BOSTON OMAHA Corp quarterly report, Q2 FY2021

Business context and reporting period

Boston Omaha Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. Its businesses include outdoor billboard advertising, surety insurance and brokerage, broadband services, and minority investments. The company reported approximately 3,200 billboards, broadband customers in Arizona and Utah, and investments that include publicly traded securities and a SPAC subsidiary, Yellowstone Acquisition Company.

Financial results and liquidity

Metric	Three months ended June 30, 2021	Six months ended June 30, 2021
Revenue	$14.18 million	$27.38 million
Operating loss	$1.09 million	$2.58 million
Net income attributable to common stockholders	$8.64 million; $0.29 diluted EPS	$93.08 million; $3.26 diluted EPS
Operating cash flow	Not separately reported for the quarter	$5.29 million

Revenue rose 23.4% in the quarter and 19.6% in the half year versus 2020. Billboard revenue increased 19.5% and 8.9%, respectively; broadband revenue rose substantially, primarily reflecting the FibAire and UBB acquisitions.
Insurance premiums earned fell 45.8% in the quarter and 47.1% in the half year, principally because UCS suspended new rental-guarantee bonds. Brokerage commissions increased, including following the ACS acquisition.
Operating expenses exceeded revenue: 107.7% of revenue in Q2 and 109.4% for the first half. The operating loss therefore persisted despite revenue growth.
Reported earnings were heavily influenced by non-cash investment gains. First-half results included $115.85 million of unrealized gains on securities, mainly related to Dream Finders Homes (DFH), compared with $25.23 million of unrealized losses in the 2020 period. Q2 included $11.38 million of unrealized gains. These gains are market-sensitive and are not operating cash flow.
At June 30, total assets were $817.17 million, current assets $504.55 million, and current liabilities $34.45 million. Cash and cash equivalents were $57.13 million; the company also held $131.64 million of U.S. Treasury trading securities and $155.38 million of marketable equity securities. Current assets include $138.73 million held in Yellowstone’s SPAC trust and other restricted or collateral funds.
Long-term debt, including current maturities, was $22.47 million; operating lease liabilities totaled $55.02 million. The billboard subsidiary had no revolving-credit borrowings at quarter-end and was in compliance with its debt covenants.
Operating cash flow was $5.29 million, versus $1.26 million in the first half of 2020. Investing activities used $46.91 million and financing activities provided $52.36 million, including $58.63 million of gross proceeds from the April share offering. Cash, cash equivalents and restricted cash ended at $65.69 million.

Material changes versus the prior comparable period

First-half net income attributable to common stockholders shifted from a $21.33 million loss in 2020 to $93.08 million of income in 2021, principally due to the swing in unrealized securities results, rather than a comparable improvement in operating performance.
Billboard results improved as rental and occupancy activity recovered from the pandemic disruption; the Thomas billboard acquisition also contributed. Broadband revenue and costs increased with the 2020 acquisitions, especially UBB.
Insurance premiums declined after the rental-guarantee program was suspended. The company cited reduced exposure as most of the program’s bonds expired; prior-year reserve development was favorable by $640,973 in the first half of 2021.
Class A shares issued and outstanding increased to 28,520,555 at June 30 from 26,175,555 at year-end, reflecting the April offering. The offering generated $55.40 million after underwriting commissions, before other offering costs.

Outlook, management commentary, risks and unusual items

No quantified revenue, earnings, or other formal financial guidance is provided. Management said it expected available resources to cover working capital and anticipated capital expenditures for the next 12 months and intended to resume acquisition activity and capital projects as business activity improved.
Management identified continued uncertainty from COVID-19, including possible renewed disruption to billboard, insurance, broadband and investment activities. It noted that UCS did not currently expect to resume issuing rental-guarantee bonds.
After quarter-end, Yellowstone announced a business combination agreement with Sky Harbour LLC. Boston Omaha agreed to provide $55 million of financing, conditional on Sky Harbour raising at least $80 million through a private activity bond offering; it also agreed to a backstop of up to $45 million to help meet a minimum funding condition. The transaction remains subject to closing conditions, including Yellowstone shareholder approval.
The company disclosed a material weakness in internal control over financial reporting relating to accounting for Yellowstone’s SPAC formation, which had contributed to a 2020 financial-statement restatement. Disclosure controls were deemed ineffective as of June 30, 2021; remediation was underway but not yet considered complete.
Management highlighted the risk of being deemed an investment company under the Investment Company Act as market values and the composition of assets change. The filing also notes that securities values may fluctuate and acquisitions carry execution and valuation risks. Approximately $60.07 million of cash deposits exceeded federally insured limits.
Acquisition purchase-price allocations for the Thomas billboard and ACS insurance brokerage deals were preliminary and subject to refinement. The company reported no material adverse effect expected from routine litigation and no goodwill or long-lived-asset impairment for the first half.

Most important facts for investors to verify

How much of reported earnings reflects unrealized DFH and other securities gains, and how sensitive are results and liquidity to reversals in market prices?
Whether billboard recovery and broadband growth can translate into sustained consolidated operating profitability, given operating expenses exceeded revenue in both periods.
The trajectory of UCS premiums, claims reserves and loss experience following suspension of rental-guarantee bonds.
The final acquisition accounting for Thomas and ACS, and the contingent consideration exposure associated with ACS.
Whether the Yellowstone–Sky Harbour transaction closes, including the required bond financing, shareholder approval, and potential $55 million investment and up-to-$45 million backstop.
Progress in remediating the material weakness, and the company’s continuing compliance with debt covenants and Investment Company Act limits.