Boston Omaha Corporation — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; unaudited. Boston Omaha operates outdoor advertising and surety insurance businesses and holds minority investments. Comparisons are affected by acquisitions completed during 2017 and 2018 and are not fully like-for-like.
Financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $5.39 million | $2.38 million | $11.21 million | $6.25 million |
| Operating loss | $2.91 million | $1.56 million | $8.15 million | $4.05 million |
| Net loss attributable to common stockholders | $1.93 million | $1.51 million | $5.60 million | $3.99 million |
| Loss per share | $0.09 | $0.11 | $0.29 | $0.41 |
- Q3 revenue increased 126%; nine-month revenue increased 79%. Billboard rentals were $3.75 million in Q3 and $7.00 million for nine months; insurance premiums and commissions also grew.
- Operating costs exceeded revenue in both periods. Operating loss was 53.9% of Q3 revenue and 72.7% of nine-month revenue. Q3 net loss was partly offset by $980,582 of other income, including interest income, investment gains and affiliate earnings.
- Operating cash use was $1.75 million for nine months, versus $2.02 million a year earlier. Investing cash use was $175.03 million, including $135.02 million for acquisitions; financing provided $175.14 million, principally from stock issuance.
- At September 30, cash was $4.82 million, restricted cash $0.77 million, short-term investments $5.05 million and available-for-sale U.S. Treasuries $98.80 million. Current assets were $117.03 million and current liabilities $10.63 million.
- Total liabilities were $14.10 million, including $3.47 million of long-term liabilities. The filing reports no material interest-bearing debt balance; interest expense for nine months was $1,804.
Material changes and notable items
- Three billboard acquisitions—Tammy Lynn, Key Outdoor and Waitt Outdoor—were completed in July and August. The company said its billboard count rose from over 470 at June 30 to over 2,900. Acquisition consideration totaled about $138.95 million; purchase accounting remained preliminary.
- Acquisitions drove higher billboard revenue and contributed to substantially higher goodwill, property and equipment, and intangible assets. Acquired businesses contributed $2.01 million of revenue and a combined $29,413 loss in the period shown for them.
- Q3 billboard rentals rose 159%, reflecting acquisitions and improved rental and occupancy rates. Insurance commissions increased 127% in Q3, with premiums earned up 48%. Higher staffing, overhead, amortization and acquisition costs contributed to operating losses.
- The company raised approximately $150 million in a private placement to related-party-managed limited partnerships and $26.7 million gross through its at-the-market offering. Class A shares outstanding increased to 21.01 million at period-end, from 13.31 million at year-end 2017.
- Interest income was $1.55 million for nine months, largely from invested offering proceeds. Management said it expected interest income to decline in Q4 and thereafter following acquisition spending.
Outlook, risks and controls
- No specific earnings or revenue guidance was provided. Management plans continued billboard and insurance growth, including through acquisitions, and stated that available cash and investments were expected to meet working capital and anticipated capital needs for the next 12 months.
- Management cautioned that additional major acquisitions could require equity, debt or other financing. The company has no governing-document limit on debt, and future leverage is at the board’s discretion.
- Management reported a material weakness in internal control over financial reporting related to IT general controls and subsidiary-level transaction controls, including revenue recognition and expenditures. Design remediation was underway; implementation and testing remained outstanding, and disclosure controls were deemed ineffective.
- Other matters to monitor include integration and realization of acquisition benefits, preliminary acquisition valuations, surety claims and loss expenses, billboard lease obligations, and market growth assumptions. The filing describes routine litigation and says management does not expect pending matters to have a material adverse effect.
Key facts for investors to verify
- Whether acquired billboard operations deliver expected revenue, occupancy and cash flow after a full period of ownership.
- Final purchase-price allocations and the effect of acquisition-related amortization, goodwill and asset-retirement obligations.
- Progress in implementing and testing controls, and whether the reported material weakness is remediated.
- Cash generation, use and maturity profile of Treasury holdings, and the impact of reduced interest income after acquisition spending.
- Further share issuance, financing needs and potential dilution as the company pursues acquisitions.