威瑞信 (VRSN) 2013 Q1 法說會逐字稿

Good day, and welcome to VeriSign's first-quarter 2013 earnings call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. David Atchley. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on VeriSign's first-quarter 2013 earnings conference call. I am David Atchley, Director of Investor Relations and Corporate Treasurer. I'm here today with Jim Bidzos, Executive Chairman, President and CEO; George Kilguss, Senior Vice President and CFO; and Pat Kane, Senior Vice President of Naming and Directory Services. Please note that this call and accompanying slide presentation are being webcast from the Investor Relations section of our corporate website, www.VeriSignInc.com. Please refer to that website for important information, including the first-quarter 2013 earnings news 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 GAAP and 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 and George 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. The first quarter demonstrates a solid start to 2013 for VeriSign. We reported revenue of $236 million, which was 15% higher year-over-year, and delivered strong financial performance, including $145 million in free cash flow. In naming, we processed 8.8 million new gross registrations during the first quarter, and added 1.99 million net new names, bringing the name base to a total of 123.1 million .com and .net names. Our balance sheet remains strong, with approximately $1.56 billion in cash, cash equivalents and marketable securities at the end of the quarter. We continue to see benefits from our focus and discipline in the execution of our strategic framework.

As you may have seen during April, we completed the issuance of a 10 year, $750 million senior unsecured note with a 4.625% coupon. We are very pleased with the results of this issuance, which is part of our revised capital structure. In a few moments, George will discuss our capital structure in more detail. During the first quarter, we continued our share repurchase program by repurchasing 3 million shares for $132 million. As of March 31, 2013, we have approximately $844 million remaining in our share repurchase program, which has no expiration. We continually evaluate the overall cash and investing needs of the business, and consider the best uses for our cash, including potential share repurchases.

I will comment now on first-quarter operating highlights. In our naming business, at the end of March the total base of registered names in .com and .net was 123.1 million, with registered names in .com totaling 108.1 million names, and in .net totaling 15 million names. This represents an increase of 5.5% year-over-year, and 1.6% quarter-over-quarter. In the first quarter, we added 1.99 million net names to the domain name base, after processing 8.8 million new gross registrations. In the fourth quarter of 2012, the renewal rate was 72.9%, and the renewal rate for the whole of 2012 was 73.1%. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the first quarter of 2013 will be approximately 73.3%. This rate compares to 73.9% achieved in the first quarter of 2012. The renewal rate is still below the level of the first quarter a year ago.

We see the continuing effects of changes in search algorithms and macroeconomic headwinds we discussed during the last few quarterly earnings calls. We cannot be certain of how long the renewal rate will be impacted by these factors, but we are now experiencing the fourth quarter of these effects. In light of these factors, we expect the second-quarter net names for .com and .net added to the base will be between 0.9 million and 1.3 million names. As noted in prior calls, updates to the zone are posted on our website at least once per day, allowing you to track how the zone is growing throughout the coming quarter.

Now, I like to turn the call over to George.

Thanks, Jim, and good afternoon, everyone. Before discussing the first-quarter financials, I would like to talk about our capital structure in more detail. As stated on prior calls, we have been looking at our capital structure across both our leverage profile, as well as our international cash balance, and how the international cash balance interrelates with our international tax structure. With a recently-announced new senior unsecured debt issue, the Company now has three debt instruments as part of its capital structure. First, the Company has a $200 million senior unsecured credit facility that matures in November 2016. During April, we repaid the $100 million outstanding borrowings under this facility. We view this credit facility as a secondary source of domestic liquidity.

Second, with our new debt issuance during April complete, the Company now has a $750 million, 10-year secured -- senior unsecured note with a coupon rate of 4.625%. This issuance produced approximately $738 million of net proceeds, of which $100 million was used to repay our revolving credit facility previously mentioned. We intend to use the remaining amount for general corporate purposes, including, but not limited to, the repurchase of shares under our share repurchase program. Third, the Company has a $1.25 billion subordinated convertible debenture, with a coupon rate of 3.25% that matures in 2037. The Company now has total outstanding debt obligations of $2 billion, which reflects the full $1.25 billion face value of our subordinate debenture, the new $750 million debt issuance, and the repayment of amounts outstanding under the credit facility, which occurred after quarter end. With trailing 12 months adjusted EBITDA of $595 million as of March 31, 2013, our pro forma total debt-to-adjusted EBITDA ratio is 3.4 times. This leverage ratio is consistent with the 1.5 to 3.5 times range we discussed during prior calls, and at a level we believe is reasonable for the Company at this time.

Now, as a relates to our international cash balance, the tax work to evaluate our international cash and international tax structure is progressing but remains ongoing. Of the $1.56 billion in cash, cash equivalents and marketable securities at the end of the quarter, approximately $240 million was domestic, with the remainder held internationally. The approximate $1.3 billion in international cash has not been taxed at the US level, and our assertion remains unchanged from prior quarters that this balance is indefinitely reinvested offshore. As mentioned, our tax work is ongoing, and we will provide updates as soon as appropriate. We expect this work to be completed by the end of the year, if not sooner, and we will provide appropriate available updates on our Q2 and Q3 quarterly calls.

I will now discuss the first-quarter financial results. During the quarter, we generated revenue of $236 million, up 15% year-over-year, and delivered GAAP operating income of $133 million, up 35% from $99 million in the first quarter of 2012. The GAAP operating margin in the quarter came to 56.4%, compared to 48.1% in the same quarter a year ago. GAAP net income totaled $85 million, compared to $68 million a year earlier, which produced diluted GAAP earnings per share of $0.52 in the first quarter, compared to $0.42 for the first quarter in 2012. As of March 31, 2013, the Company maintained total assets of approximately $2.1 billion, which includes the cash balances just discussed. Liabilities also totaled $2.1 billion at quarter's end. During the first quarter, the stock price again exceeded the convertible debenture conversion trigger of $44.68, which means that the whole of the convertible debentures have the option of converting the debenture into common stock during the second quarter. Therefore, in accordance with GAAP, the debt component of the convertible debentures, as well as the related embedded derivative and deferred tax liability, will reclassify from long-term liabilities to current liabilities, while the associated unamortized debt issuance costs were reclassified from long-term assets to current assets as of March 31, 2013.

I will now review some of our key first-quarter operating metrics, which are revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS, operating cash flow and free cash flow. I will then discuss our 2013 full-year guidance. As mentioned, revenue totaled $236 million for the first quarter. Approximately 60% of our revenue was derived from customers in the US, and 40% was from customers outside the US. Revenue in the first quarter from international sources grew 18% year-over-year, and domestic source revenue grew 13% year-over-year. Deferred revenue at quarter-end totaled $847 million, a $34 million increase from year-end 2012.

First quarter non-GAAP operating expense, which excludes $8 million of stock-based compensation, totaled $96 million, compared with $87 million in the fourth quarter of 2012. As a reminder, fourth-quarter non-GAAP operating expenses were $11.3 million lower, due to certain fourth-quarter benefits we discussed last quarter. Non-GAAP operating margin for the first quarter expanded to 59.6%, compared to 51.9% in the same quarter of 2012. It should be noted that during the first quarter of 2013, we delayed approximately $5 million of our marketing program expenses to later quarters, which contributed to a higher operating margin. Non-GAAP net income for the first quarter was $94 million, resulting in non-GAAP diluted earnings per share of $0.58, compared to $0.42 in the first quarter of 2012, and $0.59 last quarter. As noted before, certain benefits described last quarter increased the fourth quarter earnings per share.

With respect to taxes, we continue to use a non-GAAP tax rate of 28% for our non-GAAP net income and non-GAAP earnings per share calculations. In 2013, we now expect to pay cash taxes of approximately $35 million to $45 million, as compared to the $40 million to $50 million range we gave last quarter, as a result of the increased interest expense deduction created from our new senior note obligations. We had a weighted average diluted share count of 161 million shares in the first quarter, compared to 162 million shares in the fourth quarter of last year. Dilution related to the convertible debenture was approximately $7.9 million shares, based on the average share price during the quarter, compared with $2.5 million for the same quarter in 2012. The share count was decreased by the full impact of fourth-quarter repurchase activity, and the weighted effect of the 3 million shares repurchased during the first quarter. Operating cash flow was $151 million for the first quarter, compared to $171 million in the fourth quarter of 2012, and $110 million for the first quarter last year. First-quarter free cash flow was $145 million.

With respect to 2013 guidance, our guidance remains primarily unchanged, except to update -- except for an update to our non-GAAP interest expense and non-GAAP non-operating income guidance. Revenue for 2013 is still expected to be in the range of $945 million to $960 million, representing an annual growth rate of 8% to 10%. Non-GAAP gross margin is still expected to be at least 80%. Full-year 2013 non-GAAP operating margin is still expected to be at least 57%. Our non-GAAP interest expense and non-GAAP non-operating income net is now expected to be an expense of between $60 million and $62 million for 2013. This range is an increase from the $40 million to $42 million range given on our last call, primarily reflecting the increased interest expense from our new debt issuance. Capital expenditures for the year are still expected to be between $60 million and $80 million. Our guidance is based on expectations about the outlook for our business, in addition to our financial projections for interest income and expense.

In summary, the Company continued to demonstrate sound performance in the first quarter. We have grown non-GAAP operating income and net income as compared with Q1 2012. We have maintained a strong balance sheet, and expect strong operating cash flow generation to continue as a result of our financial model.

Now, I'll turn the call back to Jim for his closing remarks.

Thank you, George. Before opening the call to your questions, I would like to remind you of our strategic framework and its three areas of focus. These are, first, to protect; second, to grow, which includes our innovation efforts; and third, to manage the business. During the first quarter, we continued our efforts in each of these areas. We believe that our discipline to deliver in these three areas with the right balance should continue to offer the security and stability that are at the core of our business, and provide value to our customers, employees and shareholders.

We will now take your questions. Operator, we're ready for the first question.

(Operator Instructions)

Gregg Moskowitz, Cowen and Company.

Just to start off, it's actually fairly unusual to see a 3% sequential revenue increase in Q1, particularly given that net adds came in at the very low end of guidance. What drove the revenue outperformance in the quarter? Was it NIA or some other factor?

Gregg, this is George Kilguss, thanks for the question. In December of this year, or in the fourth quarter, I should say, we actually changed our methodology of how we account for contra revenue. So contra revenue is a -- our marketing expenses we spend that are a deduct from revenue. We went to a GAAP convention, which recognizes that expense over the life of the customer contract that is entered into. So we had lower contra revenue in Q1. Going forward, the effects that we used to see from more of a seasonal factor in the Q1 from contra will not be as apparent. It will be more smooth, as we are recognizing that expense over the contract life of the customer.

Okay. Perfect. And, George, can you walk us through why you opted to delay about $5 million in marketing expenses in the first quarter? Also, you expect doing most of that up in the second quarter or in future quarters?

So, again, the marketing constantly evaluates program effectiveness, and programs that we have in the pipeline, based on market activities going on. The team, during the quarter, made a determination that it wanted to delay some programs. They didn't think that it's effectiveness was going to reach its maximum potential, and chose to delay that for a few quarters. Right now, we're expecting to see that still in the third and fourth quarter of this year. The team's regrouping on some of those programs, and we'll give more of an update on that on our next quarter call. But right now, we are expecting to continue to spend that in this fiscal year.

Okay, fantastic. Then for Jim, last quarter I think you made the comment that you were seeing early signs of stabilization and improvement in renewal rates and, as you pointed out in your prepared remarks, on a year-over-year basis you are obviously still working through some of the algo changes. But this represented some fairly nice improvement versus the prior period. Just kind of wondering how you are sort of thinking and looking at renewal rates at this point going forward?

Well, we are being -- looking -- I would say we are cautiously optimistic about what's happening. But we don't guide to renewal rates, of course, and first of all I would say that we are still -- we are in the fourth quarter of the algorithm -- search algorithm changes, so we are still uncertain exactly how that's going to play out. Those changes are ongoing and continuing, so I think we are not in a position to say that those changes have been absorbed or that they have ended. They continue. Secondly, as I mentioned, we still are feeling the effects of macroeconomic headwinds, particularly in Europe.

Gregg, this is George. Let me give you a little bit more color on that. As we previously discussed, our zone metrics have been impacted by both the poor economic conditions here and abroad, as well as changes to algorithms, search algorithms. As it relates to Google, while they don't provide that much information as it relates to past or future changes to their algorithm, what we do know is, and as we previously discussed, they made two major algorithm changes called Panda and Penguin. But when you look at Panda, Panda started in 2011. Since its inception, they started -- they've made over 25 different updates to that particular algorithm change. Of the 25 updates, 14 of those updates happened in 2012. So 56% happened in 2012, and they've actually had two additional updates here in the first quarter. So those changes do continue to go on.

As it relates to the Penguin change, as we discussed last year, the first time we saw a Penguin change came out was in the first quarter of 2012. They had -- they made a total of three changes to their Penguin algorithm in 2012. Now, we haven't seen any changes yet in 2013. I believe Matt Cutts from Google made some comment in a seminar that they believed they were going to make another change in 2013 to Penguin. But I guess my point here is that they make continuous changes to the algorithm. Some impact us more than others. We don't know the impact of the changes until after they make them. So we are constantly monitoring those, but they have made a significant amount of changes, especially in 2012, which have an effect in future periods for us. So we continue to monitor that. We take that information into the guidance that we provide you as one data input, but there are many changes that happened, at least over the past year and the current quarter. Okay. Fantastic. That's very helpful. If I could just ask one final question, since it is relevant for all of our models. I'm just wondering if you're -- to get a sense of how you are thinking about putting the incremental $650 million of debt to use from a potential buyback standpoint? Thanks.

So, Gregg, great question. We have historically not guided to buybacks in any particular quarter. I think if you look at the Company's track record, it's had a very consistent track record. In the first quarter, we did $132 million of repurchases. As Jim mentioned, we always look at our strategic framework. We look at the cash flow, from what do we need to invest in the business to protect the assets, what level of liquidity do we need to maintain on hand, what cash to we need to invest to generate positive IRR returns, to propagate growth and innovation? And then to the extent that each quarter we feel we have cash that we deem is excess, we then make decisions on what cash we believe we should be returning to shareholders. So we don't guide, we haven't guided to that, but I think if you look at our track record, it's been relatively consistent in our results and returning capital to shareholders when appropriate.

Thanks, guys.

I would just add -- this is Jim. I would just add, as well, that George talked in his remarks about our capital structure. Part of that, obviously, is debt leverage ratios. We have talked in the past, often, about the fact that the Company did not have as much debt as it could have. Would it have as much as it absolute could have? We said no, the number would be somewhere in between, I think now you've seen that, and clearly as you saw from the announcement earlier, when we closed on the debt offering, it was under very attractive terms for the Company. We see that as a permanent part of our capital structure under attractive terms, and we've been very clear about the stated purpose for that, general corporate purposes, potential acquisitions, and potential share repurchases, among other things. I think our position on acquisitions -- mergers and acquisitions has been very clear and consistent, and there's no change whatsoever on that. As George mentioned, we don't guide on buybacks, but I think if you look at them, how we've dealt with our use of cash issues, which we determine from quarter to quarter, certainly you can look back and see that share repurchase has, under these market conditions over the last couple of years, been an attractive way for us to return value to shareholders.

Terrific. Thank you very much.

Sterling Auty, JPMorgan.

Just to follow on that last point, Jim, is buybacks really the main focal point, or how within that strategic framework would you characterize buybacks versus special dividend, versus regular dividend, as potential capital return?

Well, we don't guide to any of those, obviously. We do evaluate our cash situation, our cash needs, and deployment of our cash on a quarterly basis. I think, looking back, extraordinary dividends during the divestiture period, when we did have divestiture proceeds, certainly were one way that we deployed cash. Share buyback has been a more consistent method for us, but again, obviously we don't guide. So at this point, I would say based on very dynamic conditions in the last few quarters, over the course of 2012, and over first quarter of 2013, clearly you've seen that share repurchase has been our preferred method of cash deployment. That's based on current conditions. There is no change in our strategy, as I mentioned, with respect to M&A or other uses of cash, it's just determined every quarter.

Okay. George, could you quantify the impact on the first quarter from that change in accounting on contra revenue? Did you say that it's bigger in the first quarter as you adopted the plan, and starts to fade? I missed what you were -- how you were explaining that?

So, contra is -- I would say for all intents and purposes, it's now going to be more consistent in each quarterly number. It was relatively flat quarter-over-quarter, from fourth quarter to first quarter. First quarter 2012 had, probably, about $4 million more of contra depressing Q1 in 2012, but Q4 to Q1 were very consistent in the amounts.

Okay. And, last question, on the repatriation analysis that you are doing. What's left to determine? You mentioned before the end of the year; do you need a ruling by a tax authority, or what else can we be looking from the outside to gauge where you are at in the process?

So, as you can imagine, we've been evaluating the strategic alternatives related to our international tax and liquidity. You can appreciate that work is very complex. It is ongoing. We hoped to have had an update for you know, but as mentioned that work continues. There are a number of complexities we have, a number of dependencies as well. We'll give you an update as soon as we can, but it's ongoing. At the end of the day, as you might expect, we need to understand the full cost and risk of any potential changes to our structure before we consider any decisions or potential changes. It is just a very complex area. We do have some dependencies that we are looking at, and we'll provide you an update, clearly on Q2 and Q3, if not before, but we think that work should be completed by year-end.

Thank you.

Walter Prichard, Citi.

George, let me -- just on the margins for the year, I wondered if you could -- I didn't hear you talk about the exit margin, again that's in prepared remarks, but what are you thinking in terms of exit margin? I guess that's the first question.

I'm sorry, what was that, marketing expense you are talking about -- you are asking about?

No sorry, the operating margins you expect to exit with in the fourth quarter?

So -- thank you, I understand now, the operating margin exit rate. Again, our guidance for full year is that we expect it to be at least 57% non-GAAP operating margin. We don't guide to a fourth-quarter exit rate. We were higher in the first quarter, because we did delay some of these marketing expenses. We do expect to spend those this year. So we have not changed our guidance or updated our guidance of at least 57% for 2013.

This is Jim. Just a little bit of additional color on some of the marketing expense. Some of that, a portion of it is tied to investment in marketing, some of the new TLDs that we've applied for, for example the IDNs, which are actually first in the order of delegation in ICANN's program. There have been some small delays, some uncertainty in that program. Some of our marketing expense is tied to that, so not all of it is entirely within our control, but we expect to spend it during the year. So there's some variability there, based on outside factors that are not entirely within our control.

Got it. Just on -- maybe for Pat on the guidance for net [adds] for the second quarter. I guess a little lower than we were expecting, but we've seen the second quarter sort of be all over the map historically. I'm wondering, as we get a level below the headline net add guidance, are you guys thinking about a particular change trajectory between renewal rates and gross adds in terms of how you are getting to the Q2 net add guidance?

Walter, we continue to look at our models, factor in many things we just talked about. Some of the continuing changes that are happening with the Google algorithm, we take that into consideration. Our best visibility for Q2 is the guidance we laid out in the call, 0.9 to 1.3, that's what we are seeing today. Again, we do provide that visibility, as you know, daily. It's updated on our website every 12 hours, so you guys are seeing it in real time. But that's what we are seeing, at least for the quarter. We talked about last quarter that our total zone growth -- our guidance was based on a 4% to 6% total zone growth. That's still consistent with our review there. So we're looking at the total zone, 4% to 6%, that has not changed. But that's what we are seeing for Q2, of this range of 0.9 to 1.3.

And as George said, it incorporates all of our best forecasting tools, but there are two major components under which we have very little direct influence. One is certainly macroeconomic conditions, and particularly in Europe, and additionally, search engine algorithmic changes, which, as George mentioned, were highly concentrated in 2012, do continue, we do expect another Penguin update in 2013. Google has signalled that clearly. But those are two major factors that are components of our guidance, so those are two that we have no direct influence over, and they are all reflected, and that's in the 0.9 to 1.3 guidance number that we provided.

Great. Thanks a lot.

(Operator Instructions)

Phil Winslow, Credit Suisse.

This is actually Harris Heyer on behalf of Phil. I was just hoping you could provide us a little bit of color on your IP licensing strategy going forward from here?

I'm sorry, I missed the last part?

On your IP licensing strategy?

I'm not sure we're in a position right now to give you more color. We're in the middle of a very active effort to inventory, assess and develop a strategy around our IP. I mentioned in the past that our goal actually is not primarily to derive direct patent licensing royalty revenue from our IP, but to use it in support of our business goals and our business planning. That certainly is unchanged, but that activity is well underway, and I hope we'll be able to tell you more shortly.

Okay. Great. Thank you.

(Operator Instructions)

Dan Cummings, B. Riley Bank.

Let's see. First, I'm sorry, I missed -- you gave the renewal rate for the fourth quarter, and I missed it, and I wanted to ask if you could give us a rough idea of the number of names up for renewal in 2Q? That's the first part.

Sure, Dan, the renewal rate in Q1 was -- again, it's not final until 45 days after the end of the quarter, but our estimate is 73.3% for Q1. The number of names up for renewal in the second quarter is 26.1 million names.

Okay. Great, and thank you for that. I want to just be clear on the marketing spend. Were you talking about $5 million per quarter, or is that $5 million for the whole year? Thanks very much for those comments about the external factors. I think that explains quite a bit. Thank you.

The $5 billion was a number based on calendar 2013, not quarterly, for the marketing spend.

Okay. So, we should -- so in terms of understanding, maybe, the level of profitability that the business is running at right now, it -- the 59.6, obviously, it seems a little bit overstated, but it probably isn't that far off, actually. If we are not going to see -- in other words if the $5 million just gets peanut-buttered out over three quarters, the business seems to be running at a level -- you know, whatever, 100 to 200 basis points better than the full-year guidance, is that roughly correct?

We will spend -- the $5 million that we did not spend in the Q1 for marketing, the intention of our marketing department, today, is to continue to spend that this year. So, they have -- it's not in place of other programs, there are programs that, as Jim talked about, some of it is tied to the new GTLD program, so some of that's not in our control. But we expect our marketing spend to accelerate a little bit, as we have these new programs going on, and as this $5 million has shifted out of Q1 into later quarters.

Right. Okay. And one more thing I may have missed. Did you give headcount, and did you project headcount increase or decrease from where we are today out to year-end? Thank you.

Sure, Dan. So we -- I believe the headcount number was on our side -- in our slide deck. Total headcount was 1,070 employees. We do not give a forecast for headcount. That headcount is slightly down from Q4 levels, which was about 1,096 for full-time employees, but 1,070 is the answer to your question.

Okay. Thank you very much.

Jaimin Soni, Bank of America Merrill Lynch.

Hi. Thanks for squeezing me in. Just a couple of quick questions. First, going back for what Sterling had asked earlier, looking at the guidance for the second quarter in terms of net domain name adds and the first quarter [trend], it seems like the second half of the year we should expect some normalization or an uptick to get to the 4% to 6% growth for the full year? Is that -- just trying to understand what gives you some confidence that you will see some improvement in the growth rate in the second half? And, secondly, just wanted to get an update on the GTLD process from your perspective. When do you think that will start contributing to revenues?

Jaimin, this is George Kilguss. Thanks for your question. Again, the guidance that we provided and -- for the quarter and the expectation for the zone, that is based on the most recent information we have. Clearly, when you look at historic net adds, you see that Q1 does tend to be a little stronger and then it does tend to flatten out. There are also changes year-to-year. When you look at when certain holidays fall, especially internationally, you can see that there are some Chinese holidays that happen in the first quarter that take those -- that market -- take those folks out of the market for a little bit, and they tend to come back in. The Chinese New Year this year was delayed, or was later than the previous year by several weeks. So there's a number of factors that go into the model. Again, Q2, the 0.9 to 1.3, that's what we are seeing today. But we still -- at least as we sit here today, believe the zone will grow between 4% to 6%. As it relates to new GTLDs, that program looks like it's still in the works here, but we don't expect too much revenue in 2013 as a result of that program.

This is Jim, let me just --

Thanks for that. Go ahead, Jim, please.

Just want to give you a little bit more color on the TLD program. ICANN just had their meeting a couple of weeks ago in Beijing, and there are a couple of areas where the program is running a little bit slower. There was a target date to make some major steps of April 23, a couple of days ago; that date has been delayed. In Beijing, there was a couple of major events. Number one is that advice was received from the Government Advisory Council for ICANN, and I think that there are some issues that have to be addressed by applicants, which is probably going to take some time. That's been put out to public comment. Also, the process of contracting with registrars and registries in the new GTLD program is also a process that now involves public comment period for those contracts, so that's going to take some additional time as that process plays out. There was also a session in Beijing on security and stability. Certainly, I commend ICANN for their commitment to make sure that all critical security and stability issues are addressed prior to delegation going forward. So I think there is a bit more work to do there. This is -- ICANN is getting operational. This is a major undertaking, a massive overhaul of global Internet infrastructure. So there have been delays in the past, it's probably not going to go perfectly smooth. I think at this point, we still expect the program to get off the ground this year, but probably later in the year rather than earlier, and I don't think that we expect any significant revenue from our applications and our participation in the program this year. But Pat's here, he was in Beijing. If there is anything, Pat, you would like to add?

That covered it.

So I think George said it succinctly, there's -- I just wanted to give you a little bit more color, but there's no significant revenue that we anticipate in 2013, although our applications, as you know, our IDNs, which should be early in the process. So as the program does get underway, once again, I think we are well-positioned to participate with our 14 applications, including our 12 IDNs. So we continue to work within the program, work with ICANN, monitor progress, and look forward to the program launching at some point.

Got it. Thank you, guys.

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

Thank you, Operator. During the second quarter, Jim and George will be presenting at the JPMorgan TMT Conference at 10 AM Eastern Time on Tuesday, May 14, in Boston. The webcast registration details for this conference 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.