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VeriSign (NASDAQ:VRSN)

Q4 2011 Earnings Call

January 26, 2012 4:30 pm ET

Executives

John Calys - Interim Chief Financial Officer, Vice President and Controller

D. James Bidzos - Founder, Executive Chairman, Chief Executive officer and President

David Atchley - Corporate Treasurer

David Atchley -

Patrick S. Kane - Senior Vice President and General Manager of Naming Services

Analysts

Jaimin Soni

Daniel T. Cummins - ThinkEquity LLC, Research Division

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Edward Maguire - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Scott H. Kessler - S&P Equity Research

Walter H. Pritchard - Citigroup Inc, Research Division

Operator

Good day, everyone, and welcome to the fourth quarter 2011 earnings call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. David Atchley. Please go ahead, sir.

David Atchley

Thank you, operator. Good afternoon, everyone, and thank you for joining us for VeriSign's Fourth Quarter and Full Year 2011 Earnings Conference Call. I am David Atchley, Corporate Treasurer and Director of Investor Relations, and I'm here today with Jim Bidzos, Executive Chairman, President and CEO; and John Calys, Vice President, Interim CFO and Controller.

Please note that this call and accompanying slide presentation are being webcast from the Investor Relations section of our corporate website, www.verisigninc.com. Please refer to that website for important information, including the Q4 and full year 2011 earnings press release. A replay of this call will be available on the website within a few hours. Today's slide presentation will also be available for download after the call.

Financial results in today's press release are unaudited, and the matters we will be discussing today include forward-looking statements, and as such, are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent report on 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.

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

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

With that, I would like to turn the call over to Jim. Jim?

D. James Bidzos

Thanks, David, and good afternoon, everyone. The fourth quarter capped a year of solid growth, execution, financial performance and shareholder returns for VeriSign. During the past year, we completed a 4-year board-directed restructuring plan, which included divesting non-core businesses, the sale of our Authentication Services business and relocating our headquarters. This restructuring has resulted in a more efficient and more focused VeriSign that we believe is better prepared for the opportunities ahead. We delivered both for the global community of Internet users that increasingly rely on us and for our shareholders.

As stewards of critical elements of Internet infrastructure, both what we do and how we do it are important for the secure and reliable operation of the global Internet, upon which billions of people worldwide depend.

In 2011, we continued to demonstrate our commitment to shareholders by completing the return of divestiture proceeds. In May, we paid a special dividend of $463 million to shareholders and $100 million in contingent interest to bondholders. We also continued our share repurchase program during the year, with 16.3 million shares repurchased, returning $535 million during 2011.

On our last earnings call, we described several pending cash activities. These included the full payment for the rest of the building purchased, potential financing scenarios and the pending repatriation of previously taxed offshore cash. We mentioned this repatriation in our last call but did not state the amount, which is $86 million. All of these items will resolve as expected by December 31. As these activities were pending during the fourth quarter, we took a conservative approach, and for this reason alone, we did not make share repurchases.

Security and stability are paramount for the way we run our business, and this extends to the way we manage our liquidity. So, on December 31, with all the pending cash activity successfully concluded, we held $225 million in domestic cash and $1,125,000,000 in offshore cash. We have $831 million remaining under our current share repurchase authorization. We continually evaluate the overall cash and investing needs of the business and consider the best use for our cash, including potential share repurchases. John will discuss our cash balance in more detail in a few minutes.

During the fourth quarter, we completed the move to our new corporate headquarters in Reston, Virginia. We are excited about this new facility as it brings our main corporate functions under one roof. We're already seeing efficiencies and enhanced collaboration among our teams in the new building.

Also, I'd like to give you a quick update from our last call regarding our search for a CFO. As mentioned last time, we have begun a search for a new CFO and are starting the interviewing process. Of course, we'll keep you updated as things progress.

As we look towards 2012, one important area of focus is the .com agreement renewal. The process and timeline are on track, and we will provide updates as appropriate leading up to the renewal. Since we last spoke to you, we are engaged and are pleased with the progress.

I'll comment now on fourth quarter operating highlights. In our Naming business, the base of registered names in .com and .net totaled approximately 113.8 million at the end of December. This represents an 8% increase year-over-year in the base and then approximately 2% increase quarter-over-quarter. In the fourth quarter, we added 1.9 million net names to the domain name base, and we processed 7.9 million new registrations, which is about a 4% increase over the same period a year ago. The fourth quarter was our strongest Q4 for new registrations on record. In fact, that's true for each of the quarters in 2011, thus making it our strongest year for new registrations with over 32 million new registrations processed.

The Q3 2011 renewal rate was 73.3%. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the fourth quarter of 2011 will be approximately 73.4%. We expect the Q1 net names added to the base to be between 2.4 million and 2.7 million names, which reflects the continued growth and the underlying drivers of the Internet, as well as seasonality.

Looking at our NIA business. The team performed very well and exceeded our full year bookings target. The NIA sales team is now fully hired and in place, and we expect 2012 to be a year of execution for the business. We are focused on scaling the NIA business to achieve quality of revenue and stable growth.

As we look forward to 2012, our focus will be to: number one, continue providing unparalleled network and registry services performance; number two, renew the .com agreement with ICANN and receive approval of the agreement by the Department of Commerce; number three, invest in benefiting from the new gTLD program by both applying for strategic names ourself and teaming with other applicants as their backend registry service provider.

By the way, we've been selected by several brands that ran an early selection process in anticipation of their applications for new gTLD succeeding. While the revenue is not material and not expected before 2013, I wanted to let you know that we're already competing successfully as the backend service provider. This says a lot about the quality work our Registry Services and network ops teams have been doing.

Number four, we want to continue to invest in and grow the NIA business; number five, continue to identify and select opportunities for growth through value-added services, which leverage our core strength and offer quality of revenue; and number six, of course, continue to act as responsible stewards for critical elements of global Internet infrastructure, both operationally and in the management of the business.

We believe this is the appropriate, responsible strategy for balancing stability, growth and shareholder interest, all of which are intertwined.

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

John Calys

Thanks, Jim, and good afternoon, everyone. As Jim explained, this is another solid quarter and year for us. During 2011, we generated revenue of $772 million and delivered non-GAAP operating income of $384 million, all while expanding non-GAAP operating margins by 792 basis points. These results drove approximately $157 million in free cash flow for the year.

Following on to Jim's comments on our cash position. The total cash of investment balance ended Q4 at $1.35 billion. Of this balance, $225 million is domestic. During the quarter, we initiated a new 5-year $200 million credit facility, borrowed $100 million against this facility as short-term financing for our Reston building purchase. In fact, the [ph] cash balance also included $86 million of previously taxed income that was repatriated at the end of the quarter.

Let me recap our performance for the fourth quarter and year on our key operating metrics, which are revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS, operating cash flow and free cash flow. Then I will discuss 2012 full year guidance.

Revenue of $204 million for the fourth quarter was up 3% from the prior quarter and up 14% year-over-year. 2011 revenue of $772 million was up 13% year-over-year. Deferred revenue ended the quarter at $729 million, a $6 million increase from Q3 2011 and a $66 million increase year-over-year, up 10%.

Non-GAAP operating margin for Q4 was 50.9% compared to 50.1% in Q3. 4Q non-GAAP operating expenses were $100 million, up sequentially and flat year-over-year. The fourth quarter operating margin expansion was driven by revenue growth and through realizing efficiencies in our business. We will continue to look for further efficiencies in our business and ways to improve our operating margin.

Net income and EPS. Non-GAAP net income for the fourth quarter was $64 million, resulting in non-GAAP earnings per share of $0.40 compared to $0.39 in Q3 and $0.31 in the same period in 2010. 2011 non-GAAP earnings per share of $1.49 is a 43% increase over 2010. Non-GAAP interest expense and non-GAAP nonoperating income net for 2011 was $28 million. This included a pretax $4 million nonoperating accrued expense booked in Q4, which is non-recurring in nature and had a negative effect of $0.02 on EPS.

With respect to taxes. We think a non-GAAP tax rate of approximately 30% remains reasonable estimate. In 2012, we expect to pay cash taxes of about $35 million to $50 million. We had a weighted average diluted share count of 160 million shares in Q4 compared to 164 million in third quarter.

Operating cash flow on a consolidated basis was $124 million in the fourth quarter and $336 million for 2011, which includes the payout of $100 million in contingent interest to holders of our convertible debt.

Free cash flow was $6.6 million in Q4, given $11.6 million in excess tax benefits and $129 million in capital expenditures in the quarter. Free cash flow for 2011 was $157 million after $13 million in excess tax benefits and approximately $193 million in capital expenditures. Relating to capital expenditures, the company closed a property purchase of the Reston, Virginia, headquarters building on November 15, 2011 for $118 million.

To reiterate, we saw solid performance in Q4. We have grown non-GAAP operating income and net income. We have a strong balance sheet and expect strong cash flow generation to continue as a result of our financial model.

With respect to 2012 guidance. Revenue for 2012 should be in the range of $865 million to $890 million, representing growth of 12% to 15%. Non-GAAP gross margin is expected to be at least 80%.

Q4 2012 exit non-GAAP operating margin is expected to be 52% to 54%. Non-GAAP interest expense and non-GAAP nonoperating income net is expected to be approximately $38 million for 2012. Capital expenditures are expected to be 7% to 10% of revenue. Our guidance is based on expectations of continued growth and increased operating efficiencies in our businesses, in addition to our financial projections for interest income and expense.

I will now turn the call back to Jim.

D. James Bidzos

Thank you, John. In summary, we're pleased with the performance and milestones we've marked in 2011. In addition to completing the restructuring plan, we renewed .net until 2017, DNSSEC went live in .com and we extended our .tv agreement. VeriSign was selected to run .gov for the U.S. government, and we have been selected to service the registry operator for applicants for potential future gTLDs under the new ICANN program. We brought in new talent at all levels, and we moved into our new building in Reston.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gregg Moskowitz with Cowen and Company.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Wanted to ask about deferred revenue. Deferred revenue growth was lower than expected, and short-term deferred revenue basically didn't grow sequentially. Was there, Jim, any sort of registry purge or some other factor? Or was it just a function of demand possibly being a little bit lower than you were expecting in the quarter?

John Calys

This is John. Let me take that. I don't think that was really a surprise to us. A lot of the deferred revenue trends are seasonal. First quarter is always a strong seasonal quarter, so you see a little more of a bump. So sometimes, it could be choppy. Quarter-over-quarter, I think the full year 10% increase is what was expected, but there was no unusual purge or anything of that nature.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Okay. And then in terms of renewal rates over the last 3 quarters, that is assuming that your expected Q4 estimate holds, there hasn't been much change in the overall renewal rate. So I just wanted to get your view on renewal rates in 2012. I would think you should start to see more of an uplift, particularly as the base gets a little bit more mature.

D. James Bidzos

This is Jim. I've invited Pat Kane, who's our executive in charge of the registry. And, Pat, do you want to take that one?

Patrick S. Kane

Yes. So the renewal -- as the age of the base, as you pointed out, gets older, you do see a change in the percentage of previously renewed domains versus first-time renewing domains. And since the previously renewed domains actually renew at a higher rate, you will see a natural growth.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Okay. And then if I could just ask one other question. So there have been some corporations who have voiced opposition to the new gTLDs, including the timeline and process. I was just curious to get your thoughts on that, and just more broadly, how you envision this moving forward. Do you expect everything to move according to plan?

D. James Bidzos

Yes, this is Jim. We monitor this closely. We're supportive of the multi-stakeholder model and ICANN's plans to move forward. There has been opposition from patent holders. There were hearings both in the House and in the Senate, but the program opened up on January 12 for applications. The application period closes on April 12. And on May 1, ICANN will publish on its website a list of all of the applications. I expect that there will probably be some more comments from the various stakeholders, but that's how the process works. So from our perspective, as I said, we're participants in the program. We're supportive of ours and the participation of others in it. And I think we've made our view of that clear, that we apply for domain names. We see it as an opportunity to be a service provider. We don't expect the revenue to be material. We don't expect it before 2013, but we expect the market to grow. And we expect our business to grow as a result.

Operator

We'll take our next question from Phil Winslow with Crédit Suisse.

Philip Winslow - Crédit Suisse AG, Research Division

I just wanted to focus on margins for a moment. Obviously, the exit margin guidance you gave of, whatever, 52% to 54%, I believe consensus was 51.6%, it was clearly ahead of where consensus was. What's driving that continued leverage? And then, Jim, how should we think about just margins going forward and the leverage of this business? And just kind of -- is there a target that you have in mind or a ceiling that you see out there? Or how do you think about it?

D. James Bidzos

Well, I think the guidance that we -- margin guidance that we just delivered for 2012 is obviously the way we see it and describe it now. I'll just say that post restructuring, I think there's kind of a long tail that I would describe as a continual optimization of our efforts to do a better job, to focus on our customers better and change the way we do things. Remember, we've gone from over 5,000 employees to roughly 1,000. Actually, we ended 2011 at 1,009 employees. So the process of discovering processes here at VeriSign that haven't caught up with the new VeriSign yet, I think, will probably continue for a while. So I think you see that reflected in our guidance for the year. So I expect in the process of finding ways to do our job better, we'll probably find efficiencies, and we expect that to happen.

Operator

Our next question comes from Steve Ashley with Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Any thoughts, high-level, of how fast you expect the zone file to grow in 2012?

D. James Bidzos

Yes. The revenue guidance that we gave you was $865 million to $890 million for the year, and that has underlying a 6% to 8% unit growth rate for net new names.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Perfect. And this might be for Pat Kane. But on the new gTLDs, the question that I get asked is, will this cannibalize .com, and if not, kind of why not?

Patrick S. Kane

Well, what the new gTLD program is designed to do is to offer more choice for individual registrants. And while that will certainly have people choose domain names in different TLDs for the first time, we also recognize there's tremendous value in having your domain name in .com. And so we will likely see multiple registrations for individual registrants.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Great. And then lastly, can you say how many new gTLDs VeriSign intends to bid for directly?

D. James Bidzos

I think -- go ahead, Pat.

Patrick S. Kane

Well, we intend to do about 12. Most of those will be transliterations of .com.

Operator

Our next question comes from Ed Maguire with CLSA.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

I was wondering if you could address your expectations around the NIA business. There's been a lot of headlines about the impact of hacker groups and denial of service attacks. And what your expectations for that business will be over the next year.

D. James Bidzos

Well, as we mentioned, that business exceeded our expectations in 2011. We like that business. We think it's a business of growing importance. In particular, I think what you're referring to, which is the DDoS Mitigation part of that business, although we saw growth across all 3 sections of the NIA business, there is the iDefense threat intelligence unit, a managed DNS business, and of course the DDoS Mitigation service. Certainly, denial of service attacks have been more visible, and there's tremendous interest in technology that's available, a service that's available for companies to protect themself. We're well-positioned to benefit from that. I think it's one of the reasons we like the business. It's a growth area. The other reason, of course, is that it leverages our core strengths and our reputation, and we have a tremendous amount of experience. In general, concerning NIA, we now have the sales force hired. We're where we want to be there. And the areas that we're working on in NIA primarily is to structure it for scalability and also to find ways to improve the quality of revenue and make it closer to the quality of revenue that most of our revenues reflect. So we're optimistic about it, but we're obviously not breaking it out separately. And can't tell you exactly when we'll do that. But we're continuing to invest in that business.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

And just a follow-up on your uses of cash for buybacks. What pace of buybacks are you expecting to implement this year? And do you also have any plans to deploy some of that offshore cash?

John Calys

I missed just the last word there.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

To deploy the cash that's offshore.

John Calys

Yes, right. We don't provide any specific guidance on our repurchase activity normally. Obviously, we have $831 million left under our board-approved plan. We evaluate our cash needs and potential uses for cash on a regular basis, and that includes evaluating our offshore cash balances as well in terms of doing what we think is optimal for the company and the shareholders.

D. James Bidzos

Ed, this is Jim. I would just add that, basically, our view of buybacks as one option for returning value to shareholders is unchanged. The board authorization of $831 million, as John mentioned, continues to stand. Nothing's changed in our view, and I think we made it clear that there were just pending cash liquidity issues that were unresolved. They did all become favorably resolved at the end of Q4, but as we mentioned, that was the only reason that there were no buybacks in the quarter.

Operator

We'll take our next question from Walter Pritchard with Citigroup.

Walter H. Pritchard - Citigroup Inc, Research Division

Jim, I'm wondering what type of updates -- you said we'll get updates on the .com process. I mean, what sort of updates do you envision providing us as we go through the next February month with that process ongoing?

D. James Bidzos

Let's see. I guess the material events that would certainly be disclosed, of course, would be the -- if you follow the .net process, as I'm sure most of you probably did, there was some point at which we came together with ICANN, agreed on the form of renewal. There were some minor issues, as we mentioned, in the contract. So if you could look back at .net when those issues were addressed and a version of the contract was ready for the public review process, it was then posted on ICANN's website for public comment for 30 days. I will say there's been one change since last year. There's a new ICANN policy that became effective January 1, 2012, in which their public comment periods have changed from a single 30-day comment period to 2 comment periods of 21 days each, effectively making the 30-day comment period a 42-day comment period. But I think the next visible event will be the presentation of that agreement for comment, that then follows, of course, formal approval by ICANN's Board of Directors. And .com, of course, being a little different than .net, we then present that to the Department of Commerce for their approval. So those are the high-level sequence of events. All of that should conclude no later than the termination date of the existing agreement, the expiration date, which is November 30, 2012. And as I mentioned in my prepared remarks, there is a timetable and a process. There's been engagement and activity since I last spoke to you, and we're pleased with that progress. So I think that's what we can say to you right now, but that's an overview of the process itself. And I think those are the events you can expect to see being disclosed certainly by VeriSign, but also information that'll appear on, in particular, the contract for public comment on ICANN's website.

Walter H. Pritchard - Citigroup Inc, Research Division

Great. And then just on -- I guess it may be a question for Pat. But on the domain name guidance, if I look at, I guess, this quarter, we had some confusion on our end whether or not it was 1.8 or 1.9 adds but sort of in the lower end of your range. I recall last quarter, kind of in the lower end of your range. And I'm wondering, as you look at the guidance that you give, what in the last couple of quarters and then how are you looking at Q1 in terms of that range and what factors are driving you to be in the -- have driven you to be in the low end and may influence Q1?

Patrick S. Kane

Well, growth is always dependent upon 2 factors. One is the new registrations and one is the renewal rates as well. And so when we take a look at the range, we have to take into account what renewal rates will look like. And renewal rates fluctuate from quarter-to-quarter, dependent upon specific activity from specific registrars. So we know we'll end up within the range. But it's I think sort of the function of the renewal rate as to how we end up where we end up within that range.

Walter H. Pritchard - Citigroup Inc, Research Division

So I guess what you're saying is the last couple of quarters it's been more renewal rates that have been the delta within that range rather than the gross new adds?

Patrick S. Kane

Well, I mean, it's -- I guess the answer would be yes.

Operator

Our next question comes from Sterling Auty with JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Just want to follow up, Jim, on the renewal timeline. Given that it's an election year and given the timing of when the contract expires, is there a chance that it can go beyond November 30? And can you just review for people if it were to -- how the contracts are actually handled at that point?

D. James Bidzos

Well, we certainly don't anticipate that we wouldn't be finished. Our timeline, certainly, the timeline and the engagement process are all designed to avoid any issues that would cause the process to extend beyond November 30. So I just don't envision that happening. I suppose it's possible, but I don't see that happening. There is a requirement that the ICANN VeriSign agreed contract be presented to the Department of Commerce for their approval 90 days prior to the expiration, and we're certainly planning to meet or beat that date and make sure that there's plenty of time to get the contract renewed, which I think everybody feels is in everyone's best interest. So I guess I don't envision that happening.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Okay. A different topic. When you look at the fourth quarter, did you guys run any special programs with registrars to help motivate name additions? What are your plans for kind of work with registrars as you look into the first half of 2012?

D. James Bidzos

Yes, we ran some additional marketing and promotional programs in 4Q, not particularly large, but a little bit. And I would expect for 2012 that those numbers would be pretty consistent with what they've been historically for us. Generally, the programs we run are not material, and generally, they're sort of -- at the first half of the year, I think we generally run more than we do in the second half.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Okay. And based on your kind of talks and interactions with registrars, how do you feel about -- since they're your channel, how do you feel about the help of that channel and kind of where they're positioned to help drive growth in that Naming business for 2012?

D. James Bidzos

Pat talks to them all the time, visits with them frequently, so perhaps he can...

Patrick S. Kane

Well, I think if you just take a look at the new unit numbers that Jim talked about earlier where each quarter of this year was the strongest quarter we've ever had in that quarter, it's a healthy channel. They are finding uses for domain names. Whether it be small, medium businesses, enterprises, et cetera, they're -- it's strong.

D. James Bidzos

Yes, their drivers, they haven't changed. It's Internet adoption. There's more growth internationally than there is in the U.S. It's the continual move of dollars from traditional to online advertising. Basically, all the things that we're seeing just simply continuing. Internet adoption is a growth area.

Operator

[Operator Instructions] And we'll take our next question from Scott Kessler with S&P Capital.

Scott H. Kessler - S&P Equity Research

I was wondering if you could possibly highlight one or 2 examples. Jim, you highlighted value-added services as a potential growth area for this year, and maybe if you could just talk about one or 2 areas where you might see some uplift.

D. James Bidzos

Sure. I guess the obvious area is, first of all, there are several categories of value-added services. First of all, Pat's group is continually developing value-added services for the registrar channel to help them manage their business. We provide them with information, we provide them with data, reports, analyses from the zone that help them manage their business better and hopefully maximize the registrations that they perform. We call that value-added services here at VeriSign. The other growth area that we talked about was NIA, which is an adjacency that's very relevant in the sense that it plays to our strength. The IDN or our DDoS Mitigation service, of course, is a result of homegrown efforts from a very purpose-developed network where we couldn't buy off the shelf solutions, and now we've productized some of those. And managed DNS is essentially our ability to deliver our experience in developing performance in the network and deliver that to customers. So all of those things you might consider value-added services. Certainly, even though we're the largest consumer of some of the threat intelligence information that comes from our iDefense unit, that is also a value-added services. There are new value-added services that we're exploring. We're not talking about these. These are areas, research that we've engaged in. I think it's fair to say we're focused on this like we haven't been before. We're investing more in research. We think there's a tremendous amount of opportunity there. We are seeing opportunities. And these are fundamental new value-added services that would complement and fit well with our current DNS lookup services. So until we're ready to talk about those, we can't say more. But that is the focus of our research efforts.

Operator

Our next question comes from Jaimin Soni with Bank of America.

Jaimin Soni

I just wanted to follow up on the last question. And looking at the margins guidance that you guys have provided, margins were obviously expected to grow at a nice clip next year. Do you think there's more opportunity in investing more of this upside back into the business to fuel the other growth options that you guys are looking at, like NIA? And are you comfortable with the level of investment in these adjacent opportunities?

D. James Bidzos

Yes, that's a very good question. And the answer is absolutely yes. So in the case of NIA in particular, I mentioned that we're doing a couple of things with NIA. Number one is that we're focusing on structuring it to scale for growth. So -- and also, what we're doing with NIA is finding ways that we can sort of increase the quality of revenue to look more like our traditional business. So those are 2 things we want to do before we make the investment. Before we essentially step on the gas pedal, so to speak, we want to make sure that it's going to scale well, grow smoothly and provide a quality of revenue. So anything that we can do up front before we make the major investment, I think, will pay great dividends down the road if we're successful in achieving good, scalable growth and quality of revenue. So we will be making those investments. We have been making that effort to optimize the business, and that's been the focus of NIA. And we have plenty of cash, and I think you'll -- essentially, our guidance for you in 2012 incorporates our anticipated investments in those areas. There is no anticipation that we would make any acquisitions to fuel that growth. I think most of what we want to do leverages our core strengths. VeriSign, I think most of you understand, is unique. We do have a very purpose-developed network that's actually unique. I think that's something that's not well understood that in the future we're going to try to communicate better. Not only are we databases linked together by a high-speed network, but our ability to do updates, to do them quickly in realtime essentially and replicate it globally across a very diverse network and reliably is unique. And when you're talking about developing services that come from that sort of strength, trading on that kind of strength, those are investments that we have to make here. We have to make that, not buy it, because nobody's doing anything like that. Now if there are opportunities that we see to accelerate that process by making acquisitions that allow us to buy versus make pieces of those efforts as they start to come together, we'll certainly look at those and do those. But it's our view that we have adequate cash to do all of those growth areas and make all those investments. And that's all baked into our guidance for 2012 in margins.

Jaimin Soni

So, Jim, when you say that you want to build a base on NIA a little bit more before you step on the accelerator, is this more of a second half of 2012 that we're thinking about or 2013, when you think the timing would be right?

D. James Bidzos

Well, I think what we've said is that at this point, we fully staffed up the NIA sales team. We've done some optimization and restructuring a bit in how the products are packaged and bundled and sold. There are ways in which we have a billing relationship with the customer that will help us get sort of the right scalable structure. I think we're getting pretty close to the end of that process. And 2012, as we said, is a year of execution. So throughout the year, we'll be making investments as we see appropriate, depending on how the marketing effort plays out. But I think we're pretty close to getting ready to make some investments and grow that business a little bit quicker. It's a solid growth area, leverages our strength, there is a need and we like it.

Operator

Our next question comes from Rob Owens with Pacific Crest.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Just a quick question on new name growth. So you mentioned the 4 record quarters that you had throughout 2011. And as I extrapolate kind of your range for Q1, it seems like you're expecting again another record in Q1 of '12 and even maybe a little bit of acceleration in the year-over-year growth. So as we think about '12, how should we begin to think about new name growth, especially kind of given the global economic situation?

D. James Bidzos

Pat, do you want to comment?

Patrick S. Kane

Yes, this is Pat. So Jim mentioned some of the factors that we track in terms of Internet adoption, online advertising spend. And as those metrics continue to go up and to the right, we will -- people will find new ways to use domains, generate new small, medium businesses and continue to find ways on the Internet. So I think that as long as people continue to adopt the Internet, both domestically and internationally, we're going to see continued growth within .com.

D. James Bidzos

Yes, I think Internet adoption, really, is the key here. I mean, I know some numbers, but I don't know some others. For example, the GDP in the U.S. is roughly $15 trillion. In Europe, it's roughly $16 trillion. And globally, it's about $63 trillion. What portion of U.S. GDP is economic activity that's reliant on the Internet? It's probably more -- substantially more than the rest of the world certainly and probably more than Europe. But the rest of the world is catching up. I think that's one way to just think about the opportunity. Pat's right, Internet adoption and growth, greater reliance of economic activity on the use of the Internet, that's going to continue at a rate that's probably faster than in the U.S. only because of the amount of penetration in the market here. And I think the challenge is ours to find ways to make sure we get our fair share and exploit it and be smart about how we go after it. And we look at those things, we think about them. And we see growth, and we see opportunities.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Great. And then any sense of how many names are up for renewal in Q1 of '12?

D. James Bidzos

I'm sorry, the number of names that are up for renewal in calendar 2012?

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

No, Q1 of '12.

D. James Bidzos

Oh, I'm sorry, Q1. I don't know if I have that number handy.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

And the only other question, with regard to the registry, I think it's a -- somewhat of a follow-on to Walter's question when he talked about -- I think it's been 4 out of the last 6 quarters, you've been at the lower end of the range, and you talked about that really being a function of the renewal rate. And I know there's 2 varying renewal rates that you guys track. It's names that are 1 year old and names that are multiple years old. So if that's been coming in a little bit lower, is it one group or the other?

John Calys

The renewal rates on both are trending up slightly, both for first time and times renewing past their first time. I think the renewal rate split is about 56.2 on first time, and it's 82.2 roughly, I think, for second time and beyond. And certainly, as those names renew, beyond the first time, second, third and fourth, that rate continues to climb.

D. James Bidzos

By the way, we found the other number. So the number that's coming up for renewal in Q1 of 2012 is 25.2 million.

Operator

[Operator Instructions] And we'll take our next question from Dan Cummins with ThinkEquity.

Daniel T. Cummins - ThinkEquity LLC, Research Division

Jim, I wonder if you could tell us, if you'd be willing to tell us, how much NIA contribution or a growth range you're assuming for the revenue guidance for 2012.

D. James Bidzos

Yes, we're not breaking that out, so it's probably early to tell you that. I hope that during 2012, we'll be able to tell you a lot more about it. I think all we said at this point and all I can say now is that the team is exceeding its bookings target that we assigned it.

Daniel T. Cummins - ThinkEquity LLC, Research Division

And just one follow-up related to NIA. Is the distribution model changing yet very much quarter-on-quarter? Do you envision it changing much in 2012 for VeriSign?

D. James Bidzos

There's a transition that's going on that we're very pleased with. It's going well. That's part of the scaling efforts, is a shift in the distribution model, and that's going according to plan.

Operator

And we'll take our final question from Sterling Auty with JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

I just had 2 housekeeping follow-ups. Can you go into a little bit more detail? I missed the 2-set impact on the non-recurring. I think you said it was a $4 million pretax charge. Can you just give us a little detail what that was regarding? And I had one other follow-up.

John Calys

That was a non-recurring item that we booked in fourth quarter, onetime for $4 million. And we don't expect it to recur, and it passed us.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

But what was it tied to? What was it referring to?

John Calys

It referred to some non-income-related taxes, non-income tax.

D. James Bidzos

Yes, out of period.

John Calys

Right.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Got you. And then the other one is, with the cash that you're able to repatriate, is there additional cash that you can use the same methods to repatriate additional cash going forward?

John Calys

At this point in time, what we repatriated was all of our previously taxed income, at least through the end of 2011 -- or 2010, I'm sorry, 2010. So there's a small amount of incremental income that's earned offshore that gets taxed U.S. every year. Obviously, the objective is not to have any, but there's a little bit each year. That amount that we repatriated had built it up over a few-year period. So I wouldn't [ph] say there's a substantial amount of previously taxed income to bring back near term.

Operator

And that concludes the question-and-answer session. I would like to turn the conference back over to Mr. Atchley for any additional or closing remarks.

David Atchley

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.

Operator

And that concludes today's teleconference. Thank you for your participation.

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