Daily Journal Corporation (NASDAQ:DJCO) is a diversified media and software company with a storied history dating back over a century. The company operates in two distinct business segments - its Traditional Business and its Journal Technologies subsidiary. While the Traditional Business encompasses the company's newspaper publishing and related services, Journal Technologies provides case management software and solutions to a variety of government and legal organizations. This unique combination has allowed Daily Journal to navigate the evolving media landscape and capitalize on the growing demand for technological innovations within the justice system.
Company History and Evolution
Daily Journal Corporation was founded in 1987, initially focusing on publishing newspapers in California and Arizona. The company's traditional business model centered around publishing legal notices, obituaries, and other public service content required by law to be published in local newspapers. This included publishing the Los Angeles Daily Journal and San Francisco Daily Journal, which were the leading legal newspapers in those markets. In 1999, Daily Journal diversified its business by acquiring a software development company, which would eventually become the Journal Technologies division. This acquisition marked a pivotal moment in Daily Journal's evolution, as the company leveraged its deep understanding of the legal and judicial sectors to develop advanced case management solutions.
Today, Journal Technologies' products are used by courts, prosecutor and public defender offices, probation departments, and other government agencies across approximately 30 states and internationally. The subsidiary's licensing and maintenance fees, as well as its consulting services, have become a significant and growing contributor to the company's overall financial performance. Over the years, Daily Journal has faced several challenges, including a decline in newspaper subscriptions and a shift towards digital content consumption. The company has worked to adapt to these changes by investing in its Journal Technologies division and diversifying its revenue streams. In 2015, Daily Journal purchased a 30,000 square foot office building in Logan, Utah to house its growing software business.
Recent Performance
In recent years, Daily Journal has continued to strengthen its software business while maintaining the stability of its Traditional Business. For the nine months ended June 30, 2024, the company reported total revenues of $50.06 million, of which approximately 75% was derived from Journal Technologies. This represents a year-over-year increase of 8% compared to the prior year period.
The company's Traditional Business segment generated $12.43 million in revenues during the same nine-month period, with advertising revenues increasing by 7% and circulation revenues remaining relatively flat. While the Traditional Business continues to face headwinds common to the newspaper industry, Daily Journal's diversification into software has helped offset these challenges and provided a source of stable, recurring revenue.
Financials
From a financial perspective, Daily Journal's balance sheet remains strong, with $360.54 million in current assets as of June 30, 2024, including $325.02 million in marketable securities. The company's debt levels are moderate, with $27.50 million in margin loan borrowings and $1.16 million in real estate-backed debt. Daily Journal's liquidity position is further bolstered by its substantial investment portfolio, which generated $5.86 million in dividends and interest income during the nine-month period.
The company's software business, Journal Technologies, has been a key driver of its financial performance. For the nine months ended June 30, 2024, the subsidiary reported $37.63 million in revenues, representing a 10% year-over-year increase. This growth was primarily attributable to a 20% rise in licensing and maintenance fees, as well as a 21% increase in other public service fees, which include revenues from electronic filing and payment processing services.
However, the company has also faced some challenges within its software segment. Consulting fees decreased by 11% during the nine-month period, as the COVID-19 pandemic and related travel restrictions delayed the completion of certain implementation projects. Additionally, operating expenses for Journal Technologies increased by 11%, driven by higher personnel costs, contractor services, and third-party hosting fees.
For the most recent fiscal year (2023), Daily Journal reported revenue of $67.71 million, net income of $21.45 million, operating cash flow of $15.08 million, and free cash flow of $15.00 million. In the most recent quarter (Q3 2024), the company recorded revenue of $17.49 million, net income of $23.36 million, operating cash flow of $1.60 million, and free cash flow of $1.61 million. Notably, revenues decreased by 1% year-over-year in the latest quarter, primarily due to decreased consulting fees, partially offset by increased licensing and maintenance fees and other public service fees. Net income increased significantly due to higher unrealized gains on marketable securities, while operating cash flow and free cash flow decreased due to higher working capital needs.
Liquidity
Daily Journal's liquidity position remains robust, with $360.54 million in current assets as of June 30, 2024. This includes $325.02 million in marketable securities, which provides the company with a significant buffer against potential financial challenges. The company's strong liquidity position is further enhanced by its ability to generate consistent cash flows from both its Traditional Business and Journal Technologies segments.
The company's debt-to-equity ratio stands at 0.11, indicating a conservative capital structure. As of the latest reporting period, Daily Journal had $12.16 million in cash and cash equivalents. The company has a margin loan balance of $27.50 million secured by its marketable securities portfolio, with an interest rate that fluctuates based on the Federal Funds Rate plus 50 basis points. Both the current ratio and quick ratio are 8.58, reflecting strong short-term liquidity.
Business Outlook
Despite these headwinds, Daily Journal remains confident in the long-term growth prospects of its software business. The company continues to invest in product development, technical debt reduction, and strengthening its operational capabilities to better serve its government and legal clients. Furthermore, the company's recent acquisition of a Canada-based subsidiary, Journal Technologies Canada Inc., demonstrates its commitment to expanding its geographic reach and capitalizing on international opportunities.
In the Traditional Business segment, Daily Journal has maintained its position as a leading provider of public notice advertising and specialized judicial content. While the newspaper industry as a whole has faced declining print revenues, the company's smaller regional publications have helped offset these trends, accounting for approximately 86% of its total public notice advertising revenues during the nine-month period.
Looking ahead, Daily Journal's management remains cautiously optimistic about the company's prospects. The continued growth of its software business, combined with the stability of its Traditional Business, has positioned the company to navigate the evolving media and technology landscape. However, the company remains mindful of industry-wide challenges, such as the potential for further declines in print advertising and the ongoing effects of the COVID-19 pandemic on its implementation projects.
It's worth noting that approximately 10% of the company's revenues during the nine months ended June 30, 2024, came from foreign countries, highlighting the company's growing international presence. The company's commitment to prudently managing its significant investment portfolio has provided a valuable source of financial strength, with recent sales of a portion of the portfolio and paydown of the margin loan reflecting the board's evaluation of the portfolio in the current market environment.
Conclusion
In conclusion, Daily Journal Corporation is a unique media and software conglomerate with a rich history and a diversified business model. By leveraging its expertise in the legal and judicial sectors, the company has successfully transformed itself into a technology-driven enterprise, while maintaining the strength of its traditional publishing operations. As it continues to navigate the dynamic landscape of its industries, Daily Journal's prudent management and adaptability are likely to play a key role in its future success.
Despite the challenges faced, Daily Journal has remained a profitable company, in large part due to the success of its Journal Technologies division. The company's marketable securities portfolio, which is managed by the late Charles T. Munger, has also been a significant contributor to its financial performance over the past 15 years. Daily Journal continues to operate its traditional newspaper publishing business while also growing its technology offerings in the justice and government sectors.
With a strong liquidity position, low debt levels, and a growing software business that now accounts for approximately 75% of total revenues, Daily Journal appears well-positioned to weather industry challenges and capitalize on future growth opportunities. The company's ability to generate consistent cash flows from both its Traditional Business and Journal Technologies segments, coupled with its substantial investment portfolio, provides a solid foundation for future success in an evolving media and technology landscape.