Boston Omaha(BOC) - 2019 Q3 - Quarterly Report

Part I – Financial Information Consolidated Financial Statements (Unaudited) The unaudited consolidated financial statements reflect significant growth in assets and revenues, driven by acquisitions in the billboard and insurance segments Consolidated Balance Sheets Total assets grew to $426.1 million, driven by increases in securities, goodwill, and newly recognized lease assets and liabilities Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $426,114,479 | $332,194,521 | | Cash and cash equivalents | $9,622,876 | $17,105,072 | | Marketable equity securities | $52,866,683 | $- | | Goodwill | $105,757,891 | $98,685,795 | | Right of use assets | $50,251,439 | $- | | Total Liabilities | $86,057,297 | $15,633,559 | | Lease liabilities (Current & Long-term) | $48,698,314 | $- | | Long-term debt | $17,772,861 | $- | | Total Stockholders' Equity | $338,192,321 | $315,215,384 | Consolidated Statements of Operations Year-to-date revenues more than doubled to $30.1 million, while the net loss remained stable due to higher operating costs and amortization Q3 2019 vs Q3 2018 Operating Results (Unaudited) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Total Revenues | $10,822,808 | $5,393,518 | | Net Loss from Operations | $(3,789,099) | $(2,905,056) | | Net Income (Loss) Attributable to Common Stockholders | $634,999 | $(1,931,041) | | Basic and Diluted EPS | $0.03 | $(0.09) | Nine Months 2019 vs 2018 Operating Results (Unaudited) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Total Revenues | $30,073,094 | $11,206,221 | | Net Loss from Operations | $(11,779,688) | $(8,151,138) | | Net Loss Attributable to Common Stockholders | $(5,557,735) | $(5,598,520) | | Basic and Diluted EPS | $(0.25) | $(0.29) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $338.2 million from $315.2 million, primarily due to the issuance of Class A common stock for cash - Total Stockholders' Equity grew from $315.2 million to $338.2 million at the end of Q3 2019[29] - The increase was primarily due to proceeds from stock issued for cash ($29.2 million gross) and for a business acquisition, offset by the net loss[29] Consolidated Statements of Cash Flows Net cash from operations improved to $5.0 million, while financing activities provided $46.4 million from stock issuances and new debt Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $5,035,455 | $(1,752,538) | | Net Cash Used in Investing Activities | $(59,515,863) | $(175,029,833) | | Net Cash from Financing Activities | $46,364,780 | $175,141,100 | | Net Decrease in Cash | $(8,115,628) | $(1,641,271) | Notes to Consolidated Financial Statements Notes detail accounting policies, acquisitions, and financing, including the adoption of a new lease standard and a new $40 million credit facility - The company's operations consist of an outdoor advertising business and a surety bond underwriting and brokerage business[40] - The adoption of lease accounting standard ASC 842 resulted in recognizing $49.1 million of operating lease assets and liabilities[56] - In August 2019, the company acquired Image Outdoor Advertising for $6.9 million in cash and 34,673 shares of Class A common stock[62] - A subsidiary entered into a $40 million credit agreement, drawing an initial $18.06 million term loan at a 4.25% fixed interest rate[115][116][118] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue growth from acquisitions in the billboard and insurance segments, alongside the impact of non-cash amortization on net loss Overview The company operates in outdoor advertising and surety insurance, pursuing growth through acquisitions and strategic minority investments - As of November 1, 2019, the company operates approximately 3,000 billboards with 5,600 advertising faces in its Midwest markets[147] - The surety insurance business is now licensed in all 50 states and the District of Columbia[148] - Significant minority investments include an additional $12 million in homebuilder DFH and a $19 million investment in bank holding company CB&T[150][151] Results of Operations Year-to-date revenues grew 168.4% to $30.1 million, driven by billboard and premium growth, while operating loss widened due to higher amortization Revenue Comparison (Nine Months Ended Sep 30) | Revenue Source | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Billboard rentals, net | $21,113,266 | $7,003,254 | +201.5% | | Premiums earned | $7,435,389 | $1,799,293 | +313.2% | | Insurance commissions | $1,200,927 | $2,310,802 | -48.0% | | Total Revenues | $30,073,094 | $11,206,221 | +168.4% | - For the nine months ended Sep 30, 2019, total costs and expenses increased to $41.9 million but decreased as a percentage of revenue to 139.2% from 172.8% YoY[188] - The nine-month operating loss of $11.8 million included $11.6 million from non-cash amortization, depreciation, and accretion expenses[196] Results of Operations by Segment The Billboard segment's revenue grew 201.5%, while the Insurance segment's revenue grew 113.2% with a narrowing operating loss Billboard Segment Performance (Nine Months Ended Sep 30) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Operating Revenues | $21,113,266 | $7,003,254 | | Gross Margin | $12,779,299 | $4,004,846 | | Segment Loss from Operations | $(5,592,959) | $(2,472,933) | Insurance Segment Performance (Nine Months Ended Sep 30) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Operating Revenues | $8,959,828 | $4,202,967 | | Gross Margin | $4,217,803 | $3,079,200 | | Segment Loss from Operations | $(2,652,352) | $(3,408,258) | Liquidity and Capital Resources The company holds approximately $85 million in cash and Treasury securities, bolstered by stock offerings and a new $40 million credit facility - At September 30, 2019, the company had approximately $85 million available in unrestricted cash and U.S. Treasury securities[241] - The company raised nearly $50 million in gross proceeds from its "at the market" offering and plans to sell up to an additional $75 million of stock[236] - The billboard subsidiary entered a $40 million credit facility, borrowing an initial $18.06 million at a fixed rate of 4.25%[237] Quantitative and Qualitative Disclosures About Market Risk This disclosure is not applicable as the company is a smaller reporting company with no significant market or foreign currency exchange risk - This disclosure is not applicable as the company is a "smaller reporting company"[251] - The company has no significant exposure to foreign currency exchange rate risk as all operations are within the U.S[248] Controls and Procedures Disclosure controls were deemed not effective due to ongoing remediation of previously identified material weaknesses in internal financial controls - Management concluded that disclosure controls and procedures were not effective as of September 30, 2019[253] - The ineffectiveness is due to material weaknesses in internal control related to journal entries and the expenditures process[256] - Remediation efforts include hiring key accounting personnel and implementing new formal policies and review processes[257][258] Part II – Other Information Legal Proceedings The company is involved in routine litigation that is not expected to have a material adverse effect on its financial condition - The company is involved in routine litigation which management believes will not have a material adverse effect on its financial condition or operations[267] Risk Factors A new risk factor was added concerning investment concentration, which could increase earnings volatility due to mark-to-market accounting - A new risk factor highlights that investment concentration in a small number of issuers could increase volatility in reported results[268] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 34,673 shares of Class A common stock as partial consideration for an acquisition in a private transaction - On August 29, 2019, the Company issued 34,673 shares of its Class A common stock as partial consideration for the acquisition of Image Outdoor Advertising, LLC[269] - The securities were issued in an unregistered transaction relying on the exemption provided by Section 4(a)(2) of the Securities Act of 1933[269] Other Information Items (3, 4, 5, 6) The company reports no defaults on senior securities, no mine safety disclosures, and no other material information to disclose - Item 3, Defaults Upon Senior Securities: None[271] - Item 4, Mine Safety Disclosures: Not applicable[273] - Item 5, Other Information: None[275]