Avalon Holdings Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is Q1 2020. Avalon provides waste-management services and operates golf, club, hotel and resort-related businesses. Unless otherwise noted, financial amounts below are in millions of dollars; the filing presents statements in thousands.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Net operating revenue | $15.113 | $14.403 |
| Operating loss | $(0.146) | $(0.557) |
| Net income (loss) attributable to Avalon common shareholders | $0.716 | $(0.813) |
| Basic and diluted EPS | $0.18 | $(0.21) |
| Net cash provided by (used in) operating activities | $0.263 | $(0.400) |
| Capital expenditures paid | $0.668 | $0.977 |
- Revenue increased about 4.9%. Waste-management revenue was nearly flat at $11.150 million; golf and related revenue rose to $3.963 million from $3.270 million.
- The operating loss improved by $0.411 million. Operating margin was approximately negative 1.0%, versus negative 3.9% in Q1 2020. Net income included a $1.087 million gain from PPP loan forgiveness; profitability therefore benefited from a nonrecurring item.
- At March 31, cash and cash equivalents were $4.038 million, with a further $3.368 million classified as restricted cash for resort and clubhouse projects. Combined cash, cash equivalents and restricted cash were $7.406 million, down from $8.095 million at year-end.
- Working-capital deficit was approximately $2.1 million, versus $1.9 million at December 31, 2020. Current assets were $17.508 million and current liabilities $19.559 million.
- Debt, net of issuance costs, totaled $22.186 million: $21.308 million under the term loan and $0.878 million of PPP loans. The $5.0 million line of credit was undrawn. Avalon reported compliance with debt covenants at March 31.
- Interest expense was $0.297 million, approximately unchanged year over year. Waste brokerage and management gross margin was about 22%, compared with 20%.
Changes versus the prior period
- Golf and related operations improved from a $0.731 million pretax loss to $0.200 million pretax income. The improvement reflected higher room, food and beverage sales and a $0.585 million PPP forgiveness gain allocated to the segment.
- Waste-management segment pretax income increased to $1.143 million from $1.048 million, supported by improved margins on continuous work. Revenue remained broadly stable; lower event-project revenue was offset by increased continuous work.
- Restaurant, hotel and resort activity improved as some restrictions eased, but pandemic-related occupancy and gathering limits continued to weigh on dining, banquets and conferences.
Outlook, risks and unusual items
- Management provided no formal earnings or revenue guidance. It expects 2021 capital expenditures of $3.0–$4.0 million, principally for renovations and expansion at The Grand Resort and Avalon Field Club at New Castle, funded from the project fund.
- Management believes anticipated operating cash flows will meet operating needs and scheduled term-loan payments, but says it may draw on the available line of credit if COVID-19 impacts persist. The filing states that demand and timing of a return to pre-pandemic levels remain uncertain.
- Of approximately $2.8 million in PPP loans received in 2020, $0.878 million remained outstanding at quarter-end. Management expected the remaining amount and interest to be forgiven in Q2 or Q3 2021; any unforgiven balance would require repayment.
- Avalon’s injection-well operations remain suspended. Litigation and regulatory proceedings continue; a trial concerning the alleged taking of company property was scheduled for September and October 2021. The company cannot assure that the well will resume operations.
- Other stated risks include customer concentration and collections, limited long-term contracts, disposal and transportation regulation, competition and disposal-cost increases, membership retention, seasonality and weather. One waste-management customer represented 15% of consolidated revenue and 20% of consolidated receivables at quarter-end.
Important facts for investors to verify
- Whether the remaining PPP balance was forgiven, and how any further forgiveness affected reported earnings.
- Subsequent operating cash flow, working capital and access to the undrawn credit line, given the working-capital deficit.
- Whether resort and clubhouse capital spending stays within the $3.0–$4.0 million outlook and produces improved operating results.
- Developments in the suspended injection-well proceedings and the scheduled 2021 trial.
- Whether customer concentration, pandemic-related operating limits and membership trends changed after March 31, 2021.