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

VeriSign (NASDAQ:VRSN)

Q1 2012 Earnings Call

April 26, 2012 4:30 pm ET

Executives

David Atchley - Corporate Treasurer

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

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

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

Analysts

Walter H. Pritchard - Citigroup Inc, Research Division

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

Philip Winslow - Crédit Suisse AG, Research Division

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

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

Jaimin Soni - BofA Merrill Lynch, Research Division

Gregg Moskowitz - Cowen and Company, LLC, Research Division

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

Craig Nankervis - First Analysis Securities Corporation, Research Division

Operator

Good day, and welcome to the first quarter 2012 earnings release. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. David Atchley. Please go ahead, sir.

David Atchley

Thank you, operator, and good afternoon, everyone. Thank you for joining us on VeriSign's First Quarter 2012 Earnings Conference Call. I'm David Atchley, Corporate Treasurer and Director of Investor Relations. I'm here today with Jim Bidzos, Executive Chairman, President and CEO; and John Calys, Vice President, Interim CFO and Controller; and Pat Kane, Senior Vice President and General Manager of Naming Services.

Please note that this call and accompanying slide presentation are being webcast from the Investor Relations section of our corporate website, www.verisigninc.com. Please refer to that website for important information, including the first quarter 2012 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 first quarter was another solid quarter for VeriSign, and we're pleased with the results. In Naming, we again saw a record number of new registrations at 8.9 million while adding 2.86 million net names, finishing the quarter with 116.7 million names in the domain name base.

In our NIA business, we again saw strong bookings growth. We were also able to achieve ongoing operating margin expansion through disciplined operations. Our balance sheet remains strong with $1.35 billion in cash.

During the first quarter, we continued our share repurchase program by repurchasing 1.8 million shares for $68.4 million. We have approximately $763 million remaining in our share repurchase authorization program, which have no expiration.

We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases.

While basic shares outstanding stayed essentially flat quarter-over-quarter, our diluted share count, which is used for our diluted EPS calculation, increased in the first quarter. The main driver of this increase was dilution from our convertible bonds. As in the first and second quarters of 2011, we see dilution from our convertible bonds when our average stock price for the quarter is over the current conversion price of $34.37. These shares represent diluted shares and not shares that have been issued. John will provide more details on the share count and its impact during his comments.

On March 27, ICANN posted for public comment on their website the renewal terms for the .com Registry Agreement negotiated between VeriSign and ICANN. The terms are substantially the same as the terms contained in the existing .com Registry Agreement, except for new provisions regarding indemnification and audit rights, aligning it with the other 5 largest gTLD registry agreements including the .net agreement. Regarding ICANN's new gTLD program, VeriSign applied directly for 14 new gTLDs, 12 of these 14 are transliterations of .com and .net.

Also, applicants for approximately 220 new gTLDs selected VeriSign to provide back-end registry services. It is still early in the process to determine what impact these applications will have on our revenue.

Depending on ICANN's pace for processing and approving these applications, revenue from new gTLDs is not expected before 2013 and is not expected to be material in 2013. We expect more details will be available when ICANN posts information regarding the new gTLDs for which applications were received. We expect that announcement in May.

Also, as announced today, VeriSign named George E. Kilguss, III as CFO effective May 14. George brings over 25 years of solid financial experience to VeriSign. Most recently, he has been serving as CFO at Internap and has been CFO of 3 public companies. We look forward to introducing you to George on the next earnings call.

Also, John will continue with the company as Vice President and Controller. I would like to thank John for his service as Interim CFO since last September.

I'll comment now on first quarter operating highlights. In our Naming business, the base of registered names in .com and .net totaled approximately 116.7 million at the end of March. This represents an 8.1% increase year-over-year in the base and a 2.5% increase quarter-over-quarter.

In the first quarter, we added 2.86 million net names to the domain name base, and we processed 8.9 million new registrations, or a 7.7% increase in new registrations over the same period 1 year ago. The first quarter was a strong quarter on record for new registrations.

Internet adoption, e-commerce and online advertising continued to be drivers of our Registry business growth. Some of the first quarter strength was driven by 2 favorable factors: first, we saw improvement in the economics for domain name monetization; secondly, we saw some of our registrar customers have more success with their marketing programs during the quarter. The fourth quarter of 2011 renewal rate was 73.5%. 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 2012 will be approximately 74.3%.

We expect the second quarter net names added to the base to be between 1.8 million and 2.2 million names, reflecting continued growth in the underlying drivers of the Internet and seasonality.

Our NIA business continues to perform well and exceeded its bookings target in the first quarter of 2012. With the NIA team in place, we're continuing to execute. More importantly, we continue to focus on scaling the NIA business to achieve quality revenue and stable growth.

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, we're pleased to be announcing another solid quarter. During the first quarter, we generated revenue of $206 million, delivered non-GAAP net income of $68 million and non-GAAP operating margin was 51.9%. These results drove approximately $101 million in the first quarter of free cash flow. Of our total cash and investment balance, about $245 million was domestic as of March 31, 2012.

Let me recap our performance for the first quarter 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 our 2012 full year guidance.

Revenue of $206 million for the first quarter was up 13% year-over-year. Deferred revenue ended the quarter at $783 million, a $55 million increase from year end. Non-GAAP operating margin for the first quarter was 51.9% compared to 50.9% in the fourth quarter of 2011. First quarter non-GAAP operating expenses were $99 million, down 1% sequentially and up 1% year-over-year.

Jim mentioned earlier that we applied directly for 14 new gTLDs. 13 of these applications occurred during the first quarter, which added $2.4 million of operating expense. The first 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 other ways to improve our operating margin.

Non-GAAP net income for the first quarter was $68 million, resulting in non-GAAP earnings per share of $0.42 compared to $0.32 in the first quarter of 2011.

With respect to taxes, we think a non-GAAP tax rate of approximately 30% remains a 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 163 million shares in the first quarter, compared to 160 million shares in the fourth quarter of last year. Dilution related to the convertible debentures was approximately 2.5 million shares based on the average share price during the quarter. We have included a slide in the appendix of our earnings presentation detailing the dilution calculation related to the convertible debentures.

Operating cash flow was $110 million for the first quarter compared to $90 million for the same quarter last year. Free cash flow was $101 million for the first quarter of 2012, given $4 million in excess tax benefits and $13 million in capital expenditures for the quarter.

We saw solid performance in the first quarter. 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, we now think revenue for 2012 will be in the range of $870 million to $890 million, representing growth of 13% to 15%. We gave a range of $865 million to $890 million on the last call.

Non-GAAP gross margin is still expected to be at least 80%. Q4 2012 exit non-GAAP operating margin is still expected to be 52% to 54%. Non-GAAP interest expense and non-GAAP nonoperating income net is still expected to be a net expense of approximately $38 million for 2012. Capital expenditures are still expected to be 7% to 10% of revenue. Our guidance is based on expectations of continued growth and increased operating efficiencies in our business, in addition to financial projections for interest income and expense.

I will now turn the call back to Jim.

D. James Bidzos

Thank you, John. Before opening the call to your questions, I'd like to provide an update on our areas of focus for 2012. During the remainder of the year, we are focused on the following 5 areas: one, continue providing unparalleled Registry Services and network performance; two, continue to work with ICANN and the Department of Commerce towards a smooth renewal of our .com agreement; three, continue to invest in and grow the NIA business; four, as a post-restructuring next phase, focused on value creation for new services in our core business, factoring Q1, we've taken concrete steps to accelerate identification, testing and development of innovative new core services; five, and of course, continue to act as responsible stewards for the Internet infrastructure, which we operate.

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

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Walter Pritchard with Citigroup.

Walter H. Pritchard - Citigroup Inc, Research Division

John, I'm wondering maybe on the guidance, the 1.8 million to 2.2 million. If I look at that versus your guidance 1 year ago, it's actually less than 1 year ago, and yet, the first quarter is running modestly ahead of what you're adds for next -- 1 year ago. So I'm just wondering, do you see something in the base or in the trends at the end of the quarter there that suggests that Q1 was more of an anomaly, and Q1 transact to a lower growth rate?

John Calys

That's a good question, Walter. I don't know that we see anything exiting the quarter that makes first quarter look like an anomaly to us. I know our guidance last year for the same quarter was higher. I think our actual performance for second quarter last year was 1.95 million net adds. So I think, really, what we have is the seasonality that we've talked about in the past. First quarter is always a little bit stronger based on activities that the registrars do with marketing, as well as just kind of seasonal patterns in the business. Pat, I don't know if you have anything to add?

Patrick S. Kane

No, I think that's about all.

Walter H. Pritchard - Citigroup Inc, Research Division

And then just second question, Jim, on the -- it sounds like more of an emphasis on the [indiscernible] services and so forth. Can you talk about what role M&A may play at all in that process of looking a little bit -- get a little bit more aggressive about diversifying the business or expanding into adjacent areas?

D. James Bidzos

Sure. I don't expect M&A to play any substantial role at all in that growth. This is consistent with what we've been messaging for the last few quarters that we're very much focused inward on innovative opportunities in our core business. This company has a lot of talent, a lot of great ideas. And what we're doing is making sure that there's a way to rapidly exploit them. So the M&A is not part of that plan. As I've always said, we have a product roadmap that we like. And we see M&A as some way to get there quicker. We consider that, but there's nothing on our radar.

Operator

Next, we'll hear from Steve Ashley at Robert W. Baird & Co.

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

In terms of the domain name activity, I was going to ask about promotional activity and I realize that, that's in 2 buckets. One is, promotion activity that you yourselves, VeriSign, have worked onto revenues involved and then there's the amount of activity in the field. I'm just wondering if you could comment on either of those? How it related to maybe normal or last year?

D. James Bidzos

As far as the programs that we run that are contra-revenue programs, I think we've talked about that in the past that on a full year basis, they're not a significant amount, but we do some each quarter. And usually, they're a little more weighted towards the first part of the year, especially first quarter. So there is a little bit of the impact on the top line for the first quarter of this year in that. Pat, I don't know if you got comments about registrar activity?

Patrick S. Kane

So basically, on the contra programs, they're intended to be performance-based programs. And so the performance-based programs that we've put in there, we're actually augmenting the activity of the registrar. And so we've actually found programs incentives that are actually driving additional units that usually been more productive than in the past, and the performance has been better than in the past.

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

Terrific. And then could you just comment maybe at the high level of how international versus domestic domain name growth might have looked in the period?

Patrick S. Kane

So we still have strength coming out of international. Largely, we're seeing growth from India, we're seeing growth from China, as well as Southeast Asia and Australia from international standpoint. But it still looks to be about a 40%-60% split from international to domestic.

Operator

Next, we'll hear from Phil Winslow at Credit Suisse.

Philip Winslow - Crédit Suisse AG, Research Division

I just got a question on just kind of spending from here, especially on the sort of non-domain name businesses. I mean how do you feel with sort of the OpEx level that you're at right now in terms of sort of growing the revenue from here. Are you comfortable with that or do you think this actually needs more investment over time?

John Calys

We certainly think there's an opportunity to always manage and get more efficient from an OpEx standpoint, Phil. I don't think we foresee some type of significant increase based on what we've guided to exit the year on. We're not expecting an increase in OpEx levels relative to revenue. In fact, we're still anticipating some improvement through the end of this year.

D. James Bidzos

Phil, this is Jim. I guess if you're referring at all specifically to some of the innovation efforts that are going on the company -- going on in the company, I think it's fair to say that given the operational efficiencies that we continue to find and exploit as the company sort of gets adjusted to its new size. Remember, we've gone from over 5,000 to just over 1,000 employees in 4 years. That and just some small reallocation of expenses throughout the company, we're pretty comfortable. Give us what we need to fuel the innovation engineer and do the kind of R&D that we need to do. So I think it's something from the outside of the -- essentially difficult to notice.

Operator

[Operator Instructions] Next, we'll hear from Sterling Auty at JPMorgan.

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

I was wondering, is it too early for you to tell in the gTLD program if any of the ones that you applied for were also applied for by others. In other words, could there be an auction or a need for increased investments to land some of those that you've applied for?

D. James Bidzos

Yes, this is Jim. So it is too early to tell. At some points, I can/will reveal what the applications were, and they have a process for dealing with duplicate applications. As of right now, we can't tell you what that is. The process is being adjusted as we speak. And for an up-to-minute -- up-to-the-minute update, I'll ask Pat to comment on that.

Patrick S. Kane

Well, in terms of finding out when -- what additional top-level domains have been applied for beyond the ones that we have done. There's a process now that where the application system itself has to reopen at ICANN. It's been closed for a few days. And then after that happens, they will have a final submission and then there'll probably be a couple of weeks after that before ICANN announces. So it's kind of a moving target right now as to when that will occur. But we will certainly analyze it as soon as it opens up and identify where there are exact conflicts, where there will be conflicts that may create some end-user confusion, and we'll take a look at those as well.

D. James Bidzos

I think the original so-called reveal date for what strings were applied for was April 30. We expect that there'll be some short period of time beyond that before the actual new date is announced, which as Pat said, we expect to hear in a few days or so. Sometime in early May, we expect to know what strings were applied for. And at that point, any conflicts would be obvious, and as mentioned, ICANN has a process including an auction process to deal with competing bids and then that will play out at that time.

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

Okay. And there was an earlier question, I'm asking about timeshare revenue. I'm going to ask it this way, given the number of net adds that you had in the quarter, given the base of names that you had through the quarter, I think there's some of us that felt that the revenue would've been a little bit higher. So wondering, is it contra revenue business outside of the Naming business or something else that may have dampened top line by $1 million or $2 million or $3 million?

John Calys

Actually, I think from our standpoint, the top line was right about where we expected it internally. As far as the contra programs, there were no significant changes for the full year plan in 2012 versus 2011. There might have been a little bit more waiting in the first quarter, this year than last. But I don't think we expected something significantly different than what we're reporting.

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

Okay. And then last question, Jim. If you mentioned it, then I missed it, and I apologize. But in your prepared remarks, you talked about as one of the goals adding additional services to capitalize on the infrastructure and the position that you've got. Is there something specific that you can share with us now that you're looking to innovate beyond the stuff that's already in Naming and the other parts of the existing business?

D. James Bidzos

Well, it's no different than what we've talked about before. As I mentioned, there's a lot of talent and also a lot of ideas. And in fact, quite a bit of intellectual property here in the company. And I don't think we've worked as hard as we could have in the past to exploit it. So what the concrete steps that I referred to involve putting structures and people in place to make sure that we rapidly maximize our ability to exploit those ideas that we think can result in productive new innovative core services. So they are very much core services. I've mentioned in the past that we think that security is a very good place for us to focus. I don't think there's anybody anywhere on this planet that doesn't appreciate the need for cyber security. So that's the general area where we're looking to enhance our offerings. And that's probably as much as I can say right now.

Operator

Next, we'll hear from Rob Owens at Pacific Crest Securities.

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

Could you talk a little bit about some of the success you're seeing in NIA and maybe some of the -- a little bit of color on the bookings there. It seemed like the deferred categories group better than I was expecting this quarter?

John Calys

As far as the deferred category, certainly, it was very strong. The growth in that really relates to the 2.86 million net adds and 8.9 new registrations that's driving deferred much more than anything from an NIA standpoint.

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

So on that -- specifically there, are you seeing an extension in duration then in terms of some of those renewals or new names? Or are you still about 5 quarters on average?

D. James Bidzos

The average term length is about 5 quarters right now when we see with renewals.

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

Actually a pretty big change, I think, in long-term deferred if I'm not taken. Historical numbers.

John Calys

For the first quarter, I think, seasonally is always a strong increase in deferred for us. So -- but certainly much more than sequential quarter was -- last quarter.

D. James Bidzos

As John said, that's attributable to areas outside of NIA. But with respect to NIA, we set some bookings goals for them for the quarter that were in excess of the goals that we set last year. And they're exceeding those goals. So we're pleased with the process. We're not breaking out those numbers separately.

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

If it were to achieve 10% of bookings, would you break it out separately?

John Calys

If NIA were to achieve -- if their revenue were to achieve 10% of total revenue, we would break it out separately under SEC reporting requirements. Yes.

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

And then second, how many names are up for renewal in Q2?

Patrick S. Kane

24.4 million.

Operator

Next, from Bank of America Merrill Lynch, Jaimin Soni.

Jaimin Soni - BofA Merrill Lynch, Research Division

I just got a couple of quick questions. First, I wanted to ask about operating margins. In your guidance, you have about 100 basis points ramp through the year. As we exit the year, and I guess as you continue to get more efficient, is that where we can see more of the listed margins going forward? Or do you think you have room to invest more in some of the opportunities that Jim outlined earlier?

D. James Bidzos

Certainly, we see margin improvement through the end of the year as we've guided in the 52% to 54% range. And as we -- as I commented earlier, and we've spoken many times before in kind of our post-restructuring era here, we continue to work hard daily at finding opportunities to grow our margin, to get more efficient, to do things smarter and better. Obviously, we'll see in the revenue -- on the revenue line, we'll see the impact of the price increases that we did in January. And as you know, that kind of bleeds into the revenue line over about a 5-quarter period. So that gives you some even natural margin growth as well, that comes about from that. Beyond that, we obviously haven't provided guidance beyond the end of 2012. But we take very seriously that it's our job to run the business very efficiently and find ways to do things better and smarter all the time.

Jaimin Soni - BofA Merrill Lynch, Research Division

Got it. Another -- just another follow-up on the net domain name ads. If I look at what you guys have guided last quarter for the year, it's at about 6% to 8% unit growth rate for net new names. Looking at what you have -- at the midpoint, guided to about 2 million for next quarter. And seeing the first half total net new name growth at about 1% to 2%, implies that the second half should really accelerate. Is that what we should think about for the second half of the year in terms of net new name growth?

Patrick S. Kane

No, I mean, the 2.5% is quarter-over-quarter, right? And so year-over-year, right now, we're at 8.1%. So you should see some consistency in quarter-over-quarter growth.

John Calys

Yes, our revenue guidance of the $870 million to $890 million that I mentioned earlier is predicated on a 6% to 8% unit -- net unit growth for the year over the prior year. And at this point, we would say we're trending toward the upper half of that range.

Operator

Next, we'll hear from Gregg Moskowitz with Cowen and Company.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Jim, there was a very nice increase in the expected renewal rate for Q1 versus what you've reported over the prior few quarters. Aside from perhaps getting some benefit from a renewal base that's becoming more mature, were there any other factors that might have contributed to the higher renewals that you expect to see this quarter?

D. James Bidzos

Well, in Q1, we did have a higher early renewal. Early renewals were up in Q1, which helps explain the increase in deferred revenue. Other than that, I'm not aware of any changes that...

Patrick S. Kane

The behavior is as expected. So it's consistent. So what we'll is some variability in 1/10 percentage points based upon specific registrars and what they're doing with their customers and different programs that they may or may not run. So even though it's up by a couple of 1/10% in terms of where we thought we'd end up, it's well within expectations.

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Okay. And that's great. You've gotten attached to a large number of back-end applicants. Frankly, you have more than I would've expected. Although a lot of these I would imagine would be relegated to somewhat of a niche type status assuming their applications are accepted. What I wanted to ask is -- and I know this is not a material 2013 impact, but just kind of wondering, on a longer-term basis, given what we know today and how you see this potentially unfolding, whether you see a greater opportunity directionally for VeriSign on the front end or the back end around new gTLDs?

D. James Bidzos

Yes, this is Jim. I think -- well, certainly 2013 is too early. And we don't think there'll be any material revenue in 2013. And I think it's just too early to speculate about what that revenue will look like beyond. We're certainly pleased that over 200 applicants have chosen us to be their back-end registry service provider. But how -- and we're -- we like the program. We think that it's going to, as ICANN, encourage creativity, and we hope it will grow the market globally for domain names. But how much of that will grow, what exactly what our participation will be, how these 220 applicants that have chosen us to provide services then will fare in that new market. I think it's just too early to speculate about that. We have said that we do see that as a growth area. I think that it's going to expand the market. And we're pleased to be participating in it, both through directly applying to operate gTLDs. And as you said, providing services for 220. But beyond that, I think it is just too early for us to speculate.

Operator

[Operator Instructions] Next, from CLSA, Ed Maguire.

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

I saw you had posted last month the RFC for the .com renewal contract. Are there any issues that you could anticipate that might come up, that might result in any changes to proposal? And any update on expected timing of finalizing that contract?

D. James Bidzos

Well, there is -- this is Jim, there is a published timeline for that. I can't have a fixed duration comment period. They are -- I think, it would be inappropriate for us to comment on -- to comment while the comment period is still up. But there is a fixed process. And at some point, ICANN and VeriSign will complete that process. ICANN will receive the comments and respond to them and then the agreement will be turned over to the Commerce Department for its consent of the renewal. The agreement expires on November 30, so that's the timeline to complete this process by then. And our plan is to follow the timeline and work through it. I think, again, .com had a similar process. Of course, to accept it, it did require Commerce Department approval. But essentially it went through an open comment process. There were responses to those comments and then ICANN board voted to approve the contract. Our expectation is that there will be a similar process here.

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

Great. And just a follow-up on cash. Just currently, how much do you have offshore and whether you have any ability to move some of that onshore?

John Calys

We have about $1.1 billion offshore right now, $245 million domestically. No specific plans right now to move any of the offshore cash back at this point in time.

Operator

And we'll take our final question today from Craig Nankervis with First Analysis.

Craig Nankervis - First Analysis Securities Corporation, Research Division

My questions have really basically been asked. Maybe just a little more on the 220 new gTLDs that you've been selected to provide back-end services. Have you had discussions with most of these entities? Or is that -- was that number basically entirely a surprise to you, and how do you think about that quantity?

D. James Bidzos

I'll let Pat weigh in, in more detail, but some of those applicants actually ran competitive bid processes to select the back-end services provider. And we were successful as a competitor in that process for many of them. We've certainly entered into agreements with all of them at this point. I don't know that I can comment on how that fell with expectations. I think, given that the ICANN has said nothing about the number of applicants, it's probably inappropriate to speculate about how many there were or how we did. Pat? I would like Pat to comment.

Patrick S. Kane

Well, as you said, Jim, it's hard to tell where it falls into a total number of top level domains that have been applied for. But we are pleased with the number, and we are pleased with the quality of the partners that have chosen VeriSign to provide back-end services for their offerings, as they see it as a valuable asset in terms of how they move their businesses forward as well.

Craig Nankervis - First Analysis Securities Corporation, Research Division

So assuming -- so I guess, what has to happen, they have to all -- each of those have to get their gTLD approved and then assuming that's the case, it's very likely you would be -- you would operate for the back end for everyone on that, for all of that group, right? There wouldn't be a reason you'd be selective within the group, is there?

Patrick S. Kane

No, those 220 have already said that if they are awarded a TLD by ICANN, that VeriSign will act as the operator of back-end registry services for them. So that's the agreement we've already entered into.

D. James Bidzos

Yes, we've agreed to do that. So there's no reason that the number would change from our perspective. And as Pat mentioned, they have specified us in their application as the provider, so we assume that -- but that's our expectation. That if their applications are approved, we will be their back-end registry services provider.

Craig Nankervis - First Analysis Securities Corporation, Research Division

I see. And does that -- as this unfolds, does this have any implications for your infrastructure and build out thereof or really not? How does that -- how do you look at that?

Patrick S. Kane

Well, I think we have world-class infrastructure that can certainly handle the types of business that we've taken and put onto. So I'm -- and I think that it's well within our capabilities.

Craig Nankervis - First Analysis Securities Corporation, Research Division

Well, yes, so capabilities. I guess -- so it doesn't -- it's not going to -- I don't know, necessitate a different pattern to your CapEx spending or something like that because of this new dynamic.

D. James Bidzos

Yes, this is Jim. I don't think we anticipate anything substantial on that sense. I think we really need to look at the nature and the use and the deployment of some of these TLDs. But for example, many of them are brands who are probably going to have a very small number of domain names associated with their TLDs that we'll operate for them. So I don't think of this as a major overhaul of our infrastructure in order to support it. I think they -- for them, even if it's a small number of domain names, if it's an important brand, I think security and stability and availability are really the important things which is why they chose us. And we're certainly going to continue to provide that. We'll make the normal investments that we make in our infrastructure to provide that security and stability, but I believe that's what appealed to most of them.

Craig Nankervis - First Analysis Securities Corporation, Research Division

Sure, sure. And I wasn't trying to imply that you have to have a major overhaul to what you have. I was just curious if it changes the pattern of how you operate with incorporating these...

D. James Bidzos

Well, we operate multiple domains now, so we're -- we have for a long time. So we're structured to operate multiple domains. While this could change over time, I don't -- I wouldn't expect that given a circumstance as you'd expect to see a substantial increase in the overall number of domain names. Again, if these are brands, the number of new domain names within the gTLDs would be relatively small. But it will be important that they resolve reliably, and I think that's why we were chosen.

Operator

Now this concludes today's question-and-answer session. At this time, I'd like to turn the conference over to Mr. Atchley. Please go ahead, sir.

David Atchley

Thank you, operator. With regards to events in the second quarter, please note that Jim, John and George will be presenting at the J.P. Morgan TNT Conference at 2:10 p.m. Eastern time on Tuesday, May 15 in Boston. The webcast registration details for this conference will be available on the Investor Relations section of the VeriSign website. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call. Thank you, and good evening.

Operator

Once again, that does conclude today's conference, and thank you all for joining us.

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

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

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

Source: VeriSign Management Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts