Boston Omaha Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited consolidated results. Boston Omaha operates outdoor advertising, surety insurance and broadband businesses, alongside minority investments and its Yellowstone SPAC sponsorship.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $14.5 million | $11.6 million | $41.9 million | $34.5 million |
| Operating income (loss) | ($2.8 million) | ($0.7 million) | ($5.3 million) | ($2.8 million) |
| Net income (loss) attributable to common stockholders | ($26.3 million) | $3.5 million | $66.8 million | ($17.9 million) |
| Diluted earnings (loss) per share | ($0.89) | $0.13 | $2.32 | ($0.71) |
| Cash from operating activities | Not separately presented for the quarter | $6.6 million | $3.5 million |
- Q3 revenue grew 24.9%; nine-month revenue grew 21.4%. Broadband revenue rose substantially following the FibAire and UBB acquisitions; billboard revenue also improved. Insurance premiums declined after the company suspended new rental-guarantee bonds.
- Q3 loss attributable to common stockholders chiefly reflected $33.0 million of other investment losses, principally fair-value changes in publicly traded equities, plus a $1.0 million warrant remeasurement loss. For the nine-month period, $85.7 million of other investment income was a major contributor to reported earnings. These investment marks make net income volatile and are not equivalent to operating performance.
- Operating expenses increased faster than revenue: costs and expenses were 119.0% of revenue in Q3 versus 106.2% a year earlier, and 112.8% for nine months versus 108.0%. Management cited Yellowstone/Sky Harbour transaction costs, acquired-business expenses and higher corporate costs.
- Segment context: nine-month billboard operating income was $1.9 million, insurance had a $1.6 million operating loss, and broadband operating income was $1.3 million. Broadband comparisons are affected by acquisitions and are not directly comparable.
Balance sheet, liquidity and cash flows
- At September 30, 2021, cash and cash equivalents were $115.8 million; cash, cash equivalents and restricted cash totaled $124.3 million. The company also held $51.0 million of U.S. Treasury trading securities and $80.3 million of marketable equity securities.
- Total assets were $781.4 million, compared with $640.7 million at December 31, 2020. Current assets were $412.3 million and current liabilities $34.5 million.
- Long-term debt was $22.2 million, including $1.2 million current; no revolving-credit balance was outstanding. The billboard subsidiary’s loans bear fixed rates of 4.25% and 3.375%, mature in August 2026, and were in covenant compliance. Operating lease liabilities totaled $55.2 million.
- Nine-month investing cash flow was positive $10.6 million, including proceeds from investment sales and repayment of a $20.0 million affiliate note, partly offset by the $55.0 million Sky Harbour investment. Financing cash flow was positive $52.2 million, mainly reflecting the April stock offering. Cash, cash equivalents and restricted cash increased $69.4 million.
- Boston Omaha raised $58.6 million gross from its April 2021 Class A stock offering. Its ATM program authorizes up to $100 million of sales; approximately $2.7 million of net proceeds from sales after quarter-end were reported.
Material changes, outlook and risks
- Growth reflected the UBB broadband acquisition, the 2021 Thomas billboard acquisition, the ACS surety brokerage acquisition, and billboard recovery from pandemic-related weakness. The company reported about 3,200 billboards and 6,000 advertising faces, and broadband operations serving customers in Arizona and Utah.
- Management said business activity improved during 2021, acquisition activity and capital spending were resuming, and existing resources were expected to cover working capital and anticipated capital expenditures for the next 12 months. It provided no quantified earnings or revenue guidance. Future acquisitions and investments may require additional capital.
- Yellowstone agreed to combine with Sky Harbour, subject to closing conditions including shareholder approval. Boston Omaha invested $55 million in Sky Harbour preferred units, expected to convert into 5.5 million post-combination shares if the transaction closes, and agreed to provide up to an additional $45 million backstop if needed. If the combination does not close, the investment remains preferred units. Transaction proceeds and valuations are contingent, not assured.
- Management highlighted uncertainty from COVID-19 and the possibility of renewed adverse effects. Surety premiums remain affected by the discontinued rental-guarantee program; investment holdings face market-value risk. The company also disclosed risk of being deemed an investment company under the Investment Company Act, which could require changes to its asset mix or business.
- Control weakness: Disclosure controls and internal control over financial reporting were reported ineffective at September 30, 2021 because of a material weakness in accounting controls for the Yellowstone SPAC. The weakness had led to a 2020 financial-statement restatement; remediation was underway but not yet considered complete.
- Other unusual items: the first-quarter release of a valuation allowance produced a noncash tax benefit of approximately $7.2 million; the nine-month income tax provision was $14.2 million. After quarter-end, the company sold about $17.1 million of marketable equity securities. Routine litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings reflects realized gains versus unrealized investment fair-value changes, and how the portfolio performed after quarter-end.
- Whether the Sky Harbour/Yellowstone combination closed, the final funding and redemption terms, and whether the additional backstop was required.
- Progress and testing results for remediation of the material weakness, including controls over SPAC accounting and warrant liabilities.
- Broadband customer growth, capital needs and margins as acquired operations mature; and the ongoing effect of suspending rental-guarantee bonds on insurance results.
- Available liquidity after planned investments and acquisitions, potential ATM dilution, Link’s covenant headroom, and compliance with Investment Company Act asset tests.