Avalon Holdings Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Unless otherwise noted, dollar amounts are in thousands.
Business context and results
Avalon operates waste management services and golf and related businesses, including golf courses, a country club, The Grand Resort, and related hospitality and recreation services. Compared with Q2 2020, the golf and hospitality business recovered as pandemic-related restrictions eased; waste-management revenue declined modestly.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net operating revenue | $16,390 | $13,067 | $31,503 | $27,470 |
| Operating income (loss) | $27 | $(222) | $(119) | $(779) |
| Net income (loss) attributable to Avalon common shareholders | $742 | $(435) | $1,458 | $(1,248) |
| Basic and diluted earnings (loss) per share | $0.19 | $(0.11) | $0.37 | $(0.32) |
| Cash from operating activities | Not separately provided for the quarter | $1,698 | $2,020 |
- Q2 revenue increased about 25%; six-month revenue increased about 15%. Golf and related operations revenue rose to $7,705 in Q2 from $3,979, and to $11,668 for six months from $7,249. Waste-management revenue decreased to $8,685 in Q2 from $9,088 and to $19,835 for six months from $20,221.
- Profit included a $877 gain on debt extinguishment in Q2 and $1,964 for six months, reflecting forgiveness of the remaining PPP loans and associated interest. This is a material, non-recurring contributor to reported earnings.
- At June 30, cash and cash equivalents were $4,451; restricted cash was $2,856. Total cash, cash equivalents and restricted cash were $7,307, down from $8,095 at year-end 2020.
- Net carrying value of long-term debt was $21,043, including $1,097 current and $19,946 long-term. Finance lease obligations were $773 and operating lease obligations were $1,588. No balance was drawn on the $5,000 line of credit.
- Current assets were $16,642 and current liabilities were $18,754, a working-capital deficit of approximately $2.1 million. Management attributed the deficit largely to deferred membership dues and accrued compensation.
Material changes and management commentary
- Golf and related operations benefited from higher restaurant, room, golf, and other activity as restrictions eased. Q2 room revenue increased to $1,126 from $321; food, beverage and merchandise sales rose to $3,283 from $1,361. Costs also increased with activity.
- Waste-management revenue was lower, partly because a managerial, consulting and clerical services contract with one customer expired in Q3 2020. Q2 waste brokerage and management gross margin was approximately 20%, versus 21% a year earlier; the six-month margin was approximately 21%, versus 20%.
- Operating cash flow was $1,698 for the first half, compared with $2,020 in 2020. Investing activities used $1,817, principally capital expenditures; financing activities used $669, including term-loan and finance-lease payments. Capital expenditures incurred were approximately $2.1 million, of which $1.8 million was paid during the period.
- Management expected 2021 capital expenditures of $3.0–$4.0 million, primarily for renovations and expansion at The Grand Resort and the Avalon Field Club at New Castle, funded from the project fund. Management stated anticipated cash from future operations should cover operating needs and required term-loan payments, with the line of credit available if needed.
Outlook, risks and unusual items
- The filing provides no earnings or revenue guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- COVID-19 had limited impact on operations in the first half of 2021, according to management, but renewed restrictions, variants, travel concerns, weaker demand, or reduced discretionary spending could adversely affect results and cash flows.
- Both saltwater injection wells remain suspended following a 2014 seismic event. The company reports no revenue from the wells and continues legal and regulatory efforts; restart is uncertain. A separate property-rights case was remanded for trial, scheduled for September and October 2021.
- Other disclosed risks include customer credit and collection issues, competition and disposal-price increases, limited long-term customer contracts, dependence of captive landfill revenue on one customer, membership retention, weather seasonality, and potential regulatory or environmental costs.
- The term loan carries a 5% fixed rate until its fifth-anniversary reset, subject to a 7.35% cap, and matures in December 2029 with a balloon payment. The company reported compliance with debt covenants at June 30, 2021. The loan and line of credit each include a minimum 1.20 fixed-charge coverage ratio tested annually.
- Management reported disclosure controls and procedures were effective at a reasonable assurance level and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported 2021 profit reflects recurring operations versus PPP debt-forgiveness gains, and the related segment-level effects.
- Whether the golf and hospitality recovery and membership growth can be sustained after pandemic comparisons normalize; membership count was 5,238 at June 30, 2021 versus 4,920 at December 31, 2020.
- Cash generation, working-capital needs, planned renovation spending, and continued access to the undrawn credit line.
- Debt amortization and the 2029 balloon, including future covenant compliance and the interest-rate reset terms.
- Developments in the suspended injection-well proceedings and the scheduled property-rights trial, including any operational, legal, or financial consequences.