DAILY JOURNAL CORP (DJCO)·Q1 2014 Earnings Summary

Executive Summary

• Q1 FY2014 revenue rose 29% year over year to $9.95M, but the quarter swung to a preliminary net loss of $0.42M ($0.30/share) versus net income of $0.83M ($0.60/share) in Q1 FY2013, driven by lower trustee sale/public notice revenues and higher acquired intangibles amortization; consolidated pretax loss was $0.59M versus $1.26M pretax income a year ago .
• Traditional business pretax fell 54% to $1.26M on weaker trustee-sale notices, while the technology businesses (Sustain/New Dawn/ISD) posted a $1.85M pretax loss as integration and amortization expenses ramped; technology intangible amortization totaled $1.31M in Q1 .
• Securities portfolio remained a key financial lever: $150.75M in marketable securities with $102.77M in unrealized gains and $39.96M of accrued tax on appreciation; comprehensive income was $7.99M, largely from unrealized gains .
• Filings were preliminary due to delayed completion of the FY2013 audit; subsequent 10‑K shows the auditor issued an adverse opinion on internal control over financial reporting, an overhang to monitor .
• Through six months (reported May 12, 2014), revenue reached $20.78M with a preliminary net loss of $0.37M, and NASDAQ granted an exception to regain filing compliance by June 30, 2014—signaling continued transitional pressures but progressing toward filing normalization .

What Went Well and What Went Wrong

What Went Well

• Acquisitions drove top-line growth: “This increase of $2,258,000 (29%) was primarily from additional New Dawn and ISD revenues of $3,980,000,” more than offsetting part of the trustee notice decline .
• Securities portfolio strength: $150.75M fair value with $102.77M unrealized gains; comprehensive income of $7.99M in the quarter was driven by $8.41M after-tax unrealized gains .
• Technology expansion broadened reach and offerings (ISD and New Dawn), supporting a larger footprint across courts and justice agencies (context from FY2013 10‑K describing scope and product sets) .

What Went Wrong

• Public notice/trustee sale weakness: trustee sale notice and related service fee revenues fell $1.28M y/y and management expects the downtrend to continue, pressuring the traditional business .
• Profitability compression: consolidated pretax swung to a $0.59M loss vs $1.26M pretax income in Q1 FY2013, including $1.15M of additional amortization of acquisition intangibles; technology pretax loss widened to $1.85M .
• Reporting/control overhang: Q1 release was preliminary due to the pending FY2013 audit; later, EY issued an adverse opinion on ICFR for FY2013, elevating governance/process risk (though financial statements carried an unqualified opinion) .

Financial Results

Consolidated Results vs Prior Year

Notes: The company did not provide “vs estimates”; consensus was not available for this micro-cap quarter via S&P Global at time of analysis.

Segment Breakdown

KPIs and Balance Sheet Highlights (Quarter-End)

Guidance Changes

Earnings Call Themes & Trends

The company did not hold a conventional quarterly earnings call; commentary is based on the Q1 press release and subsequent six-month preliminary update.

Management Commentary

• “This increase of $2,258,000 (29%) was primarily from additional New Dawn … and ISD … revenues of $3,980,000, partially offset by the reduction in trustee sale notice and related service fee revenues of $1,282,000.”
• “During the three months ended December 31, 2013, the Company had a consolidated pretax loss of $591,000 … [including] $1,150,000 of additional amortizations of intangible acquisition costs.”
• “The Company still continued to benefit from the relatively large number of foreclosures in California and Arizona for which public notice advertising is required by law,” while cautioning that public notice advertising revenues were down and the trend is expected to continue .

Q&A Highlights

No quarterly earnings call transcript was available; no Q&A provided in the press release .

Estimates Context

• Consensus estimates (revenue/EPS) were not available or could not be retrieved from S&P Global for this quarter; therefore, no vs-consensus comparisons are included. We attempted to fetch S&P Global data, but values were unavailable at time of analysis.

Key Takeaways for Investors

• Top-line acceleration is acquisition-led; near-term earnings burden stems from amortization and integration expenses—monitor the path to breakeven in technology and amortization roll-off cadence .
• Structural headwinds in public notice/trustee sale advertising continue; traditional business profitability is down materially y/y, with further declines contemplated by management .
• Securities portfolio remains a double-edged sword: it boosts comprehensive income and provides financing flexibility, but adds market risk and earnings volatility outside core operations .
• Reporting risk has been elevated: preliminary numbers reflect audit timing issues; FY2013 10‑K shows adverse ICFR opinion—watch remediation steps and the timeliness of subsequent filings .
• Sequential read-through: six‑month update suggests Q2 revenue roughly maintained momentum while losses narrowed; watch for improving operating leverage as integration matures (preliminary six-months context) .
• For trading, catalysts are limited near-term; stock may react more to headlines around filings remediation, portfolio marks, and technology contract milestones than to core quarterly beats/misses absent broad Street coverage .

Supporting documents:

• Q1 FY2014 8‑K with Exhibit 99.1 press release (preliminary results)
• NT 10‑Q notice of late filing for quarter ended Dec 31, 2013
• FY2013 10‑K (acquisitions, segment mix, ICFR context)
• Six-month preliminary update (filed May 12, 2014)