Value Line, Inc. — Form 10-Q Summary
Business context and reporting period
Reports the three months ended July 31, 2015, the first quarter of fiscal 2016; comparative results are for the three months ended July 31, 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 manages and distributes Value Line funds. Financial amounts below are in U.S. dollars; unless noted, amounts are in thousands.
Financial performance and position
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Total revenue | $8,832 | $9,070 | -2.6% |
| Operating expenses | $7,873 | $8,008 | -1.7% |
| Operating income | $959 | $1,062 | -9.7% |
| EAM revenue and profit interests | $2,042 | $2,022 | +1.0% |
| Income before taxes | $3,052 | $3,125 | -2.3% |
| Net income | $2,119 | $2,036 | +4.1% |
| Diluted EPS | $0.22 | $0.21 | +4.8% |
- Operating margin was approximately 10.9%, down from 11.7%; net margin was approximately 24.0%, up from 22.4%. The lower income-tax provision ($933 versus $1,089) helped lift net income despite lower pretax income.
- Publishing revenue fell 2.6%. Periodicals and related publications declined 1.1% to $8,184; copyright data fees fell 18.7% to $648.
- Operating cash flow was $692, down from $1,353. Investing activities provided $1,295, including $1,951 in EAM distributions; financing used $1,638, including $1,472 in dividends and $166 in share repurchases. Cash and cash equivalents rose to $6,223 from $5,874.
- Cash and short-term securities totaled $15,850 at July 31. Current assets were $19,025 and current liabilities $26,078, resulting in negative working capital of $6,896, primarily reflecting unearned subscription revenue. Unearned revenue, current and long-term, totaled $25,072.
- Total assets were $87,515 and shareholders’ equity $34,732. The balance sheet lists no borrowings; management said it did not expect to borrow in the next 12 months. The $58,154 carrying value of the EAM investment is a major asset.
Material changes versus the prior comparable period
- Publication circulation grew: total product-line circulation was 8.5% higher year over year, while related revenue declined as average prices were modestly lower. Institutional sales orders increased 28.5% to $2,744; institutional print and digital revenue rose, while retail digital revenue declined 15.7%.
- Copyright-data sponsor assets fell to $1.34 billion from $2.35 billion across four contracts, following a sponsor’s April 2015 reassignment of assets to an approach independent of Value Line’s data program.
- Operating costs decreased overall, with salaries and benefits down 8.2% and office and administration down 10.4%. Production and distribution rose 19.8%, including higher digital hosting costs and $104 of additional software amortization.
- Quarterly dividend declared increased to $0.16 per share from $0.15 a year earlier. The quarter’s cash dividend payment was $1,472.
Outlook, commentary, risks and contingencies
- Management described a cautiously optimistic U.S. economic outlook, estimating growth of about 2.5% in the second half of calendar 2015 and 2.5%–3.0% in 2016. This is economic commentary, not company earnings guidance.
- Management expects liquid resources and future operating cash flows, including EAM interests, to cover forecast liquidity needs for the next 12 months and expects to continue dividend payments. No specific earnings or revenue guidance was provided.
- Management cited pressure from declining retail print customers, free or low-cost online research, competition, subscription retention and pricing, market-driven copyright licensing demand, and fluctuations in EAM assets under management. Other stated risks include intellectual-property protection, regulation, key personnel, cyberattacks and economic conditions.
- EAM is not consolidated; Value Line has no voting control or obligation to provide future funding. Its reported maximum exposure to loss through the investment was $58,154 at July 31. Management anticipated EAM would have sufficient liquidity, and reported no EAM asset impairment.
- Available-for-sale securities totaled $9,627 and were exposed to equity-price movements; the filing reported no fixed-maturity investments and thus no interest-rate risk from such securities. Unrealized securities losses reduced other comprehensive income by $92, net of tax.
- No legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether subscription retention and pricing can offset pressure in retail digital and print revenue, and whether circulation growth translates into sustained revenue.
- Whether copyright-data fees recover after the decline in sponsored assets and the portfolio reassignment.
- How EAM’s assets, profitability, fee waivers and distributions develop; Value Line’s quarterly results depend materially on its EAM interests.
- Whether operating cash flow remains adequate given negative working capital, dividend commitments and ongoing software investment.
- The impact of the increased dividend and continued repurchases on cash resources; the parent company owned 88.12% of Value Line at July 31, 2015.