Welcome to the NICE Conference Call discussing Third Quarter 2019 Results, and thank you all for holding. All participants are 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 14, 2019. 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; Beth Gaspich, Chief Financial Officer; and Eran Liron, Executive Vice President, Marketing and Corporate Development. 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 2018 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on April 5, 2019. During today’s call, we will present a more detailed discussion of third quarter 2019 results and the Company’s guidance for the full year of 2019. 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 with 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. And I’ll now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I’m glad to be on the call with you today. Earlier in the year, we talked about the opportunity to become the leader, amid exciting and expanding markets that are experiencing rapid and accelerating growth. This vision is taking shape as evidenced by our strong and consistent financial results, recognition from industry analysts, accelerated pace of innovation, and the fast growth of our global partner ecosystem. Starting with financial results. Q3 was another strong quarter. In Q3, total revenue increased 8% to $387 million, driven by another strong quarter in cloud revenue, which increased 27%. The strong topline results led to further increase in profitability. Operating income was $106 million, which was an increase of 9% compared to Q3 last year, and operating margin increased 40 basis points to 27.4% compared to the same period last year. These strong operating results led to an 8% increase in earnings per share to $1.30. With the current annual cloud revenue run rate higher than $600 million, there is no doubt that we are the largest cloud company and the clear front-runner in a market that is transforming to the cloud. Cloud revenue powered by CXone, now represents nearly 40% of our total revenue while total recurring revenue represents 74% of our total revenue, up from 70% one year ago. We are consistently signing more CXone deals each quarter, driven by increased coverage of additional market segments and geographies. At the same time, deal sizes are growing demonstrating the rapid penetration of CXone into very large enterprises. Furthermore, the attachment rates of our seamlessly integrated workforce optimization and analytics are increasing, dramatically boosting our win rates. These collectively demonstrate the value of CXone as a truly integrated and differentiated native cloud platform that seamlessly incorporates the market-leading…

Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and business performance for the third quarter of 2019 as well as our outlook for the full year of 2019. Total revenue for the third quarter was $387 million compared to $359 million in the same period of last year, an increase of 8%. Our total revenue growth was driven by cloud, with 27% growth in cloud revenue in the third quarter of 2019. The percent of total recurring revenue continued to increase to a record of 74% compared to 70% in Q3 2019, reflecting our strong cloud momentum. Customer engagement revenues for the third quarter increased 9% to $315 million, representing 81% of our total revenues, and Financial Crime and Compliance revenues increased 2% to $72 million, representing 19% of total revenues. Cloud revenues accounted for 39% of total revenue for the third quarter, which represents an increase from 33% in Q3 last year. Product revenues accounted for 15% of total revenue in the third quarter, and services revenues accounted for the remaining 46% of total revenue in the third quarter of 2019. Looking at geographies, Americas grew 10% and reached $313 million in the third quarter. EMEA was $47 million in the third quarter, which represented a 5% decline, and APAC was $27 million, which represented 13% growth compared to last year. And now to profitability. Gross profit increased 8% to $274 million in the third quarter, and gross margin was 70.9%, similar to last year. Cloud gross margin continued to increase and reached 61.9% compared to 61.6% last year. Operating income increased 9% and to $106 million in the third quarter. Operating margin continued to expand and reached 27.4% compared to 27% in the same period of last year.…

Everyone, your question-and-answer session will now begin. [Operator Instructions] Thank you. We already have some questions on the line. The first one is coming from the line Shaul Eyal from Oppenheimer. Please proceed. Your line is open.

Thank you. Hey guys, good afternoon. Congrats on the ongoing performance and execution. One for Barak, one for Eran. Barak, so the CXone platform continues to resonate well within the overall market environment as we’re seeing that from results and as we’re hearing that from your prepared remarks. It will also appear that it’s driven by the high-end enterprises’ adoption, which appears to be at a rapid pace. I know you’ve mentioned that also during your prepared remarks, but can you talk to us a little bit of what appears to be this – driving this accelerating trend? And maybe in association with that, are you seeing any prolonged cycle because it would appear actually you’re seeing none in that respect?

Sure. And the observation is correct, and you can hear it from the different -- many deals that I’ve mentioned on the call today. We definitely see the upper side of the market, the enterprise side of the market adopting CXone in a rapid pace. Just to provide some clarity, our definition of our threshold for enterprises in 750 seats and up. We see traction in all market segments that – but that’s our definition for enterprise. I know that other SMB players define it much lower, and this is where we see a lot of traction these days. I think the reason is a few fold. First of all, the pace of innovation that they see on a platform like CXone, a native-cloud platform versus what they see on their on-premise provider and in the fact the innovation there either stops or slows down quite dramatically. The other thing is the completeness of the offering that we have, and it goes also to the other things I’ve mentioned about the attachment rate. We see very high attachment rate. Customers of that segment, in all segments, but for sure the enterprise segment that are selecting to go day one, not just with routing or not just with WFO, but all of it together, routing, WFO, analytics and other capabilities altogether. So we see increase in the number of deals, the deal sizes, and of course, with the attachment rate.

Awesome, awesome. One for Eran. So with Mattersight now integrated for about 18 months, how would you characterize your satisfaction level from that specific transaction? We have known NICE for many years, you’ve done an outstanding job as it relates to your M&A strategy. You guys know how to pick up, you’re the right candidate to integrate. How would you characterize Mattersight in that respect, Eran?

So Shaul, if you recall, when we acquired Mattersight, we said that the main reason and motivation behind that acquisition was to create a differentiated offering for CXone. And as you said, it has been integrated, and we see that it’s creating a new category in the world of routing. Something that is amazing that was – that has not happened before, AI-driven routing and the ability to match the customer with the right person to handle them is something that seems to have – has been late in the latent demand in the market. So when we look at the acquisitions that are technology-driven acquisition like Mattersight, we look at a few things. We look at have we achieved our integration goals? And the answer is yes. We look at the impact that it’s having in the market in terms of differentiating the product creating a buzz for the product. The answer is absolutely, yes. And the third is we look at the team, the talent that we acquired and are they still with us and motivated? And the answer is, again, we’ve had very good success there. And of course, we look at the financial metrics. So, as I look at all this – all these dimensions, we are very happy with the acquisition.

Thank you.

The next question is coming from the line of Rishi Jaluria. Please proceed. Your line is open.

This is Hannah on for Rishi this morning. Thanks for taking my question. Just first off, it seemed like EMEA revenue growth came in a little weak this quarter. Could you talk about anything you’re seeing that’s driving that and anything in the macro environment you’re seeing?

Yes, we always have some fluctuation between the different regions, nothing to read from that. EMEA was impacted to a certain extent, also from changes in currency. But we see a regular demand. With respect to the macro, EMEA and rest of the places, we don’t see any difference from what we’ve seen a few quarters ago, the environment in our market continues to be very healthy.

Great. Great. That’s helpful. And then on the Atos partnership on the deals you’ve signed so far, have you been able to penetrate more markets in Europe? Because I know that’s something that the partnership is providing you with.

So as part of our overall strategy, but for sure, as we go international into Europe and Asia Pacific, as you can hear in the last few quarters as well as in my earlier remarks, we are doing very well. We get a lot of traction. We see combination of a few types of the partners. Those that have partnered for many years in that market with legacy on-premise providers and are looking to migrate their customer base and to win back in the market. And I understand that you need to do it with CCaaS. And after they are doing their diligence, they are selecting us and we have a lot of them, if you would like, almost standing in line to sign partnerships with us, and we’re very happy with that. And the second type of partnership is those that believe that they – it’s an adjacent market for them, and they see the dynamics in this market, and they would like to step into this market, and they’re also doing their diligence using the market analysts and other, and they are selecting us. All of those partners we have signed in the last few quarters, it takes time to enable them, but they are putting a lot of investment behind this enablement, and this from the indication in the pipeline, it’s very healthy. They have relationships with thousands of customers. They have a very strong customer base, and we believe that it will have a very positive impact on our win rate and our market coverage moving forward both internationally as well as in the U.S.

Okay, thank you.

The next question is coming from the line of Dan Bergstrom from RBC Capital. Please proceed. Your line is open.

Yes. Thanks for taking my questions. See with the adoption of CXone by very large enterprises and increased attach of WFO and analytics, does that change the way we should think about who is adopting the cloud? Historically here, I think we’ve thought that most of the cloud growth was coming from new markets and new customers. Is that still the case?

Yes, from our perspective, it is the case. I would like to remind you that with respect to those two markets that were separate markets, WFO analytics was one market and the adjacent market was routing or omni-channel routing. NICE evolved from the WFO analytics space being a leader in that space. And prior to cloud, we did not play in the routing business. So for us, every customer that’s adopting routing with WFO analytics is a pure upside. That’s one. So we’re taking markets in places where we didn’t play before. The second thing, the value of the customer for us in the cloud is significantly higher than in on-premise. With respect to the actual buyer, it’s always been and still is the combination of the IT buyer as well as the operational side of customer service. But given the fact that customer service today is much more strategic. For many B2C companies as well as B2B, but mainly B2C companies, we get a seat with a lot of C-level these days, and this domain is getting the exposure of C-level CEOs and other very large enterprises.

Great. And then maybe around Actimize, they’re hosting ENGAGE 2019 next week. It sounds like a good dedicated event for Financial Crime and Compliance professionals. Anything we should be watching for out of the event? And then maybe along with that on X-Sight, it seems like there’s been a number of announcements around the X-Sight marketplace recently. Maybe highlight some traction with that ecosystem. Thanks.

Sure. So first of all, we’re very excited towards the event next week. This is the first time we are actually combining what we had as the cline form and the user conference together of financial common compliance. We have a record attendancy and registration. Registration that I believe will lead to record attendancy. It’s becoming a very big event. The group, all the professionals – many of the professionals in this market and it’s becoming one of the largest events in that industry. I will have to wait for Monday, I guess, before we announce some product things and other, not to steal the thunder from the team. So stay tuned for different offering and portfolio announcement and partnership that I believe will come from this event. But you’ll hear all about them next week, but we’re definitely going back to Q3. Seeing great traction in a few fronts. First of all, the cloud is picking up very nicely in this market. We see a growing number of cloud deals in a pretty rapid pace, which is great for us because before the cloud, we played mainly in the higher end of the market and cloud enable us to cater to meet the market, banks, which are still very substantial in size. But in terms of volume of customers that opens up a very significant market for us. And the second thing is the traction that X-Sight with its marketplace, the traction that it’s getting, we announced the marketplace of X-Sight, I believe, only a few months ago, maybe two quarters ago, and we’ll already have almost 40 partners who subscribe to the program. And we’re starting to see, as I said in my earlier remarks, a very good traction with customers. They see that they have a platform today that they can choose different vendors and different partners and combine them under one platform. So we are very excited on all of those fronts with Actimize.

Thanks, Barak.

Next question is coming from the line of Dan Ives from Wedbbush. Please proceed. Your line is open.

Yes, thanks. Another great quarter. Sort of a follow-up to the last question. I mean Barak, as you’re going into sales cycles, are things changing with customers? I mean, are you seeing maybe a year ago in the cloud shift a lot more skepticism, having to do demos, products or to deep dive. And now today, it’s more of a pull rather than a push in terms of just some of the dynamics.

Yes. I would say that I definitely see this evolution happening. I’ll give it like from our perspective, two phases of evolution, and I’m looking forward, of course, to the next one. I would say that three, four years ago, I would say three years ago, with many customers, mainly when you go upmarket, we still had to educate them about the value of the cloud and why cloud is better than on-premise and what is real cloud and true cloud and native cloud and so on and so forth. That’s no longer happening. Customers, enterprises of all sizes, for all of them, it’s no longer a question of if, it’s a question of when and how do they move. They all want to move to the cloud. They all understand the difference between different cloud solutions, what is the natively – native cloud versus something that is more hosted or migrated from a on-premise, and they see the value in the native cloud. So that’s something that is no longer happening, meaning there is no longer a need to sell the value of the cloud. But the second thing that we see, and I believe it’s due to what we’ve done with CXone, in the past, I still used to think about omni-channel routing and other solutions like WFO and analytics almost separately two separate purchase cycles. And what we see right now is the convergence also become – almost becoming de facto standard the customer approach that. If I go to the cloud, not if, when I go to the cloud, I want omni-channel routing fully integrated, seamlessly integrated into WFO, analytics and digital and a few other things, and that’s becoming the new de facto standard. So that’s the evolution we see in the buying behavior, which of course, is very positive for us.

Okay, great. Thanks again.

Thank you.

Our next question is coming from the line of Samad Samana from Jefferies. Please proceed. Your line is open.

Hi, good morning. Thanks for taking my question. Nice quarter. One, if I may, and then I have a follow-up for Beth. But, Barak, if you – there’s been a lot of small M&A space and a lot of changes in terms of strategic partnerships with vendors, et cetera. So I was just curious how you think about the build versus buy versus partner strategy for as far as M&A or their technology partnerships go? And maybe if there’s any evolution in the way that, that NICE is approaching it with all of the changes that are happening in the – with the rest of the group? And then I have a follow-up. Thank you.

Sure. So at least from our perspective, we have all of those revenues, and we are managing them in a very thoughtful and strategic way, meaning that we both partner in many cases when we think it makes sense. From time to time, we will acquire in order to own the technology and the assets. And of course, we focus the majority of our effort, given our investment in R&D, inorganic development. And that’s, of course, our prime focus. We believe we have great ROI on our organic development. In regard to those different options, I would say that given that today, we have a platform like the CXone platform and same goes for X-Sight. One of the way that we are approaching that is that it’s a very open platform that is easy to integrate with those partnerships that we have built with the marketplace of X-Sight and the dynamic change of CXone. Both of them are allowing us to evaluate many of the different players out there to see who’s doing well and who’s integrating well into our platform. And from time to time, we might decide that it’s better to further integrate with them by buying them versus just partnership. And a great example of that is the acquisition that we have done three months ago, it’s more four months ago of Brand Embassy. We had many partners with digital engagement capabilities. We saw Brand Embassy, and we saw that they have something very unique, very mature. And the one that can give us a major differentiator. Hence, we decided to go and acquire them. And here we are a few months later, already with two releases of CXone that further embedded Brand Embassy into the platform. And today, our customers who are looking to further integrate the digital channels with voice and managing them in a unified inbox, that created a major differentiation for us in CXone. And I believe, more to come with regards to those digital capabilities from Brand Embassy.

Very helpful. And then Beth, maybe just a follow-up for you. I know partnerships are something that the company is increasingly talk about in terms of go-to-market partnerships. Are there any material differences in the unit economics or the lifetime value of a customer that’s acquired with using a partner versus direct-to-customer acquisition?

Thanks for the question, Samad. As you mentioned and as Barak highlighted, partnerships are very important for us overall. But when you look at the unit economics, no, there’s really no big difference between the go-to-market strategy there.

Okay, great. Thanks for taking the questions.

Our next question is coming from the line of Walter Pritchard from Citi. Please proceed. Your line is open.

Hi. First question for Beth. Just wondering, if you look at the guidance, you have the annual guidance out there, I think there’s about a $20 million range. If I look back over the last couple of years, that’s actually a wider range than you’ve left open for the fourth quarter in both revenue and EPS. And your business is more recurring. So you have, I think 74% of the business is now cloud maintenance. What – is there some – and you’re reporting a week later, too, so you have a little bit more visibility into the quarter versus last year. Is there anything that you’re kind of embedding in the guide with more uncertainty? Or just trying to get to the bottom of why that range would be wider, giving more – given more recurring revenue.

Sure. Thanks for the question, Walter. No, there’s nothing embedded there. We remain highly confident about the full year guidance that we’ve provided. We’re already through half of the fourth quarter, and we’re confident. If you look on the year throughout 2019, we’ve actually raised guidance on EPS throughout the year. And Tom – in terms of the top line, we just increased revenue last quarter. So again, we’re highly confident on the full year outlook.

Great. Thank you very much.

The next question is coming from the line of Sanjit Singh from Morgan Stanley. Please proceed. You’re live in the call now.

Thank you for taking the questions and congrats on the strong cloud results again this quarter. To that end, Barak, I was wondering if you can give us a sense of the uptake of cloud-based WFO and cloud-based analytics, versus what you’ve been seeing maybe a year ago any sort of trends on the mix of cloud on the WFO and the analytics side?

Yes, sure. So as I said before, we – the main change that we see with the attachment rates, putting together omni-channel routing, WFO, analytics and few other solutions or customers decide to purchase them together. In many cases, we replace the incumbents in this type of situation. We don’t see any dramatic change on the WFO analytics as a stand-alone. Sometimes customers decide to go to the cloud, sometimes not. And if they decide to go to the cloud, we are actually quite happy because in terms of the annual run rate from such a customer, it is significantly higher than the on-premise paradigm.

Thank you. That makes a ton of sense. And then my follow-up question is around RPA. You mentioned in your script, that you landed a really nice RPA versus some of the, I would say, maybe more well-known competitors in the RPA space. How are you thinking about the RPA opportunity going forward? Do you see RPA as becoming a more material driver of top line growth as that product or category starts to mature?

So we see the RPA market in two ways. One is the fact that it’s a market by itself, that is well covered and getting traction, and we are a player in this market. A well-recognized player in this market. And we see a lot of use cases where we take the RPA technology and embedded into both our platform, CXone and X-Sight, where there are a lot of opportunities both within the contact center and in AML operations for banks to automate them and make them more autonomous. With respect to the market itself, I think it’s getting to the point that is a healthy point, that is – which will soon get to the, I call it, over the highpoint. What we hear from customers that they’ve tried it. They try different technologies. They try the concept of the unattended automation, which is basically taking robots with a decent use case of automating very specific, very small micro tasks. But now they understand that the real value is actually with what we believe in, which is the attended automation, which is basically what you need to do in order to embed robotics capabilities in a workforce environment where you put the man and the machine together in a perfect dual play. And that’s where we play. It’s much more sophisticated. It requires much more AI, and it requires a lot of domain expertise that in the market we play in, we believe we have been. So for us, the opportunity, as I said, is in both domains, both within our classic market where we can offer it as part of our suite and get much more for the suite and become much more strategic. And second is other markets that are very adjacent to our market, very similar buyers or close buyers to where we play and where we sell it as well. Operator?

Your next question is coming from the line of Pat Walravens from JMP Securities. Please proceed. Your line is open now.

Hi, this is Mark for Pat. Thank you so much for taking my question. I was wondering, as customers transition to the cloud, do you also see them changing their communication service provider from legacy solutions to platform like [indiscernible] and bandwidth?

Not sure that this is something that I’m – we are familiar with. When we sell our CXone, it’s a full Contact Center as a Service platform. In some cases, actually, we will be the one selling some of the – reselling some of those communications services. Usually, it’s much lower – at the lower end of the market. To the higher end of the market, the customer will decide to procure those outside of our offering. With respect to, I think one of the players that you have mentioned, they play more in the selling the middle ware and some components. We don’t tend to see them in the different deals that we compete on.

Thank you so much.

Our next question is coming from the line of Tavy Brosner from Barclays. Please proceed. Your line is open now.

Thank you. Just following up on the competitive environment. We’ve heard other players, seeing very good traction mostly in the cloud. And I was wondering if you’re seeing increased pressure. When you go to market, if you get pushed back, if you have to kind of give up on price to win contract or there’s nothing really changed compared to, let’s say, a year ago?

Thank you. No, we don’t see any dramatic change in the competitive landscape. I think that the real change that we see is the fact that the higher end of the market is increasing its pace of adoption. And the other thing, as I’ve mentioned, is that customers are looking to buy a platform that is more complete. That have the capabilities of omni-channel routing, digital, WFO and analytics. Hence, the competitive landscape somewhat changing the fact that some players do not have it and they cannot really play in this particular offering. In terms of the pricing pressure, it’s not different from where it was a year ago. I think the customers see great value. Many of the conversations are not just about replacing one solution with another, but other was how we transform customer experience for customers, very strategic discussions. Hence, it’s less discussion just about price, much more about value.

Thank you. Much appreciate it.

Thank you.

We do not have any further questions. So I would like to hand back over to Barak now.

Thank you very much all for joining us, and we look forward to speak to you again next quarter. Thank you.

Thank you, everyone. That concludes the conference call for today. You may now disconnect. Thank you very much for joining and have a great rest of your day.