VeriSign Inc VRSN
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/25/2013

Operator: Good day and welcome to VeriSign's First Quarter 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Atchley. Please go ahead sir.

David Atchley - IR: Thank you, operator and good afternoon, everyone. Thank you for joining us on VeriSign's first quarter 2013 earnings conference call. I am David Atchley, Director of Investor Relations and Corporate Treasurer. I'm here today with Jim Bidzos, Executive Chairman, President and CEO; George Kilguss, Senior Vice President and CFO; 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 Please refer to that website for important information including the first quarter 2013 earnings news 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 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 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 GAAP and 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 George 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.

D. James Bidzos - Chairman, President and CEO: Thanks, David and good afternoon, everyone. The first quarter demonstrates a solid start to 2013 for VeriSign. We reported revenue of $236 million, which was 15% higher year-over-year and delivered strong financial performance including 145 million in free cash flow. In Naming, we processed 8.8 million new gross registrations during the first quarter and had 1.99 million net new names bringing the name base to a total of 123.1 million .com and .net names. Our balance sheet remained strong with approximately $1.56 billion in cash, cash equivalents and marketable securities at the end of the quarter. We continue to see benefits from our focus and discipline in the execution of our strategic framework.

As you may have seen during April we completed the issuance of 10-year $750 million senior unsecured note with the 4.625% coupon. We are very pleased with the results of this issuance, which is part of our revised capital structure. In a few moments George will discuss our capital structure in more detail.

During the first quarter, we continued our share repurchase program by repurchasing 3 million shares for $132 million. As of March 31, 2013 we have approximately $844 million remaining in our share repurchase program which has 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.

I'll comment now on first quarter operating highlights. In our Naming business, at the end of March, the total base of registered names in .com and .net was 123.1 million, with registered names in .com totaling 108.1 million names and in .net totaling 15 million names. This represents an increase of 5.5% year-over-year and 1.6% quarter-over-quarter. In the first quarter, we added 1.99 million net names to the domain name base after processing 8.8 million new gross registrations.

In the fourth quarter of 2012, the renewal rate was 72.9% and the renewal rate for the whole of 2012 was 73.1%. 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 2013 will be approximately 73.3%. This rate compares to 73.9% achieved in the first quarter of 2012.

The renewal rate is still below the level of the first quarter a year ago. We see the continuing effects of changes in search algorithms and macroeconomic headwinds we discussed during the last few quarterly earnings calls. We cannot be certain of how long the renewal rate will be impacted by these factors, but we are now experiencing the fourth quarter of these effects. In light of these factors, we expect the second quarter net names for .com and .net added to the base will be between 0.9 million and 1.3 million names. As noted in prior calls, updates to the zone are posted on our website at least once per day allowing you to track how the zone is growing throughout the coming quarter.

Now, I would like to turn the call over to George.

George Kilguss III - SVP and CFO: Thank, Jim, and good afternoon, everyone. Before discussing the first quarter financials, I would like to talk about our capital structure in more detail. As stated on prior calls, we have been looking at our capital structure across both our leverage profile, as well as our international cash balance and how the international cash balance inter-relates with our international tax structure.

With our recently announced new senior unsecured debt issue, the Company now has three debt instruments as part of its capital structure. First, the Company has a $200 million senior unsecured credit facility that matures in November 2016. During April, we repaid the $100 million outstanding borrowings under this facility. We view this credit facility as a secondary source of domestic liquidity. Second, with our new debt issuance during April complete, the Company now has $750 million 10-year senior unsecured note with a coupon rate of 4.625%. This issuance produced approximately $738 million of net proceeds of which $100 million was used to repay our revolving credit facility previously mentioned.

We intend to use the remaining amount for general corporate purposes, including, but not limited to the repurchase of shares under our share repurchase program. Third, the Company has $1.25 billion subordinated convertible debenture with a coupon rate of 3.25% that matures in 2037. The Company now has total outstanding debt obligations of $2 billion, which reflects the full $1.25 billion face value of our subordinated debenture, the new $750 million debt issuance and the repayment of amounts outstanding under the credit facility, which occurred after quarter-end.

With trailing 12-months adjusted EBITDA of $595 million as of March 31, 2013, our pro forma total debt to adjusted EBITDA ratio is 3.4 times. This leverage ratio is consistent with the 1.5 to 3.5 times range we discussed during prior calls and at a level we believe is reasonable for the Company at this time.

Now, as it relates to our international cash balance the tax work to evaluate our international cash and international tax structure is progressing, but remains ongoing. Of the $1.56 billion in cash, cash equivalents and marketable securities at the end of the quarter approximately $240 million was domestic with the remainder held internationally. The approximate $1.3 billion in international cash has not been taxed at the U.S. level and our assertion remains unchanged from prior quarters that this balance is indefinitely reinvested offshore. As mentioned, our tax work is ongoing and we will provide updates as soon as appropriate. We expect this work to be completed by the end of the year if not sooner and will provide appropriate available updates on our Q2 and Q3 quarterly calls.

I will now discuss the first quarter financial results. During the quarter, we generated revenue of $236 million, up 15% year-over-year and delivered GAAP operating income of $133 million, up 35% from $99 million in the first quarter of 2012. The GAAP operating margin in the quarter came to 56.4% compared to 48.1% in the same quarter a year ago

GAAP net income totaled 85 million compared to 68 million a year earlier, which produced diluted GAAP earnings per share of $0.52 in the first quarter compared to $0.42 for the first quarter in 2012. As of March 31, 2013 the Company maintained total assets of approximately 2.1 billion, which includes the cash balances just discussed. Liabilities also totaled $2.1 billion at quarters end. During the first quarter, the stock price again exceeded the convertible debenture conversion trigger of $44.68, which means that the holders of the convertible debentures have the option of converting debenture into common stock during the second quarter. Therefore, in accordance with GAAP, the debt component of the convertible debentures, as well as the related embedded derivative and deferred tax liability were reclassified from long-term liabilities to current liabilities, while the associated unamortized debt issuance cost were reclassified from long-term assets to current assets as of March 31, 2013.

I'll now review some of our key first quarter operating metrics, which are revenue, deferred revenue, non-GAAP operating margin, non-GAAP EPS, operating cash flow, and free cash flow. I will then discuss our 2013 full year guidance. As mentioned, revenue totaled $236 million for the first quarter, approximately 60% of our revenue was derived from customers in the U.S. and 40% was from customers outside the U.S.

Revenue in the first quarter from international sources grew 18% year-over-year and domestic source revenue grew 13% year-over-year. Deferred revenue at quarter-end totaled $847 million, a $34 million increase from year-end 2012. First quarter, non-GAAP operating expense, which excludes $8 million of stock-based compensation totaled $96 million compared with $87 million in the fourth quarter of 2012.

As a reminder, fourth quarter non-GAAP operating expenses were $11.3 million lower due to certain fourth quarter benefits we discussed last quarter. Non-GAAP operating margin for the first quarter expanded to 59.6% compared to 51.9% in the same quarter of 2012. It should be noted that during the first quarter of 2013, we delayed approximately $5 million of our marketing program expenses to later quarters, which contributed to a higher operating margin. Non-GAAP net income for the first quarter was $94 million, resulting in non-GAAP diluted earnings per share of $0.58 compared to $0.42 in the first quarter of 2012 and $0.59 last quarter. As noted before, certain benefits described last quarter increased the fourth quarter earnings per share.

With respect to taxes, we continue to use a non-GAAP tax rate of 28% for our non-GAAP net income and non-GAAP earnings per share calculations. In 2013, we now expect to pay cash taxes of approximately $35 million to $45 million as compared to the $40 million to $50 million range we gave last quarter, as a result of the increased interest expense deduction created from our new senior note obligations. We had a weighted average diluted share count of 161 million shares in the first quarter compared to 162 million shares in the fourth quarter of last year.

Dilution related to the convertible debenture was approximately 7.9 million shares based on the average share price during the quarter compared with 2.5 million for the same quarter in 2012. This share count was decreased by the full impact of fourth quarter repurchase activity and the weighted effect of the 3 million shares repurchased during the first quarter. Operating cash flow was $151 million for the first quarter compared to $171 million in the fourth quarter of 2012 and $110 million for the first quarter of last year. First quarter free cash flow was $145 million.

With respect to 2013 guidance, our guidance remains primarily unchanged except for an update to our non-GAAP interest expense and non-GAAP non-operating income guidance. Revenue for 2013 is still expected to be in the range of $945 million to $960 million, representing an annual growth rate of 8% to 10%. Non-GAAP gross margin is still expected to be at least 80%. Full year 2013 non-GAAP operating margin is still expected to be at least 57%. Our non-GAAP interest expense and non-GAAP non-operating income net is now expected to be in expense of between 60 million and 62 million for 2013. This range is an increase from the 40 million to 42 million range given on our last call, primarily reflecting the increased interest expense from our new debt issuance. Capital expenditures for the year are still expected to be between $60 million and $80 million. Our guidance is based on expectations about the outlook for our business in addition to our financial projections for interest, income and expense.

In summary, the Company continue to demonstrate sound performance in the first quarter. We have grown non-GAAP operating income and net income as compared with Q1 2012. We have maintained a strong balance sheet and expect strong operating cash flow generation to continue as a result of our financial model.

Now, I will turn the call back to Jim for his closing remarks.

D. James Bidzos - Chairman, President and CEO: Thank you, George. Before opening the call to your questions I would like to remind you of our strategic framework and its three areas of focus; these are first to protect; second to grow, which includes our innovation efforts; and third, to manage the business. During the first quarter, we continued our efforts in each of these areas. We believe that are disciplined to deliver in these three areas with the right balance should continue to offer the security and stability that are at the core of our business and provide value to our customers, employees and shareholders.

We will now take your questions. Operator, we are ready for the first question.

Transcript Call Date 04/25/2013

Operator: Gregg Moskowitz, Cowen & Co.

Gregg Moskowitz - Cowen & Co.: Just to start off, it's actually fairly unusual to see a 3% sequential revenue increase in a Q1, particularly given that net adds came in at a very low end of guidance. What drove the revenue outperformance in the quarter, was it NIA or some other factor?

George Kilguss III - SVP and CFO: In December of this year or in the fourth quarter I should say, we actually changed our methodology of how we account for contra-revenue. So, contra-revenue is a -- our marketing expenses we spend that are a deduct from revenue. We went to a GAAP convention, which recognizes that expense over the life of the customer contract that is entered into. So, we had lower contra-revenue in Q1. Going forward, the effects that we used to see from more of a seasonal factor in Q1 from contra will not be as a (indiscernible) it will be a more smooth, that's why we are recognizing that expense over the contract life of the customer.

Gregg Moskowitz - Cowen & Co.: George, could you walk us through why you opted to delay that $5 million in marketing expenses in the first quarter? Also, do you expect to make most of that up in the second quarter or in future quarters?

George Kilguss III - SVP and CFO: So again, the marketing team constantly evaluates program, its effectiveness and programs that we have in the pipeline based on market activities going on. The team during the quarter made a determination that it wanted to delay some programs. They didn't think that its effectiveness was going to reach its maximum potential, and chose to delay that for a few quarters. Right now, we're expecting to see that still in the third and fourth quarter of this year. The team is regrouping on some of those programs and we'll give more of an update on that on our next quarter call, but right now we're expecting to continue to spend that in this fiscal year.

Gregg Moskowitz - Cowen & Co.: For Jim, last quarter I think you made the comment that you were seeing early signs of stabilization and improvement in renewal rates. And as you pointed out in your prepared remarks on a year-over-year basis, you're obviously still working through some of the algo changes, but this represented some fairly nice improvement versus the prior period. I'm just wondering how you're sort of thinking and looking at renewal rates at this point going forward?

D. James Bidzos - Chairman, President and CEO: We're been looking I'd say, we're cautiously optimistic about what's happening, but we don't guide to renewal rates of course, and first of all, I would say that we're still, we're in the fourth quarter of the algorithm, search algorithm changes, and so we're still uncertain exactly how that's going to play out. Those changes are ongoing and continuing. So I think we're not in a position to say that those changes have been absorbed or they've ended they continue. Secondly, as I mentioned we still are feeling the effects of macroeconomic headwinds, particularly in Europe.

George Kilguss III - SVP and CFO: Greg, let me give you a little more color on that. As we previously discussed, our zone metrics have been impacted by both the poor economic conditions here and abroad, as well as changes to algorithm, search algorithms. As it relates to Google, while they don't provide that much information as it relates to past or future changes to their algorithm, what we do know is, and we've previously discussed they made two major algorithm changes called Panda and Penguin. But when you look at Panda, Panda started in 2011 and since its inception they made over 25% different updates to that particular algorithm change. Of the 25 updates, 14 of those updates happened in 2012, so 56% happened in 2012 and they've actually had two additional updates here in the first quarter. So those changes do continue to go on. As it relates to the Penguin change, as we discussed last year, the first time we saw Penguin change came out was in the first quarter of 2012. They made total three changes to their Penguin algorithm in 2012 that we haven't seen any changes yet in 2013 I believe Matt Cutts from Google made some comments at a seminar that they believe they were going to make another change in 2013 to Penguin. But I guess my point here is that they made continued changes to the algorithm some impact is more than others. We don't know the impact of the changes until after they make them. So, we are constantly monitoring those but they have made a significant amount of changes, especially in 2012 which have an effect in future periods for us. So we continue to monitor that. We take that information into the guidance that we provide you as one data input, but there are many changes that happened at least over the past year and the current quarter.

Gregg Moskowitz - Cowen & Co.: If I can just ask one final question since it is relevant for all of our models. I am just wondering to get a sense of how you are thinking about putting the incremental 650 million of debt to use from potential buyback standpoint?

George Kilguss III - SVP and CFO: We have historically not guided to buybacks in any particular quarter. I think if you look at the Company's track record, it's had a very consistent track record in the first quarter. We did a $132 million of repurchases. As Jim mentioned, we always look at our strategic framework. We look at the cash flow from what do we need to invest in the business to protect the assets. What level of liquidity do we need to maintain on hand. What cash do we need to invest to generate positive IR return to propagate growth and innovation and then to the extent that each quarter, we feel we have cash that we deem is excess, we then make decisions on what cash we believe we should be returning to shareholders. So, we don't guide – we haven't guided to that, but I think if you look at our record, it's been relatively consistent in our results in return on capital to shareholders when appropriate.

D. James Bidzos - Chairman, President and CEO: I would just add as well that George talked in his remarks about our capital structure; part of that obviously, is debt leverage ratios. We have talked in the past often about the fact that the Company did not have as much debt as it could have. We'd have as much as that absolutely could have. We said no, the number will be somewhere in between. I think now you've seen that. And clearly, as you saw from the announcements earlier when we closed on the debt offering, it was under very attractive terms for the Company. We see that as a permanent part of our capital structure under attractive terms and we've been very clear about the stated purpose for that general – corporate purposes, potential acquisitions and potential share repurchases among other things, and I think our position on acquisitions, mergers and acquisitions has been very clear consistent there is no change whatsoever on that. As George mentioned, we don't guide on buybacks, but I think if you look at how we've dealt with our use of cash issues, which we determine from quarter-to-quarter. Certainly, you can look back and see that share repurchase has under these market conditions over the last couple of years in an attractive way for us to return value to shareholders.

Operator: Sterling Auty, JPMorgan Chase.

Sterling Auty - JPMorgan Chase: Just a follow on that last point Jim. Is buybacks really the main focal point or how within that strategic framework would you characterize buybacks versus special dividend versus regular dividend as potential capital return?

D. James Bidzos - Chairman, President and CEO: We don't guide to any of those obviously and we do evaluate our cash situation or cash needs and our deployment of our cash on a quarterly basis. I think looking back extraordinary dividends during the divestiture period when we did have divestiture proceeds certainly we're one way that we deployed cash share buyback has been a more consistent method for us, but again obviously we don't guide. So at this point, I'd say based on very dynamic conditions in the last few quarters, over the course of 2012 and over the first quarter of 2013, clearly you've seen that our share repurchase has been our preferred method of cash deployment, that's based on current conditions. There is no change in our strategy as I mentioned with respect to M&A or other uses of cash, it's just determined every quarter.

Sterling Auty - JPMorgan Chase: George, could you quantify the impact on the first quarter from that change in accounting contra-revenue and did you say that it's bigger in the first quarter as you adopted the plan and starts to fade, I missed what you – how you were explaining that?

George Kilguss III - SVP and CFO: So contra is, I would say for all tax and purposes now going to be more consistent in each quarterly number. It was relatively flat quarter-over-quarter from fourth quarter to first quarter. First quarter 2012, had probably about $4 million more contra depressing Q1 in 2012, but Q4 to Q1 were very consistent in the amounts.

Sterling Auty - JPMorgan Chase: Last question on the repatriation announces that you are doing. Would like to determine you mentioned before the end of the year you need a ruling by a tax authority or what else can we be looking from the outside to gauge where you are at in the process?

George Kilguss III - SVP and CFO: So, as you can imagine we've been evaluating the strategic alternatives related to our international tax and related liquidity. As you can appreciate that looks as very complex, it is ongoing, we had hope to have an update for you now but as mentioned that work continues. There are number of complexities we have, the number of dependencies as well and we will give you an update as soon as we can but it is ongoing. At the end of the day as you might expect we need to understand the full cause and risk of any potential changes to our structure before we consider any decision to potential changes and it is just a very complex area, we do have some dependencies that we are looking at and we will provide you an update clearly on Q2 and Q3, if not before, but we think that work should be completed by year end.

Operator: Walter Pritchard, Citi.

Walter Pritchard - Citi: I am wondering just on the margins before the year I am wondering if you could – didn't really talk about the exited margin again as said in the prepared remarks but what are you thinking in terms of exit margin I guess that's first question?

George Kilguss III - SVP and CFO: What was that – marketing expense you are asking about?

D. James Bidzos - Chairman, President and CEO: The operating margin you expect to exit within fourth quarter.

George Kilguss III - SVP and CFO: The operating margin exit rate. So, again, our guidances for full year is that we expect it to be at least 57% non-GAAP operating margin. We don't guide to a fourth quarter exit rate. We were higher in the first quarter because we did delay some of these marketing expenses. We do expect to spend those this year. So, we have not changed our guidance or updated our guidance of at least of 57% for 2012.

D. James Bidzos - Chairman, President and CEO: This is Jim. Just a little bit of additional color on some of the marketing expense. Some of that – a portion of it is tied to investment and marketing, some of new TLDs that we've applied for, for example the IDNs, which are actually first in the order of delegation and ICANN's program and there have been – there has been some small delays, some uncertainty in that program, some of our marketing expense is tied to that. So, not all of it is entirely within our control, but I think, we expect to spend it during the year. So, there is some variability there based on outside factors that are not entirely within our control.

Walter Pritchard - Citi: I guess just on maybe we should (indiscernible) on the guidance for net adds for the second quarter. I guess a little lower than we were expecting, but we've seen the second quarter sort of be lower than that historically. I am wondering as we get kind of the level below the headline net add guidance, are you guys thinking about particular change in direct trajectory between renewal rates and gross adds in terms of how you're getting to the Q2 net add guidance?

George Kilguss III - SVP and CFO: We continue to look at our models, factor in many things. We just talked about some of the continuing changes that are happening with the Google algorithm. We take that into consideration. Our best visibility for Q2 is the guidance we laid out in the call, 0.9 million to 1.3 million that's what we're seeing today. Again, we do provide that visibility as you know daily, it's updated on our website every 12 hours. So you guys are seeing in a real time. But that's what we're seeing at least for the quarter. We talked about last quarter that our total zone growth, our guidance was based on a 4% to 6% total zone growth, that's still consistent with our view there. So, we're looking at the total zone 4% to 6% that has not changed, but that's what we're seeing for Q2, is this range of 0.9 million to 1.3 million.

D. James Bidzos - Chairman, President and CEO: As George said, it incorporates all of our best forecasting tools, but there are two major components under which we have very little direct influence. One is certainly macro-economic conditions and particularly in Europe. Additionally, search engine, algorithmic changes, which as George mentioned we're highly concentrated in 2012, do continue, we do expect another Penguin update in 2013, Google has signaled that clearly. But those are two major factors that are component of our guidance. So those are two that we have no direct influence over and they're all reflected, and that's in the 0.9 million to 1.3 million guidance number that we've provided.

Operator: Phillip Winslow, Credit Suisse.

Harris Heyer - Credit Suisse: This is actually Harris Heyer on behalf of Phil. So, I was just hoping you could provide us a little bit of color on your IP licensing strategy going forward from here?

D. James Bidzos - Chairman, President and CEO: I'm sorry, I missed the last part.

Harris Heyer - Credit Suisse: On your IP licensing strategy?

George Kilguss III - SVP and CFO: I am not sure we're in a position right now to give you more color. We are in the middle of a very hectic effort to inventory and develop a strategy around our IP. I mentioned in the past that our goal actually is not primarily to derive direct patent licensing royalty revenue from our IP, but to use it in support of our business goals and our business planning that certainly is unchanged but that activity is well underway and I hope we will be able to tell you more shortly.

Operator: Dan Cummins, B. Riley & Company.

Dan Cummins - B. Riley & Co., LLC: First, I missed. You gave the renewal rate for the fourth quarter and I missed it and I wanted to ask if you could give us rough idea of the number of names up for renewal in 2Q that's first part?

George Kilguss III - SVP and CFO: The renewal rate in Q1 was again it is not final to a 45 days at the end of quarter, but our estimate is 73.3% for Q1. And the number of names up for renewal in the second quarter is 26.1 million names.

Dan Cummins - B. Riley & Co., LLC: I wanted to just be clear on the marketing spend were you talking about 5 million per quarter or is that 5 million for the whole year and thanks very much for those comments about the external factors. I think that explains quite a bit?

George Kilguss III - SVP and CFO: The 5 million was number based on calendar 2013, not quarterly for the marketing spend

Dan Cummins - B. Riley & Co., LLC: So, in terms of understanding maybe the level of profitability that the business is running at right now. The 59.6%, obviously, it seems a little overstated, but it probably isn't that far off actually, if we are not going to see – in other words if (indiscernible) over the three quarters, the business seems to be running at a level, whatever 100 basis points to 200 basis points better than the full year guidance. Is that roughly correct?

George Kilguss III - SVP and CFO: We will spend the $5 million that we did not spend in Q1 for marketing. The intention of our marketing department today is to continue to spend that this year. So, they have – it's not in place of other programs, it's a program that as Jim talked about some of it is tied to the new gTLD program. So, some of that's not in our control, but we expect our marketing spend to accelerate a little bit as we have these new programs going on, and as this $5 million has shifted out of Q1 into later quarters.

Dan Cummins - B. Riley & Co., LLC: One more thing I may have missed. Did you give headcount and did you project headcount increase or decrease from where we are today out to year-end?

George Kilguss III - SVP and CFO: I believe the headcount number in our slide deck. The total headcount was 1,070 employees. We do not give a forecast for headcount. That headcount is slightly down from Q4 levels, which was about 1,096 for full time employees, but 1,070 is the answer to your question.

Operator: Jaimin Soni, Bank of America-Merrill Lynch.

Jaimin Soni - Bank of America-Merrill Lynch: Just a couple of quick questions. First, going back of what Sterling had asked earlier. Looking at the guidance for the second quarter in terms of net domain name adds and the first quarter print. It seems like the second half of the year, we should expect some normalization or an uptick to get to the 4% to 6% growth for the full year? Just trying to understanding what gives you some confidence that you will see some improvement in the growth rate in the second half? Secondly, just wanted to get an update on the gTLD process from your perspective, when do you think that will start contributing to revenues?

George Kilguss III - SVP and CFO: Again, the guidance that we provided and for the quarter and the expectation for the zone, that is based on the most information that we have. Clearly, when you at historic net adds you see that Q1 does tend to be a little stronger and then it does tend to flatten out. There are also changes year-to-year when you look at -- when certain holidays fall, especially internationally, you can see that there are some Chinese holidays that happened in the first quarter that take those, that market, take those folks out of the market for a little bit, and they tend to come back in. The Chinese New Year this year was delayed, or it was later than the previous year by several weeks. So there is a number of factors that go into the model. Again, Q2, the 0.9 million to 1.3 million that's what we're seeing today, but we still at least we sit here today believe this all will grow between 4% and 6%. As it relates to new gTLDs that program looks like it's still in the works here, but we don't expect too much revenue in 2013 as a result of that program.

D. James Bidzos - Chairman, President and CEO: I just wanted to give you a little more color on the TLD program. I think that ICANN just had their meeting a couple of weeks ago in Beijing. And there are couple of areas where the program is moving a little bit slower. There was the target that date to make the major steps of April 23, a couple days ago, that date has been delayed. In Beijing there was a couple of major events. Number one is that advice was received from the Government Advisory Council for ICANN, and I think that there are some of the issues that have to be addressed by applicants, which is probably going to take some time, that's been put out to public comment. Also the process of contracting with registrars and registries in a new gTLD program is also a process that now involves public comment period for those contracts. So that's going to take some additional time as that process plays out. There was also a session in Beijing on security and stability, and certainly I commend ICANN for their commitment to make sure that all critical security and stability issues are addressed prior to delegation going forward. So, I think there is a bit more work to do there. This is – ICANN is getting operational. This is a major undertaking, a massive overhaul of global Internet infrastructure. So there have been delays in the past, it's probably not going to go perfectly smooth. I think at this point we still expect the program to get off the ground this year, but probably later in the year rather than earlier. And I don't think that we expect any significant revenue from our applications and our participation in the program this year, but Pat's here, he was in Beijing. If there's anything, Pat, you would like to add?

Patrick Kane - SVP and GM, Naming Services: (indiscernible).

D. James Bidzos - Chairman, President and CEO: So, I think George said it's succinctly. I just wanted to give you a little bit more color. But there is no significant revenue that we anticipate in 2013, although our applications as you know are IDNs, which should be early in the process. So, as the program does get underway. Once again, I think we're well positioned to participate with our '14 applications, including our '12 IDNs. So, we continue to work within the program, work with ICANN, monitor progress and look forward to the program launching at some point.

Operator: Mr. Atchley, at this time, I would like to turn the conference back to you for any additional or closing remarks.

David Atchley - IR: Thank you, operator. During the second quarter, Jim and George will be presenting at the JPMorgan TMT Conference at 10 am Eastern Time on Tuesday, May 14 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.