NeuStar Inc. (NSR, Financial) filed Quarterly Report for the period ended 2009-09-30.
NeuStar is a provider of essential clearinghouse services to the North American communications industry and Internet service providers around the world. Neustar Inc. has a market cap of $1.74 billion; its shares were traded at around $23.39 with a P/E ratio of 16.1 and P/S ratio of 3.6.
certain facilities. We anticipate that the restructuring plan will be completed by the end of the second quarter of 2010. In connection with the extension of the NGM restructuring plan, we expect to incur additional pre-tax cash restructuring charges of approximately $5.5 million to $6.0 million, consisting primarily of employee severance and related costs of approximately $4.5 million to $5.0 million, and lease and facility exit costs of approximately $1.0 million. The Company recognized a charge of $2.7 million for severance and related costs in the three months ended September 30, 2009. As of September 30, 2009, our accrued restructuring liability was $3.4 million, including $1.4 million and $2.0 million of liabilities relating to our Clearinghouse and NGM segments, respectively. The total minimum lease payments for restructured facilities are $1.7 million, net of anticipated sublease payments. These lease payments will be made over the remaining lives of the relevant leases, which range from three months to four years. If actual market conditions are different than those we have projected, we may be required to recognize additional restructuring costs or benefits associated with these facilities.
We estimate the fair value of our restricted stock unit awards based on the fair value of our common stock on the date of grant. Our outstanding restricted stock unit awards are subject to service-based vesting conditions and/or performance-based vesting conditions. We recognize the estimated fair value of service-based awards, net of estimated forfeitures, as share-based expense over the vesting period on a straight-line basis. Awards with performance-based vesting conditions require the achievement of specific financial targets at the end of the specified performance period and the employees continued employment. We recognize the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based expense over the performance period, which considers each performance period or tranche separately, based upon our determination of whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the probability of achieving the performance targets and the performance period required to meet those targets. Determining whether the performance targets will be achieved involves judgment, and the estimate of stock-based compensation expense may be revised periodically based on changes in the probability of achieving the performance targets. If any performance goals are not met, no compensation cost is ultimately recognized against that goal, and, to the extent previously recognized, compensation cost is reversed. Based upon our assessment in the fourth quarter of 2008 of the probability of achieving specific financial targets related to our performance vested restricted stock units granted during 2007 and 2008, we revised our estimate of achievement from 125% of target to 50% of target. In the third quarter of 2009, we have revised our estimate of achievement of the performance targets related to the performance vested restricted stock units granted during 2007 from 50% of target to 0%. The change in this assumption resulted in a reduction of approximately $2.2 million in compensation expense in the third quarter of 2009. Our consolidated net income for the three and nine months ended September 30, 2009 was $24.5 million and $73.3 million, respectively, and diluted earnings per share was $0.32 and $0.97 per share, respectively. If we had continued to use the previous estimate of achievement of 50% of the performance target, the as adjusted net income would have been approximately $23.1 million and $71.8 million, respectively, and the as adjusted diluted earnings per share would have had been approximately $0.31 and $0.95 per share, respectively. We currently estimate achievement of 100% of target related to our performance vested restricted stock units granted during 2009. Further changes in our assumptions regarding the achievement of specific financial targets could have a material effect on our consolidated financial statements.
Cost of revenue. Cost of revenue decreased $1.1 million. Our Clearinghouse business segment cost of revenue increased $0.5 million, offset by a $1.6 million decrease from our NGM business segment. The increase in Clearinghouse cost of revenue of $0.5 million was driven by an increase of $0.8 million in personnel and personnel-related expense due to increased headcount in our operations group to support our expanded service offerings. This increase was partially offset by a $0.4 million decrease in facility costs, partially due to lower infrastructure and maintenance expense. The $1.6 million decrease in NGM cost of revenue was due primarily to a decrease of $0.9 million in personnel and personnel-related expense primarily as a result of headcount reductions related to our NGM restructuring and a decrease of $0.5 million due to reductions in outsourced services.
Sales and marketing. Sales and marketing expense increased $2.6 million. Our Clearinghouse business segment sales and marketing expense increased $4.8 million, offset by a $2.2 million decrease attributable to our NGM business segment. The increase in Clearinghouse sales and marketing expense of $4.8 million was primarily driven by an increase of $2.5 million in personnel and personnel-related costs and an increase of $2.2 million in professional fees, related to additions to our sales and marketing team to focus on branding and expanded service offerings. The $2.2 million decrease in NGM business segment sales and marketing expense was due to a decrease of $2.2 million in personnel and personnel-related expense primarily as a result of headcount reductions related to our NGM restructuring.
General and administrative. General and administrative expense decreased $1.9 million, including a $1.1 million decrease attributable to our Clearinghouse business segment and a $0.8 million decrease attributable to our NGM business segment. Clearinghouse business segment general and administrative expense decreased $1.1 million primarily as a result of a $1.3 million decrease in personnel and personnel-related expense and $0.2 million decrease in consulting fees. The decrease in personnel and personnel-related expense was primarily due to a $1.7 million reduction in stock-based compensation. This reduction in stock-based compensation was principally related to our 2007 performance vested restricted stock units. The $0.8 million decrease in NGM business segment general and administrative expense was due predominantly to a decrease of $0.6 million in facility costs.
Read the The complete ReportNSR is in the portfolios of PRIMECAP Management.
NeuStar is a provider of essential clearinghouse services to the North American communications industry and Internet service providers around the world. Neustar Inc. has a market cap of $1.74 billion; its shares were traded at around $23.39 with a P/E ratio of 16.1 and P/S ratio of 3.6.
Highlight of Business Operations:
We provide wireline and wireless number portability, implement the allocation of pooled blocks of telephone numbers and provide network management services pursuant to seven contracts with North American Portability Management LLC, or NAPM, an industry group that represents all telecommunications service providers in the United States. In 2008, we recognized revenue under our contracts with NAPM primarily on a per-transaction basis. The aggregate fees for transactions processed under these contracts were determined by the total number of transactions, and these fees were billed to telecommunications service providers based on their allocable share of the total transaction charges. This allocable share was based on each respective telecommunications service providers share of the aggregate end-user services revenues of all U.S. telecommunications service providers, as determined by the Federal Communications Commission, or FCC. In January 2009, we amended our seven regional contracts with NAPM under which we provide telephone number portability and other clearinghouse services to communications service providers, or CSPs, in the United States. These amendments provide for an annual fixed-fee pricing model under which the annual fixed-fee, or Base Fee, is set at $340.0 million in 2009 and is subject to an annual price escalator of 6.5% in subsequent years. The amendments also provide for a fixed credit of $40.0 million in 2009, $25.0 million in 2010 and $5.0 million in 2011, which will be applied to reduce the Base Fee for the applicable year. Additional credits of up to $15.0 million annually in 2009, 2010 and 2011 may be triggered if the customer reaches certain levels of aggregate telephone number inventories and adopts and implements certain Internet Protocol, or IP, fields and functionality. Moreover, the amendments provide for credits in the event that the volume of transactions in a given year is above or below the contractually established volume range for that year. The determination of any volume credits is done annually at the end of the year and such credits are applied to the following years invoices. We determine the fixed and determinable fee under the amendments on an annual basis and recognize such fee on a straight-line basis over twelve months. For 2009, we have concluded that the fixed and determinable fee equals $285.0 million, which is the Base Fee of $340.0 million reduced by the $40.0 million fixed credit and $15.0 million of available additional credits. To the extent any available additional credits expire unused, they will be recognized in revenue at that time. We record the fixed and determinable fee amongst addressing, interoperability and infrastructure based on the relative volume of transactions in each of these service offerings processed during the applicable period.certain facilities. We anticipate that the restructuring plan will be completed by the end of the second quarter of 2010. In connection with the extension of the NGM restructuring plan, we expect to incur additional pre-tax cash restructuring charges of approximately $5.5 million to $6.0 million, consisting primarily of employee severance and related costs of approximately $4.5 million to $5.0 million, and lease and facility exit costs of approximately $1.0 million. The Company recognized a charge of $2.7 million for severance and related costs in the three months ended September 30, 2009. As of September 30, 2009, our accrued restructuring liability was $3.4 million, including $1.4 million and $2.0 million of liabilities relating to our Clearinghouse and NGM segments, respectively. The total minimum lease payments for restructured facilities are $1.7 million, net of anticipated sublease payments. These lease payments will be made over the remaining lives of the relevant leases, which range from three months to four years. If actual market conditions are different than those we have projected, we may be required to recognize additional restructuring costs or benefits associated with these facilities.
We estimate the fair value of our restricted stock unit awards based on the fair value of our common stock on the date of grant. Our outstanding restricted stock unit awards are subject to service-based vesting conditions and/or performance-based vesting conditions. We recognize the estimated fair value of service-based awards, net of estimated forfeitures, as share-based expense over the vesting period on a straight-line basis. Awards with performance-based vesting conditions require the achievement of specific financial targets at the end of the specified performance period and the employees continued employment. We recognize the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based expense over the performance period, which considers each performance period or tranche separately, based upon our determination of whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the probability of achieving the performance targets and the performance period required to meet those targets. Determining whether the performance targets will be achieved involves judgment, and the estimate of stock-based compensation expense may be revised periodically based on changes in the probability of achieving the performance targets. If any performance goals are not met, no compensation cost is ultimately recognized against that goal, and, to the extent previously recognized, compensation cost is reversed. Based upon our assessment in the fourth quarter of 2008 of the probability of achieving specific financial targets related to our performance vested restricted stock units granted during 2007 and 2008, we revised our estimate of achievement from 125% of target to 50% of target. In the third quarter of 2009, we have revised our estimate of achievement of the performance targets related to the performance vested restricted stock units granted during 2007 from 50% of target to 0%. The change in this assumption resulted in a reduction of approximately $2.2 million in compensation expense in the third quarter of 2009. Our consolidated net income for the three and nine months ended September 30, 2009 was $24.5 million and $73.3 million, respectively, and diluted earnings per share was $0.32 and $0.97 per share, respectively. If we had continued to use the previous estimate of achievement of 50% of the performance target, the as adjusted net income would have been approximately $23.1 million and $71.8 million, respectively, and the as adjusted diluted earnings per share would have had been approximately $0.31 and $0.95 per share, respectively. We currently estimate achievement of 100% of target related to our performance vested restricted stock units granted during 2009. Further changes in our assumptions regarding the achievement of specific financial targets could have a material effect on our consolidated financial statements.
Cost of revenue. Cost of revenue decreased $1.1 million. Our Clearinghouse business segment cost of revenue increased $0.5 million, offset by a $1.6 million decrease from our NGM business segment. The increase in Clearinghouse cost of revenue of $0.5 million was driven by an increase of $0.8 million in personnel and personnel-related expense due to increased headcount in our operations group to support our expanded service offerings. This increase was partially offset by a $0.4 million decrease in facility costs, partially due to lower infrastructure and maintenance expense. The $1.6 million decrease in NGM cost of revenue was due primarily to a decrease of $0.9 million in personnel and personnel-related expense primarily as a result of headcount reductions related to our NGM restructuring and a decrease of $0.5 million due to reductions in outsourced services.
Sales and marketing. Sales and marketing expense increased $2.6 million. Our Clearinghouse business segment sales and marketing expense increased $4.8 million, offset by a $2.2 million decrease attributable to our NGM business segment. The increase in Clearinghouse sales and marketing expense of $4.8 million was primarily driven by an increase of $2.5 million in personnel and personnel-related costs and an increase of $2.2 million in professional fees, related to additions to our sales and marketing team to focus on branding and expanded service offerings. The $2.2 million decrease in NGM business segment sales and marketing expense was due to a decrease of $2.2 million in personnel and personnel-related expense primarily as a result of headcount reductions related to our NGM restructuring.
General and administrative. General and administrative expense decreased $1.9 million, including a $1.1 million decrease attributable to our Clearinghouse business segment and a $0.8 million decrease attributable to our NGM business segment. Clearinghouse business segment general and administrative expense decreased $1.1 million primarily as a result of a $1.3 million decrease in personnel and personnel-related expense and $0.2 million decrease in consulting fees. The decrease in personnel and personnel-related expense was primarily due to a $1.7 million reduction in stock-based compensation. This reduction in stock-based compensation was principally related to our 2007 performance vested restricted stock units. The $0.8 million decrease in NGM business segment general and administrative expense was due predominantly to a decrease of $0.6 million in facility costs.
Read the The complete ReportNSR is in the portfolios of PRIMECAP Management.
