Boston Omaha(BOC) - 2023 Q2 - Quarterly Report

Part I – Financial Information Consolidated Financial Statements (Unaudited) Unaudited financials show total assets grew to $773.2M by June 2023, with a $1.8M net loss for six months despite 26.5% revenue growth, driven by higher operating expenses Consolidated Balance Sheets Total assets increased to $773.2M by June 2023, driven by property, investments, and U.S. Treasury securities, while equity grew to $600.5M from stock issuance Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $158,280,191 | $113,961,243 | | Total Assets | $773,195,572 | $687,802,899 | | Total Liabilities | $156,981,811 | $158,059,668 | | Total Stockholders' Equity | $600,546,059 | $514,030,210 | Consolidated Statements of Operations Q2 2023 revenues rose 15.9% to $24.2M, leading to a $1.5M net income due to other income, while six-month revenues grew 26.5% to $47.0M but resulted in a $1.8M net loss Key Operating Results (Unaudited) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $24,216,394 | $20,895,016 | $47,032,179 | $37,187,963 | | Net Loss from Operations | ($1,642,904) | ($716,982) | ($4,619,696) | ($3,166,718) | | Net Income (Loss) Attributable to Common Stockholders | $1,541,612 | ($11,496,339) | ($1,779,542) | $4,806,254 | | Diluted Net Income (Loss) per Share | $0.05 | ($0.39) | ($0.06) | $0.16 | Consolidated Statements of Cash Flows Net cash from operations was $4.4M for six months ended June 2023, with $39.1M used in investing and $39.7M provided by financing, resulting in a $4.9M net cash increase Summary of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $4,363,708 | ($14,679,836) | | Net Cash (Used in) Provided by Investing Activities | ($39,149,019) | $110,796,471 | | Net Cash Provided by (Used in) Financing Activities | $39,696,268 | ($116,124,168) | | Net Increase (Decrease) in Cash | $4,910,957 | ($20,007,533) | Notes to Consolidated Financial Statements Notes detail accounting policies, recent acquisitions like 24th Street Asset Management, four operating segments, capital stock, long-term debt, and a material weakness in internal controls over unconsolidated entities - The company operates in four main segments: outdoor advertising (Link Media), surety insurance (General Indemnity Group), broadband services (Boston Omaha Broadband), and asset management (Boston Omaha Asset Management)[123] - On May 1, 2023, the company acquired 100% of 24th Street Asset Management for cash and stock valued at $5.0 million, resulting in a non-cash gain of approximately $4.6 million from the remeasurement of its previously-held interest[285][376][377] - The company sold 1,532,065 shares of Class A common stock under its ATM Program for gross proceeds of $37.5 million from January 1, 2023, through June 30, 2023[11] - As of June 30, 2023, the company's subsidiary Link Media had $27.7 million in term loan borrowings outstanding under its credit facility, and was in compliance with all financial covenants[24][25] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 26.5% revenue growth to broadband acquisitions and segment improvements, with net loss driven by higher operating costs, while maintaining strong liquidity via cash, treasuries, and an active ATM program Overview The company operates in outdoor advertising, broadband, surety insurance, and asset management, holding minority investments in real estate, auto lending, and aviation infrastructure, focusing on acquiring assets with sustainable earnings - As of June 30, 2023, the company operated approximately 4,000 billboards with 7,600 advertising faces[67] - The broadband business has expanded through acquisitions, including FibAire, UBB, InfoWest, and Go Fiber, serving customers in Arizona, Florida, Nevada, and Utah[69] - The company holds significant minority investments, including a 15.6% stake in CB&T Holding Corporation (parent of Crescent Bank & Trust) and a substantial equity position in Sky Harbour Group Corporation[73][74][76] Results of Operations Q2 2023 revenues grew 15.9% to $24.2M with a $1.5M net income due to investment remeasurement, while six-month revenues increased 26.5% to $47.0M but resulted in a $1.8M net loss due to higher costs Revenue by Source - Q2 Comparison (2023 vs 2022) | Revenue Source | Q2 2023 Amount | Q2 2022 Amount | YoY Change | | :--- | :--- | :--- | :--- | | Billboard rentals, net | $10,835,524 | $9,825,164 | +10.3% | | Broadband services | $8,695,235 | $8,078,580 | +7.6% | | Premiums earned | $3,458,627 | $2,407,523 | +43.7% | | Total Revenues | $24,216,394 | $20,895,016 | +15.9% | Revenue by Source - Six Months Comparison (2023 vs 2022) | Revenue Source | Six Months 2023 | Six Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Billboard rentals, net | $21,137,747 | $18,963,313 | +11.5% | | Broadband services | $17,235,141 | $12,155,526 | +41.8% | | Premiums earned | $6,565,900 | $4,695,972 | +39.8% | | Total Revenues | $47,032,179 | $37,187,963 | +26.5% | - The increase in net loss from operations for both Q2 and the first six months of 2023 was primarily due to higher depreciation from the InfoWest and Go Fiber acquisitions and increased employee costs to support growth[240][259] - Other income in Q2 2023 included a significant $5.35 million in equity income from unconsolidated affiliates, mainly from a non-cash gain on the remeasurement of the company's interest in 24th Street Asset Management[241] Liquidity and Capital Resources The company maintains strong liquidity with $32M cash and $44M short-term treasuries, funding capital through operations, debt, and $37.5M from its ATM program, supported by a $500M shelf registration for future growth - As of June 30, 2023, the company had approximately $32 million in unrestricted cash and $44 million in short-term treasury securities (excluding funds held by consolidated BOAM funds)[276][318] - The company has a $500 million shelf registration statement effective May 2022 for issuing Class A common stock, preferred stock, debt, and warrants to fund general corporate purposes and acquisitions[280] - During the first six months of 2023, the company raised approximately $37.5 million in gross proceeds through its "at the market" (ATM) equity offering program[301] - The billboard subsidiary, Link, has a credit facility with $27.7 million in term loan borrowings outstanding as of June 30, 2023, with a fixed interest rate of 4.00%[306][307] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company is a "smaller reporting company," holding no significant derivative instruments or foreign currency risk as of June 30, 2023 - The company is a "smaller reporting company" and is therefore not required to provide these disclosures[345] - As of June 30, 2023, the company had no significant derivative instruments or exposure to foreign currency risk[340] Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2023, due to a material weakness in accounting for unconsolidated entities, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023[348] - A material weakness was identified related to the failure to design and implement effective controls for the complex accounting associated with investment companies, specifically the investment in the 24th Street Funds[348][362] - A remediation plan is being implemented, which includes assessing risks, evaluating responsibilities, and providing additional training to address the material weakness[351] Part II – Other Information Legal Proceedings The company is involved in routine litigation, but management believes no pending legal matters will materially affect its financial condition or results of operations - The company states that none of its pending litigation is expected to have a material adverse effect on its financial condition, cash flows, or results of operations[359] Risk Factors A material weakness in internal control over financial reporting related to 24th Street Funds accounting was identified, potentially impacting accurate financial reporting, investor confidence, and stock price - A material weakness was identified in internal controls over financial reporting related to the accounting for the 24th Street Funds investment[362][384] - The company warns that ineffective internal controls could lead to inaccurate financial statements, loss of investor confidence, a negative effect on the stock price, and potential regulatory sanctions[363] Unregistered Sales of Equity Securities and Use of Proceeds During H1 2023, the company issued 69,504 unregistered Class A common shares for compensation and as partial consideration for the 24th Street Asset Management acquisition, under Section 4(2) exemption - In Q1 2023, the company issued a total of 23,883 shares of restricted Class A common stock for officer/director compensation and services rendered[387][388] - On May 1, 2023, 45,644 shares of Class A common stock were issued as partial consideration for the acquisition of the remaining interests in 24th Street Asset Management[389]