David Atchley, CFA - VeriSign, Inc. D. James Bidzos - VeriSign, Inc. George E. Kilguss III - VeriSign, Inc. Todd B. Strubbe - VeriSign, Inc.

Gregg Moskowitz - Cowen and Company, LLC Gray W. Powell - Wells Fargo Securities LLC Jason Velkavrh - Robert W. Baird & Co., Inc.

Good day, everyone. Welcome to VeriSign's Fourth Quarter and Full Year 2016 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, Vice President of Investor Relations and Corporate Treasurer. Please go ahead, sir. David Atchley, CFA - VeriSign, Inc.: Thank you, operator, and good afternoon, everyone. Welcome to VeriSign's fourth quarter and full year 2016 earnings call. With me are Jim Bidzos, Executive Chairman, President and CEO; Todd Strubbe, Executive Vice President and COO; and George Kilguss, Executive Vice President and CFO. This call and our presentation are being webcast from the Investor Relations section of our verisign.com website. There you will also find our fourth quarter and full year 2016 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 Forms 10-K and 10-Q, 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 the call for your questions. With that, I would like to turn the call over to Jim. D. James Bidzos - VeriSign, Inc.: Thanks, David, and good afternoon, everyone. I'm pleased to report another solid quarter, which capped another solid year for VeriSign. The year marked some significant milestones for the Internet community and for VeriSign with the completion of the IANA transition, our signing of the Root Zone Maintainer Service Agreement with ICANN, and the .com Registry Agreement extension amendment, which extends the .com Registry Agreement until the end of November 2024. Our fourth quarter and full year 2016 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. During 2016, VeriSign delivered strong financial performance, including reporting $1.142 billion in revenues, expanding free cash flow to $666 million, and producing full-year 2016 non-GAAP operating margins of 64.5%. Operationally, 2016 was a solid year for the company. VeriSign processed 35.8 million new .com and .net domain name registrations, and finished the year with 142.2 million .com and .net names in the domain name base. During the year, we marked more than 19 years of uninterrupted availability of the VeriSign DNS for .com and .net. As part of managing our business, during the fourth quarter, we continued our share repurchase program by repurchasing 2 million shares for $160 million. During the full year 2016, we repurchased 7.8 million shares for $637 million. Effective today, the board of directors increased the amount of VeriSign common stock authorized for share repurchase by approximately $641 million to a total of $1 billion authorized and available under the share repurchase program, which has no expiration. Our financial position is strong with $1.8 billion in cash, cash equivalents, and marketable securities at the end of the year. We continually evaluate the overall cash and investing needs of the business, and consider the best uses for our cash including potential share repurchases. At the end of December, the domain name base in .com and .net was 142.2 million, consisting of 126.9 million names for .com and 15.3 million names for .net. This represents an increase of 1.7% year-over-year. As noted in prior conference calls, the fourth quarter of 2016 was somewhat unique, as the volume of domain name registrations up for renewal in the quarter had a larger than normal percentage of first-time renewing registrations due to the strong performance during Q3 and Q4 2015, coming from China investors. As first-time renewing names have a lower renewal rate than previously renewed names, fourth quarter 2016 deletes were elevated and resulted in the domain name base decrease of 1.9 million net names after processing 8.8 million new gross registrations during the quarter. This larger percentage of first-time renewing names is also leading to an overall preliminary fourth quarter 2016 renewal rate of 67.5%. This preliminary rate compares to 73.3% achieved in the fourth quarter of 2015. In the third quarter of 2016, the renewal rate was 73% compared with 71.9% for the same quarter of 2015. While activity from China has normalized over the last few quarters, the China names surge of late 2015 declined, but did carry over into the first quarter of 2016. As a result, we expect this small group of names to contribute to a slight increase in deletes towards the end of the current Q1 and the beginning of Q2. Based on these and other factors, we expect full year 2017 domain name base growth of between 0.5% and 2.5%, with an increase to the domain name base of between 0.7 million and 1.2 million registrations in the first quarter. Now I'd like to provide two updates before handing the call over to George. First, as it relates to our becoming the registry operator for .web, on January 18, 2017, the company received a Civil Investigative Demand from the Antitrust Division of the U.S. Department of Justice, requesting certain information related to VeriSign's potential operations of the .web TLD. The CID is not directed at VeriSign's existing registry agreements. As we said at the time of the auction last July, we strongly believe VeriSign is well-positioned to grow and widely distribute .web to provide an additional option to the marketplace, given our proven track record of reliability and stability, and we look forward to explaining our views as we respond to the CID and continue to cooperate with the DOJ. Second, we continually evaluate the strategic opportunities for our business and, as you may have seen earlier today, we have decided it is in the best interests to sell our iDefense business to Accenture. As part of this sale, VeriSign will continue as an iDefense customer to benefit from the threat intelligence information provided by iDefense. The announcement of the iDefense sale only relates to iDefense and is not a sale of our other VeriSign security services offerings, including DDoS Protection and Managed DNS. The terms of this transaction are not being disclosed and the financials associated with this business are not material to our overall business. We anticipate closing in the next few months, subject to customary closing conditions. And now I'd like to turn the call over to George. George E. Kilguss III - VeriSign, Inc.: Thanks, Jim, and good afternoon, everyone. For the year ended December 31, 2016, the company generated revenue of $1.142 billion, up 7.8% from fiscal 2015, and delivered GAAP operating income of $687 million, up 13% from $606 million for the full year 2015. Revenue for the fourth quarter totaled $286 million, up 5% year-over-year and down 0.4% sequentially. The small sequential decline was a result of the 1.9 million reduction in the domain name base during the quarter that Jim discussed earlier. During the quarter, 59% of our revenue was from customers in the U.S. and 41% was from international customers. GAAP operating income in the fourth quarter totaled $169 million, up 6.6% from $158 million in the fourth quarter of 2015. The GAAP operating margin in the quarter came to 59% compared to 58.1% in the same quarter a year ago. GAAP net income totaled $106 million compared to $102 million a year earlier, which produced diluted GAAP earnings per share of $0.84 in the fourth quarter this year compared to $0.76 for the fourth quarter last year. As of December 31, 2016, the company maintained total assets of $2.3 billion and total liabilities of $3.5 billion. Assets included $1.8 billion of cash, cash equivalents and marketable securities, of which $368 million were held domestically, with the remainder held abroad. I'll now review some additional fourth quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, diluted share count, operating cash flow, and free cash flow. I will then discuss our 2017 full year guidance. Fourth quarter non-GAAP operating expense, which excludes $14 million of stock-based compensation, totaled $103 million as compared to $100 million in the third quarter of 2016 and $103 million in the same quarter a year ago. The sequential increase was primarily a result of increased marketing expenses deployed in the quarter. Non-GAAP operating margin for the fourth quarter was 63.9% compared to 62.4% in the same quarter of 2015. Non-GAAP net income for the fourth quarter was $115 million, resulting in non-GAAP diluted earnings per share of $0.92, based on a weighted average diluted share count of 125.5 million shares. This compares to $0.79 in the fourth quarter of 2015 and $0.93 last quarter, based on 133.4 million and 127.8 million weighted average diluted shares, respectively. Dilution related to the convertible debentures was 20.6 million shares based on the average share price during the fourth quarter, compared with 21.4 million for the same quarter in 2015 and 20.8 million shares last quarter. The share count was reduced by the full effect of third quarter 2016 repurchase activity and the weighted effect of the 2 million shares repurchased during the fourth quarter. Operating cash flow was $195 million and free cash flow was $198 million for the fourth quarter, compared with $189 million and $176 million, respectively, for the fourth quarter last year. With respect to full year 2017 guidance, the financial guidance that I will provide reflects the expected completion of the iDefense asset sale within the next few months. Revenue for 2017 is expected to be in the range of $1.138 billion to $1.158 billion. Full year 2017 non-GAAP operating margin is expected to be between 64% and 65%. Our non-GAAP interest expense and non-GAAP non-operating income net is expected to be an expense of between $93 million and $100 million. Capital expenditures for the year are expected to be between $35 million and $45 million. And finally, cash taxes for the year are expected to be between $15 million and $25 million. Substantially all of the expected cash taxes in 2017 are international, primarily because of domestic tax attributes, including cash tax benefits from our convertible debentures. These convertible debentures continue to generate cash tax benefits while they remain outstanding, and they are an important part of our capital structure. Although we will have the right to redeem these debentures under the terms of the indentures starting in August of 2017, our intention, based on current conditions, is not to redeem these debentures, which will allow the cash tax benefit to continue to accrue. In summary, the company continued to demonstrate sound financial performance during the fourth quarter and full year 2016. Now, I'll turn the call back to Jim for his closing remarks. D. James Bidzos - VeriSign, Inc.: Thank you, George. In closing, during the last year, we expanded our work to protect, grow, and manage the business, while continuing our focus to provide long-term value to our shareholders. We think that our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom line, and allow us to continue our consistent track record of generating and returning value to our shareholders in the most efficient manner. We will now take your questions. Operator, we're ready for the first question.

We will take our first question from Gregg Moskowitz of Cowen and Company. Please go ahead. Gregg Moskowitz - Cowen and Company, LLC: Okay. Thanks very much. Close enough there. Hi, guys. First question, you mentioned the Q4 renewal rates are expected to be 67.5%. Was there any change in renewal rates outside of China in the quarter? George E. Kilguss III - VeriSign, Inc.: Gregg, thanks for the question. In general, our renewal rates both domestically and internationally have been relatively consistent with one another. But the vast majority of the decline that we saw in our international renewal rates is really related to the China names. That was the biggest factor. Everything else stayed relatively consistent for us. Gregg Moskowitz - Cowen and Company, LLC: Okay. Perfect. Thanks, George. And then, within the Q1 net add guidance, are you assuming essentially the same renewal rates from China that you saw in Q4? George E. Kilguss III - VeriSign, Inc.: Yeah. For the group of names that are similar – the group of names – it was about 750,000 to 1 million names that came in in the first quarter of 2016 that was also from, what we believe to be, the China investor phenomena. We expect those to have similar renewal rates as the names that renewed in the fourth quarter of 2016. Gregg Moskowitz - Cowen and Company, LLC: Perfect. And then just a couple other quick ones, if I may. I understand and certainly can appreciate that you don't want to get overly granular with respect to the iDefense contribution. Having said that, the 2017 revenue guidance is below where the Street was, and just – I think any sort of additional color you might be able to provide, even if not getting, again, overly granular, might just be helpful in sort of reconciling where the Street was previously versus your guidance today. George E. Kilguss III - VeriSign, Inc.: Sure. I think there're a variety of factors that go into our revenue guidance, which is $1.138 billion to $1.158 billion for next year. Clearly, we had a very strong 2016, we were up 7.8% in 2016 versus 4.9% in 2015. And as we've talked about, a lot of that revenue growth was from a unique event, which was attributed to the strong China investor community. And as we've mentioned, about a third of those names renewed in the fourth quarter. So we do have some names, as I just mentioned, coming up in the first quarter that should, if they had the same renewal rate, will delete out of the zone sometime in the late first quarter, early second quarter. And so that's part of what's influencing it. Also to a lesser extent, you're correct, the iDefense business, we expect that revenue to get out of the business as we close this transaction. And so without disclosing any details on the iDefense business, which we're not, I would say it's really those two factors that are giving our view of revenue today, and as always we'll update our guidance each quarter as we get more visibility into the year. Gregg Moskowitz - Cowen and Company, LLC: Okay, great. And then just one last one for Jim, just following-up on the Civil Investigative Demand from the DOJ with respect to .web. What would be the sort of the procedure and timeline from here just as you understand it? Thanks. D. James Bidzos - VeriSign, Inc.: Sure. Well, I think in my comments I not only said all I should. I think I said all there really is to say at this point. There's no information beyond what I told you. I can give you a little bit more color, I guess. We've certainly said in the past that inorganic growth is part of our growth strategy, and sometimes regulatory review becomes part of that process. So we received the CID, which is kind of like a subpoena. We've been discussing it with the DOJ since shortly after we received it, and we've provided some information already and we're continuing to cooperate. So like I said in my remarks, we believe we're well positioned to grow .web. We think that the industry is extremely competitive. Beyond that, it's just too early in the process to say anything beyond that. It's just speculation and I really can't do that. Gregg Moskowitz - Cowen and Company, LLC: Fair enough. Thanks very much, guys.

We will take our next question from Gray Powell of Wells Fargo Securities. Your line is open. Gray W. Powell - Wells Fargo Securities LLC: Great. Thank you very much. Just a couple questions, if I may. So it looks like .com is showing a decent recovery in growth over the last month, but .net does remain under some pressure. Is there any residual churn issue on .net or should we just expect more muted growth there on that domain going forward? George E. Kilguss III - VeriSign, Inc.: Well, .net was also impacted by the China activity in 2015, and so we did see some of .net names also churn out of the zone in the fourth quarter of 2016. The .net is still a great brand for us globally. It's well-recognized. It continues to do well in markets internationally, as well as domestically. But there is a lot of choice in the domain name industry, and there is clearly competition, whether it be from ccTLDs or other technologies. But we still are looking to drive demand in .net, and it's still a great brand for us globally. D. James Bidzos - VeriSign, Inc.: Certainly, .net is not the brand that .com is. Com is a stronger brand, but there are 15.3 million .net registrations. It's a globally recognized and a trusted brand. It had, in the past couple of years, actually dipped briefly below 15 million names, and it's recovered. So I think its growth trajectory is just a little bit different than .com, but it's still a very, very strong and recognized brand. It's the second largest generic TLD behind com. Gray W. Powell - Wells Fargo Securities LLC: Understood. Okay. That's helpful. And then could you give an update on foreign language versions of .com and .net that you're introducing? Just how many are up and running today? What kind of traction are they seeing? And then, just what's the schedule for the remaining domains going forward? D. James Bidzos - VeriSign, Inc.: Todd, do you want to... Todd B. Strubbe - VeriSign, Inc.: Yeah. Well, we currently have three of the transliterations of com and net generally available. That's two of the Korean or Hangul transliterations, one for com and one for net, and then the Japanese or Katakana script of .com. At this point, we're not providing any additional details on other launches. As we mentioned last quarter, we do continue to work on our licensing process to operate the Chinese IDNs, and we will update as we develop our plans further. Gray W. Powell - Wells Fargo Securities LLC: Got it. Okay. Thank you very much.

We will take our next question from Sterling Auty of JPMorgan. Your line is open.

Hi. This is (21:43) in for Sterling. Thanks for taking my questions. I wanted to ask as a follow-up on the iDefense sale. Can you talk a little more about the timing and the rationale of the sale, and if there are any plans for divesting the securities business? And then also my second question is just on other revenue in the quarter. It seems a little bit higher than what we expected. So if there is anything else driving that? Any color there would be really helpful. Thank you. D. James Bidzos - VeriSign, Inc.: I don't know if you're on a cell phone. The very end of that was a little difficult to understand. You said that other revenue was a little bit higher in the quarter, and then you said something else that I think at least I wasn't able to get.

Can you – is it better now? George E. Kilguss III - VeriSign, Inc.: A little. D. James Bidzos - VeriSign, Inc.: Yeah, a little. Try again, please. I got your first question.

I was just asking about the other revenue, if anything (22:43) if anything was different this quarter. D. James Bidzos - VeriSign, Inc.: Okay.

Yeah. D. James Bidzos - VeriSign, Inc.: So let me address your first question about iDefense. I think you were asking about strategic rationale. We've certainly said consistently that we are certainly better suited to be a consumer rather than a producer of threat intelligence. Our primary business is, obviously, the secure and stable operation of infrastructure supporting .com and .net. That's our primary mission. That's the most important thing that we do. We, obviously, need good cyber defenses in order to do that, but we will continue to be an iDefense customer and receive it, but it's a little different than the other security services. And as I mentioned in my remarks, this is specifically iDefense. It's not our Managed DNS business and it's not our DDoS Protection businesses. So I think it's just sort of a logical sort of business procession for us. Your other question was about other revenue, and I'll ask George maybe to address that. George E. Kilguss III - VeriSign, Inc.: Yeah. So, there was nothing unusual in the quarter. I'm not sure how your models track our revenue performance, but nothing unusual from an other revenue perspective.

Okay. Thank you. D. James Bidzos - VeriSign, Inc.: Yeah. If I can just throw out some additional color for you. I mean, we've had, as you know, a number of different growth initiatives and we did monetize some patents in 2016 and we expect to do so in 2017 as well. But the amount is not material. We've adjusted our growth efforts to align with a rapidly changing domain name market. Some of those changes include shifts in traditional channels for domain names, possible secondary market activity and corresponding changes to how we invest in marketing. So, while we're planning to realize 2017 revenue from these other efforts, we don't expect it to be material and none of it's in our guidance.

We will take our final question from Jason Velkavrh of Robert W. Baird. Your line is open. Jason Velkavrh - Robert W. Baird & Co., Inc.: Thank you for taking my questions. The first question is on the expense side. I believe last quarter you mentioned an intent to put a little more money to work in sales and marketing. I was just hoping you could provide some more color around this. And if that took place this quarter, sort of what initiatives that is going towards? George E. Kilguss III - VeriSign, Inc.: Yeah, sure, Jason, I'd be happy to. So if you looked at the quarter from a non-GAAP basis, we had about $103 million of expenses in the quarter. That was up about $3 million from the third quarter, where we had about $100 million. And the majority, if not all of that increase, was spent in the marketing area. We continue to partner with our registrars to put more marketing dollars in various markets to drive domain name growth. And so we were able to put that money to work and we continue to look to opportunities to partner with registrars to do that in markets that we think can drive profitable growth for us. Jason Velkavrh - Robert W. Baird & Co., Inc.: Got it. Thanks. That's helpful. And then a question on the new gTLDs, the .com, .net transliterations. Realized it's a small base and early, but just curious there. What are you seeing there in terms of renewal rates for those that have lapsed versus what you see for .com and .net? Todd B. Strubbe - VeriSign, Inc.: We haven't really – the general availability for the earliest ones was not until second quarter of 2016, so we're not up to our first year. D. James Bidzos - VeriSign, Inc.: Yeah, we haven't lapped yet. Todd B. Strubbe - VeriSign, Inc.: Yeah, don't have (26:30) Jason Velkavrh - Robert W. Baird & Co., Inc.: Got it. Okay. Do you have an expectation for that to be any different or do you expect that to be around the same? Todd B. Strubbe - VeriSign, Inc.: I think it's too early to tell. They are such a different product. D. James Bidzos - VeriSign, Inc.: Yeah, we don't guide to the renewal rates, but there is only a few more months and that information will be available. Jason Velkavrh - Robert W. Baird & Co., Inc.: Got it. Okay. That's all I had. Thanks for the questions. D. James Bidzos - VeriSign, Inc.: Thank you.

That concludes today's question-and-answer session. I will now turn the call back to Mr. David Atchley for final comments. David Atchley, CFA - VeriSign, Inc.: Thank you, operator. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation. That concludes our call. Have a good evening.