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Neustar Reports Results for Fourth Quarter and Full-Year 2012



  Neustar Reports Results for Fourth Quarter and Full-Year 2012

                    Expects 2013 Revenue to Grow 8% to 10%

Business Wire

STERLING, Va. -- February 5, 2013

Neustar, Inc. (NYSE: NSR), a trusted, neutral provider of real-time
information and analysis to the Internet, telecommunications, information
services, financial services, retail, media and advertising sectors, today
announced results for the quarter and year ended December 31, 2012 and
provided guidance for 2013.

Summary of Fourth Quarter Results Compared to Fourth Quarter of 2011

  * Revenue increased 23% to $214.2 million
  * Income from continuing operations increased 102% to $37.8 million or $0.56
    per share
  * Adjusted net income increased 37% to $50.7 million, representing a margin
    of 24%
  * Adjusted earnings per share increased 47% to $0.75
  * Adjusted EBITDA was $101.3 million compared to $78.5 million

Summary of 2012 Results Compared to 2011

  * Revenue increased 34% to $831.4 million
  * Income from continuing operations increased 26% to $156.1 million or $2.30
    per share
  * Adjusted net income increased 30% to $206.4 million, representing a margin
    of 25%
  * Adjusted earnings per share increased 43% to $3.04
  * Adjusted EBITDA was $398.2 million compared to $298.7 million

“We successfully executed on our priorities in 2012. We exceeded our financial
performance targets, we successfully integrated a major acquisition that
furthered our transition into information and analytics, and we made strong
progress in instilling a culture of ownership,” said Lisa Hook, Neustar’s
president and chief executive officer. “We look forward to continuing to
capitalize on the opportunities we see in the market and renewing the NPAC
contract.”

Paul Lalljie, Neustar’s chief financial officer added, “Our 2012 operating
results demonstrate strong execution across all of our business segments while
integrating a significant acquisition. In addition, we repurchased nearly $100
million of our common stock and improved our financial flexibility through our
recently executed credit facility and notes offering. Our guidance for 2013
reflects the momentum from 2012, operating leverage, and the impact of our new
debt structure.”

Business Outlook for 2013

  * Revenue to range from $895 million to $915 million or growth of 8% to 10%
  * Adjusted net income to range from $220 to $230 million or growth of 7% to
    11%. This growth rate was influenced by discrete tax benefits totaling
    $6.8 million which resulted in higher adjusted net income in 2012. On a
    per share basis, adjusted net income is expected to range from $3.28 to
    $3.43

Discussion of Fourth Quarter and Full-Year 2012 Results

Fourth Quarter Revenue

Consolidated revenue totaled $214.2 million, a 23% increase from $174.2
million in the fourth quarter of 2011. In particular:

  * Carrier Services revenue totaled $126.2 million, an 11% increase from
    $113.3 million in 2011. This increase was primarily due to an $11.2
    million increase in NPAC Services revenue;
  * Enterprise Services revenue totaled $45.2 million, a 14% increase from
    $39.7 million in 2011. This increase was due to higher revenue in both
    Internet Infrastructure Services and Registry Services; and
  * Information Services generated revenue of $42.8 million in the fourth
    quarter as compared to revenue of $21.2 million from the November 8, 2011
    acquisition date through the end of the year.

Full-Year Revenue

Consolidated revenue totaled $831.4 million, a 34% increase from $620.5
million in 2011. In particular:

  * Carrier Services revenue totaled $502.1 million, a 12% increase from
    $447.9 million in 2011. This increase was primarily due to a $43.8 million
    increase in NPAC Services revenue;
  * Enterprise Services revenue totaled $170.4 million, a 13% increase from
    $151.4 million in 2011. This increase was due to higher revenue in both
    Internet Infrastructure Services and Registry Services; and
  * Information Services generated revenues of $158.9 million for 2012.
    Revenue from Information Services was $21.2 million from the November 8,
    2011 acquisition date through the end of 2011.

Operating expense for the fourth quarter totaled $144.9 million, a 7% increase
from $134.8 million in 2011. This $10.1 million increase was driven by
incremental operating expense of $19.2 million from the acquisition of our
Information Services segment. This increase of $19.2 million was partially
offset by $9.6 million of acquisition costs incurred in the 2011 quarter.

Operating expense for 2012 totaled $554.7 million, an increase of 35% or
$143.3 million from $411.4 million in 2011. This increase was driven by
incremental operating costs of $130.4 million from the acquisitions completed
in 2011. This increase of $130.4 million was partially offset by expenses
incurred in 2011 driven by acquisition costs of $11.6 million. The remaining
$24.5 million increase represents a growth of 6% in the Company’s operating
expense.

For 2012, adjusted net income totaled $206.4 million, including the impact of
discrete tax benefits totaling $6.8 million, primarily associated with a
domestic production activities deduction. Excluding the impact of these
discrete tax benefits, our effective tax rate was approximately 38.6%.

Cash, cash equivalents and investments totaled $343.9 million as of December
31, 2012, an increase of $208.6 million from December 31, 2011.

As of December 31, 2012, the Company’s outstanding debt under its 2011 credit
facility was $592.5 million. On January 22, 2013, the Company refinanced this
credit facility. In particular, the Company issued $300 million of 4.5% senior
notes that mature in 2023. In addition, the Company completed a $525 million
credit facility that includes a $325 million term loan A and a $200 million
revolver. The interest rate for the term loan A and the revolver is
leverage-based and ranges from LIBOR plus 1.50% to LIBOR plus 1.75%. At the
Company’s current leverage, the applicable interest rate is LIBOR plus 1.50%.
The Company will record a non-operating expense of approximately $11.0 million
in the first quarter of 2013 related to the modification and extinguishment of
its 2011 credit facility.

Conference Call

As announced on January 23, 2013, 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 (877) 440-5791
(international callers dial (719) 325-2271) and entering PIN 5221477. For
those who cannot listen to the live broadcast, a replay will be available
through 11:59 p.m. (Eastern Time) Tuesday, February 12, 2013 by dialing (877)
870-5176 (international callers dial (858) 384-5517) and entering replay PIN
5221477, or by going to the Investor Relations tab of the Company’s website
(www.neustar.biz).

Neustar will take live 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,
including a reconciliation of segment contribution to the nearest comparable
GAAP measure and reconciliations of certain other non-GAAP measures to their
nearest comparable GAAP measures that may be used periodically by management
when discussing the Company’s financial results with investors and analysts,
are available on the Company’s website under the Investor Relations tab.

About Neustar, Inc.

Neustar, Inc. (NYSE: NSR) is a trusted, neutral provider of real-time
information and analysis to the Internet, telecommunications, information
services, financial services, retail, media and advertising sectors. Neustar
applies its advanced, secure technologies in location, identification, and
evaluation to help its customers promote and protect their businesses. 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 guidance regarding its 2013 results. 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 and profitability and potential fluctuations in quarterly
operating results due to such factors as disruptions to the Company’s
operations, 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 indebtedness
and the impact that it may have on the Company’s financial and operating
activities and the Company’s ability to incur additional debt; the variable
interest rates borne by the Company’s indebtedness and the effects of changes
in those rates; its ability to successfully identify and complete
acquisitions, integrate and support the operations of businesses the Company
acquires, increasing competition, market acceptance of its existing services,
its ability to successfully develop and market new services, the uncertainty
of whether new services will achieve market acceptance or result in any
revenue, and business, regulatory and statutory changes in the communications
industry. More information about 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          Year Ended
                        December 31,                December 31,
                        2011          2012          2011           2012
                        (unaudited)                 (audited)      (unaudited)
Revenue:
Carrier Services      $ 113,290     $ 126,163     $  447,894     $ 502,085
Enterprise Services     39,719        45,236        151,390        170,440
Information             21,171        42,773        21,171         158,863   
Services
Total revenue           174,180       214,172       620,455        831,388
Operating expense:
Cost of revenue
(excluding
depreciation and
amortization shown      41,329        48,601        137,992        185,965
separately below)
Sales and marketing     33,580        46,263        109,855        163,729
Research and            6,326         6,311         17,509         29,794
development
General and             33,193        19,798        96,317         81,797
administrative
Depreciation and        17,191        23,914        46,209         92,955
amortization
Restructuring
charges                 3,162         (3      )     3,549          489       
(recoveries)
                        134,781       144,884       411,431        554,729   
Income from             39,399        69,288        209,024        276,659
operations
Other (expense)
income:
Interest and other      (5,131  )     (9,041  )     (6,279   )     (34,155  )
expense
Interest and other      529           117           1,966          596       
income
Income from
continuing
operations before
income taxes            34,797        60,364        204,711        243,100
Provision for
income taxes,           16,077        22,584        81,137         87,013    
continuing
operations
Income from
continuing              18,720        37,780        123,574        156,087
operations
Income from
discontinued            –             –             37,249         –         
operations, net of
tax
Net income            $ 18,720      $ 37,780      $ 160,823      $ 156,087   
                                                                    
Basic net income
per common share:
Continuing            $ 0.26        $ 0.57        $ 1.69         $ 2.34
operations
Discontinued            –             –             0.51           –         
operations
Basic net income      $ 0.26        $ 0.57        $ 2.20         $ 2.34      
per common share
                                                                    
Diluted net income
per common share:
Continuing            $ 0.26        $ 0.56        $ 1.66         $ 2.30
operations
Discontinued            –             –             0.50           –         
operations
Diluted net income    $ 0.26        $ 0.56        $ 2.16         $ 2.30      
per common share
                                                                    
Weighted average
common shares
outstanding:
Basic                   70,945        66,309        72,974         66,737    
Diluted                 72,865        67,762        74,496         67,956    
                                                                             
                                                                             

                                                                 
NEUSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                                 
                                               December 31,     December 31,
                                               2011             2012
                                               (audited)        (unaudited)
ASSETS
Current assets:
Cash and cash equivalents                    $ 122,237        $ 340,255
Restricted cash                                10,251           2,543
Short-term investments                         10,545           3,666
Accounts receivable, net                       106,274          131,805
Unbilled receivables                           5,551            6,372
Notes receivable                               2,786            2,740
Prepaid expenses and other current assets      30,420           17,707
Deferred costs                                 8,174            7,379
Income taxes receivable                        37,874           6,596
Deferred tax assets                            7,728            6,693       
Total current assets                           341,840          525,756
                                                                 
Long-term investments                          2,506            –
Property and equipment, net                    100,102          118,513
Goodwill                                       572,178          572,178
Intangible assets, net                         338,768          288,487
Notes receivable, long-term                    3,748            1,008
Deferred costs, long-term                      701              702
Other assets, long-term                        22,767           20,080      
Total assets                                 $ 1,382,610      $ 1,526,724   
                                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                             $ 7,385          $ 9,269
Accrued expenses                               79,334           85,424
Deferred revenue                               41,080           49,070
Note payable                                   4,856            8,125
Capital lease obligations                      3,065            1,686
Accrued restructuring reserve                  4,361            372
Other liabilities                              5,317            3,484       
Total current liabilities                      145,398          157,430
                                                                 
Deferred revenue, long-term                    10,363           9,922
Note payable, long-term                        584,809          576,688
Capital lease obligations, long-term           1,918            817
Deferred tax liability, long-term              120,948          114,130
Other liabilities, long-term                   16,540           21,129      
Total liabilities                              879,976          880,116
                                                                 
Stockholders' equity:
Common stock                                   83               86
Additional paid-in capital                     436,598          532,743
Treasury stock                                 (495,790   )     (604,042   )
Accumulated other comprehensive loss           (758       )     (767       )
Retained earnings                              562,501          718,588     
Total stockholders' equity                     502,634          646,608     
Total liabilities and stockholders' equity   $ 1,382,610      $ 1,526,724   
                                                                            

 
NEUSTAR, INC.
SEGMENT REVENUE AND CONTRIBUTION
(in thousands)
                        
                           Three Months Ended      Year Ended
                           December 31,            December 31,
                           2011        2012         2011           2012
                           (unaudited)              (audited)      (unaudited)
Revenue:^(1)
Carrier Services         $ 113,290   $ 126,163   $ 447,894       $ 502,085
Enterprise Services        39,719      45,236      151,390         170,440
Information Services       21,171      42,773      21,171          158,863
Total revenue            $ 174,180   $ 214,172   $ 620,455       $ 831,388
                                                                    
Segment
contribution:^(2)
Carrier Services         $ 97,549    $ 109,970   $ 391,000       $ 438,213
Enterprise Services        17,460      17,555      65,080          73,466
Information Services       12,583      18,222      12,583          77,291
Total segment            $ 127,592   $ 145,747   $ 468,663       $ 588,970
contribution
                                                                    

(1) Carrier Services:

  * Numbering Services
  * Order Management Services
  * IP Services

Enterprise Services:

  * Internet Infrastructure Services
  * Registry Services

Information Services:

  * Identification Services
  * Verification & Analytics Services
  * Local Search & Licensed Data Services

      Segment contribution excludes certain unallocated costs within the
      following expense classifications: cost of revenue, sales and marketing,
      research and development, and general and administrative. In addition,
(2)   depreciation and amortization and restructuring charges (recoveries) are
      excluded from segment contribution. Such unallocated costs totaled $88.2
      million and $76.5 million for the three months ended December 31, 2011
      and 2012, respectively, and totaled $259.6 million and $312.3 million
      for the year ended December 31, 2011 and 2012, respectively.
       

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 are reconciliations of the non-GAAP financial measures from the
most directly comparable GAAP financial measure. Reconciliations from
financial results calculated in accordance with GAAP should be carefully
evaluated. Prior disclosures of non-GAAP figures do not exclude the same items
and as such should not be used for comparison purposes.

Reconciliation of Income from Continuing Operations to Adjusted Net Income
from Continuing Operations

The following is a reconciliation of income from continuing operations to
adjusted net income from continuing operations for the three and twelve months
ended December 31, 2011 and 2012 and the year ending December 31, 2013.
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 Ended                  Year
                                                                               Ending
                        December 31,               December 31,                December
                                                                               31,
                        2011         2012           2011          2012         2013 ^(2)
                                                   ^(1) 
                        (in thousands, except per share data)
                        (unaudited)
Revenue               $ 174,180    $ 214,172     $ 620,455     $ 831,388     $ 905,000  
                                                                                
Income from
continuing            $ 18,720     $ 37,780      $ 123,574     $ 156,087     $ 162,500
operations
Add: Stock-based        9,015        8,071         27,491        28,058        42,000
compensation
Add: Amortization
of acquired             8,152        12,569        12,107        50,281        49,000
intangible assets
Add: TARGUSinfo
acquisition-related     9,561        –             11,602        –             –
costs ^(3)
Add: Tender offer       2,413        –             2,413         –             –
costs ^(4)
Add: Unamortized
debt issuance           –            –             –             –             11,000
costs^(5)
Add: Adjustment for
provision for           (10,821 )    (7,722  )     (18,173 )     (28,040 )     (39,500 )
income taxes
^(6)(7)
Adjusted net income
from continuing       $ 37,040     $ 50,698      $ 159,014     $ 206,386     $ 225,000  
operations
Adjusted net income
margin from             21      %    24      %     26      %     25      %     25      %
continuing
operations ^(8)
Adjusted net income
from continuing       $ 0.51       $ 0.75        $ 2.13        $ 3.04        $ 3.36     
operations per
diluted share
Weighted average
diluted common          72,865       67,762        74,496        67,956        67,000   
shares outstanding

     
      The amounts expressed in this column are derived from the Company’s
(1)   audited consolidated financial statements for the year ended December
      31, 2011.
      The amounts expressed in this column are current estimates of the
(2)   results for the full year as of the date of this press release. This
      reconciliation is based on the midpoint of the revenue guidance.
(3)   Amounts represent costs incurred by the Company in connection with its
      acquisition of Targus Information Corporation (TARGUSinfo).
      Amounts represent costs incurred by the Company to repurchase 7.2
(4)   million shares of its Class A common stock through a modified “Dutch
      auction” tender offer which closed on December 8, 2011. These costs were
      not deductible for income tax purposes.
      Amounts represent the acceleration of unamortized costs associated with
(5)   the debt modification and the debt extinguishment loss related to the
      refinancing of the Company’s 2011 credit facility.
      Adjustment reflects the estimated tax effect of adjustments for
      stock-based compensation expense, amortization of acquired intangible
(6)   assets, unamortized debt issuance costs, and approximately $6.3 million
      of tax deductible TARGUSinfo acquisition-related costs based on the
      effective tax rate for income from continuing operations for the
      applicable period.
      Quarterly amounts for the adjustment for provision for income taxes do
(7)   not add to the full year amount due to differences in the effective tax
      rate for income from continuing operations for the applicable quarters
      compared to effective annual tax rate.
(8)   Adjusted net income margin is a measure of adjusted net income from
      continuing operations as a percentage of revenue.
       

Reconciliation of Income from Continuing Operations to Adjusted EBITDA

The following is a reconciliation of income from continuing operations to
adjusted EBITDA for the three and twelve months ended December 31, 2011 and
2012. Management believes that the inclusion of adjusted EBITDA is appropriate
to provide additional information to debt holders about its operating
performance and its ability to satisfy certain debt obligations.

                                Three Months Ended      Year Ended
                                December 31,            December 31,
                                 2011      2012           2011       2012
                                (in thousands, unaudited)
Income from continuing        $ 18,720  $ 37,780      $ 123,574    $ 156,087
operations
Add: Provision for income
taxes, continuing               16,077    22,584        81,137       87,013
operations
Add: Interest expense           4,435     8,711         4,831        34,200
Add: Depreciation and           17,191    23,914        46,209       92,955
amortization
Add: Non-cash other
(income) and expense,           696       330           1,448        (45     )
net^(1)
Add: Stock-based                9,015     8,071         27,491       28,058
compensation
Add: Restructuring charges      3,162     (3      )     3,549        489
(recoveries)
Add: Acquisition-related        9,561     −             11,602       −
costs^(2)
Add: Other adjustments^(3)      126       −             126          −
Less: Interest income           511       117           1,265        596      
Adjusted EBITDA               $ 78,472  $ 101,270     $ 298,702    $ 398,161  

     
(1)   Amounts represent loss on foreign currency transactions, realized gains
      on available-for-sale investments and loss on asset disposals.
(2)   Amounts represent costs incurred by the Company in connection with its
      acquisition of TARGUSinfo.
(3)   Other adjustments represent certain non-capitalized charges incurred in
      connection with the Company’s financing activities.

Contact:

Neustar, Inc.
Investor Relations:
Dave Angelicchio, 571-434-3443
InvestorRelations@neustar.biz
or
Media:
Kim Hart, 202-533-2934
Kim.Hart@neustar.biz
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