Daily Journal(DJCO) - 2023 Q3 - Quarterly Report

Financial Performance - Consolidated revenues increased by $10,657,000 (30%) to $46,159,000 for the nine months ended June 30, 2023, compared to $35,502,000 in the prior year, driven by Journal Technologies' consulting fees and license fees [67]. - The Company's consolidated pretax income was $37,577,000 for the nine months ended June 30, 2023, compared to a pretax loss of $40,532,000 in the prior year [70]. - Net income for the nine months ended June 30, 2023, was $27,937,000 ($20.29 per share), a significant recovery from a net loss of $30,797,000 (-$22.31 per share) in the prior year [70]. - Consolidated revenues increased by $4,887,000 (38%) to $17,704,000 for the three months ended June 30, 2023, compared to $12,817,000 in 2022 [90]. - The Company's consolidated pretax income was $382,000, compared to a pretax loss of $13,527,000 in the prior fiscal year period [93]. Operating Expenses - Total operating expenses rose by $5,761,000 (15%) to $42,937,000 from $37,176,000, primarily due to a $3,708,000 (14%) increase in salaries and employee benefits [68]. - Consolidated operating expenses rose by $471,000 (3%) to $15,391,000 from $14,920,000, with total salaries and employee benefits increasing by $1,396,000 (15%) to $10,817,000 [91]. - Operating expenses for Journal Technologies increased by $2,298,000 (24%) to $11,930,000 from $9,632,000, primarily due to increased personnel costs and contractor services [99]. Revenue Sources - The Traditional Business reported total operating revenues of $12,007,000, up from $11,863,000, with advertising revenues increasing by $114,000 (2%) to $6,498,000 [77]. - Journal Technologies' consulting fees increased by $6,451,000, contributing significantly to the overall revenue growth [67]. - Traditional Business total circulation revenues increased by $27,000 (1%) to $3,306,000 from $3,279,000, with Daily Journals accounting for about 93% of this revenue [79]. - Journal Technologies' revenues rose by $10,513,000 (44%) to $34,152,000 from $23,639,000, with consulting fees increasing by $6,451,000 (137%) to $11,148,000 [83]. - Journal Technologies' revenues increased by $4,895,000 (56%) to $13,574,000 from $8,679,000, with licensing and maintenance fees rising by $2,427,000 (52%) to $7,060,000 [97]. Tax and Marketable Securities - The effective tax rate for the nine months ended June 30, 2023, was 25.7%, reflecting the taxes on realized and unrealized gains on marketable securities [72]. - The aggregate fair market value of the Company's marketable securities was $316,038,000, with net unrealized gains of approximately $150,626,000 before taxes [71]. - As of June 30, 2023, the company had investments in marketable securities with an adjusted cost basis of approximately $165.4 million and a market value of about $316.0 million, generating approximately $7.1 million in dividends and interest income during the nine months ended June 30, 2023 [101]. Cash Flow and Working Capital - Cash and cash equivalents increased by $47,558,000 for the nine months ended June 30, 2023, after sales of marketable securities of approximately $2,826,000 [100]. - Cash flows from operating activities increased by $18.3 million during the nine months ended June 30, 2023, compared to the prior fiscal year, primarily due to decreases in income tax receivable and accounts receivable, and increases in deferred revenues and income tax payable [102]. - The company reported working capital of $317.9 million as of June 30, 2023, which includes liabilities for deferred subscriptions and consulting fees totaling $26.9 million [103]. Future Outlook and Risks - The company believes it can fund its operations for the foreseeable future through cash flows from operations and current working capital, but may need to consider selling some marketable securities if necessary [104]. - The company aims to be a significant software company while also operating its Traditional Business, distinguishing itself from being a smaller version of Berkshire Hathaway Inc. [105]. - Forward-looking statements in the report highlight risks such as software development challenges, reliance on professional services, and potential declines in subscriber revenues [109]. - The company acknowledges various factors that could cause actual results to differ materially from forward-looking statements, including economic conditions and changes in accounting guidance [109]. - The company may face margin calls if the balance of its investments decreases significantly, affecting its ability to borrow against marketable securities [104]. Income Variability - The company experienced a decrease in net income of $17.2 million, excluding unrealized gains on marketable securities of $87.0 million during the reporting period [102].