Market Overview

NICE Reports 28% Growth in Cloud Revenue and 10% Growth in Total Revenue for the Second Quarter 2018

Share:

Strong Double-Digit Growth in Operating Income and Earnings Per
Share

Annual Recurring Cloud Revenue is Expected to Exceed $500 Million
by the End of 2018

NICE (NASDAQ:NICE) today announced results for the second
quarter ended June 30, 2018.

Second Quarter 2018 Financial Highlights

GAAP     Non-GAAP
Revenue of $342 million, growth of 10% year-over-year     Revenue of $345 million, growth of 10% year-over-year
Cloud revenue of $109 million, growth of 28% year-over-year     Cloud revenue of $110 million, growth of 28% year-over-year
Gross margin of 65.3% compared to 63.5% last year     Gross margin of 70.6% compared to 70.5% last year

Operating income of $46 million compared to $26 million last

year, 80% growth year-over-year

   

Operating income of $85 million compared to $72 million last

year, 19% growth year-over-year

Operating margin of 13.6% compared to 8.3% last year     Operating margin of 24.7% compared to 22.8% last year

Diluted EPS of $0.54 versus $0.33 last year, 64% growth

year-over-year

   

Diluted EPS of $1.06 versus $0.90 last year, 18% growth

year-over-year

The GAAP column of the table contains the financial highlights of the
second quarter 2018 under ASC 606 with the comparison period under ASC
605.

The non-GAAP column of the table contains the financial highlights of
the second quarter 2018 under ASC 605 with the comparison period under
ASC 605.

"The continued strong execution around our growth pillars of cloud,
analytics and artificial intelligence led to another quarter of double
digit increases in total revenue and earnings per share. For each of
these growth pillars, we believe that we are still at the early stage of
our journey with a long runway for growth ahead of us," said Barak
Eilam, CEO, NICE.

Mr. Eilam continued, "A major part of this journey is the cloud, which
grew 28% this quarter and is being driven by the continued success of
our CXone platform, the only true, native, open cloud platform in the
industry encompassing the broadest portfolio of customer experience
solutions. We are witnessing a growing movement of large enterprises
shifting to the cloud, and we are capturing an increasing number of
these opportunities with CXone.

Analytics was also a healthy contributor to the strong results in the
second quarter. Analytics solutions infused with artificial
intelligence, like robotic process automation and ActimizeWatch, are
helping to fuel the continued success of our analytics portfolio."

GAAP Financial Highlights for the Second Quarter Ended June 30:

The GAAP numbers presented below for the second quarter 2018 are
under ASC 606 and the comparison period GAAP numbers for the second
quarter 2017 are under ASC 605

Revenues: Second quarter 2018 total revenues increased 9.8% to
$342.0 million compared to $311.5 million for the second quarter of 2017.

Gross Profit: Second quarter 2018 gross profit and gross margin
increased to $223.4 million and 65.3%, respectively, compared to $197.9
million and 63.5%, respectively, for the second quarter of 2017.

Operating Income: Second quarter 2018 operating income and
operating margin increased to $46.4 million and 13.6%, respectively,
compared to $25.8 million and 8.3%, respectively, for the second quarter
of 2017.

Net Income: Second quarter 2018 net income and net income margin
increased to $34.2 million and 10.0%, respectively, compared to $20.4
million and 6.6%, respectively, for the second quarter of 2017.

Fully Diluted Earnings Per Share: Fully diluted earnings per
share for the second quarter of 2018 increased to $0.54 compared to
$0.33 in the second quarter of 2017.

Operating Cash Flow and Cash Balance: Second quarter 2018
operating cash flow was $63.8 million. In the second quarter, $6.4
million was used for share repurchases. As of June 30, 2018, total cash
and cash equivalents, short term investments and marketable securities
were $688.5 million, and total debt was $451.7 million.

Non-GAAP Financial Highlights for the Second Quarter Ended June 30:

The non-GAAP numbers presented below for the second quarter 2018 and
for the comparison period non-GAAP numbers for the second quarter 2017
are both under ASC 605.

Revenues: Second quarter 2018 non-GAAP total revenues increased
to $345.4 million, up 9.5% from $315.3 million for the second quarter of
2017.

Gross Profit: Second quarter 2018 non-GAAP gross profit and
non-GAAP gross margin increased to $243.8 million and 70.6%,
respectively, from $222.3 million and 70.5%, respectively, for the
second quarter of 2017.

Operating Income: Second quarter 2018 non-GAAP operating income
and non-GAAP operating margin increased to $85.4 million and 24.7%,
respectively, from $72.0 million and 22.8%, respectively, for the second
quarter of 2017.

Net Income: Second quarter 2018 non-GAAP net income and non-GAAP
net income margin increased to $66.7 million and 19.3%, respectively,
from $56.0 million and 17.8%, respectively, for the second quarter of
2017.

Fully Diluted Earnings Per Share: Second quarter 2018 non-GAAP
fully diluted earnings per share increased 17.8% to $1.06, compared to
$0.90 for the second quarter of 2017.

Third Quarter and Full Year 2018 Guidance:

Guidance for the third quarter and the full-year 2018 is provided
using the accounting standard ASC 605 in order to provide better
transparency and comparability to 2017 financial data, which was
reported under ASC 605.

The following guidance does not include the financial data of
Mattersight, as the acquisition has not yet closed.

Third Quarter 2018: Third quarter 2018 non-GAAP total revenues
are expected to be in a range of $347 million to $357 million. Third
quarter 2018 non-GAAP fully diluted earnings per share are expected to
be in a range of $1.04 to $1.10.

Full Year 2018: The Company reaffirmed full year 2018 non-GAAP
total revenues to be in an expected range of $1,434 million to $1,458
million. The Company increased full year 2018 non-GAAP fully diluted
earnings per share to an expected range of $4.46 to $4.66.

Adoption of the New Revenue Recognition Standard - ASC 606

NICE adopted the new revenue recognition accounting standard,
Accounting Standards Codification ("ASC") 606, effective January 1,
2018, on a modified retrospective basis. Financial results for reporting
periods during 2018 are presented in compliance with the ASC 606.
Historical financial results for reporting periods prior to 2018 are
presented in conformity with amounts previously disclosed under the
prior revenue recognition standard, ASC 605. This press release includes
additional information to reconcile the impacts of the adoption of the
new revenue recognition standard on the Company's financial results for
the quarter ended June 30, 2018.

Quarterly Results Conference Call

NICE management will host its earnings conference call today, August 9th,
2018 at 8:30 AM ET, 13:30 GMT, 15:30 Israel, to discuss the results and
the company's outlook. To participate in the call, please dial in to the
following numbers: United States 1-866-804-8688 or +1-718-354-1175,
International +44(0)1296-311-600, United Kingdom 0-800-678-1161, Israel
1-809-344-364. The Passcode is 783 901 37. Additional access numbers can
be found at http://www.btconferencing.com/globalaccess/?bid=54_attended.
The call will be webcast live on the Company's website at http://www.nice.com/news-and-events/ir-events.
An online replay will also be available approximately two hours
following the call. A telephone replay of the call will be available for
7 days after the live broadcast, and may be accessed by dialing: United
States 1-877-482-6144, International +44(0)20-7136-9233, United Kingdom
0-800-032-9687. The Passcode for the replay is 287 261 71.

Non-GAAP financial measures consist of GAAP financial measures adjusted
to exclude: amortization of acquired intangible assets, share-based
compensation, certain business combination accounting entries,
amortization of discount on long term debt, ASC 606 to ASC 605
adjustments and tax adjustment re non-GAAP adjustments. The purpose of
such adjustments is to give an indication of our performance exclusive
of non-cash charges and other items that are considered by management to
be outside of our core operating results. Our non-GAAP financial
measures are not meant to be considered in isolation or as a substitute
for comparable GAAP measures, and should be read only in conjunction
with our consolidated financial statements prepared in accordance with
GAAP. Our management regularly uses our supplemental non-GAAP financial
measures internally to understand, manage and evaluate our business and
make operating decisions. These non-GAAP measures are among the primary
factors management uses in planning for and forecasting future periods.
Business combination accounting rules requires us to recognize a legal
performance obligation related to a revenue arrangement of an acquired
entity. The amount assigned to that liability should be based on its
fair value at the date of acquisition. The non-GAAP adjustment is
intended to reflect the full amount of such revenue. We believe this
adjustment is useful to investors as a measure of the ongoing
performance of our business. We believe these non-GAAP financial
measures provide consistent and comparable measures to help investors
understand our current and future operating cash flow performance. These
non-GAAP financial measures may differ materially from the non-GAAP
financial measures used by other companies. Reconciliation between
results on a GAAP and non-GAAP basis is provided in a table immediately
following the Consolidated Statements of Income.

About NICE
NICE (NASDAQ:NICE) is the worldwide leading
provider of both cloud and on-premises enterprise software solutions
that empower organizations to make smarter decisions based on advanced
analytics of structured and unstructured data. NICE helps organizations
of all sizes deliver better customer service, ensure compliance, combat
fraud and safeguard citizens. Over 25,000 organizations in more than 150
countries, including over 85 of the Fortune 100 companies, are using
NICE solutions. www.nice.com.

Trademark Note: NICE and the NICE logo are trademarks or
registered trademarks of NICE. All other marks are trademarks of their
respective owners. For a full list of NICE' marks, please see: http://www.nice.com/nice-trademarks.

Forward-Looking Statements
This press release contains
forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. In some cases, forward-looking
statements may be identified by words such as "believe," "expect,"
"seek," "may," "will," "intend," "should," "project," "anticipate,"
"plan," and similar expressions. Forward-looking statements are based on
the current beliefs, expectations and assumptions of the Company's
management regarding the future of the Company's business, future plans
and strategies, projections, anticipated events and trends, the economy
and other future conditions. Examples of forward-looking statements
include guidance regarding the Company's revenue and earnings and the
growth of our cloud, analytics and artificial intelligence business.

Forward looking statements are inherently subject to significant
economic, competitive and other uncertainties and contingencies, many of
which are beyond the control of management. The Company cautions that
these statements are not guarantees of future performance, and investors
should not place undue reliance on them. There are or will be important
known and unknown factors and uncertainties that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements. These factors, include, but are not limited
to, risks associated with competition, success and growth of the
Company's cloud Software-as-a-Service business, cyber security attacks
or other security breaches against the Company, privacy concerns and
legislation impacting the Company's business, the Company's dependency
on third-party cloud computing platform providers, hosting facilities
and service partners, changes in general economic and business
conditions, rapidly changing technology, changes in currency exchange
rates and interest rates, difficulties in making additional acquisitions
or effectively integrating acquired operations, products, technologies
and personnel (including, with respect to the Company's proposed
acquisition of Mattersight Corporation), successful execution of the
Company's growth strategy, the effects of tax reforms and of newly
enacted or modified laws, regulation or standards on the Company and its
products, and other factors and uncertainties discussed in our filings
with the U.S. Securities and Exchange Commission (the "SEC"). You are
encouraged to carefully review the section entitled "Risk Factors" in
our latest Annual Report on Form 20-F and our other filings with the SEC
for additional information regarding these and other factors and
uncertainties that could affect our future performance. The
forward-looking statements contained in this presentation speak only as
of the date hereof, and the Company undertakes no obligation to update
or revise them, whether as a result of new information, future
developments or otherwise, except as required by law.

###

       
 

NICE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except per share amounts)
 
 
Quarter ended Year to date
June 30, June 30,
2018 2017 2018 2017
Unaudited Unaudited Unaudited   Unaudited
 
Revenue:
Product $ 49,397 $ 68,736 $ 110,767 $ 137,193
Services 184,128 158,236 354,345 316,652
Cloud   108,517   84,568   212,372   163,317
Total revenue   342,042   311,540   677,484   617,162
 
Cost of revenue:
Product 7,395 13,513 15,532 26,724
Services 57,153 54,558 115,538 113,274
Cloud   54,138   45,533   106,131   89,340
Total cost of revenue   118,686   113,604   237,201   229,338
 
Gross profit 223,356 197,936 440,283 387,824
 
Operating expenses:
Research and development, net 43,455 42,886 89,322 85,840
Selling and marketing 89,820 87,694 179,746 166,895
General and administrative 33,116 31,334 69,488 60,561
Amortization of acquired intangible assets   10,586   10,188   21,171   20,753
Total operating expenses   176,977   172,102   359,727   334,049
 
Operating income 46,379 25,834 80,556 53,775
 
Finance and other expense, net   2,937   3,388   6,905   12,378
 
Income before tax 43,442 22,446 73,651 41,397
Taxes on income   9,207   2,005   15,890   3,667
Net income $ 34,235 $ 20,441 $ 57,761 $ 37,730
 
Basic earnings per share $ 0.56 $ 0.34 $ 0.94 $ 0.63
 
Diluted earnings per share $ 0.54 $ 0.33 $ 0.92 $ 0.61
 
Weighted average number of shares
outstanding used to compute:
 
Basic earnings per share 61,212 60,277 61,133 60,203
Diluted earnings per share 63,031 61,962 62,904 61,857
       
 
NICE LTD. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP RESULTS AND ASC 606 TO
NON-GAAP ASC 605
U.S. dollars in thousands (except per share amounts)
 
 
Quarter ended Year to date
June 30, June 30,
  2018   2017   2018   2017
GAAP revenues $ 342,042 $ 311,540 $ 677,484 $ 617,162
Valuation adjustment on acquired deferred product revenue 70 46 85 265
Valuation adjustment on acquired deferred services revenue 200 2,094 506 3,091
Valuation adjustment on acquired deferred cloud revenue 1,416 1,648 3,302 2,859
ASC 606 to ASC 605 revenue adjustment   1,681   -   4,958   -
Non-GAAP revenues $ 345,409 $ 315,328 $ 686,335 $ 623,377
 
 
GAAP cost of revenue $ 118,686 $ 113,604 $ 237,201 $ 229,338
Amortization of acquired intangible assets on cost of product (1,336) (6,056) (3,925) (12,414)
Amortization of acquired intangible assets on cost of services (987) (1,159) (1,810) (4,367)
Amortization of acquired intangible assets on cost of cloud (12,705) (10,975) (25,460) (21,950)
Valuation adjustment on acquired deferred cost of cloud 324 331 660 762
Cost of product revenue adjustment (1) - (161) (188) (336)
Cost of services revenue adjustment (1) (1,896) (1,847) (3,649) (3,722)
Cost of cloud revenue adjustment (1) (645) (714) (1,414) (1,483)
ASC 606 to ASC 605 cost of revenue adjustment   203   -   327   -
Non-GAAP cost of revenue $ 101,644 $ 93,023 $ 201,742 $ 185,828
 
 
GAAP gross profit $ 223,356 $ 197,936 $ 440,283 $ 387,824
Gross profit adjustments   20,409   24,369   44,310   49,725
Non-GAAP gross profit $ 243,765 $ 222,305 $ 484,593 $ 437,549
 
 
GAAP operating expenses $ 176,977 $ 172,102 $ 359,727 $ 334,049
Research and development (1) (1,795) (2,236) (4,139) (4,447)
Sales and marketing (1) (6,851) (5,863) (13,154) (11,509)
General and administrative (1) (4,168) (3,501) (8,950) (5,387)
Amortization of acquired intangible assets (10,586) (10,188) (21,171) (20,753)
ASC 606 to ASC 605 operating expenses adjustment   4,829   -   3,084   -
Non-GAAP operating expenses $ 158,406 $ 150,314 $ 315,397 $ 291,953
 
 
GAAP finance & other expense, net $ 2,937 $ 3,388 $ 6,905 $ 12,378
Amortization of discount on long-term debt   (2,094)   (2,094)   (4,257)   (9,259)
Non-GAAP finance & other expense, net $ 843 $ 1,294 $ 2,648 $ 3,119
 
 
GAAP taxes on income $ 9,207 $ 2,005 $ 15,890 $ 3,667
Tax adjustments re non-GAAP adjustments 9,316 12,696 19,091 27,687
Tax adjustment re ASC 606 to ASC 605   (700)   -   329   -
Non-GAAP taxes on income $ 17,823 $ 14,701 $ 35,310 $ 31,354
 
 
GAAP net income $ 34,235 $ 20,441 $ 57,761 $ 37,730
Valuation adjustment on acquired deferred revenue 1,686 3,788 3,893 6,215
Valuation adjustment on acquired deferred cost of cloud revenue (324) (331) (660) (762)
Amortization of acquired intangible assets 25,614 28,378 52,366 59,484
Share-based compensation (1) 15,355 14,322 31,494 26,884
Amortization of discount on long term debt 2,094 2,094 4,257 9,259
Tax adjustments re non-GAAP adjustments (9,316) (12,696) (19,091) (27,687)
ASC 606 to ASC 605 adjustments   (2,651)   -   1,218   -
Non-GAAP net income $ 66,693 $ 55,996 $ 131,238 $ 111,123
 
 
GAAP diluted earnings per share $ 0.54 $ 0.33 $ 0.92 $ 0.61
 
Non-GAAP diluted earnings per share $ 1.06 $ 0.90 $ 2.09 $ 1.80
 
Shares used in computing GAAP diluted earnings per share 63,031 61,962 62,904 61,857
 
Shares used in computing non-GAAP diluted earnings per share 63,031 61,962 62,904 61,857
         
 
NICE LTD. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP RESULTS AND ASC 606 TO
NON-GAAP ASC 605 (continued)
U.S. dollars in thousands
 
 
 
 
(1)

Share-based Compensation

Quarter ended Year to date
June 30, June 30,
  2018   2017   2018   2017
 
Cost of product revenue $ - $ (161) $ (188) $ (336)
Cost of services revenue (1,896) (1,847) (3,649) (3,722)
Cost of cloud revenue (645) (714) (1,414) (1,483)
Research and development (1,795) (2,236) (4,139) (4,447)
Sales and marketing (6,851) (5,863) (13,154) (11,509)
General and administrative   (4,168)   (3,501)   (8,950)   (5,387)
$ (15,355) $ (14,322) $ (31,494) $ (26,884)
   
 
NICE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
 
June 30, December 31,
  2018   2017
Unaudited Audited
 
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents $ 364,816 $ 328,302
Short-term investments 145,793 63,951
Trade receivables 209,667 230,729
Prepaid expenses and other current assets   89,984   70,074
 
Total current assets   810,260   693,056
 
LONG-TERM ASSETS:
Long-term investments 177,939 132,820
Property and equipment, net 124,516 118,275
Deferred tax assets 12,955 11,850
Other intangible assets, net 498,999 551,347
Goodwill 1,315,892 1,318,242
Other long-term assets   64,289   19,496
 
Total long-term assets   2,194,590   2,152,030
 
TOTAL ASSETS $ 3,004,850 $ 2,845,086
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
Trade payables $ 31,729 $ 29,438
Deferred revenues and advances from customers 212,848 184,564
Accrued expenses and other liabilities   302,011   309,350
 
Total current liabilities   546,588   523,352
 
LONG-TERM LIABILITIES:
Deferred revenues and advances from customers 38,168 37,550
Deferred tax liabilities 58,302 57,796
Long-term debt 451,736 447,642
Other long-term liabilities   26,802   29,185
 
Total long-term liabilities   575,008   572,173
 
SHAREHOLDERS' EQUITY   1,883,254   1,749,561
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,004,850 $ 2,845,086
 
 
NICE LTD. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
U.S. dollars in thousands
    Quarter ended Year to date
June 30, June 30,
2018 2017 2018 2017
Unaudited Unaudited Unaudited Unaudited
 

Operating Activities

 
Net income $ 34,235 $ 20,441 $ 57,761 $ 37,730
Less loss (income) for the period from discontinued operation
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 36,920 37,013 74,857 76,156
Stock based compensation 15,355 14,322 31,494 26,884
Amortization of premium and discount and accrued interest on
marketable securities
(9) (39) (307) 151
Deferred taxes, net (10,245) (9,871) (19,912) (21,542)
Changes in operating assets and liabilities:
Trade Receivables 18,842 5,581 2,688 61,880
Prepaid expenses and other current assets (15,809) (1,200) (28,228) (7,987)
Trade payables 7,833 (6,857) 2,332 (6,969)
Accrued expenses and other current liabilities (6,044) (4,302) (10,464) (35,601)
Deferred revenue (19,011) 12,852 87,106 63,516
Long term liabilities (404) (859) (787) (1,606)
Amortization of discount on long term debt 2,094 2,094 4,257 9,259
Other   56

 

  (514)   (127)   (465)
Net cash provided by operating activities   63,813   68,661   200,670   201,406

 

Investing Activities

 
Purchase of property and equipment (8,248) (12,332) (13,564) (22,746)
Purchase of Investments (52,278) (17,227) (187,923) (42,226)
Proceeds from Investments 40,692 4,000 59,709 36,016
Capitalization of software development costs   (7,672)   (7,156)   (15,476)   (14,094)
Net cash used in investing activities   (27,506)   (32,715)   (157,254)   (43,050)
 

Financing Activities

 
Proceeds from issuance of shares upon exercise of share options 4,199 8,642 7,443 12,375
Purchase of treasury shares (6,361) (7,618) (10,613) (16,047)
Dividends paid - - - (9,637)
Repayment of long term debt - - - (260,000)
Proceeds from issuance of debt, net of costs   -   -   -   260,842
Net cash provided by (used in) financing activities   (2,162)   1,024   (3,170)   (12,467)
 
Effect of exchange rates on cash and cash equivalents   (3,790)   901   (3,732)   1,707
 
Net change in cash and cash equivalents 30,355 37,871

 

36,514 147,596
Cash and cash equivalents, beginning of period   334,461   266,751   328,302   157,026
 
Cash and cash equivalents, end of period $ 364,816 $ 304,622 $ 364,816 $ 304,622
 
 
*Certain comparative figures have been reclassified to conform to
the current year presentation.

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