Value Line, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2015, with quarterly results including the quarter ended April 30, 2015. The request metadata says “2014 Q4,” but the filing is the annual report for FY2015.
Business context
Value Line publishes investment research in print and digital formats and licenses proprietary ranking data to third parties. It also holds non-voting revenue and profit interests in EULAV Asset Management Trust (EAM), which manages and distributes the Value Line Funds. Value Line does not control EAM and accounts for its interest outside operating income. Arnold Bernhard and Co. owned 88% of Value Line’s shares.
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Reported revenue | $35.523 million | $36.331 million | Down 2.2% |
| Operating income | $2.399 million | $2.501 million | Down 4.1% |
| Operating margin | 6.8% | 6.9% | Approximate |
| EAM revenue and profit interests | $7.970 million | $7.499 million | Up 6.3% |
| Income before taxes | $10.495 million | $10.178 million | Up 3.1% |
| Net income | $7.292 million | $6.768 million | Up 7.7% |
| EPS, basic and diluted | $0.74 | $0.69 | Up 7.2% |
| Cash from operations | $1.407 million | $3.487 million | Down $2.080 million |
- Print publication revenue fell 9.8% to $16.553 million; digital revenue rose 5.7% to $16.123 million. Total publication revenue declined 2.7%. Copyright data fees increased 4.2% to $2.847 million.
- Net margin was approximately 20.5%, compared with 18.6% in FY2014. The lower effective tax rate—30.52% versus 33.50%—contributed to higher net income despite lower operating income.
- Cash and cash equivalents were $5.874 million; available-for-sale securities were $9.632 million. Cash and short-term securities totaled approximately $15.506 million.
- Working capital was negative $7.369 million, largely reflecting $21.510 million of current unearned subscription revenue. The company reported no long-term debt or capital lease obligations. Total liabilities were $52.982 million, including $22.064 million of long-term deferred tax liabilities.
- Investing activities provided $4.689 million, including $7.832 million of distributions from EAM; financing activities used $6.010 million, principally dividends of $5.888 million. The quarterly dividend was $0.15 per share during FY2015; a $0.16 dividend was declared in July 2015.
Material changes and unusual items
- Retail print remained under pressure: retail print revenue decreased 11.3%, while retail digital revenue decreased 1%. Institutional digital revenue increased 9.3%. Total product-line circulation was up 5.8%, with growth achieved at modestly lower average prices.
- Operating expenses declined 2.1% to $33.124 million. Lower rent and office costs were partly offset by higher advertising, software amortization, and digital hosting expenses.
- FY2015 operating income included $630,000 of additional depreciation and amortization, including a $138,000 accelerated write-off of obsolete software. Fourth-quarter operating loss was $560,000; management cited one fewer week of print revenue recognition than in the prior-year quarter, an additional direct-mail campaign, and the software write-off.
- FY2014 operating expenses included $771,000 of one-time overlapping rent during the office move, making year-over-year expense comparisons less direct.
- EAM-related revenue to Value Line rose, but Value Line’s non-voting profits-interest income declined to $624,000 from $732,000. Value Line Funds’ assets managed or distributed by EAM were approximately $2.40 billion, up 2.0%; funds nevertheless had net redemptions over the last three fiscal years. EAM’s reported net income before profit-interest distributions was $1.248 million, down from $1.464 million.
- Value Line recorded $75,000 of Fair Fund and settlement-related expense in FY2015. The filing reports no legal proceedings, but describes continuing Fair Fund administration costs related to a prior settlement.
Outlook, risks, and contingencies
- No company-specific earnings or revenue guidance was provided. Management expected the long-term decline in print revenue to continue and described digital product development and marketing, subscriber retention, and growth in professional customers as priorities. The filing does not establish that digital growth will offset print declines.
- Management’s economic commentary anticipated U.S. GDP growth of 2.5%–3.0% in the second half of 2015 and expected accommodative Federal Reserve policy with possible gradual rate increases. It viewed the equity uptrend as potentially continuing, while warning that valuations were rich and markets vulnerable to adverse news.
- Key risks include subscriber losses and low-cost online competition; dependence on EAM distributions and Value Line Fund contracts; market-driven changes in EAM assets and fee income; fund performance and redemptions; copyright-data client concentration and sponsor asset fluctuations; intellectual-property protection; regulation, cyber incidents, and reliance on key personnel.
- The Daily Income Fund was scheduled for liquidation around July 27, 2015; EAM added the Federated Government Obligations Fund as an exchange option. Value Line’s New York office sublease ends February 27, 2017, with $2.692 million of remaining base-rent commitments reported at year-end.
- Management said available liquidity and expected cash flows would meet forecast needs for the next 12 months and did not anticipate borrowing. It also expected dividends to remain a use of cash.
Most important facts for investors to verify
- Whether digital and institutional growth can offset continuing retail print declines, including the effect of subscriber pricing and renewal trends.
- The durability and cash conversion of EAM-related income, given Value Line’s non-controlling interest, fund redemptions, fee waivers, and dependence on fund advisory contracts.
- Why operating cash flow fell to $1.407 million despite higher net income, and whether subscription prepayments and EAM distributions are sustainable sources of liquidity.
- The nature and timing of the deferred tax liability, which is largely associated with the prior deconsolidation of EAM, and any tax-audit outcomes.
- The fourth-quarter operating loss and software write-off, and the filing’s apparent internal-controls text error referring to “the fourth quarter of fiscal 2018” in a FY2015 report.