Nice Ltd (NICE) 2005 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the NICE Systems fourth quarter and year end 2005 results conference call, and thank you for holding. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded February 8, 2006. I would now like to turn this presentation over to Ms. Daphna Golden, Director of Investor Relations and Corporate Development.

Thank you, operator, and good day, everyone. With me on the call are Haim Shani, Chief Executive Officer, and Ran Oz, Corporate Vice President and Chief Financial Officer.

Before we start I would like to mention that this call contains forward-looking statements in accordance with this 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 forward-looking statements in the Company's prospectus (indiscernible) supplement Form 424b5, as filed with the Securities and Exchange Commission on December 8, 2005. 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, results 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.

During today's call, Haim Shani will present our strategy and overview on our business, and Ran Oz will present a more detailed discussion of our fourth-quarter and full-year 2005 results and financial guidance. We will conclude with a question-and-answer session. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from Generally Accepted Accounting Principles. Please refer to our press release for a reconciliation of our GAAP and pro forma results discussed in this call.

With that, I will turn over the call to Haim.

Thank you, Daphna. Good day, and thank you all for joining us today for a review of our 2005 fourth-quarter and year-end results. I am pleased to report that NICE once again reached record results on both the top and bottom-line on both a quarterly and annual basis, surpassing the $300 million mark for the year and $90 million mark for the fourth quarter, which follows the record results announced during the two preceding quarters.

Our strong performance is primarily the result of our unique strategy for leading the Insight from Interactions revolution in the enterprise and public and security sectors, and for growing our company organically and by leveraging acquisitive opportunities.

Company highlights for 2005 include -- dramatic growth with record earnings, having more than doubled our revenues over the last three years; strong execution of our powerful growth strategy for the enterprise and public and security sectors; increasing demand for our Insight from Interactions solution in each sector, represented by a growing number of large deals; substantial organic growth, complemented by the acquisition of three companies.

Indeed, the outstanding results NICE posted throughout 2005 reflects the successful execution of our strategy to leverage the opportunities presented by the strong market drivers we have identified. In the enterprise sector, a clear trend was to increase focus on improving business performance. Organizations have recognized that their interactions with customers, whether by phone or Internet, represent an untapped essential source of customer intelligence that can be leveraged to optimize performance. As a result, they have been turning to advanced business performance improvement.

Another trend in the enterprise sector is the rapid growth of contact center outsourcing. More and more major companies, particularly in the United States and Western Europe, are outsourcing to different parts of the world. This enables them to concentrate on core competencies and reduce overhead without decreasing service levels.

This year also saw the voice over IP recording market accelerate from the start-up phase to full deployment, with mass proliferation of large-scale implementations. Voice over IP-based contact centers all over the world are beginning to share Insight from Interactions across different locations and across the enterprise, regardless of the agent's location, whether at the headquarters, at home or offshore.

Further, to mounting security concerns in the public sector, public and security sector, the trend is to have solutions that enable public organizations to leverage multimedia data such as video footage to be proactive and identify suspicious objects or behaviors more quickly and effectively. Over the last half year, more and more projects are underway, both in the [RSB] and implementation stages, especially for mass transit systems and in city centers.

Also in this sector, emergency services organizations are going through a mass [uplift] cycle of their trunked radio systems, following a mandate to improve agency interoperability, particularly in the United States.

These major market drivers have contributed to significant growth of our company over the past year.

In the enterprise interaction solutions sector, the focus on improving business performance proved to be a tremendous opportunity for NICE Perform. Since its launch, we have over 150 sites booked, and more and more it is replacing legacy quality monitoring systems, especially in strategic markets such as outsourcing. As a matter of fact, the CIO of Convergys, the largest outsourcer in the world, will present at our upcoming investor and analyst day, and explain why they chose NICE Perform. After an exhaustive evaluation and a thorough selection process, Convergys realized that only NICE Perform can help them improve their understanding of customer needs, and will truly benefit both their clients and their entire enterprise.

NICE Perform is also enjoying repeat orders coming in from existing customers. Some examples include [Gentak], a GE company which has been advocating the benefits of NICE Perform to other areas of the business. As a result, an additional division is also going ahead. Leading outsourcer (indiscernible) has likewise expanded its NICE Perform implementations to two additional contact centers in India following successful deployment at its UK contact center. And a major Fortune 100 company that started out with one site recently -- with one site, recently placed a large multi-million dollar order for extending its implementation to many other sites. These orders are a part of the series of expansions and (indiscernible) orders we have been receiving, and are part of the trend that exemplifies the tremendous value-add NICE Perform brings to improving business performance.

We are proud to lead the Insight from Interactions revolution, which we recently took to the next level by introducing the next generation of business performance with our partner, SAS, or SAS. We started seeing traction from this partnership, taking steps towards the first implementation, and are looking forward to providing the first customers with the powerful combination of transactional business intelligence with interaction analytics.

In line with the voice over IP trend, in 2005 we doubled the number of our voice over IP customers to over 420, and have seen the dollar value for the (indiscernible) grow significantly, (indiscernible) the business. These are customers who more and more are implementing large-scale deployments with thousands of users, and are turning to NICE because we are the only ones to offer the mission-critical solution that is the premier choice for high-end, multi-site implementations.

Earlier this week, we co-announced with Avaya the acceleration of our long-standing relationship with them. Together, based on our shared vision, we are combining our capabilities, especially for complex high-end mission-critical voice over IP environments.

In fact, the momentum of our voice over IP leadership is felt across all our business areas. NICE is unique in providing and leading IT interaction solutions in all our sectors -- in the contact center, on the financial trading floor, and multimedia command and control centers as well. Whether for voice, radio or video, NICE is the IT leader.

In 2005, NICE market leadership continued to grow in the enterprise sector. This was recognized by the industry's foremost analysts. We achieved the highest ranking by Gartner and Frost & Sullivan, (indiscernible) and [P&G Consultants] (indiscernible) confirmed NICE as the global market share leader.

In the public and security sector, NICE was winning more and more bids in 2005 with our next generation of digital video security solutions, and has become the de facto choice for public authorities seeking to ensure citizen security. Just recently, we were selected for some of the highest-profile projects in the U.S., which will present a groundbreaking investment in [Net-branded] security, and are underway to help enhance the safety and security of millions of daily commuters. These public authorities selected NICE so that their security personnel can be more effective in managing and responding to situations that affect commuter safety.

To help us accelerate the positive momentum of our video security business, we announced the acquisition of FAST Video Security AG last quarter. We completed the acquisition early last month, right on schedule. Following on the success with previous acquisitions, we are confident that once again professionalism on all fronts will deliver successful results.

To advance the opportunities that will result from the FAST acquisition, we entered a strategic supply relationship with Honeywell. Through this relationship, we will set new standards in the breadth and depth of digital video solutions to a broad base of customers, and will capitalize on the opportunities of the high-growth video security marketplace.

We continue to introduce innovative video security solutions, as was recently announced with our strategic partner, Motorola. Together, we are offering the first solution to enable video transmission over wireless broadband networks. This is the first time video is being introduced in such a way to first responders, and is another step forward in realizing NICE's vision for transforming this sector with multimedia command and control.

Furthermore, in 2005, following our acquisition of Dictaphone CRS, we experienced further consolidation of our leadership in the emergency communication market as well. More and more first responder sites in some of the biggest cities in North America and elsewhere around the world are turning to NICE to upgrade their existing systems. For example, just recently, the city of Montreal in Canada selected our solutions for the management of emergency communications for a net upgrade of the infrastructure throughout the 65-station transit system of Montreal Metro.

All of these achievements further expand our (indiscernible) leadership in the security space. We will continue to leverage this position to bring Insight from Interactions to this sector with the introduction of multimedia analytics for first responders and command and control centers.

Another important element of our success in 2005 is the strategic partnerships we have in place with major players for joined technology development marketing. In addition to Avaya, SAS and Motorola, we accelerated our corporation with Siemens, IPC, British Telecom, France Telecom, Honeywell and others, and together we are ideally positioned to expand our joint leadership.

We extended our global reach by adding new offices in Japan, India, Singapore and Switzerland. We continued to further accelerate our commitment to the high-growth APAC region by acquiring Hannamax, the largest distributor in Australia and New Zealand.

We grew our services and support team to nearly 500 people, creating the largest support organization in the industry. We provide unmatched customer support available 365 days a year worldwide. This is more than a key value-add, it is a necessity for our customers with global operations, especially in the financial services industry.

In conclusion, 2005 was an outstanding year for NICE. This is an exciting time for us, having translated the Insight from Interactions vision into a reality. We produced record results, having doubled our revenues over the last three years, and having achieved the highest profitability since our inception. We are continuing to consolidate our leadership in our core business, where in each sector we are capitalizing on favorable growth drivers, and we are accelerating the Insight from Interactions revolution.

We announced the acquisition of three companies last year, and intend to continue complementing organic growth with additional acquisitions, whether to expand global reach, expand our technology and solution portfolio, broaden our customer base, or increase the distribution channels.

As we have done over the past year, we have implemented a multi-year strategic plan for the Company's growth. This plan includes, in addition to the initiatives for organic growth, a focused list of acquisition targets. We have an executive team in place that is dedicated to executing this strategic plan and helping drive the Company forward through disciplined acquisitions.

Looking forward to 2006, we plan to leverage this momentum and the strong demand for our solutions. We expect the lion's share of growth in the enterprise sector to come from NICE Perform and voice over IP, and in the public and security sector to come from our next generation security solutions, uniquely [supporting] (indiscernible) voice, data and video. As the worldwide leader for providing Insight from Interactions, we already have a running start on generating another record year in 2006.

Before I turn the call to Ran, I would like to thank all of our employees worldwide, who through their hard work and dedication made 2005 a great year for the Company. Ran, please.

Thanks, Haim. I am very pleased to provide you with an analysis of the financial results for the fourth quarter and fiscal year 2005, as well as our outlook for 2006.

As Haim indicated, we reported exceptional results for the quarter and year, achieving yet another major results milestone. Results for the fourth quarter and full-year 2005 demonstrate the leverage of our operating model, where topline growth, complemented by our improving operating results, drives even stronger bottom-line growth -- a trend we have achieved over the past three years.

Revenues for the fourth quarter were at $90 million, up 29.5% from $69.5 million in Q4 '04, and $311.1 million for the year, representing an increase of 23.1% over the $252.6 million recorded in 2004. This includes 11 double-digit deals in the fourth quarter and 33 for the year 2005.

This revenue growth is the result, on a market basis, of an increase in demand for our enterprise interaction solutions, which were $69 million in the fourth quarter, representing an increase of 26.9% year-over-year and $237.4 million for year 2005, representing an increase of 22.3% over 2004.

Growth in the enterprise sector reflects in part NICE's expanding leadership position in the growing market of implementing quality monitoring solutions, the increased adoption of voice over IP, and an industry that is just beginning to widely adopt interaction analytics.

Revenue growth is also a result of the increasing demand for our public and security solutions, where revenues in the fourth quarter were $21 million, representing a 39% increase over Q4 2004, and $73.8 million for year 2005, representing an increase of 26% over 2004.

This impressive topline growth of 23.1% for the year, combined with a decrease in the percentage of operating expenses, has translated into a year-over-year increase in operating income of 66.7%. We enter 2006 with a book-to-bill greater than one for the seventh consecutive quarter, resulting in a strong backlog that gives better visibility than ever before.

Revenue by geography for 2005 was as follows. In Q4, Americas accounted for $51.9 million and $163.3 million for the year, or a 34.3% increase over 2004. Europe, Middle East and Africa accounted for $25.7 million in Q4 and $99.3 million for the year. APAC accounted for $12.4 million in the fourth quarter and $48.4 million for the year, or 28.3% increase over 2004. Going forward, we see growth potential in all regions and expect the breakdown to remain essentially the same.

Q4 gross margin reached 57.7%, up from 56.2% in the same period of 2004. For 2005, full-year gross margin increased to 56.7%, up from 55% in 2004. The increase in gross margin, measured quarterly and annually, is a direct result of the continuing shift in our product mix towards software-based products, including NICE Perform, voice over IP, quality monitoring and video analytics. Our long-term target for gross margin is to cross the 60% mark.

Q4 operating expenses were at $39.2 million, or 43.6% of revenues. On an annual basis, operating expenses were 45.5% of revenue, down from 46.7% for the year 2004. As a result, we recorded an increase in operating margin, reaching new highs with Q4 operating margins at 14.1%. In fact, 2005 was the first year in which operating margins on an annual basis were in the double digits, at 11.2%.

2005 results represent once again the leverage of our business model, where an increase in topline translates into a greater increase in the bottom-line.

Our 2005 effective pro forma tax rate was 14.2%. In Q4 2005, we had to record a deferred tax asset that created a onetime income of $4.8 million. Including the effect of these deferred tax assets, the GAAP effective tax rate in 2005 was 2.4%. We expect the near-term effective tax rate to continue to increase into the high-teens, mainly due to the increase in financial income, which is taxed at 31%.

Net income for the fourth quarter was $12.3 million, up 33.6% from the $9.2 million reported in Q4 of 2004. Net income for the year was $34.6 million, up 55.5% from the $22.2 million reported in 2004. This increase is primarily driven by sales growth and good gross margins in all markets, while cautiously monitoring the expenses.

Earnings per share in the fourth quarter of 2005 was $0.57, up 18.8% from EPS of $0.48 per fully diluted share in Q4 of last year. The earnings per share for year 2005 was $1.67, up 40.3% from EPS of $1.19 per diluted share last year.

We ended the fourth quarter with cash and equivalents at $411.6 million, up from $184.9 million on September 30, 2005. This increase was primarily a result of the contribution of our very successful oversubscribed December offering of approximately $200 million. In addition, we recorded a strong operating cash flow of $18.5 million, which was generated during the quarter.

2005 was also a record year in terms of operating cash flow. Net cash provided by operating activities in 2005 was $65.7 million, an impressive rise from $45 million in 2004.

DSO at the end of December was 77 days, in line with our long-term guidance of 70 to 80 days.

The Company continues its cautious policy of option grants. Up until now, this non-cash expense was not included in the Company's P&L. Due to changes in U.S. GAAP regulations, in accordance with FAS 123R guidelines, from 2006 onward, we will implement and record options expenses as part of our P&L. For your convenience, I will review the effect for 2004/2005, and expected expense for 2006. This calculation is based on current available information, and could change materially based on external factors not under our control.

2004 option expenses were over $7 million, 2005 option expenses were approximately $9 million, and 2006 is currently estimated to be in the range of 10 to $13 million. Our forthcoming guidance does not include this non-cash expense.

We remain confident that the strong momentum of our Insight from Interactions solution, as supported by our vision and powerful growth strategy, will continue to generate growth in 2006. We have a very strong backlog coming into 2006, giving us excellent visibility and, accordingly, provide the following guidance, which is higher than our initial plans for the first quarter of 2006.

Q1 revenue is expected to be between 84 and $87 million, and pro forma EPS per diluted share in the range of $0.37 and $0.41. As a result, we are also raising our previously announced full-year 2006 revenue guidance to a range between 367 to $375 million, and adjust the EPS per diluted share guidance to $1.90 to $2.00 to account for the raised revenue guidance and the additional 4.6 million shares from the December 2005 public offering.

Before I turn the call over for questions, I would like to invite you all to join us at our second annual investor and analyst day, to take place on Wednesday, February 22 in New York City. During that same day, to celebrate NICE's 20th anniversary, we will be opening the trading day at the NASDAQ market site. For more information on both of these events, please see the investor relations events section of our Website, at www.NICE.com.

I will now turn the call over to questions.

(OPERATOR INSTRUCTIONS). Daniel Meron, RBC.

Congrats on the very strong numbers and the outlook, Haim and Ran. Can you shed a bit more light about the acquisitions that you have in mind, a bit on the timeframe, size and area? Thank you.

Obviously, some of the questions we cannot answer, in terms of timing, size and so on. So we can only share with you what we have in mind in terms of the areas that we are looking for and the targets. We are looking at areas that are [adjacent to] adjacent technology, complementary technology to our solutions in all sectors of our business, whether it's in the enterprise sector, the public safety and security, which includes both the video and the command and control. We are looking at areas that complement our regional distribution, so we have already acquired in the past few years partners that have expanded our regional, if you like, presence. This is another area. And obviously, in the past we have demonstrated we can consolidate some of our spaces, and this is again another area that we are looking for. We have a team that is addressing these opportunities, discussing, reviewing, prioritizing, and that's probably the maximum that I can say on the subject. But obviously, growing it organically and also through acquisition is part of our growth strategy for the coming years.

And maybe if I can follow-on, can you also provide us a sense on -- I noticed a press release from Motorola a couple of days ago that kind of relates to what you mentioned on the combination of first response lists, both video and voice. Motorola put out the press release regarding the Super Bowl that they secured through their systems. Were you involved in any way with his project or similar projects on the way?

I'm not sure if I know specifically which press -- if you are referring to the Motorola press release that cites [Dell Corporation] with NICE, or you are referring to another press release that I am not familiar with. I can only say in general terms that we have had great relationships with Motorola with the voice part for a couple of years. We became the de facto standard for the Motorola environment, primarily in the United States, for trunked radio solutions. And we have seen our joint business with them, in conjunction with them growing over the last year. Motorola has realized the benefits of NiceVision and the technology that we have in the NICEVision world, and the result is a strategic cooperation, also on the video form, that they will use our technology for their broadband wireless communication, driving, or if you like, developing a market that does not exist. And we were selected as the primary supplier partner that will enable the growth of this new market.

Just to qualify, my question was regarding the press release from Motorola a couple of days ago -- they secured the Super Bowl game that was held on Sunday. So I was wondering if you had any part in that project specifically.

I will take a look specifically on this press release and we'll get back to you.

Congrats again on the strong performance and outlook.

Shaul Eyal, CIBC.

Congratulations also on the strong quarter and guidance for '06. A couple of questions on kind of what's happening from an industry standpoint. Recently Deutsche downgraded you, I think, citing (indiscernible) market share maybe concerns. What are you guys seeing out there with respect to NICE, and Witness Systems, specifically as they introduce a new product?

Thank you for the congratulations. We of course respect every analyst, and everyone has the right to express whatever opinion he wants. We can only refer to specific facts. And I think that the facts are, if you like, kind of very clear. Maybe I will walk you through some of the facts that are out there.

If you are talking about NICE market share, all the industry analyst research companies, such as Datamonitor or Frost & Sullivan, Gartner and P&G, have been very clear in their recent reports about our market share, and also the growth in our market share or in the various sectors. One may say that maybe this growth is only back to the last, if you like, two quarters, because this company has really had a delay of two quarters. So let's take a look what happened in the last six months.

Our second largest competitor has just recently announced their results, so we have (indiscernible) public company results. And what we can see that in our business from -- product business from Q2 to Q4 has grown by $9.6 million, while other competitors, the one that I am referring to, have grown -- the product business has grown by $1.7 million. So unless I have a real problem with my elementary school mathematics, I think the numbers are very obvious.

Again, one can say, okay, this is what happened in the second half -- what about the future? I think the future can be measured very clearly by the growth in booking and backlog. Over the last quarter, we had a significant run in terms of new orders. We had, for the first time in the Company history, order booking in excess of a three-digit number, and a large number of large deals, 11 seven-digit numbers; of course, most of them are for the first and second quarter. So, also when we look forward, we are seeing a significant momentum. I explained about Convergys. So, all in all, the numbers paint a different story. I know this is kind of a long answer, but I hope it, if you would like, shed a light of what is actually happening in the marketplace.

Fair enough. Just on a final one, maybe along those lines. Back in '04 you guys had introduced the NICE Perform (indiscernible) I know we viewed as, I think it was kind of quite revolutionary. Quite recently again, Witness has introduced the Impact360. Is it basically following the same lines of analytic tools, the same concept that you try -- you guys are trying to take towards kind of on structured data, or whether it's kind of just repackaging a couple of previous tools, legacy tools, maybe the new Pumpkin acquisition that they have done about a year, maybe slightly more than a year ago?

What we are seeing in the marketplace is really a significant section of our NICE Perform. And if you refer to the Witness solution, to the best of our understanding, the eQuality, legacy eQuality monitoring product has actually been there for quite some time. The Blue Pumpkin scheduling product has also been there for quite some time. They've probably combined them into a marketing package, but this has nothing to do with the breadth of the NICE Perform solution suite. We have invested $40 million in research and development on building a completely new suite of solutions that includes a variety of technologies, ranging from voice recognition to motion detection, new database structure, and major (indiscernible) and dashboard application, and all of it in a full, wholistic suite, CTI analytics, and again, the number of large seven-digit deal growth in our enterprise sector product revenue -- all are an indication that customers are not comparing this because it's really not a comparison of apples to apples.

Good luck, and congrats again.

Bill Benton, William Blair.

I'll add to the congratulations on the strong quarter and outlook. Just a couple of questions. Can you talk about the strength that we saw this quarter in the service revenue? And with regard to your outlook, how much -- and I apologize if you answered this and I missed it -- but as you look at your outlook, how much is that growth coming from products versus services? Do you see a difference there?

Just one comment before Ran answers this question. When we announced NICE Perform, we stated that one of the objectives is to offer a much broader solution to a customer, and therefore, when sending NICE Perform it will be a combination of products and services. And the growth that you are seeing in our services business, as well as the growth in the product business, is a result of the deployments that we're actually deploying now and recognizing the revenue in the NICE Perform arena. Customers are getting through NICE a broader package, full deployment, plus implementation, training, scoping of the work and so on.

Okay, great.

Looking forward, we believe that the mix in revenue, having products account for about mid 60s, while service and maintenance accounts for the additional 30-plus, is going to remain for the coming year.

So, relatively balanced?

Yes.

Okay. Could you talk about -- R&D picked up in the fourth quarter quite a bit, and I'm just trying to figure out -- obviously, a great quarter nonetheless -- and I'm trying to figure out how you're thinking about the R&D number going forward.

We believe that the R&D number in Q4 is a little bit higher than the normal (indiscernible) run rate. Still, we have no intention to reduce our R&D costs, but to keep them about the same level as a percentage of revenue or slightly down during '06.

Was there anything onetime in nature in that line this quarter?

There was some investment that we will see the fruits of it in the coming year.

Okay. And then, could you maybe talk about how the revenue ramped in the quarter? Did it strengthen toward the end of the quarter, or month by month?

Again, usually we experience on a booking basis a stronger month towards the end of the quarter, but when we look on revenue basis, most of the booking that was generated towards the end of the quarter are actually the revenue of the following quarter. That's the reason we feel very comfortable talking about Q1 having a huge backlog that allows us to improve our guidance once again.

It wasn't unusually stronger then, in terms of the last month of the quarter?

It was unusually strong all through the quarter. This was a record booking, and so as Haim indicated, for the first time we had more than $100 million in bookings in this quarter.

Great, guys. Congratulations again, and I will see you at your analyst day.

Paul Coster, JP Morgan.

I've got a few quick questions. First of all, Ran, I didn't quite understand the comments about the tax rate. Can you just elaborate on what the tax rate we should be expecting on a go-forward basis?

What we said is the effective tax rate going forward for the coming year should be the high-teens, somewhere in the range of 18 to 19%.

And you said the tax rate was about to increase; what was that comment? Can you just sort of elaborate upon that?

To increase compared to what we had in '05. In '05 we had a pro forma effective tax rate of 14.2, and the increase is mainly due to a growing interest income that is taxed on a higher rate.

Secondly, the guidance that you issued. Does that include new acquisitions, or is it purely sort of organic?

It does not include any acquisition.

So those would represent upside from here. And it sounds like you're very likely to do acquisitions this year.

Unfortunately, I cannot comment. I can only say and repeat what I said, that of course we have a team that has very specific targets. And beyond that I cannot announce anything.

Got it. The backlog -- can you just break that down a little bit in terms of what the components of it are? Is there some sort of percentage breakout in terms of Perform versus the video product versus the logging product?

We don't have these kind of metrics, but basically the backlog represents revenue for the coming year, the biggest part to be recognized in the coming quarter, a little bit less in the second to follow, and then less in the third and fourth. The breakdown in terms of market is very similar to what we experience on the revenue side, meaning more on the enterprise side, a little bit less on the public and security. There's obviously very good momentum on the booking end actually, the part of the backlog that is represented on the public and security.

I'd like just to go back for a moment to this question of Witness versus NICE versus (indiscernible). I think in Witness' case, they said that about $5 million of revenue came from licensing, which I believe was the 360 product. How does that -- are you deriving higher revenues from Perform than them in the fourth quarter?

As I explained, fourth quarter I think we are not comparing apples to apples, to the best of our knowledge, at least. And again, we do not see this product in the market that much. This is more of a marketing package of two legacy products, one in the scheduling and one is the eQuality product. So it's not really apples to apples. So all I can say is that we are seeing a significant jump in the number of Perform products or Perform delivered, which is a combination of both new customers, new sites and, which is even more important, existing customers like Cytel, which I have quoted, like GE in India, which are now after the first and second implementations that they had -- they continue to add new sites. These sites on average are higher than what we used to get from our previous products, as they provide a much broader solution to the customer, both from the product technology and also from the services that we deliver. So overall we are getting a significantly higher share of the customer wallet.

My last question, Ran, is when you talked about the change in revenue for each of the regions, what was the year-on-year change for EMEA? And EMEA has been weak, so perhaps you can kind of give us some sense of what you're seeing there. Is there a change in the environment at last?

On the EMEA side, we had a 7% increase year-over-year in 2005. 2004 was a record year in EMEA, enjoying investment trends in trading floor. Having said that, we see a very strong momentum in bookings in the second half of 2005. In the EMEA this is going to translate into revenue in '06. So we feel very good about seeing growth coming from all three geographies that we operate in.

Roni Biron, Oscar Gruss.

Congratulations on the good quarter. Ran, you mentioned book-to-bill greater than one. Is your backlog still higher than one quarter of revenues?

Yes, definitely. We have the highest-ever backlog and much better visibility than we have ever before.

And looking at your security revenues, is it still roughly equally divided between public safety and video?

Yes. It maintained about the same breakdown internally, although the lines are not that clear, as we have video going into the command and control. So it starts to really mix up.

And just following up on the recent question, when you're looking at your backlog looking forward, how do you see the revenue mix shaping up in '06? Is it more of a security kind of ramp up in backlog? You mentioned enterprise if I'm not mistaken, right?

Again, we usually [drive] for meeting the growth rate for our markets, although our guidance is already higher than that. We do see stronger momentum and actually experiencing the last quarter growth coming in the public and security in excess of 30%. Having said that, we need to remember public and security are coming from a lower base, and that's the reason for the higher percentage growth. There is a chance that it will grow faster than the enterprise. But still, it's good competition to have. We have two sectors with a very dynamic market and growth drivers that are generating growth for the Company.

[Joe Maldi], Banc of America.

(indiscernible) from Banc of America Securities. Congratulations on the very strong operating margin performance. I'd like to ask a question specifically as relates to sales and marketing. It looked like on a quarter-over-quarter basis you got very good leverage out of the sales and marketing line item. Was there anything specific in the quarter that led to that result?

I would say that this is a part of our long-term model, where we see the advantage of growing our base and generating more revenue on the same infrastructure. This is what allows us to improve the contribution to the bottom-line. It goes to the R&D, the sales and marketing, and of course the G&A, where it's the most obvious part.

Second question would be in regards to the FAST Video and Honeywell distribution capability. Could you just perhaps contrast that or compare it to the Avaya or the Motorola relationships? What type of coverage do you get? What are some of the conditions of how the partnership would work?

The idea is, of course, that Honeywell, who is a major -- is a big major player in the security field, will distribute our products, and they will do so in the United States primarily, but also in other parts of the world. And we hope that this is going to add significant growth to our business. So if you'd like, it's a similar model of what we have with our other partners, such as Avaya and Motorola. We have experience in driving this type of relationship, and this is part of our business model toward this partnership. And we hope to achieve the same results that we have with the other guys now with Honeywell in the video security [systems].

How long does that take to ramp up? Is there some joint training? How familiar are they with the legacy product line and (multiple speakers)

(multiple speakers) already received the first orders. So if you would like, the ramp-up has started. But obviously, as a new partner they need to know our training has started, and we hope to achieve again significant growth as a result of this (indiscernible).

[Shyam Patil], Raymond James.

This is Shyam Patil for Mike Latimore. Regarding the press release on the Avaya relationship, what were the incremental details there, and are you guys replacing any competitive products through that announcement?

I think, if you like, the incremental detail is the fact that the voice over IP is catching up, both for us and Avaya. Our, if you like, excellence and expertise in liability recording is well known across the industry. Many large corporations are turning to NICE for solutions around voice over IP recording, and of course also to Avaya. So we believe that jointly, by [typing] our solutions together, we can significantly add value to joint customers.

Was there any displacing of competitive products?

This is something that needs to be addressed to Avaya.

Okay. What was the percentage of enterprise that's coming from compliance recording?

We don't have these specific metrics, as most of the customers at this point of time, a significant part of customers at this point of time, understand the value of interactions, and therefore, they buy from us the whole solution, which includes both compliance recording, quality monitoring and an ability to analyze these interactions. So there's no [real bid out there].

Can you guys disclose the percentage of revenue from Avaya?

We cannot disclose this number, but we can say, which is common -- known in industry, that we present the vast majority of Avaya business in this field, and that our business with Avaya '04 to '05 has grown significantly, I believe beyond what we have planned. And a senior executive from Avaya is actually flying here to Israel tomorrow to address our global sales kickoff, where 300 sales and marketing and research people will be in the room, and jointly describe how we are going to work better to create, or upgrade, if you would like, the business for '06 as well.

Operator, we'll take one more question please.

Devang Kothari, Unterberg.

Just a quick question. Most of my questions have been answered. Could you perhaps -- and I apologize if I missed this earlier -- could you perhaps talk about what the organic growth rate was in both license revenues and total revenues for '05?

We had said before, and actually now you can see it in the results, the organic growth rate we had was at the mid-teens range. Through 2005, we had contribution only of Dictaphone that was included in our results. Having said that, the idea of acquiring Dictaphone is to take over the customer relations and certain maintenance revenue stream, meaning at the end of the day the product revenue that we generate is our product revenue. So even if we exclude that deal, we have a mid-teens organic growth rate.

I think you had given guidance of about 20 million in revenue contribution from Dictaphone. Could you perhaps (indiscernible) how that's distributed between services and product revenues?

It was about half and half.

And last, is your backlog -- is that pretty much in line with your distribution of revenues across license and services, or is it more weighted towards services when you look at your backlog?

The backlog is distributed about the same way as the revenue, a split of 65 to 35, give or take.

Mr. Shani, would you like to make some concluding statements?

Yes. I would like to thank everyone for participating in this call. We look forward to having you join us on next quarter's call. Have a good day. Thank you all.

Thank you. This concludes NICE Systems' fourth quarter 2005 results conference call. Thank you for your participation. You may go ahead and disconnect.