1/ Added a 2% position in $DJCO.

This probably falls into the cheap basket that satiates my inner Graham / love for special situations and turnarounds. Usually these are 1% of my portfolio, but $DJCO has ~50% of its market cap in cash/cash equivalents, so same thing.

2/ This was super fun to analyze, but not blog post material or anything [my blog consists of long-winded expeditions into industries, not stock pitches].

Anyways, $DJCO is majority-owned by Charlie Munger, who bought the company w/ Rick Guerin in 1977.

3/ The company's main business was selling newspapers, which Munger readily acknowledges is a dying industry. However, Munger also used the business as a personal investment vehicle, producing double digit returns over the last two decades.

4/ Today, $DJCO's ~$200m investment portfolio includes $BAC, $WF, $USB and $BYD. Of these, $BYD is probably the most interesting - it was a EV venture investment by the Munger family, Berkshire Hathaway and $DJCO. Today, the company is worth many billions.

5/ $BYD is probably worth at least half of $DJCO's investments. But that's not what makes $DJCO interesting. Anyone can look up the market prices of its securities and they are marked-to-market every quarter.

6/ In 2013, $DJCO bought New Dawn, a provider of court technologies. Combined with some acquisitions in 1999, this became the foundation of a new company within $DJCO, Journal Technologies [JTI].

Unlike the languishing newspaper biz, JTI operates in a large and growing market.

7/ The company provides legal software to courts that makes electronic filing easy, allows courts to communicate to constituencies and reduce physical paperwork.

According to Munger, its a dirty business that requires long RFP processes, cajoling the bureaucracy...

8/ ... and a lot of red tape. Moreover, each state court system is organized differently, and each court has different requirements. In other words, this isn't your typical plug-n-play software biz. It needs boots on the ground and must be highly configurable.

9/ Munger says he is in a perfect position to execute. He doesn't care about quarterly earnings and is willing to roll up his sleeves and work for the courts' business, even if that means financial results many years into the future.

10/ JTI's biggest differentiator is a deferred billing practice. While most companies [i.e. $TYL] will bill the courts during the implementation process, Munger says the court is only on the hook for payment AFTER the system has "gone live".

11/ This usually takes 2-4 years depending on the complexity. During this time, $DJCO records $0 revenues and all the expenses required for implementation.

The "special situation" is that there's a whole bunch of projects in the implementation phase that no one knows about.

12/ This pitch does a good job at uncovering these contracts. According to him, there's over 100 contracts the market doesn't know about that can result in $150m in run-rate revenue in 10 years [vs. ~$35m today]. Huge if true.

https://moiglobal.com/wp-content/uploads/ideas19-matthew-peterson.pdf?fbclid=IwAR1TOW1TDz10_MZKiBdCL70s_0ZplKpxX6PMESVtsyKdOcpOQ2me9lo06I8

13/ I went in and looked for these contracts myself. You can do it, too. Just pick a county and search "[County name] Journal Technologies contract". Its a pain looking for these -- you must go through meeting minutes, 300 pg service agreements, etc.

14/ Here's a "clean" example [most are NOT this clean]. In Lake County, IL, the JTI system will go live in May of 2022. Lake County will then pay JTI ~$733k annually for the next 5 years with an option to extend another 5 years, albeit at a higher price.

https://www.lakecountycircuitclerk.org/docs/default-source/press-releases/icms.pdf?sfvrsn=0

15/ These revenues aren't explained anywhere in JTI's statements. How does the market miss this? Well JTI doesn't post press releases nor 8-k's. You must manually search for each individual contract and find the payment terms under a mountain of legalese.

16/ BUT, the MOI pitch above was written in January 2019. Since then, I found a whale that probably overshadows all of JTI's other contracts. In July 2019, the company was awarded at $89m contract from the Court of Victoria. https://www.itnews.com.au/news/court-services-victoria-picks-journal-technologies-for-89m-project-528588

17/ I scoured everywhere but couldn't get access to the original contract, but if its like the others, this $89m will get divided over 5 years, or ~$18m per year. This basically doubles the size of JTI's business. This system is expected to go-live in "mid-2021".

18/ Anyways, this plus all the other contracts I uncovered [another few dozen million in run-rate revenue] plus all the contracts I haven't uncovered can probably triple the size of JTI over the next few years.

19/ Assuming a 20% margin on $80-90m in revenue is $16-18m in operating profit. This is a SaaS biz w/ highly recurring revenues and 10-year contracts w/ built-in price escalations. Coupled w/ a 12-14% industry CAGR and this is worth $DJCO's entire market cap today.

20/ The biggest competitor is $TYL but $DJCO has been able to get quite a few contracts. Moreover, you just need the go-lives to occur for this investment to work. I would have more to say but I honestly don't know if $DJCO can compete w/ $TYL. I will say that...

21/ ...the market is mostly untapped. The biggest "competitors" are legacy systems used by courts that are in dire need of replacements. Even if $DJCO carves out a small minority position in what is quickly becoming a multi-billion-dollar market, it should do very well.