Value Line, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended October 31, 2016 (the second quarter and first half of fiscal 2017). Value Line’s core business publishes investment research and licenses proprietary data. It also holds non-voting revenue and profit interests in Eulav Asset Management Trust (EAM), which manages and distributes the Value Line Funds.
Key financial metrics
Unless noted otherwise, amounts are in millions. Per-share data are in dollars.
| Metric | Three months ended Oct. 31, 2016 | Six months ended Oct. 31, 2016 |
|---|---|---|
| Publishing revenues | $8.650 | $17.171 |
| Gain on sale of operating facility | — | $8.123 |
| Total revenues | $8.650 | $25.294 |
| Operating income | $0.023 | $8.160 |
| Income before taxes | $2.016 | $12.102 |
| Net income | $1.480 | $7.838 |
| Diluted EPS | $0.15 | $0.81 |
| Net cash from operating activities | Not separately reported | $(5.088) |
- Second-quarter operating margin was approximately 0.3%; first-half operating income includes the $8.123 million facility-sale gain. The filing reports no separate adjusted or normalized margin.
- For the six months, cash used in investing activities was $2.697 million and cash used in financing activities was $3.994 million. Cash and cash equivalents ended at $6.737 million.
- Cash and short-term investments totaled $21.246 million at October 31, 2016. Working capital was negative $0.158 million, including $18.762 million of current unearned revenue. The company reported no borrowings and said it did not anticipate borrowing over the next 12 months.
- Total assets were $86.738 million; total liabilities were $48.427 million. The $58.167 million EAM investment was a major long-term asset. No interest-bearing debt is identified in the reported balance sheet.
Material changes versus the prior comparable periods
- Second-quarter net income fell 25.7% from $1.992 million to $1.480 million, and EPS declined from $0.20 to $0.15. Publishing revenues were nearly flat overall, but periodicals revenue decreased 5.1%; copyright data fees increased 70.7%.
- First-half net income rose 90.7% from $4.111 million to $7.838 million, largely reflecting the facility sale. The sale generated $11.555 million in proceeds and a reported after-tax profit increment of approximately $5.28 million. Without that unusual gain, the headline first-half growth would be materially lower.
- First-half periodicals revenue declined 5.8%: print revenue fell 12.1%, while digital revenue increased 0.5%. Management cited a 10.5% decline in print circulation, an 8% decline in digital circulation, and one fewer print-revenue week than in the prior-year period. Copyright data fees increased 51.8%.
- First-half operating expenses increased 9.2% to $17.134 million, including $1.317 million of additional depreciation and amortization. The company attributed higher amortization to internally developed software associated with a product production cycle expected to be upgraded in fiscal 2018.
- EAM-related income decreased 3.4% to $3.848 million for the first half. Assets in Value Line Funds managed and/or distributed by EAM were $2.237 billion, down 2.3% year over year.
Outlook, commentary, risks and unusual items
- Management said cash, liquid assets and expected operating and EAM-related cash flows should cover forecast liquidity needs for the next 12 months; it expects no borrowing. No company-specific earnings or revenue guidance was provided.
- Management described competitive pressure from free or low-cost online and brokerage research, declining subscriber circulation, and dependence on EAM distributions and fund assets. Other stated risks include market and economic conditions, intellectual-property protection, key personnel, regulation, cyberattacks and natural disasters.
- Operating cash outflow was $5.088 million, versus $0.835 million in the prior-year half. Management attributed the increase to higher income-tax payments, payment and collection timing, and lower unearned subscription revenue.
- The company sold its 85,000-square-foot New Jersey operating facility and moved fulfillment operations to a leased 24,110-square-foot site. A new New York office sublease, consented to after quarter-end, runs through November 2027; the filing says it should initially reduce annual rent expense by 23%, with a $417,000 landlord allowance.
- The quarterly dividend was $0.17 per share. The company repurchased 41,461 shares during the first half; $0.669 million remained under its repurchase authorization at October 31, 2016. Its parent owned 88.87% of outstanding shares.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of first-half earnings and cash generation is sustainable apart from the facility-sale gain, and what taxes or other costs are associated with the sale?
- Whether print and digital circulation and subscription revenue stabilize, and whether institutional growth and copyright licensing can offset retail declines.
- How changes in EAM fund assets, redemptions and performance affect Value Line’s revenue and profit interests; the company’s maximum disclosed exposure to loss through EAM was $58.167 million.
- Whether operating cash flow improves after the first-half outflow and how the new office and warehouse leases affect ongoing costs and liquidity.
- The effect of planned fiscal 2018 software upgrades and related amortization on future expense and operating margins.