NICE Reports Strong Growth in Revenue and Profitability for the Third Quarter 2018 and Increases Full-Year 2018 Revenue and EPS Guidance

NICE (NASDAQ: NICE) today announced results for the third quarter and nine months ended September 30, 2018.

Third Quarter 2018 Financial Highlights

GAAP       Non-GAAP
Revenue of $356 million, growth of 10% year-over-year       Revenue of $356 million, growth of 9% year-over-year
Cloud revenue of $117 million, growth of 21% year-over-year       Cloud revenue of $120 million, growth of 20% year-over-year
Gross margin of 65.3% compared to 64.3% last year       Gross margin of 70.7% compared to 71.2% last year

Operating income of $47 million compared to $33 million last year, 41% growth year-over-year

     

Operating income of $91 million compared to $78 million last year, 16% growth year-over-year

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Operating margin of 13.1% compared to 10.3% last year       Operating margin of 25.5% compared to 24.0% last year

Diluted EPS of $0.62 versus $0.42 last year, 48% growth year-over-year

     

Diluted EPS of $1.12 versus $0.95 last year, 18% growth year-over-year

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

The results reported for the third quarter of 2018 reflect our continued focus on driving excellent execution around our strategic pillars of cloud, analytics and artificial intelligence that led to strong growth on both the top and bottom lines. As we look forward to ending the year on a high note, we now expect to exit 2018 with a cloud revenue run rate of $550 million up from our previous expectation of $500 million, while continuing to drive profitability, said Barak Eilam, CEO of NICE.

Mr. Eilam continued, CXone, our open cloud platform which has gained tremendous market presence among our customers and high regard from industry analysts in just a little over one year since it was introduced, has been our vehicle to deliver our strategic pillars to the customer engagement market. We are now proceeding on a similar course with X-Sight, which was announced just a few weeks ago. X-Sight is the industrys first financial crime and compliance platform-as-a-service that combines advanced analytics and AI, automated data management, and robotics all delivered through the cloud.

It is clearly evident that the platform strategy embodies the present and future for NICE. With X-Sight and CXone, we now have two significant, market leading, open, cloud platforms to help further penetrate our large and growing addressable market.

GAAP Financial Highlights for the Third Quarter Ended September 30:

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

Revenues: Third quarter 2018 total revenues increased 10.4% to $356.2 million compared to $322.8 million for the third quarter of 2017.

Gross Profit: Third quarter 2018 gross profit and gross margin increased to $232.7 million and 65.3%, respectively, compared to $207.4 million and 64.3%, respectively, for the third quarter of 2017.

Operating Income: Third quarter 2018 operating income and operating margin increased to $46.7 million and 13.1%, respectively, compared to $33.1 million and 10.3%, respectively, for the third quarter of 2017.

Net Income: Third quarter 2018 net income and net income margin increased to $39.3 million and 11.0%, respectively, compared to $26.2 million and 8.1%, respectively, for the third quarter of 2017.

Fully Diluted Earnings Per Share: Fully diluted earnings per share for the third quarter of 2018 increased to $0.62 compared to $0.42 in the third quarter of 2017.

Operating Cash Flow and Cash Balance: Third quarter 2018 operating cash flow was $87.0 million. As of September 30, 2018, total cash and cash equivalents, short term investments and marketable securities were $656.3 million, and total debt was $453.9 million.

Non-GAAP Financial Highlights for the Third Quarter Ended September 30:

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

Revenues: Third quarter 2018 non-GAAP total revenues increased to $356.4 million, up 9.1% from $326.8 million for the third quarter of 2017.

Gross Profit: Third quarter 2018 non-GAAP gross profit increased to $252.1 compared to $232.5 million for the third quarter of 2017. Non-GAAP gross margin was 70.7% compared to 71.2% for the third quarter of 2017.

Operating Income: Third quarter 2018 non-GAAP operating income and non-GAAP operating margin increased to $90.8 million and 25.5%, respectively, from $78.3 million and 24.0%, respectively, for the third quarter of 2017.

Net Income: Third quarter 2018 non-GAAP net income and non-GAAP net income margin increased to $71.6 million and 20.1%, respectively, from $58.9 million and 18.0%, respectively, for the third quarter of 2017.

Fully Diluted Earnings Per Share: Third quarter 2018 non-GAAP fully diluted earnings per share increased 17.9% to $1.12, compared to $0.95 for the third quarter of 2017.

Full Year 2018 Guidance:

Guidance for 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 Company increased full-year 2018 non-GAAP total revenues to be in an expected range of $1,450 million to $1,466 million and increased full-year 2018 non-GAAP fully diluted earnings per share to be in an expected range of $4.53 to $4.69.

The guidance includes the acquisition of Mattersight. The Company expects Mattersight to contribute an annual revenue run rate in a range of $32 million to $38 million.

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 September 30, 2018.

Quarterly Results Conference Call

NICE management will host its earnings conference call today, November 8th, 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 538 470 63. Additional access numbers can be found at http://www.btconferencing.com/globalaccess/?bid=54_attended. The call will be webcast live on the Companys 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 295 658 73.

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, re-organization expenses, 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 Companys management regarding the future of the Companys 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 Companys 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 Companys cloud Software-as-a-Service business, cyber security attacks or other security breaches against the Company, privacy concerns and legislation impacting the Companys business, the Companys 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 Companys acquisition of Mattersight Corporation), successful execution of the Companys 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
September 30, September 30,
2018 2017 2018 2017
Unaudited Unaudited Unaudited Unaudited
 
Revenue:
Product $ 60,097 $ 66,931 $ 170,864 $ 204,124
Services 179,113 159,441 533,458 476,093
Cloud   116,996   96,383   329,368   259,700
Total revenue   356,206   322,755   1,033,690   939,917
 
Cost of revenue:
Product 7,854 12,944 23,386 39,668
Services 55,046 52,618 170,584 165,892
Cloud   60,559   49,812   166,690   139,152
Total cost of revenue   123,459   115,374   360,660   344,712
 
Gross profit 232,747 207,381 673,030 595,205
 
Operating expenses:
Research and development, net 47,701 45,135 137,023 130,975
Selling and marketing 90,492 87,363 270,238 254,258
General and administrative 37,560 31,197 107,048 91,758
Amortization of acquired intangible assets   10,341   10,566   31,512   31,319
Total operating expenses   186,094   174,261   545,821   508,310
 
Operating income 46,653 33,120 127,209 86,895
 
Finance and other expense, net   2,195   4,335   9,100   16,713
 
Income before tax 44,458 28,785 118,109 70,182
Taxes on income   5,175   2,612   21,065   6,279
Net income $ 39,283 $ 26,173 $ 97,044 $ 63,903
 
Basic earnings per share $ 0.64 $ 0.43 $ 1.58 $ 1.06
 
Diluted earnings per share $ 0.62 $ 0.42 $ 1.54 $ 1.03
 
Weighted average number of shares
outstanding used to compute:
 
Basic earnings per share 61,448 60,502 61,239 60,304
Diluted earnings per share 63,660 62,220 63,157 61,979
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
September 30, September 30,
2018 2017 2018 2017
GAAP revenues $ 356,206 $ 322,755 $ 1,033,690 $ 939,917
Valuation adjustment on acquired deferred product revenue 12 37 97 302
Valuation adjustment on acquired deferred services revenue 82 824 588 3,915
Valuation adjustment on acquired deferred cloud revenue 2,329 3,135 5,631 5,994
ASC 606 to ASC 605 revenue adjustment   (2,183)     2,775  
Non-GAAP revenues $ 356,446 $ 326,751 $ 1,042,781 $ 950,128
 
 
GAAP cost of revenue $ 123,459 $ 115,374 $ 360,660 $ 344,712
Amortization of acquired intangible assets on cost of product (1,094) (6,072) (5,019) (18,486)
Amortization of acquired intangible assets on cost of services (1,523) (987) (3,333) (5,354)
Amortization of acquired intangible assets on cost of cloud (12,937) (11,756) (38,397) (33,706)
Valuation adjustment on acquired deferred cost of cloud 594 371 1,254 1,133
Cost of product revenue adjustment (1) (59) (158) (247) (494)
Cost of services revenue adjustment (1) (2,113) (1,903) (5,762) (5,625)
Cost of cloud revenue adjustment (1,3) (2,352) (649) (3,766) (2,132)
ASC 606 to ASC 605 cost of revenue adjustment   323     650  
Non-GAAP cost of revenue $ 104,298 $ 94,220 $ 306,040 $ 280,048
 
 
GAAP gross profit $ 232,747 $ 207,381 $ 673,030 $ 595,205
Gross profit adjustments   19,401   25,150   63,711   74,875
Non-GAAP gross profit $ 252,148 $ 232,531 $ 736,741 $ 670,080
 
 
GAAP operating expenses $ 186,094 $ 174,261 $ 545,821 $ 508,310
Research and development (1,3) (2,638) (2,204) (6,777) (6,651)
Sales and marketing (1,3) (9,004) (5,651) (22,158) (17,160)
General and administrative (1,2,3) (6,206) (1,640) (15,156) (7,027)
Amortization of acquired intangible assets (10,341) (10,566) (31,512) (31,319)
ASC 606 to ASC 605 operating expenses adjustment   3,459     6,543  
Non-GAAP operating expenses $ 161,364 $ 154,200 $ 476,761 $ 446,153
 
 
GAAP finance & other expense, net $ 2,195 $ 4,335 $ 9,100 $ 16,713
Amortization of discount on long-term debt   (2,234)   (2,139)   (6,491)   (11,398)
Non-GAAP finance & other expense (income), net $ (39) $ 2,196 $ 2,609 $ 5,315
 
 
GAAP taxes on income $ 5,175 $ 2,612 $ 21,065 $ 6,279
Tax adjustments re non-GAAP adjustments 15,322 14,611 34,413 42,298
Tax adjustment re ASC 606 to ASC 605   (1,264)     (935)  
Non-GAAP taxes on income $ 19,233 $ 17,223 $ 54,543 $ 48,577
 
 
GAAP net income $ 39,283 $ 26,173 $ 97,044 $ 63,903
Valuation adjustment on acquired deferred revenue 2,423 3,996 6,316 10,211
Valuation adjustment on acquired deferred cost of cloud revenue (594) (371) (1,254) (1,133)
Amortization of acquired intangible assets 25,895 29,381 78,261 88,865
Share-based compensation (1) 17,258 14,016 48,752 40,900
Re-organization expenses (2) (3,067) (3,067)
Acquisition related expenses (3) 5,114 1,256 5,114 1,256
Amortization of discount on long term debt 2,234 2,139 6,491 11,398
Tax adjustments re non-GAAP adjustments (15,322) (14,611) (34,413) (42,298)
ASC 606 to ASC 605 adjustments   (4,701)     (3,483)  
Non-GAAP net income $ 71,590 $ 58,912 $ 202,828 $ 170,035
 
GAAP diluted earnings per share $ 0.62 $ 0.42 $ 1.54 $ 1.03
 
Non-GAAP diluted earnings per share $ 1.12 $ 0.95 $ 3.21 $ 2.74
 
Shares used in computing GAAP diluted earnings per share 63,660 62,220 63,157 61,979
 
Shares used in computing non-GAAP diluted earnings per share 63,660 62,220 63,157 61,979
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
September 30, September 30,
  2018   2017   2018   2017
 
Cost of product revenue $ (59) $ (158) $ (247) $ (494)
Cost of services revenue (2,113) (1,903) (5,762) (5,625)
Cost of cloud revenue (718) (649) (2,132) (2,132)
Research and development (1,567) (2,204) (5,706) (6,651)
Sales and marketing (8,930) (5,576) (22,084) (17,085)
General and administrative   (3,871)   (3,526)   (12,821)   (8,913)
$ (17,258) $ (14,016) $ (48,752) $ (40,900)
 
 
(2)

Re-organization expenses

Quarter ended Year to date
September 30, September 30,
  2018   2017   2018   2017
 
General and administrative   $ 3,067   $ 3,067
$ $ 3,067 $ $ 3,067
 
 
(3)

Acquisition related expenses

 
Quarter ended Year to date
September 30, September 30,
  2018   2017   2018   2017
 
Cost of cloud revenue $ (1,634) $ $ (1,634) $
Research and development (1,071) (1,071)
Sales and marketing (74) (75) (74) (75)
General and administrative   (2,335)   (1,181)   (2,335)   (1,181)
$ (5,114) $ (1,256) $ (5,114) $ (1,256)
     
NICE LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
 
September 30, December 31,
  2018   2017
Unaudited Audited
 
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents $ 276,170 $ 328,302
Short-term investments 172,942 63,951
Trade receivables 219,818 230,729
Prepaid expenses and other current assets   96,745   70,074
 
Total current assets   765,675   693,056
 
LONG-TERM ASSETS:
Long-term investments 207,234 132,820
Property and equipment, net 132,310 118,275
Deferred tax assets 15,298 11,850
Other intangible assets, net 536,974 551,347
Goodwill 1,368,756 1,318,242
Other long-term assets   68,461   19,496
 
Total long-term assets   2,329,033   2,152,030
 
TOTAL ASSETS $ 3,094,708 $ 2,845,086
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
CURRENT LIABILITIES:
Trade payables $ 23,698 $ 29,438
Deferred revenues and advances from customers 198,210 184,564
Accrued expenses and other liabilities   347,852   309,350
 
Total current liabilities   569,760   523,352
 
LONG-TERM LIABILITIES:
Deferred revenues and advances from customers 39,179 37,550
Deferred tax liabilities 48,489 57,796
Long-term debt 453,887 447,642
Other long-term liabilities   32,486   29,185
 
Total long-term liabilities   574,041   572,173
 
SHAREHOLDERS’ EQUITY   1,950,907   1,749,561
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 3,094,708 $ 2,845,086
         
NICE LTD. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
U.S. dollars in thousands
Quarter ended Year to date
September 30, September 30,
2018 2017 2018 2017
Unaudited   Unaudited   Unaudited   Unaudited
 

Operating Activities

 
Net income 39,283 26,173 97,044 63,903
Depreciation and amortization 39,426 39,153 114,283 115,309
Stock based compensation 17,258 14,016 48,752 40,900
Amortization of premium and discount and accrued interest on marketable securities 137 273 (170) 424
Deferred taxes, net (13,142) (12,646) (33,054) (34,188)
Changes in operating assets and liabilities:
Trade Receivables (5,771) 10,930 (3,083) 72,810
Prepaid expenses and other current assets (4,233) (32,264) (32,461) (40,251)
Trade payables (8,940) 7,605 (6,608) 636
Accrued expenses and other current liabilities 34,643 52,829 24,179 17,228
Deferred revenue (15,279) 1,660 71,827 65,176
Long term liabilities 573 (3,583) (214) (5,189)
Amortization of discount on long term debt 2,234 2,139 6,491 11,398
Other 847 (461) 720 (926)
Net cash provided by operating activities 87,036 105,824 287,706 307,230

 

Investing Activities

 
Purchase of property and equipment (7,957) (7,899) (21,521) (31,422)
Purchase of Investments (96,544) (53,791) (284,467) (96,017)
Proceeds from Investments 40,093 15,610 99,802 51,626
Capitalization of software development costs (7,450) (7,730) (22,926) (21,046)
Payments for business acquisitions, net of cash acquired (105,046) (37,880) (105,046) (37,880)
Net cash used in investing activities (176,904) (91,690) (334,158) (134,739)
 

Financing Activities

 
Proceeds from issuance of shares upon exercise of share options 10,533 4,412 17,976 16,787
Purchase of treasury shares (4,267) (10,613) (20,314)
Dividends paid (9,637)
Repayment of long term debt (260,000)
Proceeds from issuance of debt, net of costs 260,842
Repayment of short-term bank loan (8,436) (8,436)
Net cash provided by (used in) financing activities 2,097 145 (1,073) (12,322)
 
Effect of exchange rates on cash and cash equivalents (875) 2,028 (4,607) 3,734
 
Net change in cash and cash equivalents (88,646) 16,307

 

(52,132) 163,903
Cash and cash equivalents, beginning of period 364,816 304,622 328,302 157,026
 
Cash and cash equivalents, end of period 276,170 320,929 276,170 320,929

NICE

Investors
Marty Cohen, +1 551 256 5354, ET
[email protected]

Yisca Erez, +972 9 775-3798, CET
[email protected]

Media Contact
Chris Irwin-Dudek, +1 (551) 256-5140
[email protected]

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