Feb 13, 2013
Executives
Marty Cohen – VP, Investor Relations Zeevi Bregman – President and CEO Dafna Gruber – CFO
Analysts
Shaul Eyal - Oppenheimer & Co. Shyam Patil - Raymond James & Associates Daniel Meron - RBC Capital Markets Brian Ruttenbur - CRT Capital James Moore – FBR Capital Markets David [Capman] - Barclays Michael Kim - Imperial Capital
Operator
Welcome to the NICE-System's conference call discussing fourth quarter and full- year 2012 results, and thank you all for holding. All participants are present in a listen-only mode.
Following managements’ formal presentation instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded, February 13, 2013.
I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations, at NICE.
Please go ahead.
Marty Cohen
Thank you, Operator. With me on the call today are Zeevi Bregman, President and CEO and Dafna Gruber, CFO.
But before we start, I'd 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 Litigation Reform Act of 1995. Please be advised the company's actual results could differ materially from these forward-looking statements.
Additional information regarding the factors that could cause actual results or proponents of the company to differ materially is contained in the section entitled Risks Factors in item three of company's 2011 annual report on form 20-F as filed with the Securities and Exchange Commission on March 29th, 2012. During today's call, we will present a more detailed discussion of fourth quarter and full year 2012 results and the company's guidance for the first quarter and full year of 2013.
Following our comments, there will be an opportunity for questions. So let me remind you that unless otherwise noted on the 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 spreadings and expenses, amortization of intangible assets, and accounting for stock-based compensation.
The differences between the GAAP and the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. Before I turn the call over to Zeevi, I'd like to remind everybody that we are holding our investor and analyst day on March 12th in New York City.
If you have received an invitation and do plan on attending, please don’t forget to register. You will need to register to attend.
If you have not received an invitation and would like to attend, please send an email with your contact details to [email protected] and we'll gladly forward you an invitation. With that, I'll now turn it over to Zeevi.
Zeevi Bregman
Thank you, Marty, and welcome everyone to our fourth quarter and full-year 2012 earnings call. We are pleased to report record results for the quarter and for the year.
Non-GAAP total revenues were a record $240 million, up 12% compared to the fourth quarter of 2011. Full-year non-GAAP revenue increased 12% to $892 million.
Non-GAAP EPS for Q4 was a record $0.70 representing an increase of 17% compared to the fourth quarter of last year and so passed the high end of our guidance range. Full-year non-GAAP EPS increased 18% to $2.48.
As expected, we ended the year strongly with double-digit growth in booking for both the fourth quarter and full year 2012. Book-to-bill for Q4 was much greater than 1 and for the year, it was greater than 1 as well.
We had strong booking in advance applications for 2012 and we're pleased to see early adoption of recently-launched new innovative solutions. 2012 was characterized by sales of significant innovation around analytics and advance applications, solutions that support our unique position in helping organization operationalized lead data.
Through multi-channel capturing in analytics of mass amounts of structured and non-structured data, our solution delivered a strong return on investment while helping our customers better deal to compliance and regulations, improve operational efficiency, enhance the customer experience, and safeguard people [inaudible]. In 2012, we saw a growing demand for compliance driven solutions.
When it comes to compliance, we have a unique asset including domain expertise, a leading industry position, and our ability to grow technologies from all our businesses. This allows us to quickly provide our customers with the broadest and most comprehensive suite of integrated solutions giving us a strong competitive advantage.
During 2012, we introduced new products across our business lines to address various new requirements along regulations such as [inaudible] operations, CFPB, and [inaudible] Intraday Tradings. An example of our ability to leverage our unique assets and then quickly address market needs was the extension of our successful trading compliance solutions suite to allow financial institutions to meet the regulatory requirements of the Consumer Financial Protection Bureau referred to as the CFPB.
The recent enforcement action by the CFPB, a regulatory body formed under the Dodd-Frank Act is leading banks to invest in solutions to help them comply as the burden of proof has shifted to the financial institutions. In the second half of 2012, the CFPB issued over $500 million in penalties to the financial industry and nearly all the infractions occurred within the contact centers.
To other CFPB requirements, we are introducing a new suite of solutions called Proactive Compliance for Consumer Protection. These suites include integrated solutions from our customer interaction and financial requirement compliance businesses.
The solutions that formed the suite embrace our captures, analytics, and real-time technologies addressing all parts of the compliance operations. This includes data collection, historical record keeping, data retrieval, call interaction analysis, customer profiling, and reports of corrective actions.
The large opportunities around CFPB extend to many departments within financial institutions and also extends beyond the contact center. We are continuing to innovate in this area to others the growing requirements of our customers.
We are seeing strong demand from our customers for cloud-based solutions, which decree both time to deployment and total cost of ownership. As a result, in 2012, we witnessed strong growth in our cloud-based business and continued to expand our cloud offerings.
We launched our cloud-based [inaudible] optimization suite. We introduced our cloud-based Cyber Fraud solution and we also extended our partner ecosystem to sell our cloud solutions.
Our cloud offering will also enhance our Q4 position of Web Guide, a cloud based [inaudible] provider that explains the capabilities of our compliance solutions. We expect to see continued fast growth of our cloud solutions in 2013.
In our customer interaction business, we had a very strong Q4 and we ended the year with double-digit growth in revenue. It was a great quarter for applications as our customers continued to extend their deployment of our analytics-based applications within the organization.
We also had record performance in the America region. We continued to innovate around analytics and real-time technology as these solutions help bring value to our customers.
These customers seek solutions that will help them improve operational efficiency, grow revenues, give their customers a better customer experience, and help them adhere to compliance and regulations. And the trend of increasing regulations and enforcement continues to have a favorable impact on our business.
Among the new innovating solutions we introduced last year is our Contact Center Fraud Prevention solution, which brings together technologies from our customer interaction and financial compliance business units. With advanced voicemail methods technologies, speech, and transaction] analytics, and real-time capabilities, our customers can reduce losses from fraud without compromising customer experience.
Many of our customers have indicated that the contact center has became the Achilles Heel of their data security operations and our integrated solutions enable them to add Contact Center Fraud to their fraud strategy. In the contexts of the CFPB, which I mentioned earlier, in Q4, we booked our largest customer interaction deal ever; an 8-digit deal with a leading U.S.
financial institution. This bank recognized that in the wake of enforcement actions, it needs to record and analyze every single interaction with customers and is implementing capture of all calls interactional analytics to improve adherence.
Another compliance driven deal was the follow-up deal with a major U.S. bank, which is now extending its real-time compliance solution.
The first purchase was made in 2011 and following the success of that project, which covered the home loan department, the bank decided to allow these solutions to an additional 15,000 agents in a high 7-digit deal booked in Q4, 2012. The deal includes increased interaction analytics and real-time guidance for all consumer-related departments within the bank.
In both these examples, the main catalyst for the deals was compliance, but our customers realizes the type of monitoring and controls also improve operational efficiency and customer service. An example of the importance of customer service was a competitive replacement where the main consideration was our voice of the customer capabilities.
The customer and insurance company that needed to upgrade its existing system was also looking to become more customer friendly. While our capture quality management and workforce management solutions were an effective alternative to the incumbent solution, the customer viewed our field deck operational [inaudible] solution as a game changer.
This led them to purchase the full suite from us. This, by the way, was being sold in the context of the Cisco Solution Plus partnership, which continues to progress well.
So our financial client and compliance business, we finished 2012 very strongly with high-teens booking for the year. Specifically for Q4, we saw year-over-year revenue growth in the high teens and even higher growth in bookings.
We're encouraged by these results as the business fundamentals continue to be very strong, regulation continued to drive demand for our solutions, and we enter 2013 with a very strong pipeline. During the quarter, we were pleased to see a boost for our cloud business following the Redkite acquisition.
Redkite expertise informed office trading practices and technology enables rapid deployment with minimal IT investment while providing real-time intraday surveillance analytics. Our customers like the Redkite cloud offering and the quick sales integration already yielded more deal closure than expected.
Our partner is strong and we continue to further enhance our cloud-based trading surveillance product while bringing in additional sales resources. Our fraud prevention solutions had a strong quarter as the fraud market continues to thrive.
We have seen particular focus among mid-tier institutions, which are in the process of catching up with the tier-one banks as fraud rates have gone downstream. Multiple launched fraud deals were signed in the fourth quarter with both tier one and tier two banks.
The strength of our fraud prevention solutions were recently recognized by CB Tower Group. The research firm stated that we are the clear leader in the enterprise fraud management space and praised our solutions, usability, and flexibility, as well as our strong vision for the future of fraud technology.
CB Tower Group also selected our anti-money laundering solutions as best in class stating that our solution features one of the most extensive sites of analytics and cloud-based AML management tools on the market today. This award concludes a very strong year for AML, driven by both FED-live and tough enforcement activity.
In addition, as the Factor Regulations become effective in early 2014, we have seen strong demand and ever reversed 2013 pipeline for our solution that help financial institutions comply with the requirement of these regulations. Let me move on to our security business where performance this quarter was below our expectations as a couple of major deals slipped into 2013.
In our surveillance business, the quarter performance was balanced across our product lines with continued up-sale into our installed base. We won a 7-digit situation management deal with one of the largest North American utilities, which is an existing NICE Region customer.
The deal included central monitoring and automatic procedures for efficient handling of incidents and reporting according to [inaudible] compliance. These customers sought to bring a network of sub-systems together on a common operating platform and to automate constant operation for security situations.
It also aims to leverage [inaudible] for management of maintenance and operation. We also won a 7-digit deal with an open governmental agency responsible for construction management and safety of a large railway network.
This purchase of [inaudible] facilitates strong collaboration between its command and control room and external agencies for effective incident and crisis management. The integration includes web applications, deep integration with [inaudible], GIS and operational systems, GIS operational systems.
More than 1,000 users are estimated to use the system. In our communication intelligence business, we had a high number of 7-digit deals this year.
These large projects are being driven by governments realizing that existing intelligence capabilities are insufficient to handle challenges such as isometric and cyber welfare. IP based communications and social networks all into consideration.
They are therefore more open to external solutions, which they expect to deliver not only monitoring capabilities, but also analytic driven insights. As you saw in our press release today, we are pleased to announce dividend [inaudible].
The dividend plan reflects our confidence in the strength of our business and the sustainability of our strong [inaudible] generation. The payment of a quarterly cash dividend is another element to our commitment to bring long-term value to our shareholders.
In summary, we ended the year strong with record results for the fourth quarter and full year, 2012. By leveraging our unique technology assets to further innovate, we have delivered what we believe are some of the most advanced solutions in our industry to the market.
As a result, our analytics and advance applications are now by far the fastest growing solutions among our portfolio products and increasing as a percentage of our other product needs. In fact, in Q4, over 50% of new business booking came from advanced application and this sets the stage for 2013 to be another year of profitable growth.
We look forward to 2013 when we will continue to innovate and capitalize on some of the early success of our portfolio of analytics in our advanced applications in which the pipeline continues to build in all regions. This along with increasing regulatory environment, the under-penetrated markets in EMEA and APAC and the large opportunities to further expand our portfolio of solutions into our customer base should bode well for 2013.
I would like to thank the NICE team for their work in the quarter and for the entire year. I will now turn the call over to Dafna Gruber, our CFO.
Dafna.
Dafina Gruber
Thank you, Zeevi. I’m pleased to provide you with an analysis of our financial results and business performance for the fourth quarter and full-year 2012 and our outlook for 2013.
Revenues for the fourth quarter reached a record of $240 million, up 12% from $214 million in Q4 last year. Revenues for the full-year 2012 increased 12% to $892 million.
Q4 Enterprise business was a total $193 million, up 22% from last year, bringing in full-year revenues to $706 million. Of that, $193 million in total customer interaction revenues were $158 million and financial clients and compliance revenues were $35 million.
For the full-year, customer interaction was [inaudible] with $579 million and financial clients compliance revenues were $127 million. Q4 security revenues were $47 million compared with $55 million in the fourth quarter of last year.
Full year security revenues were $186 million. Moving to the regional breakdown, revenue in the Americas increased 15% for the fourth quarter of last year to $157 million.
Full year of [inaudible] revenues increased 12% to $559 million. Revenues in Europe, Middle East and Africa increased 2% to $53 million compared to the fourth quarter of last year.
Full year EMEA region revenues increased 7% to $240 million. Revenue from Asia-Pacific region increased 16% from the fourth quarter of last year to $30 million.
Full year APAC revenues increased 22% to $119 million. For the fourth quarter, the Americas accounted for 65% of total revenues, EMEA 22% and APAC 13%.
For the full year the Americas region accounted for 63% of total revenue, EMEA 24% and APAC 13%, vastly unchanged from 2011. [Inaudible] revenues in Q4 were founded for 42% of total revenues while maintenance represented 36% of total revenues.
Professional services including SaaS and Hosting accounted for the remaining 22%. It’s been, as Zeevi mentioned, our book-to-bill ratio in the quarter was much larger than 1 bringing full-year book-to-bill to be also greater than 1.
Going forward, we’ll begin to look and report book-to-bill on an annual and not quarterly basis. This is resulting from our [inaudible] analytics-based software application which is bringing bookings to become increasingly more weighted through the second half of the year and especially the fourth quarter.
We expect this to be even more pronounced in 2013 and the years after compared to 2012. The 2012 fourth quarter growth [inaudible] reached a record of 67.7% compared to 66.3% in Q4 last year.
Operating margin reached a record 19.8%, up from 18.6% in Q4 2011. Going forward, we continue to expect gross margin to be at least 65% and operating margin to continue to improve.
During the quarter, we successfully settled a multi-year tax audit, which allows us to relieve significant tax provisions from prior years. This [inaudible] related tax income for GAAP purposes during Q4.
We decided to take a conservative approach to you and exclude this income from the non-GAAP reported due to the extra magnitude of it. Non-GAAP tax were at $6.5 million or 13% of income.
After analysing our current tax structure, we expect our tax rate going forward to be between 15 and 17% compared to the previous range of 17 to 18%. Fourth quarter 2012 net income increased 15% to a record $43.2 million compared to $37.6 million in Q3 last year.
So the full-year net income increased 14% to $154 million. Fourth quarter 2012 fully-diluted earnings per share was a record $0.70, representing an increase of 17% compared to $0.60 in Q4 2011.
Cash flow for operations was $42 million in the fourth quarter and $136 million for the full year. Our [Inaudible] and financial investments were approximately $445 million at the end of December with no debt.
Headcount at the end of year totaled to 3,399 people, compared to 3,125 people at the end of December, 2011. During the fourth quarter, we paid about $13.6 million to repurchase approximately 410,000 shares as part of our share repurchase plan.
In 2012 in total, we repurchased approximately 3.1 million shares for $107.6 million. Today, we announced our first-ever dividend plan.
We intend to pay quarterly cash dividends on common stock subject to the stipulation by the Board. The company expects that this year’s annual dividend to be $0.64 per share, or $0.16 per share quarterly.
The [inaudible] is expected to be sometime during the second quarter of 2013. We continue to focus on optimizing our capital structure and increasing shareholder return.
We believe that our cash balance, together with our strong cash generation can support future acquisition, dividend payments and [inaudible] share repurchases. Turning to guidance, please note that both the first quarter and full-year 2013 guidance take into account the share buyback executed so far but excludes future buybacks that may be executed going forward.
We expect first quarter 2013 total revenues to be in the range of $220 million to $230 million and fully-diluted earnings per share to be in the range of $0.57 to $0.62. We expect total revenues for the full-year 2013 to be in the range of $940 million to $970 million and fully-diluted earnings per share to be in the range of $2.55 to $2.65.
That concludes my comments. I would now turn the call over to questions.
Operator?
Operator
(Operator instructions). First question is from the line of Shaul Eyal from Oppenheimer & Company.
Please go ahead.
Shaul Eyal – Oppenheimer & Co.
Thank you, operator, and good afternoon, everybody. Zeevi, a big picture question for you kind of.
I’ve been brainstorming with myself and wanted to know how you think about it. I think over the past probably two quarters now, we had seen some kind of mixed views – mixed results from all of the companies that kind of operate in the Big Data/kind of Analytic space.
In you view, how mission critical is the entire orbit, the whole subject and topic of Analytics to the corporations? Maybe you can say how resilient it is to spending, if I’m the vehicle in the company, or CIO and I’ve got money on security and storage and virtualization of the cloud, where does big analytic – where does Big Data analytics basically rank within the stack?
Zeevi Bregman – President and CEO
Well, when we are making our customers – we are hearing from them very clearly that their focus is on areas of application and meaningful structure that is around Big Data. And the thing that is unique about us, since we are less focus on the infrastructure, our main focus of [inaudible] Solutions.
Things that the operation lies in Big Data. It’s not reports, this are mostly the Analytics is tied in the focuses that are part of the operations of the organization.
So if it’s compliance, if it’s the voice of the customer, if it’s looking at operation efficiency like SVR or [inaudible]. This is part of the operation, this is providing immediate and closed- loop results.
This is why we are seeing this is a short-term return on investment. It’s not a major investment in infrastructure.
It has some elements of investment in class form or in the infrastructure, but mostly it’s within application and things that the operation lies in Big Data, and we’re seeing a good amount for it.
Shaul Eyal – Oppenheimer & Co.
Got it. And follow-up question.
You know continued solid [inaudible] of the operating mark is kind of nearly touching the promised 20%. Any chance that we start shifting into fiscal ’13, probably the second half of his year that we’re going to see the biggest two associated with your operating margins?
Zeevi Bregman – President and CEO
Yes, we believe that this is the direction that we are heading to.
Shaul Eyal – Oppenheimer & Co.
Got it. Okay, thank you very much.
Good luck.
Operator
Thank you. Our next question is from the line of Shyam Patil from Raymond James & Associates.
Please go ahead.
Shyam Patil – Raymond James & Associates
Hi. Thank you.
Good afternoon. This is another kind of high level question, kind of regarding the growth outlook for the company.
You know, if you look at 2011, you guys put up strong double-digit organic growth. And then in ’12 if you look at the organic growth, it kind of came down into the mid-single digits, and for ’13 you initially guiding to 7% I believe at the mid-point.
You know, do you still view NICE as a double-digit grower, or should we be thinking about mid-high single-digits as the right organic growth rate going forward? I’m just curious if you still view it as a double-digit grower, kind of when you think we’ll start to see that, and what the drivers will be?
Zeevi Bregman – President and CEO
First, we do feel – when we are running our internal models and the internal targets for the different units, they are all double-digits. And this is the way that we look at ourselves, and this (inaudible) continue with the non-organic goals, and then for sure together you should look at us as a double-digit grower.
Shyam Patil – Raymond James & Associates
Okay. And then the large deals that slipped.
It looks like this from the second numbers, those were in the Security Space. Can you give more color on, you know, where those to governments, were they in EMEA any more color on those deals.
Zeevi Bregman – President and CEO
Yes, sure. We not give the region for competitive reasons, but the [inaudible] with government, and dealing with the government both for sales.
And in government offices the prediction of the timing is difficult. We have letter of award, but this is not sufficient for our conservative view of recognizing the deals and looking at them in our financials.
Shyam Patil – Raymond James & Associates
Okay, and this is my last question. What’s the dividend – the commitment to the dividend now?
Is that when your ability to do large acquisitions – you know, The Street specifically kind of speculates around one specific large transaction. Just curious if the dividend commitment maybe limited your ability to do that sort of deal?
Zeevi Bregman – President and CEO
We don’t – we are not going to comment about the – any specific large transaction, obviously. But the dividend is not really – not limiting our capability to take any strategic future direction.
We are going to continue to be inquisitive, and we move forward with a very strong push balance. We - our Board thought that in order to create shareholder return and to let our shareholder to participate in our success, and taking into account the stronger result that we had in Q2, and the prospect and the cash flow, and the income, and the strengths.
And his belief in the future of the company that we are – that the dividend will be the right way to distribute some of the cash that we are generating to the shareholder.
Shyam Patil – Raymond James & Associates
Okay. Thank you.
Operator
Thank you. Next question is from the line of Daniel Meron – RBC Markets.
Please go ahead.
Daniel Meron – RBC Capital Markets
Thank you. Hi Zeevi and Dafna.
First congrats on the dividend – good sign as far as continued shareholder returns. Zeevi, can you apply a little more color on the regional and the divisional dynamics, specifically.
You know, on the regional side seems like Americas was healthy, but how should we think about other regions? And then on the divisional side, you mentioned the slippage of two deals.
Is there more to read into the dynamics and security, or in enterprise right now?
Zeevi Bregman – President and CEO
So, first on the security, we said a couple of things, we didn’t say specifically two. On the – when it goes to the regional dynamics, the fourth quarter was very strong in America indeed, and it was less strong in the second other regions.
This is part of [inaudible] also its seasonal phenomena and part of it is the strength within the business. This is something that we anticipated, and something that we forecasted, although the strength of the business in terms of the booking surprised us.
When it comes to the product and divisional, as we indicated, this is the first time ever that the advanced applications accounted for more than 50% of our new bookings. And this is for us a milestone.
This is the first quarter ever that we reached this milestone, and we are very pleased with it. When we look at the different products, also we are seeing a lot of activity along our cloud, which is a new delivery model for us.
And also here we are seeing a lot of value that we can create to our customers, and in return a lot of demand from the customers to this type, and this model of operation. When we look at product, we are seeing increasing demands in the compliance area, and this is a lot related to Dodd-Frank, but not only to Dodd-Frank.
Dodd-Frank is a derivative of Dodd Frank [inaudible] We think it is – Dodd-Frank derivative. And also internationally, we are seeing a strong emphasis on compliance.
When it comes to the – if you look at the business units that we have, this has been a stronger quarter and year to our enterprise business. On Actimize, on the revenue side the growth is a bit disappointing.
But on the other end if we look at the booking, and we have seen a double-digit growth from the booking, and if we look at Q4 we’re already seeing that some of this booking is translating to revenue growth. So, we have the [inaudible] revenue growth, and quarter-over-quarter on the Actimize side of the business that we believe that the strong booking growth on the entire year together with the strength, starting [inaudible] into revenues in Q4 is putting us in a very good place towards 2013.
On the security, we came a bit short from our expectations. We are continuing to create momentum with our Solutions and in areas like Cyber Intelligence and in the [inaudible].
We do see – we had a couple of things with [inaudible] There’s a huge pipeline, and mostly around the communication/intelligence, the pipeline is [inaudible] forever. And therefore we are optimistic about our ability to win – additional wins, including the one that slipped in 2013.
Daniel Meron – RBC Capital Markets
Okay. Thanks, Zeevi, for the color.
And then, how do we reconcile between the strong bookings that you guys had in the fourth quarter, and the records backlog with somewhat of a slower top line growth in 2013 compared to prior years?
Zeevi Bregman – President and CEO
So, there are a few elements to it. First, our business is becoming more and more backend loaded.
So, it’s very difficult to predict at the moment what will be in Q4 of 2013, and therefore we are a bit more cautious. Second, as we move more to applications, the conversion to revenues is taking more time, also the cloud, and therefore the conversions of booking to revenue is taking longer time than previously and this is also impacted our overall revenue growth and overall, we grew double digits in bookings and we believe that the – we believe that the – this is what we are seeing right now and this can change over the year – the course of the year.
Daniel Meron – RBC Capital Markets
Okay. Thank you, very good luck.
Operator
Thank you. Next question is from the line of Brian Ruttenbur from CRT Capital.
Please go ahead.
Brian Ruttenbur - CRT Capital
Thank you very much. A couple questions.
First of all, I’m a bit confused on one of your comments. You said that you expect to grow double digit, I think, across the board, but your guidance suggests high single digit growth.
Is that just long-term you expect double-digit growth in this year …
Zeevi Bregman
Yes, what we are – we are – what we see and the way we look at the forecast is single-digit is in accordance with our guidance. What we have said is that we are looking at the internal models and the internal [inaudible] are all about double-digit growth.
Brian Ruttenbur - CRT Capital
Okay. Then the next question I have, sales and marketing was up dramatically in the fourth quarter.
Can you give us some kind of – was there an aberration in the fourth quarter, something that was, you know, that happened kind of one time or should we expect that level of sales and marketing expense going forward?
Zeevi Bregman
A large part of the sales and marketing increase is coming from the result of the strong booking that we had in the quarter and this relayed to additional [inaudible] that we had to do in commissions. Dafina, would you like to give more color?
Most of the increase is related to sales commission.
Dafina Gruber
We do expect to see a sales and marketing expense in the fourth quarter at very high – fourth quarter, very high rate, but going to the first quarter, it should go down.
Brian Ruttenbur - CRT Capital
Okay, so in the first quarter ending in March, your sales and marketing expense will drop sequentially from fourth quarter. Is that correct?
Zeevi Bregman
That’s our focus.
Brian Ruttenbur - CRT Capital
Okay, very good. And then depreciation and amortization, just an understanding.
What is it going to be in 2013?
Dafina Gruber
The amount is going to be very similar to what we had in 2012, maybe a few – few – very few millions up.
Brian Ruttenbur - CRT Capital
Okay, and then there’s already been one question asked on this, but I just want to understand a little bit better. On your cash deployment strategy, you planned to pay out roughly 30 million in dividends.
You plan to generate how much from cash from operations, 130, 150, somewhere in that range? I that correct?
Dafina Gruber
Probably more than we generated this year in terms of operating cash. That’s the target for 2013.
And in terms of dividends payment, we actually estimate it to be around $40 million.
Zeevi Bregman
[Inaudible].
Brian Ruttenbur - CRT Capital
Okay. So you should have roughly, in 2013, an extra 100 million of cash, is that correct?
So if you pay out dividends, you can either deploy that by buying back stock or making acquisitions or putting it on your balance sheet. Is that the right way to think about it?
Zeevi Bregman
Well, in between the – doing both, and we still have the money on the balance sheet which we can also use for acquisitions.
Brian Ruttenbur - CRT Capital
Okay, very good. Thank you.
Operator
Thank you. Next question is from the line of Daniel Ives from FBR Capital Markets.
James Moore – FBR Capital Markets
Thanks, guys. This is actually James Moore in for Dan.
Just a follow up to that last question. Can you guys maybe talk about what you may target for acquisitions in terms of verticals or areas of interest?
Zeevi Bregman
Well, I think that the things that don’t change much, we are looking at the acquisitions and how to do – to enhance our product offering in application that to add some technologies to our product lines, some analytics capabilities and to add to some market presence in this area of the world. And there are no major changes in the – in our acquisition strategy.
James Moore – FBR Capital Markets
Okay, and just a follow up to some of the [inaudible] comments, are the issues from earlier in 2012 largely resolved at this point?
Zeevi Bregman
[Inaudible] in 2011 and they were resolved in 2012 and we are starting to see the benefits of it now.
James Moore – FBR Capital Markets
Okay. Thanks very much.
Operator
Thank you. Next question is from the line of David Capman from Barclays.
Please go ahead.
David [Capman] - Barclays
Hi. Good afternoon.
If you could talk a little bit the guidance; I think, you know, if we look back at where guidance was for 2012 and now it’s 2013, it seems like you guys are taking it down a notch in terms of what you think your goals are. I understand that part of what Zeevi said had to do with a lot of his more back-ended, so maybe perhaps the visibility into 2013 is not what we’re used to seeing in terms of the guidance you guys are giving.
I’m trying to reconcile here the – what appear as very positive backlog and bookings numbers relative to the guidance that you gave, which seems to be slightly on the more conservative side than we’ve gotten used to.
Zeevi Bregman
So thanks for the question. When we are looking at 2013, we are targeting and focusing double digit growth in the booking.
We are – when we are looking at how these bookings will convert to revenue and also looking at our current backlog, we expect that they will take longer revenue cycles. This revenue cycle, the engagement of the revenue cycle comes from our application delivery and also to cloud delivery that is the larger part of the business.
And also the fact that the business is low Q4 centered. So with this, we – with the visibility that we have now and what we can forecast, we provided the forecast that we provided.
David [Capman] – Barclays
Okay. And I guess the second half of the question is then really about the margin profile of the company.
For a long time there’s been a mid-term range of operating margins and you guys have talked about a high-teens or even a 20% number. Is that kind of backed into the guidance that you’ve given as well?
I know we can all do the math on what the top line and what the bottom line is. Is there a margin goal here that’s baked into the guidance and you guys – that you guys gave or is it kind of not related and it’s not going to be a margin-focused-and-driven company?
Dafina Gruber
No, we’re definitely focused on continuous expansion in margin. We [inaudible] in the company to support growth.
We’ve made a subtle improvement in margin this year and we expect to continue to expend possibility going forward as well. [Inaudible] to which deliver the 20% and I don’t think we would reach it for the full year in 2013 but hopefully during the second half we would reach this goal and going forward we would [inaudible] the 20% margin bar in the future.
David [Capman] - Barclays
Great. Thanks a lot.
Operator
Thank you. (Operator instructions).
Next question from the line of Michael Kim from Imperial Capital. Please go ahead, Michael.
Michael Kim - Imperial Capital
Hi. Good afternoon, everyone.
Can you talk a little bit about the contribution from cloud based solutions, any, you know, can you quantify any metrics and total contract value? Also, Zeevi, you talked a little about expanding the partner ecosystem, can you talk a little bit about the channel or go-to-market channel focus?
Zeevi Bregman
So we are – I’ll start with the channel. We are working with the different partners in different spaces to deliver and supporting them while they release the cloud-based solutions.
Some of the – one of the deals that actually we discussed in the script is a deal that was driven by such a channel and this is something that we are continued to focus it and looking at our [inaudible] that we can enable [inaudible] cloud solution. On top of this, we are operating and delivering our cloud solution within our own brand and domain and this is something that we [inaudible] ready investment in infrastructure and processes.
We are going to continue to invest in this area. It’s still below 10% of all our revenues, but we are not breaking it, but if you see the increase of our professional services expense, they are a large part of the increase in the professional services revenue is coming from the [inaudible] and the open business model and we are pleased with that.
Michael Kim - Imperial Capital
Great. And then just turning to security.
You know, with the, you know, the closure rates, you know, perhaps increasing, you know, extending a little bit, not what you’d like to see. You know, are the deals becoming more larger and more complex?
Is that what’s driving the closure rates or are there other sort of macro factors driving the …
Zeevi Bregman
First, with security, we do see much stronger pipeline than ever before. So the – we have a very, very strong pipeline for the solution.
When we – we are dealing with the government budgets and government procurement and the – around the world, and it is very – there tends to be some inherent – they’re very difficult to forecast, although in time [inaudible], this is what they’re creating. They aren’t even part of this business.
It’s not – we’re seeing very strong pipeline. [Inaudible] also a fairly large deal.
Michael Kim - Imperial Capital
And in that pipeline, are the deals getting significantly larger, you know, relative to…
Zeevi Bregman
I mean, we had the larger deals before. We have the deals that are – all in all, I think that they are larger, but they depend how you really measure it.
So we are enjoying a very healthy pipeline of large deals and more than ever before.
Michael Kim - Imperial Capital
Great. Thank you very much.
Operator
Thank you. That was our last question.
I will now turn the call over to Mr. Bregman for closing remarks.
Zeevi Bregman
So, thank you, everyone for joining us today and have a nice day. See you all in our analyst day in New York, March 12th.
Thank you.
Operator
Ladies and gentlemen, that concludes your call for today. Thank you for joining.
You may now disconnect.