First Advantage Corp (FA) 2008 Q1 法說會逐字稿

Thank you all, for holding and welcome to our First Advantage Corporation's First Quarter 2008 Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session of today's call. 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 7th by dialing toll-free within the United States 888-562-7629 or 402-220-6506 outside the U.S. 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 commentary and responses to your questions may contain forward looking statements. Including certain statements made in this presentation relating to the integration of new acquisitions and lender services, future impact to facility and IT consolidations, expansion of business verticals in the lead generation business, financial impact of supposed restructuring, impact of restructuring on domestic workforce, overall economic market conditions in the second half of 2008 and other statements that do not relate strictly to the historical or current facts.

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's 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 2007 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 2008.

Following John, we will hear from Mr. Anand Nallathambi, President and Chief Executive Officer who will provide us with an overview of First Advantage's strategy and operations. At this time, it is my pleasure to turn the call over to Mr. John Lamson.

Thank you, Cindy, and good afternoon everybody. First Advantage reported net income from continuing operations of $16.3 million, or $0.27 per diluted share for the first quarter of 2008, compared to $11.2 million, or $0.19 per diluted share for the comparable quarter in 2007. Results of operations for 2007 include $8 million, or $0.08 per share of severance payments, made in the first quarter of 2007 to our former Chief Executive Officer.

We have decided to dispose of our credit automation software and insurance fraud surveillance businesses. The loss from discontinued operations for the quarter ended March 31, 2008 was $3 million, or $0.05 per diluted share. Included in the loss for the quarter is an impairment charge of $2.3 million, after taxes, reflecting the amount by which the carrying value of the net assets being disposed of exceeds their estimated fair values?

Income from discontinued operations for the quarter ended March 31, 2007 also includes the results of operations for U.S. Search, our consumer locate business which we sold in the fourth quarter of 2007. Earnings from continuing operations before interest, taxes, depreciation and amortization, EBITDA, was $37.1 million for the current quarter, compared to $31.6 million in the quarter ended March 31, 2007. A reconciliation of EBITDA to net income is included in our earnings release.

Cash provided from continuing operations was $22.5 million for the current quarter. This excludes the payment of approximately $56 million of income taxes primarily related to the gain on the sale of the DealerTrack stock, which we sold in the fourth quarter of 2007.

Capital expenditures were $11 million in the current quarter. Service revenue, which excludes reimbursed government fees was $188.3 million in the current quarter, compared to $191 million in the same quarter last year. Operating income was $27.2 million in 2008, compared to $21.9 million in 2007. Excluding the impact of severance costs, which was $8 million, operating income decreased by $2.7 million.

The consolidated operating margin was 14.4% in the current quarter, compared to 11.5% in the first quarter of 2007. When comparing the first quarter of 2008 to the first quarter of 2007, operating margins decreased in the lender and data segments as a result of issues in the housing and credit markets. It is significant to note that margins on a sequential basis increased in both of these segments from fourth quarter of 2007.

Margins in the lender services segment increased from 7.5% in Q4 2007 to 24% in the current quarter. Revenue increased by 39%, 23.3% of which was organic, with the balance due to the CredStar acquisition, which closed on December 31st of 2007.

Bad debt expense decreased from $2 million in the fourth quarter of 2007 to approximately $500,000 in the first quarter of 2008. This significant increase in margins was attributable to increased volumes, both organic and via acquisition, reflecting the scalability of the business and tight expense controls.

Margins decreased in the employer services segment from 9.3% in Q1 2007 to 6.5% in Q1, 2008. The decrease in margins is due to reduced margins in our tax incentive and hiring solutions businesses, offset, in part, by improved margins in our domestic background screening.

In our tax business, we had about a $1.5 million of [Watse] catch up revenue in the first quarter of 2007. Margins were 17.3% in the fourth quarter of 2007. Once again, the sequential decrease in margins was due to reduced margins in tax and hiring businesses.

Quarter four is usually a very good quarter for the hiring solutions business. In addition, Q4 of 2007 was an excellent quarter for us in the tax incentive business, in that we billed approximately $5 million in location based incentives compared to $2 million in the first quarter of 2008.

Margins increased in the investigative services segment as revenues increased from $12.3 million in 2007 to $23.5 million in the current quarter. Resulting in operating margins improving to 40% in the current quarter, compared to 23.7% in the first quarter of 2007.

Margins decreased on a sequential basis from 51.6% in Q4 2007 as revenue decreased by $10.2 million. Margins increased in the dealer segment as we continued to see growth in our vehicle credit reporting business. Vehicle credit report revenue increased in the quarter by 6% from last year. Overall revenue declined by 5% in this segment, due to declines in our vehicle lead generation business. Margins increased in our multi-family services segment from 24.5% in 2007 to 26% in 2008. Margin growth is attributable to, once again, tight expense controls and revenue growth.

Organic growth rates for our business segments are as follows, we had quarter over quarter declines in our lender segment of 23.5%, data 15%, dealer services 5.2%, and employer 3.7% and we had quarter over quarter increases in organic growth rates in multi-family of 4.2% and 90% in our investigative segment.

Our balance sheet is very strong. At the end of the quarter we had total debt outstanding of $104.5 million, made up of fixed rate debt of approximately $13 million, with an average interest rate of 5.2% and variable rate debt of $91 million with an average interest rate of 4.2%. Our debt to capital was only 11.8%. Our available and unused line of credit was $146 million at March 31st. we had $61.7 million of cash on our balance sheet at the end of the quarter.

For the quarter, interest expense decreased from $3.2 million in 2007 to $425,000 in 2008, due to significantly lower average debt balances. Average debt outstanding during the first quarter 2008 was $45.6 million, versus $206.1 million in the first quarter of 2007. Average interest rates declined from 6.26% in 2007 to 5.34% in 2008.

As we have discussed in the past, we are committed to make First Advantage more efficient and dispose of non-performing, non-strategic assets. In addition to the two asset dispositions we have discussed, we have taken additional initiatives as evidence of that commitment.

In our employer services segment, platform consolidation, improved work flow, and other productivity gains, which are the result of an overall management focus on productivity, are expected to reduce costs by approximately $1.3 million, per quarter, commencing in the second quarter of this year. We will incur a charge in the second quarter of approximately $1.2 million for severance payments and related asset write downs.

Anand will discuss further the focus we have in streamlining our current operations. With that, I will pass it on to Anand.

Thank you, John, and good afternoon, everyone. We are pleased with the results of the first quarter, most notably with the sequential increase in the lender services segment over the fourth quarter of 2007.

Service revenues in the lender segment were up 39% from the fourth quarter of 2007, though compared to the first quarter of last year, revenues are down 15.7%. We continue to gain market share as borrowers seek major mortgage lenders, who, in turn, look for higher quality service providers. Operating margins are coming back strong as we remain committed to maximizing operational efficiencies. The integration plans for CredStar, our new acquisition, is progressing ahead of plan.

From an employee standpoint, including the CredStar acquisition, we stand basically flat as of year-end 2007. The reports for employee is at 13.02, up from 12.74 at year end 2007 and up from 12.31 at first quarter 2007. We expect the integration of the last few acquisitions and the necessary consolidation of personnel and facilities to be complete by the end of the third quarter.

The acquisition of CredStar and the evolving of our IT platforms in [Pawway], San Diego are the main drivers behind this efficiency drive.

Our data services segment had revenue and operating income increases of 9% and 24% respectively, compared to the fourth quarter of 2007. The year over year comparisons show a decline in revenues and profitability, primarily due to the reduction and sales in the specialty finance and lead generation businesses as we continue to be impacted by the weak credit markets.

We remain optimistic that the focus on newer geographical territories in our specialty finance business and the expanded focus on additional business verticals in our lead generation operation will start to show results in the follow quarters. Our membership services and criminal background data businesses continue to perform well.

The dealer services segment saw a decline in service revenue of 5% year over year. As the negative effects of the credit markets continue to pressure our lead processing business. Though this sub prime automotive business is showing positive signs in terms of revenue and profitability on a sequential quarter over quarter basis. We are closely reviewing the strategic fit with our other dealer services and the financial performance of this business coupled with the general market conditions.

As you already know, we have announced our intention to divest Credit Management Solutions Inc., our automotive consumer credit software business. We had purchased CMSI and Credit Online together back in 2000 and later contributed Credit Online into DealerTrack. That move worked out great for us and we still have a sizeable holding in DealerTrack.

Outside of some intellectual property that we are retaining, the software part of the business is a small portion of the dealer services segment which did not align with our long term vision and growth strategy. Our automotive credit business continues to gain share amidst the lackluster automotive market with increases in service revenue and operating margins. Compared to the first quarter of 2007, revenues were up 6% and profits up by 20%. Sequentially, compared to the fourth quarter of 2007, revenues were up 15% and profits up by 34%.

In addition to expanding our presence in the franchise and independent dealer markets, we are adding product solutions that help dealers comply with the consumer authentication procedures that center around the federally mandated red flag ruling that goes into effect later this year. Employer services segment experienced the impact of labor market contraction and weakening job postings, especially in the domestic market.

Service revenues were down 1.8% year over year during the first quarter. The declines are more concentrated in the domestic area of businesses. However, foreign background screening continues to grow and the Australia and Asia markets seem to have sustainable strength since we haven't seen any material change in demand. There could be some softening in the European markets, which isn't a big contributor for us anyway.

From an operational standpoint, we continue to remain focused on increasing our profit margins. There is a major efficiency drive underway that includes productivity improvements, business and platform consolidations, and right sizing the workforce to fit the emerging economic environment. John Lamson detailed the financial impacts of this restructuring move.

We are consolidating our two applicant tracking businesses into one best of breed hiring solutions platform. The restructuring initiative will have a net result of 17% reduction to our domestic workforce in this segment. This will enable us to be more cost efficient, almost to the tune of $4.7 million to $5 million a year, going forward.

In general, though the labor market indicators are showing a downward trend, the unemployment numbers aren't real drastic. Construction and manufacturing are the hardest hit areas. The service sector employment still shows opportunity for growth and we placed confidence in the consensus that there will be macroeconomic rebound and recovery in the second half of 2008. Besides the economic outlook, the reasons for our optimism are based on the fact that the later quarters have been historically great quarters for us, thanks to our tax incentives and hiring solutions businesses and a steadily growing international component.

The multi-family segment continues to grow in market share and profitability. Service revenue grew 4% in the first quarter with an increase of 10.6% in operating income. We are pleased with the resiliency of this segment despite the downward pressures of the credit market crisis. The growth in revenues and profitability is coming from cross selling data and analytic products. [Crimp Safe] and scoring insight to our existing client base and the consumer product renters insurance.

Our investigative and litigation support segment saw a 91% increase in service revenue over the first quarter of last year. However, sequentially we were down from the fourth quarter of 2007 by 30%, largely due to decreases in project billings in Europe and Asia. This decline in revenue is reflective of the lumpy project based revenue model.

From a pipeline perspective, the international portion of this business still looks strong. We just completed the expansion of our data centers in London, Brussels and Tokyo and rolled our out new data hosting platform services. We expect the projects in service to pick up in the next 30 days.

As mentioned in the earnings release, we have divested of the investigative and surveillance portion of this segment. We have spoken on numerous occasions how this business is not a strategic fit for First Advantage and we look for ward to our new alliance with the acquirer, Global Options Group. We were fortunate to find the right buyer and also be able to execute a strategic alliance to cross sell each others products and services.

As you can tell, we've got a lot of things underway and it's a busy time for us and the industry in general. At this point, I'd like to open the call up to questions.

Thank you. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS)

We'll now take the first question.

Okay. Our first question is from Kyle Evans. Kyle, your line is open.

Thank you. I was worried we got cut off there for a second guys.

Yes.

Good to hear you -- from you, Kyle.

Thanks. Anand, Can we start off maybe with the bar none business you alluded a couple time on the call to your willingness to review that business and whether or not it's still strategic. Just how bad was it in the quarter when we look at that business relative to say the auto credit which sounded like it did well on a year to year basis?

Yes, the automotive credit business is really good. In general, the market for sub prime automotive business, obviously as you know, is not good, we have - we have fixed everything we can fix from an operational standpoint. We are just looking at that business from a lead generation perspective. We have the ability to generate leads from a couple of different places and from a question of processing it, we're just trying to review to say how important this is to hang on with the processing function of the organization and if it doesn't fit, then we have to kind of decide what we do with it.

About how big was that business in the period? Just trying to get some kind of rough sense.

John?

Yes, Kyle, how are you doing?

Hi. Good.

It's roughly about 10% of the revenues for the segment.

Okay.

Okay.

And lead click, really tough in market there where I see that in other businesses that I follow. You didn't mention that you would review the strategic fit on that one, and instead you've decided to basically aim that marketing engine at different end markets. Can you talk about just how weak that was in the quarter and exactly which end markets you could be targeting that at in the future?

Yes, I can talk about the markets and John can address the numbers side of it. We have had really good success, we've brought on a lot of people and we're kind of seeing a lot of pick up in the prospects and new clients sign up in the life settlement type areas. There's a lot of new areas that we can go in there. And we also see that the internet based lead generation is still active, especially in the sub prime area. So we're kind of trying to go after financial services verticals to supplement what we already had in lead generation from that business.

So in other words, cards and maybe insurance versus sub prime mortgage.

Yes, no -- well. Our business originally was in the pay day lending and sub prime automotive concentration and lead click. Now I think we're going more into the life settlement insurance and other financial services and financial products verticals.

Okay. Lastly, if we're going to see a charge in employer services on the current quarter. Can you give us an update -- are we -- does that mean we're done with the platform consolidation then you've gotten that -- so we can expect to see the bit margin ramp on that business as the end market gets a little bit easier.

Yes. I think we actually took a pretty aggressive view to say the macro economic rebound we see that - especially, in the domestic markets happening in the later part of the year and we kind of felt like this was the perfect time for us to do it. And we have - you're correct in saying that we are done with the business consolidation from a platform perspective.

We had two different applicant tracking platforms, we're going to go to best of breed and obviously we don't aim to add or acquire any more applicant tracking platforms. We may be adding some products and services that go into more of the data and analytic space. So, we are expecting fully to see and EBITDA - EBIT ramp up, post this charge.

And you still think long term that's a high teens type number?

Yes.

Okay. Great. I'll get back in queue guys.

Thanks.

Okay, our next question is from Mark Marcon. Mark, your line is open.

Hi, Mark.

Good afternoon, everybody.

Mark, how are you doing?

Good, thanks. I was wondering, can you talk a little bit about lender services? I mean that was a nice rebound there with regards to the margin sequentially. How sustainable do you think that is and it looks like things just keep moving around with regards to what's going on with the mortgage applications. How much are we going to be subject to that or how should we think about that?

Yes, you are correct that things are moving around. But here's where we get a little bit more optimistic about it. I think we have talked in the past that our concentration of clients tend to be towards the major market -- major mortgage makes or major mortgage lenders. We have seen over the first quarter, at least in the last couple of months, an increase in volume form the major market players, the top ten seem to kind of get an inordinate amount of share of the new market out there.

So, from an overall transaction perspective, the volumes are kind of flat over the last couple of months. Maybe a little bit down from the rapid pace that we kicked off the beginning of the year, but where our optimism comes in is it seems to me that whatever is remaining in the market is going to the major market share holders and we have a pretty good penetration with them so we feel like that's got to bode well for us in the coming quarters.

How much of the bump that we ended up seeing this - on a sequential basis was due to the pick up just in the refis with the short term movement towards better refi opportunities, which apparently just went away this last week or two?

If I had to pick a number -- obviously, we've got to validate it.

Sure.

Just from experience, if I had to say, I would say between the beginning of the year and now there's probably a 10% of transactions that were related to this refi bump, if you will. That was just more sporadic.

Really? And then the rest of it was - so if we were at 27.6 during the last -- during the fourth quarter of last year and we were doing roughly 39, we can basically strip out -- so basically go about 35ish and that would be the real bump in terms of the underlying business.

When you talk about -- in terms of revenue you're talking?

Right.

Yes, thereabouts. Yes, I would say that -- that's just based on where we are now. I mean -- this is a market -- like you said, its shifting around, but -- I'm just trying to look at where we see that top six or the top 10 players and what kind of share they're getting. They seem to be getting a lion's share of the market and they're numbers are on the positive up. So --

Great. That was a great job with regards to the margins. Can you talk also a little bit about the fluctuations that we're seeing in ILS and how we should think about that from a seasonal perspective, or how you see that going as the year unfolds, because obviously it was great year over year growth.

Yes.

Sequentially -- did it drop off as -- did you expect it to drop off as much as it did sequentially? Or?

Well, we -- yes, it's a -- it's due to a lot of reasons. But it is lump and that is very tough to kind of predict out there. But from a pipeline perspective, we're still seeing a lot of activity and a matter of fact, our guys tell me that East Asia is really red hot from an interest level for some of the new products that we're launching. So, I think we'll still have a very good year there, it's just very tough to predict exactly how and when it's going to come.

One of the things that we're trying to do is we're trying to be -- expand or -- going back, the whole area to really capitalize on margins in that business is capacity utilization, how well we manage that. And so afar, we have been more of a domestic player going international and what we're trying to do now is trying to hire a lot more in country personnel and trail them so we'll have some domain expertise right there, closer to the field.

And I think that would help us to really capitalize on a lot of these opportunities that are coming where we -- if we have to today traunch them into a sequential basis we can kind of take advantage of some of those projects on a local level as it comes up. And that would - that bodes well for us into the future.

Great. And can you talk a little bit about the margins there? Because even though you had a sequential drop off with regards to the revenue, you did a great job of holding the margins up, which is an unusually good performance.

We -- yes, its project by project, but it's mostly -- we are the highest priced provider out there. In that we have actually have enjoyed that luxury, mainly because of our service and our relationships and they ability to really turn around projects with our software capabilities. So, assuming that continues, and we plan to do that, and I thin the new product that we rolled out is receiving -- is well received internationally, that should bode well to keep the margins up.

Yes, and Mark, I might add, at this level of revenue, be it the fourth quarter or first quarter, the fixed cost component is relatively small so it's -- it's pretty manageable on the downside, giving me this level of revenues.

Yes, I mean that was terrific. Can you give us -- I kind of missed it, if you gave it, but can you give a little bit of a feel for guidance? And I k now it's a moving target, given that it sounds like you're evaluating different businesses. But if we keep the current businesses that we all have currently, can you give us a sense for how you would expect the second quarter and the year to shape up?

Well, we're -- we gave annual guidance, as you know, at the end of the year --

Right.

Last year and excluding the reserve we took for the discontinued operations, we're pretty much where we thought we'd be for our business plan. So, I guess -- we're not going to get into quarterly guidance, but we can say that through the first quarter we're kind of about where we thought we'd be.

All right. Great. I'll hop back into the line.

Okay.

Thank you.

Thank you. Our next call comes -- or question comes from Brian Ruttenbur. Ryan, your line is open.

Okay. Thank you. First question I have is on the investigative services business that you hold, I don't believe this has been asked, but wanted to know how much revenue you guys did in the first quarter and in 2007 in that --

Brian you are -- you're very -- you're hard to hear.

Breaking up.

Okay, can you hear me now?

A little better. You asked about investigative services?

That's correct. How much did you do in the quarter in terms of revenue and how much did you do last year in terms of revenue?

You mean in the discontinued?

Yes.

Oh, okay. Yes, I can give you some light on that. In the surveillance, which is what you're referring to, in the fist quarter of this year, the revenue was about $2.5 million.

Okay.

And last year, for the whole year '07, it was about $12.2 million.

Okay.

Does that help.

I'm coming in so weak, I'm going to ask my other questions off line. Thank you.

Okay. Sorry.

And our next question is from Nathaniel Otis. Nat, your line is open.

Good evening.

Hey, Nat.

How're you doing?

Good.

I -- just to follow up on a couple of the questions that have been asked so far, just maybe a little more clearly, any color, I think you talked a little bit, that lender services volumes might be down a little bit of a tick as you start in April, but just any color on how trends are running so far after the quarter would be helpful.

It's basically -- essentially -- or basically flat from how we entered the quarter. When I said it was down, it was more like how we started the year and where the first quarter ended.

Okay. All right. Just -- once again, on the investigative front, just first of all, do you have a percentage of investigative that was international this quarter?

Yes, I can tell you how much of the revenue for investigative -- they had about $12 million of revenue that was foreign revenue, Nat, and that would be out of what -- $23 million, $23.5 million. So, almost half of it was foreign related.

Okay. And then just maybe to follow up on that a little bit, I guess, correct me if I'm wrong, but I always thought that you guys were kind of focused on financial services and pharmaceuticals there and not to look for a silver lining in a tough operating environment right now, but given what's going on in the financial services markets -- market, don't you think that it might be right for kind of more litigation and how do you feel about how that business could trend out through the year? Any color on that?

Yes, I mean -- I think what -- well, I believe what you're referring to is in the past when we've talked about electronic discovery. Some of the early on cases, I guess, that kind of brought this, kind of a sub industry, if you will, to the forefront was related to some financial services in pharmaceutical industries. That -- let's say were prone to litigation that required our services. And obviously there's been a lot of turmoil, if you will, in the financial services industry.

So, I guess anything that -- regardless of the industry, really, anything that spawns litigation is an opportunity for those of us who are in this type business to land some good projects. So, but you know, you obviously have to get the projects, so --

Understandable. And I guess, what would be some of the other maybe vertical markets that you'd look to other than those that you - that maybe you're already - you're on - you're already doing business with or whatnot. Just some more color there would be helpful.

I'd say telecom, retail maybe.

Okay. All right. And then just one final number question. I didn't get you to start John, what was the operating cash in the quarter?

Yes, Nat, it was $22.5 million with the -- and it's a little strange this quarter, that excludes a payment of $56 million we made on taxes, which is very high because of the DealerTrack gain in the fourth quarter of last year.

Okay, very helpful. Thank you.

We had an abnormally high tax payment. But cash flow wise, it was a pretty good quarter.

Okay. Good. Thank you.

Yes.

(OPERATOR INSTRUCTIONS). One moment, it looks like we do have a question. Mark Marcon you have the line -- you're open line.

First, a bigger picture strategic question. Aside from bar none and some of the consolidations that you're going to do in employer services, should we anticipate that there might be other things that you might potentially look at streamlining?

We're always streamlining lender services. I mean its - that's one of the ways we stay ahead of the market, Mark. I mean we have bought a few companies in the lower end of the market and we have a couple of platforms and we are reviewing those to see which is better and obviously we are very excited about the new acquisition that we made CredStar, they have a really good web services platform.

But prior to that, we had bought a couple of lower end businesses that --there's an opportunity there. We need to kind of constantly look at it and, like we said, in the lender services especially, we always stay ahead of the market to say our reports for [FDE] is the key operational metric and as long as that goes up, we then look at facilities, platform and other technology type investments that could be curtailed and brought more into the -- are more of the core platforms.

Great. Anything else that we should think of?

Outside of it -- I can't -- I can't think of any. I mean we have taken a year to kind of really look at this strategic exercise to see what fits and what doesn't fit and if you ask me, I'm almost itching to go and expand our product set out there.

Great. And by the third quarter you think we'll pretty well be done?

Yes.

Okay. Great. And then, with regards to ILS, you said there was a big pipeline that was building up. Can you give us a sense for how quickly that pipeline can rebuilt?

If you go by the last 18 months, pretty quickly revolving. But its, again, it's very tough for us to commit to anything mainly because of the nature of these contracts.

If we were trying to be conservative in terms of modeling things out, should we just assume a slight bump sequentially and then building continuously or could it come fairly quickly?

I don't know. I think maybe sequentially, building up.

Okay.

Probably, because just have expanded our data centers where -- like I mentioned, we're hiring in Company personnel, we're training them so we can kind of expand the capacity, because, as you know, our bailiwick, our claim to fame is how we marry electronic discovery services along with the computer forensic expertise. That's why we are good in what we do. And that just doesn't happen overnight. I mean, you don't develop computer forensic experts by just training.

Sure. I mean, your capacity remains the same as what you had previously, right?

Yes, and to the extent that you can make the technology, kind of recycle products faster, you can get there. But from a -- expertise -- forensic expertise level, you can -- you just don't have an exponential ability to just take on additional work.

Sure.

I'm sorry. One moment. Okay, I'm sorry, sir. We -- your line accidentally got disconnected from the questioning. Do you want to queue up again? I apologize. Okay, we'll go ahead and take a question from the next part -- here we go, here's Mark, I apologize. Mark, go ahead, your line is open.

Thanks. Sorry, I got disconnected. On the employer services die, can - on the ATS's, are you going to -- are you going to combine the two elements of the two ATS's into one best of breed, or are you essentially going to go with one platform and transition you other clients to that platform?

It will be a little bit of a combination. There will be some skill sets or modules that we bring on. But predominantly we're going to pick one and then we're going to use that and then bring on some of the elements of the other into it.

Okay. And how long do you think it will take you to do that?

I'm told that that operation is already underway.

And you'll be completed by --

I would say, probably in the next couple of quarter and the technical side of it is a question of what is the highest and best use. Obviously, we're going to look at the modules that are absolutely a necessity for the client basis that we serve out there. but that's going to be an ongoing thing that we have to kind of look at it, but we have a lot of confidence, we brought in some additional senior management talent from the industry -- from the technology industry and we're confident that that thing is going to go, move in the right direction and start to produce some terrific results soon.

Great. And then, with regards to the --sequentially, typically the first quarter is a weaker hiring period, can you talk a little bit about the monthly trends that you saw in the base ES business and how you would expect -- I know you said that you were hopeful that the second half would be better as -- and that hopefully the consensus is correct, but anything else to think of there?

No. other than the fact that -- it's sort of flat, like -- just like we talked about a lender services, volumes hanging around. I didn't see a drastic move one way or the other in the first quarter in the background screening side. If there is anything to be -- to note out there was we saw a little bit of a pricing pressure, or a price compression in the domestic markets, which is also why we kind of went aggressive on workforce reduction and really right sizing the workforce and getting ahead of this curve.

Outside of it, we didn't see a major concern other than obviously, you have seen the same reports that we've seen out there, that there is some weakening in the job posting s out there.

Yes, that's pretty clear. Is the -- in terms of the pricing pressure, is that coming from clients in a particular vertical or particular size or is it pretty widespread?

Yes, I would say its pretty wide spread, probably more towards the higher end of the client base and the lower end of the client base, as you would expect.

Okay. Great. Thanks. I'm going to follow up offline.

Okay. Thanks.

Thank you.

Okay, our next question is from Wayne Johnson. Wayne, your line is open.

Hi, [Jason Boozer] in for Wayne Johnson. How are you?

Hey, Jason. Good.

Just want to drill down a little more on the employer services margin. I know that was weakness in the tax and hiring segments. Was there anything specific within those segments that hurt margins?

Not really. We're coming off -- there was a quarter -- the first quarter of '07 there was some -- when they reenacted the work opportunity tax credit, we got some bump up in revenue that basically fell right to the bottom line, so it was about $1.5 million that did that. So, really, nothing -- nothing really other than that on a year over year basis.

Okay, just difficult comps. What percentage of employer services this year was international? Or this quarter, I'm sorry.

Yes, international in employer services was $11 in the first quarter. So that would be $11 million of about $53 million -- $53.6 million in revenue.

Okay.

It -- was international.

Excellent. And what percentage of employer services is applicant tracking? If you'd remind me?

Yes.

We don't separate it by just applicant tracking. The hiring solutions is probably a better comp.

Yes, that's --

Okay.

That is about 15% or so.

Okay, excellent. Thank you very much.

You're welcome.

Okay, our next question is from Kyle Evans. Kyle, your line is open.

Thanks. Could you guys comment on Teletrack trends within the quarter and across the year?

Teletrack was one of the businesses that is been impacted by the weakened credit markets, Kyle. And while their margins are so very, very good, their top line has had some softening.

That's one of the businesses that I think maybe some of us would have looked to for counter cyclical strength, and by that I just mean as more consumers fall down into the payday lending category, I would expect more people at furniture rental stores and more checks on that data base. Am I just -- am I missing something there?

No, it's actually a different market and there is no progression of the prime markets heading into near prime or payday lending, I mean it's a -- that has not been the progression in the past. What we - what we're trying to do is -- the U.S. market, the domestic markets are obviously impacted by the weakening credit - the financial sector wakening.

We are looking to really improve the international growth and we -- we've just been in Europe since November and we're trying to kind of accelerate the growth and maybe even take it to a couple of more countries to build some growth there.

So, who are the primary users of the Teletrack database here in the U.S. just so I --

I would say (inaudible) lending customers and check cashing companies. National debt organizations. They're also -- they also sell lead generation to automotive generators. That's obviously a tough market right now.

Yes. Okay.

(inaudible) to rental is for like a smaller piece of it.

Okay. Okay. John, you were really cooking there when you went over the organic growth rates, would you mind repeating those?

Sure. Yes, no problem. These are quarter over quarter declines were 25.3% in lender, data was down 15%, dealer 5.2%, and employer 3.7%. And increases were in multi-family 4.2% and the investigative segment was up 90% -- 91% actually.

Okay and total international revenue in the quarter, when you said $11 million out of employer and I think you gave a litigation number earlier --

Litigation was $12 million. Yes, they're almost the same.

Okay, and that's pretty much all the international revenue period.

Yes. Yes.

Okay, great. Thanks.

Okay, you're welcome.

Okay, we do have one more question from Brian Ruttenbur, one moment.

Am I in okay?

Hey, Brian.

Okay, great. I'm going to try it one more time. All right, can you tell us what stocked based compensation was in the quarter?

Yes, sure -- it was $2.3 million.

Okay. And then if we take what you guys did this quarter and just take it out for the rest of the year, do you see any big drop off? I mean you talked a little bit about lender services going to be probably down a couple million dollars, but then you're also making cuts. I'm talking on an operating basis going forward, $0.35 -- $0.30 to $0.40 on a quarterly basis, does that seem reasonable kind of going forward, or are there any big hits or peaks that I should be thinking about?

Well, historically, a lot of our segments are pretty seasonal. The second and third quarters being the better performing quarters and first and fourth being less of -- that's -- you can look at the multi-family -- historically you can look at lender services and draw that same conclusion.

Q1, historically, has been a relatively slow quarter for the employer services because hiring is typically -- forgetting economic conditions, just generally slow in the first quarter. So I don't think that you can necessarily straight line one quarter and come up with an annual number.

Okay, so if I took it up in the second and the third quarters and then took it down in the fourth quarter, like you do historically, that's the way to model it and is there anything special that I should be thinking about other than trying to watch interest rates?

No, other than overall economy. No.

Okay, great. Thank you very much.

You're welcome.

That will end today's call. Thank you, everyone, for dialing in.