First Advantage Corp (FA) 2007 Q1 法說會逐字稿

Thank you all for holding and welcome to First Advantage Corporation's First Quarter 2007 Earnings Conference Call.

[OPERATOR INSTRUCTIONS]

This call is being recorded and will be available for replay from the company's investor relations pages on their website at www.fadv.com and through May 8th by dialing toll free within the United States, 800 925 1774, or 402 998 0859 outside the United States. A copy of today's press release is also available on the company's website at www.fadv.com.

We will now turn the call over to Miss Cindy Williams, Investor Relations Manager, to make a brief introductory statement. Thank you ma'am. You may begin.

Thank you, and good afternoon, everyone. At this time we would like to remind listeners that management's commentary and responses to your questions may contain forward-looking statements including certain statements made in this presentation relating to mortgage market trends, impact to subprime lending, ability to execute integration strategy, continued increase of operational efficiency, ability to expand internationally, 2007 earnings per share guidance, and other statements that do not relate strictly to historical or current fact.

The forward-looking statements speak only as to the date they are made and the company does not undertake to update forward looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements.

Factors that could cause the anticipated results to differ from those described in the forward looking statements include general volatility of the capital markets and the market price of the company's class A common stock, the company's ability to successfully raise capital, the company's ability to identify and complete acquisitions and successfully integrate businesses it acquires, changes in applicable government regulations, the degree and nature of the company's competition, increases in the company's expenses, continued consolidation among the company's competitors and customers, unanticipated technological changes and requirements, the company's ability to identify suppliers of quality and cost effective data, and other risks identified from time to time in the company's SEC filings.

Investors are advised to consult the company's filings with the SEC including its 2006 annual report on form 10-K for further discussion of these and other risks.

We will now begin our conference call this afternoon with our Chief Financial Officer and Executive Vice President, John Lamson, who will provide an overview of our financial performance for the first quarter of 2007. Following John we will hear from Mr. Anand Nallathambi, President and Chief Executive Officer, who will provide us with an overview of First Advantage strategy and operations.

At this time, it is my pleasure to turn the call over to Mr. John Lamson.

Thank you, Cindy. Good afternoon, everybody. First Advantage reported net income of $11.2 million or $0.19 per diluted share for the first quarter of 2007, compared to $12.7 million or $0.22 per diluted share for the first quarter of 2006.

Results of operations for the quarter ending March 31, 2007 include severance costs of $8 million, $4.7 million after tax, or $0.08 per diluted share relating to the transition agreement entered into with John Long in March, 2007. Diluted earnings per share, excluding the impact of the severance costs, was $0.27 in the current quarter. This represents an earnings growth rate of 22.7% from Q1 of 2006, and was in line with our expected results for the quarter.

Earnings before interest, taxes, depreciation and amortization, minority interest in share based compensation, adjusted EBITDA was $39.6 million for the current quarter, compared to $39.5 million in the quarter ended March 31, 2006. Excluding approximately $4.6 million of non-share based severance costs incurred in the current quarter, adjusted EBITDA increased by 12.2%, quarter-over-quarter. A reconciliation of adjusted EBITDA to net income is included in our earnings release.

Cash provided from operations was $26.2 million for the current quarter, or 234% of net income. Capital expenditures were $10.3 million, resulting in free cash flow of $15.9 million for the current quarter. Service revenue, which excludes reimbursed government fees, was $201.9 million in the current quarter compared to $181.2 million in the same quarter last year, representing an increase of 10 -- of 11.4%.

Operating income was $22 million in the current quarter, compared to $27.2 million in the first quarter of 2006. As previously mentioned, the first quarter includes $8 million of severance related costs. Excluding those costs, operating income increased by 10.6% in 2007 compared to 2006. Amortization of purchased intangibles was $3.7 million in the current quarter, compared to $3.2 million in the first quarter of 2006. Our consolidated operating margin was 14.9%, excluding the severance related costs in the current quarter, consistent with the 15% operating margin in the first quarter of 2006.

When comparing the first quarter of 2007 to the first quarter of 2006, operating margins increased in or data segment, employer services segment and in our multifamily segment. The margin increase in the data segment primarily was due to strong results in our direct-to-consumer and people locate businesses and consistent margins in our other database businesses.

Margins increased in the employer services segment from 5.89% in 2006 to 9.34% in 2007, primarily due to product diversification and continued efforts to integrate operating systems in the screening businesses and growth in our international operations.

Margins increased in the multifamily segment due to increased revenue from our renters insurance program and expense reductions due to continued consolidation efficiencies. Margins decreased in the dealer segment due to operational issues in the vehicle lead generation business. As we discussed in our last earnings call, we have taken steps to consolidate those operations into existing facilities and centralize management and operations.

The actual credit report volumes increased in the quarter by 10% from last year and 17% sequentially from the fourth quarter of 2006. We anticipate the margins in this segment to rebound starting in the June quarter, and be back on track in the second half of the year as we continue to expand our market share.

The operating margin in the lender segment decreased, primarily due to operating costs in connection with increased offshoring activities. We are expanding our infrastructure in India and the retention is tough due to a competitive market for talent in India. Once we start moving the functions offshore, the cost differentials are still attractive to compare it to our onshore rates. In addition, we increased our bad debt reserve in response to exposure to amounts outstanding from certain subprime lenders.

The operating margin decreased in the investigative and goods supports segment, primarily due to subpar performance in the surveillance business as we continue to restructure operations there. Margins in the litigation consulting business were down slightly, as salary costs increased as a result of hiring and training and new staff for future with support products.

For the quarter, net interest expense decreased from $3.1 million in 2006 to $2.9 million in 2007, due to higher returns on our cash balances. Average debt outstanding during Q1 '07 was $206.1 million and $215 million in 2006. Average interest rate on our debt was 6.2% -- 6.26% in 2007 and 6% in 2006.

The companywide organic growth rate for service revenue was 5.3% quarter-over-quarter. Quarter-over-quarter growth rates by segment are as follows. Our lender services segment grew by 0.7%, data services 11.6%, dealer services 0.5%, employer services 11.1%, multifamily services 5.5%, and investigative and litigation support decreased by 1.2%.

In the employer services segment, product diversification along with cross selling initiatives and geographic expansion drove the organic growth rate for the quarter. The hiring solutions businesses, foreign background screening, and the tax incentive businesses were the major contributes to the 11% organic growth rate for the quarter.

In the data services segment, the direct-to-consumer, people locate and our criminal data businesses were the primary contributors to the 11.6% organic growth rate. The growth rate in the dealer segment was impaired due to reduced revenue in the aforementioned vehicle lead generation business. As I previously mentioned, the actual volume of credit reports increased by 10% from last year.

The growth rate in the investigative and [wit] support segment was negatively impacted by decreased revenues in the investigative business. At the end of the quarter, we had total debt outstanding of $211.8 million, including fixed rate debt of $25.1 million with an average interest rate of 5%, and variable rate debt of $186.7 million with an average interest rate of 6.77%. Our available and unused line of credit was $61 million at March 31, 2007. We had $36.3 million of cash on hand at the end of the quarter.

Anand Nallathambi, our Chief Executive Officer, will now discuss the status of our current operations. Anand?

Thank you John. And good afternoon, everyone. As most of you know, this is my first earnings call as the new CEO of First Advantage. We're very pleased with the results of the first quarter. Excluding the severance cost, our earnings per share of $0.27 is right in the middle of the range of our guidance and compares well to the earnings per share of $0.22 in the first quarter of 2006. Now let's review the operations and results of the first quarter of 2007.

First up is our lender services segment. Service revenue increased slightly year-over-year in the first quarter of 2007 compared to the first quarter of 2006. This segment remains strong, and continues to outpace the trends in the mortgage industry. Automation of workflow, offshoring and increased gains in market share, which were the result of continued success with our emerging markets product, all contribute to the stellar performance in lender services. We remain confident that this segment will continue to outperform the overall mortgage market.

I'm sure most of you are familiar with the recent news arising from subprime mortgage lending. We have reviewed our client portfolio and found our lender services segment has minimal exposure in these types of loans. Nevertheless, we have been aggressive in looking at the receivables and bad debt write-offs in this area.

Our next segment, data services, had a strong quarter as service revenue increased nearly 12%. We saw good growth in revenues and profitability in our membership services, criminal background data, consumer services and specially finance data businesses.

During the first quarter, the dealer services segment continued to see the impact of the operational transition in our lead processing business, which we talked about in our last earnings call. They are through with most of the management transitions, office relocation, and should have improved results going forward, especially in the second half of 2007.

The automotive credit business remains strong for us and we expect this segment to continue to produce good results in the second quarter. In spite of the auto sales remaining relatively flat, our credit reporting volume grew 10% in the first quarter of 2007 versus the first quarter of 2006.

Employer services saw a 38% year-over-year increase in service revenue for the first quarter, with excellent contributions from our international screening business, hiring management solutions, and tax consulting businesses. Our platform integrations will continue throughout the remainder of 2007 as we consolidate IT platforms and increase the level of operational efficiencies.

Occupational health services continues to be a challenge for us. We recently established a process to review customer profitability in an effort to identify opportunities to increase margins. About 5% of the clients in this area provide 75% of the business. So there is a lot of potential to streamline the account setup and client management processes.

The international operations are growing nicely. We have seen our India operations increase 84% in revenues from first quarter of 2006 to first quarter of 2007. The multifamily segment saw a year-over-year increase in service revenue of 5.5% as we continue to see growth in our core tenant screening products and increased demand for our renter's insurance product.

Our investigative and litigation support segment continues to see growth in litigation consulting services, and margins remain strong in the mid to high 20s range. However, the investigative portion of this segment remains a challenge for us, due to its high labor component. On the litigation support side, we expect our expanded geographic presence will fuel more growth in the UK, Western Europe and Asia.

Finally, I know in the past we have given quarterly guidance, primarily due to the fact that FADV was doing numerous acquisitions, and modeling our operations was challenging. That has changed, and now we have more predictable seasonality patterns. Our focus remains in establishing long-term shareholder value and consistent growth and performance.

Going forward, we're not going to issue quarterly guidance. We are confident in the previously announced annual guidance on EPS of $1.18 to $1.24 for 2007, excluding the severance costs in this quarter.

At this time, I'd like to open the call up to questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from Kyle Evans, Stephens Incorporated. Your line is open.

Hey, guys. I wonder if you can provide us with a quick update on where you are with the LeadClick Media business?

The Lead Click media business is doing well, Kyle. By the way, this is Anand. And what we are trying to do with that business is trying to expand the verticals that we serve. We have had some challenges especially in the automotive area because lead distribution there had gone through some tough times, but our business is going good and we're looking for new verticals.

And so from auto and the subprime finance, where do you hope to expand the lead gen capabilities of that business?

I think from a distribution channel perspective there's more opportunities than automotive, and from a vertical perspective real estate is a nature vertical for us to expand.

Okay. You mentioned that you expect the margins and lender services to take off -- or not to take off, but to rebound in the June quarter. And, can you talk a little bit about what compressed those margins in the quarter again? That wasn't -- it was a little unclear to me.

I think what we talked about was this quarter the margins were impacted by the -- by our increased offshore expenses, and also in looking at bad debt and reserves and stuff. But I think what we can say, the mortgage market is tough to predict, but we have been consistent in outpacing the market and our competition, and all trends indicate that we'll continue to do so.

And you think you're maybe 40, 45% of that market, what do you think the natural ceiling is as you guys consolidate share in that reseller market?

I -- could you repeat that question?

What's the ceiling on the market share?

What is the -- ?

The natural ceiling that you think you have on gaining market share there. If you're at 40 to 45% today, can you go 75, 80?

No, that business is fragmented to some extent, especially on the broker market side. I think if you really look at the market share that's shared by the big tier 1 plus, tier 1 to tier 2 competitors, it's probably in the 65 to 70% range.

Okay, lastly, and then I'll get back in queue. It seems like Bar None in the surveillance business has continued to be a drag on the numbers. Have you given any more thought there about potentially divesting those businesses? Thanks?

I'll address Bar None first. Bar None is a business that's really good for us, we are in the process of just, like we said, we needed to kind of make management changes. We have gone through an office relocation. We have a completely new sales policy there. We are trying to marry the lead generation activities along with our credit reporting services that we provide the dealerships.

And in our talks with all automotive dealers, credit based lead generation is at the top of their list; and us being such a front end POS type provider there, it's a natural fit for us. So we look to fix it and have it help us grow in the automotive area than to exit that business at this point.

The surveillance business is a tough business. It's a high labor component business. It's almost a professional services model. What we're trying to do is to try to figure out -- we're evaluating just like any other business that we look at to see what is the right fit, if the strategic fit changes with the shifting trends in the marketplace. And we're not at this point to kind of see what we should do with it.

Okay. Thank you.

Colin Gillis, Canaccord. Your line is open.

Yes, Anand, it's a pleasure to be on the call and congratulations.

Thank you.

Can you just give us sort of the bigger picture what your major goals as CEO are, and what your take is on the M&A outlook?

Okay. My goal is to just have consistent sustainable growth in revenues and profitability. And one of the things that I'd also like to mention is I'm not a completely new face to First Advantage. I've been here for about 18 months. So there's nothing new. We've been working on a lot of strategies over the last 18 months. Now some of them have come to fruition, some of them are in process.

Basically what we want to do is, we want to make sure that we optimize our operating efficiencies. That comes from consolidation of platforms, eliminating redundancies and offshoring as much as we can, and try to cross sell within out segment. Because we bring in a lot of companies and they have client lists that we feel like could be cross sold with other services that we have. Employee services is a key area for cross sell.

From an M&A outlook, we continue to look at -- you could go back over the last three or four calls, we've been saying that the deal flow is slowing down because of, A, unrealistic valuation expectations out there, but we continue to look at opportunities. We have brought -- we are in a space where people call us all the time, we come across companies, and as we see the fit for complementary product offerings or a compelling value proposition we'll pull the trigger on it.

So I think at the investor day in New York, sort of -- there was sort of a message of tuck-ins with the potential for some major acquisitions if the right parameters fell into place. Is that framework still in place?

Yes.

Okay, great. And then just finally, in terms of Manila, any thoughts in terms of the growth expansion there, is that something you're looking to increase the growth rates?

Yes, from a offshoring perspective, what we thought we should do is to also consider Manila, we were there because of operational necessities in the employee screening area, we're also expanding our offshoring capabilities there.

I think it provides us with nice balance, because we don't want to be totally dependant on one foreign locale to kind of counterbalance any socio-political influences so I think it gives us a great opportunity to balance that out. So we're excited about growing it.

Okay. Thank you.

Okay.

Jeff Kessler, Lehman Brothers. Your line is open.

Hello, and again I also would add my congratulations and welcome to Anand on conference calls here. Although we've obviously spoken before. The first question I have is on the -- is on the data side of your business, and what you've done to begin to integrate some of the components that led to the growth.

In going to some of the -- some of the past conferences -- I shouldn't say conferences, but trade shows in which a model had been set out to begin to integrate both the screening and data, both tax and from -- well, lets just call it from pre-employment screening all the way to tax serves for the employees. I'm wondering how much of that integration has worked its way into some of the growth that you've gotten here.

That integration is still in process. What we -- what you're talking about is more in the area of employer services.

Yes.

Let's just talk about that first and then I'll come to data services and where the growth is coming from.

Okay.

In employee services I think we have an expansive product breadth, and what we want to do is we want to integrate our service offerings in such a way that it's a natural cascading fashion that the clients -- it's easier for clients to come in and interact with us. And that is an initiative that we call an employer services portal that is being developed, and we're also trying to consolidate our IT platforms in the employer services area. That is activities that will continue throughout the rest of the year and probably even in the first quarter of 2008.

Going back to data services, the growth is more from our membership services business, Teletrack, which is our payday lending specialty finance business, and also National Background Data.

Okay. Second question on -- you mentioned briefly just growth in India, referencing Quest, if not by name but by inference. How much capital, or how much -- how much capital do you in -- both human and financial do you expect to put into that area, given its growth but given the fact that it's not yet automated as well as it is over here? Is this something that you want to get on the same platform in terms of automation with the US within a short period of time? And is it a platform that you think you can grow substantially because the base -- even though it's grown, the base is still pretty small?

You're right that the base is still pretty small. But we have an international platform that we are rolling out now, and the way we want to look at it is all our international -- at least the Asia Pacific business will be on a common platform. And the big growth that's coming in is due to two factors.

What we have noticed in our international operations is, we first went there because we thought our multinational clients in the US, when they export jobs from here, or offshore jobs from here to India or Asia Pacific countries, we want to be there to service that demand. What we're also finding out, now that we have a pretty good footprint in Asia, is there's a lot of demand that's being generated by skilled workers that are being exported from India, Pakistan, Bangladesh and the Philippines into the Western and Middle Eastern countries.

All right. Excellent. Okay. Thank you, very much.

Okay.

Brian Ruttenbur, Morgan Keegan, your line is open.

Yes, thank you very much. A couple quick questions. First of all, on guidance, I'm a little bit confused. The reason you're not issuing quarterly guidance is that you're not doing acquisitions? I guess I'm a little bit confused by that if that's the logic.

This is John Lamson. How are you doing?

I'm pretty good, John.

Good. On the earnings guidance information, we originally gave guidance because we were doing so many acquisitions and we were new to being a public company, and at the time our -- those who followed us early on, there was quite a divergence of estimates out there, we just feel like -- that the people who are following us just have a much better handle on our business now, and so we're inclined really to quit giving quarterly guidance.

It's really got nothing to do with the fact that we're necessarily not doing acquisitions. As Anand alluded to, we were going to continue to do some strategic acquisitions. We're just not doing them obviously at the pace that we did originally.

Okay, very good. That's fair enough. And then the other question I have is on lender services. The guidance that you gave, in terms of yearly guidance, is for 118 to 124 in earnings, and I think 825 to 867 in services revenue. That's still good guidance, right?

Yes.

For the year. Now --

Except for the impact of the severance costs.

Oh yes, then you subtract the $0.08 off of the severance out of the earnings. Got that. But on the lender services, what have you included in there? Are you still including in that guidance for the year of lender services being down 10% or -- because you guys are trending flat to slightly up.

The 10% down was when we talked about it in -- I believe in the first -- late in the fourth quarter, in the early in the first quarter. What we're noticing is -- the reason we haven't gone and looked at the revenues or changed anything is we feel like certain things go up, certain things come down.

For example, in lender services, some of the confidence that we receive is we have been watching account signups over the last three months and they have been consistently up. And if you look at the mortgage and you listen to all the pundits, they say that the mortgage volumes are going down, existing home sales are down.

But we're noticing there is a flight to quality or a shift towards quality, and the underwriting guidelines are going to get strengthened. And the way the market is reacting to it, at least the consuming market in lender services, is they think that they would rather be with a solid provider, and we saw our account setups go drastically up over the last couple of months.

Now again, they are just open accounts, they're not active yet. But we've -- that gives us a lot of confidence that we're going to hold our own in this market.

Okay, so if all continues to trend like this, are you very comfortable with closer to the high end of the range then, assuming that you have flat year-over-year on the lender services side, and everything else is trending about the same?

Yes, Brian, we're really not going to get into it. We're reaffirming the guidance that we gave. So far lender services is essentially flat, but it's only the fist quarter. As we did say in our -- when we did the plan, when we had our investor day, we did say that we planned for volumes to be down 10%, and we're just not changing that at the moment.

That's fair enough. I appreciate your help and good luck.

Okay. Thanks, Brian.

Thanks.

Mark Marcon, RW Baird. Your line is open.

Good afternoon, John and Anand.

Hello, Mark.

I was wondering -- on the employer services division, ChoicePoint indicated that they thought the economy was soft. I was wondering if you could give us a little bit of a feel for what you're seeing out there, any sort of macro concerns that you're having? Your internal growth has been -- looks terrific. What -- is it primarily just a cross sale or is there something else that's occurring?

Yes, I'm not about to comment on what ChoicePoint said about their views of the market. What we are finding, and the best way I could explain it, is our employer services is our highest potential for growth and margins because of what we're trying to do.

The number one reason for that is, we have an expansive product rep that expands all the way from starting with talent recognition and extending beyond post-employment activities where you can monitor employees and stuff. That -- so we're not any more a background or drug screening shop. We kind of start from hiring solutions, background screening, drug screening, then you'd have skills assessment, we have tax consulting services and the like, and biometric services. So, I think our diversity in product scope has really meant really good growth for us.

Added to that is our international footprint. I don't think anybody has the same footprint that we have in Asia, and for the reasons that I talked about, the demand seems to be doubling there because it not only foreign -- offshoring work necessitating verifications but also internal skilled workers being exported to other countries.

Great. And are you seeing any signs of macro softness?

Not directly. Not us, no.

Okay. Great. And then, what's -- in terms of subprime, you mentioned that a little bit earlier, can you refresh us in terms of what the exposure is there and what -- to what extent you think there could be another -- a little further downturn in that market more so that what you've already seen?

Yes. We have looked at subprime, especially because it's widely talked about --

Sure.

And obviously we are somewhat conservative, so we went in there and looked at our portfolio and our client list and where we go with it, what could be the possible risk. We found that we're not exposed that much at all. We are more -- if you remember our original -- when we talk about out client list on the lender services, we are more towards the big retail originators out there, and we're not into the -- much into this subprime shop.

Being in our market share we do have some -- and I think it's in more like low single digits is what we saw as our exposure there as our clients. So it could be there. And then we are constantly watching that.

So I don't -- that does not concern us. Going forward, you asked about what impacts we may see. We are thinking that that -- and we're already seeing some indications of it that the underwriting guidelines out there could get strengthened or tightened, so to speak. And even there, with the new accounts signups that we've seen, it looks like we might be the winner of that tightening.

Great. And no other divisions that you have a significant subprime exposure where you're concerned that anything could fall off a little bit?

No, no. We don't have.

Excellent. And then --

Our subprime, just to -- for the rest of the people on the call, our subprime, when we say subprime is actually specialty finance or microloan or payday lending type industry.

Great. And then, is there anything that we should take into account relative to normal seasonality or normal trends in terms of new projects that you may be putting in place that may alter the normal seasonal trends that we would see as we project towards your getting towards the original guidance for the year?

Mark, this is John Lamson. I don't -- I can't really think of anything significant that would impact the seasonality of the business.

No big projects in terms of the integration or extra expenses that we should take into account in any particular divisions that may impact margins in any of the divisions?

Only what we -- there's kind of continuous stuff but nothing that's going to come up and bite you in the third -- like second or third quarter for example.

Okay great. Thank you.

Okay.

Kevane Wong, JMP Securities. Your line is open.

Hey guys, how are you doing?

Hey.

Good.

Excellent. Hey, this be a little picky on lender services, as you know, I tend to look a lot at the mortgage applications, which -- the March quarter looked better than the December quarter. I was wondering if there was any other factor that caused the organic growth if you had a lower level than in the 4Q, or is that just sort of the normal lumpiness that you might just normally get quarter to quarter?

Usually the first quarter is -- I think we are very pleased with our first quarter. Traditionally from a seasonality standpoint, Kevane, First quarter is actually a low quarter. It's because its right after the holidays and with the weather patterns that we have had it's had some lacklusterness. But we haven't seen that really if you look at our volumes.

Got you. Always looking to be a little greedy, so -- and then on -- also you mentioned on the margin for lender services that you had taken some reserves for subprime. What was the impacts on the margin of that action in the quarter?

Well -- this is John, Kevane. The margin was down about 200 basis points from last quarter, from Q1 '06. Probably roughly about half of that is probably due to the bad debts.

And is that something that would sort of be a one quarter phenomenon, we wouldn't see that -- I'm assuming that's sort of like a catch up boom that sort of repositions you and you wouldn't have that same impact in future quarters.

Yes, I think that's safe to say. Barring --

Okay.

Barring any further change in the economic environment.

Of course. Then jumping over to dealer services, sort of curious on the sort of revenue outlook. What are you seeing as part of the macro environment? When I've talked to some comps there the concern was more this is what happens with the consumer, housing isn't going up, they can't use that piggy bank to buy cars. What are you seeing in the macro environment for dealer's services?

Yes, what we are noticing there is in the dealer services market, the way -- the key metric that we measure our success by is number of credit reports that we deliver or number of vehicles sold out there, and we have been tracking that for a long time. And I have to tell you between December of 2005 and first of March of 2007, we have doubled that number.

In other words -- and that's due to a lot of reasons. Obviously our market share increases and the strategic relationships that we have with Reynolds and Reynolds and other marketing partners in DealerTrack, but also we're noticing that there's a lot more foot traffic because the car sales is relatively flat but there's a lot more foot traffic going into the dealerships and we're seeing the impact of that.

Got you. So that's the presale checks that they're doing?

Yes.

Fair enough. In the employer services segments, I was curious how much catch up revenues you had from the WOTC and Welfare to Work. So trying to get a sense of one, I guess, as far as in the quarter how much catch up revenues you had -- also what sort of additional catch up revenues might you expect next quarter, sort of given the flow of what you've already had processed and are waiting for payment on.

Yes, Kevane, this is John. It -- it's hard to really -- the catch up revenue -- WOTC revenue was about $4 million for the quarter. Okay? But to say that's kind of all catch up is kind of difficult to -- because it's going to be happening through the rest of the year. So -- and they haven't -- and I think if we had any '07, if you will, WOTC revenue was very very minimal because the department of labor just put out the regulations on enacting the -- because it was a technically a new law. So, not much of that happened in the first quarter. So -- .

Okay. So it's really more a -- it probably would come in in the next -- in the June and September quarters or is -- ?

Yes, it should start. Yes. Yes.

Okay. That's kind of -- actually so you didn't really have any good bump from that in the quarter as far as you can tell?

Not really, no.

Excellent. Investigative also, two things on there. One is the revenue growths, in prior quarters you begin with sort of a pro forma, so assuming the acquisitions you had had were in internal growth, and those were running pretty high, up like 20% to 25% levels. I was sort of curious as far as the current quarter -- I just would have expected a little bit stronger as far as internal growth. Was there some other factor that affected the revenue -- organic growth for investigative? Just trying to get a little better feel there.

Well, you know the wit support side of that business, as we've talked about in the past is a little lumpier because it's project oriented business.

Okay.

So that's primarily the reason. That can -- is much more variable, if you will, than probably any of our other segments.

Got you. And as far as you can tell, has that come back in the June quarter so far? Just trying to get a feel of, is there something changing with '04 or is it really just sort of that one quarter and then we might get a lump coming in instead in the June quarter?

Yes that's -- there's potential for that, but these things, these projects come up pretty quick. So there's often not a lot of lead-time, so we don't have this gigantic pipeline. So -- .

Right. Perfect. All right, thanks guys. I appreciate it.

Okay, you're welcome.

Thank you.

We have time for one final question. Dom LaCava, Canaccord Adams, your line is open.

Hi, thanks for taking my question. Just a couple of housekeeping items, I guess. I know you touched on international. Could you give a revenue number for the quarter, in growth?

For international revenue?

Yes.

It was 8 -- 8.3 million.

Okay.

International revenue.

Got it. And what was that versus a year ago?

It's up like -- what -- 50 -- organically it's up about 50%.

Okay. Okay, that makes sense. And then, DSOs?

DSO. Yes, DSO was about 52 days, which is fairly consistent with where we were last quarter.

Yes. Okay. Okay, great. And then just a quick question on the organic growth numbers you gave. Those were the March quarter versus the year ago March quarter, right?

Correct.

Okay. Okay. Great. Thanks.

Okay. You're welcome.

Thank you.

This will conclude today's call.

Thank you for attending today's conference, you may disconnect at this time.