Interviewer (3:15)

Taylor Mattingly welcome to Acquiring Minds.

Taylor Mattingly (3:18)

Thanks for having me. Will Taylor.

Will Smith (3:21)

You Did a partnered traditional search.

Interviewer (3:25)

You found and acquired really a unique business, one with a powerful business model.

Will Smith (3:31)

And in your hometown, no less.

Interviewer (3:34)

Let's get into it. Some background on you please, Taylor.

Taylor Mattingly (3:38)

Yeah, so I spent a majority of my career in, in management consulting right out of undergraduate. Went to business school to kind of continue along that consulting path. Spent three years after business school in consulting and really wasn't being fulfilled. Didn't really see a path for myself going forward. Didn't want to reach that partner level that I think a lot of people were there for. And at the time, my, my business partner, who's actually a good friend from high school, are our wives, are college roommates. We've worked know we've known each other for, for almost 20 years. Was graduating from, from business school and, and got exposure to the search fund model out at Stanford and was really starting to pull my arm to come do this with him. He wanted to do a partnered search rather than a solo search. And so I jumped ship from Deloitte and, and, and started on the path of trying to understand the search fund ecosystem. We started raising money over the course of the, over the term of the winter of 23 and 24. We launched in February of 24, got energy yoga under LOI in May of 24 and closed in August of 24. So it went very quickly. But yeah, primarily my background was in, was in management consulting and just was looking for something different.

Interviewer (4:59)

The name of your partner?

Taylor Mattingly (5:01)

Taylor? John Watson.

Interviewer (5:03)

John Watson. And what did John say to you to persuade you to come search with him?

Taylor Mattingly (5:08)

I think we were, we were both really at a pivotal time in our lives. We had, we had both just gotten married and we're looking to start families. And for me it was, it was all predicated on trust. Right. John didn't really have to say much. This was a very nice calculated risk that I could go take in my career and I wanted to go do it with somebody that I inherently had, you know, 20 years worth of trust built and I knew, you know, we could have bought a business east coast to west coast and knew if I was going to go start a family, I'm moving with, you know, what is one of my wife's best friends and one of my best friends could have been across the country. So there was a high level of trust early on. But I think when, when someone tells you that, you know, they want to do it with you for the reasons which are, which are really our skill sets are complementary in a lot of ways. John spent his career in Finance, I spent mine in consulting within the business. I kind of run more of the external marketing, business development side. John runs more of the finance IT side. And so he knew no matter which business we acquired that, you know, we were going to have to take on both of those aspects of the business. And so we were, we were essentially a complimentary skill set from day one and we were going to be able to serve as CO CEOs relatively easily. Mm.

Interviewer (6:27)

CO CEO is a theme we will return to later in the story. Funny Taylor, that you all. So in traditional searches, the search search investors are. There's a expectation that you'll move to wherever you find a business. This is something that many traditional searchers chafe at and may say, okay, sure, I'll do that, but don't really intend to do that. It sounds like not only was John willing to do that, his wife was willing to do that. You and your wife were willing to do that. So here you had four people who in fact were willing to move wherever the business was found and it was all wasted because you guys actually found it right down the block.

Taylor Mattingly (7:07)

So three miles from the neighborhood we both grew up in.

Interviewer (7:11)

Yeah, yeah. And it also just. Just to you know, make it clear, it sounds like this was almost, you know, co family decision and that your partners, your now wives were kind of really involved in part of this project. Yeah. Fair to say.

Taylor Mattingly (7:33)

Oh, 100. 100. And I think that the theme of family relationship and trust for our story is going to be weave throughout our entire conversation. I mean that's, that was, that was what was predicated on our relationship with the seller as well. So. 100%.

Interviewer (7:49)

Great. Great. Okay, thank you. What did the search look like? Anything to say about that? That process that happily went so quickly for you?

Taylor Mattingly (7:59)

Yeah, you know, the search process was very quick for us. I would say John and I were very aligned in terms of our strategy early on. We were going to run a proprietary search thesis driven and so what that meant is obviously we could move from, from coast to coast. We, we spent some time, granted, we're talking two, three months in a couple of different health care models. We looked at a roll off dumpster deal. So we were, we were a little. We both kind of played in our, in our two separate sections of the search where I would go focus on two industries, he would go focus on two industries. But it became really clear when the energy ogre deal came onto our plate in May that we needed to drop everything and pursue this. I mean we didn'. From a metrics Perspective. It was really the one that we wanted to go after. And so our search ended relatively quickly. You know, we had the full tech stack teed up. We, we weren't doing a brokered search. We were very focused, I would say. But it became clear early on that this was going to be our, our highest priority target.

Interviewer (9:05)

The name of the business is Energy Ogre. Yes, Ogre, like Shrek, as you put it, Energy Ogre. So this is very obviously by that brand name. This is a consumer facing business and a fun one. We're going to hear about it shortly. So tell us how it came across your desks.

Taylor Mattingly (9:26)

So funny enough, I had actually been a customer of the business for about seven or eight years. So. And I also knew one of the co founders since I was in diapers. He, he had a really, he was, he went to high school with my mom and, and I had known him for a long time before we raised. I had started discussing with him, you know, what was, what was the transition going to look like from, from, for Energy Ogre, you know, what was the exit in their, in their mind, was it strategic, was it private equity, were they going to continue to run it for the next 10 years? And I think, you know, that's, it sparked my interest that when he said he would be interested into selling somebody like us that he knew would kind of maintain the business model and that had a high degree of trust with the, with you know, him and his co founder. And so that I think is what differentiated us against other buyers. So that was, that was the fall of 2023. Again like I said, we raised in 24, launched the search in February of 24 and by April we had met his, his partner, the one who was essentially running the business as the CEO. And again that was completely relationship driven. I think we had a high level of trust early on. We were very interested because we had known the business for a long time and running the business as is. I think there was, there was probably a risk in their mind that if they sold to another buyer that, you know, someone may come in, got the staff, kind of maybe got everything that they had built. So there was probably a sense of pride in that as well that they wanted to make sure was kind of upheld. And so over the course of that spring, you know, we developed a good relationship with the, the former CEO, the co founder. And in May he kind of had, he had a life event where he and his wife were deciding whether or not to move to Germany to support his wife's job, which is Also in the electricity space. And he decided, you know, hey, my wife supported me for so many years here in Houston. This is something she wants to do. This is something I need to go do. And so he decided to move to Germany. And it was kind of of this, this life event that sparked, that sparked the transaction, sparked the loi. His partner, my family friend, the co founder, was also interested in pursuing another business endeavor which he runs with his son. And so it was a natural transition point for both of them. But I would say, you know, to answer your question, it was a nurturing process over the course of, I would say, six to eight months that got us to May, which is when we went under loi.

Interviewer (12:04)

But it sounds like when you first started talking to them, you were asking about transition or what have you. But yes, it wasn't. I mean, you didn't know that this move to Germany was imminent.

Taylor Mattingly (12:17)

Correct.

Interviewer (12:17)

So yeah, so it wasn't like you were trying to convince them to sell. You were just kind of having conversations because they were family friends.

Taylor Mattingly (12:24)

Exactly. It was very exploratory to start. Right. And then I would say the straw that broke the camel's back was essentially that, you know, he committed to moving. And there was.

Interviewer (12:34)

Oh, I see. So you had said, what if we buy your business? You had, you had floated.

Taylor Mattingly (12:39)

Sure.

Interviewer (12:39)

That as a concept. Correct, Correct.

Taylor Mattingly (12:41)

Okay.

Interviewer (12:41)

Okay, tell us what it is. Energy Ogre.

Taylor Mattingly (12:45)

So Energy Ogre takes a little bit of explaining to do because the electricity market in Texas is vastly different than the rest of the country. So there's 19 deregulated states within the United States. Texas is by far the most competitive and the most deregulated in the sense that every consumer is mandated to choose their own retail electricity plan, whether in your home, whether in an apartment. And so what that presents is an environment where there are hundreds of providers, thousands of plans, and it can be extremely confusing to the consumer to make a good selection. This, this transition into a deregulated environment happened in 2002. Energy Ogre was founded in 2013 because the co founders saw an issue within the market that wasn't necessarily, you know, the move to deregulation was predicated on creating a competitive environment so that people could get into the most competitive rates within the market. And what was happening was people didn't have full information for how to select their, the best plan for their home. And so what we do for $10 a month is we take each of our members custom usage curve, we map that against all the plans out on the market and make the Best selection for them. From an electricity plan perspective, then we serve as the liaison between them and the provider. So they're only calling us, which is a huge value to the provider. We're taking a lot off their call center. And then thirdly, we're monitoring the market once we have them in that plan. So if the market changes in some capacity and we're able to, you know, let's say it moves downward and we're able to take that contract in and do one of two things, switch them into a new plan because it makes sense to break that contract, pay the ETF because the net savings are positive, or we extend the duration of that contract, what we call a blend and extend and blend it into a lower rate. So we're kind of taking an active approach in terms of monitoring the market on behalf of our members. And so, so from a cost savings perspective, yes, we are $120 a year, but we're saving folks on average, average home, average rate within the state of Texas. If they're coming into an energy yogurt plan, we're saving them about $500 a year. So it's a great value proposition for folks. They're coming in for the savings. They're typically staying for the convenience because we're doing it for them. It's a set it and forget it model where we're taking on the monitoring. We have authorization to make changes on their, on their electricity plan on their behalf and then they're really buying. Peace of mind, right? I mean this, this environment within the state of Texas is very cluttered. It's, it's confusing to the end consumer. There's a lot of plans out there that require a lot of knowledge in order to make the best selection. So people really buy and stay with us because of the peace of mind of knowing that they're in the best plan for their home.

Will Smith (15:49)

The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought.

Interviewer (16:05)

The link to download it is in the show notes.

Will Smith (16:08)

Aspen is a professional employer organization or PEO run by a searcher for searchers. Search fund veteran Mark Sinatra runs the company which provides HR compliance, flawless payroll, Fortune 500 caliber benefits and HR due diligence support for your acquisition, all for.

Interviewer (16:29)

A fraction of the cost.

Will Smith (16:31)

Go to aspenhr.com or contact Mark directly.

Interviewer (16:35)

At mark aspenhr.com Taylor well, we're Gonna unpack some of, we're gonna unpack the business more and kind of how the incentives play and why it remains an opportunity. And so on a little bit later in the interview because it's really kind of an interesting dynamic but I, I, I don't want to derail the story. So we'll return to that. So the, let's go back to the owners. The, your contact is looking at doing something else. His, I guess co founder and acting CEO has decided to move to Germany.

Taylor Mattingly (17:15)

To support his wife's career.

Interviewer (17:16)

The opportunity to buy the business is there. What can you tell us about the acquisition? And I guess actually before that, can you give us any sense of the scale of this business? I know you need to be a little bit close to the chest on the numbers, but what can you tell us?

Taylor Mattingly (17:33)

Yes, it was, it was larger than most deals within the traditional search fund space of, you know, I'm sure your viewers are, are accustomed to this Stanford search fund study. And I mean it, it played kind of higher within that, within that spectrum for us. From a revenue perspective we're you know, well into the eight digits. We have great EBITDA margins. The business was very attractive because it's subscription revenue. Very minimal Capex. It's primarily maintenance capex for, from a technology perspective. So from a, from a healthiness perspective, it was a very, it was a very strong business model. It's also, as I mentioned, kind of solving this acute need within the Texas market. And so that's what made it very attractive to us. Early on we, you know, we agreed, I would say we agreed on price and structure of the deal very early on probably, I would say within a week over the course of, of the middle of May and of May of 2024. And so that was very helpful. We, because we were able to move through that process very quickly. I think we again kind of reinforced that trust we had with the seller. There wasn't too many battle wounds early on. Right. And we had, we had signed up for, we basically indicated to them that we wanted to do a 75 day close which was very quick for this type of business within our search fund community. And so, and so we, you know, the deal was structured right off the bat, relatively large and the deal kind of started, we, you know, created our sim. The deal started to sell itself through that, you know, through the process of discussing it with investors and you know, the rest is, the rest is kind of history on that front.

Interviewer (19:21)

Sell itself because it was a good business and a good business and a.

Taylor Mattingly (19:26)

Good Deal structure was.

Interviewer (19:28)

Well, let's unpack that structure. I believe you said 45% equity, 20% seller note, 35% debt, SBIC or conventional loan or what?

Taylor Mattingly (19:39)

Where did conventional loan y.

Interviewer (19:40)

Conventional loan. So 45% equity, 20% seller note. So, so it's basically 55% debt, 45% equity. How when you say it was structured well, why is that a good structure?

Taylor Mattingly (19:55)

I think for this business we have, we have extremely positive and we have predictable cash flows. So we felt like we, compared to most search deals, we could put a little bit more debt onto the deal. And because of that, I think our investors were very excited about the returns that they could see even at a very modest growth rate. So our projections were not, you know, it wasn't this sort of hockey stick type type of projection with our business. It really is a market penetration story. So it's like how deep can you get within primarily the Houston and DFW markets in Texas. And so for us, the more you penetrate that market, obviously the better. But the growth rate is, you know, is, is declining. It's still high, but it's declining. Right. I mean, they're not growing at 5,600% like they were early on. And, and so for us, I think it was a very conservative case to show that we could generate a decent MOIC for our investors because we were able to put that level of debt on it.

Interviewer (20:59)

And so 55% debt, again, for the audience we're now speaking, the combination of the 20% seller note and 35% conventional loan, that 55% debt to 45% equity, that's considered more leveraged than the typical in a transaction of this size. Because many listeners will be used to the SBA model where it's 10% equity or 20% equity and 80 or 90% leverage. So I'm really pressing you on just kind of Deal Structuring 101. For larger transactions and more traditional search fund transactions, 55% is a little bit more, more levered than typical.

Taylor Mattingly (21:40)

I think it's, I think it's more, it's more levered than a typical search deal, which is typically smaller than ours and doesn't have as predictable revenue. And I think we were able to put that level of debt onto the business because, because of its size and the predictability around its cash flows.

Interviewer (21:56)

Just going back to the, this revenue and the growth prospects or, or not market penetration, everything you were just talking about, the customer pays a percentage of savings, the customer pays a flat fee. What does that look like?

Taylor Mattingly (22:11)

The customer Plays a flat fee. And this is what's kind of beautiful about our model. They pay $10 a month and, or $120 a year. We currently don't offer a discount on the, on the annual side, but it's a very predictable fee for the, for the consumer. We also only get paid by the customer. So we get to take this posture within the marketplace that we're essentially a consumer advocate. Right. We are unbiased in terms of the providers in which we put people into plans. And so that has kind of carved a strategic advantage for us because a lot of the competitors out there that are assisting folks in terms of getting into plans and serve as brokers are putting folks into plans based on how the provider's paying them. We don't get paid by the provider, so we're able to get folks into better rates because our revenue is only coming from the, from the customer. So we're very much taking this neutral posture to the market. And so we're able to market as a fiduciary, as a, as a consumer advocate, which has kind of helped our trust factors, helped our NPS scores and.

Interviewer (23:14)

Those sorts of things and to press on that.

Taylor Mattingly (23:17)

It.

Interviewer (23:17)

But at a flat fee. There is, in theory, nice incentive alignment if a broker is earning based on how much savings they generate for their customers. So in your case, you know, let's say energy becomes cheaper at some other provider, what is your incentive to do all the work, to go put me on that plan when you're not going to earn anymore from doing so?

Taylor Mattingly (23:40)

Well, it's because, because our customers are paying us on an ongoing basis. We don't have, we don't have a contract. Right. So it's a satisfact guarantee. They could, they could totally just cut bait at any point. The difference is that they're continuing to pay us because we're monitoring the market for them on their behalf. Right. We, we are a concierge electricity service that is, that is searching in the market consistently versus someone who's a broker who's helping them make a selection at a point in time and then then not actively managing it going forward. Yeah, they answer your question.

Interviewer (24:15)

I think it did. And I basically, I think it boils down to they're only going to pay you as long as they're happy with your service. So you are incentivized to make sure that you're delivering good service. And part of that is getting them a good deal on their electricity.

Taylor Mattingly (24:27)

Right. And then, and then actively monitoring it going forward because that's our secret sauce. Right. The other options out there do not actively monitor the commodity. Right. And so for us, if there becomes an opportunity to get someone into a better plan, we're going to take action on behalf of the customer. Right. And so that's why they're able to set it and forget it. Most people within the market are, you know, they'll enroll in a 12 year or they'll enroll in a 12 month plan. They'll set a calendar invite on their, on their phone to go renew into a next contract 12 months later. Well, they haven't monitored the market. Do they ever, do they know that they should have paid an ETF to potentially switch into another one? Those are actions that a consumer is most of the time not taking on their behalf because it does require knowledge and management. And so they're paying us to do that for them. That's kind of the differentiator between us and what a, what a bounty based broker would be, what they're doing.

Interviewer (25:23)

By the way, Taylor, this phrase said it in. Forget it. I, that that's a, you know, I know that phrase is great marketing for the consumer because, you know, they don't have to think about it. But as we know as business buyers, boy do we also love that because what does that, what does that translate to? High quality recurring revenue.

Taylor Mattingly (25:41)

Yes, yes, exactly.

Interviewer (25:42)

That's, that's phenomenal. You said that your investors were enthusiastic. It was pretty easy to fill that cap table. But in the pre call you had mentioned that there was some work required on your part to get them comfortable with a consumer business. To get them comfortable with a regulated industry. Talk to me about both of those. What, what was your, how did you overcome those objections?

Taylor Mattingly (26:07)

Yeah, I mean compared to the most of their, their port codes. Right. A B2C business is a little bit, is a little bit off the beaten path. So we are regulated by the, by the Public Utilities Commission of Texas because we are a broker. And so our cap table had to get comfortable with the bylaws of the broker rules within the puc, within the PUC regulations to, to ensure that, you know, we were comfortable that we weren't doing something that was unethical or something that was misrepresenting our agency as the broker on behalf of customers. So we had to get, we had to get comfortable with those rules, which is typically not the case in most B2C businesses. The nature of the regulation is mostly around ethics and representation and so everything on the energy yogurt side, especially with our model. Right. Because we're only getting paid by the customer is very much above board. And I think we were able to get our cap table very comfortable with what that, with what that entailed going forward. But of course we had provisions in the, in the legal agreement that ensured that, you know, if, you know, if somebody were to sue Energy Ogre for something that happened off our watch, that, you know, we weren't going to be held liable. So we had to make sure all those sorts of things were included in our legal agreement. So that's on the legal front, on, on the consumer front, it was really getting comfortable with what the Churn looked like. Right. Because the CH churn for us is higher than a B2B company. It's still very, very good. And the way that we had to start communicating Churn was that there's essentially onboarding Churn. So there's, once somebody clicks sign up on the website, can we get them onboarded and enrolled in a plan within the first 90 days and then what is like the post 90 day on churn at that point? And the post 90 day churn is amazing in this business. I mean it's, it's, it's single digits. And so once somebody understands our services and is starting to get conditioned with what Energy Yogurt is doing on behalf of them, the only people leave or a lot of the time the people leaving are just moving out of a competitive area. Right. So they're moving out of a Houston or a Dallas and into, let's call in Austin or San Antonio or potentially out of state. So that's where we see a lot of our churn post 90 day. So operationally we can do some things and make some tweaks to keep that onboarding churn in a good spot. But overall we had to kind of tell this story in terms of how the, the Churn curve was shaping out for this business. And ultimately it's very positive for a, for a typical B2C business.

Interviewer (28:41)

And so onboarding the customers is a little bit, it takes some work on your, on your part.

Taylor Mattingly (28:48)

Right. And we need the, the real key is that we need the customer to take some actions. And getting them to take those actions sometimes can be difficult, as you can imagine.

Interviewer (28:56)

Yeah, yeah, sure. And you, this going back to the regulation, the legal angle here you're a broker which does have an official legal designation and it means you need to play by certain rules. And I've heard you position Energy Ogre compared to other bounty based brokers. Kind of a typical model. So the question is Are there brokers in that kind of bounty based traditional model that are serving this market? So, so Texans are used to the concept of somebody who will go out there and find them. The best plan where you guys or your founders innovated is that it's this ongoing maintenance exercise where, where it's not one and done, but it's set it and forget it. And we at Energy Ogre will continue monitoring the market for you. We'll take action if they're better deals to be had. Is that the big difference? Do most Texans in the, in the key markets, the unregulated markets that you're talking about, use some sort of broker?

Taylor Mattingly (29:59)

Most people actually renew with their, with their current provider or they use a website that is backed by the state of Texas called Power to choose to look at, to look at rates. A lot of folks are, do navigate or end up on it through, through SEO and organic search. They do end up on a shopping site which is somebody that kind of works through, you know, is essentially trying to get you into a certain rate that the providers providing to them at a higher bounty level. We, I would differentiate us as basically a concierge model where we are doing it on behalf of the customer, which I know you've, you've suggested for the, those, those folks who are essentially serving as the intermediary between the supplier and the customer. They're also brokers, they're just getting compensated in other ways. And so they are also subject to the regulation of PUC as well. Great.

Interviewer (30:51)

Anything more to say about the acquisition process?

Taylor Mattingly (30:56)

No, I think, I think the B2C a nature of the business was what kind of got it. So we were trying to close in 75 days. We ended up closing in I think 95 or almost 100. And the delay for us was really around, you know, again, the legal, the regulatory and then getting comfortable with the churn numbers. That's what kind of kicked us out for a while and made us past that 75 day mark that we were targeting. But I think it was a great learning process for us. Right. I mean when we came into the business we were kind of very, very wide eyed in terms of how we were, how we were regulated, how we needed to position ourselves with the market and represent ourselves. And I think that was a great learning process for John and I. Even though it was, you know, he got a little sticky there with, you.

Interviewer (31:43)

Know, can you say more? What, what did you learn?

Taylor Mattingly (31:46)

The level of which we're regulated is, is very important for our business. It probably the Risks associated with being regulated are probably, were probably a little overblown, I would say. I think we're all more comfortable, including our board, with how we're regulated within the state of Texas. And so we just needed to get more comfortable with the environment we were playing in. And then once we were in the seat and kind of understood a little bit more about how we represent ourselves, we became much more comfortable with, with being regulated by a government entity.

Interviewer (32:22)

Great. The transition and getting in into the business, anything to say about that? Was there a J curve? Was that, were there any surprises? Was the business the business that you thought it was from the outside?

Taylor Mattingly (32:34)

The business was what we thought it was. You know, being a customer of the business for seven to eight years certainly helped. So I was very, I think I was very privy to the customer journey, acquisition models, those sorts of things. I think operationally I don't think I had the appreciation for all that energy yogurt is doing on behalf of the customer in terms of monitoring all of the pricing models that we run, all of the usage that we pull to make sure that our customers are in the best rates. There's a lot that goes on behind the scenes and you know, to the co founders credit, they custom built all of that and that's kind of what has allowed them to take on the number of customers that we've been able to take on over the course of the year and kind of surpass others out there is because they were willing to go do the legwork from a CRM perspective, from a usage perspective, from pricing perspective. So getting in the door from an operations, that was the biggest learning curve for me was trying to make sure that we understood what energy yogurt was doing on behalf of its customers behind the scenes. Right. Because as a customer I don't necessarily get to see that. So. So that was really cool.

Interviewer (33:44)

So a lot of that, that's real tech, proprietary tech.

Taylor Mattingly (33:48)

Correct.

Interviewer (33:49)

That has been custom built to. I assume a lot of it is sort of scraping of data and pulling stuff, compiling stuff from across this marketplace on the web and using that data to make decisions in analyses, sort of.

Taylor Mattingly (34:05)

Right, that's exactly right.

Interviewer (34:06)

Not to minimize it, but that's what we're talking about.

Taylor Mattingly (34:08)

Exactly. Yes, exactly. For the, yeah, for the, for the listener, that's exactly what we do. And we're always taking authorization from the customer. So even in order to pull their usage, we need to take authorization to be able to have that data from their meter. So the process of maintaining those loas and that power of attorney to take action on their behalf. There's just so much that goes on behind the scenes that is very intricate and the consumer doesn't really get to see. So I don't think I had a full appreciation for that. But in terms of the business, very much the business we thought we bought, which is always a great feature when you're in the seat. I was just going to talk a little bit more about the transition. For us, I think the best, I think the best thing that we did and credit to our co founders. We have a great middle upper management within our business and so we lean on them quite a bit because this business is, you know, it's very intricate. It's within the retail electricity space. John and I did not have exposure into the retail electricity space before, before taking the role. And so leaning on them was critical in the first. We had a hundred day plan that we rolled out very quickly. And essentially I would say the theme of that was to just perform a listening tour, right? Take people to lunch, one on one, listen what's the good, bad and the ugly about the business. And I can tell you, we learned so much in those first 100 days. It kind of set us on a path to one build trust, which I would advocate is probably the number one driver to our success in the first six months. But then it also kind of let us lay out a game plan of like, hey, we thought this was important going into the business and where we were going to need to focus on this isn't as important. There's some things that may have passed it and so we can get into those things. But I would say that listening tour was huge for us in terms of building trust with our, with our employees.

Interviewer (36:04)

Any best practices on that? Did you do the, you know, speak or lunch with literally every single employee type approach or whatever? When you reflect back, was there anything that you did well or could have done better on that listening tour?

Taylor Mattingly (36:18)

I think we did. I think we did 25 or 30 lunches. We didn't do it with our entire, our entire call center and the folks processing tickets for us, but we know them very well. We see them in the office every day. Another part of our model that makes this really interesting is we. Everybody's here in Houston, so it's kind of Texans advocating for Texans. We don't offshore any of that. But for the middle management, yes, I would say we did 25 or 30 lunches. So that was the best practice. I'm not sure there's anything I would do, would do Differently, I'd say we, you know, at the four month mark we were going through year end planning for, for 2025. You know, we tried to set the strategy and make it more of again kind of a listening posture of like, hey, let's co create this. I'd say we probably pivoted the strategy more than we would have liked over the course of the year. But that was frankly just because we hadn't hit the learning curve in the first four months to know what was important when what wasn't. So we've had to be flexible in terms of the priorities of the business on a quarterly basis. We've now adopted an EOS model. So we're actually going to be doing, you know, quarterly sprints to align on priorities. And that's been really helpful I think for our middle and senior management in terms of just making sure we're focused on, on the goal line, which is essentially always 90 days out.

Interviewer (37:45)

And so when you talk about things that you thought were going to be the key strategic initiatives that weren't and then there were others, can you give us a couple of examples of both?

Taylor Mattingly (37:57)

So I think so to answer the latter part first, I think we, I think we thought that there was kind of a mature retention organization within our business and our retention staff is excellent. The posture that I think they were taking to the consumer was if a consumer wanted to cancel for a reason that wasn't other than moving, maybe they wanted to opt in to a different, you know, their own electricity plan or wanted to go shop it themselves. We weren't really doing a good job in terms of upselling them into our services. A lot of times what we found was that the consumer on the other end of the phone when they're calling in was a little misinformed in terms of the information that they were gathering from the market. In terms of the rates they were seeing, the durations of those contracts, the seasonality of rates, how the commodities moving. Right. So we thought, hey, let's, let's go beef up this team. If we can improve churn by 1%, I mean, that has a great long term impact for this business. Right?

Interviewer (38:59)

Yeah.

Taylor Mattingly (38:59)

So that was one where we didn't really, we kind of thought that was maybe a little bit more in place or was, I would just say more of a focus area. And we've kind of reversed the course there and kind of made it our primary focus this year and we've had great results over the course of that year.

Interviewer (39:15)

Great. Well, as anybody who's kind of studied True recurring revenue businesses, kind of SaaS style businesses. The, you know, a point or two in one direction or the other can really have outsized effects. And so that's why you have people in, in SaaS models or recurring revenue businesses just really fixate on churn and fixate on reducing churn. So if there's a cancellation call comes in, if you can just, if you can just convince a few of those people not to cancel it, it really moves the needle.

Taylor Mattingly (39:52)

Yeah, 100%. And for us, because we again we're a concierge service, we want to be extremely informative and extremely transparent to our members. And so if they call us with a concern, we want to mitigate that concern right off the bat. When we mitigate that, that concern, that just drives trust to our customers. And frankly if we can, if we, if they can have a positive experience, one, it contributes to our very strong word of mouth engine and two, that customer is likely not going to call us again because they're going to be like oh, energy ogre is on top of it. They understand what they're talking about. Right?

Interviewer (40:24)

Yeah.

Taylor Mattingly (40:24)

And so we taught, we call, we call it one call resolution. Right. So if we can spend more time with the customer in kind of explaining what they're seeing, that actually helps us a ton from an OPEX perspective. Right. Because then we're not getting as many calls coming in the traffic door.

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Interviewer (41:48)

Where had you thought you might focus your your energy going in? That ended up being a lesser priority.

Taylor Mattingly (41:55)

I think we, we thought we were going to spend more time I would say on the, on the business development side for the business. This business is, is complicated for folks to explain to others and our members can do a decent job of it because They've experienced it. But to hope that a sales rep is going to be able to explain it clearly in 30 seconds is probably a little bit of a. Of a lost cause. And so I think we were doing a lot of business development efforts that weren't. That weren't fruitful. So we ended up kind of slimming down that function within our business. And we're looking at more like technically integrated business development opportunities. I can get into those if you're interested. But that was a focus area where we said, hey, I don't think that this is necessarily working as well as we thought when we bought the business. So that was an area where we kind of pivoted focus away from a customer acquisition perspective and leaned in more to. Leaned in more to just kind of traditional marketing in terms of how we were going to allocate our customer acquisition dollars.

Interviewer (43:02)

On the business development point and the churn point, I guess the aforementioned brokers, I guess where they have you. The advantage they have is that they don't charge the customer anything.

Taylor Mattingly (43:15)

Correct.

Interviewer (43:15)

And you're charging the customer. So the customer, unfortunately for you, their relationship to you is that they see a $10 charge from you every month, but they don't you. So I guess what you're doing is really over communicating in some way how much you save them because all they're seeing is cost to energy ogre. And they don't see, you know, unless you communicate it really loudly. They don't see savings show up anywhere. They just see cost. I. I imagine so. I imagine there's this unfortunate psychological dynamic there, which the traditional broker model is probably meant to get around.

Taylor Mattingly (43:50)

That's fair. I do think our. I think our customers pay us though, because they want somebody to provide them the peace of mind. Even if you do go on the. On the shopping sites and the other brokers that are out there, it is very convoluted in terms of choosing your own plan. So you have to be able to tease through an electricity fax label, which is essentially like a nutrition label for an electricity plan. You need to be able to make a selection. Yeah, A selection based on your usage. So there's a lot of steps that you still have to get through even to make that selection with that other broker. Right. And so people have been through that enough because they're traditionally making that selection once a year. They've kind of been fatigued for it. So they're happy to pay the cost to energy yogurt to kind of have a consumer advocate in their corner advocating for Them. Yeah, but frankly like our retention in the, in the recurring nature of our business is much healthier than on, on the shopping site side. Right. I mean we have, we're very friendly with, with folks in this space and you know, the peers in that, in that set, I mean they don't, their customer retention is not nearly as strong as ours. Right. It's hard to get that consumer to come back and shop at that shopping site again so that they can get paid for that bounty going forward. So that's, that's kind of the, that's the secret sauce for us from a healthiness of revenue perspective. Mm Mm.

Interviewer (45:17)

It's, it's such an interesting model. You know, you, one wonders where else this could work. Is this just an idiosyncratic business that it exists in an idiosyncratic market of unreg, unregulated energy in Texas. But you could imagine for example that something like this would work for health insurance plans else in other places for those of you know, people who don't get their health insurance just given to them by their employer and selected, selected for them by their employer. As a self employed person for much of my career, you know, I find myself navigating the marketplaces and it's quite convoluted and I would happily pay somebody 10, 10. I would have in that phase of Life paid somebody $10 a month to know that they're making the best decision for me. Now I understand a health insurance plan, you can't, you can't bounce from plan to plan mid year. Maybe you can't in energy either.

Taylor Mattingly (46:12)

Maybe.

Interviewer (46:12)

But anyway, I, I, I, I definitely understand the, the value prop for making these decisions with, on expensive convoluted products that are hard for the consumer to wrap their, their head around.

Taylor Mattingly (46:28)

Utilities insurance, what's, what's interesting about electricity in the state of Texas and, and more so broadly, it's generally, you're generally buying a product, it's like bought, you're buying a product that's like buying bottled water from the same source. There's no differentiation from it. It's coming all from the same place. And so that's what makes us special in the sense that we can just. All we're doing is switching people within plans that are providing the same product. At its core. What we're doing in the value to the consumer as you, as you talk through is we are just, we are just taking on the switching when the switching costs seem high to the consumer. Right. So if the switching costs seem high for me to switch out of Sirius XM and into, you know, one of their competitors or from health insurance A to health insurance B or car insurance A to car insurance B, I'm not going to take action. And that's, that's part of their model, right Is that they, they set, you know, those insurance companies set up. It's very difficult for you to cancel and you end up staying with the same, same folks. And what that lends is an environment where, you know, I don't know what the number would be for insurance but for electricity. In Texas, about 80% of the state is overpaying for electricity. And so that le. That that lends into this environment. And what we're trying to do is say, hey, we'll take on that switching activity for you to ensure that you're in the best rates within the market. So you, you, you kind of talked through a little bit of what our long term strategy is. We're certainly not committed to it, but we could certainly look at other products and services to provide to the consumer. We have enough trust with our current members that I think there's an opportunity to go do this sort of switching for the customer on an ongoing basis in other market, in other services.

Interviewer (48:19)

Well, I'd like to get into that Taylor, because I'd like to spend a good chunk of time on, you know, on the future of this business which relates to the market of this business. But let me just put a pin on that because I want one more theme to the story I want to hit before we start talking future and that is the co CEO ship, the partnership with John. Tell us what it's like being CO CEOs and, and maybe more interesting. Obviously it's going to be a, you already said you guys have complementary skills. So you know, you take X and Y, he takes A and B. What happens when there's disagreement? That's probably the more interesting, the more interesting part to hear about.

Taylor Mattingly (48:59)

Yeah, and we, and we talk through those situations. I mean John and I talk almost every day and so we, I think we have a little bit of a tiebreaker type of situation. Well one, our co, our CEO is, is part of our executive team. He's a huge player within this, within this business and has been, you know, a godsend for the two of us because he has a lot of retail electricity experience and knows this business well. He's been here for I believe, nine years at this point. So a lot of times he will kind of serve as a tiebreaker for us because we are discussing the most kind of pressing issues within our executive meetings. But if there's, if there's any sort of tiebreaker between John and I that potentially our COO doesn't want to opine over, you know, I think we both have realized we have domains of expertise, domains of ownership. And so for me that's typically on kind of the marketing, DD growth side of the business. For John, that's on the development, IT side, finance. So we have our, you know, we have our domains of expertise and that person kind of wins the tiebreaker when it's an area that, that our COO doesn't need to be opining in. And so, you know, I think it's a, it's, it's a function of communication. I mean, I don't mean to be cliche, but it's really like explain everything, the good, bad and the ugly. How are you viewing this? Let's, let's compromise. It's been a, it's been a, you know, it's been a process over the course of the last year for us to get kind of comfortable in terms of those cadences and what issues we should bring to one another. But it's been truly fruitful. I mean, I can't tell you, it's, it's amazing to be able to trust the person on the other side of that conversation like I do with John. And I know he would say the same with me. We have both of our best interests in mind. We have the, the best interests of the board and of the business and ultimately our members in every decision we make. And so that's our North Star. So while there is disagreement on a, you know, month to month basis, you know, we do wrestle through it and talk about what our North Star is in terms of why we're making the decision. We are. And I think it nets out positively when we are able to, to communicate. Yeah, really well.

Interviewer (51:12)

Well, that's of course wonderful to hear, Taylor, from the perspective of your story. It, it's hard, a little hard to learn from because other folks out there who don't have a John, somebody they knew for 20 years going into this and had so much baked in trust, you guys didn't have to vet each other. You came pre vetted.

Taylor Mattingly (51:33)

Right.

Interviewer (51:34)

So many folks who might be looking for a partner in their search are going to have to figure out how.

Taylor Mattingly (51:39)

To vet that, that party.

Interviewer (51:41)

But still just a great testament to having pre baked trust. The friction is there's just not there in your relationship like it might, might be in a younger partnership. Yeah.

Taylor Mattingly (51:54)

I will say one More. One more point there. You know, the EOS model has actually been really helpful for us. So for, for your, for your listeners out there, I would hope that at least in some sense your skill sets are complementary. I would imagine if they're the same, it's going to be e. There's probably going to be a little bit more tension on a partnership front. But because our skill sets are complimentary, the EOS model has actually been really good for us. And so, you know, there's a visionary role in eos, there's an integrator role within EOS who kind of serves as more of the hands on, operator, detail oriented, driving the business. John plays that role. I play more of like the visionary role who thinks more in terms of long term growth, how this business is going to play within the market over the course of the next five to 10 years. And, and we're very close in terms of communicating what's on our plate from those two different roles. But I would urge anybody that's moving into a partnership model to consider not necessarily just the functional roles in terms of who owns what from a domain perspective, but who's also going to be driving the priorities from the integrator side of the aisle and the visionary side of the aisle.

Interviewer (53:02)

That's great, that's great advice.

Taylor Mattingly (53:04)

Yeah.

Interviewer (53:05)

And obviously to avoid a situation where maybe you've got two operators or two visionaries, you want the partnership to be one and one of the other.

Will Smith (53:15)

Anything more to say about EOs? Oh, well, before you answer that, I.

Interviewer (53:19)

Haven'T asked how many employees there are. How big a business is this headcount?

Taylor Mattingly (53:23)

We have about 90.

Interviewer (53:25)

90? Yeah.

Taylor Mattingly (53:27)

And about 60% of those kind of sit within our call center or processing back end tickets for, for our members. If there's some sort of, you know, think move in, move out, verification of, of identity, those sorts of things. So they're processing all those tickets. So that's a majority of our staff.

Interviewer (53:47)

Oh wow, that's, that's a lot given that the call center is the, the special sauce is in, that is in that tech that we talked about. So I assume there's a, a team of, you know, five to 10 people who are really working on, on that, on all of the, the special sauce, the proprietary tech that does the magic.

Taylor Mattingly (54:07)

Correct. Our development team, I want to say is about 12 at this point. 12. But yeah, back to the secret sauce point, you know, for us, I think it really resonates well with members when we're able to say that, hey, I'm a Houstonian, Hey, I'm a Texan. I'm here. I understand the environment that you're in, what you're seeing online. It's. It's a much better posture to take, especially when we're charging folks on a subscription basis and running a concierge type of business to be able to say, hey, I'm here, I'm right around the corner. I'm your neighbor. I'm your advocate. I think that that is a strategic advantage for our business and is what's probably keeping us from, you know, maybe offshoring some of that talent. I think a lot of people in this space are considering that going forward, I think, will probably be slower to move in that direction just because we think it's part of our differentiated value.

Interviewer (54:58)

Yeah, well, that's a hard one. And I was going to ask that very question, Taylor, because, yeah, most people would look at your business and say, let's start offshoring. Certainly the AI and a lot of the tech that you're using, but that's not prohibited. You probably are starting to use that already. But the AI, combination of AI and offshoring. So it's a really interesting strategic question of to what degree can you quantify, to what degree your customers resonate with the fact that everybody is in Texas and it's Texan talking to Texan when, when you interface with your customers and, and the value of that and obviously the, the internal culture question of just every. Everybody being under one roof and, and how everybody feels about each other rather than just be having this be another play where, you know, half the. Half the company is around the world. But it's an interesting one because there is a lot of, obviously there's a lot of savings to be. To be had in going that route for your business.

Taylor Mattingly (55:57)

Yeah, there is. And I would say what we're looking in terms of operational efficiencies, I think our nearest term priorities are to take. Why would I call our queue of tickets and find out ways in which AI can help us solve the easy stuff more, more, more productively. Because right now we have agents that are, that are solving those things that are more or less rudimentary. And so we need that. That's where we're going to focus our time right now. And our, our customer or the folks solving the more complicated tickets that may require a human are going to be the ones that we ultimately reward and pay well. Whereas the stuff that's easy, we want to try to get off of their plate. So that's kind of the Vision, at least for the business in the next, I would say, year or two, let's.

Interviewer (56:44)

Return to the market itself and the market opportunity for you, Taylor. So, so first things first. Let me better understand why the market is such a mess. I mean, we, we are told by, you know, our economics professors that deregulation is healthy, that the market will correct itself. And arguably what energy ogre is, is the market coming up with a solution to a market imperfection. All of this messiness and all of these options. But it is, it remains interesting to me that, that, that the industry is such a mess that there's, I guess, I guess it's this. Why is there so much fragmentation in the energy market in Dallas and Houston still, especially if they're all selling a commodity? Why hasn't somebody rolled them up so there aren't 25 providers to choose from who are basically complicating the offering when it's really just all the same, all the same juice that they're selling. Why hasn't somebody rolled those up to that to, you know, just from a pure sort of multiple arbitrage perspective, but then also to the benefit of consumers where it really simplifies the marketplace.

Taylor Mattingly (57:56)

Well, so the two largest players in this space that dominate, they dominate the market. They hold, I want to, I want to say about 70% of the market. Those other providers. Yeah, there's other. So I just wanted to clarify that. Those other providers that sit out there, I would say of that 30%, you know, there are probably 20 that take on a majority of that. And then there's some really small players. But to, to be a provider within this market, all you're doing is really is you're, you're trading electricity and then you're ultimately a marketing company that's trying to get folks into plans. Right. So it just takes, it takes a great trading desk to stay on top of it from a commodity perspective. And it takes good go to market. And so those are like the two functions. So the barrier to entry is actually relatively small. And so the cycle that you see over time is that anybody kind of can kind of start up a provider and then that gets gobbled up by one of the larger players. So they're slowly taking, taking more, taking more market share. But over the, but we need those players on the provider side to come, to come take on our supply. Right, because we're a larger player in this space. And so we need those players to come take on customers at relatively low rates. And for them, they're lower margin rates, they're acquiring a customer at zero CAC and they're not having to take the call or whatever. Right. They're not having to service that customer on the phone. So it's a great value proposition to a lot of the providers that the.

Interviewer (59:28)

My point being that it's so fragmented. There is, there is a kind of a long tail of fragmentation, but there are two big kind of giants. So maybe it's not as fragmented as I thought. And when you say that everybody's getting the same water, so even the, the, the rails that, that electricity is delivered on is the same from one provider to the other. So, so the service offering is literally fungible from one to the next.

Taylor Mattingly (59:54)

100%. Yep. There, so there's, there's different utilities and that's what our, our deregulated environment within the state of Texas. So CenterPoint is the utility here in Houston. Encore is the utility in Dallas. They own poles and wires. They distribute the electricity out to your house. On the generation side, those are different players that are providing power to the grid. So when you talk about a retail electricity plan, you're really just talking about a contract that sits on top of the wholesale market. And so that's why the, that's why the, the barrier to entry in the space is relatively low because it just takes somebody trading plans and trading electricity to be able to get into this space.

Interviewer (60:34)

And so here in Virginia, I pay my utility, my utility company directly. So I'm paying The, the difference would be there's no, there isn't this layer of kind of marketing energy traders on top in my market. I'm who I pay is directly the one who's operating the, the rails, the infrastructure. Correct.

Taylor Mattingly (60:57)

The supply chain is completely integrated within, within Virginia versus in Texas. It's broken up. So the generators are different than the distributors, which are different than the retail electricity providers.

Interviewer (61:10)

Fascinating, Taylor. Well, yeah, and I was just going to comment and you basically already said that I imagine some provider. There's just value in owning the relationship with your customer. And that is one thing that providers working with you might not, you could imagine, might not liking the fact, yes, you're taking all of that labor off of, off of them, all of the dealing with the customer calls and so on, both good and bad. Then they, then they never see their customer. But again, to your point, they never interact with their customer. They don't really own the relationship. To your point, they're not really doing much for the customer anyway. It's, it, it sounds like it's just a public marketing Forward organization with energy traders in the, in the back room sort of thing.

Taylor Mattingly (61:56)

That's exactly right. And that, and that provider, when they acquire an energy Ogre customer, they're getting that customer for zero acquisition cost. Right in, in the other, in the other model, in the non energy ogre model, they're spending a lot of money for that customer and again they're hoping to get them into that retention customer journey where they can hold that customer over the course of call it 5 to 10 years. Our model again is going to be, it's going to be a lower margin product for that provider but they're not spending any money to get, to get that customer. And so you can choose to play that game or you can choose not to.

Interviewer (62:32)

Great. Taylor, you had talked at the top.

Taylor Mattingly (62:34)

About.

Interviewer (62:37)

Or when, when you were speaking with your investors about this rate, doing your fundraise the growth plan here and it sounds like the market penetration is really what it's about. The low hanging fruit of market penetration is already behind you. The co founders did that. That's the business you bought. So now it's going to be more incremental penetration. But give us a sense of the size of market and to what extent it is already penetrated by energy Ogre.

Taylor Mattingly (63:05)

So the size of our eligible market, single family homes in a competitive area within the state of Texas is 5.3 million meters and we're in single digits of that penetration story. I, you know, we believe that we can, you know, we can double that. What we need to, what we need to be able to do is in my view is to feed our word of mouth engine because we resonate really well in cross the table dinner conversations. So the more customers we acquire, the more referrals we're, the more referrals we're getting. And as a business owner that's great because that's my stickiest customer and that's the customer that doesn't cost me as much to get what we probably, you know, during, during diligence and as we discussed customer acquisition, I think we had to get comfortable with the next tier of customers is likely going to cost us more, but it's still going to be within a range that is very much healthy for the business and makes sense from an IRR perspective. Right. And so what we're focused on now is if we do have to go, you know, what are the channels in which are going to be healthy, have a high retention customer that may cost more but is going to kind of perpetuate and build this word of mouth engine that is so strong and that we believe in. And so that's essentially the model for us. And that's what we had to get investors comfortable with is where does basically cac, where does customer acquisition cost land in that next tier? Because you know, in the history of the business, which has been 13 years, it's, it's, it's, it's been in a really great spot from an LTV to CAC perspective. It's very healthy.

Interviewer (64:43)

Yeah. And, and so why do you think that you're at this moment of tiering where it's going to get harder? Maybe you still got a lot of willing customers who you can acquire cheaply or are you already seeing it in the data that CAC is just inching up year by year?

Taylor Mattingly (65:00)

I think, I think it just comes from a posture to clarify. I think it just comes from a posture of us wanting to kind of kick it into gear from a growth perspective. We're going to probably have to go pay for that growth now. We're going to keep CAC in a decent spot because we're going to be kind of propelling this word of mouth engine that's going to keep some free customers coming in the door. But we have, we could probably sit back and kick it and let this word of mouth engine continue to propel, but our growth rate is probably going to stagnate in some sense. And, and I don't think that that's something that, you know, as two entrepreneurs who just bought a business, that's not something that we necessarily want to want to go do we want to say we want to make specific bets within certain channels to go acquire customers that may be more expensive to try to get our growth rate in, in, you know, in a good spot. Great.

Interviewer (65:48)

And the going to other markets, not other services markets, but other geographic markets to an Oklahoma or something. Is there any logic to that understanding that so much of the energy ogre kind of culture is for and by Texans? You'd have to work on that. But is that a possibility or long time from now, if ever sort of thing?

Taylor Mattingly (66:13)

Well, like I said when we started, the Texas is truly on the wild west end of the spectrum in terms of deregulation and competitive markets. There are 19 states that are deregulated, so there is some market expansion opportunity. Those markets though are not mandated. The customers in those markets are not mandated to choose their own plan so they can roll into their default utilities plan very easily. And in a lot of places the consumer doesn't even know that they have the choice to go, to go move around within the retail electricity side. And so what we have to do, we have to be able to underwrite a bet that we can change consumer behavior. And so I think that's probably the more risky proposition in our mind is like can you go change consumer behavior and move into other states? We, we don't have any, we, we have strong brand value in the state of Texas. We don't have strong brand value in, call it Ohio, Pennsylvania, Massachusetts. They also play by different rules, they're regulated by different states. And so we'd have to go get comfortable with that as well. But that's a little bit, a little bit of an aside. We just have again, like we just have to take this bet that we can change consumer behavior and educate them that they can change and that they can switch and that it might be worth it from a cost benefit perspective to pay somebody $120 a year to switch them. Like what we do. Another benefit of Texas compared to others is like our electricity bills are just higher. Right. And so because we run H Vac all the time or the most air conditioned state in the country, and so our fee as a share of bill is relatively small. We can go to another state. We'd probably have to make some sort of, we'd probably have to make some sort of pricing adjustment because, because the bill is just, just smaller. I mean the average, the average consumer in Texas, I mean, call it 2,000 square foot home, is spending at least 2,000 a year in electricity.

Interviewer (68:15)

Oh, wow.

Taylor Mattingly (68:17)

Yeah, yeah. And some of our higher usage customers that are in a 4 or 5,000 square foot home are spending 4, 5, 6k a year in electricity. Oftentimes this, you know, an electricity bill is, is like one or two on people's budget line item up there with like home insurance. Right. So it's, so it plays a huge role within the state of Texas. So we also have to take the bet that, you know, electricity prices are kind of heading up into the right for those other states so that we can kind of stay in a decent range from a share of bill perspective.

Interviewer (68:53)

Which is the cost of the, the average annual cost to a homeowner in Texas being high is also counterintuitive because isn't the price of electricity that, you know, on a, whatever per kilowatt hour, what, whatever it is cheaper in Texas. I always have the sense of energy as being cheap in Texas for obvious reasons.

Taylor Mattingly (69:19)

Yeah. So we definitely build out more supply, especially in the recent years, solar in the state of Texas, we have more solar in the state of Texas than any other state in the United States. So on the supply side we certainly want to build. But then there's also the demand side of the equation. Within this commodity market there are a ton of data centers that is primarily driven by AI that are coming in to plug into the ERCOT market. And so that's driving demand. And so in a lot of ways we see, we, you know, our forecast is that electricity is going to go up into the right within the electricity space in the state of Texas. Now to your point earlier about how the market was in theory supposed to be more competitive when they moved it in in 2002, I think what we do is actually holding the market in check, as you've mentioned. And so I do think that we're hold, we're kind of keeping that market, those market dynamics in a good spot. Otherwise the more providers you have out there that are getting people inching closer and closer to that average or above average rate within the state of Texas are kind of taking the market dynamics out of play and are putting people in more and more expensive electricity. So on the whole, Texas electricity is kind of actually more in line than you would think with electricity prices in other states. It's not necessarily cheaper, but there's a lot of different dynamics that are driving that price, that are driving that price up.

Interviewer (70:51)

And Taylor, back to the just what an outlier Texas is in terms of the, the how electricity is purchased and consumed by consumers. Is there not.

Will Smith (71:05)

Pen stroke risk there.

Interviewer (71:06)

That this, this, whatever happened in 2002 could change or be reversed? Because your whole business model is based on this, this dereg, this deregulation and how precisely it was deregulated, which became clear as you described how other states are, are deregulated. But it actually, the way it plays out is different. So Texas is this kind of extreme case. Is there not a fear that one day the state government decides to change.

Taylor Mattingly (71:34)

Thank you.

Interviewer (71:34)

The state regulators decide to normalize things?

Taylor Mattingly (71:38)

I think it's a great point and that's, and I should have mentioned that in the, in the deal portion of our conversation. That's a bet that our, that our investors had to underwrite. So we spent a lot of time and diligence talking to industry SME and you know, market regulators to understand what the tensions were within the state of Texas. What we, what we ultimately see is that we're too far down the path of deregulation. There's too many players in the space space that have deep pockets that are kind of capitalizing on the deregulated market. And we are going to bet that the status quo maintains, I would also bet that the status, status quo maintains in a lot of other states as well. But in Texas specifically it's a competitive advantage to our economy especially as you see more data centers and those sorts of things moving businesses, moving to Texas. It's much easier, I won't get into the technicalities, but it's much easier to plug into our grid as you probably remember in 2022. Right. I mean we, we are on an isolated grid. The rest of the country is on, is on a different, is on a completely different grid. And so that's a competitive advantage for Texas in terms of bringing in business and bringing in generation. It's much easier to plug into the ERCOT market versus others. So I don't see that the regulators are going to, to make any sort of, any sort of change in even the long term term because it's a competitive advantage for the state and ultimately our investors had to get comfortable with that and we have to be comfortable with that. But yes. Does the risk in theory exist? Yes.

Interviewer (73:11)

One of the other things Taylor, that you and your investors would, would consider is who a likely buyer for a business like this is on the other side of your hold period. In the traditional search model, which is more akin to kind of traditional private equity, there is typically the expectation that there will be an exit at some point. Not explicit but implicit, I think it's fair to say who, who is a likely buyer for a business like this. It's, it's an, it's an interesting one.

Taylor Mattingly (73:42)

So we, so we don't think it's a, it's a strategic because essentially what you have to underwrite if you're a strategic is that you're taking on customers that have switched in the past that are condition to switching and that you can keep them into your, and you can pull them into your customer journey, into your retention model. So if we were to be purchased by a provider, you have to believe that you can keep that customer and maintain them over time. And so we, we don't think it's strategic. We believe it's probably a private equity buyer for us, I will say within the traditional search space the interest has I guess increased recently for long term holds. I don't know that we've necessarily seen that, that play out. But you know, we make decisions as a search fund board with the long term in mind. We, we don't, we've never, we've never discussed a sale. We've never talked about those, those sorts of tensions within the boardroom. We make the best decisions for the business for the long term. I would say generally speaking for this type of business the, the appetite is relatively high for a long term hold. Now that's to say a lot of people could, you know, could exit. We could certainly go through a recap. But that's, that's kind of what I see in terms of, of recapitalization routes and then also a potential private equity exit. It's, it's a strong from a business model in a metrics perspective. It's a very strong, has strong metrics and I've highlighted those earlier in our conversation. And so I do think that private equity would probably pay more for this business.

Interviewer (75:26)

And on that point about a long term hold. So I recall from our pre call you talking about how you'd love to run this business forever sort of situation. It going back to how it, your relationship with John, the, the alignment between your families, the alignment of the stars that this business is down the block from you and family bought it from a kind of a family contact, family friend. You could just see yourself embedded in this, in this role for a really kind of indefinite amount of time. You're only, you're, you know, you're only a year ish in how long are you in? When did you guys close? You said August of 24.

Taylor Mattingly (76:11)

August. Correct. So we're 15 or 14 months at this point.

Interviewer (76:15)

And so let me, let me kind of generalize but say it back to you and you correct me where I, where I slip up. You know, there's been growth. Your investors or some number of your current investors would like to have their liquidity event. Their equity value has gone up. A new capital provider comes in like a private equity fund and buys them out. So they have their liquidity event. Maybe they buy you out or partially you out. And so you roll some equity or all of your equity, whatever it might be, continue with your some equity or all of your equity in the business continue as co CEOs. And so now the cap table has changed. There's new investors in there, this private equity fund who bought in at a much higher price. So the original investors have had a nice payday. And, and, and really what that would probably look like for you guys as co CEOs is that you would roll some of your equity so that you'd hopefully have, you know, you'd be incentivized going forward. There might be another liquidity event, another second bite of the apple. But you'd also cash in some of the equity that you held then from, from this first call it seven years. So to have, so you to take some money off and some chips off the table, but then also roll other equity, that's what it might could look like as kind of a standard, right?

Taylor Mattingly (77:35)

Yeah, that's exactly right. I think for us it's, it's, you know, does that, that new, does that new strategic private equity firm want to come in and want to keep the current executive team? Right. I mean, that's a little bit out of our hands, but I think we certainly would like to position ourselves to run this business for the long term. But yes, I think, I think taking some chips off the table is certainly, is certainly an option for the long term and we'll cross that bridge when we get there. And I think we would probably assess at that point what are our growth opportunities, how do we see the business evolving over the course of the near term. And so I think those would all kind of play a role in terms of our decision making. But the basis of your question is that it does come, it is a little bit out of our control in some sense. You know, I think in our pre call when we talked about this, it was truly like from a, from a family, from a lifestyle perspective, it's really a good fit for us. We get to take, we get to come to work and kind of be consumer advocates. We're doing good for Texans. And I think that to me this is like, this is a dream job in that sense. But you know, from a recap and from a long term hold perspective, certainly it, it is a little bit out of my control in terms of who's in the seat.

Interviewer (78:51)

Yeah.

Taylor Mattingly (78:52)

Yeah.

Interviewer (78:53)

Well, thank you for indulging that, Taylor.

Taylor Mattingly (78:56)

That was great.

Will Smith (78:56)

Anything else?

Interviewer (78:57)

Any other topics that we didn't hit on that you wanted to?

Taylor Mattingly (79:01)

I don't think so. I mean, I know you, your, your audience is typically someone who's, who's exploring searchers in the midst of search. And I would just say, you know, my advice to people most of the time when I, when I talk to searchers is I'm a big believer in face to face interaction and building trust in that way. And so as people are thinking about raising, I mean, I've always said like, max out your travel budget, hop on the plane, fly across the country for coffee if that's what it needs to take. Because that's kind of always, that's, that's always going to be the backbone of any deal. Deals can fall apart at the end, but if you have that trust, they're much less likely to. And I think that's what we built over the course of the spring of 2024 and ultimately got us to the position we are today. And so I wanted to just share that as an encouragement to folks that, you know, it might be cliche, but it really does serve you well when you're, when you're kind of working with a, when you're working with a seller who's, you know, at this pivotal point within their life.

Interviewer (80:01)

Excellent point. Well, Taylor, thank you very much for coming on. Ben Thomason at Fuqua, who runs the who's so involved in ETA there, recommended you. I'm so glad he did. You're a great advocate for your business and it's a really interesting business to hear about. So really appreciate you sharing your journey and all about Energy Ogre with us.

Taylor Mattingly (80:21)

Awesome. Thanks for having me, Will. I appreciate it.

Interviewer (80:24)

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