Nice Ltd (NICE) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the NICE Systems conference call discussing second-quarter 2011 results and thank you all for holding. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded July 27, 2011.

I would now like to turn this call over to Ms. Daphna Golden, VP, Investor Relations at NICE. Please go ahead.

Thank you, operator, 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 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 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 and 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 acquired 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 or 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 2011 developments, the Company's updated guidance for 2011 and the guidance for the third quarter of 2011. Following our comments, there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles, as reflected mainly in accounting for acquisition-related revenues and expenses, amortization of intangible assets and accounting for stock-based compensation. 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. Zeevi?

Welcome, everyone, to our second-quarter 2011 earnings call. Q2 was another strong quarter for NICE. Q2 revenues came in at the high end of our expectations, reaching record $197 million, increasing 16% from the second quarter of 2010. Non-GAAP EPS reached $0.50, up $0.09 from Q2 last year.

Our book-to-bill ratio was greater than 1 and backlog was at a new record, and we are raising our revenues and EPS expectations for the full year.

We achieved growth for last year in both our enterprise and security businesses, with record revenue for each of these two segments. We are very pleased with our growth in all regions and especially with the remarkable growth in APAC.

We recently held our annual customer conferences in the Americas and APAC. These were our largest-ever events and we hosted close to 2000 industry leaders. We also enjoyed in these conferences a significantly higher number of executives. Most of the presentations were given by customers, who shared their experiences utilizing our analytics-based applications. These presentations focused particularly on the business benefits and ROI that our customers enjoyed using our solutions. Some of the most impressive stories were about our new back-office and situation management solutions.

A key takeaway was that today, there is a great similarity in customers' business requirements around the globe. We see customers from emerging markets, such as India, China or Brazil, facing the same opportunities and challenges as those coming from more mature markets.

Moving on to our Enterprise business, which is comprised of the Customer Interaction business and the Financial Crime and Compliance business - Revenue for this business grew 17.7% from Q2 2010.

I will start with our Customer Interaction business, which enjoyed a continued positive momentum and increasing demand for our advanced application in both developed and emerging markets. This demand is driven by our customers' focus on compliance with internal policies and external regulations, optimizing costs and reducing the complexity of operations, improving customer experience and retention, and the need to grow revenues.

Over the past few years, we have been talking about consolidation of contact centers and data centers due to migration to voiceover IP, M&As, provision of internal cloud services and a focus on operational efficiency. This trend has been driving infrastructure upgrades and implementation of our traditional solutions. More recently, we started seeing a growing number of our advanced applications being implemented in these consolidated centers.

We continue to enjoy strong demand for our analytics-based solutions - for both the established Insight solutions and are newer Real-Time Impact solutions.

Our analytics-based solutions enable us to bring value in highly complex business environments. For example, in Q2, we were selected by a new customer in Latin America for its 45,000 plus agents project. This customer has purchased 15,000 licenses of our Real-Time Impact solution. In this project, we will be integrating information for more than 17 different systems and helping the customer optimize processes, grow revenues, improve retention rates, save operational costs and improve its service to nearly 60 million customers.

We are also seeing growing adoption of our back-office solutions, which already generated follow-on orders from our customers in this space. An example for a back-office deal is of a new customer, an India-based BPO. This customer employs over 5000 expert workers in multiple locations who remotely access the customers' systems. This BPO wanted to manage its work force more effectively in order to reduce cost and manage SLAs. However, it had a very limited ability to measure the activity of its workers. With our back-office offering, which is designed to address various non-call center environments, NICE was able to meet this challenge to bring the added value the customer required.

We continue to execute on our cross-channel vision. In May, we showcased our new web Interaction Analytics capabilities, which are a part of our cross-channel interaction analytics. This new capability enables organizations to correlate in real time a customer's recent activity on a company's website together with the current call to the contact center, and presents this information to agents, for better service and sales opportunities.

Finally, NICE has been recognized once again as the number one player in the contact center workforce optimization in the new 2011 market share report by DMG Consulting. According to their report, our share increased to 36.4%, up 3.1% from the previous year. Also, another report by DMG Consulting recognized NICE as the number one player in the workforce management market. This leading position reflected our success in securing competitive displacement deals and the market's increasing adoption of the unique value-add of our solutions.

Turning to our Financial Crime and Compliance business -

We see continuation in the trends we have been witnessing in the past few years for fraud prevention, anti-money laundering and securities trading compliance. In this quarter, we have seen a particular strength in our anti-money laundering solutions.

Financial institutions continue to migrate towards enterprise-wide operational risk implementations, where new regulations and increased enforcement continue to put pressure on them to further enhance their compliance monitoring and financial crime prevention. We would like to highlight today two examples of the positive impact that new regulations can have on our business.

In late June, the US Federal Financial Institution Examination Council, or FFIEC, updated its requirements for customer authentication, layered security and other controls in light of the "increasingly hostile online environment", as described by them. Our Internet fraud solutions already address the updated requirements and we have seen customers implementing them even before the guidance came into effect.

At the same time, in the UK, the FSA published a review on how banks managed high money laundering risk situations and took enforcement action against two banks. The FSA expressed its concern, having found weaknesses common to many banks. The FSA clearly stated that it will continue to examine the management of high-risk customers and may take further enforcement actions. Such actions typically drive banks to step up investment in our products.

In Q2, for example, we implemented such a Customer Due Diligence project at a leading global bank that was facing regulatory pressure related to customer risk rating. Today, our solution helps this bank with risk assessment on every new and existing client.

At the beginning of 2010, we expanded our operation in APAC. We are now seeing that our vision of enterprise-wide financial crime and compliance solutions is very relevant in this region as well, and our business there is growing very rapidly.

Moving on to our Security business, which reached a new revenue record in the second quarter;

We are pleased with the success of our strategy to provide security solutions to customers in our targeted vertical markets - public safety, transportation, critical facilities and utilities and financial institutions. The vertical focus allows us to deliver highly differentiated business value to our customers. Our solutions include implementation of vertical specific security and operational situation management logic, proven integration to the relevant physical sensors and video analytics solutions.

As you know, we have a very strong presence in the Public Safety segment, among emergency services such as 911. During the second quarter, we introduced a new version of the Situator, our situation management solution which is tailored for this sector. With this solution, we are helping public safety customers such as 911 and other emergency services to better manage the physical security and provide a "safe city" solution in their jurisdiction.

We recently disclosed that last year, LAX Airport selected NICE Situator for its new consolidated Airport Response Coordination Center. In Q2 of this year, the Airport placed a follow-on order for a very significant amount of video channels.

Our security business is also enjoying growth in emerging markets. For example, we won several projects in Russia. A few months ago, we announced implementation of NICE Situator and video analytics in AeroExpress, the operator of the rail system that connects Moscow to its three airports. In Q2, AeroExpress placed a follow-on order for highly-advanced video analytics capabilities.

Another win is a seven-digit Safe City deal in another Russian city, which includes video surveillance and situation management. The implementation will feature real-time shared access to information for both first responders and dozens of users in the city's center of command and control center.

To conclude, we are pleased with our solid performance in Q2. We continue to acquire new customers, expand our business with existing ones, grow our bookings and secure a solid backlog. In addition, we continue on the path of innovation and enhancement of our product portfolio.

Several external trends continue to drive our business. A key fundamental trend is the overwhelming amount of unstructured data that prevails in today's world. NICE is unique in its abilities to capture and analyze this data, extract intent and drive insight to impact business performance and safeguard people and assets.

The trends that fuel NICE's growth continue. These are increased regulation, increased number and complexity of interactions between organizations and customers, and the increased security threats for people and assets. We believe that NICE is at the pole position to take advantage of these trends.

I would like to thank all of NICE for their performance in the quarter, and with that, will turn the call to Dafna Gruber, our CFO. Dafna?

Thanks, Zeevi. I am pleased to provide you with the analysis of our financial results and business performance for the second quarter of 2011 and our outlook for the third quarter and the rest of the year.

Revenues for the second quarter reached a record of $197 million, coming in at the high end of our expectations, and were up 16% from $170 million in Q2 last year.

Our book-to-bill ratio in Q2 was greater than 1 and backlog is strong, representing more than two quarters of revenues.

We achieved growth from last year in both our enterprise and security businesses, as well as in all our regions. Our revenues by businesses were as follows. Enterprise revenue reached a record of $148.4 million in the second quarter, up 18% from last year. Security revenues reached a record of $48.3 million, up 11% from last year.

By geography, the Americas region continued to perform well and revenue reached a new record, $124 million in the second quarter. These revenues represent a 12% increase over Q2 last year.

Our revenues in Europe, Middle East and Africa increased to $50 million, up 13% from last year. Revenues from the Asia-Pacific region reached $23 million in Q2, up a remarkable 52% from last year. In summary, the Americas region accounted for 63% of total revenues in Q2, EMEA for 25% and APAC for 12%.

Product revenues accounted for 45% of Q2 revenue; revenues for maintenance accounted for 36%; and revenues from professional services accounted for 19%.

Our gross margin increased to 64.9% from 63.9% last year.

Operating income in the second quarter increased 21% from Q2 last year and reached a record of $36 million. Operating margins continued to improve and increased to 18.3% of revenues, up from 17.6% in Q2 2010.

Net income was up 22%, from $27 million in Q2 last year to $32 million in Q2 2011. Earnings per fully-diluted share came in at $0.50 in the quarter, up $0.09 from Q2 last year.

Cash flow from operations continues to be very strong and we generated close to $28 million in the second quarter. In the first half of 2011, we generated $83 million cash from operations. Subsequently, our cash and equivalents reached $659 million at the end of June, with no debt.

During the quarter, we continued executing on the share buyback plan announced earlier this year. During Q2, $28.8 million were used to repurchase approximately 812,000 shares. As of June 30, we have purchased shares at a total amount of $31 million.

Turning to guidance, we are introducing today our guidance for the third quarter of 2011. We expect revenues in the third quarter to be in the range of $197 million to $203 million. As for earnings per fully-diluted share, we expect a range of $0.50 to $0.54 for the third quarter.

We are updating our outlook for the year, and currently expect revenues in 2011 to be in the range of $785 million to $805 million, and earnings per fully-diluted share to be in the range of $2.00 to $2.08.

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

(Operator Instructions). Shaul Eyal, Oppenheimer.

Thank you operator. Good morning, guys, good afternoon guys. Two quick questions on my end. Zeevi, strong showing in APAC. I want to try and kind of dive more into it. What countries specifically are you -- are kind of generating this type of growth?

We are seeing growth in APAC mostly in the emerging part of APAC. And also, even if it is not a growth, we are encouraged by the results in Japan, despite the crisis that was there at the end of the first quarter and the beginning of the second quarter.

But you should pay attention that the overall results in APAC are still small, and therefore, you know, they can be a bit lumpy going forward.

Got it. With respect to the video, since some improvement over the past couple of quarters, anything driving that, or just kind of the nature of the business of being lumpy?

No, we have said in the previous call that we believe that this business is lumpy, but we are seeing an improvement and we are happy with the results. And we believe that the reason for the success is our executing on our strategy, which is to focus on vertical markets using our Situator as a differentiator, and which sometimes ends in the selling of the Situator and sometimes ends in selling the video solution.

Got it. One quick question for Dafna. How do you guys envision the continued expansion of your operating margins over the next two quarters?

Our plan is to continue to generate at least 25% incremental profit out of incremental revenues. And therefore, expect gross margin to improve gradually over time. And we have a target which 20% operating margin in the midterm.

Got it. Thank you very much and good luck.

Thank you.

Daniel Meron, RBC Capital Markets.

Thank you. Zeevi, there has been a little bit of crosswinds going on in the macro picture. Some folks in the industry or in the tech industry are pointing to some slowdown. Others -- like I see PR pointing to a continued improvement in their business. What is your sense on what you are getting from your enterprise and security customers, either on government budgets or enterprise IT spending in general?

We are seeing a fraction of the market, and we are, by the way, listening to the same analysts. And we are seeing some analysts that are very optimistic and some that are more negative. And when we are looking at the macro trends that we are seeing, we do not see much change from Q1 to Q2.

Okay, that's fair. And in government spending, what is your sense on -- are customers or leadtimes changing in any way or sales cycles?

It is -- again, we are not in a -- you know, we had a good quarter in our security business. So we can say that everything -- that the government now are -- released their budget freeze. But again, we are seeing a fraction of the market. And it is very -- we had a good business this quarter in the public sector, and it is not -- it is difficult from where we stand to predict a trend there.

Okay. And just switching gears to the gross margins, the cost of the services in this quarter kind of had a little bit of a spike this quarter. Anything behind that that we should be thinking of?

No, I think it has a lot to do with -- the overall margin has a lot to do with the combination and the mix of deals, and this is -- and there are always some differences between quarters in gross margin. Overall, we are in line with our target to be at around 65% gross margin for our business.

Okay. And last one from me before I yield the floor, when I look at the operating margin this quarter, it was 16% top-line growth and then 21%, I think, operating income growth. Is that consistent with the 25% guideline that you provided, or it is not going to be necessarily linear, and some quarters are going to be a little bit faster on the operating leverage and some quarters like this one are going to be a little bit slower on that?

Yes, you know, to manage it on a quarterly basis, it is sometimes challenging. I think the overall trend here is very, very clear, and the overall trend is of continuous improvement in operating margin. And if you look at the annual guidance and you do the calculation, you will see that a nice improvement in operating margin is already embedded within this guidance.

So overall, I can say that we are on track with our plans to improve the operating margins over time.

And Daniel, this calculation applies mostly to organic growth. It doesn't take into account acquisitions that can change the picture up or downward, based on the target company that we are acquiring.

Right. So we are still looking at a trajectory to -- a midterm target of 20% operating margin? Is that right?

Correct.

Yes, correct.

Very good. Thank you.

Daniel Ives, FBR Capital Markets.

Great quarter. A question on deal sizes. I mean, was there anything that stood out this quarter, either on the security business or on Actimize, in terms of deal sizes, either sequential or year-over-year?

We don't have this statistic offhand, but overall, we had several seven-digits -- a nice number of seven-digit deals within these numbers.

Okay. And then just talk about the security business. I main, obviously, a nice improvement there. Is that some -- I mean obviously, last quarter it was a little choppy. Does it seem like we have kind of got over the hump there and now the backlog is starting to actually sort of come through a trajectory we expect to continue?

First, it is partially backlog and partially it is things that -- the orders that we secured during the first quarter and the second one. But the business of the security business is a lumpy business, and we can see quarters. And there can be lumpiness in its results, and we should expect lumpiness in its results. Overall, as we said, we are satisfied with our performance within this sector.

Okay. Thanks, guys.

Ari Bensinger, Standard & Poor's.

Yes, thank you. Just also curious on the macroeconomic headlines that have obviously softened some demand in enterprise space. Can you give us any more color on what your customers are saying, how they are releasing funds And maybe on linearity in the quarter, was it fairly steady or did you see any slowdown as the quarter progressed?

When we looked at the quarter and what customers are saying, I mean, we always are in a situation -- there is a regular pressure on budgets from our customers. So it is always -- there is a constant pressure on this issue. It is very difficult to trend them to macroeconomics.

When we look at the quarter and the focus in the quarter, I believe it was a normal quarter and there was no special thing around this quarter. And I think this is -- we had a very good quarter in our Americas and APAC region, and I think this is basically what we see around the world.

And also, there was a horrible crime done in New York, where a boy was murdered and the lead to catch the killer was done through video set up at enterprise and corners. And there is a bill trying to be passed through New York which would give a tax credit to enterprises that would install video surveillance equipment.

And I am wondering if that is something that could sort of spur demand or something that you would see that could maybe expand to other states and sort of ...

Obviously, and unfortunately, security risks are on the rise, and the tragic event earlier this week in Norway is another example. And this is -- and we are not -- we are all concerned about this.

We believe that part of the issue is in terms of security is, installing sensors, like video cameras, but I think that this is -- we believe that this is not the most efficient way to prevent crimes and terror. And probably the way is to connect the dots. And this is where we are focused and this is where our situation management is focused, is to correlate information that is coming from these sensors and to connect the dots in trying to prevent crime before they are happening. And once there is a crime or terror attack, to respond in real time and to share information in real time.

And this is where we are focused, this is where is our strategy and this is where we can provide the best return on investment to our customers and to prevent both crime rates and terror rates in the future.

Thanks. Congrats on a great quarter.

Thanks.

Paul Coster, JPMorgan.

-- across the regions, you are obviously seeing very solid growth in North America and EMEA and rapid growth in Asia. Are those three trends likely to continue or do you see any material change in the rates of growth?

We have not heard the beginning of your question, Paul, so if you could repeat it.

What I am trying to get to is whether the growth prospects that you have outlined apply equally to each of the regions. Are you particularly concerned about EMEA, for instance?

We had a softer quarter in EMEA, but still we have seen growth. We had remarkable growth in APAC and we had good growth in America.

The book-to-bill is similar across each of the regions?

I do not have the data, but I expect there are no major differences.

And are you adding headcount in each of the regions?

We are adding headcount across the Company.

Okay. And then in terms of your pipeline, particularly on the security side, do you have any sort of elephant-sized deals that potentially could come to market?

We have some large deals, very large deals in the pipeline. But again, we are more focused on -- today on providing solutions to our verticals, and this is all one strategy, is to focus not on the major deal, but to focus on an ongoing business. In many cases, it's seven-digit and may come to an eight-digit. But this is more -- it is more a solution rather than a project.

Okay. Thank you very much.

Shyam Patil, Raymond James.

Hey, guys. Could you talk about the competitive landscape for Actimize? It seems like one of your competitors that was acquired recently is talking about becoming more aggressive in the market. Just curious if you guys had seen that yet.

We are operating in a competitive market. We believe that we have a unique position and unique offering in terms of the fact that we are both product-based and also the fact that we are providing enterprise-wide solutions and not point solutions.

Competition is always there, and so far we are doing very well against this competition. We are planning to do it also in the future. And regarding a specific competitor, I think that we can beat and we are beating and extending our market share against our competitors.

And Dafna, what was the revenue and EPS contribution from acquisitions this quarter?

We had some contribution, obviously, from the CyberTech acquisition. It was according to our plan; by the way, this acquisition is moving along very well. The business is fully integrated with the NICE business already. And since it is an acquisition of a competitor, there is already some cross-sales and replacement by our customers of the products they are buying. So it is already very much integrated within our offering and within our customers.

And then around the share buyback, it seems like you guys have been executing on that pretty nicely. How are you guys thinking about potentially raising that balance, and if so, kind of when we should expect something?

We have a plan that we announced in the first quarter, and we should -- we intend to continue to execute on this plan until we reach share buyback using about -- using $100 million. I believe that once this plan is over and we purchased the shares using this amount, we would reconvene and decide what we want to do next.

And again, we believe that the prime and best utilization of our cash is for acquiring additional companies and technologies, and we are aggressively pursuing such opportunities. And this is the prime usage of the cash. We have targets; we have -- sometimes we don't like the valuation, but overall we have targets, we have prospects, and this is going to be the prime usage of our cash.

Maybe along those lines, can you comment on what you are seeing just generally for M&A valuations? Are they becoming more reasonable or unreasonable? Any color there?

The valuations, it depends on the different companies, but overall, valuations are at the high end, we believe. But there are many companies that are in play at the moment.

Okay. Thanks, guys.

Craig Nankervis, First Analysis.

Thanks very much. I have a couple of questions. First of all, on your results by geography, the Americas growth was sort of down. It was about half what it was in Q1. And I guess I would like to get some sense of how you see that geography playing out maybe the rest of the year, and how that figures in your guidance. Because it was, relatively speaking, a lower performer than we have seen of late.

Firstly, really not -- we should not look at the quarterly trends as an indicator for the overall performance of the different regions. And we believe that if you are looking in terms of trends, we expect to have a strong growth on an annual basis in APAC; we expect to see two-digit growth in the two other geographies.

Okay. On the security side, Zeevi, you talked a couple of minutes ago about not so much a focus on major deals, but more solutions versus large projects. And to me, I wonder -- is that somewhat of a change in NICE's Security strategy versus a year to a year and a half ago or two years ago, when very large projects were a key component to the Security strategy? Has the environment changed or has your approach changed for you to somewhat back off on that?

No, it is not a backoff. It is another -- it's scalability within the model, that we are playing less a role of a system integrator and more a role of a solution provider. And this is a change in strategy. It may reduce average deal size, but it should improve the profitability of the deals.

And we are still - there are opportunities in different markets, that we are going to -- specifically in the intelligence base-- that we have to provide an end-to-end solution and we are going to do so.

And the focus that we have is on the verticals and trying to cover these verticals. If it's public safety with "safe city", if it is transportation and mass transit, if it is utilities and critical facilities and the financial sector and banking. And in these verticals, we are pursuing major deals and large deals, significant deals, but less as a system integrator and more as a solution provider.

Okay. So is it fair to say that the strategy has changed moderately or it has changed somewhat?

I think the right definition would be not change, but evolve. And we believe that the current model is a more scalable model in terms of getting coverage and expanding the margins.

Okay, that's helpful. Thank you. And then just on situation management, there was an acquisition -- oh, gosh, a quarter or more ago -- in Proximex being taken out. Has that resulted in any particular change in the market one way or the other, from your view?

The answer is not... we are not -- the answer is probably yes, but very little, because we don't see any change in the market. It is another proof that this market is a very hot market and the people are seeing the potential. And the fact that the Proximex moved and was acquired by another system integrator is an advantage for us.

Is an advantage. Okay, thanks for the help.

Sean Barrett, HMI Capital.

Hey, guys. I am a little unfamiliar with the current tax laws. And with NICE becoming more active on share repurchases, I guess what are the limitations to those purchases, based on the current tax laws? Thanks.

There are certain limitations because of the tax laws. It is not applicable to the amount of shares that we are buying now, the $100 million plan that we announced. And there was lately a change in the law in Israel that enables more easily buying back shares going forward. So overall, I don't anticipate any major tax impact on share buyback plan.

Okay, great. Thanks.

Michael Kim, Imperial Capital.

Hi, guys. First on back-office, can you talk a little about where you're starting to see some stronger activity and which verticals, whether it is healthcare, insurance or other, that you are starting to build a pipeline?

And then lastly, in terms of revenue, I know it is still continuing to build, but can you call out what contribution or when we might see it as a significant component of the revenues? Thanks.

First, we are very pleased with the progress that we made on back-office, but it still represents a small portion of our bookings and also of our revenues. And we believe that it will grow, it will grow over time, and we hope it will become -- we are sure, actually, that it will become significant, but it will take time for this to happen.

When we look at the segment that we have, most of the pipeline is indeed in the healthcare and the insurance and also customer service.

Okay. And then switching to emerging markets, you have talked a little about that on this call. Is the pipeline building ahead of some of the developed markets in terms of activity? And then what's sort of the overall contribution from emerging markets?

I think that overall, first of all, we have a very different definition of emerging markets than others. When we have -- for us, markets like -- there are markets in Europe, in EMEA for example or in APAC, that are considered in other industries as mature markets and for us they are emerging markets.

Overall, when we look at the prospects that we have, we are selling more applications and expanding on applications in our mature markets, like the US. And we are expanding in both applications and in simple capturing solutions in the emerging markets. So we are seeing healthy growth trends in both segments.

And one last one for Dafna. In terms of the backlog, was both enterprise and security above two quarters or was it fairly comparable between the two?

It's not very different one from the other, not very different.

Great, thank you very much.

Jonathan Ho, William Blair.

Great quarter, guys. Just a quick question in terms of the growth in the APAC market. Has there been any change in terms of your distribution strategy, or has that played much of a role in terms of the pickup in the APAC region?

First, we had -- I think that overall we are poised to grow in APAC, and this is a growing market that we are growing there. We are -- when we are looking at APAC, we invested in this region and expanded in some of the products.

And in addition, when we looked at the APAC overall, there was also some changes in the leadership, in the management. And we should remember that this is a quarter-over-quarter, and the second quarter of last year was a relatively weak quarter in APAC.

Okay. In terms of the Situator product, can you maybe give us a little bit of color in terms of the new version and maybe what features seem to be resonating with customers, and whether you expect there to be a pickup now that it has been in the market for a little while?

The new version that we spoke about is actually a version that is targeting the Public Safety market. So it is a customization -- or actually it is the adaptation of the product to the requirement of the Public Safety customers, like emergency rooms and 911 centers and things of this nature.

When we look at the situation management, what we see is that -- we looked at it originally as a security system. And we are seeing more and more that it is serving also operational issues, and actually combination of security and operations. And this is part of the demands that we are seeing, that it provides both security, but also provides benefit to the operation of the organization that we serve.

Just one last question on Situator. Is this the bulk of your security business at this point, or how should we think about it in terms of a product contribution standpoint?

The Situator represents a small part of our business, but it is a differentiator. And therefore, many people are talking with us and sharing with us their vision, anticipating this is going to be part of their future.

In addition, when we are looking at our business model, normally our initial sales are relatively small, and then we are expanding within our customers. And we are pleased with the number -- with the pipeline that we have and with the number of deals that we had, but the overall volume is still relatively small.

Great. And just a last one for Dafna. In the past, you guys have talked about your services business being at higher capacity, and you were going to add some capacity there. What does the utilization rate look like these days?

The utilization rate is very high. It's very high.

It is above any industry standard. Actually, we don't have bench.

Great. Thank you.

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 0-800-918-4256. In Israel, please call 03-925-5900. And internationally, please call 9723-925-5900.

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

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

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