NICE Ltd

Welcome to the NICE conference call discussing fourth quarter and full year 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 February 18, 2021. I would now like to turn this call over to Mr. Marty Cohen, Vice President of Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barak Elam, Chief Executive Officer, Beth Gaspich, Chief Financial Officer, and Aaron 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 three of the company's 2019 annual report on form 20F as filed with the Securities and Exchange Commission on April 6, 2020. During today's call, we will present a more detailed discussion of fourth quarter and full year 2020 results and the company's guidance for the first quarter and full year 2021. 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 revenue 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. Over the past several years, we have successfully built NICE into a company that is able to quickly transform. ADAT was no doubt put to the test as a result of the events that took place last year. We more than just passed the test. We broke barriers, turning 2020 into another groundbreaking year for NICE. Our strategy in the past few years has been to transform our markets with cloud digital platforms that embed artificial intelligence. It was proven to be successful and catalyzed our growth. 2020 was an eye-opener for organizations of all sizes, realizing that the only viable choice to keep up is to fully embrace cloud, digital, and artificial intelligence. The result is that cloud, digital, and AI adoption has now leaped several years forward. As we are now the clear market leader in all these domains, we are extremely well positioned to be the platform of choice. 2020 was a standout year for Nice in cloud. We have taken a wide industry lead as we suppressed the mark of nearly 50% of our total revenue coming from the cloud. We exited 2020 with a cloud annual revenue run rate exceeding $900 million. At the same time, we delivered nearly 400 basis point improvement in cloud gross margin in 2020 compared to 2019, which drove a 90 basis point increase in the operating margin over the same period. Our cloud leadership was driven by accelerating cloud revenue growth throughout 2020, and we ended the full year 2020 with 31% cloud revenue growth compared to 2019. We owe our strengths in the cloud to continued product innovation and strong competitive advantages provided by our cloud platforms, namely CX1 in customer engagement, Excite and Exceed in financial crime and compliance, and Evidence Central in Public Safety. We further penetrated new market segments in the cloud, taking our solutions downmarket and establishing our leadership in this segment, while at the same time seeing rapid penetration in large enterprises. With CX1, we have established significant beachheads with a record number of customer wins at the high end of the market, replacing the legacy solutions of our competitors along the way. We witnessed further penetration in the international market with CX1 and saw a record number of agents on CX1 in 2020 as well. We also opened brand new cloud opportunities in financial common compliance with our new Exceed cloud platform, providing a gateway to the lower end of the market, encompassing thousands of financial institutions that we may not have had access to in the past. The traction with Exceed has been rapid, with new customers already signing on to the new platform. As in customer engagement, we now have the entire financial crime and compliance market covered in the cloud with both excite for large financial institutions and exceed for the small mid-sized markets. And in public safety, we had a record year. We more than doubled the number of our public safety customers in the cloud driven by our evidence central cloud platform. and its anchor solution, Nice Investigate. With the need for digital evidence management rapidly accelerating, our evidence central end-to-end digital transformation platform is helping to bring the public safety market into the digital age. Digital transformation became top of mind for customers in 2020, and for us, 2020 was a year of digital breakthrough. We witnessed the accelerated use of digital channels across our markets and our platforms were a driving force for the new frontiers of digital customer service, digital banking, and digital policing. In 2020, over half of our all contact center opportunities contained digital elements, and we saw an overwhelming 100% year-over-year increase in our customers' digital interactions volume. We owe this to the best of our portfolio and best-in-class digital capabilities natively integrated into CX1. Most of our financial and crime compliance deals were driven by the imperative for digital transformation in banks, and Nice Investigate is today the fastest-growing digital evidence solution in the financial crime justice market. 2020 was also a year We witnessed a major transition from NICE being the leading provider of cutting-edge analytics to the preeminent provider of breakthrough artificial intelligence, as we are now injecting AI in almost everything we do. In fact, our Enlighten platform is now the underpinning for several of our new and existing solutions. Since the launch of Enlighten last year, we have seen substantial growth in the pipeline, with several deals from multiple verticals already signed throughout the year, including three of the top ten new economy companies, a major healthcare provider, a renowned tax preparation provider, one of the largest global hospitality companies, a prominent telco company, and many others. On top of all of this, in 2020 we continue to significantly expand our ecosystem of partners with a growing number of independent software vendors building their solutions on our open marketplaces for all our platforms, boasting the largest ecosystem in our domains. 2020 was a successful year at NICE, and the 4th quarter results brought the year to a strong finish. In Q4, cloud revenue grew 33% compared to the same quarter of 2019. Cloud gross margin increased 380 basis points and the operating margin exceeded 30%. In addition, cash flow from operations grew 82% to $167 million in Q4, leading to a record annual cash flow from operations of $480 million for 2020. The strong results in our cloud business are reflected in the continuous signing of significant cloud deals in the large enterprises, and Q4 was no exception. We signed many multi-year 7-digit ACV CX1 deals, including one with a leading multinational automotive brand. This organization is transforming the customer experience by adopting a seamless omnichannel platform with nice, that provides scale and agility. We replaced several competitors in the process. Other seven-digit ACV CX1 deals included a multinational financial institution, a large South American-based bank, a preeminent security company, a leading brokerage firm, and a large government customer that included approximately 20 different agencies. There was a seven-digit deal with one of the biggest hospitality companies in the world, which was a quick expansion of a deal signed just one quarter prior. Other seven-digit deals included large outsourcers, a renowned transportation leasing company, a very prominent aviation company, and a leading national auto dealer. The common factor behind these large enterprise CX-1 deals in Q4 was that they took on a multi-solution portfolio approach. This is a trend we are seeing more of as a growing number of large enterprise customers understand the significant benefit of a seamlessly integrated cloud omnichannel platform from a single vendor. Moreover, most of those deals were replacements of on-premise legacy vendor solutions. We closed many significant deals in financial crime and compliance in Q4. One such deal was an 8-digit in the cloud with a very large financial services firm. This was a new customer as we replaced the homegrown AML solutions with our cloud platform. There was a 7-digit deal with a very large European financial services firm, further expanding our relationship with this customer, and another 7-digit cloud expansion deal with a US-based brokerage firm. Our new Exceed platform drove a significant number of cloud deals with both new and existing customers in Q4. One such existing customer, a US-based regional bank, transitioned from our on-premise solutions to our Exceed cloud platform in a 7-digit deal. The number of new logos increased significantly in financial common compliance as a result of the strong demand for Exceed, with many of the deals centered around digital banking. Moreover, we are further driving demand for XSEDE through partnerships, and one such partnership we recently signed was with Finastra. Finastra, a provider of core banking solutions and payment software, will deliver our XSEDE platform to their customer base. In public safety in Q4, we signed several seven-digit deals, including with two major U.S. cities and an AIPAC-based police operation. We are proud of the results we achieved in 2020, but 2020 was just a warm-up. We will leverage the success we had in 2020 and take that into the new year. 2021 is shaping up to be a year in which the game has changed. We are in a new reality, in which the events of 2020 have created a new normal and at the same time provided new opportunities. The first reality in this new normal is the move from old notion of time to value to the new reality of immediate value. In 2020, organizations of all sizes were taken by complete surprise by the crisis. They realized they need to get things done much faster than ever before. And they discovered that the old rules of long projects planning and dependencies on cumbersome bureaucracies are simply not applicable anymore. Organizations are now looking for technologies that will allow them to routinely break the execution speed limit of complex multi-stage projects while not compromising the quality and outcome of their efforts. The second reality in this new normal is the move from sporadic change to continuous adaptation. When it comes to driving organizational change, Implementing changes in sequential serial way one change at a time will not work anymore. Enterprises need to adopt an approach of continuous adaptation. They must have the ability to drive and manage constant change in an ordered way across the entire organization, based on immediate insight, accurate real-time data, and execute on it with maximum precision. The third reality is the move from cloud aspiration to cloud affirmation. For years, we've been speaking about the journey to the cloud and about cloud transformation. The cloud is no longer a future aspirational intent, but an immediate, urgent, must-have reality. On-premise solutions are no longer effective, leaving organizations no choice but to adopt cloud platform foundations. The final reality Digital is no longer the next big thing. It is happening now. Organizations are referring today to the term digital as the same with anything considered to be next generation. It is therefore no wonder that digital is the preferred language spoken. There is an actual race out there where organizations are rushing to become digitally fluent across everything they do. and that means cultivating an all-encompassing digital mindset and culture, injecting a digital approach to drive new businesses' models, offerings and processes. We are well positioned for this transition to the new normal with our leading digital cloud platforms and cutting edge AI. We already saw great success in 2020. Now, with these vast opportunities provided by this new normal, Combined with a large and growing TAM that we see expanding to over $17 billion over the next five years, we are very much looking forward to 2021. With our leadership gap continuing to widen versus our competitors, 2021 and beyond is the time to turn that gap into a chasm. In 2020, more than ever, we have witnessed the ultimate power of our nice spirit. I would like to take this opportunity and thank our 7,000 nicers around the globe for their relentless innovation and endless dedication during this unprecedented year. I know that this spirit will continue to push us forward, which gives me great confidence to take on 2021 and the years ahead. I will now turn the call over to Beth.