Boston Omaha Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated results. Boston Omaha operates outdoor advertising and surety insurance/brokerage businesses and holds minority investments, including in real estate services, homebuilding, and banking.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $9.11 million | $2.82 million |
| Operating loss | $4.79 million | $2.74 million |
| Net loss attributable to common stockholders | $4.08 million; $0.18 per share | $2.07 million; $0.13 per share |
| Operating cash flow | $0.24 million provided | $1.07 million used |
| Cash, cash equivalents and restricted cash | $10.85 million | $18.14 million at Dec. 31, 2018 |
| Total assets | $380.09 million | $332.19 million at Dec. 31, 2018 |
- Revenue increased 222.7%, led by billboard rentals of $6.78 million, up $5.23 million, and earned premiums of $1.88 million, up $1.41 million. Billboard gross margin was 60.0%, compared with 53.4%; insurance gross margin was 44.8%, compared with 83.3%.
- Costs and expenses were $13.90 million, or 152.6% of revenue, versus $5.57 million, or 197.1%. Amortization rose to $2.85 million from $0.76 million, substantially reflecting 2018 billboard acquisitions. Consolidated operating loss was 52.6% of revenue, versus 97.1%.
- Net other income was $0.70 million, including $0.56 million interest income and a $0.12 million gain on investment sales; this partly offset operating losses.
- Investing activities used $11.27 million, principally reflecting investment purchases net of sales. Financing provided $3.74 million, primarily from the at-the-market stock offering. Cash, cash equivalents and restricted cash decreased $7.29 million.
- At March 31, the company reported $10.16 million cash and $87.51 million U.S. Treasury securities available for sale; management described approximately $98 million as available in unrestricted cash and Treasury securities. Total liabilities were $63.88 million, including $49.43 million operating lease liabilities. The filing reports no interest expense for Q1 2019 and describes no outstanding borrowings.
Material changes and management commentary
- Revenue comparisons reflect the 2018 acquisitions of Waitt, Key, and Tammy Lynn, which brought the billboard count to approximately 2,900, as well as growth in UCS surety premiums. Management said existing billboard rental and occupancy rates also improved. The company cautioned that acquisition activity and the Warnock reorganization make year-over-year comparisons potentially not meaningful.
- Insurance commissions declined as more bond business was written through UCS after it became licensed in all 50 states and the District of Columbia. Insurance segment loss widened to $1.32 million from $1.04 million; management cited higher agent commissions, loss-reserve estimates, operating costs, and market expansion costs.
- The company adopted ASC 842 on January 1, 2019, recognizing $50.81 million of right-of-use assets and $49.43 million of lease liabilities at March 31. Management said the adoption did not significantly affect results or cash flows.
- No specific financial guidance or quantified outlook was provided. Management expects existing cash, investments, potential ATM proceeds, and operating cash flows to meet working capital needs and anticipated capital expenditures for the next 12 months. Future acquisitions may require debt, equity, seller financing, or other capital; financing may not be available on favorable terms or at all.
Risks, contingencies, and unusual items
- Management concluded disclosure controls and procedures were not effective due to material weaknesses in journal-entry and expenditure controls. Remediation was underway but had not operated long enough to establish effectiveness; controls at recently acquired Waitt and Key were excluded from the assessment.
- Approximately $6.33 million of deposits exceeded federally insured limits. The company identified acquisition execution, integration and realization of expected benefits, financing availability, and forward-looking estimate uncertainty as risks.
- Insurance loss and loss-adjustment expense was $0.39 million; management attributed the increase in part to updated reserve estimates and entry into new geographic markets. Acquisitions’ purchase-price allocations remained provisional and subject to further review.
- Management said routine litigation and claims were not expected to have a material adverse effect. No material off-balance-sheet arrangements were reported other than ordinary operating leases.
- After quarter-end through April 30, Cowen sold 175,932 additional Class A shares under the ATM offering, generating $4.24 million net proceeds.
Important facts for investors to verify
- Whether billboard revenue growth and improved rental and occupancy rates persist beyond the contribution from 2018 acquisitions.
- Whether the insurance business can grow premiums while controlling commissions, loss reserves, and operating expenses.
- The durability of liquidity after investment activity, lease commitments, and any future acquisitions; review the $49.43 million lease liability and long-dated payment schedule.
- Progress in remediating the disclosed internal-control material weaknesses and integrating acquired businesses.
- Potential dilution from continued ATM share sales and the terms and availability of capital for prospective acquisitions.