Welcome to NICE Conference Call, discussing Fourth Quarter and Full Year 2021 results, and thank you all for holding. All participants are in 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, February 17, 2022. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead, sir.

Thank you, operator.

Please go ahead. Please go ahead. Thank you.

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 fourth quarter 2021 results and the company's guidance for the first quarter and full year 2022. 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 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. I'll now turn the call over to Barak.

Thank you, Marty, and welcome everyone. 2021 was an outstanding year for NICE as we continue to drive acceleration across the board. We reported double-digit revenue growth in every quarter, leading to 16% revenue growth for the full year. We surpassed the $1 billion cloud revenue mark with 30% year-over-year growth. Our international expansion continues to gain momentum in both EMEA and APAC. Digital is gaining massive scale and speed with 260% growth in the number of digital first deals in 2021. AI bookings increased fivefold, quickly transforming NICE from an analytics leader to an AI powerhouse. NICE is a fast-growing agile leader at scale with blue chip profitability. We expect to continue to accelerate our double-digit growth and at the same time further progress towards our 30% or higher operating margin targets. Our leadership is clearly reflected in our Q4 results as highlighted by similar attributes that drove our momentum throughout 2021, a growing number of large enterprise deals, wider adoption of our comprehensive portfolio, a growing surge in competitive replacements, accelerating international expansion, soaring demand for digital and AI and the continued signing of new strategic partnerships. With our undisputed leadership recognition, we continue to experience unparalleled success at the high end of the market due to the unrivaled breadth and depth of our cloud platforms. In Q4, we signed a record number of 8-digit deals with large enterprises that included, among others, one of the world's largest asset management groups, a top 10 U.S. banks, another very large U.S. bank, a large loan servicing company, a well-known travel company and one of the largest U.S. municipalities. Our first-class portfolio that was built with strategic investments of tens of thousands of development many years to date continues to increase our win rate as well as our growing pace…

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 of 2021 and our outlook for the first quarter and full year for 2022. Our fourth quarter financial results were outstanding with 18% year-over-year growth in total revenue, which was the fourth consecutive quarter that we reported double-digit growth. Total revenue for the fourth quarter reached a record of $515 million compared to $438 million in the same period of last year. Our financial performance in the fourth quarter reflected the strong execution that we demonstrated throughout 2021. We delivered double-digit year-over-year total revenue growth in both our business segments of customer engagement and financial crime and compliance internationally in both EMEA and APAC and increased our gross margins for all three business lines: cloud, product and services. The Q4 top-line was driven by another stellar quarter in the cloud with 28% year-over-year cloud revenue growth coupled with an outstanding performance in our product revenue, which grew 54% year-over-year. Cloud revenue contributed $285 million and reached a record 55% of our total revenue. Services revenue totaled $166 million and contributed 32% and the remaining $64 million or 13% was product revenue. In Q4, our cloud revenue sequential growth rate accelerated to 9%, resulting in exceeding the $1 billion milestone of cloud revenue for 2021, the feat accomplished by our continued penetration in large enterprises, expansion of our offering to cover the complete customer journey in digital and self-service and success in the global market. We recorded impressive revenue growth across all geographies during the fourth quarter. The Americas region, which represented 82% of total revenue, grew 16% year-over-year. Our existing strong international go-to-market presence coupled with our growing partnerships is contributing to our strong growth…

Operator, we're now ready for questions. Operator, are you there? We're now ready for questions.

So, we are making an announcement, please stay connected. Ladies and gentlemen, at this we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Samad Samana with Jefferies. Please go ahead.

Hi, good morning. Congrats on the strong finish to 2021. Maybe first, Barak, if we could maybe dig into – I know you highlighted strong momentum for 2021 and the close of the year. Maybe you can – can you help us understand early into 2022, what the pipeline looks like, especially around large deals and particularly, with the context of the world returning, I think, every day a little bit more towards normal? How should we think about the pipeline? And what's embedded in that guidance?

Thank you. So first of all, yes, we had a very strong finish for the year, and we're entering 2022 with a very strong momentum. The pipeline is the strongest one we have seen and the highest growth that we have seen. So we have both great visibility into 2022, and at the same time, we believe that the momentum of booking of new deals from – in all different divisions and in all different market segments will continue. And it's driven by the same trends that I have mentioned that we saw in 2021 a great success of the enterprise, the large enterprise market, an increase in win rate and competitive replacement, the surge that we've seen digital and AI, and of course the international markets that are starting to yield very high and healthy growth.

Great. And then, Beth, maybe a couple of follow-ups for you. When I think about the cloud revenue in 4Q is obviously healthy above the company's long-term guidance. Can you maybe just help us understand if you saw the same seasonality on the networking connectivity side? Or just any puts and takes that we should consider as far as context for this December's cloud revenue versus last year.

Yes. Thank you for the question, Samad. As you highlighted, we saw extremely healthy growth in our cloud revenue in Q4 with our 28% growth. When you looked at that relative to last year, as you highlighted, we had received some surge in activities coming as a result of COVID last year. And so it was against a higher bar in terms of the cloud growth. Looking forward, as we look at the cloud, we've reiterated, we have extremely strong confidence in the continued growth of our cloud business overall. And as we look forward to 2022, we actually expect to have our cloud revenue achieved 27% or greater growth looking forward, and, of course, that's on an extremely large cloud run rate in excess of $1 billion.

Great. And just last one as a follow-up to that. The guidance was stronger than I think most people were expecting. I was just wondering if you could maybe unpack how we should think about CXone's contribution to that versus financial crime and compliance, which sounds like that's ramping nicely as well. And just how we should contextualize the guidance with those two sub-segments?

Yes, sure. So as I just mentioned, we have very strong confidence in our cloud growth heading into 2022. Barak talked about the strength of our pipeline, which we see across all business segments, but certainly, CXone continues to be the primary contributor that is driving that ongoing growth in our cloud. We expect that, of course, to continue into 2022. We had great results that were underscored by the CXone platform during the course of 2021 and we expect that to continue on into 2022.

Great. Thanks again for taking my questions.

Thank you.

Operator, we will take another one.

Thank you. Thank you. The next question comes from the line of Tim Horan with Oppenheimer. Please go ahead.

Well, thanks guys. Can you give us a sense of how important digital is to the revenue growth at this point either qualitatively or quantitatively? And I know you mentioned you're starting to see some breakdowns in internal barriers, both a regulatory and an IT perspective to digital adoption. Any more color around what's going on there would be great.

Sure. So we think of digital in a few ways. First of all, by itself, as we said, with consumers becoming digital by default, organization are now trying to catch up. They realize that the old way of doing it in a very solid way, thinking of different parts of the organization separately, just doesn't fly doesn't work. Hence, we see the need to provide a much more holistic CX vision, and we came up with CXI, which is this exacting of convergence of markets. I'll remind you that in the past we are the first one in the market that's converging CCaaS for routing with W – with workforce management, with analytics and we have created a new standard in the market that was well adopted. We now see that exactly happening and we are now converging or leading the convergence of digital with everything, all the rest together with AI. So first of all, that’s the right way to go about it, and it increases our win rate. And we see a lot of deals where we are either leading with digital or digital is part of what we are telling. From a revenue contribution, we think the potential is just tremendous, as I highlighted in my earlier remarks, because it’s shifting the way we’ve used business from a very agent-centric and a seat-centric business to be the ones that are enabling every interaction beyond an attended interaction by a human being. And if you think about it this way, all of a sudden, our business is attached to an exponential growth in the number of interactions. So in the future, we think it can be a major contributor to our growth. In the immediate term, it still represents the smaller part of our business, but growing much, much faster than the rest of the business.

And just any commentary around the ability for enterprises to adopt breaking down some of the barriers that they have now?

Yes. This is maybe the second part. Sorry that I missed that, but breaking down the barrier is the realization that enterprises are going through right now that just adopting ascertain channel of digital or looking at things siloed just doesn’t work. So we see more and more enterprises, mid-sized and large, realizing that a point – either appointing ahead of digital or digital experience that I understand that or bringing digital into the customer service operation. And that’s exactly what helps us as a dominant player in the customer service domain to embrace digital as part of our portfolio and be that leader that provides a full journey and a cohesive approach to customer service and CX as a whole.

Thank you.

Thank you. The next question comes from the line of Rishi Jaluria with RBC. Please go ahead.

All right. Wonderful. Thanks so much for taking my questions. Nice to see continued strength in the cloud business. I’m not – I wanted to maybe drill a little bit more down into what you’re seeing in cloud in the FCC side of the equation? Are you starting to see more customers warm up to that? Any sort of directional color you can give around there and adoption of exit would be helpful, and then I’ve got a follow-up.

So first of all, as you can see in the financial cloud and compliance of business, we said for a few years, we kind of wait and see that we see certain trends that will materialize into the revenue. I think, from the – throughout the year, but even more so in the second half of the year, you’re – we’re starting to see the acceleration. First of all, it’s because of what I said in my earlier remarks that the market overall, the whole process, the whole notion of banks moving to digital banking and at the same time realizing that back office is holding them back is introducing a new massive wave of investments into rebuilding and refreshing the way they do compliance. So that’s just a general comment about the health of this market. About cloud adoption, we see two parts of the market. In the mid-market, where we now have a great offering following the acquisition of Guardian Analytics about almost two years ago. We now operate in this market, where we did not have a viable offering before that and that’s doing extremely well, and that’s purely cloud. So mid banks – midsized banks, I’m sorry, have a full adoption of cloud. And we’re starting to see the higher end of the market. Part of the portfolio and certain part of the need being consumed from the cloud, and we believe that we have a great road – the runway over here to have the exact playbook. We added a customer service. We have a great customer base, great market shares and converting – these customers that are on-prem to the cloud have the opportunity to more than double the revenue from each one of those customers on an annual basis.

Got it. That’s super helpful. And then just philosophically, I wanted to think about the CXone. With reopenings happening, we’ve seen some really large companies announced that they’re going to start opening their offices back up as soon as end of this month, at least domestically. How do you think about that and the impact on your CXone business? And maybe more importantly, could office reopenings actually be a tailwind to accelerating displacements of your legacy Avaya and Cisco Contact Center Solutions and get them more over to CXone? Thanks.

Yes. I don’t – we don’t see any negative or positive impact to different waves, if you would like of COVID. We see an overall positive trend that started with the outbreak of the pandemic, where a lot of the trends that we thought will happen five, six years from now. Few among others, obviously, they move to the cloud, the narration of digital, those are accelerating. And we don’t see them necessarily slowing down or anything like that due to office reopening. So all in all, we see continued acceleration in those trends. With respect to the – some of the names that you’ve mentioned, this is our business. There is still – with everything that we are doing in our business. Still, I would say, 85% of the market is still on-prem. We are accelerating the displacement of those legacy providers that do not have a viable cloud option. And as we do that, as I said before in the fourth quarter, we saw a dramatic increase in the number of competitive replacements and in our win rate, and we believe that will continue.

All right. Wonderful. Thank you so much.

Thank you.

Thank you. The next question comes from the line of Meta Marshall with Morgan Stanley. Please go ahead.

Hi. This is Dave Nwokonko [ph] on for Meta Marshall. Actual question, so just with the 5% or – sorry, 5x increase in AI bookings? Are you seeing AI lead deals now? And is the conversation mostly happening at implementation? Or are you seeing just the cloud customers at AI?

So as I said before, we have a great customer base and a great leadership in the CX Analytics business, and we are seeing it now quickly transforming into a very substantial AI business. In order to be a leader in AI, you need the three key attributes that we believe we have done big time in our markets. The first one, obviously, the AI technology, and we spent the last couple of – more then last couple of years in massive amount of development in that domain. But the second one, which is more important, is to have the data that and the availability of the data in order to make those AI algorithms and AI technology viable in our respective markets, and we have the largest data repository in all of our markets. And the third one, there is no such thing as a generic AI. You need to have deep domain expertise in a certain market, which of course we have operating in those markets for so many years. I believe that the fact that we have all of those assets, and we put it as part of our strategic investment in the last few years has led to the results of 2021, which is a fivefold increase in AI booking. And back to your question, we see a couple of scenarios. We see analytics customers of ours that are now advancing into AI. So that’s one scenario. We see customers who are trying to deploy self-service and realizing that they need something much more smart coming to us and basically consuming from us standalone AI capabilities. And we also see AI as a key differentiator and our success overall with CXone as we bundle it into overall portfolio deals.

Got it. Thanks. And then maybe just one more for me. What sort of traction are you seeing with some of your channel investments over the last year? Are there additional system integrator relationships you would want to expand on?

Yes. So as I mentioned earlier, in the U.S., we’re always happy to take on new channels, but we have a great sales team, very large sales team as well as well-established relationship with different type of partners, strategic and channels and some others. Our international growth strategy is actually 100% based on partners, and we have signed dozens of different partners in the past few years. We announced them every quarter in the past two years. And just recently, a few more like Deutsche Telekom System, the strategic partnership with Google; Etisalat, which we announced, I think, just last week and already gaining momentum and a few others. So that’s a big part of our international strategy, and I believe that the acceleration that you’re starting to see in the revenue in the international front is a direct result of that strategy.

Great. That’s helpful. Thank you.

Thank you.

Thank you. The next question comes from the line of Pat Walravens with JMP. Please go ahead.

Oh, great. Thank you. And let me add my congratulations on the strong results. So Barak, given how big the opportunity is in customer engagement, have you guys thought about, in some way, spinning off financial crime compliance and public safety and just focusing on customer engagement? And what are sort of the key factors that you think about there?

I think as I’ve – we see great opportunity in all three markets. We like those markets. We believe that our presence today in those markets, the leadership we have in those markets, the [indiscernible] are number one in each of those respective markets. And the fact that the same themes that we sell in the CX market are happening to us right now in financial compliance and public safety. We believe there is great opportunity for us to execute extremely well on both public safety and financial compliance. And the management team over here have a great knowledge on how to run this playbook. And as you can see now in financial compliance, and I believe this will happen to us. Also happening already in public safety that expertise and competencies that we have, allowing us to be very successful in those three markets with some great synergies without losing any focus on the larger market, which is, of course, the CX market.

Okay. And then I guess the follow-up would be, those are all reasons to keep it all together. Are there – would there be any benefits to splitting it up?

We don’t see right now any reason to do that. We believe we can continue and appreciate the value of each one of those assets separately and the company as a whole. We don’t think any of those assets is in any way shape or form dilutive to our financials or to be the way we manage the company.

Okay, great. Thank you.

Thank you. The next question comes from the line of Tyler Radke with Citi. Please go ahead.

Yes. Good morning. Thanks for taking my question. I wanted to just ask a little bit more about the expense side of the house. As you’re thinking about the outlook here for 2022, any onetime items we should be aware of, whether it’s currency just in terms of maybe higher than normal talent retention and acquisition costs? Just help us understand kind of the guidance implied for the expense side. Thank you.

Yes. Thank you for the question, Tyler. As we look at the guidance for next year, we’ve led with double-digit growth expectations in both our revenue as well as in our EPS. And of course, that is really highlighted by the expectation that our operating margin will continue to expand. We had double-digit growth in our operating profitability throughout 2021. And as we look to 2022, we’ll continue to have that same key focus and attention to our profitability and operating margin, meaning that we expect to see our operating margin increase over what we experienced in 2021. Of course, heading further and advancing towards our goal of 30% and higher operating margin in the future.

Great. And wanted to ask you, maybe for Barak, just on the competitive landscape, as it relates to kind of your traditional competitors and emerging competitors? And b, like what’s really changed – been the biggest change on that front over the last year? Thank you.

I don’t think there is something dramatically changed beside the fact that things – the trends we have seen in the past are becoming even more pronounced in 2021 and even more so in Q4. I think that the legacy providers that are the incumbent for the on-prem continued to weaken, and I don’t think they have a viable route to catch up into a viable, hedge scale native cloud solution that is completely for all the offerings. And that allows us to increase the rate of replacements and doing it in an easier way. I think that the barrier of entry and the barrier of success for players in this market as the platform of CXone is becoming storage with so many thousands of many years invested to date in that and the fact that we have put into CXone, all of the best-in-class capabilities, starting from the best routing the best WFO, the best analytics, now digital and AI. I think it’s becoming harder and harder for smaller players to really compete at the higher end of the market. So it’s the same trend that we saw in 2020, but even in a more stronger way. And we will continue, of course, to expand CXone in a way that allows us to increase our win rates and have a bigger footprint with existing customers.

Thank you.

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

Hi. This is Chris Reimer on for Tavy. Thank you for taking my questions. I just wanted to follow on the competition question just before. Have you seen any increase in competition or intensification at the lower tiers of the market for just the cloud applications?

I can’t say that there is a very difference from what we’ve seen in the past. The low end of the market, of course, is more competitive because there are smaller start-ups that are trying to buy the way into the same market. It’s very, very different, of course, in what you need in order to compete at the lower end of the market versus the higher end. Also the viability and the financials are very, very different at the lower end of the high end, but we are well segmenting our business in a way that we make sure that we stay competitive in all different parts of the market. We do, of course, see a trend that the smaller customers, thanks to the way that CXone is built as a platform, has the ability to take capabilities and features with the right TCO, even if there are smaller ones. And I think that gives us also a great competitive position in the lower end of the market, but I can say that we see any dramatic change.

Okay. And just a follow-up on enterprise cloud transition. Would you be able to quantify maybe the percentage of new cloud wins stemming from the conversion of your on-premise customers?

Yes. This is still a very small portion of the business, which I think is a great opportunity ahead. Most of our cloud business to date is not a conversion of existing customers. So there is still a very, very healthy runway moving forward as we start to convert those customers moving forward. And I’ll remind you that as we go and convert those customers, there is a great upside. First, if you just look at it for a like-for-like, there is potentially 2x increase in annual revenue from such a customer. But most of the note, when we convert such a customer, they take a much broader piece of our portfolio, and we take the entire CX environment starting from routing, WFO, analytics and other, and that can go all the way up to 5x, 6x and 7x the on-prem revenue. And we’re very happy to do that because at the same time, our cloud gross margin continues to improve quarter after quarter as demonstrated throughout 2021.

Got it. Thank you. That’s very helpful.

Thank you.

Thank you. The next question comes from the line of Paul Chung with JPMorgan. Please go ahead.

Hi, thanks for taking my question. So just another follow-up on operating margins. How do we think about the pace of expansion kind of looking beyond 2022? And kind of the timing of hitting 30%? And where are you targeting the reinvestments in OpEx in the business?

Yes. So as I highlighted earlier, during the course of 2022, we expect to further increase our operating margin beyond the margins in 2021. And of course that we expect to have the capability in the subsequent years as well to continue to have that expansion. As we look at our investments and where we’re reinvesting back into the organization, of course, we are continuing to drive our R&D development and continue to foster the innovation that we’ve had that drives our leadership in the market as well, of course, we are continuously investing in our go-to-market teams and the expansion that we see there both in the Americas and internationally as we continue to broaden the CXone platform into new territories. So those are the primary areas of investments, but as I said, at the same time, we’ve always had a very keen eye on profitability at NICE. That hasn’t changed, and we’ll continue to drive that in a way at the same time that we’re continuing to drive the top line as well.

Thanks for that. And then the cash balance sitting pretty comfortable here. How do you think about your kind of acquisition pipeline? And you also stepped up your share buyback a little bit this year. Should we expect a similar pace this year?

Yes. As we look at our cash balance, as you said, I mean we’ve always generated a healthy amount of cash in the business, and that really opens us up to great opportunities for acquisitions that are key to our strategy overall. You saw that we did that during the course of 2021 with several technology-focused assets around digital that were quite exciting. And so of course, that along with our buyback plan, those will continue to be the primary uses in terms of our capital allocation. So we’re always out there looking for opportunities to continue to drive our leadership with potential acquisitions that are synergistic to our overall strategy.

Got you. And then last one on Evidencentral, how big do you see this market? Where do you think your market share sits today? And how are you taking share? Any comments would be helpful. Thank you.

We think the potential is just – it’s almost hard to quantify, and I’ll explain in a second that today, if you step into the criminal justice system from policing, including detectives, all the way to prosecution and all the way to court, you’ll be amazed to know how evidence or piece of evidence are being moved between one part of this system to the other. It’s fully manual. It’s paper-based. It’s actually box-based and everything is getting replicated and a lot of things are getting lost in the way, which, of course, hurts the ability of that system to be effective and get the bad guy to the right place. What changed dramatically in the last few years is that the amount of digital evidence available in every incident, whether it’s a car accident or anything more severe than that, it is just tremendous, and it’s getting this whole process completely stuck. It’s both the amount and also the quality of those evidence, and all of those policing and incremental justice systems per county actually are now sticking for a way to solve it. So we see a tremendous increase in the need and the desire of those organizations to adopt a digital approach to how they manage evidence, and we developed in the last few years those capabilities. We have the best platform out there, and we already have several key customers, and we believe that this will continue. Now since the pricing overall is somewhat attached to the number of pieces of evidence that are putting into the system, there is an exponential potential we hire for growth with adoption. And it just also will become a very sticky solution, as you can understand.

Great. Thank you.

Thank you.

Thank you. The next question comes from the line of Tal Liani with Bank of America. Please go ahead.

Hi. This is Madeline Brooks on for Tal. I just wanted to go over one quick point on the conversion to cloud from enterprise. Just wanted to touch base and see what are the hurdles or roadblocks that you get you’re facing right now when you are trying to transition legacy on-prem customers? And then as a follow-up to that, should we expect increased sales efforts in this area in the coming quarters? Thank you.

Yes. So we don’t see any major barriers in the conversion. Things that we have seen in the notion of cloud three and four years ago are now really nonissue. The whole notion of organization and large enterprises to cloud, the past fear from cloud, we don’t see it anymore. We also have a platform that is well known with great references and have all the different certifications that customers are looking for. So we’re not conservative there. Most of the effort is about customers’ effort to do certain integration to the environment, but these are kind of obvious, and it’s not a problem. In terms of the sales efforts, we think we have the right investment and we see great leverage on our sales investment to date. We don’t think we need to change the proportion of how much we invest and sell. Actually, the increase that you saw in the fourth quarter in sales and marketing expenses, some of it is a result of a lot of commission we pay to our sales people, which we are very happy to do because it means that the business is doing extremely well. The only other investment we see in sales will be much more to international markets, but we’ve done it already in the past two to three years. And since there we are going mostly actually predominantly completely exclusively with partners, we don’t expect a dramatic increase in sales expenses there.

Great. Thanks so much.

Thank you.

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. And I would like to turn the call back to Barak Eilam for closing remarks. Thank you.

Thank you very much, everyone, for joining us. Wishing everyone a great 2022 and we’ll talk to you again on our next call. Thank you.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.