Welcome to the NICE conference call discussing Fourth Quarter and Full Year 2019 Results and thank you all for your holding. 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 on February 13, 2020. I would now like to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please proceed.

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'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 and performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2018 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on April 5, 2019. During today's call, we will present a more detailed discussion of fourth quarter 2019 results and the company's guidance for the first quarter and full year 2020. 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 the 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. We'd also like to remind you that we are hosting our Investor Day on May 12 in conjunction with our annual interactions 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 e-mail 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. 2019 was a seminal year for NICE, a year in which we saw many key components of our strategy materialize in the market. In 2019, cloud became mainstream in the enterprise segment, including at the upper end of that market. No longer solely the realm of early adopters, most enterprises now consider cloud as the platform to transform their customer service. Furthermore, CCaaS is growing fast outside the U.S. and CXone grew rapidly in both Europe and Asia. Our differentiated platform approach of negatively fusing omni-channel routing, WFO, analytics and AI has been widely accepted as requirements for successful experience transformation, as evidenced by the strong endorsements we received from all leading industry analysts. Several key partners including, Atos and NTT also adopted CXone in 2019, as the vehicle to transform their customer base to the cloud. We also transformed the digital engagement market by embedding the most advanced digital engagement platform natively into CXone. Our Financial Crime and Compliance cloud platform also had a very strong year. We onboarded five times more customers in 2019 versus the prior year, along with an extremely successful launch of the X-Sight marketplace, signing 40 new partners in just six months. 2019 was also a breakthrough year with the launch of our digital evidence management cloud platform called Investigate. We won multiple marquee deals with key police forces in several countries. Investigate is shaping up to be a clear leader in a new category that will help bring public safety organizations into the digital age. We are very pleased with the progress we made in 2019 with our CXone, X-Sight and Investigate platforms and we are exiting the year with strong momentum across all three. We also…

Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and business performance for the fourth quarter and full year 2019, as well as our outlook for the first quarter and full year 2020. Total revenues for the fourth quarter reached $431 million, an increase of 4% from $413 million in the same period of last year. Full year revenue was $1.577 billion which represented 9% growth over 2018 full year revenue of $1.453 billion. Our total revenue growth was driven by our continued successful execution in the cloud as our cloud revenue grew 25% in the fourth quarter and 28% for the full year 2019. Customer Engagement revenues for the fourth quarter were $335 million, a 3% increase over the same quarter in 2018 and represented 78% of our total revenues. For the full year, Customer Engagement revenues were $1.268 billion an increase of 9% compared to the full year 2018. Financial Crime and Compliance revenues for the fourth quarter increased by 10% and were $96 million representing 22% of total revenues. For the full year, Financial Crime and Compliance revenues were $309 million, an increase of 7% compared to the full year 2018. Recurring revenue for the fourth quarter and full year continued to increase and reached 71% and 72% respectively of total revenue compared to 66% and 69% respectively for the same period last year. Cloud revenues accounted for 39% and 38% of total revenue for the fourth quarter and full year up 6 percentage points compared to the same periods last year. Product revenues accounted for 19% of total revenue in the fourth quarter and 17% for the full year. Service revenues accounted for the remaining 42% of total revenue in the fourth quarter and 45% for the…

Thank you. [Operator Instructions] And our first question comes from Hugh Cunningham. Please go ahead. You are live in the call.

Can you give us a bit more color on where you expect to find the more attractive growth opportunities related to your 2025 plan?

Sure. Thanks for the question. So going back to my earlier remarks the three domains that I've -- the three pillars that I've covered cloud digital and AI or AI analytics and this is -- each and every one of them by itself have tremendous growth opportunity for us across all our businesses. Obviously, as you interconnect them there is an even bigger opportunity. Just to say a few words on each. So on the cloud side while we've seen tremendous success in the past two years in growth, we believe that the market is still seriously underpenetrated and there is a lot – a very long runway over here in all segments of the market as all enterprises are moving to the cloud and the larger enterprises just started their journey to the cloud. So that's one avenue. And it will go through 2025 but also way beyond even 2025. The second one as I mentioned is digital. While the conversation and the early adoption of digital for many organizations started in the previous decade many of them are still in the early stages to transform themselves on the digital front. And for us in all different segments of where we operate, it actually presents a significant growth opportunity and TAM expansion as I mentioned before. And on the AI front which is of course connected to the fact that it's in the cloud and we have a lot of the data through our cloud and the fact that we also provide a lot of our services on the digital front, the challenge of the previous decade of storing and capturing the data belong to the past. And moving forward, the energy of organization is moving to enable people throughout the enterprise to navigate through this data. And the biggest challenge is the efficiency in data scientists. It will not be solved just by adding more personnel. It must be solved with technology. And we are best positioned because we have as I said the data, the domain expertise and of course the platform to support it.

Thanks, Barak. Just one follow-up and this is sort of more of a big picture question. I'm not sure if you have an answer to it. But what you're describing looks like a transformation not just of NICE but really of the entire industry. And I'm wondering, I see the opportunities. You've discussed the opportunities. And you've discussed sort of one vulnerability which is the shortage of data scientists. But do you see as a result of this big transformation any other vulnerabilities opening up not for you but for customers? And do you see a role for NICE in solving those vulnerabilities? And specifically, I'm talking about things like when cloud started to emerge there was concern about security that sort of thing.

Yes. So it's a good point. On the cloud side I think by and large given the advancement of cloud and the fact that enterprises are still much more confident and comfortable to take innovation from the cloud I think that's by and large behind us. Of course, there need to be a lot of focus on that moving forward. But I think that's behind us and those concerns are manageable. And I think as I mentioned on the AI front and the analytics front, the deficiency in data scientists as I mentioned but the biggest vulnerability of organizations that I see from conversation with customers and where we engage a lot is the pace of innovation. They want to move to digital. They want to move to the cloud but the two are interconnected. With the current infrastructure the legacy on-premise from different providers their journey to digital is extremely slow. So actually one is fueling the other. And the fact that we offer both we are completely digital-centric and we are the safe choice to move to a real cloud solution again in all the different markets where we operate that – well the organizations are starting to see the weakness the pace of that move and I think it's a great opportunity for us.

Okay. Thanks, Barak. Thanks, guys and good luck.

Thank you.

Thank you. Next question comes from Rishi Jaluria and he's from D.A. Davidson. Please go ahead.

Hey, guys. Thank you so much for taking my question. Barak let me start with you. You talked a little bit in the prepared remarks about the success you're having with the Financial Crime and Compliance on the cloud side of the business. Maybe can you help us understand A, where are you getting these customers? Are you getting any deployments at some of the larger ones, or is it more at the mid-sized financial institutions? And then just in terms of scale, obviously CXone has been the primary driver on the cloud side. Is there a point at which the – what you're doing with X-Sight starts to become a material driver on the cloud? And then I've got a follow-up for that.

Yes. So indeed what we said in the previous few calls is that you're starting to see a lot of traction with X-Sight in the cloud and it will take time for it to ramp up. I provided an update that we onboarded five time more customers in 2019 versus 2018, which is tremendous. For us it's actually a great TAM expansion opportunity, historically. We've been providing Financial Crime and Compliance solution to the higher end of the market, very large financial services. The mid-market was not very available to us because those organizations have a hard time to buy and adopt these solutions on an on-premise way. As we launch Essentials and X-Sight, it's completely opened up for us the mid-market and this is exactly where we see the opportunity. So, most of it today is in the mid-market even by the way very substantial in size financial services. At some point, we believe it will also go up market. So we have an opportunity on both sides over here. So it's a very healthy mix. And yes, we are going in the very similar direction of what we've done with CXone. We didn't just came out with a cloud offering, but a full-blown platform X-Sight leveraging many of the know-how and the domain expertise we had with CXone. And we're starting to see the success. In the fourth quarter, you saw a double-digit growth on the Financial Crime and Compliance business. Also annually the growth rate was faster than 2018. So, we are very optimistic about the potential there.

Great. That's helpful. And then, Beth just wanted to ask a margins question. So, operating margins have definitely been continuing to improve over time. But it looks like on the cash flow side cash flow margins have gone down I think pretty meaningfully -- or maybe not meaningfully but dropped a little bit over the past two years. Can you maybe help us understand why this is, and how we should be thinking about drivers for cash flow margin expansion from here? Thanks.

Sure. Thanks for the question Rishi. As we look on our cash flow from net ops over the last three years, we've actually had very healthy cash generation from our business. Consecutively, in each of the last three years, we've generated nearly $400 million of positive net cash from our operations. And if you recall, actually earlier this year during the course of the second quarter, we utilized some of that net cash flow to take the opportunity to enter into some agreements on the prepaid side with some of our vendors to lock in discounts that will benefit us going forward. So it's actually been giving us opportunities to put that cash to use. And we've done that both through these longer-term agreements that locked in these discounts as well as it allowed us to introduce our new stock buyback plan given the confidence we have really in our cash generation.

All right. Perfect. Thank you so much guys.

Thank you. Next question comes from Sanjit Singh from Morgan Stanley. Please go ahead.

Good morning and thank you for taking the question. Congrats on the really strong cloud growth to end the year. Barak, I had a question for you on sort of the partner enablement strategy. You sort of mentioned in your script Atos and NTT. Broadly as you think about the partner strategy, where has the traction been to date in 2019? And as we look to next year, where are these partners in terms of ramping up their capabilities and them trying to generate pipeline for NICE across CXone and X-Sight?

Sure. So actually 2019, I talked about it a bit. But if I look at it -- if I reflect on 2019 and I compare it to 2018 and 2017, there was a major acceleration in our partner strategy. During 2019, we said that we want to do it in 2018 and 2019 was a record in terms of how many partners we have managed to onboard during the year. I think that the changes that we saw during 2019 a lot of partners are coming to us instead of us looking for them. And the reason for that is a few -- twofold, I would say. The first one, as we started to expand with CXone globally and we entered some new territories for CXone. We had a lot of partners approaching us looking to move or to adopt that as their cloud choice as they start to move their customer base from on-premise to cloud and as customers demand a true cloud solution with CXone. So that's one part. Since those partners have a lot of know-how in terms of the -- in this particular case in terms of the customer service market, onboarding them was relatively easy. It's more about educating them about the cloud and less about the industry, which is great. It means a very fast onboarding for these partners. And as I've mentioned, already in Q4 we got a few deals from those partners that onboarded just a quarter or two before that. The other program we are very happy with as you heard is our marketplace and gave the update on the X-Sight marketplace, which was for us a great surprise, positive surprise. We just launched it six months ago and onboarded 40 different technology partners. And I didn't provide an update, but the CXone marketplace is also growing very extremely well with way north of 150. I'm not mistaken partners as part of this program allowing us to offer to our customers a very wide ecosystem of solutions. And that's also when I look forward, the core element of our strategy since we operate in so many different segments of the market and globally. By that way, we can actually cater to all segments of the market in a very effective way. And it allows us a very strong footprint throughout all different regions.

I appreciate that Barak. That's very helpful. And then one follow-up if I may. Just around the Investigate platform, which is kind of the third major cloud platform that's coming into the portfolio. We talked about Analyst Day and like sort of customer engagement that TAM being around $12 billion over the next couple of years and Financial Crime and Compliance going from $2 billion to $4 billion. How do you sort of think about sizing the opportunity for Investigate? And what does that competitive environment look like in that segment of the market versus your traditional core markets?

Sure. So, we have a very large customer base in the public safety domain. It is a very healthy customer base that we are very happy to have. They are very loyal customers for many, many years, thousands of customers as I've mentioned. And we enjoyed working with them and catered to them for years. What we have seen and started to work on in the last few years is that those guys will get bombarded very soon with the task of how to manage evidence. This is taking us way beyond our traditional role in this market. And we thought that the opportunity is actually to build a platform that will be -- that helps those public sector organization to manage evidence in the digital era in an A to Z. It's a much bigger role than what we had with those organizations defined. And we worked on that for a couple of years. We piloted with a few customers. We had some partners design partners. And we basically launched it late in 2018 and we started to market it during 2019. We had some initial success in Europe and surprisingly it started to move very fast. And in the second half of the year, we also saw ourselves selected in numerous places also in the U.S. So, that's the traction that we see. As I mentioned just in 2019 alone just from launching, it came very substantial and large public safety organizations adopted that. It's hard to estimate right now what will be the size of that market. We believe it's substantial. And it's just the beginning of this market and we believe that this adoption will accelerate. As we move forward then we have better understanding of the full potential over here and trying to quantify it, of course, we'll share that with you.

Okay Barak. Thank you.

Thank you. Next question comes from Paul Coster from JPMorgan. Please go ahead.

Yes, thanks for taking my questions. First off, Barak, I wonder if you can comment on both the convergence and alignment with hyperscale cloud platforms. By convergence I mean there's some evidence that Amazon, for instance, is embedding some cloud functionality for enterprises into its platform. And by alignment I mean that some of the leading providers of customer engagement solutions are sort of aligned with and you can argue that with some of the cloud providers. So, I'm just wondering how you see that playing out if you see it as an accurate description of the situation in the first place?

Yes. We actually see it as a great opportunity. This market of customer service exists for many years. And the fact that we see more and more parties interested to play in this market, it's a great evidence that this is a sizable market with a potential for a significant TAM expansion. So, it's another evidence that the next few years are going to be extremely exciting in this market. On the flip side of it, which is very good for us, it's a highly specialized market and it's a very feature-rich market in terms of its capabilities and what is required in order to provide customer engagement solutions for small and large enterprises. It's not just scale or complexity; it's the combination of complexity and scale. And that's what we have been doing for the past 30 years. So, it's prepared us very well to that moment and the acceleration that we see in our business. We actually have a cooperation with many of the vendors that you have mentioned and we believe that them playing in this market actually helps us to accelerate the move of customers to the cloud. And there is a place in the market for both the infrastructure players like the one that you've mentioned for the provider of the public cloud and the specialized applications where we play.

Very good. The other question I've got is I apologize for being so conceptual here. But as I hear you talk about cloud and digital and AI and robotics and so on it seems that it can be applied to pretty much any transaction or process or control environment and pretty much any domain; Blockchain, ERP, CRM you name it, it seems applicable. What is it that you do not do? I mean in five years from now is there reason to expect you to be way beyond customer experience customer service?

So, I agree that if you look on the set of technologies that we have and what we do and the pillars I've talked about they are applicable for many different enterprise software domains. However, I'm a big believer first of all in focus, and that's something that we've done I believe well in the last few years. And the second thing that relates to that, I'm a strong believer of -- in domain expertise. I think that that's what our customers are looking to get from us. Not just I think I see it. It's not just selling them generic technologies the domain expertise. And it's even stronger when you are now -- as we set course to be the AI hub of our market. AI while certain algorithms and machine learning can be referred to as generic, the real AI solution, you must have domain expertise in that field. And that takes a lot. And we're actually in a great position, because if you think about what we bring to the table when it comes to AI, we bring the two most important things that allows you to create AI dominancy. The first one is data. We have vast amount of data that is going through one or any of our solutions. And the second thing is domain expertise. At NICE, besides a lot of technology experts, we have people that have tens of years of experience in customer service, and tens of years of experience in compliance, and financial crime and compliance, and tens of years of experience in public safety. When you combine them together, you get what we believe is a superior platform with this domain expertise. It does open up possibility and I agree with you that we may end up deciding to go to yet a fourth or a fifth vertical potentially.

Okay. Thank you. Helpful.

Thank you, Paul.

Thank you. The next question comes from Tavy Rosner from Barclays. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. Barak, you mentioned your strong competitive and strategic positioning. I'm just looking at some of the cloud names that are growing extremely fast and some of the legacy players also announcing technologies that sound similar to yours. So I'm wondering are these guys kind of closing the gap from a technology standpoint, or you consider that you still have a step ahead when it comes to technology and innovation?

So as you know we are -- have invested, we are investing and will continue to invest heavily in R&D. We believe that the portion of our investment in R&D is ahead of many others. And if you look on the recent report from almost all analysts, I think all of them, whether it's Gartner or others and you look on where they position us on the Magic Quadrant and others, there is a significant gap between us and others. Obviously, we will continue to invest in innovation to make sure that we get -- not just remain but also extend itself. Particular to those platforms I've mentioned so far if you take CXone, for example, no one else in the market as far as I know put together and we've done it more than 3.5 years ago omni-channel routings, WFO, analytics and digital and combined it under one platform. I think that allows us to open a significant gap. And as a result of that the great wins within the market.

Got it. That's helpful. And then you mentioned in your prepared remarks, the server acquisition that you made over the last five years. And I guess looking ahead, should we be expecting a similar pace or now is now in a different place and therefore you don't really have to allocate your cash towards acquisition, but rather return it to shareholders?

So we indeed have done some what we believe are very good acquisitions in the last two years and we got we believe a great return on those acquisitions. Also it allowed us to advance our offering quite significantly and complete our offering to build the three platforms I've mentioned. Of course, given the fact that our position in the market and the fact that we would like to further augment our leadership and our growth, we will continue to be active on the M&A front. Having said that, we believe that we have everything that we need in order to execute on the NICE 2025 vision and strategy that I've mentioned. And one example of that level of confidence is that we announced a share buyback program earlier today to make sure that we are doing the right thing on the capital allocation to the shareholders.

Thank you, Barak.

Thank you. Next question comes from Dan Bergstrom from RBC Capital Markets. Please proceed.

Yeah. Thanks for taking my question. Thanks for the look at the opportunity forward here to 2025 very exciting. Around that you talked to the early stage of the digital transformation and the opportunities around TAM expansion. I guess maybe to build on Paul's question, could you dig a little deeper there? What are some of those TAM expansion opportunities in digital transformation? How could you look to leverage your data and domain expertise there?

Sure. So let's -- I'll refer to the three different if you would like segments. The first one on CXone, we're already in the leadership position strong leadership position in customer engagement, and we are starting to see a dramatic increase in digital interactions and the requirement of enterprises to further grow omni-channel and provide a cohesive and coherent service to all channels. That by itself, as I mentioned is going to double the TAM potential for CXone. I gave some example of that. What we saw in Cyber Monday the major growth over there. And we are well prepared for that, because we acquired Brand Embassy earlier in 2019. We integrated that into the business and we already saw initial deals in Q4. So that's one example. On the financial crime and compliance, the reason why we believe digital can present a tremendous TAM expansion opportunity is actually the market itself. Both new banks, digital banks given the digital opportunity are created and we see them coming to us as they would like to make sure they comply with regulation and mitigate fraud and other assets. So, actually new customers and the second part of the TAM expansion is that the traditional banks are trying to completely rebuild all of the processes starting from customer due diligence, KYC understanding who is the customer, AML processes, fraud processes and basically build them from scratch in digital and that's a brand-new business for us. And lastly on the public safety domain, as I mentioned that market is way behind in terms of digital transformation. They can no longer stay behind, because as I've mentioned the biggest issue is how do you manage the vast amount of evidence on every investigation in every case. And here as well we prepared ourselves in the last several years and launched right on time in 2019 the Investigate platform and we see the traction. So we see all of those evidence and great examples, but we believe that this is still early and there is a long runway over here as the organization will transform digitally in the upcoming decades.

Thanks, Barak, very helpful. And then for Beth, Beth could you help us with the magnitude of increasing cloud in the fourth quarter here versus prior's quarter – prior quarters in the year? Is that just the seasonality of builds through the year much like the business overall, or are there other things in the fourth quarter here that we should keep in mind?

Sure. Thanks for the question, Dan. We had very nice growth of our cloud revenue in the fourth quarter. It grew at 25%. And as a reminder, Q4 was a purely organic growth in the cloud. So there weren't any anomalies. It was really just the momentum that we've seen throughout the year playing through in our cloud revenue for the fourth quarter. And of course, we do have some seasonality that we experienced in the cloud line item. But overall, it was really just demonstrating the growth coming through in our cloud growth this year.

Thank you.

Thank you. Next question comes from Ryan Koontz and he's from Rosenblatt. Please go ahead.

Hi. Thanks for the question. If you could step back and look at the macro environment can you contrast the adoption of the digital transformation kind of program environment across your major geos U.S. Europe and APAC? Thank you.

Sure. So we see a lot of similarities. I'll try to give some characteristics for different territories. I believe all the three transformation, I mentioned are touching all enterprises globally. Obviously, cloud adoption we see in the U.S. is ahead of Europe and APAC at least in our relative market. So there's still tremendous opportunity in Asia Pacific and Europe. And actually, in 2019, we saw very nice growth relatively speaking in those territories. So the adoption is starting to ramp up. On the digital front, actually it really depends per country. U.S. is advanced. There are some Asian countries that are way more advanced. And European country, I would say a bit behind. I don't want to be too generic over here. It really depends by country. And the issue of AI and analytics the combination is just global. The main issue is that, I would say that storing data et cetera, as I mentioned is a challenge that belongs to the previous decade. And the shortage in data scientists is coming from the fact that all enterprises globally understand that in order to differentiate vis-à-vis the competition. They need to use data in the most effective way, which will give them differentiation. And for that, they are looking for people that understand data and they're fighting for data scientists. There is a limit to how much they can fight on them. They're still going to fight on them of course and we're going to see a growth in data scientists. There is a potential shortage these days of already two million data scientists globally and it's going to expand. So they are now turning on to how do you take technology our technology in this case, and add it into the enterprise in a way that almost every employee can have data scientist capabilities.

Helpful. Thanks very much.

Thank you.

Thank you. Next question comes from Daniel Ives and he's from Wedbush. Please go ahead.

Thanks. Great, quarter again. So, can you maybe just talk about when you think about cloud and just the move that we're seeing on the customer service side, just talk about how maybe conversations are changing. Go into more strategic more of the platform approach in terms of what customers are looking for versus maybe 6 months, 12 months, 18 months ago. And maybe if you can just think about Barak like, how much of it is the product versus what's happening in the market? Like if you just think about it.

Sure. So, if I try to think about the conversation, I participated in dozens of them with customers in the last few months and quarters and I also look a bit back. One of the things that's changed dramatically and that already belongs to I would say 2018 is that there is no longer a conversation about whether we should move to the cloud. I'm talking from the customer viewpoint. We don't hear it anymore. Is cloud safe and things like that. Of course, they are doing due diligence and so on and so forth. But that phase of educating why cloud is better, I think by and large is behind us almost in all segments of the market. Customers today say "We would like to move to the cloud." The key question for them is "We know what's the end state. What's the journey? What's the best way for us to do that?" Obviously the larger the customer is the more complicated it is for them given the variety of integrations that they have complexity, fast depreciation and so on and so forth. But I think that the real thing that is changing, if I look on the past year is the better understanding of customers. The cloud by itself is the technology. It's the vehicle of delivery, but it's about what it enables them. And it's not just economics and it's not just the infrastructure. It's about I would say two things. One is unique to our market and one I believe is to several other markets as well. The first one is the pace of innovation, the understanding that regardless of cost et cetera the fact that you deploy a true cloud solution and native cloud solution with all the capabilities, you can move your pace of innovation as an organization from once every two years as something that happens constantly by demand. That -- this is huge. It's something that is dramatic in their ability to move forward at the organization. And that I believe is true for a variety of enterprise software verticals in the industry. The one that is quite unique to the customer engagement market is the power of elasticity. If you think about the customer service and you think about the ups and downs that they have in terms of demand given different seasonality they have in the business and the fact that instead of buying to the maximum capacity in an on-premise session, they can procure from someone like us that offers full elasticity. Not all cloud solutions offer that elasticity. That's huge for them and their ability to navigate through both their business and their financials. So that's the type of conversation we see these days.

Great. Very insightful and great job again.

Thank you.

Thank you. Next question comes from Walter Pritchard from Citi. Please go ahead.

Hi. Thank you. A question for Beth and a question for Barak. Beth, on the gross margins you've highlighted the sort of buy-downs of some -- probably connectivity and other costs for cloud. And I'm curious when you look at the improvements you've had year-over-year in gross margin and then how you're thinking about that into 2020, what factors would you point to that have been most impactful to those gross margin improvements and then as you look into which of those are the most sustainable going forward?

Sure. Thank you for the question, Walter. As we look on our gross margin, we have had nice year-over-year expansion and you can really see that coming through in the fourth quarter in particular around our cloud gross margins, which expanded 400 basis points just in the fourth quarter year-over-year alone. And so we have consistently had very nice product and services gross margins. We continue to really maintain the level of attention to driving the efficiency across our organization around those two areas. But cloud is an area where we've really continued to capitalize and will see further expansion going into 2020. It's coming from a number of areas. First of all, just the fact that as we're moving into the larger enterprise, we have a land-and-expand approach. That allows us to go in and continue to sell software, which comes at a higher margin and higher profitability versus the network connectivity. So that's driving more to the bottom line. At the same time, we're also looking at our cloud operations similar to the way that we've looked on our services business over the past few years, really just driving a lot of operational efficiencies and cost control around the business. So those are some of the areas that we'll continue to focus on throughout 2020 and that we're confident we'll continue to drive the overall margin profile higher.

Thank you. And then Barak on the -- just there's a question asked earlier on the Hyperscale entry into the market. And I guess what we're seeing as well you have some of the traditional CRM players pushing into the telephony channel maybe haven't been there in the past. Are you seeing any change in the landscape in terms of who's a partner and who's a competitor, if you look at kind of the Q4 selling season versus where you were last year and in the past? And I mean particularly, among the CRM-type players.

Yeah. Yeah. No. We don't see any dramatic change. You know that we have a partnership with an -- all different adjacencies to our markets, CRM, unified communication or UCaaS, SIs of course and other resellers. Some have more technology partnerships. Some have more go-to-market partnerships. And actually both the partnership on the UCaaS side and on CRM which is adjacent to our market is very successful. We just recently -- I believe it was a couple of weeks ago a bit more, we announced an extended partnership with Zendesk. Our partnership with Salesforce is going extremely well. These are not our main channels to the market. But actually customers are very happy with those partnerships, because it allows them to have better integration between those, like in many industries and we welcome that. These days it's all -- it's a combination of corporation and some other competition. Because sometimes it's hard to know what -- when a certain market or capability ends and the other one starts. But I think overall, it's healthy. It keeps us all honest with customers. And we will continue to do that. And they're happy with this mode of let's call it competition. It's a healthy one.

Great, thank you.

Thank you.

There are no further questions at this moment.

Thank you all very much for joining us. And we look forward to see you at our Interactions event in May. Thank you. Have a great day.

Thank you. Ladies and gentlemen, that concludes your call for today. You may now disconnect. Thank you for joining. And have a good day.