Oct 30, 2013
Executives
Marty Cohen - VP, IR Zeevi Bregman - President and CEO Dafna Gruber - CFO
Analysts
Shaul Eyal - Oppenheimer & Co. Paul Coster - JPMorgan Jim Moore - FBR Capital Markets Shyam Patil - Wedbush Equity Research Matt Hedberg - RBC Capital Markets Richard Parower - Seligman Greg McDowell - JMP Securities Jonathan Ho - William Blair Chris Reimer - Barclays Capital Brian Ruttenbur - CRT Capital Jeffrey Kessler - Imperial Capital
Operator
Good day ladies and gentlemen, and welcome to the NICE Systems Conference Call discussing Third Quarter 2013 results, and thank you all for holding. All participants are at present in a listen-only mode.
Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded for replay purposes, October 30, 2013.
I would now like to hand the call over to Mr. Marty Cohen, Vice President of Investor Relations at NICE.
Go ahead please.
Marty Cohen
Thank you, operator. With me on the call today are Zeevi Bregman, President and Chief Executive Officer; Dafna Gruber, Chief Financial Officer; Eran Liron, Executive Vice President, 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 performance of the Company to differ materially is contained in the section entitled Risks Factors in Item 3 of Company's 2012 Annual Report, on Form 20-F as filed with the Securities and Exchange Commission on March 25, 2013. During today's call, we will present a more detailed discussion of our third quarter 2013 results and the Company's guidance for the fourth quarter and full year.
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 differences 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 Zeevi.
Zeevi Bregman
Thank you, Marty. And welcome everyone to our third quarter 2013 earnings call.
We delivered solid results for the third quarter and remain confident for a strong finish to the year, based upon healthy pipeline. Non-GAAP total revenues for the third quarter were $230 million, up 4% compared to the third quarter of 2012.
Non-GAAP EPS for Q3 was $0.62. In the quarter, we continued to benefit on two major business trends, around compliance and customer experience.
In compliance companies continued to face an increasing regulatory environment including regulations under Dodd-Frank, the Consumer Financial Protection Bureau, and many other regulations in the U.S., Europe and APAC. We are in unique position as we are able to deliver holistic solutions combining technologies from all three business units to help our customers meet the demands of this dynamic regulatory environment.
In customer experience, an increasing number of organizations are looking to transform their businesses to become more customer-centric. They also want solutions that create a seamless customer experience between touch points, such as the contact center and the web.
We offer a suite of solutions to help our customers support this change. The growing demand for solutions around compliance and customer experience is driving the goals of our analytics-based applications.
In the third quarter, new order of advanced applications grew well above 20% compared to the last year’s third quarter and represented close to 50% of total new bookings. Our unique blend of solutions helps our customers analyze Big Data to better understand relationship and associations, among people, data and systems.
This helps our customers improve operational efficiency, comply with regulations, provide a better customer experience, grow revenues, refrain financial crime and improve safety and security. We are further expanding our Big Data capabilities in all three of our businesses by enhancing our financial crime and compliance platform with new solution, strengthening our security platform with increased functionality and enhanced analytics capabilities and further developing the real-time cross-channel analytics capabilities of our customer engagement analytics platform in our customer interaction business.
In addition, the acquisition of Causata will further enhance the capabilities and accelerate paths of the development of our customer engagement analytics platform. Causata technology helps us provide a seamless connection between the web and the contact center and its machine learning technology will allow us to augment our real-time decisioning and guidance capabilities.
The integration of Causata is proceeding according to plan. There is a growing need for real-time decisioning as non-current information is often not good enough for many of our customers.
This is where our broad portfolio for real-time solutions provides us with a significant effective advantage. We continue to witness both strong demand and rapid growth for these solutions.
And our real-time capabilities have been a key differentiator in winning deals in all three of our business units. For example in Q3, we closed a seven digit deal with a U.S.
cable and entertainment company where our real-time technology and solutions are being used by 1000s of agents to convert service call to sales opportunities. Another Q3 deal, our real-time Fraud Prevention solutions are being deployed at a major European financial services organization, which has decided to standardize on our Fraud platform across channels.
And in security we sold a deal that included our real-time situator solution to enable public transformation customer to set-up a sophisticated command and control center in perpetration for a major sporting event next year. In the quarter, we also saw further growth in our cloud business, as we are continuing to see more analytic solutions being sold in the cloud in the U.S., Europe and APAC.
The momentum is being driven mainly by increased market demand for our enhanced cloud offering. In the U.S., we continue to sign increasing number of cloud deals especially in more financial services and telco deals.
In Europe, we are starting to see a similar trend. In one deal with the European telco providers they are deploying our interaction analytics solution in the cloud for 3,000 of their agents.
The company elected to purchase our cloud solutions because of the use of deployment and the lower cost of ownership. Moreover, in this comparative deal the competitor was unable to deliver a cloud solution and could not provide the strategic partnership that included the high level of business consulting that the customer demanded.
In our customer interaction business, we continue to see strong growth in our analytics-based application. The longer revenue cycles resulting from this shift to advanced application and the cloud led to lower than anticipated revenue for the quarter.
The customer interaction business continues to be driven transformation of deals, deals in which our customers are looking to transform their business around CEO-led initiatives to prove operational efficiency, increase revenue and enhance the customer experience. Compliance is also a key driver of this business.
In a deal with a major Internet trend they want to transfer their business into a more customer centric organization. We are pleased to be an integral part of this transformation, replacing the incumbent solutions with a suite of NICE solutions to help the customer get closer to their customers.
While the majority of each service interaction takes place over the web, the customer wants to better understand what is occurring across all communication channels to get a complete view of the customer to help improve the customer experience. Therefore they would deploy our speech analytics to help them accomplish this goal.
In compliance continued regulatory pressure in the U.S. on financial service providers and further fines led by regulations continue to increase demand for our proactive compliance solutions.
Our proactive compliance suite includes integrated solutions from our customer interaction and financial crime and compliance businesses. The solutions that form the suite embrace our capture analytics and real-time technology addressing all parts of the compliance operation.
This includes data collection, historical recordkeeping, data retrieval, call and transaction analysis, customer profiling, investigation tools and reports of corrective action. In Q3, we signed a deal with a very large financial institution in the U.S.
for our proactive compliance solution. The solution will be deployed for better control in monitoring of consumer compliance.
We continue to innovate in our customer interaction business developing new technologies and solutions to help broaden our market opportunities. One example is our use of feasible metrics and our patent pending passive enrollment technology.
These technologies are driving successful dialogs with some large customers as well as discussions with many others for both our real-time authentication and contact center for prevention solutions. In our financial crime and compliance business, we reported more than 30% growth in revenues with growth strength across the board in all of this of our solutions.
In our Fraud business, we are seeing more companies standardizing on our fraud platform. We are also compliancing cross-channel fraud and we deliver multiple solutions on the same platform with market tested that you will see, and scalability for real-time profiling and analytics.
We are seeing significant traction in our fraud portfolio particularly in Europe which we believe is generally due to the need for broad, holistic fraud platform. Capable of ingesting and analyzing feeds from various working channels, transaction types and client types.
One of the four deals in the quarter was with an existing European customer that was in a separate division of this financial institution. This division is granting small immediate loans to retail customers via the Internet and call center.
Even though the loans granted are relatively small the volume are high. So it puts the Company at increased risk for fraud.
They need flexibility for the different loan criteria for each country and so they prefer the designated platform. They selected our fraud solutions in this competitive deal to replace their existing in-house developed solutions.
We also had a good quarter in compliance for both our anti-money laundering and our cloud trade surveillance solutions with initial sales of some of our new product as well as new customer wins. Our cloud trade surveillance solutions continue to demonstrate good traction in Europe and we are also seeing more deals in the U.S.
with new customer wins in the U. S.
just in this last quarter. Financial institutions are coming under increased quality by regulators.
Due to recent trade setting segment, this has created immediate need for an integrated global sight approach to ensure compliance. In response we recently announced the availability of our benchmark monitoring solution.
It provides proactive monitoring of both rate setting transactions and related communications coupled with dedicated analytics to detect suspicious trader behaviors. These solutions combine technologies from our customer interaction and financial crime and compliance business units.
And last, our security business was down slightly in Q3 as this business continues to be a bit lumpy from quarter-to-quarter due to some large transactions where revenue recognition can be unpredictably at times. Despite the lumpy nature of this business, we continue to see an increasing appetite for our physical security solutions, which we demonstrated two major security related trade shows in Q3, APCO and ASIS.
Among some seven digit deals in Q3, one was with an airport location in Asia looking to model the security solutions after those western countries. The country in which the airport is located has suffered terrorist attacks in the past especially in tourist locations.
They purchased NICE Situator and NiceVision in order to enhance safety and security and also to improve operational efficiency. In intelligence our customers in the law enforcement and intelligence agencies continue to be confronted with operational and technical challenges such as increased the IP traffic, social networks and communication application, proliferation.
As a result, we see continued increased interest in solution for analyzing IP traffic an acceptance was a multimillion dollar third quarter deal with the Central American internal security agency to our main offering of our target-based IP interception system. In summary, we continue to see strong double-digit growth in our analytics-based applications with ongoing robust demand.
The reason behind the strength is that these solutions, including our real-time analytics, help our customers improve business results particularly in the areas of compliance and customer experience. As we now head into the fourth quarter, we look forward to a strong finish of the year.
I would like to thank the NICE team for their work in this quarter. I would now turn the call over to Dafna Gruber, our CFO.
Dafna?
Dafna Gruber
Thank you, Zeevi. I am pleased to provide you with an analysis of our financial results and business performance for the third quarter of 2013, and our outlook for the fourth quarter and full year.
Revenues for the quarter were $230 million, up 4.2% from $221 million in Q3 last year. Customer interactions revenues were $141 million similar to Q3 2012.
Financial crime and compliance revenues were $39.7 million, up 33% from $29.8 million in the third quarter of last year. Security revenues were $49 million, a decrease of 2% from the third quarter of last year.
For the third quarter, customer interaction accounted for 61% of total revenues, financial crime and compliance 17% and security 22%. Looking at the regional breakdown, revenue in the Americas increased 5% to $142 million in Q3 2013, compared to the third quarter of last year.
Revenue in EMEA was $55 million similar to Q3 2012 and revenue in the Asia-Pacific region increased 8% to $33 million compared to the third quarter last year. For the third quarter, the Americas accounted for 62% of total revenues, EMEA 24% and APAC 14%.
Product revenues in Q3 accounted for 37% of total revenues and maintenance represented 39% of total revenues. Professional services, including SaaS and hosting, accounted for the remaining 24%.
Gross margin in Q3 2013 was 65.7% compared to 65.6% in Q3 last year. Operating margin reached 18.4% compared to 19.1% in Q3 2012.
Earnings per share were $0.62 in Q3 compared to $0.64 in Q3 2012. This includes the slight dilution coming from the Causata acquisition that was executed in Q3.
In the third quarter of 2013 we decided to take advantage of a special program initiated by the legislation by the Israeli government in November last year with a deadline of November 11, 2013 that allowed Israeli companies to release so called trapped profit by paying a highly discounted tax payment. In addition, we settled a multi-year tax audit by the Israeli tax authorities.
Pursuant to the Israeli government plan, a company that elects to pay a reviewed corporate tax rate is set forth in that plan on it and distributed exempt income accumulated up until December 31, 2011 we'll be able to distribute this profit without being required to pay additional corporate tax with respect to such a distribution. Due to the economic benefit of this program and the flexibility it provides we elected to participate.
The total effect on Q3 trapped profit of tax audit settlement and the one-time payment related to the release of the trapped profit was a tax expense of 19.2 million or $0.31 per share. Due to the nature of this expense we excluded it from non-GAAP results.
The cash impact was $30.9 million which resulted in a negative cash flow from operations for the quarter. Excluding this payment, cash flow for operations would have been 15.3 million compared to 11.6 million in the second quarter of 2012 and would have been 109 million for the 2013 nine month period, which is 16% increase compared to the same in 2012.
Our total cash and financial investments were approximately $444 million at the end of December 2013. Headcount at the end of September totaled 3,527 people, compared to 3,370 at the end of September last year and 3,399 people at the end of December of 2012.
During the third quarter we purchased 473,000 shares for a total consideration of $18.4 million as start of our share repurchase plan. During October, we already purchased an additional $11 million in the buyback plan.
In line with our dividend plan announced in February NICE's Board of Directors approved a dividend payment of $0.16 per share, the record date is November 12, 2013 and the payment date is November 26, 2013. We expect fourth quarter 2013 total revenues to be in the range of 260 million to 275 million and fully diluted earnings per share to be in the range of $0.72 to $0.77.
We expect total revenues for the full year 2013 to be in the range of 940 million to 955 million and fully diluted earnings per share to be in the range of $2.55 to $2.60. That concludes my comments.
I would now turn the call over to questions, operator?
Question
and
Operator
Ladies and gentlemen, your question-and-answer session will now begin. (Operator Instructions) All questions will be answered in the order received and you will be advised when to ask your question.
All other lines will remain on listen-only. (Operator Instructions) Our first question comes from the line of Shaul Eyal from Oppenheimer.
Shaul Eyal
Dafna as we started thinking about product revenue for the fourth quarter, and kind of understanding the nature of the seasonality from a business model perspective. Should we be seeing year-over-year growth from just the product perspective?
Oppenheimer & Co.
Dafna as we started thinking about product revenue for the fourth quarter, and kind of understanding the nature of the seasonality from a business model perspective. Should we be seeing year-over-year growth from just the product perspective?
Dafna Gruber
That's our target.
Shaul Eyal
Zeevi on the situator contract you announced, you just kind of announced for the major sporting event next year and I don't want to ask about your business in Latin America. But I didn't get it, was that a seven digit contract?
Oppenheimer & Co.
Zeevi on the situator contract you announced, you just kind of announced for the major sporting event next year and I don't want to ask about your business in Latin America. But I didn't get it, was that a seven digit contract?
Zeevi Bregman
It was a seven digit contract.
Shaul Eyal
And the Causata acquisition that you indicated that it is progressing according to plan, Dafna from a dilution perspective did it had come in line from an expense perspective or was that a little below or above what you estimated?
Oppenheimer & Co.
And the Causata acquisition that you indicated that it is progressing according to plan, Dafna from a dilution perspective did it had come in line from an expense perspective or was that a little below or above what you estimated?
Dafna Gruber
It’s actually exactly as we expected around $0.02 of dilution.
Operator
Our next question comes from the line of Paul Coster from JPMorgan.
Paul Coster
Can I just check that you are still on-track for the bookings of a 1 billion this year?
JPMorgan
Can I just check that you are still on-track for the bookings of a 1 billion this year?
Zeevi Bregman
We are still on-track for booking of a 1 billion dollar this year.
Paul Coster
The revenue -- so the outlook is little bit weak relative to our expectations, is it possible that this is impart because revenue is being deferred as part of these cloud-based solutions?
JPMorgan
The revenue -- so the outlook is little bit weak relative to our expectations, is it possible that this is impart because revenue is being deferred as part of these cloud-based solutions?
Zeevi Bregman
That’s correct. During the quarter, we had a strong booking quarter for advanced analytic solutions including our cloud solutions, and this created a slightly longer revenue cycle.
Paul Coster
Are in a position to quantify that so that we can perhaps sort of make sense of the lower guidance to the top-end of the range?
JPMorgan
Are in a position to quantify that so that we can perhaps sort of make sense of the lower guidance to the top-end of the range?
Zeevi Bregman
I am not able to understand what you mean by quantify.
Paul Coster
It looks like you’ve trimmed the top end of guidance, what was it, 5 million or so and I just wonder is that all attributable to this deferred revenue?
JPMorgan
It looks like you’ve trimmed the top end of guidance, what was it, 5 million or so and I just wonder is that all attributable to this deferred revenue?
Zeevi Bregman
Yes, yes, it is as part of the deferred revenue.
Paul Coster
Is there any impact from -- obviously you have seen a lot of headline news around the surveillance technology whether it’s appropriate, inappropriate, how it should be used and so on is that having any impact on your sales into the government entities the NSA stuff?
JPMorgan
Is there any impact from -- obviously you have seen a lot of headline news around the surveillance technology whether it’s appropriate, inappropriate, how it should be used and so on is that having any impact on your sales into the government entities the NSA stuff?
Zeevi Bregman
Well, I don’t think that it has any impact. I am not aware of any impact.
We continue with the -- our traction with different customers that we have. And I think that people are seeing the necessity of such solutions and therefore they will continue to invest in them.
Paul Coster
Did the sort of the processing Congress a few weeks ago, a couple of weeks ago have any impact on any of your business?
JPMorgan
Did the sort of the processing Congress a few weeks ago, a couple of weeks ago have any impact on any of your business?
Zeevi Bregman
The processing?
Paul Coster
No, no I am sorry, the…
JPMorgan
No, no I am sorry, the…
Zeevi Bregman
Yes, yes, yes. It might have probably a little impact, might have a little impact on the business.
Paul Coster
My last question is, are you in a position to share with us what percentage of revenue these days you would assign to the category of analytics, advanced or otherwise?
JPMorgan
My last question is, are you in a position to share with us what percentage of revenue these days you would assign to the category of analytics, advanced or otherwise?
Zeevi Bregman
We are not breaking it in this way so I cannot break it, but it’s an increasing portion of revenue, continuously as we indicated we’ve seen well over 20% growth in bookings of our advanced application this quarter.
Paul Coster
I am sorry I have got another question, I apologize, but the 4% revenue growth rate seems to be anemic, but it sounds like with the 1 billion of bookings, the real growth rate is higher than that, and part of the delta is this deferral of revenue. Can you give us some sense of what you think the normalized sort of revenue growth is once you have got through this transition phase?
JPMorgan
I am sorry I have got another question, I apologize, but the 4% revenue growth rate seems to be anemic, but it sounds like with the 1 billion of bookings, the real growth rate is higher than that, and part of the delta is this deferral of revenue. Can you give us some sense of what you think the normalized sort of revenue growth is once you have got through this transition phase?
Zeevi Bregman
I suggest that what we will do is we will wait for the next call and then we will be in a position to comment on our annual booking and see the actual growth rate and see how it works, but it’s higher that what is reflected by our current numbers.
Operator
Our next question comes from the line of Daniel Ives from FBR Capital Markets.
Jim Moore
This is Jim Moore in for Dan Ives, just on the advanced applications business can you talk a little bit about the pipeline and in different geographies and what you’re seeing?
FBR Capital Markets
This is Jim Moore in for Dan Ives, just on the advanced applications business can you talk a little bit about the pipeline and in different geographies and what you’re seeing?
Zeevi Bregman
So, when we’re looking at advanced application, we have a strong pipeline nearly across all our products and traditionally and because of market maturity most of these products are being sold in America and then in the developed part of Europe and Australia. And this is where the majority of the business lies and usually the emerging markets are following.
This is where the pipeline stays. When we’re seeing a demand, we’re seeing in the financial sector, it’s difficult to speak with banks on anything but compliance and advanced compliance solutions.
All our financial customers are very focused and concentrated on preparing themselves to cope with regulations and it feels very strong, it’s mostly in the U.S. but also in the international market, regulation is not that different.
When it comes to other industries like the telco, the web, we’re seeing more and more interest and traction around the customer experience and the sales conversion. This is where we're seeing most of the traction.
Jim Moore
And then on the M&A front can you talk about any things you're looking at or what kind of technologies you might be interested in?
FBR Capital Markets
And then on the M&A front can you talk about any things you're looking at or what kind of technologies you might be interested in?
Zeevi Bregman
So on the M&A we didn't change our policy, we are looking for companies and technologies that will enhance our execution on the strategy. It can be some small technical acquisition to some, the adjacent businesses and we continue to look at such technologies and once we'll see the right business with the right valuation, that with willingness to sign a deal with us we would sign a deal.
Operator
Our next question comes from the line of Shyam Patil from Wedbush.
Shyam Patel
Just wondering if you could talk a little bit about the weakness from the quarter and then the slightly reduced guidance, what's differing from your, what differed or differing from your expectations can you just talk about that a little bit?
Wedbush Equity Research
Just wondering if you could talk a little bit about the weakness from the quarter and then the slightly reduced guidance, what's differing from your, what differed or differing from your expectations can you just talk about that a little bit?
Zeevi Bregman
There are two things that are a bit, slight deviation from our expectation the first is the fact that we are, the success of the analytics-based application and the cloud that is leading to a longer revenue cycle that we spoke about and the other is that we are seeing some weakness in non-government business in APAC. We do see some weakness on the non-government business in APAC, specifically in China, India and certainly China and India.
Shyam Patel
We've seen companies make the transition from being a perpetual software company to more of a cloud company and the transition has in many cases been messy and difficult to forecast. Can you just talk about what gives you guys confidence that you're forecasting the fourth quarter properly and maybe going forward kind of what you will take into account versus before to make sure you can accurately forecast?
Wedbush Equity Research
We've seen companies make the transition from being a perpetual software company to more of a cloud company and the transition has in many cases been messy and difficult to forecast. Can you just talk about what gives you guys confidence that you're forecasting the fourth quarter properly and maybe going forward kind of what you will take into account versus before to make sure you can accurately forecast?
Zeevi Bregman
So first we have a track-record in our forecasting and we do not feel that our transition is messy. In our case it's very controlled and it's based on our financial models and we can see the deals.
And actually on SaaS it’s easier to predict revenues then on a perpetual deal, so it's actually improved the visibility. And when it comes to focusing going forward, we have our model we are constantly adjusting and enhancing them.
We have a pipeline, we are viewing even on large deals we are making specific goals with the people in the account to assess the situation and this is how we're making predictions. And we've been successful in the past and I believe that we are going to be quite -- we cannot be fully accurate but we’ll be quite accurate also going forward.
Shyam Patel
And in terms of the bookings you said that you still expect the $1 billion or about there for the year. In terms of kind of your bookings this quarter versus expectations, were they in line, better?
And then for the year I know you are still expecting a 1 billion, but is that in line with before, or is that slightly lower, can you talk about that a little bit?
Wedbush Equity Research
And in terms of the bookings you said that you still expect the $1 billion or about there for the year. In terms of kind of your bookings this quarter versus expectations, were they in line, better?
And then for the year I know you are still expecting a 1 billion, but is that in line with before, or is that slightly lower, can you talk about that a little bit?
Zeevi Bregman
We don't break it, but the booking for this quarter are in line with our expectations.
Shyam Patel
And I know you can't comment on '14 guidance, but do you expect the growth rate that you've seen this year to be the right way of forecasting business going forward or do you expect some acceleration as we go into next year?
Wedbush Equity Research
And I know you can't comment on '14 guidance, but do you expect the growth rate that you've seen this year to be the right way of forecasting business going forward or do you expect some acceleration as we go into next year?
Zeevi Bregman
What I can say is that we believe that 2014 is going to be a year of growth for NICE. In terms of the actual guidance, we will provide it in the next call.
And in terms of -- we do believe that as we continue in progressing with our execution some of the booking of this year would translate to revenue for next year. I mean all the booking of this year will not be recognized this year, would translate to revenue of next year.
Shyam Patel
My last question Dafna, tax rate, corporate tax rate seems to be going up a little bit in Israel, how should we think about NICE’s tax rate in 2014 and beyond?
Wedbush Equity Research
My last question Dafna, tax rate, corporate tax rate seems to be going up a little bit in Israel, how should we think about NICE’s tax rate in 2014 and beyond?
Dafna Gruber
Actually there was a change in regulation earlier this quarter that increased the corporate tax rate on us from 12.5% this year to 16% next rate. I will give a more accurate data about what should be the range for taxes going forward after we complete our analysis on the impact on us.
You should assume certain increase in tax rate next year. And we will provide more data in the next call.
Operator
Our next question comes from the line of Matt Hedberg from RBC Capital Markets
Matt Hedberg
There has been a lot of talk about revenue moving to more cloud-based, which I believe is included in your services line. Is there going to be a point in the future where you breakout that cloud business to give us a little bit more perspective on the different moving parts?
RBC Capital Markets
There has been a lot of talk about revenue moving to more cloud-based, which I believe is included in your services line. Is there going to be a point in the future where you breakout that cloud business to give us a little bit more perspective on the different moving parts?
Zeevi Bregman
There will be a point in the future once we feel that this is a good indicator and a mature enough indicator, we will give it and currently...
Dafna Gruber
Currently it’s still below 10% and this is why we do not have to break it. But once it is stabilize and get closer to 10%, much closer to 10%, we will give more data.
Matt Hedberg
And then one on the same lines, if more of this business from a bookings perspective is moving to deferred revenue. I guess I am curious, why was -- deferred revenue looked like it was down 16% sequentially.
I am wondering is more of that bookings moving to an off balance sheet account?
RBC Capital Markets
And then one on the same lines, if more of this business from a bookings perspective is moving to deferred revenue. I guess I am curious, why was -- deferred revenue looked like it was down 16% sequentially.
I am wondering is more of that bookings moving to an off balance sheet account?
Dafna Gruber
Yes, if you look at the deferred -- deferred revenue is only part of the picture because it reflects mainly collection. I think what’s important to assess here is what is happening to our overall backlog.
Anyhow overall backlog this year compared to last year at the end of September there was an increase in the overall backlog. The mix between deferred revenues and unbilled backlog is a bit different, this year compared to last year.
And therefore you see a decline. But there is an increase in the overall backlog.
This is the important element.
Operator
Our next question comes from the line of Richard Parower from Seligman
Richard Parower
You guys are forecasting a pretty sharp growth rate in terms of product revenues in Q4. Is that from deals that you’re going to sign in Q4 or.
I am sure some of it is. But is there a portion of that too that’s just part of revenue recognition on deals that you’ve already signed, that you are working through implementing?
Seligman
You guys are forecasting a pretty sharp growth rate in terms of product revenues in Q4. Is that from deals that you’re going to sign in Q4 or.
I am sure some of it is. But is there a portion of that too that’s just part of revenue recognition on deals that you’ve already signed, that you are working through implementing?
Dafna Gruber
It’s a combination. The larger part is the anticipated deals that we are currently working on, complex multi-projects deals that we believe these deals will mature towards the end of the year, the end of budget year.
We have good indications that this is going to happen. And this is I would say the major part of the forecasted increase in product revenues.
Richard Parower
And I missed it if you talked about this, but did you mention whether the book-to-bill was greater than or less than one? And what is that typically in a Q3?
Seligman
And I missed it if you talked about this, but did you mention whether the book-to-bill was greater than or less than one? And what is that typically in a Q3?
Zeevi Bregma
We are not breaking the book-to-bill on a quarterly basis. As Dafna indicated, our backlog today is larger than the backlog in the third quarter of last year, which means that our book-to-bill on the four trailing quarters was larger than one.
Operator
Our next question comes from the line of Greg McDowell from JMP Securities.
Greg McDowell
Since you sighted weakness in China and India, I was wondering if you could talk about whether the deals in those geographies have disappeared or whether they’ve just pushed, and how you feel about those geographies going into Q4? Thanks.
JMP Securities
Since you sighted weakness in China and India, I was wondering if you could talk about whether the deals in those geographies have disappeared or whether they’ve just pushed, and how you feel about those geographies going into Q4? Thanks.
Zeevi Bregman
When we look at the APAC -- what we have indicated -- firstly deals were push. They didn’t disappear, and it’s two different, I think it is two different phenomena.
And in China there is a certain deceleration of economy and a big slowdown from the very rapid pace of economy in the past. In India because of the devaluation of the rupee there is -- this is what is the devaluation of the rupee is impacting the business and the budget of our customer.
So this is what caused them I believe to slow decisions.
Greg McDowell
And one last question. As you start to think about 2014 and use of the balance sheet, could you just maybe shed some light as we think about share buybacks or increasing the dividend or M&A, how we should think about sort of use of the balance sheet over the next12 months or so?
Thanks.
JMP Securities
And one last question. As you start to think about 2014 and use of the balance sheet, could you just maybe shed some light as we think about share buybacks or increasing the dividend or M&A, how we should think about sort of use of the balance sheet over the next12 months or so?
Thanks.
Zeevi Bregman
We are going to look at our capital first. This is something that we are doing periodically at the end of the year.
We are currently at the buyback program which is in place the $100 million that we are going to continue. For this year we announced a 15% growth of dividends and we will make -- we will announce our balance sheet plans probably in the conference call of Q1 for 2014.
Operator
Our next question comes from the line of Jonathan Ho from William Blair.
Jonathan Ho
Just want to understand when we look at the Actimize business this quarter or your financial fraud and compliance it grew relatively quickly. Just wanted to get a little bit of additional color as to growth rate, what’s driving that and perhaps how sustainable that growth rate would be from your perspective?
William Blair
Just want to understand when we look at the Actimize business this quarter or your financial fraud and compliance it grew relatively quickly. Just wanted to get a little bit of additional color as to growth rate, what’s driving that and perhaps how sustainable that growth rate would be from your perspective?
Zeevi Bregman
So first, indeed we had very strong growth in Q3 in Actimize and we are looking at the additional businesses and even in different geographies. We prefer to look at trends which are overtime and not quarterly trends and we believe that the 33% growth is above the growth rate in this business.
But it’s very encouraging sign and the business is very healthy. And when you look at the Actimize business and look at the area that Actimize is operating on it’s around compliance and around fraud and the pressure for compliance and on fraud.
Within financial institutions globally is increasing all the time and we are -- last week we had our event in New York for the financial institutions related compliance and financial clients, it was the best attended event that we had. It was very, very clear that this is a very in terms of the interest that this is taking there is a huge traction there.
By the way we had a keynote by a former Senator, Chris Dodd, which went very well and overall we look to talk -- people are presenting the pressure on them, what we have from them. It’s a very healthy environment for us and we believe that it is going to be also a lot of traction in the coming years.
Jonathan Ho
And just in terms of the tax payment that you guys made during the quarter, can you give us a sense of what tax rate that was paid out and how much cash gets freed up by that payment?
William Blair
And just in terms of the tax payment that you guys made during the quarter, can you give us a sense of what tax rate that was paid out and how much cash gets freed up by that payment?
Dafna Gruber
We paid about $30 million to settle tax audits and we have cleared the trapped profits. I cannot give because of the nature of this agreement, I cannot give more color but what I can say is that on our annual -- that we released all the trapped profit and in our Annual Report for December 31, 2012 we have said that the total amount of trapped profit for NICE at that point of time was $310 million.
Jonathan Ho
And just one last question around the SaaS area, can you at least give us some color from a trend perspective of how many customers or what percentage of customers this quarter elected SaaS as an offering just so that we get a sense of how quickly that’s transitioning?
William Blair
And just one last question around the SaaS area, can you at least give us some color from a trend perspective of how many customers or what percentage of customers this quarter elected SaaS as an offering just so that we get a sense of how quickly that’s transitioning?
Zeevi Bregman
When we are talking about a customer on SaaS it will be a misleading number, because we have the very small customers and we have the very large customers. So, giving it by customer number is not a reflecting figure.
The deals are very different from one another. But there is a growing demand and what we can see in this organization that in the past they didn’t even considered to move to cloud -- looking at the reduced time-to-market of this solution and looking at the saving on operational cost bring it and they are considering it and adopting this solution and everyone is doing it much more in this business.
Operator
Our next question comes from the line of David Kaplan from Barclays.
Chris Reimer
Apologies if you already answered this. What impact did the share buyback have on EPS?
Barclays Capital
Apologies if you already answered this. What impact did the share buyback have on EPS?
Zeevi Bregman
I am sorry you were introduced as David Kaplan and it clearly…
Chris Reimer
I am sorry for that Zeevi. I am Chris Reynar in place for David Kaplan today.
Barclays Capital
I am sorry for that Zeevi. I am Chris Reynar in place for David Kaplan today.
Dafna Gruber
So thank you. Can you repeat the question please?
Chris Reimer
Yes. What impact did the share buyback have on the EPS?
Barclays Capital
Yes. What impact did the share buyback have on the EPS?
Dafna Gruber
We are not calculating the impact because the EPS calculation and the overall share number is a complicated calculation that takes into consideration elements like share price, other than share price, optional location and so on. So we’re not making full breakdown of the impact of each one of the elements.
We gave the information on how many shares, it was around 800,000 shares. So theoretically you can make the conclusion.
Zeevi Bregman
But overall if you look sequentially the number of the outstanding shares from Q2 to Q3 increased this is a result of the increase on the share price. So if you look at the overall count of shares they didn’t change.
Sorry -- the overall -- it changed slightly up and the impact is very small of the number of shares the calculation.
Dafna Gruber
Just to repeat what I have said earlier 473,000 shares were purchased during the quarter, if that helps.
Chris Reimer
Yes, it does. Thank you.
Just one last question, which verticals are growing fastest and is NICE’s product portfolio positioned to benefit from that growth, would you share?
Barclays Capital
Yes, it does. Thank you.
Just one last question, which verticals are growing fastest and is NICE’s product portfolio positioned to benefit from that growth, would you share?
Zeevi Bregman
We do not have full analysis in front of us now, but we see a strong demand in our traditional sectors, in the financial sector, in telco, and also in Internet sites, e-commerce Internet sites.
Operator
Our next question comes from Brian Ruttenbur from CRT Capital.
Brian Ruttenbur
Yes, I have a question about security. Can you talk about the geographical weaknesses or strengths in the security division?
CRT Capital
Yes, I have a question about security. Can you talk about the geographical weaknesses or strengths in the security division?
Zeevi Bregman
Security was -- the government business in security had a particular strength in APAC. Other than that the trends were pretty much even in all different regions.
Brian Ruttenbur
And was the geographical weakness similar to the rest of your business and security as it was everything else?
CRT Capital
And was the geographical weakness similar to the rest of your business and security as it was everything else?
Zeevi Bregman
On the security we have two parts of the business, we have government and non-governmental business, the governmental business in APAC was very strong. The non-governmental business in APAC suffered, was weak like the other business.
Brian Ruttenbur
And then in term of the tax moving forward, do you see any other one-time events like this quarter in terms of tax payments kind of moving forward just trying to understand that this was a one-time event or if there is a year or two from now you have the same option on taxes to make it fair?
CRT Capital
And then in term of the tax moving forward, do you see any other one-time events like this quarter in terms of tax payments kind of moving forward just trying to understand that this was a one-time event or if there is a year or two from now you have the same option on taxes to make it fair?
Zeevi Bregman
This is a one-time event. The tax -- we paid all of them the tax settlement is we are having such settlements every few years but we are -- but this event this magnitude we believe that it’s a one-time event.
Brian Ruttenbur
And then last question on the security side. Do you anticipate toward calendar quarter to see a big increase and do you expect to see growth in 2014 in security that double-digit, single-digits any kind of range you could be?
CRT Capital
And then last question on the security side. Do you anticipate toward calendar quarter to see a big increase and do you expect to see growth in 2014 in security that double-digit, single-digits any kind of range you could be?
Zeevi Bregman
We really do not want to forecast the 2014 in this call. I can say that we have a very healthy pipeline with very large deals in the security business in all regions.
And we are very bullish about this business and believe that we have great technology and product, customer base and pipeline and we are confident that this business will go well. By the way, one comment that I didn’t say about the tax in the fourth quarter of last year on the previous question we had a one-time profit, a non-GAAP one-time profit from taxes so there was -- it was smaller but it was -- we had already an event.
Marty Cohen
Operator, next question please.
Operator
Our next question comes from the line of Jeff Kessler from Imperial Capital.
Jeffrey Kessler
With regard to your bank business, when you go in there with an offering for compliance. What type of acceptance are you getting when you try to sell them forensic and/or other type and security products?
Are you able to piggy back other parts of your business on top of the compliance sales that you are making?
Imperial Capital
With regard to your bank business, when you go in there with an offering for compliance. What type of acceptance are you getting when you try to sell them forensic and/or other type and security products?
Are you able to piggy back other parts of your business on top of the compliance sales that you are making?
Zeevi Bregman
So the answer is that we can piggy back additional sales on top of the compliance business, because both for our other platforms and in the same platform because at the end the same platform that is used for compliance is used for other applications. Like fraud, like the customer experience, the underlying technology is common.
So once we're selling the compliance solution, it's much easier to later on come and sometimes within the deal and sell additional benefit and additional applications. So this is something that we do see and we have seen -- we do see quite a lot and this is really part of our strategy.
When it comes to sending forensic solutions we had in the past several occasions that we provided forensic capabilities and if customer -- this is part of the services that we're providing the customers when they have a need to provide them with forensic services.
Jeffrey Kessler
So the forensic solution is on a different platform?
Imperial Capital
So the forensic solution is on a different platform?
Zeevi Bregman
No it's a same platform.
Jeffrey Kessler
One final question given that you have only made a couple of cloud-based sales at this point. However, you obviously are out there in the market.
What type of market, what type of verticals are you seeing push back and what type are you getting much more, let’s say acceptance in the sales pipeline that you have for using the cloud?
Imperial Capital
One final question given that you have only made a couple of cloud-based sales at this point. However, you obviously are out there in the market.
What type of market, what type of verticals are you seeing push back and what type are you getting much more, let’s say acceptance in the sales pipeline that you have for using the cloud?
Zeevi Bregman
So first we don't have couple of clouds there we have dozens and maybe even more than dozens of…
Jeffrey Kessler
I thought you can give us just one major, one small but I…
Imperial Capital
I thought you can give us just one major, one small but I…
Zeevi Bregman
No, no this is -- we have dozens of cloud customers there at the moment, so it's not couple it's not more than that. When it comes to the customer acceptance we have in the retail and telco industry this are where we have started that we saw and we are continuing to see demand in the adoption.
Financial services at the beginning was a bit, the large financial services, insurance companies, banks were more relaxed that in the past than they are more accepted to the idea of cloud these days.
Jeffrey Kessler
And are there any verticals where you are still having difficulty selling, you are still trying to break into selling the cloud-based solution?
Imperial Capital
And are there any verticals where you are still having difficulty selling, you are still trying to break into selling the cloud-based solution?
Zeevi Bregman
There is no vertical but it is on some financial data, there is sometimes reluctant to provide the data on the cloud basis.
Operator
We have no further questions in the queue at this time. I would now like to hand the call over to Zeevi for closing remarks.
Zeevi Bregman
So, thank you everyone for joining us today on the conference call and I wish you all a very nice day. Thank you.
Operator
Thank you, ladies and gentleman. This concludes your conference call for today.
You may now disconnect. Thank you for joining and have a very good day.