Nice Ltd (NICE) 2006 Q1 法說會逐字稿

Welcome to the NICE Systems first-quarter 2006 results conference call and thank you all for holding. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded May 10, 2006. I would now like to turn this presentation over to Ms. Daphna Golden, Director of Investor Relations and Corporate Development. You may begin.

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 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 supplements Form 424B5 and 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; growth of market share; pressure on pricing results 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.

During today's call Haim Shani will present our strategy and overview of our business, and Ran Oz will present a more detailed discussion of our first-quarter 2006 results and financial guidance. Following our comments, there will be an opportunity for questions.

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 on the call.

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

Thank you. Good day and thank you all for joining us for a review of our 2006 first-quarter results. Following another record year for NICE in 2005, I am pleased to report that we finished off the first quarter of 2006 with very strong results. We grew our revenue in Q1 by 33% on a year-over-year basis to 87.9 million, and we reported earnings of $0.42 per diluted share. Company highlights for Q1 2006 include acceleration in demand for NICE Perform with a growing number of repeat orders crossing the 10% mark of enterprise business for the first time and more than doubling year-over-year. Record revenues and bookings in our Public Safety and Security business, and very strong results from our next generation video security business which includes the contribution from the completion of the FAST integration.

2006 so far has been a very exciting year for our dynamic marketplaces. Listing to our customers and prospects, we identified the opportunities that are driving growth. The need for solutions to help organizations ensure a regulatory compliance and achieve quick and effective dispute for the solution is still growing. The grand move to IP-based communications is also still on the rise. We're seeing that more and more organizations are turning to interaction analytics to help them understand what is really going on with the customers, to help them increase customer satisfaction and retention to compile competitive intelligence that is otherwise impossible to attain and to drive new earnings streams.

As we mentioned almost two weeks ago, the next generation of solutions in the Contact Center and enterprise is Contact Center Business Management and Analytics. To lead this trend, we announced the acquisitions of IEX Corporation and Performix Technologies.

In Q1 of 2006 the increased focus on improving business performance contributed to significant growth in demand for NICE Perform. NICE Perform continues to enjoy a growing number of repeat orders. The latest examples include leading outsourcer, Teleperformance, which recently extended its NICE Perform implementation and placed an order for five UK sites in addition to the successful deployment of five sites already running in France and another deployed in Finland for a total of 11 sites altogether. Another is [Citel], which last quarter we announced extended to two new sites in India. Following on that success this quarter, Citel placed orders for three more sites in Belgium and Germany for a total of six.

These examples are the clearest testament to be true value-add NICE Perform brings to these and many other organizations in improving business performance. In fact, we saw a dramatic increase in NICE Perform orders altogether. NICE Perform business more than doubled this quarter versus Q1 of 2005 and for the first time crossed the 10% mark of our enterprise business.

Another trend we saw in Q1 in this sector is the technology replacement cycle, including the migration to Voice over IP. For NICE this is selling into larger and larger deals, including major multimillion dollar projects with Tier 1 customers which include the world's leading banks. These customers are selecting NICE for massive projects with thousands of channels that span hundreds of branches. This is further validation of our undisputed leadership in providing compliance and reliability solutions for the banking and financial services industry and our key role in ensuring their smooth migration to IP technology.

The deployment of Voice over IP is presenting (indiscernible) opportunities for NICE. And to further advance our leadership position in this space, we announced this quarter the availability of our next generation Voice over IP active recording solutions which are breaking new ground in IP-based customer driven communications. Our new offering helps (indiscernible) organization, offering unprecedented ease and cost-effectiveness in managing widely distributed environments with hundreds of branches and agents from home. In fact, NICE is the only company with a solution that can uniquely be fully integrated with the industry's leading Voice over IP switch members. This is part of NICE Voice over IP strategy to provide the power of inside following directions anywhere anytime in any configuration with the highest levels of scalability and efficiency.

In the Public Safety and Security market, we are seeing the need to protect citizens driving budgets for many new projects. Major cities around the world have selected NICE's advanced solutions as part of their security planning and initiatives. Cities such as Seattle, New York, Toronto, and Milan recently selected NICE to help them assure safety in city centers, mass transit systems or airports.

We also announced last month that in preparation for the 2008 Olympics, Beijing Metro will be implementing NICE's Smart Video Solutions in the city's subway system as part of its massive campaign to upgrade the system's security network. Our leadership in this space was recognized by leading industry research firm, Frost & Sullivan, naming us number one with the award for competitive strategy leadership in IP digital surveillance, as well as the excellence in technology award in the field of homeland aviation security and the award for business development strategy leadership relating to security products, particularly for our collaboration with Cisco Systems on the branch of the future.

More good news is the integration of FAST, which was completed this quarter, and the demand for FAST-related technology resulted in winning several deals this quarter both directly and with our strategic partner, Honeywell.

As you all know, nearly two weeks ago we announced the acquisitions of IEX and Performix, about which we are receiving phenomenal feedback. Our customers are excited about our new bold offering. Our partners have also expressed their excitement and have already initiated the steps towards leveraging the marketing and the potential revenue value of these acquisitions with the view to achieving mutual goals.

The integration forces of IEX and Performix is already on its way. NICE's President, Dr. Shlomo Shamir, will focus most of his attention on this very important task. We have taken major steps in our enterprise business, and we believe that the potential in the security business is very large as well.

Global Homeland Security budgets and spending are expected to increase significantly over the coming years in an industry that is estimated to reach many billions of dollars. Greater attention will be given to stopping crime and preventing terror and to the technologies that help achieve these important goals and ensure the safety and security of citizens all over the world. Over the past several years, we have grown our leadership position in this market through organic growth and strategic acquisitions such as with TCS, Dictaphone and FAST.

Now to take us to the next level, we have recruited a senior executive with extensive experience in the Homeland Security market. I'm pleased to announce that Mr. Israel Livnat will be joining us as NICE President of Public Safety and Security Business. Mr. Livnat brings to NICE over 20 years of experience in the defense and security market. Under his leadership as President and CEO of Elta System Group, which specializes in defense and Homeland Security system solutions, he grew revenues from 300 million to more than 700 million having secured a backlog of more than 2.5 billion and extending Elta's customer base to more than 50 countries.

Mr. Livnat has a strong engineering background with an Executive MBA from Stanford University and has been awarded the prestigious Israeli Industry Prize in 2004. Mr. Livnat's background reflects outstanding expertise in executing major strategic initiatives that improve market position and gross sales, and we are confident that his joining NICE will further solidify our leadership position in this important market.

In conclusion, we are excited about the expansion of the Insight from Interactions revolution, which are we are seeing in each of our markets, and we're proud to have this new paradigm shift in the way organizations make critical business decisions and improve performance whether the operation is a Contact Center, a commercial enterprise or is focused on Public Safety and Security. I'm happy to share with you this momentum and look forward to more as we continue to accelerate into 2006.

I would like now to turn this call over to our CFO Ran Oz for a discussion of our financial performance. Ran?

I'm pleased to provide you with an analysis of the financial results for the first quarter of 2006, as well as our outlook for the second quarter and the rest of this year.

As Haim indicated, we had a very strong quarter. Revenues for the first quarter were $87.9 million, up 33% from $66.1 million in Q1 '05. In the enterprise sector, this revenue growth is a result of an increasing demand for our solutions for this market, particularly for NICE Perform. Enterprise sector revenues were $62 million in the first quarter, representing an increase of 19% year-over-year. Growth in the enterprise sector reflects in part NICE's expanding leadership position in the growing market for interaction analytics solutions and the technology refresh cycle, which includes the increased maturation to Voice over IP.

In the Public Safety and Security sector, revenues in the first quarter were a record $25.9 million, representing 85% increase over Q1 '05. Growth in the Public Safety and Security sector reflects in part the strong momentum of our next generation security solutions and increasing budgets that are driving new related projects.

We have completed Q1 '06 with book-to-bill greater than 1 for the eighth consecutive quarter, resulting in a strong backlog that gives better visibility than ever before. Revenue by geography for Q1 '06 was as follows. The Americas accounted for $51.5 million, a 66% increase over Q1 '05. Europe, Middle East and Africa accounted for $25.8 million, and APEC accounted for $10.6 million.

Q1 gross margin reached 55.7%, up from 55.5% in the same period of 2005. We continue to see improvement in gross margins. This was partially offset by the revenue mix. Operating expenses were at $39.7 million or 45.1% of revenues, down from 47.1% in Q1 2005. Net income for the first quarter was $10.8 million, up 81% from the $6 million reported in Q1 of 2005. This reflects the leverage of our business model where topline growth of 33% in the quarter translated into a much higher growth in the bottom line. Earnings per share in the first quarter of 2006 was $0.42, up from $0.30 in Q1 of last year. These results include the effects of the increasing shares from 19.9 million in Q1 2005 to 25.7 million in Q1 2006, primarily as a result of the December 2005 offering.

The Company's balance sheet continues to be strong with cash and equivalents at the end of the first quarter at $420.1 million with no debt, up from $411.6 million on December 31, 2005. This net increase of $8.5 million includes the announced payment of $21 million in cash for the FAST acquisition during the quarter. DSOs at the end of March was 67 days, slightly better than our long-term guidance of 70 to 80 days.

As we remain confident about the increasing demand for our Insight from Interactions solutions, we provide first-time Q2 '06 guidance as follows. We expect revenue to be between 89 and $92 million and pro forma EPS by fully diluted share in the range of $0.44 to $0.48. We reiterate recently announced full-year guidance for 2006 with revenues at 395 to $405 million and pro forma EPS at the range of $2.00 to $2.12 per fully diluted share.

That concludes my comments. I will now turn the call over to questions. Operator?

(OPERATOR INSTRUCTIONS). Daniel Meron, RBC.

Congratulations on the good results. A couple of questions for me. Ran, you referred to the gross margin mix. Can you elaborate on why the things in the process there, that's lower gross margins in this quarter?

We can take it to two levels. First of all, if we compare to Q1 '05, we actually have a continued growth in our gross margin that was partially offset by a slightly higher mix of service and maintenance versus product. If we compare it to Q4, there is a slight decline on the product gross margin that was driven by a higher sales on the security side where we have a slightly lower gross margin based on lower software competents in the mix.

And how do you expect it (indiscernible) forward?

We do believe that the gross margin will continue to grow and improve both on the product and the service and maintenance side.

Thank you. And Haim, maybe you can elaborate a bit more about the adoption of the NICE Perform. What are the main drivers that you see, and what kind of response do you see from competitors and from partners in this space? Also, if you can respond on the projects with FAS?

Yes, the NICE Perform, as I said in the call, has more than doubled from the first quarter a year ago. So it is now if you like becoming almost a mainstream, and the repeat orders that we see is a testament for the success of this product. So far I would say that at NICE Perform, we started the sales towards the end of 2004. We have not seen any significant real alternative out there in the market for NICE Perform.

So our competitive advantage, if you would like, is out there and to some extent even extended as we have gained two things. We have gained much more experience, success stories, and on top of it, of course, we continue to add features and fixed functionality to the NICE Perform. So, in terms of its competitive advantage over competitors, we are hardly seeing anything that gets closer to that, and we believe that the results in terms of our market share and our ability to win new accounts, as well as expand within our installed base is getting traction.

Also, the FAST relationship that you have mentioned we are getting more and more traction. We are seeing more customers are expressing interest and are now in the discussion phase of implementing their joint solutions. This gives us, if you would like also, some competitive advantage. So the overall picture in terms of the Perform acceptance by the market is very very positive.

Okay. Thank you and congrats going forward as well.

Shaul Eyal, CIBC.

Good quarter. A quick question again on the gross margin side. Just to make sure, are you guys still committed to gross margin in the range of high 50s, maybe even taking it up to about 60%, let's say, within the next 18 months, 24 months or so? Is that the direction you are still seeing?

Yes, definitely.

Fair enough. Haim, what about your ongoing relation with Convergys? Any new developments? What are you seeing coming from that channel?

Did you say Convergys?

Correct, Convergys.

Convergys is, of course, the largest or one of the largest outsourcers in the world, but the relationship between us and them is not a distribution relationship, it is a customer relationship. So --

Well, on the customer side.

Well, beyond what was said publicly in the conference call, I cannot announce anything. Of course, this is a customer that we has selected NICE as was presented by the customer itself in our analyst calls, selected NICE as the standard for their sites, replacing some of the Legacy quality monotone systems that they had. Obviously we are now implementing our technology there, and that is what I can say. They are not a channel; they are a customer.

Fair enough. Haim, I had a question for you. Obviously things are going extremely well with the acquisition, the strategy, implementation, the numbers, the stock without a doubt. What keeps you awake at night these days? What are the concerns that you have generally speaking?

I cannot comment on the stock for obvious reasons. All I can say that when business keeps on performing well, you want it to continue to perform well. On a more serious note, I think the reason why the business is performing well is the fact that we are on very strong industry plans. It's not a coincidence. It is the basics, and the basics are there. We would like to take the next step in our security offerings, and as I have just said, our security business we believe there is a significant opportunity for digital technology in a variety of areas within the security space. I think NICE has a unique position with a variety of products and solutions that we have there, and it is our challenge to continue and grow the business. I cannot comment that every quarter we will have 80% plus growth, but our challenge is to continue and grow this business significantly.

We now acquire the two companies. We had a track record of successful integration, but nothing comes automatic, and of course, our teams are -- if you lie awake a night, in order to ensure that this integration will take place successfully, we have started whatever we can at this stage before the actual closing to plan ahead, and activities are there actually around the world. Our teams literally around the world are now working with the IEX and Performix teams to ensure very smooth integration and immediate move into business after the closing. These are the type of things that keep all of us awake day and night.

All right. Thank you very much and congratulations.

Bill Benton, William Blair.

Congratulations as well. Just quickly in terms of the operating expense outlook, obviously we saw very minor sequential shift here in that. Is there any reason to expect the operating expense will probably change absent the acquisitions in the back half of the year?

I would say that the operating expense is expected to grow gradually through the year, and that is -- of course, the acquisition is -- of course, the two acquired companies are going to increase their OpEx significantly once we close it.

Okay. But you obviously expect quite a bit of leverage still on the OpEx line going forward?

Yes.

And then in general, could you give us kind of what the organic revenue growth was this quarter and maybe both within the enterprise and Public Safety and Security segments?

Traditionally we look at the organic growth of the company to be in the range of the midteens. I would say that although we don't have firm numbers since basically everything was integrated and we cannot really measure it as a stand-alone. It looks like we enjoyed even much higher than that this quarter.

Okay. So better than average on the organic growth. On the public safety side, you obviously got a benefit from FAST. Was that -- were you table to offer us any color in terms of how significant that might have been this quarter?

Just to put it in perspective, when I gave guidance for FAST for the full year, it was $10 million. It is on track, but it is not that significant to our business.

Yes, there was a significant organic growth -- not organic, but a significant growth in the Public Safety and Security that included all the elements.

Right. Okay. Obviously you had some success this quarter in Beijing. Could you give us a little bit more color in terms of your thinking on how much maybe more business there is there? Maybe this might have been very tip of the iceberg in terms of opportunity there.

I would say that Beijing is a very large city, and we have been selected in only one small part. So yes, there are obviously more opportunities. I would say that -- you mentioned Beijing. I would also mention cities like New York, Toronto, Seattle, and Milan. We believe that, as was also discussed in the conference that we have done, the potential in city centers with high-end video surveillance technology in malls is just the beginning. So we think that there is a very very large potential for this high-end video surveillance and analytics in city centers and mass transit.

Joseph Wolf, UBS.

A balance sheet cash flow question. It looks like there was a nice turnaround or improvement to cash flow from operations driven from receivable, payable and inventory moves. I am wondering if those are sustainable trends, things that you have been working on and are continuing to work on or some sort of seasonal anomaly that happened in the first quarter of this year in comparison to last year?

This is Ran Oz. I don't think this is seasonal. We tried to be focused on managing our balance sheet in a prudent way. You can see that also in the last couple of years. Our cash flow was significantly higher than the net, whether it was in '05 when we had operating cash flow of $55 million. We do anticipate to have a quarterly cash flow of $15 million plus a quarter going forward this year.

Paul Coster, JPMorgan.

A few quick questions if I may. Going back to the issue of what keeps you awake at night, do you see any gating factors at all? I mean you must have a lot of projects underway. Can you give us some sense of how many projects are concurrent, what the leadtime on them is and whether you have any resource constraints in addressing them?

This is Haim. Can you be more specific? When you say projects, in what context?

Specifically the NICE Perform deployment. I suspect that the security surveillance projects also have quite a long timeline to them in terms of the installation, the planning and installation, the deployment, the testing and user acceptance.

Again, it depends on the magnitude of the project. But, on the NICE Perform, I think we have scaled up our operation that we will not be the gating product that we -- I mean NICE internally would not be the gating sector in terms of deploying this project. So our initial success at the beginning of last year was even beyond our expectations, but obviously we had time to train, to crosstrain. So I would say that overall our services organization is now built in order to address the demand for NICE Perform that we have. Of course, it depends on the magnitude of the project and the complexity. Some can take longer; some can take shorter.

Basically it is more or less the same answer with the Public Safety and Security. We have their quick turnaround, if you would like, products that are almost like very easy to install (indiscernible) if they go through integrators, and then we are hardly responsible for that. We also have much bigger projects where our professional services team are working either directly or hand-in-hand with an integrator, so we have the whole mix.

Can you give us some sense of the number of concurrent projects in either of those two categories, NICE Perform or video?

No, I don't have the numbers, but there are, of course, many. So (multiple speakers) many, many dozens or more than that. Again, a project can range from a relatively simple implementation that we will receive from the customers that the services part, if you would like, would be 20, 30 or $40 million -- thousand dollars, sorry, or it can be a project where just the services part around this can be in the million dollars. We have the whole spectrum. So I don't have a specific breakdown.

Okay, great. Ran, do you have any 10% customers this quarter?

No, none of our customers crossed the 10% mark.

Okay. And then my last question is you've got this important piece of litigation out there regarding Voice over IP recording. What is the next step in that process? Can you update us on it?

These lawsuits have been progressing in the last several quarters, and we feel very confident about our position. It will go into trial in the next couple of quarters, and we believe that the decision might take place even by the end of this year.

Is that having any impact at all on customer behavior? Are they putting off decisions adding to it, or is it just they are not even aware of it?

We're talking in this case about impact on other companies' business. On NICE, of course, it is less relevant because we own the patent. So there is no issue there. So I would not comment on that at all.

This is public information. Everyone knows that we have this public -- that we have this litigation, and as I said, we feel extremely strong about us inventing the Voice over IP recording and with some very strong claims supporting it. So customers and partners are royalties as well.

Brian Ruttenbur, Morgan Keegan.

This is Drew Jones for Brian. A quick question on the Security sector. Can you talk a little bit about the competitive landscape and how -- what kind of pressure that is putting on prices?

There is no real significant change in the competitive landscape. I would say that, and I'm sure that you are visiting the shows, you know the players out there, nothing of any significant change, if you would like. There are big players and there are small players, and they are all out there. The good news is the market is strong, and we I believe today with the combination of FAST technology, the NICE analytics and the NICE media recording, I think we have a very strong product portfolio on the Security side in the video surveillance and also the same as in the Public Safety. So nothing significant in terms of the competitive landscape.

So no real change in pricing then over the past --?

No, no, no, I would say that with the value-added products and the competitor, we do not see any significant change in the pricing.

(OPERATOR INSTRUCTIONS). Avshalom Shimei, HSBC.

Just one question. In regard to the increased visibility, what is actually the reason for the increased visibility? Can you talk about that? Is it more of the enterprise in Security segment? Is it you can achieve in the budgets managed by the customers or actually a change of your business model, and is that trend actually expected to continue in your view?

The technical reason for increasing visibility is, of course, book-to-bill of more than one. So, as this happens, we are increasing our backlog. This is, if you would like, a technical explanation.

The business situation is as I said -- we had a very very strong, a very very strong quarter. We achieved large amounts of orders, more than we had a shipped, and we continue to grow the backlog. Once we think it is -- since it is for the eight, if I'm not mistaken, consecutive quarter, it is starting to accumulate. So this is on the technical side. On the business side is for all the reasons that I have explained. We are getting projects, Security-related projects that gives us visibility. But it is also we are seeing nice orders also on the enterprise with the (indiscernible) with this momentum.

So you are saying it is more on the Security side (indiscernible) enterprise you are seeing increased visibility?

On both sides. In this quarter we had in both parts of the business we had very nice very nice orders and increase of the backlog. So it is in both segments.

Steve Mahedy, Bank of America.

My question specifically would be on the video solution, and it seems that in many of the cities where you are winning there is Legacy microwave technology used by the public service units. Have you kind of sized that opportunistic, effectively the ability to go in and transplant some of the Legacy microwave implementations? That would be it.

Did you say, microwave in what context? In the context of the delivery of the networking device?

Specifically on the surveillance. My observation is that it is in cities where you won new security projects. There, in many instances, are older Legacy microwave video surveillance technologies, you know rooftop antenna-type solutions, that many police units utilize. It seems like given the advances in technology to your solution, that is a ripe opportunity if you hadn't transplanted some of that Legacy and cut it over to your technology.

We are deploying -- I would say we have announced our solutions together with Motorola who is now a major -- not now I mean -- is a major player in the police force environment, and together with Motorola, we will be deploying -- we believe that we will be deploying systems that will benefit from their new networking capabilities. So I would say that most of our focus in the police and in the public sector with respect to the wireless technology or radio transmission, high bandwidth is with our partnership with Motorola.

Shyam Patil, Raymond James.

(inaudible). A few questions there. Did your target operating margin change with the IEX and Performix acquisitions?

We have not issued a new target operating margin, but clearly after the acquisition of IEX and Performix, we will see contribution to the gross margin and the operating margin. We still look at the long-term target of 15 to 20% currently.

Okay. In your opinion what percent of the pipeline or RFPs are asking for a complete optimization solution for the call center versus point solutions?

First of all, I'm not aware of customers that are looking for optimization because customers at this point of time are either looking for a work force management solution and quality monitoring, recording and analytics. At this point of time, the optimization is not a marketing slogan.

So if you're asking me do we see customers that will be looking either simultaneously or one after the other for solutions for advanced work force management or for the NICE Perform productline, yes. Until now, of course, we have not looked at this for obvious reasons because we did not have a leading work force management product. But right now after the IEX acquisition, we have the best technology in the marketplace, and we will be looking and working with IEX between now and the closing and, of course, after the closing to make sure that all opportunities out there for work force management is won by our technology.

In addition to that, and this is, of course, more over the long-term, we will be -- mid-term and long-term, we will develop better integration where it is applicable between the NICE Perform via the IEX and the Performix so customers that would like to have better integration from their systems. We will be able to provide it, in addition to providing best of breed and best of class solutions.

Okay. And what was the revenue from the Dictaphone base?

We don't have this type of analysis anymore. The whole sales for territories, regions are all now combined, so we don't monitor it in this sense. We have the ex-sales team of Dictaphone covered or part or integrated into the NICE sales environment. Customers are split by region, and we don't monitor in this anymore.

Devang Kothari, C.E. Unterberg.

A couple of quick ones. I wanted to, especially on the video surveillance side, I wanted to understand if there is any changing sales cycle given that one of your prime competitors is facing some issues with getting their financial statements out and might be going through some audits?

I'm not sure how this is going to relate or impact the business. I think without this we have seen a significant increase in our video surveillance business. We have seen an increase of 80% plus in the total Public Safety and Security, and of course, the figure is a significant part of it. We will by being the best product and the best technology in the marketplace, and the rest is not really important.

Okay. And then I had one question about your operating expense guidance for Q2 and Q4. I think, Ran, you said earlier you would expect an incremental 7.5 million per quarter once the acquisitions had been done. If I do some kind of back of the envelope calculations, I get operating expenses of around 4 to 4.5 for IEX -- excuse me, IDX. And I just wanted to understand what the difference would be.

The 7.5 takes into account both the IEX, the Performix and the additional infrastructure to support the integration of the two companies. This is the full budget that was part of our guidance for the contribution of $0.10 to $0.12 to the bottom line based on the 28 to $30 million on the topline in the second half of the year.

Okay. So there is some more operating expenses from Performix and maybe some integration-related costs. Could you just clarify how much the integration-related costs are baked into it?

I don't have this break down in front of me, but I would say that by far the majority of the operating expenses are coming from IEX. This is a mature company with a very good infrastructure and presence in the different regions that operate. The second-largest expense is coming from Performix, and then on top of all of this, we have some additional infrastructure we need to put in place and the cost of the integration to make sure everything is working and generating the results.

Okay. And are my kind of back of the envelope calculations correct that IDX is giving about 4 to 4.5 million in operating expenses per quarter?

It would tick slightly higher than that. But, again, I don't have this exact number right now.

Shaul Eyal, CIBC World Markets.

A couple of quick questions. I think, Ran, in the past quarter by the end of '05, you have indicated 150 (technical difficulty)-- NICE Perform customers throughout the year. What might this number be right now? I think you also talked about 420 Voice over IP wins throughout '05. So I don't know if you guys could address this.

Plainly speaking, we have stopped counting. It is now many many hundreds and many many many hundreds in the Voice over IP, and it is becoming also mainstream in terms of the enterprise business. So, as I said, it started from Q1 '05 just to give the qualitative in terms of the revenue, but it is now many many customers. We will not continue to report it because it is meaningless. It is now the mainstream of what we are providing in the software arena in the enterprise, and Voice over IP now also is becoming a significant part of every offering that we do in recording.

There are no further questions at this time. 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 two hours time. In the U.S., please call 1-866-276-1485. In Israel, please call 03-925-5930, and internationally please call 972-39-255-9320.

I will now ask Mr. Shani to go ahead with his closing statements. Mr. Shani?

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.

Thank you. This concludes NICE Systems first-quarter 2006 results conference call. Thank you for your participation. You may go ahead and disconnect.