Boston Omaha Corporation — Q2 2016 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and six months ended June 30, 2016. Boston Omaha operated outdoor advertising businesses in Alabama, Florida, Georgia and Wisconsin, a surety-bond brokerage acquired in April 2016, and minority investments in real estate ventures. The company reported that it owned more than 520 billboard signs.
Financial performance and position
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Prior comparable period |
|---|---|---|---|
| Revenue | $994,279 | $1,507,823 | $0 and $9,700, respectively |
| Operating loss | $657,171 | $1,451,106 | $176,178 and $238,899, respectively |
| Net loss | $639,661 | $1,479,499 | $179,545 and $246,788, respectively |
| Net loss per share | $0.11 | $0.29 | $0.44 and $0.73, respectively |
- Q2 revenue comprised $800,518 of billboard rentals and $193,761 of insurance commissions. Six-month revenue included $1,314,062 of billboard rentals and $193,761 of insurance commissions.
- Six-month costs and expenses were $2,958,929, including $749,644 of depreciation and amortization and $692,495 of professional fees. Management attributed much of the professional fees to acquisitions, the 2016 financing and public-company costs.
- Operating cash outflow for the first half was $757,977; investing cash outflow was $10,947,621, including $10,401,952 for business acquisitions. Equity issuance provided $41,747,129 in financing cash flow.
- At June 30, cash was $43,230,597 and total assets were $64,267,549. Total liabilities were $398,376, including a $126,500 long-term acquisition payable. The company reported no debt at June 30.
- Stockholders’ equity was $63,869,173. Common shares outstanding increased to 5,840,417 from 1,716,954 at year-end 2015; the filing also reports 1,055,560 Class A shares outstanding.
Material changes versus the prior period
- Revenue grew from near zero as billboard acquisitions expanded operations and the company entered insurance brokerage through the Warnock Agency acquisition. The six-month 2015 comparison included $9,700 of consulting revenue, a service the company had discontinued.
- Losses increased in dollars alongside expanded operations, acquisition-related depreciation and amortization, and higher professional and employee costs. Loss per share was lower than the prior-year comparable periods, while weighted-average shares increased substantially following equity issuance.
- Cash rose from $13,189,066 at December 31, 2015, mainly reflecting $41,747,129 raised through common-stock issuance, partly offset by acquisition and operating outflows.
- The company completed billboard acquisitions in Wisconsin and Georgia and acquired The Warnock Agency. Purchase-price allocations for acquisitions were provisional pending independent appraisals.
Outlook, risks and unusual items
- Management’s stated objective is to grow intrinsic value per share by reinvesting in existing operations, making acquisitions and investing in other earnings streams. It expects to continue pursuing billboard and insurance acquisitions; the filing gives no quantified earnings or revenue guidance.
- A proposed $13 million acquisition of United Casualty and Surety Insurance Company remained conditional on closing requirements, including Massachusetts insurance-regulator approval. Management estimated a possible closing in the second half of 2016. Cash at June 30 was described as sufficient for this deal and a limited number of other acquisitions.
- Management said additional financing may be needed after the 2016 financing proceeds are used. There were no binding commitments for additional financing, and the company cautioned that financing may not be available on acceptable terms and that acquisitions may not achieve or maintain profitability.
- Management identified material weaknesses in internal control over financial reporting and stated controls may not be effective as of June 30. The company hired a full-time controller in June and was working on risk assessment and remediation. Management nevertheless said post-closing procedures supported fair presentation of the reported financial statements.
- The 2016 stock offering included purchases by controlling stockholders and entities related to officers and directors. The filing states that Magnolia and Boulderado together controlled 93.23% of voting power on a combined basis, assuming currently exercisable warrants are exercised.
- Acquired billboard leases had future minimum rents of $5,269,021; many could be cancelled with little or no penalty. The filing reported no off-balance-sheet arrangements and no legal proceedings.
Important facts for investors to verify
- Regulatory approval, closing conditions, final consideration and funding for the proposed $13 million UC&S acquisition.
- Progress in remediating the disclosed material weaknesses and whether internal controls become effective.
- Acquisition performance, integration costs, provisional purchase-price allocations, goodwill and intangible-asset amortization.
- Whether operating cash generation improves and how much additional capital future acquisitions require.
- Share-count and voting-control effects, including the rights offering that was scheduled to expire August 31, 2016.