You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and as set forth under Summary Risk Factors and "Item 1A. Risk Factors." Please also refer to the section under the heading "Cautionary Note Concerning Forward-Looking Statements." 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, and a developer of private aviation infrastructure focused on building, leasing and managing business aviation hangars.Outdoor Billboard Advertising . 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 several billboard acquisitions on a smaller scale since that date. We believe that we are a leading outdoor billboard advertising company in the markets we serve in the Midwest. As ofDecember 31, 2022 , we operate approximately 4,000 billboards with approximately 7,600 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 , which partners with builders, developers and build for 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, 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
directly and indirectly through our ownership in Logic. In addition, we have
invested, through one of our subsidiaries, an aggregate of
by 24th
investments in commercial real estate.
? In
company of
in
and
provide mortgage loan origination and title insurance services to homebuyers.
On
DFH, completed its initial public offering and
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
and one of our subsidiaries purchased an additional 120,000 shares of Class A
common stock in the initial public offering. Since DFH's initial public
offering through
Class A common stock for gross proceeds of approximately$81 million .
? In
million through the purchase of common stock of CB&T, the privately-held
parent company of Crescent. Our investment now represents 15.6% of CB&T's
outstanding common stock. Crescent is located in
majority of its revenues from indirect subprime automobile lending across the
United States . 41
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? In
underwritten initial public offering of a special purpose acquisition company
named
13,598,898 units at a price of
share of Class A common stock and a redeemable warrant to purchase one-half of
a share of Class A common stock at an exercise price of
share. Between August and
approximately
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
per share. In
agreement with
focused on building, leasing and managing business aviation hangars. The
business combination was completed on
its name to Sky Harbour Group Corporation. Sky Harbour's Class A common stock
trades on the NYSE American under the symbol "SKYH" and its warrants to purchase Class A common stock trade under the symbol "SKYH.WS."
? In
directly into SHG and received Series B preferred units. Upon the successful
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
provide Sky Harbour an additional
4,500,000 shares of Class A common stock upon the closing of the Sky Harbour
business combination, which was consummated inJanuary 2022 .
? We recently established a subsidiary within BOAM to operate a proposed build
for rent business in which we would develop and own single family detached
and/or townhomes for long term rental. We have bought parcels of land in
approximately
projects and are currently in the process of seeking to raise 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 supported by our and other potential third party equity
investments. 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. We are also
exploring raising capital through BOAM to help expand our broadband operations
both for these build for rent developments and other potential broadband
acquisition and expansion opportunities. We may invest cash or contribute
certain business assets to any such partnership in exchange for a partnership
interest. 42
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In each of our businesses, we hope to expand our geographic reach and market share and seek to develop a competitive advantage and/or brand name for our services, which we hope will be a differentiating factor for customers. Our insurance market primarily services small contractors, small and medium-sized businesses and individuals required to provide surety bonds (i) in connection with their work for government agencies and others, (ii) in connection with contractual obligations, or (iii) to meet regulatory requirements and other needs. We have expanded the licensing of the UCS business to all 50 states and theDistrict of Columbia . In outdoor advertising, our plan is to continue to grow this business through acquisitions of billboard assets. We 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. 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 broadband business, direct costs of services includes network operations and data costs, programming costs, cell site rent and utilities, and other broadband level expenses. In our surety business, direct cost of services includes commissions, premium taxes, fees and assessments, and losses and loss adjustment expenses. 43
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Table of Contents Results of Operations
Year Ended
The following is a comparison of our results of operations for the year ended
Revenues. For fiscal 2022 and fiscal 2021, our revenues in dollars and as a percentage of total revenues were as follows:
For the Years Ended December 31, 2022 2021 2022 vs 2021 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 39,244,726 48.3 % $
31,499,235 55.3 %$ 7,745,491 Broadband services 28,627,271 35.3 % 15,234,266 26.7 % 13,393,005 Premiums earned 10,649,089 13.1 % 7,686,400 13.5 % 2,962,689 Insurance commissions 2,050,838 2.5 % 2,212,849 3.9 % (162,011 ) Investment and other income 662,270 0.8 % 339,061 0.6 % 323,209 Total Revenues$ 81,234,194 100.0 %$ 56,971,811 100.0 %$ 24,262,383 We realized total revenues of$81,234,194 during fiscal 2022, an increase of 42.6% over revenues of$56,971,811 during fiscal 2021. Revenues increased within each our our businesses during fiscal 2022 when compared to fiscal 2021. The key factors impacting revenue across each of our businesses during fiscal 2022 were as follows:
? Net billboard rentals increased by 24.6% in fiscal 2022, when compared to
fiscal 2021, reflecting the acquisition of billboards from Keleher and
Missouri Neon, which accounted for approximately 13.9% of our billboard
revenues in fiscal 2022, as well as an improvement in rental and occupancy
rates across a number of our markets.
? Revenue from broadband services in fiscal 2022 increased 87.9% from fiscal
2021, mainly reflecting revenues generated from the InfoWest and Go Fiber
acquisitions. ? Premiums earned from our UCS insurance subsidiary increased 38.5% in
fiscal 2022 when compared to the fiscal 2021. The increase in premiums earned
was primarily due to increases in production throughout fiscal 2021 and
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 7.3% in fiscal 2022 when compared to fiscal 2021,
mainly due to reduced production through outside insurance carriers as more
bonds are placed directly with UCS. ? Investment and other income at UCS increased from$339,061 in fiscal 2021 to$662,270 in fiscal 2022. 44
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Expenses. For fiscal 2022 and fiscal 2021, our expenses in dollars and as a percentage of total revenues were as follows:
For the
Years Ended
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$ 14,395,627 17.7 %$ 12,094,834 21.2 %$ 2,300,793 Cost of broadband revenues 7,538,501 9.3 % 3,313,760 5.8 % 4,224,741 Cost of insurance revenues 4,755,583 5.9 % 3,182,497 5.6 % 1,573,086 Employee costs 26,343,272 32.4 % 34,245,526 60.1 % (7,902,254 ) Professional fees 5,300,275 6.5 % 7,703,901 13.5 % (2,403,626 ) General and administrative 12,861,992 15.8 % 9,756,257 17.1 % 3,105,735 Amortization 6,474,791 8.0 % 4,549,608 8.0 % 1,925,183 Depreciation 8,649,066 10.6 % 5,579,026 9.8 % 3,070,040 (Gain) loss on disposition of assets (61,377 ) (0.1 %) 178,911 0.3 % (240,288 ) Accretion 206,359 0.3 % 134,360 0.3 % 71,999 Total Costs and Expenses$ 86,464,089 106.4 %$ 80,738,680 141.7 %$ 5,725,409 During fiscal 2022, we had total costs and expenses of$86,464,089 , as compared to total costs and expenses of$80,738,680 in fiscal 2021. Total costs and expenses as a percentage of revenues decreased from 141.7% in fiscal 2021 to 106.4% in fiscal 2022. The key factors impacting costs and expenses across each of our businesses during fiscal 2022 were as follows:
? Cost of billboard revenues decreased as a percentage of billboard
revenues from 38.4% in fiscal 2021 to 36.7% in fiscal 2022. The decrease was
mainly related to lower commissions paid and ground rent expense as a percentage of billboard revenues.
? Cost of broadband revenues increased as a percentage of broadband revenues
from 21.8% in fiscal 2021 to 26.3% in 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 31.1% in fiscal 2021 to 35.6% in fiscal 2022. The increase was mainly due
to higher losses and loss adjustment expenses related to contract bonds as
well as favorable loss experience in fiscal 2021 driven by the cessation of
the rental guarantee bond program.
? Employee costs in fiscal 2022 decreased
decrease was mainly driven by Management Incentive Bonus Plan payments
recognized in fiscal 2021 totaling
an increase in employee costs related to the InfoWest and Go Fiber acquisitions as well as employee growth within our FFH business.
? Professional fees in fiscal 2022 were
as compared to
decrease was mainly related to the professional fees associated
with Yellowstone entering into a business combination with SHG as well as
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
to
driven by the InfoWest and Go Fiber acquisitions, our FFH business, and the
Keleher and Missouri Neon acquisitions, which were partially offset by a$900,000 reduction of the contingent consideration related to the ACS acquisition.
? Non-cash expenses in fiscal 2022 included
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
quarter of fiscal 2021, and the Keleher and Missouri Neon acquisitions. The
increase in amortization expense is mainly driven by the InfoWest and Go Fiber
acquisitions.
? We continue to assess the impact that inflation has had and may have in the
near future on our costs of operations and our ability to mitigate these
increased costs through price increases passed on to our customers. Net Loss from Operations. Net loss from operations in fiscal 2022 was$5,229,895 , or 6.4% of total revenues, as compared to a net loss from operations of$23,766,869 , or 41.7% of total revenues, in fiscal 2021. The decrease in net loss from operations in dollars was primarily due to the management bonus payments in fiscal 2021, 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$15,330,216 from non-cash amortization, depreciation and accretion expenses in fiscal 2022, as compared to$10,262,994 in fiscal 2021. 45
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Other Income (Expense). In fiscal 2022, we had net other income of$9,019,038 . Net other income included a gain of$24,977,740 related to the deconsolidation of Yellowstone (see Note 8 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$434,941 . These items were partially offset by$15,635,690 in other investment losses mainly related to public securities held byBoston Omaha and UCS, a loss of$1,387,620 mainly related to our equity method position in Sky Harbour and interest expense of$1,207,544 mainly incurred under Link's term loan. During fiscal 2021, we had net other income of$96,940,657 , which included$93,163,697 in other investment income related to public equity securities mainly held byBoston Omaha ,$2,854,407 related to the remeasurement of Yellowstone's public warrants,$878,921 in equity in income of unconsolidated affiliates,$999,682 in interest and dividend income and interest expense of$956,050 mainly incurred under Link's term loans. Generally accepted accounting principles ("GAAP") requires us 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 ofDecember 31, 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) the recovery of Sky Harbour's stock price since the beginning of 2023, and (iv) our ability and intent to hold the investment. 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 drops below our carrying value of$8.15 per share for a sustained period of time, 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 of operations 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$7,139,548 in fiscal 2022, or income per share of$0.24 , based on 29,766,247 diluted weighted average shares outstanding. This is compared to net income attributable to common stockholders of$52,748,177 in fiscal 2021, or income per share of$1.82 , based on 29,046,514 diluted weighted average shares outstanding. 46
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The following tables report results for the three segments in which we operate, billboards, broadband and insurance, for fiscal 2022 and fiscal 2021:
Results of Billboard Operations For the Years Ended December 31, 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Billboard rentals, net$ 39,244,726 100.0 %$ 31,499,235 100.0 % Cost of Revenues Ground rents 7,753,495 19.7 % 6,458,703 20.5 % Utilities 1,672,420 4.3 % 1,258,236 4.0 % Commissions paid 3,103,413 7.9 % 3,005,012 9.5 % Other costs of revenues 1,866,299 4.8 % 1,372,883 4.4 % Total cost of revenues 14,395,627 36.7 % 12,094,834 38.4 % Gross margin 24,849,099 63.3 % 19,404,401 61.6 % Other Operating Expenses Employee costs 6,724,871 17.1 % 5,838,942 18.5 % Professional fees 521,377 1.3 % 670,897 2.1 % General and administrative 3,591,370 9.2 % 2,840,673 9.0 % Amortization 3,674,411 9.4 % 3,428,811 10.9 % Depreciation 4,581,316 11.7 % 3,584,767 11.4 % Accretion 196,099 0.5 % 120,589 0.4 % (Gain) loss on disposition of assets (175,262 ) (0.5 %) 175,254 0.6 % Total expenses 19,114,182 48.7 % 16,659,933 52.9 % Segment Income from Operations 5,734,917 14.6 % 2,744,468 8.7 % Interest expense, net (1,138,242 ) (2.9 %) (927,437 ) (2.9 %) Net Income Attributable to Common Stockholders$ 4,596,675 11.7 %$ 1,817,031 5.8 % Comparison of Fiscal 2022 to Fiscal 2021. In fiscal 2022, there was a 24.6% increase in net billboard revenues from fiscal 2021, reflecting the acquisition of billboards from Keleher and Missouri Neon, which accounted for approximately 13.9% of our billboard revenues in 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 fiscal 2022 were as follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 20.5% in fiscal 2021 to 19.7% in fiscal 2022.
? Commissions paid as a percentage of total segment operating revenues decreased
from 9.5% in fiscal 2021 to 7.9% in 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 18.5% in fiscal 2021 to 17.1% in fiscal 2022. The decrease is due to
organic revenue growth as well as the impact from the Keleher and
Neon acquisitions.
? General and administrative expenses increased slightly as a percentage of
total segment operating revenues from 9.0% fiscal 2021 to 9.2% in fiscal
2022. The increase is primarily due to higher fuel costs and other travel
related expenses.
? Depreciation and amortization expense increased by
respectively, from fiscal 2021. The increases are primarily due to the Keleher
and Missouri Neon acquisitions.
? Net interest expense of
expense of
additional borrowings. The interest expense under our term loan is fixed at
4.00% per annum. 47
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Table of Contents Results of Broadband Operations For the Years Ended December 31, 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Broadband revenues$ 28,627,271 100.0 %$ 15,234,266 100.0 % Cost of Revenues Network operations and data costs 4,319,410 15.1 % 2,134,938 14.0 % Programming costs 90,139 0.3 % 99,868 0.7 % Cell site rent and utilities 1,111,487 3.9 % 594,984 3.9 % Other costs of revenues 2,017,465 7.0 % 483,970 3.2 % Total cost of revenues 7,538,501 26.3 % 3,313,760 21.8 % Gross margin 21,088,770 73.7 % 11,920,506 78.2 % Other Operating Expenses Employee costs 10,892,844 38.1 % 5,754,642 37.8 % Professional fees 659,025 2.3 % 759,713 5.0 % General and administrative 5,166,722 18.1 % 2,183,466 14.3 % Amortization 2,617,966 9.1 % 943,717 6.2 % Depreciation 3,869,994 13.5 % 1,870,184 12.3 % Accretion 10,260 0.0 % 13,771 0.0 % Loss on disposition of assets 113,885 0.4 % 3,657 0.0 % Total expenses 23,330,696 81.5 % 11,529,150 75.6 % Segment (Loss) Income from Operations (2,241,926 ) (7.8 %) 391,356 2.6 % Interest expense, net (19,831 ) (0.1 %) (11,852 ) (0.1 %) Noncontrolling interest in subsidiary income (436,648 ) (1.5 %) (374,095 ) (2.5 %) Net (Loss) Income Attributable to Common Stockholders$ (2,698,405 ) (9.4 %)$ 5,409 0.0 % Comparison of Fiscal 2022 to Fiscal 2021. In fiscal 2022, total operating revenues increased by 87.9% when compared to fiscal 2021 mainly reflecting the revenues generated from the InfoWest and Go Fiber acquisitions. The key factors affecting our broadband operations results during fiscal 2022 were as follows:
? Total cost of revenues increased as a percentage of total segment operating
revenues from 21.8% in fiscal 2021 to 26.3% in fiscal 2022. The increase is
mainly driven by the InfoWest and Go Fiber acquisitions as well as our FFH
business. ? Employee costs in fiscal 2022 increased by 89.3% from 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
decreased from 5.0% in fiscal 2021 to 2.3% in fiscal 2022. The decrease is
mainly due to the additional revenues generated from the InfoWest and Go Fiber
acquisitions.
? General and administrative expenses as a percentage of total segment operating
revenues increased from 14.3% in fiscal 2021 to 18.1% in 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 fiscal 2021. The increase in depreciation expense is mainly
due to the InfoWest and Go Fiber acquisitions as well as measurement period
adjustments to increase the fair value assigned to UBB's property, plant and
equipment by
in amortization expense is mainly driven by the InfoWest and Go Fiber acquisitions. 48
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Table of Contents Results of Insurance Operations For the Years Ended December 31, 2022 2021 As a % of As a % of Segment Segment Operating Operating Amount Revenues Amount Revenues Operating Revenues Premiums earned$ 10,649,089 79.7 %$ 7,686,400 75.1 % Insurance commissions 2,050,838 15.3 % 2,212,849 21.6 % Investment and other income 662,270 5.0 % 339,061 3.3 % Total operating revenues 13,362,197 100.0 % 10,238,310 100.0 % Cost of Revenues Commissions paid 2,934,022 21.9 % 2,071,221 20.2 % Premium taxes, fees, and assessments 289,268 2.2 % 249,267 2.5 % Losses and loss adjustment expense 1,532,293 11.5 % 862,009 8.4 % Total cost of revenues 4,755,583 35.6 % 3,182,497 31.1 % Gross margin 8,606,614 64.4 % 7,055,813 68.9 % Other Operating Expenses Employee costs 5,752,302 43.0 % 5,089,464 49.7 % Professional fees 259,535 1.9 % 315,455 3.1 % General and administrative 1,241,261 9.3 % 2,223,374 21.7 % Amortization 182,414 1.4 % 177,080 1.7 % Depreciation 87,855 0.7 % 29,143 0.3 % Total expenses 7,523,367 56.3 % 7,834,516 76.5 % Segment Income (Loss) from Operations 1,083,247 8.1 % (778,703 ) (7.6 %) Interest expense, net - - (2,009 ) (0.0 %) Other investment (loss) income (3,569,262 ) (26.7 %) 2,670,468 26.1 % Net (Loss) Income Attributable to Common Stockholders$ (2,486,015 ) (18.6 %)$ 1,889,756 18.5 %
Comparison of Fiscal 2022 to Fiscal 2021. In fiscal 2022, total operating revenues increased by 30.5% when compared to fiscal 2021, mainly due to increased earned premiums at our UCS insurance subsidiary. The key factors affecting our insurance operations results during fiscal 2022 were as follows:
? Premiums earned from our UCS insurance subsidiary increased 38.5% in
fiscal 2022 when compared to fiscal 2021. The increase in premiums earned was
primarily due to increases in production throughout fiscal 2021 and
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 7.3% in fiscal 2022 when compared to fiscal 2021, mainly due to reduced
production through outside insurance carriers as more bonds are placed directly with UCS.
? Commissions paid as a percentage of total segment operating revenues increased
from 20.2% in fiscal 2021 to 21.9% in fiscal 2022, mainly due to increased
production from non-affiliated insurance brokerage firms.
? Losses and loss adjustment expenses as a percentage of insurance revenues
increased from 8.4% in fiscal 2021 to 11.5% in 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 fiscal 2021 is mainly
related to expected losses on contract bonds as well as favorable loss
experience in fiscal 2021 driven by the cessation of the rental guarantee bond
program. UCS no longer has any material exposure to the rental guarantee bond
program as all of these bonds have since expired. ? Employee costs in fiscal 2022 increased by 13.0% from 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 fiscal 2022 decreased by 44.2% from
fiscal 2021. The decrease is mainly due to a
contingent consideration related to the ACS acquisition as well as lower IT
system implementation related expenses.
? During fiscal 2022, our segment income from insurance operations of
was more than offset by other investment losses of
unrealized losses on our investments in publicly held securities. We expect to
continue to invest a portion of our excess capital in accordance with
insurance regulatory limitations in both large-cap publicly traded equity
securities and bonds. These investments are subject to the risk of loss in
value depending upon market conditions and factors outside of our control.
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Table of Contents Cash Flows
Cash Flows for Fiscal 2022 compared to Fiscal 2021. The table below summarizes our cash flows in dollars for fiscal 2022 and fiscal 2021:
2022
2021
Net cash (used in) provided by operating activities
(45,670,808 ) Net cash (used in) provided by financing activities (109,725,630 )
64,644,655
Net (decrease) increase in cash, cash equivalents, and restricted cash$ (27,027,888 ) $ 26,742,084 Net Cash (Used in) Provided by Operating Activities. Net cash used in operating activities was$5,165,165 during fiscal 2022 as compared to net cash provided by operating activities of$7,768,237 during 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 (Used in) Investing Activities. Net cash provided by investing activities was$87,862,907 during fiscal 2022 as compared with net cash used in investing activities of$45,670,808 during 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$95,388,097 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 ,$51,242,862 in business acquisitions, net of cash acquired, mainly related to the InfoWest, Go Fiber and Elevation Outdoor acquisitions and capital expenditures of$40,057,314 .Net Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was$109,725,630 during fiscal 2022 as compared to net cash provided by financing activities of$64,644,655 during fiscal 2021. During 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$11,840,707 in collateral received at UCS as well as$7,800,000 in contributions received from noncontrolling interests. Liquidity and Capital Resources Currently, we own billboards inAlabama ,Arkansas ,Florida ,Georgia ,Illinois ,Iowa ,Kansas ,Missouri ,Nebraska ,Nevada ,Oklahoma ,South Dakota ,Tennessee ,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 and a developer of private aviation infrastructure focused on building, leasing and managing business aviation hangars. AtDecember 31, 2022 , we had approximately$25 million in unrestricted cash and$34 million in short-term treasury 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. 50
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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.
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. 51
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At The Market Offering Programs
Starting inMarch 2018 , we utilized our "at the market" offering that was part of our 2018 Shelf Registration Statement. This 2018 Shelf Registration Statement, which authorized us to sell up to$200 million through the sales of securities to the public, expired inFebruary 2021 and was superseded by the 2021 Shelf Registration Statement. We sold a total of 2,630,787 shares of Class A common stock resulting in gross proceeds of$60.1 million under the 2018 Shelf Registration Statement. OnSeptember 29, 2021 , we entered into an "at the market" equity offering program pursuant to a Sales Agreement (the "2021 Sales Agreement") by and between us and WFS. Pursuant to the terms of the 2021 Sales Agreement, we could sell, from time to time, 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. OnDecember 8, 2022 , we entered into an "at the market" equity offering program (the "ATM Program") pursuant to a Sales Agreement (the "2022 Sales Agreement") withWells Fargo Securities, LLC ("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 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 it from a capital allocation perspective which includes, but is not limited to, having a regularly filed ATM program. Pursuant to the terms of the 2022 Sales Agreement, we may sell, from time to time, shares of our Class A common stock, par value$0.001 per share (the "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"). Since the signing of the 2022 Sales Agreement, we sold 7,887 shares of Class A common stock inDecember 2022 for gross proceeds of approximately$205 thousand and 1,097,824 shares of our Class A common stock in January andFebruary 2023 for gross sale proceeds of approximately$28.1 million . Upon delivery of a placement notice (a "Placement Notice") and upon the terms and subject to the conditions of the Sales Agreement, WFS will use reasonable efforts consistent with its normal trading and sales practices, applicable laws and the rules of the NYSE to sell the shares available under the ATM Program from time to time based upon our instructions for the sales, including price, time or size limits specified, and otherwise in accordance with, the terms of such Placement Notice. Pursuant to the 2022 Sales Agreement, WFS may sell shares of our Class A common stock under the ATM Program by any method permitted by law deemed to be an "at the market" offering as defined in Rule 415 of the Securities Act, including without limitation sales made through the NYSE or on any other existing trading market for the Class A common stock. Notwithstanding the foregoing, WFS may not purchase shares under the ATM Program for its own account as principal unless expressly authorized to do so by us. We intend to use the net proceeds from the offering, after deducting WFS' commissions and our offering expenses, for general corporate purposes, which may include financing our existing businesses and operations, and expanding our businesses and operations through additional acquisitions and minority investments and additional hires. Such expansion may include future billboard acquisitions, broadband acquisitions, acquisitions of surety insurance companies and other growth of our insurance activities, additional investments in real estate management, homebuilding and other real estate service businesses, additional investments in subprime automobile lending, and acquisitions of other businesses. We have not determined the amount of net proceeds to be used for any specific purpose, and we will retain broad discretion over the allocation of net proceeds. While we have no current agreements, commitments or understandings for any specific acquisitions at this time, we may use a portion of the net proceeds for these purposes. For sales of shares of Class A common stock under the ATM Program through WFS, we will pay WFS a commission at a mutually agreed rate of 3% of the gross sales price per share of Class A common stock sold under the ATM Program. We have no obligation to sell any shares under the 2022 Sales Agreement, and may at any time suspend the ATM Program under the 2022 Sales Agreement. The 2022 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. The ATM Program pursuant to the 2022 Sales Agreement will automatically terminate upon the issuance and sale of all of the shares available for sale under the ATM Program through WFS. The foregoing description of the 2022 Sales Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of which is filed as Exhibit 1.1 to the Current Report on Form 8-K datedDecember 8, 2022 and is incorporated herein by reference. 52
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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 million (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 million 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 ofDecember 31, 2022 consists of Link's Term Loan borrowings of$28,499,270 , of which$1,545,090 is classified as current. There were no amounts outstanding related to the revolving line of credit as ofDecember 31, 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 endedDecember 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 ofDecember 31, 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 toDream 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 was approximately 14% and matured onMay 1, 2021 . This loan was repaid with interest in early 2021. 53
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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.
? 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
? All of the shares of Sky Harbour Class A common stock and Sky Harbour Warrants
to purchase Class A common stock that we hold have been registered under the
Securities Act. However, our ability to resell any significant portion of
these shares are limited by both the large number of shares and warrants we
hold relative to the average trading volume of these securities as well as
blackout periods which may prevent us from selling shares as one of our
Co-Chief Executive Officers serves on Sky's Board of Directors. The terms of
the Sky Harbour business combination prohibited us from selling any of our
securities in Sky Harbour prior to
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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. AtDecember 31, 2022 , we had approximately$25 million in unrestricted cash and$34 million in short-term treasury 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,U.S. Treasury securities, 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. 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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Table of Contents Critical Accounting Policies and Estimates The preparation of the consolidated financial statements and related notes to the consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.
In the notes accompanying the consolidated financial statements, we describe the significant accounting policies used in the preparation of our consolidated financial statements. We believe that the following represent the most significant estimates and management judgments used in preparing the consolidated financial statements.
Consolidation Policy The financial statements ofBoston Omaha Corporation include the accounts of the Company and our consolidated subsidiaries, which are comprised of voting interest entities in which we have a controlling financial interest and variable interest entities in which we are the primary beneficiary in accordance with ASC 810, Consolidation. The equity attributable to non-controlling interests in subsidiaries is shown separately in the accompanying consolidated balance sheets. Purchased Intangibles and Other Long-Lived Assets
We amortize intangible assets with finite lives over their estimated useful lives, which range between two years and 50 years as follows:
Years Customer relationships 10 to 15
Permits, licenses, and lease acquisition costs 10 to 50 Noncompetition and nonsolicitation agreements 5 Technology, trade names, and trademarks
10 to 20 Site location 15 Capitalized contract costs 10 Purchased intangible assets, including long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors considered in reviewing the asset values include consideration of the use of the asset, the expected life of the asset, and regulatory or contractual provisions related to such assets. Market participation assumptions are compared to our experience and the results of the comparison are evaluated. For finite-lived intangible assets, the period over which the assets are expected to contribute directly to future cash flows is evaluated against our historical experience. Impairment losses are recognized only if the carrying amount exceeds its fair value. 56
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We have acquired goodwill related to our various business acquisitions.Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.Goodwill , by reporting unit, is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. For our annual review, we employ a third-party valuation expert. Factors considered in the annual evaluation include deterioration in economic conditions (both macro and geographic), limitations on accessing capital, and market value of our company. Industry and market conditions such as changes in competition, the general state of the industry, regulatory and political developments, and changes in market multiples are additional components of the valuation. Changes in key personnel, strategy, and customer retention are also reviewed. If industry and economic conditions deteriorate, we may be required to assess goodwill impairment before the next annual test, which could result in impairment charges. The discounted cash flow approach that we use for valuing goodwill as part of the impairment testing approach involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Key assumptions utilized in estimating the future cash flows expected to be generated by each reporting unit primarily relate to forecasted revenues and premiums earned. Acquisitions For transactions that meet the definition of a business combination, we allocate the purchase price, including any contingent consideration, to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill. For transactions that meet the definition of a business combination, the determination of the final purchase price and the acquisition-date fair value of identifiable assets acquired and liabilities assumed may extend over more than one period and result in adjustments to the preliminary estimate recognized in the prior period financial statements. For transactions that meet the definition of asset purchases, we allocate the purchase price to the assets acquired and the liabilities assumed at their estimated relative fair values as of the date of the acquisition. The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or discounted cash flow valuation methods. When determining the fair value of tangible assets acquired, we estimate the cost to replace the asset with a new asset, adjusted for an estimated reduction in fair value due to age of the asset, and the economic useful life. When determining the fair value of intangible assets acquired, we estimate the applicable discount rate, the timing and amount of future cash flows, the applicable income tax rates, and an appropriate customer attrition rate. 57
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Table of Contents Yellowstone Class A Common Stock Subject to Possible Redemption As discussed in Note 8, all of the 13,598,898 Class A common stock sold as part of the Units in Yellowstone's Public Offering contained a redemption feature which allowed for the redemption of such public shares in connection with Yellowstone's liquidation, if there were to be a stockholder vote or tender offer in connection with the Sky Harbour's business combination and in connection with certain amendments to Yellowstone's second amended and restated certificate of incorporation. In accordance withSEC and its staff's guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity's equity instruments, are excluded from the provisions of ASC 480. OnJanuary 25, 2022 , holders of 12,061,401 shares of Class A common stock elected to have their shares redeemed. Yellowstone recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are effected by charges against additional paid in capital and accumulated deficit. Yellowstone's Class A common stock subject to redemption is included within "Redeemable Noncontrolling Interest" within our consolidated Balance Sheets.
The ability for any holder of our Yellowstone stock to have their shares
redeemed expired upon the closing of the business combination between
Yellowstone and Sky Harbour on
Yellowstone Warrants Accounting We account for warrants for shares of Yellowstone's common stock that are not indexed to Yellowstone's own stock as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in our statement of operations. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the Public Warrants issued in connection with Yellowstone's Public Offering has been measured based on the listed market price of such Warrants (see Note 8 and Note 9 to the Notes to our Financial Statements for further discussion). Losses and Loss Adjustment Expenses Unpaid losses and loss adjustment expenses represent estimates for the ultimate cost of unpaid reported and unreported claims incurred and related expenses. Estimates for losses and loss adjustment expenses are based on past experience of investigating and adjusting claims and consideration of the level of premiums written during the current and prior year. Since the reserves are based on estimates, the ultimate liability may differ from the estimated reserve. The effects of changes in estimated reserves are included in the results of operations in the period in which the estimates are updated.
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