Daily Journal Corporation Announces Financial Results for the Nine Months ended June 30, 2020

Rhea-AI Summary

Daily Journal Corporation (NASDAQ: DJCO) reported consolidated revenues of $36.91 million for the nine months ended June 30, 2020, up from $35.66 million YoY. Key drivers included increased fees from Journal Technologies. However, the Traditional Business faced significant revenue declines largely due to the COVID-19 pandemic, resulting in a pretax loss of $39.10 million. Quarterly gains were boosted by unrealized investment gains of $16.49 million. The firm anticipates a drop in future dividend income due to changes in its investment portfolio.

Positive

• Total revenues increased by $1.25 million YoY, primarily due to increased license fees and consulting revenues.
• Unrealized gains on investments in Q2 amounted to $16.49 million, contributing positively to quarterly performance.

Negative

• Traditional Business revenue decreased by $1.38 million (31%) due to COVID-19 impacts.
• Consolidated pretax loss increased to $39.10 million from $17.67 million YoY.

LOS ANGELES, Aug. 07, 2020 (GLOBE NEWSWIRE) -- During the nine months ended June 30, 2020, Daily Journal Corporation (NASDAQ:DJCO) had consolidated revenues of $36,907,000 as compared with $35,658,000 in the prior year period.  This increase of $1,249,000 was primarily from Journal Technologies’ increased license and maintenance fees of $1,002,000, consulting fees of $1,498,000 and public service fees of $265,000, partially offset by reductions in the Traditional Business’ display advertising (including conferences which were discontinued) net revenues of $679,000, classified advertising net revenues of $153,000, trustee sale notice advertising net revenues of $149,000, legal notice advertising net revenues of $330,000 and circulation revenues of $73,000. 

The Traditional Business had a pretax loss of $634,000, representing a $793,000 decrease in income from pretax income of $159,000 in the prior year period.  Journal Technologies’ pretax loss decreased by $2,842,000 to $1,452,000 from $4,294,000.  During the nine months ended June 30, 2020, the consolidated pretax loss was $39,102,000, as compared with $17,672,000 in the prior year period. 

The Company believes that the Coronavirus pandemic has had, and will continue to have, a significant impact on the Company’s business operations.  For the three months ended June 30, 2020, the Company experienced a material negative impact on its Traditional Business’ revenues which decreased substantially by $1,376,000 (31%) to $3,131,000 from $4,507,000 due to the closures and scaling back of operations of courts and other governmental agencies.  This is important to note because the Company’s quarterly pretax income of $18,594,000, which increased from $5,443,000 in the prior year period, is due primarily to the recording of unrealized gains on investments of $16,489,000 for the Company’s marketable securities portfolio, as the stock market recovered some of the ground it lost from its plunge in March 2020.  These investments generated approximately $1,596,000 in dividends income during such period. In the future, dividends income from the Company’s portfolio is expected to decrease, because these investments include the common stocks of three U.S. banks, at least one of which has decided to reduce its dividends.  At June 30, 2020, the Company held marketable securities valued at $153,390,000, including net unrealized gains of $99,501,000, and accrued a deferred tax liability of $25,886,000 for estimated income taxes due only upon the sales of the net appreciated securities.

For the nine months ended June 30, 2020, the Company recorded an income tax benefit of $11,260,000 on a pretax loss of $39,102,000. This was the net result of applying the effective tax rate anticipated for fiscal 2020 to the pretax loss, before the unrealized losses on investments, for the nine months ended June 30, 2020.  The effective tax rate was more than the statutory rate primarily due to the dividends received deduction, which increased the taxable loss, and state tax benefits.   In addition, the Company recorded tax benefits of (i) $187,000 resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act (see below) and (ii) $11,166,000 for the unrealized losses on investments during the nine months ended June 30, 2020.  The effective tax rate for the nine months ended June 30, 2020 was 29%, after including the tax benefits from the CARES Act and the unrealized losses on investments.

The CARES Act, which was signed into law on March 27, 2020, contains two federal tax provisions beneficial to the Company.  One provision provides that net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, can now be carried back to the five previous years.  In addition, any alternative minimum tax credits carried forward from prior years can be claimed as a refund in years beginning in 2018.  Consequently, the Company recorded a tax benefit resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.  The Company anticipates receiving a refund for all taxes and alternative minimum taxes paid in fiscal 2014.  The resulting tax benefit from carrying back the net operating loss is primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

For the nine months ended June 30, 2019, the Company recorded an income tax benefit of $4,980,000 on a pretax loss of $17,672,000. This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the nine months ended June 30, 2019.  The effective tax rate was greater than the statutory rate primarily due to the dividends received deduction and state tax benefits. 

For risk factors associated with the Company’s businesses, please see “Item 1A – Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2019, as well as the information relating to the Coronavirus pandemic contained in “Item 1A – Risk Factors” of the Company’s Form 10-Q for the nine-month period ended June 30, 2020.                     

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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. is a wholly-owned subsidiary and 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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Contact:  
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FAQ

What were Daily Journal Corporation's revenues for the nine months ending June 30, 2020?

Daily Journal Corporation reported revenues of $36.91 million for the nine months ended June 30, 2020.

How did COVID-19 affect Daily Journal Corporation's business?

COVID-19 significantly impacted revenue, leading to a 31% decrease in Traditional Business revenues.

What is the outlook for Daily Journal Corporation's investment income?

Future dividend income is expected to decrease due to reductions in dividends from U.S. banks in its investment portfolio.

What was the pretax loss for Daily Journal Corporation in the nine months ended June 30, 2020?

The consolidated pretax loss for this period was $39.10 million.

How much did Daily Journal Corporation benefit from the CARES Act?

The Company recorded a tax benefit of $187,000 from the CARES Act.