Nice Ltd (NICE) 2012 Q4 法說會逐字稿

Welcome to the NICE Systems conference call discussing fourth quarter and full year 2012 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, February 13th, 2013.

I would now like to turn this call over to Mr. Marty Cohen, Vice President Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Zeevi Bregman, President and CEO, and Dafna Gruber, CFO.

Before we start, I'd 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 in the section entitled Risk Factors in Item 3 of the Company's 2011 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 29, 2012.

In today's call, we'll present a more detailed discussion of fourth quarter and full year 2012 results, and the Company's guidance for the first quarter and full year of 2013. 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 GAAP and the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

Before I turn the call over to Zeevi, I'd like to remind everybody that we are holding our Investor and Analyst Day on March 12th in New York City. If you have received an invitation and do plan on attending, please don't forget to register. You will need to register to attend.

If you have not received an invitation and would like to attend, please send an e-mail with your contact details to ir@nice.com, and we'll gladly forward you an invitation.

With that, I'll now turn it over to Zeevi.

Thank you, Marty, and welcome, everyone, to our fourth quarter and full year 2012 earning call. We are pleased to report record results for the quarter and for the year.

Non-GAAP total revenues were a record $240 million, up 12% when compared the fourth quarter of 2011. Full year non-GAAP revenue increased 12% to $892 million. non-GAAP EPS for Q4 was a record $0.70, representing an increase of 17% compared to the fourth quarter of last year, and surpassed the high end of our guidance range. Full year non-GAAP EPS increased 18% to $2.48.

As expected, we ended the year strongly with double digit growth in bookings for both the fourth quarter and full year 2012. Book-to-bill for Q4 was much greater than 1, and for the year, it was greater than 1 as well.

We had strong booking in advanced applications for 2012, and were pleased to see early adoption of recently launched new innovative solutions.

2012 was characterized by further significant innovation around analytics and advanced applications, solutions that support our unique position in helping organizations operationalize big data. Full multichannel capturing in analytics of mass amounts of structured and unstructured data, our solutions deliver a strong return on investment, while helping our customers better adhere to compliance and regulations, improve operational efficiency, and hence, the customer experience and safeguard people and assets.

In 2012, we saw a growing demand for compliance-driven solutions. When it comes to compliance, we have unique assets, including domain expertise, a leading industry position, and our ability to draw technologies from all our businesses. This allows us to quickly provide our customers with the broadest and most comprehensive suite of integrated solutions, giving us a strong competitive advantage.

During 2012, we introduced new products across our business lines, to address various new requirements around regulations such as FATCA, Dodd-Frank for trading operations, CFPB, and ESMA intraday trading. An example of our ability to leverage our unique assets, and then quickly address market needs, was the expansion of our successful trading compliance solution suite, to allow financial institutions to meet the regulatory requirements of the Consumer Financial Protection Bureau, referred to as the CFPB.

The recent enforcement actions by the CFPB, a regulatory body formed under the Dodd-Frank Act, is leading banks to invest in solutions to help them comply, as the burden of proof has shifted to the financial institutions. In the second half of 2012, the CFPB issued over $500 million in penalties to the financial industry, and nearly all the infractions occurred within the contact centers.

To address the CFPB requirements, we are introducing a new suite of solutions called Proactive Compliance for Consumer Protection. These suite includes integrated solutions from our Customer Interaction and Financial Crime and Compliance businesses. The solutions that form the suite embrace our captures, analytics, and real time technologies, addressing all parts of the compliance operations. This includes data collection, historical recordkeeping, data retrieval, call and transaction analysis, customer profiling, and reports of corrective actions.

The large opportunities around CFPB extend to many departments within the financial institutions, and also extend beyond the contact center. We are continuing to innovate in this area to address the growing requirements of our customers.

We are seeing strong demand from our customers for cloud-based solutions, which decrease both time to deployment and total cost of ownership. As a result, in 2012, we witnessed strong growth in our cloud business, and continued to expand our cloud offerings. We launched our cloud-based Workforce Optimization suite. We introduced our cloud-based Cyber Fraud Prevention solution, and we also extended our partner ecosystem to sell our cloud solutions.

Our cloud offerings were also enhanced by our Q4 acquisition of Redkite, a cloud-based trade surveillance provider, that expands the capabilities of our compliance solutions. We expect to see continued fast growth of our cloud solutions in 2013.

In our Customer Interaction business, we had a very strong Q4, and we ended the year with double digit growth in revenue. It was a great quarter for applications, as our customers continue to expand their deployment of our analytics-based applications within their organizations. We also had record performance in the America region.

We continued to innovate around analytics and real-time technology, as these solutions help bring value to our customers. These customers seek solutions that will help them improve operational efficiency, grow revenues, bring their customers a better customer experience, and help them adhere to compliance regulations. And the trend of increasing regulations and enforcement continues to have a favorable impact on our business.

Among the innovative solutions we introduced last year is our Contact Center Fraud Prevention solution, which brings together technologies from our Customer Interaction and Financial Crime and Compliance business units. With advanced voice biometrics technology, speech and transactional analytics, and real-time capabilities, our customers can reduce losses from fraud without compromising customer experience.

Many of our customers have indicated that the contact center has become the Achilles' heel of their data security operations, and our integrated solutions enable them to add Contact Center Fraud to their fraud strategy.

In the context of the CFPB, which I mentioned earlier, in Q4, we booked our largest customer interaction deal ever, an eight-digit deal with a leading US financial institution. This bank recognized that in the wake of enforcement actions, it needs to record and analyze every single interaction with customers, and is implementing capture of all calls and interaction analytics to improve adherence.

Another compliance-driven deal was a follow up deal with a major US bank, which is now expanding its real-time compliance solution. The first purchase was in late 2011, and following the success of that project, which covered the home loan department, the bank decided to roll out these solutions to an additional 15,000 agents in a high seven-digit deal booked in Q4 2012. The deal includes increased interaction analytics and real-time guidance for all consumer-related departments within the bank.

In both these examples, the main catalyst for the deals was compliance, but our customers realize that the tighter monitoring and controls also improve operational efficiency and customer service.

An example of the importance of customer service was a competitive replacement, where the main consideration was our Voice of the Customer capabilities. The customer, an insurance company that needed to upgrade its existing systems, was also looking to become more customer-centric. While our capture, Quality Management and Workforce Management solutions were an attractive alternative to the incumbent solution, the customer viewed our Fizzback operational feedback solution as a game-changer. This led them to purchase the full suite from us. This, by the way, was a deal sold in the context of the Cisco SolutionsPlus partnership, which continues to progress well.

For our Financial Crime and Compliance business, we finished 2012 very strongly, with high teens booking growth for the year. Specifically for Q4, we saw year over year revenue growth in the high teens, and even higher growth in bookings. We are encouraged by these results, as the business fundamentals continue to be very strong, regulation continues to drive demand for our solutions, and we enter 2013 with a very strong pipeline.

During the quarter, we were pleased to see a boost for our cloud business following the Redkite acquisition. Redkite expertise in front office trading practices and technology enabled rapid deployment with minimal IT investment, while providing real-time intraday surveillance analytics.

Our customers like the Redkite cloud offering, and the quick sales integration already yielded more deals closure than expected. Our pipeline is strong, and we continue to further enhance our cloud-based trading surveillance product while bringing in additional sales resources.

Our fraud prevention solutions had a strong quarter, as the fraud market continues to thrive. We have seen particular focus along mid-tier institutions, which are in the process of catching up with the Tier 1 banks, as fraud threats have gone downstream. Multiple large fraud deals were signed in the fourth quarter, with those Tier 1 and Tier 2 banks.

The strength of our fraud prevention solutions were recently recognized by CEB TowerGroup. The research firm stated that we are the clear leader in the enterprise fraud management space, and praised our solution visibility and flexibility, as well as our strong vision for the future of fraud technology.

CEB TowerGroup also selected our Anti-Money Laundering solutions as best in class, stating that our solution features one of the most expansive sets of analytics and scenario-based AML management tools on the market today. This award concludes a very strong year for AML, driven by both headline and tough enforcement activity.

In addition, there is the FATCA regulation become effective in early 2014. We have seen strong demand, and have a robust 2013 pipeline to our solution that helps financial institutions comply with the requirements of this regulation.

Let me move on to our Security business, where performance this quarter was below our expectations, as a couple of major deals slipped into 2013.

In our Surveillance business, the quarter performance was balanced across our product lines, with continued upsell into our installed base. We won a seven-digit Situation Management deal with one of the largest North American utilities, which is an existing NiceVision customer. The deal included central monitoring and automatic procedures for efficient handling of incidents and reporting according to NERC compliance. This customer sought to bring a network of subsystems together on a common operating platform, and to automate concepts of operations for security situations. It also aims to leverage Situator for management of maintenance and operations.

We also won a seven-digit deal with the European governmental agency responsible for construction, management and safety of a large railway network. Its purchase of Situator facilitates strong collaboration between its command and control room and external agencies for effective incident and crisis management. The integration includes Web applications, deep integration with multiple applications, GIS and operational systems. More than 1,000 users are estimated to use the system.

In our Communication Intelligence business, we had a high number of seven-digit deals this year. These large projects are being driven by governments realizing that existing intelligence capabilities are insufficient to handle challenges such as asymmetric and cyber warfare, IP-based communication and social networks proliferation. They are therefore more open to external solutions, which they expect to deliver not only monitoring capabilities, but also analytics-driven insights.

As you saw in our press release today, we are pleased to announce a dividend program. The dividend plan reflects our confidence in the strength of our business, and the sustainability of our strong cash generation. The payment of the quarterly cash dividend adds another element to our commitment to bring long-term value to our shareholders.

In summary, we ended the year strong with record results for the fourth quarter and full year 2012. By leveraging our unique technology assets to further innovate, we have delivered what we believe are some of the most advanced solutions in our industry to the market. As a result, our analytics and advanced applications are now, by far, the fastest-growing solutions among our portfolio of products, and increasing as a percentage of our overall product mix. In fact, in Q4, over 50% of new business bookings came from advanced application, and this sets the stage for 2013 to be another year of profitable growth.

We look forward to 2013, when we will continue to innovate and capitalize on some of the early success of our portfolio of analytics and advanced applications, in which the pipeline continues to build in all regions. This, along with the increasing regulatory environment, underpenetrated markets in EMEA and APAC, and the large opportunities to further expand our portfolio of solutions into our customer base, should bode well for 2013.

I would like to thank the NICE team for their work in the quarter and for the entire year. I will now turn the call over to Dafna Gruber, our CFO. Dafna?

Thank you, Zeevi. I am pleased to present you with an analysis of our financial results and business performance for the fourth quarter and full year 2012, and our outlook for 2013.

Revenues for the fourth quarter reached a record of $240 million, up 12% from $214 million in Q4 last year. Revenues for the full year 2012 increased 12% to $892 million.

Q4 Enterprise Business revenues total $193 million, up 22% from last year, bringing full year revenues to $706 million. Of that $193 million in total, Customer Interaction revenues were $158 million, and Financial Crime and Compliance revenues were $35 million. For the full year, Customer Interaction revenues were $579 million, and Financial Crime and Compliance Revenues were $127 million.

Q4 Security revenues were $47 million, compared with $55 million in the fourth quarter of last year. Full year Security revenues were $186 million.

Moving to the regional breakdown, revenue in the Americas increased 15% from the fourth quarter of last year, to $157 million. Full year Americas revenue increased 12%, to $559 million.

Revenues in Europe, Middle East and Africa increased 2% to $53 million, compared to the fourth quarter of last year. Full year EMEA region revenues increased 7%, to $214 million. Revenue from Asia/Pacific region increased 16% from the fourth quarter of last year, to $30 million. Full year APAC revenues increased 22%, to $119 million.

For the fourth quarter, the Americas accounted for 65% of total revenues, EMEA 22%, and APAC 13%. For the full year, the Americas region accounted for 63% of total revenue, EMEA 24%, and APAC 13%, largely unchanged from 2011.

Product revenues in Q4 accounted for 42% of total revenues, while Maintenance represented 36% of total revenues. Professional Services, including SaaS and hosting, accounted for the remaining 22%.

As Zeevi mentioned, our book-to-bill ratio in the quarter was much larger than 1, bringing full year book-to-bill to be also greater than 1. Going forward, we intend to look at and report book-to-bill on an annual and not quarterly basis. This is resulting from our ongoing shift towards analytic-based software applications, which is bringing bookings to become increasingly more weighted towards the second half of the year, and especially the fourth quarter. We expect this to be even more pronounced in 2013, and the years thereafter compared to 2012.

The 2012 fourth quarter gross margin reached a record of 67.7%, compared to 66.3% in Q4 last year. Operating margin reached a record 19.8%, up from 18.6% in Q4 2011. Going forward, we continue to expect gross margin to be at least 65%, and operating margin to continue to improve.

During the quarter, we successfully settled a multiyear tax audit, which allowed us to release significant tax provisions from prior years. This release created tax income for GAAP purposes during Q4. We decided to take a conservative approach here and exclude this income from the non-GAAP reporting, due to the extraordinary magnitude of it. Non-GAAP taxes were at $6.5 million, or 13% of income. After analyzing our current tax structure, we expect our tax rate, going forward, to be between 15% and 17%, compared to the previous range of 17% to 18%.

Fourth quarter 2012 net income increased 15% to a record $43.2 million, compared to $37.6 million in Q3 last year. For the full year, net income increased 14% to $154 million.

Fourth quarter 2012 fully diluted earnings per share was a record $0.70, representing an increase of 17% compared to $0.60 in Q4 2011.

Cash flow from operations was $42 million in the fourth quarter, and $136 million for the full year. Our total cash and financial investments were approximately $445 million at the end of December, with no debt.

Headcount at the end of the year totaled to 3,399 people, compared to 3,125 people at the end of December 2011.

During the fourth quarter, we paid about $13.6 million to repurchase approximately 410,000 shares, as part of our share repurchase plan. In 2012 in total, we repurchased approximately 3.1 million shares, for $107.6 million.

Today, we announced our first ever dividend plan. We intend to pay quarterly cash dividends on common stock, subject to declaration by the Board. The Company expects the initial annual dividend to be $0.64 per share, or $0.16 per share quarterly. The first payment is expected to be sometime during the second quarter of 2013. We continue to focus on optimizing our capital structure and increasing shareholder return. We believe that our cash balance, together with our strong cash generation, can support future acquisitions, dividend payments, and opportunistic share repurchases.

Coming to guidance, please note that both the first quarter and full year 2013 guidance takes into account the share buyback executed so far, but excludes future buybacks that may be executed going forward.

We expect first quarter 2013 total revenues to be in the range of $220 million to $230 million, and fully diluted earnings per share to be in the range of $0.57 to $0.62. We expect total revenues for the full year 2013 to be in the range of $940 million to $970 million, and fully diluted earnings per share to be in the range of $2.55 to $2.65.

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

Ladies and gentlemen, your question and answer session will now begin. (Operator instructions) First question is from the line of Shaul Eyal from Oppenheimer & Company. Please go ahead.

Thank you, operator, and good afternoon, everybody. Zeevi, a big picture question for you. I've been brainstorming with myself, wanted to kind of -- how you think about it. I think, over the past, probably two quarters now, we have seen some kind of mixed views, mixed results from all of the companies that operate in the big data/analytics space. In your view, how mission-critical is the entire -- all the whole subject and topic of all the analytics to corporations? That is to say, how resilient it is to spending (inaudible) CFO of the company or a CIO, and I've got to spend money on security and storage, and virtualization in the cloud. Where does big data and analytics basically rank within the stack?

When we are meeting our customers we are hearing from them very clearly that their focus is on areas, applications and infrastructure which is around big data. The thing that is unique about us is, that we are less focused on infrastructure. Our main focus is on real solutions. I think that operationalizing big data, it's not reports. These are mostly the analytics is tied in the processes that are part of the operations of the organization. So if it's compliance, if it's the Voice of the Customer, if it's looking at operational efficiency like FCR or churn, this is part of the operation. This is providing immediate and closed loop results.

And this is why we are seeing -- this is a short-term return on investment, it was a major investment in infrastructure. It has some elements of the investment in platform or infrastructure, but mostly, it's within applications, and things that are operationalizing big data, and we are seeing a good demand for it.

Got it. And a follow up question. Continued solid expansion of the operating margins, nearly touching the -- the promised 20%. Any chance we can start shifting into fiscal '13, probably the second half of this year, that we're going to see the digit two associated with your operating margin?

Ah, yes. Yes, we believe that this is the direction that we are heading to.

Got it. Okay, thank you very much. Good luck.

Thank you. Our next question is from the line of Shyam Patil from Raymond James and Associates. Please go ahead.

Hi, thank you. Good afternoon. I guess it's another kind of high level question, kind of regarding the growth outlook for the Company. If you look at 2011, you guys put up strong double digit organic growth, and then in 2012, look at the organic growth, it kind of came down into the mid single digits. And for 2013, you're initially guiding to 7%, I believe, at the midpoint. Do you still view NICE as a double digit grower, or should we be thinking about kind of mid, high single digits as the right organic growth rate going forward? And just -- I'm just curious if you still view it as a double digit grower, kind of when you think we'll start to see that, and what the drivers will be.

Well, first, we do feel -- when we are running our internal models, and the internal targets for the different units, they're all double digit. And this is the way that we look at ourselves, and this is the way that we are planning for the future. And it's the way that we look at the business. We are, by the way, also going to continue with the non-organic growth, and then for sure, together, you should look at us as a double digit grower.

Okay. And then, the large deals that slipped -- it looks like, just from the second numbers, those were in the Security space. Can you maybe give more color on -- you know, were those the -- to governments, were they in EMEA, any more color on those deals?

Yes, sure. I will not give the region, for competitive reasons, but these are deals with governments, and which are dealing with the government processes. And in government processes, prediction of timing is difficult. We have letters of awards, but this is not sufficient for our conservative view of recognizing the deals and looking at them in our financials.

Okay, and then, just my last question. With the dividend, the commitment to the dividend now, does that limit your ability to do large acquisitions? The Street specifically kind of speculated around one specific large transaction. Just curious if the dividend commitment maybe limits your ability to do that sort of deal.

We're not -- we are not going to comment about the -- any specific large transaction, obviously. But the dividend is not really -- not limiting our capability to take any strategic future direction. We are going to continue to be acquisitive, and we move forward with a very strong cash balance. We, and our Board, have thought that in order to create shareholder return, and to let our shareholders to participate in our success, we are taking into account the strong result that we had in Q2, and the prospects and the cash flow and the income, and the strength. And we believe in the future of the Company, that we are -- that the dividend will be the right way to distribute some of the cash that we are generating, to the shareholder.

Okay, thank you.

Thank you. Next question is from the line of Daniel Meron, RBC Markets. Please go ahead.

Thank you. Hi, Zeevi and Dafna. First, congrats on the dividend. Good sign as far as continued shareholder returns. Zeevi, can you provide a little bit more color on the regional and on the divisional dynamics? Specifically, on the regional side, it seems like Americas was healthy, but how should we think about other regions? And then, on the divisional side, you mentioned the slippage of two deals. Is there more to read into the dynamics in Security or in Enterprise right now?

So, first, on the Security, we said a couple of deals. We didn't say specifically two. But on the -- when it goes to the regional dynamics, the fourth quarter was very strong in America indeed. And it was less strong in the other regions.

This is -- part of it is also a seasonal phenomena, and part of it is a strength within the business. And this is something that we anticipated, and something that we forecasted, although the strength of the business, we -- in terms of the booking, surprised us.

When it comes to the products and divisional, as we indicated, this is the first time ever that our advanced applications is -- accounted for more than 50% of our new bookings. And this is, for us, a milestone. This is the first quarter ever that we reached this milestone, and we are very pleased with it.

When we look at the different products, also, we are seeing a lot of activity around our cloud, which is a new delivery model for us, and also here, we are seeing a lot of value that we can create to our customers, and in return, a lot of demand for the customers for this type, this mode of operation.

When we look at products, we are seeing increasing demand in the Compliance area, and this is a lot related to Dodd-Frank, but not only to Dodd-Frank. Dodd-Frank and the derivatives of Dodd-Frank -- the CFPB, we look at it as a Dodd-Frank derivative. And also internationally, we are seeing a strong emphasis on compliance.

When it comes to the -- if you look at the business units that we have, this has been a strong quarter and year to our Enterprise business. On Actimize, on the revenue side, the growth is a bit disappointing, but on the other end, if you look at the bookings, we have seen a double digit growth on the bookings, and if you look at Q4, we're already seeing that some of this booking is translating to revenue growth. So we have a high-teens revenue growth, quarter over quarter on the Actimize side of the business, and we believe that the strong booking growth on the entire year, together with the strength, that's starting translating into revenues in Q4, is putting us in a very good place towards 2013.

On the Security, we came a bit short from our expectations. We are continuing to create momentum with our solutions in areas like cyber intelligence and in the Situator. We do see the -- we had a couple of deals that slipped. There is a huge pipeline, mostly around the Communication Intelligence, the pipeline is stronger than ever, and therefore, we are optimistic about our ability to win additional wins, including the ones that slipped into 2013.

Okay. Thanks, Zeevi for the color. And then, how do we reconcile between the strong bookings that you guys had in the fourth quarter, and the record backlog with somewhat of a slower top line growth in 2013 compared to prior years?

So, there are a few elements to it. First, our business is becoming more and more back-end loaded, so it's very difficult to predict at the moment what will be in Q4 of 2013, and therefore, we are a bit more cautious.

Second, as we move more to applications, the conversion to revenue is taking more time, also with the cloud. And therefore, the conversions of the booking to revenue is taking longer time and -- than previously, and this is also impacting our overall revenue growth. And overall, we grew double digits in bookings, and we believe that the -- we believe that there is -- this is what we are seeing right now. This can change over the course of the year.

Okay, thank you. Very good luck.

Thank you. Next question is from the line of Brian Ruttenbur from CRT Capital. Please go ahead.

Thank you very much. A couple questions. First of all, I'm a bit confused on one of your comments. You said that you expect to grow double digit, I think, across the board, but your guidance suggests high double digit growth. Is that just long term you expect double digit growth, and this year is going to be (multiple speakers) --

What we are saying, what we are really -- what we see, from bottom up, and the way that we look at the forecast is single digit growth in accordance with our guidance. What we have said is that we are looking at the internal models, and the internal targets are all about double digit growth.

Okay. The next question I have, sales and marketing was up dramatically in the fourth quarter. Can you give us some kind of -- was there an aberration in the fourth quarter, something that was -- you know, that happened kind of one time? Or should we expect that level of sales and marketing expense going forward?

So, a large part of the sales and marketing increase is coming from the result of the strong bookings that we have in the quarter, and this relates to additional accrual that we have to do for our sales commission. Dafna would you like to give more color? -- most of the increase is related to sales commission.

We do expect to see sales and marketing expenses in the fourth quarter at very high -- fourth quarter, very high rate, but going to the first quarter, it should go down.

Okay, so in the first quarter ending in March, your sales and marketing expense will drop sequentially from fourth quarter. Is that correct?

That's our focus at the moment.

Okay, very good. And then depreciation and amortization, just an understanding. What is it going to be in 2013, for the year?

The amount is going to be very similar to what we had in 2012, maybe a few, few, very few millions up.

Okay. And then, there's already been one question asked on this, but I just want to understand a little bit better. On your cash deployment strategy, you plan to pay out roughly $30 million in dividends. You plan to generate how much from cash from operations? $130 million, $150 million, somewhere in that range? Is that correct?

Probably more than we generated this year in terms of operating cash. That's the target for 2013. And in terms of dividend payment, we estimate it to be around $40 million --

No, it's $30 million in the year. We are starting in Q2 --

Oh, okay --

So $40 million -- $30 million, it's around $30 million this year.

Okay. So you should have roughly in 2013 an extra $100 million cash. Is that correct? So if you pay out dividend, you can either deploy that by buying back stock, or making acquisitions, or putting it onto your balance sheet. Is that the right way to think about it?

And doing the -- we're doing both. And we still have the money on the balance sheet, which we can also use for acquisitions.

Okay, very good. Thank you.

Thank you. The next question is from the line of Daniel Ives from FBR Capital Markets.

Thanks, guys. It's actually James Moore for Dan. Just a follow up to that last question. Can you guys maybe talk about what you may target for acquisitions, in terms of verticals or (inaudible)?

Well, I think that the -- things don't change much. We are looking at the acquisitions, and how to do -- to enhance our product offering in applications, to add some technologies to our product lines, some analytics capabilities, add some market presence in different areas of the world, and there are no major changes in our acquisition strategy.

Okay, and then just a follow up to some of the Actimize comments. Are the issues from earlier in 2012 largely resolved at this point?

The -- on Actimize, the main issues were in 2011. They were resolved in 2012, and we are starting to see the benefit of it now.

Okay. Thanks very much.

Thank you. The next question is from the line of David Kaplan from Barclays. Please go ahead.

Hi. Good afternoon. If you could talk a little bit about the guidance, I think if we look back at what the guidance was for 2012, and now into 2013, it seems like you guys are taking it down a notch in terms of what you think your goals are. I understand that part of what Zeevi said has to do with, a lot of it is more back-ended, and so maybe perhaps the visibility into 2013 is not what we're used to seeing in terms of the guidance that you guys are giving. Because -- hey, I'm trying reconcile here what appear as very positive backlog and bookings numbers relative to the guidance that you gave, which seems to be slightly on the more conservative side, that we've been getting -- that we've gotten used to.

So thanks for the question. When we are looking at 2013, we are targeting and forecasting a double digit growth in booking. We are -- when we are looking at how this booking will convert to revenues, and also looking at our current backlog, we expect a great -- a longer revenue cycle. This revenue cycle, the prolongation of the revenue cycle is the result from our shift to application delivery, and also to cloud delivery, that is a larger part of the business. And also the fact that the business is more Q4-centered.

So with this, with the visibility we have now, and what we can forecast, we provided the forecast that we provided.

Okay. And I guess the second half of the question is, then, really about the margin profile of the Company. For a long time, there's been a midterm range of operating margins, and you guys have talked about a high teens or even a 20% number. Is that kind of baked into the guidance that you've given as well? I mean, I know we can all do the math on what the top line and what the bottom line is. But is there a margin goal here that's baked into the guidance that you guys gave, or is it kind of not related, and it's not going to be a margin-focused and driven company?

No, we're definitely focused on continuous expansion in margin. We do in parallel to additional investment in the Company to support growth. We've made them, certain improvements in margin this year, and we expect to continue to expand profitability going forward as well. I think the near term target is to reach the level of 20%, and I don't think it's -- that we would reach it for the full year in 2013, but hopefully during the second half, we will reach this bar, and going forward, we would cross the 20% margin bar, in the future.

Great. Thanks a lot.

Thank you. (Operator instructions) Next question from the line of Michael Kim from Imperial Capital. Please go ahead, Michael.

Hi, good afternoon, everyone. Can you talk a little bit about the contribution from cloud-based solutions, any -- can you quantify any metrics, in terms of total contract value? Also, Zeevi, you talked a little bit about expanding the partner ecosystem. Can you talk a little bit about the channel -- or, go to market channel focus?

So we are -- I'll start with the channel. We are working with the different partners in different spaces to deliver and supporting them while they deliver cloud-based solutions. Some of the -- one of the deals that actually we discussed in the script is a deal that was driven by such a channel. And this is something that we are continuing to focus at. And looking at our -- we can enable people that are providing the cloud solution.

On top of it, we are operating and delivering our cloud solutions within our own brand and domain, and this is something that is -- we made already investments in infrastructure and processes, and we are going to continue to invest in this area.

The -- it's still below 10% of our overall revenues, so we are not breaking it, but if you see the increase of our Professional Services revenues, a large part of the increase in the Profession Services revenues is coming from the SaaS and the hosting business model, and we are pleased with that.

Great. And then, just turning to Security, with the closure rates perhaps increasing -- extending a little bit, not what you'd like to see, are the deals becoming more -- larger and more complex? Is that what's driving the closure rates, or are there other sort of macro factors driving the (technical difficulty)?

First, in terms of the Security, we do see a much stronger pipeline than ever before. So the -- we have a very, very strong pipeline for these solutions. When we are dealing with the government budgets and government procurement, and the -- around the world -- and in this area, there tends to be some inherent in -- these are things that are very difficult to forecast, over time, and they may result -- this is what is creating the uneven pattern of this business.

And so, it's not -- we are seeing very strong pipeline in this area, and the -- probably also fairly large deals. (multiple speakers). Okay?

And in that pipeline, the deals -- are the deals getting significantly larger relative to (multiple speakers) --

The deals -- I mean, we had the larger deals there before. We have deals that are -- overall, I think that they are larger, but it depends how you really measure it. So we are enjoying a very healthy pipeline of large deals, and -- more than ever before.

Great. Thank you very much.

Thank you. That was our last question. I will now turn the call over to Mr. Bregman for closing remarks.

So, thank you, everyone, for joining us today, and have a nice day. And see you all in our Analyst Day in New York, March 12th. Thank you.

Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.