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

Executives

David Angelicchio -

Lisa A. Hook - Chief Executive Officer, President, Director and Member of Neutrality Committee

Paul S. Lalljie - Chief Financial Officer, Senior Vice President and Principal Accounting Officer

Analysts

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

John F. Bright - Avondale Partners, LLC, Research Division

Nandan Amladi - Deutsche Bank AG, Research Division

William V. Power - Robert W. Baird & Co. Incorporated, Research Division

Scott P. Sutherland - Wedbush Securities Inc., Research Division

Jonathan Ho - William Blair & Company L.L.C., Research Division

Daniel Meron - RBC Capital Markets, LLC, Research Division

NeuStar (NSR) Q1 2012 Earnings Call April 26, 2012 4:30 PM ET

Operator

Good afternoon. My name is Keisha and I will be your conference operator today. At this time, I would like to welcome everyone to the NeuStar First Quarter 2012 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Dave Angelicchio, Head of Investor Relations. Sir, you may begin.

David 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, April 26, 2012, 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, in our Form 10-Q for the quarter ended March 31, 2012, and our other 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 category, headcount and additional expense detail. This information, including reconciliations to the most comparable GAAP measures, can be found in today's earnings release and under our NeuStar Investor Relations tab on our website, www.neustar.biz.

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

Lisa A. Hook

Thank you, Dave, and thank you all for joining us today as we report on NeuStar's results for the first quarter of 2012. I will offer some perspective on our strategy, on our execution and how they are reflected in our strong start to the year. Then Paul will walk you through a more detailed look at our results for the quarter.

In the first quarter, NeuStar's revenue was approximately $200 million, a 37% increase compared to the first quarter of 2011. While this marks the first full quarter with Information Services as part of our suite of service offerings, revenue increased across all operating segments. This record revenue generation led to a 16% year-over-year increase in adjusted net income.

Earnings in the first quarter were in line with our expectations and demonstrate our continued execution of the strategy we outlined in 2011. It is always my intention to state our expectations clearly and then to deliver on these expectations. NeuStar's performance in Q1 shows the progress we're making. Over the past year, NeuStar has continued its expansion from serving originally at the clearinghouse providing number portability to North America's telecommunications industry to becoming a leading provider of addressing, routing and policy management for the communications and Internet sectors.

We have used unique proprietary databases and analytical tools to create a second core business of realtime information and analytics based on addressing information. Our momentum in creating the second core business accelerated late last year with the acquisition of TARGUSinfo, which positions NeuStar to become the leading provider of realtime information and analytics derived from addresses, serving the telecommunications, Internet, marketing and media services industries. By broadening both the range of services we offer and the customers we serve, we have created significant opportunities for growth in 2012 and beyond.

In addition to our combination of debt financing for the TARGUSinfo acquisition and share repurchases we have created, an intent to sustain a more efficient capital structure. In the first quarter of 2012, NeuStar demonstrated both the soundness of the strategy we have chosen and our ability to execute on that strategy. We've delivered on our top line growth with revenue increasing by $53.5 million year-over-year.

All 3 operating segments contributed to our revenue growth in the quarter. Our Information Services operating segment, that is TARGUSinfo, contributed $35.7 million. Carrier Services revenue grew by $14.8 million, driven by the annual growth escalators and the exploration of the incentive credits related to our NPAC contract. The revenue growth of $3 million in Enterprise Services was driven by an increase in the number of Common Short Codes and domain names under management, as well as expansion of our solutions within Internet Infrastructure Services.

We've also maintained the healthy margins that our shareholders expect with an adjusted net income margin of 22%. From a capital structure and capital allocation perspective, we have resumed the 3-year, $300-million share repurchase program originally announced in July 2010. The remaining authorized amount under the share repurchase program was approximately $185 million at the time of relaunch on March 14.

Since that date, we've repurchased an additional 655,000 shares for $23.8 million through quarter end. 2012 is once again a pivotal year for NeuStar with significant, challenges and opportunities and it's always my intention to be clear about our priorities and then to report on our fulfillment of them. I'd like to address the 4 areas on which we are most focused this year.

Our 4 priorities are: first, to ensure that the contract NeuStar has to manage the impact is extended for an additional term; second, to integrate TARGUSinfo in a manner that enables us to capitalize fully on the opportunities it brings to us; third, to achieve our consolidated financial performance target; and fourth, to transform our culture into one team with one mission dedicated to our achieving our vision.

Let me address each of these areas of focus. NeuStar's NPAC is a well-established profitable business that will provide predictable growth through at least June 2015. Steve Edwards, who heads up our Carrier Services segment, has done a remarkable job of leading his talented team and providing our NPAC customers with exceptional performance and introducing new innovative capabilities.

Over the past 15 years, we have seen this complex system scale become the largest LNP administration in the world, processing over 1.2 million transactions per day and containing over 500 million telephone numbers and serving more than 4,700 individual customers. The U.S. NPAC is considered a critical component of U.S. telecommunications infrastructure and plays an active role in supporting a broad range of applications, including emergency preparedness, migration to all IP networks and public safety.

Though not known to many, U.S. NPAC plays a key role in every one of our daily lives. As many of you know, a process is currently underway to select a vendor to service the NPAC administrator when the current contract expires. It is our intention and my highest priority to ensure that NeuStar is again selected to be the NPAC administrator for the period to begin in July 2015. Our stewardship of the NPAC has been a steady and reliable constant over a period that has seen remarkable change. NeuStar has proven to be a trusted partner, ensuring neutrality for all of its customers and the telecoms industry.

The ability for consumers in North America seamlessly to manage their telephone numbers is the envy of the world and stands in clear contrast to many other markets that have problems managing local number portability. The process here -- the process managed by NeuStar is as close to flawless as any technology process can be. NeuStar submitted their response to the industry's RFI in November 2011, and we will, of course, participate in the RFP process that commences in the fourth quarter of this year. I will keep you informed each step of the way as the process plays itself out.

My second area of focus is ensuring a seamless integration to TARGUSinfo now known as NeuStar Information Services. Dennis Ainge has been invaluable in spearheading the integration efforts, while enabling the business to move forward. NeuStar has welcomed the addition of 460 employees from TARGUSinfo and we are working together as one company with our new Information Services segment aligning well with Carrier Services and Enterprise Services.

Many of you have asked about revenue synergies as a result of the acquisition. There are 2 types that we are our pursuing. First, the sale of existing services to customers of each other or cross-selling. We have identified and are pursuing cross-sell opportunities in the cable, CLEC, new media and ILEX segments. However, our sales cycles are 9 to 18 months long so it will be unrealistic to expect any material uplift here until 2013.

Second, we are looking at new services derived from combining assets or capabilities among and between groups. For example, our Carrier and Information Services teams are collaborating on an offering designed to migrate service providers to the next generation of comprehensive directory listing, which include online listing information, as well as traditional print. This initiative will allow our carrier customers to expand and enhance the Internet presence of their enterprise subscribers, opening up new revenue streams for them and for NeuStar.

While we are excited about this and other identified service opportunities, in general, the uplift from these new services will take even longer than cross-selling as we must develop, test and price the new service before putting it into that 9 to 18 month sales cycle. So revenues from these new services are not likely to be material prior to 2014.

My third area of focus is ensuring that NeuStar achieve its financial performance target even while we bring laser focus to the prior 2 initiatives. I discussed our performance briefly a few moments ago and Paul, of course will address the results in more detail.

My fourth area of focus is to transform our culture to one that is innovative and passionate about customers, rigorously solving their problems and advancing solutions. A culture that is, as I said, innovative, identifying new and market-driven approaches to services. A culture that puts the team first and places collective success ahead of individual credit.

Part of the culture transformation has to be a personal desire for all employees to make the company more profitable and thus to increase shareholder value. We have that desire today. Increasing revenues and managing costs are at the forefront of employees' minds and are a major factor in decisions leading to value creation. This drive is now magnified by an all-employee ownership plan.

In late February, our Board of Directors authorized the grant of equity, which is primarily performance-based to all of NeuStar employees for 2012. Thus, every employee has an even greater focus on shareholder value creation.

In the first quarter, we completed our senior management team. Our one team, with the hiring of Julian Lighton as Senior Vice President of Strategy and Corporate Development. Julian comes to us following a 20-year career at Cisco, Hitachi and McKinsey. We're really excited about his arrival and look forward to working with him.

In January, we announced the appointment of Christine Brennan as Senior Vice President of Human Resources. Christine, who had been head of HR at VeriSign, brings us great perspective and experience in recruiting and managing talented people in this industry. As we all know, this is the most important source of competitive advantage in our business.

Along with the 2011 additions were Scott Blake Harris, who's our General Counsel and Senior Vice President, External Affairs; Mark Bregman as Senior Vice President and Chief Technology Officer; and of course, having brought in Dennis Ainge from TARGUSinfo to manage our Information Services business. We have now completed assembling the senior team that we believe is fully capable of making the most of the tremendous opportunities ahead of us.

In addition, we have further strengthened our already impressive Board of Directors with the additional -- addition of Dr. Mark Greene. Mark has a deep understanding of data analytics through his experience as CEO of the Fair Isaac Corporation, which many of you know as FICO. Mark will be able to provide critical insights as we look to expand our information and analytics service offerings.

Finally, we continue to demonstrate our commitment to increase innovation. In late March, we announced the partnership with the University of Illinois-Urbana Champaign jointly to create an innovation center. It will bring university data scientists and students, together with leading technology innovators, in a vibrant environment designed to stimulate questions that have the potential to change the way people engage using technology, data and information.

We believe this investment we're making will have a long-term benefit to our shareholders. Also in the innovation, it will help us create and in our ability to identify and recruit to our company the next generation of technology innovators. We're off to a strong start in 2012. The strategies that we have outlined are working and the performance we have told you to expect is what we are delivering. We anticipate continuing strong performance in the months ahead, and I look forward to continuing to update you on our progress.

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

Paul S. Lalljie

Thanks, Lisa, and good afternoon, everyone. In the first quarter, we continue to build on the progress we made in 2011. During the quarter, we delivered at our financial objectives, made significant progress in our integration efforts and continued to return capital to shareholders.

Revenue for the quarter totaled $199.6 million, a 37% increase from $146.1 million in the first quarter of 2011. This increase was driven by the addition of $35.7 million in revenue from our Information Services operating segment and growth in our Carrier and Enterprise operating segments.

The TARGUSinfo acquisition accounted for approximately 24% of the 37% increase in revenue. Adjusted net income from continuing operations, which I'll refer to as adjusted income, grew 16% to $43.9 million and adjusted income per diluted share increased 28% to $0.64 per share. As a reminder, we provided adjusted income, in addition to our GAAP results, to provide a better basis for comparing our operating results across periods.

This metric adjusts for certain events and specific noncash items, and I'll provide more specifics on those adjustments in a few minutes. You can also find a reconciliation table outlining the changes from net income to adjusted income in our earnings release.

Now for a closer look at revenue for the quarter. Carrier Services revenue totaled $124.4 million, a 13% increase from $109.6 million in the first quarter of 2011. This increase was primarily due to an $11.3 million increase in NPAC revenue and a $3.8 million increase in license OMS revenue.

Enterprise Services revenue totaled $39.5 million, an 8% increase from $36.5 million in the March quarter of 2011. This $3 million increase was driven by a $1.3 million increase in Internet Infrastructure Services revenue as we experienced higher number of customer upgrades and stronger demand for our DNS solutions. In addition, revenue from Registry Services grew $1.7 million, primarily due to a 14% increase in a number of Common Short Codes under management, and a 12% increase in domain names under management.

Information Services revenue for the period totaled $35.7 million. This included a $22.7 million from Identification Services, $8.2 million from Verification & Analytics Services and $4.8 million from Local Search & Licensed Data Services.

Taking a look at expenses. Operating expense for the quarter totaled $135.2 million, an increase of $45.4 million or $89.8 million in the first quarter of 2011. This increase was primarily driven by the addition of $35.7 million in operating expenses related to the acquisitions we completed in 2011. The remainder of the increase was primarily to support the expansion of our operations. In particular, personnel and personnel-related expense increased $5.7 million due to increased headcounts in the areas of sales and marketing, technology and operations and additions to the senior management team. The remaining increase was the result of contractor costs incurred to promote brand awareness and to improve operational efficiencies.

In arriving at adjusted income for the quarter, we excluded the following expense items: $3.9 million in stock-based compensation expense and $12.6 million in amortization of acquired intangibles. Both of these dollar amounts were reduced by $6.6 million for the impact of taxes.

Now some additional details on our balance sheet and capital structure. We ended the quarter with cash, cash equivalents and investments of $188.7 million compared to $135.3 million at year-end 2011. Our accounts and unbilled receivables balance totaled $127.5 million versus $111.8 million at year end. Our day sales outstanding was 59 days in the first quarter compared to 58 days in the fourth quarter of 2011. Accounts payable and accrued expenses totaled $57.2 million, a reduction of $29.6 million, primarily due to the payout of our 2011 performance bonuses in the quarter. Days payable outstanding was 27 days compared to 42 days in the fourth quarter of 2011. As Lisa mentioned, we resumed our 3-year share repurchase program, which our Board of Directors authorized in July of 2010.

In the quarter, we repurchased 655,000 shares at an average price of $36.39 per share, for a total purchase price of $23.8 million. The remaining authorized amount under our share repurchase program is $161.3 million. And since July 2010, we have repurchased 12.4 million shares, including 7.2 million shares on an accelerated basis in the fourth quarter of 2011. Our return on equity, using adjusted income, increased to 33% in the first quarter of 2012 from 24% in the first quarter of 2011.

In the first quarter, we recorded $8.2 million of interest and other expense. This compares to $300,000 for the same period last year and this increase was driven by our $700 million of credit facility.

During the -- turning now to the TARGUSinfo integration. We continue to be excited with our acquisition of TARGUSinfo. We have made tremendous progress in the integration of certain back-office functions, such as accounts payable and accounts receivable, and we are ahead of schedule.

Our evaluation of internal control is also on track. And while ensuring Sarbanes-Oxley compliance takes considerable time and effort, our teams are working diligently to ensure compliance.

Now for a discussion of guidance. Our first quarter performance gives us confidence in our guidance that we provided in February 2, 2012. And while we experienced some seasonality in our Information Services business, we enjoyed a good first quarter on sales and cost management. As a result, we're affirming the guidance we provided on February 2, which calls for full year revenue to range from $810 million to $830 million, and adjusted income to range from $178 million to $190 million.

To conclude, we had a good quarter, and we remain focused on integration of TARGUSinfo, the NPAC rebid and delivering on our financial objectives.

With that, we'll open the line to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Julio Quinteros with Goldman Sachs.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

It's Julio. Just wanted to check in real quickly on a couple of quick things. So in the underlying organic growth of the business, if you were to strip out the impact of the TARGUSinfo acquisition here, when you think about this business model on an organic basis, what is the reported number that you guys will point to and then what do you think about organic, excluding TARGUSinfo for the rest of the year?

Paul S. Lalljie

So on the revenue side of things, I think the growth rate will be somewhere between 12-point-something, or 13% rounded up on the top line year-over-year growth.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

For the quarter?

Paul S. Lalljie

For the quarter, yes. On the margin side, I think you would've seen similar margins where it gets quarterly as we do have -- on an adjusted net income basis, we do have $35 million on an annualized basis of interest expense and other for the $600 million of debt and that would cause an adjusted net income number to be more along the 22% margin number versus a 26% number.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

And what about expectations then if you think about the clean organic number for the rest of 2012?

Paul S. Lalljie

Well, I mean, we clearly are trying to avoid doing that because we bought an acquisition, because it is strategic and we made the acquisition for strategic reasons and we're cross-selling. We're going to share back office. So from a top line basis, the $810 million to $830 million, we do expect both organizations to deliver similar growth rates that they have done in the past, so we have specifically pointed the TARGUSinfo's 5-year growth rate and that low double-digit 10% number and NeuStar's growth rate to be around the similar types of numbers. We kept guidance the same although our first quarter may have been a little bit better than we expected on the top line numbers. But at the end of the day, it's early in the year. We want to see how things shape up as we go through the year. I don't think we have enough information to go changing guidance this early in the year yet. So putting all of that together, I think double digits on both sides of the equation gets us there.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Okay. I mean, that makes a lot of sense and sounds like it's pretty consistent with what we've been hearing all day today as well. One of the quick things I just want to jump in on was on the NPAC contract and just the path in terms of steps that we need to be thinking about here. And I think you made some comments about something having expired in terms of a credit that also flows through the numbers. Can you just comment real quickly first on the credit expiration comment that you made, and then secondly, on the path of steps to think about as you guys go down this path of the renewal for the contract?

Lisa A. Hook

So there were 2 sets of credit when we renewed the contract in 2009. One set was for population of IP fields and the other set of credit was for the -- to put more phone numbers into the NPAC. Both sets of those credits have now expired. So that's why you'll see the year-over-year increase in the revenue being greater than the baseline 6.5%. And then in terms -- you were asking about the NPAC timeline?

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Yes, any steps to think about or milestones along the way here as you guys go through this process.

Lisa A. Hook

Sure. Well, we're expecting to see the RFP come out at some point this summer, late this summer, with responses due in the fourth quarter of this year and then a vendor choice in the first half of 2013. And that's really nothing new from what we've been talking about for the past several months.

Operator

Our next question comes from John Bright with Avondale Partners.

John F. Bright - Avondale Partners, LLC, Research Division

Lisa, I'm going to characterize my questions around your priorities, one. And two, contract extension in TARGUSinfo, following up on the last question regarding the contract. What's changed, if anything, in the NPAC rebid process since our last conference call?

Lisa A. Hook

There has not been anything that's changed in the process itself. I think as I try to indicate in my prepared remarks and as you'll see us discussing, we frankly think that the complexity in the NPAC and the service offered by the NPAC is widely underappreciated. And so while the process itself hasn't changed, I would say that we're being much more tutorial in our approach to the value of that infrastructure to the American telecommunications industry. Our issue here is it's really like water, right, if you turn on your faucet in the United States and you get water and it's potable. And that seems really simple to all of us because we always get water and we can drink it. I mean, some people may choose bottled water, but in fact, we've got the best water source in the country. It's just there, and I don't think people understand, in reality, the difficulty of the delivery of certain of these services and that's true, particularly in the case of the NPAC. The difficulty is immense. The complexity is immense. There's nothing like it anywhere in the world, and we have historically really not, if you will, touted our own horn and I think that that's something that we really need to change.

John F. Bright - Avondale Partners, LLC, Research Division

So excluding price to demonstrate NeuStar's value to map them, you can have -- we've seen the studies from the University of Michigan. I think there's a study out today from Yankee Group. What other aspects are you going to do to continue to demonstrate that value?

Lisa A. Hook

Well, listen, as we've said in the past couple of calls, our -- the customers who are actually using the NPAC really do value it very highly. Every single year, we get higher customer sat ratings than the year before. We live under thousands of different operating service level agreements. Last year, we were in 100% compliance, which I've never seen in my career in any technology process. So this is really more kind of a broad public awareness for executives within the customer base, frankly, for our investor base and for the political and regulatory environment.

John F. Bright - Avondale Partners, LLC, Research Division

Second question is around TARGUSinfo, your second priority. Paul, $35 million in change, $35.7 million at the quarter revenue. You mentioned seasonality in your ramp-up comments. Can you maybe put some relative meaning to the $35.7 million versus either what you reported for the fractional quarter last quarter year-over-year and put some color around the seasonality?

Paul S. Lalljie

Yes, John, I guess it's difficult for me to add color to that without actually speaking specifically to the way TARGUSinfo performed as a standalone entity last year when they were not part of NeuStar. And historically, they have had similar trends. The first quarter has been lower than the other quarter so -- and then these are numbers that we got doing the diligence process. They were probably around $35 million, $35.1 million in the first quarter of 2011. It was relatively flatter, 2% increase if you want to get technical with math there. And then what we saw after that was an increase, progressive increase in the quarters. It averaged around $38 million, $39 million a quarter after that for the rest of the year. So we are optimistic that based on the pipelines that we have, the business, the KPIs -- leading KPIs that we have for the business, we feel that the first quarter is probably the lowest quarter of the year, and I want to be careful because we're not guiding specifically to TARGUSinfo, but I wanted to add that color with 2 data points. Q1 of '11 was about $35.1 million and then the average for the other 3 quarters was roughly around $38 million, $39 million.

Operator

Our next question comes from Tom Ernst with Deutsche Bank.

Nandan Amladi - Deutsche Bank AG, Research Division

I'm Nandan Amladi on behalf of Tom. I had a question about UltraViolet. Last earnings call or -- I think you had provided us some details about the uptick and the volume of titles sold. Any updated stats for this time?

Lisa A. Hook

Well, not a huge update. So there are currently over 5,000 titles supporting UltraViolet. Warner Bros. has committed that all of its releases in 2012 will be UltraViolet-enabled. There are other studios that are planning also, but I believe this is not announced yet. You may know that Walmart launched its disc-to-digital program last week, April 16. And that's moving along. They're beginning to advertise that. I'm sure you all watch Dancing with the Stars, which is where they're beginning to advertise the service. And so we're expecting to see some pick-up, but we would still tell you that revenue from token deposit, which is the way the revenue stream is constructed, will not be material this year.

Nandan Amladi - Deutsche Bank AG, Research Division

So should we expect that to become material, say, in 2013 or '14? Or you see it even beyond that?

Lisa A. Hook

We'll let you know when we give you guidance for those years. In the meantime, you all can feel free to go to Wal-Mart with your discs and convert them to digital.

Operator

And our next question comes from Will Power with Baird.

William V. Power - Robert W. Baird & Co. Incorporated, Research Division

A couple of questions. The first one on Internet Infrastructure. It looks like it was up, I don't know, I think 6% or so year-over-year. I wondered if, a, you could talk about the key drivers and maybe opportunities there, and is that a business that you expect to be able to reaccelerate to, say, a double-digit type of growth rate, that's the first question.

Paul S. Lalljie

So well, yes, it was a sequential -- it was a year-over-year growth of about 6%. Generally, the Internet Infrastructure business is probably closer to $100 million of revenue now, growing from a very small base. And as it becomes bigger and bigger, it's harder to add new features, functionalities, new products until through the channels in a timely fashion. We have added new products such as -- new service such as SiteProtect into that business. As we continue to add new services there, we hope to get back to the double-digit growth rate in that business. But a couple of the things that we focus on in that area is to be more efficient in the customers that we have, the acquisition process of customers, the sales process so we feel like we're delivering that service more efficiently today, and we're positioning ourselves for sustainability as we develop new things in that area.

William V. Power - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then Lisa, I know you noted that you've, I guess, filled out most of the management team, have a new head of strategy, corporate development. Any updated thoughts now that's in place with regard to how you're thinking about potential additional acquisitions from here?

Lisa A. Hook

Well, I think we've said this previously, but this year we're really focused on the integration of TARGUSinfo. As you know, it's the largest acquisition this company has ever made. We want to make sure that it continues to go smoothly and that, as we've said, that we're really taking advantage of the opportunities we think that it brings to us. We may, although, frankly, I don't think that we will, we may look at some tiny product feature, but this is the year that we really need to focus on TARGUSinfo.

William V. Power - Robert W. Baird & Co. Incorporated, Research Division

Okay. And maybe just a follow-up to that and perhaps I missed comments on this. But in terms of Targus integration from a cost perspective and whatnot, I know you're working on some of revenue synergies as well, where are you in that -- kind of in that process? What inning do you think you're in?

Lisa A. Hook

So we actually are ahead of our timeline on the cost side to integration, on the operations progress integration. Paul still has his team working on SOX compliance, but that's all going along, actually, very smoothly. At some level, I kind of hesitate to talk about it because that's involved in a lot of deals and this one has come more smoothly from an integration point of view than anything I've ever seen before. Our focus now is fully on creating those revenue synergies for the coming years.

Operator

Our next question comes from Scott Sutherland from Wedbush Securities.

Scott P. Sutherland - Wedbush Securities Inc., Research Division

So kind of sticking on Targus. I know, Paul, you mentioned the 2% growth and you're guiding for the full year kind of that segment, kind of going over 10% low double-digit growth. What were the puts or takes that might have taken away from Q1 and maybe what are the things that ramped up, Paul, really faster the next 3 quarters that gets you to that goal?

Paul S. Lalljie

I mean, I don't know that there are puts and takes. Local Search & Licensed Data Services was generally a fourth quarter type of business. A lot of the types of deals and customers they sell into are generally second, third, fourth quarter types. It's merely a seasonality in the business and not a lot of pluses and minuses in terms of deals pushing to the right or left or any of that stuff.

Scott P. Sutherland - Wedbush Securities Inc., Research Division

It grew 2% year-over-year in the first quarter, correct? So to get there the next 3 quarters, things have to start to pick up a little bit. So are there some things you have line of sight to that are picking up? Or is it just typical seasonality of when the services and transactions are used?

Paul S. Lalljie

So there are 2 things. Historically, it has picked up at 8.5%, 9%, 10% clip. I mean, that was the average that I gave for 2011, so we know that this business has done this in the past while it's not the way traditional NeuStar businesses grew on a sequential basis, number one. Number two, we know that we have the services, and we have the customers that can get us to that end state.

Scott P. Sutherland - Wedbush Securities Inc., Research Division

Quick question on the Internet services. With ICANN and the new TLDs out there, what kind of opportunities are you seeing there, either directly or indirectly, to benefit from that?

Lisa A. Hook

So we've been very active in pursuing opportunities to provide back-end registry services for both our existing customers in the domain environment, as well as for our corporate and government customers. We are not focused on pursuing front-end registry opportunities. As you know, our preference is to maintain our reputation and our standing in the community as neutral players. So we believe that competing for the front end was really, at some level, in competition with providing those appropriate neutral services as a back-end registry provider. So we're optimistic. We have a number of opportunities, and we will keep you posted as we move forward.

Scott P. Sutherland - Wedbush Securities Inc., Research Division

Okay. And lastly on UltraViolet. I've seen some things, some blogs and some metrics out there coming from UltraViolet on user adoption or number of accounts out there being added every month. I think you gave us a metric last quarter, a number of movies or tokens generated. Can you give us that metric again -- I think 800,000 or something. Can you give us that metric this quarter just so I could see how the ramp is? I know it's not going to be much revenue yet, but the ramp would be nice to see.

Lisa A. Hook

I believe that the industry reported in January that they had over 1 million tokens. I don't believe that the consortium or that the studios have released the updated number. So it's not something that we have the ability to release separately from them.

Operator

Our next question comes from Jonathan Ho with William Blair.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Just taking a look at sort of the new growth initiatives. You guys said that in terms of, I guess, some of the synergies, you're not expecting it to be material until 2014 or beyond, but could you maybe give us a sense of where you're seeing interest today and potentially what verticals or what used cases you're seeing that in and how that's going to potentially ramp over that timeframe.

Lisa A. Hook

So I'm not going to speak to the ramp over that timeframe, but I will speak to where we're seeing interest. So as we close and immediately thereafter, the NIS team selling into carriers sat down with the Carrier Services sales team and that accounts against each other. There were certain accounts in which NIS had a long-time, well-established relationship providing caller ID and where we had no relationship providing Order Management Services or Risk Management Services, et cetera and vice versa. There were certain accounts in which we had long-time commercial relationships providing, again, order management, risk management, et cetera, and to which they were not providing caller ID or any of their other services. So the obvious kind of low-hanging fruit is where one entity has a pre-existing relationship of credibility to walk the other in, et cetera, and there is a lot of interest in that environment. Secondly, with respect to many of those same customers, as we announced the acquisition, many of our customers really thought it was a natural and in fact, one of them called and said, "What took you 2 so long?" Let's sit down and talk about how the combined entity can provide us a broader array of services around realtime subscriber management. So we're looking at new services really at the behest of some of our carrier customers. And when we speak to carriers, we mean not just the traditional wireline voice providers but wireless, cable, voice over IP, social network, et cetera. Then there -- and those cross-selling opportunities we are working on now, it's simply that, as I said, most of our services, both at the old TARGUSinfo and at NeuStar, take 9 to 18 months to sell in. So while we're actively in the market and there are several deals under negotiation, they're just long. As far as new services are concerned, we've already introduced a couple of easy ones. So for some of the NeuStar Information Service customers, they have been looking for ways to understand more about the profile of potential customers, and one of the things that people are interested in understanding is whether someone's a prepaid customer or not. Prepaid customers tend to have different risk profiles than postpaid customers. That information was available to us in a number of different NeuStar databases. So we put that information together. We enhanced one of the NeuStar Information Services product with that feature and have already signed our first deal against that feature. So where we're adding data from NeuStar into NeuStar Information Services and adding features, we'll see a little bit of that even now. As I said, that closed, I think, about one month ago. We're simply talking in terms of material revenue synergies to create an entirely new service like the one I mentioned in my prepared remarks around directory listings. It takes some months to design the UI, to then test in the market to get their pricing correct and then to put into the sales channel.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Got it. And can we talk a little bit about the UltraDNS business? Are you seeing any changes in the competitive landscape or any deceleration or any impacts there that are kind of moving around? Just want to get a sense for what's happening there.

Lisa A. Hook

We're not really seeing any new competitors come in to the market. In fact, to cite what's interesting now is the SiteProtect service is beginning to get more visibility with all of the DNS infrastructure attacks, and in many cases, what we had originally conceived it with as an upsell to our existing DNS customers, in many cases it's non-DNS customers who are coming and buying SiteProtect than with DNS added to it.

Operator

Our final question comes from Daniel Meron with RBC.

Daniel Meron - RBC Capital Markets, LLC, Research Division

A couple of questions here. First, Lisa, just to follow up on the long-term changes that we have, this long-term plan. What kind of -- I mean, can you guys leverage the offering from TARGUSinfo into additional markets? Can you go into beyond Canada? Could it go to Mexico? Can it go to Europe? Is that a new business? Can that open additional geographies for you guys longer term?

Lisa A. Hook

Well, the TARGUSinfo data itself is primarily domestic information around -- they started off years ago, as you know, with name, physical address, telephone number and it has expanded from that. So that's domestic. We are looking at taking the capabilities that both NeuStar and TARGUSinfo have together on leveraging those capabilities into global markets, but particularly this year, frankly, we're focused on domestically on those 4 priorities. And as a fairly small company, it's focus, focus, focus, so that we hit or beat our numbers.

Daniel Meron - RBC Capital Markets, LLC, Research Division

Right, right. Understood. But -- so how long do you think until you guys can actually address that and what kind of deal? Is that going to be a very slow ramp? Or is it going to -- or can you duplicate it fairly quickly and then try to introduce to those markets? So maybe we don't see an impact in 2013, but come 2015 we can see a whole new market in Germany or in U.K. or something like that.

Lisa A. Hook

We could, I'm just not, frankly, ready to speculate to global expansion right now.

Daniel Meron - RBC Capital Markets, LLC, Research Division

Okay. Understood. And then going back to the Enterprise segment. Paul, you mentioned that, that was a very good area of growth. Can you -- you also mentioned, I think, this was the second quarter in a row that Common Short Codes was an area of strength and then there were a few other segments within that. Can you provide a little bit more color around that and what's driving that strength a little bit more?

Paul S. Lalljie

Yes. As we've talked about in the past, the Common Short Codes business is somewhat highly correlated with what goes on with the economy and expanding mobile advertising and things like that. So for the past couple of quarters now, we've been seeing very strong growth in our Common Short Codes business, primarily codes under management, and we've been working with the CTI and our customers to ensure that we have interfaces and APIs that they work with, the provision codes and a shorter time frame to make it more user-friendly. Today, we have -- in the first quarter, we had a 14% uplift in codes under management and that resulted in about an 11% uplift in revenue. I would also argue that the registry business, domain names under management, is another area of growth in that registry portion of the enterprise business. Domain names under management was 12% year-over-year growth, 5.7 names and that generated an 8% increase in revenue also. So I think both of those in the registry business, I mean, it's growth in all 3 of domain names that we manage, the .biz, .us and the .co names.

Operator

And there are no further questions at this time. Are there any closing remarks?

Lisa A. Hook

I actually have nothing to add this quarter for a change. I'm sure you will all be grateful. We're pleased to our progress to date. And as I said earlier, we look forward to keeping you apprised. Thank you.

Operator

This does conclude today's conference call. Thanks for your participation. You may now disconnect.

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 Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts