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The Dolan Company Reports Third Quarter 2013 Results

Stocks in this article: DM

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

   

Three Months Ended September 30,

2013     2012
Loss from continuing operations $ (26,764 ) $ (2,357 )
 
Interest expense, net 2,719 2,202
Income tax expense (benefit) (10,132 ) (1,034 )
Amortization of intangibles 2,228 2,376
Depreciation expense 1,398 1,207
Impairment of long-lived assets 35,414 9,317
Amortization of Detroit Legal News Publishing intangible

377

377

Non-cash compensation expense 618 771
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions - (1,514 )
Net distributions to holders of non-controlling interest   (246 )   -  
 
Adjusted EBITDA

$

5,612

 

$

11,345

 
 

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 September 30,

2013     2012
Loss from continuing operations $ (26,764 ) $ (2,357 )
 
Noncontrolling interests 77 (575 )
Non-cash compensation expense 618 771
Non-cash fair value adjustments on earnout liabilities recorded in connection with acquisitions - (1,514 )
Amortization of intangibles 2,228 2,376
Impairment of long-lived assets 35,414 9,317
Amortization of Detroit Legal News Publishing intangible

377

377

Adjustment to income tax expense related to reconciling items at effective tax rate   (11,475 )   (4,463 )
Cash earnings $ 475   $ 3,932  

 

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

$

(0.87

)

$

0.25

 
Cash earnings per diluted share $ 0.02   $ 0.13  
 
Weighted average diluted shares outstanding 30,537 30,327
 

Conference Call

The company has scheduled a conference call for Tuesday, November 12, 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, make divestitures on acceptable terms, and make any 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; our ability to retain key customers and develop new customer relationships in our litigation support services segmen; 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 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;; 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, and those highlighted in our Form 10-Q for the quarter ended September 30, 2013, which the company expects to file today. 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,
2013 2012
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 2,813 $ 3,509

Accounts receivable, including unbilled services (net of allowances of $1,370 and $1,809 as of September 30, 2013, and December 31, 2012, respectively)

26,006 60,300
Unbilled pass-through costs - 4,668
Prepaid expenses and other current assets 4,112 3,271
Income tax receivable 2,779 10,823
Current portion of notes receivable 2,575 -
Assets held for sale   4,985     -  
Total current assets 43,270 82,571
Investments 8,267 10,069
Property and equipment, net 11,513 18,091
Finite-lived intangible assets, net 57,271 162,212
Goodwill and indefinite-lived intangible assets 105,457 151,329
Deferred income taxes - 23,358
Other assets 955 1,910
Long-term notes receivable, net of current portion   9,513     -  
Total assets $ 236,246   $ 449,540  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt $ 131,474 $ 15,162
Accounts payable 12,602 20,860
Accrued pass-through liabilities - 10,617
Accrued compensation 5,507 7,941
Accrued liabilities 2,747 5,283
Due to sellers of acquired businesses - 5,017
Deferred revenue   7,322     13,278  
Total current liabilities 159,652 78,158
Long-term debt, less current portion 73 150,881
Deferred income taxes 20,497 -
Other liabilities   5,724     7,240  
Total liabilities   185,946     236,279  
 
Redeemable noncontrolling interest   7,836     7,283  
Commitments and contingencies (Note 15)
Stockholders’ equity

Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,860,367 and 30,955,321 shares as of September 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 September 30, 2013, no shares as of December 31, 2012

1
Series C: Junior Participating: designated: 50,000 shares; no shares outstanding
Other comprehensive loss, net of tax (157 ) (867 )
Additional paid-in capital 318,815 301,956
Accumulated deficit   (264,356 )   (88,285 )
Total The Dolan Company stockholders' equity 54,334 212,835
Noncontrolling interest   (11,870 )   (6,857 )
Total stockholders’ equity   42,464     205,978  
Total liabilities and stockholders’ equity $ 236,246   $ 449,540  
 
 
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,
2013 2012 2013 2012
Revenues
Professional Services $ 19,885 $ 27,437 $ 69,635 $ 63,152
Business Information   15,575     17,288     47,949     53,313  
Total revenues   35,460     44,725     117,584     116,465  
Operating expenses
Direct operating: Professional Services 8,798 10,426 30,651 25,936
Direct operating: Business Information 5,564 6,125 17,660 19,155
Selling, general and administrative 16,103 18,373 49,074 52,673
Amortization 2,228 2,376 6,682 7,298
Depreciation 1,398 1,207 4,224 3,628
Fair value and other adjustments on earnout liabilities and due to seller - (1,514 ) (5,021 ) (11,576 )
Impairment of long-lived assets and goodwill   35,414     9,317     35,414     9,317  
Total operating expenses 69,505 46,310 138,684 106,431
Equity in (loss) earnings of affiliates   (132 )   396     (227 )   1,420  
Operating (loss) income   (34,177 )   (1,189 )   (21,327 )   11,454  
Non-operating expense
Interest expense, net of interest income   (2,719 )   (2,202 )   (7,737 )   (6,266 )
(Loss) income from continuing operations before income taxes (36,896 ) (3,391 ) (29,064 ) 5,188
Income tax benefit (expense)   10,132     1,034     (40,892 )   (2,499 )
(Loss) income from continuing operations (26,764 ) (2,357 ) (69,956 ) 2,689
Discontinued operations, net of tax   (1,052 )   (111,093 )   (109,242 )   (110,772 )
Net loss (27,816 ) (113,450 ) (179,198 ) (108,083 )
Less: Net loss attributable to noncontrolling interests   340     9,946     4,119     9,666  
Net loss attributable to The Dolan Company $ (27,476 ) $ (103,504 ) $ (175,079 ) $ (98,417 )
Income allocated to preferred shares   (372 )   -     (992 )   -  
Net loss allocable to common shares $ (27,848 ) $ (103,504 ) $ (176,071 ) $ (98,417 )
 
 
Earnings (loss) per share – basic and diluted:
(Loss) income from continuing operations attributable to The Dolan Company $ (0.87 ) $ 0.25 $ (2.16 ) $ 0.41
Discontinued operations attributable to The Dolan Company (0.03 ) (3.66 ) (3.59 ) (3.66 )
Income allocated to preferred shares   (0.01 )   -     (0.03 )   -  
Net loss attributable to The Dolan Company   (0.91 )   (3.41 )   (5.78 )   (3.25 )
 
Weighted average shares outstanding - basic and diluted   30,537     30,327     30,445     30,260  
 
 
The Dolan Company
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
       
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Cash flows from operating activities
Net (loss) income $ (27,816 ) $ (113,450 ) $ (179,198 ) $ (108,083 )
Loss (income) from discontinued operations   1,052     111,093     109,242     110,772  
(Loss) income from continuing operations (26,764 ) (2,357 ) (69,956 ) 2,689
Distributions received from The Detroit Legal News Publishing, LLC 280 784 1,575 2,247
Distributions paid to holders of non-controlling interests (246 ) - (498 ) -
Non-cash operating activities:
Amortization 2,228 2,376 6,682 7,298
Depreciation 1,398 1,207 4,224 3,628
Impairment of long-lived assets 35,414 9,317 35,414 9,317
Equity in loss (earnings) of affiliates 132 (396 ) 227 (1,420 )
Stock-based compensation expense 618 778 2,052 2,266
Deferred income taxes (10,929 ) (49,625 ) 39,832 (45,912 )
Amortization of debt issuance costs 401 114 568 327
Non-cash fair value adjustment on earnout recorded in connection with acquisitions - (1,541 ) (5,021 ) (11,492 )
Changes in operating assets and liabilities:
Accounts receivable and unbilled pass-through costs 7,731 (9,884 ) 7,601 (2,430 )
Prepaid expenses and other current assets (557 ) (608 ) 9,695 596
Other assets (12 ) 62 (18 ) 93
Accounts payable and accrued liabilities (2,772 ) 1,624 (7,083 ) 1,575
Deferred revenue and other liabilities   104     2,224     (604 )   2,413  
Cash from operating activities – continuing operations 7,026 (45,925 ) 24,690 (28,805 )
Cash (used in) from operating activities – discontinued operations   (493 )   43,031     (7,730 )   49,951  
Net cash provided by operating activities   6,533     (2,894 )   16,960     21,146  
 
Cash flows from investing activities
Acquisitions and investments - - - (145 )
Capital expenditures   (736 )   (1,218 )   (3,766 )   (2,760 )
Cash used in investing activities – continuing operations (736 ) (1,218 ) (3,766 ) (2,905 )
Cash used in investing activities – discontinued operations   6,710     (1,008 )   6,545     (2,114 )
Net cash used in investing activities   5,974     (2,226 )   2,779     (5,019 )
 
Cash flows from financing activities
Net payments on senior revolving note (2,300 ) 21,500 (3,700 ) 19,300
Payments on senior long-term debt (8,369 ) (1,250 ) (30,669 ) (3,750 )
Payment on unsecured notes payable - (632 ) - (1,879 )
Proceeds of preferred stock offering, net of offering costs - - 14,967 -
Net payments of deferred acquisition costs and earnouts - (1 ) - (14,401 )
Payments of deferred financing costs (286 ) - (286 ) (313 )
Payments of preferred stock dividend (373 ) - (620 ) -
Other   (33 )   (67 )   (127 )   (250 )
Net cash used in financing activities   (11,361 )   19,550     (20,435 )   (1,293 )
 
Net change in cash and cash equivalents 1,146 14,430 (696 ) 14,834
Cash and cash equivalents at beginning of the period   1,667     1,156     3,509     752  
Cash and cash equivalents at end of the period $ 2,813   $ 15,586   $ 2,813   $ 15,586  
 




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