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Executives

Dave Angelicchio – 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

Sterling Auty – JPMorgan

Greg Mesniaeff – Maxim Group

Daniel Meron – RBC Capital Markets

Scott Sutherland – Wedbush Securities

Julio Quinteros – Goldman Sachs

Randall Heck – Goodnow Investment

Neustar, Inc. (NSR) Q3 2012 Earnings Call November 5, 2012 4:30 PM ET

Operator

Good afternoon. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neustar’s Third Quarter Earnings Conference Call (Operator Instruction).

Thank you, Mr. Angelicchio. You may begin the conference.

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 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, November 05, 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 our earnings release and our filings with the U.S. Securities and Exchange Commission, including our last Annual Report on Form 10-K. 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 detail. This information, including reconciliations to the most comparable GAAP measures, can be found in today’s earnings release and under the 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 our Neustar’s results for the third quarter of 2012. As you know, our earning call was originally scheduled for October 30. Despite our strong third quarter results, which we’re quite eager to talk about, we’ve made the decision to move the call given the anticipated impact of Hurricane Sandy on our employees and on the investment community. I’m pleased now finally to be able to speak with you all.

Consistent with prior quarters I will discuss our performance relative to the primary goals we set or ourselves at the beginning of the year. First, I’ll provide an overview of Neustar’s third quarter financial results. Next, I’ll provide an update on the integration of TARGUSinfo into Neustar Information Services and comment on our ongoing cultural transformation.

And finally, I’ll provide an update on the status of Neustar’s progress towards renewal of our contract to manage the Number Portability Administration Center or the NPAC. Paul will then follow with the detailed review of our financial performance.

Let me begin with our financial results. Our third quarter results demonstrate that we are executing on our strategic plan, generating strong growth across all three of our business segments and delivering on or exceeding our financial targets at a time when many companies are not. As you will recall, last quarter we’ve raised our full-year revenue, we’ve raised our adjusted net income and we’ve raised our adjusted EPS guidance. This quarter we are again raising our full-year adjusted net income and EPS guidance again.

Again, our third quarter revenues totaled $211 million, a 38% increase from last year’s third quarter. The increase was driven by double-digit growth in both Carrier and Enterprise Services and by the addition of Information Services. We’re particularly pleased with the double-digit growth in our Internet Infrastructure Services offerings, reaching strong growth in new services such as our cloud-based DDoS Mitigation Service. As you are probably aware, Distributed Denial of Service or DDoS attacks are occurring at an accelerated rate, with the number of recent high profile attacks on financial institutions.

Beyond these headline attacks it is estimated that 1000s of DDoS attacks are launched each day by DDoS for higher hackers, by hacktivists, and by organized criminals. These attacks cause significant monitory losses to their victims. Our advanced solutions leverage state-of-the-art 24x7 operation centers to help our customers mitigate these attacks. While there is today no technology that can entirely protect against the largest most sophisticated DDoS attacks, we can siphon off millions of malicious queries, allowing our customers to continue operating without significant disruption. And we are expanding our capabilities as these kinds of threats increase and evolve.

Our existing Internet Infrastructure Services customers are increasingly looking to us to help protect their revenue and brand reputations thus propelling our rapid growth in this area. It’s also important to note that the relative revenue contribution from our Information Services segment continues to increase quarter-over-quarter, consistent with our strategic focus on real-time information services and analytics.

In the third quarter we continued to produce strong margins, earnings growth, and cash flow, and we continued to repurchase shares. Our third quarter adjusted net income per diluted share was up 50% year-over-year. We would be pleased with earnings growth of this magnitude in any environment but that believe it really differentiates Neustar in the current economic climate.

Now, let me spend few minutes on the integration of TARGUSinfo into Neustar Information Services, which is proceeding extraordinarily well. Last quarter, I reported that we have completed the back office integration. We have now also made meaningful progress in the integration of our product development, sales and sales operation teams across the company. We have created a single coherent sales operations platform which strengthens our ability to cross-sell and up-sell. Working from this platform the various sales teams are developing integrated account plans for our top 200 customers and prospects.

Our ability to cross-sell services to these accounts is the key component of our long-term strategy. In addition, the product teams have established key go-to-market strategies and are focused on developing new services offerings. We are in a strong position both to cross-sell and up-sell existing and new services to our existing customers, as well as to target new customers with our bundled offerings.

As you may remember, on our first quarter earnings call, we mentioned the collaborative effort between carrier services and information service the design and offering that will allow our communication service provider customers to provide next-generation directory listings. By leveraging multiple systems this quarter, we sold a multimillion solution that helps communication service providers efficiently provision critical services to protect their subscriber data and to promote their businesses in both new and traditional media.

Based on this early success, we are now in active discussions to provide similar capabilities to other service providers. This is the type of revenue synergy we told you not to expect until late 2013 or early 2014. We are extremely pleased to see these fields closing more than a year before we have expected they would.

These examples have collaboration across our business units and as innovation by our Internet Infrastructure Services team demonstrate the ways in which we’re transforming our culture. Our employees are now empowered to make decisions to both drive innovation and improve efficiency and effectiveness. We’re well on our way to becoming one team with one mission.

Turning to the NPAC contract renewal process, since our last earnings call, we participated in the RFP comment period that concluded in September and we expect the RFP to be issued in the near term. As before, we believe that we are well-positioned to retain the contract to manage the impacts of any term that will begin in July 2015.

To provide you a little more detail, on August 13, the FCC released Draft RFP documents for comments. These comprehensive documents outline the technical and other qualifications for potential bidders. The Draft RFP outlines one requirement, neutrality; Three evaluation criteria; technical capabilities, managerial experience, and pricing and several other considerations.

The Draft RFP defines neutrality consistently with the current requirements under which Neustar operates. In fact, the Draft RFP documents require each respondent to provide a legal opinion, substantiating that it meets the neutrality provisions. As the NPAC administrator for the past 15 years, neutrality is part of our DNA at Neustar, not something with which we simply comply. We’re confident that this will be a competitive advantage in the contract renewal process.

Turning to the technical capability and managerial experience criteria, Neustar has successfully managed North America’s critical telecommunications infrastructure for more than a decade and half, the U.S. NPAC is the world’s largest and most complex local number portability system.

Let me emphasize that nothing similar exist anywhere else in the world. As I mentioned on our last call, in 2011 we were 100% compliant with some 2,268 service level requirement and we were rated 3.8 on a 4 point scale in customer satisfaction. As I also mentioned as the administrator of the impact, we provide a layer of resiliency and redundancy to the national communications’ network during disasters such as Hurricane Katrina, 9/11, and now unfortunately Hurricane Sandy.

Hurricane Sandy caused significant disruption in telecommunications’ networks along the east coast. So, we can before the hurricane struck, we had successfully conducted our semi-annual industry scale over exercise to their prior customer’s ability to transfer connectivity to Neustar secondary facility in the unlikely event of a service failure in our primary data center. As it turned out, notwithstanding Sandy is devastating an impact the NPAC experienced zero interruptions or degradations in availability or performance, and we were available to support the industry supporting needs across the country in addition to storm related activity without disruption.

Specifically, during the course of this storm and its immediate aftermath, our support teams assisted multiple service providers as they worked to keep service available to their subscribers by transferring telephone numbers between network facilities. The NPAC continues to act as a critical component of the nation’s communications infrastructure. This episode was no exception.

We are very proud of our performance and service to the industry and believe this sets us apart, based on our commitment to neutrality, our unparalleled performance and our record of innovation, we believe we are well positioned to renew this contract.

The SEC’s formal 30-day comment period on the draft RFP ended September 13 and the Commission has been receiving informal or ex parte comments since then. The SEC has heard from a number of stakeholders including Neustar another potential bidder, telecom service providers, state officials, trade associations, consumers and the North American Portability Management LLC or NAPM, the industrial consortium formed to negotiate and manage the contracts for LMP administration. We were pleased with the tenure of the comments. You can find both the formal comments and summary for the ex parte meetings on the SEC’s website.

The SEC is now considering all of the comment it received. As you know, the timeline proposed in the draft document provided for the final RFP to be published on September 28, just two weeks after a 30-day public comment period. That always struck as a bit ambitious. So, while the final RFP has not been issued, we consider this slight delay to be an unsurprising and normal part of the process and we expect to release as a final document soon.

In closing, this is an exciting time to be at Neustar. We have tremendous long-term potential. We are delivering results that truly differentiate us from our peers across a wide range of industries and we’re building a strong platform for continued growth in future years.

With that, let me turn the call over to Paul.

Paul S. Lalljie

Thanks Lisa and good afternoon, everyone. Third quarter results were strong, both on a sequential and on a year-over-year basis. In particular, on a year-over-year basis, revenue grew 38% to a total of $211.2 million. Adjusted net income grew 36% to $60.7 million including the benefit of a $5.2 million discrete tax benefit and adjusted EPS increased 50% to $0.90 per share. Cash, cash equivalents and investments totaled $269.2 million at the end of the quarter, compared to $235 million at the end of the second quarter of 2012.

Now for a closer look at revenue. Carrier Services revenue totaled $125.2 million, a 10% year-over-year increase. Numbering Services revenue increased $11.8 million, driven by a 12% increase in the established fees under our contracts to provide NAPC services. This increase was partially offset by a decrease in revenue from our IP Services, in particular multimedia interconnect services.

Enterprise Services revenue totaled $43.6 million, a 14% increase over the third quarter of last year. Internet Infrastructure Services revenue increased 12% to $22.9 million while revenue from our Registry Services increased 16% to $20.8 million versus last year. This increase was driven by higher numbers of common short code and domain names on the management, as well as Statement of Work revenue.

Information Services revenue totaled $42.3 million, representing an 11% sequential growth. Had the acquisition been completed prior to the third quarter of 2011, the year-over-year increase would’ve been 14%. To summarize our revenue performance, we generated strong year-over-year growth and continued to grow sequentially in each of the last three quarters, we are confident in our full-year guidance. In addition, the leading indicators across all of our businesses extend our confidence into 2013.

To review costs for the quarter, operating expense for the quarter totalled $136.5 million, 45% increase from $94.4 million in the third of 2011. This increase was driven by the addition of $31.4 million dollars in operating expense related to the TARGUSinfo acquisition. The remainder of the increase was driven by growth in the business. In particular, the increases in costs of revenue, sales and marketing, and research and development were primarily driven by higher personnel and personnel related expense to support expansion into new services.

On the other hand, G&A cost for the quarter was flat, including a $1.5 million increase for the addition of TARGUSinfo operating costs offset by a decrease in consulting spend. Headcount remains the primary driver of expense in our business. For the quarter, headcount totalled by 1529, flat from the prior quarter, and an increase of 495 from the third quarter of last year, of this increase, 460 pertained to the TARGUSinfo acquisitions.

Now for a look at adjusted net income, adjusted net income for the quarter totalled $60.7 million, compared to $44.5 million in the third quarter of 2011. Adjusted net income for the quarter included the benefit of a domestic production, activity deduction, which relates to the development of certain of our services.

Moving on to the balance sheet, even with the spending of $25 million this quarter on share repurchases, cash, cash equivalents and investments still increased by $34.2 million, to $269.2 million. This compares to $135.3 million as of December 31, 2011. During the quarter, we repurchased 688,000 shares at an average price of $36.34 per share. Our debt obligations, as of September 30, 2012, totalled $589.1 million, compared to $594.6 million as of December 31, 2011.

Capital expenditures for the quarter totalled $11.1 million and $35.6 million on a year-to-date basis, mainly focused on the development of new services. Our accounts receivable balance for the quarter totalled $147.6 million, compared to $127.2 million at the end of the second quarter. That increase was primarily due to higher revenues and 30 days in the billing of our Information Services business segment. This was part of a planned billing conversion, which took place in the third quarter.

Days sales outstanding for the quarter excluding the NIS business segment totaled 60 days as compared 58 days for the consolidated business at the beginning of the year. Accounts payable and accrued expenses at the end of the quarter totaled $72.1 million and our days payable outstanding was 39 days compared to 46 days at the beginning of the year.

Now, for our full-year guidance, we have delivered strong results in each of the last three quarters. All of our leading indicators are strong and they provide us confidence to increase our guidance for adjusted net income to now range from $200 million to $206 million. And as a result, on a per share basis, the guidance range increases to $2.94 to $3.03 per share.

Our fully diluted weighted-average shares outstanding is expected to be approximately 68 million. We are maintaining our revenue guidance, which ranges from $825 million to $835 million, representing year-over-year growth of 33% to 35%. We are also expecting capital expenditures to range between $50 million and $55 million and our annual effective tax rate is anticipated to be approximately 36%.

Let me conclude with the key takeaways for the quarter. First, our financial metrics are strong, revenue grew 38%, adjusted net income margin was 29%, and adjusted net income on a per-share basis totaled $0.90 per share. Second, we continued to invest in services that are in high growth market. Our Information Services revenue grew 11% on a sequential basis and is quickly becoming the fastest growing segment of our business. Third, the leading indicators are strong and we have sequential growth in each of our financial measures and given our recurring revenue model, we have strong momentum going into 2013.

That concludes our formal remarks. Operator, you may now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from the line of John Bright.

John Bright – Avondale Partners

Lisa and Paul, regarding the impact, transactions were up year-over-year and sequentially maybe a record. Where there any new types of transactions involved?

Lisa A. Hook

We’ve been populating the IP deals on for certain of the operators, I wouldn’t say that those were material numbers, so otherwise, no, pretty much business as usual.

John Bright – Avondale Partners

Any benefit potential maybe for Statement of Work possible in the December quarter? I know Paul you alluded to redirecting some traffic because of Sandy, but is there potential for additional SOWs?

Paul S. Lalljie

Nothing that we have on that right now, John. The only types of Statement of Work we expect to have a little bit of it in the fourth quarter is probably to ones in the enterprise business, but I assume you’re referring to the Statement of Works and carry the services, and we have none of those plans for the fourth quarter.

John Bright – Avondale Partners

Okay. On Information Services, growth was strong, up 11%. Talk to us about why these businesses, the IDE services, the verification and analytics that local search. Why did these services continue to perform so well and shows why it’s choppy market?

Paul S. Lalljie

John, I think, there are couple of things that we have spoken to both on prior calls and on one-on-one meetings with investors. I think one other thing is we try to sell into buying centers in our customers that are in the cost of sales line or that are in the line of generating revenue for our customers and that provide us an opportunity to sell into our customers irrespective of economic climate. Said differently, we sell into our customers to help them generate revenue. And at the end of the day, those types of opportunities withstand economic cycles. Lisa, would you add something to that?

Lisa A. Hook

Yeah, I always was going to add to Paul’s point. So, we are selling into the revenue creation line in our customers and the services that we are selling enable our customers to determine in real time how to feel better. So, the return on investment for these services is immediate. It’s not anything that we have to invest and it takes some three years to see it pay back from us. So, that’s number two and we’re also fortunate to be selling into markets that are fundamentally online and it’s in a most marketing and advertising, it’s moving from the traditional media into an online environment, which is highly measurable, which again leads back to immediate ROI?

John Bright – Avondale Partners

Do you this revenue generation that you’re talking about is also what played into some of these deals closing early?

Lisa A. Hook

Well, I’m sure that our salespeople would say that they close really because they have brilliant sales team, but I think absolutely that is the case. This particular deal that we’re describing was compelling to the communications services provider to whom we sold it, because it gave them another service to sell their business customers. So again, revenue generation easy to see, easy to pick-up, easy value proposition for our customer, and so quite frankly that the sales cycle on that was dramatically shorter than we would have ever dreamed.

John Bright – Avondale Partners

Thank you.

Operator

Next question comes from the line of Sterling Auty.

Sterling Auty – JPMorgan

Yeah, thanks. Hi, guys. Thanks for the details on the RFP. I was just kind of curious if you had a sense of when you think the final RFP would be issued if they’ve given you any transparency and how that might impact some of the other gates they had in the preliminary such as towards the end of March broad decision et cetera?

Lisa A. Hook

Any day now and honestly we look for it everyday. We expect it to come out shortly. On the remainder of the dates that have been published are still there. I think that this may change a little bit, but we’re expecting this thing to move pretty quickly.

Sterling Auty – JPMorgan

And then on the operating expense side, we see a little bit more pronounced seasonal pattern here in the third quarter, would it be down sequentially? Should we be reading into it, there’s some cost synergies from the integration of the merger there or what else took place?

Paul S. Lalljie

Sterling, you broke up at the beginning of your question. Would you repeat that for us?

Sterling Auty – JPMorgan

Yeah, if you look at sales and marketing was down sequentially more than seasonal that I would have expected. Just curious is that integration synergy is from the merger or some other factor?

Paul S. Lalljie

No, that is probably just the nature of business. We do have in some of our direct sales organization. We do have that constant churn if you will. So that might be just a little bit of that. There’s nothing systematic there. We expect sales and marketing to remain roughly between 18%, 19%, 20% of revenue, somewhere along those lines on a quarterly basis.

It’s going to fluctuate depending on the quarters, typically the first quarter of any given year. You’ll see things like sales kickoff that drive a little bit of extra cost. You will see things like conferences and things like that. But generally third quarter is not indicative of anything, probably summer and not a lot going on.

Sterling Auty – JPMorgan

Okay. And last question I know it’s on some people’s minds that follow VeriSign. Any comments to the fact that the Department of Commerce and the Department of Justice reviewing their pricing, any thoughts how that might impact you or if that might at some point become an opportunity?

Lisa A. Hook

So you tailed off at the end there, but as you know, the dot-com contract is really suit generous. So it really doesn’t have anything to do with our business, particularly we are looking forward to a dot-US renewal next year, things in our Registry business continue a pace, as you saw we had nice number. So we really hope for the best to them, but that’s not terming to our business.

Sterling Auty – JPMorgan

All right. Thank you.

Operator

Next question comes from the line of Greg Mesniaeff.

Greg Mesniaeff – Maxim Group

Yes, thank you. Maxim Group. Question regarding the other parties that have bid on the contract, the RFP. Are you surprised by the small numbers?

Lisa A. Hook

All right, not at all. As I said in my remarks, first of all, a company has to represent that is it’s neutral and that requires one specific. We are not involved in very specific ways in the offering of telecommunication services, or affiliated with the telecommunication service provider or owned by telecommunication service provider.

So that alone is a screen and then the complexity of providing this is pretty extremely frankly, it’s nothing like this exist anywhere else in the world. So both in terms of commenting here and in terms of participation, there are a handful of companies globally that could hope to provide this service and we believe of those handful that we are obviously by far and the way the most qualified.

Greg Mesniaeff – Maxim Group

Thank you.

Operator

Next question is Andrew [Freeze]

Unidentified Analyst

Hi, guys, thanks and congratulations on the quarter. I notice you’re having Verification and Analytics up nicely. I assume that is the deal that you announced with integration with Targus, if not, can you tell me what that is and how should we think about that deal in general? Is that a recurring kind of situation where you’ll see as that a base we should build out going forward or are these deals you have to win quarter-after-quarter-after-quarter?

Lisa A. Hook

So the deal that I mentioned in my prepared remarks was I don’t believe that it’s reflected in the Verification and Analytics nor will it be. But if I could the Verification and Analytics numbers are up nicely because again it’s a reference kind of previous remarks, those are services that we’re selling into the revenue line of customers. The deal that I referenced in my remarks was just one disclosed. So we’ve not yet recognized revenue against that deal. I don’t believe that it would be booked under Verification and Analytics, but I’m marking to Paul to give the answer. We may not know yet.

Paul S. Lalljie

Correct. It may not be in Verification and Analytics and the deal we talked about in the prepared remarks is absolutely not part of the third quarter results.

Lisa A. Hook

Correct.

Paul S. Lalljie

We still have to deploy and turn that up something like that.

Lisa A. Hook

I guess your question about those types of deals. This is just first of many services that we’re looking to create and rollout to all of our customer. We were simply noting that in our first quarter call, we had told people to expect no revenue synergies at all, till the end of 2013 and the beginning of 2014. And the reason for that is that to think of a service to prototype it to price it and then just sell it into our customer base, which normally has a sales cycle of year to 18 months, really just mathematically put us into late 2013 or 2014.

We were only noting that we’re pleased that our folks are collaborating more effectively than we could have ever imagined and with some of these services, they obviously captivate the customers in a way that we are shortening our normal sales cycles. These are the types of operating deals that are sold to customer-by-customer. They will tend to be a terms deals of anywhere from say a year to three years. Subscription service business model and again we’ll have to go out and win them one at a time in the market.

Unidentified Analyst

Great, thank you and a follow-up if I could, just thinking about the full-year guidance. It looks like Q4 revenue maybe down, maybe roughly about what we saw in Q3, margins obviously down to get to EPS numbers, I’m just assuming that should be higher sales and marketing, higher other OpEx, is there anything else in there I should think about Q4 sort of below the operating expenses line that would be different than seasonal?

Paul S. Lalljie

No, I think the fourth quarter should be a very typical quarter for us. I think to get to the midpoint or above on the guidance range that we have there on revenue. The fourth quarter would be sequentially up from the third quarter, not a big sequential uptick, but will be up. And on the expense side of the equation, generally fourth quarter has been our highest expense quarter of the year, but should be in line on the revenue side of things, should not expect any margin degradation if you will in those numbers off of our full-year guidance.

Unidentified Analyst

Okay, great, guys. I appreciate it.

Operator

Next question comes from the line of Daniel Meron from RBC Capital.

Daniel Meron – RBC Capital Markets

Thank you. Hey, Lisa and all congrats on nice execution here.

Lisa A. Hook

Thank you.

Daniel Meron – RBC Capital Markets

Sure. So first question is if you can provide more details on the dynamics in the IP enterprise business and your IP enterprise business, I noted again the short code messaging was up and other businesses were also doing well. So if you can just provide a little bit more color on the dynamics there? Thank you.

Paul S. Lalljie

So Daniel, I mean, we continue to see our registry business outperform on a year-over-year basis. It was probably 16% year-over-year growth, and again it’s on the backs of common short codes and on domain names under management. The total codes under management increased about 12% year-over-year. It’s almost 4,900 now and domain names under management increased about 8%. Those are the primary drivers of the growth in the registry business, and in addition to that we have some Statement of Work revenue that is also rolling up in that category. In the third quarter, the statement of word revenue was roughly around $2.3 million for the quarter.

Daniel Meron – RBC Capital Markets

Understood Paul, I wanted to get a bit more color, I think given the dynamics what’s driving, that sounds like several digit growth and as we look into 2013, how sustainable that kind of growth is it?

Paul S. Lalljie

Well, in our dot U.S. the backend registry for dot co and the dot biz business, those are generally marketing campaigns that we have there with registrars and in the common short codes business, I think we’ve continued to refined the interface with our customers the way we provision codes, the time it takes to launch programs on the customer side of things. I think all of those things are influencing growth in that business over time. And the other thing is, these business are all direct results of advertising in the marketplace and we’ve seen, I know you follow the market closely and this stuff. We’ve seen increases in advertising expense in the marketplace.

Operator

Next question comes from the line of Scott Sutherland from Wedbush Securities.

Scott Sutherland – Wedbush Securities

Yeah, this is Scott Sutherland from Wedbush Securities, good afternoon.

Lisa A. Hook

Thanks, Scott.

Scott Sutherland – Wedbush Securities

All right, so sorry if this repeated. I missed part of the call, lots of calls today. But first of all, can you talk about some of the local search in licensed data services, it was down sequentially. How much of that segment is lumpy, because obviously the trends there seem to be very positive on local search.

Paul S. Lalljie

Scott, I mean, I don’t think that’s systematic of anything there. In the Local Search & Licensed business, we also have some, that’s the business where we would also receive some. I don’t want to call it one-time revenues, but sale for launching customers, turning up services, data services if you will. And we generally see that comes in spurts and not at a constant wave.

Scott Sutherland – Wedbush Securities

You just mentioned your last, the answer to the last question, about 2.3 million Statement of Work, was that total in the quarter Statement of Work and what are you assuming for the fourth quarter?

Paul S. Lalljie

That was total for the quarter and fourth quarter should be just about 1 million.

Scott Sutherland – Wedbush Securities

Maybe you can update a little bit, traction you are seeing on the new services like SiteProtect and UltraViolet, anything on that Statement of Work for UltraViolet?

Paul S. Lalljie

Would you repeat that again for me? Sorry.

Scott Sutherland – Wedbush Securities

Can you talk about some of the newer services that you’ve been guys pushing, SiteProtect and UltraViolet, how those are tracking, and was any of the Statement of Work business still being weighted towards UltraViolet?

Paul S. Lalljie

Well, SiteProtect is one of those businesses that we’re very proud of. I think we’ve differentiated ourselves in a marketplace based on the quality and the type of service that we offer there. We do have some robust security operating centers and that allow us to attract customers and it’s a real differentiator in a marketplace for us. We continue to sell that service, most times as a bundled service offering across our Enterprise Businesses or in particular Internet Infrastructure.

From an UltraViolet perspective or Neustar Media perspective, those were primarily system enhancements to the core registry as part of the Statement of Works that we did there. I’m very consistent with the Statement of Works that we did last year in that business.

Scott Sutherland – Wedbush Securities

Okay, great. Thank you.

Operator

Next question comes from the line of Julio Quinteros from Goldman Sachs.

Julio Quinteros – Goldman Sachs

Hey, Lisa, one quick one; when you talked about the components of the NPAC renewal, you mentioned a couple of different items, and I think the last one you talked about, may be you didn’t talk about, I might have missed that, was on pricing and what you think about or what you expect on the pricing front. So I got the components around service levels and technology and management requirements, but I didn’t hear you talk too much about the pricing elements, any way to sort of shed some light on what you guys are expecting on that front?

Lisa A. Hook

Yes. So I can shed some light on what they are asking. So what they are asking for is, no escalators, no SSWs, flat rate or you can eek, they’d like to have the NPAC in a separate organization, so they can look at the costs for pass-throughs. This is an opening salvo from our point of view. The industry should correctly ask for everything that they could possibly want in terms of pricing. I will tell you that pricing carries less weight than many of the other criteria in the RFP, and so we will respond appropriately.

Julio Quinteros – Goldman Sachs

Okay. And maybe just for Paul, on the P&L side, can I just make sure I understand that the tax impact and the way that you guys are adjusting for both of the EPS estimates. What would be sort of the effective operating tax rate that you are applying to the $0.68 versus the $0.90?

Paul S. Lalljie

The effective rate was probably around 36.5% sorry, for the full year, and then for the quarter, if you look at the quarter specifically, the effective tax rate was about 35% on a statutory federal rate perspective and then on a consolidated basis about 31%. That is Q3 of 2012.

Julio Quinteros – Goldman Sachs

Got it. Okay, that’s good helpful. Okay, that makes sense. All right and then maybe just Lisa back to you just in terms of risk to the business at this point. Obviously, you guys are pretty comfortable with everything you are talking about. In terms of the outlook though, the revenue guide, I mean they moved up a little bit in terms of the range, but not all that much. So, are you just kind of being a little bit more conservative given how you performed this quarter? How do we think about, kind of the risks are in terms of puts and takes for the rest of this year? Where we could see upside and where could you see downside I guess relative to your current guidance?

Lisa A. Hook

So as you know, we already moved revenue guidance up last quarter and we felt that we were being pretty bullish in doing so. We have a very high level of revenue and cost visibly in this business. So, we are filling like the updated guidance that we’re giving you guys today is pretty safe. Not at this point, not a lot of downside in the ingrained November now and as I said, the vast majority of our revenue is visible either in multi-year contracts.

In subscription services, they’re very, very well known to us. And in looking at new sales, most of our new sales have sales cycles that are a year to a year and a half. So I would say that the guidance that we’re giving you is good and should be taken as face value as always.

Julio Quinteros – Goldman Sachs

Okay. And maybe just along those lines as you think about 2013, I don’t know if there is a rule of thumb of how much do guys to do think of visible versus work that you would still have to kind of go out and earn if you will, anyway to sort of bracket that for visibility for 2013?

Lisa A. Hook

Well, I’m looking at Paul, while I’m saying this. 50% of it is you know is the impact.

Julio Quinteros – Goldman Sachs

Right, got that, yeah.

Lisa A. Hook

Because we know that’s growing 6.5% a year.

Julio Quinteros – Goldman Sachs

Yep.

Paul S. Lalljie

437 to be exact.

Lisa A. Hook

We’ve got another to say, 20% odd in multiyear caller ID contract. And then we’ve got the DNS in Registry and Common Short Codes businesses. You all have seen how those perform over the year, so while they are tend to be much shorter-term contracts. We understand that the drivers there are pretty well. So again, the vast majority is highly visible at this point.

Julio Quinteros – Goldman Sachs

So then the only real kicker from here would be continued performance relative to the Information Services business, your target is hardware, you’re still getting or you’re still early I guess in some ways in getting some of that cross synergy and revenue target opportunities there?

Lisa A. Hook

Yes. As we’ve said, we did a lot of due diligence before the acquisition. We’re pleased with the progress. But it takes about a full-year to really, really understand the business that one has acquired. There is not a lot of seasonality here, but there is some. I think that we’ve come together extraordinarily quickly as one team. But again these folks are for the first time living in public company accounting, public company reporting, so we’d like just that last quarter of exposure.

Julio Quinteros – Goldman Sachs

Okay, great. Thanks guys. Good luck.

Lisa A. Hook

Thank you.

Operator

(Operator Instructions)

Lisa A. Hook

So moderator, I am not hearing that there are any other questions.

Operator

The question comes from the line of Randy Heck from Goodnow Investment.

Randall Heck – Goodnow Investment

Hi Lisa. Hi Paul.

Lisa A. Hook

Hi Randy

Randall Heck – Goodnow Investment

How are you?

Lisa A. Hook

Fine.

Randall Heck – Goodnow Investment

I noticed that the DDoS attack products or services are prominently are now listed on the cover page of your website, are we talking just about site protect or are there other services? That’s the first thing. Secondly, what is the sales cycle on that product or products? And third, could you make an attempt to size the opportunity? Thanks.

Lisa A. Hook

So it is primarily site protect at this point. Although, we as well have a very small threat intelligence service that is sold into larger enterprises. Threat intelligences is a fairly long sales cycle given that folks think that they have all of the data that they need, so that takes a bit of time. Site protect has an interesting sales cycle. It’s like any other insurance product, until you’ve had a lost, you don’t believe that you need it.

So when companies are under attack, the sales cycle is about 20 minutes. They pick-up the phone and call us and we provision them almost immediately. Selling it into a company that has never suffered the DDoS attack is actually quite difficult. However, I would say this is a new market, only 18 months, two years ago the bad guys were not attacking the DNS infrastructure. So this type of attack is relatively new. It’s relatively misunderstood or little understood by the vast majority of enterprises, larger enterprises because they tend to be attacked more as bigger target are actually easier to sell into.

Although I will say that small and medium enterprises again are beginning to see what the threats are to understand that they need the insurance. So we expect the sales cycle to compress over time as these types of attacks become unfortunately more popular. Did I get all of your questions?

Randall Heck – Goodnow Investment

Yeah, and then the estimation or the size of the opportunity as you see it today?

Lisa A. Hook

It’s really unknowable. In theory, every enterprise that relies on the Internet should be purchasing this type of protection. But today, as I said it’s a new market, most enterprises are going without any protections as the whole. So we and a couple of other companies are creating this market and I think it could be quite large, but not really ready to put a number on it.

Randall Heck – Goodnow Investment

Thanks everybody. Thank you.

Lisa A. Hook

Thank you.

Paul S. Lalljie

Thanks.

Operator

And there are no questions at this time, Lisa do you have any closing remarks.

Lisa A. Hook

Yes thank you all for joining us today, with another strong quarter we are well on our way to achieving the goal we set out for the year and putting us in position for continued success in 2013 and beyond. We look forward to speaking with you all again soon and in the meantime take care.

Operator

This concludes today’s conference. Thank you for your participation. You may now disconnect.

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