BOMN - Boston Omaha Corporation

[Read the Footnotes]

getting into the SPAC game

 

https://www.sec.gov/ix?doc=/Archives/edgar/data/1494582/000143774920020210/bomn20200924b_8k.htm

Another way to look at it is that they never left the SPAC game in the first place.

[ratiman]

How is this not a grab-bag of high-capital businesses that aren't terribly interesting, run by two guys without a track record? Take the Arizona fiber to the home business. Isn't it a little late in the day to get into a tiny, wired telecom business? It's not like FTTH, real estate brokerage, or billboards are fast-growing business with lots of opportunity, nor are they complementary in any way. Usually when there's a holding company like this, the person at the center has a track record of building businesses, like Diller at IAC or Jonas at IDT or even Bryant Riley. I'd rather invest in somebody who's run businesses and shifted into investing than two investors who are shifting into running businesses. It seems like the most likely outcome is that BOMN invests all the cash, it's stuck with a bunch of small, mediocre businesses, and management uses the dual share structure to award themselves big salaries.

[ratiman]

BOMN says that more than $190mm has been invested in billboards. Annualizing last quarter, BOMN will do $27mm revenue in billboards. Assuming every single dollar of revenue converts to cash flow and they never pay any taxes, that's a return of 14%. Are these guys sure that's a great investment? And it's not like its growing super fast, revenues are down year over year. And the cutesy writing in the annual report ("road to hoe") isn't encouraging either. It's amazing that they just managed to raise another $200mm. These two are true geniuses at raising money, that is clear.

[Kuhndan]

If the one fellow wasn’t related to Buffett, would we be talking about this company?

[CorpRaider]

Interesting posts.

 

I think it would be amazing if they could buy for 14% unlevered returns in that bidness.

 

Assuming a little reversion/post covid improvement to $30MM annual run rate and a 50% ebitda margin (yeah, this is a good business, historically) they paid under 13x EBITDA?  That seems aiight, especially for when they were buying it.  I have to pay ~15.5x 2022 consensus EBITDA during covid for LAMR (like 16x for MRQ annualized). 

 

 

 

[ratiman]

They say that FTTH is their best opportunity for new capital. But why? Airebeam has 7000 customers, not clear how many of those are wireless and how many FTTH. Here is what they say:

 

When we learned about AireBeam’s current assets, their strategy and particulars of their markets, we dropped everything and boarded a plane to Phoenix.  What we found was a business earning attractive returns on its existing assets and a runway that with additional capital looked scalable. In our opinion, AireBeam’s operations and targeted markets combine a host of variables to create a local competitive advantage.  However, the single most attractive attribute going forward may be the discipline to target areas where laying new fiber provides customers with a significantly better product as opposed to just a better product, leading to high take rates on the built network.  What is a significantly better product?  The answer is a product that can provide a lot more capacity.  Fiber to the home can offer far better speeds than copper-based lines.

 

Can anybody reading this annual report not know that fiber is better than copper? The question is not "is fiber superior" it's "why won't Airebeam get crushed by bigger competitors and 5G?" Airebeam is always going to be surrounded by bigger competitors that can always go in and crush tiny Airebeam without thinking about it. As these neighborhoods in Arizona grow, why wouldn't it make sense for Comcast or whoever to overbuild Airebeam?

 

This whole company has a nostalgic feel to it, beginning with the name. Billboards. Cable. Insurance. These guys aren't going to succeed by aping Buffett, Malone, and Ted Turner. They need their own ideas.

[BG2008]

BOMN says that more than $190mm has been invested in billboards. Annualizing last quarter, BOMN will do $27mm revenue in billboards. Assuming every single dollar of revenue converts to cash flow and they never pay any taxes, that's a return of 14%. Are these guys sure that's a great investment? And it's not like its growing super fast, revenues are down year over year. And the cutesy writing in the annual report ("road to hoe") isn't encouraging either. It's amazing that they just managed to raise another $200mm. These two are true geniuses at raising money, that is clear.

 

I will kindly ask Michael Gamzon of Griffin Industrial to study these guys!

[KJP]

 

Can anybody reading this annual report not know that fiber is better than copper? The question is not "is fiber superior" it's "why won't Airebeam get crushed by bigger competitors and 5G?" Airebeam is always going to be surrounded by bigger competitors that can always go in and crush tiny Airebeam without thinking about it. As these neighborhoods in Arizona grow, why wouldn't it make sense for Comcast or whoever to overbuild Airebeam?

 

 

I have no view on Boston Omaha, but I'm not sure these particular concerns are valid.  Why would a larger player overbuild an existing FTTH infrastructure, rather than just buy it?  Once you have an FTTH in place, I doubt it's going to be overbuilt.  As for 5G, why do you think it's a viable broadband option in suburban/rural areas?  I'm not up on the physics, but all of the recent words and actions of the potential 5G players suggest it isn't. 

 

Two other examples of companies doing FTTH builds are Allo (Nelnet subsidiary) and Ting (Tucows subsidiary).  Nelnet bought Allo several years ago, invested several hundred million into it, and two days ago sold a controlling stake.  The transaction is complex and I'm not sure that Allo's existing and future capital structure have been disclosed, so I don't know what Nelnet's returns have been on all the capital they've invested.  You can look at the comments on the VIC Tucows short thread to see a heated debate about the economics of its fiber builds. 

 

The biggest determinant of returns on capital appears to be the speed at which homes passed actually take up the service, which I think would depend on what competing offerings there are.  If you trying to overbuild an existing DOCSIS 3.1 network, I assume you'd have alot slower uptake than overbuilding DSL connections. 

 

 

[bilo]

Isn't this the same smooth talker that convinced teeny controlled micro cap asset manager Bexil to incinerate a substantial amount of its small balance sheet attempting to get into the mortgage origination business? 

 

Is there any prior evidence this guy is actually a good investor and not just engagued in a "buffett mimicry" marketing scheme?  Good for him, it has worked to raise money.  But where is the evidence he knows what to do with the money?  I admittedly didn't look that hard, but on its face this stock looks absurd. 

[longterminvestor]

Another Fiber biz being added to BOMN.  Asset purchase, 80% ownership (current ownership retaining 20%).  Little bigger than previous buy, 10,000 subscribers vs 7,000 subs in previous deal.  Basic math here shows BOMN paid a higher premium for this business than previous purchase based on purchase price and estimated #of subs.

 

Other notes from Q3 10Q (filed 11/9/20)

- BOMN extended an 18 month $20M Unsecured note with effective interest rate of 14% to the Home Builder they own a stake of.  Not too shabby of a coupon there in this environment

- Surety business is still growing in COVID, happy to see considering pipeline of new business coming from NYC for rental guarantee surety bonds in lieu of deposits was shut down due to pandemic concerns.

- Billboards basically flat - seems like a win considering

- SPAC outcome is unknown, however this is similar bet to BOMN.  A strong belief management can allocate capital at above market returns then SPAC is a nice arrow to have in quiver for take over targets. 

 

DOWNSIDE is as previously discussed, dilution.  From Q2 to Q3 Corp issued roughly 3.7M shares (representing 16.5% of enterprise outstanding @ 22.5M shares).  22.2M Class A shares outstanding as of 11/6/2020. 

 

See link for news on new fiber biz:

https://www.sec.gov/Archives/edgar/data/1494582/000143774920025556/ex_218147.htm

 

[longterminvestor]

Dream Finder Homes is a public entity now (DFH) with 30,855,329 shares outstanding.  BOMN owns 4,681,099 (15.17%).  BOMN's ownership stake is roughly $100M.  That's a pretty amazing amount of value creation in a couple years - first investment made in late 2017.  Believe there is roughly $16M of "consideration" on this however there were some shares allotted to BOMN during IPO so I can not come up with a perfect "to the penny" cost amount.  All in all, great capital allocation from management at BOMN. 

[CorpRaider]

Nice to get some of a homebuilder with richer valuation than NVR.  I was hoping that IPO would be under the radar and bust, but that's just crazy talk in this market.

 

Well it's like Charlie and Warren always said, "IPOs + SPAC sponsorship fees and warrants. Well, you have to dance while the music is playing."  ;D

[cubsfan]

Dream Finder Homes is a public entity now (DFH) with 30,855,329 shares outstanding.  BOMN owns 4,681,099 (15.17%).  BOMN's ownership stake is roughly $100M.  That's a pretty amazing amount of value creation in a couple years - first investment made in late 2017.  Believe there is roughly $16M of "consideration" on this however there were some shares allotted to BOMN during IPO so I can not come up with a perfect "to the penny" cost amount.  All in all, great capital allocation from management at BOMN.

 

I believe the share count is 90M shares outstanding for DFH - or a $1.9B market cap?

 

Boston Omaha owned 4.681M shares prior to IPO, and purchased 2.4M shares at IPO price of $13.

BOMN now owns 7.1M shares worth 8% of DFH

 

BOMN lent approx $20M or so to DFS last June 2020 - with conversion privileges to common stock at a later date.

 

So Boston-Omaha's stake in DFH is $140M currently.

 

It's tough to figure the cost basis - but I think it is $10M initial investment, 3years ago, plus the $31M at IPO?

[longterminvestor]

I'm not a pro at reading S-1's and equity structures with Class A/Class B shares (as is the case with DFH).  I try to be as detailed as possible when I post so with that in mind I do want to explore the chatter here on outstanding shares.  Hoping to learn something here cubsfan.  I took some time to review the filings from DFH and I have the following to report:

 

#1 - BOMN filed a Form-3 (https://investors.dreamfindershomes.com/static-files/7237f8b8-c2b6-493f-8488-8b5ed8848b5b) showing 4,681,099 shares owned.  And the form shows an "X" on the "10% Owner".  THIS FILING WAS DATED 1/20/2021

 

#2 - Page 1 on the Prospectus filing (https://investors.dreamfindershomes.com/static-files/8989edca-b18e-4e1a-a44b-eee26ccf53d7) shows BOMN is buying 2,385,000 shares at the offering price.  THIS FILING WAS DATED 1/22/2021

 

#3 - Page 181 on the Prospectus filing (https://investors.dreamfindershomes.com/static-files/8989edca-b18e-4e1a-a44b-eee26ccf53d7) shows 4,681,099 shares owned and BOMN being a 15.2% owner (rounded).  What is weird to me (and I don't understand) is if they are buying 2.385M shares at the offering the share count pre-offer in this chart layout should be 2.385M shares less and post offering share count should increase 2.385M?  I am very confused.    THIS FILING WAS DATED 1/22/2021

 

#4 - Page 56 on the 8-K  filing (https://investors.dreamfindershomes.com/static-files/28133d69-1318-44f3-9b66-28ee5d597b11) shows 4,681,099 share count for BOMN.  What happened to the 2.385M shares purchased at the IPO?  THIS FILING WAS DATED 1/25/2021

 

#5 - Page 2 on the 8-K  filing (https://investors.dreamfindershomes.com/static-files/28133d69-1318-44f3-9b66-28ee5d597b11) shows 11,040,000 shares were completed in the offering.  If you take the 21,255,329 shares pre-offering + 11,040,000 offered - you get 32,295,329 Class A shares outstanding.  My initial share number in previous post did not add the additional shares in over allotment. 

 

#6 - CLASS B - Do we count the Class be shares in the outstanding share count???  If you count the Class B, yes shares out are 90M, but do you?  This is confusing to me due to the CEO owns 100% of the Class B shares that are convertible to Class A.

 

My conclusion after some time is BOMN owns somewhere in the range of 14%-15% of Class A shares on DFH and I my brain cant handle the implications of the Class B Shares (although I should investigate, BOMN has similar structure with Class B shares as well). 

 

I guess I am hoping someone can help me here - or we just wait a couple months for the filings to come through.  But its fun to learn this stuff.  Thanks!

 

[cubsfan]

^ I've owned/followed BOMN for quite some time now. Like what they are doing a lot. The DFH investment was a tiny $10M investment that looked

completely insignificant - up till now.  But let me try and answer what I can for you. I'm no expert at all in reading S-1's etc. The Class A/B stuff gets confusing for me too.

 

1- BOMN has always owned 4.681M shares. And yes, that is > 10% of the Class A stock (but that does not include Class B - so ownership is 5.2%)

2- BOMN added another 2.238M shares upon IPO at $13 - correct. That was increased from 1.85M shares in documents from the prior week.

3- On the document you referenced here - see page 61 showing the total DFH capitalization share count as 91,000,000 shares.

    Prior to IPO there were 81M share, including 4.681M shares owned by BOMN.

    Post IPO, 9.6M shares offered to public @ $13, including 2.238M new shares purchased by BOMN

    Total BOMN shares = 7.1M shares or around 8% of DFH 91+M shares

4- I can't find P 56 your reference, but if you are talking about the 4,681M shares, those were CONVERTED from Units owned by BOMN PRE-IPO.

    Those are laid out in the conversion table listed on Schedule 1 of the document you linked here. This does not include the New IPO shares.

5- See my answer to #6 below

6- The Class B shares have to do with the Voting rights. The CEO basically controls the company in terms of voting(86%).

    IF you reconcile the A/B structure,  you get around 91-93M shares outstanding. 

 

The table you really need to study is the one on page 61 that I referenced in point #3.

Also, read the section on Corporate Recapitalization on page 166 of the document you linked. That will help you reconcile the A/B share counts

in relation to the prior "units" owned on a Pre-IPO basis.

Read the section on Capitalization starting on Page 59-62.

 

 

 

[Broeb22]

Page 17 of the S-1 filed on 1/11/21 gives some detail.

 

It's important when thinking about the shares outstanding to ignore voting rights and think about the economics of the shares. The conversion right of 1 B share into one A share is a good hint in that it means to me that the A and B shares are economically equivalent. In other words, if Zalupski converted all of his B shares today into A shares, how many shares would there be?

 

You'll run into similar issues when a company is controlled by another shareholder, like in the case of BRBR which is 80% owned by POST. Their shares outstanding is kind of funky. Also, SPACs get kind of weird when you have to account for warrant (and 1/2 warrant) dilution which can be very confusing. Even if the warrants aren't currently dilutive, if I'm looking at the stock it's because I think there is good upside so I tend to assume the warrants convert. 

 

Anyways, here's the text from the filling:

After completion of this offering, our common stock will consist of two classes: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, transfer and conversion rights. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to three votes per share, on all matters that are subject to stockholder vote.

The shares of Class A common stock and Class B common stock issued and outstanding after this offering will represent approximately 33.9% and 66.1%, respectively, of the total number of our shares of Class A common stock and Class B common stock and approximately 14.6% and 85.4%, respectively, of the combined voting power of our Class A common stock and Class B common stock issued and outstanding after this offering. As a result of Mr. Zalupski’s ownership of shares of Class B common stock, he will be able to control matters requiring stockholder approval, including the election and removal of directors, changes to our organizational documents and significant corporate transactions, including any merger, consolidation or sale of all or substantially all of our assets.

Following this offering, each share of Class B common stock may be converted into one share of Class A common stock at the option of the holder thereof and will be converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. Further, all of the shares of our Class B common stock will automatically convert into shares of Class A common stock upon the date when Mr. Zalupski and permitted transferees of our Class B common stock cease to hold shares of Class B common stock representing, in the aggregate, at least 10% or more of the total number of shares of Class A common stock and Class B common stock issued and

17

TABLE OF CONTENTS

 

outstanding. Shares of our Class A common stock are not convertible into any other shares of our capital stock. See “Principal Stockholders” and “Description of Capital Stock—Class A Common Stock and Class B Common Stock” in this prospectus for additional information.

[AzCactus]

Just wow :o

[longterminvestor]

thanks for the learning opportunity Cubsfan.  What a move....20% in a couple days. 

 

Well done write up I found poking around on twitter regarding BOMN for those interested. https://introspectivecap.substack.com/p/long-boston-omaha-corp-nasdaq-bomn?r=9t03x&utm_campaign=post&utm_medium=web&utm_source=twitter

 

Write up makes a compelling case on Fiber and thesis being Fiber is good capex in low served areas where access to DSL (old outdated phone lines) are the only access to internet. 

 

Lastly, another note on valuation on BOMN, the warrants in Yellowstone are worthless today but could be worth something if capital is well deployed.  I think I read some where BOMN has warrants to own 37% of Yellowstone Acquisition Co. 

[cubsfan]

^ LT  - Thanks very much for the writeup. Have not completed it - seems very good.

 

FYI - if interested, read the annual letters - very good items re: the economics of the business lines. No bullshit and well written letters.

These 2 founders are the real deal. No interviews, analyst calls, earnings guidance or investor forums.

You just get filings, 1 annual meeting/annual report and that is it.

 

So, yeah "under the radar" is it.

 

Thanks again.

 

[longterminvestor]

https://attendesource.com/profile/web/index.cfm?PKwebID=0x778636a56&varPage=hotel

 

30 min video chat with Co-CEO's of BOMN.  Wells Fargo analyst Steve Cahall moderates.  Cahall's "hhmm, yeah, yeah, hmmm" gets a little annoying.  Overall - pretty good high level on the business directly from the jockeys on the horse.  Dated 12/1/2020.  Enjoy!

[cubsfan]

^ Dude - thank you for passing this on - first time I've seen this. You made me eat my words about they don't talk to analysts! 

 

Really appreciate it!

 

Cubs

[gfp]

Great interview thanks.  Around 33 minutes in they touch on some of the special sauce in Berkshire, which is getting permission to use your operating subsidiaries as admitted assets in your insurance companies.  Not as exciting at Berkshire lately, since there is no shortage of capital or underwriting capacity - but it's always been interesting to see Berkshire put these operating businesses inside the insurance companies.

[longterminvestor]

Anyone else eagerly awaiting the Annual Letter and 10-K?  Posted some financials on fiber acquisition today.  Hope to see progress and update on our company here...........

[wescobrk]

what do we put for the password to watch it?

thanks.

 

Great interview thanks.  Around 33 minutes in they touch on some of the special sauce in Berkshire, which is getting permission to use your operating subsidiaries as admitted assets in your insurance companies.  Not as exciting at Berkshire lately, since there is no shortage of capital or underwriting capacity - but it's always been interesting to see Berkshire put these operating businesses inside the insurance companies.

[longterminvestor]

Not much chatter here after the posting of the 2020 Annual, so I guess I will poke the bear.  I did some looking in the 10K regarding the DFH transaction:

They mention owning 4.801M shares of DFH in the "risks to business" section of annual, stating at time of writing on March 26, 2021 value was $111M.  

I have a couple comments:

#1 - What happened to the 2.238M shares BOMN was getting at the IPO of DFH?  The 10-K outlines in NOTE 18 titled "Subsequent Events" and the section DOES NOT mention an additional purchase.  

#2 - Reading this got me thinking, where is the $111M?  I believe BOMN as of 12/31 is still valuing the DFH shares as an equity investment.  So my conclusion is be on the lookout for a significant lift in assets in Q1.  

#3 - and related to point #2 above, why issue 2.345M shares of BOMN when Book Val is depressed when you are not showing the $100M+ in DFH stock on balance sheet?  

Hope time will solve this riddle for me.  I find it interesting trying to piece all this together.  Still long and thinking about buying more.