威瑞信 (VRSN) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the VeriSign Incorporated first quarter 2008 earnings conference call. Today's call is being recorded.

At this time for opening remarks, I would like to turn the conference over to Mr. Ken Bond. Please go ahead, sir.

Thank you, Jamie. Good afternoon, everyone, and thank you for joining us for VeriSign's first quarter 2008 earnings conference call. I am Ken Bond, Vice President of Corporate Communications, and I am here today with Bill Roper, President and CEO of VeriSign, and Brian Robins, our Acting Chief Financial Officer. A replay of this call will be available beginning at 5 p.m. Pacific Time, via telephone at 888-203-1122, or 719-457-0820 for international callers. This will be available through May 16th. The passcode for both numbers is 1256242.

The press release and the financial information discussed on today's conference conference call is available on the Investor Relations section of the VeriSign website at Investor.VeriSign.com. The Q1 2008 press release is available on First Call, MarketWire, as well as the VeriSign Investor Relations website. For those of you joining via webcast, we also invite you to view the slide presentation which accompany today's conference call. These same slides will be available for download from our website 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 Form 10-K and 10-Q, and any applicable amendments which identify important risk factors, that could cause actual results to differ materially from those contained in the forward-looking statements.

Additionally, financial results 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 is located on the VeriSign Investor Relations website. In a moment Bill and Brian will provide some prepared remarks, and afterwards we will open up the call to you for questions. Unauthorized recording of this conference call is not permitted, and we anticipate the call will end before 6 p.m. Eastern Time.

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

Thanks, Ken. In this call I would like to start with comments on our key announcements we made during the quarter, followed by our view of our business and operating results for the first quarter. From there, I would like to touch on some areas that we believe are of particular interest to investors, based on conversations we have had with shareholders, including how we are managing the business overall, and an update on our divesture activities. Brian will then discuss the financial results for the first quarter, and provide limited guidance before we move to the Q&A portion of the call.

In February we announced the formation of our Scientific Advisory Board, which includes several highly distinguished members of the technology community, such as Vint Cerf, Marty Hellman, Len Adelman, and our Board Chairman, Jim Bidzos. This group will provide guidance to senior management to ensure that VeriSign maintains and grows it's technology leadership position. As many of you may be aware, our Board appointed Brian Robins as acting Chief Financial Officer last month, replacing Bert Clement. I realize that Brian will be a new voice to many of you, so I would like to share with you how pleased I am that Brian has stepped up in this new role.

At VeriSign, Brian has been responsible for domestic and international finance. He has also been instrumental in development of our strategic plan, and monitoring our progress, and Brian conducts our monthly operating reviews, and has some implemented key financial management processes.

Last quarter we also made another key hire in Robynne Sisco, who joined the Company in February as our Chief Accounting Officer. Prior to joining VeriSign, Robynne was Assistant Corporate Controller at Oracle, and she brings a wealth of accounting and financial experience to the Company. Brian, Robynne, and I all share a healthy sense of urgency, and we are already seeing signs of how both of these fine folks are having a positive effect on the business.

Finally, I am also pleased to announce or to point out that Kathleen Cote was appointed to the Company's Board of Directors in February. Kathleen has more than 25 years of experience in executive management, and leadership positions in both emerging technology companies and multinational organizations. Most recently serving at CEO of Worldport Communications. Welcome aboard, Kath.

Before beginning let me quickly mention we expect to file our 10-Q early next week, and as a part of this report, you will see our revenue segmentation, as we have created a new segment for our core businesses, of Naming, SSL, and IAS. This new segment is labeled Internet, Infrastructure, and Identity Services, or 3IS for short, but we will continue to use the term core businesses interchangeably with 3IS.

With that, let's take a look at the first quarter. Q1 was a solid quarter driven by our core franchises of Naming and SSL. We reported core revenue of $223, million which was above the high-end of our 215 to $220 million guidance. Additionally, the businesses that we intend to divest performed better than expected, making for a solid quarter all around, and I would like to thank all of our employees for their focus, and their continued commitment to VeriSign.

This is the first quarter that we reported non-GAAP operating margins for our core businesses, and we are pleased as the operating margin for the first quarter was 30.3%, putting us in a good position to achieve our Q4 exit rate target of 35% or higher. NonGAAP earnings per share for the core businesses was $0.21, a penny ahead of Consensus estimates, on strong revenue growth, and lower than expected operating expenses. We also repurchased over 31 million shares of common stock in the first quarter, and since recommencing the share repurchases, we have now reduced the common shares outstanding by more than 28% since June of 2007.

Moving now to business metrics for the first quarter, I would like to talk a bit about our core businesses, and I will start with Naming. Our Naming business continues to show strength, as the adjusted zone for registered names in .com and .net, totaled 84.4 million names at the end of the quarter, compared with 80.4 million names last quarter, a sequential increase of 5%, and an increase of 22% year-over-year.

This growth is driven by continued global internet adoption. We processed 7.8 million new domain name registrations for .com and .net during the quarter. The underlying growth drivers are consistent with prior quarters, as we saw solid growth in both U.S. and international regions. While we continue to see solid growth domestically, we also continue to develop our international opportunities. Regions that we see as having significant growth potential for both .com and .net.

We also saw continued growth of all customer segments, including corporate, small business, consumer, and online advertising. This growth reflects unit growth and the entrance of new registrars, in key customer segments and growing international markets. The online advertising activity remains a small but consistent part of our new name sales and overall base.

The renewal rate for Q4 was slightly affected by private litigation, which VeriSign is not a party to. Pending the outcome of the litigation, the deletion of certain domain names has been prevented, so adjusting for these nonrecurring factors, the adjusted renewal rate for Q4 was 74%, of the unadjusted renewal rate was actually 1% higher. As a reminder, we announced in March that effective October 1st, registry fees for .com and .net names will increase by 7% and 10% respectively to $6.86 and $4.23 per year. Which at these prices, we believe continues to be an outstanding value.

Finally, our internet infrastructure continues to operate at ever-increasing levels, and recently we have seen peak loads of over 50 billion DNS requests per day, 50 billion with a B. While the peak load increased dramatically this quarter, our systems again demonstrated that VeriSign's capability, of being able to operate global networks at this scale and reliability remains unparalleled, due in large part to our continued investment in infrastructure, such as Project Titan.

As an example, our global network now allows VeriSign to handle up to 2 trillion, that is trillion with a T, DNS requests per day. This quarter we also announced our intention to locate a new regional internet resolution site in India, one of the most rapidly growing internet markets in the region, with more than 60 million internet users. Additionally, we have located new resolution sites in Hong Kong, Italy, and other locations, as we continue to build out our constellation system of more than 100 resolution sites, as well as expand the capacity of the existing sites. In summary, no one else, no one, has operated a global network of this nature at this volume level, with 100% uptime over the last ten years.

Moving onto security services, we were honored last month as the Best Security Company of the Year by SC Magazine. The Award recognized VeriSign's outstanding achievements in IT, Security, including Security Services from our second core franchise, SSL, which now has an installed base of over 1 million certificates.

This figure represents a significant increase from last quarter, reflecting continued strong organic growth, as well as a refinement to the methodology for calculating the installed base for our [Thought] multi-year certificates, which were excluded from the installed base after each certificate passed the one-year mark in the past. As a result, we refined the installed base and the AUR metrics, with historical information for both measures included in the slide presentation accompanying this webcast. To summarize, the effect of this refinement, the installed base has increased, the AUR has decreased, and there is zero effect on revenue.

The installed base for this quarter increased 1.024 million certificates, compared with a revised 987,000 last quarter, and a revised 886,000 the same quarter last year. We are very pleased as this represents a 4% sequential growth, and a 16% year-over-year growth in the base. The Q1 revised annualized average unit revenue, or AUR, with an installed base of VeriSign, GeoTrust, and Thought branded certificates was $261 this quarter, up from a revised $260 last quarter, and a revised $251 same quarter last year.

We also continue to be pleased with the results of our extended valuation, or EV, certificates as more than 3,000 internet domains have gone green with EV, and the demand for EV certificates continues to be strong in Q1. Now while our EV product line is still in it's early stages, we are seeing a growing stream of customers, including folks like HSBC, over 100 U.S. credit unions, and through our VeriSign's enhanced deal with NTT Data, another 80 banks in Japan go green with S EV.

We remain the #1 provider of EV search in the market, and we continue to expect that the EV adoption cycle will be consistent with previous premium-priced SSL products in the past. We continue to see early success as customer research confirms the strong value proposition for EV, as EV businesses are seeing higher click-through rates, as their customers recognize the green bar and the VeriSign seal, which is now seen over 150 million times a day.

We are also continuing our marketing efforts to stimulate customer pull-through. As an example, we launched the a vital marketing campaign on Google's YouTube platform, to raise awareness of how the EV search enable secure e-commerce transactions. The 'Cart Whisperer' video was widely viewed, leading to Google mentioning the VeriSign campaign on their earnings call.

Also, a necessary foundation to displaying the green bar is having the property operating system and browser such as Microsoft's Vista and IE7. Microsoft's recent comment that they have now sold over 140 million Vista licenses, furthers our confidence around EV adoption and growth potential.

Now I would like to share some comments on the progress of our Identity and Authentication Services business. Within IAS, the strength continues with VIP and one-time password programs, as we have now sold over 1.8 million, 1.8 million credentials, and we continue to be pleased with the strong uptake of credentials by consumers, as we expect to see this adoption continue to ramp.

We believe that IAS has the potential to form the third core franchise for the Company over the next few years, and to help accelerate consumer adoption, we recently announced two programs for parties issuing credentials, the VIP Quick Start, and the VIP Test Drive for Developers, both programs are key investments, in what we believe is a very promising market space, which fits well into our long-term strategy, and matches our core DNA of global scale, and trust.

I would like to comment now on some areas that we believe are of interest to investors, based on discussions we have had since our last call. Last quarter we shared with you our divide and conquer approach to managing our businesses, so that as a company we continue to remain focused on continuing to develop and grow our core businesses, while at the same time maintaining the continuity, and optimizing the eventual sale of the businesses being divested. The importance of executing on planned divestments in an expedient manner is not lost on us, and we continue to diligently pursue the timely sale of these businesses.

However, we periodically remind ourselves while these events are important, the key to unlocking shareholder value, will be driven by what happens in our core businesses, more so than the sales proceeds from the non-core businesses. We are also mindful that in addition to executing on plan, we must also invest for growth in next generation products and services, which fit our DNA around global scale and trust. As we said before, 2008 is going to be an interesting year with a lot of moving parts.

We expect that over the course of the year, not only will we complete most of our planned divestitures, but we will also reduce our indirect overhead costs. Speaking of our divestiture program, overall I would describe the program as being essentially on-track with our expectations. As discussed in the past, we expect there will be a half-dozen or more transactions over the course of 2008, and today we closed three smaller transactions, including the sale of our former content delivery network, digital brand management business, and the self care and analytics business, in three separate transactions.

The remaining businesses are in varying stages of the sale process, with some businesses being further along, and possibly ready for discussion at our next conference call. So overall, we continue to be satisfied with our progress, and while we are aware of credit market conditions, and we have seen some effect at the margin, as a few prospective buyers have dropped out, there continues to be good interest at this time, from both strategic and financial buyers.

Of course there is always a possibility that credit market conditions and expected valuations could further decline, but at this time we continue to believe that we will substantially complete all transactions this year, yielding proceeds of approximately 10% of our market cap, give or take a couple of points. We will continue our practice of reporting transactions during these calls if not otherwise required.

I would now like to turn the call over to Brian, for a walk through of our financial results for the first quarter as well as guidance. Brian.

Thanks, Bill. Thanks to everyone for joining us this afternoon. Before turning to the first quarter, I would like to discuss how our reporting of results will be somewhat challenging this year, as we continue to work within accounting standards.

This quarter we have begun to place some of the businesses we intend to divest into discontinued operations. In order for a business to qualify for discontinued operations, it must first meet several criteria, including management having the sufficient authority to sell the business, the businesses available for immediate sale, and an active program to sell the business has been initiated, and the sale is probable within one year.

Further, we must conclude that there is no significant continuing involvement in the operations of that business once it is sold. Utilizing these standards, we place Enterprise Security, Digital Brand Management Services, and Communications Consulting, as well as some smaller businesses, into discontinued operations this quarter. Those businesses not included in discontinued operations in Q1, did not meet all of the technical requirements for one reason or another.

For example, the messaging business was not included in discontinued operations, as we did not have an active program to sell the business as of March 31st. We expect that messaging will be placed into discontinued operations in Q2, as we begin to actively market this business for sale within the next month. We expect that most of the other businesses targeted for disposition will also be placed into discontinued operations by the end of second quarter.

As mentioned earlier, the reporting of results will be challenging this year, as we work through this period of transition. With some businesses not yet qualifying for discontinued operations, continuing operations this quarter reflects a mix of core businesses and non-core businesses. We believe that presenting key operating results for our core businesses, provides greater transparency around the financial performance of those businesses, which we believe will drive long-term shareholder value.

To this end, we have also included non-GAAP financial information around our core businesses, including operating income and earnings per share, in addition to the GAAP results included in our press release. Additionally, accounting standards require us to include shared services costs and continuing operations. Unless those costs can be fully and directly associated with the discontinued business, as a result, the performance at core businesses may appear to be less favorable, than what we believe it otherwise might be, and conversely the financial performance of discontinued operations may appear to be more favorable.

As we complete divestitures, we expect core operating margins will continue to improve. As we reduce shared services costs, which are currently included in the core businesses. Lastly, we also expect there to be a period of time, whereby we provide transition services to the buyers, and as we completed these transition services agreements, we expect further improvement to the operating margins of our core businesses. Today in discussing operating results for our core businesses, we will not be providing comparable figures for prior periods, as it is not practical to do so.

Next quarter we will begin providing comparative analysis and commentary on a sequential basis. In terms of day-to-day management, Bill shared our divide and conquer approach with you earlier. We remain focused on our core businesses, while at the same time optimizing the sales process of businesses being divested. As our results indicate, the efforts to-date have been largely successful.

Moving now to a more detailed discussion of results for our core businesses. Q1 by all accounts was a solid quarter. Revenue of our core businesses came in above the high-end of our guidance at $223 million, up 5% sequentially, and up 23% year-over-year. The growth was driven again by continued strength of all three core businesses, with Naming in particular having a good quarter. Additionally, we had one-time benefit to revenue of slightly over $1 million, which we do not expect will reoccur.

Turning to operating margins, as we continue to execute our strategy, we are seeing operating leverage as reflected in non-GAAP core operating margins of 30.3% for the quarter. This represents a significant improvement to last year, and we are continuing to see the results of our focus and discipline. Non-GAAP cost of revenue and operating expenses for the core were $155 million, down from last quarter, primarily due to lower labor expenses from both our regular and contingent workforces.

Below the operating income line, we incurred a loss of nearly $4 million, as the interest expense related to our convertible bonds was not offset by interest income as it was last quarter, with significant share repurchases during the quarter our cash balance was lower, and coupled with a decline in interest rates, interest income was significantly lower this quarter. We expect interest income will be lower for the remainder of the year.

Non-GAAP core net income for the first quarter was $44 million, resulting in non-GAAP earnings per share of $0.21, above our internal plan, due to solid revenue results, and disciplined expense management. Our non-GAAP earnings per share of $0.21, includes the $4 million below the line loss related interest expense, which negatively impacted earnings per share by $0.02. The diluted share count used in EPS calculations was slightly above 210 million shares, down from nearly 230 million shares last quarter.

Moving onto 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 restricted cash of over 500 million, down nearly 900 million from last quarter, as we repurchased over 1.1 billion of stock, or approximately 14% of the shares outstanding at the end of last quarter.

Capital expenditures for the quarter were $26 million. Operating cash flow for the quarter was strong, in excess of $74 million. There were multiple drivers to the positive operating cash flow this quarter, including strong deferred revenue growth, which was up on strong com/net registrations this quarter, as well as disciplined working capital management. As a reminder, Q1 is typically a seasonally weak quarter for operating cash flow, and as annual employee bonuses are paid in the first quarter.

Net DSO for the first quarter was down 3 days to 41 days, due to more disciplined collection efforts. Over time we expect that DSOs will continue to decline as both the Naming and SSL businesses have very favorable working capital requirements. Deferred revenue ended the quarter at $761 million, up 23 million from last quarter end. The increase in deferred revenue was driven by strong sales in Naming and SSL. Naming in particular had a strong quarter, as the average weekly additions for com and net were above our expectations.

We ended the quarter with 4,050 employees, 200 lower than last quarter, as we began to transform the Company with focus on the core, and reduced shared services head count. Head count will continue to decline through the year with the sale of non-core businesses, as well as further reduction in shared services head count.

Moving now to guidance. As I mentioned earlier, we expect to place most non-core businesses into discontinued operations during Q2. As a result, we are providing guidance for our core businesses, which include Naming, SSL, and IAS. We include VeriSign Japan in our core numbers, given it's focus on SSL and IAS services.

For Q2 we expect revenue for the core businesses will be in the range of 228 to $233 million reflecting sequential growth of 3 to 5%. As discussed last quarter, it is not possible to forecast exactly when divestitures will take place within the year. We also continue to expect a lag effect to operating margins, stemming from the inclusion of significant indirect operating expenses.

For those reasons, our guidance around non-GAAP operating margin is for modest sequential improvement, as we believe we are on-track to achieve Q4 2008 exit operating margins of 35% or higher. The non-GAAP operating margin guidance also reflects increased investments we are making in our core businesses, such as Project Titan and the SSL platform.

For example, in SSL we are consolidating GeoTrust, Thought, and VeriSign platforms into a single system, which will help us lower back-end system costs, while improving the user interface, and our ability to upsell to the higher priced brands. We also expect that items below the line will result in a larger loss than what we experienced in Q1 for a number of reasons, including our expectation that interest income will be lower this year.

Finally, we now expect that the fully diluted share count will be below 200 million shares well before the year end as was originally expected, reflecting the aggressive share repurchase activities to-date.

In summary, we are pleased with our business execution in the first quarter, particularly as it relates to revenue growth from the core businesses, as well as non-GAAP operating margin expansion. We are keenly focused on executing our strategy in 2008, as we clearly see this as a key to further unlocking shareholder value longer term.

We now would like to open the call for your questions. Operator.

Thank you, sir. (OPERATOR INSTRUCTIONS) We will go first to Sterling Auty with JPMorgan.

Thanks. Hi, guys.

Hey, Sterling.

Two questions. First, Bill, just picking up on some of the tone here around the divestitures, you talk about most of the deals will get done by the end of the year. Seems like a little bit of a change. Is that just based on the experience so far and getting the books out there and just execution, as well as the talk of 10% plus or minus a couple of points in terms of proceeds, versus 10% of the market cap? Is that just because the stock price is higher?

Two questions there, Sterling. I think essentially we are on-track. We are seeing good interest at the margin. There is maybe a few people who might have stayed in to the final round that are dropping out, due to financing or something, but we have got strategic and financial players at the table, and at this stage we still feel pretty good. I think all along we think we said we would like to get them all completed this year, this calendar, and I think we will do that, or come close to it, and we think the proceeds will be essentially what we would have expected, maybe off a tick or two. The market cap of the companies a little higher, but I think we are in the same neighborhood.

One follow-up question. On the Naming business, we had all the noise about pasting and [Ican], as well as the economy. Can you just give color as to how you feel about the results of the Naming business, and more importantly, how you think the trajectory of that business will look for the remainder of the year?

Okay. Glad to, Sterling. We had a 5% sequential, and a 23% year-over-year in Naming. We are very pleased with that. 4 million of net adds for the quarter.

The business is on the same trajectory essentially where we believe where it has been in the last few quarters. We feel good about it. We have got a price increase coming up. There are issues with tasting and online advertising, and so forth, but they are being worked through the system, and we have analyzed the various scenarios and how they might impact us, and we feel great about the business.

Sterling, it is Ken. I will just add a comment on that in that last quarter I think that people were looking at some of those numbers, and it gave a little bit of pause, and hopefully folks will have picked up here that in this quarter we really want to underscore that Naming had a very strong quarter, and then what we saw in Q4, was really as we can talk a little bit about, was the function of this litigation that again was not involving VeriSign, but a couple of other parties. The Naming business had a very strong quarter, and we were very pleased to have seen it, we think the trajectory is back on path.

Operator, next question, please.

Thank you. We will go next to Phil Winslow with Credit Suisse.

Hi guys. Just wanted to get highlights from you, as far as how you expect the operating margins to trend over the next couple of quarters here, and exiting at least 35%, just want to get a feel for some of these divestitures are made and the expenses do start to roll-off some of the continuing ops, and how you expect to see a trend Q2 and Q3, and then also just on the Naming directory side, on the domain name front, curious what you expect the growth to look like for Q2, and for the full year?

Okay, Phil. This is Brian. I will take the first part of the question, and Bill will take the second part of the question. As we reported, we had an operating margin of 30.3% for the first quarter, and we expect to see modest sequential improvement quarter-over-quarter, with an exit run rate of 35% or higher.

Then, Phil, on the Naming business, as I said before, it was solid first quarter. We don't really see any change in the trend lines there. We are happy with the weeklies which we monitor very carefully, and we think we are going to have a good year, and we are sort of on that same growth vector of 20%, 22 to 23% that we have been on for some time.

We will take our next question from Todd Raker with Deutsche Bank.

Hey, guys, nice quarter.

Thanks.

Just want to dig into the pro formas a little bit. First of all on the gross margin side, 76.7% gross margin, ISG historically was running around 82% if I remember correctly. Clearly there is some shared overhead from discontinued in this. As we think about that business longer term, the three kind of surviving businesses, should we be thinking about a gross margin trending north of the 82% from ISG, and then I have two follow-ups.

This is Brian. The gross margin of roughly 82% that you are referencing was non-allocated, and so the gross margin of approximately 77% is a fully allocated gross margin on the core business.

Yes, but I expect some of that cost to come out even with the allocation as you discontinue some of the other ops or sell them. Is that a fair statement? Is this 77% level a baseline, and should we see it grow from here on out?

It is. As mentioned earlier we do have shared services in the number that get allocated to the core, and as we sell the businesses, we will manage the shared services out, so you will see 77 is a base moving up.

Okay. Then on the operating expense line items, if I kind of look through sales and marketing, R&D and G&A, the one anomaly clearly is G&A running about 19%. Is there any reason as we look at this over time that we shouldn't see this come down to a more normalized run rate, around 10% of the business going forward?

It will be more normalized. The reason with why it seems a bit inflated is because you do have the shared services costs in there today, to support the discontinued businesses as well.

Okay. Thanks. Then last question for you. Aggressive on the stock buyback, love to see that. Bill, can you comment in terms of capital structure of the Company, and your cash balances now 500 million, at what level do you continue to buy stock to, and would you use debt going forward, in addition to the convert that you have outstanding?

Okay. I think the answer to that is really consistent with the past. We are going to repurchase shares when it is advantageous to do so, and we don't have better internal investment opportunities. We have got a strong balance sheet. We have got debt capacity, so we will use it as necessary. I think we ended the quarter with about 500 million in the bank, and we generate cash regularly, so we have got a healthy balance sheet. We are generating cash. We are looking for good internal risk adjusted returns on internal investments and otherwise, and we will repurchase shares when it is advantageous to do so.

Okay. Thanks.

Thanks.

We will go next to Sarah Friar with Goldman Sachs.

This is Fred Grieb for Sarah Friar. The annualized ASP has been slowly creeping up over the past year or so in the search business. Is the main driver of that EV, or is it sort of something else?

It is a mix. There is a mix shift between the three product lines. There is a small but growing component of EV, but frankly at this stage it doesn't really by itself move the needle, even though it has a very nice premium price to it, it is not really yet to the size that it moves the needle a lot, but it relates to just mix shift, the GeoTrust is growing faster than the other two, but they are all growing.

Yes. I would only add to that, individually within those brands we have seen generally pricing trends is that the ASPs in those individual brands has been increasing over time.

Great. Thanks. One follow-up. Any update on rolling out additional services around the registry business?

This is Bill. We have a number of products in the pipeline. We are always upgrading. We are always making improvements to the products, and we have several things that we will roll out over the years, or over the months or quarters. You should view these as small incremental things. We are not ready to talk about any blockbusters or anything at this stage.

I would add one, Fred, and just as an example we have got a service that we now use called Data Analyzer, and it is a service that really is not a fee service, but it is something that we use with our registrars, to help them evaluate potential domain names, so that as the around the grace period, you have an opportunity to evaluate the quality of names directly, without having to use the grace period. That is a service that we have been using with some of our registers, and we make freely available to them as a value-added service.

Great. Thanks a lot.

We will go next to Walter Pritchard with Cowen & Co.

Walter, are you there?

We will go to to Rob Owens with Pacific Crest.

Thanks. A question around the EV search, and as you look at it on a per customer basis, can you talk a little bit metrics around the uplift you might be seeing in total transaction value? Is that purely a function of price, or are you seeing more units per customer as well?

Hey, Rob, it is Ken. The list price on the EV search is quite a bit higher, on a per unit basis we generally are seeing premiums of at least 30% if not higher, in terms of the unit price that we are garnering from EV versus the normal SGC search, but on the second half of that question, in terms of the actual unit volumes, it is a little mix in that, we are not seeing a decline, but what you are alluding to is something we are watching carefully, and that is the potential for customers to be using EV certificates, not only on the back end of shops around normal payment gateways, and that type of thing, but on the front end, when we go to places like Schwab.com or PayPal.com, we are definitely seeing some of that, but nothing overly material at this point.

Great. On the registry, with you having 4 million certs in the quarter. I think last year Q1 represented the largest net sequential increase of new domains, sorry I said certs. Do you think this year we will follow the same seasonality where Q1 and the 4 million sequential net new domains will be the peak for the year, or should we see a different cycle play out?

I don't know that we have a huge amount of seasonality in this business. This is Bill. There are a lot of factors, and sometimes they relate to a little noise around the edges, with the pay per click business, but I don't think we have a lot of seasonality in this business.

Great. Thanks.

We will return to Walter Pritchard with Cowen & Co.

This is Ken Wong for Walter Pritchard.

Hey, Ken, how are you.

Good, good. You mentioned there were 7.8 new domains registered. Did you give the number of renewals?

It was slightly over 12 million, Ken.

Okay. Great. With the new structure of the business, where do you guys see CapEx going?

CapEx, this is Brian. CapEx historically has run between 12 to 14%, and that is going to trend down. We have some investments that we are making right now, in Project Titan and EV Search, but you can expect that to trend down over time.

For the core business it was $17 million this quarter.

Okay. Great. Those are all my questions, guys.

Thanks, Ken.

We will take our next question from Steve Ashley with Robert W. Baird.

I was wondering if you can give us some idea what the international business might have represented in the core business, and then secondly, if you could talk about general business trends, the pace of growth of domain names in the United States, versus maybe outside the United States? Thanks.

Okay. This is a difficult question to answer, because we don't really have valid data, but we can give you trends. The way we measure things, the international business is about 23% of the core, but for instance, in the naming business it really relates to where the registrar is. That is how it is tagged, not necessarily where the customer is.

In the SSL business, it relates to the billing address of the enterprise, and of course the servers that they searched it on could be anywhere around the globe, so actually how you measure it or how you define it, you get different numbers. The both segments, both the domestic and international growing, growing nicely, international is growing a little faster than domestic, so you will see a slow mix shift over time there.

We are investing this year through the P&L fairly significantly, and building our international sales and marketing efforts, and those sort of things, and that is with an eye towards the fact that the non-North American markets are underpenetrated, vis-a-vis the North American markets.

Great, Brian, you talked about the interest income and the fact that could cascade a little lower here. Can you provide us any guidance or color around what we should think about other net for the second quarter, the loss was 1.8 million this period? What might we look for and what should we think about modeling the second quarter?

Yes. For the following quarters especially for second quarter, I would go about 2X, around 8ish.

He also asked other.

That is for other income and interest expense. That is the whole everything.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) We will go next to Katherine Egbert with Jefferies.

Good afternoon. You said there was a drop in overhead costs so far, that weren't just related to the divestitures. Can you tell us what that was, and how you expect the organic cost structure to kind of flow through the rest of the year?

This is Brian. The overhead costs I referred to is in first quarter we actually, as the business continues to transform, we have readjusted our cost structure and head count, so we had lower head count for the quarter, about 200 lower than the previous quarter. Additionally our contingent workforce as we focus and be disciplined on expense management has been reduced.

Can you put any numbers behind that? Of the bump-up in operating margin for the quarter, what percentage was related to that head count reduction?

I don't have the specific numbers.

Okay. Thanks.

Approximately 200 people.

Can we revisit some longer term guidance you have given out before, for example, like 40% plus operating margin in the outyears? Is that still valid?

Katherine, it is Ken. Let me just clarify that at Analyst Day we talked about 2008 guidance of margins of about 30% with a long-term number of 35%, and then in the last conference call we upped the 2008 target from 30 to 35%. We never did come back and make any formal changes on that 35%, but I can understand where there is a natural assumption that 35 would go to 40, but we have never formally said that. Our long-term guidance is obviously going to be higher than 35%, but we haven't formalized it.

Okay. My bad. Thanks.

We will take our next question from Rod Ratliff with Stanford Group. Thank you very much. Nice quarter, guys.

Thanks, Rob.

Most everything has been asked and answered, and I only have one pair of eyes here, so it may have been in the prepared remarks, but did you say anything in the target revenue range for the core business for the end of the year? If you did, I missed it, and I apologize.

For next quarter we will be 228 to 233 million, and we expect to end the year at 900 million plus.

Okay.

With an underscore on the plus part.

Okay. Thanks a lot for the clarification, Ken, I appreciate it. That is all I have got, thanks.

We will go next to Scott Sutherland with Wedbush Morgan Securities.

Great. Thank you. A couple questions, guys. First want to talk about your IS segment. I notice in the emerging market segment you have good hopes for, can you talk about the revenue ramp you are seeing there, maybe the margin structure and breakeven levels you could target there?

This is Bill. There are really two parts to that business. There is the existing PKI business. It is a very sound, very stable business, generates good margins, good cash flow, and it is growing relatively slowly, and then we have the new business that we are ramping up, the VIP business, that is ramping fairly quickly year-over-year, but that is on a fairly small base. We are very pleased with the growth. We are very pleased with the enterprise adoption, and the customer takeup rate, so we have got good, we are getting good numbers out of there. The growth is actually a little ahead of track for the year. We are real pleased with it, but it is a pretty small base.

And on the Naming side of the business, it sounds like there is other top level domains to bid on. What is your activity there and what is your kind of belief of winning some of that?

Well, we don't forecast what we might do in that area for obvious competitive reasons, but we intend to build and protect our core business, and do whatever it takes.

Okay. Nothing less than I expected. Thank you.

Thanks.

We will return to Sterling Auty with JPMorgan.

Can you hear me?

No.

No.

We will wait. Sorry, Sterling.

Two follow-ups. You talked about the advertising being steady. Can you just give us an update, in terms of what was advertising as a percent of either the new names, or maybe as a percent of the base at the end of the quarter?

Sterling, you are talking about the quarterly activity. So as a percentage of new registrations, it was a little bit lower in terms of new registrations, but as it relates to the installed base, it continues to be a very consistent part of our business, and that is about 8 to 10% of our installed base represented by online advertising.

The other question is for Brian. I thought I caught part of what you were saying. I thought you mentioned 1 million of kind of one-time type of revenue. Was that in in the core, or the discontinued operations?

That was in core.

What was that related to?

Revenue based on cash collection.

Okay. Can you clarify that a little bit? I am not sure I understand that.

It was one-time services that were performed in prior periods we didn't collect on, where we were able to collect on that revenue in that quarter.

Got it. All right. Thanks, guys.

Thanks, Sterling.

(OPERATOR INSTRUCTIONS) We will return to Todd Raker with Deutsche Bank.

Hey, guys, just following up, if I look at the deferred revenue line, do you expect that to be impacted at all, as you divest some of these businesses going forward, or should we think about 100% of deferred revenue being associated with the three surviving businesses?

Todd, it is Ken. The deferred revenue is largely associated with the core businesses, but not 100%. If you were to look at the deferred revenue on a year-over-year basis, you could see it is a pretty modest increase. It is not going to be that much. It is just important to keep in mind. We have got a little bit of apples and oranges here, where the prior period was for all the operations, and what you are seeing on the balance sheet now the continuing operations, and the discontinued operations piece has been stripped out, so it makes the year-over-year comps a little awkward.

Could you guys give us kind of a normalized figure for this quarter?

Yes. There was a little less than $20 million in discontinued operations in deferred revenue. The balance of it would go to the core business.

So sequentially we should think about what you reported as the right baseline going forward?

That is correct.

Okay. Thanks, guys.

We will take our next question from Phil Winslow with Credit Suisse.

Just wanted to follow up on the certificate side. I was wondering if you can give us what the base was in Q2 and Q3, but also the ASPs back in '07, I guess since those numbers have changed, and had does that change at all the numbers you were giving out historically for the new and renewed certs during the quarter?

While Brian is looking for that, there is a graph in the presentation slide that is will show you that.

Just looking for the hard numbers.

The installed base, what are you looking for Q2 '07 and Q2 '01?

Q2 '07 and Q3 '07.

Q2 '07 was 923,000, and then Q3 '07 was 957,000.

What were the ASPs?

ASPs on that, in Q2 '07 was $256, and in Q3 '07 was $258.

Great. Thanks, guys.

There is a little seasonality in the ASP of that, because of the heavy commercial large enterprise purchases in the fourth quarter.

That does conclude our question and answer session. At this time, I would like to turn the conference back over to you Mr. Bond for any additional or closing remarks.

Thank you, Jamie. We anticipate that our next quarterly conference call which will reflect our second quarter 2008 results, will be held on Wednesday, August 6th at 2 p.m. Pacific Time, 5 p.m. Eastern Time.

Final confirmation of this will be provided the first business day after the close of the quarter on July 1st. I would also like to remind you in light of Regulation FD, VeriSign plans to retain it's longstanding policy to not comment on it's 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 your continued support. This concludes our call. Thank you all and good evening.

That does conclude today's conference. We thank you for your participation. You may disconnect at this time.