The Southern USA Lumber Business - Matt Moldenhauer CEO of Bellwether Forest Products - The Michael Girdley Show Episode 2

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app.

All right.

Welcome to Industry Anonymous, which Matt— Matt, who's my guest. Welcome, Matt. It's good to talk to you today.

Thank you.

We may or may not stick with the name Industry Anonymous, but I think the concept of the podcast will stick. As I've started to record some of these, my first 3 guests, none of them have wanted to be anonymous. So the core thesis of the podcast is maybe totally screwed, so I may need to rename the thing, but I think the concept will stick.

Or you have to ask harder questions so that we don't feel comfortable answering with our real names.

I definitely do that. What's your blood type? No, I'm just kidding.

Okay.

The core of this podcast is what I do at parties, which is whenever I go to a party, I meet somebody and I find out what business they're in, and I spend 45 minutes learning everything about it because I'm a total nerd. For different types of businesses, especially ones that people don't talk about. I mean, everybody talks about Snowflake or Facebook or whatever, but where you're coming from in terms of being part of a family office that owns a forest product business, it's just totally, totally fascinating. And we're going to get to spend some time talking about the forest product industry and how y'all got into it and how it works and all that kind of stuff. So super fascinated by all that, if that works for you.

Yeah.

Cool. Well, tell us a bit. How did you get involved in the business? What does the business do? I'm super curious about it.

Yeah. I mean, so my getting into it is kind of funny because I was a consultant in Chicago, but had met the family office, two of the partners in it during business school, and they had been putting bugs in my ear about small companies for my years while I was in Chicago consulting. So when I got to the point of knowing I wanted to make the switch, corresponded well with. They were looking at this opportunity for this timber business, forest products company. It was very small time. They were buying it from the founder who, yeah, he had 14 employees, ran it out of his house, literally out of his house, had no space anywhere, and asked me if I wanted to run it, which was about the biggest change I could have had from being a consultant in Chicago to this company being based in rural South Carolina, where all our employees, you know, are in hometowns with an average population less than 500. And so it was a huge culture shock, but I was in the mood for that, I guess, at the time. And people always ask me, how did you make the decision? And I can like give them, hey, here are the top 5 reasons, but it was really like, I want to make a change. I'm going to figure this out and now or never. And so I just jumped in. I had no pre-design to be wanting to be in the forest product space. I did see it as a massive market and a big opportunity. And so like, if I could figure it out, then it could work well. It really was just a matter of jump in, figure it out. They liked the business because the founder of this small company had a really unique model in the space. We can get into it because the main feature of the US South forest product space is it's disaggregated. It's just fragmented into pieces everywhere. But yet, 10% to 15% of the world's total wood products come out of the US South, 20% of the world's pulpwood, But it's only a few percent of the total forest land. So it's a massively productive forest space, and yet most of the companies are highly unprofessional that do the real work of harvesting, hauling, and procuring timber to go to paper mills, lumber mills, biomass, packaging, all the things that wood products get made into. So yeah, we jumped in and kind of took it and started to do a few roll-up acquisitions, but have been since trying. Now that we have a little bit of a platform to really like get it professionalized.

Yeah. So man, walk me through, like, if I think about the forest product industry in the US, like, who are the— and it's a play— who is the cast of characters, right? So there's obviously the people that have the Timberlands, there's the people that are running and managing those. Who else do I think about kind of in the universe of people in our cast here?

When I think of it, I start with the markets, which is International Paper on the big paper side. Then on the lumber side, you've got West Fraser Timber Company out of Canada, Canfor Corporation, a lumber company out of Canada. Then you've got Georgia-Pacific is a massive player in paper products, Dixie Cups, OSB products for home building. So those guys are, I would say, the ones that are facilitating the demand. For everything. And there's a lot of those companies worldwide.

And so those are— if I draw a parallel to like the food industry, those are the Cargills or the folks like that, that are the Tyson Foods in chicken. Like, they, they, they take that particular place of owning a brand, aggregating supply, and then translating that into basically getting that out to wherever the retail chain is, or the— or so on. Is that how I should think about those folks?

Yeah. And those are our customers. So we'll kind of get to this because we kind of have two customers, but the one who pays us is the mill, and the mill is taking a raw forest product, which is a tree that we cut down, and then they're making it into whatever they're making it into— lumber, biomass, packaging, paper, whatever. And so that's those folks. They're the ones that are setting the markets. They're the ones that are creating demand. And obviously you can think about it, right? You've got everything from mom-and-pop sawmills that are really small and run very cyclically, come and go, to we delivered to the International Paper Mill in Eastover, South Carolina, which is the largest paper mill in the Western Hemisphere. That's a billion-dollar facility. These are things where they made a billion-dollar bet on paper, and it's in secular decline now, but the world still needs it. We're shipping it in there, and they're buying 600 loads of wood a week, and that facilitates a lot of the downstream we can get into.

Yeah, well, this is fascinating 'cause if you, if before 10 minutes ago, if you were like, Michael, tell me about the lumber industry in the United States, I'd be like, okay, there's this place called Oregon and the trees grow there, we chop them down and then they float down a river and so, but so how much of the lumber production in the US is actually in the Southeast versus West Coast?

So I don't know the precise answer to that question. The lumber pulpwood is a Southern product.

Totally different.

So all that is a massive Southern industry. However, lumber products are becoming more and more and more are moving to the South because it's the lowest cost model. There's still, I'd say, the bread and butter of the Pacific Northwest, Canada is still lumber. That's more or less what they do.

Big hardwood trees, which I guess are those different than the ones made in the Southeast that grow in the—

There's still hardwoods in the Southeast, but there's more in the Pacific Northwest and different species and things. But if you think about it, it's pretty logical why actually is lumber is a higher value, higher cost good than pulpwood. Pulpwood's about the lowest price thing you can make. Getting wood out and growing it in the Pacific Northwest, it grows slower, it's colder, shorter growing season, and the terrain is a lot tougher. There's a lot more mountainous further from the growing point to the destination. So it's just more expensive. So their economics up there are still good for lumber, whereas in the South where they're growing the low-cost product down there, we're it's a lot faster growing cycle and year-round season.

Yeah, super interesting. And so you get— so how do you define the South? So that goes from like North Florida through Georgia up to South Carolina into North Carolina, and then I guess west through West Virginia, Tennessee. Is that kind of the path there? Does it go even further west than that?

You can approach— I'd say Texas is still a timber state. There's a lot of timber in Texas all the way over up into North Carolina and Virginia. And, you know, probably up into Tennessee, you still see, you know, You'll see timber in almost every state that's not mountainous and rocky, but the industry is really big. I mean, it's the biggest. South Carolina's got Myrtle Beach, Charleston, Hilton Head. Timber's the biggest industry in the state.

I thought it was fireworks shops.

Hey, I'm sure they do good, especially on the state line with North Carolina. But yeah, they advertise it as a $21 billion industry in the state with economic impact. It's massive.

Yeah. So when you guys found the business, it sounds like it was— was it vertically integrated at that point? Like, were you—

or were—

how were you getting— how are you getting your supply from the farmers? Or were you the farmer at that point? And then you're selling into the mills?

How—

what was this like when you found it at 14 people?

So the big feature of the South is that it goes very much to the history itself, but is private land ownership. And so actually used to be that a lot of the land was owned by the mills. Themselves, International Paper, an old company called AbitibiBowater that's since gone bankrupt, but they all owned it. Well, they decided in the early 2000s, most of them, that they were going to sell it off and just get into being finished goods producers. So they sold it off and now it's highly privately owned, and that facilitated this big network of what they call timber dealers. And in the state of South Carolina, it's a couple hundred small companies that are foresters going out and trying to purchase individual tracts or packages of tracts of land, not the land, but the timber, the right to cut the timber on the land to then sell for harvesting, hauling, and to a mill. And so those transactions happen every day, very small, as opposed to the Pacific Northwest where it's a lot of government work and industrial timber investment management organizations and real estate investment trusts that own all that stuff. So in the South, it's much smaller, much more private. People sometimes will buy and sell 10 acres at a time of timber. Wow. That's kind of the way that it works. When we first got into it, our business, uh, the business we bought had it. He bought timber as a dealer, logged it, so had all the equipment in the woods to cut the tree down, drag it out the woods, put on truck, and then also the trucks to haul it. In the South, that's pretty often 3 businesses: a dealer, a logger, and a trucker. So we had all 3 of those things. Basically allows us to connect all the way from a landowner to the mill and control the customer relationship as well as do the work. And that's what we've been building.

Preston Pysh Super interesting. So why did the mills de-verticalize, so to speak? Why did they get out of that business of owning the land and being vertically integrated? What was the rationale there?

Mike Gayed I think more than anything, it was a balance sheet play, holding on to all that timber. They own thousands and thousands of acres, and International Paper was the largest. The pulp mills buy far more timber in the South than lumber mills do. So they really set the market and the conditions. IP, whatever they do, has its effects on everyone else. So they made the decision and their CEO that they were going to become more of a finished goods producer, which when you look at their financials, it's more about— it's higher margin. It was at that time a higher margin product for them than the Timberland. I think they also thought the main reason they owned the Timberland was to control the supply. They didn't want to have to worry that they could get supply, so they owned it themselves. Then they realized the market dynamics were in their favor anyway, so they just sell it off. I always joke with people, I would love to have been in the room and know if they knew how this was all going to play out over the next 20 years, because it's really created favorable— it's been more favorable to them price-wise to have this disaggregated network of dealers competing with one another than it was when they owned it single source.

Yeah. Well, so it's the Amazon deal, where they figured out they can be much more efficient by having 1,000 little entrepreneurs running 50-person shops than having one big 5,000-person shop that they control. The diseconomies of scale idea around all that is super interesting. They have— because there's big economies of scale at the mills, and as buyers and aggregators of the supply, just like a Cargill, they didn't lose anything by getting rid of all those really heavy assets, and they actually got much more efficient by de-verticalizing and fragmenting like you talked about.

Yeah, I think they would say that. There's still, even I'm thinking very recent, but the last few weeks, we've gotten a ton of rain. And so one of the major effects is when you get a lot of rain, it becomes more difficult to log. And these paper mills, especially shutting down the equipment they're running, which is a chemical pulping process with many components, is incredibly expensive. So they can't run out. They just can't. They get nervous when it gets like this, and I'm sure they wish they had more control over all the players at these times, but in general, they've got far more people supplying them than they need. As long as the market's going that way, I think their wood costs probably are favorable compared to where they used to be.

Yeah. Well, and this land has to be— you know people that are buying up farmland, or I talked earlier this week with a friend of mine who's president of a winery, Unlike, unlike that, unlike regular farmland, you don't have to get the corn out of the field here at a certain time, right? The trees typically, they don't—

Non-perishable.

Yeah.

Non-perishable. If you don't get the price you want this year, wait until next year.

This seems like the first farming I've run across that actually doesn't suck. You don't have to— So, well, I guess there's tree blight and stuff like that you have to deal with, right? And those problems like that.

Yeah, but that's, I would say that's more minor. The most interesting dynamic of what you're describing is in general, and there was an article in The Wall Street Journal on Wednesday, I think this week, about these lumber prices are insane right now. They're at all-time highs. Why aren't landowners getting rich off of that in the South? They're not. They're doing poorly. They're doing poorly. The prices are at all-time lows right now. The mills are making a killing. They're paying as little as they ever have on the supply side, and they're getting as much as they ever have on the demand side. The main reason is just it all goes back to the Great Recession. The housing market crashed, the prices went down, and all the landowners making independent decisions in a fragmented nature decided, "I'm not going to cut my wood right now because it's non-perishable. I'm going to hold it," which created— In the meantime, all the smaller wood gets bigger to be of the grade it needs to be. Now, ever since, there's been a glut of lumber-quality wood on the market, and they never have to pay for it again. It might take decades to correct that. It only gets worse because every year, they're all waiting maybe next year, maybe next year, and it's just not going to happen because the sawmills are used to being in a cyclical business. They're very slow and has long lead time to add capacity. They'd rather take on price than ramp up their volumes and risk the price, and so they just sit in their situation and pay nothing while they watch the market go gangbusters right now. It's an interesting market. It's completely disconnected on the supply and demand side. Wow.

I mean, it's a good thing we're not doing video right now because people would see my face. I'm just like totally blown away by this dynamic because it's the opposite of what happens in normal crops, right, where they're perishable.

Yeah.

And those guys are forced to feel the pain. And like, this is like the most delayed pain possible, like for these folks. And because everybody's looking out for themselves, like everybody's going to be in pain for a long time. Whereas in farming, everybody just gets over it in the next year. Hopefully the cotton price is going go back up, you know.

Yep. They all hope that happens. But they, you know, year over year, it just plays into itself. And, and, you know, the only advantage landowners get is like right now when it's real wet, there's these spot market opportunities to get good money while the mills need it this week and next week. But it's not a, you know, it's hard to predict on an annual basis. And the other thing about corn, right, is you plant it next year, you harvest it. And trees, it's, you plant it maybe 15 years, you do a first or first thinning on the pulpwood, and then in 30 years, you do a final harvest. And so You know, what does the world look like 30 years from now? And what are those wood products gonna go? But you gotta make the call today to put those seeds in the ground. So it's a really difficult, you know, decision, but most of the people that have it, they have it as almost like a retirement savings or for their kids or estate planning. And it just hasn't panned out like it did for the previous generation.

Wow. So where you guys fit in is really interesting. So what you described was there's a landowner and they're growing trees. And there may be, they may have, maybe they've hired a management company to kind of make sure things go okay and check in and make sure they don't get pine beetle or whatever. And then where you guys fit in is in terms of sourcing from them, doing a deal with them. So basically getting the timber rights, chopping it down. So getting it out of there and then trucking it out and then marketing it to the mills, right? You guys fill that middle gap in between there. And the interesting thing is, as you describe it, like the mills are super capital intensive, subject to the vagaries of the market, the risk is on the other end as well with these, the farmers and landowners getting hammered by current prices and a glut of supply. You guys are in a very, very cool middle niche, right? Like that's the low capital intensive, relatively steady, you're gonna make money no matter what type situation. That sounds pretty awesome.

I wish it was as good as you described it.

Well, the other ones look like they suck. I mean, the Cargill end of it, the international paper end, that sounds awesome. Like that's a good business to be in.

Yeah.

The owning the land, if your cost basis is low, okay, cool. The middle part seems better, but it's relative.

The landowning part, it just depends on how you invested in it. What were your purposes? How much you plan to make? The middle's obviously a good side. I love this business because we're in the middle doing all the work. We're basically facilitating this transaction and then making it happen physically. But to say we're capital light is not right. Relative to what we do, we're capital intensive. You know, a single logging crew, of which we have 8 to 10 crews at any given time right now working, and there's, there's 300 to 400 crews working at any given time in the state of South Carolina.

Okay.

And so a single crew on average, I would say, has about 3/4 of a million dollars of equipment and a million dollars of trucks. And so you got, you know, $1.5 to $2 million of capital into a job site. And that can vary a lot based on factors. But so it's, I mean, it's relatively capital investment. You got then 7 people between truck drivers and loggers that are working a job site in our case. And so it's people intensive too. So there's a lot of very— there's fixed costs, there's variable costs. And the thing that makes the business most challenging is there's tons of externalities. There's way more out of my control than I wish there was. So you're dealing with weather, you're dealing with remote locations. You're not just sitting by a gas station or a— part of the reason people have said in the past logging is dangerous, it's not because it's really super dangerous anymore. It's because if something minor happens, you're probably pretty far away from help. And so you need to be able to work through that. So there are challenges. And then probably the biggest challenge is working with these major corporations who set the terms for us on what our orders are. When supply is tight, they will set weekly wood orders for us. And so you've got to— and that's why I feel like that relationship for us in the dealership role is super important. Because I need to be able to fight for what is profitable demand week to week. And so we've got guys in our business that are making sure we've got the right demand to actually get out and, you know, make a go of it every week profitably.

Yeah. Well, how many, how many potential buyers is your universe? I mean, are you, you know, there's some, there's monopolies, right, where somebody has, owns all the supply, and there's monopsonies where somebody owns all the demand. Are you highly dependent on one or two buyers with with the mills, or are you able to at least have a few different options to play them off of each other?

We have 40 different wood facilities we ship to, but it's 80/20 rule. We still are, in terms of products, we're 50% pulpwood products, papers, corrugates, linerboard, all that stuff, and then 40% lumber products and OSB, housing, sort of housing dependent, and then 10% other, utility poles, specialty hardwoods, posts, railroads. So that's our business, but it's 40 different customers, which is nice. The tough part is geography is the name of the game. And so distance on a haul distance is a big thing for us economically to get our production where it needs to be. And so while we have 40 options, it doesn't necessarily mean someone in the northwest corner of the state can ship to one of those 40 options that's in the southeast corner of the state. And so you get— you do have to kind of game plan. But by what we've tried to do in our company that the mom and pops that have 1 or 2 crews can't really do is create a network. Where we can sort of flow things around as things go wrong. And so we can kind of shift away from mills that might have slower demand or, or whatnot to get to where we need to be to have our network running where it needs to be capacity-wise.

Yeah, super cool. Well, I want to dig into that, but I just wanted to reflect on one of the things you said before we started recording, which was you thought that the timber industry in general was too quiet. I don't want to put words in your mouth, but it's like When I told people we were going to talk about the timber industry, they were like— other business nerds were like, "Holy cow, that's amazing. I don't even think about that." What do you think is the dynamic going on there? Is it just an old economy industry that hasn't caught up to people's attention yet, or what do you think there?

MICHAEL GIRDLEY: It's a very old world industry. Especially in the South, it's got its roots in colonization, and it has a lot of— it's very very rural by nature, right? I always say to people that— people say, why is it so hard hiring? I say, because trees are where people aren't, you know, like there's— that people aren't just— the commute is bad, right? You got to get to these places, or you have to hire people that live in these rural places. All those things, I think it makes up for tight-knit communities where they feel like they're guarding a bit of their knowledge, guarding their past, you know. A lot of our folks don't even have— hell, I've gotten big into reading up on, uh, needing to have wireless and broadband as part of our infrastructure package because I see it every day with our employees. They In order for them to learn the tools I'm trying to give them in technology, they need to have access to technology. But anyway, because they're just cut off from some of those modern developments, I think it breeds a little bit more of a secret-keeping culture. And there's also been a history of antitrust in the industry from top down. So I think there's also been a bit of collusion in the past to keep timber prices down or use the players in such a way to have kickbacks and other things. And so people tend to try to act as though everything's a secret. Because of that, landowners have an incredibly low level of trust in timber companies like us. They always feel like we're probably trying to hide something, or they should be getting paid more than they are. And the truth of it is, that's why I always try to tell them, I'll give you the full economics of what I'm doing. Because at the end of the day, I look at our company as— we work for logging cost estimators. Not timber buyers, which is how the industry looks at it. Because when people think you're just buying the timber, they think you're setting the price, and we're not. We're just basically price takers trying to work on your behalf with the mill to get the right price for what you're selling. But then ultimately, we're working to come up with what does it actually cost to take that timber from where you own it to that facility, which is incredibly variable, and then give you the rest with an ROI in there for ourselves. So That process is so opaque though that there's very little trust and most people don't talk about it.

Yeah. So it sounds like you actually look at it more as an agent for them also, a selling agent almost for them than what I envisioned was happening here, which is you were taking possession of the lumber and taking a lot more of the risk, it sounds like. Walk me through that process. So you're first going to the landowner and saying, hey, we want to represent this. We'll do a survey of the timber you have, We want to represent you and get you the best price. And then, so walk me through that process. How does that work?

Yeah, there's really 3 ways timber is bought and sold in the South. First is a direct sale model whereby a big industrial landowner like a REIT or a TIMO will sell directly to the mill, get paid directly, and then pay a logger and a hauler and the people that do the work separately. I think that's the most straightforward model.

But in that scenario, they call you and say, Here's what we have, give us a bid, and they'll do that with two other folks, or they'll do it under contract of cost plus whatever, and then you just do the work.

We have two crews with Catchmark Timber Trust in Atlanta. It's a big REIT, and they basically have an agreement on pricing. We basically know the basket of wood that they own, and we just agree to do the tonnage they want annually, and we go cut it for them. They take all payment from the mill and they pay us for our work. That's easy. That's sort of simple, I think, more like you would think of a roofing contractor or something.

Good cash flow business.

Yeah, absolutely. No inventory, steady supply of timber. The more common way it works in the South is through a stumpage sale model, which is to say, I get paid by the mill, and then I'm going to pay whatever's left over after I keep what I bid to you as a stumpage price. And then you can do that one of two ways, either a lump sum, which I think is what you were thinking of when you said you take on the risk, where I go over there, I send a forester over to do a cruise of the timber stand, And he's estimating and taking diameter at breast height and plots and all these things to come up with the volume and then merchandising it to our customers. And then he'll say, I think there's $25,000 of timber out here, so I'll write you a check for $25,000. And if it cuts $20,000, we lost $5,000. If it cuts $30,000, we made $5,000. Right. So that's the risky way to do it. And some sales happen that way. And then more often what we try to do, because I just think it's the fairer way to go, is a pay-as-cut contract where we negotiate rates per product. And then when those are delivered, we take receipts and pay them a rate per product. So pulpwood would take a lower rate than a lumber product would. And so in that case, in both those cases, though, the mill would pay us and then we pay the landowner what we've agreed upon.

Yeah. So in the first model where they're just paying you for your time and effort, right, you have dedicated crews, that seems pretty straightforward.

Yeah.

How the REIT can deal with that. And I see how they're benefiting from scale that way. How does the landowner— so if I'm a landowner and I have a bunch of land with trees on it, and there's you, you as an option, or other people as an option, and I'm subscale, so the mills don't want to deal with me directly, how do I, how do I go about understanding whether I should work with you or I should work with somebody else? Do I bid you against each other? Or how does that work?

A lot of it's still very relationship-based, because it's who you trust. So we have wood buyers on our team, we have We have 3 wood buyers today and they have relationships and people trust them. Most landowners or land managers have a few different buyers that they know or connect with so that they can get multiple opinions just like you would on most things. And you set yourself apart in general, I think, by— at the end of the day, it's a cost-based business, right? They're trying to get a return on investment on their property. So you need to be lowest cost. So most of what I do is around How do I have the best people but still the lowest cost? It's all production, right? So we're a production-based business. That's how we try to run so that we can have nice things and look good for the future, but also compete on price. But there are other factors and some landowners, they want to plan around deer season. They are needing to plant. We've worked with public customers who are converting timberland into solar fields and solar farms. Sometimes those things are time-sensitive projects that need to get done. And so every one of those conversations is just a, what do you need? What are you trying to achieve? What are your goals? How can we fit? And I think we're one of the most respected players out there. And then you have the added dynamic of how strong and reliable are your wood orders from your mill clients? Because some wood buyers will go out there and try to purchase your wood and they don't even have a dealership with the mill. And if you're uneducated, you don't even know that. And then when you say, why haven't you moved my track yet? They say, oh, I'm just trying to figure it out. Well, that happens. And they don't actually have reliable wood orders coming in with a relationship from an international paper. And so when people come to Bellwether, they know we're going to move the timber. We're moving 600, 500 truckloads a week, and we're going to be moving it. So the job will get done. Yeah.

Well, it sounds like there's definitely— I mean, there's efficiencies around your scale, there's economies around that as well. There's reputational kind of moats around your business. There's relationship-based moats. It's really interesting to dig into this. There's a bunch of things that are protecting your business from competition, though it sounds like there's still pricing pressure all the time, just like in any commodity business.

There is, yeah. I mean, there's still a ton of pricing pressure, but the things that are sort of longer-term trends, which is I think this business is going to get more attractive over time because one, I think that the tailwinds for wood products are good, especially in the South. And then two, the workforce is aging. It's becoming more difficult because equipment, I mean, everyone from John Deere to Cat to Mack, all these people are making their equipment such that the rural mechanic can't work on it anymore. And that's a lot of what these small businesses have done over time is be able to compete on cost because I can fix everything. And so they're, you know, they're doing the books, they're fixing their equipment, they're running the machine during the day, and they're also doing their sort of sales cycle. And in the future, that's just not going to be possible in the future because these things are becoming more technical. More of the things that break are sensors and wire harnesses and all these things, and fewer of them are gears and, you know, pumps. And so it just becomes more that you need to depend on other partners and it allows more sophistication to come into the business. Uh, and so I think that the kinds of players that run and succeed in the future are going to be able to think of it more as a business and less as a, a hobby.

Yeah, for sure. Yeah, the equivalent of the mom-and-pop truckers, right? It's just they're at a disadvantage in a lot of regards. So how, how is technology stepping into this market, right? It sounds— you talked somewhat about training is happening a bit using technology, communication. What other things are becoming impactful? Are the machines themselves becoming more sophisticated compared to the old days?

Yeah, the machines actually haven't really gone through any major step changes recently. Most of the big step changes were in overall mechanization in the late 1900s. But nowadays, it's, it's a lot more geospatial. You've got the big companies like John Deere in logging trying to give you geospatial tools out in the woods to see the work you've done and help the guys in the machines do more accurate and better and more efficient work, you know, through everything from, you know, taking data off the machine in real time, not just like clocking the hours, but, you know, knowing when it's cut a tree and how many stems it's holding and where those were laid down, and then telling the skidder where those trees are and where they need to go pick them up. Because when you work on 400 acres, it can be difficult to make sure you pulled every drag to the deck and got paid for it, right? So things like that are coming through. But I tell people this all the time, this industry is so far behind that a lot of it is is far simpler than that. And so it's things like today, there's still a law in place in South Carolina that a timberland has to receive the paper receipt that's handed to the truck driver at the scale for every load of wood within 30 days of it being hauled. And so we still have to physically collect 500 slips of paper every week, sort them by landowner, calculate payments, and then mail them out to the appropriate places per contract every single week. And that is happening. That's still happening. Per law. And so we've turned that process digital to be able to do it faster and with fewer people, but it doesn't alleviate the fact that we need to collect paper receipts that look like you just bought a donut, but represent a $1,000 load of wood and mail it to somebody that could be down the street or in Washington or in China. So—

That's fascinating. So I think you guys are interesting that you're actually owned by a family office, which we talked a little bit beforehand, owns the minor league baseball team in my town in San Antonio, which is super, super interesting. So when you guys bought you bought the business, it was 14 people. I don't know if you feel comfortable kind of giving us an idea of the scale in terms of revenue and profit and stuff like that at that time, but it sounds like it was an order of magnitude smaller than where it is today.

Yeah, it was roughly $3 to $4 million when we bought it. We should do $15 this year. So we've grown, you know, we've got 45-ish employees now. We do some different things. And so some of the businesses we've gotten into are different margin profiles. but we roughly tripled it in terms of its EBITDA and 5x in terms of revenue. So there's definitely— there's parts of logging that scale well, namely the trucking and the mill relationships, and there's parts of it that don't scale well, which are individual crews out in the woods. They don't really do much better if there's 5 more crews that are in other locations spread around the state than they do by themselves. So We've learned a ton as we've done this, but at the end of the day, we're competing against people that have been in this for 3, 4, 5 decades. And we're now, I would say, a top 5 player of the 300+ players in the state, and we've only been doing this for 4.5 years. So we're—

Was that all organic growth, or did you acquire other companies?

We did one deal immediately following the other deal. I wouldn't say that was the most successful deal. Why not? I think you get into it initially and things go really well, and we love the economics, and you assume those economics can get printed. Before you understand an industry's nuance, you can make those assumptions rosier than they should be, and we moved quickly, and so we ended up with this business, and that just wasn't the same economics. It didn't have the same model, the quality of the business wasn't the same. And I've learned it takes— if you don't have quality coming in or you didn't build it yourself, it can take a while to transfer that culture. And so more or less, we have— I think we had 20— anyway, we have basically one-third of that company left in our company today. But we've then since built that back organically. And we're still— I mean, I still view this long-term as more of a roll-up. There's a lot of folks out there that do want to sell. There's a lot of hurdles to getting them to sell for various reasons because they have asset-heavy businesses and sometimes their businesses are only worth the assets. And so you have to look at what you really want. In this business too, there's a lot of folks, I'm sure, folks use, but they don't want to sell when times are good, they want to sell when times are bad, but they want the good times price when times are bad. And so there can be a little bit of an incongruence. But yeah, so I view that as being our main growth going forward is probably more on the acquisition side.

Yeah. And then how is the business being led now? So you're— we talked here today, you're in Milwaukee, which is like ridiculously far from South Carolina. So yeah, clearly you're not out there like mapping out where crews are going to go each day. So is there— how's your team? How's your team structured underneath you?

Yeah, we have— I'm lucky that we found good people. And we've got an operations manager who runs the day to day. We have a fleet manager who runs the day-to-day on the trucking side. And then we have our procurement foresters who are pretty independent, working on making deals. And then we have an office team. So our operations manager mostly runs the day-to-day. But I still spend a lot of time getting everything in the back office side structured and doing new systems, working on working with some of our big customers like IP, and then also just doing a lot of the new systems and new thinking where, you know, because the operations manager we have has been a logger all his life and is incredibly good at it and is a great natural leader. But there's just other things that I can move faster on and add a lot of value to separate us from some of the competitors.

Yeah. Well, I mean, reading between the lines, it sounds like, you know, you're a Chicago guy. It was probably a shock when you got there and discovered how slow everybody talks in South Carolina. Did that happen to you?

You know, it wasn't that. It was just, I think from the city to the rural, rural urban is a divide, right? It's a big divide. And so, It wasn't even so much because like if you're in Columbia or Charlotte, I feel like that's not that foreign to me. But when you get into Kershaw, South Carolina, or Edgefield, South Carolina, there's a different culture there entirely. And so those are the things that I really struggled with when I first got there. But that's like, you also learn a lot about that part of the country by doing it. So.

Well, sorry, I got myself off the point I was trying to make, which is I think you had It sounds like you had such a huge advantage coming into that scenario, just being a young, well-spoken, relatively well-educated, modern person. I mean, it must have just, to these buyers and stuff like that who, I'm guessing the mill employees are typically more like you and me in terms of that kind of well-educated, well-sophisticated type folks. Did I just call myself sophisticated? Anyway, you're sophisticated. But like, I guess I think I'm suspecting that was an inherent advantage for you, that level of professionalism that you have compared to some of these other folks.

I don't know. I think it honestly took time. I think they, they felt like there could be something there, but it also left a big trust gap early on because I'm not, I'm not like the folks there. And, and even in the mill sphere, probably in the management inside the mill where it's highly technical, maybe more technical backgrounds, there was more of a STEM background, let's just say. But in the front end of purchasing timber, it's still highly people that come up through the forestry ranks. And that's just a group of people that want to get into that. I would say it's very similar to farmers. You come up through families or communities that are big into farming or into timber. And so, I was an outsider. I still am an outsider. I'll never not be an outsider. But You know, at the end of the day, like, I think over 4 years of, hey, I didn't just come and run away. Yeah, I'm still doing this. I'm still fighting every day. And so there's been a ton of trust built up, and now they see that I'm capable of some things that other people are saying are impossible, right? And so I felt real palpable momentum the last year or two that wasn't there the first few years. Um, and that's fun because, like, we're finally getting into having conversations with people that want to have the change that I've been trying to advocate for a few years. So I think the future is super bright, but I couldn't have done the things I did today year one because there wasn't the trust there to do them.

Yeah, city boy showing up.

Yeah, that's right.

So what, you know, as you talked about kind of the trading multiples for these businesses, sometimes just being the value of the depreciated assets, like what What are the typical— and I guess it's also complicated by there's— y'all are an integrated company, and then some of these are just the trucking companies, and some of these are just the loggers. And where do those tend to trade these days? Have institutions started to try to roll these up and stuff like that, or still a relatively undiscovered, you know, level of asset class and business area?

Yeah, I'd say there— we haven't faced any institutional people. I mean, we, we've seen a few people, people sniff around the timber industry in total, but I think it's more so they're focused in on land management companies with a lot of acres under management, or the technology companies are incredibly hot. Forestry tech, there's a new company on the block, it feels like every other day. But in our space, there really hasn't been. And I think, one, most people don't even know who these companies are. If I go to somebody who's been in the company for 30 years and ask them to run off the names on their head, they'll run off 10 names. They probably know 50, they just can't think of them all at the same time. And there's no list out there. You can pull Dun Bradstreet and figure it out, get close, but people don't know who these folks are and they're so fragmented. I have my own roadmap and my wish list if I was to combine companies nowadays, but it took me a lot of diner visits and gas station stops and handshakes and sitting on the back tailgate of a pickup to meet who these people are, figure them out, get their phone numbers. That was 4 years of networking that didn't happen on LinkedIn. So I think it's going to be real hard to target for PE until there's a scale player or a couple of scale players. Not to mention, the people I think are most formidable in the space today are bigger family businesses and would probably be pretty hesitant to sell. And so yeah, as I see it going forward, I mean, in general, you can buy loggers and chuckers for asset value or 2 to 3 times. It's pretty affordable. And then the real key is taking those companies and doing a little of the integration that we do, starting to buy for them, bringing in some of the profit pool that they've been missing out on, and then also realizing there's a ton of synergy from getting to pick. And when you buy the timber, you're also picking the job you get to work on. So now let's buy the timber that actually makes sense to cut profitably rather than getting handed unprofitable jobs you've got limited control over. And so once we do that, you can really get the thing to a place where the, the companies that are disaggregated really can't go.

Wow, this is super cool.

Yeah.

Thanks for spending some time with me.

Yeah. I love the interest. Yeah.

Well, it's fun. I had no idea some of the stuff I learned so much from all this. In closing, how can people that listen to this, which I hope there'll be a lot, how could they support you? How can they follow you on Twitter or send you Patreon money?

I don't know.

What's a good way to support you?

Hey, well, check us out on the website, bellweatherfp.com. You know, more than trying to sell you something, the website is trying to tell our story. You know, the main thing we want is good people that work for us. And to be honest, like, the loggers and truckers and foresters we have working for us are sort of unsung heroes in my opinion, because wood products are everywhere and nobody knows who these guys are. And I think it's cool when there's some attention shined on what they do. Uh, so that's big. And then, um, yeah, you can check me out at @mdmoldenhauer, which is impossible to spell, but— and on Twitter, um But yeah, the biggest thing is just be at our website. And I mean, I'd honestly say, you know, self-promotion at all, but just there's a lot of industry news out there. Wall Street Journal, New York Times, it's about forestry, whether it's forest fires or forest products. And think about when you read those articles, which rarely revolve around logging, the actual logging that occurs, think about how they're affected by logging because it's really a hidden part of a massive very important industry.

Yeah, it's fascinating. Well, thanks for spending some time talking to me about it today, Matt. It's pretty cool, and I hope you stay warm in Milwaukee.

Yeah, I'll get back to Charlotte quickly here.

Cool, man. Thanks. Great job.

Hey, I appreciate it, Michael.