Cooper-Standard Holdings Inc.
Q4 2007 Earnings Call Transcript

Published: 24 Jan 2008

[Operator:]

Good morning. My name is Regina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ChoicePoint fourth quarter and full year 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. I would now like to introduce Ms. Carey Skinner, Assistant Vice President of Investor Relations for ChoicePoint. Ms. Skinner, you may begin your conference.

[Carey Skinner:]

Thank you. Good morning everyone, and welcome to our fourth quarter 2007 earnings call. With me today are Derek Smith, our Chairman and CEO, Doug Curling, our President and COO and Steve Surbaugh, our Chief Administrative officer, as well as David Trine, our CFO, who is available to assist with Q&A. As always, let me remind you that this call is being webcast on our corporate website www.choicepoint.com and will be available for replay following the call. During today's call, some statements which may be considered forward-looking statements under the Private Securities Litigation Reform Act may be made. Words such as should result, are expected to, we anticipate, we estimate, we project, we expect or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. Additional information concerning these risks and uncertainties is contained in today's press release announced in fourth quarter earnings and the company's filings with the SEC including the company's form 10-K for the year ended December 31, 2006. You are cautioned not to place undue reliance on forward-looking statements, since these statements speak only as of the date they're made and ChoicePoint undertakes no obligation to publicly update these statements. As a result of events that may occur after today's date. Additionally, I should note that to assist in your analysis and comply with regulation G, any disclosures we make of non-GAAP financial measures are reconciled to the most directly comparable GAAP compliant financial measures on our website, and will be available for your review following the call. Also, please note that all references to operating margins are based on service revenues from continuing operations and that all comments today, unless otherwise specifically noted, exclude the impact of operating charges recorded and fraudulent data access related expenses incurred during the period to which the comment relates. With that, I'll turn the call over to Derek.

[Derek Smith:]

Thanks Carey, and good morning, everyone. Given a significant strategic change underway at ChoicePoint, I decided to modify our usual call format today to allow me sufficient to update you on the progress we are making against our key strategic initiatives and our top priorities heading into 2008. The flow for the call today will be, first, Steve will cover the fourth quarter financial highlights. Next, Doug will review our operation highlights and our 2008 outlook and finally, I will come back to review our key priorities for the upcoming year and our accomplishments to-date. With that, I will turn the call over to Steve.

[Steve Surbaugh:]

Thank you, Derek. We have made significant progress this year, making important portfolio changes aggressively executing our buyback plan, effectively managing costs, maintaining strong recurring cash flows, developing numerous new products, while maintaining high RFP win rates, all important steps in positioning our businesses for success as we move forward. Let's look at some reporting changes we have announced today. As a result of our decision to divest our government software businesses, we revised our segment reporting structure this quarter to reflect how we are now managing the business. Let me break down these changes for you. First, we will no longer report separate results for government services segment. The i2 government software operations that were previously included in the segment are now reported as discontinued operations. Second, as a result of the first change, we are repositioning some data on authentication assets that were previously included in our Government Services segment results into other CPS segments. In our Financial and Professional Services segment, the public filing data revenues to governmental entities that were previously reported in our Government Services segment, have been combined with a similar F&PS data revenues and the F&PS segment will be renamed Business Services. The combined public filings business now comprise 62% of its segment revenues, while Charles Jones comprises 25% and our business due diligent products make up the remaining 13%. And finally, note that no reporting changes were made to our Insurance Services, Screening and Authentication Services or Marketing Services segments. Please refer to our press release and the investor relation section of our website for historical restated results in the new segment format. Let’s look at our unusual items as well as I sharing some positive news with you. As a byproduct of our continuing strategic realignment and an effort to get the financial reporting aspects of this behind us, we took several charges this quarter. Based on a third party appraisal, we recorded a non-cash charge of $86 million to reduce the carrying value of goodwill and other assets in our Marketing Services segment in accordance with generally accepted accounting principles and adjustment to carrying value driven by a continued decline in revenue from our customers, primarily in the subprime mortgage lending market and an assessment that the revenue outlook will likely remain depressed, at least in the near term. Additionally, we recorded an incremental reduction of the carrying value of our iMAP business unit of $8.9 million to reflect the estimated proceeds to be received upon disposal. This charges included discontinued operations, consistent with our decision last quarter to report this business as a discontinued operation. Finally, we recorded $1.2 million of severance and least abandonment charges as part of our strategic realignment efforts associated with our authentication and public filings business to ensure we've got the right sized organization to support our revenue base going forward. Related to these efforts, we estimate that we were recorded an additional $3 million to $5 million in charges in the early part of 2008. Before moving into our fourth quarter operating results, let me mention a couple very positive developments. After nearly three years the SEC has sent a letter notifying us their staff has completed its investigation regarding possible identity theft, trading in ChoicePoint's stock by our CEO and COO and related matters without recommending any enforcement action. The formal investigation by the SEC has been completed. Additionally, taking a further step for it's fully putting all matters related to the fraudulent data access behind us. We've entered into a Letter of Understanding, subject to notice to the class, court approval and certain other conditions, through which ChoicePoint and a group of shareholders will settle a class-action lawsuit filed against the Company and certain of its officers. Neither the Company nor any of the other defendants admitted to any liability. If approved under the terms of the Letter of Understanding, ChoicePoint would pay $10 million to the plaintiffs, an amount fully covered either by previous accruals or by insurance, therefore resulting in no impact on our consolidated financial results. The completion of the SEC investigation coupled with the agreements to resolve the shareholder and risk of litigations marked and a proceedings arising out of the legal access of ChoicePoint data announced in 2005. Now, let's move to our operating results of our businesses. Overall despite continued difficult economic conditions, I am pleased that we effectively achieved the projections we've provided to you, as part of our third quarter earning release. Including the i2 operations that were move to discontinued operations and excluding the other operating charges discussed above, earnings per share would have been $0.41 for the quarter and $1.73 for the year. Net free cash flow would be $36 million for the quarter and $190 million for the full year. On a reported basis, earnings per share from continuing operations excluding other charges, was $0.39 for the quarter and $1.61 for the year, led by exceptional performance in Insurance Services and strong contributions of VitalChek and Bridger. These results were partially offset by the negative impacts of credit and mortgage market crunch had on the workplace, marketing, public filings and business due diligence product lines. Internal revenues for the quarter were essentially flat, with the strong 10.7% internal revenue growth in Insurance Services reflective of the incredible strength of this business model. The success we are seeing from the continuous launch of product offerings and favorable trends in the marketplace, offset by cyclical weakness in hiring and the credit markets impacting our non-insurance segments. Operating margins for the fourth quarter were 22.4% reflecting lower revenue levels in several of our business lines. Moving on to corporate expenses, for the quarter corporate expenses were $19.6 million, bringing full year corporate expenses to $69.4 million or 7.2% of core revenue at the low end of our range. As we previously discussed, our target going forward is to maintain corporate expenses in the 7% to 8% of core revenues, during the portfolio realignment phase. In advance of the upcoming restructuring, we have identified and we will continue to aggressively implement cost savings to ensure that there is no drag on profitability. Having taken out approximately $3 million in annualized cost in the fourth quarter, we're already realizing success with this effort. To assist you in tracking our progress, we have added new disclosures this quarter, which provide greater detail regarding the components of our corporate expense line. Please see the footnotes of this morning's press release for these disclosures. Turning now to cash flow, net free cash flow realized for the year was outstanding, coming in at $190 million including our i2 operations. Excluding these now discontinued ops, free cash flow was a $175 million. As previously disclosed in prior quarters and is reconciled in our press release, our full year results benefited in part by $17 million in lower tax payments. CapEx, which face significant approval scrutiny were $46.7 million for the year at the low end of our expectations. Looking ahead to 2008, we expect to generate a $160 million to $190 million of net free cash flow with capital expenditures in the range of $45 million to $55 million. For the fourth quarter, we repurchased 4 million shares and an average price of $37.45, bringing our total to 25.5 million shares, or 28% of previously outstanding shares bought back, since program inception in August of 2005. From a financing perspective, we further strengthened our balance sheet during the quarter by closing on a $300 million five year term loan facility. This transaction enables us to increase our debt capacity to 1.025 billion, which provides additional flexibility to execute our buyback plan and fund key internal growth initiatives. This financing was led by Wachovia, and included 15 banks. Let me now turn the call over to Doug, for a further review of the highlights for the quarter.

[Doug Curling:]

Thanks, Steve. There's a lot going on ChoicePoint and even with a difficult US economy, I am pleased with the progress we’re making. While admittedly, not yet full apparent in our financial results, our strategic focus is getting sharper, our core businesses are getting stronger and our cost footprint and technology infrastructure are as well positioned from a competitive perspective. Although our financial performance clearly betrays the portfolio undergoing substantial change, and one under some segment economic pressures, our core businesses remain very strong and the leadership team has done a good job of managing cost and improving capabilities, even with all the moving parts. I am very pleased with the efforts and energized by where I believe, we will be positioned as we move throughout 2008. Now, I briefly run through the segment results, before I turn the call over to Derek. Starting as always with our largest most profitable segment, Insurance Services, which makes up over 50% of our consolidated revenues and over 80% of our segment operating income, with continuing strong unit driven growth in our personal lines products, our greatest quarter ever in claims and fraud analytics and another strong quarter at our software business, Insurity, Q4 internal revenue growth for the Insurance Segment came in at an outstanding 10.7%. On the strength of this continued strong revenue growth and in particular, the big step-up in revenue dollars in our claims and analytics businesses, margins jumped to 51.8% up 150 basis points sequentially and 40 basis points over Q4 2006. Our flagship personal lines data service business delivered an impressive 9.8% internal revenue growth, benefiting both from strong trends in core products like credit and C.L.U.E. auto as well as from fantastic progress of our new product initiatives. Current Carrier revenues continue to ramp with Q4 year over growth an excess of 65%. The revenues here are now run rating near the $20 million level, growing almost 50% for the year, in large part, driven by tremendous success with our new data Data Prefill product, where we began implementation of another top 10 carrier during Q4. We really excited about the success we are seeing with this new offering, accelerating our transaction volumes and driving data to the point of contact for our carriers. As we previously mentioned, our early adopters have reported remarkable increases in the close rates from the use of this product. Additionally our compliance offerings, first in alerts had a fantastic year, also growing an excess of 50% contributing almost $7 million in revenues. The rapid expansion is expected to continue as we move forward throughout 2008. Another 50% plus for the insurance team InsurQuote and InsurView, new product analytic initiatives, which end of the year at a $10 million plus revenue run rate. The team expects to add its second top five carriers to InsurView in 2008, once again driving growth in the 50% plus range in the year ahead. And finally, our commercial lines initiative is right on track to have two-thirds of the market committed or loaded to our commercial C.L.U.E offering by the end of next year, enabling us to launch the product in 2008. This still remains one of our greatest long-term growth initiatives, one that is expected to deliver tremendous results once our suite of commercial products is fully implemented. Overall, we are very excited about the traction we are gaining with the data services products, we launched this year and our record pipeline of offerings to look forward to, in the years to come. Moving now to Insurity, we had a great fourth quarter and another fantastic year, with very high single-digit revenue growth in Q4 and low teen internal revenue growth for the full year. This business now makes up nearly 20% of the overall segment revenues and reported just over 30% margins for 2007. During Q4, we began work on two major projects in our personal lines software space, which when completed in Q1 will contributed nearly $2 million of revenue over the Q4-Q1 timeline. In addition to personal lines software sales, Q4 represented a strong quarter of enhancements for our commercial client as Carrier saw new functionality driving up revenues in this business. On the strength of these commercial revenues and the increased revenue dollars in our personal lines software product lines margins in Insurity in Q4 rebounded to the mid of 30% range, roughly inline with Q4, 2006 levels, but substantially above the high 20% margins, we saw throughout most of 2007. And finally, let me comment on our claims and fraud analytics business. I would like to commend this team for a tremendous fourth quarter, 29% internal revenue growth and operating margins, both metrics up well over a 1,000 basis points from prior quarter and prior year. This business, which makes up 5% of segment revenues posted their best ever revenues and profits, with three consecutive record transaction months in our accident report business, where we signed two top 10 customers during the quarter and strong growth in analytics with endorsement by two of our existing major customers, who expanded their use of the products. Congratulations to the team for a fantastic end to a very developed middle year. The trends in this business look great and we’re very optimistic about our 2008 performance. Overall, I am very pleased with the results and the fantastic outlook we have for our Insurance Services business, sales in product pipelines look strong and we expect another great year in 2008. Moving now to Screening and Authentication Services, which provide a 26% of our overall service revenues for the year. The segment posted a negative 3.9% internal revenue growth for the quarter, roughly consistent with Q3 results and a negative 1.9% internal revenue growth for the full year. Strong revenue performances in authentication services like Bridger and VitalChek were more than offset by economic driven declines in our much larger background screening businesses were revenues for the quarter were down 10% and 8% for the full year. On the software revenues, operating margins fell back into the high teens, coming in at 17.4% for Q4 and 18.4% for the full year 2007. Despite the external headwinds, our customer retention and win rates in background screening remain very strong and our product quality and time service are at or near all time best. We have greater than a 90% retention rate among our top 150 customers, who make up more than 70% of our background screening revenues. Additionally, during the fourth quarter, we sold new business that we expect to deliver over $8 million in annual revenues and another $6 million of potential annual revenue are in negotiations now. We feel very good about our pipeline and the ultimate close rate, we achieved on RFPs. As we've said for several quarters, the economic backdrop for the business is not encouraging, but we are taking the appropriate steps to manage and even enhance this business despite a down environment. Besides maintaining strong RFP win rates and customer retention results, we are also taking a number of other actions. We are aggressively managing costs, increasing efficiencies and lowering our overall cost footprint. During the past 12 months, we closed or are in the process of closing four offices and we made additional progress on our technology re-platforming efforts, resulting in approximately $4 million of annual cost reductions. We are making a push into the middle market, a market that we traditionally undersold and underserved, and nearly it should represent higher margins than our traditional large employer base. And we are seeing successes here, as an example, our Q4 revenues in middle market were up 16% over Q4 last year. And we are ramping up new products. Like our I-9 product, which provide expedited employment eligibility information and has seen a nice pick up in growth as more states mandate this type of review. And our vendor screening offering, where we signed three large contracts during the quarter to be implemented in Q1. And finally, in our international market expansion, focusing intently on providing services to our existing multinational customers. Overall, well we are clearly in the amidst of slow hiring environment, we still feel very good about our position in this market. With our large presence in the biggest employer's space and in particular of the large retailer space, the background screening revenues were down 13% for us for the year. The economic world has been felt across the country, likely hit us first. Therefore, despite all indicators pointing to worsening economic condition, we believe many of our leading customers have already made their hiring adjustments, meaning our comps get easier, as we look out into 2008. Looking quickly at other businesses, the Screening and Authentication Services, VitalChek continues to benefit from a healthy travel environment and delivered high single-digit internal revenue growth for the quarter, with mid-teen growth for the year. And Bridger, which has experienced tremendous success with its XG product offering, completed two large deals in the insurance base in December, as well as several other profitable contracts during the quarter and close to double-digit internal revenue growth for the quarter and for the year. The positive trends for both of these business lines are expected to continue in 2008. Although, it's clear that the soft domestic iron market has flattened our top line growth and tempered our margins in Screening and Authentication, this segment remains a strong competitor and we will well position not only to slow through the current soft tiring cycle, but to build competency and market share, while we work through it. Finally, looking quickly our two smaller segments, Marketing Services and Business Services, both segments felt the continued impact of the mortgage in credit market crunch, where banking and financial services customers are under significant pressure, often delaying roll outs while attempting to cut cost. Despite an impressive wins with our ProID and ProCheck offerings, which turn the revenue growth in public filings to a positive level in 2008. Our on-demand business due diligence product suffered as the M&A transaction market remain relatively quite for another quarter. Our Charles Jones joint venture continued to feel the mortgage crunch, dropping their revenues close to 11% for the quarter. And our Marketing Services group continued its previous trends rolling up the last of its subprime revenues and feeling the effects of the expansion of the credit problems across multiple markets. As Derek will discuss more in his remarks, our focus in these two segments during 2008 will be on developing deeper market knowledge and resolving the subscale issues we presently face. Looking ahead for the company as a whole, we've included 2008 outlook as part of our press release, which includes the couple of new components like operating cash flow and cash EPS. And I point you that this disclosure, as you form your own outlook. I don't think to see any surprises, leading the way, we will be continue strong operating performance from our insurance group, with internal revenue growth in the 10% to 12% range and operating margins holding at the 50% plus level and improves Screening and Authentication Services performance with revenue growth expected to be flat to 5% up with margins in the high-teens to low 20% range. For the company as whole, we expect consolidated internal revenue growth of 2% to 7% with margins in the 22% to 24% range. Net free cash flow should remain very strong, likely in the range of $160 to $190 million. In closing, all of us would like to see a stronger economy, with better job growth and stable financial and credit markets, sooner rather than later. However, given the likelihood of prolonged economic weakness, we are well positioned with the phenomenal world-class insurance business, a low overall cost structure, a solid capital structure, a strong basic customers and a pipeline the new product initiatives as strong, as we've ever had. We are taking the right steps to deliver value to our shareholders, and as you will hear from Derek, our executing on our strategies to ensure success in the future. With that, I'll turn the call over to Derek.

[Derek Smith:]

Thanks, Doug. Given the significant of people, we are currently seeing across the information industry, I want to spend sometime today, talking about some of the structural industry changes, I believe will likely see, and our ChoicePoint's own business model is evolving to ensure we capture value or maintaining our leadership position. Our industry has enjoyed periods of rapid growth during the past decade and has tremendous long-term growth opportunities were clearly in the midst of unprecedented turmoil and change. Particularly drift given and abundance of subscale businesses and weakening end markets for many companies. The reality today is that the industry is lost considerable value during the past year and seeing multiple depressing to multi-year loads. Recently, companies have explored wide ranging options from going private to spinning off operations. Out of these challenging times, I believe two new value creation models will emerge for the industry. Some companies will become smaller and more focused, competing based on unique market knowledge or functional expertise. These companies will need to address or exit those businesses that no longer fit their structure for strategic model. Others will seek to get larger, competing based on the financial benefits of share leadership and scale. These companies will increasingly wide on joint ventures and consolidation as they ramp up size and operations. During the past few months, I personally had the opportunity to speak with many of you and key industry leaders. And so I know that you shared the view that the industry is at a key point of transformation. This uncertainty is one of the main drivers of the depressed industry valuations. Against that backdrop, ChoicePoint's strategic vision is to help our customers to mitigate economic risk by leverage our unique market knowledging competencies, while driving profitable growth through market strength. The value creation model we are executing today essentially emanated for a number of key decisions, we made to reposition the company, following the strategic review in 2006. This model consists of three components. First, we are sharpening our strategic focus to be almost exclusively focused on helping customers manage economic risk. A key decision we have made in recent months, was to de-emphasize those businesses focused primarily on helping customers mitigate physical risk. This led to our decision to first sell Bode Labs and now to seek options for i2 and iMAP operation. Second, for those businesses that need our economic risk criteria, we need to focus on those areas, where ChoicePoint has in-depth market knowledge or industry leading competency. And third, we need to make these businesses stronger by building and then leveraging, critical mass to be successful financially. This is the framework. This framework is the lens though, which we are transforming the business model. From markets that meet all three criteria, we will continue to gradually invest and grow these businesses. For those who don’t meet these criteria will consider a variety of options to drive value, including joint ventures, asset sales and spin offs. And ultimately, we will consider other exit strategy, should none of these viable options be available. One of the other outcomes of the strategic review process, we went through was revamping our capital use and capital structure strategy. From acquisition perspective, after using acquisitions as a key component of our growth strategy for our first 8 years in existence, we shifted to our organic growth strategy in 2005. Due to increasingly attractive set of internal opportunities and a less fancy attractive acquisition climate. As we transition ChoicePoint, some comments have been voice regarding our acquisition portfolio, while some of our acquisitions have not performed as expected, based on market conditions or strategic assumptions that didn’t fully materialize, many others have generated exceptional returns and helped us get to where we are competitively position today. Remarkably, our last substantial acquisition was in January of 2005. Instead we have dramatically and consistently made investments in ChoicePoint. There are share re purchase program and a substantial increased level of capital expenditures to fund an exciting set of long-term growth initiatives. And so our priorities for 2008 are

[Operator:]

(Operator Instructions). Your first question will be from Mark Marcon of R.W. Baird.

[Mark Marcon:]

Good morning. I am wondering, if you can give us a feel for how you think the full year guidance is going to play out particularly in the first half of the year. In particular Screening and Authentication Services you're basically looking an internal growth of negative to the 5%. Do you think that's going to be -- do we think that most of the growth is going to occur in the back half of the year. How do you see that playing out? And then along those lines you mentioned that the corporate staff costs -- potentially get down to $45 million. Can you talk a little bit about whether you see that as a kind of an end run rate by the end of the year?

[Doug Curling:]

This is Doug. I think that if you look at the trends in Screening and Authentication, which is up to the biggest single pieces of the background screening business. We've had kind of slowing numbers, we have a bit of improvement in Q2, but in general the numbers in Q3 and Q4 been consistent and the kind of negative three to negative four range bringing us overall to the year to negative two. So, I think that, the first thing we want to see is in the early half of the year, we want to see that negative number flatten out and turn positive. I'm not, bright enough and I'm certainly as an accounting major, not an economist to guess, when I'm going to go from zero to plus five. But as I said in the call, I think we work a lot of the declines in the bigger customers out in 2007 and I think we're going to get some better comps. But what we want to see first is not a negative number, but a zero or slightly positive number and we will be looking for that to happen in the early part of the year as quickly as we can get there. From a corporate cost perspective, the better metric to pay attention to is the overall cost of 7% to 8% of revenue and as the portfolio gets aligned the towers will go with it. I think the comments that everyone made, myself included and the new exhibit in the press release are really intended to give you better color on the character of those costs and some insight into the extent to which the headcount there is elastic related to the business units that we support. So, we've been able to keep it in the 7% to 8% range as Steve said anticipating that we're going to exit the government services business. We already took some cost out. From a run rate stand point, which will help to keep us in that range and we feel pretty good about given the plans that we've got as we realign the portfolio of our ability continue to deliver that 7% to 8% on a cost number.

[Mark Marcon:]

Great, thank you.

[Doug Curling:]

You're welcome.

[Operator:]

Your next question will be from Jeffrey Kessler of Lehman Brothers.

[Jeffrey Kessler:]

Thank you. Couple of questions first? With regard to a couple of these large government programs that are beginning to get a little bit of traction and expand like quick as begun to expand into a couple of more ports, did they actually beginning to happen? The same thing can be said for the number of cards being issued for HSPD-12. I'm wondering how are you going to be looking at that you are obviously dividing that, as you divided the government business, where will that be found and are you going to be continuing to have any focus at all in providing background screening for those types of those checks?

[Doug Curling:]

Well and to the extent that we are doing what we already do in the nongovernmental market. So, that it's a horizontal scale play, and not a vertical market kind of play we will support that. But clearly as Derek said, most of our focus is going to be on economic risk and if I had to not being glib, but if you had to tradeoff, the revenue potential that we have been able to catcher on insurance versus the revenue potential in government that we have been able to catcher. I think our conclusion is pretty obvious that we can control what goes on in insurance a little better and therefore we are going to focus more on that.

[Jeffrey Kessler:]

Okay. You also mentioned looking at markets and trying to focus on markets grew, you would see greater elasticity -price elasticity. Could you comment on that a little bit more?

[Doug Curling:]

No. I don’t recall saying anything about price elasticity. Steve?

[Steve Surbaugh:]

Doug, we have any other continuity as of this year, but…

[Doug Curling:]

I think that the insurance there might be that if we have deeper market knowledge and we have better market scale then we should be better able to drive our own destiny from a pricing standpoint. But we admire and respect all our competitors and as, it’s a rough world out there. So, we wouldn’t want to say anything about anyone's ability to mange pricing.

[Jeffrey Kessler:]

Okay. One other question on the screening market and that is, that we have seen a number of companies popping up around the world looking at international screening, due diligence on nominees, not just for corporate government, but for actual hiring as well? And I'm just wondering, you mentioned briefly that you want to continue to focus on your international expansion with your multinational clients, is this something that you're putting some investment into it at this point and time or is it something at which you are going to just take it as it comes, meaning if the demand shows up, you'll be there but you are not being that proactive about it?

[Doug Curling:]

No. We're being proactive about it. We are making investments in it. I think the focus point there was that instead of trying to casher international in-country growth from internationally based companies, we are instead going to use the existing customer base we already have here in the U.S. to drive our focus for the national background screens.

[Jeffrey Kessler:]

And finally, one more question that is on the insurance side, can you give us any idea of what types of new products you might be expecting without giving them being specific obviously because you don't really want to be that way. But new products that we could be expecting, the types of products, we should be expecting to see in the insurance side over the courser of 2008?

[Doug Curling:]

Well, I think, we talked about -- we gave you some focus areas. We didn't give you names, and I don't think we're going to give you names today. But I mean, the focus areas, we are in the analytics area both on the order side and the property side in personal lines as well as the fraud kind of products that we have right there. We also are going to continue to work on personal line software, new initiatives that we have in insurance and we are very, very interested in trying to do, whatever we can to help make insurance companies more competitive, which is really giving them better insight into which customers they have, what kind of pricing opportunities or elasticity with.

[Jeffrey Kessler:]

Will these new products affect, have any material affect on revenues and are margins toward the end of the year?

[Doug Curling:]

Well, I think, the trend in insurance has been relatively consistent. So I don’t we are baselining a hockey stick performance here. I mean we've been in the 10 percentage, plus kind of internal revenue growth range for the last X quarters, we expect that to continue. We've been in the 50% to 52% kind of margin range and we expect that to continue to. There is a little bit of seasonality in the business and we have the evidence that we have. There are some project related revenues that can kind if spike up and down a little, but unlike -- for example screening, where we are looking for a recovery. So you are going to look for a more pronounced bottom left to upper right kind of performance. We think steady as you go in insurance given the way of performing right now, is exactly what we want to achieve.

[Jeffrey Kessler:]

Great, so the R&D that you spent last year and which did bump up a bit last year in terms of hitting the margin in insurance a bit. That will be consistent this year?

[Doug Curling:]

I am going to stick with the answer that I gave you.

[Jeffrey Kessler:]

Okay.

[Doug Curling:]

Okay, thanks.

[Operator:]

In the interest of time our last question will be from Brian Ruttenbur with Morgan Keegan.

[Brian Ruttenbur:]

Okay. Thank you very much. How much can you take debt up, you are talking about cash flows of a $160 to $195 million. What multiple of that can you comfortably take that up to your debt?

[Derek Smith:]

Under our existing credit agreements, we are limited to three times EBITDA at this point in time, so…

[Brian Ruttenbur:]

Take that up to four or five eventually?

[Derek Smith:]

Pardon?

[Brian Ruttenbur:]

Can you take that up to four or five eventually, under new credit agreement?

[Derek Smith:]

With our amendments to the credit agreements and so at this point in time, we write at two times and so we are at roughly $600 million of debt and so this would -- if you wanted, you can take the debt to the $900 million to a $1 billion range. Our total limit is just slightly north of a $1 billion.

[Brian Ruttenbur:]

Okay. And what interest rate, are you carrying on average, right now?

[Derek Smith:]

We're running right now about 5% and we are looking to potentially lock some of that in when considering the financing markets right now.

[Brian Ruttenbur:]

So, if rates were to go down, this would help you, because a lot of its still floating?

[Derek Smith:]

Yes, from a slop standpoint, yes.

[Brian Ruttenbur:]

Okay. Thank you very much.

[Derek Smith:]

Okay. Thank you. We want to thank everyone for their participation in the call. We look forward to talking with you again at the end of first quarter. And we appreciate your interest in ChoicePoint. Have a great day.

[Operator:]

Thank you for participating in today's conference call. You may now disconnect.