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Executives

Cindy Williams – Director Investor Relations

John Lamson – Chief Financial Officer, Executive Vice President

Anand Nallathambi – President, Chief Executive Officer

Analysts

Brian Ruttenbur – Morgan Keegan

Mark Marcon – Robert W. Baird

Carter Malloy – Stevens Inc.

Nathaniel Otis – Keefe, Bruyette & Woods

First Advantage Corporation (FADV) Q1 2009 Earnings Call April 27, 2009 5:00 PM ET

Operator

Welcome to First Advantage Corporation's first quarter 2009 earnings conference call. (Operator Instructions) This call is being recorded and will be available for replay from the company's investor page on their website at www.fadv.com and through May 11 by dialing toll free within the United States 800-224-1285 or 402-220-3691 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, Director of Investor Relations to make a brief introductory statement.

Cindy Williams

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 that impact our improved efficiencies of future quarters including head count reductions, facilities consolidation, reduction in professional services and marketing related expenses and other statements that do not relate strictly to historical or current fact.

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 for forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statement. Factors that could cause the anticipated results to differ from those described in those forward-looking statements include, general volatility of the capital markets and the market prices 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 those acquisition acquired, changes in applicable government regulations, the degree and nature of the company's competition, increases in the company's expenses of any 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 their 2008 annual report on Form 10-K and first quarter 2008 10-Q for a discussion of these and other risks.

We will now begin our conference call this afternoon with our Chief Financial Officer and Executive Vice President John Lamson who will provide an overview of our financial performance for the first quarter of 2009. Following John, We'll hear from 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 please to turn the call over to Mr. John Lamson.

John Lamson

Good afternoon everyone. We changed our reporting segments in the first quarter. We merged the previous Dealer Services and Lender Services segments and moved the Direct Consumer Credit Business previously included in our Data segment to a new segment called Credit Services.

Thus, the Credit Services segment includes the mortgage and auto credit services businesses and the direct to consumer credit business. The Data Services segment includes the same businesses as before except for the direct to consumer business.

All prior period information has been restated to reflect this change. Early next week, we will furnish historical information by quarter for the past two years with the new segments on a Form 8-K.

First Advantage reported income from continuing operations of $10.8 million for the first quarter of 2009 compared to $16.2 million for the first quarter of 2008. Net income attributable to First Advantage shareholders was $10.6 million or $0.18 per share in the current quarter compared to $13.3 million in the first quarter of 2008, $0.22 per share which includes a loss on discontinued operations of $3 million or $0.05 per share.

Earnings from continuing operations before interest, taxes, depreciation and amortization, EBITDA, was $29.2 million in the current quarter compared to $37.1 million for the first quarter of 2008. A reconciliation of EBITDA to net income is included in our earnings release.

Cash provided from continuing operations was $12.9 million in the current quarter. Our capital expenditures were $5.9 million in the current quarter, resulting in free cash flow of $7 million. We reduced our capital expenditures by $5.5 million compared to the first quarter of 2008. At March 31, 2009 we had positive working capital of $120 million.

Service revenue which excludes government fees was $190 million in the current quarter compared to $188.3 million in the comparable period last year. Operating income was $18.8 million in the current quarter compared to $27.2 million in the first quarter of 2008.

Our consolidated operating margin was 9.9% in the current quarter compared to 14.4% in the first quarter of last year.

Credit Services margins were 22.9% in the current quarter compared to 21.8% in the first quarter of 2008. Volumes increased in the current quarter on a sequential basis due to reduced interest rates, triggering an increase in mortgage applications. Organic growth declined by 14% quarter over quarter and increased 25% sequentially.

The Data Services segment margins were 9.6% in the current quarter compared to 19.9% in 2008. The margin decline is due primarily to lower margins, advertising revenue and our regeneration business. Organic growth was 212% quarter over quarter and 19.7% sequentially.

Employer Services segment revenue was $37.5 million in the current quarter compared to $53.7 million in the first quarter of 2008, a 30% decline. The decline in revenue reflects the increase of unemployment rates in the U.S. and overall recessionary environment both domestically and in our foreign operations.

Pre tax income declined from $3.5 million in 2008 to a loss of $500,000 in the current quarter. Sequentially, revenue decreased by $10.2 million from the fourth quarter of 2008 or 21.5%.

Multi-family Services segment margins increased from 26% in the first quarter of 2008 to 31.7% in the current quarter primarily due to cost reductions as revenue was flat. Sequentially revenue grew by 17%.

Margins in our Investigative and Litigation Support Segment were 9.8% in the current quarter compared to 40.5% in the first quarter of 2008 as revenue declined by 50%. Sequentially, revenue declined by 36.4%.

Our corporate expenses decreased by $2.9 million reflecting reductions in compensation and benefits, consulting fees and professional services, travel and entertainment and IT related costs. We recently announced to our employees that for 2009 we will not provide a company match for contributions to our 401-K plan.

We plan on resuming a contribution match in 2010 based on a yet to be determined profitability metrics of the company. The expense related to this match in 2008 was approximately $3.9 million which the company funded in the first quarter of 2009.

While the economic climate has had an unfavorable impact on some of our businesses, we believe we have taken the appropriate cost cutting measures in 2008 and early in 2009 to enable us to be as efficient as possible and continue to provide outstanding service to our many clients.

The aforementioned cost reductions at corporate and our business segments reduced capital expenditures and proactive action taking with respect to our 401-K plan are just a few examples of the necessary steps we have taken to operate in the current economic environment.

As you can see by our financial results, comparing the current quarter to the first quarter of 2008 we have reduced salaries and benefits by $13.3 million or 20% and total operating expenses from $107.4 million to $89.9 million, a reduction of $17.5 million or 16%.

We will continue to review operations to achieve maximum operating performance while continuing to provide outstanding customer service and expand market share which will enhance the value of First Advantage to our shareholders.

At March 31, First Advantage had total debt outstanding of $55.2 million including fixed rate debt of $4.1 million with an average interest rate of 4.9% and variable rate debt of $51.1 million with an average interest rate of 2%.

Our available and unused line of credit was $180.6 million and we had $59.2 million of cash on hand at March 31. Our debt to cap ration was 5.5%.

With that I will turn the call over to Anand Nallathambi.

Anand Nallathambi

Good afternoon everyone. The key note of the first quarter was the continued strength and refinance activity in Mortgage Credit Services. The increased level of activity is holding aided by the low interest rate environment. From all industry reports, it looks like the refinance activity will continue for awhile and will be further helped by the stimulus programs picking up steam in the coming months.

John mentioned earlier about the consolidation of the credit related businesses in mortgage, automotive and direct to consumer verticals into one segment. In addition to sharing the same back office infrastructure, this combination made sense with the liquidation of most of our stake in dealer track and the divestiture of CMSI.

The businesses are more homogeneous now and the future progression of products and services in these three verticals have more commonality among them. In the first quarter of 2009, revenues from the Credit Services segment declined 14% when compared to the first quarter of 2008. The year over year decline in service revenue is the result of a 6% decline in the mortgage credit reporting business and the 40% decrease in revenue in the automotive credit reporting business.

Operating margins increased to 22.9% from 21.8% compared to the first quarter of 2008 thanks to increased efficiencies resulting from cost take outs. In Mortgage Credit reporting the current transactional levels are about 11% higher than the average in the first quarter of 2009 and 32% higher than the average in the second quarter of 2008.

We're seeing a heightened need amongst lenders to verify income and employment as part of the underwriting due diligence. We believe this will continue along with the need for comprehensive credit reporting services as the loan modification programs take full effect.

Our products and services that allow lenders to assess loan portfolio toxicity are also receiving a great deal of interest. In the Automotive sector, driven by the lowest car sales numbers since 1982, our credit reporting business got off to a slow start during the first quarter. However, there are signs pointing to a slow resurgence in consumer confidence as more consumers begin visiting car dealerships.

Lenders are approving more auto loans. The Federal government is guaranteeing warranties and car makers are getting creative by guaranteeing payments or repurchasing vehicles from consumers experiencing economic hardships.

First quarter revenue declines in mortgage and automotive credit were almost offset by an increase in revenue in the consumer credit business as 65,000 new members were added to our private label Identity Protection Program.

The Direct to Consumer business had a 20% increase in revenue in the first quarter compared to a year ago. Significant planned roll outs and scheduled product launches should help their performance throughout 2009.

Service revenue in the Data Services segment more than doubled over the first quarter of 2008. Operating margins in this segment declined from 19.9% in the first quarter of 2008 to 9.6% in the current quarter as a result of increased revenue mix of Lead Generation Products.

Non traditional Lead Generation remains the revenue driver in this segment as key advertising once again displayed accelerated momentum. Compared to the first quarter of 2008, revenue grew more than five times and operating margins grew almost four times. Given the impressive growth, sustainability of trends and avoiding undue concentration of revenues is a priority for us. We are currently in the process of diversifying this business into a more predictable and higher margin business model.

In addition to the always popular health and wellness vertical, we are making inroads into new markets; debt settlement and home warranties, both of which more closely align to our traditional lead generation business and also result in higher operating margins.

Transportation services and Specialty Credit continue to perform well during these turbulent times. We have taken steps to optimize revenue, streamline expenses and develop new products, all of which help us be less vulnerable to new competition, irrational pricing and an expensive regulatory and compliance environment. The Payday lending industry has always been under tough legislative pressures, especially in the current political environment.

In our Employee Services segment, revenues declined 30% from the first quarter of 2008. This segment is feeling the effects of the current recession not only in the U.S. but globally as well. In March the unemployment rate rose to 8.5%. This compared to 5.1% at the same time last year. Every percentage point in unemployment translates to about a $15 million impact to our top line.

Current economic reports indicate a worsening trend over the short term and then recovering by year end. In response, we are furthering our efforts by increasing operational efficiencies, expanding our customer base and adding to our product mix.

Our focus on efficiencies continues in all of our operation centers world wide. In addition to the cost containment initiatives undertaken in 2008, we have instituted reduced work weeks, flatter management structures and are in the process of implementing a two week furlough over the next couple of quarters.

At this point we feel like we have taken aggressive efforts to streamline our infrastructure. Going forward, we have to take a longer term view with this business since the strategic opportunities warrant our commitment to retain the valuable staff and invest in product innovations for the future.

Intense focus on increasing our customer base continues with recent wins in the U.S. and abroad. Stateside, based on some recent wins, we see an opportunity to consolidate market share. Our success rate in Europe is about 80% from our fees which again indicate a great opportunity to increase market share.

Service revenue in the Multi-family segment declined 2% in the first quarter compared to a year ago, but operating margins were 32%, a 19% increase over the first quarter of 2008. This segment has been our most consistent performer with steady operating margins. With the economic downturn and lackluster new home sales or resale activity, the transactional turnover in this industry has been adversely impacted.

In addition, there is increased supply of rental units due to the mortgage market dislocation. More single family residences turn into rentals now than in normal cycles. Our performance is the result of the focus in converting more transactions toward analytics and implementing self service components where ever possible. Renters insurance continues at a healthy 30% annual growth rate.

In our Investigative and Litigation Support segment, demand weakened during the first quarter. Service revenue declined 50% compared to the first quarter of 2008 and 36% compared to the fourth quarter of 2008, representing the low point for this dynamic segment.

Industry wide, we are seeing a lull in enforcement of legal actions. We experienced a significant drop in data processing and progress with lots of delays and deferments in litigation projects by the middle of the first quarter.

As we have mentioned in previous quarters, this business is project based and although the pipeline is still full and active, the flow of work is at a lower level than we have seen in the past. It is important to note that it is more of a slow down rather than project cancellations.

In response to these slow downs, we have instituted a number of cost savings measures including head count reductions which will save approximately $2 million in 2009.

On a amore positive note, in addition to the projects in queue, we have noticed a lesser slow down on the international front as compared to that in the U.S. We intend to capitalize on this trend by further expanding our operations in both Europe and Asia Pacific.

The hedge fund investigative reporting business is also seeing an increase in business after a prolonged period of low transactional activity. Enterprise wide, we have been aggressive in taking actions to set our infrastructure to the economic environment.

Our global headcount is 23% lower than a year ago which translates to 1,169 fewer employees. Cost containment initiatives implemented to date, represent a total of $41.3 million on an annualized basis. We are continuing to look at creative ways to stay lean yet maintain the necessary base to deliver on the value expectations of our clients.

Financially, our balance sheet is strong with a low level of debt. The debt to capital ratio is 5.5%. We have reduced capital expenditures by 48% compared to a year ago.

In general, we believe we are well positioned to capitalize on the market opportunities as we come out of this recessionary cycle.

I'd now like to open the call up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brian Ruttenbur – Morgan Keegan.

Brian Ruttenbur – Morgan Keegan

First question I have is about the cash flow in the quarter. It appears just by you giving us the cash and debt that you had a negative about $15.7 million of cash generation. Is that correct, or am I missing something?

John Lamson

No, I think you may have missed something.

Brian Ruttenbur – Morgan Keegan

All right, help me out. From last quarter your debt and cash, at least what I had written down and I may have a mistake in there, but tell me about cash generation in the quarter and what happened there.

John Lamson

For the quarter, the cash provided from operations was $12.9 million, and our CapEx was $5.9 million. So that gives us free cash flow of about $7 million.

Now our debt went up because we paid out $23 million for acquisitions during the quarter, not new acquisitions, but we bought the remaining minority shareholder interest in Lead Click and we had a earn out payment on the Electronic Discovery business. But free cash flow from operations was $7 million.

Brian Ruttenbur – Morgan Keegan

Gross margins going forward, should they be at these levels? It looks like a year over year comparison your gross margins are down significantly. Is this the level we should be looking for over the next couple of quarters, low to mid fifties?

John Lamson

I think what happened this quarter was because we had the large surge in revenue in our Data Services business on the E-Advertising business, and that's as we've discussed a lower operating and gross margin business, so I think historically our gross margins have been running in the fourth quarter of '08 we were 62% almost and in the first quarter we're about 71.5% and this quarter we're about 57% gross margins. I think what you'll see us getting back to is the low 60's range.

Brian Ruttenbur – Morgan Keegan

You mean in the next couple of quarters?

John Lamson

Yes, throughout the remainder of the year.

Brian Ruttenbur – Morgan Keegan

Revenue and earnings, are they sustainable at these levels? First quarter levels I know first quarter was tough economically but can you maintain these levels or better of both revenue and earnings with the cost cuts you've implemented?

Anand Nallathambi

I think by and large we see some upside opportunities in some areas like we talked about. In Employer Services, even though we feel like there's economic reports indicating it worsening trend in the short term before things get better, we have seen a couple of major wins which means that market share is kind of shifting amongst traditional creditors.

We feel good about our chances and obviously mortgage, we feel like the refi activity is holding and we also feel like the stimulus programs and the loan modification programs haven't kicked in yet so there's some upside there.

The downside, and also we think the Litigation Support, as things pick up, litigation products that have been delayed; we haven't been told anything has been cancelled. Those things have got to come back in the later part of the year.

The one area that may be down would be the hot area for the first quarter was E-advertising and as we said in the last call, we like the increase in revenues but we don't like the revenue mix nor do we like the margins, and the sustainable of those trends. So we are diversifying that business into more verticals that are closer to our traditional lines.

So you would see those numbers kind of come down. So I'm hoping that will be a wash but that's the best answer we could give at this point.

John Lamson

I think the only thing I would add to that is the Multi-family services business, as you know from Farmers for a number of years is seasonal and we historically the second and third quarter, the earnings are better than the first and fourth quarter. So that normal seasonality, we expect that to kick in too if you're just extrapolating our first quarter.

Operator

Your next question comes from Mark Marcon – Robert W. Baird.

Mark Marcon – Robert W. Baird

I was wondering if you could give us a little bit of a feel in terms of what's going on underneath the surface in terms of Credit Services with the merging of the various entities in there and what I'm referring to specifically is if we were using the old divisions, under Lender Services, would the margins be up there or what's going on from that perspective and can you describe pricing in that division.

Anand Nallathambi

I'll address those questions one at a time. The first one was more of what's happening from a revenue standpoint, top line standpoint. Obviously like I mentioned earlier, on the Mortgage side, we feel like the refinance activity is holding and we don't see interest rates really getting any higher from the current levels give or take a point here and there.

On the automotive side, that's been depressed for awhile but we see the activity. We're hearing from our clients that we see that there's a lot more foot traffic than they have seen in the beginning of the year so we're hoping that with these government programs to rekindle consumer confidence would help us a little bit there. That's a question mark.

On the consumer side, there's some confidence there because we signed up some major accounts and there's some product launches that are coming up that we feel like that's going to be a positive there.

On a margin level, I think that the margins are going to stay and improve where you see mainly because if the revenue activity holds, we think that we have done a lot of things to take out cost that's going to benefit us as we go on.

Mark Marcon – Robert W. Baird

What I was getting towards is, if I heard you correctly, didn't you say that the mortgage business was up about 11% year over year?

Anand Nallathambi

That's correct.

Mark Marcon – Robert W. Baird

Isn't mortgage refi activity, if we were to look at the Mortgage Bankers Association or Freddie or Fannie and look at the activity there, isn't it up a little bit more than 11% if we were looking quarter versus quarter?

Anand Nallathambi

When you compare it to last year's first quarter, and compare to this year's first quarter, it's 11% higher because if you remember, last year the drop actually happened after the first quarter. So last year's first quarter was still pretty active. If you remember it, there was a pretty good component there. I actually think our market share is improving.

Mark Marcon – Robert W. Baird

And pricing is holding. It's not changing?

Anand Nallathambi

There is always pricing pressure in that area but I think actually pricing is holding to some extent mainly because there is a slight equality. Everybody is worried about what has happened over the last two, three years and they're inclined to be careful and also the lower tier competitors are being driven out because there's a heavier security and compliance standpoint investment that they need to make.

So I feel pretty good about it. There's always irrational pricing by competitors as a last gap effort to stay in business, but by and large we feel like we don't see this environment as anything more price competitive than in the past. It's been a very competitive price market for awhile anyway.

Mark Marcon – Robert W. Baird

But sequentially we should see some improvement there with just a little bit of improvement with regards to the margins.

Anand Nallathambi

I would think so, yes.

Mark Marcon – Robert W. Baird

On the ILS, obviously you've always been up front in terms of its hard to predict. The level of variability despite that is still somewhat surprising. Was it surprising to you that it dropped off this much and what gives you confidence that it's going to come back any time soon?

Anand Nallathambi

I'll be honest. We were surprised by the drop because it was all of a sudden drop in the middle of February where most of our projects were put on hold or projects in progress were delayed. But we take confidence in the fact that our pipeline is still full. We're active in a lot of regulatory enforcement type actions. Obviously we can't comment on some of these things. Litigation has been stopped or gone down. It's just been delayed.

Mark Marcon – Robert W. Baird

Why would something get delayed in terms of something that you were working on?

Anand Nallathambi

Let me walk you through why that may be the case. We understand it, but let me try to explain it. Most of our engagements come from law firms and if you look at it, law firms, they have taken a big economic crunch and the pressures have really impacted the legal community. I think the legal unemployment in the first quarter was like 10%.

So you could kind of see that them being the primary drivers for our business, that's one of the reasons for us being on hold, because there's a lot of turmoil amongst them. But knowing that our waiting or our mix of business is more on compliance and regulatory related matters, even internationally in foreign act enforcements, we feel like that hasn't necessarily been curtailed or cancelled, it's just been put on the back burners.

Mark Marcon – Robert W. Baird

Can you imagine having a lower revenue quarter than this on ILS or would you think it would drift back up towards more what you saw during Q4 and that sort of average?

Anand Nallathambi

It's tough to predict, but I would venture to guess. I'd hate to think they would be lower than we saw in the first quarter.

Mark Marcon – Robert W. Baird

But it's hard to say if it's going to pick up any time soon.

Anand Nallathambi

It's stabilizing I would say. We're seeing early signs, but I'm not sure if it will be exactly back to where we were in the fourth quarter immediately in the second quarter. That's tough to tell.

Operator

Your next question comes from Carter Malloy – Stevens Inc.

Carter Malloy – Stevens Inc.

On the last question about the transaction levels, you said 32% higher for three in one transactions. Was that over 2Q '08?

Anand Nallathambi

Second quarter, 2008. Yes.

Carter Malloy – Stevens Inc.

How do those look versus 4Q '08?

Anand Nallathambi

It was higher. I don't know exactly what the number is.

Carter Malloy – Stevens Inc.

And when you said 11% higher transactions year over year that was in light of the segment being down 6% so I can assume the delta there.

Anand Nallathambi

Yes.

Carter Malloy – Stevens Inc.

In your affiliate marketing business which I assume is what you're calling E-advertising, is that still kind of a $20 million a month run rate?

Anand Nallathambi

No it's not. Like we said, we did not like the health and wellness product mix and it was one product that was driving a lot of it. On the last call we talked about a product. We're pretty conservative when we take a look at those kind of things and we actually have been very strong in trying to follow the strictest adaptation of the FCC laws on marketing and direct marketing and stuff.

So we're not anticipating it to be in the $20 million range. We would like it to be lower. It's more controllable.

Carter Malloy – Stevens Inc.

So it's safe to say you've seen that slow significantly since the $20 million month.

Anand Nallathambi

We actually have slowed it down. In other words we can control that pipe. We have actually chosen to take a lot more conservative approach towards it.

Carter Malloy – Stevens Inc.

In your Employer segment, can you talk about margins there and if you expect that to be back at breakeven this quarter?

Anand Nallathambi

That's very tough mainly because we explained to you the dynamics of 8.5% unemployment means. The early reports coming out on the economic side is it could go up, and we don't know if it's a percentage of not. And like I said, every percentage point means about $15 million to our top line.

So that's tough to say how it will stabilize. But we like the fact that we won some major client wins over the last four or five weeks and in Europe especially to be winning eight out of ten wins in the RPS where we competed. That shows that there is a lot of market share mix changing between the traditional competitors and we feel like we're the benefactors of it.

Carter Malloy – Stevens Inc.

Do you feel like you've already taken all the pre-emptive moves on fixed costs?

Anand Nallathambi

Yes. We feel like we've been very aggressive in taking out which is why you're seeing us now kind of more go towards trying to not necessarily any more head count reductions, but to focus more on reduced work week or furloughs, things like that.

Carter Malloy – Stevens Inc.

Can you tell us what bad debt was in the quarter?

John Lamson

For the quarter the bad debt was about $3.2 million. That's comparable to fourth quarter of last year and it was about $1.4 million in Q1 '08.

Carter Malloy – Stevens Inc.

Do you expect that to stay at these levels?

John Lamson

We beefed it up a little in the Data segment because of the large revenue increase. I would suspect once again, barring any significant movement and negative movements in the overall economy, I would expect it to be at the high end of what the run rate might be.

Carter Malloy – Stevens Inc.

The piece that you moved into Credit from Data, I guess all that is more profitable 20% type growing consumer business?

John Lamson

Correct. We're going to have an 8-K on there that will break all that out for you historically.

Carter Malloy – Stevens Inc.

You said that will be out next week?

John Lamson

Yes. I expect to file it early next week.

Operator

Your next question comes from Nathaniel Otis – Keefe, Bruyette & Woods.

Nathaniel Otis – Keefe, Bruyette & Woods

You were going a little fast earlier, any way I can get the organic growth numbers again by the segments?

John Lamson

These are comparing Q1 '09 to Q1 '08. The Credit Services segment declined 14%. Data was basically doubled in growth 211%. Employer was down 30%. Multi-family, I said it was flat, it was down 2%. Investigative was down 50%.

Nathaniel Otis – Keefe, Bruyette & Woods

Do you have a current, I know you talked about how much head count you've cut since the end of 1Q '08, what is your current head count and how much was taken out just in this past quarter?

John Lamson

I think I can tell you that. Our current head count in the U.S. is 2,345 and as of March our total was 3,826. At the end of the year, because you asked about the quarter, we had 4,097 total. So whatever that difference is 4,097 to 3,826.

Operator

Your next question comes from Mark Marcon – Robert W. Baird.

Mark Marcon – Robert W. Baird

Just related to the prior question, were there any charges in the quarter that would be non recurring in nature?

John Lamson

No. We really did nothing that would move the needle much.

Mark Marcon – Robert W. Baird

The amount of revenue that transitioned over to Credit Services from Data, would it be roughly equivalent in the year ago period as it was during this period? In other words if we take a look at the delta in terms of Data Services in terms of what you ended up showing for Q1 of '08 relative to what you ended up with recording back when your originally did, is that roughly the amount that ended up transitioning?

John Lamson

It's up about almost $2 million.

Mark Marcon – Robert W. Baird

When you said that for the E marketing piece that you're going to end up improving the margins, exactly how are you going to do that? Is it from the scale?

John Lamson

A lot of it has to do with scale. A lot of it has to do with the particular products.

Mark Marcon – Robert W. Baird

You can actually charge more for the segments that you're more active in and that are more consistent with the rest of your business than what you were doing for the health care?

Anand Nallathambi

This particular product, yes. Different verticals have different kind of margins, pricing, and we are gravitating more towards the traditional lead generation and also some new verticals which have higher margin. And I will say that those margins that we are gravitating towards are more in the neighborhood of double digits, the teens rather than it being closer to ten.

Mark Marcon – Robert W. Baird

It sounds like to summarize, relative to what you ended up reporting in the first quarter, it sounds like Credit Services margin should improve a little bit just because we've got mortgages moving up, Data Services should get a little bit better sequentially just because you're getting a little bit stronger. Employer Services probably goes down because labor market is getting tougher. Multi-family pretty much stays where it is and ILS is kind of a bit of a wild card depending on what happens with the Service Revenue. Is that roughly correct?

Anand Nallathambi

I think that's a fair general assessment.

Operator

Your next question comes from Carter Malloy – Stevens Inc.

Carter Malloy – Stevens Inc.

On Multi-family, can you give us the size of how big insurance is? I'm looking at that. You said it's 30% growth but Multi-family is down 2% and I always do that to be kind of cyclical piece of the business. Can you help us understand what the entrance is and what's going on in the rest of that business?

Anand Nallathambi

My thought is there isn't a lot of seasonality to it because it's a consumer product. It's renter's insurance. It's more of a consumer product that we sell right to the consumer and the product is actually provided and underwritten by First American.

Carter Malloy – Stevens Inc.

But you said that insurance was up year over year 30%?

Anand Nallathambi

Yes. And it's just more of growth because we believe that we hold more than 35% to 45% of the rental population out there with our market share and if that's the case, it's more of activating that customer base and signing on more renters insurance.

Carter Malloy – Stevens Inc.

What I'm curious to know is if it's just a small piece then it's not so much of a concern but it that was a bigger piece then that would imply that the rest of the multi-family business is doing fairly poorly and I had initially been under the impression that was kind of a cyclical.

Anand Nallathambi

It's not a big number mainly because like I mentioned, the product is underwritten by First American and what we would get is more commissions on it. So it's just not a big percentage of our business.

John Lamson

I don't have that exact number. I can get it for you though.

Carter Malloy – Stevens Inc.

On the lack of growth inside the rest of the multi-family, one would assume that with churn rates picking up and more families moving into duplex type living arrangements that you would see growth in that business but is the lack of growth because of competition or loss of market share or pricing?

Anand Nallathambi

No, it's not because of competition at all. It's just because more of a glut on the supply side of it because there's more properties available for rent because there's a lot of single family homes moving into being rentals than before and we're also noticing that a lot of people are just doing consumer to consumer type rental rather than organized rental housing.

Operator

Your next question comes from Mark Marcon – Robert W. Baird.

Mark Marcon – Robert W. Baird

How are you thinking about acquisitions? I imagine there's a number of these you're probably looking at, probably come down in terms of price relative to continuing to keep a strong balance sheet given the uncertainty in the environment.

Anand Nallathambi

We do look at a lot of deals just as a course of business. We are being careful in looking at it mainly because there's the uncertainty of the market and stuff. There are some areas where we're confident and we know through experience that we could do well, and it's a question of just hitting on the right things.

Obviously I can't comment on things in progress that we look at and we talk about but in the Data analytics in different segments we know that that business is a good business. We understand how it works and we know the profitable dynamics of build on scale, the scale of businesses and we like those kind of things.

So the pricing works out, if the valuation metrics work out we wouldn't hesitate looking at them.

John Lamson

Because our balance sheet is pretty conservative to say the least, and we like it that way, but certainly if there is an opportunity with the metrics on it as Anand discussed, we've got the ability to pull the trigger on some deals if they make some sense to us.

Anand Nallathambi

It's not a lack of looking at it. As a matter of fact, we're getting ready to go to Asia to visit some operational places and there is also a couple of appointments we're set up to look at a few companies that could mean well for our products and services.

Operator

At this time there are no further questions.

Cindy Williams

Thanks everybody.

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