Value Line, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2022; comparisons are with the corresponding prior-year periods. Dollar amounts are in millions unless otherwise stated.
Business context
Value Line’s reportable business is Publishing: investment periodicals and related research, plus licensing of its copyrights, trademarks and proprietary ranks. It also holds non-voting revenue and profit interests in EULAV Asset Management Trust (EAM), which manages and distributes Value Line funds. The company does not control EAM and accounts for its interest under the equity method.
Financial performance
| Metric | Three months ended Jan. 31, 2022 | Year-over-year | Nine months ended Jan. 31, 2022 | Year-over-year |
|---|---|---|---|---|
| Publishing revenue | $10.258 | +1.3% | $30.397 | -0.9% |
| Operating expenses | $7.383 | -5.9% | $22.520 | -6.1% |
| Operating income | $2.875 | +25.9% | $7.877 | +17.6% |
| Net income | $5.614 | -20.2% | $20.015 | +16.2% |
| Diluted EPS | $0.59 | -19.2% | $2.10 | +17.3% |
- Operating margin, calculated as operating income divided by publishing revenue, was approximately 28.0% for the quarter versus 22.5% a year earlier, and 25.9% for the nine months versus 21.8%.
- Quarterly net income fell despite higher operating income because prior-year quarterly investment gains were substantially higher; current-quarter investment results were a $3,000 loss versus a $1.785 million gain. Nine-month investment gains were $0.759 million versus $3.093 million.
- Nine-month results included a $2.331 million gain from forgiveness of the company’s Paycheck Protection Program (PPP) loan. Excluding this unusual gain, the reported nine-month net income comparison would be lower; the filing does not provide an adjusted net income measure.
- EAM revenue and profit interests contributed $4.655 million in the quarter, down 1.7%, and $14.352 million for nine months, up 14.0%.
Cash, liquidity and capital
- Nine-month operating cash flow was $19.627 million, versus $10.355 million a year earlier. Investing activities used $1.614 million; financing activities used $7.439 million, including $6.307 million of dividends paid and $1.322 million of share repurchases.
- At January 31, 2022, cash and short-term securities were $57.822 million, working capital was $36.015 million, and total assets were $129.752 million. Cash, cash equivalents and restricted cash totaled $30.214 million.
- Total liabilities were $50.351 million, including $7.663 million of operating lease obligations. The PPP loan had been forgiven; the filing reports no short-term loan obligation at January 31, 2022.
- Quarterly dividends declared were $0.22 per share, compared with $0.21 a year earlier. The company repurchased 34,007 shares for $1.322 million during the nine months. A refreshed $2.0 million repurchase authorization was approved after quarter-end, on March 14, 2022.
- Management said liquid resources, expected operating cash flows and EAM distributions should be sufficient for forecast liquidity needs over the next 12 months and that it did not anticipate additional borrowings in that period.
Material changes and operating trends
- Nine-month print publication revenue declined 7.3%, while digital revenue rose 1.7%; total investment periodicals and related publications revenue declined 2.2%. Copyright fees increased 1.9%.
- Management attributed lower expenses to cost controls, reduced employee headcount, more targeted direct-mail activity, and lower professional fees, including a favorable contractor-fee settlement.
- Value Line Funds’ managed and/or distributed assets were $4.407 billion at January 31, 2022, down 10.1% year over year. Management attributed the decline primarily to negative net flows across all nine funds; the Tax-Exempt Fund was liquidated in October 2021.
- Unearned subscription revenue was $23.148 million, down 7.7% from April 30, 2021. One customer accounted for 33.0% of nine-month publishing revenue.
Outlook, risks and contingencies
- Management’s contemporaneous economic outlook cited expected U.S. GDP growth of about 3.5% for calendar 2022, while noting inflation, potential Federal Reserve rate increases, geopolitical developments following Russia’s invasion of Ukraine, and elevated market volatility. This is economic commentary, not company-specific financial guidance; no formal company revenue or earnings guidance is provided.
- Key disclosed risks include subscription retention and demand, competition and freely available investment information, dependence on EAM distributions and market-sensitive copyright fees, equity-market fluctuations, customer concentration, intellectual-property and data-security risks, personnel and outsourced-service dependencies, regulation, and pandemic or geopolitical disruptions.
- The company’s equity securities had a fair value of $27.316 million. Management disclosed equity-price risk; a hypothetical 30% price decrease would reduce estimated fair value to $19.122 million. The company also noted interest-rate risk on its $0.597 million of available-for-sale fixed-income securities.
- The company reported no legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription trends—particularly declining print revenue and the 7.7% reduction in unearned subscription revenue—affect future publishing revenue.
- The identity and retention outlook of the customer contributing 33.0% of nine-month publishing revenue.
- Whether EAM fund assets and net flows stabilize, given the 10.1% year-over-year AUM decline and Value Line’s reliance on EAM-related income.
- How recurring earnings and cash generation compare with reported results after separating the $2.331 million PPP forgiveness gain and volatile investment gains or losses.
- The terms and use of the refreshed $2.0 million share-repurchase authorization, and the sustainability of dividends alongside lease and other obligations.