|
|
|
|
|
|
Item 1.
|
Financial Statements
|
NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2017
|
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
45,773
|
|
|
$
|
94,823
|
|
|
Restricted cash
|
2,283
|
|
|
2,139
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $6,572 and $7,823, respectively
|
207,595
|
|
|
186,869
|
|
|
Unbilled receivables
|
19,795
|
|
|
15,865
|
|
|
Prepaid expenses and other current assets
|
41,680
|
|
|
36,718
|
|
|
Deferred costs
|
11,469
|
|
|
10,500
|
|
|
Income taxes receivable
|
13,586
|
|
|
—
|
|
|
Total current assets
|
342,181
|
|
|
346,914
|
|
|
Property and equipment, net
|
145,821
|
|
|
151,810
|
|
|
Goodwill
|
1,168,982
|
|
|
1,173,203
|
|
|
Intangible assets, net
|
423,957
|
|
|
384,931
|
|
|
Other assets, long-term
|
17,771
|
|
|
16,881
|
|
|
Total assets
|
$
|
2,098,712
|
|
|
$
|
2,073,739
|
|
See accompanying notes.
NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2017
|
|
|
|
|
(unaudited)
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
21,095
|
|
|
$
|
22,185
|
|
|
Accrued expenses
|
134,545
|
|
|
104,200
|
|
|
Deferred revenue
|
91,188
|
|
|
100,583
|
|
|
Notes payable
|
103,725
|
|
|
74,555
|
|
|
Capital lease obligations
|
1,457
|
|
|
121
|
|
|
Income taxes payable
|
—
|
|
|
22,621
|
|
|
Other liabilities
|
11,632
|
|
|
14,116
|
|
|
Total current liabilities
|
363,642
|
|
|
338,381
|
|
|
Deferred revenue, long-term
|
22,437
|
|
|
23,582
|
|
|
Notes payable, long-term
|
702,946
|
|
|
597,196
|
|
|
Deferred income tax liabilities, long-term
|
35,088
|
|
|
34,554
|
|
|
Other liabilities, long-term
|
53,298
|
|
|
51,694
|
|
|
Total liabilities
|
1,177,411
|
|
|
1,045,407
|
|
|
Commitments and contingencies
|
—
|
|
|
—
|
|
|
Stockholders’ equity:
|
|
|
|
|
Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding as of December 31, 2016 and June 30, 2017
|
—
|
|
|
—
|
|
|
Class A common stock, par value $0.001; 200,000,000 shares authorized; 82,136,230 and 83,664,353 shares issued; and 54,896,659 and 55,956,914 shares outstanding at December 31, 2016 and June 30, 2017, respectively
|
82
|
|
|
84
|
|
|
Class B common stock, par value $0.001; 100,000,000 shares authorized; 1,864 and 1,864 shares issued and outstanding at December 31, 2016 and June 30, 2017, respectively
|
—
|
|
|
—
|
|
|
Additional paid-in capital
|
771,450
|
|
|
800,784
|
|
|
Treasury stock, 27,239,571 and 27,707,439 shares at December 31, 2016 and June 30, 2017, respectively, at cost
|
(933,581
|
)
|
|
(949,232
|
)
|
|
Accumulated other comprehensive (loss) income
|
(1,785
|
)
|
|
1,199
|
|
|
Retained earnings
|
1,085,135
|
|
|
1,175,497
|
|
|
Total stockholders’ equity
|
921,301
|
|
|
1,028,332
|
|
|
Total liabilities and stockholders’ equity
|
$
|
2,098,712
|
|
|
$
|
2,073,739
|
|
See accompanying notes.
NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Revenue
|
$
|
297,565
|
|
|
$
|
297,938
|
|
|
$
|
584,863
|
|
|
$
|
591,124
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization shown separately below)
|
90,237
|
|
|
87,322
|
|
|
181,588
|
|
|
175,238
|
|
|
Sales and marketing
|
54,288
|
|
|
53,971
|
|
|
109,611
|
|
|
110,528
|
|
|
Research and development
|
5,260
|
|
|
7,604
|
|
|
12,809
|
|
|
14,276
|
|
|
General and administrative
|
27,238
|
|
|
27,111
|
|
|
54,756
|
|
|
55,471
|
|
|
Depreciation and amortization
|
38,829
|
|
|
35,452
|
|
|
77,311
|
|
|
70,379
|
|
|
Restructuring charges
|
6,129
|
|
|
8,012
|
|
|
8,793
|
|
|
8,039
|
|
|
Separation costs
|
4,218
|
|
|
—
|
|
|
4,218
|
|
|
1,789
|
|
|
|
226,199
|
|
|
219,472
|
|
|
449,086
|
|
|
435,720
|
|
|
Income from operations
|
71,366
|
|
|
78,466
|
|
|
135,777
|
|
|
155,404
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(15,691
|
)
|
|
(10,630
|
)
|
|
(32,802
|
)
|
|
(22,901
|
)
|
|
Interest income
|
67
|
|
|
74
|
|
|
241
|
|
|
146
|
|
|
Income before income taxes
|
55,742
|
|
|
67,910
|
|
|
103,216
|
|
|
132,649
|
|
|
Provision for income taxes
|
17,621
|
|
|
22,991
|
|
|
33,720
|
|
|
42,287
|
|
|
Net income
|
$
|
38,121
|
|
|
$
|
44,919
|
|
|
$
|
69,496
|
|
|
$
|
90,362
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.70
|
|
|
$
|
0.80
|
|
|
$
|
1.28
|
|
|
$
|
1.63
|
|
|
Diluted
|
$
|
0.69
|
|
|
$
|
0.79
|
|
|
$
|
1.26
|
|
|
$
|
1.58
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
54,458
|
|
|
55,865
|
|
|
54,205
|
|
|
55,589
|
|
|
Diluted
|
55,082
|
|
|
57,029
|
|
|
54,980
|
|
|
57,019
|
|
See accompanying notes.
NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Net income
|
$
|
38,121
|
|
|
$
|
44,919
|
|
|
$
|
69,496
|
|
|
$
|
90,362
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
Available for sale investments, net of tax:
|
|
|
|
|
|
|
|
|
Change in net unrealized gains, net of tax
|
76
|
|
|
42
|
|
|
19
|
|
|
97
|
|
|
Reclassification for gains included in net income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
Net change in unrealized gains on investments, net of tax
|
76
|
|
|
42
|
|
|
19
|
|
|
84
|
|
|
Foreign currency translation adjustment, net of tax
|
(1,435
|
)
|
|
33
|
|
|
1,363
|
|
|
2,900
|
|
|
Other comprehensive (loss) income, net of tax
|
(1,359
|
)
|
|
75
|
|
|
1,382
|
|
|
2,984
|
|
|
Comprehensive income
|
$
|
36,762
|
|
|
$
|
44,994
|
|
|
$
|
70,878
|
|
|
$
|
93,346
|
|
See accompanying notes.
NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
Operating activities:
|
|
|
|
|
Net income
|
$
|
69,496
|
|
|
$
|
90,362
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
77,311
|
|
|
70,379
|
|
|
Stock-based compensation
|
20,474
|
|
|
20,063
|
|
|
Amortization of deferred financing costs and original issue discount on debt
|
8,890
|
|
|
5,640
|
|
|
Tax benefit from equity awards
|
(260
|
)
|
|
—
|
|
|
Deferred income taxes
|
1,237
|
|
|
(2,993
|
)
|
|
Provision for doubtful accounts
|
3,600
|
|
|
3,600
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(12,459
|
)
|
|
16,882
|
|
|
Unbilled receivables
|
3,012
|
|
|
3,945
|
|
|
Prepaid expenses and other current assets
|
(7,630
|
)
|
|
7,378
|
|
|
Deferred costs
|
(3,018
|
)
|
|
1,684
|
|
|
Income taxes
|
8,526
|
|
|
36,207
|
|
|
Other assets
|
3,051
|
|
|
222
|
|
|
Other liabilities
|
(842
|
)
|
|
469
|
|
|
Accounts payable and accrued expenses
|
(44,538
|
)
|
|
(27,448
|
)
|
|
Deferred revenue
|
(2,545
|
)
|
|
(407
|
)
|
|
Net cash provided by operating activities
|
124,305
|
|
|
225,983
|
|
|
Investing activities:
|
|
|
|
|
Purchases of property and equipment
|
(23,366
|
)
|
|
(29,092
|
)
|
|
Businesses acquired, net of cash acquired
|
12
|
|
|
—
|
|
|
Net cash used in investing activities
|
(23,354
|
)
|
|
(29,092
|
)
|
|
Financing activities:
|
|
|
|
|
Decrease in restricted cash
|
73
|
|
|
144
|
|
|
Payments under notes payable obligations
|
(126,731
|
)
|
|
(139,878
|
)
|
|
Principal repayments on capital lease obligations
|
(2,774
|
)
|
|
(1,336
|
)
|
|
Proceeds from issuance of stock
|
432
|
|
|
6,161
|
|
|
Tax benefit from equity awards
|
260
|
|
|
—
|
|
|
Repurchase of restricted stock awards and common stock
|
(10,762
|
)
|
|
(12,539
|
)
|
|
Net cash used in financing activities
|
(139,502
|
)
|
|
(147,448
|
)
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
111
|
|
|
(393
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
(38,440
|
)
|
|
49,050
|
|
|
Cash and cash equivalents at beginning of period
|
89,097
|
|
|
45,773
|
|
|
Cash and cash equivalents at end of period
|
$
|
50,657
|
|
|
$
|
94,823
|
|
See accompanying notes.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
|
|
|
|
|
|
1.
|
DESCRIPTION OF BUSINESS AND ORGANIZATION
|
NeuStar, Inc. (the Company or Neustar) helps clients grow and guard their business with the most complete understanding of how to connect people, places, and things using its authoritative OneID
TM
system. As the leader in connection science, the Company uses its expertise in real-time addressing, authentication, and analytics to provide marketing, risk security, registry, and communications solutions to over
11,000
clients. The Company’s cloud-based platforms and differentiated data sets offer informative, real-time analytics, which enable clients to make actionable, data-driven decisions. The Company provides chief marketing officers a comprehensive suite of services to plan their media spend, identify and locate desired customers, invest effectively in marketing campaigns, deliver relevant offers and measure the performance of these activities. Security professionals use the Company’s solutions to maximize web performance and protect against malicious attacks. The Company enables the exchange of essential operating information across multiple carriers to provision and manage services, assisting clients with fast and accurate order processing and immediate routing of customer inquiries. The Company provides communications service providers in the United States critical infrastructure that enables the dynamic routing of calls and text messages.
On December 14, 2016, the Company entered into an Agreement and Plan of Merger (the Merger Agreement), with Aerial Topco, L.P. (the Parent), and Aerial Merger Sub, Inc., a subsidiary of Parent (Merger Sub), pursuant to which, subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into Neustar. As a result of the merger, the Company will become a wholly-owned subsidiary of Parent. Parent and Merger Sub were formed by Golden Gate Private Equity, Inc. and GIC Special Investments Pte Ltd. On March 14, 2017, the Company’s stockholders voted in favor of the adoption of the Merger Agreement. On
August 8, 2017
, Merger Sub merged with and into the Company pursuant to the Merger Agreement and the Company became a wholly-owned subsidiary of Parent (the Closing). As a result of the Closing, Company stockholders are entitled to receive
$33.50
per share in cash as merger consideration.
|
|
|
|
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the
six
months ended
June 30, 2017
are not necessarily indicative of the results that may be expected for the full fiscal year. The consolidated balance sheet as of
December 31, 2016
has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
filed with the Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets; the identification and quantification of income tax liabilities due to uncertain tax positions; and recoverability of goodwill. The Company bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurements and Disclosure Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy that
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
|
|
|
•
|
Level 1. Observable inputs, such as quoted prices in active markets;
|
|
|
|
|
•
|
Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
|
•
|
Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level at which to classify them for each reporting period. Due to their short-term nature, the carrying amounts reported in the accompanying unaudited consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The Company determines the fair value of its term loan facilities, the 2013 Term Facility (as defined in Note 4) and the Amended 2013 Term Facility (as defined in Note 4), using pricing service quotations as quoted by Bloomberg (Level 2). The Company believes the carrying value of its Amended 2013 Revolving Facility (as defined in Note 4) approximates the fair value of the debt as the term and interest rate approximates the market rate (Level 2). The Company determines the fair value of its Senior Notes using a secondary market price on the last trading day in each period as quoted by Bloomberg (Level 2).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
June 30, 2017
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
2013 Amended Term Facility (including current portion, net of discount)
|
$
|
437,815
|
|
|
$
|
439,480
|
|
|
$
|
384,768
|
|
|
$
|
385,741
|
|
|
Amended 2013 Revolving Facility
|
85,000
|
|
|
85,000
|
|
|
—
|
|
|
—
|
|
|
Senior Notes (including current portion)
|
300,000
|
|
|
305,733
|
|
|
300,000
|
|
|
308,364
|
|
Restricted Cash
As of
December 31, 2016
and
June 30, 2017
, cash of
$2.3 million
and
$2.1 million
, respectively, was restricted as collateral for certain of the Company’s outstanding letters of credit and for deposits on leased facilities.
Recent Accounting Pronouncements - Adopted
In March 2016, the FASB issued Accounting Standards Update (ASU) 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The Company adopted the standard on January 1, 2017. On a prospective basis, the Company began recognizing excess tax benefits on stock compensation as income tax benefits on its consolidated statements of operations and within operating activities on the consolidated statements of cash flows. During the three and six months ended June 30, 2017, the Company recognized excess tax benefits of
$0.3 million
and
$3.1 million
, respectively. The Company elected to continue to estimate the number of awards expected to be forfeited. Payments to satisfy income tax withholding obligations continue to be reported as a financing activity on the consolidated statements of cash flows. The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.
Recent Accounting Pronouncements - Not Yet Effective
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. Under this standard, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective dates of the standard by one year. As a result, the standard will be effective for annual and interim periods beginning after December 15, 2017. Companies may adopt the standard as early as the original effective date (i.e. annual reporting periods beginning after December 15, 2016). The standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period presented.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
In preparation for the adoption of the new accounting standard on January 1, 2018, the Company reviewed a representative sample of its client contracts and is evaluating the provisions contained therein in light of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company is also evaluating the impact of the new standard on its current practices, such as accounting for sales commissions. Under this new guidance, sales commission expenditures may be recorded as an asset and recognized as an operating expense over the period that the Company expects to recover the costs. Currently, the Company expenses sales commissions as incurred. The Company has not yet quantified the potential impact of this or other potential impacts of the new guidance. The Company is also continuing to evaluate the approach that it will use when transitioning to this new guidance.
In February 2016, the FASB issued ASU 2016-02,
Leases
. ASU 2016-02 requires that long-term lease arrangements be recognized on the balance sheet. The standard is effective for interim and annual periods beginning after December 31, 2018, and early adoption is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This standard clarifies how certain cash receipts and cash payments should be classified on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The Company currently intends to adopt this standard on January 1, 2018 and is currently evaluating the impact of adoption on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. This standard simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test under ASC 350. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
The change in the carrying amount of the Company’s goodwill from
December 31, 2016
to
June 30, 2017
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
Foreign Currency Translation
|
|
June 30,
2017
|
|
Gross goodwill
|
$
|
1,262,584
|
|
|
$
|
4,221
|
|
|
$
|
1,266,805
|
|
|
Accumulated impairments
|
(93,602
|
)
|
|
—
|
|
|
(93,602
|
)
|
|
Net goodwill
|
$
|
1,168,982
|
|
|
$
|
4,221
|
|
|
$
|
1,173,203
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
Notes payable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2017
|
|
Amended 2013 Term Facility (net of discount)
|
$
|
437,815
|
|
|
$
|
384,768
|
|
|
Amended 2013 Term Facility deferred financing fees
|
(5,016
|
)
|
|
(3,535
|
)
|
|
Amended 2013 Revolving Facility
|
85,000
|
|
|
—
|
|
|
Amended 2013 Revolving Facility deferred financing fees
|
(916
|
)
|
|
—
|
|
|
Senior Notes
|
300,000
|
|
|
300,000
|
|
|
Senior Notes deferred financing fees
|
(10,212
|
)
|
|
(9,482
|
)
|
|
Total
|
806,671
|
|
|
671,751
|
|
|
Less: current portion, net of discount
|
(103,725
|
)
|
|
(74,555
|
)
|
|
Long-term portion
|
$
|
702,946
|
|
|
$
|
597,196
|
|
Credit Facilities and Senior Notes
On January 22, 2013, the Company entered into a credit facility that provided for a
$325 million
senior secured term loan facility (2013 Term Facility) and a
$200 million
senior secured revolving credit facility (2013 Revolving Facility, and together with the 2013 Term Facility, the 2013 Credit Facilities). In addition, the Company closed an offering of
$300 million
aggregate principal amount of senior notes (Senior Notes).
On December 9, 2015, the Company amended the 2013 Credit Facilities to provide for (i) the permissibility of an incremental term facility, (ii) the addition of a senior secured leverage financial maintenance covenant; (iii) streamlined conditions for the incurrence of an incremental term facility to be used for a permitted acquisition; (iv) a required escrow and prepayment (such prepayment to be for the benefit of the incremental facility lenders) by the Company under certain specified circumstances; and (v) certain tax related changes favorable to the Company to the terms of the Credit Agreement and related security agreement.
On September 28, 2016, the Company entered into the third amendment to the 2013 Credit Facilities to (i) extend the maturity date of the 2013 Revolving Facility (the Amended 2013 Revolving Facility) to January 22, 2019, (ii) consolidate the remaining principal balance outstanding under the 2013 Term Facility and the 2015 Incremental Term Facility into a single term loan facility of
$499 million
and extend the maturity date of the consolidated term loans to January 22, 2019 (the Amended 2013 Term Facility, and together with the Amended 2013 Revolving Facility, the Amended 2013 Credit Facilities), (iii) set the annual amortization percentage of the Amended 2013 Term Facility at
22%
through December 31, 2017 and
10%
thereafter and (iv) lower the eurodollar rate margin and base rate margin for the Amended 2013 Term Facility to (a) if the Consolidated Leverage Ratio (as defined in the Credit Agreement) is less than
2
to 1 after March 1, 2017,
3%
and
2%
, respectively, and (b) if the Consolidated Leverage Ratio is
2
to 1 or greater,
3.25%
and
2.25%
, respectively.
The Company may voluntarily prepay the borrowings under the
Amended 2013 Credit Facilities at any time in minimum amounts of
$1 million
or an integral multiple of
$500,000
in excess thereof. The Amended 2013 Credit Facilities provide for mandatory prepayments with the net cash proceeds of certain debt issuances, insurance receipts, and dispositions. The Amended 2013 Credit Facilities also contain certain events of default, upon the occurrence of which, and so long as such event of default is continuing, the amounts outstanding may, at the option of the required lenders, accrue interest at an increased rate and payments of such outstanding amounts could be accelerated, or other remedies undertaken.
As of
June 30, 2017
, there were
no
outstanding borrowings under the Amended 2013 Revolving Facility. Available borrowings under the same facility were
$182.0 million
, exclusive of outstanding letters of credit totaling
$18.0 million
.
Senior Notes
On January 22, 2013, the Company closed an offering of
$300 million
aggregate principal amount of
4.50%
senior notes due 2023. The Senior Notes are the general unsecured senior obligations of the Company and are guaranteed on a senior unsecured basis by certain of its domestic subsidiaries, or the Subsidiary Guarantors. Interest is payable on the Senior Notes semi-annually in arrears at an annual rate of
4.50%
, on January 15 and July 15 of each year, beginning on July 15, 2013.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
If the Company experiences certain changes of control together with a ratings downgrade, it will be required to offer to purchase all of the Senior Notes then outstanding at a purchase price equal to
101.00%
of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. If the Company sells certain assets and does not repay certain debt or reinvest the proceeds of such sales within certain time periods, it will be required to offer to repurchase the Senior Notes with such proceeds at
100.00%
of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
The Senior Notes contain customary events of default, including among other things, payment default, failure to provide certain notices and defaults related to bankruptcy events. The Senior Notes also contain customary negative covenants.
Future Principal Payments
Future principal payments under the Amended 2013 Credit Facilities and the Senior Notes as of
June 30, 2017
, are as follows (in thousands):
|
|
|
|
|
|
|
|
2017
|
$
|
54,878
|
|
|
2018
|
49,889
|
|
|
2019
|
284,370
|
|
|
2020
|
—
|
|
|
2021
|
—
|
|
|
Thereafter
|
300,000
|
|
|
Total future principal payments
|
$
|
689,137
|
|
As of
June 30, 2017
, a total of
6,519,366
shares were available for grant or award under the Company’s stock incentive plans.
Stock-based compensation expense recognized for the three months ended
June 30, 2016
and
2017
was
$10.6 million
and
$12.0 million
, respectively, and
$20.5 million
and
$21.5 million
for the six months ended June 30, 2016 and 2017, respectively. As of
June 30, 2017
, total unrecognized compensation expense was estimated at
$37.2 million
, which the Company expects to recognize over a weighted average period of approximately
1.1
years. Total unrecognized compensation expense as of June 30, 2017 is estimated based on outstanding non-vested stock options, non-vested restricted stock units and non-vested performance vested restricted stock units (PVRSUs). Stock-based compensation expense may increase or decrease in future periods for subsequent grants or forfeitures.
Stock Options
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of stock options granted. The following table summarizes the Company’s stock option activity for the
six
months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Weighted-
Average
Remaining
Contractual
Life
(in years)
|
|
Outstanding at December 31, 2016
|
987,984
|
|
|
$
|
25.55
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(429,511
|
)
|
|
24.51
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
558,473
|
|
|
$
|
26.35
|
|
|
$
|
1.1
|
|
|
2.0
|
|
Exercisable at June 30, 2017
|
452,133
|
|
|
$
|
26.34
|
|
|
$
|
0.7
|
|
|
1.5
|
The aggregate intrinsic value of options exercised for the
six
months ended
June 30, 2017
was
$3.8 million
.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
Performance Vested Restricted Stock Units
The fair value of a PVRSU is measured by reference to the closing market price of the Company’s common stock on the date of the grant. The Company recognizes the estimated fair value of PVRSUs, net of estimated forfeitures, as stock-based compensation expense over the vesting period, which considers each performance period or tranche separately, based upon the Company’s determination of the level of achievement of the performance target.
The following table summarizes the Company’s non-vested PVRSU activity for the
six
months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Non-vested at December 31, 2016
|
1,166,939
|
|
|
$
|
23.25
|
|
|
|
|
Granted
|
512,569
|
|
|
33.25
|
|
|
|
|
Vested
|
(451,700
|
)
|
|
23.85
|
|
|
|
|
Forfeited
|
(318,977
|
)
|
|
24.21
|
|
|
|
|
Non-vested at June 30, 2017
|
908,831
|
|
|
$
|
28.26
|
|
|
$
|
30.3
|
|
The aggregate intrinsic value of PVRSUs vested during the
six
months ended
June 30, 2017
was approximately
$15.1 million
. The Company repurchased
175,314
shares of common stock for an aggregate purchase price of
$5.8 million
pursuant to the participants’ rights under the Company’s stock incentive plans to elect to use common stock to satisfy their minimum tax withholding obligations.
Restricted Stock Units
The following table summarizes the Company’s restricted stock units activity for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Outstanding at December 31, 2016
|
2,226,948
|
|
|
$
|
27.13
|
|
|
|
|
Granted
|
45,750
|
|
|
33.15
|
|
|
|
|
Vested
|
(646,912
|
)
|
|
29.10
|
|
|
|
|
Forfeited
|
(81,950
|
)
|
|
25.34
|
|
|
|
|
Outstanding at June 30, 2017
|
1,543,836
|
|
|
$
|
26.58
|
|
|
$
|
51.5
|
|
The aggregate intrinsic value of restricted stock units vested during the
six
months ended
June 30, 2017
was approximately
$21.5 million
. The Company repurchased
249,762
shares of common stock for an aggregate purchase price of
$8.3 million
pursuant to the participants’ rights under the Company’s stock incentive plans to elect to use common stock to satisfy their minimum tax withholding obligations.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
|
|
|
|
|
|
6.
|
BASIC AND DILUTED NET INCOME PER COMMON SHARE
|
The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income per common share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Computation of basic net income per common share:
|
|
|
|
|
|
|
|
|
Net income
|
$
|
38,121
|
|
|
$
|
44,919
|
|
|
$
|
69,496
|
|
|
$
|
90,362
|
|
|
Weighted average common shares and participating securities outstanding – basic
|
54,458
|
|
|
55,865
|
|
|
54,205
|
|
|
55,589
|
|
|
Basic net income per common share
|
$
|
0.70
|
|
|
$
|
0.80
|
|
|
$
|
1.28
|
|
|
$
|
1.63
|
|
|
Computation of diluted net income per common share:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
54,458
|
|
|
55,865
|
|
|
54,205
|
|
|
55,589
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock-based awards
|
624
|
|
|
1,164
|
|
|
775
|
|
|
1,430
|
|
|
Weighted average common shares outstanding – diluted
|
55,082
|
|
|
57,029
|
|
|
54,980
|
|
|
57,019
|
|
|
Diluted net income per common share
|
$
|
0.69
|
|
|
$
|
0.79
|
|
|
$
|
1.26
|
|
|
$
|
1.58
|
|
Diluted net income per common share reflects the potential dilution of common stock equivalents such as options, to the extent the impact is dilutive. An aggregate of
2,002,992
shares were excluded from the calculation of the denominator for diluted net income per common share due to their anti-dilutive effect for the three months ended June 30, 2016. There were
no
shares with an anti-dilutive effect for the three months ended June 30, 2017. An aggregate of
1,877,467
and
84,276
shares were excluded from the calculation of the denominator for diluted net income per common share due to their anti-dilutive effect for the six months ended June 30, 2016 and 2017, respectively.
|
|
|
|
|
|
7.
|
INTEREST AND OTHER EXPENSE
|
Interest and other expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Interest and other expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
15,961
|
|
|
$
|
10,433
|
|
|
$
|
32,527
|
|
|
$
|
22,079
|
|
|
Loss on asset disposals
|
8
|
|
|
274
|
|
|
8
|
|
|
260
|
|
|
Foreign currency transaction (gain) loss
|
(278
|
)
|
|
(77
|
)
|
|
267
|
|
|
562
|
|
|
Total interest and other expense
|
$
|
15,691
|
|
|
$
|
10,630
|
|
|
$
|
32,802
|
|
|
$
|
22,901
|
|
The Company’s effective tax rate, including discrete tax benefits of
$3.9 million
, decreased to
31.9%
for the
six
months ended
June 30, 2017
from
32.7%
for the
six
months ended
June 30, 2016
, primarily due to the adoption of ASU 2016-09 in the first quarter of 2017. As a result of the adoption of this standard, the Company recognizes excess tax benefits on stock compensation as a discrete item within income tax benefits on its consolidated statements of operations. Prior to the adoption of this standard, excess tax benefits were recognized in additional paid-in capital on the Company’s consolidated balance sheet.
As of
December 31, 2016
and
June 30, 2017
, the Company had unrecognized tax benefits of
$7.5 million
and
$7.9 million
, respectively, of which
$6.9 million
and
$7.3 million
, respectively, would affect the Company’s effective tax rate if recognized.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the three and six months ended June 30, 2016 and 2017, potential interest and penalties were insignificant. Interest and penalties are primarily due to uncertain tax positions assumed in acquisitions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
The Company files income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. The tax years 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Virginia Department of Taxation initiated an examination of the 2014 and 2015 corporate income tax returns for Neustar, Inc. and Subsidiaries. Management does not currently believe that the outcome will have a material adverse effect on the Company’s financial position, result of operations or cash flows. During 2017, the IRS completed an examination of the 2012 federal income tax return of Neustar, Inc. and its subsidiaries. No adjustments were made as a result of the audit.
The Company anticipates that the amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations and settlement of tax audits is not material to the Company’s consolidated financial statements.
The Company engages in business activities as a single entity and the chief operating decision maker reviews consolidated operating results and allocates resources based on consolidated reports. The Company has a single operating segment.
Enterprise-Wide Disclosures
Revenue by geographical areas is based on the billing addresses of the Company’s clients. Geographic area revenue and service revenue from external clients for the
three and six
months ended
June 30, 2016
and
2017
, and geographic area property and equipment as of December 31,
2016
and
June 30, 2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
Revenue by geographical areas:
|
|
|
|
|
|
|
|
|
United States
|
$
|
271,752
|
|
|
$
|
274,156
|
|
|
$
|
536,444
|
|
|
$
|
543,942
|
|
|
International
|
25,813
|
|
|
23,782
|
|
|
48,419
|
|
|
47,182
|
|
|
Total revenue
|
$
|
297,565
|
|
|
$
|
297,938
|
|
|
$
|
584,863
|
|
|
$
|
591,124
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by service:
|
|
|
|
|
|
|
|
|
Marketing Services
|
$
|
63,923
|
|
|
$
|
67,796
|
|
|
$
|
121,594
|
|
|
$
|
132,835
|
|
|
Security Services
|
49,323
|
|
|
47,455
|
|
|
97,970
|
|
|
94,330
|
|
|
Data Services
|
55,808
|
|
|
54,761
|
|
|
108,964
|
|
|
107,766
|
|
|
NPAC Services
|
128,511
|
|
|
127,926
|
|
|
256,335
|
|
|
256,193
|
|
|
Total revenue
|
$
|
297,565
|
|
|
$
|
297,938
|
|
|
$
|
584,863
|
|
|
$
|
591,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2017
|
|
Property and equipment, net
|
|
|
|
|
United States
|
$
|
143,560
|
|
|
$
|
149,900
|
|
|
Australia
|
1,378
|
|
|
926
|
|
|
Other
|
883
|
|
|
984
|
|
|
Total property and equipment, net
|
$
|
145,821
|
|
|
$
|
151,810
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
|
|
|
|
|
|
10.
|
SUPPLEMENTAL GUARANTOR INFORMATION
|
The following schedules present condensed consolidating financial information of the Company as of December 31,
2016
and
June 30, 2017
and for the three and six months ended
June 30, 2016
and
2017
for (a) Neustar, Inc., the parent company; (b) certain of the Company’s 100% owned domestic subsidiaries (collectively, the Subsidiary Guarantors); and (c) certain wholly-owned domestic and foreign subsidiaries of the Company (collectively, the Non-Guarantor Subsidiaries). Investments in subsidiaries are accounted for using the equity method; accordingly, entries necessary to consolidate the parent company and all of the guarantor and non-guarantor subsidiaries are reflected in the eliminations column. Intercompany amounts that will not be settled between entities are treated as contributions or distributions for purposes of these consolidated financial statements. The guarantees, as outlined in Note 4, are full and unconditional and joint and several. A Subsidiary Guarantor will be released from its obligations under the Senior Notes when: (a) the Subsidiary Guarantor is sold or sells substantially all of its assets; (b) the Subsidiary Guarantor is designated as an unrestricted subsidiary as defined by the Senior Notes; (c) the Subsidiary Guarantor’s guarantee of indebtedness under the Senior Notes is released (other than discharge through repayment); or (d) the requirements for legal or covenant defeasance or discharge of the indenture have been satisfied.
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
21,871
|
|
|
$
|
15,037
|
|
|
$
|
8,865
|
|
|
$
|
—
|
|
|
$
|
45,773
|
|
|
Restricted cash
|
1,260
|
|
|
1,023
|
|
|
—
|
|
|
—
|
|
|
2,283
|
|
|
Accounts receivable, net
|
100,686
|
|
|
102,565
|
|
|
4,344
|
|
|
—
|
|
|
207,595
|
|
|
Unbilled receivables
|
3,829
|
|
|
14,652
|
|
|
1,314
|
|
|
—
|
|
|
19,795
|
|
|
Prepaid expenses and other current assets
|
32,799
|
|
|
7,039
|
|
|
1,842
|
|
|
—
|
|
|
41,680
|
|
|
Deferred costs
|
2,232
|
|
|
5,964
|
|
|
3,273
|
|
|
—
|
|
|
11,469
|
|
|
Income taxes receivable
|
17,481
|
|
|
—
|
|
|
1,007
|
|
|
(4,902
|
)
|
|
13,586
|
|
|
Intercompany receivable
|
9,990
|
|
|
1,365
|
|
|
—
|
|
|
(11,355
|
)
|
|
—
|
|
|
Total current assets
|
190,148
|
|
|
147,645
|
|
|
20,645
|
|
|
(16,257
|
)
|
|
342,181
|
|
|
Property and equipment, net
|
133,759
|
|
|
9,636
|
|
|
2,426
|
|
|
—
|
|
|
145,821
|
|
|
Goodwill
|
94,153
|
|
|
968,116
|
|
|
106,713
|
|
|
—
|
|
|
1,168,982
|
|
|
Intangible assets, net
|
10,967
|
|
|
368,068
|
|
|
44,922
|
|
|
—
|
|
|
423,957
|
|
|
Net investments in subsidiaries
|
1,490,889
|
|
|
—
|
|
|
—
|
|
|
(1,490,889
|
)
|
|
—
|
|
|
Other assets, long-term
|
11,686
|
|
|
3,206
|
|
|
2,879
|
|
|
—
|
|
|
17,771
|
|
|
Total assets
|
$
|
1,931,602
|
|
|
$
|
1,496,671
|
|
|
$
|
177,585
|
|
|
$
|
(1,507,146
|
)
|
|
$
|
2,098,712
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
10,733
|
|
|
$
|
9,578
|
|
|
$
|
784
|
|
|
$
|
—
|
|
|
$
|
21,095
|
|
|
Accrued expenses
|
84,782
|
|
|
41,458
|
|
|
8,305
|
|
|
—
|
|
|
134,545
|
|
|
Income taxes payable
|
—
|
|
|
4,902
|
|
|
—
|
|
|
(4,902
|
)
|
|
—
|
|
|
Deferred revenue
|
24,503
|
|
|
48,753
|
|
|
17,932
|
|
|
—
|
|
|
91,188
|
|
|
Notes payable
|
103,725
|
|
|
6,849
|
|
|
3,141
|
|
|
(9,990
|
)
|
|
103,725
|
|
|
Capital lease obligations
|
1,457
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,457
|
|
|
Other liabilities
|
6,564
|
|
|
4,936
|
|
|
132
|
|
|
—
|
|
|
11,632
|
|
|
Intercompany payable
|
938
|
|
|
—
|
|
|
427
|
|
|
(1,365
|
)
|
|
—
|
|
|
Total current liabilities
|
232,702
|
|
|
116,476
|
|
|
30,721
|
|
|
(16,257
|
)
|
|
363,642
|
|
|
Deferred revenue, long-term
|
8,426
|
|
|
8,360
|
|
|
5,651
|
|
|
—
|
|
|
22,437
|
|
|
Notes payable, long-term
|
702,946
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
702,946
|
|
|
Deferred income tax liabilities, long-term
|
9,493
|
|
|
19,616
|
|
|
5,979
|
|
|
—
|
|
|
35,088
|
|
|
Other liabilities, long-term
|
41,411
|
|
|
5,313
|
|
|
6,574
|
|
|
—
|
|
|
53,298
|
|
|
Total liabilities
|
994,978
|
|
|
149,765
|
|
|
48,925
|
|
|
(16,257
|
)
|
|
1,177,411
|
|
|
Total stockholders’ equity
|
936,624
|
|
|
1,346,906
|
|
|
128,660
|
|
|
(1,490,889
|
)
|
|
921,301
|
|
|
Total liabilities and stockholders’ equity
|
$
|
1,931,602
|
|
|
$
|
1,496,671
|
|
|
$
|
177,585
|
|
|
$
|
(1,507,146
|
)
|
|
$
|
2,098,712
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
78,860
|
|
|
$
|
6,483
|
|
|
$
|
9,480
|
|
|
$
|
—
|
|
|
$
|
94,823
|
|
|
Restricted cash
|
1,260
|
|
|
879
|
|
|
—
|
|
|
—
|
|
|
2,139
|
|
|
Accounts receivable, net
|
98,408
|
|
|
82,740
|
|
|
5,721
|
|
|
—
|
|
|
186,869
|
|
|
Unbilled receivables
|
1,284
|
|
|
12,818
|
|
|
1,763
|
|
|
—
|
|
|
15,865
|
|
|
Prepaid expenses and other current assets
|
30,023
|
|
|
4,861
|
|
|
1,834
|
|
|
—
|
|
|
36,718
|
|
|
Deferred costs
|
1,979
|
|
|
4,728
|
|
|
3,793
|
|
|
—
|
|
|
10,500
|
|
|
Income taxes receivable
|
—
|
|
|
410
|
|
|
1,187
|
|
|
(1,597
|
)
|
|
—
|
|
|
Intercompany receivable
|
9,796
|
|
|
448
|
|
|
5,919
|
|
|
(16,163
|
)
|
|
—
|
|
|
Total current assets
|
221,610
|
|
|
113,367
|
|
|
29,697
|
|
|
(17,760
|
)
|
|
346,914
|
|
|
Property and equipment, net
|
141,413
|
|
|
8,423
|
|
|
1,974
|
|
|
—
|
|
|
151,810
|
|
|
Goodwill
|
94,153
|
|
|
968,116
|
|
|
110,934
|
|
|
—
|
|
|
1,173,203
|
|
|
Intangible assets, net
|
9,721
|
|
|
331,738
|
|
|
43,472
|
|
|
—
|
|
|
384,931
|
|
|
Net investments in subsidiaries
|
1,440,432
|
|
|
—
|
|
|
—
|
|
|
(1,440,432
|
)
|
|
—
|
|
|
Other assets, long-term
|
11,147
|
|
|
2,641
|
|
|
3,093
|
|
|
—
|
|
|
16,881
|
|
|
Total assets
|
$
|
1,918,476
|
|
|
$
|
1,424,285
|
|
|
$
|
189,170
|
|
|
$
|
(1,458,192
|
)
|
|
$
|
2,073,739
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
13,457
|
|
|
$
|
8,020
|
|
|
$
|
708
|
|
|
$
|
—
|
|
|
$
|
22,185
|
|
|
Accrued expenses
|
73,798
|
|
|
24,970
|
|
|
5,432
|
|
|
—
|
|
|
104,200
|
|
|
Deferred revenue
|
26,966
|
|
|
51,722
|
|
|
21,895
|
|
|
—
|
|
|
100,583
|
|
|
Notes payable
|
74,555
|
|
|
6,612
|
|
|
3,184
|
|
|
(9,796
|
)
|
|
74,555
|
|
|
Capital lease obligations
|
121
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
121
|
|
|
Income taxes payable
|
24,218
|
|
|
—
|
|
|
—
|
|
|
(1,597
|
)
|
|
22,621
|
|
|
Other liabilities
|
10,797
|
|
|
3,103
|
|
|
216
|
|
|
—
|
|
|
14,116
|
|
|
Intercompany payable
|
6,367
|
|
|
—
|
|
|
—
|
|
|
(6,367
|
)
|
|
—
|
|
|
Total current liabilities
|
230,279
|
|
|
94,427
|
|
|
31,435
|
|
|
(17,760
|
)
|
|
338,381
|
|
|
Deferred revenue, long-term
|
8,119
|
|
|
9,195
|
|
|
6,268
|
|
|
—
|
|
|
23,582
|
|
|
Notes payable, long-term
|
597,196
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
597,196
|
|
|
Deferred income tax liabilities, long-term
|
14,951
|
|
|
11,033
|
|
|
5,561
|
|
|
3,009
|
|
|
34,554
|
|
|
Other liabilities, long-term
|
40,598
|
|
|
4,399
|
|
|
6,697
|
|
|
—
|
|
|
51,694
|
|
|
Total liabilities
|
891,143
|
|
|
119,054
|
|
|
49,961
|
|
|
(14,751
|
)
|
|
1,045,407
|
|
|
Total stockholders’ equity
|
1,027,333
|
|
|
1,305,231
|
|
|
139,209
|
|
|
(1,443,441
|
)
|
|
1,028,332
|
|
|
Total liabilities and stockholders’ equity
|
$
|
1,918,476
|
|
|
$
|
1,424,285
|
|
|
$
|
189,170
|
|
|
$
|
(1,458,192
|
)
|
|
$
|
2,073,739
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
JUNE 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenue
|
$
|
168,591
|
|
|
$
|
123,831
|
|
|
$
|
16,192
|
|
|
$
|
(11,049
|
)
|
|
$
|
297,565
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization shown separately below)
|
41,795
|
|
|
52,161
|
|
|
6,171
|
|
|
(9,890
|
)
|
|
90,237
|
|
|
Sales and marketing
|
30,899
|
|
|
21,336
|
|
|
3,139
|
|
|
(1,086
|
)
|
|
54,288
|
|
|
Research and development
|
5,103
|
|
|
(231
|
)
|
|
388
|
|
|
—
|
|
|
5,260
|
|
|
General and administrative
|
22,672
|
|
|
3,665
|
|
|
974
|
|
|
(73
|
)
|
|
27,238
|
|
|
Depreciation and amortization
|
13,615
|
|
|
22,798
|
|
|
2,416
|
|
|
—
|
|
|
38,829
|
|
|
Restructuring charges
|
3,705
|
|
|
1,968
|
|
|
456
|
|
|
—
|
|
|
6,129
|
|
|
Separation costs
|
4,218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,218
|
|
|
|
122,007
|
|
|
101,697
|
|
|
13,544
|
|
|
(11,049
|
)
|
|
226,199
|
|
|
Income from operations
|
46,584
|
|
|
22,134
|
|
|
2,648
|
|
|
—
|
|
|
71,366
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(16,025
|
)
|
|
(816
|
)
|
|
1,150
|
|
|
—
|
|
|
(15,691
|
)
|
|
Interest income
|
982
|
|
|
100
|
|
|
(1,015
|
)
|
|
—
|
|
|
67
|
|
|
Income before income taxes and equity income in consolidated subsidiaries
|
31,541
|
|
|
21,418
|
|
|
2,783
|
|
|
—
|
|
|
55,742
|
|
|
Provision for income taxes
|
11,011
|
|
|
6,334
|
|
|
276
|
|
|
—
|
|
|
17,621
|
|
|
Income before equity income in consolidated subsidiaries
|
20,530
|
|
|
15,084
|
|
|
2,507
|
|
|
—
|
|
|
38,121
|
|
|
Equity income in consolidated subsidiaries
|
17,591
|
|
|
164
|
|
|
—
|
|
|
(17,755
|
)
|
|
—
|
|
|
Net income
|
$
|
38,121
|
|
|
$
|
15,248
|
|
|
$
|
2,507
|
|
|
$
|
(17,755
|
)
|
|
$
|
38,121
|
|
|
Comprehensive income
|
$
|
39,199
|
|
|
$
|
15,237
|
|
|
$
|
81
|
|
|
$
|
(17,755
|
)
|
|
$
|
36,762
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
JUNE 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenue
|
$
|
171,466
|
|
|
$
|
126,053
|
|
|
$
|
14,968
|
|
|
$
|
(14,549
|
)
|
|
$
|
297,938
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization shown separately below)
|
43,126
|
|
|
50,371
|
|
|
5,465
|
|
|
(11,640
|
)
|
|
87,322
|
|
|
Sales and marketing
|
35,078
|
|
|
20,212
|
|
|
1,370
|
|
|
(2,689
|
)
|
|
53,971
|
|
|
Research and development
|
5,778
|
|
|
1,925
|
|
|
(99
|
)
|
|
—
|
|
|
7,604
|
|
|
General and administrative
|
24,058
|
|
|
3,292
|
|
|
(19
|
)
|
|
(220
|
)
|
|
27,111
|
|
|
Depreciation and amortization
|
14,110
|
|
|
19,121
|
|
|
2,221
|
|
|
—
|
|
|
35,452
|
|
|
Restructuring charges
|
5,518
|
|
|
1,963
|
|
|
531
|
|
|
—
|
|
|
8,012
|
|
|
|
127,668
|
|
|
96,884
|
|
|
9,469
|
|
|
(14,549
|
)
|
|
219,472
|
|
|
Income from operations
|
43,798
|
|
|
29,169
|
|
|
5,499
|
|
|
—
|
|
|
78,466
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(10,733
|
)
|
|
(98
|
)
|
|
201
|
|
|
—
|
|
|
(10,630
|
)
|
|
Interest income
|
58
|
|
|
127
|
|
|
(111
|
)
|
|
—
|
|
|
74
|
|
|
Income before income taxes and equity income in consolidated subsidiaries
|
33,123
|
|
|
29,198
|
|
|
5,589
|
|
|
—
|
|
|
67,910
|
|
|
Provision (benefit) for income taxes
|
7,641
|
|
|
15,448
|
|
|
(98
|
)
|
|
—
|
|
|
22,991
|
|
|
Income before equity income in consolidated subsidiaries
|
25,482
|
|
|
13,750
|
|
|
5,687
|
|
|
—
|
|
|
44,919
|
|
|
Equity income in consolidated subsidiaries
|
19,437
|
|
|
649
|
|
|
—
|
|
|
(20,086
|
)
|
|
—
|
|
|
Net income
|
$
|
44,919
|
|
|
$
|
14,399
|
|
|
$
|
5,687
|
|
|
$
|
(20,086
|
)
|
|
$
|
44,919
|
|
|
Comprehensive income (loss)
|
$
|
44,756
|
|
|
$
|
24,689
|
|
|
$
|
(4,365
|
)
|
|
$
|
(20,086
|
)
|
|
$
|
44,994
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenue
|
$
|
335,530
|
|
|
$
|
242,238
|
|
|
$
|
28,752
|
|
|
$
|
(21,657
|
)
|
|
$
|
584,863
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization shown separately below)
|
83,471
|
|
|
103,088
|
|
|
13,448
|
|
|
(18,419
|
)
|
|
181,588
|
|
|
Sales and marketing
|
61,712
|
|
|
43,871
|
|
|
6,318
|
|
|
(2,290
|
)
|
|
109,611
|
|
|
Research and development
|
10,574
|
|
|
1,392
|
|
|
843
|
|
|
—
|
|
|
12,809
|
|
|
General and administrative
|
45,006
|
|
|
9,537
|
|
|
1,161
|
|
|
(948
|
)
|
|
54,756
|
|
|
Depreciation and amortization
|
26,939
|
|
|
45,594
|
|
|
4,778
|
|
|
—
|
|
|
77,311
|
|
|
Restructuring charges
|
6,369
|
|
|
1,968
|
|
|
456
|
|
|
—
|
|
|
8,793
|
|
|
Separation costs
|
4,218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,218
|
|
|
|
238,289
|
|
|
205,450
|
|
|
27,004
|
|
|
(21,657
|
)
|
|
449,086
|
|
|
Income from operations
|
97,241
|
|
|
36,788
|
|
|
1,748
|
|
|
—
|
|
|
135,777
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(32,305
|
)
|
|
(970
|
)
|
|
473
|
|
|
—
|
|
|
(32,802
|
)
|
|
Interest income
|
1,095
|
|
|
170
|
|
|
(1,024
|
)
|
|
—
|
|
|
241
|
|
|
Income before income taxes and equity income in consolidated subsidiaries
|
66,031
|
|
|
35,988
|
|
|
1,197
|
|
|
—
|
|
|
103,216
|
|
|
Provision (benefit) for income taxes
|
22,622
|
|
|
11,546
|
|
|
(448
|
)
|
|
—
|
|
|
33,720
|
|
|
Income before equity income in consolidated subsidiaries
|
43,409
|
|
|
24,442
|
|
|
1,645
|
|
|
—
|
|
|
69,496
|
|
|
Equity income in consolidated subsidiaries
|
26,087
|
|
|
311
|
|
|
—
|
|
|
(26,398
|
)
|
|
—
|
|
|
Net income
|
$
|
69,496
|
|
|
$
|
24,753
|
|
|
$
|
1,645
|
|
|
$
|
(26,398
|
)
|
|
$
|
69,496
|
|
|
Comprehensive income
|
$
|
68,716
|
|
|
$
|
24,732
|
|
|
$
|
3,828
|
|
|
$
|
(26,398
|
)
|
|
$
|
70,878
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenue
|
$
|
342,089
|
|
|
$
|
247,739
|
|
|
$
|
29,114
|
|
|
$
|
(27,818
|
)
|
|
$
|
591,124
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization shown separately below)
|
86,037
|
|
|
101,154
|
|
|
10,879
|
|
|
(22,832
|
)
|
|
175,238
|
|
|
Sales and marketing
|
70,474
|
|
|
41,929
|
|
|
2,803
|
|
|
(4,678
|
)
|
|
110,528
|
|
|
Research and development
|
10,211
|
|
|
4,205
|
|
|
(140
|
)
|
|
—
|
|
|
14,276
|
|
|
General and administrative
|
50,340
|
|
|
5,799
|
|
|
(360
|
)
|
|
(308
|
)
|
|
55,471
|
|
|
Depreciation and amortization
|
27,626
|
|
|
38,267
|
|
|
4,486
|
|
|
—
|
|
|
70,379
|
|
|
Restructuring charges
|
5,554
|
|
|
1,954
|
|
|
531
|
|
|
—
|
|
|
8,039
|
|
|
Separation costs
|
1,789
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,789
|
|
|
|
252,031
|
|
|
193,308
|
|
|
18,199
|
|
|
(27,818
|
)
|
|
435,720
|
|
|
Income from operations
|
90,058
|
|
|
54,431
|
|
|
10,915
|
|
|
—
|
|
|
155,404
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(22,635
|
)
|
|
(336
|
)
|
|
70
|
|
|
—
|
|
|
(22,901
|
)
|
|
Interest income
|
116
|
|
|
254
|
|
|
(224
|
)
|
|
—
|
|
|
146
|
|
|
Income before income taxes and equity income in consolidated subsidiaries
|
67,539
|
|
|
54,349
|
|
|
10,761
|
|
|
—
|
|
|
132,649
|
|
|
Provision for income taxes
|
17,324
|
|
|
24,818
|
|
|
145
|
|
|
—
|
|
|
42,287
|
|
|
Income before equity income in consolidated subsidiaries
|
50,215
|
|
|
29,531
|
|
|
10,616
|
|
|
—
|
|
|
90,362
|
|
|
Equity income in consolidated subsidiaries
|
40,147
|
|
|
1,240
|
|
|
—
|
|
|
(41,387
|
)
|
|
—
|
|
|
Net income
|
$
|
90,362
|
|
|
$
|
30,771
|
|
|
$
|
10,616
|
|
|
$
|
(41,387
|
)
|
|
$
|
90,362
|
|
|
Comprehensive income
|
$
|
88,348
|
|
|
$
|
30,763
|
|
|
$
|
15,622
|
|
|
$
|
(41,387
|
)
|
|
$
|
93,346
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
151,200
|
|
|
$
|
76,028
|
|
|
$
|
(9,505
|
)
|
|
$
|
(93,418
|
)
|
|
$
|
124,305
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(21,533
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
—
|
|
|
(23,366
|
)
|
|
Businesses acquired, net of cash acquired
|
12
|
|
|
|
|
|
|
|
|
12
|
|
|
Net cash used in investing activities
|
(21,521
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
—
|
|
|
(23,354
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Decrease of restricted cash
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
Payments under notes payable obligations
|
(126,731
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(126,731
|
)
|
|
Principal repayments on capital lease obligations
|
(2,774
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,774
|
)
|
|
Proceeds from issuance of stock
|
432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
432
|
|
|
Tax benefit from equity awards
|
259
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
260
|
|
|
Repurchase of restricted stock awards and common stock
|
(10,762
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,762
|
)
|
|
(Distribution to) investment by parent
|
—
|
|
|
(95,596
|
)
|
|
2,178
|
|
|
93,418
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
(139,576
|
)
|
|
(95,523
|
)
|
|
2,179
|
|
|
93,418
|
|
|
(139,502
|
)
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
420
|
|
|
(17
|
)
|
|
(292
|
)
|
|
—
|
|
|
111
|
|
|
Net (decrease) in cash and cash equivalents
|
(9,477
|
)
|
|
(21,345
|
)
|
|
(7,618
|
)
|
|
—
|
|
|
(38,440
|
)
|
|
Cash and cash equivalents at beginning of period
|
48,061
|
|
|
27,092
|
|
|
13,944
|
|
|
—
|
|
|
89,097
|
|
|
Cash and cash equivalents at end of period
|
$
|
38,584
|
|
|
$
|
5,747
|
|
|
$
|
6,326
|
|
|
$
|
—
|
|
|
$
|
50,657
|
|
NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NeuStar, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by operating activities
|
$
|
230,631
|
|
|
$
|
87,528
|
|
|
$
|
399
|
|
|
$
|
(92,575
|
)
|
|
$
|
225,983
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(27,259
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
—
|
|
|
(29,092
|
)
|
|
Net cash used in investing activities
|
(27,259
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
—
|
|
|
(29,092
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Decrease of restricted cash
|
—
|
|
|
144
|
|
|
—
|
|
|
—
|
|
|
144
|
|
|
Payments under notes payable obligations
|
(139,878
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(139,878
|
)
|
|
Principal repayments on capital lease obligations
|
(1,336
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,336
|
)
|
|
Proceeds from issuance of stock
|
6,161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,161
|
|
|
Repurchase of restricted stock awards and common stock
|
(12,539
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,539
|
)
|
|
(Distribution to) investment by parent
|
—
|
|
|
(94,386
|
)
|
|
1,811
|
|
|
92,575
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
(147,592
|
)
|
|
(94,242
|
)
|
|
1,811
|
|
|
92,575
|
|
|
(147,448
|
)
|
|
Effect of foreign exchange rates on cash and cash equivalents
|
1,209
|
|
|
(7
|
)
|
|
(1,595
|
)
|
|
—
|
|
|
(393
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
56,989
|
|
|
(8,554
|
)
|
|
615
|
|
|
—
|
|
|
49,050
|
|
|
Cash and cash equivalents at beginning of period
|
21,871
|
|
|
15,037
|
|
|
8,865
|
|
|
—
|
|
|
45,773
|
|
|
Cash and cash equivalents at end of period
|
$
|
78,860
|
|
|
$
|
6,483
|
|
|
$
|
9,480
|
|
|
$
|
—
|
|
|
$
|
94,823
|
|
|
|
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements, including, without limitation, statements concerning the conditions in our industries, our operations and economic performance, and our business and growth strategy. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Many of these risks are beyond our ability to control or predict. These forward-looking statements are based on estimates and assumptions made by our management that we believe to be reasonable but are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those described in this report, in Part II, “Item 1A. Risk Factors” and in subsequent filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
Overview
We announced on December 14, 2016 that we entered into a definitive merger agreement to be acquired by a private investment group led by Golden Gate Capital. Under the terms of the merger agreement, our stockholders are entitled to receive $33.50 per share following the closing of the proposed merger. On March 14, 2017, our stockholders voted in favor of the adoption of the merger agreement. As of August 4, 2017, all required regulatory approvals had been received and the merger was completed on
August 8, 2017
.
On March 26, 2015, the FCC approved a competitor to serve as the next Local Number Portability Administrator, or LNPA, and authorized the North American Portability Management LLC, or NAPM, to begin contract negotiations with that competitor. On April 6, 2015, we filed a Petition for Review asking the U.S. Court of Appeals for the District of Columbia Circuit to “hold unlawful, vacate, enjoin, and set aside” the FCC’s Order approving the North American Numbering Council’s recommendation. The Court of Appeals issued its decision on May 26, 2017 and denied our Petition for Review. We are reviewing the decision.
On April 7, 2015, we amended our seven regional contracts with the NAPM. Under this amendment, we will provide LNPA services for an annual fixed fee of $496.1 million until the termination of these contracts. In addition to LNPA services, we are providing certain transition services under this amendment on a cost-plus basis. On July 1, 2016, we received a notice of non-renewal from the NAPM informing us of its election not to renew the master agreements that were due to expire on September 30, 2016. On July 25, 2016 the FCC issued an Order approving the proposed contract between the NAPM and a competitor to serve as the next LNPA. On September 29, 2016, the NAPM provided notice to extend the term of our master contracts with the NAPM and opted not to license the source code that we use to provide services to the NAPM. We will continue to provide services and transition services at the pricing terms under the current contracts until the NAPM provides at least one termination notice to us, which must establish a termination date that is 180 days after the date of notice. We cannot be certain how long we will provide LNPA services; however, we will continue to provide services under the current terms of the NAPM contracts for as long as required by NAPM. On April 20, 2016, the NAPM Transition Oversight Manager, or the TOM, published a transition timeline which extends the transition through the third quarter of 2017. The TOM subsequently issued a revised timeline that extends the transition through May 25, 2018.
Prior to the April 2015 amendment, we provided LNPA services under our contracts with NAPM for a fixed fee with a 6.5% annual price escalator. These contracts were due to expire on June 30, 2015. The 2015 LNPA service fixed fee under the prior contract terms represents the impact of a 6.5% annual escalator on the 2014 LNPA service fixed fee of $465.8 million, resulting in a 2015 LNPA service fixed fee of $496.1 million. Under the April 7, 2015 amendment, the annual LNPA service fixed fee remains the same at $496.1 million for the duration of the amended term of the contracts.
Loss of the NPAC contracts will have a material adverse impact on our future operating results when compared to our current financial profile. We expect to lose approximately $500 million of annual revenue and this loss will adversely impact our income from operations and operating margin. Additionally, this loss may have a disproportionate material negative impact on our operating margin because of the largely fixed and shared cost structure that is designed to support all of our services. As a result of the uncertain contract end date and due to our cost structure, which is organized by function, we are currently analyzing the impact of the termination of the contracts on our income from operations in an effort to quantify such impacts.
Our disclosure will expand as we evaluate the cost structure that will be in place to support our ongoing business or as we learn more about the timing of the contract termination.
Given the facts and circumstances described above, we determined that the structure of our organization is appropriate at this time.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our unaudited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenue and expense during a fiscal period. The U.S. Securities and Exchange Commission, or SEC, considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our Board of Directors, and the audit committee has reviewed our related disclosures in this report.
Although we believe that our judgments and estimates are appropriate and reasonable, actual results may differ from those estimates. In addition, while we have used our best estimates based on the facts and circumstances available to us at the time, we reasonably could have used different estimates in the current period. Changes in the accounting estimates we use are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations could be materially affected. See the information in our filings with the SEC from time to time, including Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016, for certain matters that may bear on our results of operations.
For a discussion of selected critical accounting policies refer to our critical accounting policies described in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Consolidated Results of Operations
Three Months Ended
June 30, 2016
Compared to Three Months Ended
June 30, 2017
The following table presents an overview of our results of operations for the three months ended
June 30, 2016
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2016
|
|
2017
|
|
2016 vs. 2017
|
|
|
$
|
|
$
|
|
$ Change
|
|
% Change
|
|
|
(unaudited)
(dollars in thousands, except per share data)
|
|
Revenue
|
$
|
297,565
|
|
|
$
|
297,938
|
|
|
$
|
373
|
|
|
0.1
|
%
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
Cost of revenue (excludes depreciation and amortization shown separately below)
|
90,237
|
|
|
87,322
|
|
|
(2,915
|
)
|
|
(3.2
|
)%
|
|
Sales and marketing
|
54,288
|
|
|
53,971
|
|
|
(317
|
)
|
|
(0.6
|
)%
|
|
Research and development
|
5,260
|
|
|
7,604
|
|
|
2,344
|
|
|
44.6
|
%
|
|
General and administrative
|
27,238
|
|
|
27,111
|
|
|
(127
|
)
|
|
(0.5
|
)%
|
|
Depreciation and amortization
|
38,829
|
|
|
35,452
|
|
|
(3,377
|
)
|
|
(8.7
|
)%
|
|
Restructuring charges
|
6,129
|
|
|
8,012
|
|
|
1,883
|
|
|
30.7
|
%
|
|
Separation costs
|
4,218
|
|
|
—
|
|
|
(4,218
|
)
|
|
(100.0
|
)%
|
|
|
226,199
|
|
|
219,472
|
|
|
(6,727
|
)
|
|
(3.0
|
)%
|
|
Income from operations
|
71,366
|
|
|
78,466
|
|
|
7,100
|
|
|
9.9
|
%
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(15,691
|
)
|
|
(10,630
|
)
|
|
5,061
|
|
|
(32.3
|
)%
|
|
Interest income
|
67
|
|
|
74
|
|
|
7
|
|
|
10.4
|
%
|
|
Income before income taxes
|
55,742
|
|
|
67,910
|
|
|
12,168
|
|
|
21.8
|
%
|
|
Provision for income taxes
|
17,621
|
|
|
22,991
|
|
|
5,370
|
|
|
30.5
|
%
|
|
Net income
|
$
|
38,121
|
|
|
$
|
44,919
|
|
|
$
|
6,798
|
|
|
17.8
|
%
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.70
|
|
|
$
|
0.80
|
|
|
|
|
|
|
Diluted
|
$
|
0.69
|
|
|
$
|
0.79
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
54,458
|
|
|
55,865
|
|
|
|
|
|
|
Diluted
|
55,082
|
|
|
57,029
|
|
|
|
|
|
Revenue
Revenue.
Revenue increased
$0.4 million
. Marketing Services revenue increased
$3.9 million
driven by increased demand for our services that our clients use to make informed and high impact decisions to promote their products and services.
Security Services revenue decreased
$1.9 million
due to a decrease in revenue of $2.4 million from domain name registries, partially offset by an increase in revenue of $0.5 million from our DNS services. The decrease in revenue from domain name registries was driven by consolidation of the customer base in the second quarter of 2016. The increase in revenue from our DNS services resulted from greater channel partner revenue.
Data Services revenue decreased
$1.0 million
due to a decrease in revenue of $1.7 million from caller identification services and a decrease in revenue of $1.5 million from user authentication and rights management services, partially offset by an increase in revenue of $2.2 million from carrier provisioning services.
NPAC Services revenue decreased
$0.6 million
driven by a decrease in revenue from transition services under our contracts to provide LNPA services.
Expense
Cost of revenue.
Cost of revenue decreased
$2.9 million
due to decreases of $1.4 million in royalty costs, $1.1 million in personnel and personnel-related expense and $0.9 million in contractor costs. These decreases were partially offset by an increase of $0.5 million in costs related to our information technology and systems.
Sales and marketing.
Sales and marketing expense decreased
$0.3 million
due a decrease of $1.8 million in advertising and marketing costs, partially offset by increases of $1.0 million in personnel and personnel-related expense and $0.5 million in maintenance and general facilities costs.
Research and development.
Research and development expense increased
$2.3 million
due to an increase in personnel and personnel-related expense.
General and administrative.
General and administrative expense decreased
$0.1 million
due to decreases of $2.9 million in personnel and personnel-related expense, $0.6 million in professional fees, and $0.3 million in general facilities and other costs. These decreases were partially offset by an increase of $3.7 million in merger-related costs.
Depreciation and amortization.
Depreciation and amortization expense decreased
$3.4 million
due to a decrease in amortization of intangible assets.
Restructuring charges.
Restructuring charges increased
$1.9 million
due to an increase in severance and severance-related expense.
Separation costs.
During the three months ended June 30, 2016, we incurred separation costs of
$4.2 million
. Prior to entering into the merger agreement, we announced in the second quarter of 2016 our intention to separate into two independent and publicly traded companies through a tax-free spin-off. Separation costs related to activities supporting the planned separation including professional fees for outside advisory services including legal, finance, accounting and related services. As a result of the execution and shareholder approval of the merger agreement, our focus was completing the merger. The merger was completed on
August 8, 2017
.
Interest and other expense.
Interest and other expense decreased
$5.1 million
due to a decrease of $5.5 million in interest expense driven by lower borrowings under the Amended 2013 Credit Facilities, partially offset by an increase of $0.5 million in foreign currency transaction and asset disposal losses.
Interest income.
Interest income for the three months ended
June 30, 2017
was comparable to the interest income for the three months ended
June 30, 2016
.
Provision for income taxes.
Our effective tax rate, including discrete items, for the three months ended
June 30, 2017
was
33.9%
, an increase from
31.6%
for the three months ended
June 30, 2016
. This increase was primarily due to the reversal of certain unrecognized tax benefits during the second quarter of 2016 upon the expiration of certain statutes of limitations. Excluding all discrete tax items, our effective tax rate was approximately
34.8%
and 34.5% for the three months ended June 30, 2017 and 2016, respectively.
Six Months Ended
June 30, 2016
Compared to Six Months Ended
June 30, 2017
The following table presents an overview of our results of operations for the six months ended
June 30, 2016
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2017
|
|
2016 vs. 2017
|
|
|
$
|
|
$
|
|
$ Change
|
|
% Change
|
|
|
(unaudited)
(dollars in thousands, except per share data)
|
|
Revenue
|
$
|
584,863
|
|
|
$
|
591,124
|
|
|
$
|
6,261
|
|
|
1.1
|
%
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
Cost of revenue (excludes depreciation and amortization shown separately below)
|
181,588
|
|
|
175,238
|
|
|
(6,350
|
)
|
|
(3.5
|
)%
|
|
Sales and marketing
|
109,611
|
|
|
110,528
|
|
|
917
|
|
|
0.8
|
%
|
|
Research and development
|
12,809
|
|
|
14,276
|
|
|
1,467
|
|
|
11.5
|
%
|
|
General and administrative
|
54,756
|
|
|
55,471
|
|
|
715
|
|
|
1.3
|
%
|
|
Depreciation and amortization
|
77,311
|
|
|
70,379
|
|
|
(6,932
|
)
|
|
(9.0
|
)%
|
|
Restructuring charges
|
8,793
|
|
|
8,039
|
|
|
(754
|
)
|
|
(8.6
|
)%
|
|
Separation costs
|
4,218
|
|
|
1,789
|
|
|
(2,429
|
)
|
|
(57.6
|
)%
|
|
|
449,086
|
|
|
435,720
|
|
|
(13,366
|
)
|
|
(3.0
|
)%
|
|
Income from operations
|
135,777
|
|
|
155,404
|
|
|
19,627
|
|
|
14.5
|
%
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest and other expense
|
(32,802
|
)
|
|
(22,901
|
)
|
|
9,901
|
|
|
(30.2
|
)%
|
|
Interest income
|
241
|
|
|
146
|
|
|
(95
|
)
|
|
(39.4
|
)%
|
|
Income before income taxes
|
103,216
|
|
|
132,649
|
|
|
29,433
|
|
|
28.5
|
%
|
|
Provision for income taxes
|
33,720
|
|
|
42,287
|
|
|
8,567
|
|
|
25.4
|
%
|
|
Net income
|
$
|
69,496
|
|
|
$
|
90,362
|
|
|
$
|
20,866
|
|
|
30.0
|
%
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.28
|
|
|
$
|
1.63
|
|
|
|
|
|
|
Diluted
|
$
|
1.26
|
|
|
$
|
1.58
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
54,205
|
|
|
55,589
|
|
|
|
|
|
|
Diluted
|
54,980
|
|
|
57,019
|
|
|
|
|
|
Revenue
Revenue.
Revenue increased
$6.3 million
. Marketing Services revenue increased
$11.2 million
driven by increased demand for our services that our clients use to make informed and high impact decisions to promote their products and services.
Security Services revenue decreased
$3.6 million
due to a decrease in revenue of $2.6 million in revenue from our DNS services and a decrease in revenue of $1.1 million from domain name registries. The decrease in revenue from our DNS services resulted from lower channel partner revenue. The decrease in revenue from domain name registries was driven by consolidation of the customer base in the second quarter of 2016.
Data Services revenue decreased
$1.2 million
due to a decrease in revenue of $3.2 million from caller identification services and a decrease in revenue of $2.6 million from user authentication and rights management services, partially offset by an increase in revenue of $4.6 million from carrier provisioning services.
NPAC Services revenue for the six months ended June 30, 2017 was comparable to the six months ended June 30, 2016.
Expense
Cost of revenue.
Cost of revenue decreased
$6.4 million
due to decreases of $2.2 million in royalty costs, $2.0 million in personnel and personnel-related expense, $1.6 million in contractor costs, and $0.6 million in in costs related to our information technology and systems.
Sales and marketing.
Sales and marketing expense increased
$0.9 million
due an increase of $3.1 million in personnel and personnel-related expense and $0.6 million in maintenance and general facilities costs. These increases were partially offset by a decrease of $2.8 million in advertising and marketing costs.
Research and development.
Research and development expense increased
$1.5 million
due to an increase in personnel and personnel-related expense.
General and administrative.
General and administrative expense increased
$0.7 million
due to an increase of $8.8 million in merger-related costs. This increase was partially offset by decreases of $5.4 million in personnel and personnel-related expense and $2.7 million in professional fees.
Depreciation and amortization.
Depreciation and amortization expense decreased
$6.9 million
due to a decrease in amortization of intangible assets.
Restructuring charges.
Restructuring charges decreased
$0.8 million
due to a decrease in severance and severance-related expense.
Separation costs.
Separation costs decreased
$2.4 million
. Separation costs related to activities supporting the planned separation including professional fees for outside advisory services including legal, finance, accounting and related services. As a result of the execution and shareholder approval of the merger agreement, our focus was completing the merger. The merger was completed on
August 8, 2017
.
Interest and other expense.
Interest and other expense decreased
$9.9 million
due to a decrease of $10.4 million in interest expense driven by lower borrowings under the Amended 2013 Credit Facilities, partially offset by an increase of $0.5 million in foreign currency transaction and asset disposal losses.
Interest income.
Interest income for the six months ended June 30, 2017 was comparable to the interest income for the six months ended June 30, 2016.
Provision for income taxes.
Our effective tax rate, including discrete items, for the six months ended June 30, 2017 was
31.9%
, a decrease from
32.7%
for the six months ended June 30, 2016. This decrease was primarily due to the adoption of Accounting Standards Update No. 2016-09,
Compensation-Stock Compensation (Topic 718)
. As a result of the adoption of this standard, we recognized excess tax benefits on stock-based compensation as a discrete item within income tax benefits on our consolidated statements of operations for the three and six months ended June 30, 2017. Prior to the adoption of this standard, excess tax benefits were recognized in additional paid-in capital on our consolidated balance sheet. Excluding all discrete tax items, our effective tax rate was approximately 34.8% and 34.5% for the six months ended June 30, 2017 and 2016, respectively.
Liquidity and Capital Resources
Our principal source of liquidity is cash provided by our operating activities. Our principal uses of cash were for debt service requirements and capital expenditures. We anticipate that our principal uses of cash in the future will be for debt service requirements and capital expenditures. Total cash and cash equivalents were
$94.8 million
at
June 30, 2017
, an increase of
$49.1 million
from
$45.8 million
at December 31,
2016
. This increase in cash and cash equivalents was due to cash provided by operations, partially offset by cash used for principal payments under our credit facilities and capital expenditures.
We believe that our existing cash and cash equivalents and cash from operations will be sufficient to fund our operations for at least the next twelve months.
Credit Facilities and Senior Notes
As of June 30, 2017, the outstanding principal balance due under our Amended 2013 Credit Facilities and Senior Notes was
$689.1 million
and available borrowings under our Amended 2013 Revolving Facility was
$182.0 million
.
For further discussion of this debt, refer to Note 7 to our Consolidated Financial Statements in Item 8 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2016 and Note 4 to our Financial Statements in Item 1 of Part I of this report.
Discussion of Cash Flows
Cash flows from operations
Net cash provided by operating activities for the six months ended June 30, 2017 was
$226.0 million
, as compared to
$124.3 million
for the six months ended June 30, 2016. This $101.7 million increase in net cash provided by operating activities was the result of an increase in net income of
$20.9 million
, a decrease in non-cash adjustments of
$14.6 million
and an increase in net changes in operating assets and liabilities of
$95.4 million
.
Non-cash adjustments decreased
$14.6 million
driven by a decrease of
$6.9 million
in depreciation and amortization expense, a decrease of
$4.2 million
in deferred income taxes, a decrease of
$3.3 million
in amortization of deferred financing costs and original issue discount on debt, a decrease of
$0.4 million
in stock-based compensation, and a decrease of
$0.3 million
in tax benefit from equity awards due to the adoption of ASU 2016-09.
Cash provided by net changes in operating assets and liabilities increased
$95.4 million
primarily due to an increase of
$30.3 million
in accounts and unbilled receivables, an increase of
$27.7 million
in income taxes, an increase of
$17.1 million
in accounts payable and accrued expenses, an increase of
$15.0 million
in prepaid expenses and other current assets, an increase of
$4.7 million
in deferred costs, an increase of
$2.1 million
in deferred revenue, and an increase of
$1.3 million
in other liabilities. These total increases of $98.2 million in net changes in operating assets and liabilities were partially offset by a decrease of
$2.8 million
in other assets.
Cash flows from investing
Net cash used in investing activities for the six months ended June 30, 2017 was
$29.1 million
, as compared to
$23.4 million
for six months ended June 30, 2016. This
$5.7 million
increase in net cash used in investing activities was due to purchases of property and equipment.
Cash flows from financing
Net cash used in financing activities was
$147.4 million
for the six months ended June 30, 2017, as compared to
$139.5 million
for the six months ended June 30, 2016. This
$7.9 million
increase in net cash used in financing activities was due to an increase of
$13.1 million
in payments under our Amended 2013 Credit Facilities, an increase of
$1.8 million
in cash used for the net down of employee shares, and a decrease of
$0.3 million
in tax benefits from equity awards due to the adoption of ASU 2016-09. These total net increases of $15.2 million in cash used in financing activities were partially offset by an increase of
$5.7 million
in cash proceeds from the issuance of stock, a decrease of
$1.4 million
in cash used in principal repayments on capital lease obligations, and a decrease of
$0.1 million
due to a net change in restricted cash.
Recent Accounting Pronouncements
See Note 2 to our Financial Statements in Item 1 of Part I of this report for a discussion of the effects of recent accounting pronouncements.
Off-Balance Sheet Arrangements
None.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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For quantitative and qualitative disclosures about our market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Our exposure to market risk has not changed materially since December 31, 2016.
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Item 4.
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Controls and Procedures
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We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of
June 30, 2017
, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at the reasonable assurance level.
In addition, there were no changes in our internal control over financial reporting that occurred in the
second
quarter of
2017
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.