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The Market Is Wrong, These Results Were Nice Systems Ltd (ADR) (NICE)

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It’s worth taking the time to look closely at Nice Systems Ltd (ADR) (NASDAQ:NICE)’s latest results because I think the market made an erroneous knee jerk reaction in marking the stock down. The results were pretty good, and the business is doing well with compliance regulation driving sales growth. Meanwhile, its data analytics of customer interactions and cloud based solutions offers good long term growth prospects. In summary, I think the growth story is intact, but the shift in the structure of its sales is making revenue growth look weaker than the underlying bookings and creating less visibility over earnings. No need to worry though, things look like they are on track.

Nice Systems, Nice Results

A brief summary of the results and guidance:

  • Q4 Revenues of $240 million vs. consensus of $246 million
  • Q4 Non-GAAP EPS of 70c vs. consensus of 66c
  • Q1 Revenue Guidance of $220-230 million vs. consensus of $234 million
  • Q1 EPS Guidance of 57-62c vs. consensus of 62c
  • Full Year Revenue Guidance of $940-970 million and EPS of $2.55-2.65

I’ve previously discussed Nice in an article linked here, and readers can see from that link just how unusually strong the Q4 was on a sequential basis. Indeed, I had some doubts that the internal guidance would be hit. No matter, the numbers were good (albeit EPS was boosted by a tax gain), and bookings were strong with double digit growth recorded. The current book to bill ratio is greater than 1 and Nice announced ‘strong booking’ in advanced applications for 2012. Advanced applications made up more than 50% of new bookings in the quarter; this is a sign that it’s able to expand into the analytics space easily.

So if it has all these good things going on, then why is the guidance only for full year revenue growth of 7% at the midpoint?

The answer lies in the changing structure of its sales.

Nice Systems Changing Sales

The first reason given to explain this conundrum is that its sales are becoming more back-end loaded. In other words, we can expect stronger second halves to the year going forward. This is what happened in 2012, and it’s understandable if Nice finds it difficult to confidently predict what will happen in the second half of 2013.

The second explanation relates to how its advanced applications are rising as a share of the sales mix. Its cloud based solutions are growing along with is analytics sales. This means that while bookings are growing double digits, it is likely to take longer for bookings to be added to recognized revenues. Again, this is consistent with companies that are increasing services revenues over product sales.

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