Business context and reporting period
Value Line, Inc. filed this Form 10-K for the fiscal year ended April 30, 2020 (May 1, 2019–April 30, 2020), with fiscal 2019 as the principal comparison. This is not a calendar-year 2019 or standalone 2019 Q4 report, despite the request metadata. The company publishes investment research and earns copyright fees for use of its proprietary data and rankings. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), which manages and distributes Value Line funds.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Publishing revenue | $40.299 million | $36.257 million | +11.1% |
| Operating income | $9.090 million | $5.413 million | +67.9% |
| Operating margin | 22.6% | 14.9% | +7.7 percentage points |
| EAM revenue and profit interests | $12.350 million | $9.309 million | +32.7% |
| Net income | $15.663 million | $11.150 million | +40.5% |
| Diluted EPS | $1.62 | $1.15 | +40.9% |
| Operating cash flow | $13.745 million | $11.494 million | +$2.251 million |
Net margin was approximately 38.9% versus 30.7%. Net income includes EAM interests and securities income, in addition to publishing operations.
- Revenue mix: Subscription and related publication revenue was $27.628 million, down 4.1%; print revenue fell 7.4% to $12.351 million and digital revenue fell 1.3% to $15.277 million. Copyright fees rose 70.4% to $12.671 million.
- Expenses: Operating expenses increased 1.2% to $31.209 million. Salaries and benefits rose 2.3%; production and distribution costs fell 5.3%.
- Liquidity: Cash and short-term securities totaled $34.158 million, compared with $28.321 million; working capital was $13.700 million, compared with $6.014 million. Current and long-term unearned subscription revenue totaled $24.738 million.
- Debt and obligations: The company received a $2.331 million Paycheck Protection Program (PPP) loan at 1% interest, due over two years; forgiveness was not assured. Operating lease liabilities were $9.417 million. The filing reports no anticipated additional borrowing over the next 12 months.
- Capital returns: Fiscal 2020 dividends paid were $7.724 million. The company repurchased 46,840 shares for $1.214 million and authorized a further $2 million repurchase program in April 2020.
Material changes versus the prior comparable period
- Total publishing revenue growth was driven by copyright fees, which increased $5.234 million. Third-party sponsored assets under the copyright program rose to $8.6 billion from $6.1 billion.
- Subscription revenue and circulation weakened: total product-line circulation was 5.4% lower year over year, including print circulation down 6.1% and digital circulation down 4.4%. Unearned subscription revenue declined 2.9% to $24.738 million.
- Assets in Value Line funds managed or distributed by EAM increased 15.7% to $3.576 billion. Management attributed the increase to market appreciation and positive net flows overall, while reporting net redemptions in nine of the eleven funds.
- Accounts receivable rose to $4.438 million from $1.504 million. A single customer contributed 31.4% of publishing revenue, up from 20.5% in fiscal 2019.
- Cash used in investing activities increased to $8.657 million, principally reflecting greater purchases of equity and fixed-income securities. Cash used in financing activities was $6.627 million.
- Fiscal 2019 net income was affected by comparison with fiscal 2018, which included a one-time $6.485 million deferred tax benefit from the federal tax-rate reduction. Fiscal 2020’s effective tax rate was 27.09%.
Outlook, commentary, risks and unusual items
- Management said available liquid assets, operating cash flow, EAM distributions and the PPP loan should fund forecast liquidity needs for the next 12 months. The filing provides no numerical earnings or revenue guidance.
- Management described COVID-19 as causing severe economic disruption and market volatility. It reported that institutional sales in the fourth quarter were affected by the recession and volatility; further impacts on customers, markets and operations were uncertain.
- The company expects long-term retail print revenue declines to continue and is emphasizing digital products, but said it cannot predict whether digital growth will offset print declines.
- Management said copyright fees could decline by about 10% under a negotiated restructuring of asset-based and overall fees for the largest ETF in the program; the outcome depends importantly on that ETF’s assets under management.
- Key risks include reliance on EAM cash flows and fund contracts, market-driven changes in EAM assets and copyright fees, subscriber retention, competition from low-cost or free online research, customer concentration, intellectual-property and cybersecurity risks, and dependence on key personnel.
- Other notable items: the company adopted lease accounting guidance and recognized a right-of-use asset; it recorded $581,000 in realized securities losses; and it is undergoing a New York City tax audit for fiscal 2017–2019, which management did not expect to materially affect the financial statements.
Important facts for investors to verify
- Identity, contract terms, receivable collectability and ongoing revenue contribution of the customer responsible for 31.4% of publishing revenue.
- Whether the largest ETF’s fee restructuring reduces copyright revenue, and how changes in sponsored assets affect fees.
- PPP loan forgiveness status, remaining balance and any repayment obligations.
- Subscriber renewal and circulation trends, particularly whether digital revenue can offset continued print declines.
- Post-April 30, 2020 effects of COVID-19 on customer demand, markets, EAM fund assets and company operations.
- Cash conversion and the substantial increase in accounts receivable, along with the composition and liquidity of the company’s investment securities.