Last week, NOOF reported earnings for the Q3 2011 fiscal quarter. Despite mixed results, the stock responded positively to the news, ending up 2.44% on the day.

The stock had run-up almost 17% leading up to the announcement, and the momentum has continued since then.

I think most of the bad news has already been priced into the current stock price.

Going forward, domestic results should continue to show signs of stabilization and the balance sheet should continue to beef up via margin improvement and cost savings from the upcoming move.

Financial Results

Revenues for the quarter jumped 23% to $14.2m from $11.5m in the same quarter last year. This is the first quarter in quite a while that has shown a measurable increase (last quarter’s results showed mostly flat revenue figures)

The majority of the increase was in the Film Production Segment, as the company completed one of its producer-for-hire arrangements. However, the increase in revenue was not without costs, as the company’s COGS increased by approx $3m, leading to much lower margins.

The segment did manage to return to profitability in the quarter, reporting an operating profit of $0.3m to draw almost break-even through the first 9 months of fiscal 2011.

The Transactional TV segment continues to stabilize, with revenues down 3% compared to the prior year quarter. NOOF’s international expansion is progressing in both the VOD and PPV channels and will continue to be the key source of growth.

Through the first 9 months of 2011, revenues were $37.8m compared to $35.3m in the same prior year period. International sales now make up 15% of total revenues compared to an 11% share last year, growing 51%.

Operating income through the first 9 months was $0.6m compared to $3.7m in 2010. The decrease was primarily due to an asset impairment charge of $0.6m, increased costs associated with the upcoming location move, and a shift in sales towards the lower margin segments.

The balance sheet remains rock solid, with $14.7m in cash and working capital of $21.3m. The company extended its $5m line of credit until Dec 2011.

Due to the large D&A expense, the company continues to generate solid FCF.

Conference Call

On the international expansion:

“Within this transactional TV segment, we continue to have success with our international expansion. We are now distributing content in over 28 countries”

“we are continuing to experience a growth trend within our international distribution, and are currently generating approximately $1.5 million per quarter from this international revenue.”

On the profitability of the Film Production segment:

“We’re focusing our efforts within this segment on the profitable components of the business, which has allowed us to take advantage of reducing the segment’s overhead and improve margins, which should become visible in fiscal 2012.”

On the upcoming location move and equipment upgrades:

“By executing our equipment upgrades to current with the relocation, we expect to realize cost savings and minimize the operating risk that goes with such major upgrades. We originally expected to begin construction in fiscal year 2012, but due to timing and additional cost saving opportunities, we are beginning the relocation in Q4 fiscal 2011.”


There is no doubt that the company has run into some problems outside of the main business segment, leading to the writedowns over the past 2 years. However, it looks like management is now focused on profitability headed into fiscal 2012.

(The financial statement notes also show that the co-Presidents of the Film Production segment were let go in September/October last year. Hopefully this means that the bad decision making and poor results are behind them)

Going forward, management is very bullish on the cost saving potential of the new facility. There are upfront costs for such a move, and the company expects to realize those costs in the next two quarters.

Combined with the heavy equipment investments (which were needed anyways), these costs will continue to depress profitability for the next two quarters but should pay off in the long-run.

This faith is reflected in continued institutional support, with Baker Street Capital continuing to buy up shares at a rapid pace.

Since disclosing an initial 6.3% position on Dec. 21, 2010, Baker’s recent 13D/A filing shows that the stake has grown to 7.9%, with almost 200k shares recently purchased north of $2.00.

Despite the recent run-up in price, the stock still trades at very low multiples (EV/EBIT – 4.01 or EV/FCF – 2.7 based on 5yr averages).



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