Avalon Holdings Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Avalon operates waste management services and golf, resort, and related businesses. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net operating revenue | $18.858 | $18.445 |
| Operating loss | $(0.513) | $(1.264) |
| Loss before income taxes | $(1.014) | $(1.768) |
| Net loss | $(1.054) | $(1.799) |
| Net loss attributable to Avalon common shareholders | $(0.979) | $(1.677) |
| Basic loss per share | $(0.25) | $(0.43) |
| Cash provided by operating activities | $0.411 | $0.246 |
- Revenue increased 2.2%. Waste management revenue declined to $12.470 from $12.652, while golf and related revenue rose to $6.388 from $5.793.
- Operating loss narrowed; operating margin improved to approximately -2.7% from -6.9%. The improvement reflected stronger golf and related revenue and lower waste operating costs.
- Waste segment pretax income increased to $1.221 from $0.949; golf and related operations’ pretax loss narrowed to $0.751 from $1.292. Corporate expenses and interest remained significant.
- Gross margin for waste brokerage and management services was approximately 21%, up from 18%. Management attributed the improvement primarily to continuous work, despite lower one-time event-project revenue.
- Cash and cash equivalents were $1.163 at quarter-end; restricted cash was $10.192 and designated for resort and club renovation and expansion. Cash, cash equivalents, and restricted cash together totaled $11.355.
- Working capital was negative $4.4, versus a deficit of $3.9 at December 31, 2023. Current assets were $17.377 and current liabilities $21.755.
- Term-loan debt was $29.627 net of issuance costs, and the line of credit had $3.2 outstanding, with approximately $1.8 available. Total borrowings on these facilities were approximately $32.8; finance-lease obligations were $0.782. The term loan bears fixed interest at 6.00%; the line of credit was at 8.75% at quarter-end.
Changes, outlook, and notable items
- Waste brokerage and management revenue was nearly flat: event work fell approximately $0.8, while continuous work increased approximately $0.6. Event work can vary substantially between periods.
- Golf and related revenue growth reflected higher membership rates, room occupancy and room rates, and salon and spa revenue. Golf-course revenue remained minimal in the winter quarter due to adverse weather.
- Management expects 2024 capital expenditures of $3.0–$4.0, principally for Grand Resort room renovations, building improvements, and equipment. Q1 capital expenditures were $0.355.
- Management believes anticipated operating cash flows will cover operating needs and required term-loan payments, and says it may use its existing credit line if needed. This is not a quantified earnings or revenue forecast.
- The company reported compliance with its term-loan and line-of-credit covenants at March 31. Both facilities require a fixed-charge coverage ratio of at least 1.20, tested annually. The term loan has a balloon payment at maturity in August 2032; the line of credit matures July 31, 2025.
- Two saltwater injection wells remain nonoperational. A continuing regulatory and legal dispute concerns restart conditions for AWMS #2; a separate taking-related case was remanded by the Ohio Supreme Court in January 2024 for further proceedings. The wells generated no revenue in either comparison period and incurred approximately $0.1 in quarterly legal and professional costs.
- Other disclosed risks include customer credit and concentration, dependence of captive landfill operations on one customer, membership retention, weather and seasonality, labor and commodity-cost pressures, regulation, and the ability to service or refinance debt. Management says it anticipates elevated commodity costs through 2024.
- Avalon formed Avalon Dermatology, LLC in March 2024, contributed approximately $0.2, and owns 50.1%; the business was not yet operating at quarter-end. No material impairment trigger was identified in Q1.
Most important facts to verify
- Whether working-capital pressure and low unrestricted cash are manageable as renovation spending continues; restricted project cash is not freely available for general purposes.
- Progress against the $3.0–$4.0 annual capital-expenditure plan and the resulting use of project funds, operating cash, and credit availability.
- Debt service capacity, covenant compliance at the next annual test, the floating-rate exposure on the credit line, and the 2025 line maturity.
- The status and potential financial implications of the injection-well proceedings and the conditions required for any restart.
- The filing gives differing figures for the 2024 major waste-customer share of consolidated revenue: approximately 9% in Note 5 and 10% in Note 13. Confirm the correct concentration percentage.