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Executives

Mark McLaughlin - Chief Executive Officer, President and Director

Brian Robins - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Nancy Fazioli - Investor Relations

Analysts

Ignatius Njoku

Sterling Auty - JP Morgan Chase & Co

Daniel Cummins - ThinkEquity LLC

Philip Winslow - Crédit Suisse AG

Edward Maguire - Credit Agricole Securities (USA) Inc.

Steven Ashley - Robert W. Baird & Co. Incorporated

Walter Pritchard - Citigroup Inc

Rob Owens - Pacific Crest Securities, Inc.

Todd Raker - Deutsche Bank AG

Scott Kessler - S&P Equity Research

VeriSign (VRSN) Q4 2010 Earnings Call January 27, 2011 4:30 PM ET

Operator

Good day, and welcome to the Fourth Quarter and 2010 Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Nancy Fazioli. Please go ahead.

Nancy Fazioli

Thank you, operator. Good afternoon, everyone, and thank you for joining us for VeriSign's Fourth Quarter and Full Year 2010 Earnings Conference Call. I'm Nancy Fazioli, Director of Investor Relations, and I'm here today with Mark McLaughlin, President and CEO; and Brian Robins, Executive Vice President and CFO.

Please note that this call and accompanying slide presentation are being webcast from the Investor Relations section of our new corporate website, www.verisigninc.com. Please refer to that website for important information, including the Q4 and full year 2010 earnings press release. A replay of this call will be available on the website within a few hours. Today's slide presentation will also be available for download after the call.

Financial results in today's press release are unaudited and the matters we will be discussing today includes forward-looking statements, and as such are subject to the risks and uncertainties that we've discussed in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and 10-Q, and the applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

Please note that we have not fully completed the tax provision calculation process and therefore, the tax provisions for both the fourth quarter and the full year 2010 are still preliminary and the tax provision, GAAP net income loss and GAAP earnings loss per share for those periods reported in our Form 10-K may differ materially from what we discuss today.

I would like to remind you that in light of Regulation FD, VeriSign retains it's long-standing policy to not comment on financial performance or guidance during the quarter unless it's done through public disclosure. The financial results in today's press release and the matters we will be discussing today include non-GAAP measures used by VeriSign. GAAP to non-GAAP reconciliation information is appended to our press release and slide presentation, as applicable, each of which can be found on the Investor Relations section of our website.

In a moment, Mark and Brian will provide some prepared remarks, and afterwards, we will open up the call for your questions. Unauthorized recording of this conference call is not permitted. With that, I would like to turn the call over to Mark. Mark?

Mark McLaughlin

Thanks, Nancy, and good afternoon, everyone. The fourth quarter capped a solid year of execution and growth at VeriSign. We're proud of the progress that we made in the quarter and in 2010. During the past year, we refocused our business, improved operating efficiency and continued to scale and enhance our world-class infrastructure, all while maintaining a healthy balance sheet and returning approximately $1 billion to our investors.

We entered 2011 as a leading provider of Internet infrastructure services, and believe we are well positioned to help our customers benefit from the continued growth of the Internet and cloud computing.

I'll comment now on fourth quarter results. In Registry Services, the base of registered names in .com and .net totaled 105.2 million names at the end of December. This represents a 9% increase year-over-year in the base. In the fourth quarter, we processed 7.6 million new registrations which is a 4% increase year-over-year. We added 1.75 million net names to the name base in the quarter.

On the renewal rates side, the Q3 2010 renewal rate were 72.8%. While the renewal rates are not fully much measurable until 45 days after the end of the quarter, we believe the renewal rate in the fourth quarter of 2010 will be between 72.5% at 73%. As we look forward to the first quarter, we expect the Q1 net names added to the base to be between 2.3 million to 2.6 million names which reflect the continued growth in Internet usage, online advertising and e-commerce.

In addition to the business metrics for Registry Services for the quarter, I also wanted to highlight a couple of developments during the quarter related to our continued technology and thought leadership around Internet Infrastructure. First, we successfully implemented DNSSEC in the .net zone in December, and we are on track with DNSSEC enabled to .com zone in the first quarter.

In addition, during the fourth quarter, we made a DNSSEC signing service available to the registrars to assist in DNSSEC implementation for the customers. The continued reliability and availability of our network is a constant strategic priority, and we are proud of our performance record in 2010. Last year, we processed over 22 trillion DNS queries, all without any unplanned downtime and in the face of well-publicized cyber attacks. We continue to be vigilant in anticipation of the growth of Internet usage and the accompanying scale of attacks.

With regard to the case filed by the Coalition For ICANN Transparency or CFIT against VeriSign, there are no updates. As we reported on the Q3 earnings call, the court established a time line in October for the litigation. In accordance with this time line, there is a hearing scheduled in early February on VeriSign's motion to dismiss the third amended complaint filed by CFIT in November 2010. In March, there's a summary judgment hearing scheduled on certain threshold issues with a final summary judgment hearing scheduled for October 2011. The trial date is set for December 5, 2011. Beyond the upcoming dates just mentioned, given that this is ongoing litigation, we will not be commenting further other than to reiterate that we continue to feel confident about the case and will defend our position vigorously.

In addition to Registry Services, I'd also like to briefly address our network intelligence and availability or NIA business. In 2010, our focus was to build a strong team around this business and to start to deliver services to the market that address the growing complexity and importance of reliability and availability of networks. In 2011, we'll be ramping the product roadmap in sales. As we progress through the year, we'll update you on the business which we believe is well positioned in a fast growing but fragmented market.

As we look forward to the company in 2011, our focus will be to continue to provide unsurpassed and unparalleled network performance, provide value-added services to the registrars to assist them in selling more names, position ourselves for the launch of the new TLDs, continue to drive the growth in international names and grow a meaningful business in NIA. We believe that these activities will result in continued growth in shareholder value. We're excited about our future as we feel that with the growth of the Internet, the emergence of more markets for domain names, strong trends in online advertising and e-commerce and the growing complexity of managing networks in an era of cloud computing, we are well positioned for the future.

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

Brian Robins

Thanks, Mark, and good afternoon, everyone. As you just heard in Mark's overview, our fourth quarter and 2010 annual results reflect the continued hard work over the past year to successfully refocus the business and drive operational efficiencies. We have continued to invest in our technology and in organic growth, while maintaining a healthy balance sheet and returning value to shareholders. During 2010, we generate revenue of $681 million and delivered non-GAAP operating income of $284 million, all while expanding non-GAAP operating margins by approximately 850 basis points. These results drove approximately $266 million of free cash flow for the year.

In the fourth quarter, we paid a $518 million dividend from domestic cash. The cash balance as of year-end following the payout was $2.1 billion, about half of which was onshore. Our financial position is strong as we enter 2011, given our cash balance, low accounts receivable balances and healthy deferred revenue. Giving us predictability and enabling us to continue to organically grow the business while also returning value to shareholders. As we enter 2010, we indicated that we are focused on the following key operating metrics: revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS growth and free cash flow.

Let us recap our performance in each of these areas for the fourth quarter and the year. Revenue of $179 million for the fourth quarter was up 4% from the prior quarter and up 13% year-over-year. 2010 revenue of $681 million was up 10% year-over-year, and at the high-end of our guidance range. Deferred revenue ended the quarter at $663 million, an increase of $9 million or 1% from Q3, and up 13% from the same period in 2009.

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

Fourth quarter margin expansion was driven by our focus on streamlining the business, as well as rebranding expense that were shifted to the first quarter of 2011. Non-GAAP net income for the fourth quarter was $54 million, resulting in non-GAAP earnings per share of $0.31 compared to $0.27 in Q3 and $0.17 in the same period in 2009.

2010 non-GAAP earnings per share of $1.30 is a 61% increase over 2009. We exit Q4 2010 with a diluted share count of 174 million shares. During the year, we repurchased 16 million shares using approximately $440 million in cash and paid approximately $625 million in a special dividend and contingent interest, returning in excess of $1 billion to our investors.

Operating cash flow on a consolidated basis was $47 million in Q4 and $215 million in 2010, which includes the payout of $109 million in interest to holders of our convertible debentures.

Free cash flow was negative $1 million in Q4, given a reversal of $35 million excess tax benefits and $12 million in capital expenditures in the quarter. Free cash flow for 2010 was approximately $267 million, given approximately $132 million in excess tax benefits and approximately $81 million capital expenditures. Note that 2010 capital expenditures included approximately $20 million in spending during the year related to our Authentication business.

To sum up 2010, we're very pleased with our performance. We continue to grow non-GAAP operating income and net income faster than revenue. We have a healthy cash position, and the strong cash flow generating capabilities of our business continue to be a key benefit of our financial model.

Before I move on to guidance, I want to touch upon the status of the transition of the Authentication Services business to Symantec, as well as our corporate headquarter move to the East Coast. Progress has been good and we still expect the bulk of the transition to be wrapped up mid-2011, with approximately $5 million in transition services revenue that will hit the other income line in the first half of 2011. Also, the transition of numerous corporate functions and most of the CFO organization, specifically from Mountain View to Northern Virginia as a result of the relocation of corporate headquarters is on track and running smoothly. Thanks to the dedication and professionalism of the entire team during this transition.

Now, let me move on to 2011 guidance. We anticipate that revenue for 2011 will be in a range of $750 million to $780 million, or growth of 10% to 14% year-over-year. Consistent with 2010, we expect non-GAAP gross margin of approximately 78%. Q4 2011 exit non-GAAP operating margin is expected to be at least 46% to 48%. Non-GAAP Other loss net is expected to be $25 million for 2011. We believe that 30% is still a reasonable pro forma tax rate, and we expect to pay approximately 4% in cash taxes in 2011. Our guidance is based on expectations of continued growth and increased operating efficiencies in our business.

We will not provide guidance on share repurchases, but we indicated when we declared the special cash dividend that we intend to return at least the remaining proceeds from the divestiture of authentication services over the course of the coming year. We will continue to evaluate various alternatives for returning the cash. Currently, we have approximately $1.35 billion authorized by the Board of Directors for share repurchases that does not expire.

In summary, we're excited about the opportunities for the business in 2011 and we believe we are well positioned to grow our business and deliver value for our shareholders, customers, partners and employees.

With that, we'll move to Q&A. Operator, we're ready for the first question.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Phil Winslow with Credit Suisse.

Philip Winslow - Crédit Suisse AG

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

Brian Robins

This is Brian. Two questions there. One is operating leverage in the model and where we think it will come from, and secondarily, headcount. On the operating leverage in the model, I expect G&A to decrease quarter-over-quarter for the remainder of 2011. We had some one-time expenses that occurred in fourth quarter, which drove it a little higher and we'll continue streamlining the business as we move headquarters from the West Coast to the East Coast. There will be some duplication and cost for the first and second quarter, but most of the transition will be completed and you'll start to see some of the leverage come out of business here in the second half of the year. On headcount, we've given margin guidance. And so in the headcount, since we will have duplication of staff, we don't want to give quarter-by-quarter guidance. But we said we'd be approximately around 1,000 employees once we got everything completed. And so last quarter, we're about 1,100. We're about 1,050 this quarter. We're going to continue to hire in the sales and marketing as we grow out the NIA business, and we'll see reductions in G&A that will offset some of the hiring. So net-net, we'll be down from where we're at today.

Operator

We'll go next to Sterling Auty with JPMorgan.

Sterling Auty - JP Morgan Chase & Co

First on the DNS, the 4% increase in new name registrations. When you look at the quarter, I know it's only seasonally flat, but how did you feel about that number and how do you feel that it sets you up for the growth in 2011?

Mark McLaughlin

On the fourth quarter, we forecasted we'd be between $1.7 million and $2 million. And that range anticipated seasonality of the holidays, we had a higher expiring base compared to the third quarter and a higher percentage of the first-time expiring names. We ended at $1.75 million names which is closer to the low end of that. The reason for that being at the lower end is that we had two registrars who deleted out about 1,000 names between them right at the end of the year, which we expected would occur actually sometime this year. We see things like that quarter-over-quarter sometimes relating to the registrars manager and portfolios. So we'll pay attention to that kind of stuff, but pay more attention to the trending of the business. And if we look at the trends, we see that this fourth quarter, we actually had the highest fourth quarter in U.S. ever in the business. And the base of the names continues to trend to more names being previously renewed, with the result that the renewal rate continues to decline. So we've got a pretty positive view in things. I'm sorry, I think I misspoke that, there's been 100,000 names there.

Sterling Auty - JP Morgan Chase & Co

Follow up would be the VeriSign Internet Defense Network, just an update there, as well as you launched the Managed DNS service in 2010. Do you feel like you have a reference account or kind of a layout account that you can now leverage to go out and win more business? So an update on that one as well.

Mark McLaughlin

If I'd step back in that specific service, just backing up, I'd say, we really like that space. We think it's network computing that takes hold. The complexity around that is going to be a key issue overcoming things like reliability and availability. We've got a lot of experience there from running a common net. We've mentioned before we think that's about $1 billion market today, not just Managed DNS. All the suites of services around as the reliability, about a 15% CAGR. So we like the space and there's a lot of small players. So we think that with our network in the brand, we've got distinct competitive advantage. More specifically, we're not getting into breaking out any metrics around the business. I can say that quarter-over-quarter, we signed 400% more contracts quarter-over-quarter to give just one view of things. So we think we've got some good early tracks around that. We haven't named any of the customers. We're probably unlikely to name any accounts simply because people don't just buy, like in Managed DNS, they're buying the Internet Defense Network which is the DDoS Mitigation and other services. And if you think about the kind of services folks are buying, a lot of the customers don't want to be publicized that way.

Operator

We go next to Walter Pritchard with Citi.

Walter Pritchard - Citigroup Inc

Mark, I've heard you talking about DNSSEC and that rolling into .com. I wonder if you can just help us settle a bit there on monetization and how that happens, and what our expectations should be in terms of timing?

Mark McLaughlin

I think there's three ways to think about this. The first is that DNSSEC, in and of itself is a security protocol in the DNS long time in the making, and it's actually a cost to us in order to DNSSEC enable not only that the root zone but .net and .com. That's all based into the numbers we've given you by the way. But that there's a cost aspect while throwing the category calls into public interest in order to make the Internet safer. The second piece of that is that as things like DNSSEC get propagated to .net already, .com coming up in the first quarter and other top-level domains that goes, it creates some complexity for folks to manage keys and things around that. So we have service offerings that we'll be rolling out around helping people manage DNSSEC for their own customer base. That's a monetization opportunity that would be in our NIA business category I think. So I think there's two sides to that coin.

Walter Pritchard - Citigroup Inc

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

Mark McLaughlin

We see puts and takes in a quarter-over-quarter basis in a lot of ways, but I try to come back away from the quarter-over-quarter aberrations and take a look at trending. So on the renewal rates, the highest renewal rate we've ever seen on this business to date has been about 77% in one quarter. And that was at the very top of the PPC market which makes sense, as the first-time renewal rates then were higher than they are today and up on a more normalized market in the absence of PPC. Right now we're seeing about 72% to 73% renewal rates and that rate has been trending up the last couple of years. The reason for that is the percentage of the base that consists of the names that were previously renewed continues to increase year-over-year, and that renewal rate is much higher than the first-time renewal rate. So over time, it made sense for the renewal rate to continue to climb. Now for as high as it can go, the obvious upward boundary is the previously renewed rate which has continued to increase the last couple of years. And right now, we took a snapshot of time is between 80% and 81%. It's been as high as 85% historically in the company. So I can't say are going up, but I can say that there's room. And that if you start to give a look at the things that make up the renewal rate, over the last years it's continued to trend on a positive threshold.

Walter Pritchard - Citigroup Inc

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

Mark McLaughlin

No. We saw a couple of years ago right at the end of the year, one registrar did a, I'll call it, cleanup with their base which was unexpected for us. We've been more vigilant I guess is the right word, or more detailed in account reviews since that time to try to pick up on things like that. We knew in this case that there was 100,000 names in spite of what we -- this is just a timing issue as to whether in 2011 or the end of the year and it turned out to be at the end of 2010.

Operator

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

Steven Ashley - Robert W. Baird & Co. Incorporated

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

Brian Robins

Let me go back and talk a little bit about 2010. The difficulty in going into 2011 and talk about what the normalized cash flow would be is, you'd have to get into price increase on a number of other factors to tell you what to normalized rate would be. So if you look at 2010 on a full year basis, cash from operations was about $250 million. And you have to add back the excess tax benefit associated with stock options of $130 million. So roughly, we're about $350 million on the business and that does not include the authentication cash flow. And so as we talked about cash flow from operations at Analyst Day in last year, we're right on track with where we thought we would be at. Luckily, going forward, in the first quarter of 2011, it would be very clean and transparent on what it is. Fourth quarter we had a dividend contingent interest, third quarter we had the sale of authentication. And so there's been a lot of puts and takes in the cash flow this year. But I think if you'll only get cash from operations, roughly about $350 million on non-GAAP basis. Our capital was about $80 million of which $20 million of that was related to the Authentication business. So you can take about $60 million of capital out there to basically get to a free cash flow number.

Steven Ashley - Robert W. Baird & Co. Incorporated

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

Mark McLaughlin

The answer is yes, there is an opportunity of which we'll partake ourselves of. We consider that with the new gTLDs. So when we talk about new gTLDs, there's those that are the IDN versions or the internationalized versions of .com and .net. Those are all in the new gTLD round that ICANN is proposing. The applications for those are due in around midyear with expected rollout sometime in the beginning of 2012. You could expect us to bid on all of the transliterations for .com and .net, and we think that's an opportunity for the company.

Operator

[Operator Instructions] We'll take our next question from Ed Maguire with CLSA.

Edward Maguire - Credit Agricole Securities (USA) Inc.

I had a question about IPv6, and I saw that you guys are readying your infrastructure for that. Are there any technological challenges or really new requirements that adoption of IPv6 may have implications for your business?

Mark McLaughlin

It's Mark. Yes, but IPv6 enables our infrastructure for quite some time ago, so we're prepared for that. So the short answer is we're set for it. The longer answer is that there are challenges as you move from IPv4 to IPv6, that's a business opportunity for us again in our Network Intelligence and Availability business. Because there's going to be probably a long period of time, where folks are attempting to manage both dual stack IPv4 and IPv6. That creates a translation problem between the two, and companies would have to run an IPv4 stack and an IPv6 stack in order for all their applications to be able to interface. A lot of companies we think won't want to do that, and will look to a provider like VeriSign to provide the translation services between those two versions. So we're set for it from a DNS perspective, but we think there's an opportunity for us on the NIA business.

Edward Maguire - Credit Agricole Securities (USA) Inc.

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

Mark McLaughlin

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

Operator

We'll go next to Rob Owens with Pacific Crest Securities.

Rob Owens - Pacific Crest Securities, Inc.

Did you guys disclosed what the contribution from NIA was during the quarter?

Mark McLaughlin

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

Rob Owens - Pacific Crest Securities, Inc.

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

Mark McLaughlin

It's roughly -- usually it's about 12% to 13% at .net. But...

Brian Robins

About 200,000 from .net and or then from .com, 14%.

Rob Owens - Pacific Crest Securities, Inc.

And then as we look at .net new names, I think catching on Sterling's question from earlier, you have seen a deceleration from the first half of '10 into the second half, granting you had some top compares. But how should we think about that number moving forward, as it's kind of moved into the low- to mid- single digits here? And if I look at Q1 '11 correctly, it looks like it again is in the low single digit range based on your guidance for .net new names?

Brian Robins

I think we're going to have a 23 to 26 would be a good strong quarter for us in the first quarter. And then we haven't gotten in to what the rest of the year would look like. But looking at the zone growth of 7-plus percent on the year-over-year basis.

Operator

We'll go next to Dan Cummins with ThinkEquity.

Daniel Cummins - ThinkEquity LLC

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

Mark McLaughlin

So we gave a range in there and I kind of just answered just a little bit the previous question of the zone itself. So with the 7-plus percent, we see by 7% to 9% growth sort of depending on where you come out in the range from a name base is going to dictate a good portion of the range we gave in the revenue side.

Daniel Cummins - ThinkEquity LLC

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

Brian Robins

Let me back up just from the revenue standpoint. At this point of the year, we announced at the end of this call that we have a fairly minimal impact on revenue in the year just given the six-month notice period. But on the price increase itself, we've got one price increase remaining in the four that we're allowed to take in an agreement. We said in the past we look at a lot of factors and we consider those, starting first with the long-term investment need. We look forward, we see continued exponential increases in demand on the infrastructure in the coming years. We also consider factors such as the healthy economy and e-channel. Those seem to be positive and improving over time, so while we can't comment on if and when we make notice the remaining price increase, I've note that we've taken three out of the four so far in the agreement and the variables that we consider all seemed positive.

Daniel Cummins - ThinkEquity LLC

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

Mark McLaughlin

Not to pat ourselves in the back, but it's been a long-time coming. We've been really instrumental in that, but I want to make sure we share the credit works due with ICANN providing leadership around that. The U.S. Department of Commerce being very instrumental on providing leadership as well, as well as technology.

Daniel Cummins - ThinkEquity LLC

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

Mark McLaughlin

Yes. On the Managed DNS offering, again, we are thinking of it in terms of the suite of offerings. So I've been thinking of our NIA business, which has managed DNS plus some other offerings in there as well. But we view the market in three categories of the small, medium and enterprise markets. And it's low in that market, we would get just Managed DNS by about $50 a month per customer. In the mid-point in that market, we get about $350 a month from a customer and in the enterprise-level, we get about $2,300 to $2,500 a month from a customer.

Operator

[Operator Instructions] We'll go next to Todd Raker with Deutsche Bank.

Todd Raker - Deutsche Bank AG

Mark, if you can just give us a sense in terms of the gTLDs, where we stand in the process, what kind of the next major milestone in terms of the bidding process? And any way to assess what the opportunity is going to look like as we look into '12 and beyond?

Mark McLaughlin

So from a process standpoint, the expectation would be that around midyear, the ICANN will start accepting the applications and then they would process these applications. And if everything stays on track, that the TLDs themselves would be released in the beginning of 2012. And from a size standpoint, it's hard to say, frankly. The one that I'd like to think about just because I can have some reference points for it is the international TLDs themselves. And I know this is a big broad range, but the best I can do when I look at this, which is there's about a million IDN versions of .com and .net that exist in our base today. So there's a million names in there. And then that's where you transliterate the name .com in English. And then in names that are in -- there are TLDs out there that are as completely transliterate today, the .cc, country codes. And of those that are in the countries where we think that they transliterated versions that are successful, there's about 16 million of those names out there today. So I know that's a big swag in between there, but somewhere between a million, call it, 15 million to 16 million is a market opportunity. That's names.

Todd Raker - Deutsche Bank AG

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

Brian Robins

This is Brian. We started the buyback program, discussion came up around the dividend. And so at that point, we're blacked out so we couldn't buy back any more. We wanted to maintain as much flexibility and return as much as we possibly could at the end of last year, considering the pending tax fall [ph] changes and the proceeds that we got from authentication. We returned 50% of the proceeds in a special dividend, and committed to returning at least the other 50% the next four quarters.

Operator

We'll go next to Scott Kessler with Standard & Poor's Equity.

Scott Kessler - S&P Equity Research

My first question involve the dividend payment. Obviously, you guys have a considerable amount of additional balance sheet strength and flexibility. I'm wondering if you could comment on the decision to do a one-time special dividend and whether or not there is a possibility that you could do something on a more recurring basis and what the pros and cons to that are. And I also have a follow up.

Mark McLaughlin

So we think about the mechanisms to return excess cash. We consider all the return and there's quite a few of them, obviously, share repurchase, dividends, special dividend, buyer debt back. Last year, we bought about $435 million of stock and paid a special dividend of about $500 million before you get to the contingent interest. We chose a special dividend around the fourth quarter as we had decided we wanted to return a significant amount of cash in a timely and rational manner and in advance of any tax code revision. But we also want to keep some flexibility considering the best alternatives for future cash return this year. So as Brian said, we're committed to return at least the second half of what the got in the authorization proceeds. We'll be thinking about the mechanism once we do that and we're always open for communications to shareholders at that point.

Scott Kessler - S&P Equity Research

I think people have been getting more and more interested in which is mobile. And I'm wondering if you could talk a little bit about how mobile has been impacting and presumably benefiting some of VeriSign's core businesses, and if you see any new investment opportunities in the category?

Mark McLaughlin

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

Operator

We'll go next to Katherine Egbert with Jefferies.

Ignatius Njoku

This is Ignatius Njoku for Katherine Egbert. Can you talk about your pipeline for your Managed DNS service? And also, can you talk about your M&A strategy for fiscal year '11?

Mark McLaughlin

From a pipeline perspective, we're not talking about a pipeline specifically at a book or anything like that. All that I can say, we've got a healthy pipeline. We like the way it looks. So again, we're bullish in that business. And then from an M&A perspective, it's possible we could use an M&A. But as we've said in the past a few times, anything we do will be closed into the business we're in today and the really purpose is accelerating our roadmap for growth market.

Operator

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

Sterling Auty - JP Morgan Chase & Co

For Brian, in terms of the deferred revenue, can you remind us is everything kind of clean? In other words, is there any moving parts or anything that's just kind of wearing down from any of the divested assets or are we just now all the deferred revenue ties of the core businesses that are left?

Brian Robins

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

Sterling Auty - JP Morgan Chase & Co

And at what quarter do we get the year-over-year comparisons, where both the year prior and the current quarter and deferred revenue represent the same thing for deferred revenue?

Brian Robins

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

Operator

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

Nancy Fazioli

Thank you, operator. With regard to events in the first quarter, please note that Brian will be presenting at the Morgan Stanley 2010 Annual Technology Conference on Tuesday, March 1. The webcast registration details will be available on the Investors Relations section of the VeriSign website. Please call the Investor Relations department for any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call. Thank you and good evening.

Operator

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

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