VeriSign, Inc. Guidance Announcement - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone. And welcome to this VeriSign Inc. conference call. Today's conference is be recorded. At this time, for opening remarks, I would like to turn the conference over to Tom McCallum, Director of Investor Relations. Please go ahead.

TOM MCCALLUM, DIRECTOR IR, VERISIGN, INC.: Thank you, operator. Good afternoon, everyone. Thank you for joining us for VeriSign's third quarter 2005 preliminary results call. I am here today with Stratton Sclavos, Chairman and CEO of VeriSign, Dana Evan, our CFO, and Steven Gatloff, our VP of Finance and Treasurer.

In a moment Stratton will review Q3's preliminary results, and we will open up the call to your questions. We would like to remind everyone that, other than the historical financial data, today's discussion may include forward-looking statements, and is subject to the risks and uncertainties described in our annual report and other reports filed with the SEC. Our preliminary results were released to the business wires after the market closed this afternoon. And this call is being webcast live, both on our website and at StreetEvents.com.

Final financial results for Q3 2005 will be provided at our regularly scheduled earnings call on October 19th. All information for the earnings call will be distributed next week. And with that, I would like to turn things over to Stratton.

STRATTON SCLAVOS, CHBAIRMAN, CEO, VERISIGN, INC.: Thanks, Tom, and good afternoon, everyone. As our preliminary results indicate, we expect our performance in the third quarter to be mixed, with strong demand across our Internet and core Communications Services, offset by a substantial shortfall in revenues from our Jamba! and Jamster! Mobile content business.

A combination of factors, including seasonality, a lack of hit content, and new advertising guidelines and restrictions in several key European markets contributed to drive much higher subscriber churn than we had anticipated in the Mobile business during the quarter.

That being said, the performance in the Internet and core Communications businesses, coupled with end-quarter reductions in marketing and royalty expenses in the Mobile content business, should allow us to achieve our previous operating income and earnings per share guidance. Specifically, we expect total revenues for Q3 to be approximately $410 million versus our previous guidance of 435 to 440 million, with Jamba! and Jamster! revenues contributing approximately 115 million versus the previous expectation of 140 million. We also expect operating margins to rise to approximately 23%, driving earnings per share of $0.27, consistent with our previous guidance.

We are obviously very disappointed in our inability to overcome the weakness we saw in the Jamba! and Jamster! European business. In particular, it appears the lack of new hit content in a seasonally slow period adversely affected our efforts to improve the churn we began to see at the end of Q2. In addition, the imposition of new marketing restrictions and guidelines in the UK in September reaccelerated the churn in that market. This led to significant friction in the customer acquisition process that outweighed any positive impact from our customer retention and market expansion initiatives during the quarter.

As Q3 emphasizes, the market for Mobile content has seen dramatic and unpredictable swings over the last 12 months, driven by a wide variety of factors. In the first part of the year, we saw substantial subscriber growth, driven by the popularity of certain content, and the ease of acquisition enabled by our direct response model of fulfillment. Conversely, in the latter part of the year we have seen accelerated subscriber churn, driven by a lack of fresh content, summer seasonality, and new marketing restrictions and regulations in certain countries.

While the short-term trends have been, and will continue to be, hard to forecast, we still fully believe in the long-term opportunity in the Mobile content, enabled by the convergence of mobility and entertainment, and in our ability to capitalize on our position as the leading global platform for these services.

We expect the market to reach some level of stability in the next six months, as normalization of the base in the UK and Germany stabilizes, such that expansion into other geographies and new product areas begins to show through. Meanwhile, we will continue to manage our marketing expenses carefully, as we in parallel strive to build better retention and loyalty programs.

I should also point out that there were some highlights in the content business in Q3 as well, including the addition of over 400,000 subscribers from new geographies, as well as the initial availability of our services for Sprint customers in the United States.

Looking into Q4 for the content business, and taking into account the September run rate for revenue, and assuming continued pressure in the UK and Germany, we're forecasting approximately 90 to 95 million in revenues for Jamba! and Jamster!. While there could be some upside to this based on the continued ramp of Sprint, additional subscriber growth in new countries, and a full …