NICE Ltd

Welcome to the NICE conference call discussing third quarter 2022 results, and thank you for your foreholding. 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 10, 2022. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead.

Thank you, Operator. With me on the call today are Barack Alam, 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 2021 Annual Report on Form 20F, as followed by the Securities and Exchange Commission on April 5th, 2022. During the call, we will present a more detailed discussion of third quarter 2022 results and the company's guidance for the full year 2022. 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, and I'll now turn the call over to Barack.

Thank you, Marty, and welcome, everyone. We continue to thrive and are pushing full steam ahead, as evidenced by another quarter of double-digit revenue growth. We reported total revenue of $555 million, representing an increase of 12% or 14% in constant currency, compared to the same quarter one year ago. This top line performance was driven by another solid result in cloud revenue, increasing 26% in the quarter and 27% at constant currency. With an exit annual run rate of over $1.3 billion, we are by far the largest cloud vendor among our competitors, and we continue to display strong cloud goals at scale. At the same time, our emphasis on profitable growth has not wavered as demonstrated by an increase of 14% in operating income and an increase of 41 basis points in the operating margin driven by 330 basis points increase in the cloud goals margin and 14% growth in EPS. We are experiencing an extraordinary time. a cluster of events that are reshaping our world and ushering in a new era. We are in fact in a transition period where the new rules of the next era are being defined, marking the end of a previous era spanning the past 15 years. The unmatched events of the past three years triggered by the outbreak of COVID are forming several major underlying driving forces that will dramatically change the enterprise software landscape in this new era, creating massive opportunities for some and unbridgeable gaps for others. First, we can clearly draw parallels between the way the early 2000 dot-com crisis created a new standard where software companies were only viable if they demonstrated a clear path for revenue monetization and the current post-free capital era where software companies must also build solid and sustainable economics. Consequently, in the new era, profitability and viable business models are asserting their place at the global table. Second, following a few years of unprecedented disorder, enterprise executive teams are standing helpless, facing out-of-control complexities combined with extreme shortage and increasing cost of labor. We are transitioning to an era where the software industry will lead total AI-ization of enterprises. AI-ization can only be achieved by injecting purpose-built AI to each and every process and is the only way to reach complete smart automation and efficiently manage complexity at scale. Lastly, the disappointment with cloud platforms that offer limited and generic applications coupled with the impossible-to-manage enterprise tech stack clutter built from dozens of best-of-bid point solutions will mandate the shift of the software market to suite form providers. Suite form is the ultimate combination of a suite and a platform. It will become the new market standard a powerful fusion of an underlying cloud native platform at scale with a complete suite of seamlessly integrated applications. Suite form, AIization, and the focus on viable economics are going to reframe the enterprise software industry in the upcoming new era. We are in a transition period between eras, and NICE is best positioned to lead during this transition and beyond. Mission-critical solutions, such as our platforms, are unshakable in relation to enterprise budgets, even during volatile periods. CX1 is the heart of enterprise customer service operation and is essential for empowering companies to elevate their brand and customer loyalty, excite Our financial climate compliance cloud platform is serving hundreds of the world's leading financial institutions that are bound by strict regulations. And evident central, our criminal justice cloud platform is addressing a market that is agnostic to any economic climate. In addition to prioritizing Michigan's critical solutions, enterprises rally to find ways to overcome the shortage and cost of labor in inflationary environments. Our complete platforms, infused by AI, are the go-to solutions for customers to allow them to replace labor with automation. Moreover, our platforms are highly modular, fast to deploy, and deliver rapid ROI, which are fundamental requirements for enterprises in today's environment. Our ability to lead in this transition era extends to our financial excellence. We are consistently highly profitable with unmatched unit economics and expect to continue to grow operating income and EPS at double digit rates in both the short and long term. Unlike many other vendors in our industry, we are flush with capital, giving us the fuel to continue to innovate and acquire to grow our business. Innovation has put us at the forefront of the cloud and digital transformation taking place in our industry, while most other vendors are engrossed in myriad of debt and have to rely on the capital markets to fund their business with a skyrocketing cost of capital. Lastly, we have a seasoned and committed management team that has been with NICE for many years, has decades of experience, and has weathered and successfully navigated various economic and industry cycles over time. Enterprises are already turning towards software companies that will be able to prevail during this period and the ones that will lead into the next era. Our evidence of this actuality is the significant amount of business we are winning in the market including the growing number of competitive replacements of legacy vendors, key wins against cloud competitors, as well as further expansion within our customer base. In fact, the total value of competitive replacement deals increased by 96% in the third quarter compared to Q3 last year, and the average deal size of those competitive replacements grew by 85%. Legacy vendors have struggled to adapt to the rapid changes taking place in our industry and have not kept pace with innovation around cloud and digital. This has led to tremendous opportunities for us to grab market share from these vendors, and in Q3, we continued to replace several legacy vendors, including an eight-digit deal with a large state employee's credit union. We won the deal as this customer wants to consolidate onto a single platform, and the all-in-one complete solution of CX1 meets their needs. We signed another eight-digit deal with one of the largest US banks, which is adopting cloud broadly across the organization and standardizing ONICE in doing so. We signed another eight-digit deal with one of the world's largest industrial companies, as this customer has solidified their decision to move entirely off their legacy incumbent solution and on to our CX1 platform. Other legacy replacement deals included seven-digit deals with a large financial institution, one of the largest BPOs in the world, a large well-known insurance company, and one of the largest worldwide hotel companies, which greatly values our digital roadmap and their ability to grow with nice. Enterprises are striving to reduce complexity with their IT landscapes. And for the most part, our cloud competitors are unable to deliver due to their incomplete platform or owning only a single point solution. As a result, we continue to win strategic deals against these cloud competitors. In Q3, these wins included seven-digit deals with a major energy company, a large well-known health care company, a large properties and casualty insurance company, and a very large diversified financial services company, among others. With thousands of customers and a fast-growing portfolio of solutions, there is an enormous opportunity for continued upsell and expansion within our customer base. Expansion deals in Q3 included an eight-digit deal with a well-known BPO. This large expansion deal is a conversion from on-premise to cloud, along with an upsell of additional users and solutions. We signed a seven-digit expansion deal with a major health insurance company, winning the deal for our speedy ability to go live, the solution's flexibility to run based on seasonality, and the overall trust in NICE to deliver based upon the entire scope of the relationship and previous successful CX1 implementations. And a European-based entertainment and media company, which was grappling with customer churn, was struggling with new customer acquisition, and needed to improve overall operational efficiency, took on our analytics and AI in a seven-digit deal to help them resolve their issues. In summary, we have entered transition period and are rolling into a new era, embodying the enterprise software landscape And with it will come massive opportunities for some and unbridgeable gaps for others. We are in a prime position to outpace the market with our cutting edge technology, our market-leading platform, and our unceasing innovation, which are all supported by our strong and fast-growing profitability combined with a solid overall financial profile. We are looking forward to a strong finish to the year and the opportunities ahead of us in 2023. I will now turn the call over to Beth.