Nice Ltd (NICE) 2008 Q2 法說會逐字稿

Welcome to the NICE Systems second quarter 2008 results conference call. Thank you all for holding. All participants are at present in a listen only mode. Following management's formal presentation instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded August 6, 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 sub heading forward-looking statements in the Company's 2007 annual report on form 20-F as filed with the Securities and Exchange Commission on April 4, 2008. 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, 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 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 strategy and overview of our business and Dafna Gruber will present a more detailed discussion of our second quarter 2008 results and financial guidance for the third quarter of 2008. 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 operation that's different in certain respects from generally accepted accounting principals. As reflected mainly in accounting for acquisition related revenues and expenses, amortization of intangible assets and accounting for stock based compensation as well as settlements and other expenses. Please refer to our second quarter and fiscal year 2008 press release for a reconciliation of our GAAP and non-GAAP results discussed on 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 2008 second quarter results. I'm happy to report another record quarter for NICE. Revenues reached $155 million coming in at the high end of our guidance. And up 22% over Q2, 2007. Earnings per share reached $0.39, up from $0.36 in the second quarter of 2007.

Q2 was marked by continuous growth in our two market sectors, enterprise and security, across all different regions. Starting from our enterprise business I'm excited to report an important milestone achieved in Q2, which we are disclosing today for the first time. We won our first ever eight digit project in the enterprise sector. The customer, one of the world's leading financial services organizations has already placed the first order of several million dollars in the second quarter with the bulk of it for our interaction analytic solution. This U.S. based financial services firm is an existing NICE customer which to date had been utilizing our solutions primarily for recording in some of its operation. Recently this financial services firm decided to standardize its contact centers on NICE and we now deploy our solutions worldwide with a major focus on interaction analytics. This customer believes NICE interaction analytics will differentiate it from the competition. This customer will also be replacing legacy competitive recording products with NICE solution.

This is just one indicator of many that demonstrates how NICE is becoming the de facto standout in our industry where customers are selecting NICE as their vendor of choice. Additional anecdotal examples include another major U.S. based financial services firm placed a seven digit order in Q2 for our interaction analytic solution, with NICE expanding its footprint into new operating divisions. This win also included the replacement of the competitive recording system with ours. A leading U.S. company in the weight loss industry also replaced a competing recording solution with NICE after selecting our interaction analytic solution. DHL Russia purchased both NICE quality management and our advanced customer feedback solutions for their three Voice over IP contact centers replacing both competitive and home grown solutions. Last but certainly not least is a particularly interesting example of a new NICE customer which is one of the world's largest airlines. Despite the huge cuts that this industry is experiencing this airline management decided to make a significant investment and place a seven digit order for our interaction analytic solution. Consequently they switched the entire recording system with NICE to help them improve operational efficiency and customer loyalty.

During July at our Americas and EMEA customer summits and partner summits we saw very clearly evidence of how NICE is transforming itself into a leading business applications Company. In many customer presentations and a round table discussion about best practices led by (inaudible) Gartner Research we witnessed how leading financial services and entertainment firms have gained extraordinary top and bottom line value across enterprise with NICE Solutions. Our growing leadership was reaffirmed by recent industry analyst reports. For example, industry analyst firm DNG Consulting reports that NICE market share grew by an impressive 4 percent points year over year more than any other vendor in the market in 2007, reaching over 35% market share globally.

Looking at the Actimize part of our business, during the second quarter we have seen a growing portion of deals that combine different components from our portfolio. Typically compliance and Anti-Money Laundering or fraud and Anti-Money Laundering. This supports our own strategy as well as the market's overall trend of consolidating different function within a centralized financial risk platform from a single provider. In Q2 we continue to drive Actimize penetration into EMEA and APAC with customers like DBS Bank, Southeast Asia largest financial institution, recently placing an order for both the Actimize Anti-Money Laundering and Fraud Risk Solutions to better manage their compliance issues across the country. In summary, NICE continues to execute well on our strategy of leading the market with advanced application solutions in the enterprise sector.

Moving on to our security business, we have seen substantial growth in our security business worldwide. As we have shared with you in the past we have made a strategic shift towards large scale multimillion dollars projects. Just last week we announced our single largest project ever, a $50 million project from an EMEA customer. Our pipeline of large scale eight digit deals remains strong as we continue to work on big projects for improving the protection of transportation systems, city centers worldwide and for enhancing national security We believe this trend will continue with worldwide spending on safety and security going strong.

Just recently the U.S. Department of Homeland Security announced it will award approximately $1.8 billion in grants to improve the nation's readiness, response and recovery capabilities. This includes grants for urban area security valued at nearly $800 million and state homeland security valued at nearly $900 million.

In addition to the large deals our bread and butter business in security also continues to be very successful. For example, New York City's Department of Information Technology and Telecommunications has placed a seven digit order for NICE solutions and is now implementing our solution in its 311 call centers. The city of Houston, the fourth largest city in the U.S. selected NICE in Q2 to capture, manage and annualize 911 emergency calls in its consolidated first responder communication centers. Norfolk Southern Corporation which is North America's largest rail carrier of metal and out of market products placed a seven digit follow-on order with NICE. Denmark's Ministry of the Interior which has selected NICE to consolidate radio over IP and telephony from its nationwide Public Safety Network. European National Rate Infrastructure operator which was one of our first NICE Inform customers and which also added our video solutions with a seven digit deal continues to expand its NICE environment by ordering more of our video security solutions.

In China for those of you watching the Olympics this next days, you might be interested to know that NICE video content analytic solutions was selected to protect Beijing's two Olympic tunnels. These tunnels run under the main Olympic Stadium and the Olympic Swimming Pool. Our solutions there can be used to address a variety of security needs such as detecting unauthorized entry into secured areas and automatically pinpointing vehicles moving in wrong direction. And finally, we are progressing very well with the FAA seven year $69 million NICE inform IDIQ award. We already received orders for over 100 sites out of 850 which are at different stages of implementation.

Before I turn the call over to Dafna, I would like to emphasize that my part of the discussion regarding the business trends relates primarily to the bookings received during the quarter and much less to the revenue numbers which are a reflection of previous quarter booking success. Therefore, the positive trends which I share with you should give you a high level of comfort regarding future quarters.

So in summary, we are very pleased with the continuous demand for and growth of our offerings across our market sectors and around the world. I will now turn the call over to Dafna. Dafna, please.

Thank you, Haim. Our business generated record results in Q2. Revenues for the second quarter were up 22% reaching the record of $155 million, up from $127 million in the second quarter of 2007. Net income in the second quarter reached $24 million, up 22% from $20 million in Q2 of last year. Earnings per fully diluted share were $0.39, up from $0.36 in the second quarter last year. Looking at our order intake book to bill was bigger than one and we ended the quarter with a record backlog which gives us a strong visibility going forward. Enterprise sector revenues were up 16% reaching over $116 million from $100 million in the second quarter of 2007. Our enterprise sector growth is mainly characterized by an increase in revenue from applications, providing a clear shift in our business toward becoming a software application Company. Our model is evolving into selling product, professional services and maintenance over a multiyear period and as a result the service portion of our business is growing.

Security sector revenues reached a record of $39 million, representing an increase of 43% over $27 million achieved in the second quarter of last year. As we have indicated and seen in the past, due to quarterly fluctuations mainly in the security business it is essential to look at our results on a year-to-date basis as well. In the first six months of 2008 enterprise sector revenues were up 23% and security sector revenues were up 25% from the same period in 2007. Organic growth for the first half of the year was 13%, in line with our targets.

Moving on to geographical analysis, the Americas accounted for 53% of revenues or $83 million, up 16% from the second quarter of 2007. Europe, Middle East, and Africa accounted for 32% of revenues or $49 million, up 32% from the second quarter of last year. And APAC accounted for 15% of revenues, or $24 million in the third quarter, up 29% from the second quarter of 2007. Growth margin in Q2 reached a record of 65.5%, up from 63% in the same period last year. We benefited this quarter from a very high portion of software base project coupled with higher penetration rate of our professional service organization. As we continue to move toward the software based application model and with the high utilization rate of our professional service organization we intend to continue to add resources to this group to better support our business. I believe that as a result of these additional resources our 2008 overall growth margin targets should range in between 64 to 65%.

Operating expenses in the second quarter of 2008 were $76 million or 49% of revenues with operating margin at 16.5%. A significant part of the increase in expenses in Q2 was due to legal costs related to the patent disputes we've just resolved. We intend to invest the majority of the savings on legal expenses on accelerating the investment in our business, mainly in the area of R&D and marketing. Our cash and equivalents were 432 -- $442 million at the end of June and DSO's were at 69 days. Our long-term target is 70 to 80 days. As for the guidance, we are providing strong guidance for the third quarter of 2008 and increasing our revenue guidance for the year. We expect revenues in the range of 159 million to $163 million and non-GAAP earning per fully diluted share in the range of $0.41 to $0.45. On an annual basis, revenue guidance is up at 627 million to $635 million with $1.65 to $1.75 range for earnings per fully diluted share. That concludes my comments. I will now turn the call over for questions. Operator.

Thank you. (OPERATOR INSTRUCTIONS) Your first question is from Dan Meron with RBC Capital Markets, please go ahead.

Hi, congratulations on the very good results. Can you give us a sense on what amount of visibility you have into the next two quarters? We're almost approaching the end of the year, and you sound pretty confident in the outlook. What kind of feedback you're getting on the impact of macro on your, on the demand for your solutions, and how should we think about it into 2009? Thank you.

I assume that you can hear from the tone of our discussions this morning or this afternoon plus the fact that we have increased our revenue guidance for the second time in this year that we feel quite good about the visibility. I mean, the business is in good shape. I mean, we don't have the crystal ball around the macro economic situation, but I would say almost cynically that in this environment with such a good result, I mean we all remember the concern of some investors regarding financial services, believe me we have such a strong quarter with financial services in the United States with extraordinary business, large orders, commitment for the future. Everything you know is not (inaudible) the macro economy, the oil prices, this is beyond my focus. But we were just last week in a customer event with our American customers. We have seen how they use the technology, what excitement they share with us on the business value, and why in these times this is kind of one major line item on their shopping list or on their investment that they believe they should continue invest even more. So knock on wood, so far so good. We say publicly we have a backlog with a value of two quarters. So it's quite a good visibility and with this large project that we announced just last week on the security side, we're already starting to see things falling into 2009 which is a good situation to be in.

Great. Is their illustration where you don't have enough sales or support or personnel in the Company to address all these deals. Is this the reason why you're increasing or allocating the fund from the legal expenses this quarter into R&D and marketing?

There are two areas that we see. A, as you can see, the Company is in a momentum and when the Company is in a momentum you want to make sure that the momentum continues and even accelerates and we feel that the best thing we can do now is to make sure that we ride the momentum and invest in making sure that the momentum will accelerate and we think it will pay off handsomely to everyone in the future. And as Dafna said, when the Company is in a momentum you need also to make sure that you support all your customers. And we want to make sure that our professional services and support organizations are in line with the growth in the business and this is why we have acquired some resources externally and also adding people internally.

Okay, great, thanks. I'll have some more follow-ups, but I'll jump back into the queue, thank you, good luck.

Thank you Daniel.

Your next question is from Hugh Cunningham of Oppenheimer, please go ahead.

This is Hugh for (inaudible). Two questions remaining on the macro theme. First, is there an anything in particular strategy wise that you're doing to print these strong results in this macro environment? And then secondly compared to the last slowdown how are you different, how is the Company different, how are you dealing with the macro environment differently?

Can you clarify when you say last slowdown, you refer to which period?

Back in say '01.

Oh, okay, I mean we are a completely different Company than 2001. In many aspects, whether it's the breadth of the products, the span of the Company globally, the value proposition that we deliver to customers, a very large part of the business which is recurring business, all these are parameters that are different.

There is one thing that is not dramatically different, this is the the fact that at least in some parts of the business we provide things that are high on the agenda of the customers. Whether it's for compliance, whether it's for monitoring the quality of the business and even more than that to assure that their relationship with their customers are managed in the most effective manner, the thing that our technology and solutions can bring a very quick ROI by understanding in almost realtime what customers want, why, what action to take, and we hear all this from customers. So this is not a gadget, this is something that can create a significant competitive advantage to our customers even in a downturn and I would say almost even more so in downturn. So and there are numerous examples that we can share with you anecdotally. Just the story that -- the coincidence that a major U.S. airline in these days with oil price down -- I'm sorry oil price are expensive and they have to cut flights and so on is investing in NICE demonstrates how our technology is viewed as a critical one in terms of maintaining their customers, improving service, understanding what the customer wants and we have many stories like that. So I believe that we are viewed by customers as a major competitive tool and that's I think this is what gives us the momentum.

Great, thank you. One other thing, how did the shekel impact you this quarter.

That's a question about the shekel?

The shekel was weaker this quarter compared to Q1 and also compared to our plans at the beginning of the year. But as we have indicated in the past, our goal is to maintain our bottom line and as you've noted we repeated our guidance for the bottom line, they were unaffected by the shekel. So the way we handle it is once the shekel growth much stronger, we had to cut on our expenses, and our plans for growth in order to make our bottom line. Now when the shekel becomes a little bit weaker and the dollar gets stronger it will enable us to continue to invest in the business. But overall we are to the bottom line and we don't let the fluctuation of the dollar versus the shekel to affect that.

Great, thank you for taking my questions.

Thank you.

Your next question is from Shyam Patil with Raymond James, please go ahead.

Hi, good morning. I believe an earlier question alluded to this, but the organic growth for the enterprise business appears to be somewhat lower than expect and based on your comments it doesn't seem to be a demand issue. I guess were there implementation constraints this quarter around your services that impacted the organic revenue number or how should we think about that?

The major focus on our services organizations in Q2 was to deliver the extraordinary results that you see on the security. So we have been extremely focused, we have a set amount of team people and you're seeing way out of average growth on the security and therefore our major focus in terms of delivery and revenue recognition and so on and closing projects was on the security, the external demand for enterprise is extremely strong and therefore on an annual basis the annual picture will present the growth rates that we are expecting from both businesses on the revenue side, because there is a significant bookings to support it.

Right, okay, thanks. And there was a large call center outsourcer this quarter that cited significant drop in their call volumes, it doesn't appear that you have seen this necessarily in your base, but if this is a trend that were to persist how would you see it affecting the business?

Very good question. I had an event with 300 customers last week and I asked people to raise their hands how many are actually seeing an increase in call volume and the vast majority of them have actually seen increase in call volume and the main reason of course think even of yourself as a customer, I would not call it a specific customer name, but I would say after some of the peaks and valleys on the value of the stock of some famous names what people are typically doing is they're calling their broker, dealer, financial call center or whatever to find out how they're doing, what they are doing, so what many customers are seeing is actually in these days people are calling more and not less. And while they are not capable to increase head count, so in order to maintain the same SLAs while addressing actually higher call volume and more demanding customers they believe that our solutions can help them in this respect. So the answer, I don't know specifically which outsourcer you refer to, it can be a specific example and probably not the only one, but overall many of our clients are actually experiencing higher call volume and not less. And this is a challenge for them.

Okay, thank you. Then my last question, just regarding the eight figure enterprise deal, how should we think about the order flow there? You mentioned that you had an initial order, how big is that relative to the actual size of the deal, and then how do you expect those to flow?

We expect this to be delivered to us by the end of this year or maybe even shorter than that.

Okay, thank you.

The next question is from Daniel Ives of Friedman Billings Ramsey, please go ahead.

Thanks, good quarter. Question of the legal expenses, I know you broke out from a GAAP purposes but what was the unexpected legal expense, what was that amount in the quarter?

Wheat that stated is included in our G&A expenses for the quarter most of the ramp we experience in the G&A expenses are because of the legal expenses as a result of the two trials that took place this quarter. And all this I would say extra expenses was not to happen in Q3 and after and we're going to use these resources in order to invest in our business.

Okay. So let's say 3 million to $4 million, something like that. When you think about operating margins for the year how do you think about that. I mean, what is sort of your goal, is it a 100 basis point expansion year over year, I mean can you just talk about your goals and operating margins both near term and long term.

Yes. All that we have talked about is reaching the up to 20% operating profit in the timeframe of two to three years.

Okay, thanks, that's it.

Next question is from Eran Jacoby from Susquehanna International Group, please go ahead.

Hi, thank you. My congratulations on the quarter.

Thank you.

I wanted to ask, given the macro environment what you're seeing from your enterprise partners and how business is going with those relationships?

You refer to our enterprise partners or customers?

Partners.

I cannot speak on their behalf in terms of their specific business and we have a variety of enterprise partners. Some of them are business partners and distributors that we have both technological relationship and also they sell and partially sell our solutions such as Avaya, Owens Business Systems and others, we have technology partners like Cisco, so there's a variety of partners and obviously I cannot speak on their behalf.

What I can tell you that significant part of our business outside of North America is actually working with partners, also in North America we work with partners, but outside we work a lot with partners and therefore the growth that we are experiencing is jointly shared with our partners. I would like to emphasize however that our solutions is a significant part of our partners more on the, I would say communication telephony part, and we are adding applications which relates to that on top of it, parallel to that, we are not necessarily joining or seeing the same business trends as them. It's not 100% correlated. So we enjoy or they enjoy together with us the success of our products and solutions, but in terms of how well their business is doing you should obviously talk to them.

Sure. And then a follow-up to that, you mentioned that your enterprise business is transitioning to be more of a software application project that will add more analytics and more functionalities on the basic communication systems, are you seeing more partners or I should say new partners that you are now bringing in, some of your more advanced offerings?

This is definitely a strategic goal. I cannot elaborate on exactly what we are doing, but we understand that to accelerate the growth of our Company we should enlarge the eco system of the Company and this is definitely something we are working on without going into specific names and details. But it's definitely on our agenda. We think the value we are now bringing to the table can be if you would like spend it with a broader eco system, so the answer is yes.

Okay. And last question to follow-up on the operating expense question, do you see a difference in your goals for this year given what's happened with the currency in terms of where you expect to end this year operating margin basis?

I want to make it loud and clear we have given a commitment to a number and we are committed to make it. And therefore if we need to work, I'm jokingly saying one hour more a day to make it for a weaker shekel -- I'm sorry, for a weaker dollar we will work an extra hour. If hopefully now there is an trend in the right direction, which the shekel is weakening again, we will use this to invest in the business and to maybe sleep, get this one hour of sleep back. So we are committed to the numbers and we are doing whatever it takes to make them.

Okay, great. Congratulations again and good luck.

Thank you.

The next question is from Tom Ernst of Deutsche Bank, please go ahead.

Yes, good afternoon, thanks for taking my question. Question for you is around average selling price. If you said it I missed it on the call, what's happened? It seems like the business has been fairly consistent with low to mid-double digit growth, but it sounds like you continue to get more and more big deals and the big bookings. Has your average selling price been trending up and what are you doing structurally in the business to drive that or to respond to the growing demand for big deals?

Hi Tom, nice to hear your voice again. If you remember our meeting a few years ago we shared this strategy, we're actually executing on the strategy to move into a business application we provide a much broader value to our end users adding more and more components and delivering value to a much broader set of audience within the enterprise. And this obviously translate into an enterprise type of deal, that's our story. And we see it more and more. So it obviously brings the overall deal side, if you would like to be more than in the past, which is good news.

How big of a change is this, Haim.

It's a change that our transformation that started a few years ago. It's a never ending transition. I mean, once we are there we will probably want to move one more step, but it's a change that we are, I would say probably more than halfway through and this is a change in our business model, this is a change that we have, we are continuing with acquisition of Actimize. This is a change you will see the split of our business of more maintenance business which is typical of a softer model, this is a change in the profile of our sales people and leadership team. This is moving on very nicely and we see the results.

So it's clearly been working, I guess the question is how much of, how much of your growth is driven by engaging the customer more deeply, have we seen ASP's rise by greater than 10% this year, 20%. Or are they just marginally up?

No, Tom, the size of the deals are, as I mentioned just a few minutes ago it's the first ever that an enterprise customer is committed on an eight digit deal for NICE, it's a big story for us, it's something we couldn't dream of a few years ago. It's a big story and this is what is banked from us is a combination of things that we had in the past, plus many things that we have added over the last two years. So it's a significant change. It's I would say that if you look at what we had to offer a few years ago and assuming a customer will buy from NICE the entire smart center portfolio this can range from one going into three. It's not that all deals are coming at this size, not yet, we still have a long way to go, we have a big customer base, but it just demonstrates the potential.

All right, thanks again.

Thank you.

The next question is from Paul Coster of JPMorgan, please go ahead.

Yes, good morning. It's actually [Mark Strauss] on behalf of Paul. Congrats on the quarter. We are looking for an update on the acquisition strategy if you could?

Okay. The strategy didn't change. We are a Company that is committed to accelerate organic growth with strategic acquisitions. We have met specific sector that is high on our agenda, which is the security sector. We have extremely busy the last I would say few months to make sure that we see the organic growth there significantly as you see by the results, but nevertheless our teams are very busy to make sure that we will do the right acquisition. It's not, it's not, I mean there's nothing to announce today or tomorrow, but we are definitely working on several acquisitions potentials in the security and hopefully we will conclude with the right price and target and strategy and culture. We will do them, if not we will have to wait. It does not mean that we will not acquire companies on the enterprise sector, but in terms of priority we still maintain our priority on the security side. But in terms of the net of potential candidates we have net of potential candidates in both sectors. It's a matter of finding and making sure we have the right target with the right price points.

Okay, thanks. And then what was the reasoning behind the settlement when it seemed like you had a pretty strong case against them initially?

Obviously this is not something that I would like to discuss too much in public. I think that we have made a strategic decision that at this point of time the best deals of management and financial resources would be to accelerate the growth in the business and we have made this trade off and therefore we have executed a settlement and on we go.

Okay, thanks. Congrats on the quarter.

Thanks.

The next question is from Brian Ruttenbur of Morgan Keegan, please go ahead.

Okay, thank you very much. My question was on the actual settlement. How much of that $9.9 million was legal expense?

The terms of the settlement have been jointly decided to be confidential and therefore we have to keep it at that.

Okay. So my reason for the question is you said something about 3 million to $4 million of legal expense in the quarter, was that charged off as one time or is that going to drop out of G&A going forward? That's what I'm trying to get to as modeling going forward.

Well, the expenses that are associated with the trial that took place earlier in Q2 are part of G&A expenses.

Okay, so there should be then logically a drop in G&A from second quarter to third quarter because of that?

A sudden drop in G&A is expected, yes.

Okay. And you said earlier that it was 3 million to $4 million, was that all in the quarter?

Actually I didn't say 3 million to $4 million, but that's, there was a certain large portion of the G&A that was associated with legal expenses and part of it was -- will drop as we move from Q2 to Q3.

Okay. That was actually in the G&A line or was it charged off in this?

The G&A line.

In the G&A.

Yes. Part of the G&A line.

Okay, great. And then last question, what kind of hedging do you do on the shekel? I don't believe you do any, but I just want to be reminded of that.

We have a policy to hedge for the coming periods basically the current quarter, usually when we give guidance we are already covered for the exchange rate. In order to make sure that we are meeting our number despite any fluctuations on the shekel. And further, for later on quarters, Q4 and next year we are doing some hedging, but what's important to understand is that we are committed to the bottom line and if the shekel gets stronger or weaker we take necessary steps internally to increase or decrease our expenses in order to meet our bottom line targets.

Okay, thank you very much.

Your next question is from Jonathan Ho of William Blair, please go ahead.

Good morning. Can you give us your thoughts on the DHS opportunity that you mentioned and maybe where you think there are some specific opportunities for NICE?

The Department of Homeland Security?

Yes.

I think just I gave it as more of a broad market overview other than a specific opportunity, but I think it demonstrates that there is a willingness to commit resources that will primarily go into state and city and cities to protect their safety and security of citizens. And this is behind all the announcement that we have made including in North America someone needs to pay for that and this is a demonstration that there is a willingness that still the systems that are deployed out there needs to be either changed or renewed or in many cases put something from scratch. So this is just a validation that there are budgets around that and we expect that investments will continue both in the U.S. and as you have seen with our latest announcement also in countries outside of the U.S. where governments are putting funds to invest in this area. But primarily in terms of NICE it is primarily for multi media, command and control centers in cities, transportation centers, 911s and so on.

Do you have a sense for maybe when this will turn into sort of RFP's or different I guess tangible projects that are going to be out there?

It's all the time. It's happening as we speak. There are constant flow when we are talking about pipeline both in the U.S. and also in other parts of the world it's constant. It's not something, it's not an anecdotal case. I just gave the report as an example, but we are seeing projects, security related projects both in America and in other parts of the world as we speak.

So when you think about your acquisition strategy are you doing anything to sort of position yourself to kind of take advantage of this or is it just going to be sort of along the lines of your current business?

We again, I cannot be very specific, but I think that whatever we will do in the security field will, I would say if we are -- will execute on the acquisition strategy will definitely position us even better to gain larger projects and offer a more comprehensive solution, yes.

Great, thank you.

Thank you.

The next question is from Daniel Cummins with Soleil, please go ahead.

Thanks. I just had a quick question first about distributors. It seemed likely that no distributor this year's going to contribute more than 10% of revenue overall. Is that about right?

The year is not over yet, so we will wait and see.

Okay. And then I had a question overall about margins. I guess I'm primarily asking about Actimize, but it's more general than that. You seem to be running at approximately the same operating profitability for the first nine months with Actimize than you were nine months before. I recognize in some ways a hellish customer environment. Are you doing anything right now, gross margins certainly seems to support Actimize being accretive to the business model, but are you doing anything with your spending initiatives to take out structural cost, when does NICE get back to a steady level where the EPS growth outpaces the organic revenue growth let's say consistently.

I don't think the two are much related. I think, as Dafna said, we had some of our expenses were actually related to legal expenses and there were some costs that were associated again with the fluctuation of the currency, so it has nothing to do with the business model. So I don't think the two, we're not looking at taking cost out of the system, we are actually, we are actually building a business that we think within a few years time can reach 20% profitability from a combination of A, leveraging the model and also increasing the gross margin over the years as a result of moving into software. I think we are well on our way to achieve this target.

So the standard expectation perhaps should be low teens organic revenue growth, high teens operating profitability growth?

Yes, yes, yes.

Thank you.

The next question is a follow up question from Dan Meron of RBC Capital Markets, please go ahead.

Yes, thanks. Haim, just a quick follow-up on the geographical mix. What are the trends that you're seeing as far as trends in security segment? Do you see that Europe and APAC are stronger than the U.S. or you think it's pretty strong broadly based demand right now?

Overall I think there is strong demand overall. Obviously the U.S. is our biggest market in every aspect of the business, including the security. But the demand is strong, is definitely strong across the board. We don't have all our product offerings without going into competitive detail too much, but we have not, we are not offering all our product in every geography, so there can be some difference because of our product offering, but I would say if I would generalize there is a demand across the board for our security products.

Okay, that's fair. And then Dafna, can you give us a sense on, we have seen the enterprise business kind of drop sequentially here, in the last quarter, it got you back to seasonality, how can we think about break down on a division level going forward? Is this something that has to do just with revenue recognition or you think that we should be looking for the normal seasonality that we have seen in prior years and continue to apply it going forward as well? Thank you.

I think that going forward our target is to reach anything gross for both sector this year and we are working according to this plan and I have good reasons to believe we will meet our target. Fluctuations between the quarters are something to be ignored in our opinion.

Okay, very well, thank you, good luck.

Thank you. There are no further questions at this time. Before I ask Mr. Shani to come out with his his closing statements I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the U.S. please call 1-888-782-4291. In Israel please call 03-9255-938. Internationally please call 9723-9255-938. Mr. Shani would you like to make a concluding statement?

Yes, I would like to thank everyone for joining us for the call today and looking forward to talk to you in our next earnings report. Thank you and have a nice day.

Thank you. This concludes the NICE Systems second quarter 2008 results conference call. Thank you for your participation, you may go ahead and disconnect.