Boston Omaha Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with FY2019. This is an annual filing, not a standalone fourth-quarter report, and the supplied filing text does not provide a clear Q4-only financial summary.
Business context
Boston Omaha operates outdoor billboard advertising, surety insurance and brokerage, and broadband services. It also holds minority investments, including in homebuilder Dream Finders Holdings (DFH), commercial real estate businesses, and a bank. In 2020, it entered broadband through acquisitions in Arizona and Utah and sponsored SPAC Yellowstone.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $45.7 million | $41.4 million |
| Operating loss | $4.0 million | $12.4 million |
| Net income (loss) attributable to common stockholders | $0.46 million; $0.02 per share | ($1.49) million; ($0.07) per share |
| Cash from operating activities | $5.6 million | $9.6 million |
| Cash used in investing activities | $38.1 million | $60.6 million |
| Cash provided by financing activities | $60.0 million | $49.2 million |
- Revenue increased 10.5%, led by the new broadband business and higher earned surety premiums. Billboard rental revenue declined 0.6%, reflecting lower occupancy and rental rates amid COVID-19.
- Operating loss narrowed substantially, but operating costs still exceeded revenue. The improvement was materially affected by amortization expense falling to $4.0 million from $10.5 million after the company extended the estimated amortization period for billboard customer relationships from three to ten years.
- Net income included $5.7 million of realized investment gains, $5.2 million of equity-method income, and $8.3 million of unrealized securities losses. Consequently, reported earnings were influenced by investment valuations and transactions, not solely operating performance.
- Segment gross margins were 60.1% for billboards, 51.0% for insurance, and 85.8% for broadband. Broadband generated $3.8 million of revenue and $0.39 million of segment operating income in its first year, with results reflecting only partial-year ownership.
- At year-end, total assets were $509.7 million and stockholders’ equity was $402.9 million. Cash and cash equivalents were $43.5 million; U.S. Treasury securities were $37.8 million; and marketable equity securities were $64.0 million. Management also described approximately $44 million of unrestricted cash and $38 million of Treasury securities.
- Long-term debt was $23.1 million, including $1.3 million current. The debt is at the billboard subsidiary, secured by its assets, and was reported in covenant compliance. Operating lease liabilities totaled $51.9 million. Management said existing cash and short-term investments were expected to fund operations for at least 12 months.
Material changes, outlook and risks
- Broadband acquisitions: AireBeam was acquired in March for a stated cash purchase price of approximately $12.3 million, with 10% of the subsidiary’s equity issued to the seller. Utah Broadband was acquired in December for approximately $21.3 million in cash, with 20% of the subsidiary’s equity issued to the seller. The Utah purchase-price allocation remained preliminary at year-end.
- The company raised $58.9 million gross in a May/June 2020 public stock offering and issued additional shares under its at-the-market program. The prior shelf registration expired in February 2021; management expected to file a new shelf. Additional equity financing could dilute existing shareholders.
- COVID-19 affected billboard demand and surety activity. The company suspended new rental-guarantee bonds and increased surety loss reserves from $1.2 million to $2.5 million. Rental-guarantee products contributed $5.5 million of UCS revenue in 2020, creating a risk to future revenue and claims experience.
- Management described continued acquisition and broadband expansion plans but gave no specific earnings guidance and reported no probable, committed material acquisition at filing. It said additional financing might be needed for significant future acquisitions.
- After year-end, DFH completed its IPO; Boston Omaha’s DFH holding became publicly traded shares, subject to restrictions including a lock-up through July 19, 2021. The company reported the investment was worth over $111 million at March 26, 2021, before applicable fair-value adjustments or discounts. DFH also repaid Boston Omaha’s $20 million loan early, for $20.6 million including interest.
- Key risks include continued operating losses, acquisition and integration execution, uncertain insurance claims and reserve adequacy, investment volatility, capital needs and dilution, debt covenants, and the possibility of being deemed an investment company because of its investment holdings. Class B shares carry ten votes each; founders and affiliated entities retain substantial voting control.
- The financial statements received an unmodified audit opinion. KPMG became auditor in August 2020. Management concluded internal control over financial reporting was effective, but excluded the recently acquired broadband businesses from its year-end controls assessment.
Most important facts for investors to verify
- Whether the reduction in amortization reflects realistic customer-relationship lives, and how results look before this accounting-estimate change.
- Broadband subscriber growth, integration progress, capital spending, and the final Utah acquisition valuation.
- UCS rental-guarantee claims, reserve adequacy, and the revenue impact of suspending new bond issuance.
- Cash generation and liquidity after acquisitions, investments, and the subsequent DFH loan repayment; distinguish unrestricted cash from collateral and invested securities.
- The performance and realizability of publicly traded and private investments, including DFH shares after lock-up restrictions and Yellowstone’s business-combination deadline.
- Any new equity issuance, debt financing, acquisition commitments, or changes in covenant compliance and investment-company status.