Vroom relocates head office from Manhattan to Houston

Vroom, the online car retailer has moved its head office from Manhattan to the Westchase area of Houston as it attempts to cut costs to maintain its long-term viability.

The company had been burning through cash as it chased triple digit annual revenue growth. It is currently losing about $7,000 on every car sold. The company now has a new CEO and CFO that are working on a plan to realign the business.



The company went public via a $468 million IPO in June 2020 that priced its shares at $22 and gave the company a market cap of $2.8 billion. The shares peaked at $74 a few months later. They now trade at $1.35.

In 2021, the company had revenues of $3.2 billion and had an adjusted EBITDA loss of $340 million. It sold 75,000 vehicles through the Vroom platform.

The Houston angle is the result of the company buying Texas Direct Auto (TDA) in Stafford in 2015. TDA remains its only physical dealership. At the time, TDA was the largest independent dealership in the USA and a pioneer on selling cars online. TDA sold 7,212 used cars in 2021 and had revenues of $230 million.

The new CEO is Tom Shortt. He became CEO in May, though he joined the company in January as COO. Prior to joining Vroom, he was a Senior VP at Walmart, where he developed an ecommerce supply chain strategy. Before that, he worked at Home Depot, Acco Brands and Fisher Scientific.

CFO Bob Krakowiak joined the company in September 2021 and is based out of Detroit. Previously he worked at Stoneridge Corporation and Visteon, both automotive electronics suppliers.

Key aspects of the realignment plan are;

  • Increasing gross profit per unit by better data analytics. The company acquired CarStory, an analytics company, for $117 million in January 2021
  • Building a captive finance offering. It acquired UACC, an auto finance company, for $316 million in February 2022
  • Better logistics. No more shipping cars from Oregon to Florida for a flat fee!
  • A more efficient title and registration process. Vroom and Carvana have very high consumer complaints in this area.

The company has recently reduced its headcount by 270 or 14%.

The good news is that the company is expected to have about $500 million of liquidity by the end of 2022 and there is only $625 million of long-term debt which is due in 2026 (other than the securitized debt associated with UACC).

The bad news is that selling vehicles is a very competitive business and $7,000 is lot to make up!

Vroom – Investor Relations presentation

Sugar Land petrochemical company taken private for $247 million

The company manufactures specialty petrochemical products and waxes from its two plants in Silsbee, TX (30 miles north of Beaumont) and Pasadena, TX. It has revenues of $300 million.

The company was originally formed in 1967 as the Arabian Shield Development Company. The company’s original intent was to develop a copper and zinc mine in southwestern Saudi Arabia. It went public in 1972 and continued to raise funds to develop the mine.



In 1987, the company made its first acquisition in the US by buying the facility in Silsbee. By 2006, the company hived off the Saudi mine into a joint venture as it realized it would cost more than anticipated to complete it. The mine eventually started commercial production in 2012.

In 2015, the company changed its name to Trecora Resources. Its sold its 33% stake in the mine JV in 2019 for $70 million.

In late 2020, the company, with the help of its adviser, Guggenheim Securities, began exploring a merger-of-equals transaction in which Trecora would be the acquiror. However, in late summer 2021, after spending nearly $5 million in fees, the Board pulled out of the proposed transaction.

Also, in 2021, two separate activist shareholders, not acting in concert, amassed a combined 20% stake in the company. Both were critical of the Board and management’s strategy for the company. Both believed the company should put itself up for sale.

The company did just that in October 2021. It contacted 72 financial and strategic acquirers. After a formal bidding process, Balmoral won out, paying 11.4 times 2021 adjusted EBITDA.

All the officers of the company are staying on in their roles.

[06-30-22 – UPDATE Trecora filed an 8-K with the SEC.  CEO Patrick Quarles has left the company to be replaced by new hire, Brad Crocker, who is currently the CEO of another portfolio company of Balmoral.  Mr. Quarles will get a golden parachute payment of cash and equity worth $4.4 million.]

SEC filing – Trecora taken private

Houston E&P appoints new CEO and CFO

Epsilon Energy, based in Greenspoint area of North Houston, has appointed a new CEO and CFO.

Jason Stabell is replacing the retiring Mike Raleigh as CEO while Andrew Williamson replaces Lane Bond as CFO.

Mr. Stabell and Mr. Williamson worked together for many years at Merlin International, LLC, an E&P business with its primary operations in Egypt. The business was sold in 2019 to a SOCO International, a UK-listed company. Mr. Stabell stayed on as a consultant until 2021 while Mr. Williamson became the Corporate Development Manager at a small E&P company.

Epsilon primarily owns properties in the Marcellus basin in Pennsylvania. A few years ago, it started acquiring acreage in the Anadarko Basin in Oklahoma. However it is not the operator of those wells. The company has revenues of $48 million and a market capitalization of $130 million.

The departing executives were among the lowest paid executives for their positions. Mr. Raleigh, who had been CEO since 2013, had a base salary of $150,000, though between 2018-2020 he did not take a salary. He will receive a severance of $150,000 plus $480,000 in lieu of equity awards for 2021 and 2022.

Mr. Bond, who had been CFO since 2012 and is also retiring, had a base salary of $200,000. He will receive no severance, but will receive a pro-rata bonus for 2022 of $37,500. However, he will be engaged as a consultant until March 2023 at a monthly rate of $16,667.

Incoming CEO Stabell will have a base salary of $300,000 while Mr. Williamson will have a base of $230,000.

SEC filing – Epsilon Energy CEO CFO change

 

US Well Services to be acquired by ProFrac

US Well Services Nyx Clean Fleet® Frac Unit – patented PowerCube delivers true redundancy power to two separate electric motors and pumps.

US Well Services has agreed to be taken over by ProFrac in an all-stock deal that values the equity at around $93 million.

USWS, based in the Galleria, was founded in 2012 and was taken public for $274 million by a SPAC in November 2018. It currently operates five electric frac fleets and one diesel unit.



USWS also has about $265 million in debt. This includes $110 million of convertible loan notes. As part of the deal, ProFrac will issue stock worth $177 million to eliminate these notes. ProFrac also intends to refinance the remaining long-term debt.

Just last month, USWS announced leadership changes that resulted in Kyle O’Neil being promoted from CFO to CEO.

ProFrac just went public in May 2022 via a $288 million IPO. It has its head office in Willow Park, west of Fort Worth.  With the acquisition, ProFrac will leapfrog Liberty Oilfield and Nextier become the second largest pressure pumper by horsepower, behind only Halliburton.

ProFrac was founded by the Dan and Farris Wilks in 2016. Prior to that, they created Frac Tech in 2002 which the brothers sold in 2011 for $3.5 billion. Dan and Farris are not on the Board of ProFrac. However, Matt, son of Dan, is Executive Chairman, while Ladd, son of Farris, is CEO.

ProFrac, through an affiliate, already owned 13% of USWS. It acquired its stake in 2021. At the same time, ProFrac also paid $22.5 million to USWS for licenses to build three electric frac fleets. Under that agreement ProFrac also expected to pay USWS $22.5 million a year, over the next four years, for additional licenses. With the acquisition of USWS, ProFrac will no longer have to pay those additional fees.

ProFrac also expects to generate $35 million in synergies in 2023. $13 million of this will come from the elimination of duplicate corporate and field overheads, while $12 million will result from reduced repair and maintenance costs (primarily by using in-house manufacturing facilities). $5 million each will arise from supply chain synergies and reduced maintenance capex.

ProFrac also owns 23% of Flotek Industries, another struggling Houston oilfield services company.  In addition, companies affiliated with the Wilks brothers also own 7% of Nextier and 9% of ProPetro Holdings, another pressure pumper. They also took Carbo Ceramics private in March 2020.

The deal for USWS is expected to close in the fourth quarter.

Investor Presentation

Ex-wife indicted in $600,000 Medicaid fraud

Kay Le Farmer, who lives in Katy, has been indicted for defrauding Medicaid of more than $600,000.

Her ex-husband is a licensed professional counselor, who operated a practice in West Houston from 2009 to 2013. Ms. Farmer and the counselor were married from 2000 to 2014. They separated in 2013 and divorced the following year.



From 2012 until 2013, Ms. Farmer was the office manager for the practice and had access to patient information as well as the practice’s billing records. In June 2013, it is alleged she began billing Medicaid for services not provided by her now ex-husband. She channeled the funds received to a newly-opened bank account that she controlled.

The fraud continued even after Ms. Farmer began employment as an office manager with a Pediatrician in Katy. Between November 2017 and March 2018, she submitted claims for 25 patients associated with the Pediatrician for psychotherapy services purportedly provided by her ex-husband.

In total, from June 2013 until June 2018 Ms. Farmer billed Medicaid $617,000. She was paid about $475,000, which she then transferred to her personal accounts.

In 2018, when one of the insurance companies requested records from Ms. Farmer regarding services billed, she requested a records extension and falsely claimed her ex-husband had suffered a massive stroke and was in hospital.

If convicted, Farmer faces up to 10 years in federal prison and a possible $250,000 maximum fine for each count of health care fraud. She was indicted on 22 counts (each count represents a specific fraudulent claim made in 2017 or 2018).

https://www.justice.gov/usao-sdtx/pr/therapist-s-ex-wife-charged-defrauding-medicaid-and-stealing-patient-information

KBR to pay $12 million to settle inflated billing allegations in Iraq

KBR has agreed to pay the US government $12 million to settle allegations of inflated billing and kickbacks during 2002-2003 regarding its work supporting the war in Iraq.

At the time, KBR was owned by Halliburton, with the split not occurring until 2007.

The lawsuit concerned the Logistics Civil Augmentation Program (LOGCAP) that KBR was awarded in 2001 to provide logistical support to the US military in the Middle East.



Three separate KBR employees rigged bidding processes for subcontract work involving trucks and trailers to two different Kuwaiti companies. In return, the employees received kickbacks from those companies. In addition, the third employee extended two contracts for an additional six months, even though the equipment had been returned to the subcontractor.

The settlement amount is actually $13,677,621 and includes $4,253,174 in restitution for over-billing. KBR will have to pay cash of $12 million within 10 days. The other $1.677 million has already been settled by credits that KBR previously provided.

Officially, the settlement agreement is neither an admission of liability by KBR nor a concession by the United States that its claims are not well founded. However, KBR self-reported these violations to the government.

In 2021, following more than seven years of litigation, the U.S. District Court for the Southern District of Texas granted partial summary judgment to the United States on several of its False Claims Act and Anti-Kickback Act claims. This settlement resolves these allegations and other pending claims and issues, for which trial had been scheduled to commence on May 23.

Last year, the US government obtained a $51 million judgment against KBR concerning a larger overpayment that KBR made to one of the Kuwaiti subcontractors under a separate subcontract in the Iraq Theater.

https://www.justice.gov/opa/pr/kbr-defendants-agree-settle-kickback-and-false-claims-allegations

 

Team Inc appoints new CFO

Team Inc, based in Sugar Land, has appointed Nelson Haight as its new CFO. He joins from Key Energy Services, where he had been CFO since June 2020. He replaces Susan Ball, who resigned in November 2021.



Team provides testing, inspection and repair services to industries such as refining and power, though the company describes itself as a ‘global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions’.

The company has had a rough few years following a couple of disastrous acquisitions made in 2015-2016 for $538 million that went south very quickly. At the end of March 2022, the company had shareholders’ equity of $27 million and long-term debt of $501 million.  In the first quarter, the company made a net loss of $32 million on revenues of $219 million.

Amerino Gatti, who had been CEO since 2018, left the company in March to be replaced by interim CEO, Keith Tucker. Mr. Gatti received a severance payment of 18 months of salary ($1.275 million in total, to be paid over 12 months) plus a 12-month consulting contract of $39,583 per month.

The company hired Alvarez and Marsal in 2017 to assist in identifying cost-saving opportunities. After Ms. Ball left, Matt Kvarda, an A&M employee, had been acting as interim CFO.  Since the beginning of 2021, the company has paid A&M nearly $12 million dollars in consulting fees, which includes the interim CFO services.

Mr. Haight will receive a base salary of $450,000. He also received a signing bonus of $25,000 and a guaranteed bonus for 2022 of at least $150,000.

No word on Mr. Haight’s replacement at Key, which is now a private company. In 2020, an out-of-court restructuring resulted in the lenders receiving 97% of the new equity of Key.

SEC filing – Team CFO appointment

Ranger Energy replaces its CFO

Ranger Energy Services has replaced its CFO, Brandon Blossman, with Melissa Cougle, effectively immediately.



Ranger went public in August 2017 at $14.50 per share, giving it a market capitalization of $215 million.  At that time, its primary business was workover rigs.  The company has since made acquisitions in wireline. It also acquired the assets of Basic Energy Services out of bankruptcy in September 2021 for $36.65 million.

Its current share price is $10.29 and the company has a market capitalization of $259 million. It has its head office in the Westchase district of Houston.

Mr Blossman was appointed CFO in June 2018 after spending many years at Tudor Pickering, an energy investment bank. He will continue to be paid for six months after his departure. Mr. Blossman will also receive accelerated vesting of 20,899 shares of restricted stock

Ms. Cougle was the CFO at Frank’s International from May 2019 until November 2021, leaving shortly after its takeover by Expro Group. Prior to that, she was CFO at National Energy Services Reunited, another Houston-based publicly-traded oilfield services company, from May 2018 to May 2019.

She will receive a base salary of $400,000. That’s considerably more than Mr. Blossman was making ($303,000).

In September 2021, the company appointed Stuart Bodden as its CEO, replacing Darron Anderson who left three months earlier.

Amazingly, it was the second time that Mr. Bodden had succeeded Mr. Anderson. Mr. Bodden joined from Express Energy where he had been CEO since 2016. He was hired at Express after Mr. Anderson left to take the job at Ranger. Express Energy was a portfolio company of Apollo Management until it was sold for a big loss in 2020.

SEC filing – Ranger appoints Cougle as CFO

Houston biopharma company replaces its CFO

Aravive, a Houston biopharmaceutical company, has replaced its CFO. Vinay Shah, who has been CFO since 2010, has resigned and Rudy Howard appointed in his place.

The company is conducting clinical trials on a protein that inhibits the signals produced by the AXL protein. These signals help proliferate tumors and cause the body to suppress its immune system. The trials are being conducted on patients with ovarian, kidney or pancreatic cancers.

Aravive went public in October 2018 via a reverse takeover of Versartis, a biopharma company based in California. The transaction valued the company at $39 million. Currently, the company has a similar market cap with its share price being $1.21. A year ago, its share price was around around $5-$6.

Mr Shah will receive a severance payment of $286,443 (nine months, paid monthly) and will enter into a consulting contract for four months with a monthly payment of $44,557.

Mr. Howard will receive a base salary of $395,000. He also received stock options on 290,000 units that will vest over four years.

Mr. Howard was previously the CFO of vTv Therapeutics, a struggling biopharma company, based in North Carolina. He resigned in December 2021, receiving a one year severance payment of $325,000. At that time, the company let go 16 of its 25 employees.

SEC filing – Aravive CFO

Houston resident indicted in Texas fake paper tag scheme

Another Houston resident has been indicted in the Texas fake paper tag scheme that’s cost the state nearly $100 million dollars. Daniel Rocky Christine-Tani was arrested in Sugar Land and will appear in court on June 2, 2022.

Co-conspirators Leidy Areli Hernandez Lopez, Houston, Emmanuel Padilla Reyes, Houston and Octavian Ocasio from New York were charged in May 2021. The new indictment adds more charges against Reyes, aka Christian Hernandez Bonilla, who remains at large.



I wrote about the scheme in my blog post from May 2021 that highlighted the virtually non-existent controls in the system.

Internal controls lacking

Car dealers in Texas must obtain a GDN (general distinguishing number) license to buy or sell vehicles. The license application portal is online and a license can easily be acquired using fake ID documents, such as a driver license from any state. Once a dealer obtains a GDN license, they can access the online eTag portal of the TX Department of Motor Vehicles to create temporary tags.

However, there were a couple of gaping holes in the system. Firstly, a GDN holder can set up other users on their account who can create and issue temporary tags. Secondly, there are no checks on the vehicle, buyer or vehicle identification number (VIN) entered into the portal.

In that way, the co-conspirators issued 700,000 fake paper plates in a matter of months in 2020. Fake plates were sold for between $125 and $150 each, although more recently plates can be bought for less than $100.

New state law being to have an effect

The Texas Department of Motor Vehicles is a relatively new department, only created in 2009. It only began investigating title fraud in 2014 when it hired its first fraud inspector.  A 2019 report by the Texas Legislature stated that the department had no fraud reporting tools.

The state passed a bill that became law in September 2021 to improve controls over paper plates. For example, the law requires all new  dealer applicants to be fingerprinted in order to obtain a GDN. That has not yet been enacted.

The law also allowed the DMV to deny or revoke a dealer’s access to the eTag portal if there was fraudulent activity. Prior to the law passing, the DMW was specifically prohibited by statute from denying a dealer access to the database.

Limits have also been put in place on the number of tags that a dealer can issue. They appear to be having an effect.

At the February DMV board meeting it was reported that 17 independent dealers were part of an organized criminal group that issued 1.2 million buyer tags in 2021 or 25,000 a week. In 2022, these numbers dropped to a few hundred a week.

However, the criminal group is now moving onto creating tampered documents without using the eTag portal.

If convicted, each defendant faces up to 20 years in prison and a possible $250,000 maximum fine.

https://www.justice.gov/usao-sdtx/pr/another-indicted-nationwide-fraudulent-car-buyer-paper-tag-scheme