Nice Ltd (NICE) 2008 Q4 法說會逐字稿

Welcome to the NICE Systems fourth-quarter 2008 results conference call, and 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 February 11, 2009. I would now like to turn the call over to Ms. Daphna Golden. Ms. Golden, please go ahead.

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'd 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.

During today's call, Haim Shani will present trends and an overview of our business and Dafna Gruber will present a more detailed discussion of our fourth-quarter and fiscal-year 2008 results and our financial outlook for 2009. Following our comments, there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from Generally Accepted Accounting Principles, 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 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.

Good day, and thank you all for joining us for a review of our fourth-quarter and fiscal-year 2008 results.

Q4 demonstrated another strong quarter for NICE. We achieved outstanding bookings and backlog, reaching new heights, and record revenues of $163.3 million, in line with our guidance and up 12% over the fourth quarter of 2007.

Earnings per share reached $0.50, up from $0.39 in the fourth quarter of 2007. For the entire year, we achieved record revenues of $628 million, up from $523 million in 2007. Earnings per share reached $1.67, up from $1.44 in 2007.

2008 was a successful year for NICE. Our strong performance in both the enterprise and security sectors throughout the fourth quarter and the year, coupled with the Company's strong financial position, demonstrates nice growing market share and consistent industry leadership status. We continue to close large deals and expand our customer base.

By delivering advanced solutions, we help our customers comply with regulations and mitigate risk, enhance operational efficiency and improve customer retention and satisfaction, which, today, more than ever, is key to maintaining their competitive edge and their survival.

Let me share with you some interesting trends in the enterprise market followed by a few tangible examples. Our customers in the financial, telco, and healthcare market segments have been sharing with us their experiences as the enterprise market undergoes significant changes due to the turbulent economic climate. They are experiencing huge spikes in calls to the contact centers, as everyone is concerned about their monetary status.

People are looking for better ways to manage their finances and cut expenses by refinancing loans, switching insurance policies, changing cell phone programs, et cetera. As a result, contact center management and employees are under a tremendous amount of pressure to promptly respond to much higher call volumes, more complex calls and new type of calls as they try to satisfy customers and prevent customer churn. They strive to continue to deliver premium services and operate more efficiently with their current or fewer resources. Some customers who are able to increase their number of agents are doing so in order to respond to the growing demand. In both cases, they are implementing NICE SmartCenter solutions to help them improve their contact centers' operational efficiency and customer service.

I will now share with you some examples we have from our customers just a few weeks ago, at our annual 2009 kickoff event. They will shed some light on the business dynamics we are observing as we enter the new year.

One example is one of the top three financial services firms in the world. In mid-December, with the dramatic decrease of interest rates in the US, these customers were flooded with refinancing inquiry calls for mortgage customers. The unexpected routing of questions from the refinancing units to customers [quell] required them to quickly adjust their staffing forecast, which was surpassing projections. They needed to figure out immediately how many refinancing inquiries were actually received, whether the call volume will continue to increase, and how to project call volume for the new updated forecast.

By utilizing NICE Interaction analytics, which they implemented only two months earlier, they were able to analyze these issues efficiently. After assessing the results, they were able to correlate them with their workforce management solution to appropriately adjust the contact center's staffing forecast to meet the current customer service demand.

We also encountered an interesting deal with one of the largest retail chains in Western Europe. Although this market segment is suffering from the economic situation, this new customer, who has been shutting down stores and laying off hundreds of employees, recently decided to implement a wide range of NICE SmartCenter applications. This customer's goal is to improve customer satisfaction and retention in a highly competitive market space. The deal was closed through a major European contact center outsourcer, who is using NICE solutions for thousands of agents.

Another trend that we are seeing is that governmental and internal corporate regulation compliance is increasingly becoming an integral part of everybody's business. One of our customers with one of the most extensive banking networks in the US lost millions of dollars in 2008 alone due to compliance-related issues such as employee impersonation, and not validating [quarters] according to procedures.

This clearly demonstrates how a reliable and resilient compliance solution at the contact center can protect the business and its reputation while eliminating significant expenses, providing clear ROI. Consequently, companies aim to optimize the way they conform to regulations and mitigate transactional risk while enhancing customer loyalty. In 2008, we saw a significant increase in demand for our various solutions, addressing risk management and compliance issues.

We are very proud of the recent joint NICE ACTIMIZE multi-million dollar bill, which is a landmark event for NICE. This closed sales deal with a leading US brokerage firm leverages our relationship and success with them as they will be further expanding their NICE SmartCenter implementation and using ACTIMIZE solutions for the first time. To support their growing business, they will be replacing a home-grown solution and will be implementing the ACTIMIZE anti-money laundering solution for securities throughout the organization to meet critical compliance requirements. We believe that the ACTIMIZE suite of solutions, which experienced phenomenal growth in 2008, will become a major enforcement tool for regulators during this economic crisis and it will create significant opportunity for NICE in the future.

Moving on to the security sector, as the world continues to be plagued with crime and terror, governments and corporations around the globe are continuing to invest billions of dollars to protect people and assets. 2008 was a turning point in NICE security business. We delivered great results, both in terms of revenues and bookings. We successfully executed our strategy of integrating multiple security solutions to deliver a single, comprehensive, unique and powerful offering. By leveraging our extensive installed base and our unique and innovating offering, we continue to focus on winning large-scale, multi-million dollar projects for protecting large city centers, political facilities and transportation systems.

On our fourth-quarter 2007 call, we projected winning several eight-digit deals for 2008, and delivered one at over $10 million, another at $15 million and the largest at over $20 million.

In addition to these eight-digit deals, we are also continuing to make substantial progress in our ongoing business, as shown, for example, through the execution of the FAA [frame] agreement. To date, we received orders from the FAA for a total of approximately 200 NICE Infosystems, up from 45 at the end of 2007, which will be used with cold communications between pilots and air traffic control.

We also announced a seven-digit NICE Inform deal, which came in to the Miami-Dade Police Department to operate the busiest 911 center in the Southeastern region of the US and has large [person] responsibility for a major international airport and other country sites. All of these sites utilize NICE video surveillance solutions, and in the future, they will be able to leverage NICE Inform multimedia incident reconstruction capabilities as needed to synchronize captured video and voice communication for comprehensive incident reconstruction in critical response scenarios.

If the federal government continues to provide stimulus packages, we will be seeing significant investment increases in urban and transportation infrastructures to include new buildout of highways, bridges, ports, mass transit, airport, and intercity passenger and freight trains. State-of-the-art technology is key to enhancing safety and security in public locations.

An example which demonstrates NICE's commitment to improving security for critical transportation infrastructures and our success in leveraging our customer base is the deal we announced last week with TransNet, South Africa's largest cargo terminal operator.

To summarize, we're entering 2009 in an excellent position. We are the clear leader in our market and our solutions are fundamental in today's environment. Our strong balance sheet will allow us to seize strategic opportunities, as well as provide the confidence that customers seek when buying from assorted vendors. Based on the value of our solutions to our customers, as I shared with you today, NICE targets 2010 as another year of growth for the Company. In 2009, we plan to increase both our R&D department and field organization in order to emerge from this economic downturn as an even stronger company. I will now turn the call over to Dafna Gruber, our Chief Financial Officer. Dafna, please.

Thank you, Haim. I am pleased to provide you with the analysis of our financial results and business performance for the fourth quarter and fiscal year 2008. During this period, NICE achieved revenue growth and continued operating leverage, resulting in record earnings. We had also recorded very strong bookings with book to bill greater than 1, which translated into a record backlog at the end of December.

Revenues for the fourth quarter 2008 reached a record of $163.3 million, up 12% from $145.8 million in the fourth quarter of 2007. Revenues for the full year 2008 reached a record of $628 million, representing an increase of 20% over the $523 million in 2007. Net income in the fourth quarter reached a record of $31 million, 27% higher than $24 million in Q4 of last year.

Net income through the year crossed the $100 million mark for the first time, reaching $103 million, which is 27% higher than $82 million in 2007.

Earnings per fully diluted share for the fourth quarter reached a record of $0.50, up from $0.39 in the fourth quarter last year. For the year, earnings per fully diluted share reached a record of $1.67, up from $1.44 in the fourth quarter last year.

Enterprise revenues reached $127 million in the fourth quarter, up 12% from $114 million in the fourth quarter of 2007. Enterprise revenues for the year reached $480 million, up 20% from $400 million last year. Our enterprise sector growth is mainly an example of growing demand for our advanced applications, coupled with continued demand for our unique solutions and with supporting compliance operational efficiency and customer retention.

Security sector revenues in the quarter reached $36 million, 13% higher than in the fourth quarter of 2007. For the year, security sector revenues reached $149 million, which is up 21% from $123 million in 2007.

Revenues by geography were as follows -- the Americas accounted for 59% or $97 million of revenues in the fourth quarter and $349 million for the year, an increase of 18% from 2007. Europe, Middle East and Africa accounted for 29% or $47 million in the quarter and $191 million for the year, an increase of 23% from 2007. APAC accounted for 12% or $20 million in the fourth quarter and $88 million for the year, an increase of 21% from 2007.

Q4 gross margin reached 65.4%, up from 64.7% in the same period of 2007. 2008 gross margin increased to an annual record of 65.1%, up from 63.5% in 2007. The increase in gross margin demonstrates the growing portion of software-based product sales, coupled with higher recurring revenues on the service line. For 2009, we target a range of 64% to 65% gross margin.

During the quarter, we continue to increase investment in R&D, supporting our goal of further enhancing our differentiating industry-leading position.

Operating expenses in the fourth quarter of 2008 totaled $77 million or 47% of revenues, similar to last year. We continue to benefit from the operating leverage in our model. In Q4, operating margin reached 18.4%, up from 17.6% in Q4 of 2007.

Operating margin on an annual basis reached a record of 17.4%, up from 16.7% in 2007.

Consolidated taxes on income in Q4 were 13.1% compared to 20.1% in Q3. The full-year 2008 effective tax rate was as low as 17.5%. In 2008, the Company invested in maximizing the available tax benefits and recently filed several tax returns with actual taxes due, coming in less than previously accrued. We forecast 18% to 20% as our target effective tax rate going forward.

Finance income was exceptionally high at $5.8 million, and we currently forecast finance income of up to $10 million on an annual basis for 2009. We are very proud with the record amount of cash generated from operations in the fourth quarter 2008, which totaled to $42 million. For the year, we generated a record of $136 million from operations, which is up from $118 million last year. Our cash and equivalents crossed the $0.5 billion amount with no debt.

DSOs accounted for 60 days in the fourth quarter, better than our long-term target of 70 to 80 days.

Moving on to guidance, here, we are encountering two somehow contradictory trends. On one hand, we are entering 2009 with an extremely strong backlog with a strong pipeline for our enterprise solutions, coupled with the continuous momentum in the security space. Specifically, we will start benefiting from the large security backlog accumulated in the second half of 2008, starting in the second quarter of 2009. These very positive drivers provide us with good comfort regarding our ability to continue to grow in 2009 despite the market environment.

On the other hand, the markets are currently in turmoil. Our people in the field are telling us that NICE Solutions remains high on the priority agenda for 2009, but, we also hear that as of today, some of our customers have not concluded their 2009 budgets at this point. As such, we have adopted a conservative approach when guiding for the first quarter of 2009, which is seasonally the weakest quarter of the year. Revenues in Q1 are expected to range between $141 million to $151 million with earnings per fully diluted share in the range of $0.31 to $0.41. For the year, we expect moderate year-over-year growth in both revenues and earnings.

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

(Operator Instructions). Shaul Eyal, Oppenheimer.

Good afternoon, guys, and good work on the execution side. A couple of quick questions on my end. Dafna, you just mentioned two contradictory trends. On the one hand, record level bookings, backlog, visibility all in all it's very, very solid. But then kind of maybe try and Haim will help us reconcile the moderate growth rate that you guys are forecasting and let's try maybe and narrow and define what moderate growth rates could look like.

I think the biggest phenomena that we are seeing today, that's in addition to the backlog that we have, we also have a very strong pipeline of projects both on the securities but the points were discussed primarily on the enterprise side.

We have a history in the last eight years of meeting every single quarter's guidance. And we shouldn't underestimate this achievement. It's primarily for our ability to take all our pipeline and activity and apply some measures of profitability going forward.

Despite the fact that there is an excellent pipeline, it's a little bit too early in the year to see if we can assume the same level of profitability or because of different issues, macroeconomic and budget, we will need to apply a different level of profitability. So this is the reason why we've decided to take a fairly cautious approach at this point of time.

Fair enough. Just one housekeeping question on the tax rate -- very, very low this quarter. Anything unusual or just kind of being able to see the benefit or kind of [expedite] and accelerate some of the benefit in this quarter?

It's a certain catch-up; it doesn't benefit that we accumulated -- I think what's important to understand it wasn't going to happen in the future and in the future, I currently target 18% to 20% effective tax rate.

Got it. Just one final quick question for mine on the M&A front. Already $8 approximately of cash per share on your balance sheet. And the question of M&A comes quite often, but when you are looking at your targets right now, in some cases, Haim, are you being pushed or are you being directed by some of your big customers, big partners to go and pursue some potential candidates?

The answer is yes. We are definitely guided, if you would like, by some customers that would prefer to have a solution which would be more comprehensive from one vendor, and one strong vendor. So some of our clients and as a result indirectly or through our sales force are providing I would say very good ideas to our M&A department on who to talk to and who to look in addition of course to the strategic planners we have and our own roadmap of what are the relevant areas that we can expand either our portfolio or geographical presence or both. So the answer is definitely yes.

I would just say again, to comment on the previous question, I want to make it very clear that the pipeline of projects that NICE has at this point of time, both on the security and more important on the enterprise is the highest ever. I explained in my call before that there is a lot of need for our technology for the reasons which I shared in the call, and this is translated into the level of activity that our people in the field have seen.

Loud and clear. Thank you very much and good luck.

Shyam Patil, Raymond James.

Thank you. Congrats on the quarter and for the '09 growth guidance. Haim, I was wondering if you can maybe hone in on what moderate means exactly? Should we be thinking about something in the low single digits, mid single digits?

I would say probably at this point of time it is between low to what was that, to the mid, yes. That would probably be the typical range. Obviously, at this point of time, no one has the exact crystal ball of how the second half of the year would shape up. We are in an excellent situation that we have a significant part of the orders that were given on the second half of '07 will start kicking in as revenue from the second quarter. So this, if you like, a nice cushion to have. So this is what we think is moderate.

Got it. And, when you think -- if revenue does indeed fall within moderate (multiple speakers)

(multiple speakers) just kind of half a joke, I visited one of our customers that is in one of the field and he told me that in his organization, actually [tread] is the new high. So everything on a relative scale.

Exactly. And just following up on the bottom line growth then, if the top line does indeed grow within your moderate expected range, should the bottom line growth in line with the top line, a little faster? How should we think about that?

I think that we have demonstrated in 2008, better look at the results. We have demonstrated our ability to leverage and there are relatively positive tailwinds at this point of time, so from this respect, we should have leverage in the [moderate edge], again, we have demonstrated this quarter.

Great. And just one more question. You mentioned that you have put up eight years of in-line to better than expected quarterly guidance. Just wondering, when you look to 1Q, what does your guidance imply for revenue flow from backlog versus turns? How much of that expected revenue is going to come out of backlog? How much of it is not in backlog but visible? And how much of it needs to be booked in the next month, month and a half?

It's a combination of all. Obviously, the first quarter has always a little bit larger percentage, but as I mentioned initially, some of the large orders that we have received on the security side (technical difficulty) [chip] would start to translate into revenue on the second quarter and onward. So, but it's a mixture of all of these.

Great. Thank you, guys.

Daniel Ives, Friedman, Billings, Ramsey.

Thanks. Can you kind of walk through -- in this environment from the sales methodology, are you guys doing anything different with deals or pricing or just the way you sell? Just walk through maybe in the field anything you guys are doing different to continue to see growth?

I would say that almost on the contrary, we are executing on the strategy. The strategy was put in place a few years ago, not necessarily related to the economic environment which is to zoom in on the critical issues that customers have. So if it's related to regulatory stuff, this is always good news because in this context, the customer needs a solution, and in many cases, they buy from us because we are the leading vendor.

In other cases, it's more of market development, but and this is critical, there is a clear and quick ROI on a lot of our solutions, especially around the analytics of the operational efficiency. Sometimes the example that I have given you on the specific call center of a large financial services organization, their ability to make very quick decisions on the spot when they have a major flux of refinancing calls, (technical difficulty) of weeks. So it's ROI. It's explaining to our customers how they can leverage the technology in some parts. And in other parts, it's adhering to compliance regulations. And that's what we try to do.

On the security side of course, it's a different story. There, it's more related to government and federal organizations. (technical difficulty) out of a more long-term infrastructure and investment and commitment of government to help or improve the safety. So here it's, again, execution of our long-term strategy.

So it's a long answer, but the bottom line is we're not doing anything dramatically different. Obviously, our sales force is professional; it's trained. We spent a lot of time. I did mention on the call that we will be investing more in people and resources on the field. You can expect from us to expand on marketing, on explaining the benefits, on differentiating our solutions. All the usual stuff.

Okay. Dafna, you said $10 million financial income, right?

For whole year of 2009, yes.

For the year. So obviously, look, I mean expanding the operating margins next year, how -- as a CFO, what are you doing to make sure on the cost front that we're going to continue to see expanding margins in 2009? I mean you talk about spending in certain areas, but obviously refraining spending in others?

Yes, when planning for 2009, we have identified the areas where we want to invest some more, which is the R&D in certain areas, in R&D. The service organization, the project implementation to address the large projects we just won. And there are also some areas where we are taking some resources and very minor resources out in order to finance that.

The overall budget plans for additional headcount throughout the year in the Company at a moderate rate, but still a growth in terms of headcount. And that's all embedded within our budget and our budget includes continuous leverage in the model.

Right. Good job in the past quarter. Thanks.

Daniel Meron, RBC Capital Markets.

Thank you. Hi and congrats on the good execution, all things considered. First of all, if you can provide us with a little bit more color on a regional level, my checks indicate that at least in security, there has been a little bit of a pickup in the Asia-Pacific region following the terror attacks in India. If you can give us a little bit of flavor on that. Also, on the enterprise side, what you are seeing on the regional level. Thank you.

I would say in general that we have been focused, in addition to the success that we had in the US for quite some time in the security side, over the last two years, we have also invested quite a lot on developing our resources and focus on the emerging market countries in terms of security. And this is coupled with a heightened security in some countries, and in parallel, with investment that we're starting to see in government (technical difficulty) projects for infrastructure. So, that is something that we are (technical difficulty).

On the enterprise side, so different trends, if you like, (technical difficulty) Q4 if there was one thing that I am extremely proud of, it is the fact that in the Americas, and especially in the United States on the fourth quarter, we have won -- you can see the numbers of seven-digit deals that we announced, which is fairly impressive. We are very pleased with this number. A significant part of it came from North America and nice numbers came from financial services organization in North America in the enterprise side. We will also start to see this turning into revenue this quarter and beyond.

So, this is a trend that we saw in the fourth quarter, where customers on the enterprise side are implementing this type of technology that we have. At this point of time, looking at 2009, we expect that there will be moderate growth in all regions. Exactly how it was split between one to the other is obviously difficult to know at this point of time. But we expect some, obviously, not in all countries, some countries if you like recession hits, and therefore there will be slower growth or maybe there will not be growth at all in these countries. But other countries, we believe that the penetration rate of our technologies is so low, so there is still a lot of room for growth.

Thank you, Haim. And then from the vertical standpoint, you mentioned healthcare, telcos and financials seeing an increase in their call volumes. Are there any verticals that you think we are seeing weakness in the call volumes or that the agent number is dropping? Also, what is your sense on the number of agents or call volumes in general as we head into 2009?

Again, I assume that not all verticals are active, as we mentioned. I assume that, for example, in the auto industry, it's probably extremely low. Luckily enough for us, this is an insignificant part of our business if at all. So, again, I'm using this just as an example. I assume that people are not buying new cars these days. So those that handle this type of maybe travel, but these verticals are insignificant. We hardly serve them. And on the other hand, what we hear from customers day after day that if we are looking at the telcos, there's a spike in call volume because people -- either telco carriers or companies in the networking -- customers are calling in to check, maybe there is a better deal or some competitive offering and so on. And for a customer from losing this type of customer is a disaster to the cash flow, so it's very important for them to make sure that they keep their clients.

On the financing side, with the low interest, there is definitely at this point of time a big move for refinancing, whether mortgage or other stuff, and this also [calls] into call volume.

I would say that overall, and this is, I am by no means an expert, but overall, if you are looking at the financial sector, probably it will have to move back to the good old traditional banking, which means you need to do business with your customers rather than with exotic [instruments]. And there will be much more focus on each and every single household, and we are there to help them.

Okay, thank you. And last question for me is regarding visibility. How would you characterize your [visibility] or confidence in the outlook that you provide for next quarter or for the next year as we go forward? Should we just assume that the broader range is just indicative of lower visibility or a lower amount of confidence that you have and orders that you already have [attend]? Or how would you characterize that?

No, it's simple -- extremely simple. We're now a few weeks in the quarter. The IT budgets have only now started to be released, with most customers either released or about to be released and so on. And therefore, we don't have a track record of profitability of conversion between the pipeline to an actual deal. This conversion ratio that we have used and was very successful over the last few years, we still do not know if we can assume the same or lower one or maybe higher. Therefore, at this point in time, we have decided to take a very cautious approach. In terms of the actual deals pipeline activity, is as strong as ever.

Okay, very good. Thank you, good luck.

Ari Bensinger, Standard & Poor's.

On the security segment, there was a pullback from Q3. I'm wondering, is there some seasonality in the business or something else that impacted the quarter, because you really highlighted strength in terms of the pipeline for that segment.

Yes, definitely. At this point of time, it's not a matter of seasonality; it's not a traditional seasonality, but there is fluctuation. And when we announced the $20 million deal or $15 million deal, the recognition is not just -- is not smooth. It's not a straight line. It can fluctuate. So we can recognize these in bulks and therefore it can affect one quarter or the other. That's why for the last few years we have recommended our investors to look at the security on an annual basis. And as you can see, the annual growth rate of the security is significant; if I'm not mistaken, it's in the 20% range. So it's -- this is the only way to look at the security and not quarter by quarter, but more on an annual level.

That makes sense. Also, can you break down your exposure to the financial services vertical? I know a couple quarters ago, you gave the number in terms of contact centers, how much that represented.

Now there is no change from what we have discussed. The financial services industry is obviously one of the industries that we serve. The mix is the same.

Okay. And last question. In your services segment, can you break out how much is maintenance related or more of a recurring type of revenue profile?

Can you repeat the question, please.

The mix (multiple speakers)

In the services segment, how much is maintenance related?

The majority of the revenue in the service area is maintenance, and that's pretty stable over time.

All right, thank you.

Ziv Tal, Oscar Gruss.

Haim, can you please describe or address the current competitive environment? Are you taking market share from the competitors? How do you differentiate yourself compared to the competition?

From a differentiation (technical difficulty) (technical difficulty) very nice testimonials and recently, Gartner [magic quarter run] has put us in the right, right place where we should be. But everyone else from a product differentiation, we have definitely -- we are in a good position on the enterprise [spout].

On the security side, we have a very unique offering in terms of our capability to offer multimedia scenarios, reconstruction, and large scale projects, which is quite unique, combining the entire media that reinforcement agencies need. So, from an operating perspective, I think we are in a good sturdy situation.

In terms of market share, we believe that we are growing our market share, but obviously we can only rely on some external industry analysts. As being a public -- we are probably the only public company that has 100% disclosure on our market segments. We obviously have other competitors. Some of them are public, but their areas that operate in our space is not specifically disclosed. So we don't have any public information to compare, but from what we see in the field, we believe that we are continuously capturing market share, but we obviously have a competition in every segment that we operate.

Thank you.

Jonathan Ho, William Blair.

Just a quick question in terms of the stimulus package that you guys talked about for the US. How do you think that can potentially I guess impact the business or just the shift into the Obama administration as well? Just trying to get some color on that side.

Again, obviously, we have quoted some of the lines of the stimulus package. But we use this as a reference to the entire world, so it's not just US-focused; I want to highlight this fact.

We are seeing in some countries -- the stimulus package is obviously just a beginning. But we are seeing in some countries, concrete projects for, as I mentioned, bridges, tunnels, train stations, all these areas will now be, we believe, the security solutions, digital security solutions like we offer will be early-on specked into these requirements. And we believe this is going to happen exactly the same in North America. So when investing in transportation infrastructure of the future, it makes sense to use the type of technology that we have to offer, whether it would be command centers, digital video surveillance or safe cities, so we believe that we have a potential to benefit from this trend.

Got it. And just in terms of ACTIMIZE, can you talk a little bit about how the increased regulation could potentially broaden the market? Is this going to open up new industries that maybe haven't had to use an ACTIMIZE type product in the past? Or does it broaden the application within your current customer base? Just want to get a sense of how you see that playing out.

All the above. We think that on a tactical level, we think that we will be able to use more and more the NICE vast customer base, as we have started to see in 2008, and leverage just by customers being aware that they need to buy exactly the same solutions that ACTIMIZE had in the past, but they are better or safer than their internal ones. And the NICE [sense force attitude] if you would like and introduce them to a broader audience than in the past. So this is one thing.

On the more, if you like long-term direction, we believe that the ACTIMIZE has the technology, the potential, the market reputation to be a very say powerful enforcement tool of some of the regulations that might come as a result of the recent turmoil. We do have specific examples or ideas, but I prefer to keep it as, if you would like, competitive information at this point of time for obvious reasons.

Got it. And just a final follow-up on ACTIMIZE. What do you think the penetration level is right now for the technology? And are we still in the pretty early stages? Or halfway, how do you think about that in terms of the penetration?

Yes, definitely in the enterprise [profile], ACTIMIZE has started to capture in some customers view of the fraud-related channels, but only a few. What we are seeing right now is working with clients on enterprise-wide fraud projects which are integrating variety of potential fraud channels. And ACTIMIZE can become an enterprise fraud solutions and in the future, integrating into or even with the NICE additional channels. So this part of this combination is just at the very early -- the very beginning.

We have recently acquired some technology for debit cards, for example, which is growing significantly in North America. So this is, if you would like, another channel of potential fraud, integrating all of it into one holistic fraud enterprise solution is a new trend, and we are only at the beginning.

Thank you.

Craig Nankervis, First Analysis.

Thanks very much. Hi, I'm sorry to go back to this, but I'd just like to feel a little clearer on the Q1 guidance. It's sequentially significantly down versus what you did in Q1 '08, yet you are saying that the tone of business really hasn't changed. And are you basically entirely attributing the sequential decline in your guidance to taking this cautious approach on your close rate for current deals? Is that the entire explanation for the sequential difference versus a year ago?

First of all, just to correct you, versus year ago, it's more or less flat and not significantly declined. So just the mathematics, it's more or less flat from -- if you are looking, obviously, at the average, there is a wider spread, so this is just on the mathematics.

Well, you were sequentially flat, roughly sequentially flat in Q1 '08 versus Q4 '07, as I see it -- your revenue.

No, to correct you again, the guidance for Q1 is more or less flat compared to the actual of Q1 '07. So this is just a few mathematical --

Sure, sure.

(multiple speakers) yes, '08, yes.

Okay.

So this is just a mechanical. But to answer your question, again, I believe that I explained but I'm happy to explain again. In terms of the level of activity that we see, it's as healthy as in the past. In terms of our prediction model, our assumption, how much of the pipeline will actually turn into revenue, at this point of time, and I would like to highlight at this point of time, we have decided to take a cautious approach because we cannot avoid the environment around which we operate. We are living in an environment that is extremely volatile. Many customers, although they tell us that NICE is high on their agenda, it is still at the very early stage. And in addition to that, anyway, this first quarter is a relatively weak quarter seasonally. So that's where we are. This is what leads us to take a cautious approach.

Still, at this point of time, we are predicting growth for 2009 because we believe that the overall trends, as I mentioned, are positive. And also, the contribution of the strong backlog that we have would start to kick in as of the second quarter. It takes some time for the large orders to materialize into revenue, and it will start, as I mentioned, primarily in the second quarter. So --

Right. I heard that. Okay. I'm sorry; did you have more to say? Go ahead.

No. That's -- so I mean, overall tone, in terms of the environment, despite the fact that everything around us doesn't look great or exciting, we are still seeing significant activity. But we decided to take a very cautious approach, definitely, from the first quarter. That's where we are, simple.

Okay, thank you. And then on the security side, can you give some flavor for your outlook for sort of the seven-digit size deals. You are doing so well on the extra large deals, and can you just give a flavor for what the seven-digit side? And how you feel your outlook in those size deals is and your attention to those size deals now that you are going after very large deals as well?

This is an excellent question. Obviously, on the seven-digit deals and on the six-digit deals, there is still a very strong focus because we need them in order to continue with I would say basic rate of the business. We are less focused and we have always been less focused on the smaller part of the lower end of this market. We think there is plenty for us to do in the higher end.

So in terms of overall pipeline, we have, and it's a good opportunity to mention -- I said on the call last year that we have several very large opportunities for 2008. I am pleased to say it again that we have the same level of activity and pipeline in terms of large deals also for 2009. And in addition to that, we have our ongoing, if you would like, seven-digit deals on the security side as in the past.

Okay, thank you. That's helpful. So, if we're focusing on the seven-digit deals, it sounds like your outlook for that level of business is similar or maybe even slightly better than it was a year ago? Is that a fair statement?

We think that the security business will grow nicely also in 2009, yes.

Thank you.

[Sanil Banjerar], [Sentinel] Investments.

Just wondering what is the level of your recurring revenues overall?

The level of recurring revenues are, the maintenance part is the significant part of the service revenues. So it's between 25% to 30% of our total revenue. That is on the maintenance side. Most of the business we are generating for that booking every quarter is coming from existing customers.

From existing customers, that is they are buying new seats and new licenses? That's what you mean to say?

New licenses, more applications, upgrading their systems.

And what product areas did you see the strongest bookings, and what were the weakest?

I'm sorry, what was?

Which product areas were strongest and which were weakest? Which were weak?

I can't say that -- I think on average, both acted very similar. I can't say that one was weaker than the other.

And in the commentary I think there was a mention that despite problems in the retail sector, retail was [won]. When you look into 2009, do you have a fair sense where we can see which verticals would be the strongest in 2009 and which may have a dampening effect on your growth in 2009?

Yes. First of all, I've used the example of the retail, it's actually not [announced] vertical of NICE. I just use it as an example of how a situation where a retail customer, although he has financial issues and problems and is terminating people, is investing in our technology to protect customers. So this was more as an example, not to say that this is a stronger or a largest vertical of NICE.

We are in three verticals -- healthcare, telecom and financial services, which makes the largest part of our business. And, therefore, we assume that we will continue to do business with them and they will be the areas where we will grow. Obviously, within these sectors, it's a wide spectrum. We think that we will grow more in the, I would say the retail part of the financial services, those that are addressing specific customers and less so on the investment banking part of this business, which is anyway a small part. And we don't expect to see a lot of activity in 2009.

Okay. Yes. And outside these three verticals, do you -- are you thinking of expanding in 2009 outside these verticals? I suppose you would like to do that, but what might be the target of [opportunities] for those?

Again, there are different ways to cut the call center industry, so within the contact center industry, these are for everyone that operates the main verticals. What we're doing with those solutions is actually expanding beyond the contact center industry, whether it's with the acquisition of ACTIMIZE, which gives us access to enterprise and compliance customers. We also are expanding into marketing departments, back office departments and others to go beyond the contact center industry within these verticals.

Okay. If I may ask one last question on the customer side. You just mentioned I think that most of the product booking came from the existing customers. Just could you give us a sense how many new customers were added in 2008 versus 2007?

We don't give the exact numbers, but we added many, many dozens of new logos in 2008, many.

Okay, great. Thank you.

Brian Ruttenbur, Morgan Keegan.

Thank you very much. You guys generated, at least according to my calculations, about $135 million in cash in '08. Can you generate that same amount in '09, or was there aberrations in there?

I think that we can generate this amount and even higher than that in 2009.

Okay. Next question is size of your backlog. Is your backlog larger this year than it was in the end of the third quarter of '08? And is it larger than it was at the end of fourth quarter '07?

Answer is on both, of course, yes and yes. This is the highest backlog in the Company history. We had a significant book to bill, not in miscellaneous, but a significant book to bill ratio in Q4, which obviously means that we have increased the backlog.

So you have greater than a 1 to 1 book to bill?

We have a nicely greater than a 1 to 1, yes, in Q4.

Okay. Can you give us some kind of percentages of what your backlog is that's already in backlog of your projections for '09? What's already in backlog? Is it 50% that's already in backlog?

(multiple speakers)

We have about two quarters of revenues in backlog currently. So that should give you a feel.

Great. Thank you very much.

Tom Ernst, Deutsche Bank.

This is (inaudible) on behalf of Tom. Just a couple of quick questions. Most of my questions have been answered already. One is, in terms of your new bookings, can you give us a sense of what the share of bookings is in the compliance area for enterprises versus what they're doing on the center side? Are you having any --?

(multiple speakers) is in the contact center space. Within the contact center space, obviously, the use is for a combination of compliance, operational efficiency, and stuff like that. So, by the way, some of the countries -- and this is an interesting trend that we have seen -- some of the countries have actually complied with regulations with respect to the call center industry. Some countries, the governments have regulated service level of the call center industry, so they are actually buying our technology to comply with these type of new regulations. So this is also a phenomena that we have seen in the fourth quarter of 2008.

Okay. And then just another quick question. I sense a general improvement in your competitive tone, if I can call it that, just over the past couple of quarters. Has something fundamentally changed in the competitive dynamics that makes you feel more confident?

I think the fact that we are continuing to increase our business in this economic environment is more or less a test that we're doing well.

Okay, thank you.

Thank you. We apologize, but there will be no further questions at this point, as we are out of time.

Before I ask Mr. Shani to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1-877-332-1104. In Israel, please call 03-9255-9000. And internationally, please dial 9723-9255-900. Mr. Shani, would you like to make a concluding statement?

Yes, I would like to personally thank our dedicated employees, investors, customers, and partners for making 2008 another successful year Ford NICE, and we look forward to another solid year in 2009. Thank you very much.

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