Nice Ltd (NICE) 2010 Q2 法說會逐字稿

Welcome to the NICE Systems second quarter 2010 results conference call, and thank you all for holding. All participants at present are 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 3, 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, operator, and good day everyone. With me on the call are Zeevi Bregman, President and Chief Executive Officer, and Dafna Gruber, Corporate Vice President and Chief Financial Officer.

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 could cause actual results or performance of the Company to differ materially is contained under the subheading forward-looking statements in the Company's 2009 annual report on Form 20-F as filed with the Securities and 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 cause the 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 of the Company's customer base, particularly financial services firms and the resulting uncertainties, 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 required operations, products, technologies, and personnel, loss of market share, pressure on pricing resulting from competition, and inability to maintain certain marketing and distribution arrangements. The Company undertakes no obligation to update our revise these forward-looking statements except as required by law.

During today's call we will present a more detailed discussion of the second quarter 2010 developments and the Company's updated guidance for the full year and the third quarter of 2010. 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 compensations. The difference between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

With that I will turn the call over to Zeevi Bregman.

Thank you, Daphna. Good day everyone, and thank you for joining us today to discuss our second quarter 2010 results. The second quarter of 2010 was a strong quarter for NICE with both revenues and backlog reaching an all-time high. I believe that Q2 results reflect the combination of continuous improvement in the markets as well as our own execution.

Looking into some key financial and business-related Q2 data, our non-GAAP revenues reached $170 million, the highest in the Company's history and coming in at the high-end of our expectations, increasing 21% year-over-year.

The book-to-bill ratio for the quarter was greater than one. On a regional basis, our business in the Americas was solid demonstrating continuous progress, and our EMEA business continued to enjoy positive trends.

Non-GAAP EPS for the quarter reached $0.41, up $0.05 from Q2 last year. Generation of cash from operations in the second quarter was very strong totaling at $39 million. Taking into consideration our strong financial and business performance in the first two quarters as well as the prospects we see for the remainder of the year, we are updating our 2010 annual forecast.

NICE's growth continue to be driven by the various market trends we have identified, all of which are addressed by our intent-based business solutions. Demand for our real-time and cross-channel analytics solutions is driven by an increasing number of interactions between enterprises and their end-customers across a growing number of communication channels. Our contact center customers are becoming more customer-centric. In addition to the traditional requirement for compliance and improved efficiency, they are looking for solutions that will improve their customer relationships and business. The solutions being implemented are therefore more advanced and sophisticated, and our projects are larger and more complex.

Next demand for our analytics-based risk management solutions for the financial services sector is driven by an increasing number of financial transactions taking part on multiple channels and involving real-time payments. This is resulting in greater fraud threats and financial institutions implementing enterprise-wide solutions.

Moreover, the increasing number and variety of physical security sensors being deployed by governments and enterprises combined with the need to analyze the input and react to events in real time is driving the demand for our analytics-based integrated security solutions that enable to connect the dot and react in real time.

And - regulatory compliance continues to be a major driver as the growing number of internal and external regulation is driving demand for NICE solutions across the board.

In summary we believe that with our intent-based solutions and our large install base, we are uniquely positioned to leverage on these continuing market trends.

Moving on to the enterprise sector, in Q2 we continued to enjoy growing demand from customers for our advanced analytics application. A substantial portion of the demand comes from our existing customer base. In addition, we continue to increase our market share by adding new direct touch logos. call centers are becoming more complex and customer-centric. They are increasingly driven by goals such as increase customer satisfaction and retention, differentiated customer experience, and improved cross-sell and up-sell to the different types of customers they serve.

The NICE offerings are unique in areas such as support of large-scale projects, multi-site requirements, being infrastructure agnostic, virtualization, multi-tenancy, cross-channel real-time analytics, and real-time guidance. All of these capabilities well position NICE to leverage on the trends of growing complexity and increased customer-centricity.

In mid-July we closed the eglue acquisition. Eglue enhances NICE's capabilities in two key dimensions. First, it provides advanced analytics-based real-time decisioning and guidance modules augmenting the NICE interaction analytics offering. Second, it enables our extension into the back office, which today is a significant and under-served market. We have already started integration, which is going well in line with our plans.

The eglue technology complements NICE business solutions such as compliance, call center efficiency optimization, process automation, customer experience, and cross-sell and up-sell. We expect integration of eglue into theNICE offering to enable us to provide our customers with complete business packages in these areas.

A few hours ago we announced a new solution that combines our capabilities, a business solution called NICE Sales Effectiveness. This new solution - first of its kind - leverages NICE's cross-channel interaction analytics and eglue real-time agent guidance and sales process automation. It enables contact center agents to pursue in real time the best action required to turn insights into business impact and close the loop on sales process. By enabling to improve key business processes, we enable our customer to react quickly to changes in their markets and be proactive in implementing processes that support continuous improvements.

As to the expansion into the back office, a few weeks ago we have announced our back office solution. It is based on the combination of eglue's capabilities and NICE's leading workforce management solutions. Performing back office processes effectively and efficiently, whether processing claims, filing in purchase orders, or collecting debt is extremely important to organizations, yet to date enterprises have rarely invested in effective tools for the back office.

Furthermore, the number of employees in back office operations is significantly larger than in contact centers. This presents a great opportunity for NICE to increase our addressable market. Our solution has been well received by customers, and I am happy to report that we have already received the first order for our back office solutions.

In Q2 our financial crime and compliance solutions continued to gain significant traction demonstrating once again accelerated growth and strong bookings. We are seeing growth in our compliance business in both the US and Europe. We expect this trend to continue as financial institutions select strategic partners to implement new infrastructure as they prepare to the next anticipated regulatory wave.

The signing of the Wall Street Reform Bill is an example of the great impact that regulatory authorities have on the financial services industry. It should lead to implementing a new modern infrastructure to enable compliance management. We believe that in the long term the reform presents opportunity for NICE financial crime and compliance-related businesses.

Growth in the fraud prevention area are fueled by financial institutions continued migration towards enterprise-wide implementations of NICE Actimize solutions. We continue to see and expect greater focus from financial institutions on a single vendor with a comprehensive offering seeking to leverage cross-channel information.

NICE Actimize is considered to be the industry standard for anti-money laundering. We are seeing a growing number of banks turning to us to help them to deal with anti-money laundering regulatory-related audits and fines as the safe solution for their problem.

We are also hearing from our larger customers that the NICE Actimize projects are becoming more strategic with increasing attention of the highest levels in these banks.

In a recent report by Chartis Research in which NICE ACTIMIZE was recognized as a market-leading provider of enterprise financial crime solutions, they predicted that the global market for financial crime risk management technology will go to over $4 billion by 2013. We believe that our market-leading position comprehensive platform of financial crime and risk management solutions create a solid foundation for our future growth in this large and growing market.

Turing to our security sector, we have made good progress in our security business. Our recently-acquired situation management solution continued to gain traction, and in Q2 we enjoyed strong bookings and an impressive pipeline for this part of our business. In fact, we have exceeded our initial expectations here. During the quarter we announced two strategic projects, the Parliament House of India and Port of LA.

Our situation management solutions present a strong value proposition. It enables real-time decisioning to reduce risk as well as the ability to comply with the growing number of regulations our customers are facing. We continue to focus on advancing our open standard situation management initiatives. Those include, among others, integration with video solutions from NICE as well as from other vendors.

Yesterday Motorola announced the launch of a digital video system for law enforcement. The development of the new system leverages our long-term partnership, which goes back to 2001. Now in addition to selling our audio solution, Motorola will be reselling NICE video surveillance solutions. The new system is being developed by NICE and Motorola and is based on NICE inform -our multi-media incident information management solution. It will enable to users to reconstruct an incident by synchronizing video-audio location and data streams from one or multiple vehicles into a single incident. Together we will be able to help law enforcement leverage multi-media incident data for greater efficiency and effectiveness.

Another Q2 initiative was the acquisition of Lamda Communication Networks, a provider of satellite communication interception technology. The Lamda acquisition together with our intelligence offering address the growing demand for satellite communication interception capabilities and enables law enforcement, internal security, and intelligence agencies to fight crime and terror more effectively. Here too the integration is going according to our plans.

Summing up, interest in our security offering continues, and we have large deals in the pipeline. Furthermore in line with our plan we continue to successfully implement our large-scale security projects and work on new initiatives.

To conclude, we are satisfied with our performance in Q2. We ended the quarter with record revenue and record backlog. We added many new customers further enhancing our market-leading position. And while focusing on growth, we remain committed to achieving our profitability targets.

NICE enjoys numerous core growth drivers that are supported by the comprehensive offerings we provide our customers across the enterprise and the security businesses. These offerings include analytics, cross-channel capturing, and management solutions to improve performance and reduce risk, and solutions for regulatory compliance.

We are very pleased with the market traction and integration of our recent acquisitions, which are in line with our strategy to provide our customers with the most comprehensive and innovative solutions.

Before turning the call over the Dafna Gruber, our CFO, I would like to thank our excellent team for the execution during the quarter. Dafna?

Thank you, Zeevi. I am pleased to provide you with the analysis of our financial results and business performance for the second quarter of 2010 and our outlook for the year. Q2 was a strong quarter for NICE. Revenues for the second quarter reached $170 million, increasing 21% from $140 million in Q2 last year, which is up 4% sequentially and representing a new all-time record for the Company.

Book-to-bill was greater than one, and once again we ended the quarter with a new record backlog totaling at more than two quarters of revenues. The backlog provides us with good visibility into the remainder of the year.

Earnings per fully diluted share for the second quarter reached $0.41, up $0.05 from $0.36 in the second quarter of 2009. During the second quarter, cash generated from operations reached $39 million. In the first six months of 2010 we generated close to $70 million cash from operations. And we ended the quarter with cash and equivalents of $596 million with no debts.

Our revenues by businesses were as follows. Enterprise revenues increased 20% from last year reaching $126 million in the second quarter accounting for 74% of total revenues. Security revenues increased 24% from last year reaching $44 million, and accounting for 26% of total revenues in the quarter.

Looking at geographies, the America continues to show strength accounting for $111 million, up 24% from $89 million last year (company corrected after the call). Our business in Europe, Middle East, and Africa continued to improve coming in 20% higher than last year at $44 million. APAC accounted for $15 million in the second quarter, up 1% from the second quarter of 2009. Revenues from maintenance accounted for more one-third of total revenues.

Q2 gross margin increased to 63.8%, up from 62.9% in Q2 2009. We are on track to generating gradual improvement in gross margin in 2010 compared to 2009, and we continue to target over 65% as our mid-term gross margin goal.

Operating income in the second quarter was $29.8 million, up from $24.6 million last year. Operating margins reached 17.6%. We expect operating margin in full-year 2010 to be higher than in 2009. And we remain committed to our mid-term annual operating margin target of 20%. Net income in the second quarter reached $26.5 million, a 20% increase from last year.

During the second quarter we announced two acquisitions of eglue and of Lamda. Since the end of May, Lamda is part of our security business. The acquisition of eglue, which is now part of the enterprise business, closed on July 14.

Turning to our guidance, our guidance for the third quarter and updated guidance for the full year take into account the business momentum, record backlog, improved visibility, and the completion of the eglue acquisition in mid-July. We are raising our annual revenue guidance to be in the range of $675 million to $685 million. Our forecast for earnings per fully diluted share is in the range of $1.67 to $1.75.

For the third quarter 2010 we are expecting revenue to be in the range of $171 million and $175 million, and earnings per fully diluted share to be in the range of $0.41 to $0.45.

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.) The first question is from Shaul Eyal from Oppenheimer. Please go ahead, sir.

Thank you, operator. Hi guys. Good afternoon. Good quarter. Good execution. Couple of quick questions on my end. Dafna or Zeevi, whoever wants to take it. So very, very solid performance coming from Europe. Can you maybe provide us with some more color as to where you are seeing the strength or even maybe potential weaknesses within Europe, if it's the western side, UK, Germany, France? What's the status in some other places within the European region?

We didn't see a weakness in Europe so it's difficult for us to refer to your question. We believe that some of our solutions are non-cyclical so they are really -- the demand is not related to the market conditions, therefore it's very difficult for us to reflect on your question.

Maybe one thing to add here is that most of our business in the Europe part of EMEA is coming from the emerging market, the UK, - the already developed areas sorry - the UK, France, Germany, these are areas that were not that much affected at this point of time. And we also need to remember that last year was a very weak year for us in Europe, and therefore since the beginning of the year we see a very nice improvement because of the reasons Zeevi just mentioned.

Fair enough. Zeevi, I want to go back to your comments on the enterprise sector, specifically on the call centers, the complexity. Are you guys beginning, for example, to see Nuance playing in this market?

We -- Nuance is playing in this market, but not in our domain. We do not -- Nuance are being deployed in the IVR systems, et cetera, we are seeing them there. We are not seeing them where we are competing. We do not -- I am not aware in any situation that we compete with Nuance. We are partnering with Nuance.

Got it. Got it. And one final question on my end. The Company acquired recently Lamda and eglue. Any contribution to the recently -- to the guidance that you guys just upped for the remainder of the year or was it very, very tiny?

Yes, it's tiny, but when we announced eglue we talked about the contribution of eglue to our numbers and we said we expect a few million increase in revenue, and this deal should be slightly dilutive in the first -- in the second half of 2010 and become accretive in the first quarter of 2011.

And our guidance are actually reflecting these numbers. I believe that these numbers reflect the guidance -- are reflected in the guidance.

Got it. Good job. Thank you very much.

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

Yes, thanks. On the security deals, could you talk about backlog or what you're seeing in regards to seven- to eight-figure deals, the real large ones. Are they increasing? Are sale cycles continuing to be where they were? Do you feel like you're getting closer to some of them getting inked that you haven't already seen? Thanks.

Obviously on the large deal, they are binary , we are either winning the deal or not, so it's very difficult to speak about trend. We have a strong pipeline and a healthy business. Some of the technologies that we have are performing into large deals. For example, the location and the satellite technology are performing to large deals, so we have a good pipeline of large deals.

And these deals are binary in nature, so if you are winning a deal or not it's very difficult to reflect on the timing of the win or on trends in the

And then just in regards to margins, so just talk about how you kind of think over the next -- not just this quarter, but you talk about mid-term 20%. I mean, does that seem like there's a lot more leverage left even after that, or just anecdotally talk about margins and how we should think about it and the levers?

I'm not sure I heard the last part of your question, but --.

Just the web -- just when you think about what goes into margins, obviously strong pipeline, good performance, but just when you think going forward, do you feel like a lot of the spending has kind of been rearview mirror and we're going to see more margin leverage throughout the rest of this year but obviously into next year? Just tell us how you think about it as you say intermediate term.

Yes. I think, and this is actually supported by our history, usually the second half of the year is where we see most of the leverage coming and that's usually the way to increase the overall profitability of the Company, at least operating margin. That has been the history in the past. Last year was kind of a unique year, but going forward that's the model.

Usually the first half of the year's profitability is relatively low, increased towards the second half. But the overall trend is a trend of improvement, and what we're focusing on is to continue to show improvement year-over-year. And as I mentioned earlier, our plan is to continue -- is to improve profitability this year and going forward to continue to increase profitability.

There's always a balance between our desire to improve profitability and to continue to invest in the future of the Company, and we are trying to balance between these two focuses with the desire to improve our profitability over time.

Thanks.

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

Yes. Thank you. In the past you've talked about the long-term growth of the Company being somewhere in the 10% to 15% range. Is there any change to your thinking? Are you seeing any segments accelerating or any decelerating?

We are still committed and believe that we are going to grow by two-digit growth in the future. When we are looking, we have our growth engines, and our growth engines are growing faster than the -- growing fast., So Actimize is a growth engine and a risk management solution. It has accelerated growth. Our security solutions and intelligence are also a growth engine. And our analytics-based solutions, business solutions, are again a growth engine. And we are seeing three of the three of them growing in an accelerated way.

Zeevi, are there any constraints on your growth? Do you have enough people in product development and sales and marketing in particular?

If you'll ask the team they would tell you that they don't have enough people, like always, but I believe that we have the right team to continue and grow the Company.

All right. And then finally, can you just talk a little bit about how the competitive landscape is evolving by segments? Are you seeing any sort of intensification of the rivalry or reduced competition by segment?

When we are looking at the different segments, I don't think that we have seen a major change over the past quarter or so since the beginning of the year in terms of the competitive environment. We are seeing basically the same players. In the markets that we are active at are competitive markets, we believe that we continue to gain some market share in the segments that are relevant to us. And we have not witnessed any real differences in the market.

I'm often asked why the large companies like IBM and Cisco and Oracle and so on are not in this space? Can you sort of hazard a guess as to why they neglect this growth opportunity?

First I believe that the -- I mean we are very --. If you look at what we are doing, we are very specialized in what we are doing. We are -- if you look at our activities, intent-based activity, we are starting with intent, then we are looking for insights, and then we are trying to drive impact. And we are doing it in different segments.

And I think that this requires specialties, which are difficult to develop to the large companies. It's not that they are not -- I think that this is the reason why they are not there.

And by the way -- I believe that here and there we are competing with these guys, and I think successfully. In many cases we are partnering with them, but in many cases -- some cases - we are competing with them and so far successfully.

Thank you.

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

Thank you. Hi, Zeevi and Dafna. Congrats on the good execution. First question, can you provide us with any sense on whether there was any headwinds from FX or anything else that we should consider for this quarter and also for the upcoming second half from the acquisitions or from FX again?

There is no -- obviously there is always some impact of foreign exchange. Most of the volatility lately was in the euro and British pound. On that front we are usually somehow hedged -- have a certain internal hedge between revenues and expenses, so overall I don't see major impacts on the bottom line. And in any case, everything that we have is already embedded in our guidance.

Okay. Fair enough. And then can you provide us with some color. I mean, you guys have launched several new products of late. Can you just give us a quick update on where you guys are, be it in the small-medium businesses, be it with the new security launches and the traction there?

Obviously when you are looking at the in-house development and in-house innovation, it takes time to capture a market. But we have a very large install base that we can leverage, and therefore we can have goals coming from these markets.

When we look at the different products, the products that we launch, we are seeing good traction in nearly all of them -- all of them. Right now I cannot think about one that does not follow this formula. Still in many cases, in some cases at least, the revenues that are being generated are small, but we expect them to grow.

Okay. Fair. And then last one for me. Can you give us a little bit more color on the activity with Actimize? I think you mentioned before that you are looking for $100 million revenue contribution from this segment. How are you tracking towards that? My checks indicate that there is a pick up overall in the interest, and you guys talked about it as well. So if you can provide us with some color there? And also lastly on IEX, the workforce management segment, where are the trends there?

So let's -- we'll start with Actimize. So if we said that we will be about $100 million with Actimize business this year, we said that this is an area indeed that there's a very good market traction. And I think that we are also executing very well in this market. And I believe that it will be -- we can say today that we believe that this year will be well above $100 million. So this is on the Actimize.

When we are looking at IEX, on IEX we are focusing today on two initiatives. One is we launched a new version of the product, which we are currently looking at updating part of our install base, and we will launch additional features on top of the new technology. And the second, this is the one that we spoke a lot during the speech, and this is expansion to back office.

And on the expansion to back office we are leveraging our IEX install base. So we are getting to our TotalView customers who are already using our workforce management solutions for their contact center and enabling them to update this technology to support also the back office. And this is going to have a positive impact on the IEX revenues, the IEX business down the road.

Okay. Very good. Thank you.

The next question is from Shyam Patil of Raymond James and Associates. Please go ahead, sir.

Hi, good morning. Good job on the quarter. First question is around the sequential trends you guys saw by geography. It looks like the Americas were up nicely sequentially, but it looks like EMEA and APAC were down. Can you talk about what business segments you saw the downtick in sequential revenue and how we should think about that for the rest of the year?

Yes. I think that sequentially you can see that there was a decrease in the second quarter, but I think the way to look at it is more in an accumulated basis. And if you look at the results for the first half of the year, then you would see that there was a nice growth in both EMEA and APAC, and there are some fluctuations, as you know, between quarters. So I think the best way to look at it is on a two quarters or accumulated basis and not in the standalone on the quarterly basis.

What's also important to mention is that at least on the bookings side we've seen good momentum in the regions and mainly in EMEA, which also keeps us optimistic?

Okay. And then just to clarify on the commentary you gave earlier on the guidance. It looks like at the midpoint you raised the annual revenue guidance by about $7 million to $8 million. Were you suggesting in your previous commentary that about half of that is due to acquisitions and about half of that is organic? Is that the right way to think about that $7 million to $8 million increase in revenues at midpoint?

Oh, no.

No, no. I think that you should assume contribution at least from -- Lamda is a technology company so there is no contribution to revenues. For eglue, we are looking at $3 million to maybe $4 million additional revenues in the second half of 2010, not more than that.

Okay. And then just my last question. Zeevi, it seems like you've talked a lot about the call center and analytics product over the last two or three calls. How much of your base do you think is addressable for that product? Where do you think we are today? And then how difficult is it for a competitor to win just the speak analytics pieces if you guys are providing the recording? Thank you.

I'll start -- obviously we have some advantage if we are providing the recording to provide also the analytics piece. When we are looking at analytics, there are two basic functionalities which we can provide. One is the ability to provide analytics as like an engine or like an enabler. And the other is to provide it as a full -- supporting a full business process.

We believe that our install base is addressable for both options, and we prefer to concentrate and focus on selling the more complete business solution, which increases the value to the customer and increases the value that we are getting from the customer.

And here we believe that the -- we today have many of our large customers already have some implementations of analytics format, and they are expanding in capacity and throughput, and there are expansions there that can be done in functionality. And we are targeting both.

So we are at the beginning of this market although we already have quite a good reference point and can show some test cases where we added value to our customers.

Great. Thank you.

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

Yes, thank you. Congratulations on a good quarter. Can you talk about linearity? Did you see an improvement in operating trends as the quarter progressed, and what have you seen in July so far?

I think our guidance on Q3 and the rest of the year reflects what we've seen in July and continue to see good momentum in the business. And in terms of linearity, I think that there is a certain linearity in our business, and there was no major change in trends recently.

Great. And then in terms of your backlog, does it basically mimic your segment sales with enterprise and security at like 75/25 or is there -- have you seen a bigger portion of backlog in one of the segments?

There is a bigger portion of backlog in the security because of the long-term deals. But it's not very significant.

But in terms of trying to peg down the growth rates in terms of operating segments, would you say security maybe could draw a little a faster just given its lower sales base?

We believe that both with go in a similar way. We have growth engines in both segments.

All right. And lastly, in trying to reach your midterm of 20% operating margins, where should we expect the leverage to come from on the expense side? More in sales and marketing, G&A, or is there any one line that you could get more leverage out of?

No, I don't think there is one line. I think it should come from leveraging on the operating expenses in general.

Okay. Thank you.

Thank you.

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

Great results guys. Can you talk a little bit about the pipeline and business environment and maybe give us a sense of the willingness for customers to spend so far this quarter?

We have good pipelines I guess across the board. I cannot think about a single segment that we do not see a nice pipeline. Again, when we are looking at our growth engines, we are seeing more -- relatively more opportunities than in any other of our traditional business.

When we look - I mean it always was difficult to get customers to spend money, and this is -- we continue to work very hard to provide them good reasons to spend more money and to prove the business case in our solutions. And we believe that the return on investment is very good.

And there is maybe one area which we talked about it, and this is in Actimize, and everyone is anticipating the certain regulatory wave, and therefore people are really investing in infrastructure now, so people are looking at how do they build the infrastructure so that when the regulations will come they will be ready and be faster to implement it. So here we are seeing some non-usual activity.

Great. And can you guys talk a little bit about use of cash at this point? Should we again expect a large acquisition in the third quarter?

We are working actively with a very -- when you spoke about pipeline I thought you talked about products, not acquisitions - but we have also a good pipeline of companies that we are looking as a potential acquisition, looking at the fit. I'm not sure that we will see a large acquisition in Q3, but we are looking at companies of different sizes that can fit our business, some small, some larger.

And we believe that we have opportunities. We have the capability to grow through acquisitions. We have a good track record in integration, and we have a strong management and processes to carry on in this integration. And we have the financial capabilities to do that. So we will continue to pursue acquisitions that will benefit our shareholders and our business.

Great. And last question is on the book-to-bill. You guys said that that was greater than one. Can you give us a little bit more color on where that sell? And maybe in terms of the total backlog you said greater than two quarters. Are we getting pretty close to three quarters at this point? Just wanted to get a general sense of magnitude.

Regarding the three times -- actually I didn't do the math, but we've increased our backlog quite nicely over the last several quarters. And book-to-bill is greater than one. You know we'll -- this is what we are looking, whether it's higher or lower than one, and that is -- and it was greater than one in the second quarter, and we are happy with that.

Great. Thank you.

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

Thank you very much. On the security side, I wonder if you could discuss what the Times Square bombing incident has done for activity in the aftermath of that? Has there been a notable change because of that event or not so much? And let's start there.

It's not a single incident. The threat of crime, by the way not only terror, is increasing throughout the world. And we are seeing that there is a huge deployment of cameras around the world. I mean, we have a number for the City of London of almost a million cameras.

The incidents like the attempt -- car-bomb attempt in Times Square are raising the issues of while organizations and law enforcement are capable of really have a video from the activity, they really do not have the ability to react in real time. And this is where we are coming into play. And this is where our Situator and Inform platforms are providing added value in automating the processes and ability to react in real time, either to prevent such events or to react very fast to be able to complete the investigation, resolve the case in a fast way.

And I think that this need has been realized, and we are seeing good traction in this area. Some of it is related -- it's related to news, but we cannot really say to which news article is relates to. And we are seeing good traction in this area. And we have the goods. I think we said it in this call that we have the good -- we exceeded our expectations in the sales of our Situator during the first half of the year, and we are seeing a very good pipeline to this product. We believe that we will see a growth in this area.

Thank you, Zeevi. And is it mainly government and municipal agencies that are looking at Situator and lesser on the private side, or is there fairly decent interest on the private sector?

It's more on the public sector. It's not necessarily government, but it's government and also public sector. So if you look, for example, at the utilities or transportation. This is also - there are regulations like NERC in the utilities that the Situator is supporting.

So we are seeing in utilities. We are seeing it in the seaports. We are seeing it in airports. We are seeing by law enforcement agencies. So we are seeing traction for this product, and we also got some orders.

And on the enterprise side, maybe you feel you've addressed that, but just try this a different way. On your back office strategy, is it more customers taking you to that arena or is it more NICE seeing this is an adjacent area that it can move into just given your position in the call center? How much of it is customers versus your own --?

It's a combination. Obviously, we have the leading customers in the world in our activity, and if it's insurance companies or if it's BPOs, companies that really improving the back office as a strategic part of their business. And we are using our customers as design partners.

So we are constantly reaching out to our customers and trying to understand what is on their agenda. And back office is something that we identified that is a need. We heard it from customers. We did -- obviously our marketing team did their analysis of the market. So it's a combination. This is the way that we are approaching the market.

We are very lucky to have really the best design partners among our customers, and we are listening very carefully to their demands and their requests.

Is there a reason to think that the back office opportunity in some cases with your larger customers is a larger opportunity for NICE, that existing call center, or is that too much of a stretch?

This is -- I think at this point it would be too early to say that this is a larger opportunity for NICE. But in certain areas like if you're looking at workforce management, we believe that the number of people that are employed in back office is significantly larger than the number of people that are working at call centers, and therefore the demand for applications like workforce management, quality management, process optimization, we believe that it will be -- it can be larger than at the contact center. But it requires a lot of market education and it requires a lot of execution from our side.

Yes, right. Okay. Thank you very much. I appreciate the help.

There are no further questions at this time. Before I ask Mr. Bregman 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 1-888-326-9310. In the UK please call 0-800-028-6837. In Israel please call 03-925-5927. And internationally please call 9723-925-5927.

Mr. Bregman, would you like to make your completing statement?

Thank you. Thank you all for joining us today and have a nice day.

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