Welcome to the NICE Conference Call discussing First Quarter 2024 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, May 16, 2024. I would now like to turn this 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'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 or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the Company's 2023 Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on March 27, 2024. During today's call, we will present a more detailed discussion of first quarter 2024 results and the company's guidance for the second quarter and full year 2024. You can find our press release as well as PDFs of our financial results on NICE's Investor Relations website. 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 on generally accepted accounting principles as reflected mainly in accounting for share-based compensation, amortization of acquired intangible assets, acquisition-related and other expenses, amortization of discount on debt and loss from extinguishment of debt and the tax effect of the non-GAAP adjustments. Differences between the 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. We'd also like to remind you that we're hosting our Investor Day on June 11 in conjunction with our Interaction user conference in Las Vegas. The special program for analysts and investors will include presentations from NICE executives and access to the innovations hall where you'll see several or many different types of demos. If you haven't received the registration e-mail, please e-mail us at ir@nice.com. I'll now turn the call over to Barak.

Thank you, Marty and welcome, everyone. Earlier today, we reported strong first quarter results, starting the year on a high note. We also announced my planned transition as the CEO of NICE. This decision has not been easy for me, as leading this incredible team and serving our customers, partners and investors for the past 10 years has been one of the greatest privileges of my life. With the company poised for continued success and after 25 years at NICE, I believe it is the right time for me to step down. The Board and I have initiated a search process for my successor to ensure that NICE will continue on our journey of leadership, growth and profitability. NICE has been my home for more than half of my life and I will continue to lead the company with the same passion as I did for my entire career until the end of this year as well as to support a smooth transition to my successor. And now to our first quarter earnings. We are thrilled to start the year with a positive momentum, evidenced by a robust performance across the board while continuing to outpace the market. We reported total revenue of $659 million which reached the high end of our guidance range and represented an increase of 15% from the same quarter 1 year ago. Our industry-leading cloud growth remained a driving force behind our strong top line performance showing an increase of 27% year-over-year. We also continued to deliver great profitability, as demonstrated by a 170 basis point increase in our operating margin which ended the quarter at 30.3%, marking a significant milestone in our continued delivery of profitable growth. We far exceeded the high end of our guidance for EPS finishing the quarter at $2.58 which…

Thank you, Barak. At NICE, we stand out as an industry leader that repeatedly demonstrates sustained balanced growth. Our strong start to 2024 displays our continued success with exceptional Q1 results in all key financial measures: revenue growth, increasing profitability and healthy cash flow generation. Total revenue was a record $650 million, up 15% year-over-year. Non-GAAP EPS of $2.58 exceeded the high end of our guidance range and we have generated more than $620 million of operating cash over the last 12 months. Cloud revenue which now represents a record 71% of our total revenue compared to 64% last year, increased 27% year-over-year, in line with expectations to a record $468 million. The growth was driven by the ongoing strength of our organic cloud business as well as the inclusion of LiveVox, a leader in outbound engagement. This new addition to CXone further enhances the breadth of our platform which particularly attracts large enterprises and is consistent with the trends we are seeing where customers are moving to NICE to eliminate siloed niche vendors and converge on CXone for all their complex CX specific needs. Our existing installed base continues to migrate to the cloud which is one of the drivers of our cloud revenue growth. As expected, this migration results in a shift from maintenance revenue which is included in our services revenue to cloud revenue. In this transition, we generally see an uplift ranging from 2 to 10x in a customer's ARR. Accordingly, services revenue was $149 million, represented 23% of total revenue and decreased 7% year-over-year. Product revenue from on-premise sales which represented 6% of total revenue in the quarter compared to 8% of total revenue last year was reduced, however, it exceeded our expectations, resulting mostly from several customers electing to purchase some of our on-premise…

[Operator Instructions] Our first question comes from the line of Samad Samana with Jefferies.

Barak, sad to hear that you will be leaving us in a little bit less than a year but maybe let's start there. I know the press release gave some details that it was a planned transition. But can you give us any sense of how long that you've been considering this? And maybe why now? And then kind of in conjunction with that, what characteristics are you looking for in the next CEO? Is it somebody who's scaled a cloud software business? Is it a different type of skill set? What would the ideal future CEO look like? Operator, can you hear the management team?

I'm not hearing anything right now. One moment while we check for technical difficulties. Sorry, ladies and gentlemen, we're now back.

Samad, I apologize, in the middle of your question, the line drop on our end. Can you please repeat the last part of your question?

Yes. No problem. So I was basically asking how long you've been contemplating the transition? And then just asking the question about looking forward, are you looking for in the next CEO, somebody who's scaled a software business to certain levels? Are you looking for somebody with a different type of skill set, just as you envision what the next CEO of NICE should look like, what are the characteristics that the company is looking for?

Thanks, Samad. I appreciate the question. Again, I apologize, everyone, the line on our end drop. So as you read in the press release, we always believe in full transparency and this is exactly what you saw today. We're very transparent about how we are conducting this transition in a very organized way with no rush. And I believe that after 10 years as a CEO in 25 years of the company, the right way for me to transition is doing it in such a way from a very strong position of the company, NICE has an outstanding foundations both operationally, financially, a leadership position in the market, business momentum. And my plan is to stay as the CEO until the end of the year and use this time together with the Board to conduct a proper search for my successor, both internally and externally. And to -- and then by the way, to stay engaged with the company for at least part or a big part of 2025 and consult on anything that is needed on the strategic aspect and support the company. I love NICE. This is my home and I'll continue to support the company and I'm not rushing to any other place at the moment. In terms of who are we looking for? We're looking for the right [indiscernible] person to take the company to the next level, someone that have experience in the scale of NICE and enterprise software. We believe that we can have a very good list of candidates, both internally and externally and eventually the Board and our support then will make the decision to make sure that, that is the right fit, both in terms of the ability to execute moving forward but not less important, we'll continue the great culture we have with NICE and supporting and working together with the 8,500 NICERS around the globe.

Appreciate that. And then, Beth, maybe just a follow-up for you. If I think about the first quarter, the cloud revenue was a little bit better than expected. Can you just remind us, are we still tracking to that 18% organic cloud revenue growth for the year? And any update on maybe whether that's tracking ahead of plan and how we should think about organic cloud revenue for the rest of 2024?

Yes. Thanks for the question, Samad. So yes, we're highly pleased with the start of the year and the cloud growth that we're seeing. As we look forward throughout the course of this year, our cloud revenue expectations haven't changed.

Our next question comes from the line of Meta Marshall with Morgan Stanley.

Maybe first question for me. Just any commentary on LiveVox integration and just how that's proceeding both from how you guys are seeing kind of revenue opportunities as well as opportunities to kind of optimize costs? And then just as a second question, just in terms of any commentary around kind of macro understanding it hasn't had much impact to the portfolio but just with smaller customers. I think we've seen a pickup in headwinds this quarter if you've seen anything worth noting?

Thanks for the question, Meta. And I think I'll start. I think, first of all, we'd say we're extremely proud that we have started off really on a great note this year with the integration of LiveVox. It's going seamlessly right according to our plans. And you can see that in our financial results. I think the overall financial results are very consistent with our expectations. And you can see that we talked about the synergy opportunity last year in advance of the close of the deal and we've delivered on that right out of the gate this year. So that's already reaping the benefits from the synergies we've been able to realize. And on the revenue side, we knew that coming into this year, there would be some initial overlap of some of the customers and that really the revenue opportunity is really looking forward. We are integrating the sales organization and looking ahead to 2025 and beyond and that's the point when we really expect to kind of put more gas on the pedals with respect to driving the top line. But as I said, we're really pleased. The execution is going as exactly as we planned and we are really happy to see the results of that in our first quarter results.

And I'll take the second question just to follow up. Just to add first on LiveVox, besides the financials, obviously, on the product side, we see great excitement from customers, both NICE's customers, very happy with the opportunity to adopt the LiveVox solutions and vice versa and the pipeline -- the joint pipeline is looking extremely promising. About the second question, about macro, I don't have any kind of breaking news here to share. I think we see the exact same trends that we've seen before in all segments of the market. We believe, as I said in my earlier remarks, that on all of those aspects, winning the cloud, expanding into digital and of course, the big opportunity in AI. This is the core of investment -- the center of investment to the large enterprises and our prime focus, obviously, the big win is all of those very large enterprises that are expanding and standardizing on us.

Our next question comes from the line of Tyler Radke with Citi.

Yes. And Barak, congratulations on 25 years. I guess I wanted to follow up on Samad's question. I mean, obviously, 25 years is an incredible run but arguably the company is at one of the more interesting times in the market here with generative AI taking off. So I guess I'm curious, personally, like what are you hoping to get out of the next 3 to 5 years. What are you going to do next in probably what was a difficult decision but clearly, there's a lot of opportunity ahead of the company. So I'm just curious personally what you're looking to do next?

Great question. And needless to say, you described it correctly. It was not an easy decision. It's -- I'm still in a very mixed emotion because I do believe the opportunity for NICE is tremendous. There aren't too many companies with such a great position, an exciting market, amazing team, leadership position. It doesn't get much better than that. Having said that, being 10 years as a CEO, I personally believe that at some point, the leader after 10 years needs to transition and hand off the torch to someone else. And you do it in a way that is not a sudden and not in 5 minutes but they're in a very organized transition and make sure that there is a strong continuity. So there is never a good time for it but I've decided to do it now in this position. What exactly I'm going to do next, that's not my prime focus. Right now, I'm 100% focused on executing our 2024 plan, finding the successor and then continue supporting the transition. And what I'm going to do next is something that I'll have to think about it. I'm at 49, I'm very bad at golf so I'll probably have to find something else to do.

All right. Well, hope you can get your golf score down. But a follow-up for Beth. So on the cloud guide, I appreciate the reiteration of that for the full year. But I guess, in the quarter, you talked about on-prem strength surprising you to the upside and the full year revenue target wasn't raised. So I guess, how should we square the lack of a raise on the full year revenue target with stronger on-prem mix in the quarter? And if I look at the calculated organic growth in cloud this quarter, I think it was around 18.5% depending on the assumptions. So that doesn't leave a whole lot of room for slowing organic growth throughout the full year. So just help us understand your confidence in that 18% organic growth for the rest of the year.

Yes. Thank you. So I think you asked a few different questions, well, I'll try to make sure I've addressed. Let's start with the full year. I think as we look at the full year revenue guidance, we're stepping out of the first quarter. And we have an expectation of $2.7 billion in total revenue this year. So it's a substantial amount of revenue. We continue to grow. And I think as we looked at the first quarter results, we had a $4 million beat coming in near the high end of our guidance. We said less than $4 million on such a large number of $2.7 billion really don't feel the need in the grand scheme of things that it's consequential to the overall number. And so that was kind of the decision we made. Let's hold still early in the year. As you said, I think we're really pleased that we've stepped into the year with a strong performance. And of course, that's our expectation as we look forward as well across all aspects of our business. And you can see in the cloud growth that we continue to really excel and really are a leader in our market.

Our next question comes from the line of Siti Panigrahi with Mizuho Securities.

And Barak, congratulations for a remarkable career at NICE. So my question on the AI monetization. You guys talked about one example of how customer ARPU went up by 40% in monetization. So I'm wondering what kind of pricing model evolving? I know you guys started with agent and [indiscernible] you were talking about usage best. So what kind of pricing model you're seeing? And do you think that will become most prevalent with this AI-powered contact center? And also, if you could talk about -- remind us how quickly this AI bookings can translate into revenue?

Yes, thanks. I appreciate the question. I think you characterized it correctly and I was trying to give, not just in this quarter, also in past quarters, indications and examples and anecdotes on how this thing is evolving. First, I'll say the speed of innovation, as I've mentioned, is just tremendous. I've never seen anything like that. How fast on the CXone platform because it has all data and knowledge. It's kind of the natural habitat for AI, how fast we can release capabilities and then how fast customers are adopting it, both existing and new. In terms of the monetization, most of the contact center industry historically because it was very much agent-based. Most of the pricing is per user. But you said that correctly. And today, we are monetizing on AI predominantly based on its volumes or interactions and less about users. So the right way to think about it is that if you have an organization that is adopting CXone with digital channels and with AI, there is a certain user base price for the agent, depending on which bundle or package that they buy and our is complete with a lot of capabilities and we don't have cost of integrated solutions. It's all natively there. And then the AI, as they start either to augment agents with the AI capabilities or any other elements of AI, usually, the monetization is per day number of interaction which is -- which are expected and we're seeing it to grow or continue to grow exponentially. So that's how we envision it moving forward. That's how it looks so far. It opens up a tremendous opportunity because we're not talking just about converting agent capacity to AI, we're talking about and we're seeing the expansion of our business to channel and touch points that we never played in. So think about all the variety of touch points and organization have with AI, we are now taking over these areas that before that were not part of our business. Now how fast it will impact into revenue. It will grow and we will start at some point, maybe to provide more information about it but it's becoming a more significant part of our booking at the moment.

That's great color. And Beth, very impressive profitability and cash flow. But my question is on the SMB segment. You cited about some weakness in that SMB segment last year. So has it been fairly stable in Q1? Or are you seeing any kind of incremental pressure on the small business side? And remind us what percentage is SMB for us?

Yes, Siti. First of all, we don't actually segment the customer base. We've never broken down the segmentation of our revenue between the customer side. So we can say that, of course, enterprise customers are driving more and more of our revenue growth as we move up market and take additional market share. With respect to the SMB customer base and some of the compression that we were seeing last year, I really mentioned last quarter that we had seen kind of a stabilization around that compression. We have seen it heavier throughout the course of 2023. And then, of course, towards the end of the year and coming into this year, we've seen that the compression really kind of stabilized. So now we see that we are at a kind of a business as usual, stabilization on the SMB side. And so as we've always had, we continue to add new business, both in that installed base as a large enterprise, adding new logos and selling more to existing customers as well.

Our next question comes from the line of Pat Walravens with Citizens JMP.

Great. Congratulations on the quarter. And Barak, congratulations to you on your 25 years. I hope that David and the Board are able to find a successor, who is as good as fit for NICE today as you were over the last 10 years. So Beth, my question is for you. Are you having any thoughts about retiring because with the CEO transition coming, I'm pretty sure all your investors would agree with me that it would be great to have continuity in the CFO role.

Pat, you're trying to age me here. I don't.

I'm not trying to age. We just want to keep you around.

No, no. Of course, we're all going to horribly miss, Barak and we're a great team that works together. But no, I don't have any plans of any upcoming retirement. I enjoy working with Barak but I enjoy working really with all the team here at NICE and love NICE the same way that we all do. So no change in plans for me.

Our next question comes from the line of Arjun Bhatia with William Blair.

Barak, maybe one for you to start off with. When you think about where you're seeing bookings growth from ENLIGHTEN and on the AI side? How much of that is going to be focused more on existing customers that want to add on AI capabilities versus perhaps new customers that are making a replatforming decision and are saying, "hey, maybe this is the right time to really switch our contact center synergy and go deeper into AI now that we are going through this pretty significant rearchitect."

Great question. Thank you. So I would say, first of all, every conversation today, either because the customer asked to start this way or we initiated it starts with AI. The reason for that is that automation and the desire to have automation in the contact center is not new. We -- I've been here before, 25 years. And from day 1, it was all about automation. But all the things that we're simple in the contact center, I believe, are already fully automated. I gave you example in my earlier remarks and automation up until AI kind of got stuck and now there is an opportunity with AI. But at the same time, our customers are very savvy and anyone that runs the large customer service organization understand the complexity of that business and it's not easy to automate and it's not just growing some LLM or GenAI into the mix and hoping for the best. They understand a variety of things like the issues of privacy, security, having the right data well integrated. And generally, they understand the notion that you need to have a certain highly specialized AI to work in this environment. So what we see these days a lot of customers that at the beginning, the hype of the past year, try to put something into the environment, either a very low return or got into kind of hit a wall and there they're coming to us because I understand that the power of the platform. And the power the platform goes to the fact that an employee -- any employee can find themselves and organize themselves even in somewhat of a mass environment. The mass environment is toxic for AI. And you have to have all the knowledge, the data interactions in a single place and CXone is the perfect environment for that. So that's what we see. And this is the reason for the -- I believe, for the fast adoption. Having said that, there is also an understanding that it's not an overnight. There are different flavors in the journey of AI. They're in the phase of augmenting the agent, making them 10x better. And then there is the concept of who is the Copilot, whether it's the agent or the AI become the Copilot and exchange of knowledge between them. And then there are fully automation opportunities. And to manage that, you need a good partner and NICE has always been that partner and that's what we see both with existing customers and new customers.

Very helpful. And then, Beth, one for you. Just when we're thinking of cloud growth, I know you're reiterating the 18% organic target. How should we think about how much your own on-prem to cloud migrations are driving cloud revenue growth for you? And when you look out throughout '24 is that -- should we expect that to increase given some of the dynamics that we've talked about with customers wanting to invest more in cloud and AI? And just give us a sense for how we should think about the shape of the contribution from your own on-prem migrations.

Yes, sure. In terms of our existing installed base, I would say we see a relatively steady state there that each and every quarter, we have a certain number of our customers, legacy customers that are continuing to move on to our cloud platforms and particularly, of course, CXone. It's something that we continue to expect to see. And as I said, the indications for this year look like it's generally business as usual. But I think with the introduction of AI and our digital offerings, we're seeing a pipeline that is adding incremental deal value and that will also be a reason for customers to probably look to migrate sooner than later. So as we look into the following quarters and year, I do think there will come a time that we'll start to see some additional acceleration of the existing installed base as those very large enterprise customers start to plan their moves. And just a reminder that when we do see those customers migrate, I mentioned it in my remarks earlier today, we generally see a very nice and steady significant uplift in their ARR. It can be anywhere from 2 to 3x and we have customers that are 10x or higher in terms of uplift to their ARR. So it certainly will continue to be a growth driver for us.

Our next question comes from the line of Jim Fish with Piper Sandler.

This is Quinton [ph] on for Jim Fish. Barak, maybe first for you. Underneath the cloud business, can you talk about the drivers of growth here between how much is coming from expansion of your existing base versus that conversion of the large enterprise pipeline that you guys have driving net new dollars. Any color you can provide on the net retention rates you saw this quarter relative to prior quarters?

Yes. Thanks for the question, Jim. It's always, for us, a combination of the 2 between expansion and new. The beauty of the markets we operate in, that it's still only, I would say, some 20% [ph] in the cloud. So there is a very healthy runway and predominantly at the enterprise market. So our focus is, of course, a lot of our existing cloud customers, the many thousands that we have but also about land grab of new customer. And the beauty that we constantly see is that customers that -- new customers adopt us in different ways. Some go all in day 1, buy everything, deploy everything and some department by department and we continue to see the ARR of these customers growing. So there is no change that we've seen on trend either on the ARR or the mix between new and existing customers.

Understood. That's helpful. And then, Beth, maybe for you, maybe to ask it more directly. How much revenue did LiveVox actually contribute here in Q1? And then with the full quarter of wrapping your hands around the business, are you still expecting that $142 million of contribution for the full year? Or any change to that?

So thanks for the question, Jim. And to be clear, last year, we provided direction of the cloud revenue split expectation between LiveVox and cloud revenue that was not coming from LiveVox. Just to provide real clarity to the stakeholders in order to understand the expectations of our cloud revenue this year. But consistent with every acquisition, we've always done at NICE, once we close the deal, we don't actually separately disclose the financial results of -- beyond the business segments which is how we have always conducted our business. So we won't be providing a specific breakdown. As I commented earlier, just in terms of giving color, I think, as I said, we're quite pleased with our revenue in cloud this quarter. And feels that the stepping into the year, LiveVox is very much aligned with what we we're looking to achieve with that acquisition. So, I think we're very pleased and beyond that. Again, we won't be providing any further segmentation. As I've said, we've reiterated that the cloud revenue for the year expectation is unchanged.

Our next question comes from the line of Mike Latimore with Northland Capital Markets.

Great. Barak, you mentioned that AI gets you into some touch points that NICE has not addressed in the past. Can you just elaborate a little bit on what those touch points are and also, I guess, separately. Is there any quantification of cloud bookings growth in the quarter?

So thanks, Mike. So I described in my -- I always describe it as the different drivers of our business, the shift to the cloud of CX environment and then the convergence and the expansion into digital and AI. They are separate but obviously, they also work together and they impact each other. So one of the things with our AI capabilities, customers understand that in order to really have what is the ultimate goal, the holy grail of CX to really have a seamless journey for customers, one should not look at different touch points or interactions separately. And it breaks the silos between what was in the market for years, the different subcategories of someone provide the voice channel, someone provide the chat, someone the e-mail or someone provide [indiscernible] knowledge into search or social engagement. And there is understanding that the core of the interaction is what you need to consolidate on. And we are the core of that interaction. We -- managing voice historically is the most complicated channel. And if you solve AI for that, you can solve AI and automation for all the other things. So what we see more so than not is that customers consolidate into CXone. They bring knowledge into CXone. They bring data into CXone and obviously, all interactions. And then you have a holistic view of the customer. And then in this environment, AI flourish. So that's the reason, that's a trend that we see. With respect to bookings, we don't provide comments on booking. We provide certain different anecdotes about deals. And as you can see, like in any other quarter, we had many, many deals, we highlight the very large one, many 7-figure deals, of which many of them are brand new customers.

Our next question comes from the line of Catharine Trebnick with Rosenblatt Securities.

You introduced a UCaaS solution recently; and can you pretty much give us some puts and thoughts on what the decision was to do that. Does that impact or not impact the relationship with RingCentral?

Yes. Thanks for the question. I don't think I'm going to surprise you by saying that the UCaaS market is -- has been commoditized and it's no longer a premium capability. It's also easy to deliver. And so we have a capability or we always have and we had some requests from customers. Our relationship with Ring grow strong and we operate in certain segments of the market together and some other segments of the market we operate in a different way. So, no change on that.

Our next question comes from the line Rishi Jaluria with RBC Capital Markets.

This is Richard Poland on for Rishi Jaluria today. So obviously, AI can play a role across the kind of entire call center life cycle. So I guess, early days, are you seeing any particular use cases that are standing out?

Yes. It's a great question. We see a lot of different use cases and I'm very encouraged by the pace of adoption of those use cases because, as I mentioned before, when we think of AI, we think about it in 2 different ways, we translate it to Augmented Intelligence and Artificial Intelligence. So there is the part when it can work side by side with the CX professional that is a human and there is an automation, a full automation of certain tasks or certain journeys. So I mentioned on the call several of our solutions with -- related to AI, whether it's a copilot for agent and supervisors, auto summary, XO for variety of CSA capabilities. And the list go on and on, I didn't want to list everything. So the list I believe, will continue to grow. And the minute you have a platform that have, again, all of those assets together, it's really easy to start using more and more use cases.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Eilam for any final comments.

Thank you, everyone, for joining us. Beth, Marty and I and the rest of the management team are looking forward to see at our Investor Day in Vegas on June 11. Have a great day. Thank you so much.

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