What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2024-02-15 · 97 added, 45 removed, 90 unchanged (61% of the section changed)

5 unchanged sentences

These products are licensed in approximately 30 states and internationally.

Impact of the COVID-19 Pandemic

Although the World Health Organization has declared an end to the COVID-19 emergency, enduring changes in society resulting from efforts to contain the COVID-19 pandemic may have continuing effects on the Company’s business.

For example, for Journal Technologies, although we were able to complete many existing projects remotely, we were delayed in finishing certain implementations and trainings because of our inability to work with clients in-person.

Given that we are typically paid for implementation services upon “go-live” of a system, recognition of those revenues has been delayed.

This can also create a risk of contract cancellations for in-progress projects, which has not been a common issue to date (there were two in 2023), and Journal Technologies is working to minimize additional cancellations.

Reportable Segments

4 unchanged sentences

Overall Financial Results (000)

For the three months ended December 31, 2023 and 2022

For the six months ended March 31

Reportable Segments

10 unchanged sentences

Dividends and interest income

Interest expenses on note payable collateralized by real estate and other

Interest expense on margin loans

Interest expenses on note payable collateralized by real estate

Interest expense on margin loans and others

Gains on sales of marketable securities, net

Net unrealized gains (losses) on marketable securities

Net unrealized gains on marketable securities

Pretax income (loss)

2 unchanged sentences

Capital expenditures

Comparable three-month periods ended December 31, 2023 and 2022

Comparable six-month periods ended March 31, 2024 and 2023

Consolidated Financial Comparison

Consolidated revenues were $15,993,000 and $12,301,000 for the three months ended December 31, 2023 and 2022, respectively.

This increase of $3,692,000 (30%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $2,162,000, consulting fees of $980,000, and other public service fees of $450,000, and (ii) the Traditional Business’ advertising revenues of $97,000.

Approximately 76% of the Company’s revenues during the three months ended December 31, 2023 were derived from Journal Technologies, as compared with 69% in the prior fiscal year period.

Consolidated revenues were $32,564,000 and $28,455,000 for the six months ended March 31, 2024 and 2023, respectively.

This increase of $4,109,000 (14%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $3,337,000, and other public service fees of $904,000, partially offset by decreased consulting fees of $254,000, and (ii) the Traditional Business’ advertising revenues of $209,000.

Approximately 75% of the Company’s revenues during the six months ended March 31, 2024 were derived from Journal Technologies, as compared with 72% in the prior fiscal year period.

In addition, the Company’s revenues during the quarter were primarily from the United States, with approximately $4,543,000 (14%) from foreign countries.

1 unchanged sentence

Consolidated operating expenses increased by $3,762,000 (14%) to $31,308,000 from $27,546,000.

Total salaries and employee benefits increased by $1,716,000 (18%) to $11,347,000 from $9,631,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, product development, and bolster the teams working on the company’s installation projects.

Total salaries and employee benefits increased by $3,580,000 (18%) to $23,358,000 from $19,778,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the company’s installation projects.

Outside services increased by $271,000 (9%) to $3,250,000 from $2,979,000 mainly because of additional contractor services and increased third-party hosting fees which were billed to clients.

Equipment maintenance and software increased by $73,000 (24%) to $376,000 from $303,000 mainly resulting from increased maintenance costs and additional miscellaneous software license purchases.

Equipment maintenance and software increased by $55,000 (8%) to $712,000 from $657,000 mainly resulting from increased maintenance costs.

Accounting and legal fees decreased by $84,000 (17%) to $411,000 from $495,000 primarily resulting from decreased legal fees.

Other general and administrative expenses decreased by $262,000 (13%) to $1,757,000 from $2,019,000 mainly because there were decreased business travel expenses and reduced miscellaneous office supply expenses as compared to the prior fiscal year period.

The Company’s non-operating income, net of expenses, decreased by $9,526,000 (39%) to $15,117,000 from $24,643,000 in the prior fiscal year period primarily because of (i) the recording of net unrealized gains on marketable securities of $14,690,000 as compared with $24,025,000 in the prior fiscal year period, (ii) increases in interest expenses of $269,000 (31%) to $1,142,000 from $873,000 primarily due to the federal interest rate increases, and (iii) the recording of realized net gains on sales of marketable securities of $422,000 in the prior fiscal year period.

These decreases were partially offset by increases in dividends and interest income of $500,000 (47%) to $1,569,000 from $1,069,000.

During the three months ended December 31, 2023, the Company’s consolidated pretax income was $15,740,000, as compared to $23,927,000 in the prior fiscal year period.

There was consolidated net income of $12,615,000 ($9.16 per share) for the three months ended December 31, 2023, as compared with $17,827,000 ($12.95 per share) in the prior fiscal year period.

At December 31, 2023, the aggregate fair market value of the Company’s marketable securities was $317,818,000.

The Company’s non-operating income, net of expenses, decreased by $1,182,000 (3%) to $35,104,000 from $36,286,000 in the prior fiscal year period primarily because of (i) the recording of net unrealized gains on marketable securities of $20,193,000 as compared with $32,669,000 in the prior fiscal year period, and (ii) decreases in dividends and interest income of $2,274,000 (44%) to $2,858,000 from $5,132,000.

These decreases were partially offset by the recording of realized net gains on sales of marketable securities of $14,261,000 as compared with $422,000 in the prior fiscal year period.

During the six months ended March 31, 2024, the Company’s consolidated pretax income was $36,360,000, as compared to $37,195,000 in the prior fiscal year period.

There was consolidated net income of $28,030,000 ($20.36 per share) for the six months ended March 31, 2024, as compared with $27,260,000 ($19.80 per share) in the prior fiscal year period.

At March 31, 2024, the aggregate fair market value of the Company’s marketable securities was $297,003,000.

These securities had approximately $157,909,000 of net unrealized gains before taxes of $40,490,000.

They generated approximately $1,569,000 in dividends and interest income during the three months ended December 31, 2023, as compared with $1,069,000 in the prior fiscal year period.

The portfolio generated approximately $2,858,000 in dividends and interest income during the six months ended March 31, 2024, as compared with $5,132,000 in the prior fiscal year period.

Most of the unrealized gains were in the common stocks of three U.S.

financial institutions and one foreign manufacturer.

For the three months ended December 31, 2023, the Company recorded an income tax provision of $3,125,000 on the pretax income of $15,740,000.

The income tax provision consisted of tax provisions of $3,765,000 on the unrealized gains on marketable securities, $30,000 on income from foreign operations, and $270,000 on income from US operations and dividend income, partially offset by a tax benefit of $120,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $820,000 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, 2023 was 19.9%, after including the taxes on the unrealized gains on marketable securities.

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.

For the six months ended March 31, 2024, the Company recorded an income tax provision of $8,330,000 on the pretax income of $36,360,000.

The income tax provision consisted of tax provisions of $3,660,000 on the realized gains on marketable securities, $5,180,000 on the unrealized gains on marketable securities, $40,000 on income from foreign operations, and $480,000 on income from US operations and dividend income, partially offset by a tax benefit of $210,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $820,000 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 six months ended March 31, 2024 was 22.9%, after including the taxes on the realized and unrealized gains on marketable securities.

For the six months ended March 31, 2023, the Company recorded an income tax provision of $9,935,000 on the pretax income of $37,195,000.

The income tax provision consisted of a tax provision of $110,000 on the realized gains on marketable securities and $8,770,000 on the unrealized gains on marketable securities, a tax provision of $1,005,000 on income from operations, including dividend income, and a tax provision of $210,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability, partially offset by a tax benefit of $160,000 for the dividends received deduction and other permanent book and tax differences.

Consequently, the overall effective tax rate for the six months ended March 31, 2023 was 26.7%, after including the taxes on the realized and unrealized gains on marketable securities.

The Company files consolidated federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal 2021 with regard to federal income taxes and fiscal 2020 for state income taxes.

The Traditional Business

The Traditional Business’ pretax income decreased by $648,000 (69%) to $287,000 from $935,000 in the prior fiscal year period, primarily due to increased personnel costs of $331,000 (15%) to $2,549,000 from $2,218,000, and a smaller reduction of $80,000 (16%) to the long-term supplemental compensation accrual to a reduction of $420,000 as compared with a reduction of $500,000 in the prior fiscal year period.

During the three months ended December 31, 2023, the Traditional Business had total operating revenues of $3,887,000, as compared with $3,787,000 in the prior fiscal year period.

Advertising revenues increased by $97,000 (5%) to $2,087,000 from $1,990,000, primarily resulting from increased commercial advertising revenues of $115,000 and trustee sale notice advertising revenues of $10,000, partially offset by decreased government notice advertising revenues of $30,000.

The Traditional Business’ pretax income decreased by $782,000 (48%) to $861,000 from $1,643,000 in the prior fiscal year period, primarily due to increased personnel costs of $674,000 (15%) to $5,173,000 from $4,499,000, partially offset by an increased reduction of $100,000 (14%) to the long-term supplemental compensation accrual to arrive at a reduction of $800,000 as compared with a reduction of $700,000 in the prior fiscal year period.

During the six months ended March 31, 2024, the Traditional Business had total operating revenues of $7,999,000, as compared with $7,877,000 in the prior fiscal year period.

Advertising revenues increased by $209,000 (5%) to $4,403,000 from $4,194,000, primarily resulting from increased commercial advertising revenues of $252,000, legal notice advertising revenues of $32,000, and trustee sale notice advertising revenues of $29,000, partially offset by decreased government notice advertising revenues of $104,000.

Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law.

The number of foreclosure notices published by the Company decreased by 2% during the three months ended December 31, 2023 as compared to the prior fiscal year period.

The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 87% of the total public notice advertising revenues during the three months ended December 31, 2023.

Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 14% of the Company's total operating revenues for the three months ended December 31,2023 and 18% for the three months ended December 31, 2022.

The Daily Journals accounted for about 93% of the Traditional Business’ total circulation revenues, which decreased slightly by $3,000 to $1,095,000 from $1,098,000.

The number of foreclosure notices published by the Company decreased slightly by 1% during the six months ended March 31, 2024 as compared to the prior fiscal year period.

The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 86% of the total public notice advertising revenues during the six months ended March 31, 2024.

Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 14% of the Company's total operating revenues for the six months ended March 31, 2024 and 16% for the six months ended March 31, 2023.

The Daily Journals accounted for about 93% of the Traditional Business’ total circulation revenues, which decreased by $12,000 (1%) to $2,194,000 from $2,206,000.

The court rule and judicial profile services generated about 4% of the total circulation revenues, with the other newspapers and services accounting for the balance.

2 unchanged sentences

Journal Technologies

During the three months ended December 31, 2023, Journal Technologies’ business segment pretax income increased by $1,987,000 (120%) to $336,000 from a pretax loss of $1,651,000 in the prior fiscal year period primarily resulting from increased revenues of $3,592,000, partially offset by increased operating expenses of $1,605,000.

During the six months ended March 31, 2024, Journal Technologies’ business segment pretax income increased by $1,129,000 (154%) to pretax income of $395,000 from a pretax loss of $734,000 in the prior fiscal year period primarily resulting from increased revenues of $3,987,000, partially offset by increased operating expenses of $2,858,000.

Revenues increased by $3,987,000 (19%) to $24,565,000 from $20,578,000 in the prior fiscal year period.

Licensing and maintenance fees increased by $3,337,000 (33%) to $13,411,000 from $10,074,000.

Consulting fees increased by $980,000 (42%) to $3,302,000 from $2,322,000 mainly resulting from more project go-lives (i.e.

Consulting fees decreased by $254,000 (4%) to $6,501,000 from $6,755,000 mainly due to fewer project go-lives (i.e.

signoffs by the clients).

2 unchanged sentences

Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance periods.

Operating expenses increased by $1,605,000 (16%) to $11,770,000 from $10,165,000 primarily because of (i) increased personnel costs because of salary adjustments due to recent inflation in the compensation market for talent, (ii) additional contractor services and the hiring of additional staff members to strengthen operational efficiencies, product development, and bolster the teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.

Journal Technologies continues to update and upgrade its software products.

Operating expenses increased by $2,858,000 (13%) to $24,170,000 from $21,312,000 primarily because of (i) increased personnel costs because of salary adjustments (ii) additional contractor services and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.

Journal Technologies continues to update and upgrade its software products, which includes improving aspects like user experience, documentation, and ease of ongoing customer upgrades.

These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Impact of the COVID-19 Pandemic

Given that we are typically paid for implementation services upon “go-live” of a system, recognition of those revenues has been delayed and in some cases costs have increased.

This can also create a risk of contract cancellations for in-progress projects, which has not been a common issue to date, and Journal Technologies is working to minimize additional cancellations.

Reportable Segments (for the three-month periods ended March 31, 2024 and 2023)

Overall Financial Results (000)

For the three months ended March 31

Reportable Segments

Advertising service fees and other

Licensing and maintenance fees

Consulting fees

Other public service fees

Total operating revenues

Operating expenses

Salaries and employee benefits

Decrease to the long-term supplemental compensation accrual

Total operating expenses

Income from operations

Dividends and interest income

Interest expenses on note payable collateralized by real estate

Interest expense on margin loans and other

Gains on sales of marketable securities

Net unrealized gains on marketable securities

Pretax income

Income tax (expense) benefit

Capital expenditures

Consolidated Financial Comparison

Consolidated revenues were $16,571,000 and $16,154,000 for the three months ended March 31, 2024 and 2023, respectively.

This increase of $417,000 (3%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $1,175,000, and other public service fees of $454,000, partially offset by decreased consulting fees of $1,234,000, and (ii) the Traditional Business’ advertising revenues of $112,000, partially offset by decreased advertising service fees and other of $81,000.

Approximately 75% of the Company’s revenues were derived from Journal Technologies during both the three-month periods ended March 31, 2024 and 2023.

In addition, the Company’s revenues during the quarter were primarily from the United States, with approximately $2,051,000 (12%) from foreign countries.

Almost all of Journal Technologies’ revenues are from governmental agencies.

Consolidated operating expenses increased by $1,409,000 (10%) to $15,938,000 from $14,529,000.

Total salaries and employee benefits increased by $1,864,000 (18%) to $12,011,000 from $10,147,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the company’s installation projects.

Outside services decreased by $166,000 (9%) to $1,583,000 from $1,749,000 mainly because of reduced contractor services.

Accounting and legal fees decreased by $67,000 (30%) to $155,000 from $222,000 primarily resulting from decreased legal fees.

Other general and administrative expenses decreased by $140,000 (13%) to $925,000 from $1,065,000 mainly because there were decreased business travel expenses and reduced miscellaneous office supply expenses as compared to the prior fiscal year period.

The Company’s non-operating income, net of expenses, increased by $8,344,000 (72%) to $19,987,000 from $11,643,000 in the prior fiscal year period primarily because there were realized gains on sales of marketable securities of $14,261,000 during this quarter.

These gains were partially offset by (i) the recording of net unrealized gains on marketable securities of $5,503,000 as compared with $8,644,000 in the prior fiscal year period, and (ii) decreases in dividends and interest income of $2,774,000 (68%) to $1,289,000 from $4,063,000.

During the three months ended March 31, 2024, the Company’s consolidated pretax income was $20,620,000, as compared to $13,268,000 in the prior fiscal year period.

There was consolidated net income of $15,415,000 ($11.19 per share) for the three months ended March 31, 2024, as compared with $9,433,000 ($6.85 per share) in the prior fiscal year period.

The Traditional Business

The Traditional Business’ pretax income decreased by $134,000 (19%) to $574,000 from $708,000 in the prior fiscal year period, primarily due to increased personnel costs of $343,000 (15%) to $2,624,000 from $2,281,000, partially offset by an increased reduction of $180,000 (90%) to the long-term supplemental compensation accrual to arrive at a reduction of $380,000 as compared with a reduction of $200,000 in the prior fiscal year period.

During the three months ended March 31, 2024, the Traditional Business had total operating revenues of $4,112,000, as compared with $4,090,000 in the prior fiscal year period.

Advertising revenues increased by $112,000 (5%) to $2,316,000 from $2,204,000, primarily resulting from increased commercial advertising revenues of $137,000, legal notice advertising revenues of $30,000, and trustee sale notice advertising revenues of $19,000, partially offset by decreased government notice advertising revenues of $74,000.

The Traditional Business segment operating expenses, excluding the adjustments to the long-term supplemental compensation accrual, increased by $336,000 (9%) to $3,918,000 from $3,582,000, primarily resulting from the annual salary adjustments.

Journal Technologies

During the three months ended March 31, 2024, Journal Technologies’ business segment pretax income decreased by $858,000 (94%) to $59,000 from $917,000 in the prior fiscal year period primarily resulting from increased operating expenses of $1,253,000, partially offset by increased revenues of $395,000.

Revenues increased by $395,000 (3%) to $12,459,000 from $12,064,000 in the prior fiscal year period.

Licensing and maintenance fees increased by $1,175,000 (21%) to $6,854,000 from $5,679,000.

Consulting fees decreased by $1,234,000 (28%) to $3,199,000 from $4,433,000 mainly due to fewer project go-lives (i.e.

signoffs by the clients).

Other public service fees increased by $454,000 (23%) to $2,406,000 from $1,952,000 primarily because of increased e-filing fee revenues.

Operating expenses, excluding the adjustment to long-term supplemental compensation accrual, increased by $1,283,000 (12%) to $12,430,000 from $11,147,000 primarily because of (i) increased personnel costs because of salary adjustments (ii) the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.

Liquidity and Capital Resources

During the three months ended December 31, 2023, the Company’s cash and cash equivalents, restricted cash, and marketable security positions increased by $8,484,000 after the recording of net pretax unrealized gains on marketable securities of $14,690,000.

Cash and cash equivalents were primarily used to pay down the margin loan balance by $5,000,000.

The investments in marketable securities, which had an adjusted cost basis of approximately $165,412,000 and a market value of about $317,818,000 at December 31, 2023, generated approximately $1,569,000 in dividends and interest income during the three months ended December 31, 2023.

During the six months ended March 31, 2024, the Company’s cash and cash equivalents, restricted cash, and marketable security positions decreased by $16,368,000 after the recording of net pretax unrealized gains on marketable securities of $20,193,000.

In March 2024, the Company sold part of its marketable securities for approximately $40,579,000.

Cash and cash equivalents as well as proceeds from sales of marketable securities were primarily used to pay down the margin loan balance by $45,579,000.

The investments in marketable securities, which had an adjusted cost basis of approximately $139,094,000 and a market value of about $297,003,000 at March 31, 2024, generated approximately $2,858,000 in dividends and interest income during the six months ended March 31, 2024.

These securities had approximately $157,909,000 of net unrealized gains before estimated taxes of $40,490,000 which will become due only when we sell securities in which there is unrealized appreciation.

The balance on the Company’s margin loan secured by the securities portfolio was $70,000,000 and $75,000,000 at December 31, 2023, and September 30, 2023, respectively.

Cash flows from operating activities decreased by $3,560,000 during the three months ended December 31, 2023, as compared to the prior fiscal year period, primarily due to (i) increases in the Company’s deferred tax benefit of $3,147,000 and income tax receivable of $23,000, and (ii) decreases in net accounts payable and accrued liabilities of $1,426,000 (because of the timing difference in remitting e-filing fees to the courts), deferred revenues of $2,776,000, and income tax payable of $1,069,000.

This was partially offset by (i) decreases in the Company’s accounts receivable of $392,000 mainly resulting from more collections, and (ii) increases in its net income of $4,545,000, excluding the decreases in unrealized gains on marketable securities of $9,335,000 and the realized net gains on sales of marketable securities of $422,000 during the prior fiscal year period.

As of December 31, 2023, the Company had working capital of $313,273,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $23,498,000.

The balance on the Company’s margin loan secured by the securities portfolio was $29,421,000 and $75,000,000 at March 31, 2024, and September 30, 2023, respectively.

Cash flows from operating activities decreased by $6,543,000 during the six months ended March 31, 2024, as compared to the prior fiscal year period, primarily due to (i) increases in the Company’s income tax receivable of $269,000 and accounts receivable of $353,000, and (ii) decreases in deferred tax liability of $4,567,000, accounts payable and accrued liabilities of $211,000, and deferred revenues of $4,914,000.

This was partially offset by increases in (i) income tax payable of $1,481,000, and (ii) the Company’s net income of $2,385,000, excluding the decreases in unrealized gains on marketable securities of $12,476,000, stock dividends of $2,978,000, and increased realized net gains on sales of marketable securities of $13,839,000.

As of March 31, 2024, the Company had working capital of $290,031,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $21,562,000.

The Company believes that it will be able to fund its operations for the foreseeable future through its cash flows from operations and its current working capital and expects that any such cash flows will be invested in its businesses.

35 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis