Nice Ltd (NICE) 2011 Q1 法說會逐字稿

Welcome to the NICE Systems conference call discussing first-quarter 2011 results, and thank you all for holding. (Operator Instructions). As a reminder, this conference is being recorded May 4, 2011.

I would now like to turn the call over to Anat Earon-Heilborn, Investor Relations at NICE. Please go ahead, ma'am.

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 on 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 2010 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 31, 2011. Such factors and forward-looking statements are based on the current expectations of the management of NICE Systems Ltd. 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 on the Company's customer base, particularly Financial Services firms and the resulting uncertainties; changes in technology and market requirements; declining demand for the Company's products; inability to timely development 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 will present a more detailed discussion of first-quarter 2011 developments and the Company's updated guidance for 2011. Following the 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. The differences 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.

Welcome, everyone, to our first-quarter 2011 earnings call. Q1 was a strong quarter for NICE. We continued to execute on our strategy to provide organizations with unique analytics-based cross-channel business applications to improve business performance, enhanced compliance and ensure safety and security. Our solutions enable organizations to gather insights and understand trends, as well as provide them with the ability to impact specific events in real-time.

Our Q1 revenues were stronger than originally expected and reached $187 million, increasing 15% from the first quarter of last year.

Q1 was a strong quarter for our Enterprise business. We enjoyed strong demand for our analytics-based advanced application in the Customer Interactions segment, and we continue to enjoy growth in our Financial Crime and Compliance segment.

Non-GAAP EPS reached $0.47 in the quarter, up $0.09 from Q1 last year. We continue to see strong demand for our products, and we enjoy a healthy pipeline across the board.

Following the very strong Q4 bookings, we are pleased with our Q1 booking performance as well. Book-to-bill for the quarter was close to 1, and we forecast book-to-bill to be higher than 1 for the full year. Our backlog represents over two quarters of revenues. Based on both backlog and pipeline, we are raising our revenues and EPS expectations for the full year.

We continue to demonstrate robust cash generation with cash flow from operations in the first quarter reaching a record $55 million. Our total cash balance at the end of March was $657 million.

A few words about the status of the CyberTech acquisition. The acquisition closed as planned in early March. We began the integration process immediately, and it is progressing well and in line with our expectations. We are moving ahead with respect to all organizational, operational and customer-facing aspects. Given the satisfactory performance of CyberTech so far, the positive feedback we received from business partners and customers and, most importantly, two months of experience in working closely with the CyberTech team, we are very positive about the prospect of this acquisition. We are reinforced in our belief that CyberTech's complementary solutions will enhance our offering and that the deal will further strengthen our presence in EMEA.

We continue to reap the fruits of our domain expertise in the fast evolving, highly specialized market in which we operate. There are several fundamental needs that keep driving the demand for our products. These are the needs for improving business performance, enhancing compliance, and safeguarding people and assets. We are confident about the core growth engines across our business lines and expect to continue to deliver consistent solid performance.

Our Enterprise business, which is comprised of the Customer Interactions business and the Financial Crime and Compliance business had a very good first quarter.

Looking at our Customer Interactions business, we continue to execute on our strategy to provide our customers with solutions that enable them to impact every customer interaction.

There are two themes that I would like to highlight to you today. The first is the increasing demand for our advanced applications in developed markets. The second is the strong demand for our solutions in emerging markets.

Starting with the developed markets, we are seeing a substantial shift from our traditional product to analytics-based advanced applications, which include our established insight solution, as well as our newer real-time impact and back-office offerings.

In the previous earnings call, we talked about an 8-digit order for a major North American financial institution that upgraded its infrastructure. The new infrastructure enabled this customer to enjoy our advanced applications, and in Q1 it made a large follow-on order. This high 7-digit order is solely for our insight and real-time impact solutions.

While financial institutions are our largest vertical, the demand for value-added applications is clearly visible in other verticals as well. For example, during the quarter we booked a multimillion dollar deal with one of the largest telcos in Australia. This customer operates in a highly competitive market and views our solutions as strategic for process optimization and customer experience improvement. It expects to formulate best practices across its call centers, which will help decrease churn, improve quality and increase ARPU.

Moving on to emerging markets, we are pleased to see an improvement in demand in markets such as Southeast Asia, Latin America and Eastern Europe. Here we are now seeing a transition from the purchase of products to the purchase of business solutions, a similar trend to the one we have already been witnessing in the developed markets. This naturally leads to an increase in the number of large deals in these areas.

Turning to our Financial Crime and Compliance business, which continued to demonstrate strong growth.

Due to regulatory changes and the increasing sophistication of fraud attacks, many firms realize that their systems, which are often home-grown, cannot effectively support today's needs. They therefore choose to replace siloed technology with enterprise-wide solutions. Such solutions provide them with a holistic view of activity across departments, divisions and geographies, and enable them to detect potential connections between activities. This trend continued to drive our Financial Crime and Compliance business in Q1.

For example, we signed a high 7-digit deal with a large North American financial institution for both our security trading surveillance technology and AML solutions. This bank chose to implement multiple products that operate on a single platform in order to improve its effectiveness in preventing prohibited activities.

A month ago we published a press release about our win with the Bank of Ireland, which chose several of our solutions last year, which it is now implementing. This deal reflects several business trends that we have been discussing during the past few quarters. One is an expansion of our business in Europe. Two, it demonstrates the fundamental need for our Financial Crime and Compliance solutions regardless of macroeconomic conditions. Finally, it is another instance where the desire to obtain a more holistic view of Financial Crime risk across the Enterprise was a key driver for the deal.

Today we announced that we were recognized as leaders in Gartner's Web Fraud vendor quadrant. We believe that our position is supported by the very strong analytics technology that drives our solutions, our ability to integrate our Web offering with a real-time, cross-channel enterprise fraud management platform, and the effectiveness of our feature-rich platform.

Moving to our Security business, we continue to enjoy a strong pipeline for our distinctive portfolio of Security Solutions.

In this portfolio, the fastest-growing area is the Situator, our situation management solution. This growth stems from the overall rapid market growth, as well as from our clear leadership and product differentiation. We are seeing growing adoption of the situation management concept, mostly in the US but also in other regions, including emerging markets. The leading verticals in adopting our solutions are transportation, utilities and financial services.

In March we introduced a new version of the Situator. Enhancements include greater openness, precise real-time tracking of relevant assets, and pre-configured industry-specific packages for addressing growing compliance requirements. The new capabilities enable organizations to leverage a wealth of external information sources for decision support while responding to situations or threats.

In our Video Surveillance business, we continue to see migration from analog to IP-based video. This trend leads to additional revenue from existing customers as they modernize their security systems to keep up with their growing security needs. A little over a month ago we disclosed that Dallas-Fort Worth International Airport has placed a multimillion dollar order with us. The deal includes the deployment of our IP video surveillance solutions, as well as our incident information management solution. This deployment will provide a foundation for the airport to migrate to IP video surveillance in the future.

The order pipeline for the Security business is healthy, and we believe that opportunities we are working on will materialize in the latter part of the year.

To conclude, we are satisfied with our performance in Q1, which demonstrates solid execution. We delivered revenue growth, profitability improvement and robust cash generation. We are seeing a continued shift from our traditional products to advanced applications, and we are also very pleased with the growth in demand we are experiencing in emerging markets. We believe that the demand for our unique solutions, as well as our ability to sell and deliver these solutions, will continue to drive our business forward during the remaining of 2011 and beyond.

Many thanks to all of our teams for their 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 2011, our outlook for the second quarter, and the increased guidance for full-year 2011.

Revenues for the first quarter reached $187 million, exceeding our expectations, and up 15% from $163 million in Q1 of 2010. The CyberTech acquisition, which closed on March 4, contributed about $2 million to the quarterly revenues.

Our backlog at the end of the quarter was very strong and represents more than two quarters of revenues. We are pleased with the strong pipeline across our businesses. Our book-to-bill ratio in Q1 was close to 1, and we expect it to be greater than 1 for the full year.

Our revenues by businesses were as follows -- Enterprise revenues reached $147 million in the first quarter and accounted for 78% of total revenues; Security revenues reached $40 million in the first quarter and accounted for 22% of total revenues in the quarter.

By geography-- the Americas region continues to perform well. Revenues reached $114 million in the first quarter, increasing 22% over Q1 of 2010. Our business in Europe, Middle East and Africa had revenues of $48 million in the first quarter, increasing 5% over Q1 last year. Revenues from Asia-Pacific region were $25 million in Q1, up 5% from last year.

In summary, the Americas region accounted for 61% of total Q1 revenues, EMEA for 26% and APAC for 13%.

Product revenues accounted for 44% of Q1. Revenues from maintenance were up at 37% of total revenues, and revenues for Professional Services accounted for 19% of revenues.

Q1 gross margin increased to 65.9% from 64.1% last year. This improvement is the result of the continuing shift in our business toward software-based application, a favorable product mix, as well as continued increase in the recurring maintenance business.

Operating income in the first quarter was $34 million and represents 18.2% of revenues compared with 16.6% operating margin in Q1 of 2010. We are on track with our plans to continuously improve profitability and operating margin.

Net income increased by 25% from $24 million in Q1 last year to $30 million in Q1 of 2011. Earnings per fully diluted share came in at $0.47 for the quarter, up from $0.38 in Q1 last year.

Cash flow from operations continues to be very strong, and we generated a record $55 million in the first quarter. As a result, our cash and equivalents reached $657 million at the end of March with no debt. During the quarter, our cash out flow for acquisitions was approximately $65 million. $59 million were paid for the CyberTech acquisition, and $6 million were payments for prior acquisitions earn-out.

We started executing the share buyback plan in March, and so far purchased shares are at a total amount of $10.5 million. During Q1 $2.2 million were spent on the repurchase of 62,500 shares.

We had a significant increase in accrued expenses and other liabilities visible on our balance sheet and cash flow statement. Most of the increase is the result of an increase in deferred revenues and advanced payments from customers. This further evidences the strength of our business.

Turning to guidance, we are introducing today our guidance for the second quarter and raising our guidance for the full-year 2011. Our expectations do not include the impact of any share repurchase plan. We expect revenues in the second quarter to be in the range of $190 million to $196 million.

As for earnings per fully diluted share, we expect a range of $0.47 to $0.51 for the second quarter. Based on our performance in the first quarter, our strong backlog and pipeline, we currently expect revenues in 2011 to be in the range of $780 million to $803 million and earnings per fully diluted share to be in the range of $1.98 to $2.07 this year.

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

(Operator Instructions). Daniel Meron, RBC Capital Markets.

Congrats on the solid execution. Zeevi, can you provide us with a little bit more details on the growth rate that you see in developed markets versus emerging markets? Can you quantify is one market growing faster than the other, and how is the profitability profile in the different segments between developed and emerging?

Well, we are not breaking the forecast to emerging and developed countries. Most of our growth in the developed markets is coming from selling more and more applications to our installed base and selling more equipment to our installed base. While in emerging markets, it is more a penetration of new customers, and also now we are seeing, as we discussed, a trend of also applications, but it's a more embryonic market.

Obviously when we are penetrating new customers, there might be sometimes we are investing more, but generally in terms of trends, it is more or less similar.

Okay. And then if I was to look into developed and emerging markets, do you see Enterprise or Security mix different in different markets, or is Security more going into developed markets versus emerging or vice versa and the same goes for Enterprise? And where do you see your activity within that Actimize solution when we look at it on this geographic breakdown?

When we are looking at our Enterprise Solutions and most of our Security Solutions, most of the business is in the Americas and then in EMEA and then in APAC. Pretty much following our overall model for regional distribution. When we are looking at part of our Security Solutions, the intelligence part, this is more leaning to emerging markets.

Okay. And last question on my end for you, Dafna. You had -- it is great that you guys started the buyback. Congrats on that. Given the strong cash flow in the quarter, maybe it's a little bit too early in the game, but it does seem like the buyback is not keeping up with the cash generation. Any thoughts there on what you are going to do with the buyback?

First of all, I'm glad that the cash generation is better than the ability to spend on buyback, but more seriously we have an initial plan to buy back shares at a total amount of $100 million. And, as you see, we have executed more than $10 million already and plan to continue with this plan going forward as well. And once this amount will be purchased, we will evaluate what is the best way to continue.

We need to remember that the major use of the cash in our Company is to grow the business through acquisition. That is the main purpose, and we are very focused on that as well.

Paul Coster, JPMorgan.

You started off by talking about how in the developed markets, you are moving from sales of traditional products to analytics. I'm particularly interested in the SmartCenter customer experience kind of suite and the multichannel capability. Can you give us a little bit of color around where we stand in terms of adoption of this multichannel capability? Is it very early stage still? What is the size of the market? What is your anticipated growth rate for that segment of your business relative to the overall business?

Any sense also on how long the sales cycle is for the SmartCenter customer experience solutions?

So, when we are looking at analytics solutions, the introduction of cross-channel is something that we introduced, I believe, last year. We have customers that are using it, but we are in the early stages -- in terms of market penetration, we are in the early stages of the activity there. There are opportunities, and as we are proving our solutions to customers, they are buying and investing more with us.

When we look at where we are focused today is we are focused more on the introduction of solutions that are completing the cycle, that are a combination of our Insight solutions that is providing trends, and then our Impact solutions that are looking at trends and make the actions and enable actions in real-time by our customers. So this complete cycle and then these solutions can be measured again by the Insight solution to show to look at the progress and to look at how do we advance and how do we support it, the business growth of the customers when they implement the analytics solution. And this is the main area of supporting this cycle and supporting the complete business process of providing both trends, and also the impact, this is our main focus area, and this is our unique advantage in this field.

And are you cross-training your salespeople to sell the customer experience, including in addition to the insight, or do you have specialists in this area?

The way that we work is that we have a sales team that the -- that is knowledgeable about the market, and they are also knowledgeable about the product. And we are investing a lot -- it is a program called NICE University -- in educating them and making them constantly up to speed. And they are really, the learning capabilities is a fundamental requirement to become a salesperson in our space, but when we are getting to a more developed sales situation, the team of consultants and experts is supporting the salesperson in creating and ensuring that the value is extracted for the customer.

Okay. My last question is, as you add resources to address this growth opportunity that you are exploiting, can you give us some sense of where you are investing? Is it on sales versus R&D? Is it in specific geographies, in specific product categories just so that we get a sense of where your attention is?

We are obviously spending money where our growth engines are. But overall our spending is across-the-board, across all the functions of the Company. We are using our leverage to invest less in G&A compared to other areas. But besides G&A -- and also in G&A, as we are growing, we need the scalability, we are investing across the board.

Shyam Patil, Raymond James & Associates.

Great quarter, guys. My first question is around the backoffice solutions you talked about in the past. Can you maybe talk more about that in terms of the pipeline, how many deals you guys have closed there, potential revenue contributions this year, and what that can mean for the business looking out maybe two to three years?

The backoffice, we believe that the backoffice is a significant opportunity for us. We believe that the -- we know that the analysts are saying that there are two to five more people operating in backoffices than there are in the front office or in the contact center, and it's a significant opportunity for us.

The first opportunity that we see and the strongest demand that we see at the moment is the healthcare and insurance segment, and this is where we are focusing our activities. And we are already during the quarter and even before we already signed several deals, and then we are seeing good traction in this market. And we believe that both the number of deals and the size of deals will increase throughout the year.

So now in terms of revenues and bookings, we expect it to be a growth area, but we are not expecting significant revenues this year. But we do -- they will be meaningful but not significant.

Got it. Okay. And I think based on the comments you guys made during the call, you are expecting the Security business to show better revenue trends in the order ramp in the back half of this year. In addition to the strong backlog you guys have built up there, what gives you confidence that you are going to see that play out this year?

When we are looking at our metrics and looking at the business, the pipeline of activity, we have seen relatively strong activity in our Security business during the quarter and from the quarter until today. So we are confident that the business will go year over year.

Got it. And then it looked like the services revenue was particularly strong this quarter. I mean should we assume that that primarily came from the Enterprise business?

And then when you look at the Enterprise product revenue, if you back out the contribution from Actimize to the year-over-year growth, what are the other applications or products within Enterprise that are showing strong year-over-year growth?

When we are looking at the -- first of all, we are in the first quarter, so it is difficult to speak about trends. But generally the areas that are growing on the Enterprise side and not in a particular order is systems that are going to emerging markets as we spoke before. And in the applications space, the areas of applications that are based on interaction analytics, applications that are real-time impact solutions and backoffice we spoke before. These are the main growing areas within our Customer Interaction business.

Okay. And then just my last question. The buyback, how should we think about the execution of that? I mean do you guys expect to be price-sensitive for that? Right now with the stock having a nice move, we should expect any more limited repurchases and kind of more opportunistic on pullbacks, or do you guys plan to deploy the cash consistently throughout the year?

Our first plan is to continue with the execution of the buyback. We don't do it -- we do it through a 10b-5 plan, so it is not opportunistic. It has some guidance regarding prices, but it is more guidance for daily activity, and overall I can say that we continue to buy stock at these prices as well.

Thank you and congrats again.

Daniel Ives, FBR.

Could you just talk in regards to 7-figure deals, I mean you talked about the big deals, could you maybe compare that sequentially and year over year?

We are not ready with the specific first quarter to first quarter comparison. But when we are looking at analyzing our numbers and our data, we are clearly seeing a trend of growth of the number of the 7-digit deals that we have.

So were 7-figure deals up sequentially?

We have to -- we did not make this analysis. I cannot provide a -- I cannot answer.

Okay. Could you talk just anecdotally about what is going on on the Security business? Are you seeing -- you talk about the second-half growth, but are deals getting bigger? Is there any particular geographic strength, any change in competition? Just talk about what you are seeing in the field on that business.

We are -- one of our growth engines in the Security side is our situation management platform where we are the market leader. We are enjoying a good pipeline, several orders, and we are continuing with the momentum in this business, and this is definitely a growth area, and we expect to see accelerated growth during the year.

We have seen some improvement in our traditional video business this quarter. And also, when we are looking at our Public Safety, we have seen some nice deals that we did, which appear to right now in the booking in areas which are outside the US.

David Kaplan, Barclays Capital.

The first question is on operating profit. The margins looked pretty strong, particularly for the first quarter, 18.2%. And then the long-term target is for 20%. Is the recent acquisition in any way helping or going to help over the rest of this year increase the operating profit in the short-term, or does this really still continue to be a long-term goal?

The target for us is to reach -- it is actually a midterm target of two years to reach 20%, and what we intend to do is to gradually improve our profitability. So we do expect certain improvements in profitability during 2011 and especially in the second half where the full impact of the acquisition of CyberTech could be added to the profit. It is going to be more evident in the second part of the year.

Okay. And then just a quick question on the updated guidance. If we look at the top end of the guidance for Q1 that you had given, and the resulting $187 million, it was a beat of about $4 million. The updated guidance for 2011 has the top end of the guidance raised $3 million, if I'm not mistaken. So is that actually -- is the view on your 2011 numbers just a reflection of the beat in the first quarter, or is it actually an analysis of your expectation for the rest of the year?

I think it is from expectations. It is based on expectations for the year. Let's remember that we are giving a range, and if you noticed, we have increased the lower part of the range much higher than the higher part, and still it is the range, and we need to remember it is still the beginning of the year, and hopefully we will continue to perform well and increase our numbers.

Brian Ruttenbur, Morgan Keegan.

Can you talk about the Security growth on the year, what you are anticipating, do you see a pickup in Security? And then I have some follow-up questions.

Well, what we expect is to have at least 10%, a 2-digit growth for the year in Security.

Right. And then maybe you can talk about G&A in the quarter. It was up dramatically from last quarter. I think that was due to the acquisition. How much was due to the acquisition?

There was a certain part, not a significant part due to acquisitions. The acquisition, I believe, that we had some favorable impact on the G&A last year in Q4. So the level of Q1 is probably a better indication for G&A levels going forward, and it is actually much more similar to the level we have experienced during 2010.

Okay. And then the last question, on the tax rate, you are at 27% in the first quarter. What is your rate looking like for the whole year?

The tax rate was about 18%, and the target for us is to range between 17% to 18%. That has not changed, and there are some changes from quarter to quarter, but the overall target has not changed.

Ziv Tal, UBS.

Congrats on a good quarter. Dafna, can you give us a little color on the impact of FX going forward, and two, give us a little bit of detail on your hedging?

We have a hedging policy to actually hedge mainly our payroll costs in the Israeli shekel compared to the US dollar. And, as you know, there was a certain change in -- there is a continuous change in the exchange rate. The way we work and we have always worked is that we have a certain hedging system in place that allows us to predict quite accurately the coming quarter or the coming quarters or actually on average the coming six months. So I don't expect a major impact in the coming few months.

Going forward, over a longer period of time, if the Israeli shekel would remain very strong, we will have to take some measures and change the way we invest our money between Israel and other areas. But this is something that is yet to be seen. We have some flexibility in terms of our spending to overcome the fluctuations between the currencies.

Craig Nankervis, First Analysis.

Really most of my questions have been asked. I guess on the Security story, would NICE be satisfied with 10% or 10% to 12% Security growth this year? Would the Company consider that to be --?

First of all, we said that it will be at least 2-digit growth. It will be 2-digit growth at least, which means at least 10%. But more -- if you look at the numbers and you look at the way the Security was trending last year and because between quarter to quarter Security was more or less flat, if it will grow by 10%, it will represent the higher rate on a quarter by quarter. If you compare Q4 to Q4, it will be a higher growth rate than because of the nature and the distribution of the revenue.

You are saying the quarters are lumpy, and you could have some pretty strong quarters?

That is also correct, but what I'm saying is that if you look at the trend of the Security last year, it was more or less flat. And, therefore, in order to increase the annual business by 2 digits, it means that the growth, the effective growth of the rate is going to grow faster for the low 2 digits.

Can you -- I just find it puzzling because -- can you say, is the sort of the regular base Security business, has that changed? Has that softened in some way? I mean you have added new product capability, you have a greater offering set in situation management, and you have large, very large wins from 2009 that are at some point to contribute. And it seems like neither of those is happening in a way.

So the large deal from 2009 is we are continuing to execute on this deal and on this project, and it goes according to plan. And what we have said also in the previous call, we have seen -- we did not get -- the nature of the large deal on the Security side is lumpy. And we have in the pipeline some large deals, and we are -- but we believe that they will materialize. Some of them will materialize during this year, and we will see some revenue growth for this deal coming in.

On the Surveillance business, the business we mentioned, we are seeing growth.

Michael Kim, Imperial Capital.

Just to clarify then the Security pipeline, the order pipeline is growing faster than the Enterprise pipeline, as well as backlog. Can you just clarify how you are seeing the pipeline growth?

We did not look at the pipeline growth, so it is difficult. We did not measure the growth in the pipeline. What we have said is that we have a very strong pipeline in our Security business. We believe that some of the deals will materialize. We believe that the business is going to grow this year by at least 2-digits.

To get to the double-digit growth, it does seem to imply almost 20% growth in the back half of the year with quarterly revenues approaching $50 million in the Security business. So are some of these --?

There can be lumpiness quarter over quarter in terms of the volume, but this is basically you explain better what I tried to explain previously, that this is going -- this is quite aggressive growth.

And are you seeing that growth in North America or is it international opportunities?

It is across the board.

And this year, there has been a degree of consolidation in the PSIM space. Any commentary on how that might change the competitive landscape and the position for Situator?

First, we believe that when you're looking at the space, we are -- there is an ROI in terms of the spending. So the systems like Situator are helping people to save money. And instead of investing in areas like sensors, which very costly providing some intelligence is much more cost effective, and therefore, we believe there is going to be demand.

Now some of the demand is not coming from defense. We are not selling the Situator to the defense world. We are selling it to the Security and mostly to the Enterprise Security and some public organizations, and when we are looking at the issues like compliance and continued increase in the threats that exist in this market is creating a good demand for this type of service.

And then switching back to Enterprise, can you comment on the penetration of new customers relative to expansion of existing customers? Are you starting to see stronger new client additions or new logos into Actimize?

We have -- we are increasing our market share. We are seeing a constant flow of new customers, and this is across the board.

And just one last question on the Security portfolio, considering your balance sheet, can you talk strategically in terms to fill out that portfolio on a technology basis or vertical expansion, or is it a geographic? What are your priorities to build the Security portfolio?

When we are looking at the, on our Security -- by the way, it is no different than any other sector that we are looking at. We are looking first, we are looking at whether we can -- we are looking at always opportunities to expand market reach and our go to market, opportunities to consolidate some the fields that we are at, opportunities to expand our product offering in a complementary way, and when we are doing it, we are always looking at the financials behind such a transactions, and whether it makes sense. We are very conservative in our M&A approach and we're going to continue to be in terms of the financial models and making sure that we are making the right return to our shareholders from our investments.

Ari Bensinger, Standard & Poor's.

I just want to try to tackle a Security question maybe a little differently. If you have to aggregate your total addressable market, what do you feel the market growth rate is for 2011? Because it just seems like the strong fundamentals and the headline news and terrorism that growth over the last four quarters should be a little bit stronger than what the Company has shown. So is it a function that the markets, just the long sales cycles, or is it a marketshare component?

I don't think it is-- the size of the markets that we are addressing in the Security are huge. So the marketshare is not an issue, and the market -- and there is a very significant market opportunity.

There is a certain lumpiness in terms of the purchasing cycles that exist in this market. And, as I said before, we have seen quite a good traction, and we are optimistic about the traction that we have seen in the Security business within Q1, and we believe that this will materialize throughout the year, and we are going to see growth this year into Security like at least at the same rate as the growth between 2009 to 2010.

Jonathan Ho, William Blair.

Just a quick question on the advanced applications in your call center. Do you see this opportunity primarily as an upgrade cycle within your installed base, or is there an opportunity here to drive a broader refresh in the industry, which could allow you to take some incremental share?

Could you repeat your question, please?

The question is basically is this primarily going to be on the advanced application side an upgrade cycle within your installed base, or do you think this is going to cause a broader refresh in the industry so that maybe folks that are not using NICE as a platform could potentially switch over?

We are seeing both trends. We are -- it is being sold to our customers, and it is being sold to new customers as the reason and the motivation for them to replenish their technology. So we are seeing both trends on an ongoing basis.

Great. Can you give us maybe an update on what is happening with the large FAA contract that you guys signed back in 2007 and maybe where we stand there?

We are continuing to deliver platforms quarter by quarter. This is continuing, and I don't remember now how many -- how much of the project is already behind us, but we are progressing as usual.

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 1-888-782-4291. In the UK please call 0-800-917-4256. In Israel please call 03-92-55-921, and internationally please call 972-3-92-55-921.

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

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

Thank you, sir. This concludes the NICE Systems first-quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.