Boston Omaha Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are to the same 2022 periods. Financial statements are unaudited. Boston Omaha operates billboard, broadband, surety insurance and brokerage, and asset management businesses, alongside minority investments.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $24.2 million | $20.9 million | $47.0 million | $37.2 million |
| Operating loss | $1.6 million | $0.7 million | $4.6 million | $3.2 million |
| Net income (loss) attributable to common stockholders | $1.5 million | $(11.5) million | $(1.8) million | $4.8 million |
| Diluted earnings (loss) per share | $0.05 | $(0.39) | $(0.06) | $0.16 |
| Operating cash flow | Not separately provided for Q2 | $4.4 million | $(14.7) million |
- Revenue mix, six months: Billboard rentals were $21.1 million, broadband services $17.2 million, earned premiums $6.6 million, insurance commissions $1.1 million, and investment and other income $1.0 million.
- Margins: Q2 segment gross margins were 64.9% for billboards, 73.8% for broadband, and 61.5% for insurance. Consolidated costs and expenses exceeded revenue: 106.8% of revenue in Q2 and 109.8% for the first six months.
- Cash flows, six months: Investing used $39.1 million and financing provided $39.7 million; cash, cash equivalents, and restricted cash increased $4.9 million to $59.6 million. Capital expenditures were $20.9 million.
- Liquidity and debt at June 30: Cash and cash equivalents were $32.3 million. Management cited approximately $44 million of short-term Treasury securities available for general liquidity, excluding approximately $25 million held by BOAM funds. Long-term debt was $27.7 million, including $0.8 million current; operating lease liabilities totaled $63.0 million. The $5 million revolving facility had no borrowings outstanding. The company reported compliance with debt covenants.
Material changes and management commentary
- Revenue rose 15.9% in Q2 and 26.5% for the first half. Management attributed growth to improved billboard rental and occupancy rates, broadband subscriber growth and the prior-year InfoWest/Go Fiber acquisition, and higher earned premiums. First-half insurance commissions declined 10.1%.
- Operating losses widened as depreciation, amortization, employee costs, and other expenses grew, particularly in broadband. First-half broadband revenue increased 41.8%, but the segment’s operating loss expanded to $3.0 million from $0.3 million, reflecting acquisition-related costs, staffing, and higher depreciation and amortization. Billboard operations improved.
- Q2 common-stockholder income included significant investment-related items, including $5.35 million of equity-method income, primarily a noncash gain from remeasuring Boston Omaha’s previously held interest in 24th Street. For the first half, common-stockholder results were a loss despite positive operating cash flow.
- May 2023 acquisition of the remaining 24th Street Asset Management interests involved cash and 45,644 Class A shares; the company began consolidating 24th Street and its funds. The preliminary allocation included goodwill and a carried-interest asset, which is eliminated in consolidation. A June broadband-asset acquisition cost $2.9 million; its purchase accounting was incomplete at filing.
- The company raised $37.5 million gross through its at-the-market equity program during the first half, issuing 1.53 million shares. Management stated that existing cash, short-term investments, credit availability, and operating cash flows were expected to cover working capital and anticipated capital expenditures for the next 12 months; significant future acquisitions or expansion may require additional financing. No specific material acquisition commitments or formal financial guidance were disclosed.
Risks, contingencies, and unusual items
- Material weakness: Disclosure controls and internal control over financial reporting were deemed ineffective at June 30, 2023 because controls did not adequately address complex accounting for investments applying investment-company accounting. Management is implementing remediation, but it is not yet considered complete. The company also revised December 31, 2022 balances for its prior 24th Street Funds accounting; management concluded the revision was not material to prior periods.
- Investment exposure: Boston Omaha reported no impairment of its Sky Harbour equity-method investment but stated that a sustained share price below its $7.78-per-share carrying value would likely result in impairment. Its ability to sell a significant position may be constrained by trading volume and blackout periods. Changes in investment valuations can also affect reported earnings.
- Regulatory and financing risks: Management described the risk of being deemed an investment company under the Investment Company Act and potentially having to sell assets or raise capital to remain compliant. Link’s debt includes financial covenants and restrictions; future covenant breaches could trigger acceleration.
- Insurance loss and loss-adjustment reserves were $2.1 million at June 30; the first half included $0.95 million of prior-year incurred losses and a small $709 unfavorable prior-year development. Management said routine litigation and claims were not expected to have a material adverse effect.
- Subsequent events included a $3.0 million preferred-stock investment in a broadband-industry company in July and an August option grant to a UCS executive.
Most important facts for investors to verify
- Whether broadband growth can translate into improved segment profitability as acquisition, staffing, and network-investment costs rise.
- How much reported earnings depend on noncash investment remeasurements, fair-value changes, and equity-method results rather than operating performance.
- Progress and testing of remediation for the material weakness, and the accuracy of accounting for 24th Street and other specialized investments.
- Unrestricted liquidity after excluding cash and securities held by consolidated funds, and funding needs for planned capital expenditures and acquisitions.
- Potential dilution from continued ATM sales and the financial and valuation effects of the Sky Harbour position and other investments.