威瑞信 (VRSN) 2010 Q4 法說會逐字稿

Good afternoon everyone and welcome to the VeriSign fourth quarter and full year 2010 earnings call. Today's conference is being recorded. At this time, I would like to turn this conference over to Miss Nancy Fazioli. Please go ahead.

Thank you operator.

Good afternoon everyone, and thank you for joining us for VeriSign's fourth quarter and full year 2010 earnings conference call. I'm Nancy Fazioli, Director of Investor Relations, and I'm 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 the Investor Relations section of our new corporate website, www.verisigninc.com. Please refer to that website for important information including the Q4 and full year 2010 earnings press release. A replay of this call will be available on the website within a few hours.

Today's slide presentation will also be available for download after the call. Natural results from today's press release are un-audited 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 document filed with the SEC, specifically the most recent reports 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.

Please note that we have not fully completed the tax provision calculation process, and therefore the tax provisions for both the fourth quarter and the full year 2010 are still preliminary and the tax provision GAAP net income loss and GAAP earning loss per share for those periods reported in our Form 10-K may differ materially from what we discussed today. 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. Substantial results from today's press release in 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, as applicable, each of which can be found on the Investor Relations section of our 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. The fourth quarter capped a solid year of execution and growth for VeriSign. We're proud of the progress that we made in the quarter, and in 2010. During the past year, we re-focused our business, improved operating efficiency, and continued to scale and enhance our world-class infrastructure, all while maintaining a healthy balance sheet, and returning approximately $1 billion to our investors. We enter 2011 as the leading provider of Internet infrastructure services, and believe we are well positioned to help our customers benefit from the continued growth of the Internet, in cloud computing.

I'll comment now on fourth quarter results. In registry services, the base of registered names in dot-com and dot-net held over 105.2 million names at the end of December. This represents the 9% increase year-over-year in the base. In the fourth quarter, we processed 7.6 million new registrations, which is a 4% increase year-over-year. We added 1.75 million net names to the name base in the quarter. On the renewal rate side, the Q3 2010 renewal rate was 72.8%. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rates for the fourth quarter 2010 will be between 72.5% and 73%.

As we look forward to the first quarter, we expect the Q1 net names added to the base to be between 2.3 million and 2.6 million names, which reflect the continued growth in Internet usage, online advertising, and e-commerce. In addition to the business metrics for registry services for the quarter, I also wanted to highlight a couple developments during the quarter related to our continued technology and thought leadership around Internet infrastructure.

First, we successfully implemented DNSSEC in the dot-net zone in December, and we are on track to DNSSEC enable the dot-com zone in the first quarter. In addition, during the fourth quarter, we made a DNSSEC signing service available to the registrars to assist in DNSSEC implementation for their customers. The continued reliability and availability of our network is constant strategic priority, and we are proud of our performance record in 2010.

Last year, we processed over 22 trillion DNS queries, all without any unplanned downtime, and in the face of well publicized cyber attacks. We continue to be vigilant in anticipation of the growth of Internet usage, and of the accompanying scale of attacks. With regard to the case filed by the Coalition For ICANN Transparency, or CFIT, against VeriSign, there are no updates. As reported on the Q3 earnings call, the court established a timeline in October for the litigation.

In accordance with this timeline, there is a hearing scheduled in early February, on VeriSign's motion to dismiss the third amended complaint filed by CFIT, in November 2010. In March, there is a summary judgment hearing, scheduled on certain threshold issues, with a final summary judgment hearing scheduled for October, 2011. The trial date is set for December 5, 2011. Beyond the upcoming dates just mentioned, given that this is ongoing litigation, we will not be commenting further, other than to reiterate that we continue to feel confident about the case, and will defend our position vigorously.

In addition to registry services, I would also like to briefly address our network intelligence and availability or NIA business. In 2010, our focus was to build a strong team around this business, and to start to deliver services to the market that address the growing complexity and importance of reliability and availability of networks.In 2011, we'll be ramping the product road map and sales. As we progress through the year, we will update you on the business, which we believe is well-positioned in a fast growing but fragmented market. As we look forward to the Company in 2011, our focus will be to continue to provide unsurpassed and unparalleled network performance, provide value added services to the registrars, to assist them in selling more names, to position ourselves for the launch of the new GTLDs , continue to drive the growth in international names and grow a meaningful business in NIA. We believe that these activities will result in continued growth in shareholder value.

We are excited about our future, as we feel that with the growth of the Internet, the emergence of more markets for domain names, strong trends in online advertising and e-commerce, and the growing complexity of managing networks in an era of cloud computing, we are well positioned for the future. Thanks for your attention, and I will now turn the call over to Brian.

Thanks, Mark, and good afternoon everyone. As you just heard in Mark's overview, our fourth quarter and 2010 annual results reflect the continued hard work over the past year to successfully re-focus the business and drive operational efficiencies. We have continued to invest in technology, and in organic growth while maintaining a healthy balance sheet, and returning value to shareholders.

During 2010, we generated revenue of $681 million and delivered non-GAAP operating income of $284 million. All while expanding non operating margins by approximately 850 basis points. These results drove approximately $266 million in free cash flow for the year. In the fourth quarter, we paid a $518 million dividend from domestic cash. The cash balance as of year end, following the payout was $2.1 billion, about half of which was on shore. Our financial position is strong as we enter 2011, given our cash balance, low accounts receivable balances, and healthy deferred revenue. Giving us predictability, and enabling us to continue to organically grow the business, while we also return value to shareholders.

As we entered 2010, we indicated that we were focused on the following key operating metrics, revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS growth, and free cash flow. Let us recap our performance in each of these areas for the fourth quarter, and the year. Revenue of $179 million for the fourth quarter was up 4% from the prior quarter, and up 13% year-over-year. 2010 revenue of $681 million was up 10% year-over-year, and at the high end of our guidance range. Deferred revenue ended the quarter at $663 million an increase of $9 million or 1% from Q3, and up 13% from the same period in 2009.

Q4 non-GAAP operating expenses were $100 million, up 2% quarter-over-quarter, and down approximately 3% year-over-year, with a $65 million increase in year-over-year revenue. Non-GAAP operating margin for Q4 was 44.3% in the fourth quarter, compared to 43.1% in Q3. As mentioned on previous calls, there will be some choppiness in operating margins until the completion of the TSAs in the second quarter of 2011.

Fourth quarter margin expansion was driven by our focus on streamlining the business, as well as re-branding expense that was shifted to the first quarter in 2011. Non-GAAP net income was $54 million resulting in the non-GAAP earnings per share of $0.31, compared to $0.27 in Q3 and $0.17 in the same period in 2009. 2010 non-GAAP earnings per share of $1.03 is at 61% increase over 2009. We exit Q4 2010 with the diluted share count of 174 million shares. During the year, we re-purchased 16 million shares using approximately $440 million in cash and approximately paid $625 million in a special dividend and contingent interest, returning in excess of $1 billion to our investors. Operating cash flow on a consolidated basis was $47 million in Q4 and $215 million in 2010, which includes the payout of $109 million in contingent interest to holders of our convertible debentures. Free cash flow was negative $1 million in Q4, given a reversal of $35 million in excess tax benefits and $12 million in capital expenditures in the quarter. Free cash flow for 2010 was approximately $267 million, given approximately $132 million in excess tax benefits and approximately $81 million in capital expenditures. Note the 2010 capital expenditures included approximately $20 million in spending during the year related to our authentication business. To sum up 2010, we're very pleased with our performance. We continue to grow non-GAAP operating income and net income fashion and revenue. We have the healthy tax position and a strong cash flow generating capability in our business, continue to be a key benefit of our financial model. Before I move on to guidance, I want to touch upon the status of the transition of the authentication services business to Symantec, as well as our Corporate Headquarter move to the East Coast.

Progress has been good, and we still expect the bulk of the transition to be wrapped up mid-2011 with approximately $5 million in transition services revenue that will hit the other income line in the first half of 2011. Also, the transition of numerous corporate functions and most of the CFO organization, specifically from Mount View to Northern Virginia as a result, our relocation of our corporate Headquarters is on track and running smoothly. Thanks to the dedication and professionalism of the entire team during this transition.

Now, let me move on to 2011 guidance. We anticipate that revenue for 2011 will be in the range of $750 million to $780 million. Or a growth of 10% to 14% year-over-year. Consistent with 2010, we expect non-GAAP gross margin of approximately 78%. Q4, 2011, exit non-GAAP operating margin is expected to be at least 46% to 48%. Non-GAAP other loss net, is expected to be $25 million for 2011. We believe that 30% is still reasonable pro forma tax rate and we expect to pay approximately 4% in cash taxes in 2011. Our guidance is based on expectations of continued growth and increased operating efficiencies in our business. We will not provide guidance on share re-purchases, but we indicated when we declare the special cash dividend, that we intend to return the remaining proceeds from the divesture of authentication services over the course of the coming year. We will continue to evaluate various alternatives for turning that cash. Currently, we have approximately $1.35 billion authorized by the Board of Directors for share re-purchases that does not expire.

In summary, we're excited about the opportunities for the business in 2011, and we believe that we're well-positioned to grow our business and deliver a value for our shareholders, customers, partners and employees. With that, we will move to Q&A. Operator, we're ready for the first question.

(Operator Instructions)

We'll go first to Phil Winslow with Credit Suisse.

Hi, guys, good quarter. I just wanted to get a sense on your margin guidance. Last year you talked about, or at one point, I think it was two quarters ago, you talked about potentially a 10% decrease in headcount year-over-year by the end of Q2 -- I wondered if you could give us an update on that and then as far as your margin guidance specifically, wonder if you get a sense of where most of the leverage you think in the mall is going to continue to come from. Do you see the sales marketing line or is it going to be more on G&A? Thanks.

Thanks Phil, this is Brian. Two questions there. One is operating leverage and the model, where we think it will come from and secondarily, the head count. On the operating leverage in the model, I expect G&A to decrease quarter over quarter for the remainder of 2011. We had some one-time expenses that occurred in fourth quarter which drove it a little higher, and we're continuing to streamline the business as we move Headquarters from the West Coast to the East Coast.

There will be some duplication in costs, for the first and second quarter, but most of the transition will be completed and you will start to see the leverage, some of the leverage come out of the business here in the second half of the year. On headcount, we have given margin guidance and so, in the headcount, there will -- we will have duplication of that. We don't want to give quarter-by-quarter guidance, but we said we would be approximately around 1,000 employees once we got everything completed and so, the last quarter, we were about 1,100 we're about 1,050 this quarter and we're going to continue to hire in the sales and marketing as we grow out the NIA business and then we'll see reductions in G&A that will offset some of that hiring and net-net will be down from where we're at to that.

Great. Thanks, guys. Good quarter.

Thanks.

We'll go next to Sterling Auty with JPMorgan.

Yes, thanks. Hi, guys. First on the DNS domain had the 4% increase in new name registration, when you look at the quarter, I know it's -- how did you feel about that number and how do you feel that set you up for the growth in 2011?

Hello Sterling, it's Mark. In the fourth quarter, we forecasted we would be between a $1.7 million and $2 million. And that range anticipated seasonality of the holidays, we had a higher expiring base compared to the third quarter and a higher percentage of the first time expiring names. We ended at 1.75 million names, closer to the low end of that.

The reason for that being at the lower end, is that we had two registrars who deleted out about 1,000 (Sic) names between them right at the end of the year, which we expected would occur actually sometime this year and we see things like that quarter-over-quarter, sometimes relating to the registrar's manager and portfolios, so we'll pay attention to that kind of stuff, but pay more attention to the trending of the business. If we look at the trends, we see that this fourth quarter we actually had the highest fourth quarter new adds ever in the business, and the base of the names continues to trend with more names being previously renewed with the result of the renewal rate continues to climb. So we've got a pretty positive view on things.

I'm sorry, I think I misspoke, I meant 100,000 names there.

That makes more sense and then one follow up. Follow up would be the VeriSign Internet defense network, just an update there, as well as you launched the managed DNS service in 2010. Do you feel like you have a reference account or a lighthouse account that you can leverage to go out and win more business? An update on that one as well.

Sure, if I step back in that specific service. We really like that space, we think as network computing takes hold that the complexity around that is going to be a key issue overcoming things like reliability and availability. We have got a lot of experience there from running the common net. We mentioned before we think that is about a $1 billion market today, not just managed DNS, all the suites and services around the availability and reliability, about a 15% CAGR so we like the space and there's a lot of small players.

We think that with our network and the brand, we have a distinct competitive advantage. More specifically, we're not getting into breaking out any metrics around the business. I can say that quarter-over-quarter, we signed 400% more contracts quarter-over-quarter to get just one view of things and we think we have got some good early traction around that. We haven't named any of the customers. We're probably unlikely to name any accounts simply because people don't just buy like a managed DNS servers, they're buying the Internet defense network, which is the DDoS mitigation and other services, and if you think about the kind of services folks are buying, a lot of the customers don't want to be publicized that way.

Understood. Thank you.

Thank you.

We'll go next to Walter Pritchard with Citi.

Hi, Mark, I heard you talk about DNSSEC and that rolling into dot-com. I wonder if you can just help us out a little bit there on monetization and how that happens and what our expectations should be in terms of timing.

Sure, Walter. I think there are three ways to think about this. First, DNSSEC in and of itself is a security protocol and the DNS long time in the making and is actually a cost to us in order to DNSSEC enable not only the root zone but dot-net and dot-com. That's all baked into the numbers we've given you by the way, but there is a cost aspect while throwing the category cost in the public interest in order to make the Internet safer.

The second piece of that is that as things like DNSSEC get propagated through net already com coming up in the first quarter and other top-level domains, that goes -- it creates some complexity for folks to manage keys and things around that. So we have service offerings that will be rolling out around helping people manage DNSSEC for their own customer base. That is a monetization opportunity that would be in our NIA business category thing. So, I think there's two sides to that coin.

Got it and then just on renewal rate, it looks like it's stable here and I'm wondering, your commentary going back 6, 12 months ago would been that you expect it to kind of stabilize a little bit lower than this, and I'm wondering are we kind of at a stabilization point here? Do you think it can go higher and, just some commentary there. I know last quarter you talked also about you had more first time names up for renewal this quarter and that didn't seem to really hit too badly so just wanted to get a sense of where we are on the renewal side.

Good question and we see on a quarter-over-quarter basis and I try to come back away from the quarter-over-quarter aberrations, and take a look at trending. So on the renewal rates, the highest renewal rate we have ever seen in this business to date has been about 77% in one quarter and that was at the very top of the PPC market which makes sense, as the first time renewal rates then were higher than they are today in a more normalized market in the absence of PPC.

Right now, we're seeing about 72% to 73% renewal rates and that rate has been trending up the last couple years. The reason for that is the percentage of the base that consists of the names that are previously renewed continues to increase year-over-year and that renewal rate is much higher than the first time renewal rate and so time, it makes sense for the renewal rates to continue climb. Now as far as how high it can go, the obvious upward boundary is the previously renewed rate, which has continued to increase the last couple years and right now, if you took a snapshot in time, it's between 80% and 81%, it's been as high as 85% historically in the Company. So, I can't say we're going up, but I can say that there is room to move up and that if you start, if you look at the things that they thought the renewal rate over the last years, continues to trend in a positive direction.

And then just lastly, on the -- you said you had a registrar drop. I'm just wondering, just to prevent any surprises here as you look into the next couple of quarters, do you have any prediction of a similar dynamic going on that might impact what you see reported?

We saw a couple of years ago right at the end of the year, one registrar did a cleanup of their base, which was unexpected for us. We have been more vigilant, is the right word, more detailed in account reviews since that time to try to pick up on things like that. We knew in this case that there was 100,000 names in play, but this was just a timing issue, as to whether it was in 2011 or the end of the year and it turned out to be at the end of 2010.

Great, thanks a lot.

Sure.

We'll go next to Steven Ashley with Robert W. Baird.

Hi, thanks. Brian, cash flow during the quarter, $47 million, probably a lot of puts and takes, I'm assuming, to that number given the transitional phase we're in. Is there a normalized cash flow number that you can talk about or we can think about going forward on a quarterly basis?

Yes, let me go back and talk a little bit about 2010, the difficulty going into 2011 and talk about what a normalized cash flow will be. It really would give -- you would have to get into the price increase on a number of other factors to tell you what the normalized rate would be. If you look at 2010 on a full-year basis, cash from operations was about $215 million, and you have to add back the excess tax benefit associated with stock options of $130 million, so roughly we're about $350 million on the business and that does not include the authentication cash flow, and so as we talked about cash flow from operations at analyst day and last year, we're right on track with where we thought we would be at.

Luckily, going forward in the first quarter of 2011, it would be very clean and transparent on what it is. Fourth quarter, we had the dividend contention interest, third quarter, we had the sale of authentication and so there has been a lot of puts and takes in the cash flow this year, but I think if you look at cash from operations roughly about $350 million on non-GAAP basis, our capital was about $80 million of which $20 million of that was related to authentication business. So, you can take about $60 million of capital out there to get, to basically get to a free cash flow number.

Okay. Terrific. And then around the concept of transliteration names, can you talk about the status or prospects. Is there anything it, on the horizon that would give you the opportunity to bid or to participate in transliteration whether you were bidding directly or being a subcontractor to somebody that was?

Yes, sure, Steve. The answer is yes. There is an opportunity we'll partake ourselves with. And we consider that in what the new GTLDs, so when we talk about the new GTLDs there are those that are the IDN versions or the internationalized versions of dot-com and dot-net. Those are all ending in new GTLD rounds that ICANN is proposing the applications for those are due at around midyear with expected rollout sometime in the beginning of 2012. You could expect us to bid on all of the transliterations for dot-com and dot-net, and everything that is an opportunity for the Company.

Okay. Thank you.

Yes.

(Operator Instructions)

We'll take our next question from Ed Maguire with CLSA.

Hi, good afternoon, everyone. I had a question about IPV-6 and I saw that you guys are readying your infrastructure for that. Is there any -- are there any technological challenges or really new requirements that the adoption of IPV-6 may have implications for your business?

Hey, it's Mark. Yes, but we -- IPV-6 enabled our infrastructure quite some time ago, so we're prepared for that. The short answer is, we're set for it. The longer answer is that there are challenges as you move from IPV-4 to IPV-6 and that is a business opportunity for us again in our network intelligence and availability business, because there is going to be a -- probably a long period of time where folks are attempting to manage both dual stack IPV-4 and IPV-6. That creates a translation problem between the two.

And companies would have to run an IPV-4 stack and an IPV-6 stack, in order for all their applications to be able to interface. A lot of companies we think won't want to do that, will look to, a provider like VeriSign to provide the translation services between those two versions. So, we're set for it from a DNS perspective but I would think there is a opportunity for us on the NIA business.

Okay, great and just a question about your -- kind of your profile of registrar customers. Could you just give us a review of how many registrars you have and what the distribution of really the business you that get from them, is it a 80/20 or a 90/10 type of a distribution and any particular GEOs where you're seeing any unusual trends?

Yes, sure. There is about 900 accredited registrars with ICANN and about 75% of the business today comes from the top 25, to give you an idea of the breakdown.

Okay. Great. Thanks so much. Appreciate it.

Okay.

Thanks, Ed.

The next is Rob Owens with Pacific Crest Securities.

Thank you, good afternoon everyone. Did you guys disclose what the contribution from NIA was during the quarter?

We don't break that out, Rob. We run a service shared back office and so we don't break out the contribution between the various product lines.

Okay. Of the $1.7 million net new names, what came from com and what came from net?

Hang on just a minute. Be just a minute on that. It's roughly -- it's usually about 12% to 13% is net.

About $200,000 from net and (inaudible) from com.

Yes.

14%.

Yes.

And as we look at net new names, touching on Sterling's question from earlier. You have seen a deceleration from the first half of '10 into the second half, granted you had some tough compares, but how should we think about that number moving forward as it moves into the low to mid-single digits here and if I look at Q1, '11 correctly, it looks like it again is in the low single digits range based on your guidance for net new names.

I think we're going to have a 2.3 to 2.6 would be a good strong quarter for us in the first quarter, and we haven't gotten into what the rest of the year would look like but we're looking at zone growth of 7%-plus on a year-over-year basis.

Okay. Thanks.

Next to Dan Cummins with ThinkEquity.

Thanks, a couple questions. First on the revenue guidance. I just wanted to see what the assumption might necessarily be for you to get past the midpoint of that revenue growth range you gave, and then I had a question about managed DNS.

Sure, we gave a range in there and I answered this a little bit in the previous question of the zone itself. So it's 7%-plus, we see like 7% to 9% growth and sort of where you come out and that range from a name base is going to dictate a good portion of the range we gave on the revenue side. Okay?

I'm sorry, I should have been more specific. I didn't mean to hint around the idea whether or not you put through a price increase or not, and I know that they could be in fact staggered. Would you be willing to talk about your inclination to put through a price increase this year?

Let me back up just from the revenue standpoint, at this point in the year, we announced one at the end of the call that would have a fairly minimal impact on revenue in the year just given the six month notice period but on the price increase itself we've got one price increase remaining of the four, that we're allowed to take under the agreement. We said in the past that we have a lot of factors that we consider those, starting first with the long-term investment needs and as we look forward, we see continued the exponential increases and demand of the infrastructures in the coming years.

We also consider factors such as the healthy economy, and the channel. Those seem to be positive and improving over time. While we can't comment on if and when we may notice the remaining price increase, I'd note that we have taken three out of four so far allowed out of the agreement, and the variables that we consider all seem positive.

And DNSSEC I presume would be a nice, more than a feather in your cap but that's a substantial achievement.

Yes. And not to pat ourselves on the back too hard, but it's been a long time coming and we have been really instrumental in that but I wanted to make sure we share the credit where it is due with ICANN providing the leadership around that. The US Department of Commerce being very instrumental and providing leadership as well as technology.

Okay. Thanks and then on managed DNS, when we saw Brian last year, he talked about a model in which it would be, I guess primarily a small medium business offering where you might get an annual fee of somewhere between $5,000 and -- excuse me, $5,000 and $15,000 when accounts sign up with you. Is that where you've made progress so far?

Yes, the managed DNS offering, again, we are thinking this in terms of a suite of offerings so I keep thinking of our NIA business, which has managed DNS, plus some other offerings in there as well but we view the market in three categories with the small, medium and enterprise market. And in the -- as low into that market, we would get just managed DNS right now about $50 a month per customer and mid-tier point of the market, we would get about $350 from a customer and then the enterprise level, you'd get about $2,300 to $2,500 a month per customer.

Okay. That's great. Thank you.

You're welcome.

(Operator Instructions)We'll go next to Todd Raker with Deutsche Banc.

Hey, guys, two questions for you. First, Mark, if you can just give us a sense in terms of the GTLDs, where we stand in the process, what's the next major milestone in terms of the bidding process, and any way to assess, what the opportunity is going to look like as we look into out into '12 and beyond.

Yes, sure, Todd. So from a process standpoint, the expectation would be that around mid-year, that ICANN will start accepting applications and then they would process those applications, and if everything stays on track, that the TLDs would be released in the beginning of 2012. And from a size standpoint, it's hard to say, frankly. The more -- the one that I like to think about because just because I can have reference points for it, is the international TLDs themselves, and I know this is a big broad range, but it is the best I can do, when I look at this, which is there is about a million IDN versions of dot-com and net that exist in our base today.

And so there are a million names in there, and then, that's where you transliterate the names and then dot-com in English and then names that are TLDs out there that are completely transliterate today, the CC country code and of those that are in the countries where we think that the transliterated versions of com to net might be successful, there's about 16 million of those names out there today. And I know that is a big swag in between there, but somewhere between 1 million and 15 million or 16 million is the market opportunity -- that's the names.

Then just a question on the buybacks. You guys have done a great job returning capital in '10, but $14 million in buy back in Q4 seems kind of anemic relative to the authorization and the cash on the balance sheet. Is there anything specific going on that is preventing you guys from buying back?

Hey, Todd, this is Brian. We started the buy back program, a discussion came up around the dividends and so at that point, we were blacked out so we couldn't buy back anymore. We wanted to maintain as much flexibility and return as much as we possibly could at the end of last year, considering the pending tax law changes and the proceeds that we got from authentication. We returned 50% of the proceeds in a special dividend and committed to returning at least the other 50% in the next four quarters.

Okay. Thanks, guys.

Next to Scott Kessler with Standard & Poors.

Hi. I hopped on a little late so I apologize if some of these things were addressed already. My first question involves the dividend payment. Obviously you guys have a considerable amount of additional balance sheet strength and flexibility. I'm wondering if you could comment on the decision to do a one-time special dividend and whether or not there is the possibility that you could do something on a more recurring basis and what the pros and cons to that are. I also have a follow up.

Sure, I will try to tackle that one. When we think about the mechanisms to return excess cash we consider all the turners and there is quite a few of them, obviously, share repurchase, dividends, special dividends, buy our debt back. Last year, we brought about $435 million of stock and paid the special dividend of $500 million before you get to the contingent interest . We chose the special dividend route in the fourth quarter as we had decided we wanted to return a significant amount of cash in a timely and rational manner and in advance of any possible tax code revision.

But we also wanted to keep some flexibility considering the best alternatives for future cash returns this year. So as Brian said we're committed to return at least the second half of what we got in the authentication proceeds and we'll keep thinking about the mechanism, which we do that and we're always open for input from the shareholders on that

Great, thanks. And my follow up actually involves something that I think people have been getting more and more interested in, which is mobile and I am wondering if you could talk a little bit about how mobile has been impacting and presumably benefiting some of the VeriSign's core businesses and if you see any new investment opportunities in the category. Thanks.

Yes, I think that as things continue to go mobile, there is a benefit that is a little difficult for us to get in there and put a percentage of growth around that but it would be, as things go mobile more people using the mobile devices to access the Internet or mobile versions of the Internet. So from a domain name perspective, that should drive growth for our business. So I think that in addition to that on the NIA side of business, you have got all of these distributed devices, mobile devices, iPads, et cetera. When those are all attempting to access the network, it starts to create a lot of other concerns around availability and security that I think will also create opportunities for us on that side of business.

Thanks a lot, guys.

Sure.

Go next to Katherine Egbert with Jefferies.

Hi, this is Ignatius Njoku for Katherine Egbert. Just a quick question. Can you talk about your pipeline for your managed DNS service and also can you talk about your M&A strategy for fiscal year 2011?

Sure, Ignatius. From a pipeline perspective, we're not talking about a pipeline specifically or anything like that. All that I can say is we have a healthy pipeline. We like the way that looks, so again we're bullish in that business.And then from an M&A perspective, it's possible we could do some M&A but we said in the past a few times, anything we do with the closed end of the business we are in today would be really for purposes of accelerating our road map or go to market.

Next question, please.

We'll take our last question from Sterling Auty with JPMorgan.

Just a quick one for Brian. In terms of the deferred revenue, can you remind us is everything kind of clean, in other words, is there any moving parts or anything that's just wearing down from any of the divested assets and are we just now, just all the deferred revenue tied to the core businesses that are left?

It's clean, it's all the core revenue tied to the remaining businesses.

At what quarter do we get the year-over-year comparisons where both the year prior and the current quarter and deferred revenue represent the same things in deferred revenue?

I will have to check on that and get back to you and see if we can have clean data for the prior year. If we can do it, I will try to do it next quarter for you.

All right, sounds good. Thank you.

Thanks. See you Sterling.

At this time, I would like to turn the conference back to Nancy Fazioli for any additional closing remarks.

Thank you, operator. With regard to events in the first quarter, please note that Brian will be presenting at the Morgan Stanley 2010 annual technology conference on Tuesday, March 1. The webcast registration details will be available on the Investor Relations section on the VeriSign website. 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.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.