NICE Ltd. (NICE) Q4 2014 Earnings Report, Transcript and Summary

Welcome to NICE Systems Conference Call discussing the Fourth Quarter and Full Year 2014 Results and thank you all for holding. [Operator Instructions] All participants are at present in a listen only mode. Following the managements formal presentation instructions will be given for the question and answer session. As a reminder this conference is being recorded, February 5, 2015. I would now like to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; Dafna Gruber, Chief Financial Officer and Eran Liron, Executive Vice President, Marketing and 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 the performance of the company to differ materially is contained in the section entitled Risks Factors in Item 3 of the company’s 2013 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 26, 2014. During today’s call, we will present a more detailed discussion of fourth quarter and full year 2014 results and the company’s guidance for the first quarter and full year 2015. 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 difference between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today’s press release. I will now turn the call over to Barak.

Thank you, Marty and welcome everyone. I’m glad to be in the call with you today. As a result, all around, excellent execution I am pleased to report a very strong finish to the year in which we reported record revenues of $294 million for the fourth quarter. These represented 9% organic growth. Moreover our profitability improved significantly. Earnings were very strong at $1.02 per share, which represented a substantial 36% increase compared to the fourth quarter of last year and demonstrates the much improved operation efficiency at the company. Early in 2014 we discussed two main areas of focus; to look into our long-term growth strategy, but at the same time thoroughly reviewing our operational model. We made a strong commitment to improve the business for flawless execution, to drive growth in an efficient, effective and profitable manner. I am pleased to say that we achieved some great success in these areas as seen by the significant milestone we reached. We achieved at 20% operating margin for the full year 2014. This was supported by record rise in 25% operating margin for the fourth quarter of 2014. The strong organic top line growth helped us to cross the $1 billion revenue mark for the first time in our history on analytics solutions, supported by excellent execution. Furthermore the significant profitability improvement is the result of the ongoing successful implementation of our operational plan to streamline the business and increase profitability. Some of the measures we have taken so far including optimizing our go-to-market, eliminating non-productive activities and disciplined expense management, we are centered on product leadership and go-to-market expansion. We are moving products faster to the market and profitability remains high on our agenda. Q4 was the best quarter we ever had for analytics demonstrating increasing demands for these solutions. Analytics registered another strong quarter of double-digit revenue growth and has now become the major part of our business representing 60% of our new business in Q4. We continue to see customers expanding their analytics solutions with NICE due to high return of investment that they are getting on these solutions. Moreover an increase in the number of plus deals that we are receiving is being driven by analytics. Deal size as well as the number of competitive replacements has been increasing over the past couple of quarters demonstrating the strengthening of our leadership position in the market. This is because of an increased number of our wait customers off further expanding the footprint with NICE by purchasing or full portfolio solutions. In other words they are standardizing on NICE. In doing so we are becoming our customer strategic partners enabling them to lower cost and improve business results. In any competitive differentiation for NICE, is that we are increasingly combining the technologies of our customer interactions in financial claim and compliance businesses. In Q4 we had multiple deals where these collective technologies were instrumental in winning the deals and we’re now taking these technologies to new verticals. We are also gaining traction in cyber security. Our investment in these areas of security is bearing fruit and is noted in strategic deal in Q4 with one of our long-term European customer. Let me now take a minute to talk about the view of NICE in the markets. At NICE we serve organizations. We understand their challenges, their needs and their goals. However, at the end of the day, what we’re really doing at NICE is helping people. We take care of very important matters for people. We take care of their money, we take care of their safety and we care for their experiences. Today, we are securing financial transactions and preventing it for people using the services of the world’s largest financial institutions. We are securing cities and assets around the world where people live and work. And we are making people’s experiences timely and seamless. These areas, money, safety and experiences have something in common. They are all going to a major disruption because of technology, but at the same time technologies what can, and we’ve revolutionized these dimensions for people, and not just any technology, but rather a unique combination of four areas of expertise; expertise that we have practiced for the last three decades. First, the ability to connect and capture hundreds of sources of data. Second, managing very large amount of data. Third, delivering a lot of sophisticated analytics. Fourth, the ability to execute on these technologies in context within a specific domain. Our vision and strategy for the next few years is to strengthen and solidify our position in these three important areas of money, safety and experiences, by further enhancing the technology domains that be master. We’ve a great starting point bolstered by our leadership position in each of these technology domains and we see large addressable market and significant opportunity for years to come. Both our strategic and operational plans are well aligned to capture these opportunities in 2015 and beyond. As we head into 2016, we will continue to execute on our operational plan that we started to implement earlier in 2014. We believe it will lead to continued improvement in our profitability. We are pleased to close 2014 on a very strong note and now look forward to achieving another real success in 2015. I want to take this opportunity to thank our employees around the world for their contribution making 2014 a successfully year for NICE. Before I turn the call over to Dafna, as most of you saw today, we announced that she will be leaving us in the coming months, but will remain with NICE and her successor is announced and fully on board, so that she can help support the smooth transition. On behalf of myself and the entire company I want to thank Dafna for her dedication and support during her eight years at NICE. As CFO and a valid member of our management team, she has made a huge contribution to the success of our business. I wish her the best for the future. I will now turn the call over to Dafna

Thank you, Barak. I am pleased to provide you with an analysis of our financial results and business performance for the fourth quarter and full year 2014, as well as our outlook for the first quarter and full year of 2015. Revenue for the fourth quarter was a record $294 million, up 9% organically from $271 million in Q4 last year. Revenue for the full-year 2014 increased 6.5% organically to $1.12 billion. Sequentially, growth in the fourth quarter was 18% reflecting the continued second half weighted seasonality in our business with even greater weight on Q4. Customer interaction revenue were $178 million in the quarter up 6% from Q4 2013. For the year customer interaction revenues were $613 million. Financial Crime & Compliance had a strong quarter with revenue of $65 million representing 18% growth over Q4 last year. Financial Crime & Compliance ended the year with the revenues of $197 million. Security revenues grew 8% year-over-year for the fourth quarter two $51 million bringing full-year revenues to $202 million. Moving to the regional breakdown; the Americas region continued to be strong and was a major contributor to our overall growth. For the year, the America accounted for 66% of total revenue, EMEA 24%, and APAC 10%. Fourth-quarter revenue in the Americas were $197 million, up 13% from Q4 2013. Full-year Americas revenue were $666 million. Revenues in EMEA increased 6% from last year to $68 million in Q4. Full-year EMEA revenues were $239 million. Revenues for Asia-Pacific region were $29 million in Q4 compared with $32 million in Q4 last year and were $107 million for the full year of 2014. Looking at revenues by business line, product revenue accounted for 45% of total revenues in the fourth quarter and 38% in 2014. Product revenues were up 13% in Q4 and 3% for the full year. Service revenues were up 5% in Q4 and 9% for the full year. Maintenance revenues accounted for 34% in Q4 and 39% for the full year and professional service fees including cloud accounted for the remaining 21% in revenues in Q4 and 23% for the full year. Gross margin in Q4 was 70.3% compared with 66.5% in Q4 last year. The year-over-year increase in gross margin was mainly the result of the increase in product revenues and continued increase in the software based analytic product, which is now the vast majority of our business. For the full year gross margin was 66.7%, slightly higher than 2013. Operating margin in the fourth quarter was 24.7% compared to 19 .8% last year. The significant growth in profit and operating margin is the result of executing on our commitment to improve profitability. The incremental operating margin in Q4 was 82% bringing 2014 leverage to 31%. For the year, the operating margin was 20% marking a major milestone for the company and it was in line with our goal to continue to improve profitability. We continue to monitor our spending while working on optimizing our business to continue to improve our operating margin over time. Tax rate for the year was 60% and we expect a tax rate of 17% to 19% going forward, in our model. Earnings per share increased 36% to a record of $1.02 in Q4 compared to $0.75 last year. For the full-year EPS was $2.85 compared to $2.58 last year. Cash flow form operation for the fourth quarter was strong at $64 million and $182 million for the full year. Total cash and financial investments were approximately $500 million at the end of December 2014. During the fourth quarter we bought back 307,000 shares for a total consideration of approximately $13 million as part of our share repurchase plan. We still have $23 million in our current buyback plan available. During Q4 we paid a quarterly dividend of $9.4 million. In line with our dividend plan NICE’s board of directors approved the dividend for Q4 2014 of $0.16 per share. The record date is February 18, 2015 and the payment date is March 4, 2015. Turning to guidance, we expect first quarter 2015 total revenues to be in the range of 240 million to 248 million and fully diluted earnings per share to be in the range of $0.66 to $0.72. We expect total revenue for the full year of 2015 to be in the range of $1.65 billion and $1.85 billion, and fully diluted earnings per share to be in the range of $3.06 to $3.20. Before I turn the call over to Q&A I want to say that I’m proud to have been part of the company’s achievement during the past 8 years. After a very strong 2014 with healthy momentum going forward, I believe now is the right time for me to take some time off before moving to the next step in my career. It is now an exciting time at NICE, great new products and strong markets and industry dynamics creating many opportunities for growth going forward. I would like to thank our investors and analysts for your support. It was a great opportunity to work with you during the time here at NICE. I look forward to see NICE continue to succeed and deliver value to shareholders and customers alike. I will now turn the call over to the operator for questions. Operator?

[Operator Instructions] The first question comes from Shaul Eyal from Oppenheimer, please go ahead.

Congrats on the strong finish to fiscal’14 and fiscal ’15 outlook. Dafna also it was a pleasure working with you over the past so many years and hope we [indiscernible] in the future; Dafna, any foreign exchange tailwinds, headwinds, or neutral impact this quarter?

It’s basically neutral impact this quarter and also next quarter, the way we work is that we are hedged of humans ahead and therefore a favorable exchange rate allows us to expand our investment, and this is what we are doing right now. But there’s no direct impact on profitability.

Barak, great performance from an operating perspective. With analytics already 60% of total revenue, how should we think about the analytics contribution to an improved margin profile?

Good question, first, the contribution of analytics obviously to the growth but we also consider the impact on the profitability. These are the software, only solution were the core competency in IP be of those solution is all made ongoing at NICE. So it definitely is contributing to our gross margins as you can see this quarter. The more we increase our product revenue obviously we will see a positive impact on profitability.

Got it, and then one final question if I may, on cyber security. Barak, you indicated a contract with existing European customer; what is it exactly that NICE will be doing for the customer from a cyber security perspective? Just trying to get a sense for some color about the product offering relating to cyber security from NICE’s perspective?

So we operate in two domains of cyber. Cyber is a big space for us and I’m referring now to the intelligence part of our business and security part of our business. Over here there is the aspect of the cyber defence. In the active cyber, we are not allowed to expose exactly what we’re offering to this particular customer, giving the nature of the business and the request of the customer. But this is an entry point of these customers, existing customer are using other solution and now expanding into cyber, so it’s the first solution of cyber more on the active side of it with future expansion potentially into the cyber defence parts.

The next question comes from Saliq Khan of Imperial Capital, please go ahead.

I’ll be speaking on behalf of Jeff Kessler, just a couple of real quick questions that we have for you. First one being is that you guys continue to go out and improve your overall margin. One of the things that you have talked about in the call was, [indiscernible] become more disciplined in expense management, could you give us more color on what that essentially means for you guys when you’re streamlining the overall business?

A let me refer to that. Thank you for the question. NICE has been growing on a rapid pace in the last many years, both organically and through acquisitions, and as a result of that we have a variety of captures in the company that can be simplified and this is what we’ve been doing in the last few quarters and there is still a long way to go in the quarters to come. In addition to that as we mature, the company is growing -- in the company there is a way to simplify the processes and this is what we are doing as well and with further discipline even the size of the company that we are, which allow us to control expenses better and we actually see that demonstrating it very nicely in the fourth quarter and I believe we will be able to continue with this approach as we step forward to 2015 and beyond.

Right. And then one of the things that you’ve talked about previously was that, for the vast majority of customers you guys are bringing on now, you’re becoming more of a standard for them than is to your type of solutions rather than going with the competitor. Are you guys, when you are able to do that and engage in that new contract -- are you giving them some sort of price break or are you sticking to your goals in regards to making sure that the margin remains pretty high.

It’s a very good question. I think that what we see happening to us, for the last two years we’ve expanded our portfolio quite significantly. This is on the product side. Now on the go-to-market side what we’ve started to educate our sales team and now is working for us quite nicely, to become much more adapted as advisable for our customers. And the dialogue is changing quite dramatically given the portfolio that we have from a discussion of pricing and discount to much more of the value that we can provide. So at the end of the day when the discussion about the value and the right solution or set of solutions and this is the unique part, in fact that we can come with set of solutions for the customer and it’s a platform that we can add more and more to that. Pricing or price point become less relevant in these discussions, we also find ourselves selling much higher in the chain where again price of course matters but it’s not the prime decision factor, not a prime factor in the decision about the project.

And then the last question is, the last quarter you guys saw a positive impact in top line market. How is the strengthening of top line markets really benefitted you guys during this current quarter and also what are the vertical markets are you seeing out there that could be beneficial for you during the coming year?

We definitely continue to see a strong momentum in these markets. It’s a vertical that we started to grow into in the last two years and so quite a major breakthrough in the previous quarter. As you’ve mentioned, we saw the same dynamics this quarter and also when we look moving forward on the pipeline and the traction and level of activity we have in these vertical, it’s very encouraging. The portfolio that we have today is very suitable for this market and also the domain expertise we have developed in-house as well as thanks to several past acquisitions that we have done, definitely helping us and got us to this point today.

The question in the queue comes from Daniel Ives of FBR. Please go ahead.

Congrats on another great quarter, and Dafna, it’s a great way to go out on top of, it’s great to see, and good luck. Barak, let me ask you -- I mean this is probably in my opinion the best back-to-back quarters I’ve seen in NICE and probably almost a decade. So what is it that you think was either the low hanging fruit or what’s really been the change at NICE that you needed or implemented either from a good market or product perspective that -- and may be you could kind of move back on the last six months.

Thanks Daniel, so it’s a combination of several things. Obviously few low hanging fruits, but the fundamentals of the company are very-very strong. And what we’ve done in the last few quarters, I refer to that in the previous call and it’s, we continue to see that even more pronounced in the fourth quarter, several things. First of all we started to push and deliver products to the markets faster than before. We had a lot of products waiting in the pipe and we started to release them earlier than we original expected. We put a lot of pressure on that, a lot of investment and we started to see very good traction for those products in the market. So that’s the first part. The second part is there is a certain alignment that we’ve done in the go-to-markets. Just to name one example, I referred to that earlier and this is the fact that we removed some of the barriers between the sales team of our customer interactions business and our Financial Crime & Compliance business and we see great cooperation over there and we had several very large deals, those strategic deals in the quarter which are basically the combined solution between our customer interaction business and our Financial Crime & Compliance. Some came with the support of DAF sales team and some with the other -- support of the other sales team. So these are just few examples, but DAF is combination of several other activities energizing the troops if you would like, I believe contributed to the success that you’ve seen in this quarter and in Q3 as well.

Yes, it’s impressive per share -- just lastly, just can you talk about your stocks and M&A, their thinking, and just whole as in the product areas, or just broadly going into 2015, may be comparing that how we were a year ago in terms of the M&A strategy?

So our strategy and thoughts about M&A did not change. At the same time obviously we see a very nice improvement with respect to our organic activities and we are investing in releasing more capabilities to our customers in all their capabilities to cross and access our existing customers as well as a significant momentum and a competitive replacement that we see is very encouraging. Having said that we started to expand into certain adjacent market which is definitely in acquisition can help us to accelerate on that front. We continue to remain active on the M&A front. And when the right opportunity will come we’ll sure be aggressive about it. I thought about utilizing our capital for acquisition did not change and we have a healthy pipeline on that front.

We are moving on to the next question. It comes from Shyam Patil of Wedbush Securities, please go ahead.

I would like to do -- just following up on the previous question, Barak what are you seeing out there in terms of that valuation for M&A, does it differ across geographies and segments and -- anything of particular interest in terms of the segments you focused on or areas as in analytics?

I’ve mentioned before, the strategy respect, and the philosophy respect, we said with respect to M&As did not change. Obviously evaluation or you can do for to them as high. There is a variety of valuations out there, and valuation is important but at first is the strategic feeds, and this is what we are looking when opportunity presented itself. Given the direction, I’ve mentioned before with respect to the full domains we operate in and technology wise, we are looking mainly into adjacent areas to what we do, that are fully aligned for strategic direction. In analytics that you have mentioned, is a key part it. So no doubt, that if we will make an acquisition, it will have a solid contribution to analytics direction.

And there’s just some modeling questions, how should we think about kind of segment, in terms of growth for this year, and in terms of the product service mix, maybe what factors impacted that in the fourth quarter and how should we think about that this year?

Yes, in terms of the goals, we are targeting the gross of double digit over the long term and slight improvement over time in all our businesses. In terms of the breakdown between products services and maintenance, the outlook for 2015 as a year, and I’m not talking about a specific product that -- I don’t expect 2015 to be very different from the distribution in the previous years.

And this is my last one and I apologize if you already mentioned it, but in terms of the FX impact did it have any kind of impact on the 2015 outlook versus what you may have really been expecting

There is a certain impact but it’s already embedded in the guidance that we gave, then there’s strengthening of the dollar across the world and is definitely helping us ramping up our expenses, our investments in certain areas that we had to cut back in the past because of nonfavorable exchange rate. But as I said everything is already embedded in the guidance for the year. If there will be a change in the trend and the dollar will become weaker, we will have to adjust our expenses accordingly over time.

The next question comes from the line of Greg McDowell of JMP Securities. Please go ahead.

And Dafna, I agree you have a lot to be proud of in your run as a CFO. My first question, Barak something you said caught my eye when you talked about competitive displacements and I was just hoping you can expand a little bit on what’s going on with competitive replacements, whether the replacements are accelerating and may be why that is happening now.

So, yes, I’ve mentioned that earlier that we see in the last two quarters, an acceleration in the rate of competitive replacements. When I look on those and what’s common to them I believe it’s a result of two things. First of all it’s the fact that we did some changes in our go-to-markets, improve our coverage by segmenting the go-to-markets and we find opportunities that are not covered by the competitors, hence allowing us to drive competitive replacement. That’s one thing. And the second part, why I believe we see accelerated rates is that some of them are existing customer of ours in one product that have on the other part of the business, a competitive platform and they decide to go and make NICE a standard across the board. And I gave that to the fact that we’ve the recent products that we introduced to the markets across the board in all different divisions, they see value in making a one window choice, and instead of dealing with several vendors dealing with one. And that’s something that we see accelerating and I believe and I hope that they will stay also in 2015 which definitely will contribute to our success.

Thank you and one quick follow-up Barak. When you started the year as CEO, certainly one of your themes was improving operational efficiency, and I think we’ve seen the positive results. But one thing I wonder is sort of in your first year, you’re able to pick the low hanging fruit if you will, of improving operational efficiency. So as we start year 2 of your leadership, I was just wondering what else is left in streamlining the business and is it getting harder to find the parts of the business that truly need to be streamlined down.

I think we’re starting to see a new start. We start to see [indiscernible] in the third quarter and much more in the fourth quarter and also in our guidance for next year, you see improvement in profitability. And it’s a combination of both the low hanging fruits that we already took care of. Most of them coming in full force in the fourth quarter almost and then for sure in 2015, but there is still a long way to go. I believe there are multiple opportunities for improvement. We have a great company. It’s a company that grew rapidly for many years and they’ve done many acquisitions. So, some of the things were very easy and fast to make, some other requires a bit more time with very concrete plans behind them which we’re executing rapidly on them and that’s where I believe we can drive more improvement. I believe there is still plenty of opportunities and long way to go. So I believe the opportunity, so the improvement was not just one or two quarters but it’s something that we see gradually growing in 2015 and beyond.

And the next question comes from Jonathan Ojo of William [indiscernible]. Please go ahead.

Hey guys. Dafna, let me also echo my warmest congratulations for you in terms of this opportunity. Just moving on in terms of the results in the A-Pac region I just want to understand, sort of your expectations for 2015 and may be whether you’re going to be making any changes there to try and drive improved results and may be what those changes would be?

So what we saw in the quarter in Asia-Pacific and to a certain degree in the year is a result of some lumpiness that we had in our security business. We had some really large deals in the previous year that did not happen this time but the pipeline moving forward is healthy. So I don’t think there is the major issue, but there are obviously, since it’s a small region, representing only a small part of our business, every large deal over there can create this lumpiness. The other part is that these territories for us is less developed in terms of our analytic circulation which actually I feel is an opportunity, and one of the things that we will do moving forward is the fact that we will start to push those and apply go-to-market tactics and go-to-market coverage similar to what you have seen in other territories and it will contribute to the goal moving forward.

Got it, and just in terms of target operating model, I know you are answered a lot of questions in terms of the potential for the continued improving, but is there sort of our goal out there that you see for the operating margins over the long-term, and maybe trajectory that you would see as moving towards that goal overtime?

Yes, thanks Jonathan also for your kind words; and my inputs on the operating margin is that we are targeting gradual improvement in operating margin over time. And that would be achieved through additional leverage that we see in the model and I hope that rate of improvement over time would be slightly faster than what we have seen in the past.

The next question comes from Dan Bergstrom of RBC Capital Markets, please go ahead.

Congratulations Dafna, and thanks for taking my questions. You mentioned cyber security in NICE, went there and gave some color to that when in Q&A. Can you expand upon your investments that you have made there in opportunity, and then how are you differentiated at cyber security?

Cyber security as I’ve mentioned before is a very wide space, very hot space on one end. But those are very complex. There are a multiple way to approach it. We are now taking this in the governmental level. This is our play at the moment. Our investment was made mainly organically but not also for certain [indiscernible] that we had formed using our existing go-to-market taking the combination of the two. But we believe our unique value proposition is the fact that since we have a large installed base of customers using our monitoring solutions, the ability to connect to multiple cyber sensors, and connect to all of these data and provide basically a hub for those cyber sensors overall eventually to [indiscernible] will gain us something that point solutions do not have. So this is where our unique value proposition is and we saw it happening with the customers that I’ve mentioned before, which was a very important win for us. And we start to see a good traction for these approach from other customers as well.

And your guidance for fiscal year ‘15 looks solid, but realistic. What are some things we should look for, or look for to happen that could push the growth rate in the upper single-digits approaching that 10% mark?

So it’s the beginning of the -- we’re finishing 2014 in a very strong note. We had a very strong momentum in the fourth quarter. We’re cautious about the top line numbers for the year. We want to see how the year progresses on us. At the same time as you can see on the bottom line of our profitability we’re committed to achieve a much higher goal where with a leverage, a nice leverage on the model. Obviously, we continue to invest in our strategic direction which I believe for the long run will allow us to accelerate on the growth rate. And as soon as we the different strategic direction in full execution, I believe this is the point where the acceleration on the growth rate will occur.

And then you mentioned the strong fourth quarter, Dafna, that will repeat next year just likely through the linear again, [indiscernible]?

Yes.

The next question comes from Tal Grant of UBS. Please go ahead.

Congratulations on a strong end of the year and also Dafna, it’s been great working with you and best of luck for the future. A couple of questions, first of all just wondering what percentage of the cost base is paid in Shekels. And I was a bit confused by your comments about the currencies. Just wondering; for full year ‘15 guidance, what FX rate are you assuming there, and is that all hedged already? If there is any fluctuations, presumably that would affect [indiscernible] years, but not full year ‘15, is that what you are saying? Secondly, Financial Crime & Compliance, obviously made it come back from Q3 relative weakness, and just wondering, where there any products in particular that performed well within Financial Crime & Compliance? And do you expect -- what are you expecting for 2015 in that division? That’s about it I think, thank you.

I will refer first to the Financial Crime & Compliance and then I will let Dafna the first to the question about the foreign exchange. So actually our Financial Crime & Compliance business is doing extremely well for the last a six quarters -- it’s two years almost. We see traction over there in all domains. We operate over there in three domains, just a reminder, in anti-money laundering product solution and in the financial market, operating surveillance, and today they operate under a single platform. And we see actually customer’s buying all of them either at once are adopting one solution after the other. So it continues to grow and the strength is in all the three domains that I have mentioned, almost equally. In terms of market segments we serve in that market, obviously the high-end of the markets, but in 2014 we started to see, in addition to that the high end of the market, also to the meat markets banks in the range of the above $5billion to $20 billion in excess, and also to new markets like alternative payments as we have mentioned in Q3 and also happened to us in the fourth quarter. Going forward we expect to see a nice growth also in that business in 2015 and beyond as the traction and momentum is very-very healthy. And Dafna, you will refer to the FX question?

Yes, so the way we will work is that we have a hedging policy in place, where on average we are hedged for the next six months. So the guidance I’ve given are based on the rates that are already hedged and for the second half of the year on average we assume the guidance reflect the current rate. If there will be a change over time in the exchange rates we would have to adjust our level of spending.

Okay, and what percentage of the cost basis in Shekel, could you confirm?

Yes, the cost basis in Shekel is less than the 30% of the overall cost.

Okay and mainly in R&D, is that?

It’s mainly R&D and also some corporate functions, some marketing, but mainly R&D.

The next question comes from Tavy Rosner of Barclays, please go ahead.

Thank you for taking my question and good luck Dafna for your future career. I just have two quick questions. Are you seeing any move among your existing customer from on-site to cloud-based applications?

We see traction in cloud solution and continue to expand in that. This quarter our cloud business grew as in previous quarter very nicely. We see less of the existing solutions moving and more about the more advanced new solutions adopting in the cloud, although all are offering today is cloud ready. We make sure that all the solutions that we have, both the legacy and the new one are fully both cloud available as well as on-premise or customers do have the choice to decide whether they go that way or the other way. We seek less in the high end of the market but as we go further down in the markets it is becoming more attractive and we see some customers adopting it. But as I’ve mentioned it’s more with the new advanced solution like the analytical solutions.

On the Telco side of the business, I was wondering if you could comment on the competitive environment and if you are seeing any pressure on pricing on that front?

I think as I’ve mentioned before, over there expanding into the Telco vertical where we have already a significant presence and we’re expanding our footprint over there. It’s less about competition, it’s more about the fact that we expanded our portfolio quite significantly in the last couple of years and we’re now very much focused on this vertical and is such and thanks to the fact that we offer a very wide value proposition, the dialogue is more about the value that we provide and we have a dialogue with customer about real business problems, hence its much less about specific pricing. It’s not about -- it’s not commoditized solutions or anything in that nature. So it’s less about the pricing here.

There are no further questions I would like to hand the conference back to Barak to conclude.

Thank you very much for joining us today and wish everyone a great day, thank you.