Value Line, Inc. — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2018, compared primarily with fiscal 2017. Although the request metadata says “2017 Q4,” this filing reports the full fiscal year, with quarterly results also provided.
Business context
Value Line’s principal business is publishing investment research and periodicals in print and digital formats and licensing proprietary ranking and other data to third parties. It also receives revenue and profit distributions from EULAV Asset Management Trust (EAM), which manages and distributes the Value Line Funds. Value Line holds non-voting interests in EAM and does not control its operations.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $35.868 million | $42.697 million |
| Publishing revenue, excluding facility gain | $35.868 million | $34.574 million |
| Operating income | $2.572 million | $7.459 million |
| Income from EAM interests | $8.786 million | $7.714 million |
| Income before taxes | $11.898 million | $15.485 million |
| Net income | $14.738 million | $10.367 million |
| Diluted earnings per share | $1.52 | $1.07 |
| Cash from operating activities | $1.071 million | $(3.678) million |
- Publishing revenue rose 3.7% from FY2017 excluding its $8.123 million gain on sale of an operating facility. Within FY2018 publishing revenue, subscriptions and related publications declined 2.2% to $29.503 million; copyright data fees increased 44.5% to $6.365 million.
- Operating margin was approximately 7.2% in FY2018. The comparison with FY2017 is substantially affected by the prior-year facility-sale gain; FY2017 operating income also included elevated software amortization.
- Net income increased 42.2%, but the increase was driven by a one-time tax benefit associated with the U.S. federal corporate tax-rate reduction. The tax provision was a benefit of $2.840 million in FY2018, versus tax expense of $5.118 million in FY2017. The filing reports a 54.51% tax benefit impact from remeasuring deferred taxes.
- Cash, cash equivalents and short-term securities totaled $23.785 million at year-end, compared with $23.133 million a year earlier. Working capital was $1.690 million, including $19.717 million of current unearned subscription revenue.
- Investing activities provided $7.596 million; financing activities used $9.283 million, primarily reflecting $8.929 million of dividends paid and $354,000 of share repurchases. Year-end cash and cash equivalents were $5.941 million.
- The company reported no long-term debt. Contractual operating lease obligations totaled $14.199 million, including $1.366 million due within one year.
Material changes versus the prior period
- Print and digital subscription revenue fell 1.7% and 2.6%, respectively. Retail digital revenue declined 9.3%, and digital circulation was down 6.0%; total product-line circulation was described as comparable year over year.
- Copyright data fees increased as third-party sponsored assets grew to $4.2 billion from $3.6 billion.
- Revenue from EAM interests rose 13.9% to $8.786 million. EAM-managed or distributed Value Line Fund assets increased 2.8% to approximately $2.48 billion, primarily due to market appreciation, partly offset by net redemptions in ten of eleven funds.
- Operating expenses decreased 5.5% to $33.296 million, mainly because software amortization declined; salaries and employee benefits increased 5.8% to $18.488 million.
- Operating cash flow turned positive from an outflow in FY2017. The company cited payment timing, earnings before non-cash items and lower federal taxes as factors.
Outlook, risks and unusual items
- Management said available liquid resources and expected cash flows from operations and EAM interests should meet liquidity needs for the next 12 months and that it did not anticipate borrowing during that period.
- Management expected long-term print revenue declines to continue while emphasizing digital products, but said it could not predict whether digital growth would offset print declines. The filing gives no company-specific revenue or earnings guidance.
- Key risks include reliance on subscription renewals, online competition and low-cost alternatives, dependence on a significant publishing customer, and exposure to EAM’s fund performance, assets under management, redemptions and advisory contracts. One customer generated 17.7% of FY2018 publishing revenue.
- Other disclosed risks include market and interest-rate changes, competition, regulation, intellectual-property protection, cybersecurity, and reliance on key personnel. EAM-related cash flows are significant to Value Line, and Value Line has no voting control over EAM.
- Arnold Bernhard & Co. owned 89.08% of Value Line’s shares, giving it voting control. Related-party arrangements include shared services and a tax-sharing agreement.
- The company paid regular and special dividends totaling $0.93 per share declared during FY2018, including a $0.20 special dividend. It also reported a $469,000 restricted investment securing a letter of credit for its office lease.
- No legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- How much of the FY2018 earnings increase reflects the non-recurring deferred-tax remeasurement benefit, and what normalized earnings look like without it.
- Whether copyright data-fee growth can continue and how dependent it is on a small number of sponsored contracts and asset values.
- Subscription renewal, circulation and retail digital revenue trends, including whether digital sales can offset continuing print pressure.
- Fund asset flows, relative investment performance and EAM distributions, given redemptions and Value Line’s lack of control over EAM.
- The customer concentration, lease commitments and cash-flow coverage of dividends and other shareholder returns.