DAILY JOURNAL CORP

Previous wording

Consolidated revenues were $15,993,000 and $12,301,000 for the three months ended December 31, 2023 and 2022, respectively. This increase of $3,692,000 (30%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $2,162,000, consulting fees of $980,000, and other public service fees of $450,000, and (ii) the Traditional Business’ advertising revenues of $97,000.

Current wording

Consolidated revenues were $32,564,000 and $28,455,000 for the six months ended March 31, 2024 and 2023, respectively. This increase of $4,109,000 (14%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $3,337,000, and other public service fees of $904,000, partially offset by decreased consulting fees of $254,000, and (ii) the Traditional Business’ advertising revenues of $209,000.

Previous wording

Approximately 76% of the Company’s revenues during the three months ended December 31, 2023 were derived from Journal Technologies, as compared with 69% in the prior fiscal year period. In addition, the Company’s revenues during the quarter were primarily from the United States, with approximately $2,492,000 (21%) from foreign countries. Almost all of Journal Technologies’ revenues are from governmental agencies.

Current wording

Approximately 75% of the Company’s revenues during the six months ended March 31, 2024 were derived from Journal Technologies, as compared with 72% in the prior fiscal year period. In addition, the Company’s revenues during the quarter were primarily from the United States, with approximately $4,543,000 (14%) from foreign countries. Almost all of Journal Technologies’ revenues are from governmental agencies.

Previous wording

Consolidated operating expenses increased by $2,353,000 (18%) to $15,370,000 from $13,017,000. Total salaries and employee benefits increased by $1,716,000 (18%) to $11,347,000 from $9,631,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, product development, and bolster the teams working on the company’s installation projects. Outside services increased by $437,000 (36%) to $1,667,000 from $1,230,000 mainly because of additional contractor services and increased third-party hosting fees which were billed to clients. Equipment maintenance and software increased by $73,000 (24%) to $376,000 from $303,000 mainly resulting from increased maintenance costs and additional miscellaneous software license purchases. Other general and administrative expenses decreased by $122,000 (13%) to $832,000 from $954,000 mainly because there were decreased business travel expenses and reduced miscellaneous office supply expenses as compared to the prior fiscal year period.

Current wording

Consolidated operating expenses increased by $3,762,000 (14%) to $31,308,000 from $27,546,000. Total salaries and employee benefits increased by $3,580,000 (18%) to $23,358,000 from $19,778,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the company’s installation projects. Outside services increased by $271,000 (9%) to $3,250,000 from $2,979,000 mainly because of additional contractor services and increased third-party hosting fees which were billed to clients. Equipment maintenance and software increased by $55,000 (8%) to $712,000 from $657,000 mainly resulting from increased maintenance costs. Accounting and legal fees decreased by $84,000 (17%) to $411,000 from $495,000 primarily resulting from decreased legal fees. Other general and administrative expenses decreased by $262,000 (13%) to $1,757,000 from $2,019,000 mainly because there were decreased business travel expenses and reduced miscellaneous office supply expenses as compared to the prior fiscal year period.

Previous wording

The Company’s non-operating income, net of expenses, decreased by $9,526,000 (39%) to $15,117,000 from $24,643,000 in the prior fiscal year period primarily because of (i) the recording of net unrealized gains on marketable securities of $14,690,000 as compared with $24,025,000 in the prior fiscal year period, (ii) increases in interest expenses of $269,000 (31%) to $1,142,000 from $873,000 primarily due to the federal interest rate increases, and (iii) the recording of realized net gains on sales of marketable securities of $422,000 in the prior fiscal year period. These decreases were partially offset by increases in dividends and interest income of $500,000 (47%) to $1,569,000 from $1,069,000.

Current wording

The Company’s non-operating income, net of expenses, decreased by $1,182,000 (3%) to $35,104,000 from $36,286,000 in the prior fiscal year period primarily because of (i) the recording of net unrealized gains on marketable securities of $20,193,000 as compared with $32,669,000 in the prior fiscal year period, and (ii) decreases in dividends and interest income of $2,274,000 (44%) to $2,858,000 from $5,132,000. These decreases were partially offset by the recording of realized net gains on sales of marketable securities of $14,261,000 as compared with $422,000 in the prior fiscal year period.

Previous wording

At December 31, 2023, the aggregate fair market value of the Company’s marketable securities was $317,818,000. These securities had approximately $152,406,000 of net unrealized gains before taxes of $39,080,000. They generated approximately $1,569,000 in dividends and interest income during the three months ended December 31, 2023, as compared with $1,069,000 in the prior fiscal year period. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Current wording

At March 31, 2024, the aggregate fair market value of the Company’s marketable securities was $297,003,000. These securities had approximately $157,909,000 of net unrealized gains before taxes of $40,490,000. The portfolio generated approximately $2,858,000 in dividends and interest income during the six months ended March 31, 2024, as compared with $5,132,000 in the prior fiscal year period. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Previous wording

For the three months ended December 31, 2023, the Company recorded an income tax provision of $3,125,000 on the pretax income of $15,740,000. The income tax provision consisted of tax provisions of $3,765,000 on the unrealized gains on marketable securities, $30,000 on income from foreign operations, and $270,000 on income from US operations and dividend income, partially offset by a tax benefit of $120,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $820,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the three months ended December 31, 2023 was 19.9%, after including the taxes on the unrealized gains on marketable securities.

Current wording

For the six months ended March 31, 2024, the Company recorded an income tax provision of $8,330,000 on the pretax income of $36,360,000. The income tax provision consisted of tax provisions of $3,660,000 on the realized gains on marketable securities, $5,180,000 on the unrealized gains on marketable securities, $40,000 on income from foreign operations, and $480,000 on income from US operations and dividend income, partially offset by a tax benefit of $210,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $820,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the six months ended March 31, 2024 was 22.9%, after including the taxes on the realized and unrealized gains on marketable securities.

Previous wording

For the three months ended December 31, 2022, the Company recorded an income tax provision of $6,100,000 on the pretax income of $23,927,000. The income tax provision consisted of a tax provision of $110,000 on the realized gains on marketable securities and $6,360,000 on the unrealized gains on marketable securities, partially offset by a tax benefit of $140,000 on loss from operations, $80,000 for the dividends received deduction and other permanent book and tax differences, and $150,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the three months ended December 31, 2022 was 25.49%, after including the taxes on the realized and unrealized gains on marketable securities.

Current wording

For the six months ended March 31, 2023, the Company recorded an income tax provision of $9,935,000 on the pretax income of $37,195,000. The income tax provision consisted of a tax provision of $110,000 on the realized gains on marketable securities and $8,770,000 on the unrealized gains on marketable securities, a tax provision of $1,005,000 on income from operations, including dividend income, and a tax provision of $210,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability, partially offset by a tax benefit of $160,000 for the dividends received deduction and other permanent book and tax differences. Consequently, the overall effective tax rate for the six months ended March 31, 2023 was 26.7%, after including the taxes on the realized and unrealized gains on marketable securities.

Previous wording

The Traditional Business’ pretax income decreased by $648,000 (69%) to $287,000 from $935,000 in the prior fiscal year period, primarily due to increased personnel costs of $331,000 (15%) to $2,549,000 from $2,218,000, and a smaller reduction of $80,000 (16%) to the long-term supplemental compensation accrual to a reduction of $420,000 as compared with a reduction of $500,000 in the prior fiscal year period.

Current wording

The Traditional Business’ pretax income decreased by $782,000 (48%) to $861,000 from $1,643,000 in the prior fiscal year period, primarily due to increased personnel costs of $674,000 (15%) to $5,173,000 from $4,499,000, partially offset by an increased reduction of $100,000 (14%) to the long-term supplemental compensation accrual to arrive at a reduction of $800,000 as compared with a reduction of $700,000 in the prior fiscal year period.

Previous wording

Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law. The number of foreclosure notices published by the Company decreased by 2% during the three months ended December 31, 2023 as compared to the prior fiscal year period. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 87% of the total public notice advertising revenues during the three months ended December 31, 2023. Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 14% of the Company's total operating revenues for the three months ended December 31,2023 and 18% for the three months ended December 31, 2022.

Current wording

Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law. The number of foreclosure notices published by the Company decreased slightly by 1% during the six months ended March 31, 2024 as compared to the prior fiscal year period. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 86% of the total public notice advertising revenues during the six months ended March 31, 2024. Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 14% of the Company's total operating revenues for the six months ended March 31, 2024 and 16% for the six months ended March 31, 2023.

Previous wording

The Daily Journals accounted for about 93% of the Traditional Business’ total circulation revenues, which decreased slightly by $3,000 to $1,095,000 from $1,098,000. The court rule and judicial profile services generated about 5% of the total circulation revenues, with the other newspapers and services accounting for the balance. Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.

Current wording

The Daily Journals accounted for about 93% of the Traditional Business’ total circulation revenues, which decreased by $12,000 (1%) to $2,194,000 from $2,206,000. The court rule and judicial profile services generated about 4% of the total circulation revenues, with the other newspapers and services accounting for the balance. Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.

Previous wording

The Traditional Business segment operating expenses, excluding the adjustments to the long-term supplemental compensation accrual, increased by $668,000 (20%) to $4,020,000 from $3,352,000, primarily resulting from the annual salary adjustments.

Current wording

The Traditional Business segment operating expenses, excluding the adjustments to the long-term supplemental compensation accrual, increased by $1,004,000 (14%) to $7,938,000 from $6,934,000, primarily resulting from the annual salary adjustments.

Previous wording

During the three months ended December 31, 2023, Journal Technologies’ business segment pretax income increased by $1,987,000 (120%) to $336,000 from a pretax loss of $1,651,000 in the prior fiscal year period primarily resulting from increased revenues of $3,592,000, partially offset by increased operating expenses of $1,605,000.

Current wording

During the six months ended March 31, 2024, Journal Technologies’ business segment pretax income increased by $1,129,000 (154%) to pretax income of $395,000 from a pretax loss of $734,000 in the prior fiscal year period primarily resulting from increased revenues of $3,987,000, partially offset by increased operating expenses of $2,858,000.

Previous wording

Revenues increased by $3,592,000 (42%) to $12,106,000 from $8,514,000 in the prior fiscal year period. Licensing and maintenance fees increased by $2,162,000 (49%) to $6,557,000 from $4,395,000. Consulting fees increased by $980,000 (42%) to $3,302,000 from $2,322,000 mainly resulting from more project go-lives (i.e. signoffs by the clients). Other public service fees increased by $450,000 (25%) to $2,247,000 from $1,797,000 primarily because of increased e-filing fee revenues.

Current wording

Revenues increased by $3,987,000 (19%) to $24,565,000 from $20,578,000 in the prior fiscal year period. Licensing and maintenance fees increased by $3,337,000 (33%) to $13,411,000 from $10,074,000. Consulting fees decreased by $254,000 (4%) to $6,501,000 from $6,755,000 mainly due to fewer project go-lives (i.e. signoffs by the clients). Other public service fees increased by $904,000 (24%) to $4,653,000 from $3,749,000 primarily because of increased e-filing fee revenues.

Previous wording

Operating expenses increased by $1,605,000 (16%) to $11,770,000 from $10,165,000 primarily because of (i) increased personnel costs because of salary adjustments due to recent inflation in the compensation market for talent, (ii) additional contractor services and the hiring of additional staff members to strengthen operational efficiencies, product development, and bolster the teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.

Current wording

Operating expenses increased by $2,858,000 (13%) to $24,170,000 from $21,312,000 primarily because of (i) increased personnel costs because of salary adjustments (ii) additional contractor services and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.

Previous wording

Journal Technologies continues to update and upgrade its software products. These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Current wording

Journal Technologies continues to update and upgrade its software products, which includes improving aspects like user experience, documentation, and ease of ongoing customer upgrades. These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Previous wording

Although the World Health Organization has declared an end to the COVID-19 emergency, enduring changes in society resulting from efforts to contain the COVID-19 pandemic may have continuing effects on the Company’s business. For example, for Journal Technologies, although we were able to complete many existing projects remotely, we were delayed in finishing certain implementations and trainings because of our inability to work with clients in-person. Given that we are typically paid for implementation services upon “go-live” of a system, recognition of those revenues has been delayed. This can also create a risk of contract cancellations for in-progress projects, which has not been a common issue to date (there were two in 2023), and Journal Technologies is working to minimize additional cancellations.

Current wording

Although the World Health Organization has declared an end to the COVID-19 emergency, enduring changes in society resulting from efforts to contain the COVID-19 pandemic may have continuing effects on the Company’s business. For example, for Journal Technologies, although we were able to complete many existing projects remotely, we were delayed in finishing certain implementations and trainings because of our inability to work with clients in-person. Given that we are typically paid for implementation services upon “go-live” of a system, recognition of those revenues has been delayed and in some cases costs have increased. This can also create a risk of contract cancellations for in-progress projects, which has not been a common issue to date, and Journal Technologies is working to minimize additional cancellations.

Previous wording

Comparable three-month periods ended December 31, 2023 and 2022

Current wording

Reportable Segments*(for the three-month periods ended March 31, 2024 and 2023)*

Previous wording

During the three months ended December 31, 2023, the Company’s consolidated pretax income was $15,740,000, as compared to $23,927,000 in the prior fiscal year period. There was consolidated net income of $12,615,000 ($9.16 per share) for the three months ended December 31, 2023, as compared with $17,827,000 ($12.95 per share) in the prior fiscal year period.

Current wording

During the three months ended March 31, 2024, the Company’s consolidated pretax income was $20,620,000, as compared to $13,268,000 in the prior fiscal year period. There was consolidated net income of $15,415,000 ($11.19 per share) for the three months ended March 31, 2024, as compared with $9,433,000 ($6.85 per share) in the prior fiscal year period.

Previous wording

During the three months ended December 31, 2023, the Traditional Business had total operating revenues of $3,887,000, as compared with $3,787,000 in the prior fiscal year period. Advertising revenues increased by $97,000 (5%) to $2,087,000 from $1,990,000, primarily resulting from increased commercial advertising revenues of $115,000 and trustee sale notice advertising revenues of $10,000, partially offset by decreased government notice advertising revenues of $30,000.

Current wording

During the three months ended March 31, 2024, the Traditional Business had total operating revenues of $4,112,000, as compared with $4,090,000 in the prior fiscal year period. Advertising revenues increased by $112,000 (5%) to $2,316,000 from $2,204,000, primarily resulting from increased commercial advertising revenues of $137,000, legal notice advertising revenues of $30,000, and trustee sale notice advertising revenues of $19,000, partially offset by decreased government notice advertising revenues of $74,000.

Previous wording

During the three months ended December 31, 2023, the Company’s cash and cash equivalents, restricted cash, and marketable security positions increased by $8,484,000 after the recording of net pretax unrealized gains on marketable securities of $14,690,000. Cash and cash equivalents were primarily used to pay down the margin loan balance by $5,000,000.

Current wording

During the six months ended March 31, 2024, the Company’s cash and cash equivalents, restricted cash, and marketable security positions decreased by $16,368,000 after the recording of net pretax unrealized gains on marketable securities of $20,193,000. In March 2024, the Company sold part of its marketable securities for approximately $40,579,000. Cash and cash equivalents as well as proceeds from sales of marketable securities were primarily used to pay down the margin loan balance by $45,579,000.

Previous wording

The investments in marketable securities, which had an adjusted cost basis of approximately $165,412,000 and a market value of about $317,818,000 at December 31, 2023, generated approximately $1,569,000 in dividends and interest income during the three months ended December 31, 2023. These securities had approximately $152,406,000 of net unrealized gains before estimated taxes of $39,080,000 which will become due only when we sell securities in which there is unrealized appreciation. The balance on the Company’s margin loan secured by the securities portfolio was $70,000,000 and $75,000,000 at December 31, 2023, and September 30, 2023, respectively.

Current wording

The investments in marketable securities, which had an adjusted cost basis of approximately $139,094,000 and a market value of about $297,003,000 at March 31, 2024, generated approximately $2,858,000 in dividends and interest income during the six months ended March 31, 2024. These securities had approximately $157,909,000 of net unrealized gains before estimated taxes of $40,490,000 which will become due only when we sell securities in which there is unrealized appreciation. The balance on the Company’s margin loan secured by the securities portfolio was $29,421,000 and $75,000,000 at March 31, 2024, and September 30, 2023, respectively.

Previous wording

Cash flows from operating activities decreased by $3,560,000 during the three months ended December 31, 2023, as compared to the prior fiscal year period, primarily due to (i) increases in the Company’s deferred tax benefit of $3,147,000 and income tax receivable of $23,000, and (ii) decreases in net accounts payable and accrued liabilities of $1,426,000 (because of the timing difference in remitting e-filing fees to the courts), deferred revenues of $2,776,000, and income tax payable of $1,069,000. This was partially offset by (i) decreases in the Company’s accounts receivable of $392,000 mainly resulting from more collections, and (ii) increases in its net income of $4,545,000, excluding the decreases in unrealized gains on marketable securities of $9,335,000 and the realized net gains on sales of marketable securities of $422,000 during the prior fiscal year period.

Current wording

Cash flows from operating activities decreased by $6,543,000 during the six months ended March 31, 2024, as compared to the prior fiscal year period, primarily due to (i) increases in the Company’s income tax receivable of $269,000 and accounts receivable of $353,000, and (ii) decreases in deferred tax liability of $4,567,000, accounts payable and accrued liabilities of $211,000, and deferred revenues of $4,914,000. This was partially offset by increases in (i) income tax payable of $1,481,000, and (ii) the Company’s net income of $2,385,000, excluding the decreases in unrealized gains on marketable securities of $12,476,000, stock dividends of $2,978,000, and increased realized net gains on sales of marketable securities of $13,839,000.

Previous wording

As of December 31, 2023, the Company had working capital of $313,273,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $23,498,000.

Current wording

As of March 31, 2024, the Company had working capital of $290,031,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $21,562,000.