Lewarne: it was an impressive first quarter for verisign. Sales rose more than six fold in the company, which manages web site addresses. Says that it expects to meet profit forecasts. Wall street likes the news. It is still down for the year but up more than $5 today. It's surging ahead. Well joining us now is stratton sclavos. He is president and chief executive of verisign. He joins us now from mountain view, california. Sir, good morning.
Sclavos: good morning.
Lewarne: you beat the street.
Sclavos: we did.
Lewarne: and you're giving somewhat positive guidance. Tell me how positive you are about the future, first off.
Sclavos: well you know, the services that verisign deliver are really a critical set of what we call utility services. Think about plugging into us like do you in the physical world. We do the domain names, the web addresses. We do security. We do payment. So in many respects, our services are the last things that are going to get turned off. And that's more or less what we're seeing. We still saw strong growth as businesses continue to build out there infrastructures. So we're feeling pretty good about it, because our services are really critical whether b-to-b, wireless and b-to-c, everybody needs what we do.
Lewarne: and yet, you weren't immune were you because in the enterprise and service provider space, your customers were spending between $10,000 and $15,000 less than they had in the previous quarter. I guess the concern is does that pattern continue?
Sclavos: that's right. Now as we said yesterday, we feel a little more insulated but certainly not immune. The way we book our revenues is we actually have subscription services so we collect the fees up front from our customers. But then we recognize them very conservatively, either 1/12 per month or 1/24 per month depending on the subscription term. So we tend to have a lot of visibility in our deferred revenue, which is now over $540 million. And we can see what's coming, if you will, in the next two to three quarters. However, we were certainly concerned to see those prices either stabilize or tic down a little bit during the quarter.
Lewarne: what's your experience been with margins and what do you expect going forward?
Sclavos: well, verisign is a big utility in the physical world sense. We have massive amounts of computers all over the globe. We have -- we handle some $2 to $3 billion address lookups per day. So you had to pay for all that infrastructure and get it out there. So what we told the street is you should expect to see margins. Now that that infrastructure is out there and we're filling those computers up with more volume, you'll see margins greatly expand. So they went up 6/10 of a basis point here in the last quarter. We told the street we'll exit the year at 14% to 16% net margin with a long term target actually of over 30%.
Lewarne: and aside from that positive, what other catalysts do you see for the rest of this calendar year?
Sclavos: well, i certainly believe that we'll see internet economies, if you will, around the globe begin to digest what they bought in the previous year and looking for once again to implement extranets, supply chain management, all sorts of these new applications. So we're beginning to see that even as early as april here picking up, again, in buying interest and levels of contract values from our customers. We also think you'll see the new addressing technologies come in whether for wireless addressing on hand sets or some of the new domain names that are gonna end in different extensions than dot-com, dot-biz, dot-info, whatever. We'll be participating in that in the second half of the year.
Lewarne: and in terms of percentage of revenue, how heavily dependent upon the united states will you continue to be for the rest of this year?
Sclavos: well, over the last year, our international revenue soared from 22% to about 40% at the end of december last year. And we saw another few percentage pickups here. So our expectation is we're gonna to be about 50/50 by year end. And that's a good balance.
Lewarne: and the buy back is $350 million worth of shares.
Sclavos: that's correct.
Lewarne: within what time frame?
Sclavos: over 12 to 18 months is what the board's approved. And you know, we tend to also be in a relatively unique position there. We have $1.2 billion of cash and short-term equivalents in the bank. We're generating positive cash flows, some $70 million just here in the first quarter and our capital equipment needs are more or less behind us. So we do feel that we're in a position to be able to do this.
Lewarne: stratton sclavos, congratulations and thanks for joining us.
Sclavos: thank you |
