15 be recognized in the calculation of net income. As of January 31, 2023 and January 31, 2022 the Company held fixed income securities consisting of certificates of deposits and securities issued by federal, state, and local governments within the United States that are classified as securities available-for-sale on the Consolidated Condensed Balance Sheets. The change in valuation of fixed income securities, net of deferred income taxes, has been recorded in Accumulated Other Comprehensive Income in the Company's Consolidated Condensed Balance Sheets.
The components of comprehensive income included in the Consolidated Condensed Statements of Income and Changes in Shareholders' Equity for the nine months ended January 31, 2023 are as follows:
($ in thousands) | | Amount Before Tax | | | Tax (Expense) / Benefit | | | Amount Net of Tax | |
Change in unrealized gains on available-for-sale fixed income securities | | $ | 158 | | | $ | (33 | ) | | $ | 125 | |
| | | $ | 158 | | | $ | (33 | ) | | $ | 125 | |
The components of comprehensive income included in the Consolidated Condensed Statements of Income and Changes in Shareholders' Equity for the nine months ended January 31, 2022 are as follows:
($ in thousands) | | Amount Before Tax | | | Tax (Expense) / Benefit | | | Amount Net of Tax | |
Change in unrealized losses on available-for-sale fixed income securities | | $ | (5 | ) | | $ | 1 | | | $ | (4 | ) |
| | | $ | (5 | ) | | $ | 1 | | | $ | (4 | ) |
Notes to Consolidated Condensed Financial Statements
Value Line, Inc.
Notes to Consolidated Condensed Financial Statements
October 31, 2022
(Unaudited)
Note 7 - Related Party Transactions: Investment Management (overview):
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 receives non-voting revenues and non-voting profits interests, as discussed below.
Total assets in the Value Line Funds managed and/or distributed by EAM at October 31, 2022, were $2.9 billion, 42% below total assets of $5.0 billion in the Value Line Funds managed and/or distributed by EAM at October 31, 2021. The reduction in assets was due to a bear market in equities, and particularly in growth stocks in which EAM specializes, and to the termination of a lower-margin business in annuity funds.
The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive quarterly distributions in a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement. Value Line’s percent share of EAM’s revenues is calculated each fiscal quarter. The applicable recent non-voting revenues interest percentage for the second quarter of fiscal 2023 was 53.01%.
EAM Trust - VLI's non-voting revenues and non-voting profits interests:
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business. EAM currently has no separately managed account fees. The Company recorded income from its non-voting revenues interest and its non-voting profits interests in EAM as follows:
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 | | Non-voting revenues interest in EAM | | $ | 2,623 | | | $ | 4,263 | | | $ | 5,405 | | | $ | 8,412 | | Non-voting profits interest in EAM | | | 193 | | | | 629 | | | | 426 | | | | 1,285 | | | | | $ | 2,816 | | | $ | 4,892 | | | $ | 5,831 | | | $ | 9,697 | |
At October 31, 2022, the Company's investment in EAM includes a receivable of $2,797,000 representing the quarterly distribution of the non-voting revenues share and non-voting profits share. That amount was subsequently paid to the Company.
Transactions with Parent:
During the six months ended October 31, 2022 and October 31, 2021, the Company was reimbursed $170,000 and $175,000, respectively, for payments it made on behalf of and for services the Company provided to the Parent Company, Arnold Bernhard and Co., Inc. ("Parent"). There were no receivables from the Parent on the Consolidated Condensed Balance Sheets at October 31, 2022 and April 30, 2022.
The Company is a party to a tax-sharing arrangement with the Parent which allocates the tax liabilities of the two Companies between them. The Company made federal tax payments of $3,127,000 and $2,300,000 to the Parent during the six months ended October 31, 2022 and October 31, 2021.
As of October 31, 2022, the Parent owned 91.29%
|
Investment Management (overview):
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 receives non-voting revenues and non-voting profits interests, as discussed below.
Total assets in the Value Line Funds managed and/or distributed by EAM at January 31, 2023, were $3.04 billion, 31.1% below total assets of $4.41 billion in the Value Line Funds managed and/or distributed by EAM at January 31, 2022. The reduction in assets was due to a bear market in equities, and particularly in growth stocks in which EAM specializes, and to the termination of a lower-margin business in annuity funds.
The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive quarterly distributions in a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement.
EAM Trust - VLI's non-voting revenues and non-voting profits interests:
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business. EAM currently has no separately managed account fees. The Company recorded income from its non-voting revenues interest and its non-voting profits interests in EAM as follows:
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
($ in thousands) | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Non-voting revenues interest in EAM | | $ | 2,512 | | | $ | 4,120 | | | $ | 7,917 | | | $ | 12,532 | |
Non-voting profits interest in EAM | | | 173 | | | | 535 | | | | 599 | | | | 1,820 | |
| | | $ | 2,685 | | | $ | 4,655 | | | $ | 8,516 | | | $ | 14,352 | |
At January 31, 2023, the Company's investment in EAM includes a receivable of $2,667,000 representing the quarterly distribution of the non-voting revenues share and non-voting profits share. That amount was subsequently paid to the Company.
Transactions with Parent:
During the nine months ended January 31, 2023 and January 31, 2022, the Company was reimbursed $232,000 and $243,000, respectively, for payments it made on behalf of and for services the Company provided to the Parent Company, Arnold Bernhard and Co., Inc. ("Parent"). There were no receivables from the Parent on the Consolidated Condensed Balance Sheets at January 31, 2023 and April 30, 2022.
The Company is a party to a tax-sharing arrangement with the Parent which allocates the tax liabilities of the two Companies between them. The Company made federal tax payments of $3,327,000 and $2,300,000 to the Parent during the nine months ended January 31, 2023 and January 31, 2022.
As of January 31, 2023, the Parent owned 91.47% of the outstanding shares of common stock of the Company.
Note 8 - Federal, State and Local Income Taxes:
In accordance with the requirements of the Income Tax Topic of the FASB's ASC, the Company's provision for income taxes includes the following:
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Current tax expense: | | | | | | | | | | | | | | | | |
Federal | | $ | 1,252 | | | $ | 1,556 | | | $ | 2,390 | | | $ | 3,022 | |
State and local | | | 110 | | | | 325 | | | | 467 | | | | 594 | |
Current tax expense | | | 1,362 | | | | 1,881 | | | | 2,857 | | | | 3,616 | |
Deferred tax expense (benefit): | | | | | | | | | | | | | | | | |
Federal | | | (11 | ) | | | 77 | | | | (99 | ) | | | 118 | |
State and local | | | 40 | | | | (134 | ) | | | 40 | | | | (343 | ) |
Deferred tax expense (benefit): | | | 29 | | | | (57 | ) | | | (59 | ) | | | (225 | ) |
Income tax provision | | $ | 1,391 | | | $ | 1,824 | | | $ | 2,798 | | | $ | 3,391 | |
Value Line, Inc.
Notes to Consolidated Condensed Financial Statements
October 31, 2022
(Unaudited)
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted. The Tax Act lowered the U.S. federal income tax rate ("Federal Tax Rate") from 35% to 21% effective January 1, 2018. Accordingly, the Company computes Federal income tax expense using the Federal Tax Rate of 21% in fiscal year 2019 and each year thereafter.
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the six months ended October 31, 2022 and October 31, 2021 were 24.15% and 19.05%, respectively. The lower effective tax rate during six months ended October 31, 2021 as compared to October 31, 2022, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA during fiscal 2022 (see note 16). The higher effective tax rate during the six months ended October 31, 2022 as compared to October 31, 2021, is also due to an increase in the state and local income tax rate to 3.37% from 1.11% as a result of changes in state and local income tax allocations, the increase in additional states that the Company is taxed in and the effect on deferred taxes in fiscal 2023. 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.
Deferred income taxes, a liability, are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's long-term deferred tax liability are as follows:
| | | October 31, | | | April 30, | |
($ in thousands) | | 2022 | | | 2022 | |
Federal tax liability (benefit): | | | | | | | | |
Deferred gain on deconsolidation of EAM | | $ | 10,669 | | | $ | 10,669 | |
Deferred non-cash post-employment compensation | | | (372 | ) | | | (372 | ) |
Depreciation and amortization | | | 68 | | | | 77 | |
Unrealized gain on securities held for sale | | | 821 | | | | 909 | |
Right of Use Asset | | | (186 | ) | | | (188 | ) |
Deferred charges | | | (160 | ) | | | (154 | ) |
Other | | | (299 | ) | | | (300 | ) |
Total federal tax liability | | | 10,541 | | | | 10,641 | |
| | | | | | | | | |
State and local tax liabilities (benefits): | | | | | | | | |
Deferred gain on deconsolidation of EAM | | | 2,101 | | | | 2,131 | |
Deferred non-cash post-employment compensation | | | (73 | ) | | | (74 | ) |
Depreciation and amortization | | | 124 | | | | 180 | |
Unrealized gain on securities held for sale | | | 161 | | | | 194 | |
Other | | | 212 | | | | 54 | |
Total state and local tax liabilities | | | 2,525 | | | | 2,485 | |
Deferred tax liability, long-term | | $ | 13,066 | | | $ | 13,126 | |
At the end of each interim reporting period, the Company estimates the effective income tax rate to apply for the full fiscal year. The Company uses the effective income tax rate determined to provide for income taxes on a year-to-date basis and reflects the tax effect of any tax law changes and certain other discrete events in the period in which they occur.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:
| | | Six Months Ended October 31, | |
| | | 2022 | | | 2021 | |
U.S. statutory federal tax rate | | | 21.00 | % | | | 21.00 | % |
Increase (decrease) in tax rate from: | | | | | | | | |
State and local income taxes, net of federal income tax benefit | | | 3.37 | % | | | 1.11 | % |
Non-taxable SBA loan forgiveness | | | - | | | | (2.75 | )% |
Effect of dividends received deductions | | | (0.23 | )% | | | (0.33 | )% |
Other, net | | | 0.01 | % | | | 0.02 | % |
Effective income tax rate | | | 24.15 | % | | | 19.05 | % |
Value Line, Inc.
Notes to Consolidated Condensed Financial Statements
October 31, 2022
(Unaudited)
The Company believes that, as of October 31, 2022, there were no material uncertain tax positions that would require disclosure under GAAP.
The Company is included in the consolidated federal income tax return of the Parent. The Company has a tax sharing agreement which requires it to make tax payments to the Parent equal to the Company's liability/(benefit) as if it filed a separate return. Beginning with the fiscal year ended April 30, 2017, the Company files combined income tax returns with the Parent on a unitary basis in certain states.
The Company’s federal income tax returns (included in the Parent’s consolidated returns) and state and city tax returns for fiscal years ended 2019 through 2021, are subject to examination by the tax authorities, generally for three years after they are filed with the tax authorities.
Note 9 - Property and Equipment:
Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases. For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed extended tax lives. Property and equipment, net, on the Consolidated Condensed Balance Sheets was comprised of the following:
| | | October 31, | | | April 30, | |
($ in thousands) | | 2022 | | | 2022 | |
| | | | | | | | | |
Building and leasehold improvements | | $ | 1,013 | | | $ | 1,013 | |
Operating lease - right-of-use asset | | | 5,879 | | | | 6,442 | |
Furniture and equipment | | | 4,114 | | | | 4,091 | |
| | | | 11,006 | | | | 11,546 | |
Accumulated depreciation and amortization | | | (4,573 | ) | | | (4,488 | ) |
Total property and equipment, net | | $ | 6,433 | | | $ | 7,058 | |
Note 10 - Accounting for the Costs of Computer Software Developed for Internal Use:
The Company has adopted the provisions of the Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed for Internal Use". SOP 98-1 requires companies to capitalize as long-lived assets many of the costs associated with developing or purchasing software for internal use and amortize those costs over the software's estimated useful life in a systematic and rational manner. Such costs, when incurred, are capitalized and amortized over the expected useful life of the asset, normally 3 to 5 years. Total amortization expenses during the six months ended October 31, 2022 and October 31, 2021, were $24,000 and $43,000, respectively.
During the six months ended October 31, 2022 and October 31, 2021, the Company did not incur and did not capitalize expenditures related to third party programmers' costs or to the development of software for internal use.
Note 11 - Treasury Stock and Repurchase Program:
During October 2022, the Company's Board of Directors approved a renewal of a share repurchase program authorizing the repurchase of shares of the Company’s common stock up to an aggregate purchase price of $3,000,000. The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set price limit and no expiration date.
Treasury stock, at cost, consists of the following:
(in thousands except for shares and cost per share) | Shares | | Cost Assigned | | Average Cost per Share | | Aggregate Purchase Price Remaining Under the
Program | |
Balance as of July 31, 2022 | | 525,186 | | $ | 12,349 | | $ | 23.51 | | $ | 1,859 | |
Purchases effected in open market during the months ended: | | | | | | | | | | | | |
August 31, 2022 | | 3,450 | | | 279 | | | 80.85 | | | 1,580 | |
September 30, 2022 | | 5,681 | | | 313 | | | 55.18 | | | 1,267 | |
Authorized October 21, 2022 | | | | | | | | | | | 3,000 | |
October 31, 2022 | | 8,183 | | | 508 | | | 62.04 | | | 2,956 | |
Balance as of October 31, 2022 | | 542,500 | | $ | 13,449 | | $ | 24.79 | | $ | 2,956 | |
Value Line, Inc.
Notes to Consolidated Condensed Financial Statements
October 31, 2022
(Unaudited)
Note 12 - Lease Commitments:
In February 2016, the FASB issued ASU No.2016-02, “Leases (Topic 842)”. This ASU requires that, for leases longer than one year, a lessee recognizes in the statements of financial position a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognizes interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. The firm adopted this ASU in May 2019 under a modified retrospective approach.
The Company adopted ASU 2016-02 using a modified retrospective transition approach as of the Effective Date as permitted by the amendments in ASU 2018-11, which provides an alternative modified retrospective transition method. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. May 1, 2019). The Company has elected to employ the transitionary relief offered by the FASB and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized.
The Company leases office space in New York, NY and a warehouse and appurtenant office space in Lyndhurst, NJ. The Company has evaluated these leases and determined that they are operating leases under the definitions of the guidance of ASU 2016-02.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.
On May 1, 2019, the Company recorded a right-of-use asset in the amount of $9,575,000, which represents the lease liability of $10,340,000 adjusted for previously recorded unamortized lease incentives in the amount of $765,000. The right-of-use asset is amortized over the remaining lease term in the amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability. As of October 31, 2022, the Company had a long-term lease asset of $5,879,000 recorded in property and equipment in its Consolidated Condensed Balance Sheets.
The Company recognizes lease expense, calculated as the remaining cost of the lease allocated over the remaining lease term on a straight-line basis. Lease expense is presented as part of continuing operations in the consolidated condensed statements of income. The Company recognized $750,000 in lease expenses in both fiscal years 2023 and 2022 during the six months ended October 31, 2022 and October 31, 2021, respectively.
For the six months ended October 31, 2022, the Company paid $792,000 in rent relating to the leases. As a payment arising from an operating lease, the $792,000 is classified within operating activities in the consolidated condensed statements of cash flows.
The Company’s leases generally do not provide an implicit interest rate, and therefore the Company estimated an incremental borrowing rate, or IBR, as of the commencement date, to determine the present value of its operating lease liabilities. The IBR is defined under ASC 842 as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Consolidated Condensed Balance Sheet as of October 31, 2022:
Fiscal years ended April 30, | | ($ in thousands) | |
2023 * | | $ | 805 | |
2024 | | | 1,634 | |
2025 | | | 1,429 | |
2026 | | | 1,461 | |
2027 | | | 1,493 | |
Thereafter | | | 882 | |
Total undiscounted future minimum lease payments | | | 7,704 | |
Less: difference between undiscounted lease payments & the present value of future lease payments | | | 941 | |
Total operating lease liabilities | | $ | 6,763 | |
* Excludes the six months ended October 31, 2022
Value Line, Inc.
Notes to Consolidated Condensed Financial Statements
October 31, 2022
(Unaudited)
Note 8 - Federal, State and Local Income Taxes:
In accordance with the requirements of the Income Tax Topic of the FASB's ASC, the Company's provision for income taxes includes the following:
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
($ in thousands) | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Current tax expense: | | | | | | | | | | | | | | | | |
Federal | | $ | 1,191 | | | $ | 1,662 | | | $ | 3,581 | | | $ | 4,684 | |
State and local | | | 364 | | | | 472 | | | | 831 | | | | 1,066 | |
Current tax expense | | | 1,555 | | | | 2,134 | | | | 4,412 | | | | 5,750 | |
Deferred tax expense (benefit): | | | | | | | | | | | | | | | | |
Federal | | | 184 | | | | (175 | ) | | | 85 | | | | (57 | ) |
State and local | | | (68 | ) | | | (46 | ) | | | (28 | ) | | | (389 | ) |
Deferred tax expense (benefit): | | | 116 | | | | (221 | ) | | | 57 | | | | (446 | ) |
Income tax provision | | $ | 1,671 | | | $ | 1,913 | | | $ | 4,469 | | | $ | 5,304 | |
Notes to Consolidated Condensed Financial Statements
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted. The Tax Act lowered the U.S. federal income tax rate ("Federal Tax Rate") from 35% to 21% effective January 1, 2018. Accordingly, the Company computes Federal income tax expense using the Federal Tax Rate of 21% in fiscal year 2019 and each year thereafter.
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the nine months ended January 31, 2023 and January 31, 2022 were 24.15% and 20.94%, respectively. The lower effective tax rate during nine months ended January 31, 2022 as compared to January 31, 2023, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA during fiscal 2022 (see note 16). The higher effective tax rate during the nine months ended January 31, 2023 as compared to January 31, 2022, is also due to an increase in the state and local income tax rate to 3.39% from 2.11% as a result of changes in state and local income tax allocations, the increase in additional states that the Company is subject to tax and the effect on deferred taxes in fiscal 2023. 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.
Deferred income taxes, a liability, are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's long-term deferred tax liability are as follows:
| | | January 31, | | | April 30, | |
($ in thousands) | | 2023 | | | 2022 | |
Federal tax liability (benefit): | | | | | | | | |
Deferred gain on deconsolidation of EAM | | $ | 10,669 | | | $ | 10,669 | |
Deferred non-cash post-employment compensation | | | (372 | ) | | | (372 | ) |
Depreciation and amortization | | | 63 | | | | 77 | |
Unrealized gain on securities held for sale | | | 1,002 | | | | 909 | |
Right of Use Asset | | | (180 | ) | | | (188 | ) |
Deferred charges | | | (147 | ) | | | (154 | ) |
Other | | | (277 | ) | | | (300 | ) |
Total federal tax liability | | | 10,758 | | | | 10,641 | |
| | | | | | | | | |
State and local tax liabilities (benefits): | | | | | | | | |
Deferred gain on deconsolidation of EAM | | | 2,122 | | | | 2,131 | |
Deferred non-cash post-employment compensation | | | (74 | ) | | | (74 | ) |
Depreciation and amortization | | | 128 | | | | 180 | |
Unrealized gain on securities held for sale | | | 199 | | | | 194 | |
Other | | | 164 | | | | 54 | |
Total state and local tax liabilities | | | 2,539 | | | | 2,485 | |
Deferred tax liability, long-term | | $ | 13,297 | | | $ | 13,126 | |
At the end of each interim reporting period, the Company estimates the effective income tax rate to apply for the full fiscal year. The Company uses the effective income tax rate determined to provide for income taxes on a year-to-date basis and reflects the tax effect of any tax law changes and certain other discrete events in the period in which they occur.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:
| | | Nine Months Ended January 31, | |
| | | 2023 | | | 2022 | |
U.S. statutory federal tax rate | | | 21.00 | % | | | 21.00 | % |
Increase (decrease) in tax rate from: | | | | | | | | |
State and local income taxes, net of federal income tax benefit | | | 3.39 | % | | | 2.11 | % |
Non-taxable SBA loan forgiveness | | | - | | | | (1.93 | )% |
Effect of dividends received deductions | | | (0.25 | )% | | | (0.26 | )% |
Other, net | | | 0.01 | % | | | 0.02 | % |
Effective income tax rate | | | 24.15 | % | | | 20.94 | % |
The Company believes that, as of January 31, 2023, there were no material uncertain tax positions that would require disclosure under GAAP.
Notes to Consolidated Condensed Financial Statements
The Company is included in the consolidated federal income tax return of the Parent. The Company has a tax sharing agreement which requires it to make tax payments to the Parent equal to the Company's liability/(benefit) as if it filed a separate return. Beginning with the fiscal year ended April 30, 2017, the Company files combined income tax returns with the Parent on a unitary basis in certain states.
The Company’s federal income tax returns (included in the Parent’s consolidated returns) and state and city tax returns for fiscal years ended 2020 through 2022, are subject to examination by the tax authorities, generally for three years after they are filed with the tax authorities.
Note 9 - Property and Equipment:
Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases. For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed extended tax lives. Property and equipment, net, on the Consolidated Condensed Balance Sheets was comprised of the following:
| | | January 31, | | | April 30, | |
($ in thousands) | | 2023 | | | 2022 | |
Building and leasehold improvements | | $ | 1,013 | | | $ | 1,013 | |
Operating lease - right-of-use asset | | | 5,591 | | | | 6,442 | |
Furniture and equipment | | | 4,115 | | | | 4,091 | |
| | | | 10,719 | | | | 11,546 | |
Accumulated depreciation and amortization | | | (4,608 | ) | | | (4,488 | ) |
Total property and equipment, net | | $ | 6,111 | | | $ | 7,058 | |
Note 10 - Accounting for the Costs of Computer Software Developed for Internal Use:
The Company has adopted the provisions of the Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed for Internal Use". SOP 98-1 requires companies to capitalize as long-lived assets many of the costs associated with developing or purchasing software for internal use and amortize those costs over the software's estimated useful life in a systematic and rational manner. Such costs, when incurred, are capitalized and amortized over the expected useful life of the asset, normally 3 to 5 years. Total amortization expenses during the nine months ended January 31, 2023 and January 31, 2022, were $36,000 and $59,000, respectively.
During the nine months ended January 31, 2023 and January 31, 2022, the Company did not incur and did not capitalize expenditures related to third party programmers' costs or to the development of software for internal use.
Note 11 - Treasury Stock and Repurchase Program:
During October 2022, the Company's Board of Directors approved a renewal of a share repurchase program authorizing the repurchase of shares of the Company’s common stock up to an aggregate purchase price of $3,000,000. The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set price limit and no expiration date.
Treasury stock, at cost, consists of the following:
(in thousands except for shares and cost per share) | | Shares | | | Cost Assigned | | | Average Cost per Share | | | Aggregate Purchase Price Remaining Under the Program | |
Balance as of October 31, 2022 | | | 542,500 | | | $ | 13,449 | | | $ | 24.79 | | | $ | 2,956 | |
Purchases effected in open market during the months ended: | | | | | | | | | | | | | | | | |
November 30, 2022 | | | 6,681 | | | | 391 | | | | 58.52 | | | | 2,565 | |
December 31, 2022 | | | 10,845 | | | | 558 | | | | 51.49 | | | | 2,007 | |
January 31, 2023 | | | 1,112 | | | | 56 | | | | 49.96 | | | | 1,951 | |
Balance as of January 31, 2023 | | | 561,138 | | | $ | 14,454 | | | $ | 25.76 | | | $ | 1,951 | |
Notes to Consolidated Condensed Financial Statements
Note 12 - Lease Commitments:
In February 2016, the FASB issued ASU No.2016-02, “Leases (Topic 842)”. This ASU requires that, for leases longer than one year, a lessee recognizes in the statements of financial position a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognizes interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. The firm adopted this ASU in May 2019 under a modified retrospective approach.
The Company adopted ASU 2016-02 using a modified retrospective transition approach as of the Effective Date as permitted by the amendments in ASU 2018-11, which provides an alternative modified retrospective transition method. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. May 1, 2019). The Company has elected to employ the transitionary relief offered by the FASB and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized.
The Company leases office space in New York, NY and a warehouse and appurtenant office space in Lyndhurst, NJ. The Company has evaluated these leases and determined that they are operating leases under the definitions of the guidance of ASU 2016-02.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.
On May 1, 2019, the Company recorded a right-of-use asset in the amount of $9,575,000, which represents the lease liability of $10,340,000 adjusted for previously recorded unamortized lease incentives in the amount of $765,000. The right-of-use asset is amortized over the remaining lease term in the amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability. As of January 31, 2023, the Company had a long-term lease asset of $5,591,000 recorded in property and equipment in its Consolidated Condensed Balance Sheets.
The Company recognizes lease expense, calculated as the remaining cost of the lease allocated over the remaining lease term on a straight-line basis. Lease expense is presented as part of continuing operations in the consolidated condensed statements of income. The Company recognized $750,000 in lease expenses in both fiscal years 2023 and 2022 during the nine months ended January 31, 2023 and January 31, 2022, respectively.
For the nine months ended January 31, 2023, the Company paid $1,193,000 in rent relating to the leases. As a payment arising from an operating lease, the $1,193,000 is classified within operating activities in the consolidated condensed statements of cash flows.
The Company’s leases generally do not provide an implicit interest rate, and therefore the Company estimated an incremental borrowing rate, or IBR, as of the commencement date, to determine the present value of its operating lease liabilities. The IBR is defined under ASC 842 as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Consolidated Condensed Balance Sheet as of January 31, 2023:
Fiscal years ended April 30, | | ($ in thousands) | |
| 2023* | | $ | 404 | |
2024 | | | 1,634 | |
2025 | | | 1,429 | |
2026 | | | 1,461 | |
2027 | | | 1,493 | |
Thereafter | | | 882 | |
Total undiscounted future minimum lease payments | | | 7,303 | |
Less: difference between undiscounted lease payments & the present value of future lease payments | | | 855 | |
Total operating lease liabilities | | $ | 6,448 | |
* Excludes the nine months ended January 31, 2023
Notes to Consolidated Condensed Financial Statements
Note 13 - Restricted Cash and Deposits: Restricted Money Market Investment in the noncurrent assets on the Consolidated Condensed Balance Sheet at October 31, 2022,
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Restricted Money Market Investment in the noncurrent assets on the Consolidated Condensed Balance Sheet at January 31, 2023, includes $305,000, which represents cash invested in a bank money market fund securing a letter of credit ("LOC") in the amount of $305,000 issued to the sublandlord as a security deposit for the Company's New York City leased corporate office facility. According to the sublease agreement the LOC and restricted cash were reduced from $469,000 to $305,000 in the third quarter of fiscal year 2022.
Note 14 - Concentration: During the six months ended October 31, 2022, 34.0% of total publishing revenues of $20,010,000 were derived from a single customer.
Note 15 - Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of October 31, 2022 and October 31, 2021, the Company had $4,183,000 and $1,574,000, respectively, in excess of the FDIC insured limit. Management has concluded the excess does not represent a material risk, based on the creditworthiness of the counter parties.
Note 16 - Paycheck Protection Program Loan:
Shortly after declaration of the COVID-19 pandemic and "lockdowns" of numerous non-essential businesses, the Company in April of 2020 executed a note and received a loan (the "PPP Loan") from JP Morgan Chase Bank under the Paycheck Protection Program ("PPP") which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and was administered by the U.S. Small Business Administration ("SBA"). The proceeds from the PPP Loan were used in accordance with the terms of the CARES Act program.
Under the terms of the CARES Act, Borrowers could apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness is determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. The Company was granted total loan forgiveness of $2,331,365 by the SBA during the second quarter of fiscal 2022. Accrued interest was also forgiven.
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During the nine months ended January 31, 2023, 34.0% of total publishing revenues of $29,977,000 were derived from a single customer.
Note 15 - Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of January 31, 2023 and January 31, 2022, the Company had $2,427,000 and $3,030,000, respectively, in excess of the FDIC insured limit. Management has concluded the excess does not represent a material risk, based on the creditworthiness of the counter parties.
The Company maintains a deposit account of $305,000 at Signature Bank as security for a letter of credit in a similar amount (See Note 13). The bank was closed March 12, 2023 by its state chartering authority. In a joint statement of the U.S. Treasury department, the Federal Reserve, and the Federal Deposit Insurance Corporation, these federal entities confirmed that all depositors of this institution will be made whole.
Note 16 - Paycheck Protection Program Loan:
Shortly after declaration of the COVID-19 pandemic and "lockdowns" of numerous non-essential businesses, the Company in April of 2020 executed a note and received a loan (the "PPP Loan") from JP Morgan Chase Bank under the Paycheck Protection Program ("PPP") which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and was administered by the U.S. Small Business Administration ("SBA"). The proceeds from the PPP Loan were used in accordance with the terms of the CARES Act program.
Under the terms of the CARES Act, Borrowers could apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness is determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. The Company was granted total loan forgiveness of $2,331,365 by the SBA during the second quarter of fiscal 2022. Accrued interest was also forgiven.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Information
In this report, “Value Line,” “we,” “us,” “our” refers to Value Line, Inc. and “the Company” refers to Value Line and its subsidiaries unless the context otherwise requires.
This report contains statements that are predictive in nature, depend upon or refer to future events or conditions (including certain projections and business trends) accompanied by such phrases as “believe”, “estimate”, “expect”, “anticipate”, “will”, “intend” and other similar or negative expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, as amended. Actual results for the Company may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the following:
| | ● | maintaining revenue from subscriptions for the Company’s digital and print published products; |
| | ● | changes in investment trends and economic conditions, including global financial issues; |
| ● | changes in Federal Reserve policies affecting interest rates and liquidity along with resulting effects on equity markets; |
| ● | continuation of orderly markets for equities and corporate and governmental debt securities; |
| | ● | protecting intellectual property rights in Company methods and trademarks; |
| | ● | protecting confidential information including customer confidential or personal information that we may possess; |
| | ● | dependence on non-voting revenues and non-voting profits interests in EULAV Asset Management, a Delaware statutory trust (“EAM” or “EAM Trust”), which serves as the investment advisor to the Value Line Funds and engages in related distribution, marketing and administrative services; |
| | ● | fluctuations in EAM’s and third party copyright assets under management due to broadly based changes in the values of equity and debt securities, redemptions by investors and other factors; |
| | ● | possible changes in the valuation of EAM’s intangible assets from time to time; |
| | ● | generating future revenues or collection of receivables from significant customers; |
| | ● | dependence on key executive and specialist personnel; |
| | ● | risks associated with the outsourcing of certain functions, technical facilities, and operations, including in some instances outside the U.S.; |
| | ● | competition in the fields of publishing, copyright and investment management, along with associated effects on the level and structure of prices and fees, and the mix of services delivered; |
| | ● | the impact of government regulation on the Company’s and EAM’s businesses; |
| | ● | availability of free or low cost investment data through discount brokers or generally over the internet; |
| | ● | military conflicts, civil unrest, and associated travel and supply disruptions and other effects; |
| | ● | Russia’s invasion of Ukraine and the impact on inflation; |
| | ● | continued availability of generally dependable energy supplies in the geographic areas in which the company and certain suppliers operate; |
| | ● | terrorist attacks, cyber attacks and natural disasters; |
| | ● | insufficiency in our business continuity plans or systems in the event of anticipated or unpredictable disruption; |
| | ● | the coronavirus pandemic, which has drastically affected markets, employment, and other economic conditions, and may have additional unpredictable impacts on employees, suppliers, customers, and operations; |
| | ● | other possible epidemics; |
| | ● | changes in prices of materials and other inputs and services, such as freight and postage, required by the Company; |
| | ● | other risks and uncertainties, including but not limited to the risks described in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended April 30, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended OctoberJanuary 31, 2022;2023; and other risks and uncertainties arising from time to time. |
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors which may involve external factors over which we may have no control or changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion, could also have material adverse effects on future results. Except as otherwise required by applicable law, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking information contained herein.
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. economy reboundedcontinued to rebound in the third2022 fourth quarter, with the gross domestic product (GDP) expanding by an annualized rate of 2.9%2.7%. This followed an annualized increase of 2.6% in the third quarter and two quarterly contractions to start 2022, with output in the first half of the year hurt by the spread of the COVID-19 Omicron variant at the turn of the calendar and the fact that inventory buildups were pulled forward (into the fourth quarter of 2021), as manufacturers worried about supply-chain disruptions. GDP measures economic output, not demand; accordingly, inventory accumulation in late 2021 added toThe fourth-quarter GDP growth, while retarding early 2022 GDP. The third-quarter GDP reading, much like the third-period figure, did have some worrisome signs, including the slowing pace of growth in the consumer sector (from the second to third quarter) and a sharp drop in residential construction, but still solidstill-strong jobs creation in Novemberto both end 2022 and strong retail sales data in Octoberbegin 2023 were positive signs as the new year winds down.unfolds.
Meantime, the central bank remains aggressive in raising interest rates. The Federal Reserve at its early NovemberFebruary Federal Open Market Committee (FOMC) meeting increased the benchmark short-term interest rate by 0.75%0.25%, to the range of 3.75%4.50% to 4.00%4.75%. It markedThis raised the fourth consecutive three-quarter-point hike.federal funds rate by more than four full percentage points since the Fed began tightening monetary policy in early 2022. The increasingly restrictive monetary policy decisioncourse has been accompanied by hawkish commentary from thesenior Federal Reserve was followed by commentary fromofficials, including Chairman Jerome Powell, in which he statedPowell. The consensus opinion among Fed monetary policy makers is that the federal funds rate maywill ultimately need to reachmove comfortably above the 5.00% by mid-2023mark this year and stay at that level for a longeran extended duration to reduce demand for goods and services enough to drive prices significantly lower. A half-point increase to the federal funds rate was expected at the December FOMC meeting, the final central bank get-together of 2022. lower and effectively fight inflation. Stronger-than-expected January Consumer and Producer Price Indexes readings suggested such actions will be necessary.
TheIn general, the Federal Reserve’s efforts to slow demand are starting to work, butworking, with the real impactFederal Reserve noting some disinflation in the goods sector. It should also be noted that consumer credit card balances, with significantly higher interest rates, recently stood at just shy of the increasingly restrictive monetary policies implemented earlier this year were not expected$1 trillion mark. This may force the consumer to be realized until late-2022 and early 2023. U.S. households are now changingreassess their spending habits focusing on essential items (i.e., food and energy) and showing a willingnesswhen the credit card bills start to wait for sales (i.e., lower prices) on more-discretionary big-ticket and luxury items.come due later this year. Meanwhile, the pace of both new and existing home sales, as well as residential construction (the biggest contributor to GDP after the consumer sector), has fallen sharply during the late summercontinues to decline, with both housing starts and early fall months, with significantlybuilding permits down more than 20%, year over year, in January. Significantly higher borrowing costs are leading to a drop in housing affordability. These higher borrowing costs—and resultant elevated rates on increasing credit card debt—are likely to put pressure on the consumer and result in a drop in prices, even if the supply-side shortages were to linger. The moderation in both the October Consumer and Producer Price Indexes suggests that the Fed’s efforts to reduce inflation are gaining some traction.
In conclusion, the aggressive monetary policy tightening stance by the Federal Reserve may ultimately push the U.S. economy into a recession. The continued inversion of the Treasury market yield curve (occurs when rates on longer-term obligations are lower than those of shorter-tern durations), the decline in crude oil prices during the late fall season, and the rash of layoffssharp reduction in the technology sectorU.S. money supply may be indicationsan indication of some economic painchallenges ahead. This would make for a tougher near-term operating environment for both businesses and consumers, and may be reflected in next few quarters of corporate earnings results.consumers.
Results of Operations for the Three and SixNine Months Ended OctoberJanuary 31, 20222023 and OctoberJanuary 31, 20212022
The following table illustrates the Company’s key components of revenues and expenses.
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands, except earnings per share) | | 2022 | | | 2021 | | | Change | | | 2022 | | | 2021 | | | Change | |
Income from operations | | $ | 3,173 | | | $ | 2,737 | | | | 15.9 | % | | $ | 5,729 | | | $ | 5,002 | | | | 14.5 | % |
Gain on forgiveness of SBA loan | | | - | | | | 2,331 | | | | N/A | | | | - | | | | 2,331 | | | | N/A | |
Non-voting revenues and non-voting profits interests from EAM Trust | | | 2,816 | | | | 4,892 | | | | -42.4 | % | | | 5,831 | | | | 9,697 | | | | -39.9 | % |
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust and gain on SBA loan forgiveness | | $ | 5,989 | | | $ | 9,960 | | | | -39.9 | % | | $ | 11,560 | | | $ | 17,030 | | | | -32.1 | % |
Operating expenses | | $ | 6,893 | | | $ | 7,236 | | | | -4.7 | % | | $ | 14,281 | | | $ | 15,137 | | | | -5.7 | % |
Investment gains/(losses) | | $ | (268 | ) | | $ | 368 | | | | -172.8 | % | | $ | 26 | | | $ | 762 | | | | -96.6 | % |
Income before income taxes | | $ | 5,721 | | | $ | 10,328 | | | | -44.6 | % | | $ | 11,586 | | | $ | 17,792 | | | | -34.9 | % |
Net income | | $ | 4,330 | | | $ | 8,504 | | | | -49.1 | % | | $ | 8,788 | | | $ | 14,401 | | | | -39.0 | % |
Earnings per share | | $ | 0.46 | | | $ | 0.89 | | | | -48.3 | % | | $ | 0.93 | | | $ | 1.51 | | | | -38.4 | % |
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands, except earnings per share) | | 2023 | | | 2022 | | | Change | | | 2023 | | | 2022 | | | Change | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income from operations | | $ | 2,984 | | | $ | 2,875 | | | | 3.8 | % | | $ | 8,713 | | | $ | 7,877 | | | | 10.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Gain on forgiveness of SBA loan | | | - | | | | - | | | | - | | | | - | | | | 2,331 | | | | N/A | |
Non-voting revenues and non-voting profits interests from EAM Trust | | | 2,685 | | | | 4,655 | | | | -42.3 | % | | | 8,516 | | | | 14,352 | | | | -40.7 | % |
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust and gain on SBA loan forgiveness | | $ | 5,669 | | | $ | 7,530 | | | | -24.7 | % | | $ | 17,229 | | | $ | 24,560 | | | | -29.8 | % |
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Operating expenses | | $ | 6,983 | | | $ | 7,383 | | | | -5.4 | % | | $ | 21,264 | | | $ | 22,520 | | | | -5.6 | % |
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Investment gains/(losses) | | $ | 1,250 | | | $ | (3 | ) | | | N/A | | | $ | 1,276 | | | $ | 759 | | | | 68.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | $ | 6,919 | | | $ | 7,527 | | | | -8.1 | % | | $ | 18,505 | | | $ | 25,319 | | | | -26.9 | % |
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Net income | | $ | 5,248 | | | $ | 5,614 | | | | -6.5 | % | | $ | 14,036 | | | $ | 20,015 | | | | -29.9 | % |
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Earnings per share | | $ | 0.55 | | | $ | 0.59 | | | | -6.8 | % | | $ | 1.48 | | | $ | 2.10 | | | | -29.5 | % |
During the sixnine months ended OctoberJanuary 31, 2022,2023, the Company’s net income of $8,788,000,$14,036,000, or $0.93$1.48 per share, was 39.0%29.9% below net income of $14,401,000,$20,015,000, or $1.51$2.10 per share, for the sixnine months ended OctoberJanuary 31, 2021.2022. Fiscal 2022 included a gain of $2,331,000 from the tax-free forgiveness of SBA’s PPP loan to the Company. During the sixnine months ended OctoberJanuary 31, 2022,2023, the Company’s income from operations of $5,729,000$8,713,000 was 14.5%10.6% above income from operations of $5,002,000$7,877,000 during the sixnine months ended OctoberJanuary 31, 2021.2022. For the sixnine months ended OctoberJanuary 31, 2022,2023, operating expenses decreased 5.7%5.6% below those during the sixnine months ended OctoberJanuary 31, 2021. 2022.
During the three months ended OctoberJanuary 31, 2022,2023, the Company’s net income of $4,330,000,$5,248,000, or $0.46$0.55 per share, was 49.1%6.5% below net income of $8,504,000,$5,614,000, or $0.89$0.59 per share, for the three months ended OctoberJanuary 31, 2021.2022. During the three months ended OctoberJanuary 31, 2022,2023, the Company’s income from operations of $3,173,000$2,984,000 was 15.9%3.8% above income from operations of $2,737,000$2,875,000 during the three months ended OctoberJanuary 31, 2021.2022. For the three months ended OctoberJanuary 31, 2022,2023, operating expenses decreased 4.7%5.4% below those during the three months ended OctoberJanuary 31, 2021. 2022.
During the sixnine months ended OctoberJanuary 31, 2022,2023, there were 9,475,9609,465,955 average common shares outstanding as compared to 9,557,3339,551,418 average common shares outstanding during the sixnine months ended OctoberJanuary 31, 2021.2022.
| | | | Three Months Ended January 31, | | Nine Months Ended January 31, | |
| | | Three Months Ended October 31, | | Six Months Ended October 31, | | | | | | | | | | | | | | |
($ in thousands) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change | |
Investment periodicals and related publications: | | |
Print | | $ | 2,513 | | | $ | 2,634 | | | -4.6 | % | | $ | 5,071 | | | $ | 5,620 | | | -9.8 | % | | $ | 2,468 | | | $ | 2,769 | | | -10.9 | % | | $ | 7,539 | | | $ | 8,389 | | | -10.1 | % |
Digital | | | 4,099 | | | 4,001 | | | 2.4 | % | | | 8,132 | | | 7,962 | | | 2.1 | % | | | 4,124 | | | 4,010 | | | 2.8 | % | | | 12,256 | | | 11,972 | | | 2.4 | % |
Total investment periodicals and related publications | | 6,612 | | | 6,635 | | | -0.3 | % | | 13,203 | | | 13,582 | | | -2.8 | % | | 6,592 | | | 6,779 | | | -2.8 | % | | 19,795 | | | 20,361 | | | -2.8 | % |
Copyright fees | | | 3,454 | | | 3,338 | | | 3.5 | % | | | 6,807 | | | 6,557 | | | 3.8 | % | | | 3,375 | | | 3,479 | | | -3.0 | % | | | 10,182 | | | 10,036 | | | 1.5 | % |
Total publishing revenues | | $ | 10,066 | | | $ | 9,973 | | | 0.9 | % | | $ | 20,010 | | | $ | 20,139 | | | -0.6 | % | | $ | 9,967 | | | $ | 10,258 | | | -2.8 | % | | $ | 29,977 | | | $ | 30,397 | | | -1.4 | % |
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
| | | | Three Months Ended January 31, | | Nine Months Ended January 31, | |
| | | Three Months Ended October 31, | | Six Months Ended October 31, | | | 2023 | | 2022 | | 2023 | | 2022 | |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | Print | | Digital | | Print | | Digital | | Print | | Digital | | Print | | Digital | |
| | | Print | | Digital | | Print | | Digital | | Print | | Digital | | Print | | Digital | | | | | | | | | | | | | | | | | | | | | | | | | |
New Sales | | 8.1 | % | | 13.9 | % | | 14.1 | % | | 13.2 | % | | 10.3 | % | | 13.7 | % | | 15.2 | % | | 14.8 | % | | 11.1 | % | | 9.8 | % | | 7.8 | % | | 12.6 | % | | 10.6 | % | | 12.3 | % | | 12.1 | % | | 14.0 | % |
| | | |
Renewal Sales | | | 91.9 | % | | 86.1 | % | | 85.9 | % | | 86.8 | % | | 89.7 | % | | 86.3 | % | | 84.8 | % | | 85.2 | % | | | 88.9 | % | | 90.2 | % | | 92.2 | % | | 87.4 | % | | | 89.4 | % | | 87.7 | % | | 87.9 | % | | 86.0 | % |
| | | |
Total Gross Sales | | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
During the sixnine months ended OctoberJanuary 31, 2022,2023, new sales of print and digital publications decreased as a percent of the total gross sales versus the prior fiscal year as a result of weakened sentiment among prospective customers in a period of market volatility. During the sixnine months ended OctoberJanuary 31, 2022,2023, renewal sales of print and digital publications increased as a percent of the total gross sales versus the prior fiscal year.
| | | As of October 31, | | As of April 30, | | As of October 31, | | Change | | | As of January 31, | | As of April 30, | | As of January 31, | | Change | |
($ in thousands) | | 2022 | | 2022 | | 2021 | | October-22 vs. Apr-22 | | October-22 vs. October-21 | | | 2023 | | 2022 | | 2022 | | January-23
vs. Apr-22 | | January-23 vs. January-22 | |
| | | | | | | | | | | | | |
Unearned subscription revenue (current and long-term liabilities) | | $ | 22,890 | | | $ | 23,773 | | | $ | 22,600 | | | -3.7 | % | | 1.3 | % | | $ | 22,763 | | | $ | 23,773 | | | $ | 23,148 | | | -4.2 | % | | -1.7 | % |
Unearned subscription revenue as of OctoberJanuary 31, 2022,2023, is 3.7%4.2% below April 30, 2022 and 1.3% above October1.7% below January 31, 2021.2022. A certain amount of variation is to be expected due to the volume of new orders and timing of long-term renewal contracts, direct mail campaigns and large Institutional Sales orders.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues of $13,203,000$19,795,000 (excluding copyright fees) during the sixnine months ended OctoberJanuary 31, 20222023 were 2.8% below publishing revenues of $13,582,000,$20,361,000, 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. TotalAs fewer individual investors manage their own portfolios, total product line circulation at OctoberJanuary 31, 2022,2023, was 10.9%10.5% below total product line circulation at OctoberJanuary 31, 2021. During2022. However, during the sixnine months ended OctoberJanuary 31, 2022,2023, Institutional Sales department generated total sales orders, representing our growing business with financial advisors and professional investors, of $7,170,000 or 27.8%$11,025,000 were 21.4% above the prior fiscal year. The retail telemarketing sales team generated total sales orders of $3,666,000, approximately equal to last$5,511,000 or 8.1% below the prior fiscal year.
Total print circulation at OctoberJanuary 31, 20222023 was 16.9%16.6% below the total print circulation at OctoberJanuary 31, 2021.2022. During the sixnine months ended OctoberJanuary 31, 2022,2023, print publication revenues of $5,071,000,$7,539,000, decreased 9.8%10.1%, below print publication revenues of $5,620,000$8,389,000 during OctoberJanuary of 20212022 because we deferred advertising in light of negative sentiment among prospective individual customers in a bearchallenging market environment. Total digital circulation at OctoberJanuary 31, 20222023 was 2.3%1.5% below total digital circulation at OctoberJanuary 31, 2021.2022 with the professional clientele offsetting individual subscribers. During the sixnine months ended OctoberJanuary 31, 2022,2023, digital revenues of $8,132,000$12,256,000 were up 2.1%2.4% as compared to the prior fiscal year. These figures reflect weak investor sentiment, likely temporary, and the ongoing shift from our print services to digital counterparts. Further, publishing revenue is fairly steady, despite the dip in print circulation. Sales of our higher-price, higher-profit, publications have been stronger than sales of lowlower price “starter” products.
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.
The Value Line Proprietary Ranks (the “Ranking System”), a component of the Company’s flagship product, The Value Line Investment Survey, are also utilized in the Company’s copyright business. The Ranking System is made available to EAM for specific uses without charge. During the twelvesix month period ended October 31, 2022,February 21, 2023, the combined Ranking System “Rank 1 & 2” stocks’ decreaseincrease of 20.8%1.9% compared to the Russell 2000 Index’s decrease of 19.6%1.4% during the comparable period.
Copyright fees
During the sixnine months ended OctoberJanuary 31, 2022,2023, copyright fees of $6,807,000$10,182,000 were 3.8%1.5% above those during the corresponding period in the prior fiscal year.
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 OctoberJanuary 31, 2022,2023, were $2.9$3.04 billion, which is $2.1$1.37 billion, or 42.0%31.1%, below total assets of $5.0$4.41 billion in the Value Line Funds managed and/or distributed by EAM at OctoberJanuary 31, 2021.2022. The decrease in net assets was primarily due to fund shareholder redemptions, closing of two variable annuity funds, and significant declines during the 2022 bear market.
Value Line Mutual Funds
| | | As of October 31, | | | As of January 31, | |
($ in millions) | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | |
Equity and hybrid funds | | $ | 2,851 | | | $ | 4,971 | | | -42.6 | % | | $ | 2,993 | | | $ | 4,358 | | | -31.3 | % |
Fixed income funds | | | 40 | | | 50 | | | -20.0 | % | | | 42 | | | 49 | | | -14.3 | % |
Total EAM managed net assets | | $ | 2,891 | | | $ | 5,021 | | | -42.4 | % | | $ | 3,035 | | | $ | 4,407 | | | -31.1 | % |
EAM Trust - Results of operations before distribution to interest holders
The gross fees and net income of EAM’s investment management operations during the sixnine months ended OctoberJanuary 31, 2022,2023, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $10,142,000,$14,951,000, 12b-1 fees and other fees of $3,050,000$4,507,000 and other net gains of $4,000.$150,000. For the same period, total investment management fee waivers were $31,000$104,000 and 12b-1 fee waivers were $54,000.$80,000. During the sixnine months ended OctoberJanuary 31, 2022,2023, EAM's net income was $852,000$1,198,000 after giving effect to Value Line’s non-voting revenues interest of $5,405,000,$7,917,000, 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 sixnine months ended OctoberJanuary 31, 2021,2022, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $15,679,000,$23,306,000, 12b-1 fees and other fees of $4,941,000$7,303,000 and other net income of $119,000.$49,000. For the same period, total investment management fee waivers were $218,000$402,000 and 12b-1 fee waivers for three Value Line Funds were $342,000. During the sixnine months ended OctoberJanuary 31, 2021,2022, EAM's net income was $2.570,000$3,640,000 after giving effect to Value Line’s non-voting revenues interest of $8,412,000,$12,532,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
As of OctoberJanuary 31, 2022,2023, one of the Value Line Funds has full 12b-1 fees waivers in place, and six funds have partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company does not receive or share in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.
The Value Line equity and hybrid funds’ assets represent 98.6% and fixed income fund assets represent 1.4%, respectively, of total fund assets under management (“AUM”) as of OctoberJanuary 31, 2022.2023. At OctoberJanuary 31, 2022,2023, equity and hybrid AUM decreased by 43.0% and fixed income AUM decreased by 20.0% as compared to last year at OctoberJanuary 31, 2021. 2022.
EAM - The Company’s non-voting revenues and non-voting profits interests
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the second quarter of fiscal 2023 was 53.01% but will decline somewhat under the agreed formula as lower invested assets result in lower investment management fee revenue.
The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:
| | | Three Months Ended October 31, | | Six Months Ended October 31, | | | Three Months Ended January 31, | | Nine Months Ended January 31, | |
($ in thousands) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change | |
Non-voting revenues interest | | $ | 2,623 | | | $ | 4,263 | | | -38.5 | % | | $ | 5,405 | | | $ | 8,412 | | | -35.7 | % | | $ | 2,512 | | | $ | 4,120 | | | -39.0 | % | | $ | 7,917 | | | $ | 12,532 | | | -36.8 | % |
Non-voting profits interest | | | 193 | | | 629 | | | -69.3 | % | | | 426 | | | 1,285 | | | -66.8 | % | | | 173 | | | 535 | | | -67.7 | % | | | 599 | | | 1,820 | | | -67.1 | % |
| | | $ | 2,816 | | | $ | 4,892 | | | -42.4 | % | | $ | 5,831 | | | $ | 9,697 | | | -39.9 | % | | $ | 2,685 | | | $ | 4,655 | | | -42.3 | % | | $ | 8,516 | | | $ | 14,352 | | | -40.7 | % |
Operating expenses
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands) | | 2022 | | | 2021 | | | Change | | | 2022 | | | 2021 | | | Change | |
Advertising and promotion | | $ | 723 | | | $ | 676 | | | | 7.0 | % | | $ | 1,544 | | | $ | 1,723 | | | | -10.4 | % |
Salaries and employee benefits | | | 3,769 | | | | 4,303 | | | | -12.4 | % | | | 7,816 | | | | 8,960 | | | | -12.8 | % |
Production and distribution | | | 1,243 | | | | 1,311 | | | | -5.2 | % | | | 2,458 | | | | 2,527 | | | | -2.7 | % |
Office and administration | | | 1,158 | | | | 946 | | | | 22.4 | % | | | 2,463 | | | | 1,927 | | | | 27.8 | % |
Total expenses | | $ | 6,893 | | | $ | 7,236 | | | | -4.7 | % | | $ | 14,281 | | | $ | 15,137 | | | | -5.7 | % |
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
($ in thousands) | | 2023 | | | 2022 | | | Change | | | 2023 | | | 2022 | | | Change | |
Advertising and promotion | | $ | 703 | | | $ | 722 | | | | -2.6 | % | | $ | 2,247 | | | $ | 2,445 | | | | -8.1 | % |
Salaries and employee benefits | | | 3,758 | | | | 4,285 | | | | -12.3 | % | | | 11,574 | | | | 13,245 | | | | -12.6 | % |
Production and distribution | | | 1,371 | | | | 1,269 | | | | 8.0 | % | | | 3,829 | | | | 3,796 | | | | 0.9 | % |
Office and administration | | | 1,151 | | | | 1,107 | | | | 4.0 | % | | | 3,614 | | | | 3,034 | | | | 19.1 | % |
Total expenses | | $ | 6,983 | | | $ | 7,383 | | | | -5.4 | % | | $ | 21,264 | | | $ | 22,520 | | | | -5.6 | % |
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration. Operating expenses of $6,893,000$6,983,000 and $14,281,000$21,264,000 during the three and sixnine months ended OctoberJanuary 31, 2022,2023, decreased 4.7%5.4% and 5.7%5.6%, respectively, as compared to those during the three and sixnine months ended OctoberJanuary 31, 2021,2022, as a result of cost controls in fiscal year 2023.
Advertising and promotion
During the three and sixnine months ended OctoberJanuary 31, 2022,2023, advertising and promotion expenses of $723,000$703,000 and $1,544,000 increased 7.0%$2,247,000 decreased 2.6% and decreased 10.4%8.1%, respectively, as compared to the prior fiscal year, primarily due to decreasedecreases in media advertising expenses and direct mail campaigns, partially offset by the increases in renewal solicitation costs and institutional sales expenses. During the second fiscal quarter, however, advertising expenses were increased 7% versus fiscal 2022 as we perceive the environment for promotion of our services has improved.
Salaries and employee benefits
During the three and sixnine months ended OctoberJanuary 31, 2022,2023, salaries and employee benefits of $3,769,000$3,758,000 and $7,816,000$11,574,000 decreased 12.4%12.3% and 12.8%12.6%, respectively, as compared to the prior fiscal year, primarily due to decreases in salaries and employee benefits resulting from a reduced employee headcount in fiscal year 2023.
Production and distribution
During the three and sixnine months ended OctoberJanuary 31, 2022,2023, production and distribution expenses of $1,243,000$1,371,000 and $2,458,000 decreased 5.2%$3,829,000 increased 8.0% and 2.7%, respectively, as compared to the prior fiscal year. The decreases in service mailers, paper and distribution costs as a result of reduced print product circulation was the primary reason for the decline in expenses.
Office and administration
During the three and six months ended October 31, 2022, office and administrative expenses of $1,158,000 and $2,463,000 increased 22.4% and 27.8%0.9%, respectively, as compared to the prior fiscal year, primarily due to increases in production support of the Company’s website and maintenance of the Company’s publishing and application software and operating systems, partially offset by lower paper and printing costs resulting from decreases in print circulation.
Office and administration
During the three and nine months ended January 31, 2023, office and administrative expenses of $1,151,000 and $3,614,000 increased 4.0% and 19.1%, respectively, as compared to the prior fiscal year, primarily due to increases in one time settlement costs and professional fees.
Concentration
During the sixnine months ended OctoberJanuary 31, 2022,2023, 34.0% of total publishing revenues of $20,010,000$29,977,000 were derived from a single customer.
Investment gains/(losses)
| | | Three Months Ended October 31, | | Six Months Ended October 31, | | | Three Months Ended January 31, | | Nine Months Ended January 31, | |
($ in thousands) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dividend income | | $ | 141 | | | $ | 210 | | | -32.9 | % | | $ | 254 | | | $ | 406 | | | -37.4 | % | | $ | 190 | | | $ | 234 | | | -18.8 | % | | $ | 444 | | | $ | 640 | | | -30.6 | % |
| | | |
Interest income | | 158 | | | - | | | N/A | | | 201 | | | 1 | | | N/A | | | 194 | | | (2 | ) | | N/A | | | 395 | | | (1 | ) | | N/A | |
| | | | | | | | | | | | | | | | | | | | |
Investment gains/(losses) recognized on sale of equity securities during the period | | 3 | | | 47 | | | -93.6 | % | | 5 | | | 47 | | | -89.4 | % | | 7 | | | (19 | ) | | N/A | | | 12 | | | 28 | | | N/A | |
| | | | | | | | | | | | | | | | | | | | |
Unrealized gains/(losses) recognized on equity securities held at the end of the period | | (577 | ) | | 111 | | | N/A | | | (434 | ) | | 309 | | | N/A | | | 859 | | | (215 | ) | | N/A | | | 425 | | | 94 | | | N/A | |
| | | | | | | | | | | | | | | | | | | | |
Other | | | 7 | | | - | | | N/A | | | | - | | | (1 | ) | | N/A | | | | - | | | (1 | ) | | N/A | | | | - | | | (2 | ) | | N/A | |
Total investment gains/(losses) | | $ | (268 | ) | | $ | 368 | | | -172.8 | % | | $ | 26 | | | $ | 762 | | | -96.6 | % | | $ | 1,250 | | | $ | (3 | ) | | N/A | | | $ | 1,276 | | | $ | 759 | | | 68.1 | % |
During the sixnine months ended OctoberJanuary 31, 2022,2023, the Company’s investment gains, primarily derived from dividend and interest income, investment gains and 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 2023, resulted in a gain of $26,000.$1,276,000. During the sixnine months ended OctoberJanuary 31, 2021,2022, the Company’s investment gains, primarily derived from dividend and interest income, investment gains and 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 gain of $762,000.$759,000. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the sixnine months ended OctoberJanuary 31, 2023 and January 31, 2022, and October 31, 2021, were $0$9,907,000 and $2,496,000, respectively. Proceeds from the sales of equity securities during the sixnine months ended OctoberJanuary 31, 2023 and January 31, 2022 were $1,421,000 and October 31, 2021 were $1,016,000 and $687,000,$1,202,000, respectively.
Effective income tax rate
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the sixnine months ended OctoberJanuary 31, 20222023 and OctoberJanuary 31, 20212022 were 24.15% and 19.05%20.94%, respectively. The lower effective income tax rate during the sixnine months ended OctoberJanuary 31, 20212022 as compared to OctoberJanuary 31, 2022,2023, is primarily a result of the non-taxable revenue derived from forgiveness of the PPP loan by the SBA during fiscal 2022 (see note 16). The higher effective tax rate during the sixnine months ended OctoberJanuary 31, 20222023 as compared to OctoberJanuary 31, 2021,2022, is also a result of an increase in the state and local income taxes to 3.37%3.39% from 1.11%2.11% as a result of changes in state and local income tax allocations, the increase in additional states that the Company is taxed in and the effect on deferred taxes in fiscal 2023. 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.
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, which we expect will 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. The 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 we expect 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.
Liquidity and Capital Resources
The Company had working capital, defined as current assets less current liabilities, of $39,249,000$41,608,000 as of OctoberJanuary 31, 20222023 and $37,580,000 as of April 30, 2022. These amounts include short-term unearned revenue of $16,674,000$16,531,000 and $17,688,000 reflected in total current liabilities at OctoberJanuary 31, 20222023 and April 30, 2022, respectively. Cash and short-term securities were $57,744,000$60,777,000 and $57,825,000 as of OctoberJanuary 31, 20222023 and April 30, 2022, respectively.
The Company’s cash and cash equivalents include $12,066,000$11,233,000 and $28,965,000 at OctoberJanuary 31, 20222023 and April 30, 2022, 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 $8,599,000$13,978,000 during the sixnine months ended OctoberJanuary 31, 2022,2023, compared to cash inflows from operations of $11,260,000$19,627,000 during the sixnine months ended OctoberJanuary 31, 2021,2022, respectively. The decrease in cash flows from fiscal 2022 to fiscal 2023 is primarily attributable to lower net income, a decrease in cash receipts from EAM, the timing of customers’ payments and the timing of Federal Income tax payments.
Cash from investing activities
The Company had cash outflows from investing activities of $17,405,000$20,222,000 during the sixnine months ended OctoberJanuary 31, 2022,2023, compared to cash outflows from investing activities of $749,000$1,614,000 for the sixnine months ended OctoberJanuary 31, 2021,2022, respectively. Cash outflows for the sixnine months ended OctoberJanuary 31, 2022,2023, were primarily due to increases in purchases of U.S. treasury bills and fixed income securities in fiscal year 2023.
Cash from financing activities
During the sixnine months ended OctoberJanuary 31, 2022,2023, the Company’s cash outflows from financing activities were $8,229,000,$11,598,000, compared to cash outflows from financing activities of $4,724,000$7,439,000 for the sixnine months ended OctoberJanuary 31, 2021.2022. During the sixnine months ended OctoberJanuary 31, 2022,2023, cash outflows for financing activities included $3,482,000$4,487,000 for the repurchase of 52,34370,981 shares of the Company’s common stock under the May 31, 2022 and October 21, 2022 board approved common stock repurchase programs. Quarterly dividend payments of $0.25 per share during fiscal year 2023 aggregated $4,747,000.$7,111,000. Quarterly regular dividend payments of $0.22 per share during fiscal year 2022 aggregated $4,207,000.$6,307,000.
At OctoberJanuary 31, 20222023 there were 9,457,5009,438,862 common shares outstanding as compared to 9,546,5819,529,163 common shares outstanding at OctoberJanuary 31, 2021.2022. The Company expects financing activities to continue to include use of cash for dividend payments for the foreseeable future.
Debt and Liquid Assets
Management believes that the Company’s cash and other liquid asset resources used in its business together with the tax free proceeds from the SBA PPP loan, which debt has been forgiven, 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. Management does not anticipate making any borrowings during the next twelve months. As of OctoberJanuary 31, 2022,2023, retained earnings and liquid assets were $91,700,000$94,588,000 and $57,744,000,$60,777,000, respectively. As of April 30, 2022, retained earnings and liquid assets were $87,645,000 and $57,825,000, respectively. There are no off-balance-sheet arrangements, so none affect the interpretations of reported assets, liquidity, and debt.
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.
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’s critical accounting policy relates to the valuation of EAM. There have been no material changes in our critical accounting policies during the threenine months ended OctoberJanuary 31, 2022.2023. For a complete discussion of our critical accounting policies, refer to “Critical Accounting Policies and Estimates” discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for fiscal year ended April 30, 2022.
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): $805$404 (remaining sixthree months) in 2023; $1,634 in 2024; $1,429 in 2025; $1,461 in 2026; $1,493 in 2027 and $882 thereafter totaling $7,704.
$7,303.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk Disclosures
The Company’s Consolidated Condensed Balance Sheet includes a substantial amount of assets whose fair values are subject to market risks. The Company’s market risks are primarily associated with interest rates and equity price risk. The following sections address the significant market risks associated with the Company’s investment activities.
Interest Rate Risk
The Company’s strategy has been to acquire debt securities with low credit risk. Despite this strategy management recognizes and accepts the possibility that losses may occur. To limit the price fluctuation in these securities from interest rate changes, the Company’s management invests primarily in short-term obligations maturing within one year.
The fair values of the Company’s fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions.
Fixed income securities consist of bank certificates of deposits and securities issued by federal, state and local governments within the United States. As of OctoberJanuary 31, 20222023 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $27,982,000$30,802,000 and $27,954,000,$30,930,000, respectively. As of April 30, 2022 the aggregate cost and fair value of fixed income securities classified as available-for-sale were $10,505,000 and $10,475,000, respectively.
The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table.
Fixed Income Securities
| Estimated Fair Value after |
| Hypothetical Change in Interest Rates |
| (in thousands) |
| (bp = basis points) |
| | | | | | | 1 year | | | 1 year | | | 1 year | | | 1 year | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Fair
Value | | | 50 bp
increase | | | 50 bp
decrease | | | 100 bp
increase | | | 100 bp
decrease | |
| | | | | | | | | | | | | | | | | | | | | |
| As of October 31, 2022 | | | | | | | | | | | | | | | | | | | | |
| Investments in securities with fixed maturities | | $ | 27,954 | | | | 27,459 | | | | 27,657 | | | | 27,360 | | | | 27,756 | |
| | | | | | | | | | | | | | | | | | | | | |
| As of April 30, 2022 | | | | | | | | | | | | | | | | | | | | |
| Investments in securities with fixed maturities | | $ | 10,475 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
| | | Estimated Fair Value after | |
| | | Hypothetical Change in Interest Rates | |
| | | (in thousands) | |
| | | (bp = basis points) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 1 year | | | 1 year | | | 1 year | | | 1 year | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Fair | | | 50 bp | | | 50 bp | | | 100 bp | | | 100 bp | |
| | | Value | | | increase | | | decrease | | | increase | | | decrease | |
| | | | | | | | | | | | | | | | | | | | | |
As of January 31, 2023 | | | | | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 30,930 | | | | 30,328 | | | | 30,554 | | | | 30,215 | | | | 30,667 | |
| | | | | | | | | | | | | | | | | | | | | |
As of April 30, 2022 | | | | | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 10,475 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
Management regularly monitors the maturity structure of the Company’s investments in debt securities in order to maintain an acceptable price risk associated with changes in interest rates.
Equity Price Risk
The carrying values of investments subject to equity price risks are based on quoted market prices as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.
The Company’s equity investment strategy has been to acquire equity securities across a diversity of industry groups. The portfolio consists of ETFs held for dividend yield that attempt to replicate the performance of certain equity indexes and ETFs that hold preferred shares primarily of financial institutions. In order to maintain liquidity in these securities, the Company’s policy has been to invest in and hold in its portfolio, no more than 5% of the approximate average daily trading volume in any one issue.
As of OctoberJanuary 31, 20222023 and April 30, 2022, the aggregate cost of the equity securities, which consist of investments in the SPDR Series Trust S&P Dividend ETF (SDY), First Trust Value Line Dividend Index ETF (FVD), ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL), IShares DJ Select Dividend ETF (DVY), and other Exchange Traded Funds and common stock equity securities was a combined total $13,212,000$13,217,000 and $13,318,000, respectively, and the fair value was $17,122,000$17,986,000 and $17,647,000, respectively.
Equity Securities
| | | | | | | | Estimated Fair Value after Hypothetical Change in Prices | | | Hypothetical Percentage Increase (Decrease) in Shareholders’ Equity | |
| | | | | | | Hypothetical Price Change | | | | |
($ in thousands) | | | Fair Value | | | | | |
As of October 31, 2022 | Equity Securities and ETFs held for dividend yield | | $ | 17,122 | | 30% increase | | $ | 22,259 | | | | 5.06 | % |
| | | | | | | 30% decrease | | $ | 11,985 | | | | -5.06 | % |
Equity Securities | | | | | | | | | | | | | | |
($ in thousands) | | | Fair Value | | Hypothetical Price Change | | Estimated Fair Value after Hypothetical Change in Prices | | | Hypothetical Increase (Decrease) in Shareholders’ Equity | |
As of January 31, 2023 | Equity Securities and ETFs held for dividend yield | | $ | 17,986 | | 30% increase | | $ | 23,382 | | | | 4.98% | |
| | | | | | | 30% decrease | | $ | 12,590 | | | | (4.98%) | |
| | | | | | | | | | | | | | | |
Equity Securities
| | | | Estimated Fair Value after Hypothetical Change in Prices | | Hypothetical Percentage | | |
| | | | | Hypothetical Price Change | | Increase (Decrease) in | | |
Equity Securities | | | | | | | | | | | |
($ in thousands) | | Fair Value | | Hypothetical Price Change | | Estimated Fair Value after Hypothetical Change in Prices | | Shareholders’ Equity | | | | Fair Value | | Hypothetical Price Change | | Estimated Fair Value after Hypothetical Change in Prices | | Hypothetical Percentage Increase (Decrease) in Shareholders’ Equity | |
As of April 30, 2022 | Equity Securities and ETFs held for dividend yield | | $ | 17,647 | | | $ | | 4.92 | % | Equity Securities and ETFs held for dividend yield | | $ | 17,647 | | 30% increase | | $ | 22,942 | | | 4.92% | |
| | | 30% decrease | | $ | | -4.92 | % | | | | | 30% decrease | | $ | 12,353 | | | (4.92%) | |
Item 4. CONTROLS AND PROCEDURES
| | a.(a)
| The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the Company’s reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding disclosure. |
The Company’s management has evaluated, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
| | b.(b)
| The registrant’s Principal Executive Officer and Principal Financial Officer have determined that there have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
In Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended OctoberJanuary 31, 20222023 new risk factors have been added to the risk factors disclosed in Item 1A - Risk Factors in the Company's Annual Report on Form 10-K for the year ended April 30, 2022 filed with the SEC on July 26, 2022. The new risk factors reflect management's continuing analysis of developments in the Company's business environment, rather than any specific event or particular issue.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| | a.(a)
| Purchases of Equity Securities by the Company |
The following table provides information with respect to all repurchases of common stock made by or on behalf of the Company during the fiscal quarter ended OctoberJanuary 31, 2022.2023. All purchases listed below were made in the open market at prevailing market prices.
| | | ISSUER PURCHASES OF EQUITY SECURITIES | |
| | | (a) Total Number of Shares (or Units) Purchased | | | (b) Average Price Paid per Share (or Unit) | | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |
August 1 - 31, 2022 | | | 3,450 | | | $ | 80.85 | | | | 3,450 | | | $ | 1,580,000 | |
September 1 - 30, 2022 | | | 5,681 | | | | 55.18 | | | | 5,681 | | | | 1,267,000 | |
October 1 - 31, 2022 | | | 8,183 | | | | 62.04 | | | | 8,183 | | | | 2,956,000 | |
Total | | | 17,314 | | | $ | 63.54 | | | | 17,314 | | | $ | 2,956,000 | |
| | | | | | | | | | | | | | | | | |
| October 21, 2022 | | | | | | | | | | | | | | $ | 3,000,000 | |
| | | ISSUER PURCHASES OF EQUITY SECURITIES | |
| | | (a) Total Number of Shares (or Units) Purchased | | | (b) Average Price Paid per Share (or Unit) | | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |
| | | | | | | | | | | | | | | | | |
November 1 - 30, 2022 | | | 6,681 | | | $ | 58.52 | | | | 6,681 | | | $ | 2,565,000 | |
| | | | | | | | | | | | | | | | | |
December 1 - 31, 2022 | | | 10,845 | | | | 51.49 | | | | 10,845 | | | | 2,007,000 | |
| | | | | | | | | | | | | | | | | |
January 1 - 31, 2023 | | | 1,112 | | | | 49.96 | | | | 1,112 | | | | 1,951,000 | |
Total | | | 18,638 | | | $ | 53.92 | | | | 18,638 | | | $ | 1,951,000 | |
All shares were repurchased pursuant to authorization of the Board of Directors.
On October 21, 2022, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of shares of the Company’s common stock up to an aggregate purchase price of $3,000,000. The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set expiration date.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
101.INS | |
101.INS | Inline XBRL Instance Document |
101.SCH | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | |
104 | The cover page of this Quarterly Report on Form 10-Q, formatted in inline XBRL (including Exhibit 101). |
VALUE LINE, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
| | Value Line, Inc. |
| |
|
|
|
| |
|
| By:
| /s/ Howard A. Brecher
|
|
|
| | Howard A. Brecher |
|
|
| | Chief Executive Officer |
|
| | | (Principal Executive Officer) | |
| | (Registrant) | |
| | | | |
| | | | |
| | | |
| | By: | /s/ Howard A. Brecher | |
| | Howard A. Brecher | |
| | Chief Executive Officer | |
| | (Principal Executive Officer) | |
| | | |
| | | |
| | | |
| By: | /s/ Stephen R. Anastasio | |
| | | | Stephen R. Anastasio | |
| | | | Vice President & Treasurer | |
| | | | (Principal(Principal Financial Officer) | |
Date: December 12, 2022March 14, 2023
