Boston Omaha Falls After Earnings
Taking a Look at Boston Omaha's (BOC) Earnings Results.
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Boston Omaha’s Q3 2024 Financial Results
Boston Omaha (BOC) announced their Q3 2024 earnings results this past week. The company reported total revenues of $27.7M for the quarter, an increase from $24.5M in the same period last year. For the nine months ended September 30, 2024, total revenues reached $80.3M, up from $71.6M during the same period in 2023.
Revenue Breakdown:
Billboard Rentals: Net revenue rose to $11.5M from $10.9M in Q3 of 2023. YTD figures show an increase to $33.6M from $32M last year.
Broadband Services: This segment generated $9.7M in the quarter, compared to $9M in the same quarter of the previous year. For the first nine months, revenue increased to $29.1M from $26.2M.
Premiums Earned: Premiums earned were $5.4M, up significantly from $3.7M in Q3 of 2023. The nine-month total climbed to $14.2M from $10.3M last year.
Insurance Commissions: The company earned $0.5M in insurance commissions, up from $0.4M in the same period last year. YTD commissions increased slightly to $1.6M from $1.4M.
Investment and Other Income: This income remained relatively stable at $0.6M for the quarter, with a YTD total of $1.9M, up from $1.6M in 2023.
Despite the revenue growth, BOC reported a net loss from operations of $0.7M for the quarter, an improvement over the $1.9M loss in the same quarter last year. The net loss attributable to common stockholders was $1.6M, consistent with the prior year's Q3. The basic and diluted net loss per share remained at $0.05.
Financial Position:
Total Assets: As of September 30, 2024, total assets stood at $711.9M, down from $768.2M at the end of 2023.
Total Liabilities: The company's liabilities increased to $158.5M from $151.8M as of December 31, 2023.
Stockholders' Equity: Total equity attributable to BOC stockholders was $527.7M, slightly down from $538.2M at the end of last year.
Book Value Per Share: The book value per share decreased to $16.82 from $17.19 as of December 31, 2023.
Investment Highlights:
The company's investment in Sky Harbour Group Corporation (SKYH) Class A common stock and warrants was valued at $90.2M on the balance sheet. If this investment were recorded at fair market value based on current quoted prices, it would actually be valued at $154.7M.
In Q3, "Net Other (Expense) Income" included non-cash losses of $9.4M from unconsolidated affiliates, primarily due to BOC's share of Sky Harbour's operational losses accounted for under the equity method. Interest expenses amounted to $0.5M, mainly from Link's term loan and revolver.
Offsetting these expenses were a $7.8M unrealized gain on Sky Harbour warrants, $0.6M in other investment income related to the fair value changes in the 24th Street Funds, and $0.3M in interest and dividend income.
Operational Cash Flow and Share Repurchase:
The company generated a cash inflow from operations of $12.1M for the nine months ended September 30, 2024, slightly down from $12.2M in the same period last year.
During the third quarter, Boston Omaha repurchased 97,262 shares of its Class A common stock on the open market, costing a total of $1.38M.
Shares Outstanding:
As of September 30, 2024, the company had 30,846,087 shares of Class A common stock and 527,780 shares of Class B common stock outstanding. These figures remained unchanged as of November 11, 2024.
Additional Notes:
Investments: The company's investments include U.S. Treasury securities classified as trading securities and marketable equity securities, with $2.4M held by insurance entities as of September 30, 2024. Notably, marketable equity securities exclude the Sky Harbour Class A common stock due to equity method accounting for the company's 18.6% stake.
Noncontrolling Interests: These relate to third-party capital raised within the company's build-for-rent fund and the 24th Street commercial real estate funds.
My Take
This was not a bad quarter; in fact, it was quite solid. The company's businesses are growing at a fairly steady pace. However, many investors still seem to expect tech-like growth from these businesses, which is unrealistic. These are traditional, perhaps "boring," enterprises that will grow slowly and compound over time. While there has been hype in the past and issues created by management—which I have highlighted in previous articles—this doesn't alter the expectation of slow and steady growth. These businesses will continue to excel, albeit with temporary and minor obstacles along the way, as business performance rarely follows a perfectly linear upward trend. Let me discuss a few key points we need to consider moving forward and explain why I believe the stock is currently undervalued, along with my assessment of its fair value.
While the reported net loss may initially seem concerning, it is somewhat misleading due to significant non-cash depreciation expenses in the billboard and broadband segments that obscure the company's true cash-generating potential. A major factor affecting the earnings report is BOC’s investment in Sky Harbour. Because of the substantial size of its stake, BOC includes a portion of Sky Harbour's operational losses—amounting to $9.4M this quarter—on its income statement. On the positive side, an increase in Sky Harbour's stock value during the quarter resulted in an unrealized gain of $7.8M for BOC. These accounting entries contributed to the overall net loss of $1.6M, which might have been less pronounced without these factors.
Despite the complexities introduced by non-cash charges and investment accounting, BOC's stock appears to be undervalued at this time. The shares are trading nearly 70% below their all-time highs and are currently priced below the company's book value. Moreover, the book value may be understated because the investment in Sky Harbour is recorded at its initial cost rather than its current market value. The market value of this investment is approximately $64.5M higher than its value according to GAAP, potentially increasing BOC's book value by just over 15%.
With the current share price at $14.60 and a market capitalization of $450M, BOC appears to be undervalued based on several key financial metrics. The company has a total of 31,373,867 shares outstanding, combining both Class A and Class B shares. A significant factor in assessing the company's value is its book value per share. As of September 30, 2024, the reported BVPS was $16.82, suggesting that the stock is trading at a price-to-book (P/B) ratio of approximately 0.87. This ratio indicates that the shares are priced below the company's net asset value, hinting at potential undervaluation. The market value of BOC's stake in Sky Harbour is approximately $64.5M higher than its GAAP value. Adjusting for this difference increases the company's total stockholders' equity from $527.7M to about $592.2M. Consequently, the adjusted book value per share rises to approximately $18.88.
When considering the adjusted BVPS of $18.88, the P/B ratio decreases to around 0.77, further emphasizing the stock's undervaluation. This adjustment means the shares are trading at a roughly 22.7% discount to the adjusted book value. For investors, this suggests a potential upside of about 29% if the market begins to recognize the company's intrinsic value. I want to emphasize that this valuation does not account for future growth projections of BOC's underlying businesses in broadband, advertising, and insurance. Therefore, the current fair value could be well over $20 per share when factoring in potential future performance. Even when we consider only the P/B ratio though, Boston Omaha does appear to be undervalued, indicating that the company may be trading below its intrinsic value regardless.