Nice Ltd (NICE) 2004 Q4 法說會逐字稿

Welcome to the NICE Systems fourth-quarter and year end 2004 results conference call. All participants are present in a listen-only mode. Following management's formal presentation instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded February 2, 2005.

This call contains forward-looking statements in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the Company's actual results could differ materially from these forward-looking statements. Additional information that could cause actual results to differ materially is contained under the subheading "factors that may affect future results" in the operating and financial review and prospect section of the Company's annual report on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission.

Such factors include but are not limited to -- changes in technology and market requirements; decline in demand for the Company's products; inability to timely develop and introduce new technologies, products and applications; difficulties or delays in absorbing and integrating acquired operations, products, technologies and personnel; loss of market share; pressure on pricing resulting from competition; and inability to maintain certain marketing and distribution arrangements which could cause the actual results or performance of the Company to differ materially from these forward-looking statements. The Company undertakes no obligation to update these forward-looking statements.

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

Good morning. I am pleased to report that NICE concluded both the fourth quarter and fiscal year 2004 with record results in all of the performance parameters marking a key achievement in a pivotal year for the Company. A few highlights from the quarter -- we grew our revenue in Q4 by 13 percent on a year-over-year basis and 9 percent sequentially to $69.5 million at the top of our guidance range. We saw an increase in both (indiscernible) operations, that is enterprise interaction solutions and public and security solutions.

We expanded gross margin to 56 percent compared to 55 percent in this quarter last year. We expanded operating margin to 12.9 compared to 8.1 last quarter and 10.9 in this quarter last year. We reported 9 million of net income, a 457 percent increase over the same quarter last year. We grew our EPS to 47 cents, a 27 percent increase over the same quarter last year.

2004 indeed constitutes a turning point for NICE. On the one hand we are continuing to grow our core business. On the other we are pioneering a new market in the enterprise, public and security sectors based on insight from interaction solutions driven by content analytics.

Over the last year we reaped the first major advantage of our consolidation strategy. The TCS acquisition contributed significantly to growth in our core business of recording and quality and monitoring, solidifying us as the worldwide leading player in this market. Our market leadership is recognized by leading analysts. In addition to maintaining our strong positive ranking by Gartner, Frost & Sullivan has confirmed NICE as the global quality monitory industry leader with a 34.7 market share worldwide and Data Monitor also confirmed this, ranking NICE as the market leader.

Another element of our success is the strategic partnerships we have in place for joint technology developments and marketing. We continue to develop and advance our cooporation with Avaya achieving record business in 2004 as well as accelerating our leadership position in the financial trading floors with IPC and other players. Our joint development with Motorola for trunked radio solutions announced in September 2004 is bringing us wins in major bids. And partnering with IBM on integrated smart video and call center solutions brought us several contracts in 2004.

We have identified the major growth trends in our business; we are leading in these areas of opportunity and putting in place the infrastructure for future growth. One trend that is taking hold of enterprises all over the world is the growing need for advanced content (ph) analytics to help drive business performance and minimize risks such as those posed by regulatory requirements.

In this arena we provide advanced solutions that deliver the critical insight required to leverage the inputs that are gathered from customer interaction. And in 2004 our customer list in this space grew to include some major players across a wide variety of verticals in the financial sector Ford Credit, in insurance and Healthcare -- BlueCross/BlueShield of Michigan and Liberty Mutual, and in entertainment, Time Warner.

Migration to voice over IP is another important trend. NICE was the first Company to develop solutions for recording in a voice over IP environment and we hold patents relating to this technology. Customers installed our voice over IP solutions at 47 new sites in quarter four of 2004 alone.

In other voice over IP developments we are very happy to announce the seamless integration between NICE Solutions and the latest versions of Avaya's communication manager API (ph), a programming interface that enables third party vendors to develop IT based communication applications for Avaya's telephony server. This is another step in advancing the mutually strategic relationship we have with Avaya which generates significant returns for both sides.

Another trend in the enterprise business is the rapid growth of contact center outsourcing to Asia, particularly to India. To support our growing customer base and accelerate sales and service support in this area we opened up our office in Bangalore, India. We also are leading the outsourcing market with a quickly growing customer list that includes some of the world's leading business processes outsourcers, in APAC including Wipro Spectramind India's largest outsourcer and Sutherland, as well as outsourcers in EMEA and Latin America.

We are leading these trends, but the most powerful and important one we are actually pioneering. We're expanding legacy recording and bare-bones quality monitoring applications to help advance content analytics for gaining insights from interactions. At NICE we are seeing that more and more organizations worldwide are pursuing performance improvement and recognize the value of interaction analytics.

A great number of corporations around the world do business over the phone. These companies never see their customers; this makes the contact center a critical focal point for gathering feedback on service, which is the basis for understanding customers' true intent. This in turn reveals the business opportunities and risks that enterprise is likely to face and helps business managers take proactive steps.

In Q3 of 2004 we launched Nice Perform, a fully integrated suite of solutions that offers innovative ways to generate insight from interactions and drive performance in the contact center and throughout the enterprise. Our solution has received tremendous acceptance. It has already been adopted by 15 different customers and has been instrumental in both winning competitive situations and in replacing existing competitive products. Moreover, it has received notable recognition from significant accolades such as TMC Labs, innovation awards, and product of the year from Customer Interactions Solutions.

What places NICE Perform on the leading-edge of business performance optimization is the real quantifiable business benefit it brings to the entire enterprise. Just a few weeks ago one of our existing customers, a financial services organization in North America, realized the need for extracting such insight from their customer interactions. They were recording the calls they receive at their contact center mostly for compliance purposes, but wanted to leverage these recordings to help them streamline internal processes.

By applying our solution's advanced content analytics to reduce call volume and agent talk time, they were able to lower operational costs and by spotting the phrases used by agents that have effective impact, and those that don't the sales department has increased their hit rate and created new revenue streams.

Indeed this past year has been marked by our transition to selling solutions. And to advance this strategy, in addition to developing leading-edge technology, we're also strengthening our internal corporate infrastructure. In 2004 we have recruited executives from industry-leading solutions-driven companies such as Siebel, Clarify and Amdocs. These executives will contribute greatly to bolstering our new solution selling strategy.

NICE's insight from interactions solutions are benefiting all the sectors in which we are active. In the public and security sectors for example the need for advanced content analysis is driven by two main vehicles -- the homeland security bill and the findings of the 9-11 commission report which called on public safety organizations organizations to enable their communication systems with capabilities for interagency communication.

In 2004 we also won several very large government contracts for solutions that provide video and audio analytics, and control for security. These are long-term projects and give us greater revenue visibility in the coming quarters. We do indeed see growth potential not only because legacy systems are being replaced with digital.

The interesting trend and one which we are leading is the increased requirement to leverage video content analytics to improve operations and NICE was the first technology provider to commercialize and operationalize a video content analytics solution and standardize it as a regular security tool taking it from lab to pilot to operations. In 2004 we sold and delivered the first pure business performance application in video analytics that decreases congestion and consequently generates revenue on major tollways in the United States.

We also sold this solution to several airports throughout the world to enhance the accuracy of potential threat detection and identification. For example, our system would flag unmanned luggage and enable security personnel to easily retrace the steps of who placed it there thus identifying whether this the event does indeed constitute a real security risk.

Our systems give security personnel a better handle on potential threats and unnecessary terminal evacuations are avoided saving airlines money and sparing passengers frustrating delays. This and other such sales are further evidence that NICE provides solutions that are becoming increasingly vital to governments and public institutions in their effort to ensure the security of the public.

All in all we are proud of our achievements in 2004. We have produced record results, with growth in our core business, significant wins with our new strategy, and transition to towards solutions for insight from interactions. Looking forward we will continue to support this strategy with vision and action. We'll continue to leverage our advanced solutions for extracting insights from interactions, both in the enterprise and public and securities sectors. We will also continue to invest in enhancing the breadth of the advanced applications we offer as well as creating new and developing existing strategic partnerships.

We are committed to increasing the value of our firm by strengthening our leadership position in all our markets, to bringing new users to the insights from interactions marketplace and continuing to earn repeat business from existing customers. I will now turn the call over Ran.

Thank you, Haim. As Haim indicated, the fourth quarter is traditionally strong and we were pleased with both the year-on-year and sequential revenue growth. We had a record quarter with revenues at $69.5 million, up 13 percent from $61.7 million in Q4 '03 and 9 percent from $63.5 million in the prior quarter. We had 11 seven-figure deals in Q4, 8 in the enterprise and three in the public and security sector. We also had a company record year with revenues at $252.6 million, up 13 percent from $224.3 million in 2003.

The geographic breakdown of revenues for Q4, similar to last quarter's breakdown was as follows -- Americas accounted for $32.7 million or 47 percent of revenue; EMEA accounted for $25.7 million or 37 percent of revenue; and A-Pac accounted 4 $11.1 million or 16 percent of revenue. The geographic breakdown of revenues for the year was Americas accounted for $121.5 million or 48 percent of revenue compared with 53 percent in 2003; EMEA accounted for $93.3 million or 37 percent of revenue compared with 33 percent in 2003; and A-Pac accounted for $37.8 million or 50 percent of revenue compared with 14 percent in 2003.

On a market basis enterprise interaction solutions were $54.4 million or 78 percent of revenue; public and security revenues were $15.1 million or 22 percent of revenues. For the year enterprise interaction solutions were $194.1 million or 77 percent of revenue; public and security related revenues were $58.5 million or 23 percent of revenue -- similar to the breakdown reported for 2003.

In Q4 product revenue increased to $51.4 million or 74 percent of total revenue while service and maintenance revenue grew to $18.1 million or 26 percent of the total. This is compared with 72 and 28 percent in Q3. For 2004 overall product revenue increased to $182.6 million or 72 percent of total revenue while service and maintenance revenue grew to $70 million or 28 percent of the total.

Total gross margins reached 56 percent, up from 54.7 percent in the last quarter and 55.5 percent in Q4 '03. For 2004 full year gross margin increased to 54.8 percent, up from 52.6 percent last year. Net income from continuing operations for the quarter was $9 million, up 457 percent from $1.6 million in Q4 '03, up 74 percent from $5.2 million last quarter and 35 percent from the non-GAAP net income from continuing operations which excludes special charges of $6.7 million in Q4 of last year.

Year end net income from continuing operations was $21.3 million, up 280 percent from $5.6 million in 2003 and 72 percent from the non-GAAP net income from continuing operations which excludes special charges of $12.4 million last year.

The earnings per share from continuing operations was 47 cents, up 68 percent from 28 cents in Q3 '04; 422 percent from 9 cents in Q4 '03; and 27 percent from the non-GAAP EPS from continuing operations of 37 cents per fully diluted share in Q4 of last year. This represents the operating leverage and scale advantage we have in contributing a bigger proportion of the revenue growth directly to the bottom line. The earnings per share from continuing operations for the year end was $1.14, up 245 percent from 33 cents in 2003 and 54 percent from the non-GAAP EPS of 74 cents last year.

Turning to the balance sheet, cash and equivalents at the end of 2004 totaled $165.9 million, up from $146 million at the end of September and up from $107.3 million at the end of 2003. DSOs at the end of December were 67 days, better than our long-term guidance of 70 to 80 days.

We continue to see strong bookings with book to bill greater than 1 and our visibility is improving. We reiterate our guidance for 2005 for revenues between $275 and $280 million and EPS of 1.4 to 1.5. In Q1 '05 we expect revenues to be between $63.5 and $66.5 million and fully diluted EPS in the range of 24 to 29 cents which represents significant growth over Q1 '04. Now we'll open the call to Q&A.

(OPERATOR INSTRUCTIONS) Daniel Meron, RBC.

Congrats on a very strong quarter. Can you provide maybe more color on the traction with the content analysis solution either on specific projects or key studies or in general? Also on partnerships that you're working on if at all and how you see that tracking in 2005?

As I said in the call, 2004 we have installed a seed (ph) if you would like with customers proving that this technology, A, actually works, and B, are providing real business or security advantages. And we are now seeing the first benefits being discovered by these customers. They can place real value, real dollar value and we are very optimistic because, if you like, we are to some extent creating a new industry on top of what we have built over the last few years.

I understand that. If you would just provide more insight onto the outlook for this product line or industry, if you will? Can you quantify either the pipeline that you have or revenue recognition that you had?

Regarding revenue recognition on Nice Perform, I will refer to Ran if you want to comment on it specifically.

Nice Perform revenue has not been recognized as of yet. We estimate that we will start recognizing the revenue in Q1 '05. We said it up front when we launched the product that we will take a more conservative approach and start recognizing the revenues only after we feel that we are comfortable with several projects and customers that are getting to the end of their project and are happy with the results. We do see a growing pipeline and growing backlog. In that respect we talked about 15 new customers since we launched the product 5 months ago.

I also want to remind that Nice Perform is actually a full suite of product solutions applications and it ranges from, if you like, a bear bone recording and a basic quality monitoring technology to a full analytic solution with a variety of applications. And we will see -- we believe that we will see all of them in this area being implemented in 2005.

Great. Just moving to the video side, can you provide a breakdown between video and public safety? And also maybe talk a little bit on the introduction of the new mid-market video solution -- how it's going to impact or play out in the next few quarters?

The mid-market technology is actually now coming out of beta sites and we are encouraged by the results and we hope that it will take (indiscernible) in what is at this point in time of course a big market which is a midrange. How fast it will catch up and will take market share still needs to be seen, but as I said, we are now out of the beta sites in these technologies.

When do you expect it to reach the market?

No, it is now out of beta sites o we are starting to actively sell it -- to introduce it to the market and we hope to gain market share.

And is it possible that you'll see initial revenue as early as the first quarter or will it spill more into the second quarter?

I think that we will see revenue in the first half of the year.

Okay, great. And Ran or Haim, can you comment on the split up between video and public safety?

As we've said in the past, video usually is about half of the public and security and nothing has changed in that regard.

Congrats again on the good performance and thank you.

Roni Beron (ph), Oscar Gross.

Congratulations on the good quarter and I've -- well, most of my questions have been answered. I just want to know if you can comment on the competitive landscape and whether or not you notice any change following the recent acquisition of Blue Pumpkin?

We don't see any significant change in the competitive landscape. I would say that if there is any -- as you can see from our results in the enterprise sector, we are continuing to gain market share. We think that we are developing actually a new market that enhances the capabilities of our customers in the contact center. Nice Perform is a major technology, a major solution that helps us, A, to create a new market, but more than that also to capture market share in competitive situations. I would say that we feel very comfortable and strong momentum in our business.

Okay, thank you.

Ashish Kohli, William Blair.

Congratulations on a good quarter. A couple of questions for you. When you look at the last question about the competitive landscape, have you seen any change in the pricing environment recently?

No.

And do you anticipate any change given the witnesses (ph) acquisition and just other competitors that you see out there?

It's difficult to predict of course the future, but I believe that the suite of the technology, the (indiscernible) of what we believe is a result of long-term planning, R&D investment, technology development and I believe that the combination of the technology and the service capability that we have can gain us the competitive advantage.

Ran, in your remarks you had talked about the visibility improving and you had mentioned the book to bill being greater than 1. I know you guys don't break out backlog -- you don't give out a number, but can you qualitatively talk about backlog today relative to where it was last quarter?

Last quarter we announced that the backlog was over a quarter, definitely this time it is bigger than that dollar wise. It's over one quarter of revenue and a good chunk of it is for the coming first half of the year.

Okay. And then, Haim, you had talked about in your remarks the various drivers in the enterprise segment and you had talked about the migration to Voice over IP. I just wanted to clarify, I think you had said that there were 47 new sites in Q4 alone that were --. When you look at the various drivers within the enterprise segment, can you prioritize as far as what you think are the biggest near-term drivers and then what you think are going to be more long-term in nature?

Yes, there will be several drivers, some will range from just another cycle of investment in technology which is kind of a general update refresh which can help many companies and we are included. We see these as a result of many (indiscernible); they can range from security concerns -- talking about IP security now -- and others. So this is one area that we see some development.

In our specific market we believe that the strength to outsource can create the opportunities for companies like ourselves that have both the outsourcer and the company that is outsourcing has a better control and objective measurement. So this is another important trend. And as I said initially, we believe that we are also developing a new market that answers many of the concerns of many organizations in a unique and creative manner. And this is pitching, if you like, the eyes of many executives and this also can help us in the driver going forward.

And the last question I have is your cash balance is pretty large. You guys continue to generate healthy free cash flow. If you could talk about potential uses of cash -- I know that you guys are looking at acquisitions, if you can maybe shed some light on where those stand and then potential other uses of cash that you might consider?

I will probably not surprise you by saying that we cannot give specifics on any M&A activity that we are looking or checking or considering. But I believe that the results of this year are really reaping the benefits of a very successful integration that we have done by making a very strong acquisition. And if you like, this is very high on our priority list and we have, if you like, a (indiscernible) of how to do it successfully. So probably this would be first priority in terms of using the cash. The fact that we are operating in several major (indiscernible) markets with a variety of technologies also creates for us very good opportunities in this respect.

Okay, thank you very much and congratulations again.

Scott Greiper, Unterberg.

A question -- and I don't know if you answered it, on the breakout of revenues between the enterprise side and the security public safety side?

We said that during the quarter the breakdown was 78 percent enterprise and 22 percent public and security. And for the year it was 77 percent of enterprise and 23 percent public and security.

Okay. Do you have any guidance on what it will look like for the balance of '05? Or do you have any internal targets for what the split will look like for '05?

At this point of time it's difficult to know because in both sectors we see a growing number of opportunities both from the public sector, security and also in the enterprise. So if you would like, our growth target at this time assumes that both sectors will grow handsomely. We are seeing, as I said, some very large numbers of big opportunities in the security side. So we have here an internal competition and it will go faster, but we think there is opportunity for growth in both sectors.

Can you elaborate a little bit about the Bally's announcement yesterday, maybe who was the competition there, if it was an open bid and what the near term initiatives opportunities are on the safety side either casinos or transportation? Where are you seeing the opportunities in the public safety and security side?

Of course, we cannot talk on behalf of the customer, so what we have chosen to disclose we respect -- we cannot say more than that. We are assuming that as a careful customer they have checked the various (indiscernible) in the market. The trend -- I think what is important (indiscernible) suspect is casinos, in order to replace their analog technology, need to make sure that the quality of what they do is at its best because there's a lot of money involved and they really need to ensure that the digital technology is giving them the best technology and the best solution for the quality of what they do.

And in this respect the casino market, both in North America and also in other parts, is still relatively virgin territory in terms of introduction of high-end digital technology to replace the analog recorders. So we are very pleased with their decision and we think this definitely will open to us this market more than in the past.

Okay. Great job on the quarter. Congratulations.

Shaul Eyal, CIBC.

Congratulations on a good quarter. Ran, any foreign currency impact during the fourth quarter?

It was immaterial. We had a slight impact on the European currency, but really nothing to mention.

Fair enough. Gross margin trend heading into '05, given the fact that NICE perform appears to be a more softer intensity platform what are you expecting -- high 50s, 60s in 24 months or so?

We want to differentiate here between what we see into '05 and what is the long-term model. Into '05 we believe we will see improvement in gross margin, but then you need to take into consideration that Nice Perform is not going to be 100 percent of our sales. So it will grow the software part in our revenue which will improve our gross margin. Long-term we do believe that we can get to above 60 percent on the gross margin.

Fair enough. On the backlog, even though you don't disclose a hard number, what part of the backlog is driven by Nice Perform? Is it a significant -- is it growing, what's the trend out there?

We have both Nice Perform orders in the backlog and we also have, as we said, security related longer-term projects that are 7 digit size. So both these contribute to the very nice growth in the backlog that we have seen in this quarter.

Fair enough. And a final question. A month into the quarter what have you seen? What are the trends with respect to Nice Perform? Do you see continued traction over the platform with your customers?

We were very encouraged from the market -- from the way the market received this technology and we'd be very surprised if this changed in the near future with the product.

Fair enough. Thank you very much and good luck.

Abshalom Shimmi (ph), HSBC.

Congratulations for the assaults and I joined late so I don't know if the question was asked. Just on the Nice Perform, can we take the 15 deals so far as a benchmark for the rate of advance or will it be completely different for 2004 -- for 2005, Sorry?

Just to clarify, in the first 5 months since launching the Nice Perform we tried to illustrate (indiscernible) figures. Looking forward we believe that the Nice Perform deals are going to range between the traditional customers just buying the recording platform of the new version to be able to upgrade them in the future to the analytics capability up to the ones that are purchasing the full suite including the application. Which means that there is a good chance that during 2005 it will become a big part and even the majority of the revenue in total.

Having said that, it's not necessarily that the majority of the customers are going to implement or even purchase up front the full suite (indiscernible) application. It became a winning factor, even the traditional deal, when customers decided they preferred to buy the new version of our product which has the roadmap and the vision for the future and to implement today just the recording or part of the quality monitoring. So in a way in a couple of quarters we believe that counting those deals -- going to be a very similar count to the number of deals we are having with new customers.

Alright. And regarding the competitive landscape, remember you said in the previous quarter that you don't see any substantial offerings from competitors that have the same capabilities. Have you seen any change on this front?

No. It's (indiscernible), we did not.

I see. So you kept your uniqueness in terms of the offering as for now?

As for now.

And just last one. On the depreciation I saw there was some kind of drop in the depreciation looking forward for 2005, should that stand to be the number or are we going to see some increase on the depreciation front?

No, there shouldn't be any increase in depreciation in the coming year.

Alright, thanks.

Uav Bergen (ph), Pauline Sahar (ph).

My first question relates to employee options. What's the current number of outstanding options?

Currently we have altogether about 4 million options; a big part of them is actually vested, so it's a part of what the employee has the ability to exercise.

And what's the average exercise price?

It is ranging between $10 up to 70 -- close to $80.

80?

80.

And what's the average remaining contractual period, the time to maturity?

I don't have it in front of me. It will be published once it has the (indiscernible) filed.

Okay. My second question -- Haim, you mentioned a 34.7 market share according to Data Monitor?

(indiscernible) Frost & Sullivan.

Frost & Sullivan. And how did they define the federal market?

It's a public (indiscernible), you can take a look at how they look at the quality monitoring and voice log in (ph) market globally.

Okay. And my last question. Ran, you mentioned that you'd begin recognizing Nice Perform revenues in Q1 '05. When would it be prudent to expect significant Nice Perform revenues?

We expect to start to see it starting in the current quarter Q1 and going into the rest of the year.

Okay, thank you.

Ran Kabin (ph), Klau (ph) Finances.

First congratulations for the good quarter. You mentioned earlier the gross margin improvement. Can you also talk about the operational margins? Do you expect it to improve as well at the same pace or do you see any expenses coming like G&A? What is your target operational margin in the long-run?

Let's do it one by one. For the near term the guidance for 2005 is very clear. We're talking about a growth of 9 to 11 percent on the top line that is going to be translated into 23 to 32 percent in the bottom-line. This is a deep leverage which is coming from the operational side. Which means that the operation expenses are going to go down percentage wise, mainly R&D and G&A. If we look on the longer-term we believe that we can target and reach the high teens in bottom-line contribution.

Okay. It also seems that you continue to improve the (indiscernible) capital. Do you believe that you will have to invest more money in it in order to support your growth or should we expect the operational margin to be the same as the cash flow from operations?

We believe that the working capital metrics are going to remain about the same as they are right now. As a percentage of the total turnaround, we tell the DSO to be between 70 to 80. We think it will be better than that. The bottom-line cash flow is going to be slightly better than net income as we do have still some depreciation of (indiscernible) assets.

Okay, thank you.

Mike Keller, UBS.

A couple of questions if I may. Firstly, you gave a breakdown of the $1 million plus deals in the quarter. I didn't quite catch it, can you go over that again?

Yes. We said that altogether this quarter we had a record of 11 seven figure deals. Out of them we had 8 deals coming from the enterprise and 3 deals coming from the public and security.

Okay, thanks. Another question has to do with the services margins. Can you give us in any guidance there at 29 percent in the quarter. Do you expect them to increase at all going forward?

Specifically on the service, in the near term we don't see increasing that specific part. We believe that in the long-term as we are going to have more consulting practice around the Nice Perform the service margin would go up, but in the near term they should stay about the same margin.

Okay, thanks. The last question -- (indiscernible) had a question on the casino deal. If you could elaborate a bit more there. How much is the deal one -- obviously you can't give details of that exact deal, but how much is the casino deal worth? Are there follow-up contracts there with Caesars, other casinos -- could you give a bit more color there?

Obviously this deal was -- we can disclose only what the customer agreed to disclose, but I can say that the analog recorder -- high-quality replacement of analog recorders is just at the beginning in the high-end casino market both in America and in other parts of the world. We think that there's obviously a significant opportunity to benefit from this trend.

Okay, thanks.

Amit Yonay, ING.

Let me try to attack the M&A question from a different angle. When you're looking at M&A what are you focused on? Do you focus on mainly say buying technology, market share or getting into different geographic regions?

I would say all of the above.

But what in particular? Just trying to narrow it down, what are you looking for in terms of -- you obviously have the technology, you have the marketing breadth, what are you looking for currently? New technologies or --?

There are several ways to strengthen our position. It can range from additional technology at the present growth through consolidation in different types of markets and geographies. We're obviously looking at all these, I'll not say exactly what is the priority for obvious reasons, but we are looking at all these. And of course in the context of M&A you need also another company, we're not doing it along, and we need to find those that are relevant for the growth that are (indiscernible) correctly and can contribute for the long-term growth of the Company. And we are looking at all of these.

Sure. Now regarding Nice Perform, did you give any sort of guidance or target for 2005 in terms of how much you're expecting from that line? In terms of revenue?

I think -- well, I'll repeat what we have just said. We think that there is going to be already a significant part of sales in the enterprise, it will be Nice Perform which will cover both the bread and butter, if you like, of traditional application and also the new suite. And this trend will happen gradually throughout 2005.

Okay. And Ran, regarding the tax rate, it was kind of low in the fourth quarter. I'm wondering why that was and what we should be expecting for 2005?

We believe it's going to remain at the low teens, somewhere above 10 percent in the coming year. It was at that range in the last couple of years and we don't see a big reason to differ from that.

Okay, thanks. Good luck.

Robert Cats (ph), Sandvest (ph).

Very nice quarter. A lot of my questions have been unanswered. What was the headcount at the end of this quarter?

Ran is checking the numbers, just to say hello.

Another question while he checks that is can you size up the casino market? How big a market is that for NICE with the products that you currently have and is that an area that you need to acquire new technologies and new products or partners to penetrate more quickly?

I'm not sure. I think the real issue is the rate of adaptation by new technologies by what is a relatively conservative industry, it needs -- that video is a critical element in surveillance and monitoring strategy. So it is more the market education of the benefits and the reliability of the technology. The market itself obviously thinks it's relatively unpenetrated or can be quite big.

And move to digital from analog, does that require new cameras? How much of the buildout or infrastructure has to be changed?

No, it's not related to new cameras, the cameras are there. And it's related to a decision to move from a tape operation to digital. We obviously can leverage (ph) on the same cameras infrastructure.

And do they require specific applications once that transition is made? Is that an upsale for you after you do the recording side of it?

That depends on the customer, but the variety of, if you'd like, the digital application to just do recording, I can arrange for an analytic to advance storage and networking depends on the customer requirements.

Okay. And the headcount number?

It's close to 1,100.

And do you plan on adding people this year and in what areas? Is it going to be more high-end sales and consulting?

As we said before, one of the places we are going to invest a little bit more this year is going to be in the sales and marketing in order to get to the different opportunities and generate the growth. We're going to add also some on the R&D side. But in general we are going to improve our operational margin which means that never the less we're not going to grow it even close to the revenue growth.

Where do you anticipate headcount exiting '05 at without an acquisition? Just organic.

I don't have the exact number, but it should be 50 more probably.

Thank you and great quarter.

Gus Robertson, (indiscernible) Management.

(indiscernible) Management. My questions have actually all been answered. I tried to cancel that and I had problems.

Before I ask Mr. Shani to go ahead with his closing statement I would like to remind participants that a replay of this call is scheduled to begin in 2 hours time. In the U.S. please call 1-866-276-1485. In Israel please call 03-925-5930 and internationally please call 972-3925-5930. Mr. Shani?

Fiscal 2004 was a difficult year for NICE. We transformed the Company with our transition to (indiscernible) from interaction solution setting. Our strategy is working and we are excited about our future prospects.

I would like to thank you staff that has worked very hard in making 2004 such a success and also for you, our investors, who believe in our business. I look forward to sharing with all of you our success in the coming quarters and years. Thank you.

This concludes NICE Systems' fourth-quarter and year-end 2004 results conference call. Thank you for your participation. You may go ahead and disconnect.