Neustar, Inc. (NSR)

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NeuStar, Inc. (NSR)

Q1 2009 Earnings Call

May 06, 2009 4:30 PM ET

Executives

Brandon Pugh - Director of Finance, Investor Relations

Jeffrey E. Ganek - Chairman and Chief Executive Officer

Paul Lalljie - Senior Vice President and Interim Chief Financial Officer

Analysts

William Power - Robert W. Baird

Jonathan Ho - William Blair and Co.

Daniel Meron - RBC Capital Markets

John Bright - Avondale Partners

Presentation

Operator

Ladies and gentlemen, thank you standing by and welcome to the NeuStar Investor Conference Call. The company's release made earlier today is available from its website at www.neustar.biz. During the presentation all participants will be in a listen-only mode. Afterwards, securities, analysts and institutional portfolio managers will be invited to participate in a question-and-answer session. (Operator Instructions).

As a reminder, this call is being recorded Wednesday, May 06, 2009. A replay of the call will be accessible until midnight May 13th by dialing 888-203-1112 and entering conference ID number 8694852. International callers should dial 719-457-0820. An archive of this will also be available on the NeuStar website at www.neustar.biz.

I would now like to turn the conference call over to Brandon Pugh, Director of Finance, and Investor Relations of NeuStar. Please go ahead, sir.

Brandon Pugh

Thank you and good afternoon everyone. Welcome to our first quarter 2009 earnings call. Joining us today from NeuStar are Jeff Ganek, Chairman and Chief Executive Officer and Paul Lalljie, our Interim Chief Financial Officer.

Our call today will begin with comments from Jeff Ganek. Then Paul Lalljie will follow with a discussion of our financial performance 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 some of the information discussed on this call including our projections regarding revenue and EBITDA for the coming year contain forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements and we cannot assure you that our expectations will be achieved or that any deviations will not be material.

Additional information concerning these risks and uncertainties can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2008, and its other subsequent and current periodic reports filed with the U.S. Securities and Exchange Commission. NeuStar assumes no obligation to update any forward-looking statements.

As you listen to today's call, we will discuss certain non-GAAP financial measures. We encourage you have our press release in front of you, which can be found on our Investor Relations website and includes our financial results, metrics, commentary for the quarter and reconciliation of certain non-GAAP measures with the most directly comparable GAAP measures.

You'll find additional disclosures regarding the non-GAAP measures under the Investor Relations tab on our website www.neustar.biz including reconciliation of these measures with the most directly comparable GAAP measures.

With that, I am pleased to introduce NeuStar's Chairman and Chief Executive Officer, Jeff Ganek. Jeff?

Jeffrey E. Ganek

Thanks Brandon. Welcome to today's call. As we reported on our last earnings call, we've taken actions ensure we prosper through the recession and position NeuStar for growth in the future. As a result of these actions, I am pleased to report consolidated revenue for the quarter of $113 million, with an EBITDA margin of 42%. First quarter revenue momentum and continued cost management has put us on track to meet our full year objectives.

During the quarter, we continued to see growing market demand for clearinghouse services. Transaction volumes under our LNP contracts grew 14% from the first quarter of 2008, demonstrating a trend that will substantially exceed the transaction floor for 2009 as defined in our new LNP contract amendment.

Clearinghouse revenues were driven primarily by the recent amendments to our LNP contracts, as anticipated those revenues decreased 4%. As you may remember, the LNP contract amendment has had a significant impact. The amendment changed LNP pricing from a transaction based model to an annual fixed fee with annual escalators. The fixed fee provides contractually defined revenues that'll grow at a compounded annual rate of 10% through 2015.

The new pricing structure provides high visibility into and predictability for a large portion of NeuStar's business. Also in the first quarter, customers continued to look to NeuStar for DNS infrastructure services at both improved traffic management and security on the Internet. The results were more than 250 customer wins in the quarter and increased revenue for NeuStar Ultra Services.

Notwithstanding increased customer interest in revenues, the state of the economy contributed to a lengthening of our sales cycles for large customer Ultra contacts and a reduction therefore of our average deal size during the quarter. To keep the revenues growing in response to tough market conditions, we are more aggressively developing sale leads and broadening our distribution channels.

Another area of growth in the quarter was a mobile market.... was in mobile marketing services. Prime example is our Common Short Codes service which enables one of the fastest growing revenue streams in the mobile marketplace. The service is widely used by large Fortune 1000 companies and also smaller entrepreneurial customers.

In light of difficult market conditions, sales cycles are lengthening here as well despite continued revenue growth. Therefore demand for this service is difficult to forecast. Overall, and in summary, our revenue performance in the quarter demonstrates that customers continue to find our services essential and cost effective.

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