NICE Ltd

Welcome to the NICE conference call discussing third quarter 2023 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 November 16, 2023. 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 Elam, Chief Executive Officer, and Beth Gaspich, Chief Financial Officer. Before we start, I would like to point out that some of these 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 2022 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 30, 2023. During today's call, we will present a more detailed discussion of third quarter 2023 results and the company's guidance for the full year of 2023. You can find our press release as well as a PDF of our financial results on NICE's investor relations website. On 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 share-based compensation, Amortization of acquired intangibles, acquisition-related expenses, amortization of discount on debt, and loss from extinguishment of debt, and the tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. Information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. I'll now turn the call over to Bharat.

Thank you, Marty, and welcome everyone. We are pleased to report another strong quarter exceeding the high end of our guidance range on both total revenue and earnings per share for the third quarter of 2023. Record total revenue of $601 million was driven by another outstanding performance in cloud revenue, which grew 22% to $403 million. Along with the great top line performance, we continue to further distance ourselves from the competition with our unrivaled profitability. Our operating income grew 15% to $184 million and operating margin grew 119 basis points to a record 30.6%. Earnings per share came in at $2.27, representing 18% growth. Moreover, cash flow from operations, another unparalleled competitive advantage, grew 28% to $121 million in the third quarter. NICE continues to set the gold standard for the CX market. We always have, and we will always will. Our cloud revenue growth continues to significantly outperform the rest of the industry and on a much higher cloud revenue base. Our outperformance is attributed to two main factors. First, we continue to consistently beat our competitors, especially at the high end of the market, and in effect, widening our market share lead. Our command of the high end of the market is demonstrated by the 35% last 12 months growth of CX One Enterprise ARR that we define as customers billing over $1 million annually. Second, we executed on our strategy and expanded CX One into a comprehensive digital engagement and CX AI platform. AI is now a meaningful growth engine by itself with a significant incremental TAM. This powerful growth engine is substantiated by the fact that in Q3, AI was included in 80% of our new enterprise CX deals and was the fuel that drove those deals. Additionally, year to date, our CX1 AI bookings increase 163% and digital engagement bookings grew 78% compared to the same period last year. The CX market is experiencing a shift in demand dynamics that is tailwind for NICE. This favorable shift is unleashing a positive ripple effect. It starts with heightened demand for CXAI. This in turn is driving an accelerated demand for platformization, because for AI to be effective in the complex world of CX, there is a resolute prerequisite to converge all CX assets into a single platform. This mandates faster decision-making for cloud adoption and migration in a market that is still only 20% penetrated in the cloud. The shift in demand dynamics plays exactly into our competitive strength and differentiation. Digital engagement and CX AI are the fastest growing segments of our pipeline, increasing seven-fold year-over-year and representing a significant part of our new business pipeline. The quintessential CX for entrance as possible to be consumer-led and agentless. However, most past automation efforts failed, and the hurdles to fully automate customer service still remain today. AI now brings a fresh, enabling technology, rejuvenating these efforts. But for AI to be successful, it needs to be CX-specific, 100% accurate, fully personalized, non-generic, and fully aligned with the brand's goals. Above all, it is imperative to deliver a non-fragmented end-to-end customer journey that is seamless, not backbreaking. Taking the generic AI path with either standard GenAI or siloed point solutions simply doesn't work. This rude awakening is creating a surge of customers turning into NICE to be their CXAI vendor of choice. Moreover, CXAI represents a significant incremental revenue and time opportunity as pricing is evolving from exclusively seat-based and expanding to also include the exponentially growing volume of interactions. In fact, we are already monetizing on it in the many deals we signed in Q3. In a 7-digit ACV deal with one of the largest cruise ship operators, digital engagement and CX AI doubled the size of the deal. AI was the main determining factor for our win over multiple competitors that could only deliver slideware. In another 7-digit ACV deal, This one with a large BPO, AI increased the deal by 6x. This company, like many other BPOs, is expanding its AI capabilities to transform their business models by using more automation. The incumbent cloud provider, which we replaced, could not deliver true CX AI capabilities. We signed a 7-digit ACV deal with a major European broadband provider and this deal was 100% AI. This customer turned to NICE and our AI portfolio to help them deliver better AI-driven proactive service for a growing customer base. We signed a 7-digit ACV deal with a large energy distributor where digital and AI nearly doubled the size of the deal. As part of its overall strategy to incorporate AI for effective self-service, we replace three legacy point solutions vendors and converge everything onto CX1. The bedrock of CX AI is underpinned by the breadth and quality of its underlying CX assets, including data, knowledge, and interactions. but its power comes from their convergence. While AI and cloud are the most visible growth drivers in the CX market, platformization is an extremely powerful undercurrent of growth. It enables the convergence of all CX assets and facilitates the transition from a multi-vendor, multi-point solution environment to one that is consolidating onto a single platform. This revolutionary phase of platformization is clearly being driven by CX1 with its unique convergence power. We are seeing a tremendous increase in the number of vendors we are displacing in each new customer win. In Q3, we saw a staggering 48% year-over-year increase in new customer portfolio deals. We signed a 7-digit ACB deal with one of the largest healthcare providers in the UK, replacing legacy on-premise providers and converging older CX operations onto CX1 platforms. Other similar platform consolidation deals included a 7-digit deal with a large state government where we replaced a legacy vendor and a hosted cloud solution. A major international hotel chain in Asia replaced multiple legacy and cloud incumbents due to their lack of complete portfolio. And a large U.S. home and security company, where we converge nine different siloed solutions onto CX1. The core catalyst fueling demand in the CX market is and will continue to be cloudification. On-premise, hosted, and Immature Cloud Solutions are an affliction emanating throughout the enterprise, hindering speed of innovation, ability to elevate AI and the capacity to reduce of cost of ownership. We are only now reaching the enterprise adoption cycle of cloud in the CX market. With extremely high barrier of entry, only a few players will emerge. We are the clear leader, with CX One having the largest customer base by far and serving the most complex enterprises at scale. After a decade of massive investment to build and differentiate CX One, we are the preeminent CX Cloud vendor. Q3 was rich with deals driven by the need of customers to cloudify. A few examples include a 7-digit ACV deal with a very large East Coast medical center where we replaced a legacy vendor and won against other cloud vendors to bring this institution on to a unified platform. There was a seven-digit deal with a large healthcare platform company in which we won against two cloud competitors and replaced the incumbent cloud provider because the DIY cloud infrastructure was too complex forcing the customer to build most of it themselves. We are winning across the board, fluently riding a tidal wave of strong demand for AI, platformization, and cloud. At the same time, we own the winning playbook on profitability with industry-best cloud architecture that delivers on outstanding and expanding cloud gross margin leading to our best-in-class industry operating margin. Our top-notch profitability, cash flow, and rock-solid balance sheet provide us substantial financial flexibility. This is clearly demonstrated by this year's accelerated buyback program, the announcement of a new and even larger share repurchase plan, and our expected 2024 closure of the LIVOX acquisition which we announced a few weeks ago. LiveVox is the market leader in CX Proactive Outreach. LiveVox provides us with a strategic complementary offering that will further extend CX One's market leadership. The combination of CX One with Contact Engine which we acquired two years ago and the upcoming edition of LiveVox creates a conversational AI powerhouse for both inbound and outbound CX. Additionally, the LiveWorks Premier and loyal customer base provides us significant opportunities to upsell and cross-sell CX1 into that base, while also selling LiveWorks into a large existing CX1 customer base. Moreover, we expect a very synergetic financial outcome that will be accretive to operating income, operating margin, and free cash flow in 2024. In summary, we're extremely excited about the opportunities in our market as we have dug our heels deep in innovation, go-to-market, and execution to lead the way now and beyond. As market dynamics are rapidly evolving, pricing models changing, and organizations accelerating their modernization efforts, we are well prepared with the market's best CX1 platform, CX1, the leading CXAI offering, and the most established cloud infrastructure that has enabled us to execute the winning playbook on delivering industry-best cloud growth and profitability. Moreover, we have an unbeatable dedicated senior leadership team with decades of industry experience. Before I hand it over to Beth, the NICE team takes great comfort and your continued outpouring of support and well wishes since the eruption of the horrific events that took place in Israel. And for this, we thank you. 850 of our 8,000 NICers are based in Israel and I couldn't be more proud of the full commitment and ongoing engagement to our customers, roadmap and business.