infoGROUP Inc. Q1 2009 Earnings Call Transcript

infoGROUP Inc. (IUSA)

Q1 2009 Earnings Call Transcript

May 5, 2009 8:30 am ET

Executives

Lisa Olson – SVP, Corporate Relations

Bill Fairfield – President and CEO

Tom Oberdorf – CFO

Analysts

Carter Malloy – Stephens, Inc.

Robert Kirkpatrick – Cardinal Capital

Justin Orlando – Dolphin Management Company

Gary Steiner – Huber Capital Management

Ted Hillenmeyer – Northstar Partners

Presentation

Operator

Good day ladies and gentlemen and welcome to the first quarter 2009 infoGROUP earnings conference call. My name is Josh and I will be your coordinator for today. (Operator instructions) I would now like to turn the presentation over to our host for today’s call the Senior Vice President, Lisa Olson you may proceed.

Lisa Olson

Thank you Josh and good morning. Thank for taking the time to join us. As you know, I manage the Investor Relations program for infoGROUP. Joining me this morning is Bill Fairfield, our Chief Executive Officer and Tom Oberdorf, our new Chief Financial Officer. Remember today’s call is being recorded.

Our comments include forward-looking statements, and I ask that you refer to the cautionary language in the earnings release for additional information’s concerning the facts that could cause actual results to differ materially from those in the forward-looking statements. We also ask you to refer to the documents the company files from time to time from the Securities and Exchange Commission.

These documents contain and identify factors that could cause actual results to differ materially from those contained in our projects or forward-looking statements. In addition, to disclosing results determined in accordance with Generally Accepted Accounting Principles or GAAP, infoGROUP also discloses the following non-GAAP measures, one, earnings before interest expense, income, taxes and depreciation amortization or EBITDA.

And two, adjusted EBITDA, excluding the affects of the restructuring, non-recurring, and non-cash charges outlined in the press release. With that being said, let’s now get started on what you all come in for our first quarter 2009 earnings results. We will have a Q&A session at the conclusion of the remarks.

It is now my pleasure to introduce our CEO, Bill Fairfield.

Bill Fairfield

Thanks Lisa and good morning. Let me get right to it. The economy has been tough for everyone and we certainly were no exception. Our revenues were impacted in the first quarter as all of you have seen by now. I think there are probably three reasons why we saw the impact we did, one obviously is just the general economy and we will talk a little bit about that later.

I think also there is some industry trends that impacted us as well, some secular trends if you will that hit some of our legacy businesses, a little stronger than we would have expected. And then frankly, I think some of the revenue impact was probably self-induced. We are putting this company through a lot of change and no matter how well we think we are executing on that I am sure it has created some distractions.

The good news in all of this is that we are not seeing any customers migration, in fact if anything we are gaining in terms of the number of clients we have, the challenges, as will come as no surprise to you, those customers are backing off on their marketing spend where they might have done six campaign’s last year, they are doing four campaigns now, where they might have taken a much broader approach in terms of those campaigns, they are being much more targeted and much more surgical in their efforts, and we are seeing some impact on that.

We have been able to offset some of those revenue declines through our very aggressive cost takeout of the business and we think that with that cost takeout with the restructuring we are doing and with the alignment that we are going to position this company to take advantage of the economy once it normalizes.

If we take a little bit longer view we are anticipating to see similar characteristics in the second quarter and then hopefully some increase spending in the second half of the year as our customers get ready for the holiday season and hopefully a little higher spend in terms of consumer spending towards the last half of the year. When we put the plan together in December of ’08, we were probably a little more optimistic of an economic recovery a little earlier in the year.

Our plans would increase the organic revenue as well as implemented very aggressive cost reduction program and we are proceeding with that. On the revenue side, not only are we hanging on to the customers, we have, the other good news is that the sort of institutionalize cross selling effort that we are putting place I think it is having an effect.

As I’ve had told many of you, we had a situation where we’ve had a number of situations where we have, they giving customers that is only buying one product service from us because of the silos nature of the business. Each of those businesses were never incented to bring other products or services into the poll for that customer. We are breaking down those silos, we are seeing a good deal attraction in that area and I think that bodes well for us in the future.

We are also addressing our enterprise clients, again something on the order of 50% to 60% of our revenue is generated from what I will broadly refer to as Fortune 1000 kinds of customers. Those customers are looking to narrow the number of vendors they deal with and so we have an opportunity to go wider and deeper in those account, and again we are seeing some good progress in that arena, and once that marketing spend picks back up, I think that will flow to the bottom line if you will for us.

The other thing we are doing is, we are really concentrating on product, development product introduction and product extension. We’ve got a number of businesses, I said that are legacy in the sense they are focused on the old traditional direct mail. We are pushing our businesses into the arena of digital and interactive marketing. In many cases we are well positioned there, but we’ve got ways to go with a handful of our businesses.

To help in that initiative, we’ve established a product organization that will work on an enterprise level to coordinate and support our business units in the development of new products and services, and I will keep you updated on that as we move forward. On the cost side we believe we will exceed our projected savings that we outlined in our last earnings call, as you may remember, we promised 15 million to 20 million of annualized cost savings, which we think we will achieve earlier than we expected.

Tom’s going to go into that in a good bit more detail, and so I will turn it over to Tom Oberdorf now, our Chief Financial Officer.

Tom Oberdorf

Thank you Bill. Last quarter after I reviewed the financials I gave some insights into what I think some of the important issues (inaudible) continue on that form, so after my comments on the numbers I will jump to that. After my comments, Bill will provide some additional commentary and we will take some questions at the end of the remarks.

Just as a clarifying point, the operating results for any numbers that we talk about in operating results exclude macro international. So, let me get started. First quarter, during the first quarter of 2009, infoGROUP had revenue of a $127.5 million compared to a $153.3 million for the same period in 2008, representing a decline of 17%.

On a currency neutral basis, the company’s revenues declined 13%. Revenue for the Data Group in the first quarter was $67.3 million as compared to $83.4 million for the same period last year, a decline of 19% and a 17% decline on a currency neutral basis.

Revenue for the Services Group in the first quarter was $35.8 million compared to $40.4 million, a decrease of 12% and 11% on a currency neutral basis. Revenue for the Marketing Research Group in the first quarter was $24.5 million compared to $29.4 million, a decline of 17%. On a currency neutral basis, it was down 7%.

And again the Research Group and (inaudible) no macro in these numbers. infoGROUP’s operating income for the first quarter for 2009 was $2.7 million compared to an income of $11.4 million in the first quarter of 2008. During the first quarter of 2009, the company recorded $8.7 million in charges, for the impairment and write-down of assets, severance costs, facility closures, and charges related to the SEC investigation.

When excluding these charges for 2009 and similar charges up $4.6 million for 2008, the decline in operating income was $4.6 million year-on-year. infoGROUP’s net loss for the first quarter of 2009 was $9.3 million or a loss of $0.16 per share, as compared to net income of $6.6 million or an earnings per share of $0.12 in 2008.

infoGROUP’s loss per share from continuing operations for the first quarter of 2009 was $0.01 as compared to earnings per share from continuing operations for the first quarter of 2008 of $0.08. Adjusted earnings per share from continuing operations for the first quarter of 2009, excluding restructuring, non-recurring, non-cash charges, was $0.09, compared to $0.13 for the first quarter of 2008, a decline of $0.04.

In the first quarter of 2009, EBITDA was $9.8 million compared to $21.4 million in 2008. Adjusted EBITDA, which eliminates certain restructuring, non-recurring, non-cash charges, was $19.1 million in 2009 compared to $26.1 million in 2008. As a result of the cost cutting initiatives that were started last year and continued into the first quarter, we were able to offset some of the revenue decline experienced in the quarter.

In total, the Company recorded $9.3 million in costs, during the quarter for restructuring, non-recurring, and non-cash charges. This included $3.8 million in legal and professional fees related to the SEC investigation, $2.6 million in restructuring costs for severance associated with headcount reductions and facility closures, $2.2 million for the impairments and asset write-down, $0.3 million in litigation settlement charges, and $0.4 million in non-cash stock compensation expense.

Of these charges, $8.7 million were recorded within selling, general and administrative expenses, within operating expenses, and the remaining $0.6 million were recorded in other income. As I mentioned earlier, I would like to touch on a couple of points that would be of interest to you.

First, our revenue reflects the impact of the economy and lower marketing and advertising spend by our clients. Revenue was down 13% on a currency neutral basis versus last year and 9% versus last quarter. Second, we did prepare for a revenue decline. This decrease was greater than we thought, but our cost initiatives to help offset the economic headwinds have been much more aggressive than we originally planned.

In the first quarter, we removed $2.2 million in costs, which has an annualized savings rate of approximately $10 million. If we take a look at the first quarter revenues, our revenues were down $26 million, which has a gross margin effect of $16 million. If we didn’t achieve any cost savings, this decline would flow right down to the operating profit.

However, when you eliminate restructuring, non-current, non-cash cost out of the operating profit, we were down $4.6 million year-on-year. So, the cost savings of approximately $12 million was able to offset a big piece of the revenue mix. If I think if this in broad terms and were the savings come from is, I do the following math.

We eliminate the Super Bowl advertising and other marketing spend, which was $8 million. Yards, plains, and other costs related to the former CEO, which has a current quarter benefit of $2 million, remember that was $8 million on a full-year basis, and $2 million in current quarter cost.

Third, we projected additional cost savings of approximately $2 million to $3 million in the second quarter; now these are additional, which will have an annualized impact of approximately $8 million to $9 million.

Fourth, in our last call, we promised $15 million to $20 million in annualized cost savings in 2009 and in the first half of 2010. And we are now projecting to be at $18 million to $19 million of annualized savings by the end of the second quarter. This does not mean we are done.

We will continue to deliver savings in the second half with the same rigor as the first. I don’t want to give you second half savings numbers because we are still finalizing plans for the first half, but it will be significant and we will review these cost savings in our next earnings call.

Fifth, we believe the sale of macro was critical milestone in our strategy, the proceeds for the sale pushed the debt down below $200 million and our leverage ratio down to 2.1. You will notice a loss on our P&L for the sale of Macro. This primarily relates to the significant amount of goodwill and intangibles a 103 million written off with the transaction in addition to other assets and a $35 million tax expense.

Let's not let the accounting loss cloud the fact that we received approximately a $100 million in cash, which was used to pay down debt. Sixth, they're not providing guidance for 2009, but the second quarter I would expect revenues to be relatively flat versus the first quarter of 2009.

We are not expecting a rebound in the economy in the third and fourth quarter, however we hope that some of the marketing and advertising spending by our customers picks up a bit in the second half as they get ready for the holiday season. However, revenues will be below the 2008 levels for the second half.

Lastly, one of the questions we get from investors and potential investors is if the economy reduces your revenue can you make it up on cost savings? Our answer has been absolutely not, but we can make up a lot of it. We believe that as we see the economy improve and the marketing and advertising dollars return to the market, our aggressive cost-cutting measures will help generate significant cash and make us a highly profitable company.

With that I will turn it back to the Bill.

Bill Fairfield

Thanks Tom. I'll just make a few closing comments and then we will be ready for Q&A. Tom has really communicated the heavy lifting as far as what we have been doing especially in the area of cost savings, as we’ve said before there are so many opportunities to get this company properly aligned in the right direction without jeopardizing our service to the customer and that is really what we're focusing on.

And we've got a few more quarters to do that, to be real honest with you. I would say the first quarter was good in a couple of respects. As Tom mentioned, we did achieve a couple of milestones, one of which was in a small way paying down our debt dramatically as he said with the sale of Micro, we were able to pay the debt down from something on the order of $300 million to just under $200 million and this obviously help strengthen the balance sheet.

With regard to revenue as Tom said we continue to think there will some tough economic headwinds out there, but we don't expect them to get worse. The issue is how much longer is it going to take for them to get better? We should be through with another couple of quarters as some of our self-inflicted pains in terms of the distractions within the business from a reorganization standpoint, but will continue on those efforts.

I think, what's important about the cost reduction efforts that we're going through, these are a reaction to the downturn in the economy. The reality is, we would have gone after these anyway, they are the right thing to do for the business. It needs to kind of restructuring that we've going on and we think we will come out of this being well positioned and being able to produce for you good profits in return to being a high cash generating company.

On a different note, I hope all of you have seen the recent announcement that came out last night regarding the shareholder rights plan. On May 1 the Board of Directors adopted a shareholder rights plan, designed to protect the shareholders. I will tell you this about this plan is supposed to claims we’ve had in the past since this plan does not exclude any one particular shareholder, it treats everybody the same.

It is important to note that if the company receives any kind of offer for the company all the shareholder rights plan where he does is give the Board of Directors time to evaluate the offer and determine the best course of action for all the shareholders. If there is a situation or it looks like there should be a change of control that just allows the company to make sure this is a constructive change of control and that all shareholders get a premium and maximize their value.

So, this was a rights plan that – like I said there are no explosions in it and it relates to any sort of situation, further it’s a creepy takeover or any other kind of change in control and again gives us the time to deal with that. As I said, we believe that we are getting the company well-positioned.

We think that we probably got a couple more quarters of some restructuring ahead, but we think we're well on our way and in fact perhaps ahead of schedule in accomplishing our goals.

With that I will open it up to question and answers.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Carter Malloy from Stephens. Carter you may proceed.

Carter Malloy – Stephens, Inc.

Thank you. Can you guys give us some idea of profitability by segments within your Data, and Services and Market Research Groups?

Tom Oberdorf

Sure, in first quarter 2009, operating profit for the Data Group was $12.9 million, Services Group was $5 million, the Market Research was basically breakeven.

Carter Malloy – Stephens, Inc.

Okay and can you comment on the – what the outlook for Market Research is and if you guys have a pipeline there, and where do you expect revenues to go and what you're doing to stay of any potential losses there?

Bill Fairfield

Carter this is Bill. I will try to be responsible for your question. Let me break up the Market Research Group as follows. I think what is important to note is that actually on an international basis the market-research businesses is doing pretty well. In the UK, we are seeing a good deal of success. In Asia and the rest of the world, we are similarly seeing in total a good deal of success, so the challenges are really US centric for the most part.

As I think you are aware, the Market Research Group is really not just one entity, it was a combination of a number of different acquisitions that took place after the ORCI transaction that included guideline in numerous others. So, one of the other issues they are faced within the US is really getting those businesses consolidated. So they've got a good deal. On a much smaller scale they are going through the same kind of thing we are going through on a corporate basis. The other thing that you should know about the US is they did have a number of major contracts that they expected to start work on early in the year those have been delayed like so many other programs.

We actually think that there is a good deal of opportunities, there are a good deal of synergies there. What we are finding with a number of our clients that with the Market Research organization it allows us to really build a close loop sort of offering if you will, whereby we can provide both primary and secondary research for a business clients that then can be integrated into our offerings of database and other services and help us help our clients, define the kind of market, marketing programs that they want to initiate.

We can then monitor those programs through our analytics capability and then feedback through the Market Research Group to test how they are doing. So, we think there are some opportunities there, I think there is some repair work that needs to be done in the US and I think that business will be a good business.

Carter Malloy – Stephens, Inc.

Okay and then looking at the year-over-year number on your Data Group, I think if I remember correctly the first data contract you're still seeing the year-over-year impact of that, this quarter and next.

Tom Oberdorf

Carter it is very slight. I think it is a percentage point.

Carter Malloy – Stephens, Inc.

One point times.

Tom Oberdorf

Yes.

Carter Malloy – Stephens, Inc.

Okay great. And then also can you guys maybe talk about what you’ve seen in the opportunities for consolidating all over this for brands there?

Bill Fairfield

Well it is perhaps no one of our major sort of cultural themes since last fall has been to address the go to market strategy and the branding strategy. We have 31 or we didn't have 31 plus different business units all kind of doing their own thing, all with their own brand, all with their own label. We’ve got an active program in place to look at that.

It’s been going on since November, we’ve got some outside resources helping us on that. I would expect that in or around the June timeframe, we should have a plan of attack on that if you will. I don't have any pre-concede notion Carter of what the outcome of that is going to be, but I think you can bet that we're going to reduce the number of brands and in term reduce the confusion in the marketplace.

Carter Malloy – Stephens, Inc.

Okay great. I’ll let somebody else has questions and I’ll get back in the queue. Thanks

Operator

And our next question comes from the line of Robert Kirkpatrick from Cardinal Capital. Robert you may proceed.

Robert Kirkpatrick – Cardinal Capital

Good morning.

Bill Fairfield

Hi Rob.

Robert Kirkpatrick – Cardinal Capital

Number one Tom could – thank you for the idea of profitability by segment, could you split the $8.7 million in non-cash kind of one-time charges in the SG&A by segment please?

Tom Oberdorf

I don't know if I can do it for you here. So, you know we've talked about our legal fees in – those three pointed name with a legal and professional that’s all corporate. They are 2.6 worth of severance and facility closures, I would say, I don't want to say number because, you know a lot of work was into this, but it is split between the three groups. I know that – you know we will start splitting some of these, you'll see some of these costs split out in the queue, but I don't have the information in front of me here.

Robert Kirkpatrick – Cardinal Capital

No problem. Secondly, Bill in the press release that the company came out with in response to Gupta back in late in the fourth quarter, after he put his press release, you said, I believe Berni was quoted to saying, “Because the company founder has expressed an interest in selling the company, the independent directors will review with Evercore Partners, the company's financial advisor, our present and projected results of operations and general market conditions to determine what's in the best interest of all our shareholders.” Could you comment on that strategic review and where you stand on that, has it concluded?

Tom Oberdorf

Sure. I'll be happy to, we have retained Evercore and they’ve been working with us since December. I guess that's when that announcement came out. The – as you will appreciate, we were positively distracted for a good part of the first quarter with the Macro situation. So that took not only the time of the management team, but the time of the Board. Towards the end of the first quarter, we been working on putting together our projections in terms of how the company would look on a go forward basis, say for a three or five year plan, we've done that assuming just a static nature of the business, in other words just projecting out the businesses that we are already in.

We are also doing some sensitivity on that plan based upon some strategic initiatives that we've got going that we think will change in a positive way, the outlook for the business. Once those are finalized and we just reported on those to Evercore and to the Board last week. Evercore will now use that information to do a variety of valuation analysis as is typical just kind of cash flow analysis and the rest. That will give us a perspective on value. That'll put us in a position that if, and I underline if, there is any interested suitors and we think it is in the best interest of the shareholders to entertain that that will put us in a situation where we can run an open process and with our valuation in mind be able to judge whatever comes across the transom.

We are not reacting to any situations currently. There is nothing on the table, but we want to be in a position to respond appropriately if and when that occurs.

Robert Kirkpatrick – Cardinal Capital

Thank you for your disclosure on that. One back to Tom, Tom when do you anticipate you will have to pay the taxes on the sale of Macro and how much will that tax benefit be?

Tom Oberdorf

Sure. So let me give you two answers for one question because I've got the answer for your last one. We have the Q, we will be filing on Monday. So, just for the restructure, which is $2.6 million, $900,000 is in Data, the Service Group is $0.5 million, the Research Group is $0.5 million, and corporate has $1.4 million, such is the $2.6 million. So, the tax payments – generally the tax payment is going to be I'm sure the federal and I think the State may be lined up the right way, but on June 15 we pay the taxes on the Macro transaction.

Robert Kirkpatrick – Cardinal Capital

How much?

Tom Oberdorf

It is roughly – just, it is around $50 million.

Robert Kirkpatrick – Cardinal Capital

Round number. That's fine.

Tom Oberdorf

Numbers $10 million is a state number, which is very high for Maryland and it is a high state tax, which is one of the reason that drives it up and the rest is federal. And the federal, I'm positive it was on June 15.

Robert Kirkpatrick – Cardinal Capital

Okay. And then back to Bill, Bill could you comment upon what kind of advice internal, external, other was received by the board in consideration of the stockholder rights plan?

Bill Fairfield

Sure I will be happy to. First, I think it is important to note that we've had extensive conversations about that for some time. As you know Rob, several years ago, we had a shareholder rights plan, it was a little bit unique and that it had an exclusion for the larger shareholder. Parallel with that there was a standstill agreement, that standstill agreement is still in force, in fact I believe were it ends out in July.

So, we've been talking about this, gosh I can't tell you exactly how long, but for quite some time and we’ve had outside legal expertise helping us. Wilson Sonsini has been working with us on this. We’ve also had Evercore’s advice on this. And frankly, it's been on the Board agenda for at least the last two times if memory serves me right for discussion, analysis, and the like. So there’s been a good deal of due diligence around the whole process, Rob and I don't know if that is responsive to your question or not.

Robert Kirkpatrick – Cardinal Capital

Great. Well Cardinal certainly is appreciative that this version of the shareholder rights plan does apply to everyone equally. We were vastly in favor of that, so thank you to the Board for doing that.

Bill Fairfield

Thank you. I will pass the words on.

Operator

And our next question comes from the line of Justin Orlando from Dolphin Management. Justin, you may proceed.

Justin Orlando – Dolphin Management Company

Tom, Bill, Lisa how are you?

Bill Fairfield

Good. Thank you Justin how are you?

Justin Orlando – Dolphin Management Company

Good thanks. Obviously I haven't read the plan yet, but I want to echo some of the thoughts that you just made on the – giving all the shareholder fairly. Just a couple of quick questions maybe Tom, am I looking at net debt correctly, if I'm thinking about $178 million, if I'm including notes receivables and the tax payable?

Tom Oberdorf

You know the way I would look at this is – I would look at $199 million, you know we did have, you know one of the anomalies of, after the macro transactions we did a cash on the books, which got transferred and paid debt, it will pay down debt temporarily between April 1 and June 15 because we are waiting for that tax payment, but all the proceeds of the sale had to go through the transaction, but I would look at your net debt that we've kind of stayed out there. If we – I don't like to get into too much detail, but sometimes you know if we have a negative cash balance that goes against and gets re-classed against payables. So, I would just use the $199 million as where I would consider the net debt to be.

Justin Orlando – Dolphin Management Company

And that is because you are not including, are you including in that number, the notes receivable and the retained earnings?

Tom Oberdorf

No it is not.

Justin Orlando – Dolphin Management Company

Okay. And you have got notes receivables and assets held for sale up above as well that are not in that, in your one $199 million right?

Tom Oberdorf

Right.

Justin Orlando – Dolphin Management Company

Okay thanks for that. Could you just may be just talk a brief second about the cost saves, I appreciate the analysis you laid out. First, are we talking about on an annualized cost savings basis versus a full-year of 2008 number?

Tom Oberdorf

Yes, 2009 number you mean?

Justin Orlando – Dolphin Management Company

No, sorry the cost saves in ‘09 versus a full-year ‘08, or is it a Q4?

Tom Oberdorf

Can I just take a step back, let me explain an you know kind of poke me if I'm going off and I'm not answering your question. We talked about 2.2 million that was achieved in this first quarter, right. So that was achieved – you know some of that was achieved in January, February, March, but again on an annualized basis that is a $10 million number. That is not what's going to be achieved in 2009. Now the math is pretty simple to do, if it is $10 million on an annualized basis it is about $2.5 million a quarter, so on for 2009 that will be $2.5 million for the second, third, and fourth quarter and 2.2 for the first quarter. That will be incremental to our cost basis in 2008.

Justin Orlando – Dolphin Management Company

Yes that's exactly the correction that I was asking. For a full-year, not up Q4 annualized cost number, but a full 2008 number.

Tom Oberdorf

That is a kind of because when we're looking at these cost savings, we do this analysis and believe me, everyone closed in, here's what we say it and the number ends up to be bigger because people consider versus budget, but as we pull these back it is, we are trying to get it as close as we can to the spend rate in 2008. So if you're modeling, I think it is versus 2008, but I am just going to have to just go back and kind of test the words [ph] with the fourth quarter versus the first three.

Justin Orlando – Dolphin Management Company

Fair enough and I guess there is some seasonality in the cost as well, right?

Tom Oberdorf

Yes I guess I just have to say that I am not as familiar with some of the anomalies that might have happened in the first second and third quarter, as far as costs go.

Justin Orlando – Dolphin Management Company

Fair enough. Can you help us maybe, I heard 18 to 19 annualized captured the 2Q, can you help us a little bit with maybe a ballpark on what you guys are thinking are we in a one to five range for backup costs saves or are we in the 5 million to 10 million range, is there a, you know what kind of, can you give us a little help with?

Tom Oberdorf

Yes as I said, didn't I say in the script that I wasn't going to say, truly I think the number is going to be significant. So, I would not expect that we did that much in the first half and then it just, you know the pedal comes off the medal. Again on an annualized basis it'll be a big number now and of course the savings, the impact in 2009 whenever we are doing the third and the fourth quarter will only have, you know half a year and then in the fourth quarter just to quarter.

But I think that'll be pretty significant. You know one of the things that we said and we meant when we had earlier cause is there was just a lot of things that take out this business, you know just in the cost side. If we were not having revenue pressure we would be doing this, I am sure revenue pressure was pushing us a little faster and going in this direction, but there is a lot of cost to take off.

Justin Orlando – Dolphin Management Company

Okay just two more quickly. On the revenue side are you seeing any of the businesses that are showing a pickup from your Q1 numbers, however is it pretty much the same across the board?

Bill Fairfield

Justin we were, it is a little early to tell because we are only through one month, but we are seeing some pick up in what I will broadly classify as our integrated marketing businesses, which includes of course Yesmail as the principal driver in that arena. We're seeing a little bit of pickup there. I would say that is probably the most notable case and again those activities occurred not just in with Yesmail and the Services Business, but across parts of the Data Business as well. Having said that I think as we indicated we are still expecting that revenue for Q2 is going to be about what it was for Q1 and that's based upon April. That is sort of where we are right now.

Justin Orlando – Dolphin Management Company

Okay I appreciate that. And lastly, Bill do you anticipate picking up some analyst covered to you in the remainder of the year?

Bill Fairfield

Well Lisa has been working very hard on that. We have a couple of analysts that have given indications that that's likely to happen starting mid-year and we're keeping our fingers crossed. We want to try to create a little competition for Carter.

Justin Orlando – Dolphin Management Company

Thank you very much.

Operator

And our next question comes from the line of Carter Malloy from Stephens. Carter you may proceed.

Bill Fairfield

How did I figure you would be on next?

Carter Malloy – Stephens, Inc.

Competition is welcome thanks. Tom just a couple of housekeeping items here, excuse me. Can you give CapEx and free cash flow for the quarter?

Tom Oberdorf

Yes CapEx was about $3.6 million. So you'll notice that's down significantly from prior quarters and cash flow from operations was $16 million.

Carter Malloy – Stephens, Inc.

Okay. And can you give us a breakdown of the debt profile?

Tom Oberdorf

Yes I can. At the end of the quarter, the revolver, just let me make sure that I have this right, we had $78 million in the revolver, $77 million in the term loan, and $41 million in the mortgage debt that we have, and I think there are other debt that catches to the $199 million it's like capital lease, it's about $2 million worth of capital leases.

Carter Malloy – Stephens, Inc.

Okay are you guys going to restate the historical Market Research Group figures with the K?

Tom Oberdorf

Yes they are restated. If you take out Macro you mean?

Carter Malloy – Stephens, Inc.

Correct.

Tom Oberdorf

So you will see all the macro numbers whether it is a prior profit or loss and it was profit, but you'll see then – on the P&L you will see them in a discontinued operation line, in the cash flow you'll see it in a discontinued operation line. So you'll see it, you'll be able to map it out.

Carter Malloy – Stephens, Inc.

Okay great thank you.

Operator

And our next question comes from the line of Gary Steiner from Huber Capital Management. Gary you may proceed.

Gary Steiner – Huber Capital Management

Hi good morning.

Tom Oberdorf

Hi Gary.

Gary Steiner – Huber Capital Management

Two questions, one is kind of a legal cost I think somewhere in here you said it was $20 million, it seems like a pretty high number given though I thought most of that was done at this point, maybe you could just comment on that? And then just in terms of the overall, sort of outlook of where we are today, versus where you were when you had your last conference call, but I think somebody on the last call had asked, you know what are your expectations for the year, Bill? And you said, “my ex [ph] I’m reading from the last transcript, my expectations are regardless to the economy that we're going to improve our ability to generate earnings”, and then you went into some detail about you no, improving margins in certain businesses and improving revenues in other businesses and there obviously that isn't where we are today and that was February 10.

So, we are halfway through this quarter. So that implies to me that midway through the quarter demand fell off quite a bit relative to what you were looking at the time that you made that statement. And I guess I'm just trying to understand I mean the economy, kind of ground to a halt September, October of last year, the fourth quarter was actually all things considered pretty strong, you know both on the revenues were down modestly, its single digits on an organic basis going the Data and your EBITDA was quite strong, but then we saw more meaningful falloff in the first quarter and I guess I'm just trying to understand how your business relates to what's going on in the economy, why did it take some time before you actually saw the meaningful falloff in the business in the first quarter and what you think your lead indicators will be as to when things are going to get better beyond kind of the obvious of what's going on in the economy?

Tom Oberdorf

Gary I’ll try to be responsive to your question. Let me address the, first one with respect to the legal costs. You are right, the legal costs continue to be high. Keep in mind that while the Delaware derivative suit has been settled and the cost associated with that special litigation committee last year was extremely high, I don't remember the numbers, I guess Tom may remember them, but they still an ongoing activity with the SEC and we are required to cover the legal expenses of directors and managers who are being interviewed by those guys as they go through their process and that's where the bulk of the cost reside.

We've had open discussions with the SEC, it's in all of our best interest to see that that gets concluded sooner rather than later. From a cost standpoint, but having said that we really don't have any control over that timetable. I think, I hope and this is based on conversations with Tom McCusker our General Counsel, I don't see those costs getting any worse they might get better since I think they're basically through the bulk of the interview process with most of the people.

But that is where those costs reside. Let me talk a little bit about the revenue situation, you know I think what happened and this is conjecture on my part, I think what happened was that there was a big surge in marketing spending towards the end of last year as people try to make the best of what was a – as it turns out a bad situation at that time it was a uncertain situation. So, we saw a fair amount of marketing spend even in those areas that are sort of old business if you will, for instance we have a fair amount of our business, it is in traditional direct marketing, it is catalog related and I think folks were just putting on a big surge in those kinds of businesses and those kinds of marketing techniques in the fourth quarter last year. They dropped right off the table.

We expected the first half of this year to be difficult. It was slower than then even we had planned for. As I indicated it is across the board, but the biggest impact is in those sort of traditional marketing areas, which are not only impacted by the economy, but they are impacted by just the trends in the business. The business is moving away from those kinds of marketing activities where you stick a stamp on something and send it to somebody and they're moving towards the digital delivery side. And we are moving in that direction to, but surprised to say that we still have some businesses that are predominantly focused on sort of the old environment if you will.

And then as I mentioned in my prepared remarks, I think the other thing – there is no way to measure this, but I'm sure that the kind of change that we are putting this company through is creating some distraction. You know, we are consolidating businesses, we are integrating back offices, and I don't care how good a job we do in exceeding on that, it does divert time and attention in some cases. You know we've got a little bit more restructuring to do as Tom has outlined and certainly in the second quarter and through the rest of the year. But I really feel very good that we are getting ourselves into a situation where we have the ability to be a much more profitable company than we've seen in the near past.

And the first quarter not withstanding I saw a great deal of confidence that when we get this business streamlined the way we want to get our product mix shifted the way we want it shift it to more integrated marketing approach that we are going to be just fine.

Gary Steiner – Huber Capital Management

Thank you very much.

Operator

And the next question comes from the line of Ted Hillenmeyer from Northstar Partners. Ted you may proceed.

Ted Hillenmeyer – Northstar Partners

Just sort of additional questions on the balance sheet items, What’s in assets held for sale and what are the current long-term escrow accounts?

Bill Fairfield

Okay. Some of the assets that are held for sale are like the company planning some properties that we've decided, but the company has decided that we would disclose those yet have not, not because they have been tried, but because we are in the process of marketing them. The escrow account, I think there are two numbers in the escrow, one the $3 million, while there is two parts of the escrow, one is 3 million and one is 10 million.

So, 3 million at the escrow is a short-term escrow amount where it was a working capital agreement between us, you know when we sold Macro and the buyers sort of waiting for and I think it is 90 days for the auditors to complete their audit of the financials once we agree on what the working capital is.

Those monies, we expect those monies to be returned to us. The other 10 million, which is longer-term is basically your escrow for reps and warranties that the company makes part of the sale and at this point there is no reason why I believe that those will also be returned to us in due course.

Ted Hillenmeyer – Northstar Partners

Okay then in the note receivable what is that and why is that kind of on stockholders equity?

Tom Oberdorf

On the equity section yes, that is the payment due from our ex-CEO and I believe he pays 2.2 million per year and I think that's why if you look this December went down from 9 million to 6.8 million, but he'll take 2.2 million a year and I think the last payment comes in like 1.1 million. That represents his payment to us, his, what he owes us.

Ted Hillenmeyer – Northstar Partners

And he pays it in cash?

Tom Oberdorf

Yes.

Ted Hillenmeyer – Northstar Partners

Okay.

Operator

And at this time we are showing no further questions available. Mr. Fairfield you may proceed sir.

Bill Fairfield

Thank you very much. Thanks for attending the conference call. We appreciate your questions and if anybody has any additional questions after this call Tom and I are available for discussion. So we thank you. Have a good day.

Operator

Thank you for your participation in today’s conference. This concludes the presentation you may now disconnect. Have a great day.

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