Welcome to the NICE Conference Call discussing Fourth Quarter and Full Year 2017 Results, and thank you all for holding. All participants are at in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded on February 15, 2018. I would like now to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please go ahead, sir.

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eron Liron, Executive Vice President, Marketing and Corporate Development. Before we start, I’d like to point out that some of the statements made on this call will constitute forward-looking statements in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the company’s actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled, Risk Factors, in Item three of the company’s 2016 Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on April 21, 2017. During today’s call, we will present a more detailed discussion of fourth quarter 2017 results and the company’s guidance for the first quarter and full year 2018. 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 differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today’s press release. We would also like to remind that we are hosting our investor day on May 15, in conjunction with our Annual User Conference in Orlando. The special program for analysts and investors will include meetings with NICE executives, presentations from customers, product and technology sessions, and access to the solutions showcase where we can see demos of many of our solutions. If you haven't registered, please email us at ir@nice.com. And I will now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I am glad to be on the call with you today and very pleased to report that we ended the year on high notes with strong performances on both the top and bottom line, demonstrating strong momentum across the board particularly in our strategic pillars of cloud and analytics. One year ago we shared with you our NICE2B strategy, describing the opportunities ahead that will stir us towards becoming a $2 billion revenue company. Now that you have the full results of 2017, let me share with you why we are confident about our ability to execute the NICE2B plan and the great opportunities it presents for NICE in 2018 and beyond. First, is the dramatic increase in our addressable market. Through both acquisitions and innovation, we have grown an addressable market of $3 billion to $7 billion to date, which is growing rapidly to be kind of more than $12 billion market. Unlike in the past, the size of our addressable market is no longer an inhibitor to our growth. Second is analytics. Our journey in analytics started many years ago and represented a small percentage of our business at that time. Today analytics which represents more than 60% of our new business is rapidly expanding market and our leadership position will allow us to continue to grow our analytics business in the years to come. Furthermore, with hundreds of customers using our analytics, it presents a great opportunity for them to progress into more AI based solutions. Third is cloud. As recently as two years ago cloud represented about 5% of our total revenues. Today cloud represents nearly 30% of our business and we expect that to grow to 50% in the years to come, fulfilled by the growth of CXone, Essentials,…

Thank you, Barak, and good day, everyone. I am pleased to provide you with an analysis of our financial results and business performance for the fourth quarter and full year of 2017, as well as our outlook for the first quarter and full year 2018. The financial results represent continued operations and exclude the businesses that were divested in 2016. However, the cash flow statement includes the results of both divestitures. And now I will review the results. Revenue for the fourth quarter was a record of $396 million which represented an increase of 20% from $329 million in the same period of last year. Revenue for the full year 2017 increased 31% to a record of $1,346 million. Customer engagement revenues for the fourth quarter were $303 million, an increase of 26% compared to $240 million last year. And financial crime and compliance revenues were $93 million, an increase of 4% compared to $89 million for the same period last year. For the full year of 2017, customer engagement revenues were $1,065 million, an increase of 39%. And financial crime compliance revenues were $281 million, an increase of 7% compared to the same period of last year. Products revenues accounted for 29% of total revenue in the fourth quarter and 24% in 2017. Cloud revenues accounted for 26% of total revenue in the fourth quarter and 27% in 2017. Services accounted for the remaining 45% of total revenue in the fourth quarter and 49% in the full year of 2017. For the full year of 2017, recurring revenue represented 65% of total revenue compared to 53% last year. On a regional breakdown, revenues in the Americas was $313 million in the fourth quarter and $1,050 million for full year 2017, an increase of 24% and 43% respectively compared to…

[Operator Instructions] Our first question comes from the line of Greg McDowell of JMP Securities. Please go ahead, you are live in the call.

Great progress. So I guess, Barak, first for you and then I have one follow up for Beth. Barak, I would love to hear about how you are thinking about the sales organization and the structure for 2018. I am especially interested in your commentary on attacking the SMB market. How you made any wholesale changes to the sales force in 2018 to sort of optimize the sales organization to start attacking that market and then one quick follow up for Beth.

Hi, Greg. Thanks for the question. So in the beginning of February we are doing always certain fine tunes and adjustment. As you heard in my opening remarks, we see a lot of great momentum in the areas that I have talked about whether that’s analytics or cloud, artificial intelligence from specifically in the market segment. We see the very nice momentum at the higher end of the market with analytics based solutions and the fact that today we have a very attractive portfolio for the low end of the market and an effective go to market allow us address all segments of the market. We see the same type of trend and demand continuing for us in 2018, hence we did not make any dramatic change as we step into 2018 besides certain small tweaks in putting certain investments as we do every year in certain areas. We obviously look on the different segments of the market separate. We segment, as we did in the past and even more so today, our go to market. And obviously we treat the very high end of the market in a different way than the mid tier of the market and then to the low end of the market. And the only last thing I would say, few interesting things. Obviously when we go to the SMB market and today it's a nice portion of our business, one of the things we are constantly looking there to make sure we are doing correctly, SMB market in one hand is very appealing. You can generate an interesting revenue but at the same time we would like this revenue to be profitable and profitable for the long run. We are calculating more carefully in this market. We are not just about inflating our top line but rather make customer acquisitions which become profitable for the long run and this is a very important way for us in the way we strategize the SMB. The last thing I would say about the SMB relates to financial crime and compliance. And this is that while so far we have been growing mainly the rest of this market, I think a landmark, a milestone for us is what we announced yesterday. First distribution, very large, very significant distribution agreement with a very large and successful core banking provider that have in excess of 1000 existing customer. A much more effective go to market product in that domain to go out to that segment of the market. We have the right product and now we have much more effective vehicle to go after this market.

That’s helpful. Thank you, Barak. And Beth, multipart 606 question for you. Everybody's favorite topic. I guess, number one, when we put our models out, is it your hope that we put our models out on a 605 basis. And then at a future point when you provide guidance on a 606 basis that we then adjust our models down. So that’s part A of the 606 question. Part B would be, you mentioned it's going to be a non-material impact but if you could just give us any sense or orders of magnitude on how many transactions would be impacted by the move to 606 or what are some of the -- maybe a better way of asking it is, what are some of the puts and takes of 606 in the NICE financial model. Thanks.

Thanks for the question, Greg. So you had two separate questions. So let me start with your question with respect to ASC 605 versus ASC 606 first. So you asked whether or not we would recommend that you model using ASC 605 and the answer is yes. As I highlighted earlier, our guidance is based on 605 and throughout 2018 we will continue to provide guidance based on ASC 605. So we don’t at this time have any expectation that we would ask you to change to look at ASC 606 during 2018. As we move into 2019, then obviously we would have 2019 based on ASC 606 because we would be able to look at that two years of comparability. So again for all of 2018, the expectation is that both your models and the guidance that we give will be based on 605. When we go provide actual results, we will highlight both the actual results under 605 as well as the new guidance of 606. The second part of your question was with respect to the impact and as you highlighted, at this point we do not expect the impact of the new guidance 606 to be material to our financial results. I would say if we highlight the areas of impact to NICE from the guidance, there are really three primary areas that I would point to. The first is around subscription or term-based product revenue. There is a change in the accounting under the new guidance, previously it was recognized over the period of the subscription where under 606 it would allow you to be able to recognize the revenue at the time of sale. So that is one of the impacts for NICE. Most of our on-premise business is not on a subscription basis. However, we do have some but that is the reason we have said overall if we look at all of these in aggregation, we don’t expect a material impact. The second area would be the allocation of revenue within the line. So under 605, there was a concept of the SOE or fair value, which attributed revenue to the differences in lines between product and services. That guidance is changing slightly during 606. So again you will see some potential change in the mix of revenues. And then finally, the last items that I would mention, which is most relevant to NICE is the impact on the expense side, which under the new guidance, there is guidance that certain commission expense and expenses that are related to the customer concept be capitalized. So again in totality, we continue to analyze the impact of these and we will further give you more information throughout the year but as I highlighted, we don’t expect a material impact to our financial results.

Let me just add one cent. As Beth said, the way we are reporting and giving guidance is to give the utmost transparency from [indiscernible] and '17 with adjusted for 605, we want to give you ability to really compare apples to apples and that’s what you are doing. So the utmost transparency.

Thank you. Next question comes from John DiFucci from Jefferies. Please go ahead. You are live in the call.

Barak, I have a couple of questions for you. I think, first of all, we try to back into what we look at we call new subscription ACV or new business captured in the quarter. And I know you don’t disclose that specifically but we have seen improved momentum in the last two quarters, sort of growing from single digit growth to like double digit growth. So I guess first is, is that directionally accurate and then secondly, what is it that’s driving that? Is it CXone already having an effect on the numbers? We know it's having effect on your business and we hear there is a lot of excitement out there. But is it actually already effecting the numbers and can this accelerate or sustain momentum for a while here or there is something else happening here that we are just not thinking about.

Well, thanks for the question. So you are right that we are seeing a very nice traction to cloud. Obviously we see like now in the numbers or the revenue there is always a gap between the point that we actually lend the business and the point of the acquisition. Some acquisition are extremely quick to the -- a matter of even a day and some activations take longer than that depending on the scenario and the solution and so on and so forth. But we definitely see a very nice momentum in the cloud. I think by saying that, first of all seeing that we crossed $100 million in the quarterly earnings of cloud this quarter, and we said that we are going to, we see the ability to cross the run rate of $0.5 billion at the advent of 2018. We definitely see a good momentum in the cloud. It's coming from three main areas. So the first one is in the -- definitely in the CXone space. Since the introduction of CXone which was the late July beginning of August. There is a significant pickup both for protection, both for traction and dialog with customer and actual deals. And the beauty of that it's really growing up market very very nicely. Some of the deals which I have talked about have thousands of [indiscernible]. There is no more question about the ability to take CXone to all segments of the market. The other areas where we see cloud momentum very nicely is the analytics in the cloud. Most of our analytics sales are now done in the cloud in a very nice way allowing us to penetrate accounts that were not historically or the classic NICE accounts. And thirdly as I mentioned, we saw a nice pickup in with the new distribution agreement I have talked before, we believe that we could pickup very nicely in '18 moving forward in our financial crime and compliance with the Essentials solution. So it's across those three cloud solutions.

Great. Thank you. That’s helpful. And if I could, a follow up to that, Barak. Business sounds very good and at the same time guidance implies, and again this is from our math, it implies about 7% organic revenue growth next year or 6% constant currency organic growth. That’s how we go through it. Just trying to reconcile the impressive wins you talked about, what you just talked about with the cloud. And what looks like sort of flattish growth year-over-year. Actually we estimate 7% organic constant growth in 2017 versus guidance implying something like 6%. And understand what guidance means and I think you do a good job of sort of prudence around that guidance but just trying to gauge what all this means going forward. Guidance seems okay and it doesn’t sort of reflect some of the excitement we are hearing about in the field and what you are talking about here on the call.

So we have the beginning of year, this is relatively early in the year. We definitely feel the momentum when we stated our results in Q3 and Q4. And we also provided to deliver very healthy one for Q1 but it's early in the year and we have a lot of moving parts in our business. Many of them are very very positive. And that’s the guidance we feel confident to go out with right now, giving the different aspects of our business. Obviously, we are playing for the long run. We have a long runway over here. All the trends I have talked about whether that’s all services of the market, the cloud and analytics. We are very optimistic about, not just about '18 but also for the long run and we played in the right way in the long run. I would say that it's very important for us to keep a very good operating leverage and we are not just about inflating the top line with cloud that will not be profitable. So we are selective in the type of deals we are doing and how are we making them. We would like to make sure that as we grow our revenue in the cloud and we expect it to become half of our business in three years. We want to continue and be as presented in 2017 and in our guidance for '18, highly profitable business.

The next question comes from Walter Pritchard from Citi. Please go ahead.

Two questions. One for Barak. On the FC&C business. That business, looks like, if I look at it on a full year basis, it slowed down. I understand the results there can be very volatile quarter-to-quarter. But it slowed down versus what you have seen historically and we did note you announced the relationship to take it down market. But how do we think about it? Is there a transition area in growth drivers from the larger financial institutions to the smaller? Any change that would explain what's going on in growth and then your strategy going forward.

So with respect to the financial crime and compliance business, I will still, and first of I think we have demonstrated in the last several quarters, eight quarters, and third quarter it's highly volatile business. If you remember, Q3 was a very significant in growth for this business. By also Q4 last year was 18% growth. So all of a sudden this quarter might seem to be a lower but it's a very very touch comp. But we remain bullish on this business, similarly to before. All the fundamentals of this business are strong as before. And moving forward and different element is our strategy in this business we believe can continue and fuel the growth of this business. So mainly, I would say the three of them. So one as you have mentioned, is going down market. I wouldn’t always call it SMB because it's the mid-tier. And even mid-tier bank is very very substantial, can be a very substantial customer. And so far we have done it mainly ourselves as far as those things. In this particular, this solution I believe opened the door for us to accelerate in our way down market. The second thing is our general framework what we call autonomous financial crime management which allows us to go back to our dozens and hundreds of customers in this segment and allowed us to manage in a very nice way the very very heavy cost model of managing the compliance and the traction of this new vision that was just introduced few months back, is very good and very high. And thirdly, is helping to monetize both the customer base as well as the data that we have with customers. This is by what I have mentioned the ActimizeWatch, which is injecting artificial intelligence with the benefit of the cloud to this market. And you heard me on the previous remark mentioning the two additional customers that signed up for the consulting, not just signing up to the consulting both those customers we have just landed 7-digit deal for ActimizeWatch. So those three areas beyond the very basic fundamentals of this business, we will not change the view of this future. We do expect this business given the nature of some very large license deals to might have volatilities between quarters.

Got it. And then Beth, on your end, the gross margins have seen very good progress over the course of the year. Can you talk about, I know right after you are in contact acquisition there were some opportunities there on gross margins. Can you talk about generally what factors drove gross margins in the fourth quarter and were they consistent with what you have seen throughout the year in terms of the drivers.

Sure. As you highlighted, throughout the year we continue to improve our gross margin. We actually had a sequential increase each quarter in the overall gross margin throughout 2017. And I would say what applied in Q4 is what we have done well really throughout the year as well as in prior years. We have very close management of the overall business and the health and drive through a lot of operational efficiencies. So throughout 2017 on the service side, we have continued to be very successful at driving and doing the hiring in some of our offshore locations. We have now started to also focus more on that on the cloud side of the business as well. As you know, we also on the cloud front we moved off one of our competitors products on the WFM side and moved on to our own offering there as part of our CXone offering. So that we also had benefit throughout 2017 on the cloud margin. And in general we have a lot of experience in evaluating our relationship with third parties and we have the power of negotiation by looking at the aggregated NICE overall in our vendor relationships which we have also been able to positively influence and drive further positive margin.

And then just progress on that into the future. Do you see further progress on gross margins or do you feel like I know some of the moves you have been making within inContact, maybe how to timeframe that you were completing them. How do you think about it going forward?

So we are still positive that we will still be able to continue to positively influence our margins.

Thank you. The next question comes from Gabriela Borges from Goldman Sachs. Please go ahead.

This is Manik Mahajan on behalf of Gabriela Borges. Congrats on the good quarter. I would like to dig a little bit deeper in terms of your different segments. How should we think about growth in products versus services business going forward.

Thanks for your question. In terms of our guidance, we don’t break down the specific product, services and cloud. We just give the high level ones.

All right. And a follow up, if I may. You mentioned cloud business to exit 2018 with a revenue run rate of $500 million. Could you help us understand seasonality of this business during the year?

Sure. So with respect to the cloud side of the business, there is seasonality within that part of the business. The model and the offering we have of the CXone platform is based on the agent count and as a result of that when we are selling the offering, we will see that as we typically have an increase in the usage related to the industries that are using the offering. So for example, we have increases in the recal area that occurs more towards the end of the year as we get into the holidays and they have pickup and the activity in the customer experience side as a business. So as a result of that, typically when we go into the latter half of the year, we see more seasonality on that side of the business.

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

Barak, you touched a bit on this in answer to John's question, but I am curious about the large Fortune 100 companies that have migrated over to cloud solutions. Could you talk a little bit about what those customers were looking for when adopting cloud solutions and then maybe a little bit more on just the reception of cloud solutions up market.

So I can give you a bit more color on that. And obviously it's very dynamic and it's going very very nicely. So I would say I think I have got those questions just after we acquired inContact and we came with the vision of being the only vendor outlet that is putting together WFO, CCaaS and analytics. Following our move others are trying to do a similar thing and then later on obviously we introduce it as a complete unified suite but also as a full classroom. And we have done all of that because exactly that point we believe that the adoption, similarly to what's happened to many other enterprise software industries, we start to pickup in the higher end of the market. The market is divided in multiple segments and we see it happening as we speak. I would say several reasons, first of all, I would say kind of the killer value proposition of the cloud. It's very hard to resist both the commercial models and the elasticity of the cloud in the contact center space, as well as of course the rapid innovation, rapid deployment that is provided which is very significant comparison past a model which are on-premises model. Second thing, the second reason why we see this adoption starting to pickup is that some of the funnel, most of the legacy providers that used to be an on-premises provider, due to the financial factor and the way they started driving their roadmap, they will not move really to the cloud. They do not have [kind of] [ph] true cloud product. So they do not really offer these customers a viable way to migrate from the current on-premise to the cloud. And we see today in all different enterprises, a marked shift in them…

Thank you. There are no further questions at the moment, so I would like to hand back to Barak.

Thank you all very much for joining us today. Similar to Beth, Marty and the team. Looking forward to see you at our investor day in May, in Orlando. Have a great day, thank you.