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 $9.6million 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 $300million of 4.5% senior notes that mature in 2023. In addition, the Company completed a $525million 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 11:59p.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
Neustar Reports Results for Fourth Quarter and Full-Year 2012
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