VRSN

VeriSign, Inc. (VRSN)

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VeriSign (VRSN)

Q1 2011 Earnings Call

April 28, 2011 4:30 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

Sterling Auty - JP Morgan Chase & Co

Daniel Cummins - ThinkEquity LLC

Philip Winslow - Crédit Suisse AG

Shaul Eyal - Oppenheimer & Co. Inc.

Edward Maguire - Credit Agricole Securities (USA) Inc.

Steven Ashley - Robert W. Baird & Co. Incorporated

Walter Pritchard - Citigroup Inc

Todd Raker - Deutsche Bank AG

Kelly McLeod

Presentation

Operator

Good day, everyone, and welcome to the VeriSign's First Quarter 2011 Earnings Call. Today's conference is being recorded. 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's First Quarter 2011 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 from the Investor Relations section of our new corporate website, www.verisigninc.com. Please refer to that website for important information, including the Q1 2011 earnings press release. A replay of this call will be available on the 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 includes forward-looking statements and as such, are subject to the risks and uncertainties that we discussed in detail in our documents filed with the SEC, specifically, the most recent reports on forms 10-K and 10-Q and in the 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 presentations, as applicable, each of which can be found on the Investor Relations section of our 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 continue to be pleased with the company's performance. We are seeing a combination of a record number of new domain name registrations and strengthening in renewal rates. Also, we continue to achieve ongoing operating margin expansion through disciplined operations. And our balance sheet remains healthy, which allows us to declare a special dividend and to have repurchased $200 million in shares in the first quarter.

As a leading Internet infrastructure provider, our business is being driven by the continued growth in underlying Internet trends such as online advertising, e-commerce, more global Internet users and the paradigm shift to cloud computing. We believe we are well positioned to participate in driving and securing that growth as well as to help our customers strengthen the integrity and effectiveness of their Internet services.

Before getting into first quarter results, I'd like to comment on the $2.75 per share special dividend that we announced today. As you may recall, in December of last year, when we paid out a $3 special dividend, we expressed our intention that we would return to shareholders at least the proceeds from the sale of our Authentication Service business, which was approximately $1.3 billion.

With the $3 special dividend in December, the $200 million of share repurchases in the first quarter and today's $2.75 special dividend, we have returned an excess to proceeds of that sale to the shareholders. Post this dividend payment of $463 million, as well as the related contingent interest payment of $100 million to holders of our convertible bonds, we have approximately $1.4 billion remaining on the balance sheet. Following the first quarter share repurchases, we have approximately $1.2 billion remaining in share repurchase authorization, which has no expiration.

Now I'm moving on to first quarter results. In Registry Services, the base of registered names in .com and .net totaled 108 million names at the end of March. This represents a 9% increase year-over-year in the base and an approximately 3% increase quarter-over-quarter.

In the first quarter, we processed a record 8.3 million new registrations, which is an approximately 3% increase year-over-year. And in the quarter, we added 2.74 million net names to the domain name base.

On the renewal rate side, the Q4 2010 renewal rate was 72.7%. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the first quarter of 2011 will be between 73.5% and 74%. We expect the Q2 net names added to the base to be between 2 million and 2.3 million names, which reflect the continued growth in the underlying drivers of the Internet, as well as seasonality.

As many of you are aware, our contract with ICANN for .net comes up for renewal on June 30 of this year. On April 11, we announced that ICANN had posted the negotiated renewal terms for the .net Registry Agreement for public comment. There are no material changes to the terms of the proposed renewal agreement from the existing agreement. ICANN's internal policies call for a common period for the proposed agreement, which we expect will run for approximately 30 days. And we expect the agreement to be renewed by July 1.

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