Good day, everyone, and welcome the VeriSign's First Quarter 2014 Earnings Call. Today's conference is being recorded. Unauthorized recording of this call is not permitted. At this time, I would like to turn the conference over to Mr. David Atchley, Senior Director of Investors Relations and Corporate Treasurer. Please go ahead, sir.

Thank you, operator and good afternoon, everyone. Welcome to VeriSign's First Quarter 2014 Earnings Call. With me are Jim Bidzos, Executive Chairman, President and CEO; George Kilguss, Senior Vice President and CFO; and Pat Kane, Senior Vice President, Naming Services. This call and our presentation are being webcast from the Investor Relations section of our website, www.verisigninc.com. There, you will also find our first quarter 2014 earnings release. At the end of this call, the presentation will be available on that site, and within a few hours, the replay of the call will be posted. Financial results in our earnings release are unaudited, and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and 10-Q and any applicable amendments, which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. VeriSign retains its longstanding policy not to comment on financial performance or guidance during the quarter, unless it is done through a public disclosure. The financial results in today's call 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 earnings 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 call is not permitted. With that, I would like to turn the call over to Jim.

Thanks, David, and good afternoon, everyone. Our first quarter results demonstrate a good start to 2014. We reported revenue of $249 million, which was 5% higher year-over-year and delivered strong financial performance, including $130 million in free cash flow. We processed 8.6 million new registrations during the first quarter and added 1.28 million net new names, bringing our name base to a total of 128.5 million active .com and .net domain names. Our balance sheet remains strong with $1.7 billion in cash, cash equivalents, and marketable securities at the end of the quarter. We continue to see benefits from our focus in and discipline in the execution of our strategic framework to protect, grow and manage the business. As part of managing our business, during the first quarter, we continued our share repurchase program by repurchasing 2.4 million shares for $132 million. At the end of the first quarter, $868 million remained available and authorized under the current share repurchase program. We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases. Before I get into the first quarter results, I want to provide updates on a few areas from the quarter. As we mentioned on our last earnings call, we intend to repatriate between $700 million and $800 million of cash, held by foreign subsidiaries, to the U.S. At that time, we had also indicated our expectation was that this would be done in either the second or third quarter of 2014. And I'm pleased to inform you that we now believe this repatriation will happen sooner and will be completed during the second quarter of 2014. During the first quarter, additional new generic top-level domains were delegated into the root zone. As you'll recall, VeriSign…

Thanks, Jim, and good afternoon, everyone. During the first quarter, we generated revenue of $249 million, up 5% year-over-year, and delivered GAAP operating income of $140 million, up 4.7% from $133 million in the first quarter of 2013. The GAAP operating margin in the quarter came to 56.1% compared to 56.4% in the same quarter a year ago. GAAP net income totaled $94 million compared to $85 million a year earlier, which produced diluted GAAP earnings per share of $0.64 in the first quarter this year compared with $0.52 for the first quarter last year. As of March 31, 2014, the company maintained total assets of $2.6 billion, which included $1.7 billion of cash, cash equivalents and marketable securities. Liabilities totaled $3.1 billion at the quarter end. Of the $1.7 billion in cash, cash equivalents and marketable securities, $192 million was domestic, with the remainder held internationally. I'll now review some of our key first quarter operating metrics, which are: revenue, deferred revenue, non-GAAP operating margin, non-GAAP earnings per share, operating cash flow and free cash flow. I will then discuss our 2014 full-year guidance. As mentioned, revenue totaled $249 million for the first quarter. 61% of our revenue was derived from customers in the U.S., and 39% was from international customers. Deferred revenue at quarter end totaled $886 million, a $30 million increase from year-end 2013. First quarter non-GAAP operating expense, which excludes $10 million of stock-based compensation, totaled $99 million compared with $106 million in the fourth quarter of 2013 and $96 million in the same quarter a year ago. The sequential decline in the expense is primarily a result of timing differences related to implementation of certain planned marketing programs. Non-GAAP operating margin for the first quarter expanded to 60.1% compared to 59.6% in the same quarter…

Thank you, George. During the first quarter, we furthered our work to protect, grow and manage the business. We have protected our business by providing over 16 years of 100% availability of the .com and .net DNS, and this month celebrated the company's 19th year. This track record is due to the strength and experience of our people, our commitment to excellence, and our specialized and purpose-built infrastructure. Our innovation efforts support our goals to drive profitable growth through the development of new products and services. And finally, we've been managing the business effectively, as demonstrated by our improved operating margins and delivery of value to shareholders through share repurchases during the first quarter. We remain committed to offering 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, and operator, we're ready for the first question.

[Operator Instructions] And we will take our first question from Sterling Auty from JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Jim, in your prepared remarks, you touched upon the NTIA and the transfer of the IANA contract, we still -- we heard your prepared remarks, but we still get a number of questions, people wondering, the next time that .com comes up for renewal, for example, is there any additional risk that this change would actually add in terms of any possibility that you would lose the contract?

Thanks for that question, Sterling. Yes, we get some questions, too. I think there's confusion because of just similar technology, but the best way I can describe it is to simply say these are entirely separate, they're entirely unrelated, and whatever plays out in NTIA's intent to exit IANA and transition this to ICANN is an entirely separate process. I know that there are some politics that swirl around it as well. But the bottom line is that the .com and .net contracts are entirely separate. They're separate agreements, they stand alone and nothing is has changed since those contracts were signed, meaning that the only we would lose those contracts is if we breach those contracts and fail to cure it. All of this activity swirling around IANA has no impact whatsoever on it. And I guess, I'm not sure how to be more clear than that, but that's the best description I can give you. So in a word, if your question is, how can all this IANA stuff impact our common net renewals, the answer is naught. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And I think part of where people are coming from is, is this a sign that U.S., as a government, is relinquishing control? And if you had international stakeholders more in influenced positions with ICANN, could it somehow change what would happen to the contracting process the next time?

Well, the contract survived any assignment or termination. Our obligation survived, ICANN or its successors' obligations survived. So our obligation to perform and their obligation to renew if we perform all survived. So all of those politics, all of those potential changes. Also, if you watch the hearings, you saw the testimony of Larry Strickling from NTIA and Fadi Chehadé, ICANN's CEO, they both testified that there will not be a transition without appropriate safeguards. ICANN is not leaving the U.S. And so I think, those are just simply further indications that these -- that what NTIA said, that it is really transitioning what it believes is a clerical role, is the way that it sees this. So we have a long way to go while these safeguards are developed, but given that and given the standalone protected nature of all of the registry agreements, including common net, I just don't see a scenario where there's any impact on these contracts. They are completely separate. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And maybe one last follow-up question. Looking at the .net additions to the zone and the guidance for the June quarter, from your perspective, do you think that the new gTLD program is starting to have an impact on the growth of the .com/.net zone?

Well there are a lot of factors that affect the zone. They're all the things that we've been talking about for some time. Obviously, the changes that [indiscernible] for them is the changes in PPC, the law of large numbers as the zone grows and also, these behavioral changes in registrars that we've talked about. Now having said that, additionally, there are roughly 100 -- over 100 new gTLDs that are delegated into the zone, and they're accepting registrations right now, and have been pretty much for most of the first quarter, for roughly almost 3 months now. And in total, there are about 570,000 registrations in, collectively, all of the new gTLDs year-to-date. I think that information is current as of just a couple of days ago. So it's too soon to tell if any of those registrations or what part of those registrations are at the expense of a .com or a .net registration, because until we see the first renewal cycle on these new gTLDs, it's really going to be difficult to assess how much impact they might have on the .com/.net zone.

[Operator Instructions] Next call comes from Steve Ashley, W -- Robert W. Baird. Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division: Just maybe to follow up on Sterling's comment here regarding -- and you -- Jim, you did a very nice job with just touching on all of the things that have been impacting the pace of domain name growth, with the behavioral change of the registrar, the algorithm changes, law of large numbers, is it your hope or would it be your expectation that at some point in future, we could see the growth rate of the zone reaccelerate and get stronger? Not asking for a timeframe, just conceptually, is it possible that we could see an acceleration in growth down the road at some point?

Well, I think what we can say and that we said last quarter, and I'll let George add some comments to this, but our models, which we have a fair amount of confidence in, were fairly good in giving us the basis for our first quarter guidance. They do show that second quarter is a little bit weaker, and they do show recovery in the third and fourth quarter. I did mention also that since February, we have seen a return to focus on new-unit acquisition and discount programs by some of the registrars. So I think it's early to tell if that's a trend. But I think, given all those -- and the fact that we did see 8.6 million gross adds during the quarter in .com and .net says that there's still very strong activity and strong registrations. So certainly, in terms of future zone growth, I'm very confident. George, did you want to add anything to that?

Yes. Steve, the only other commentary I would provide you is, if you recall our guidance that we gave on our last call, we talked about a zone growth of 2% to 4% in 2014. And that's still our expectation for 2013. As Jim mentioned, there are many factors that impact us inter-quarter, but in totality, we're really looking at a zone growth of between 2% and 4% for 2014.

Yes. I guess, put another way, we're essentially see -- we're certainly not changing our full-year 2014 guidance.

And next is Fred Ziegel from Topeka Capital Markets.

A question on the non-domain business, what's the status there? When are we doing? There's an awful lot of activity in DDoS, and I know you know that with Juniper, but what -- can you give us an update on kind of the products schedule in that part of the business, which I know is a small piece at the moment?

Yes, we don't break it out separately, as you know. I don't have any updates specific to any particular product schedule. Juniper did make a detailed press release, and you can look there for indications from their perspective on this particular partnership. And I did provide the 3 updates. We did get to the signing of a pilot agreement with a large firm that we're conducting a pilot with. I did mention some activity in patents. On the Juniper thing, I think one of the interesting aspects of that particular announcement is that it's quite different and interesting, in a sense that it's a hybrid solution, and it matches both our in-cloud DDoS mitigation service and Juniper's own on-premise equipment DDoS mitigation offering. And certainly, the DDoS market is growing. It's an area where companies are very concerned, and they're making investments. So I'd look at this as an indication that 2 companies that are major players in that market are getting together to try to provide a more optimized offering against more specialized attacks. So I think at this point, the only update that we can give you is that we've partnered with someone to address what we think is a growing market. Beyond that, unfortunately, we just can't say more at this point.

Are you applying more resources, people, R&D to the non-domain part of the business, given the slowdown in net adds?

Well, I -- let me try to answer your question this way. When we put together our plans for 2014, we baked in investments in a number of growth initiatives. And those are fully funded, and we're executing and investing in those growth initiatives. And so all of our guidance contains all of that. We don't expect to change that. So to the extent we've planned for and budgeted for growth initiatives, we are absolutely spending that money where we're making those investments. We've made our bets, we've chosen our innovation programs, we've chosen our new products and services to pursue, and we're pursuing those. And so we're staffing and funding those programs.

[Operator Instructions] And as a final -- I'm sorry, Walter Pritchard from Citibank.

Just on the guidance, the operating margin guidance, 58% to 60%, you're running at the high end of the range right now. You've had a history of outperforming on the margin side, and you're also talking a bit about some spending in the second half. So I guess I'm just trying to get a sense of that margin guide. Why shouldn't we see you sort of hold this margin at 60% through the year? And then just had a follow-up question around some of the specific spending.

Yes. Sure, Walter. This is George Kilguss. So as I mentioned in my prepared remarks, we did have some marketing expense that pushed into later quarters. Basically, as I've talked about, we put a little bit more rigor around evaluating some of our marketing programs. Today, we do quite a bit of marketing through registrars, and they actually give us joint marketing proposals, which we evaluate. And as we're looking at those to see if we think they're good for us driving profitable growth, we put some more rigor and analysis around those. And that has actually caused a little bit of a slip to just some of the approval of those programs. And so some of those have slipped into Q2 and subsequent quarters. I would say, approximately, about $4 million or so of spend -- we expected to spend in marketing have slipped out the first quarter. And I would say, a fair bit of that will go into the second quarter, but some have slipped to the previous quarters. So again, it's really a timing difference. We do continue to have desires to invest further in sales and marketing, and we're doing that, we're trying to do that in a measured way. And so as a result of that timing difference, we're still keeping the same guidance between 58% and 60% for the full year of non-GAAP operating margin.

Got it, George. And then just following up on that a little bit. On the -- it sounds like you did have some registrars get a bit more aggressive on marketing spend -- or at least, on promotional activity marketing spend. I'm assuming that's more their own -- under their own choice or their own investment. I'm wondering, as you think about deploying more marketing dollars into the field and second -- especially in the second half of the year, is that what the driver is in terms of you believing that the zone file will stabilize and improve in terms of growth? And could you just remind us of the factors you think will drive that improvement?

Yes. So we made comments last quarter that we saw some registrars go for more ARPU-type of activity than they did for using domain name registrations to acquire customers. And we talked about domestic and international registrars both having that tactic. As Jim mentioned, we did see -- there's still some, particularly U.S. registrars, that are still keeping out with that ARPU strategy, but we have seen some of the international registrars regroup and go back to more of trying to acquire customers using domain names as their method to do it. So more of a customer acquisition. So we have seen a little bit of a change in that behavior. We also talked in the last call that in January, we saw a little softness from emerging markets in the month of January, particularly around China. Now post-January and post our fourth quarter call, we've actually seen a pickup in some of the emerging-market activity, particularly in China. We saw February and March be relatively strong in those markets. And so we're clearly looking for those markets to continue to perform there, but again, there's a number of confluence of factors that are going on that we mentioned there. But we still believe that our zone will grow between 2% and 4% in 2014.

[Operator Instructions] Your next question comes from Gregg Moskowitz from Cowen and Company.

We noticed that a couple of your larger registrars are running $0.99-first-year .com promotions in the recent months, and just kind of wondering if that was able to stimulate some decent level of demand in the quarter and they may be a partial offset to some of the bundling and some of the going-after-ARPU dynamics that you guys had pointed out?

So Gregg, this is George. We definitely saw some of our registrars retarget domain names as a customer-acquisition vehicle. They were doing some discounting there. And I think they've seen some improved results from that. But not all registrars have adopted that. Some registrars have done variance of that where they may have to do something called retargeted or targeted price discounting, where maybe if you come back to their site multiple times, you might get a lower price, depending on your interest. But clearly, internationally, we have seen some registrars go back to discounting, and that has helped net registrations.

Okay, George. And then just one follow-up, wondering if you happen to the number of names up for renewal in the Q2?

Sure, I can get that for you. So it's 27.5 million.

I'm sorry, George, I didn't catch that.

27.5 million.

And we will take our last question from Priya Parasuraman from Wells Fargo.

This is actually Priya for Gray. I was wondering if you have any more color on the Chinese IDN transliteration, which you talked about in your prepared remarks.

Okay, I'm sorry, I had trouble hearing. The very last part of your question was about the Chinese IDN?

Yes. I was wondering if you could provide any more color on that, and if that could be reinstated or is that temporary?

Yes. So let me just describe what happened there. So basically, ICANN's policy was not prepared to address the situation where a single applicant had a variant. We had communications with ICANN going back over a year. Early on, they advised that we file separate applications until they sorted out their policy. They have not sorted out that policy as of this time. And so the simple way to move forward was to withdraw one and move forward with the other, which we've done. However, when they do sort out that policy, we expect that new policy to mirror their ccTLD policy, which does allow for these multiple variants. And so yes, hopefully, we will have the opportunity to reinstate and bring in the other Chinese IDN. But this, at least, allows us a way forward with the traditional Chinese IDN and it also allows us to move forward with contracting for the other 12. So for a total of 13 IDNs, transliterations of .com and .net, we are now engaging in the contracting process with ICANN. And I have Pat here as well, who's a little closer to all this. If you wanted to add anything, Pat?

The only thing that I would add, Jim, is that when we chose between the Traditional and the Simplified Chinese variant, we chose to retain the Simplified and withdraw the Traditional because the Simplified Chinese is the bigger marketplace.

Yes. I hope that answers your question.

And that concludes our question-and-answer portion for today. Now I'd like to turn the call back over to David Atchley.

Thank you, operator. During the second quarter, Jim and George will be presenting at the JPMorgan Global Technology, Media and Telecom conference at 10 a.m. Eastern Time on Wednesday, May 21, 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.