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VeriSign, Inc. Q1 2010 Earnings Call Transcript

VeriSign, Inc. Q1 2010 Earnings Call Transcript

VeriSign, Inc. (VRSN)

Q1 2010 Earnings Call

April 28, 2010 5:00 pm ET


Nancy Fazioli – Investor Relations

Mark D. McLaughlin - President and CEO

Brian G. Robins - Executive Vice President and CFO


Sarah Friar – Goldman Sachs

Shaul Eyal – Oppenheimer & Co.

Todd Raker – Deutsche Bank Securities

Katherine Egbert – Jefferies & Co

Phillip Winslow – Credit Suisse

Sterling Auty – JPMorgan

Rob Owens – Pacific Crest Securities

Steven Ashley – Robert W. Baird & Co

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Ed Maguire – CLSA

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

Nancy Fazioli

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

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

Financial results in today’s press release are un-audited and the matters we will be discussing today include forward-looking statements and as such are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent report on Forms 10-K and 10-Q and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

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

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

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

With that, I’d like to turn the call over to Mark.

Mark McLaughlin

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

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

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

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

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

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

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

The 2009 fourth quarter renewal rate was 71.2% up from approximately 70.5% in the third quarter of 2009. While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the first quarter of 2010 will be approximately 72%.

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

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