Business Context and Reporting Period
Value Line, Inc. filed this unaudited Form 10-Q for the first quarter of fiscal 2014, the three months ended July 31, 2013, compared with the three months ended July 31, 2012. The company publishes investment research and licenses proprietary data. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), which it accounts for under the equity method and does not control.
Financial Performance and Position
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Total revenue | $8.952 million | $8.938 million |
| Operating expenses | $8.483 million | $7.586 million |
| Operating income | $469,000 | $1.352 million |
| EAM interests and securities income | $1.807 million | $1.499 million |
| Income before taxes | $2.276 million | $2.851 million |
| Net income | $1.445 million | $1.776 million |
| Diluted EPS | $0.15 | $0.18 |
| Net cash used in operating activities | $790,000 | $552,000 |
Revenue was nearly flat year over year. Operating margin fell to about 5.2% from 15.1%; net margin declined to about 16.1% from 19.9%. Cash and cash equivalents were $4.021 million at July 31, 2013; available-for-sale securities were $7.903 million, bringing cash and short-term securities to $11.924 million. Current assets were $15.005 million and current liabilities $26.024 million, including $21.176 million of unearned subscription revenue. The company reported no borrowings; total liabilities were $50.352 million and shareholders’ equity $32.723 million. The filing does not provide a conventional debt balance.
Material Changes Versus Prior Period
- Operating income declined 65.3%, as expenses rose 11.8% while revenue increased just 0.2%. Net income fell 18.6% and EPS fell 16.7%.
- Digital publication revenue rose 12.6% to $3.523 million, while print publication revenue declined 4.6% to $4.673 million. Digital circulation grew 31.8%; print circulation decreased 4.5%.
- Copyright data fees fell 16.9% to $756,000; assets represented by the four third-party contracts declined to $2.8 billion from $3.3 billion.
- EAM-related income increased 20.1% to $1.769 million. EAM-managed Value Line Fund assets were $2.175 billion, up 7.6% year over year.
- Cash from operations remained negative, and cash and cash equivalents declined $2.819 million during the quarter. Investing activities used $322,000; financing activities used $1.707 million, including dividends and share repurchases.
Outlook, Commentary, Risks and Unusual Items
Management said liquid resources, anticipated operating cash flows, and future EAM distributions should fund forecast needs for the next 12 months; it did not anticipate borrowing during that period. The company expects investing activities to benefit from EAM distributions and expects dividend payments to continue. No earnings or revenue guidance was provided.
Management said new product offerings were still expected to begin launching in fiscal 2014; a preview of a new digital equities product launched in August 2013. It highlighted subscription competition from free or low-cost online and brokerage research, declining retail print demand, reliance on EAM distributions, market-driven changes in EAM assets, and competitive and regulatory risks. Other cited risks include key-person dependence, intellectual-property protection, cybersecurity, and economic conditions. Management’s economic commentary anticipated U.S. growth of 2.0%–2.5% in the second half of calendar 2013, while describing its equity-market stance as cautious; these are macroeconomic views, not company guidance.
Expenses included elevated advertising and promotion, software amortization, and office costs. Office and administration expense rose 22.4%, partly due to overlapping rent during the office move. The company moved to new premises in August 2013; the sublease runs through February 2017 and management said it would reduce annual rental expense. The quarter included $226,000 of open-market stock repurchases under a $3 million authorization, with $2.592 million remaining at July 31. A $0.15-per-share dividend was declared. No legal proceedings were reported; the filing stated there were no material changes to previously disclosed risk factors.
Most Important Facts for Investors to Verify
- Whether digital subscription growth can offset continuing weakness in print and the decline in copyright-data fees.
- Whether expense growth moderates and operating profitability improves after the office transition and product investments.
- The sustainability and variability of EAM-derived income and distributions, given the company’s significant economic exposure but lack of control over EAM.
- Cash conversion and liquidity, including the significance of negative working capital and the timing of subscription receipts and EAM distributions.
- Execution, launch timing, and commercial performance of the planned digital products, along with remaining share-repurchase capacity and dividend commitments.