Avalon Holdings Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Avalon operates waste management services and golf and related businesses. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net operating revenues | $14.669 | $10.938 |
| Loss from operations | $(0.189) | $(0.449) |
| Net loss | $(0.144) | $(0.393) |
| Basic and diluted loss per share | $(0.04) | $(0.10) |
| Cash from (used in) operating activities | $(0.199) | $0.325 |
| Capital expenditures | $0.069 | $0.109 |
Revenue increased about 34% year over year, primarily from waste management services. Costs of operations rose to $12.554 million from $9.036 million, largely alongside higher waste revenues and related transportation and disposal costs. Consolidated SG&A was approximately $1.9 million in both periods. The filing does not provide a consolidated gross margin measure.
Waste management revenue was $12.563 million, up from $8.938 million; segment pretax income was $0.889 million versus $0.723 million. Waste brokerage and management gross margin fell to 14.9% from 19.7%, reflecting lower-margin customer services and competitive bidding on event projects. Golf and related revenue was $2.117 million versus $2.010 million; its pretax loss narrowed to $0.305 million from $0.353 million.
At March 31, cash was $7.624 million, working capital was $8.3 million, and total assets were $52.303 million. Current liabilities were $12.120 million. Avalon reported no borrowings under its $1.0 million unsecured credit line and stated it had no debt outstanding; capital lease obligations totaled $0.492 million, including $0.055 million current. Management said existing working capital, anticipated operating cash flows, and borrowing capacity should fund foreseeable operating needs and capital spending.
Changes, outlook, and risks
- The net loss narrowed from $0.393 million to $0.144 million, but operating cash flow shifted from $0.325 million provided to $0.199 million used. The principal working-capital drivers included a $2.183 million increase in receivables, partly offset by a $1.625 million increase in accounts payable.
- One customer contributed approximately 19% of consolidated revenue, compared with 9% in Q1 2012, and represented about 22.5% of receivables at quarter-end. The filing identifies customer concentration as a business risk.
- Management expected 2013 capital expenditures of $0.5 million to $0.7 million, principally for building improvements and equipment. It did not provide specific revenue or earnings guidance.
- Management described a strategy to grow waste services through sales, long-term customer agreements, and service development. Avalon was awaiting an Ohio Department of Natural Resources public meeting on two applications for deep wastewater disposal well permits. It was also considering, but had no pending agreements for, golf-club acquisitions.
- Risks include competitive pressure and lower margins in waste brokerage, limited long-term contracts, disposal-cost increases that may not be passed to customers, customer payment defaults, dependence of captive landfill operations on one customer, and regulatory restrictions on waste transport or disposal. Golf operations face membership, competition, and weather risks; results are seasonal.
- Avalon reported ordinary-course legal, administrative, governmental, and environmental matters, but did not expect uninsured outcomes to materially adversely affect liquidity, financial position, or results. The company maintained a valuation allowance against most deferred tax assets. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material quarterly change in internal controls.
Important facts for investors to verify
- Whether the larger, concentrated waste-services revenue base can be retained and converted into sustainable margins and cash flow.
- Receivables collection and customer credit quality, given the quarter’s operating cash outflow and customer concentration.
- Progress on the wastewater-disposal well permits, and the timing and potential costs or benefits of any development.
- Golf membership trends, seasonal performance, and whether the segment can move toward profitability.
- Actual capital spending versus the stated $0.5 million–$0.7 million range, and any changes in liquidity, lease obligations, or credit-line availability.