Boston Omaha : 2020 Annual Letter

B O S T O N

O M A H A

CORPORATION

2020 Annual Letter

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To the Shareholders of Boston Omaha Corporation:

Boston Omaha Corporation reported an increase in net worth of approximately $36mm for fiscal year 2020. Book value per share decreased 4.6% last year. Since present management first took over in early 2015, book value per share has grown from $7.48 to $14.01, as of December 31, 2020, a compounded annual increase of approximately 12%.

Last year our annual letter was delivered just over a month into the global pandemic. Neither at that time, nor now, do we have any insightful thoughts on the event other than to share our continued optimism.

Though we can offer no commentary on the pandemic, we can report on what we did during it. As merger and acquisition activity plummeted in the first half of the year and unemployment spiked, some businesses were forced to make hard decisions. Many significantly reduced their workforce and a number resorted to "material adverse change" clauses in contracts as justification for breaking deals that no longer penciled out with the same certainty.

At Boston Omaha, we have gone to great lengths to build and maintain a strong financial position and to explain why we choose to hold excess cash, use minimal debt, refuse corporate guarantees of subsidiaries, and generally run the business with the expectation that uncertainty is the only certainty.

At the same time the world was starting to shut down, with the NBA

suspending the 2020 season, followed by the NCAA, PGA and a cascade of others, Boston Omaha closed on its acquisition of AireBeam, paying cash and committing to millions in additional investment to an entirely new line of business. Balance sheet strength is a powerful antidote to market volatility, and why we prefer to hold significant amounts of cash rather than debt.

This is not to say that Boston Omaha's businesses were not affected. They were. Our billboard revenues were down, written premiums in our insurance business were down and we worked tirelessly with our customers to maintain business relationships and provide flexibility to help all parties get through this tough time.

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We were lucky that every one of our businesses, including those private companies in which we own a minority stake, were declared "essential" by its various government authority. Clearly, this was not the case for every business and sadly, the pandemic was devastating to many through no fault of their own.

To be clear, the purpose of this recap is not to boast, rather it is to reflect. There is a price that shareholders pay to own a company that prioritizes financial durability over maximization of returns.

We like to think that the returns we forgo by not running Boston Omaha's capital base "pedal to the metal" are actually deposits in the "Bank of Staying in Business" that can be withdrawn when times are tough. Operating expenses show up in the income statement, but the cost and/or benefit of generally holding a cushion of excess capital in US Treasury Bills does not. Among our many jobs at headquarters, calibrating what is an appropriate level of risk ranks equal to finding opportunity.

As your co-CEO's, we have a considerable portion of our net worth invested in Boston Omaha, as do many friends and family members. Therefore, we are happy to trade a lower return on equity capital for increased certainty of surviving whatever the world throws at us.

That doesn't mean that we will not make mistakes and misjudge the risk of an investment. That is inevitable. What we mean is philosophically our intent is to focus just as much on risk as returns.

We would like to take this opportunity to thank all our managers personally, Brendan Keating, Gary Solomon, Patrick Zalupski, Scott LaFoy, Dave Herman, Greg Friedman, and Steve McGhie (who just joined at the end of 2020 and who we will introduce later), for their leadership which proved invaluable to their businesses and to Boston Omaha. And we want to thank all our employees for their commitment and care this past year.

Shareholders should know that all these individuals served their fellow employees, customers and communities honorably in the midst of a pandemic. As essential businesses, our employees kept working and did so with the extra difficulty of keeping everyone safe and focused, following ever evolving guidelines about where and how work could be conducted on top of a shifting landscape of uncertainty.

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The result of everyone's incredible efforts is that Boston Omaha weathered the storm and is stronger than ever. 2020 was a year of challenges and opportunities and we have a lot of ground to cover in this year's letter.

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We write this letter for all our shareholders and recognize that there may be some who are reading our letter for the first time. Therefore, we believe it's important to provide a brief history of Boston Omaha and outline our business philosophy. For those of you who have been with us a while and have read a few of our letters, feel free to skip onwards to the next section.

On the eve of Valentine's Day in 2015, present management fell hard for a small company in Houston whose only business was a single building that housed a sushi restaurant. Over the past six years, approximately $480mm in capital was raised and over $280mm has been deployed in operating businesses in over 50 transactions to build Boston Omaha into what it is today.

The sushi restaurant was the only business we have divested to date - everything else has found a long-term home at Boston Omaha. We think about the business today as being divided into two categories, businesses that we control and businesses where we are minority partners. Though we always would prefer to own all of a wonderful business, flexibility in our ownership percentages provides us opportunities to work with first class owner operators.

In the past six years we have pieced together one of the largest billboard operations in the country, Link Media Holdings. General Indemnity Group, a national mono line surety insurance business has grown from writing business in one state to operating nationwide, and most recently, we have a growing rural broadband business as a result of two separate acquisitions, AireBeam and Utah Broadband. Finally, Boston Omaha Asset Management is at present a small wholly-owned and increasingly important business that manages separate funds.

Each of these controlled businesses are run by managers who either built the business and retain some equity ownership, or managers that have owned and operated their own businesses in the past and bring the same perspective to their present job.

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In the case of our non-controlled businesses, they are all run by founders or a family that has controlled the business for decades.

Logic Commercial Real Estate was founded in 2015 by Brendan Keating who still retains roughly 70% of the business with Boston Omaha as his 30% partner. Brendan also sits on our board of directors, and in addition to returning dividends to Boston Omaha to date exceeding the cost of our initial investment, he is increasingly involved with us in building a number of other businesses at Boston Omaha Asset Management.

Crescent Bank and Trust has been in the caring hands of Gary and Martha Solomon since they took control of the New Orleans bank in 1991. Boston Omaha owns just under 15% of the bank today.

Dream Finders Homes was started by Patrick Zalupski in 2008 and since our first year working at Boston Omaha, we have invested more or less annually in Dream Finders through the purchase of stock, JV partnerships in specific developments, and helping to finance their acquisitions of other home builders.

Boston Omaha runs a highly decentralized business model and is dependent on both, finding businesses we understand that have long runways with ample opportunities for growth and, aligning interests with great managers.

We take this opportunity each year in our annual letter to walk through how we judge the performance of each of our business lines individually, and then our performance as managers generally. To date, we have started our annual report with a statement of the growth or decline in book value since the prior year and since inception. That is going to change going forward and here we will tell you why.

In last year's letter, we stated "we do not believe book value per share alone will be a great statistic to use for the next few years, and possibly longer, in tracking Boston Omaha's progress. And in even worse news, we have no other single statistic to suggest that will."

We have always tried to report a number of variables that relate to how a shareholder may calculate intrinsic value, which at its core, is the evaluation of these aforementioned controlled and non-controlled businesses and the cash flow they produce over their economic lives, discounted back to today.

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