Value Line, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2015, compared with the corresponding 2014 periods. Dollar amounts below are in millions unless noted.
Business context
Value Line publishes investment research and periodicals and licenses proprietary data to third parties. Its former investment-management and fund-distribution operations are conducted by EULAV Asset Management Trust (EAM); Value Line retains non-voting revenue and profit interests and accounts for its EAM investment under the equity method.
Financial performance and position
| Metric | Three months ended Jan. 31, 2015 | Year-over-year | Nine months ended Jan. 31, 2015 | Year-over-year |
|---|---|---|---|---|
| Operating revenue | $8.863 | Down 4.4% | $27.194 | Down 0.2% |
| Operating income | $0.851 | Down 15.6% | $2.959 | Up 39.4% |
| EAM revenue and profit interests | $2.024 | Up 2.5% | $5.995 | Up 7.1% |
| Net income | $2.177 | Up 7.5% | $6.195 | Up 21.8% |
| Diluted EPS | $0.22 | From $0.21 | $0.63 | From $0.52 |
Operating margin was approximately 9.6% for the quarter, versus 10.9% a year earlier; for the nine-month period it was 10.9%, versus 7.8%. Net margin was approximately 24.6% for the quarter and 22.8% for the nine months.
- Revenue mix: Nine-month print publication revenue fell 8.3% to $12.809 million, while digital revenue rose 10.2% to $12.214 million. Copyright data fees were nearly flat at $2.171 million.
- Cash flow: Nine-month operating cash flow was $1.427 million, down from $2.268 million. Investing activities provided $3.923 million, including $5.824 million of EAM distributions; software spending was $1.802 million. Dividends paid were $4.416 million, and treasury-stock purchases were $0.071 million. Cash and cash equivalents increased to $6.651 million from $5.788 million.
- Liquidity and balance sheet: Cash and short-term securities totaled $15.851 million. Working capital was negative $6.499 million, largely because of $19.942 million of current unearned revenue. Total assets were $87.634 million and shareholders’ equity was $34.973 million. The filing reports no borrowings and management said it did not expect to borrow in the next 12 months.
- Debt and dividends: No debt balance is reported. The company declared quarterly dividends of $0.15 per share; $1.472 million was payable at period-end.
Material changes and notable items
- Quarterly operating income declined despite lower total expenses, as revenue fell and production and distribution costs increased. For the nine months, operating income improved partly because prior-year results included $0.771 million of one-time overlapping rent; the new office arrangement also reduced rental costs.
- Digital circulation increased 8.7% year over year, while print circulation declined 2.9%. Total product-line circulation was up 1.0%.
- The nine-month effective tax rate declined to 32.35% from 35.30%. Management attributed the change mainly to tax-basis write-offs, changes in state and local tax allocation factors, resolution of prior audit accruals, and domestic production tax credits.
- Value Line’s investment in EAM was $58.066 million, a substantial concentration. EAM-managed Value Line Fund assets totaled $2.343 billion, up 1.6% year over year. Value Line’s EAM interests generated $5.995 million in the nine-month period.
- The company repurchased no shares during the quarter. At January 31, $2.197 million remained under its authorized repurchase program.
Outlook, commentary, and risks
Management said cash, liquid assets, operating cash flow, and EAM distributions should be sufficient for forecast liquidity needs over the next 12 months. It provided no specific company revenue or earnings guidance. Management expected U.S. GDP growth of 2.0%–2.5% in 2015 and anticipated accommodative Federal Reserve policy, but these are economic views rather than company forecasts.
Management expects long-term print revenue declines to continue as customers shift to digital and competitors offer free or low-cost research. Copyright-data revenue is exposed to client asset reallocations, contract losses, competitive fee pressure, and reliance on a limited number of contracts. EAM distributions also depend on fund assets, market conditions, redemptions, and EAM performance. Other cited risks include competition, intellectual-property protection, regulation, key-person dependence, cybersecurity attacks, and broader economic conditions. Management reported no material change in disclosed risk factors, no legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether digital growth and subscriber retention can offset ongoing print declines, and whether conversion and renewal activity continues to support unearned revenue.
- How EAM assets, fund flows, fee waivers, and distributions evolve, given Value Line’s reliance on EAM-related income and its large recorded investment.
- Whether operating cash generation remains adequate after software investment and dividends, particularly given negative working capital.
- Whether copyright-data client changes, including a disclosed planned reassignment effective in fiscal 2016, affect fees and sponsored assets.
- The composition and market sensitivity of the $9.2 million available-for-sale securities portfolio, which includes equity and inverse ETFs; the filing reports equity-price risk but no fixed-maturity investments at period-end.