NICE Ltd

Welcome to the NICE conference call discussing second quarter 2021 results and thank you for holding. All participants are at present in 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 August 5th, 2021. I would now like to turn the conference over to Mr. Marty Cohen, VP Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barack Alon, Chief Executive Officer and Beth Gaspich, Chief Financial Officer. 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 2020 Annual Report on Form 20F as filed with the Securities and Exchange Commission on March 23, 2021. During today's call, we will present a more detailed discussion of second quarter 2021 results and the company's guidance for the third 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 difference between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. I'll now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. We are pleased to announce an excellent quarter marked by an acceleration in all our key financial metrics. Cloud revenue continues to flourish with 32% growth, while total revenue continued to accelerate well into the teens, increasing 16% year-over-year. Driving this acceleration is our solid and consistent execution in cloud during the past five years. Unlike traditional cloud transitions that are focused on simply switching customers from license to subscription model, our overall revenue growth is accelerating due to a combination of two to our cloud business. First, net new cloud business in CCaaS digital and self-service, solutions that we did not previously offer in the on-premise model. And second, cloud conversions of our existing on-premise products resulting in higher annual revenue per customer. As our cloud revenue continues to experience rapid growth and is becoming a larger share of our total revenue, We expect that the acceleration in the growth of our total revenue will continue over the next few years. While the cloudification of our market continues to speed up, we are experiencing another major opportunity in the CX market as it expands to full digital CX. And just like five years ago, in cloud, NICE is well positioned to take on and grow its leadership position with yet another great market opportunity in digital. Back in 2016, we made a major strategic transformation at NICE by making an aggressive move to the cloud with the acquisition of InContact. It was a strategy to capitalize on rapidly changing market, a market in which enterprises of all sizes were beginning to shift to the cloud. Customer service organizations were exploring the cloud for its agility, Pace of implementation, elasticity, scalability, and overall lower total cost of ownership. At the same time, they expected a customer service solution with a full set of capabilities and applications combined into a single cloud native suite. With the acquisition of InContact, we embarked on a massive investment to deliver what organizations of all sizes needed, and that resulted in CX1. The market leading native CX cloud platform. Since then, NICE became the clear leader of this fast evolving market. Our leadership is achieved through four contributing unique ingredients. The first is our assets, particularly omnichannel routing, workforce engagement management, high value analytics, AI, digital and self-service, all native to and seamlessly integrated into CX One. The second is our unimpeded focus on the CX market. The third is our distinct competitive advantage in large enterprises due to the breadth and depth of our platform, our domain expertise at the high end of the market, and our global footprint. And the fourth is our relentless innovation demonstrated by the hundreds of added features and functionalities All four of these ingredients are critical factors in delineating our market leadership. In cloud, we identified a rapidly going market, set a clear strategy and executed well. As a result, We are now a $1 billion revenue run rate company, cloud company. Cloud revenue continues to exhibit rapid growth and it now represents more than 50% of our total revenue, compared to less than 5% prior to the launch of CX1. And today, digital is similar to what cloud was for us five years ago. And like cloud, the opportunity in digital is enormous. The expansion of customer service interactions into full digital is in full swing with a growing part of consumer journeys taking place at digital touchpoints. There is a clear realization that Gen1 CX solutions, which have a disjointed interaction management approach and cannot cover and maintain context through the entire customer journey, are preventing organizations from participating in the most critical part of their consumers' experiences This realization creates a major disruption and increasing demand for unified next-gen CX platforms that can manage all interactions across every consumer touchpoint from digital to voice for any service need in both a responsive and proactive manner. With the investments we made in digital CX, Both organically and through acquisitions over the past 18 months, we have evolved CX-1 into a complete platform with a unique set of solutions that can now cover all consumers' touchpoints. CX-1 now allows organizations to move from managing interactions just in the contact center to owning the entire customer journey. This was achieved with the recent launch of CX-1 Smalltritch and CX-1 Expert, that expanded CX1 into a full proactive engagement platform using advanced conversational AI driven by state-of-the-art knowledge management in more than 35 digital channels. Moreover, what also makes our platform rise well above other solutions in the market and the glue that makes our platform unique is the massive amount of CX data we have processed over the past few decades. This data, coupled with AI and machine learning, is crucial to enable smart conversational self-service among all the digital channels. This large volume of data, our domain expertise, and CX1 as the best seamless integrated digital platform in the market today embody a powerful combination of assets. With these assets, we now have a major opportunity in front of us as we put our digital CX platform in the hands of organizations worldwide and take the clear market lead in digital and self-service. Now to switch gears and tail to our quarterly results, in which we reported very strong metrics across the board. Digital transformation, strong growth in the large enterprise market, analytics and AI, and international are the key business pillars that are driving our success. First, the number of deals that included digital increased 41% in Q2. CX1 digital deals included 7 digit ACB deals with a very large financial services company, a well-known European-based home improvement retailer, and one of the largest digital broadband providers in the UK. They also included a large healthcare company, a well-known clothing retailer, a state government agency, and a cloud-based HR software company, among many others. Many of these digital deals are being signed by large enterprises and almost all are competitive replacements of the incumbent legacy Gen1 providers that cannot meet the digital demands of today's consumers. And that brings me to our success in the large enterprise market in Q2, where we saw an increase of 60% in 7-digit deals. Moreover, we are witnessing an increasing quarterly trend where multiple CX1 applications are being sold in each deal. This is a testament to the seamless integration and the breadth and depth of our CX1 platform as well as our strength and leadership in the large enterprise market. This competitive differentiation enables us to gather more revenue per seat and more total overall seats.