Dolan Media Company (NYSE: DM), a leading provider of business
information and professional services to the legal, financial and real
estate sectors in the United States, today announced financial results
for the three months ended March 31, 2008. These financial results are
preliminary pending the filing of the company’s
Form 10-Q with the U.S. Securities and Exchange Commission.
Total revenues for the first quarter of 2008 were $41.5 million, an
increase of 16.3% from $35.7 million recorded in the same period the
previous year. Net income for the first quarter of 2008 was $4.0
million, or $0.16 per diluted share on 25.2 million weighted average
shares outstanding, compared to a net loss of $27.8 million, or a net
loss of $2.98 per diluted share on 9.3 million weighted average shares
outstanding in the first quarter of 2007. Net loss for the first quarter
of 2007 included non-cash interest expense of $29.9 million related to
the company’s redeemable preferred stock.
The company did not record non-cash interest expense related to
redeemable preferred stock during the three months ended March 31, 2008,
because it redeemed all outstanding shares of preferred stock on August
7, 2007. This was in connection with the company’s
initial public offering.
Adjusted EBITDA for the first quarter of 2008 was $13.5 million, or
32.5% of revenues, an increase of 25.7% from $10.7 million, or 30.1% of
revenues, in the same prior-year period. See “Non-GAAP
Financial Measures” below for a description of
how the company calculates adjusted EBITDA and why the company believes
it is an important measure of its performance.
“We are very pleased with our start to the
year 2008,” said James P. Dolan, chairman,
chief executive officer and president of Dolan Media Company. “During
the quarter, we continued to demonstrate strong financial performance as
well as the successful execution of our acquisition strategy by
completing the acquisition of The Mecklenburg Times in North
Carolina and the mortgage default processing services business of
Wilford & Geske in Minnesota.”
“In our Business Information division, public
notice advertising revenue grew 40.6% year-over-year and display and
classified advertising increased 8.0%. In our Professional Services
Division, our majority owned subsidiary, American Processing Company,
reported year-over-year revenue growth of 23.8% on a 21.6% increase in
the number of mortgage default files referred to APC for processing.”
“Dolan Media Company remains well positioned
with revenue streams that allow the company to generate revenues and
cash flows in both cyclical and counter-cyclical economic conditions.
Our ability to generate operating cash flow and the strength of our
balance sheet continues to allow us to pursue the right acquisition
targets,” Dolan said.
The company maintains the previously provided full year 2008 guidance as
follows:
Based on the businesses the company owns today, excluding future
acquisitions, Dolan Media expects 2008 revenues to be in the range of
$168.0 million to $178.0 million and adjusted EBITDA to be in the range
of $50.0 million to $55.0 million. The company also expects full-year
2008 capital expenditures to be between 3.5% and 4.5% of projected 2008
revenues.
First Quarter 2008 Discussion
Total revenues for the first quarter of 2008 were $41.5 million, an
increase of 16.3% from $35.7 million in the same period in 2007. This
increase consisted of $4.3 million from organic growth.
Business Information Division revenues for the three months ended March
31, 2008, represented 54.9% of total revenues compared to 54.6% in the
same period in 2007. Professional Services Division revenues decreased
to 45.1% of total revenues from 45.4% for the same prior-year period.
This slight change in mix resulted from a $3.1 million increase in
public notice revenue in our Business Information Division and a $0.4
million decrease in appellate services revenue in our Professional
Services Division.
Total operating expenses for the first quarter of 2008 were $33.3
million, or 80.2% of total revenues, an increase of 17.4% from $28.4
million, which was 79.5% of total revenues for the same prior-year
period.
Direct operating expenses for the three months ended March 31, 2008,
were $13.9 million, an increase of 11.6% from $12.4 million in the same
period last year. As a percentage of revenue, direct operating expenses
in the first quarter decreased 150 basis points to 33.4% compared to the
same period last year.
Selling, general and administrative expenses were $16.1 million for the
three months ended March 31, 2008, an increase of 20.8% from $13.3
million for the same prior-year period.
Operating income for the first quarter of 2008 was $9.8 million, or
23.5% of revenues, an increase of 18.5% from $8.2 million, which was
23.1% of revenues in the same period in 2007. Operating income for the
three months ended March 31, 2008, and March 31, 2007, included equity
in earnings of The Detroit Legal News Publishing, LLC of $1.6 million
and $0.9 million, respectively.
Business Information Division Results
Dolan Media Company’s Business Information
Division produces business journals, court and commercial publications
and other publications, operates web sites and conducts events for
targeted professional audiences in each of the 21 geographic markets
that it serves across the United States. Division revenues for the first
quarter of 2008 were $22.8 million, an increase of 16.9% from $19.5
million for the same period in 2007. Growth in the division was driven
by a 40.6% year-over-year increase in public notice advertising
revenues. The largest driver of public notice growth was an increase in
the number of mortgage foreclosure public notices carried in our
qualified publications. Display and classified advertising revenue
increased by 8.0% as a result of our operations in Jackson, Mississippi,
which we acquired in March 2007. Circulation revenues decreased $0.2
million during the first quarter compared to the three months ended
March 31, 2007 in part as a result of a 2,300 decline in the number of
paid subscribers.
Direct operating expenses for the Business Information Division for the
first quarter of 2008 increased 11.1% to $7.6 million from $6.8 million
for the same prior-year period. This resulted primarily from increases
in overall wage costs (including annual salary increases and increased
stock-based compensation expense) and other operating expenses, such as
postage and printing, including $0.2 million of increases due to the
company’s operations in Jackson, Mississippi
and Charlotte, North Carolina. Selling, general and administrative
expenses for the division increased 19.6% to $9.6 million from $8.0
million due to $0.6 million of increases from those same operations. The
balance of the increase was due to increases in overall wage costs
(including annual salary increases and increased stock-based
compensation expenses). Total division operating expenses as a
percentage of division revenues decreased to 80.6% in the first quarter
of 2008 compared to 81.6% in the same period in 2007.
Professional Services Division Results
The company’s Professional Services
Division provides specialized services to the legal profession through
its two subsidiaries: American Processing Company, LLC (APC) and Counsel
Press, LLC. APC is a leading provider of mortgage default processing
services to law firms in the United States and Counsel Press is the
nation's largest provider of appellate services to the legal community.
Professional Services Division revenues for the first quarter of 2008
were $18.7 million, an increase of 15.6% from $16.2 million for the same
year period in 2007. Revenue growth in the Professional Services
Division was driven by a 23.8% increase in mortgage default processing
services revenues. The revenue increases are due to the increased number
of mortgage default case files serviced by APC for clients of Trott &
Trott in Michigan, Feiwell & Hannoy in Indiana and the addition of the
mortgage default processing services business of Wilford & Geske in
Minnesota that the company acquired in February 2008. Mortgage default
processing services revenues also benefited from an increase to the fee
per file charged to Trott & Trott and Feiwell & Hannoy, which took
effect in the first quarter of 2008. During the first quarter of 2008,
APC serviced approximately 36,600 case files, including 1,600 files
referred by Wilford & Geske, an increase of 21.6% from the 30,100 case
files serviced for the same period in 2007. Professional Services
division revenue growth was partially offset by a 9.0% decline in
appellate services revenues resulting from a 6% decrease in the number
of appellate cases handled by Counsel Press, including several large
cases handled in the first quarter of 2007. Counsel Press did not handle
any large cases during the same period in 2008.
Direct operating expenses attributable to the Professional Services
Division increased 12.2% to $6.3 million in the first quarter of 2008
from $5.6 million for the same year period in 2007. The increase in
direct operating expenses is attributable to increases in personnel
expenses incurred by APC. These personnel expenses increased as a result
of overall annual salary increases and adding additional staff in
connection with an increase in the number of files processed during
those periods. In addition, APC incurred an additional $0.1 million of
operating expenses associated the mortgage default processing services
business of Wilford & Geske. Selling, general and administrative
expenses increased primarily due to increases in overall wage and health
insurance costs, the write-off of certain professional fees incurred in
connection with evaluating a potential acquisition that the company is
no longer pursuing, and the inclusion of $0.1 million of costs
(including personnel costs) associated with the mortgage default
processing services business of Wilford & Geske. Total Professional
Services expenses as a percentage of division revenues increased
slightly to 69.1% for the three months ended March 31, 2008, from 68.7%
for the prior-year period.
Non-GAAP Financial Measures
The company reports "adjusted EBITDA," which is a non-GAAP financial
measure. (EBITDA is earnings before interest, taxes, depreciation, and
amortization. GAAP is generally accepted accounting principles). The
adjusted EBITDA measure presented consists of net income (loss) before:
-
non-cash interest expense related to redeemable preferred stock;
-
interest expense, net;
-
income tax expense;
-
depreciation and amortization;
-
non-cash compensation expense; and
-
minority interest in net income of subsidiary;
and after:
-
minority interest distributions paid.
The company is providing adjusted EBITDA, a non-GAAP financial measure,
along with GAAP measures, as a measure of profitability because adjusted
EBITDA helps the company evaluate and compare its performance on a
consistent basis for different periods of time. The company believes
this non-GAAP measure, as it has defined it, helps it evaluate and
compare its performance on a consistent basis for different periods of
time by removing from its operating results the impact of the non-cash
interest expense arising from the common stock conversion option in its
series C preferred stock (which had no impact on its financial
performance for the three months ended March 31, 2008, because the
company redeemed all of its outstanding shares of preferred stock in
connection with its initial public offering on August 7, 2007), as well
as the impact of the company’s net cash or
borrowing position, operating in different tax jurisdictions and the
accounting methods used to compute depreciation and amortization, which
impact has been significant and fluctuated from time to time due to the
variety of acquisitions that the company has completed since its
inception. Similarly, adjusted EBITDA also excludes non-cash
compensation expense because this is a non-cash charge for stock options
and restricted stock that the company has granted. The company excludes
this non-cash expense from adjusted EBITDA because it believes any
amount it is required to record as share-based compensation expense
contains assumptions over which the company’s
management has no control, such as share price and volatility.
The company also adjusts EBITDA for minority interest in net income of
subsidiary and cash distributions paid to minority members of APC
because the company believes this adjustment provides more timely and
relevant information with respect to its financial performance. The
company excludes amounts with respect to minority interest in net income
of subsidiary because this is a non-cash adjustment that does not
reflect amounts actually paid to APC’s
minority members because (1) distributions for any month are actually
paid by APC in the following month and (2) it does not include
adjustments for APC’s debt or capital
expenditures, which are both included in the calculation of amounts
actually paid to APC’s minority members. The
company instead includes the amount of actual cash distributions in
adjusted EBITDA because they include these adjustments and reflect
amounts actually paid by APC, thus allowing for a more accurate
determination of the company’s performance
and ongoing obligations.
The company believes that adjusted EBITDA is meaningful information
about its business operations that investors should consider along with
the company’s GAAP financial information. The
company uses adjusted EBITDA for planning purposes, including the
preparation of internal annual operating budgets, and to measure its
operating performance and the effectiveness of its operating strategies.
The company also uses a variation of adjusted EBITDA in monitoring its
compliance with certain financial covenants in its credit agreement and
uses adjusted EBITDA to determine performance-based short-term incentive
payments for its executive officers and other key employees.
Adjusted EBITDA is a non-GAAP measure that has limitations because it
does not include all items of income and expense that affect the company’s
operations. This non-GAAP financial measure is not prepared in
accordance with, and should not be considered an alternative to,
measurements required by GAAP, such as operating income, net
income/(loss), net income/(loss) per share, cash flow from continuing
operating activities or any other measure of performance or liquidity
derived in accordance with GAAP. The presentation of this additional
information is not meant to be considered in isolation or as a
substitute for the most directly comparable GAAP measures. In addition,
it should be noted that companies calculate adjusted EBITDA differently
and, therefore, adjusted EBITDA as presented for us may not be
comparable to the calculations of adjusted EBITDA reported by other
companies.
The following is a reconciliation of the company’s
net income (loss) to adjusted EBITDA (in thousands):
