Indianapolis-based Celadon Group Inc. has overhauled its leadership team as it works through a raft of financial challenges that include a projected $10 million quarterly loss, increased lender scrutiny over its operations and a loss of confidence by its auditor in the company’s recent financial reports.
The trucking company’s president and chief operating officer, Eric Meek, has resigned “to pursue other interests,” the company said in a news release late Monday.
The board named Jonathan Russell, the former president of subsidiary Celadon Logistics Inc., as Meek’s replacement. Russell, 45, is the son of Celadon’s late founder and former chairman and CEO, Stephen Russell.
Celadon also named Douglas Schmidt as president of its Celadon Trucking subsidiary. Schmidt was previously president and chief operating officer at A&S Kinard, a company acquired by Celadon in 2014. Lauren Howard, who previously oversaw Celadon’s truckload operations, has resigned from the company, Celadon told IBJ last week.
The management changes were announced Monday as Celadon explained its $10 million loss for the quarter ending in March in part by saying that its "irregular route" operations were “significantly unprofitable.” A full earnings report will be released by May 15.
But the company acknowledged the report will not comply with Securities and Exchange Commission standards for quarterly reports because it will lack a review from the company’s auditor, BKD LLP.
Last week, BKD notified Celadon that it was withdrawing its reports on the trucking company’s financial statements for the periods ending June 30, Sept. 30 and Dec. 31 of 2016. In an April 25 letter to the chairman of Celadon’s audit committee, BKD said new information had come to light after it issued the reports, prompting it to ask Celadon’s management for explanations and supporting documents.
In the letter, included as part of an SEC filing Celadon made late Monday, BKD told the company it had been “unable to obtain sufficient appropriate audit evidence” to support its three previous reports on Celadon’s quarterly financial statements.
As a result, Celadon’s board decided on Monday that the company’s financial statements for the fiscal year ending June 30, 2016, and the two subsequent quarters “should not be relied upon,” the SEC filing said.
Celadon said the items questioned by BKD involve equipment that Celadon either sold to third parties or contributed to 19thCapital Group, a truck-leasing joint venture formed last year between Celadon and Element Transportation LLC.
“While management remains focused on running the business, I am confident the independent audit committee will proceed quickly and thoroughly to investigate the transactions and develop a plan for re-issuing the affected financial statements,” Celadon Chairman and CEO Paul Will said in a prepared statement.
The issue with its financial reports is triggering yet another challenge for Celadon.
The noncompliant financial reports constituted an act of default, according to Celadon’s primary credit agreement with lenders Wells Fargo Bank and Citizens Bank. As a result, the parties entered into a new agreement on Monday that waives the defaults but requires Celadon to comply with multiple operating restrictions and reporting requirements.
The deal means Celadon is prohibited from paying future stock dividends or executing stock buybacks. It must submit business plans and financial projections for the next three fiscal years as well as regular reports on various financial metrics. It also faces limits on its capital spending.
Celadon said it is facing liquidity issues that it’s taking steps to address.
By June 30, Celadon said it expects to close on a new $225 million credit facility with Bank of America that would refinance Celadon’s existing credit facility and “support the company’s ongoing working capital and general corporate needs.”
Additionally, Celadon said it is “reviewing multiple other alternatives to address its short and long-term liquidity needs,” including other financing transactions or sale transactions. The company said it has hired Stephens Inc. to help review Celadon’s corporate strategy.
Celadon plans to host a conference call with investors to address the financial issues Wednesday morning.
Celadon, founded in 1985, is one of the 10 largest truckload carriers in North America and has 4,000 employees worldwide. The company reported revenue of $1.1 billion in the fiscal year that ended in June 2016. That's up from $568 million in fiscal year 2011.
The company is building a $28 million corporate campus in the Mount Comfort area in Hancock County to replace its current location on a 40-acre site at East 33rd Street and Mitthoeffer Road in Indianapolis. The company said in January it planned to add 375 new jobs by 2024.
Shares of Celadon closed at $4 on Monday, up 5 cents from Friday’s closing price. In after-hours trading following Monday’s SEC filing, Celadon’s share price fell 31 percent, to $2.75.
Short-sellers—investors who profit when a stock falls rather than rises—have charged for months that Celadon's accounting was amiss.
Last month, a Celadon investor filed a lawsuit alleging the company is misleading shareholders about its financial status and covering up an SEC investigation into the company.