Value Line, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended April 30, 2017; comparisons are primarily with fiscal 2016. The filing also reports fourth-quarter results. Value Line’s core business is investment research publications and licensing proprietary investment data. It also receives non-voting revenue and profit interests from EULAV Asset Management Trust (EAM), which manages the Value Line Funds.
Key financial results
| Metric | FY2017 | FY2016 |
|---|---|---|
| Total revenue | $42.697 million | $34.546 million |
| Publishing revenue, including copyright data fees | $34.574 million | $34.546 million |
| Operating income | $7.459 million | $1.880 million |
| Net income | $10.367 million | $7.291 million |
| Diluted earnings per share | $1.07 | $0.75 |
| Cash from operating activities | $(3.678) million | $2.004 million |
| Cash and cash equivalents | $6.557 million | $13.122 million |
| Available-for-sale securities | $16.576 million | $3.637 million |
| Total assets | $87.072 million | $86.507 million |
| Total liabilities | $49.218 million | $51.907 million |
FY2017 revenue and operating income included an $8.123 million pre-tax gain on sale of the company’s distribution facility. Excluding that gain, operating income was approximately a $0.664 million loss. The reported operating margin was approximately 17.5%, but this includes the facility gain. The filing reports no long-term debt; contractual obligations include $15.023 million of operating lease payments. Working capital was $1.548 million, versus negative $6.662 million a year earlier. Cash, cash equivalents and available-for-sale securities totaled $23.133 million.
Changes and operating drivers
- Investment periodicals and related publications revenue fell 5.5% to $30.168 million. Print revenue declined 10.0% and digital revenue declined 1.2%; total product-line circulation was down 7.1%.
- Copyright data fees increased 68.1% to $4.406 million. Three third-party contracts represented $3.6 billion of sponsored assets, compared with $1.8 billion a year earlier.
- Operating expenses rose 7.9% to $35.238 million, including increased salaries, software amortization, and office relocation costs. The company reported a fourth-quarter operating loss of $489,000.
- Value Line’s EAM interests generated $7.714 million of revenue, up 0.8%. EAM-managed Value Line Fund assets were $2.414 billion, up 8.6%, reflecting market appreciation despite net redemptions in most funds.
- Operating cash flow turned negative, partly due to $3.279 million of additional income-tax payments and timing of vendor payments. Investing cash flow included $11.555 million of net proceeds from the facility sale; the company invested in securities. Financing outflows included $6.616 million of dividends and $741,000 of share repurchases.
Outlook, risks, and unusual items
- Management said available liquid assets and expected operating and EAM cash flows should cover forecast liquidity needs for the next 12 months, and did not anticipate borrowing during that period. The filing provides no specific earnings or revenue guidance.
- Management expects long-term print revenue declines to continue and emphasizes digital products and institutional sales. It states that it cannot predict whether digital growth will offset print declines.
- Key risks include subscriber losses and low-cost online competition; dependence on EAM distributions and fund assets under management; market movements and fund redemptions; copyright-data contract concentration; competition, regulation, cybersecurity, intellectual-property protection, and reliance on key personnel.
- The facility sale generated an $8.123 million pre-tax gain and $11.555 million net proceeds. The company moved its headquarters and fulfillment operations and entered into long-term leases; its new New York office sublease runs through November 2027.
- During FY2017, the company reimbursed its employee benefit plan $277,000 following a Department of Labor examination. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
- Management’s economic commentary was cautiously optimistic about U.S. growth but noted uncertainty around global conditions, interest rates, and financial-market volatility.
Important facts for investors to verify
- How much of FY2017 earnings and reported revenue growth is attributable to the one-time facility-sale gain, and what were normalized operating results?
- Whether copyright-data fee growth and the associated third-party sponsored assets are sustainable, given the three-contract concentration.
- Whether digital and institutional sales can offset continued retail subscription and print-circulation declines.
- Trends in EAM’s fund assets, redemptions, performance, and distributions to Value Line, which remain an important source of company cash flow.
- The cash-flow impact of dividends, lease commitments, taxes, and planned technology spending; reported operating cash flow was negative in FY2017.