Should Investors Be Worried About Boston Omaha? (Part 1)
Taking a Look at Boston Omaha's (BOC) Earnings Results.
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The Importance of Reasonable Expectations
This article won't serve as an uncritical endorsement of Boston Omaha (BOC). Despite the company's potential, there are legitimate concerns regarding its future growth strategies (not that my conviction has changed, but emphasizing this will be an unbiased review). It's also worth mentioning that as of this writing, BOC has not released their annual shareholder letter. This omission means my analysis lacks completeness; I anticipate that the letter will provide essential insights into various subjects, including their build-for-rent (BFR) initiative, among others. However, let's dive into BOC's most recent quarterly results released last week. I'll offer my perspective on these figures and address the sometimes unreasonable and unrealistic expectations that investors might hold for a company like BOC.
Financial Performance Overview:
Revenues
Billboard Rentals, Net: Increased to $42,940,369 from $39,244,726 in 2022.
Broadband Services: Grew to $35,340,502, up from $28,627,271 in 2022, incorporating the acquisitions of InfoWest and Go Fiber on April 1, 2022.
Premiums Earned: Rose to $13,932,659 from $10,649,089 in 2022.
Insurance Commissions: Slightly decreased to $1,884,007 from $2,050,838 in 2022.
Investment and Other Income: Improved significantly to $2,156,199 from $662,270 in 2022.
Total Revenues: Elevated to $96,253,736 from $81,234,194 in 2022.
Expenses and Net Losses:
Depreciation and Amortization Expense: Increased to $19,565,035 from $15,123,857 in 2022.
Net Loss from Operations: Recorded at $(8,852,403), compared to $(5,229,895) in 2022.
Net Other (Loss) Income: Stood at $(294,060), a shift from a gain of $13,104,078 in 2022.
Financial Position as of December 31, 2023:
Total Unrestricted Cash & Investments: Amounted to $71,269,580, up from $67,782,480 in 2022.
Total Assets: Grew to $768,207,092 from $687,802,899 in 2022.
Total Liabilities: Decreased to $151,754,831 from $158,059,668 in 2022.
Redeemable Noncontrolling Interest: Slightly reduced to $15,638,013 from $15,713,021 in 2022.
Total Boston Omaha Stockholders' Equity: Increased to $538,207,426 from $506,621,142 in 2022.
Noncontrolling Interests: Notably rose to $62,606,822 from $7,409,068 in 2022.
Investment Highlights:
Includes significant investments in U.S. treasury and marketable equity securities.
A noted 19.8% stake in Sky Harbour Group (SKYH), accounted for under the equity method.
Despite the mixed results you may encounter on social media, the situation with BOC isn't alarming, nor is it exemplary. Essentially, the company's segments are performing as anticipated, fulfilling their designated roles within their strategy. Each of BOC's segments has performed in line with my expectations, reflective of the company's scale and the distinct markets in which it operates. To truly grasp the essence of BOC, referencing into my archive of publications on the company is invaluable. There, it becomes apparent that BOC is characterized by its lackluster facade, yet underpinned by a commitment to ultra-long-term investments.
Nevertheless, I hold several questions about the individual segments, details of which I will divulge in the shareholder letter. Presently, two particular issues regarding the business merit attention: the widening net losses and the strategic shift within the build-for-rent (BFR) operation. The management's explanation for the increased net losses, as stated in their 10-K, is somewhat ambiguous, which is outlined below:
The narrative provided suggests that the uptick in net losses is attributable to acquisition-related costs and amortization stemming from the InfoWest and GoFiber deals. Additionally, it hints at capital investments and an uptick in hiring within the broadband and asset management divisions, though these areas are flagged for requiring further details. Given the management team's proven track record, I maintain confidence that these initiatives are likely to yield favorable outcomes over time. Another aspect that warrants a closer look is the company's strategic shift away from the BFR sector, which is a development that could carry significant implications.
The current pivot away from the build-for-rent (BFR) sector raises a critical question: Why was there a delay in recognizing and addressing market challenges? The shareholder letter should provide clarity, yet, in the interim, this uncertainty remains a legitimate concern for investors.
What compounds my frustration are the misinformed comments from investors who seem disconnected from the core operations of Boston Omaha and who harbor misguided expectations. Critics hastily label the Co-CEOs as subpar "capital allocators" or dismiss the company as a "wannabe Berkshire Hathaway." Such remarks not only appear ill-considered but also overlook the company's solid track record in both long-term and short-term investments. Clearly, a more in-depth investigation would dispel any notion of inadequate capital allocation.
Furthermore, the skepticism, often amplified for the sake of engagement or due to a pervasive inclination toward pessimism, lacks foundation. When it comes to the "wannabe Berkshire" claim, detractors miss a key point: The comparison with Berkshire Hathaway is not about emulating their returns but about Boston Omaha's strategic choice to invest in so-called 'boring' industries. 'Boring' is the operative word here, as BOC's commitment to billboards, broadband, insurance, and long-term investments demonstrates a preference for stable, foundational industries over flashier tech-centric growth. For a company of Boston Omaha's stature, which has consistently reinvested its earnings for future growth, expecting the hyperbolic growth of a SaaS tech company is both unreasonable and unrealistic. The true focus should be on their well-articulated strategy of steadfast investment in the company's future, which merits a patient and informed perspective.
Back on topic, it's important to highlight two strategic moves by management. Firstly, they have allocated $3M towards an investment in MyBundle.TV, a business focused on the broadband sector, showcasing their commitment to this industry. Secondly, while there is an anticipated dilution of BOC’s equity position due to developments with Sky Harbour (SKYH), a closer examination of the rationale behind this action reveals that the implications may not be as concerning as they initially appear.
Regarding the matter of SKYH, their accelerated expansion is a clear sign that they are gearing up for future growth. It's a dynamic process, but the expansion remains robust, and their unique market position is unrivaled. As for the investment in MyBundle, it's a strategic move that highlights BOC's confidence in the broadband sector, which has recently been a significant growth driver for them.
Beyond the points already discussed, I'll dive deeper into various aspects of Boston Omaha's strategy in "Part 2," which will coincide with the release of the shareholder letter. I'm particularly eager to explore the nuances of our concerns, the implications of long-term and short-term investments (minority stakes), and to unpack the company's growth plans for the upcoming year. Currently, without the insights from the annual shareholder letter, it's premature to fully articulate my perspective on these matters.