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Executives

Brandon Pugh - Director of Finance, Investor Relations

Jeffrey E. Ganek - Chairman and Chief Executive Officer

Paul Lalljie - Senior Vice President and Interim Chief Financial Officer

Analysts

William Power - Robert W. Baird

Jonathan Ho - William Blair and Co.

Daniel Meron - RBC Capital Markets

John Bright - Avondale Partners

NeuStar, Inc. (NSR) Q1 2009 Earnings Call May 6, 2009 4:30 PM ET

Operator

Ladies and gentlemen, thank you standing by and welcome to the NeuStar Investor Conference Call. The company's release made earlier today is available from its website at www.neustar.biz. During the presentation all participants will be in a listen-only mode. Afterwards, securities, analysts and institutional portfolio managers will be invited to participate in a question-and-answer session. (Operator Instructions).

As a reminder, this call is being recorded Wednesday, May 06, 2009. A replay of the call will be accessible until midnight May 13th by dialing 888-203-1112 and entering conference ID number 8694852. International callers should dial 719-457-0820. An archive of this will also be available on the NeuStar website at www.neustar.biz.

I would now like to turn the conference call over to Brandon Pugh, Director of Finance, and Investor Relations of NeuStar. Please go ahead, sir.

Brandon Pugh

Thank you and good afternoon everyone. Welcome to our first quarter 2009 earnings call. Joining us today from NeuStar are Jeff Ganek, Chairman and Chief Executive Officer and Paul Lalljie, our Interim Chief Financial Officer.

Our call today will begin with comments from Jeff Ganek. Then Paul Lalljie will follow with a discussion of our financial performance after which we will open the line to questions from qualified investors and research analysts.

Before we begin, I'd like to remind everyone that some of the information discussed on this call including our projections regarding revenue and EBITDA for the coming year contain forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements and we cannot assure you that our expectations will be achieved or that any deviations will not be material.

Additional information concerning these risks and uncertainties can be found in the company's Annual Report on Form 10-K for the year ended December 31, 2008, and its other subsequent and current periodic reports filed with the U.S. Securities and Exchange Commission. NeuStar assumes no obligation to update any forward-looking statements.

As you listen to today's call, we will discuss certain non-GAAP financial measures. We encourage you have our press release in front of you, which can be found on our Investor Relations website and includes our financial results, metrics, commentary for the quarter and reconciliation of certain non-GAAP measures with the most directly comparable GAAP measures.

You'll find additional disclosures regarding the non-GAAP measures under the Investor Relations tab on our website www.neustar.biz including reconciliation of these measures with the most directly comparable GAAP measures.

With that, I am pleased to introduce NeuStar's Chairman and Chief Executive Officer, Jeff Ganek. Jeff?

Jeffrey E. Ganek

Thanks Brandon. Welcome to today's call. As we reported on our last earnings call, we've taken actions ensure we prosper through the recession and position NeuStar for growth in the future. As a result of these actions, I am pleased to report consolidated revenue for the quarter of $113 million, with an EBITDA margin of 42%. First quarter revenue momentum and continued cost management has put us on track to meet our full year objectives.

During the quarter, we continued to see growing market demand for clearinghouse services. Transaction volumes under our LNP contracts grew 14% from the first quarter of 2008, demonstrating a trend that will substantially exceed the transaction floor for 2009 as defined in our new LNP contract amendment.

Clearinghouse revenues were driven primarily by the recent amendments to our LNP contracts, as anticipated those revenues decreased 4%. As you may remember, the LNP contract amendment has had a significant impact. The amendment changed LNP pricing from a transaction based model to an annual fixed fee with annual escalators. The fixed fee provides contractually defined revenues that'll grow at a compounded annual rate of 10% through 2015.

The new pricing structure provides high visibility into and predictability for a large portion of NeuStar's business. Also in the first quarter, customers continued to look to NeuStar for DNS infrastructure services at both improved traffic management and security on the Internet. The results were more than 250 customer wins in the quarter and increased revenue for NeuStar Ultra Services.

Notwithstanding increased customer interest in revenues, the state of the economy contributed to a lengthening of our sales cycles for large customer Ultra contacts and a reduction therefore of our average deal size during the quarter. To keep the revenues growing in response to tough market conditions, we are more aggressively developing sale leads and broadening our distribution channels.

Another area of growth in the quarter was a mobile market.... was in mobile marketing services. Prime example is our Common Short Codes service which enables one of the fastest growing revenue streams in the mobile marketplace. The service is widely used by large Fortune 1000 companies and also smaller entrepreneurial customers.

In light of difficult market conditions, sales cycles are lengthening here as well despite continued revenue growth. Therefore demand for this service is difficult to forecast. Overall, and in summary, our revenue performance in the quarter demonstrates that customers continue to find our services essential and cost effective.

Profitability for the quarter continued strong, driven by reliable revenues and careful cost management. Savings were realized by delaying certain discretionary costs in the clearinghouse business and by reorganizing the NGM business segment. The result that is overall NeuStar net income margin of 22% reflects our high operational leverage and focused cost management.

At this point, let me highlight a few items that provide insight into the objectives and strategy we're pursuing to ensure NeuStar succeeds during the recession.

First, we have a strong and predictable revenue base. The majority of our revenue is recurring in nature and tied to long term contracts. With the new LNP pricing structure, we have a great degree of certainty and visibility into our future revenue growth. Certainty and visibility are highly desirable during this uncertain economic cycle.

Second, our profitability is strong; maintaining quality margins is a high priority and the primary focus for us. Our cost structure and scalability yield good operational leverage, as demonstrated by this quarter and by our long record of profitability, we're able to manage spending so that expenses are aligned with changing levels of our revenue performance.

Third, we generate healthy positive cash flow. Our business model produces significant cash from operations each quarter. In an environment where debt markets are severely constrained, having cash on hand is essential and prudent. Our strategy is to use the cash to fuel investments in growth and to enhance shareholder value.

We'll reconsider our strategy for the use of cash on a regular basis. Currently, the economic and credit markets present great uncertainty at best. As a result, like many companies, we've decided not to repurchase shares at this time.

And lastly, along with cash flow NeuStar has a very strong balance sheet with virtually no debt. In this economic environment, a clean balance sheet is a very positive attribute for financial as well as for marketing purposes. Our balance sheet puts us in good stead with our current and potential customers differentiating NeuStar in competitive procurement processes.

Now for a discussion about our growth objectives. We will continue to grow and succeed based on our existing and future service offerings. In the short and intermediate terms, our growth is highly visible and confidently predictable. For example, there is a 10% compounded annual growth specified in our LNP contract amendments through 2015.

While producing reliable revenues, the flat fee pricing structure is encouraging our customers to expand their use of the LNP as demonstrated by first quarter results. Increased usage of LNP further ties our directory into the operating fabric of the industry. In the future, we expect that our customers will continue to demand more from LNP as they have done in each of the last 12 years.

We are confident they'll generate more transactions and will use more applications and features that will be essential to the emerging needs of new technologies that are now being deployed in the networks. Those new applications and features will drive revenues that are incremental to the flat fees and 10% growth specified in the contracts.

We're currently working with customers to develop the new features and applications, but we don't forecast LNP revenues incremental to the 10% annual growth before 2011. We also expect a growth in our Internet Infrastructure Services group, especially in our Ultra product will continue in the future. We're today a market leader in providing services that e-commerce providers and web service providers depend upon to manage their Internet traffic.

Demand for those services will continue to grow and will grow accordingly, especially when economic conditions return to prosperity. And we expect growth in the future from our PathFinder offering. PathFinder is a service of the GSM Association, a global association of more than 800 mobile service operators. NeuStar build's and operates this service which we provide in partnership with the GSM Association. The service is now operational having successfully completed market trials, already a small number of leading edge customers have signed on to the PathFinder community as users.

The market for PathFinder services is embryonic.

Material revenues are not forecast for this year or next. However, as our customers' networks transition to the next generation of IP technologies, we expect demand to grow substantially.

In most places where there's an embryonic market requirement for directory and infrastructure services is essential to merging in future IP based services. NeuStar has a leading market position or in the case of early stage segments and early beachhead. So the foundation for future growth after 2010, above and beyond the 10% growth provided by LNP is established and is beginning to flourish.

At least for the next few quarters we intend to manage NeuStar as we have during the first quarter of 2009. Our aim is to produce strong profit margins and cash flows and to grow revenues with exceptional visibility and confidence as provided by our existing franchises.

Concurrently, we're maintaining high customer satisfaction with an unmatched community of customers, while we further develop existing operations and new products. With strong positions in merging markets for IT based infrastructure services, NeuStar will be ready to grow quickly when the recession subsides and the economy rebounds.

With that, I will now hand the call over to Paul Lalljie. Paul?

Paul Lalljie

Thanks Jeff and good afternoon everyone. I am pleased to report financial results that reflect management's objectives as discussed on our February 10th earnings call. That is, we continue to position the business for future growth while delivering profitability and cash flows despite a global market that is facing significant challenges.

In particular, revenue for the quarter totaled 113.2 million with net income totaling 24.4 million. Our continued focus and cost controls and gated spending on certain projects has resulted in the strong profitability. Additionally, EBITDA for the quarter totaled 48.0 million contributing to a cash balance of 205.1 million.

Now let me discuss our revenue and expense in detail, starting with revenue. Revenue for the quarter decreased 4% from the first quarter of 2008. This anticipated decrease was driven by a 5.5 million reduction in LNP revenue under our recently amended contracts to provide number portability services for a fixed fee. These amendments establish new baseline for revenue in each of the contract years.

In 2009, this baseline revenues 285 million recognized ratably which compares to 321 million in 2008. Note that the revenue from our LNP contracts is recorded in each of the three revenue categories.

Now for a review of revenue by category. Addressing revenue for the quarter totaled 32.5 million or 2.3 million up, or 8% from the first quarter of 2008. Most of this growth came from NeuStar's Ultra Services which increased 2.1 million. Interoperability revenue totaled 14.3 million for the quarter, down 2.1 million or 13% from the first quarter of 2008, driven by decreases of 1.4 million from our Order Management Services and 1.3 million in LNP revenue.

These decreases were partially offset by a 1.1 million increase form NGM services due to higher demand for interoperability messaging services. Infrastructure revenue totaled 66.4 million, down 4.4 million or 6% from the first quarter of 2008. This decrease was due primarily to a 3.4 million reduction in LNP revenue. Additionally, revenue from our NGM business segment totaled 3.5 million compared to 3.9 million in the first quarter of 2008.

Summarizing our first quarter revenue, a modest decline was driven primarily by our recently amended LNP contracts, which was partially offset by a 3% year-over-year growth from our non-LNP revenue. These increases were primarily from NeuStar's Ultra Services and Common Short Codes.

As of today, our pipeline for LNP transactions and leading indicators remain relatively strong. However in our non-LNP businesses, we have seen an extension in our days to close sales, driven by purchasing divisions being elevated to higher levels of sign-off. We have also seen a modest increase in churn and a slight increase in bad debt; both of which are as a result of the current economic environment.

To mitigate these conditions, we are using more senior executive involvement to close deals. We're investing innovational, lead generation and we are more aggressively broadening our indirect sales distribution channels, both domestically and abroad.

Now for a discussion of expenses. OpEx for the quarter totaled 74.4 million, a decrease of 30% from 106.4 million for the first quarter of 2008, excluding the 29 million goodwill impairment charge in 2008, total operating expense decreased 4%.

Moving on to some details by cost categories. Let's start with cost of revenue.

For NeuStar, cost of revenue is comprised mainly of personnel and personnel related costs associated with the maintenance of our clearinghouse as well as royalty fees. We have been experiencing continued demand for our services which resulted in increased royalty expenses and higher head count in the operations and system engineering group.

Consequently, in the first quarter cost of revenue grew to 27.8 million from 24.5 million in the first quarter of 2008. Sales and marketing expense totaled 19.5 million, up from 18.7 million in the first quarter of 2008. We continue to invest in the building of our sales and marketing engine to broaden our reach and to expand into new channels.

In the March quarter of this year, R&D expense totaled 4.3 million, down from 7.5 million in the same quarter of last year. This decrease reflects the reduction in personnel and personnel related costs associated with lower R&D head count both in the clearinghouse and in the NGM business segment.

G&A for the quarter totaled 13.5 million, down 3.0 million from the first quarter of last year, primarily driven by reduced costs in personnel and personnel related expenses for NGM business segment. This reflects the restructuring of this business which we announced in December of 2008.

Total operating expenses for the NGM business segment totaled 7.8 million, compared to 14.2 million in the first quarter of 2008, absent the goodwill impairment charge. On our fourth quarter earnings call, I pointed out that EBITDA margin for the first quarter was expected to be lower than 40%, primarily because of the effect of the amended LNP contracts in our sequential revenue.

However, primarily as a result of spending delays and cost reduction initiatives in the first quarter, we delivered an EBITDA margin in excess 40%. Specifically, EBITDA margin for the quarter is 42%.

I will now move on to selected balance sheet items beginning with cash. Cash, cash equivalents and short-term investments totaled 205.1 million as of March 31, 2009 compared to 161.7 million as of December 31, 2008.

In addition, we had 30.7 million in long-term investments. Accounts receivable at the end of the quarter totaled 64.9 million compared to 72.6 million as of December 31, 2008. This decrease was primarily driven by a 13.2 million reduction in sequential revenue from our recently amended LNP contracts.

Now let me move on to a discussion of our guidance for the year.

Today, we are reaffirming our prior guidance which calls for our full year 2009 revenue to range between 460 and 490 million with a corresponding EBITDA margin of at least 40%. Also many of the additional assumptions provided in our last call still holds, that is CapEx for 2009, is expected to range between 25 and 35 million and our effective annual tax-rate is anticipated to be 40%. Fully diluted weighted average shares outstanding is now expected to be 76 million for the year, which is a little lower than we originally assume.

Let me provide some insight into our full year EBITDA margin guidance in light of our first quarter performance. As I mentioned earlier, we had anticipated our first quarter EBITDA margin to come in at less than 40%, this was our plan. However, due primarily to spending delays in the first quarter, we were able to realize an EBITDA margin higher than anticipated, and consequently we're expecting to get back on our full year spending plan which would lead to an EBITDA margin of at least 40%, on a full year basis.

To conclude, despite challenging market conditions we delivered revenue, profitability and cash flows in accordance with the objectives that we outlined in our forth quarter earnings call, while continuing to position the business for future growth.

That concludes our formal remarks. Operator, you may now open the call for questions.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen. (Operator Instructions). We'll go first to Will Power with Robert Baird.

William Power - Robert W. Baird

Great Good afternoon. I guess a couple of questions. First given the... what appears to be a lengthening sales cycles in some of your non-LNP businesses you alluded to. Are you now expecting revenue to be at the lower end of guidance or how should we think about that in respect to guidance? And then the second question is with respect to NGM, I just wonder if you could update us on kind of where you stand on the cost cutting efforts there. Thanks.

Jeffrey Ganek

Sure. How are you doing, Will.

William Power - Robert W. Baird

Good, thank you.

Jeffrey Ganek

It's a good question. Look we are very happy with our overall revenue performance in the first quarter compared to many companies, I know we've been very successful on the revenue front and we continue to manage aggressively towards the highest-end of the range we can possibly get to. What we're trying to do on today’s call is be realistic and learnt about the challenges we're seeing in the marketplace.

Fortunately, the slowdown in sales cycles happens in a small number of our existing businesses and despite those slowdowns we continue to show revenue growth in those markets who are taking action to catch revenues in other ways there. So, we're still sticking with the revenue range that we announced on our last call and we're going to get as high in that range as at the market allows us.

William Power - Robert W. Baird

Okay.

Paul Lalljie

And with respect to the NGM business in the first quarter, total operating expenses totaled about 7.8 million and that compared favorably by about 6.4 million to the first quarter of 2008.

We are pleased with progress we've made in controlling cost in that business. We are focused on controlling cost in that business and we are on-track to meet our objectives on a full year basis for that business.

William Power - Robert W. Baird

Okay. So can you remind us what's kind of the objective then for some kind of run rate in that business as you may be exiting the year for cost?

Paul Lalljie

Well this is Paul here again. A couple of things; one of the things that we stated in our fourth quarter call is we will... one of our goals is to be a EBITDA crossover during the fourth quarter, so in a given month to be EBITDA crossover. And the fourth quarter we are expecting to be on an annualized basis roughly around 10 to $12 million of annualized revenue, annualized expenses rather, on an operating basis.

We don't know what that number is going to be. One... our primary goal is to align the expenses with revenues and we will ensure that we do that if we exit the year with a higher revenue run rate, then that gives us more headroom on the expenses.

William Power - Robert W. Baird

Okay. Great, thanks.

Operator

And we'll go next to Sterling Auty with JP Morgan.

Unidentified Analyst

Hi guys is its Saket (ph) here for Sterling. Hey Paul, two questions for you. So first on the LNP revenue this quarter, were there any credits that were offsetting the contracted LNP revenue and then the follow-up to that would be, how do we think about credits for the rest of the year?

Paul Lalljie

Okay. In the first quarter we recognized 71.5 million of revenue from the LNP contracts. That represents one-fourth of the 285. 285 represents the determinable portion, the fixed and determinable portion of our contractual arrangement which calls for 340 million of base revenue, less 40 million of fixed fee and then 27.5 totaling 15 million of credits.

From a revenue recognition and accounting perspective, we are going with lowest common denominator or fixed and determinable portion which is 285. So that is net of all credits said differently. So there is no incremental adjustment for credit unless one of the milestones are not met. And that happens at the end of the year.

Unidentified Analyst

Got you. And then one follow-up on the expense side. Great job on the EBITDA margin this quarter, but you talked about expenses, getting back to some of the expenses that you delayed this quarter, qualitatively can you talk about how EBITDA margins should trend for the remaining three quarters of the year? Thanks.

Paul Lalljie

Yes. Essentially, as a management team in the first quarter with the economic uncertainty and the market environment, we wanted to be sure that we can manage our expenses and align it with any outcome on the revenue side of the equation. Having said that, we made a conscious decision to push variable spending such as new hires, such as contract labor, such as professional fees to the right by approximately 60 days.

As we exit the first quarter, based on our first quarter performance, second, third, fourth quarter, we are expecting to get back on our full-year spend and expect to get to that full-year EBITDA margin of at least 40%. We're not -- today as we sit here, we are not forecasting an expansion in EBITDA margins.

Unidentified Analyst

Great, thanks.

Operator

We'll go next to John Bright with Avondale Partners. Mr. Bright your line is open. Please go ahead sir.

We'll move on to Jonathon Ho with William Blair.

Jonathan Ho - William Blair and Co.

Great quarter guys. The first question that I have is with regard to some of the distribution arrangements that you guys talked about for UltraDNS. Can you give us a little bit of color on I guess may be what's happening there and what your expectations for growth for UltraDNS are for this year?

Jeffrey Ganek

Sure. Until this year, virtually all of our Ultra sales have been direct sales by NeuStar employees and we have been so successful and have seen so much positive response from customers, we think we're out ahead of the market. We are seriously exploring ways we can get to more customers quicker, more efficiently and more effectively. And in fact we have come upon a number of valuated resellers and other kinds of alternative indirect sales channels.

We had signed up a few. This is a brand new program started from scratch. And we are overshooting the effectiveness, the targets, the objectives that we had or for this channel and one of the rules of management around here is if something doesn't work you stop it and if something works you double down and indirect chip sells channels is something that we're doubling down. We think it is a way to turn NeuStar's unique products into a broad market offering faster to what we could do internally.

At the same time especially in light of tough market conditions, we are working hard through a number of mechanisms to identify leads to generate leads so that our in-house and indirect channels have more doorbells to ring. That also seems to be working as we look at the numbers.

We continue to have very aggressive growth objectives for Ultra this year. We had a strong, but not stellar first quarter there largely, because of market conditions and we are cautious about the results we're going to produce for the rest of the year. Clearly we're on a growth track. Clearly it will to difficult to get to the very ambitious large growth rates we target in our annual budget.

Jonathan Ho - William Blair and Co.

Okay. And my second question is can you also speak a little bit about how the domain registration businesses did this question and may be your expectations again for the year?

Paul Lalljie

Yes, again in the domain name business on a year-over-year basis we saw a 6% year-over-year increase in that business. We expect to see that business. It's generally has been a business that's been pretty steady. Codes under management, the names.... domain names under management at the end of the quarter is roughly around 4 million.

Jonathan Ho - William Blair and Co.

Thank you.

Operator

We will go next to Daniel Meron with RBC Capital Markets.

Daniel Meron - RBC Capital Markets

Hi Paul, Jeff and Brandon congrats on the good execution. Can you provide us with some color on the regional activity and also provide us with additional view of new expansion opportunity both in the U.S. and internationally?

Paul Lalljie

Daniel, I don't think you came across very clearly there. Could you repeat the question please?

Daniel Meron - RBC Capital Markets

Sure. If you can provide us with some color on the regional activity and dynamics that you gave both in the U.S. and internationally. And also a little bit of review on new expansion opportunities? Thank you.

Jeffrey Ganek

Sure. The entire world is in a recession. So, we're seeing signs of that worldwide. Our most powerful reliable pillar on the revenue side is of course local number portability here in North America that performed very well as per the contract.

Our NGM business which has more of its customers and revenues outside of North America than any of our other businesses also performed well. It didn't met our revenue plans and the deltas that we have seen on the revenue side by customer have less to do with where the customers are in the first quarter and more to do we the nature of the contract, our franchise long-term contracts were most reliable in a terrible economy.

Paul Lalljie

And Daniel specifically on the updates to the international LNP businesses. Our Brazil LNP franchise that we have there it's to build and implement and provide for an LNP system. We are currently receiving a fixed fee for that business over a five year period and that business is steady state. We've continued to work with the Brazilian operators and the local authorities to continue to assist on as they continue to describe ways of expanding the services.

Similarly in Taiwan where we became fully operational probably at the end of 2007 and since then we have been working with the authorities to expand and to get into different types of local number portability services, the way we do in the U.S. today.

Daniel Meron - RBC Capital Markets

Okay. And just a quick follow-up, can you give us what is the breakdown from 98% to a 10% internationally?

Paul Lalljie

Could you repeat that again for me please Daniel.

Daniel Meron - RBC Capital Markets

Sorry for that. Yeah, can you -- is the breakdown sale 90% U.S. North America in 10% internationally?

Paul Lalljie

That is probably a little bit on the light side on the international, with U.S in the ballpark, I mean it fluctuates anywhere between 10 and 15% internationally. Remember we have in the registry business some of the domain name that's on the management or also in the international side. We have the NGM business that has a international component to it and then some of the international franchises. But yes, that's good. And Canada also, our local number portability business in Canada is also an international portion, so I would say between 10 and 15% and I don't have an exact number that I can give it to you now.

Daniel Meron - RBC Capital Markets

Okay. Thank you very much, good luck.

Paul Lalljie

Appreciate it.

Operator

And we'll go next to John Bright with Avondale Partners.

John Bright - Avondale Partners

Yeah, this is again, Jeff can you hear me?

Jeffrey Ganek

I am glad to be able to hear you John. I was so worried about you.

John Bright - Avondale Partners

Well I appreciate that.

Jeffrey Ganek

I prayed your back.

John Bright - Avondale Partners

I appreciate that. Gotten cut-off for a minute. Jeff in your prepared remarks I heard you talk about financial out performance with the LNP and in detail and I think I heard you say, look for best case scenario after 20/11. Did I understand that correctly?

Jeffrey Ganek

I think you did. And look anything in this world that's more than two years out is speculative; over the last 12 years every year I have personally been surprised on the high-side with the quickness of growth and the development of new features and applications in the LNP directory system.

And its possible that that 13 year record will repeat itself over the next couple of years and I will have to apologize to this audience in the future call saying that the projection I offered today turned out to be conservative. We have been able to get new fields, new applications and new customer uses of the impact database earlier than we thought.

But there is a lot that has to happen in order for those new fields to get put into place. There is an administrative governance process that the industry has committees to manage where they review the technical with the contractual and the operational aspects of authorizing new uses of the impact.

And when those administrative processes are cleared and completed practical on the ground connecting the goes into-into the goes outs (ph) has to be done, so that new services can be used and the network operators can change the way they route messages and otherwise manage their services. It's awfully complex and has always led me to be conservative. This is... in this economy this is no time to change stripes on with aggressiveness of projections.

John Bright - Avondale Partners

Okay. Let me move on to the Ultra business. If I listened correctly, you did about 11.8 million in the Ultra business during the quarter, is that correct?

Paul Lalljie

That's correct, John.

John Bright - Avondale Partners

Okay. And then I think you also mentioned that the sales cycle other deals, that the deals seem to be a bit smaller and they seem to be drawn out a bit more. Two questions; one; if the average size of the deal size is getting a bit smaller, ballpark is on what the average deal size looks like. And then two, are you telling us that that means you might have to be a bit more aggressive in pricing?

Paul Lalljie

John with respect to pricing on that business, one other things that as a team here at NeuStar that we look at is, we sell a suite of service and we try to expand or broaden that suite of services. We try not to change the pricing because of an economic environment we would perhaps prefer to have more of a bundled offering, if you will.

On the deal specific, we're not getting to that level of details from the sizing perspective but what we can offer you is a general schematic trending of the deal size. We have seen that our larger deals the cycles of lengthen on larger deals, we're seeing an increased number of smaller deals and the size generally is smaller than it was in perhaps Q4 of 2008.

John Bright - Avondale Partners

All right. Jeffrey, then I'll move on to NGM. I apologize if you've covered this but what was the dilutive impact of NGM during the quarter and how is your strategy proceeding to turn that around?

Jeffrey Ganek

First off, Paul why don't you cite the numbers?

Paul Lalljie

So, we had revenues in the first quarter of 3.9 and we had expenses OpEx of 7.8. So that works out to roughly around at 3.7 million dilutive at the operating or EBIT margin level.

Jeffrey Ganek

And John let me talk a minute about our plan for that business. Our aim is to be EBITDA neutral by the end of the year. We are on track towards that target. And so doing, we are focusing on customer satisfaction especially among our largest customers and the fact is we have got a large number of large mobile operators who are committed to connected to our NGM platform.

And we believe as that customer base and that physical platform provides a great deal of value to those customers in the delivery and management of IP based instant messaging services and will be an important tool for those operators as they extend their messaging business and their IP service offerings in general.

We are going to get through this year, with an improved product, improved customer service, improved customer satisfaction and a financial profile that is inline with the market revenue opportunities in the future.

Operator

We'll go next to Tom Ernst with Deutsche Bank.

Unidentified Analyst

Hi good afternoon, I am Nandram Lathi (ph) on behalf of Tom Ernst, thank you for taking my question. On the IP optional fields in your number portability, how is the uptick been so far?

Jeffrey Ganek

So, the status of the IP fields and the impact is that, NeuStar is currently working with our customers via the governing and administrative bodies that oversee the impact and the considerations there are how and when those first three IP fields will be activated and authorized. That has not yet been finalized and we expect progress there sometime in the near future.

Unidentified Analyst

Okay thanks. And then a different question on CapEx, you said 25 to 35 million expectation for the year. What was the CapEx during this quarter?

Paul Lalljie

CapEx for the quarter totaled just over 1 million; again, we had a significant pushing of the right on CapEx for the first quarter. It was actually 1.4 to be specific and we're expected to be within that range of 25 to 35 on a full year basis.

Unidentified Analyst

Okay.

Paul Lalljie

And that's both for the NGM and the clearinghouse businesses.

Unidentified Analyst

Thank you.

Paul Lalljie

I appreciate it.

Operator

We'll go next to Scott Sutherland with Wedbush Morgan.

Unidentified Analyst

Hi. Thank you. This is Suhail (ph) for Scott. A few housekeeping questions. I would like to know the Common Short Codes, domain names manage the NGM subscribers?

Paul Lalljie

Yeah Suhail, this is Paul here. Domain names under management is roughly around 4 million and Short Codes under management is just over 3,000.

Unidentified Analyst

And NGM subscriber count?

Paul Lalljie

NGM subscriber count, just over 1 million, about 1.1 million as of March 31st.

Unidentified Analyst

Great, thanks. And one quick follow-up question. On international opportunities in Europe, if you could provide any color on that?

Jeffrey Ganek

So we have been monitoring opportunities for local number portability franchises in Europe and Asia. We are not currently strenuously pursuing any one opportunity. In fact, we believe that opportunities in Europe and Asia are best addressed from NeuStar via the PathFinder initiative with the GSM Association via the Ultra business and via Global Registry Operations. Of course our NGM business is the bulk of our 37 mobile network operated customers, our European operators including Vodafone, Telecom Italia and many others.

Unidentified Analyst

Thank you very much.

Operator

And there are no other questions at this time. I would like to turn the conference back to Jeff Ganek for any closing remarks.

Jeffrey Ganek

Our first quarter 2009 results were solid. We demonstrated that there is continued demand for our service and that we also have the fiscal discipline necessary to achieve our profitability targets. We remain focused on cash generation and profitability while also positioning ourselves for revenue growth.

Growth while dampened by the current economy will come overtime. With a strong base of assets including the domain expertise, skilled management and financial strength, we are prepared to prosper.

Thank you all very much for joining us on this call. Have a good evening.

Operator

Thank you everyone. That does conclude today's conference. We thank you for your participation.

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Source: NeuStar Q1 2009 Earnings Call Transcript
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