Nice Ltd (NICE) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NICE Systems conference call discussing third quarter 2013 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 for replay purposes, October 30, 2013.

I would now like to hand the call over to Mr. Marty Cohen, Vice President of Investor Relations at NICE. Go ahead, please.

Thank you, operator. With me on the call today are Zeevi Bregman, President and Chief Executive Officer, Dafna Gruber, Chief Financial Officer and Eran Liron, Executive Vice President of Corporate 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 in the section entitled Risk Factors in item 3 of the Company's 2012 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 25, 2013.

During today's call, we will present a more detailed discussion of third quarter 2013 results, and the Company's guidance for the fourth quarter and full year. 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.

I'll now turn the call over to Zeevi.

Thank you, Marty, and welcome, everyone, to our third quarter 2013 earnings call.

We Delivered solid results for the third quarter, and remain confident for a strong finish for the year, based upon healthy pipeline.

Non-GAAP total revenues for the third quarter were $230 million, up 4% compared to the third quarter of 2012. Non-GAAP EPS for Q3 was $0.62.

In the quarter, we continued to benefit from two major business trends around compliance and customer experience. In compliance, companies continue to face an increasing regulatory environment, including regulations under Dodd/Frank, the Consumer Financial Protection Bureau, and many other regulations in the US, Europe and APAC.

We are in a unique position, as we are able to deliver holistic solutions combining technologies from all three business units to help our customers meet the demands of this dynamic regulatory environment.

In customer experience, an increasing number of organizations are looking to transform their businesses to become more customer-centric. They also want solutions that create a seamless customer experience between touch points, such as the contact center and the Web. We offer a suite of solutions to help our customers support this change.

The growing demand for solutions around Compliance and Customer Experience is driving the growth of our analytics-based applications. In the third quarter, new order of advanced applications grew well above 20% compared to the last year's third quarter, and represented close to 50% of total new bookings.

Our unique blend of solutions helps our customers analyze big data to better understand the relationship and the associations among people, data and systems. This helps our customers improve operational efficiency, comply with regulations, provide a better customer experience, grow revenues, prevent financial crime, and improve safety and security.

We are further expanding our big data capabilities in all three of our businesses, by enhancing our financial crime and compliance platform with new solutions, strengthening our security platform with increased functionality and the enhanced analytics capabilities, and further developing the real-time cross channel analytics capabilities of our Customer Engagement Analytical platform in our Customer Interaction business.

In addition, that acquisition of Causata will further enhance the capabilities and accelerate parts of the development of our Customer Engagement Analytics platform. Causata technology helps us provide a seamless connection between the Web and the contact center, and its machine learning technology will allow us to augment our real-time decisioning and guidance capabilities. The integration of Causata is proceeding according to plan.

There is a growing need for real-time decisioning, as non-current information is often not good enough for many of our customers. This is where our broad portfolio of real-time solutions provides us a significant competitive advantage. We continue to witness both strong demand and rapid growth for these solutions, and our real-time capabilities have been a key differentiator in winning deals in all three of our business units.

For example in Q3, we closed a 7-digit deal with a US cable and entertainment company, where our real-time technology and solutions are being used by thousands of agents to convert service calls to sales opportunities.

In another Q3 deal, our real-time fraud prevention solutions are being deployed at a major European financial services organization, which has decided to standardize on our fraud platform across channels.

And in security, we sold a 7 digit deal that included our real-time Situator solution to enable a public transportation customer to set up a sophisticated command and control center in preparation for a major sporting event next year.

In the quarter, we also saw further growth in our cloud business, as we are continuing to see more analytics solutions being sold in the cloud in the US, Europe and APAC. The momentum is being driven mainly by increased market demand for our enhanced cloud offerings. In the US, we continue to sign an increasing number of cloud deals, especially among financial services and telco firms.

In Europe, we are starting to see a similar trend. In one deal with a European telco provider, they are deploying our interaction analytics solutions in the cloud for 3,000 of their agents. The company elected to purchase our cloud solutions because of the ease of the deployment and the lower cost of ownership.

Moreover, in this competitive deal, the competitor was unable to deliver a cloud solution, and could not provide the strategic partnership that included the high level of business consulting that the customer demanded.

In our Customer Interaction business, we continued to see strong growth in our analytics-based application. The longer revenue cycle resulting from this shift to advanced applications and the cloud led to lower than anticipated revenue for the quarter.

The Customer Interaction business continues to be driven by transformational deals, deals in which our customers are looking to transform their business around CEO-led initiatives to improve operational efficiency, increase revenue, and enhance the customer experience. Compliance is also a key driver of this business.

In a deal with a major Internet brand, they want to transform their business into a more customer-centric organization. We are pleased to be an integral part of this transformation, replacing the incumbent solutions with a suite of NICE solutions to help the customer get closer to their customers. While the majority of its service interactions take place over the Web, the customer wants to better understand what is occurring across all communication channels to get a complete view of the customer to help improve the customer experience. Therefore, they will deploy our speech analytics to help them accomplish this goal.

In Compliance, continued regulatory pressure in the US on financial service providers, and further fines levied by regulators continue to increase demand for our proactive compliance solutions. Our proactive compliance suite includes integrated solutions from our Customer Interaction and Financial Crime and Compliance businesses. The solutions that form the suite embrace our capture, analytics, and real-time technologies addressing all parts of the compliance operation. This includes data collection, historical record keeping, data retrieval, call and transaction analysis, customer profiling, investigation tools, and reports of corrective action.

In Q3, we signed a deal with a very large financial institution in the US for our proactive compliance solution. This solution will be deployed for better control and monitoring of consumer compliance.

We continued to innovate in our Customer Interaction business, developing new technologies and solutions to help broaden our market opportunities. One example is our use of voice biometrics and our patent pending passive enrollment technology. These technologies are driving successful pilots with some large customers, as well as discussion with many others, for both our real-time authentication, and contact center fraud prevention solutions.

In our Financial Crime and Compliance business, we reported more than 30% growth in revenues. We saw strength across the board in all of our solutions.

In our fraud business -- (sound of phone ringing) -- one second, please.

In our fraud business, we are seeing more companies standardizing on our fraud platform. We offer comprehensive, cross channel fraud, and we deliver multiple solutions on the same platform with market tested accuracy and scalability for real-time profiling and analytics. We are seeing significant traction in our fraud portfolio, particularly in Europe, which we believe is generally due to the need for broad, holistic fraud platforms, capable of ingesting and analyzing feeds from various banking channels, transaction types, and client types.

One of the fraud deals in the quarter was with an existing European customer that was in a separate division of this financial institution. This division is granting small, immediate loans to retail customers via the Internet and call center. Even though the loans granted are relatively small, the volumes are high, so it puts the company at increased risk for fraud. They need flexibility for the different loan criteria for each country, and so they preferred the designated platform. They selected our fraud solution in this competitive deal to replace their existing in-house developed solution.

We also had a good quarter in Compliance for both our anti-money laundering and our cloud-based surveillance solution, with initial sales of some of our new products, as well as new customer wins. Our cloud trade surveillance solutions continue to demonstrate good traction in Europe, and we are also seeing more deals in the US, with new customer wins in the US just this past quarter.

Financial institutions are coming under increased scrutiny by regulators, due to recent rate setting scandals, which has created immediate need for an integrated oversight approach to ensure compliance. In response, we recently announced the availability of our Benchmark Monitoring Solution. It provides proactive monitoring of both rate-setting transactions and related communications, coupled with dedicated analytics to detect suspicious traders behaviors. This solution combines technologies from our Customer Interaction and Financial Crime and Compliance business units.

And last, our Security business was down slightly in Q3, as this business continued to be a bit lumpy from quarter to quarter due to some large transactions, where revenue recognition can be unpredictable at times. Despite the lumpy nature of this business, we continue to see an increasing appetite for our physical security solutions, which we demonstrated at two major Security-related trade shows in Q3, Apco and ASIS.

Among some 7-digit deals in Q3, one was with an airport located in Asia, looking to model their security solutions after those of western countries. The country in which the airport is located has suffered terrorist attacks in the past, especially in tourist locations. They purchased NICE Situator and NiceVision in order to enhance safety and security, and also to improve operational efficiency.

In intelligence, our customers in the Law Enforcement and Intelligence agencies continue to be confronted with operational and technical challenges such as increased IP traffic, social networks, and communication application proliferation. As a result, we see continued increased interest in solutions for analyzing IP traffic.

An example was a multi-million dollar third quarter deal with a Central American internal security agency to our main offering of our target-based IP interception system.

In summary, we continued to see strong double digit growth in our analytics-based applications, with ongoing robust demand. The reason behind the strength is that these solutions, including our real-time analytics, help our customers improve business results, particularly in the areas of compliance and customer experience.

As we now head into the fourth quarter, we look forward to a strong finish of the year. I would like to thank the NICE team for their work in this quarter. I will now turn the call over to Dafna Gruber, our CFO. Dafna?

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

Revenue for the third quarter were $230 million, up 4.2% from $221 million in Q3 last year. Customer Interaction's revenues were $141 million, similar to Q3 2012. Financial Crime and Compliance revenues were $39.7 million, up 33% from $29.8 million in the third quarter of last year. Security revenues were $49 million, a decrease of 2% from the third quarter of last year. For the third quarter, Customer Interaction accounted for 61% of total revenues, Financial Crime and Compliance, 17%, and Security, 22%.

Looking at the regional breakdown, revenue in the Americas increased 5%, to $142 million in Q3 2013, compared with the third quarter of last year. Revenue in EMEA was $55 million, similar to Q3 2012. And revenue in the Asia/Pacific region increased 8% to $33 million, compared to the third quarter last year.

For the third quarter, the Americas accounted for 62% of total revenues, EMEA 24%, and APAC, 14%. Product revenues in Q3 accounted for 37% of total revenues, and maintenance represented 39% of total revenue. Professional services, including SaaS and hosting, accounted for the remaining 24%.

Gross margin in Q3 2013 was 65.7%, compared to 65.6% in Q3 last year. Operating margin reached 18.4%, compared to 19.1% in Q3 2012.

Earnings per share was $0.62 in Q3, compared to $0.64 in Q3 2012. This includes the slight dilution coming from the Causata acquisition that was executed in Q3.

In the first quarter of 2013, we decided to take advantage of a special program initiated by legislation, by the Israeli government in November last year, with a deadline of November 11, 2013, that allowed Israeli companies to release so-called trapped profits by paying a highly discounted tax payment. In addition, we settled a multi-year tax audit by the Israeli tax authorities.

Pursuant to the Israeli government's plan, a company that elects to pay a reduced corporate tax rate, as set forth in that plan, on its undistributed exempt income accumulated up until December 31, 2011, will be able to distribute these profits without being required to pay additional corporate tax with respect to such distribution. Due to the economic benefit of this program, and the flexibility it provides, we elected to participate.

The total effect on Q3 GAAP profit of the tax audit settlement and the one-time payment related to the release of the "trapped profit" was a tax expense of $19.2 million, or $0.31 per share. Due to the nature of this expense, we excluded it from non-GAAP results.

The cash impact was $30.9 million, which resulted in a negative cash flow from operations for the quarter. Excluding this payment, cash flow from operations would have been $15.3 million, compared to $11.6 million in the third quarter of 2012, and would have been $109 million for the 2013 9-month period, which is a 16% increase compared to the same period in 2012.

Our total cash and financial investments were approximately $444 million at the end of December, 2013.

Headcount at the end of September totaled 3,527 people, compared to 3,370 at the end of September last year, and 3,399 people at the end of December 2012.

During the third quarter, we purchased 473,000 shares for a total consideration of $18.4 million, as part of our share repurchase plan. During October, we already purchased an addition $11 million in the buyback plan.

In line with our dividend plan amount in February, NICE's Board of Directors approved a dividend payment of $0.16 per share. The record date is November 12, 2013, and the payment date is November 26, 2013.

We expect fourth quarter 2013 total revenues to be in the range of $260 million to $275 million, and fully diluted earnings per share to be in the range of $0.72 to $0.77. We expect total revenues for the full year 2013 to be in the range of $940 million to $955 million, and fully diluted earnings per share to be in the range of $2.55 to $2.60.

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

Ladies and gentlemen, your question and answer session will now begin. (Operator instructions) Our first question comes from the line of Shaul Eyal from Oppenheimer.

Thank you. Hi. Good afternoon, guys. Dafna, I started thinking about product revenue for the fourth quarter, kind of understanding the nature of the seasonality from a business model perspective. Should we be seeing year over year growth from just a product perspective?

That's our target.

Got it. Zeevi, on the Situator contracts you announced, you just announced for the major sporting event next year, and then I want to ask about the business in Latin America. But was that a -- I didn't get it. Was that a 7-digit contract?

It was a 7-digit contract.

Got it, okay. And the Causata acquisition, that you indicated that it's progressing according to plan. Dafna, from a dilution perspective, did it come in line from an expense perspective, or was it a little below or above what you estimated?

It's actually exactly as we expected, around $0.02 dilution.

Got it. Okay, that's all from me for now. Thank you.

Thank you. Our next question comes from the line of Paul Coster from JPMorgan.

Thanks very much. Zeevi, can I just check that you're still on track for the bookings of $1 billion this year?

We are still on track for a booking of $1 billion this year.

Yes, the revenue outlook was a little bit weak relative to our expectations. Is it possible this is, in part, because revenue is being deferred as part -- these cloud based solutions?

That's correct. We -- during the quarter, we had a very -- we had a strong booking quarter for advanced analytics solutions, including our cloud solutions. And this created a slightly longer revenue cycle.

Okay. Are you in a position to quantify that, so that we can perhaps make sense of the lower guidance at the top end of the range?

I'm not sure that I understand what you mean by quantify.

It looks like you've trimmed the top end of guidance by, what was it, $5 million or so. And I just wonder, is that all attributable to this deferred revenue (multiple speakers) --

Yes, yes. It is part of the deferred revenue.

Okay. Is there any impact from -- you know, obviously, there's been a lot of headline news around surveillance technologies, whether it's appropriate, inappropriate, how it should be used and so on. Is that having any impacts on your sales into government entities? I'm not (multiple speakers) --

We are -- I don't think that it has any impact. I'm not aware of any impact. We continued with the -- our traction with the different customers that we have, and I don't -- I think that people are seeing the necessity of such solutions, and therefore, they will continue to invest in them.

Did the -- sort of the process in Congress a few weeks ago, a couple of weeks ago, have any impact on any of your business?

The processing?

Oh, no, I'm sorry. You know, the --

Ah, yes, yes. It might have probably a little impact, might have a little impact on the business.

Okay. My last question is, are you in a position to share with us what percentage of revenue these days you would assign to the category of analytics, advanced or otherwise?

We are not breaking it in this way, so I cannot break it. But it's an increasing portion of revenue. Continuously, as we indicated, we have seen well over 20% growth in bookings of our advanced applications this quarter.

I'm sorry, I have got another question, I apologize. But the forecast in revenue growth, it seems a bit anemic, but it sounds like with the $1 billion of bookings, the real growth rate is higher than that, and part of the delta is this deferral of revenue. Can you give us some sense of what you think the normalized revenue growth is once you've got through this transition phase?

I suggest that what we will do is, we will wait for the next call, and then we will be in a position to comment on our annual booking, and see the actual growth rate, and see how it was. But it's higher than what is reflected by our current numbers.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Daniel Ives from FBR Capital Markets.

Yes, hey, guys. This is Jim Moore in for Dan Ives.

Just on the applications, the advanced applications business, can you talk a little bit about the pipeline in different geographies, what you're seeing?

So, when we are looking at advanced applications, we have a full pipeline nearly across all our products. And traditionally, and because of market maturity, most of these products are being sold in America, and then in the developed part of Europe and Australia. This is where the majority of the business lies, and usually the emerging markets are following. We -- this is where the pipeline stays.

When we are seeing a demand, we are seeing it in the financial sector. We -- it's difficult to say with banks from anything but compliance and advanced compliance solutions. They are all -- all our financial customers are very focused and concentrated on preparing themselves to cooperate with regulations. And this is since a very strong -- it's mostly in the US, but also in the international markets, regulation is not that different.

When it comes to other industries, like the telco, the Web, we are seeing more and more interest and traction around the customer experience and sales conversion. This is where we are seeing most of the traction.

Okay, thanks for that. And then, on the M&A front, can you talk about anything that you're looking at, or what kind of technologies you might be interested in?

Well, the M&A, we didn't change our policy. We are looking for companies and technologies that will enhanced our execution on the strategy. It can be from small technical acquisitions to some -- the adjacent businesses. We continue to look at such technology, and once we see the right business with the right valuation, we -- and that with willingness to sign a deal with us, we would sign a deal.

Thanks very much. Good luck going forward.

Thank you. Our next question comes from the line of Shyam Patil from Wedbush.

Hi, good morning. Just wondering if you could talk a little bit about the weakness from the quarter, and then the slightly reduced guidance. What's differing from your expectation -- what differed, or is differing from your expectations? If you can just talk about that a little bit.

So, there are two things that are a bit -- a slight deviation from our expectation in the past, is the fact that we are -- the success of the analytics-based application in the cloud that is leading to a longer revenue cycle that we spoke about. And the other is that we are seeing some weakness in non-government business in APAC. We do see some weakness on the non-government business in APAC, specifically in China, India and -- certainly China and India.

You know, we've seen companies make the transition from being a perpetual software company to more of a cloud company. And the transition has been -- in many cases, has been messy and difficult to forecast. Can you just talk about what gives you guys confidence that you're forecasting the fourth quarter properly, and maybe going forward, what you'll take into account versus before, to make sure you can accurately forecast?

Well, first, we have a very -- we have a track record in our focusing, and we do not feel the transition is messy. In our case, it's very controlled, and we have -- it's based on our financial models, and we can see the deals.

And actually, on SaaS, it's easier to predict revenues than on perpetual deals, so it's actually improved the visibility.

When it comes to forecasting going forward, we have our model. We are constantly adjusting it and (inaudible) them. We have a tight plan. We are reviewing -- even on large deals, we are making calls, specifically calls with the people in the account to assess the situation. And this is how we are making our prediction.

And we've been successful in the past, and I believe that we are going to be quite, we cannot be fully accurate, but we will be quite accurate also going forward.

Okay. In terms of the booking, you said that you still expect $1 billion or about there for the year. In terms of your booking this quarter versus expectations, were they in line, better? And then, for the year, I know you're still expecting $1 billion, but is that in line with before, is that slightly lower? Can you talk about that a little bit?

We don't break it, but the booking for this quarter are in line with our expectation.

Okay. And I know you can't comment on 2014 guidance, but do you expect the growth rates that you've seen this year to be the right way to forecast the business going forward, or do you expect some acceleration as we go into next year?

What I can say is that we believe that 2014 is going to be a year of growth for NICE. In terms of the actual guidance, we will provide it in the next call.

And in terms of -- we do believe that as we continue in progressing with our execution, some of the booking of this year will translate to revenue for next year. I mean, all the bookings of this year will not be recognized this year, it will translate to revenue next year, (inaudible).

My last question. Dafna, tax rate, corporate tax rate seems to be going up a little bit in Israel. How should we think about NICE's tax rate in 2014 and beyond?

Yes, so actually, there was a change in the regulation earlier this quarter that increased the corporate tax rate on us from 12.5% this year to 16% next year. I am not -- I will give the more accurate data about what should be the range for taxes going forward after we complete our analysis on the impact on us. You should assume certain increase in the tax rate next year. And we'll provide more data in the next call.

Thank you.

Thank you. Our next question comes from the line of Matt Hedberg from RBC Capital Markets.

Thanks, guys. There's been a lot of talk about revenue moving to more cloud-based, which is -- I believe is included in your services line. Is there going to be a point in the future where you break out that cloud business to give us a little bit more perspective on the different moving parts?

There will be a point in the future, once we feel that this is a good indicator, and a mature enough indicator. We will give it.

Currently --

Currently --

--- it is below 10%, and this is why we do not have to break it. But once it's stabilized and get closer to 10%, much closer to 10%, we'll give more data.

That's helpful. And then, kind of along the same lines, if more of this business, from a bookings perspective, is moving to deferred revenue, I guess I'm curious why was -- deferred revenue looked like it was down 16% sequentially. I'm wondering, is more of that bookings moving to an off balance sheet account?

Yes. Well, the -- not the deferred revenue. Deferred revenue is only part of the picture, because it reflects mainly collections. I think what's important to assess here is what is happening to our overall backlog. And our overall backlog this year, compared to last year, at the end of September, there was an increase in the overall backlog.

The mix between deferred revenues and unbilled backlog is a big difference, this year compared to last year. And therefore, you see a decline. But there is an increase in the overall backlog. This is the important element.

Thanks, guys.

Thank you. Our next question comes from the line of Richard Parower from Seligman.

Hi, guys. You guys are forecasting a pretty sharp growth rate in terms of product revenues in Q4. Is that from deals that you're going to sign in Q4, or -- I'm sure some of it is. But is there a portion of that too that's just part of revenue recognition on deals that you've already signed that you're working through implementing?

It's a combination. The larger part is anticipated deals that we're currently working on, complex multi-product deals that we believe these deals will mature toward the end of the year, the end of budget year. We have good indications that this is going to happen, and this is the, let's say, the major part of the forecasted increasing products revenues.

Okay. And I missed it, if you talked about this, but did you mentioned whether the book-to-bill was great than or less than 1? And what is that typically in a Q3?

We are not breaking the book-to-bill on a quarterly basis. As Dafna indicated, our backlog today is larger than the backlog in the third quarter of last year, which means that our book-to-bill on the four trailing quarters was larger than 1.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Greg McDowell from JMP Securities.

Great, thank you. Since you cited weakness in China and India, I was wondering if you could talk about whether the deals in those geographies have disappeared, or whether they've just pushed, and how you feel about those geographies going into Q4. Thanks.

When we look at the APAC, the -- what we are -- firstly, deals were pushed. They didn't disappear. And the -- and it's two different -- I think it's two different phenomena.

In China, there is a certain deceleration of the economy and a bit slowdown from the very rapid pace of the economy in the past. In India, because of the devaluation of the rupee, there is -- this is what -- the devaluation of the rupee is impacting the business and the budget of our customers. So this is what caused them, I believe, to slow decisions.

Great, thank you. And one last question. As you start to think about 2014 and use of the balance sheet, could you just maybe shed some light as we think about share buybacks or increasing the dividend or M&A, how we should think about use of the balance sheet over the next 12 months or so? Thanks.

We currently -- we will look at the -- we are going to look at the -- our capital structure. This is something that we are doing periodically at the end of the year. We are currently have a buyback program which is in place for $100 million that we are going to continue. For this year, we announced 16% per quarter dividend. And we will make -- we will announce our balance sheet plans probably in the conference call of Q1, for 2014. (inaudible).

Thank you.

Thank you. Our next question comes from the line of Jonathan Ho from William Blair.

Good morning. Just want to understand, when we look at the Actimize business this quarter, or your Financial Fraud and Compliance, it grew relatively quickly. Just wanted to get a little bit of additional color as to the growth rate, what's driving that, and perhaps how sustainable that growth would be, from your perspective.

So first, we had a very -- indeed, we had a very strong growth in Q3 in Actimize. We are looking -- when we are looking at the different businesses and even the different geographies, we prefer to look at trends which are over time and not quarterly trends. We believe that the 33% growth is not -- is above the growth rate in this business. But it's a very encouraging sign, and the business is very healthy.

When you look at the Actimize business and look at the area that Actimize is operating on, it's around compliance and around fraud. And the pressure for compliance and on fraud within financial institutions globally is increasing all the time.

We are -- last week, we had our event in New York for the financial institutions, related compliance and their financial crime. It was the best attended event that we had. It was very, very clear that this is a very -- in terms of the interest that this is taking, there's a huge traction there.

By the way, we had a keynote by a former Senator, Chris Dodd, which went very well. And overall, we looked at what people are presenting, the pressure on them, what we help from them. It's a very healthy environment for us, and we believe that there is going to be also a lot of traction in the coming years.

Got it. And just in terms of the tax payment that you guys made during the quarter, can you give us a sense of what tax rate that was paid at, and how much cash gets freed up by that payment?

We paid about $30 million to settle the tax audit, and free up the trapped profits. I cannot give, because of the nature of this agreement, I cannot give more color. But what I can say, that on the -- on our annual -- that we released all the trapped profit, and we now -- annual report for December 31, 2012, we've said that the total amount of that trapped profit for NICE at that point of time was $310 million.

Fantastic. And just one last question around the SaaS area. Can you at least give us some color from a trend perspective of how many customers, or what percentage of customers this quarter elected SaaS as an offering, just so we get a sense of how quickly that's transitioning?

We are -- when we are talking about a customer on SaaS, it will be a misleading number, because we have a very small customer, then we have a very large customer. So giving it by customer number is not a reflecting figure. The deals are very different from one another.

But there is a growing demand, and what we can see, this organization, that in the past didn't even consider to move to cloud. Looking at the reduced time to market of this solution, and looking at the saving on operational costs, I'll bring it -- and they are considering it and adopting these solutions, and everyone is doing it much more in the business..

Great, thank you.

Thank you. Our next question comes from the line of David Kaplan from Barclays.

Yes, hi. Apologies if you already answered. Dafna, what impact did the share buyback have on EPS?

Just, you were introduced as David Kaplan, and it seems that --

I'm sorry, (inaudible). I'm Chris Reimer, in place for David Kaplan today.

Okay. (laughter)

So, thank you. Can you repeat the question please?

What impact did the share buyback have on EPS?

We're not calculating the impact, because the EPS calculation and the shares, the overall shares, share numbers, is a complicated calculation that takes into consideration elements like share price, average share price, option and location and so on. So we are not making a full breakdown of the impact of each one of the elements.

We gave the information on how many shares. It was around 800,000 shares. So, theoretically, you can make the calculation.

But overall, if you look at sequentially, the number of outstanding shares from Q2 to Q3 increased. This is a result of the increase on the share price. So if you will -- if you look at -- the overall count of shares didn't change. Overall --

Okay.

Sorry. The overall, it changed slightly up, and the impact is very small of the number of shares, the calculation.

Yes, to repeat what I said earlier, 473,000 shares were purchased during the quarter, if that helps.

Yes, it does, thank you. Just one last question. Which verticals are growing the fastest, and is NICE's product portfolio positioned to benefit from that growth? What do you see as --

We do not have a full analysis, so based -- in front of us now, but we see a strong demand in the -- our traditional sector, in the financial sector, in telco, and in the -- and also in the Internet sites, e-commerce..

I see. All right, well, thank you very much.

Thank you. Our next question comes from Brian Ruttenbur from CRT Capital.

Yes. I have a question about security. Can you talk about the geographical weaknesses or strengths in the security division?

Security was -- the government business in security was -- had a particular strength in APAC. Other than that, the trends were pretty much even in all different regions.

Okay. And was the geographical weakness similar to the rest of your business in security as it was everything else?

The security, we have two parts of the business. We have government and non-governmental business. The governmental business in APAC was very strong. Non-governmental business in APAC suffered, or was weak, like any -- like the other business.

Okay. And then in terms of the tax moving forward, can you see any other one-time events like this quarter in terms of tax payments, kind of moving toward -- just trying to understand if this was a one time event, or if there is a year or two from now, you have the same option on taxes to make the (inaudible)?

This is a one time event. The tax --"trapped profit", We paid all of them, the tax settlement -- we are having such settlements every few years, but we are not -- this event of this magnitude, we believe it's a one time event.

Okay, and then last question. On the security side, do you anticipate fourth calendar quarter to see a big increase, and do you expect to see growth in 2014 in security that's double digit, single digit -- any kind of range, you can --

We do not -- we really do not want to focus 2014 in this call. I can say that we have a very healthy pipeline with very large deals in the security business in all regions. We are very -- we are bullish about this business, and believe that we have great technology and products, customer base and pipeline, and we are confident that this business will grow.

Okay, thank you.

By the way, one comment that I didn't say about the tax, in the fourth quarter of last year, on the previous question, we had one time -- we have a one time profit, a non-GAAP one time profit on the -- some taxes. So there was -- it was smaller, but it was -- we had already an event.

Operator, next question, please.

Thank you. Our next question comes from the line of Jeff Kessler from Imperial Capital.

Thank you, and thank you for taking my call. With regard to your bank business, when you go in there with an offering for compliance, are you -- what type of acceptance are you getting when you try to sell them forensic, and/or other type -- and security products? Are you able to piggyback other parts of your business on top of the compliance sales that you're making?

Well, the answer is that we can piggyback additional sales on top of the compliance business, because -- also, other platforms and within the same platform, because at the end, the same platform that is used for compliance is used for other applications, like fraud, like the customer experience, the underlying technology is common.

So, once we are selling the compliance solution, we have -- it's much easier to later on come and sometimes within the deal and sell additional benefits and additional applications. So this is something that we do see, and we do see quite a lot. And this is really part of our strategy.

When it comes to selling forensic solutions, we had, in the past, several occasions that we provided forensic capabilities, and if customer -- this is part of the services that we are providing the customers when they have a need to provide them with forensic services.

The forensic solution is on a different platform?

No, it's the same platform.

Okay. One final question. Given that you've only made a couple of cloud-based sales at this point, however, you obviously are out there in the market, where -- what types of market -- what type of verticals are you seeing pushback, and what type are you getting much more, let's say, acceptance in the sales pipeline that you have for using the cloud?

Well, first, we don't have couple of clouds. We have dozens, or maybe even more than dozens of --

I thought you (multiple speakers) it just one major, one small. But I was (multiple speakers) --

No, no. This is -- no, no, no, this is -- we have dozens of cloud customers at the moment. It's not couple, it's much more than that.

When it comes to a customer acceptance, we have, in the retail and telco industries, this are where we started, and we saw -- we are continuing to see demand in the adoption. Financial services, at the beginning, were a bit -- the large financial services, insurance companies, banks, were reluctant in the past, and they are more acceptable to deal cloud in these industries.

Okay. Are there any verticals where you're still having difficulty selling -- you're still trying to break into selling a cloud-based solution?

There is no vertical, but it is, on some financial data, there is sometimes a reluctance to provide the data on the cloud basis.

Okay. Okay, thank you very much.

Thank you. We have no further questions in the queue at this time. I'd now like to hand the call over to Zeevi for closing remarks.

So, thank you, everyone for joining us today on the conference call, and I wish you all a very NICE day. Thank you.

Thank you, ladies and gentlemen. This concludes your conference call for today. You may now disconnect. Thank you for joining, and have a very good day.