Boston Omaha Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited, compared with Q1 2021. Boston Omaha operates billboard advertising, broadband, surety insurance and brokerage, and investment businesses.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $16.3 million | $13.2 million | Up 23.4% |
| Operating loss | $2.45 million | $1.49 million | Loss widened; operating margin was -15.0%, versus -11.3% |
| Net income attributable to common stockholders | $16.3 million; $0.55 diluted EPS | $84.4 million; $3.09 diluted EPS | Lower primarily because prior-year investment gains were much larger |
| Operating cash flow | $(15.7) million | $4.0 million | Down; includes payment of $15.0 million in previously accrued management bonuses |
| Investing cash flow | $158.0 million | $36.0 million | Driven by investment sales and Yellowstone trust proceeds, partly offset by Sky Harbour investment and capital expenditures |
| Financing cash flow | $(121.7) million | $(0.5) million | Primarily Yellowstone-related redemptions and outflows |
Revenue drivers: Billboard rentals were $9.14 million, up 27.7%, reflecting improved occupancy and rates and the Keleher and Missouri Neon acquisitions. Broadband revenue was $4.08 million, up 7.4%, from customer growth and rate improvement. Earned insurance premiums rose 28.1% to $2.29 million; insurance commissions rose 74.2% to $0.70 million, including the ACS acquisition and increased brokerage production.
Margins and segment results: Billboard gross margin improved to 61.4% from 60.0%, and segment operating income increased to $1.01 million from $0.11 million. Broadband gross margin declined to 77.7% from 80.1%; the segment moved from $0.78 million operating income to a $0.42 million operating loss, reflecting FFH investment and higher expenses. Insurance gross margin improved to 61.6% from 50.0%, while segment operating loss narrowed to $0.19 million from $0.79 million. Insurance results attributable to common stockholders also included $1.10 million of investment losses.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $86.6 million; cash, equivalents and restricted collateral cash totaled $102.3 million. U.S. Treasury trading securities were $24.3 million and marketable equity securities were $47.3 million.
- Current assets were $198.7 million and current liabilities $39.0 million. Total assets were $670.6 million, down from $807.1 million at December 31, 2021; redeemable noncontrolling interest fell from $144.3 million to $5.3 million, largely reflecting Yellowstone’s business combination and deconsolidation.
- Long-term debt carrying value was $29.6 million, including $1.5 million current maturities. Link’s $30 million term loan bears fixed interest of 4.00%, matures December 2028, and had no revolver borrowings; $5 million of revolving availability was unused. The company reported compliance with loan covenants.
- Operating lease liabilities totaled $60.4 million. Management said available liquidity should cover working capital and anticipated capital expenditures for the next 12 months, while noting that significant future acquisitions or expansion may require additional financing.
Material changes, outlook and risks
- Q1 2022 included a noncash $25.0 million gain on deconsolidating Yellowstone following its January 25, 2022 business combination with Sky Harbour. Other investment income was $2.6 million, versus $107.3 million in Q1 2021; these items make reported net income highly sensitive to investment values and transaction accounting.
- Management attributed higher costs and the wider operating loss to transaction and acquisition-related professional fees, employee and operating costs associated with acquired and developing businesses, and increased depreciation. Total costs and expenses rose to $18.7 million from $14.7 million.
- On April 1, 2022, the company acquired substantially all assets of InfoWest and Go Fiber for $48.7 million: 80% cash and 20% equity in the subsidiary. The providers served more than 20,000 customers. The filing also notes a new effective shelf registration permitting up to $500 million of securities offerings; it does not state that this capacity was issued.
- Management plans to pursue billboard, broadband and insurance growth, acquisitions, and other investments; it provided no specific numerical earnings or revenue guidance. It said pandemic effects had generally been limited and business activity had improved, but warned a resurgence could adversely affect results.
- Key risks include uncertain acquisition benefits and funding availability, market-price volatility in investments, debt covenant/default risk, and possible Investment Company Act compliance issues if investment assets exceed applicable limits. Approximately $97.6 million of deposits exceeded federally insured limits. Management described routine litigation as not expected to have a material adverse effect.
Important facts for investors to verify
- How much of future earnings and cash generation comes from recurring operations versus investment gains, fair-value changes, and transaction-related items.
- Whether broadband growth, including the InfoWest and Go Fiber acquisition, can improve segment profitability as investment and operating costs rise.
- Cash needs for acquisitions and expansion, and the eventual use of the $500 million shelf capacity or other financing.
- Investment portfolio exposures, deposit concentration above insured limits, and continued compliance with Link’s debt covenants and Investment Company Act requirements.
- The final purchase accounting and realized operating contribution from recent acquisitions; the filing notes some prior acquisition allocations remained provisional.