Boston Omaha Corporation — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; unaudited. Boston Omaha operates outdoor billboard advertising, a surety-bond brokerage, and minority real-estate investments. Its billboard footprint spans Alabama, Florida, Georgia, and Wisconsin. The period includes multiple acquisitions, including The Warnock Agency in April 2016.
Key financial results
| Metric | Three months 2016 | Three months 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.04 million | $349,161 | $2.55 million | $358,861 |
| Operating loss | $784,524 | $450,000 | $2.24 million | $688,899 |
| Net loss | $791,329 | $449,291 | $2.27 million | $696,079 |
| Basic and diluted loss per share | $0.11 | $0.18 | $0.40 | $0.67 |
- Q3 2016 revenue comprised $959,148 of billboard rentals and $83,089 of insurance commissions. Nine-month revenue comprised $2.27 million of billboard rentals and $276,850 of insurance commissions.
- Operating loss was 75.3% of revenue in Q3 2016, versus 128.8% in Q3 2015; for the first nine months, operating loss was approximately 87.7% of revenue. Depreciation and amortization totaled $501,082 in Q3 and $1.25 million year to date.
- Cash and cash equivalents were $42.38 million at September 30, 2016, versus $13.19 million at December 31, 2015. Total assets were $63.66 million; total liabilities were $570,541. The company reported no debt, but had a $126,500 acquisition payable.
- For the first nine months, operating cash outflow was $1.10 million, investing cash outflow was $11.48 million, and financing cash inflow was $41.76 million. The financing inflow principally reflected common-stock issuance.
Changes and management commentary
- Revenue rose sharply year over year, primarily because of expanded billboard operations and the addition of insurance commissions. Comparisons are substantially affected by acquisitions and differing periods of ownership; the 2015 comparison had limited billboard operations and no insurance revenue.
- Q3 billboard revenue increased 19.8% from Q2 2016, partly due to seasonal strength in Wisconsin and acquired billboards. Insurance commissions fell from $193,761 in Q2 to $83,089 in Q3, primarily due to timing of commissions.
- Management intends to continue pursuing billboard and insurance acquisitions and other businesses it believes can produce durable cash flows. It said current cash could fund the pending UC&S acquisition and a limited number of further acquisitions; additional financing may be needed for larger future plans, and no binding financing commitments were in place.
- The proposed $13 million acquisition of United Casualty and Surety Insurance Company remained subject to closing conditions and Massachusetts Division of Insurance approval. A hearing was scheduled for November 15, 2016.
Risks, contingencies, and notable items
- Management identified a material weakness in internal control over financial reporting related to the lack of a formal risk-assessment process and monitoring structure, and said controls may not be effective. The company hired a controller and was working on remediation.
- Acquisition purchase-price allocations were provisional and expected to be revised after independent appraisals. Goodwill was $7.92 million and net intangible assets were $2.89 million at quarter-end; associated amortization and depreciation are expected to continue.
- The company warned that future acquisitions may require additional capital, which may not be available on acceptable terms. It also cited exposure to weaker economic conditions, advertising demand, inflation in operating costs, and future digital-display replacement costs.
- Common-stock issuance raised $41.76 million in the first nine months at $10.15 per share. The filing reported substantial voting control by entities related to controlling stockholders; Class A shares carry 10 votes per share.
- No quantified earnings or revenue guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
Investor facts to verify
- Whether UC&S approval was obtained and the acquisition closed, including the final purchase price and funding source.
- Progress in remediating the disclosed material weakness and whether subsequent filings report effective controls.
- Post-acquisition operating performance, especially billboard revenue growth, insurance commission trends, and progress toward profitability and positive operating cash flow.
- Final acquisition valuations, goodwill and intangible-asset balances, and resulting ongoing amortization expense.
- Future acquisition funding needs, ownership and voting concentration, and any dilution or financing terms.