Value Line, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended October 31, 2022 (the second quarter and first half of fiscal 2023). Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context
Value Line publishes investment research and periodicals and licenses its copyrights, trademarks, and proprietary rankings. Publishing is its sole reportable segment. The company also holds non-voting revenue and profit interests in EULAV Asset Management Trust (EAM), which manages and distributes Value Line funds; that investment is not consolidated.
Financial performance and liquidity
| Metric | Three months ended Oct. 31, 2022 | Six months ended Oct. 31, 2022 | Prior-year comparable |
|---|---|---|---|
| Publishing revenue | $10.066 | $20.010 | $9.973 / $20.139 |
| Operating income | $3.173 | $5.729 | $2.737 / $5.002 |
| Operating margin | 31.5% | 28.6% | 27.4% / 24.8% |
| EAM revenue and profit interests | $2.816 | $5.831 | $4.892 / $9.697 |
| Net income | $4.330 | $8.788 | $8.504 / $14.401 |
| Diluted EPS | $0.46 | $0.93 | $0.89 / $1.51 |
Operating margin is operating income divided by publishing revenue. The company reported no borrowings at October 31; the PPP loan had been forgiven in fiscal 2022. Operating lease liabilities totaled $6.763, including $1.291 current and $5.472 long term.
Six-month operating cash flow was $8.599, versus $11.260 a year earlier. Investing activities used $17.405, principally reflecting purchases of fixed-income securities; financing activities used $8.229, including $3.482 of share repurchases and $4.747 of dividends paid. Cash and cash equivalents were $12.668; cash, short-term securities, and equity investments totaled $57.744. Working capital was $39.249. Total assets were $127.874 and shareholders’ equity was $80.220.
Changes versus prior comparable periods
- For the six months, publishing revenue decreased 0.6%; operating income rose 14.5% as total operating expenses fell 5.7%. Salaries and benefits declined 12.8%, while office and administration costs rose 27.8%, primarily due to settlement costs and professional fees.
- Digital publication revenue increased 2.1% for the half year, while print revenue declined 9.8%. Print circulation fell 16.9% year over year; digital circulation fell 2.3%.
- EAM-related income fell 39.9% for the half year. Assets in Value Line funds managed or distributed by EAM declined 42.4%, to $2.891 billion, reflecting market declines, redemptions, and the closure of two variable annuity funds.
- Net income declined 39.0% for the half year, partly because the prior-year period included a $2.331 PPP-loan forgiveness gain. Lower EAM income and weaker investment results also weighed on comparisons. First-half investment gains were $0.026, versus $0.762 a year earlier.
- The effective tax rate was 24.15%, compared with 19.05%, reflecting the absence of the prior-year nontaxable PPP forgiveness and higher state and local taxes.
Outlook, commentary, and risks
No specific financial guidance was provided. Management stated that liquid resources, operating cash flow, and EAM distributions should be sufficient for liquidity needs for the next 12 months and beyond, and that it did not anticipate borrowing during the next 12 months. Management expected dividend payments to remain a use of cash and renewed a share repurchase authorization of up to $3.0 million.
Management cited weak investor sentiment and market volatility as factors affecting new subscription sales, while noting that institutional sales orders increased 27.8% year over year for the six months. It also described rising interest rates, inflation, and possible recession as risks to the operating environment. Other disclosed risks include competition, subscription retention, market-sensitive EAM revenues, cybersecurity and business continuity, and dependence on key personnel. One customer accounted for 34.0% of first-half publishing revenue. The filing reported no legal proceedings and stated that disclosure controls were effective.
Investor verification points
- Assess how much EAM income and fund assets may recover or weaken; EAM distributions are a material source of earnings and cash flow.
- Track subscriber retention, new sales, circulation, and the continuing shift from print to digital, particularly given the single-customer revenue concentration.
- Review the drivers and durability of lower operating expenses, including reduced headcount, and the rise in office and administration costs.
- Monitor cash deployment across dividends, share repurchases, and fixed-income investments, as well as liquidity and lease obligations.
- Consider the comparability effect of the prior-year PPP forgiveness gain and the sensitivity of investment holdings to market prices and interest rates.