Value Line, Inc. — Form 10-Q Summary
Business context and reporting period
For the quarter and nine months ended January 31, 2013 (the company’s fiscal third quarter). Value Line publishes investment periodicals and related research, and licenses proprietary copyright data. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), the investment manager and distributor of the Value Line Funds. Financial figures below are in thousands of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2013 | Three months ended Jan. 31, 2012 | Nine months ended Jan. 31, 2013 | Nine months ended Jan. 31, 2012 |
|---|---|---|---|---|
| Revenue | $8,946 | $8,996 | $26,693 | $27,506 |
| Operating income | $1,088 | $1,823 | $3,360 | $4,979 |
| Income from EAM interests | $1,625 | $1,456 | $4,627 | $4,371 |
| Net income | $1,747 | $1,844 | $5,095 | $5,835 |
| Diluted EPS | $0.18 | $0.19 | $0.52 | $0.59 |
- Nine-month operating margin was approximately 12.6%, versus 18.1% a year earlier; net margin was approximately 19.1%, versus 21.2%. Third-quarter operating margin was approximately 12.2%, versus 20.3%.
- Nine-month operating cash flow was $662, down from $1,736. Investing activities provided $639; financing activities used $4,600, primarily for dividends and share repurchases. Cash and cash equivalents declined to $8,743 from $12,042 at April 30, 2012.
- Cash, cash equivalents, and available-for-sale securities totaled $13,895 at January 31, 2013. Current assets were $16,430 and current liabilities $26,496, resulting in negative working capital of $10,066, substantially reflecting $21,001 of current unearned subscription revenue.
- Total assets were $83,334; shareholders’ equity was $32,857. No borrowings or debt are reported. The $57,465 investment in EAM is a significant asset; the filing reports maximum exposure to loss from EAM at that same amount and no obligation to provide it future funding.
- Quarterly dividends were $0.15 per share. The company repurchased 16,330 shares for $147 during the nine months under a new $3 million authorization.
Material changes versus prior comparable periods
- Nine-month revenue fell 3.0%; investment periodicals and related publications revenue fell 4.3%, while copyright data fees rose 10.0%. In the quarter, total revenue was nearly flat.
- Print publication revenue declined 7.0% for nine months, mainly from retail subscriber losses. Digital publication revenue was flat for nine months, with institutional digital growth offset by retail declines. Total product-line circulation was 3.2% lower year over year.
- Operating expenses increased 3.6% for nine months, led by higher software amortization within production and distribution and higher advertising and promotion costs. Operating income fell 32.5%; net income fell 12.7%.
- EAM interest income increased 5.9% for nine months, including higher non-voting profits interest. EAM-managed Value Line Fund assets were $2.069 billion, down 0.3% year over year; the Daily Income Fund distributed by EAM added $62 million, bringing total reported assets to $2.131 billion.
Outlook, commentary, risks, and unusual items
- Management said risk-averse investors, subscription non-renewals, free or low-cost competing research, and declining retail circulation continued to pressure publishing revenue. It expects the negative subscription-revenue trend to continue until new products are developed and marketed.
- New product offerings were expected to begin in fiscal 2014, supported by technology and website investments. Management said it could not predict the launch timing or whether the products would reverse declining retail revenue.
- Management’s macroeconomic view—not company earnings guidance—was for approximately 2% U.S. GDP growth in calendar 2013 and 2.5%–3.0% in 2014, while noting a possible market correction after recent index highs. No formal company revenue or earnings guidance is provided.
- Management believes liquid resources and expected operating and EAM cash flows will meet forecast liquidity needs for the next 12 months and does not anticipate borrowing during that period. Cash generation remains sensitive to subscriptions and EAM interests, and cash flows are affected by subscription renewal timing.
- On February 7, 2013, the company entered a sublease for new New York offices, starting around July 1, 2013 and ending February 27, 2017, at base rent of about $1.468 million annually, plus certain operating costs and taxes. Management expects lower annual rent. The current office lease was extended through September 15, 2013.
- Key stated risks include subscriber retention, competition, intellectual property protection, key-person dependence, market conditions, regulation, cyberattacks and reliance on EAM and its assets under management. The filing reports no material changes to the prior annual-report risk factors, no legal proceedings, and no material impact from Hurricane Sandy.
Important facts for investors to verify
- Whether planned digital products launch in fiscal 2014 and generate sufficient new subscriptions to offset retail churn.
- Subscriber, renewal, circulation, and institutional-sales trends, particularly the continued decline in print and retail revenue.
- EAM’s fund assets, redemptions, fee waivers, distributions, and the company’s concentration in its $57.5 million EAM investment.
- Cash flow conversion and liquidity, including the effects of declining unearned revenue, dividends, and office-transition costs.
- The new lease’s total occupancy costs and realized savings, including pass-through expenses and transition timing.