BOSTON OMAHA CORPORATION 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, PARTICULARLY THOSE ANTICIPATING FUTURE FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, GROWTH, OPERATING STRATEGIES AND SIMILAR MATTERS, INCLUDING WITHOUT LIMITATION, STATEMENTS CONCERNING THE IMPACTS OF THE COVID-19 PANDEMIC ON OUR BUSINESS, OPERATIONS, RESULTS OF OPERATIONS, LIQUIDITY, INVESTMENTS AND FINANCIAL CONDITION. 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 otherSecurities 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 OTHER FACTORS, INCLUDING THOSE FACTORS SET FORTH IN THE "risk factors" SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDEDDecember 31, 2021 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") ONMARCH 28, 2022 . 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 2022 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. 35
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Overview
We are currently engaged in outdoor billboard advertising, broadband services,
surety insurance and related brokerage businesses and an asset management
business. In addition, we hold minority investments in commercial real estate
management and brokerage services, a bank focused on servicing the automotive
loan market, a homebuilding company and a developer of private aviation
infrastructure focused on building, leasing and managing business aviation
hangars.
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 which increased our overall billboard count to approximately
2,900 billboards. In addition, we have made a number of billboard acquisitions
on a smaller scale since that date. We believe that we are a leading outdoor
billboard advertising company in the markets we serve in the Midwest. As of June
30, 2022 , we operate approximately 3,900 billboards with approximately 7,400
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 September 2015 , we established an insurance subsidiary,
GIG, designed to own and operate insurance businesses generally handling high
volume, lower policy limit commercial lines of property and casualty 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 several years, we have also acquired additional surety
insurance brokerage businesses located in various regions of the United States .
We may in the future expand the reach of our insurance activities to other forms
of insurance which may have similar characteristics to surety, such as high
volume and low average policy premium insurance businesses which historically
have similar economics.
Broadband Services: In March 2020 , we commenced our broadband services business
with the acquisition of substantially all of the business assets of FibAire, a
rural broadband internet provider that serves over 8,000 customers in
communities in southern Arizona with a high-speed fixed wireless internet
service and is building an all fiber-to-the-home network in select Arizona
markets. In December 2020 , we acquired substantially all of the business assets
of UBB, a broadband internet provider that provides high-speed internet to over
10,000 customers throughout Utah . In September 2021 , we announced the launch of
Fiber Fast Homes, LLC ("FFH"), which partners with builders, developers and
build-to-rent communities to build fiber-to-the-home infrastructure and provide
fiber internet service to residents. In April 2022 , we acquired substantially
all of the business assets of InfoWest and Go Fiber, which are fiber and fixed
wireless internet service providers with over 20,000 customers throughout
Southern and Central Utah , Northern Arizona and Moapa Valley , Nevada . We hope to
continue to expand in Arizona , Florida , Nevada , Utah , and other locales.
Investments:
? Since
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
indirectly through our ownership in Logic. In addition, we have invested,
through one of our subsidiaries, an aggregate of
focus on opportunities within secured lending and direct investments in
commercial real estate.
? In
Holdings LLC, the parent company of
builder with operations in
Carolina,
homebuilding operations, DFH's subsidiaries provide mortgage loan origination
and title insurance services to homebuyers. On
offering and Dream Finders Homes, Inc. became a holding company and sole
manager of DFH. Upon completion of the initial public offering, our
outstanding common units in DFH were converted into 4,681,099 shares of Class
A Common Stock of Dream Finders Homes, Inc., and one of our subsidiaries
purchased an additional 120,000 shares of Class A common stock in the initial
public offering. At
common stock. During the second quarter of fiscal 2022, we sold 900,751 shares
of DFH Class A common stock for gross proceeds of approximately
Since DFH's initial public offering through
3,704,355 shares of DFH Class A common stock for gross proceeds of
approximately $68.1 million .
? In
million through the purchase of common stock of
privately-held parent company of
now represents 15.6% of CB&T's outstanding common stock. Crescent is located
in New Orleans and generates the majority of its revenues from indirect
subprime automobile lending across the United States .
? In
underwritten initial public offering of a special purpose acquisition company
named Yellowstone. Yellowstone sold in its public offering 13,598,898 units at
a price of
common stock and a redeemable warrant to purchase one-half of a share of Class
A common stock at an exercise price of
million through the purchase of 3,399,724 shares of Class B common stock and
7,719,779 non-redeemable private placement warrants, each warrant entitling us
to purchase one share of Class A common stock at
focused on building, leasing and managing business aviation hangars. The
business combination was completed on
its name to Sky Harbour Group Corporation, which we refer to as "Sky Harbour".
Sky Harbour's Class A common stock trades on the NYSE American under the
symbol "SKYH" and its warrants to purchase Class A Common Stock trade under
the symbol "SKYH.WS".
? In
million directly into SHG and received Series B preferred units. On September
14, 2021, we completed the
Series B Preferred Units. Upon the consummation of the Sky Harbour business
combination, this investment converted into 5,500,000 shares of Sky Harbour's
Class A common stock based upon an assumed value of
through the purchase of 4,500,000 shares of Class A common stock upon the
closing of the Sky Harbour business combination.
? We recently established a subsidiary within BOAM to operate a proposed build
for rent business in which we would develop and own single family detached
and/or townhomes for long term rental. We have bought parcels of land in
providing 100% of the financing for the initial stages of these projects but
may consider a range of financing options in the future, such as raising third
party capital to be invested alongside our capital. Once completed and
stabilized, we expect that these properties will be financed with long term
fixed rate debt capital. In addition to developing and managing these
properties, we would also expect to provide broadband services to these homes,
providing us a second or third source of potential revenue from these
developments.
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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 theDistrict 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 inArizona ,Florida ,Nevada ,Utah and 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 expect to 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 ofthe United States will provide opportunities for management services for the foreseeable future. We also believe our investment in both CB&T and Sky Harbour 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 andU.S. treasuries. In broadband services, we believe that our fiber to the home services can compete with traditional cable operators as broadband provides 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. 37
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Impact of the COVID-19 Pandemic
The unprecedented and rapid spread of COVID-19 has to date generally had limited
or no material adverse impact on our billboard and broadband businesses.
Specifically, the COVID-19 pandemic has impacted different parts of our business
in different ways:
? Our billboard business incurred some overall reductions in revenue during the
first half of fiscal 2020 but has returned to more normal levels in fiscal
2021 and continues to grow during the first six months of fiscal 2022. As most
of our billboards are on roads and highways and not in airports and other mass
transit hubs, shopping centers and sports arenas, our revenues for billboards
were not as significantly impacted as those of certain of our competitors.
? Our broadband business was generally unaffected by COVID-19 and we continued
to expand that business through the launch of our FFH business during fiscal
2021, the InfoWest and Go Fiber acquisitions in
capital to expand our footprint and serve additional customers in
Florida ,Nevada ,Utah , and other locales. ? Our surety insurance business was primarily impacted by the decision we
implemented in the second quarter of fiscal 2020 to cease issuing rental
insurance bonds and increase our loss reserves related to these bonds. We made
this decision due to concern about the potential for increasing default rates
by residential tenants. However, due to the favorable development of losses
within UCS throughout fiscal 2021, our actuarial analysis at the end of 2021
indicated that UCS was over-reserved so management released this excess back
into income to remain consistent with previous years' reserving methodologies.
UCS no longer has any material exposure to the rental guarantee bond program
as substantially all of these bonds have since expired.
? As of June 30, 2022 , we did not incur any impairment charges related togoodwill or long-lived assets (including operating lease right of use assets).
We also did not incur any significant credit losses for the six months ended
June 30, 2022 and 2021. We have observed an improvement in business activity beginning in the second half of 2020 and throughout fiscal 2021 and the first six months of fiscal 2022 as government-imposed restrictions on travel were relaxed, businesses which were temporarily closed or limited are fully reopening, more of the population has been vaccinated and unemployment rates are dropping. Accordingly, we are not actively pursuing additional cost saving measures, and are resuming acquisition activities and spending on capital projects. We cannot predict the length or strength of the recovery in demand for our billboard, surety insurance and broadband businesses due to continued impact of the pandemic on theU.S. economy. Any significant resurgence of the pandemic could adversely impact our business in the future. We will continue to evaluate the impact of the COVID-19 pandemic on our business and we may access the debt and/or equity capital markets for additional liquidity, if necessary. We continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and customers. 38
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How We Generate Our Revenues and Evaluate Our Business
We currently generate revenues primarily through billboard advertising and
related services, from the sale of surety insurance and related brokerage
activities and by providing high-speed broadband services. 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. In our broadband business, 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.
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. In our broadband business, direct costs of
services includes network operations and data costs, programming costs, cell
site rent and utilities, and other broadband level expenses.
Results of Operations
Three Months Ended
The following is a comparison of our results of operations for the three months endedJune 30, 2022 , which we refer to as the "second quarter of fiscal 2022," compared to the three months endedJune 30, 2021 , which we refer to as the "second quarter of fiscal 2021." Revenues. For the second quarter of fiscal 2022 and the second quarter of fiscal 2021, our revenues in dollars and as a percentage of total revenues were as follows: For the Three Months Ended June 30, (unaudited) 2022 2021 2022 vs 2021 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 9,825,164 47.0%$ 7,952,832 56.1%$ 1,872,332 Broadband services 8,078,580 38.7% 3,760,454 26.5% 4,318,126 Premiums earned 2,407,523 11.5% 1,736,158 12.3% 671,365 Insurance commissions 494,244 2.4% 658,703 4.6% (164,459 ) Investment and other income 89,505 0.4% 71,734 0.5% 17,771 Total Revenues$ 20,895,016 100.0%$ 14,179,881 100.0%$ 6,715,135 We realized total revenues of$20,895,016 during the second quarter of fiscal 2022, an increase of 47.4% over revenues of$14,179,881 during the second quarter of fiscal 2021. Revenues increased within each of our businesses in the second quarter of fiscal 2022 when compared to the second quarter of fiscal 2021. The key factors impacting revenue across each of our businesses during the second quarter of fiscal 2022 were as follows:
? Net billboard rentals in the second quarter of fiscal 2022 increased 23.5%
from the second quarter of fiscal 2021, reflecting an improvement in rental
and occupancy rates across a number of our markets as well as the acquisition
of billboards from Keleher and Missouri Neon in the fourth quarter of fiscal
2021, which accounted for approximately 14.2% of our billboard revenues in
the second quarter of fiscal 2022.
? Revenue from broadband services in the second quarter of fiscal 2022 increased
114.8% from the second quarter of fiscal 2021, mainly reflecting the revenues
generated from the InfoWest and Go Fiber acquisitions completed in
? Premiums earned from our UCS insurance subsidiary increased 38.7% in the
second quarter of fiscal 2022 when compared to the second quarter of fiscal
2021. The increase in premiums earned was primarily due to increases in
production throughout fiscal 2021 and the first six months of fiscal 2022. We
recognize revenues for written premium over the life of the surety bond and,
as a result, increased sales activities are not fully reflected in the quarter
in which the surety bond is issued.
? Revenue from insurance commissions generated by our surety brokerage
operations decreased by 25.0% in the second quarter of fiscal 2022 whencompared to the second quarter of fiscal 2021, primarily due to two large
one-time bonds placed by ACS during the second quarter of fiscal 2021.
? Investment and other income at UCS increased from $71,734 in the second
quarter of fiscal 2021 to $89,505 in the second quarter of fiscal 2022.
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Expenses. For the second quarter of fiscal 2022 and the second quarter of fiscal
2021, our expenses, in dollars, and as a percentage of total revenues, were as
follows:
For the Three Months Ended June 30,
(unaudited)
2022 2021 2022 vs 2021
As a % of As a % of
Total Total
Amount Revenues Amount Revenues $ Variance
Costs and Expenses:
Cost of billboard revenues $ 3,655,782 17.5 % $ 3,073,530 21.7 % $ 582,252
Cost of broadband revenues 2,070,812 9.9 % 854,429 6.0 % 1,216,383
Cost of insurance revenues 1,000,794 4.8 % 872,605 6.2 % 128,189
Employee costs 6,572,286 31.5 % 4,526,049 31.9 % 2,046,237
Professional fees 1,098,782 5.3 % 1,024,181 7.2 % 74,601
Depreciation 2,012,916 9.6 % 1,250,663 8.8 % 762,253
Amortization 1,723,773 8.2 % 1,205,537 8.5 % 518,236
General and administrative 3,393,835 16.2 % 2,411,053 17.0 % 982,782
Loss on disposition of assets 32,094 0.2 % 22,859 0.2 % 9,235
Accretion 50,924 0.2 % 32,447 0.2 % 18,477
Total Costs and Expenses $ 21,611,998 103.4 % $ 15,273,353 107.7 % $ 6,338,645
During the second quarter of fiscal 2022, we had total costs and expenses
of $21,611,998 , as compared to total costs and expenses of $15,273,353 in the
second quarter of fiscal 2021. Total costs and expenses as a percentage of total
revenues decreased from 107.7% in the second quarter of fiscal 2021 to 103.4% in
the second quarter of fiscal 2022. The key factors impacting costs and expenses
across each of our businesses during the second quarter of fiscal 2022 were as
follows:
? Cost of billboard revenues decreased as a percentage of billboard revenues
from 38.6% in the second quarter of fiscal 2021 to 37.2% in the second quarter
of fiscal 2022. The decrease was mainly due to lower ground rent expense and
commissions paid as a percentage of billboard revenues.
? Cost of broadband revenues increased as a percentage of broadband revenues
from 22.7% in the second quarter of fiscal 2021 to 25.6% in the second quarter
of fiscal 2022. The increase is mainly driven by the InfoWest and Go Fiber
acquisitions in
the third quarter of fiscal 2021.
? Cost of insurance revenues decreased as a percentage of insurance revenues
from 35.4% in the second quarter of fiscal 2021 to 33.5% in the second quarter
of fiscal 2022. The decrease was mainly due to lower losses and loss
adjustment expenses as a percentage of insurance revenues as UCS no longer has
any material exposure to the rental guarantee bond program given that
substantially all of these bonds have since expired.
? Employee costs increased from
to
increase was mainly driven by the InfoWest and Go Fiber acquisitions in April
2022, hiring within our FFH business, and the Keleher and Missouri Neon
acquisitions in the fourth quarter of fiscal 2021.
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? Professional fees in the second quarter of fiscal 2022 were
5.3% of total revenues, as compared to
in the second quarter of fiscal 2021. The increase was mainly driven by
professional fees associated with the InfoWest and Go Fiber acquisitions
completed in April 2022 .
? General and administrative expenses increased from
quarter of fiscal 2021 to
increase of 40.8%. The increase was mainly driven by the InfoWest and Go Fiber
acquisitions in
quarter of fiscal 2021, and the Keleher and Missouri Neon acquisitions in the
fourth quarter of fiscal 2021.
? Non-cash expenses in the second quarter of fiscal 2022 included
depreciation expense,
accretion expense related to asset retirement obligations for certain
billboard and broadband assets. The increase in depreciation expense is mainly
due to measurement period adjustments to increase the fair value assigned to
UBB's property, plant and equipment by
fiscal 2021 as well as the InfoWest and Go Fiber acquisitions completed in
InfoWest and Go Fiber acquisitions completed in April 2022 .
Net Loss from Operations. Net loss from operations for the second quarter of
fiscal 2022 was $716,982 , or 3.4% of total revenues, as compared to a net loss
from operations of $1,093,472 , or 7.7% of total revenues, in the second quarter
of fiscal 2021. The decrease in net loss from operations in dollars was
primarily due to improved operations within our billboard business and insurance
business, which were partially offset by costs associated with the InfoWest and
Go Fiber acquisitions completed in April 2022 and our FFH business, which
launched during the third quarter of fiscal 2021. Our net loss from operations
included $3,787,613 from non-cash depreciation, amortization and accretion
expenses in the second quarter of fiscal 2022, as compared to $2,488,647 in the
second quarter of fiscal 2021.
Other Income (Expense). During the second quarter of fiscal 2022, we had net
other expense of $14,777,668 . Net other expense included $16,933,563 in other
investment losses mainly related to public securities held by Boston Omaha and
UCS and interest expense of $303,531 mainly incurred under Link's term loan.
These items were partially offset by income of $2,386,339 mainly related to our
equity method position in Sky Harbour and interest and dividend income of
$73,087 . During the second quarter of fiscal 2021, we had net other income of
$12,566,457 , which included $11,377,475 in other investment income related to
public equity securities mainly held by Boston Omaha , $883,928 related to the
remeasurement of Yellowstone's public warrants, $435,988 in equity in income of
unconsolidated affiliates, interest and dividend income of $102,725 , and
interest expense of $233,659 mainly incurred under Link's term loan.
As a result of a change in GAAP effective in 2018, we are required to include
the unrealized changes in market prices of investments in public equity
securities in our reported earnings. While we intend to hold our current
securities for the longer term, we may in the future choose to sell them for a
variety of reasons resulting in realized losses or gains.
Net Income (Loss) Attributable to Common Stockholders. We had a net loss
attributable to common stockholders in the amount of
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Six Months Ended
The following is a comparison of our results of operations for the six months endedJune 30, 2022 , which we refer to as the "first six months of fiscal 2022," compared to the six months endedJune 30, 2021 , which we refer to as the "first six months of fiscal 2021." Revenues. For the first six months of fiscal 2022 and the first six months of fiscal 2021, our revenues in dollars and as a percentage of total revenues were as follows: For the Six Months Ended June 30, (unaudited) 2022 2021 2022 vs 2021 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 18,963,313 51.0%$ 15,106,517 55.1%$ 3,856,796 Broadband services 12,155,526 32.7% 7,555,491 27.6% 4,600,035 Premiums earned 4,695,972 12.6% 3,522,722 12.9% 1,173,250 Insurance commissions 1,191,444 3.2% 1,058,880 3.9% 132,564 Investment and other income 181,708 0.5% 141,290 0.5% 40,418 Total Revenues$ 37,187,963 100.0%$ 27,384,900 100.0%$ 9,803,063 We realized total revenues of$37,187,963 during the first six months of fiscal 2022, an increase of 35.8% over revenues of$27,384,900 during the first six months of fiscal 2021. Revenues increased within each of our businesses in the first six months of fiscal 2022 when compared to the first six months of fiscal 2021. The key factors impacting revenue across each of our businesses during the first six months of fiscal 2022 were as follows:
? Net billboard rentals in the first six months of fiscal 2022 increased 25.5%
from the first six months of fiscal 2021, reflecting an improvement in rental
and occupancy rates across a number of our markets as well as the acquisition
of billboards from Keleher and Missouri Neon in the fourth quarter of fiscal
2021, which accounted for approximately 14.0% of our billboard revenues in
the first six months of fiscal 2022.
? Revenue from broadband services in the first six months of fiscal 2022
increased 60.9% from the first six months of fiscal 2021, mainlyreflecting the revenues generated from the InfoWest and Go Fiber acquisitions
completed in April 2022 .
? Premiums earned from our UCS insurance subsidiary increased 33.3% inthe first six months of fiscal 2022 when compared to the first six months of
fiscal 2021. The increase in premiums earned was primarily due to increases in
production throughout fiscal 2021 and the first six months of fiscal 2022. We
recognize revenues for written premium over the life of the surety bond and,
as a result, increased sales activities are not fully reflected in the quarter
in which the surety bond is issued.
? Revenue from insurance commissions generated by our surety brokerageoperations increased by 12.5% in the first six months of fiscal 2022 when
compared to the first six months of fiscal 2021, mainly reflecting the
revenues generated from the ACS acquisition completed in April 2021 .
? Investment and other income at UCS increased from
months of fiscal 2021 to
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Expenses. For the first six months of fiscal 2022 and the first six months of
fiscal 2021, our expenses, in dollars, and as a percentage of total revenues,
were as follows:
For the Six Months Ended June 30,
(unaudited)
2022 2021 2022 vs 2021
As a % of As a % of
Total Total
Amount Revenues Amount Revenues $ Variance
Costs and Expenses:
Cost of billboard revenues $ 7,183,154 19.3 % $ 5,935,277 21.7 % $ 1,247,877
Cost of broadband revenues 2,981,587 8.0 % 1,610,642 5.9 % 1,370,945
Cost of insurance revenues 2,181,685 5.9 % 2,001,815 7.3 % 179,870
Employee costs 11,996,506 32.3 % 8,768,196 32.0 % 3,228,310
Professional fees 3,289,379 8.8 % 2,118,164 7.7 % 1,171,215
Depreciation 3,752,987 10.1 % 2,397,467 8.8 % 1,355,520
Amortization 2,916,966 7.8 % 2,370,709 8.7 % 546,257
General and administrative 5,973,670 16.1 % 4,638,916 16.9 % 1,334,754
Loss (gain) on disposition
of assets (22,109 ) (0.1 %) 58,426 0.2 % (80,535 )
Accretion 100,856 0.3 % 64,538 0.2 % 36,318
Total Costs and Expenses $ 40,354,681 108.5 % $ 29,964,150 109.4 % $ 10,390,531
During the first six months of fiscal 2022, we had total costs and expenses
of $40,354,681 , as compared to total costs and expenses of $29,964,150 in
the first six months of fiscal 2021. Total costs and expenses as a percentage of
total revenues decreased from 109.4% in the first six months of fiscal 2021 to
108.5% in the first six months of fiscal 2022. The key factors impacting costs
and expenses across each of our businesses during the first six months of
fiscal 2022 were as follows:
? Cost of billboard revenues decreased as a percentage of billboard revenues
from 39.3% in the first six months of fiscal 2021 to 37.9% in the first six
months of fiscal 2022. The decrease was mainly due to lower commissions paid
as a percentage of billboard revenues.
? Cost of broadband revenues increased as a percentage of broadband revenues
from 21.3% in the first six months of fiscal 2021 to 24.5% in the first six
months of fiscal 2022. The increase is mainly driven by the InfoWest and Go
Fiber acquisitions in
during the third quarter of fiscal 2021.
? Cost of insurance revenues decreased as a percentage of insurance revenues
from 42.4% in the first six months of fiscal 2021 to 35.9% in the first six
months of fiscal 2022. The decrease was mainly due to lower losses and loss
adjustment expenses as a percentage of insurance revenues as UCS no longer has
any material exposure to the rental guarantee bond program given that
substantially all of these bonds have since expired.
? Employee costs increased from
2021 to
36.8%. The increase was mainly driven by the InfoWest and Go Fiber
acquisitions in
Missouri Neon acquisitions in the fourth quarter of fiscal 2021, and the ACS
acquisition in April 2021 .
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? Professional fees in the first six months of fiscal 2022 were
8.8% of total revenues, as compared to
in the first six months of fiscal 2021. The increase was mainly driven by
professional fees associated with Yellowstone finalizing its business
combination with SHG, the InfoWest and Go Fiber acquisitions completed
in
structure within BOAM.
? General and administrative expenses increased from
months of fiscal 2021 to
increase of 28.8%. The increase was mainly driven by the InfoWest and Go Fiber
acquisitions in
third quarter of fiscal 2021.
? Non-cash expenses in the first six months of fiscal 2022 included
in depreciation expense,
accretion expense related to asset retirement obligations for certain
billboard and broadband assets. The increase in depreciation expense is mainly
due to measurement period adjustments to increase the fair value assigned to
UBB's property, plant and equipment by
fiscal 2021 as well as the InfoWest and Go Fiber acquisitions completed in
InfoWest and Go Fiber acquisitions completed in April 2022 .
Net Loss from Operations. Net loss from operations for the first six months of
fiscal 2022 was $3,166,718 , or 8.5% of total revenues, as compared to a net loss
from operations of $2,579,250 , or 9.4% of total revenues, in the first six
months of fiscal 2021. The increase in net loss from operations in dollars was
primarily due to costs associated with Yellowstone finalizing its business
combination with SHG, the InfoWest and Go Fiber acquisitions completed in April
2022 , and our FFH business, which launched during the third quarter of fiscal
2021. These cost increases were partially offset by improved operations within
our billboard business and insurance business. Our net loss from operations
included $6,770,809 from non-cash depreciation, amortization and accretion
expenses in the first six months of fiscal 2022, as compared to $4,832,714 in
the first six months of fiscal 2021.
Other Income (Expense). During the first six months of fiscal 2022, we had net
other income of $10,720,978 . Net other income included a gain of $24,977,740
related to the deconsolidation of Yellowstone (see Note 17 to the consolidated
financial statements for further discussion), $1,837,211 related to the
remeasurement of Yellowstone's public warrants from January 1, 2022 to January
25, 2022 , and interest and dividend income of $118,411 . These items were
partially offset by $14,318,240 in other investment losses mainly related to
public securities held by Boston Omaha and UCS, a loss of $1,288,964 mainly
related to our equity method position in Sky Harbour and interest expense of
$605,180 mainly incurred under Link's term loan. During the first six months of
fiscal 2021, we had net other income of $122,689,521 , which included
$118,685,597 in other investment income related to public equity securities
mainly held by Boston Omaha , $3,059,752 related to the remeasurement of
Yellowstone's public warrants, $836,872 in interest and dividend income,
$576,285 in equity in income of unconsolidated affiliates, and interest expense
of $468,985 mainly incurred under Link's term loan.
As a result of a change in GAAP effective in 2018, we are required to include
the unrealized changes in market prices of investments in public equity
securities in our reported earnings. While we intend to hold our current
securities for the longer term, we may in the future choose to sell them for a
variety of reasons resulting in realized losses or gains.
Net Income Attributable to Common Stockholders. We had net income attributable
to common stockholders in the amount of $4,806,254 in the first six months of
fiscal 2022, or income per share of $0.16 , based on 29,761,369 diluted weighted
average shares outstanding. This is compared to net income attributable to
common stockholders of $93,075,190 in the first six months of fiscal 2021, or
income per share of $3.26 , based on 28,545,034 diluted weighted average shares
outstanding.
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Results of Operations by Segment
The following tables report results for the following three segments in which we
operate, billboards, insurance and broadband, for the second quarter of fiscal
2022 and the second quarter of fiscal 2021:
Results of Billboard Operations
For the Three Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Billboard rentals, net $ 9,825,164 100.0% $ 7,952,832 100.0%
Cost of Revenues
Ground rents 1,917,756 19.5% 1,620,771 20.4%
Utilities 407,061 4.2% 311,242 3.9%
Commissions paid 796,754 8.1% 762,278 9.6%
Other costs of revenues 534,211 5.4% 379,239 4.7%
Total cost of revenues 3,655,782 37.2% 3,073,530 38.6%
Gross margin 6,169,382 62.8% 4,879,302 61.4%
Other Operating Expenses
Employee costs 1,715,749 17.5% 1,445,171 18.2%
Professional fees 111,748 1.1% 95,726 1.2%
Depreciation 1,130,239 11.5% 895,395 11.3%
Amortization 906,111 9.2% 860,540 10.8%
General and administrative 888,448 9.0% 664,220 8.3%
Accretion 47,490 0.5% 29,013 0.4%
Loss on disposition of assets 34,202 0.4% 22,859 0.3%
Total expenses 4,833,987 49.2% 4,012,924 50.5%
Segment Income from Operations 1,335,395 13.6% 866,378 10.9%
Interest expense, net (288,169 ) (2.9%) (228,018 ) (2.9%)
Net Income Attributable to Common Stockholders $ 1,047,226 10.7% $ 638,360 8.0%
Comparison of the Second Quarter of Fiscal 2022 to the Second Quarter of Fiscal
2021. In the second quarter of fiscal 2022, there was a 23.5% increase in net
billboard revenues from the second quarter of fiscal 2021, reflecting an
improvement in rental and occupancy rates across a number of our markets as well
as the acquisition of billboards from Keleher and Missouri Neon in the fourth
quarter of fiscal 2021, which accounted for approximately 14.2% of our billboard
revenues in the second quarter of fiscal 2022. The key factors affecting our
billboard operations results during the second quarter of fiscal 2022 were as
follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 20.4% in the second quarter of fiscal 2021 to 19.5% in the
second quarter of fiscal 2022.
? Commissions paid as a percentage of total segment operating revenues decreased
from 9.6% in the second quarter of fiscal 2021 to 8.1% in the second quarter
of fiscal 2022. The decrease is mainly driven by new incentive programs
throughout several of our markets.
? Employee costs as a percentage of total segment operating revenues decreased
from 18.2% in the second quarter of fiscal 2021 to 17.5% in the second quarter
of fiscal 2022. The decrease is due to organic revenue growth as well as the
impact from the Keleher and Missouri Neon acquisitions.
? General and administrative expenses increased as a percentage of total segment
operating revenues from 8.3% in the second quarter of fiscal 2021 to 9.0% in
the second quarter of fiscal 2022. The increase is primarily due to higher
fuel costs and other travel related expenses.
? Depreciation and amortization expense increased by
respectively, from the second quarter of fiscal 2021. The increases
are primarily due to the Keleher and Missouri Neon acquisitions.
? Net interest expense of
to net interest expense of
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Results of Broadband Operations
For the Three Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Broadband revenues $ 8,078,580 100.0 % $ 3,760,454 100.0 %
Cost of Revenues
Network operations and data costs 1,186,914 14.7 % 586,610 15.6 %
Programming costs 24,814 0.3 % 29,711 0.8 %
Cell site rent and utilities 305,776 3.8 % 140,700 3.7 %
Other costs of revenues 553,308 6.8 % 97,408 2.6 %
Total cost of revenues 2,070,812 25.6 % 854,429 22.7 %
Gross margin 6,007,768 74.4 % 2,906,025 77.3 %
Other Operating Expenses
Employee costs 2,750,355 34.0 % 1,289,680 34.3 %
Professional fees 200,092 2.5 % 24,114 0.6 %
Depreciation 844,752 10.5 % 322,135 8.6 %
Amortization 770,601 9.5 % 296,685 7.9 %
General and administrative 1,353,570 16.8 % 481,546 12.8 %
Accretion 3,434 0.0 % 3,434 0.1 %
Loss on disposition of assets (2,108 ) (0.0 %) - 0.0 %
Total expenses 5,920,696 73.3 % 2,417,594 64.3 %
Segment Income from Operations 87,072 1.1 % 488,431 13.0 %
Interest expense, net (6,353 ) (0.1 %) (2,866 ) (0.1 %)
Noncontrolling interest in subsidiary
income (240,425 ) (3.0 %) (116,198 ) (3.1 %)
Net Income (Loss) Attributable to Common
Stockholders $ (159,706 ) (2.0 %) $ 369,367 9.8 %
Comparison of the Second Quarter of Fiscal 2022 to the Second Quarter
of Fiscal 2021. In the second quarter of fiscal 2022, total operating revenues
increased by 114.8% when compared to the second quarter of fiscal 2021 mainly
reflecting the revenues generated from the InfoWest and Go Fiber acquisitions
completed in April 2022 . The key factors affecting our broadband operations
results during the second quarter of fiscal 2022 were as follows:
? Total cost of revenues increased as a percentage of total segment operating
revenues from 22.7% in the second quarter of fiscal 2021 to 25.6% in the
second quarter of fiscal 2022. The increase is mainly driven by the InfoWest
and Go Fiber acquisitions in
launched during the third quarter of fiscal 2021.
? Employee costs in the second quarter of fiscal 2022 increased by 113.3% from
the second quarter of fiscal 2021. The increase is mainly due to the InfoWest
and Go Fiber acquisitions in
? Professional fees as a percentage of total segment operating revenues
increased from 0.6% in the second quarter of fiscal 2021 to 2.5% in the second
quarter of fiscal 2022. The increase is mainly due to the InfoWest and Go
Fiber acquisitions completed in April 2022 .
? General and administrative expenses as a percentage of total segment operating
revenues increased from 12.8% in the second quarter of fiscal 2021 to 16.8% in
the second quarter of fiscal 2022. The increase as a percent of revenues is
mainly due to our FFH business, which launched during the third quarter of
fiscal 2021.
? Depreciation and amortization expense increased by
respectively, from the second quarter of fiscal 2021. The increase in
depreciation expense is mainly due to measurement period adjustments to
increase the fair value assigned to UBB's property, plant and equipment by
Go Fiber acquisitions completed in
expense is mainly driven by the InfoWest and Go Fiber acquisitions
completed in April 2022 .
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Results of Insurance Operations
For the Three Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Premiums earned $ 2,407,523 80.5% $ 1,736,158 70.4%
Insurance commissions 494,244 16.5% 658,703 26.7%
Investment and other income 89,505 3.0% 71,734 2.9%
Total operating revenues 2,991,272 100.0% 2,466,595 100.0%
Cost of Revenues
Commissions paid 613,117 20.5% 492,388 20.0%
Premium taxes, fees, and assessments 77,612 2.6% 63,707 2.6%
Losses and loss adjustment expense 310,065 10.4% 316,510 12.8%
Total cost of revenues 1,000,794 33.5% 872,605 35.4%
Gross margin 1,990,478 66.5% 1,593,990 64.6%
Other Operating Expenses
Employee costs 1,376,236 46.0% 1,261,795 51.1%
Professional fees 79,347 2.6% 72,764 2.9%
Depreciation 10,590 0.4% 7,803 0.3%
Amortization 47,061 1.6% 48,312 2.0%
General and administrative 456,233 15.2% 635,433 25.8%
Total expenses 1,969,467 65.8% 2,026,107 82.1%
Segment Income (Loss) from Operations 21,011 0.7% (432,117 ) (17.5%)
Interest income, net - - 2 0.0%
Other investment income (loss) (1,844,331 ) (61.7%) 750,867 30.4%
Net Income (Loss) Attributable to Common
Stockholders $ (1,823,320 ) (61.0%) $ 318,752 12.9%
Comparison of the Second Quarter of Fiscal 2022 to the Second Quarter
of Fiscal 2021. In the second quarter of fiscal 2022, total operating revenues
increased by 21.3% when compared to the second quarter of fiscal 2021, mainly
due to increased earned premium at our UCS insurance subsidiary, which was
partially offset by a decrease in revenues from insurance commissions
primarily due to reduced production through other insurance carriers. The key
factors affecting our insurance operations results during the second quarter of
fiscal 2022 were as follows:
? Premiums earned from our UCS insurance subsidiary in the second quarter of
fiscal 2022 increased 38.7% from the second quarter of fiscal 2021. The
increase in premiums earned was primarily due to increases in production
throughout fiscal 2021 and the first six months of fiscal 2022. We recognize
revenues for written premium over the life of the surety bond and, as a
result, increased sales activities are not fully reflected in the quarter in
which the surety bond is issued.
? Insurance commissions generated by our surety brokerage operations decreased
by 25.0% in the second quarter of fiscal 2022 when compared to the second
quarter of fiscal 2021, primarily due to two large one-time bonds placed by
ACS during the the second quarter of fiscal 2021.
? Commissions paid as a percentage of total segment operating revenues
increased from 20.0% in the second quarter of fiscal 2021 to 20.5% in the
second quarter of fiscal 2022.
? Losses and loss adjustment expenses as a percentage of total segmentoperating revenues decreased from 12.8% in the second quarter of fiscal 2021
to 10.4% in the second quarter of fiscal 2022. Losses and loss adjustment
expenses are reserved monthly based on a percentage of earned premium. The
reduction in loss reserves when compared to the second quarter of fiscal 2021
is mainly related to UCS no longer having any material exposure to the rental
guarantee bond program as substantially all of these bonds have since
expired.
? Employee costs in the second quarter of fiscal 2022 increased by 9.1% from the
second quarter of fiscal 2021. The increase is mainly due to the hiring
of finance, IT and marketing positions at GIG.
? General and administrative expenses in the second quarter of fiscal2022 decreased by 28.2% from the second quarter of fiscal 2021. The decrease
is mainly due to lower IT system implementation related expenses.
? During the second quarter of fiscal 2022, our segment income from insurance
operations of
mainly from unrealized losses on our investments in publicly held securities.
We expect to continue to invest a portion of our excess capital in accordance
with insurance regulatory limitations in both large-cap publicly traded equity
securities and bonds. These investments are subject to the risk of loss in
value depending upon market conditions and factors outside of our control.
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Results of Billboard Operations
For the Six Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Billboard rentals, net $ 18,963,313 100.0% $ 15,106,517 100.0%
Cost of Revenues
Ground rents 3,880,776 20.4% 3,178,629 21.0%
Utilities 811,197 4.3% 624,382 4.1%
Commissions paid 1,526,869 8.1% 1,461,077 9.7%
Other costs of revenues 964,312 5.1% 671,189 4.5%
Total cost of revenues 7,183,154 37.9% 5,935,277 39.3%
Gross margin 11,780,159 62.1% 9,171,240 60.7%
Other Operating Expenses
Employee costs 3,458,972 18.3% 2,923,743 19.4%
Professional fees 228,256 1.2% 307,273 2.0%
Depreciation 2,231,595 11.8% 1,755,322 11.6%
Amortization 1,798,550 9.5% 1,697,641 11.2%
General and administrative 1,693,583 8.9% 1,401,973 9.3%
Accretion 94,025 0.5% 57,707 0.4%
(Gain) loss on disposition of assets (70,197 ) (0.4%) 55,154 0.4%
Total expenses 9,434,784 49.8% 8,198,813 54.3%
Segment Income from Operations 2,345,375 12.3% 972,427 6.4%
Interest expense, net (575,027 ) (3.0%) (457,298 ) (3.0%)
Net Income Attributable to Common Stockholders $ 1,770,348 9.3% $ 515,129 3.4%
Comparison of the First Six Months of Fiscal 2022 to the First Six Months
of Fiscal 2021. In the first six months of fiscal 2022, there was a
25.5% increase in net billboard revenues from the first six months of fiscal
2021, reflecting an improvement in rental and occupancy rates across a number of
our markets as well as the acquisition of billboards from Keleher and Missouri
Neon in the fourth quarter of fiscal 2021, which accounted for approximately
14.0% of our billboard revenues in the first six months of fiscal 2022. The key
factors affecting our billboard operations results during the first six months
of fiscal 2022 were as follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 21.0% in the first six months of fiscal 2021 to 20.4% in
the first six months of fiscal 2022.
? Commissions paid as a percentage of total segment operating revenues decreased
from 9.7% in the first six months of fiscal 2021 to 8.1% in the first six
months of fiscal 2022. The decrease is mainly driven by new incentive programs
throughout several of our markets.
? Employee costs as a percentage of total segment operating revenues decreased
from 19.4% in the first six months of fiscal 2021 to 18.3% in the first six
months of fiscal 2022. The decrease is due to organic revenue growth as well
as the impact from the Keleher and Missouri Neon acquisitions.
? General and administrative expenses decreased as a percentage of total segment
operating revenues from 9.3% in the first six months of fiscal 2021 to 8.9% in
the first six months of fiscal 2022.
? Depreciation and amortization expense increased by
respectively, from the first six months of fiscal 2021. The increases
are primarily due to the Keleher and Missouri Neon acquisitions.
? Net interest expense of $575,027 in the first six months of fiscal
2022 compared to net interest expense of
fiscal 2021.
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Results of Broadband Operations
For the Six Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Broadband revenues $ 12,155,526 100.0 % $ 7,555,491 100.0 %
Cost of Revenues
Network operations and data
costs 1,691,982 13.9 % 1,089,944 14.4 %
Programming costs 40,905 0.3 % 55,798 0.7 %
Cell site rent and
utilities 481,825 4.0 % 279,618 3.7 %
Other costs of revenues 766,875 6.3 % 185,282 2.5 %
Total cost of revenues 2,981,587 24.5 % 1,610,642 21.3 %
Gross margin 9,173,939 75.5 % 5,944,849 78.7 %
Other Operating Expenses
Employee costs 4,567,654 37.6 % 2,508,412 33.2 %
Professional fees 406,451 3.4 % 82,634 1.1 %
Depreciation 1,448,627 11.9 % 588,464 7.8 %
Amortization 1,024,293 8.4 % 590,111 7.8 %
General and administrative 2,008,624 16.5 % 899,268 11.9 %
Accretion 6,831 0.1 % 6,831 0.1 %
Loss on disposition of
assets 48,088 0.4 % 3,272 0.0 %
Total expenses 9,510,568 78.3 % 4,678,992 61.9 %
Segment Income (Loss) from
Operations (336,629 ) (2.8 %) 1,265,857 16.8 %
Interest expense, net (10,524 ) (0.1 %) (4,969 ) (0.1 %)
Noncontrolling interest in
subsidiary income (306,603 ) (2.5 %) (254,461 ) (3.4 %)
Net Income (Loss)
Attributable to Common
Stockholders $ (653,756 ) (5.4 %) $ 1,006,427 13.3 %
Comparison of the First Six Months of Fiscal 2022 to the First Six Months
of Fiscal 2021. In the first six months of fiscal 2022, total operating revenues
increased by 60.9% when compared to the first six months of fiscal 2021 mainly
reflecting the revenues generated from the InfoWest and Go Fiber acquisitions
completed in April 2022 . The key factors affecting our broadband operations
results during the first six months of fiscal 2022 were as follows:
? Total cost of revenues increased as a percentage of total segment operating
revenues from 21.3% in the first six months of fiscal 2021 to 24.5% in
the first six months of fiscal 2022. The increase is mainly driven by the
InfoWest and Go Fiber acquisitions in
which launched during the third quarter of fiscal 2021.
? Employee costs in the first six months of fiscal 2022 increased by 82.1% from
the first six months of fiscal 2021. The increase is mainly due to the
InfoWest and Go Fiber acquisitions in
business.
? Professional fees as a percentage of total segment operating revenues
increased from 1.1% in the first six months of fiscal 2021 to 3.4% in
the first six months of fiscal 2022. The increase is mainly due to the
InfoWest and Go Fiber acquisitions completed in April 2022 .
? General and administrative expenses as a percentage of total segment operating
revenues increased from 11.9% in the first six months of fiscal 2021 to 16.5%
in the first six months of fiscal 2022. The increase as a percent of revenues
is mainly due to our FFH business, which launched during the third quarter of
fiscal 2021.
? Depreciation and amortization expense increased by
respectively, from the first six months of fiscal 2021. The increase in
depreciation expense is mainly due to measurement period adjustments to
increase the fair value assigned to UBB's property, plant and equipment by
Go Fiber acquisitions completed in
expense is mainly driven by the InfoWest and Go Fiber acquisitions
completed in April 2022 .
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Results of Insurance Operations
For the Six Months Ended June 30,
(unaudited)
2022 2021
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Premiums earned $ 4,695,972 77.4% $ 3,522,722 74.6%
Insurance commissions 1,191,444 19.6% 1,058,880 22.4%
Investment and other income 181,708 3.0% 141,290 3.0%
Total operating revenues 6,069,124 100.0% 4,722,892 100.0%
Cost of Revenues
Commissions paid 1,293,515 21.3% 957,042 20.3%
Premium taxes, fees, and
assessments 125,675 2.1% 138,380 2.9%
Losses and loss adjustment
expense 762,495 12.5% 906,393 19.2%
Total cost of revenues 2,181,685 35.9% 2,001,815 42.4%
Gross margin 3,887,439 64.1% 2,721,077 57.6%
Other Operating Expenses
Employee costs 2,769,737 45.6% 2,446,846 51.8%
Professional fees 152,018 2.5% 185,349 3.9%
Depreciation 18,393 0.3% 13,536 0.3%
Amortization 94,123 1.6% 82,957 1.8%
General and administrative 1,026,339 17.0% 1,211,993 25.6%
Total expenses 4,060,610 67.0% 3,940,681 83.4%
Segment Loss from Operations (173,171 ) (2.9%) (1,219,604 ) (25.8%)
Interest expense, net - - (1,996 ) (0.1%)
Other investment income (loss) (2,943,875 ) (48.5%) 3,906,214 82.7%
Net Income (Loss) Attributable
to Common Stockholders $ (3,117,046 ) (51.4%) $ 2,684,614 56.8%
Comparison of the First Six Months of Fiscal 2022 to the First Six Months
of Fiscal 2021. In the first six months of fiscal 2022, total operating revenues
increased by 28.5% when compared to the first six months of fiscal 2021, mainly
due to increased earned premium at our UCS insurance subsidiary and the ACS
acquisition completed in April 2021 . The key factors affecting our insurance
operations results during the first six months of fiscal 2022 were as follows:
? Premiums earned from our UCS insurance subsidiary in the first six months of
fiscal 2022 increased 33.3% from the first six months of fiscal 2021. The
increase in premiums earned was primarily due to increases in production
throughout fiscal 2021 and the first six months of fiscal 2022. We recognize
revenues for written premium over the life of the surety bond and, as a
result, increased sales activities are not fully reflected in the quarter in
which the surety bond is issued.
? Our brokerage operations realized a 12.5% increase in insurance
commissions in the first six months of fiscal 2022 when compared to
the first six months of fiscal 2021. The increase is mainly due to the
ACS acquisition completed in April 2021 .
? Commissions paid as a percentage of total segment operating revenuesincreased from 20.3% in the first six months of fiscal 2021 to 21.3% in
the first six months of fiscal 2022.
? Losses and loss adjustment expenses as a percentage of total segmentoperating revenues decreased from 19.2% in the first six months of fiscal
2021 to 12.5% in the first six months of fiscal 2022. Losses and loss
adjustment expenses are reserved monthly based on a percentage of earned
premium. The reduction in loss reserves when compared to the first six months
of fiscal 2021 is mainly related to UCS no longer having any
material exposure to the rental guarantee bond program as substantially all
of these bonds have since expired.
? Employee costs in the first six months of fiscal 2022 increased by 13.2% from
the first six months of fiscal 2021. The increase is mainly due to the
ACS acquisition completed in
and marketing positions at GIG.
? General and administrative expenses in the first six months of fiscal2022 decreased by 15.3% from the first six months of fiscal 2021. The decrease
is mainly due to lower IT system implementation related expenses.
? During the first six months of fiscal 2022, our segment loss from insurance
operations of
mainly from unrealized losses on our investments in publicly held securities.
We expect to continue to invest a portion of our excess capital in accordance
with insurance regulatory limitations in both large-cap publicly traded equity
securities and bonds. These investments are subject to the risk of loss in
value depending upon market conditions and factors outside of our control.
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Cash Flows
Cash Flows for the First Six Months of Fiscal 2022 compared to the First Six Months of Fiscal 2021
The table below summarizes our cash flows, in dollars, for the first six months of fiscal 2022 and the first six months of fiscal 2021:
Six Months Six Months
Ended Ended
June 30, 2022 June 30, 2021
(unaudited) (unaudited)
Net cash (used in) provided by operating
activities $ (14,679,836 ) $ 5,290,113
Net cash provided by (used in) investing activities 110,796,471 (46,908,356 ) Net cash (used in) provided by financing activities (116,124,168 )
52,359,788
Net (decrease) increase in cash, cash equivalents, and restricted cash$ (20,007,533 ) $ 10,741,545 Net Cash (Used in) Provided by Operating Activities. Net cash used in operating activities was$14,679,836 for the first six months of fiscal 2022 compared to net cash provided by operating activities of$5,290,113 for the first six months of fiscal 2021. The decrease in net cash provided by operating activities was mainly driven by the bonus payments under our Management Incentive Bonus Plan, which totaled$15,000,000 and were accrued for in the fourth quarter of fiscal 2021 but paid inJanuary 2022 , operating costs within our FFH business, which launched during the third quarter of fiscal 2021, and the formation of our build for rent business and fund structure within BOAM. These items were partially offset by improved cash flow generation within our billboard and insurance businesses as well as positive operating cash flow impact from the InfoWest and Go Fiber acquisitions completed inApril 2022 . Net Cash Provided by (Used in) Investing Activities. Net cash provided by investing activities was$110,796,471 for the first six months of fiscal 2022 as compared with net cash used in investing activities of$46,908,356 for the first six months of fiscal 2021. The increase in net cash provided by investing activities is primarily attributable to$130,190,277 in proceeds from the sale of investments in Yellowstone's trust account related to Yellowstone's business combination with Sky Harbour as well as$80,221,635 in net proceeds mainly from the sale or maturity ofU.S. Treasury trading securities and marketable equity securities held atBoston Omaha . These items were partially offset by net cash outflows related to our$45,000,000 PIPE investment in Sky Harbour,$40,502,355 in business acquisitions, net of cash acquired, mainly related to the InfoWest and Go Fiber acquisitions and capital expenditures of$13,644,060 .Net Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was$116,124,168 during the first six months of fiscal 2022 as compared to net cash provided by financing activities of$52,359,788 during the first six months of fiscal 2021. During the first six months of fiscal 2022, net cash used in financing activities mainly consisted of$123,068,515 in redemptions and net cash outflows from Yellowstone's trust account as well as the$4,759,615 deferred underwriting fee payment related to Yellowstone's business combination with Sky Harbour, partially offset by$12,476,849 in collateral received at UCS. 51
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Liquidity and Capital Resources
Currently, we own billboards in Alabama , Arkansas , Florida , Georgia , Illinois ,
Iowa , Kansas , Missouri , Nebraska , Nevada , Oklahoma , Virginia , West Virginia and
Wisconsin , a surety insurance company we acquired in December 2016 , surety
insurance brokerage firms we acquired in 2016, 2017 and 2021, broadband services
providers whose assets we acquired in March 2020 , December 2020 and April 2022 ,
minority investments in commercial real estate management and brokerage
services, a bank focused on servicing the automotive loan market, a homebuilding
company and a developer of private aviation infrastructure focused on building,
leasing and managing business aviation hangars. At June 30, 2022 , we had
approximately $40 million in unrestricted cash and approximately $41 million in
U.S. Treasury trading securities. Our strategy is to continue to acquire other
billboard locations, insurance businesses, and broadband service providers as
well as acquire other businesses and open new businesses which we believe have
the potential to generate positive cash flows when made at what we believe to be
attractive prices relative to other opportunities generally available to us. We
currently expect to finance any future acquisitions and investments with cash,
debt and seller or third-party financing. In the future, we may satisfy all or a
portion of the purchase price for an acquisition with our equity securities. In
addition, we have made investments in several companies and expect to continue
to make investments in the securities of both publicly traded and privately held
companies.
There can be no assurance that we will consummate any subsequent acquisitions.
Furthermore, our acquisitions are subject to a number of risks and
uncertainties, including as to when, whether and to what extent the anticipated
benefits and cost savings of a particular acquisition will be realized. Our
failure to successfully identify and complete future acquisitions of assets or
businesses could reduce future potential earnings, available cash and slow our
anticipated growth. Although we have entered and continue to enter into
non-binding letters of intent to acquire businesses on a regular basis, we do
not have current agreements, commitments or understandings for any specific
material acquisitions which are probable to be consummated at this time.
To date, we have raised funds through the sale of our Common Stock in public
offerings, sales of our Common Stock in "at the market" programs, term loan
financing through our Link subsidiary, proceeds from the sale of publicly traded
securities held by us, cash flow from operations, and, prior to 2019, through
private placements of our Common Stock.
2020 and 2021 Underwritten Public Offerings
OnMay 28, 2020 , we entered into an underwriting agreement, which we refer to as the "2020 Underwriting Agreement," withWells Fargo Securities, LLC , which we refer to as "WFS," andCowen and Company, LLC , as joint lead book-running managers for a public offering of 3,200,000 shares, which we refer to as the "2020 firm shares," of our Class A common stock at a public offering price of$16.00 per share. Under the terms of the underwriting agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 480,000 shares of Class A common stock at the public offering price less underwriting discounts and commissions, which we refer to as the "option shares." OnJune 2, 2020 , we completed the public offering selling a total of 3,680,000 shares, including both the 2020 firm shares and all of the 2020 option shares, resulting in total gross proceeds to us of$58.9 million . The shares were sold in the offering pursuant to the Company's shelf registration statement on Form S-3 (File No. 333-222853) that was declared effective onFebruary 9, 2018 , as supplemented by a prospectus supplement datedMay 28, 2020 , which we refer to as the "2018 Shelf Registration Statement." OnMarch 31, 2021 , we entered into an underwriting agreement, which we refer to as the "2021 Underwriting Agreement," with WFS for a public offering of 2,300,000 shares, which we refer to as the "2021 firm shares," of our Class A common stock, of which 2,000,000 shares were sold byBoston Omaha and 300,000 shares were sold by a selling stockholder, at a public offering price of$25.00 per share. Under the terms of the 2021 Underwriting Agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 345,000 shares of Class A common stock at the public offering price less underwriting discounts and commissions, which we refer to as the "2021 option shares." OnApril 6, 2021 , we announced the completion of the public offering consisting of 2,345,000 shares, including both the 2021 firm shares and all of the 2021 option shares issued as a result of the underwriters' exercise in full of their over-allotment option, resulting in total gross proceeds to us of$58.6 million . We raised this capital to fund the planned expansion of our fiber-to-the-home broadband business, to seek to grow our Link billboard business through the acquisitions of additional billboard businesses, and for general corporate purposes. The shares were sold in the offering pursuant to the Company's universal shelf registration statement on Form S-3ASR (File No. 333-254870) that was declared effective onMarch 30, 2021 , which we refer to as the "2021 Shelf Registration Statement." The 2021 Shelf Registration Statement expired onMarch 28, 2022 upon the filing of our 2021 Annual Report on Form 10-K as we no longer qualified as a well-known seasoned issuer. InApril 2022 , we filed a shelf Registration Statement on Form S-3 (File No. 333-264470) that was declared effective onMay 11, 2022 , relating to the offering of Class A common stock, preferred stock, par value$0.001 per share, which we refer to as "preferred stock," debt securities and warrants of the Company for up to$500 million . 52
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At The Market Offering Programs
Starting inMarch 2018 , we utilized our at the market offering that was part of our 2018 Shelf Registration Statement. This 2018 Shelf Registration Statement, which authorized us to sell up to$200 million through the sales of securities to the public, expired inFebruary 2021 and was superseded by the 2021 Shelf Registration Statement. We sold a total of 2,630,787 shares of Class A common stock resulting in gross proceeds of$60.1 million under the 2018 Shelf Registration Statement. OnSeptember 29, 2021 , we entered into an at the market equity offering program (the "ATM Program") pursuant to a Sales Agreement (the "Sales Agreement") by and between us and WFS. This ATM Program is consistent with our historical practice of having available to management the option to issue stock from time to time in order to continue to fund the growth of its fiber to the home rural broadband business, acquire additional billboards, and make other such investments in assets as needed to seek to grow intrinsic value per share. Our general preference is always to have options available to us from a capital allocation perspective which includes, but is not limited to, having a regularly filed ATM program as well as an authorized share repurchase program. Pursuant to the terms of the Sales Agreement, we could sell, from time to time, shares (collectively, the "Placement Shares") of our Class A common stock, with an aggregate sales price of up to$100 million through WFS, in transactions that are deemed to be at the market offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). The 2021 Shelf Registration Statement expired onMarch 28, 2022 upon the filing of our 2021 Annual Report on Form 10-K as we no longer qualified as a well-known seasoned issuer. We sold a total of 122,246 shares of our Class A common stock resulting in gross proceeds of approximately$4.2 million under the the 2021 Shelf Registration Statement. For sales of Placement Shares through WFS, we paid WFS a commission at a mutually agreed rate of 3% of the gross sales price per Placement Share. The Sales Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions under which we and WFS have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. InApril 2022 , we filed a shelf Registration Statement on Form S-3 (File No. 333-264470) that was declared effective onMay 11, 2022 , relating to the offering of Class A common stock, preferred stock, debt securities and warrants of the Company for up to$500 million . Additionally, in the 2022 shelf registration statement, we have registered for resale up to 8,297,093 shares of Class A common stock acquired in 2018 or earlier in private placements in accordance with the terms of a 2018 registration rights agreement. We will not receive any proceeds from the sale of Class A common stock by the selling shareholders. Currently, the selling stockholders are theMassachusetts Institute of Technology , or "MIT", as well as 238Plan Associates LLC , anMIT pension and benefit fund and a limited partnership holding our Class A common stock for the economic benefit ofMIT . No officer or director has any beneficial interest in any shares eligible for resale by the selling shareholders. We may, from time to time, in one or more offerings, offer and sell Class A common stock or preferred stock, various series of debt securities, and/or warrants. The shelf registration statement may also be used by one or more selling security holders, to be identified in the future, of our securities. We or any selling security holders may offer these securities from time to time in amounts, at prices and on terms determined at the time of offering. We may sell these securities to or through one or more underwriters, dealers or agents or directly to purchasers on a delayed or continuous basis. Unless otherwise set forth in an applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities that we offer for general corporate purposes, including, but not limited to, financing our existing businesses and operations, and expanding our businesses and operations through additional hires, strategic alliances and acquisitions. Unless otherwise set forth in a prospectus supplement, we will not receive any proceeds from the sale of securities by any selling stockholders. 53
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Table of Contents Link Credit Agreement OnAugust 12, 2019 , Link entered into a Credit Agreement (the "Credit Agreement") withFirst National Bank of Omaha (the "Lender") under which Link could borrow up to$40,000,000 (the "Credit Facility"). The Credit Agreement provided for an initial term loan ("Term Loan 1"), an incremental term loan ("Term Loan 2") and a revolving line of credit. Link initially borrowed approximately$18 million under Term Loan 1 and$5.5 million under Term Loan 2. OnDecember 6, 2021 , Link entered into a Fourth Amendment to Credit Agreement (the "Fourth Amendment"), which modified the Credit Agreement by increasing the borrowing limit to$30,000,000 and combining the outstanding balances under Term Loan 1 and Term Loan 2 as well as any incremental borrowings into a term loan ("Term Loan"). The Term Loan is 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. The loan is not guaranteed byBoston Omaha or any of our non-billboard businesses. Long-term debt included within our consolidated balance sheet as ofJune 30, 2022 consists of Link's Term Loan borrowings of$29,247,217 , of which$1,514,042 is classified as current. There were no amounts outstanding related to the revolving line of credit as ofJune 30, 2022 . Principal amounts under the Term Loan are payable in monthly installments according to a 15-year amortization schedule with principal payments commencing onJanuary 1, 2022 . The Term Loan is payable in full onDecember 6, 2028 . During the first three years of the Term Loan, Link may prepay up to 10% of the loan principal in each year without incurring any prepayment penalty. Otherwise, there is a prepayment penalty ranging between 3.0% and 0.5%. After three years, there is no prepayment penalty. The Term Loan has a fixed interest rate of 4.00% per annum. The revolving line of credit loan facility has a$5,000,000 maximum availability. Interest payments are based on theU.S. Prime Rate minus an applicable margin ranging between 0.65% and 1.15% dependent on Link's consolidated leverage ratio. The revolving line of credit is due and payable onAugust 12, 2023 . Under the Term Loan, 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 endedDecember 31, 2021 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter endingDecember 31, 2022 of not greater than 3.25 to 1.00 and (c) beginning with the fiscal quarter endingDecember 31, 2023 and thereafter of not greater than 3.00 to 1.00, and a minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on rolling four quarters. The Company was in compliance with these covenants as ofJune 30, 2022 . 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 loan. Upon the occurrence of certain insolvency and bankruptcy events of default the loan will automatically accelerate. The foregoing summary of the Credit Agreement and the transactions contemplated thereby does not purport to be a complete description and is qualified in its entirety by reference to the terms and conditions of the Credit Agreement and Security Agreement, copies of which are attached as Exhibit 10.1 and Exhibit 10.2, respectively to our Form 8-K as filed with theSEC onAugust 13, 2019 , a First Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with theSEC onOctober 29, 2019 , a Second Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with theSEC onJune 30, 2020 , a Third Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with theSEC onAugust 24, 2021 , a Fourth Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with theSEC onDecember 9, 2021 , and a Fifth Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with theSEC onJune 3, 2022 . Loan to Dream Finders Homes OnOctober 2, 2020 , we provided a term loan of$20 million toDream Finders Holdings, LLC to be used in expanding DFH's footprint in theSoutheast United States . The effective interest rate on this term loan is approximately 14% and matured onMay 1, 2021 . This loan was repaid with interest in early 2021. 54
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Investments in
In 2020, we acted as the sponsor for the initial public offering of Yellowstone and purchased 3,399,724 shares of Yellowstone Class B common stock and 7,719,799 private placement warrants at a combined cost of approximately$7.8 million . OnAugust 1, 2021 , we entered into an equity purchase agreement with Sky Harbour LLC by whichSky Harbour LLC unitholders would acquire a majority interest in the combined businesses following the completion of a business combination. As part of the equity purchase agreement, and immediately prior to the completion bySky Harbour LLC of a private activity bond financing raising$160 million in proceeds inSeptember 2021 , we purchased Class B Preferred Units in Sky Harbour LLC for a purchase price of$55 million , which Class B Preferred Units converted to 5,500,000 shares of Sky Harbour Group Corporation ("Sky Harbour") Class A common stock upon the closing of the Sky Harbour business combination onJanuary 25, 2022 . Also, upon the closing of the business combination, we purchased an additional 4,500,000 shares of Sky Harbour Class A common stock for a purchase price of$45 million .
? Upon the closing of the Sky Harbour business combination, our Class B common
stock converted to Class A common stock of Sky Harbour and our private
placement warrants are now exercisable to purchase 7,719,779 shares of Class A
common stock of Sky Harbour (the "Sky Harbour Warrants").
? Each Sky Harbour Warrant is exercisable for one share of Class A common stock
at a price of
Warrant being exercisable through
publicly traded warrants, these warrants are not redeemable by Sky Harbour as
long as we or permitted transferees hold these warrants. The Sky Harbour
Warrants are also exercisable on a cashless basis.
? Our Sky Harbour Class A common stock and the Sky Harbour Warrants and the
shares underlying the warrants remain subject to a lockup, which we refer to
as the "Sky Lockup Period," for a period of at least the first to occur of (a)
stock equals or exceeds
dividends, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after
liquidation, merger, capital stock exchange, reorganization or other similar
transaction that results in all of the Sky Harbour stockholders having the
right to exchange their shares of Class A common stock for cash, securities or
other property.
? Subsequent to the closing of the Sky Harbour business combination, wedistributed 75,000 shares of Sky Harbour Class A common stock to the outside
directors of Yellowstone and 206,250 shares of Sky Harbour Class A common
stock to an investor in the Yellowstone IPO. As of
13,118,474 shares of Sky Harbour Class A common stock and 7,719,779 Sky
Harbour Warrants.
? All of the shares of Sky Harbour Class A common stock that we own as well as
the Sky Harbour Warrants and the shares of Sky Harbour Class A common stock
underlying the Sky Harbour Warrants were registered with the
remain subject to the lock-up provisions as described above.
? Depending upon a number of factors, we could be deemed to be an affiliate of
Sky Harbour for purposes of Rule 144, and our ability to liquidate all or a
portion of our holdings in Sky Harbour, if we are deemed to be an affiliate
and in the absence of an effective registration statement for our shares,
would be subject to the volume trading limitations contained in Rule 144,
which generally limits our ability to sell shares in any one quarter to the
greater of 1% of the issued and outstanding shares of Class A common stock or
the average weekly trading volume of such shares over the four weeks preceding
the date of the sale.
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We believe that our existing cash and short-term investments, funds available through the Credit Agreement Link entered into onAugust 12, 2019 , as amended, any proceeds from the future sale of our Class A common stock under the 2022 shelf registration statement, and any funds that we may receive from cash flows from operations will be sufficient to meet working capital requirements and anticipated capital expenditures for the next 12 months. AtJune 30, 2022 , we had approximately$40 million in unrestricted cash,$41 million inU.S. treasury trading securities, and$21 million in marketable equity securities. If future additional significant acquisition opportunities as well as expansion opportunities within our billboard and broadband services businesses, and possible further development under our build for rent business become available in excess of our currently available cash andU.S. Treasury and marketable equity securities, we may need to seek additional capital through long term debt borrowings, the sale of our securities, and/or other financing options and we may not be able to obtain such debt or equity financing on terms favorable to us or at all. In the future, we may use a number of different sources to finance our acquisitions and operations, including current cash on hand, potential future cash flows from operations, seller financing, debt financings including but not limited to long-term debt and line of credit facilities, including additional credit facilities which may or may not be secured by our assets or those of our operating subsidiaries, additional common or preferred equity issuances or any combination of these sources, to the extent available to us, or other sources that may become available from time to time, which could include asset sales and issuance of debt securities. In addition to Link's current credit facility, any future debt that we incur may be recourse or non-recourse and may be secured or unsecured. Link's existing credit facility imposes restrictions on Link that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our billboard, insurance and broadband businesses. Specifically, these restrictions place limits on Link and its subsidiaries' ability to, among other things, incur additional indebtedness, make additional acquisitions and investments, pay dividends, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate or transfer or sell our billboard assets. Link's credit facility requires it to meet a fixed charge coverage ratio and other financial covenants. Link's ability to comply with these loan covenants may be affected by factors beyond its control and a breach of any loan covenants would likely result in an event of default under the Credit Agreement, which would permit the Lender to declare all amounts incurred thereunder to be immediately due and payable and to terminate their commitment to make future extensions of credit. We also may take advantage of joint venture or other partnering opportunities as such opportunities arise in order to acquire properties that would otherwise be unavailable to us. Any future credit facilities which we or any of our subsidiaries may enter into would likely impose similar restrictions and risks. We may use the proceeds of any future borrowings to acquire assets or for general corporate purposes. In determining when to use leverage, we will assess the appropriateness of new equity or debt capital based on market conditions, including assumptions regarding future cash flow, the creditworthiness of customers and future rental rates. We conduct and plan to continue to conduct our activities in such a manner as not to be deemed an investment company under the Investment Company Act. Therefore, no more than 40% of our total assets can be invested in investment securities, as such term is defined in the Investment Company Act. In addition, we do not invest or intend to invest in securities as our primary business. We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company Act of 1940 (the "Investment Company Act") because a significant portion of our assets consists of investments in companies in which we own less than a majority interest. The risk varies depending on events beyond our control, such as significant appreciation or depreciation in the market value of certain of our publicly traded holdings, adverse developments with respect to our ownership of certain of our subsidiaries, and transactions involving the sale of certain assets. If we are deemed to be an inadvertent investment company, we may seek to rely on a safe-harbor under the Investment Company Act that would provide us a one-year grace period to take steps to avoid being deemed to be an investment company. In order to ensure we avoid being deemed an investment company, we have taken, and may need to continue to take, steps to reduce the percentage of our assets that constitute investments assets under the Investment Company Act. These steps have included, among others, selling marketable securities that we might otherwise hold for the long-term and deploying our cash in non-investment assets. We have recently sold marketable securities, including at times at a loss, and we may be forced to sell our investment assets at unattractive prices or to sell assets that we otherwise believe benefit our business in the future to remain below the requisite threshold. We may also seek to acquire additional non-investment assets to maintain compliance with the Investment Company Act, and we may need to incur debt, issue additional equity or enter into other financing arrangements that are not otherwise attractive to our business. Any of these actions could have a material adverse effect on our results of operations and financial condition. Moreover, we can make no assurance that we would successfully be able to take the necessary steps to avoid being deemed to be an investment company in accordance with the safe-harbor. If we were unsuccessful, then we would have to register as an investment company, and we would be unable to operate our business in its current form. We would be subject to extensive, restrictive, and potentially adverse statutory provisions and regulations relating to, among other things, operating methods, management, capital structure, indebtedness, dividends, and transactions with affiliates. If we were deemed to be an investment company and did not register as an investment company when required to do so, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, that we would be unable to enforce contracts with third parties, and/or that third parties could seek to obtain rescission of transactions with us undertaken during the period in which we were deemed to be an unregistered investment company. Our certificate of incorporation and bylaws do not limit the amount of debt that we may incur. Our Board of Directors has not adopted a policy limiting the total amount of debt that we may incur. Our Board of Directors will consider a number of factors in evaluating the amount of debt that we may incur. If we adopt a debt policy, our Board of Directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general conditions in the markets for debt and equity securities, fluctuations in the market price of our Class A common stock if then trading on any exchange, growth and acquisition opportunities and other factors. Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our stockholders, and we are not restricted by our governing documents or otherwise in the amount of leverage that we may use. 56
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Off-Balance Sheet Arrangements
Except for our normal operating leases, we do not have any off-balance sheet financing arrangements, transactions, or special purpose entities.
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