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Tutor Perini Scores Contracts

By
Hannah Madans Welk
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Ronald Tutor, the CEO of Tutor Perini Corp.

After a prolonged dry spell coming out of the pandemic, contracts are now coming in fast and furious for Sylmar-based civil construction company Tutor Perini Corp.

In the space of eight days in late October, Tutor Perini announced that it and/or its subsidiaries had been awarded three contracts – two for more than $1 billion. That follows the company’s announcement earlier in the month of a final contract for a $1.66 billion rail project in Honolulu.

And the company gave an update on another contract it hopes to get: a contract award that could be worth about $4 billion to build a new jail on New York City’s Manhattan Island.

Water tunnel contract

The first of this latest trio of projects was announced Oct. 23. Frontier-Kemper Constructors, an Evansville, Indiana-based subsidiary of Tutor Perini, was awarded a $1.1 billion contract from the New York City Department of Environmental Protection to build a water conveyance tunnel in Westchester County in New York.

The approximately 2-mile-long tunnel roughly 500 feet underground will connect the Kensico Reservoir that supplies drinking water to New York City to an ultraviolet light disinfection facility. It will supplement an existing tunnel, allowing for operational resiliency and redundancy for the city’s water supply system, especially when other parts of the aging system are taken out of service for maintenance.

Groundbreaking this past summer for Tutor Perini’s New York water tunnel project.

Work for Frontier-Kemper is expected to begin in the coming months with substantial completion expected in 2030. (Work on the overall $1.9 billion project began with a groundbreaking over the summer.)

The tunnel project includes the construction of two new shafts connecting to the surface and the use of a tunnel boring machine. The completed tunnel will have a diameter of 27 feet.

Health campus, harbor repair and jail construction contracts

The second project was announced on Oct. 29, though Tutor Perini was very light on specifics.

Tutor Perini subsidiary Rudolph and Sletten, which is headquartered in Menlo Park, was awarded a contract valued at “more than $1 billion” to build a health care campus somewhere in California. The project scope of work includes the construction of a new hospital, an energy center and a parking garage. Work is expected to begin in late 2024 with substantial completion anticipated in 2029.

Tutor Perini did not disclose the location of the hospital/health care campus nor the owner-operator of the campus.

The next day, Oct. 30, Tutor Perini announced that a joint venture between it and Honolulu-based construction contractor Nan Inc. was awarded a $331 million contract from the Naval Facilities Engineering Systems Command, Marianas, for repairs and restoration work at Apra Harbor in the Pacific island territory of Guam.

This harbor, part of the U.S. Naval Base, Guam, suffered significant damage from a series of storms, most notably Typhoon Mawar in May of last year.

The Tutor Perini-Nan joint venture team will be repairing the breakwater in the harbor, which was breached in three separate locations, as well as various other repairs and upgrades to the harbor. The contract includes options for future work that, if exercised, could add up to $230 million to the total contract value.

Finally, on Nov. 6, Tutor Perini announced that a joint venture it formed with Torrington, Connecticut-based construction company O&G Industries Inc. has been named the “apparent selected proposer” by the New York City Department of Design and Construction to build a new jail in Manhattan that is estimated to cost around $4 billion. The joint venture will now negotiate contract terms with the city; if those negotiations are successful, it expects to be awarded the design-build contract.

Record contract backlog

Also on Nov. 6, Tutor Perini released its third quarter earnings report. Revenue for the quarter was $1.08 billion, up slightly from $1.06 billion for the same quarter last year. The company reported a net loss of $101 million for the quarter, which was larger than the $37 million loss for the same quarter last year. The company attributed the larger loss to $152 million in net charges related to the resolution of various disputed balances.

Ronald Tutor, chief executive of Tutor Perini, focused his comments on the contract wins during the third quarter.

“We have tremendous momentum with several large new project wins in the third quarter that resulted in a new record backlog of $14 billion,” Tutor said. “This backlog provides us a solid foundation upon which we expect to build a profitable, multi-year revenue stream, with the potential for significant continued growth over the next few months as we look to finalize the contract for the multi-billion-dollar Manhattan Jail…and pursue other large projects.”

Tutor added that with the resolution of the disputed balances, the company expects to return to profitability next year.Tutor Perini Ronald Tutor Sylmar construction infrastructure rail jail tunnel 2024

$740 Million Is Approved for New Facilities

By
Hannah Madans Welk
-
Rendering: Advanced Water Purification Facility at Tillman plant in Van Nuys.

The Los Angeles Department of Water and Power Board of Commissioners late last month gave the green light to provide up to $740 million for new water recycling facilities in the San Fernando Valley.

The funds will go toward the Groundwater Replenishment Program jointly run by the Los Angeles Department of Water and Power and the Los Angeles Department of Public Works, Bureau of Sanitation and Environment. The program, one of the largest potable water reuse projects in the state, centers around the city’s Donald C. Tilman Water Reclamation Plant in Van Nuys.

The goal of the program is to boost the availability of recycled water within the city of Los Angeles, reducing the need for the city to rely on water imported from the State Water Project and the Colorado River.

Recycled water is a key component to meeting the local water supply goals outlined in the city’s 2020 urban water management plan, the Los Angeles New Deal, and Los Angeles Mayor Karen Bass’ Executive Directive 5, which all focus on reducing reliant on imported, purchased water, in favor of investing in local and sustainable water supplies.  

This project around the Donald Tilman Water Reclamation Plant aims to produce at least 20 million gallons per day of purified recycled water that can reach more than 250,000 Los Angeles Department of Water and Power customers.

New facilities will include: an advanced water purification facility capable of producing 30 million gallons per day of purified water.

Dallas-based Jacobs Solutions Inc. has already been selected as the lead contractor for the project.

Construction is set to begin this month, with the project slated for completion by the end of 2027.

Tax Credit Expansion Is Proposed

By
Zane Hill
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Government: Gov. Gavin Newsom signing the state budget in 2023, which included an extension on the Film and TV Tax Credit program.

Gov. Gavin Newsom announced last week a proposal to expand the state’s film and TV production tax credit program. If approved by the General Assembly, the tax credit program would increase from $330 million a year to $750 million a year.

The massive increase to the program, which is administered by the California Film Commission, would allow California to outpace other states offering tax credits, luring more entertainment industry projects back to the Golden State, the commission said.

“California is the entertainment capital of the world, rooted in decades of creativity, innovation and unparalleled talent,” Newsom said in a statement. “Expanding this program will help keep production here at home, generate thousands of good paying jobs, and strengthen the vital link between our communities and the state’s iconic film and TV industry.”

Commission Director Colleen Bell said that California needs to keep pace with competing states and nations in providing aggressive tax incentives.

“The Governor’s bold plan will accelerate these efforts and assure California remains the production center of the entertainment industry,” Bell said in a statement.

Los Angeles Mayor Karen Bass, who joined Newsom for the announcement on Oct. 27 at Hackman Capital Partners’ Raleigh Studios in Hollywood, called the neighborhood “the cornerstone” of the city and its economy and “the message to the industry is clear – we have your back.”

Since its start in 2009, California’s Film & Television Tax Credit Program has generated over $26 billion in economic activity and supported more than 197,000 cast and crew jobs across the state, the commission’s release said.

According to Bell, the program has been oversubscribed year after year, with more productions applying than can be accommodated under the current budget cap. In recent years, projects unable to secure California’s tax credits moved to other locations. That migration caused significant economic losses, with an estimated 71% of rejected projects subsequently filming out-of-state.

Many other projects chose not to apply due to the limited funding, suggesting that total runaway production losses are likely much higher, the release stated. Between 2020 and 2024, data shows California lost an estimated $1.6 billion in production spending due to limited tax credit funding, directly impacting state jobs and local economies.

In 2023, Newsom signed a five-year extension of the program, including new workforce diversity provisions, more funding for the Pilot Career Pathways training program, and the nation’s first Safety on Production Pilot Program, which involves a firearms training requirement and the inclusion of a specialized advisor to monitor on-set safety. 

These new requirements are the result of the shooting death of cinematographer Halyna Hutchins in October 2021 on the New Mexico set of the movie, “Rust.” Hutchins died after being shot and killed by a bullet from a prop gun discharged by actor Alec Baldwin that was not properly checked.

Tax credits will become refundable for the first time beginning with the 2025-26 fiscal year.

Quarterly Report Boosts Teledyne Share Prices

By
Zane Hill
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Boss: Teledyne Executive Chair Robert Mehrabian. (Photo c/o Teledyne Technologies)

Shares in Teledyne Technologies Inc. were helped by a strong third quarter earnings report.

The Thousand Oaks aerospace, marine and digital imaging products manufacturer saw its stock price get a 6% boost from a close on Oct. 22 of $443.49 to a close of $470.09 the following day after reporting its quarterly financials before the market opened.

It then climbed a fraction of a percent to close at $472.86 on Oct. 24, the highest amount in the last 52 weeks.

The share price closed at $455.32 on Oct. 31.

Teledyne reported on Oct. 23 adjusted net income of $241 million ($5.10 a share) for the quarter ending Sept. 29, compared with adjusted net income of $242 million ($5.05) in the same period of the previous year. Revenue increased by almost 3% from the third quarter of the prior year to $1.4 billion.

Most segments see increases

Out of the four business units of the company, three had increases in revenue.

Only digital imaging had a decrease in revenue. It went down by 1%, with net sales of $768 million, compared with $776 million in last year’s third quarter.

The third quarter net sales decreased primarily due to lower sales of industrial automation imaging systems and X-ray products, partially offset by higher sales of unmanned air systems, surveillance systems, infrared detectors and commercial infrared imaging systems, according to a Teledyne release.

The third quarter of 2024 also included $10.8 million of incremental sales from recent acquisitions, the release added. 

George Bobb, the president and chief operating officer of Teledyne, said in a call with analysts from Oct. 23, that the instrumentation segment had an increase of 6.3% versus last year.
“Sales of marine instruments increased 24.1% in the quarter, primarily due to both strong offshore energy and subsea defense sales,” Bobb said. “Sales of environmental instruments decreased 3.5%, primarily due to greater sales of water quality instruments, offset by lower sales of select laboratory instruments and emission monitoring systems.”

In the aerospace and defense electronics segment, third quarter sales increased 9.2%, driven by growth in both commercial aerospace and defense electronics products, Bobb added.

“For the engineered systems segment…third quarter revenue increased 9.4%,” he said.

Robert Mehrabian, executive chair of the board, said during the call that over the last several quarters some of its markets have experienced weakness but that Teledyne lowered costs to protect margins in these businesses while growing and increasing margins in those businesses where the environment was more favorable.

Stock repurchases

During the quarter, the company also opportunistically purchased Teledyne stock. While its current $1.25 billion stock repurchase authorization remains active, the company is also fortunate that its near-term acquisition pipeline is healthy, Mehrabian said.

“While there are always new challenges, I’m optimistic that we have begun to exit some of our more difficult quarterly comparisons and we will continue to grow both organically and through acquisitions,” he stated.

Andrew Buscaglia, an analyst with BNP Paribas Exane in New York City, asked during the call about acquisitions

“M&A looks like it’s perking up here,” Buscaglia said. “Can you comment a little bit more on that? What are the size of these deals you might be seeing?”

Mehrabian responded that there hasn’t been that much opportunity for Teledyne to do acquisitions but that suddenly in the last month or so, the funnel has opened.

The company is seeing more opportunities especially outside of digital imaging companies to acquire, he said.

“So, we’re kind of positively inclined to look at what we can do, how much power we have to make acquisitions,” Mehrabian said.

Rather than focus on stock buybacks it is more likely that the company will focus on acquisitions as it has the wherewithal to spend up to $2 billion to $3 billion if it wants to, he continued.

“I don’t know if we’ll do that much, but we certainly are in the market to buy some smaller companies which would be, let’s say, in the $50 million range and maybe some things that are closer to $500 million or more,” Mehrabian added.

“It won’t be anything as large as Flir at this time, but there are many opportunities,” he stated.

Teledyne bought Flir Systems Inc. in May 2021 for $8.2 billion. The subsidiary develops cameras, sensors and drones used in military, industrial, automotive, marine and public safety applications.

Unfashionably Wasteful: Stymieing the Flow of Clothes to Landfills

By
Zane Hill
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Design: To reduce waste, downtown-based Finesse produces clothing at levels determined by AI algorithms.

When Joresa Blount worked as a corporate employee at Nordstrom, there was one seemingly unsolvable problem on everyone’s minds: returns. 

While Nordstrom’s brick and mortar locations had try-on rooms for shoppers, the growing number of people buying and returning products online led to difficulties tracking sales for the company’s bottom line – if a customer purchased the same t-shirt in two sizes with the intention of returning one of them, the system had no way of knowing and counted the purchase of two t-shirts as a sale. 

“There weren’t a lot of players at the time that were trying to solve the problem of retail returns,” Blount said. “It is part of the journey of delivery and getting a product to you that is both painful for the retailer and painful for the shopper. Nobody wants to deal with returns.”

Fashion as we know it today is sitting at an inflection point: the industry is basking in the rapid consumer adoption of e-commerce (which reached more than $1 trillion in sales in 2022 according to Comscore), allowing companies to sell more merchandise to more people all over the world. 

However, that same rapid adoption has exacerbated long-neglected issues in the fashion industry. Making clothing contributes more to global emissions than aviation and shipping combined, and the World Bank predicts global sales of clothing will increase by 65% in 2030. More than 75% of the textiles we wear in the U.S. end up in the landfill, according to the Environmental Protection Agency. 

The Los Angeles Business Journal spoke to founders of nascent fashion tech companies about how technology has worsened fashion’s sustainability image, and how technology can try to fix it.

Making e-commerce fashion-friendly

When Blount began thinking about the returns problem, her goal was to “create a SaaS product that is going to also be tackling the problem with returns – why people return, how do we reduce it, how do we keep things out of landfills, how do we help the retailers save money.”

Leader: Joresa Blount, founder of GoFlyy, wants to solve problems with retail returns.

Blount founded Burbank-based GoFlyy in 2019. The company is currently testing a software product that will allow consumers to receive two sizes of the same piece of clothing at a fraction of the cost without it being counted as a full purchase for the retailer. GoFlyy has worked with clothing rental platform Armoire, Cerritos-based fashion company Revolve Group, and even some floral brands on providing same-day delivery.

Returns don’t make the process of mitigating climate change easier – 15% to 30% of clothing bought online is returned, contributing to shipping emissions and preventing retailers from re-selling the item at full price.

To combat returns, Hollywood-based Ai.Fashion Inc. is taking a different approach. The company was cofounded in 2023 by artist and programmer Daniel Citron. Armed with $4.1 million in seed and accelerator money, the company is a combination of a modeling agency and generative AI fashion startup.

“Very rarely do you go to a website for clothing and be able to see products that are actually showcased in the sizing that fits for you,” Citron said. “And as a result, you often get the clothing and it doesn’t quite fit.”

The company scouts models that aren’t found at traditional modeling agencies – these are people who have disabilities, or different proportions, who live outside of model hubs like New York City or Los Angeles. After taking their measurements and photos, fashion brands can use AI to generate their products on these models instead of photographing every piece. 

“It’s cutting the costs pretty dramatically for those fashion brands over their traditional processes right now while also increasing their conversion because of the fact that they can just simply showcase to their customers their products in better and in different ways,” Citron said.

Jeans brand Levi Strauss & Co. came under fire in 2023 for announcing its partnership with Lalaland.ai, a company that creates AI fashion models. Levi claimed that the partnership would increase diversity by allowing shoppers to see how a piece of clothing could look on several different body types. Citron said Ai.Fashion is different because it uses real humans who receive credit and finances for their appearances. But the technology is still in its early stages and comes with its own risks.

“I think the hard part is that it really does come down to accuracy, if the clothing does not fit in the way that it should,” Citron said. “If it’s not an accurate representation of how that clothing is actually going to look or what the fabric is going to look like, then you run the risk of potentially increasing your return rate.” 

Scaling down production

Ramin Ahmari’s approach is different: just don’t make more clothes than needed. 

Ahmari founded Finesse, a downtown Los Angeles clothing brand in 2019. It has raised more than $56 million. The company uses artificial intelligence to determine what designs of clothing to create, whether it be leather micro shorts, fur-trimmed chaps or satin bustiers. Another algorithm determines how many of each piece to produce.

“To date, we have never discarded a garment because of overproduction,” Ahmari said. “I will say, that might get a little bit harder with scale.”

Unlike most fashion companies, Finesse doesn’t have a buying and merchandizing department sifting through white-label clothing items and ordering a specific amount. The company produces its clothes primarily in China, India and Turkey and recently opened a brick and mortar store in downtown L.A. at The Bloc.

“This industry is one of the worst polluters in the world because everyone is essentially just spray painting the market and hoping that something sells,” said Ahmari. “And if it sells, great, produce more of it, right? And that model is an incredibly wasteful model that is not just terrible for the environment, but it’s also just a bad business model.”

Of course, Finesse is still creating fashion that is built on the whims of trends. But it’s part of the growing wave of companies receiving venture funding to solve for the rapid adoption of e-commerce – Finesse has the fourth largest funding raise in the global fashion technology sector of all time, according to Pitchbook. And that niche is growing, receiving $82 million in venture funding. 

“If we want to talk about the things that end up in a landfill, (e-commerce) just contributes to this really evil cycle that can be hurtful in so many ways, financially, environmentally,” Blount said.

Reveleer, Caldera Buy Two East Coast Firms

By
Zane Hill
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Reveeler provides platforms for risk adjustment, care quality and data analytics for health plans and providers.

In a sign of the vibrancy of the region’s health care economy, two local health care companies announced acquisitions of East Coast firms on the same day – Oct. 8.

Early that morning, Glendale-based Reveleer, which provides risk adjustment, care quality and data analytics for health plans and providers, announced it has acquired Annapolis, Maryland-based Curation Health, a platform to provide physicians and care teams with clinical insights.

Just an hour or two later, Westlake Village-based Caldera Medical, which makes women’s health medical devices, announced it has acquired Raleigh, North Carolina-based Uvision360 Inc., maker of the Luminelle brand hysteroscopy and cystoscopy systems.

Neither company disclosed the value of their transactions.

For Reveleer, which rebranded in 2019 from Health Data Vision, this is the second acquisition in the last 18 months. In May of last year, the company purchased New York-based MDPortals, which provides prospective risk adjustment software.

In February, Reveleer announced the completion of a $65 million financing round, led by Palo Alto-based Hercules Capital Inc.

The acquisition of Curation Health marks the first major deployment of capital from that funding round. Curation Health, which was founded in 2018, uses an artificial intelligence platform to provide clinical insights to physicians and other care teams. The platform, which among other things includes 1,400 clinical rules, is integrated into electronic medical records systems used by hospitals and other health care providers.

As a result of the acquisition, according to the announcement, Reveleer customers will have easier access to complete patient information, better patient documentation and more accurate measures of patient health and care quality, all based on real-time insights at the point of care. Additionally, the AI technology will help spot areas where patients may need extra care, and medical records are continually updated, making it easier for providers to follow-up and ensure better patient outcomes.

Reveeler CEO Jay Ackerman

“We are excited to welcome Curation Health to the Reveleer team as we accelerate our mission to deliver value-based care organizations with unparalleled solutions to improve patient outcomes and optimize financial performance,” Jay Ackerman, Reveleer’s chief executive, said in the announcement. “By combining our technologies and expertise, we are setting a new industry standard for closing care gaps and doing more to empower providers to anticipate and influence an individual’s care plan.”

Caldera Medical’s acquisition

Similarly, Caldera Medical’s acquisition of UVision 360 is aimed at bolstering the medical device maker’s offerings.

Caldera Medical was founded in 2002 to develop medical devices that improve the health and quality of life for women.

The company has focused on devices that use minimally invasive approaches to diagnosis and treatment for conditions affecting women, including stress urinary incontinence, fibroids and pelvic organ prolapse (where a pelvic organ drops from its standard position). It has also developed devices for the hysteroscopic removal of intrauterine tissue.

UVision 360 has developed devices under its Luminelle brand with precision optics for hysteroscopy and cystoscopy procedures. The devices can also provide early diagnoses of uterine cancer, in a way that UVision 360 co-founder and Luminelle inventor Erich Dreyer said is more accurate than traditional biopsies.

“This acquisition strengthens our commitment to offering gynecologic surgeons state-of-the-art tools that streamline hysteroscopic procedures while enhancing patient safety and clinical outcomes,” Byron Merade, chief executive of Caldera Medical, said in the acquisition announcement.

Device: Caldera Medical’s hysteroscopic tissue removal system.

Poppy Bank Opens First Standalone LA Branches

By
Zane Hill
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Opening: Pictured from left to right at the Calabasas branch opening ceremony are Calabasas City Councilman David Shapiro; Rita El Hage, Calabasas branch manager; Calabasas Mayor Pro Tem Peter Kraut; Michael Finn, Poppy’s chief banking officer; and Calabasas City Councilman Edward Albrecht.

Poppy Bank, a community bank based in Santa Rosa, opened its first stand-alone branches in Los Angeles County last month in Santa Monica and Calabasas, with its third opening next month in Pasadena.

Poppy began expanding locally a few years ago with the opening of two locations within Ralphs stores in Westwood and Long Beach, but these recent openings solidify the bank’s presence in L.A.

Chief Executive Khalid Acheckzai said Santa Monica, Pasadena and Calabasas particularly caught the bank’s eye because of the loan demand in the areas as well as the cities’ economies and communities.

Poppy Bank specializes in creating personal deposit portfolios with a full spectrum of products and services including treasury management and lending across a number of industries.

Recently included on Inc.’s list of the top 5,000 growing private companies in the country, Poppy has been steadily expanding in terms of its assets and physical presence.

In the nearly 10 years Acheckzai has been with the company, Poppy has grown its assets from around $900 million to about $6.5 billion, he said, noting a 20-25% annual growth rate.

Acheckzai is aware that online banking has changed the nature and need for branches. While customers may not need to go to a physical branch all that often, they find comfort in knowing that they can for more complex transactions and decisions.

“We’re opening branches at a time when frankly many banks are actually closing branches. What distinguishes us is we’re not putting them on every street corner,” Acheckzai said.

“We’re strategically making sure that as we expand through the state that there’s a branch within five to 10 miles of everyone and we’re still in the process of filling the gaps,” he added.

One standout for Poppy is that it offers Commercial Property Assessed Clean Energy (C-PACE) financing, which enables improvements to properties that lower energy costs, save water and protect buildings against extreme weather events.

While many non-bank lenders participate in C-PACE, Acheckzai said Poppy was the first bank in California to be approved for this type of lending.

An important part of expanding through the state is still maintaining the essence of a community bank. Some ways Poppy gets involved in the different areas it moves into is providing local financial literacy programs, supporting nonprofits and sponsoring community programming.

“That’s really key for me and for us as a bank is to really get involved with the communities. We hire branch managers and a team and our expectation is that they will be from that community and be really involved in the community,” Acheckzai said.

Other areas Poppy is eyeing for expansion include Thousand Oaks, Manhattan Beach, Brea, Newport Beach and Santa Barbara.

For now, Acheckzai said Poppy will stay committed to growing in California before considering national expansion and will have 35 branches across the state by year’s end.

Cheesecake’s Share Price Remains Fairly Steady

By
Zane Hill
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Eatery: The interior of a North Italia restaurant, owned by The Cheesecake Factory.

A Wall Street Journal story on an activist investor encouraging The Cheesecake Factory Inc. to spin off three of its restaurant chains didn’t leave much of a mark on its stock price.

The cost of shares in the Calabasas casual restaurant group went down by nearly 1% from a close of $42.45 on Oct. 21, the day the Journal’s story was published, to a close of $42.04 on the following day. It then dropped by almost 1.3% on Oct. 23, when its share price closed at $41.51.

The stock price closed flat at $41.51 on Oct. 24.

The Journal reported that Houston-based JCP Investment Management, which has a 2% stake in the company, is urging it to spin off three of its smaller brands into a separate public company, citing “people familiar with the matter.”

“JCP has privately argued to Cheesecake Factory executives that three of its restaurant brands in particular would be better off as a separate company focused on faster growth: North Italia, an Italian casual-dining concept; Flower Child, a health-focused fast-casual chain; and Culinary Dropout, a gastropub known for its pretzel bites and fried chicken,” the Journal story said. Two out of the three chains are owned by Phoenix-based Fox Restaurant Concepts, which Cheesecake Factory acquired in 2019.

JCP has told Cheesecake Factory that it would be willing to inject capital into the spun-off entity to help with its growth, according to the paper.

By breaking up the company, JCP argues that the separate management teams could better focus on hitting their respective targets.

JCP has also recommended that Cheesecake Factory implement a strategic review for several other smaller concepts the activist thinks have struggled and could be of interest to buyers, the Journal’s sources added.

While the paper did not name those other smaller restaurant chains, they could include Blanco Cocina and Cantina, Zinburger and Doughbird.

Analyst reaction

Nick Setyan and Matt Quigley, analysts with Wedbush Securities in Pasadena, said in a research note from Oct. 21 that while they believed the eventual spinoff of Cheesecake’s emerging brands is viable and would add value to shareholders, they disagree on the urgency shown by JCP.

“They’re simply too small today and are unlikely to be large enough in the foreseeable future,” Setyan and Quigley said in the report.

David E. Tarantino, a senior research analyst with Robert W. Baird & Co. Inc., said in his research note of Oct. 21, that his initial take is that such a move could lead to some positives (e.g., a more focused organization).

“But we have our doubts as to whether the ‘sum of the parts’ would be worth substantially more than the current combined company,” and whether JCP has a track record of successfully challenging companies it invests in.

Although JCP appears to have a history of investing in the restaurants/retail space, the firm’s track record in “activist” campaigns appears somewhat mixed, Tarantino said in his report.

“As such, we suspect their proposals would only gain significant traction if other sizable/influential investors join with JCP in pushing management to take action,” he added.

And Citigroup Global Markets Inc.analyst Jon Tower said in his Oct. 22 research note that “slicing up” Cheesecake Factory may not be in the best interests of investors in his view, but activist overtures are likely to keep shares pushing higher near term.

“Both North Italia and Flower Child are fully integrated into Cheesecake’s systems and a split would likely blunt the benefits each derive from being a part of the larger enterprise (e.g., “purchasing, property, technology),” Tower said in the report.

“We believe Cheesecake is now on its best operating footing in years, with visibility into consistent top-line growth and margin expansion and splitting up the company may prove more cumbersome/less shareholder friendly than leaving it as is,” he added.

Kolibri: Ready To Expand

By
Zane Hill
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Fuel: A well-drilling rig at Kolibri Global Energy's site in Oklahoma.

For long-suffering investors in Newbury Park-based oil and gas exploration and drilling company Kolibri Global Energy Inc., could recent developments finally mean a recovery is in sight?

Kolibri Global Energy, which in 2020 changed its name from BNK Petroleum, has one oil field asset: more than 17,000 acres in the Tishomingo Oil Field in rural Oklahoma.

The company has spent much of the past two years exploring recent additions to its oil field and perfecting new drilling technology. Now, according to Chief Executive Wolf Regener, those steps are largely completed, and the company is poised to dramatically expand oil production.

“We’ve done all the exploration and honed the well-drilling techniques and now are in the manufacturing phase,” Regener said.

And none too soon for investors, who have watched the share price tumble nearly 30% in the past year and more than 40% since the most recent peak of $5.48 in January of last year. The stock closed Oct. 16 at $3.46 a share.

Unusual history

Kolibri began in 2008 as a spinoff from Calgary, Alberta-based Bankers Petroleum, which had – and still has – oil field operations in the Eastern European nation of Albania. The spinoff, then known as BNK Petroleum, had a mission of developing shale oil fields in the United States. Bankers Petroleum had acquired a couple of years earlier holdings in the Tishomingo shale oil field in Southern Oklahoma.

BNK Petroleum spent the next few years drilling its first generation of wells in the Tishomingo field. Then, in 2013, the company sold the deeper layers of the shale formation to Exxon Mobil Corp. for $147 million, keeping the upper, shallow layers known as the Caney formation. Proceeds from the sale were used to pay debt and fund more exploration and drilling efforts.

Since then, the company has acquired additional land holdings, bringing the total surface area to 17,100 acres. And in 2019, the Business Journal reported that the company had plans to drill up to 185 new wells on the parcel.

In late 2020, BNK Petroleum changed its name to Kolibri Global Energy, shedding the remainder of its former ties to Bankers Petroleum. The final step in the name change came a year ago, when Kolibri began trading under the symbol KGEI on the Nasdaq.

But by the time the name change took place, the oil markets had changed dramatically for the worse as the Covid-19 pandemic shut down most travel and the price of oil plunged.

Regener said this downturn played out at Kolibri as a faction of the board of directors pushed through a de-facto moratorium on new drilling efforts.

“There were some board members that wanted to continue drilling and some board members that wanted to stop drilling and sell the company,” Regener said. The standoff continued until well into 2022, when he said the board members that wanted to sell stepped down from the board.

Kolibri Global Energy Chief Executive Wolf Regener

He noted that coincided with an upswing in the oil market following Russia’s invasion of Ukraine and the global supply chain crunch.

For the last two years, Regener said, Kolibri has been in expansion mode, drilling exploratory wells in recently acquired portions of its parcel and simultaneously working to improve its horizontal well-drilling techniques.

On the latter front, in September, Kolibri announced the drilling of three new wells to add to the 32 wells already in production mode. But these three wells, which are set to enter production next month, are different: they are the first to use the new drilling techniques to extend their horizontal reach to 1.5 miles instead of the more traditional 1 mile. That puts much more oil within reach of each well, Regener said.

And it’s not just the length of the wells. Regener said the time to drill these new wells fell to just 12 days from the traditional 30-days plus.

“It only took two extra days to do that additional 0.5 mile of drilling,” he said. “That’s a tremendous time and cost saver.”

As a result of the shift to expansion mode, the company’s average daily production rose from 975 barrels of oil equivalent per day in 2021 to 1,640 barrels per day in 2022 and 2,976 barrels per day last year. Regener said adjusted EBITDA (earnings before interest, taxes, deduction and amortization) went from $6.5 million in 2021 to $25 million in 2022 and $39 million last year.

Stock “undervalued,” company says

But Regener said that despite this turnaround, the share price is still undervalued. That makes it more difficult to make additional acquisitions, whether adding on to the Tishomingo holdings or separate oil field acquisitions elsewhere.

To address this, the company has started doing more investor presentations, indicating that with its new well-drilling technique, the company is ready to covert a greater portion of the roughly 32 million barrels of oil equivalent in proven reserves to producing reserves. As of now, that portion stands at nearly 25%.

“We need to show investors that these proved undeveloped reserves are low-risk,” he said.

In addition, Regener said the board last month authorized a share buyback program of up to 1.79 million shares, which he said will be implemented in phases.

Hoping to dodge fracking controversy

Unlike conventional crude oil fields, shale oil is found within shale rock formations and must then be extracted. One common means of extracting the shale oil is through hydraulic fracturing, or fracking, where water, sand and chemicals are poured into the rock at high pressure, opening fractures in the rock and allowing access to the oil buried within.

Regener said that 100% of Kolibri’s oil is extracted through fracking.

But fracking is considered highly controversial, as the chemicals used can contaminate groundwater or pollute the surrounding air. Furthermore, in Oklahoma, some studies have linked the high levels of water injection associated with fracking to increased earthquake activity.

These potentially harmful effects have led to calls to ban fracking in many parts of the country. In California, Gov. Gavin Newsom announced his administration would end fracking permits by this year; the de-facto ban went into effect this month.

But, Regener said he is not concerned about a fracking ban or limits in Oklahoma. “The state here is pretty friendly to fracking,” he said.

Also, he said, most of the company’s oil field holdings are on private lands, making a fracking ban even more remote.

Hello Cake Buys a Las Vegas Firm

By
Zane Hill
-
Product: A bottle of lubricant from Hello Cake.

Hello Cake is expanding. The Calabasas-based sexual wellness company announced on Oct. 15 that it had acquired Trigg Laboratories Inc., a Las Vegas company in the personal lubricant market.

It also announced it raised $18 million in a series B funding round led by Silas Capital and Strand Equity. The money brings the total funding to date in excess of $36 million.

The integration of Trigg Laboratories will be completed within the next 90 days, with a focus on harmonizing sales, marketing and manufacturing operations.

Trigg’s identity and brand will remain intact as Trigg Laboratories, continuing to deliver “high-quality products under the trusted Trigg name,” the release said.

Hunter Morris, the co-founder and chief executive of the company, said that the acquisition marks a significant milestone for Hello Cake as it continues to grow.

“Vertical integration gets us firmly to profitability,” Morris said in a statement. “We will continue to deliver high-quality products at the accessible price points that consumers look for today.”

Michael Trigg, founder of Trigg Laboratories, said that he was thrilled to be joining Hello Cake.

“This acquisition brings together our trusted Wet brand, first established in 1989, with Hello Cake’s fresh, modern approach to the market,” Trigg said in a statement. “We look forward to working with their team in this next chapter, empowering more individuals to explore their sexual wellness journeys.”

Hello Cake’s product line is available nationwide at Target, Walmart, CVS, Walgreens, Rite Aid and Amazon.com.

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