Daily Journal Corporation Announces Financial Results for the Three Months ended December 31, 2022

During the three months ended December 31, 2022, Daily Journal Corporation (NASDAQ:DJCO) had consolidated revenues of $12,301,000 as compared with $11,736,000 in the prior year period. This increase of $565,000 was primarily from increases in (i) Journal Technologies’ consulting fees of $561,000 and other public service fees of $84,000 and (ii) the Traditional Business’ advertising service fees and other of $28,000, partially offset by decreases in (i) Journal Technologies’ license and maintenance fees of $85,000 and (ii) the Traditional Business’ advertising revenues of $11,000 and circulation revenues of $12,000.

The Traditional Business’ pretax income increased by $429,000 to $935,000 from $506,000 in the prior fiscal year period, primarily resulting from a decrease to the long-term supplemental compensation accrual of $410,000 to $500,000 from $90,000 in the prior fiscal year period. Journal Technologies’ business segment pretax loss increased by $1,201,000 to $1,651,000 from $450,000 in the prior fiscal year period, primarily because of increased operating expenses of $1,761,000 largely due to (i) increased personnel costs because of bigger salary adjustments due to recent inflation in the compensation market for talent, (ii) increased third-party hosting fees which were billed to clients and (iii) additional miscellaneous office software license purchases and increased business travel expenses.

During the three months ended December 31, 2022, the Company sold certain of its marketable securities for approximately $2,826,000, realizing net gains on the sales of those marketable securities of $422,000 (as compared with $46,694,000 of realized net gains in the prior year period), and borrowed an additional $6,011,000 from the Company’s margin loan account to primarily purchase additional marketable securities with a total cost of approximately $10,001,000 (as compared with an additional marketable security purchase of $87,125,000 in the prior fiscal year with additional borrowings of $37,014,000). There were interest expense increases of $774,000 to $873,000 from $99,000 primarily because of the federal rate increases. In addition, there were net unrealized gains on marketable securities of $24,025,000 as compared with net unrealized losses of $36,088,000 in the prior fiscal year period. The Company’s investments generated approximately $1,069,000 in dividends income for the three months ended December 31, 2022, as compared with $875,000 in the prior fiscal year period. During the three months ended December 31, 2022, consolidated pretax income was $23,927,000, as compared to $11,438,000 in the prior fiscal year period. The net income per common share is based on the weighted average number of shares outstanding during the comparable financial periods. The shares used in the calculation were 1,377,026 and 1,380,746 for the three months ended December 31, 2022 and 2021 respectively. There was consolidated net income of $17,827,000 ($12.95 per share) for the three months ended December 31, 2022, as compared with $6,878,000 ($4.98 per share) in the prior fiscal year period.

At December 31, 2022, the Company held marketable securities valued at $307,151,000, including net pretax unrealized gains of $144,717,000, and accrued a deferred tax liability of $38,290,000 for estimated income taxes due only upon the sales of the net appreciated securities. The Company’s margin loan account balance was approximately $81,011,000 at December 31, 2022.

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.

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Daily Journal Corporation publishes newspapers and web sites covering California and Arizona, and produces several specialized information services. Journal Technologies, Inc. supplies case management software systems and related products to courts and other justice agencies.

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this press release are “forward-looking” statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in documents we file with the Securities and Exchange Commission.

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