CFO of Houston retailer resigns

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George Bchara, 39, CFO of Conn’s, based in The Woodlands, has voluntarily resigned and will leave the company on December 1, 2023. Timothy Santo, currently the Chief Accounting Officer, will be the interim CFO. He will continue to conduct his CAO duties until a new Chief Accounting Officer has been hired.



Conn’s is a specialty retailer of durable consumer goods and has 171 stores in 15 states across the southern US. The average customer of Conn’s has a subprime credit score (defined as between 580-619).

The recent rise in interest rates provided a double whammy to the company. Its customers reduce their discretionary spending or find it harder to get credit and the company has to pay more interest on its debt.

For the six months ended July 2023, the company made a net loss of $69 million. Compared to the comparable period in 2022, retail sales fell 12%. Revenue from financing charges fell by 6% and bad debt expense rose.

Mr. Bchara originally joined the company in December 2016 as Chief Accounting Officer and was promoted to CFO in June 2019.

Mr. Santo joined the company in April 2023. He previously the Global Controller at PRA Group, a business that specializes in servicing non-performing consumer loans.

SEC Filing – 8-K

 

Houston SPAC to take Silica company public in $708m deal

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Pyrophyte Acquisition Corp, the Houston special purchase acquisition company (SPAC) , chaired by Dr. Bernard Duroc-Danner (the former Weatherford CEO) is to take Sio Silica public. Sio, based in Calgary, intends to extract high-quality quartz silica, which is used in solar panels, semiconductors and batteries. The deal values Sio at $708 million enterprise value.



Pyrophyte went public in October 2021 in a $175 million initial public offering (IPO). The company said it would seek targets involved in energy transitions. That could mean renewable power generation, energy storage, zero-emission transportation, carbon capture or zero/low-carbon industrial applications.

Originally, Pyrophyte had until April 2023 to complete a deal, otherwise it would have to refund the monies from the IPO. Just before the original deadline date, shareholders approved an extension to April 2024.

The Mine

Sio is developing the Vivian Sand Project, southeast of Winnipeg, Canada, which is one of the highest natural purity silica deposits in the world. Most of the world’s silica is too impure to be used in high-end products such as semiconductors. It can only be used in other products such as agriculture, low quality glass, coatings and energy. Some low-quality silica can be converted to high purity silica but at a cost of $70-$100 per ton (and most of this silica is located in Australia).

Valuation

The project is estimated to have a net present value (NPV) of $3.9 billion, using a 10% discount rate. The payback period is projected to be just over one year. The transaction values the equity of the company at 19% of the NPV. Developers of copper and lithium deposits that are not yet in production are typically valued at around 50% of NPV.

Sio will use the proceeds of the deal to fund the Phase 1 construction. It expects the project to be operational within 18 months of close.

Political risk?

Interestingly, the investor presentation doesn’t mention that the go-ahead for the project requires the approval of the Manitoba Minister of Environment and Climate. In the Manitoba elections last month, the government switched from the center-right party (Progressive Conservative Party) to the left-leaning New Democratic Party. I suspect the new Minister is in no rush to make a decision.

The deal is expected to close in the first half of 2024.

Investor Presentation

 

US Silica Holdings CFO departs after 10 years

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U.S. Silica Holdings CFO Don Merril has been terminated without cause, with immediate effect. Kevin Hough, VP and Corporate Controller, has been appointed interim CFO. Mr. Hough had previously told the company that he intends to retire in 2024, so the company is performing a search for a new CFO.



U.S. Silica has its head office in Katy, Texas. It primarily produces silica which is used as a proppant in fracking. It also produces diatomaceous earth which is used as a filtration product in various industries. The company has a market capitalization of $1 billion.

Mr. Merril joined the company in 2012 and became its CFO the following year. The company has said it is still negotiating the terms of the separation agreement with Mr. Merrill.

According to the annual proxy, Mr Merril would normally be entitled to one years salary ($440,000) and acceleration of unvested stock ($2.6 million at December 31, 2022). Unusually, there’s no mention of a payment of an annual bonus in the event of a termination. For 2022, Mr. Merril received a cash bonus of nearly $600,000.

[UPDATE 11-24-23 – In an 8-K filing, the company said Mr. Merril will receive a bonus for 2023 to be paid in early 2024. That’s in addition to the $440k and the vesting of the time-based restricted stock. The performance-based restricted stock will vest once the results of the company have been certified].

SEC filing – 8-K – US Silica CFO departure

 

Crown Castle CFO to depart

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Dan Schlanger, CFO of Crown Castle (CCI), will leave the company in March 2024. The company is conducting a search that will include both internal and external candidates.

CCI owns and operates 40,000 large cell towers, 120,000 small cells and 85,000 miles of fiber. The company has revenues of around $7 billion, 90% of which comes from the rental of its infrastructure.

Back in July, the company announced it would cut headcount by 15% and close a number of regional offices. CCI has been suffering a downtown as the mobile operators complete their 5G rollout. The T-Mobile takeover of Sprint badly affected the company. This will reduce tower revenues by $200 million a year from 2025.

Mr. Schlanger was appointed the CFO in June 2016. Prior to joining CCI, he spent 9 years at Exterran, another Houston company. He has also worked for Merrill Lynch as an investment banker.

He will receive severance in accordance with the agreement he signed when he joined the company. That amounts to $1.4 million (1x base salary, $620k, 1x annual bonus, $620k plus pro-rata bonus for 2024, $155k).

In addition, any restricted stock units would also vest. According to the most recent proxy statement, these were valued at $1.6 million. That was assuming a stock price of $135 (the price at December 31, 2022). The current stock price of CCI is $90.

Mr. Schlanger is the second senior executive to depart in recent months. Back in August, Cathy Piche, Chief Operating Officer – Towers, resigned to take a position at Phoenix Tower International, a smaller competitor to CCI.

SEC filing – CCI CFO departure

 

Perma-Pipe International Holdings appoints new CFO

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Perma-Pipe International Holdings has announced that CFO Bryan Norwood will retire, effectively immediately. He will be replaced by Matt Lewicki, who is currently the Chief Accounting Officer.

Perma-Pipe designs and manufactures specialty piping and leak detection systems. It has revenues of $140 million and a market capitalization of $66 million. The company appointed  David Mansfield, a Houston-based CEO, in 2016 and officially moved its head office from Illinois to Spring, TX in 2020.

Mr. Norwood, 68, joined the company in October 2018. He and Mr. Mansfield had worked together at Bredero Shaw, a pipe coating provider. Mr. Norwood also worked at Key Energy and API Perforating.

Mr. Lewicki joined the company in May 2023. Prior to that, from 2019 to April 2023, he was Corporate Controller for HMT Holdings, an oil and gas infrastructure company. Before that he spent six years at Quanta Services.

Mr. Lewicki will receive a base salary of $275,000.

SEC filing – 8-K Perma-Pipe CFO

Twin sisters charged in $170 million healthcare fraud scheme

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Shalondria Simpson, a Houston-based Pharmacist and her twin sister, physician Lashondria Simpson-Camp have been charged for their roles in a multi-million healthcare fraud, kickback and money laundering scheme. The 13-count indictment also charges Shayla Bryant, the business manager for Ms. Simpson.



The scheme allegedly ran between 2016 and 2022 and involved prescriptions for injured federal United States Postal Services (‘USPS’) workers. Simpson owned two pharmacies in Houston, Advance Pharmacy and TruCare Phamacy. She allegedly submitted test claims to determine reimbursements for a given drug. After learning the rates, Simpson reversed the test claims and submitted fraudulent claims instead.

Simpson sent pre-printed prescription pads to her sister, based in Allen, TX and to a medical clinic based in Saint Rose, Louisiana. Simpson and Bryant paid kickbacks to her sister and the owner of the Saint Rose clinic in exchange for referral of prescriptions. In fact, the indictment alleges Simpson paid her sister $1.65 million in kickbacks to allow Simpson-Camp to buy a medical clinic in Richardson, TX and refer more claims in furtherance of the scheme.

Between in or around January 2016, and May 2022, Advance and TruCare billed FECA approximately $170 million for prescription drugs. FECA paid Advance and TruCare approximately $53 million on those claims.

The court has notified the defendants that the following property is subject to forfeiture;

  • $53.8 million in criminal proceeds
  • 7 properties, 6 in the Houston-area, one in New Orleans
  • 6 vehicles
  • 9 accounts with financial institutions.

If convicted, Simpson, Simpson-Camp and Bryant each face a maximum penalty of five years in prison for conspiracy to defraud the United States and pay and receive health care kickbacks as well as 10 years in prison for conspiracy to commit healthcare fraud. Simpson and Bryant each face a maximum penalty of 10 years in prison for each count of paying health care kickbacks. Simpson faces a maximum penalty of 20 years in prison for conspiracy to launder money instruments and 10 years for each count of money laundering.

https://www.justice.gov/usao-sdtx/pr/physician-and-two-pharmacists-charged-170m-fraud-scheme

Orbital Infrastructure files for bankruptcy

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Orbital Infrastructure Group logo

Orbital Infrastructure Group has filed for Chapter 11 bankruptcy. The company, based in the Galleria, has been struggling for a while. It has negative equity of $155 million and $306 million of debt obligations.



The company was formed in Colorado in 1998 to develop thermal management solutions. In 2008, it moved its head office to Oregon with the acquisition of a business that manufactured power supplies, transformers and industrial controls. It began trading on the NASDAQ in 2012. In 2022, OIG had revenues of over $300 million but has made operating losses for the past 10 years.

OIG moved its head office to Houston in 2020, following the appointment of Jim O’Neill as its CEO. He spent 17 years at Houston-based Quanta Services, including five years as CEO before leaving in March 2016. After his appointment, the company pivoted to energy infrastructure services.

Losses galore

At the time of his appointment in 2019, the company had no debt! However, there have been a series of disastrous missteps.

  • The company bought Reach Construction, a start-up utility-scale solar construction contractor in April 2020 for $11 million. The business was loss-making and lost $4 million in its first nine months after acquisition. The company then made the decision to scale up the business to take on larger projects.
  • In October 2021, the company formed a joint venture to complete two fixed-price solar energy projects in Alabama and Arkansas. For 2022, Orbital’s share of the losses were $54 million! In April 2023, the company agreed to pay its JV partner an additional $34 million so that the partner could finish the projects. The $34 million has not yet been paid and is part of the $306 million debt obligations.
  • In November 2021, the company bought Front Line Power Construction for $219 million, mostly paid in debt ($105 million) and loan notes ($86 million). The assets acquired included $70 million of goodwill and $108 million of intangible assets.
  • While the performance of Front Line has been reasonably good, the solar panel project losses triggered a large decline in Orbital’s stock price in 2022. In turn, that triggered a goodwill impairment that caused all the Front Line goodwill to be written off.
  • The company made four other acquisitions in 2021 and 2022. While they performed okay, they undoubtedly caused management distractions. The stock price reduction also caused another $26 million goodwill impairment.
  • The legacy gas systems business in the UK was sold in 2021, resulting in an impairment of $9 million.
  • An unnamed customer, one of OIG’s largest and most profitable, started its purchases from OIG in 2023 as concerns over the financial stability of the company mounted.

Front Line Power and Gibson Telecoms (one of the 2021 acquisitions) are in the process of being sold and are not part of the bankruptcy proceedings.

Well-paid executives

For a relatively small company, OIG has some highly paid executives.

  • Mr. O’Neil has a base salary of $800,000.
  • William Clough, Executive Chairman and former CEO, is paid $850,000
  • CFO Nick Grindstaff gets $650,000. Mr. Grindstaff also gets a yearly guaranteed bonus of 100% of base salary.

SEC filing – bankruptcy

 

Earthstone Energy to be acquired for $4.5 billion

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Earthstone Energy, based in The Woodlands, has agreed to be acquired by Permian Resources in an all-stock transaction worth $4.5 billion. The executives of PR will run the combined business from its headquarters in Midland. Earthstone’s shareholders will get 27% of the combined business.

[UPDATE – 11-01-23 The deal has been completed.]



Both companies operate exclusively in the Permian Basin. Combined they will have 403,000 net acres and run 11 drilling rigs. They will be the sixth largest producer in the Permian.

Earthstone was formed in 1969 as Basic Earth Science Systems. Initially, it was based in Denver and operated in Montana and North Dakota of the Bakken. The company changed its name to Earthstone Energy in 2010 and went public the following year.

In December 2014, Oak Valley Resources, a Houston-based company completed a reverse takeover of Earthstone for $138 million.  Oak Valley founder and CEO Frank Lodzinski is now the Chairman of Earthstone.

The history of Permian Resources starts with Colgate Energy Partners. It was formed in 2015 with backing from private equity firms Pearl Energy Investments and NGP. Colgate went public in September 2022, via a merger with Centennial Resource Development. The combined company was renamed Permian Resources.  Centennial was originally taken public in 2016 by a SPAC founded by Mark Papa, who built EOG Resources and was backed by Riverstone.

In June, Earthstone agreed to buy a two-thirds interest in Novo Oil and Gas for $1 billion. Novo is a Delaware Basin E&P operator, backed by EnCap Investments. In 2022, it made three separate acquisitions for $1.5 billion.

Permian is targeting $175 million of cost synergies, mainly through lower drilling costs. The savings include $30 million for general and administrative costs or 50% of Earthstone’s current cash G&A costs.

Earthstone compensation

I tried to determine what payouts would be due to the senior management of Earthstone in the event they left as a result of the takeover. Unfortunately, unlike most of their peers, the company didn’t publish a summary compensation table for that event. However, CEO Robert Anderson would get 3x base salary and bonus (about $3.9 million), while other executives would get 2x (about $2.1 million each).

Interestingly, most of the unvested stock held by the Earthstone management vests (or has vested) this year. That’s worth around $15 million for Mr. Anderson and around $8 million or so for each of the other executives.

The deal is expected to close by the end of 2023.

SEC filing – Investor Presentation

 

Houston midstream company to be acquired for $7.1 billion

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Energy Transfer has agreed to acquire Crestwood Equity Partners in an all-stock transaction that values Crestwood at $7.1 billion enterprise value.

Crestwood is a midstream company that primarily has gathering and processing assets in the Williston Basin in the Bakken, the Delaware Basin in the Permian, and, to a lesser extent, the Powder River Basin in Wyoming. The company was formed in 2001 and went public in 2013 following a merger with Inergy Midstream.



In the past couple of years, the company has been streamlining its portfolio, selling assets in the Marcellus and Barnett shale basins and buying Oasis Midstream (Williston Basin) for $1.7 billion in February 2022.  It has its head office in downtown Houston.

ET has its head office in Dallas and is a much bigger company. Its market capitalization is $39 billion, compared to just $2.8 billion for Crestwood.

ET believes it can achieve cost synergies of $40 million a year. In addition, it should be able to refinance the debt acquired in the deal at a lower interest rate.

The Crestwood executive management are in line for big change-of-control payments, assuming they are terminated as a result of the deal. Bob Phillips, Chairman and CEO, who joined Crestwood in 2007, will receive $20 million. This includes the value of accelerated stock units. The other five senior executives will get a combined $36 million.

The deal is expected to close in Q4 2023.

Investor Presentation

 

Oxy promotes Sunil Mathew to be its new CFO

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Occidental Petroleum (‘Oxy’) has promoted Sunil Mathew to be its new CFO. He replaces Rob Peterson, who has been appointed Executive Vice President of Occidental Chemical (‘OxyChem’).

Oxy has its head office in Greenway Plaza in Houston and has a market capitalization of $56 billion.



Mr. Mathew joined the company in 2004 in Qatar and moved to the US three years later. He is currently the VP of Strategic Planning, Analysis and Business Development. He was promoted to this role in April 2020, the same time that Mr. Peterson was appointed CFO. Mr. Mathew holds  a Bachelors degree in Electronics Engineering and a MBA.

Mr. Peterson joined OxyChem in 1996 and served as its President from 2014-2017. He has a Bachelor’s degree in Mechanical Engineering and a MBA.

Oxy plans to build 100 direct-air carbon capture plants by 2035. In his new role, Mr. Peterson will be in charge of operational readiness for Oxy’s first such plant, which is located in West Texas.

At the time of their appointments in April 2020, Oxy was under a lot of stress. It had acquired Anadarko for $36 billion in August 2019. But the debt it took on and the collapse in oil prices due to Covid, led to activist investor, Carl Icahn, calling it ‘one of the worst disasters in financial history’. Mr. Peterson was appointed CFO a week after Oxy and Mr. Icahn reached a truce.

How times have changed. Oxy was the best performing stock in the S&P 500 in 2022 and it has halved its long-term debt from $39 billion to $19 billion.  Last week, the stock of Icahn Enterprises plunged 30% after the company disclosed that the SEC was investigating the company following allegations by a short seller that the company was inflating the value of its investments.

SEC filing – 8-K Oxy Mathew CFO