NICE Ltd

With me on the call today are Barak Elam, Chief Executive Officer, Beth Gaspich, Chief Financial Officer, and Daron Laron, 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 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 2020 Annual Report on Form 20-F as followed by the Securities and Exchange Commission on March 23, 2021. During today's call, we will present a more detailed discussion of first quarter 2021 results and the Company's guidance for the second quarter and full year of 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 revenues and expenses, amortization of intangible assets, and accounting for stock-based compensation. Differences? between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. We'd also like to remind you that we are hosting our Virtual Investor Day on May 25th in conjunction with our Interactions Live user conference. The special program for analysts and investors will include presentations from NICE executives and product and technology sessions. If you haven't received a registration email, please email us at ir. I will now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. As we are nearly halfway through 2021, our world is already changing at an accelerated pace. Consumer experiences will change more in the next five years than they have in the previous 15. Next-gen consumers demand channel of choice and seamless experience, and to keep up, enterprises need to raise their game in driving customer satisfaction to maintain loyalty among consumers. To accomplish this, organizations are accelerating their adoption of cloud, digital, sophisticated analytics and AI. This is creating immense opportunities in the market in which we operate and for the solution that we develop and deliver. We are seeing increased adoption in cloud, digital, automation, and self-service solutions and technologies that we have successfully encapsulated into the broadest, deepest, and most complete platforms in both customer engagement and financial crime and compliance. These platforms will enable us to capture significant growth opportunities in what we foresee as more than a $25 billion total addressable market for NICE. We witnessed Strong evidence of these growth opportunities throughout 2020, and it is continuing in 2021, as demonstrated by our very strong first quarter results across the boards. Total revenue increased 11% to $457 million, which exceeded our guidance range, and cloud revenue grew 33%, both of which were fueled by CX1. The CX1 pipeline and bookings reached record levels in Q1. Unlike cloud transitions by other companies, our overall revenue growth is accelerating due to a combination of two drivers to our cloud business. First, cloud conversions of our existing on-premise products resulting in higher annual revenue per customer. And second, a net new cloud business in Sika's digital and self-service Solutions that we did not previously offer in the on-premise model. In Q1, due to our success in the large enterprise market, our cloud gross margin continued to rapidly increase, growing 470 basis points to 67.6%, and that drove the overall gross margin, which increased 180 basis points, to 72.7%. Operating income increased 17% to $129 million and operating margin grew 130 basis points to 28.2%. This led to a 15% increase in earnings per share to $1.54, which also exceeded our guidance range, and we generated $164 million in operating cash flow in Q1. The underpinning of this strong financial performance and our ongoing growth are the result of owning the best and broadest set of assets we have assembled for both innovations and acquisitions to create CX1. These assets include omnichannel routing, digital, workforce engagement, analytics, AI, and automation. We have successfully integrated these best-of-breed technologies into CX1. which is a single unified native cloud platform delivered to all segments of the market, small, mid, and large enterprises. This deliberate and prudent strategy of combining all these assets was recognized by Gartner and many other industry analysts as NICE is the only company that is a leader in both CCAS and WEM in Gartner's magic quadrille. As the demand for channel of choice has become mainstream among consumers, the need for digital has never been greater among enterprises. In Q1, we witnessed an increase of 2.5 times in digital interactions. This rapid growth in digital demonstrates the fast-growing appetite that enterprises have to digital transform, and CX1 has the broadest set of digital assets in the industry. CX1's native capabilities allows businesses to reach consumers wherever the digital journey begins. Whether a search engine, social network, or mobile application, AI-powered smart digital self-service is ready to handle all interactions, either proactive or responsive, to all customer needs. A few weeks ago, we further enhanced our digital offering with the introduction of CX1 Expert following the acquisition of MindTouch. This expands the capabilities of our platform by embedding knowledge into the digital journey. This is another step in extending the breadth and depth of CX1 by natively integrating best of breed capabilities. Our extensive investment in the past few years in AI led to the introduction of Enlighten. It is the AI brain and the core of CX1 that is embedded across our entire platform greatly enhancing every single solution on the platform. We have seen great success with Enlightened among large enterprises in telecom, healthcare, hospitality, and other sectors. With these assets in place, we also have a go-to market that is unparalleled in delivering CX1 to all market segments, small, mid, and large enterprises, as well as international. International expansion has been a key strategic initiative for CX1 and we are seeing great results. In Q1, international bookings grew three times compared to the same quarter last year as we are seeing great momentum in our international partner expansion program. For small and mid-sized enterprises, we are also working with dozens of channel partners in a rapidly expanding partner ecosystem that includes carriers, referral partners, collaboration vendors, CRM providers, valued resellers and system integrators. We continue to see strong growth in bookings with our partners and we witnessed 38% growth in new logos in Q1 with many of those coming through the channel. We also have a large ecosystem of Dev1 partners that are building solutions for our fast-growing CX Exchange marketplace. There are over 150 solutions in the marketplace and over 400 APIs to extend CX1 for CRM, web, mobile apps, AI and automation among many other categories. Our route to large enterprises has been our domain expertise for many years. This domain expertise together with a large global enterprise sales organization are reasons why we are clearly differentiated from our competitors in this segment of the market and why we continue to see Growing momentum here. Q1 exhibited further evidence of this. In Q1, we signed many 7-digit ACV CX1 deals with new customers. New customer deals included a large hospitality chain where we replaced the incumbent on-premise legacy provider. We won this deal for the all-in-one aspect of CX1 platform and the ability to easily add digital channels and analytics down the road. We signed a seven-digit ACV deal with a large federal government agency, which required a scalable model for the cloud and federal authorization. There was a seven-digit deal with a leading dental insurance company, as they will be replacing the on-premise legacy systems from the incumbents. They will be moving forward with more automation, cutting-edge workforce engagement, and digitally transforming their business with nice. We also signed a very large ACV deal with a well-known online publishing company. In addition to new customers, we signed many large expansion deals, which demonstrate the power of our platform as these customers continue to expand their relationships with NICE by adding on solutions easily and seamlessly over time. Large expansion deals included a 7-digit ACV deal with a leading business process outsourcer, and a large healthcare company where we expanded and replaced the incumbent. This healthcare company expanded with CX1 to further advance their cloud transformation project in contact center. Other seven-digit expansion deals included one with a major airline for portfolio fire solutions, including analytics as they are preparing themselves for a major post-pandemic business resurgence. We also signed a seven-digit expansion deal with a major social media company, which will deploy several solutions from our workforce engagement portfolio as well as analytics. We are also seeing tremendous momentum for CX1 internationally, with some very large international deals that were signed in the quarter. There was a 7-digit ACV deal with a very large Latin American telecom group, which is a new customer. We won this deal due to the flexibility, agility, and extensibility of our cloud platform and replaced the incumbent who could only offer a hosted version of their on-premise product. There was a 7-digit deal with a preeminent telecom company in the APAC region. Also in APAC, we signed a 7-digit deal with a major telecom company for a portfolio of our solutions. In the UK, we signed 7-digit deals with a government agency for RPA and a telecom company for analytics. In financial crime and compliance, we continued to sign large deals, including seven-digit deals with a very large bank for compliance, a major brokerage firm for fraud and robotics automation, an international bank for a portfolio of our fraud and AML solutions, among many others. We also continued to witness increasing success in the mid-tier financial institutions with our XSeed platform. In summary, after a strong start to the year, with the best assets in place, an unmatched go-to market and partner ecosystem, a record pipeline and robust bookings, and mostly untapped $25 billion fast-growing temps, we believe we are in the best competitive position to capture many opportunities in 2021 and beyond. I would like to take this opportunity and invite all of you to our annual Investor Day in conjunction with our Interactions User Conference. Interactions Live is the CX industry's largest virtual event with over 25,000 customers and partners in attendance and a great lineup of keynote speakers. I will now turn the call over to Beth.

Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and business performance for the first quarter of 2021 and provide our outlook for the second quarter and full year. Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million compared to $411 million in the same period of last year. For the first time, total revenue in Q1 exceeded total revenue in Q4. Demonstrating our shift to a predominantly cloud company with about 80% recurring revenue. Total revenue growth was again driven by our impressive cloud revenue, which grew 33% year over year. As expected, due to our ongoing transition to the cloud that is growing rapidly, we expect to have a long-term trend of overall higher revenue growth. Cloud revenue represented 50% of our total revenue in the quarter compared to 42% last year, and recurring revenue stood at 78% of total revenue in the quarter compared to 75% last year. Our cloud revenue is primarily being driven by CX1 in all segments of the market. While we are clearly differentiated and continue to achieve great success in large enterprises, We are also seeing tremendous achievements both internationally and in the mid-market as well. In the quarter, 50% of our revenue was generated from cloud and the other half of our revenue was comprised of our product and services which accounted for 15% and 35% of total revenue respectively. Moving to our business unit breakdown. Customer engagement revenues, which represented 81% of our total revenue in Q1, totaled $369 million for the first quarter, a 13% increase compared to the same quarter last year. In our other business unit, financial crime and compliance revenues were $88 million for the first quarter, which was an increase of 6% from Q1 last year and represented 19% of our total revenue. Breaking down total revenue by geographic region, we saw double-digit growth in the Americas and EMEA regions. Americas, which represented 82% of our revenue in Q1, totaled $374 million and grew 11%, while EMEA revenues represented 12% of total revenue and grew 16% to $56 million. APAC revenues, which represented 6% of our total revenue in Q1, totaled $27 million and grew 6% compared to Q1 last year. Part of our growth strategy is to expand our cloud reach internationally. This ongoing expansion of CX1 across multiple regions is one of the key growth drivers for our continued cloud growth. Our gross profit grew 14% to a quarterly record of $332 million in the first quarter, compared to $292 million for the first quarter of 2020. The gross margin increased to 72.7% compared to 70.9% in Q1 last year. The increase in gross margin is mainly attributed to the growth from CX1. In the first quarter, cloud gross margin was 67.6% and increase of about 470 basis points, which was largely the result of increased scale in our cloud business. As our cloud business continues to grow, we expect further expansion in our cloud gross margin. In Q1, operating income increased to $129 million compared to $111 million in Q1 2020, and operating margin was 28.2%, Earnings per share for the first quarter totaled $1.54, an increase of 15% compared to Q1 last year, resulting from the improvement in gross and operating margins. We experienced another strong quarter in operating cash flow, which totaled $164 million in Q1, an increase of 6% compared to last year. Total cash and investments at the end of March 2021 totaled $1,561,000,000. Net of debt of $685 million. Our net cash totaled $876 million. Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on opportunities consistent with our growth strategy and capital allocation plans. I will conclude my remarks with guidance. For the second quarter of 2021, we expect total revenue to be in the range of $445 million to $455 million. We expect the second quarter 2021 fully diluted earnings per share to be in a range of $1.45 to $1.55. For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1.8 billion to $1.820 billion. We are also increasing the range of our guidance for the full year 2021 fully diluted earnings per share to be in a range of $6.19 to $6.39. I will now turn the call over to the operator for questions. Operator?