Executive Summary / Key Takeaways

• Avalon Holdings Corporation (NYSE:AWX) operates a unique dual business model, combining waste management services with a diverse portfolio of golf and related hospitality operations, offering a distinct investment profile.
• The company demonstrated resilience in the third quarter of 2025, with net operating revenues increasing to $25.7 million, primarily driven by a surge in event work projects within its waste management segment. However, year-to-date performance for the first nine months of 2025 saw a slight revenue decline due to reduced continuous and event work, alongside challenges in golf club membership retention.
• AWX maintains a strong liquidity position, with working capital improving to $0.3 million as of September 30, 2025, and management projecting 2025 capital expenditures between $1.5 million and $2.5 million, funded by operational cash flow and a dedicated project fund.
• A significant ongoing legal battle concerning the suspension of its salt water injection well operations continues to be a notable risk, with the company recently filing a malpractice complaint against former legal counsel.
• AWX's competitive stance relies on its niche expertise and diversified revenue streams, though it faces challenges from larger, more scaled competitors in waste management and the inherent seasonality and discretionary nature of its hospitality segment.

A Dual-Engine Enterprise: Setting the Scene for Avalon Holdings

Avalon Holdings Corporation (NYSE:AWX) presents a distinctive investment narrative, operating as a dual-engine enterprise with significant interests in both waste management services and a comprehensive suite of golf and related hospitality operations. This unique blend, established following its spin-off from American Waste Services, Inc. in 1998, has shaped its strategic responses to market dynamics and defined its foundational strengths. The company's waste management segment provides specialized hazardous and nonhazardous waste brokerage and management, captive landfill services, and historically, salt water injection well operations for industrial, commercial, municipal, and governmental clients across selected northeastern and midwestern U.S. markets. Concurrently, its golf and related operations encompass a hotel, The Grand Resort, four golf courses, country clubs, and a multipurpose recreation center, offering a wide array of amenities from dining and banquets to salon and spa services.

The industry landscape for waste management is characterized by consolidation, which can lead to reduced disposal options and increased pricing pressures. In this environment, AWX positions itself by offering tailored programs and centralized services designed to minimize customer procurement costs, leveraging its extensive management and sales staff experience. This approach represents AWX's core operational and service technology, focusing on process innovation and customized solutions rather than proprietary physical products. The company's ability to identify cost-efficient disposal options unique to a customer's needs is a key differentiator, contributing to its competitive moat by fostering strong client relationships and potentially enhancing profitability through efficient execution. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's strong performance in specialized waste projects suggests the efficacy of this tailored service model.

In the hospitality sector, AWX's competitive strategy centers on an integrated resort experience. The acquisition of The Grand Resort in 2014 was a pivotal move, designed to create a self-contained vacation experience that cross-sells golf packages and grants club members access to resort amenities, aiming to boost memberships in the Avalon Golf and Country Club. This integration, coupled with recent ventures into Avalon Med Spa, LLC (2021) and Avalon Dermatology, LLC (2024), underscores a strategy to diversify revenue streams within the hospitality segment and enhance the overall value proposition for members and guests. However, this segment operates in a market sensitive to discretionary spending and is inherently seasonal, particularly for golf courses in the Northeast and Midwest, making it susceptible to adverse weather conditions.

AWX's competitive standing against larger, more diversified waste management players like Waste Management Inc. (WM) and Republic Services (RSG) is rooted in its niche expertise and service flexibility, rather than scale. While these larger competitors benefit from extensive infrastructure and broader market reach, AWX's specialized approach in waste brokerage and captive landfill management allows it to carve out specific market segments. In the hospitality sector, AWX competes with numerous public and private country clubs, differentiating itself through the integrated offerings of The Grand Resort and its associated facilities.

Financial Performance and Operational Dynamics

Avalon Holdings' recent financial performance reflects the distinct dynamics of its two operating segments. For the third quarter ended September 30, 2025, net operating revenues increased by 6.2% to $25.7 million, up from $24.2 million in the prior-year quarter. This growth was primarily fueled by a significant increase in "event work projects" within the waste management services segment, which saw its revenues rise to $12.9 million from $11.5 million in Q3 2024. The golf and related operations segment remained relatively stable, generating $12.8 million in revenues for both periods.

However, a broader view of the first nine months of 2025 reveals a slight contraction in overall net operating revenues, which decreased to $62.1 million from $66.2 million in the corresponding period of 2024. This decline was largely attributed to a decrease in both continuous and event work projects in waste management, alongside a reduction in membership dues and general business activity at the country clubs. The waste management segment's gross margin percentage for its brokerage and management services business saw a slight dip to approximately 20% in Q3 2025 from 22% in Q3 2024, primarily due to lower gross profit from event work projects. Conversely, the golf and related operations segment experienced an increase in operating costs, driven by higher utility and employee-related expenses. Despite these mixed revenue trends, Avalon's net income attributable to common shareholders saw a modest increase in the third quarter of 2025, reaching $1.9 million, or $0.49 per share, compared to $1.8 million, or $0.47 per share, in Q3 2024. For the first nine months of 2025, net income attributable to common shareholders was $0.7 million, or $0.17 per share, a decrease from $1.8 million, or $0.47 per share, in the same period of 2024. The company's EBITDA margin for the trailing twelve months stands at 7.16%, while its net profit margin is 0.15%.

From a liquidity standpoint, Avalon's working capital improved significantly, moving from a deficit of approximately $0.9 million at December 31, 2024, to a positive $0.3 million at September 30, 2025. This improvement was driven by an increase in cash and cash equivalents, coupled with higher accounts receivable, partially offset by increases in accounts payable and deferred membership dues. The company's debt-to-equity ratio is 0.94, which is considered acceptable within its industry. Avalon maintains a project fund with $8.7 million in restricted cash, earmarked for future renovations and expansion of The Grand Resort and Avalon Field Club at New Castle. Management is confident that anticipated cash from future operations, supplemented by its existing $5 million line of credit (extended to July 31, 2027), will be sufficient to cover operating requirements and debt obligations.

Strategic Outlook and Persistent Challenges

Avalon's strategic outlook for its waste management segment centers on internal growth, aiming to expand market share through targeted sales and marketing efforts. The company plans to hire additional professional sales personnel to penetrate new geographical areas and will continue to bid on significant one-time projects that leverage its specialized expertise. For the golf and related operations, the focus remains on attracting and retaining members through various marketing strategies, including local television advertising and membership promotions. The company also actively explores potential acquisition opportunities among financially distressed private country clubs in northeast Ohio.

Capital expenditures for 2025 are projected to be in the range of $1.5 million to $2.5 million, primarily allocated to hotel room remodeling at The Grand Resort, parking lot improvements, and other building and equipment upgrades. These investments are crucial for maintaining the competitiveness and appeal of its hospitality assets.

Despite these strategic initiatives, Avalon faces several significant risks. The most protracted challenge stems from the ongoing suspension of its AWMS 2 salt water injection well operations since 2014, following a seismic event. This has led to extensive and costly legal proceedings, with the Supreme Court of Ohio declining to hear the company's latest appeal in July 2025. Consequently, Avalon filed a malpractice complaint against its former legal counsel in August 2025, seeking damages related to the handling of these appeals. This legal overhang continues to incur losses and represents a substantial distraction and financial burden.

Other risks include the inherent seasonality of its operations, particularly for the golf courses, which are highly dependent on favorable weather conditions. Economic conditions, including inflationary pressures and rising interest rates, can impact consumer discretionary spending, directly affecting the golf and related operations segment. Labor availability and costs also pose a challenge, especially in the specialized waste management division where finding qualified personnel with specific expertise is difficult. Furthermore, a significant portion of Avalon's waste management business operates without long-term contracts, and its captive landfill management business is dependent on a single customer, introducing revenue volatility and concentration risk.

Conclusion

Avalon Holdings Corporation stands as a unique investment proposition, balancing the industrial stability of waste management services with the consumer-facing dynamics of its golf and hospitality operations. The company's strategic emphasis on tailored solutions and process optimization in waste management, coupled with an integrated resort experience in its hospitality segment, forms the bedrock of its competitive strategy. While recent third-quarter results showed a positive revenue trend driven by specialized waste projects, the year-to-date performance highlights the ongoing challenges in both segments, particularly in membership retention and the fluctuating nature of project-based work.

The protracted legal battle surrounding its salt water injection wells remains a significant concern, diverting resources and attention. However, Avalon's proactive capital expenditure plans and sound liquidity management demonstrate a commitment to enhancing its core assets and maintaining financial stability. For discerning investors, Avalon Holdings represents a company with niche strengths and a diversified revenue base, but one that requires close monitoring of its operational execution, its ability to mitigate competitive pressures from larger industry players, and the resolution of its long-standing legal challenges. The company's ability to leverage its operational technology in waste management and its integrated hospitality offerings will be key to unlocking sustained value in the coming years.