NOOF was incorporated in 1998, providing transactional television services and a distributor of general motion picture entertainment. The company’s key customers are large cable and satellite operators, premium movie channel providers and major Hollywood studios. It has three principal businesses: Transactional TV, Film Production and Direct-to-Consumer. On the Transactional TV, it distributes adult contents to cable and satellite operators who then redistribute to retail consumers via video-on-demand and pay-per-view. For this segment, the revenue source comes from contractual percentage of the retail price paid by consumers to purchase the content. Second segment, Film production, is to distribute mainstream to erotic films to large cable and satellite operators, premium movie channel providers, etc. And third, the Direct-to-Consumer revenue source is coming from membership fees for adult content to consumer website.
For the three segments, the first was the most profitable segment whereas the last has been incurring losses and expected to incur more losses in the near future. Nevertheless, the transactional TV segment has been in the decline for the last 03 years, due to the cut back of consumer expenses and consumers moved to free website for the content. The film Production segment experienced the challenging market conditions since 2009, and NOOF had to write off the goodwill for this segment. The business got high level of customer concentration, with 46% of its total revenue coming from Comcast Corporation (CMCSA), DirectTV (DTV), DISH Network (DISH), and Time Warner Cable (TWC) in fiscal year 2011.
The last 03 years NOOF experienced the decrease significantly in both operating income and net income, making the company gain just little bit of profit in 2009 and get deeper and deeper loss in 2010, 2011. This result is caused by several factors, declining sales combined higher cost of sales, higher general and administrative costs, and the goodwill impairment as well as asset impairments other than goodwill occurred in those periods. However, the cash generation ability is quite consistent over time, backed up by depreciation & amortization and because the impairment did not cause the cash outflow. Here is the snapshot of its operating performance and its cash flow generation.
|Operating Cash Flow||6||0||14||15||12||19||8||9||5||8|
|Free Cash Flow||3||-1||13||14||11||17||6||5||4||3|
For the financial health, the company is nearly debt-free, along with significant level of cash on hands, around $15 million as of September 2011 reporting. So with the current market capitalization of $20 million, the enterprise value of NOOF stays at around $5 million. Basically, if we buy the company at $5 million, we could own the debt-free media company generating consistent positive operating cash flow, at average 10 year rate of $10 million, and average free cash flow of $7.5 million.
Disclosure: Long NOOF