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TheStreet Open House

The Dolan Company Reports Second Quarter 2012 Results

The following is a reconciliation of income from continuing operations to adjusted EBITDA (in thousands):

  Three Months Ended
June 30,
2012   2011
Income from continuing operations $ 5,571 $ 2,864
 
Interest expense, net 1,991 1,365
Income tax expense 4,416 1,950
Amortization of intangibles 4,958 4,326
Depreciation expense 1,998 1,785
Amortization of Detroit Legal News Publishing intangible

377

377

Non-cash compensation expense 1,100 1,187
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions

(9,883

)

28

Non-recurring income (520 ) (394 )
Net distributions to holders of non-controlling interest 77   (516 )
 
Adjusted EBITDA

$

10,085  

$

12,972  
 

The following is a reconciliation of income from continuing operations to cash earnings and cash earnings per diluted share (in thousands, except per share data):

  Three Months Ended
June 30,
2012   2011
Income from continuing operations $ 5,571 $ 2,864
 
Noncontrolling interests (626 ) (168 )
Non-cash compensation expense 1,100 1,187
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions

(9,883

)

28

Amortization of intangibles 4,958 4,326
Amortization of Detroit Legal News Publishing intangible

377

377

Non-recurring income (520 ) (394 )
Adjustment to income tax expense related to reconciling items at effective tax rate

1,663

 

(2,237

)

Cash earnings $ 2,640   $ 5,983  

 

Income from continuing operations attributable to The Dolan Company per diluted share (GAAP) $

0.16

 

$

0.09

 
Cash earnings per diluted share $ 0.09   $ 0.20  
 
Weighted average diluted shares outstanding 30,356 30,211
 

Conference Call

The company has scheduled a conference call for Wednesday, August 1st, at 8:30 a.m. U.S. Eastern Standard Time (7:30 a.m. U.S. Central Standard Time). The dial-in number is (888) 517-2513, and the passcode is 7919 254#. The call will be hosted by James P. Dolan, chairman, chief executive officer and president, and will include Scott J. Pollei, executive vice president and chief operating officer, and Vicki J. Duncomb, vice president and chief financial officer. It will be broadcast live over the Internet and will be accessible through the investor relations section of the company’s Web site at www.thedolancompany.com. Interested parties should access the webcast approximately 10 to 15 minutes before the scheduled start time to register and download any necessary software needed to listen to the call. Prior to the conference call start, a slide presentation highlighting points discussed in the conference call will be available through the investor relations section of the company’s Web site at www.thedolancompany.com. The webcast and slide presentation will be archived online and will be available at the investor relations section of the company’s Web site for a period of 21 days after the call. In addition, the company’s SEC Form 10-K is available via its Web site at www.thedolancompany.com, or investors can request a hard copy of the 10-K free of charge upon request.

Statement Regarding Forward Looking Information

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts are forward-looking statements. Such forward-looking statements include statements related to the company’s “guidance” as well as statements using words such as “anticipate,” “expect,” “believe,” “view,” “continue,” “to come,” “will,” “may,” “optimistic,” “guidance,” “estimate,” “assume,” “pursue,” “outlook,” “goal,” “milestone” and similar expressions. Forward-looking statements are subject to risks, uncertainties and other factors that could cause the actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the following: our businesses operate in highly competitive markets and depend on the economies and demographics of the legal, financial and real estate markets we serve and changes in those sectors could have an adverse effect on our revenues, cash flows, and profitability; if the number of files referred to us by our mortgage default processing service law firm customers (or loan servicers and mortgage lenders we serve directly in California) decreases or fails to increase, or if one or more of our law firm customers fails to pay us for our mortgage default processing services, our operating results and ability to execute our growth strategy could be adversely affected; bills introduced and laws enacted to mitigate foreclosures, voluntary relief programs and halts by servicers or lenders, as well as governmental investigations, enforcement actions, litigation, court orders and settlements may have an adverse effect on our mortgage default processing services and public notice operations; our efforts to grow our business may place a strain on our management and internal systems, processes and controls, may result in operating inefficiencies, and may negatively impact our operating margins; we intend to continue to pursue acquisition opportunities, which we may not do successfully and which may subject us to considerable business and financial risk or require us to raise additional capital or incur additional indebtedness; a failure to comply with covenants under our debt instruments could result in acceleration of debt or an inability to access availability under our credit facility; we depend on our senior management team and other key leaders of our business segments and our operation and growth may be negatively impacted if we lose any of their services; revenues of our subsidiaries NDeX and DiscoverReady have been concentrated among a few customers, thus the loss of business from our top customers and a failure to attract new customers could adversely affect our operating results; certain key personnel of our subsidiary NDeX, who are also shareholders and principal attorneys of our law firm customers, may at times have interests that differ from or conflict with our interests; and the other risk factors described under “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 9, 2012. We undertake no obligation to update any forward-looking statements in light of new information or future events.

The Dolan Company

Condensed Consolidated Balance Sheets
(in thousands, except share data)
   
June 30, December 31,
2012 2011
ASSETS (unaudited)
Current assets

Cash and cash equivalents

$

1,156

$

752

Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $1,447 and $1,416 as of June 30, 2012, and December 31, 2011, respectively)

64,927 72,117
Unbilled pass-through costs 3,946 4,317
Prepaid expenses and other current assets 3,940 3,976
Income tax receivable 733 1,968
Assets held for sale   269     257  
Total current assets 74,971 83,387
Accounts receivable, long-term

 

2,251

2,500
Investments

 

11,462

11,901
Property and equipment, net

 

18,278

19,263
Finite-lived intangible assets, net

 

203,022

212,950
Indefinite-lived intangible assets

 

283,039

283,039
Other assets

 

2,632

    2,563  
Total assets

$

595,655

 

$

615,603

 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt

$

7,831

$

7,667

Accounts payable 17,071 18,759
Accrued pass-through liabilities 8,407 8,820
Accrued compensation 6,298 5,189
Accrued liabilities 6,195 5,588
Due to sellers of acquired businesses 8,050 20,403
Deferred revenue   18,944     20,290  
Total current liabilities 72,796 86,716
Long-term debt, less current portion

 

164,251

168,724
Deferred income taxes

 

25,941

20,739
Due to sellers of acquired businesses

 

-

12,687
Other liabilities

 

7,362

    7,319  
Total liabilities   270,350     296,185  
 
Redeemable noncontrolling interest

 

9,174

    12,726  
Commitments and contingencies
Stockholders’ equity

Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,983,477 and 30,576,597 shares as of June 30, 2012, and December 31, 2011, respectively

30 30

Preferred stock, $0.001 par value; authorized: 5,000,000 shares; designated: 5,000 shares of Series A Junior Participating Preferred Stock; no shares outstanding

Other comprehensive loss (net of tax) (1,151 ) (1,285 )
Additional paid-in capital 298,695 294,476
Retained earnings   18,557     13,471  
Total stockholders’ equity   316,131     306,692  
Total liabilities and stockholders’ equity $

595,655

 

$

615,603

 
 
The Dolan Company
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
       
Three Months Ended

 

Six Months Ended

June 30,

 

June 30,

2012 2011 2012 2011
Revenues
Professional Services $ 44,310 $ 48,416 $ 92,215 $ 100,372
Business Information   19,453     19,971     38,270     39,767  
Total revenues   63,763     68,387     130,485     140,139  
Operating expenses
Direct operating: Professional Services 21,643 22,936 45,060 46,438
Direct operating: Business Information 7,284 7,789 14,452 15,598
Selling, general and administrative 26,904 26,179 54,547 52,998
Amortization 4,958 4,326 9,929 8,815
Depreciation 1,998 1,785 4,099 3,701
Fair value and other adjustments on earnout liabilities   (10,403 )   28     (10,472 )   358  
Total operating expenses 52,384 63,043 117,615 127,908
Equity in earnings of affiliates   599     441     1,024     1,189  
Operating income   11,978     5,785     13,894     13,420  
Non-operating income (expense)
Interest expense, net of interest income (1,991 ) (1,365 ) (3,995 ) (2,973 )
Non-cash interest income related to interest rate swaps - - - 286
Other income   -     394     -     394  
Total non-operating expense   (1,991 )   (971 )   (3,995 )   (2,293 )
 
Income from continuing operations before income taxes 9,987 4,814 9,899 11,127
Income tax expense   (4,416 )   (1,950 )   (4,345 )   (4,319 )
Income from continuing operations 5,571 2,864 5,554 6,808
Discontinued operations, net of tax   (28 )   (124 )   (188 )   (374 )
Net income 5,543 2,740 5,366 6,434

Less: Net income attributable to redeemable noncontrolling interests

  (626 )   (168 )   (280 )   (387 )
               
Net income attributable to The Dolan Company $ 4,917   $ 2,572   $ 5,086   $ 6,047  
 
Earnings per share – basic and diluted:

Income from continuing operations attributable to The Dolan Company

$

0.16

$

0.09

 

$

0.18

 

$

0.21

Discontinued operations attributable to The Dolan Company   -     -     (0.01 )   (0.01 )
Net income attributable to The Dolan Company 0.16 0.09 0.17 0.20
Decrease in redeemable noncontrolling interest in NDeX   -     0.05     -     0.08  
Net income attributable to The Dolan Company common stockholders

$

0.16   $ 0.14   $ 0.17   $ 0.28  
 
Weighted average shares outstanding:
Basic

 

30,276

 

 

30,107

 

 

30,226

 

 

30,118

 
Diluted

 

30,356

 

 

30,211

 

 

30,307

 

 

30,252

 
 
The Dolan Company
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
   
Three Months Ended Six Months Ended
June 30, June 30,
2012   2011 2012   2011
Cash flows from operating activities
Net income $ 5,543 $ 2,740 $ 5,366 $ 6,434
Loss from discontinued operations   28     124     188     374  
Income from continuing operations 5,571 2,864 5,554 6,808
Distributions received from The Detroit Legal News Publishing, LLC 763 700 1,463 2,100
Distributions paid to holders of non-controlling interests (438 ) (474 )
Gain on sale of investment (394 ) (394 )
Non-cash operating activities:
Amortization 4,958 4,326 9,929 8,815
Depreciation 1,998 1,785 4,099 3,701
Equity in earnings of affiliates (599 ) (441 ) (1,024 ) (1,189 )
Stock-based compensation expense 1,100 1,187 1,901 2,024
Deferred income taxes 3,713 28 3,713 28
Change in value of interest rate swap (286 )
Amortization of debt issuance costs 113 98 213 186
Non-cash fair value adjustment on earnout recorded in connection with acquisitions (9,883 ) 28 (9,952 ) 358
Changes in operating assets and liabilities:
Accounts receivable and unbilled pass-through costs 8,255 (865 ) 8,225 (4,984 )
Prepaid expenses and other current assets 2,202 821 1,273 3,200
Other assets 30 (34 ) 31
Accounts payable and accrued liabilities 38 (2,072 ) (75 ) (5,179 )
Deferred revenue and other liabilities (2,256 ) (1,192 ) (1,079 ) (686 )
Cash from operating activities – continuing operations 16,003 6,401 24,271 14,028
Cash from operating activities – discontinued operations (207 ) (163 ) (231 ) (212 )
Net cash provided by operating activities 15,796   6,238   24,040   13,816  
 
Cash flows from investing activities
Acquisitions and investments (145 ) (4,986 ) (145 ) (5,071 )
Capital expenditures (1,248 ) (1,664 ) (2,770 ) (3,904 )
Escrow payment received on sale of investment   394     394  
Cash used in investing activities – continuing operations (1,393 ) (6,256 ) (2,915 ) (8,581 )
Cash used in investing activities – discontinued operations 129     122   (7 )
Net cash used in investing activities (1,264 ) (6,256 ) (2,793 ) (8,588 )
 
Cash flows from financing activities
Net borrowings (payments) on senior revolving note 1,500 2,500 (2,200 ) (1,300 )
Payments on senior long-term debt (1,250 ) (1,250 ) (2,500 ) (2,500 )
Payment on unsecured notes payable (627 ) (603 ) (1,247 ) (1,193 )
Payment on capital leases (84 ) (48 ) (183 ) (101 )
Net payments of deferred acquisition costs and earnouts (14,400 ) (14,400 )
Payments for repurchase of common stock (1,691 )
Payments of deferred financing costs     (313 )  
Net cash used in financing activities (14,861 ) 599   (20,843 ) (6,785 )
 
Net change in cash and cash equivalents (329 ) 581 404 (1,557 )
Cash and cash equivalents at beginning of the period 1,485   2,724   752   4,862  
Cash and cash equivalents at end of the period $ 1,156   $ 3,305   $ 1,156   $ 3,305  




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