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NeuStar, Inc. (NYSE:NSR)

Q4 2011 Earnings Call

February 2, 2012 4:30 pm ET

Executives

David Angelicchio – Head of Investor Relations

Lisa A. Hook – President and Chief Executive Officer

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

Analysts

Sterling P. Auty – JPMorgan Chase & Co.

John F. Bright – Avondale Partners, LLC

Scott P. Sutherland – Wedbush Securities Inc.

William Power – Robert W. Baird

Daniel Meron – RBC Capital Markets

Dan Cummins – Thinkequity

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 NeuStar, Incorporated Earnings Conference Call. My name is Jeff, and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your for today, Mr. Dave Angelicchio, Head of Investor Relations and you have the floor 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 followed by Paul Lalljie, after which, we will open the line to questions from qualified investors and research analysts.

Before we begin, I’d like to remind everyone that today’s discussion contains forward-looking statements based on information as of today, February 2, 2011, 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 today’s press releases, and our Annual Report on Form 10-K for the year ended December 31, 2010, and our current periodic reports filed with the U.S. Securities and Exchange Commission. 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, headcount at additional expense detail. 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.biz.

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

Lisa A. Hook

Thanks very much Dave, and thank you all for joining us this afternoon as we report our results for the fourth quarter and for the full year. I will provide some perspective on 2011, and then, Paul Lalljie, our Chief Financial Officer will walk you through our results in detail.

2011 was the year of tremendous change for NeuStar, obviously starting with the new CEO. It was a year in which every process and every person in the company was affected by our transformation. It was also a year in which we told our shareholders exactly how we intended to drive shareholder value, and then we did it. And amidst a significant amount of change, the one reliable constant was NeuStar’s strong performance.

In the fourth quarter, we once again delivered strong growth in revenue, earnings and cash flow. We did so even as we completed three major transactions, which included a share buyback on an accelerated basis, our first term loan and the acquisition of TARGUSinfo. Our performance in the fourth quarter was a reflection of how pivotal a year 2011 turned out to be, and how when it comes to NeuStar’s results, the more things changed, the more they stayed the same.

Revenue was up 27% compared to the fourth quarter of 2010. NPAC service revenue increased 11%, and is expected to be under 15% of total revenue in 2012. The business segment, we now call information services, which is how we identify our successfully integrated TARGUSinfo unit contributed 15 percentage points of the revenue increase we saw during the quarter.

This strategy we outlined at the beginning of 2011 led us to make the right acquisitions at the right price with the right financial structure to achieve them. We began the year with a pledge to sharpen our focus on our best opportunity and ended with evidence that we had done so. In the first several months after my becoming CEO, we assessed the scale, competitive position and economics of all our businesses and determined our future strategic direction.

We determine to continue forward as a leading provider of addressing, routing and policy management, expanding into addressing for anything distributed digitally. In addition, we determine to utilize the data created in this business to create a second core business, real time information and analytics based on that addressing, routing and policy management core.

As part of this strategic effort, we defined a strict set of acquisition criteria with a focus on low-risk, value creating transactions in near adjacent spaces including opportunistic acquisitions that accelerate our products run up. We closed on the acquisition of assets from ESI in July for approximately $39 million, acquiring a business that was an extension of the NPAC, as well as a numbering analytics service.

The acquisition was immediately accretive and quickly integrated. In November, we closed on the acquisition of TARGUSinfo, a provider of real time, on-demand information and analytics services for approximately $650 million.

TARGUSinfo brought us an infusion of talented people, valuable assets and capabilities and improving track record of innovation. By combining these strengths with NeuStar’s assets and position as a trusted reliable provider of addressing will enhance our scale and create us the opportunity to become a global leader in real time analytics.

Our fourth quarter results show these acquisitions are already benefiting NeuStar’s performance. NeuStar’s information and services segment provides customers with accurate real time insights to help them better understand and interact with their own customers and prospects. The real power of our TARGUSinfo acquisition will come from the ability to leverage our combined information and predicted analytics capabilities in fast-growing markets like lead verification, online display advertising and local search.

The size of these fast-growing markets is estimated at $16 billion and NeuStar is now well positioned to increase its share. In 2011, we articulated our goal of becoming a global leader in real time information analytics based on addresses, and as I said, with the TARGUSinfo acquisition, we are making this a reality.

We also said that we would focus on a more efficient balance sheet, and then the way we financed our acquisitions and bought back our common stock, we’ve done what we said we will do. In early December, we announced the results of the $250 million common stock offer we launched in early November, repurchased almost 10% of our outstanding shares to this modified Dutch auction.

This transaction and the $600 million term loan issued to finance the TARGUSinfo acquisition have bought our debt to equity ratio to levels we believe are appropriate for a company with our strong cash flow generation.

Let me turn now to our pre-existing businesses. Since NeuStar’s founding, our stewardship of the NPAC has been epicenter of our business. NeuStar’s NPAC is a well established profitable business that provides predictable contractual growth to at least June 2015.

The NPAC data remain a critical element of the telecommunications infracture, and ensures secure and reliable delivery of voice calls and text messages in United States. Throughout 2011, we continue to deliver exceptional performance driving innovation through major technology enhancements and introducing the capabilities to deliver real value to our customers.

As consumers, we sometimes take for granted the ease by which we retain our telephone number when selecting a new service provider. It also can be easy to forget that the NPAC and its information are instrumental in so many other critical services including networking technology migration, diaster recovery, emergency preparedness, law enforcement and public safety services. All of these services require real time distribution of information to thousands of service providers throughout the U.S.

Since NeuStar’s founding, we have been continually tested and found to provide these services flawlessly. In fact, we’re pleased to report our highest ever customer satisfaction ratings, and that we were 100% complaint with our 2200 individual service level agreement measurements.

Last November 23, NeuStar submitted its response to the RFI for what is referred to as the NPAC rebid, and we looked forward to working with our customer in the telecommunications industry through the procurement process.

The next milestone is the release of the RFP with responses due in the fourth quarter followed by the award of the contract to provide this extensive and complex infrastructure. Continuing to be the stewards of this vital telecommunications industry, service remains a high priority for the entire company, and especially for me personally.

In addition to carrier services, which is responsible for our NPAC business, NeuStar’s other businesses continue at pace. We told you that in 2011, we would focus on creating a flatter and more rational organizational structure, and we did what we now call our Enterprise Services Group include Internet Infrastructure Services or IIS and Registry Services both of which were key drivers of growth in 2011.

For IIS, we continue to see strong demand for our expanded solutions sets from existing and new customers. Additionally, increased mobile marketing spend and strong renewal rates for common short codes are driving growth in Registry Services.

Last year, we told you about the contract that NeuStar’s media services had to support the entertainment industry’s UltraViolet platform. UltraViolet debuted in October with over 50 titles. By the end of the year, 800,000 consumers had purchased UV titles. And finally, in our short six weeks of ownership, we felt strong momentum in the area of information services.

It has been NeuStar's intention to expand our customer base, not simply within the industry we serve, but to new industries as well. Our reasoning is simple, by not only offering new services and capabilities to existing customers that expand the industries we can serve, NeuStar has significant runway to drive continued growth without having constrain from our core competences.

Our customer base originally limited to the wireline and telecommunications industry now includes mobile telecom providers, the world's leading internet business and the marketing firms and the entertainment at the device manufacturing industries. With the acquisition of TARGUSinfo, we continue to broaden the spectrum of industries using and valuing our trusted and reliable services and we expect to continue to serve new segments in 2012 and beyond.

Our 2012 guidance, points through a year of solid revenue and earnings growth and in a few minutes Paul will provide you more detail on how we view the year ahead.

In closing, 2011 was a strong year for NeuStar, in which we outlined what we intended to do and then did it. We took significant steps to position the company for continued success with two acquisitions that enhance our ability to execute our strategy of becoming the global leader in real time information and analytics based on addresses.

We rationalized our capital structure and we clarified our organizational structure for faster decision making and execution. We expanded the industries and customers we serve, we enhanced our products and we deliver them on time.

We continued flawlessly to manage the impact and achieved our highest ever customer satisfaction levels at exactly the time when our customers will play a vital role in deciding how and by whom the impact will be managed in the future. Going forward, we will continue to align our employee interest with those of our shareholders.

Our entire team is energized and excited about pursuing the new opportunities before us with a laser sharp focus on meeting the needs of our broadening customer base. I expect this focus to result in continued growth of our top line revenues, which will in turn drive shareholder value. As I stated at the offset, in the year of tremendous change, one constant remained our ability to deliver results. We anticipate that 2012 will be another exciting year and that NeuStar will continue to perform for it shareholders.

I look forward to updating you on our progress. And with that, let me turn the call over to Paul.

Paul S. Lalljie

Thanks, Lisa, and good afternoon, everyone. 2011 was a successful year on a number of levels. We continued to perform well financially and at the same time we completed two acquisitions, raise capital at reasonable rates, completed a successful tender offer and ended the year with more efficient capital structure.

Revenue for the year totaled $620.5 million. This included $21.2 million from the acquired TARGUSinfo assets since closing. On a year-over-year basis revenue grew 19% including the acquisition and 15% excluding revenue from TARGUSinfo.

Adjusted net income from continuing operations grew 16% to $159 million or $2.13 per diluted share. Adjusted EBITDA from continuing operations for the year totaled $296.7 million representing growth of 16%. This adjusted EBITDA performance included $3.2 million of restructuring charges incurred in the fourth quarter for organizational changes aimed at improving the overall cost structure.

As we shared with you in November, we closed the acquisition of TARGUSinfo for a purchase price of approximately $650 million, using the combination of cash in hand and a $600 million term loan. In December, we completed a $250 million tender offer bringing our shares purchased in 2011 to $324.3 million for 10.1 million shares. This reduced our year end share count by 13% and shows our continued confidence in our business.

As you’ve seen from our earnings announcement, we included adjusted results to provide a better basis for comparing operating results across the periods. These results account for uncommon events that occurred during the year on certain non-cash items specifically $11.6 million of costs related to the acquisition of TARGUSinfo, current fees and expenses difficult for a transaction of this size. $2.4 million in fees associated with the tender offer and in addition we’re adjusting for certain non-cash items such as $27.5 million in stock-based compensation and $12.1 million in the amortization of acquired intangible.

Now for a closer look at revenue for the quarter. TARGUS Services revenue totaled $113.3 million, a 14% increase year-over-year. This increase of $13.6 million was primarily due to a $9.2 million or 10% increase in numbering services revenue and a $3.5 million or 54% increase in order management services revenue. The numbering services increase includes a $10.9 million increase in our fixed fee revenue or NPAC services.

Enterprise services revenue for the quarter totaled $39.7 million, a 7% year-over-year increase. This $2.6 million increase was due to a $1.2 million or 6% increase in internet infrastructure services revenue and a $1.4 million or 9% increase in registry services revenue. Information services revenue for the [sub] period totaled $21.2 million and included in this total was $13.9 million in revenue from identification services, $4.5 million from verification and analytics services, and $2.8 million from local search and license data services.

On a pro forma basis revenue from the acquired entity would have been approximately $149.8 million for 2011 representing growth of 14.9% over 2010.

Let me turn now to revenue for the year. Consolidated revenue totaled $620.5 million compared to $520.9 million in 2010. Revenue from our non-NPAC services totaled $246 million, an increase of approximately 33.9% year-over-over. This increase was driven by the addition of acquired information services revenue and the growth in our Internet Infrastructure Services business revenue. As well as revenue from NPAC services, totaled $374.5 million, an increase 11% over 2010.

Taking the liquid expenses, operating expense for the year totaled $411.4 million, an increase of $96.3 million over 2010. $11.6 million of this increase relates to cost associated with the acquisition of TARGUSinfo. $2.4 million represents fees incurred with the execution of our tender offer.

Operating expenses increased $40.5 million year-over-year, due to ongoing operating expenses of the acquired businesses. We also incurred an additional $10 million in non-cash stock-based compensation during 2011. The remaining $31.8 million was driven mainly by higher personal and personal related expense to support overall growth.

Accounts at the end of the 2011, totaled 1488 compared to 1034 at the end of September 2011 and 964 at the end of 2010. The increases were driven by the addition of nearly 450 employees associated with our acquisitions.

Turning now to the balance sheet. We ended the year with cash, cash equivalents and investments of $135.3 million, compared to $382.4 million as of December 31, 2010.

This change reflects the cash disbursements for the purchase of the evolving systems, numbering asset of $39 million and part payments for the targets and for acquisition of $90 million, and a $324.3 million of shares repurchased.

Accounts receivables at the end of the year totaled $111.8 million, compared to $88 million as of September 30, 2011. This increase in primarily due to the addition of the accounts receivable balances pertaining to the TARGUSinfo acquisitions.

Our days sales outstanding remained relatively unchanged at 51 days. Accounts payable and crude expenses totaled $86.7 million compared to $61.7 million end as of September 30, 2011. This increase was primarily due to the addition to payable balances pertaining to the TARGUSinfo acquisition. Capital expenditures for the year totaled $45.8 million representing a $7.7 million increase from last year.

Now for a discussion on guidance. As you’ve come to expect, our revenue is predictable and recurring in nature. Our results demonstrate our customer’s increasing demand for our services, and as a result we are confident about our growth prospects for 2012. Our guidance for 2012 includes the full year impact of the TARGUSinfo acquisition.

Revenue for 2012 is expected to range from $810 million to $830 million representing a 31% to 34% growth over 2011. We continue to evaluate the appropriate profitability measure, especially since now we have to account for the cost of debt.

On our first quarter 2011 conference call, we introduced an adjusted net income metric as a measure of our performance. And we have since refined that metrics. While we believe that our GAAP measure continues to provide good insight into our performance, going forward we will use adjusted net income as a measure of performance and as such we will provide guidance at the adjusted net income level. This measure incorporates two adjustments to net income, stock-based compensation and the amortization of acquired intangibles. This allows investors to measure our performance with a cost of debt, and it also allows for better comparison for the company.

For 2012, we’re expecting adjusted net income from continuing operations to range between $170 million and $190 million, or $2.66 to $2.84 per diluted share. Capital expenditures for 2012 is expected to range between $50 million and $60 million, our annual effective tax rate is anticipated to be 40%, and our fully diluted weighted average shares outstanding is expected to be approximately $67 million.

As you know, non-impact revenue is now a larger portion of our business, and this revenue stream is subject to small factors of seasonality. While we don’t provide quarterly guidance, in the first quarter even if we’re tracking against our goal to hit the annual revenue range, our performance is expected to be below the annual average. To recap, we accomplished a lot in 2011, and our team’s performance was exceptional. Once again, we achieved double-digit revenue growth, and the midpoint of our guidance for 2012 calls for a 32% increase from 2011.

We were expecting to grow adjusted net income per diluted share to $2.75 at the midpoint of the range from $2.13 in 2011. This includes almost $0.25 of dilution, $4600 million term loan and almost $0.27 accretion for the shares repurchased in 2011. Heading into 2012, our objectives continued to focused on top line growth, maintain disciplined capital allocation and successfully integrate the TARGUSinfo acquisition.

With that, we’ll open the line up for questions. Operator?

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) Our first question comes from the line of Sterling Auty with JPMorgan. Please proceed.

Sterling P. Auty – JPMorgan Chase & Co.

Yeah. Thanks, hi guys. Couple of questions. So TARGUS looks like it’s off to a good start. Can you just, off your updated thoughts on the integration roadmap, revenue synergies and cost synergies for 2012. So in other words, I heard what you gave in the prepared remarks, but maybe go to the next level deeper. I think, when we originally talked there, when you think about the data center consolidation for example, facilities and to that nature?

Lisa A. Hook

Sterling, let me address those. On integrations, we are integrating the G&A functions that is legal finance, HR and business sessions as well as corporate communications and branding. The integration, the heavy lifting is frankly done and went incredibly, incredibly smoothly. There is continued financial integration specifically around SOX compliance and filling automation that’s need to done, but the teams from both companies are working extremely well together. And this point we’re probably a month ahead of where we expected to be. So from an integration point of view, we’re really at this point and back to business as usual.

Let me speak first to the cost side. I think we probably told you that, there would not only be no cost synergies, but in fact there would be non-material cost dis-synergies as I said related to automation of filling and causing on, what we now call NeuStar Information Services, it’d be SOX compliant. We are not looking at integrating data centers.

Over the longer term there maybe some, again very insignificant savings from telecom costs, but we’re not looking at those in our budgets. As far as revenue synergies, we have not built any into the budget for 2012. And the teams are already collaborating with each other incredibly actively around the development of new services.

You will see some of those coming out over the next couple of months, but again we’re not including revenues from those this year as you know some product concept to product development. And then release are at least multi-month and in some cases multi-year effort. So we don’t expect to see any kind of material revenues from those in the 2012 timeframe. Paul, do you want to add anything?

Paul S. Lalljie

Yeah, I think, you articulated well there, Lisa. The only thing I would say is, Sarbanes Oxley is one more area that may have the synergies from a cost perspective as we bring them compliant. So we don’t expect any synergies there.

Sterling P. Auty – JPMorgan Chase & Co.

Okay. And then on the RFI process, and leading to the RFP, was there anything in the RFI part of the process for the impact renewal that gave any insight into what the industry’s thinking might be on how they might include IP as part of the next generation NPAC or any update on the thought whether it would continue to be single vendor or a multi-vendor approach?

Lisa A. Hook

No, it was very simple. I think there were maybe six questions, and really did not give any indication as to the thinking.

Sterling P. Auty – JPMorgan Chase & Co.

Okay. And then last question, on the, look at your – within the carrier business, order management looks like a tail box just a little bit, that’s one that was a real nice resurgence in the business here in 2011, how should we think about that in 2012, was there anything in that business that – as we think about the project work versus the flow part of that business, how should we think about that contribution here in 2012?

Paul S. Lalljie

Sterling, this is Paul here. And I think, in 2011 we probably increased the run rate by about $10 million in that business primarily because of the TWC contract which we announced, when we won that back in 2010. We expect similar type of build year-over-year. However, as you can imagine, we generated revenue in 2011 for the onboarding of those customers that we will not see in 2012. However, as you know, we’re focused on winning new customers in this area; this is an area of focus for us. Expect to see growth from this business in 2012. But not at the rate of change as we did in 2011.

Sterling P. Auty – JPMorgan Chase & Co.

All right, great thank you.

Operator

Our next question comes from the line of John Bright with Avondale Partners. Please proceed.

John F. Bright – Avondale Partners, LLC

Thank you, good afternoon. Lisa, let’s start first, and say solid quarter and solid first year for you. Let me talk operationally about the quarter. It looks like the impact service transactions were down meaningfully in the quarter, any comment on why that may have been the case or what that means?

Paul S. Lalljie

John, this is Paul here. And one of the things that we’ve, I mean you’ve known us for a while, you’ve seen in the past. Our customers generally look at things on an annual basis and if you recall, Q4 of 2010 we did see that similar decline in the fourth quarter. But on a macro basis, on a full year perspective it did increase significantly.

So our full year numbers in terms of transaction, we still expect that to continue to grow year-over-year. Total numbers in the NPAC is $550 million at 12/31 growing from $429 million which was a 28% year-over-year increase. So I think, we still expect to see the types of momentum, and the one quarter may not be indicative of anything systematic.

John F. Bright – Avondale Partners, LLC

All right, let’s stay with the impact contract. Would you share with us any expected bidders that you anticipate for the contract, one. Two, you mentioned the RFPs due in the Q4, and when is the contract going to be awarded, and let’s start with those two.

Lisa A. Hook

So as far potential competitors, that’s not been made public. So folks who responded to the RFP, there was no public announcement or correspondence. We are very focused frankly on providing the best possible service, and the most innovation to our customers so that we’re prepared to withstand any type of potential competitor.

With respect to the timeline, as you know the process is already 11 months late. There has been no announcement on these specific dates with respect to the RFP responses. So our best guess is fourth quarter, first quarter.

John F. Bright – Avondale Partners, LLC

Okay. And this one is a tough one to answer, Lisa, but what should the expectations for investors be regarding this rebid, investors in NeuStar?

Lisa A. Hook

So as we know, the contract is enforced through June of 2015, and has specific contractual escalators attached to it. I think it’s way too early for us to be thinking about our expectations. So we’ve got 3.5 more years on this agreement. The RFP action really is not going to get going until the very end of this year, the beginning of next year and we'll have better visibility into pricing into extension into additional features that could be added at that time. As you know historically, we've sat down with the industry periodically and have taken down the price per transaction in exchange for extensions to the contract and additional functionality and the impact of it allows to build revenues.

So I’m not telling that the past is an indicator of the future, but that's fairly the framework within which we're operating.

John F. Bright – Avondale Partners, LLC

Paul, you did share what the impact of revenue was for the year, '11, would you want to share with us what you expect to be in '12?

Paul S. Lalljie

2012, it's $410 million in terms of the fixed fee. And connection fees generally run around $10 million a year and there is going to be (inaudible). So generally, the fixed fee, I think is the part which you are interested in, it's $4.10.

John F. Bright – Avondale Partners, LLC

Got it. Two last ones. One on the TARGUS acquisition, Lisa, what have you learned since you closed the acquisition that you didn't know at that point?

Lisa A. Hook

That's a good question. When you close an acquisition, no matter how much due diligence you do, you really don't know the company particularly well. And I think George Moore, who is the founder and CEO of TARGUS was right, it’s a heck of lot different thing married and it is being engaged. I would say in this case, the marriage is that is much more fun than the engagement. The people at TARGUSinfo, I had known the senior executives and came to know them quite well through the course of the due diligence, but everybody at NI, what we now call NIS is just tremendous. So we are having a lot more fun building a joint culture than we expected that we would.

John F. Bright – Avondale Partners, LLC

Final question, strategically, which ever would gets one – pick this one up, how should we think about you’re using balance sheet as we look in 2012, will it be heads down focus primarily with opportunistic M&A maybe, how should we think about it?

Paul S. Lalljie

So John, I think in 2012 our primary focus will be on integrating the TARGUSinfo acquisition. As you know, acquisitions are opportunistic, so we are available and open to business as opportunities come our way. And we are still committed to returning capital to shareholders as you know we had to because of the tender offer restrictions in doing the tender offer, we had to pull the plan that we had in place.

We will put that plan back in place later this year. This is shaking our head at least not later this year but probably early into the second quarter or late in the first quarter as we get through filing the 10-Ks and things like that. So I mean bottom line we remain focused on a couple of things, integrating TARGUSinfo, focus on the NPAC and the RFP and then from a capital perspective we’re committed to returning capital to shareholders, and we’re going to be opportunistic on acquisitions.

John F. Bright – Avondale Partners, LLC

Thank you.

Operator

Thank you. Our next question comes from the line of Scott Sutherland with Wedbush Securities. Please proceed.

Scott P. Sutherland – Wedbush Securities Inc.

All right, great. Thank you, good afternoon. And also congratulations, Lisa, on your first year.

Lisa A. Hook

Thank you.

Scott P. Sutherland – Wedbush Securities Inc.

On the NPAC contract, contractually it jumps about $11 million fixed per quarter this year. Can you talk about what other kind of new investment opportunities you may use that incremental revenue in, and is the existing ones or you’re looking at some new areas to invest in?

Lisa A. Hook

We’re really focused on continuing with investments that we’ve already made where our revenues this year will expand much more quickly than our OpEx line. As a result, the existing initiatives that we’ve got in place, we’ve got some smaller products that are not frankly callouts. But there is no major new product initiative that would require material investment.

Scott P. Sutherland – Wedbush Securities Inc.

Okay. As you look at UltraViolet, obviously a lot of momentum around CES, and some industry involvement. How do you see that business model ramping, I know when you first looked at that model, you said, you don’t invest in things until you see tens of millions of potential opportunities down the road. How do you see that ramping towards that kind of goal?

Lisa A. Hook

So in two ways, sorry, there’s UltraViolet itself, which is as you said beginning to get some momentum behind it. It as I said, passed 800,000 titles sold at the end of the year, its well beyond that now. As you know, Amazon, announced at CES, that it was going to be the first retailer into the pond, if you will – launching and promoting UltraViolet. And Samsung as the first equipment manufacturer announced that it will be launching a player later this spring, I believe that will enable you to put a DVD into the player and automatically upload it to your UltraViolet locker.

So the ecosystem is coming together, the studios are in full support and planning on greater amount of marketing this year. So I think we’re well under way to what they will call the ultimate format change. So we’ve got hopes around that. Although I’d say this year we’re still not planning on material revenue. In addition, we’re taking that same platform and using the capabilities to support other industries that are looking to move from physical to digital distribution of contract.

Scott P. Sutherland – Wedbush Securities Inc.

Okay. Last question, the Internet Infrastructure Services growth were there a little bit it had been, one of your nice growth drivers many time in excess of 20% anything to read into that?

Lisa A. Hook

I think you need to look at Internet Infrastructure Services it’s just that not simply the external managed DNS service which was the basis for this division. They have since added other services and in particular service called SiteProtect late last summer, which is getting a great amount of traction in the market and should reenergize the growth rates going forward.

Scott P. Sutherland – Wedbush Securities Inc.

Okay. Great, thank you.

Operator

Our next question comes from the line of Thomas Ernst with Deutsche Bank. Please proceed. Mr. Ernst your line is open. All right, we will take the next question. Our next question comes from the line of Julio Quinteros with Goldman Sachs. Please proceed.

Unidentified Analyst

Okay, thanks. Hi, it’s Vincent sitting in for Julio. Paul, I may have missed it earlier but in terms of the midpoint guidance for 2012, did you provide what your assumptions were in terms of growth rates for each of your business segment?

Paul S. Lalljie

No, we actually provided just a consolidated guidance, so the mid point is around $8.20 and the bottom end $8.10, top end $8.30. Generally, the way we look at it, we expect that the trend line on the traditional NeuStar business will remain the same. And in terms of the Information Services business segment which is the really the TARGUSinfo assets that we acquired.

It’s generally early in the year, number one. Number two, I think you can appreciate that it’s in acquisition and acquisitions always are things that you don’t expect or anticipate. And such, being prudent is probably appropriate best falling time for us. So we’re not providing business segment guidance, but I think if you can just go to back of the envelope, and based on the historical growth rates in the TARGUSinfo assets, the compounded annual growth rate of 10%, 11%. I think it can get you ballpark to the mid point of the range.

Unidentified Analyst

Got it. So the bottom line is, on a combined basis, our gain in business going forward. You’re still expecting double digit growth rates for the combined business?

Paul S. Lalljie

Yes.

Unidentified Analyst

Okay. And then, just on the guidance in terms of the EPS, and I’m looking at the 67 share account for all of 2012. So meaning that has not incorporated any further share buyback is that correct?

Paul S. Lalljie

Correct.

Unidentified Analyst

Okay, great. I think that’s it from us. Thanks.

Paul S. Lalljie

I appreciate it, thanks.

Operator

Our next question comes from the line of Will Power with Robert W. Baird. Please proceed.

William Power – Robert W. Baird

Yeah, great. Thanks and congratulation on the results. Just kind of a follow-up question, I guess on guidance. On the target piece of information, services piece, I guess now, any thoughts with regard to seasonality, anything we should be thinking of there as we get into Q1 and head to the year from a modeling perspective?

Paul S. Lalljie

Well, generally, as we grow more in a non-impact side of the business, we expect elements of seasonality. It is not a large of the factor as in some businesses. But in my prepared remarks, I’d pointed that there is an element of seasonality and we do expect that the first quarter, while we always expect the first quarter to be lower than the fourth quarter just because of trend line. We want the analyst and the business community to factor that as they do projections throughout the year.

William Power – Robert W. Baird

Okay. And then any comments with regard to margin assumptions for either the segments or in total as we kind of head to the year. Anything we should be thinking about there in terms of expansion opportunities? I guess some of the integration savings perhaps, any high level thoughts there?

Paul S. Lalljie

So I think using the adjusted net income margins, the 2011 adjusted net income margin is roughly around I think it’s 23%. And I think the 2012 midpoint of the range is roughly around 21%. And we have about $35 million of interest expense, therefore the $600 million of term-loan that we have. So to some extent from a pure operations piece of the business if you normalize for that $35 million, you’ll find that you have about a 100, 150 basis points of margin expansions year-over-year from a pure operational perspective.

William Power – Robert W. Baird

Okay. All right, that’s helpful. Thank you all.

Operator

Our next question comes from the line of Dan Meron with RBC Capital Markets. Please proceed.

Daniel Meron – RBC Capital Markets

Thanks. Hi Lisa and Paul, congrats on the execution here, very good performance. Lisa, maybe if we can just take a step back and look at the business overall, right now it seems like these businesses each one of them is doing wonderfully under on a standalone basis. As we look further out how do you think that all these three businesses could work together? What kind of synergies can we think of from joint offerings or anything like that, or just skill sets that you can have some cost selling or up selling as you go ahead, or is it just going to be three different business units that may share some comment, coming out as far the data center stuff like that but just run on an standalone basis? Thank you.

Lisa A. Hook

So there are a lot of commonalities. Right out of the gate, the NIS sales team selling into carriers, sat down with carrier services sales team, and map the common account where we can go in together and cross selling, up sell that is well mapped out account that TARGUSinfo have had that NeuStar has not been successful in. And price first accounts that NeuStar has that TARGUSinfo had not been successful in.

So that we can begin to cross sell into the non-common account that sort of low hanging fruit if you will. Then at the same time, both the carrier service groups and the enterprise services groups are working together with NIS to look at the types of data that are being generated by carrier and by enterprise in the course of providing addressing services. And we are finding interesting opportunities to take that data and buff that up against the analytics capabilities that NIS has to develop new services.

We have a number of those efforts going on, at the moment we’re not going to [pre-nail] the launch of any particular service right now. I would expect that within the next month, six weeks it will be able to start talking about certain services, you’ll see them coming out in the market. Again, please remember that this is early days in developing joint products. So, you should not expect to see material revenue from this year.

Daniel Meron – RBC Capital Markets

Okay, that’s helpful. Thank you. So, and then I may missed it earlier in your prepared remarks on the impact milestones I understand that, it’s coming up or it’s going to be announced about our key process towards end of the year. But, how should we think about it after that, toward following milestones to watch for a side from that process?

Lisa A. Hook

Well, the RSP should be coming out in the fourth quarter and respond to full be due at some point thereafter it was original – the original idea was basically to fairly shortly thereafter and then the industry would move to choosing the company but still may intend to negotiate. So, I would look for that sometime in 2013.

Daniel Meron – RBC Capital Markets

Okay. And can you talk to your advantages on that I realized that you guys published survey of the satisfaction of your customers what kind of contenders may go there and how and what is your hedge in general and how do you continue to build that going forward.

Lisa A. Hook

So, I think what many people don't realize and it's probably because we have been very modest about discussing this, is that the NPAC is actually an extraordinarily complex infrastructure, which pushes out information changes every eight second to thousands of different physical points around the country and to thousands of operators. So nothing like this exists anywhere in the world. We monitor those endpoints to make sure that they are up and able to accept data. We are slowest in the acceptance in the distribution of the data, so that any time someone changes their career or at times when we have to move phone numbers from frankly points that are under water because of hurricanes or whatever too others switch it, they are above water or when we have to move them, because there has been another type of a disaster.

Those changes are made instantaneously and pushed out to thousands of endpoints around the country. We've been doing it for over 16 years now. We have developed the monitoring systems around this complex infrastructure, so I have to tell you nothing succeeds like experience, this is really extraordinarily difficult. There are 2,268 service level agreements or performance requirements around this infrastructure. And this year we performed at 100% compliance, that's an extremely rare level of performance on this kind of complexity. So honestly, we think that, that's our clear advantage.

Daniel Meron – RBC Capital Markets

Understood, understood. Thank you, good luck, Lisa.

Lisa A. Hook

Thank you.

Operator

Our final question comes from the line of Dan Cummins with Thinkequity. Please proceed.

Dan Cummins – Thinkequity

Thank you. Sorry about that. Couple of quick ones here. Paul, could you give us the Q1 stock comp and the amortization of intangibles charge for Q1, I apologize, if I didn’t see that in the release of your filings?

Paul S. Lalljie

So for Q4, 2011 stock-based comp was $9 million, and in Q4 of 2010 it was $4 million.

Dan Cummins – Thinkequity

No, but for going forward purposes, the Q1 expectation for these two items?

Paul S. Lalljie

We actually don’t go to that level, but I mean for modelling purposes, you could probably expect an extrapolation of that $9 million in Q4. And at the end of the day, we generally have equity grants in the mid of first quarter of very calendar year. So I think, if you look at the historical trends from the supplemental information, you can make that adjustment there on a go forward basis.

Dan Cummins – Thinkequity

Okay. So the Q4 amounts were those ratable or were those for full quarter?

Paul S. Lalljie

No, it’s for a full quarter.

Dan Cummins – Thinkequity

Okay, great. And your term-loan, $600 million term-loan, when is the first principal due on that? I know you went to some links here with the transaction to leverage up. But do you expect to make occasional accelerated principal payments against that?

Paul S. Lalljie

No, we’re not expecting to make accelerated payments at this point in time. Well our first payment was due in December, and we’re going to ratably pay a fixed amount every quarter.

Dan Cummins – Thinkequity

Of principal?

Paul S. Lalljie

Of principal, yes.

Dan Cummins – Thinkequity

Okay, thanks. And then finally, for this year, do you expect your pro forma adjusted net income target, do you think that will approximate your operating cash flow?

Paul S. Lalljie

Let me think about that one here for a minute. So it’s adjusted net income all the way down to the bottom, it has the taxes. There may be a difference between cash taxes and book taxes. So that maybe one difference in cash flow, just thinking out loud here, the non-cash SBC is out of it. Generally, I think it probably would be lower by a couple basis points, couple of hundred basis points, one or two percentage points. But it’s a close approximation, primarily because of the difference in payables, [operating] expenses when they are paid, and then again for the cash taxes versus book taxes.

Dan Cummins – Thinkequity

Thanks. That’s great. Nice job, guys. Thank you.

Lisa A. Hook

Thank you. Thanks very much all, thanks all to you for taking this journey with us through 2011. We think we’re going to have a great time in 2012, and we look forward to sharing it with you.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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