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Executives

Nancy Fazioli – Investor Relations

Mark D. McLaughlin - President and CEO

Brian G. Robins - Executive Vice President and CFO

Analysts

Sarah Friar – Goldman Sachs

Shaul Eyal – Oppenheimer & Co.

Todd Raker – Deutsche Bank Securities

Katherine Egbert – Jefferies & Co

Phillip Winslow – Credit Suisse

Sterling Auty – JPMorgan

Rob Owens – Pacific Crest Securities

Steven Ashley – Robert W. Baird & Co

Walter Pritchard – Citi

Ed Maguire – CLSA

[Avi Frashear – Attera]

VeriSign, Inc. (VRSN) Q1 2010 Earnings Call April 28, 2010 5:00 PM ET

Operator

Good day and welcome to the VeriSign, Inc. first quarter 2010 earnings call. As a reminder, today’s conference is being recorded. At this time I would like to turn the conference over to Ms. Nancy Fazioli. Please go ahead, ma’am.

Nancy Fazioli

Thank you, operator. Good afternoon everyone and thank you for joining us for VeriSign’s first quarter 2010 earnings conference call. I’m Nancy Fazioli, Director of Investor Relations and I’m here today with Mark McLaughlin, President and CEO, and Brian Robins, Executive Vice President and CFO.

Please note that this call and accompanying slide presentation are being webcast from our Investor Relations website located at investor.verisign.com. Please refer to our website for important information including the Q1 2010 earnings press release. A replay of this call will be available on our website within a few hours. Today’s slide presentation will also be available for download after the call.

Financial results in today’s press release are un-audited and the matters we will be discussing today include forward-looking statements and as such are subject to the risks and uncertainties that we discuss in detail in our 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 longstanding policy to not comment on financial guidance during the quarter unless it is done through a public disclosure.

The financial results in today’s press release and the matters we will be discussing today include non-GAAP measures used by VeriSign. GAAP to non-GAAP reconciliation information is appended to our press release and slide presentation, both of which can be found on our Investor Relations website. Please note that we have included a table in the statement of operations in the press release with the classification of stock based compensation

In a moment, 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’d like to turn the call over to Mark.

Mark McLaughlin

Thanks, Nancy. Good afternoon everyone. Q1 was a good quarter for us and a good way to start off the year. In both naming and authentication services, we are seeing improvements in the business driven by the rebounding economy as well as programs and efforts we have implemented to improve the businesses. As we have indicated in the past, we believe that online advertising spend and e-commerce spend are correlated to our business results on a lagging basis.

Both of these areas saw healthy sequential improvement in the first quarter. On the naming side of the business in the first quarter, this helped us to achieve record new registrations as well as an improving renewal rate, and on the authentication side of the business, we saw continued strength in bookings.

Before getting into the business unit results, I’ll touch on some highlights from the quarter. Revenue from our core businesses in the first quarter was $263 million which represented a 4% year-over-year increase. Non-GAAP earnings per share was $0.37 which is a 16% increase year-over-year.

Non-GAAP operating margin was 39.8%. In the quarter we repurchased approximately 2.1 million shares for about $50 million under our repurchase program. On the cash side, we generated cash from operations of $101 million.

On the operations side, we continue to deliver 100% availability on our infrastructure. To help ensure that we maintain this level of performance, we announced a new initiative in the first quarter called Project Apollo. This project is designed to increase our infrastructure capacity to over 1000 times today’s level of 4 trillion queries so that we can manage up to 4 quadrillion queries per day by 2020.

Over the next decade we believe this investment will dramatically strengthen the scale of the infrastructure and enable us to maintain our operational excellence. In moving to the business unit results for the quarter, I’ll start with naming. The base of registered names in dot com and dot net this quarter totaled 99.3 million names at the end of March, a 7% increase year-over-year.

2.5 million net names were added to the domain name base this quarter, which compares to 2 million net names added in the same quarter last year. During the quarter, we processed a record 8.1 million new registrations. This is an 11% increase quarter-over-quarter and year-over-year.

The 2009 fourth quarter renewal rate was 71.2% up from approximately 70.5% in the third quarter of 2009. 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 2010 will be approximately 72%.

New registration and renewal growth in the quarter was driven by increasing confidence in the economy, continued strong international growth, and registrar marketing programs. We expect that the Q2 net names added to the domain name base will be between 2 million and 2.3 million names, considering historical seasonality.

As a reminder, the price for dot com and dot net new and renewing names will increase to $7.34 and $4.65 respectively on July 1 this year. To close out naming, we have no update regarding the status of the case filed against VeriSign by the Coalition For ICANN Transparency or CFIT. As previously indicated, the Petition for Rehearing is still pending and the court is not obligated to respond in any prescribed timeframe.

Now, moving on to authentication services. In business authentication we saw the install base of SSL Certificates increase to 1.25 million certificates in the first quarter compared to approximately 1.22 million for last quarter and approximately 1.15 million certificates in the first quarter of 2009. This represents a 9% year-over-year growth in the base.

As I’ve mentioned in the past, the main metric for this business is revenue growth. Given that revenues are primarily deferred and recognized over a future period, bookings is a good leading indicator of future revenue direction. From the bookings perspective, we have the second consecutive healthy bookings quarter where SSL bookings exceeded our plan.

Also, while two quarters do not make a trend, we have second consecutive quarter in which SSL bookings were higher than revenue. The annualized average unit revenue or AUR for the installed base of VeriSign, GeoTrust, and thought branded certificates for the first quarter was $222 which compares to $228 for the prior quarter. There are a couple of AUR related points worth mentioning.

First, the AUR for the VeriSign branded certificates was flat quarter-over-quarter following a decline for the past six quarters. We believe this is due to increased discipline on discounting policies and the improving economy.

Second, unit volume growth in the low end continues to outpace unit growth in the VeriSign branded certificates. Given these points, we believe that product mix shift continues to be the major factor in the AUR decline and we would expect that to be the case for at least the remainder of 2010.

Also, in the first quarter, in the authentication business, we successfully launched the VeriSign Trust Seal as planned in late February just before the RSA conference. This is our first step in our efforts to increase our [wallet] share and expand our [address for market] and trust services beyond exclusively transaction oriented sites.

The initial rollout was through a small, direct sales team and through indirect mail efforts. We have additional rollouts planned to our sales partners and affiliates in May and then we’ll roll the product out for our existing VeriSign SSL customer base in July. It’s still early but the initial reception has been promising.

To close out authentication service business, I also wanted to mention that in early April we acquired certain assets from TrustBearer Labs. This small acquisition follows a year long partnership that allowed us to fully appreciate the PKI expertise of their team of engineers. The company’s unique technology will further and enhance our solutions, particularly in the public sector.

Now before I turn it over to Brian, I wanted to introduce two new members of my executive team. First,[Autry] [inaudible] joined VeriSign in the first quarter as Senior Vice President of User Authentication, which includes our VeriSign identity protection and PKI businesses. [Autry] brings over 20 years of experience in Internet software, security, and cloud-base computing from organizations including McAfee, [Socoric], [inaudible], and Netscape.

Also Ben Petro recently joined VeriSign as the Senior Vice President of VeriSign Internet Defense Services, which encompasses I-Defense and our DDoS Mitigation Service. Ben knows our space well having successfully built UltraDNS, a DNS solutions provider into a growth business, which was acquired by Neustar in 2006. We are pleased to welcome both of them to the team. Brian, I will now turn the call over to you.

Brian G. Robins

The Q1 operational and financial results demonstrate that we are making good progress towards our 2010 goals. You will recall that we highlighted at our Analyst Day the following key financial metrics: revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS growth, and free cash flow. We were pleased with our Q1 performance in all of these areas.

Starting with revenue for our core business, revenue was $263 million, up 1% from the prior quarter and up 4% year-over-year. Naming Services revenue was up 2% sequentially and up 9% year-over-year. Authentication Services revenue was down 1% sequentially and down 2% year-over-year. The sequential decline of Authentication Services was related to user authentication as well as VeriSign Japan. Deferred revenue from continuing operations was strong.

In Q1, we ended the quarter at $924 million, up $36 million or 4% from Q4 and up 6% from the same period in 2009. The strength is primarily the growth in new domain names and Naming Services. The subscription based deferred revenue is a key strength of our business model. Non-GAAP operating expenses was approximately $159 million, down 4%, quarter-over-quarter due primarily to the $4 million out of period depreciation adjustment that was discussed in Q4.

As well as managing Q1 expenses ahead of revenue visibility. Non-GAAP operating expenses were flat year-over-year. Our GAAP operating margin for the quarter was 33.6%. Non-GAAP operating margin was 39.8% in the first quarter compared to 36.8% in Q4. Non-GAAP net income for the first quarter was $69 million resulting in non-GAAP earnings per share of $0.37 compared to $0.31 in Q4 and $0.32 in the same period in 2009.

Contributing to a strong sequential earnings growth was the following: continued execution on expense management, less than expected other loss net due to a gain from the contingent interest derivative related to convertible debt, higher transition services revenue in Q1, and improved interest income, and finally 2.1 million additional shares that we purchased during the quarter, resulting in a diluted share count of 184 million shares and net reduction of 8.5 million shares from Q1 2009. Operating cash flow was approximately $101 million in Q1, which includes the payment of accrued employee bonuses of approximately $36 million.

Free cash flow was $89 million in Q1, giving $8 million in excess tax benefits and $20 million in capital expenditures in the quarter. Our balance sheet is strong with ending cash, cash equivalents, marketable securities and restricted cash of approximately $1.6 billion; an increase of $73 million after share repurchases of 50 million.

We ended the quarter with approximately $460 million in marketable securities; moving from a government money-market, light boat strategy with our cash to a prudent investment strategy that we hope to improve our yield. We invested in investment grade securities with an emphasis first on capital preservation liquidity and second on yield. We have $647 million off rights for share repurchases. As we indicated previously, approximately 60% of our cash, cash equivalents and marketable securities is held domestically.

Moving on to guidance, as we indicated last quarter we no longer provide quarterly guidance. However, we will update you on our progress toward our annual guidance each quarter. At this point we believe that we are making good progress to achieve or exceed the targets we provided at Analyst Day and reiterated on the Q4 call.

Core revenue growth for 2010 will be in the range of 5% to 7%, up from 4% to 7%. In light of the sequential improvement that we saw in Q4, we now expect to exit Q4 2010 with non-GAAP operating margin in the range of 39.5% to 40%, up from 39% to 39.5%. Non-GAAP other loss net is expected to be approximately $32 million for 2010.

Our guidance is based on continued growth, disciplined execution, and increased operating efficiencies within our businesses. In closing, Q1 provides a strong foundation from which we can continue to focus on growing the business. During the quarter we improved company-wide performance and profitability while continuing to invest in our people, our technology, and our brand. Our operational excellence and unique capabilities coupled with our financial strength will move the business forward by relying on our experience and strengths.

We would now like to open up your call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Sarah Friar – Goldman Sachs.

Sarah Friar – Goldman Sachs

Two questions for you. Given the turn that it appears you are starting to see, why not list their revenue guidance a little bit more on the top line? Then second, can you address competition and the SSL certificate of business too? Are you starting to see any entry from the more BBB orientated companies?

Mark D. McLaughlin

Hi Karen, it’s Mark. I would be happy to address both of those. On the top side, we obviously saw that there is more achievement in the first quarter than we had predicted. So from a revenue standpoint, the guidance we had given was 4% to 7%. We are tightening that range 5% to 7% and we will see how the rest of the year goes. You know it’s deferred so it bleeds out over time as we over achieve.

On the SSL competition side, the short answer is no. We haven’t seen any increased competition from what we see today, which is almost primarily all at the low end.

Sarah Friar – Goldman Sachs

Okay, so all of the pricing you have done is 100%, just kind of the mid-shift then.

Mark D. McLaughlin

At this point what we saw in the AUR, as mentioned on the VeriSign branded certificate, the AUR there was slack quarter over quarter so there has been a six-quarter decline on the ASP at VeriSign so it flattened out this quarter, which is good news. We think it’s due to a lot of, at this point, put in place around discounting and is just the sentiment in the market.

I think that, if you remember from Analyst Day, I discussed this accounting and I discussed the mix shift. I think that is primarily what we see from an AUR standpoint going forward for our mid-shift basis.

Operator

We will take our next question from Shaul Eyal – Oppenheimer & Co.

Shaul Eyal – Oppenheimer & Co.

I might have kind of missed the initial part of the presentation, but back to the AUR. Assuming that we focus on the VeriSign brands as one, what do you think those could come in the next quarter? Are they still likely to be flat?

Mark D. McLaughlin

Shaul this is Mark. I would say that we are obviously working to increase them. I think it’s a good indicator that they are flat in that quarter; actually it was up a little bit. We are calling it flat here, but its weak and if we continue to reduce discount, I think we can hold the line on pricing. It is possible that that could increase.

Operator

We will take our next question from Todd Raker – Deutsche Bank Securities

Todd Raker – Deutsche Bank Securities

Hey guys. I apologize; I missed some of the call. I have two questions for you. First of all, with $50 million in stock buy-back, especially given seeing the turn in the economy, why not ramp up stock buy-back a little bit more aggressively? Secondly as I think about the price increase starting to roll into the base, what is the average contract length on the domain side? Why won’t we see a little bit more on the uptick of operating margins, especially given the out performance that we saw this quarter as the price increase starts to roll into the base?

Brian G. Robbins

Hi Todd, this is Brian. I will take the buy-back question. As we spoke on prior calls, our position on buybacks hasn’t changed. We still have approximately $650 million of authorized shares repurchases and we will continue to buy back [the creep] and be in the market on an as-needed basis and look at ways to return value to the shareholders. So I can’t really comment anymore on buy backs.

Mark D. McLaughlin

Hi Todd, this is Mark. On the APL side, we are pretty consistent in a 1.17 on the APL, so that hasn’t changed in a while. Then on your question on the margins, obviously margins will slow from the increase on the base and we will see that again. You know it is deferred, it takes time for that all to hit. That is one of the reasons why we are saying 39.5% to 40% on the exit margin; previously we said 39% to 39.5%.

Operator

We will take our next question from Katherine Egbert – Jefferies & Co.

Katherine Egbert – Jefferies & Co

I have a question on the margins. It is possible that someone has already asked about this. You had pretty nice increases quarterly. Where can those continue to go?

Brian G. Robins

Hi Katherine, this is Brian. As Mark just answered in the previous question that Todd had, we increased guidance from 39.5% to 40% on operating margin on an exit basis. As we went into the first quarter this year we intentionally wanted to see the revenue visibility within the quarter and held back expenses. We expect in Q2 that we will be between 39% and 40%.

Katherine Egbert – Jefferies & Co

Okay, thank you. I’m sorry about that. I’m juggling multiple calls here. One other quick one, are there anymore costs in the model from the divestitures? Is there anything left?

Brian G. Robins

There really is not. Most everything is out. We are sort of at the base employee count. We entered the quarter with approximately 2,200 employees. There is differing here and there. It is just optimization of the divestitures being completed. We are re-designing some of our internal infrastructure and it is just so there is no material cost left to be taken out.

Operator

We will take our next question from Phillip Winslow – Credit Suisse

Phillip Winslow – Credit Suisse

Hi guys, great quarter. I just have a question back on the domain name side. If you look at the gross adds, it is actually pretty solid acceleration here. Even during the economic downturn, gross adds were relatively flat. It was your renewal rate that actually declined. Now that gross adds seem to be accelerating and the turn rate seems to be coming down here as well, what do you think that translates into positively for a gross rate when you look at this year and next in domain names? Also do you expect to see a similar acceleration in gross adds for the rest of this year?

Brian G. Robins

Let me take that in reverse. As far as the rest of the year, we have seasonality in the business as I mentioned, so we talked about 2 million to 2.3 million names in the next quarter. If you look back historically last year on the percentage declined quarter-over-quarter for the first quarter to the second quarter on seasonality, that would actually be stronger for performance than we have seen historically, even taking seasonality.

So we think based on what we saw in the first quarter, we can have better performance into the end of the second quarter if not throughout the rest of the year. It looks like it is going down obviously, but that is just seasonality. I compare it to previous years and it looks pretty strong.

Sorry and you had the first part of the question. Can you repeat that?

Phillip Winslow – Credit Suisse

What do you think about where you actually think the renewal rate can trend towards? Obviously it is bottoming, we are bottoming out here.

Brian G. Robins

Yes. Well in the past we have seen a normalized renewal rate in the 70%, 71%, and 72%. Obviously based on what we saw in the fourth quarter, now the first quarter expectations as you go forward I would say are maybe 71% to 72% as opposed to 70% to 71%. Like I said, if you go historically looking at things taking out the whole PPC period, those rates are fairly normal.

Operator

(Operator Instructions) We will go next to Sterling Auty – JPMorgan

Sterling Auty – JPMorgan

In terms of the new addition on the naming front, what do you think the biggest sources are? In other words with the economy picking up, is it starting to be new business creation? Is it advertising? What do you think the source is on the new names being added to the base?

Mark D. McLaughlin

I think it is the mix of a few things, Sterling. The overages in the quarter from what our expectations were really were driven both by an increased renewal rate as well as new registrations. So if I break those two things apart for a second, on the renewal side we know that the registrars have been working hard over the last year to increase the renewal rates just because it is easier to keep those than find new businesses. It’s less expensive and that appears to be working out for them, plus I think people are just more confident about the economy and that always translates well for us.

On the new stuff side, like I said in the first quarter there is a lot of marketing that is done that is generally really geared up for the rest of the year. That was more successful this year than in previous years; probably because people are feeling more confident. Internationally we keep seeing really nice international growth as well.

I don’t think the factors have really changed about what we drive the business for, it is just that they are coming through stronger in a better economy.

Sterling Auty – JPMorgan

I caught your comments on the SSL side about the AUR being flat and the VeriSign brand being kind of a mix, but what I missed a little bit of because we are all juggling multiple calls. What do you think the overall AUR would be in the June quarter if you made a comment to that?

Brian G. Robins

I didn’t on that. I would say if I look back a couple, what’s the rate of decline, the declination rate for the AUR, it’s been pretty consistent over the last two or three quarters. Last quarter has actually slowed down a little bit. This quarter is consistent with the quarter before that. So I would say we could probably expect that the next couple of quarters will be the same or a slightly better rate or a little slower rate of decline before we start to turn in the other direction. I think that’s got a lot to do with the way the money flows in this business on a different month.

Sterling Auty – JPMorgan

Then the last question would be is there any update on the global TLD, some of the new initiatives? I know it’s more for 2011, but in terms of processes is there any more color in terms of the ones that maybe I’ve identified that you want to go after, process, etc., etc.?

Mark D. McLaughlin

No. There are some TLDs that we would pursue. We haven’t ever said what those would be for obvious reasons, so we don’t tip our hand. So none of that’s changed in the sense that we know which ones we like and we know which ones we would go after. From a process standpoint, there really have been no changes on that process standpoint that would be that any of that is coming down the pike sooner than June 2011 as far as it actually being done and implemented.

Sterling Auty – JPMorgan

Last question that will go to you in terms of the comment they made, I think it was Katherine, the exit rate on the margins was the 39% to 40% for the year, but did you actually make a comment about the operating margin for June?

Brian G. Robins

I did say that second quarter would be 39% to 40%.

Operator

We will go next to Rob Owens – Pacific Crest Securities

Rob Owens – Pacific Crest Securities

Looking at your core naming revenue and the sequential increase, kind of a nit-picky question, but most of my questions have been answered at this point. The sequential increase wasn’t as fast as the total name base. I know there are some other registry services that you have in there. Why aren’t those growing as fast? What’s going on with dot TV and some of the other things? I realize they are modest to revenue, but they don’t seem to be pacing in terms of growth.

Brian G. Robins

Hi Rob, this is Brian. The nature of the deferred model, the units, is going to grow… The pickups in the units are going to grow a little bit quicker than the deferred revenue. You saw the increase in deferred revenue that will eventually flow out of revenue. So you don’t see that there was sort of a mismatch this quarter and you will see those come more inline over the next couple of quarters.

As it relates to TV and some of the other CTLDs, those picked up as well within the quarter with the overall market. We were pleased with their progress as well.

Rob Owens – Pacific Crest Securities

Okay so more deferred in nature then. Given the increase in long-term deferred, is there any extension in name duration during the quarter? You are still running about five quarters.

Brian G. Robins

We are still looking at a 1.17 average term life. So that is fairly consistent with our last couple three quarters.

Rob Owens – Pacific Crest Securities

Great thanks.

Operator

We will go next to Steven Ashley – Robert W. Baird & Co.

Steven Ashley – Robert W. Baird & Co

I actually just hopped on the call late so I apologize about this. I was going to ask about the trust seal. Who are you selling that to? Have your sales reps adjusted for that or anything? Is there any prospect for bringing channel leverage to that business at some point?

Mark D. McLaughlin

Hi Steve, Mark. On the who do we sell to, the plan is to at least two groups of folks. The first one we are after is a broad-broad market that we’ve never addressed before, which would be sites that do not require SSL certificates. So they are non-transactional sites in nature. There are ten times more sites in that category than folks who would be in the ecommerce SSL total addressable market.

That is where we started and that is where we are right now. We will increase that into our existing SSL base in the July time frame when we take that into our core customer base. From a sales perspective, we are doing two things. The first is we have hired some sales people just to sell this, so that we are going to get trainers. The trainers, we are going to have special people who are specialized in this. We are training right now our existing SSL sales force so that they can sell into the existing SSL base come the July time frame.

Also in the May and June time frame, we will be rolling this out. For the first time it is not going to our channel yet, but we are taking this to our channel partners as well. So you will see us over the course of four to six months to have this fully in the market from a sales end and channel perspective.

Operator

Your next question comes from Walter Pritchard – Citi.

Walter Pritchard - Citi

Hi Mark, Brian. I’m wondering if you could just help us understand on the renewal rates side. It looks like you saw an improvement in the quarter and I’m wondering, did you look forward, is there a reason why we shouldn’t get back to the 75% to 76% level on the renewal rate?

Mark D. McLaughlin

It’s hard to say. I think if you look back over the, like I like to do over a ten year period, take out the anomalies of the dot com bust and the PPC , 75% to 76% renewal rate not be historical norm, it’s a bit lower than that. I think we are approaching or at the more historical norm for the business, so it’s going to get higher than it is today. Yes, we’ve seen that before. I think if it’s going there it’s going to continue to do like it’s done in the last few quarters which is an incremental basis of moving up a bit, on a quarter to quarter basis.

Walter Pritchard - Citi

Within that improvement do you see over the last say two or three quarters, can you give us a little bit more detail [inaudible] renewal rate on brand new names, is that a permanent renewal rate on the people that have renewed more than once or is it a combination?

Mark D. McLaughlin

It’s both, so they’re both getting better which is great.

Operator

Your next question comes from Ed Maguire – CLSA.

Ed Maguire – CLSA

With the price increase coming on the domain names over the next quarter, have you anticipated any unusual or aggressive programs on the part of registrars to induce renewals ahead of that?

Mark D. McLaughlin

No, so we’ve had a couple of these in the past and we really haven’t seen any concentrated effort to try to get in front of that, if you will, that’s resulted in anything material so I wouldn’t expect it this time.

Ed Maguire – CLSA

Given the new, the building out here maybe new, focus on the internet defense services, what are your plans there in terms of your expectations and what you’re hoping to drive from that business?

Mark D. McLaughlin

Sure we look at that obviously as a growth area. It’s small today. We’ve started off with the core of [i] defense, that’s what we’re trying to build this business around and we added organically our [d dots] mitigation service and it’s a small business for us right now, but it’s got a nice sales pipeline behind it. The major news internally around that and the good news is getting [Ben Peecher] on board who is a very established guy particularly in this space and knows how to build businesses from the ground up. We like that business a lot, from a materiality standpoint that’ll be beyond 2010 as far as registering.

Operator

Your next question comes from [Avi Frashear – Attera].

[Avi Frashear – Attera]

Congratulations on the quarter. My first question is on the authentication revenue which was down 2%. Could you repeat what the causes of those were because I didn’t catch that on the call>

Brian G. Robins

That’s primarily in our VeriSign’s Japan’s subsidiary and user authentication.

[Avi Frashear – Attera]

The VeriSign [inaudible] business was down in revenue. It’s not related to the declining AUR or any of that?

Brian G. Robins

Correct, the declining AUR was mix shift related.

[Avi Frashear – Attera]

Second question is, I know you don’t want to comment on buy backs going forward, but perhaps on the ones that already happened, could you explain to investors the rationale of buying marketable securities versus your own stock and perhaps which other marketable securities are offering you a better yield than your own stock?

Brian G. Robins

From the marketable securities perspective, we have historically been in treasuries as very, very low yield and we weren’t getting much return on cash due to the credit crisis and so we went into AA or better. Really into corporate paper and government bonds and we in the first quarter we increased our yield considerably and so for the cash that we have on our balance sheet, we’re just looking at ways to increase the yield, first protecting the capital itself and second, looking for yield and returns.

So it’s just trying to increase interest income on the cash that we have. From a buy-back perspective, you know we bought a lot back in fourth quarter, bought back another $50 million in this quarter. As I mentioned earlier, we still have about $650 million as authorized and we continue to look for ways to return value to shareholders through re-purchases or investment in the company.

[Avi Frashear – Attera]

But what I’m trying to understand as an investor, is if you take your current run rate of free cash flow, you’re generating about 8% to 9% on your current market cap and free cash flow for the year. I don’t think you’re getting that in the securities you are buying. You bought $50 million but it’s low relative to the possibility of what you were able. That’s why I am trying to understand, the decision in the first quarter to stick at $50 million versus more and not, obviously, what you’re going to do forward but how have you decided what it was taking to 50?

Brian G. Robins

Unfortunately I can’t comment on future repurchases but we have been fairly aggressive historically in repurchasing stock and we will continue to look at ways to return value to shareholders.

Operator

That does conclude our question and answer session. I would like to turn the call back over to Nancy Fazioli for any additional closing remarks.

Nancy Fazioli

Thank you operator. Please call the investor relations department with any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call. Thank you and good evening.

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Source: VeriSign, Inc. Q1 2010 Earnings Call Transcript
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