Company Overview

Avalon Holdings Corporation (AWX) is a diversified company with a strong presence in the waste management and hospitality industries. The company’s origins date back to 1998 when it was formed as a subsidiary of American Waste Services, Inc. (AWS). On June 17, 1998, AWS distributed all of Avalon’s outstanding shares to its shareholders, making Avalon an independent public company.

Waste Management Services

Avalon’s primary business segment is its waste management services, which provide hazardous and non-hazardous waste brokerage and management services, captive landfill management, and salt water injection well operations. The company serves industrial, commercial, municipal, and governmental customers primarily in the northeastern and midwestern United States. Avalon has faced significant challenges with its salt water injection well operations, particularly since 2014 when the Chief of the Division of Oil and Gas Resources Management issued orders to immediately suspend all operations of Avalon’s two saltwater injection wells. The company has been embroiled in legal battles and appeals over the years, eventually receiving an order in 2021 to resume limited operations of one of the wells under strict conditions. However, regulatory uncertainty and ongoing legal challenges continue to impact this aspect of Avalon’s business.

For the nine months ended September 30, 2024, net operating revenues from the waste management services segment were $36.15 million, representing 55% of Avalon’s total consolidated net operating revenues. Within this segment, the waste disposal brokerage and management services business contributed $34.00 million, while the captive landfill management operations generated $2.17 million. The overall gross margin percentage of the waste brokerage and management services business improved to approximately 21% for the first nine months of 2024, up from 20% in the prior year period.

Hospitality and Golf Operations

In August 2014, Avalon made a strategic move to expand its operations beyond waste management by acquiring The Grand Resort. This acquisition allowed the company to integrate its golf and country club facilities into a full-service hospitality offering, providing guests with a self-contained vacation experience. The Grand Resort offers golf packages to all of the golf courses of the Avalon Golf and Country Club and allows guests to utilize the facilities at each of the clubhouses. Today, Avalon’s golf and related operations segment includes the management of four golf courses and associated clubhouses, a hotel, and a multipurpose recreation center.

For the nine months ended September 30, 2024, net operating revenues from the golf and related operations segment were $30.00 million, representing 45% of Avalon’s total consolidated net operating revenues. The segment’s revenues were driven by food, beverage and merchandise sales of $10.62 million, membership dues revenue of $5.61 million, room rental revenue of $5.89 million, and other sources such as greens fees, cart rentals, salon and spa services, and fitness activities.

Despite this expansion, Avalon has faced challenges in growing and maintaining membership at its Avalon Golf and Country Club. While the company has managed to increase the number of members, it has not yet achieved its membership goals and continues to employ various marketing strategies to attract and retain members.

Financials

Avalon’s financial performance has shown some improvement in recent periods. In 2023, the company reported total revenue of $80.52 million, down from $81.18 million in 2022. Net income for 2023 was a loss of $1.78 million, compared to a loss of $583,000 in 2022. The company’s waste management services segment generated $34.69 million in revenue in 2023, while the golf and related operations segment contributed $28.48 million.

For the most recent quarter (Q3 2024), Avalon reported revenue of $24.23 million, representing a 1.3% year-over-year growth. Net income for the quarter was $1.84 million, showing a significant improvement. The increase in revenue was primarily due to higher pricing and increased business operations at the golf and related operations segment.

Income before income taxes for the waste management services segment was $3.77 million in the first nine months of 2024, compared to $2.97 million in the same period of 2023. The increase in income was primarily attributable to growth in both continuous work projects and event-based projects.

The golf and related operations segment recorded income before income taxes of $2.29 million in the first nine months of 2024, compared to $0.31 million in the same period of 2023. The improved profitability was primarily due to increased revenues from room rentals, salon and spa services, as well as cost-cutting initiatives implemented in this segment.

In terms of cash flow, Avalon reported operating cash flow of $2.35 million and free cash flow of -$1.54 million for the fiscal year 2023. For Q3 2024, operating cash flow was $342,000, while free cash flow was -$660,000.

Liquidity

Avalon’s liquidity position has shown some improvement. As of the most recent reporting period, the company had $3.95 million in cash and cash equivalents. The company has a total debt of $35.02 million, including a $31.76 million term loan and a $3.20 million line of credit. Additionally, Avalon has $1.8 million available under its $5 million line of credit facility.

The company’s debt-to-equity ratio stands at 0.85, indicating a moderate level of leverage. Avalon’s current ratio of 0.97 and quick ratio of 0.88 suggest that the company may face some short-term liquidity pressures, but the situation has improved compared to previous periods.

In terms of profitability, Avalon’s gross profit margin was 17.1% in 2023, down slightly from 17.2% in 2022. The company’s operating margin was -0.3% in 2023, compared to 0.4% in 2022. These narrow margins highlight the competitive nature of both the waste management and hospitality industries.

Future Outlook

Looking ahead, Avalon’s management has indicated that the company will continue to focus on its core waste management and hospitality operations. The company recently announced plans to renovate and expand its The Grand Resort, which could help drive growth in the golf and related operations segment. However, the ongoing regulatory challenges with the salt water injection wells remain a significant risk factor.

The waste management and golf/hospitality industries that Avalon operates in have seen moderate growth in recent years, with compound annual growth rates (CAGRs) around 3-5%. This suggests a stable but competitive environment for the company’s operations.

Conclusion

Overall, Avalon Holdings Corporation appears to be a diversified company with a mix of stable and growth-oriented business segments. The company’s recent financial performance shows signs of improvement, particularly in the golf and related operations segment. Avalon’s ability to effectively manage costs and capitalize on growth opportunities in both of its core business areas will be crucial to its future financial performance.

Investors interested in Avalon should closely monitor the company’s progress in addressing operational and regulatory challenges, particularly with regard to the salt water injection wells. The company’s ability to continue improving its financial metrics, such as revenue growth and profitability, while managing its debt and liquidity position, will be key factors in its long-term success in both the waste management and hospitality industries.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.