Welcome to the NICE conference call discussing Third Quarter 2016 Results, and thank you for holding. All participants are present on 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, 2016. I'd now like to hand the call over to Marty Cohen, Vice President Investor Relations at NICE. Please go ahead.

Thank you, Operator. With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eran Liron, Executive Vice President Marketing and Corporate Development. 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 provision 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 2005 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 23, 2016. During today's call, we will present a more detailed discussion of third-quarter 2016 results and the Company's guidance for the fourth-quarter and full-year 2016. 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 will now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I am glad to be on the call with you today. We are pleased to report first-quarter revenues of $240 million, representing 9% growth over Q3 2015. Excluding the impact of currency exchange rates, revenue growth was double digits at 10%. We are also pleased to see continued good progress in the operating lines. Operating income for Q3 was $64 million, representing 15% growth compared to Q3 of last year, and the operating margin increased 154 basis points to 26.7%. This led to earnings per share of $0.83 for Q3 or 11% growth compared to the third quarter of 2015. As we move forward, we remain laser focused on the data execution of our long-term strategic plan. This plan, which in 2016 included the two pivotal acquisitions of Nexidia and inContact, has enabled us to leverage the opportunities that are resulting from the changes that are taking place in the customer service markets. These changes are creating a dramatic paradigm shift in the customer service market, led by three major disruptions: one, operationalizing analytics; two, omnichannel; and three, [indiscernible] vision. Let's start with the first disruption, operationalizing analytics. Over the past 15 years, we have been automating marketable processes in the customer service market. This automation was precipitated by the introduction of multiple qualifications, allowing customer service organizations to improve service levels and lower operational costs. However, to continue to drive efficiencies, while providing ever-increasing service-level expectations, organizations realized they need to embed intelligent decisioning into their processes for what we refer to as operationalizing analytics. The combination of NICE analytics and real-time capabilities, as well as Nexidia's high-performance and omni-channel technology, position NICE as the analytics partners in the customer service markets. In Q3, we continue to see strong demand for analytics solutions…

Thank you, Barak, and good day, everyone. I am excited to be here today for my first earnings call. I look forward to meeting many of you at upcoming investor events. Today, I will provide you with an analysis of our financial results and business performance for the third quarter of 2016, as well as our outlook for the fourth quarter and full year of 2016. Before I begin, please note that the financial results represent continued operations and exclude the divested businesses for Q3 2016 and the comparative numbers for 2015. These two businesses are presented as discontinued operations. However, the cash flow statement includes the results of both divestitures. And now, I will review the results. Revenues for the third quarter were $240 million, which represents an increase of 9% from $221 million in the same period of last year. Excluding the impact of currency exchange rates, revenue growth was 10%. Customer interactions revenues for the third quarter of 2016 were $184 million, an increase of 12%, and financial crime and compliance revenues were $56 million, similar to last year. On a regional breakdown, revenues in the Americas increased 13% to $164 million for the quarter. Revenues in EMEA totaled $49 million, and revenues for the Asia-Pacific region were $27 million for the third quarter. Looking at revenues by business line, product revenues accounted for 29% of total revenues in the third quarter of 2016, maintenance revenues accounted for 44% of total revenues in the quarter, and professional services and cloud accounted for the remaining 27% of total revenues in the third quarter of 2016. Gross margin in Q3 reached 72.2% compared to 69.8% in Q3 last year. The gross margin improvement is mainly a result of a favorable product mix and continued efficient utilization of the service…

Thank you. Ladies and gentlemen your question-and-answer session will now begin. [Operator Instructions] Apology for pronunciation on these names. I have got this -- first question from Shaul Eyal from Oppenheimer. Please go ahead.

Congrats, Beth, on joining the team. We also look forward to working with you. Barak, I want to start with inContact and thanks for providing us with a timeframe regarding the deal's completion. Barak, can you talk to us about the initial commentary and reaction that you are getting from customers, whether it is NICE existing customer base, whether it is inContact's customer base? Any color you can share with us, highly appreciated, on top what you guys have been discussing in your prepared remarks. Thanks.

Sure. Indeed, as I said in my previous remarks, we announced the acquisition of inContact several months back, and it seems then as soon as we passed the initial regulatory approval, we started both the planning, but also to work with the marketplace, both with customers, partners and analysts. And we are, as I said, extremely encouraged by the feedback that we are receiving on all fronts. So, from a customer perspective, I will split it into two. For the inContact customers, we are very pleased because inContact used to offer a competitor platform for the W4, and we are managing a very fast time to communicate that to all of those customers, and almost all of them are transitioning -- either transitioned or is in the process of transitioning to the NICE platform. So this is a major vote of confidence for these customers. We also see that they are increasing the win rates of inContact as we speak and the different deals that they have. And it also, on the other hand, helps the NICE sales team to win those deals and offer also already divisions that we have about the combining together analytics, omnichannel routing and W4. And the joint pipeline that we just started to build is very impressive, and we are very happy about the pace on that side. So that was one side of that. The other thing is the community of partners that both inContact and NICE has. We had an overlap to a certain degree in this community, and the feedback over there is just phenomenal. But furthermore, we have, as we speak, [indiscernible] is that are signing up for the NICE offering and vice versa. To one example, the international [indiscernible] inContact did not have presence outside of the U.S. or a very light one. NICE has a very significant presence out of the U.S. and as we speak, we have a lot of partners outside of the U.S. joining the community to distribute both the NICE and inContact offering, both separately and together. And lastly, the analyst community, the market analysts that are covering us, we have got great feedback from all of them. We had a conversation with all of them. Some of them also visited us at the inContact user conference that just took place several weeks ago, and feedback was great. Our [indiscernible] report which went out with very encouraging remarks and we definitely have seen the market buying into what we believe is the right thing for the customer service market, which is combining omnichannel together with analytics, together with W4, and bring all of that in the cloud, and the shift we believe is happening as we speak and will only accelerate.

Got it. Thank you for that. And maybe just as a follow-up, analytics already account for 60% of new bookings. This is up from 50% over the course of the past few quarters. Should we expect this number to continue and hit higher gradually over the course of the next, probably, 12, 18 months, especially as inContact is coming on board now?

So the answer is probably kind of yes and no. So, yes, we do expect analytics to continue, and this is what is accelerating our growth. As inContact comes on board, then the numbers become bigger, and it will become a much bigger company. The mix will change. inContact some has analytical elements in their portfolio. We believe that inContact will fuel the analytics sales in absolute numbers. Obviously, the percentages we will have to look at them again and recalculate because inContact brings them several hundreds of millions of dollars of revenue. But, on an absolute number, we definitely believe the analytical portion of our business will definitely continue to grow, and it is a trend that we see right now. We are growing at a double-digit [indiscernible] for multiple quarters now.

Got it. Thank you so much. Great job.

Thank you. We have another question for you and this one from Greg McDowell, JMP Securities. Please go ahead. You are live in the call.

Welcome, Beth. I wanted to ask about the increased guidance for the full year in light of the inContact acquisition. And maybe if you could just walk us through how much of the EPS and revenue raise is due to just a healthy core NICE business, and how much of the raise is due to really the closing of the inContact acquisition within the next few weeks? That is my first question. Thanks.

Greg, thank you for the question. First of all, very happy to report that we are closing of the acquisition. It has been a few months going through the process, both the process of acquiring a public company and also, of course, the regulatory approval. So we are happy that we are seeing the light at the end of the tunnel very soon. So that is very encouraging. And we definitely are looking towards 2017 to operate together and then start to execute on our strategy. With respect to Q4, this will be, as we said, a small portion of Q4 with inContact, and we are taking some of their numbers into the guidance, and this is why we have increased the guidance. On the top line, we are not breaking down because we see, as I said already, a lot of joint selling down by the two companies as we speak. So we are providing a joint number. On the EPS, I will reiterate what I said on the acquisition, we believe that moving forward, in '17 and beyond, the acquisition will be nondilutive and accretive to the EPS. Also, obviously, the transition period, if you acquire a company for several weeks, you will realize all of those savings. But this is just for the few weeks left we will be left in Q2.

Thank you. And one quick follow-up. I mean, as we all try to tighten up our 2017 numbers, in light of the inContact acquisition, any puts and takes we should think about in 2017, whether it is deferred revenue write-downs or other items we should at least think about as we sort of look at our 2017 numbers a little bit closer in light of the acquisition?

So, obviously, when you combine the two companies, there is a certain element of deferred revenue. inContact had deferred revenue like, I believe, many other companies, and we will take that into account. With regard to 2017 as a whole, as any year, we provide guidance for 2017 as we step into the New Year and with the earnings of Q4.

Thank you. We have another question for you; that comes from Jonathan Ho from William Blair. Please go ahead, you're live in the call.

Just wanted to start out on the financial crime and compliance side. It looked like the growth was relatively flat there year over year. What's your stand on maybe what drove that and how we should think about the growth rate going forward on the CIC side?

This is Beth. First, I want to highlight that compared to the year ago quarter, revenues grew 35% in Q3 of 2015. So it is a difficult comparison to start with. As you probably know, I was the CFO of Actimize for the last five years, so I spent a lot of time there. And there is some shift that we are seeing to recurring revenue. However, still seeing very strong license bookings. The year-to-date license booking are still growing at a double-digit year to date. And so there is a timing difference due to revenue recognition. In addition, Actimize just completed their client forum in the Americas in Q3, and I know there was the largest attendance ever there. And there was great feedback from the customers in the market and a lot of enthusiasm.

So maybe bookings were stronger than what was shown through on the revenue side. Would that be fair?

Yes. It is fair to say that there is a timing difference between revenue recognition between bookings and when the revenue is recognized.

And then, just to understand the inContact dynamics a little bit better, historically the enterprises have been a little bit slower to adopt cloud solutions, and clearly you guys are sort of signaling an acceleration in terms of that with this acquisition. Can you maybe talk to what you are seeing out there and how quickly you think the enterprises will start to shift to more cloud-based solutions?

So that was our dilemma for, say, from the last two years, but also the trigger through the acquisition itself several months back. For the [indiscernible] for years, we didn't have the question of if; we had a question of when. We believe that all enterprise of the markets, but specifically the customer service where we operate in, at some point would start to adopt cloud, and as soon as it starts, it has accelerated as we have seen in the use case -- the business case in so many different industries. So we have been monitoring that very, very closely, and we didn't want to enter this too early, especially not when it is starting at the very, very low end of the market. And we identify at this point several months back and saw that this is right opportunity and the reason for that is that we are start to seeing the adoption going at what we call the sweet spot of the midmarket, but climbing very fast into the other markets. So that was the inflection point. Obviously, the opportunities that we have seen is not just that the market is moving into cloud. The other opportunity in the cloud brings us into the market. The first one is our ability, and historically -- mainly in the higher-end of the market to be extremely attractive to customers wanting our portfolio in the midmarket and make it more affordable and more efficient for customers in the midmarket to adopt out, and this is a major upside for us. The second thing that the cloud obviously allows us very nicely is to combine our offering, which was historically mainly the W4 with routing, which is a complex integration, but a facility it in the cloud, it is a no-brainer for customers to go ahead and do that. So, as we speak, we see this trend growing very nicely. The dialogue with customers with regard to cloud is growing by the day, also the pipeline, as well as the deals. And, as I've mentioned, even before we see inContact joining us, we experienced in terms of revenue a growth of 55% in Q3 alone for our cloud revenue. And I can tell you that the booking on that regard was even stronger than that, in terms of percentage of the growth. So all indications are there that we are the inflection point, and I believe that with this acquisition and the integration that we have and working on, we are the best positioned to capitalize on this market dynamics.

Great. Thank you.

Thank you. We have another question for you and this one comes from Tal Grant, UBS. Please go ahead. You are live in the call.

Just had a few questions, and then I have a follow-up if I could. First of all, on the financial crime and compliance division, I understand and appreciate the comps are very tough, but in one of the earlier calls this year, you did say it will be up double-digit for the year. Do you still believe it will be up double-digit [Audio Gap] Question is just about -- I think you said your partners were very supportive of the deal with inContact. Do you have partnerships with Interactive Intelligence 59 inContact competitors? And if so, what has that response been? And, finally, I noticed the capitalized development costs are up quite a bit year on year. Is that a change of policy there or what happened there? Thanks.

I will try to follow on the three questions. I will start with the first one, the follow-on on the financial crime and compliance and the annual view. So, as I best described, we are still very bullish on this business with the dynamics all very good and, actually, do have on year to date the double-digit growth in our bookings. There are certain dynamics Beth said about some shift to recurring, meaning the revenue will follow, and I also mentioned in my earlier remarks, that goes to some of those recurring bookings that will turn into recurring revenue, is faster adoption of cloud in financial crime and compliance, which is interesting because it gives us an opportunity similar to what we see in the customer service business to go down market with our offerings. So far, NICE Actimize was very much focusing on the higher end of the market, and the cloud adoption that we see is in the second tier of the market. So, all-in-all, we are very optimistic about the future of Actimize, both for this year and next year. And, again, as Beth said, one quarter is the wrong thing to look at, especially after a 35% growth at last year. With respect to the cloud network or the ecosystem of inContact, your second question, so we have a partnership with dozens, if not hundreds of thousands, of other. Some of them even was mentioned our partners. But, in our revenue for offering, we are platform agnostic. That was our play for many years and we didn't sell to most of those partners. We sell sizable to those partners. Those are vendors. And nothing changed on that front. So we don't see any impact over there. We do believe that the market is doing a kind of a need to our approach. We see it in several areas and we are happy because we are first to move, and that is a vote of confidence in our strategy. And you also have opportunity to pick up what we believe is the number one player in the market. And with respect to your third point on capitalization, I will answer it, and Beth is welcome to add more. As I said before, we are investing more and more in R&D that is designated to the cloud, and it comes and goes, obviously, mandating us to capitalize this R&D and recognizing together with the progression of the revenue coming from those solutions.

Understood. And then, sorry, just my last follow-up question to a previous question, also about the guidance. I mean, if you ignored inContact, would you have red guidance after this quarter?

I don't want to give that kind of a theoretical answer here because we are already looking on the numbers combined and our analysis for the quarter was the combined number. As I said, starting as we speak and pipeline generation happening for several months now, we are operating under a combined business. So it will be very hard for us to start separating between the two. Customer service and that is the reason why we have done this acquisition, the whole idea was to offer that as a combined offering, and that is what we see in our pipeline for the fourth quarter.

Got it. That makes sense. Thanks very much for answering my questions.

Thank you. We have another question for you and this one from Tavy Rosner, Barclays. Please go ahead, you are live in the call.

Actually, most of them have been answered. Thanks for that. Just perhaps looking at a bigger picture, it is the second quarter in the role where you deliver double-digit growth, excluding for currency. So, when you are looking at the new company that is integrated with inContact, do you think that this is something that could just become the new growth rate for the group?

So, indeed, we are very pleased to see that our growth has been accelerating. That is something that we have said for quite some time, and doing it two quarters consecutive on a constant currency basis, we are very pleased with that. As we step into 2017, we will look again on the business dynamics, and obviously, with inContact joining us and, no doubt, I think inContact is a double-digit [indiscernible], so I believe the answer to that is positive, but we will have to wait for our guidance as we will provide with the next quarter earnings results. But all in all, that is definitely the direction of the Company.

Thank you. We've another question for you and this comes from Paul Coster, JPMorgan. Please go ahead, you're live in the call.

Beth, welcome to the discussion and with which I guess you get the first question, which is, as we roll into 2017, do you have a view on capital allocation, specifically with respect to the dividend, share buyback and maybe the debt leverage ratio? Do you see changing the momentum in any of those respects?

So, as you know, today, we have a combination with respect to our capital allocation. Between doing a buyback, we have an active buyback plan out there, and we plan to continue using the current plan that we have approved by the Board of Directors, and it continues to provide dividends on a quarterly basis. And we also use some of the cash for acquisitions, as you have witnessed recently. We are evaluating our capital allocation once a year. It is not new. We are doing it for several years now, and we have yet to disappoint. We will evaluate it as we step into 2017. And as we -- in respect to the combination, we will update, of course, if we expect any change or not. Right now, as we speak, of course, we continue at the same rate, and as you can see, we are generating a lot of cash flow; very happy with that. And we will designate our investments in the way that we believe will maximize shareholder value.

With only one day of experience under a potential Trump administration, as we think about the financial crime and compliance segment, is it possible the nature of that business will involve maybe less regulation moving forward? Just maybe some -- sort of looking out over the horizon, but any thoughts on how that business evolves?

I don't want to take bets about what is going to happen. I think we have all witnessed that anyone can has been focused for the future when it comes to any of those things. It is hard to predict. But, generally speaking and I think we have seen it in this, really, the compliance business, both in our traditional business, as well as with Actimize for more than 20 years now. And I think it is what we have made in those 20 years, and I have been fortunate to be with the Company for almost 17 years out of the 20, is that compliance and regulation only increases. And either it increases or it shifts, and it is always, always benefiting our business. The second thing is that, even if compliance regulation will change, one of the things that we see at the moment, which benefits our business, actually goes to the opportunity here and less to the compliance. It is still in the compliance arena, but this is with respect to savings costs. If you look on what happens to all of the banks, [indiscernible] since 2008, the compliance department, they have added tens of thousands of people in order to mitigate this compliance. We don't believe those regulations will be fulfilled overnight or disappear at all. What we do believe and we see as [indiscernible] out of the elections in the U.S. is that the desire to impose a P&L and reduce those costs is top priority on the agenda of the banks. And in order to save these manual processes, the only way to deal with that is to apply technology, and this is where we play a vital role in their efforts. And that is why our business in the different front to where we offer compliance solutions, both in [indiscernible] and also in the rest of our offerings.

Last question, if you don't mind, is that, I think the way you depict it now and operation analytics [indiscernible] cloud, it makes it sound like [technical difficulty] actually three sales pipelines here. And to the extent that there is some separation at all, what is the average size, if this is even a sensible question, of an omni-channel deal versus an operational analytics deal?

Paul, you were breaking up at some point of the question. Let me see if I understood. You are asking about the operationalized, the analytics offering and the effort to operationalized analytics versus omni-channel and what is the opportunity, the different in size of the deal. That was your comment?

There are two questions really. Are they separate sales pipelines, and if they are -- which they are probably not -- is there a difference in the size of the omni-channel deals to that of an operational analytics type deal?

Okay. Now I understand the question. So there are not two separate, but I will tell you that definitely we see two trends. Obvious, we have a lot of customers adopted in the past and continue to adopt our analytical capabilities on a single channel, and we see in our two opportunities out there in the market. Some of those existing customers are approaching us back, taking this analytics or the experience at the one channel and we like to go multichannel or omni-channel and connect between the channels. Obviously, this increases the revenue we see from such a customer. So that is one thing. And, second, we have other customers that say our analytics is new to them, like the one that I mentioned before, where they go and start from day one with analytics across all channels together, understanding that their customer service operation is a multi one in terms of communication channels. And, indeed, in these cases, the initial deal is significantly higher versus starting with the single one. It is not just the capacity. It is also the complexity of combining the different channels. We believe we have a weak IP when it comes to omni-channel, especially after the acquisition of Nexidia and inContact, and then customers will see that and willing to pay a premium.

Thank you.

Thank you. We have another question for you, and this one comes from Jeffrey Kessler, Imperial Capital. Please go ahead, you are live in the call.

Welcome, Beth. As you take on inContact, are you noticing a change in or any shift in vertical market interests that you are getting that you hadn't had before or a shift away from given areas? In other words, the verticals that you were looking at now, how are they affected by the marketing that you are now doing in concert with inContact?

It is a good question. I will give you a bit more color on the vertical view. So we have been operating in multi verticals in the last many years. With the introduction of inContact, we see two things that are happening. Actually, some of it started even before inContact. And this is, we see verticals where we had a relatively light presence in or no presence at all starting to rise. So this for example, and we talked about it in my earlier remarks and I think also last quarter, retail is becoming a more pronounced or more dominant vertical for us. And the beauty about inContact, again because this is offered in the cloud, one of the interesting things is verticals that do not carry allowed IT organizations are much more likely to adopt our solutions because they are offered in the cloud. I think the difference with a specific vertical, there are certain verticals that historically have a very heavy IT organization, but the new ones that we see are ones that had light IT organizations. And now, since it is in the cloud and offered as a complete solution almost as a [indiscernible] service one, this helps us to penetrate other verticals.

Okay. Great. The other thing that I wanted, your cash flows have traditionally been quite strong. As you integrate inContact, are we going to notice any change in the percentage of, let's call it, over the course of a year percentage of cash flow from operations generated relative to revenues, either higher or lower based on the acquisition?

So, from the absolute number of cash flow, we don't see a change, and we said that each business, both in '17 and pursuing the long run will become more and more accretive to our business, especially both with its growth rate, as well as with the different synergies that exist between the two companies. Obviously, and you know it, it is not a secret, we are buying -- as we speak soon to be taking over a company that has a cloud business. It is less profitable percentagewise. In the long run, we believe that it will improve dramatically. So there is an upside to the cash, but we don't expect a deterioration in the cash flow position here.

Okay. One final question. That is, given that you are involved in the integration now and you have been more acquisitive now than you ever have been in the last 10 years, what holes -- what areas are you looking at for external growth that you can envision over the next couple of years where you think you are still a little bit light now?

I'm sure you will understand if I will decide not to give the exact details of our acquisition strategy moving forward. But, on a more serious note, we are very happy with our ability to build the businesses organically from time to time like what has happened this year. We see great opportunities out there to augment our portfolio or to actually step into adjacent markets as was done with inContact. In those cases, we will be acquisitive. But not [indiscernible] we are building off strategy just on acquisition, we have allowed R&D investments, which we are very happy with. We believe that we are investing in our respective markets percentagewise. We will be one of the highest ones among our competitors, and we would like to -- we still would like to see even further yields to these investments.

Thank you. We've another question for you; and apologies for pronunciation, this one comes from RK Mahindra [ph], HMI Capital. Please go ahead; you're live in the call.

Quick question; wanted to just understand the underlying growth of the business given that you are moving more to the cloud. So that is probably a drag to revenue. So, if you could give some insight maybe whether it is bookings growth or like-for-like growth, maybe to Q3 of last year, that would be helpful?

Overall, we don't provide booking numbers, but we saw a very nice uptick in our -- both revenue and booking growth of cloud. Both of them grew very nicely. And the beauty of the cloud of business that we see is that it is not necessarily in all cases a shift from [indiscernible] cloud of existing customers, but whether an incremental business that if it is not for the cloud, was very hard to bring, all while still belonging to a competitor or any of the above.

So, maybe just as a follow-up, can you tell us when will you start breaking out cloud separately or some sort of recurring revenue because I believe it is in your services line, right?

Obviously, we are now -- will integrate inContact into our business. Between inContact and NICE, we are going to have way more than 50% recurring revenue, obviously between maintenance or maintenance and cloud. And as we move forward into 2017, we believe that we will look into the way we break down the business and provide, of course, more clarity into cloud, which is going to be a big chunk of our business.

Thank you. I have no more questions for you, so I will hand the call back over to Barak.

Thank you all very much for joining us, and have a great end of the year. Thank you.