NICE Ltd

Welcome to the NICE conference call discussing second quarter 2024 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 August 15, 2024. I would now like to turn the 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 Bharat Geylam, Chief Executive Officer, and Beth Gaspich, Chief Financial Officer. Before we start, I'd 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 2023 Annual Report on Form 20F as filed with the Securities and Exchange Commission on March 7, 2024. During today's call, we'll present a more detailed discussion of second quarter 2024 results and the company's guidance for the third quarter and full year 2024. You can find our press release as well as the PDFs of our financial results on NYSE's Investor Relations website. 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 or adjusting the 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 intangible assets, acquisition-related and other 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. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. And I'll now turn the call over to Barack.

Thank you, Marty, and welcome, everyone. I'm happy to be with all of you this morning and share our great Q2 results as well as some exciting news. Earlier today, we announced the appointment of Scott Russell as the next CEO of Knife. Scott will join us and step into his role at the start of 2025. I will continue to lead the company through the end of this year and support Scott for a smooth transition. Scott's appointment follows a thorough search conducted by our Board of Directors who looks for the best candidate to lead Knives to its next phase of growth and transformation. Scott brings with him 25 years of experience in enterprise software, most recently as Global Chief Revenue Officer and member of the Executive Board of SAP. Scott also serves as the Chairman of SAP North America and Chairman of multiple business units of the SAP portfolio. I would like to take this opportunity and give a warm welcome to Scott to NICE and I look forward to working with him. Now to Q2 results. The momentum we built in Q1 carried through to Q2 evidenced by strong results across the board. The growing adoption of RAI along with the unmatched power platform of CX1 are thriving. We reported total revenue of $664 million in Q2, representing an increase of 14% compared to the same quarter last year, with cloud revenue growing 26% to $482 million. These robust top line results continue to outpace the market and are also resulting in impressive market-beating profitability gains. Topping the list is our industry-leading cloud growth margin of 70.2% aided by our highly profitable AI solutions. Other strong profitability metrics included operating income growth of 19% to $202 million and an increase in operating margin of 120 basis points to 30.4%. We exceeded the high end of our guidance range on EPS, coming at in $2.64 for Q2, which was an increase of 24% compared to the same quarter last year. Building on exceptional first quarter cash flow generation, the momentum continued into Q2 as we generated $170 million of operating cash, which represents an increase of 160% The market leadership gap between NICE and the rest of the industry continues to significantly widen. We are winning, displacing the competition and increasing our market share. In fact, Q2 bookings were extremely strong throughout the period, driven by all-time high bookings for CX1. This booking strength was evident in all market segments, and especially with Lodge Enterprises, lending multiple seven and eight-figure deals. Furthermore, NICE stands out not only by the scale of our business, but also for the ongoing rapid expansion of our profitability. Our superior gross margin continues to further accelerate our free cash flow with a record of $639 million over the last 12 months. This unique financial strength allows us the flexibility to continue investing in R&D, expanding our go-to market, and seeking potential acquisitions to further enlarge our opportunities for growth. We are approaching the two-year anniversary of the introduction of GenAI that swiftly changed the semiconductor infrastructure and software landscape. Companies of all sizes worldwide, along with consumers, Investors and analysts are all striving to understand the implications of AI in various aspects of work and life. I believe that like many other technological waves, we are getting closer to the point of shifting from the dramatic to the pragmatic. Enterprises in particular, after exploring initial ways to leverage AI to boost productivity and reduce costs, are now adopting a more mature and systematic approach. They recognize the importance of partnering with leading vendors in each specific business function, one that possesses deep domain expertise, relevant proprietary data, end-to-end workflows, and above all, a robust platform designed to fully harness the potential of AI for the enterprise. This recognition is especially evident for the function of customer service, where the expectations for significant cost savings and productivity gains are very high. However, initial efforts to deploy generic Gen AI failed to deliver the desired results. This disillusionment is transitioning the customer service market from hype to reality, the ultimate time for nice. the two leaders in functional AI for customer service. We've already experienced the shift and it continues to accelerate. The depth of conversations, the speed of adoption, and the sheer number of use cases are growing rapidly. TxOne is the go-to platform for enterprises looking to standardize on a platform that not only transitions them to the cloud, but also converges all customer service workflows while infusing AI for end-to-end automation and orchestration. It's the result of our decade-long strategy to build CX1 as a comprehensive cloud platform that covers all customer service touchpoints and workflows combined with unmatched data assets This approach is the only viable way to truly unlock the benefits of AI in customer service. In Q2, AI revenues surged 38%. Furthermore, demand for our AI solutions is thriving. It was just one year ago at Interactions, our annual user conference, when we introduced Copilot, Autopilot, and Actions. One year later, adoption has been stunning, with bookings for autopilot and copilot together soaring 134% in Q2. Moreover, the number of deals greater than $1 million ACV that included AI jumped 100% compared to the same period last year. The AI deal signed in Q2 backed up these strong results. We signed a 7-digit deal with one of the world's largest IT companies, replacing the incumbents of CX1. A key driver for the win was our clear advantage in functional AI in head-to-head comparisons against other vendors, leading them to select NICE for its proven AI portfolio. In another 7-digit AI deal, a large global hotel chain is seeking to enhance its digital transformation and required exceptional accuracy in identifying consumer intents. They value our extensive data repository and thousands of CXAI models, which provided the precision they needed. Consequently, they purchased CX-1 Autopilot to help ensure their future digital success. A large regional energy company is advancing its AI strategy and recognize that their existing All-premise, non-integrated infrastructure and solutions would not suffice. In this seven-digit deal, they are standardizing on CX1 for its seamless AI architecture and comprehensive portfolio of AI solutions, capabilities that AI points providers could not match. In another deal, where both functional AI and the platform were pivotal, a major UK-based telecom provider, is replacing 10 different point solutions, including two large incumbent on-premise providers. They are consolidating on CX1 to advance their digital transformation supported by NICE's advanced AI. The platform power of CX1 is unrivaled in our industry. Designed as the first and only customer-centric platform, it natively integrates all touchpoints and interactions. From day one, CX One was built on these principles, offering the largest seamlessly integrated portfolio of CX solutions and the most robust CX infrastructure in the market. While the platform value proposition is well recognized, its adoption is now significantly accelerating because it provides the only viable way to implement effective AI. Every quarter, More enterprises are consolidating onto CX1, as evidenced by the rising value of portfolio deals, those involving three or more of our solutions, along with an overall increase in large deals. These typically large portfolio deals tend to be very sticky, driving long-term value for nice, as enterprises continue to expand their use of our portfolio over time. In Q2, we witnessed a surge in the booking of portfolio deals, increasing 71% compared to the same quarter last year. Additionally, bookings of portfolio deals from new customers jumped 150%, convincingly demonstrating the demand for CX1 to replace both incumbent on-premise and cloud providers that are unable to deliver a tool platform at scale. Also, deals are getting larger. We signed five 8-digit DCV deals in Q2. These deals will power durable value for NICE over a long period due to the platform's thickness and its ability to drive long-term upsells and cross-sells owed to the breadth and depth of the CX1 portfolios. We signed an 8-digit ACV deal with a very large organization in the APAC region. They were the largest on-premise customer in the region of one of our direct competitors. This is a great example of the power and scale of CX1 as a platform. By consolidating multiple legacy on-premise providers, they opted for CX1 to manage the 1 billion online transactions and 55 million calls annually. CX1 stood out as the only platform capable of meeting the extensive CX operational requirements and workflows of such a large organization, while also providing the capabilities to meet all future digital and AI needs. The power of the platform also secured a seven-digit deal with one of the world's largest cruise lines. We replaced several long-standing incumbents and outperformed other cloud providers, delivering the comprehensive and seamless capabilities of a single platform like CX1. CX1 was the only platform to help them eliminate the need for multiple point solutions, while also future-proofing their ability to add digital and self-service capabilities down the road. We signed a 7-digit deal with a leading healthcare company, replacing their on-premise incumbent solutions. Their goal is to consolidate onto a single cloud platform to provide a modern experience for their partners, customers, and agents. We secured the deal with CX1 thanks to the flexibility of the platform, which allows for gradual adoption of advanced functionalities, including advanced AI, as the foundation for their digital transformation. These consistent quarter-after-quarter mega deals signing highlights our ongoing success in the large enterprise markets where our achievements are unparalleled. Our momentum is further accelerated by our expanding global ecosystem as partners are drawn to our success. and by the adoption of our recent innovations, including our disruptive UCAS solution, OneCX. Additionally, we recently launched Empower, which brings together the entirety of CX-1 with our AI solutions to create the world's first and only CX-aware AI platform. This platform harnesses continuous experience memory and CX-awareness A fit possible only with a comprehensive platform like CX1. In summary, our market leadership continues to widen, as demonstrated by our consistently strong quarterly results. Our record CX1 bookings in Q2 highlight our exceptional cloud revenue growth, which far outpaces our competitors, while our profitability is at an upper echelon of the enterprise software industry. With the most comprehensive CX platform in CX1, rapid innovation in AI that is experiencing significant enterprise adoption and revenue growth and the flexibility afforded by our rock-solid financial position, we are positioned for continued market leadership expansion and long-term growth. I will now turn the call over to Beth.