Welcome to the NICE conference call discussing third quarter 2023 results, and thank you all for holding. All participants are at 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 November 16, 2023. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead.

Thank you Operator. With me on the call today are Barak Eilam, Chief Executive Officer, 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 2022 annual report on Form 20-F, as filed with the Securities and Exchange Commission on March 30, 2023. During today’s call, we will present a more detailed discussion of third quarter 2023 results and the company’s guidance for the full year 2023. You can find our press release, as well as PDF of our financial results on NICE’s Investor Relations website. Following our comments, there will be an opportunity for questions. We 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 share-based compensation, amortization of acquired intangibles, acquisition-related expenses, amortization of discount on debt and loss from extinguishment of debt, and the tax effect of the non-GAAP adjustments. The differences between non-GAAP adjusted results and the equivalent GAAP figures are detailed in today’s press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties and assumptions. I’ll now turn the call over to Barak.

Thank you Marty, and welcome everyone. We are pleased to report another strong quarter exceeding the high end of our guidance range on both total revenue and earnings per share for the third quarter of 2023. Third quarter total revenue of $601 million was driven by another outstanding performance in cloud revenue, which grew 22% to $403 million. Along with the great top line performance, we continued to further distance ourselves from the competition with our unrivaled profitability. Our operating income grew 15% to $184 million and operating margin grew 119 basis points to a record 30.6%. Earnings per share came in at $2.27, representing 18% growth. Moreover, cash flow from operations, another unparalleled competitive advantage, grew 28% to $121 million in the third quarter. NICE continues to set the gold standard for the CX market - we always have, and we always will. Our cloud revenue growth continues to significantly outperform the rest of the industry and on a much higher cloud revenue base. Our outperformance is attributed to two main factors. First, we continue to consistently beat our competitors, especially in the high end in the market and in effect widening our market share lead. Our command of the high end of the market is demonstrated by the 35% last 12 months growth of CXone enterprise ARR, that we define as customers billing over $1 million annually. Second, we executed on our strategy and expanded CXone into a comprehensive digital engagement and CX AI platform. AI is now a meaningful growth engine by itself with a significant incremental TAM. This powerful growth engine is substantiated by the fact that in Q3, AI was included in 80% of our new enterprise CX deals and was the fuel that drove those deals. Additionally, year to date our CXone AI bookings…

Thank you Barak. Q3 was characteristic of our repeated success and consistent execution at NICE growing our cloud revenue, profitability and cash generation at industry-leading growth rates. Our third quarter revenue and EPS both exceeded the high end of our guidance range. Total revenue for the third quarter was a record $601 million, up 8% year-over-year driven by the strength of our cloud business, which now represents a record 67% of our total revenue compared to 60% last year. Cloud revenue increased 22% year-over-year to a record of $403 million in the third quarter as we continue to see increasing adoption of our CXone platform by large enterprises, driven by strong demand from our digital and AI solutions. We continue to consistently add over 200 new logos each quarter, demonstrating the large opportunity that remains in displacing legacy on-premise incumbents, as well as the preference of customers to adopt NICE’s market-leading platform, CXone. We further demonstrated the strength of our business with cloud revenue accelerating sequentially in each of the first three quarters of this year. Services revenue, which represented 27% of total revenue, was $160 million, a decrease of 3% year-over-year. In line with our expectations, product revenue which represented 6% of total revenue in the quarter compared to 11% of total revenue last year, decreased to $38 million. Our recurring revenue further increased to a record 87% of total revenue in the third quarter compared to 82% last year, and is nearly $2 billion over the trailing 12 months. Recurring revenue is comprised primarily of a combination of cloud and maintenance revenue. From a geographic breakdown, the Americas region, which represented 84% of total revenue, grew 10% year-over-year. The Americas region has continued to shine primarily from the success of CXone sales in the region. The EMEA region,…

Thank you. We will now be conducting a question and answer session. [Operator instructions] Thank you. Our first question comes from Samad Samana from Jefferies. Please proceed.

Hi, good morning. First, I just wanted to say, Barak, I just want to extend my support and best wishes for you and the entire NICE family and all of your colleagues impacted by the tragedy in Israel. Maybe transitioning to the business in the quarter, it’s good to see the results. I was wondering if maybe you could help us understand, you know, you highlighted several large deals that AI is driving and the impact to ACV and the dollars booked. Can you maybe just help us understand within the AI portfolio, the handful of products you highlighted earlier this year at Interactions, maybe which of those products are driving the biggest ACV growth or the biggest commitments, and how much of that is booked dollars, like how quickly are those customers actually turning on the AI features?

Thanks Samad, thanks for the question and the earlier remarks. Absolutely, so first I’ll say, one thing I highlighted before is that we see a shift in demand dynamics, kind of this ripple effect, so a lot of our conversations today with customers start with the end state in mind. They want to move to an AI-driven CX environment, they understand that taking the simple route of just deploying a simple gen-AI didn’t work for them. They understand that they need to put all the CX assets because these are the things that are driving AI, and then it drives a much faster decision on the cloudification effort. Specifically on the AI products or solutions that we see that are moving extremely fast, obviously in the Copilot, when we think about AI in the contact center, I would give it two names: there is the concept of augmented intelligence and artificial intelligence. The contact center or the customer service space is still very labor intensive, and the ability to first bring AI to augment in the Copilot mode the agent is the first priority of customers, and then starting to find different tasks and use cases and fully automate them with what we call Autopilot, so the two leading products that we see being prioritized by customers is the Enlighten and Copilot, and Enlighten Autopilot and a combination of the two. In terms of just to complete--I’m sorry, in terms of contribution, we provided some initial percentages. It’s starting to be a very, very significant part, or take a very significant part of our pipeline moving forward. We see the closing rate of AI faster than other parts of our business because of the priority of customers, hence the optimism moving forward.

Great, and then maybe Beth, a follow-up question for you. As I think about some of the growth rates that you’re seeing in AI-driven bookings and what you’ve seen in terms of the cloud business this year, and then just reconciling that with the initial at least 18% outlook for 2024, can you help us maybe think about in that 18%, how are you thinking about seat growth, the number of agents versus AI dollars? Just maybe help us understand better what’s being assumed today in that 18% number.

Thank you for the question, Samad. We shared that our expectation next year in terms of our initial outlook for cloud growth is at least 18%, and we believe we have the opportunity to further accelerate that as we’re looking towards 2025. That confidence is coming both from the large enterprise wins we’ve already announced during the course of this year, combined with all of the AI and digital bookings that we’ve seen. We should highlight that those AI and digital capabilities are really unlocking a new incremental revenue stream that’s captured in that growth opportunity for us, so we have factored in the expectation of the digital and AI, both that we’ve seen and our results to date, as well as the strength of the pipeline we have looking into next year. Of course, with the expectation of our forecast in the cloud, we continue to have a pricing model that is a blend of both agents, but as I highlighted, it’s unlocking the potential now and we’re seeing more and more of that in digital and AI.

Great. Thank you for taking my questions.

Thank you.

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

Hey, good morning. Thanks for taking the question. The cloud revenue, certainly it’s nice to see the sequential acceleration this quarter. I’m curious the issues that you called out last quarter in terms of some of the weaker consumption that you saw in the SMB. Did that play out as you expected, or was that better than you feared; and then how are you thinking about specifically that cohort ramping up into Q4, given the holiday seasonality, and any further guidelines we should be thinking about in terms of Q4 cloud revenue growth? Thank you.

Thank you for the question, Tyler. We highlighted that last quarter, and it’s been a tighter economic cycle this year, so we have seen that on the SMB side of our business, there has been slower and less usage than what we have seen in years past, but we do know we’ve gone through similar cycles like this in the past, and this type of tightening around usage is temporary. We see signs of that and see that as the overall environment, economic environment is opening up, that that is going to be an impact that is now starting to shift as we head into 2025.

And any [indiscernible] cloud revenue growth for Q4?

Yes, with respect to our cloud revenue, we have shared in the past the expectation of a range for the year, and we do expect to land within our guidance range at approximately around the 22% growth in cloud revenue for the full year. As we’ve seen both in the current quarter and really throughout this year, that 22% is considerably higher than any of our peer group, and of course it’s on a much higher cloud revenue base, which is more than $1.6 billion in recurring revenue in the cloud.

Great. A follow-up for Barak on the LiveVox deal, great to see the goals around that being accretive. I guess just given all the organic demand that you’re seeing on the generative AI side with Enlighten, [indiscernible] and getting that asset folded into the NICE portfolio, and I guess, why does it make sense to do this acquisition now, given the opportunity that you’re seeing on the core business? Thank you.

Hi, thank you for the question. You were breaking up a bit, but I think I got most of the question. In essence, you’re asking on the strategic rationale of the acquisition - I hope I got it right, so absolutely happy to share. I think LiveVox is a great addition to the NICE portfolio. Most of our business is in the inbound business of customer care or customer service. We do have an outbound business, but no doubt it is a specialized offering by itself, and we started a journey several years back to make sure that we have not just a good offering in the outbound but something that is revolutionary and brings conversation and AI capabilities also to that area of the outbound. We started with some organic development, acquired ContactEngine that brings really a completely new way to think about proactive outreach, and then we were looking in the last, if you like, few months or almost a year, we were debating between, if you’d like, less than a handful of good assets and someone that has a superior technology and a customer base in that area, and by no doubt the leading vendor is LiveVox, so that’s the rationale. Yes, we see of course--you know, our core strategy is to expand into digital engagement and AI, but at the core of our business, this is a great opportunity to make sure that we cover all of our bases and we have really not just a complete, but a complete and leading offering for every type of customer. Last but not least, I will say that as the markets of the large enterprises is now shifting to the cloud, these outbound capabilities are more relevant in their complexity, and this is a very, very complicated type of domain expertise in outbound. This is very typical for the large enterprises, hence we thought putting those assets together makes sense, and of course financially it looked very, very attractive, so both from a strategic fit as well as financially and the price itself looks attractive, and hence we decided to go for it.

Thank you.

Thank you.

Our next question comes from Siti Panigrahi from Mizuho. Please proceed.

Hey, it’s actually Dan on for Siti. Thanks for taking my question. I guess it’s good to hear about the strong AI bookings trends and seven-figure AI deals. I was just wondering, could we get a sense of some of the early customer feedback you’re getting on your new AI capabilities, and then maybe what’s the uptake you’re seeing for these features between new customers and existing customers?

That’s a great question, thanks for that. First of all, the feedback is phenomenal. I am personally engaged with many of those customers and executives. I can tell you, it gets visibility and opens doors at the most senior levels of large enterprises, and most of the deals that we talked about are with brand-new customers. We talked about the fact that this quarter, 80% of our new customers--new customer deals were sold and both driven by AI but also sold with AI solutions. The deployment that we started already for past deals is just going in an absolutely great way, and it allows us, by the way, to start enjoying from more and higher consumption from these customers that started sometimes relatively small, and the consumption is growing and the volume of interaction is growing, exponentially growing. But as you said it yourself, we have thousands of existing CXone customers that have already all the assets in place, and turning AI for them is actually a very, very fast act, and we have a dedicated sales team that is tasked with doing exactly that, cross-selling into the base. Our most crowded marketing events, webinars and any other lead generation events, is with respect to AI, and a lot of that is indeed with our own customer base because they’re already very familiar with CXone and they see it as an easy add-on to their existing environment.

Okay, thank you.

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

Great, thanks. Helpful information upfront just on the early opportunity being more augmented agents and then that there will also be an AI piece as well. Just wondering how you guys look at the opportunity between augmented and true virtual agents, just as you guys go forward; and then just maybe as a second question, given you guys believe that LiveVox can be accretive within the first year, where are areas where you see those greatest synergies coming from? Thanks.

Sure, so I’ll start on the first question. I’ve been in the industry for now 25 years, the industry of the CX market, and I’ve seen our market way before the AI days trying to drive automation because at the end of the day, it is a very labor-intensive market. Ninety-some percent of the cost is still with labor, with agents, and there is obviously a desire to go for automation. But [indiscernible] most vendors and companies talk about automation, it’s either/or. It’s either you have something with an agent that is fully manual, done by the agent with some technology, or fully automated tasks. The approach we have been taking with AI, and that’s the reason that we have launched Copilot and Autopilot together, the Enlighten Copilot and Autopilot, is the ability to move in this continuum and deliver a continuous experience for customers. That makes sense, and that makes automation much more valuable, so this is why the concept that I talked about first--not first, but to start with augmented intelligence to the agent, make them much more powerful, but at the same time take those parts of the interaction that can be fully automated, move them to full automation, but also the ability to toggle between them. We’ve all been probably as consumers through the experience that you start with an agent or you start with a bot, and as soon as there is certain ambiguity about the intent, you are stuck at that point and your experience is deteriorating. The ability with CXone, that is a unified platform that has all the convergence assets and provides AI for both agents and for full automation, that’s what allows you to break this 20-some years of failures in automation and bring it to life. That’s with respect to that. Your question about LiveVox, I’ll hand it over to Beth.

Yes, so with respect to the impact, we expect LiveVox to have a considerable amount of synergies and be highly synergistic to really drive an accretive nature to both our profitability and our cash flows. We have that confidence as there is quite a few overlaps as you think about another public company as it pertains to G&A related costs, and of course we still operate in the same space as well, so we also have synergies when it comes to go-to-market and the product as well. If you look back on our track record of making acquisitions over the past several years, you can see we really have a great track record and a strong showing and delivering on the ability to drive healthy synergies into our operating model, and that’s what we expect with LiveVox as well.

Great, thank you.

Our next question comes from Pat Walravens from JMP Securities. Please proceed.

Great, thank you. Barak, we’re praying for you, your families, and especially for the safe return of the hostages. If you look at the Gartner magic quadrant, you and Genesis are the two clear leaders in the space. Can you walk us through what the competitive dynamics are like with them? When do you usually win and when you do usually not win? How does it work?

Thank you, Pat. The competitive landscape is more than just us and Genesis, but needless to say Genesis is one of our competitors. We believe we are winning. We have a superior winning rate over Genesis. In many cases Genesis and others are the incumbents, and they are, because of their financial considerations, trying to hold onto their customer base and maintenance base. That’s number one. Second, I think given once again the financial considerations, like very high debt and the way that the company is being held in terms of ownership, I think they are very short term oriented in terms of their investment in the long term viability of the company for customers. I think that gives us superiority. Our investments specifically in expanding into digital engagement and AI is something that we haven’t seen there, and it gives us these days a significant advantage. When it comes to just simple price war, we will do what it takes to win the customer, but we in not just on price, we win on the value proposition, and customers understand that NICE is here for the long run. We don’t have an exit plan, we don’t need to transact the company, we don’t try to five times a year go around and sell the company like others do, so our management attention is 100%, seven days a week, 24 hours a day, just focusing on our customers and our business.

Thank you.

Our next question comes from Michael Funk from Bank of America. Please proceed.

Hi, good morning. Thank you for the questions. One for Beth to begin. Beth, I think in response to an earlier question about a prior comment about weaker SMB consumption, I think you said that you felt the tightening is temporary, and I believe I heard you say that you’re expecting some positive shift or seeing some positive shift entering next year, so hope maybe you could clarify a bit on that comment, and then I have one follow-up, if I could.

Yes, thank you for the question, Michael. Your comment was correct - I did say that during the course of this year and the tighter economy, we have seen some less usage on the CX side of the house in the SMB install base, and that next year with the economy looking brighter, we are seeing signs as well that we will expect to see more of that consumption going back to what we have seen as historical norms. Of course, we expect to see that further happening throughout the course of next year.

Great, and then just on AI, a lot of discussion over time about how AI potentially shifts more of the TAM spending away from human agents and more towards solutions that companies like NICE provide. Do you have any early or kind of one-off data points or examples in how on deals that you’ve signed with AI, how that has maybe shifted from, say, 90% of spend on humans versus 10% for technology, where that’s come out on the back end of these deals?

Yes, thanks for that. You know, first of all, there is general--just to clear out something quite general, we don’t see right now, whether it’s good or bad, we don’t see a reduction in [indiscernible] agent industry right now, not to speak about the fact that with 20% penetration of cloud, even if there will be some reduction in number of agents, we still have a very, very long way to go in winning market share on the agents. What we see is that a lot of companies are dealing--it’s almost like avoiding adding more labor because the number of interactions, digital or not, are increasing exponentially and becoming more complicated, and that’s where they are trying to deploy AI in order to avoid the additional labor costs. It’s also the reason why they take the journey usually of either starting or doing together both Copilot and Autopilot, understanding that there will always be a need to a certain extent of a human agent. Generally, I think that the opportunity that we have in AI is significantly higher in the very long run than the one that we have on just supporting agents. For 25 or more years, we’ve been as a company focusing 99% of our effort just on the time where the actual consumer speaks with an agent or interacts with an agent, to be more and more of our business go beyond that, which is a TAM expansion for us and we find ourselves taking over legacy vendors that used to be dealing with gen-1 automation. All of those together are actually giving us great confidence in our vision and our future and the ability to fight and win for a much bigger TAM.

Great, thank you for that. I hope you and your employees are all well.

Appreciate that, thank you.

Our next question comes from Jim Fish from Piper Sandler. Please proceed.

Hey guys, yes, this is Quinton on for Jim Fish. Thanks for taking our questions. Beth, maybe first for you, you’ve talked a couple of times already about some lower usage and the macro pressures impacting the SMB side this year, but maybe if we looked across the entire cloud base, can you talk about how net retention has trended in this quarter [indiscernible]?

Thank you for the question. With respect to our expectations, and let me address the net retention, we saw quite healthy net retention during the quarter and as we look further into next year. We don’t expect to see an overnight change or shift from that usage, but we are seeing healthy signs there and we expect that to continue to evolve and return to more normal as we get further away from the tighter economy that we’ve been in during the course of this year.

Makes sense. Then Barak, maybe for you, obviously the government sector has always been slow to adopt new technology, especially on the cloud side. You guys announced a fairly large win with a state government this quarter. Are you seeing AI and digital opportunities creating that inflection, where now they feel comfortable to move to the cloud, and how do you balance kind of you guys have the fed ramp, others don’t, so where do you see that opportunity in kind of land grabbing federal as we look at 2024? Thank you.

Yes, that’s actually quite an interesting question that you’ve asked. We had, all of our us had the same perception about government, and when we say government, everything from the federal government, state, municipalities, state and local, if you would like, and federal, and we had the exact same experience and perception with those are very slow to adopt. Going back to COVID, I think COVID changed--I don’t know if it’s forever but at least for the foreseeable future, changed two very significant things with respect to technology adoption by state and local. A, the early days of COVID showed government agencies that they can actually move fast. If we remember the early days of COVID, all of a sudden we got from different states they adopted new communication channels, they adopted a variety of technologies in a very fast way. That approach [indiscernible] really changed their behavior, and we see that continuing well into 2023 and also in the dialog into 2024, which is very positive. The second thing that we like about government is still related, I believe, to kind of the leftovers of COVID - they are rich with budgets. Now there is no new wave of recession or budget constraint in the SLED markets, and of course we are enjoying that as well.

Our next question comes from Tim Horan from Oppenheimer & Company. Please proceed.

Thanks. More of a qualitative question, but can you talk about how much your AI product has improved over the last year? ChatGPT is only about a year old at this point, the breakthrough. Are you using that, has that massively improved the product? Are you using reinforced learning, where the product will be a lot better a year from now? Just any comments on how does it compare right now to the main competition. Thanks.

That’s a great question, Tim. You know, I’ve been in the tech sector for more than 25 years, and I’ve seen a variety of cycles of technology, significant technology all the way from proprietary hardware, software, internet, mobile, cloud, and these days AI, and those were the technologies of--an enabling technology that created a compound of innovation. I think we can all agree that what we are seeing with AI in terms of this rate of compound effect, you know, if you are not staying up to date for a week, all of a sudden it seems like a year passed by. We see that with AI. The beauty, going back to our business, is that since we’d started our journey much before, we started it several years back, but practically we started it much before two years back because the most important part and the most important thing in order to have AI working well is the data, a variety of efforts including data. It’s data, it’s knowledge, it’s media, it’s interactions, and the derivative information from all of those assets. NICE has a unique, unbeatable position where we have years of this data in the tens and hundreds of billions of interactions and knowledge assets and other things, so the answer--the short answer is yes, we are seeing a tremendous improvement in both the accuracy, the relevancy, and on top of that, of course we have more and more out-of-the-box models which dramatically shorten and simplify the deployment for customers. We have today more than 1,000 Enlighten models for every possible, or most possible CX scenarios, and that’s what we do for a living, so we are becoming a CX AI powerhouse both in terms of the assets and the technology. Of course, in order to focus on our core competency, where relevant and when relevant, we’ll leverage some generic technologies like gen-AI and others in order to focus our effort on the things that are unique for us and that are needed in order to take it and make it a viable option for the CX market.

Very helpful, so is it fair to say six months, a year from now, the product will be dramatically better, and do you think you’re pretty far ahead of your competitors?

Absolutely. First of all, 100% true it will be even better every quarter. I myself spend a lot of time these days with my passion for technology, and I like to see it working both in customer environments and in our labs, if you would like, and I see the cycle of improvement on a weekly basis. In terms of us vis-à-vis the competition, I think we are years ahead of our competitors, both the ones that have--you know, are a bit more sizeable, but also the issue of the point solution. It goes back to my point about it’s not enough just to have the technology, it’s important to have the platform, and our years of investment building CXone as a platform that can contain and manage and converge all the assets together, this is what makes AI for us working. This convergence power of CXone is second to none.

Thank you.

Our next question comes from Arjun Bhatia from William Blair. Please proceed.

Yes, thank you. It’s actually Rachel on for Arjun. I’ll echo everybody else’s best wishes to you guys. I wanted to ask, it seems like it’s still pretty early days for migrating existing customers to the cloud. Could you talk a little about the opportunity for AI to drive increased conversions or if you see any other potential catalysts to accelerate the pace of migrations?

Yes, thank you for the question, Rachel. You know, we’ve said it numerous times in the past, and actually you can see it in our financials, is that we’ve built already a $1.6 billion, give or take, revenue of cloud without tapping much into the legacy customer base of ours and predominantly taking over a market where we did not have any presence, and this is the [indiscernible] market. This is where the market is still only 20% penetrated. AI provides--first of all, it’s a growth engine by itself, but I believe, as I mentioned before, I can be a catalyst for those decisions, and we see it in both pipelines as well as the discussions we have with customers, because of that ripple effect that I talked about before. Let’s start with they want the AI, in order to have the AI, they understand that they need to converge all assets into one platform, and for that, of course, the prerequisite is to be in the cloud with a true native cloud solution that is scalable to their environment, so that narrative is true both for competitive customers that we don’t have presence, where we replace the incumbents. Someone asked before about certain competition - we replaced a lot of those vendors this quarter, including the one that was mentioned before, but it’s also true for us starting to tap and accelerate the conversion of the existing customer base--the on-prem customer base of NICE.

Great, thank you.

This concludes our question and answer session. I would like to turn the floor back over to Barak Eilam for closing comments.

Thank you very much everyone for joining us. We appreciate your support and partnership, and of course the heartwarming words from everyone. Thank you very much. Have a great day.

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