威瑞信 (VRSN) 2009 Q2 法說會逐字稿

Good day, everyone. Welcome to VeriSign second quarter 2009 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ms. Nancy Fazioli. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for VeriSign's second quarter 2009 earnings call. I'm Nancy Fazioli in Investor Relations and I'm here with our executives, Jim Bidzos, Mark McLaughlin and Brian Robins. Please note that this call and accompanying slide presentation are being webcast from our investor relations website located at investor.VeriSign.com. Please refer to our website for important information including Q2 2009 earnings press release and a reconciliation of our GAAP to non-GAAP reconciliation.. And a replay of this call will be available on our website within a few hours. Today's slide presentation will also be available for download after the call.

Financial results in today's press release are unaudited and the matters we will be discussing today include forward-looking statements and as such are subject to the risks and uncertainties we discussed in detail in our documents filed at the SEC, specifically the most recent report on 10-K and 10-Q and any applicable amendments which identify 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 include non-GAAP measures used by VeriSign. Our non-GAAP income statement and the description of items excluded from our non-GAAP financial information are located on the VeriSign investor relations website. In a moment, Jim, Mark and Brian will give prepared remarks, and afterward, we will open up the call for your questions. An unauthorized recording of this conference call is not permitted.

With that, I'd like to turn the call over to Jim. Jim?

Thanks, Nancy. Good afternoon to everyone joining us today. I'm please today report that VeriSign met or exceed the the goals we laid out for you last quarter. Second quarter revenue in our core businesses was $255 million, which represents 9% growth year over year.

Our non-GAAP core operating margin for the quarter was 38.4%. This quarter we again had some favorable events on the revenue and expense side which Brian will detail for you later. Non-GAAP earnings per share was $0.31, ahead of our internal plan which represents 29% year over year growth. On the cash side our year to date operating cash flow is approximately $120 million, and we have over $1.3 billion in cash and equivalents on the balance sheet. From a big picture perspective, while they there appear to be glimmers of economic improvement, we continue to be concerned about the macroeconomic outlook for the foreseeable future. We have repurchased over $70 million of stock from the fourth quarter until now, and believe that a continued, cautious, disciplined approach to Capital Management is prudent in this environment.

Turning to the noncore businesses we currently have only two of the original 13 businesses. Our messaging and our global security consulting businesses remaining for sale. We completed the sale of Managed Security Services or MSS in July. We are continuing work hard to see this restructuring process through to completion as expeditiously as possible. We have made significant progress on the strategy that we laid out for you in November 2007, showing resolve in a challenging market. We remain confident that becoming a more focused company is the right strategy to move us forward. We will continue to protect our core franchises of naming and business authentication or SSL, while prudently investing in growth opportunities that leverage our existing infrastructure.

Before I conclude my remarks and pass the call to Mark, I want to address two items of the first as many of you are aware, on June fifth the ninth circuit Court of Appeals reversed the appeal the May 2007 US District Court dismissal of a case filed against VeriSign by the Coalition for ICANN Transparency Inc., or CfIT. In the opinion the case was remanded to the US District Court for the Northern District of California for further proceedings. On July 2, 2009, VeriSign filed in the Ninth Circuit a petition for rehearing, which is pending. Although we understand that the details of this case are of interest to investors, as a public company we are able to say very little about pending litigation. We will continue to defend this case vigorously and we remain confident in our position. Finally it gives me great pleasure to announce to important and very well-deserved executive appointments that were made by the Board of Directors this week.

Mark McLaughlin has been appointed Chief Executive Officer, effective August 17th. He has also been appointed to the VeriSign Board of Directors. You have heard me say over the last year I thought it more important to get the right person for the position of CEO than it was to get someone soon as possible. I wanted to ensure that the next leader of VeriSign would bring strong technology skills to all of our core businesses, a strong set of values to unify the company and firm leadership to take us forward. Mark has proven himself to be that person and more.

Since rejoining the company in January, he demonstrated the kind of leadership needed to help set a course for the future. With the opportunities and challenges ahead, I am very confident that Mark is the right person to lead the company forward. Also on Tuesday, the board voted to make Brian Robins Chief Financial Officer on a permanent base bias. His appointment is effective immediately. As you know, Brian has been acting CFO since April of 2008. We did conduct a search outside the company for a CFO, but during that process, it became clear Brian was not only qualified for the position but that he had demonstrated the leadership and initiative we were seeking.

The last year has been one of solid execution and financial growth for VeriSign and it simply could for the have happened without Bryant's leadership drive and commitment. This will be my last earnings report as VeriSign's CEO, but as I have stated over the last year, I will remain very involved as Executive Chairman of VeriSign. I was named permanently to that position this week and in that capacity, I'll focus primarily on strategy, technology, innovation and research. I look forward to continuing to work with the management team as we move the company forward. With that, I'll turn the call over to Mark. Mark?

Thanks, Jim. Good afternoon. I'm appreciative and excited to have the opportunity to lead the company at this point in our history. I'm confident in our ability to show continued leadership in our core businesses, as well as move forward in a disciplined manner. It's a privilege to be part of a such a critical function of the internet infrastructure and to work with such a talented team. I would like to thank that team for the continued hard work that produced another strong quarter.

In turning to the business unit operating results for the quarter, I'll start with naming. In our naming business, the adjusted zone for registered names in dot com and dot net totaled 93.5 million names at the end of the quarter. This is an increase of 1.1 million names added to the adjusted zone quarter over quarter, and a 7% increase in net names year over year. In the second quarter we processed 7 million new domain name registrations compared with 7.3 million new names in Q1 2009. In looking at renewal rates, you may recall the renewal rated for Q1 rounded up to 71%, which was up from 70% in Q4, 2008. While renewal rates are not determinable until 45 days after the end of the quarter, we believe that the renewal rate will be between 70 and 71% for the second quarter.

As you look forward to the third quarter, which traditionally is a low seasonality quarter, we believe the adjusted zone for the naming base will grow by a net change of 900,000 to 1.2 million names and that the renewal rates will be between 70 to 71%. On the infrastructure side of the naming business, our average daily query load during the quarter increased from 38 billion to 49 billion per day. Despite the increased load, this quarter again we maintained our record of 100% up time, which allows us to continue to provide best in breed services for dot com and dot net. We believe this demonstrates operational excellence, and is a primary reason the world looks to us to run this important asset.

As the internet evolves, so does the sophistication of attacks on the network, as several recent well-publicized cyber attacks demonstrate. Continued investment in DNS is essential in order to VeriSign to handle this growing complexity associated with continued internet adoption, geographic expansion, as well as an increasing number of directed attacks on our network. As we approach 2010, we are on track to add more than 100 points of presence, capable of handling over 4 trillion interactions per day, and we are hard at work planning future requirements as we aspire to continued operational excellence.

Now moving on to authentication services, in business authentication, or SSL we saw the installed base of certificates increase to 1.17 million certificates in the second quarter compared to 1.15 million last quarter and approximately 1.05 million in Q2, 2008. This represents an 11% year over year growth in the base. The installed base of extended validation or EV certificates continued the trend of more than doubling in the quarter, and we remained the market leader share for EV. The Adjusted Analyzed Average Unit Revenue or AUR for the installed base at VeriSign, GeoTrust and Thawte branded certificates for the second quarter was $241, which compares to $244 for the last quarter. We continued to see the lower end of the market growing master on a unit basis than the high end. Given this mix shift our GeoTrust brand continues to grow faster than our overall portfolio.

In addition at the higher end brand segment of the market we continue to see some of our customers in this economy carefully managing their inventory of certificates, as well as requesting discounts and price reductions. These dynamics are likely to continue to lead to similar AUR declines for the foreseeable future.

Finally, in our user authentication business, or IAS, we have distributed over 2.4 million credentials as part of the VIP and one time password OTP programs. This includes approximately 35,000 downloads of our mobile OTP applications for smart phones that we introduced last quarter. On the infrastructure side of the authentication business during the first quarter, we recorded a new milestone of over 1 billion certificate checks a day. This milestone underscores our ability to meet the increasing scalability requirements of internet commerce, as more people transact online with sites secured by VeriSign than with any other certificate authority.

In summary, our business performed well in the first quarter, which is a testament to our team and our business model. I'll now turning the call over to Brian to a review of our financial results. Brian?

Thanks Mark and thanks to everyone for joining us this afternoon. Before we dig into the core operating results I wanted to provide commentary on the divestitures. Today we have sold 11 out of 13 bundles, raising in excess of $575 million. In the second quarter, we sold communications services, international clearing and our realtime publishing business. The MSS business closed subsequent to the end of the second quarter. We are in advanced negotiations to sell the two remaining businesses,

Messaging Services as well as Global Security Consultant, which we broke out of enterprise security bundle last quarter. As we discussed before we continued to manage these businesses with the divide and focus management approach. I would like to thank the employees in the divest groups to their focus, passion and execution during this transitional time. The divest group's bottom line continues to be ahead of plan.

Last quarter we announced we will be holding an Analyst Day on November 19 in New York City. Invitations will be sent out in September. It will be a half day of presentations by management that will also be available via webcast. Prior to the event, will we post a high level agenda on our IR website. We are looking forward to it and hope to see many of you then.

Moving now to a more detailed discussion of results for our core business, revenue for our core businesses was $255 million, up 1% sequentially and 9% year over year. Growth was largely driven by continuing strength in our naming services with revenue up 15% year over year. Our non-GAAP core operating margin was 38.4%. This represents approximately 150 basis points of upside to Q1.

The operating expense improvement we saw this quarter was better than expected, and should be categorized in two categories. First the quicker realization of savings related to cost savings initiatives that were introduced at the company and secondly, one time expense in revenue benefits. Below the operating income line, we incurred a loss of approximately $10 million for our core operations. This loss was roughly in line with what we expected due to lower interest income as consistent with what we expect in future quarters. $1.6 million in a $10 million loss is noncash related to our convertible debt accounting ABP 14-1 adopted at the beginning of the year. Non-GAAP core net income for the first quarter of the year was $61 million resulting in non-GAAP earnings per share of $0.31. The diluted share count used in EPS calculations was 193 million shares, flat quarter over quarter in light of share repurchases of Q2 of approximately $20 million.

Moving onto the cash flow and balance sheet items, operating cash flow was approximately $83 million in Q2, which excludes $68 million of excess tax benefit associated with stock based compensation reclassed from operating cash flows to financing cash flows. Impacts to operating cash flow related to the divestitures. Consolidated capital expenditures are $20 million in the quarter and $41 million year to date. We intend to pay capital expenditures to be in the [68%] of core revenue range moving forward. We ended the quarter with a strong balance sheet with ending cash and catch equivalents of $1.3 billion, up approximately $366 million from last quarter. During the quarter, we received divestiture proceeds of approximately $230 million as well as distributions from reserve fund of approximately $24 million. There remains $32 million from the reserve fund that is currently classified in other current assets.

Net consolidated DSO for the fourth quarter was 30 days, down one day from last quarter. Deferred revenue from continuing operations ended the quarter at $878 million, up $6 million or 1% from last quarter. We ended the quarter with approximately 2800 employees, down 400 from last quarter, primarily extending from the divestitures. As previously discussed, we expect headcount to continue to decline with the sale of noncore businesses, stabilizing at approximately 2,000 employees including VeriSign Japan.

Moving on to our outlook, for Q3 we expect revenue for the core businesses will be 256 to $260 million or relatively flat to up 2% for the quarter. With regard to fiscal year 2009 guidance, given swing rates in FX rates and the continued impact to the business from the global economy, we expect our year to year revenue growth will be in the 8 to 10% revenue change. We expect Q3 non-GAAP operating margin to be in the range of 37 on 39%. To wrap-up, we believe we have executed well in the first half of the year and are pleased with our performance as we continue to execute against our divestiture strategy. The second half of the year will bring challenges and opportunities, but we remain intensely focused on meeting our short-term goals as well as further unlocking shareholder value longer term.

We'd now like to open up the call for your questions. Operator?

(Operator instructions). It looks like we'll take our first question from Rob Owens with Pacific Crest.

Thank you. Couple of questions, you mentioned that there were some one time items or one time benefits on both the revenue and expense side. Was just curious what that was? And with effectively a guide up in revenue, what could drive operating margin down quarter over quarter? Given we should expect maybe some divestitures or employee headcount to reduce from here? Thanks.

Thanks. Rob. So there was really two items that happened in previous calls, I talked about the statement in works that we actually have. The acceptance was received, so there is $1.5 million we planned in receiving third quarter that we received in second quarter. Now that is complete so we won't have that in an ongoing basis. In the operating expense line we had a contraexpense line of $1.3 million related to a legal reimbursement. So if you take the revenue and the expense, you are approximately at 37.5% operating margin. So we'll be at that or above in third quarter.

Okay. Great. Thanks.

And we'll take our next question from Sterling Auty with JPMorgan.

Brian, so the difference between the 257 and the 255, was that the statement of work is what you are saying? Or was that discontinued because I just kind of want to get an apples to apples between what our models had before and what the new guidance represents.

So the difference between the 277 and the 255 is we have continuing operations broken down between core and noncore. There is roughly about 1.5 to $1.6 million of prepaid revenue that gets you down to the 255. The 255 was bumped up the $1.5 million that I just alluded to.

One follow-up question. In terms of the naming business, Mark as you look at it, you add 1.1 million names you have the outlook for September. Can you just kind of talk and give us color in that business? We had all the adsense changes, the advertising names that have been coming out. How do you feel about the naming business, has it stabilized, and do you think you'll see improvement once you get past the seasonally weak third quarter?

Hey Sterling, new registrations in the quarter 7 million new registrations in Q1 which is a stronger quarter than 7.3 up from 6.3 in the fourth quarter. So we are seeing from's trending standpoint new registrations had trended down through the whole PPC period on a low of 6.3 in Q4, 2008 and then went to 7.3 in Q1 and now are at 7 in a weaker quarter. So I think we see stabilization from the new unit registration standpoint. Then as you look at the renewal rate side, it is 70 to 71% with a bleed off of the things we discussed that happened in 2008 with our PPC and the ad changes. I think we are seeing that stabilize as well. So Q3 is the seasonally weakest quarter but it looks like stability there.

Great. Thank you, guys.

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

Hey guys. Following up on the question on the naming side. Historically, you have given up some insight traditional versus PPC. Any ability to kind of give us what traditional net adds looks like?

Yes so hey Todd, it's Mark. On the traditional versus BBC side, the pPC business has tailed off dramatically, over time, with all the changes. It still exists and it's in the range of hundreds of thousands, sort of thing, versus the millions for traditional. So there is really not a big difference any more as far as what people are using the names for. So it is pretty much the same thing at this point.

Okay. So if I look at the first quarter where traditional I think was 2.1 million, given the net number here of 1.1 million is it fair to say the traditional business is decelerate something and how much of that is seasonal versus a macroissue? And how should we think about that going forward?

Yes I think on the last time we had 2.1 in Q1, 2009. And then looking on an online ad names in the hundreds of thousands range. So the traditional base has slowed down some, I think as a result of the macroeconomy. Then on a quarter over quarter basis we had a few things we didn't have this quarter. The run off from PPC in Q1 as people were trying to get in front of the last change to the system and you have some seasonality in there and also promotional programs that people, including us, tail off in the second and third quarter just because it is low seasonal quarters and it doesn't make a lot of sense to spend promotional money on that.

Any sense for whether we should be thinking about Q3 as the low water mark here or do you think there is potentially further weakness from a macro perspective?

The third quarter is historically the weakest quarter. So I have no reason to believe that wouldn't change in that case. But other than that, I don't see any reason to believe that we haven't stabilized on the basis.

Okay. Thanks.

Next question from Katherine Egbert with Jefferies.

You have a contractual right to take another price increase on both dot com and dot net. Can you tell us whether you plan to do that.

Katherine, it's Mark. As mentioned before on the price increases, we look at those very, very carefully and really two things we continue to watch in that is the economy and the ecosystem. The economy looks like it's maybe stabilizing a bit but our channels don't feel wildly optimistic about it yet in our discussions with them. And on the ecosystem side, it's important that we know the folks that are important in the eco system and that they know what we do, they appreciate that and they know we provide great value for our services. So we continue to do that. No new news on this, other than we continue to work hard at looking at all these factors.

Mark, there is a deadline on the next price increase right? Of next July. So you would have to notify by the end of this year, right? Well there is the notice exercise period of six months prior to doing any price increase. What you mean is when is the last time you could put a notice in for price increase before you threw one away?

Yes, that would be next July.

Okay then quick on the litigation, do you plan to continue you know, the process? And how much are you spend go on legal fees per quarter now?

We have to be very careful about what we can say. Really we can talk about the procedural aspects and we have filed a motion for rehearing, which we are waiting on. We are very confident in our case and would seriously consider exhausting all procedural avenues we have in the case. So other than that, I really can't say anything from a legal standpoint I'll ask Brian to comment on that.

On the expense side, nothing material is included in the guidance we gave you of 37 to 39% for next quarter.

Okay. Congratulations on your promotion.

Thanks, Katherine.

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

Want to focus on operating expenses going forward. I think you all talked about sort of reinvesting in the company, potentially looking at adjacencies. The past few quarters have showed strong operating margin upside and guiding 37 to 39 for Q3. How should we think about the margin structure of this company longer term in 35 years but also over the next 12 to 18 months. As you get the efficiencies from the divestiture and his also invest in these segments.

Hey Phil, this is Brian. I'll take part it have then turn it over to Mark and let him take the second part. We haven't given long-term guidance long-term from a company perspective philosophy perspective. On the short-term side we have talked about we are doing a number of things around the company on trying to be more efficient and increase margins, and leverage the assets that we currently have and so on the divestitures we are able to take out a lot of expense through the divide and focus management that we did. Able to achieve what we've achieved absent the divestitures getting done. Now that the divestitures are being done, we are taking a sharp focus on our shared services organizations as well as some inefficiencies we have in our facilities and data centers and looking at consolidating those. When we have given out our guidance previously in saying we will be incrementally up quarter over quarter that's been baked into those numbers we haven't given fourth quarter guidance or margin but we have said each quarter will be incrementally better than the prior quarter and we have a number of programs internally where we are looking at deleveraging the business and taking costs out.

And Phil, it's Mark. So the current range on the margins we have been operating at, allows us to invest where we need to. In addition, as well as including what we need to do to help determine the long-term focus. So as far as the development effort we are doing around that and getting back to product parity and some of the places we have underinvested. We believe in the range we are talking about today with continued improvements where we can make them we've got what we need in order to figure out the longer term. On a longer-term basis, no reason reason for us to believe at this point it would be different, substantially different than what we are delivering today, even with the investment in the future services.

All right. Thanks, guys.

We'll take our next question from Kash Rangan with Merrill Lynch.

Wonder if the CfIT litigation I'm not asking you to common on the particular issue itself but is it causing any disruption in the end market and how prospects are looking at signing up with various of your partners or is it not causing any disruption at all from whether where you see your business? That's it for me.

This is Jim. From everything we have seen at this point, there is no impact on our end business whatsoever from the litigation.

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

I have a question about cash flow. It looks like you've now reclassified some of the excess benefit you were getting from stock based comp. I'm assuming that's permanent going forward. So what kind of cash flow from operations might we expect to generate on a quarterly basis going forward?

Hi, Steve, this is Brian. Good question on cash flow. As you know we don't break out our balance sheet between continuing and discontinuing operations. So the cash represented in our cash flow statement is operations from all of our businesses. FASB requires us to put the tax benefits from stock option exercises and stock option NOLs to be classified as financing activities as opposed to operating activities.

We sold three divestitures this quarter there was a number of things that took place that actually impacted operating cash flow. Operating cash flow is used and financing as a source if you take $83 million and on a tax affected basis utilize our NOLs, you add approximately $45 million that is our tax from operations this quarter with the utilization of NOLs is about $128 million. On a go forward basis we've talked about cash from the business will be approximately $350 million.

And just a lot of moving pieces, kind of fluid, with terms of headcount, given the divestitures that are occurring. But are you also hiring, at this point? And can you just talk about your hiring activity? And if you are, where within the organization?

Yes, so we, good question. I mean, every quarter we report net decreases in headcount. But as we look to invest in new areas, and look to explore these new areas, we have a number of open we continue to hire against where they are very specialized people to fill gaps in the organization. But the net decrease is more exiting than going on, so you'll see a net decrease, quarter to quarter.

Thank you.

We'll take our next question from Sarah Friar with Goldman Sachs.

Great. Thanks for taking my questions. Two for you. The first is on the SSL certificate side on the pricing side. When do you think we can reach effectively a low water mark there as macro versus competition start to balance out and maybe more importantly EV certificates can become a part of base to actually make a difference and then I have a follow-up.

It is Mark. On the AUR side, as far as the price declines, I think we are going to continue to see these price declines for the foreseeable future. For a number of reasons, like I said. The first one is we do see this, they lower the brands growing at a higher rate. There is a unit mix going on there and I think that is a primary driver. We are seeing negative impacts of the economy as well and I don't see any reason that those two things are going to change anytime soon. I can't call a bottom on that. I wouldn't want to call a bottom on it right now. But we are not seeing really really steep declines around the AU R.

On the EV side we are happy every quarter we have doubled every quarter on the EV side. It is still a smaller base than anybody would have liked or we would have liked at this point so we have a very robust marketing campaign for people to go from SGC up to ED. We see good adoption on that, but I think it is going to be some time before that becomes a majority of the base of our certificate.

Just a follow-up which is a bigger picture question. The serious lawsuit the bigger issues for investors it raises sensitivity around the dot com renewal. Do you have any ability or would you consider bringing that forward, get the overhang gone and past you? Or are you just waiting until 2012 and let the contract renew as it is currently set?

Yes the renewal is in 2012, Sarah. We really can't comment beyond that.

Echo Katherine's thoughts. Congratulations to both and you Brian as well.

Thank you.

(Operator instructions) Next question Kerry Rice with Wedbush Morgan.

Thank you. A couple questions on the SSL business. Can you talk a little bit about seasonality there, is Q3 also the seasonally weakest quarter there? I guess if the economy stabilizes and improves, would you expect to see a pickup in SSL surge? And the second question is can you talk a little bit about the I Defense and what the revenue was there and what trend you see going on there?

Yes sure so on the SSI side, Kerry, we do see the similar kind of seasonality we see in the DNS business on the SSL side of the business. And I would definitely expect the SSL business to pickup if the economy picked up. As I have mentioned before, the economy is tied to a number of things, obviously, that are much better correlated to our business like e-commerce and internet advertising. I think as those things pickup with a better economy we would see that business do better than it is right now from a sales standpoint. And on the I Defense question, we said that the I Defense delivered around $10 million for the year in revenue and that is the case, we are on track to do that.

Thank you.

Next question from Walter Pritchard with Cowen & Company.

One question on the certificate side one question on both. I guess Mark, if we were able to see AUR by segment not overall by VeriSign brand, Thawte brand, GeoTrust brand, is the AUR stable within any segment or are you seeing stable with an independent mix?

There is a, on the mix side from the brand standpoint on the back to the units the lower units grow faster than the higher end units, you'll see from an AUR standpoint less impact there and more impact to the higher brand. But as a general matter, Walter the total AUR is fairly similar across the brand as far as the increases and decreases. Not one thing is moving the number, if that is your question.

So it is not necessarily just mix that's pressuring the AUR, it's also pressure in each individual segment?

Yes there is pressure in the segments, but there's definitely a market impact and mix impact.

Second question on both businesses. Are you seeing any significant difference in term elect versus a year ago? People buying more one year certificates or buying shorter names?

We are not seeing on that average term life we are not seeing any significant business on the domain name side of the business and SSL side of the business we see a little bit of a decline around that. We see pressure by people buying less more frequently than they were before, but nothing really noticeable on the ATLs.

Brian on the operating expense lines, it looks like there might have been a little bit of reclassification going on between things like sales and marketing, cost of revenue and G&A? Are we correct there and if so, what's going on?

This quarter we did move international facilities cost to where the people were by cost type. Most of the change, there was actually a larger decrease in G&A representative to the spend initial savings we have the savings programs. And in sales and marketing this quarter, we actually did a lot of planned lead gen, loyalty product, sort of product and branding. You'll see sales and marketing get back down next quarter.

Great. Thanks a lot. Both of you congratulations as well on the appointments.

Thanks very much.

We'll take our next question from Craig Nankervis with First Analysis.

Yes, thanks very much. On the registry side, can you talk about overseas strength? Are you seeing anything sustainable like you saw in Q1? I think China did particularly well. Maybe start there.

Yes sure hey Craig, it's Mark we have mentioned prior the base of names on the international side. Depending on how you cut it from where registrar versus the registrant is, anywhere from 35 to 40% of the base. So it's a smaller portion of the base than the domestic but we do see that grow at a faster rate than the domestic and that continues to be the case and that growth continues to come from the BRIC countries, as well as increases we are seeing in Calla, too.

How about on the SSL side? Incremental color on the buying environment, I know in Q1 you talked about a tough environment and it sounded like you were saying some things here. Was there any incremental change from your perspective in how it looks in the end market?

No. No. We are seeing the same macroeconomic impacts from the flow down to the market. But nothing different quarter over quarter.

Lastly, Brian, are you willing to approximate the revenue break out from a different line item this time around? Or not.

There is roughly about 60% naming and 40% in authentication.

Thanks very much.

We'll take a follow-up question from Sterling Auty with JPMorgan.

I don't know if you touched on it if you did I miss it had and I apologize. Deferred revenue I think was up 1% sequentially. Can you just go into what might be impacting that either positively or negatively and could part of it be the SSL term length?

Good question. This is Brian. We had a number of factors impacting deferred revenue this quarter. On the positive side increase due to the 1.1 million net adds increase. Within authentication our user authentication, we recognized revenue, based on a cash basis and we received a large sum up due to collection efforts from the affiliate. And also the renewal contract that we are signing are 12 months in length opposed to 18 months in length, both of those attributed to about $3 million decrease. And as got prior call the SSL purchase power changes from annually to quarterly and the overall impact on the macroeconomy there is a decline quarter over quarter and the SSI of about $2 million. So you had the increase related to the naming and a slight decrease in SSI on purchase pattern, buying as well as some of the seasonality from first quarter or second quarter.

Great. Thanks guys.

There are no further questions, I would like to turn the call back over to Ms. Fazioli.

Thank you, operator. We announce that our third quarter, 2009 results will be held on Thursday, November 5, at 2:00 p.m. pacific time. We'd like to remind that in light of regulation FD VeriSign plans to retain its longstanding policy to not comment on financial guidance during the quarter unless it is done through a public disclosure. Please call the investor relation department to any follow-up questions in this call.

This concludes our call. Thank you and good evening.