Nice Ltd (NICE) 2010 Q1 法說會逐字稿

Welcome to the NICE Systems first quarter 2010 results conference call. Thank you all for holding. All participants at present in 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 May 11, 2010. I would now like to turn the call over to Ms. Daphna Golden, Corporate Vice President Investor Relations and Corporate Development at NICE. Ms. Golden, please go ahead.

Thank you, and good day, everyone. With me on the call are Zeevi Bregman, President and Chief Executive Officer, Dafna Gruber, Corporate Vice President and Chief Financial Officer, and Eran Liron, Corporate Vice President Business Development.

Before we start, I would like to point out that some of the statements made in this call will constitute 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 regarding the factors that should cause actual results or performance of the Company to differ materially is contained under the subheadings forward-looking statements in the Company's 2009 annual report on form 20 F as filed with the Securities & Exchange Commission on March 31, 2010. Such factors and forward-looking statements are based on the current expectations of the management of NICE Systems Limited only and are subject to a number of risks and uncertainties that could causes actual results or performance of the Company to differ materially from those described herein including but not limited to the impact of the global economic environment and the Company's customer base, particularly financial services firms and the resulting uncertainty. Changes in technology, and market requirements, decline in demand for the Company's products, inability to timely develop and introduce new technologies, products and applications, difficulties or delays in absorbing and integrating acquired operations, products, technologies, and personnel, loss of market share, pressure on pricing resulting from competition, and inability to maintain certain marketing and distribution agreements.

The Company undertakes no obligation to update or revise these forward-looking statements except as required by law. During today's call, we'll present a more detailed discussion of the first quarter 2010 development and the Company's current guidance for the second quarter and full year 2010. Following our comments there will be an opportunity for questions.

Let me remind you that unless otherwise noticed on this call, we'll 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. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. With that, I'll turn the call over to Zeevi Bregman.

Good day, everyone, and thank you for joining us today to discuss our first quarter 2010 results. In the first quarter of 2010, NICE successfully demonstrated full performance as we achieved the result exceeding our own expectations in most parameters. I believe that few results reflect the combination of continuous improvement in the market as well as our own execution. Looking into some key financial and business related Q1 data, our non-GAAP revenue reached $163 million, an increase of 17% year-over-year, exceeding our focus of $153 million to $160 million.

Q1 is traditionally a seasonably soft booking quarter in our industry yet ,in Q1 2010 we achieved the Company record in first quarter bookings. Year-over-year growth in bookings was more than 40% with a book-to-bill ratio greater than one. As a result, we ended the quarter with backlog at a new record.

On original basis, we saw continuous solid business in the Americas, continuous improvement trends in EMEA and improvement in APAC. Non-GAAP earnings per share for the quarter reached $0.38, up $0.03 from Q1 last year. Common gain on the high-end of our focus. Our solid performance in Q1 increases our confidence in our projected 2010 performance and therefore we are increasing the preliminary guidance provided in February.

In addition, we are increasing the investments in the business when being committed to generating unwell improvement in profitability. At the beginning of the first quarter, we closed the Orsus acquisition. I am happy to report that the integration is going well and that we see our integrated securities solutions going in line with our plans and gaining traction in the market.

The market trends we discussed in detail on the Q4 call continue to position us for future goals. First, the total number of interactions that enterprises are having with the end customers is growing. This includes additional channels of communication beyond voice. Call centers are becoming increasingly complex to handle more and more calls therefore they need solutions like realtime and cross channel analytics.

Second, increasing number of financial transactions across channels creates greater [forfeits] for financial institutions. More development results in a greater number of forfeits pushing financial services institutions to adopt comprehensive analytic base enterprise development solution. Third, the number and variety of physical securities systems is growing substantially. Supporting the need for unified analytic based integrated securities solutions.

Finally, the number of internal and external liquidation on the business and security fronts worldwide are continuously on the rise. NICE enables its customers to comply with regulations whether internal or external. We believe that we are in position with the value of NICE intent based solutions to gain leverage for this marketplace.

Moving to our enterprise sector, Q1 was a strong quarter for our enterprise business. We added a large number of new customer logos. Customers placed orders with us for the first time. In line with our strategy NICE provides its customers the ability to turn Insight into impact as they become or complex and more customer centric.

The complexity of call center operations is driven by trends like virtualization, data center consolidation and the move to enterprise wide solutions that cause geographies, departments, headquarters and branches. It is also driven by the need to support multiple channels and every increasing number of products and services.

Call centers are becoming more customer centric as an addition to the traditional workforce optimization they are increasingly driven by goals such as increased customer satisfaction, the need to improve customer retention, and the differentiated customer experience and the need to provide different service levels to different types of customers. Customers today demand choice, continuity, consistency, and context. They can choose their preferred channel of introduction, they demand service continuity and consistency across channel and wish to be served appropriately within the right context.

The NICE offering in areas such as support of large scale solutions and multi-site offering being infrastructure diagnostics through the organization dependency and cost channel repayment analytics when positioned NICE to leverage on these trends of complexity and increased customer centric focus. The increased focus on compliance of regulations continues to be an important call growth driver for NICE. For example, the UK's SSA indicated the plan to require investment fields to offer record conversation on the mobile phones. In NICE recently announced the solution for mobile phone introduction recording and analytics.

Last week, I returned from our largest ever American user conference, approximately 1,500 people attended with speakers from Bank of America, Cisco, Convergence, Liberty Mutual, Microsoft and many others. This year focus on intent based cross channel applications, operational excellence and customer experience. A case study present by customers as well as my discussions with them clearly indicate NICE's leading position in the growing adoption of our intent-based application.

Looking at our business model, the combination of NICE shifting to selling more and more software applications to organizations that require and deploy increasingly comprehensive and complex business solutions slated to going requirement for more direct contact with NICE. As a result, the majority of NICE's contact center business in Q1 was generated through direct sales.

We acknowledge the fact that some customers like our customer base market as well as large enterprises that requires enterprise grade but simple solutions will prefer to offer channels and support them with recently launched new global channel partner program and continue to develop our SMB product NICE Perform eXpress which was wanted in -- which was introduced in 2009 and gaining good momentum. Our financial climb continued to gain significant traction, in Q1 Actimize continued to enjoy accelerated growth and strong bookings.

We benefit from the clear trend of large banks that are standardizing on third-party solutions to other financial climb in risk management needs. We believe it is becoming obvious to many of them that they should focus on exceeding vendor with a comprehensive offering. One that can address their rapidly growing needs. This continues to be the sweet spot for our Actimize business, and we saw this trend accelerate over the last 12 months.

Our Actimize business demonstrated several record achievements in Q1. For example, we won another major enterprise wide multi-million dollars deal. This time at the global European bank. The bank made a strategic decision to standardize Actimize technology and more silent solutions to an enterprise wide implementation which includes anti-money laundering, a variety of security compliance solutions and enterprise investigation case management and more.

We see this emerging trend become more significant, resulting in NICE becoming a single vendor in many cases. Ultimately, it also leads to much larger deals. We are also seeing a growing number of multi-year term license fees which provide a greater level of predictability for our business.

Furthermore, Actimize continues to expand its footprint into mid-size bank most directly and indirectly via successful partnership with organizations such as Fidelity National Information Services, that will be presenting at our upcoming analyst day. Even here, we have seen deals as large as seven digit figures. We believe that our substantial install base and broad set of financial climate and risk management solutions create a solid foundation for future growth.

Turning to our security sector, in Q1 we closed the Orsus acquisition enabling us to offer our Situation Management Solution as well as our integrated security solutions which consist of pre-integrated services for NICE and third parties. We see positive momentum in the market and have already seen some of the opportunity mentioned in the Q4 call materializing to actual orders in Q1.

The Situation Management Solution present a strong value proposition as it enables decisions to reduce weeks as well as complying with the growing number of regulations our customers face. From a NICE business perspective the new addition creates expansion opportunities into our existing customer base. It also enables us to penetrate new customers. For example, we see seaports, part of our transportation vertical show high potential for both new and repeat business. We are are already won several deals with ports in the US.

In APAC, the 2010 Shanghai World Expo opened last week. We are about to take part in supporting the security with our IP video solution at this important world event which is expected to attract more than 70 million visitors. Furthermore, in line with our plan, we continue to implement our large scale security projects.

To summarize, our performance in Q1 further fuels our confidence as we look ahead into 2010. We ended the quarter with record backlog, added many new enterprise customers and are continuing to implement large scale security business. Thus, we continue to focus on drives NICE to new heights and further announcing our market leading position. We will support the projected goals while remaining committed to our profitability target. NICE enjoys the ( indiscernible ) growth drivers that are supported by the comprehensive offering we provide our customer across the enterprise and security businesses. These offerings include analytics, cost capturing, management solutions, performance, reduce risk and solution for regulatory compliance. I would like once again to thank our excellent team for the execution during the quarter. I will now turn the call over to Dafna Gruber our CFO. Dafna.

Thank you, Zeevi. I am pleased to provide you with the analysis of our financial results and business performance for the first quarter of 2010 and our updated outlook for the year. Q1 was a good quarter for NICE, bookings were at the highest we ever achieved in Q1 which tends to be a softer quarter. We are pleased with our Q1 bookings that will more than 40% higher than those achieved in Q1 of last year.

We ended the quarter with a new record backlog total in more than two quarters of revenues. Revenues for the third quarter reached $163 million, up 17% from $139 million in Q1 of last year and similar to the Company's all time record revenues.

Earnings per fully diluted share for the first quarter reached $0.38, up $0.03 from $0.35 last year. Cash generated operations in Q1 was $31 million and we ended the quarter with record cash and equivalents of $564 million with no debt.

Our revenues by business segment were as follows. Enterprise revenues accounted for 74% reaching $120 million in the first quarter, up 16% from $103 million in Q1 last year. Security revenues in the quarter reached $42 million or 26% of total revenues in the quarter which is 18% higher year-over-year, up from $36 million recorded in Q1 2009.

Revenue by geography was as follows. The Americas accounted for $93 million or 57% of revenue, up from $89 million last year. We'll see continuous improvement in our business in the Americas. Europe, Middle East and Africa accounted for $48 million or 30% of revenue, up 41% from $34 million in 2009 and we see clearly an improvement in the EMEA region. APAC accounted for $22 million or 13% in the first quarter, up from $16 million in 2009. Here we see an improvement in the business as well.

Revenues for maintenance reached a new record high accounting for more than one third of total revenues. Q1 gross margin increased to 64.1%, up from 63.2% in Q1 2009. We continued to expect to generate greater improvement in gross margin in 2010 compared to 2009 and we continue to target over 65% as our midterm gross margin goals.

Operating expenses in the first quarter of 2010 were $77 million, bringing operating margin at 16.6% compared to $65 million and 16.8% respectively last year. To support our future growth in leading market position, we continue to invest in our business, especially in sales and marketing. We continue to target short as well as long-term improvement in operating margins. Specifically, we expect operating margins in 2010 to be higher than operating margin we achieved in 2009 and we remain committed to our midterm annual operating margin target of 20%.

Net income in the first quarter reached $24 million, a 13% increase from last year. Consolidated taxes on income in Q1 were 16%. We believe the effective tax rate for the Company in 2010 will range between 17% to 18%.

In line with our conservative investments strategy and the very low interest investments continue to focus income at approximately $7 million on an annual basis for 2010. Going forward, when providing the update of guidance for 2010, we take into account our record backlog, planned investment in our future growth and stable global economy. We are currently focusing second quarter revenues to range between $164 million and $170 million and earnings fully diluted shares to be in the range of $0.38 to $0.42. For the full year 2010, we are updating our preliminary forecast revenue to be in the range of $665 million and $680 million and earnings per fully diluted share to be at the range of $1.67 and $1.75. Before opening the call for questions, I would like to take this opportunity to remind you we look forward to meeting you in two weeks on Tuesday, May 25, at our investor and analyst day in New York. As in the past events, NICE executives will present our strategy and business line and we will, of course, have leading selected customers and partners share with you their perspective. I encourage those that haven't registered yet, to contact our IR Department at ir@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) Please stand by while we poll for your questions. The first question is from Shaul Eyal of Oppenheimer. Please go ahead.

Good afternoon, Zeevi and Dafna. Good quarter, execution and guidance. Two questions on my end. It is really the beginning of the year and you are undertaking grazing your revenue and EPS upwards. I know that you talked a lot about the backlog and the book-to-bill in the prepared remarks. Can you provide us maybe with slightly more granularity with respect to the backlog, what's in it if it is mainly enterprise and is it security, all of the above, and the second one is obviously your still committed to 20% long-term operating margins. You are increasing investment. How do we reconcile that on the one hand and also kind of what's the head count that you guys are thinking of adding and again also is it security, is it enterprise, help us out there a bit if you can?

Let's start first with the guidance and the increased guidance. We are -- our bookings both in Q4 and Q1 were well ahead of our expectations. We are seeing a very strong trend in the market, and therefore we feel very comfortable to increase guidance. When we are looking at the bookings, we have seen stronger -- the stronger booking across the road but specifically within the ACTIMIZE domain and relative strength in Europe. When we are looking at the -- we are not breaking the backlog. The backlog consists of all different types of across our businesses and obviously we know that the some of the security projects, for example, are recognizing revenues over time as we discuss some of the maintenance for extended period of time and this is across the board and also some of the -- overall it is really in terms of mix of the backlog it is really mixed. Regarding the operating profit, as we stated, we are committed to our midterm goal of getting to 20% and then looking out to more ahead of this. We are going to continue to increase and grow and have leveraged within our business model which will translate into extended operating margins, and we believe that our operating margins in 2010 are going to be higher than the ones in 2009.

Any specific number about how many people are being added to the head counted down the road?

There is a plan for budget to add people. We added a few dozen in the first quarter and believe the plan to add at least two dozen more in the second quarter and also after.

Dafna gets the final one. Any foreign exchange impact this quarter?

Not material ones.

Got it. Thank you very much and good luck.

The next question is from Shyam Patil of Raymond James. Please go ahead.

Good morning. Congrats on the quarter and the guidance. A couple of questions. Zeevi, you talked about seven figure deals in the pipeline. Could you talk a little bit more about those? Is that something you embedded in your guidance or is that something that would be incremental and are those deals that we could potentially see close this year?

First of all, I don't recall that I spoke specifically about seven digit deal in the pipeline. Overall the time that we see when we are analyzing our revenues increased number of large orders throughout our businesses. In the enterprise business we are seeing a larger number of large deals on the ACTIMIZE and also in the security and this is part of our trend to move from (inaudible) solutions to enterprise wide deal. So we are seeing larger deals in all the spaces that we are operating in. I forgot what was your second question?

I think you answered it. The second question, the gross margins you commented that we should expect expansion from last year's level. Should we expect expansion from this quarter's level?

Obviously you will see expansion from this quarter level.

Okay. Thank you.

The next question is from Daniel Ives of FBR Capital Markets. Please go ahead.

A few questions. One, in terms of backlog, the 40% year-over-year growth, how does that compare year-over-year to the last few quarters in terms of the growth rate?

It is not -- it is not backlog 40% gross, it is bookings 40% gross.

So how does that compare to the last few quarters in terms of the growth rate?

There was a good progress in bookings and I think that we had book-to-bill that is greater than 1, probably in Q4 the level of bookings was a bit higher and still this quarter it was greater than 1 and very pleased with the bookings in Q1, especially because it is the first quarter of the year and the level of bookings was certain good supply for us.

Okay. When you think about what happened in New York, Times Square, talk about from a high level how does that dynamic or just what we have seen influence some of these sales cycles and some of the security deals?

Without getting specific to the square.

Not getting specific but general macro what you're seeing.

Obviously we would prefer that the only terror risk will not be there, and on a business side the increased threat of terror and the fact that it is becoming more and more sophisticated, and in addition to the increased crime rates, they are working for our benefit there is a lot of things, the investment that was made so far in civilian equipment like video systems but the only problem is how to connect the dots and how to share information in realtime and how to make an impact out of these data that is being stored. This is where -- this is sweet spot of our solution. This is what we are aiming. We are aiming not only to manage the data that we are doing very well but also later on to share the information to do what we are calling realize the situation and then to automate the procedures either to prevent the urban crime and also to provide a much smaller timely reactions to prevent that from happening.

Okay. Lastly, Zeevi, you have been at the helm a few quarters, met a lot of customers. Talk about your observations now few quarters under your belt, what you have seen, anything that surprised you in terms of demand trends or things like that?

First I met many customers, and I must say that I continue to be positively surprised with what I am seeing. I think that we have exciting opportunities ahead of us. I think that the trend in the different market are looking for the set of products and capability that NICE has, and in line with our -- we are obviously confident in finding our strategy, but we believe that there is a strategic fete between our offering at our plans and the what our customers are looking for.

Thanks. Good quarter.

The next question is from Daniel Meron of RBC Capital Markets. Please go ahead.

Hello, Zeevi and Dafna. Congrats on the good execution here. Zeevi, can you provide us with a little bit of color on which verticals within the contact center you're seeing more demand coming from and also you guys provided some regional insight if you can expand on that, especially the dynamics in Europe?

Okay. So I will start first with the verticals within the enterprise sector. Obviously we are seeing good momentum on the financial side. We are seeing good momentum for us on the healthcare, and we are seeing some good momentum on parts of the BPO and the outsourcing customer that we have. I think that they were right now return to purchase after they recovered from the slow down in the economy at the beginning of the year.

Right.

In terms of the market trends and specifically in Europe, part of our strategy in our investment is focused targeting markets with traditionally we will not focus at. And we are expending to additional market within EMEA, within COLI, and within Asia Pacific and I think we're starting to see the benefit of these investments, and I hope and am confident we will see more and more of these coming.

Very good. And just, Dafna, if you can provide us with a little bit more on the organic pace of growth that you have seen in the quarter? I know that you had the acquisition and all of that, so if you can just net out for us compared to last year.

Yes. Well, the most of the growth this quarter actually in the beginning of this quarter we closed the wholesale acquisition. If you remember the contribution to the overall revenues is very, very small. The only additional revenue ( indiscernible ) last year is coming from the -- to make the comparison because (inaudible) and had very small impact on the growth. The way we look at this is we look at the overall growth in business as organic growth.

Okay. Very well. And the dilution from [morse], you still think it is going to last through the fourth quarter of the year?

Yes.

Okay. Very good. Good luck. Thank you.

Thank you.

The next question is from Paul Coster of JP Morgan. Please go ahead.

Thank you. Good morning. Good evening. Going back to the backlog for a moment, Dafna, do you think it would be correct to say that given this surge in bookings anyway -- bookings really, that we should see growth in the product area out pacing services business for a few quarters now and with that the gross margin should start to improve again?

I think the best way to look at it is that we do increase -- expect increasing product revenues. I think that the place for us to be over time is around 50% revenue coming from top grade products and 50% from services, and we do expect continuous improvement in gross margin also this year.

Thanks. Zeevi, I would like to go back to one comment you made which was that you said that you're starting to see sales to new enterprise customers. Can you explain for us what it is that is on boarding the new customers, what is product particularly seducing them into using NICE?

When we're looking at the enterprise customer, it is basically throughout the products. On the call center form I believe it is the -- all functionality of our smart center package and starting from mostly the differentiator is analytics and our ability to provide enterprise support (inaudible) deployments, including the superiority that we have in the workforce management area. When we are looking at optimized, I believe they are becoming more and more the defacto standard in the industry and they're the first choice of financial institutes for fraud, for info compliance, and for (inaudible) long ring applications.

I am not surprised by your comments regarding ACTIMIZE, but I am surprised that these enterprises are so late to come on board with a third party context center or call center solution. What is it that you're replacing?

We are replacing some legacy systems that the customer has. Usually on the workforce management of analytics sometimes this might be first time that they're using the technology. On the recording side they usually have some equipment and this is largely -- these are systems that they would like competition.

Would it be fair to say that the bookings increase a large percentage of the business came from new customers, greater than 10%?

We do not have -- I don't have the data in front of me so I cannot provide that answer right now.

How big do you think the ACTIMIZE addressable market is and what kind of long-term growth rate do you think that business can achieve?

First I believe that the market of ACTIMIZE is still going, so if you ask me tomorrow I will tell you that the addressable market is larger than it is today. It is a question that is very difficult to answer. I think that there is a large potential and the -- it is really a very, very large market in terms of the ability to address and our ability to provide more and more applications. The nice thing about our ACTIMIZE deployment that we are using a second platform for many applications, so therefore it is very easy deployment by the banks to deploy additional applications once they deployed some applications. We have this ability to expand in functionality on one end and on the other end most of the bands given today are using silent solutions, and the consolidation to enterprise wide systems which will serve not only different departments within the bank but also geographies again provides a very, very large opportunity for us which we will still at the beginning of exploring. We believe that in ACTIMIZE we should see a organic growth of at least 20% and then maybe more.

Thank you. My last question then is unified communications, as you know, Microsoft is aggressively deploying the office communications server infrastructure and really bringing a lot of value to enterprises, and in time it looks like the voice and data infrastructure of many of your enterprise customers will be integrated very tightly together. Is this a good thing for you? Is it a bad thing in that it makes the multi-channel solution less valuable because it is kind of solve at source?

We are -- my cost of the offering is targeting more the low end of the market when we're targeting more of the high-end of the market, and voice-over IP and voice and data integrated voice and data solutions provide us ability to really enjoy our ability to address multi-channels and to have enterprise wide solutions. One of the things we're benefiting from that in the past contact centers are using -- are only physical contact center. Today they're actually working in the entertainment cloud, so they're serving many needs of the organization and this is something that is available only through voice-over IP, and this is something that we are enjoying in the solutions like Microsoft are supporting these trends.

Thank you.

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

Thanks very much. Great quarter. First question I have is addressed a little bit, the operating expenses going forward. If you can just repeat you're going to be at this level going around 85 million or can you just address the level, the actual number going forward?

There is going to be some increase in operating expenses going forward, but operating margin should improve. That's our model and our goal and overall we should see improvement that would bring us to yearly operating margins that are higher than the results we achieved in 2009. In 2009 the overall operating margin for the Company was 17.6% and we expect to be higher than that in 2010.

Okay. So expenses will go up from this level sequentially. Is there any kind of blips that are one-time that you could see third quarter, fourth quarter, whatever that would be going up and then down? I am just trying to figure out on modeling as you go up a couple million a quarter. You went up almost $6.5 million from quarter to quarter. I just want to see if there is going to be just a couple million increase a quarter. Is that how you see it modeling out?

I would expect a much say smaller increase from quarter to quarter going forward, and then therefore we would benefit from the leveraging the model in the coming quarter, especially in the second half of the year, and by the way quite similar to what we've experienced in the past where profitability in the first part of the year is usually lower than the second half, but overall the trend is a trend of improvement, so I wouldn't expect an increase of $5 million or $6 million a quarter going forward. The increase is going to be much, much lower.

Okay. My second question has been partially addressed, but the Time Square situation, was your equipment, first of all, in Time Square? I didn't catch that.

We are not referring to physically to our equipment in specific incidents.

Okay. Can you talk a little bit about the video analytics market? What percentage of cameras out there either overall or in big cities have analytics? It seems like there was a problem within the Time Square situation where there were some calls, their video recording but it took them 24 to 36 hours to get that video off. Seems like with your analytics it would have been much quicker, so I am trying to understand the size of the market and the number of cameras out there that have analytics on it and why it took so long to get to just the video, plain video that was out there into the law enforcement hands?

First, you know, we are selling many of our systems in analytics. Always the question what you are trying to define, what are the [rules] you are looking for the analytics, analytics is not one-size-fits-all. It is something that requires tuning for the specific year event, and many of our video solutions are going with the analytics. Analytics is part of our differentiation in the market, and this is an area that we are continuing to invest and come with more and more sophisticated solutions. We believe that the on top of analytics, analytics is one end. On top of analytics there is the -- one of the things that -- one of the areas we are looking at is one is analytics, but on top of it is how do you manage the situation? How do you look at the broader picture? How do you take information that comes from different sources and different channels and make an analytics on that level? This is exactly what our situation management solution is all about. This is what -- where the (inaudible) acquisition comes to play, and this is an area that you can leverage a lot in terms of data and understand what exactly is going on and also the system provides managerial tools to automate forces within the security and surveillance organization, so it is also automate the process and enable them to share information across the organization and to manage such incidents in a more effective way.

Can you just address the size of the market out there, the number of cameras, percentage that have analytics and the number that doesn't?

We think that the overall number is in the market is small. If you're looking at the overall deployment of cameras, many of the cameras are being deployed are at the low end of the market.

Okay. So we're talking sub30%, 20%?

I think it is -- I believe that you can get -- I would guess that this number is some 20%, but all of you can get this from other sources as well.

Okay. Thank you very much.

The next question is from Jonathan Ho of William Blair. Please go ahead.

Great quarter, guys. Can you maybe characterize the performance of ACTIMIZE relative to your 100 million goal for the combined business and just talk a little bit about the profitability of that business right now?

We believe that we will be -- we said at least $100 million and it was not goal, it was statement that we are going to be more than $100 million, and we are in line with this statement, and we will be -- we believe the ACTIMIZE business will be ahead of substantially more than $100 million, and in terms of profitability there is a leverage within the ACTIMIZE business, and there is a business goal and operating margins are going up and in line with the Company and --

Excellent. And can you talk a little bit about some of the very large frame contracts that were signed a couple of years back and are you expecting that to be more of a contributor towards the back half of this year, the contracts like FAA and a few other ones?

On the FAA deal we are seeing systems are being booked cheap and installed on the quarter by quarter basis under this agreement I don't remember what is the amount of site that we cover. We are progressing according to plans. The other deals, the model security deals like the one that we announced, we said that we will be able to deliver about one third of this deal this year and we will believe that we are going to meet these targets.

Great. Just one last question on the services revenue. Was there any catch up maintenance during the quarter?

No.

Great. Thank you.

The next question is from Craig Nankervis of First Analysis. Please go ahead.

Thank you very much. A couple different questions. Just first on Orsis, did I understand you to say that you are selling Orsis beyond to prospects beyond the very large security mega deals that you already won, this is an application you are selling to a broader group of prospects?

We said specifically at the ( inaudible). The answer is yes, but we said specifically (inaudible) maybe we were not clear that we sold the Orsis to some, for example, we gave an example that we manage to sell Orsis to some large sea ports in our transportation bill to come and we already won some deals with Orsis.

Okay. Yes. Just two questions on Time Square. At the end of the day isn't it an Orsis like solution that really would have cut the turn around time or the analytics time?

We believe that, yes, that Orsis like solution would provide a more effective response to such an event.

On the mobile phone compliance mandate that's happening in the UK, do you have revenue from that initiative baked into current year guidance or is that more of a 2011 opportunity from your perspective?

I think it is more there will be some revenue coming this year, but more in the following year.

Is sort of modest this year in terms of incremental contribution from that compliance mandate?

I think it is going to be -- I think that it is -- we can say this is baked within our numbers right now.

Okay. And then lastly, I just wondered if you could review your comments or thinking on the channel strategy that you outlined briefly. You have had this initiative to do much more direct and now you are sounds like substituting a new or some sort of revised channel program. What is the thinking there? You had a channel and now you're sort of changing the channel program. If you could share or clarify a little more of what --

First, as we are selling more complex and more large business applications, we -- our customers wants us to provide a more and more direct and direct touch -- to have more and more direct and direct touch relationship with them. This is something that we are doing. We continue to look at the customers that will benefit more from indirect relationships. That can be because they're small, medium-sized customers or because they prefer and have a working relationship with someone they would like to maintain as long as they're located in an area that is difficult for us to provide them the right level of support, like the various countries around the world, and for progress and to support these customers we augmented our partnership program and we are continuing to work on indirect model to those customers that will benefit more from our indirect -- from an indirect relationship with us.

Okay. Thank you for helping with that. That's all the questions I have.

The next question is from Ari Bensinger of Standard & Poor's. Please go ahead.

Yes, thanks. Most of my questions have been answered. Just in terms of your cash position, strong free cash flow, cash nearing $9 per share, what's management's strategy looking at maybe trying to use this cash for a better return for shareholders?

We believe that the best utilization of our cash at the moment is the different M&A alternative that we are pursuing. We believe that we can -- we have a track record of good execution on M&A and we are actively looking at companies in different domains, and we believe that this will benefit more of our shareholders.

Thank you.

There are no further questions at this time. Before I ask Mr. Bregman to go ahead with his closing statements, I would like to remind participants a replay of this call is scheduled to begin in two hours. In the US please call 1-888-295-2634. In the UK please call 08000286837. In Israel please call 03925-5927. And internationally please call 97239255927. Mr. Bregman, would you like to make a concluding statement?

Thank you. Thank you all and we look forward to meeting you all in New York City in a couple of weeks.

Thank you. This concludes the NICE Systems first quarter 2010 results conference call. Thank you for your participation. You may go ahead and disconnect.