威瑞信 (VRSN) 2011 Q2 法說會逐字稿

Good day and welcome to be VeriSign second-quarter 2011 earnings conference call. As a reminder, today's conference is being recorded.

At this time I would like to turn the conference over to Mr. David Atchley.

Thank you, operator. Good afternoon everyone and thank you for joining us for VeriSign's second-quarter 2011 earnings conference call. I am David Atchley, Corporate Treasurer and Director of Investor Relations. And I'm here today with Jim Bidzos, Executive Chairman and Chairman of the Board; 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 Q2 2011 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.

Financial results in today's press release are unaudited. And the matters we will be discussing today include forward-looking statements, and as such are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC. Specifically, the most recent report on Forms 10-K and 10-Q, and any applicable 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, as applicable, each of which can be found on the Investor Relations section of our website.

In a moment, Jim, Mark and Brian will provide some prepared remarks and afterward 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 Jim.

Thanks, David, and good afternoon everyone. Before we discuss the quarter let me say a few words. As you have read in our second-quarter earnings press release, Mark McLaughlin will be leaving the Company on August 25, and I will be re-assuming the positions of President and CEO effective August 1.

Mark is leaving VeriSign to become CEO of a private company. We will discuss this transition in more detail after we review our second-quarter results. With that, I will now turn the call over to Mark.

Thanks, Jim. Good afternoon everyone. The second quarter was another solid quarter for VeriSign, and we continue to be pleased with the Company's performance.

In our naming business we exceeded 8 million new domain name registrations for the second consecutive quarter. In addition, for [continued disciplined] operations we were able to achieve ongoing operating margin expansion.

Also, our balance sheet remains healthy, which allowed us repurchase $100 million in shares in the second quarter, leaving us with approximately $1.1 billion under the current share repurchase authorization program.

Before I get into Q2 results, I want to highlight and comment on a few key events from our busy quarter. First, on May 11, we announced that VeriSign entered into a settlement agreement for mutual release with the Coalition for ICANN Transparency, or CFIT, which resolved the over 5-year long CFIT litigation.

As we indicated in the press release and 8K, under the terms of the agreement CFIT filed a dismissal with prejudice of all claims in the litigation. Further, there was no payment associated with the dismissal, and the parties executed mutual releases from all claims now and in the future related to the litigation. As we have stated in the past, we always believed the case to be without merit.

Second, on June 20, ICANN announced that its Board of Directors has approved the plan to increase the number of generic top-level domains. We view the introduction of new gTLDs as an adjacent growth opportunity. We believe that VeriSign's experience and trusted brands should make us a logical choice to operate the registry for many organizations applying for new gTLDs.

ICANN announced that it will begin accepting applications for new gTLDs on January 12, 2012. On June 28 we were to announce that ICANN and VeriSign had renewed VeriSign's contract to serve as the authoritative registry operator for the .NET registry for another six years.

With the steady growth of the Internet and the ever-increasing demand on the DNS, VeriSign is committed to invest in, scale and enhance our world-class infrastructure that supports .NET to ensure its continued secure, stable operation. We are proud that we have been entrusted with the continued responsibility of running .NET.

Lastly, by way of update in the third quarter, on July 14 we announced an increase in registry domain name fees for .COM and .NET per our agreements with ICANN. As of January 15, 2012 the registry fee for .COM domain names will increase from $7.34 to $7.85. And the registry fee for .NET domain names will increase from $4.65 to $5.11. The fee increases will have no direct impact to 2011 revenue since the increases are not effective until January 15, 2012.

Continued strong global Internet usage growth, along with increasingly powerful cyber attacks leveled against all parts of the Internet's critical infrastructure have dramatically increased the demands on Internet infrastructure providers. The volume of DNS queries on VeriSign's global Internet infrastructure has more than doubled in the last five years. Future growth is expected to occur at an even faster pace.

VeriSign's infrastructure has maintained 100% operational stability for more than a decade due to continued innovation and investment in the infrastructure. I will comment now on second-quarter results.

In registry services, the base of registered names in .COM and .NET totaled approximately 110 million names at the end of June. This represents an 8% increase year-over-year in the base and an approximately 2% increase quarter-over-quarter.

In the quarter we added 1.95 million net names to the domain name base. In the second quarter we processed 8.1 million new registrations, which is an approximately 2% increase year-over-year. This is the Company's second-largest quarter in our history for new registrations.

On the renewal rate side, the Q1 2011 renewal rate was 73.8%. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the second quarter of 2011 will be approximately 73.5%.

We expect the Q3 net names added to the base to be between 1.8 million and 2.1 million names, which reflect the continued growth in the underlying drivers of the Internet, as well as seasonality.

With regard to our NIA business, we have ramped up our sales efforts, saw positive traction in the market, and again exceeded our planned bookings metrics during the second quarter.

Additionally, our product roadmap of offerings and enhancements has allowed us to deliver services to the market that addresses the growing complexity of managing networks in an era of cloud computing. We believe we are well-positioned for a leadership role in this fast growing, but fragmented market.

With the second quarter behind us, we have capped a solid first half of 2011, and look forward to updating you on our third-quarter earnings call. Thanks for your attention. I will now turn the call over to Brian.

Thanks, Mark, and good afternoon everyone. As Mark said, this was another solid quarter for us, and I am pleased about the progress we have made towards our goals. Let me quickly recap our performance this quarter on our key operating metrics which are revenue, deferred revenue, non-GAAP operating margins, non-GAAP EPS growth, and free cash flow, and then I will discuss progress towards our annual guidance.

Revenue of $109 million for the second quarter was up 5% from the prior quarter and up 13% year-over-year. Deferred revenue ended the quarter at $714 million, an increase of $15 million or 2% from 1Q, and up 11% from the same period in 2010.

Q2 non-GAAP operating expenses were $92 million, down 7% quarter-over-quarter and down 8% year-over-year. Non-GAAP operating margin for Q2 was 51.7% compared to 45.9% in Q1.

Second-quarter margin expansion was driven by primarily by the $6 million nonrecurring accrued expense reversal taken during the quarter, which increased operating margin by 3.1%. Additionally, we realized cost savings through streamlining our business as we have completed our divestitures.

We have achieved these savings in G&A support services and we realized them faster than expected. Based on the progress to date we expect fourth-quarter 2011 exit non-GAAP operating margin to be at least 48%.

Non-GAAP net income for the second quarter was $65 million, resulting in non-GAAP earnings per share of $0.38 compared to $0.32 in Q1, and 23 $0.23 in the same period in 2010. Non-GAAP earnings per share for the second quarter of 2011 includes a $6 million recurring accrued expense reversal, which increased diluted earnings by $0.02 per share.

Income-related transition services included as part of nonoperating income on the P&L was approximately $2.3 million in the second quarter.

A quick comment on taxes. We continue to believe a non-GAAP tax rate of approximately 30% is a reasonable estimate. In 2011 we expect to pay cash taxes of approximately $40 million, $28 million of which is related to the divestiture of authentication services.

We exit Q2 with a diluted share count of 170 million shares. Dilution related to the convertible debentures was approximately 1 million shares based on an average share price during the quarter.

Operating cash flow on a consolidated basis was $13 million in the second quarter, noting that the contingent interest payment totaling $100 million was paid on May 18, 2011.

Free cash flow was negative $4 million in Q2, given a $3 million decrease in excess tax benefit and $14 million in capital expenditures in the quarter. We still believe capital will be approximately 10% of revenue in 2011, given anticipated facility spend related to the move of our corporate headquarters.

As a quick housekeeping item, we now include unrealized gain/loss on contingent interest derivatives on convertible debentures as a non-GAAP item. You will now see this item on our reconciliation statement, with first-quarter showing a $250,000 loss, while Q2 showed a $700,000 gain.

To sum up, we are pleased with our performance. We continue to grow non-GAAP operating income and net income. We have a healthy cash position, and the strong cash flow generating capabilities of our business continue to be a key benefit of our financial model.

We are pleased to report on the status of transition of authentication service business to Symantec, and corporate functions to the East Coast.

Progress has been on track with the bulk of the transition wrapped up. I would like to thank both the East Coast and West Coast employees for their hard work and dedication in making this a successful transition.

As noted previously, income related to transition services in Q2 was approximately $2.3 million. We now expect approximately $2 million in the second half of the year.

Let's move on to guidance. 2011 guidance, [we have tightened] the revenue for 2011 will be in the range of $765 million to $775 million, or growth of 12% to 14%. We now expect non-GAAP gross margin of approximately 79%. Q4 exit non-GAAP operating margin, as mentioned earlier, is expected to be at least 48%.

Non-GAAP interest expense and non-GAAP nonoperating income net, which I previously referred to as other loss, net is still expected to be $25 million for 2011. As I mentioned previously, capital expenditures are expected to be approximately 10% of revenue.

Our guidance is based on expectations of continued growth and increased operating efficiencies in our businesses, in addition to our financial projections for interest income and expense.

I am excited about the opportunities for the Company. We believe the disciplined execution opportunities that leverage our competitive advantages will provide a platform for long-term profitable growth.

I will now turn the call back to Jim.

Thanks, Brian and Mark. As I mentioned at the beginning of the call, Mark will be leaving to pursue another opportunity. Mark's departure comes at the end of a major four-year restructuring for the Company. We have gone from over 5,000 people to just over 1,000. We operate 15 offices internationally versus more than 80 four years ago. We divested a number of businesses, including our authentication unit, and returned billions of dollars to our shareholders.

We relocated our headquarters from California to Virginia. Throughout what was at times a very challenging restructuring, we maintained a perfect operational record. And in just the last six months we have favorably settled the long-standing CFIT lawsuit, we have renewed .NET, and expanded our core business with our NIA units.

Mark led the Company through much of this transition. And his contributions to our success are significant and appreciated by the Board and employees. Mark leaves VeriSign a stronger company with a stable and growing revenue base and an experienced management team that delivers network performance and reliability the world has come to expect, plus focused and disciplined financial management that continues to deliver profitability and show shareholder returns.

Thanks, Jim. As Jim mentioned, I will be leaving VeriSign at the end of August for a new opportunity that will be announced next week. This was a very difficult decision for me, given that I have been part of the VeriSign team and family for a long time and it is such a great company.

As Jim said, the team that I have had the honor of working with at VeriSign has accomplished an impressive amount of work and has created a lot of value over the past few years.

While I had the honor of leading the Company during this time period, the credit for all these accomplishments goes to the team. It has been my pleasure and privilege to work with such an outstanding team. And I would like to take this opportunity to thank all of them for their continued hard work and friendship.

Thank you, Mark, and thanks for all you have done. We all wish you the best.

Looking forward, the Company is well-positioned to continue growing for the remainder of this year and beyond. We will now take your questions. Operator, can we have the first question?

(Operator Instructions). Philip Winslow, Credit Suisse.

Great quarter, guys. I just got two questions here. Just first on the margin front, even ex the $6 million one-time reversal, you guys way exceeded consensus margins for this quarter.

Brian, when you look over the course of the year, and obviously, you've got some transitional costs, how much more do we have in terms of these transitional costs rolling off versus any incremental that we might see coming on?

Then, also, just in terms of use of cash, I am wondering if you can give us a sense of what percentage of your balance sheet is in the US? And just how should we think about the use of cash that you have in the US? Thanks.

This quarter there is -- as far as the margin side there is a couple of things I want to touch on. As I said in my prepared remarks, we reported an operating margin of 51.7% for the second quarter. The one-time expense reversal $6 million added 3.1%. So if you adjust for this, operating margin on a normalized basis would have been 48.6%.

The increase in the second quarter was attributed to a couple of things. We had a slower ramp in new hires than anticipated. And we achieved across the board G&A savings. And then, finally, we really completed the transition from the West Coast to the East Coast. We only have a few employees remaining on the West Coast that we are transitioning, and the last employee is being notified on August 3.

So I think from a margin perspective, we have taken out most of the excess, if you will. We did increase our operating exit run rate guidance at the end of the year to say it would be at least 48% from 46% to 48%. So we will continue to try to extract savings out of the business.

On the cash side, yes, I guess first let's step back, and one of the things that we said earlier was that over the course of 2011 is we we would return the remaining proceeds from the authentication services divestiture. If you look from Q4 to this quarter, we paid about $1 billion in special dividends, $200 million in contingent interest, and have done about $315 million of buybacks. So we have returned about $1.5 billion, which is in excess of proceeds that we received from Symantec.

We have just over $1 billion remaining on the buyback authorization. If you look at the balance sheet, about a little over $300 million is domestic, about $1.1 billion is international. And we are committed to returning value to shareholders and will evaluate quarterly on the most effective way of achieving that.

Great, thanks, guys.

Steve Ashley, Robert W. Baird & Co.

Best of luck to you in your next endeavor. I guess I would like to drill down on the domain names. It appeared to slow a little bit from the growth we had seen. It came in just a tick below the lower end of the guidance range. A lot of noise out in the street during the period, and we would just love to get some color on what you thought might have been going on there.

This is Brian. Yes, if you take a step back we said at the beginning of the year that the new names in the zone would grow about 7% to 9% yearly. And so as we sit here today it looks like the net new names will be right in the middle of that range.

In Mark's prepared remarks, he said the renewal rate will be approximately 73.5%. So we also saw the net new -- I am sorry, the new registrations for the names to be the second-largest in the Company's history. And so there was a little decline over first quarter, but we still feel pretty comfortable with the 7% to 9% year-over-year, right in the middle of that range.

This is Jim. I just want to point out as well that while the second quarter was the second-largest in the Company's history for that new adds, it was the largest 2Q net new adds in the Company's history.

Great. And terms of the transition from the West Coast to the East Coast, in terms of the management team, the management structure, did everyone make the move or are there still some open boxes in the org chart that need to be backfilled after the transition?

It is Mark. Yes, the entire executive team is on the East Coast at this point. So the transition is complete.

Okay, great. Thank you.

(Operator Instructions). Sterling Auty, JPMorgan.

Mark, let me echo congratulations on your tenure at VeriSign. There is going to be lots of speculation in our conversations tomorrow, so I want to just kind of hit it. Is there any additional color that you can give, without giving the name of the company obviously, but the thought process going in -- you navigated the Company through a lot of divestiture, a lot of change and successfully so, why not see it further on in terms of the growth of the Company? What was the motivating factor to make the change now?

So where I am going will get announced next week, so we wouldn't talk anymore about that. VeriSign is -- I think you know how I feel about it. It is a fantastic company. I've got about 10 years of total time at VeriSign. It has been an absolute pleasure to work with the team, and particularly in the last three years going through a lot of the restructuring taking the Company forward.

So I look at this as an apples-to-oranges situation. The opportunity I am going to a private, pre-public company. I have got the opportunity to possibly take the company public. I haven't done that in my career before, so I think that is a good opportunity for me.

So it says nothing about VeriSign as to where I'm going, because this Company is a hell of a great company, very stable and it's got a great future.

Now onto the current business. If we look at it, you've got about 2 million names that were actually added in the quarter, while the net new addition was the second-largest in the quarter. Correct me if I'm wrong, I think the true net addition peak was probably 4 million or thereabouts.

What is it going to take -- can we get back to those kind of quarters where you're adding a net increase of 4 million names to the base? And what is going to be necessary? Because I also don't think that we are that far off the peak on the renewal rates.

It is Mark. I think that whole period in the 2007 coming into -- the first quarter of 2008 had the PPC phenomena, which I will call that a phenomena. So in the absence of something very specific like that happening, I think you continue to see a more steady growth rate than that sort of pop we saw for four or five quarters back there when you had 4 million names.

Okay, that is fair. The last question, is there -- was there any special programs that you are running with the registrars in the quarter?

Then there is lots of news about Go Daddy and what might be happening with its ownership there. Was there any disruption that maybe you saw?

This is Brian. So on the Go Daddy front they continue to be a really important customer. There was no disruption that we saw in the quarter -- very focused and they executed well during the quarter.

On the revenue programs, as I stated earlier, we run a number of programs throughout the year. We did nothing different in the second quarter that we have done in previous quarters. And we actually increased our revenue guidance for the year and narrowed the range.

All right, thanks, guys.

Walter Pritchard, Citi.

I had two questions. One, Brian, for you. You have given your revenue guidance for the year, and we can pretty much extrapolate that out for Q3 and Q4. And you have talked about at least 48% operating margins.

I guess I'm not expecting you to put a tighter range on the 48%, but I guess I'm wondering, you did 48.5% here, and I guess I'm wondering why things wouldn't expand from the 48.5%. And, specifically, if it is anything outside of the $6 million that you talked about, the accrual that is an expense that maybe we are not thinking about that comes back in in the second half?

A couple of different things there. So on the margins side, 48.5%, 48.6%. And how do you feel about the 48% on a go forward basis.

There is a couple of things. One is we are ramping up our hiring, and so there is a timing delta that will come on in the second half of the year.

Secondly is we took possession, if you will, of our new headquarters on July 1, which adds approximately $2 million a quarter run rate from an expense perspective.

And there is a couple of other things that are happening. And so as I stated earlier in previous calls when we announced the authentication sale, there is going to be some lumpiness between the sale and the final transition. So there is some one-time things that happened this quarter that won't repeat themselves in third and fourth quarter. So we wanted to increase the guidance. And we said at least 48% exit operating margin in the fourth quarter.

Great, thanks. Then just for Jim on the CEO search. I would imagine, Jim, you are probably not stepping back in here to be permanent CEO. You have stepped in a few times.

But I am wondering if you would maybe throw in the process that you would give us some color on the search process, if you are looking at internal and external candidates and any color on timing?

Okay, sure. Well, first of all, we will look for another CEO, and I assume we will conduct research to do that. Right now I am focused on taking full advantage of Mark's willingness to be here until August 25 and ensure a smooth transition. So that is my focus.

We are in a transition that is essentially a succession plan we've had in place. This news is just a few days old. But I am really focused on taking advantage of Mark's availability and just working through a smooth transition, and probably have more to say about it next time we talk.

Okay, great. Thanks a lot.

(Operator Instructions). Gregg Moskowitz, Cowen and Company.

Thank you. And, Mark, best of luck as well. I am wondering if you could talk about international domain name growth this quarter and how that compared relative to domestic? And maybe if he can sort of touch on some of the more emerging market countries such as China, India and Brazil, that would be helpful.

This is Brian. International continues to be about 39% of our base. We report the international names by where the register is located and not by where the end user is at. We have recently seen an increase in resellers changing registers and consolidation in the industry.

Because the names don't switch until they are renewed, it is becoming difficult for us to track this activity. Therefore, the international growth that we report versus domestic growth is getting a little cloudier. However, international continues to be very important and is still growing.

So, for instance, China grew 16% year-over-year. EMEA grew about 13% year-over-year. And India has grown about 11% year-over-year.

Okay, great. Brian, I am wondering if you can give us a sense as well of how the contra revenue amount in Q2 compared on a sequential and year-over-year basis, as well as maybe what you're expecting for Q3?

So as I mentioned earlier -- I think it was Sterling's question -- it was less in Q1. It was immaterial. And we have guided towards revenue for the full year, and it is included in the revenue guidance.

Great, thanks.

Dan Cummins, ThinkEquity.

Can you give us a sense of what kind of revenue growth you are seeing sequentially right now in the NIA business?

And I guess this is a question for Jim. What are your expectations for revenue contributions into next year from IDNs and the new TLDs? When does money start changing hands, particularly on the new TLD assignments that you may get? Thanks.

This is Brian. I will take -- let me take the NIA one first, and then either myself, Mark or Jim will take the gTLD one.

On NIA we really like the space. As we have said previously, we estimate it to be about a $1 billion market with double-digit growth. Our teams had a great quarter. As I talked about this, we basically rebuilt the management team and the sales team, put together the product roadmap and are now out executing on that.

So in the quarter we exceeded our bookings target. And we are continuing to buildout our salesforce. We believe with our brand and operational performance this is our market to lose. So we haven't given any guidance specifically on that, but we are doing better than expected.

This is Jim. With respect to IDNs, we haven't given any guidance for 2012, of course, but the first IDNs actually don't go operational until January of 2013. So it is too early for us to be talking about that.

The new TLDs January 13 or -- I am sorry.

I thought you said IDN specifically. If you're talking about new gTLDs, I am sorry if I misunderstood.

Dan, the timeline, given what ICANN (inaudible) in Singapore is applications will be accepted starting in January 2012. Then there is -- that will take basically the course of that year to run through the application process and all that has got to occur.

They will be awarded near the end of 2012. So what Jim is saying is you can expect to see new gTLDs actually hit the zone sometime in late 2012 or early 2013. So from a contribution standpoint for 2012, it would be minimal regardless, and we haven't given any guidance for 2012.

This is Jim. If you go to ICANN's website their program is to take duplications during the first few months of 2012, review them, make announcements at the end of the year. And then the first ones at the earliest will go operational in 2013.

We are talking about gTLDs, I just want to be clear. And then, of course, obviously, we would negotiate -- venture into relationships to provide registry and backend services to these new gTLD operators, so I would expect that there will be some amount of time that trails the operation of some of these before we actually get involved in how many revenues we could talk about in the forecast.

Thanks. I guess one other question I just had related to IDNs, the international domain names. When you think you might see some noticeable demand stimulus from some of the technical work you're doing around IDNs?

So on the IDN front specifically, well, not to overly complicate things, but there are two categories just to keep things straight. There is IDNs which are in the zone today already. We have about 1 million of those names in the zone. That means that the internationalized version of the name. English COM, those names grow at about the same rate as the rest of our zone.

The second side, which is IDN.IDN or what people call the transfederations, are in the new gTLD category. And as Jim said from a timing perspective, you wouldn't see them hit the market until we are through the application process, because we would apply for those.

So impact-wise it would be 2013 before we would be live -- or late 2012, think, before we would be live in the market. So they are included in that gTLD situation.

Okay, thank you.

Ed Maguire, CLSA.

I was just wondering if you could discuss your thoughts about the potential pricing for back end services for new gTLDs, what you think the market might bear? You're able to charge varying tariffs, as it were, between COM and NET and names like .gov, and would appreciate any color you could throw at least on what the dynamics of that market may look like from your perspective.

This is Brian. As Mark and Jim alluded to, the application window opens on January 12 and closes on April 12. So it is really early in the process, and we don't know what the requirements are going to be for back end service options, if you will.

So we have -- the team has been busy from a business development perspective working with a number of brands and registrars and setting up partnerships. But it really depends based on what the applications are that they want us to do from a back end perspective.

We feel from a company perspective with our operational performance and our 100% uptime for over a dozen years, that we are really well-positioned to be the key player here.

This is Jim. Just adding a comment here as well. I think Brian is right. It really depends on how people use some of these new gTLDs, which aren't entirely clear -- isn't entirely clear at this point. There may be people who applied to operate one of them for the purpose of selling names and making a business of it. If we were the back end registry provider, we might have a certain type of relationship based on their exploitation of that gTLD.

There are other folks for marketing or branding purposes or other recognition purposes that may operate it that may not be primarily about selling domain names in that gTLD. We may have an entirely different model for that.

We really need to wait and see what emerges, who applies, who succeeds, and how they plan to use it. But, again, having the premier most reliable, longest-standing registry operation, we certainly see that as an opportunity however it does play out.

Great. One final question, which is relating to your stance toward M&A. With the executive changes on the way, could you update us on your current thinking and what your considerations may be regarding potential acquisitions?

Sure. Let me try to answer that question on a slightly broader level that I think will address the specific question that you raise. As I mentioned, this is a four-year restructuring. We are at the tail end of it.

But we have a management team that is executing on a strategy that has been developed in conjunction with the Board over a number of years. Mark was on the Board. I am on the Board, obviously as Chairman. I have also been Executive Chairman. I've worked closely with this management team.

But basically there is no change in our strategy. There is no change in any of the Company's outlook, forecast, its management team, its ability to operate, its commitment for growth. There is no change in our commitment to return value to shareholders. And there is no change in our commitment to grow.

And if that makes sense through M&A, we have talked about tuck-in M&A where it might make sense, we still view that as an opportunity. We believe we have enough cash on hand for those opportunities that arise.

But at this point we don't see, nor do we expect, any significant M&A activity that would change the strategy that we are on.

Great, thanks. Mark, best of luck in your new venture.

We have time for one final question. Kash Rangan, Merrill Lynch.

On the gTLD front I am just wondering if you could maybe have done this -- apologize for asking the question again. Can you give us a sense for how big the market opportunity is, the number of domains, number of sites, and how fragmented or uniform does this market look like?

Finally, what kind of synergies? Not to get too ahead, but assuming you are successful at this next evolution, what kind of synergies do you currently have -- the technology infrastructure, business operations that will allow you to tap into that market effectively? That is it for me. Thank you.

Sure, this is Jim. Let me address that again. I think, first of all, our best information about what is likely to emerge in the new gDLT space comes from ICANN's own forecast. I think that their most optimistic expectations that they have talked about are somewhere possibly near 1,000 ultimately. How long that takes and when that ever gets realized we are not sure.

Again, we don't know how many new gTLD operators will come into the business primarily to sell domain names. So what that name space and market opportunity represents from that perspective it is just really, really difficult to identify. We just simply can't tell you.

I think the best way to think about this is that it is a market that is going to emerge in a way that is yet undetermined. And that we as the longest operating registry with the longest record of uptime and availability and reliability are best positioned to exploit that market.

That is the best offering we have, to be essentially the premier service provider to what will undoubtedly be a number of people who have no registry experience. ICANN has also said that one of the most important things about a top-level domain is that the operation has to be demonstrably secure. It needs reliability and security first and foremost. So I think that bodes well for our opportunity.

But I think it is just virtually impossible for us to predict what that market might look like or how big it might grow and what direction it might take. So I hope that answered your question.

Yes, it does. Thank you very much.

At this time, Mr. Atchley, I would like to turn the conference back over to you for any additional or closing comments.

Thank you, operator. With regards to events in the third quarter, please note that Brian will be presenting at the Citi technology conference at 1.45 PM Eastern time on Wednesday, September 7. On September 13, Ben Petro, Senior Vice President Network, Intelligence and Availability, will be presenting at the ThinkEquity 8th annual growth conference at 3.45 PM Eastern time.

The webcast registration details for these conferences will be available on the Investor Relations section of 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.

Once again, that does conclude today's conference. We thank you all for joining us.