Avalon Holdings Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; financial amounts below are in U.S. dollars, with millions used unless stated otherwise. Avalon operates waste management services and golf, resort and related businesses.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net operating revenue | $14.309 million | $15.113 million; down 5.3% |
| Operating loss | $1.166 million | $0.146 million loss |
| Net income (loss) | $1.400 million loss consolidated; $1.262 million loss attributable to Avalon common shareholders | $688,000 consolidated income; $716,000 attributable to Avalon common shareholders |
| Basic and diluted earnings (loss) per share | $(0.32) | $0.18 |
| Cash from operating activities | $402,000 used | $263,000 provided |
| Capital expenditures paid | $1.284 million | $668,000 |
| Cash and cash equivalents | $2.430 million at March 31 | $3.254 million at December 31, 2021 |
| Working capital | $3.6 million deficit | $2.1 million deficit at December 31, 2021 |
| Term debt | $20.226 million net of issuance costs, including $1.140 million current | $20.502 million net at December 31, 2021 |
Cash, cash equivalents and restricted cash together were $3.106 million at March 31, down $1.844 million during the quarter. Restricted cash was $676,000 and is designated for renovation and expansion projects. Current assets were $16.509 million versus current liabilities of $20.145 million. The company also reported $650,000 of finance lease obligations and $1.588 million of operating lease obligations.
Business performance and changes versus prior year
- Waste management: Revenue fell to $9.339 million from $11.150 million, primarily because continuous and one-time event projects declined. Segment pretax income was $654,000 versus $1.143 million. Gross margin for the waste brokerage and management business decreased to approximately 19% from 22%. Captive landfill revenue remained about $613,000; suspended injection-well operations generated no revenue.
- Golf and related operations: Revenue rose to $4.970 million from $3.963 million, reflecting increased resort and club activity, higher hotel occupancy and room rates, and growth in membership, salon and spa revenue. Segment pretax results shifted to an $836,000 loss from $200,000 of income. Operating costs increased, particularly employee costs and wages; golf-course revenue remained limited by seasonal weather.
- Consolidated results also compare against a $1.087 million gain on debt extinguishment in Q1 2021, when PPP loan forgiveness was recorded. All PPP loan principal and related interest had been forgiven by March 31, 2022.
- Interest expense was $278,000, compared with $297,000. The lower average debt was offset by a higher weighted-average borrowing rate, 5.00% versus 4.80%.
Liquidity, outlook, risks and unusual items
- Management says anticipated cash from future operations should cover operating needs and required term-loan payments; it may use its existing line of credit if additional funding is needed. The $5.0 million line was undrawn at quarter-end and matures July 31, 2023. The company reported compliance with debt covenants.
- Avalon expects 2022 capital expenditures of $3.5 million to $4.5 million, principally for Grand Resort room renovations, the Avalon Field Club at New Castle clubhouse, building improvements and equipment. Funding is expected from the project fund, operating cash and cash generated from operations.
- The term loan had a 5.00% fixed rate, with a reset scheduled at the fifth anniversary of its December 2019 closing; the reset formula has a 7.35% cap. The loan matures December 20, 2029, with a final balloon payment. Management disclosed refinancing and covenant-compliance risks.
- Major uncertainties include COVID-19-related demand effects, inflation and labor costs, customer credit and retention, limited long-term contracts, competition and waste-disposal pricing, seasonality and the ability to attract and retain club members. Two customers represented 13% of consolidated revenue in Q1 2022.
- The AWMS #2 saltwater injection well remains subject to regulatory and legal uncertainty. A 2021 order set restart conditions, including an indefinite shutdown following a nearby seismic event of magnitude 2.1 or higher; Avalon appealed, and a hearing occurred in February 2022. The company was awaiting a decision. The wells had no operating revenue in the quarter.
- In April 2022, a federal court found MintBroker liable in Avalon’s short-swing trading lawsuit; damages remained to be determined, and collection is not assured. Management stated it did not believe pending proceedings would materially adversely affect the company, but outcomes remain uncertain.
- Management reported disclosure controls were effective at a reasonable assurance level and no materially affecting changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the waste-services revenue and margin declines persist, and whether project volumes recover.
- Whether growth in resort and club revenue can offset higher labor and operating costs and restore golf-segment profitability.
- Cash generation, the working-capital deficit, remaining restricted project funds, and progress against the $3.5–$4.5 million capital-spending plan.
- Debt-service capacity, covenant compliance, and the term loan’s future rate reset and balloon-payment exposure.
- Regulatory outcomes and permitted operating economics for AWMS #2, along with the status and potential collectability of legal claims.