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The Dolan Company Reports Third Quarter 2012 Results

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

 

 

    Three Months Ended

 

September 30,
2012     2011
(Loss) income from continuing operations $ (100,243 ) $ 3,383
 
Interest expense, net 2,195 1,744
Income tax expense (47,031 ) 2,426
Amortization of intangibles 4,607 4,726
Depreciation expense 1,820 1,991
Impairment of long-lived assets and goodwill 151,614 -
Amortization of Detroit Legal News Publishing intangible

377

377

Non-cash compensation expense 933 1,003
Non-cash fair value adjustments on earnout liabilities
recorded in connection with acquisitions (1,655 ) 239
Non-recurring income - 107
Net distributions to holders of non-controlling interest -   (91 )
 
Adjusted EBITDA

$

12,617  

$

15,905  
 

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
September 30,
2012     2011
(Loss) income from continuing operations $ (100,243) $ 3,383
 
Non-controlling interests 9,946 (217)
Non-cash compensation expense 933 1,003

Non-cash fair value adjustments on earnout liabilities

recorded in connection with acquisitions

(1,655) 239
Amortization of intangibles 4,607 4,726
Impairment of long-lived assets and goodwill 151,614
Amortization of Detroit Legal News Publishing intangible

377

377

Non-recurring income - 107

Adjustment to income tax expense related to

reconciling items at effective tax rate

(61,415) (2,581)
Cash earnings $ 4,164 $ 7,037

 

 

Income from continuing operations attributable to

The Dolan Company per diluted share (GAAP)

$ (2.98) $ 0.10
Cash earnings per diluted share $ 0.14 $ 0.23
 
Weighted average diluted shares outstanding 30,327 30,208
 

Conference Call

The company has scheduled a conference call for today at 11:00 a.m. U.S. Eastern Time (10:00 a.m. U.S. Central Time). The dial-in number is (888) 517-2513, and the passcode is 681 4229#. 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-Q is available via its Web site at www.thedolancompany.com.

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,” “should,” “may,” “optimistic,” “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)
    September 30,     December 31,
2012 2011
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 15,586 $ 752
Accounts receivable, including unbilled services (net of allowances for doubtful accounts
of $1,637 and $1,416 as of September 30, 2012, and December 31, 2011, respectively) 66,337 72,117
Unbilled pass-through costs 4,249 4,317
Prepaid expenses and other current assets 4,380 3,976
Income tax receivable 7,961 1,968
Assets held for sale 370   257  
Total current assets 98,883 83,387
Accounts receivable, long-term - 2,500
Investments 11,074 11,901
Property and equipment, net 17,436 19,263
Finite-lived intangible assets, net 166,486 212,950
Goodwill and indefinite-lived intangible assets 151,329 283,039
Deferred income taxes 25,408 -
Other assets   2,456     2,563  
Total assets $ 473,072   $ 615,603  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt $ 15,766 $ 7,667
Accounts payable 17,784 18,760
Accrued pass-through liabilities 8,940 8,820
Accrued compensation 8,710 5,188
Accrued liabilities 5,570 5,588
Due to sellers of acquired businesses 5,124 20,403
Deferred revenue   14,141     20,290  
Total current liabilities 76,035 86,716
Long-term debt, less current portion 174,466 168,724
Deferred income taxes - 20,739
Due to sellers of acquired businesses - 12,687
Other liabilities   6,605     7,319  
Total liabilities   257,106     296,185  
 
Redeemable non-controlling interest   5,494     12,726  
Commitments and contingencies
Stockholders’ equity
Common stock, $0.001 par value; authorized: 70,000,000 shares;
outstanding: 30,985,090 and 30,576,597 shares as of September 30, 2012,
and December 31, 2011, respectively 31 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 (1,082 ) (1,285 )
Additional paid-in capital 303,238 294,476
Retained earnings (accumulated deficit)   (84,946 )   13,471  
Total The Dolan Company stockholders' equity 217,241 306,692
Noncontrolling interest   (6,769 )    
Total stockholders’ equity   210,472     306,692  
Total liabilities and stockholders’ equity $ 473,072   $ 615,603  
 
 

The Dolan Company

Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
               
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Revenues
Professional Services $ 49,778 $ 51,383 $ 134,818 $ 142,539
Business Information   18,282     18,815     56,552     58,582  
Total revenues   68,060     70,198     191,370     201,121  
Operating expenses
Direct operating: Professional Services 23,000 23,075 63,943 65,000
Direct operating: Business Information 6,931 7,260 21,383 22,858
Selling, general and administrative 27,218 25,630 78,968 76,323
Amortization 4,607 4,726 14,178 13,185
Depreciation 1,820 1,991 5,634 5,560
Fair value and other adjustments on earnout liabilities (1,655 ) 239 (12,127 ) 219
Impairment of long-lived assets and goodwill   151,614     -     151,614     -  
Total operating expenses 213,535 62,921 323,593 183,145
Equity in earnings of affiliates   396     383     1,420     1,572  
Operating (loss) income   (145,079 )   7,660     (130,803 )   19,548  
Non-operating income (expense)
Interest expense, net of interest income (2,195 ) (1,744 ) (6,252 ) (4,717 )
Non-cash interest income related to interest rate swaps - - - 286
Other (expense) income   -     (107 )   -     287  
Total non-operating expense   (2,195 )   (1,851 )   (6,252 )   (4,144 )
(Loss) income from continuing operations before income taxes (147,274 ) 5,809 (137,055 ) 15,404
Income tax benefit (expense)   47,031     (2,426 )   42,686     (6,226 )
(Loss) income from continuing operations (100,243 ) 3,383 (94,369 ) 9,178
Discontinued operations, net of tax   (13,207 )   (77 )   (13,714 )   562  
Net (loss) income (113,450 ) 3,306 (108,083 ) 9,740
Less: Net loss (income) attributable to noncontrolling interests   9,946     (217 )   9,666     (604 )
Net (loss) income attributable to The Dolan Company $ (103,504 ) $ 3,089   $ (98,417 ) $ 9,136  
 
 
Earnings (loss) per share – basic and diluted:
(Loss) income from continuing operations attributable to The Dolan
Company $ (2.98 ) $ 0.10 $ (2.80 ) $ 0.28
Discontinued operations attributable to The Dolan Company   (0.43 )   -     (0.45 )   0.02  
Net (loss) income attributable to The Dolan Company (3.41 ) 0.10 (3.25 ) 0.30
Decrease in redeemable noncontrolling interest in NDeX   -     0.09     -     0.17  
Net (loss) income attributable to The Dolan Company common stockholders $ (3.41 ) $ 0.19   $ (3.25 ) $ 0.47  
 
Weighted average shares outstanding - basic   30,327     30,142     30,260     30,126  
Weighted average shares outstanding - diluted   30,327     30,208     30,260     30,219  
 
 
The Dolan Company
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
       
Three Months Ended Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
Cash flows from operating activities
Net (loss) income $ (113,450 ) $ 3,306 $ (108,083 ) $ 9,740
Loss (income) from discontinued operations   13,207     77     13,714     (562 )
(Loss) income from continuing operations (100,243 ) 3,383 (94,369 ) 9,178
Distributions received from The Detroit Legal News Publishing, LLC 784 1,400 2,247 3,500
Distributions paid to holders of non-controlling interests (91 ) (566 )
Gain on sale of investment (394 )
Non-cash operating activities:
Amortization 4,607 4,726 14,178 13,185
Depreciation 1,820 1,991 5,634 5,560
Impairment of long-lived assets and goodwill 151,614 151.614
Equity in earnings of affiliates (396 ) (383 ) (1,420 ) (1,572 )
Stock-based compensation expense 931 1,001 2,833 3,026
Deferred income taxes and income tax receivable (49,625 ) 258 (45,912 ) 286
Change in value of interest rate swap (286 )
Amortization of debt issuance costs 114 94 327 280
Non-cash fair value adjustment on earnouts recorded in connection with acquisitions (1,540 ) 242 (11,493 ) 222
Changes in operating assets and liabilities:
Accounts receivable and unbilled pass-through costs (13,509 ) (2,723 ) (5,850 ) (2,361 )
Prepaid expenses and other current assets (450 ) 786 814 3,995
Other assets 62 105 93 105
Accounts payable and accrued liabilities 2,647 420 2,744 (5,287 )
Deferred revenue and other liabilities 1,431   315   1,204   (1,531 )
Cash (used in) provided by operating activities – continuing operations (1,753 ) 11,524 22,644 27,340
Cash used in operating activities – discontinued operations (1,141 ) (1,851 ) (1,498 ) (3,851 )
Net cash (used in) provided by operating activities (2,894 ) 9,673   21,146   23,489  
 
Cash flows from investing activities
Acquisitions and investments (61,994 ) (145 ) (67,065 )
Capital expenditures (2,459 ) (1,788 ) (5,017 ) (5,318 )
Escrow payment received on sale of investment   77     471  
Cash used in investing activities – continuing operations (2,459 ) (63,705 ) (5,162 ) (71,912 )
Cash provided by (used in) investing activities – discontinued operations 233   (469 ) 143   (850 )
Net cash used in investing activities (2,226 ) (64,174 ) (5,019 ) (72,762 )
 
Cash flows from financing activities
Net borrowings on senior revolving note 21,500 55,300 19,300 54,000
Payments on senior long-term debt (1,250 ) (1,250 ) (3,750 ) (3,750 )
Payments on unsecured notes payable (632 ) (609 ) (1,879 ) (1,802 )
Payments on capital leases (67 ) (130 ) (250 ) (231 )
Net payments of deferred acquisition costs and earnouts (1 ) (14,401 )
Payments for repurchase of common stock (1,691 )
Payments of deferred financing costs     (313 )  
Net cash provided by (used in) financing activities 19,550   53,311   (1,293 ) 46,526  
 
Net change in cash and cash equivalents 14,430 (1,190 ) 14,834 (2,747 )
Cash and cash equivalents at beginning of the period 1,156   3,305   752   4,862  
Cash and cash equivalents at end of the period $ 15,586   $ 2,115   $ 15,586   $ 2,115  
 




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