Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

NeuStar, Inc. (NYSE:NSR)

Q4 2012 Earnings Call

February 5, 2013 4:30 pm ET

Executives

Dave Angelicchio – Head of Investor Relations

Lisa A. Hook – President and Chief Executive Officer

Paul S. Lalljie – Senior Vice President and Chief Financial Officer

Analysts

John Bright – Avondale Partners

William Power – Robert W. Baird & Co.

Sterling Auty – JPMorgan

Daniel Meron – RBC Capital Markets

Julio Quinteros – Goldman Sachs

John Weidemoyer – William Blair & Co. LLC

Greg Mesniaeff – Maxim Group

Operator

Please stand by. Good afternoon, everyone. Thank you for standing by. Welcome to the Neustar Fourth Quarter 2012 Earnings Conference. At this time all participants are in a listen-only mode. After the prepared remarks, we’ll conduct a question-and-answer session.

As a reminder, this conference is being recorded. For opening remarks, I’d like to turn the conference over to Mr. Dave Angelicchio, Head of Investor Relations. Please go ahead, sir.

Dave Angelicchio

Thank you, and good afternoon, everyone. Welcome to today’s conference call. Joining us today from Neustar are Lisa Hook, President and Chief Executive Officer; and Paul Lalljie, our Chief Financial Officer. Our call today will begin with comments from Lisa Hook and Paul Lalljie followed by Q&A.

Before we begin, I’d like to remind everyone that today’s discussion contains forward-looking statements based on information as of today, February 5, 2013, and as such is subject to many risks and uncertainties that may cause actual results to differ materially from those anticipated.

Additional information concerning these risks and uncertainties can be found in our earnings release and our filings with the U.S. Securities and Exchange Commission, including our last annual report on Form 10-K and subsequent periodic and current reports. We assume no obligation to update any forward-looking statements.

As you listen to today’s call, we will discuss certain non-GAAP financial measures and supplemental key performance metrics by revenue categories, head count and additional expense details. This information including reconciliations to the most comparable GAAP measures can be found in today’s earnings release and under our investor relations tab on our website www.neustar.bis.

With that, I’m pleased to introduce Neustar’s President and Chief Executive Officer, Lisa Hook. Lisa?

Lisa A. Hook

Thank you very much, David, and thank you all for joining us this afternoon as we report our results for the fourth quarter and fiscal year. I’ll begin by closing out on our 2012 performance and then turn to our top priorities for 2013, after which our Chief Financial Officer, Paul Lalljie will walk you through our results in more detail.

You’ll recall that in the beginning of 2012, I articulated four priorities for the year; to achieve our financial performance target; to position ourselves for a successful NPAC contract renewal; to integrate TARGUSinfo and to transform our culture into one team with one mission.

We achieved our financial target for the year, once again the growth in revenue, growth in earnings, and growth in cash flow. Year-over-year, fourth quarter revenue was up 23% to $214.2 million and adjusted EPS increased 47% to $0.75 per share.

For the full year, revenue increased 34% to $831.4 million. This increase was driven by the full year impact of Information Services and double-digit increases in Carrier and Enterprise Services. Our strong revenue growth combined with previous spending drove a 43% increase in adjusted EPS to $3.04.

Our next priority was to position the company to compete successfully for renewal of NPAC contract. We do have an installment to report there, a few hours ago, the SEC issued a public notice announcing the release of the RFP. The RFP documents are now available to parties who are interested in submitting proposal. We’re reviewing the RFP and so we are not in a position to comment on it at that time.

We can say, however, that we are thrilled that the next phase in the process is underway. As we’ve always said, the best way to compete for the NPAC contract is to provide outstanding service to the industry, and we’ve done just that. I’m pleased that we earned a near perfect score in the industry’s annual independent customer survey.

That report measured all aspects of our service including customer satisfaction, operational excellence, and neutrality. In this, we continue to provide this exceptional service, but we will take nothing for granted and we will vigorously compete to renew our contract.

Let me remind you that the NPAC is the world’s largest and most complex number portability system and it’s a critical component of America’s telecommunications network infrastructure. Our NPAC system connects continuously with over 4,800 industry customers, at least 15 times more customers than any other number portability system in the world.

This system securely and reliably distributes essential routing and rating information every few seconds, making it one of the most personal and reliable information exchange in the world. The NPAC updates the entire U.S. communications network every eight second, enabling carriers to switch your phone number in the time it takes you to tie your shoe. This is only possible in North America. Everywhere else, it takes at least hours to put a telephone number and in some places it can take more than a month.

Our exceptional performance makes it easier for providers to acquire new subscribers. It’s the foundation of our robustly competitive telecommunications market. We also support the industry’s needs to a real-time network and resource optimization, emergency preparedness in the tax recovery and efficient telephone number utilization.

Looking at all these by the number at year end, the NPAC contained over 600 million telephone numbers. This is over 70% of all active phone numbers in the U.S. everyday. Last year, we processed approximately 1.2 million transactions and enabled the completion of 4 billion phone calls and 7 billion text messages; that is every phone call and every text message in North America everyday.

We’re proud to have developed the world’s most innovative and reliable service for number portability. The NPAC plays a critical role in the U.S. economy by supporting major mobile device launches and enabling consumers and businesses to leverage new technologies and capabilities. It also allows our customers to execute on our strategy for IT-based network transformation and service delivery.

We’re confident that our capabilities and demonstrated track record of innovation and outstanding service in this complex ecosystem position us a very strong competitor for the next contract that begins July 1, 2015.

Next, I’d like to talk about the integration of Neustar Information Services for TARGUSinfo. In the first half of 2012, we completed our back office integration and began to develop the single sales operations platform. Our insight sales teams then collaborated to establish integrated account plans for our top customers. We’re laying the foundation for cross-selling and up-selling opportunities which are important to our long-term growth.

As I mentioned on our November 5 earnings call, we pulled our first collaborative solution roughly a year earlier than we had originally anticipated. And finally, we made good progress on developing a more customer focused innovative organization. Our results this year, clearly demonstrates that our employees are engaged and aligned around our vision and strategy. We’re giving them the tools to move quickly, drive innovation and solve problems for our customers. Overall, we had a great year in 2012.

Now, let me turn to our four priorities for 2013. First, we will maintain a sharp focus on achieving our financial target. We want to be known as the management team that sets the bar high and consistently delivers on its commitments. Today, we announced sort of 2013 guidance. Revenue is expected to range from $895 million to $915 million and adjusted earnings per share is expected to range from $3.28 to $3.43.

In a minute, Paul will provide more detail. Second, we will continue to position ourselves for successful NPAC renewal by innovating and continuing to raise the bar in customer service. We believe this gives a significant competitive advantage in the contract renewal process.

Third, we will continue to execute on our strategy to become a leading provider of commercial insights in analytics. We are enabling our customers to promote their businesses by delivering the right message to the right audience at the right time. We are also enabling them to protect their businesses by delivering performance, reliability, and security for their online infrastructures.

We will focus on six verticals where we already have a strong presence and significant growth opportunities, for the particular emphasis on telecommunications, Internet e-commerce, and media and advertising. Within these verticals, we will focus on selling to marketing department as they promote their business and IT department as they protect their businesses.

And finally, we’ll continue to build on the foundation for our future growth, and greater shareholder value by investing in our employees and our platforms. To summarize, 2012 was a great year and we’re committed to building on the success in 2013 and beyond.

We have exciting opportunities and outstanding team that is aligned of our clear strategy to capitalize on this opportunity. And our balance sheet creates a great foundation for growth and additional value creation for our shareholders. I’m looking forward to updating you on our progress as the year unfolds.

Now with that, let me turn the call over to Paul.

Paul S. Lalljie

Thanks, Lisa, and good afternoon, everyone. As you’ve seen from our announcement, 2012 was a great year across all segment of the business. Financially, we delivered revenue of $831.4 million with an adjusted net income margin of 25%, and we generated over $304 million of cash from operation.

Operationally, we integrated the $650 million acquisition and we posted strong service metrics. And as a byproduct for our strategic success, we were enjoying greater revenue diversity. For the first time in our history less than 50% of our revenues came from 60 contracts to provide number portability services.

In summary, we delivered in our financial objectives. We had an outstanding year operationally and we continue to build in our foundation for future growth and great value. With our 2012 results and the plans we have in place for 2013 and beyond, we’re well on our way to becoming a leader in information and analytics.

Now, for a closer look at our performance and starting with revenue for the quarter, Carrier Services revenue totaled $126.2 million, 11% increase year-over-year. This increase of $12.9 million was primarily due to $11.7 million increase in numbering services revenue and a $1.1 million increase in IT services revenue.

The increase in numbering services revenue includes $11.3 million increase from revenue under our fixed fee contracts to provide number portability services. Enterprise Services revenue totaled $45.2 million, a 14% increase year-over-year. This increase of $5.5 million was primarily due to a $3.8 million increase in registry services revenue driven by higher numbers of Common Short Codes and the main names under management, as well as statement of work revenue.

In addition, Internet Infrastructure Services revenue increased $1.8 million due to higher demand for our DNS solutions. Information Services revenue grew $42.8 million compared to $21.2 million for the 2011 sub period. In the fourth quarter of 2012, identification services revenue totaled $23.3 million.

Verification and analytic services revenue totaled $14.3 million and local search and license data services revenue totaled $5.1 million. Our Information Services segment consists of revenues from the recent acquisition completed in the fourth quarter of 2011. Had the acquisition been completed prior to the beginning of the fourth quarter of 2011, a year-over-year revenue increase would have been 17%.

Let me now turn to revenue for the year. Revenue for the year totaled $831.4 million, compared to $620.5 million in 2011, an increase of 34%. Information Services contributed $137.7 million of this increase, or approximately two-thirds, while Enterprise and Carrier Services revenues contributed one-third of the increase. Overall, we generated strong year-over-year growth and continued to grow sequentially. This provides us with confident entering 2013.

Taking a look at expenses; operating expense for the quarter totaled $144.9 million, an increase of 7% over the fourth quarter of 2011. The year-over-year variance was driven by the addition of $19.2 million of operating expense for the acquired Information Services segment. This increase was partially offset by $9.6 million of acquisition expense incurred in the fourth quarter of 2011 for which there was no comparable expense in 2012.

On a full year basis, operating expense totaled $554.7 million, an increase of $143.3 million over 2011. Of this increase, $130.4 million pertained to the acquisitions completed in 2011. Head count at end of 2012 totaled 1,543, compared to 1,488 at the end of 2011.

Now, turning to the balance sheet; in 2012 we repurchased 2.7 million shares at an average price of $36.56 per share for a total cash outlay of $98 million. We ended the year with $343.9 million in cash and investments. Capital expenditures for the year totaled $53.1 million, representing a $7.3 million increase from last year. Accounts and unbilled receivables at the end of the year totaled $138.2 million compared to $111.8 million at the end of 2011.

Days sales outstanding remained constant year-over-year at 58 days, while accounts payable and accrued expenses at the end of 2012 was $94.7 million as compared to $86.7 million at the end of 2011. And our day’s payable outstanding was 49 days and 46 days respectively.

Before moving to guidance for 2013, let me provide some color on some of the recent changes we have made to our capital structure. On January 22, 2013, we refinanced our outstanding debt which had a maturity base of 2018. We issued $300 million of tenure bonds at a coupon of 4.5%. In addition, we raised $325 million of term loan A at a current rate of LIBOR plus 150 basis points, or 1.75%.

As a result an annual benefit from lower interest payments of approximately $10 million per year. However, in 2013, this benefit of $10 million will be offset by a one-time non-operating expense of approximately $11 million in the first quarter that the $11 million expense pertains the modification and extinguishment of our 2011 outstanding debt.

As you’ve seen in our press release, we’ve reported and reconciled adjusted EBITDA for 2011 and 2012. This measure provides our debt holders and indicator of our ability to satisfy our debt obligation. While we will not guide to this metric, we will continue to report an adjusted EBITDA on a going forward basis.

Now for a discussion in guidance, our guidance for 2013 calls for revenue to range from $895 million to $915 million, representing an 8% to 10% increase over 2012. Let me take you through the duration of this range. Revenue under our contract provides number portability services is expected to be $437 million in 2013, which represents growth of 6.5%.

When we add this contracted growth to current run rate of our services, we would expect 2013 revenue to be approximately $890 million. Our guidance however, is higher than that primarily because we have made tremendous progress, putting into place an infrastructure to facilitate cross-selling and up-selling of our services. We are confident that we can spend the growth curve exit in 2012.

Adjusted net income in 2013 is expected to range from $220 million to $230 million or $3.28 to $3.43 per diluted share. Keep in mind, our 2012 adjusted net income included the impact of discrete tax benefit that reduced our effective tax rate to 36%. Excluding these impact from our 2012 results, our 2013 adjusted net income guidance would represent growth ranging between 11% and 17%.

Our annual effective tax rate is anticipated to be approximately 39%, while capital expenditures are expected to range between $55 million and $65 million. Our fully diluted weighted average shares outstanding is expected to be approximately $6 million to 7 million.

In conclusion, we are pleased with our performance in 2012. We continued to position ourselves to compete successfully for the NPAC contract, had good growth in our non-NPAC revenue, further strengthening our capital structure and maintain strong cash flows.

We accomplished all of this while integrating a significant acquisition and further positioning the business for growth. In 2013, we will focus on building on the momentum of 2012 and executing on our strategy to become a leading provider of commercial insights and analytics.

With that operator, we’ll open the lines for questions.

Question-and-Answer-Session

Operator

Thank you. (Operator Instructions) We’ll go first to John Bright with Avondale Partners.

John Bright – Avondale Partners

Thank you. Good afternoon, everybody. Lisa and Paul, you mentioned that a final RP was available earlier today. I guess another way of saying it, what do you know today about the contract negotiation that you didn’t know on our last call?

Lisa A. Hook

So what we announced today that we didn’t know on the last call was new dates which have been published for the vendor selection. So essentially, things have slid about four months to the right, somewhat we had originally told you. So originally the RP responses were due November 30. They’re now due April 5. The industry will make its selection now on August 5. The original date for that was March 29 and then the SEC ratification of that selection will be September 20 rather than May 15.

John Bright – Avondale Partners

And the September 20 selection date that’s when the investors would find out about that as well, correct?

Lisa A. Hook

Yes.

John Bright – Avondale Partners

Okay. Paul, in your guidance you just talked about bending the growth curve. I think is the term you’ve used in the past, maybe I go get revenue. Talk about what you’re needing to do to win that growth curve to achieve that midpoint of the guidance range that you just gave? And actually one other things, add into any economic, broader economic environment observations that you’re seeing in your businesses?

Paul S. Lalljie

So, John, you’ve heard us over the last couple of quarters talking about cross-selling and up-selling services. I think in my prepared remarks, I spoke the $437 million of contracted revenue from the fixed fee contracts, portability contracts. Then if you take the natural run rate for the rest of the business that takes you up to about $890 million in total. The midpoint of the range is $905 million.

But remember the back half of the year; we had sales philosophy from cross-selling, from up-selling, and from our natural course of business that gives us visibility and insight to what we have to do here now in 2013. It means then that we have visibility into changing that trajectory of the curve.

However, it’s not a fixed fee contract; there is rest of the business. So at the end of the day, we do have to have some ranges to that number. We do have to have some flexibly into that number, because as you pointed out and questioned, what about the macroeconomic conditions, while most of our business are not, as exposed to macroeconomic conditions as other companies, I think we do have to be aware of that in particular in our Information Services segment, in our Enterprise segment, in the Registry business in particular. So I think overall, while the midpoint of the guidance ranges as I wouldn’t describe it as a layout. It is something that we do have visibility into because of the customers we have, because of the contracts and the velocity exit in 2012.

Would you add to that Lisa?

Lisa A. Hook

Yeah, as you all know, we’ve known for quite sometime that the NPAC revenue growth year-over-year was going slow to 6.5%. So that gave us a sufficient amount of planning time in 2012 to build out the processes that kind of center that we were going to need to maintain close to a historic level in terms of top line revenue growth.

So we’ve been talking to about the unified sales operations platform, unified sales team, integrated account planning all that was geared toward increasing the velocity on the non-NPAC revenue.

John Bright – Avondale Partners

Lisa, Paul, the results you delivered thus far since you’ve taken the helm has been excellent whether in the numbers or certainly in the evaluation as well. Lisa, strategically how should investors think about Neustar post 2013? I know you just gave us your four objectives. But how should we be thinking about the company post 2013? Should we be thinking about more acquisitions? Should we be thinking about debt repayment, organic growth? What should we be thinking about?

Lisa A. Hook

So let me answer this in reverse quarter. We are very focused on organic growth and on the velocity in the non-NPAC revenues. We’ve spoken, I think a number of times previously about our destination here which – there’s a multi-year path to that destination of transforming ourselves from a company focused solely on number portability and information exchanges, few company that is taking the information created by those exchanges to provide a high value to services to marketing departments and IT department.

So, a) a leading competitor in the Information Services and analytics space, we’ll continue post 2013 to have a domestic focus. We think as we’re transforming the company and we can only do a couple of things correctly and that’s we’re going to focus on.

And again that’s primarily organic. As we’ve said in the past, we have a very precised infra acquisitions. They need to fall right within the footprint of what we’re intending to do. So there are some things that we look at from time-to-time, but we’re not focused on our growth primarily coming in organically.

With regard to debt repayment, we’re going to continue to generate obviously nice cash flow. We’re looking at and they’re continuing as we have in the past, to maintain our margins, to use any operating leverage that we would other wise derive to increase margins fall that back into the business. And then free cash flow will be focused on returning capital to shareholders over debt repayments.

John Bright – Avondale Partners

Thank you.

Operator

We’ll hear next from Will Power with Robert Baird.

William Power – Robert W. Baird & Co.

Great, thanks for taking the question and yeah, congratulations on the results.

Lisa A. Hook

Thank you.

William Power – Robert W. Baird & Co.

I realize this is, I guess probably given that RFP. But I guess I wondered I’m sure if you’ve taken a glance at it anyway, any initial thoughts on the final RFP, the positive or negative you can share with us or is it just too early?

Lisa A. Hook

Well, it just was posted to the website a couple of hours ago. So we’re still in the process of reviewing it. We can’t comment on it specifically, because we signed an NDA as like all competitors and the SEC has chosen not to make the final RFP public. So I wish that I could offer you even color commentary, but I’m not in a position to do so right now.

William Power – Robert W. Baird & Co.

Okay. Let me maybe switch gears. Paul, I guess you guys touched on this a little bit in terms of the use of cash, but in terms of buybacks as you’re going to 2013, any further color as to how we should think about the buyback plan in 2013 and is that included in guidance?

Paul S. Lalljie

No, and the weighted average shares outstanding number of $6 million or $7 million, it does not contemplate anything outside of the current share repurchase program that we have in place. I think the current program that we have in place runs through July of 2013 and it has about $87 million left on it.

It should buy approximately $25 million a quarter depending on the stock price. As a company, while we’ve said publicly that we are committed to returning capital to shareholders. I think as you would appreciate it, it takes a little while to put somebody’s things in place and stuff like that. So over to Christmas holidays and beginning of the New Year, the finance department was focused on refinancing and now we’re going to focus on getting the 10-K out the door.

And then after that we will have our discussions with our Board about share repurchases and capital structure events and things like that. So I think as we go through the year, we will update you on our progress there. But I can categorize to say that we are committed to returning capital to shareholders and you will see it – though you will see it as part of our capital allocation strategy going forward.

William Power – Robert W. Baird & Co.

Okay. And then just one final question either for you Paul or Lisa, in terms of strategic direction in margins, as you think about the margins you generate in the business today, which being in a very nice level for some time, how are you thinking about the margin expansion opportunity through 2013 versus reinvesting in some of these new opportunities? So I guess in other words, should we expect the EBITDA margins to continue to expand or is the current level, we should expect them to stay, given some of the new opportunities you continue to look at?

Lisa A. Hook

So that’s a great question. We are expecting internally our margins on existing business to continue to expand, particularly around cost of sale as we up-sell and cross-sell. So we do see operating leverage. However, what we’re choosing to do is, is to take that operating leverage and to reinvest it in the business to drive new services and new revenues. So we’re looking at maintaining our existing margins rather than expanding them.

William Power – Robert W. Baird & Co.

Okay. Thank you all.

Operator

Moving on to Sterling Auty with JPMorgan.

Sterling Auty – JPMorgan

Thanks. Hi, guys?

Paul S. Lalljie

Hi.

Lisa A. Hook

Hey, Sterling.

Sterling Auty – JPMorgan

So first to pile on the RFP, is there a sense just from your work and looking at the comments and just discussions with (inaudible) and industry participants, is there any sense of what you’re expecting in terms of the number of the bidders that might respond to this?

Lisa A. Hook

Gosh, in terms of numbers of bidders, we’re pretty certain that can’t able to show up given the amount for comments back and forth at the SEC. We really don’t know who else will show up. But as you may know, we’ve prepared for all sorts of people and we think we’re well positioned no matter how many competitors are in the (inaudible) with us.

Sterling Auty – JPMorgan

And is there anything in the RP, is there any kind of you can give. Do you know if they’re going to make public who bids, or is this something that it’s going to be all behind closed doors until the final recommendation is announced?

Lisa A. Hook

They’ve historically said that they were going to keep the number of bidders confidential. I don’t know whether that will change. But at the moment, we’re not expecting to know other than those folks who’ve announced the impact of it.

Sterling Auty – JPMorgan

Okay. And then Paul, on the kind of the guidance on the idea of having the growth curve, can you put into context your approach given the guidance for 2013 versus, historically you’ve used comments like, you only put what you could see in the wakes of the eyes in terms of guidance; so in other words, the confidence level in terms of hitting these numbers or the approach and how you built the guidance?

Paul S. Lalljie

Yes, Sterling. I think tigers don’t change their stripes right. So I think we remain – the model and the profile remains the same for the guidance – in the guidance that we have for 2013. We have similar type of visibility. But this one says, this year we expected the fixed fee contract to deliver only 6.5 for the year-over-year change.

So differently in 2012, there was almost $45 million of new revenue. In 2013, it’s $26 million of new revenue. So at the end of the day, we knew this was going to happen. We started planning for it. We put measures in place. We started focusing on it. And at the end of the day, I think we ended the year knowing that we have a velocity in sales that gets us to this guidance range that we’re providing here today.

And it gives us to some extent, the confidence to use words such as bending the curve because we plan for it long in advance. We have the sales visibility in the pipeline. We have closed contracts. We know how we’re recognizing revenue. So to some extent, the level of confidence remains the same that would have been in January to February of 2012 when we were providing 2012 guidance.

Sterling Auty – JPMorgan

All right, great. Last question, on the TARGUS business, was there anything that in looking at the TARGUS business as a whole or as a segment set either to already the lost momentum. I guess I’m looking at the identification services, I think it was down sequentially. Can you just comment in terms of the total revenue put up buy TARGUS and what’s happening in the segments there?

Paul S. Lalljie

At the end of the day, I think we’re very proud of the fourth quarter performance by the Information Services team. It represents a 17% year-over-year change, if you do it in a pro forma basis. And remember, the third quarter was a 14% year-over-year change.

To some extent, the way we categorize the revenue here, the identification services, verification analytics, local search and license data, it is not an idea spread if you will, across the three segments because to some extent, as we sell the services, we may sell to a customer that buys more of one and less of the other and the sequential trend may not be as key as an indicator.

In the identification business, we do have revenue that is driven by subscriber, meaning number of dips or number of subscribers within the caller name type businesses. So there can be sequential trends there. I wouldn’t read too much into it. I think if you look at the numbers of 90 and then 905, which is the midpoint of the guidance range, you’ll find that we will have to go across all of the businesses in order to get there and while we’re not guiding specifically the Information Services, I think that guidance goes well for the entire business, not just Carrier and Enterprise.

Sterling Auty – JPMorgan

Gotcha thank you.

Operator

And from RBC Capital Markets, we’ll go next to Daniel Meron.

Daniel Meron – RBC Capital Markets

Thank you. Hi, Lisa and Paul, congrats on the ongoing execution here.

Lisa A. Hook

Thank you, Daniel.

Daniel Meron – RBC Capital Markets

So I missed the first part of your commentary. So excuse me, if you already discussed this. But can you provide a bit more color on the dynamics as you look into 2013 both in the enterprise sides, specifically both on DNS, Common Short Codes, the IT Infrastructure Services as well as the dynamics in real-time analysis?

Paul S. Lalljie

Yeah. Daniel, this is Paul here. As you know, we don’t necessarily go that deep down in the guidance. But if you still look at what we have seen over the last year on our enterprise business or our Carrier Services business, the year over year trend in our enterprise business, if you look at the traditional Internet infrastructure, I mean your year-over-year growth 2012 over 2011, when you’re looking at almost 10% type growth rate in that business, in the registry business, almost 15% growth rate, for total year-over-year growth rate of 13%.

We’re not expecting these businesses to slowdown as we get into 2013. We may have puts and takes there as we cross-sell and up-sell. But we will provide you the color into those things. For example, if we sell, if one of our enterprise sales, individual sales, one of our Information Services product. We may record that revenue wherever the sales person is, and not necessarily is based on the three segments.

Same thing for Carrier Services; Carrier Services showed a 12% year-over-year growth in the NPAC services last year. If you think of the order management business that was 16% year-over-year growth. I think we do expect growth in regard to the services. But remember the NPAC, which is the largest portion of that business is only growing 6.5% next year.

So we can’t expect the same type of growth rate just because on a weighted-average basis, the 6.5% is going to be almost 5% in that category. So I think I wanted to provide a historical perspective so that it will inform you in the forward-looking numbers and avoid giving specific guidance on 2013.

Daniel Meron – RBC Capital Markets

Okay, understood Paul. So maybe I can believe you understand that as it impacted, that’s been set in motion years ago. But it seems like as you stated in commentary, it sounds like that rest of the business continues sort of like high single-digits, even double-growth and do you think is sustainable beyond 2013 and what gives you the level of confidence, if it does?

Lisa A. Hook

So our guidance implies that the non-NPAC business need to growth between 9% and 14%. So that definite, sort of turning up the growth rates in the non-NPAC businesses. And Paul’s earlier point, we’ve known now for a couple of years that the NPAC growth starting this year, it’s going to be slower than it has been historically.

We interested in maintaining our top level growth rate which means that we have to both invest and plan for higher levels of growth in our non-NPAC business and that’s what we’re committed to doing.

Daniel Meron – RBC Capital Markets

Okay. So we should be thinking that this is kind of like – what you’re planning on a go forward basis, not just a one year thing because of some low hanging fruit from cross-sell and up-sell opportunities?

Lisa A. Hook

No, it’s not just the low hanging thing because next year the NPAC is only 6.5% as well.

Daniel Meron – RBC Capital Markets

And Lisa, I think you mentioned that you’ve got to reinvesting in the business, what kind of areas are you looking into? Is this kind of like infrastructure investment, is it more are indeed, more are sales and marketing, is it all of the above?

Lisa A. Hook

It’s mostly around – well, it’s a couple of things. As I said, we’ve built now a cross company function around integrated accounts planning. So we’re changing our go-to-market in our key strategic accounts. It is doing more buyers in the end research and spending more time with our customers to optimize the solution sets that we’re providing to them.

And then underneath that we’ve got some platform activity that is shifting our unstructured data sets on to Hadoop Clusters and making this available through pretty simplistic towards development team.

Paul S. Lalljie

And also the billing guys, they made a lot of shout out. But at the end of the day, we need the bills across pollination of services. So as you bundle services, you need to put the billing systems in place. You need to have new pricing mechanisms in place. Those are some of the things we’re working on here.

Daniel Meron – RBC Capital Markets

Okay, that’s very good. Good luck, thank you.

Operator

And Julio Quinteros with Goldman Sachs has our next question.

Julio Quinteros – Goldman Sachs

Sure, thanks. Maybe just go back to one quick things on the margin expectation, just the puts and takes in terms of what could drive a little bit of margin expansion from here, maybe by thinking about the segments or is there some caution around margin expansion just given the current state of the NPAC contract?

Lisa A. Hook

Again, I want to emphasize, you should not expect margin expansion.

Julio Quinteros – Goldman Sachs

Okay. And what are the puts and takes on that?

Lisa A. Hook

So, here we’re working on…

Julio Quinteros – Goldman Sachs

And what are the puts and takes on?

Lisa A. Hook

We’re working on selling more efficiently, which will cause the same operating leverage. There are number of areas in which we’re creating efficiencies that create operating leverage, but the dollars created by operating leverage will not flow through an increased merchant. They will go into reinvesting in the business to drive future revenue expansion.

Julio Quinteros – Goldman Sachs

Okay. And is there any portion of that associated with the FCC [contract] itself?

Lisa A. Hook

Yeah.

Julio Quinteros – Goldman Sachs

In terms of reinvestment requirements or incentives that you would have to pay to them that you guys are anticipating right now?

Lisa A. Hook

No, so the contract we set through the end of June 2013, we continued year-over-year to invest in the NPAC service and upgrade to the network and upgrade to the consumer interface in new applications that there is really not margin expansion that one can expect in the NPAC.

Julio Quinteros – Goldman Sachs

Okay, great. Thanks.

Operator

Moving on to Jonathan Ho with William Blair & Co.

John Weidemoyer – William Blair & Co. LLC

Hi, this is John Weidemoyer for Jonathan. We’re on multiple calls right now. Thanks for taking my call. Last quarter you announced the Marquee Day with the communication services provider in your analytics initiative. Can you tell us, we know it’s early, but can you talk a little bit about the implementation status on that deal? And also we’re curious, has that helps you? Can you also talk about the pipeline in that area? Your pipeline of potential deals and whether that deal has helped at all in building natural pipeline? Thanks.

Lisa A. Hook

Correct, so we’re still in the process of implementing that deals. It is in the cable environment and where we have a very strong presence as I mentioned in my prepared remarks, we’re really focused on verticals where we have a strong presence. It’s a very interesting value proposition for that industry. And so, yes, it has taken the same value proposition to other companies in that industry and it has helped us build the pipeline.

John Weidemoyer – William Blair & Co. LLC

Thank you.

Lisa A. Hook

Sure.

Operator

And Greg Mesniaeff with Maxim Group has our next question.

Greg Mesniaeff – Maxim Group

Yes, thank you. I was just wondering if you can give us some color on, when you say you are focused on organic growth, obviously in addition to or besides the core services business. When you look at that market in the U.S., do you see primarily a market where the greatest objective is to grow through market share gains, or is that through just an organic kind of like the tide lifting all boats scenario?

Lisa A. Hook

So the markets that we look at are, we’re selling into marketing departments, who are looking more and more for an analytical approach to generating means, generating deals, managing up-sell and cross-sell and retention. And marketing budgets in that regard are increasing pretty dramatically year-over-year. And then the other environment into which we sell is on the IT side around network protection and security.

And as you know from the number of network events and outages and attacks, that’s another areas in which spend is increasing. So there’s a lot of opportunity in both of those markets which are beginning – it’s not a market share word yet, it’s not a war of dealing from our competitors.

Greg Mesniaeff – Maxim Group

So it sounds like a lot of early stage opportunities rather than a more mature situation?

Lisa A. Hook

I wouldn’t characterize it as early stage, because this is not a venture like opportunity. But these are young markets that are growing very quickly – to your point, it’s not a mature market, stealing share from one another kind of an environment.

Greg Mesniaeff – Maxim Group

Gotcha. And then when you look at your OpEx in the December quarter, sales in marketing went up quite a bit. I was wondering if you can give us some color as to where you see that – those levels trending in 2013. Thank you.

Paul S. Lalljie

Yeah. So sales and marketing in the fourth quarter was probably around 20%, 22%, 23% of total revenue. Historically, in the prior quarters, it ranged anywhere from 18%, 19%, 21% per quarter. In the fourth quarter, we tend to have commission plans that approve commissions in the fourth quarter.

So we did have strong sales as we exited the year and that resulted in sales and marketing numbers there. As a total company, one other thing we try to do is, balance the spread across the group. So as you can see G&A kind of starting to hit in the fourth quarter going down to about 9% in comparison to other quarters. So primarily driven by sales activities and specifically the main driver was commission.

Greg Mesniaeff – Maxim Group

Thank you.

Operator

And that concludes today’s question-and-answer session. I’ll now turn the call over to Ms. Lisa Hook for closing remarks

Lisa A. Hook

Thank you all so much for joining us for today’s call. We’re really pleased as you can tell what our results for 2012, totally excited about the opportunities and momentum we have in 2013. And I look forward to keeping you all updated on our progress over the course of the year. Thank you.

Operator

That will conclude today’s conference. Thank you all for joining us.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: NeuStar's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts