Value Line, Inc. — Form 10-Q Summary
Business context and reporting period. The filing covers the quarter and six months ended October 31, 2015 (the second quarter and first half of fiscal 2016), compared with the same periods in 2014. Value Line’s core business is publishing investment research and licensing proprietary data. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), which it does not consolidate.
Financial performance
Amounts below are in thousands of dollars, except per-share data and percentages.
| Metric | Three months ended Oct. 31, 2015 | Year-over-year | Six months ended Oct. 31, 2015 | Year-over-year |
|---|---|---|---|---|
| Publishing revenue | $8,637 | Down 6.7% | $17,469 | Down 4.7% |
| Operating income | $826 | Down 21.0% | $1,785 | Down 15.3% |
| EAM revenue and profit interests | $1,940 | Down 0.5% | $3,982 | Up 0.3% |
| Income before taxes | $2,797 | Down 8.6% | $5,849 | Down 5.4% |
| Net income | $1,992 | Up 0.5% | $4,111 | Up 2.3% |
| Diluted EPS | $0.20 | Unchanged | $0.42 | Up from $0.41 |
| Operating margin | 9.6% | Down from 11.3% | 10.2% | Down from 11.5% |
For the six-month period, print publication revenue fell 6.4%, digital publication revenue was nearly flat, and copyright data fees declined 17.5%. Operating expenses decreased 3.3%; lower advertising and administrative costs were partly offset by higher production and distribution costs, including software amortization and digital hosting. The effective tax rate fell to 29.71% from 35.05%, helping net income rise despite lower pretax income.
Cash flow, liquidity and capital
- Operating cash flow was a use of $835 for the first half, versus a use of $261 a year earlier. Management cited tax-payment timing and lower unearned subscription revenue, among other working-capital movements.
- Investing cash flow provided $10,131, including $8,684 of proceeds from securities sales and $3,989 of EAM distributions; the company also spent $931 on capitalized software.
- Financing cash flow used $3,587, including $3,039 of dividends and $548 of treasury-stock repurchases.
- Cash and cash equivalents were $11,583 at October 31, 2015; cash plus available-for-sale securities totaled $14,086, down from $15,506 at April 30, 2015. Current assets were $16,980 and current liabilities $23,636, resulting in reported negative working capital of $6,656, largely reflecting $19,305 of current unearned revenue.
- Total liabilities were $50,235, including $21,790 of deferred tax liabilities; the filing reports no borrowings and management did not anticipate borrowing in the next 12 months. Management said available liquid resources and expected operating and EAM cash flows should meet forecast needs for that period.
- The quarterly dividend increased to $0.16 per share from $0.15. The company repurchased 37,335 shares during the half-year and had $1,598 remaining under its $3 million repurchase authorization.
Material changes, outlook and risks
- Management reported circulation 8.1% above the prior-year level, but at lower average prices. Institutional sales orders increased 10.0%; retail digital revenues continued to face pressure from free or low-cost online and brokerage research.
- Third-party sponsored assets supporting copyright data fees were $1.31 billion, compared with $2.16 billion a year earlier, partly reflecting a sponsor’s reassignment of assets away from Value Line’s program.
- Assets in Value Line Funds managed or distributed by EAM were $2.29 billion, down 2.1% year over year, with net redemptions affecting most funds. Value Line’s EAM interests generated $3,982 of income in the first half; EAM’s reported net income before distributions to profit-interest holders was $522, down from $670.
- During the second quarter, the company decided to sell dividend-paying ETF and inverse ETF positions. Available-for-sale securities fell to $2,503 from $9,632 at April 30; the company recorded a $15 realized capital loss for the first half.
- Management described the U.S. economy as resilient but noted international economic concerns and short-term stock-market volatility. Key risks include subscription retention, competition, market-driven changes in EAM assets, intellectual-property protection, regulation, and dependence on key personnel. No material changes to the risk factors in the prior annual report were reported. No legal proceedings were reported.
- Management gave no specific earnings or revenue guidance. It stated that liquidity should be sufficient for the next 12 months and expected dividends to remain a use of cash. The filing reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Whether subscription revenue and customer retention can stabilize, particularly retail print and digital sales, and whether growth in institutional sales persists.
- Whether lower sponsored assets and market movements continue to pressure copyright data fees and EAM-related income.
- How operating cash flow develops as unearned subscription revenue changes, given reported negative working capital.
- Whether production, software-amortization and hosting cost increases continue to weigh on operating margins.
- The sustainability of dividends and repurchases relative to cash generation, and the assumptions supporting management’s 12-month liquidity assessment.