威瑞信 (VRSN) 2007 Q4 法說會逐字稿

Good day, and welcome to the the VeriSign Incorporated fourth quarter and fiscal 2007 earnings conference call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to Mr. Ken Bond. Please go ahead, sir.

Thank you, good afternoon, and thank you for joining us for the fourth quarter 2007 earnings conference call. Thank you, Robbie, and good afternoon everyone, and thank you for joining us for VeriSign's fourth quarter 2007 earnings conference call. I am Ken Bond, Vice President of Investor Relations, and I'm here today with Bill Roper, President and CEO of VeriSign; and Bert Clement, our Chief Financial Officer.

A replay of this call will be available beginning 5 p.m. Pacific time via telephone at 888-203-1112, or 719-457-0820 for international callers and will be available through February 6. The passcode for both numbers is 1256242. The press release and financial information discussed on today's conference call is available on the Investor Relations section of the the VeriSign web site at investor.verisign.com.

The Q42007 press release is also available via First Call Market Wire as well as our web site. For those of you joining us via webcast, we also invite you to view the slide presentation which accompanies today's conference call. These same slides will be available for download from our web site 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 discuss in detail in our documents filed with the SEC, specifically, the most recent report on Forms 10-K and 10-Q and any applicable amendment which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Additionally, financial statements in today's press release and the matters we will be discussing today may include non-GAAP measures used by VeriSign. Our non-GAAP income statement and a description of items excluded in our non-GAAP financial information are located on the VeriSign Investor Relations web site.

In a moment, Bill and Bert will provide some prepared remarks and afterwards we will open up the call to your questions. Unauthorized recording of this conference call is not permitted. We anticipate the call will end at approximately 3 p.m. and with that I would like to turn the call over to Bill. Bill?

Thanks, Ken. In this call, I'd like to start with some comments on our performance for the fourth quarter and from there I'll recap the year with a few highlights, then touch on some areas that we believe are of particular to our investors based on conversations we've had with shareholders. These topics include how we are managing the business in this period of transition, how and what we plan to communicate with investors during the course of 2008, and an update on our progress since analysts day in November.

Bert will then discuss our financial results for the fourth quarter and provide some limited guidance before we move to the Q&A portion of the call. So with that let's talk a bit about the fourth quarter and all of 2007. Q4 was a solid quarter and it's driven by our core franchises of Naming and SSL. We reported total revenues of $386 million which was slightly above the high-end of our previous guidance.

The reorganization that we began implementing early in the year and the disciplined expense management that are continuing to bear fruit as our non-GAAP operating margins for the quarter improved to 25.1%, an improvement of over 650 basis points from year ago levels. Non-GAAP earnings per share were $0.30 and that's $0.01 ahead of consensus estimates on strong revenue and operating margins and interest income.

Moving now to the business metrics for the fourth quarter, I'd like to talk a bit about our core businesses starting with Naming. The Naming business continues to show strength as the adjusted zone for registered names in .com and.net now total 80.4 million names compared with 77 million names last quarter and that's an increase year-over-year of 24%.

The growth is driven by continued global Internet adoption with 7.5 million new domain name registrations for .com and.net that we processed during the quarter, as well as 10.5 million renewals which continue to show strength. The underlying growth drivers this quarter consistent with prior quarters, solid growth in both U.S. and international. And while we see solid growth domestically we also continue to develop our international opportunities having accredited over 25 registrars in China, India and Latin America, regions that we see the possibility of showing significant growth potential for both .com and.net.

We also saw continued growth from all of our customer segments, corporate, SMB, consumer and online advertising. The online advertising activity remains a small but consistent part of our new name sales and overall base. The renewal rate for the third quarter was 74% and we expect the actual renewal rate for the fourth quarter will be similar to last quarter both within our historical range of mid-70s, 73% to 77%.

And then finally the digital infrastructure is now handling peak loads of over 33 billion DNS requests per day, 33 billion with a B. Our unique capability to operate global networks at this scale and reliability remains unparalleled. Let me repeat, no one, no one else operates global networks and infrastructure of this nature at this volume level or with 100% up time over the past decade, the core strength and unique capability of our Company.

Moving to Security Services, I'll start with our second core franchise, SSL. We sold over 233,000 certificates during the quarter and, while Q4 has traditionally been a strong quarter for the SSL business, this year was no exception and we saw excellent sequential growth in orders. Our installed base has now grown to 938,000 certificates compared with 912,000 last quarter. We are pleased with this growth as it represents 3% sequential and 16% year-over-year growth in this business base.

At the analyst day in November we introduced an annualized average unit revenue metric for the installed base. We believe that this new metric provides investors an easier means of understanding revenue performance in trends in this business. For Q4, the AUR, annualized average unit revenue, or AUR, or the installed base of the VeriSign, GeoTrust and thought-branded certificates was $273, and that's up from the prior quarter's $271, a small increase across all brands.

We are also especially pleased with the results of our EV, or Extended Valuation certificates as we met our targets for 2007. More than 2,000 of our customers have gone green with EV and the demands for the EV certificates continue to be strong in Q4.

And while this product line is still in its early stages we are the number one provider of EV type certificates in this market at the time, and we continue to expect that the EV adoption cycle will be consistent with previous premium price products in the past. Microsoft's comments last week about Vista adoption further give us confidence in the EV growth potential.

I'll now the turn to share some comments on the progress of our Identity and Authentication Services business. In the past, we've used different labels for this business including VIP, Identity Protection, Identify Services and other such names.

Going forward we are going to refer to this business as Identify and Authentication Services, or IAS for short, and it consists of our services such as the VIP program and the One-time Password, or OTP, Authentication Services program, as well as fraud detection services and our Enterprise PKI business. The VIP and OTP programs continue to be a great example of an Internet scale service running on a global infrastructure that provides scalable and secure realtime validation capabilities that can support millions of online users.

Across our VIP and OTP programs the strength continues as we have now sold over 1.3 million credentials and we continue to be pleased with the strong uptake of these credentials by consumers and we expect to see this adoption cycle, or this adoption continue to ramp. Excuse me.

This quarter we also will note that Yahoo! announced its support of the OpenID 2.0 digital identity framework joining companies like Google, Microsoft and IBM. Yahoo! has 248 million registered users all of whom now have an OpenID identifier bringing the total number of OpenID accounts to over 350 million users worldwide. And we believe that this is a significant development for our identity and authentication efforts as the aggregation of first factor authentication into an OpenID only increases the importance of second factor authentication services that VeriSign offers.

I'll now take a quick look back at 2007 as a whole. We think it proved to be, to say the least, an eventful year for VeriSign starting with a Company-wide restructuring which began the changes leading to the non-GAAP operating margin improvement of over 650 basis points that we mentioned earlier. This is an area we continue to focus on and we expect operating margins will be significantly higher yet again this year.

As many of you may recall we made several management changes starting in late May when I was named Chief Executive. Shortly thereafter, Bert was named Chief Financial Officer and we made some additional changes over the second half. More recently we named Ken Silva as our Chief Technology Officer. While we may see more additions I'm very pleased with the team in place and their commitment to execute on the plans that we have developed and that we communicated to you in November.

One of my initial objectives when taking over as CEO was to complete the stock option restatement process allowing the Company to become current in its financial filings. We accomplished that in early July, and in November we received confirmation from the SEC that its investigation of VeriSign has been closed. This is an important milestone in putting these matters behind us.

Another early objective we wanted to address was our capital structure, and in August we issued $1.25 billion in convertible debt and we used the majority of the proceeds to repurchase 38 million shares of common stock, reducing the shares outstanding by about 16% during the seconds half of 2007.

Finally, and this is actually a good segue to the next topic, we completed a comprehensive strategic business review and while there's much work ahead of us we're committed to the resulting strategy. With that, I'd like to talk about how we are managing the businesses especially with all the myriad activities underway at this time.

To start, because we are mindful that we must avoid the potential for distraction to our ongoing core businesses we have taken a sort of a divide and concur approach with the management team so that as a Company we can remain focused on continuing to develop and grow our core businesses, as well as maintain the continuity and optimize the eventual sale of the businesses being divested.

The majority of our senior management team including Raynor Dahlquist, who manages our Naming business, and Chris Babel, who manages our S&L business, along with myself continue to spend the majority of our time focused on protecting and growing our core businesses. Of the business is being divested, John Donovan and Grant Clark are focusing on managing these businesses to ensure continuity in their operations until each has been transitioned to new owners.

Finally as we discussed at analyst day, Rusty Lewis and Kevin Werner are working on managing the sale process of the businesses we are targeting for divestment. So I guess in summary by having a few of our senior leaders focus on the businesses being divested we believe that we can minimize the distractions to the rest of the team who will focused on protecting and growing our core business operations.

As we discussed at our analyst day, 2008 is going to be a very interesting year with a lot of moving parts as we expect to work through a number of divestitures over the course of the year. Having taken steps to ensure that we maintain the right focus on our core businesses I want to share with you how we intend to communicate to you our activities and results over the coming quarters.

To start, during the first quarter we intend to place all qualifying businesses into discontinued operations for accounting, reporting purposes. We believe that this step will help investors better understand the financial performance of our core businesses which we believe is the key to our long-term shareholder value.

And as a reminder, our continuing operating results will include the lag effect for elements of indirect overhead and G&A costs which will be reduced over time as we complete the divestment transactions and associated transition service agreements. However, we do believe that the discontinued operations accounting treatment for businesses being divested is a positive step in helping investors understand the operating performance of our core businesses.

Our operating margins of the core businesses will also be impacted by increased investments in these businesses as we focus more intently on developing a broader product set and reinvigorating the growth potential we see in these great businesses. We will be providing revenue and operating margin guidance on our core businesses which include Naming, SSL and Identity and Authentication Services, including our majority ownership in VeriSign Japan which is focused around these core businesses.

And for the businesses being divested we will report on the status of the divestment activity as appropriate throughout the year.

I'd like to now provide a brief update of our progress since our analyst day in November. As you will recall, we discussed our strategic business review process wherein we evaluated each business in terms of where it was a good fit with our core strengths in Internet infrastructure, as well as factors such as strength -- excuse me as well as factors such as market size, growth rate inherent economics as well as competitive position and our ability to win in the marketplace.

From this process, we identified three businesses clearly being good fits, Naming, SSL and Identity and Authentication Services. As you know, Naming and SSL are just two great businesses, with leading market share in growing markets. Each business also leverages our Internet infrastructure which, as I stated earlier, remains unparalleled in terms of scale and reliability while providing us powerful economics.

The Identity and Authentication Services business addresses a large market opportunity for VeriSign. The business is small today but is expected to grow rapidly and it also leverages our Internet infrastructure as well.

We've now completed the strategic business review and with the exception of the core businesses previously discussed, again, Naming, SSL and Identity and Authentication Services, we intend to divest each of the remaining businesses discussed during analyst day including those noted as requiring additional time for decision. So having completed the strategic business review I'd like to update you on the status of our divestiture efforts.

Overall, I describe our progress as being on track with, and up to our expectations. As discussed earlier, we expect that there will be half a dozen or more transactions over the course of 2008 and we have already started to market several of these businesses and expect to add a couple more shortly. We are pleased with the level of interest to date, both solicited and unsolicited. It's been high and it's been from both strategic and financial buyers.

We are really pleased with the quality of the potential buyers. And while we realize that interest alone does not a transaction make, we continue to be satisfied with our early progress and as we close transactions going forward we will continue to keep you informed.

I will now turn the call over to Bert for a walk through of our financial results for the fourth quarter and 2007, as well as guidance. Bert?

Thanks, Bill, and thanks to everyone for joining us this afternoon. Before turning to the fourth quarter, I would like to briefly highlight some results for the year 2007. For the year, consolidated revenue excluding Jamba was $1.47 billion, up over 15% year-over-year. Our non-GAAP operating margin for the year, again excluding Jamba, was 22.6%. Non-GAAP earnings per share for the year was $1.03, an increase of nearly $0.30 year-over-year after excluding Jamba for both years. Cash flow from operations for the year was strong, in excess of $450 million. Finally, our 2007 capital expenditures were $152 million as we continue to build out our new Delaware data center.

Turning now to fourth quarter highlights. Q4 was a solid quarter on multiple fronts having come in slightly above our revenue guidance at $386 million and 10 basis points higher than our non-GAAP operating margin guidance, exiting Q4 at 25.1%, 670 basis points higher than Q4 of last year. Non-GAAP earnings per share of $0.30 came in $0.01 above consensus estimates as operating income and interest income were both better than expected.

On a GAAP basis, we reported a net loss of $0.88 per share due to an estimated non-cash impairment charge of $210 million in Q4 as we prepared the digital content and messaging businesses for sale. The actual valuation has not yet been finalized.

In Q4 we completed our accelerated share repurchase program earlier than originally expected as we repurchased 6.6 million shares at an average price of $30.70. Over the second half of 2007, we repurchased the total of 38 million shares at an average price of $30.22, reducing basic shares outstanding by 16% since June 30. As an update, our board recently authorized an additional $600 million for share repurchase.

I'd now like to move to a more detailed discussion of financial results for the fourth quarter. Q4 revenue at $386 million was up 14% year-over-year excluding Jamba and, as noted earlier, slightly above the high end of our guidance. The growth was driven, again, by the continued strength in our core businesses. As in past quarters, we are reporting revenue based on our two business segments ISG and CSG.

The Internet Services Group grew approximately 4% sequentially and 20% year-over-year with revenues of $244.7 million or 63% of total revenue. This growth was fueled by strength in Naming, SSL and Security Services. The Communications Services Group grew 1% quarter-over-quarter with revenue of $141.8 million or 37% of total revenue. Excluding Jamba, CSG revenue was up 4% year-over-year.

Moving to international operations the percentage of revenue driven from international customers, affiliates and subsidiaries was 15% as compared to 16% last quarter. Cost of revenue for Q4 was $142 million, down $1 million from last quarter and driving a non-GAAP Q4 gross margin of 63.3%, up 150 basis points sequentially. Factors contributing to the increase in gross margin included continued reductions in head count and a reduction of direct expenses.

Turning to operating margins, total operating expenses for Q4 were $148 million, or trader 38.2% of revenue, down from 38.4% last quarter. The percentage decline is expected given our expectation to grow expenses at a lower rate than revenue. We ended the quarter with a non-GAAP operating margin of 25.1% compared with 23.4% last quarter, a 170-basis-point improvement from last quarter and a 670-basis-point increase from Q4 2006.

Income below the line was better than expected contributing to our better than expected EPS. In particular, interest income was strong as cash balances ended the quarter at $1.4 billion due in part to better working capital management and higher than normal employee stock option exercises.

Non-GAAP net income for the fourth quarter was $70 million with a non-GAAP earnings per share of $0.30 which is $0.01 above consensus estimates due primarily to operating and interest income as previously discussed. The diluted share count on EPS calculations was slightly below 230 million shares.

Moving on to the balance sheet and cash flow items. Our ability to consistently generate solid operating cash flows resulted in our maintaining a strong balance sheet with ending cash, equivalents and short-term investments at $1.4 billion, an increase of $255 million from last quarter. Capital expenditures for the quarter were $58 million with 21% attributable to CSG, 28% to ISG and 51% for corporate infrastructure. The increase for corporation infrastructure this quarter was related to the construction of the Delaware operations center expected to be completed in the first half of 2008.

Operating cash flow for the quarter was strong, in excess of $180 million. There were multiple drivers to the positive free cash flow this quarter including strong accounts receivable collections stemming from the invoicing issue discussed last quarter, deferred revenue growth, employee stock option exercises and other favorable working capital items.

Net DSO for the fourth quarter returned to historical levels at 44 days as invoicing issues discussed last quarter had been resolved. Our Q4 ending deferred revenue was $739 million, up $28 million from the previous quarter and a 22% year-over-year increase. This increase in deferred revenue was driven by strong sales in Naming and SSL.

We ended the quarter with 4,250 employees, 120 lower than last quarter and almost 1,100 less than where we began the year.

Moving now to guidance. As Bill mentioned earlier, we intend to place all qualifying businesses into discontinued operations during Q1. As a result, we are providing guidance for our core businesses which include Naming, SSL and Identity and Authentication Services. For Q1, we expect revenue for our core businesses will be in the range of $215 million to $220 million.

As a reminder, during our analyst day we discussed the lag effect to operating margins of 2008 margins will reflect the inclusion of significant indirect overhead expenses which will be reduced over time. We remain confident that we will substantially complete all divestitures during 2008 and that we will complete the necessary overhead realignment shortly thereafter. However, we are not in a position to forecast exactly when divestitures will take place within the year.

As a result we are providing the following guidance around operating margins. We now expect that in light of our decision to focus solely on our three core businesses of Naming, SSL and IAS we expect the Q4 2008 exit operating margins will be 35% or higher on a non-GAAP basis, approximately 1,000 basis points higher than our current operating margin and 500 basis points higher than estimates provided as part of our analyst day.

This operating margin guidance also reflects increased investments we will make in our core businesses as mentioned earlier by Bill. Additionally, we are reaffirming our commentary from analyst day as we expect that the Q4 2008 year end fully diluted share count will be 200 million shares or less.

In summary, we are pleased with our execution in 2007, particularly as it relates to revenue growth from the core businesses as well as operating margin expansion, and we recognize the importance of executing our strategy in 2008 as the key to unlocking shareholder value longer term. We now would like to open the call for your questions. Operator?

Thank you. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) And we will go first to Todd Raker with Deutsche Bank.

Hey, guys, how are you?

Doing well, thanks.

So, Bert, on the guidance, given that you are going to have corporate overhead continuing through '08 can you give us any sense for where you think operating margins will be on the three core businesses as we look into '09 as you back the overhead out?

Yes, I think the way we are handling the guidance is the 35% number that we've provided you is what we are targeting for the Company as an exit rate 2008. And I think from there we would seek some improvement into 2009.

Okay. And can you give us a sense within ISG what, kind of just quantify the amount of revenue being thrown into discontinued ops so that we can get a sense for the $215 million to $220 million guidance, how that lines up versus ISG today?

I didn't get all that. We are breaking up on the call. You said something about ISG --

Yes, I'm just trying to, if you look at your guidance on the three core businesses I'm trying to correlate the $215 million to $220 million versus what ISG is today. So if you could give us a sense for kind of the magnitude of revenues that will be discontinued ops out of ISG?

I don't have the exact detail of that break down with us. I think what we are trying to do is focus everyone on the core business knowing that the qualifying businesses for discontinued operations in Q1 may be slightly different than that.

Okay. And then one general question for you guys, on the Naming side, two questions, one, can you talk about any negative impact off the price increase and is there anything out there that would indicate that the second price increase shouldn't be forthcoming?

And then can you comment on a lot of articles around name dipping and how ICANN is going to potentially prevent free dipping going forward? Do you anticipate that having any impact at all on your growth profile at all in the DNS business?

Let me see if I remember both parts of the question well, so catch me, Todd, if I don't completely answer. On the second part you talked about dipping or pay per click or so forth. There are changes going on in the marketplace out there. We don't really comment on those changes. We just react to them.

We think possibly at the margin there could be very small impact on us, but you probably won't be able to measure. The first question was around pricing, okay. As you know, we implemented a price increase of 7% for .com and 10% for.net mid-October last year. We haven't seen any measurable impact of that price increase. We don't believe that at these price levels the market is very sensitive to that.

You know the contract that we signed was a six-year contract and it provided for up to four price increases, no more than one a year during the term. And we are constantly evaluating our product pricing policy throughout the Company, but we don't comment on it in advance.

Okay. Thanks, guys.

Thank you. We'll go next to Rob Owens with Pacific Crest.

Yes. Good evening, everyone. Focusing again in on the registry, so as I look at the sequential increase I think it's one of the slower increases you've seen this year. Are we starting to see this just become the law of large numbers or is there some seasonality baked in there? And I have a follow up, too.

Okay, Rob, the short answer is there may be some seasonality. If you go back to the fourth quarter of the prior year, it was a similar type increase in units quarter-over-quarter. So there may be a little seasonality in there. We are not really sure. I mean all indicators are, all the drivers in that business, global, Internet usage, and adoption rates remain very strong and we are very comfortable about the future growth of this business.

Okay. And then along the SSL side how should we think about pricing moving forward especially EV SSL becomes a bigger portion of the portfolio? How much can that drive in terms of an increase in that ASP you are giving?

Hard to tell. The EV itself, as you know, is a premium priced product is doing well. We are very pleased with it.

It's on the lower part of the parabolic curve that we've experienced with other, or with a similar premium priced products in the past, so it's not really having a material impact on the whole portfolio, the AAUR, or whatever we call it of the whole portfolio yet, but certainly it will tend to start having an impact. And we are continually getting orders and we feel good about the business and where it's going. It's still small at this stage.

Great. And then last question, any metrics you are willing to share around the ID and Authentication Services, anything that can help us track that business?

Total credentials would be good.

Total credentials that we mentioned in the prepared commentary.

That was an annual number, correct?

That's total out. I mean that's the total number sold and in place, is that right?

Yes, $1.3 million and last quarter was (inaudible)

And I think it was $1 million a quarter ago so you can get an idea of sort of the increment there. Again, in the relative scheme of things that business is fairly small for to us date, but it's a nation market, it's growing, we think it's got huge growth potential. We are very excited about the business. We are investing in the business and we feel very good about it. But it's small, but we think it's a big part of our future.

Great. Thank you.

Thank you. (OPERATOR INSTRUCTIONS) We'll go next to Peter Kuper with Morgan Stanley.

Great, thanks, guys. Actually, I can jump back to Todd's line of questioning there. That operating margin of 35%, guys, that was not including the corporate overhead. Did I hear that right?

No, we are including corporate overhead in that rate and that's our target for year end.

Okay. I'm sorry that's the exit rate.

Exit rate at year end. We are targeting to get to 35%.

What we are trying to communicate is that as we make these divestitures, some of the indirect costs which have to be charged to the continuing operations don't just drop off instantaneously with the divestiture and you have to manage them down.

So there's a little bit of a lag effect there. So you won't see total benefit of that until say maybe a quarter after a divestiture or something. We are going to manage that very tightly, but as Bert said, our pro forma op income margin exit rate fourth quarter we have now stepped up to, I'm telling you I think we will be at 35%.

Peter, we'll keep you updated on a quarterly basis just to tell you our progress. Hopefully, as we go into discontinued ops we will be able to kind of show that on the P&L itself as the year progresses.

Right. And then for Q1 guidance, you gave the rate of $215 million to $220 million for those core businesses. But did I miss it, was there any other guidance around what the operating margin for that business would be, or anything color wise on discontinued ops? Because I think you said you have six deals or six transactions some time in '08, but how is Q1 shaping up at this point so we can get a better sense of the very near picture versus the ends of the year picture?

Yes, so I think it's going to be improvement quarter-to-quarter on the operating margin line, and I think we will have, hopefully, the discontinued operations situation versus continuing cleared up pretty nicely by the end of Q2.

Okay. So that's definitely in the first half event, it's safe to say.

Yes, that's definitely our target. At this point for right now.

Okay. And then last question on the renewal rates I think you said it was around 74% for Q3, in a range of 73% to 77%. Do you guys feel that's a comfortable go forward rate for next year as part of the guidance, is that considered in that guidance build out for Q1 at least going forward?

Yes, we've been in that range for a couple of years now. We believe that that's going to continue. Obviously, there are market factors that could have some impact but we still think we will be in that sweet spot range in the mid-70s.

Okay. Great. Thanks a lot.

Thank you. We will go next to Sterling Auty with JPMorgan.

Thanks, hi, guys.

Hi, Sterling.

I want to circle back, you guys kind of broke up, I'm not sure if you answered it, so the guidance for the three core businesses, the $215 million to $220 million in the first quarter, can you give us a sense of what those three businesses generated in revenue in the fourth quarter?

We were not going to go back and try and prorate everything quarter-to-quarter from the past. I think we are sticking with Q4 -- Q1 is $215 million to $220 million at this point.

Sterling, if you remember mid-year last year we told you that what we would do is we would give you end quarter revenue guidance, some kind of margin indication. This year because of the murkiness of the factors we described we decided we would give you an exit rate margin, op income margin for the year end, and then as necessary we will talk about shares outstanding.

Sterling, what I will do is reiterate that we do see growth in the high teens, so 18 to 20 potentially exceeding that is not an issue for that business.

Maybe just, you mentioned the three core as we think of ISG, just remind us the buckets or the things that come out from the businesses? In other words, you have IAS, but does that mean security consulting does get sold, what are the pieces out of ISG that are going out that were in that funnel you outlined at the analyst day?

The larger elements of ISG that will be leaving are going to be the managed securities services business, that will include the security consulting aspect of that. And then there is a couple smaller businesses in there like digital brand management, for example, that would be in that bucket as well.

Okay. And then last question, any just high level kind of commentary about what you are hearing up through the, through your conversations with customers and interoperations about how you see the overall macro economy, both domestic and internationally, kind of impacting the three core businesses that you are keeping?

Well, heck, Sterling, you are probably better qualified than us to answer that question. We really do view our, especially the two businesses, Naming and SSL, as pretty much independent of the economic cycle. They are driven by Internet usage and adoption rates globally.

We have parts of the market, especially internationally, that we think we under absorbed or not invested in enough that we are doing some very specific things starting early this year. We've got a few new product [intros] and product development things going on, so we feel that we will have very attractive relative growth rates, and we see the business continuing to be solid and stable.

Great. Thank you.

Thank you. We will go next to Sarah Friar with Goldman Sachs.

Good afternoon, guys. Kind of a derivative of Sterling's question about the environment. Bill, to what extent do you think the environment is having an impact on your ability to quickly spin out the other businesses that you don't want to keep? Have you seen a change in the dialogue you may be having with potential acquirers, et cetera?

Okay. That's a good question, Sarah, and the answer is a good answer, I think. As we've said before, these really by and large are very good businesses. We haven't necessarily managed them that well and they don't necessarily fit. They don't fit and that's the reason we made the decision to divest of them, in our strategy or within our core competence in Internet infrastructure.

That being said, they are good businesses. They are solid businesses and they are great additions for other companies. So the interest, buyer interest, has been as I've noted strong, very encouraging, quality buyers both financial and strategic and kind of across the board.

The size of these transactions and the nature of the buyers especially on the strategic side, the current financial markets don't really have much impact. I mean at the margin we may get a little bit less realization in total purchase price, but not anything significant there. And in many cases the level of bidding, the price indications so far from first round tests on two of the larger properties have been very good and we are encouraged.

We've seen, we consider ourselves on track from a time frame, and we've seen nothing that indicates we won't get somewhere between good to very good realization for VeriSign, while at the same time placing these businesses and our employees and our customers in very good hands.

Great. Okay. Good. That was a good answer. Thank you, Bill.

Just one other question on the core registry business, really two parts, one, you have talked about reinvestment in the core business. When could we start to see some additional services roll-out? Obviously, the new ICANN agreement allows you a lot of flexibility there, and then a part two, have you seen any impact on demand from the price increase to date in kind of the core .com registry? That's just one thing that had come up a little during the quarter.

Okay. Again, I think a good story is, impact on demand we can't, it's negligible, we can't find it. If the price levels we are talking about, we really are pretty price insensitive. So we don't see that being an issue and if it's there we can't find it. But both in unit sales and in renewal rates.

If you go to new products across the three core, we have a number of things in the pipeline, primarily internally developed products, additions, improvements in those type things that will help on the growth side and will help further build and strengthen and protect our position as market leaders. And we are announcing a number of things all along, they are small and not noise level things like, say, EV or something like that.

And especially on the Identity and Authentication Services business, sorry, I am going to have to get used to that acronym. VIP is so much easier to say, but probably not as descriptive. We have a lot going on and you will start seeing these things hitting the market shortly.

Great, okay. Thanks a lot.

Thank you, we will go next to Katherine Egbert with Jefferies.

Hi, good afternoon. Can you give us an estimate of what kind of domain name growth you expect for this year? And then also can you tell us the number of active domains versus those that have been activated not just bought?

I think we've seen modeling growth in the high teens to 20% range on units. I think the active domain name number, Ken is pulling it here right now, is in the 70% range, maybe even higher than that.

Yes, it's more in the 80% range.

80% range, okay, so --

Less than 10% to 15% of names don't [revolve.]

Okay. That's helpful. Thanks. And can you, I don't think you said, can you tell us how close you are selling off some of these bundles? I mean is the process still fairly far along?

Well, we didn't say. But we have a lot of activity ongoing. We have a couple of bundles of businesses in the marketplace now with, like I say, very good initial interest. We are going into the second round and it's very difficult to predict timing. There's aspects of that process we can control and certainly aspects of that process are totally outside of our control. I can just tell you we are on track from a time line and we are pleased with the early indications.

Okay. And then last question, I don't know if you answered this, but can you tell us how much cash you expect to get from the sale of these assets?

We haven't talked about that. It's a material --

Yes, we are hoping to get about 10% of our market cap as cash received, hopefully.

I mean the way you should think about it, you should thinking about these businesses as being 10% of the Company from a value standpoint plus or minus a point or two.

Okay. That's helpful. Thanks, guys.

Next we'll go to Steve Ashley with Robert W. Baird.

Great. My first question is on deferred revenue. How should we think about the divestitures when they are completed, how might that impact the deferred revenue balances? Maybe just qualitatively.

Yes, most of the deferred revenue is going to stay with us because it's tied into the Naming and SSL businesses. There are a couple of other businesses that have a little bit of deferred revenue, but I would say at least 96% to 97% of the deferred will stay with the Company.

And did FX have much impact on your reported revenue this quarter?

Pardon me, one more time?

Currency exchange, did FX have much impact on revenue you reported this quarter?

I don't think it was very significant, no.

Great. Thank you.

The bigger businesses are dollar based.

Thank you. (OPERATOR INSTRUCTIONS) We'll go next to Scott Sutherland with Wedbush Morgan Securities.

Thank you, good afternoon. Really had one follow up on the questions, maybe trying to get a start point and end point to the remaining segments not being discontinued. I might have missed it, but what kind of operating margin do you expect here in Q1 for the continued operations?

And when you look at Q4, I know you are running corporate overhead just over $20 million right now. To get to that operating 35% margin is there some assumption that stays around $20 million or you can bring it down to the $15 million to $20 million range and bring it down in '09 from there?

Yes, I think the hard part for us is trying to understand when these divestitures are going to actually happen so we are not confident we can give you a decent number for operating margin for Q1. So what we've done is instead given you an exit operating margin for the core business for year end, and we do hope to get to that number over time incrementally every quarter.

Okay. So there's no range of corporate overhead that you guys have in your assumptions for that 35% like $10 million to $20 million, that's a wide range.

Yes, we are still dissecting the corporate overhead right now in the sense of what is clearly direct versus indirect. There is some very strict accounting rules there on what you can apply in discontinued operations versus what has to stay in continuing.

If you recall, we did go to a functional organization earlier in 2007 so we have to be very careful how we present that go forward. So I think the key is we've taken a conservative approach on it on what will probably remain, and then we will be whacking at it every single quarter and especially as the businesses leave try to tighten up the overhead thereafter.

Maybe ignoring the discontinued operations and the corporate overhead, what kind of segment margin profile would we see for these remaining three segments in total?

Yes, I think we've told you exiting the year at least 35% and that some of the ongoing synergies would come in 2009. So we would expect some incremental improvement from there.

Okay. Good enough. Thank you.

Thank you. We will go next to Todd Raker with Deutsche Bank.

Hey, guys, just a follow-up question to help us with the modeling aspects. In Q4, can you give us a sense, ISG right now runs an 82% gross margin. You guys are going to pull the managed securities services business out of that which is a very low gross margin product.

I would assume that the three core businesses should see a gross margin north of 82%. Can you frame it for us in terms of Q4 so we can triangulate to then the OpEx run rate to get to the margin at 35%?

You know, Todd, I think what we are going to try to do is frame it to you on a go forward basis. A lot of that has to do with, for example, if you look at our capital expenditures we told you that the data center is sitting in corporate. Well, it really doesn't belong in corporate, it belongs into those businesses and that's going to be some of the reporting enhancements we are going to make in 2008.

Is it a fair assumption to assume that since you are pulling the managed securities services business out that the gross margin associated with the three core businesses is higher than the 82%?

That's a fair assumption.

Okay.

On a consistent basis.

On a consistent basis.

It would be higher because --

We will be making some investments. There will be increased depreciation for the data centers and other things that will, it won't be as high as you might think it is, but it's something that we will share with you all during the year.

Okay. Thanks.

Hey, Todd, you don't get another dip. Two is all you get. (laughter)

Thank you. We will go next to Rob Owens with Pacific Crest.

Great, so at this time given the guidance you laid out at the analyst day are you reiterating then the lower end of that earnings per share range at $1.15 because I think you gave us a revenue range on those three core businesses around $900 million? Thanks.

Yes, I think what we are really saying is on an exit rate basis the 35%, it's really going to depend on a variety of things on how well we do to that and along with the share count at year end. But remember that's an exit rate number that we were trying to portray at analyst day and we are hoping to do a little better than that.

Just to confirm, Rob, we did not provide earnings per share guidance today for the quarter or the year.

Okay. So you're not sticking to the analyst day, the $1.15 to $1.29?

The numbers that we talked about today you can use for modeling going forward.

Great. Thanks.

Thank you. We'll got next to Katherine Egbert with Jefferies.

I have to ask a follow-up as well since everyone else is doing it. So you said just a minute ago, Bert, the definition of discontinued operations is pretty strict, and last we talked I don't think you were going to put everything into discontinued operations, so what changed?

No, I think what we are telling you is we're going to give you guidance based on the continuing businesses that are core to us. There may be a few differences in between, but I don't think they are going to be significant. Our view is by the end of the first half we ought to be fairly consistent at that point.

Okay. So does that mean, though, that your revenue number for next quarter could actually include some of the businesses that you'll be divesting?

No, what we gave you was a pure revenue number for just the three core businesses. We wanted to be very clear about that.

Okay. But if a business doesn't go into discontinued ops it stays in your revenue line, right?

That's correct and we will reconcile for you when we get there.

Okay. Thank you.

Sure.

Thank you. We have time for one final question. We will take that question from Peter Kuper with Morgan Stanley.

All right, we're all going around about here --

Are there only about five guys on the call, is that what the problem is?

(laughter) We just love you so much we just want to talk to you more and more.

That works for us.

Straight forward, I mean, I think we are all talking about the same stuff here, trying to figure out for Q1 talking about the exit rate margins, what are you guys expecting from a consensus point of view because everybody's model is, obviously, going to be tossed upside down here with the re-core model, the re-core business being modeled, end of exit year, I get that, so we have a directional good idea of where we are going, but for Q1 how are you guys feeling about what we should be modeling from an operating margin point of view there?

Yes, I think the best advice I can give you from there is to take our exit rate at Q4 and what we gave you as an exit rate for '08 at the end of the year and kind of factor -- I wouldn't say factor it in linearly, but factor in some improvements quarter-to-quarter to get to that 35% by the end of the year. That's the best advice I can give you.

Okay. So that would, all right, that's pretty straight forward. We will work with that. And I guess on that you guys, I would hope, obviously, by then be able to do a year-over-year compare on what the three businesses are on a growth rate?

Yes, as we get it all cleaned up that will become very apparent.

Okay, great. Thanks.

Thank you. And at this time I would like to turn the program back over to Mr. Ken Bond for any additional or closing comments.

Thank you, Robbie. We anticipate that our next quarterly conference call which will reflect our first quarter 2008 results will be held on Wednesday, April 30 at 2 p.m. Pacific time. Final confirmation of this date will be provided the first business date after the close of the quarter on April 1.

I would also like to remind you that in light of regulation FD verifying plans to retain its longstanding policy to not comment on its financial guidance during the quarter unless it is done through a public disclosure. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call. Thank you, and good evening.

That concludes today's conference. You may disconnect your lines at this time.