BOSTON OMAHA CORPORATION CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. We have based these forward-looking statements on our current intent, expectations and projections about future events, and these forward-looking statements are not guaranteed to occur and may not occur. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "intend," "project," "contemplate," "potential," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. These statements are only predictions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our otherSecurities and Exchange Commission filings. THE OUTCOME OF THE EVENTS DESCRIBED IN THIS REPORT ALSO CONTAINS STATISTICAL AND OTHER INDUSTRY AND MARKET DATA RELATED TO OUR BUSINESS AND INDUSTRY THAT WE OBTAINED FROM INDUSTRY PUBLICATIONS AND RESEARCH, SURVEYS AND STUDIES CONDUCTED BY US AND THIRD PARTIES, AS WELL AS OUR ESTIMATES OF POTENTIAL MARKET OPPORTUNITIES. INDUSTRY PUBLICATIONS, THIRD-PARTY AND OUR OWN RESEARCH, SURVEYS AND STUDIES GENERALLY INDICATE THAT THEIR INFORMATION HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE ALTHOUGH THEY DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THIS MARKET DATA INCLUDES PROJECTIONS THAT ARE BASED ON A NUMBER OF ASSUMPTIONS. IF THESE ASSUMPTIONS TURN OUT TO BE INCORRECT, ACTUAL RESULTS MAY DIFFER FROM THE PROJECTIONS BASED ON THESE ASSUMPTIONS. AS A RESULT, OUR MARKETS MAY NOT GROW AT THE RATES PROJECTED BY THIS DATA, OR AT ALL. THE FAILURE OF THESE MARKETS TO GROW AT THESE PROJECTED RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND THE MARKET PRICE OF OUR COMMON STOCK. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. IN ADDITION, OUR BUSINESS AND FUTURE RESULTS ARE SUBJECT TO A NUMBER OF FACTORS, INCLUDING THOSE FACTORS SET FORTH IN THE "risk factors" SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDEDDecember 31, 2020 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (the "SEC") ONMARCH 29, 2021 , AS AMENDED ON FORM 10-K/A AS FILED WITH THE SEC ONMAY 24, 2021 . Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. We undertake no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These risks could cause our actual results for 2021 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect our financial condition, liquidity and operating and stock price performance. 33
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Overview
We are currently engaged in outdoor billboard advertising, surety insurance and
related brokerage businesses, and broadband services businesses. In addition, we
hold minority investments in commercial real estate management and brokerage
services, a bank focused on servicing the automotive loan market, and serve as
sponsor of Yellowstone Acquisition Company ("Yellowstone"), a publicly-traded
special purpose acquisition company ("SPAC").
Billboards: In June 2015 , we commenced our billboard business operations through
acquisitions by Link, our wholly-owned subsidiary, of smaller billboard
companies located in the Southeast United States and Wisconsin . During July and
August 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 additional 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 of
March 31, 2021 , we operate approximately 3,200 billboards with approximately
6,000 advertising faces. One of our principal business objectives is to
continue to acquire additional billboard assets through acquisitions of existing
billboard businesses in the 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 : In April 2016 , our surety insurance business commenced with
the acquisition of a surety insurance brokerage business with a national
internet-based presence. In December 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
the District of Columbia . In addition, over the last four years, we have also
acquired additional surety insurance brokerage businesses located in various
regions of the United States .
Broadband Services: In March 2020 , we commenced our broadband services business
with the acquisition of substantially all of the assets of FibAire and provide
these services to over 7,000 customers located in Arizona . On December 29, 2020 ,
we acquired substantially all of the business assets of UBB and provide
broadband services to over 10,000 subscribers throughout Utah . We hope to
continue to expand in Arizona , Utah , and other locales.
Investments:
? Since
estate, a commercial real estate management, brokerage and related services
business as well as an asset management business. We currently own 30% of
Logic and approximately 49.9% of 24th
indirectly through our ownership in Logic. In addition, we have invested,
through one of our subsidiaries, an aggregate of
will focus on opportunities within secured lending and direct investments in
commercial real estate.
? In
company of
in
and northern
subsidiaries provide mortgage loan origination and title insurance services to
homebuyers. In
additional
mandatory preferred return of 14%. These preferred units were subsequently
redeemed by DFH in 2020. On
wholly owned subsidiary of DFH, completed its initial public offering and
implemented an internal reorganization (the "Merger") pursuant to which Dream
completion of the Merger, our outstanding common units in DFH were converted
into 4,681,099 shares of Class A Common Stock of Dream Finders Homes, Inc.,
and one of our subsidiaries purchased an additional 120,000 shares of Class A
common stock in the initial public offering. The DFH shares purchased in 2017
are restricted securities and are subject to a lock-up for a period through
currently deemed an affiliate of DFH as we own more than 10% of its Class A
common stock. Prior to its initial public offering, we loaned DFH
to assist it in financing an acquisition which was consummated prior to its
initial public offering. This loan was repaid in full with interest in early
2021.
? In
million through the purchase of common stock of
privately-held parent company of
located in New Orleans and generates the majority of its revenues from
indirect subprime automobile lending across the United States .
? In
underwritten initial public offering of a special purpose acquisition company
named Yellowstone. Yellowstone sold in its public offering 13,598,898 units at
a price of
common stock and a redeemable warrant to purchase one-half of a share of Class
A common stock at an exercise price of
million through the purchase of 3,399,724 shares of Class B common stock and
7,719,779 non-redeemable private placement warrants, each warrant entitling us
to purchase one share of Class A common stock at
Yellowstone as the sponsor of Yellowstone and under the terms of the public
offering, owns approximately 20% of the issued and outstanding common stock.
The purpose of the offering is to pursue a business combination in an industry
other than the three industries in which we currently own and operate
businesses: outdoor advertising, surety insurance and broadband services
businesses. Yellowstone allows us to pursue a minority interest in larger
companies in other industries without diluting the equity interests of our
candidates in the homebuilding, home materials, financial services and
commercial real estate management industries but is also able to pursue
acquisition opportunities in other industries.
34-------------------------------------------------------------------------------- In each of our businesses, we hope to expand our geographic reach and market share and seek to develop a competitive advantage and/or brand name for our services, which we hope will be a differentiating factor for customers. Our insurance market primarily services small contractors, small and medium-sized businesses and individuals required to provide surety bonds (i) in connection with their work for government agencies and others, (ii) in connection with contractual obligations, or (iii) to meet regulatory requirements and other needs. We have expanded the licensing of the UCS business to all 50 states and theDistrict of Columbia . In outdoor advertising, our plan is to continue to grow this business through acquisitions of billboard assets. We also expect to expand our broadband services inArizona ,Utah and in the future 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 DFH provides the opportunity for each company 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, which we refer to as "FTTH", 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. 35
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Impact of the COVID-19 Pandemic
The unprecedented and rapid spread of COVID-19 commencing in the first quarter of fiscal 2020 have impacted different parts of our business in different ways.
? Our billboard business incurred some overall smaller reductions in revenue but
is returning to more normal levels, with revenues for the first quarter of
fiscal 2021 at or near the same levels in most of the markets we serve. As
most of our billboards are on roads and highways and not in airports and other
mass transit hubs, shopping centers and sports arenas, our revenues for
billboards were not as significantly impacted as those of certain of our
competitors. As a result, billboard revenues in the first quarter of fiscal
2021 were down 0.9% from the same period in 2020.
? Our surety insurance business was primarily impacted by the decision weimplemented in the second quarter of fiscal 2020 to cease issuing rental
insurance bonds. We made this decision due to concern about the potential for
increasing default rates by residential tenants. Revenues from these prepaid
surety bonds are recognized over the life of the bond (typically one year) so
the impact to revenues was delayed. Our surety insurance revenues in the first
quarter of fiscal 2021 decreased by 48.3%, or approximately
the first quarter of fiscal 2020. The other elements of our surety business
were primarily impacted by a smaller decrease in demand for new bonds but
claims experience to date for other contract and commercial bonds has been
unaffected. We do not currently expect to issue rental insurance bonds in the
future. In addition to the loss of revenues, we also significantly increased
our loss reserves to provide funding for potential claims. Our losses and loss
reserves increased by approximately
from the first quarter of fiscal 2020.
? Our broadband business was generally unaffected by COVID-19 and we continued
to expand that business in 2020 and 2021 through an acquisition in
late 2020 and expansion in capital spending to expand our footprint and serve
additional customers in both Arizona and Utah .
? Our investment in Dream Finders Homes was also unaffected as Dream Finders
Home's business has increased during this period and it successfully completed
an initial public offering in
and Trust, which primarily provides loans to consumers purchasing automobiles,
was somewhat impacted by the pandemic but has returned to normal levels of
business. Our investment in
demand for commercial rental property in the
returned to normal levels during the first quarter of fiscal 2021.
? Our business operations were generally unaffected by COVID-19.
? Despite the pandemic, we generated positive cash flow from operating
activities in the first quarter of fiscal 2021 of approximately
compared to negative cash flow from operations of approximately
in the first quarter of fiscal 2020.
? In
raised an additional
billboard business is in compliance with its loan covenants under its term
loans with its secured lender and we believe we have adequate financial
resources to meet our operating and anticipated expansion and acquisition
opportunities for the foreseeable future.
? As of
goodwill or long-lived assets (including operating lease right of use assets).
We also did not incur any significant credit losses for the three months ended
March 31, 2021 . We have observed an improvement in business activity beginning in the second half of 2020 and accelerating in 2021 as government-imposed restrictions on travel were relaxed, businesses which were temporarily closed or limited are fully reopening, more of the population has been vaccinated and unemployment rates are dropping. Accordingly, we are not actively pursuing additional cost saving measures, and are resuming acquisition activities and spending on capital projects. We cannot predict the length or strength of the recovery in demand for our billboard, surety insurance and broadband businesses due to continued impact of the pandemic on theU.S. economy. Any significant resurgence of the pandemic could adversely impact our business in the future. We will continue to evaluate the impact of the COVID-19 pandemic on our business and we may access the debt and/or equity capital markets for additional liquidity, if necessary. We continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and customers. 36
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How We Generate Our Revenues and Evaluate Our Business
We currently generate revenues primarily through billboard advertising and
related services, from the sale of surety insurance and related brokerage
activities and by providing high-speed broadband services. Revenue for outdoor
advertising space rental is recognized on a straight-line basis over the term of
the contract and advertising revenue is reported net of agency
commissions. Payments received in advance of being earned are recorded as
deferred revenue. In our surety insurance business, premiums written are
recognized as revenues based on a pro rata daily calculation over the respective
terms of the policies in-force. Unearned premiums represent the portion of
premiums written applicable to the unexpired term of the policies in-force. In
connection with our surety agency business, insurance commissions are recognized
at a point in time, on a bond-by-bond basis as of the policy effective date and
are generally nonrefundable. In our broadband business, revenue is derived
principally from internet services and is recognized on a straight-line basis
over the term of the contract in the period the services are rendered. Revenue
received or receivable in advance of the delivery of services is included in
deferred revenue.
Segment gross profit is a key metric that we use to evaluate segment operating
performance and to determine resource allocation between segments. We define
segment gross profit as segment revenues less segment direct cost of services.
In our billboard business, direct cost of services includes land leases,
utilities, repairs and maintenance of equipment, sales commissions, contract
services, and other billboard level expenses. In our surety business, direct
cost of services includes commissions, premium taxes, fees and assessments, and
losses and loss adjustment expenses. In our broadband business, direct costs of
services includes network operations and data costs, programming costs, cell
site rent and utilities, and other broadband level expenses.
Results of Operations
Three Months Ended
The following is a comparison of our results of operations for the three months endedMarch 31, 2021 , which we refer to as the "first quarter of fiscal 2021," compared to the three months endedMarch 31, 2020 , which we refer to as the "first quarter of fiscal 2020." Revenues. For the first quarter of fiscal 2021 and the first quarter of fiscal 2020, our revenues in dollars and as a percentage of total revenues were as follows: For the Three Months Ended March 31, (unaudited) 2021 2020 2021 vs 2020 As a % of As a % of Total Total Amount Revenues Amount Revenues $ Variance Revenues: Billboard rentals, net$ 7,153,685 54.2 %$ 7,215,766 63.2 %$ (62,081 ) Broadband services 3,795,037 28.8 %$ 267,251 2.4 % 3,527,786 Premiums earned 1,786,564 13.5 % 3,454,058 30.3 % (1,667,494 ) Insurance commissions 400,177 3.0 % 332,791 2.9 % 67,386 Investment and other income 69,556 0.5 % 140,314 1.2 % (70,758 ) Total Revenues$ 13,205,019 100.0 %$ 11,410,180 100.0 %$ 1,794,839 We realized total revenues of$13,205,019 during the first quarter of fiscal 2021, an increase of 15.7% over revenues of$11,410,180 during the first quarter of fiscal 2020. The increase in total revenues was largely driven by our acquisition of FibAire inMarch 2020 and was partially offset by lower revenue within our UCS insurance subsidiary, mainly due to the suspension of its rental guarantee bond program. Due to the current disruption in this market, we have suspended issuing new rental guarantee bonds, which could reduce future revenues at UCS. 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.
? Net billboard rentals in the first quarter of fiscal 2021 decreased 0.9% from
the first quarter of fiscal 2020, reflecting a reduction in rental and
occupancy rates across a number of our markets due to the ongoing COVID-19
pandemic. The decline due to COVID-19 was partially offset by the acquisition
of billboards from Thomas in the first quarter of fiscal 2021, which accounted
for approximately 2.6% of our billboard revenues in the first quarter of
fiscal 2021.
? Revenue from broadband services was
2021 up from
the FibAire acquisition completed in March 2020 .
? Premiums earned from our UCS insurance subsidiary decreased 48.3% in the first
quarter of fiscal 2021, when compared to the first quarter of fiscal 2020. The
decrease in premiums earned was primarily due to the suspension of issuing new
bonds under the rental guarantee bond program.
? Revenues from insurance commissions generated by our surety brokerageoperations increased by 20.2%, mainly reflecting an increase in bonds sold
through other insurance carriers.
? Investment and other income at UCS decreased 50.4% in the first quarter of
fiscal 2021 from
decline in interest rates as well as a decline in dividends received over the
past year.
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Expenses. For the first quarter of fiscal 2021 and the first quarter of fiscal
2020, our expenses, in dollars, and as a percentage of total revenues, were as
follows:
For the Three Months Ended March 31,
(unaudited)
2021 2020 2021 vs 2020
As a % of As a % of
Total Total
Amount Revenues Amount Revenues $ Variance
Costs and Expenses:
Cost of billboard revenues $ 2,861,747 21.7 % $ 2,950,554 25.8 % $ (88,807 )
Cost of broadband revenues 756,213 5.7 % 75,423 0.7 % 680,790
Cost of insurance revenues 1,129,210 8.6 % 1,503,862 13.2 % (374,652 )
Employee costs 4,242,147 32.1 % 3,133,145 27.4 % 1,109,002
Professional fees 1,093,983 8.3 % 1,287,155 11.3 % (193,172 )
General and administrative 2,167,680 16.4 % 1,718,304 15.1 % 449,376
Amortization 1,165,172 8.8 % 951,821 8.3 % 213,351
Depreciation 1,146,804 8.7 % 831,510 7.3 % 315,294
Accretion 32,091 0.2 % 34,762 0.3 % (2,671 )
Loss (gain) on disposition
of assets 35,567 0.3 % 18,919 0.2 % 16,648
Bad debt expense 60,183 0.5 % 84,697 0.7 % (24,514 )
Total Costs and Expenses $ 14,690,797 111.3 % $ 12,590,152 110.3 % $ 2,100,645
During the first quarter of fiscal 2021, we had total costs and expenses
of $14,690,797 , as compared to total costs and expenses of $12,590,152 in the
first quarter of fiscal 2020. Total costs and expenses as a percentage of total
revenues increased from 110.3% in the first quarter of fiscal 2020 to 111.3% in
the first quarter of fiscal 2021. In the first quarter of fiscal 2021, cost of
billboard revenues, cost of insurance revenues and professional fees decreased
as a percentage of total revenues as compared to the first quarter of fiscal
2020. Employee costs, depreciation, amortization, and general and administrative
expenses increased as a percentage of total revenues mainly due to the addition
of our broadband services business in March 2020 and the decline in premiums
earned at UCS. Loss on disposition of assets, accretion and bad debt expense,
primarily associated with our billboard business, remained relatively constant
as a percentage of total revenues.
? During the first quarter of fiscal 2021, cost of billboard revenues decreased
by
decrease is mainly related to lower ground rent expense, commissions paid and
other cost of revenues during the first quarter of fiscal 2021.
? During the first quarter of fiscal 2021, cost of insurance revenues decreased
by
decrease was driven by lower commissions paid due to decreased revenues within
UCS both from third-party agents and the sale of certain rental guarantee
bonds which generally provide a higher commission structure and was partially
offset by an increase in loss reserves at UCS related to its rental guarantee
bond program due to the uncertainty caused by COVID-19 which has led to higher
losses and loss adjustment expense.
? Employee costs increased
increase was mainly driven by the addition of our broadband services business
in
billboard and insurance businesses.
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? Professional fees in the first quarter of fiscal 2021 were
of total revenues, as compared to
the first quarter of fiscal 2020. Professional fees mainly include costs
associated with preparing our Annual Report, audit fees, legal
fees, acquisition related expenses as well as fees associated with
Yellowstone.
? General and administrative expenses increased from
quarter of fiscal 2020 to
increase of 26.2%. The increase was mainly driven by the addition of our
broadband services business in
and was partially offset by lower general and administrative expenses within
our billboard business.
? Non-cash expenses in the first quarter of fiscal 2021 included
amortization expense,
accretion expense related to asset retirement obligations for certain
billboard and broadband assets. The increase in depreciation and amortization
expense was mainly driven by the addition of our broadband services business
in March 2020 .
Net Loss from Operations. Net loss from operations for the first quarter of
fiscal 2021 was $1,485,778 , or 11.3% of total revenues, as compared to a net
loss from operations of $1,179,972 , or 10.3% of total revenues, in the first
quarter of fiscal 2020. The increase in net loss from operations in dollars was
primarily due to decreased revenue within our insurance operations, which was
partially offset by the addition of our broadband services operations. Our net
loss from operations included $2,344,067 from non-cash amortization,
depreciation and accretion expenses in the first quarter of fiscal 2021, as
compared to $1,818,093 in the first quarter of fiscal 2020
Other Income (Expense). During the first quarter of fiscal 2021, we had net
other income of $110,123,064 . Net other income included $104,467,952 from
unrealized gains mainly on our investment in DFH after its initial public
offering on January 25, 2021 , $2,840,170 in realized gains mainly from the sale
of large publicly traded equity securities held at Boston Omaha , $2,175,824
related to the remeasurement of Yellowstone's public warrants, interest income
of $601,652 primarily derived from our short term loan to DFH, $140,297 in
equity in income of unconsolidated affiliates, and $132,495 in dividend income
mainly from public equity securities held by Boston Omaha . These items were
partially offset by interest expense of $235,326 mainly incurred under Link's
term loan. During the first quarter of fiscal 2020, we had net other expense of
$23,547,725 , which included $24,745,513 from unrealized losses mainly on large
publicly traded equity securities held by Boston Omaha and UCS, interest income
of $509,479 , $465,665 in equity in income of unconsolidated affiliates, $390,791
in dividend income, $26,268 in realized gains on disposition of investments and
interest expense of $194,415 incurred under Link's term loan.
As a result of a change in GAAP effective in 2018, we are required to include
the unrealized changes in market prices of investments in public equity
securities in our reported earnings. As stated above, we experienced unrealized
gains of $104,467,952 in the value of our public equity securities during the
first quarter of fiscal 2021. This contrasts with unrealized losses in the value
of our securities of $24,745,513 during the first quarter of fiscal 2020. 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.
Net Income (Loss) Attributable to Common Stockholders. We had net
income attributable to common stockholders in the amount of $84,437,627 in the
first quarter of fiscal 2021, or income per share of $3.09 , based on
27,299,946 weighted average shares outstanding. This is compared to a net loss
attributable to common stockholders of $24,734,238 in the first quarter of
fiscal 2020, or a loss per share of $1.05 , based on 23,510,660 weighted average
shares outstanding.
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Results of Operations by Segment
The following tables report results for the following two segments in which we
operate, billboards and insurance, for the first quarter of fiscal 2021 and the
first quarter of fiscal 2020:
Results of Billboard Operations
For the Three Months Ended March 31,
(unaudited)
2021 2020
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount RevenuesOperating Revenues Billboard rentals, net$ 7,153,685 100.0 %$ 7,215,766 100.0 % Cost of Revenues Ground rents 1,557,858 21.8 % 1,581,546 21.9 % Utilities 313,140 4.4 % 326,762 4.5 % Commissions paid 698,799 9.8 % 702,756 9.8 % Other costs of revenues 291,950 4.0 % 339,490 4.7 % Total cost of revenues 2,861,747 40.0 % 2,950,554 40.9 % Gross margin 4,291,938 60.0 % 4,265,212 59.1 % Other Operating Expenses Employee costs 1,478,572 20.6 % 1,517,401 21.0 % Professional fees 211,547 3.0 % 152,890 2.1 % General and administrative 694,503 9.7 % 743,316 10.3 % Amortization 837,101 11.7 % 815,426 11.3 % Depreciation 859,927 12.0 % 825,959 11.4 % Accretion 28,694 0.4 % 34,762 0.5 % Loss on disposition of assets 32,295 0.5 % 18,919 0.3 % Bad debt expense 43,250 0.6 % 84,421 1.2 % Total expenses 4,185,889 58.5 % 4,193,094 58.1 % Segment Income from Operations 106,049 1.5 % 72,118 1.0 % Interest expense, net (229,280 ) (3.2 %) (192,790 ) (2.7 %) Net Loss Attributable to Common Stockholders$ (123,231 ) (1.7 %)$ (120,672 ) (1.7 %) Comparison of the First Quarter of Fiscal 2021 to the First Quarter of Fiscal 2020. In the first quarter of fiscal 2021, net billboard revenues decreased by 0.9% from the first quarter of fiscal 2020, reflecting a reduction in rental and occupancy rates across a number of our markets due to the ongoing COVID-19 pandemic. The decline due to COVID-19 was partially offset by the acquisition of billboards from Thomas in the first quarter of fiscal 2021, which accounted for approximately 2.6% of our billboard revenues in the first quarter of fiscal 2021. The key factors affecting our billboard operations results during the first quarter of fiscal 2021 were as follows:
? Ground rent expense decreased as a percentage of total segment operating
revenues from 21.9% in the first quarter of fiscal 2020 to 21.8% in the first
quarter of fiscal 2021.
? Commissions paid as a percentage of total segment operating revenues were
relatively flat at 9.8% of total segment operating revenues in the first
quarter of fiscal 2021 and the first quarter of fiscal 2020.
? Employee costs in the first quarter of fiscal 2021 decreased 2.6% when
compared to the first quarter of fiscal 2020.
? General and administrative expenses in the first quarter of fiscal2021 decreased 6.6% when compared to the first quarter of fiscal 2020. The
decrease was primarily driven by a reduction in travel related expenses as
well as other cost savings initiatives due to COVID-19.
? Amortization expense increased by
2020. The increase is primarily due to the Thomas acquisition in the first
quarter of fiscal 2021.
? Net interest expense of
to net interest expense of
increase in interest expense was related to Link's $18 million and $5.5
million term loans, which commenced in August 2019 and August 2020 ,
respectively.
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Results of Insurance Operations
For the Three Months Ended March 31,
(unaudited)
2021 2020
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount RevenuesOperating Revenues Premiums earned$ 1,786,564 79.2 %$ 3,454,058 87.9 % Insurance commissions 400,177 17.7 % 332,791 8.5 % Investment and other income 69,556 3.1 % 140,314 3.6 % Total operating revenues 2,256,297 100.0 % 3,927,163 100.0 % Cost of Revenues Commissions paid 464,654 20.6 % 1,043,799 26.6 % Premium taxes, fees, and assessments 74,673 3.3 % 65,697 1.7 % Losses and loss adjustment expense 589,883 26.1 % 394,366 10.0 % Total cost of revenues 1,129,210 50.0 % 1,503,862 38.3 % Gross margin 1,127,087 50.0 % 2,423,301 61.7 % Other Operating Expenses Employee costs 1,185,051 52.5 % 1,239,517 31.6 % Professional fees 112,585 5.0 % 169,062 4.3 % General and administrative 575,616 25.5 % 572,114 14.6 % Amortization 34,645 1.6 % 136,395 3.5 % Depreciation 5,733 0.3 % 5,551 0.1 % Bad debt expense 944 0.0 % 276 0.0 % Total expenses 1,914,574 84.9 % 2,122,915 54.1 %
Segment Income (Loss) from Operations (787,487 ) (34.9 %)
300,386 7.6 %
Interest expense, net (1,998 ) (0.1 %) (376 ) (0.0 %)
Unrealized gain (loss) on securities 3,179,251 140.9 % (5,264,407 ) (134.1 %)
Gain (loss) on sale of investments (23,904 ) (1.0 %) 2,284 0.1 %
Net Income (Loss) Attributable to Common
Stockholders $ 2,365,862 104.9 % $ (4,962,113 ) (126.4 %)
Comparison of the First Quarter of Fiscal 2021 to the First Quarter of Fiscal
2020. In the first quarter of fiscal 2021, total operating revenues declined by
42.5% as compared to the first quarter of fiscal 2020, mainly due to the
suspension of UCS's rental guarantee bond program. The key factors affecting our
insurance operations results during the first quarter of fiscal 2021 were as
follows:
? Premiums earned from our UCS insurance subsidiary in the first quarter of
fiscal 2021 decreased 48.3% from the first quarter of fiscal 2020. The
decrease in premiums earned was primarily due to the suspension of its rental
guarantee bond program.
? Our brokerage operations realized a 20.2% increase in insurance commissions
from other insurance carriers in the first quarter of fiscal 2021 when
compared to the first quarter of fiscal 2020.
? Commissions paid in the first quarter of fiscal 2021 decreased by
from the first quarter of fiscal 2020 primarily due to the suspension of
UCS's rental guarantee bond program, which generally provided a higher
commission structure.
? Our losses and loss adjustment expense as a percentage of insurance revenues
increased from 10.0% in the first quarter of fiscal 2020 to 26.1% in the first
quarter of fiscal 2021. Starting in the second quarter of fiscal 2020, UCS
increased its loss reserves related to its rental guarantee bond program due
to the uncertainty caused by COVID-19.
? Employee costs in the first quarter of fiscal 2021 decreased 4.4% when
compared to the first quarter of fiscal 2020.
? Amortization expense in the first quarter of fiscal 2021 decreased by
when compared to the first quarter of fiscal 2020.
? During the first quarter of fiscal 2021, our segment loss from insurance
operations of
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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Results of Broadband Operations
For the Three Months Ended March 31,
2021 2020
As a % of As a % of
Segment Segment
Operating Operating
Amount Revenues Amount Revenues
Operating Revenues
Broadband revenues $ 3,795,037 100.0 % $ 267,251 100.0 %
Cost of Revenues
Network operations and data costs 503,334 13.2 % 40,400 15.1 %
Programming costs 26,087 0.7 % 8,247 3.1 %
Cell site rent and utilities 138,918 3.7 % 1,653 0.6 %
Other costs of revenues 87,874 2.3 % 25,123 9.4 %
Total cost of revenues 756,213 19.9 % 75,423 28.2 %
Gross margin 3,038,824 80.1 % 191,828 71.8 %
Other Operating Expenses
Employee costs 1,218,732 32.1 % 93,331 34.9 %
Professional fees 58,520 1.6 % 1,000 0.4 %
General and administrative 401,733 10.6 % 32,087 12.0 %
Amortization 293,426 7.7 % - -
Depreciation 266,329 7.0 % - -
Accretion 3,397 0.1 % - -
Loss on disposition of assets 3,272 0.1 % - -
Bad debt expense 15,989 0.4 % - -
Total expenses 2,261,398 59.6 % 126,418 47.3 %
Segment Income from Operations 777,426 20.5 % 65,410 24.5 %
Interest expense, net (2,103 ) (0.1% ) - -
Noncontrolling interest in subsidiary
income (138,263 ) (3.6% ) (6,541 ) (2.5% )
Net Income Attributable to Common
Stockholders $ 637,060 16.8 % $ 58,869 22.0 %
Comparison of First Quarter of Fiscal 2021 to the First Quarter of Fiscal
2020. In March 2020 , we commenced our broadband services business with the
acquisition of substantially all of the assets of FibAire. In December 2020 ,
we acquired substantially all of the business assets of UBB. Therefore,
comparisons of our broadband results for the first quarter of fiscal 2021 to the
first quarter of fiscal 2020 may not be meaningful.
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Cash Flows
Cash Flows for the First Three Months of Fiscal 2021 compared to the First Three Months of Fiscal 2020
The table below summarizes our cash flows, in dollars, for the first three months of fiscal 2021 and the first three months of fiscal 2020:
Three Months Three Months
Ended Ended
March 31, 2021 March 31, 2020
(unaudited) (unaudited)
Net cash provided by (used in) operating
activities $ 4,029,984 $ (110,884 )
Net cash provided by investing activities 36,047,823 35,830,833
Net cash used in operating activities (505,699 ) (2,252 ) Net increase in cash, cash equivalents, and restricted cash$ 39,572,108 $ 35,717,697 Net Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities was$4,029,984 for the first three months of fiscal 2021 compared to a net cash outflow of$110,884 for the first three months of fiscal 2020. The net cash provided by operating activities for the first three months of fiscal 2021 was primarily attributable to$1,598,623 in distributions from unconsolidated affiliates, consistent cash flow generation within our billboard business, and the addition of our broadband services business, which was partially offset by the decline in operating results within our insurance business. Net Cash Provided by Investing Activities. Net cash provided by investing activities was$36,047,823 for the first three months of fiscal 2021 as compared with net cash provided by investing activities of$36,047,823 for the first three months of fiscal 2020. The investing cash inflow during the first three months of fiscal 2021 was primarily attributable to the sale of some of our public equity security holdings and DFH's repayment of its$20,000,000 term loan. In addition, during the first three months of fiscal 2021, we acquired from Thomas 238 billboard structures and related assets located inKansas for a purchase price of$6,108,508 paid in cash.Net Cash Used in Financing Activities. Net cash used in financing activities was$505,699 during the first three months of fiscal 2021 as compared to net cash provided used in financing activities of$2,252 during the first three months of fiscal 2020. During the first three months of fiscal 2021, net cash used in financing activities consisted of$294,375 in principal payments on Link's term loans, offering costs of$108,863 , and$102,461 in returns of funds held as collateral. 43
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Liquidity and Capital Resources
Currently, we own billboards in Alabama , Florida , Georgia , Illinois , Iowa ,
Kansas , Missouri , Nebraska , Nevada , Virginia , West Virginia and Wisconsin ,
surety insurance brokerage firms we acquired in 2016, 2017 and 2021, a surety
insurance company we acquired in December 2016 , broadband services providers
whose assets we acquired in March 2020 and December 2020 and minority
investments in several real estate management entities and a bank holding entity
whose primary source of revenue is in subprime automobile lending. At March 31,
2021 , we had approximately $84 million in unrestricted cash and approximately
$54 million in U.S. Treasury trading securities. Our strategy is to continue to
acquire other billboard locations and insurance businesses as well as acquire
other businesses which we believe have the potential to generate positive cash
flows and 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 and continually 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.
In February 2018 , we announced the entry into a stock purchase agreement
relating to the issuance and sale of up to $150,000,000 of our unregistered
Class A common stock, which we refer to as the "2018 private placement."
3,300,000 shares were issued in the initial closing, which occurred on March 6,
2018 , resulting in gross proceeds to us of $76,890,000 . The remaining 3,137,768
shares were issued during the third quarter of fiscal 2018 in a subsequent
closing on May 15, 2018 , resulting in gross proceeds to us of approximately
$73,110,000 . Under the 2018 private placement, all shares were sold at $23.30 , a
slight premium to the $23.29 closing price of the Class A common stock on the
NASDAQ Capital Market, as reported by NASDAQ on the date of the Class A Common
Stock Purchase Agreement.
Since March 2018 , we utilized our "at the market" offering that is part of our
shelf Registration Statement on Form S-3 (File No. 333-222853) that was filed
with the Securities and Exchange Commission , which we refer to as the "SEC ," and
declared effective in February 2018 . This shelf Registration Statement, which
authorized us to sell up to $200,000,000 through the sales of securities to the
public, expired in February 2021 . We sold a total of 2,630,787 shares of Class A
common stock and raised gross proceeds of $60,120,165 under this shelf
Registration Statement. We expect to file shortly a new shelf registration
statement and, as a result, expect to raise additional capital through the sale
of our securities, which would dilute the percentage ownership held by current
investors.
On August 12, 2019 , Link entered into a Credit Agreement (the "Credit
Agreement") with First National Bank of Omaha (the "Lender") under which
Link may borrow up to $40,000,000 (the "Credit Facility"). The Credit Agreement
provides for an initial term loan ("Term Loan 1"), an incremental term loan
("Term Loan 2") and a revolving line of credit. These loans are 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. These loans are not guaranteed by BOC or any of BOC's non-billboard
businesses. As of March 31, 2021 , Link had borrowed $18,060,000 through Term
Loan 1 and $5,500,000 through Term Loan 2 under the Credit Facility. We may not
borrow additional funds under the Credit Facility. Principal amounts under each
of Term Loan 1 and Term Loan 2 are payable in monthly installments according to
a 15-year amortization schedule. These principal payments commenced on July 1,
2020 for Term Loan 1 and on October 1, 2020 for Term Loan 2. Both term loans are
payable in full on August 12, 2026 . During the first three years of the
term loans, Link may prepay up to 10% of the loan principal in each year without
paying any prepayment penalty. Otherwise, there is a prepayment penalty ranging
between 2.0% and 0.5%. After three years, there is no prepayment penalty. Term
Loan 1 and Term Loan 2 have fixed interest rates of 4.25% and 3.375%,
respectively, per annum. The revolving line of credit loan facility has a
$5,000,000 maximum availability. Interest payments are based on the 30-day LIBOR
rate plus an applicable margin ranging between 2.00 and 2.50% dependent on
Link's consolidated leverage ratio. The revolving line of credit is due and
payable on August 11, 2021 . Long-term debt included within our consolidated
balance sheet as of March 31, 2021 consists of Term Loan 1 and Term
Loan 2 borrowings of $22,763,275 , of which $1,195,128 is classified as
current. There were no amounts outstanding related to the revolving line of
credit as of March 31, 2021 .
During the term of the Credit Facility, 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 ended December 31, 2019 of not greater than 3.50 to 1.00, (b)
beginning with the fiscal quarter ended December 31, 2020 of not greater
than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31,
2021 and thereafter, of not greater than 3.00 to 1.0; 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
of March 31, 2021 .
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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 loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans 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 incorporated by reference in this report and 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, a copy of which is attached as Exhibit 10.1 to our Form 8-K as filed with theSEC onOctober 29, 2019 , and a Second Amendment to Credit Agreement, a copy of which is attached as Exhibit 10.1 to our Form 8-K as filed with theSEC onJune 30, 2020 . OnMarch 18, 2020 , we announced the authorization of a share repurchase program which allows us to repurchase our Class A common stock. We have not yet repurchased any shares under this program and we cannot predict when or if we will repurchase any shares of Class A common stock as any such share repurchases will depend on a number of factors, including constraints specified in any Rule 10b5-1 trading plans, price, general business and market conditions, and alternative investment opportunities. OnMay 28, 2020 , we entered into an underwriting agreement, which we refer to as the "underwriting agreement," withWells Fargo Securities, LLC 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 "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."Adam Peterson andAlex Rozek , our Co-Chairmen, together with another member of our board of directors and another employee, purchased, directly or through their affiliates, an aggregate of 39,375 shares of Class A common stock in the offering at the public offering price. OnJune 2, 2020 , we announced the completion of the public offering for a total of 3,680,000 shares, including both the firm shares and all of the 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$58,880,000 . 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 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 . OnOctober 2, 2020 , we provided a term loan of$20,000,000 toDream Finders Holdings, LLC to be used in expanding DFH's footprint in theSoutheast United States . The effective interest rate on this term loan is approximately 14% and matured onMay 1, 2021 . This loan was repaid with interest in early 2021.
Between August and
OnMarch 31, 2021 , we entered into an underwriting agreement, which we refer to as the "underwriting agreement," withWells Fargo Securities, LLC for a public offering of 2,300,000 shares, which we refer to as the "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 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 "option shares." OnApril 6, 2021 , we announced the completion of the public offering for a total of 2,345,000 shares, including both the firm shares and all of the 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$58,625,000 . 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 shelf registration statement on Form S-3ASR (File No. 333-254870) that was declared effective onMarch 30, 2021 . 45
-------------------------------------------------------------------------------- We believe that our existing cash and short-term investments, funds available through the Credit Agreement Link entered into onAugust 12, 2019 , 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. We have also taken steps to suspend the future issuance of certain rental surety bonds issued by UCS and have taken other steps to reduce certain costs of our operations. AtMarch 31, 2021 , we had approximately$84 million in unrestricted cash,$54 million inU.S. treasury securities, and$144 million in marketable equity securities. If future additional significant acquisition opportunities become available in excess of our currently available cash andU.S. Treasury 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 our current credit facility, any other 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 and insurance industries. 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. Our credit facility requires us to meet a fixed charge coverage ratio and other financial covenants. Our ability to comply with these loan covenants may be affected by factors beyond our control and a breach of any loan covenants would likely result in an event of default under the credit facility, 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 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. 46
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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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