Business context and reporting period
Value Line, Inc. filed this Form 10-K for the fiscal year ended April 30, 2022 (May 1, 2021–April 30, 2022), rather than a calendar-year 2021 fourth quarter. The three months ended April 30, 2022 are its fiscal fourth quarter. The company publishes investment research and earns copyright fees for use of its proprietary ranks and trademarks. It also holds non-voting revenue and profit interests in EULAV Asset Management Trust (EAM), which manages and distributes Value Line funds; EAM is not consolidated. Publishing is the company’s only reportable segment.
Financial performance and position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Publishing revenue | $40.525 million | $40.392 million | +0.3% |
| Operating income | $10.800 million | $7.535 million | +43.3% |
| Income from EAM interests | $18.041 million | $17.321 million | +4.2% |
| Investment gains/(losses) | $(0.534) million | $5.420 million | Declined |
| Net income | $23.822 million | $23.280 million | +2.3% |
| Diluted EPS | $2.50 | $2.43 | +2.9% |
- Print publication revenue fell 5.7% to $11.253 million; digital revenue rose 1.2% to $15.892 million. Copyright fees increased 4.8% to $13.380 million.
- Operating expenses declined 9.5% to $29.725 million, reflecting lower expenses across all listed categories, including reduced headcount and cost controls. The reported operating margin was approximately 26.6%, versus 18.7% in FY2021.
- Operating cash flow was $24.646 million, compared with $16.410 million. Investing activities used $3.389 million; financing activities used $10.889 million, including $8.405 million of dividends and $2.484 million of share repurchases.
- At April 30, 2022, working capital was $37.580 million and cash and short-term securities were $57.825 million. Total assets were $128.743 million and shareholders’ equity was $79.645 million.
- The $2.331 million Paycheck Protection Program loan was forgiven in FY2022; no loan obligation remained at year-end. Operating lease liabilities totaled $7.368 million, including $1.239 million current. Management said it did not anticipate additional borrowings over the next 12 months.
- The regular quarterly dividend was $0.22 for the first three quarters and $0.25 for the quarter ended April 30, 2022. A further $0.25 quarterly dividend was declared in July 2022.
Material changes and management commentary
- Revenue was nearly flat overall, with modest digital and copyright growth offset by declining print sales. Total product-line circulation at year-end was 4.7% lower year over year; print circulation declined 7.6%, while digital circulation was comparable.
- Fund assets managed and/or distributed by EAM fell 32.4% to $3.36 billion, driven by redemptions, closure of two variable-annuity funds, and market declines. Value Line’s recognized income from EAM nevertheless rose 4.2%.
- The $2.331 million PPP-loan forgiveness was a nonrecurring gain and was described as non-taxable. FY2022 investment results also shifted from a $5.420 million gain in FY2021 to a $0.534 million loss, limiting net-income growth despite higher operating income.
- In the fiscal fourth quarter, net income fell 37.1% year over year to $3.807 million ($0.40 per share), even as operating income rose to $2.923 million. The filing attributes the operating-income increase to copyright fees and expense control; it does not clearly reconcile the quarterly net-income decline.
- Management believes cash, liquid assets, operating cash flows, and EAM distributions will cover forecast liquidity needs for the next 12 months and beyond. It gave no quantified revenue or earnings guidance.
Risks, contingencies and unusual items
- EAM-related cash flows are significant and exposed to fund performance, market values, redemptions, fee changes, and termination or nonrenewal of fund contracts. The company has no voting control over EAM.
- A single customer generated 33.0% of FY2022 publishing revenue, up from 31.6% in FY2021. Subscriber retention is also a risk: management expects the long-term decline in retail print revenue to continue and says digital growth may not offset it.
- Other cited risks include intense competition and free online research, dependence on copyright clients and intellectual property, cybersecurity and business-continuity threats, regulation, key-personnel retention, and economic and market volatility.
- AB&Co. owned 90.79% of the company’s common stock, giving it voting control. The auditor issued an unqualified opinion on the financial statements and identified valuation of the EAM investment as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; no auditor attestation on internal controls was required.
- The company reported no legal proceedings. A New York City tax audit covering fiscal 2017–2019 was ongoing; management did not expect a material financial-statement effect.
Important facts for investors to verify
- Whether digital subscriptions and copyright fees can offset continuing print circulation and revenue declines.
- How EAM fund assets, redemptions, relative performance, and any fee or contract changes affect the company’s recurring distributions.
- The financial condition and renewal terms associated with the customer responsible for 33.0% of publishing revenue.
- How much FY2022 earnings depended on the one-time PPP forgiveness and favorable expense reductions, and the reason for the fiscal fourth-quarter net-income decline.
- Whether the company’s dividend and repurchase activity remains supportable given future operating cash flow, lease commitments, and market exposure.
- The assumptions and valuation support for the $59.971 million carrying value of the EAM investment, which the auditor highlighted as a critical audit matter.