NeuStar Inc. (NSR, Financial) filed Quarterly Report for the period ended 2009-03-31.
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 $1.42 billion; its shares were traded at around $19.19 with a P/E ratio of 13.3 and P/S ratio of 2.9.
During 2008, per-transaction pricing under the contracts with NAPM was derived on a straight-line basis using an effective rate calculation formula based on annualized transaction volume between 200 million and 587.5 million. For annualized transaction volumes less than or equal to 200 million, the price per transaction was equal to a flat rate of $0.95 per transaction. For annualized volumes greater than or equal to 587.5 million, the price per transaction was equal to a flat rate of $0.75 per transaction. For the three months ended March 31, 2008, the average price per transaction was $0.88. The applicable price per transaction was subject to change during the course of 2008 as the annualized transaction volume, as calculated under the terms of the contracts, changed.
In December 2008, we announced a restructuring plan for our NGM business segment, involving the termination of certain employees, and reduction in or closure of leased facilities in some of our international locations. As a result, we incurred $1.2 million in severance related costs and $0.5 million in lease and facilities exit costs for the year ended December 31, 2008. These restructuring costs include estimated costs for net lease expense for facilities that are no longer being used. The provision is equal to the present value of the minimum future lease payments under our contractual lease obligations, offset by the present value of the estimated sublease payments that we may receive. As of March 31, 2009, our accrued restructuring liability was $2.1 million, including $1.7 million and $0.4 million of liabilities relating to our Clearinghouse and NGM segments, respectively. The total minimum lease payments for restructured facilities are $2.1 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.
As a result of the strategic repositioning of our NGM business and the resulting change in our financial forecast, all of which is described above under the heading Critical Accounting Policies Goodwill, we recorded an impairment of long-lived assets specific to our NGM reporting unit of $18.2 million during the fourth quarter of 2008. As of March 31, 2009, we had $60.9 million and $16.7 million, respectively, in long-lived assets for our Clearinghouse reporting unit and our NGM reporting unit.
We have approximately $9.3 million par value in investments related to a cash reserve fund which is closed to new investments and subject to immediate redemptions. Because there is little or no market data, the fair value of the securities within the cash reserve fund was determined using pricing models that utilize recent trades for securities in active markets and dealer quotes for securities considered to be inactive, as well as contractual terms, maturity and assumptions about liquidity. Based upon our assessment of the fair value of these investments as of March 31, 2009, we recorded unrealized gains of $66,000 during the three months ended March 31, 2009. During the year ended December 31, 2008, we recorded other-than-temporary impairment charges of $1.6 million that reduced the amortized cost basis for our investment in the cash reserve fund as of March 31, 2009. The amortized cost of these securities as of March 31, 2009 is approximately $7.7 million. If our assumptions and judgments in our valuations change in future periods, or if there is further decline in the securities value, we may be required to realize additional losses in our current period earnings.
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. The change in this assumption resulted in a reversal of approximately $3.0 million in compensation expense in the fourth quarter of 2008. Our consolidated net income for the year ended December 31, 2008 was $4.3 million and diluted earnings per share was $0.06 per share. As a result of this change in estimate, the as adjusted net income for the year ended December 31, 2008 would have been approximately $1.6 million and the as adjusted diluted earnings per share would have been approximately $0.02 per share had we continued to use the previous estimate of 125% of the performance target. We currently estimate achievement of 100% of target for our performance vested restricted stock units granted during the first quarter of 2009. Further changes in our assumptions regarding the achievement of specific financial targets could have a material effect on our consolidated financial statements.
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 $1.42 billion; its shares were traded at around $19.19 with a P/E ratio of 13.3 and P/S ratio of 2.9.
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 ratably over the year. 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.During 2008, per-transaction pricing under the contracts with NAPM was derived on a straight-line basis using an effective rate calculation formula based on annualized transaction volume between 200 million and 587.5 million. For annualized transaction volumes less than or equal to 200 million, the price per transaction was equal to a flat rate of $0.95 per transaction. For annualized volumes greater than or equal to 587.5 million, the price per transaction was equal to a flat rate of $0.75 per transaction. For the three months ended March 31, 2008, the average price per transaction was $0.88. The applicable price per transaction was subject to change during the course of 2008 as the annualized transaction volume, as calculated under the terms of the contracts, changed.
In December 2008, we announced a restructuring plan for our NGM business segment, involving the termination of certain employees, and reduction in or closure of leased facilities in some of our international locations. As a result, we incurred $1.2 million in severance related costs and $0.5 million in lease and facilities exit costs for the year ended December 31, 2008. These restructuring costs include estimated costs for net lease expense for facilities that are no longer being used. The provision is equal to the present value of the minimum future lease payments under our contractual lease obligations, offset by the present value of the estimated sublease payments that we may receive. As of March 31, 2009, our accrued restructuring liability was $2.1 million, including $1.7 million and $0.4 million of liabilities relating to our Clearinghouse and NGM segments, respectively. The total minimum lease payments for restructured facilities are $2.1 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.
As a result of the strategic repositioning of our NGM business and the resulting change in our financial forecast, all of which is described above under the heading Critical Accounting Policies Goodwill, we recorded an impairment of long-lived assets specific to our NGM reporting unit of $18.2 million during the fourth quarter of 2008. As of March 31, 2009, we had $60.9 million and $16.7 million, respectively, in long-lived assets for our Clearinghouse reporting unit and our NGM reporting unit.
We have approximately $9.3 million par value in investments related to a cash reserve fund which is closed to new investments and subject to immediate redemptions. Because there is little or no market data, the fair value of the securities within the cash reserve fund was determined using pricing models that utilize recent trades for securities in active markets and dealer quotes for securities considered to be inactive, as well as contractual terms, maturity and assumptions about liquidity. Based upon our assessment of the fair value of these investments as of March 31, 2009, we recorded unrealized gains of $66,000 during the three months ended March 31, 2009. During the year ended December 31, 2008, we recorded other-than-temporary impairment charges of $1.6 million that reduced the amortized cost basis for our investment in the cash reserve fund as of March 31, 2009. The amortized cost of these securities as of March 31, 2009 is approximately $7.7 million. If our assumptions and judgments in our valuations change in future periods, or if there is further decline in the securities value, we may be required to realize additional losses in our current period earnings.
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. The change in this assumption resulted in a reversal of approximately $3.0 million in compensation expense in the fourth quarter of 2008. Our consolidated net income for the year ended December 31, 2008 was $4.3 million and diluted earnings per share was $0.06 per share. As a result of this change in estimate, the as adjusted net income for the year ended December 31, 2008 would have been approximately $1.6 million and the as adjusted diluted earnings per share would have been approximately $0.02 per share had we continued to use the previous estimate of 125% of the performance target. We currently estimate achievement of 100% of target for our performance vested restricted stock units granted during the first quarter of 2009. Further changes in our assumptions regarding the achievement of specific financial targets could have a material effect on our consolidated financial statements.
Read the The complete ReportNSR is in the portfolios of PRIMECAP Management.
