) has the kind of business model a lot of firms might envy.
The company provides call routing, database infrastructure and
network management services to telecom and other clients in North
It has a steady source of income, thanks to a federally
mandated program, called the NPAC, or National Portability
Administration Center, to provide a national database of routing
information for all ported and pooled phone numbers in the U.S.
Neustar operates the NPAC database and is paid by domestic
carriers through North American Portability Management LLC. NPAC
accounts for about half of Neustar's revenue.
"It's about as certain a payment as you can receive," said
John Bright, an analyst at Avondale Partners.
Neustar has held a monopoly on the NPAC contract since it was
first signed in 1996. That was the year Neustar was founded to
help meet technical and operational challenges that arose when
the U.S. government mandated local number portability.
Neither of Neustar's main rivals, privately held Syniverse
Holdings and Ericsson unit Telcordia, is expected to threaten its
NPAC monopoly when the current contract expires. That's partly
because of the high cost of building computer systems that manage
large telecom databases, analysts say.
The lack of competition and steady income stream have helped
protect Neustar from the kinds of cyclical and economic head
winds that plague most other businesses.
"Because of the visibility of the NPAC contract, Neustar is
one of our favorite defensive names," JPMorgan analyst Sterling
Auty noted following Neustar's first-quarter earnings report.
The current NPAC contract is due to expire in June 2015. The
Federal Communications Commission is overseeing the bidding
process for new contracts, which will likely be awarded next
Analysts expect Neustar to keep the business, and Neustar
officials have made plain their desire to do so.
"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," Chief Executive Lisa Hook said on
a Q1 conference call with analysts.
"Our stewardship of the NPAC has been a steady and reliable
constant over a period that has seen remarkable change," she
The question is how much the new contract will be worth.
Neustar will probably have to charge lower prices for its
services, watchers say. The question is how much lower. Some
estimates have ranged from 15% to 25%, though Neustar might be
able to soften the blow through more and better services.
"A renewal of Neustar's core NPAC contract would likely
include an initial hit to revenues," analyst Bright said.
"However, we believe Neustar will look to offer enhanced feature
functionality to carriers as a means of limiting revenue
Caller ID Acquisition
To help prepare for the potential hit to its NPAC revenue,
Neustar last fall acquired Targus Information in a $560 million
Targus manages a database primarily of caller IDs for small
telcos. It also sells call location products and sales-lead
verification services. The new unit beat most projections during
Neustar's first quarter, analyst Auty noted.
"Results for the acquired company were slightly better than
expected, " he said. "Normalizing for the usual acquired
amortization, we estimate that the acquisition was solidly
accretive in its first quarter under the Neustar banner."
On her first-quarter conference call, CEO Hook said Neustar
"continues to be excited" about the Targus buyout.
"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," she
Neustar has grown earnings in double digits in eight of the
last nine quarters. The company has run off five straight
quarters of accelerated revenue growth.
It posted first-quarter earnings of 64 cents a share. That was
up from 50 cents the prior year and in line with estimates.
Revenue rose 37% to just less than $200 million, topping
The company breaks down its revenue between carrier services,
enterprise services and information services.
The first category includes its NPAC contract. Services in the
enterprise segment include name registry, digital marketing and
The information services segment provides data designed to
help customers make informed decisions on consumer-initiated
interactions on the Web, over the phone and at the point of
Carrier services contributed 62% of revenue during the first
quarter. Enterprise services contributed 20% and information
The carrier services business drove the better-than-expected
Q1 revenue results, Auty noted. "The upside was largely driven by
higher revenues from NPAC."
Analysts polled by Thomson Reuters expect Neustar to post
second-quarter earnings of 68 cents a share, up 58% from the
previous year. Full-year profit is seen rising 28% this year and
13% in 2013. Neustar's stock price trades near 33.