Dolan Media Company (DM) filed Quarterly Report for the period ended 2009-09-30.
Dolan Media Company is a leading provider of business information and professional services to legal financial and real estate sectors in the United States. The company's Business Information Division publishes business journals court and commercial media and other publications operates web sites and conducts a broad range of events for targeted audiences in each of the 20 geographic markets that it serves across the United States. The company's Professional Services Division provides specialized services to the legal profession through its American Processing Company LLC (APC) and Counsel Press LLC units. 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. Dolan Media Company has a market cap of $384.3 million; its shares were traded at around $12.78 with a P/E ratio of 16.1 and P/S ratio of 2.1.
Highlight of Business Operations:
Our total revenues increased $14.5 million, or 30.2%, from $47.9 million for the three months ended September 30, 2008, to $62.3 million for the three months ended September 30, 2009, primarily as a result of our acquisition of Barrett-NDEx. For the nine months ended September 30, 2009, our total revenues increased $62.4 million, or 47.6% over the same prior year period, all of which resulted from businesses we acquired in 2008, including Barrett-NDEx. Our operating income increased from $6.3 million for the three months ended September 30, 2008 to $11.5 million for the three months ended September 30, 2009. On a year-to-date basis, our operating income has increased to $42.2 million, up 74.0%, or $18.0 million, from the same period in 2008. Acquisitions, primarily our acquisition of Barrett-NDEx in September 2008, accounted for the majority of the 39.2% increase in our operating expenses for the nine month periods. For the nine months ended September 30, 2009, expense controls in our Business Information division was offset by increased spending at NDeX, primarily as a result of file volume increases during that period. Further, net income attributable to Dolan Media Company increased significantly to $5.9 million for the third quarter of 2009 from $2.5 million for the same period in 2008. Net income attributable to Dolan Media Company doubled, from $10.9 million for the nine months ended September 30, 2008 to $22.7 million for the nine months ended September 30, 2009, primarily as a result of the Barrett-NDEx acquisition.
DiscoverReady: On November 2, 2009, we acquired an 85% equity interest in DiscoverReady, LLC under the terms of a membership interest purchase agreement with DiscoveryReady LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes and C. Parkhill Mays. We paid the sellers $28.9 million in cash at closing and placed an additional $3.0 million in escrow pursuant to the terms of an escrow agreement to secure the sellers’ obligations under the purchase agreement (including payment of any indemnification claims and working capital and capital lease liability adjustments). After closing, DR Holdco LLC holds a 15% noncontrolling interest in DiscoverReady. The individual sellers of DiscoverReady, LLC, along with other DiscoverReady employees, own all the equity interests of DR Holdco. We used $22.9 million in a combination of cash on our balance sheet at September 30, 2009, cash flow from operations received from September 30, 2009, through November 2, 2009, as well as $9.0 million from our revolving line of credit, to fund the closing payments in connection with this acquisition.
Albertelli: On October 1, 2009, NDeX entered into an asset purchase agreement with James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli (collectively, the “Albertelli Sellers”), under the terms of which NDeX acquired the mortgage default processing services and related title business of the Albertelli Sellers on such date. NDeX paid $7.0 million in cash at closing, held back an additional $1.0 million to secure the Albertelli Sellers’ obligations under the asset purchase agreement (including payment of any indemnification claims and working capital adjustments) and will pay an additional $2.0 million in equal installments of $1.0 million on each of October 1, 2010 and 2011, respectively.
Barrett-NDEx: On September 2, 2008, NDeX acquired the equity interests of Barrett-NDEx for a total of $167.5 million in cash, of which $151.0 million was paid to or on behalf of the sellers of Barrett-NDEx, $15.0 million was placed in escrow to secure payment of indemnification claims and an additional $1.5 million was held back pending working capital adjustments. In addition to the cash payments, NDeX also issued to the sellers of Barrett-NDEx an aggregate 6.1% interest in NDeX, which had an estimated fair market value of approximately $11.6 million on July 28, 2008, the date the parties signed the equity purchase agreement. We also issued to the sellers of Barrett-NDEx 825,528 shares of our common stock. In addition, at September 30, 2009, we recorded $13.0 million as an addition to goodwill because Barrett-NDEx’s adjusted EBITDA for the four quarters ended September 30, 2009 exceeded the earn-out target of $28.0 million. We expect to use our available cash and, to the extent necessary, funds from our credit facility to make this payment. The working capital target of $2.0 million as set forth in the equity purchase agreement was not met, as there was an actual working capital (deficit) of $(1.4) million. As a result, NDeX recovered the $3.4 million shortfall by having the sellers of Barrett-NDEx release the $1.5 million holdback payable to them and by taking receipt of $1.9 million out of the escrow in 2008.
We completed our final allocation of the Barrett-NDEx purchase price during the third quarter, which resulted in the following changes from our preliminary purchase price allocation: (1) we reduced the allocation for our service agreement with the Barrett law firm from $154.0 million to $59.7 million; (2) we allocated $19.6 million to a customer list related to our loan servicer and mortgage lender customers for whom we provide mortgage default processing services directly on California foreclosure files; (3) we reduced the allocation for non-compete agreements from $5.0 million to $3.2 million; (4) we allocated $6.5 million to trade names associated with Barrett-NDEx; (5) we increased our allocation to goodwill from $37.8 million to $116.9 million (which also includes the $13.0 million adjustment to goodwill for the achievement of the earnout as well as the working capital shortfall adjustment, both discussed above); and (6) we decreased our allocation to software from $6.9 million to $5.5 million. Our preliminary purchase price allocation combined the services agreement with the Barrett law firm and the California customer list as a single intangible asset. In completing the final allocation, we determined that the California customer list is a separate identifiable asset from the services agreement because the services agreement requires us to provide mortgage default processing services only to the Barrett law firm whereas we provide these services directly to California customers under no specific services agreement. Our initial assumptions regarding this customer list also included obtaining new customers in the California market, the value of which we preliminarily allocated to the services agreement and later determined was goodwill.
The Detroit Legal News Publishing, LLC. We own 35.0% of the membership interests in DLNP, the publisher of The Detroit Legal News and ten other publications. We account for our investment in DLNP using the equity method. Our percentage share of DLNP’s earnings was $0.9 million and $1.3 million for the three months ended September 30, 2009 and 2008, respectively, which we recognized as operating income. This is net of amortization of $0.4 million for both periods. For the nine months ended September 30, 2009 and 2008, our percentage share of DLNP’s earnings was $3.7 million and $4.4 million, respectively. This is net of amortization of $1.1 million for both periods. NDeX handles all public notices required to be published in connection with files it services for Trott & Trott pursuant to our services agreement with Trott & Trott and places a significant amount of these notices in The Detroit Legal News. Trott & Trott pays DLNP for these public notices. See “Liquidity and Capital Resources — Cash Flow Provided by Operating Activities” below for information regarding distributions paid to us by DLNP.
DM is in the portfolios of John Keeley of Keeley Fund Management.
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