Value Line, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2018, the three months ended July 31, 2017; comparisons are with the three months ended July 31, 2016. Balance-sheet comparisons are with April 30, 2017. Dollar amounts below are in millions unless stated otherwise.
Business context and financial results
Value Line’s principal business is publishing investment research and licensing proprietary data. It also receives non-voting revenue and profit interests from EAM, the manager of the Value Line Funds; EAM is not consolidated.
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Publishing revenue | $8.914 | $8.521 | +4.6% |
| Total revenue, including facility-sale gain in prior year | $8.914 | $16.644 | -46.4% |
| Operating expenses | $7.749 | $8.507 | -8.9% |
| Operating income | $1.165 | $8.137 | -85.7% |
| EAM interests and securities income | $2.232 | $1.949 | +14.5% |
| Income before taxes | $3.397 | $10.086 | -66.3% |
| Net income | $2.215 | $6.358 | -65.2% |
| EPS, basic and diluted | $0.23 | $0.65 | -64.6% |
| Operating cash flow | $0.842 | $(2.057) | Improved |
- Investment periodicals and related publications revenue was $7.440 million, down 2.7%; print revenue fell 3.9% and digital revenue fell 1.7%. Total circulation was down 5.1% year over year.
- Copyright data fees rose 69.2% to $1.474 million. Third-party sponsored assets under the relevant contracts totaled $3.9 billion, versus $2.4 billion a year earlier.
- EAM-related income was $2.136 million, up 11.5%, and securities transaction income was $96,000 versus $33,000. The company’s investment in EAM was $58.454 million.
- Operating expenses declined primarily because prior-year software amortization was higher. Salaries and benefits rose 15.1%, partly reflecting investment in IT and digital infrastructure.
- Operating margin was approximately 13.1% (operating income divided by publishing revenue). The filing does not present a comparable normalized margin excluding the prior-year facility-sale gain.
Liquidity, cash flow and capital
- At July 31, cash and cash equivalents were $6.309 million and available-for-sale securities were $17.710 million; management reported cash and short-term securities of $24.019 million.
- Working capital was $2.067 million, including $19.257 million of current unearned revenue. Current assets were $26.424 million and current liabilities were $24.357 million.
- Cash declined by $0.248 million during the quarter. Investing cash flow was $0.698 million, including $1.920 million of EAM distributions; financing cash outflow was $1.788 million, including $1.748 million of dividends.
- No borrowings or debt are reported on the balance sheet. Total liabilities were $49.219 million, including unearned revenue and $18.583 million of deferred income taxes.
- The company declared a quarterly dividend of $0.18 per share. It repurchased 2,353 shares for $40,000, with $569,000 remaining under the repurchase authorization.
Material changes, outlook and risks
- The prior-year quarter included an $8.123 million pre-tax gain from selling the New Jersey operating facility; sale proceeds were $11.555 million and the after-tax profit increment was approximately $5.28 million. This one-time item is the principal reason reported revenue and earnings fell sharply year over year.
- Management said cash resources, future operating cash flows and EAM-related receipts should meet forecast liquidity needs for the next 12 months and that it did not anticipate borrowing during that period. No specific earnings or revenue guidance was provided.
- Management cited ongoing pressure from declining retail subscriptions, free or low-cost online research, and competition. Institutional sales and copyright licensing helped offset subscription weakness. Value Line reported fund assets managed or distributed by EAM of $2.484 billion, up 7.3% year over year, while noting net redemptions in most funds.
- Management described the economic outlook as cautiously optimistic but flagged uncertainty around global relations, interest rates, market volatility and policy. These are general business views, not company financial guidance.
- Key risks include subscription retention, market-driven changes in EAM assets and receipts, competition, intellectual-property protection, regulation, cybersecurity and dependence on key personnel. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
- The new office sublease runs through November 2027; reported minimum future lease payments total $14.199 million, excluding potential operating-cost and tax escalations.
Most important facts for investors to verify
- Whether subscription and circulation declines continue, particularly in retail digital and print products.
- Whether increased copyright data fees and EAM-related receipts can sustainably offset pressure in publishing subscriptions.
- How much of the year-over-year earnings decline reflects the absence of the prior-year facility-sale gain versus underlying operating trends.
- Whether the $24.019 million of cash and short-term securities, unearned-revenue obligations, dividends and long-term lease commitments support the stated liquidity outlook.
- Whether EAM fund assets, redemptions and performance sustain the company’s revenue and profit interests; Value Line disclosed that its Rank 1 and 2 stocks gained 9.3% versus a 13.7% S&P 500 increase over the 12 months ended July 31, 2017.