Company Quick10K Filing
Boston Omaha
Price21.20 EPS-0
Shares23 P/E-88
MCap483 P/FCF96
Net Debt8 EBIT-5
TEV491 TEV/EBIT-91
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-13
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-03-30
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-24
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-23
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-02-06
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-04-12
10-Q 2012-09-30 Filed 2012-12-21
8-K 2020-05-30
8-K 2020-05-28
8-K 2020-05-27
8-K 2020-05-08
8-K 2020-04-13
8-K 2020-04-07
8-K 2020-04-03
8-K 2020-03-26
8-K 2020-03-18
8-K 2020-03-13
8-K 2020-03-10
8-K 2020-02-06
8-K 2019-12-13
8-K 2019-11-12
8-K 2019-10-25
8-K 2019-08-13
8-K 2019-08-12
8-K 2019-08-09
8-K 2019-06-08
8-K 2019-05-10
8-K 2019-03-18
8-K 2019-01-31
8-K 2019-01-10
8-K 2019-01-01
8-K 2018-11-13
8-K 2018-09-22
8-K 2018-08-31
8-K 2018-08-22
8-K 2018-08-13
8-K 2018-07-31
8-K 2018-07-18
8-K 2018-06-30
8-K 2018-05-31
8-K 2018-05-15
8-K 2018-05-14
8-K 2018-05-04
8-K 2018-03-30
8-K 2018-03-06
8-K 2018-03-02
8-K 2018-02-27
8-K 2018-02-22
8-K 2018-01-05

BOMN 10Q Quarterly Report

Note 1. Organization and Background
Note 2. Summary of Significant Accounting Policies
Note 3. Restricted Cash
Note 4. Accounts Receivable
Note 5. Property and Equipment
Note 6. Business Acquisitions
Note 7. Intangible Assets
Note 8. Investments, Including Investments Accounted for Using The Equity Method
Note 9. Fair Value
Note 10. Asset Retirement Obligations
Note 11. Capital Stock
Note 12. Long - Term Debt
Note 13. Leases
Note 14. Industry Segments
Note 15. Custodial Risk
Note 16. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex_172991.htm
EX-31.2 ex_172992.htm
EX-31.3 ex_172993.htm
EX-32.1 ex_172994.htm
EX-32.2 ex_172995.htm
EX-32.3 ex_172996.htm

Boston Omaha Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
4303432571718502012201420172020
Assets, Equity
1511730-42014201620182020
Rev, G Profit, Net Income
905316-21-58-952012201420172020
Ops, Inv, Fin

10-Q 1 bomn20200331_10q.htm FORM 10-Q bomn20190630_10q.htm
 
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission file number 001-38113

 


BOSTON OMAHA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 


 

   

Delaware

 

27-0788438

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1411 Harney St., Suite 200, Omaha, Nebraska 68102

(Address of principal executive offices, Zip Code)

 

(857) 256-0079

(Registrant’s telephone number, including area code)

 


 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of Class

Trading Symbol

Name of Exchange on Which Registered

Class A common stock,
$0.001 par value per share

BOMN

The Nasdaq Stock Market LLC
(NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒   No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

       

Large accelerated filer

Accelerated filer

       

Non-accelerated filer

☐ 

Smaller reporting company

       
   

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 22,495,555 shares of Class A common stock and 1,055,560 shares of Class B common stock as of May 7, 2020.

 

 

 

 


 

BOSTON OMAHA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED March 31, 2020

TABLE OF CONTENTS

 

 

Page

Part I – Financial Information

4
Item 1. Consolidated Financial Statements (Unaudited). 4
Consolidated Balance Sheets – March 31, 2020 and December 31, 2019 4
Consolidated Statements of Operations – Three Months Ended March 31, 2020 and March 31, 2019 6
Consolidated Statements of Changes in Stockholders’ Equity – March 31, 2020 and March 31, 2019 7
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2020 and March 31, 2019 9
Notes to Consolidated Financial Statements 12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

42

Item 4. Controls and Procedures.

42

Part II – Other Information

44

Item 1. Legal Proceedings.

44

Item 1A. Risk Factors.

44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

44

Item 3. Defaults Upon Senior Securities.

44

Item 4. Mine Safety Disclosures.

44

Item 5. Other Information.

44

Item 6. Exhibits.

44

Exhibit Index

45

Signatures

46

 

References in this Quarterly Report on Form 10-Q to the Company, “our Company,” “we,” “us,” ”our” and “Boston Omaha” refer to Boston Omaha Corporation and its consolidated subsidiaries, unless otherwise noted.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Consolidated Financial Statements

Unaudited

 

For the Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Balance Sheets

Unaudited

 

ASSETS

                 
   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Current Assets:

               

Cash and cash equivalents

  $ 51,606,579     $ 16,028,514  

Restricted cash

    483,150       343,518  

Accounts receivable, net

    4,832,526       4,190,543  

Interest receivable

    293,052       456,827  

Short-term investments

    6,698,220       6,547,171  

Marketable equity securities

    59,635,714       55,907,927  

U. S. Treasury securities available for sale

    -       75,409,199  
Funds held as collateral assets     2,409,151       1,858,161  

Prepaid expenses

    1,193,540       1,422,637  
                 

Total Current Assets

    127,151,932       162,164,497  
                 

Property and Equipment, net

    39,552,183       36,825,019  
                 

Other Assets:

               

Goodwill

    115,306,852       106,272,501  

Intangible assets, net

    35,375,094       32,271,581  

Investments

    25,807,025       42,638,240  

Investments in unconsolidated affiliates

    12,639,370       771,805  

Deferred policy acquisition costs

    2,272,093       2,349,699  

Right of use assets

    53,720,954       53,249,985  

Other

    314,553       364,883  
                 

Total Other Assets

    245,435,941       237,918,694  
                 

Total Assets

  $ 412,140,056     $ 436,908,210  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Balance Sheets (Continued)

Unaudited

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY

                 
   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Current Liabilities:

               

Accounts payable and accrued expenses

  $ 4,646,205     $ 5,675,096  

Short-term payables for business acquisitions

    415,666       416,166  

Lease liabilities

    3,930,899       3,801,727  

Funds held as collateral

    2,409,151       1,858,161  

Unearned premiums

    7,503,608       8,035,756  
Current maturities of long-term debt     727,710       504,170  

Deferred revenue

    1,740,820       1,390,154  
Other current liabilities     398,750       -  
                 

Total Current Liabilities

    21,772,809       21,681,230  
                 

Long-term Liabilities:

               

Asset retirement obligations

    2,085,236       2,044,705  

Lease liabilities

    48,666,787       48,199,652  
Long-term debt, less current maturities     17,332,290       17,555,830  

Other long-term liabilities

    -       398,750  

Deferred tax liability

    57,000       57,000  
                 

Total Liabilities

    89,914,122       89,937,167  
                 

Redeemable Noncontrolling Interest

    1,397,790       1,730,058  
                 

Stockholders' Equity:

               

Preferred stock, $.001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding

    -       -  

Class A common stock, $.001 par value, 38,838,884 shares authorized, 22,455,100 shares issued and outstanding

    22,455       22,455  

Class B common stock, $.001 par value, 1,161,116 shares authorized, 1,055,560 shares issued and outstanding

    1,056       1,056  

Additional paid-in capital

    367,350,818       367,029,421  

Accumulated deficit

    (46,546,185 )     (21,811,947 )
                 

Total Stockholders' Equity

    320,828,144       345,240,985  
                 

Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity

  $ 412,140,056     $ 436,908,210  

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Operations

Unaudited

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 
                 

Revenues:

               

Billboard rentals, net

  $ 7,215,766     $ 6,780,390  
Broadband services     267,251       -  

Premiums earned

    3,454,058       1,882,342  

Insurance commissions

    332,791       355,147  

Investment and other income

    140,314       92,846  
                 

Total Revenues

    11,410,180       9,110,725  
                 

Costs and Expenses:

               
                 

Cost of billboard revenues (exclusive of depreciation and amortization)

    2,950,554       2,711,397  
Cost of broadband revenues (exclusive of depreciation and amortization)     75,423       -  

Cost of insurance revenues (exclusive of depreciation and amortization)

    1,503,862       1,285,722  

Employee costs

    3,133,145       2,878,019  

Professional fees

    1,287,155       1,419,146  

General and administrative

    1,718,304       1,816,621  

Amortization

    951,821       2,848,552  

Depreciation

    831,510       843,283  

Loss (gain) on disposition of assets

    18,919       (17,721 )

Bad debt expense

    84,697       80,878  

Accretion

    34,762       32,778  
                 

Total Costs and Expenses

    12,590,152       13,898,675  
                 

Net Loss from Operations

    (1,179,972 )     (4,787,950 )
                 

Other Income (Expense):

               

Interest income

    509,479       559,442  

Dividend income

    390,791       -  

Equity in income of unconsolidated affiliates

    465,665       94,753  

Unrealized loss on securities

    (24,745,513 )     (76,105 )

Gain on disposition of investments

    26,268       120,382  

Interest expense

    (194,415 )     -  
                 

Net Loss Before Income Taxes

    (24,727,697 )     (4,089,478 )

Income tax (provision) benefit

    -       -  
                 

Net Loss

    (24,727,697 )     (4,089,478 )

Noncontrolling interest in subsidiary (income) loss

    (6,541 )     11,092  
                 

Net Loss Attributable to Common Stockholders

  $ (24,734,238 )   $ (4,078,386 )
                 

Basic and Diluted Net Loss per Share

  $ (1.05 )   $ (0.18 )
                 

Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding

    23,510,660       22,186,219  

 

 

 

See accompanying notes to the unaudited consolidated financial statements. 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Changes in Stockholders' Equity

Unaudited

 

   

No. of shares

                                         
   

Class A Common Stock

   

Class B Common Stock

   

Class A Common Stock

   

Class B Common Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Total

 
                                                         

Beginning balance, December 31, 2018

    21,029,324       1,055,560     $ 21,029     $ 1,056     $ 335,518,323     $ (20,325,024 )   $ 315,215,384  
                                                         

Stock issued for cash

    154,003       -       154       -       3,864,547       -       3,864,701  
                                                         

Offering costs

    -       -       -       -       (124,563 )     -       (124,563 )
                                                         

Increase in redeemable noncontrolling interest

    -       -       -       -       (136,483 )     -       (136,483 )
                                                         

Net loss attributable to common stockholders, March 31, 2019

    -       -       -       -       -       (4,078,386 )     (4,078,386 )
                                                         

Ending balance, March 31, 2019

    21,183,327       1,055,560     $ 21,183     $ 1,056     $ 339,121,824     $ (24,403,410 )   $ 314,740,653  

 

 See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Changes in Stockholders' Equity (Continued)

Unaudited

 

   

No. of shares

                                         
   

Class A Common Stock

   

Class B Common Stock

   

Class A Common Stock

   

Class B Common Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Total

 
                                                         

Beginning balance, December 31, 2019

    22,455,100       1,055,560     $ 22,455     $ 1,056     $ 367,029,421     $ (21,811,947 )   $ 345,240,985  
                                                         

Offering costs

    -       -       -       -       (2,252 )     -       (2,252 )
                                                         

Decrease in redeemable noncontrolling interest due to redemption

    -       -       -       -       323,649       -       323,649  
                                                         
Net loss attributable to common stockholders, March 31, 2020     -       -       -       -       -       (24,734,238 )     (24,734,238 )
                                                         
Ending balance, March 31, 2020     22,455,100       1,055,560     $ 22,455     $ 1,056     $ 367,350,818     $ (46,546,185 )   $ 320,828,144  

 

 

 

 See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

 Consolidated Statements of Cash Flows

Unaudited

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 

Cash Flows from Operating Activities:

               
Net Loss   $ (24,727,697 )   $ (4,089,478 )

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

               

Amortization of right of use assets

    1,002,379       882,275  

Depreciation, amortization, and accretion

    1,818,093       3,724,613  

Loss (gain) on disposition of assets

    18,919       (17,721 )

Bad debt expense

    84,697       80,878  

Equity in earnings of unconsolidated affiliates

    (465,665 )     (94,753 )

Unrealized loss on securities

    24,745,513       76,105  

Gain on disposition of investments

    (26,268 )     (120,382 )

Changes in operating assets and liabilities:

               

Accounts receivable

    (726,680 )     (124,358 )

Interest receivable

    163,775       (6,146 )

Prepaid expenses

    246,685       (268,937 )

Distributions from unconsolidated affiliates

    98,100       85,030  

Deferred policy acquisition costs

    77,606       (66,608 )

Other assets

    99,729       14,001  

Accounts payable and accrued expenses

    (1,301,124 )     390,700  

Lease liabilities

    (1,037,464 )     (756,460 )

Unearned premiums

    (532,148 )     499,389  

Deferred revenue

    350,666       29,159  
                 
Net Cash (Used in) Provided by Operating Activities     (110,884 )     237,307  
                 

Cash Flows from Investing Activities:

               

Payments on short-term payables for business acquisitions

    (500 )     (1,064,990 )

Proceeds from disposition of assets

    -       38,729  
Business acquisitions, net of cash acquired     (14,310,533 )     -  

Proceeds from redemption of preferred units

    6,000,000       -  
Investment in unconsolidated affiliate     (1,500,000 )     -  
Purchase of non-controlling interest in subsidiary     (1,406,409 )     -  

Purchases of equipment and related assets

    (599,059 )     (883,538 )

Proceeds from sales of investments

    265,921,609       257,823,370  

Purchase of investments

    (218,274,275 )     (267,185,142 )
                 

Net Cash Provided by (Used in) Investing Activities

    35,830,833       (11,271,571 )

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

 Consolidated Statements of Cash Flows (Continued)

Unaudited

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 
                 

Cash Flows from Financing Activities:

               

Proceeds from issuance of stock

  $ -     $ 3,864,701  

Offering costs

    (2,252 )     (124,563 )
                 

Net Cash (Used in) Provided by Financing Activities

    (2,252 )     3,740,138  
                 

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

    35,717,697       (7,294,126 )

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

    16,372,032       18,143,839  
                 

Cash, Cash Equivalents, and Restricted Cash, End of Period

  $ 52,089,729     $ 10,849,713  
                 

Interest Paid in Cash

  $ 194,415     $ -  
                 

Income Taxes Paid in Cash

  $ -     $ -  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Cash Flows (Continued)

Supplemental Schedules of Non-cash Investing and Financing Activities

Unaudited

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 
                 

Asset retirement obligations

  $ -     $ 1,294  
                 
Increase in redeemable noncontrolling interest of broadband subsidiary     1,397,790       -  
                 

(Decrease) increase in redeemable noncontrolling interest of insurance subsidiary

    (323,649 )     136,483  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 1.     ORGANIZATION AND BACKGROUND

 

Boston Omaha was organized on August 11, 2009 with present management taking over operations in February 2015. Our operations include (i) our outdoor advertising business with multiple billboards across Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia, and Wisconsin; (ii) our insurance business that specializes in surety bond underwriting and brokerage; (iii) our broadband business that provides high-speed broadband services to its customers, and (iv) our minority investments primarily in real estate services, homebuilding, and banking. Our billboard operations are conducted through our subsidiary, Link Media Holdings, LLC, our insurance operations are conducted through our subsidiary, General Indemnity Group, LLC, and our broadband operations are conducted through our subsidiary, FIF AireBeam LLC.

 

We completed an acquisition of an outdoor advertising business and entered the outdoor advertising industry on June 19, 2015. Since our initial acquisition, we have completed seventeen additional acquisitions of outdoor advertising businesses.

 

On April 20, 2016, we completed an acquisition of a surety bond brokerage business. On December 7, 2016, we acquired a fidelity and surety bond insurance company. From July through November 2017 we completed the acquisition of two surety brokerage businesses and acquired a majority stake in a third surety brokerage business, thus expanding our operations in insurance. During the first quarter of 2020, we purchased the non-controlling interest in our third surety brokerage business from the minority owner. 

 

On March 10, 2020, we completed an acquisition of a rural broadband internet provider. 

 

In our opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of unaudited consolidated financial position and the unaudited consolidated results of operations for interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the interim unaudited consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the years ended December 31, 2019 and 2018 as reported in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, which we refer to as the “SEC,” on March 13, 2020, have been omitted.

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation Policy

 

The financial statements of Boston Omaha Corporation include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, as follows:

 

Link Media Holdings, LLC which we refer to as “LMH”

Link Media Alabama, LLC which we refer to as “LMA”

Link Media Florida, LLC which we refer to as “LMF”

Link Media Wisconsin, LLC which we refer to as “LMW”

Link Media Georgia, LLC which we refer to as “LMG”

Link Media Midwest, LLC which we refer to as “LMM”

Link Media Omaha, LLC which we refer to as “LMO”

Link Media Properties, LLC which we refer to as “LMP”

Link Media Southeast, LLC which we refer to as “LMSE”

Link Media Services, LLC which we refer to as “LMS”

General Indemnity Group, LLC which we refer to as “GIG”

The Warnock Agency, Inc. which we refer to as “Warnock”

United Casualty and Surety Insurance Company which we refer to as “UCS”

Surety Support Services, Inc. which we refer to as “SSS”

South Coast Surety Insurance Services, LLC which we refer to as “SCS”

Boston Omaha Investments, LLC which we refer to as “BOIC”

Boston Omaha Asset Management, LLC which we refer to as “BOAM”

BOC DFH, LLC which we refer to as “BOC DFH”

Fiber is Fast, LLC which we refer to as "BOC FIF"

FIF AireBeam LLC, which we refer to as “AireBeam”

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Consolidation Policy (Continued)

 

All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation.

 

Revenues

 

A majority of our billboard contracts had been accounted for under Financial Accounting Standards Board, which we refer to as the “FASB,” Accounting Standards Codification, which we refer to as “ASC,” 840. Contracts which began prior to January 1, 2019 and are accounted for under ASC 840 will continue to be accounted for as a lease until the contract ends or is modified. Contracts beginning or modified on or after January 1, 2019 which do not meet the criteria of a lease under ASC 842 are accounted for under ASC 606, Revenue from Contracts with Customers. The majority of our advertising space contracts do not meet the definition of a lease under ASC 842.

 

Revenue Recognition

 

Billboard Rentals

 

We generate revenue from outdoor advertising through the leasing of advertising space on billboards. The terms of the operating leases generally range from less than one month to three years and are generally billed monthly. Revenue for advertising space rental is recognized on a straight-line basis over the term of the contract. Advertising revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for operations. Payments received in advance of being earned are recorded as deferred revenue. Another component of billboard rentals consists of production services which include creating and printing advertising copy. Contract revenues for production services are accounted for under ASC 606. Revenues are recognized at a point in time upon satisfaction of the contract, which is typically less than one week. 

 

Deferred Revenues

 

We record deferred revenues when cash payments are received in advance of being earned or when we have an unconditional right to consideration before satisfying our performance obligation. The term between invoicing and when a payment is due is not significant. For certain services we require payment before the product or services are delivered to the customer. The balance of deferred revenue is considered short-term and will be recognized in revenue within twelve months.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

 

Premiums and Unearned Premium Reserves

 

Premiums written are recognized as revenues based on a pro-rata daily calculation over the respective terms of the policies in-force. The cost of reinsurance ceded is initially written as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted against premiums written.

 

Commissions

 

We generate revenue from commissions on surety bond sales through third party carriers and account for commissions under ASC 606. Insurance commissions are earned from various insurance companies based upon our agency agreements with them. We arrange with various insurance companies for the provision of a surety bond for entities that require a surety bond. The insurance company sets the price of the bond. The contract with the insurance company is fulfilled when the bond is issued by the insurance agency on behalf of the insurance company. The insurance commissions are calculated based upon a stated percentage applied to the gross premiums on bonds. Commissions are recognized at a point in time, on a bond-by-bond basis as of the policy effective date and are generally nonrefundable.

 

Broadband Revenues

 

Broadband revenue is derived principally from internet services and is recognized on a straight-line basis over the term of the contract in the period the services are rendered.  Revenue received or receivable in advance of the delivery of services is included in deferred revenue.

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the general principles and improves consistent application of GAAP for other areas by clarifying and amending existing guidance. This guidance is effective January 1, 2021. We are evaluating the effect of adopting this new accounting guidance but do not expect adoption will have a material impact on our disclosures.

 

In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions between Topic 321, Investments—Equity Securities, Topic 323, Investments—Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging. This ASU clarifies that when accounting for certain equity securities, a company should consider observable transactions before applying or upon discontinuing the equity method of accounting for the purposes of applying the measurement alternative. This guidance is effective January 1, 2021, with early adoption permitted. We are evaluating the effect of adopting this new accounting guidance but do not expect adoption will have a material impact on our financial statements.

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 3.     RESTRICTED CASH

 

Restricted cash consists of the following:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Insurance premium escrow

  $ 483,150     $ 343,518  

 

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated statements of cash flows that agrees to the total of those amounts as presented in the consolidated statements of cash flows.

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Cash and cash equivalents

  $ 51,606,579     $ 16,028,514  

Restricted cash

    483,150       343,518  
                 

Total Cash, Cash Equivalents, and Restricted Cash as Presented in the Consolidated Statement of Cash Flows

  $ 52,089,729     $ 16,372,032  

 

 

NOTE 4.     ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Trade accounts

  $ 3,593,213     $ 3,346,215  

Premiums

    1,312,793       971,963  

Allowance for doubtful accounts

    (73,480 )     (127,635 )
                 

Total Accounts Receivable, net

  $ 4,832,526     $ 4,190,543  

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 5.     PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Structures, displays and towers

  $ 44,009,351     $ 41,320,458  

Vehicles and equipment

    1,841,536       1,245,210  

Office furniture and equipment

    1,260,214       990,810  

Accumulated depreciation

    (7,558,918 )     (6,731,459 )
                 

Total Property and Equipment, net

  $ 39,552,183     $ 36,825,019  

 

Depreciation expense for the three months ended March 31, 2020 and 2019 was $831,510 and $843,283, respectively. For the three months ended March 31, 2020 and 2019, we realized losses (gains) on the disposition of assets in the amount of $18,919 and ($17,721), respectively.

 

 

NOTE 6.     BUSINESS ACQUISITIONS

 

2020 Acquisitions

 

During the first quarter of 2020, we completed two acquisitions accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.

 

Billboard Acquisition

 

On February 26, 2020, our subsidiary, LMO, acquired certain billboard assets in Nevada from Dean Martin Holding, LLC for a purchase price of $1,995,832. 

 

Broadband Acquisition

 

On March 10, 2020, FIF AireBeam, LLC, our wholly-owned subsidiary, acquired substantially all of the business assets of FibAire Communications, LLC, which we refer to as "FibAire", a broadband services provider, as well as other assets used in the business operations owned by entities related to FibAire. Under the terms of the asset purchase agreement, all purchased assets were sold on a debt-free basis to AireBeam. The total purchase price of $13,712,491 was paid 90% in cash and the remaining 10% of the purchase price was paid by issuing to FibAire 10% of the outstanding equity of AireBeam. $1,851,186 of the cash proceeds will be held in escrow for a minimum of one year from the closing to provide indemnification for certain representations and warranties made by FibAire in the asset purchase agreement. At any time, FibAire has the option, but not the obligation, to sell AireBeam its entire ownership interest in AireBeam. AireBeam would be obligated to purchase the units and pay for the purchase over a three-year period if FibAire elects to exercise this option. At any time after December 31, 2023, AireBeam has the option, but not the obligation, to purchase FibAire’s ownership interest in AireBeam, with payment due in full upon exercise of the option. The purchase price for the units under either of these put/call options is based upon a multiple of earnings before interest, taxes, depreciation, amortization, and certain other expenses.

 

We are in the process of obtaining a third-party valuation of the tangible and intangible assets, and therefore the initial allocation of the purchase price is subject to refinement. The purchase was recorded at fair value and preliminarily allocated as follows:

 

   

AireBeam

 

Assets Acquired

       

Property, Plant and Equipment

  $ 3,021,364  

Customer Relationships

    2,040,000  
Permits     260,000  

Trade Names and Trademarks

    970,000  

Goodwill

    7,631,654  
Right of Use Assets     1,475,959  
Other     49,398  
         

Total Assets Acquired

    15,448,375  
         

Liabilities Assumed

       

Accounts Payable

    259,925  
Lease Liabilities     1,475,959  
         

Total Liabilities Assumed

    1,735,884  
         

Total

  $ 13,712,491  

 

AireBeam's results of operations for the three month period ended March 31, 2020 are recognized from March 10, 2020, the date of acquisition, through March 31, 2020.  During this period, revenues and earnings were $267,251 and $65,410, respectively. Acquisition costs of $287,934 were expensed in professional fees during the same period.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

2019 Acquisitions

 

During the year ended December 31, 2019, we completed two acquisitions of billboards and related assets. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.

 

Billboard Acquisitions

 

Image Outdoor Advertising, Inc.

 

On August 30, 2019, our subsidiary, LMSE, acquired from Image Outdoor Advertising, LLC, which we refer to as “Image”, 61 billboard structures and related assets located in West Virginia. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price consisted of $6,915,501 in cash, net of adjustments, and 34,673 shares of our Class A common stock for a total purchase price of $7,625,604 and includes $398,750 that was held back by LMSE and will be disbursed, subject to any claims for indemnification, over an 18 month period. Due to the timing of the transaction, the initial accounting for the business combination is incomplete.  The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Southeastern United States. We are still in the process of obtaining and assessing documentation of the contracts for customer relationships and detailed reports for structures and permits.  Our preliminary purchase price allocation related to Image includes property, plant and equipment, intangibles and goodwill of $1,565,065, $3,145,000 and $3,045,538, respectively, as well as other net liabilities of $129,999. 

 

Alpha Displays, Inc.

 

On October 1, 2019, our subsidiary, LMO, acquired certain billboard assets in Missouri from Alpha Displays, Inc. The purchase price for the acquired assets was $1,337,685 and includes $380,546 that was held back by LMO and will be disbursed, subject to any claims for indemnification, over an 18 month period. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Midwestern United States.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2019. For all of the business acquisitions depreciation and amortization have been included in the calculation of the pro forma information provided below, based upon the actual acquisition costs. Depreciation is computed on the straight-line method over the estimated remaining economic lives of the assets, ranging from two years to fifteen years. Amortization is computed on the straight-line method over the estimated useful lives of the assets ranging from two to fifty years.

 

   

For the Three Months Ended

 
   

March 31,

 
   

2020

   

2019

 
                 

Revenue

  $ 12,413,443     $ 10,617,497  
                 

Net Loss Attributable to Common Stockholders

  $ (24,505,867 )   $ (4,050,519 )
                 

Basic and Diluted Loss per Share

  $ (1.04 )   $ (0.18 )
                 

Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding

    23,510,660       22,220,892  

 

The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of Image.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

NOTE 7.     INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

   

March 31, 2020

   

December 31, 2019

 
           

Accumulated

                   

Accumulated

         
   

Cost

   

Amortization

   

Balance

   

Cost

   

Amortization

   

Balance

 
                                                 

Customer relationships

  $ 39,855,900     $ (18,547,994 )   $ 21,307,906     $ 37,743,900     $ (17,890,487 )   $ 19,853,413  

Permits, licenses, and lease acquisition costs

    10,613,471       (1,675,972 )     8,937,499       10,305,521       (1,443,337 )     8,862,184  

Site location

    849,347       (150,995 )     698,352       849,347       (136,839 )     712,508  

Noncompetition agreements

    626,000       (300,618 )     325,382       626,000       (269,318 )     356,682  

Trade names and trademarks

    1,692,200       (284,125 )     1,408,075       722,200       (267,900 )     454,300  

Technology

    138,000       (138,000 )     -       138,000       (138,000 )     -  

Nonsolicitation agreement

    28,000       (28,000 )     -       28,000       (28,000 )     -  

Easements

    2,697,880       -       2,697,880       2,032,494       -       2,032,494  
                                                 

Total

  $ 56,500,798     $ (21,125,704 )   $ 35,375,094     $ 52,445,462     $ (20,173,881 )   $ 32,271,581  

 

During the fourth quarter of 2019, we updated our analysis of economic lives of customer relationships and extended the amortization period to 10 years to better reflect the estimated economic lives of our billboard customers.

 

Future Amortization

 

The future amortization associated with the intangible assets is as follows:

 

   

March 31,

                 
   

2021

   

2022

   

2023

   

2024

   

2025

   

Thereafter

   

Total

 
                                                         

Customer relationships

  $ 2,683,287     $ 2,462,235     $ 2,462,235     $ 2,462,235     $ 2,462,235     $ 8,775,679     $ 21,307,906  

Permits, licenses, and lease acquisition costs

    975,927       975,927       975,927       975,927       975,927       4,057,864       8,937,499  

Site location

    56,623       56,623       56,623       56,623       56,623       415,237       698,352  

Noncompetition agreements

    114,117       97,450       83,365       29,617       833       -       325,382  

Trade names and trademarks

    161,900       161,900       161,900       161,900       161,900       598,575       1,408,075  
                                                         

Total

  $ 3,991,854     $ 3,754,135     $ 3,740,050     $ 3,686,302     $ 3,657,518     $ 13,847,355     $ 32,677,214  

 

Amortization expense for the three months ended March 31, 2020 and 2019 was $951,821 and $2,848,552, respectively.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 7.     INTANGIBLE ASSETS (Continued)

 

The weighted average amortization period, in months, for intangible assets is as follows:

 

Customer relationships

    89  

Permits, licenses, and lease acquisition costs

    111  

Site location

    148  

Noncompetition agreements

    31  

Trade names and trademarks

    85  

 

 

NOTE 8.     INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

 

Short-term Investments

 

Short-term investments consist of certificates of deposit, U.S. Treasury securities, and corporate bonds.  Certificates of deposit, U.S. Treasury securities and corporate bonds held by UCS are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Other corporate bonds are classified as available for sale and reported at fair value. Because we have elected the fair value option for debt securities classified as available for sale, any unrealized holding gains and losses during the period are included in earnings. For the three months ended March 31, 2020, gains on redemptions of U.S. Treasury notes held to maturity were $2,284. For the three months ended March 31, 2020, unrealized losses on corporate bonds were $310,000. 

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Certificates of deposit

  $ 1,263,273     $ 987,599  
Corporate bonds available for sale     600,000       910,000  

U.S. Treasury notes and corporate bond

    4,834,947       4,649,572  
                 

Total

  $ 6,698,220     $ 6,547,171  

 

 

Marketable Equity Securities

 

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Our marketable equity securities are held by UCS and Boston Omaha. Marketable equity securities as of March 31, 2020 and December 31, 2019 are as follows:

 

           

Gross

         
           

Unrealized

   

Fair

 
   

Cost

   

Gain (Loss)

   

Value

 
                         

Marketable equity securities, March 31, 2020

  $ 77,700,618     $ (18,064,904 )   $ 59,635,714  
                         
Marketable equity securities, December 31, 2019   $ 49,554,926     $ 6,353,001     $ 55,907,927  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

NOTE 8.     INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

 

U.S. Treasury Securities Available for Sale

 

We classify our investments in debt securities that we intend to hold for indefinite periods of time as “available for sale.” Our securities available for sale are carried at fair value in the consolidated balance sheets. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in earnings. Interest income is recognized at the coupon rate. Securities available for sale as of March 31, 2020 and December 31, 2019 are as follows:

 

 

           

Gross

         
           

Unrealized

   

Fair

 
   

Cost

   

Gain (Loss)

   

Value

 
                         

U.S. Treasury securities, March 31, 2020

  $ -     $ -     $ -  
                         

U.S. Treasury securities, December 31, 2019

  $ 75,488,863     $ (79,664 )   $ 75,409,199  

 

Long-term Investments

 

Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, U.S. Treasury securities, and certain equity investments. The certificates of deposit and U.S. Treasury securities have maturity dates ranging from 2021 through 2023. We have the intent and the ability to hold the certificates of deposit and U.S. Treasury securities to maturity. Certificates of deposit and U.S. Treasury securities are stated at carrying value which approximates fair value and are held by UCS.

 

Long-term investments consist of the following:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

U.S. Treasury securities, held to maturity

  $ 538,305     $ 1,094,983  

Certificates of deposit

    106,216       380,753  

Preferred stock

    104,019       104,019  
Non-voting preferred units of Dream Finders Holdings, LLC     6,000,000       12,000,000  

Non-voting common units of Dream Finders Holdings, LLC

    -       10,000,000  

Voting common stock of CBT Holding Corporation

    19,058,485       19,058,485  
                 

Total

  $ 25,807,025     $ 42,638,240  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 8.     INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

 

Equity Investments

 

On May 31, 2018, we invested $19,058,485 in voting common stock of CB&T Holding Corporation, which we refer to as “CBT,” the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CBT’s outstanding common stock. CBT is a closely held corporation, whose majority ownership rests with one family.

 

In late December 2017, we invested $10 million in non-voting common units of Dream Finders Holdings LLC, which we refer to as “DFH”, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Florida, Texas, Georgia, Colorado and the greater northern Virginia and Maryland areas. During the first quarter of 2020, we obtained additional non-voting shares of DFH which increased our ownership in the company to approximately 5.6%. As a result, we began applying the equity method of accounting for our investment in DFH prospectively from January 1, 2020, the date we obtained the additional shares. 

 

In May 2019, our subsidiary BOC DFH, LLC invested an additional $12 million in DFH through the purchase of preferred units. DFH is required to pay to us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units are convertible, at our option, into non-voting common units after May 29, 2020 and the remaining preferred units are convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increases if the preferred units purchased are not redeemed or converted within one year of purchase. Also, we obtain additional beneficial conversion terms if the preferred units are not redeemed by May 29, 2021. On January 13, 2020, DFH redeemed $6,000,000 of the preferred units purchased in May 2019.

 

During January 2018, we exchanged our convertible note receivable from Breezeway Homes, Inc., which we refer to as “Breezeway,” for 31,227 shares of preferred stock. The preferred stock is noncumulative and has a dividend rate of $.2665 per share, should dividends be declared. The preferred stock has one vote per share and is convertible into whole shares of common stock, determined according to the conversion formula contained in Breezeway’s amended and restated articles of incorporation. In addition, our investment provides us with a multi-year right to sell insurance and/or warranty products through Breezeway's software platform to its customers.

 

We reviewed our investments as of March 31, 2020 and concluded that no impairment to the carrying value was required.

 

Investment in Unconsolidated Affiliates

 

We have various investments in equity method affiliates, whose businesses are in home building, real estate, real estate services, and asset management. Our interest in these affiliates ranges from 5.6% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24th Street Holding Company, LLC, having a combined carrying amount of $789,149 on March 31, 2020, are managed by an entity controlled by a member of our board of directors.

 

In March 2020, we invested $1,500,000 in 24th Street Fund I, LLC. The fund is managed by 24th Street Asset Management LLC and will focus on opportunities within secured lending and direct investments in commercial real estate.

 

The following table is a reconciliation of our investments in equity affiliates as presented in investments in unconsolidated affiliates on our consolidated balance sheets, together with combined summarized financial data related to the unconsolidated affiliates:

 

   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

Beginning of period

  $ 771,805     $ 568,713  

Additional investment in unconsolidated affiliates

    11,500,000       264,834  

Distributions received

    (98,100 )     (541,108 )

Equity in income of unconsolidated affiliates

    465,665       479,366  
                 

End of period

  $ 12,639,370     $ 771,805  

 

Combined summarized financial data for these affiliates is as follows:

 

   

March 31,

 
   

2020

   

2019

 
                 

Revenue

  $ 191,751,459     $ 119,274,082  

Gross profit

    25,787,988       21,798,609  

Income from continuing operations

    7,382,036       3,537,480  

Net income

    6,517,748       3,348,507  

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 9.     FAIR VALUE

 

At March 31, 2020 and December 31, 2019, our financial instruments included cash, cash equivalents, restricted cash, receivables, marketable equity securities, certain investments, accounts payable, and long-term debt. The carrying value of cash, cash equivalents, restricted cash, receivables, and accounts payable approximates fair value due to the short-term nature of the instruments. As our long-term debt was issued during the third quarter of 2019, its interest rate is considered to approximate market rates at March 31, 2020.

 

 

Marketable equity securities, corporate bonds, and U.S. Treasury securities available for sale are reported at fair values. Substantially all of the fair value is determined using observed prices of publicly traded securities, level 1 in the fair value hierarchy. Fair values for equity investments in private companies are not readily available, but are estimated to approximate fair value. If our debt was measured at fair value within our Consolidated Balance Sheets, it would have been classified as level 2 in the fair value hierarchy.

 

   

Total Carrying

   

Quoted Prices

           

Total Changes

 
   

Amount in

   

in Active

           

in Fair Values

 
   

Consolidated

   

Markets for

           

Included in

 
   

Balance Sheet

   

Identical

   

Realized Gains

   

Current Period

 
   

March 31, 2020

   

Assets

   

and (Losses)

   

Earnings (Loss)

 
                                 

Marketable equity securities, securities available for sale and corporate bonds

  $ 60,235,714     $ 60,235,714     $ 23,984     $ (24,745,513 )
                                 

 

 

NOTE 10.     ASSET RETIREMENT OBLIGATIONS

 

Our asset retirement obligations include the costs associated with the removal of structures, resurfacing of the land and retirement cost, if applicable, related to our outdoor advertising assets. The following table reflects information related to our asset retirement obligations:

 

Balance, December 31, 2019

  $ 2,044,705  

Additions

    5,769  

Accretion expense

    34,762  

Liabilities settled

    -  
         

Balance, March 31, 2020

  $ 2,085,236  

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 11.     CAPITAL STOCK

 

In February 2018, we filed a shelf registration statement with the SEC allowing us to sell up to $200,000,000 of our securities. This registration statement was declared effective by the SEC on February 9, 2018. We subsequently entered into a Sales Agreement with Cowen and Company, LLC, which we refer to as “Cowen,” relating to the sale of shares of our Class A common stock to be offered. In accordance with the terms of the Sales Agreement, we may offer and sell from time to time up to $50,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From March 2018 through August 20, 2019, we sold through Cowen an aggregate of 2,141,452 shares of our Class A common stock under this “at the market” offering, resulting in gross proceeds to us of $49,999,625. For the period from January 1, through August 20, 2019, we sold through Cowen 942,223 shares of our Class A common stock under this at-the-market offering, resulting in gross proceeds to us of $22,753,943 and net proceeds of $22,059,015 after offering costs of $694,928.

 

On August 13, 2019, we entered into a second Sales Agreement with Cowen, relating to the sale of additional shares of our Class A common stock to be offered. In accordance with the terms of the second Sales Agreement, we may offer and sell from time to time up to $75,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From August 21, 2019 through December 31, 2019, we sold through Cowen 448,880 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $9,450,789 and net proceeds of $9,122,227, after offering costs of $328,562. During the first quarter of fiscal 2020, we did not sell any shares of our Class A common stock under the new "at the market" offering. Subsequent to March 31, 2020, we have sold under the new "at the market" offering 40,455 shares of our Class A common stock for gross proceeds of $669,751.

 

On March 18, 2020, our Board of Directors authorized and approved a share repurchase program for us to repurchase up to $20,000,000 worth of shares of our Class A common stock, which we refer to as the “Repurchase Program.” Under the Repurchase Program, we may repurchase shares, from time to time, in solicited or unsolicited transactions in the open market, privately-negotiated transactions, or transactions pursuant to a Rule 10b5-1 plan. The Repurchase Program does not obligate us to purchase any particular number of shares and will run through the earlier of June 30, 2021, or our decision that the Repurchase Program is no longer consistent with our short-term and long-term objectives. We have not repurchased any shares during fiscal year 2020.

 

Our Board of Directors also authorized us to enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, which we refer to as the “Exchange Act.” Adopting a trading plan that satisfies the conditions of Rule 10b5-1 allows a company to repurchase its shares at times when it might otherwise be prevented from doing so due to self-imposed trading blackout periods or pursuant to insider trading laws. Under any Rule 10b5-1 trading plan, our third-party broker, subject to Securities and Exchange Commission regulations regarding certain price, market, volume and timing constraints, would have authority to purchase our Class A common stock in accordance with the terms of the plan. We may from time to time, enter into Rule 10b5-1 trading plans to facilitate the repurchase of our Class A common shares pursuant to our Repurchase Program.

 

As of March 31, 2020, there were 104,772 outstanding warrants for our Class B common stock and 784 outstanding warrants for our Class A common stock. A summary of warrant activity for the three months ended March 31, 2020 is presented in the following table.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 11.     CAPITAL STOCK (Continued)

 

   

Shares Under Warrants

   

Weighted Average Exercise Price

    Weighted Average Remaining Contractual Life (in years)    

Aggregate Intrinsic Value of Vested Warrants

 
                                 

Outstanding as of December 31, 2019

    105,556     $ 9.95       5.50     $ 1,170,616  
                                 

Issued

    -                          

Exercised

    -                          

Expired

    -                          
                                 

Outstanding as of March 31, 2020

    105,556     $ 9.95       5.25     $ 861,337  

 

 

 

NOTE 12.    LONG-TERM DEBT

 

On August 12, 2019, Link Media Holdings, Inc., (“Link”), a wholly owned subsidiary of Boston Omaha Corporation (“BOC”), which owns and operates BOC’s billboard businesses, entered into a Credit Agreement (the “Credit Agreement”) with First National Bank of Omaha (the “Lender”) under which Link may borrow up to $40,000,000 (the “Credit Facility”). The Credit Agreement provides for an initial term loan (“Term Loan 1”), an incremental term loan (“Term Loan 2”) and a revolving line of credit. These loans are secured by all assets of Link and its operating subsidiaries, including a pledge of equity interests of each of Link’s subsidiaries. In addition, each of Link’s subsidiaries has joined as a guarantor to the obligations under the Credit Agreement. These loans are not guaranteed by BOC or any of BOC’s non-billboard businesses.

 

Principal amounts under each of Term Loan 1 and Term Loan 2 are payable in monthly installments according to either a 15-year or 25-year amortization schedule at Link’s option, subject to Link's satisfaction of certain conditions. For Term Loan 1, these payments are due commencing on the earlier of July 1, 2020 or the first day of the first calendar month following any draw down under Term Loan 2. For Term Loan 2, these principal payments are due commencing on the last day of the month following the closing of Term Loan 2. Both term loans are payable in full on August 12, 2026. Term Loan 1 has a fixed interest rate of 4.25% per annum with interest only payments due through July 1, 2020. Term Loan 2 has a loan availability in an amount not to exceed three times 2019 reported EBITDA reduced by the loan principal under Term Loan 1 and must be drawn before June 30, 2020. If utilized, Term Loan 2 will have a fixed rate of interest determined using the seven-year Treasury rate plus 195 basis points subject to a floor of 4.20% per annum.

 

The revolving line of credit loan facility has a $5,000,000 maximum availability, provided that the outstanding principal balance of Term Loan 1, Term Loan 2 and this revolving line of credit may not exceed $40,000,000. Interest payments are based on the 30-day LIBOR rate plus an applicable margin ranging between 2.00 and 2.50% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 11, 2021.

 

Long-term debt included within our consolidated balance sheet as of March 31, 2020 consists of Term Loan 1 borrowings of $18,060,000, of which $727,710 is classified as current.  There were no amounts outstanding related to the revolving line of credit and Term Loan 2 as of March 31, 2020.  

 

During the term of the Credit Facility, Link is required to comply with the following financial covenants: A consolidated leverage ratio for any test period ending on the last day of any fiscal quarter of Link (a) beginning with the fiscal quarter ending December 31, 2019 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ending December 31, 2020 of not greater than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31, 2021 and thereafter, of not greater than 3.00 to 1.0; minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on rolling four quarters, with testing to commence as of December 31, 2019 based on the December 31, 2019 audited financial statements. The Company was in compliance with these covenants as of March 31, 2020.

 

The Credit Agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the Lender may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. 

 

 

NOTE 13.     LEASES

 

We enter into operating lease contracts primarily for land and office space. Arrangements are evaluated at inception to determine whether such arrangements contain a lease. Operating leases include land lease contracts and contracts for the use of office space. In accordance with the transition guidance of ASC 842, such arrangements are included in our balance sheet as of January 1, 2019.

 

Right of use assets, which we refer to as “ROU assets,” represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.

 

Certain of our operating lease agreements include rental payments based on a percentage of revenue and others include rental payments adjusted periodically for inflationary changes. Percentage rent contracts, in which lease expense is calculated as a percentage of advertising revenue, and payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 13.     LEASES (Continued)

 

Many operating lease contracts expire; however, we may continue to operate the leased assets after the rights and obligations of the lease agreements have expired. Such contracts, once expired, are considered to be leases and future expected payments are included in operating lease liabilities or ROU assets, using a 10 year extension period. Many of our leases entered into in connection with land provide options to extend the terms of the agreements. Generally, renewal periods are included in minimum lease payments when calculating the lease liabilities as, for most leases, we consider exercise of such options to be reasonably certain. As a result, optional terms and payments are included within the lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

The implicit rate within our lease agreements is generally not determinable. As such, we use the incremental borrowing rate, which we refer to as "IBR," to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment."

 

Operating Lease Cost

 

Operating lease cost for the three months ended March 31, 2020 is as follows:

 

   

Three Months

   
   

Ended

   
   

March 31, 2020

 

Statement of Operations Classification

           

Lease cost

  $ 1,611,303  

Cost of billboard revenues and general and administrative

Variable and short-term lease cost

    157,246  

Cost of billboard revenues and general and administrative

           

Total Lease Cost

  $ 1,768,549    

 

Supplemental cash flow information related to operating leases is as follows:

 

   

Three Months

 
   

Ended

 
   

March 31, 2020

 
         

Cash payments for operating leases

  $ 1,646,389  

New operating lease assets obtained in exchange for operating lease liabilities

  $ 1,581,747  

 

Operating Lease Assets and Liabilities

 

   

March 31, 2020

 

Balance Sheet Classification

           

Lease assets

  $ 53,720,954  

Other Assets: Right of use assets

           

Current lease liabilities

  $ 3,930,899  

Current Liabilities: Lease liabilities

Noncurrent lease liabilities

    48,666,787  

Long-term Liabilities: Lease liabilities

           

Total Lease Liabilities

  $ 52,597,686    

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 13.      LEASES (Continued)

 

Maturity of Operating Lease Liabilities

 

   

March 31, 2020

 
         

2021

  $ 6,106,740  

2022

    5,763,651  

2023

    5,473,281  

2024

    5,207,544  

2025

    4,767,642  

Thereafter

    50,327,616  
         

Total lease payments

    77,646,474  

Less imputed interest

    (25,048,788 )
         

Present Value of Lease Liabilities

  $ 52,597,686  

 

As of March 31, 2020, our operating leases have a weighted-average remaining lease term of 17.15 years and a weighted-average discount rate of 4.85%.

 

 

NOTE 14.     INDUSTRY SEGMENTS

 

This summary presents our current segments, as described below.

 

General Indemnity Group, LLC

 

GIG conducts our insurance operations through its subsidiaries, Warnock, SSS, SCS, and UCS. SSS clients are multi-state and UCS, SCS, and Warnock clients are nationwide. Revenue consists of surety bond sales and insurance commissions. Currently, GIG’s corporate resources are used to support Warnock, SSS, SCS, and UCS and to make additional business acquisitions in the insurance industry.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 14.     INDUSTRY SEGMENTS (Continued)

 

Link Media Holdings, LLC

 

LMH conducts our billboard rental operations. LMH advertisers are located in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia, and Wisconsin.

 

 

                           

Total

 

Three Months Ended March 31, 2020

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 3,927,163     $ 7,215,766     $ 267,251     $ 11,410,180  

Segment gross profit

    2,423,301       4,265,212       191,828       6,880,341  

Segment income (loss) from operations

    300,386       72,118       (1,552,476 )     (1,179,972 )

Capital expenditures

    -       599,059       -       599,059  

Depreciation and amortization

    141,946       1,641,385       -       1,783,331  

 

                           

Total

 

Three Months Ended March 31, 2019

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 2,330,335     $ 6,780,390     $ -     $ 9,110,725  

Segment gross profit

    1,044,613       4,068,993       -       5,113,606  

Segment loss from operations

    (1,318,014 )     (1,800,748 )     (1,669,188 )     (4,787,950 )

Capital expenditures

    37,955       845,583       -       883,538  

Depreciation and amortization

    316,062       3,375,773       -       3,691,835  

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 14.     INDUSTRY SEGMENTS (Continued)

 

 

As of March 31, 2020

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Accounts receivable, net

  $ 1,907,355     $ 2,925,171     $ -     $ 4,832,526  

Goodwill

    8,719,294       98,955,903       7,631,655       115,306,852  

Total assets

    45,296,828       224,899,784       141,943,444       412,140,056  

 

                           

Total

 

As of December 31, 2019

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Accounts receivable, net

  $ 1,213,823     $ 2,976,720     $ -     $ 4,190,543  

Goodwill

    8,719,294       97,553,207       -       106,272,501  

Total assets

    45,956,410       224,258,311       166,693,489       436,908,210  

 

 

NOTE 15.     CUSTODIAL RISK

 

As of March 31, 2020, we had approximately $50,743,000 in excess of federally insured limits on deposit with financial institutions.

 

 

NOTE 16.     SUBSEQUENT EVENTS

 

Subsequent to March 31, 2020, we sold through Cowen an additional 40,455 shares of our Class A common stock, under the "at the market" Sales Agreement, resulting in net proceeds to us of $649,659 (See Note 11).

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. We have based these forward-looking statements on our current intent, expectations and projections about future events, and these forward-looking statements are not guaranteed to occur and may not occur. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “intend,” “project,” “contemplate,” “potential,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. These statements are only predictions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings. 

 

THE OUTCOME OF THE EVENTS DESCRIBED IN THIS REPORT ALSO CONTAINS STATISTICAL AND OTHER INDUSTRY AND MARKET DATA RELATED TO OUR BUSINESS AND INDUSTRY THAT WE OBTAINED FROM INDUSTRY PUBLICATIONS AND RESEARCH, SURVEYS AND STUDIES CONDUCTED BY US AND THIRD PARTIES, AS WELL AS OUR ESTIMATES OF POTENTIAL MARKET OPPORTUNITIES. INDUSTRY PUBLICATIONS, THIRD-PARTY AND OUR OWN RESEARCH, SURVEYS AND STUDIES GENERALLY INDICATE THAT THEIR INFORMATION HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE ALTHOUGH THEY DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THIS MARKET DATA INCLUDES PROJECTIONS THAT ARE BASED ON A NUMBER OF ASSUMPTIONS. IF THESE ASSUMPTIONS TURN OUT TO BE INCORRECT, ACTUAL RESULTS MAY DIFFER FROM THE PROJECTIONS BASED ON THESE ASSUMPTIONS. AS A RESULT, OUR MARKETS MAY NOT GROW AT THE RATES PROJECTED BY THIS DATA, OR AT ALL. THE FAILURE OF THESE MARKETS TO GROW AT THESE PROJECTED RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND THE MARKET PRICE OF OUR COMMON STOCK.

 

The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. IN ADDITION, OUR BUSINESS AND FUTURE RESULTS ARE SUBJECT TO A NUMBER OF FACTORS, INCLUDING THOSE FACTORS SET FORTH IN THE “risk factors” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED December 31, 2019 AND in exhibit 99.1 to our form 8-k as filed with the SECURITIES AND EXCHANGE commission on APRIL 13, 2020. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. We undertake no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These risks could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect our financial condition, liquidity and operating and stock price performance.

 

 

Overview

 

We are currently engaged in outdoor billboard advertising and surety insurance and related brokerage businesses and commenced a broadband business in March 2020. In addition, we hold minority investments in commercial real estate management and brokerage services, a bank focused on servicing the automotive loan market, and a homebuilding company with operations located primarily in the Southeast United States.

 

Billboards: In June 2015, we commenced our billboard business operations through acquisitions by Link, our wholly-owned subsidiary, of smaller billboard companies located in the Southeast United States and Wisconsin. During July and August 2018, we acquired the membership interest or assets of three larger billboard companies. These transactions include our acquisition on July 31, 2018 of Tammy Lynn for approximately $16 million, our acquisition on August 22, 2018 of substantially all of the assets of Key for approximately $38 million, and our acquisition on August 31, 2018 of Waitt for approximately $84 million. We believe that the acquisitions of Waitt and Key, with over 1,600 and 700 billboard structures, respectively, make us a leading outdoor billboard advertising company in the markets we serve in the Midwest. As of April 30, 2020, we operate approximately 3,000 billboards with approximately 5,600 advertising faces. One of our principal business objectives is to continue to acquire additional billboard assets through acquisitions of existing billboard businesses in the United States when they can be made at what we believe to be attractive prices relative to other opportunities generally available to us.

 

Surety Insurance: In April 2016, our surety insurance business commenced with the acquisition of a surety insurance brokerage business with a national internet-based presence. In December 2016, we completed the acquisition of UCS a surety insurance company, which at that time was licensed to issue surety bonds in only nine states. UCS now has licenses to operate in all 50 states and the District of Columbia. In addition, over the last three years, we have also acquired additional surety insurance brokerage businesses located in various regions of the United States.

 

Broadband Services: In March 2020, we commenced our broadband services business with the acquisition of substantially all of the assets of FibAire. We provide these services to over 7,000 customers located in Arizona and hope to continue to expand this business in Arizona and other locales.

 

Investments:

 

 

Since September 2015, we have made a series of investments in commercial real estate, a commercial real estate management, brokerage and related services business as well as an asset management business. We currently own 30% of Logic and approximately 49.9% of 24th Street Holding Company, LLC, both directly and indirectly through our ownership in Logic.

 

 

In December 2017, we invested $10 million in common stock of Dream Finders Holdings LLC, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Colorado, Florida, Georgia, Maryland, South Carolina, Texas and northern Virginia. In addition to its homebuilding operations, DFH’s subsidiaries provide mortgage loan origination and title insurance services to homebuyers. In May 2019, we invested, through one of our subsidiaries, an additional $12 million in DFH through the purchase of preferred units. DFH is required to pay us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units are convertible, at our option, into non-voting common units until May 30, 2020 and the remaining preferred units are convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increases if the preferred units purchased are not redeemed or converted within one year of purchase. Also, we obtain additional beneficial conversion terms if the preferred units are not redeemed by May 29, 2021. On January 13, 2020, DFH redeemed $6 million of the preferred units.

 

 

In May 2018, we invested, through one of our subsidiaries, approximately $19 million through the purchase of common stock of CBT Holding Corporation, the privately-held parent company of Crescent Bank & Trust, Inc. Crescent is located in New Orleans and generates the majority of its revenues from indirect subprime automobile lending across the United States.

 

In each of our businesses, we hope to expand our geographic reach and market share and seek to develop a competitive advantage and/or brand name for our services, which we hope will be a differentiating factor for customers. Our insurance market primarily services small contractors, small and medium-sized businesses and individuals required to provide surety bonds (i) in connection with their work for government agencies and others, (ii) in connection with contractual obligations, or (iii) to meet regulatory requirements and other needs. We have expanded the licensing of the UCS business to all 50 states and the District of Columbia.  In outdoor advertising, our plan is to continue to grow this business through acquisitions of billboard assets. We also expect to expand our broadband services in Arizona and in the future in other locations. We also expect to continue to make additional investments in real estate management service businesses, as well as in other businesses. In the future, we may expand the range of services we provide in the insurance sector, seek to continue to expand our billboard operations and broadband services and to possibly consider acquisitions of other businesses, as well as investments, in other sectors. Our decision to expand outside of these current business sectors we serve or in which we have made investments will be based on the opportunity to acquire businesses which we believe provide the potential for sustainable earnings at an attractive level relative to capital employed and, with regard to investment, we believe have the potential to provide attractive returns.

 

We seek to enter markets where we believe demand for our services will grow in the coming years due to certain barriers to entry and/or to anticipated long-term demand for these services. In the outdoor billboard business, government restrictions often limit the number of additional billboards that may be constructed. At the same time, advances in billboard technology provide the opportunity to improve revenues through the use of digital display technologies and other new technologies. In the surety insurance business, new insurance companies must be licensed by state agencies that impose capital, management and other strict requirements on these insurers. These hurdles are at the individual state level, with statutes often providing wide latitude to regulators to impose judgmental requirements upon new entrants. In addition, new distribution channels in certain areas of surety may provide a new opportunity. In the real estate management services market, we believe the continued growth of commercial real estate in many sections of the United States will provide opportunities for management services for the foreseeable future. We also believe our investment in both CBT and DFH provides the opportunity for each company to significantly grow its business.  We invest our available capital and the surplus capital from UCS in a wide range of securities, including equity securities of large cap public companies, various corporate and government bonds and U.S. treasuries. In broadband services, we believe that our fiber to the home services provide higher rates of transmission and improved speed to consumers and that, once built, other competitors may be less willing to compete in communities which we serve.

 

 

Recent Developments - Impact of the COVID-19 Disease on Our Business

 

The global outbreak of a novel strain of coronavirus ("COVID-19") has had a significant impact on many industries and companies, and is also impacting our business. We cannot presently estimate the significance, extent or duration of the overall operational and financial impact of COVID-19 on our business. As a result of the COVID-19 pandemic, economic uncertainties have arisen which are likely to negatively impact the Company’s net income and surplus. The extent to which the COVID-19 pandemic impacts our business, net income, surplus, as well as our capital and liquidity position, will depend on future developments, which are highly uncertain and cannot be estimated, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. However, the COVID-19 pandemic has had various impacts on us, and is expected to have additional impacts on us, including, among other things, the following, which have had or could have a material adverse effect on our business, financial performance and condition, operating results and cash flows and stock price:

 

 

We expect that the impact of “stay at home” and other governmental mandates closing retail and other businesses will adversely impact revenues for our billboard business and the ability of certain customers to pay outstanding invoices.

 

 

We expect to sell fewer surety bonds as some of the markets we serve (contractors and residential and commercial lease) have been impacted by the COVID-19 virus. In New York and other states where we sell residential lease bonds, eviction actions have been suspended and it is unclear what impact the COVID-19 pandemic will have on lease defaults. We have established loss reserves which have historically been adequate to meet our obligations if a tenant or contractor defaults, but these reserves may prove inadequate if defaults exceed historical experience. Due to the current disruption in this market, we have temporarily suspended issuing new rental insurance bonds in most instances, which could significantly reduce the revenues of our UCS business. Furthermore, various state and local legislators are actively contemplating new laws and civil actions which could meaningfully impact the insurance industry generally and our insurance company. We recognize revenues from the sale of these bonds over the life of the bond so the suspension of certain rental bond sales and decreases in other surety bond sales may not as immediately impact our reported revenues from the sale of these bonds.

 

 

In our insurance business, we rely in significant part on reinsurance arrangements for some of our insurance business. Although we do not currently anticipate any loss of our reinsurance and have recently renewed reinsurance arrangements, insurance markets are currently highly volatile, and any loss would place our other UCS assets at risk. We also anticipate that our reinsurance premium costs could increase substantially, which higher costs we may not be able to pass through to our customers.

 

 

In the broadband telecommunications business, we expect demand for services to remain high but we may experience reduced revenues if customers are unable to pay their bills due to loss of employment or other inability to pay.

 

 

We expect to continue to seek additional acquisitions of businesses. Current market conditions may result in fewer companies wishing to be acquired, which could delay certain of our growth plans. Other companies available for sale may have had their operations severely impacted due to the pandemic and may not generate the returns we generally seek from acquisitions. While the cost to acquire such companies would potentially be lower than the purchase price we might pay in a more normal market environment, the risks associated with any newly acquired company may also be greater.

 

 

We hold minority investments in Logic, DFH and CBT. Financial results for both Logic and DFH are included in our results of operations. We do expect the COVID-19 pandemic to adversely impact all three investments, but we are not able to assess currently the potential impact to these businesses.

 

 

For Logic, we expect that certain of its fee income from brokerage and property management will be adversely impacted but that some of its other real estate finance operations may experience growth

 

 

For DFH, we expect that new home sales may decrease during the crisis due to potential buyers’ concerns about the general economy and the impact of higher unemployment rates, however, inventories remain relatively low relative to other macro-economic downturns.

 

 

For CBT, we expect a reduction in demand for vehicle purchases in the near term. 

 

 

Both DFH and CBT borrow and we do not have guidance on what impact this pandemic will have on their ability to continue to borrow in the future and pay down any debt. We believe in the potential long-term value and success of both DFH and CBT and would consider providing additional funding if necessary.

 

 

Any increase in unemployment or underemployment may lead to an increase in the number of loan delinquencies and auto repossessions and have an adverse impact on CBT. The unemployment rate has risen significantly in the last month and could continue to rise to a level that is uncertain at this time. People who are not employed, are underemployed, or are concerned about the loss of their jobs are less likely to purchase new homes and automobiles, may be forced to try to sell the homes they own, and may face difficulties in making required auto loan payments. Therefore, any increase in unemployment or underemployment may lead to an increase in the number of loan delinquencies experienced by CBT and have an adverse impact on DFH both by reducing demand for the homes DFH builds and by increasing the supply of homes for sale. 

 

 

 

We held $59.6 million in publicly traded investment securities at March 31, 2020. Since the pandemic started in the United States in early March, the market prices for these securities have dropped significantly. We believe that the prices for these securities will continue to be volatile during the pandemic and any ongoing economic downturn which may follow the cessation of the pandemic. Our investments in publicly traded securities are solely in larger market capitalized companies (market capitalizations in excess of $4 billion at the time of purchase).

 

 

Boston Omaha is debt free as are some of our subsidiaries. However, Link’s billboard business has borrowed to date $18 million under a term loan arrangement which is due in June 2026 and which provides for monthly principal payments amortized over a 15-year term commencing July 1, 2020. Under its credit arrangement, Link may borrow additional funds, including under a $5 million revolver, which has not been drawn upon since the inception of the loan in August 2019 and a second term loan which may be drawn down prior to June 30, 2020. Any loans are guaranteed by Link’s operating subsidiaries but these loans are not guaranteed by us or any of our other non-Link subsidiaries. Link’s term loan requires monthly principal repayments commencing in June 2020 and we can cure certain financial covenant defaults by paying any monthly principal payment then due. As a result, we do not currently anticipate any adverse impact to the Link credit facility.

 

 

All our acquisitions involve assets with anticipated long lives, and while we do not currently anticipate any material write-off of goodwill or other significant impairment of assets, any unforeseen extensive economic downturn could cause us to incur significant impairment charges. At March 31, 2020, we recorded goodwill of approximately $115.3 million, or 28.0% of our total assets at March 31, 2020. Any significant impairment charges could materially adversely impact our balance sheet.

 

 

Our ability to conduct our business operations has not been materially impacted by the pandemic and absent a future larger scale pandemic or illnesses involving a significant portion of our work force, we do not foresee a significant impact on our ability to continue to deliver services. Our information technology systems allow for remote computing by most of our employees who require access to these systems. Our accounting systems also allow us to fully monitor all financial activities and we do not expect the pandemic to have a materially adverse impact on our system of internal controls. None of our businesses require a manufacturing facility or other physical assets which cannot currently operate.

 

 

As a result of these recent developments, we have implemented work-from-home policies for almost all our employees. The effects of these orders, government-imposed quarantines and our work-from-home policies may negatively impact productivity, disrupt our business and could delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party supplier facilities in the United States and other countries. 

 

 

At March 31, 2020, we had $51.6 million in cash and cash equivalents. Since March 31, 2020, we have sold 40,455 shares of our Class A common stock in our "at the market" offering raising net proceeds of $649,659. We may continue to sell shares of our Class A common stock through the "at the market" offering.    Concerns over the economic impact of COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.

 

 

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” sections of both our Annual Report on Form 10-K for the year ended December 31, 2019 and our Form 8-K as filed with the SEC on April 13, 2020, including but not limited to, those relating to our products and services, financial performance, credit rating of our insurance subsidiary and debt obligations of our billboard business.

 

 

In the second half of March 2020, we announced the implementation of a stock buyback plan. We have not repurchased any shares as of this date. We may in the future repurchase shares of our Class A common stock, which could reduce our cash available for working capital and other purposes. 

 

 

How We Generate Our Revenues and Evaluate Our Business

 

We currently generate revenues primarily through billboard advertising and related services and from the sale of surety insurance and related brokerage activities. Revenue for outdoor advertising space rental is recognized on a straight-line basis over the term of the contract and advertising revenue is reported net of agency commissions. Payments received in advance of being earned are recorded as deferred revenue. In our surety insurance business, premiums written are recognized as revenues based on a pro rata daily calculation over the respective terms of the policies in-force. Unearned premiums represent the portion of premiums written applicable to the unexpired term of the policies in-force. In connection with our surety agency business, insurance commissions are recognized at a point in time, on a bond-by-bond basis as of the policy effective date and are generally nonrefundable.

 

Segment gross profit is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define segment gross profit as segment revenues less segment direct cost of services. In our billboard business, direct cost of services includes land leases, utilities, repairs and maintenance of equipment, sales commissions, contract services, and other billboard level expenses. In our surety business, direct cost of services includes commissions, premium taxes, fees and assessments, and losses and loss adjustment expenses.

 

Results of Operations

 

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

The following is a comparison of our results of operations for the three months ended March 31, 2020, which we refer to as the “first quarter of fiscal 2020,” compared to the three months ended March 31, 2019, which we refer to as the “first quarter of fiscal 2019.”

 

Revenues. For the first quarter of fiscal 2020 and the first quarter of fiscal 2019, our revenues in dollars and as a percentage of total revenues were as follows:

 

   

For the Three Months Ended March 31,

 
   

(unaudited)

 
   

2020

   

2019

   

2020 vs 2019

 
           

As a % of

           

As a % of

         
           

Total

           

Total