Boston Omaha Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. The filing was signed March 28, 2022. Boston Omaha operates billboard advertising, surety insurance and brokerage, and broadband businesses, alongside minority investments.
Financial performance and liquidity
- Revenue: $57.0 million, up 24.5% from $45.7 million. Billboard revenue was $31.5 million (+11.5%); broadband revenue was $15.2 million (up from $3.8 million); earned insurance premiums were $7.7 million (down 34.4%); and insurance commissions were $2.2 million (up 48.1%).
- Operating results: Operating loss widened to $23.8 million from $5.0 million. Total costs and expenses rose to $80.7 million, or 141.7% of revenue, from $50.7 million, or 110.9%.
- Net income: Net income attributable to common stockholders was $52.7 million ($1.82 per diluted share), versus a $49,000 loss in FY2020. This result was primarily driven by $93.2 million in investment income, mainly gains on publicly traded securities—not by operating profitability. The company also recorded a $17.7 million income-tax provision.
- Segment margins: Billboard gross margin improved to 61.6% from 60.1%; insurance gross margin increased to 68.9% from 51.0%; broadband gross margin was 78.2% versus 85.8%. Billboard segment operating income was $2.7 million; insurance had a $0.8 million operating loss; broadband operating income was $0.4 million.
- Cash flow: Operating cash flow was $7.8 million, compared with $5.2 million. Investing cash flow used $45.7 million and financing cash flow provided $64.6 million. Capital expenditures were $21.0 million in the cash-flow discussion; the segment disclosure separately reports $65.8 million, so the filing’s definitions and reconciliation should be checked.
- Liquidity and assets: At year-end, cash and cash equivalents were $72.5 million, U.S. Treasury securities $87.5 million, and marketable equity securities $70.6 million. Total assets were $807.1 million; stockholders’ equity was $496.3 million. Cash and Treasury balances are reported separately from marketable equities.
- Debt and leases: Link’s billboard subsidiary had $30.0 million of term debt outstanding, including $1.5 million current, at a fixed 4.00% rate; its $5 million revolver was undrawn. Link was in compliance with its financial covenants at year-end. Operating lease liabilities totaled $60.6 million.
Material changes and notable items
- Broadband’s substantial revenue increase reflected the full-year contribution of the 2020 FibAire and Utah Broadband acquisitions. Billboard growth reflected post-pandemic recovery, the 2021 Thomas acquisition, and other acquisitions; the company acquired over 900 billboard structures during 2021.
- Insurance revenue fell as UCS suspended new rental-guarantee bonds during 2020. FY2021 insurance costs benefited from favorable prior-year loss development and a $741,083 reserve release; year-end insurance loss reserves were $1.4 million, down from $2.5 million.
- Operating expenses included $15.0 million of bonuses to the two co-CEOs ($7.5 million each) under the management incentive plan, plus $650,000 in bonuses to the CFO. Management attributed increased professional and administrative costs partly to Yellowstone/Sky transaction activity. Excluding the specified bonuses and Yellowstone-related costs, management said expenses would have been 108.7% of revenue.
- The company invested $55 million in Sky Harbour preferred units in September 2021. The Sky business combination closed January 25, 2022; Boston Omaha then invested a further $45 million for Sky shares. These are subsequent-period events, not FY2021 operating revenue. The filing reported approximately $326 million of Sky shares and warrants at March 25, 2022, subject to lock-up and potential resale limits.
- In 2021, the company raised $58.6 million gross in a public stock offering and began a $100 million ATM program; it reported $4.2 million gross ATM proceeds as of the filing date. Share issuance and possible future financing can dilute existing holders.
Outlook, risks, and controls
- Management intends to continue pursuing billboard and broadband expansion, acquisitions, and investments, and to develop a build-to-rent business in Nevada. It provided no earnings guidance and said there were no specific material acquisitions considered probable at the time of filing.
- Management expected cash and available resources to fund existing operations for at least the next 12 months, while noting that significant additional acquisitions could require further debt or equity financing. It expected to file a new shelf registration statement.
- Key risks include ongoing operating losses, acquisition execution and integration, dependence on additional capital, volatile mark-to-market investment results, Sky investment lock-up and resale restrictions, and potential Investment Company Act status if investment assets exceed applicable limits. Other risks include competition, regulation, COVID-19 effects, insurance claims/reserving uncertainty, inflation, and reliance on key executives.
- Boston Omaha reported effective disclosure controls and internal control over financial reporting as of December 31, 2021. A material weakness involving complex SPAC accounting had led to a 2020 financial-statement restatement; management said it was remediated in 2021. The auditor gave an unqualified opinion on the financial statements but did not express an opinion on internal-control effectiveness.
- The company reported ordinary-course litigation and disputes that management did not expect to have a material adverse effect. It does not intend to pay common-stock dividends in the foreseeable future.
Important facts for investors to verify
- How much of FY2021 net income and book-value growth came from realized versus unrealized investment gains, and how those gains affect executive incentive compensation.
- Underlying operating performance and cash generation by segment, including the cash-flow versus segment disclosure of capital expenditures.
- Broadband subscriber growth, build-out spending, capital requirements, and the economics of recently acquired billboard assets.
- UCS reserve adequacy, the effect of the rental-bond program suspension, and whether favorable reserve development recurs.
- Sky’s post-combination performance, Boston Omaha’s investment value and resale restrictions, and any Investment Company Act compliance actions.
- Potential dilution from the ATM or future shelf offerings, and the terms and capacity available under Link’s debt facility.