Avalon(AWX) - 2019 Q1 - Quarterly Report

Financial Performance - Net operating revenues increased to $14.6 million in Q1 2019, up from $11.5 million in Q1 2018, primarily driven by the waste management services segment [165]. - The waste management segment's net operating revenues were $11.4 million in the first quarter of 2019, compared to $12.0 million in the fourth quarter of 2018 [155]. - Event work revenues increased to approximately $4.4 million in Q1 2019 from $2.2 million in Q1 2018, reflecting a strong demand for one-time projects [172]. - Net loss attributable to common shareholders was $0.6 million, or $0.16 per share, in Q1 2019, an improvement from a net loss of $0.8 million, or $0.21 per share, in Q1 2018 [169]. - Income before income taxes for the waste management services segment was approximately $1.0 million in Q1 2019, compared to $0.5 million in Q1 2018, indicating improved profitability [187]. - The golf and related operations segment recorded a loss before income taxes of $0.6 million in Q1 2019, compared to a loss of $0.4 million in Q1 2018 [191]. Membership and Revenue - Deferred revenue relating to membership dues increased to approximately $3.3 million at March 31, 2019, compared to $2.9 million at December 31, 2018, driven by the timing of annual membership renewals and an increase in members [157]. - The number of members at March 31, 2019, was 4,671, an increase from 4,606 at December 31, 2018 [157]. - Membership dues revenue remained stable at approximately $1.3 million in both Q1 2019 and Q1 2018, with the average number of members increasing to 4,649 from 4,372 [189]. - Avalon is actively using marketing strategies to attract and retain members, as a significant decline in membership could adversely impact financial results [192]. - The company is continually using different marketing strategies to attract new members, including local television advertising and membership promotions [220]. Capital Expenditures and Debt - For the three months ended March 31, 2019, Avalon incurred capital expenditures of $1.3 million, primarily related to the renovation and expansion of The Avalon Inn and the Avalon Athletic Club at Boardman [142]. - Avalon expects aggregate capital expenditures in 2019 to be in the range of $3.0 million to $3.5 million, funded with cash from operations [142]. - The 2016 Term Loan Agreement has a principal amount of $12.0 million, with a fixed interest rate of 5.35% until the fifth anniversary date [143]. - The 2019 Term Loan Agreement provides for a $3.0 million term loan, with a fixed interest rate of 6.25% until the fifth anniversary date [146]. - Borrowings under the 2016 Term Loan Agreement bear interest at a fixed rate of 5.35% until the fifth anniversary date, after which it may reset to a maximum of 7.50% [230]. - Borrowings under the 2019 Term Loan Agreement bear interest at a fixed rate of 6.25% until the fifth anniversary date, with a maximum reset rate of 8.50% [231]. - At March 31, 2019, the interest rate on the Line of Credit Agreement was 5.75%, with no amounts outstanding under this agreement [232]. Operational Challenges - Avalon had a working capital deficit of approximately $2.3 million at March 31, 2019, impacted by an increase in deferred membership dues revenue and long-term debt obligations [154]. - The company faces potential regulatory challenges that could negatively affect its waste brokerage and management services, particularly regarding out-of-state waste disposal [199]. - Economic challenges may lead to customer payment defaults, which could materially impact Avalon's future financial performance [219]. - Avalon's operations are seasonal and significantly affected by weather conditions during the golf season, impacting financial performance [222]. Other Financial Metrics - Costs of operations for the waste management segment increased to $9.2 million in Q1 2019 from $6.7 million in Q1 2018, correlating with the rise in revenues [166]. - The overall gross margin percentage for the waste brokerage and management services business was approximately 19% in Q1 2019, down from 21% in Q1 2018 [186]. - Food, beverage, and merchandise sales increased to approximately $1.1 million in Q1 2019 from $1.0 million in Q1 2018, primarily due to higher food and beverage revenue [189]. - Other net operating revenues related to golf operations rose to $2.1 million in Q1 2019 from $2.0 million in Q1 2018, while room rental revenues decreased to $0.3 million from $0.4 million due to lower occupancy [189]. - The cost of operations for golf and related operations increased to $3.0 million in Q1 2019 from $2.7 million in Q1 2018, driven by higher employee-related costs [190]. - General corporate expenses decreased to $0.8 million in Q1 2019 from $0.9 million in Q1 2018, attributed to lower legal and professional costs [193]. - The company recorded a right-of-use asset and related lease liability of approximately $1.7 million due to the adoption of ASU 2016-02 on January 1, 2019 [222]. - The adoption of ASU 2014-09 did not result in a material impact on how the company records revenue [223]. - The company has accounted for the impacts of the Tax Cuts and Jobs Act, utilizing reasonable estimates where necessary [227]. - Avalon recorded an impairment charge of approximately $3.3 million in Q4 2018 related to the salt water injection wells, reflecting the challenges faced in that segment [182].