Avalon Holdings Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Avalon operates waste management services and golf, resort and related businesses. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $21.30 | $16.63 | $52.80 | $44.10 |
| Operating income | $1.05 | $1.02 | $0.93 | $0.24 |
| Net income (loss) attributable to Avalon shareholders | $0.98 | $0.78 | $2.44 | $(0.47) |
| Basic earnings (loss) per share | $0.25 | $0.20 | $0.63 | $(0.12) |
| Cash provided by operating activities | Not separately presented for quarter | $2.09 | $1.79 |
- Q3 revenue rose about 28%; nine-month revenue rose about 20%. Golf and related operations revenue increased to $9.9 million from $7.3 million in Q3 and to $21.5 million from $14.5 million for the nine-month period. Waste management revenue increased to $11.4 million from $9.3 million in Q3 and to $31.3 million from $29.5 million year to date.
- Q3 operating margin was approximately 4.9%, compared with 6.1% a year earlier; nine-month operating margin was approximately 1.8%, compared with 0.5%. The nine-month comparison includes a $1.96 million PPP loan-forgiveness gain below operating income.
- Q3 interest expense was $0.29 million; nine-month interest expense was $0.88 million. Nine-month cash from operations increased to $2.09 million, while capital expenditures were $3.25 million in cash-flow reporting. Investing cash use was $3.25 million.
Financial position and liquidity
- At September 30, cash and cash equivalents were $4.11 million and restricted cash was $2.09 million. Total cash, cash equivalents and restricted cash were $6.20 million, down from $8.10 million at year-end 2020.
- Current assets were $16.84 million and current liabilities were $18.02 million, a working-capital deficit of approximately $1.2 million. Management reported a $1.9 million deficit at December 31, 2020.
- Long-term debt, net of current portion, was $19.66 million; current debt was $1.11 million. Finance lease obligations totaled $0.62 million and operating lease obligations $1.35 million.
- The $5 million revolving line of credit was undrawn at quarter-end. Its maturity was extended to July 31, 2023. Avalon reported compliance with its debt covenants.
- Total equity was $39.56 million and total assets were $78.59 million.
Changes, outlook and risks
- Management attributed much of the golf and resort revenue recovery to lifted COVID-related restrictions, higher hotel occupancy and room rates, increased food and beverage activity, and more golf rounds. COVID-19 had limited impact on results during the first nine months of 2021, but future effects remain uncertain.
- Waste-management growth included higher continuous and one-time event project work. The company cautioned that event work can fluctuate significantly. Brokerage gross margin declined to approximately 18% in Q3 from 21%; the nine-month margin was approximately 20% versus 21%.
- The $1.96 million PPP forgiveness gain was recognized in the first nine months of 2021; the remaining PPP loans and associated interest had been forgiven by the SBA by Q2 2021. This is a nonrecurring contributor to reported earnings.
- For 2021, Avalon expected capital expenditures of $4.0–$4.5 million, primarily for Grand Resort and Avalon Field Club renovations, funded from the project fund. Management expected operating cash to cover operating needs and scheduled term-loan payments, with the line of credit available if needed.
- The $21.1 million gross term loan bears a fixed 5.00% rate until its fifth anniversary, then resets subject to a 7.35% cap; it matures in December 2029 with a balloon payment. Avalon disclosed a 1.20 minimum fixed-charge coverage covenant, tested annually.
- AWMS #2 saltwater injection well operations had been suspended since 2014. A May 2021 order set restart conditions, including an indefinite shutdown following a magnitude 2.1-or-higher seismic event; Avalon appealed, with a hearing expected in early 2022. Related litigation remained pending, and legal and professional costs contributed to well-related losses.
- Risks include COVID-19-related demand uncertainty, weather and seasonality, competition and disposal pricing, customer credit and contract retention, dependence of captive landfill revenue on one customer, golf membership retention, environmental/seismic regulation, and debt covenant or refinancing exposure. One waste-management customer represented 7% of consolidated nine-month revenue and 18% of consolidated receivables at quarter-end.
Important facts for investors to verify
- How much of the revenue and earnings improvement is sustainable, given COVID recovery, variable event work, and the PPP forgiveness gain.
- Progress and profitability prospects for the Grand Resort and Field Club projects, including spending against the $4.0–$4.5 million 2021 capex outlook and remaining restricted project funds.
- Developments in the AWMS #2 restart appeal and related court cases, including any operating restrictions, legal costs, or financial consequences.
- Customer concentration, receivable collection and working-capital needs, particularly given the deficit and the concentrated waste-management receivable.
- Future covenant compliance, the term loan’s 2029 balloon payment, and availability of the undrawn revolving facility.