BOC

Business Context and Reporting Period

Company: Boston Omaha Corp (BOC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2024
Business Overview: BOC operates four primary segments: outdoor advertising (Link Media), broadband services (Boston Omaha Broadband), surety insurance (General Indemnity Group), and asset management (Boston Omaha Asset Management). The company also holds significant minority investments, most notably in Sky Harbour Group Corporation (private aviation infrastructure).

Key Financial Metrics (Nine Months Ended Sept 30, 2024)

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 12.2% year-over-year (YoY) to $80.34 million.
  • Insurance: Premiums earned surged 37.6% YoY to $14.17 million, driven by increased production.
  • Broadband: Revenue grew 11.1% YoY to $29.14 million due to subscriber growth.
  • Billboards: Revenue increased 5.0% YoY to $33.64 million, reflecting improved occupancy rates.
• Profitability: Net loss attributable to common stockholders widened to $6.64 million from $3.42 million in the prior year. This was primarily driven by a $16.57 million equity loss from unconsolidated affiliates (mainly Sky Harbour) and one-time severance costs related to the former Co-CEO's separation.
• Investing Activities: Net cash provided by investing activities turned positive at $29.89 million, compared to a use of $48.96 million in the prior year. This shift was due to $53.67 million in net proceeds from the sale of investments (U.S. Treasuries), partially offset by $23.70 million in capital expenditures for broadband expansion.
• Financing Activities: Net cash used in financing activities was $48.88 million, driven by $36.99 million in distributions to noncontrolling interests and $16.76 million related to the repurchase of stock and warrants from the former Co-CEO.

Guidance, Outlook, and Management Commentary

• Segment Performance: Management highlighted improved operations in billboard, broadband, and insurance segments. The broadband segment continues to invest heavily in fiber-to-the-home infrastructure, resulting in higher depreciation expenses.
• Asset Management Wind-Down: The company is actively winding down its Build for Rent (BFR) Fund operations due to market challenges and interest rate increases, returning capital to partners.
• Sky Harbour Investment: The company accounts for its Sky Harbour investment under the equity method. While the stock price trades above the company's carrying value ($5.86/share), management noted that a sustained drop below this level could trigger an impairment charge.
• Capital Allocation: BOC maintains a $20 million share repurchase program authorized in July 2024. During Q3, the company repurchased 97,262 shares for $1.38 million.
• Liquidity: The company holds approximately $19.4 million in unrestricted cash and $15.3 million in short-term treasury securities. It has access to a $15 million revolving credit facility (Link Media) and a new $20 million credit facility for broadband subsidiaries (undrawn as of Sept 30).

Investor Verification Checklist

• Sky Harbour Valuation: Verify the current market price of Sky Harbour (SKYH) relative to BOC's carrying value of $5.86 per share to assess impairment risk.
• Noncontrolling Interest Distributions: Review the $36.99 million in distributions to noncontrolling interests to understand the impact on consolidated cash flow and the status of the 24th Street and BFR funds.
• CEO Separation Costs: Confirm the one-time nature of the $16.76 million stock repurchase and severance costs associated with the former Co-CEO to normalize future earnings comparisons.
• Debt Covenants: Monitor compliance with the Link Media credit facility covenants (leverage ratio max 3.50:1.00; fixed charge coverage min 1.15:1.00).
• Investment Company Act Status: Review the company's asset composition to ensure it remains below the 40% threshold for investment securities to avoid registration as an investment company.