Boston Omaha Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. Boston Omaha operates billboard advertising, broadband, surety insurance and brokerage, and asset-management activities, and holds minority investments.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $21.45 million | $14.50 million | $58.64 million | $41.88 million |
| Operating loss | $1.80 million | $2.76 million | $4.96 million | $5.34 million |
| Net income (loss) attributable to common stockholders | $(1.41) million | $(26.28) million | $3.40 million | $66.80 million |
| Basic and diluted earnings (loss) per share | $(0.05) | $(0.89) | $0.11 | $2.32 |
Q3 revenue rose 47.9%; nine-month revenue rose 40.0%. Billboard revenue increased 23.9% in Q3 and 25.0% year to date, reflecting acquisitions and better rental and occupancy rates. Broadband revenue increased 114.7% in Q3 and 78.8% year to date, primarily following the April 2022 InfoWest and Go Fiber acquisition. Earned premiums rose 40.8% in Q3 and 36.0% year to date; brokerage commissions declined 34.3% and 4.1%, respectively.
- Segment gross margins, Q3: Billboards 64.8% (62.7% prior year); broadband 72.8% (80.3%); insurance 46.2% (61.9%). Insurance margin was pressured by higher loss and adjustment expenses; broadband margin declined amid acquisition and Fiber Fast Homes costs.
- Cash flow, nine months: Operating cash used was $9.58 million, versus $6.62 million provided in 2021. Investing activities provided $104.61 million, including proceeds from the Yellowstone trust account and sales or maturities of investments; financing activities used $116.02 million, mainly for Yellowstone redemptions. Capital expenditures were $30.20 million.
- Liquidity at September 30: Cash and cash equivalents were $38.53 million; management described approximately $39 million as unrestricted cash, plus $37.87 million in U.S. Treasury trading securities and $13.33 million in marketable equities. Cash, cash equivalents and restricted cash totaled $60.72 million. Current assets were $130.89 million and current liabilities $52.44 million.
- Debt and leases: Long-term debt carrying value was $28.88 million, including $1.53 million current; no revolving credit balance was outstanding. The debt is Link’s term loan at a fixed 4.00%, maturing December 2028. Operating lease liabilities totaled $62.79 million. The company reported compliance with Link’s financial covenants.
- Balance sheet: Total assets were $674.66 million, down from $807.05 million at year-end 2021; stockholders’ equity was $499.96 million. The decrease in assets included the Yellowstone deconsolidation and redemption of its noncontrolling interest.
Material changes and unusual items
- InfoWest and Go Fiber were acquired April 1 for a preliminary purchase price of $48.57 million, partly paid with a 20% interest in the acquired subsidiary. From acquisition through September 30, they contributed $8.01 million revenue and $1.17 million earnings. Purchase-price allocation remained preliminary.
- Nine-month 2022 results included a $24.98 million noncash gain on Yellowstone’s deconsolidation and $14.78 million in other investment losses. By comparison, nine-month 2021 included $85.69 million in other investment income. These investment and transaction items materially affect year-over-year net income comparisons.
- Marketable equity securities and Treasury trading securities generated $9.26 million of fair-value losses included in current-period earnings. Management reported approximately $34 million of realized gains on sales of Boston Omaha’s marketable equity portfolio during each of the first nine months of 2022 and 2021.
- Q3 operating costs included a $346,849 reserve adjustment after UCS’s actuarial review indicated it was under-reserved, primarily for contract-bond losses. Nine-month loss reserves were $1.81 million at September 30.
Outlook, risks and controls
Management said existing cash, short-term investments, Link credit availability and operating cash flows were expected to meet working-capital needs and anticipated capital expenditures for the next 12 months. No specific material acquisition was probable at the filing date. Management intends to pursue billboard, broadband and insurance growth, acquisitions, investments and build-for-rent development; larger opportunities could require additional debt or equity financing, which may not be available on favorable terms.
- Management identified market volatility and possible impairment of its Sky Harbour investment as risks. It reported no impairment at September 30, but stated that failure of Sky Harbour’s share price to recover above the $8.16-per-share carrying value in the near term would likely result in impairment.
- The company highlighted the risk of exceeding the Investment Company Act threshold: no more than 40% of total assets may be investment securities. Maintaining compliance could require selling investments or pursuing other actions at unattractive terms.
- Other disclosed risks include acquisition execution, economic and inflationary pressures, insurance claims and reserve estimates, and Link covenant compliance. Routine litigation was not expected by management to have a material adverse effect. Management said disclosure controls were effective; the newly acquired InfoWest and Go Fiber operations were excluded from the internal-control assessment during integration.
Important facts for investors to verify
- How much revenue and cash flow growth is organic versus attributable to acquisitions, particularly InfoWest and Go Fiber.
- Whether broadband and insurance costs, including UCS claim reserves, stabilize and whether segment profitability improves.
- The composition and liquidity of cash and investment holdings, and the effect of market-value changes on reported earnings.
- Sky Harbour’s carrying value, valuation and impairment indicators, including the $8.16-per-share threshold.
- Remaining acquisition funding needs, Link covenant headroom, lease commitments, and the company’s ability to remain within Investment Company Act limits.