Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

VeriSign Inc. (NASDAQ:VRSN)

Q1 2009 Earnings Call

May 07, 2009 5:00 pm ET

Executives

Jim Bidzos - Executive Chairman and Interim CEO

Mark McLaughlin - President and COO

Brian Robins - Acting CFO

Nancy Fazioli - Investor Relations

Analysts

Phil Winslow - Credit Suisse

Todd Raker - Deutsche Bank

Sterling Auty - JPMorgan

Sarah Friar - Goldman Sachs

Walter Pritchard - Cowen and Company

Katherine Egbert - Jefferies

Rob Owens - Pacific Crest

Steve Ashley - Robert W. Baird

Kerry Rice - Wedbush Morgan

Operator

Good day, everyone and welcome to the VeriSign Incorporated first quarter 2009 earnings conference call. Today's conference is being recorded.

At this time for opening remarks, I'd like to turn the conference over to Ms. Nancy Fazioli of Investor Relations. Please go ahead, ma'am.

Nancy Fazioli

Thank you, operator. Good afternoon everyone and thank you for joining us for VeriSign's first quarter 2009 earnings conference call. I am Nancy Fazioli of Investor Relations. I'm here today with Jim Bidzos, Executive Chairman and Interim CEO of VeriSign; along with President and Chief Operating Officer, Mark McLaughlin; and Brian Robins, our acting Chief Financial Officer.

Please note this call and accompanying slide presentation are being webcast from our Investor Relations website, located at investor.verisign.com. Please refer to our website for important information including the Q1 2009 earnings press release and the reconciliation of our GAAP to non-GAAP information.

A replay of this call will be available on our website within a few hours. Today's slide presentation will also be available for download after the call. Financial results in today's press release are unaudited and the matters we will be discussing today include forward-looking statements and as such are subject to the risks and uncertainties that we will discuss in detail in our documents filed with the SEC.

Specifically the most recent report 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.

In conformity with the adoption of FAS 160, net income, now includes income attributable to non-controlling interest. References made to net income or loss attributable to VeriSign Inc and subsidiaries whenever we use the term net income or loss, this also applies to earnings per share.

Additionally financial results in today's press release and the matters we will be discussing today include non-GAAP measures used by VeriSign. Our non-GAAP income statement and description of items excluded from our non-GAAP financial information are on the Investor Relations website.

In a moment Jim, Mark and Brian will provide some prepared remarks and after which we will open up the call for your questions. Unauthorized recording of this conference call is not permitted.

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

Jim Bidzos

Thanks Nancy and good afternoon to everyone joining us today. I'm pleased to report that VeriSign delivered a very solid quarter on the top and bottom-line. This is particularly gratifying given the ongoing macroeconomic environment and these positive results are a testament of the continued focus of our employees, including those in businesses targeted for divestiture.

VeriSign holds the unique and central position in the internet ecosystem and we believe our business model has enabled our global team drive strong results. Our Q1 results demonstrate that we delivered on the goals we laid out.

In the first quarter we delivered revenue in core businesses of $252 million. We also saw improvements in our non-GAAP core operating margins. Non-GAAP earning per share was $0.32, $0.01 of EPS attributable to a one-time benefit to other income spending from an acquisition termination fee. Excluding this one-time event we saw 48% EPS growth year-over-year, very strong results.

On the P&L there were some unexpected events that occurred in Q1 that contributed to the quarter being slightly better than we planned including some favorable events on the expense side that Brian will highlight further for you.

Our balance sheet continues to be a growing area of strength for the company. VeriSign's cash position remains strong as we ended the quarter with nearly $950 million of cash. As a -*parenthetical comment today our cash position is 1.291.

On the divestiture front, we are pleased to note that TNS acquisition of our Communications business closed May 1 and that RTP, a Real-Time Publisher Services closed on May 5. In addition, VeriSign has entered into an exclusive letter of intent to sell MSS, subject to an agreement on final terms and conditions.

The MSS business represents 65% of Q1 2009 revenues of the Enterprise Security Services or ESS bundle. In the first quarter we unbundled ESS into MSS global security consulting, iDefense, which as Mark will discuss later, we have decided to retain as part of our naming.

When we first implemented our divestiture plans to-date, we have sold 10 businesses of the 13 that we're currently holding for sale. Collectively the net proceeds from these sales, including the sale of remaining interest of the Jamba joint venture was approximately $540 million.

I would like to reaffirm that the Board and our executive leadership team is committed to completing the divestitures of our non-core businesses and continued to protect our core franchises of SSL investing in our core identity and authentication businesses as we firmly believe that this is a strategy that will best enable us to create shareholder value in the long-term.

I'll note that comments and feedback from customers and partners globally indicate that our leadership in solutions are needed now more than ever. We believe that the need for our services remains strong despite macro challenges to the economy that may have dampened over.

With that, I'd like to turn the call over to Mark who will go into our business results a bit more for you. Brian, will then provide detailed review of the financials and I'll conclude with brief outlook. Mark.

Mark McLaughlin

Thanks, Jim and good afternoon. I would like to echo Jim's thanks to the employees across the company for the performance this quarter. We have a great team committed to winning and it's a pleasure to be back with this team. As Jim mentioned, we had a solid quarter in the phase of the tough economy.

Before drilling down into the quarter I wanted to note that as you saw in our press release and as Jim mentioned our quarterly revenue includes iDefense which was previously classified as a discontinued operation and will now be included as part of naming services.

iDefense provides information, security, threat intelligence which has been a valuable resource for our naming business, as we continue to counter threat to the DNS. In addition, many government agencies that we interact with in our DNS operations are customers of the iDefense Services. We therefore concluded that this asset provides strategic value, and we're retaining it as part of the naming business.

Now let me get into the business unit operating results for the quarter. In our naming business we saw better than expected growth with the adjusted zone for registered names in dot-com and dot-net, totaling 92.4 million names at the end of the quarter. This was an increase of 2 million net names added to the adjusted zone quarter-over-quarter and 9% increase year-over-year.

In total in the quarter, we processed 7.3 million domain name registration during this quarter compared with 7.8 million names during Q1, 2008.

On the renewal rate side, as you may recall, the renewal rate for Q4, 2008, bounded down to 70% which was down from 72% in Q3 2008. This declines been largely from non-renewal of domain names registered for the purpose of monetizing online advertising traffic. While renewal rates are not fully determinable until 45 days at the end of the quarter we believe for Q1 2009 the renewal rate will be between 70% and 71%.

Last quarter our tone was cautious regarding the Q1 outlook. We felt this was prudent given the economy and our view on overall market dynamics. Our view on that has not changed. On the naming side we were pleased to see better than expected growth in the quarter and believe it is due to a number of factors including seasonality, as the first quarter is typically the strongest quarter for this business.

In addition to strong seasonality during the quarter, we saw new unit promotion programs, international growth, and some strains from domain names being registered for the purpose of online advertising in advance of the April implementation, ITN's policy regarding use of the add grade period for registration deletion.

On the infrastructure side, we were able to reduce the average daily peak loads by more than 10% through the use our enhanced security and monitoring tools. Even in the phase of growing daily average DNS request. Our average daily query load has increased from 35 billion to 38 billion per day.

To handle these increases we continue to invest in the DNS, in order to optimally manage the increase in traffic on the internet. We're committed to investing in critical project in infrastructure to maintain a record of 100% uptime over the last 11 years, making us one of the most reliable and trusted networks in the world.

Now moving on to authentication services, the business unit that includes both our business authentication or SSL services, and user authentication or IAS. In the SSL business we saw the installed base of Certificates increased to 1.15 million certificates, compared to 1.12 million last year and approximately 1 million in Q1 2008. This represents a 13% year-over-year growth in the base.

The annualized average unit revenue or AUR for the installed base of VeriSign's, GeoTrust and broad branded certificates was $244 for the quarter compared to $248 last quarter. As we've seen in the past the AUR decline this quarter is primarily due to the product mix shift. We continue to see the lower end of the market grow faster than the high-end and our GeoTrust brands continues to grow faster than our overall portfolio as we participate in the high growth segment of the market.

At the highest end of our offerings, while still a small portion of our SSL business, extended validation or ED certificate sales were strong as we continued the trend of more than doubling the units sold a year ago. We remain the market share leader for ED certificates.

Finally within our IAS business we have now distributed over 2.3 million credentials as part of the VIP and one-time password program. In the first quarter, we released the iPhone version of our mobile one-time password now available on more than 100 mobile phone models. We're seeing increased interest and stronger authentication as foreign factors become more convenient across this effort.

Now to give you a sense of what we expect as we move forward. Our continued focus in the naming business is on channel expansion, growth in our international footprint, and the introduction of new services. Our SSL business we are focused on up selling the base, driving sales at the low-end and leveraging the brand. In general, we remain committed to implementing plans to continue to improve operating leverage as we grow the business.

While there are some reports that the economic environment has a glimmer of stabilization, it is too early to tell what the future may hold. In addition, to staying in close touch with our customers, things we look at when building our forecast, include the projected growth in online advertising and eCommerce growth. While we expected both of these categories will show continued growth in 2009, it should be no surprise that any growth will be at its lower rate than previous years.

With that in mind for the second quarter, we believe the naming base will grow by 1 million to 1.5 million names and that renewal rates will stay within the historical range of 70% to 71%. We continue to watch the impact of the structural changes in the business related to online advertising, most notably as it relates to our renewal base of business.

On the SSL side of our business, we are watchful of customer behaviors in this economic environment, which has resulted in us seeing customers renew later than usual and increasingly request discounts and price reductions as well as taking deals to RFP.

In summary, our core business performed well in the first quarter. With our strong market position, great team, well recognized and regarded brand and our disciplined approach, we remain confident in our ability to maintain continued progress in our business in both the short-term and over the long-term.

Thanks for your attention and now I'll turn the call over to Brian. Brian?

Brian Robins

Thanks, Mark and thanks everyone for joining us this afternoon. As Jim and Mark have both discussed, we are proud of the progress that we made in Q1, particularly in light of uncertain macroeconomic headwinds that we faced coming into the quarter. This has been and still is unchartered territory for all of us.

Before I jump into a more detailed discussion of first quarter results I like to briefly discuss the housekeeping item. As we discussed last quarter, beginning with Q1 we've adopted a more rigorous view of what is excluded as non-GAAP item in order to improve the quality of our earnings. Our description of items excluded from our non-GAAP financial information is available in our press release.

As of this quarter, gains and losses on derivatives, and macro investments, impairment of property, plant and equipment, and non-recurring costs are no longer excluded. The 2008 non-GAAP reconciliation has been restated for this change. This inclusion of iDefense and the adoption of new accounting standard FSP, ABP 14-1 related to do accounting for our convertible debt instrument is now posted on Investor Relations website at investor.veriSign.com.

We will be holding our 2009 Analysts Day on November 19th in New York City. Additional details will be forthcoming, but please mark your calendars. We look forward to this event and hope to see many of you then.

Moving now to a more detailed discussion of results for our core businesses. Revenue for our core businesses came in slightly above our guidance at $252 million up 2% sequentially and up 13% year-over-year. As we noted in our press release, iDefense contributed $3 million to the quarter and is included in naming services. We expect iDefense to contribute approximately $10 million in revenue to 2009.

Revenue growth in Q1 was largely driven by performance in naming, which was up 17% year-over-year, authentication services revenue which includes SSL, VSJ and IAS was up 8% year-over-year. As noted previously, we exited Q1 with non-GAAP cooperating margin of 36.9%, which was above our internal expectations.

Factors in Q1 contributing to lower expenses in plan, include lower labor costs and expense reductions related to the implementation of smart spending programs. Expense savings include a slower pace of hiring, more judicious use of outside labor and travel savings.

Where as the operating income line, we incurred a loss of approximately $5 million for our core operations, this was less than we expected due to a termination fee of $3 million from an acquisition received during the quarter. Due to adoption of SSP, APB 14-1 we expect future quarters to be a loss of approximately $9 million per quarter.

Non-GAAP core net income for the first quarter was $61 million, resulting in non-GAAP earnings per share of $0.32. The diluted share account used in the EPS calculations was 193 million shares from approximately 194 million shares last quarter.

Moving on to cash flow and balance sheet items. Operating cash flow is approximately $38 million and free cash flow is $17 million. Q1 is seasonally low due to the payment of accrued employee bonuses. Consolidated capital expenditures for this quarter were $21 million. Capital spend continues to be related to the expansion and optimization of our infrastructure.

We ended the quarter with a strong balance sheet with ending cash and cash equivalence of $944 million, up approximately $153 million from last quarter. During the quarter, we received distributions from the reserve funds of approximately $94 million. There remains $56 million from the reserve funds as currently classified in other current assets.

Net DSO for the first quarter was 31 days, down 4 days from last quarter stemming from strong collection efforts. Deferred revenue from continuing operations ended the quarter at $872 million, up $27 million, or 3% from last quarter. We ended the quarter with approximately 3,200 employees, down 100 from last quarter largely due to planned head count reductions.

With the sale of Communication Services, International Clearing, and Real-Time Publisher Services are currently at approximately 2,800 employees. As previously discussed, head count will continue to decline with the sale of non-core businesses and further reduction in shared services head count.

Our divide and focus approach continues to pay off as a non-core businesses that remain, as well as those that are in the process of being sold, again delivered solid results.

In summary, we're pleased with our results given the continued challenging economic environment. We delivered double-digit revenue growth, as well as, strong earnings growth this quarter. Although, we benefited on the bottom-line from some favorable events, on the whole our performance speaks for the strength and durability of our business model.

As we have noted, 2009 will continue to be challenging, but we will also continue to exercise financial and operational discipline in results.

Moving on to our outlook. Q1 historically is a seasonally strong quarter. For Q2 we expect revenue for the core businesses will be flat to slightly up from Q1. As we look at 2009, we remain cautious in this environment. As we previously discussed our 2009 revenue being at the low-end of our original double-digit range, with the addition of iDefense revenue, we believe that this target is still achievable.

Without iDefense there are a few factors that could impact our ability to hit this target by a couple of percentage points, specifically, those are swings in FX rate, the global economy, especially in Japan. As context on FX, note there have been fairly dramatic swings in FX rates over the last four months based on economic environment. The dollar has strengthened against the yen and euro by about 10% and 5% respectively from plan rates.

We expect this to result in $2 to $3 million impact to revenue in the second quarter and possibly by similar amounts in the second half. Q2 non-GAAP operating margin is forecasted to be inline with the first quarter. Given the uncertainties that remain with regard to the economy, we will continue to take a conservative approach to cash in the near-term.

With that, I'll turn the call back to Jim. Jim?

Jim Bidzos

Thanks, Brian. 2009 is off to a solid start for VeriSign, demonstrating strong execution in the tough environment. Our strategy is the right one and we believe that the results demonstrate that. While it's easy to get caught up in the details of quarterly earnings I think it's also important to step back and remember what a unique company VeriSign is, as well as, the important foundation that we provide for internet economy.

We believe our business model puts us in a unique position in the industry and that combination of business model and strategic position has enabled us to deliver revenue growth, margin expansion and strong profitability in this economy.

Additionally, our balance sheet is very healthy and this allows us to aggressively protect and grow our business in this environment, while maintaining flexibility to pursue opportunities prudently. While 2009 will be a year of challenges and opportunities, we are excited about VeriSign's role and potential as the most trusted provider of internet infrastructure services now and for many years to come.

We would now like to open the call for your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). We'll have our first question from Phil Winslow with Credit Suisse.

Phil Winslow - Credit Suisse

I just wanted to chat a little bit more just on margins you mentioned a flat margin quarter-to-quarter in Q2. Mark, when you kind of just look longer term at the company, I would say some of the macro dynamics have changed. But any sort of change in your opinion what the longer term margin targets are?

Jim Bidzos

Thanks, Phil. On the longer term basis I think, as I think I mentioned on the last call, we think we could maintain the margins that we're looking at now with possible slight improvement. Factors that go into that are the amount of revenue, continued leverage as we divest the remaining businesses and then some of the programs we have in place to reduce expenses. Those are counter balanced by investments in the infrastructure. We've made some investments in the talent in the people, as well as some product investment.

Phil Winslow - Credit Suisse

Then also when you look at SSL business, you mentioned that greater mix shift towards the low-end. When you look at this year, what are you expectations when you think about pricing? Should that continue over the course of the year?

Jim Bidzos

I would expect that the mix shift that we're seeing will continue, the low-end of the market is growing faster than the high-end of the market and there is no reason to believe that that's going to change. As far as from AUR standpoint, I think if we look back a few quarters and see the percent declines we see in AUR, that I would expect that could continue for the foreseeable future.

Operator

We'll go next to Todd Raker with Deutsche Bank.

Todd Raker - Deutsche Bank

If we look at the 2 million net add number on the DNS side, you guys get some demand stimulation in the quarter. When you think about Q2 and guidance of $1 to $1.5 million, are you guys going to repeat some of those demand stimulation programs? Can you give us a sense in terms of the impact of the, ICANN change was in terms of tasting and, that kind of, you mentioned you saw some low-end momentum in Q1, some advertising momentum, sorry?

Jim Bidzos

Todd, so a few things there. We did better than we thought and we think it's related to those items. It's not just Todd to review the programs it's the industry-wide. We will continue to do programs, at least for a couple months in this quarter. From what we hear from the industry, a number of the registrars will continue to run programs, as well, but it's not certain as to whether they would do that for the entire quarter or not.

So it's very difficult to tell how much of the new units from the first quarter are directly related to those kind of programs. So that's just tough to break that out. We did see, particularly as we got closer to April 1, some run-up on new names that we believe are the impact of that is because of the implementation of the PBC non-forgiveness.

It's hard to say which portion of that is attributable as well. If I had to guess, I would put it in the few hundred thousand sort of category, but that's a difficult thing to do.

Todd Raker - Deutsche Bank

Should we be thinking that business is bothering secular bases here in Q2 as we anniversary some of the structural changes?

Jim Bidzos

There was two things we had talked about, before structurally. One was the changes that Google particularly made on its programs and I think we've seen the impact of that flow through the system from a new unit basis, and we are continuing to see that slowdown from the renewal basis. It looks like the renewal rates have stabilized and the historical rates like I said is 70% to 71%.

And then on the other changes that are ICANN related about the restocking fee and the non-forgiveness fee, to the extent we might see impacts from those things other than the run-up of names, it would be the renewal rates, a year or so from today, depending on how those names performed.

Operator

We'll go next to Sterling Auty with J.P. Morgan.

Sterling Auty - JPMorgan

Jim, I think the comments that you made about being conservative with the cash and being opportunistic, I didn't hear any share repurchase in the quarter. How are you looking at the use of the cash to be opportunistic share repurchase versus acquisition?

Jim Bidzos

Our share buyback strategy hasn't changed. We consider that to be a very viable way of returning value to shareholders. We currently have authorization for that $950 million in repurchase. I think given the depth and the continued length of the recession, and the impact that we're seeing from it. I think it's just generally prudent for us to be extremely cautious with cash.

Having said that, I would add a couple of things. Number one is that we have bought some shares back in every quarter, and that in general our policy has been that we will repurchase at least an amount equal to the [creep], and on an ongoing basis that strategy hasn't changed.

I would also add that we would be disciplined and opportunistic in any acquisition opportunities. We simply don't see any at this point that would cause us to rethink our view of cash. I would just simply call it one-off caution based on the economic environment, and continuing review of share buyback as a way to return shareholder value.

Sterling Auty - JPMorgan

Can you just review for us the decision process to keep the iDefense part of ESS? And is there any chance that you might keep any of the other disputing [aps] that are still left for sale?

Jim Bidzos

I'll turn that over to Mark. I'll just say that, that decision with iDefense was purely strategic, not financial. And the ESS unbundling essentially was a way to help us get to divestiture quicker. Mark?

Mark McLaughlin

Sterling, I think the short answer is no, we will not keep other portions of the assets. We don't have a plan to do that today. So the iDefense one was one that I got involved in when I got back. I think that's strategic to the Naming business. The two things I mentioned in the prepared remarks are important. Our Naming team uses iDefense services to help them counter the threats we see to the DNS and it seems like it might be able to shortsighted to have to go to market to get those services for that capabilities when we had it in-house.

And secondly and very importantly, we have a lot of happy customers in the US government who use those services today. And that's closer related from a relationship standpoint to our DNS business, I'd like to continue to maintain good relationships. And the third point is we actually think that there is potential opportunity to grow that business as well which we'll be trying to do.

Operator

We'll go next to Sarah Friar, Goldman Sachs.

Sarah Friar - Goldman Sachs

Can you talk about the pricing on the DNS side? Clearly, I think you've made some comments about wanting to be more careful this year given the macroeconomic environment. But any color on your thoughts about lifting the price overall?

Mark McLaughlin

By way of reminder for people who may not know, under a contract we have the ability to take 7% price increases or out of the six years of the agreement for dot-com. So far we've taken two of these increases. And the patentees' have been thoughtful about the timing of the increases, and I think we should be continuing to do so particularly in life as the impact of an increase could have on sales in this weak economy, as well as some uncertainty in the multiple constituencies that are involved in this industry.

Through the last time we talked as a group, there has been a bit of stabilization in the company but that's hard to say if that's going to last or increase. A few on the uncertainties in the constituency side have been answered by fair to say, newly confirmed Secretary of Commerce, Gary Locke, as of just about two weeks ago.

And a nominated, but not yet semi-confirmed Head of NTIA, Larry Strickland coming out of the SEC. Hard to say when he will be confirmed. There is still not yet an announced new CEO of ICANN, I don't expect to see that probably at a minimum until the next ICANN meeting in June.

While we take numerous items into consideration we think through timing and we're going to continue to do that.

Sarah Friar - Goldman Sachs

I think you have to give us six months update, normally you've upped the prices historically in the fall. It seems like right now we could think it's going to get pushed out a little bit from there. Is that fair?

Mark McLaughlin

We have to give a six months notice period to increasing the prices to the extent that to make a pattern we'd noticed two previous ones in the spring time and taken the increases in the fall, but there is no rule about that.

Sarah Friar - Goldman Sachs

And Mark, just a follow-up for you, coming back into the fold, I know you had a lot of ideas about what could be done on the registry side of the business, new business creation there. Any update on something's that you're particularly excited about as you've come back and looked at what's there for you to do?

Mark McLaughlin

There are a couple of things, Sarah. I want to be careful as I mentioned last so we don't want to talking about things that are too early to talk about. But two that I spent a bit of time or more than a bit of time since I get back on with one business, [VIVN], which is the various sign internet defense network which we've launched in beta. I spent some time with some customers on that and have some positive feedback so far but that doesn't mean that that's going to be a big deal for us. We're trying to be cautious about that as well.

And the second thing is, really, I think some clever ideas what the team is looking at to do with the dot-name asset that we purchased, particularly, related to tying together SMS and E-mail using a dot-name. And we're invading a few markets with that right now to getting some interesting feedback. But again these are early things for us, so I'd like to hold off on any details in that.

Operator

(Operator Instructions). We'll go next to Walter Pritchard with Cowen and Company.

Walter Pritchard - Cowen and Company

Mark, I'm wondering if you could talk a bit about the puts and takes on the DNS side. Specifically in the past you guys have mentioned the number of new name ads, big kind of a gross number, so if you could give that number? And then just for Brian, in terms of shared services costs, now that you've got some of these divestitures behind you, if you could help quantify, especially on the G&A expense side? How much of that you think you can take out given what's being completed and what's been announced share in terms of the divestitures?

Mark McLaughlin

Just make sure I understand. You mean just as far as new registrations and what goes into that?

Walter Pritchard - Cowen and Company

Right. I guess you have some color on the renewal rate being 70% to 71% estimated for the quarter, but just kind of the -- I don't know, help us out a bit with, it sounds like you saw strong new name registration, or stronger new name registrations as well as maybe a bit less churn than expected. Just trying to get a little bit more color around that qualitative commentary.

Mark McLaughlin

If you look back over the course of 2008, this quarter we did 7.3 million new registrations and in the fourth quarter of 2008 we did $6.3 million. In the third quarter we did $6.9 million, and in the second quarter we did $7.5 million. So if you charted that out we're roughly back to where we were in the second quarter of 2008, which I think correlates heavily to the end of the economic world as we knew it.

And whether that's a trend that will continue, I think it definitely depends to some extent on the economy, and like I said the things we watch on eCommerce growth and online advertising. There are lots of conflicting reports about that but I've seen those will be flat to growing in a single-digit. That leaves us to believe, given the results we've seen in the first quarter but they are probably growing in the high single-digits in both of those categories, and we grow kind of closely to that.

But the three things I'd mentioned to go into that number for the first quarter are better than we expected, where we did see strong international growth. I think we definitely saw units coming from these promotion programs, and we did see a bit of a run-up in front of that PPC non-forgiveness. Does that answer your question?

Brian Robins

Walter, this is Brian. On the G&A cost, there will not be any direct immediate savings from the divestitures. The two divestitures that we mentioned RTP and VSP were relatively small. On a comps divestiture which is a more larger divestitures, we've been aggressive predivestiture in separating these assets and it's gone to discontinued operations. And so with [com] specifically, that is actually operating over Olympia, Overland Park office which are dedicated facilities.

With that said, once the TSAs are done and we fully transferred all the technology, there will be some reductions in facilities in data centers and so there will be some opportunity, and so the next two quarters to trim out G&A. We did deliver higher margins this quarter at 36.9% operating, due to some of the efforts that we've put in place over the last couple of quarters.

Jim Bidzos

Walter, this is Jim, I'd answer your question about what divestitures remain. I think there is generally very good news on this front. As you know we closed the com business of course, on May 1st and RTP on May 5th. So basically we have two of the three components of the enterprise security bundle that we are not keeping. And as such we mentioned, we have a letter of intent. We are not identifying the parties under nondisclosure. We have the consulting part of the security business. Then we have the messaging bundle that still remains. That is 10 out of 15 that have closed. So, we are pleased with our progress there.

Operator

We'll go next to Katherine Egbert with Jefferies.

Katherine Egbert - Jefferies

Hi, just a quick question on competing certificate services from the registrars. Can you talk about that, how the business model differs and what the value proposition of the customer might be versus yours?

Mark McLaughlin

This is Mark. So, let me start with from a registrar standpoint are primarily a channel for certificates and not all registrars offer their own certificates. The most registrars may have tried to sell our certificates. Ones that people know of, our (inaudible) offer their own certificates. They are almost totally at the very low-end of the market and from a differentiation standpoint a lot of that is around price.

What that really means from a customer standpoint is the level of authentication that is provided for those services and when you get to that very low-end of the market, it is very minimal usually just verifying that the domain name itself. So, it is a minimal level of authentication.

Katherine Egbert - Jefferies

And then if you can go back to the price increase on dot.com. I heard your answer that about shifting around government officials and that's understandable. But is that what you're looking for the triggers to take this price increase, meaning that they confirm the head of NPIA and (inaudible) as new CEO or are there some other triggers?

Mark McLaughlin

There are a lot of factors in this, Katherine, but primarily what we're concerned about is just the economy itself. So, a lot of the discussions we had from the customer standpoint, we have to believe that in this current economy, unless we see some more stability. The price increases could lead to lower demand to differ and people buy less. That is primarily we are looking for a stabilization economy.

You throw into that mix some uncertainties that exist, because of the new administration. A lot of players that used to be around the table are different or not yet named and how that's received in this economy is something we need to think about.

Operator

We will go next to Rob Owens from Pacific Crest.

Rob Owens - Pacific Crest

Couple of questions around iDefense. With the incremental revenue contribution, did you break out what the incremental expense was for the quarter as well?

Brian Robins

Hey Rob, this is Brian. We actually don't break that out, but what we have committed to in guidance is we will deliver the same profitability.

Rob Owens - Pacific Crest

So was it at the same type of corporate margin in Q1 or was it additive?

Brian Robins

It was absolutely not at the same corporate margin.

Rob Owens - Pacific Crest

And then second, I think you said core long-term plan is to grow iDefense. Just curious with the 3 million here in the first quarter, why are you only seeing 10 million fort year, where should we see the weakness?

Brian Robins

So we didn't put the decimal around, but that is round-up. So if you look throughout the year. Part of the other issue, as well as since we are just integrating that back into VeriSign, when you go with the divestiture, the willingness for customers' assigned new business with you.

As Mark talked about we are going to integrate that within VeriSign go into the public sector, incorporate into our threat intelligence. So, I think you will see more coming from that in the future.

Rob Owens - Pacific Crest

And then on your website are you going to give us comparability for iDefense contributed in '08?

Brian Robins

It's there [around].

Operator

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

Steve Ashley - Robert W. Baird

Maybe I can start with a housekeeping question. Brian, would it be possible to get the revenue dollar break-down between the naming business, the SSL and the IAS businesses?

James Bidzos

I could give that to you. In fact and let me, so I'll give you approximate. Naming was approximately 148 million. SSL was about 91 million. And then in IAS, we have talked about is roughly around 12 million. On a go-forward basis, SSL and IAS is the authentication unit, and so those will be combined.

Steve Ashley - Robert W. Baird

Perfect. And then is there back to the start business, is there anything you are doing from a marketing standpoint or go to market to try to encourage EV adoption? Thanks.

Mark McLaughlin

Yeah, this is Mark, Steve. We do, do that and the industry does that as well. So, EV is a standard which is good and bad in that as a standard everybody can use it, everybody can adopt it. The bad news around that is, is that as far as putting enough marketing muscle behind it for it to make a difference, it takes quite a bit.

So, we certainly do our part for that. I'd like to see lots of other people step up to that as well and I think that would help everybody. But we haven't really seen the entire industry particularly in the browser space do that.

Operator

We'll go next to Scott Sutherland with Wedbush Morgan.

Kerry Rice - Wedbush Morgan

This is Kerry Rice for Scott. Most of my questions have answered, but I wanted to touch on some things that were mentioned earlier. You mentioned, I think a little bit of improvement from that in the domain names from the advertising. And I was curious if you've seen that sustainable here in April and maybe if you can without giving guidance, what you think the impact is there beyond Q2?

Brian Robins

Yeah, so what we saw there, I think is a run-up prior to the implementation of this non-forgiveness fee. So, just for people who may not know what that means, as of April 1st, if you were registering domain names using the ad grace period and then returning those domain names, that used to be free, you had five days to do that. It used to be free and that I kind of created this whole PPT industry. Then I can impose what they call a restocking fee of $0.20 for every one of those names. So, that raised the bar on what you have to monetize that name.

As of April 1st, there was no more forgiveness of the registry fee, which means you had to pay the entire registry fee to keep those names. So, as a matter of monetizing those names, the bar went from zero up to the entire registration fee plus the restocking fee.

So, people were trying to get in front of the implementation of that, right up through April 1st. Post-April 1st, I don't think we'll see names going into that category unless they can monetize at that rate and if that is the case there is really no difference between those names and what we would call traditional names of the same thing now because, we are costing the same amount of people who are monetizing at the same level.

Kerry Rice - Wedbush Morgan

And for that run-up, and I don't know if you have any statistics on this, but the ones that we are still trying to kind of beat that deadline. Did they generally do the grace period and drop off, or did you see how lot of those retained going in, because of the restocking fee or can you give any insight on that?

Brian Robins

Actually I don't know. I don't know that, I can get back to you on that. But we used to see a very, very wide divergence between the number of names that were attempted to register and the number of names that would stick. And that is going down dramatically over the last year to some thing that is fairly negligible. I call it back to normal, but I could check on that.

Kerry Rice - Wedbush Morgan

I'd be curious to see if they kind of retained them or if they just dropped off. And then the final question I have, there has been some discussion out of the EU about pushing ICANN to run independently and not in the US Department of Commerce. Do you have any thoughts on that or comments on that?

James Bidzos

So that relates for folks who may not know, there is that contract between ICANN and the Department of Commerce called the JPA, by its terms it is going to expire in September. And that has been the case every year. It is a year-to-year contract.

There is a lot of discussion about what will happen come September, and there's no specific proposal out there, yet people have all gotten behind ICANN is proposing self-governance, a lot of other people who have proposed different models.

Recently the commissioner of the EU suggested trading like a super-G12 nations to provide oversight. But that's one of many proposals that have been on the table.

Operator

And we have no further questions in the queue at this time. I will turn the conference back over to Ms. Nancy Fazioli for any additional or closing remarks.

Nancy Fazioli

Thank you, operator. We anticipate that our next quarterly conference call, which will reflect our second quarter 2009 results will be held on Thursday, August 6th at 2:00 p.m. Pacific Time.

I would like to remind you that in light of regulation FD, VeriSign claims to retain its long standing policy to not comment on its financial guidance during the quarter, unless it is done through a public disclosure. 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.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: VeriSign Inc. Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts