Avalon Holdings Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Avalon operates waste management services and golf, resort, and related facilities.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net operating revenue | $23.9m | $25.7m | $62.9m | $59.5m |
| Operating income | $1.4m | $1.5m | $0.2m | $0.9m |
| Net income (loss) attributable to Avalon shareholders | $0.9m | $1.2m | $(0.9)m | $0.4m |
| Basic and diluted EPS | $0.23 | $0.30 | $(0.24) | $0.10 |
| Operating cash flow | Not separately presented | Not separately presented | $2.2m | $1.4m |
- Q3 revenue declined about 7% year over year, mainly as waste management event-project revenue fell; golf and related revenue increased.
- Nine-month revenue increased about 6%, driven by golf and related operations, but higher golf operating costs, depreciation, and interest contributed to the swing to a shareholder net loss.
- Q3 waste management revenue was $11.7m versus $15.0m; golf and related revenue was $12.2m versus $10.7m. Nine-month segment revenue was $34.7m for waste management and $28.2m for golf and related operations.
- Waste brokerage gross margin was approximately 20% in both the nine-month period and prior-year comparable period; golf segment pretax income fell to $0.3m from $1.0m for the nine months.
Cash, liquidity, and debt
- At September 30, 2023, cash and cash equivalents were $0.7m; an additional $10.5m was restricted project-fund cash. Total cash, cash equivalents, and restricted cash were $11.1m, down from $12.1m at year-end 2022.
- Current assets were $15.8m and current liabilities $20.1m, a reported working-capital deficit of approximately $4.3m, compared with $2.8m at December 31, 2022.
- Net term-loan debt was $29.9m and the revolving line of credit had $2.2m drawn, with $2.8m available. The term loan carries a 6.00% fixed rate until its scheduled 2029 reset and matures in 2032 with a balloon payment. The line of credit rate was 8.75% at quarter-end and its maturity was extended to July 31, 2025.
- Operating cash flow of $2.2m was below capital expenditures paid of $3.2m for the first nine months. Financing cash flow was $0.1m. Management says operating cash flow is expected to cover operating needs and scheduled term-loan payments; it may draw on the line of credit if needed.
- Avalon reported compliance with its debt covenants at September 30, 2023. The term loan and line of credit each require a fixed-charge coverage ratio of at least 1.20, tested annually.
Outlook, risks, and unusual items
- Management expects 2023 capital expenditures of $4.0m–$5.0m, principally for Grand Resort expansion and renovations, clubhouse improvements, and equipment. The nine-month cash spend was $3.2m.
- No earnings or revenue guidance is provided. Management’s cash-sufficiency statement is qualified by its reliance on future operating cash flow and potential line-of-credit borrowing.
- Waste management event work is short-term and can fluctuate significantly. Q3 event-work revenue was $3.9m, down from $7.9m; continuous-work revenue increased to $7.3m from $6.4m.
- Both saltwater injection wells have had operations suspended; there were no related operating revenues. A restart order for AWMS #2 imposes seismicity conditions, and related appeals remain pending. The company is awaiting an Ohio Supreme Court decision in a separate property-rights case.
- Other disclosed risks include customer and membership retention, dependence of captive-landfill revenue on one customer, labor and input-cost inflation, weather seasonality, regulatory and environmental exposure, and debt covenant/refinancing risk. Management does not expect pending legal matters to have a material adverse financial effect, but outcomes are uncertain.
- One waste-management customer generated 15% of segment external revenue and 7% of consolidated revenue in the first nine months, versus 10% and 6% in 2022. The injection wells’ ongoing legal and professional costs continued to generate losses.
- Management reported disclosure controls were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether waste event-project activity recovers and whether the reported decline reflects timing or a sustained change in demand.
- Progress on Grand Resort and clubhouse projects, remaining project-fund cash restrictions, and full-year capital spending.
- Operating cash generation relative to capital needs, the working-capital deficit, and use and availability of the revolving credit line.
- Debt service capacity and compliance with the annual fixed-charge coverage tests, particularly as interest costs and operating conditions change.
- Developments in injection-well restart restrictions and pending litigation, and any resulting operating, regulatory, or financial consequences.
- Continuation of golf and resort revenue growth alongside higher labor and operating costs, and the company’s ability to attract and retain members.