Boston Omaha Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Financial statements are unaudited. Boston Omaha operates outdoor advertising, surety insurance and brokerage businesses, and holds minority investments in real estate and related-service companies.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $2.385 million | $1.042 million | $6.250 million | $2.550 million |
| Operating loss | $1.559 million | $0.785 million | $4.048 million | $2.236 million |
| Net loss | $1.512 million | $0.791 million | $3.990 million | $2.271 million |
| Basic and diluted loss per share | $0.11 | $0.11 | $0.41 | $0.40 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(2.031) million | $(1.098) million |
- Q3 revenue grew 128.8% year over year; nine-month revenue grew 145.1%. Billboard rentals were $1.452 million in Q3 and $3.682 million year to date. Insurance premiums and commissions contributed $0.900 million in Q3 and $2.467 million year to date.
- Costs and expenses were $3.944 million for Q3 and $10.298 million for nine months. As a percentage of revenue, they declined year over year, from 175.3% to 165.4% for Q3 and from 187.7% to 164.8% year to date. The company nevertheless remained loss-making.
- At September 30, cash was $102.810 million, current assets $107.514 million, current liabilities $3.924 million, total assets $153.662 million, and stockholders’ equity $149.633 million. The company reported no debt.
- Nine-month investing cash outflow was $16.157 million, including $10.587 million for acquisitions, $3.875 million for investments, and $1.856 million for equipment and related assets. Financing provided $91.433 million, principally from the Class A stock offering; cash increased $73.245 million.
Changes versus prior periods
- Results include businesses acquired after the comparable 2016 periods, including UC&S, multiple billboard operations, and the SSS insurance brokerage. The filing cautions that year-over-year comparisons may not be meaningful.
- Billboard revenue increased, reflecting acquisitions and improved occupancy at acquired assets. Insurance revenue expanded with UC&S and brokerage acquisitions; UC&S’s authorized insurance footprint grew from nine states at the end of 2016 to 40 states and the District of Columbia by September 30, 2017.
- Employee, general and administrative, and amortization expenses rose as operations expanded. Billboard costs as a share of billboard revenue increased, which management attributed largely to higher lease expenses on acquired assets.
- The June–July 2017 Class A offering brought net proceeds of $91.433 million. Class A shares outstanding rose to 13,307,157 at September 30, 2017, from 5,841,815 at year-end 2016.
Outlook, risks and unusual items
- Management expects to pursue further billboard and insurance acquisitions, expand insurance licensing and operations, and continue real estate-related investments. It stated that cash should cover working capital and anticipated capital expenditures for the next 12 months and support its strategy; no earnings or revenue guidance was provided.
- Management identified acquisition execution and realization of anticipated benefits as uncertainties. Future acquisitions may be funded with cash, seller or third-party financing, or potentially equity. The company has no governing-document limit on debt and may use leverage at its discretion.
- In October 2017, the company invested $88 million of available cash in short-term U.S. Treasury securities. On November 1, 2017, it agreed to acquire 70% of an insurance brokerage for $2.909 million, with provisions allowing or requiring a later purchase of the remaining 30% under specified conditions.
- The company recorded a $361,326 loss on asset dispositions, related to early replacement of three digital billboards, removal of three structures, and the sale of vehicles and equipment. The filing also reports $101.6 million of deposits above federally insured limits at September 30, 2017.
- Management concluded disclosure controls and internal control over financial reporting were ineffective, identifying a material weakness related to the lack of a formal risk-assessment process and monitoring structure. It described remediation efforts, including a controller/CFO, additional independent audit committee members, and outside consulting support.
- Future minimum rents for billboard and office leases totaled $14.155 million. The filing reports no legal proceedings and no significant derivative or foreign-currency market exposure.
Important facts for investors to verify
- Whether acquisition-driven revenue growth translates into improved operating results and positive operating cash flow.
- Progress on remediating the material weakness and whether subsequent filings report effective controls.
- UC&S’s ability to build sales in newly authorized states, and the performance and integration of acquired billboard and brokerage businesses.
- Use and composition of the company’s substantial cash and Treasury holdings, acquisition commitments, and any future debt or equity financing.
- Final purchase-price allocations for 2017 acquisitions, which the filing says were preliminary, and the terms and potential cost of acquiring the remaining 30% of the brokerage acquired after quarter-end.
- Effects of the 2017 share issuance, including related-party participation: entities controlled by two directors purchased shares for approximately $46.3 million net of underwriting discounts.