Value Line, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and six months ended October 31, 2020, Value Line’s fiscal second quarter and first half of fiscal 2021—not calendar 2020 Q2. Comparisons are with the corresponding periods ended October 31, 2019. Value Line publishes investment research and licenses its copyrights and proprietary rankings. It also holds non-voting revenue and profit interests in Eulav Asset Management Trust (EAM); EAM is not consolidated.
Financial performance and liquidity
Amounts below are in millions, except per-share data and percentages. The filing presents unaudited results.
| Metric | Three months ended Oct. 31, 2020 | Prior-year quarter | Six months ended Oct. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Publishing revenue | $10.210 | $10.080 | $20.538 | $19.697 |
| Operating expenses | $8.022 | $7.451 | $16.124 | $15.043 |
| Operating income | $2.188 | $2.629 | $4.414 | $4.654 |
| EAM revenue and profit interests | $4.214 | $3.058 | $7.858 | $5.929 |
| Income from securities transactions | $0.323 | $0.143 | $1.281 | $0.284 |
| Net income | $5.056 | $4.211 | $10.173 | $7.901 |
| EPS, basic and diluted | $0.53 | $0.44 | $1.06 | $0.82 |
- Publishing revenue rose 1.3% for the quarter and 4.3% for the six-month period. Copyright fees increased 5.7% and 14.5%, respectively; periodicals and related publications were nearly flat.
- Operating income declined 16.8% for the quarter and 5.2% for the half year as expenses grew faster than publishing revenue. Operating margin, calculated as operating income divided by publishing revenue, was approximately 21.4% for the quarter and 21.5% for the half year, versus 26.1% and 23.6% a year earlier.
- Net income increased 20.1% for the quarter and 28.8% for the half year. Management attributed the gains principally to higher copyright fees, larger EAM interests, and realized gains from securities sales. The six-month effective tax rate was 24.93%, compared with 27.29%.
- Operating cash flow was $7.668 million for the six months, versus $1.802 million a year earlier; management cited the timing of copyright-fee receipts and higher net income. Investing cash flow was positive $0.508 million; financing cash outflow was $4.441 million.
- At October 31, cash and cash equivalents were $8.689 million, available-for-sale securities were $29.485 million, and cash plus short-term securities totaled $38.174 million. Working capital was $18.0 million, compared with $13.7 million at April 30, 2020.
- Total assets were $110.837 million and shareholders’ equity was $59.228 million. Loan obligations totaled approximately $2.331 million, including the $2.331 million Paycheck Protection Program loan; operating lease liabilities were $8.947 million. The PPP loan bears 1% interest, and forgiveness is not assured.
Material changes versus the prior comparable period
- EAM-related income rose 37.8% for the quarter and 32.5% for the half year. EAM-managed or distributed fund assets reached $4.46 billion, up 27.6% year over year.
- Digital publication revenue rose 2.5% for the quarter and 1.9% for the half year, while print revenue declined 4.7% and 2.1%, respectively. Management noted that an extra week of print-product servings partly affected the six-month comparison.
- Operating expenses rose 7.7% for the quarter and 7.2% for the half year, with increases across advertising, salaries and benefits, production and distribution, and office and administration.
- Cash and short-term securities increased to $38.174 million from $34.158 million at April 30, 2020. The company paid dividends of $0.21 per share in each of the first two fiscal quarters, up from $0.20 per share in the comparable prior-year quarters.
Outlook, commentary, risks, and unusual items
- No numerical earnings or revenue guidance is provided. Management said existing liquid resources, operating cash flows, and EAM-related receipts should fund forecast liquidity needs for the next 12 months; it did not anticipate borrowings during that period.
- Management discussed continuing COVID-19 uncertainty, including potential economic disruption and effects on customers, employees, suppliers, markets, and operations. It also identified subscription retention, market conditions, competition, intellectual property protection, regulation, and dependence on EAM and significant customers as risks.
- One customer generated 31.9% of six-month publishing revenue. Copyright fees are asset-based and may fluctuate with underlying portfolio values. A negotiated fee restructuring for the largest ETF in the copyright program could reduce the company’s fees by around 10%, depending importantly on assets under management.
- The company repurchased 15,670 shares for $0.422 million during the six months, with $1.578 million remaining under its $2.0 million authorization. The New York City tax audit covering fiscal years 2017–2019 was not expected to have a material financial-statement effect. No legal proceedings were reported.
Important facts for investors to verify
- Whether publishing subscriptions and the concentrated customer relationship remain stable, particularly amid COVID-19-related disruption.
- Whether EAM fund assets, cash flows, and distributions sustain the higher revenue and profit interests reported this period.
- The actual effect of the largest ETF’s fee restructuring on copyright revenue and the role of market movements in asset-based fees.
- The status and forgiveness outcome of the PPP loan, and the company’s continuing dividend and share-repurchase commitments.
- Whether operating cash flow remains strong after accounting for timing differences in copyright-fee receipts and changes in unearned revenue.