Dolan Media continues to surf foreclosure wave

Dolan Media Co., the Minneapolis-based professional services and business information company, reported better-than-expected revenue and earnings driven by continued growth in the company’s mortgage foreclosure-processing business and the recent acquisition of a litigation support software company.

Traders and investors apparently liked the performance, driving the stock up 10 percent, or $1.19 a share, to close at $13.09 Wednesday on 1.3 million shares, about four times the average daily volume. This was on a day when markets continued to slump because of macroeconomic worries.

Revenues for Dolan (NYSE:DM) totaled $77 million, for the first quarter of 2010, an increase of 20.4 percent from $63.9 million in Q1 of 2009. Diluted earnings per share of 30 cents were up slightly from 29 cents a year ago.

In a conference call with analysts after the market close on Tuesday, chairman, Chief Executive Officer and President Jim Dolan described the quarter as “a solid start for 2010 … as [Dolan’s] countercyclical businesses benefited from the current economy.”

For the first quarter, Dolan’s NDeX business, which processes mortgage foreclosure filings for law firms and real estate servicing companies, received 95,700 mortgage default cases and generated $42.4 million in revenues. This compares wiht 91,100 files received and $38.3 million in revenues in the comparable first quarter last year, and 81,900 files received and $36.2 million in revenues in the fourth quarter of 2009.

Despite efforts in some states to slow the flow of foreclosures in response to pressure from regulatory agencies, Dolan noted that the backlog of delinquent mortgages continues to grow. He expects that foreclosure filings “will probably level out by the fourth quarter of 2011,” but still expects a higher-than-normal level of foreclosure activity for several years after that. “We think we’re back to normal as a country in 2019,” he said.

Last fall, the company acquired DiscoverReady, an electronic document review service for  law firms and companies involved in litigation or regulatory issues. The acquisition contributed $9.7 million of the $13.6 million reported for litigation support services in the first quarter. Dolan told analysts that the acquisition has “important implications for how we grow in the future.”

The company also has a Business Information Division that puts out traditional specialized business and professional publications and websites in 21 markets, including Finance and Commerce, Minnesota Lawyer, and Politics in Minnesota here locally. While operating profit margins of 25 percent remained near historic highs for the division, revenue dropped by about $950,000 to $20.9 million for the quarter. While public notice advertising grew, it was not enough to offset a $1.3 million decline in traditional classified advertising revenue, which was “unusual in our experience,” Dolan said.

Nevertheless, he remained upbeat about the traditional media business: “We believe there will be a recovery in the fundamentals of our [publications] business someday … Now is the time to increase our investment in new products,” he told investors and analysts.

Given the strong quarter, analysts pressed Dolan on why the company was not raising its 2010 estimates for revenue and earnings. “We are being conservative early in the year. We want to be prudent [and] understand what’s going on,” he said.

The company is asking shareholders at its May 26 annual meeting to approve a name change to The Dolan Co., which they said better reflects its growth beyond its traditional media heritage into professional services. Its DM ticker symbol will not change.

“We generated strong revenue growth and significant cash from operations during the first quarter of 2010, reaffirming the steps we have taken to grow our company into a services provider for professionals,” Dolan said in a prepared release.

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