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The Dolan Company loses $140M, continues to grow tech services

It’s a tumultuous time for The Dolan Company the Minneapolis-based parent of The Daily Record, which on Thursday announced a net loss of $140.4 million, or $4.62 per share, during the second quarter.

By comparison, the company earned $4.9 million, or 16 cents per diluted share, during the corresponding period of last year.

Although total revenue for the quarter reached $47.5 million (up 13.5 percent from the second quarter of 2012), the company struggled with high operating expenses and non-cash charges related to what Chairman, President and CEO James P. Dolan called a “transformation” of the company’s business model.

Dolan’s two divisions — Professional Services and Business Information — both partly rely on revenue gained from processing mortgage defaults and advertising foreclosure notices in its newspapers. That activity has been not been stable, however, a factor that played a role in the losses this quarter.

The company was hurt most by its mortgage default processing service, National Default Exchange, or NDeX. Right after the second quarter, Dolan completed the sale of two branches of that business, NDeX Indiana and NDeX South, which were purchased by law firms for a combined $17.2 million. The majority of that income will be collected over the next three years.

Revenue from the remaining NDeX operations, in Minnesota and Michigan, declined 32 percent compared with last year.

To insulate the company from continued fluctuations in mortgage-processing demand, executives are abandoning certain offerings and refocusing on higher-margin, technology-driven processing services. Dolan said he intends to sell the remaining NDeX operations, but those plans are in early stages.

“We are moving away from providing some services, true,” Dolan said Thursday on a conference call with analysts and reporters. “We’re also moving toward what we believe to be a new and better business model. As we leave the more labor-intensive parts of NDeX, we’re focusing on providing high-value technology services to the existing NDeX client base, as well as to other prospective clients in the mortgage default industry.”

“As we make progress in divesting our NDeX operations, we look forward to having a simpler, more clearly defined operating structure,” Chief Financial Officer Vicki Duncomb added.

Dolan’s Business Information Division (which includes business-, law- and real estate-focused newspapers in 19 markets around the country) generates a large amount of its revenue through public notice advertisements, such as foreclosure announcements.

Overall division revenue decreased by 9.5 percent compared with the corresponding period last year.

Executives believe public notice advertising will bounce back — eventually.

“We expect there to be a recovery in foreclosure activity,” Dolan said. “We don’t know when. … We’ve been saying that for a long time, and we still don’t know. That’s driving us to make the NDeX changes.”

The two other segments of the Professional Services Division, both of which provide litigation support services, saved the day — posting 60 percent year-over-year revenue growth.

Counsel Press, the largest provider of appellate services in the country, and DiscoverReady, which offers outsourced discovery management, document review and other litigation services, combined to boost the division’s revenue by 31.5 percent compared with the corresponding period last year, reaching $30.9 million.

“We’ve tried to be very frank in acknowledging our challenges related to NDeX and mortgage default processing,” Dolan said. “We’re dealing with those challenges very aggressively. … We are encouraged that we will be able to focus much more on our DiscoverReady growth engine even as we continue to seek new revenue streams and improve margins in our other businesses. … We believe DiscoverReady can be a much bigger and more profitable operation than it is today. We see many avenues of growth.”

The fifth paragraph from the top and seventh paragraph from the bottom were changed Aug. 2 to correct inaccuracies.