BOC

Business Context and Reporting Period

Company: Boston Omaha Corp (BOC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2024
Business Overview: BOC operates four primary segments: outdoor billboard advertising (Link Media), broadband services (Boston Omaha Broadband), surety insurance (General Indemnity Group), and asset management (Boston Omaha Asset Management). The company also holds significant minority investments, most notably in Sky Harbour Group Corporation (private aviation infrastructure).

Key Financial Metrics (Six Months Ended June 30, 2024)

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 11.9% to $52.6 million compared to $47.0 million in the prior year period.
  • Billboard: Revenues up 4.7% due to improved rental and occupancy rates.
  • Broadband: Revenues up 13.0% driven by subscriber growth.
  • Insurance: Premiums earned increased 33.1% due to higher production volumes.
• Profitability Decline: Net loss attributable to common stockholders widened to $(5.0) million from $(1.8) million in the prior year.
  • Primary Driver: Significant one-time costs associated with the separation and stock repurchase agreement with former Co-CEO Alex Rozek, including severance, bonuses, and legal fees.
  • Operating Expenses: Employee costs rose 28.2% and professional fees increased 11.1%, largely attributable to the executive separation.
• Investment Activity: Net cash provided by investing activities turned positive ($30.2 million) compared to a use of cash ($39.1 million) in the prior year, primarily due to net proceeds from the sale of investments (U.S. Treasuries) offsetting capital expenditures.
• Debt Structure: The revolving line of credit facility was increased from $10 million to $15 million in May 2024. As of June 30, $10 million was outstanding on the revolver.

Guidance, Outlook, and Management Commentary

• Executive Separation: The company finalized a separation agreement with Alex Rozek in May 2024. The company repurchased 210,000 Class A shares, 527,780 Class B shares, and warrants for an aggregate consideration of approximately $19.1 million (cash and Sky Harbour stock).
• Share Repurchase Program: On July 23, 2024, the Board authorized a new $20 million share repurchase program effective August 15, 2024, terminating September 30, 2025.
• Asset Management Wind-Down: Management is winding down the Build for Rent (BFR) Fund operations due to market challenges and interest rate increases, returning capital to partners.
• Sky Harbour Investment: The company holds a significant equity interest in Sky Harbour Group (approx. 18.6%). Management determined no other-than-temporary impairment exists as of June 30, 2024, despite the carrying value ($6.61/share) being higher than the market price at times. The investment is accounted for under the equity method.
• Liquidity: The company maintains approximately $25 million in unrestricted cash and $14 million in short-term treasury securities. Management believes existing resources are sufficient for the next 12 months.

Investor Verification Checklist

• One-Time Costs: Verify the specific breakdown of the $19.1 million paid to the former Co-CEO and the impact on future employee cost structures.
• Sky Harbour Valuation: Monitor the market price of Sky Harbour Group (SKYH) relative to BOC's carrying value of $6.61 per share to assess potential future impairment charges.
• Investment Company Act Compliance: Review the company's asset mix to ensure it remains below the 40% threshold for investment securities to avoid registration as an investment company.
• Debt Covenants: Confirm continued compliance with the Link Media credit facility covenants (leverage ratio and fixed charge coverage ratio), especially given the recent increase in revolver usage.
• Share Repurchase Execution: Track the execution of the new $20 million share repurchase program authorized in July 2024.