Boston Omaha Corporation — FY2016 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2016, with FY2015 comparisons. Boston Omaha was an early-stage holding company building outdoor billboard, surety insurance and real estate-services operations through acquisitions. Comparisons are limited by the businesses’ different acquisition dates: billboard operations began in 2015, the surety brokerage was acquired in April 2016, and UC&S was acquired in December 2016.
Key financial results
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $3.84 million | $0.72 million |
| Operating loss | $3.14 million | $1.11 million |
| Net loss | $3.17 million | $1.05 million |
| Net loss per share | $0.53 | $0.71 |
| Cash used in operating activities | $1.48 million | $0.81 million |
| Cash used in investing activities | $23.90 million | $10.72 million |
| Cash provided by financing activities | $41.76 million | $24.72 million |
- FY2016 revenue comprised $3.16 million of billboard rentals, $507,000 of insurance commissions, $156,000 of earned premiums and $17,000 of investment and other income. The company reported an operating loss equal to 81.6% of revenue.
- Total costs and expenses rose to $6.98 million from $1.83 million, including $1.64 million of depreciation and amortization, $1.24 million of professional fees and a $259,000 loss on retired billboard assets. Management attributed significant costs to expansion, acquisitions and public-company expenses.
- At year-end, total assets were $65.65 million, liabilities $3.46 million and stockholders’ equity $62.19 million. Cash was $29.56 million; the balance sheet also reported $279,000 of restricted cash and a $2.95 million deposit for a pending acquisition. There were no stockholder notes payable at year-end; liabilities included a $126,500 acquisition payable.
- Cash raised through financing was principally equity. Management reported $66.9 million of equity financing raised since February 2015. The filing says cash was adequate for a limited number of future acquisitions and operations for at least 12 months, while further growth depended on additional capital.
Changes, outlook and risks
- Revenue increased substantially as billboard assets were acquired and insurance operations commenced; the net loss also widened. The per-share loss narrowed to $0.53 from $0.71, alongside a rise in weighted-average shares to 6.04 million from 1.48 million. Management cautions that acquisition timing makes period comparisons potentially not meaningful.
- FY2016 acquisitions included billboard businesses, The Warnock Agency and UC&S. UC&S contributed only December results. Its purchase-price allocation remained provisional; goodwill increased to $17.21 million from $4.38 million. In January 2017, the company completed two more billboard acquisitions for a combined $5.63 million.
- Management intends to continue pursuing billboard and surety acquisitions, expand UC&S licensing beyond its existing states and seek additional capital, including through a proposed common-stock offering of up to $46 million. The filing provides no specific financial guidance or quantified earnings outlook. UC&S was rated “A-” by A.M. Best and was licensed in 12 states at the time described.
- Key risks include acquisition execution and integration, continuing losses and operating cash use, future equity dilution or difficulty raising capital, billboard and insurance regulation, insurance reserve and reinsurance uncertainty, and a thinly traded OTCQX stock. The company also disclosed that approximately $27 million of cash exceeded federal deposit-insurance limits.
- Internal controls: Management identified a material weakness, citing no independent audit committee, too few independent directors, and no formal risk-assessment and monitoring structure. Management said controls may not have been effective at December 31, 2016; the auditor did not attest to internal-control effectiveness.
- Governance and ownership are concentrated: the two principal stockholders hold all Class A shares, which carry ten votes each, and control most voting power. The company does not expect to pay dividends in the foreseeable future. Management reported no material pending litigation beyond routine matters.
Important facts for investors to verify
- Post-acquisition operating performance, especially billboard revenue and margins and the contribution of the insurance businesses across full reporting periods.
- Whether the proposed equity offering was completed, its proceeds and dilution, and the company’s subsequent cash position and acquisition commitments.
- UC&S’s final purchase accounting, state-licensing expansion, capital needs, claims reserves, reinsurance protection and maintenance of its A.M. Best rating.
- Progress remediating the disclosed material weakness and the adequacy of financial reporting and governance oversight.
- Cash concentration and insurance coverage, along with the impact of future acquisitions, goodwill and intangible-asset amortization on reported results.