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NICE Systems Sets New Records for Third Quarter 2007
[November 07, 2007]

NICE Systems Sets New Records for Third Quarter 2007


RA'ANANA, Israel --(Business Wire)-- NICE Systems (NASDAQ:NICE), the global provider of advanced solutions that enable organizations to extract Insight from Interactions and transactions to drive performance, today announced results for the third quarter of 2007.



Third quarter 2007 non-GAAP revenues reached a record $132.9 million, representing an increase of 18.5% from $112.2 million in the third quarter of 2006.

Non-GAAP gross margin in the third quarter 2007 reached 63.4%, up from 60.6% in the third quarter of 2006; and non-GAAP gross profits were a record $84.3 million, up 24.0% from $67.9 million in the third quarter of 2006.


Non-GAAP operating margin in the third quarter 2007 reached 17.1%, up from 15.9% in the third quarter 2006. Operating income on a non-GAAP basis in the third quarter 2007 increased by 27.5% to $22.7 million, from $17.8 million in the third quarter of 2006.

Third quarter 2007 non-GAAP net income reached a record $21.0 million, representing a 30.8% increase from $16.0 million in the third quarter of 2006. Non-GAAP earnings per fully diluted share for the quarter were a record $0.38, up from $0.31 in the third quarter of 2006.

Non-GAAP results for the third quarter 2007 exclude the fair value adjustment on acquired deferred revenues of $0.8 million net of taxes, the amortization of acquired intangible assets and write-off of acquired in-process research and development of $7.3 million, net of taxes and stock based compensation expenses of $3.5 million, net of taxes and acquisition related compensation expenses of $0.2 million.

On a GAAP basis: third quarter 2007 revenue was $131.7 million, up from $107.5 million in the third quarter of 2006. Third quarter 2007 gross margin was 60.6%, compared with 56.2% in the third quarter of 2006; operating profit was $8.4 million, up from an operating loss of $6.9 million, in the third quarter of 2006; and third quarter 2007 net income was $9.2 million, or $0.17 per fully diluted share, compared with net loss of $5.4 million, or $0.11 per share, on a fully diluted basis, for the third quarter of 2006.

Total cash and equivalents as of September 30, 2007 reached $357.8 million, compared with $356.4 million as of June 30, 2007. Third quarter 2007 operating cash flow was $35.7 million.

"The third quarter of 2007 was a record one for NICE, both on the top and bottom line, capping off another quarter of excellent performance," said Haim Shani, Chief Executive Officer of NICE. "The quarter was marked by continuing demand for our enterprise sector solutions, a growing pipeline of large-scale security projects and by record revenues in our security business. Looking ahead to 2008, we expect to further increase our revenues and profitability."

Guidance for fourth quarter and year 2007:

Fourth quarter 2007 non-GAAP revenues are expected to be in the range of $142 - $146 million, and non-GAAP EPS is expected to be in the range of $0.36 - $0.40 per fully diluted share. Updated guidance for year 2007 non-GAAP revenues is at $519-523 million, and non-GAAP EPS to be in the range of $1.41 - $1.45 per fully diluted share.

First time guidance for year 2008:

2008 non-GAAP revenues are expected to be in the range of $615 - $630 million, and non-GAAP EPS is expected to be in the range of $1.65 - $1.75 per fully diluted share.

Conference Call

NICE will host a conference call to discuss the results and its business outlook today at 8:30 a.m. EST (15:30 Israel). Participants may access the conference call by dialing US toll-free +1-888-281-1167 or +1-800-994-4498; international: +972-3-918-0610; Israel: 03-918-0610. The call will also be broadcast live on the internet via NICE's website at www.nice.com. A telephone replay will be available for up to 72 hours, starting from three hours after the call, by dialing one of the following numbers: US Toll-free: + 1-888-326-9310; international: + 972-3-925-5930; Israel: 03-925-5930.

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: amortization of acquired intangible assets, in-process research and development write-off, stock based compensation expenses, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Business combination accounting rules requires us to recognize a legal performance obligation related to a revenue arrangement of an acquired entity. The amount assigns to that liability should be based on its fair value at the date of acquisition. The non-GAAP adjustment is intended to reflect the full amount of such revenue. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating cash flow performance. These non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table immediately following the Consolidated Statement of Operations.

Reconciliation between the results on a GAAP and non-GAAP basis is provided in a table immediately following the Consolidated Statement of Operations (Non-GAAP Basis).

About NICE Systems

NICE Systems (NASDAQ:NICE) is the leading provider of Insight from Interactions solutions and value-added services, powered by the convergence of advanced analytics of unstructured multimedia content and transactional data -- from telephony, web, email, radio, video, and other data sources. NICE's solutions address the needs of the enterprise and security markets, enabling organizations to operate in an insightful and proactive manner, and take immediate action to improve business and operational performance and ensure safety and security. NICE has over 24,000 customers in 100 countries, including over 85 of the Fortune 100 companies. More information is available at http://www.nice.com.

Trademark Note: 360 Degree View, Alpha, ACTIMIZE, Actimize logo, Customer Feedback, Dispatcher Assessment, Encorder, eNiceLink, Executive Connect, Executive Insight, FAST, FAST alpha Blue, FAST alpha Silver, FAST Video Security, Freedom, Freedom Connect, IEX, Interaction Capture Unit, Insight from Interactions, Investigator, Last Message Replay, Mirra, My Universe, NICE, NICE logo, NICE Analyzer, NiceCall, NiceCall Focus, NiceCLS, NICE Inform, NICE Learning, NiceLog, NICE Perform, NiceScreen, NICE SmartCenter, NICE Storage Center, NiceTrack, NiceUniverse, NiceUniverse Compact, NiceVision, NiceVision Alto, NiceVision Analytics, NiceVision ControlCenter, NiceVision Digital, NiceVision Harmony, NiceVision Mobile, NiceVision Net, NiceVision NVSAT, NiceVision Pro, Performix, Playback Organizer, Renaissance, Scenario Replay, ScreenSense, Tienna, TotalNet, TotalView, Universe, Wordnet are trademarks and/or registered trademarks of NICE Systems Ltd. All other trademarks are the property of their respective owners.

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on the current expectations of the management of NICE Systems Ltd. (the Company) only, and are subject to a number of risk factors and uncertainties, including but not limited to changes in technology and market requirements, decline in demand for the Company's products, inability to timely develop and introduce new technologies, products and applications, difficulties or delays in absorbing and integrating acquired operations, products, technologies and personnel, loss of market share, pressure on pricing resulting from competition, and inability to maintain certain marketing and distribution arrangements, which could cause the actual results or performance of the Company to differ materially from those described therein. We undertake no obligation to update these forward-looking statements. For a more detailed description of the risk factors and uncertainties affecting the company, refer to the Company's reports filed from time to time with the Securities and Exchange Commission.

NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share amounts)
               Three months ended  Nine months ended
                 September 30,    September 30,
               ------------------- -------------------
                2006    2007   2006   2007
               Unaudited Unaudited Unaudited Unaudited
               --------- --------- --------- ---------
Revenue
 Product           $ 69,353 $ 80,420 $ 188,171 $ 229,921
 Services            38,126   51,242  104,925  143,875
               --------- --------- --------- ---------
Total revenue          107,479  131,662  293,096  373,796
Cost of revenue
 Product            23,266   22,438  62,133  64,456
 Services            23,846   29,403  66,006  84,856
               --------- --------- --------- ---------
Total cost of revenue      47,112   51,841  128,139  149,312
               --------- --------- --------- ---------
Gross Profit           60,367   79,821  164,957  224,484
Operating Expenses:
 Research and development,
 net              11,909   14,438  32,329  41,137
 Selling and marketing     25,167   30,527  66,593  85,866
 General and administrative   15,666   20,656  41,815  61,199
 Amortization of acquired
 intangible assets       1,843   2,103   3,069   5,795
 In-process research and
 development          12,670   3,710  12,882   3,710
               --------- --------- --------- ---------
Total operating expenses     67,255   71,434  156,688  197,707
               --------- --------- --------- ---------
Operating income         (6,888)   8,387   8,269  26,777
Financial income, net       2,138   3,920  10,069  10,606
Other income, net          374     3    451    60
               --------- --------- --------- ---------
Income before taxes on income  (4,376)  12,310  18,789  37,443
Income tax expense        1,027   3,078   6,332   8,314
               --------- --------- --------- ---------
Net income           $ (5,403) $  9,232 $ 12,457 $ 29,129
               ========= ========= ========= =========
Basic income per share     $ (0.11) $  0.17 $  0.25 $  0.56
               ========= ========= ========= =========
Diluted income per share    $ (0.11) $  0.17 $  0.24 $  0.54
               ========= ========= ========= =========
Weighted average number of
shares outstanding used to
compute:
Basic income per share      49,649   53,052  49,209  52,134
Diluted income per share     49,649   54,743  51,666  54,121


NICE SYSTEMS LTD. AND SUBSIDIARIES
NON-GAAP NET INCOME AND EARNINGS PER SHARE
U.S. dollars in thousands (except per share amounts)
               Three months ended  Nine months ended
                 September 30,    September 30,
               ------------------- -------------------
                2006   2007   2006   2007
               Unaudited Unaudited Unaudited Unaudited
               --------- --------- --------- ---------
GAAP net income        $ (5,403) $ 9,232 $ 12,457 $ 29,129
Adjustments
US GAAP valuation adjustment
on acquired deferred revenue
 Product Revenue         2,268    849   2,280   1,390
 Service Revenue         2,406    339   2,406   1,799
Amortization of acquired
intangible assets and
acquisition related costs (a)
 included in cost of product   2,554   2,541   4,714   7,497
 included in operating
 expense            1,843   2,103   3,069   5,795
 included in research and
 development            -    96     -    96
 included in general and
 administrative expense       -    74     -    74
Equity based compensation
expense
 included in cost of product    80    58    210    378
 included in cost of services   262    665    730   1,851
 included in research &
 development           309    682    894   1,914
 included in sales &
 marketing            789   1,452   2,134   4,193
 included in general &
 administrative         1,490   1,722   4,075   6,186
Write-off of acquired in-
process research &
development           12,670   3,710  12,882   3,710
Legal settlement          (350)    -   (350)    -
Tax benefit associated with
amortization of acquired
intangible assets, FAS 123R
options compensation and
acquired deferred revenue    (2,885)  (2,561)  (4,100)  (6,672)
Non-GAAP net income      $ 16,033 $ 20,962 $ 41,401 $ 57,340
               ========= ========= ========= =========
Non-GAAP basic income per
share             $  0.32 $  0.40 $  0.84 $  1.10
               ========= ========= ========= =========
Non-GAAP diluted income per
share             $  0.31 $  0.38 $  0.80 $  1.05
               ========= ========= ========= =========
Weighted average number of
shares outstanding used to
compute:
Non-GAAP basic income per
share              49,649  53,052  49,209  52,134
Non-GAAP diluted income per
share (b)            52,248  55,369  52,075  54,588
(a) Includes US$170 compensation expenses related to the acquisitions.
(b) For Non-GAAP income per share the diluted weighted average number
of shares outstanding were calculated excluding the effects of
expensing stock options under Statement 123R


NICE SYSTEMS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
                      December 31, September 30,
                        2006     2007
                      ------------ -------------
                      Unaudited   Unaudited
 ASSETS
CURRENT ASSETS:
 Cash and cash equivalents         $   67,365 $   120,456
 Short-term investments             92,989    94,015
 Trade receivables                81,312    95,380
 Other receivables and prepaid expenses     11,399    20,100
 Inventories                   18,619    11,957
 Deferred tax assets               14,478    10,929
                      ------------ -------------
 Total current assets              286,162    352,837
                      ------------ -------------
LONG-TERM ASSETS:
 Marketable securities             135,810    143,334
 Other long-term assets             12,030    17,450
 Deferred tax assets               2,917     3,917
 Property and equipment, net           15,813    17,297
 Other intangible assets, net          111,182    169,936
 Goodwill                    220,430    441,275
                      ------------ -------------
 Total long-term assets             498,182    793,209
                      ------------ -------------
TOTAL ASSETS                $  784,344 $  1,146,046
                      ============ =============
 LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Trade payables              $   22,845 $   16,822
 Accrued expenses and other liabilities     146,990    214,134
                      ------------ -------------
 Total current liabilities           169,835    230,956
                      ------------ -------------
LONG-TERM LIABILITIES:
 Deferred tax liabilities            33,130    42,648
 Other long-term liabilities           11,805    15,923
                      ------------ -------------
 Total long-term liabilities           44,935    58,571
                      ------------ -------------
SHAREHOLDERS' EQUITY               569,574    856,519
                      ------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $  784,344 $  1,146,046
                      ============ =============


NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
U.S. dollars in thousands
              Three months ended   Nine months ended
               September 30,     September 30,
             --------------------- ---------------------
               2006    2007    2006    2007
             Unaudited Unaudited Unaudited Unaudited
             ---------- ---------- ---------- ----------
Cash flows from operating
activities:
--------------------------
 Net income        $ (5,403) $  9,232 $ 12,457 $ 29,129
 Adjustments required to
 reconcile net income to
 net cash provided by
 operating activities:
  Depreciation and
  amortization       6,871   7,105   15,047   20,630
  Accrued severance pay,
  net             (83)    64    566    904
  Amortization of
  discount (premium)
  and accrued interest
  on marketable
  securities         (48)    100    103    (46)
  Stock based
  compensation       2,930   4,579   8,043   14,522
  Excess tax benefit
  from share-based
  payment arrangements     41    (482)  (2,495)  (3,968)
  In-process research
  and development     12,670   3,710   12,881   3,710
  Increase in trade
  receivables       (4,724)  (2,793)  (5,798)  (9,290)
  Increase in other
  receivables and
  prepaid expenses      (730)  (3,981)  (1,004)  (9,693)
  Decrease in
  inventories        4,822   1,824   9,159   7,233
  Decrease in trade
  payables         (2,811)  (4,899)  (4,420)  (7,887)
  Increase in accrued
  expenses and other
  liabilities       13,272   20,191   16,363   42,825
  Deferred taxes, net    (1,475)   1,092   (1,755)  (1,479)
  Other            (38)    (25)   (100)    (60)
             ---------- ---------- ---------- ----------
  Net cash provided by
  operating activities
  from continuing
  operations        25,294   35,717   59,047   86,530
  Net cash provided by
  operating activities
  from discontinued
  operation           -     -     -    476
             ---------- ---------- ---------- ----------
   Net cash provided by
   operating
   activities       25,294   35,717   59,047   87,006
             ---------- ---------- ---------- ----------
Cash flows from investing
activities:
--------------------------
 Purchase of property and
 equipment         (2,010)  (3,036)  (5,675)  (7,209)
 Proceeds from sale of
 property and equipment     35     6     49     60
 Investment in short-term
 bank deposits         (31)    (31)    (65)   (108)
 Proceeds from short-term
 bank deposits         17     53     71    108
 Proceeds from maturity
 of marketable
 securities         8,383   34,360  103,469  138,810
 Investment in marketable
 securities         (2,012)  (1,030) (130,387) (161,761)
 Proceeds of call of
 long-term held-to-
 maturity marketable
 securities           -   14,736     -   20,600
 Capitalization of
 software development
 costs            (428)   (239)   (955)   (694)
 Final settlement related
 to the purchase of
 Dictaphone CRS division     -     -   2,000     -
 Payment for the
 acquisition of Actimize
 Ltd.              -  (195,362)     -  (195,362)
 Payment for the
 acquisition of Fast
 Video Security AG        -   (4,975)  (21,313)  (4,975)
 Payment of earn-out
 related to the
 acquisition of Hannamax
 Hi-Tech Pty. Ltd.        -     -    (500)   (500)
 Payment for the
 acquisition of certain
 assets and liabilities
 of Performix         (314)     -  (14,484)     -
 Payment for the
 acquisition of IEX
 Corporation       (202,475)       (202,698)  (1,500)
 Increase (decrease) in
 accrued acquisition
 costs              -     8    (16)    (80)
 Other investment
 activity, net          -     -     69     -
             ---------- ---------- ---------- ----------
   Net cash used by
   investing
   activities      (198,835) (155,510) (270,435) (212,611)
             ---------- ---------- ---------- ----------
Cash flows from financing
activities:
--------------------------
 Proceeds from issuance
 of shares upon exercise
 of share options and
 ESPP, net          3,082   4,887   15,794   16,627
 Proceeds from issuance
 of shares upon public
 offering, net          -  157,590     -  157,590
 Excess tax benefit from
 share-based payment
 arrangements         (41)    482   2,495   3,968
 Decrease in accrued
 expenses associated
 with the 2005 offering     -     -    (273)     -
 Receipt of short-term
 bank loan            -  120,000     -  120,000
 Repayment of short-term
 bank loan            -  (120,000)     -  (120,000)
 Decrease in short-term
 bank credit assumed in
 the acquisition of Fast     -     -    (785)     -
             ---------- ---------- ---------- ----------
   Net cash provided by
   financing
   activities       3,041  162,959   17,231  178,185
             ---------- ---------- ---------- ----------
Effect of exchange rate
changes on cash        (136)    319    (26)    511
             ---------- ---------- ---------- ----------
Increase (decrease) in
cash and cash equivalents (170,636)  43,485  (194,183)  53,091
Cash and cash equivalents
at beginning of period   231,409   76,971  254,956   67,365
             ---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period     $ 60,773 $ 120,456 $ 60,773 $ 120,456
             ========== ========== ========== ==========


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