Good day, everyone. And welcome to the NICE Conference Call discussing Fourth Quarter and Full Year 2018 Results. And thank you all for holding. [Operator Instructions] As a reminder, this conference is being recorded, February 14th, 2019. 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 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 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 three of the company’s 2017 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 30, 2018. During today’s call, we will present a more detailed discussion of fourth quarter and full year 2018 results and the company’s guidance for the first quarter and full year 2019. Following our comments, there will be an opportunity for questions. And 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 accepting accounting principles as reflected mainly in accounting for acquisition-related revenues 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. As we communicated in our prior earnings call, our non-GAAP financial results for 2018 are presented under ASC 605. We chose to do this to provide better transparency and comparability to 2017 financial data, which was reported under ASC 605. Effective from January 1, 2019, our non-GAAP financial results as well as our guidance will be reported under ASC 606. It's important to note that results throughout 2019 will be compared to ASC 606 results for 2018 not ASC 605. We would also like to remind you that we are hosting our Investor Day on April 16th in conjunction with our interactions annual user conference in Las Vegas. The special program for analysts and investors will include meetings with NICE executives, presentations from customers, product and technology sessions, and access to the solutions showcase. If you haven't registered, please email us at ir@NICE.com. I’ll now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I’m glad to be on the call with you today. With the release of our Q4 results and to look back at the full year, it is clear to us 2018 was a seminal year for NICE. Our cloud business prospered with Q4 cloud revenue growth of 29% fueled by early adoption of CXone in the market place. Some key metrics that underscore 2018 as a milestone year included 9% total revenue growth, 27% cloud revenue growth and recurring revenue increasing to 70% of the total revenue. We reported 13% operating income growth, a 90 basis point improvement in the operating margin, and 14% increase in earnings per share and nearly $400 million of operating cash generated for the year. Further more, we saw a record number of new customers and significant increase in the number of competitive replacement. As we look forward to 2019 and into the next five years, it also gives us the opportunity to look backwards over the past five years and at what we achieved during this time. It was a period in which we transformed NICE into a true enterprise software company. It was also during this time that we move from being a leader in maturing market to a leader in a total addressable market of $7 billion to date going quickly to over $12 billion. We've accomplished this by bringing together what we believe to be the greatest assembly of assets in the industry that has allowed us to significantly scale on our analytics and cloud businesses to become the clear leader in both areas, At the same time with a keen focus on operational excellence, we are able to accelerate top line growth while significantly improving profitability. Now with all the right assets in place,…

Thank you, Barak, and good day everyone. I'm pleased to provide you analysis of our financial results and business performance for the fourth quarter and full year 2018, as well as our outlook for the first quarter and full year 2019. Before I review the numbers, I would like to remind you that all financial data included in my remarks except the guidance are presented under ASC 605. Total revenue for the fourth quarter reached a record of $420 million, an increase of 6% from $396 million in the same period of last year. Full year revenue was a record of $1,463 million, which represented 9% growth over 2017. Our total revenue growth was driven by our continued successful execution in the cloud as our cloud revenue grew 29% in the fourth quarter and 27% for the full year 2018. Customer engagement revenues for the fourth quarter were $322 million and represented 77% of our total revenues. For the full year, customer engagement revenues were $1,166 million, an increase of 9% compared to the full year of 2017. Financial Crime and Compliance revenues were $98 million and represented 23% of total revenues. For the full year, Financial Crime and Compliance revenues were $297 million, an increase of 6% compared to the full year of 2017. Recurring revenue for the fourth quarter and full year continue to increase and reached 65% and 70% respectively of total revenue compared to 60% and 655% respectively for the same period last year. Product revenues accounted for 26% of total revenue in the fourth quarter and 20% for the full year. Cloud revenues accounted for 32% of total revenue for the fourth quarter and full year up six and five percentage points respectively. Service revenues accounted for the remaining 42% of total revenue in the…

And we do have a question it comes from the line of Eyal Shaul. You are live in the call. Please go ahead.

Barak, I want to go back to the topic you have addressed in your prepared remarks and in a press release regarding the journey towards that $2 billion revenue and 30 plus percent operating margins longer term of course. Can you provide us with more color with the thinking around it? Is it all organic? How we should we be thinking about the mix also between cloud, the rest of the segment? How should we be thinking about the AML business growing within this framework?

Sure. Thanks for the questions, Eyal. And yes we-- as we stand here today at the beginning of the new year, five years I've became the CEO of the company, similarly to what we've done every year, but also five years ago providing an outlook for the upcoming year. We feel that today given the trend of our business, the markets we operate in which are very healthy. The assets that we have built and the momentum in our business that we can also provide beyond the outlook, the healthy outlook for the first quarter and for 2019. Also some outlook for the next five years and provide some financial metrics to that. And we believe based on that weekend leave the $2 billion mark far behind. We-- more than 50% of our business by then should be in the cloud. And we're aiming to the goal of the 30% operating margin as I said. In terms of where this coming from, we see it right now organically, obviously we can augment that with acquisition and further accelerate some of those numbers and trends. And we see it in go-for-businesses which are very healthy with the recently announced that in the past year both CXone and X-Sight very similar trend with respect to analytics AI and cloud and the same trends as we've seen with CXone, we believe they are very, very similar to what we see right now in the financial crime and compliance where cloud is starting to gain very nice traction. So although it's an effort to give you a glimpse if you like our past strategic plan, which we feel that have good execution to the strategy in the same way that we executed on the past five years.

Got it, got it, understood. And also if I may, Barak, when we look on the breakdown between the product, the cloud of services do you think that on the enterprise front companies with 10,000 plus employees are you maintaining-- are you capturing the market here on the SMB front, it's very clear, but I want to hear your thoughts about it. And also maybe if I can squeeze another one. As Via, these guys have been struggling over the course of the past few quarters. Can we think of NICE as some ingredients that have been disrupting and fire the business specifically as it relate to the contact center, to the routing business? Is that a fair assumption?

Sure. So let me first thought of your question and the answer is yes in all segments. Obviously, we are taking very nice share and making a lot of replacement in the low end of the market. But I believe the same is true for all different segment of the market. 2018 was a record year for us in the number of competitive placement. And I think that's what we see that we have two type of fair replacement. The first one is a legacy provider that do not refer themselves to the era of the cloud, personally I think it is bit too late for them to be there given or knowing what it takes to in terms of R&D investment and expertise et cetera. So we found ourselves in many cases replacing the on-premise providers I refer to Via in second with the cloud solution. Two cloud solution that we offer. The second type of replacement that we see is completeness of our offering, the suite of platforms that we have with analytics and AI capabilities and there we are replacing whether it's on-premise or cloud, we see it also on-premise providers that have more of smaller limited solutions in terms of their functionality. With regard to Via in general the family of provider that today have the lion's share of the on-premise market share, the legacy market share. I think you can see it from and compare our financial to their financial. No doubt there is replacement cycle in the industry. We are enjoying it very much and yes Via are one of the one I believe we find ourselves replacing them quite a lot.

Your next question comes from the line of John DiFucci from Jefferies. Please go ahead.

Thank you. I have a question for Barak and a follow up for Beth. So, Barak the cloud revenue accelerated materially in the quarter, this quarter here and the growth rates have been strong for some time, but that's a reversal after deceleration the last few quarters. And probably I assume just because a lot of large numbers. I'm assuming that almost all CXone since that incremental revenue, since X-Sight is really new. And you also had essential so in some other cloud offerings. I guess the question is, is it correct to assume that essentially all of the incremental cloud business is CXone?

Thanks John. So, yes, we have seen cloud growth accelerating. We also beautify of cloud, we can also have some view into the future and given that strong guidance for Q1 with 11% growth overall. And, yes, a lot of the acceleration is CXone but I must say that we see some other things picking up. X-Sight in general and Actimize will sit in the booking. It's still not there in revenue; it will come in the revenue I believe this year. That we will see that booking materialize into revenue. It takes time to ramp it up when it's new. But it's definitely happening. And also in some of our analytic solutions including Nexidia we see very nice ramp in the cloud. So all in all, we expect the trends to continue. And we also enjoy some very nice seasonality in Q4. And we believe we will experience similar in Q1 as you can see.

Okay, great. So that's interesting to hear X-Sight is actually gaining traction already in the bookings. So, okay, thank you, that's really helpful. And, Beth, I know it's logical, can you help us a little bit on the model. You guys guide to total revenue and it's logical that license would continue to climb over time as more new business goes to the cloud. But as you're increasing number of cloud solutions gain further traction --would should we be thinking that that decline could accelerate and I ask that in the context because the quarter looks really strong. Your guidance looks good too, but your -- the top line is a little bit lower than in the street had you. And I am just wondering if it's something about the mix that's affecting that.

Yes, thanks for the question, John. I think first to highlight we believe that our guidance for the full year of 2019 as well as the first quarter is quite strong. And just as a reminder the revenue growth based on the midpoint of our guidance for the first quarter of 2019 it is 11%. And I think it's a good opportunity to remind everyone that as we move into 2019, we are really comparing the year-over-year growth on an apple-to- apples basis. So it is using the revenue under ASC 606 as well as profitability compared to the 2018 financial results under 606 which we disclosed throughout the year last year in addition to 605. So first I think it's -- again very important to make sure you're doing the true apples -to-apples comparison. With respect to the mix as you've seen during 2018 and as expected, we do see more variability on the product and license side of the house. And we expect it will continue to see some variability from quarter -to- quarter. And really one the strategic driver that we're seeing of cloud in our business is quite evident in our cloud growth, which we expect to continue to see as well.

Okay, so just continue to expect declines but whether or not that accelerates is I guess still a question. It's kind of up to us.

Yes, as I said, I don't know that you should expect to continue to see declines; I think that you will see variability on the on-premise business from quarter to quarter. So there will be again, generally some fluctuations and variability during the quarters of the year is what we expect.

Thank you. Your next question comes from Walter Pritchard from Citi, your live in the call, please go ahead.

Hi, thanks. Just maybe following up on John's question about the growth, I mean, you did consolidate Mattersight I think fully in Q4, Q3 with kind of a partial quarter. And that's I think supported mostly in cloud, could you help us understand how much of an impact that had on cloud and then I a follow had up.

Sure, with respect to Mattersight as you said, we close that acquisition during the third quarter. And we highlighted at that time that we expected the annual run rate of revenue to be in a range of $32 million to $38 million. The actual results within Q4 were within that range. And so well, within kind of what was expected. We look on the both the sequential growth which was quite strong from Q3 to Q4 and you can put -- putting Mattersight ahead very strong a sequential growth, as well as the overall growth in our cloud business, which was a 27% year-over-year, and 2018 versus the prior year. So again, strong cloud momentum. As Barak said, we're also seeing very strong bookings. And as you know with the cloud business, it takes longer to actually get that those booking results carry through into the revenue. So we're also again, quite optimistic as we go into 2019 to see the further effects of that business.

And then maybe just on 606, could you help us understand with -- I think we get the revenue impact with any of the expense impacts on 606 probably a bit of a tailwind, and I know you've given us the comparable from 2018 in both maybe the 2019 expense impacts from 606 would be helpful as we calibrate models.

Yes. So again, I think as I highlighted before, what's really important to understand that we will be measuring 2019 under 606 and we’ll be comparing it to 2018 under 606. So there will be no impact in terms of the accounting change on the expenses.

Thank you. Your next question comes from the line of Sanjit Singh from Morgan Stanley; you’re live in the call. Please go ahead.

Thank you for taking the question. I wanted to follow up on Barak on some of your comments in your script. On the five year plan. Could you describe because I think when thinking about your comments, it seems very ambitious in terms of the types of market segments are going to go after the geographic expansion. And that could mean competing with a different set of competitors than you traditionally have competed with. So from an organizational standpoint, what capabilities do you feel like you have to build to really attack sort of all geos and that sort of dictated by your strategy?

So, first of all, we always believe in ambitious plan, we've done it when we started the journey five years ago, and I believe we executed well and it's always important to put goals that will make us wake up every morning and drive very, very fast. I believe that they obviously we have – as we have change the size of our markets, total visible markets quite significantly, needless to say, we hinted to that as we also already in the past two years though playing in a different ballgame and we’re playing with broader scope and broader spectrum of competitors. Having said that, I think we are coming from the direction of the disruptors versus the incumbents in certain markets. And as disruptors we came, I believe quite prepared the different assets we have assembled together in the last few years. But it's not just those assets but about putting them together. And bringing them with the pioneer new technology and the right technology. The true native cloud -- open cloud from that we have made the completeness of the offering, which I believe from our experience in the day-to-day is very, very important from the markets where we playing. Today in the cloud with the trends with respect to Analytics AI et cetera cloud and the partial solution might give you some interest to the market, but is not a sustainable strategy. So we build a strategy throughout the last two years organically, inorganically and we have, we now have the right assets to go that and this is the reason why we are providing this outlook for you on the call today. In terms of different thing that we are kind of missing in the company. I think that for the recent acquisitions we've done in the last two years. We brought the great talent, muscle and DNA to the company combined with the great talent we had it NICE before. So spreading that throughout the company, something that we're doing and experiencing today, which I think gives us great results on the execution.

Great. I appreciate the thoughts. Then I have a follow-up on Walter's question. I guess the follow-up on John's question as well. I think we're trying to understand is the sources of growth, it seems like the model is continuing to transition, and which sort of an obvious statement is given the run up in cloud. In terms of the existing NICE customer base, so we think about that maintenance space. How should that -- how should we think about growth in that line? Or for more generally, how are your existing on-premise customers? Are they moving to the cloud or they expanding the cloud with new business? Is there any sort of transition with the maintenance space there?

I think it's a combination and for us, we take more than opportunity than threats. We saw it as better before, as you've seen in 2018. We will have some fluctuation in the product or system whatever the product is growing very nicely and standard, flattish or declining. But overall, we don't expect any acceleration or a fast decline in this business. Actually, our maintenance business is doing extremely well and is very healthy, throughout 2018 as well as in -- as well as in Q4 and also the outcome that we have into 2019. The reason for that is that we have -- because of the way we strategize our way into the cloud, we're doing it while entering much larger market. So our customers, first of all, we have customers that are not our, they talk about the replacement and the new logo and for us these are brand new opportunities, a brand new customer and we've never receive revenue from and those are coming in the clouds. Existing customers, some of them augmenting our on -premise solution with cloud as we now added omni-channel routing to offering and analytics in the cloud and so on and so forth. And that is an add-on to the existing on-premise. And even existing customers, ready to move all of the on-premise solution to the cloud, what we see versus the ongoing revenues we can see from this customer and an on-premise, anywhere from 2x to 3x revenue, just moving that on-premise to the cloud. So we see this gradual movement and I said in five years we gave us the metrics we believe that it will be more than half of our business meaning the cloud.

Thank you. Your next question comes from a line of Tavy Rosner from Barclays. Your live in the call please go ahead.

Thank you for taking my questions. Most of them have been asked. I add one about analytics you talked about the strong traction you're seeing there and I guess I was wondering, do you have a way to quantify what's the proportion of your existing customer base that are using or not using and that it takes and therefore how large is your opportunity to kind of up-sell that based?

Sure. So I think we've seen few trends in our businesses with regard to analytics. I mentioned feel them that will help you to answer your question. The first one is that given that we now have analytic both in the cloud, as well as the fully embedded in both X-Sight and CXone, it give us the opportunity to provide analytics to market segment than before that didn't think even about adopting analytics given the sizes of their business. So it's basically taking analytics down market. So that's one area this is un-penetrated market for analytics. With respect to the higher end of the market, where the penetration is more significant, we actually see yet another way of adoption of analytic customers, large enterprises that enjoyed it got use to what can be done with our analytics and new generations of our solution, allowing them to now further adopt and further penetrate with analytics to the complete enterprise as part of our vision, as I mentioned analytics everywhere. And the third part is where we experience the convergence between analytics and AI and these are a customer that has been a users of analytics and now see the opportunity to further elevates the analytics filter by introducing our AI solution that are well embedded now into our analytics solution. So in a way it's hard to just mention a penetration rates because as I said there are multiple layers and endless opportunity to cross sell and up sell even to customers that already adopted analytics.

That's helpful and then just looking back into the M&A story, I mean I guess InContact was last large acquisition you made and it's been quite successful to say the least. And that's kind of going to keep you busy for a while given the opportunity out there. So I guess looking at your net cash position would you consider doing buyback dividend or something else for the time being if you don't see any large acquisition in the pipeline.

So we have a very good history of the company that is making acquisitions. And the last few acquisitions we believe indeed very successful both financially as well as strategically for the company and allowed us to open up to such a larger addressable market moving us from a leader in limited market to total addressable markets to a very fast growing market. So that's been the past success of our acquisition. We’ll constantly as always are active on the M&A front. We have our criteria when and what to buy within our strategy. We see acquisition assumption that can augment our strategy as it has been in the past. You're right we have a very strong balance sheet, we’re very proud of our cash generation that is an indication to the healthiness of our business. And right now we believe that we are – this is the right place to be and looking into acquisition, but any point of time if we believe that there will be a better way to allocate our capital through the different measures that you instead of course we’ll assess that.

Thank you. Your next question comes from the line of Rishi Jaluria from D.A. Davidson, you're now live in the call please go ahead.

Alright thanks. Let me start with rock on CXone, you've talked in the past about kind of the APIs that you have on top of that would just be curious if you can maybe share how customer and partner usage has been on that front and if you have any examples that you can provide of customers that have use those API's and maybe build something interesting or value add on top of that. And then I've got a follow-up for that.

Sure. So the answer is absolutely, yes. One of the things that beyond the completeness of the CXone platform and the fact that it's built on a true cloud environment. The other thing that we are very passionate about is the fact that it's open, it has all the API's that you've mentioned, and we believe that it give us a very strong competitive edge. There are two kinds of two main usages to these API's and open platform. One is customers that would like to further integrate, and use CXone as a platform to their business and integrated to other systems and actually make it a mission critical system within business processes that they have. And we see enterprises are doing that easily integrating CXone into their environment. Obviously, we enjoy it because it makes CXone much more of mission critical and it makes it much more sticky of course which is very, very important to us. The other thing is there are a lot of point solution vendors. We now already have 100 north of 120 pulsars, technology pulsars that are made their solution certified and available with CXone and continue to grow. And this is also allowing us to continue leadership with CXone because enterprises that have preference for example for asset and check board or asset and application environment they can use the CXone platform and then the technology from different providers. The used cases there are hundreds of them. I would say that a lot of our customers, the majority of them are using those APIs to the integration. And as this ecosystem grow. Of course will provide more and more used cases. Actually a lot of our customers in the sales cycle are looking into this community and are learning a lot from those used cases.

Got it, thanks, that’s helpful. And then, Beth, just going back to the earlier question around Mattersight. And if I do the math assuming that Mattersight was purely a cloud that actually tells me that cloud growth in Q4 was similar to what it was in Q3 on kind of an organic basis. Is my thinking directionally correct or maybe I'm missing anything here? And then maybe just alongside that since we are on the topic of Mattersight just would like to hear if there’s any thoughts on traction with the Mattersight within the existing NICE customer base and how that’s going so far? Thanks.

Thanks for the question and I again I think just to repeat I think in terms of the expected performance of Mattersight was really within the range we’d expected. And in generally, again the cloud growth we experienced was strong both sequentially as I said even organically from quarter- to- quarter and strong growth year-over-year, again just further highlighting we don’t disclose the bookings results externally, but certainly we also have visibility and to what the forward momentum looks like which is again very strong. I think with respect to the-- again the integration of Mattersight generally that’s going well and on track with our plan.

Thank you your next question comes from the line of Gabriela Borges from Goldman Sachs. You are now live in the call please go ahead.

Good morning. This is Dan Church on for Gabriela Borges. Thanks for taking my question. I guess start off as we head into 2019, can you maybe share how your conversations with customers have changed? And what the pipeline looks like and whether the level of sensitivity around cost control within contacts in our exchange?

We don’t see any change in the churn from 2018 conversation continue in the same way that it was before. Contact center and customer engagements in generally is top of mind item. It didn’t change this is the way to the enterprises differentiate themselves more and more standard. You get a seat at the table; together sit at the board room these days with almost old enterprises. So we don’t see any change in the dynamics and the pipeline that was generated and is still being generated is as strong as it was throughout 2018.

Thanks and just as a quick follow up. When you displace an incumbent vendor with CXone, can you maybe give us a sense for what the switching cost look like and deployment times? And anything you can do to make it easier for customers to switch and reduce switching cost.

Sure. So customers of course talk to us with that. They all have -- each customer is somewhat different depending where they are in their depreciation cycle of the on-premise solution. The main reason for customer to move is to no just the financial model, obviously it is the benefit, the innovation cycle, and the cloud provides them. The internal cost that they have and we have a very healthy ROI model that customers have built very nicely. And a consulting that we provide in terms of how to switch it’s a commercial now, but it’s also obviously transition in terms of the transformation of the business. So, yes, we provide this help to customers on how they move off and I can tell you that it is happening as we speak and in the past a lot of the questions about it, today since everyone -- all the customer that we meet, it's for them to move to the cloud is no longer a question. The issue of how you transition from the economics percept side is less and less critical. The other-- the last thing I'll mention is that our model provide elasticity also commercially which is really attractive as you all off-board and on-premise solution of the incumbents.

Thank you. And your final question comes from the line of Paul Coster from JP Morgan. Please go ahead.

Hi. This is Mark Strouse on for Paul. Thanks for taking our questions. So there was a large enterprise storage company that talked about a pause at some of its larger customers owing to some macro uncertainty. The NICE obviously has some strong secular tailwinds. But just curious if you're hearing anything from customers about cyclical risks or macro uncertainly.

No, we don't see anything. We talk to customers on a regular basis, on the daily basis. We haven't seen any of that of that sign; we read the same newspaper like all of you. And we have the concern, but we don't -- we don't see it for customers, we don't it in our business, not in the pipeline and not in the businesses at all.

Okay, that's helpful. And then just lastly, Beth was there any impact in 1Q from the U.S. government partial shutdown that we need to kind of normalize for?

No, really no impact in our business that you should take into consideration. End of Q&A

Thank you. That was your final question. We have no further questions.

Thank you all very much for joining us. And we look forward to see you at interactions in April in Las Vegas. Have a great day.

Thank you.

Thank you, everyone. It concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.