Boston Omaha Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with fiscal 2022. This is an annual report, not a standalone fourth-quarter filing. Boston Omaha operates billboard advertising, broadband, surety insurance and asset management businesses, and holds minority investments.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $96.3 million | $81.2 million |
| Operating loss | $8.9 million | $5.2 million |
| Net income (loss) attributable to common stockholders | $(7.0) million; $(0.23) per share | $10.2 million; $0.34 per share |
| Cash from operating activities | $16.1 million | $(5.2) million |
| Cash used in investing activities | $(64.3) million | Cash provided: $87.9 million |
| Cash from financing activities | $32.9 million | Cash used: $(109.7) million |
| Total assets | $768.2 million | $687.8 million |
| Total liabilities | $151.8 million | $158.1 million |
- Revenue grew 18.5%. Billboard rentals rose 9.4% to $42.9 million; broadband revenue rose 23.5% to $35.3 million; earned premiums rose 30.8% to $13.9 million. Insurance brokerage commissions declined 8.1% to $1.9 million.
- Total costs and expenses increased to $105.1 million, or 109.2% of revenue, from $86.5 million, or 106.4%. The operating loss margin widened to 9.2% from 6.4%.
- Segment gross margins were 64.8% for billboards, 71.8% for broadband and 61.5% for insurance. Billboard segment operating income increased to $6.6 million; broadband segment operating loss widened to $7.1 million; insurance segment operating income was $1.5 million. Asset management recorded a $2.4 million operating loss.
- Operating cash flow improved by $21.2 million year over year, while capital expenditures were $51.9 million. Investing cash flow also reflected acquisitions, securities purchases and sales, and a $3.0 million MyBundle preferred-stock investment.
- At year-end, management reported approximately $22 million of unrestricted cash and $18 million of short-term Treasury securities, excluding $29 million of Treasury securities held by consolidated funds. The balance sheet reports $131.4 million of current assets and $51.4 million of current liabilities; these totals include restricted and fund-related amounts.
- Link billboard operations had $27.3 million of term debt outstanding, including $0.8 million current; its $10 million revolving facility was undrawn. The term loan has a fixed 4.00% rate and matures December 2028. Link was in compliance with its financial covenants at year-end. Consolidated lease liabilities were $61.5 million.
Material changes and unusual items
- Broadband growth reflected the full-year contribution from the 2022 InfoWest and Go Fiber acquisitions, subscriber growth, and 2023 additions. Broadband operating losses increased as employee, operating, depreciation and amortization costs rose alongside expansion and investment.
- 2023 common-stockholder results included a $7.9 million equity-method loss from unconsolidated affiliates and $6.1 million of other investment income. In 2022, results included a $25.0 million noncash gain on Yellowstone’s deconsolidation, partly offset by $15.6 million of other investment losses. These items make the year-over-year earnings comparison less representative of underlying operations.
- In May 2023, the company acquired the remaining interest in 24th Street Asset Management, began consolidating the 24th Street Funds and recognized a noncash gain of approximately $4.6 million on remeasurement of its previously held interest. The funds’ real-estate investments are carried at estimated fair value; their valuation was identified as a critical audit matter.
- Sky Harbour’s November 2023 financing reduced Boston Omaha’s ownership from 22.9% to 19.8%. The company reported a dilution loss of approximately $2.2 million. Its Sky Harbour investment had a $94.2 million carrying value at year-end; the filing says its quoted-market value would have been approximately $127 million. Management found no other-than-temporary impairment at year-end but warns sustained trading below its $7.15-per-share carrying value could lead to impairment.
- The company is winding down BOAM’s broader operations and cutting costs, retaining management of real-estate funds. It plans to sell BFR Fund entitled land and return capital to fund partners, citing higher interest rates and inadequate expected risk-adjusted returns. It also concluded that fund-financing its fiber growth was not appropriate under prevailing conditions.
- The 2022 comparative statements were revised for the accounting treatment of the 24th Street Funds, increasing 2022 investment in unconsolidated affiliates by $4.1 million, net income by $3.1 million and earnings per share by $0.10. Management concluded the revision was not material to prior periods and did not require a restatement. A related 2022 internal-control material weakness was remediated in 2023.
Outlook, risks and controls
- Management expects available cash to fund existing operations for at least the next 12 months. It gave no specific earnings or revenue guidance and says future acquisitions or investments may require additional financing. The company maintains a shelf registration statement of up to $500 million and an ATM program of up to $100 million; it sold 1.53 million shares through the ATM in 2023 for gross proceeds of approximately $37.5 million.
- Management’s capital-allocation objective is to grow intrinsic value per share through reinvestment, acquisitions and investments. No specific material acquisition was considered probable at the filing date. The company does not intend to pay dividends in the foreseeable future.
- Principal risks include continued operating losses, acquisition and integration execution, broadband capital needs and competition, investment-value volatility and potential impairment, access to capital and dilution, and Link’s debt covenants. The company also notes regulatory, insurance-reserve, cybersecurity, key-person and related-party risks, as well as the possibility of Investment Company Act registration if its asset mix changes.
- Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023. The independent auditor issued an unqualified opinion on the financial statements but did not audit or opine on internal-control effectiveness.
Investor verification priorities
- Reconcile operating cash generation with substantial broadband investment and assess expected returns on the reported capital expenditures.
- Track broadband segment losses, customer growth, margins and future funding needs after the decision to avoid fund-financing.
- Review the valuation assumptions and impairment sensitivity for Sky Harbour and the real-estate investments held through consolidated funds.
- Assess the timing and proceeds of BFR land sales and the planned return of capital to fund partners.
- Monitor Link’s leverage and covenant headroom, the 2028 term-loan maturity, and any additional share issuance under the ATM or shelf registration.
- Confirm continued remediation of the accounting-control weakness and review future disclosures regarding the 24th Street Funds and specialized investment-company accounting.