“I’ve always found some passion identifying areas of opportunity that people underappreciate,” Shupe told the Business Journal.

His first venture, San Clemente-based Stance, was created to expand an overlooked part of the apparel segment, socks. The company is now reported to do well over $100 million in sales.

Shupe left the brand in 2018 to enter the larger industry of textile manufacturing, a space where he believed he could make a more meaningful impact.

“I had been immersed in factories for the better part of a decade that were built to follow a low-cost, high-output investment model,” Shupe said of the shift to FutureStitch.

The executive recalled two different factory tours that were part of his motivation to create a new manufacturing business model designed to prioritize environmentally safe methods and high employee retention, while also making a profit.

“The vision is to own the entire product lifecycle—meaning we own the raw material production and finishing, we’re able to market then sell the product to the end consumer, and then recapture that product and turn it into something new,” Shupe said.

The first tour was at the cusp of starting Stance alongside co-founders Jeff Kearl, John Wilson, Ryan Kingman, and Aaron Hennings. Shupe visited a potential supplier’s factory that “was so dilapidated” with black mold and a falling ceiling.

During the second year at Stance, Shupe was able to see a Crocs manufacturing facility in China— “I had never seen a factory that was so clean,” he said.

FutureStitch’s 280,000 square-foot Shanghai facility opened in 2018 and is now said to be the most energy efficient knitting facility in the world by LEED standards. The company’s Oceanside facilities, which opened in 2022, span approximately 20,000 square feet with FutureStitch currently searching for a larger footprint.

The San Clemente-based company works with Stance, Lulu Lemon, Toms and most recently added New Balance.

Shupe was one of five honorees at the Business Journal’s Excellence in Entrepreneurship Awards, held March 20 at the Irvine Marriott.

Second Chances

Shupe was determined to challenge whatever perceptions existed at the forefront of the industry he was entering.

At FutureStitch, this went beyond the operations of manufacturing. Shupe wanted to put people before profit.

Shupe founded a program called Second Stitch where the manufacturer employs formerly incarcerated people.

“The problems of the prison system are the duration, the lack of skill building, and what happens after,” Shupe said.

There are currently 14 employees from Second Stitch at the Oceanside factory and Shupe aims to have 40 by the end of the year. He eventually wants to promote the employees beyond production roles and move them into other parts of the business.

“Giving someone a second chance is as important to me as the products I produce,” he said. “I saw an entrepreneur, not a criminal.”

Second Stitch has seen a 0% recidivism rate since its founding, meaning none of the employees have returned to the prison system.

“Everything I do has a correlated commercial benefit,” Shupe said. “I want business owners to understand that there is a method to enhancing your environment and culture that will increase productivity and profits as a result.”

Double Time

FutureStitch has a new area factory in the works.

The new facility would join the company’s existing Oceanside location, a factory in China and a joint venture operation in Turkey. The company secured a lease for a second building next door to the Oceanside factory last year.

Shupe said he was currently looking at properties and was close to securing a new location. The company is looking for a 12-acre site that would house not only the factory but a farm, housing, a school and more.

It would also provide more opportunities for the Second Stitch program and its participants.

Hyper localization is a future goal, Shupe said, with plans to have a factory within a few hundred miles of each market. He said he could even design factory models that could be franchise owned.

Another factory would also help in FutureStitch’s goal to double its business by 2026. The company made $50 million in sales last year.

Product Wise

Manufacturing new consumer offerings beyond socks, compression sleeves and knit shoe uppers are on the table as well, according to Shupe. His focus on circular knitting provides an opportunity to do so.

“If I could do one thing in my life on the product side, it would be to completely undermine, if not, destroy the sock market,” Shupe said of what the business could achieve in the future.

Using circular knit, he could “create footwear that is so comfortable, never requires socks and is seamless,” Shupe said. “That’s my whole thing—to create a new offering that’s convenient, ecologically friendly, helps lower costs overall and allows me to create jobs.”

He said that FutureStitch was partnering with MIT to operate two of its machines to set up a knit lab at the university to work on this innovation.

Shupe knew from the beginning that to build a business like FutureStitch, it was going to require trial and error. He said he was lucky enough in his last venture to fund the new company with a majority of his own capital, which went to the Oceanside building.

“I don’t ever want to give the impression that what I’ve done is super easy,” he said. “I want this to be a durable business that withstands time.”

The post Taylor Shupe: Making the First Stitch appeared first on Orange County Business Journal.

HomeQuest has been riding California’s wave of demand for new manufactured homes during a statewide housing shortage.

“Manufactured homes have remained a more affordable option than site-built tract homes throughout the country,” Shane Joffe, HomeQuest’s managing partner sales and marketing manager said in a statement, “but especially in the western U.S. where real estate and the cost of living are typically higher.”

HomeQuest said it plans to deliver manufactured homes to 40 vacant spaces in mobile home park Rancho Robles in Visalia and 50 spaces in Roadrunner Golf & Country Club, a community in Borrego Springs for residents 55 years of age and older. Homes in Borrego Springs were listed at $350,000 in January this year.

HomeQuest’s customers are able to afford varying price levels. They range from Section 8 housing participants to tiny-house and accessory dwelling units (ADU) buyers to seekers of coastal vacation homes. Their advertised listing prices range from $79,000 to over $700,000.

The company got its start in 1998, when founder Jim Joffe, Shane Joffe’s father, saw the opportunity in selling to residents of mobile home parks and recreational vehicle resorts. Shane Joffe has since taken over the business from his father.

Other family members in the business include Shane’s brother, Kyle Joffe, and Shane’s wife, Marina, who handles sales for the company.

The company is projecting manufactured home sales to grow another 25% to 50% by the end of 2024.

“As affordable housing continues to be top of mind with homebuyers, industry experts and the government, manufacturing housing sales will continue to increase exponentially,” Joffe said.

Among those are some of HomeQuest’s recent deliveries in mobile home parks in Hemet and Santa Margarita.

The post Joffe Family Rides Boom in Housing Demand appeared first on Orange County Business Journal.

About 225 employees of Glaukos Corp. (NYSE: GKOS) peer into microscopes, constructing daily hundreds of eye stent devices that are smaller than the dot in this “j.”

“We make micro-scale implants for the treatment of glaucoma,” Matt Young, senior vice president of Global Operations, told the Business Journal during a tour of the facilities.

“We’ve been told it’s the smallest device ever approved by the FDA.”

Microscopic in size, the company’s products, dubbed the iStent, are often used in conjunction with cataract surgery for the reduction of intraocular pressure.

While small in size, the success of its product is emblematic of big developments for the growth of Aliso Viejo-based Glaukos, whose market value is approaching $5 billion, making it the most valuable public company in Orange County’s expansive ophthalmology industry, a sector that includes scores of device makers, drug companies and artificial lens manufacturers with operations here.

Glaukos’ shares are up nearly 100% from year-ago levels, and not too far off their all-time high.

There’s room for more growth, according to analysts.

“Our checks indicate commercial iDose procedures began as recently as last week and—despite strong recent outperformance by the stock—we argue further upside in GKOS shares exists from current levels,” Stifel analyst Thomas Stephan wrote in a February note to investors, boosting his target price to $110 with a buy rating.

Glaukos ranks No. 13 on this week’s Business Journal list of OC’s largest medical device makers, by local employee count (see list, page 18).

About 454 of its 949 employees work at its facilities in Orange County.

MIGS Pioneer

Founded in 1998, Glaukos pioneered the now well-established microinvasive glaucoma surgery (MIGS) marketplace.

Tom Burns, its chief executive since 2002, was, in the 1990s, general manager of Chiron Vision Corp., founded by the well-known local ophthalmology investor Bill Link. After joining Glaukos as a director in 2001, Link served 20 years before retiring as its chairman in 2021 and was replaced by Burns.

Trials on the iStent began in 2005 and it won Food and Drug Administration approval in 2011, followed by a smaller iStent in 2017.

“The analogy would be cardiovascular stenting but for the eye,” Young said. “These are placed in the trabecular meshwork, and they open that meshwork to get fluid flowing through the eye and that helps to reduce pressure, which is what glaucoma is.

“We do our best to minimize footprint of the product and placement in the eye.”

Medication Delivery

About 15 years ago, Burns asked his scientists if they could invent a device like iStent, to deliver medication.

About 80 million patients worldwide suffer from glaucoma, with 5 million having lost their vision. Research shows 90% of patients are non-compliant with topical medication use and 50% purposely discontinue their medication within six months. Worse, only about 7% of eyedrops can reach the affected area.

“There’s a high rate of non-compliance—it’s a complex dosage,” Glaukos Chief Development Officer Tomas Navratil told the Business Journal earlier this year.

“These topical eyedrops have host of disadvantages.”

In 2012, Glaukos began a decade of clinical trials on what it now calls iDose TR, an ocular implant designed to treat open-angle glaucoma and ocular hypertension.

Doctors implant the iDose, which is made from medical-grade titanium and is about half-a-millimeter wide and 1.8 millimeters long. Once implanted, 75 micrograms of a proprietary formulation called travoprost continuously elutes into the anterior chamber via membrane-controlled diffusion.

Travoprost is 25,000 times more concentrated than a typical glaucoma medication.

Hence, instead of a typical thousands of eyedrops administered per eye over a several-year period, a patient only needs to receive “one administration” of iDose with its formula that is secreted into the affected area 24/7 for up to three years.

Glaukos estimates the potential U.S. market is 1 million eyes.

A big moment occurred on Dec. 14 when the FDA approved iDose TR. Shares jumped 25% that day.

“The FDA approval of iDose TR represents a significant milestone for Glaukos following an extensive pioneering journey since the inception of the original idea nearly 15 years ago,” Burns said in a statement.

“We believe iDose TR can be a transformative, novel technology able to fundamentally improve the treatment paradigm for patients with open-angle glaucoma or ocular hypertension.”

Glaukos on Feb. 21 reaffirmed its 2024 forecast that revenue will rise 13% to 17% to $350 million to $360 million. It has a compounded annual growth rate topping 30% in the past decade. It plans to release first quarter results on May 1.

Expanding Facilities

Since 2018, Glaukos Corp. (NYSE: GKOS) has spent more than $600 million on research and development on iDose TR and other innovations, representing more than 30% of its revenue.

Altogether, it has built out 134,000 square feet for iDose TR manufacturing. Part of that was a new, 64,000-square-feet building at its San Clemente complex, which totals about 210,000 square feet.

Glaukos has another 160,000 square feet at its Aliso Viejo headquarters campus, where it moved to in 2022.

Matt Young, senior vice president of Global Operations, who has worked in medical devices his entire career, including at Irvine-based Edwards Lifesciences Corp., showed the Business Journal a two-minute video that condensed a yearlong construction process that was completed last year.

The buildings contain ISO Class 7 and Class 8 clean rooms, which are a couple steps below the Class 5 used to make semiconductors.

The new building, which has massive air conditioning units, has several measures to keep it clean such as air-lock pass boxes to ship finished products out the door. One passageway has an airlock where passersby wait until large sliding doors are open to maintain a consistent air pressure; employees have nicknamed it the “Star Trek doors.”

Many employees take off their street clothes to wear clean scrubs. They often spend hours looking at microscopes and have machines that can weigh travoprost drops that last up to three years in an eye. Much of the machinery was designed in-house.

The company is gearing up for iDose shipments by training surgeons in the first half this year, receiving procurement codes and accelerating its marketing to be at full speed by the end of this year. It’s also developing 14 products to treat areas like dry eye, keratoconus and presbyopia.

The San Clemente facility plans to hire another 30 employes in the coming year.

“There’s a lot going on,” Young said.

The post Glaukos’ Tiny Medical Devices Fuel Expansion for Ophthalmology appeared first on Orange County Business Journal.

The maker of cleaning products, better known as ECOS, has seen annual revenue sky rocket over the past decade, by focusing its efforts on creating environmentally friendly products with plant-powered formulas, while also emphasizing sustainable production design and manufacturing methods.

The ECOS line of over 200 products-including dish soap, window cleaners and furniture polish-are carried in more than 81,000 stores in 60 countries through major retailers including Walmart, Whole Foods, Target, Costco and supermarket chains such as Vons, Ralphs and Anaheim-based Northgate Market.

Approximately 15% of business for the Cypress-based firm-one of the largest women-led, and family-owned companies in Orange County-involves private label contracts.

“We’re aiming to create consumers that demand green cleaning products,” Chief Executive

Kelly Vlahakis-Hanks told the Business Journal.

The efforts are paying off, officials said.

“ECOS has experienced robust growth throughout its history, including 55% growth in the last four years,” Vlahakis-Hanks said.

The family-owned maker of cleaning products has used safe, non-toxic ingredients since being founded by Van Vlahakis in 1967. His daughter took over as CEO following his death in 2014.

Innovation Focus

With others in the cleaning industry now putting more emphasis on their own eco-friendly efforts, innovation is being emphasized by ECOS to keep its brand ahead of the curve.

Those efforts are directed toward new products, as well as in its efforts to reduce the company’s environmental footprints in carbon, water and energy.

Much of the company’s latest initiatives are headed by Chief Innovation Officer Jenna Arkin, who has worked for ECOS since 2010 and moved into her current role in late 2021.

New items in the pipeline for 2024 include laundry packs, foaming dish soap and a plastic free version of the company’s well-known stain remover, OXO-Brite. Also, a new line of dishwasher packs is planned for 2025.

Laundry Sheets

ECOS has long emphasized green practices in both its products and its own operations. The firm has achieved carbon neutrality and zero waste at each of its renewable energy-powered facilities, it said. This means ECOS actively reduces carbon dioxide-related emissions and recycles over 99% of its manufacturing and office waste.

Internal efforts have focused on expanding its selection of low-carbon products, meaning the manufacturer is working to eliminate water, size and plastic in its products to reduce the overall carbon footprint.

The first ECOS product to come from this initiative is the company’s laundry detergent sheets, a plastic-free alternative that was initially released in 2020.

For the laundry sheets, Arkin removed plastic by taking water out of the equation and dehydrating the detergent.

“The idea here is with the liquidless product, we can now package it in cardboard, making the packaging entirely plastic free,” Arkin said.

Material Reduction

To achieve a low carbon output in any new product, Arkin uses a few different techniques in the design, such as material reduction and compaction.

A manufacturer can use less materials to shrink the size of the product or it can use a material that can be tightly packed, which fits more product on a delivery truck and takes fuel off the road.

ECOS officials said the firm already practices process emission reduction because their factories run on 100% renewable energy. Arkin also points to material circularity, which means the product must be recyclable and reusable. This also helps in waste reduction.

“It is not just about recovering something and reusing it because that’s a good thing to do,” Arkin said.

“If you keep materials in motion, that’s better for business. “Everything we’re working on in our innovation portfolio has to do with material reduction,” she said. “All of these products are designed to take plastic out, to have more utility per ounce.”

Concentrated Detergent

Another example of the company’s new efforts can be seen in new packaging: ECOS is delivering laundry detergent in an aluminum container for the first time. It will begin sales on Amazon next month.

“It’s super concentrated,” Arkin said.

“Our classic [detergent] is already one of the most concentrated detergents on market, one ounce to one load, and one bottle is 225 loads. This product is five times more concentrated than [the liquid].”

Aluminum containers also achieve positive material circularity since there’s no degradation to the packing material when it’s recycled.

Water Treatment

ECOS has won several certifications from eco-conscious organizations that check and confirm the company is meeting certain criteria across its entire operation, which includes

its four manufacturing facilities in Cypress, Washington, Illinois and New Jersey. A fifth operation in Greece serves its international market.

“It’s important that someone else is also checking the process,” Vlahakis-Hanks said of the certifications.

A newer process the company is testing includes adding a water treatment system to its factories to start recycling wastewater back into the building. The treatment is currently being tried out at an ECOS facility in Washington.

If the system recycles the facility’s wastewater efficiently, ECOS will introduce the system to the rest of its buildings.

“We take an investment point of view,” Vlahakis-Hanks said. “We’re willing to test things out.”

The post New Shades of Green for ECOS appeared first on Orange County Business Journal.

He grew with the company, quickly rising through the ranks from designer to project architect within his first year.

Armstrong led an office in San Fernando Valley before he and his partner Jim Williams were offered the chance to buy and take over the company in 1992 from founders Bill Ware and Bill Malcomb.

“We worked together to form our vision for the company and see what we can do with it,” Armstrong, who goes by Larry, told the Business Journal.

Ware Malcomb has since become one of Orange County’s largest architectural firms, with nearly 800 employees spanning 28 offices across the U.S., Mexico and Canada.

Last year, the international firm made $73.4 million locally in annual revenue and $209 million companywide.

The Business Journal honored Armstrong, who now serves as chairman of the company, on March 20 with an Excellence in Entrepreneurship Award for his leadership at Ware Malcomb. The event was held at the Irvine Marriott with a crowd of more than 300 people.

Ohio Roots

Armstrong is an Ohio native and grew up in a town called Painesville, near Cleveland.

He met his wife, Sandra, while in high school and the two attended Kent State University.
Armstrong, who knew he wanted to be an architect ever since his youth, received two degrees in architecture and spent a semester studying abroad in Florence, Italy.

Armstrong is still involved with his alma mater and has served on the school’s foundation board for the last 15 years.

He and his wife are co-chairs of a $350 million campaign originally launched in 2021 that will help fund scholarships and new student programs.

The campaign has already surpassed its goal, having raised more than $370 million, and will end this June, according to Armstrong.

Creative Leader

Armstrong has been an artist his whole life, but only started to publicly display his work in the last 14 years.

He said that being an artist has helped him think more creatively about growing a business.

“As an artist, you’re unrestrained,” Armstrong said.

“In architecture, you’re creative, but you’re restrained by client wishes, building codes, budgets and all kinds of things.”

One of the first things he did as chief executive was diversify the business, to make it less vulnerable to the economic ups and downs of the commercial real estate market.

Over the years, the company diversified into multiple industries including interior design, healthcare and civil engineering.

Ware Malcomb hit a peak in 2022 when it counted over 1,000 employees and has since “scaled back a bit because of the economy,” Armstrong said.

“We’re still very strong and look forward to growing again soon,” Armstrong said.

Multifaceted Life

Armstrong enjoys living a multifaceted life.

He stepped down as CEO in 2020 in part to pursue other interests.

Nowadays, Armstrong keeps himself busy with philanthropy and other creative projects.

Armstrong is currently vice chair of local nonprofit Orange County United Way and will be chairman next term.

He became involved in the group after witnessing the increasing number of tents and makeshift shelters in Orange County coming out of the Great Recession in the late 2000s.

He met with executives at Orange County United Way, the start of a partnership that led to the formation of the United to End Homelessness initiative in 2018 with Armstrong as chairman.

The initiative, which seeks to provide long-term housing and supportive care, partners with local property owners and landlords to secure housing for people experiencing homelessness with housing vouchers.

More than 1,000 individuals have been housed through its landlord incentive program in the last five years, according to Armstrong.

“We’ve come up with a lot of innovative ways to break down barriers and get people housed faster,” Armstrong said.

Armstrong has also been working on a book titled “Layered Leadership” that’s set to be published early next year.

The book centers around the strategies and concepts that helped Armstrong build a business, as well as some of his biggest influences, such as General Electric CEO Jack Welch and the book “Freakonomics.”

“At this phase of my life, I love being involved in all these different things,” he said. n

Renaissance Approach

When Lawrence Armstrong isn’t working at Ware Malcomb, he can often be found painting in his art studio at home.

Armstrong describes his art style as “modern, abstract and colorful in nature,” influenced by artists Jackson Pollock and Frank Stella to name a few.

His art has taken him around the world, having exhibited in different galleries in Florence, Madrid and in Orange County, where he resides.

Armstrong said he has a “renaissance approach to life” with his background as an artist, architect and chairman of the Irvine-based international architectural firm.

“I have noticed that the many passions in my life similarly manifest through me,” Armstrong said on the website for his art.

As for upcoming projects, Armstrong was recently commissioned by his alma mater Kent State University in Ohio to contribute a sculpture to a sculpture park on campus.

The post Lawrence Armstrong: Designing an Architecture Powerhouse appeared first on Orange County Business Journal.

Inari, among the area’s faster-growing public companies since going public in 2020, recently announced plans to invest a minimum of $15 million in a new manufacturing facility in Grecia, Costa Rica.

The company recently signed a lease agreement for a roughly 70,000-square-foot development in that city’s Evolution Free Zone, a high-tech business park that is roughly an hour’s drive from San José, Costa Rica’s capital.

The lease agreement, which allows for two sizeable phases of expansion beyond the first building, also comes with an option to buy the manufacturing and distribution facility, according to regulatory filings.

Inari expects to initially hire 300, and ultimately 600 people, at the new location and its future phases, which are scheduled to open sometime next year, according to a statement.

It counted 630 workers at its Irvine headquarters as of last year, according to Business Journal data.

The investment will help Inari meet “growing global demand” for the company’s tools which treat venous thromboembolism and other vascular diseases, Medial Operations Senior Vice President Paul Koehn said in a statement.

The building would mark Inari’s largest facility outside OC, regulatory filings indicate.
Its Spectrum-area headquarters, which it moved into a few years ago, runs 130,000 square feet.

The Costa Rica facility “will exponentially increase [Inari’s] production capacity and will add to the company’s existing manufacturing facilities in Irvine,” local officials said at the time the deal was struck.

“It’s a great place for us to make a second home,” Inari officials said when the deal was announced.

Top Export

Inari’s upcoming facility will join the operations of other local medtech companies in Costa Rica, including Edwards Lifesciences Corp., MicroVention Inc. and Johnson & Johnson MedTech, that opened in the last 10 years.

Inari’s announcement comes less than a year after J&J Medtech, one of the world’s largest medical device manufacturers, and with a sizeable campus in Irvine, revealed its own plans to build a 200,000-square-foot facility in Alajuela, Costa Rica.

Construction has already begun on the production plant, which is expected to add 3,000 jobs in the region over the next three to five years, the company said.

Once completed, the facility will manufacture products with an emphasis on heart rhythm solutions and orthopedics.

J&J MedTech—which has its headquarters in New Jersey, but counts over 2,000 employees at its campus in Irvine—said it has had commercial operations in Costa Rica for more than 40 years.

“Our company has benefited enormously from the country’s local talent that has specialized experience in our industry,” Gustavo Galá, J&J MedTech Latin America international vice president, said in a statement.

In 2017, medical devices surpassed agricultural products as Costa Rica’s top export for the first time in the country’s history.

The U.S. is Costa Rica’s top trading partner with medical devices accounting for more than $293 million in two-way trade, according to the International Trade Administration.

Costa Rica’s proximity to the U.S., Canada and Europe has made it a prime nearshoring destination for medical device companies including locally headquartered Edwards Lifesciences and MicroVention.

Edwards, best known for its heart valve products, six years ago expanded its presence in Costa Rica with a $100 million investment in a 274,000-square-foot facility in La Lima Industrial Park in Cartago.

Edwards (NYSE: EW) is the largest medical device maker in Orange County, as well as the second largest public company, with a market cap of $56 billion and annual revenue of $6 billion for 2023, a 12% increase from the year prior.

Aliso Viejo-based MicroVention counts three manufacturing plants in Costa Rica dedicated to making medical devices for cerebral aneurysms and other neurovascular diseases.

In 2013, it opened its first location outside of the U.S. in San José, Costa Rica. The company said it hired about 150 employees for the 80,000-square-foot facility, which was then expanded to 150,000 square feet in 2018.

MicroVention is a U.S. subsidiary of Tokyo-based Terumo Corp., which counts about $6 billion in annual revenue and operations in more than 160 countries.

The company’s OC operations, including its base in Aliso Viejo, are reported to total about 1,200 workers.

ClotTriever

Inari last month posted positive two-year interim results for its ClotTriever system that was designed to capture and remove large blood clots from veins.

The 228 patients in the study showed “significant and sustained improvement” in post-thrombotic syndrome after using ClotTriever.

Inari said it is currently enrolling patients for another trial which will compare outcomes after using ClotTriever versus blood thinners.

“We are committed to generating best-in-class clinical data,” Chief Medical Officer Thomas Tu said in a statement.

Inari closed its acquisition of Paris-based LimFlow SA the same month it announced plans to expand into Costa Rica.

The company agreed to pay as much as $415 million for LimFlow, a maker of products used to reduce amputation in patients with chronic limb-threatening ischemia. It’s Inari’s largest-ever acquisition.

LimFlow’s products are currently made by third-party contract manufacturers in Germany and Costa Rica, according to Inari’s latest annual report.

Inari in February reported $132.1 million for fourth-quarter revenue, up 23% from the year before.

The company said the revenue growth was mainly driven by increased adoption of its procedures, new products and global commercial expansion.

“Our solid fourth-quarter performance was driven by strong underlying procedural growth and crisp execution across our three growth pillars led by our core VTE business, with meaningful contributions from emerging therapies and international geographies,” Inari’s Chief Executive Drew Hykes said in a conference call.

Inari counted a $2.5 billion market cap at press time; its shares have more than doubled since its 2020 IPO.

The post Device Makers Eye Expansion in Costa Rica appeared first on Orange County Business Journal.

Also in play: the potential removal of Joe Kiani as chairman of the company he co-founded in 1989, according to analysts that follow the Irvine-based company, which is being targeted by an activist investor well known on Wall Street.

Kiani tells the Business Journal that he isn’t fazed by the latest corporate battle.

“I’d be happy to continue doing what I’m doing,” he said. But, “if they want to vote me out, they can vote me out.”

Masimo, OC’s fifth-most valuable public company with a valuation topping $7 billion on March 22 announced plans to spin off its consumer business.

Kiani, Masimo’s chief executive and chairman, would retain his current positions at Masimo post-spinoff, and, according to the company’s current plans, would become chairman of the new stand-alone company. A new CEO would be named for that business.

The deal could be completed in as soon as one year, according to the company.

Spinoff

Kiani said he first proposed a separation of the consumer business to Masimo’s board in January.

“This approach is expected to maximize shareholder value as well as give both Masimo healthcare and the new consumer business the best path for success,” Kiani said in a statement.

Masimo expects the spinoff to include its consumer audio and consumer health products, including the Stork baby monitor, Freedom smartwatch and hearing aids the company is currently working on.

Kiani said Masimo, post-spinoff, will continue to make products for hospitals and doctor offices, long its main source of business, and a more profitable business than the consumer division of late.

“There’s a lot of things for us to do,” Kiani said.

Shares in the company, which sported a $7.8 billion market cap as of March 29, rose 4% following news of the spinoff.

Koffey’s Kick

The move to separate the consumer business comes about two years after Masimo paid $1 billion—its largest-ever acquisition—to Carlsbad’s Sound United, a consumer company best known for making audio speakers and headphones under brands like Boston Acoustics, Polk and Bowers & Wilkins.

That acquisition wasn’t well received by investors, which sent Masimo’s shares tumbling; the company’s market value fell $5.2 billion in one day.

The fallout from the stock tumble caught the attention of Quentin Koffey, founder and chief investment officer of activist investor Politan Capital Management, who quickly amassed a nearly 9% stake in Masimo, roughly the same as Kiani’s stake in the business.

Politan last year won a proxy battle that resulted in Koffey and former Johnson & Johnson exec Michelle Brennan joining Masimo’s board of directors.

Since then, “Kiani refused to give us basic information, denied us access to management, repeatedly held board meetings excluding us, and refused to even consider allowing any review of capital allocation or strategy,” Politan said in a March 25 statement.

“[Koffey] may be a great activist, but unfortunately, he doesn’t know how to run a company,” Kiani told the Business Journal.

Last week, the activist upped its pressure against Masimo, announcing that it’s seeking two more board seats, just two days after Masimo announced the separation proposal. Politan says it supports a potential sale of the consumer business.

Politan’s two candidates are former Agilent Chief Technology Officer Darlene Solomon and former Stryker and Dentsply Chief Financial Officer William Jellison.

Assuming Koffey wins the battle, the activist would gain majority control and potentially “result in the removal of CEO Kiani from the board,” according to Piper Sandler analysts Jason Bednar and Joseph Downing.

“From our perspective, the situation at MASI is playing out largely as we and many others expected, even if the sequencing of events is a bit different than we anticipated and adds a bit of drama to the story,” the analysts said in a March 25 report.

Kiani, who started the company in his garage in 1989, said he is focused on doing what’s best to help Masimo and hopes to get help from shareholders during this time.

Apple Watches

The activist proxy battle is not the only dispute Masimo is involved in.

Masimo has been locked in an ongoing legal battle with Apple Inc. (Nasdaq: APPL), the world’s second-most valuable publicly traded company with a $2.7 trillion market cap, for over three years.

Masimo in 2021 first sued Apple for infringing on its pulse oximetry technology for smartwatches, initially resulting in the U.S. International Trade Commission ruling in favor of Masimo.

In a recent update, an appeals court in January upheld a ban on the importation of Apple’s Series 9 and Ultra 2 watch models in the U.S., marking a significant victory for Masimo.
Apple, which has redesigned some watch models to adhere to the ruling, is appealing the ITC decision.

A related trade theft case retrial in federal court is also on the docket, in Santa Ana.

The post Masimo Plans Spinoff Of Consumer Business appeared first on Orange County Business Journal.

“Everyone loves air conditioning,” Wyckoff told the Business Journal. “The industry is very exciting and big.”

Wyckoff takes over a company that’s approaching a billion dollars in annual sales, having employed a roll-up strategy to grow to more than 3,200 employees who work at 26 companies, including the brand name CoolSys.

The company’s customers are primarily in the supermarkets, retail, restaurants, commercial and industrial markets.

Last year, it acquired companies in Georgia, Pennsylvania and Texas and now services more than 45,000 customer locations for some of the nation’s most prominent companies like Chipotle, Starbucks, Walmart and Costco.

“Given his significant experience successfully scaling services-oriented businesses and focus on creating a positive employee culture, we believe Rich is well-suited to lead the CoolSys team in executing its strategic plan,” Chairman Rick Frier, who served as interim CEO and president for the past year, said in a statement.

“I am confident that Rich will continue to build on the company’s recent organic and in-organic growth.”

Name Change

In 2016, Boston-based private equity firm Audax Private Equity bought Anaheim-based Source Refrigeration & HVAC Inc. when it had about $240 million in annual sales and 1,200 employees.

Audax hired Adam Coffey as CEO and he later renamed the company as CoolSys and moved its headquarters to Brea. Coffey engineered the roll-up strategy that resulted in 11 acquisitions alone from 2019 to 2021.

In 2020, Coffey told the Business Journal that annual sales were at a $500 million run rate and he was aiming for $1 billion.

In 2019, Audax sold CoolSys to Ares Management Corp. in Los Angeles for an undisclosed price that left management “smiling,” Coffey said.

Burton Hong, CoolSys’ general counsel, in 2020 was named one of five winners at the Business Journal’s General Counsel Awards in the category of private company.

Coffey left the company in late 2021 and was succeeded by Anesa Chaibi, who previously served as CEO of HD Supply Facilities Maintenance. She left in 2023 for undisclosed reasons and was replaced on an interim basis by Frier while the company searched for a replacement.

“I’m looking at this as a long-term opportunity,” Wyckoff said about being the fourth CEO in three years. “This was a significant opportunity for me to be a part of a good company and make it a great company.

Ice Experience

Wyckoff has more than 30 years of experience leading large-scale service businesses. Most recently, he served as interim CEO of Pritchard Industries, a provider of facility services, where he remains chairman of the board of directors.

From 2019 to 2023, he was CEO of Arctic Glacier, a provider of ice products and related services. While at Arctic Glacier, Wyckoff and his team returned the business to meaningful growth and more than doubled EBITDA, CoolSys said in the announcement about Wyckoff’s hiring.

Prior to Arctic Glacier, Wyckoff served as CEO of U.S. Security Associates, an international security services provider that was sold to Irvine-based Allied Universal, the world’s largest provider of private security services.

While he intends to continue living in his hometown in Wayne, Pa., Wyckoff said the company will “100%” retain its headquarters in Brea.

Moody’s Report

CoolSys’ organic growth is “in the low-single digits,” more than 50% of its revenue comes from recurring maintenance service contracts, and it has a 98% retention rate with key customers, according to Moody’s Investors Service.

CoolSys’ broad geographic reach and status as a “one-stop shop” is a competitive advantage over smaller local or regional players, attracting large national or super-regional customers, Moody’s said.

The ratings agency has questioned the amount of leverage used in CoolSys’ roll-up strategy. Moody’s in 2020 projected CoolSys would reduce its debt-to-EBITDA leverage from about 6 to around 5.6 by the end of 2020. However, in its most recent report, Moody’s said the ratio was around 6.6 as of a year ago.

“The aggressive debt-funded acquisition strategy will further pressure free cash flow generation, weighing on the company’s credit profile,” Moody’s said.

Last July, Moody’s Investors Service reaffirmed its B3 rating with a stable outlook. B3 is considered high-yield debt, six grades below investment grade. The company has a $360 million senior secured first lien term loan due 2028 and an $80 million senior secured first lien delayed draw term loan.

Wyckoff said the company and parent Ares Management are “very comfortable” with CoolSys’ capital structure and access to capital.

More Buys

The new CoolSys CEO sees opportunities to make additional acquisitions.

“The industry is still highly fragmented,” Wyckoff said. “Our customer base is consolidating as well.

On the client side, small independent grocery stores are being absorbed into regional chains that are being bought by national players. So are supply chains. A lot of service providers are under pressure. CoolSys has an opportunity to acquire these businesses and bring them onto our platform.”

Wyckoff doesn’t like the roll-up industry’s mantra of “do no harm” when making acquisitions, saying that philosophy doesn’t add value.

“We need a valuation plan where one plus one equals three or four,” Wyckoff said.

He sees opportunities such as new EPA regulations forcing companies to update their air conditioning and heating systems. CoolSys has the capability to take away or repurpose old systems as well as install new ones.

“As those regulations roll through manufacturers, there will be a significant replacement of assets to be more green and environmentally compliant,” Wyckoff said.

“We have the entire life cycle covered. It’s a great industry, a great company and a great time.”

Next Steps

Former CEO Coffey previously told the Business Journal that he aimed by 2023 for another sale to a large private equity or an initial public offering.

Wycoff said there aren’t any immediate plans for an IPO, although it’s a possibility.

“The market will tell us. This is an industry with tremendous headroom. There is a significant runway.

“We’re a company that’s growing and always looking for great talent. Winners who want to be on a winning team, contact us. We’re hiring.”

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The manufacturer, one of the largest makers of musical instruments in the world, is set to release 99 new instruments and audio equipment items this year.

It’s the largest number of new product rollouts for Buena Park-based Yamaha, which employs about 350 people locally, since 2019. In total, the company, founded in 1960, counts over 4,000 SKUs.

The amped-up release plans come amid a growing number of live events post-pandemic, as well as greater investments in music education, officials say.

“We’re back to releasing a lot of new products, which helps drive our industry,” President Tom Sumner told the Business Journal.

Once the world began to reopen, “it seemed like every musician was touring,” Sumner said.

The return of concerts and live shows marked “a 180-degree shift for the industry after these categories struggled during COVID,” the National Association of Music Merchants (NAMM) reported in a recent report.

A Tactile Business 

Every year, Yamaha attends the annual NAMM show in Anaheim, put on by the music merchants’ organization to highlight new products and connect with its 2,000 dealers and retailers in person.

Yamaha products range from a $150 acoustic guitar to a $150,000 grand piano and a $200,000 sound system.

“It’s kind of hard to take a piano into a music store in the middle of nowhere to let them try it,” Sumner said.

The manufacturer, for the third year, took over a whole wing on the third floor of the Anaheim Convention Center in January to showcase the new products for attendees to try.

New releases included a brand-new line of electric guitars called Pacifica, which the company designed using 3D modeling technology. The company also debuted the newest model of its digital mixing console DM7 at the show.

“Music is a really tactile business meaning you have to put your hands on it,” Sumner said.

“This is just about the only meeting place left for the musical products industry.”

The two biggest categories for Yamaha by dollar volume currently are guitars and live sound, according to the executive.

For the fiscal 2023 year, the North America region made up 25% of the parent organization’s revenue. Yamaha’s U.S. and Canada segments are the largest contributors to annual sales—the parent reported North American sales of $855 million, up almost 30% from the prior year.

The music products industry is valued at $19.5 billion, according to NAMM.

Campus Changes 

This year, Yamaha will begin a renovation of its longtime headquarters on Orangethorpe Avenue, just north of the Artesia (91) Freeway and about 2 miles from Knott’s Berry Farm.

One of the two buildings at the campus has been demolished to make way for new office space. The new headquarters facility will total 75,620 square feet when complete.

“It’s important to have a nice campus for people to come together, work and collaborate,” Sumner said.

The manufacturer chose to set up shop in Orange County to benefit from the surrounding airports for traveling between California and the parent company in Japan, according to Sumner.

The executive also pointed to the talent pool of the region made up of a “very well-educated workforce.”

“One of the key things for growth is getting good people and [those] who are passionate about being in the music industry,” he said.

“We are very committed to Orange County.”

Education Trends

Sumner, who has run Yamaha’s U.S. division since 2018, noted that despite a shortage of both personnel to run sound and play in the touring bands, the demand for live music has remained strong.

The top two highest-grossing tours of 2022, Bad Bunny and Elton John, both used Yamaha consoles during their run, according to officials.

Multiple sporting venues, including schools and houses of worship, chose to upgrade their sound systems to match the increase in consumers’ expectation of quality in live entertainment, Sumner said.

“It is no surprise people’s desire to gather again is stronger than the economic challenges,” NAMM President John Mlynczak said.

Expectations also have increased on the broadcasting and livestreaming side of gatherings, which helped drive further demand for Yamaha audio products, Corporate Vice President of Sales Garth Gilman said.

Yamaha has been benefiting from a boost in music education, as socializing and financial support ramped back up (see story, this page).

“More schools brought the music programs in, and more students wanted to participate,” Sumner said.

The government “unleashed” funding, Sumner said, with schools aiming to develop or expand existing music programs.

“It is such a broad range of customers that we work with, but the common thread that we see through all of it is the musical experience,” Gilman said.

Future Music Makers 

Yamaha Corp. of America President Tom Sumner says that music education is one of the founding tenets of the Buena Park company.

“When a kid takes up an instrument and they dedicate themselves, all of a sudden they’re part of a community,” Sumner told the Business Journal.

The company currently has 42 music programs set up at schools and dealers in 16 states, with a majority in California. Worldwide, Yamaha reported that 7 million students have attended programs in the U.S., Japan, Europe and elsewhere.

Yamaha is regularly involved with the Orange County School of the Arts in Santa Ana along with hundreds of schools across the country.

Yamaha’s goal is to develop more music makers. Its consumer base ranges from 3-year-olds taking singing classes at a Yamaha school program to the professional performing on a world tour.

Corporate Vice President of Sales Garth Gilman cited an alignment between the National Association of Music Merchants (NAMM) Foundation and Yamaha as a reason for the manufacturer’s involvement with the show every year.

“If we can, as both a manufacturer and a NAMM member, [develop] the new music makers by advocating for music more and talking about the advantages it brings, they become a driver for the industry,” Gilman said.

The Prince Piano

Yamaha Corp. of America decided to add a piece of musical history to the 2024 NAMM show in Anaheim earlier this year.

The local manufacturer collaborated with Prince’s estate in Minnesota, Paisley Park, to showcase a custom-colored purple grand piano that was commissioned for a concert series he was working on in 2016.

Paisley agreed to let the piano—which Prince only performed with once at a private event before his death—visit the music convention to kick off the 40th anniversary of his album and movie “Purple Rain.”

“This is the perfect opportunity for lovers of music and entertainment to get up close and personal with such a historical artifact,” Charles Spicer Jr., partner and legacy preservationist of the Prince Estate, told the Business Journal.

Spicer said that while Prince was best known for his guitar playing, the piano was actually his first instrument. The Yamaha team worked quickly to paint and tune the piano to how Prince requested, working off a swatch from a specific purple couch the artist had chosen.

This is the first time the piano has been outside Paisley Park, which typically sees 500 people per day during the summer months.

Only VIP visitors typically view the piano at the museum. Displaying it at NAMM allowed around 60,000 people to see it for the very first time.

“All of it comes about 360 [degrees] for us, from the process of building it to how much he loved it and how connected he was to it,” said Chris Gero, who was one of the few people at Yamaha to work on the secret project.

“It’s probably one of the most valuable instruments on the planet right now,” Gero said.

“It’s our job to protect it, and we did this with great intent and reverence.

“We’re going to turn the world purple all over again,” Spicer said. “Having it displayed here is the start.”

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L Squared started the consolidation with the acquisition of ERA Industries of Elk Grove Village, Ill. followed by the acquisitions of Gen-El-Mec of Oxford, Conn., and i3DMFG of Redmond, Ore.

BTX launches as an integrated family of customer-centric, precision manufacturing organizations with a nationwide footprint spanning more than 175,000 square feet of state-of-the-art equipment and engineering, L Squared said in a statement released today.

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