Value Line, Inc. — FY2019 Form 10-K Summary
Business context and reporting period. This is an annual report for the fiscal year ended April 30, 2019, not a filing for calendar 2018 Q4. Value Line publishes investment research and earns copyright fees from third-party investment products. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), which manages the Value Line Funds. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Key financial results
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Publishing revenue | $36.257 million | $35.868 million | +1.1% |
| Subscription revenue: print | $13.339 million | $13.850 million | -3.7% |
| Subscription revenue: digital | $15.481 million | $15.653 million | -1.1% |
| Copyright fees | $7.437 million | $6.365 million | +16.8% |
| Operating expenses | $30.844 million | $33.296 million | -7.4% |
| Operating income | $5.413 million | $2.572 million | +110.5% |
| EAM revenue and profits interests | $9.309 million | $8.786 million | +6.0% |
| Income before taxes | $15.226 million | $11.898 million | +28.0% |
| Net income | $11.150 million | $14.738 million | -24.3% |
| Basic and diluted EPS | $1.15 | $1.52 | -24.3% |
| Operating cash flow | $11.831 million | $9.857 million | +$1.974 million |
Operating margin was approximately 14.9% in FY2019 versus 7.2% in FY2018, calculated as operating income divided by publishing revenue. The filing reports no long-term debt; long-term liabilities were $18.864 million, including $12.624 million of deferred income taxes. Total assets were $91.788 million and shareholders’ equity was $47.524 million.
At April 30, 2019, cash and cash equivalents were $6.493 million and available-for-sale securities were $21.828 million; together these were $28.321 million. Working capital was $6.014 million, including $20.008 million of current unearned subscription revenue. Operating, investing, and financing cash flows were respectively $11.831 million, negative $3.309 million, and negative $7.970 million. Investing cash outflow included purchases of fixed-income securities; financing outflow primarily reflected $7.362 million of dividends and $0.608 million of share repurchases.
Material changes and notable items
- Subscription revenues continued to decline: total periodicals and related publication revenue fell 2.3%, and total product-line circulation was down 2.4%. Print circulation fell 3.0% and digital circulation fell 1.6% year over year.
- Copyright fees grew as third-party sponsored assets rose to $6.1 billion from $4.2 billion. EAM-managed Value Line Fund assets increased 24.6% to $3.09 billion, reflecting market appreciation and positive net flows overall, though six of eleven funds had net redemptions.
- Operating expenses declined across major categories, attributed to cost controls and reduced amortization of internally developed software. Operating income improved despite slightly lower subscription revenue.
- FY2018 net income included a one-time $6.485 million deferred tax benefit from the reduction in the federal corporate tax rate. This unusual benefit made FY2018 net income higher; FY2019 net income fell even as pretax income increased. FY2019’s effective tax rate was 26.81%.
- Cash flow presentation changed with adoption of ASU 2016-15: $9.309 million of FY2019 EAM revenue and profits interests was reclassified from operating to investing activities. FY2018 was similarly reclassified by $8.786 million, so cash-flow comparisons should account for this presentation change.
- The Company declared regular dividends of $0.77 per share during FY2019 and repurchased 28,059 shares for $0.608 million. A $2 million repurchase authorization had $1.438 million remaining at year-end. A subsequent quarterly dividend of $0.20 per share was declared in July 2019.
Outlook, risks, and contingencies
Management provided no specific company revenue or earnings guidance. It said it expects print revenues to continue declining over the long term while focusing on digital products, but could not predict whether digital growth will offset print declines. Management stated that available liquid assets and expected operating and EAM cash flows should fund forecast needs for the next 12 months and that it did not anticipate borrowing during that period. Its economic commentary anticipated continued U.S. growth but noted risks from trade disputes, slower global growth, Brexit, and slower housing and manufacturing activity.
- Reliance on EAM is material: the Company’s EAM interests generated $9.309 million, and EAM’s investment fees depend on assets, fund performance, redemptions, and continued fund contracts. Value Line has no voting control over EAM.
- A single customer contributed 20.5% of publishing revenue in FY2019, up from 17.7% in FY2018.
- Management cited ongoing competitive pressure, low-cost or free online research, and a long-term decline in retail print subscriptions, alongside risks to digital subscriber growth and copyright-fee assets.
- Other identified risks include market fluctuations, intellectual-property protection, key-personnel dependence, regulation, cybersecurity, and the concentration of voting control: Arnold Bernhard & Co. owned 89.34% of Value Line’s shares.
- Operating lease obligations totaled $12.833 million, including $1.399 million due within one year. The Company also had a $0.469 million letter of credit secured by a restricted money-market investment. No legal proceedings were reported.
The independent auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether subscription and circulation declines stabilize, and whether digital and professional-market sales can offset print attrition.
- Whether copyright-fee growth and EAM fund assets persist, including the effects of market performance, fund redemptions, and advisory-contract renewals.
- The contribution and terms of the single customer representing 20.5% of publishing revenue, and any change in its relationship or receivables.
- The quality and sustainability of cash generation after considering the EAM cash-flow reclassification, dividends, repurchases, lease commitments, and investment purchases.
- Potential future tax effects, including deferred tax liabilities, state and local tax changes, and the outcome of the ongoing federal tax audit for FY2015; management did not expect that audit to have a material effect.