Boston Omaha : 2023 Annual Document Annual Letter

B O S T O N

O M A H A

CORPORATION

2023 Annual Letter

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To the Shareholders of Boston Omaha Corporation:

I could not be more excited to lead Boston Omaha forward on behalf of shareholders.

Over the past nine years, Boston Omaha has grown from a single piece of real estate in Houston, TX to where we stand today with over $500mm in capital raised and deployed in well over 75 acquisitions and investments. These moves allowed us to achieve scale in our three main operating businesses, secure capital for growth, and make opportunistic investments, at times in complex structures, where we've been able to recycle capital back into our main operating businesses. I firmly believe that having Co-CEOs was advantageous throughout these early years at the Company.

As recently announced, my Partner in building Boston Omaha since its

inception, Alex Rozek, is departing to pursue a variety of interests which results in the end of the Co-CEO structure at the Company. Given where Boston Omaha is today versus where it began, it makes sense to now move forward with a single CEO for a host of operational reasons and it also saves the Company on the long-term costs of dual CEO's.

Our focus in the near term will be less on new investments; instead, our team will concentrate on cost savings and efficiencies in our current businesses while continuing to scale them through internal investment or tuck-in acquisitions. Our internal reinvestment opportunities are both large and attractive while at the same time our balance sheet has limits, making it difficult for any new idea of scale to compete.

I am thankful for the nine years Alex and I spent together building Boston Omaha to what it is today and wish him the best in his future endeavors. Alex deserves a lot of credit for the strong foundation we have that allows us to continue building shareholder value. Going forward, our annual letters will certainly have less humor in them (one of Alex's many talents), but I look forward to updating you on our progress in 2023 and for many more years to come.

Now, let me update you on the foundation built to date and the changes at Boston Omaha over the past year. To not bury the lead, I believe Boston Omaha's business value grew in 2023 and our opportunity set for capital deployment within our current businesses expanded. However, we also made a few mistakes along the way that are worth reporting. Thankfully on the latter, our progress over the long term has outpaced our mistakes.

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Since early 2015, the market value of a share of Boston Omaha stock has grown from $10.00 to $15.73, as of December 31, 2023, a compounded annual increase of only 5.5%. At year-end 2022, this figure stood at approximately 14%. What a difference a calendar year can make in public markets.

Your management believes our stock price performance is likely to mirror changes in underlying business value in the long term, but in the short term there will always be periods when the two are not at all reflective of each other, both on the upside and downside. At present, we do not believe our stock price has kept up with the business value created at Boston Omaha.

The team at Boston Omaha headquarters focuses on building business value, and on this front we believe 2023 was a good year in our three wholly owned businesses.

Our billboard business grew revenue organically by approximately 4%, free cash flows (operating cash flow less our judgment of maintenance capital expenditures) by double digits, and again lowered land costs. Our broadband business grew to 43K subscribers (9.6K fiber subscribers) and now owns over 26K fiber passings. Finally, our surety insurance business generated record profits while growing premium and further set the stage operationally for scalable growth.

Within our other business interests and investments, often minority interests, the news in 2023 is also mostly good.

• Sky Harbour Group Corporation ("Sky Harbour") added several new land leases to support new hangar locations, and raised important equity capital to continue their impressive growth in what we believe is a high return durable asset.
• Our investments and general partner ("GP") ownership in real estate funds obtained a range from decent to great returns on capital for its investment partners in 2023, increasing the value of both our own limited partnership interest as well as the value of our GP interest.
• At Crescent Bank & Trust ("CB&T"), the news is more mixed, the bank has obtained more scale as it grew but mistakes were also made in underwriting during the post COVID credit environment that are now apparent. Nonetheless, CB&T is working hard to minimize the losses caused by these credit decisions. Looking forward, the business plan is more moderate growth, which will lead to less efficiency gains in the near term, but we believe has the potential to generate higher returns on assets and equity for owners.

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We believe our present revenue and cash flow run-rate in our three wholly owned businesses will grow organically and, as importantly, will do so without the demand for large capital investments. At the same time, we believe we have several opportunities to lower our costs looking forward whether it is the announced wind down of the asset management business or efficiency gains in broadband.

As management, we then have the responsibility to employ cash flows generated and our cash and investments already held, into new assets whether that be additional billboard faces, fiber passings, surplus additions, or new opportunities. Organic growth within existing assets coupled with disciplined capital allocation in adding to our asset base, is the growth algorithm that will power Boston Omaha forward.

With that, let's dive into greater detail on the businesses we own and their 2023 performance.

Operating Businesses at Boston Omaha Corporation

Below is a breakout of the net1 assets of our operating businesses. This table includes everything except the investments at BOAM, which we break out separately.

($ in millions)	2023	2022	2021	2020	2019
Cash2	$30.5	$52.5	$152.4	$69.5	$84.5
Billboards3	176.4	176.5	165.9	139.2	147.3
Insurance4	36.0	32.9	36.1	34.0	29.5
Broadband3	166.7	121.4	51.3	43.5	-
Total	$409.6	$383.3	$405.7	$286.2	$261.3

In terms of debt obligations, there are still none at the parent company and a modest amount at our billboard business, which is non-recourse to Boston Omaha. As our broadband business continues to grow fiber customers, we may consider a similar arrangement.

• Assets (excl. cash balances mentioned below in note 2) less liabilities.

• Includes short-term U.S. Treasury securities but excludes cash balances held within UCS, our wholly owned underwriting business, and at Yellowstone, a SPAC sponsored by a subsidiary of Boston Omaha.
  3 Excludes cash balances held within billboard and broadband operations as they are captured in "Cash" as shown above. 4 Includes cash balances held within UCS, our wholly owned underwriting business.

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We keep the majority of our businesses' excess cash at headquarters, almost always in the form of rolling short-term Treasury securities ready to be deployed. Lastly, 2023 saw a substantial investment in broadband, which we'll discuss later in the letter.

Billboard Operations at Link Media Holdings

In calendar 2023, Link grew revenue organically just over 4% and lowered land costs to 18.6% of revenue. The result was another year of record performance by Scott LaFoy and his superb team.

Below we provide our annual chart of Link's progress.

($ in millions)	2023	2022	2021
Revenue	$42.9	$39.2	$31.5
Land Cost %5	18.6%	19.7%	20.5%
Overhead %6	6.7%	6.6%	8.5%
EBITDA7	$16.0	$14.0	$10.1
Net Working Capital8	$2.6	$1.0	$1.2
Tangible PP&E, Net	$46.9	$49.4	$45.4

The value of Link over the years to Boston Omaha has been quite material. Sometimes this fact can be lost in accounting, so it is an important topic for shareholders to understand. In our view, the value of a business such as Link, which does not require much capital at all to produce organic growth, has two components.

First, is the business's capital value, which one could refer to as its intrinsic value or private business value to an acquirer. This bucket is affected by some factors outside of our control such as interest rates and inflation. However, this aggregate value of Link, all else the same, grows at something close to the organic rate of growth of its free cash flow. As an example, if Link can organically grow at 5%, without much need at all to reinvest cash to obtain that growth, the capital value is also growing at

• Land lease expense on billboards where we do not own the land as a percentage of revenue.

• Overhead is Link Media expenses related to corporate employees, office and software as a percentage of revenue.

• EBITDA is defined as net income before income tax expense (benefit), noncontrolling interest in subsidiary income (loss), interest expense (income), depreciation, amortization, accretion and gain or loss on disposition of assets.
  8 Adjusted for current portion of lease liabilities related to ASC 842 implementation and assumes a certain maximum level of cash in business for operational purposes.

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approximately the same rate. As a result, this value creation for Boston Omaha continues upward over time, something GAAP accounting at present does not capture.

The second bucket of value to Boston Omaha in particular, is the free cash flow Link produces that is not needed for the above-mentioned growth that can be sent to Boston Omaha for reinvestment. This cash flow that we can freely use is mutually exclusive from Link's capital value, if it remains true that the business can grow organically at a reasonable rate without needing to retain much of its earnings, all while keeping its engrained competitive position. Most businesses require substantial portions of earnings to be retained to grow over time or even to tread water, because they either require more physical capital to expand (i.e. working capital and property plant & equipment) or they require an acquisition or other investment to remain competitive. Link requires little of either, as a static billboard structure has a long useful life with little maintenance required and in the billboard business generally, it is exceedingly difficult to increase the roadside supply of advertising faces.

As a result of this second bucket, the free cash flow coupled with conservative debt levels, Link has funded other investments at Boston Omaha to the tune of approximately $45mm to date. The remaining cash flow Link has produced has been directly invested right back into growing our billboard business through tuck-in acquisitions and digital conversions, which adds additional growth beyond reported organic growth at Link.

One last attribute of Link is we have utilized approximately $54mm in depreciation and amortization expense that we believe is far above any economic value loss of our assets. These "expenses" over time, as reported in our income statement, have generated cash benefits to Boston Omaha, as we have used them to offset material taxable gains on successful investments made over the years.

During 2023, we were able to deploy some capital into Link, mostly in the form of purchasing perpetual easements to eliminate land costs and also in converting some static billboards to digital.

Insurance Operations at General Indemnity Group

General Indemnity Group ("GIG") is our insurance subsidiary that writes one line of business, surety bonds, coast to coast. We are attracted to surety insurance due to its generally low loss ratios, short loss exposure durations, and opportunity to grow market share through technology, automation, and providing agents and customers a seamless way to book small transactional commercial bonds (which in turn feeds the larger contract bonds and vice versa).

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Here is GIG's track record of premium, revenue and operating performance.

($ in millions)	2023	2022	2021
Gross Written Premium	$18.8	$13.8	$9.3
Revenue	$17.7	$13.4	$10.2
EBITDA9	$1.8	$1.4	($0.6)
Operating Income	$1.5	$1.1	($0.8)
Net Income (Loss)	$2.1	($2.5)	$1.9

In the past, we focused on controlled premium as we built scale at the company. We are now achieving scale so, going forward, we will focus less on controlled premium and more on revenue growth while maintaining positive operating income.

Calendar 2023 was a record year for GIG in terms of revenue, gross written premium and operating income, due to the efforts of Dave Herman, Bob Thomas, and their team. This was accomplished with no additional capital from Boston Omaha. The growth has come from a lot of hard work, great customer service and expanding relationships. It has also come from market demand by insurance agents for our SuretyBonds.Market portal, which allows agents to more easily arrange surety insurance for their customers. The growth through traditional methods combined with the growth in our technology offerings is making GIG an exciting entity to watch each year.

The amount of investment and progress GIG has made in both business development channels and systems has enabled us to have a scalable business looking forward. Dave estimates that we can now effectively double written premium over time without a commensurate increase to our cost structure given our investment and efforts over the last few years.

Of course, doubling premium generally is of little value in insurance, anyone can do that if they underwrite poorly. Our goal is to always grow thoughtfully and profitably. We look forward to seeing what GIG produces in 2024 and have plans to invest incremental capital into the business.

• EBITDA is defined as net income before income tax expense (benefit), noncontrolling interest in subsidiary income (loss), interest expense (income), depreciation, amortization, accretion and gain or loss on disposition of assets.

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Broadband Operations at Boston Omaha Broadband

Boston Omaha Broadband ("BOB") is the parent company of four now wholly owned broadband businesses: Utah Broadband, AireBeam, Fiber Fast Homes ("FFH"), and InfoWest.

Though each business retains its own management teams, brands, and operational autonomy in its markets, internally BOB companies increasingly work as a cohesive enterprise, benefitting from shared resources, procurement, planning, increasing build opportunities and critically, capital.

Recently, we took another important step in forming this cohesive enterprise by purchasing the remaining minority ownership stakes in Utah Broadband and InfoWest, through the issuance of Boston Omaha stock to the minority members of each company. With these purchases, we now own 100% of all of our broadband businesses, and are thrilled to have Steve McGhie, Randy Cosby and Kelly Nyberg as Boston Omaha shareholders fully aligned with growing our broadband business in a way that will benefit all shareholders for years to come.

Before we get into the results, a quick reminder as to what we observed in the broadband business that triggered Boston Omaha to enter it and why we like the asset.

Historically, overbuilding fiber to the premises had mixed results. If anything, the average experience was quite poor for investors. Not all that many years ago, after following the major cable companies' operations over the years, we started to observe some changes in the landscape of broadband usage by the consumer. Although there are plenty of variables to observe, two factors stood out the most.

• Broadband usage continued to increase and compound at high rates, yet the in-place last mile networks supporting that usage in many geographies, were not adequate for this compounding to continue.
• Content viewing options developed to where a consumer could directly purchase what they desired, as opposed to relying on the cable provider to aggregate content for them.

Many other factors exist both positive and negative, but we believe these two developments were important to think about in terms of the future economics of the broadband business. In other words, some facts changed, and when the future may look different than the past, opportunity could be knocking.

Outside of the changing landscape and the insatiable demand for better broadband, even if one is correct on that outcome, the underlying asset must be

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financially attractive and competitively advantaged to earn above average rates of return. Here are some of the attributes we like about the asset itself.

• Fiber is expensive upfront to build out, but enjoys a long economic life coupled with often materially lower maintenance costs than competing non fiber networks.
• A fiber build can be an advantaged asset relative to competitors depending on a host of variables that must be judged on a project-by-project basis. Some considerations could be that the project is contractual (such as an HOA deal), the costs to operate the asset after deployment are materially lower than the competition due to the reliability of fiber compared to traditional copper delivery, and/or there are competitive, geographic or structural constraints for others to come in and overbuild our fiber.

Below is a BOB level report on our recent progress.

($ in millions)	2023	2022	2021
Revenue	$35.3	$28.6	$15.2
EBITDA10	$2.9	$4.4	$3.2
Net Income (Loss)	$(7.0)	$(2.7)	$0.0
Total Subscribers	42.9k	39.6k	18.2k
Fiber Subscribers	9.6k	4.9k	1.8k
Fiber Passings	26.6k	14.9k	5.5k

Here EBITDA is used as a rough figure for cash flow before the very real expense of maintenance capital expenditure, and just as last year, the reported figure above includes our losses at FFH, which were $4.3mm in 2023. Similar to our billboard business, depreciation and amortization under GAAP are generally higher than the true maintenance capital expenditures to maintain the fiber portion of our broadband business at a steady state.

Important to understand is although we have increased fiber subscribers to 9.6K in 2023, our fiber passings that are not yet customers have also grown significantly.

10 EBITDA is defined as net income before income tax expense (benefit), noncontrolling interest in subsidiary income (loss), interest expense (income), depreciation, amortization, accretion and gain or loss on disposition of assets.

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When thinking about our passings, shareholders should understand that capital invested is not yet producing revenue or cash flow but has the prospect of doing so in the future. How many and the timing of those potential new customers depends on where these builds are and the type of fiber projects they are. Project types can vary from a greenfield HOA deal where we expect an exceedingly high penetration rate once homes are finished and sold, to brownfield projects where we believe ending take rate will be attractive, but not 90%+.

Now to some possible mistakes made by your management team. We invested capital in an attempt to improve our fixed wireless business in order to keep current customers longer and to add new customers, and it is now less clear to us if that was a good use of capital relative to investing that same capital into more fiber.

In addition, within our FFH segment, we have invested capital in a small number of projects where we have good contracts, but it is not as clear when we could achieve scale in those specific geographies. It simply takes a significant period of time at FFH to build scale, as we are subject to the pace of homebuilding per geography. Time could be working against us in terms of obtaining the returns we expected given we have to carry the operational cash burn as we wait for customers. We will report back as our hand plays out in these instances, when we can give you a more definitive answer. In the meantime, we are looking at every way we can lower our burn rate at FFH in an intelligent manner, and for that matter, reviewing all possible efficiencies within our entire broadband operation.

The good news is, in the aggregate, we have plenty of great projects we are funding, and we believe they should overcome the mistakes we inevitably make along the way. When we underwrite projects, we are typically looking to earn an unleveraged double digit return on our capital after achieving targeted penetration rates, with possible upside depending on your view of what the ending intrinsic value is of a fiber customer relative to its cost basis. We will not always hit our return goals as cost overruns and delays will inevitably occur during construction. However, that is our goal when we consider whether to take on a new project.

In our judgment, broadband is a compelling opportunity to deploy larger sums of capital within Boston Omaha and shareholders can clearly see in our cash flow statements these capital expenditures being made. The broadband opportunity will be finite, and if we see returns either not meeting our expectations or declining as new projects are evaluated over time, we will alter our capital allocation course. As always, the job of your management is to compare our opportunities and deploy our collective capital to the best risk versus return that we observe at that time.

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