The Daily Record Parent Dolan Media Company Reports Q3 2009 Net Income of $5.9M

• Third quarter 2009 revenues increased 30.2% year-over-year to $62.3 million, including $23.6 million of revenues from the Barrett-NDEx operations we acquired in early September 2008
• Net income attributable to Dolan Media Company was $5.9 million, or $0.20 per diluted share, in the third quarter
• Adjusted EBITDA was $17.9 million for the third quarter (See "Non-GAAP Financial Measures" below)
• Cash earnings per diluted share were $0.29 for the third quarter (See "Non-GAAP Financial Measures" below)
• Guidance for 2009 increases to reflect two recent acquisitions

MINNEAPOLIS -- Dolan Media Company (NYSE: DM), a leading provider of professional services and business information to legal, financial and real estate sectors in the United States, today announced financial results for the three months ended September 30, 2009. These financial results are preliminary pending the filing of the company's Form 10-Q with the U.S. Securities and Exchange Commission.

"We are pleased with our consolidated quarterly results. We reported $62.3 million in revenues in the third quarter of 2009, up 30.2% over the same quarter last year," said James P. Dolan, chairman, chief executive officer and president. "Net income attributable to Dolan Media Company was $5.9 million, or $0.20 per diluted share, up 139.3% and 122.2%, respectively, from the same quarter last year."

"Thanks to strong cost controls in our Business Information Division and revenue growth in our Professional Services Division, all of our key margins expanded from the third quarter of the previous year," Dolan said. "Our net income margin for the third quarter rose 430 basis points to 9.4%. Our operating income margin rose 520 basis points to 18.4%. And our adjusted EBITDA margin rose 200 basis points to 28.8%.

"Our Barrett-NDEx operations continued to drive revenues in our mortgage default processing services business during the quarter, contributing $23.6 million of $35.9 million total NDeX revenues. As expected, in our NDeX operations, we saw some slowing of file volumes and revenues during the quarter compared to the second quarter, due primarily to new legislation in Michigan and Indiana that took effect in early July. This legislation, together with continuing mitigation efforts on the part of mortgage servicers and federal agencies, delays or lengthens the foreclosure process and pushes a portion of our revenues into future periods.

"The net effect of these regulatory and mitigation efforts was a reduction of approximately $5.0 million in mortgage default processing services revenues reported in the third quarter of 2009 compared to second quarter of 2009, $3.3 million of which was a direct result of the new legislation in Michigan and Indiana.

"All indicators point to these regulatory and loan mitigation efforts delaying foreclosures and lengthening the process, but not substantially mitigating them. The national backlog of seriously delinquent mortgages continues to grow faster than it is being bled away by foreclosure referrals and loan modification efforts due, in part, to mortgage servicers holding these files for longer periods before referring them for foreclosure. Along with our law firm colleagues, our relations with the mortgage servicers have never been stronger, and we believe that we are uniquely positioned to deal with the large inflows of work to come. We continue to anticipate stronger growth in the future and for quite some time to come."

The Business Information Division showed a slight year-over-year increase in revenues in what continues to be a difficult economic environment for display and classified advertising and circulation revenues. "Organic growth of 21.0% in public notice revenues in the third quarter of 2009 offset revenue declines in advertising and circulation during the quarter," Dolan said. "The Business Information Division team continues to focus on maximizing profitability in 2009 as demonstrated by the division's operating margins of 27.0% during the quarter compared to 21.7% in the third quarter of 2008."

Dolan noted that acquisitions continue to play a role in the company's strategy. The September 2008 Barrett-NDeX acquisition, for example, contributed $23.6 million to third quarter revenues. More recently, the company expanded into Florida, an important default growth state, with the October acquisition of the mortgage default processing operations of the Albertelli Law Firm. "Integration of the Florida operations into NDeX is going well and Jim Albertelli and his team are going to be important parts of our success," Dolan said. "We are excited about entering Florida and even more excited at the prospects we see in that state."

Also today, in a separate release, we announced a strategic expansion into discovery management and document review services with the acquisition of an 85% interest in DiscoverReady. "We are particularly pleased with this acquisition," Dolan said. "It is a very promising legal services business that adds an important third line to our Professional Services Division."

Full Year 2009 Guidance

Based on our third quarter results and the two acquisitions we announced after September 30, 2009, and mentioned above, This guidance excludes the effect of any future acquisitions and assumes that any foreclosure-related state or federal government and/or lender-based programs, including those described in "Regulatory Environment" in our Form 10-Q, will have no material effect on our results of operations for the remainder of 2009.

Third Quarter 2009 Discussions

Total revenues for the third quarter of 2009 were $62.3 million, an increase of 30.2% from $47.9 million in the same period in 2008. Mortgage default processing services revenues increased $14.7 million in the third quarter of 2009 compared to third quarter of 2008, which is attributable to the Barrett-NDEx operations we acquired in September 2008. In our Business Information Division, an increase in public notice revenues offset declines in our classified and display advertising and circulation revenues, resulting in a slight increase in total division revenues year-over-year.

Professional Services Division revenues increased to 64.2% of total revenues for the third quarter of 2009, from 53.6% for the same prior-year period. Business Information Division revenues for the three months ended September 30, 2009, represented 35.8% of total revenues compared to 46.4% in the same period in 2008. This change in mix primarily resulted from a $16.9 million increase in revenues in the third quarter from Barrett-NDEx, as well as from general economic conditions in the markets we serve.

Total operating expenses for the third quarter of 2009 were $51.6 million compared to $42.9 million in the third quarter of 2008. Total operating expenses as a percent of total revenue decreased from 89.6% for the three months ended September 30, 2008, to 82.8% for the three months ended September 30, 2009. This decrease is primarily attributed to strong third quarter 2009 revenue (when compared to third quarter 2008) and expense control measures implemented across both divisions, as well as due to the $1.5 million break-up fee we paid in the third quarter of 2008 to the sellers of an acquisition target that we did not acquire.

Total direct operating expenses for the three months ended September 30, 2009 were $22.5 million, an increase of 25.7% from $17.9 million in the same period last year. Of the $4.6 million net increase in direct operating expenses, $5.6 million came from our Professional Services Division, and of that amount $5.4 million is related to the Barrett-NDEx acquisition. Offsetting that, the Business Information Division's direct operating expenses decreased $1.0 million compared to the third quarter last year due primarily to decreased production and distribution expense.

Selling, general and administrative expenses were $22.9 million for the three months ended September 30, 2009, an increase of 20.9% from $19.0 million for the same prior-year period. This increase consisted of a $3.9 million increase in our Professional Services Division (primarily related to the Barrett-NDEx acquisition), $0.7 million decrease in these expenses in our Business Information Division, and $0.8 million increase in unallocated corporate costs.

Operating income for the third quarter of 2009 was $11.5 million, or 18.4% of total revenues, an increase of 81.8% from $6.3 million, which was 13.2% of total revenues in the same period in 2008. Operating margin for the quarter increased year-over-year as a result of increased revenue from our mortgage default processing and public notice operations, as well as expense control measures in both divisions.

Professional Services Division Results

Our Professional Services Division provides specialized services to the legal profession through its subsidiaries, NDeX and Counsel Press and, since November 2, 2009, DiscoverReady. NDeX is a leading provider of mortgage default processing services in the United States. Counsel Press is the nation's largest provider of appellate services to the legal community. DiscoverReady is a leading provider of outsourced discovery management and document review services to law firms and major corporations in the United States. Professional Services Division revenues for the third quarter of 2009 (which did not include DiscoverReady) were $40.0 million, an increase of 55.8% from $25.7 million for the same period in 2008.

Revenue growth in the Professional Services Division was primarily attributable to a $16.9 million increase in mortgage default processing services revenues from Barrett-NDEx. This increase was partially offset by a $3.0 million year-over-year decline in revenues as a result of new legislation in Michigan and Indiana that became effective in early July 2009. The Michigan law lengthened the foreclosure process, requiring us to recognize revenue on Michigan foreclosure files over a longer period of time, accounting for $2.0 million of this decline. The Indiana law caused a decline in Indiana foreclosure file referrals, accounting for $1.0 million of this revenue decline.

For the three months ended September 30, 2009, NDeX processed approximately 83,300 mortgage default case files, compared to approximately 50,000 mortgage default case files we processed during the third quarter of 2008. Barrett-NDEx accounted for approximately 50,500, or 60.6%, of the files we processed in the third quarter of 2009. Barrett-NDEx's total file volume for the third quarter of 2008 was 45,500, which includes 13,700 files processed during September 2008, the month that we owned it. File volume at Barrett-NDEx grew 11.0% from the third quarter of 2008 to the third quarter of 2009, which includes the two month period in the third quarter of 2008 when we did not own Barrett-NDEx.

Direct operating expenses attributable to the Professional Services Division increased $5.6 million to $15.6 million in the third quarter of 2009, from $9.9 million for the same period in 2008, primarily due to the acquisition of Barrett-NDEx. Selling, general and administrative expenses increased $3.9 million year-over-year to $10.5 million. Barrett-NDEx accounted for $5.4 million of the increase in direct operating expenses and $3.7 million of the increase in selling, general and administrative expenses. Amortization expense increased $0.9 million to $3.1 million in the third quarter of 2009, from $2.2 million for the same period last year. The increase in amortization expense is primarily attributable to the amortization of finite-lived intangible assets associated with the Barrett-NDEx operations we acquired in September 2008, which added $0.9 million in amortization expense. Total Professional Services operating expenses as a percentage of division revenues increased slightly to 76.9% for the three months ended September 30, 2009, from 76.5% for the prior-year period.

Barrett-NDEx exceeded the $28.0 million adjusted EBITDA earnout target during the four quarters ended September 30, 2009. During the third quarter of 2009, we recorded the $13.0 million earnout obligation as an adjustment to goodwill, which has no affect on the company's operating expenses. Also in the third quarter of 2009, we finalized our purchase price allocation of the assets acquired in the Barrett-NDEx transaction. As a result, an additional $85.6 million of those assets are now classified as indefinite life intangible assets, primarily goodwill.

Business Information Division Results

Our Business Information Division publishes business journals, court and commercial media and other highly focused information products and services, operates web sites and produces events for targeted professional audiences in each of the 21 geographic markets that we serve across the United States. Division revenues for the third quarter of 2009 were $22.3 million, an increase of $0.1 million, or 0.6%, from $22.2 million for the same period in 2008. Public notice revenues increased $2.1 million, or 21.0%, year-over-year primarily as the result of an approximately 9% increase in the number of public notice ads placed in our publications. More than half of this revenue increase was driven by the increased number of foreclosure notices placed in our Maryland publication. Last year a change in public notice laws in Maryland delayed the timing when foreclosure notices were placed in this publication, negatively affecting third quarter 2008 public notice volume and revenue. Display and classified advertising revenues decreased $1.8 million year-over-year, or 21.7%, primarily due to an approximately 19% decrease in the number of ads placed in our publications, which we believe was driven by the sluggish economy, as well as a decrease in the number and frequency of specialty publications and magazines published. Display and classified advertising revenues also declined because of a decrease in the average price paid per display and classified ad across our publications. Circulation revenues decreased year-over-year by $0.2 million, or 4.9%, due to an 8.2% decline in the number of paid subscribers between September 30, 2008, and September 30, 2009.

Direct operating expenses for the Business Information Division for the third quarter of 2009 declined 12.7% to $7.0 million, from $8.0 million for the same prior-year period, as a result of lower production and distribution expenses. Selling, general and administrative expenses for the division decreased 7.5% to $8.8 million primarily as a result of a reduction in personnel expenses and bad debt expense. Total operating expenses attributable to the Business Information Division as a percentage of division revenue declined to 76.3% for the three months ended September 30, 2009, from 84.3% for the three months ended September 30, 2008.

Balance Sheet and Liquidity

At the end of the third quarter, we had $20.6 million of cash and cash equivalents compared to $2.5 million at the end of 2008. During the third quarter, we generated $9.1 million of cash from operating activities. Working capital during the quarter decreased by $6.0 million primarily as a result of increased current liabilities largely related to $13.0 million due to the sellers of Barrett-NDEx for achieving their earnout target. Days sales outstanding at the end of the third quarter equaled 79.4, an increase from 75.5 at the end of the second quarter. During the third quarter, we used our cash to make $2.6 million of regularly scheduled debt payments, a $1.0 million investment in GovDelivery, $1.0 million of capital expenditures and $0.8 million in payments in cash distribution to holders of the noncontrolling interest in NDeX.

At the end of the third quarter 2009, total debt outstanding was $146.5 million. Our leverage ratio at the end of the quarter was 1.8 times total debt to trailing twelve month pro forma adjusted EBITDA. The comparable leverage ratio at June 30, 2009 was 1.9 times.

Since September 30, 2009, we paid an aggregate of $38.9 million to close the Albertelli and DiscoverReady acquisitions discussed above. We funded these closing payments with cash on our balance sheet at September 30, 2009, cash flow from operations received from September 30, 2009, through November 2, 2009, and a $9.0 million draw on our $40.0 million revolving line of credit. We also expect to use available cash and, to the extent necessary, funds from our credit facility to make the $13.0 million earnout payment to the sellers of Barrett-NDeX. At November 6, 2009, our total debt outstanding is $155.5 million.