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NeuStar Inc. Reports Operating Results (10-Q)

July 28, 2010 | About:
10qk

10qk

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NeuStar Inc. (NSR) filed Quarterly Report for the period ended 2010-06-30.

Neustar Inc. has a market cap of $1.74 billion; its shares were traded at around $23.18 with a P/E ratio of 16.9 and P/S ratio of 3.6. Neustar Inc. had an annual average earning growth of 15.2% over the past 5 years.NSR is in the portfolios of Eric Mindich of Eton Park Capital Management, L.P., PRIMECAP Management, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Revenue, profitability and cash generation were strong for the quarter ended June 30, 2010. Our consolidated revenue for the quarter increased 11.4% to $129.0 million as compared to $115.8 million from the second quarter of 2009. In the six months ended June 30, 2010, our cash flow provided by operating activities was $43.1 million. This resulted in a total cash, cash equivalents and short-term investment balance of $362.4 million as of June 30, 2010, an increase of $20.2 million from December 31, 2009.

We provide NPAC Services pursuant to seven contracts with NAPM, an industry group that represents all telecommunications service providers in the United States. The aggregate fees for transactions processed under these contracts was determined by an annual fixed-fee pricing model under which the annual fixed-fee, or Base Fee, is set at $340.0 million and $362.1 million in 2009 and 2010, respectively, and is subject to an annual price escalator of 6.5% in subsequent years. These contracts 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 IP fields and functionality. Moreover, these contracts 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 these contracts on an annual basis and recognize such fee on a straight-line basis over twelve months. For 2009, we 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 additional credits. For 2010, the fixed and determinable fee equals $322.1 million, which represents the Base Fee of $362.1 million, reduced by the $25.0 million fixed credit and $15.0 million of additional credits.

Our consolidated net income for the three and six months ended June 30, 2010 was $28.6 million and $53.8 million, respectively, and diluted earnings per share was $0.37 per share and $0.71 per share, respectively. If we had continued to use the previous estimate of achievement of 50% of the performance target for our PVRSUs granted during 2008, the as adjusted net income would have been approximately $28.5 million and $52.7 million, respectively, and the as adjusted diluted earnings per share would have been approximately $0.37 per share and $0.69 per share, respectively. If we had continued to use the previous estimate of achievement of 100% of the performance target for our PVRSUs granted during 2009, the as adjusted net income would have been approximately $28.7 million and $54.4 million, respectively, and the as adjusted diluted earnings per share would have been approximately $0.38 per share and $0.72 per share, respectively. If we had continued to use the previous estimates of achievement for our PVRSUs granted during 2008 and 2009, the as adjusted net income would have been approximately $28.6 million and $53.3 million, respectively, and the as adjusted diluted earnings per share would have been approximately $0.38 per share and $0.70 per share, respectively.

Carrier Services. Revenue from our Carrier Services operating segment increased $9.8 million primarily due to an increase of $11.2 million in revenue from our Numbering Services. Of this $11.2 million increase, $9.3 million resulted from an established increase in the fixed fee under our contracts to provide NPAC Services and $2.1 million was primarily due to system enhancements and additional functionality requested by our Numbering Services customers. These revenue increases were partially offset by a decrease of $0.9 million from our Order Management Services.

Cost of revenue. Cost of revenue increased $1.5 million primarily due to an increase of $0.7 million in general facility costs to support business growth and ongoing operations. Royalty expense in our Registry Services related to common short codes under management increased $0.6 million. In addition, personnel and personnel-related expense increased $0.5 million primarily due to increased headcount to support expansion in our new business opportunities.

Depreciation and amortization. Depreciation and amortization expense increased $0.7 million due to an increase of $1.5 million in depreciation due to an increase in capital assets to build out our infrastructure. This increase was partially offset by a decrease of $0.8 million in amortization of intangible assets related to acquisitions.

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