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The Dolan Company Reports Second Quarter 2013 Results

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

   

Three Months Ended June 30,

2013     2012
(Loss) income from continuing operations $ (76,849) $ 5,408
 
Interest expense, net 2,479 2,032
Income tax expense 49,619 3,806
Amortization of intangibles 2,773 3,274
Depreciation expense 1,623 1,457
Impairment of long-lived assets 27,709 -
Amortization of Detroit Legal News Publishing intangible

377

377

Non-cash compensation expense 798 1,006
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions - (10,143)
Net distributions to holders of non-controlling interest (169) 77
 
Adjusted EBITDA

$

8,360

$

7,294
 

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,

2013     2012
(Loss) income from continuing operations $ (76,849) $ 5,408
 
Noncontrolling interests 4,048 (626)
Non-cash income tax expense 49,619 -
Non-cash compensation expense 798 1,006
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions - (10,143)
Amortization of intangibles 2,773 3,274
Impairment of long-lived assets 27,709 -
Amortization of Detroit Legal News Publishing intangible

377

377

Adjustment to income tax expense related to reconciling items at effective tax rate (5,540) 2,299
Cash earnings $ 2,935 $ 1,595

 

(Loss) income from continuing operations attributable to The Dolan Company per diluted share (GAAP) $ (2.39)

$

0.16
Cash earnings per diluted share $ 0.10 $ 0.05
 
Weighted average diluted shares outstanding 30,467 30,356
 

Conference Call

The company has scheduled a conference call for Thursday, August 1st, at 8:30 a.m. U.S. Eastern Daylight Time (7:30 a.m. U.S. Central Daylight 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, or investors can request a hard copy of the 10-Q 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,” “convinced,” “continue,” “to come,” “will,” “may,” “estimate,” “assume,” “presume,”“pursue,” “outlook,” “look,” “optimistic,” “plan,” “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: our ability to fund our ongoing operations, repay our indebtedness, pay dividends on our preferred stock, fund capital expenditures and make acquisitions; our ability to comply with covenants in our debt instruments; our ability to obtain waivers from our lenders of any failure to comply with covenants in our debt instruments or of events of default; our ability to amend our debt instruments in the future; the possibility that we may have to record significant charges to earnings as a result of impairment of our intangible assets; our ability to retain key personnel; the adverse resolution of a future lawsuit or claim against us; the failure or disruption of our proprietary case management software systems, our document hosting, processing, conversion and review systems, or our website and online networks; the possibility that the number of mortgage default files referred to us may decrease or fail to increase; the risk that our customers or their clients fail to timely pay us for our services, or at all; the effect of existing and future legislation, government investigations, litigation, court orders, settlements and client slow-downs on our mortgage default processing services and public notice operations; our ability to retain key customers and develop new customer relationships in our litigation support services segment and our mortgage default processing and technology businesses; certain key personnel of our subsidiary NDeX also have been shareholders and principal attorneys of our law firm customers and may at times have had interests that differed from or conflict with our interests; our ability to successfully complete the divestiture of our current NDeX businesses on acceptable terms and transition that business to a technology model; the effect of changes in the economies and demographics of the markets that we serve; our ability to accurately value, successfully complete and successfully integrate acquisitions; 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, 2012, which we filed with the SEC on March 8, 2013. 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,
2013 2012
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 1,667 $ 3,509

Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $1,575 and $1,809 as of June 30, 2013, and December 31, 2012, respectively)

36,928 60,300
Unbilled pass-through costs - 4,668
Prepaid expenses and other current assets 3,746 3,271
Income tax receivable 2,779 10,823
Assets held for sale   39,316     -  
Total current assets 84,436 82,571
Investments 8,679 10,069
Property and equipment, net 12,250 18,091
Finite-lived intangible assets, net 60,753 162,212
Goodwill and indefinite-lived intangible assets 140,871 151,329
Deferred income taxes - 23,358
Other assets   1,570     1,910  
Total assets $ 308,559   $ 449,540  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt $ 15,105 $ 15,162
Accounts payable 15,118 20,860
Accrued pass-through liabilities - 10,617
Accrued compensation 6,540 7,941
Accrued liabilities 3,719 5,283
Due to sellers of acquired businesses - 5,017
Deferred revenue 10,316 13,278
Liabilities held for sale   15,650     -  
Total current liabilities 66,448 78,158
Long-term debt, less current portion 127,145 150,881
Deferred income taxes 31,068 -
Other liabilities   6,019     7,240  
Total liabilities   230,680     236,279  
 
Redeemable noncontrolling interest   14,946     7,283  
Commitments and contingencies (Note 15)
Stockholders’ equity

Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,877,522 and 30,955,321 shares as of June 30, 2013, and December 31, 2012, respectively

31 31
Preferred stock, $0.001 par value; authorized: 5,000,000 shares;
Series A: Junior Participating: designated: 5,000 shares; no shares outstanding

Series B: designated: 1,600,000 shares; outstanding: 700,000 shares as of June 30, 2013, no shares as of December 31, 2012

1
Other comprehensive loss, net of tax (374 ) (867 )
Additional paid-in capital 311,392 301,956
Accumulated deficit   (236,508 )   (88,285 )
Total The Dolan Company stockholders' equity 74,542 212,835
Noncontrolling interest   (11,609 )   (6,857 )
Total stockholders’ equity   62,933     205,978  
Total liabilities and stockholders’ equity $ 308,559   $ 449,540  
 
 
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,
2013 2012 2013 2012
Revenues
Professional Services $ 30,864 $ 23,473 $ 59,504 $ 49,518
Business Information   16,597     18,331     32,373     36,026  
Total revenues   47,461     41,804     91,877     85,544  
Operating expenses
Direct operating: Professional Services 14,107 10,339 27,401 22,331
Direct operating: Business Information 6,097 6,515 12,096 13,029
Selling, general and administrative 19,775 19,715 38,454 40,158
Amortization 2,773 3,274 5,796 6,561
Depreciation 1,623 1,457 3,272 2,998
Fair value and other adjustments on earnout liabilities and due to seller - (10,143 ) (5,021 ) (10,062 )
Impairment of long-lived assets   27,709     -     27,709     -  
Total operating expenses 72,084 31,157 109,707 75,015
Equity in (loss) earnings of affiliates   (128 )   599     (96 )   1,024  
Operating (loss) income   (24,751 )   11,246     (17,926 )   11,553  
Non-operating income (expense)
Interest expense, net of interest income   (2,479 )   (2,032 )   (5,017 )   (4,064 )
(Loss) income from continuing operations before income taxes (27,230 ) 9,214 (22,943 ) 7,489
Income tax expense   (49,619 )   (3,806 )   (51,502 )   (3,102 )
(Loss) income from continuing operations (76,849 ) 5,408 (74,445 ) 4,387
Discontinued operations, net of tax   (67,583 )   135     (76,937 )   979  
Net (loss) income (144,432 ) 5,543 (151,382 ) 5,366
Less: Net loss (income) attributable to noncontrolling interests   4,048     (626 )   3,779     (280 )
Net (loss) income attributable to The Dolan Company $ (140,384 ) $ 4,917   $ (147,603 ) $ 5,086  
Income allocated to preferred shares   (373 )   -     (620 )   -  
Net (loss) income allocable to common shares $ (140,757 ) $ 4,917   $ (148,223 ) $ 5,086  
 
 
Earnings (loss) per share – basic and diluted:
(Loss) income from continuing operations attributable to The Dolan Company $ (2.39 ) $ 0.16 $ (2.32 ) $ 0.14
Discontinued operations attributable to The Dolan Company (2.22 ) - (2.53 ) 0.03
Net (loss) income allocated to preferred shares   (0.01 )   -     (0.02 )   -  
Net (loss) income attributable to The Dolan Company (4.62 ) 0.16 (4.87 ) 0.17
 
Weighted average shares outstanding - basic   30,467     30,276     30,398     30,226  
Weighted average shares outstanding - diluted   30,467     30,356     30,398     30,307  
 
 
The Dolan Company
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
       

Three Months Ended June 30,

Six Months Ended June 30,

2013     2012 2013     2012
Cash flows from operating activities
Net (loss) income $ (144,432 ) $ 5,543 $ (151,382 ) $ 5,366
Loss (income) from discontinued operations   67,583     (135 )   76,937     (979 )
(Loss) income from continuing operations (76,849 ) 5,408 (74,445 ) 4,387
Distributions received from The Detroit Legal News Publishing, LLC 595 763 1,295 1,463
Distributions paid to holders of non-controlling interests (169 )

(252 )

Non-cash operating activities:
Amortization 2,773 3,274 5,796 6,561
Depreciation 1,623 1,457 3,272 2,998
Impairment of long-lived assets 27,709

27,709

Equity in loss (earnings) of affiliates 128 (599 ) 96 (1,024 )
Stock-based compensation expense 798 1,006 1,442 1,901
Deferred income taxes 49,204 3,713 50,853 3,713
Amortization of debt issuance costs 83 113 167 213
Non-cash fair value adjustment on earnout recorded in connection with acquisitions

(9,623 ) (5,021 ) (9,542 )
Changes in operating assets and liabilities:
Accounts receivable and unbilled pass-through costs (3,951 ) 4,724 14 7,682
Prepaid expenses and other current assets 11,322 2,176 10,218 1,269
Other assets 19 31 17 31
Accounts payable and accrued liabilities 953 833 (3,755 ) (245 )
Deferred revenue and other liabilities   (467 )   (1,268 )   (982 )   (102 )
Cash from operating activities – continuing operations 13,771 12,008 16,424 19,305
Cash (used in) from operating activities – discontinued operations   (4,853 )   3,788     (5,997 )   4,735  
Net cash provided by operating activities   8,918     15,796     10,427     24,040  
 
Cash flows from investing activities
Acquisitions and investments

(145 )

(145 )
Capital expenditures   (1,347 )   (695 )   (3,028 )   (1,892 )
Cash used in investing activities – continuing operations (1,347 ) (840 ) (3,028 ) (2,037 )
Cash used in investing activities – discontinued operations   (110 )   (424 )   (167 )   (756 )
Net cash used in investing activities   (1,457 )   (1,264 )   (3,195 )   (2,793 )
 
Cash flows from financing activities
Net payments on senior revolving note (4,200 ) 1,500 (1,400 ) (2,200 )
Payments on senior long-term debt (3,750 ) (1,250 ) (22,300 ) (2,500 )
Payment on unsecured notes payable

(627 )

(1,247 )
Proceeds of preferred stock offering, net of offering costs

14,967

Net payments of deferred acquisition costs and earnouts

(14,400 )

(14,400 )
Payments of deferred financing costs

(313 )
Payments of preferred stock dividend (247 )

(247 )

Other   (45 )   (84 )   (94 )   (183 )
Net cash used in financing activities   (8,242 )   (14,861 )   (9,074 )   (20,843 )
 
Net change in cash and cash equivalents (781 ) (329 ) (1,842 ) 404
Cash and cash equivalents at beginning of the period   2,448     1,485     3,509     752  
Cash and cash equivalents at end of the period $ 1,667   $ 1,156   $ 1,667   $ 1,156  




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