Boston Omaha Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited consolidated results, compared with Q1 2023 unless otherwise noted. Boston Omaha operates billboard advertising, broadband, surety insurance and brokerage, asset management, and investment businesses.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Prior comparable / December 31, 2023 |
|---|---|---|
| Revenue | $25.55 million | $22.82 million; Q1 revenue increased 12.0% |
| Operating loss | $2.06 million; 8.1% of revenue | $2.98 million; 13.0% of revenue |
| Net loss attributable to common stockholders | $2.81 million; $0.09 per share | $3.32 million; $0.11 per share |
| Operating cash flow | $2.42 million provided | $1.37 million provided |
| Capital expenditures | $8.45 million | $8.01 million |
| Cash, cash equivalents and restricted cash | $60.07 million, including $33.09 million held by BOAM funds and other entities and $9.57 million held as collateral | $39.41 million |
| Debt | $27.14 million of term-loan debt, including $0.83 million current; no revolver borrowings | $27.34 million total debt at December 31, 2023 |
| Lease liabilities | $61.13 million | $61.52 million |
| Total assets / total equity | $757.34 million / $598.39 million | $768.21 million / $600.81 million |
Business performance and changes
- Revenue grew across the principal operating businesses: broadband services rose 13.4% to $9.68 million; billboard rentals rose 3.8% to $10.70 million; and insurance premiums earned rose 28.8% to $4.00 million. Management cited broadband subscriber growth, improved billboard rental and occupancy rates, and higher insurance production.
- Segment gross profit increased to $17.36 million from $14.87 million. Broadband gross margin improved to 74.2% from 69.9%, and billboard gross margin to 64.6% from 63.0%. Insurance gross margin increased to 62.2% from 60.7%.
- Operating loss narrowed, as revenue growth and improved billboard, broadband and insurance operations outweighed higher expenses. Depreciation rose to $3.45 million from $2.71 million, mainly reflecting continued broadband investment.
- Net loss remained affected by investment results: equity-method losses from unconsolidated affiliates were $10.17 million, while other investment income was $7.79 million. The filing attributes much of the latter to gains on Sky Harbour warrants; management’s discussion identifies approximately $8.0 million of warrant remeasurement gains.
- Investing cash flow was $22.88 million provided, compared with $37.84 million used in Q1 2023, mainly reflecting investment sales and maturities. Financing cash flow was $4.65 million used, largely collateral released by the insurance subsidiary and term-loan principal payments.
- Management reported approximately $17 million in unrestricted cash and approximately $14 million in short-term Treasury securities at quarter-end. A further approximately $10.5 million was distributed to the Company in April from the 24th Street Funds and BFR fund; fund-held cash is not generally available for Boston Omaha’s corporate liquidity needs.
Outlook, risks and unusual items
- Management expects existing cash, short-term investments, available credit and operating cash flows to meet working-capital needs and anticipated capital expenditures for the next 12 months. No quantified revenue, earnings or margin guidance was provided. The Company intends to pursue growth in its existing businesses and may fund future acquisitions or investments with cash, debt, equity or other financing; it reported no current commitments for specific material acquisitions.
- The Link term loan bears fixed interest at 4.00%, matures December 6, 2028, and is secured by billboard-business assets. A $10 million revolving facility was undrawn at quarter-end. The Company said it complied with the credit facility’s leverage and fixed-charge coverage covenants.
- Boston Omaha reported a $19.8% equity-method interest in Sky Harbour. The shares’ quoted market value was approximately $167.5 million at March 31, 2024, but the investment is not carried at that quoted value. Management found no other-than-temporary impairment at quarter-end and warned that a sustained decline below its $6.37-per-share carrying value could likely result in impairment. Resale of a significant position may be constrained by trading volume and blackout periods.
- The Company is winding down the build-for-rent fund and pursuing sales of its entitled land assets, citing higher interest rates and returns it considers inadequate for the risks. Management also discusses the risk of exceeding the Investment Company Act’s investment-asset threshold, which could require asset sales or other actions and adversely affect the business.
- Insurance results rely on estimated loss reserves. Gross unpaid loss and loss-adjustment reserves were $4.60 million at quarter-end; the filing reports unfavorable prior-year loss development in both comparison periods.
- Post-quarter leadership and capital transactions: On May 9, 2024, Co-CEO and co-chair Alex Rozek resigned. The separation agreement provides for severance and benefits, transfer of Sky Harbour shares, and Company repurchases of his and an affiliated entity’s Boston Omaha shares and warrants. The stated repurchase consideration totals approximately $19.13 million, payable in cash and Sky Harbour shares. Separately, broadband minority interests were exchanged for Boston Omaha Class A shares in April, leaving the Company with full ownership of the two broadband entities.
- Management assessed disclosure controls as effective as of March 31, 2024 and reported no material change in internal control over financial reporting during the quarter. Routine litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- How much of reported cash is unrestricted and available to the parent, versus held by funds, subsidiaries or as collateral; and the timing and use of the April fund distributions.
- Whether broadband subscriber growth and capital spending translate into improved operating results, given the segment’s continuing operating loss and rising depreciation.
- The drivers and sensitivity of Sky Harbour’s equity-method losses, warrant gains, carrying value and potential impairment exposure.
- The final accounting and cash/equity effects of the post-quarter Rozek separation and stock repurchase.
- Insurance claims development and reserve adequacy, as well as compliance with Link’s debt covenants and future financing needs.
- Progress and expected proceeds from the BFR wind-down and any implications for consolidated earnings, cash flows and noncontrolling interests.