Business Overview

Avalon Holdings Corporation (NYSE American: AWX) is a diversified company that operates in two primary business segments: waste management services and golf and related operations. Despite facing headwinds in recent years, the company has demonstrated resilience and a commitment to adapting to the evolving market landscape.

Avalon's waste management services segment provides hazardous and nonhazardous waste brokerage and management services, captive landfill management services, and salt water injection well operations. The company serves industrial, commercial, municipal, and governmental customers primarily in the northeastern and midwestern United States.

The golf and related operations segment includes the management and operation of four golf courses and associated clubhouses, recreation and fitness centers, tennis courts, salon and spa services, and dining and banquet facilities. Additionally, Avalon owns and operates The Grand Resort, which offers hotel accommodations and related resort amenities.

Financials

In the fiscal year 2023, Avalon reported annual net income of -$1.775 million, annual revenue of $80.515 million, annual operating cash flow of $2.355 million, and annual free cash flow of -$1.542 million. These figures demonstrate the company's ongoing challenges in maintaining profitability and generating consistent positive cash flow.

For the first quarter of 2024, Avalon reported net operating revenues of $18.858 million, compared to $18.445 million in the same period of 2023, representing a modest increase of 2.2%. The waste management services segment generated $12.470 million in net operating revenues, a slight decrease from $12.652 million in the prior-year quarter, primarily due to a decline in event-based projects. The golf and related operations segment, on the other hand, saw an increase in net operating revenues to $6.388 million, up from $5.793 million in the first quarter of 2023, driven by higher pricing and improved business operations.

The company's net loss attributable to Avalon Holdings Corporation common shareholders for the first quarter of 2024 was $0.979 million, or $0.25 per share, compared to a net loss of $1.677 million, or $0.43 per share, in the same period of the previous year. The improvement in net loss was primarily due to cost-cutting measures and increased revenue in the golf and related operations segment.

As of March 31, 2024, Avalon had a working capital deficit of $4.4 million, compared to a deficit of $3.9 million at the end of 2023. The company's current ratio stood at 0.8, and its quick ratio was 0.71, indicating potential liquidity challenges.

Avalon's capital expenditures for the first three months of 2024 were $0.355 million, primarily related to the continued renovation of The Grand Resort and the clubhouse at Avalon Field Club at New Castle. The company expects its aggregate capital expenditures in 2024 to be in the range of $3.0 million to $4.0 million, which it plans to fund through a combination of cash from the project fund account, proceeds from the line of credit, and cash generated from operations.

Debt and Financing

In August 2022, Avalon entered into a $31.0 million term loan agreement with Laurel Capital Corporation, which was used to refinance the company's previous term loan and provide funding for future capital projects. The new term loan agreement has a 25-year maturity schedule and bears interest at a fixed rate of 6.00% until the seventh anniversary, after which the rate will be reset.

Avalon also maintains a $5.0 million line of credit with Premier Bank, of which $3.2 million was outstanding as of March 31, 2024. The line of credit agreement contains a fixed charge coverage ratio covenant, which the company was in compliance with as of the reporting date.

Segment Performance

The waste management services segment reported income before income taxes of $1.221 million in the first quarter of 2024, compared to $0.949 million in the same period of 2023. The increase was primarily attributable to improved gross profit margins in the waste brokerage and management services business.

The golf and related operations segment recorded a loss before income taxes of $0.751 million in the first quarter of 2024, an improvement from a loss of $1.292 million in the first quarter of 2023. The improvement was driven by increased revenue from membership dues, room rentals, and salon and spa services, as well as cost-cutting initiatives.

Risks and Challenges

Avalon faces several risks and challenges that could impact its future performance. These include government regulations that restrict the transportation and disposal of out-of-state waste, legal matters related to the company's saltwater disposal wells, and the seasonality of the golf and related operations segment due to weather conditions.

Additionally, the company's waste management services segment is dependent on a limited number of large customers, and the golf and related operations segment is heavily reliant on membership dues and liquor licenses. Avalon also faces competitive pressures in both its business segments and the potential for adverse economic conditions to impact consumer spending and discretionary income.

Outlook

Despite the challenges faced by Avalon, the company has demonstrated resilience and a willingness to adapt to the changing market environment. The management team has implemented cost-cutting measures and focused on improving the performance of the golf and related operations segment, which has shown signs of progress.

Looking ahead, Avalon's success will depend on its ability to navigate the regulatory landscape, retain key customers, and capitalize on opportunities in both its waste management services and golf and related operations segments.

Conclusion

While the company's financial performance has been uneven in recent years, the management team's commitment to operational efficiency and strategic initiatives suggests that Avalon may be well-positioned to weather the current challenges and emerge as a stronger, more diversified company in the future.