Daily Journal(DJCO) - 2021 Q3 - Quarterly Report

Financial Performance - Consolidated revenues increased by $1,045,000 (3%) to $37,952,000 for the nine months ended June 30, 2021, compared to $36,907,000 in the prior year, driven by increases in Journal Technologies' license and maintenance fees and legal notice advertising revenues [73]. - Total operating expenses decreased by $3,292,000 (8%) to $35,638,000 from $38,930,000, primarily due to reductions in salaries and employee benefits, outside services, and general administrative expenses [74]. - The Company's non-operating income increased by $189,199,000 (510%) to a gain of $152,120,000, primarily due to realized gains on sales of marketable securities of $18,478,000 and net unrealized gains of $131,754,000 [76]. - Consolidated pretax income was $154,434,000 for the nine months ended June 30, 2021, compared to a pretax loss of $39,102,000 in the prior year [77]. - The Company recorded a net income of $114,319,000 ($82.80 per share) for the nine months ended June 30, 2021, compared to a net loss of $27,842,000 (-$20.16 per share) in the prior year [77]. Cash and Investments - Cash and cash equivalents decreased by $17,587,000 to $11,376,000, primarily due to the purchase of additional marketable securities, with a fair market value of $349,593,000 as of June 30, 2021 [78]. - The Company's cash, restricted cash, cash equivalents, and marketable security positions increased by $152,638,000 during the nine months ended June 30, 2021 [105]. - Investments in marketable securities generated approximately $2,063,000 in dividends income during the nine months ended June 30, 2021 [106]. - The Company may face margin calls if the balance of its investments decreases significantly, affecting its ability to borrow against marketable securities [109]. - Investments were concentrated in just nine companies, indicating that a significant decline in the market value of any one investment could adversely affect shareholders' equity and net income [110]. Revenue Sources - Journal Technologies' revenues constituted approximately 71% of the Company's total revenues for the nine months ended June 30, 2021 [73]. - Advertising revenues increased by $234,000 (4%) to $5,649,000 from $5,415,000, driven by increased legal notice advertising net revenues of $471,000 and government notice advertising net revenues of $173,000 [84]. - The Traditional Business segment's advertising revenues increased by $898,000 (69%) to $2,195,000, primarily due to increased legal notice advertising net revenues [100]. Operational Insights - The Company experienced delays in government procurement processes affecting Journal Technologies, impacting revenue recognition for implementation services [70]. - The number of foreclosure notices published decreased by 56% during the nine months ended June 30, 2021, leading to management's expectation of declining revenues for fiscal 2021 [85]. - Cash flows from operating activities increased by $1,523,000 during the nine months ended June 30, 2021, primarily due to decreases in income tax receivable and deferred tax assets, and increases in income tax payable and accounts payable [107]. - The Traditional Business' pretax income increased by $194,000 (156%) to $70,000 from a pretax loss of $124,000 in the prior fiscal year [83]. - Journal Technologies' pretax income increased by $4,143,000 (218%) to $2,244,000 from a pretax loss of $1,899,000 in the prior fiscal year period [88]. Future Outlook and Risks - The effective tax rate for the nine months ended June 30, 2021 was 26%, influenced by taxes on realized and unrealized gains on marketable securities [79]. - The Company expects to fund its operations through cash flows from operations and current working capital, with potential reliance on marketable securities for additional cash if needed [109]. - The Company acknowledges risks associated with software development, reliance on professional services, and potential impacts from COVID-19 on operations and revenues [114]. - Forward-looking statements in the report involve risks and uncertainties that may cause actual results to differ materially from expectations [114]. - Critical accounting policies include revenue recognition, accounting for software costs, and fair value measurement, which are essential for accurate financial reporting [112]. Segment Performance - Consolidated revenues increased by $688,000 (5%) to $13,562,000 for the three months ended June 30, 2021, primarily from increases in Journal Technologies' license and maintenance fees and public service fees [94]. - The Traditional Business' pretax income increased by $986,000 (174%) to $418,000 from a pretax loss of $568,000 in the prior fiscal year period [99]. - Traditional Business segment operating expenses decreased by $318,000 (3%) to $11,001,000 from $11,319,000, primarily due to reduced outside contractor services [87].