Value Line, Inc. — Q1 FY2022 Form 10-Q
Business context and period: The unaudited quarter ended July 31, 2021 (three months; fiscal 2022 first quarter). Value Line publishes investment research and licenses related copyrights and proprietary rankings. Its sole reportable segment is Publishing; it also earns significant non-voting revenue and profit interests from EULAV Asset Management (EAM).
Key financial metrics
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q1 FY2022 | Comparable period | Change |
|---|---|---|---|
| Publishing revenue | $10.166 | $10.328 | Down 1.6% |
| Operating income | $2.265 | $2.226 | Up 1.8% |
| EAM revenue and profit interests | $4.805 | $3.644 | Up 31.9% |
| Investment gains | $0.394 | $1.171 | Down 66.4% |
| Income before tax | $7.464 | $7.041 | Up 6.0% |
| Net income | $5.897 | $5.274 | Up 11.8% |
| Diluted earnings per share | $0.62 | $0.55 | Up 12.7% |
| Operating cash flow | $7.635 | $5.426 | Up $2.209 |
Operating margin was approximately 22.3%, compared with 21.6% a year earlier. Net income growth reflected higher EAM interest income, controlled expenses and a lower effective tax rate (21.0% versus 25.1%); lower investment gains partly offset those factors. The net margin includes EAM interests and investment gains, not just publishing operations.
Revenue detail: Print publication revenue fell 6.5% to $2.986 million; digital revenue rose 1.6% to $3.961 million; copyright fees declined 0.5% to $3.219 million. Total product-line circulation was 3.6% higher year over year, with print circulation up 3.2% and digital circulation up 4.2%.
Cash, liquidity and obligations: At July 31, cash and cash equivalents were $25.035 million; cash and short-term securities were $50.914 million. Working capital was $26.744 million, including $18.202 million of current unearned revenue. Cash and cash equivalents increased $5.864 million during the quarter. Total assets were $123.603 million and total liabilities $52.963 million. The balance sheet included a $2.331 million short-term PPP loan obligation and $8.201 million of operating lease liabilities; the PPP loan remained outstanding pending a forgiveness application. Management said available liquidity and expected operating and EAM cash flows should cover needs for the next 12 months and anticipated no additional borrowing.
Material changes and notable items
- EAM interests increased to $4.805 million from $3.644 million. EAM-managed Value Line fund assets were $5.004 billion, up 15.9% year over year; management attributed the increase to market appreciation and positive net flows, partly offset by redemptions in nine of ten funds.
- Total operating expenses decreased 2.5% to $7.901 million. Office and administration costs fell 22.5%, primarily due to a favorable settlement of a disputed contractor fee. Salaries and benefits rose 3.3%, mainly reflecting higher Research department compensation.
- Investment gains fell 66.4%, principally because prior-year gains on securities sales and unrealized equity gains were higher.
- One customer accounted for 31.7% of publishing revenue, a significant concentration.
- The Board approved a new $2 million share-repurchase authorization on July 16, with no expiration date. The company repurchased 5,409 shares for $163,000 during the quarter under an earlier authorization; no purchases under the new program had been made through the report date. The quarterly dividend was $0.22 per share, versus $0.21 a year earlier.
Outlook, commentary and risks
Management described the U.S. economy as expanding strongly and expected growth to continue at a more moderate pace, while citing rising COVID-19 infections and the potential tapering of Federal Reserve support as possible headwinds. This was economic commentary, not company-specific financial guidance; the filing provides no numerical revenue or earnings forecast.
Risks highlighted include subscription retention and sales, competition and free or low-cost investment data, market-driven fluctuations in EAM and copyright-related assets, dependence on EAM interests, customer concentration, intellectual-property protection, key personnel, regulation, cyber events and the continuing effects of the pandemic. The company also disclosed equity-price and interest-rate exposure; its sensitivity analysis estimated that a 30% equity-price move would change shareholders’ equity by approximately 7.95% at quarter-end. The PPP loan forgiveness application was pending SBA review; the filing gives no assurance of forgiveness. A New York City tax audit for fiscal years 2017–2019 was ongoing, and management did not expect a material effect. No legal proceedings were reported, and management said there were no material changes to the prior annual report’s risk factors.
Important facts for investors to verify
- Whether publishing revenue and subscriber trends stabilize, particularly print revenue and the 7.1% quarter-over-quarter decline in unearned subscription revenue.
- How durable EAM-related income is, given the company’s non-voting interests and exposure to fund assets, market levels and investor redemptions.
- The identity and renewal status of the customer contributing 31.7% of publishing revenue, and the potential effect of any lost business.
- The outcome of the PPP loan forgiveness application and the status of the tax audit.
- Actual use of the new $2 million repurchase authorization, dividend sustainability and the company’s equity-investment exposure.