Value Line, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended January 31, 2020, compared with the periods ended January 31, 2019. This is fiscal 2020 Q3, notwithstanding the request metadata’s “2019 Q3” label. Financial amounts below are in U.S. dollars; balance-sheet and income-statement figures are shown in millions unless noted.
Business context
Value Line publishes investment research and licenses its copyrights, trademarks and proprietary ranking information. It also receives non-voting revenue and profit interests from EULAV Asset Management (EAM), which manages and distributes Value Line funds. The company does not control or consolidate EAM and reports these interests below operating income.
Financial performance and liquidity
- Revenue: Nine-month publishing revenue rose 12.7% to $30.500 million. Copyright fees increased 76.9% to $9.410 million, while periodicals and related publications declined 3.1% to $21.090 million. In Q3, publishing revenue rose 19.3% to $10.803 million.
- Profit: Nine-month operating income was $7.783 million, up 75.2%; net income was $12.853 million, up 45.1%, and diluted/basic EPS was $1.33 versus $0.91. Q3 net income was $4.952 million, up 102.0%, and EPS was $0.51 versus $0.25. EAM interests contributed $9.384 million for nine months, up 36.7%.
- Margins: Operating margin on publishing revenue was approximately 25.5% for the nine months versus 16.4% a year earlier. Expenses were nearly flat at $22.717 million, up 0.4%.
- Cash flow: Nine-month operating cash flow was $6.856 million, compared with $5.367 million. Investing used $3.426 million and financing used $6.368 million, including $5.796 million of dividends paid and $0.572 million of share repurchases. Cash, cash equivalents and restricted cash ended at $4.024 million.
- Liquidity and assets: Working capital was $11.836 million, versus $6.014 million at April 30, 2019. Cash and short-term securities totaled $29.400 million. Total assets were $105.664 million and shareholders’ equity $54.346 million.
- Debt and leases: Management said it did not anticipate borrowings in the next 12 months. The company recorded $9.644 million of operating lease liabilities and an $8.799 million lease right-of-use asset after adopting lease accounting standard ASC 842.
- Shareholder returns: Quarterly dividends were $0.20 per share, compared with $0.19 in fiscal 2019. The company repurchased 24,016 shares for $0.572 million during the nine months; $0.866 million remained under the repurchase authorization at January 31, 2020.
Material changes and management commentary
- EAM-related income increased as EAM’s managed/distributed fund assets reached $3.751 billion, up 40% year over year. The increase reflected market appreciation and positive net flows overall, although eight of eleven funds had net redemptions.
- Subscription trends were weaker: total product-line circulation was 7.0% lower year over year; print circulation and digital circulation declined 7.0% and 7.1%, respectively. Digital publication revenue fell only 1.3%, which management attributed to retention of higher-priced subscriptions.
- One customer generated 30.85% of nine-month publishing revenue. Copyright fees are asset-based and may fluctuate with underlying asset values. The company said a negotiated restructuring of fees for its largest ETF could reduce fees by about 10%, depending on that ETF’s assets under management.
- Management described the coronavirus outbreak as a material uncertainty for markets, economic conditions, employees, customers and operations. Its filing-date macro view anticipated slower growth and heightened market volatility, while noting that conditions could deteriorate. The filing provides no company-specific earnings or revenue guidance.
- Management believed available liquid resources, operating cash flows and EAM distributions would fund forecast needs for at least 12 months; it expected no borrowings in that period. It also expected dividend cash payments to continue, without giving a specific future dividend commitment.
Risks, contingencies and unusual items
- Key disclosed risks include subscription retention, competition and low-cost online alternatives, intellectual-property protection, market-driven changes in EAM and copyright assets, dependence on EAM and significant customers, regulation, cybersecurity and the coronavirus outbreak.
- The lease-accounting adoption added lease assets and liabilities to the balance sheet; the company reported $1.125 million of lease expense for the nine months.
- The company reported no legal proceedings and no material changes to the risk factors in its prior Form 10-K. It disclosed an ongoing federal tax audit for fiscal 2015, which it did not expect to have a material effect.
- The effective tax rate rose to 27.05% for the nine months from 24.20%, primarily due to state and local tax factors. No material uncertain tax positions were identified.
Important facts for investors to verify
- Whether the sharp increase in copyright fees and EAM-related income persists, and how market volatility affects those revenue streams.
- Whether subscription circulation declines stabilize, particularly in print, and whether the large-customer revenue concentration changes.
- The actual impact of the largest ETF fee restructuring and the sensitivity of fees to its assets under management.
- Cash conversion and liquidity trends, including receivables, unearned revenue, lease commitments, dividends and repurchases.
- Any subsequent updates on coronavirus effects, tax audit status, or management’s outlook; this filing gives no formal financial guidance.