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

Thank you, operator, and good afternoon, everyone. Welcome to VeriSign's Second Quarter 2014 Earnings Call. With me are Jim Bidzos, Executive Chairman, President and CEO; and George Kilguss, Senior Vice President and CFO. 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 second 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 report on Forms 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 second quarter results were in line with our objectives of offering security and stability to our customers while generating profitable growth and providing long-term value to our shareholders. We reported revenue of $250 million, which was 4.6% higher year-over-year, and delivered strong financial performance, including $129 million in free cash flow. The base of .com and .net active registered domain names ended the quarter at 128.9 million. Our balance sheet remains strong with $1.5 billion in cash, cash equivalents and marketable securities at the end of the quarter. Our strategic framework to protect, grow and manage the business continues to serve us well as we see operational and financial benefits from our focus and discipline. As part of managing our business, during the second quarter, we continued our share repurchase program by repurchasing 6 million shares for $300 million. On July 23, 2014, the Board of Directors increased the amount of VeriSign common stock authorized for repurchase by approximately $491 million to a total of $1 billion authorized and available under the share buyback 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. Before I get into the second quarter results, I want to provide a few updates since our last earnings call. First, I'm pleased to inform you that during the second quarter, we completed the repatriation of a net $741 million of cash held by foreign subsidiaries. Also today, we announced an increase in the annual fee for a .net domain registration per our agreement with ICANN. As of February 1, 2015, the annual fee for a .net domain name registration will increase from $6.18 to $6.79. As of the end…

Thanks, Jim, and good afternoon, everyone. During the second quarter, we generated revenue of $250 million, up 4.6% year-over-year; and delivered GAAP operating income of $143 million, up 8.4%, from $132 million in the second quarter of 2013. The GAAP operating margin in the quarter came to 57.2% compared to 55.2% in the same quarter a year ago. GAAP net income totaled $100 million compared to $87 million a year earlier, which produced diluted GAAP earnings per share of $0.71 in the second quarter this year compared to $0.55 for the second quarter last year. On June 30, 2014, the company maintained total assets of $2.3 billion, which included $1.5 billion of cash, cash equivalents and marketable securities. Liabilities totaled $3 billion at the end of the quarter. Of the $1.5 billion in cash, cash equivalents and marketable securities at the end of the quarter, $729 million was domestic, with the remainder held internationally. I'll now review some of our key second 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 provide some additional commentary on our cash tax rate, and then discuss our 2014 full year guidance. As mentioned, revenue totaled $250 million for the second 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 $890 million, a $35 million increase from year-end 2013. Second quarter non-GAAP operating expense, which excludes $9 million of stock-based compensation, totaled $98 million compared with $99 million in the first quarter of 2014 and $98 million in the same quarter a year ago. Non-GAAP operating margin for the second quarter expanded to 60.9% compared to 58.9% in the same quarter of 2013.…

Thank you, George. During the second quarter, we further our work to protect, grow and manage the business. One week ago today, we marked 17 continuous years of 100% availability of .com. This track record is due to the skill of our people and our specialized infrastructure. We drive profitable growth by strengthening and extending our service offerings and through the development of new products and services. Finally, we've been managing the business effectively, as demonstrated by our improved operating margins, improved tax position and by the return of cash to shareholders through share repurchases during the second quarter. We remain committed to offering the security and stability that are at the core of our business and make VeriSign a company with an unparalleled DNS service record and a company committed to long-term value-creation for our shareholders. We'll now take your questions. Operator, we're ready for the first question.

[Operator Instructions] And we'll take our first question from Sterling Auty at JP Morgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: One question and one follow-up. First, on the question side. We saw some news out of Google recently in terms of it looks like they're getting into the registrar business. I'm wondering if you could comment in terms of how you think that might impact the industry and maybe how it might impact your business.

Okay. Sterling, thanks. This is Jim. Yes, and maybe for some of those out there who aren't aware, Google did make an announcement recently that they would -- they are actually an accredited registrar, and they announced that they would be offering a package of services, including domain names to businesses. Their stated goal was to try to get the small businesses online at a faster rate. I think they said that roughly only half of very small businesses in America have Web presences today, and that's the market that they're targeting. So I won't speak for registrars and say what it might mean for them, but I think for registries like VeriSign, this is actually good news because Google is obviously a company with a lot of market reach and is able to target businesses. They did announce this as part of their release of news that .com and .net would be among the domains that they'll be offering to these new businesses that are coming online. They'll be offering some other services as well, e-mail and some other services. But I think for us, this is good news because Google as an additional retail outlet for our products can only benefit .com and .net, as they become available to more people from a company with tremendous capability to reach those small businesses that are not yet online. So I see this as a plus for us. Now Google also has a registry and they have applied for new top-level domains. Some of those have been delegated, but I believe they've said themselves that they keep a separation between their registry and their registrar operation. So I think -- I take their announcement at face value, that they're going to bring businesses online, they're going to offer a package of services and they're going to offer popular domain names, including .com and .net. So I'm encouraged by it. Sterling P. Auty - JP Morgan Chase & Co, Research Division: All right, great. And then as a follow-up, George, on the tax side, a lot of moving parts there. I just want to make sure, maybe you can kind of summarize the key, real key points as we think about it. And especially wondering, you talked about accruing for the contingent interest. Is that something that -- that contingent interest payment, will that actually still be in the non-GAAP numbers or will you pro forma that out?

Yes, thanks, Sterling. So with regard to taxes, as I mentioned in my prepared remarks, we expect our cash tax rate to be well below the 28% tax rate that we used to calculate our non-GAAP EPS and non-GAAP net income. My comments really are an attempt to try to give you additional insight into some of the key drivers of that cash tax rate, the largest of which is the interest tax deduction we get from our convertible debenture. As mentioned, the deduction totaled $146 million in 2013. Now that $146 million includes the roughly $40 million of interest, the coupon interest of 3.25%. But that full amount is deductible and helps shield our U.S. tax rate. Now I gave comparative figures in the script of the year-over-year amount, so it was $137 million in 2012 deduction versus $146 million in 2013. And for the 6 months, it was about $73 million in 2013, and that grew to about $77.5 million for 2014. So this deduction continues to grow between about 6% to 7% per year, and that's really a big driver of our deduction with regard to domestic income. I also mentioned that as a result of the repatriation that we did, we were able to free up about $191 million of foreign tax credits. These tax credits will expire in -- by 2024, but we fully expect to be able to use these foreign tax credits to help offset domestic income over that period. So we really have a decent amount of domestic tax shield. And when you combine those tax attributes with our foreign tax structure, I think you'd see that we're relatively efficient from a tax perspective over the next several years.

And we'll take our next question from Walter Pritchard at Citigroup.

This is Ken Wong for Walter. Jim, just a quick question. On the new gTLDs, those are starting to trickle out into the market, and the .net trends have been looking a little soft lately. Can you perhaps help us understand what impacts you're seeing on your business from the new gTLDs?

Sure, I can expand on what I said in my prepared remarks. I talked about some impact from the confusion of the rapid delegation of new gTLDs. So I think the number as of today is over 300. I think it's over -- just over 340. So it's more than a trickle. There are very, very large number of new top-level domains that have been delegated. They've been -- the first ones appeared in very early February, and there are many of them that are available for sale. They currently have total gross registrations. They don't have any net numbers yet because they haven't been through a renewal cycle. But their total gross registrations for the roughly 6 months that new gTLDs have been for sale is just over 1.6 million, so I think that puts them right about on par with, say, .co. And just to give you some perspective, if you follow our daily adds, the data for the 23rd of July, yesterday, it's about 110,000 gross adds for common net, with about 30,000 -- over 30,000 net adds. And the data for the 22nd is almost identical, just over 110,000 gross adds that day, with over 30,000 net adds for that 1 day. So putting those in perspective, what I meant is that 342 new gTLDs over a period of 6 months is very, very rapid. And I think there is some confusion. And let me just say, first of all, we should be careful about drawing long-term conclusions until we've actually seen a renewal cycle, which we've not seen yet. But I think in the early wave, what you saw was lots of sales of premium domain names. And then in the second wave, I think you saw a lot of new TLDs offering non-premium pricing…

That was actually very useful. And then maybe a quick question for George. You guys bumped up the full year operating margin guide to 59% to 61%. Is there much kind of incremental marketing dollars that we might expect in the back half to pop up? Or does that get pushed out? I recall kind of in kind of Q1, there was some potential marketing that you guys thought you guys would do that might be pushed out. Has that been pushed out beyond 2014 and that's the impact on the guide? Or is that still expected to roll in this year?

Yes, thanks for the question. We actually saw marketing expense increase quarter-over-quarter. We talked about that in Q1 that we felt we would see an acceleration, and we did. Marketing expense was about $22 million in the quarter. And we continue to have a desire to spend marketing dollars. We expect to put more dollars toward marketing. Having said that, as you've seen in this quarter and previous quarters, we actively manage our expenses. We're clearly looking at the other line items, and we're actually looking at a balance to drive profitable growth. So we're finding areas, opportunity in other areas, to help fund the marketing dollars that we're putting forth. But you should expect us to continue to have a desire to spend on the marketing front.

[Operator Instructions] We'll take our next question from Gray Powell at Wells Fargo.

I just had a couple. To follow up on the last one, can you give us a sense as to the key components that you spend sales and marketing dollars on? And then, how should we think social marketing -- or how should we think of the trending as you launch the new IDNs next year?

You broke up a little there, at least on our end here, Gray. But I think the first part of the question was regards to where we spend our marketing dollars, and we spend it in a variety of different areas. Traditionally, at least this year, a lot of our programs have been looking to spend dollars with registrars in various markets to drive awareness of the brand, whether that be domestically or internationally. But the majority of our marketing programs, at least this year, have been with registrars. And we continually evaluate all the programs that we have in play, assessing the return on investment in. I think some of the programs have worked very, very well for us. Some of the programs, I think, we can tweak and do better on or redirect those funds. But a lot of these programs that we do, we just don't spend it on a dime from quarter-to-quarter. There's a lead time for a lot of these programs that we have to set up, sometimes almost a year in advance with the registrars to get these things laid out. So we can slow down some programs if we see a program that's not working that well or we think that we may have missed the mark and redirect it, but it takes a little while to get that back in the market directed at another program. And as far as -- I think your question was with IDNs. We're still assessing IDNs right now. We'll go through a budgeting process later this year, and I'll probably have a better sense as to what that program would look like once we go through that process.

Just to add to that a bit, Gray, it's Jim. With respect to the second part of your question concerning IDNs, those IDNs that we've applied for when we get through contracting and get the delegation and actually make them available, by definition, are going to need to be marketed through registrars because they're going to be marketed in countries, of course, in the native language script. So we won't be working through domestic registrars here in the U.S., maybe their partners overseas. So clearly, we'll need to make some investment with the registrar together to prepare materials and develop marketing materials in the local native language script. One sort of interesting aspect of the IDNs that we've applied for is that they will not be subject to the same pricing restrictions that .com or.net, as a matter of fact, will be, because they'll be covered by the new Registry Agreement, and we will be allowed to price those with tremendous flexibility. The only restriction will be 6 months' notice on price changes. There won't be limits on what the price changes will be, and we'll be able to even price each of the 9 differently if we choose to. So we can price in factors that can address issues of particular marketing expenses, so we're developing those programs, but we are fortunate to have a tremendous amount of flexibility on how we market them and how we team with the registrars to work with them. So we're moving down that path. We're starting to work out those plans, but we're sort of focused on contracting with ICANN right now.

Got it. That's very helpful. And then just one more, if I may, and I hope this one isn't too specific. Do you have a sense as to the percentage of .com domains that are either parked or owned by speculators? And I know you guys used to disclose it in your quarterly domain stats report. And I think the last stat I saw in 2012, was it about maybe 17% and on the decline. I was just curious if you happen to know that statistic.

We don't have that number with any accuracy. I'm not sure that we -- I mean, we may have -- I'm not sure how we reported that number you're referring to. It would be speculative, anyway. I mean, I can -- it's a very difficult number to arrive at. So I'll give you one very brief example of why you have to be very careful about those numbers. I own a couple of domains, very few, just a handful. I'm not a domain speculator by any means, but I do own a couple of domains that are not active. I don't do anything with them. And I've registered 1 with 1 registrar, and I've registered 2 with a different registrar. Registrar A has a policy that allows them to park my domain because it's not active and to post ads to that. And so anybody who's out there crawling the Web, trying to assess what that domain name is would very quickly conclude, based on its characteristics, that the owner is a domain speculator. And I am absolutely not a domain speculator. The other registrar that I have domains registered through has a policy that does not allow that. And so maybe you'll get a more accurate accounting for that one. So it's very, very difficult there. Lots of individuals who have purchased domains, their family name, as in my case, or other domains, that they just aren't doing anything with at this moment. And depending on who they're registered through, they very much look like they're owned by domain speculators. So if you do see any statistics like that, I think you have to be very, very careful about them. It's a very tricky thing to assess.

And that concludes today's question-and-answer session. I will now turn the conference back to Mr. David Atchley for any closing remarks.

Thank you, operator. Please call the Investor Relations Department with any follow-up questions from this call. Thank you for your participation. This concludes our call. Have a good evening.

And ladies and gentlemen, that does conclude today's conference. We thank you for your participation.