Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help a reader understand Value Line, its operations and business factors. The MD&A should be read in conjunction with Item 1, “Business”, and Item 1A, “Risk Factors” of Form 10-K, and in conjunction with the consolidated financial statements and the accompanying notes contained in Item 8 of this report.
|
● |
Liquidity and Capital Resources |
|
● |
Recent Accounting Pronouncements |
|
● |
Critical Accounting Estimates and Policies |
Executive Summary of the Business
The Company's core business is producing investment periodicals and their underlying research and making available certain Value Line copyrights, Value Line trademarks and Value Line Proprietary Ranks and other proprietary information, to third parties under written agreements for use in third-party managed and marketed investment products and for other purposes. Value Line markets under well-known brands including Value Line®, the Value Line logo®, The Value Line Investment Survey®, Smart Research, Smarter Investing™ and The Most Trusted Name in Investment Research®. The name "Value Line" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. EULAV Asset Management Trust (“EAM”) was established to provide the investment management services to the Value Line Funds, institutional and individual accounts and provide distribution, marketing, and administrative services to the Value Line® Mutual Funds ("Value Line Funds"). The Company maintains a significant investment in EAM from which it receives payments in respect of its non-voting revenues and non-voting profits interests.
The Company’s target audiences within the investment research field are individual investors, colleges, libraries, and investment management professionals. Individuals come to Value Line for complete research in one package. Institutional licensees consist of corporations, financial professionals, colleges, and municipal libraries. Libraries and universities offer the Company’s detailed research to their patrons and students. Investment management professionals use the research and historical information in their day-to-day businesses. The Company has a dedicated department that solicits institutional subscriptions.
Payments received for new and renewal subscriptions and the value of receivables for amounts billed to retail and institutional customers are recorded as unearned revenue until the order is fulfilled. As the orders are fulfilled, the Company recognizes revenue in equal installments over the life of the particular subscription. Accordingly, the subscription fees to be earned by fulfilling subscriptions after the date of a particular balance sheet are shown on that balance sheet as unearned revenue within current and long-term liabilities.
The investment periodicals and related publications (retail and institutional) and Value Line copyrights and Value Line Proprietary Ranks and other proprietary information consolidate into one segment called Publishing. The Publishing segment constitutes the Company’s only reportable business segment.
Asset Management and Mutual Fund Distribution Businesses
Pursuant to the EAM Declaration of Trust, the Company maintains an interest in certain revenues of EAM and a portion of the residual profits of EAM but has no voting authority with respect to the election or removal of the trustees of EAM or control of its business.
The business of EAM is managed by its trustees each owning 20% of the voting profits interest in EAM and by its officers subject to the direction of the trustees. The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders will receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement.
Business Environment
The U.S. business expansion appears to be slowing at mid-year 2022. The nation’s gross domestic product (GDP) contracted by an estimated annualized rate of 1.6% in the first calendar quarter, hurt by elevated import growth and lower inventory restocking over the first three months of the year. There are a number of headwinds in place that point to a slower pace of expansion ahead; nor can a recession be ruled out.
Persistently high inflation, fueled by disruptions to global commodity prices from the war in Ukraine, rising labor market wages, and renewed COVID-19 mandated lockdowns in China, is continuing to erode consumer purchasing power. Higher borrowing costs are taking a toll on demand in the housing and homebuilding markets, the second-largest contributor to GDP after the consumer sector.
This changing business climate comes as the Federal Reserve continues to appear committed to aggressively tightening the monetary reins in an effort to slow demand and ultimately combat stubbornly high prices. This more-restrictive monetary policy stance likely includes a number of potential hikes to the benchmark short-term interest rate by year’s end, and the Fed will be continuing its monthly reduction of the central bank’s holdings of Treasury bonds and mortgage-backed securities.
The Fed will be challenged with crafting a monetary tightening course that can stabilize prices, part of its dual mandate along with fostering full employment, while producing a “soft landing” for the economy. Any missteps in policy could potentially push the economy into a period of recession or stagflation, where high inflation accompanies slowing growth and rising unemployment.
Results of Operations for Fiscal Years 2022, 2021 and 2020
The following table illustrates the Company’s key components of revenues and expenses.
|
|
Fiscal Years Ended April 30, |
|
|
Change |
|
($ in thousands, except earnings per share) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
Income from operations |
|
$ |
10,800 |
|
|
$ |
7,535 |
|
|
$ |
9,090 |
|
|
|
43.3 |
% |
|
|
-17.1 |
% |
Gain on forgiveness of SBA loan |
|
|
2,331 |
|
|
|
- |
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
Non-voting revenues and non-voting profits interests from EAM Trust |
|
|
18,041 |
|
|
|
17,321 |
|
|
|
12,350 |
|
|
|
4.2 |
% |
|
|
40.3 |
% |
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust and gain on SBA loan forgiveness |
|
|
31,172 |
|
|
|
24,856 |
|
|
|
21,440 |
|
|
|
25.4 |
% |
|
|
15.9 |
% |
Operating expenses |
|
|
29,725 |
|
|
|
32,857 |
|
|
|
31,209 |
|
|
|
-9.5 |
% |
|
|
5.3 |
% |
Investment gains |
|
|
(534 |
) |
|
|
5,420 |
|
|
|
(789 |
) |
|
|
n/a |
|
|
|
n/a |
|
Income before income taxes |
|
$ |
30,638 |
|
|
$ |
30,276 |
|
|
$ |
20,651 |
|
|
|
1.2 |
% |
|
|
46.6 |
% |
Net income |
|
$ |
23,822 |
|
|
$ |
23,280 |
|
|
$ |
14,943 |
|
|
|
2.3 |
% |
|
|
55.8 |
% |
Earnings per share |
|
$ |
2.50 |
|
|
$ |
2.43 |
|
|
$ |
1.55 |
|
|
|
2.9 |
% |
|
|
56.8 |
% |
During the twelve months ended April 30, 2022, the Company’s net income of $23,822,000, or $2.50 per share, was 2.3% above net income of $23,280,000, or $2.43 per share, for the twelve months ended April 30, 2021. During the twelve months ended April 30, 2022, the Company’s income from operations of $10,800,000 was 43.3% above income from operations of $7,535,000 during the twelve months ended April 30, 2021. For the twelve months ended April 30, 2022, operating expenses decreased 9.5% below those during the twelve months ended April 30, 2021. The largest factors in the increase in net income during the twelve months ended April 30, 2022, compared to the prior fiscal year, were a gain on forgiveness by the SBA of the Company’s PPP loan, an increase in copyright fees, an increase from revenues and profits interests in EAM Trust and well controlled expenses.
During the twelve months ended April 30, 2022, there were 9,544,421 average common shares outstanding as compared to 9,596,912 average common shares outstanding during the twelve months ended April 30, 2021.
During the three months ended April 30, 2022, the Company’s net income of $3,807,000, or $0.40 per share, was 37.1% below net income of $6,051,000, or $0.64 per share, for the three months ended April 30, 2021. During the three months ended April 30, 2022, the Company’s income from operations of $2,923,000 was 248.8% above income from operations of $838,000 during the three months ended April 30, 2021 due to an increase in copyright fees and well controlled expenses in the fourth fiscal quarter of 2022.
During the twelve months ended April 30, 2021, the Company’s net income of $23,280,000, or $2.43 per share, was 55.8% above net income of $14,943,000, or $1.55 per share, for the twelve months ended April 30, 2020. During the twelve months ended April 30, 2021, the Company’s income from operations of $7,535,000 was 17.1% below income from operations of $9,090,000 during the twelve months ended April 30, 2020. For the twelve months ended April 30, 2021, operating expenses increased 5.3% above those during the twelve months ended April 30, 2020.
During the twelve months ended April 30, 2021, there were 9,596,912 average common shares outstanding as compared to 9,646,885 average common shares outstanding during the twelve months ended April 30, 2020.
During the three months ended April 30, 2021, the Company’s net income of $6,051,000, or $0.64 per share, was 234.9% above net income of $1,807,000, or $0.19 per share, for the three months ended April 30, 2020. During the three months ended April 30, 2021, the Company’s income from operations of $838,000 was 35.9% below income from operations of $1,307,000 during the three months ended April 30, 2020.
During the twelve months ended April 30, 2020, the Company’s income from operations of $9,090,000 was $3,677,000 or 67.9% above income from operations of $5,413,000 in the prior fiscal year. During the twelve months ended April 30, 2020, there were 9,646,885 average common shares outstanding as compared to 9,683,771 average common shares outstanding in the prior fiscal year. For the twelve months ended April 30, 2020, operating expenses increased 1.2% above those in the prior fiscal year. During the twelve months ended April 30, 2020, the Company’s net income of $14,943,000, or $1.55 per share, was $2,934,000 or 24.4% above net income of $12,009,000, or $1.24 per share in the prior fiscal year.
During the three months ended April 30, 2020, the Company’s income from operations of $1,307,000 was 34.7% above income from operations of $970,000 during the corresponding three months in the prior fiscal year. During the three months ended April 30, 2020, the Company’s net income of $1,807,000, or $0.19 per share, was 36.2% below net income of $2,833,000, or $0.29 per share in the prior fiscal year.
Total operating revenues
|
|
Fiscal Years Ended April 30, |
|
|
Change |
|
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
Investment periodicals and related publications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print |
|
$ |
11,253 |
|
|
$ |
11,929 |
|
|
$ |
12,351 |
|
|
|
-5.7 |
% |
|
|
-3.4 |
% |
Digital |
|
|
15,892 |
|
|
|
15,700 |
|
|
|
15,277 |
|
|
|
1.2 |
% |
|
|
2.8 |
% |
Total investment periodicals and related publications |
|
|
27,145 |
|
|
|
27,629 |
|
|
|
27,628 |
|
|
|
-1.8 |
% |
|
|
0.0 |
% |
Copyright fees |
|
|
13,380 |
|
|
|
12,763 |
|
|
|
12,671 |
|
|
|
4.8 |
% |
|
|
0.7 |
% |
Total operating revenues |
|
$ |
40,525 |
|
|
$ |
40,392 |
|
|
$ |
40,299 |
|
|
|
0.3 |
% |
|
|
0.2 |
% |
Within investment periodicals and related publications, subscription sales orders are derived from print and digital products. The following chart illustrates the changes in the sales orders associated with print and digital subscriptions.
Sources of subscription sales
|
|
Fiscal Years Ended April 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
Print |
|
|
Digital |
|
|
Print |
|
|
Digital |
|
|
Print |
|
|
Digital |
|
New Sales |
|
|
11.7 |
% |
|
|
13.0 |
% |
|
|
14.6 |
% |
|
|
15.4 |
% |
|
|
10.0 |
% |
|
|
15.8 |
% |
Renewal Sales |
|
|
88.3 |
% |
|
|
87.0 |
% |
|
|
85.4 |
% |
|
|
84.7 |
% |
|
|
90.0 |
% |
|
|
84.2 |
% |
Total Gross Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
During the twelve months ended April 30, 2022, new sales of print and digital publications decreased as a percent of the total gross sales versus the prior fiscal year. During the twelve months ended April 30, 2022, renewal sales of print and digital publications increased as a percent of the total gross sales versus the prior fiscal year as a result of increased efforts by our in-house Retail and Institutional Sales departments.
During the twelve months ended April 30, 2021 new sales of print publications increased as a percent of the total gross print sales versus the prior fiscal year due to an increase in new Telemarketing gross sales of print publications. During the twelve months ended April 30, 2021 renewal sales of digital publications increased as a percent of the total gross digital sales versus the prior fiscal year due to an increase in renewal gross sales of Institutional digital publications as customer migration to digital services continues gradually.
|
|
As of April 30, |
|
|
Change |
|
|
|
|
|
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned subscription revenue (current and long-term liabilities) |
|
$ |
23,773 |
|
|
$ |
25,088 |
|
|
$ |
24,738 |
|
|
|
-5.2 |
% |
|
|
1.4 |
% |
A certain amount of variation is to be expected due to the volume of new orders and timing of renewal orders, direct mail campaigns and large Institutional Sales orders.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues of $27,145,000 (excluding copyright fees) during the twelve months ended April 30, 2022 were 1.8% below publishing revenues of $27,629,000, which included an extra week of servings for the weekly print products during the twelve months ended April 30, 2021, (decreased 1.1% excluding the extra week of print products servings), as compared to the prior fiscal year. The Company continued activity to attract new subscribers, primarily digital subscriptions through various marketing channels, primarily direct mail, e-mail, and by the efforts of our sales personnel. Total product line circulation at April 30, 2022, was 4.7% below total product line circulation at April 30, 2021. During the twelve months ended April 30, 2022, Institutional Sales department generated total sales orders of $13,853,000 and the retail telemarketing sales team generated total sales orders of $8,292,000.
Total print circulation at April 30, 2022 was 7.6% below the total print circulation at April 30, 2021. During the twelve months ended April 30, 2022, print publication revenues of $11,253,000, decreased 5.7%, below print publication revenues of $11,929,000, which included the extra week of servings for the weekly print products during the twelve months ended April 30, 2021, (decreased 4.2% excluding the extra week of print products servings) as compared to the prior fiscal year. Total digital circulation at April 30, 2022 was comparable to total digital circulation at April 30, 2021. During the twelve months ended April 30, 2022, digital revenues of $15,892,000 were up 1.2% partially offsetting the decrease in revenues from print publications, as compared to the prior fiscal year.
Investment periodicals and related publications revenues of $27,629,000 (excluding copyright fees) during the twelve months ended April 30, 2021, which included an extra week of servings for the weekly print products were comparable with publishing revenues in the prior fiscal year, (decreased 0.6% excluding the extra week of print products servings) during the twelve months ended April 30, 2021, as compared to the prior fiscal year. Total product line circulation at April 30, 2021, was 5.9% above total product line circulation at April 30, 2020, reversing a long term trend. During the twelve months ended April 30, 2021, Institutional Sales department generated total sales orders of $15,067,000 or 11.1% above the prior fiscal year and the retail telemarketing sales team generated total sales orders of $8,658,000 or 4.0% above the prior fiscal year.
Total print circulation at April 30, 2021 was 6.5% above the total print circulation at April 30, 2020. Print publication revenues of $11,929,000, which included the extra week of servings for the weekly print products decreased 3.4%, (4.8% excluding the extra week of print products servings) during the twelve months ended April 30, 2021 as compared to the prior fiscal year. Total digital circulation at April 30, 2021 was 5.1% above total digital circulation at April 30, 2020. Digital revenues of $15,700,000 were up 2.8% offsetting the decrease in revenues from print publications, as compared to the prior fiscal year.
Investment periodicals and related publications revenues of $27,628,000 (excluding copyright fees), decreased 4.1% during the twelve months ended April 30, 2020, as compared to the prior fiscal year. Total product line circulation at April 30, 2020, was 5.4% below total product line circulation in the prior fiscal year. During the twelve months ended April 30, 2020, Institutional Sales department generated total sales orders of $13,566,000 and the retail telemarketing sales team generated total sales orders of $8,322,000.
Print publication revenues of $12,351,000, decreased 7.4%, during the twelve months ended April 30, 2020, as compared to the prior fiscal year as a result of a 6.1% decline in total print circulation in fiscal 2020. Total digital circulation at April 30, 2020, was 4.4% below total digital circulation in the prior fiscal year, however, digital publications revenues of $15,277,000 during the twelve months ended April 30, 2020, were only 1.3% below the prior fiscal year, as higher-priced subscriptions were generally retained.
Value Line serves primarily individual and professional investors in stocks, who pay mostly on annual subscription plans, for basic services or as much as $100,000 or more annually for comprehensive premium quality research, not obtainable elsewhere. The ongoing goal of adding new subscribers has led us to introduce publications and packages at a range of price points. Further, new services and new features for existing services are regularly under consideration. Prominently introduced in fiscal 2020 and 2021 were new features in the Value Line Research Center, which are The New Value Line ETFs Service, new monthly publication Value Line Information You Should Know Wealth Newsletter, The Value Line M & A Service, and our Value Line Climate Change Investing Service.
The Value Line Proprietary Ranks (the “Ranking System”), a component of the Company’s flagship product, The Value Line Investment Survey, is also utilized in the Company’s copyright business. The Ranking System is made available to EAM for specific uses without charge. During the six month period ended April 30, 2022, the combined Ranking System “Rank 1 & 2” stocks’ decrease of 15.3% compared to the Russell 2000 Index’s decrease of 18.9% during the comparable period. During the twelve month period ended April 30, 2021, the combined Ranking System “Rank 1 & 2” stocks’ decrease of 10.3% compared to the Russell 2000 Index’s decrease of 17.8% during the comparable period.
Copyright fees
During the twelve months ended April 30, 2022, copyright fees of $13,380,000 were 4.8% above those during the corresponding period in the prior fiscal year. During the twelve months ended April 30, 2021, copyright fees of $12,763,000 were 0.7% above those during the corresponding period in the prior fiscal year. During the twelve months ended April 30, 2020, copyright fees of $12,671,000 were 70.4% above those in the prior fiscal year. The Company negotiated in fiscal year 2020 with the sponsor of the largest component (an ETF) in the program, the restructuring of the Company’s asset based fees and overall fees of the ETF in light of the competitive market.
Investment management fees and services – (unconsolidated)
The Company has substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds. Accordingly, the Company does not report this operation as a separate business segment, although it maintains a significant interest in the cash flows generated by this business and will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests.
Total assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2022, were $3.36 billion, which is $1.6 billion, or 32.4%, below total assets of $4.96 billion in the Value Line Funds managed and/or distributed by EAM at April 30, 2021. The decrease in net assets was primarily due to fund shareholder redemptions, closing of two variable annuity funds, and significant market declines.
Total assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2021, were $4.96 billion, which is $1.4 billion, or 38.8%, above total assets of $3.58 billion in the Value Line Funds managed and/or distributed by EAM at April 30, 2020.
Value Line Funds experienced net redemptions and the associated net asset outflows (redemptions less new sales) in fiscal 2022 and fiscal 2021.
The following table shows the change in assets for the past three fiscal years including sales (inflows), redemptions (outflows), dividends and capital gain distributions, and market value changes. Inflows for sales, and outflows for redemptions reflect decisions of individual investors and/or their investment advisors. The table also illustrates the assets within the Value Line Funds broken down into equity funds, variable annuity funds and fixed income funds as of April 30, 2022, 2021 and 2020.
Asset Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended April 30, |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vs. |
|
|
vs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Value Line equity fund assets (excludes variable annuity)— beginning |
|
$ |
4,432,630,658 |
|
|
$ |
3,107,549,794 |
|
|
$ |
2,582,416,326 |
|
|
|
42.6 |
% |
|
|
20.3 |
% |
Sales/inflows |
|
|
489,135,580 |
|
|
|
1,444,784,921 |
|
|
|
1,516,434,399 |
|
|
|
-66.1 |
% |
|
|
-4.7 |
% |
Dividends/Capital Gains Reinvested |
|
|
350,143,149 |
|
|
|
245,356,118 |
|
|
|
206,956,280 |
|
|
|
42.7 |
% |
|
|
18.6 |
% |
Redemptions/outflows |
|
|
(1,228,854,315 |
) |
|
|
(1,265,805,045 |
) |
|
|
(1,006,449,848 |
) |
|
|
-2.9 |
% |
|
|
25.8 |
% |
Dividend and Capital Gain Distributions |
|
|
(365,486,450 |
) |
|
|
(257,754,064 |
) |
|
|
(214,033,328 |
) |
|
|
41.8 |
% |
|
|
20.4 |
% |
Market value change |
|
|
(364,678,944 |
) |
|
|
1,158,498,934 |
|
|
|
22,225,964 |
|
|
|
-131.5 |
% |
|
|
5112.4 |
% |
Value Line equity fund assets (non-variable annuity)— ending |
|
|
3,312,889,678 |
|
|
|
4,432,630,658 |
|
|
|
3,107,549,794 |
|
|
|
-25.3 |
% |
|
|
42.6 |
% |
Variable annuity fund assets — beginning |
|
$ |
431,605,833 |
|
|
$ |
365,271,893 |
|
|
$ |
402,171,626 |
|
|
|
18.2 |
% |
|
|
-9.2 |
% |
Sales/inflows |
|
|
4,277,236 |
|
|
|
4,494,490 |
|
|
|
3,489,595 |
|
|
|
-4.8 |
% |
|
|
28.8 |
% |
Dividends/Capital Gains Reinvested |
|
|
329,335,773 |
|
|
|
46,943,739 |
|
|
|
34,384,214 |
|
|
|
601.6 |
% |
|
|
36.5 |
% |
Redemptions/outflows (1) |
|
|
(444,323,548 |
) |
|
|
(48,782,673 |
) |
|
|
(50,911,955 |
) |
|
|
810.8 |
% |
|
|
-4.2 |
% |
Dividend and Capital Gain Distributions |
|
|
(329,335,773 |
) |
|
|
(46,943,739 |
) |
|
|
(34,384,214 |
) |
|
|
601.6 |
% |
|
|
36.5 |
% |
Market value change |
|
|
8,440,479 |
|
|
|
110,622,123 |
|
|
|
10,522,627 |
|
|
|
-92.4 |
% |
|
|
951.3 |
% |
Variable annuity fund assets — ending |
|
|
0 |
|
|
|
431,605,833 |
|
|
|
365,271,893 |
|
|
|
-100.0 |
% |
|
|
18.2 |
% |
Fixed income fund assets — beginning |
|
$ |
100,536,371 |
|
|
$ |
103,255,601 |
|
|
$ |
106,204,372 |
|
|
|
-2.6 |
% |
|
|
-2.8 |
% |
Sales/inflows |
|
|
2,519,668 |
|
|
|
2,690,636 |
|
|
|
5,872,737 |
|
|
|
-6.4 |
% |
|
|
-54.2 |
% |
Dividends/Capital Gains Reinvested |
|
|
1,140,663 |
|
|
|
1,810,046 |
|
|
|
2,247,503 |
|
|
|
-37.0 |
% |
|
|
-19.5 |
% |
Redemptions/outflows (2) |
|
|
(52,180,984 |
) |
|
|
(8,240,615 |
) |
|
|
(13,556,768 |
) |
|
|
533.2 |
% |
|
|
-39.2 |
% |
Dividend and Capital Gain Distributions |
|
|
(1,219,715 |
) |
|
|
(2,084,557 |
) |
|
|
(2,578,873 |
) |
|
|
-41.5 |
% |
|
|
-19.2 |
% |
Market value change |
|
|
(6,059,508 |
) |
|
|
3,105,260 |
|
|
|
5,066,630 |
|
|
|
-295.1 |
% |
|
|
-38.7 |
% |
Fixed income fund assets — ending |
|
|
44,736,495 |
|
|
|
100,536,371 |
|
|
|
103,255,601 |
|
|
|
-55.5 |
% |
|
|
-2.6 |
% |
Assets under management — ending |
|
$ |
3,357,626,173 |
|
|
$ |
4,964,772,862 |
|
|
$ |
3,576,077,288 |
|
|
|
-32.4 |
% |
|
|
38.8 |
% |
|
(1) |
Guardian Insurance redeemed from Value Line Centurion and Value Line Strategic Asset Management on April 29, 2022 and the two funds were closed. |
|
(2) |
The Value Line Tax Exempt Fund liquidated November 2021. The liquidation of the Tax-Exempt Fund cost $50 million in assets – lost from assets under management, and was an EAM decision not within the list of items requiring consent by the Company under the Declaration of Trust. |
As of April 30, 2022 three of six Value Line equity and hybrid mutual funds held an overall four or five star rating by Morningstar, Inc. The Advisor/Independent Broker Dealer channel has successfully become the largest channel for sales and distribution of The Value Line Funds.
EAM Trust - Results of operations before distribution to interest holders
The gross fees and net income of EAM’s investment management operations during the twelve months ended April 30, 2022, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $29,598,000, 12b-1 fees and other fees of $9,310,000 and other net losses of $20,000. For the same period, total investment management fee waivers were $547,000 and 12b-1 fee waivers were $644,000. During the twelve months ended April 30, 2022, EAM's net income was $4,284,000 after giving effect to Value Line’s non-voting revenues interest of $15,899,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
The gross fees and net income of EAM’s investment management operations during the twelve months ended April 30, 2021, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $29,022,000, 12b-1 fees and other fees of $9,604,000 and other net income of $361,000. For the same period, total investment management fee waivers were $121,000 and 12b-1 fee waivers for three Value Line Funds were $651,000. During the twelve months ended April 30, 2021, EAM's net income was $4,262,000 after giving effect to Value Line’s non-voting revenues interest of $15,190,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
The gross fees and net income of EAM’s investment management operations during the twelve months ended April 30, 2020, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $21,985,000, 12b-1 fees and other fees of $8,436,000 and other net losses of $156,000. For the same period, total investment management fee waivers were $302,000 and 12b-1 fee waivers for three Value Line Funds were $667,000. During the twelve months ended April 30, 2020, EAM's net income was $2,332,000 after giving effect to Value Line’s non-voting revenues interest of $11,184,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
As of April 30, 2022, one of the Value Line Funds has full or partial 12b-1 fees waivers in place, and one fund has partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company does not receive or share in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.
The Value Line equity and hybrid funds’ assets represent 98.7% and fixed income fund assets represent 1.3%, respectively, of total fund assets under management (“AUM”) as of April 30, 2022. At April 30, 2022, equity and hybrid AUM decreased by 25.3% and fixed income AUM decreased by 55.5% as compared to fiscal 2021.
The Value Line equity and hybrid funds’ assets represent 89.1%, variable annuity funds issued by GIAC represent 8.9%, and fixed income fund assets represent 2.0%, respectively, of total fund assets under management (“AUM”) as of April 30, 2021. At April 30, 2021, equity, hybrid and GIAC variable annuities AUM increased by 40.1% and fixed income AUM decreased by 2.6% as compared to fiscal 2020.
EAM - The Company’s non-voting revenues and non-voting profits interests
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the fourth quarter of fiscal 2022 was 54.0%.
The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:
|
|
Fiscal Years Ended April 30, |
|
|
Change |
|
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
Non-voting revenues interest |
|
$ |
15,899 |
|
|
$ |
15,190 |
|
|
$ |
11,184 |
|
|
|
4.7 |
% |
|
|
35.8 |
% |
Non-voting profits interest |
|
|
2,142 |
|
|
|
2,131 |
|
|
|
1,166 |
|
|
|
0.5 |
% |
|
|
82.8 |
% |
|
|
$ |
18,041 |
|
|
$ |
17,321 |
|
|
$ |
12,350 |
|
|
|
4.2 |
% |
|
|
40.3 |
% |
Operating expenses
|
|
Fiscal Years Ended April 30, |
|
|
Change |
|
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
Advertising and promotion |
|
$ |
3,223 |
|
|
$ |
3,745 |
|
|
$ |
3,350 |
|
|
|
-13.9 |
% |
|
|
11.8 |
% |
Salaries and employee benefits |
|
|
17,323 |
|
|
|
18,865 |
|
|
|
18,189 |
|
|
|
-8.2 |
% |
|
|
3.7 |
% |
Production and distribution |
|
|
5,003 |
|
|
|
5,440 |
|
|
|
4,945 |
|
|
|
-8.0 |
% |
|
|
10.0 |
% |
Office and administration |
|
|
4,176 |
|
|
|
4,807 |
|
|
|
4,725 |
|
|
|
-13.1 |
% |
|
|
1.7 |
% |
Total expenses |
|
$ |
29,725 |
|
|
$ |
32,857 |
|
|
$ |
31,209 |
|
|
|
-9.5 |
% |
|
|
5.3 |
% |
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration.
Operating expenses of $29,725,000 during the twelve months ended April 30, 2022, were 9.5% below those during the twelve months ended April 30, 2021 as a result of cost controls in fiscal year 2022. Operating expenses of $7,205,000 during the three months ended April 30, 2022, were 18.9% below those during the three months ended April 30, 2021.
Operating expenses of $32,857,000 during the twelve months ended April 30, 2021, were 5.3% above those during the twelve months ended April 30, 2020. Operating expenses of $8,886,000 during the three months ended April 30, 2021, were 4.6% above those during the three months ended April 30, 2020.
Operating expenses of $31,209,000 during the twelve months ended April 30, 2020, were 1.2% above those in the prior fiscal year.
Advertising and promotion
During the twelve months ended April 30, 2022, advertising and promotion expenses of $3,223,000 decreased 13.9% as compared to the prior fiscal year. During the twelve months ended April 30, 2022, decreases were primarily due to a decline in direct mail campaigns and lower media marketing and lower institutional sales commissions. Total sales commissions decreased 8% during the twelve months ended April 30, 2022.
During the twelve months ended April 30, 2021, advertising and promotion expenses of $3,745,000 increased 11.8% as compared to the prior fiscal year. During the twelve months ended April 30, 2021, increases were primarily due to advertising expenses and institutional sales promotion. Total sales commissions increased by $110,000 during the twelve months ended April 30, 2021. During the twelve months ended April 30, 2021, Institutional gross sales increased by $1.5 million and the retail telemarketing gross sales orders increased by $336,000 above the prior fiscal year.
During the twelve months ended April 30, 2020, advertising and promotion expenses of $3,350,000, decreased 1.6% as compared to the prior fiscal year. During the twelve months ended April 30, 2020, an increase in media marketing expenses and institutional sales promotion was offset by a 15.7% decrease in direct marketing expenses. During the twelve months ended April 30, 2020, sales commissions decreased 3.7% as compared to the prior fiscal year.
Salaries and employee benefits
During the twelve months ended April 30, 2022, salaries and employee benefits of $17,323,000 decreased 8.2% below the prior fiscal year, primarily due to decreases in salaries and employee benefits resulting from a reduced employee headcount in fiscal year 2022 along with a decrease in Profit Sharing employee benefits expense.
During the twelve months ended April 30, 2021, salaries and employee benefits of $18,865,000 increased 3.7% above the prior fiscal year. The increase during the twelve months ended April 30, 2021, was primarily due to increases in Profit Sharing employee benefits expense during fiscal 2021 and increases in salaries and employee benefits.
During the twelve months ended April 30, 2020, salaries and employee benefits of $18,189,000, increased 2.3% above the prior fiscal year due to a 47.0% increase in Profit Sharing employee benefits expense during fiscal 2020 and an increase in independent contractors’ costs over the prior year.
During the twelve months ended April 30, 2022, 2021 and 2020, the Company recorded profit sharing expenses of $557,000, $980,000 and $870,000, respectively.
Production and distribution
During the twelve months ended April 30, 2022, production and distribution expenses of $5,003,000 decreased 8.0% below the prior fiscal year, primarily due to decreases in service mailers and distribution expenses and a decrease in production support of the Company’s website, maintenance of the Company’s publishing and application software and operating systems.
During the twelve months ended April 30, 2021, production and distribution expenses of $5,440,000 increased 10.0% above the prior fiscal year. The increase of $440,000 during the twelve months ended April 30, 2021, was attributable to costs related to production support of the Company’s website, maintenance of the Company’s publishing and application software and operating systems as compared to fiscal 2020.
During the twelve months ended April 30, 2020, production and distribution expenses of $4,945,000, decreased 5.3% below the prior fiscal year. During the twelve months ended April 30, 2020, a 1.8% decrease in overall expenses related to renegotiated production support of the Company’s website, maintenance of the Company’s publishing and application software and operating systems and a 56.3% decrease in amortization of internally developed software costs related to digital security and publication production software as compared to the prior fiscal year. In fiscal 2020, printing and distribution costs decreased 9.8% due to a 6.1% decrease in print circulation during the twelve months ended April 30, 2020.
Office and administration
During the twelve months ended April 30, 2022, office and administrative expenses of $4,176,000 decreased 13.1% below the prior fiscal year, primarily due to a reversal of selected settlement reserves and favorable settlement of a disputed fee with a contractor and decreases in outside data processing (communication, server hosting backup, antivirus software).
During the twelve months ended April 30, 2021, office and administrative expenses of $4,807,000 increased 1.7% above the prior fiscal year. The increase during the twelve months ended April 30, 2021 was primarily a result of an increase in bank service costs based on higher credit card gross receipts of $13.2 million in fiscal 2021 which were 18.5% higher than credit card gross receipts of $11.2 million in the prior fiscal year.
During the twelve months ended April 30, 2020, office and administrative expenses of $4,725,000, increased 6.5% above the prior fiscal year. The increase of $222,000 during the twelve months ended April 30, 2020, was a result of the operating lease amortization expense in fiscal 2020 due to a change in lease accounting standard ASU 2016-02,"Leases (Topic 842)".
Concentration
During the twelve months ended April 30, 2022, 33.0% of total publishing revenues of $40,525,000 were derived from a single customer. During the twelve months ended April 30, 2021, 31.6% of total publishing revenues of $40,392,000 were derived from a single customer. During the twelve months ended April 30, 2020, 31.4% of total publishing revenues of $40,299,000 were derived from a single customer.
Lease Commitments
On November 30, 2016, Value Line, Inc. received consent from the landlord at 551 Fifth Avenue, New York, NY to the terms of a new sublease agreement between Value Line, Inc. and ABM Industries, Incorporated commencing on December 1, 2016. Pursuant to the agreement Value Line leased from ABM 24,726 square feet of office space located on the second and third floors at 551 Fifth Avenue, New York, NY (“Building” or “Premises”) beginning on December 1, 2016 and ending on November 29, 2027. Base rent under the sublease agreement is $1,126,000 per annum during the first year with an annual increase in base rent of 2.25% scheduled for each subsequent year, payable in equal monthly installments on the first day of each month, subject to customary concessions in the Company’s favor and pass-through of certain increases in utility costs and real estate taxes over the base year. The Company provided a security deposit represented by a letter of credit in the amount of $469,000 in October 2016, which was reduced to $305,000 on October 3, 2021 and is to be fully refunded after the sublease ends. This Building became the Company’s new corporate office facility. The Company is required to pay for certain operating expenses associated with the Premises as well as utilities supplied to the Premises. The sublease terms provide for a significant decrease (23% initially) in the Company’s annual rental expenditure taking into account free rent for the first six months of the sublease. Sublandlord provided Value Line a work allowance of $417,000 which accompanied with the six months free rent worth $563,000 was applied against the Company’s obligation to pay rent at our NYC headquarters, delaying the actual rent payments until November 2017.
On February 29, 2016, the Company’s subsidiary VLDC and Seagis Property Group LP (the “Landlord”) entered into a lease agreement, pursuant to which VLDC has leased 24,110 square feet of warehouse and appurtenant office space located at 205 Chubb Ave., Lyndhurst, NJ (“Warehouse”) beginning on May 1, 2016 and ending on April 30, 2024 (“Lease”). Base rent under the Lease is $192,880 per annum payable in equal monthly installments on the first day of each month, in advance during fiscal 2017 and will gradually increase to $237,218 in fiscal 2024, subject to customary increases based on operating costs and real estate taxes. The Company provided a security deposit in cash in the amount of $32,146, which will be fully refunded after the lease term expires. The lease is a net lease requiring the Company to pay for certain operating expenses associated with the Warehouse as well as utilities supplied to the Warehouse.
Investment gains / (losses)
|
|
Fiscal Years Ended April 30, |
|
|
Change |
|
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
'22 vs. '21 |
|
|
'21 vs. '20 |
|
Dividend income |
|
$ |
851 |
|
|
$ |
573 |
|
|
$ |
352 |
|
|
|
48.5 |
% |
|
|
62.8 |
% |
Interest income |
|
|
18 |
|
|
|
137 |
|
|
|
279 |
|
|
|
-86.9 |
% |
|
|
-50.9 |
% |
Investment gains/(losses) recognized on sale of equity securities during the period |
|
|
(1,568 |
) |
|
|
835 |
|
|
|
(1,075 |
) |
|
|
n/a |
|
|
|
n/a |
|
Unrealized gains/(losses) recognized on equity securities held at the end of the period |
|
|
167 |
|
|
|
3,875 |
|
|
|
(339 |
) |
|
|
n/a |
|
|
|
n/a |
|
Other |
|
|
(2 |
) |
|
|
- |
|
|
|
(6 |
) |
|
|
n/a |
|
|
|
n/a |
|
Total investment gains/(losses) |
|
$ |
(534 |
) |
|
$ |
5,420 |
|
|
$ |
(789 |
) |
|
|
n/a |
|
|
|
n/a |
|
During the twelve months ended April 30, 2022, the Company’s investment gains, primarily derived from dividend and interest income, investment losses recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2022, resulted in a loss of $534,000. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the twelve months ended April 30, 2022 and April 30, 2021, were $2,496,000 and $14,902,000, respectively. Proceeds from the sales of equity securities during the twelve months ended April 30, 2022 and April 30, 2021 were $12,039,000 and $8,212,000, respectively. There were no capital gain distributions from ETFs in fiscal 2022 or fiscal 2021.
During the twelve months ended April 30, 2021, the Company’s investment gains, primarily derived from dividend and interest income, investment gains recognized on sales of equity securities during the period and unrealized gains recognized on equity securities held at the end of the period in fiscal 2021, was $5,420,000. During the twelve months ended April 30, 2020, the Company’s investment losses, primarily derived from dividend and interest income, investment losses recognized on sales of equity securities during the period and unrealized losses recognized on equity securities held at the end of the period in fiscal 2020, were $789,000. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the twelve months ended April 30, 2021 and April 30, 2020, were $14,902,000 and $8,663,000, respectively. Proceeds from the sales of equity securities during the twelve months ended April 30, 2021 and April 30, 2020 were $8,212,000 and $4,387,000, respectively. There were no capital gain distributions from ETFs in fiscal 2021 or fiscal 2020.
Effective income tax rate
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the twelve months ended April 30, 2022, April 30, 2021 and April 30, 2020 were 22.25%, 23.11% and 27.64%, respectively. The decrease in the effective tax rate during for the twelve months ended April 30, 2022 as compared to April 30, 2021, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA offset by an increase in the state and local income taxes from 2.05% to 3.12% as a result of changes in state and local income tax allocation factors, on deferred taxes in fiscal 2022. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to changes in tax law, including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-income tax, the Company's geographic profit mix between tax jurisdictions, taxation method adopted by each locality, new interpretations of existing tax laws and rulings and settlements with tax authorities.
Liquidity and Capital Resources
The Company had working capital, defined as current assets less current liabilities, of $37,580,000 as of April 30, 2022 and $23,312,000 as of April 30, 2021. These amounts include short-term unearned revenue of $17,688,000 and $19,162,000 reflected in total current liabilities at April 30, 2022 and April 30, 2021, respectively. Cash and short-term securities were $57,825,000 and $45,353,000 as of April 30, 2022 and April 30, 2021, respectively.
The Company’s cash and cash equivalents include $28,965,000 and $18,209,000 at April 30, 2022 and April 30, 2021, respectively, invested primarily in commercial banks and in Money Market Funds at brokers, which operate under Rule 2a-7 of the 1940 Act and invest primarily in short-term U.S. government securities.
Cash from operating activities
The Company had cash inflows from operating activities of $24,646,000 during the twelve months ended April 30, 2022, compared to cash inflows from operations of $16,410,000 and $13,745,000 during the twelve months ended April 30, 2021 and 2020, respectively. The increase in cash flows from fiscal 2021 to fiscal 2022 is primarily attributable to higher pre-tax income and an increase in cash receipts from EAM and the timing of receipts from copyright programs. The increase in cash flows from fiscal 2020 to fiscal 2021 is primarily attributable to higher net income and an increase in cash receipts from EAM and the timing of receipts from copyright programs.
Cash from investing activities
The Company’s cash outflows from investing activities of $3,389,000 during the twelve months ended April 30, 2022, compared to cash inflows from investing activities of $7,381,000 and cash outflows of $8,657,000 for the twelve months ended April 30, 2021 and April 30, 2020, respectively. Cash outflows for the twelve months ended April 30, 2022, were primarily due to the Company’s decision to invest in additional fixed income securities in fiscal 2022. Cash inflows for the twelve months ended April 30, 2021, were higher than in fiscal 2020 primarily due to the Company’s decision not to reinvest proceeds in fixed income securities in fiscal 2021.
Cash from financing activities
During the twelve months ended April 30, 2022, the Company’s cash outflows from financing activities were $10,889,000 and compared to cash outflows from financing activities of $9,574,000 and $6,627,000 for the twelve months ended April 30, 2021 and 2020, respectively. Cash outflows for financing activities included $2,484,000, $1,526,000 and $1,214,000 for the repurchase of 53,327 shares, 53,551 shares and 46,840 shares of the Company’s common stock under the April 2020, July 2021 and March 2022 board approved common stock repurchase programs, during fiscal years 2022, 2021 and 2020, respectively. During fiscal 2020, the Company applied for and received an SBA loan under the Paycheck Protection Program in the amount of $2,331,000. The obligation to repay the SBA loan under the Paycheck Protection Program was forgiven during fiscal 2022. Quarterly regular dividend payments of $0.22 per share during fiscal 2022 aggregated $8,405,000. Quarterly regular dividend payments of $0.21 per share during fiscal 2021 aggregated $8,068,000. Quarterly regular dividend payments of $0.20 per share during fiscal 2020 aggregated $7,724,000.
At April 30, 2022 there were 9,509,843 common shares outstanding as compared to 9,563,170 common shares outstanding at April 30, 2021. The Company expects financing activities to continue to include use of cash for dividend payments for the foreseeable future.
Management believes that the Company’s cash and other liquid asset resources used in its business together with the proceeds from the SBA loan and the future cash flows from operations and from the Company’s non-voting revenues and non-voting profits interests in EAM will be sufficient to finance current and forecasted liquidity needs for the next twelve months and beyond next year. Management does not anticipate making any additional borrowings during the next twelve months. As of April 30, 2022, retained earnings and liquid assets were $87,645,000 and $57,825,000, respectively. As of April 30, 2021, retained earnings and liquid assets were $72,502,000 and $45,353,000, respectively.
Seasonality
Our publishing revenues are comprised of subscriptions which are generally annual subscriptions. Our cash flows from operating activities are minimally seasonal in nature, primarily due to the timing of customer payments made for orders and subscription renewals.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes including interim-period accounting for enacted changes in tax laws. The Company adopted this guidance effective May 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial statements.
On June 21, 2018, the United States Supreme Court reversed the 1992 ruling in Quill, which protected firms delivering items by common carrier into a state where it had no physical presence from having to collect sales tax in such state. The Company has integrated the effects of the various state laws into its operations and continues to do so.
Critical Accounting Estimates and Policies
The Company prepares its consolidated financial statements in accordance with Generally Accepted Accounting Principles as in effect in the United States (U.S. “GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent, and the Company evaluates its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies reflect the significant judgments and estimates used in the preparation of its Consolidated Financial Statements:
Investment in EAM Trust
The Company accounts for its investment in EAM using the equity method of accounting. The value of its investment in EAM is the fair value of the contributed capital at inception, plus the Company’s share of non-voting revenues and non-voting profits from EAM, less distributions received from EAM. The Company evaluates its investment in EAM on a regular basis for other-than-temporary impairment, which requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances that impact the fair value of the investment.
Should the fair value of the investment fall below its carrying value, the Company will determine whether the investment is other-than-temporarily impaired, which includes assessing the severity and duration of the impairment and the likelihood of recovery. If the investment is considered to be other-than-temporarily impaired, the Company will write down the investment to its fair value. Since the inception of EAM, the Company has not recognized any other-than-temporary impairment in the investment.
Contractual Obligations
We are a party to lease contracts which will result in cash payments to landlords in future periods. Operating lease liabilities are included in our Consolidated Balance Sheets. Estimated payments of these liabilities in each of the next five fiscal years and thereafter are (in thousands): $1,597 in 2023; $1,634 in 2024; $1,429 in 2025; $1,461 in 2026; $1,493 in 2027 and $882 thereafter totaling $8,496.