Business Overview and History

Avalon Holdings Corporation is a diversified company that operates in the waste management and golf industries. Founded in 1998 as a subsidiary of American Waste Services, Inc., Avalon has since expanded its footprint and established itself as a key player in both the waste management services and golf and related operations segments.

Avalon's primary business segment is its waste management services, which provides hazardous and nonhazardous waste brokerage and management services, captive landfill management services, and salt water injection well operations. The company's waste management services cater to industrial, commercial, municipal, and governmental customers primarily in the northeastern and midwestern United States. Avalon's secondary segment is its golf and related operations, which includes the operation and management of four golf courses and associated country club facilities, a hotel (The Grand Resort), and a multipurpose recreation center.

Avalon Holdings Corporation was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (AWS). On June 17, 1998, AWS distributed all of the outstanding shares of Avalon to its shareholders as a special dividend, making Avalon an independent public company. This distribution was done on a pro rata and corresponding basis to the holders of AWS common stock.

The company's golf and related operations are managed through its subsidiary, Avalon Resorts and Clubs, Inc. (ARCI). This segment includes the operation of four golf courses and associated clubhouses, athletic and fitness centers, tennis courts, salon and spa services, and dining and banquet facilities. In August 2014, Avalon significantly expanded its hospitality offerings by acquiring The Grand Resort. This acquisition was integrated into the golf and related operations segment, allowing Avalon to provide guests with a comprehensive vacation experience. The Grand Resort offers hotel guests golf packages to all of the Avalon Golf and Country Club courses and access to facilities at each of the clubhouses.

Avalon's salt water injection well operations have faced significant regulatory challenges. In 2014, the Chief of the Division of Oil and Gas Resources Management ordered the immediate suspension of operations at two of Avalon's salt water injection wells due to concerns over seismic activity. This led to a protracted legal battle that reached the Ohio Supreme Court. In 2021, Avalon received orders from the Division to restart one of the wells under certain conditions, although the legal dispute continues. These regulatory issues have created ongoing uncertainty and disruption for Avalon's salt water injection well operations.

Waste Management Services Segment

Avalon's waste management services segment has faced regulatory hurdles, such as the suspension of its salt water injection well operations due to seismic activity concerns. The company has been embroiled in a lengthy legal battle with the Ohio Department of Natural Resources (ODNR) regarding the suspension, appealing decisions and seeking to resume operations. While the legal process has been ongoing, the salt water injection well operations have remained suspended, impacting the segment's financial performance.

Despite these challenges, Avalon has maintained a strong position in its waste brokerage and management services business. The company has focused on retaining existing customers and gaining new business through its sales and marketing efforts, leveraging its experienced management team and extensive industry relationships. In the first nine months of 2024, the waste management services segment generated $36.2 million in net operating revenues, up from $34.7 million in the same period of 2023.

The increase in net operating revenues for the waste management services segment was primarily driven by growth in both event work projects and continuous work. The net operating revenues of the waste disposal brokerage and management services business were approximately $34.00 million in the first nine months of 2024, compared to $32.40 million in the first nine months of 2023. Continuous work revenues increased by around $1.00 million between the periods, while event work revenues related to multiple projects increased by approximately $0.60 million.

The captive landfill management operations, which are almost entirely dependent on the volume of waste generated by the owner of the landfill that Avalon manages, saw a slight decrease in net operating revenues. These revenues were approximately $2.17 million in the first nine months of 2024, compared to $2.34 million in the first nine months of 2023.

Costs of operations related to the waste management services segment increased to $28.37 million in the first nine months of 2024, compared to $27.87 million in the first nine months of 2023, primarily due to the increase in net operating revenues as these costs vary directly with the associated revenues. The overall gross margin percentage of the waste brokerage and management services business improved to approximately 21% in the first nine months of 2024, compared to 20% in the first nine months of 2023, with the increase attributed to higher gross profit generated from both continuous and event work projects.

Golf and Related Operations Segment

Avalon's golf and related operations segment has faced its own set of challenges, primarily related to the seasonality of the golf industry and the need to attract and retain members for its Avalon Golf and Country Club. The company's acquisition of The Grand Resort in 2014 was intended to provide a more consistent, year-round revenue stream and enhance the appeal of the club's membership offerings.

The golf and related operations segment has experienced improvements in performance, with net operating revenues of $30.0 million in the first nine months of 2024, up from $28.5 million in the same period of 2023. This increase was primarily a result of increased business operations related to both The Grand Resort and the country clubs during the period.

Food, beverage, and merchandise sales remained relatively stable at approximately $10.62 million in the first nine months of 2024, similar to the $10.58 million in the first nine months of 2023. Other golf and related operation revenues saw a significant increase to approximately $19.38 million in the first nine months of 2024, compared to $17.91 million in the first nine months of 2023.

Membership dues revenue showed modest growth, reaching approximately $5.61 million in the first nine months of 2024, compared to $5.47 million in the first nine months of 2023. This increase was attributed to higher membership dues rates. Room rental revenue saw a more substantial increase, reaching approximately $5.89 million in the first nine months of 2024, up from $5.12 million in the first nine months of 2023, due to both higher occupancy and increased average room rates.

Avalon has continued to invest in the renovation and expansion of its golf facilities and resort amenities, aiming to attract new members and retain existing ones. The company's efforts to improve operational efficiency have also yielded results, with total cost of operations for the golf and related operations segment decreasing to $23.65 million in the first nine months of 2024, compared to $24.16 million in the first nine months of 2023. This reduction was primarily due to cost-cutting efforts implemented with a focus on increasing profit margins.

Financial Performance and Liquidity

Avalon's financial performance has shown improvement, with the company reporting net income attributable to Avalon Holdings Corporation common shareholders of $1.8 million in the first nine months of 2024, compared to a net loss of $0.9 million in the same period of 2023. The company's waste management services segment has been the primary driver of profitability, while the golf and related operations segment has also contributed to the improved financial results.

For the most recent quarter (Q3 2024), Avalon reported revenue of $24,235,000 and net income of $1,840,000. This represents a significant improvement compared to Q3 2023, driven by enhancements in both the waste management services and golf and related operations segments. Operating cash flow (OCF) for Q3 2024 was $342,000, while free cash flow (FCF) was negative $660,000, reflecting ongoing investments in the business.

In terms of liquidity, Avalon had a working capital deficit of $0.5 million as of September 30, 2024, an improvement from the $3.9 million deficit as of December 31, 2023. The company has utilized a combination of cash from operations and its $31 million term loan facility, which was refinanced in 2022, to fund its capital expenditures and working capital needs.

As of September 30, 2024, Avalon reported cash and cash equivalents of $3,950,000. The company also has access to a $5,000,000 Line of Credit Agreement, with $1,800,000 available as of the reporting date. Avalon's current ratio stands at 0.97, while its quick ratio is 0.88, indicating a relatively tight liquidity position that the company continues to manage actively.

Outlook and Risks

Avalon's future performance will depend on its ability to navigate the ongoing challenges in both its waste management and golf segments. In the waste management services segment, the company's success will hinge on its ability to resolve the legal issues surrounding its salt water injection well operations and maintain its competitive position in the waste brokerage and management services market.

In the golf and related operations segment, Avalon will need to continue its efforts to attract and retain members for its Avalon Golf and Country Club, as well as effectively manage the operations and profitability of The Grand Resort. The company's ability to adapt to changing market conditions, address regulatory hurdles, and effectively manage its costs will be critical to its long-term success.

Avalon's financial position and liquidity remain areas of focus, as the company navigates its capital expenditure needs and works to improve its working capital position. The company's ability to generate consistent cash flow and manage its debt obligations will be crucial in the coming years.

Conclusion

Avalon Holdings Corporation has navigated a mix of challenges and opportunities in its waste management services and golf and related operations segments. While the company has faced regulatory issues and fluctuations in its financial performance, it has demonstrated resilience and a commitment to enhancing its competitive positioning in both business areas.

The company's improved financial results in the first nine months of 2024, including increased revenues and a return to profitability, indicate that Avalon's strategic initiatives and cost management efforts are yielding positive results. The waste management services segment continues to be a strong contributor to the company's performance, while the golf and related operations segment has shown encouraging signs of growth and improved efficiency.

As Avalon continues to work through the legal issues surrounding its salt water injection well operations and adapt to the changing dynamics in the golf industry, its ability to effectively manage costs, generate consistent cash flow, and maintain a strong financial position will be critical to its long-term success. The company's focus on enhancing its service offerings, improving operational efficiency, and capitalizing on growth opportunities in both segments positions it well for future growth.

Investors will closely monitor the company's progress in addressing these key issues and its ability to capitalize on the opportunities within its diversified business model. With its improved financial performance and ongoing strategic initiatives, Avalon Holdings Corporation appears to be on a path towards sustainable growth and improved shareholder value.