Item 1. Business
Item 1. Business
Daily Journal Corporation (“Daily Journal” or “the Company”) publishes newspapers and websites covering California and Arizona news and produces several specialized information publications. It also serves as a newspaper representative specializing in public notice advertising. This is sometimes referred to as the Company’s “Traditional Business”.
Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary of the Company, supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to the public, including e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 32 states, and internationally.
Essentially all of the Company’s U.S. operations are based in California, Arizona and Utah. The Company also has a presence in Australia where Journal Technologies is working on three software installation projects and in British Columbia, Canada, where the Company has operated a wholly-owned subsidiary, Journal Technologies (Canada) Inc. since August 2022. Financial information of the Company, including information about each of the Company’s reportable segments, is set forth in Item 8 (“Financial Statements and Supplementary Data”).
Products and Services
The Traditional Business
Newspapers and related online publications. The Company publishes 10 newspapers of general circulation. Each newspaper, in addition to news of interest to the general public, has a particular area of in-depth focus for its news coverage, attracting readers interested in obtaining specific information through a newspaper format.
The publications are based in the following cities:
Newspaper publications
Base of publication
Los Angeles Daily Journal
Los Angeles, California
San Francisco Daily Journal
San Francisco, California
Daily Commerce
Los Angeles, California
The Daily Recorder
Sacramento, California
The Inter-City Express
Oakland, California
San Jose Post-Record
San Jose, California
Orange County Reporter
Santa Ana, California
The Daily Transcript
San Diego, California
Business Journal
Riverside, California
The Record Reporter
Phoenix, Arizona
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The Daily Journals. The Los Angeles Daily Journal and the San Francisco Daily Journal (together, “The Daily Journals”) are each published every weekday except certain holidays and were established in 1888 and 1893, respectively. In addition to covering state and local news of general interest, these newspapers focus on law and its impact on society. Generally, The Daily Journals seek to be of special use to lawyers and judges.
The Daily Journals share much content. The Los Angeles Daily Journal is the largest newspaper published by the Company, both in terms of revenues and circulation. At September 30, 2024, the Los Angeles Daily Journal had approximately 3,805 paid subscribers and the San Francisco Daily Journal had approximately 2,177 paid subscribers as compared with total paid subscriptions for both of The Daily Journals of 5,653 at September 30, 2023. The Daily Journals carry commercial advertising (display and classified) and public notice advertising required or permitted by law to be published in a newspaper of general circulation. The main source of commercial advertising revenue has been law firms and businesses wishing to reach the legal professional community. The gross revenues generated directly by The Daily Journals are attributable approximately 54% to subscriptions and 46% to the sale of advertising and other revenues. Revenues from The Daily Journals constituted approximately 11% of the Company's total operating revenues in both fiscal 2024 and 2023.
The Daily Journals include the Daily Appellate Report, providing full text and case summaries of all opinions certified for publication by the California Supreme Court, the California Courts of Appeal, the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit and the U.S. Bankruptcy Appellate Panel for the Ninth Circuit. The Daily Journals also include a monthly court directory in booklet form. This directory includes a comprehensive list of sitting judges in all California courts as well as courtroom assignments, phone numbers and courthouse addresses, plus a list of judicial appointments, elevations, confirmations, resignations, retirements and deaths.
The Daily Journals are distributed by mail and hand delivery. The regular yearly subscription rate for each of The Daily Journals is $895 plus tax.
Most of the information published in The Daily Journals is available to subscribers online at www.dailyjournal.com.
Daily Commerce. Published since 1917, the Daily Commerce is based in Los Angeles and covers news of general interest, columns of interest to real estate investors and brokers, and information on distressed properties in Los Angeles County. The nature of the news coverage enhances the effectiveness of public notice advertising by distributing information about foreclosures to potential buyers. Features include default listings and probate sale notices. The Daily Commerce carries both public notice and commercial advertising. It is published each business day. A subscription includes online access to the Los Angeles and Ventura county foreclosure listings and public record database.
The Daily Recorder. The Daily Recorder, based in Sacramento, began operations in 1911. It is published each business day. In addition to general news items, it includes legal news and columns of interest to the Sacramento legal and real estate communities. It includes the Daily Appellate Report and carries commercial and public notice advertising. A subscription includes online access to Sacramento, Placer and El Dorado county foreclosure listings and public record database.
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The Inter-City Express. The Inter-City Express (the “Express”) has been published since 1909. It covers general news of local interest and focuses its coverage on news about the real estate and legal communities in the Oakland/San Francisco area. The Express carries public notice advertising and is published each business day. A subscription includes online access to the Alameda, Contra Costa, Stanislaus, and San Francisco county foreclosure listing and public record database.
San Jose Post-Record. The San Jose Post-Record (the “Post-Record”) has been published since 1910. In addition to general news of local interest, the Post-Record focuses on legal and real estate news. It is published every business day and carries public notice advertising. A subscription includes online access to the Santa Clara and San Francisco county foreclosure listing and public record database.
Orange County Reporter. The Orange County Reporter (“Reporter”) has been an adjudicated newspaper of general circulation since 1922. In addition to general news of local interest, the Reporter publishes local and state legal, business and real estate news, and carries public notice advertising. The Reporter is published three days a week. A subscription includes online access to the Orange County foreclosure listings and public record database.
The Daily Transcript. The Daily Transcript is based in San Diego and published each business day. It reports general news items and San Diego commercial real estate, business and construction news. It has been an adjudicated newspaper of general circulation since 1909. It carries commercial and public notice advertising. A subscription includes online access to the San Diego County foreclosure listings and public record database.
Business Journal. The Business Journal, established in 1991, publishes news of general interest and provides coverage of the business and professional communities in Riverside County. It also carries public notice advertising and is published each business day. The subscription includes online access to the Riverside and San Bernardino county foreclosure listings and public record database.
The Record Reporter (Arizona). The Record Reporter has been in existence since 1914. In addition to general news of local interest, The Record Reporter, which is published three days a week, focuses on legal news and public record information and carries primarily public notice advertising. The subscription includes online access to the Maricopa and Pinal county public record database.
Information Services. The specialized information services offered by the Company have grown out of its newspaper operations or have evolved in response to requests of its newspaper subscribers.
The Company has several court rules services, including multi-volume, loose-leaf sets for state and federal courts in California. The Northern California set consists of nine volumes. The Southern California set has eight volumes. The Company updates these court rules on a monthly basis. In addition, the Company publishes single-volume rules for Los Angeles and San Diego counties. The single volumes are replaced when there are rule changes.
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The Judicial Profiles service contains information concerning nearly all active judges in California. The Judicial Profiles include an interview-based article previously published in The Daily Journals, biographical data and information supplied by participating judges on courtroom procedures and policies. Subscribers may purchase the ten-volume set for Southern California, the eight-volume set for Northern California or individual profiles online.
Advertising and Newspaper Representative. The Company's publications carry commercial advertising and public notice advertising. Commercial advertising consists of display and classified advertising and constituted about 4% of the Company’s total operating revenues in both fiscal 2024 and 2023.
Public notice advertising consists of many different types of legal notices required by law to be published in an adjudicated newspaper of general circulation, including notices of death, fictitious business names, trustee sale notices and notices of governmental hearings. The major types of public notice advertisers are real estate-related businesses and trustees, governmental agencies, attorneys, and businesses or individuals filing fictitious business name statements. Many government agencies use the Company’s Internet-based advertising system to produce and send their notices to the Company for publication. A fictitious business name website enables individuals to send their statements to the Company for filing and publication, and another website enables attorneys and individuals to send probate, civil, corporate, public sale and other types of public notices to the Company. California Newspaper Service Bureau (“CNSB”), a division of the Company, is a statewide newspaper representative (commission-earning selling agent) specializing since 1934 in public notice advertising. CNSB places public notices and other forms of advertising with adjudicated newspapers of general circulation, most of which are not owned by the Company, and produces a legal advertising page for some other newspapers.
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 in both fiscal 2024 and 2023. Most of these revenues were generated by (i) notices published in the Company’s newspapers, (ii) commissions and similar fees received from other publications in which the advertising was placed, and (iii) service fees to file notices with government agencies.
The California legislature passed a bill (AB542) which became effective January 1, 2024 that reduced the number of required publication days in a newspaper for self-service storage facility lien sales. The existing requirement was to publish the notice once per week for two consecutive weeks. Now, the notice can be published either once per week for two consecutive weeks in a newspaper or once in a newspaper and once on an Internet website that customarily conducts or advertises online auctions or sales. We were able to successfully adjust our advertising rates upward in anticipation of the change in law, meaning that we suffered only a small decline in revenue of approximately $14,000 in 2024 due to the new law. The effort to reduce the number of required publication notices, however, is likely to continue. Indeed, another bill (AB721) relative to school budget hearing notices, which will take effect January 1, 2027, provides that these notices may be posted on the school district’s website in lieu of being published in a newspaper.
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For several years following the Global Financial Crisis that began in 2007, trustee sales legal advertising revenues were driven by the large number of foreclosures in California and Arizona, for which public notice advertising is required by law. Those revenues declined significantly in more recent years due to an improved economy and then to the COVID-related foreclosure moratoriums. Trustee sales legal advertising revenues represented about 2% of the Company’s total operating revenues in both fiscal 2024 and 2023 in which those moratoriums were generally lifted.
Other revenues are attributable to fees from attorneys taking continuing legal education tests published in The Daily Journals and online, and other miscellaneous fees including reprint services of articles published in The Daily Journals.
Journal Technologies
Journal Technologies provides case management software and related services to courts and other justice agencies. Its operations constituted about 76% of the Company’s total operating revenues in both fiscal 2024 and 2023. Journal Technologies earns revenues from license, maintenance and support fees paid by customers to use its software products; consulting fees paid by customers for installation, implementation and training services; and fees generated by the use of secure websites through which the general public can pay traffic citations and e-file cases. Journal Technologies has the following product solutions based on the Company’s core eSeries Framework™ technology:
eCourt®, eProsecutor™, eDefender™ and eSupervision™ (formerly eProbation)™ ― browser-based case processing systems that can be used by courts and other justice agencies for all case types because the screens, data elements, business rules, work queues, searches and alerts are highly configurable.
Journal Technologies offers other, complementary products including:
eFile-it™ ― a browser-based interface that allows attorneys and the general public to electronically file documents with the court.
ePay-it™ ― a service primarily for the online payment of traffic citations. Users can pay traffic citations by credit card and get information on traffic school. In addition, Journal Technologies also provides hosting services through AWS GovCloud for customers who choose to have it.
Almost all of Journal Technologies’ customers are government agencies, and most new software installation and licensing projects are subject to competitive bidding procedures. Accordingly, the ability of Journal Technologies to secure new customers is highly unpredictable. In addition, budget constraints, especially during stressful economic times, could force governmental agencies to defer or forgo consulting services or even to stop paying their annual software maintenance fees. As a technology-based company, Journal Technologies’ success depends on the continued improvement of its products, which is why the costs to update and upgrade them consistently constitute such a significant portion of the Company’s expenses.
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The Company’s revenues from Journal Technologies’ foreign customers were approximately $6,153,000 in fiscal 2024 and $3,293,000 in fiscal 2023. The remainder of the Company’s other revenues in those years was attributable to the United States.
Journal Technologies (Canada)
Journal Technologies (Canada) Inc. was founded in August 2022 as a service company to provide management and advisory services related to corporate leadership, financial management, strategic planning, operational guidance, human resources, project management, software development, professional services, and various other services required by Daily Journal Corporation and Journal Technologies. It is primarily based in Victoria, Canada.
Materials and Postage
After personnel costs (included in “Salaries and employee benefits” and in “Outside services” in the accompanying consolidated statements of comprehensive income), postage and paper costs are typically the next two largest expenses for the Traditional Business. Paper and postage accounted for approximately 5% of the Traditional Business’ operating costs in both fiscal 2024 and 2023.
An adequate supply of newsprint and other paper is important to the Company's operations. The Company currently does not have a contract with any paper supplier. The Company has always been able to obtain sufficient newsprint for its operations, although past shortages of newsprint have sometimes resulted in higher prices. During fiscal 2024, the price of newsprint decreased about 14% and usage decreased about 2%.
We use the U.S. Postal Service for distribution of roughly 48% of our print newspaper subscriptions. During the past several years, the Company has instituted changes in an attempt to mitigate higher postage costs. These changes have included contracting for hand delivery in urban areas of San Francisco, Santa Clara, Alameda, San Diego, Riverside, Orange and Los Angeles counties, delivering pre-sorted newspapers to post offices, and bundling newspapers to reduce per-piece charges. In addition, the Company has an ink jet labeler which eliminates paper labels and enables the Company to receive bar code discounts from the postal service on some of its newspapers.
Postal rates are dependent on the operating efficiency of the U.S. Postal Service and on legislative mandates imposed upon the U.S. Postal Service. During the past several years, the U.S. Postal Service has increased postal rates. During fiscal 2024, postage increased by $72,000 (15%) to $541,000 from $472,000.
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Marketing
The Company actively promotes its individual newspapers and its multiple newspaper network as well as its other publications. The specialization of each publication creates both target subscribers and target advertisers. Subscribers are likely to be attracted because of the nature of the information carried by the particular publication, and likely advertisers are those interested in reaching such consumer groups. In marketing products, the Company also focuses on its ancillary products which can be of service to subscribers, such as its specialized information services.
The Company receives, on a non-exclusive basis, public notice advertising from a number of service providers. Such agencies ordinarily receive a commission of 15% to 25% on their sales of advertising in Company and other publications. Commercial advertising agencies also place advertising (including nearly 100% of display advertising) in Company publications and receive commissions for advertising sales.
Journal Technologies’ staff includes employees who are focused on marketing with the intention of growing market share over time, via additional consulting projects and licensing of products. Most of Journal Technologies’ new projects come from a competitive bidding process, but it is nonetheless important to communicate the Company’s offerings to potential customers at trade shows and other channels; understanding what is possible can inform requirements and build confidence over the buying process.
Competition
Competition for readers and advertisers is very intense, both by established publications and by new entries into the market. The Daily Journals face aggressive competition in Los Angeles and San Francisco. All of the Company's publications and products face strong competition from other publications and service companies. Readers of specialized newspapers focus on the amount and quality of general and specialized news, amount and type of advertising, timely delivery and price. The Company designs its newspapers to fill niches in the news marketplace that are not covered as well by major metropolitan dailies. The in-depth news coverage which the Company's newspapers provide, along with general news coverage, attracts readers who, for personal or professional reasons, desire to keep abreast of topics to which a major newspaper cannot devote significant news space. Other newspapers do provide some of the same subject coverage, but the Company believes its coverage, particularly that of The Daily Journals, is more complete. The Company believes that The Daily Journals are the most important newspapers serving California lawyers on a daily basis.
The Company's court rules publications face competition from case management systems and the courts themselves. Subscriptions to the single and multi-volume court rules continued to decline during fiscal 2024. The Company's Judicial Profile services have indirect competition because some of the same information is available through other sources, including the courts.
The newspaper industry continues to experience significant secular decline. The Company believes the long-term trend will be in the direction of fewer subscriptions to the Company’s publications, and that trend will certainly negatively impact the Company’s future revenues.
In attracting commercial advertisers, the Company competes with other newspapers and magazines, television, radio and other media, including electronic and online systems for employment-related classified advertising. Factors which may affect competition for advertisers are the cost for such advertising compared with other media, and the size and characteristics of the readership of the Company's publications. Internet sites devoted to personnel recruitment have become significant competitors of our newspapers and websites for classified advertising.
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In addition, there has been a steady consolidation of companies serving the legal marketplace, resulting in an ever-smaller group of companies placing display advertising. Consequently, retaining advertising revenues remains a challenge. To reduce costs, the Company has contracted with an outside advertising agency to conduct sales of its display advertising.
The Company competes with at least one serious competitor for public notice advertising revenue in each of its markets. Large metropolitan general interest newspapers normally do not carry a significant amount of legal advertising, although recently they too have solicited certain types of public notice advertising. CNSB, the Company’s commission-earning selling agent, faces competition from a number of companies based in California, some of which specialize in placing certain types of notices.
There is significant competition among a limited number of companies to provide services and software to the courts and other justice agencies, and some of these companies are much larger and have greater access to capital and other resources than Journal Technologies. Others provide services for a limited number of customers, or in specialized niches. As part of the competitive bidding process, many customers will express a preference for, or even require, larger vendors or specific domain specialization.
As artificial intelligence (AI) becomes increasingly integrated into both our personal and professional lives, many of our competitors are rapidly incorporating AI capabilities into their offerings to maintain a technological advantage. We have already introduced AI features in some of our products, and to continue delivering value to our customers and outpacing the competition, we must further invest in these cutting-edge technologies.
Remaining competitive requires periodic investment in technology to ensure modern patterns are followed; Journal Technologies has begun developing next-generation development patterns and practices to address technical debts that exist within current generation offerings.
Employees
The Company had approximately 400 full-time employees and contractors and about 11 part-time employees as of September 30, 2024, including about 280 employees and contractors at Journal Technologies and 22 employees at Journal Technologies (Canada). The Company is not a party to any collective bargaining agreements. Certain benefits, including medical insurance, are provided to all full-time employees. Management considers its employee relations to be good.
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Working Capital
The Company owns marketable securities that provides the Company with working capital in addition to its cash flow from operations, subject, of course, to the normal risks associated with owning securities. To a considerable extent, the Company also benefits from the fact that subscriptions and some licenses, maintenance and customer support are paid in advance. In fiscal 2013, the Company borrowed $14 million from its investment margin account to purchase all of the outstanding stock of New Dawn Technologies, Inc., and another $15.5 million to acquire substantially all of the operating assets and liabilities of ISD Technologies, Inc., in each case pledging its marketable securities to obtain favorable financing. In addition, there were subsequent borrowings of $45.5 million to purchase additional marketable securities bringing the margin loan balance up to $75 million as of September 30, 2023. In March 2024, the Company sold a portion of its marketable securities for approximately $40.6 million and used these proceeds and excess cash from operations to pay down the margin loan balance to $27.5 million at September 30, 2024.
The Company believes it has sufficient cash and marketable securities for the foreseeable future. If the Company’s overall cash needs exceed cash flow and its current working capital, the Company may still have the ability to borrow against its marketable securities on favorable terms, or it may attempt to secure additional financing which may or may not be available on acceptable terms.
The Company extends unsecured credit to most of its advertising customers and some government agencies. The Company maintains a reserve account for estimated losses resulting from the inability of these customers to make required payments, but if the financial conditions of these customers were to deteriorate or the Company’s judgments about their abilities to pay are incorrect, additional allowances might be required, and the Company’s cash flows and results of operations could be materially affected.
Inflation
The effects of inflation are not significantly any more or less adverse on the Company's businesses than they are on other publishing and software companies. The Company has experienced the effects of inflation primarily through increases in costs of personnel. These costs have generally been offset by increased license, maintenance and support fees, which often contain a periodic cost-of-living adjustment.
The Company’s investment margin account has an interest rate that fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly. The interest rate as of September 30, 2024 was 5.5% after the first cut of 50 basis points to the central bank's key interest rate by Federal Reserve since 2020. The Federal Reserve may continue to reduce the rate in the near future. The Company’s interest expense on the margin account has decreased primarily due to the reduction to the investment margin account borrowings during fiscal 2024 and may continue to decrease more in the future because of the decreased interest rate.
Access to Our Information
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). These filings are not available on our website, www.dailyjournal.com , which is generally dedicated to the content of our publications and services. We will, however, provide these filings in electronic or paper format free of charge upon request addressed to our Secretary at our principal executive offices. Our SEC filings are also available to the public over the Internet at the SEC’s website at www.sec.gov.
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