that's that's really I think that's very it was a lot that there's a lot you're covering that I think is super helpful for people um, you know and what I what I would say a couple things is gleaning out like the idea that the ESOP actually helped, facilitate the the next steps to your leadership plan and um I and I've seen this where you know. Again you had you had a pretty good mix of people in your Management Group I remember even just presenting that together you know when we went to the site visit but, the the 1 thing that I think a lot of companies get kind of caught up with is the idea that you're going to have to all this kind of laid out perfectly, where the owner sometimes can't feel like they can get out of their seat.

[13:38] But part of this is I think by the faith of being in an ESOP like it's going to work out right but the ESOP itselfis is a pro is a tool, to kind of start to facilitate now then the next steps towards that and I think it gave Richard A like why would I why would I mean I've already sold my stock right so why do I want to be poor more and more part of it he wanted to retire anyways or become less and less, still on the board. Um so that's 1 of the things I think is helpful for people to think about it's not going to be a you're not going to have all of these steps laid out what you guys did too though is really cool is that you, you brought in because I think the I mean if I just said it in my own head. Politics are there like you're making you don't want to make that decision completely solo by bringing the extra guy into as a consultant, you have now you have some really good you know um background on like why are we making this decision on a board level because this is the going to president that's a huge, um you know promotion or recruitment if I'm bringing in a brand new person um so I think that that's pretty interesting that you guys did it that way.

[14:45] Well it'syou know when I started talking to the group about you know why the consultant was here and. You know 1 of the things they said I said you know I'm sure there's guys in this room that want my job.

[14:59] And you know everybody's kind of looked at me you can see if you had it's not and and 1 person. Told me so well we don't even know what you do I like it yeah I mean I mean that's that's a valid statement that's fair yeah and so what I did is I sat down and wrote. David wrote out a list of everything that I touch not necessarily a daily basis but everything in the company that I touch and I'm responsible for and. I called a meeting with each 1 of them as a group and I said okay we're going to go through this 5 Pages we're going to go through these line by line.

[15:40] Andyou know we got on to page 4 and the Jaws were dropping so how do you how do you do all this stuff, yeah and I said well it kind of once you started it kind of comes naturally and like I say you don't touch everything every day, and you might touch 1 Thing 1 year once a year but I said you have to be ready to answer questions on each 1 of these things at any given day on any given day right. And uh and and that job is not for everybody I mean you you got to have the um the thick skin and the the gut that kind of kind of walk through stress your industry is so stressful I mean when you get down to, Contracting it's like anything can go wrong every day and it will and you're going to have to, you know navigate through that and and delegate at the same time be involved in every probably big problem which you know is not fun, and um so so yeah and sometimes you're like and when they review it they're probably like why would I want that job you know I don't know if you got that response.

[16:40] I I think there were 2 or 3 people that just immediately bowed out yeah there you go this is not for me I I you know I thought it was something differentum, couple of people will kind of stay in the hunt and I can tell by the look on their face okay that's that's not bad and listen the thing the problems I solve I don't solve them in a vacuum and I seldom saw especially construction problems, my management team solves the construction problems yeah exactly so the guys in that room I said you know I may touch it but you guys are doing the work, that's right so yeah it itI think it kind of. It shipped some line on what I do and and made some people kind of back away so that's no longer their goal to to take overmy position. Um you know some wanted to be the at the time was present so some wanted to be the CEOand I said well. Okay well my my job put that on steroids that's the CEO I mean if you think that the CEO is just running around um figurehead. The figure heads you know shaking hands and and kissing babies is 1 person said I'm like that that's not what that role yeah does how would you define the CEO versus the president role.

[18:00] Well I I kind of put the president role as more the day-to-day running the day-to-day operations of the company. Um the CEO is more the vision say Visionary that kind of sounds like I'm putting myself on a. Oh pedestal but Visionary standpoint the the kind of guidethe company and Direction you know number 1 to. Accomplish all that we need to with our banking um I kind of lead the lead the fight with our shy uh when we try to get bonding um.

[18:33] But it's more Vision you're looking out a few years you know do we do we need to start looking at other markets to get into, and you know kind of putting a game plan together to say okay these are the things that we need to work on this year this is a Direction I want the company to go on this year.

[18:50] And then here's the 5-year plan um do we have a formal 5-year plans know and and some of my guys will probably listen to us and say well we've never really talked about that well in a roundabout way we have, but it's we're bitingbiting the elephant off you know 1 small bite at a time right and I got that analogy incorrect but no that's it that's that's a good analogy yeah. You know it's it's year by year and like I said you know in the first podcast you know the construction industry you just never know when your next contract is comingso you you can put a forecast together and it looks great. But if you do not do everything in your power, that you can describe to get to those targets um you know you can fall off out of your face pretty quick well yeah so the economic downturn can come and and all kinds of bad things can come and so you definitely are. Um subject to change adapt. You know towards everything um 1 thing I I noticed like as you talked through the leadership transition like you guys have um the last 2 years would you say that it's just gotten better and better more um. You know more consistent you know better people like not a better people but but you know more contribution of your team and to the goals that you guys have.

[20:11] All right absolutely and I think what what you really start to see is and I heard this from a lot of people I talked to before we actually went to Esopus you know people start paying attention when you're spending their money.

[20:24] That's right if, that we're all owners then we all need to you know take a look when it comes time to buy something or go do something that's going to cost the company money yeah or hire an expensive person that could be part of it. Right and sometimes companies and I and I know being in the HR world I would always you know I questioned people and it'd say well I need another engineer. Um well do you really need another engineer just do you need to restructure the work because throwing an extra body at a problem is necessarily the the answer no, and you know and the same with construction I mean we you know we've streamlined a lot of things where we don't need as many people to do the things that we're doing, uh as a matter of putting in good software, yeah technology leveraging technology now ai absolutely yeah absolutely and I think over the years we we started to do that now there were there were there were some bumps in the road big bumps in the road but. You know I heard a new sea ofyou know hard to see it but we didn't have 1 before but hard to see ifo and. 1 of the reasons she came here Phil was because she listened to my podcast, no way I didn't know that that's so cool yeah and she she came from a a company that was a partial ESOP.

[21:48] And when she listened to the podcast she and and after she had interviewed with me um she listened to the podcast and then she goes that's where I'm going yeah um I think that's wonderful yeah I mean that that I mean I'm so excited because you know recruiting people like that is so hard anyways right especially in the last couple years good night it's been like trying to. Pull teeth to find good people so so that's that's a nice uh byproduct and she wanted to be part of an ESOP company right so that was be part of her joining you know you guys.

[22:21] And you know her having some knowledge of esops and the accounting side of it and finance side of it was was awesome because listen I'm still figuring that out right right it's like something new every day but yeah it's it's starting to turn the corner for me that's good would would you say kind of in general that the esops helped you, um recruit talent and build a better team is that kind of the to to land the leadership plane.

[22:49] Uh I don't know if it's helped us recruit people as of yet okay uh I did notice something this year we got our statements relatively quickly this year. Um

[23:02] And our stock price doubled from last yeardouble so so all of a sudden you know people are looking at okay well that's worth a little bit more now but what really kicked in to play were the forfeitures.

[23:15] Andyou know the forfeiture is all of a sudden you know we had some people leave the company the forfeitures were dispersed amongst the participants. So all of a sudden their accounts I mean some of the accounts like triple. A number of shares wowso you know they came to me and said wow okay now now okay this is starting to make sense now and people started to perk up and it's like okay maybe there's something to the see something yeah exactly yeah and and 1 of the things. 1 of the things I did I had a shareholder meeting which I did last year and I did this year and it's it's basically a 1 hour with Joe type meeting. And we have it off-site and this year I II work costume film what what kind of costume. Well I was the snake oil salesman okay cool I had the mustache the hat and the I love it the box and, and I was giving away free money as people were walking in the door I love it you know it's fake money yeah and where they kind of looked at me like what the heck is he doing yeah, and I said welllet's let's go back to 2021. And I said I came to you guys and I said you know we're we're thinking about this that thing called an ESOP.

[24:34] And we're going to give you guys shares of stock in the company.

[24:39] And you know the first question is well how much do I have to pay what do you pay nothing and I said and everybody looked at me like I was a damn sick and snake oil salesman I love it yeah and, and I'm like so the snake go sells them in fact now, you know we're 3 years in um you got your recently got your statements and I said how many people were happy with their statements.

[25:01] And a lot of hands came up in the room right totally and I said sobefore we tossed the snake oil salesmen out.

[25:10] You know let's let's take a look at what we've gone through over the last year and that kind of led into you know an overview of what happened in 2023 our plans in 2024. Umso it was all in all a good meeting I kind of made full out of myself but but that's okay, not perfect because it gets their attention I mean that's 1 thing you if you're willing to do it people a boring meeting almost is like worthless right but if you're going to get if you're going to go ahead and put the costume on.

[25:39] You know and I think there's people listening to me like wow you know I could you could do all kinds of creative things I think that's the main thing and that's 1 thing I love about esops because you're. You can do because you're a closely you're still a closely held company it's closely held in this ESOP. You're not owned by a corporate company or a Pia you know a private Equity Group or whatever we don't all have to pretend to be something we're not you can be who you want to be and and your culture obviously is part of what you're what you're talking about, that's resonating that's always going to resonate more I think with human beings that want to be part of something, that's fun and engaging and all that's going to do is improve morale if you're willing to I used to be Santa Claus I'd run around to Santa Claus. And I my daughter would come with me and she'd be my elf and we would give out Christmas bonuses and you know I mean, yeah I mean it's kind of fun I enjoyed it you know put on like a a white beard and a suit, but same it's the same thing I don't care I mean but it made its it kind of breaks up people's day and they're like oh this is kind of cool so that's what I love about esops because, you're not in a sense selling out to the to the corporate American kind of bureaucratic type of thing where people are clocking in and clocking out and they just feel like a number they actually feel like they're part of something so you doing that I think is really. The very very um you know different and and fun and good and it does bring about a lot of good good change which you you're seeing you know in your plan.

[27:04] Well last last year when I held the meeting um in years past well probably back to Koh year uh we used to take the entire company and there are significant others on a cruise each year. Yeah a long weekend cruise and and you know company paid for it and you know it was a nice city um Co hit obviously nobody wanted to go on cruises anymore, and so that kind of went by the wayside well go back a year ago our stock price took a a small dip and so everybody at the shareholder meeting was like well it's kind of going the wrong way, so you know I spent some time explaining you know here's what happened, you know it's nothing to be alarmed about it's just it's it's kind of typical for a young ESOP to go through these these dips once in a while. And it's nothing you've done wrong A lot of it was based on the industry interest rates and items that we have no control over right so.

[28:04] The thing I did last year I said but you know there's something we're going to doin in April of 2024 we're going to go on a cruise.

[28:13] So we're going back to the cruises and that was kind of that was kind of cool because now it's like okay well yeah yeah we're an ESOP, and I said yeah and we're using interests that were earning on our money to pay for that cruise.

[28:28] That's right so I have to tell you it it seemed to boost morale pretty damn quickly big big time yeah and reconnect back to the original days of of whenever and um and it connects back to the idea if we if we perform well we get to we get to have more fun and enjoy, if we don't we just got to dig deeper and and you know your industry is 1 of those where you got to be on top of it and I I would say that part partly too to segue into like the Contracting industry. Um and stuff that you've dealt with and are dealing with is is you know challenging for some contractors and part of it is that. You are um in a way we structured your deals we did have Bank financing and we had seller financing and so that's a a very common thing because the owner is going to want to maybe have some liquidity coming into the closing. What sort of things as you talk about you know the what we were walking through when we first built it which is hey we're going to get this put together and and you know there's a little bit of fear when you put a lot of debt on the balance sheet for anybody. Um and then kind of so walk through that a little bit and then kind of the last 2 years like how has that gone, um from performance and the the financing structure where we are where you are today and kind of you know meeting the obligations and then I think we want to segue after that into like the bonding side because the bonding is always a a major issue with any Contracting Company.

[29:50] Okaysoas far as the financing I I will say that.

[29:59] That's the 1 thing that I've been most pleased with with our teamum you know we've been able to pay off a substantial amount of our loan. In probably less than half the time that we have to pay it offso I mean we're we're in line to have our loan paid offprobably at the 50% mark.

[30:22] Of the loan that's pretty coolthe loan you know the time of loans so. You know that's really exciting from a couple aspects you know it's nice to go to the bank and handle the big checks and say you know here's I'm paying down the debtthe first thing I wanted to do was get the bank out of the way anyway. Umyou know the interest rate is a little bit higher than the owner note so getting the bank out of the way then I'm down to 1 Note, um and secondly you know paying off that debt increases the equity on my balance sheet which goes to your second. The second part of the question here about maturity and getting bonding and you know obviously you need to increase the equity before shorties will take a hard look at you and you can stand on your own 2 feet.

[31:11] And that's probably been 1 of the biggest challenges is to get the balance sheet to look good enough for somebody toto look at us um.

[31:22] We're still there we're getting betterbut it's an ongoing challenge um I suspect once we have the bank paid off in the next. You know 8 months or so umyou know there may be a chance that we don't need any kind of subordination.

[31:37] Cool by the former owner to uh to get bonding and it's it's nice and I you know I talked to Richard all the time about. You know we're trying to get to a point where we can stand on on 2 feet but right now we're still a kid, that's right I mean we'restill an infant man and then and you know we need you we need to lean on you a little bit to help us here to get to that point that's right and, the the companies perform so well over the last couple of years and I'm not going to on wood everywhere that you know we've been able to save money pay down the debt. Have money set aside and haveyou know some money there to do something if you know if we wanted to, build a new office building or move our office or or whatever you know we had the funding to do it I don't have to go borrow money to do that that's right yeah that's really a pretty damn good feeling when I go back and I look at the numbers from say 5 years ago, you know the money we had in the bank um. Yeah obviously it's a different time you know you pay taxes and stuff like that so it's it was a little different back then now, you know it just seems like we were able to you know stash money here and there and and and save it for a rainy day and it gives us many many options, so doing things that we need a new piece of equipment I don't have to finance it, exactly yeah those are nice things to have and um.

[33:06] And it's nice to be able to save money I love paying off debts you know there's probably and I don't I guess depending on who you talk to its you can probably pay off your debt too fast um. So that's something that have to be at the caution myself every time I think I want to go pay the banks and more money um do I really want to do that or do I want to stretch, a little bit well and it's and it's a financial decision when you get down to it but but going into that like how much should I pay off every year extra versus what I'm supposed to, um of obviously you you have to have good systems to predict working capital in the ability to manage jobs and not get, so thin there that your long-term debt goes away so that's a finance question and and I'm sure that you guys have dealt with that the 1 thing I wanted to kind of bring out and this is this is kind of a some something for people that are considering hey should I be an S corp or a C Corp, um now with the CCP they get to get the 1042, you guys stayed in escorp and part of what we're talking about behind the curtain is like look you're not paying any income tax like you're and so because of that all the cash that was going out originally to pay, um in distributions for taxes is coming right back into the cash flow, so you're having good years at the same time you're getting this additional buoy of just not having to pay taxes forever right so um as I say that I think partly.

[34:34] I don't like I remember going through that conversation with you and and Richard and you guys decided hey we want to stay in s, because we believe that's going to be the most beneficial thing for the company and and I think that's kind of it sounds like that's played out pretty well from from the experience that you have over the last couple years, well it's kind of a it's kind of a safety net right if you if you forecast or you you know what's your your cash flow is going to be and then you got this now all of a sudden you have a bank note you have an owner note and you realize how much money you have to pay out. If you had to pay income tax on top of it that would be a that would be tough so, it's kind of your safety net well at least I'm the taxes that normally be paying I have that as cash flow, you know to pay down instead that's right so uh so that's been really beneficial and and 1 other incident we had a couple of weeks ago that I think you'd really appreciate is.

[35:31] You know talking about you know bonding and everything we had a huge huge job it's probably thelargest job we've we've ever had. UmI think it started out where the the owner wanted to bond.

[35:47] And it was a pretty hefty bond amount so you know I talked to the owner explained you you said I want to talk to whoever I want to I want to know that I'm working with a real company right so I spent about a half hour on the phone with this guy explaining you know an ESOP and. You know all of us are owners and we're fighting every day to make sure our company's successful and for our future and. A couple weeks ago we had a groundbreakingthat owner brought up the ESOP.

[36:19] To the news to the mayor to everybody there to the groundbreaking he said 1 of the in a paraphrasing here and it's not exact but you know 1 of the reasons he went with us is because he liked the idea of an ESOP, you know being employee owneduh because his company is a family-owned company. And so he he likes the idea of an ESOP doing his workthat's great yeah so I was like wow that was a, I mean that was big yeah I mean that's that's that's cool because you know we talk about stuff like that like that can happen, and some people always ask me that question like I don't well I don't know exactly because who knows how customers look at this but I do believe that their overall is this General sense in the in that in that environment with customers that are going to look more positively. You know at this for a very various reasons I mean 1 thing I would say right off the bat is like. If if I'm dealing with your team I I know I'm dealing with owners and then owner thinks differently than just an employee you know an owner things like hey I really do want everything to go as well as I can so that I think there's an inherent um, value that customers might might immediately perceive of course you got to deliver but at the same time that gets you an opportunity that you may not have before right.

[37:39] So so that's a pretty good story may help you when you like for bonding purposes you know that really helped us because we probably would did not qualify for a bond.

[37:48] At that time know exactly yeah so that really helped us get over the hump and we're really excited about this project, that's pretty cool so 1 1 thought I remember like in yours is and this is true for every every ESOP is we have to go through a forecasting process and then that kind of leads us to building some models around what we expect the value to be of course models expecting how the the payments are going to be made and the feasibility, as you go and you close you got to you guys got to update that forecast every year and then ongoing every year after that, how hard is it now for you guys to do that forecasting process in the sense now you have this bigger contract that you hadn't had before, um do you are you what's your posture on the future forecasts are you, um more conservative more aggressive or where do you where do you stand on that in terms of how do you how do you work through that.

[38:41] I'm I'm still fairly conservativeand.

[38:46] You know it's 1 of the things I have to talk to with my trustee about because I did make the comment about being conservative on it andand we kind of blew the numbers out of the water last year. And and so the question is you know am I am I being too conservativebut I don't want to give the valuation company the idea that we're going to. Blow the doors off every year right um well and you double you double your stock price too so that's that part can it scares me a little bit because I I don't want my employees to think oh every year we're going to double right and then have this expectation right.

[39:29] Yeah and I know talking with another company that's an ESOP and you know you get to a point where you know you get your debt almost paid off and you know the stock, the jumps and stocks start leveling off and they become much smaller because you don't have a lot of Runway there to you know you don't have any debt to pay off its all dependent upon your forecast and your revenues um. So I mean we're we're we're a ways away from that but it's still like I'm I'm fairly conservative and and probably this year I'll probably be under a little bit more scrutiny, come up with some different numbers this year but that that model that you and I put together I I visit that once a month cool yep that's good yeah I mean yeah and I'm constantly doing what ifs. Yep and what if I pay off x amount this month you know how does that affect me you know how much time does it take off my loan that kind of thing constantly I'm constantly working on that. That's good and yeah.

[40:30] Because yeah because that's a moving part for some people that really stress out I know that some people that are in that after closed stage they're that kind of freaks them out a little bit especially in their first year to to transition and update the valuation. Um that I guess I would say in general I'm, I'm more conservative anyways so it'd be better to be conservative especially in your industry you know and um conservative versus. Aggressive right so conservative to me is more like saying I I just think this is more realistic if you over if you do hit it if you hit it or you continue to hit it over you may end up updating a little bit, but at the same time we all can't predict you know some major issue that can happen right that can happen like that especially with your industry.

[41:17] Yeah and and I'll you know I start looking at it now for next year you know what is it what does it look like uh for the end of the year you know what am I looking at backlog wise and that can kind of go back in time and say, oh well this that year you know 5 years ago this was about the same backlog we had and this is what we ended up doing. Uh does that seem reasonableyou know with a closed rate on projects and you know.

[41:46] Because I don't think there's any magic to it I mean there is no crystal ball that's for sure there isn't. It's it's kind of fun putting looking at those scenarios and kind of working it backwards and um and trying to develop a game plan to hit certain targets but. You know being prepared when you don't hit it is thethe key that's right yeah that's that's when you want to have some money set aside, for those rainy days exactly and B and be careful with how, you built You're Building you're rebuilding your balance sheet and again back to the bonding company they're going to want to see continually your balance sheets getting better and better year after year just to continue to build out your Reliance on the Forum owner and now the Reliance on just the company. Um let's let's talk a little bit about like 1 thing I think is a is an anxious point for people is transitioning into an ESOP and now they have this governance and when you say governance what we mean is, once you sell a controlling interest you now have a board of directors that run the company. Um so so along that line you're going to have in your case you have an independent director because you sold a controlling interest. Um how is it going with in the last couple years how's it going with creating the board, having the board meetings having the trustee involved in in the board um and would you say that kind of is a very positive forward movement thing or has it been difficult or problematic in the sense that now I've got this board I got to deal with.

[43:12] Well the first year we it took us a while to find uh you know we have a 3-person board it took us a while to find our our third person. And once we did that it was It was kind of nice to have a board meeting you have 3 people there and and uh.

[43:30] You know so far knock on wood I've only had great things to report to the board meeting right, so this we really haven't had any tough decisions except for the fact that you know we we promoted someone but that was you know we had vetted that out really well before we even got to that point. So um.

[43:50] It it's great having the board there uh I don't have the trustee I had them at the last board meeting but he typically doesn't come to the meetings but a great sounding board for me, so bouncing him off sometimes off him before um the board meeting uh this year he also came to my shareholder meeting too you got to see me make a fool out of myself but um it was. The the board me I'm still getting used to them, you know I mean our first couple board meetings lasted a couple of hours and you know the last 1 last probably 3 and a half hours, there's not that much to talk about really so that last 1 we were a little long-winded so we're going to we're going to squash that going going forward, um so you guys do you guys have you changed the way you run your business much from the time before your closing to the middle you closed it and now you're at where you're at in 2 years later have you have you made any major changes to the way you run your business, um because of the ESOP or is it just is it like just continually getting better in terms of like we we we're still running at the same way but but this is how we changed you know the way we actually do manage the company.

[45:03] Execution wise we're we're we haven't changed. No we we changed some of our financials and the way we do business you know there's you know we're no longer.

[45:14] Yeah we look at our we're looking much closer to our marginswe look much closer at our budgets to make sure you you know we have legitimate. Budgets that we can meet on projects and we're not just throwing numbers to get a project it's a more responsible you know you get to the end of a job and you've lost money on it well it's not, it's not 1 person losing money it's the entire company losing money that's right and now I have to pick up another job making a little bit more, to offset that loss yeah um so from that aspect I have more people looking at the bottom line that I have in the past.

[45:53] And uh it it creates uh for good conversation in some of the meetings. You know we're trying to pick up a job you know there's often times and it's good arguing it's arguing back and forth on why we should cut our fee or um, or go with a certain subcontractor or something like that so uh. You know from that aspect I think the ESOP is great because everybody in the room is an owner that's right yeah and and sometimes I even I've even said to people, you know if if you're okay with losing money then why don't we just take this out of your bank accountI'm sure that goes over well yeah we we'll run it on your budget and if we make money we'll all share but if we lose money it comes out of your pocket yeah that make different decisions yeah they kind of, it makes people think twice yeah totally you know yeah but but that's really what we're doing it's in everybody's wallet here that's right you know lose money everybody's losing money yeah so, which which really is going to become and does be a better incentive for people to see the the decisions are, they they definitely every decision counts and they all everything matters that you do and it did before but it's hard to it's hard to be in the mindset I think if you're an employee that, is building a 401k versus an employee that's building ownership in in this ESOP retirement plan. Right now we we do spend a lot more time vetting our projects.

[47:21] Uh once you know getting them and once we have them we spend a lot more time delving into the issues and a lot more time delving into the numbers money wise. Uh because if I have a financial problem I want to know about it sooner than later. So I can try to fend it off right right as as assumed like just assume let's assume it's going to work out and we'll move on to the next job right right and we we are doing much better job of that over the last couple years. Now I need and I and I know that just because you and I talked you know on the on the every once in a while kind of check in so I know that that's the case and I and I think that's part of where I was going with like I think overall you haven't made any dramatic changes to the business it's just kind of slowly evolving to become better and better bring new people in New leadership at the same time um you know a stronger company than you were 2 years ago. Absolutely yeahwell go we are pretty much out of time anything I I think the the last thing I like to kind of finish with is you know from your perspective having now ESOP, experience and I would say that you've definitely more way more of an expert than of course you were when we first started having that expertise, what for a contractors like what would you say that you would give as advice to people that are that are, you know in your industry that are looking at this as an option or in your industry and they've already done it now you know thinking through that what you guys know and learned through the process.

[48:49] Well I I think the big thing is the communication side which says 1 area that we we continually try to improve um I've taken several of my staff to um or team members to uh conferences.

[49:04] To get them more entrenched in how to communicate an ESOP and I think that's a big thing and I've even talked to other construction companies that are esops and and that's 1 of the things that they all seem to struggle with is the communication side of it. Um in our business we have a lot of employees are out in the field so. They don't see me daily they don't hear me walking around the office promoting the ESOP so the only time they hear about an ESOP is when they get a statement or they come to a an all company meeting so. You know I think it's important to uh. To get everybody involved as much as you can even those people that are not around a lot yeah that's a good point. You know I mean that's that's a big big thing because like I said most of our I say half of our people are in the field. So if I could 1 1 bit of advice especially the construction companies to make sure you communicate all the way down to the field level, right yeah don't forget about these people right they're they're right the heart and soul of the company and they're out in the field getting the job done so I think that's a really good good advice. Well Joe thank you so much for joining today I was a really helpful I know we could probably talk for 2 hours um but you know because you guys have have done so well I I appreciate that Insight because it's helpful for everybody, that may be listening or or listening down the road and thinking about like how this is going to work for them.

[50:31] Several I'm glad you had me well great good talking to you hope to see you soon yep yep me too so for everybody else thanks for listening today and we will be seeing you on our next step on this journey to an ESOP.


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