US Media Stock: Trading Below Net Cash, with insider ownership at 4.5× P/E and P/NCAV of 0.88x

playing around with owner earnings and hidden assets

I've decided to reexamine all American based OTCM stocks. While on the hunt I found something interesting. A media tech company trading below net cash, with strong insider ownership, a history of profitability, and a 4.5x P/E.

Business Overview

• Company name: Adaptive Ad Systems

• OTCMKTS: AATV

• Marketcap: $9,037,463

Adaptive Ad Systems operates through four wholly-owned subsidiaries Ad Systems, Inc., Adaptive Media, Inc., Adaptive Broadband, Inc., and Adaptive TV, Inc. and one minority affiliate, all under a consolidated structure that serves the cable television and streaming advertising markets across the United States .Almost all of the company’s revenue comes from inserting and managing video ads for cable and streaming providers. Instead of selling its technology, Adaptive installs its proprietary software and servers at each cable “head-end” (the local facility that sends TV signals), then keeps full ownership and control of those systems under long term service contracts. Advertisers from small local shops to national brands pay Adaptive to buy ad slots, schedule commercials, and insert them into channels like ESPN, Discovery, and CNN. Adaptive also handles traffic reporting and billing, earning both service fees and a cut of the ad sales . Its cloud-based operations allow a small team to manage thousands of ad insertions in over 210 designated market areas nationwide.Because the company maintains exclusive, multi-year contracts rather than one-time sales, it enjoys a steady stream of recurring revenue and strong customer relationships. These agreements obligate Adaptive to update, maintain, and operate its equipment, which builds dependable cash flow and reduces the risk of sudden revenue drops.

Financial History

Income Statement:

Over the past decade AATV has roughly doubled revenue from $3.6 million in FY14 to $7.5 million in FY24. Gross margins have hovered between 69% and 84%, reflecting consistent pricing power and efficient production. Operating profits dipped in FY15 and FY19 but recovered strongly, with EBIT margins rising to 33% in FY24. Net income was volatile early on just $140 000 in FY15 but climbed to nearly $2 million by FY24. To me this financial history looks like the financial history of a company with durable economics. Even though you may think to yourself ‘‘who watches TV’’. Keep in mind a lot of adults and senior citizens still watch TV.

Balance Sheet:

Adaptive Ad Systems has quietly built a fortress balance sheet over the last decade, transforming $1 million of cash into over $12 million while keeping debt almost near 0. Total assets climbed from $2.3 million to $24.7 million as retained earnings turned negative deficits into $14 million. Its good to see that management wisely avoided excessive leverage, maintaining debt to equity below 0.5%. Such financial prudence creates optionality. AATV can weather downturns or finance growth without begging for capital.

Owner earnings:

Owner’s earnings is a concept created by Warren Buffett to measure the real cash a business generates for its owners. To figure it out, start with the company’s net income, then add back non-cash charges like depreciation and amortization. You also include other non-cash items, such as write-downs or stock compensation. From that total, subtract the estimated maintenance capital expenditures — the money needed just to keep the business running at its current level. Lastly, adjust for changes in working capital. Buffett introduced this method in his 1986 shareholder letter as a better way to assess long-term business value.

In short, AATV has been constantly profitable. On average they have earned around $2.4 mn in owner's earnings per year for the last 9 years. For those who are interested below is my working to figure out AATV owner earnings. Skip it if you're not interested in accounting. I just wanted to show my work. I don't want to turn this substack into accounting 101 .

To estimate maintenance capex, I used a common method applying 70% of depreciation and amortization (the rule of thumb ranges from 50% to 70%). This approach makes sense because depreciation reflects the wear and tear on a company’s assets over time. While depreciation is a non cash accounting charge, it signals that the business’s equipment is aging and will eventually need to be replaced. Maintenance capex represents the actual cash required to keep operations running at their current level. Using a percentage of depreciation as a proxy allows me to make a conservative and practical estimate.

Valuation

Above is my very conservative and simple discounted cash flow (DCF) model. Using owners earnings I just used the average 9 year average as a starting point. Using a 6% discount rate (Joel Greenblatt preferred discount rate) and a very conservative growth rate of 5%. To make it even more conservative I didn't do a terminal value, I just estimated the next 10 years.As you can see based on the projected owners earnings AATV is deeply discounted. Even when you have a higher discount rate than the growth rate it still gives you a large discrepancy between price and value. Currently AATV stock is going for $0.18 with my estimated intrinsic value to be $0.46. Meaning the estimated upside is +155%

The problem with DCFs: I personally think the DCF is a good way to value a company, it makes sense right ? Estimate the present value of a business based on its expected future cash flows. But the problem I think isn't with the DCF / model I think it's people who put in the inputs. For example, if you get an investment banker and tell him to sell a company. His incentive is to try and justify the highest price he can sell without looking silly. You could give an investment banker the worst company in the world, a money losing company with horrible economics and still the investment banker comes up with a great projection. Here's how I see it. To make DCF truly effective you have to be honest and conservative. For instance, if you're an investor and have no special competence in biotech why bother doing a DCF for a biotech company. If you cannot understand the economics of a business you can't understand its cash flows and estimate the future cash flows. However I do understand why investment bankers do it. They can't say ‘‘no’’ to their boss. Their boss tells them to make a DCF with a great projection on a biotech company. They will make a DCF with a great projection on a biotech company. The other part is being conservative. You have to be conservative to add a margin of safety. For example, if the last 10 years of FCF growth has been 20% CAGR assume its going be less for the next 10 years. Things don’t grow forever. But things can compound steadily over many decades. I have plenty more to say on this subject however let's get back on topic.

What a fortress of a balance sheet. Half of the assets are in cash. When looking on a balance sheet basis it's a very cheap company. Even adjusting the numbers for estimated liquidation its still extremely cheap. Adjusted P/NCAV is only 1.11x and Adjusted Price to book value is only 0.71x. It's even trading below net cash. With the market cap being 9 mn and net cash being 12.6 mn. Keep in mind this is not a dead company, this company has been consistently profitable and still has at least 20 years left. TV for the next 20 years I think will see a decline but still be alive. It won’t disappear overnight. However as long as people are watching TV AATV still has a chance to profit. Here's my thought process. This company that has been constaily profitabile should not be trading below net cash.

Hidden Assets:

Adaptive Ad Systems owns several pieces of real estate that are not used in their day to day technology operations. These properties are held as investments, which means the company isn't currently using them for business but is holding onto them because they could go up in value or be useful in the future. This kind of real estate often doesn’t get updated to its true market value on the balance sheet, meaning the actual worth could be higher than what is shown in the financials. In other words, there may be “hidden value” in these properties that investors might overlook. There are very little details about these properties, however the idea that AATV holds 7 investment properties gives this business a larger margin of safety even if it's not shown on the balance sheet. There's a chance that those 7 investment properties are worth more than the entire market cap. However due to the lack of information I could find I don’t think it would be wise to assume that. So it's better to just ignore it entirely when valuing AATV.

Management and Risks

At Adaptive Ad Systems, the CEO, J. Michael Heil, owns a big piece of the company over 28% of the regular shares and all of a special class of shares that gives him extra voting power. That means he’s not just working for the company, he’s deeply invested in it.When the CEO owns that much, his money is on the line just like everyone else’s. If the company does well, he benefits. If it struggles, he feels the pain too. That keeps his goals and the goals of shareholders in the same place building long-term value and running the business carefully.

One key risk I think is the future proof of this business. Yes it's true the younger generation doesn't watch as much TV as their older counterparts. However, keep in mind it will be at least another 15-20 years until I personally think traditional TV becomes a thing of the past. But when you factor in the cheapness of the company you still get a large margin of safety with a large upside. This is a constantly profitable business trading below net cash. Looking at the liquidity it's not the best. However, that's the nature of looking at these low market cap companies. It’s just a part of the game. If you're a boxer expect to get punched in the face.

Berkshire Hathaway 2025

The Berkshire Hathaway shareholders meeting is tomorrow and I'm excited to see what happens. I hope next year I can go. I really want to see Warren Buffett in person before it's too late. Below is a meme I saw on Twitter that hit a little too hard. I just had to share it.

Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial advice, investment recommendations, or an offer to buy or sell any securities. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author may hold positions in the companies mentioned, but the opinions expressed are their own and are subject to change without notice. Investing involves risk, and past performance is not indicative of future results.