VALUE LINE INC annual report, FY2021

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Value Line, Inc. — Form 10-K Summary

Reporting period: Fiscal year ended April 30, 2021, with comparisons to fiscal 2020 and 2019. This is an annual filing, not a calendar-year 2020 fourth-quarter report; selected fiscal fourth-quarter figures are noted below. Dollar amounts are in U.S. dollars.

Business context

Value Line publishes print and digital investment research and licenses its trademarks, proprietary ranks, and related data. Its sole reportable segment is Publishing. It also receives substantial revenue and profit distributions from EULAV Asset Management Trust (EAM), which advises the Value Line mutual funds; Value Line holds non-voting interests and does not control EAM. Arnold Bernhard & Co. owned 90.28% of Value Line’s shares at year-end.

Financial performance and position

  • Revenue: Publishing revenue was $40.392 million, up 0.2% year over year. Periodicals and related publications contributed $27.629 million (essentially flat); copyright fees were $12.763 million, up 0.7%. Digital publication revenue rose 2.8% to $15.700 million, while print revenue fell 3.4% to $11.929 million. Print and digital circulation increased 6.5% and 5.1%, respectively.
  • Operating results: Operating income declined 17.1% to $7.535 million as expenses rose 5.3% to $32.857 million. Net income increased 55.8% to $23.280 million, or $2.43 per diluted share, from $14.943 million, or $1.55 per share. The increase was driven principally by higher EAM income and investment gains, rather than publishing growth. Operating margin was approximately 18.7% of publishing revenue.
  • EAM and investment income: Value Line recorded $17.321 million from EAM interests, up 40.3% (revenue interest $15.190 million; profits interest $2.131 million). Investment gains were $5.420 million, compared with a $0.789 million loss in fiscal 2020; fiscal 2021 included $3.875 million of unrealized equity gains and $0.835 million of gains on equity sales. These items materially contributed to net income.
  • Cash flow: Operating cash flow was $16.410 million, versus $13.745 million in fiscal 2020. Investing activities provided $7.381 million, largely reflecting securities sales and lower reinvestment in fixed-income securities. Financing activities used $9.574 million, including $8.068 million of dividends and $1.526 million of share repurchases.
  • Liquidity and balance sheet: Cash and cash equivalents were $19.171 million; cash and short-term securities totaled $45.353 million. Working capital was $23.312 million, including $19.162 million of current unearned revenue. Total assets were $121.136 million and shareholders’ equity was $67.013 million.
  • Debt and obligations: The company reported a $2.331 million Paycheck Protection Program (PPP) loan, classified as current at April 30, 2021, and $8.455 million of operating lease liabilities. The filing does not report other borrowing. A subsequent application for full PPP loan forgiveness was submitted; forgiveness was not assured in the filing.
  • Distributions and capital: Fiscal 2021 dividends declared totaled $0.85 per share. The board later declared a $0.22 quarterly dividend and authorized a new share-repurchase program of up to $2 million. Fiscal-year repurchases totaled 53,551 shares for $1.526 million.

Material changes versus the prior comparable period

  • Publishing revenue was nearly unchanged, as digital growth and higher circulation offset declining print revenue. Management noted that fiscal 2021 included an extra week of print service; excluding that week, publication revenue declined 0.6%.
  • EAM-related income rose by $4.971 million. Assets in Value Line funds managed or distributed by EAM increased 38.8% to approximately $4.965 billion, reflecting market appreciation and positive net flows, although eight of ten funds had net redemptions.
  • Investment results swung from a $0.789 million loss to a $5.420 million gain, largely due to unrealized equity gains. Total investment assets excluding EAM were $26.182 million, down from $29.204 million.
  • Operating expenses increased $1.648 million, with higher advertising, salaries and benefits, and production and distribution costs. Operating income fell despite flat publishing revenue.
  • Cash and short-term securities increased to $45.353 million from $34.158 million, while working capital increased to $23.312 million from $13.700 million.
  • The company revised its fiscal 2020 and 2019 financial statements to correct an immaterial error involving the adoption of accounting guidance for equity securities. The correction changed the presentation and timing of investment gains and losses and revised reported net income and EPS, but did not change total shareholders’ equity or operating cash flow.

Quarterly results, outlook, risks, and unusual items

  • Fiscal fourth quarter: For the three months ended April 30, 2021, net income was $6.051 million ($0.64 per share), versus $1.807 million ($0.19 per share) a year earlier. Operating income declined 35.9% to $0.838 million. The net-income increase included $2.327 million of investment gains in the quarter and should not be read as a comparable improvement in core operations.
  • Outlook: No quantified company revenue or earnings guidance was provided. Management described the economy as recovering but noted inflationary pressures from shortages and higher commodity prices. It expects long-term print revenue declines and is emphasizing digital offerings, but said it cannot predict whether digital growth will offset print declines.
  • Key risks: Dependence on EAM distributions and fund assets under management; subscriber retention and continued print declines; competition from low-cost or free online research; reliance on one significant publishing customer, which generated 31.6% of fiscal 2021 publishing revenue; and market-driven fluctuations in copyright fees and investment values. Other disclosed risks include regulation, intellectual-property protection, cybersecurity, pandemics, and dependence on key personnel.
  • Governance and contingencies: The controlling shareholder’s 90.28% ownership gives it voting control. The company reported no legal proceedings. It disclosed an ongoing New York City tax audit for fiscal 2017–2019 and stated that it did not expect a material financial-statement effect. Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unmodified opinion; valuation of the EAM investment was identified as a critical audit matter.

Important facts for investors to verify

  • Whether the $17.321 million of EAM-related income and the $4.965 billion fund asset base are sustainable, particularly given fund redemptions and market sensitivity.
  • Whether digital subscription growth can offset structural print declines, and how circulation and unearned subscription revenue trend in subsequent periods.
  • How much of future earnings depends on equity-market gains, including unrealized gains, rather than recurring operating performance.
  • The status and outcome of the PPP forgiveness application and the company’s remaining debt and lease commitments.
  • The effect of the single-customer concentration and the revised comparative financial statements on trend analysis.
  • Whether dividends and repurchases remain supportable from operating cash flow, especially if EAM distributions or market-related income weaken.