Neustar, Inc. (NYSE: NSR), a trusted, neutral provider of real-time information services and analytics, today announced results for the quarter ended March 31, 2014, and affirmed its revenue and adjusted net income guidance for 2014.

Results for First Quarter 2014 Compared to First Quarter 2013

  • Revenue increased 6% to $229.9 million
  • Revenue from Marketing Services increased 21% to $32.9 million
  • Revenue from Security Services increased 11% to $30.1 million
  • Net income decreased 6% to $31.7 million
  • Net income per share was flat at $0.50

Non-GAAP Results for First Quarter 2014 Compared to First Quarter 2013

  • Adjusted net income decreased 3% to $52.4 million
  • Adjusted net income per share increased 5% to $0.84

“Our first quarter results demonstrate that we are delivering on our strategic initiative to become a leader in information services and analytics,” said Lisa Hook, Neustar's President and Chief Executive Officer. “Our targeted investments are paying off and we are seeing strong and growing market demand for our IS&A offerings. We are competing vigorously in the LNPA vendor selection process, and will continue to advocate strongly that we are the logical choice to remain as administrator, which we believe is beneficial to the industry and consumers alike.”

Paul Lalljie, Neustar’s Chief Financial Officer, added, “During the first quarter, we delivered 16% revenue growth in our Marketing and Security Services. We closed on the acquisition of .CO earlier this week, bolstering our position as a key player in the expanding gTLD market. We remain confident in our full-year forecast driven by our first quarter results and leading indicators, and as a result we are affirming our guidance for the year.”

Discussion of First Quarter Results

Revenue totaled $229.9 million, a 6% increase from $216.4 million in 2013. Marketing Services revenue of $32.9 million grew 21% driven by higher demand for our workflow solutions. Security Services revenue of $30.1 million grew 11% driven by increased demand for our DDoS protection services. NPAC Services revenue of $118.8 million grew 6% driven by an increase in the fixed fee established under our contracts to provide local number portability services. Data Services revenue of $48.1 million declined 5% due to lower revenue in caller identification services.

Operating expense totaled $174.6 million, a 20% increase from $145.6 million in the first quarter of 2013. This $29.0 million increase was primarily driven by $6.2 million in advertising and professional fees associated with the NPAC vendor selection process and $5.0 million in costs for restructuring initiatives designed to improve efficiencies. In addition, personnel and personnel-related costs increased $6.8 million and depreciation and amortization expense increased $3.0 million.

As of March 31, 2014, cash and cash equivalents totaled $386.5 million, compared to $223.3 million as of December 31, 2013. During the quarter, the company borrowed $175 million under its revolving credit facility. At the end of the quarter, the company's outstanding debt under its term facilities and 4.5% senior notes was $789.3 million. During the first quarter, the company purchased approximately 1.2 million shares at an average price of $34.85 per share, for approximately $41.9 million.

Business Outlook for 2014

The company affirmed its guidance for revenue and adjusted net income provided on January 29, 2014:

  • Revenue to range from $945 million to $970 million, or growth of 5% to 8%
  • Adjusted net income to range from $233 million to $243 million, or flat to growth of 4%
  • Adjusted earnings per share to range from $3.64 to $3.80, or growth of 3% to 8%

Conference Call

As announced on April 10, 2014, Neustar will conduct an investor conference call to discuss the company's results today at 4:30 p.m. (Eastern Time). Prior to the call, investors may access the conference call over the Internet via the Investor Relations tab of the company's website (www.neustar.biz). Those listening via the Internet should go to the website 15 minutes early to register, download and install any necessary audio software.

The conference call is also accessible via telephone by dialing 800-580-5706 (international callers dial 913-312-0687) and entering PIN 6589335. For those who cannot listen to the live broadcast, a replay will be available through 11:59 p.m. (Eastern Time) Wednesday, April 23, 2014 by dialing 877-870-5176 (international callers dial 858-384-5517) and entering replay PIN 6589335, or by going to the Investor Relations tab of the company's website (www.neustar.biz).

Neustar will take questions from securities analysts and institutional portfolio managers; the complete call is open to all other interested parties on a listen-only basis.

This press release, the financial tables and other supplemental information are available on the company's website under the Investor Relations tab. This supplemental information includes reconciliations of certain non-GAAP measures to their most directly comparable GAAP measures that may be used periodically by management when discussing the company's financial results with investors and analysts.

About Neustar, Inc.

Neustar, Inc. (NYSE: NSR) is the first real-time provider of cloud-based information services and data analytics, enabling marketing and IT security professionals to promote and protect their businesses. With a commitment to privacy and neutrality, Neustar operates complex data registries and uses its expertise to deliver actionable, data-driven insights that help clients make high-value business decisions in real time, one customer interaction at a time. More information is available at www.neustar.biz.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release includes information that constitutes forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements about the company's expectations, beliefs and business results in the future, such as its guidance regarding future results of operations. The company has attempted, whenever possible, to identify these forward-looking statements using words such as “may,” “will,” “should,” “projects,” “estimates,” “expects,” “plans,” “intends,” “anticipates,” “believes” and variations of these words and similar expressions. Similarly, statements herein that describe the company's business strategy, prospects, opportunities, outlooks, objectives, plans, intentions or goals are also forward-looking statements. The company cannot assure you that its expectations will be achieved or that any deviations will not be material. Forward-looking statements are subject to many assumptions, risks and uncertainties that may cause future results to differ materially from those anticipated.

These potential risks and uncertainties include, among others, general economic conditions in the regions and industries in which the company operates; the uncertainty of future revenue, expenses and profitability and potential fluctuations in quarterly operating results due to such factors as disruptions to the company's operations resulting from network disruptions, security breaches or other events, an inability to obtain high quality data on favorable terms or otherwise, modifications to or terminations of its material contracts, the financial covenants in the company's secured credit facility and their impact on the company's financial and business operations; the company’s ability to complete its realignment efforts with minimal disruptions; the company's indebtedness and the impact that it may have on the company's financial and operating activities; the company's ability to incur additional debt; the variable interest rates applicable under the company's indebtedness and the effects of changes in those rates; the company's ability to successfully identify and complete acquisitions and integrate and support the operations of businesses the company acquires; increasing competition; market acceptance of the company’s existing services; the company's ability to successfully develop and market new services and the uncertainty of whether new services will achieve market acceptance or result in any revenue; the company’s ability to raise additional capital on favorable terms or at all; and business, regulatory and statutory changes related to the communications and Internet industries. More information about risk factors, uncertainties and other potential factors that could affect the company's business and financial results is included in its filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Annual Report on Form 10-K and subsequent periodic and current reports. All forward-looking statements are based on information available to the company on the date of this press release, and the company undertakes no obligation to update any of the forward-looking statements after the date of this press release.

 

NEUSTAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
 
Three Months Ended
March 31,
2013   2014
(unaudited)
Revenue $ 216,416 $ 229,897
Operating expense:
Cost of revenue (excluding depreciation and amortization shown separately below) 49,297 58,611
Sales and marketing 42,260 49,991
Research and development 7,484 7,059
General and administrative 21,882 26,291
Depreciation and amortization 24,665 27,640
Restructuring charges   2     4,966  
  145,590     174,558  
Income from operations 70,826 55,339
Other (expense) income:
Interest and other expense (17,562 ) (5,997 )
Interest and other income   141     95  
Income before income taxes 53,405 49,437
Provision for income taxes   19,641     17,754  
Net income $ 33,764   $ 31,683  
Net income per share:
Basic $ 0.51   $ 0.52  
Diluted $ 0.50   $ 0.50  
Weighted average common shares outstanding:
Basic   66,184     61,240  
Diluted   67,614     62,753  
 
   

NEUSTAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
 
December 31, March 31,
2013 2014
(audited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 223,309 $ 386,453
Restricted cash 1,858 1,785
Accounts receivable, net 152,821 156,660
Unbilled receivables 10,790 9,306
Notes receivable 1,008 406
Prepaid expenses and other current assets 23,914 22,297
Deferred costs 6,324 5,884
Income taxes receivable 7,341 —
Deferred tax assets   8,774     12,640  
Total current assets 436,139 595,431
Property and equipment, net 124,285 124,345
Goodwill 643,038 650,765
Intangible assets, net 275,141 266,975
Other assets, long-term   28,704     27,974  
Total assets $ 1,507,307   $ 1,665,490  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 9,620 $ 10,266
Accrued expenses 94,457 63,375
Income taxes payable — 10,517
Deferred revenue 54,004 56,508
Notes payable 7,972 7,972
Capital lease obligations 1,894 1,442
Other liabilities   3,580     3,815  
Total current liabilities 171,527 153,895
Deferred revenue, long-term 12,061 12,273
Notes payable, long-term 608,292 781,299
Capital lease obligations, long-term 2,419 2,131
Deferred tax liabilities, long-term 82,164 83,605
Other liabilities, long-term   41,270     44,349  
Total liabilities 917,733 1,077,552
Stockholders’ equity:
Common stock 87 86
Additional paid-in capital 602,796 619,997
Treasury stock (893,852 ) (902,403 )
Accumulated other comprehensive loss (797 ) (817 )
Retained earnings   881,340     871,075  
Total stockholders’ equity   589,574     587,938  
Total liabilities and stockholders’ equity $ 1,507,307   $ 1,665,490  
 

Reconciliation of Non-GAAP Financial Measures

In this press release and in other public statements, Neustar presents certain non-GAAP financial measures. These non-GAAP financial measures have limitations and may not be comparable with similar non-GAAP financial measures used by other companies and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Set forth below is the reconciliation of the non-GAAP financial measure to its most directly comparable GAAP financial measure. This reconciliation should be carefully evaluated. Prior disclosures of non-GAAP figures may not exclude the same items and as such should not be used for comparison purposes.

Reconciliation of Net Income to Adjusted Net Income

The following is a reconciliation of net income to adjusted net income for the three months ended March 31, 2014 and the year ending December 31, 2014. Management believes that this measure enhances investors' understanding of the company's financial performance and the comparability of the company's operating results to prior periods, as well as against the performance of other companies.

   
Three Months Ended Year Ending
March 31, 2014 December 31,
2013   2014

2014 (1)

(in thousands, except per share data)
(unaudited)
Revenue $ 216,416   $ 229,897   $ 957,500  
 
Net income $ 33,764 $ 31,683 $ 150,000
Add: Stock-based compensation 8,957 11,726 63,000
Add: Amortization of acquired intangible assets 12,372 14,066 61,000
Add: Loss on debt modification and extinguishment (2) 10,886 — —
Add: Restructuring charges (3) 2 4,966 12,000
Add: Acquisition-related costs (4) — 1,580 2,000
Less: Adjustment for provision for income taxes (5)   (11,849 )   (11,613 )   (50,000 )
Adjusted net income $ 54,132   $ 52,408   $ 238,000  
Adjusted net income margin (6)   25 %   23 %   25 %
Adjusted net income per diluted share $ 0.80   $ 0.84   $ 3.75  
Weighted average shares outstanding - diluted   67,614     62,753     63,500  
 
(1)   The amounts expressed in this column are current estimates of the results for the full year as of the date of this press release. This reconciliation is based on the midpoint of the revenue guidance.
(2) Amount represents loss on debt modification and extinguishment related to the refinancing of the company’s 2011 credit facility in the first quarter of 2013.
(3) Amount represents restructuring charges related to the termination or relocation of certain employees and the reduction in or closure of leased facilities.
(4) Amounts represent costs incurred by the company in connection with completed acquisitions.
(5) Adjustment reflects the estimated tax effect of tax-deductible adjustments for stock-based compensation expense, amortization of acquired intangible assets, loss on debt modification and extinguishment and acquisition-related costs, based on the effective tax rate for the applicable period.
(6) Adjusted net income margin is a measure of adjusted net income as a percentage of revenue.