NICE Systems CEO Discusses Q2 2011 Results - Earnings Call Transcript

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 |  Includes: NICE
by: SA Transcripts

Nice Systems Ltd. (NASDAQ:NICE)

Q2 2011 Earnings Call

July 27, 2011 8:30 am ET

Executives

Daphna Golden - IR

Zeev Bregman - President and CEO

Dafna Gruber - Corporate VP and CFO

Eran Liron - Corporate VP, Business Development

Analysts

Shaul Eyal - Oppenheimer

Daniel Meron - RBC Capital Markets

Daniel Ives - FBR Capital Markets

Ari Bensinger - Standard & Poor’s

Paul Coster - JPMorgan

Shyam Patil - Raymond James

Craig Nankervis - First Analysis

Sean Barrett - HMI Capital

Michael Kim - Imperial Capital

Jonathan Ho - William Blair

Operator

Welcome to the NICE Systems Conference Call discussing second quarter 2011 results and thank you all for holding. (Operator Instructions). As a reminder, this conference is being recorded July 27, 2011. I would now like to turn this call over to Daphna Golden, VP Investor Relations at NICE. Please go ahead.

Daphna Golden

Thank you, Operator, and good day everyone. With me on the call are Zeev 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 are considered 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 31st, 2011.

Such factors and forward-looking statements are based on the current expectations of the management of NICE Systems Ltd only and are subject to a number of risks and uncertainties that could cause the actual results and performance of the Company to differ materially from those described herein, including but not limited to the impact of the global economic environment on the Company’s customer base, particularly financial services regulations and the resulting uncertainties; changes in technology and market requirements; declining demand for the Company’s products; and ability to timely develop and produce new technologies, products and applications; difficulties or delays in absorbing and integrating acquired operations, products, technologies, and personnel; loss of market share; pressure on pricing resulting from competition; and inability to maintain certain marketing and distribution agreements. The Company undertakes no obligation to update or revise these forward-looking statements except as required by law.

During today’s call we will present a more detailed discussion of the second quarter 2011 developments, the Company’s updated guidance for 2011 and guidance of the third quarter 2011. Following the comments there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call we will be commenting on our adjusted results of operations, which differ in certain respects from Generally Accepted Accounting Principles as reflected mainly in our 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 their equivalent GAAP figures are detailed in today’s press release.

With that I’ll turn the call over to Zeev Bregman. Zeev?

Zeev Bregman

Welcome everyone to our second quarter 2011 earnings call. Q2 was a strong quarter for NICE. Q2 revenues came in at the high end of our expectations, reaching a record $197 million, increasing 16% from the second quarter of 2010. Non-GAAP EPS reached $0.50, up $0.9 from Q2 last year. Our book-to-bill ratio was greater than one and backlog was at the new record and we are raising our revenues and EPS expectations for the full year.

We achieved growth from last year in both our enterprise and security businesses with record revenue for each of these two segments. We are very pleased with our goals in all regions and especially with the remarkable growth in APAC. We recently held our annual customer conference in the Americas and APAC. These were our largest ever event and we’re also close to 2000 industrial 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 application. This presentations focus particularly on the business benefits and ROI that our customers enjoyed using our solution.

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 customary direction business and the financial crime and compliance business. Revenue for this business grew 17.7% for Q2 2010.

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

Although, the past few years we have been talking about consolidation of contact centers and data centers, due to migration to Voice over IP, M&A, provision of internal cloud services and a focus on a operational efficiency. This plan has been driving infrastructure upgrade and [implementation] of our traditional solutions.

Most recently we started seeing a growing number of our advanced publication being implemented in this consolidated centers.

We continue to enjoy strong demand for our Analytic Base Solutions for both the established Inside Solutions and our newer real time impact solutions. On analytic base solutions enable us to bring the value in highly complex business environment.

In Q2 we were selected by a new customer in Latin America for its 45,000 plus agents project. This customer has purchased 16,000 licenses of our real-time impact solution. In this project, we will be integrating information for more than 17 different systems advancing the customer optimize processes, goal revenue and full retention rates, save operational cost that we pull in service to nearly 60 million customers.

We are also seeing growing adoption of our back office solution which already generated follow-on orders from our customers in this space. An example for back office deal is of a new customer in India based BPO. This customer employs over 5,000 at the total in multiple locations remotely access the customer system. This BPO wanted to manage its whole force more effectively in order to reduce cost and manage affiliates.

However, it had a very limited ability to measure the activity of its workers. With our back office offering which is designed to adverse various non-content environment NICE was able to meet this challenge to bring the added value that customer requires.

We continue to execute on our cross-channel region. In May, we’ll show cased our new Web Interaction Analytics capabilities which are a funnel to our cross-channel interaction analytics. This new capability enables the organization to correlate in real-time a customer-risen activity and the company will decide together with the current call to the contact center. And present this information to agent for better service and sales opportunity.

Finally, NICE has been recognized once again as a number one player in the contact center workforce optimization in the new 2011 market share report by DMG Consulting. According to the report, our share increased to 36.4% up 31% from the previous year. Also another report by DMG Consulting recognized NICE as a number one player in the workforce management market. This leading position reflected our success in securing competitive displacement build and the market’s increased adoption of the unique value-add of our solution.

Turning to our financial crime and compliance business. We see continuation in the trend we have been witnessing in the past two years for fraud prevention, anti-money laundering and securities to have in compliance. In this quarter, we have seen the particular strengths in our anti-money laundering software solutions.

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

In late June, the U.S. Federal Financial Institutions Examination Council or FFIEC updated its requirement for customer authentication, their security and other controls in light of the increasingly hospice online environment, as described by them. Our internet fraud solutions already have that data requirement 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 the high-money laundering risk situation and took enforcement actions against the bank. The FSA expressed its concern having found witnesses come on to many banks. The FSA clearly stated that if we continue to examine the management of high-risk customers and may take further enforcement actions. Such actions practically drive banks to step-up investment in our product.

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 helped 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 onto 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 center 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 produced 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 SafeCity 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 the follow-on order for a very significant demand of (inaudible). Our security business is also enjoying growth in emerging market. 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 three airports. In Q2 AeroExpress placed the follow-on order for highly advanced video analytics capabilities. Another win is the seven digit SafeCity deal in another Russian city, which includes video surveillance situation management. Implementation would feature real-time shared access to information for both self respondent and builds in the fuses in the city’s central command and control center.

To conclude, we are pleased with our solid performance in Q2. We continue to acquire new customers, expand our business at existing ones and grow our bookings and secure a solid backlog. In addition, we continue on the past innovation and management of our product portfolio. Several expand on trends continue to drive our business. The key fundamental plan is the overwhelming amount of unstructured data that prevails in today’s world.

NICE is unique in it’s abilities to capture and analyze this data, extract intent and drive insight to impact business fulfillments and safeguard people and assets. The plan that fuel NICE goals continue with increased regulation, increased number in complexity of interaction between organization and customers and the insecurity threats for people and assets.

We believe that NICE has the pole position to take advantages of these trends. I would like to thank all of NICE for their performance in the quarter and with that we will turn the call to Dafna Gruber, our CFO. Dafna?

Dafna Gruber

Thanks Zeev. 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 one 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 revenue by businesses were as follow. Enterprise revenue reached a record of $148.4 million into the second quarter, up 18% from last year. Security revenue reached a record of $48.3 million, up 11% from last year. By geography, the Americas region continue 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 A-Pac for 12%. Product revenues accounted for 45% of Q2 revenues. Revenues from 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 margin 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 that we 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 the 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 and as for earnings per 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 earning per fully diluted share to be in the range of $2 to $2.08. That concludes my comments. I will now turn the call over for questions. Operator.

Questions-and-Answer Session

Operator

(Operator instructions) The first question is from Shaul Eyal of Oppenheimer.

Shaul Eyal - Oppenheimer

Two quick questions on my end. Will there be strong showing in A-Pac, want to try and kind of dive more into it, what country specifically are you are kind of generating this type of growth.

Zeev Bregman

We are seeing goals in A-Pac mostly in the emerging part of A-Pac and also even if is not a growth we are encouraged by the results in Japan and despite the crisis was there at the end of the first quarter and the beginning of the second quarter. But there you should pay attention, so the older results in A-Pac is small and therefore they can be a bit lumpy going forward.

Shaul Eyal - Oppenheimer

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

Zeev Bregman

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 that we believe that the reason for the success is our executing on our strategy which is to focus on vertical market using our Situator as a differentiator and we’d say sometimes and in the selling of the Situator and sometimes they end in selling the video solutions.

Shaul Eyal - Oppenheimer

One quick question for Dafna. How do you guys envision a continued expansion of the operating margin over the next two quarters?

Dafna Gruber

Our plan is to continue to generate at least 25% increment proceeds out of incremental revenues and they also expect the gross margin to improve gradually over time and we have a target to reach 20% operating margin in the midterm.

Operator

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

Daniel Meron - RBC Capital Markets

Thank you. Hi, Zeev and Dafna. There's been a little bit of crosswind going on in the macro picture, some folks in the industry, in the tech industry are pointing to some slowdown. Others like SAP are pointing to continued improvement in their business. What's your sense on what you are getting from your enterprise and security customers either on government budget or enterprise IT spending in general?

Zeev Bregman

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

Daniel Meron - RBC Capital Markets

Okay. I think that’s fair. In government spending what's your sense on our customers or lead times changing in anyway or sales cycles?

Zeev Bregman

Its again, we had a good quarter in our security business. So we can say that everything that the government now are released their budget ways but again we are seeing a fraction of the market and it’s very, we had a good business in this quarter within the public sector and its not, its difficult from where we stand to predict a trend there.

Daniel Meron - RBC Capital Markets

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

Dafna Gruber

No I think it has a lot to do with the overall margin, has a lot to do with a combination and mix of deals and there are always some differences between quarters and gross margin. Overall, we are in line with our target to be at around 55% gross margin for our business.

Daniel Meron - RBC Capital Markets

Okay. And last one for you before I yield the floor, when we look at the operating margin this quarter, it was 16% top0line growth and then 21%, I think, operating income growth. Is that consistent with the 25% guideline that you provided or do you feel its not going to be necessarily linear and some quarters are going to be a little bit faster on the operating leverages than some quarters like this one are going to be little bit slower than that.

Dafna Gruber

Yeah, it’s, to manage it on a quarterly basis is sometimes challenging. I think the overall current year is very, very clear. 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 deals for operating margin overtime.

Zeev Bregman

And Daniel, this calculation applies mostly to organic growth and it doesn’t take in to account acquisition which can change the picture upward or downward, based on the target company that we are acquiring.

Daniel Meron - RBC Capital Markets

Right. So, we are still looking at a trajectory, at a mid-term target of 20% operating margins. Is that right?

Dafna Gruber

Yes, correct.

Daniel Meron - RBC Capital Markets

Very good, thank you.

Operator

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

Daniel Ives - FBR Capital Markets

Thank you. Great quarter. Question on deal sizes, I mean today you very much stood out this quarter, either in the Security business or the optimized, in terms of, deal sizes, you did sequentially year-over-year?

Zeev Bregman

We don’t have these statistics offhand but the overall we had that several seven digits, a nice number of seven digit deals within this number.

Daniel Ives - FBR Capital Markets

Okay. And then just talk about the security business and obviously a nice improvement there, is that some and 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, so the trajectory we expect to continue?

Zeev Bregman

That’s partially a backlog and partially its things that the orders that is secured during the first quarter and the second one. But we don’t feel that security business is a lumpy business and we can see in quarters and there can be lumpiness in its result and we should expect lumpiness in its results. Overall as we said, we are satisfied with our performance within this sector.

Daniel Ives - FBR Capital Markets

Okay, thanks guys.

Operator

The next question is from Ari Bensinger of Standard & Poor’s. Please go ahead.

Ari Bensinger - Standard & Poor’s

Yes, thank you. Just also curious on the macro economic headlines that have obviously hastened some demand in enterprise space, can you give us any more color on, on what your customers are saying, how they are releasing funds and may be on linearity in the quarter, was it fairly steady or did you see any slowdown as the quarter progressed?

Zeev Bregman

When we looked at the quarter and what customers are saying, I mean, we are always in a situation; there is a regular pressure on budget from our customers. So it’s always, there is a concentration on these issues. It’s very difficult to trend them to macroeconomics.

And when we look at the growth and the progress in the quarter, I believe that it was a normal quarter and there was no special thing around this quarter and then I think this is – now we have a very good quarter in our America and APAC region and I think this is basically what we see around the world.

Ari Bensinger - Standard & Poor’s

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 to New York which we give tax credit to enterprises that would install video surveillance equipment. And I am wondering is that something that could sort of spur demand or something that you would see that can maybe expand to other states and sort of…

Zeev Bregman

Obviously, and unfortunately the security risks are on the rise and the project event earlier this week and always another example and this is – and we are not, we are all concerned about this. We believe that the – and part of the issues in terms of security installing censors, 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 the only way is to connect the dots and this is where we are focusing and this is where our situation management is focused to correlate information that coming from the sensors and to get – and connect the dot and time to prevent crime before the happening and once there is a crime or terror attack to respond in real-time and to send 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 rate and terror rates in the future.

Ari Bensinger - Standard & Poor’s

Thanks and congrats on a great quarter.

Zeev Bregman

Thank you.

Operator

Thank you. And the next question is from line of Paul Coster of JPMorgan. Please go ahead.

Paul Coster - JPMorgan

Across the regions you’re obviously seeing very solid growth in North America and EMEA and rapid growth in Asia; are those regions likely to continue or do you see any material change in the rates of growth?

Zeev Bregman

We have not heard the beginning of your question there Paul, if you could repeat the question?

Paul Coster - JPMorgan

Alright. What I am trying to get to is whether you are seeing – the growth prospects that you’ve outlined apply equally to each of the regions, are you particularly concerned about EMEA for instance?

Zeev Bregman

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

Paul Coster - JPMorgan

The approach is similar across each of the regions?

Zeev Bregman

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

Paul Coster - JPMorgan

And are you adding headcount in each of the regions?

Zeev Bregman

We are adding headcount across the company.

Paul Coster - JPMorgan

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

Zeev Bregman

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

Paul Coster - JPMorgan

Okay, thank you very much.

Operator

The next question is from Shyam Patil of Raymond James. Please go ahead.

Shyam Patil - Raymond James

Hey guys. Could you talk about the competitive landscape device for [Ag] device? It seems like one year competitors that was acquired recently is talking about becoming more aggressive in the market, just curious if you guys have seen that yet?

Zeev Bregman

We are operating in competitive market. We believe that we have a unique position and unique offering in terms of the fact that we are both above the grade and also the fact that we are providing enterprise-wide solution and operating solution. Competition is always there and so far we are doing very well. Again, this competition we are planning to do it also in the future. And then regarding a specific competitor and I think that we can beat and we are beating and expanding our market share from competitors.

Shyam Patil - Raymond James

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

Daphna Golden

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’s an acquisition of a competitor, there is already some cost sales and replacement by our customers of the product they are buying, so it’s already very much integrated within our offering and within our customers.

Shyam Patil - Raymond James

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?

Dafna Gruber

We have a plan that we announced in the third quarter and we intend to continue to execute on this plan until we reach share buyback or using about $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.

Zeev Bregman

And again we believe that the prime and best utilization of our cash is to acquire, for acquiring additional companies and technologies. And we are collectively pursuing such opportunities and this is the prime usage of the cash and we have targets, 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 case.

Shyam Patil - Raymond James

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?

Zeev Bregman

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

Operator

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

Craig Nankervis - First Analysis

Thanks very much. I have a couple of questions. First of all, 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, that it was relatively speaking a lower performer than we have seen of late.

Zeev Bregman

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 the annual basis. In A-Pac we all expect to see a two-digit growth in the two other geographies.

Craig Nankervis - First Analysis

On the Security side, Zeev, you talked a couple of minutes ago about not so much of 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 year-and-half ago or two years ago, when very large projects were a key to the security strategy. Has the environment changed or has your approach changed for you to somewhat back off?

Zeev Bregman

No, it’s not a back-off. It’s another scalability within the model and that we are playing less all of the system integrator and more overall 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 deal and we still add our profitability in different markets, that we are going to specifically in the intelligence space that we have to provide an end-to-end solution, we are going to do so.

And the profits that we have is on a vertical and to trying to cover these verticals, if it is public safety with [safe city], if it is transportation and mass transit, if it is utilities in critical facilities in the financial sector and banking. And in this verticals, we are pursuing major deals and large deals, significant deals but lesser the system integrator, then mostly the solution provider.

Craig Nankervis - First Analysis

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

Zeev Bregman

I think that the (inaudible), will be no change, but evolve. And then, we believe that the current model is a more scalable model in terms of getting coverage and expanding the margins.

Craig Nankervis - First Analysis

And then just on situation management, there was an acquisition a quarter or more ago and Proximex being taken out, has that resulted in any particular change in the market one way or the other from your view?

Zeev Bregman

The answer is not, I mean, we are not and the answer is probably yes, but very little. But as we don’t see any change in the market, it’s another proof that this market is a very old market and the people are seeing the potential and the fact that Proximex was acquired by someone who is a system integrator is an advantage for us.

Craig Nankervis - First Analysis

Is an advantage. Okay. Thanks for the help.

Operator

The next question is from Sean Barrett of HMI Capital. Please go ahead.

Sean Barrett - HMI Capital

Hi guys. I am a little unfamiliar with current tax laws and with NICE becoming more active on share repurchase, what is the limitations those purchases face-to-face on a current tax law? Thanks.

Dafna Gruber

There are separate limitation on because of tax laws. It’s not applicable to the amount of shares that we’ll buy now, the 100 million plan that we announced. And there was plenty of change in the law in Israel that enables more easily by buying shares going forward. So overall I don’t anticipate any major impacts share buyback plan.

Sean Barrett - HMI Capital

Okay. Great. Thanks.

Operator

The next question is from Michael Kim of Imperial Capital. Please go ahead.

Michael Kim - Imperial Capital

Hi, guys. First on a back office, can you talk a little about you know where you starting to see stronger activity and which verticals, whether its healthcare insurance or other that you starting do build the pipeline and then lastly in terms of revenue, I know it still continue into build but can you, call out you know what contribution we might see as a significant component of the revenues? Thanks.

Zeev Bregman

First, we are very pleased with the progress that we made on back office but it still represents a small portion of our booking and also for revenue and we believe that it will grow overtime and we hope it will become mature actually and it will become significant, but it will take time for this to have that. When we look at the segment that we are in most of the pipeline it’s indeed healthcare and insurance and also customer service.

Michael Kim - Imperial Capital

Okay. And then switching to emerging markets, you’ve talked a little about that on this call. Is the pipeline building ahead of the developed markets in terms of activity and then what will show the overall contribution from emerging markets?

Zeev Bregman - President and CEO

I think the only role – first of all we have a very different definition of emerging market and others, when we have fast markets like our markets in Europe and EMEA for example or in APAC it will consider other industries as mature markets and for us they are emerging markets.

And when we look at the prospect that we have we are selling more application and spending on application in our mature markets like the U.S. and then we are expanding in those applications and in a simple capturing solutions in the emerging markets. So we are seeing healthy growth plans in both segments.

Michael Kim - Imperial Capital

And one last one for Dafna, in terms of the backlog was both enterprise and security are above two quarters or can you – was it fairly comparable between the two?

Dafna Gruber

Not very different than one from the other, it is not very different.

Michael Kim - Imperial Capital

Okay. Great, thank you very much.

Operator

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

Jonathan Ho - William Blair

Great quarter guys. Just a quick question in terms of 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?

Zeev Bregman

First, we had I think that was all we – we are posed to grow in APAC and this is the growing market and we are growing there. When we are looking APAC, we invested in this region and expanded in some of the product and in addition, when we look at the APAC overall there was also some changes in the leadership, in the management and we should remember that this a quarter of a quarter, and the second quarter of last year was relatively week quarter in APAC.

Jonathan Ho - William Blair

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

Zeev Bregman

The new version that we spoke about is actually a version that we’re targeting the public safety market. So we are – and it’s in the customization or actually say adaptation of the product to the commitment of the public safety customers like emergency rooms and the 911 centers and things of this nature.

When we look at the situation management what we see is that we look at it originally the security system and we are seeing more and more but it’s serving also operation analytics and that’s the combination of security and operation and this is a part of the demand that we are seeing, that it provides both security, but also provides benefit to the operation of the organization that we serve.

Jonathan Ho - William Blair

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?

Zeev Bregman

The Situator present a small part of our business, but it’s a differentiator and therefore many people are talking with us and sharing with us the vision and anticipating this is going to be part of the 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 have, but the overall volume is still relatively small.

Jonathan Ho - William Blair

And just last one for Dafna, I mean in the past you guys have talked about your services business being at a higher capacity and you are going to add some capacity there, what's the utilization rate look like these days?

Dafna Gruber

The utilization rate is very high. It’s very high over

Zeev Bregman

With respect to any industry standard and actually we don't have bench.

Operator

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 0800-918-4256. In Israel, please call 03-92-55-900 and internationally, please call 972-3-92-55-900. Mr. Bregman, would you like to make your concluding statements?

Zeev Bregman

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

Operator

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

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