First Advantage Corp (FA) 2008 Q4 法說會逐字稿

Thank you all for holding and welcome to First Advantage Corporation's First Quarter and Full Year 2008 Earnings Conference Call. All participants will be in a listen only mode until a question and answer session of today's call. This call is being recorded and will be available for replay from the company's investor relation pages on their website at www.fadv.com and through March 10th by dialing toll free within the United States at 866-421-0435 or 203-369-0798 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 cost reduction initiatives and impact on improved deficiencies in future quarters, including headcount reduction, facilities consolidations, reduction in professional services and marketing related expenses and other statements that do not relate strictly to historic 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.

Risk 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, and Third Quarter 2008 10-Q for a 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 fourth quarter and full year of 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 a net loss from continuing operations of $3.5 million or $0.06 per diluted share in the fourth quarter compared to net income of $78 million or $1.32 per diluted share in the fourth quarter of 2007.

Results of operations for the current quarter includes an impairment loss of $19.7 million or $13.7 million after taxes and minority interests, $0.23 per share, and a restructuring charge of $3.4 million equivalent to $0.03 per share. The impairment charge reflects the change in the estimated fair value of goodwill associated with our regeneration business as a result of less than expected cash flows generated by the business, together with reduced market valuation metrics in the current economic environment.

Result of operations for the quarter and year ended December 31, 2007 includes a pretax investment gain of $97.4 million or $58.4 million after tax equivalent to $0.99 per diluted share related to the sale of common stock of DealerTrack Holdings. Excluding the impact of these transactions, diluted earnings per share from continuing operations was $0.20 per diluted share in the current quarter compared to $0.33 per share in the fourth quarter of 2007.

Operating results for the current quarter includes $1.5 million of costs associated with consolidating operations in our lender services segment; $800,000 in our employer services segment and other restructuring costs at corporate and other segments that totaled approximately $1.1 million. Operating results for the year ended December 31, 2008 include restructuring related costs of $9.7 million as results for 2007 also include $9.7 million of severance and restructuring costs.

Earnings from continuing operations before interest, taxes, depreciation and amortization EBITDA was $35.1 million for the quarter ended December 31, 2008 compared to $42.3 million for the quarter ended December 31, 2007. A reconciliation of EBITDA to net income was included in our earnings release.

For the year ended December 31, 2008, EBITDA was $142.2 million compared to $162.8 million in 2007. Cash provided from continuing operations was $32.5 million in the current quarter. Our capital expenditures were $7.7 million in the quarter resulting in free cash flow of $24.8 million.

For the year, our cash flow from operations was $122 million excluding approximately $56.9 million of tax payments made in the first quarter of 2008 relating to the gain I mentioned previously on the DealerTrack shares that were sold in the fourth quarter of 2007.

Capital expenditures was $35.3 million in the current year yielding free cash flow of $87.1 million. At December 31st, we had positive working capital of $102.8 million. Service revenue which excludes our reimbursed government fees was $181.9 million in the current quarter compared to $187.7 million in the same quarter last year. For the year, our service revenue was $727.3 million compared to $770.2 million in 2007.

Operating income excluding the impairment charge was $18.7 million in the current quarter compared to $31 million in the fourth quarter of 2007. For the year, operating income was $93.6 million, once again excluding the impairment charge, compared to $121.1 million in 2007.

Our consolidated operating margin was 10.3% in the current quarter compared to 16.5% in the fourth quarter of 2007, once again excluding the impairment charge. Lender services margins decreased from 7.45% in Q4 -- increased from 7.45% in Q4 2007 to 11.1% in the current quarter excluding the restructuring charges of $1.5 million.

Our volumes picked up in December due to reduced interest rates triggering an increase in mortgage applications. Organic growth declined by 25% year over year, 17% quarter over quarter, and 13% sequentially reflecting the reduced volumes that we've seen in the mortgage markets.

Data service margins were 15.5% in the current quarter excluding the impairment charge compared to 18.6% in Q4 2007. Margins improved in our direct to consumer regeneration and specialty credit businesses offsetting reduced margins in our transportation and criminal data businesses.

Year to date margins declined from 27.7% in 2007 to 18% in 2008. All of the businesses in this segment experienced margin declines. In the case of specialty credit and transportation, margin declines were due to reduced volumes. In the case of our regeneration business, the margin decline for the year is due to a change in revenue mix from traditional higher margin regeneration to lower margin e-advertising revenue.

Organic growth in revenue was 20.5% for the year, 125% quarter over quarter, and 91% sequentially. Substantially all of the growth was in our regeneration business primarily e-advertising and direct to consumer.

Margins in the dealer services segment were fairly consistent quarter over quarter and year over year. This is attributable to significant cost reductions and a paring down of our vehicle regeneration business. Revenue declined by 15% year over year and 31.2% quarter over quarter reflecting reduced volumes in credit reporting and the aforementioned paring down of the vehicle regeneration business.

Margins in our employer services segment were 7.5% in the current quarter compared to 17.3% in the fourth quarter of 2007. Margins declined in all of the major business units and revenue declined by 24.7% on an organic basis. For the year, margins declined from 12.5% to 7.9% as revenue declined by 12.2%.

Our multi-family services segments margins increased from 15.5% in the fourth quarter of 2007 to 20.6% in the current quarter due to cost reductions as revenue was essentially flat. For the year, margins increased to 28.8% from 25.8% primarily due to operating deficiencies as revenue grew by 1.5%.

Margins in our investigative and lit support segment were 41.5% in the current quarter compared to 51.7% in the fourth quarter of 2007 as revenue declined by 45%. For the year, margins were 38% in 2008 compared to 42.7% in 2007 and revenue declined by 5.8%.

Our balance sheet is very strong. At year end, First Advantage had total debt outstanding of $32.8 million, including fixed rate debt of $5.2 million with an average interest rate of 5% and variable rate debt of $27.6 million with an average interest rate of 2.6%. Our debt to capital was very minimal -- 3.5%. Our available and unused lines of credit was $205.5 million at year end and we had $52.4 million of cash on hand.

For the quarter, interest expense decreased from $1.4 million in 2007 to $408,000 in 2008 due to significantly lower average debt balances. Average debt outstanding during the current quarter was $41.6 million compared to $101.8 million in Q4 2007. The average interest rate was 4.7% in 2008 and 5.38% in 2007. That concludes my presentation. Now I'll turn it over to Anand.

Thank you, John, and good afternoon, everyone. 2008 was a year where the global economic downturn impacted most of our business segments except for multi-family and lead generation businesses. Fortunately, we were able to identify these declining trends in early 2008 and react to the challenging environment with meaningful expense reductions in labor costs, business consolidations and closure of underperforming facilities.

Initiatives included decreasing US staffing levels by 22% which ultimately resulted in a 20% annualized reduction in salary expense. In total the expense reductions taken during 2008 combined with those in progress today will help us manage the downturn and pay long term dividends in the years 2009 and beyond.

In lender services, year over year service revenue declined 16% in reflection of the market downturn that saw mortgage originations decline rather dramatically. After three quarters of decline, we saw a late pick up in the fourth quarter boosted by lower fed funds rates and increased mortgage refinance activity. This surge continued through January and is still going on though at moderate levels.

The key point for us was the resurgence in our operating margins, especially aided by all the cost-cutting and consolidations done in 2008. Compared to 2008 operating margin of 15.5%, the margin in January of 2009 was 26.7%.

As announced just last week, the new administration's housing bailout package is committed to helping nearly nine million struggling US homeowners to refinance or modify their loans. The unified focus in stemming the foreclosures and reigniting the housing industry can only benefit us.

Sharp increases in delinquencies are pushing lenders and portfolio holders to focus more on deteriorating credit quality. Broad solution products are back in demand as new regulations take effect in 2009.

Our strategic marketing services provide solutions that help lenders in their loan modification programs. The current trends in the mortgage industry points well for us to be a market leader and continue to consolidate and grow market share.

The data services segment saw an increase in service revenue of 125% on a quarter over quarter basis and an increase of 21% on a year over year basis. Most of this upswing is due to our regeneration business.

E-advertising revenue has been consistently growing since the middle of 2008 with a 600% growth in the fourth quarter. Although our traditional lead generation business in the payday lending and subprime automotive verticals continue to be affected by the decline in economic conditions, e-advertising products, particularly in the health and wellness area, are still big drivers of demand. Our e-advertising network, a marketplace of over 400 affiliates and more than 300 urls, provide us with a unique opportunity to be the brokers that facilitates in demand consumer products.

Our consumer credit business performed well in the fourth quarter as 100,000 new members were added to the private label identity protection product. The additional members increased our total number of managed membership counts to 1.9 million. The new year is starting out well as we are seeing increasing growth in credit monitoring transactions and significant volume increases from new clients.

Our specialty finance and transportation services business continues to perform well in a tough economic environment. We continue to seek strategic diversification for our core products by utilizing other relevant data to supplement the traditional data sets, targeting more mainstream financial services clients, and growing internationally. We're also developing an anti-fraud and bad check solution to help point of sale check cashiers without the traditional lending infrastructure.

In our dealer services segment, amidst challenging market conditions, our focus has been to improve operational efficiencies and streamline our business so that margins remain strong. Our success in doing so is reflected in operating margins which declined 7.5% on a service of revenue reduction of 31% in the fourth quarter. And on a year over year basis margins remaining flat those service revenues decreased 15%.

While visibility into 2009 remains uncertain especially in new car sales, our profit is fine maybe in the used car industry especially with strong January sales figures of certified pre-owned vehicles. Additionally, we are pursuing every opportunity to introduce new products to our distribution channels of more than 9,000 auto dealers and more than 50 strategic marketing partners.

More recently, we launched a credit and lead advantage -- the industry's first consumer information positioning product for auto, RV and marine dealers. This product delivers key consumer demographic and lifestyle information to dealers providing them with insight into every applicant so they can identify the highest quality prospects. Also over the last two years we have placed special emphasis in growing our independent dealer network which should help us as the focus shifts more towards used car sales.

The employer services area has been adversely impacted with the global trend of reduction in labor. Service revenues in the employer services segment decreased by 23% on a quarter over quarter basis and by 10% on an annual basis. A steady stream of news from corporations announcing staff reductions indicate a global trend of employers going into preservation mode.

In response, we have made measurable progress in our cost reduction programs and continue to address operating efficiencies throughout this business segment. Expense reductions during 2008 totaled $8.5 million which should mean approximately $12.7 million in reduced operating expenses on an annualized basis going forward. A significant part of the cuts were headcount reductions which saved $5.6 million in 2008 and should contribute approximately $10.5 million in 2009 and beyond.

On the business development side, we are actively engaged in bringing on new client relationships within the US and internationally. In the US, the areas of client winds have been in gaming, biometric services with government and state agencies, and business services. In international the client winds have been in retail, business services, and financial services.

The service revenue in the multi-family segment remained flat during the fourth quarter of 2008 with a slight increase on an annual basis. Operating income increased significantly during the fourth quarter of 2008 to 20.6% versus 15.5% in the fourth quarter of 2007. On an annual basis, operating income reflected an 11% increase year over year, the result of strict focus on cost containment initiatives.

The continued emphasis on analytic tools for the property management product suite, deployment of a new billing system with online payments, on boarding and compliance have helped back office efficiency and improved customer satisfaction. Renters' insurance continues at a healthy 30% annual growth rate.

In our investigative and litigation support segment, the metrics point to lower revenues on a comparative level, but from a market and competitive perspective we remain excited about the future. The decrease in service revenue is reflective of the product based nature of the business and external pressures attributed to corporate clients delaying cost outlays for litigation expenses and law firms continuing to reduce outsource costs. The long term opportunities in e-discovery and litigation support will accelerate as the likelihood of lawsuits resulting from the economic fallout increases.

We are well positioned globally to capitalize on opportunities we are currently pursuing -- investigations in the areas of fraud, price fixing and foreign corrupt practices act. As we navigate through the spirit of stiff economic winds, we remain committed to focus our efforts in managing our business for the long term.

When combining our diverse product mix, global reach and a strong balance sheet, we are confident that we can operate efficiently and effectively during these challenging times. I would now like to open the call up to questions.

(Operator Instructions). Our first question comes from Carter Malloy from Stephens, Inc.

Yes, hello guys. Thanks for taking my questions. You noted that the volumes were up in December but you kind of comment on the overall volumes you saw throughout the quarter?

Overall volumes? This is in the lender services segment?

Yes, yes, I'm sorry -- in lender.

Yes, we did see the uptake in the fourth quarter and if we have to actually compare from end of December to January the increase was significant. It was about 58%. So it was a significant increase and January over December was about 18% increase.

February we're seeing a slight drop off in it, but not too much and so we remain enthused about if the government's housing bailout programs and the rates stay low we could see some sort of continued transaction levels.

Okay, that's great. And then last quarter you also commented that your competitors were getting pretty desperate on the pricing and driving down you know industry pricing as a whole. Can you tell if you're still seeing that activity and also maybe if you've seen a rise in the bankruptcy of those guys and, if so, the effect on your market?

In general, because of the economic climate, we're seeing a lot of our competitors going through a lot of pressures. There has been some irrational pricing out there, but in general the client community is looking for high quality providers so I think that you've got to balance that out.

While we see people just about to go out of business putting out really ridiculous pricing out there, we're seeing a little bit more reticence of lenders and other providers taking advantage of that. So I would say the pressure's still on but it's not as bad as it used to be.

Okay, that's good to hear. And a couple of more and I'll get back in the queue. But any bad debt issues in the quarter?

Hi, Carter, this is John. No, really nothing significant. Our bad debt expense was up a little bit in the fourth quarter compared to the third quarter. We were at about $2.9 million in the fourth quarter compared to $2.4 million.

But it's kind of fluctuated around that number all year so I wouldn't say we've seen any dramatic increases in credit -- most of that in the lender services fees -- most of that was behind us. It kind of is more concentrated probably on the employer services segment versus lender now. But overall it's pretty consistent so it wasn't a big impact on the quarter.

Okay, great. And then lastly can you just help me understand more the dramatic rise in internet advertising within your region?

Yes, I'll take that. We have always had our e-advertising network and the business revenue mix and the composition of the revenues used to be in payday lending, subprime automotive and e-advertising. This payday lending and subprime automotive verticals are basically non-existence now or not profitable and they used to be very profitable for a while.

The e-advertising side is more of a brokerage between where we match offers with consumers out there and that -- but it's a pretty healthy margin. It's not -- it may not be the margins of payday lending and subprime automotive which used to be in the 40% range, but it's 15% to 18% and maybe we could even move it a little up. And that is really growing and from a product standpoint it all is revolving around health and wellness and home improvement -- those kind of products.

But can you tell us why you've seen that type of growth within that just now as opposed to over the long term?

This has been a growth not just over just immediately. We've -- like we said in our script, the growth has been building since the middle of 2008. Obviously it was explosive growth in the fourth quarter and that's because of the health and wellness phenomenon called acai berry. But now we have a lot of health and wellness products. What we're trying to do is to diversify within those lines to build a lot of sustainable traction in the long term.

Okay, great. Thanks guys.

Your next question comes from Brian Ruttenbur with Morgan Keegan.

Thank you very much. Along those same lines -- first question was on the explosive growth in the data services lead generation area, health and wellness and you said what was it specifically in health and wellness? Was there a specific area within health and wellness that you just said that was --

It's -- it's -- Brian, this is Anand. It's basically in weight loss.

Oh, weight loss, thank you. Yes. And do you expect that just to be seasonal that you know people around the holidays began the year kind of stuff will be picking that up or?

There is some seasonality but it's not -- we have seen this build up from the middle of 2008 and it's possibly also because of our -- the focus that we have turned towards the e-advertising that works as a long term -- it's just that we can take advantage of it. We are actually being cautious about our growth.

If we let it, this could actually be a lot more explosive than it is and we want to be cautious. We want to make sure that we work with the providers that we are comfortable with and we want to balance the growth. So yes, today it's weight loss and health and wellness and it's -- it will be different products as we go on through the year.

There is some seasonality for health and wellness in the beginning of the year because of most people's New Year's resolutions, but we see this continuing at least for we know already February it's been bigger than January.

Wow. And is January bigger than December.

Yes.

Okay. Okay. So it looks like lender services is coming back. It looks like data services is getting this explosive growth. And everything else is -- well employer services is down some and probably will be trending down and everything else like multi-family is kind of flattish.

Yes.

Okay. Data -- dealer services should be kind of flattish or down year over year?

You know we have been at the transaction levels we were worried about it because of all the public scrutiny and attention that it garners right now. But is hasn't been as bad as we anticipated so we are encouraged by it and I think it's because in the first early months of the year there's been a lot of activity in the CPO or certified pre-owned vehicle area.

Okay.

So we had to wait and see. The automotive market is anybody's guess and obviously with the Big Three being in the shambles that they're in we're just cautiously optimistic.

Okay. In addition gross margins because of this ramp of lead generation, gross margins should be running around kind of the fourth quarter levels of you know 58% or if you back out the government fee 62%?

Yes, Brian, this is John. Yes, I think that's probably a pretty good estimate and we as you know usually do it off of service revenues, so I would go with the 62%.

Okay. Okay. And then just going on to salaries and benefits and other things like that. Is it good to kind of fourth quarter kind of holding those levels -- is there anything that's going to spike -- other operating or sales and benefits either way up or down?

Yes, this is John again. I don't envision anything going forward that would necessarily spike up to either one of those categories.

Okay. And easy question for you guys -- tax rate. You had a lot of weird things going on in the quarter but the tax rate going forward should be around 41% or?

Yes, when you look at our whole year in 2007 it was about 53%, but going forward it's about 41%, 42% --

Okay.

-- should the effective tax rate.

Great. Thank you very much.

Okay, Brian.

Mark Marcon with R.W. Baird

I wanted to follow along on the e-advertising questions. What was the specific name of the service that you're marketing? I thought you mentioned one?

Oh, the acai berry?

Yes.

It's a weight loss product, yes. And that's just a product, but the product names that they are being marketed under could be any number of things. It's basically health and wellness or weight loss aid type products.

Do you have any like famous brand names?

Not that I could think of.

Okay. And is it essentially that it's all been around one producer or is it a whole host of them?

There's a whole host of them and that industry works through anybody who wants to offer products to anyone. And what we do in the e-advertising network is present those offers to the eyeballs that are interested in it so if you take a look at putting down what do we do, what we do is we facilitate a process by which we present consumer's request for information with people who have the information to provide for that request.

Okay. And what's your sense in terms of -- I mean you've obviously mentioned January was better than December and February was better than January. So as we look at the revenue rate that you had in the fourth quarter, are you anticipating that that's going to continue to build as the year goes on?

You know it's -- again with the lead generation there is also a speculative element, but if I had to just go with the first couple of months of the year I would say the revenues are in the $20 million range a month.

And we -- needless to say because of it's such an explosive growth, John and I from a corporate perspective are very careful about not -- we want to be -- we want the growth to be manageable and also to make sure that it's growing with profitable operating dynamics that we are comfortable with. So we are pouring over day sales outstandings, and customer contracts, customer concentration, type of products, diversification with the products, lines, all of those kind of things.

What's your primary hesitation or reason for caution?

It's mainly because it's -- it is a lead generation and if you really understand that business it's like Oprah getting on her show and saying that this particular book is a great book, I'm going to put it on the Book Club and you would see that person rising to the best seller list.

So just by that fact -- it's -- part of -- I think most of the nervousness is for us is because of the newness and because of the growth -- the trajectory of it -- we have always had e-advertising -- ever since we bought that company. And one of the reasons we bought that company was because of this network of affiliates and a marketplace that we can see a lot of eyeballs and facilitate transactions. It's just now we're just taking a cautious approach because this market has just been a topsy turvey market.

So as you plan for '09, how are you -- how are you planning for it and how are you -- what would be a reasonable thought with regards to revenue for the year, margins for the year --

That's really looking too far out there. We're kind of looking at this business at least quarter over quarter at this point.

Mark, this is John. As Anand pointed out, it's -- it has grown rapidly and you know really starting in mid-2008, but certainly accelerating in the fourth quarter and into the first quarter of this year.

But it is -- it is new to us from the standpoint of the volume that we're seeing and we're just going to be a little -- we're just being I think prudent in -- in not -- you know it's new to us and prudent in managing the volumes that we're dealing with. So to try to speculate as to the sustainability of it over a longer term throughout the entire year is a little difficult at this point until we get a little more seasoned in the business.

I will tell you this though -- e-advertising it will be a key line -- business line in the business segment for us going forward in lead generation. We're pretty comfortable about that. To the extent of how much and how many lines are we going to get into and what could that mean, probably give us another quarter or two, we'll be much more confident about what should that number be -- should that be $100 million or $200 million.

Have you had experience in the past with a -- with a particular vertical or service that ended up spiking but then hold back? Is that part of the reason why you don't want to project it?

No, it's mainly because it's -- we like the fact it's a data business. We like the fact it's in the consumer arena. But our focus in the past used to be payday lending and subprime auto because it kind of closely aligns with our other businesses. And that business -- I mean the payday lending and subprime auto grew from zero to $55 million over like maybe two years or three years and we bought it for about 18 months.

So this is the nature of this industry and we're just now knowing that the core -- what used to be core is not core anymore because that business is highly regulated and is going away. So we're kind of now transitioning into a different area and we just want to be careful about it because this market used to be dominated by magazine publishers and those kind of businesses, and now it's more into the data and consumer arena.

Got it. Thank you very much.

Okay, Mark.

(Operator Instructions). And the next question comes from Nat Otis with KBW.

Good evening, gentlemen.

Hey, Nat.

Hi, Nat.

Just -- actually just some clearing up questions. First do you have the amount of international business you did in the quarter?

I do. You want to give us your other questions and then we'll get back to that one?

The second one was actually if you could do the quarter over quarter organic growth stuff again quickly.

Sure, I'd be more than happy to.

And then the last question is actually just any color on hedge fund business as you started '09? Certainly it was dipping to end '08, but just seeing if any changing dynamics in the marketplace make -- make the likelihood that you might gain a little of it back to start '09?

Yes, Nat, I'll handle the last question while John's preparing the other information. On the hedge fund business, that business has been impacted because of the lack of activity over the last couple of quarters. Do we see a resurgence of activity in the 2009? Maybe a little.

But the bigger opportunity that we see is -- is actually in litigation -- e-discovery and litigation support work because of all these problems that they've been having in the hedge fund area. And we're -- that's an area that we're actively pursuing and we're engaged in a lot of discussions around investigations in fraud of hedge fund managers and portfolio managers.

You've traditionally talked about a little about that e-discovery pipeline in there. Any comments there and anything that actually is associated with more of the lawsuits from Wall Street? Anything like that?

Yes. I can't go too much into it because those are all things in discussions right now. But yes, there is a few here and also in international we're actively trying to get into those kind of things.

The big story in litigation support and you would have seen our competitors -- there's a lot of changes and consolidation happening amongst competitors over there partly driven by corporations just going through delaying or trying to look at litigation as a discretionary expense.

Law firms are trying to reduce outsource costs and organizations -- corporations are also trying to see how far they can delay it. I -- we believe that those are going to be just a delay and not necessarily a drop off because if it is an investigation they do have to defend they have to provide and e-discovery services are part in parcel of the litigation. But it's more of a timing issue and -- but right now it is -- that industry is definitely in sort of a lull.

Okay, that's very helpful. Thank you.

Okay, Nat, I'll give you the organic growth rates, okay?

Okay.

You want quarter over quarter, Q4 over --

Quarter over quarter, please.

Okay, sure. Lender was down 17%. Data services was up 125%. Dealer services was down 31%. Let's see -- employer services was down 24.7%. Multi-family was basically flat. And investigative was down 45%. And company wide that puts us down 5% on a, you know, organic basis.

Okay.

You asked about international revenue?

Yes.

In fourth quarter '08 it was $7.9 million.

That's great. Very helpful. Thank you.

Okay.

That's in background screen.

Yes.

That's background screening.

That's just in background screening, okay.

And then in -- total employer was $8.2 million.

Okay.

Employer services was $8.2 million.

The next question comes from Mark Marcon with R.W. Baird.

I just had a couple of quick follow up questions. One would just be on the -- you mentioned on employer services that we should see some -- some continued expense reductions. Obviously the trends are still going to be negative. So when we thing about the margins and what you would hope to accomplish in that particular division, how should we think about it?

I'll take the business side of it and, Mark, that's an area we have cut a lot of headcount reductions. What we're trying to do now is to trying to do now is to try to look at other programs of maybe look at expense reductions more from a reduced work -- those kind of things because these are businesses that we're committed to. These are core businesses for us and it's -- and we have a really good presence and when the market turns we're in a great position to take advantage of it.

With -- that's more directly related to the economy and right now you're seeing globally -- I don't think we've looked across the enterprise. It's everywhere -- hiring is down. We are kind of getting some client winds like I mentioned in different areas and stuff but not enough to overcome the drop offs and by the delay in hirings or staffing reductions.

So the employer services is one that we have to kind to wait and see, we are -- we have a lot of plans to manage expenses better. We have taken a lot out of the expense side of it on that side, but it's -- we've got to wait and see. That's one area that's just globally it's just going through a downturn.

Oh, sure. I mean that's pretty well known that employment is falling off globally. I guess what I was just trying to think of is just you know if the magnitude of the declines continue through most of this coming year I'm just trying to think through exactly what the offsets are in terms of the expense reductions that you're already taken or plan on taking.

Over and above what I already mentioned, we are looking at a lot of different ways that we can drop expenses off and we've probably got like five or six programs that could help. But we are careful about kind of looking at -- we took a lot out of headcount last year and this year before we do it we need to kind of look at reduced hours and those sorts of things because we do need the skilled workforce there to manage the flow.

And so what you're taken out relative to the expense base that you exhibited in the fourth quarter was an additional $10 million in annualized cost savings.

Right.

Yes.

And then with regards to lender, is there any way that we should -- or how should we think about the revenue opportunity for the resize relative to a purchase application? Is there any difference? And --

No. Mark, this is --

For us -- for us there is no difference between a refi and a purchase because it's a credit transaction sometimes happens even before anybody identifies what kind of a transaction it is. They're trying to qualify the borrower for anything.

But the attractive side of a lot of -- a lender's side for us -- lender services side for us is the loan modification programs. They have a tremendous amount of things that they -- a lot of the lenders and the portfolio holders have to do to kind of modify these kinds of loans, especially if they're going to extend the foreclosure and the increasing delinquencies that have happened across the board.

Great. So it sounds like that should continue to go on. Should you go back to your traditional margins in that area?

No, that -- unfortunately those -- those won't be in the traditional margins which is why we feel like the refis along with the loan mod programs will help us to balance out the margins and continue on to get back to where we used to be.

And so the combination of those we should see an improvement in terms of the overall margins for next year?

As we can see, I mean like for example in January compared to our older infrastructure and older cost structure we made the same amount of money on I believe about maybe $2.9 million in revenues -- lower in revenues.

That's revenues.

Great.

Yes, so that kind of shows you the consolidation that we have done and cost take out that we have done has really -- is paying dividends.

Terrific. And then how should we think about [IRS]? I mean that's obviously been extremely lumpy (inaudible) in terms of generating margins -- decent margins considering the lumpiness.

I think there will be a period of delayed projects, that's the way we look at it because we -- because these are projects in force and they're just delayed. I'm not sure how long or what kind of timeframe to give you. I would probably say that first quarter I could see that being down but it should come back and especially with all these new investigations picking up. It should be fine beyond that.

But, Mark, as we've told you, Mark, this is John, in the past you know this is a lumpy business and there's no reason to believe it won't continue to be that way going forward so there's really no seasonality to it per se.

We do think, as Anand alluded to in his planned presentation, that the environment we certainly think will be ripe for some significant litigation given what's going on in the markets.

Okay. So I mean the quarters could end up being lumpy but in general it sounds like if we take a look at your track record over the last couple of years nothing would lead you to believe that you shouldn't -- aside from particular quarters jumping around -- that --

Yes.

-- on an annual basis end up doing somewhat similarly to what you've done?

We believe so and that optimism is coming from a couple of things. One is because of the pipeline and the discussions that we're in and in the products that we're trying to get in and the receptivity that we've received. Especially in Europe we are now the bona fide leader in e-discovery -- that's another factor.

The other thing that we're noticing from a competitor standpoint in the US is we see a lot of the lower level competitors -- lower tier competitors dropping out. So we think that there's got to be some consolidation opportunities. But again like I said this is a -- this is a project oriented business.

But structurally there hasn't been any really significant change in the business -- you know the business model itself.

Got it. And then lastly, how are you thinking about the usage of your cash. I mean you've obviously done a great job in terms of paying down debt. Is that going to be the primary focus given the current environment or how should we --

Yes, this is John. Yes, we don't like toot our own horn but I think we have done a good job managing the working capital and our cash position. We will obviously continue to do that. We will continue to pay down some debt.

We have, as we've talked about in the past, we have some earn outs that we have to continue to fund which will probably be in the range of $20 million to $25 million, so we'll do that.

We'll also you know in this marketplace there may be some acquisition opportunity although we haven't done many lately as we planned not to and I think that was a wise move. There may be some opportunities going forward.

So I think we'll continue to do what we have done -- really focus on cash flow, pay down debt when we can, and -- but still have ample leverage in our balance sheet to take advantage of opportunities that might come along.

Thank you very much for the call.

Okay, thank you.

Thank you.

At this time, there are no further questions. This will conclude our conference call. Thanks everyone. You may disconnect at this time.