Value Line, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2020, the first quarter of fiscal 2021. Comparisons are with the three months ended July 31, 2019 unless otherwise noted. Financial statement amounts below are in millions of dollars except per-share data.
Business context
Value Line publishes investment research and periodicals and licenses its proprietary ranks, trademarks, and related content. It also holds non-voting revenue and profit interests in Eulav Asset Management Trust (EAM), which manages and distributes the Value Line mutual funds. Value Line does not control or consolidate EAM.
Financial performance and liquidity
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Publishing revenue | $10.328 | $9.617 | +7.4% |
| Operating income | $2.226 | $2.025 | +9.9% |
| Operating margin | 21.6% | 21.1% | +0.5 percentage points |
| EAM revenue and profit interests | $3.644 | $2.871 | +26.9% |
| Income from securities transactions | $0.958 | $0.141 | Increase included $0.783 realized gain |
| Income before taxes | $6.828 | $5.037 | +35.6% |
| Net income | $5.117 | $3.690 | +38.7% |
| Diluted EPS | $0.53 | $0.38 | +39.5% |
Copyright fees rose 25.2% to $3.236 million; periodicals and related publication revenue increased 0.8%, including an extra week of weekly print servings. Excluding that extra week, management reported periodicals revenue declined 1.9%. Total expenses increased 6.7% to $8.102 million. The effective tax rate declined to 25.06% from 26.74%.
- Cash flow: Operating activities provided $5.426 million, versus $0.102 million used in the prior-year quarter. Management attributed the improvement principally to timing of copyright-fee receipts and higher net income. Investing activities used $0.611 million; financing activities used $2.000 million, mainly for dividends.
- Liquidity: Cash and short-term securities totaled $38.442 million at July 31, 2020. Working capital was $15.121 million. Unearned revenue, including current and long-term balances, was $23.344 million.
- Debt and leases: The company reported a $2.331 million Paycheck Protection Program loan, with $1.165 million classified as short-term and $1.166 million long-term. Operating lease liabilities totaled $9.183 million.
- Investments and equity: Available-for-sale securities were $30.673 million. The investment in EAM was $59.744 million. Shareholders’ equity was $56.756 million.
- Dividends and shares: The company declared $0.21 per share for the quarter, totaling $2.020 million. No shares were repurchased during the quarter; the $2 million repurchase authorization remained unused.
Material changes and management commentary
Management attributed higher operating income and net income chiefly to increased copyright fees and EAM interests. Assets in Value Line funds managed or distributed by EAM reached $4.316 billion, up 26.1% year over year; management cited market appreciation and positive net flows, partly offset by net redemptions in eight of ten funds. Unearned subscription revenue was down 0.6% year over year. Total product-line circulation was 1.4% lower, with print circulation down 2.2% and digital circulation slightly below the prior-year level.
Management said available liquidity, future operating cash flows, and EAM interest receipts should fund forecast needs for the next 12 months and that it did not anticipate borrowing in that period. It expects dividends to remain a use of cash. The filing provides no quantified earnings or revenue guidance.
Risks, contingencies, and unusual items
- Management described the COVID-19 pandemic, recession, and market volatility as sources of unpredictable risk to customers, employees, suppliers, operations, and investment markets.
- One customer accounted for 31.3% of quarterly publishing revenue, creating customer-concentration risk.
- The company noted that copyright fees for its largest ETF could decline by around 10% following a fee restructuring; the outcome depends importantly on the ETF’s assets under management.
- The $0.783 million realized securities gain materially contributed to the year-over-year increase in securities income. The company’s securities portfolio remains exposed to equity-price and interest-rate movements.
- The PPP loan may qualify for full or partial forgiveness, but the filing says forgiveness is not assured. The company stated that proceeds were used in accordance with program terms.
- A New York City tax audit covering fiscal 2017–2019 was ongoing; management did not expect a material financial statement effect. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether subscription demand, circulation, and unearned revenue stabilize or weaken, particularly amid the pandemic and recession.
- Whether copyright-fee growth persists and how the largest ETF’s fee restructuring and asset levels affect future revenue.
- Whether EAM assets, net flows, and distributions sustain the quarter’s increase in Value Line’s EAM-related income.
- The composition and sustainability of earnings, including the effect of realized securities gains and market movements on the investment portfolio.
- The eventual forgiveness status and repayment terms of the $2.331 million PPP loan.
- Whether cash generation supports dividends and other liquidity needs over the next 12 months as management anticipates.