Welcome to the NICE Conference Call discussing Third Quarter 2021 Results and thank you all for holding. All participants are in a listen-only mode. Following management's formal remarks, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded, November 11, 2021. I would now like to turn the call over to Mr. Marty Cohen, VP Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. 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 3 of the company's 2020 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 23, 2021. During today's call, we will present a more detailed discussion of third quarter 2021 results and the company's guidance for the third quarter and full-year 2021. 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'll now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. We're pleased to report a better [ph] quarter with Q3 total revenue just shy of $0.5 billion for the first time in our company's history. The quarter was characterised by continued accelerated growth across the board underscored by 20% total revenue growth and 29% growth in the cloud. These strong Q3 results reflect the uplift we are receiving from being at the center of four key dynamics that are taking place in our industry; cloud, digital, AI and the shift to platforms. Specialized applications natively built in the cloud at scale are now taking a central role in organization's transformation to cloud technology. CXone has becomes the premiere native cloud specialized platform for customer experience. We built CXone with the world's largest and most comprehensive customer engagement set of solutions. We are for the first time ever in this industry, fulfilling CX needs that for decades could not be achieved with the old paradigm of this jointed on premise and non-cloud native solutions. Over the past year, we have added a dozen new native CXone solution to our portfolio with hundreds of new features. We now have over 725,000 agents in 100 countries using CXone making us by far the clear market leader. In our go-to-market, we have added 27 new partners so far this year and have expanded CXone internationally, which I'll talk about later. Consumer's exponential adoption of digital is far outpacing organization's slow, linear or digital evolution. This is the root cause of the rapidly growing friction between consumers and service. Linear evolution will never catch up to exponential growth. Our digital strategy has one goal, to be the next-generation engine, allowing organizations to radically shift from slow digital evolution and leapfrog ahead of the digital consumers. 2021 is a seminal…

Thank you, Barak and good day, everyone. I'm pleased to provide the analysis of our financial results and business performance for the third quarter of 2021 and our outlook for the fourth quarter and full year. Our third quarter financial results were excellent with 20% year over year growth in total revenue, which marked the third consecutive quarter that we reported year over year, accelerated growth total revenue for the third quarter reached a record of $494 million compared to $412 million in the same period of last year. Our financial performance in the quarter was reflective of the strong execution that we demonstrated across multiple fronts. We delivered double digit year over year growth in both cloud and product, all three regions that we operate in and in both our business segments, the Q3 top line was driven by another strong quarter in the cloud with 29% year over year growth, coupled with an outstanding performance and our product revenue, which grew 73% year over year cloud revenue contributed $262 million and represented 53% of our total revenue services revenue total $164 million and contributed 33% and the remaining $67 million or 14% with product revenue. Our sequential cloud growth of 7% demonstrates the continued momentum and strength of our business. We are by far the largest cloud provider in our industry with an annual cloud revenue run rate of more than $1 billion. Our success in the cloud is primarily being driven by our main growth engine CXone, thanks to the continued effective execution of our expansion plan and international large enterprises partnerships and digital, as well as leveraging the breadth and depth of our platform with cross sell opportunities in Q3, we recorded impressive revenue growth across all geographies, the Americas region, which represented 82% of total…

Thank you. At this time, we will conduct a question-and-answer-session. [Operator instructions] Our first question comes from Samad Samana from Jefferies. Please proceed.

Hi. Good morning. congrats on strong results. Barak, I wanted to clarify I thought I heard you said that CXone bookings were up 100% year over year. That's a really big number. So first I just want to make sure I heard correctly and it's true. Can you maybe just help us understand what's driving that strong bookings performance even as we move well beyond some of the pandemic tailwinds that the company benefited from last year.

So, thanks. Thanks Samad. So yes, you've heard correctly. Booking of CXone in the quarter new booking of CXone in the quarter grew 100% year over year. It was really a phenomenal booking and this is following also the last few quarters of very strong booking across the board. And also with CXone, as we commented on previous calls. The drivers are all the above, everything I mentioned in my earlier remarks, the adoption and the win rates we're experiencing at the higher end of the markets. I mentioned some of those deals and the list is too long to read on the script, the expansion into international, the fast adoption of digital, which I've mentioned that when we add digital into CXone, it doubles the ACV and sometime even more than that and overall additional expansion that we see from existing customers.

Great. That's very impressive. And then maybe sticking in that theme, the digital revenue, as you mentioned grew almost double the rate that overall cloud revenues growing. How should we maybe think about digital revenue going forward and have durable is that robust growth that you're seeing on the digital side specifically,

We believe that digital is still it's in a very early innings for a variety of reasons. Digital is not new as a concept, right? Most organizations do have some form of digital, but it's a solutions and siloed solutions that belong to previous generation. As I mentioned in my earlier remarks, we all see it. We're all consumers and we are self as consumers adopting digital in an exponential growth as you would like and organization that are trying to fight it in a linear evolution, will never manage to catch up. So there is no understanding as we meet with a lot of customers that just trying to patch or to add kind of spot or ad hoc solutions. And point solution is not going to fight for them. What we offer is digital is the combination of data, digital and AI that comes together and that's the real major difference. The big thing about digital is how do you adopt digital giving consumers the right experience and without inflating your manpower. And it can only be done with the right digital technology the massive amount of data that we have in our platform, and of course the right AI algorithm. So we believe that the sky's the limit for the potential in digital and it just the early days. So it's not a specific number, but it's really in early days,

And then Beth, I, can't not ask you a question. It wouldn't be a nice earnings call without one for me, for you. So just a as I think about R and D expense, it jumped pretty significantly. And I know the company's investing behind, behind that. Maybe just, how should we think about the shape of, of expenses and investments going forward especially as a company ramps, the international side, just maybe get some context around that.

Sure. Thanks for the question. W when you look on our R and D for the quarter, and, and generally our appetite for investing back, we see this really strong growth and, and the top line, and we're being fueled by it predominantly. And of course, we are going to continue to fuel that investment. And that's what you've seen in, in the quarter at the same time as a company. And we've always maintained our philosophy on having a balanced approach. we've provided a benchmark of expectation for a 30% operating margin in, in the future and that doesn't change. So it's a combination of a balanced to investing back in, but at the same time, continuing to , to drive the increasing profitability and a few, if you look on our current year as an example, you'll see we have a gross in the teams, both in our revenue, as well as in our operating income. Great, thanks for taking my questions. Congrats on all the success.

Our next question comes from Rishi Jaluria with RBC [ph]. Please proceed.

Wonderful, thanks and great to see overall growth accelerator to 20%. I don't think any of us were expecting that. So it was really great to see. I had two questions first on, on, on the international traction. You're seeing it maybe a housekeeping kit. Can you help us understand conception? You talked about international momentum and especially on the CXone side, are this happening with internationally based customers is happening with, existing us customers that have big overseas presence. And alongside that, you talked about CXone doing really well internationally, are you starting to see an inflection point in cloud appetite overseas? And then just alongside that as another housekeeping, any FX impact on the quarter and then about a up.

Sure. So I'll start on the, in the international. So it's not the first quarter that we see our international in the last few quarters. We gave you some color about the momentum we've seen international. I think now you also see it not just in the leading indicator, like the booking, you start to see it happening also in the revenue as reflected in both of me and APAC this this quarter. And the answer is yes to the question. Yes, we see rapid growth in the, an accelerated adoption in all the things that we are also seeing in the US market. And so in the US market in the past, it's very similar dynamics. We invested heavily in the past two years in our international national expansion. We had a footprint before we are not new to international markets, but we have added a lot of capacity both in terms of the adaptation of the platform, the people, the go to market, the support, the services, the language the localization, if you'd like, and now we're seeing this tremendous success and growth with respect. So these are not just expansions of existing a US-based customers going overseas. This is I gave you an example of that companies that are headquartered internationally, both in APAC, me a lot in America. Of course us companies also have multinational presence, but those would count actually under the us numbers and with respect to the ethics number that hand it over to best With respect to the ethics number, if you look at our business 82% of our revenue is driven out of the Americas. So we're still a, predominantly based in NUS. It's, it's quite similar in terms of our expense base as well. If you look on an individual markets, for example, for AMEA, AMEA did enjoy a few points of growth this quarter. And despite that, they were at 30% growth, so still strong and in all respects. And as you look at our expense base, we're typically naturally hedged by doing business and having physical, physical presence and, and most of our regions outside of the Americas. And in those locations where we don't have as much a revenue, but have the expense space. Typically in those cases, we are hedging forward in terms of the exchange rate. So we have the visibility and stability looking forward on, on exchange. So all in all that means that there wasn't any significant impact of FX on the quarter.

Okay, thanks. And then just drilling into a cloud gross margins. It looks like a dig ticked down about 60 points, sequentially and anything to call out there that led to that was that mix of, of software versus network connectivity or, or something else there. And, and more importantly, how should we be just thinking about that line going forward? Thanks.

Yeah, we had nice growth year over year was about 154 basis point pickup year over year. What you're referring to is the sequential movement between quarters on the, on the cloud gross margin. And of course, you're going to see some variability from quarter to quarter. We are, expanding internationally and increasing our, our footprint internationally, which comes with certain costs. We're also starting to see the other parts of our business, like financial crime and compliance, as well as public safety start to expand more. And of course, they're not at the same scale as the CXone business. So you'll see that come into play a little bit and see some variability from quarter to quarter. But keep in mind, if you look at our cloud gross margin expansion over the last few years, it has been a really significant we've seen some great expansion and we expect to continue to see that expansion over time. So we don't focus really on the quarter to quarter move movement. We're looking at the long-term growth and they'll on a longer-term growth and profitability perspective. We expect to see that cloud growth margin continue to, to expand. And it's coming, as we go up into the, the larger enterprise, of course, we have a higher attach rates. So our customers there have complex organizations are buying more of the offerings we have on the CXone platform, for example and that drives and expand the cloud gross margin. So that along with just the continued expansion and scale of our cloud business we'll continue to, to grow the cloud gross margin. So again, don't focus so much on, on the short term quarter to quarter change, but long-term, we still remain confident and the 70% cloud gross margin and higher that we've talked about in the past.

Our next question comes from Tyler Radke with Citi. Please proceed.

Hey, good morning. That's in Morocco. Thanks for taking my question. I'm wanting to just go back to the a hundred percent plus bookings growth in CXone, obviously really, really impressive. And especially considering CXone that the primary driver for the cloud business. So I just wanted to understand a little bit on that number. Was there any type of duration tailwind that, that kind of elevated that number and just trying to understand how that growth rate, which clearly is above well above the cloud revenue growth rate to kind of impact that that, that revenue growth rate going forward, or if there's just anything unusual to call out from a duration perspective.

Needless to say, we're very happy with the performances of the cloud, eh, and the booking of six one. And we also monitor the pipeline and the pipeline moving forward seems to be very robust. It doesn't change our overall outlook. As we stated before, we believe that all clouds are scale often north of a billion dollars for cloud. We expect it to continue and be for the next few years, 25% or higher as we step into next year, we'll look in the on all the backlog that we have on the cloud and decide how to specifically modify or change or keep the outlook but overall is what impact is. Number is obviously a very large enterprises that are tapping into a six one. And if you think about large enterprises unlike small companies, it takes longer time to convert the actual booking to the full ramp up of the revenue, but on the flip side of it when they are fully on board on the CXone the expectation of a retention is much, much longer. It's a very sticky, highly integrated to a lot of information. So we are building the business correctly for the long run, thinking about it strategically. And that's the way we think about it. We want it to of course, provided with this important anecdotes of the booking for the quarter.

I could ask follow up just on the Q4 revenue guidance. It looks like that's coming in 4% or 5% above, the street and kind of what was implied in the, in the prior guide. How are you just thinking about the, the relative drivers of cloud versus products and that number, it looks like you do have a pretty easy comp on the product side, and obviously you saw a lot of product strength this quarter. So just curious how you're, you're seeing kind of the composition of the deals evolve in, in the pipeline for Q4. Thank you.

Sure. Thanks for the question. And as you said, we are applying a higher growth than where we were last quarter, in terms of, of Q4 looking at the growth in the teens. If you compare that to a quarters past, of course, we were typically in, in single digits. So it is implying a strong growth. If you look at Q4 in particular we see that on the product side again, we had a somewhat lower levels of comparison last year. And so that comes into play for a Q4. But we do expect that is factored in, on the product front along with continued momentum that, that we are seeing in the cloud. So it's a combination of our overconfidence that in both for the quarter,

Our next question comes from Tim Horan with Oppenheimer. Please proceed.

Thanks guys. Great quarter. Can you talk about what the main bottleneck is for enterprises adopting digital? And is there something that's going to change that bottleneck like is cloud adoption at a point where we can really see an acceleration at this point? Or are there other issues that are preventing adoption?

Yeah, great question. As we have discussions with many of our customers and prospects with respect to digital, everyone are trying something right. They have, as I said, some legacy digital solutions in place that are very styled are not well connected to each other and kind of behind the consumer's expectations. So many of them has tried different point solutions from, small and bigger players. And there is generally kind of a feeling of disappointment as they try those. And there is much more understanding today with organizations that's what's needed in order to have a true comprehensive next gen digital solution fully embedded with AI is the data. The data is the key over here with all the data. It's almost a useless even you, if you have a fancy digital solution and that cannot be provided by small, best of breed or point solution, you need the domain expertise and the user repository in order to train your digital solutions and your boats and so on and so forth. And that's exactly what they get with CXone. So those conversations and we to see the, the maturation of the majority of organizations as they go through those experiences. And that's exactly, what's pushes them in the direction of CXone, as I said at the beginning, it's still in its early days. And we believe there is ton of potential. Even without digital or old are kind of runway as a company was great and digital in the past a year and a half with the strategic investment is done in this area, R&D some other places is now starting to serve as a very strong driver by itself.

And can you talk about the sales process of CXone and digital? I can't imagine it's just a formal bake-off. It's more of a consultative sale where you're going in and engaging the customer and basically becoming almost a partner or a consultant to the customer.

Absolutely. It's a much more of a consultative sale. It's a few more stakeholders on the customer side. Let's not forget the digital in many places is owned by different parties, multiple parties in the organization. And they do look for someone that's common, a much more consultative approach and allow them to build the internal if you'd like almost coalition in that in that regard. And we also have great partners that we have signed up in the last year and a half. Some of them even in the biggest side that are sometime we bring them or they bring us into those into those deals. And absolutely. You're correct.

Our next question comes from Meta Marshall with Morgan Stanley. Please proceed.

Great. Thank you. One of the questions that I had is just what is your best kind of channel for some of the enterprise traction that you're seeing? Cause I guess I'm just wondering about is that largely your install base is kind of your best entry point to those enterprise deals. Are you finding that some of the channel relationships that you're building are, are kind of helping bring you into some larger conversations? And then maybe just the second question on digital, you've noted clearly it's doing very well. Just want to get a sense of, is that a conversation starter in a lot of deals or, is that tending to be its, coming in with, with existing customers that we're kind of layering that on to existing customers, just trying to get a sense of, of when that conversation is starting on the customer journey. Thanks.

Sure. So let me start with the with the first one. One of the benefits we have in the company is that we entered the brothers CX markets with stickers after many years that we had a lot of expertise and, and leadership in the higher end of the market with w M solution and WFL solutions meaning that we have the expertise, we have much of the install base of the WFL solutions. And that allows us, it's a great channel into the expansion to a full CX, a solution fully excitable shins with six months. So that's a great channel to add to that. We have added a lot of other channels and expanding much our ecosystem both internationally and also domestically in the past few years. So all of those things are really allowing us to expand nicely into internet, into the large enterprises. And it's really -- and also the solution itself, our solutions, as I said, in my earlier remarks, it's not just about complexity or scale, it's about managing complexity at scale. And that's something that we have been doing as a company and the management team has been doing for, for the past 20 years. So that's what brings us, I believe a lot of competitive edge and advantage when it comes to the enterprise market with respect to the second part about digital. So it's, it's both of them sometime. It's a, it's a completely digital led digital first type of approach. Not combined with anything else, understanding that the customers would like to step into next gen digital solutions. And we now are a market leader in that space with the recent launch of a variety of solutions, as well as some assets we have acquired in this in this area and other cases, yes, it is an add on where a customer already have, for example, a 61 contacts, a contact center solution for us. And then we expanded nicely into digital. And in those cases I mentioned what we see is actually doubled, doubling the ACV from strategic customer.

At this time, I would like to turn the call back over to management for closing comments.

Thank you all very much for joining us and have a great day. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.