##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 001-32548
 NeuStar, Inc.
  Delaware
    
    52-2141938(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 46000 Center Oak Plaza
Sterling, Virginia 20166
 (571) 434-5400
 þ o
  þ o o
 o þ




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##### 



NeuStar, Inc.
Index
 PART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2006 and June 30, 2007 (unaudited)Unaudited Consolidated Statements of Operations for the three and six months ended June
30, 2006 and 2007Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2006
and 2007Notes to Unaudited Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSignatures
 2




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##### 



PART I FINANCIAL INFORMATION
 Item 1. Financial Statements
 NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    June 30,2006
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,242
    
    
    $
    92,962Restricted cash
    
    
    
    
    
    
    137Short-term investments
    
    
    19,010
    
    
    
    17,489Accounts receivable, net of allowance
for doubtful accounts of $1,103 and
$1,396, respectively
    
    
    53,108
    
    
    
    59,433Unbilled receivables
    
    
    810
    
    
    
    273Notes receivable
    
    
    1,994
    
    
    
    2,075Prepaid expenses and other current assets
    
    
    6,945
    
    
    
    10,004Deferred costs
    
    
    6,032
    
    
    
    7,402Income tax receivable
    
    
    893
    
    
    
    3,090Deferred tax asset
    
    
    7,641
    
    
    
    9,157Total current assets
    
    
    135,675
    
    
    
    202,022Property and equipment, net
    
    
    42,678
    
    
    
    49,606Goodwill
    
    
    205,855
    
    
    
    207,582Intangible assets, net
    
    
    51,196
    
    
    
    44,110Notes receivable, long-term
    
    
    2,918
    
    
    
    1,860Deferred costs, long-term
    
    
    4,411
    
    
    
    4,015Deferred tax asset, long-term
    
    
    4,500
    
    
    
    406Other assets
    
    
    1,026
    
    
    
    5,434Total assets
    
    $
    448,259
    
    
    $
    515,035
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    June 30,2006
    
    
    2007(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,619
    
    
    $
    7,225Accrued expenses
    
    
    49,460
    
    
    
    34,932Deferred revenue
    
    
    22,923
    
    
    
    31,076Notes payable
    
    
    768
    
    
    
    3,290Capital lease obligations
    
    
    4,367
    
    
    
    2,811Accrued restructuring reserve
    
    
    368
    
    
    
    389Other liabilities
    
    
    200
    
    
    
    100Total current liabilities
    
    
    81,705
    
    
    
    79,823Deferred revenue, long-term
    
    
    17,921
    
    
    
    18,196Notes payable, long-term
    
    
    174
    
    
    
    6,476Capital lease obligations, long-term
    
    
    3,751
    
    
    
    2,680Accrued restructuring reserve, long-term
    
    
    2,206
    
    
    
    2,002Other liabilities
    
    
    1,356
    
    
    
    1,690Total liabilities
    
    
    107,113
    
    
    
    110,867Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value;
100,000,000 shares authorized; no shares
issued or outstanding as of December 31,
2006 and June 30, 2007
    
    
    
    
    
    
    Class A common stock, par value $0.001;
200,000,000 shares authorized; 74,351,200
and 76,249,420 shares issued and
outstanding at December 31, 2006 and June
30, 2007, respectively
    
    
    74
    
    
    
    76Class B common stock, par value $0.001;
100,000,000 shares authorized; 18,330 and
10,166 shares issued and outstanding at
December 31, 2006 and June 30, 2007,
respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    243,395
    
    
    
    272,523Treasury stock, 756 and 98,003 shares at
December 31, 2006 and June 30, 2007,
respectively, at cost
    
    
    (22
    )
    
    
    (3,247
    )Retained earnings
    
    
    97,699
    
    
    
    134,816Total stockholders equity
    
    
    341,146
    
    
    
    404,168Total liabilities and stockholders equity
    
    $
    448,259
    
    
    $
    515,035
 See accompanying notes.
 4




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##### 



NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Revenue:Addressing
    
    $
    23,448
    
    
    $
    26,857
    
    
    $
    46,862
    
    
    $
    53,860Interoperability
    
    
    13,244
    
    
    
    13,030
    
    
    
    27,361
    
    
    
    27,962Infrastructure and other
    
    
    45,571
    
    
    
    59,806
    
    
    
    84,203
    
    
    
    115,319Total revenue
    
    
    82,263
    
    
    
    99,693
    
    
    
    158,426
    
    
    
    197,141Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately
below)
    
    
    19,956
    
    
    
    23,246
    
    
    
    40,831
    
    
    
    46,324Sales and marketing
    
    
    11,426
    
    
    
    17,649
    
    
    
    20,569
    
    
    
    36,285Research and development
    
    
    4,016
    
    
    
    6,751
    
    
    
    8,157
    
    
    
    13,320General and administrative
    
    
    8,304
    
    
    
    11,271
    
    
    
    15,585
    
    
    
    22,040Depreciation and amortization
    
    
    5,833
    
    
    
    9,375
    
    
    
    10,281
    
    
    
    18,43949,535
    
    
    
    68,292
    
    
    
    95,423
    
    
    
    136,408Income from operations
    
    
    32,728
    
    
    
    31,401
    
    
    
    63,003
    
    
    
    60,733Other (expense) income:Interest expense
    
    
    (340
    )
    
    
    (364
    )
    
    
    (687
    )
    
    
    (714
    )Interest and other income
    
    
    732
    
    
    
    1,424
    
    
    
    1,401
    
    
    
    2,073Income before minority interest and income
taxes
    
    
    33,120
    
    
    
    32,461
    
    
    
    63,717
    
    
    
    62,092Minority interest
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    Income before income taxes
    
    
    33,120
    
    
    
    32,461
    
    
    
    63,622
    
    
    
    62,092Provision for income taxes
    
    
    13,168
    
    
    
    13,312
    
    
    
    25,385
    
    
    
    24,975Net income
    
    $
    19,952
    
    
    $
    19,149
    
    
    $
    38,237
    
    
    $
    37,117Net income per common share:Basic
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.54
    
    
    $
    0.49Diluted
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.49
    
    
    $
    0.47Weighted average common shares outstanding:Basic
    
    
    72,135
    
    
    
    75,825
    
    
    
    71,242
    
    
    
    75,258Diluted
    
    
    78,200
    
    
    
    79,040
    
    
    
    77,934
    
    
    
    79,037
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Six Months EndedJune 30,2006
    
    
    2007Operating activities:Net income
    
    $
    38,237
    
    
    $
    37,117Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    10,281
    
    
    
    18,439Stock-based compensation
    
    
    5,355
    
    
    
    7,538Amortization of deferred financing costs
    
    
    5
    
    
    
    72Excess tax benefits from stock-based compensation
    
    
    (38,772
    )
    
    
    (13,907
    )Deferred income taxes
    
    
    (2,591
    )
    
    
    1,828Provision for doubtful accounts
    
    
    547
    
    
    
    1,301Minority interest
    
    
    95
    
    
    
    Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (12,502
    )
    
    
    (9,190
    )Unbilled receivables
    
    
    5,690
    
    
    
    537Notes and securitized notes receivable
    
    
    (4,776
    )
    
    
    977Prepaid expenses and other current assets
    
    
    1,069
    
    
    
    (650
    )Deferred costs
    
    
    (757
    )
    
    
    (974
    )Income tax receivable
    
    
    27,382
    
    
    
    11,710Other assets
    
    
    318
    
    
    
    (528
    )Other liabilities
    
    
    
    
    
    
    34Accounts payable and accrued expenses
    
    
    (10,097
    )
    
    
    (8,867
    )Accrued restructuring reserve
    
    
    (373
    )
    
    
    (183
    )Deferred revenue
    
    
    3,599
    
    
    
    7,754Net cash provided by operating activities
    
    
    22,710
    
    
    
    53,008Investing activities:Purchases of property and equipment
    
    
    (6,235
    )
    
    
    (13,822
    )Sales of investments, net
    
    
    1,680
    
    
    
    1,521Businesses acquired, net of cash
    
    
    (66,925
    )
    
    
    (1,569
    )Net cash used in investing activities
    
    
    (71,480
    )
    
    
    (13,870
    )Financing activities:Disbursement of restricted cash
    
    
    (9
    )
    
    
    (137
    )Principal repayments on notes payable
    
    
    (809
    )
    
    
    (891
    )Principal repayments on capital lease obligations
    
    
    (3,046
    )
    
    
    (2,757
    )Proceeds from exercise of common stock options
    
    
    11,797
    
    
    
    7,685Excess tax benefits from stock-based compensation
    
    
    38,772
    
    
    
    13,907Repurchase of restricted stock awards
    
    
    
    
    
    
    (3,225
    )Net cash provided by financing activities
    
    
    46,705
    
    
    
    14,582Net (decrease) increase in cash and cash equivalents
    
    
    (2,065
    )
    
    
    53,720Cash and cash equivalents at beginning of period
    
    
    27,529
    
    
    
    39,242Cash and cash equivalents at end of period
    
    $
    25,464
    
    
    $
    92,962
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2007
 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
   
    
    Addressing.The Company enables CSPs to use critical,
shared addressing resources, such as telephone numbers,
Internet top-level domain names, and U.S. Common Short
Codes.
    
    Interoperability.The Company enables CSPs to exchange and
share critical operating data so that communications
originating on one providers network can be delivered and
received on the network of another CSP. The Company also
facilitates order management and work flow processing among
CSPs.
    
    Infrastructure and Other.The Company enables CSPs to
manage their networks more efficiently by centrally
managing certain critical data they use to route communications over their own networks.
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Information
   7




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Use of Estimates
  Goodwill
 Goodwill and Other Intangible Assets
  Identifiable Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets
  Years
    
    MethodAcquired technologies
    
    
    3 to 4
    
    
    Straight-lineCustomer lists and relationships
    
    
    3 to 7
    
    
    VariousTrade names
    
    
    3
    
    
    Straight-line
  Impairment of Long-Lived Assets
  Revenue Recognition
 Revenue Recognition
 8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Addressing
    Interoperability
  Infrastructure and Other
  9




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Significant Contracts
    Service Level Standards
  Cost of Revenue and Deferred Costs
   10




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Stock-Based Compensation
 Share-Based Payment Accounting for
Stock-Based Compensation
 Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
 Basic and Diluted Net Income per Common Share
  Income Taxes
 Accounting for Income
Taxes .
  11




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 i.e.
 Comprehensive Net Income
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 3. ACQUISITION
 I-View.com, Inc. (d/b/a MetaInfo)
 Business Combinations
  12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 4. INTANGIBLE ASSETS
  Weighted-AverageAmortizationDecember 31,
    
    
    June 30,
    
    
    Period2006
    
    
    2007
    
    
    (In Years)(unaudited)
    
    
    (unaudited)Intangible assets:Customer lists and relationships
    
    $
    43,467
    
    
    $
    43,740
    
    
    
    5.7Accumulated amortization
    
    
    (5,817
    )
    
    
    (10,768
    )Customer lists and relationships, net
    
    
    37,650
    
    
    
    32,972Acquired technology
    
    
    16,808
    
    
    
    17,069
    
    
    
    3.1Accumulated amortization
    
    
    (3,416
    )
    
    
    (6,051
    )Acquired technology, net
    
    
    13,392
    
    
    
    11,018Trade name
    
    
    200
    
    
    
    200
    
    
    
    3.0Accumulated amortization
    
    
    (46
    )
    
    
    (80
    )Trade name, net
    
    
    154
    
    
    
    120Intangible assets, net
    
    $
    51,196
    
    
    $
    44,110
  5. NOTES PAYABLE
  13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   6. STOCKHOLDERS EQUITY
 Stock-Based Compensation
   Stock Options
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2007
    
    2006
    
    2007Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    36.54
    %
    
    
    32.19
    %
    
    
    38.66
    %
    
    
    33.36
    %Risk-free interest rate
    
    
    4.95
    %
    
    
    4.52
    %
    
    
    4.67
    %
    
    
    4.46
    %Expected life of options (in years)
    
    
    4.61
    
    
    
    4.59
    
    
    
    4.56
    
    
    
    4.61
  14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Share-Based Payment
  Weighted-AverageShares
    
    Exercise PriceOutstanding at December 31, 2006
    
    
    7,916,728
    
    
    $
    10.83Options granted
    
    
    652,330
    
    
    
    32.52Options exercised
    
    
    (1,667,448
    )
    
    
    4.61Options canceled
    
    
    (449,381
    )
    
    
    17.91Outstanding June 30, 2007
    
    
    6,452,229
    
    
    
    14.14Exercisable at June 30, 2007
    
    
    3,717,429
    
    
    
    7.41
  Restricted Stock
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2006
    
    
    103,223
    
    
    $
    31.41Granted
    
    
    6,000
    
    
    
    31.65Vested
    
    
    (22,447
    )
    
    
    31.36Forfeited
    
    
    (7,775
    )
    
    
    30.20Non-vested June 30, 2007
    
    
    79,001
    
    
    
    31.56
  15




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Performance Vested Stock Units
   Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    322,290
    
    
    
    32.59Vested
    
    
    
    
    
    
    Forfeited
    
    
    (13,320
    )
    
    
    32.59Non-vested June 30, 2007
    
    
    308,970
    
    
    
    32.59
  Restricted Stock Units
  Phantom Stock Units
  16




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Treasury Stock
  7. BASIC AND DILUTED NET INCOME PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Computation on basic net income per common share:Net income
    
    $
    19,952
    
    
    $
    19,149
    
    
    $
    38,237
    
    
    $
    37,117Weighted average common shares outstanding 
basic
    
    
    72,135
    
    
    
    75,825
    
    
    
    71,242
    
    
    
    75,258Basic net income per common share
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.54
    
    
    $
    0.49Computation on diluted net income per common share:Net income
    
    $
    19,952
    
    
    $
    19,149
    
    
    $
    38,237
    
    
    $
    37,117Weighted average common shares outstanding 
basic
    
    
    72,135
    
    
    
    75,825
    
    
    
    71,242
    
    
    
    75,258Effect of dilutive securities:Stock-based awards
    
    
    6,065
    
    
    
    3,215
    
    
    
    6,692
    
    
    
    3,779Weighted average common shares outstanding 
diluted
    
    
    78,200
    
    
    
    79,040
    
    
    
    77,934
    
    
    
    79,037Diluted net income per common share
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.49
    
    
    $
    0.47
 8. SEGMENT INFORMATION
 Disclosure About Segments of an Enterprise and Related Information
  17




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Clearinghouse
    
    NGM
    
    ConsolidatedServices
    
    Services
    
    TotalRevenue
    
    $
    98,148
    
    
    $
    1,545
    
    
    $
    99,693Income (loss) from operations
    
    $
    39,350
    
    
    $
    (7,949
    )
    
    $
    31,401
  Clearinghouse
    
    NGM
    
    ConsolidatedServices
    
    Services
    
    TotalRevenue
    
    $
    195,054
    
    
    $
    2,087
    
    
    $
    197,141Income (loss) from operations
    
    $
    77,178
    
    
    $
    (16,445
    )
    
    $
    60,733
  Clearinghouse
    
    NGM
    
    ConsolidatedServices
    
    Services
    
    TotalTotal assets
    
    $
    350,460
    
    
    $
    164,575
    
    
    $
    515,035Goodwill
    
    $
    87,458
    
    
    $
    120,124
    
    
    $
    207,582Intangible
assets, net
    
    $
    18,417
    
    
    $
    25,693
    
    
    $
    44,110
 9. INCOME TAXES
     18




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
   Recent Developments
  19




---



##### 



Critical Accounting Policies and Estimates
  Deferred Income Taxes
   Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 i.e.
 Acquisitions
 NeuLevel, Inc.
  20




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##### 



UltraDNS Corporation
 Business Combinations
  Followap Inc.
   I-View.com, Inc. (d/b/a MetaInfo)
  21




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##### 



Consolidated Results of Operations
  Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2007
  Three Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2006
    
    
    2007
    
    
    2006 vs. 2007$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    
    23,448
    
    
    
    26,857
    
    
    
    3,409
    
    
    
    14.5Interoperability
    
    
    13,244
    
    
    
    13,030
    
    
    
    (214
    )
    
    
    (1.6
    )Infrastructure and other
    
    
    45,571
    
    
    
    59,806
    
    
    
    14,235
    
    
    
    31.2Total revenue
    
    
    82,263
    
    
    
    99,693
    
    
    
    17,430
    
    
    
    21.2Operating expense:Cost of revenue (excluding depreciation and
amortization shown separately below)
    
    
    19,956
    
    
    
    23,246
    
    
    
    3,290
    
    
    
    16.5Sales and marketing
    
    
    11,426
    
    
    
    17,649
    
    
    
    6,223
    
    
    
    54.5Research and development
    
    
    4,016
    
    
    
    6,751
    
    
    
    2,735
    
    
    
    68.1General and administrative
    
    
    8,304
    
    
    
    11,271
    
    
    
    2,967
    
    
    
    35.7Depreciation and amortization
    
    
    5,833
    
    
    
    9,375
    
    
    
    3,542
    
    
    
    60.749,535
    
    
    
    68,292
    
    
    
    18,757
    
    
    
    37.9Income from operations
    
    
    32,728
    
    
    
    31,401
    
    
    
    (1,327
    )
    
    
    (4.1
    )Other (expense) income:Interest expense
    
    
    (340
    )
    
    
    (364
    )
    
    
    (24
    )
    
    
    7.1Interest and other income
    
    
    732
    
    
    
    1,424
    
    
    
    692
    
    
    
    94.5Income before minority interest and income taxes
    
    
    33,120
    
    
    
    32,461
    
    
    
    (659
    )
    
    
    (2.0
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    33,120
    
    
    
    32,461
    
    
    
    (659
    )
    
    
    (2.0
    )Provision for income taxes
    
    
    13,168
    
    
    
    13,312
    
    
    
    144
    
    
    
    1.1Net income
    
    
    19,952
    
    
    
    19,149
    
    
    
    (803
    )
    
    
    (4.0
    )Net income attributable to common stockholders
per common share:Basic
    
    $
    0.28
    
    
    $
    0.25Diluted
    
    $
    0.26
    
    
    $
    0.24Weighted average common shares outstanding:Basic
    
    
    72,135
    
    
    
    75,825Diluted
    
    
    78,200
    
    
    
    79,040
 22




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##### 



Revenue
 Total revenue
 Addressing
 Interoperability
 Infrastructure and other
 Expense
 Cost of revenue
 Sales and marketing
 23




---



##### 



Research and development
 General and administrative.
 Depreciation and amortization
 Interest expense
 Interest and other income
 Provision for income taxes
 Additional
Information regarding NGM Segment
  NGM Revenue
 Operating expense
 Segment loss from operations
 24




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##### 



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2007
  Six Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2007
    
    
    2006 vs. 2007$
    
    
    $
    
    
    $ Change
    
    
    % Change(in thousands, except per share data)Revenue:Addressing
    
    $
    46,862
    
    
    $
    53,860
    
    
    $
    6,998
    
    
    
    14.9
    %Interoperability
    
    
    27,361
    
    
    
    27,962
    
    
    
    601
    
    
    
    2.2Infrastructure and other
    
    
    84,203
    
    
    
    115,319
    
    
    
    31,116
    
    
    
    37.0Total revenue
    
    
    158,426
    
    
    
    197,141
    
    
    
    38,715
    
    
    
    24.4Operating expense:Cost of revenue (excluding depreciation and
amortization shown separately below)
    
    
    40,831
    
    
    
    46,324
    
    
    
    5,493
    
    
    
    13.5Sales and marketing
    
    
    20,569
    
    
    
    36,285
    
    
    
    15,716
    
    
    
    76.4Research and development
    
    
    8,157
    
    
    
    13,320
    
    
    
    5,163
    
    
    
    63.3General and administrative
    
    
    15,585
    
    
    
    22,040
    
    
    
    6,455
    
    
    
    41.4Depreciation and amortization
    
    
    10,281
    
    
    
    18,439
    
    
    
    8,158
    
    
    
    79.495,423
    
    
    
    136,408
    
    
    
    40,985
    
    
    
    43.0Income from operations
    
    
    63,003
    
    
    
    60,733
    
    
    
    (2,270
    )
    
    
    (3.6
    )Other (expense) income:Interest expense
    
    
    (687
    )
    
    
    (714
    )
    
    
    (27
    )
    
    
    3.9Interest and other income
    
    
    1,401
    
    
    
    2,073
    
    
    
    672
    
    
    
    48.0Income before minority interest and income taxes
    
    
    63,717
    
    
    
    62,092
    
    
    
    (1,625
    )
    
    
    (2.6
    )Minority interest
    
    
    (95
    )
    
    
    
    
    
    
    95
    
    
    
    (100.0
    )Income before income taxes
    
    
    63,622
    
    
    
    62,092
    
    
    
    (1,530
    )
    
    
    (2.4
    )Provision for income taxes
    
    
    25,385
    
    
    
    24,975
    
    
    
    (410
    )
    
    
    (1.6
    )Net income
    
    $
    38,237
    
    
    $
    37,117
    
    
    $
    (1,120
    )
    
    
    (2.9
    )%Net income attributable to common stockholders
per common share:Basic
    
    $
    0.54
    
    
    $
    0.49Diluted
    
    $
    0.49
    
    
    $
    0.47Weighted average common shares outstanding:Basic
    
    
    71,242
    
    
    
    75,258Diluted
    
    
    77,934
    
    
    
    79,037
 Revenue
 Total revenue.
 25




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##### 



Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing
 Research and development
 26




---



##### 



General and administrative.
 Depreciation and amortization
 Interest expense
 Interest and other income
 Provision for income taxes
 Additional
Information regarding NGM Segment
  NGM Revenue
 Operating expense
 Segment loss from operations
 Liquidity and Capital Resources
  27




---



##### 



Discussion of Cash Flows
 Cash flows from operations
  Cash flows from investing
  Cash flows from financing
  Recent Accounting Pronouncements
 Fair Value Measurements
 28




---



##### 



The Fair Value Option for Financial Assets and
Financial Liabilities
 Off-Balance Sheet Arrangements
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
    29




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##### 



PART
II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Regulatory and statutory changes that affect us or the communications industry in general may
increase our costs or impair our growth.
  
    
    increase regulatory oversight over the services we provide;
    
    adopt or modify statutes, regulations, policies, procedures or programs that are
disadvantageous to the services we provide, or that are inconsistent with our current
or future plans, or that require modification of the terms of our existing contracts,
including the manner in which we charge for certain of our services. For example,
 o
    
    Bellsouth Corporation filed a petition with the FCC in November
2005 seeking changes in the way our customers are billed for services provided
by us under our contracts with North American Portability Management LLC; ando
    
    On June 13, 2007, Telcordia Technologies, Inc. filed a petition
with the FCC requesting an order that would require North American Portability
Management LLC to conduct a new bidding process to appoint a provider
of telephone number portability services in the United States. If successful, this petition could
result in the loss of one or more of our contracts with North American
Portability LLC;
 
    
    prohibit us from entering into new contracts or extending existing contracts to
provide services to the communications industry based on actual or suspected violations
of our neutrality requirements, business performance concerns, or other reasons;
    
    adopt or modify statutes, regulations, policies, procedures or programs in a way
that could cause changes to our operations or costs or the operations of our customers;
    
    appoint, or cause others to appoint, substitute or add additional parties to perform
the services that we currently provide; and
 30




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##### 




    
    prohibit or restrict the provision or export of new or expanded services under our
contracts, or prevent the introduction of other services not under the contracts based
upon restrictions within the contracts or in FCC policies.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    Maximum NumberShares Purchased as
    
    of Shares that MayAverage
    
    Part of Publicly
    
    Yet Be PurchasedTotal Number of
    
    Price Paid
    
    Announced Plans or
    
    Under the Plans orMonth
    
    Shares Purchased(1)
    
    per Share
    
    Programs
    

ProgramsApril 1 through 30, 2007
    
    
    2,267
    
    
    
    $28.82
    
    
    
    
    
    
    
    May 1 through 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1 through 30, 2007
    
    
    558
    
    
    
    $29.69
    
    
    
    
    
    
    
    Total
    
    
    2,825
    
    
    
    $29.00
    
    
    
    
    
    
    
    
 
 (1)
    
    The number of shares purchased consists of shares of
common stock tendered by employees to the Company to satisfy
the employees tax withholding obligations arising as a
result of vesting of restricted stock grants under the
Companys stock incentive plan, which shares were
purchased by the Company based on their fair market
value on the vesting date. None of these share
purchases were part of a publicly announced
program to purchase common stock of
the Company. Item 3. Defaults upon Senior Securities
  31




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##### 



Item 4. Submission of Matters to a Vote of Security Holders
     Election of DirectorsNominee
    
    For*
    
    Withheld*Jeffrey E. Ganek
    
    
    68,876,580
    
    
    
    477,585Hellene S. Runtagh
    
    
    69,237,043
    
    
    
    117,122
 For*
    
    Against*
    
    Abstain*Ratification of appointment of
Ernst & Young LLP as independent
registered public accounting firm
for the fiscal year ended December
31, 2007
    
    
    69,305,093
    
    
    
    19,923
    
    
    
    29,149
 
 *
    
    The votes cast are an aggregate of the holders of our Class A common stock and Class B
common stock, which voted together as a single class on the matters put up for a vote at our 2007
Annual Meeting of Stockholders. Item 5. Other Information
  32




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##### 



Item 6. Exhibits
 Exhibit No.
    
    Description3.1
    
    
    Restated Certificate of Incorporation, incorporated herein by
reference to Exhibit 3.1 to Amendment No. 7 to NeuStars
Registration Statement on Form S-1, filed June 28, 2005 (File
No. 333-123635).3.2
    
    
    Amended and Restated Bylaws, incorporated herein by reference
to Exhibit 3.1 to NeuStars report on Form 8-K, filed July 13,
2007 (File No. 001-32548).10.2.4
    
    
    Amendment, entered into as of June 1, 2007, to the contractor
services agreement between Canadian LNP Consortium Inc. and
NeuStar, Inc.**10.2.5
    
    
    Amendment, entered into as of June 1, 2007, to the contractor
services agreement between Canadian LNP Consortium Inc. and
NeuStar, Inc.**10.3.3
    
    
    Amendment to National Thousands-Block Pooling Administration Agreement awarded to NeuStar, Inc. by the Federal Communications Commission.10.4.3
    
    
    Amendment to North American Numbering Plan Administrator
agreement awarded to NeuStar, Inc. by the Federal
Communications Commission.10.6
    
    
    Registry
Agreement by and between the Internet Corporation for Assigned Names
and Numbers and NeuStar, Inc., as amended.10.45
    
    
    NeuStar, Inc. 2007 Key Employee Severance Pay Plan,
incorporated herein by reference to Exhibit 99.1 to NeuStars
report on Form 8-K, filed July 13, 2007 (File No. 001-32548).10.46
    
    
    NeuStar, Inc. Annual Performance Incentive Plan, incorporated
herein by reference to Exhibit 99.2 to NeuStars report on
Form 8-K, filed July 13, 2007 (File No. 001-32548).10.47
    
    
    Form of Performance Award Agreement under the NeuStar, Inc.
2005 Stock Incentive Plan, as amended, incorporated herein by reference to
(a) Exhibit 99.3 to NeuStars report on Form 8-K, filed March
5, 2007 (File No. 001-32548) and (b) Exhibit 99.3 to NeuStars
report on Form 8-K, filed July 13, 2007 (File No. 001-32548).10.49
    
    
    Form of Nonqualified Stock Option Agreement, incorporated
herein by reference to Exhibit 99.4 to NeuStars report on
Form 8-K, filed March 5, 2007 (File No. 001-32548).10.50
    
    
    Summary Description of Non-Management Director Compensation.10.51
    
    
    NeuStar, Inc. 2005 Stock Incentive Plan.10.52
    
    
    Incentive Stock
Option Agreement under the 1999 Plan, made as of November 18, 2004, by and between
NeuStar, Inc. and John Spirtos, as amended as of May 20, 2005.10.53
    
    
    Nonqualified
Stock Option Agreement under the 1999 Plan, made as of November 18, 2004, by and
between NeuStar, Inc. and John Spirtos, as amended as of May 20, 2005.31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 
    
    Compensatory arrangement.**
    
    Confidential treatment has been requested for portions of this document. The omitted portions of
this document have been filed with the Securities and Exchange Commission. 33




---



##### 



NeuStar, Inc.Date: August 7, 2007
    By:
    /s/ Jeffrey A. BabkaJeffrey A. BabkaChief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer) 34




---



##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    
    Restated Certificate of Incorporation, incorporated herein by
reference to Exhibit 3.1 to Amendment No. 7 to NeuStars
Registration Statement on Form S-1, filed June 28, 2005 (File
No. 333-123635).3.2
    
    
    Amended and Restated Bylaws, incorporated herein by reference
to Exhibit 3.1 to NeuStars report on Form 8-K, filed July 13,
2007 (File No. 001-32548).10.2.4
    
    
    Amendment, entered into as of June 1, 2007, to the contractor
services agreement between Canadian LNP Consortium Inc. and
NeuStar, Inc.**10.2.5
    
    
    Amendment, entered into as of June 1, 2007, to the contractor
services agreement between Canadian LNP Consortium Inc. and
NeuStar, Inc.**10.3.3
    
    
    Amendment to National Thousands-Block
Pooling Administration Agreement awarded to NeuStar, Inc. by the Federal Communications Commission.10.4.3
    
    
    Amendment to North American Numbering Plan Administrator
agreement awarded to NeuStar, Inc. by the Federal
Communications Commission.10.6
    
    
    Registry
Agreement by and between the Internet Corporation for Assigned Names
and Numbers and NeuStar, Inc., as amended.10.45
    
    
    NeuStar, Inc. 2007 Key Employee Severance Pay Plan,
incorporated herein by reference to Exhibit 99.1 to NeuStars
report on Form 8-K, filed July 13, 2007 (File No. 001-32548).10.46
    
    

NeuStar,
Inc. Annual Performance Incentive Plan, incorporated
herein by reference to Exhibit 99.2 to NeuStars report on
Form 8-K, filed July 13, 2007 (File No. 001-32548).10.47
    
    
    Form of Performance Award Agreement under the NeuStar, Inc.
2005 Stock Incentive Plan, as amended, incorporated herein by reference to
(a) Exhibit 99.3 to NeuStars report on Form 8-K, filed March
5, 2007 (File No. 001-32548) and (b) Exhibit 99.3 to NeuStars
report on Form 8-K, filed July 13, 2007 (File No. 001-32548).10.49
    
    
    Form of Nonqualified Stock Option Agreement, incorporated
herein by reference to Exhibit 99.4 to NeuStars report on
Form 8-K, filed March 5, 2007 (File No. 001-32548).10.50
    
    
    Summary Description of Non-Management Director Compensation.10.51
    
    
    NeuStar, Inc. 2005 Stock Incentive Plan.10.52
    
    
    Incentive Stock
Option Agreement under the 1999 Plan, made as of November 18, 2004, by and between
NeuStar, Inc. and John Spirtos, as amended as of May 20, 2005.10.53
    
    
    Nonqualified
Stock Option Agreement under the 1999 Plan, made as of November 18, 2004, by and
between NeuStar, Inc. and John Spirtos, as amended as of May 20, 2005.31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 
    
    Compensatory arrangement.**
    
    Confidential treatment has been requested for portions of this document. The omitted portions of
this document have been filed with the Securities and Exchange Commission.