威瑞信 (VRSN) 2010 Q2 法說會逐字稿

Welcome to the VeriSign second quarter 2010 earnings call. This call is being recorded. Now at this time, I would like to turn the conference over to Nancy Fazioli, Director of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon everyone, and thank you for joining us for VeriSign's second quarter 2010 earnings conference call. I'm Nancy Fazioli, Director of Investor Relations, and I am here today with Mark McLaughlin, President and CEO, and Brian Robins, Executive Vice President and CFO. Please note that this call and accompanying slide presentation are being webcast from our investor relations website located at investor.verisign.com. Please refer to our website for important information including the Q2 2010 earnings press release. 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 that we discussed in detail in our documents filed with the SEC, specifically the most recent quarter report on Form 10-K and 10-Q and in the applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. I would like to remind you that in light of regulation FD, VeriSign retains its long standing policy to not comment on financial performance or guidance during the quarter unless it is done through a public disclosure.

The financial results in today's press release and the matters we will be discussing today include non-GAAP measures used by VeriSign. GAAP to non-GAAP reconciliation information is appended to our press release and slide presentation, both of which can be found on our investor relations website. In a moment, Mark and Brian will provide some prepared remarks and afterwards we will open up the call for your questions. Unauthorized recording of this conference call is not permitted. With that I would like to turn the call over to Mark. Mark?

Thanks, Nancy. Good afternoon everyone. Q2 was a good quarter for us. Both our Naming Services and Authentication businesses performed well as we continued to see favorable economic and Internet trends. But before I discuss our quarterly results, I want to touch on some other highlights from the quarter. First, as you know, on May 19 we announced a definitive agreement to sell the Authentication Services business to Symantec with an expected close for the transaction within 90 days of that date. We are on track to close within this time frame.

Second, we have an update on the status of the case followed against VeriSign by the Coalition for IT and Transparency, of CFIT. As we reported in an 8-K that we filed on July 9, US Court of Appeals for the ninth circuit denied VeriSign's motion for rehearing, which means that CFIT's complaint against VeriSign can proceed. The denial is based on the application of the law and not the merits of the case. In our view, the amended opinion changes in two respects the court's earlier decision. First, the Court of Appeals changed its opinion by explaining that for purposes of reviewing the sufficiency of the complaint, it was not considering the role of the US government in the 2006 agreement. And second, the amended opinion clarifies the earlier decision by explaining that competitive bidding is not required as a predicate complying with the anti-trust laws. Procedurally, we have two options at this point and 90 days to make a decision at which to pursue. We can either request further appellate review or have the case remanded to the District Court for proceedings. We remain confident about our position in the case and will vigorously defend this position.

Now, moving on to financial highlights. Authentication Services was placed into discontinued operations in the second quarter. I'm going to give highlights of continuing operations. Revenue in the second quarter for Naming Services was $168 million, representing a 9% year-over-year increase. Naming Services is comprised of registry services and network intelligence and availability. Network intelligence availability is our iDefense and DDoS mitigation businesses. Non-GAAP earnings per share was $0.24, compared to $0.16 in Q2 2009. Non-GAAP operating margin was 40.5%, compared to 33.9% in Q2 2009.

On the cash side, we generated cash from operations of $149 million, and in the quarter we repurchased 8.1 million shares for $227 million under our repurchase program. Following our share repurchases in the quarter, we had approximately $420 million authorized for share repurchases under our existing repurchasing authority. Last week the Board of Directors increased the repurchase authorization by approximately $1.1 billion to bring our currently authorized repurchase plan to $1.5 billion. We periodically consider repurchases in the form of open market purchases, lock purchases, ASRs, and other strategies.

Now, moving to the business unit results for the quarter. The base of registered names in dot com and dot net this quarter totaled 101.5 million names at the end of June, a 9% increase year-over-year. 2.2 million net names were added to the domain name base this quarter, in line with our guidance on last quarter's call of 2 million to 2.3 million names. During the second quarter we processed 7.9 million new registrations, which is a 13% increase year-over-year. The 2010 Q1 renewal rate was 72.1%, up from 71.2% in Q4 2009. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for Q2 2010 will be approximately 72.5% to 73%. For net domain name additions, we expect that Q3 net names added to the base to be between 1.9 million to 2.2 million names, considering that July and August have historically been seasonally slower months. On July 1, the price for dot dom and dot net new and renewing names increased from $6.86 to $7.34 and from $4.23 to $4.65, respectively.

I'm also excited to announce a recent milestone for VeriSign in the naming business that we are proud of. DNSSEC, which stands for Domain Name System Security Extensions, was implemented in the root zone in July. DNSSEC is a marriage of cryptography and authentication technologies that validate DNS data, which strengthens the Internet's defenses against cash-poisoning and man-in-the-middle attacks. The technology will help give Internet users more confidence in their online experience. DNSSEC is the most significant change to DNS since its creation and VeriSign technologists were among an elite industry group that made it happen. The signing of the root was the culmination of months of preparation, testing and deployment in coordination with the US Department of Commerce, ICANN and the root server operators, and remarks made at the White House cyber security policy review meeting in early July, US Secretary of Commerce, Gary Locke, recognized VeriSign's forged role in this groundbreaking accomplishment and praised the effort as an example of successful public/private partnerships. I want to acknowledge and thank the DNSSEC group deployment team for their efforts in getting the group DNSSEC enabled.

And now, moving to Authentication Services for the second quarter. In Business Authentication, we saw the installed base of SSL certificates increase to 1.27 million certificates in the second quarter, compared to 1.25 million in the first quarter. From a bookings perspective, Business Authentication had another healthy bookings quarter where bookings again exceeded our plan and exceeded revenue. The annualized average unit revenue, or AUR, for the installed base of VeriSign, GeoTrust and thought-branded certificates for the second quarter was $222, which is flat from Q1. While product mix shift has been a consistent trend, we are pleased to see stabilization in AUR this quarter with the strong bookings that we have seen over the past couple quarters starting to flow through revenue.

The feedback on the new trust seal product launch in late February continues to be strong. There were two key developments since our last earnings call, including the launch to the partner channel in May and the rollout to casting SSL customers in mid-July. And with the impending close of the sale of Authentication, I want to take this opportunity to recognize and thank all the employees in Authentication Services for their hard work and contribution to VeriSign over the years and wish them the best of success as part of Symantec. This is an exceptionally talented team and they will be missed.

As we look forward post the sale of Authentication, we think we are well-positioned in the market for a number of reasons. First is world class technology. We have strong technical expertise, as demonstrated by our success in running a scalable network infrastructure with 100% availability for more than a decade. Second, we're the market leader and in a competitively defensible position. We've enjoyed strong unit growth and have a healthy renewal rate and a business that should benefit from continued Internet adoption globally. Third, we have a solid financial position including strong cash flow and an enviable balance sheet to support the existing business and to pursue evolutionary growth opportunities. And finally, we have a team that is seasoned and possesses unique insight into our industry position and core strengths. We think these will prove to be a potent combination as we move the Company forward. And now I'll turn the call over to Brian for additional discussion of our results. Brian?

Thanks, Mark, and thanks to everyone for joining us this afternoon. As Mark highlighted and as we discussed on the May call, Authentication Services is classified as discontinued operations for the second quarter. The balance sheet for the second quarter is based on the consolidated operations with Authentication Services placed in held for sale. We're pleased with our performance this quarter. I would like to highlight a few key financial metrics we reviewed at Analyst Day that we're focused on for the year -- revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS growth, and free cash flow.

Revenue for Naming Services was $168 million, up 4% from the prior quarter and up 9% year-over-year. As indicated in our filings, revenue from Registry Services for the operation of dot com and dot net is in US dollars, so we have minimal FX exposure on the top line. Deferred revenue growth for Naming Services was strong in Q2. We ended the quarter at $641 million, up $24 million or 4% in Q1, and up 11% from the same period in 2009. Non-GAAP operating expense were approximately $100 million, up 2% quarter-over-quarter and down approximately 2% year-over-year. Non-GAAP operating margin was 40.5% in the second quarter, compared to 39.4% in Q1. The Q2 operating margin includes certain overhead costs associated with Authentication Services that will decrease over time with the transition of the business. I'll discuss that in more detail in a minute, following the close of the deal.

We will continue to focus on cost optimization and efficiency. Non-GAAP net income for the second quarter was $43 million, resulting in non-GAAP earnings per share of $0.24, compared to $0.22 in Q1 and $0.16 in the same period in 2009, a 50% increase year-over-year. Contributing to strong sequential growth was revenue growth in share repurchases during the quarter of 8.1 million shares resulting in a diluted share count of 183 million shares. We initiated the repurchase of approximately 900,000 additional shares in the second quarter that did not settle until July and thus will be reflected in the third quarter share count. Operating cash flow on a consolidated basis was approximately $149 million in Q2. Free cash flow was $131 million in Q2, given $4 million excess tax benefits, and $23 million capital expenditures in the quarter. In the quarter the deal closes, we anticipate an impact to free cash flow as a result of moving Authentication Services working capital to proceeds from sale.

Our balance sheet is strong with ending cash, cash equivalent, marketable securities and restricted cash of approximately $1.34 billion, a decrease of $213 million after share repurchases of $227 million. Following the close of the transaction, we anticipate that approximately 35% of our cash balance will be held internationally. We may at some point consider repatriating a portion of the cash, but recognize it would likely result in significant income taxes. As Mark mentioned, we now have $1.5 billion authorized for share repurchases.

With regard to current expectations around the transition of Authentication Services business with Symantec, as we indicated at the time of the announcement, we expect that the bulk of the transition services agreements, or TSAs, will be completed within a year of the close of the transition, taking us through the first half of 2011. While we exited the quarter with 2,225 employees, 1,100 of those employees were part of continuing operations. We expect headcount to be reduced to fewer than 1,000 employees at some point in late 2011 after the fulfillment of the transition services agreement is completed. Following the close, our focus will again be on seeking opportunities to achieve cost optimization as we transition Authentication Services business. VeriSign has taken a disciplined approach to the restructuring of the Company over the past three years and we will continue to focus on that trajectory with the transition of the Authentication business as well as implementation of our growth initiatives.

Moving on to guidance. At this point we believe we are making good progress to achieve and/or exceed the targets we provided on the May call. Naming Services revenue growth for 2010 in the range offer 8% to 11%, which is on track based on our performance in the first half of the year, resulting in full year 2010 revenue between $665 million and $685 million. Non-GAAP gross margin in the 77% to 78% range, non-GAAP operating margin in the 40% to 41% range for the remainder of the year. Anticipating close in the transaction on schedule, we expect second quarter 2011 exit operating margin to be in the range of 45%. Non-GAAP other loss net is expected to be $20 million for 2010. Our guidance is based on continued growth and increased operating efficiencies in our business.

As covered, our performance this quarter and last with key metrics for the business, accomplishments and top and bottom line execution and an overview of our goal for cost optimization going forward. As Mark highlighted, VeriSign is entering a new phase and we believe we are well-positioned in the market to move the business forward. We are fortunate to have a nimble culture that adapts well to change and I'm confident about our ability to execute effectively. I'd like to thank all of our employees for their hard work and focus. Our continued execution is and has been a testament to their capabilities, dedication, and professionalism. Thank you for your time this afternoon.

Before I turn the call over to the Operator to take your questions, I'd like to remind you that Mark will be presenting at the Pacific Crest Technology Leadership Forum on Tuesday, August 10. The webcast registration details are available in the investor relations website. Operator? We're ready for the first question.

Thank you. (Operator Instructions) Our first question will come from Walter Pritchard with Citi.

Hi, just had two questions. One, Brian, if you could clarify on the margin the 45% exit, that's exiting which period?

Q2 2011.

Q2 2011. Okay, great. And then, as it relates to the buyback, you guys bought back more stock than we expected, about 230 million in the quarter, and it sounded like you had settling at the end of the quarter. Were you at all restricted in buying back stock in the quarter or did you have some program in place to be able to go throughout the quarter and buy back stock, or if you could just clarify how the buyback proceeded through the quarter. And that would be helpful to us understanding it.

So, we bought about 8.1 million shares in the quarter. That's reflected in our weighted average share count, and there was 900,000 shares that settled after the quarter ended. As folks are aware, we had a material transaction that we disclosed during the quarter, and such transaction would present certain blackout periods.

Okay. And then, just lastly on the renewal rate. I guess I asked you this last quarter it seems like the renewal rate continued to creep up here, or your estimated renewal rate in Q2. Mark, could you talk about -- are you seeing different renewal rates on subsequent renewals versus first time and is that continuing to drag up the renewal rate, or what was the driver of renewal rate continuing to creep up there?

A couple things, Walter. We continue to see previously renewed names, renewing at a higher rate than first time renewed names, and then the base is trending more towards previously renewed names. So, you get an uptake on that. And then the second is, last year, as I mentioned, the registrars ran a number of motions around the renewals, just given the way the economy was, trying to keep customers as opposed to spending a lot of money on new customers. And we're seeing benefit of that come through the renewal rates now.

Did the pricing increase at all impact from the renewal rates? Because we did hear from some registrars that may have pulled forward some renewal activity into June.

It's possible, but if it is, based on our looks into this I think it would be immaterial.

Great. Thanks a lot.

Thank you.

Our next question comes from Dan Cummings with ThinkEquity.

Thank you. Regarding the employees involved in transition services, do these tend to be discrete job descriptions or could it be people who are involved in recurring activities as well? I'm just asking about how orderly this is going to go. I think you said you're going forward headcount is around 1,100 and that will trend down over the next couple quarters.

Hello, Dan. This is Brian. The TSAs are not employee-specific. Some of them are employee-specific but they are more task-specific, and so the TSAs range from one month to 24 months, with most of them ending in about 9 to 12 months. And so, you will see a gradual roll-off of the employees over that time period. And they're designed really to create a smooth transition for the customers, and so it's in both of our objectives to get them done sooner than later and we are working, the transition team is working hand-in-hand with Symantec on the agreements and on transitioning the certain capabilities over to Symantec.

Does it involve contractor people as well or are these tend to be full-time employees?

Most of them are full-time employees.

All right, thank you.

Thank you.

Our next question will come from Ed Maguire with CLSA.

Good afternoon. Could you talk about the geographic characteristics of the common net growth, what the contribution was for US versus international registrations?

Hello, Ed, it's Mark. Yes. We're fairly consistent in a couple things. One is the zone today, or our zone at [com net] is about approaching 40% on an international basis, so it tends to grow nicely and faster than the domestic base. So, we haven't seen any changes in that trend over the last six to eight quarters and it's a positive trend.

Thanks. Also, on the new global TLDs, any updates on initiatives that you may be working on there?

All I'll say is in order to do that we have to have that all approved from an iCAM perspective as far as them releasing the new GTLDs which, a portion of that is the non-English versions of existing TLDs. And that all still appears to be on track for negotiations applications in 2011, with a launch of those things either late 2011 or early 2012.

Great, and just finally, any updates on progress on the Internet Defense Network and the traction you're seeing there?

Yes. It's good. That's a nascent business, as you know, so just getting that off the ground. Ben Petro joined us recently to take that over and is doing a good job with the business. We've got a nice pipeline there. One of the things we have to do given the sale of the Authentication business to Symantec is, most of our sales resources are going to Symantec. We have been sharing that to get it this business off the ground so we have a little building effort there, but Ben is doing a good job. And it's a little early to talk about specifics just because it's not material enough yet, but we like what we see there.

Thank you.

Thanks, Ed.

Thanks, Ed.

Our next question is from Sterling Auty with JP Morgan.

Yes, thanks. Hello, guys. Just in preparation for the close, the TSA agreements that you have, will that flow through other income or will that show up in revenue?

Other income.

Okay, and then --

The expense will be above the line and the revenue will be down in other income.

Okay, and then that, I was going to bring up. So, exiting Q2 of 2011, the 45% operating margin, what are some of the examples of things that might be left to phase out of that will drive up margins once you're through those TSAs?

There is a number of things. One is on the infrastructure side, prior to the divestitures we looked at -- we were building a Company, we're $1.5 billion revenue, 5,500 employees, and so the corporate infrastructure in the system side is currently slated for a lot more capacity. If you look at the international facilities and facilities around the world where, obviously, we need to slim down our facilities, the maintenance cost on those systems and then, just the optimization across the entire Company on a number of other areas.

All right, great. Last question would be Mark, on the 7.9 million new names that came in during the quarter. You mentioned international, but are there any other kind of trends or sources to those new name additions that you see?

No, Sterling. We're fairly consistent quarter-over-quarter here as far as the sources of the names, so PPC is a dead thing and it's hard to tell anymore what's in there at all. So, it's really what we used to call traditional and then broken out between domestic and international it continues to trend as we've seen for the last six or eight quarters.

Great. Thank you.

Thanks, Sterling.

Our next question is from Phil Winslow with Credit Suisse.

Hello, guys. Just a question back on the TSA agreements. Wondering if you could quantify that for us in dollar terms what you're expecting for the second half and then also, when you do look at the exit rate at Q2 fiscal 2011, you mentioned getting down below 1,000 heads. Is that exit rate of 45% including getting below 1,000 heads, or is that still for the second half? Thanks.

So, I'll take the headcount first and I'll talk about the TSAs. On the headcount side, that would be down under 1,000 heads and then we will gradually add back heads as we look at some new investment areas, which will be small and incremental in nature. So, you'll see some come out and some net additions, both will be under 1,000 heads. And then on the TSA side, these are structured, in a way, to the extent that they are, if they're able to transition them over to Symantec that the TSAs can be cancelled. And so, I don't want to give out a number per se and say, here is a number that you can build in your model.

It may be longer, it may be shorter, and we want to make sure that the customers have a very smooth transition from VeriSign over to Symantec. You can think about, on an annual basis, it's approximately in the $5 million range but there may be puts and takes out on timing.

Phil, this is Mark. One clarification to what Brian said earlier was, the 45% range was the exit rate coming out of Q2 2011, not the full year. And we're reticent to try to call a full year yet without having developed quite an operating plan yet, which is too early to do that.

And the 45% includes an assumption you'll be below 1,000 exiting Q2, correct?

Yes.

Yes.

Okay, perfect. Thank you.

Our next question will come from Steve Ashley, Robert W. Baird.

Wonder if maybe you could -- qualitatively, if you could discuss how aggressively you might be buying back your stock once you receive the $1.3 billion in proceeds from the divestiture?

Hello, Steve, it's Mark. We really can't talk about that, but there's a couple things to highlight here; increase of the repurchase authorization up to a total of $1.5 billion now, and the fact that we bought about close to $230 million in the last quarter. So, I think it's safe to say, as we have in previous calls, that we believe we have more than enough cash to run the business and we would be looking for ways to return some value to shareholders in that.

And Brian, is there any comment you could make around what cash flow from operations might have looked like just in the Naming business?

So, we didn't give out any specific on the last call, any specific data around that. Part and parcel because the cash flow is highly dependent on margin and future price increases, and so we haven't given out specific guidance on what cash flow will be for the Naming.

And is there any rule of thumb on the CapEx side, of what we can think about for CapEx needs on the Naming side?

Yes, so when we had our last call, we said 8% to 10% of revenue.

Yes.

And so, you can expect the CapEx, and there may be some confusion around the CapEx that we reported this quarter, the balance sheet is still consolidated and the P&L is recorded into discontinued operations and continuing operations. The CapEx reported this quarter was about 60% Naming and about 40% Authentication.

Great. Thank you.

Our next question comes from Rob Owens of Pacific Crest.

Great. Thank you very much. Given you've had three consecutive quarters of strong double digit new name growth and you have an improving renewal rate here, how should we think about net new names going forward? Could we see them transition up to a new level for 2011?

It's possible, Rob. We're looking at, on the new names coming into the system about a 13% increase in the quarter-over-quarter basis, which is up nicely. So, if we go back historically, that's a number that is a high number over the last eight, going on nine quarters, so we've got a nice combination going here. That's more than double digit growth on new names coming in and renewal rates trending up nicely as well, so I think we could see nine plus percent unit growth for a while.

Thank you.

Our next question is from Sarah Friar with Goldman Sachs.

Terrific. Mark, maybe just a follow-up to that question on the Naming growth. As the new TLDs come next year, what is the change it could make to the growth in common net, if any?

Hello, Sarah. I think it's positive, so a couple things. One is, just related to common net, with the introduction of new TLDs, the expectation that just brings more people to the market and we generally do better when more people show up to the market. And then the second thing, we intend to participate in some of those, we see it as growth opportunities for us.

Got it. And then, on a follow-up on the lawsuit, is there anything you can do other than going back to court or taking it to Supreme Court or whatever to more settle and put it behind you, or is that just not even an option that can be pursued?

It is an option that could be pursued, but it's not one of the things I'd mentioned -- of the two choices we have procedurally on the case today.

Sure, okay. I'm sure you can't comment more than that. That's great. Thank you.

Okay thanks.

Our next question will come from Todd Raker with Deutsche Bank.

Hello, guys. I was wondering if you could talk about the contract duration around the Naming business and talk about how we should expect the most recent price increase to flow into the base.

Yes, sure Todd. By contract duration, do you mean the average term life of the name?

Yes.

Okay, it's holding steady about 1.17 for name, so it's been the case for a while now, so no expectation that would change up or down dramatically for the time being. And then, as far the flow through of the price increase, we had said that would be immaterial for this year and then the deferred impact next year.

Okay, and if we look at the 1.17, is it fair to think that a majority of names are one year and then there's some type of barbell where you have a bunch of names are multi-year?

It's possible. One of the things we don't get to see, Todd, is that registrars will sometimes sell a name for more than one year to a registrant, so they collect the money from the registrant for more than one year. But for cash management purposes, they will turnaround to us and register for a year at a time, so we may only be seeing a year of a name when somebody registers for three years. We'll get all three, but as far as day one, it looks like one year to us.

Okay, and can you talk about, under the existing dot net and dot com agreement, future price increases and what the timing around announcements would be contractually?

Yes, so in both com and net we have the ability to take one remaining price increase under the current terms of the contract. We chose to do so and if we did that, we would have to give six months advance notice and it would impact next year, meaning 2011. That's the earliest we could do it, since we've taken one and it took effect in 2010. If we were to do another one the earliest that would take effect would be 2011.

Okay, and then, last question. Given the commentary around the renewal rate ticking up here, is it fair to read into that that you guys are not seeing kind of price sensitivity from the price increases?

I think that would be, I wouldn't be prepared to make that statement, Todd. I think that there's a number of things could be at play here which is, like I said, more names in the base that had previously been renewed, renewing at a higher rate. And then also, some of the renewal programs that have been run by the community, I think are primarily what's going on here.

All right, well let's dive into that. If you think pay-per-click has really gone away, do you think the traditional base is price-sensitive at current levels?

Do I think the traditional base is price-sensitive to current levels? I think that what the traditional base finds is, they get a lot of value for the name for whatever purposes they are using it for; they like to keep them so they are buying them and they renew them.

Okay, thanks guys.

Thanks, Todd.

(Operator Instructions) We'll next go to Craig Nankervis with First Analysis.

Thanks very much. Most of my questions have been asked. Just to be sure I understand, given the renewal programs that you were referring to, is that a one-time thing or is that ongoing? In other words, in Q3 would there be reasonable likelihood that the renewal rate might go down from Q2?

Well, I'll take that in two parts, Craig. So, one is programs are generally run all the time. They tend to be in one or two categories. They're either run for new names being sold or renewals, and we've seen the registrar community focus on those more heavily at different times, for various reasons. So, as far as how they're spending your money, it would generally go in those two categories.

So, could the renewal rate go down from this quarter? Yes, it's possible, and if it were the case, then one of the things could be if you had more first-time names up for renewal in a specific quarter than another quarter, you might see it decrease because of that. But as a general matter we had said that healthy, historical renewal rate trending in the business looked to be in the 70 % to low 70%. We said that last year and we think we're seeing that here.

Okay, good enough. Thank you.

Yes.

Our next question will come from Scott Kessler, Standard & Poor's.

Thanks a lot. So, I got on the call a little late, so I apologize if this question or the gist of it was already asked. But basically what I'm looking for is some detail around, going forward, what the growth strategy is given that you're now essentially going to be leaner and meaner, if you will. And in addition to the notion of international growth, which is something that I think a lot of people see in front of you guys, can you give us a sense of where you see the growth coming from, and if potentially, acquisitions might play a part in that? I know it's ironic to some extent you're completing this divestiture and I'm asking about acquisitions, especially given that, obviously, you guys have talked about looking at some things but not really necessarily having been able to move forward on them for whatever reason. But I'm wondering if you could provide some comments. Thanks.

Yes, Scott. Happy to do that. So, I think of things in three categories. The first is, just in our core business around dot com and dot net, we tend to benefit from growing use of the Internet on a global basis. So, if you look at the trends of folks coming online, broadband penetration, eCommerce sales, advertising sales, all of those things tend to benefit us if they're growing. And all of the indications are they will continue to grow for quite some time, despite the recessionary (inaudible) and things seem to be back on the uptick there. So, first and foremost, we believe we'll have continued growth just from benefiting of having a central location, if you will, on the fast growing Internet infrastructure on a global basis.

The second thing is, we have growth opportunities right around that infrastructure related to the new GTLDs just discussed, so the new GTLDs themselves plus the international version of the TLDs we run today. If you take into account everything I've been saying about international growing very nicely, we think that there's some growth opportunities around the non-English versions of the TLDs we run, so that's the second category.

And then the third category is in the infrastructure itself. So, we spent, and continue to spend, a lot of time and money on the infrastructure-run dot com and dot net. And in doing that we know that we have had to do things for a number of years for ourselves to make that infrastructure robust and secure and scalable, and we've turned our attention recently to providing services around that for other folks. So, we're utilizing some of our learnings from the network and some of the things in this network intelligence and availability we discussed. We currently have the DDoS mitigation service, we have the network (inaudible) intelligence, we recently launched the managed DNS service, and you'll see us do more services that are very close in around the infrastructure itself where we can utilize all of the work and experience we have there.

And then to the last part of your question, from an acquisition standpoint, I said earlier that you should not expect us to often do a big acquisition or try to leverage our way into a different industry. I don't see that in our future. If we had the opportunity in any of the areas I just went through to do bolt-on acquisitions that would give us higher growth rates than we're seeing today on things we understand very, very well, and if we could get for an attractive price, we would be open to look at that. But we're being very careful and disciplined in doing that.

Thanks, Mark. If I could also follow up on a prior question. It seems to me to some extent you commented on the Ninth Circuit Court of Appeals denying your request for dismissal. I'm wondering if you could give us a sense of what the next steps are going to be in the related timetable there?

Yes. Thanks actually for asking that question, Scott because I wanted to clarify in my prepared comments -- well let me answer your question and then I'll clarify. Procedurally, one of two things can happen with the case right now. We could request further appellate review, which means we could request to review at the Supreme Court level. Or if we don't do that and choose not to do that then the case would be what's called remanded back to the District Court, where a trial would start. We have 90 days from the date of the Ninth Circuit decision, which was on July 9, to make the decision as to which of those two avenues we would go. Does that make sense?

All right.

Okay.

And a follow-up Mr. Kessler?

No, I think that's fine, thank you.

Our next question is from Kerry Rice with Wedbush.

Thank you. Just maybe a quick clarification. Now, you guys in the latest 8-K indicated that you are moving the facilities or headquarters, everything to Dulles, and then you list out the total incurred costs of being about $35 million to $38 million. Is that related? Is that all related to the move or is that just -- the costs associated with the move are included in that, in the $35 million to $38 million is just all in now what we expect related to the cost of the Authentication business sale?

Hello Kerry, this is Brian. There's a couple -- there was a restructuring related to the Authentication sale and then there's a restructuring related to moving corporate services from California to the Dulles area, and it's outplacement, severance, retention, a lot of exit costs and so forth. And so -- if you have a lease here and you break the lease there's certain exit costs associated with that, and so that's in there.

Is there a way to break out those two from the $35 million? You've got the $21 million related to the severance costs and the $14 million to $17 million related to the excess facilities. Is that the way to think about the break out of those two, or they are mixed in there so it's not that easy to break them?

That's the way to think about it.

Okay, and moving to the Dulles area is going to occur about the same time that the Authentication Services business sale is closed, is that correct?

It will be over in the next six to 12 months, there will be a transition related to that.

And I know that you've got some verbiage in here talking about estimates, but can you talk at all about potential cost savings or additional costs, besides these separation costs that are related to the move? Is it a move that helps you save costs, and if you can, can you quantify them or is the rent higher, how should we think about the impact?

You know, there will be a little increase immediately because you'll have duplication of staff on both coasts, and then once you have a transition completely done you'll see lowering costs since we have a smaller, more simple business, you'll see less back office staff supporting the front office, if you will. So, you'll see a reduction over time, and part of what really drove the decision to move from California to Dulles was the fact that 95% of our business is based on the East Coast. And so, the people in the back office supporting the business, it's just better efficiencies if they are located closer, same time zone.

And then one final question. Is this all inclusive of the below-1,000 headcount, or it will be the addition to that due to this move?

No, that's built into the below-1,000 headcount.

Okay, thank you very much.

Yes.

We'll next go to Shaul Eyal with Oppenheimer & Company.

Thank you, hello. Good afternoon, guys. One quick question from my end. You mentioned the DNS. Is that a homegrown technology or are you usually working with some other security vendors?

Hello Shaul, it's Mark. We're working with a number of vendors, so DNS, the best way to think about it is a standard that has been developed over the past 10 years by a lot of groups involved with this. And then based on that standard, it's now being rolled out across the entire domain name system, which will affect the Internet.

The very first step in that is to apply it at the root level, and since VeriSign runs two root servers, the A and the J, we were involved for the last 10 years in working on this with a whole host of folks in standards bodies, industry, IT, and commerce department, international governance, so a lot of players. What you'll see now is the DNS technology rolled out across the entire domain name system -- com, net, other TLDs, et cetera. ISPs will do some upgrades, so this is just the beginning of a large-scale rollout, but it's taking quite some time to get everything scaled.

Got it. All right, thank you very much for that.

Okay.

With that this does conclude today's Q&A session. I'd like to turn the call over Nancy Fazioli for closing.

Thank you, Operator. 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.

Again this does conclude today's conference call. Thank you for participating.