NICE Ltd

Welcome to the NICE conference call discussing third quarter 2020 results, and thank you all for holding. All participants are 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 November 12, 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 Baraki Alam, Chief Executive Officer, Beth Gaspich, Chief Financial Officer, and Aron Laron, Executive Vice President, Marketing and 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 Risk Factors in Item 3 of the company's 2019 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on April 6, 2020. During today's call, we will present a more detailed discussion of third 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 Barak.

Thank you, Marty, and welcome, everyone. We are pleased to report a very strong Q3 driven by continued rapid acceleration in our cloud business. Cloud grew to a record 35% and now represents 50% of our total revenue which is a major milestone for NICE. We also reported 10% sequential growth in the cloud compared to Q2 and we already suppressed the more than $800 million cloud revenue run rate that we had expected by the end of the year. This strong cloud performance underscored a solid quarter overall with total revenue increasing 7% to $412 million. Operating income was $117 million, which was an increase of 10% compared to Q3 2019, and operating margin increased 95 basis points to 28.3% compared to Q3 last year. These strong operating results led to an 8% increase in earning per share to $1.41. Additionally, operating cash flow increased 20% to $99 million in Q3 compared to the same period last year. The acceleration in our cloud growth is being driven by several factors, including substantial growth in new customers, rapid adoption by large enterprises, new verticals that are now more than ever embracing remote service and digital transformation, that has become front and center for organizations of all sizes. The strong demand for our cloud solutions from new customers can be seen by the large number of new logos we continue to sign each and every quarter. In Q3 alone, we saw an increase of over 50% in new logos compared to the same quarter last year. Many of these new customers are coming from the continued rapid adoption of our CX1 cloud platform. Enterprises in all segments of the market around the world recognize CX1 as the clear, market-leading cloud platform to help them deliver on their cloud and digital transformations. The adoption by new customers is being driven by an acceleration in the market around cloud and digital. It is also being driven by the success we are having with our growing ecosystem of partners that are reselling our cloud solutions, as well as further penetration into international markets. In addition, many new CX1 customers were the result of an over 80% conversion rate of CX1 at home to a paid subscription. We are the largest CCaaS provider in our industry, double the size of our next largest competitor, and we are reporting faster growth. Much of our outperformance is the result of our significant competitive advantage in the large enterprise. The large enterprise market, which we define as enterprises with over 750 agents, continues to accelerate and is helping to drive the fast growth of CX1. CX1 is the only platform to date that can effectively scale to both the large and mega enterprises. This is because it incorporates the seamless integration of omnichannel routing, workforce optimization, and analytics all on a single platform. Furthermore, with over 160 independent software vendors building solutions on our CX-1 exchange marketplace, we boast the largest ecosystem of partners in the industry. Many of our Q3 deals for CX-1 demonstrate our continued ability to capture share in the upper end of the market as we continue to displace the incumbent on-premise providers. We signed a 7-digit ACV deal for CX-1 with one of the largest hospitality operators in the world, replacing the two incumbent on-premise providers. We also signed many expansion deals for CX-1 as customers continue to come back to add additional seats and solutions. One of those was a very large auto credit company. We signed a 7-digit cloud deal with one of the largest global banks. Also an expansion deal with a long-standing customer to add additional seats. We signed a 7-digit expansion deal for analytics with a long-standing financial services customer and two analytics expansion deals with very large existing telco customers. There was also a 7-digit ACV cloud deal with a large business process outsourcer who took on several of our cloud solutions. Our strength in the large enterprise has also received recognition from industry analysts. In fact, we were once again named the leader in the 2020 Gartner Magic Quadrants for Contact Center as a Service report. NICE achieved the highest overall position for its ability to execute and has been placed as a leader every year since this Magic Quadrant's inception. In addition, the recent Forrester Wave Contact Center as a Service report identifies CX1 as the leader in the market, with CX1 receiving the highest possible score in the market presence category and securing top ranking in the current offering and strategy categories. Our leadership in the cloud and the resulting growth is also being driven by new verticals that are embracing remote service. Among those verticals are government and the new breed technology companies, which are growing rapidly and recognizing the increasing importance of the need for agility and flexibility in their customer service operations. In the government vertical, We see continued strength in both local and federal augmented by our FedRAMP authorization for CX1. For example, in Q3, we signed a seven-digit ACV CX1 deal with a very large government health organization. It took only two weeks to sign this deal for thousands of agents as they could not scale with their existing on-premise providers, which we replaced. There was also the need for them to turn up quickly and rapidly, scale up and down as needed, to respond to varying levels of demand, which demonstrates the enormous flexibility and agility of the CX1 platform. In technology, we signed a 7-digit cloud deal with a cloud-sharing economy provider for a portfolio for our analytic solutions, including our new Enlighten AI platform. leverages cutting-edge AI and machine learning to identify and model many different behavioral patterns to help predict business outcomes. There was also a seven-digit cloud deal with a worldwide streaming music provider. While there is no doubt that we are in the midst of a digital transformation among enterprises of all sizes, we are seeing strong demand for an omni-experience in those transformations. In other words, Enterprises don't want to make the same mistakes as in the past by stitching together digital solutions that operate in separate silos. It is inefficient, usually unproductive, inflexible, and costly. Rather, they demand a single platform in which all the different digital channels are seamlessly integrated. This is where CX1 is clearly differentiated with over 30 seamlessly integrated digital channels. So NICE, we are in a prime competitive position to capture the opportunities provided by this changing market dynamics as native digital solutions are at the core of our business. In fact, just this past quarter, we witnessed a 91% sequential increase in digital volumes for CX1 and a 154% increase year-over-year. In Q3, 50% of our new CX-1 deals included digital, including an online counseling service, a commercial water management company, and a business process outsourcer. The impact of the digital transformation reaches across all our businesses, including financial common compliance and public safety. In financial common compliance, the digital capabilities of Excite and Exceed are driving cloud transformations. and in fact, we saw 150% increase in cloud revenue in this segment in Q3. Digital banking presents a tremendous growth potential for us as we are starting to see increasing data monetization opportunities. For example, in Q3, we landed additional data IQ deals as the bank feels pressure to materially reduce the time to onboard new customers and therefore, need to dramatically improve their processing of data from external sources. Moreover, XITE is becoming an industry hub for banks to advance their digital transformations by leveraging the XITE Marketplace. The XITE Marketplace is the industry's first ecosystem for financial common compliance to enable third-party innovations. To date, with over 50 marketplace partners. Together with these partners, customers can access multiple data sources and applications all in one place. We are also facilitating cloud and digital transformations in public safety. Just recently, we announced the launch of our Evidence Central Marketplace. It is the first open digital evidence management ecosystem of technology vendors geared towards law enforcement and criminal justice agencies. The marketplace will greatly enhance the value of our Evidence Central end-to-end digital transformation platform, which includes the NICE Investigate and NICE Inform solutions. Through the Evidence Central marketplace, law enforcement and criminal justice agencies gain access to a wide variety of best-of-breed technology solutions critical to the investigation process. In all of our markets in which we operate, enterprises and organizations of all sizes are heavily engaged in their cloud and digital transformations. We witnessed this firsthand at our recent user conferences. Interactions in September for our customer engagement customers, a nice engage in October for financial common compliance. Both user conferences had record attendance. It was a great opportunity to showcase our market-leading platforms that provide extreme agility and flexibility to our customers to help facilitate these transformations. In closing, as cloud and digital are beginning to become mainstream, we are in a prime competitive position to capture the opportunities ahead. Moreover, we are only at the very beginning of this evolution in each of our market segments. The total addressable market for NICE is huge. and continues to expand. We believe the current market opportunity is about $6.5 billion for NICE and we see that expanding to over $17 billion over the next five years. I will now turn the call over to Beth.