Business context and reporting period
Avalon Holdings Corporation filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2012. Its reportable segments are waste management services and golf and related operations. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and condition
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net operating revenues | $12.609 | $11.375 | $23.547 | $21.269 |
| Operating income (loss) | $0.226 | $(0.086) | $(0.223) | $(0.478) |
| Net income (loss) | $0.274 | $0.077 | $(0.119) | $(0.263) |
| Basic and diluted EPS | $0.07 | $0.02 | $(0.03) | $(0.07) |
- Revenue grew about 11% in both the quarter and first half. Net margin was approximately 2.2% in Q2 2012 versus 0.7% in Q2 2011; first-half net margin was approximately (0.5)% versus (1.2)%. Operating margin improved to about 1.8% in Q2 from (0.8)%; first-half operating loss narrowed to $0.223 million.
- Q2 revenue by segment: waste management $9.1 million versus $8.4 million; golf and related operations $3.5 million versus $3.0 million. First-half segment revenue was $18.1 million and $5.5 million, respectively.
- Cash from operations was $0.342 million for the first half, down from $1.269 million. Investing cash outflow was $0.705 million, including $0.708 million of cash capital expenditures. Management reported approximately $1.1 million of first-half capital expenditures, including $0.381 million included in accounts payable. Cash declined $0.363 million to $6.961 million.
- Working capital was $7.8 million at June 30, 2012. The filing reports total assets of $50.324 million, current liabilities of $10.086 million, and shareholders’ equity of $40.011 million. Capital-lease obligations totaled approximately $0.228 million; the company reported no borrowings and no debt outstanding. Its $1 million revolving credit line was unused.
Changes, outlook, and significant matters
- Q2 improvement reflected higher revenue in both segments. Waste brokerage revenue increased on growth in one-time projects and ongoing work; its average gross margin rose to 20.5% from 19.5%. Golf revenue benefited from membership growth (average 3,378 members versus 2,962) and favorable hot, dry weather. Golf moved to pretax income of $0.091 million from a $0.114 million loss.
- First-half results also improved, but remained loss-making. Higher stock-option compensation and employee costs contributed to increased SG&A. Reaching specified share-price thresholds triggered accelerated recognition of compensation expense in Q1.
- No specific earnings guidance is provided. Management expects 2012 capital expenditures of $1.2–$1.5 million, principally for golf-related building and land improvements and equipment. It believes operating cash, working capital, and borrowing capacity should meet foreseeable operating and capital needs.
- Management is exploring deep-well disposal opportunities related to Marcellus and Utica shale drilling and may consider golf-club acquisitions; it had no pending acquisition agreements. Potential acquisitions could affect liquidity.
- Risks include seasonal and weather-sensitive golf operations, membership levels below company goals, customer credit defaults, competition and disposal-cost increases that may not be passed on, non-long-term waste customer relationships, restrictions on interstate waste transport, and dependence of the captive landfill operation on one customer. The company disclosed ordinary-course legal and environmental proceedings and did not expect uninsured outcomes to materially adversely affect it.
- Deferred golf membership revenue rose to $2.9 million from $2.1 million. Most deferred tax assets remain subject to a valuation allowance. The filing states disclosure controls were effective at a reasonable-assurance level and reports no material quarterly change in internal controls.
Important facts for investors to verify
- The balance-sheet table headings in the supplied filing text say “June 30, 2011” and “December 31, 2012,” which conflict with the report period and surrounding references. Confirm the original filing’s intended dates before relying on the comparative balance-sheet figures.
- Assess the sustainability and margins of one-time waste projects, and monitor customer retention, disposal pricing, and the single-customer captive-landfill exposure.
- Track golf membership growth, profitability through the full season, and sensitivity to weather; first-half golf operations remained loss-making.
- Reconcile reported capital spending with cash capital expenditures and payables, and monitor operating cash generation against the planned $1.2–$1.5 million investment program.