威瑞信 (VRSN) 2006 Q1 法說會逐字稿

Good day, and welcome to the VeriSign first-quarter 2006 earnings call. Just a reminder that today's call is being recorded. And at this time, for opening remarks, I'd like to turn the call over to Tom McCallum. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone. Thank you for joining VeriSign's first-quarter 2006 results call. I'm here today with Stratton Sclavos, Chairman and CEO of VeriSign; Dana Evan, our CFO; and Steven Gatloff our VP of Finance and Treasurer.

In a moment, Stratton will review Q1 results, and will provide some insights into the performance of the businesses. Dana will then follow with a detailed review of Q1's financial result. She will then provide forward-looking financial guidance. We will then open up the call for your questions. We anticipate the call will end at approximately 3 PM.

We would like to remind everyone that other than the historical financial data, today's discussion may include forward-looking statements, and is subject to the risks and uncertainties described in our annual report and other reports filed with the SEC.

Our financial results were released today on the newswires after the market closed. The press release with the related financial information discussed on this call and a reconciliation of GAAP to non-GAAP financial information can be found on our website at www.VeriSign.com under the Investor Relations tab. This call is being webcast live both on our website and at StreetEvents.com.

And with that, I would like to turn things over to Stratton.

Thanks, Tom. Good afternoon, everyone. Let me add my welcome to all of you attending today's call. As our results for Q1 indicate, we had a solid start to the year, meeting or exceeding our financial projections for the quarter and continuing to see record unit volumes in most of our businesses, most notably in the domain name business. We were also pleased to see the mobile content business hit its projected targets as we start the year.

It was a very productive quarter in terms of strategic execution as well, as we made significant progress in building out our intelligent infrastructure portfolio through both internal development and key acquisitions. As we will discuss in more detail over the next few minutes, we introduced several new offerings in security, messaging, and digital content during the quarter. We expect this trend to continue throughout the rest of the year as we integrate the recent acquisition and bring new, internally developed solutions to market in supply chain, real-time publishing, and communication.

All in all, we feel good about our results in Q1, as they provide a solid foundation for growth throughout the rest of the year. With that, let me dive into the Q1 highlights for the business units, and then say a few words about our outlook for Q2.

Let's begin with the Communications Services Group. As you will recall, we report the CSG group's revenue in two categories -- communications and commerce, and content. The communications and commerce line of business includes our network connectivity, database and billing services. Beginning with Q1 2006, we're also moving our SMS and MMS messaging services into this category to more clearly distinguish them from the content services and applications. The content line of business will now include both the B2C and B2B components of Jamba! and Jamster, and going forward, the 3united, Kontiki, and m-Qube results as well.

For Q1, the communications and commerce line of business achieved $119 million in revenue, consistent with our guidance. In terms of business metrics we delivered over 14.9 billion database queries in Q1, up 16% year over year. We also processed billing and payment services for approximately 8.2 million wireless users, up 5% sequentially and 15% year over year. And lastly, we enabled the delivery of 7.4 billion SMS messages, up 37% sequentially, and 147% year-over-year.

Key drivers in the communications and commerce business in Q1 included strong growth in wireless billing subscribers at MetroPCS, Leap, and several other carriers using our prepaid services. In addition, we saw good traction with our MMS and SMS messaging services as we signed several new contracts with Internet portals, large enterprises, and international carriers. These wins combined to offset the traditional beginning-of-the-year price pressures in the connectivity and database business. We also saw strong new business bookings performance from the CSG salesforce that should lead to better growth characteristics for the core communications business in the second half of the year.

Expanding our communications and commerce footprint internationally has been a key objective over the last 12 months. I'm pleased to say that we had continued success in Q1 in selling our clearing and messaging services in both Asia and Latin America. In fact, based on this accelerating momentum, we are currently building out a network switching hub in Japan which we believe will be a competitive advantage in winning even more business in Asia later this year.

Now let's move to the content line of business. Overall, we achieved revenues of $78 million during the quarter, slightly better than our forecast of 70 to $75 million. As expected, these results underscored continuing erosion in the B2C business in the main geographies, although we're beginning to see a slowing in the rate decline in the key markets.

Given the most recent trends and developments, we still expect several stabilization of the B2C business in the second half of the year as we continue to refine our customer acquisition and retention programs. We did establish several new partnerships on the B2C side in Q1, including an agreement with ALLTEL to provide a Jamster-branded client for their BREW-based handsets. We already have seven handsets certified, and are in the final stages of launching our go-to-market plans with them.

Additionally, the Jamba! team in Germany announced an agreement with Debitel to launch a full-track music solution in May. We believe our full-track solution is state of the art in terms of user experience and packaging flexibility. We will be taking the solution to other markets on both a branded and white-label basis beginning this summer.

On the B2B side of the business, we made significant progress in both customer traction and service enablement. We have launched white-label services in the U.S for our first large-scale B2B customers, and are busy implementing international sites as we speak. These two customers -- one, an Internet portal, and the other, a global media company -- have their own marketing programs planned for the remainder of the year that target their unique customer bases and proprietary content. In addition, the acquisitions of 3united and Kontiki have greatly expanded our portfolio of services and geographic reach with new, interactive application, carrier connections, and broadband capabilities. Several of these new capabilities were instrumental in securing our recent win with British Telecom to power the content services for their new converged fixed mobile offering, BT Fusion.

With our planned acquisition of m-Qube, which is still waiting regulatory approvals, we believe we will have assembled a comprehensive portfolio of services that carriers, Internet portals, media, and consumer product companies can leverage to accelerate their go-to-market plan with mobile and broadband content.

As we have discussed before, our primary objective in 2006 is to stabilize the B2C content business while aggressively ramping up the B2B business. We're pleased with our progress in Q1, and focused on continued execution here in Q2.

In summing up the Communications Services Group, I think it's fair to say that Q1 came in as planned, and that we expect the greatly expanded portfolio of new services to help balance the revenue distribution in CSG throughout the year. We remain optimistic about the growth opportunities that exist across the portfolio, including messaging, international signaling, and content services.

Let's now move to the Internet Services Group. The ISG group contains our information services business and our security services business. As you know, VeriSign Information Services is the new name for what was our naming and directory services business. The business unit provides real-time information services that enable intelligent network interactions for naming, supply chain, and real-time publishing applications. While we're very excited about the longer term potential to build $100 million plus businesses in the supply chain and real-time publishing market, the main driver in VIS continues to be the naming business for .com and .net.

During the quarter, we processed approximately 6.2 million new registrations for .com and .net domain names. We also saw another 8.3 million names renewed or extended, adding up to a record 14.5 million domain name transactions in the quarter. VeriSign's adjusted base of active names at the end of the period sit at an all-time high of 54 million, up 8% sequentially and 30% year over year.

This VIS team is also busy readying new offerings for our intelligent supply chain and real-time publishing services. We're on track to deliver our first ePedigree solution to two of the largest pharmaceutical distributors in North America by the end of Q2. We also signed several additional contracts for this solution during the quarter, and believe we have an opportunity to become the de facto standard in this area as legislation takes hold heading into 2007.

We continue to see strong momentum in the real-time publishing market as well, and believe we are now handling 75% of all global ping traffic at over 4 million feeds per day, up 30% quarter over quarter. We're also serving over 100 million aggregate news articles on a daily basis, and by the end of this year, we expect to be harvesting news from over 25,000 sources and providing access to well over 5 million blogs and RSS feeds. As the real-time Web continues to flourish, we will look to become the authoritative source of real-time information for enterprises, Web portals, and media companies.

Moving to our security services unit, we sold over 143,000 SSL certificates during the quarter, up 17% year-over-year. This brings our active installed base to 508,000. Demand here is still being driven by an increasing number of transactions at existing Web sites coupled with continued international expansion.

On the enterprise side of security, we're starting to see much broader industry segmentation in our sales effort as risk management, compliance, and business continuity concerns become a mainstream issue for most corporations. During the quarter, we had a broad base of customer wins for our managed security and unified authentication services. Notable contract awards including US Bank, Wilmington Trust, Sumitomo Mitsubishi Bank, Ford Motor Company, Ross Stores, and EMI. We also signed our first large international order for unified authentication tokens with Credem, an Italian financial services company.

We made significant new service announcements in the security group as well, highlighted by our February launch of the VeriSign Identity Protection network. The VIP network utilizes our global infrastructure and open authentication platform to provide a network-based service for issuing and sharing secure identity credentials across a wide variety of e-commerce and Internet sites. Charter members of the VIP network include eBay, PayPal, and Yahoo!. SanDisk and Motorola have also announced plans to support the VIP network with their storage and wireless products, respectively.

As we have said before, we think broad-based consumer adoption of strong authentication technology can only happened when cost, utility, and ease-of-use reach acceptable thresholds. We believe the VIP network holds that promise, and we'll be making further partnership announcements in the coming months.

In addition to the VIP network, we also launched a fraud detection and prevention service utilizing our recently acquired Snapcentric technology, and a risk profiling service to help companies analyze and assess the impact of various security threats. We're seeing strong interest in all of the new offerings, and expect to announce significant customer wins shortly. I think it's worth noting that we'd characterize the overall security market as mixed in Q1, coming off of a very strong Q4. VeriSign saw strength in SSL and decent traction with MSS and UA services. Strength in EMEA was moderated by weakness in Asia and some deals slipout of the end of the quarter.

Overall, while we are watching these trends closely, we still believe the demand is there for a strong performance for the year.

Let me say a few words about Q2 before turning it over to Dana. Overall, we believe the demand for intelligent infrastructure services is continuing to accelerate as the world migrates from physical to digital interaction. With Q1's results behind us, we believe we have established a good foundation for 2006's overall performance. The continuing momentum in Internet Services Group coupled with our new services and the contribution from the acquisitions gives us confidence that we will grow topline revenue sequentially throughout the rest of the year, even with continued short-term declines in the Jamba! B2C business.

With that, I want to thank you for your attention. And now I'll turn to call over to Dana.

Thanks, Stratton, and thanks to all of you for joining us this afternoon. As you can see, our results for the first quarter demonstrated a solid start to the year in our core businesses and strong performance across all key financial metrics. During the quarter, we executed on several key strategic investments, with our previously announced acquisitions in the security, content and messaging areas, and we repurchased approximately $75 million of our common stock. Strong deferred revenue growth fueled operating cash flow of $92 million, enabling us to execute these transactions while maintaining healthy cash balances of over $800 million.

Before we turn to the detailed results for the quarter, let me comment on a few items that pertain to the financials. Please note that for year-over-year comparisons, all remarks have excluded the discontinued operations related to the sales of the payments business in 2005. Additionally, in Q1 we adopted to the new FAS 123R accounting pronouncement, and began to expense the fair value of stock options in our GAAP income statement. For the quarter, this stock option expense was $15 million. The implementation of FAS 123R also drove an increase in our GAAP tax rate.

So now let me turn to our financial results, starting with the income statement. On a consolidated basis, VeriSign reported first-quarter revenue of $374 million. This represents the anticipated decrease for the first full quarter's impact from the sale of the payment gateway business to eBay, as well as the forecasted decline in the Jamba!/Jamster business. The revenue for the quarter also includes close to $2 million for the partial quarter's results from the closed acquisitions.

Looking at the detailed revenue by reporting unit, the Internet Services Group delivered approximately $177 million of revenue for the quarter, up 21% over Q1 of the previous year, and up from $173 million in Q4. The revenue growth was driven primarily by acceleration in our naming business for the quarter.

Our Communication Services Group recorded $197 million of revenue for Q1, reflecting the forecasted decline in the Jamba!/Jamster revenue. As we entered the new year, we reorganized our SMS and MMS messaging businesses within the VCS group, and as such are now including these revenues in the core communications number to be consistent with this organizational change.

Taking this into account, Q1 revenues from core communications and commerce were $119 million, which includes $15 million from the messaging business. The mobile content line of business delivered Q1 revenues of $78 million, which includes Jamba!/Jamster, as well as the new mobile and broadband infrastructures services. This revenue is slightly higher than our previous Q1 guidance, and includes less than $1 million from acquisitions during quarter.

Moving to international operations, the percentage of revenue driven from international customers, affiliates, and subsidiaries was approximately 30% for Q1, consistent with Q4.

Looking at cost of revenues in gross margin, our cost of revenue for the first quarter was up from Q4 at $134 million, translating into a 64% gross margin for the first quarter. This was slightly below our previous guidance, due primarily to higher royalties incurred in the content business, joint marketing programs that were launched with the registrar customers of our naming business, and the sale of our high-margin payments business.

Turning to operating expenses and related items, total operating expenses for Q1 were $163 million, reflecting a decrease in the variable marketing expense related to Jamba!/Jamster, where we continue to monitor and manage our market-focused spending.

This equates to pro forma operating income of $76 million, and translates into a 20% operating margin for the quarter, in line with her guidance. This operating income does reflect the loss of approximately 7 million of operating income from the sale of the payments business.

As it relates to employee headcount, we ended the quarter with a total employee base of 4,400 people, up from 4,100 at the end of 2005. Approximately two-thirds of the increase came from the acquisitions that closed during the quarter.

VeriSign reported non-GAAP pretax income for the first quarter of $84 million. Non-GAAP earnings per share for Q1 was $0.24, $0.02 ahead of the top end of our January guidance of $0.21 to $0.22. This EPS also reflects $0.005 dilution driven by the acquisitions closed in the quarter. The earnings per share calculation uses the diluted weighted average shares outstanding of approximately 249 million shares.

Now moving onto the balance sheet and cash flow items, cash balances decreased by $94 million in Q1, driving a cash, equivalents, and short-term investments balance of $812 million. The sequential decrease in cash was a result of 75 million of cash used to repurchase 3.2 million shares of common stock, 27 million of capital expenditures, and 189 million spent on strategic acquisitions, all offset by operating cash flow in the quarter of 92 million.

I would also point out that over the past year, we have repurchased close to $625 million of VeriSign common stock. We continue to believe that the investment of our cash in strategic acquisitions and share repurchases will drive long-term value creation for our shareholders.

While you can see that VeriSign has over $800 million of cash on the balance sheet and generates over $400 million of operating cash flow per year, we believe it is in the Company's best interest to provide strategic, financial, and operating flexibility by having access to additional funding sources. This allows us to effectively manage our capital structure, execute efficiently against our strategic plans, and thereby drive increased return to our shareholders. Accordingly, we have put in place a 200 million credit facility to be used for general corporate purposes. We anticipate that a portion of this facility could be used to fund part of the m-Qube acquisition, allowing us to efficiently manage our investment portfolio.

As it relates to accounts receivable, net DSO for the first quarter came in at 48 days, which is down from the previous quarter's of 51-day DSO. Solid collections in the content business drove the majority of the favorable decline here, even with $10 million of acquired receivables coming into the AR balances for the quarter.

Total deferred revenue on the balance sheet was $539 million at the end of Q1 up $44 million or nearly 9% from the previous quarter. The strong growth here was driven primarily from better-than-expected bookings and strong renewal rates in the naming business and consistent deferred growth from our security business. On a year-over-year basis, deferred revenue grew 23% or [up] approximately $100 million.

Moving on to cash flow metrics, operating cash flow for Q1 came in at approximately $92 million. This healthy cash flow was fueled by solid operating income, the strong growth in deferred revenue that I just mentioned and other favorable balance sheet changes.

And lastly, capital expenditures for the first quarter were $27 million leading to free cash flow before acquisitions and stock repurchases of $65 million.

So that completes the financial review. Let me now turn to our outlook for Q2. As it relates to revenue guidance for the quarter, we anticipate a range of approximately 380 to $385 million. This reflects the expectation that the Internet Services Group will represent approximately 49% of revenue in Q2, and the Communications Services Group, approximately 51%. Additionally, this guidance anticipates consistent growth in ISG, and in CSG, growth in the core communications and commerce group, including messaging, and a slowing of the decline in the Jamba!/Jamster revenue to the mid $60 million range. This forecast does not include the impact of the m-Qube acquisition, which we anticipate closing later this quarter.

As a relates to margins for Q2, we would expect gross margins to be relatively flat, in the 64% range, reflecting the full quarter's worth of acquisition-related COGS which dilute the gross margin percentage across the Company.

In terms of operating expenses, we would also expect a relatively flat quarter in R&D and G&A expenses, and a slight reduction in sales and marketing. Given this revenue growth and expense profile, we would expect operating margins to be in the 20% range. As it relates to share count, we forecast a diluted share count of approximately 248 million shares for Q2.

Therefore, taking into account the anticipated Q2 revenue and margin guidance I just gave, we are guiding to earnings per share for Q2 of $0.23 to $0.24 on a fully taxed basis, using the 30% effective tax rate. This EPS guidance does reflect a full $0.01 dilution resulting from the full quarter's impact of the recent acquisition.

Looking at operating cash flow, we would expect to generate a base level of cash flow in Q2 of approximately $100 million, driven by operating income expectations and our forecast for another quarter of solid, deferred revenue growth.

So to sum it up, we're pleased with the solid performance we delivered in the first quarter of 2006, and are excited about our growth opportunities in both our core businesses, as well as in the new areas we've entered into with our recent acquisitions. We look to our strong balance sheet and strong cash flow generating capabilities to fuel both our current and future growth opportunities as we continue to focus on increasing shareholder value.

And in closing, I would note that we're looking forward to seeing all of you at our analyst day here in our Mountain View headquarters on May 25. And with that, I'd like to open the call for your questions.

Operator, can we have the first question, please?

(OPERATOR INSTRUCTIONS) Ed Maguire, Merrill Lynch.

Could you talk about the timing of the rollout of services from some of the recent acquisitions? In particular, you have 3united and Kontiki -- and whether we could expect any consolidation of some of the data center facilities?

Because both of those are already closed, and they had existing product, they are basically in the marketplace, or we're in the marketplace with them now -- in 3united's case, bringing many of those technologies here into the U.S. market for the first time. In fact, that is some of the services we have been using to operate some of the sweepstakes and other types of applications that we're running for American Idol right now.

In the Kontiki case as well, obviously, they had a shipping product. And that is being offered now, both to enterprises on the internal side, as well as using some of our sales resources to take that into studios and other content owners. So I would say we're pretty easy to get up and running with their existing base of services. The probably key strategic thing will be as we roll those together into some new offerings here second half of the year that we're pretty excited about. And we'll talk more about those at the analyst day.

Okay, great. And could you also talk about the relationship with PayPal -- what is the status of rollouts there? And also any progress you have made on the VIP authentication side in terms of actual revenues?

Sure. We continued to work with PayPal on implementation schedules. And it's really dependent on them as to which geographies they roll that out in. But they had a full technical plan. And they have been telling us that they will begin some of those early deployment and rollouts here in Q2 and Q3. And I think that we'll see that just continue to graduate to higher levels over the course of the next few quarters.

In terms of recruiting, we are continuing to have lots of discussions with both organizations who want to be relying parties, meaning they want to accept VIP-compatible tokens, with other vendors of tokens who want to make them compatible with the VIP network, and then with issuing partners. We expect we'll announce a couple of other customers for the tokens here over the course of the next few weeks.

So I think all of that is moving forward as we had hoped, including using the Snapcentric technology as a fraud detection service that will let financial institutions comply with the [EIC] regulations that are coming up this year. A lot of activity in that space, a lot of interest. And I think we have now got a broad enough product set to be successful.

Sterling Auty, JPMorgan.

Thanks, guys. You mentioned the messaging and enhanced messaging. I'm just wondering if you saw the momentum kind of continue in terms of new customer wins as you moved into the June quarter? And on that messaging front, who do you see your primary competition as, especially in the enhanced messaging front?

So I think the messaging area is a big bucket, Sterling, as you know. So you have got traditional SMS text messaging. You have the interoperability with MMS. And then you have got advanced applications like picture messaging on the one hand, or applications for premium messaging, like voting applications and content -- [object] content applications.

So we have a premium messaging gateway that we have won some carrier business with recently. The 3united team has these mobile applications for things like voting and couponing and ticketing. And then there are some inherent capabilities in the SMS gateways that we have been continuing to kind of build out.

So I would say that's kind of one of our faster growing in terms of momentum businesses right now, which is one of the reasons we pulled it in under the Communications Group leadership to get some more focus there. And we're pretty excited about kind of all the activities going on there. I think competitively, we'll have a very broad-based platform that gives us kind of end-to-end solution capability to create new offerings, for whether they be media companies, consumer product companies, traditional carriers, even some Internet portals who might be wanting to use these services for things like mobile search.

Brian Essex, Morgan Stanley.

I was wondering if you could talk a little bit about deferred revenue and bookings. And it looks like it went up significantly over what we had expected, anyway. Do you have any clarity in terms of where those bookings came from, whether it was Internet Services Group, or ISG versus the commerce group?

So we have perfect clarity into that. And the majority of the increase came from the VIS group, or our naming businesses -- so the sale of com and net names and the renewal of com and net names. The security services group had consistent growth this quarter within their deferred as compared to prior quarters. And then the VCS group -- there was a couple million dollars that came in from some of the billing services.

But as Dana said, the vast majority is from naming. And that's both because of the 6.5 million new names we sold as well as a little bit higher renewal rates on the base.

Okay. And then in terms of some of the Jamba! numbers, it appears as though investors still may be focused on that number, and it looks like you're still guiding to somewhat of a sequential decline there. Any clarity in terms of when you might see that either plateau, or any other initiatives that may kind of stave off that decline?

Well, I think in the B2C side, which is I think what investors have been focused on, what we said is we would expect it to stabilize in the second half of the year. And as the rate of decline slows, we think we are heading towards that type of stabilization.

On the other hand, we will be seeing the B2B side of it grow with the ramp up the of the two B2B customers that we have, as well as the inclusion of the 3united and eventually, after the regulatory approval, the m-Qube revenue stream. So I think the B2B side is going to very quickly grow to have a balancing effect on those B2C revenues.

In addition, on the B2C side, we do expect a couple of more carrier wins here. We have been told recently that we have won another BREW-based client business at another MVNO here in the U.S. And we are fairly confident that we are going to see Verizon turn on services for both our B2B and B2C side sometime here in the next few months. There are a few events that we can point to occurring in the next few months that give us some confidence in that stabilization.

Todd Raker, Deutsche Bank.

Two questions for you. Dana, I think in your commentary you commented that there was a $2 million revenue impact from acquisitions, and less than $1 million hit the content. I'd love to know where the rest of that revenue fell out.

And I believe in your receivable discussion, you said there was $10 million of acquired receivables. So if you could just give us a framework for -- know, if you looked at your three acquisitions -- Snapcentric, 3united, Kontiki, what would they have done for the full quarter from a revenue perspective? Could you give us a baseline going forward?

Well, we actually had five acquisitions in the quarter. The others -- so absent the $1 million that came in on the content side, we did the CallVision acquisition which was in the billing area. That was several hundred thousand -- less than $1 million of revenue, which makes that the bulk of the balance of the $2 million. And the $2 million is less than $2 million -- it rounds. It's like 1.7.

Okay, and if you look at the five acquisitions, what would they have contributed for the full quarter had you owned them January 1, just to give us kind of a baseline?

About $5 million.

I think the other side -- probably more impactful is what they did to the bottom line. As Dana said, they were about $0.005 dilutive in Q1, and will be a full $0.01 dilutive in Q2. And even with that, we're hoping to get to $0.23 or $0.24 again.

Yes. And then back to -- given that discussion here, do you think you're going to be able to stabilize the consumer content business without ramping sales and marketing? You guys have done a great job on expense control. But are you going to have to start and spend more to stabilize that business?

You know, I think we and the team in Germany believe that we can continue to manage the marketing spend within a pretty tight range relative to the contribution. So I don't think you're going to find us ramping significantly, absent any new external event that would point to that being a good idea.

And then with the m-Qube transaction, do you have any feel for -- is that going to be a late Q2 event, early Q2? And then can you talk about -- will you recognize net revenue or gross revenue on that business?

So as it relates to the timing, it's always things. We are dependent on some outside events. So we've not cleared HSR yet, would expect to hear on that sometime in the next week or so. Once through that, I think we've got a pretty quick path there. So our bet would be sometime around the middle of May or so, absent any second requests for information.

As we do with Jamba!, we will definitely be counting net revenues in the m-Qube transaction, which we think is more consistent with conservative rev rec, as well as higher margin generation on the bottom line long-term.

Phil Winslow, Credit Suisse.

Just along the lines of m-Qube, wondering if you could give us a sense for what their net revenues did look like in 2005, when we start to think about the second half of this year? And then also, just on the Jamba! side, U.S. versus international -- wondering if you could give us a sense for just what the sequential growth rates looked, both domestically and overseas?

I don't think we're in a position to kind of give you the net revenues, because one, that's not the way they counted them, and their audits for last year are not complete. I think it's better to talk about kind of -- we're going to count it on a net revenue. If you wanted to look at the acquisition price of $250 million or so, I think it would be fair to say we believe we paid in the 4 to 5x range on multiple for revenues that they would achieve for the full year this year. So it's kind of a 4 to 5x multiple, so that would stay somewhere in the 50 million range or so, maybe a little bit better. And that would be net for '06.

Yes, and then just on the Jamba! side, if you could give us a sense domestic and international -- just sort of what the sequential growth you saw there?

I'm sorry; on the Jamba! side?

Yes, correct.

Obviously, it declined, Phil, so I'm not sure what you are asking.

No, I'm just wondering which geography declined more, etc., if you're seeing more stability in the U.S.?

Yes, I think the biggest market as we have always said is Germany. And the declines in Germany were the smallest of any of the other geographies. The highest declines were in the UK of a much smaller base. And then the U.S. decline was kind of in the middle there on the decline rate.

Rob Owens, Pacific Crest Securities.

Dana, just to clarify -- so in terms of your Q2 guidance, is there anything in there for m-Qube, or given that it hasn't closed or passed HSR, should we await that?

No, is no guidance. We give guidance after the close the transaction because the timing of that closing affects the number obviously.

Great. And then Stratton, could you talk a little bit about your opportunity with high-assurance certificates -- where the CA Browser Forum is in terms of the vetting process, and what the timing is going to look like in all that?

Yes. So just so everybody on the call understands, what Rob is talking about here is high-assurance certificates, meaning in the Vista operating system that Microsoft will launch next year and in the IE7 browser, there is a idea or a framework for something called a high-assurance certificate, such that when the browser encountered that certificate, it would put up a green colored address bar, and be able to give some level of communication to the consumer that this site has been authenticated at a high level of assurance. So we have been working with, I guess -- what's it called, the high assurance forum?

Close enough.

Close enough -- we're working with this group and Microsoft and others to try to define that level of authentication upon which vendors like VeriSign would issue the certificate.

So I think sometime this summer, it looks like we will wrestle that all to the ground. We expect to be fully compliant with whatever that high assurance trust model is. And then I think you would see as you roll into '07 and you get the IE7 upgrades and the Vista upgrade, we will go out to our customer base and provide upgrade capabilities for them, as I'm sure other vendors will.

So it's probably an '07 event. But we think it is something that benefits VeriSign in the long run, because our practices and our policies are so stringent already, we tend to be already in a position to be kind of a leading provider there.

Great, and lastly, any sense of timing with the Department of Commerce on the .com renewal?

We don't have a lot of visibility into their processes internally. We would expect to hear somewhere here in the next few weeks.

Shaul Eyal, CIBC World Markets.

Quick question on m-Qube. Could you provide us a sense as to what kind of revenue sharing model these guys follow? Is it revenue sharing with some of the customers? Is it license and services? And how would you be treating that, once they're going to be folded under VeriSign?

I think the simple way to think about it is that they share revenues with the carriers, right? And as we do in the Jamba! case, we will count revenues net of that. So whatever percentage that is with the various carrier relationships -- we won't include that in the net revenues.

They also -- because they represent media companies who have their own content, they don't have to pay content royalties. But we don't take revenue for that. That revenue goes directly to the media company that m-Qube represents. So in many senses, we are taking the incremental margin between the carrier fees and the proprietary content that the customer owns. And so it is a fairly conservative way, I think, of looking at and recognizing that revenue. But we think it's very consistent with the way we've been doing our content business.

Fair enough. And do you guys have any idea as to what percentage level is revenue sharing as part of the overall revenue of m-Qube, or is it 100%?

I'm sorry, can you repeat that?

My question is whether the revenue sharing model is being used, has been used by m-Qube -- is that 100% of total revenue, or is it just 50, 60% of total revenue (multiple speakers) as it relates to m-Qube?

My understanding was they counted it as full gross revenue. So it included all those revenue shares.

Sarah Friar, Goldman Sachs.

Just a quick clarification on the total acquisitions in the quarter. Dana, I think you said there were five or $189 million. And if I look at kind of Snapcentric, 3united, and Kontiki that gets me to about 140. Am I right in thinking the other two are the balancing give or take $50 million? And can you tell me what those were?

That would have been CallVision, which was in the billing business. And then we were acquired one of our affiliates, as we have done the past, where we bought the SSL business from the affiliate and brought it into the Company, so that now we're going to sell direct. And that would have been in Canada.

That was sold to us in Canada.

Got it. And so between those two CallVision and the affiliate, that's about a further $50 million. Is that correct?

I think it was 30 and 16.

Got it -- terrific. And so then in terms of thinking about that number, that total acquisition number of around $190 million, and you made the comment that -- you gave us kind of a hint on m-Qube that you paid 4 to 5 times forward revenue. Could we think of a similar multiple for your total 190 in terms of what all those other acquisitions will add for the year?

Probably not. I think the average would be significantly lower than that.

Okay, so maybe think of a 3 times multiple --? I'm just trying to get a sense for what we should be adding in for all these acquisitions.

To be candid, Sarah, I have not done that averaging. I'm doing it -- because all of it happened at a different period of time. I think we can come back to you on that, perhaps.

Terrific. Okay, and just maybe -- I'd love just a little bit more color on m-Qube and kind of the strategy behind it to be both a content delivery platform; a billing platform, I would assume, as well; and maybe even a business services platform? And just in the context of what Amdocs is doing with their Qpass acquisition -- if you could kind of compare and contrast your strategy, and does that add more competition?

Yes, I think that Amdocs is obviously a player in tier one billing systems. Qpass is really very consistent with their strategy. It's really a billing integration player. In fact, we and m-Qube already interface the Qpass systems at several of the carriers.

So while it is in the same stack, it's really at the bottom of the stack. It's the last piece we touch to get our charges onto a carrier's bill. And in some cases, it's the same piece that m-Qube touches.

The rest of the stack that we own, the connectivity to the carrier, the premium messaging gateway, the content enablement services, and then the broader, kind of Jamba! content merchandising and the rest -- those are all things we would say are above the stack and very different from what Qpass does -- although I know they have a few ancillary services, I don't think they've been too successful in that space. I think with m-Qube, we get access, we think to another 200 million wireless subscribers in North America, plus the media enablement merchandising capabilities that they have been pretty successful with, both for off-deck as well as on-deck uses.

Final question on that -- in terms of the margin structure we should think about. Will you expect that as you bring m-Qube on and start to build out this platform that we would be looking at gross margins that are below the corporate average? Or do you think you would come in around the same rate as the corporate average?

I think -- too early to tell. Through '06, we will build that business up. So I think you're going to see a lot of growth there. And we will probably spend accordingly. So in '06, it's likely to be below. I would expect that as we go into '07, and that business gets onto a higher run rate, we will probably be at the corporate average.

Robert Breza, RBC Capital Markets.

Just kind of a quick follow-up -- as you look at m-Qube on the margin side, kind of using the back half of the year and the $50 million, how dilutive do you think the acquisition will likely be for at least kind of Q3, Q4?

As we said, we think it will be -- when we announced it, it would be neutral to the year. So we're not too concerned about it.

Kevin Buttigieg, AG Edwards.

Thank you, along a little similar lines, but different, you had mentioned that the five acquisitions that you have done so far in 2006 would be dilutive to the second quarter to the tune of about $0.01. Would you expect that to turn in the third quarter, or how should we think about that aspect of the acquisition front for the rest of the year?

I think those acquisitions stand-alone are likely not to turn around, but probably be more neutral through the end of the year. Bringing m-Qube on -- we would hope that actually will get the collective acquisitions to be neutral to a net positive for the year.

Stephen Mahedy, Bank of America.

My question would be on the line of credit. It's often debated -- companies like yours that produce lots of free cash flow -- the need for dry powder. When you look at the different opportunities for use of funds, whether it's CapEx, increasing the buyback, future acquisitions or working capital, how would you rate those -- or how would you have those in mind when you thought about taking down the $200 million credit facility?

I think Dana can comment a little bit. But I think the most important thing to realize about it is really, it's around capital efficiency for us. We have large cash balances. We're generating a lot of free cash flow. At the same time, those cash balances are invested in certain things that mature at various rates. And so what we didn't want to be in a position -- was having to pay for an acquisition, or having to continue our stock buyback by liquidating some of those investments prior to their maturation date. So in essence, this is just giving us a lot more flexibility to optimize the way we spend. It's really a cost of capital kind of solution for us.

So it sounds like you kind of highlighted -- buyback is one of the top reasons for the incremental liquidity?

No, I would actually say it's more the acquisitions and just timing of when that cash will be needed versus the maturation of our investments.

Okay, got you. Follow-up question -- during your comments, Stratton, on the security services, you said, I believe, just kind of a mixed environment out there; strength in some parts of your business, in others, maybe not as much strength. You saw a cross-section of kind of results in the first quarter from some of the pure plays. How would you categorize some of this specific end markets, and maybe just kind of highlight authentication, given some of your new initiatives there?

Let me just move across the globe a little bit. Asia -- we saw some weakness there. We got caught with a little foreign exchange deficit, plus just some weakness in the business there. We still think looking at their pipelines and the rest, they will have a strong year.

I think the overall way I would characterize it is we did see customers push March decisions into April. A lot of April decisions have come along already that were those slipouts. So it doesn't look like an overall decline in the market as much as just some folks coming off of a very strong Q4 for us [by] delaying some purchases, especially in our consulting business here in the U.S.

EMEA was very strong -- hit their plan on all numbers; one 100,000 token deal in Italy. And we saw -- very excited about kind of the promise there.

So you know I think it was just a few negative signs, bolstered by pretty strong signs in the core businesses. So I think -- cautiously optimistic about it, but the pipelines seem to be pretty strong. And the opportunities we're chasing are bigger than the ones we were chasing this time last year. So it seems like the market is okay.

In addition to geography, is there any particular products, would you say, that were showing strength relative to the total offering?

Well, I think the unified authentication product line -- the token is coming off of a very small base, had a very strong quarter -- we won some big business there. I think the MSS business -- we're in some very large-scale evaluations right now, many of which did not close in Q1, but are likely to close here in Q2 or Q3. So I think those product lines seem right for the market. And we are continuing to see pipelines build. SSL looks like it will continue on its current trajectory.

I think what we're most excited is some of the new things we've been able to bring into the offerings, whether it's fraud detection or it's the new risk profiling service. We have a lot of customer interest in our existing base. And one of Judy's strategies this year is to really upsell the existing base of our top 25 customers, get them to grow revenues 25 to 40% with us this year. And we have seen that materialize over the last few years with companies like Merrill Lynch and Morgan Stanley and others. So bringing new offerings in under the, quote-unquote, VeriSign services umbrella has been a key strategy in the security business, and it's one we think we're going to leverage a lot this year.

Scott Sutherland, Wedbush Morgan.

On the m-Qube, again, a little bit on the revenue recognition. I understand that you're recognizing net of the carrier fee -- I know some of the peers out there recognize just a transactional fee. Are you guys recognizing just a transactional fee, or are you still recognizing, [then] paying out the content provider there, or is a mix?

It is a mix because of the way -- remember, they cater to a much broader customers than a traditional, if you will, content aggregator. This is not just the Universals and Warner Musics selling their product through these types of vendors. This is where, for example, Major League Baseball or some other folks who own all their own content, and therefore, they don't have to pay anybody for it -- m-Qube is acting as their operator, not as their aggregator. So it is a bit of a mix there. We will try to explain that in some detail if the acquisition has closed by the analyst day.

Okay, and on the B2C content revenue, I think you guided mid 60s. Was that for just B2C -- and B2B [get a more] stabilize that? Or does B2B need more time to build to stabilize or growth that segment overall?

That's total overall. But that again, as Dana said, does not include anything if m-Qube were to close in the quarter.

Okay, and the last question is your [Toco] queries went down, but pricing went up. Was it more just a shift to prepaid and higher price transactions, or something else there? Because I know you have annual reductions in pricing too.

Yes, you're saying that queries went down quarter over quarter on the [thenium], right?

Yes.

Yes, I mean, pricing went down there as well. So revenues in that space actually were down. But we had better business in some of the other areas in that same portfolio, and the connectivity with some of the international connects and some of the just raw network business.

Gregg Moskowitz, Susquehanna Financial.

Just wanted to follow up on some of deal slippage in Asia. Was that mostly across the SiteRock business, Stratton, or were there other factors or things that we noticed there?

It was, I would say, equal opportunity slippages in Asia. We had some SiteRock stuff, but as well, just some of our core PKI business. Also had some slippages here in the U.S. in some of our consulting business that we do around network security, and around kind of compliance audits and the rest.

Okay. And then I guess just a question on the full-track download service. I think we're ready to kick off in a couple weeks or so. Is there anything you can talk about at this point in terms of pricing and packaging?

Well, we have designed the full-track solution to really be very flexible in the packaging. So it can support everything from a paper download model, which you've kind of seen the U.S. market at least to date launch, to a full subscription model, where hundreds of thousands, if not millions of songs are available, as long as you're paying the subscription. And our full-track product will keep track of what you have and link that, synchronize it with a broadband-connected PC with the same service. So there's a lot of intelligence in the solution to make subscription models work. At the same time, we have designed it so a carrier or a media company can do whatever they like with us when they turned it on.

Jonathan Hoopes, ThinkEquity.

As a start could you discuss the profitability of the B2C business? Specifically, are the B2C content revenues profitable? And this would be on an operating profit basis?

Jonathan, what we have said on prior calls, and it's still consistent today is we are managing that business to a certain profitability level in the mid to high teens. And we will continue to do that. And we will let revenues slip in order to make sure we are achieving those profitability goals.

Great, thank you. Now can you elaborate please then on the B2B content acquisitions, and when and whether they will be rolled into existing sales efforts? Specifically, will there be separate sales forces, or will these the offered, say, as bundles, or piece-part services offerings?

Well, let's take them kind of separately. 3united was operating in Central and Eastern Europe. In fact, we at Jamba! used their connectivity services to several carriers in Europe. So they continue to operate in chasing customers in that space. However, their application, the interactive applications that they have have already been brought here to the U.S., and are being offered by Vernon's sales force here -- two carriers and two media companies, two consumer product brands here.

So we're doing -- yes is the answer. We're doing both. They are selling them where they were selling them. And we're bringing them in with our sales force here into new opportunities.

On the Kontiki side, very similar answer -- they had a very, very small sales force. They've all been rolled into VeriSign sales force now. And we're calling on enterprises and carriers and media companies with them.

On the m-Qube stuff, of course, they had probably a bigger sales force than any of the other companies. And as we bring them in, we will integrate them in whatever makes the most sense. But certain feedback from our potential joint customers so far has been pretty positive on that acquisition. And again, as soon as we get regulatory approvals, we'll be excited to move forward on that.

And if I could just -- one last follow on here. Could you discuss what voids might still be left in the B2B as you build out the platform?

I'm sorry, what, what?

What voids might be left, where you might be looking for other add-ons.

You know, at this point, I can't think of any. We're pretty comfortable in kind of the infrastructure now. We have a broadband delivery capability. We have a mobile delivery capability. And we have some ability to let our customers jump-start these applications.

The place that I think the world is going to watch materialize here in the next few years is how do you get a three-screen model to work -- mobile handset, PCs connected to broadband, and then TVs, either through Internet connection or set-top boxes? So we probably don't have anything in the set-top box delivery capability yet, although we are looking at it through internal development. But that might be an area we'd partner with as well.

Laura Lederman, William Blair.

Yes, just a few quick questions. One is on the managed services side. I guess I thought that over the last year, it would ramp up more quickly. What have been the things that are causing that market just to be a little bit slower than one would have thought? And secondly, haven't heard much on RFID and what you see happening there and when you expect that to be a more material contributor to the mix?

I think MSS grew about 100% last year, and we have forecasted it to grow 40 or 50% this year. So it is becoming a bigger and bigger piece, and the contracts we got there are multi-million dollar contract.

Now a good example is -- Merrill Lynch started at around a $1 million customer for us two or three years ago when that first deal was announced. We would expect them to be four or five times that this year. So that business is actually the strongest in terms of growth off a decent base of revenue.

On the RFID side, you're seeing still a lot of pilots in the traditional track and trace and putting tags on cases and pallets. And we are involved in a lot of those. But as we have said before, we really view the traditional RFID market, or the RFID market the way people think about it, in tags on products, being something that hits really in '07 and '08.

What we have been focused on though in between that is really looking at some early arrival markets like pharmaceuticals, where there's legislation in certain states that are going to force manufacturers to put electronic pedigrees on these drugs, so knowing exactly where it was manufactured and how it got to the distribution point and eventually to the consumer retail purchase point.

So that's the service that we're seeing a lot of traction with right now. I think we have five or six signed customers for that service, including the two largest pharmaceutical distributors in North America. So I think we said earlier, the revenues in our supply chain business this year look like they will be in the 20 or 25 million range. We will certainly book that this year.

Okay, and final question for Dana. Can you give us a little better sense or little more narrow sense on the capital expenditure for the full year, as well as the cash flow for the full year? You said a $400 million number, but give us any range on that?

So we talk about base level of cash flow after Q1, which is traditionally lower, of $100 million a quarter. And that hasn't changed. In the last call, we talked about capital expenditure budgets for the year of $140 million. And that hasn't changed as well.

Walter Pritchard, SG Cowen.

Just a couple of questions, actually. Stratton, you have seen a lot of carrier consolidation over the last six months. And I am just wondering -- a couple of years ago, some of the consolidation tripped up several players in the signaling and database market. And I just wanted to get any commentary from you on how that might be similar or different this time around?

No, I think [that] consolidation as we reported last year tends to hurt us short-term -- as we see those people go to direct connects through the acquisitions, that generally impacts us by several million dollars a quarter.

On the other hand, we never had any business in Asia or in Central or Latin America around there, and we have started to invest there. So we are winning business in those regions. And we expect that to by the end of this year probably start to offset some of the consolidation here in the U.S. I think it's probably hurting other vendors a lot more than it's hurting us, as they see the same price pressures here in North America, and we seem to be beating them in Asia and CALA at the moment.

That being said, consolidation isn't all a bad thing for us if we can sell the new product offering to those carriers. So whether it's 50 million subs at Cingular or it's a much broader base than that now at the combined AT&T, those are good opportunities for us as we move into messaging, as we move into broadband video delivery and as we move into some of our new kind of interactive application services. A lot of interest from those players.

And then just a follow-up on the Asian market -- it sounds like you're doing some of the traditional core telecom business over there. But you don't have anything in the mobile content area in Asia. And there's a number of players over there. I'm just trying to get a gauge of your interest in getting into that market, and whether or not that would be something you would build or something that you would acquire to get into?

We have started to sell our messaging services there. We got a few wins there in I think some of the bigger markets. We will probably talk a lot more about the overall messaging strategy and around the global content strategy at the analyst day.

And we are into China in a -- kind of, I would say, a startup test way there, using some aggregators over there ourselves to get into the market. So we are dipping our toe in the water there, and kind of judging where we should place our bets.

That will conclude the question-and-answer session. Thank you for participating, ladies and gentlemen. I will turn things back over to our presenters for any additional or closing remarks that you might have.

Thank you, everyone, for joining us today. We look forward to talking to at our analyst day on May 25. Thank you.

Thanks, again, for joining. That will conclude today's conference call. Have a good day.