VRSN

VeriSign, Inc. (VRSN)

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VeriSign (VRSN)

Q3 2010 Earnings Call

October 28, 2010 5:00 pm ET

Executives

Mark McLaughlin - Chief Executive Officer, President and Director

Brian Robins - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Nancy Fazioli - Investor Relations

Analysts

Ignatius Njoku

Sterling Auty - JP Morgan Chase & Co

Daniel Cummins - ThinkEquity LLC

Edward Maguire - Credit Agricole Securities (USA) Inc.

Walter Pritchard - Citigroup Inc

Chloe Wayne

Rob Owens - Pacific Crest Securities, Inc.

Craig Nankervis - First Analysis Securities Corporation

Sarah Friar - Goldman Sachs Group Inc.

Todd Raker - Deutsche Bank AG

Presentation

Operator

Good day, and welcome to the Third Quarter 2010 Earnings Call. [Operator Instructions] At this time, I'd like to turn the conference over to Ms. Nancy Fazioli. Please go ahead.

Nancy Fazioli

Thank you, operator. Good afternoon, everyone, and thank you for joining us for VeriSign Third Quarter 2010 Earnings Conference Call. I'm Nancy Fazioli, Director of Investor Relations, and I'm here today with Mark McLaughlin, President and CEO; and Brian Robins, Executive Vice President and CFO.

Please note that this call and accompanying slide presentation are being webcast through our investor relations website located at investor.verisign.com. Please refer to our website for important information, including the Q3 2010 earnings press release. A replay of this call will be available on our website within a few hours. Today's slide presentation will also be available for download after the call.

Financial results in today's press release are unaudited, and the matters we will be discussing today include forward-looking statements, and as such, are subject to the risks and uncertainties that we discussed in detail on our documents filed with the SEC, specifically the most recent report on Forms 10-K and 10-Q and any applicable amendments, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. I would like to remind you that in light of Regulation FD, VeriSign retains its long-standing policy to not comment on financial performance or guidance during the quarter unless it is done through a public disclosure.

The financial results in today's press release and the matters we will be discussing today include non-GAAP measures used by VeriSign. GAAP to non-GAAP reconciliation information is appended to our press release and slide presentation, both of which can be found on our investor relations website. In a moment, Mark and Brian will provide some prepared remarks, and afterwards, we will open up the call for your questions. Unauthorized recording of this conference call is not permitted

With that, I would like to turn the call over to Mark. Mark?

Mark McLaughlin

Thanks, Nancy. Good afternoon, everyone. We're pleased with the performance of the business this quarter. We continue to see strength in the Internet trends that drive our business. Also, the team's ongoing operational discipline and execution leading up to and following the close of the sale of Authentication Services is helping to drive positive results. There is still a lot of work to be done as we transition the Authentication business. We're very focused on a smooth transition, which is on track, in which we expect to be largely completed in the mid-2011 time frame. I'll now cover the highlights of our financial results from the third quarter.

Revenue in the third quarter for a Naming Services was $172 million, representing an 11% year-over-year increase. Naming Services is comprised of Registry Services and Network Intelligence and Availability or NIA services. Non-GAAP earnings per share was $0.27 compared to $0.16 in Q3 2009. Non-GAAP operating margin was 43.1% compared to 33.7% in Q3 2009.

During the quarter, we utilized $146 million of cash to repurchase 5.1 million shares, leaving us with repurchased authorization of approximately $1.4 billion. In August, we received $1.28 billion in proceeds from the sale of the authentication business, which brings our cash balance at the end of the third quarter to $2.55 billion, approximately 65% of which is held domestically.

Operationally, in Naming Services, the base of registered names in .com and .net this quarter totaled 103.5 million names at the end of September, a 9% increase year-over-year. $2 million net names were added domain name base this quarter.

During the third quarter, we processed 7.5 million new registrations, which is a 7% increase year-over-year. The 2010 Q2 renewal rate was 73.2%, up from 72.1% in Q1 2010. While renewal rates are not fully measurable until 45 days at the end of the quarter, we believe that the renewal rate for Q3 2010 will be approximately 73%. For that domain name additions, we expect the Q4 net names added to the base to be between 1.7 million and 2 million names.

Q4 has a larger expiring name than in the third quarter and an increased number of first-time renewing names and expiring name base. In addition, in some previous years in the fourth quarter, we have seen some registrars doing year-end inventory reviews, resulting in some deletions at the very end of the year. While we review accounts on a regular basis, it is possible that there could be some deletions resulting from this kind of activity. It would not appear in our regular account reviews.

On the infrastructure front, the growth of the Internet, that is positive for our business, will continue to put increased demands on our infrastructure. In the third quarter, we processed an average $66 billion DNS queries per day, up from $63 billion queries on average per day last quarter. Also last quarter, I highlighted exciting developments with the implementation of DNSSEC [indiscernible] and a forthcoming implementation in the .net zone later this year and the .com zone next year. This is one of the most significant security enhancements for the DNS ever, and we are proud of our leadership role there. As we continue to show leadership for the next digital decade, we will plan to continuously invest in our infrastructure to enhance our readiness for any future DNS requirements.

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