NICE Ltd

Welcome to the NICE conference call discussing first quarter 2020 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 May 14, 2020. I would now like to turn this call over to Mr. Marty Cohen, VP Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Beth Gaspich, Chief Financial Officer, and Aron Laron, Executive Vice President, Marketing and Corporate Development. Unfortunately, due to the death of his father, Barak Elam, CEO, is unable to join the call today. We send him and his family our deepest condolences. 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, including the impact of the COVID-19 pandemic, is contained in the section entitled Risk Factors in Item 3 of the Company's 2019 Annual Report on Form 20-F, as followed with the Securities and Exchange Commission on April 6, 2020. During today's call, we will present a more detailed discussion of first quarter 2020 results and the Company's guidance. 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 Arun Laron.

Thank you Marty and welcome everyone. First, I would like to join Marty and on behalf of the entire NICE team extend their condolences to Barack for the loss of his father. As for the business environment, we're operating in an unprecedented time. Never before have organizations had to reprogram the way we operate in a matter of days and then constantly keep adapting to changes on a daily basis amidst the uncertainties they are all experiencing. After years of building organizational muscle centered on efficiency and experience, now extreme organizational agility has suddenly become the most important critical capability of any enterprise that wants to navigate these uncertain times. Changes that used to require years to implement must now be done in days. Organizational agility, which is a company's ability to renew itself, adapt, and change quickly to succeed in a rapidly changing, ambiguous, and turbulent environment, was stress-tested beyond belief in the past couple of months. At the same time, organizations are starting to rethink the long term, realizing that the need for agility is not temporary, but rather is here to stay, and rapid and abrupt changes are the new normal. For NICE, we're in the vanguard position to enable organizational agility for our customers. This is true for all markets we operate in, including customer engagement, financial crime and compliance, and public safety. Over the past couple months, we have enabled new and existing customers to respond to rapid changes in a matter of hours or days. Furthermore, these recent months were a testament to the mission-critical nature of our solutions as we have seen continued adoption along with a dramatic increase in volumes going through our platforms across multiple vertical markets. In response to the need of organizations to quickly adapt in the current environment, we launched new offerings at record pace. At the onset of the lockdown, every enterprise with a customer service operation was faced with two enormous challenges. Moving employees to work from home overnight and at the same time dealing with a massive spike in the number of interactions. In fact, industry-wide 15 million contact center employees around the globe had to move to work from home while maintaining uninterrupted service. In response, we launched CX1 at Home. Targeted at those organizations with contact centers using on-premise infrastructures from legacy vendors. While these on-premise infrastructures are highly inflexible and difficult to move to a remote environment, CX-1 at Home can actually be deployed in 48 hours or less and supports work anywhere. Thus far we've seen strong demand for CX-1 at Home with a few dozen organizations already adopting the offering and many more in the pipeline. It is important to note that many of these organizations that have adopted CX-1 at Home were using a competitive on-premise solution and were not planning to shift to the cloud in the foreseeable future, but decided to do so once they realized the extreme challenges that they were facing. For our existing customers already on CX1, we've enabled the successful transition of hundreds of thousands of contact center agents to work from home within hours. Those enterprises using CX1 were able to maintain fully operational customer service levels without interruption, including both self-service and digital channels. Additionally, we're experiencing unprecedented increase in 6-1 volumes for both existing and new local and federal agency customers. As the only FedRAMP authorized cloud platform, we are very proud to take part in providing government agencies with the ability to support tens of millions of citizens. We were able to flawlessly support a five-fold volume increase in this vertical due to the intrinsic agility and scalability of our platform. Also, with hundreds of thousands of employees working from home, supervisors are faced with a new challenge for managing a remote workforce. In response to this urgent need, we launched WM at Home, to both new and existing customers to provide advanced remote management capabilities. With WM at home, supervisors can now gain control and focus employees on shifting customer priorities. The public safety sector is also challenged. The need to conduct investigation doesn't go away in the current environment and they might strike a balance in the ability to continue to conduct investigations while still maintaining the safety of their employees. Therefore, we immediately launched Nice Investigate Express. Nice Investigate Express eliminates the need to physically handle evidence. It enables the electronic sharing of information, both internally and externally, and even allows quarantined public safety personnel to continue to work from home. Thousands of public safety personnel across the U.S. and the U.K. already started using the new solution in the very first weeks. and interest is growing steadily. This is another example of how the current environment is accelerating the digital transformation in the public safety sector. We are also seeing similar requirements in our financial prime and compliance market. A few weeks ago, the government launched the CARES Act and due to the provisions of this Act, financial services organizations are facing an unprecedented influx of loan applications. and they need to provide accessibility to the Paycheck Protection Program in record time. Despite this large influx of loan applications, financial organizations are still required to follow all Know Your Customers regulations and procedures. But now, in an expedited time frame, in response, we launch KYC Express. KYC Express is a cloud solution which automates manual KYC procedures Reducing hours of manual steps to minutes, minimizing errors, and dramatically increasing the speed of KYC processes by more than 80%. Across all segments of our business, we are pleased to see that we have witnessed great response to these offerings for the immediate need to provide agility to organizations. Over the past couple of years, we spoke about our strategy to enable organizational transformations related to digital, cloud, and analytics. While we continue to address the short-term needs of our customers, we are also starting to see organizations prepare for the next phase. The recent events demonstrated to them that it is not critical to accelerate these transformations. Furthermore, their ability to respond very rapidly in the last few months and manage in days changes that they felt would take years is giving them the confidence that they can transform quickly. Among other things, this will dramatically accelerate the shift to the cloud, fast forward digital to be a mainstream component of their operations and alter their mindset from just experimenting with AI to massively adopting it. We are in a prime competitive position to enable organizations to expedite their transformations as they overcome their immediate challenges and begin to prepare for the future. Our cloud and digital leadership, as well as the mission critical nature of our solutions, was demonstrated by our strong first quarter results. In Q1, total revenue increased 9% to $411 million, driven by another quarter of accelerated cloud revenue growth. which increased 27%. The strong top line results led to a further increase in profitability. Operating income was $111 million which is an increase of 14% compared to Q1 2019. And operating margin increased 120 basis points to 26.9% compared to Q1 last year. These strong operating results led to a 14% increase in earnings per share to $1.34. The 27% cloud growth was once again driven by 6.1 with multiple 7-digit ACV deals with many new logos. The 6.1 deals included a 7-digit ACV deal with a large financial institution that decided to standardize on 6.1 with our full analytics portfolio. and in the process replaced two of the incumbents. We also signed a seven-digit ACB-CX1 deal with a large state agency. We also signed a seven-digit deal with a major telecom for analytics and a seven-digit deal with one of the largest insurance companies in the world, also for analytics. In Q1, we also received two eight-digit orders. One with a large global financial services integrator and the other with a major federal agency. We signed several seven-digit deals for our financial prime and compliance solutions, including a large payment processing company and some large global banks. In addition, we signed several seven-digit deals for essentials. In the quarter, we also experienced significant expansion in our partner ecosystem. We signed a new strategic partnership with Infosys for our financial crime and compliance solutions. This global partnership will allow Infosys to resell our AML and fraud solutions to their very large customer base around the world. We also signed new resell partnerships for CX1. One was with a major European telecom to help extend the reach of CX1 in the European market and the other with the largest retail in the contact center industry that is moving more of their business to the cloud. Our other recently signed partnerships are doing well and continue to rapidly grow their business with NICE. Moving to our financial outlook. As you saw in our press release, we are providing Q2 guidance, but given the uncertainty of the economic conditions, we are withdrawing our annual guidance. We continue to have high confidence and expect strong growth in our cloud business. However, our licensed business depends in part on large upfront capital expenditures by our customers and we're being cautious about such expenditures in the near term. As a company continually focused on profitability, we do expect to maintain strong growth in our earnings. In closing, The challenges of the current environment have opened the eyes of companies around the world to the importance of organizational agility. This is underscored by the inflexibility of today's on-premise solutions from legacy vendors. We believe this bodes well for an accelerated adoption of our cloud platforms and our mission-critical solutions as the current environment has delivered a harsh warning to organizations that they can no longer delay their cloud and digital transformation. As the clear leader in both cloud and digital, along with a strong balance sheet, strong cash generation, a stable and well-established business, and an acute focus on profitability, we're in the best competitive position to capture the opportunities ahead of us. Let me finish by thanking our employees who are now working from home for their dedication and support during these unprecedented times and for continuing to give 100% of their efforts and commitment to driving the success of NICE. I will now turn over the call to Beth.