Boston Omaha Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 13, 2020. The filing is an annual report, not a standalone fourth-quarter report. Boston Omaha operated billboard advertising and surety insurance and brokerage businesses during 2019. Its broadband business began after year-end and is not included in 2019 results. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $41.4 million | $20.0 million |
| Operating loss | $12.4 million | $12.3 million |
| Net loss attributable to common stockholders | $1.5 million; $0.07 per share | $9.1 million; $0.46 per share |
| Net cash from operating activities | $9.6 million | $38,325 |
| Net cash used in investing activities | $60.6 million | $164.8 million |
| Net cash from financing activities | $49.2 million | $175.6 million |
- Revenue more than doubled, primarily reflecting the full-year contribution from the 2018 billboard acquisitions and higher earned surety premiums. Billboard rental revenue rose 102% to $28.4 million; premiums earned increased 244% to $10.9 million. Insurance commission revenue fell 40% to $1.6 million as more bonds were written through the company’s own insurer, UCS.
- Billboard segment gross margin was 60.2%, versus 59.9% in 2018. Insurance segment gross margin was 51.5%, down from 67.3%; increased commissions and loss-adjustment costs contributed to the decline.
- Although the operating loss remained broadly similar in dollars, operating loss improved as a share of revenue, from 61.2% to 30.0%. Net loss narrowed substantially, aided by $6.3 million of unrealized securities gains, other investment income, and an accounting-estimate change that reduced 2019 amortization expense.
- Operating cash flow improved to $9.6 million. Investing cash use included acquisitions, the $12 million DFH preferred-unit investment, and substantial purchases and sales of securities. Financing included $32.2 million of stock proceeds before offering costs and $18.1 million of Link borrowings.
Financial position, debt and liquidity
- At December 31, 2019, total assets were $436.9 million, total liabilities were $89.9 million, and stockholders’ equity was $345.2 million.
- Cash and cash equivalents were $16.0 million; U.S. Treasury securities available for sale were $75.4 million; and marketable equity securities were $55.9 million. Management described approximately $91 million of unrestricted cash and Treasury securities as available and expected existing liquidity to fund operations for at least 12 months, while noting significant acquisitions could require additional capital.
- Link had $18.06 million outstanding under its term loan, at a fixed 4.25% rate; $0.50 million was classified as current. No revolving-credit or second-term-loan amounts were outstanding. The facility permits up to $40 million of total borrowing, is secured by Link assets, and was reported in covenant compliance at year-end.
- Adoption of lease accounting brought $53.2 million of operating-lease right-of-use assets and $52.0 million of lease liabilities onto the balance sheet. These are separate from reported debt.
- The company had no stated dividend plans for the foreseeable future. Additional Class A shares may be sold through its at-the-market program, creating potential dilution.
Changes, outlook and notable items
- 2019 comparisons are affected by the 2018 acquisitions of Tammy Lynn, Key and Waitt, which contributed for only part of 2018 but for the full year in 2019. Two smaller billboard acquisitions were completed in 2019.
- Management’s strategy is to reinvest capital in existing businesses, acquisitions and other investments it believes can produce durable earnings. It provided no earnings guidance; the filing notes the company does not intend to publish forward earnings guidance.
- In the fourth quarter, the company extended the estimated amortization period for billboard customer relationships from three to ten years. This estimate change reduced 2019 net loss by $2.1 million, or $0.09 per share. Goodwill testing found no impairment as of October 1, 2019.
- After year-end, Dream Finders redeemed $6 million of preferred units; Boston Omaha acquired Nevada billboard assets; and, on March 10, 2020, it acquired FibAire broadband assets for approximately $13.7 million, mostly cash, with 10% of AireBeam equity issued to the seller. The broadband acquisition and subsequent investments are not part of FY2019 operating results.
- The filing discusses COVID-19 as an emerging risk following the WHO’s pandemic declaration on March 11, 2020; management said the potential economic and company impact could not then be predicted.
- Key risks include advertising cyclicality, surety claims and reserve-estimation uncertainty, market-value swings in public securities, acquisition and integration risks, regulation, access to capital, and Link’s secured debt and financial covenants. The dual-class structure gives Class B shares ten votes per share; affiliated holders retain substantial voting influence.
Investor verification priorities
- Assess recurring operating performance separately from unrealized investment gains and the $2.1 million amortization-estimate benefit.
- Review billboard occupancy, pricing, acquired-asset contribution and cash generation, as reported 2019 growth benefited from a full year of 2018 acquisitions.
- Check UCS loss reserves, claims development, reinsurance protection, and the effect of expanded nationwide underwriting on insurance margins.
- Reconcile liquidity, security holdings and planned capital deployment; evaluate the potential for further equity issuance and dilution.
- Review Link’s debt covenants, secured collateral, amortization and maturity terms, alongside lease obligations.
- Track post-year-end developments, particularly COVID-19 effects and the performance and funding needs of the newly acquired broadband business.