Boston Omaha Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Boston Omaha operates outdoor advertising, surety insurance and brokerage, and, following a March acquisition, broadband services. It also holds minority investments in other businesses.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $11.41 million | $9.11 million; up 25.2% |
| Operating loss | $1.18 million | $4.79 million |
| Net loss attributable to common stockholders | $24.73 million; $1.05 per share | $4.08 million; $0.18 per share |
| Operating margin | (10.3%) | (52.6%) |
| Cash from operations | $(0.11) million | $0.24 million provided |
| Cash from investing activities | $35.83 million provided | $11.27 million used |
Revenue growth reflected earned insurance premiums, which rose 83.5%, billboard rentals, up 6.4%, and $0.27 million of broadband revenue after the March 10 acquisition. Billboard gross margin was 59.1% versus 60.0%; insurance gross margin was 61.7% versus 44.8%. Lower amortization materially improved operating results: Q1 amortization was $0.95 million versus $2.85 million, following an extension of estimated billboard customer-relationship lives from three to ten years.
The larger net loss was primarily driven by a $24.75 million unrealized loss on securities, compared with a $0.08 million unrealized loss in Q1 2019. The company held $59.64 million of marketable equity securities at March 31, with reported cost of $77.70 million. These market-value changes are included in earnings; they are not equivalent to realized sale losses.
At March 31, cash and cash equivalents were $51.61 million, restricted cash was $0.48 million, and total assets were $412.14 million, down from $436.91 million at year-end. Current liabilities were $21.77 million. Long-term debt, including current maturities, was $18.06 million; operating lease liabilities totaled $52.60 million. The debt is at the billboard subsidiary, Link, and is not guaranteed by the parent or its non-billboard businesses. Link had no revolver or second-term-loan borrowings and was in compliance with its financial covenants.
Cash increased by $35.72 million, including restricted cash. Investing cash flows included net proceeds from investment sales and purchases, as well as the broadband and billboard acquisitions, an investment in 24th Street Fund I, and a $6 million redemption of Dream Finders preferred units. Operating cash flow was slightly negative.
Material changes, outlook and risks
- Acquisitions and investments: The company acquired Nevada billboard assets for approximately $2.0 million and FibAire, a rural broadband provider, for a stated purchase price of $13.71 million. FibAire contributed $0.27 million of revenue and $0.07 million of earnings from acquisition through quarter-end. Its preliminary purchase-price allocation includes $7.63 million of goodwill and remains subject to valuation refinement. Boston Omaha also purchased the remaining minority interest in a surety brokerage business.
- COVID-19: Management said it could not estimate the pandemic’s overall financial impact. It expected pressure on billboard demand and customer collections, fewer surety bonds, and potential adverse effects on investments and broadband customer payments. The company temporarily suspended most new rental-guarantee bond issuance; it warned that insurance loss reserves might prove inadequate if defaults exceed historical experience and that reinsurance costs could rise. Management also noted potential impairment risk, including goodwill of $115.3 million, or 28% of total assets.
- Liquidity and capital allocation: Management believed existing cash, short-term investments, potential financing and operating cash flows would meet working-capital needs and expected capital expenditures for the next 12 months. Additional large acquisitions could require new financing, which may not be available on favorable terms. A $20 million share-repurchase authorization was approved, but no shares had been repurchased by the filing date. The company subsequently sold 40,455 Class A shares through its at-the-market program for $0.65 million net proceeds.
- Guidance: The filing provides no specific numerical earnings or revenue guidance. Management described plans to pursue billboard, insurance and broadband growth, while acknowledging uncertainty around COVID-19 and acquisition opportunities.
- Other items: Insurance operations’ reported loss was heavily affected by unrealized investment losses despite $0.30 million of segment operating income. Insurance loss expense benefited from $0.22 million of salvage and subrogation proceeds. Management reported disclosure controls as effective and no material change in internal control over financial reporting. Routine litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- How COVID-19 affected subsequent billboard occupancy, collections, surety bond issuance, claims, reinsurance costs and broadband customer payments.
- Whether investment valuations and reported earnings remain materially affected by market-price volatility or any subsequent securities sales.
- The final FibAire acquisition valuation, including goodwill and the terms and potential cost of the seller’s ownership put/call options.
- Link’s covenant compliance and debt-service capacity as principal repayments begin; distinguish parent cash and debt from subsidiary obligations.
- Whether the company uses its ATM offering or share-repurchase authorization, and how those decisions affect liquidity and share count.