Nice Ltd (NICE) 2002 Q3 法說會逐字稿

Good morning or afternoon to everyone. This call may contain forward-looking statements as determined and defined by the Private Securities Litigation Reform Act of 1995. Such statements are based on the current expectations of the management of NICE Systems, only, and are subject to a number of risk factors and uncertainties, including but not limited to changes in technology, in market requirements, declining demand for the company's product, inability to timely develop and introduce new technologies, products and applications, difficulties or delays in absorbing and integrating required operations, products, technologies and personnel. Loss of market share, pressure on pricing resulting from competition, inability to maintain certain marketing and distribution arrangements which could cause the actual results or performance of the company to differ materially from those described herein.

We undertake no obligation to update these forward-looking statements. For a more detailed description of the risk factors and uncertainties affecting the company, refer to the company's reports filed from time-to-time with the SEC.

Now I would like to turn the call over to Haim Shani, President and CEO. Please go ahead.

Thank you, Operator. Good morning, everyone. We are pleased to inform continued improvement in our financial results, both sequentially and year-over-year.

As you know from our news release, revenue was up 14% from a year ago, and also up slightly about 1% from Q2. As you've been hearing from everyone, market conditions are difficult. We attribute this these results to excellent execution. We are continuing to increase our market share, taking business from several competitors including those who blame their performance this quarter on the overall IT spending environment. In fact industry research firm [inaudible] recently recognized our continued market share gains by giving NICE the competitive strategy role for the second consecutive year.

In examining our own trends so far this year, there are two items that I want to mention. Q3 included a $2.5 million jump in service revenue, which offset a $2.2 million decline in product revenue. I want to put this in the right perspective, and to point out that while 2002 we have been putting a lot of emphasis on offering our customers improved solutions that include both products and professional services such as project management and specialized integration activity. Q3 reflects several large [representations] of this type.

Going forward, we may see more quarters like this from time to time. In addition, we continued to experience a sizable sequential increase in maintenance revenue in Q3. We expect service revenue to go back to more normal ratio of product revenue in Q4. The most important point to make here is that we are now selling complete solutions, comprised of products and professional services. In the first nine months of 2002, product revenues are up 20% over the same period a year ago. Service revenues are up 72%.

Going back to the significant factors affecting the quarter just ended, revenue from Asia Pacific declined. However, [CEM] orders from Asia Pacific reached an all-time high. One factor accounting for the increasing demand in the Asia-Pacific region is the trend toward outsourcing. The global economic slowdown is causing international companies to look for ways to cut costs by outsourcing customer service to companies in places like India, Singapore and the Philippines.

[IBC] expects the Asia-Pacific outsourcing market to grow 38% per year. The estimate that India will [show] particularly strong growth. We moved into India over 18 months ago via a strategic partnership with [inaudible] telecom. We are very pleased with our position in India. We have over 50 customers, including [Sector Nine], the largest outsource company in India. We are very happy with those solutions, and we've received several [inaudible]. Besides the widely-reported weakness and heightened spending in Europe, reports have been 13% sequential increase. This is excellent performance. We expect to grow even stronger in Europe once we have completed the integration of [CEM].

In October, we had a very successful event in Vienna, with over 40 of our [inaudible] group of partners from all over Europe. One of the speakers in this conference was from Switzerland. [inaudible] in this country, a wireless telephone service provider to those of you who are less familiar with Europe. The managers there have told all the [citizens] how he benefited by implementing the NICE System. Over a period of a year or so, he was able to save millions of Swiss Francs, both reducing costs and more important, reducing the [churn]. As a result, improving the revenue results of his organization. To quote him, "This was one of the fastest and smoothest implementations of a system," that he's seen in his high-tech career.

In August, we had another customer summit. This event also demonstrated that we had done a good job of listening to our customers and responding to their needs. There was a dramatic improvement in customer reception, resulting directly from the actions we have taken over the past 18 months. We continue to enhance, also, our capture platform; we've developed advanced storage solutions. We've extended our suite of applications, adding advanced content and analysis capabilities, and we've improved our geographical coverage and our customer service, too.

We are pleased to see all new customers installing our entire suite of applications. One exception is new customers [inaudible] in marketing services of America. A unique [inaudible] is using merely our old suite. NICE universe, high slope, high CLS, executive connect, capture, etc. [inaudible] to meet their architecture and functionality needs.

It is also particularly gratifying that customers whose brands are associated with the best possible service are using our solutions. For example, Federal Express offers premium service, Fedex customer critical, that provides time specific door-to-door critical shipment services 24-hours a day, 365-days a year. Here is a direct quote from the Vice-President of Service [Extended Customer Critical]. "Using NICE Solutions has exceeded our expectations in our [service expedite and wide-slope] services division. We are currently implementing the system, [charter L] division and [other internal departments]. All levels of management are confident that the NICE quality management and recording system will enhance the ability of FedEx custom-critical to deliver world-class customer service."

Although it is not a big market today, we see considerable potential for voice-over IP products. As you know, we have patented technology for voice-over IP. Just recently, one of the leading high-tech companies have been storing in one of their far east technical call centers and they're extending the implementation to all similar locations in Asia. We find it very encouraging and expect for it to [accelerator] products. [To become] gradually increasing [inaudible] in the market.

Turning to the security group. Revenue increased 20% sequentially in Q3. Our digital solution continues to gain momentum in a variety of services and markets. With written successes in [inaudible], building, security and retail. As you probably saw in the press, we recently were awarded a major bid at Toronto [Expo]. We have landed another Canadian [Expo] since then as well.

The recorded survey, conducted by security executives with responsibility for security [inaudible] as one of the top two technologies being [sent] to purchase. In one survey, at the beginning of this year, 60% of the executives surveyed said that they were purchase some type of new product or operate within the video surveillance category [inaudible]. We are seeing this increasing demand. Our NICE [efficient] products have been selling everywhere, and have a positive effect on our mix in the quarter.

We had our biggest trade show of the year for security in Q3, and it was a great show for us. We demonstrated nine people content capability and recognized that one of the [maxi] companies out of 800 vendors in this show. There was tremendous interest in our solutions. We also see a growing appreciation for the direction we have set in evolving our solution, from [inaudible] recording to proactive threat management. Our [inaudible] is the best it's ever been. We continue to build our execution.

We are also seeing continued interest in our [NICE] product for local reception. It took some time to establish ourselves in this market which is new to us, but we are starting to see encouraging results. If you've noticed, we recently announced a major order for a military intelligence surveillance and reconnaissance system. [This system deliver] information security in national defense operations. We received the highest priority [inaudible]. Information has always been the most important sector in national security, but the challenge has become more complex. With additional forms of communication such as [inaudible].

Managed contract solutions. We recently announced a major deal with the New York City Police Department to provide an advanced digital voice recording system, for which 2911 [security] would replace outdated systems. We will be adding the strong product offering for the public safety market to our security group [inaudible].

This is important. We see a trend toward large emergency services and low enforcement operation replacing the legacy equipment, which next-generation capability. Including the specialized recording of storage solution of the sites, TCS [supplying] to the NYPD.

We expect to close on the TCS acquisition very shortly, and we intend to accomplish the integration of TCS as rapidly as possible. We have already made good progress with integrating our infrastructure preparation for the close. The response from customers and channel partners has been excellent. We have [inaudible] operational in place to ensure that the rest of the process will go smoothly.

Although the overall environment continues to be challenging, it will remain vulnerable to continue [erratic orders] and [inaudible]. We are still confident to continue to improve our results. We are reiterating our fourth quarter guidance of around $40 million in revenue, and continued improvement in profitability to allow $0.10 per share, excluding the impact of the TCS acquisition, and amortization charges.

Although general visibility is slow, and likely to remain so for many months, our outlook for 2003 continues to call for 10-15% top line growth. We believe the TCS acquisition will be critical in 2003 as a whole. Based on our expectation, $0.80 to $0.90 per share on a stand-alone basis. However, the positive is expected to come in the second half of the year. Now I would like to turn the call over to Lauri, to discuss the financial picture in detail. Lauri.

Thanks, Haim. Good morning, everyone. I'll begin by giving you some of the usual metrics and then make a few comments. As Haim mentioned, the sequential decline in product revenue was more than offset by higher service revenue. Total CEM revenue for Q3 was $27.7 million, which represented 72% of total revenue. Security group revenue was up 20% sequentially, to $10.8 million, or 28% of total revenue. Geographically, the breakout was as follows.

The Americas increased 6% sequentially, $22.4 million, or 58% of total revenue. Europe, Middle East, Africa revenue increased 13% to $11.5 million or 30% of total revenue. The Asia-Pacific region declined from a Q2 record of $6.9 million to $4.7 million, or 12% of revenue. As was mentioned, this reflects the timing of orders rather than any shift in market demand, and we have a record order book in this area.

We continue to improve our gross margin in Q3 to 49.1%. Product gross margins include 57.7% from 56.5%. Primarily due to favorable changes in mix in the security group, higher software content in the CEM division, and the first signs of the benefits from the outsourcing of our manufacturing. As we mentioned, we had a high utilization rate of service personnel in Q3. And in addition, maintenance revenue rose 11% sequentially to $4.1 million.

As a result of these factors, gross margin in services jumped to 15.6% from a negative 5.7% in Q2. We expect service revenue and margins to return to a more normal trend pattern in Q4. Operating expenses in the third quarter increased slightly to $19.5 million compared to $19.1 million in Q2. Primarily as a result of approximately $400,000 of a specific provision for older receivables and higher sales and marketing expenses associated with the two events referred to earlier. As a result, we continue to narrow our operating loss from $840,000 in Q2 to $540,000 in Q3. Net income for the third quarter was $425,000, or $0.03 per diluted share, compared with $62,000 and break-even on a per-share basis for Q2. Once again, we had positive net operating cash flow this quarter.

Turning to the balance sheet, net cash and investments at the end of Q3 totaled $90.2 million; essentially unchanged from the June 30th level. Days sales outstanding fell to 96 days from 100 at the end of June, despite the difficult environment. The decline in inventory from $9 million at the end of Q2 to $7.5 million at the end of September was reflects the move to outsource our manufacturing. I'm pleased to share with you that the outsourcing process was completed in October.

As Haim mentioned, we think we're still on track for a modest sequential increase in revenue in Q4, to around $40 million, with a sequential improvement in earnings. But we want to emphasize that this is excluding the impact of the TCS acquisition or any special charges. We expect to close on the TCS deal shortly, and in Q4, we continue to expect to report acquisition-related charges in the range of $4-6 million. In addition, during Q4, we will perform and annual evaluation of impairment of goodwill in accordance with recent accounting rules. Given the decline in our market cap, we're probably going to have to take a charge for impairments and goodwill.

In 2003, we're expecting top line improvement on the order of 10-15%, with $0.80 to $0.90 earnings per share on a stand-alone basis. This improvement is driven mainly by gross margin improvement. We expect to increase gross margin by approximately 3-4 margin points next year from the full-year impact of our outsourcing initiatives and approximately 2 margin points from further leveraging our professional services organization, with further margin improvement possibly coming from a more favorable product mix.

We continue to believe the [TCS] acquisition will be accretive for 2003, based on cost synergies or approximately $7 million on an annual basis, with most of these synergies occurring in the second half of the year. Once we close the acquisition and move forward with the integration trend, we will be better able to update the outlook. About all we can say at this point is that with Q1 being seasonally weaker and the brunt of the integration impact occurring in that period, Q1 is not likely to be a record quarter. But we expect to make steady progress throughout the balance of the year. Now we will be pleased to take your questions.

Very good. Now we will enter the question-and-answer period. If you're connected to the United Sates, please press the "1" on your touchtone phone to register. You may withdraw that question by pressing the # key. Again, for United States sites, please press the "1" on your touchtone phone.

If you're connected through Israel, please press the *1 on your phone to register. You may withdraw that question by pressing *2. Again, for Israeli sites, please press *1 to register for a question.

We'll take our first question from the line of [Shaw Yahl-ph] with CIBC World Markets. Please go ahead.

Hi, Haim. Hi, Lauri. Good afternoon. Congratulations. Good quarter. I saw the outlook. Haim, just a few questions that I want to ask. Something I saw on the back log of status. It seems to me that maybe the site's improvement. If you could just address this issue. I know that you've worked very, very hard on that segment. Second, with respect to [Tallis]. You've got to briefly [unfinished].

Shaw Yahl-ph, we didn't hear you very well. Would you repeat the first part of the question? We heard the words, "backlog and improvement," and also [segmented]. It was not specifically clear what the question was.

Is that better now?

Yes. That's better. Thank you.

Okay. Haim, if you could just touch on the backlog issue and how currently it's being addressed and what the status seems to be. Is there some sort of improvement? What are you seeing for the fourth quarter?

My other question was with respect to the [TCS]. You briefly touched on the fact that you have something of a game plan. If you could somewhat expand and provide us with more color for the meantime?

Okay. Good. Why we do not give specifics of backlog. What we said already in the call, and I can repeat this, is that we've enjoyed a record order intake for our video call centers. Same goes for our [inaudible] business. So overall, I would say that we are gradually trying to develop in an industry where the deliveries --- we'll the bottom line is deliveries in most businesses that we short, which are different in industries where you see deliveries almost immediately or within weeks. The top line gradually also to develop at least [inaudible] the business with a [really] longer-term commitment. Obviously Lauri gave a detailed number of maintenance, which of course is more of a recurring business. And we also expect this to grow. Overall, I would say there is the continued improvement of the bottom line.

On the [status] game plan, we have I'd say obviously a shorter-term activities and longer-term, and we'll take this opportunity to remind everyone on the logic behind this acquisition and what we're doing here. For the short term, of course, there is a very little plan, which was put into place on [board] integration and mechanics.

As a relatively conservative management team, we hate surprises. The first thing we spent was making sure all our IT finances were integrated day one. And all the [PCS] [pieces] basically would be on NICE systems, immediately. From this respect, it was benefiting from the investment we had made last year in putting into play our [inaudible] system. And now if you'd like, we have a benchmark. We have a process that we [inaudible] to implement and move forward. [inaudible] and also for the US operations. Therefore, we believe that day one after closing of course there could be new problems, technical problems. But overall, with respect to the integration of infrastructure, I would say we are quite pleased with the progress. As I certainly feel, the acquisitions and [inaudible] situations before, I think we'll definitely be ahead of the game in business.

Okay.

The great thing is that the business is going forward. As we said all along. TCS is not going to remain a stand-alone company. Therefore, any reference to day one is going to look at TCS's [night]. We are going to have full integration of the TCS business, infrastructure, people into the [inaudible] NICE operations.

The public safety sector of TCS we see a lot of synergy short-term, mid-term and long-term with our security business. Therefore it's actually part of our security business and security offerings. The rest of the business-the call center and [inaudible] part of those [CEM] divisions. Also on a regional basis, we plan to integrate this operation into our US, Asia and Europe organizations.

From a strategic point of view, there are several areas that we are putting emphasis on. All of those of course are mid-term and long-term, but they are very important to understand.

We believe that there's a strong base of TCS, mainly in Europe, in the financial environment, financial call centers and so on. It's [ready] to benefit for the NICE suite of applications and the NICE suite of [CEM] applications. We have started to look into training plans. We have met the relevant distributors in these aspects, and we plan to provide them with all the training. So basically next year they would be up to speed where it is relevant to spend and support our [CEM] solution into the PCS install base.

In addition to that, we have looked into different synergies within the huge market. TCS has announced a few weeks ago a major success in NYPD like selling solutions to the Police Department of New York. As you know, the issue of video surveillance and the issue of law enforcement solutions are all related with the same [inaudible], and we plan to use this connection and install base in order to work together to increase our penetration. The same goes with some of the partners of TCS, mainly in Europe, that are focusing on the security market. Both public safety, and as prevention for the video surveillance, as well.

So overall, we have a game plan we took to the partners. We know where we want the people to be. We look forward to making it a success story. Of course, it will take time; not everything is completed in a month or two. The plan is there, the commitment is there, the people are there. So we seem brighter about our mid-term and long-term prospects.

Okay. Thank you very much. Congratulations again.

Thank you.

We'll go next to the line of Steven Levi-ph with UBS Warburg. Please go ahead.

Hi. Good afternoon. Nice quarter. Just a couple of questions from me. Lauri, can you tell me what revenues were for [NICE Vision] in the third quarter, and what that gives you for [NICE Vision] revenue after those nine months?

Sure. [Nice Vision] revenue this quarter was $5.9 million. Nine months cumulative, it's $15 million.

I've got one other question actually on gross margins. If I understand correctly, the guidance you gave for gross margins was a 3% pickup from outsourcing, and another couple percent in improvement of gross margins on the service side. If that's all on a stand-alone basis, that would be the gross margin guidance in Q3, assuming no TCS acquisition?

That's essentially correct, and as we said, once we complete the closing and integration, we'll be able to fine-tune the models even more.

I know that you'll have to wait for some more detail. Just one question on this, then. Putting aside the issue of this deal being accretive at the gross level, will the TCS deal take gross margins even higher than that? Or actually at the gross level, would you expect TCS to bring gross margins back a little bit?

Well I don't expect them to increase gross margin, but I think that the analysis we gave now is likely to be applicable, even on a combined basis.

Okay. That's all for me, thank you.

Your next question comes from the line of Toby Fishbine-ph of Lehman Brothers. Please go ahead.

Thank you. Good afternoon. Lauri, after turning services profit level in the quarter, you said you expect service revenues and margins to return to more normal trend patterns. Could you be a bit more specific of that? How likely are the services margins to remain in the 10-15% range?

The 10-15% range of gross margin on services is certainly an objective. I was referring more specifically to Q4. I would not expect to see margins on services in Q4 in that range. I would expect them to be positive, but not that positive.

Got it. Second question. I might have missed it hearing the opening remarks. But I'm interested in what was the increase in G&A for the third quarter, and if it's expected to stay at a similar level in Q4.

No, Toby. In Q3, there's a $400,000 provision for some older receivables, and I certainly don't expect that to repeat itself in Q4.

Okay. Thanks a lot.

You're welcome.

Our next question comes from Victor Halbert-ph with Salomon Smith Barney. Please go ahead.

Good morning, guys. First of all, I'd like to commend you on the level of disclosure at this conference call. It's much better than before, and I personally like it a lot. Could we talk a little bit about the service revenue? It jumped in the third quarter. Any particular reason to do with it being so nicely compensated for in the decline in product?

I think there are two issues and two areas that are reported to [inaudible]. It's the sequential growth in maintenance, which is part of our long-term plans. Mainly in areas where we also provide direct-service support. In North America not only, but mainly to increase the maintenance business, which is something that we haven't done very well over a year ago. We've taken a strategy to better utilize our infrastructure and have direct contact with customers at the start of the growth, which is more gradual and sequential.

The other part is an implementation of again what we've been saying all along. Our solutions to customers are not just orders. We remind you even our discussions, Victor, several times. We're not [inaudible] company, but we're selling solutions. When you sell solutions, you sell implementations. To sell a project, you sell a product and you also sell a professional service. It's one time part of a large deal. We had several of these, lucky. No not lucky, we worked very hard to make it happen. We had several - more then usuaul of this implementation and delivery in the third quarter.

We are working on others that might be successful to be closed and implemented in Q4. Maybe Q1. We might see additional quarters like this. Maybe we'll see quarters with less of this type of split. But the major point is that we are closing business with customers that include the [inaudible] solution. The solution includes the system, which again is a combination of hardware and software, and also professional services for the implementation of this specific space. We have more than usual this quarter, and we are very happy about it.

In this environment [unfinished]

And by the way, we believe that this capability has helped us to gain market share. Because we're selling complex in a complex environment, with integration with the [ACBs] and the drivers and the [CRM] stuff. In our case, of course, we get [inaudible] and so on, and quality. [And another] suite of applications. And our ability to provide this full solution not only contributed to our financial [rebuttal] but allows us to gain market share for smaller competitors in this marketplace.

What I'm trying to understand then is that this environment are you able to charge I guess very good levels. Even though the enterprise environment is very difficult. They're trying to lower the prices and they're also trying to give a lot of this stuff for free. But you were able to charge for it.

Customers see our systems as mission-critical. It is very important to explain again and again and again. We are not selling a quality monitoring solution. We're selling a mission-critical system in the minds of many of our customers.

This mission-critical solution which is either for dispute management or settlementor compliance or to make an improvement-a critical improvement-in their business in the call center environment. They are waiting to pay for a full solution. The full solution from the vendor that provides them with good ROI. They're willing to pay for the combination of the product and the professional services associated with providing a full working solution. It's very, very important.

As I said before, a major telecom provider in Switzerland has presented to our partners and distributors how he saved many millions of Swiss Francs in his context of environment by using our system. Reducing churn. Making his competitive situation better by our system. So that's what we're selling. You have seen the results in this quarter on this specific split. As I said, there will be quarters that have more it and quarters that have less. Not 100% in our control, unfortunately. But that's definitely the strengh.

My other question is related to the TCS. I kinda want to expand on [inaudible] question from [Shaul]. What was the result of TCS on that third quarter? Did it meet your expectations as you expected when you were making the deal? The numbers that you provided-it was some sort of idea that you'd given on the previous conference call. Was this relevant to the TCS operation?

I'm not sure if I understood your question. But the bottom line is that TCS is running to the best of our knowledge. Again, it is before our auditors doing all their [audit] thing and converting revenue to US GAPP as we are requested to do. But they are running at an expected run rate of about $70 million a year. To the best of our knowledge, they're on track in this respect. Again, we're not managing them, yet. They're a separate company, and we're waiting for the approval of the regulatory authorities in the UK to get the approval for the deal. So actually, we're competing against them in the first quarter.

Okay. Well good results in this difficult environment.

Thank you, Victor.

Again, if you would like to register for a question and dialed in to the United States, please press the "1," on your touch-tone phone. If you dialed in through Israel, please press the *1. We'll go next to the line of Adid Yane-ph with [ING] Financial Markets. Please go ahead.

Hi, guys. Great quarter. Regarding [TCS], when do you expect to release financial details on [TCS] in US GAAPP?

[Adid], I imagine you're referring to historical data?

Yes.

We will certainly be able to provide that once we receive it from [Tallis]. Once we receive it, we'll be happy to share it.

Is there some sort of timeline? Do you expect it in the near future some time? It could be soon if you plan to finish this acquisition shortly.

Correct.

So do you have a timeline?

I don't have an exact date. Just like you don't have. We expect to close it shortly, and at the same time you should be getting that information.

Okay. When do you expect to integrate the [TCS] numbers into NICE's numbers? When should that take place, basically?

The day after closing we will be consolidating the financial results of former [TCS] with NICE.

So conceivably it could even be in the fourth quarter?

We fully expect the [closing] to take place in the fourth quarter. And then yes, we already would be reporting some results of theirs with our numbers for the quarter.

[Inaudible]

What was that?

I said those are the [inaudible].

Right. Is there an overlap in the ISS business and the [TCS]? Let's put it another way. I mean it makes sense to me that the two businesses should be integrated. If that's correct, where will the business be concentrated? Will it be in [TCS] or ISS division?

There is no ISS division at NICE. [Already for about nine months]. Since we were planning for this acquisition for quite a while, we were creating a security division, which we felt would be the best home for the three businesses that we have. Those that go for law enforcement, separate solutions for ISS, the video business and public safety, particularly. There's a lot of synergy between the three of them.

This is managed by an executive by the name of [Zoran Eidelmann]. Each part of the business in [TCS] will fallas it stands correctly. There is a dedicated team very motivated in Southampton, which is also making very good progress in their business. And it's also in becoming a leader in this market. Yes, you are right it makes sense to have [inaudible] security division. So [several] on the market side of the approach to the customers and so on.

So how many people were laid off in the ISS division as a result of that? There were people working in the ISS division. I assume they were laid off? Or were they transferred to another division?

We have not completed the acquisition yet, so I'm not sure if I understand the specific of the question. As I said, right now, we're operating as two separate companies. So we have not done any activity that relates specifically to the acquisition.

If your question refers to the fact that we are moving people at NICE from one division to another, or one activity to another, if we are, could you think we are locating resources for activity in one country and recruiting in another country? Yes. This is something we are doing all the time. We don't give specific details of the few people that might be asked to leave based on whatever reason in one area, and we recruit in another area. Whether it's on a marketing basis or sales. But those activities are not related to the acquisition.

Okay. Very good. Also, one more thing. Regarding the balance sheet, as a result of the acquisition [unfinished].

By the way, we will continue to do so. But if the dynamics change or marketing changes, then we definitely see that it's a possibility to allocate resources to make some areas weaker and increase in other areas. It depends on the relative developments in the marketplace.

Okay. Regarding the [TCS] acquisition. I know it's a little bit early. But regarding the balance sheet, how will that change in terms of receivables, inventories, going forward basically after the acquisition?

Okay. Just to remind everyone this is an [inaudioble] acquisition, so essentially we will be acquiring working capital and perhaps some fixed assets. It's our assumption that the net asset value that we will be requiring will be somewhere in the area of around $28-30 million.

And can you give some sort of breakdown regarding that $28-30 million in terms of receivables, inventory, fixed assets, etc? A ballpark figure. It doesn't have to be exact. Just to get an idea of what that entails.

Well it's a little bit difficult, obviously, because it's subject to completing the balance sheet. But I don't know. Probably more than half is receivables and another large chunk is inventory, and the balance is fixed assets.

Okay. And regarding one-time charges for next quarter related to [TCS] acquisition. What specifically does that entail?

One-time charges or special charges. It involves principally restructuring.

Yes.

And there may be some other related charges that we will certainly detail and elaborate on at the time that we report the charge itself.

Thank you very much and good luck, going forward.

Thanks, [Adid].

We do have a follow-up from the line of [Shaw Yahl-ph] with CIBC World Markets. Please go ahead.

Thank you. Haim, just one more for me, if I may. You touched before on the local interception solution. You mentioned you won a major order. If you could just elaborate on that. Obviously there are a number of other Israeli competitors in that arena. I just want to find out if you see any of them currently, and what your take is?

We are a very humble company. I can tell you that in this market, we have identified the potential to support or to supply law enforcement organizations with new technology to handle a variety of [inaudible] coming from a variety of telecom and internet and so on communications means. We have identified this need last year, made investments in terms of product development, and basically announced the product offers called [NICE inaudible].

However, we are of course a new player in this market niche. There are other players that have been there for many, many years. We think that this market is trying to grow. We think that there is a lot of growth potential for this market. The need of law enforcement to improve their technology is there. As I said, we better [inaudible] see a lot of activity from our part. In some of it we are competing against companies. In some areas we're on our own. In some areas we see other players. But overall, this is definitely a market that we believe is going to grow, and we're quite optimistic about our situation and ability to increase our presence. Again, we are a new entrant in this market from a product point of view.

Of course from our reputation and our brand name, people know who NICE is. People know that we are in related businesses. Some of them have been systems-related businesses. As I said, now with the [TCS] acquisition, we believe that we will have additional relevant contacts in this marketplace.

Okay. Thank you very much.

Thank you.

It appears we have no further questions. At this time, I'll turn the call back over to management.

Okay. I want to thank everyone for their participation. We look forward to talking to you in our 2002 yearly announcement. So thank you and have a nice day.

That does conclude today's audio conference.