Boston Omaha Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; financial statements are unaudited. Boston Omaha operates outdoor advertising, broadband, surety insurance and brokerage, asset management, and minority investments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $24.5 million | $21.4 million | $71.6 million | $58.6 million |
| Operating loss | $1.9 million | $1.8 million | $6.6 million | $5.0 million |
| Net income (loss) attributable to common stockholders | $(1.6) million | $(1.4) million | $(3.4) million | $3.4 million |
| Basic and diluted earnings (loss) per share | $(0.05) | $(0.05) | $(0.11) | $0.11 |
- Nine-month revenue rose 22.1%. Billboard revenue increased 10.8%, broadband 29.5%, and earned insurance premiums 36.2%; insurance brokerage commissions declined 8.0%.
- Q3 revenue increased 14.5%. Billboard, broadband, and earned-premium revenue rose 9.5%, 11.0%, and 30.3%, respectively.
- Nine-month segment gross profit was $47.8 million. Consolidated operating expenses exceeded revenue: operating loss was 9.2% of revenue for the nine months and 7.9% for Q3.
- Operating losses widened year over year in dollars, chiefly due to higher depreciation and amortization from broadband acquisitions and investment, and increased hiring and overhead. Billboard and insurance operations improved; broadband’s nine-month operating loss increased to $4.5 million from $0.8 million.
- Operating cash flow was $12.2 million for the first nine months, versus cash use of $9.6 million in 2022. Investing used $49.0 million and financing provided $34.1 million; cash, cash equivalents and restricted cash decreased $2.6 million to $52.1 million.
Balance sheet, liquidity and capital
- At September 30, total assets were $764.1 million, compared with $687.8 million at year-end 2022. Current assets were $130.3 million and current liabilities $46.2 million.
- Management reported approximately $31 million of unrestricted cash and $27 million of short-term Treasury securities available for general liquidity; a separate $27 million of Treasury securities held by consolidated BOAM funds was unavailable for that purpose. The balance sheet also includes $14.4 million of collateral funds.
- Long-term debt was $27.5 million, including $0.8 million current; the $10 million revolving facility was undrawn. The term loan bears fixed interest of 4.00% and matures December 2028. The company reported covenant compliance at quarter-end. Operating lease liabilities totaled $62.4 million.
- The company sold 1.53 million Class A shares through its ATM program during the nine months, raising $37.5 million gross, before commissions and offering costs. Outstanding Class A shares rose to 30.25 million from 28.65 million at December 31, 2022.
- Capital expenditures were $43.1 million in cash for the nine-month period, primarily supporting broadband expansion. Property and equipment, net, increased to $149.2 million from $115.6 million.
Material changes, outlook and notable items
- In May 2023, Boston Omaha acquired the remaining interests in 24th Street Asset Management and began consolidating it and its funds; asset management is now a separately reported segment. The acquisition included cash and 45,644 Class A shares, with additional holdback and potential earn-out provisions. The acquisition also generated a noncash remeasurement gain of approximately $4.6 million.
- 2023 nine-month results are not directly comparable to 2022 earnings: the prior-year period included a $25.0 million noncash gain on deconsolidation of Yellowstone, among other investment-related items. In 2023, investment results included losses related mainly to 24th Street fund fair-value changes and an equity-method loss from Sky Harbour.
- Management believes existing cash, short-term investments, available Link credit capacity and operating cash flows should cover working capital and anticipated capital expenditures for the next 12 months. No specific material acquisition was committed or considered probable at the filing date. Management intends to pursue growth in billboards, broadband, insurance and investments, with financing potentially from cash, debt, equity, seller or third-party sources; no formal earnings guidance is provided.
- Broadband expansion and investment are increasing depreciation, operating costs and capital requirements. The company also cautions that acquisitions may not deliver anticipated benefits and that additional financing may not be available on favorable terms. Sky Harbour’s investment is subject to potential impairment; management identified sustained trading below its $7.77-per-share carrying value as likely to result in impairment. The company also describes risk of exceeding the Investment Company Act’s investment-securities asset threshold and potentially needing asset sales or other actions.
- Disclosure controls and internal control over financial reporting were reported ineffective at September 30, 2023 because of a material weakness in controls over accounting for investments in entities applying specialized investment-company accounting. Remediation is underway but is not considered complete until controls operate effectively for a sufficient period and are tested.
- Subsequent events: in October, a broadband subsidiary acquired SunRiver Fiber Network assets for $4.375 million. Sky Harbour completed an initial $42.8 million securities financing in November, with a possible additional financing of up to $15.0 million subject to investor discretion and closing conditions.
Most important facts for investors to verify
- Whether broadband subscriber and revenue growth can improve operating results as labor, network costs, depreciation and capital spending rise.
- Cash available to the parent versus cash, collateral and securities held in consolidated funds or otherwise restricted.
- ATM issuance, remaining program capacity, share-count dilution and the uses of proceeds.
- Valuation, impairment indicators and liquidity constraints for Sky Harbour and other investment holdings, including 24th Street fund valuations.
- Progress and testing of remediation for the material weakness in investment accounting controls.
- Link’s covenant headroom as leverage limits tighten to 3.00-to-1.00 beginning with the quarter ending December 31, 2023, and the terms and availability of future financing.