Nice Ltd (NICE) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the NICE Systems fourth quarter and fiscal year 2007 results conference call, and thank you all for holding. All participants are at present in a listen-only mode. Following managements' formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded February 13, 2008.

I would now like to turn this call over to Ms. Daphna 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; the client 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, technology and personnel; loss of market share; pressure on pricing resulting from competition; and inability to maintain certain marketing and distribution arrangements which could cause 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 a review of our business and its performance during the fourth quarter and fiscal year 2007, as well as our strategy and outlook for 2008 and beyond. Dafna Gruber will provide a more detailed discussion of our fourth quarter and fiscal year 2007 results, and provide, for the first time, financial guidance for the first quarter and full year 2008. 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, as reflected mainly in accounting for acquisition-related revenues and expenses, amortization of intangible assets and accounting for stock-based compensation. Please refer to our fourth quarter and fiscal year 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, Daphna. Good day and thank you all for joining us for a review of our 2007 fourth quarter and full year results. 2007 was a milestone year for NICE. We generated phenomenal results, with revenues crossing the half a billion dollar mark for the first time. This is over $100 million higher than 2006.

The $523 million revenues for the year represent a substantial increase of 25% year-over-year. The Company also achieved record quarterly revenues of $146 million and record earnings per diluted shares of $0.39.

In terms of business performance, 2007 was a year of strong growth in both the enterprise and security sectors, and of significant geographic expansion in all our regions, the Americas, EMEA and APAC.

Market consolidation created excellent opportunities for us in 2007, and we expect it to continue to present even more opportunities going into 2008. In the security sector, this was a year of meeting a major strategic goal that we set at the beginning of the year by winning large-scale deals, a trend we expect to continue in 2008.

The Actimize part of our business is progressing very well, and we clearly see the value of its solutions in today's business environment. In 2007, once again, our organic growth rate was excellent, having reached 15% for the year.

We had an outstanding Q4, both in terms of revenues and, even more important, in terms of orders generated. This was by far the strongest quarter in the Company's history. During the fourth quarter alone, we received 36 7-digit orders, three times higher than those received in the fourth quarter last year. As a result, we ended 2007 with an extremely large backlog, with almost half of 2008 business covered.

I'm also pleased to report that our pipeline of future prospects is likewise very strong. Taking into account our strong backlog, pipeline and powerful growth drivers, we reiterate our guidance for the year 2008.

Over the past few months, many of you expressed interest to get more color on the growth drivers of our business. Therefore, I decided to take the opportunity on this call to walk you through a number of important data points and elaborate on the current trends in the market.

Starting from the enterprise business, our enterprise business ranges between 75% to 80% of NICE revenues, including the NICE core business solutions and our latest add-on, Actimize. You can segment our enterprise business in five different ways.

First, by end markets. After taking Actimize into account, our business will be divided up as follows. Contact centers, 70% to 75% of our enterprise revenues; trading floors, 10% to 15%; and branches, home agents and back office, 10% to 20%.

Second, by verticals. According to industry research reports from Datamonitor, the breakdown of agents in contact centers is as follows. Financial services, 25% to 30%; telecom and technology, approximately 25%; retail, 10%; public sector, 8% to 10%; travel, 8% to 10%; and health care and others, 5% to 6%.

Third, by geography. Traditionally, NICE revenues split as follows. Americas, 50% to 55%; EMEA 25% to 30%; APAC 15% to 20%.

The fourth way to look at our business is by product versus services and maintenance. Product revenues are roughly at 60%, while services and maintenance contribute the balance, with maintenance representing recurring revenues and being 25% of our overall business. Furthermore, as we move towards selling more software-based solutions and applications, the maintenance part of our business is expected to grow.

But the fifth is probably the most important way to segment our business, and it is by value proposition. Our solutions bring value to our customers in three areas -- in compliance and risk management; in enhancing operational efficiency; and by improving customer retention and insight.

Our compliance and risk management solutions account for over 50% of our enterprise revenues and apply to contact centers, trading floors, branches, home agents and back offices. In this area, the new regulations that are continually coming out represent tremendous growth prospects for NICE.

To comply with the new wave of regulations such as MiFID in Europe, J-SOX in Japan, Master Internal Control in Singapore and Code of Banking Practice in Hong Kong, our customers use NICE to record their customer interactions, while the Actimize set of solutions helps them mitigate the risk associated with compliance, fraud and anti-money laundering.

With the multi billion Euro loss relating to Societe Generale, one can easily understand the seriousness of the potential risk associated with noncompliance with internal procedures, as well as those involved with internal fraud. The recent multi billion Euro loss at Societe Generale is a perfect example of the evolving needs of risk management and fraud detection solutions at financial institutions.

As a result of the single incident, Societe Generale is facing monetary losses, regulatory scrutiny and, most damaging, an erosion of part of its (inaudible). Actimize is at the forefront of this industry, and is leading the market with sophisticated solutions designed to monitor, detect and mitigate such risks. To effectively manage risks such as those exposed at Societe Generale, you need the unique combination of strong trading surveillance domain knowledge, as well as powerful fraud detection analytics, looking for employee fraud patterns and sophisticated enterprisewise to connect all the dots.

An example is a top 5 US bank which recently placed a seven-digit order with Actimize to help them mitigate the risk of employee fraud, monitoring most of their 50,000 employees.

New regulations are also driving the need to record customer interactions and trader activities at the branch level. There are over 400,000 branch offices today in the financial services sector alone, representing thousands of millions of employees. We estimate that less than 5% of these employees are being recorded today, representing a huge opportunity for NICE. Let me walk you through a few examples.

Scottrade, the US online brokerage firm, recently selected NICE, and we will be implementing our solutions both at its 336 branches and its national service center, all in a voice-over-IP environment.

A major Asian bank that recently placed a multi-million dollar order selected NICE to record over 1000 branches in a voice-over-IP environment to comply with the local financial regulations. In the same country, there are tens of thousands of branches which will need to be recorded for the same reason.

The financial services industry, an important vertical target for our compliance and risk management solutions, presents especially in today's environment, an opportunity for NICE rather than a threat. During Q4, we clearly saw this opportunity materializing, translating into very strong bookings in the financial services sector. We also see a very healthy pipeline going forward.

Let me now move onto the second value proposition, which is enhancing operational efficiency. This is especially critical nowadays. NICE sales in this area represent 20% to 30% of our enterprise business. Let me give you an idea of the scope of the potential business for NICE in this area.

Approximately 70% of contact center cost is employee related. A typical contact center with 1000 agents will incur annual employee costs exceeding $30 million. Our solutions help our customers reduce costs substantially, offering them a very attractive ROI that can be achieved in some cases in as little as a few months.

For example, our industry-leading workforce management solutions help optimize complex staffing needs, which can lower costs by millions of dollars on an annual basis. Our agent coaching solution is also one which could help save hundreds of thousands of dollars a year by reducing training costs, which is a key and expensive process in every call center.

A key indicator of the call center operational efficiency is average handling time. DIRECTV, for example, recently selected NICE to also help them optimize their average handling times using our Interaction Analytics solution.

The last value proposition I want to discuss is improving customer retention and delivering customer insights, which accounts today for 10% to 20% of our enterprise business. Our customer feedback solution can be used for customer survey at 20% to 30% of alternative costs. Our Interaction Analytics, which is being used by customers such as (inaudible), Conseco, DIRECTV and others, can dramatically reduce customer churn, showing a very quick ROI.

Overall, the penetration rates of these solutions within our customer base is less than 10% and growing very rapidly. To summarize, we continue to experience strong momentum in our enterprise business. And in light of all the growth drivers just discussed, and as we continue to acquire market share, we expect our enterprise business to grow significantly in 2008 and beyond.

Moving on to the security sector, this industry, the security industry, is massive, with governments and corporations around the world investing billions of dollars to protect people and assets. NICE has only a fraction of this spending, and we have made a strategic decision to expand the scope of our solutions to increase our business and leverage on our key strategic assets in this market, which are primarily two.

First, we have a large installed base of the leading emergency centers in the world which are using our technology. Second, we are the only company that offers an integrated multimedia capture and management solution that combines radio, telephony, IP data, GIS, and video.

2007 was a record year for NICE security business, both in terms of revenues and, more important, in bookings. Our strategy of expanding our offering to include system integration for large projects has started to bear the fruits. In Q4 alone, we won 11 seven-digit deals in the security sector. I am glad to report that our largest [frame] contract ever from the FAA for 850 sites, which we announced in May 2007, has already generated orders for 45 sites.

In Q4, we announced a $9 million contract from New York City for NICE Inform for the city's next-generation 911 emergency call centers, which is part of the largest public safety on record for -- project on record for emergency communications [handling]. NICE was selected for its solutions unique multimedia command and control capabilities, including advanced voice analytics capabilities that will enable the city to capture, manage, analyze and reconstruct multimedia incidents.

Last week, we announced that a major European national rail operator has placed a seven-digit order, expanding its existing NICE Inform environment by adding our digital video surveillance solution.

During the quarter, we also won our largest security project ever in EMEA, a contract of over $7 million.

Following on this trend, our pipeline is strong and we are working on many new projects, which include audio and video for large city centers, critical facilities and transportation systems, each exceeding $10 million.

To summarize, 2007 was an outstanding year for NICE from all business and financial aspects. We expect the powerful growth drivers I discussed to continue driving our business during the coming quarters and years, and to continue our strategy of complementing organic growth with acquisitions, delivering ongoing value to our customers, partners, employees and shareholders.

I will now turn the call over to Dafna for a closer look at the numbers and, for the first time, guidance for first quarter 2008. Dafna?

Thanks, Haim. I am very pleased to provide you with the analysis of financial results for the fourth quarter and fiscal year 2007, as well as information about the trends in our business. I will also present our guidance for the first quarter and outlook for the rest of the year.

Revenues for the fourth quarter reached a record of $146 million, up 21% from $120 million in the fourth quarter of 2006. Revenues for the full year reached a record of $523 million, representing an increase of 25% over $480 million in 2006. Based on our shift to advanced (inaudible) base and IP solutions, the portion of recurring revenues continued to increase. The increase in our maintenance provides us visibility and comfort in our projections.

Enterprise sector revenues were $114 million in the fourth quarter, up 24% from $92 million in the fourth quarter of 2006. Full year revenue reached $400 million, up 29% from $309 million enterprise revenues in 2006. The growth in our enterprise sector is mainly a result of growing demand for NICE SmartCenter, characterized by a very substantial increase in demand for our advanced applications. The growth was also complemented by $11 million revenues contributed by Actimize.

Security sector revenues in the fourth quarter were $32 million, representing a 13% increase over the fourth quarter of 2006. For the year, security sector revenues were $123 million, up 13% from $109 million last year. Our shift towards winning larger scale projects has resulted in a very strong booking, and we ended the year with a very strong backlog for 2008.

Revenue by geography for 2007 was as follows. The Americas accounted for $80 million, or 55%, in the fourth quarter and $294 million for the year. Europe, Middle East and Africa accounted for 30%, or $44 million, of the fourth quarter revenues, and $155 million for the year. APAC accounted for 15%, or $22 million, in the fourth quarter, and $73 million for the year.

2007 was a very strong year for us in the emerging markets. This includes Brazil in the Americas, China and India in APAC and Eastern Europe. We believe this momentum will continue in 2008.

Q4 gross margin reached an exceptional record of 64.7%, up from 64.3% in the same period of 2006. 2007 full-year gross margin increased to a record of 63.5%, up from 60.4% in 2006. We expect the near-term gross margin to range at 63% to 64% range.

We continue to see leverage in our model. Operating margins reached 17.6% for the fourth quarter, and a record of 16.7% for the year, up from 15.1% in 2006. Looking at our operating model, we expect to continue to generate leverage in our operating margins.

Interest income in Q4 was approximately $4 million. Given the recent global reduction in interest rates, we currently expect lower interest income in 2008.

Fourth quarter net income reached a record of $24 million, up 23% over $20 million in Q4 of '06. Net income for the full year reached a record of $81 million, up 33% from 2006.

Earnings per fully-diluted share in the fourth quarter was a record of $0.39 and a record of $1.44 for the year. Our cash and equivalents reached a record of $398 million at the end of December, up from $358 million in September '07.

During 2007, we generated a record of $118 million cash from operations. In line with the Company's policy, our cash is invested only in very solid investments.

DSOs at the end of December were 70 days, at the low end of our long-term guidance of 70 to 80 days. Given the strong business momentum, robust backlog and powerful growth drivers, we are providing strong guidance for the third first quarter. Revenues will be in the range of $142 million to $146 million. We also anticipate achieving non-GAAP earnings per fully-diluted share in the range of $0.34 to $0.37. And, we reiterate our projections for the year 2008, which are revenues in the range of $615 million to $630 million, and earnings per share -- fully-diluted share of 1.65 to 1.75.

Before I turn the call over for questions, I would like to invite you all to join us at our fourth annual investor and analysts day on February 26 in New York City. For more details and registration, please visit our website at www.nice.com. That concludes my comments. I will now turn the call over to questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Shaul Eyal of Oppenheimer & Company.

Thank you for that. Hey, good afternoon, guys. Congratulations on a good quarter. I have just one simple question, if I may. Absolutely an outstanding year for NICE, and you mentioned, whether it is the backlog or the collection, really everything appears to be very, very impressive. At current time, what maybe -- what prevented you from stretching your 2008 guidance upwards a bit?

Okay. It's a good question, I guess. Probably I would answer it with some sense of humor that since we announced our guidance for '08 last quarter, some investors were quite worried that due to the economic situation, they were worried about our 2008 guidance and our ability to meet it. I hope that in this call, people understand that we have a very good chance of meeting our 2008 guidance. And you know, we need to leave something for future calls to discuss about.

On a more serious note, we are just -- we have just started the year -- just a month and a few days have passed. The year looks strong and it is definitely a possibility, but at this point of time, it is a little bit premature.

Got it. Okay. Thank you for that.

Daniel Ives of Friedman, Billings, Ramsey.

Hey, guys. Great quarter, proving the naysayers wrong yet again. On the security deals, you talked about those big $10 million ones. Just talk about these citywide video deals? What is driving that kind of adoption? Do you feel like 2008, 2009 is where we are really going to start to see a lot of these materialize, just based on your pipeline?

First of all, the answer to the last question is -- that is yes. What is driving it is the need to better protect the combination of the transportation centers, city centers, the proliferation of both video, and to some extent, audio technology in emerging markets and in other places have been relatively limited. And if it has been deployed, only very low-level, basic technologies.

And I think that people realize, government realize city centers -- city officials, organizations that are responsible for transportation authorities, they realize that in order to assure the safety of passengers, in order to make sure that they have stuff which has a better operational efficiency, this is a worthwhile investment.

And on the other direction, the technology has progressed significantly over the last two years, ranging from the capability to analyze video and voice in real-time, the ability to transfer over IP very effectively, video and audio. So the combination of technology progress on one hand and the understanding that this can really help is driving the demand.

Okay. And just a follow-up question. Just you have a real strong pipeline, it looks like backlog. To understand just how big it is, going into 2007 -- you say going [into 2008], you have about 50% done, right? What was the visibility heading into '07 in regards to that? I know you never give that number, but just trying to understand how much more visibility you have now you have given that number.

Daniel, I understand the question. The bottom line is that our visibility in terms of percentage covers going forward stands at a record all-time high for the Company.

Okay. So let's just say 25%, 30% (multiple speakers)?

We have -- as I mentioned, we have almost half of the year is covered with backlog, and this is the best ever situation that this Company has been.

Well, great quarter. Good guidance. Thanks.

Paul Coster of JPMorgan.

Yes, thank you. Haim, thanks so much for sharing that information around your market segments and the deal flow and so on. I think that is going to help a great deal.

I have a question, Last quarter, of course, everyone got hung up on the enterprise business. This quarter, it is the public safety security business that showed the sequential decline. In the context of the overall guidance in the backlog, people should be kind of just getting used to this lumpiness now. But perhaps just to help everyone, could you just talk about why we see this lumpiness in the safety and security business.

It is very simple. Overall, the security business -- and we have, as you remember, the security business has grown, if I'm not mistaken, by over 20% last quarter, so -- 27 to be more exact. So as we mentioned, in the security business, we measured our business on an annual basis and not really on a quarter-by-quarter. And so we, of course, give this measurement. But what is important is what is being billed.

And therefore, you can have a project of a few million dollars that you deliver during the quarter, you get an acceptance and you recognize it. And immediately, it can affect by a good few percentage points the revenue. So this is the way it is being billed.

I think the importance in the security is to understand that we have an excellent, excellent book to bill over the year and we have a significant part of the revenue going forward with the security covered with backlog, not only in the security, but the security obviously is an important factor.

So if you like, the lumpiness in terms of the revenue recognition with the large projects can affect quarter-by-quarter. But as we will have more and more large projects, obviously, it will a little bit be more statistically affected, so I would say we are extremely optimistic in terms of growing the security business, at the midteens or more revenue-wise next year.

Great, thanks. Dafna, revenue not recognized on the GAAP as we look into '08, how much is that going to be and how should we think about it?

Usually we have, after an acquisition, about a year of revenues that are in the adjustment between non-GAAP and GAAP. This time, it is going to be very small numbers, a few million every quarter, and that should end approximately four quarters after the acquisition was closed.

Great. Can you give us an update, please, on the patent disputes with Verint/Witness on the voice logging?

Yes, we are, if you like, in a combination of several trials. One was postponed and another one is taking place in a matter of a few weeks in Atlanta. So we believe that we have a very strong case, very strong patents. And of course, if we win this case, this will represent -- winning this case, meaning that our patents for voice recording both in the IP and for additional TDM, will be officially endorsed by the court -- this can represent a major upside to our business. But of course, this is -- or course, it's yet to be seen, but we feel very good about our patent portfolio.

All right. Thanks very much.

Shyam Patil of Raymond James.

Good morning. Thanks. Haim, first question, you mentioned that coverage heading into '08 is high, visibility into '08 guidance is the highest it has ever been. So is it fair to assume that you have taken a higher level of conservatism into guidance than maybe you have in the past?

As I mentioned in the previous question or the question by Shaul, we are at the beginning of the year, just one month has passed. I would not exclude the possibility that we will do better, but just a month and a few days has passed. So we will see how the year goes and hopefully we will do better.

All right. And on the security side, could you provide some insight into how we should expect that revenue to flow throughout the year? And you are looking for midteens organic growth in '08. How should we think of backlog for security? Do you expect to build that as well, going through the year?

Yes. As I mentioned, there are large projects on the horizon that we are bidding. And therefore -- of course, we need to win them first, but in addition to the already strong backlog for 2008 coming out of '07, I hope to see the buildup of additional strong backlog. So even ending with '08 with a bigger backlog, and this is possible.

Okay, got it, got it. You enjoyed fairly strong growth in the enterprise segment And '07. It looks like you are expecting similar growth in '08. How do you think you're positioned in terms of having the additional resources, particularly on the professional services and implementation side, to handle this growth?

It's a good question. As you can see, we are starting the year by expanding our investment, if you like. We are starting the year with more resources than we had last year. And our model assumes continuous expansion of our operation, but still keeping a leverageable model.

Great. And this is my last question, Dafna. I missed the breakout of enterprise and security and the organic growth for enterprise?

The organic growth for enterprise for the full year was about 15%. For the quarter, it was about 12%.

And the revenue breakout?

The revenue breakout was $114 million for the enterprise business and $132 million for the security business.

Great, thank you.

Daniel Meron of RBC Capital Markets.

Hi, guys, Dafna and Haim. Congrats on a very good quarter and continued execution here. Just three questions for me. First of all, if you can just give us, Haim, maybe a sense on the regional strength that you see. I did talk to a few of your distributors, some of them in Europe, some of them also in the financial vertical, and it seemed like things are going very strong. Some of them are ahead of their target. And again, that kind of goes back to the question that my colleagues here asked about, you know, there is some (inaudible) of conservatism in my sense, given what I am hearing from the channel on the outlook.

So if you can just give us a sense on what you are seeing regionally, and also what you think -- where are we at as far as conservatism? How much more can we see from this market going forward?

You know, as we mentioned, our target for growth for the Company, organic growth for the Company, is in the midteens for both sectors. And the continuing demand is basically in all areas. It can be for different reasons. I would say more of a compliance reason and regulatory (inaudible) in the emerging markets and in Europe. We have a very strong demand for analytics and solutions that are helping reduce customer churn, maintain customer contacts, improve the quality of service. This will come more from the America part of the business. But overall, this is on the enterprise side.

On the security side again, again, it is across the board. So at this point of time, all operating units of the Company are enjoying healthy demand for the products.

Okay, fair enough. So we should we think about the regional mix in 2008 pretty much similar, give or take?

Yes, yes.

Okay. And then on Actimize -- I may have missed this in the beginning of your discussion -- but what are your Actimize targets now that you're closer in to 2008? Also, given the fraud that was going on at Societe Generale, did you see an increase in the pipeline, and how are the targets that you have set for Actimize looking right now compared to, say, three months ago?

We had -- when we acquired and we announced the acquisition, we of course, had significantly high growth rate for this group. And after the Societe Generale, which only happened a few weeks ago, there is a very, if you like, strong interest, both from the media and from real customers that are interested in what this technology can do for them. We are, of course, at the preliminary stage -- meeting, discussing, explaining the value proposition. But there is definitely a very strong interest in the value that Actimize can bring to our customers.

So would it be fair to say that the pipeline is higher than it was, say, three months ago, or is it just too early to tell?

There is an additional type of level of interest as a result of this incident. And there is a very strong -- there is a very strong, if you like, level of activity today with the Actimize group.

Okay. Thank you, Haim. And last one for me. Dafna, maybe you can just break out the impact -- I may have missed it before -- about the ForEx headwind that you have here with the weakening of the US dollar versus the Israeli shekel, and what kind of hedging do you do there. And also, on the interest income, you know, if there was a steady-state on the interest income and also on the ForEx, what would the EPS guidance for 2008 look like?

Let's start with the foreign exchange question. First of all, it is important to mention that the fluctuations in the exchange rate are already in our guidance. In our business, the vast majority of the expenses are happening outside of Israel. We are a global company, and less than 30% of our expenses are exposed to the fluctuations in the Israeli shekel. Part of it has been hedged as part of our policy. And for the rest, which is not hedged, we intend to try to increase productivity in our operation without increasing costs and overall to be within our guidance.

Okay, fair enough. And then the interest income, what is the impact of the lower interest income -- or interest rates, actually, on the guidance that you provided here?

Again, the impact is already within our guidance. If you want to make a closer look at interest income, I think it is very simple. We have a portfolio of about $400 million invested. Last year, it was invested in rates of 5% or more. Now, after the significant reduction in interest rate, the return on this investment is going to be lower.

About 3%, 4%? Where exactly do you think --?

Well, it would be between 3% to 4%. It depends -- we are at the beginning of the year; we don't know exactly. But it is very correlated to the global trend.

Okay, very good. Thank you again, Dafna and Haim. Good luck going forward.

Irit Jakoby of Susquehanna.

Hi. Thank you and let me also add my congratulations on a good quarter. Haim, one question regarding -- especially on the enterprise side, it sounds like your visibility and business momentum are as good as always. But do you see a shift in the mix of business that you are anticipating, given potentially a different climate?

I would say not dramatically. I think that I've presented in the call the different areas that we are involved in. Probably areas that are required to better comply with either regulation, risk management forward and so on, we will see a slightly higher contribution to the mix, but not dramatically.

Fair enough. And are there any areas that do slow down as a result of -- in a potentially slower macro environment? Do you see maybe less demand for recording or workforce management or applications that are more cyclical?

On the contrary, recording is very -- as I mentioned during the call, recording is very strategic -- very important tool. It is not just recording, it is recording, it is maintaining records, analyzing them for different compliance-related issues. So in this context, we are seeing an increased demand for organizations that want to mitigate risk, and therefore, this is a very important part of our offering.

In addition to that, also with workforce management, as I mentioned, we are seeing very strong demand, both because of our opportunities for cross-sell and upsell within our installed base. But more important, it simply can help save cost. And if you need -- in a contact center environment, you need to be efficient with X number of employees, either instead of recording more employees or instead of replacing those that leave you as a result of natural churn, workforce management solution you can be more effective. So this is -- there is a very clear ROI to our tools, both in good times and even in tougher times.

Okay. And one final question for me. Do you see any change in the partner contribution to revenues? Are there any changes in terms of what should expect from partners, or in the mix of partners that you expect to contribute in 2008?

Not at this point of time. We have very strong partnership with leading companies in the different sectors. And the mix, in terms of our business with them, has not changed. You know, there are fluctuations from one quarter to another. If there is a specific large deal with one customer, it can fluctuate by a few percentages. But overall, it is the same mix and the same trends.

Okay, great. Thank you.

Rami Rosen of ING.

Yes. Good afternoon. Congratulations on the very nice results. Haim, can you talk a bit about M&A plans and focus areas that you're currently targeting?

Yes, we have a very strong balance sheet and we definitely intend to use it for M&A purposes. As I mentioned during the call, our latest acquisition, Actimize, has been very successful, and we are very pleased. And our team, if you like, is ready to move on to the next target. Our primary focus at this point of time is the security market. As I mentioned, we have only a fraction of the security market today. There is a lot to be done there and we are focusing on this area.

Having said that, acquisitions, you need two -- not just the acquiring part, usually, sometimes there are exceptions. But as we are not in the game of hostile, so we need really two to partner with. So the security is our first priority, but we are also not closing our eyes on the enterprise sector, and if and when there will be opportunities there. We see areas which can help us expand our product portfolio, geographic reach and so on. But the first priority would be the security part.

Okay, given the very strong outlook, very positive outlook that you see for the enterprise segment, looking into '08, do you expect a similar split, 75/25 between enterprise and security application, or do you see any change to that?

Yes, it is more or less the same split. It can be -- we mention that the split is 75 to 80, enterprise 20 to 25; security, we don't know exactly. As I mentioned, there are -- can be some fluctuations between quarter-to-quarter, but in both sectors we see very strong demand.

Okay, and lastly for me, what will be the outcome by the end of the year, and how many employees do you expect to recruit during '08?

We have a headcount of about 2300 people, and we have a plan for increasing that over the year.

Okay, thank you.

Craig Nankervis of First Analysis.

Yes, thanks. Good afternoon, nice job. I think most of my questions have been asked, but on Actimize, is it fair to say are you still sort of looking for $55 million to $60 million this year? Is your outlook basically unchanged?

You know, right now, these are the numbers. We will evaluate the recent developments of the financial services companies due to the recent events in France, and then we will see if this very interesting pipeline or interest that we see, how and fast it will translate into real business. And then we will look again at the numbers, but right now, these are the numbers, which to remind you, represent fairly significant growth already from 2007.

Right, thank you. And do you have plans -- I might have missed this -- do you have plans to integrate Actimize with the NICE offerings this year? Is that going to move ahead, or what is your thinking there?

Yes, we have basically on the horizon if you like, two types of synergies. One would be operational synergies which are already taking place, meaning to leverage the very large number of financial services that NICE covers, which range in hundreds or can be even thousands of institutions around the world. And our plan is to leverage our sales force and network of partners to include -- use Actimize to remind you when we acquired them, they had 70 or 80 customers and, therefore, we can just leverage our geographical presence to introduce them faster to our install base. And this is taking place as we speak.

There are many operational steps that we have taken; I will not go into details. That part, which takes more time, is of course to integrate the offering or to combine the offering. It's not necessarily hardwire technical integration, but there are some technical integrations which will combine our voice analytics capabilities with the Actimize analytics model.

We have given examples like Ford, which we can provide additional data points so when Actimize connects the dots, if you like, some of the dots will be driven or will be delivered from the NICE systems. Here we are talking about technology that we need to develop jointly and this will take time, and hopefully, we will see solutions from us coming throughout the end of the year in this respect.

That's helpful. Thanks. And then lastly, on the security side, do you have any -- you mentioned the FAA and your progress there -- do you have any new visibility, perhaps, into how much of those 850 sites that you guys might be involved with? Is there any new look at your opportunity there?

First of all, we will be involved in all of them, because we have won the contract as the supplier. But your question is at what pace this will translate into concrete purchase orders, like the example that I have given with the 45 airports. We do have visibility of what is expected in 2008. I cannot talk about it publicly.

Okay, thanks very much.

Brian Ruttenbur of Morgan, Keegan.

-- very much. A lot of my questions have been asked and answered, but I do have a question about GAAP EPS going forward. The last couple of quarters, GAAP EPS was $0.21 and $0.16 on a fully-diluted basis and about $0.13 this quarter. It seems like GAAP is going down, and I am just trying to get some kind of -- because I model GAAP as well as pro forma -- and I am trying to get some kind of feeling from you guys where GAAP is going to shake out in 2008 -- EPS.

I think the main difference right now between the GAAP and non-GAAP is because of expenses related mainly to the newly-acquired Actimize. And I think that if you take the run rate of expenses between the GAAP and non-GAAP in Q4, that would give you a good indication for the running rate in -- increase in 2008, and also beyond that.

Okay. So GAAP should be something less than $1 in 2008? Is that --?

I can't be very specific on that. What I can tell you, though, is that in order to business model, you need to look at Q4 reconciliation number as the amount that is an indication for the reconciliation amount in 2008.

Okay. The other thing is -- I know this has been asked -- but I will try it from a different angle. Backlog did you say was half of 2008 revenue right now?

No, what I said that backlog represents -- yes, the backlog -- half of 2008 -- or almost half of 2008 is covered by backlog, yes.

Okay, and you said pipeline was strong. Can you tell us how much pipeline is up as a percentage year over year?

No, this is not something that we are -- it is not a parameter that we are giving. But pipeline is strong, and this is especially as a result of large projects that we are seeing on the horizon.

Okay. And then last question, Verint/Witness combination, are you guys seeing any pressure from them, either on the security side or on the enterprise side?

The Verint/Witness is not so much related to the security; it is obviously related to the enterprise. As I said over several calls, we have great respect to our competitors, but we believe that market consolidation at this point of time creates for NICE an opportunity, and so far we didn't change our mind.

Okay, thank you very much. I appreciate you --.

Dan Harverd of Deutsche Bank.

Hi, good afternoon, and again, congratulations on the numbers. Just a couple of questions from me. Can you give some sort indication of what cost growth on the operating side you have budgeted for 2008? And then given the shift more towards maintenance, longer-term, what your gross margin and operating margin targets would be.

Regarding the operating expenses, we didn't give specific numbers. But going forward, we expect to continue to show leverage in our model, and therefore, we expect operating profit to grow. Which means that we expect expenses to grow at a much slower pace than the increase in our revenues. That is regarding the first issue.

The second question was on the --.

More from a longer-term perspective on the gross margins.

Gross margin, yes. Over time, gross margins should improve as a result to move into more software-based solution products and more and more applications. We can't set a clear, long-term guidance for gross margins at this point. But I did say that in the current quarter, I expect gross margin to range between 63% to 64%.

Okay. In the past, I think the number of 70% had been talked about as a very long-term target. Is that a direction at least that you can still see the Company moving in?

I think that over a longer period of time, that is probably a target we should have. I don't see it happening in the near future.

Sure. Okay, thank you, and good luck.

Jonathan Ho of William Blair.

Good morning. One question, how tied are you to new voice-over-IP deployments? I guess the business -- is the business being driven more by upgrades and enhancements to new functionality?

I think the business is actually tied to the value propositions that I have laid out during the call, which is the need to comply with regulations, to comply with new demands for -- needs for risk management, and also for operational efficiencies. So what I mean by that is voice-over-IP is an enabler.

So if I would give you -- the example I have given of an Asia bank which deployed our solutions for recording -- recording, storage and management in 1000 branch offices, he already had a voice-over-IP deployed by one of the vendors. Since he had it for some time, now with this technology being deployed, the deployment of NICE solutions for recording is much easier -- or actually, in this case, is feasible.

So, this is, if you like, the relationship. People would buy voice-over-IP telephony, sometimes with respect to NICE, but in most cases, not 100% related to NICE. There are tens of millions of voice-over-IP phones deployed already, and only a few percentages of them have deployed our solutions, and we expect this to grow significantly because of the regulations that we are seeing and other risk-management related issues.

Thank you.

Shaul Eyal of Oppenheimer & Company.

Thank you. Haim, one final question, maybe from a macro perspective. Would you say that -- well, maybe would you characterize NICE's products and solutions as being mission critical as part of the overall telecom or even enterprise food chain at the current time?

Definitely, yes. Some people -- an example that I didn't give in the call, a $3 million deal that we had recently from a major UK credit card issuer. They could not launch their new services, new products, new offerings, they could not comply with what the regulators insist, unless they would deploy NICE. So definitely in many areas, the answer is yes. Obviously in the security sector, this is the case as well. So in significant part of the business, this is the case.

Thank you.

Paul Coster of JPMorgan.

Thank you. Dafna, what is the tax rate likely to be in the next couple of years, please?

20% on average.

And the sort of CapEx commitment that you foresee?

CapEx commitment, the model talks about CapEx equal to level of depreciation over time.

Okay, thank you.

Thank you. 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 three hours. In the US, please call 1-888-326-9310. In Israel, please call 03-9255-930. Internationally, please call 9723-9255-930. Mr. Shani, would you like to make a concluding statement?

Yes. I would first of all like to use this opportunity to thank all of NICE employees and partners that have worked so hard to make 2007 a record year. And I would like to wish all our investors -- I would like to see and hope that all our investors and analysts, to see them in two weeks' time in our investor day, which is promising to be a very interesting opportunity to understand our business. So thank you all, and have a nice day.

Thank you. This concludes the NICE Systems fourth quarter and fiscal year 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.