Accounting errors plague Roadrunner Transportation, earnings restatement coming

Roadrunner Transportation Services (RRTS), an asset-light conglomerate of logistics companies that collectively ranks as the 14th-largest less-than-truckload carrier in the nation with previously stated revenue in excess of $500 million, is caught in the middle of an accounting fiasco.

Essentially RRTS says it is being forced to restate its quarterly earnings reports back to 2014. RRTS stock has plummeted to $8 per share and several analysts have suspended coverage of the company.

Last November, Roadrunner says, it became aware of various potential accounting discrepancies at its Morgan Southern and Bruenger operating units. In response, Roadrunner’s Board of Directors immediately began investigating discrepancies with the assistance of Greenberg Traurig as outside counsel, and RubinBrown as forensic accountants.

“The investigation into these discrepancies is still ongoing” Roadrunner said in a statement. “However, based on the investigation to date, Roadrunner has identified various accounting errors that it currently estimates will require prior period adjustments to Roadrunner’s results of operations of between $20 million and $25 million.”

Roadrunner said these errors “principally” related to unrecorded expenses from unreconciled balance sheet accounts including cash, driver and other receivables, and line haul and other driver payables.

 “As the investigation is ongoing,” Roadrunner added, “the estimated amount is preliminary and could change materially.”

In addition, Roadrunner says it has begun to undertake “a significant effort” to determine if similar discrepancies and internal control deficiencies impacted other operating entities that were not part of the investigation.

“Therefore, there may be additional accounting adjustments as a result of these efforts and such adjustments may be material,” Roadrunner said.

In conjunction with the investigation, Roadrunner says it is “reassessing its internal controls over financial reporting and its compliance programs.”  This could affect earnings statements as far back as 2015, the company said.

Its 2015 annual report, prepared by Deloitte & Touche, “should no longer be relied upon,” Roadrunner said, adding: “Roadrunner is committed to maintaining an effective control environment and making changes needed to enhance effectiveness.”

Roadrunner intends to amend its previously filed Annual Report on Form 10-K for the year ended December 31, 2015 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016 “as soon as practicable.” It said it was not sure when it could provide an estimated date for filings at this time.

“We want our stockholders to know that providing confidence and transparency in our financial statements is of paramount importance, and we are doing everything possible to ensure that these errors do not occur in the future,” Roadrunner CEO Mark DiBlas said in a statement.

Roadrunner is a leading asset-light transportation and logistics service provider offering a comprehensive suite of global supply chain solutions, including truckload logistics, customized and expedited less-than-truckload, intermodal solutions, freight consolidation, inventory management, expedited services, air freight, international freight forwarding, customs brokerage and transportation management solution

In a hastily scheduled conference call with analysts intended to calm investors’ fears on Jan. 31, Roadrunner officials said that anticipated as much as $100 million in earnings before interest, taxes and debt this year. Some analysts scoffed at that projection, given the company’s lack of accuracy in the past.

“Those numbers are preliminary, and, in our view, subject to downward (not upward) revision once the investigation is concluded,” David Ross, veteran trucking analyst with Stifel Inc., said in a note to investors.

But Ross added he believes the banks want to believe the company's numbers, and expects its lenders will remain flexible this year and “give the company plenty of breathing room” to operate.

“We have seen this story or various similar plot lines before with different actors in different settings,” Ross noted, citing YRC’s flirtation with bankruptcy earlier this century under its previous CEO, Bill Zollars. “Management keeps revising guidance and missing, and the banks continue to believe it will get better, but ultimately the lenders just keep getting their lunch money stolen. The company is poorly managed, but the board is too weak to do anything about it. A roll-up doesn't understand its costs, has poor IT systems and financial controls, and has grown to include excessive layers where unnecessary.”