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 OPERATIONS, RESULTS OF OPERATIONS, LIQUIDITY, INVESTMENTS, OUR NEED FOR, AND ABILITY TO OBTAIN, ADDITIONAL FUNDING FOR ACQUISITIONS AND POTENTIAL BUSINESS EXPANSION, GENERAL ECONOMIC TRENDS, INFLATIONARY PRESSURES, FINANCIAL CONDITION AND THE IMPACT OF THE COVID-19 PANDEMIC ON OUR BUSINESS. 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. 37
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Table of Contents 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: InJune 2015 , we commenced our billboard business operations through acquisitions by Link, our wholly-owned subsidiary, of smaller billboard companies located in theSoutheast United States andWisconsin . During July andAugust 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 since that date. We believe that we are a leading outdoor billboard advertising company in the markets we serve in the Midwest. As ofSeptember 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 inthe 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 : InSeptember 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. InApril 2016 , our surety insurance business commenced with the acquisition of a surety insurance brokerage business with a national internet-based presence. InDecember 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 theDistrict of Columbia . In addition, over the last several years, we have also acquired additional surety insurance brokerage businesses located in various regions ofthe 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: InMarch 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 southernArizona with a high-speed fixed wireless internet service and is building an all fiber-to-the-home network in selectArizona markets. InDecember 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 throughoutUtah . InSeptember 2021 , we announced the launch ofFiber 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. InApril 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 andCentral Utah ,Northern Arizona andMoapa Valley ,Nevada . We hope to continue to expand inArizona ,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 third quarter of fiscal 2022, we sold 640,416 shares
of DFH Class A common stock for gross proceeds of approximately
Since DFH's initial public offering through
4,344,771 shares of DFH Class A common stock for gross proceeds of approximately$76.2 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
inNew Orleans and generates the majority of its revenues from indirect subprime automobile lending acrossthe 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". 38
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? In
directly into SHG and received 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
an additional
common stock upon the closing of the Sky Harbour business combination, which
was consummated inJanuary 2022 .
? We recently established subsidiaries 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
approximately
projects and are currently in the process of 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 will seek to provide
broadband services to these homes, providing us a second or third source of
potential revenue from these developments. 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 has provided each company the opportunity 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. 39
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Table of Contents 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 nine 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
goodwill or long-lived assets (including operating lease right of use assets).
We also did not incur any significant credit losses for the nine months ended
September 30, 2022 and 2021. We have observed an improvement in business activity beginning in the second half of 2020, throughout fiscal 2021 and the first nine 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. 40
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Table of Contents 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 endedSeptember 30, 2022 , which we refer to as the "third quarter of fiscal 2022," compared to the three months endedSeptember 30, 2021 , which we refer to as the "third quarter of fiscal 2021." Revenues. For the third quarter of fiscal 2022 and the third quarter of fiscal 2021, our revenues in dollars and as a percentage of total revenues were as follows: For the Three Months Ended September 30, (unaudited) 2022 2021 2022 vs 2021 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 9,942,846 46.4%$ 8,023,065 55.4%$ 1,919,781 Broadband services 8,102,935 37.8% 3,773,729 26.0% 4,329,206 Premiums earned 2,860,451 13.3% 2,031,575 14.0% 828,876 Insurance commissions 383,830 1.8% 584,082 4.0% (200,252 ) Investment and other income 157,484 0.7% 85,696 0.6% 71,788 Total Revenues$ 21,447,546 100.0%$ 14,498,147 100.0%$ 6,949,399 We realized total revenues of$21,447,546 during the third quarter of fiscal 2022, an increase of 47.9% over revenues of$14,498,147 during the third quarter of fiscal 2021. Revenues increased within each of our businesses in the third quarter of fiscal 2022 when compared to the third quarter of fiscal 2021. The key factors impacting revenue across each of our businesses during the third quarter of fiscal 2022 were as follows:
? Net billboard rentals in the third quarter of fiscal 2022 increased 23.9% from
the third quarter of fiscal 2021, reflecting 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 third quarter of fiscal 2022 as well as an improvement in rental and
occupancy rates across a number of our markets.
? Revenue from broadband services in the third quarter of fiscal 2022 increased
114.7% from the third 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 40.8% in the third
quarter of fiscal 2022 when compared to the third quarter of fiscal 2021. The
increase in premiums earned was primarily due to increases in production
throughout fiscal 2021 and the first nine 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 34.3% in the third quarter of fiscal 2022 when compared to the third quarter of fiscal 2021, mainly due to reduced
production through outside insurance carriers as more bonds are placed with
UCS.
? Investment and other income at UCS increased from
of fiscal 2021 to$157,484 in the third quarter of fiscal 2022. 41
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Expenses. For the third quarter of fiscal 2022 and the third quarter of fiscal 2021, our expenses, in dollars, and as a percentage of total revenues, were as follows: For the Three Months Ended September 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$ 3,503,615 16.3 %$ 2,992,251 20.6 %$ 511,364 Cost of broadband revenues 2,201,630 10.3 % 742,082 5.1 % 1,459,548 Cost of insurance revenues 1,830,792 8.5 % 1,029,576 7.1 % 801,216 Employee costs 6,750,906 31.5 % 4,544,796 31.4 % 2,206,110 Professional fees 1,120,078 5.2 % 2,552,762 17.6 % (1,432,684 ) Depreciation 2,412,597 11.3 % 1,668,984 11.5 % 743,613 Amortization 1,757,654 8.2 % 1,137,736 7.9 % 619,918 General and administrative 3,543,482 16.5 % 2,497,301 17.2 % 1,046,181 Loss on disposition of assets 70,309 0.3 % 61,478 0.4 % 8,831 Accretion 51,680 0.3 % 32,179 0.2 % 19,501 Total Costs and Expenses$ 23,242,743 108.4 %$ 17,259,145 119.0 %$ 5,983,598 During the third quarter of fiscal 2022, we had total costs and expenses of$23,242,743 , as compared to total costs and expenses of$17,259,145 in the third quarter of fiscal 2021. Total costs and expenses as a percentage of total revenues decreased from 119.0% in the third quarter of fiscal 2021 to 108.4% in the third quarter of fiscal 2022. The key factors impacting costs and expenses across each of our businesses during the third quarter of fiscal 2022 were as follows:
? Cost of billboard revenues decreased as a percentage of billboard revenues
from 37.3% in the third quarter of fiscal 2021 to 35.2% in the third 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 19.7% in the third quarter of fiscal 2021 to 27.2% in the third quarter
of fiscal 2022. The increase is mainly driven by the InfoWest and Go Fiber
acquisitions as well as our FFH business, which launched during the third
quarter of fiscal 2021.
? Cost of insurance revenues increased as a percentage of insurance revenues
from 38.1% in the third quarter of fiscal 2021 to 53.8% in the third quarter
of fiscal 2022. The increase was mainly due to higher losses and loss
adjustment expenses as our semi-annual actuarial analysis indicated UCS was
under-reserved by
on contract bonds.
? Employee costs increased from
to
increase was mainly driven by the InfoWest and Go Fiber acquisitions, the
Keleher and Missouri Neon acquisitions, hiring within our FFH business and
hiring within our asset management business. 42
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? Professional fees in the third quarter of fiscal 2022 were
of total revenues, as compared to
the third quarter of fiscal 2021. The decrease was mainly related to the
professional fees associated with Yellowstone entering into a business
combination with SHG as well as
B Preferred Units investment during the third quarter of fiscal 2021.
? General and administrative expenses increased from
quarter of fiscal 2021 to
increase of 41.9%. The increase was mainly driven by the InfoWest and Go Fiber
acquisitions, our FFH business, and the Keleher and Missouri Neon acquisitions.
? Non-cash expenses in the third 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 the InfoWest and Go Fiber acquisitions and the Keleher and
Neon acquisitions. The increase in amortization expense is mainly driven by
the InfoWest and Go Fiber acquisitions. Net Loss from Operations. Net loss from operations for the third quarter of fiscal 2022 was$1,795,197 , or 8.4% of total revenues, as compared to a net loss from operations of$2,760,998 , or 19.0% of total revenues, in the third quarter of fiscal 2021. The decrease in net loss from operations in dollars was primarily due to lower professional fees atBoston Omaha , net income from operations generated by the InfoWest and Go Fiber acquisitions, and improved operations within our billboard business, which were partially offset by costs associated with our FFH business and our asset management business as well as an increase in net losses from operations within our insurance operations. Our net loss from operations included$4,221,931 from non-cash depreciation, amortization and accretion expenses in the third quarter of fiscal 2022, as compared to$2,838,899 in the third quarter of fiscal 2021. Other Expense. During the third quarter of fiscal 2022, we had net other expense of$178,858 . Net other expense included$459,745 in other investment losses mainly related to public securities held by UCS and interest expense of$304,594 mainly incurred under Link's term loan. These items were partially offset by income of$436,157 mainly related to our equity method positions in 24thStreet Fund I, LLC and 24thStreet Fund II, LLC and interest and dividend income of$149,324 . During the third quarter of fiscal 2021, we had net other expense of$33,753,550 , which included$32,990,929 in other investment losses related to public equity securities mainly held byBoston Omaha ,$1,019,917 related to the remeasurement of Yellowstone's public warrants, and interest expense of$233,561 mainly incurred under Link's term loans. These items were partially offset by$359,203 in equity in income of unconsolidated affiliates and interest and dividend income of$131,654 . 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. Due to the size of our percentage ownership interest in Sky Harbour's Class A common stock, our investment is recorded under the equity method using the fair market value of Sky Harbour's Class A common stock as of the date of the business combination and we do not include any unrealized gains or losses related to the change in Sky Harbour's stock price in our reported earnings. In the future, if our ownership interest in Sky Harbour's Class A common stock drops below 20%, we will no longer be able to record our investment under the equity method and will be required to include any unrealized gains or losses related to the change in Sky Harbour's stock price 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. Additionally, we have evaluated our investment in Sky Harbour as ofSeptember 30, 2022 , and determined that there was not an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) our assessment that the underlying business and financial condition of Sky Harbour is favorable; (ii) the period of time for which the fair value has been less than the carrying value, (iii) an expectation that Sky Harbour's stock price will recover in the near-term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review our investment in Sky Harbour for an other-than-temporary impairment on a quarterly basis or upon the occurrence of certain events. If Sky Harbour's stock price does not recover above our carrying value of$8.16 per share in the near-term, it will likely result in an impairment of our investment. There may also be a future impairment of our investment if our expectations about Sky Harbour's prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions. Net Loss Attributable to Common Stockholders. We had a net loss attributable to common stockholders in the amount of$1,408,521 in the third quarter of fiscal 2022, or a loss per share of$0.05 , based on 29,698,361 diluted weighted average shares outstanding. This is compared to a net loss attributable to common stockholders of$26,276,094 in the third quarter of fiscal 2021, or a loss per share of$0.89 , based on 29,576,115 diluted weighted average shares outstanding. 43
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Nine Months Ended
The following is a comparison of our results of operations for the nine months endedSeptember 30, 2022 , which we refer to as the "first nine months of fiscal 2022," compared to the nine months endedSeptember 30, 2021 , which we refer to as the "first nine months of fiscal 2021." Revenues. For the first nine months of fiscal 2022 and the first nine months of fiscal 2021, our revenues in dollars and as a percentage of total revenues were as follows: For the Nine Months Ended September 30, (unaudited) 2022 2021 2022 vs 2021 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 28,906,159 49.3%$ 23,129,582 55.2%$ 5,776,577 Broadband services 20,258,461 34.5% 11,329,220 27.1% 8,929,241 Premiums earned 7,556,423 12.9% 5,554,297 13.3% 2,002,126 Insurance commissions 1,575,274 2.7% 1,642,962 3.9% (67,688 ) Investment and other income 339,192 0.6% 226,986 0.5% 112,206 Total Revenues$ 58,635,509 100.0%$ 41,883,047 100.0%$ 16,752,462 We realized total revenues of$58,635,509 during the first nine months of fiscal 2022, an increase of 40.0% over revenues of$41,883,047 during the first nine months of fiscal 2021. Revenues increased within each of our businesses in the first nine months of fiscal 2022 when compared to the first nine months of fiscal 2021. The key factors impacting revenue across each of our businesses during the first nine months of fiscal 2022 were as follows:
? Net billboard rentals in the first nine months of fiscal 2022 increased 25.0%
from the first nine months of fiscal 2021, reflecting the acquisition of
billboards from Keleher and Missouri Neon, which accounted for approximately
14.0% of our billboard revenues in the first nine months of fiscal 2022, as
well as an improvement in rental and occupancy rates across a number of our
markets. ? Revenue from broadband services in the first nine months of fiscal 2022 increased 78.8% from the first nine months of fiscal 2021, mainly
reflecting the revenues generated from the InfoWest and Go Fiber acquisitions.
? Premiums earned from our UCS insurance subsidiary increased 36.0% in
the first nine months of fiscal 2022 when compared to the first nine months of
fiscal 2021. The increase in premiums earned was primarily due to increases in
production throughout fiscal 2021 and the first nine 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 4.1% in the first nine months of fiscal 2022 when
compared to the first nine months of fiscal 2021, mainly due to reduced
production through outside insurance carriers as more bonds are placed with
UCS.
? Investment and other income at UCS increased from
months of fiscal 2021 to
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Expenses. For the first nine months of fiscal 2022 and the first nine months of fiscal 2021, our expenses, in dollars, and as a percentage of total revenues, were as follows: For the Nine Months Ended September 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$ 10,686,769 18.2 %$ 8,927,528 21.3 %$ 1,759,241 Cost of broadband revenues 5,183,217 8.8 % 2,352,724 5.6 % 2,830,493 Cost of insurance revenues 4,012,477 6.9 % 3,031,391 7.3 % 981,086 Employee costs 18,747,412 32.0 % 13,312,992 31.8 % 5,434,420 Professional fees 4,409,457 7.5 % 4,670,926 11.2 % (261,469 ) Depreciation 6,165,584 10.5 % 4,066,451 9.7 % 2,099,133 Amortization 4,674,620 8.0 % 3,508,445 8.4 % 1,166,175 General and administrative 9,517,152 16.2 % 7,136,217 17.0 % 2,380,935 Loss on disposition of assets 48,200 0.1 % 119,904 0.3 % (71,704 ) Accretion 152,536 0.3 % 96,717 0.2 % 55,819 Total Costs and Expenses$ 63,597,424 108.5 %$ 47,223,295 112.8 %$ 16,374,129 During the first nine months of fiscal 2022, we had total costs and expenses of$63,597,424 , as compared to total costs and expenses of$47,223,295 in the first nine months of fiscal 2021. Total costs and expenses as a percentage of total revenues decreased from 112.8% in the first nine months of fiscal 2021 to 108.5% in the first nine months of fiscal 2022. The key factors impacting costs and expenses across each of our businesses during the first nine months of fiscal 2022 were as follows:
? Cost of billboard revenues decreased as a percentage of billboard revenues
from 38.6% in the first nine months of fiscal 2021 to 37.0% in the first nine
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 20.8% in the first nine months of fiscal 2021 to 25.6% in the first nine
months of fiscal 2022. The increase is mainly driven by the InfoWest and Go
Fiber acquisitions as well as our FFH business.
? Cost of insurance revenues increased as a percentage of insurance revenues
from 40.8% in the first nine months of fiscal 2021 to 42.4% in the first nine
months of fiscal 2022. The increase was mainly due to higher losses and loss
adjustment expenses as our semi-annual actuarial analysis indicated UCS was
under-reserved by
on contract bonds.
? Employee costs increased from
2021 to
40.8%. The increase was mainly driven by the InfoWest and Go Fiber
acquisitions, the Keleher and Missouri Neon acquisitions, the ACS acquisition
completed in
hiring within our FFH business and hiring within our asset management business. 45
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? Professional fees in the first nine months of fiscal 2022 were
7.5% of total revenues, as compared to
in the first nine months of fiscal 2021. The decrease was mainly related to
the professional fees associated with Yellowstone entering into a business
combination with SHG as well as
B Preferred Units investment during the third quarter of fiscal 2021. The
decrease was partially offset by professional fees associated with
the InfoWest and Go Fiber acquisitions and the formation of our build for rent
business and fund structure within BOAM. ? General and administrative expenses increased from$7,136,217 in
the first nine months of fiscal 2021 to
fiscal 2022, an increase of 33.4%. The increase was mainly driven by the
InfoWest and Go Fiber acquisitions, our FFH business, and the Keleher and
Missouri Neon acquisitions.
? Non-cash expenses in the first nine 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 the InfoWest and Go Fiber acquisitions, measurement period adjustments
to increase the fair value assigned to UBB's property, plant and equipment by
Missouri Neon acquisitions. The increase in amortization expense is mainly
driven by the InfoWest and Go Fiber acquisitions. Net Loss from Operations. Net loss from operations for the first nine months of fiscal 2022 was$4,961,915 , or 8.5% of total revenues, as compared to a net loss from operations of$5,340,248 , or 12.8% of total revenues, in the first nine months 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, lower professional fees atBoston Omaha , and net income from operations generated by the InfoWest and Go Fiber acquisitions, which were partially offset by costs associated with our FFH business and our asset management business. Our net loss from operations included$10,992,740 from non-cash depreciation, amortization and accretion expenses in the first nine months of fiscal 2022, as compared to$7,671,613 in the first nine months of fiscal 2021. Other Income (Expense). During the first nine months of fiscal 2022, we had net other income of$10,542,120 . 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 fromJanuary 1, 2022 toJanuary 25, 2022 , and interest and dividend income of$267,735 . These items were partially offset by$14,777,985 in other investment losses mainly related to public securities held byBoston Omaha and UCS, a loss of$852,807 mainly related to our equity method position in Sky Harbour and interest expense of$909,774 mainly incurred under Link's term loan. During the first nine months of fiscal 2021, we had net other income of$88,935,971 , which included$85,694,668 in other investment income related to public equity securities mainly held byBoston Omaha ,$2,039,835 related to the remeasurement of Yellowstone's public warrants,$968,526 in interest and dividend income,$935,488 in equity in income of unconsolidated affiliates, and interest expense of$702,546 mainly incurred under Link's term loans. 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. Due to the size of our percentage ownership interest in Sky Harbour's Class A common stock, our investment is recorded under the equity method using the fair market value of Sky Harbour's Class A common stock as of the date of the business combination and we do not include any unrealized gains or losses related to the change in Sky Harbour's stock price in our reported earnings. In the future, if our ownership interest in Sky Harbour's Class A common stock drops below 20%, we will no longer be able to record our investment under the equity method and will be required to include any unrealized gains or losses related to the change in Sky Harbour's stock price 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. Additionally, we have evaluated our investment in Sky Harbour as ofSeptember 30, 2022 , and determined that there was not an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) our assessment that the underlying business and financial condition of Sky Harbour is favorable; (ii) the period of time for which the fair value has been less than the carrying value, (iii) an expectation that Sky Harbour's stock price will recover in the near-term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review our investment in Sky Harbour for an other-than-temporary impairment on a quarterly basis or upon the occurrence of certain events. If Sky Harbour's stock price does not recover above our carrying value of$8.16 per share in the near-term, it will likely result in an impairment of our investment. There may also be a future impairment of our investment if our expectations about Sky Harbour's prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions. Net Income Attributable to Common Stockholders. We had net income attributable to common stockholders in the amount of$3,397,733 in the first nine months of fiscal 2022, or income per share of$0.11 , based on29,763,333 diluted weighted average shares outstanding. This is compared to net income attributable to common stockholders of$66,799,096 in the first nine months of fiscal 2021, or income per share of$2.32 , based on 28,825,428 diluted weighted average shares outstanding. 46
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Table of Contents
Results of Operations by Segment
The following tables report results for the following three segments in which we operate, billboards, insurance and broadband, for the third quarter of fiscal 2022 and the third quarter of fiscal 2021: Results of Billboard Operations For the Three Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Billboard rentals, net$ 9,942,846 100.0%$ 8,023,065 100.0% Cost of Revenues Ground rents 1,889,857 19.0% 1,587,875 19.8% Utilities 412,629 4.1% 307,646 3.8% Commissions paid 767,433 7.7% 755,323 9.4% Other costs of revenues 433,696 4.4% 341,407 4.3% Total cost of revenues 3,503,615 35.2% 2,992,251 37.3% Gross margin 6,439,231 64.8% 5,030,814 62.7% Other Operating Expenses Employee costs 1,650,025 16.6% 1,410,669 17.6% Professional fees 139,886 1.4% 112,773 1.4% Depreciation 1,160,825 11.7% 910,845 11.3% Amortization 926,068 9.3% 860,290 10.7% General and administrative 924,628 9.3% 673,286 8.4% Accretion 48,251 0.5% 28,712 0.4% Loss on disposition of assets 75,413 0.8% 61,093 0.8% Total expenses 4,925,096 49.6% 4,057,668 50.6% Segment Income from Operations 1,514,135 15.2% 973,146 12.1% Interest expense, net (285,944 ) (2.9%) (226,560 ) (2.8%) Net Income Attributable to Common Stockholders$ 1,228,191 12.3%$ 746,586 9.3% Comparison of the Third Quarter of Fiscal 2022 to the Third Quarter of Fiscal 2021. In the third quarter of fiscal 2022, there was a 23.9% increase in net billboard revenues from the third quarter of fiscal 2021, reflecting the acquisition of billboards from Keleher and Missouri Neon, which accounted for approximately 14.0% of our billboard revenues in the third quarter of fiscal 2022, as well as an improvement in rental and occupancy rates across a number of our markets. The key factors affecting our billboard operations results during the third quarter of fiscal 2022 were as follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 19.8% in the third quarter of fiscal 2021 to 19.0% in the third
quarter of fiscal 2022.
? Commissions paid as a percentage of total segment operating revenues decreased
from 9.4% in the third quarter of fiscal 2021 to 7.7% in the third quarter of
fiscal 2022. The decrease is mainly driven by new incentive programs throughout several of our markets relating to manager compensation.
? Employee costs as a percentage of total segment operating revenues decreased
from 17.6% in the third quarter of fiscal 2021 to 16.6% in the third 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 8.4% in the third quarter of fiscal 2021 to 9.3% in
the third quarter of fiscal 2022. The increase is primarily due to higher fuel
costs and other travel related expenses as well as an increase in bad debt
expense as the third quarter of fiscal 2021 included an accrual reversal.
? Depreciation and amortization expense increased by
respectively, from the third 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
47
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Table of Contents Results of Broadband Operations For the Three Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Broadband revenues$ 8,102,935 100.0%$ 3,773,729 100.0% Cost of Revenues Network operations and data costs 1,316,437 16.2% 438,640 11.6% Programming costs 24,551 0.3% 31,283 0.8% Cell site rent and utilities 295,565 3.7% 152,498 4.1% Other costs of revenues 565,077 7.0% 119,661 3.2% Total cost of revenues 2,201,630 27.2% 742,082 19.7% Gross margin 5,901,305 72.8% 3,031,647 80.3% Other Operating Expenses Employee costs 2,808,302 34.7% 1,402,777 37.2% Professional fees 137,408 1.7% 42,541 1.1% Depreciation 1,190,820 14.7% 723,052 19.2% Amortization 785,524 9.7% 230,385 6.1% General and administrative 1,432,053 17.7% 574,800 15.2% Accretion 3,429 0.0% 3,467 0.1% (Gain) loss on disposition of assets (5,104 ) (0.1%) 385 0.0% Total expenses 6,352,432 78.4% 2,977,407 78.9% Segment (Loss) Income from Operations (451,127 ) (5.6%) 54,240 1.4% Interest expense, net (5,963 ) (0.1%) (3,324 ) (0.1%) Noncontrolling interest in subsidiary income (108,390 ) (1.3%) (70,674 ) (1.8%) Net Loss Attributable to Common Stockholders$ (565,480 ) (7.0%)$ (19,758 ) (0.5%) Comparison of the Third Quarter of Fiscal 2022 to the Third Quarter of Fiscal 2021. In the third quarter of fiscal 2022, total operating revenues increased by 114.7% when compared to the third quarter of fiscal 2021 mainly reflecting the revenues generated from the InfoWest and Go Fiber acquisitions. The key factors affecting our broadband operations results during the third quarter of fiscal 2022 were as follows:
? Total cost of revenues increased as a percentage of total segment operating
revenues from 19.7% in the third quarter of fiscal 2021 to 27.2% in the third
quarter of fiscal 2022. The increase is mainly driven by the InfoWest and Go
Fiber acquisitions as well as our FFH business.
? Employee costs in the third quarter of fiscal 2022 increased by 100.2% from
the third quarter of fiscal 2021. The increase is mainly due to the InfoWest
and Go Fiber acquisitions and hiring within our FFH business. ? Professional fees as a percentage of total segment operating revenues
increased from 1.1% in the third quarter of fiscal 2021 to 1.7% in the third
quarter of fiscal 2022. The increase is mainly due to the InfoWest and Go
Fiber acquisitions.
? General and administrative expenses as a percentage of total segment operating
revenues increased from 15.2% in the third quarter of fiscal 2021 to 17.7% in
the third quarter of fiscal 2022. The increase as a percent of revenues is
mainly due to the InfoWest and Go Fiber acquisitions and our FFH business.
? Depreciation and amortization expense increased by
respectively, from the third quarter of fiscal 2021. The increase in depreciation and amortization expense is mainly due to the InfoWest and Go Fiber acquisitions. 48
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Table of Contents Results of Insurance Operations For the Three Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Premiums earned$ 2,860,451 84.1%$ 2,031,575 75.2% Insurance commissions 383,830 11.3% 584,082 21.6% Investment and other income 157,484 4.6% 85,696 3.2% Total operating revenues 3,401,765 100.0% 2,701,353 100.0% Cost of Revenues Commissions paid 874,689 25.7% 602,180 22.3% Premium taxes, fees, and assessments 83,647 2.5% 61,735 2.3% Losses and loss adjustment expense 872,456 25.6% 365,661 13.5% Total cost of revenues 1,830,792 53.8% 1,029,576 38.1% Gross margin 1,570,973 46.2% 1,671,777 61.9% Other Operating Expenses Employee costs 1,428,354 42.0% 1,304,238 48.3% Professional fees 53,172 1.6% 65,363 2.4% Depreciation 33,227 1.0% 7,804 0.3% Amortization 46,062 1.3% 47,061 1.8% General and administrative 603,065 17.7% 606,274 22.4% Total expenses 2,163,880 63.6% 2,030,740 75.2% Segment Loss from Operations (592,907 ) (17.4%) (358,963 ) (13.3%) Interest income, net - - 5 0.0% Other investment loss (897,208 ) (26.4%) (1,687,112 ) (62.4%) Net Loss Attributable to Common Stockholders$ (1,490,115 ) (43.8%)$ (2,046,070 ) (75.7%) Comparison of the Third Quarter of Fiscal 2022 to the Third Quarter of Fiscal 2021. In the third quarter of fiscal 2022, total operating revenues increased by 25.9% when compared to the third 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 outside insurance carriers as more bonds are placed with UCS. The key factors affecting our insurance operations results during the third quarter of fiscal 2022 were as follows:
? Premiums earned from our UCS insurance subsidiary in the third quarter of
fiscal 2022 increased 40.8% from the third quarter of fiscal 2021. The
increase in premiums earned was primarily due to increases in production
throughout fiscal 2021 and the first nine 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 34.3% in the third quarter of fiscal 2022 when compared to the third
quarter of fiscal 2021, mainly due to reduced production through outside
insurance carriers as more bonds are placed with UCS. ? Commissions paid as a percentage of total segment operating revenues
increased from 22.3% in the third quarter of fiscal 2021 to 25.7% in the
third quarter of fiscal 2022, mainly due to increased production from non-affiliated insurance brokerage firms. ? Losses and loss adjustment expenses as a percentage of total segment
operating revenues increased from 13.5% in the third quarter of fiscal 2021
to 25.6% in the third quarter of fiscal 2022. Losses and loss adjustment
expenses are reserved monthly based on a percentage of earned premium. The
increase in loss reserves when compared to the third quarter of fiscal 2021
is mainly related to our semi-annual actuarial analysis that indicated UCS
was under-reserved by
losses on contract bonds.
? Employee costs in the third quarter of fiscal 2022 increased by 9.5% from the
third 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 third quarter of fiscal 2022 decreased by 0.5% from the third quarter of fiscal 2021.
? During the third quarter 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.
49
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Table of Contents Results of Billboard Operations For the Nine Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Billboard rentals, net$ 28,906,159 100.0%$ 23,129,582 100.0% Cost of Revenues Ground rents 5,770,633 20.0% 4,766,504 20.6% Utilities 1,223,826 4.2% 932,028 4.0% Commissions paid 2,294,302 8.0% 2,216,400 9.6% Other costs of revenues 1,398,008 4.8% 1,012,596 4.4% Total cost of revenues 10,686,769 37.0% 8,927,528 38.6% Gross margin 18,219,390 63.0% 14,202,054 61.4% Other Operating Expenses Employee costs 5,108,997 17.7% 4,334,412 18.7% Professional fees 368,142 1.3% 420,046 1.8% Depreciation 3,392,420 11.7% 2,666,167 11.5% Amortization 2,724,618 9.4% 2,557,931 11.1% General and administrative 2,618,211 9.0% 2,075,259 9.0% Accretion 142,276 0.5% 86,419 0.4% (Gain) loss on disposition of assets 5,216 0.0% 116,247 0.5% Total expenses 14,359,880 49.6% 12,256,481 53.0% Segment Income from Operations 3,859,510 13.4% 1,945,573 8.4% Interest expense, net (860,971 ) (3.0%) (683,858 ) (3.0%) Net Income Attributable to Common Stockholders$ 2,998,539 10.4%$ 1,261,715 5.4% Comparison of the First Nine Months of Fiscal 2022 to the First Nine Months of Fiscal 2021. In the first nine months of fiscal 2022, there was a 25.0% increase in net billboard revenues from the first nine months of fiscal 2021, reflecting the acquisition of billboards from Keleher and Missouri Neon, which accounted for approximately 14.0% of our billboard revenues in the first nine months of fiscal 2022, as well as an improvement in rental and occupancy rates across a number of our markets. The key factors affecting our billboard operations results during the first nine months of fiscal 2022 were as follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 20.6% in the first nine months of fiscal 2021 to 20.0% in the first nine months of fiscal 2022.
? Commissions paid as a percentage of total segment operating revenues decreased
from 9.6% in the first nine months of fiscal 2021 to 8.0% in the first nine
months of fiscal 2022. The decrease is mainly driven by new incentive programs
throughout several of our markets relating to manager compensation.
? Employee costs as a percentage of total segment operating revenues decreased
from 18.7% in the first nine months of fiscal 2021 to 17.7% in the first nine
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 held steady as a percentage of total
segment operating revenues at 9.0% in the first nine months of fiscal 2021 and
9.0% in the first nine months of fiscal 2022.
? Depreciation and amortization expense increased by
respectively, from the first nine months of fiscal 2021. The increases are primarily due to the Keleher and Missouri Neon acquisitions. ? Net interest expense of$860,971 in the first nine months of fiscal
2022 compared to net interest expense of
fiscal 2021. 50
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Table of Contents Results of Broadband Operations For the Nine Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Broadband revenues$ 20,258,461 100.0%$ 11,329,220 100.0% Cost of Revenues Network operations and data costs 3,008,419 14.9% 1,528,584 13.5% Programming costs 65,456 0.3% 87,081 0.8% Cell site rent and utilities 777,390 3.8% 432,116 3.8% Other costs of revenues 1,331,952 6.6% 304,943 2.7% Total cost of revenues 5,183,217 25.6% 2,352,724 20.8% Gross margin 15,075,244 74.4% 8,976,496 79.2% Other Operating Expenses Employee costs 7,375,956 36.4% 3,911,189 34.5% Professional fees 543,859 2.7% 125,175 1.1% Depreciation 2,639,447 13.0% 1,311,516 11.6% Amortization 1,809,817 8.9% 820,496 7.2% General and administrative 3,440,677 17.0% 1,474,068 13.0% Accretion 10,260 0.1% 10,298 0.1% Loss on disposition of assets 42,984 0.2% 3,657 0.0% Total expenses 15,863,000 78.3% 7,656,399 67.5% Segment (Loss) Income from Operations (787,756 ) (3.9%) 1,320,097 11.7% Interest expense, net (16,487 ) (0.1%) (8,293 ) (0.1%) Noncontrolling interest in subsidiary income (414,993 ) (2.0%) (325,135 ) (2.9%) Net (Loss) Income Attributable to Common Stockholders$ (1,219,236 ) (6.0%)$ 986,669 8.7% Comparison of the First Nine Months of Fiscal 2022 to the First Nine Months of Fiscal 2021. In the first nine months of fiscal 2022, total operating revenues increased by 78.8% when compared to the first nine months of fiscal 2021 mainly reflecting the revenues generated from the InfoWest and Go Fiber acquisitions. The key factors affecting our broadband operations results during the first nine months of fiscal 2022 were as follows:
? Total cost of revenues increased as a percentage of total segment operating
revenues from 20.8% in the first nine months of fiscal 2021 to 25.6% in
the first nine months of fiscal 2022. The increase is mainly driven by the
InfoWest and Go Fiber acquisitions as well as our FFH business.
? Employee costs in the first nine months of fiscal 2022 increased by 88.6% from
the first nine months of fiscal 2021. The increase is mainly due to the InfoWest and Go Fiber acquisitions and hiring within our FFH business. ? Professional fees as a percentage of total segment operating revenues increased from 1.1% in the first nine months of fiscal 2021 to 2.7% in the first nine months of fiscal 2022. The increase is mainly due to the InfoWest and Go Fiber acquisitions.
? General and administrative expenses as a percentage of total segment operating
revenues increased from 13.0% in the first nine months of fiscal 2021 to 17.0%
in the first nine months of fiscal 2022. The increase as a percent of
revenues is mainly due to the InfoWest and Go Fiber acquisitions and our
FFH business.
? Depreciation and amortization expense increased by
respectively, from the first nine 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. The increase in amortization expense is mainly driven
by the InfoWest and Go Fiber acquisitions. 51
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Table of Contents Results of Insurance Operations For the Nine Months Ended September 30, (unaudited) 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Premiums earned$ 7,556,423 79.8%$ 5,554,297 74.8% Insurance commissions 1,575,274 16.6% 1,642,962 22.1% Investment and other income 339,192 3.6% 226,986 3.1% Total operating revenues 9,470,889 100.0% 7,424,245 100.0% Cost of Revenues Commissions paid 2,168,204 22.9% 1,559,222 21.0% Premium taxes, fees, and assessments 209,322 2.2% 200,115 2.7% Losses and loss adjustment expense 1,634,951 17.3% 1,272,054 17.1% Total cost of revenues 4,012,477 42.4% 3,031,391 40.8% Gross margin 5,458,412 57.6% 4,392,854 59.2% Other Operating Expenses Employee costs 4,198,091 44.3% 3,751,084 50.5% Professional fees 205,190 2.2% 250,712 3.4% Depreciation 51,620 0.5% 21,340 0.3% Amortization 140,185 1.5% 130,018 1.8% General and administrative 1,629,404 17.2% 1,818,267 24.5% Total expenses 6,224,490 65.7% 5,971,421 80.5% Segment Loss from Operations (766,078 ) (8.1%) (1,578,567 ) (21.3%) Interest expense, net - - (1,991 ) (0.0%) Other investment (loss) income (3,841,083 ) (40.5%) 2,219,102 29.9% Net (Loss) Income Attributable to Common Stockholders$ (4,607,161 ) (48.6%)$ 638,544 8.6% Comparison of the First Nine Months of Fiscal 2022 to the First Nine Months of Fiscal 2021. In the first nine months of fiscal 2022, total operating revenues increased by 27.6% when compared to the first nine months of fiscal 2021, mainly due to increased earned premium at our UCS insurance subsidiary. The key factors affecting our insurance operations results during the first nine months of fiscal 2022 were as follows:
? Premiums earned from our UCS insurance subsidiary in the first nine months of
fiscal 2022 increased 36.0% from the first nine months of fiscal 2021. The
increase in premiums earned was primarily due to increases in production
throughout fiscal 2021 and the first nine 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 4.1% in the first nine months of fiscal 2022 when compared to
the first nine months of fiscal 2021, mainly due to reduced
production through outside insurance carriers as more bonds are placed with
UCS. ? Commissions paid as a percentage of total segment operating revenues
increased from 21.0% in the first nine months of fiscal 2021 to 22.9% in
the first nine months of fiscal 2022, mainly due to increased production from
non-affiliated insurance brokerage firms. ? Losses and loss adjustment expenses as a percentage of total segment
operating revenues increased from 17.1% in the first nine months of fiscal
2021 to 17.3% in the first nine months of fiscal 2022. Losses and loss
adjustment expenses are reserved monthly based on a percentage of earned
premium. The increase in loss reserves when compared to the first nine months
of fiscal 2021 is mainly related to our semi-annual actuarial analysis that
indicated UCS was under-reserved by
historical losses on contract bonds, partially offset by UCS no longer having
any material exposure to the rental guarantee bond program as all of these
bonds have since expired.
? Employee costs in the first nine months of fiscal 2022 increased by 11.9% from
the first nine months of fiscal 2021. The increase is mainly due to the
ACS acquisition as well as the hiring of finance, IT and marketing positions
at GIG. ? General and administrative expenses in the first nine months of fiscal 2022 decreased by 10.4% from the first nine months of fiscal 2021. The
decrease is mainly due to lower IT system implementation related expenses.
? During the first nine 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.
52
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Table of Contents Cash Flows
Cash Flows for the First Nine Months of Fiscal 2022 compared to the First Nine Months of Fiscal 2021
The table below summarizes our cash flows, in dollars, for the first nine months of fiscal 2022 and the first nine months of fiscal 2021:
Nine Months Nine Months Ended Ended September 30, September 30, 2022 2021 (unaudited) (unaudited) Net cash (used in) provided by operating activities $ (9,575,058 ) $
6,620,097
Net cash provided by investing activities 104,613,633
10,564,107
Net cash (used in) provided by financing activities (116,015,206 )
52,177,885
Net (decrease) increase in cash, cash equivalents, and restricted cash$ (20,976,631 ) $ 69,362,089 Net Cash (Used in) Provided by Operating Activities. Net cash used in operating activities was$9,575,058 for the first nine months of fiscal 2022 compared to net cash provided by operating activities of$6,620,097 for the first nine 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. Net Cash Provided by Investing Activities. Net cash provided by investing activities was$104,613,633 for the first nine months of fiscal 2022 as compared with net cash provided by investing activities of$10,564,107 for the first nine 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$90,912,891 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 inJanuary 2022 ,$40,502,355 in business acquisitions, net of cash acquired, mainly related to the InfoWest and Go Fiber acquisitions and capital expenditures of$30,195,238 .Net Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was$116,015,206 during the first nine months of fiscal 2022 as compared to net cash provided by financing activities of$52,177,885 during the first nine months of fiscal 2021. During the first nine 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$13,004,852 in collateral received at UCS. 53
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Table of Contents Liquidity and Capital Resources Currently, we own billboards inAlabama ,Arkansas ,Florida ,Georgia ,Illinois ,Iowa ,Kansas ,Missouri ,Nebraska ,Nevada ,Oklahoma ,Virginia ,West Virginia andWisconsin , a surety insurance company we acquired inDecember 2016 , surety insurance brokerage firms we acquired in 2016, 2017 and 2021, broadband services providers whose assets we acquired inMarch 2020 ,December 2020 andApril 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. AtSeptember 30, 2022 , we had approximately$39 million in unrestricted cash and approximately$38 million inU.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. As described below, we may raise additional funds through our shelf registration statement allowing us to raise up to$500 million through the sale of securities to fund future acquisitions and investments.
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. 54
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2022 Shelf Registration Statement
InApril 2022 , we filed a shelf registration statement on Form S-3 (File No. 333-264470) that was declared effective onMay 11, 2022 , which we refer to as the "2022 Shelf Registration Statement," relating to the registration 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 . 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. Additionally, in the 2022 Shelf Registration Statement, we 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.
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.
We may in the future enter into at the market offering programs to raise additional funds for acquisitions, investments, expansion of our existing business operations and entry into new business lines.
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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 ofSeptember 30, 2022 consists of Link's Term Loan borrowings of$28,876,720 , of which$1,529,572 is classified as current. There were no amounts outstanding related to the revolving line of credit as ofSeptember 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 ofSeptember 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. 56
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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 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, we
distributed 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. 57
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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, 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. AtSeptember 30, 2022 , we had approximately$39 million in unrestricted cash,$38 million inU.S. treasury trading securities, and$13 million in marketable equity securities. If future additional significant acquisition opportunities, 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. 58
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Table of Contents 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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