DJCO — Q3 2026 Financial Report Analysis

Daily Journal swung to a net loss of $10.9 million ($7.90 per share) in its fiscal third quarter ended June 30, 2026, against net income of $14.4 million ($10.47) a year earlier. Nearly all of that swing came from the company's stock portfolio, not from its businesses: the portfolio's market value fell by $24.1 million in the quarter (before tax), compared with a $11.5 million rise in the same quarter of 2025. The businesses themselves had their best quarter in this comparison. Revenue rose 15.3% to $27.0 million, and income from operations rose 63% to $5.3 million, led by Journal Technologies, the court case-management software unit.

At a glance

• $24.1 million unrealized portfolio loss. On paper, the six-stock portfolio lost about 5.6% of its value in the quarter. No shares were sold, so no cash was lost, but under accounting rules the drop still runs through net income. After tax, the investment side (the "Corporate" line) lost $15.9 million.
• $5.0 million combined net income from the two operating businesses, up from $2.4 million a year ago. Journal Technologies earned $4.3 million and the newspapers earned $0.7 million, after losing $0.7 million in the same quarter last year.
• Journal Technologies revenue up 19.5% to $22.1 million. The unit now supplies 82% of company revenue. E-filing fees grew fastest, up 42.2%.

The results

Operating margin is the share of revenue left after running the business, before investment results, interest and tax. Fiscal year ends September 30, so this is Q3 of fiscal 2026.

First nine months of fiscal 2026 (Oct 2025–Jun 2026): revenue $69.2 million (+16.8%), income from operations $8.7 million (vs $4.9 million), net loss $53.5 million (vs net income of $70.0 million), and diluted EPS of -$38.84 (vs $50.81). Unrealized portfolio losses of $87.0 million over the nine months, against $84.3 million of gains a year earlier, account for the whole reversal.

Two businesses and a portfolio

Daily Journal is really three things in one company. The results only make sense if you look at each one separately.

1. Journal Technologies (software for courts and justice agencies). Revenue rose $3.6 million (19.5%) to $22.1 million. All three revenue lines grew:

• Licensing and maintenance fees (recurring subscription and support): +16.0% to $9.2 million.
• Other public service fees: +42.2% to $5.7 million. These are mainly fees from the public filing court documents and paying fines online through the company's systems. The filing says the increase was "primarily due to increased e-filing revenues."
• Consulting fees (paid to set up a new court's system): +9.7% to $7.2 million. Management attributes this to "the timing of project go-lives and deferred revenue recognition," which means this line can rise or fall from quarter to quarter.

Operating expenses grew more slowly, up 15.5% to $16.6 million, because of "increased personnel costs, higher contractor utilization, and increased hosting costs billed to customers." As a result, segment pretax income rose to $5.5 million from $4.2 million. Over nine months the gain is larger: pretax income more than doubled, to $9.8 million from $4.7 million, on revenue up 21.0% to $55.6 million.

2. The Traditional Business (legal newspapers such as the Los Angeles Daily Journal, plus public-notice advertising). Revenue slipped 0.8% to $4.8 million. Advertising fell 1.5% and circulation rose 1.7%. The segment still turned a $0.9 million pretax loss into a $0.5 million profit, because operating expenses fell 25.5% to $4.3 million. Personnel costs drove the drop, falling to $2.2 million from $3.9 million. The filing credits "decreased personnel costs" but does not explain the size of the cut. Over nine months the newspapers still lost $0.6 million before tax, and their revenue is not growing. Most of this quarter's turnaround came from lower costs.

3. The investment portfolio. The company owns $406.0 million of marketable securities, held in just six companies. They cost $139.1 million. Most of the gains sit in "the common stocks of three U.S. financial institutions and one foreign manufacturer." The portfolio is worth more than the company's total stockholders' equity of $337.7 million, so its price moves dominate reported earnings. Accounting rules require the company to mark these holdings to market every quarter and run the change through net income, even when nothing is sold. These "unrealized" gains and losses are not cash, and they can reverse the next quarter.

What the headline numbers hide

• The net loss is a paper loss, not an operating one. The investment line lost $15.9 million after tax, made up of the $24.1 million markdown, partly offset by $2.9 million of dividends and a $6.2 million tax benefit, plus $0.8 million of corporate costs and $0.2 million of margin-loan interest. The two operating businesses earned $5.0 million combined. Excluding portfolio marks, the company was profitable and its operating profit grew.
• Cash flow is better than net income suggests. Over nine months, operating cash flow was $12.9 million against a $53.5 million net loss, up from $8.8 million a year earlier. Accounts receivable (money customers owe) fell $3.1 million to $17.9 million while revenue grew, which the filing puts down to "improved collections." Total deferred revenue (cash billed in advance for work not yet done) edged up to $19.6 million from $19.2 million at September 30. That is a small, positive sign for future software revenue. The company does not report a full backlog: it says reliable estimates of unsatisfied performance obligations "cannot be made."
• Higher overhead is holding back the operating gain. Consolidated "other general and administrative expenses" more than doubled (+123.7%) to $3.3 million in the quarter. The filing attributes this mainly to "higher accounting and consulting fees associated with remediation of material weaknesses in internal controls." Over nine months, the cost of a proxy solicitation and shareholder outreach was also a factor. Management "expects these costs to remain elevated in the near term."
• Controls are still flagged as not effective. Material weaknesses in segregation of duties and revenue recognition, first disclosed in the fiscal 2025 annual report, are still open. Management says its remediation steps are "substantially complete" but concluded that disclosure controls were not effective as of June 30. A material weakness is a gap in the checks that keep the accounts accurate, and revenue recognition is the more sensitive of the two.
• Dividend income fell. Dividends and interest dropped 22.8% to $2.9 million in the quarter, and fell 10.1% to $5.5 million over nine months. The filing does not say why.
• There is a large deferred tax bill. The portfolio holds $266.9 million of unrealized gains, carrying an estimated $68.7 million of tax that becomes due only when shares are sold. No securities were sold during the nine months. The company paid the margin loan, which is secured by the portfolio and costs 4.25%, down by $2.0 million to $20.0 million.
• A building sale is pending. A Los Angeles building carried at $3.5 million in the newspaper segment is classified as held for sale. One earlier sale agreement did not close; a new one was signed in the quarter, and due diligence is still under way.

Takeaway: The -$7.90 loss per share reflects a falling stock portfolio. The businesses improved: Journal Technologies grew revenue nearly 20% and lifted segment pretax income by a third, and the company's operating margin widened from 13.8% to 19.5%. Over any single quarter, though, the six-stock portfolio still decides the reported result.

What to watch

Management gives no numeric guidance. Four items to follow into the fiscal 2026 annual report (10-K for the year ending September 30, 2026, normally filed around December):

1. E-filing growth at Journal Technologies. E-filing fees are the fastest-growing revenue line, and much of the income depends on how many people use the systems. It grew 42.2% this quarter and 34.9% over nine months. Watch whether that pace holds.
2. Consulting fees and new go-lives. These signal whether new court installations are being finished. They can drop sharply in any quarter in which no project goes live.
3. G&A cost from the control remediation. If accounting and legal fees fall back from the current $3.3 million-a-quarter level once remediation ends, most of the saving should flow through to operating income.
4. The six-stock portfolio. Most of the remaining gains sit in three U.S. banks and one foreign manufacturer, so a move in bank stocks will again set the reported bottom line. Book value fell to about $245 per share at June 30 from about $284 at September 30, 2025, almost entirely because of portfolio marks.