Neustar 2014 Report: Revenue Up 6% & Expects More Growth In 2015

Neustar, Inc. announced results for the quarter and year ended December 31, 2014 and provided guidance.

Results for Fourth Quarter 2014 Compared to Fourth Quarter 2013

• Revenue increased 6% to $252.4 million
• Marketing Services revenue increased 8% to $41.7 million
• Security Services revenue increased 29% to $39.8 million, including $4.8 million from the .CO Internet acquisition completed in April 2014
• Net income increased 23% to $47.0 million, and on a per share basis increased 39% to $0.82
• Adjusted net income increased 16% to $69.9 million, and on a per share basis increased 30% to $1.22

Results for 2014 Compared to 2013

• Revenue increased 7% to $963.6 million
• Marketing Services revenue increased 17% to $147.0 million
• Security Services revenue increased 24% to $140.3 million, including $12.6 million from the .CO Internet acquisition
• Net income increased 1% to $163.7 million, and on a per share basis increased 12% to $2.75
• Adjusted net income increased 10% to $257.9 million, and on a per share basis increased 23% to $4.33

“In 2014, we delivered strong financial results, made significant progress achieving our strategy, and enhanced our position to capture attractive market opportunities through partnerships and other strategic arrangements, all while continuing to compete for the next NPAC contract,” said Lisa Hook, Neustar’s President and Chief Executive Officer. “We are committed to our strategy, excited about our market opportunities, and confident that we will build on our momentum for 2015.”

Paul Lalljie, Neustar’s Chief Financial Officer added, “Our results highlight the strong business fundamentals that underlie our solid growth and disciplined capital allocation strategy. We generated strong free cash flow and we delivered double-digit revenue growth in both Marketing and Security Services. Our outlook calls for revenue growth of 7% and adjusted EPS growth of 16% for the first six months of 2015. This outlook aligns with the June 30th expiration of the current NPAC contract and, as in prior years, our outlook reflects our visibility into operating performance. Overall, the key characteristics of our IS&A business remain the same: strong visibility from subscription-based recurring revenue and strong second-half revenue from seasonality.”

Discussion of Fourth Quarter Results

Revenue for the fourth quarter totaled $252.4 million, a 6% increase from $237.6 million in 2013. Marketing Services revenue grew 8% to $41.7 million driven by increased demand for the company’s services that help its clients make informed and high-impact decisions to promote their businesses. Security Services revenue grew 29% to $39.8 million driven by increased demand for the company’s DNS services and the contribution of $4.8 million from the completion of the acquisition of .CO Internet. Data Services revenue decreased 8% to $52.2 million due to lower revenue from caller identification services. NPAC Services revenue grew 6% to $118.7 million driven by an increase in NPAC fixed-fee revenue.

Operating expense for the fourth quarter totaled $177.9 million, a 2% increase from $174.3 million in 2013. This $3.6 million increase included the addition of $1.9 million in operating expense from the company’s recent acquisitions. Of the remaining $1.7 million increase, the company incurred $3.9 million in professional fees and marketing expenses associated with the NPAC vendor selection process, and a $3.8 million increase in costs related to information technology and systems, partially offset by a $6.6 million decrease in other professional fees.

Discussion of Full-Year 2014 Results

Revenue for the year totaled $963.6 million, a 7% increase from $902.0 million in 2013. Marketing Services revenue grew 17% to $147.0 million driven by increased demand for the company’s services. Security Services revenue grew 24% to $140.3 million driven by increased demand for the company’s DNS services and the contribution of $12.6 million from the acquisition .CO Internet. Data Services revenue decreased 7% to $201.4 million due to lower revenue from caller identification services. NPAC Services revenue grew 6% to $474.8 million driven by an increase in NPAC fixed-fee revenue.

Operating expense for 2014 totaled $702.3 million, a 15% increase from $612.7 million in 2013. This $89.5 million increase included the addition of $31.6 million in operating expense from the company’s recent acquisitions. Of the remaining $57.9 million increase, personnel and personnel-related expense increased $21.3 million driven primarily by stock-based compensation. In addition, in 2014, the company incurred $17.7 million in professional fees and marketing expenses associated with the NPAC vendor selection process.

Liquidity and Capital Resources

As of December 31, 2014, the company’s cash and cash equivalents totaled $326.6 million, an increase of $103.3 million from $223.3 million as of December 31, 2013. This increase primarily reflects cash provided by operations and borrowings under the company’s revolving credit facility, partially offset by share repurchases, acquisitions and capital expenditures. As of December 31, 2014, the company’s outstanding debt under its term facilities and senior notes was $783.3 million.

Business Outlook

The company provided guidance for the first six months of 2015 for the following metrics:

• Revenue to range from $495 million to $505 million or growth of 6% to 8%
• Adjusted net income to range from $115 million to $120 million or growth of 4% to 9%
• Adjusted net income per share to range from $2.04 to $2.12, representing growth of 14% to 18%