Nice (NICS: US) 1Q Results

Nice Systems Ltd. (NASDAQ: NICE) Target: $70.00 May 11, 2016 Nice Systems (NICE: US) Q1 results: Solid execution and margin expansion; Reiterating outperform and $70 price target Results summary - NICE posted a solid quarter that beat the street and our expectations, driven by $0.03 FX benefit and by margin expansion. The company reported non-GAAP fully diluted EPS of $0.81 (17% yoy increase) on revenue of $226 million, ahead of our expectations for $0.73 EPS on revenue of $225 (Street - $0.74 EPS, $225 million revenue). Management guided 2Q16 revenue of $229-$239 million vs. our estimate for $229 million and non-GAAP fully diluted EPS at a range of $0.72-$0.78, in line with our estimate for $0.75, (street-$0.75 on revenue of $232 million). For the full year management reiterated revenue guidance of $995 - $1,015 million (vs our estimate of $1.004b, street – $1.000b), and raised Non GAAP fully diluted EPS by $0.03 (on the back of 1Q FX benefit) to a range of $3.41-$3.55 (up from $3.38-$3.52), in line with our estimate for $3.48 (street - $3.47). Management updated on the call that it has closed its acquisition of Nexidia at the end of March, indicating that Nexidia had a minimal impact on the 1Q results. In addition, during the quarter the company launched a new solution, Actimize AML Essentials, which is an anti-money laundering cloud offering that is designed for mid-size financial institutions and therefore extends its market opportunity. NICE also announced that its CFO, who has served in that role since 2015, will be leaving the company over the coming months to pursue new opportunities but will support an orderly transition in the interim. NICE will host an Analyst Day event on May 23-24th to discuss in more details its strategy going forward. Revenues in 1Q rose 4.3% compared to 1Q15, in line with estimates. Customer interactions revenue was $172 million, up 3% yoy and Financial Crime and Compliance revenue was $54 million, up 8% yoy. Management noted on the call that analytics continue to show strong results with double digit growth in the quarter, and that it represented the majority of bookings in the quarter. In addition, management noted that the Holistic Surveillance solution, which combines the technologies of customer interaction and financial crime and compliance businesses, is also performing well (this was supported by a 7-digit deal in the quarter with a major global financial institution in which NICE won against its competitor). Product revenues accounted for 29% of total revenues in the quarter (11% decrease y/y), maintenance was 44% and the rest was professional services (all together services rose 12% y/y). Geographically, the Americas generated $155 million (flat yoy, 68% mix); EMEA grew by 12% to $45 million (20% mix), and APAC rose 19% to $26 million (12% mix). Gross margin in 1Q was 70.6%, above our 68.8% estimate and compared to 69.8% in 1Q last year, resulting from favorable product mix (analytics carries higher gross margin) and a more efficient utilization of the services organization. Operating profit in 1Q increased 15% to $58 million and operating margin came to 25.6%, above our expectation of 24.2% and compared to 23.3% last year, reflecting the higher gross margin and continued cost structure improvement. Strong Balance sheet – for 1Q Nice reported strong cash from operations of $113 million (~50% Company Description of revenue) and as of March total cash and financial investments are approx. $765 million NICE System is the worldwide reflecting approx. $12.5 per share (~20% of current market price). The company declared cash leading provider of software dividend for 1Q of $0.16 per share and updated that it has bought back $23 million as part of solutions that enable its share repurchase plan. organizations to take the next best action in order to improve Valuation – Following 1Q results we update our projections to reflect the better than expected customer experience and quarter. We maintain our 2016 revenue at $1,004 million (street – 1,000 million) and raise non business results, ensure GAAP fully diluted EPS to $3.50 (up from $3.48, street - $3.48). For 2Q we expect revenue of compliance, fight financial $233 million (up from$229 million) and non GAAP fully diluted EPS of 0.75. crime, and safeguard people and Our $70 price target is based on ~16.5x ex-cash P/E (which is a 10% premium to the mean assets three-year P/E multiple of ~15x), to our 2016 updated EPS estimate of $3.50, plus ~$12.5 cash per share, implying ~10% upside from current levels. We expect positive momentum to remain through the year and maintain outperform rating. Makor Securities Makor Capital Makor Capital Markets Makor Securities London Ltd Rogovin Tower Makor Securities London Ltd Makor Securities London Ltd 7/8 Savile Row 2nd Floor Menachem Begin 11 (Geneva Rep Office) (Paris Rep. Office) London W1S 3PE, ENGLAND 52689 Ramat Gan, ISRAEL 27 rue de la Croix-d’Or 51 rue Francois Premier +44 207 290 5777 +972 3 545 3777 1204 Geneve, SWITERLAND 75008 Paris, FRANCE +41 223 106 916 +33 1 42 99 69 41

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