First Advantage Corp (FA) 2008 Q2 法說會逐字稿

Thank you all for holding, and welcome to First Advantage Corporation's Second 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 August 11th by dialing toll free within the United States, 1-800-839-3420, or 402-998-1036 outside the US. 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 Ms. 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 consolidating and integrating new acquisitions in the third quarter, developing tools and products extensions in the Litigation Consulting segment, continued cost savings for the remainder of the year, including headcount reduction, facilities consolidation, reduction in professional services and marketing-related expenses, and other statements that do not relate strictly to 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 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 as 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 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 $13.7 million, or $0.23 per diluted share, for the current quarter of 2008, compared to $18.2 million, or $0.31 per diluted share for the second quarter of 2007.

Operating results for the current quarter include costs associated with consolidating certain operations in our Employer and Lender segments that totaled $1.7 million, negatively impacting earnings by $0.02 per diluted share. Anand will discuss other steps taken to streamline operations and associated cost-savings initiatives in a few minutes.

We completed the disposition of our Credit Automation Software and Insurance Fraud Surveillance businesses in the second quarter. These dispositions are included in discontinued operations in 2008. Discontinued operations for 2007 also include the results of operation for ussearch.com, our Consumer Location business, which we sold in the fourth quarter of 2007.

Earnings from continuing operations before interest, taxes, depreciation and amortization -- EBITDA -- was $35.2 million for the current quarter, compared to $44 million for the quarter ended June 30, 2007. A reconciliation of EBITDA to net income is included in our earnings release. Cash provided from continuing operations was $33.2 million for the current quarter.

Capital expenditures were $8.2 million in the current quarter, resulting in free-cash flow of $25 million. Year-to-date for the six-month period, our cash flow from operations was $53.5 million, excluding about $56 million of tax payments we made in the first quarter of 2008 related to the gain we recorded on dealer track shares that we sold in the fourth quarter of 2007. Our capital expenditures were $19.5 million for the current six- month period, yielding free-cash flow of $34 million. At June 30th, 2008, we had positive working capital of $102.5 million.

Service revenue, which excludes reimbursed government fees, was $182.4 million in the current quarter, compared to $196.6 million in the same quarter last year. Operating income was $23.1 million in the current quarter compared to $31.9 million in the second quarter of 2007. The consolidated operating margin was 13.1% in the current quarter, 14%, excluding the restructuring charge, compared to 17.3% in the second quarter of 2007.

When comparing the second quarter of 2008 to the second quarter of 2007, operating margins decreased in the Lender Services, Data Services and Employer Services segments as a result of issues in the housing and credit-related markets and the overall negative impact the housing and credit markets have had on domestic and global economies.

As you know, the declines in these markets started to negatively impact some of our businesses near the end of the second quarter of 2007. Margins in the Lender Services segment decreased from 26.7% in the second quarter of 2007 to 16.4% in the current quarter. Revenue decreased by 23% overall, 31% organically, with the balance due to the CredStar acquisition, which we closed on December 31st, 2007.

The significant decrease in margins is primarily attributable to decreased volumes in the current quarter, compared to last year, and sequentially to the first quarter of 2008. Margins in our Employer Services segment were 11.7% in the second quarter of 2007, compared to 7.4% in the second quarter of 2008, excluding the impact of the $1.1 million restructuring charge, which occurred in Employer Services.

The decrease in margins is due to reduced margins in our Tax Incentive businesses, Occupational Health, and Foreign Operations, offset, in part by improved margins in our Domestic Background Screening. In our Tax business, we had about $700,000 decrease in earnings from Hurricane Katrina credits. The Katrina legislation expired in August, 2007.

Sequentially, we had a slight increase in margins from 6.5% margins in the first quarter of 2008. Margins in our Data segment were 20% in 2008, compared to 30% in 2007. Our Specialty Finance Credit Reporting and our Lead Generation businesses have been directly impacted by the housing and credit issues, and are the primary reasons why the decline in the margin. Sequentially, the margins were comparable.

Margins increased in our Investigative Services segment as revenues increased from $15.7 million in 2007 to $21.2 million in the current quarter, resulting in operating margins improving to 35.6% in the current quarter, compared to 31.9% in the comparable quarter of 2007. Margins decreased on a sequential basis from 40.5% in the first quarter, as revenue decreased by $2.3 million.

Margins increased in our Dealer Services segment from 13.6% to 18.6% in 2008, due to tighter expense controls and restructuring of our Vehicle Lead Generation business. Margins also increased in our Multifamily Services segment from 29.8% in 2007 to 32.9% in 2008. Margin growth is primarily attributable to tight expense controls.

Organic growth rates for our businesses are as follows -- quarter-over-quarter declines -- Lender Services, 31%, Data Services,14.5%, Dealer Services, 9.2%, and Employer Services, 7.2%, with increases on a quarter-over-quarter basis in Multifamily, 1.6%, and Investigative and Lit Support, 34.4%.

At June 30th, 2008, we had total debt outstanding of $73.7 million, including fixed-rate debt of $13.4 million, with an average interest rate of 5%, and variable-rate debt of $60.3 million, with an average interest rate of 4.1%. Our debt to capital was only 7.6%. Our available and unused lines of credit was $175 million at the end of the quarter. We had $41.6 million of cash on our balance sheet at June 30th, 2008.

For the quarter, interest expense decreased from $2.8 million in 2007 to $1.1 million in 2008, due to significantly lower average-debt balances. Average debt outstanding during the current quarter was $89.1 million, compared to $203.3 million in the second quarter of '07. Our average interest rate was 4.8% in 2008 and 5.4% in 2007.

We are closing a facility in our Lender Services segment. We expect that it will be completed in the fourth quarter of 2008. We anticipate to incur shutdown costs of approximately $1.6 million, or $0.02 per share, in the second half of 2008.

When we prepared our 2008 business plan and provided earnings guidance, we discussed the fact that the plan and earnings guidance was predicated on the assumption that there would be a turnaround in the credit and mortgage markets, commencing in the second half of 2008.

As we discussed on our first-quarter earnings call, we, on a Company-wide basis, were substantially on-plan for the first quarter. As we are all aware, the issues in the credit and real estate markets still remain with us, and along with rising energy costs that expanded into the overall economy, negatively impacting employment.

As we have discussed, these global economic issues have impacted the operating results of our Lender Services, Data Services and Employer Services segments. We also do not believe that there will be a substantial improvement in these areas for the remainder of the year. In light of this, we are revising our estimated earnings per share from continuing operations for 2008, excluding any restructuring charges, to be in the range of $1.10 to $1.18 per share.

As Anand will discuss in more detail, we have taken actions to streamline operations, reduce costs and maintain or improve our market share in our major business lines. These actions will not only have a positive impact in 2008, but more importantly, make our operations more efficient in the future. As I discussed earlier, our working-capital position is strong, cash flow is very good, and we believe that we have taken the appropriate steps in reaction to the current economic conditions.

Anand?

Thank you, John, and good afternoon, everyone. After staying on plan for the first quarter, we experienced the headwinds of a weakening economy during the second quarter. Businesses in Lender Services, Employer Services and Data Services segments were impacted by the downturn in the mortgage industry and challenging financial-services markets. In spite of these adverse impacts, we have continued to see bright spots of growth in International Employment Screening, Multifamily, Litigation Consulting and Automotive Credit.

Service revenue in Lender Services was down 23% in the current quarter, compared to the second quarter of last year. Conditions in the mortgage industry are as challenging as we have seen in a long time. Most industry estimates indicate a 30% to 40% decrease from January 2008 revenue levels. Our Mortgage Credit business experienced a drop of 25% from January. As we fight these strong headwinds, our focus remains in improving operational efficiencies and increasing market share.

The reports for employee metric was 14.23%, up from 13.02% at the end of the first quarter, and 12.74% at year end. We have reduced customer-service staffing by 23.4% from January. As mentioned in the last-quarter call, we are in the midst of consolidating and integrating new acquisitions. We are in the process of consolidating five brands into two, and that process should be completed by the end of the third quarter.

In the Data Services segment, the economic impact was felt by Specialty Finance, Lead Generation and Transportation Data businesses. The top-line pressure in these businesses is the main issue we are focusing on with diversification efforts.

In the Lead Generation side, we are working on adding multiple verticals. Currently, our concentration is in Payday Lending and Subprime Automotive. We have reorganized the business to align more closely with Employer Services, and to generate passive candidate leads to our Recruiting Solutions group.

The margin on the Specialty Finance business is still strong. Because of our strong market share in the US, we are focusing on the international arena, and our entry into Europe is starting to show results. On the Transportation side, the focus is to move more into driver monitoring and management, than reselling data for underwriting purposes.

Our Membership Services and Criminal Background Data businesses continue to perform well. The Dealer Services segment saw a decline in service revenue of 9.2% on a year-over-year basis, but operating income increased 24.1%. On the revenue side, outside of the Lead Processing business, we're actually performing better than expected, given the automotive market.

We continue to add dealers to our active base and expand on our list of strategic-marketing partners. We currently have over 50 channel partners and over 9,500 active dealerships pulling credit-related services from us. The operating-income improvement was a combination of continuing improvement of margins in Automotive Credit and containment of losses in the Lead Processing business.

In the Employer Services segment, at first look, the change in margins in a year-over-year comparison might seem big. However, in the current quarter, we had the impact of the restructuring charge, the absence of Hurricane Katrina tax-credit work, which was in 2007, and the integration of our new acquisition in Asia. The pre-tax margin in June was back to the double-digit level. The revenue growth was down on a year-over-year comparison -- has been a positive 3.4% on a sequential quarter-over-quarter basis in 2008.

The International Screening business, now approximately 23% of the total segment revenues, posted revenue growth of 35% year-over-year, with 16% of this growth being organic. The labor-market contraction we reported in the first quarter continues, and we have seen that in our domestic businesses and in the work performed for the US multinationals in Asia.

We reported on the restructuring project on our last earnings call. At that time, we were expecting the results of that move to produce cost savings of $4.7 million to $5 million on an annualized basis. That number has been revised to upwards of $9.4 million in annualized cost savings, as we gear up to stay ahead of the softening labor markets. Our focus remains in growing our diversified businesses in the employment sector, and continue to integrate the operations and keep improving the margins.

In the Multifamily segment, service revenue grew slightly by 1.6%, with an increase of 12% in operating income. Considering that a depressed housing market results in low turnover rates, which reduces transactional turnover for resident screening, our performance in this area validates the diversified services we have. This business continues to perform well, as our value is in helping property managers assess the quality of residents, profitability of their portfolios, and analytics for emerging trends in property management.

Our Investigative and Litigation Support segment saw a 34% increase in service revenue over the second quarter of 2007. Sequentially, we were down 10% from the first quarter of this year. Actually, I've said on previous occasions, "This business is difficult to forecast on a long-term basis, due to the project-oriented nature of the revenue model."

However, the sales pipeline looks good, and we are pleased with the growth in Europe and Asia. The international portion is 55% of this segment's revenues, compared to 38% in the second quarter of 2007. We are the market leader in e-discovery in Europe, and we are focused in developing tools and product extensions that will build and add more predictable recurring revenue streams to the current product set.

I want to give an update on the cost-savings initiatives under way. Given the tough economic conditions and the prognosis for the next few quarters, we have been on an aggressive path to cut, reduce and defer expenses. This efficiency drive has been in motion since April, but has intensified, and will continue as we progress throughout the year. Currently, the efficiency drive will result in cost savings of more than $21 million on an annualized basis.

The Employer Services and Lender Services segments are the major components, accounting for 85% of the savings. Also, the efficiency drive isn't just focused on headcount reduction, but facilities consolidation, professional services and marketing-related expenses. The labor part of the cost- savings initiatives account for 57% of the total.

From an overall First Advantage perspective, over the last two years, we have worked on balancing the diversity, improving margins by integrating platforms to maximize on scale efficiencies, and build on the critical data streams that represent unique and exceptional value to our customers. Our segment diversity is more balanced now, with Employer Services at 30% of the total and Lender Services at 18%, with the rest of the business segments ranging between 10% and 15%.

The 50-plus acquisitions that represent our Company have mostly been integrated where we can start to drive productivity and efficiency projects that deliver demonstrable results. We're also close to getting all the non-strategic pieces divested that distract momentum.

Our enterprise provides data and analytical services about consumers at high-value touch points in various financial and employment verticals. We process more than 60 million credit files in the prime and subprime markets, more than 15 million driving records, and more than 15 million in background screens and criminal checks in any given year.

We provide critical data-management services, utilizing sophisticated technologies, bridging consumers and businesses through best-in-class distribution channels. These are tough economic times, true. But we possess and provide exceptional value, and we will continue to do so through the cycles.

I would now like to open the call up to questions.

Thank you. (OPERATOR INSTRUCTIONS).

Our first question comes from Kyle Evans, Stephens.

Hi. Good afternoon. Thanks for taking my questions.

Hi, Kyle.

You -- you've lowered the EPS guidance, and that makes perfect sense. Could you give us your thoughts on the top line? And I've got some follow-up questions as well.

It's really difficult at this point to give top-line numbers, Kyle, mainly because of where the market is. We tried to make a good estimate on where we think it will be. And we feel like, given the circumstances, our performance will be very good. And we're focusing a lot on taking the costs out. But the revenue line, because of our heavy reliance on mortgage, employment and other sectors that depend so much on the economic forces, it's tough to give a revenue estimate.

Should we take the old revenue guidance and just throw it out, then? I mean, we're not anywhere close to halfway to the lower end of the previous range, which was --?

Yes. Well, Kyle, this is John. I mean, certainly, the -- I think it would be safe to assume that the prior revenue guidance, given the economic conditions, aren't going to be achieved. But we did not prepare to discuss specific revenue guidance.

Okay -- maybe a little bit near-term outlook in the Litigation Support business, since that's become a primary contributor to operating income.

Yes. We have talked to our people there, and they feel like the pipeline looks really good. I mean, obviously, it's a weighted pipeline, but they feel very confident that they don't see any further deterioration or projects coming in.

Again, we talked a lot, Kyle, in the past, in the calls, about -- the Litigation business, to us, is more of a capacity utilization. We haven't seen any problem of being the top-price provider out there. So, we feel like -- pretty confident that we can be in the range. That's an area that we feel -- even though it's a lumpy business, we feel a lot more confident than the Credit and Financial sectors of the business.

So, if it was, say, a quarter of EBIT this quarter -- and I think, actually, it came in more like 23% before corporate -- is that something that could be over 30% by year-end, as a percent of total EBIT pre-corporate expenses?

Well, it depends upon --

Yes. Kyle, this is John. I mean, certainly, that business, I think, has the potential to be that. If -- as we've seen from some prior quarters -- if you look at -- for instance, I think it was the fourth quarter of 2007, when we had a -- really, an outstanding quarter in there. But, certainly, it's got the potential for that. But this just goes back to the issue of it being a little difficult to predict on any long-term basis when a project is going to come into the door, so.

Okay, fair. Last question, then I'll get back in queue.

Okay.

The -- we've talked a lot about the expense structure for the Lender Services business. And I think maybe investors were left feeling like there was a lot more variable expense in that business versus fixed. And maybe you could give us some sense for how you see margins trending in that business through the year, as we just went from 24% to 16% quarter-over-quarter?

Yes. I think the margins will start to stabilize. We've had a -- kind of a perfect storm in that type business. You've had revenue downturn because of the market, and you've had bad-debt situation, which is really stabilizing now.

And the other thing that we're noticing is the new business that we bring on board, mainly especially from the capital markets and other portfolio-type review business -- those are not in the traditional margins levels, because they are more higher-velocity transactions, which carry a little lower weight. So, I could see that -- that business for us, I could see, when the markets come back and we operate in it, still to be 25% plus business. I'm not sure if that's a 33% plus business.

Okay -- and no bad debt in the quarter, in Lender?

I'm sorry, Kyle?

Was there any bad debt in the Lender Services segment?

Yes, there was, but it was about $500,000, which is pretty comparable to what it was a year ago, and in the first quarter.

Okay, thank you.

It didn't move the needle.

Great. Thanks.

Our next question comes from Brian Ruttenbur, Morgan Keegan.

Okay. Thank you very much. First question I had was stock-based compensation. I didn't hear that in the quarter. What was it?

You didn't hear it. How you doing, Brian? This is John.

Hey, pretty good, John.

I didn't say it, but I'll give it to you.

Okay.

Our stock-based comp for the first quarter -- for -- I'm sorry -- for the current quarter was $4.9 million.

Okay. And next question is --?

I'm sorry, Brian. That's for the six-month period. Pardon me.

Okay.

Okay?

Do you have -- well, I can back into it off of first-quarter numbers.

Yes. I think it's about equally split.

Okay. Okay. The next question I have really concerns -- if the economy continues to turn down, you have plans in place to cut -- you've expressed that. What about acquisitions? Are -- obviously, acquisitions are getting cheaper out there. Are there plans to go out there and acquire other struggling businesses in this area?

Brian, this is John. Are you referring to Lender Services?

Well, I'm talking across the board. It seems like everything is struggling a little bit. It's not just Lender Services. It's the employee background checks, Multifamily -- everything is struggling somewhat. And in your five verticals, I was wondering if you were -- you had plans to go out and make aggressive acquisitions.

We do get, obviously, contacted, because we're one of the major players in all of these markets. And I will separate the comments in two areas. The Lender Services and Multifamily -- those kinds of areas -- we really look at them, and we kind of look at those situations as a depressed-market sale. And it's -- and if it doesn't really fit us, we really want to be very careful.

I mean, obviously, we pulled the trigger in the first quarter on a deal which made a lot of sense for us. Going forward, it has to be a compelling value proposition like that to do it. We are also cognizant of the fact of what it does to distribute -- in the revenue-distribution standpoint, I think it's -- right now, we're happy about where the contribution of the Lender Services, compared to the other segments, come into play.

In Employer Services, even though that the market is somewhat under pressure and the labor markets are weakening out there, we're recently noticing -- and I'm sure it's public news -- that there are some assets that are really being bit up. And so, it's not necessarily a -- it's -- we have to really pick selective targets in the Employment sector, because, in some areas, the pricing is not necessarily reflecting what the revenue or the forecasts look like.

Okay. And just a last question, and I'll hang up here -- or listen -- excuse me. The debt covenants with your lowered estimates on the year, are you running into any issues there?

Brian, this is John. We've got plenty of room on our Loan Syndication line, so that will not be an issue at all.

Okay. Thank you very much.

Our next question comes from the line of Nat Otis, KBW.

Good evening, gentlemen.

Hey, Nat.

Any way you can give a little bit of color on timing on some of these expense cuts, and how much we can see coming out, say, Q3 -- Q4? Just -- any bit of color that you can give us would be certainly helpful form a modeling standpoint.

Yes. Nat, this is John. The annualized amount we referred to of $21 million -- of course, that's a full 12-month run rate once everything gets implemented, which I think you understand. You -- we're looking at -- in the third and -- some of this, we've -- in the third and fourth quarter, probably roughly around $10 million or so that we'll see in the second half of the year, and which we've, to one degree or another, built in to our guidance.

Okay. That's very helpful. Do you have any deal pricing on your CMSI and the Investigative Services sales?

We didn't -- we have not disclosed the proceeds that we got on that deal. They were really relatively minor sales. Okay? So, it really wasn't -- the prices weren't that big. They were small businesses.

Okay. Any idea when bad debt starts going even farther down from here? I mean, even though it's down in [$500,000] this quarter, it just seems -- obviously, it's still elevated given the current environment. But do you have any expectations on trends for kind of the rest of the year -- just so you get an idea on --?

Yes, I -- that's down to a -- obviously, down a lot from where it was in the third and fourth quarters, for instance, of last year. I would suspect we'll see that continuing to go down, actually, as a lot of the players have pulled out of the market in the credit side. Whether we'll ever get back to where we were running maybe $100,000 or $200,000 a quarter, I don't know. But I don't think, barring further significant deterioration, that that number will certainly increase.

Okay. That's fair -- great. Just last question -- any update on Bar None in any way?

We have addressed the cost side of it. And, like I mentioned, on the Dealer Services performance, part of the performance improvement from the last quarter -- same quarter of last year -- was because of improvement in Bar None.

But, the improvement in cost savings has become, like -- the reduction in cost -- expenses -- has been, like, 18% to 20%. But the top-line pressures are a lot greater than that. So, it's -- we are -- what we are trying to do right now, Nat, is to reduce the footprint, try to see if we can absorb some of the functions that we need to enter the Automotive side, and also in to the Lead Generation side, and run it as lean and mean as we can.

The one difficulty with the Lead Generation type businesses that I would like to point is -- these are companies that have, like, 35 people or -- to 55 to 60 people. So, in that -- when the times are good, that's why the margins are really good. And when times are bad, it's -- there's not a lot to cut. But we have cut a lot on the expense side. And we are also considering some strategic alternatives.

Okay. All right, great. Thank you.

Thank you. Our next question comes from the line of Mark Marcon, R.W. Baird.

Hi, Mark.

Good afternoon, Anand and John.

Thank you, Mark.

Hi. I'm wondering, on the Lender Services side -- I mean, obviously, this is the worst housing market since the Great Depression, so nobody would have anticipated that. It looks like, listening to some of the bigger banks, they're getting out of the kind of the wholesale lending -- which you've got a good market share with some of the larger banks, but they're getting out of some of the homes' wholesale lending services.

How do you think that's going to impact things? And now that 30- year mortgages are at yearly highs and credit availability is down, how should we think about Lender Services over the next quarter or two, presuming that things continue to get tough on that side? And how much can you save there? It looks like you ended up having about $700,000 in charges for this quarter in that particular division.

I think the Lender Services side -- this is probably the most challenging market that we have seen in a long time.

Sure.

Having said that, the wholesale side of the big banks that our customers are for -- the top -- let's say, the top 20 mortgage bankers that we always talk about -- our focus has always been on the retail side. And most of those guys have really big retail operations. And they try -- and that is the side that's really being the difference between us and what our competition out there -- the Tier II, or even some of the Tier I competitors who have seen greater than 40% downturn in the lender-services type market.

So, I think that the wholesale side -- we -- we're not big players there, because the wholesale, by definition, comes through their broker networks and stuff that somebody else feeds off, and then -- we focus more heavily on the retail side.

Now --

So, the wholesale wouldn't have much of an impact on you?

Yes. Now -- yes. Now, to address your question about cost takeouts and "How far can we go?" -- obviously, we have a pretty big infrastructure. And one of the reasons that we are trying to consolidate brands into a minimum amount of brands is to try and gain that ability to go after a little bit more in cost savings than we would have done in the past. And we're also aggressively trying to improve or -- the ability to kind of move work offshore.

Okay. And how much do you think you could save, relative to where your current expense run rate is, if we look out towards the -- say, fourth quarter or the first quarter, on an annualized basis?

It's still in process. Some of the consolidations we can't -- I mean, for example, facilities and stuff -- we can't move out of it until the end of the third quarter and stuff. But if I had to kind of pick a number, the number is in the neighborhood of close to $10 million in annualized savings that we contemplate taking out at this point, not including anything aggressive -- more over and above what we're doing now in offshoring.

Okay. So, $10 million out of Lender Services -- and that's -- and would you anticipate more charges in order to do that?

We did say that --

(Inaudible).

We did say that there is going to be some charges in the third quarter. And I can have John talk to that.

Yes, Mark. In my presentation, I said we were going to anticipate a charge of about $1.6 million in Lender Services in the second half.

That's right.

Yes.

And that's primarily related to what you and Anand were discussing.

Yes. Okay, great.

Okay?

And then, how would you anticipate that the Lender Services revenue could trend for the rest of the year? I mean, do you think we've hit a base level? Or would you anticipate that things would continue to trend down a little bit from these levels?

Right now, what we saw -- and one of the main impetuses and when we changed guidance was looking at the lending markets, right? We saw the second quarter, which, in my mind is usually the quarter that you build the momentum in the spring months for the summer months, and back to school. And then the fourth quarter, basically, is a quarter that tails off --

Sure.

-- from its normal seasonality. We did not see the momentum in the second quarter. And, basically, we saw -- what we, indeed, saw was a experience -- was more of a 5% -- just about a 5% month-over-month steady decline. We are hearing from the industry that they are expecting, maybe, a leveling off in the next 60 days. And then, that would be the turn. So, that's our hope at this point.

Okay.

Yes. Mark, I might add, there's a lot of -- just a lot of macroeconomic things that are happening in the mortgage markets, with the new government legislation and the "propping up," for lack of a better term, of Freddie and Fannie, and things like that. And that, certainly, should be a positive, at least. Now, how much it moves the needle, we'll have to wait and see. But it's certainly good that there's action being taken.

It sounds like, based on what you see -- and it's hard -- obviously, it's hard to gauge. I mean, we may not -- things may or may not -- I guess what I'm trying to ascertain is to what degree -- where are you looking for stabilization in order to get to your new EPS forecast, because it does seem like the macro -- I think you guys are doing as good a job as anybody could do, and -- under these circumstances. But, obviously, the circumstances are -- seem to be changing for everybody, and I'm just --

Yes. Mark, I might add that, Company-wide, we think we're going to have a -- certainly, a better second half in the Employer Services segment than we did in the first half of the year. And a lot of that has to do with -- in my judgment, we were ahead of the curve, so to speak, in starting to consolidate operations. And, as you know, we've been doing that conjunction with our acquisitions.

But, I think our folks who run that segment started off pretty early on in the year, in terms of looking at synergies in that segment. And, certainly, we had a lot of opportunity to develop them because we had all the acquisitions in there. But, we're looking for some good margin improvement in the Employer Services space in the second half of the year.

And that's been our seasonality.

And that's -- that's -- fourth quarter, if you look back, historically, over the last year or two, has been a pretty good quarter in that Employer Services space -- and that's going against these macroeconomic headwinds, too.

Yes. That was a nice sequential improvement, when we back out the charge and --

Yes. And we anticipate that -- anticipate continued improvement in that segment in the second half of the year.

Okay, great. And then -- so, can you give us kind of a sense for -- I think one of the things for the investors who are listening on the call, who may not be as familiar with you is -- when they hear the EPS guidance, but there's no sort of revenue that's attached to it, it's a little bit of a head-scratcher. Can you kind of frame things a little bit?

Yes. I think I answered that before, in terms of -- we weren't prepared to give revenue guidance. And the -- certainly, it's going to be a tough act to follow last year's, given where we are midway through the year. But, no -- we're going to have to pass on the revenue question.

Okay. I'll hop off for now.

Thanks.

Thanks.

(OPERATOR INSTRUCTIONS)

Our next question comes from Kyle Evans, Stephens.

Hi, thanks.

Hey.

John, you rapid-fired through all those organic-growth rates.

I'm sorry.

Could you take a deep breath and go a little bit slower this time?

Yes. I'm sorry. I apologize. Quarter-over-quarter declines were in -- in Lender Service -- in Lender Services, 31%, in the Data Services, 14.5%, Dealer Services, 9.2%, Employer, 7.2%. And then, we had increases in Multifamily of 1.6% and Investigative segment was up 34.4%.

Thank you.

Okay.

And the -- Anand, maybe some commentary on the market share that you're seeing over in the Lender Services segment?

The Lender Services segment -- I don't think our market share has come down at all. I actually talked to our people, and they make -- they would make a case to say that in down markets like this, when [refis] come out, and when broker productions are very low, our market share actually goes up. So, I would just say that, still, it's north of 40% -- 40% to 45%.

Okay. And lastly, you gave international revenue contributions from Litigation Support and Employer Services. Is there any other part of the business where there is international contribution?

Very little or -- Investigative piece -- outside of Litigation Support, there's a piece that we have a database of hedge-fund managers. We've been told that there is a heightened level of interest in Japan and in Hong Kong areas for those services. But it's very -- at this point, I'd say it's immaterial.

So, total international contribution kind of been in the 13% range?

Well, I can tell you, for Employer Services, for the quarter, Kyle --

Yes?

-- was -- revenue was $12.3 million. And for the international business, it was $11.7 million for the quarter.

I guess I'm not -- you gave me a $12.3 million number, and then an --?

In Employer and Investigative Services, international revenue was $11.7 million.

Okay. And do you have in front of you there the currency impact on the quarter?

I do not. But I don't think -- it really wasn't that significant.

Okay. Thank you.

Okay.

Our next question comes from the line of Mark Marcon, R.W. Baird.

Could you mention some of the balance-sheet items again, just what your net cash is, and what your net debt is?

Sure. Sure, I will. We have cash at the end of June -- these are obviously as of June 30th, Mark --

Yes.

-- $41.5 million.

Okay.

And we have total debt of $73 million -- $73.7, to be exact.

$73.7 million -- and what did you say the availability is currently?

$175 million on our bank line.

Okay. So, that's -- and it's under --

$45 million line.

Yes. And with your current EPS guidance, what would that translate to, roughly speaking? Your cash-flow generation continues to be quite strong. Where do you think free-cash flow could come in for the year?

Well, so far, we -- I think it could be pretty consistent with what we've -- on an annualized basis, obviously, on what we had for the first six months.

Okay. So, just basically -- but the first six months was -- you don't foresee much of a change relative to that run rate?

Not significant. I think our tax payments will be -- going forward, will be pretty consistent. Cash flow is obviously a little harder to predict than earnings are --

Sure.

-- because there's more moving parts. But I think our -- I don't see -- foresee any big differences in CapEx. Certainly, if anything, it might be a little less in the second half --

Okay.

-- than where we are now. So, I think the first six months is probably a pretty good indication of -- on an annualized basis where we might be.

All right. And in terms of ILS -- obviously, that does tend to be quite lumpy. How are you thinking about that as we go out in to the second half of this year? Is there much visibility at all, in terms of how that should trend? And last year, during the second half, you ended up having a really stand-out performance. Is there any seasonal aspects to it that could cause it to jump back up sequentially?

No, not really. It's just a question of when a big project or two, if you will, comes in to the door. So, I wouldn't look at last year's third and fourth quarter, for example, and think that's indicative of what this year's third and fourth quarter will be. Quite frankly, if there is any indication, it's probably more on a sequential basis than on a year-over-year or quarter-over-quarter basis.

Right. Okay, great. And then, can you just tell us what CMSI and FAIS was, just in the second half of last year, just so we can get our models straightened away? Or, can we just take the impact that we saw in the first and second quarters and just annualize that?

Yes. Of course, they're discontinued operations.

Right.

Yes. I don't have those prior-year numbers in front of me, Mark.

Okay. Yes, we just wanted to --

I might be able to get those to you if you give me a call.

All right. We'll do that.

Okay?

Thank you.

Yes.

Thank you. That does conclude the conference for today. Thank you, everyone, for joining. You may disconnect all remaining lines at this time. Once again, thank you for joining today's conference call. That has concluded the conference for today. You may disconnect all remaining lines.