Oct 29, 2009
Executives
Jo Etta Bandy - Senior Vice President of Corporate Communications Parker S. Kennedy - Chairman of the Board, Chief Executive Officer Frank V.
McMahon - Chief Executive Officer - Information Solutions Group Dennis Gilmore - Chief Executive Officer Anthony S. Piszel - Chief Financial Officer, Treasurer
Analysts
Jason Deleeuw - Piper Jaffray Nick Fisken - Stevens Inc. David West - Davenport & Company
Operator
Welcome and thank you for standing by. At this time all participants are in a listen-only mode.
(Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this time.
A copy of today's press release and accompanying presentation are also available on First American website at www.firstam.com/investor. Please note that the call is been recorded and will be available for replay from the company's investor website and for a short time by calling 203-369-3077.
We will now turn the call over to Jo Etta Bandy, Senior Vice President of Corporate Communications to make an introductory statement.
Jo Etta Bandy
Good morning everyone and thank you for joining us for our third quarter earnings conference call. At this time we would like to remind listeners that Management's commentary and responses to questions may contain forward-looking statements such as those described on page two of the accompanying slides and other statements that do not relate strictly to historical or current facts.
The forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements.
Factors that could cause the anticipated results to differ from those described in the forward-looking statements are described on slide two. As indicated on slide three, Management's commentary and responses to your questions also contain certain financial measures that are not presented in accordance with Generally Accepted Accounting Principles.
The company does not intend for these non-GAAP financial measures, GAAP financial information. In the prior presentation with non-GAAP financial measures that are presented [Technical Difficulty] in 4Q the most directly comparable GAAP financial measures.
Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financing measures. Joining us on today's call will be our Chairman and Chief Executive Officer, Park Kennedy, Frank McMahon, Chief Executive Officer of the Information Solutions Group, Dennis Gilmore, Chief Executive Officer of the Financial Services Group, Anthony Piszel, First American's Chief Financial Officer.
During the call we will be referring to a slide presentation which is currently available on First American's website at www.firstam.com\investor. At this time it is my pleasure to turn the call over to Park Kennedy.
Parker S. Kennedy
Thank you, Jo. And thanks to everyone on the call.
Please turn to page four of the earnings presentation for a summary of our consolidated earnings. First American reported earnings per diluted share of $0.59 for the third quarter versus a loss of $0.09 in the third quarter of 2008.
The current quarter results include, on an after tax basis, net realized investment gains of $3.1 million or $0.3 per diluted share and a reduction in the reserve for past year 2009, claims losses of $5 million or $0.05 per diluted share. These gains were offset by intangible impairments of $6.5 million or $0.7 per diluted share.
Spin-off related cost of $2.4 million or $0.02 per diluted share and employee separation and lease termination cost of $3.8 million or $0.04 per diluted share. Excluding these items, earnings per diluted share were $0.64.
Over the last three months, we have made considerable progress towards the separation of our information solutions and financial services businesses. First, we launched an exchange offer to acquire the issue and outstanding common stock of our publicly traded subsidiary First Advantage.
Acquiring the minority interest in First Advantage will enhance our financial flexibility, reduce organizational complexity and provide greater overall operational efficiency. Our offer expires November 10th and assuming all conditions on met or waived, we expect to close our transaction soon or after.
Second, this morning we announced that we signed a letter of intent with experience to facilitate the acquisition of our 20% ownership in FARES joint venture in 2010. The purchase price reflects the contractual price of 12.5 times the average annual earnings of the FARES joint venture, over the eight quarters ended June 30.
We believe this accretive transaction will reduce the complexity of our organization, improve our operating and financial flexibility and create value for First American's shareholders. Buddy Piszel will comment on the experience in more detail at the end of the call.
Finally we have made substantial progress in finalizing the balance sheets of both companies, which will cave the way for our tax ruling request in Form-10 later at this quarter. We are making good progress with the separation of the two companies and we have set a target date for the spin off, of April 1, 2010.
Now I would like to introduce Frank McMahon, who will comment on the Information Solutions results.
Frank V. McMahon
Great. Thank you, Park.
Although the Information Solutions Group delivered a strong third quarter relative to the third quarter of last year, the group's results were down relative to the second quarter of this year. Decline in sequential quarter pre-tax earnings was driven by lower mortgage origination activity, which according to the NBA was down 18% from last quarter.
A weakening employment sector at September summary reaching 9.6% and slightly higher expenses as we make key operational hires and buildup a proper company infrastructure. Let's begin with our financial results.
Third quarter revenue increased 5.1% compared with the third quarter of last year, driven by market share gains, the introduction of new products and an increase in origination revenue. Pre-tax earnings of 83.4 million in the third quarter, represented increase of 22.9 % compared to a year ago and a decrease of 27% relative to the second quarter of 09.
EBITDA for the third quarter of 09 was 160 million, a 13% increase from the third quarter of last year, with our EBITDA margin coming in at 22.1%. The year-over-year increase in pre-tax income was driven by revenue growth and a decrease in controllable expenses of 11.6 million, a 3.9% compared to the third quarter of last year.
Compared to last year we experienced revenue growth in credit, tax life, -- both traditional trades and BPO and the fault line. Strong sales and marketing activity not only contribute to our revenue growth this quarter but also helps us add new business opportunities that we recognized in future periods, during the third quarter we added new sales commitments to representing $33 million in annualized revenue.
Recent sales highlights includes nine new contracts representing annual revenues greater than 1 million signed in the third quarter. New contracts with credit representing $2 million in revenues, alarge tax servicing contract and a very larger play for contract.
Recent price development activity includes the launch of loan safe broad manager. The integrated tool using both the one safe model as well as the model.
We also launched Oncore, a new First American central product that provides enhanced credit picture by combining credit information, the traditional date in analytics. Finally, the Information Solutions Group continue to make progress towards structure refinance that will better position us for the spin off anticipated in the first half of next year.
A primary focus has been streamlining our public and organizational structure. As Park mentioned, we've entered into a letter of intent to fund the FARES agreement that could facilitate and exercise of our option to purchase the interest of our partners experience during 2010.
In addition, thus far this year we have bought in the 20% interest in data trades from Latin America and repurchased a 60% majority interest in base point analytics. Finally we've initiated the exchange offers to purchase the publicly held minority interest in First Advantage Corporation.
We are very excited about the financial, the organizational and the structural opportunities that these transactions present to our organization as we prepare to be a standalone public entity in 2010. Now I'd like to comment on our outlook for the remainder of 2009, we expect fourth quarter revenues to decline on a sequential quarter basis due to the normal seasonal slowdown in November and December.
However, we're seeing origination related revenues rebound slightly in October with our credit orders up 3%, title orders up 13% and appraisal orders up 20% relative to third quarter levels. Our full year outlook is as we previously disclosed the Information Solutions Company has three primary long-term goals, revenue growth at 7%, EBITDA growth at 10% and an EBITDA margin improvement of 5%.
Our year-to-date revenue growth is 4.7%, based on our year-to-date and expected fourth quarter revenues we do not expect to achieve the 7% goal this year. However, our EBITDA growth is 11.3%, in excess to the 10% goal and our EBITDA margin including a 6.3% in excess of our 5% goal, we remain cautiously optimistic that we'll achieve both of those goals this year.
I would now like to turn over Dennis to discuss the Financial Services Group results.
Dennis Gilmore
Thank you, Frank. Third quarter pre-tax income for the title insurance segment was 59 million, resulting in 5.9 pre-tax margins.
This result includes 5 million of net, realized investment gain and $8 million benefit due to a claimed reserve release for policy year 2009, offset by $4 million in employee separation and lease termination costs. The company experienced sequential declines in closed orders each month during the quarter, primarily driven by a 34% decline in refinance activity related to the second quarter.
In the third quarter, we closed 362,000 orders including 6200 orders per day in July, 5500 orders per day in August and 5200 orders per day in September. In October, we are closing approximately 5100 orders per day.
Direct revenues declined 10% sequentially due to a decrease in the number of title orders closed, offset by an increase in our average revenue quarter. Our average revenue per order was 1423, an increase of 9% relative to the second quarter due to a shift in our order mix as well as the continued impact of rate increases.
Our agency revenue increased 28% sequentially. There's roughly a one quarter lag between the time and age of the policy addition to the time we recognized the revenue.
That agent revenue in the third quarter primarily reflects transaction activities that occurred in the second quarter. Salaries and other personnel costs decreased 9% over the prior year and 2% over the prior quarter.
During the second quarter, the company reduced employees at the title insurance segment by approximately 280. We will continue to adjust our personnel cost as market conditions require.
Other operating expenses declined 8% over the prior year. The decline was due to a lower occupancy expenses, as a result of consolidation of title branches and other cost containment programs.
In addition, we incurred approximately $10 million of cost of consulting, centralization and other related expenses this quarter that will terminate at the end of the year. These costs were incurred as part of our important ongoing effort to centralize our accounting, acclaimed, our agency administrative functions, all of which will benefit the company for years to come.
Total revenues in our commercial division were 52 million, relatively unchanged from the prior quarter. We did experience an up tick in activity in September, but the commercial outlook for the next six months remains challenging based on the current pipeline.
Our commercial division has seen an increase in work out related transactions, primarily in the Western States. But we're not seeing the volume of large transactions that were once common place.
First American is well positioned in the commercial market recovers due to our strong balance sheet and healthy financial ratings. Total revenues in our international division were 82 million.
A slight increase on a sequential basis -- ability in our international division is gradually recovering. The pre-tax margin for the international business was 7% in the third quarter.
Total revenues in our special insurance segment were 71 million, a 2% decrease over the prior year, primarily due to the decline of business volumes. Pre-tax income for this segment was 7 million, but the pre-tax margin of 11%.
The outlook for the next six months remains challenging. However, we have experienced a recent increase in open orders, including 7600 orders per day in the month of October and although the rise in orders are encouraging, I believe the trend will be more short lived and will not continue throughout the next six months.
In summary, throughout the year, we have made significant progress restructuring our company and we remain focused and committed to continue to improvement in our pre-tax operating margins. Our strategic plan, calls towards the focus in 2010 on a number of unique value creating opportunities including increased agency profitability, increased market share in under penetrated markets, continued leverage of our unique offshore capacities, optimization or investment portfolio, rationalization of our domestic footprint and continued capitalization on a gradual recovery on a commercial and international markets.
Successful execution of this plan will help to facilitate the goals of achieving a 10% margin by 2011. I'd now like to introduce Buddy Piszel, our Chief Financial Officer.
Anthony S. Piszel
Thanks Dennis. This quarter had a number of adjustment items, so I'll hit the ones that have not been covered so far, speak to liquidity in capital management and then with an update on our minority interest clean up and the spin.
First reserves; the loss provision in the title insurance segment was 5.1% for the quarter versus 7.4% in the third quarter of 2008. The current quarter rate reflect a positive adjustment for the expected claims experience for policy year 2009, with no reserve estimated adjustments for prior policy years, which were trending inline.
We lower the expected claims rate for 2009 from 6.5%, which was used for the first half of the year to 6%, as a result of better than anticipated claims experience for the 2009 policy year. This true up for the first half contributed $8.4 million the pre-tax earnings for the title segment this quarter.
We're pleased to see the 09 claims experience, moving back towards the historical norms as that both well for the future. Overall, we feel very good about our reserve levels.
On the investment portfolio, the company recorded $5 million of net realized investment gains this quarter. We realized $11 million gain, related to the sales of City Bank preferred stock, which was partially offset by $6 million of smaller realized losses and impairments principally in our ABS portfolio.
The overall debt ans equity portfolios continue to improve and as of 930, our net unrealized loss in the portfolio is down to $10 million on a roughly $1.8 billion cost basis. Outside the investing portfolio, we also took $10 million impairment on some software held at corporate that no longer had value to the company.
Turning to liquidity which is on slide 13, as of September 30th, First American had $113 million of cash as a holding company. We've been on track for hold core cash all year long.
By the end of the year, we expect to have over $130 million at the holding company and that's after making our third quarter dividend payment. This positions us very well to fund both holding companies upon the spin.
On slide 14, you'll find an update of our dividend policy. After the spin date, the company will continue its current dividend of $0.22 per share or roughly $20.5 million per quarter.
After capital consideration, management and the board decided that given the lingering uncertainty in the market place, that post spin the dividend will be reduced from its current level to conserve capital. So the financial services company will initially pay a dividend of approximately $24 million a year.
The Information Solutions Company will not pay a dividend. In aggregate, dividends to common shareholders will be reduced from the current rate of $82 million per year to $24 million per year and the boards of both companies will reconsider their dividend policies on a regular basis.
The debt to capital ratio at the end of the quarter was 20%. We estimate a surplus at the regulated insurance company remained unchanged at slightly more than $700 million.
That's the highest in the industry and that's after a $30 million dividend payment to the holding company. So overall, we continue to have very good financial flexibility.
Next on slide 15, I'd like to address the actions we're taking to clean up our minority interests. We launched an exchange offer to acquire the minority interest in our publicly traded subsidiary, First Advantage.
Our offer expires on November 10th, and we expect to close the transaction soon thereafter. If successful, we will issue roughly $300 million of FAF common equity, which includes about $69 million issued to Experian with their 6% interest in FADD.
We're also are very pleased to announce that we've signed a letter of intent with Experian that facilitated our acquisition of their remaining 20% interest in the Faris joint venture in a two stage transaction. First we will pay $48 million in cash for Experian’s indirect interest in our title plant management and image businesses, Data Tree and Data Trace.
This acquisition is expected to close in the fourth quarter and is based on the price is based on the JV contractual formula of 12.5 times trailing average earnings. Second, we're mending the buy out arrangement to provide that if exercise by either party in 2010.
The exercise price will be approximately $314 million in cash and would close on December 31, 2010. Again, this purchase price is based on the 12.5 times contractual formula.
This arrangement with experience remains a subject to customary closing conditions including the execution of the punitive agreements. We believe that if executed fully, it should be an accretive transaction, will reduce complexity, improve operating and financial flexibility and create value for First American shareholders.
We expect the experience minority interest expense to total $37.3 million for the nine months ending September 30. Finally, turning to page 17, we've made significant progress towards the spin off doing the last several months.
In November, we will finalize the financial services and information solutions balance sheets and submit our tax free ruling to the IRS. Our Form 10, based on our 930 financial statements is scheduled to be filed with the SEC in early December.
At that time, we will hold an Investor Call to walk you through the pro forma capitalization and financial profiles of both companies. We also intend to hold an Investor Day in March of 2010, just before our spin launch day, which we've targeted for April 1.
And while a number of conditions including regulatory approvals are not in our control, management is working aggressively to meet these target dates and will keep the investor community updated on our progress. So with that, let's open it up for questions.
Operator
Thank you. We will now begin the question and answer session.
(Operator Instructions) One moment please, for the first question. Jason Deleeuw, you may ask your question.
Jason Deleeuw - Piper Jaffray
Thanks and good morning everyone.
Parker Kennedy
Good morning.
Jason Deleeuw - Piper Jaffray
The agency revenue seemed a little stronger than what we were expecting, I'm wondering if there has been a shift to emphasize the agency channel more or is it simply just quarter-over-quarter increases that simply just due to the one quarter lag?
Dennis Gilmore
This is Dennis, let me answer that. A couple of things, first, we're very focused on the agency channel, the key distribution for us and we have seen growth in that channel and I think we'll continue to see growth in that channel.
For the quarter specifically, I think a lot of has to do with the lag period between open orders and when we get them remit to us. Lot of the revenue growth, I think in the quarter had been from the second quarter, generated from the second quarter, recognized in the third quarter.
But again, we're going to continue to very much focus on strategic nature of this channel and continue to grow it.
Jason Deleeuw - Piper Jaffray
Okay. I believe for what you guys were deemphasizing some of your agent relationships so, is it something, is this new were you are now seeing opportunities in this channel.
Parker Kennedy
Couple of things, we've constantly focused on the profit during the channel and make it sure that we getting the right return on capital and we'll continue to do that. We just see opportunities now in the market place to grow here and control profitability manner.
Jason Deleeuw - Piper Jaffray
Okay. And then, on the Info Solutions business, just wondering about the cost base and is it right sized now?
It seems like every quarter we have a couple of... you're right sizing that cost base.
So I'm wondering if there's more work to do on that front to give it to the level that you guys want it at, or is there, is the nature of this business sort of like the title business where you are going, there is going to be some continuously the right size of business given how the volumes are trending.
Frank McMahon
Jason, it's Frank. There's a couple of assets that one aspect of it will be further integration of our operating units and that's going to provide an opportunity for us to reduce our cost base when we bring First Advantage and we'll have that opportunity and we expect it to have some benefits in 2010 related to that.
As it relates to some of other businesses they are driven by market activity and we continue to right size the work force based on market activity and that's going to continue, but we do see a longer term trend to improve our margins, which is why we had it as one of our three key financial goals.
Jason Deleeuw - Piper Jaffray
Okay. Thank you very much.
Parker Kennedy
Thank you.
Operator
Nick Fisken with Stevens, you may ask your question.
Nick Fisken - Stevens Inc.
Hey good morning everybody.
Parker Kennedy
Good morning.
Dennis Gilmore
Good morning.
Nick Fisken - Stevens Inc.
On FARES, what would be the primary factors that determine whether or not you spend the 314 million?
Frank McMahon
The way that transactions been set is we've fixed the 314 million price essentially and both companies have an option post April 1st to exercise that. So, I think it's probably in both company's interest to exercise that option, but it is an option.
So, I guess that's the way I would describe it.
Nick Fisken - Stevens Inc.
And just some crystal on this, you spent 69 in 3Q, and you are going to spend 48 on Data Tree in 4Q is that right?
Frank McMahon
Well we've not spent a 69 because on FADD because the FADD transaction is not closed yet.
Nick Fisken - Stevens Inc.
Okay.
Frank McMahon
And experience has indicated that they will tender, so if that transaction goes according to plan, in the fourth quarter we'll be closing on the first installment. Data Trace and Data Tree would also expected to close that's for cash flow, in the fourth quarter and then the remaining interest wouldn't be paid until a very, if exercise of the options of exercise they wouldn't be paid until the end of 2010 and that just gives more time to accumulate cash and have more flexibility on how we fund this.
Nick Fisken - Stevens Inc.
Thanks for all the information, its a bunch to digest. If you look at that slide 16 on spin off timing, what exactly are you waiting before you get Form 10 filed?
Frank McMahon
Well, we thought it make more sense Nick, to file the Form 10 with account forming 930 balance sheet. We've already gone through when we've done the work on the 630 balance sheet, but since they don't really drive with the quarter, we think the purpose of communicating to all of you.
It would be helpful to say, we're here with the 930 numbers for the total company and then here also we would look pro forma there after. So, we just changed everything off.
And it will just take us a little bit of time having just completed the 930 balance sheet to make the adjustments and get it all sent in to the SEC.
Nick Fisken - Stevens Inc.
Okay. And lastly I've got on Info Solutions, the sequential increase in headcount, you said to support business enhancements, what are the details there?
Parker Kennedy
Yeah, I mean it's not a in head count, is really building out our corporate infrastructure, we've hired a general council, a treasurer a key financial person and we have actually hired some key operational people as well, allot of talented people in the industry right now that we're bringing into our organization. And then finally, from a head count prospective, the one area that continues to grow for us is tax.
We gotten a three to four very large contracts this year and those are being boarded, many of them were in the second quarter. So we've ramped up our head count in tax to deal with that new business opportunity.
Nick Fisken - Stevens Inc.
Okay last thing I got for Dennis is that I've jotted down is there were $10 million of cost in title in centralized claims and what not and that's going to go away as at the end of the year, correct?
Dennis Gilmore
Yeah. What I wanted to give is little detail, the cost associated with some of our centralization efforts and these efforts have been ongoing now for about a year and half and the 10 million I referenced in my script will go away first half, first quarter next year.
Nick Fisken - Stevens Inc.
And that was 10 million incurred just in 3Q?
Dennis Gilmore
Just in 3Q, yeah.
Nick Fisken - Stevens Inc.
And 4Q, is it the equivalent number?
Dennis Gilmore
No, I think it will be probably half of that. But the message there is that you know we've spent a good deal of operating expense money in 2009 building out our platform we're nearing completion, which means that cost will not be present in the future and we'll get the benefit of all that technology in our leverage.
Parker Kennedy
Just again to follow up on, just sort for clear you know as we have always done in this business, we're very focus on our operating metrics, we've continue to simplify the structure and we've been working towards the centralization of our admin function and that I think does very well as we enter 2010 and forward.
Nick Fisken - Stevens Inc.
And what was that number for Q2?
Parker Kennedy
We didn't disclose it, but it was... we didn't disclose it, but year-to-date we're probably around 20 million.
Nick Fisken - Stevens Inc.
Okay. Thanks so much.
Operator
(Operator Instructions) (inaudible) with KPW, you may ask your question.
Unidentified Analyst
Good morning gentlemen.
Parker Kennedy
Good morning.
Unidentified Analyst
Couple of questions for Dennis, I'm just kind of following up on may be the title expense questions really in generally it sounds like you continue to cut heads in the third quarter. Certainly, October started off well, but if you have that expectation then may be seasonality comes into play and things continue to slow in the quarter and may be you have a normal seasonal first quarter.
Would it be safe to say that we could see those operating expenses and salary down quarter-over-quarter for the next couple?
Dennis Gilmore
How I'm going to look at it right is, while we are encouraged that we see an up tick in orders, I just think there we're still in a volatile market and we're not planning on that been on going and so if that is a back drop we have continue to right size the business for the first month, were down a 100 heads in the business and like we always do continue to adjust our operating metrics as we see the volumes. We're going to be more cautious, I just do not think that the low interest rate environment will continue for the next six months, and we're going to kind of operate accordingly.
Unidentified Analyst
Okay. Fair enough, and then just shipping to the pricing side of it, I think most of your price increases are probably pretty close to being already in the books.
Any thoughts on, not that you just got in place so they were asking for more of them, but how long until you could expect another round if any, I mean is it something that basically from an industry you wouldn't expect to see any chance of pricing increases in the next say, two to three years or is there an expectation that maybe you could go back to a couple of states and actually get further increases?
Dennis Gilmore
Yeah, thank you for the question. It's an ongoing process first and while we were active this last year, we are a pretty much done with the effort.
But we constantly look at our rates. We have to make sure that we have an adequately return that our rates are competitive, that they are excepted and not discriminatory etcetera and so just how we run the business, we're going to constantly reevaluate our rate structure and take the appropriate action if we necessary.
So, I think, how we should look out more it's just in our ongoing effort to review our rate structure.
Unidentified Analyst
Okay. And then just one last quick question for Frank, I think you touched on in a little bit with FADD assuming everything goes okay and it's brought back in short.
I know you touched on the fact they are probably redundant corporate expenses within that structure and is there any way to kind to quantify them to a little bit so that we can see how much, at least corporate benefit we might get in 2010 from the moving back in to FAF?
Frank McMahon
Yeah given the fact that, that exchange offer is still open we can't comment on that, but assuming it closes we'll be providing those details to you before the end of the year.
Unidentified Analyst
Okay. Thank you.
Operator
--, you may ask your question.
Unidentified Analyst
Good morning guys.
Parker Kennedy
Good morning.
Unidentified Analyst
I have two questions, first on the title side, you guys have made a lot of progress rationalizing the cost structure, and what I'm wondering is if you can give us some specifics around how you're going to get from the 5% adjusted pre-tax margin to 10% target and I'm not sure, another things you can't control on the revenue side, but if we assume the same revenue mix that you had in Q3 and the same operating revenue amounts occurred $966 million of title, that would be expense base look like ideally as you get into 2011?
Parker Kennedy
Okay. I'll pass it to Dennis.
Dennis Gilmore
First of all I'll look for over the next two years, we're going to continue with efforts that we've launched over the last two years and that is simplify the structure, drive the business on our metrics and continue to centralize our admin functions. So when I look forward, we're going to be focused on a few things.
We're going to focus on continuing to rationalize any inefficiencies in the business and we still have opportunities there. We're going to continue to drive or leverage I think unique offshore abilities.
We're going to continue rationalize and improve our performance on our investment portfolio and we're really in a different mode right now also that we're very focused on growing in what we consider under penetrative core market. And so as we got the business at the level of efficiency where we feel comfortable, we're also driving very aggressively from the market perspective appropriately making sure that the it's the right return on the growth and then we think we'll see some gradual recovery of the commercial market space over the next two years and the international markets space and then coupled with that, we're also anticipating the continued gradual decline of softening decline in the average price point.
So, we think we'll see some experience of increased order revenue for order, as the market starts to stabilize over the next few years. It's kind of a combination of trial after efficiency, drive after our controlled market share growth.
Unidentified Analyst
Some of those things you mentioned sounded like revenue impacts and what I'm trying to do is assume that revenue is exactly what it was this quarter and have you walk me through how the expense items are going to change that the resulting pre-tax margin is 10%.
Dennis Gilmore
Yeah. We've done a sort of add of plan out of process planning to target the way exactly in a waterfall we get from, where we're this year to 10% margins in 2011, and we are going right now through the detailed planning process to build the 2010 plan from the bottoms up.
And as we get into 2010 and as that margin -- we'll be getting the waterfall exactly here's the pieces and here's how we're getting there. I think we've identified the leversI think we feel good about our ability to execute against them.
But we're not ready right now to lay all of about out.
Unidentified Analyst
Okay. You guys have done a great job so far getting the cost base in line so great to see some more specifics along the way.
My second question is for Frank. Frank, one of your competitors has been talking about the secular growth potential in mortgage plan and analytics.
As the leaders in the space, we haven't heard as much from you guys on whether there's a secure growth opportunity and what it looks like and I wonder if you could comment on that a little bit?
Frank McMahon
Thanks --. We do believe that there is a secular growth opportunity and we believe that opportunity is in a metric here in the Untied States, but a global opportunity.
That's one of the reasons we went forward and brought the remaining 60% of base points that we didn't own. We now have the combination to combine broad marks pattern recognition with our long say for our two which uses third party metrics.
And that's now being tested by a number of lenders, we already have a good market share there, we expect our market share to continue. We expect the adoption rates to increase going forward, we think that the agencies would be more involved in looking at going forward, and we also believe that a number of U.K and Australian banks who are now testing our products will ultimately license those products going forward.
So, it's a fairly long sales cycle. We brought base point in the second quarter, but we having some very positive comments with large lenders around the world regarding broad analytics.
Unidentified Analyst
Thanks guys.
Operator
David West with Davenport & Company, you may ask your question.
David West - Davenport & Company
Thank you. Good morning, wanted if you could provide a little bit more color on the dividend decision given the magnitude of the decrease and to what extent did the credit rating considerations enter into that with the pending to two companies?
Frank McMahon
Yeah, they will one of the few companies that had not cut their dividend during this entire market meltdown. So, when we thought about splitting the companies and expecting silly choppy real estate market for 2010, we didn't want to start either company out with a lot of strain at the holding company.
When we look into our investor base, they're really not that many income-oriented investors in the stock and certainly as things start to improve and we're strongly building capital, we'll revisit this. We did not I mean we've spoken to the rating agencies about our intention to do this, it wasn't a driver by them.
So, they didn't require that. We thought it was certainly rating agencies friendly and again we think again this is initial action for both companies and as things improve and profitability strengthens, we will clearly go forward and reconsider this.
David West - Davenport & Company
That's very good and secondly just a clarification, the impairment charge I think you said that was software related and that was not one driver of the two segments, that was taken at the corporate level?
Frank McMahon
Yes it was, this is some web based platform that we built for internal purposes and the volumes we are getting so low we just included, it didn't future value and it had been, that is in the corporate numbers, not in either of the segments.
David West - Davenport & Company
Thank you.
Operator
That's all the time we had for questions today. That concludes this morning's call.
We would like to remind listeners that today's call will be available for replay on the company's website or by dialing 203-369-3077. Copies of the press release announcing First American's first quarter results and the company slide presentation are also available on First American's website at www.firstam.com/investor.
The company would like to thank you for your participation. This concludes today's conference call.
You may now disconnect.