Nice Ltd (NICE) 2007 Q2 法說會逐字稿

Welcome to the NICE Systems Second Quarter 2007 Results Conference Call, and thank you all for holding. (Operator Instructions.) As a reminder, this conference is being recorded August 1, 2007. I would now like to turn this presentation over to Ms. Daphne Golden, Corporate Vice President, 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 Dafna Gruber, 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 2006 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on June 13, 2007.

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.

During today's call, Heim Shani will present our strategy and overview of our business and Dafna Gruber will present a more detailed discussion of our second quarter 2007 results and financial guidance. Following their 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, as reflected mainly in the accounting for acquisition related revenues, amortization of intangible assets, and accounting for stock-based compensation. Please refer to our second quarter 2007 press release for a reconciliation of our GAAP and non-GAAP results discussed in this call.

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

Thank you, Daphne. Good day, and thank you all for joining us for a review of our 2007 second quarter results. I am pleased to report that this was another record quarter for NICE with revenues coming in at 127 million, just above the high end of our guidance, and earnings per diluted share at $0.36, at the high end of the guidance range.

These results reflect the continued demand for our Insight from Interactions solutions and the successful execution of our growth strategy to address the most [indiscernible - accented] challenges on the business and public agenda.

Company highlights for the second quarter 2007 include continued growth momentum in the enterprise sector, strong bookings in the securities sector, including [landscape] projects in line with our strategy presented earlier this year, continued migration to our IP-based solutions, which nearly doubled year-over-year, and, of course, the announced acquisition of Actimize following the end of the quarter. I will elaborate on how it's progressing later on in our discussion.

In the enterprise sector, we continued to see the following three growth drivers. Organizations are continually seeking to improve the performance of their contact centers in an environment that is becoming more and more complex. They are also looking to gain more insight into customers and market dynamics for advance interaction analytics, and the migration to IP-based communications is continually on the rise.

During the second quarter, we saw an increase in demand for NICE SmartCenter, our comprehensive solution for contact center and enterprise performance, which includes capturing customer interactions, coordinating management interaction analytics, [indiscernible - accented] management, and performance management. One of our newest SmartCenter customers is NASDAQ-traded Netflix, the world's largest online movie rental service. Netflix, which has more than 6 million subscribers and is known for its strong focus on customer service, decided to turn to NICE for the [value-add] of our complete solution.

Through NICE SmartCenter, Netflix is seeking to improve agent performance, operational efficiency, and enterprise performance, and increasing and improving an already strong focus on quality of service by automating scheduling and forecasting, better understanding why customers are calling, and reducing customer churn.

We continue to add many new customers seeking to improve their capabilities in gathering business intelligence with adaptive interaction analytics. For example, the Australian Child Support Agency, CSA, will implement our solution with adaptive interaction analytics in 14 sites for 4,300 agents. The CSA story is an interesting one. It assists separated parents in managing their child support responsibilities and in payment collections. CSA selected NICE to help them identify the reasons parents call--place calls and improve dispute resolution, which sometimes results in high risk situations.

Another interesting example is the [indiscernible] Insurance Company North America. With our adaptive interaction analytics, this customer can easily get to the root cause of customer service issues identified during the quality management process. Then they use the insights gained from our solution to create coaching packages for agents to improve their level of knowledge. This way, they improve customer satisfaction while decreasing agent attrition rates. Analytics-driven coaching has been so successful for this company that they were able to prove that agents who were not coached this way consistently received lower scores.

We also have this quarter the international arm of a multi-billion dollar consumer product company which serves dozens of markets out of several [indiscernible] customer care centers and which turned to NICE to help them improve customer satisfaction. They wanted to measure the improvements that adaptive interaction analytics provide and put in place a control group. After only a few weeks, they discovered that the group using analytics received consistently better performance scores by customers. This customer also found that there was a strong relation between customer satisfaction ratings and the triggers identified by analytics. A great number of customers that expressed dissatisfaction were [accurately] identified and quickly attended to bring to a successful resolution.

We will now take a look at the migration to IP-based communications, which is another one of our main growth drivers. In Q2, we saw once again an additional increase with orders [that are up] for our [indiscernible - accented] solutions, nearly doubling over the same quarter of last year. Our next generation voice-over-IP capabilities enable our customers to enjoy the benefits of highly scalable, centralized recording solutions for their IP telephone environment. By implementing our unique voice-over-IP recording gateway, an important differentiation for NICE, our customers can eliminate the need to have a recording unit in every branch, significantly reducing management overhead and the total cost of ownership.

Some examples from the many customers who turned to NICE for voice-over-IP solutions this quarter include leading Brazilian outsourcer contacts which selected our solutions for three sites for 4,000 agents, and the U.K. [indiscernible], which recently opted to extend their NICE voice-over-IP environment in London.

We see strong demand and excitement around our comprehensive solutions. And last week I had the pleasure of receiving some very positive feedback firsthand from many customers at this year's NICE User Group Summit, which took place in Boston. This was an exciting event for us with hundreds of NICE customers in attendance, and with world-leading companies as sponsors, including Avaya, [EMC] and Microsoft, and with high caliber speakers, including industry experts from leading analyst firm, [Frost and Sullivan], and customers like Kaiser Permanente, [Oxide], Equitable, [Convergence], and Direct TV.

Moving on to the securities sector, we had a very strong quarter in order intake in this sector. Just one quarter after we announced the revolutionary NICE Inform for multimedia command and control we are seeing this solution becoming commercialized with more and more wins. At NICE we are leveraging on the competitive edge and unique capabilities of our solutions, including audio and video multimedia command and control in large city centers and mass transit systems. And this is bringing new, large, and important wins.

Following the high profile--NICE--profile--NICE Inform win with the FAA announced in May, we saw the positive momentum continue. We announced one such major security project last month, which is valued at over $5 million for NICE. We will be supplying advanced IP-based digital video content analytic solutions to a major international city police force. With our solutions in place we will help them deter city center terror and criminal activities and provide event and incident investigation and management.

These wins, as well as several others in our pipeline are just the first following our announced strategic focus on large-scale multimillion dollar security projects. And we continue to work on additional ones leveraging our global reach.

Another major development for our Company from the last few weeks was the acquisition of Actimize, which constitutes a major milestone in the execution of our growth strategy. Bringing together Actimize and NICE Solutions establishes NICE as an enterprise-wide analytics powerhouse and marks a new era for our Company, our customers, and the markets in which we operate. We are pioneering convergence of transaction and interaction analytics and spearheading a paradigm shift in how organizations mitigate risk and drive performance across the enterprise.

Immediately following the acquisition, we had numerous discussions with some of Actimize's and NICE's largest customers around the world and received tremendous feedback regarding our joint [vertical] position. Actimize customers told us that they are excited about the potential benefit of adding the significant information that comes in from the contact center related customer [touch] points, and from [indiscernible] related voice interaction. From this addition they believe that they will be able to greatly improve the accuracy and [predictive] capabilities of their different solutions.

Last week, in fact, I personally spoke with several customers, including a tier one financial services organization, which is a very satisfied customer of both NICE and Actimize. The executive with whom I spoke said that they are very keen on integrating our solutions in their environment. The reaction from industry analysts is likewise enthusiastic. Just last month, leading analyst firms [Gunther] and [B&G Consulting] each issued notes on the acquisition in which it was mentioned that the news presents an exciting upside for both companies and that it will provide us with a competitive edge, both in the compliance-driven financial services market and for non-financial customers as well.

To conclude, this is an exciting time for NICE. Q2 was yet another record quarter with strong results, reflecting the ongoing momentum of our Company's growth, both in the enterprise and security markets. Our achievements over the quarter reflect the strengths of our vision, complemented by the clear success of our strategy. As you know, we have been putting our [indiscernible - accented] strategic in place for our Company's growth and we intend to continue complementing organic growth with additional acquisitions in order to extend global reach, expand our technology and solution portfolio, both in our customer base and in created distribution channels through acquisitions.

Before I turn the call over to our CFO, Dafna Gruber, for a discussion of our financial performance, I would like to take this opportunity to thank NICE Systems employees for another great quarter. We look forward to discussing even further success as we move ahead in 2007 and beyond.

Dafna?

Thanks, Haim. The second quarter of 2007 was a record quarter for NICE. Revenues reached a record of $127 million, above the high end of our guidance, and up 30% from 98 million in Q2 of 2006. Enterprise sector revenues were 99.7 million in the second quarter, representing an increase of 37% year-over-year. Growth in the enterprise sector reflects NICE's expanding leadership position driven by NICE SmartCenter, as well as the increased migration to our voice-over-IP solution.

Security sector revenues in the second quarter [audio glitch] 27.4 million, representing a 9% increase over Q2 of 2006. We continue to see strong demand for our next generation security solutions, especially for NICE Inform products. Going forward, growth in this sector should also come from larger scale projects, and we've already started to see the first one come in. As these projects are characterized by longer sales and delivery cycles, they will contribute to our results starting 2008.

Revenues by geography for Q2 of 2007 were as follows. The Americas accounted for 72 million, or [audio glitch], Europe, Middle East, and Africa accounted for [77 million], or 29%, and APAC accounted for 18.3 million, or [14%] of revenues.

Year-over-year organic growth this quarter was 15%, on the high end of our [indiscernible] organic growth rate. Q2 saw strong bookings and we completed Q2 of 2007 [with a book to bill greater than one for the 13th consecutive quarter.

Gross margins for Q2 were 63%, up from close to 60% in the same period of 2006. The year-over-year increase in gross margin is a direct result of the continuing shift in our solution mix for software-based products and more professional services. We continue to enjoy the leverage in our business model where revenue growth translates into greater growth and profitability. Operating income in the second quarter was 21.4 million, up [46%] from 14.6 million in Q2 of '06. Operating margins in Q2 of '07 reached 16.8% of revenue, up from 14.9% in Q2 of '06.

Non-GAAP earnings per share in the second quarter was a record of $0.36, up from $0.28 in Q2 of last year. We generated operating cash flow in the second quarter of over 17 million. At the end of the second quarter, cash and cash equivalents were [audio glitch] [56 million], compared with [335 million] at the end of last quarter. DSOs at the end of June was 67 days, better than our long-term guidance of 70 to 80 days.

At this time, we'll provide first time guidance for Q3 of '07. We expect revenue to range between 127 and 131 million, and pro forma EPS per fully diluted share to be in the [audio glitch] percent. Following the very strong first half of 2007, the increasing demand for our solutions in the enterprise and security markets and the growing backlog, we are raising once again the previously announced guidance for the full year. We expect revenues to be in the range of 511 and 520 million, up from 497 to 514 million previously announced. EPS is expected to range between $1.36 to $1.44, up from $1.31 to $1.42 per fully diluted share previously announced.

Please note that the guidance for the year [inaudible] consolidation of Actimize [indiscernible - accented] starting in the fourth quarter of 2007. I am pleased to update you that the [closing process] is on track and we believe that the deal will be closed in September.

That concludes my comments. I will now turn the call over for questions.

Thank you. (Operator Instructions.) Your first question is from Daniel Meron of RBC Capital Markets. Please go ahead.

Hi, Haim and Dafna. Congrats on another good quarter for you guys. Haim, can you give us a sense whether the upped guidance here--I mean, you guys just announced that you guys [formed] the Actimize deal just around a month ago and you already are taking numbers up, which is great. To what extent is it because of growth in the marketplace, or is it because of better traction or expectations from the Actimize deal?

First of all, thank you for the feedback. I hope we don't need to apologize for updating the numbers. No, this is not--obviously not related directly to the Actimize. The Actimize was given--the Actimize number was given last--actually, a few weeks ago when we announced it. And the guidance that we announced then included the effects of the Actimize acquisition. So this updated guidance is solely related to the NICE business, excluding Actimize, which is--as we said, is moving on track. We believe that we are capturing market share and generating new business. And obviously, the Actimize acquisition has aided, if you would like, to the overall positioning and [competitive] of NICE, but it is not directly related to the Actimize numbers.

Okay, great. And Dafna, you mentioned that you expect more of the security deals to flow through in 2008. How should we think about this segment for the next couple of quarters? Basically, we've seen a lot of deals from you guys. But--and it is growing very nicely, but I think that I was really--I was hoping for a major up tick this quarter. How should we think about it for the next couple of quarters?

I think the business--the security business should grow at the average growth rate for NICE, which is the mid-teens. Our comment was mainly related to large projects we recently announced. We just announced new projects--announced projects and in order to avoid confusion and because these projects are long in nature, we believe the contribution of the over-5 million deal we just announced will contribute to what the condition will be in 2008.

Okay. And then, just a final follow-up. How--can you maybe give us a color--some color on the video versus the public security market? Is it growing pretty much at the same rate? If you can give us a split there?

One of the [indiscernible- accented] of our strategy is that we are now offering a combination of multimedia solutions. For example, the $5 million project that we [just] announced, included capabilities of both video and audio components of the Company. So overall, in terms of booking, we had the best ever quarter in terms of security booking in the history of the Company. And as Dafna said, it will reflect into revenue in the coming--not too long from now.

Okay. Thanks, Haim and Dafna. Good luck going forward.

Thanks.

Thanks.

Thank you. Your next question is from Shayam Patil of Raymond James. Please go ahead.

Good morning. Thank you. In regard to the enterprise space, one of your top channel partners recently got [inaudible]. Can you comment on what impact this has had on your business, and if Avaya grew year-over-year--if [inaudible] grew year-over-year?

Yes. You can see obviously that the enterprise sector has grown significantly, and Avaya is obviously an important partner. It's hard to follow enterprise channel [indiscernible - accented] important. It's not the only one. And they obviously have also some direct business. But Avaya is very important and a strategic part of NICE [indiscernible - accented] enterprise business grew. And I cannot see why this would be any impact--positive or negative--on the relationship. Whether they become a private company or a public company we'll have greater--join customers together. We have a very strong product [proposition] to offer together to the market. So I believe and hope that these excellent relations will continue in the future.

Okay, great. And then, according to my calculations, it looks like the IEX and Performix division performed strong this quarter, up 30% year over year, from what I can calculate. Can you comment on what's driving that? That's clearly above market rates. Is that bundling that's driving that, or can you just comment on that?

I'm not sure how you made your calculation, so probably we should take the specific calculation maybe offline. But I think that we have specifically stated that the organic growth that we have seen this quarter--and I repeat, the organic growth--and to remind you both IEX and Performix were not part of NICE in Q2--most of Q2 last year. So we did mention a 16% organic growth. So, yes, the IEX/Performix is performing very well. It's part of our enterprise. But I think that you'll probably have to take a second look at your specific calculation.

Okay. And then, just lastly here, going forward in terms of looking at the long-term, is there any--how would you characterize the growth rates between the enterprise segment and security segment? I think you mentioned the security segment should be in the mid-teens. Should we expect the same for the enterprise segment?

I would say that overall our guidance for the organic growth of the Company is in the mid-teens, and this is relevant for both the security and the enterprise. So this is a mix, obviously. The end result is never exactly a mathematical [indiscernible - accented] and one can go a little bit more than the other. I would say that with the very strong momentum that we are seeing in terms of the build up of the pipeline and backlog and booking in the security sector, we are very optimistic there, but also look for opportunities in the enterprise sector. This is why we have, if you would like, combined it and [indiscernible - accented] at the mid-teen growth rate for the entire company.

Okay. Thank you.

Thank you. Your next question is from Shaul Eyal of CIBC World Markets. Please go ahead.

Thank you. Hey, guys. Good afternoon. Also congratulations on [indiscernible] and good quarter, good guidance. A couple of quick questions. Haim, as you look at some of your let's say average contracts, is there any way kind of maybe to try and quantify the return on the investment from a timing perspective? Is it three months, six months, nine months? Anywhere along these lines?

When you say return on investment, you refer to our customer I assume or--?

--Absolutely, the customers.

Okay. It's an excellent question. It really depends on the business type. I can take you through the spectrum. If we are talking about a security-related project where you need to protect a city against terror activity, [indiscernible - accented]. It's more of a whether you have to do that because you need to protect your city [indiscernible - accented] and there is no mathematical [indiscernible - accented]. This is one extreme.

I can take you to another extreme of a company that implemented our analytics technology that within a matter of a few weeks was able to identify that actually customers were calling in regarding a specific competitor that they were not aware of. This is in the financial services business and they were not aware that actually there was a competitive product there. And immediately they changed their marketing strategy [indiscernible - accented] in this case was a matter of weeks, despite the fact it was a fairly I would say significant few hundred thousand dollar deal. So we had this spectrum.

Some others in the compliance area is more companies need to meet--to meet the compliance or regulatory environment. And therefore, it is something they have to. Of course, [indiscernible - accented]. But it is not something you can automatically calculate. So you have the entire range. And wherever the sort of local additional projects were it would be between six to 18 months [indiscernible - accented]. So we have the entire spectrum.

Got it. Makes sense. Another question. And--your customers, given the fact that [indiscernible - accented] you can take a product line, whether it's the Inform, the Perform, in the video front, you can take it in many directions. Are your customers pushing you to take kind of a different route, to take a different look at where you could be going with your wide product offering? And again, I'm not talking specifically from an acquisition perspective--with kind of an organic based on your existing product line.

Yes, I think that we are seeing basically two directions here. On the enterprise front, I think the combination of the technology and the value-added that we are offering to the market allows us to broaden our reach within a customer from the traditional more operational part of the contact center into a much more broader reach of contact within the enterprise. It could be a variety of departments that in the past might not have [indiscernible - accented] and through our contact center customers are now reaching to a much broader audience within the enterprise. So this is one direction.

The other with respect to our security offering, I think this is a combination of, again, our own technology and what many customers are expecting from us--I think the FAA is a great example--are expecting from us to take full or much more responsibility for the entire project offering. And this is a direction that is a combination of the spectrum of technology that we have to offer and also it is driven by the customers.

Got it. And just one final question for Dafna. The gross margins are obviously very, very healthy. [Indiscernible - accented] from the 64 you guys had in the December quarter--two quarters ago. Is that basically what we should be kind of looking at in the next couple of quarters approximately?

In the next few quarters, I expect the gross margin to remain around the same--the current level [audio glitch]. Longer-term, our target is to be at 60-plus-percent.

Got it. Thank you very much. Congrats.

Thanks.

Thank you. Your next question is from Daniel Ives of Friedman, Billings, Ramsey. Please go ahead.

Hey, congrats on a nice quarter [indiscernible]. My question is product services. Where do you see that mix going over the next few quarters?

We--I mean, this quarter is--can be a difficult quarter. As you can see, there is a change, a few percentage from quarter-to-quarter. It really reflects the way customers are buying our solutions. Sometimes they would like to buy with us providing more and more services around the product offering. Sometimes if we will deliver the solutions through partners, they will take part of this job. So I would say that we are now--and this quarter can be a difficult quarter, but the percentage can range a few percent up or down from where it [ought to be].

Okay.

We aren't going to turn--we aren't going to turn into a service company and you will not see us with like 50% of our business in services. This is not our strategy and we don't expect this to happen. So it will be more or less where we are, giving a few percentage up or down.

[Inaudible] 60/40 split, give or take?

Yes.

Yes, yes. Actimize should follow more--again, more or less the same model.

Okay. Could you talk about just like the overall call center market? I mean, there has been like [indiscernible] and services companies and just some of the [indiscernible]. You guys have obviously not seen it. Great quarter. But could you guys just talk about where you think call center software spending is in terms of the maturity? I mean, are--do you think it's still--we still have a few years of significant growth [inaudible] the install base? I mean, where do you think we are in regards to the maturity of the cycle? Do you think it's kind of accelerating? If you could just give some general color on that.

Yes, it's a very good question. And we have to refer to the call center spending as a very large industry of many, many billions of dollars, which includes services, consulting, a lot of obviously communication gear, [CLM] software and so on. And therefore, it is dangerous to put at least our part of it as part of the entire business. So I would say that probably the large space, the multibillion dollar space is growing. But I'm not sure if it is growing very fast.

What is growing is probably areas like us, which is very focused on several areas - one, a complete change in technology, which is the move to voice-over-IP. This is a growth area, which I don't expect it to change in the coming few years. There is still a lot of churn to be done in terms of voice-over-IP based systems. This is one area. And another area that is growing that is really [low] penetration is everything that relates to analytics for better customer service or better customer retention or anything that's combined analytics and customer satisfaction, service, and so on. This is a very new area. It's something which is only at the very initial stage of development. And therefore, I don't expect it to--I mean, it should grow to substantial numbers in the coming years. Around it, obviously one can look at different areas. There are areas in terms of regions, like Asia Pacific or some parts of Europe. But still, there is a long way to go even in the most traditional type of offerings in these [parts].

Okay. And just a final question. When you look at acquisitions, and I mean, you guys have done a great job in acquisitions. But when you look on the video side, is it really valuations of some of these private companies that are kind of keeping you guys away? Is it just waiting for the right thing to come geographically? I mean, could you just give us some insight in regards to how you look at private acquisitions on the video surveillance market, given it's such a fragmented space and you guys are one of the bigger players. Thanks.

Yes, okay. I think in terms of acquisitions in the security space, this is definitely an area that we are looking at. And this is part of our announced strategy. Also part of our announced strategy is to make sure that when we make an acquisition, we see value for us, for the shareholders, and, of course, for the selling shareholders. In terms of the security, we focused very much our attention on building the core competence and the technology which is related to our project-oriented multimedia command and control.

There is a lot of energy in management [indiscernible - accented] it doesn't come without--it's not just talking about it. It's actually doing it. And it requires a lot of focus. And I think we have executed on this very well. And obviously this provides us the platform to add additional product areas if we would find the right--the right, if you like, price performance with respect to our video offering. So it's definitely an area that we are looking at. And if and when it will be relevant, we will also move ahead.

Thanks. Great quarter.

Thank you.

Thank you. Your next question is from Roni Biron of ING. Please go ahead.

Hi, Haim and Dafna. Hey, congratulations on the strong performance during the quarter. I have a couple of questions. First, any changes to the comparative landscape in light of the consolidation in the enterprise industry? Also, what kind of competition you are seeing in the security market on the large deals that you are bidding for, if you can elaborate on that a bit?

Yes, a very good question. First of all, on the enterprise sector, yes, by definition there is a change of landscape just by the fact that many of the legacy players are just--have just disappeared. They are not there. So the market is now consolidating. And there are I would say two players--two strong players. There are other players in this market, but obviously there are less than in the past. So this is a change of landscape.

As I mentioned in previous calls, we have great respect to our competitors--all our competitors in every field, including in the enterprise. But [we've been] modest. We believe that right now NICE is in a very unique position from two aspects - (a) it has best of breed offering in every category of the enterprise sector and it has the most stable, reliable, clear roadmap of where we are going, what we have. And I believe that this doesn't, if you like, miss the attention of customers. So this is what relates to the enterprise.

On the large security projects that we have announced so far, yes, we are--obviously everywhere there is always competition. But again, we are not going into projects that we are just a generic integrator. We are obviously offering a more integrated project around NICE technologies and here we're in a very unique position being probably--I don't want to say only, but in a very strong situation where if you look at who has a very large chunk of the radio communication--audio communication in the public safety, emergency centers, law enforcement agency on one hand, and a very advanced video technology and analytics, this combination at this point in time, NICE is a very unique offering portfolio and also domain expertise. So it puts us in a very strong position with these types of projects.

Okay. The second question I have is regarding voice-over-IP. I mean, do you see the migration to voice-over-IP coming mainly from greenfield operations, or do you see it coming also replacement of TDM recording systems? And in regards to verticals, is it coming mainly from financial institutions and outsourcers or other verticals as well?

Great question. The answer is yes, yes, and yes, meaning we are seeing voice-over-IP projects in obviously a [complete] greenfield. Everyone that goes to a greenfield operation would go--not everyone, but very likely that it will be voice-over-IP implementation. In addition to that, many TDM-based implementations when they add additional size or sometimes even within the size they would add voice-over-IP implementation side-by-side. And last, but not least, we are obviously seeing also churn of TDM being replaced by voice-over-IP. Outsourcers are moving into voice-over-IP, as well as financial services very strong. And I would say that, yes, this would be very typical strong verticals that would adopt voice-over-IP [indiscernible - accented].

Okay, thank you very much.

Thank you. Your next question is from Bill Benton of William Blair. Please go ahead.

Good morning and [inaudible]. First, I just wanted to [inaudible] strong sequential revenue growth. I know you answered a question about your [inaudible].

Bill, unfortunately, you're [coming out] very weak. We can't--we can barely hear you. If you could--?

--Is that better?

This is much better. Thanks.

Okay. You had talked about mix of the business earlier. I guess I'm looking at the sequential service revenue growth was more than we were expecting. So I was wondering if you could offer some color on that - whether that is more maintenance related or more upfront type work, and then I have other questions.

This is primarily the more upfront. Of course, this is related to some of our offerings especially, but not only related to the analytics, as we have mentioned, and also to the SmartCenter. It incorporates also projects which are performed by NICE where we are doing scope of work project management and more sophisticated implementations. And this obviously is reflecting a higher percentage of project management or services that you would see around our numbers. And as I mentioned earlier in the call, this will continue. We will not become a service company. But again, you can see the same percentage, even a higher percentage in some quarters and some quarters might be a little bit less. There is no fixed number. It depends on what the customer wants and whether we deliver it direct or through partners.

Okay. But the increase maybe is more of a leading indicator with regard to some product sales?

It is, yes.

The increase in the service revenue and upfront work. Okay. And then, on the pro forma G&A, it was up a couple million. I guess up sequentially more than it was expected. Can you offer any color on [audio glitch]?

Bill, I'm sorry, we couldn't hear you again.

On the pro forma, G&A was up sequentially, back up $1 million.

Yes.

I didn't know if you could offer a little color on why it might be up.

Yes. As we've said previously, we--in the last few quarters we increased significantly our investment in the business with the goal to increase our leading position in the market. And that was part of our plan. It also went up because of several factors like exchange rates and some other expenses we had in the last quarter. Going forward, I believe this expense level should serve our business and I don't expect big changes going forward in the near future. I might also say that although expenses were up, [indiscernible - accented] operating profit was up significantly for each--almost 17% of revenues, compared to 14.5 last year. So although there was an increase in expenses, the profitability went up.

Great. And then, just a quick--a final question. I thought I heard you, Dafna, say that the organic growth was 15%. I think Haim said 16. And as part--I just want to get clarification on that number. I think as part of your commentary you mentioned that that was at the high end of your range. Do you have a range of organic growth or did I misunderstand the comment?

What I said is that organic growth is 16% and the target for our business is mid-teens, meaning ranging between 13 to 17% growth.

Okay, great. Thanks for the clarification.

Thank you. Your next question is from Dan Harverd of Deutsche Bank. Please go ahead.

Hi. Good afternoon, and congratulations on the numbers. Just one question for me. Now that we're about to a year on since you closed the IEX and Performix deals, how has [indiscernible - accented] integrated, both from the product side and the organizational side? And in terms of original expectations on cross-selling synergies, et cetera, how do you feel that that has progressed?

Well, I can give you a long answer, or I can just tell you look at the numbers. So I think that now the numbers probably tell the whole story. Excellent feedback, excellent results. When companies make acquisitions there's always risk associated with it. And I think if we look at our overall achievement we've seen, of course, in areas like, for example, just to give you one example, in Asia where IEX was not active at all, or--not all, but they were active very, very limited, we have seen the business there significantly increasing as a result of the combined and leveraging distribution. We have announced a SmartCenter, which is an integrated full solution to our customers. So we have seen very strong business results.

Another important factor is that we have kept this operation very much focused with a very focused and dedicated and motivated management team, which is part of our strategy. And this has also worked very well for us. So we are very satisfied I think that [this] positioned [indiscernible - accented] completely different level in the enterprise contact center market. So, yes, you are right. One year has passed and we are very proud of our achievement.

Okay. Thank you very much.

Thank you. Your next question is from Irit Jakoby of Susquehanna Investment Group. Please go ahead.

Hi. This is actually [Adam Kramer], Irit's associate. Congratulations on the quarter though. Just one question. As you've mentioned, last month in the acquisition - the Actimize - Actimize is expected to generate between 55 and 60 million through 2008. Are any sales through the NICE channel included in this number?

For 2008, this is assuming very limited effect of the NICE channel. Yes, something, but not significant.

Okay. Great, thank you.

Thank you.

Thank you. There are no further questions at this time. Before I ask Mr. Shani to go ahead with his closing statements, I would like to remind participants that the replay of this call is scheduled to begin in two hours. In the U.S., please call 1-888-326-9310. In Israel, please call 03-9255930. Internationally, please call 972-39-255930. Mr. Shani, would you like to make a concluding statement?

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.

Thank you. This concludes NICE Systems Second Quarter 2007 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.