NICE Ltd. Price & Performance (NICE)

Before we start, I would like to point out that some of the statements made on this call will forward looking statements. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Reform Act of 1995 NICE, please be advised that the company's actual results could differ materially from these forward looking statements. Regarding the factors that could cause actual results or performance to the company to differ materially is contained in the section entitled Risk Factors in Item three of the company's 2023 Annual Report on Form 20 F As filed with the Securities and Exchange Commission on 03/27/2024. During today's call, will present a more detailed discussion of fourth quarter and full year 2024 results, and the company's guidance for the first quarter and full year 2025.

You can find our press release as well as PDFs of our financial results on NICE's Investor Relations website.

Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accounted generally accepted accounting principles, reflected mainly in accounting for share based compensation, amortization of acquired intangible assets, acquisition related and other expenses amortization of discount on debt and loss from extinguishment extinguishment of debt and the tax effect of the non GAAP adjustments. The differences between the non GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward looking statements that are subject to risks, uncertainties and assumptions. I will now turn the call over to Scott. Thank you, Mady, and welcome everyone.

I'm excited to be talking to you today for the first time as CEO of NICE NICE.

Before we dive into today's call, I want to take a moment to acknowledge for us strong leadership that brought NICE to where it is today. It is an honor to lead a company renowned for its relentless innovation customer centricity and operational excellence. I joined NICE for its undisputed leadership and for its immense potential for growth. With a strong financial foundation, industry leading solutions and 9,000 plus dedicated NICEs all around the world we are poised to drive NICE into the next era of growth. On today's call, I want to focus on two key themes. First, NICE is the undisputed AI leader in customer service. We continue to redefine what's possible with the most advanced and comprehensive AI platform in the industry. Purpose built for speed, agility and scale. I've spoken to a number of customers and partners already and their feedback is unanimous. Enterprises turn in NICE because they trust that our AI platform CX1 Empower delivers real measurable outcomes. We're improving customer experiences for hundreds of millions of people worldwide managing over 3,500,000,000 AI interactions annually while driving tangible value for our clients. Simply put, we are leading this market and we are doing so decisively.

Second, the opportunity ahead is extraordinary. A Jensy KI is reshaping industries at an unprecedented NICE. And with CS1M Power we are already ahead of this tectonic shift. Our AI powered agentic automation is setting the new standard combining cutting edge technology with our deep CX domain expertise. Especially in the large enterprise market, Our financial strength our relentless innovation, and international expansion uniquely positions us to capitalize on the opportunity ahead and accelerate into the future. Let me build upon my first point of undisputed leadership is exemplified by our outstanding fourth quarter and finish to the year. For the full year 2024, we exceeded the high end of our revenue guidance and came in at the high end of the range for EPS. For Q4, our cloud revenue grew 24% to $534,000,000 which is the highest cloud growth on the largest cloud revenue base in our industry. Moreover, quarter to quarter cloud growth from Q3 to Q4 accelerated to 6.8%. This excellent cloud revenue growth drove a healthy year over year increase in total revenue and reflects our strength at the high end of the market, as we reached a milestone of over 400 enterprise cloud customers with over $1,000,000 in ARR.

Our leadership also flows to the bottom line. Our exceptional profitability continues to set us apart from the rest of the industry. NICE's outstanding profitability metrics speak for themselves. Operating income increased by 22% to $227,000,000 driving further expansion in our operating margin 150 basis points to 31.5%. This in turn fueled an impressive 28% surge in EPS compared to the same quarter last year. Reaching $3.02 for Q4 NICE. We delivered stellar cash flow generating $250,000,000 in operating cash flow in Q4 bringing our total to $833,000,000 for 2024 a remarkable nearly 50% over the prior year. Further extending our strong track record of accelerating cash flow year after year. These exceptional results reinforce our position as the industry leader. [indiscernible] I'd like to elaborate further on our AI leadership. CXone Empower is revolutionizing the way AI powers customer service. It is the only platform in the market that delights the consumer experience with speed, and accuracy from a taint to fulfillment, It does this through seamless orchestration of our NICE, digital and AI interactions.

CX1M Power boosts productivity of both human and AI agents with a smart workforce augmentation. At the heart of CXone Empower is a GenTIC AI, acting with autonomy, by continually learning, making intelligent decisions, to enhance customer interactions in real time.

CXone Empower is a game changer in meeting customer needs encompassing the largest repository of CF label data knowledge and thousands of AI models in one platform.

CXone Empower is setting a new industry standard. We are undeniably winning in the era of Agentic AI. We go beyond the slide where we are delivering real results. In 2024, our advanced AI solutions were included in 97% of our large enterprise CX1 Empower deals over $1,000,000 ARR.

In one such seven digit ACV deal, one of the largest retailers in the world, were already relying on NICE to handle 75,000,000 interactions annually they chose CX1M Power to differentiate through advanced AI capabilities supporting their immediate and growing consumer needs. A very large university in a seven digit ACV deal is going all in on AI with NICE after a diligent competitive process.

They chose CS1M Power including autopilot and copilot to significantly improve their student experience and expect in 30% ROI.

In another seven digit ACV deal, a large managed care organization decided to modernize and simplify their multi vendor tech stack. And add advanced CXAI capabilities to enhance their customer service. After being presented with generic AI from their CRM incumbent, they quickly realized that the only path forward [indiscernible] We signed a seven digit ACV deal with one of the nation's leading universe medical centers. Driven by strong commitment to maximize ROI from the CX operations, and elevate the patient experience they chose CXone Empower to consolidate onto a single AI platform.

These are just a few examples of enterprises repeatedly choosing NICE because of CX1M Power's ability to scale at unmatched levels, deliver proven AI innovation eliminate complexity, of fragmented multi vendor solutions can provide seamless consumer experience across all channels.

Other examples including include seven digit ACV deals, with a large furniture retailer, a well known U. S. Regional bank, and a leading healthcare outsourcing. I opened today's call discussing our proven leash in AI the immense growth opportunity in front of us. As I look to the future, the opportunity is clear. And let me explain why. Firstly, our market is growing. According to Gartner, by twenty twenty thirty three percent of enterprise software applications [indiscernible] Up from less than 1% in 2024.

This bodes very well for NICE since one of the most impactful use cases for AgentaKI is in customer service, where it's revolutionizing interactions and efficiency We are at the forefront of this industry wide transformation. Uniquely positioned to drive and benefit from this shift, With our cutting edge platform and seamless integration, of both human and AI collaboration, we are setting the standard for the future of customer experience. Secondly, alongside the tremendous market opportunity, Sonae's unique strengths position us for unparalleled success. With our CX specialized AI, our industry leading platforms and unwavering financial strength We have all the assets needed to drive both organic and inorganic growth. Our proven profitability and rock solid balance sheet gives us the confidence to be bold move fast, disrupt the status quo and think bigger than ever before. Now is the time to seize the moment and lead the future of CX with innovation and ambition. [indiscernible] To capitalize on this market opportunity and leverage our strengths, we will unleash our market leadership by putting CXone Empower in front of every organization possible. To expand our market lead and set the benchmark for excellence.

We will lead the CX AI revolution.

Agentic AI is our super power. And we are embedding it in everything that we do. Maximizing our innovation edge, and reinforcing our position as the undisputed leader in AI driven solutions. We will scale with a powerful ecosystem by aggressively expanding our strategic partnerships, from technology partners to global systems integrators, turning collaboration into a force multiplier that accelerates growth, and amplifies our impact worldwide. Finally, speed and precision matters. As you can see, we have the industry leadership the AI assets and amazing market opportunity to capitalize on. We will move even faster with laser focused to win and invest growth 2025. The energy across Knight is undeniable and we are all dedicated to driving our vision forward. We are finalizing our updated growth plan and I'm looking forward to sharing more details with you After fifty days as CEO, I'm even more excited about our potential and the journey ahead. I will now turn the call over to Beth. Thank you, Scott.

I'm proud to report a strong finish to the year with full year 2024 revenue exceeding the high end of our guidance range and EPS coming in at the high end. Our industry leading cloud AI platforms and exceptional financial strength set us apart in the market. We delivered the ultimate trifecta profitable growth at scale, and ironclad balance sheet and best in class free cash flow generation. Let me now share the details of our results that demonstrated this impressive performance. In Q4, our total revenue accelerated sequentially to 16% growth year over year on the largest revenue base in our market and we generated a record $733,000,000 in free cash flow for 2024, easily exceeding our $700,000,000 target that we shared in June of last Here, Total revenue in Q4 was a record $722,000,000 increasing 16% year over year primarily driven by the strength of our cloud revenue and from strong product revenue performance the Financial Farms segment, our CXone Empower platform platform is being rapidly adopted by our customers and this success is reflected in our strong cloud revenue performance. In the fourth quarter, we achieved a record $534,000,000 in cloud revenue, delivering outstanding 24% year over year growth.

Additionally, cloud revenue represented a record 74 This milestone combined with strong product revenue growth showcases the exceptional fourth quarter performance of our business across all areas. Our cloud revenue mix is increasingly shifting towards large enterprise customers. Who show a strong preference for our comprehensive suite of AI solutions on our cloud platform. We continue to see an increase in average deal size reflecting the breadth of our portfolio along with our strength and domain expertise in the large enterprise market. As we highlighted last quarter, it's important to note that large enterprise cloud deals typically take longer to fully ramp up and be recognized in revenue. We may experience some short term delays in revenue recognition, but this sets us up for stronger long term growth and profitability from our loyal and sticky Our services revenue continued to fuel our cloud revenue. As our customers increasingly migrate to our cloud AI platforms. As anticipated, our services revenue, which is comprised primarily of maintenance, decreased year over year to $150,000,000 with this ongoing transition of our large enterprise on premise customers to the cloud. Across all our business segments, our customers overwhelmingly prefer our cloud platform as demonstrated by our strong cloud revenue mix and robust pipelines.

In the fourth quarter, in addition to our outstanding cloud growth, we also achieved of our on premise solutions in our Financial Crime and Compliance segment.

Products revenue, which represented 5% of total revenue in the quarter, grew 19% year over year as a result of several large FCC term deals.

From a geographic breakdown, the Americas region, which represented 85% of total revenue in Q4, grew 17% year over year. The Americas region has continued to excel in both of our business segments and we are seeing great wins with new enterprise customers as well as expansion from within our large customer base. The EMEA region, which represented 10% of our total revenue, increased 11% year over year, driven by strong cloud revenue growth. The APAC region, which represented 5% of our total revenue, delivered robust cloud revenue growth, which was partially offset by a decrease in the on premise business resulting in an increase of 4% year over year. We are extremely pleased with the outstanding performance of our CX International business in 2024, achieving a record year and CXone empowered new bookings and corresponding growth. Our exceptional performance is driving strong growth in our international cloud revenue with increasingly higher recurring revenue. Our international cloud revenue from the combined EMEA and APAC regions now exceeds $230,000,000 in ARR and these two regions continue to represent excellent growth opportunities with impressive Turning to our business segments, we delivered strong results in both customer engagement and financial crime and compliance in the fourth quarter.

Percent of our total revenue in Q4 were a record $596,000,000 increasing 14% year over year. As a result of a blend of much higher cloud revenue growth combined with the expected decline in our on premise business. The growth in customer engagement was driven by the growth in our CXone Empower platform. Revenues from Financial Crime and Compliance, which represented 17% of our total revenue in Q4 and totaled a record $125,000,000 increased 24% year over year. Driven primarily by strong in quarter premise based sales. Additionally, we continue to see strong cloud revenue growth and increasing demand for and adoption of our Aktamiq cloud platforms. Moving to profitability, our cloud gross margin totaled an expected 70.6% in Q4 as we continue to strategically invest in international expansion and the scaling of our cloud business in the financial crime and compliance These markets are still in the very early stages of cloud adoption. While they present significant growth opportunities, the initial investments have led to a short term impact on our margins. Our top line outperformance carried through to our bottom line as evidenced by the strength of our operating income. Our operating income in Q4 increased 22% year over year to a record $227,000,000 and our healthy operating margin expanded 150 basis points year over year to 31.5%.

The sixth consecutive quarter over 30%. I'm excited to share that we achieved both our annual operating income target of $850,000,000 for the full year 2024 and our operating margin target of over 31%. Given our strong profitability performance in the quarter combined with the smart management of our investment portfolio, earnings per share for the fourth quarter were $3.02 an impressive 28% increase compared to Q4 last year. Cash flow from operations in Q4 was $250,000,000 an increase of 38% year over year. For the full year 2024, we have generated free cash flow of $733,000,000 surpassing our free cash flow target of $700,000,000 set out in Q2 yielding an exceptional free cash flow margin of 27%. A level unrivaled in our industry. Our financial strength provides us with a powerful tailwind to see the opportunity in front of us. Further, our positive and growing free cash flow enables us to reinvest in our future growth. Acquire strategic assets rapidly and reward our shareholders with our expanded buyback program, all while maintaining our rock solid financial foundation.

In Q4, we repurchased shares totaling $95,000,000 dollars and $369,000,000 for the full year 2024, an increase of 28% year over year. We will continue executing our current $500,000,000 share repurchase program throughout this year. Total cash and investments at the December totaled $1,622,000,000 dollars Our debt stands at $450,000,000 resulting in net cash and investments of $1,200,000,000 Our debt matures in mid September of this year. At this time, our expectation is to repay the debt on maturity.

Therefore, we expect less investment income to be generated in the second half twenty twenty five. Before we turn to guidance, I'd like to connect how our plans to investor growth translates into financial expectations for this year. As Scott shared, we have a tremendous growth opportunity ahead of us. In 2025, we will continue to invest in expanding our AI innovation and cloud platform capabilities while further broadening our ecosystem. As a result, we expect our strong cloud gross margin to remain flattish in the near term and we expect a modest 50 basis point expansion in our operating margin in 2025. The underlying financial strength of our business provides us with great flexibility and these shifts to advance investment into our business are expected to be achieved while delivering leverage in our model, resulting in a double digit growth expectation and EPS. Now I'll close with our total revenue and non GAAP EPS guidance for the first quarter and full year 2025.

For the first quarter of twenty twenty five, we expect total revenue to be in the range of $693,000,000 to $7.00 $3,000,000 representing 6% year over year growth at the midpoint. We expect the first quarter twenty twenty five fully diluted earnings per share to be in a range of $2.78 to $2.88 representing 10% year over year growth at the midpoint. Full year 2025 total revenue is expected to be in a range of $2,980,000,000 to $2,938,000,000 which represents an increase of 7% at the midpoint. Our full year 2025 cloud revenue is expected to increase 12% year over year.

We expect our effective tax rate throughout 2025 to be in the range of 19% to 20% NICE. Full year 2025 fully diluted earnings per share is expected to be in a range of $12.13 to $12.33 which represents an increase of 10% at the midpoint. I will now turn the call over to the operator for questions. Operator? At this time, I would like to remind everyone Your first question comes from the line of Meta Marshall with Morgan Stanley. Great. Thanks. Can you just maybe give a little bit of background into kind of what went into the consideration of the cloud growth rate? And just if there's any way to kind of differentiate either kind of what LiveVox becoming organic is a headwind, would just be helpful. Thanks.

Sure. So first of all, thank you for the question. I do want to reiterate as I spoke earlier and as Beth NICE, we are very positive about the market. And NICE is uniquely positioned to be overseas on that opportunity.

We're providing a prudent guidance at this time of year.

And we'll continue to monitor as the year progresses. As I stepped into the leadership of NICE NICE, it is also my desire to increase the transparency for our investors. Beth and I are looking at the best ways to enhance our financial disclosures and I look forward to sharing more details as I mentioned earlier.

But maybe Beth, if you can share more detail on those expectations.

Of course. Yes. And thank you, Scott, and thanks for the question. Meta. So let me address your question a bit more and try to also help bridge from where our performance has been in the last quarter as well as full year 2024 to what we're guiding for the current year. First, I would start off by saying, we're very pleased. We had a tremendous fourth quarter and full year in the cloud last year. So we're quite proud of the accomplishment we just stepped away from. As we step into 2025, Scott highlighted first of all that it is still early in the year and so it course, we are considering prudence at this point in the year. [indiscernible] are several factors that we have taken into consideration as we've set this guidance. I think first of all, even going into last quarter, we had highlighted that we seasonality in the fourth quarter, which played out. But certainly seasonality is not something that you can always be confident around. And so we have taken that into consideration and have not assumed that we will have the same level of seasonality in the back half of this year given that it's still early in the year.

The second thing that I would call out and that Scott also highlighted in his remarks earlier today is that we do know that we are seeing more and more large enterprise deals and these deals are taking us longer to deploy. In the fourth quarter, we actually saw an improvement in the deployment NICE, but of course, it's something that we're continuing to be focused on and need to be confident that that will be a [indiscernible] So I think if we look back to last year, we had given some indication of what our expectations were for LiveVox which they met and actually outperformed slightly as we looked in the end of the year. But to your point, we've known that the NICE box growth rate does come with a bit of headwind. And of course, we are have that factored into the guidance as well. So I would say all of those are a combination of things that were considered as we thought about the guidance of the 12% on cloud for this year. Great. I'll pass it on.

Thanks.

Your next question comes from the line of Samad Samana with Jefferies.

Hi, good morning. Thank you taking my question and doing good, Scott. Welcome. Congrats on the new role. Maybe we'll start with just a big picture question. I understand more large enterprises adopting DX1 more full platform deals I will say you guys have done a pretty strong pipeline for most of 2024.

It's not just NICE understand when the phenomenon that started delaying the rev rec started and could that trend reverse? Are you baking that in as the base line going forward? Guess what I'm trying to understand is, is there a risk to that 12% if enterprises further delay go lives or if they change the size of scope of deals, just help us understand how much conservatism we baked into that?

So first of all, thank you for the welcome and thank you for the question. Let me start by saying I've got I've got a lot of experience in large enterprise large transformation, large scale deals, in my past experience. And the one thing I know is that as you increase the capability that the solutions offer, that often results in in the short term longer lead times and being able to deploy, to be able to take advantage, to be able to use the adoption and ultimately for our customers to benefit.

We all know the benefits of the AI capability of CXone Empower and as you rightly point out, the majority of our large deals are all with the embedded AI capability that CXone Empower brings.

But what it also means is that our customers are figuring out how to best exploit that capability expand and deploy and use it in the most effective ways with us. [indiscernible] I see a short term opportunity to be able to accelerate that. There's no doubt that in 2024, the team here have already worked on ways to accelerate the ability to time to revenue from when we signed these deals to when they're able to utilize the value that will continue. We will look at further ways to be able to accelerate it but we also recognize the potential of an AI platform is exciting and it means that you need to be constantly focused on the customer's outcome delivering the excellence that they need, delivering the customer service efficiency that they are expecting, but also delighting the consumer experience And I think sometimes that's underappreciated because ultimately Agentic AI together with our human agents will make the consumer experience even more effective and businesses are sharp about this. They want to make sure that when they're deploying this, it's going to work, it's going to scale, it's going to work in real time And so they're considered in that with partnership with us.

So I see the short term effect on on the concern around the deployment. We will get better, we will get faster, we will get more agile as we do that.

As we scale this business And the good news is our customers will then get the benefit from that. And not sure if Beth, if you have anything to add.

Yes. No, I wouldn't add much. I think you've described it as quite well, Scott. And the only other thing I would bring it kind of back more to where where we've been with it. I think, Smaj, you've heard us announce each and every quarter, probably more and more large seven digit ACV deals And so it's kind of been a we're succeeding in that part of the market and therefore we're having more of those deals that need to be deployed at the same time. So as Scott said, we understand the challenges. We're certainly focused on broadening our capacity in terms of our deployment partners and our eco system. And so we will tackle that, but it is something that we're not yet over. And so of course, again, we have taken that into consideration as we look through the full year. And of course, we will continue to provide updates as we show improvement throughout the year.

Understood. And maybe just a follow-up on the 1Q guide. I think about kind of the midpoint, it implies a modest decline quarter over quarter The last time you guys had a quarter over quarter decline was in March 2020, if I'm looking correctly. So just What's changing there? I know you mentioned some of the seasonality in the prior question as well, but is can you just help us think about maybe within the different line items, is there something particular that's driving that quarter over quarter decline?

That's been atypical in recent years. It's just help us contextualize that first quarter guidance of 6%.

Yes, sure. And it's exactly what you highlighted, which is it's predominantly seasonality. We had some very healthy seasonality that we just came off of in the fourth quarter. When we looked across our verticals, we know our retail customers had strong usage that we saw uptick in the fourth quarter. And some of that is quite seasonal. It's in the retail sector. It's in some of the healthcare sector, especially with benefits renewals and things like that. So we are again taking that into consideration. We don't want to be overly assertive with an expectation around seasonality. And so that is baked into the expectation in the first quarter.

Your next question comes from the line of Citi Penney Gray He with Mizuho Securities. Thank you. And Scott, congratulation on your role as CEO and look forward to working with you I have a big picture question. We certainly agree that AI is a massive opportunity. How do you view in this NICE changing environment right now about investing more to capture this market at this point versus driving profitability?

Thank you, Sidi, and look forward to working with you also Look, I think there's a few variables to consider. The one is we in the industry we're living with AI as though it's been for decades and generations whereas the reality is Identiq AI and the capabilities and what it the potential it brings, it's still very much in exploration mode.

And exploration mode from our customers but also from the providers in the market. And so that gives me immense confidence that when you think about customer service, and you think about the needs of customer service, there's two critical things that we're trying to provide for.

One is the NICE to consumer.

They want to interact with a single platform no matter what channel they use, no matter how they direct, no matter and they want it real time. I really want to highlight this, real time matters. Some of the Agentic AI and the AI applications out there in the enterprise place are very much on a systems of record basis. We don't live in that world. We live in the real time world. When a consumer interacts with our platform, it's got to work. And so our focus is making sure that that's seamless It's responsive with speed. They're able to get fulfillment with speed and we see the AI capability combined with our existing strengths of voice and workforce management as well as our digital and analytical stack are being the prerequisites to be able to take advantage of the agentic AI possibility because you then can have a real time experience fulfilling the customers' need in a seamless and a synchronous asynchronous way. So the first is we're looking at it very much for investment of how we can make that consumer the most positive, the most benefit and they fulfill at speed. The second is is when you look at then the orchestration and the fulfillment of it, there's a lot of different data points.

And so we want to be the centerpiece of how we fulfill the consumers need and automate that drive efficiency, so you can rely more on AI less on human agent, but it's not going to be a replacement completely It's the interaction between and then a deeper fulfillment through the back office.

And that's where partnerships and when I think about our ability to be able to deliver that, we will deliver at the front ourselves, but we will obviously work with the technology partners, which I highlighted earlier, to be able to ensure that the customer gets the end outcome, which gets our innovation together with our partners to fill the best response. The last but not least is sorry, if I just finish it out, the last thing that I would say is this, Agentik AI or the AI platform is not new for NICE NICE. I actually joined and I spent a lot of time researching the capability that we have We've got a proven platform already and we've been investing in it for many years.

Credit to Barak and the team. So we're not starting from zero, we're starting from a mature platform already. Now yes, there's more to do when we want to invest further, but we can invest in profitable growth. That's super helpful. And Scott, are you being lot of experience enterprise and go to market? How are you thinking about the changes you're going to bring here in the go to market NICE? And specifically on the partnership side, what changes you can see And especially if you can talk about some of the partners now turning into competitor, how are you going to address those?

Thank you for the question. And look, I do have a lot of experience I've got a lot of experience in my background being able to take a strong asset being able to leverage partnerships together with a really, really strong go to market capability and being able to turn that into value for customers and growth for the company and we will do that here. To answer your question explicitly, There's no doubt that systems integrators, technology partners and I would also highlight strategic advisors, There are a force multiplier when you partner well. So strategic partnerships is the word that I would like to highlight. It's not partnerships with everyone because we already partner really well today. It's really zeroing in on the strategic partnerships that will be able to expand the end to end value proposition for our customer to be able to give them the best outcome and that means the reach of Global Systems integrators is important because they have the industry domain, around the world. It means technology partnerships because we know what we're really strong at but we also know who we need to work with to be able to give end to end solution for our and the advisory is more about what are the trends, what's coming and how do we then take advantage of that to give more value to our customers.

So you can expect a lot of emphasis around strategic partnerships in the short term because I do see it as a real opportunity for us to expand our reach and deliver to a wider customer base than even we do today.

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

All right. Wonderful. Thanks so much taking my questions, Scott. Looking forward to working with you in the new role.

Maybe two from me. First, I want to start by thinking about just kind of DX1 bookings, what have you been seeing? I know there's been a little bit of discussion about kind of ramp rev rec But in prior quarters, you've talked about record CX-one bookings. To my knowledge, I didn't hear that comment again on the prepared remarks. You can just give us a color in terms of what you're seeing in terms of overall CXone bookings and then I got a follow-up.

So first of all, Rishi, great to connect and thank you for the question. So as you rightly point out, CXone and I mentioned in today's call a number of seven digit ACV, CX1 Empower deals The majority of our large deals as I talked about the 1,000,000 ARR are embedded with CXone Empower. So the growth and the expansion of the platform that not only includes AI, by the way, it includes your core capabilities to be able to provide the contact center, the customer service, at scale for our customers and that is growing. And that was reflected, I believe, in 2024, we've mentioned several times about strong bookings performance and growth in that area. My expectation is we continue on that trend and I see obviously the potential for even further expansion and look forward to sharing those details as the year progresses, how we exploit the opportunity and drive that into not only bookings growth, but ultimately turning to revenue growth as we look to the future. Beth, is there anything to add on the guidance?

No, I think that you've highlighted you've highlighted the strength we saw and we've talked as I highlighted earlier, many quarters about the number of large enterprise deals we're winning as well as tremendous year in international with record growth there and the record largest international deal that we announced in the second quarter of last Here.

All right. Wonderful. And then Beth, on your prepared remarks, you talked about cloud gross margins being relatively flat in 2025. [indiscernible] Maybe what are you contemplating in terms of the impact of Gen NICE because we all know these Gen AI workloads can be really compute and resource intensive. And so if you are landing all these large deals with AI, what sort of impact is that having on your overall cloud gross margin this year and maybe even in the medium term as we think about uptake of AI, what should we be thinking about that impact there on gross margins?

Yes, sure. We first explain a bit more about my comment around flattish growth margins this year. And then I would say you've seen a little bit of that playing out in 2024 as well. This was less related to AI and more about our investments that we've talked about both international [indiscernible] business where they're still less mature. We have some fixed costs and we're still scaling and ramping up the customers and the revenue on the other side of that. So that's really the nature of my remarks as it pertains to really the more current year. As we look forward, however, we all are seeing that AI is becoming more cost effective as well as compute specifically. And so we expect that to play out in our margins. Regardless of the flattish tone for the current year, that is due to to continually to expand our cloud gross margin And of course, the cost of compute and AI specifically will help us drive that even at a greater clip. Your next question comes from the line of Tyler Ratke with Citi. Hi, this is Kylie on for Tyler.

Thanks for taking the question. You all saw a good product beat this quarter. Can you talk about why customers may be choosing to stay on premise for longer? And what are your embedded assumptions around conversions and migrations for 2025 how does that compare with 2024? Thanks. And I have one follow-up.

Yes. Thanks, Kylie. I'll start with that. I think with respect to product, If you looked on our performance in 2024 and notably in the fourth quarter as well, What we're seeing is that there are certain segments in our business which tend to be financial crime and compliance and sometimes are international regions where cloud is in is its more early stages of adoption by customers. And either as a result of the newness of the cloud into those segments, as well as sometimes customers simply prefer to deploy our premise software in their own environment. Sometimes it's a cultural thing. I think with FCC in particularly, we see that more so certainly than the CXone and business where we have very few premise deployments this at this stage. And again, occasionally internationally, but we see that more so in the FCC business. And again, it tends to be a culture a financial institutions where they have a history of managing the software with environments. In general, it still tends to be not the norm. If we look at the pipelines across all of our business including Financial Crime and Compliance, they are still cloud centric. That is still the way that we are predominantly going to market and incenting our sales and our customers But we do see those from time to time.

And again, that is what we experienced in the fourth quarter. I will add that as it relates to guidance in our expectation around that, in general, we are a cloud first company. And so as we have considered what that means into our guidance for next year, we have assumed that our business continues to increase on the cloud and that in relation to that, the premise business continues to decline. In terms of the pace of that transition, as you've asked, we expect the pace in 2025 to be more or less the same and assumed in the guidance However, we Scott and I both see that as a wonderful opportunity for us to actually accelerate that. And Scott, I'll let you talk about that more. Yes. Thanks, Beth. So I think just to reiterate, so our guidance is assumed consistency from what we've had in the past. But I do want to highlight and I guess again, I have a lot of real experience at this at scale.

Not only do we want to accelerate time to revenue from our point of view, but it's time to value for our customers. And so there is going to be a great emphasis on that transition path.

They're loyal long term existing customer of ours whether it be on the CX side or on the FCC NICE. But either way, they do actually want to exploit the benefits of the cloud and AI. It's more than how to get there that is the critical point. And so we're going to be putting more emphasis on the how to transition do so.

Cost effectively in a risk managed way in a way that they can get the benefits, but not introduce concerns or risk and to us give us the potential upside that we all see and Beth and I are obviously very excited about.

Thank you. That was super clear. And then if I could squeeze in one more.

On the 12% cloud growth guide. Could you just talk about the macro assumptions that you're embedding and maybe the customer ramps as it compares to 24? Thank you.

So maybe I'll start and then Beth, I'll hand to you on the ramp side. But on the macro assumptions, look, we're positive.

And we're positive because the buying sentiments in the market particularly in SaaS you look at what's happened with the Gen AI market, a lot of it initially went to the LLMs at the infrastructure layer.

At the compute layer, but it's very quickly moving to the SaaS layer. Companies are looking for exploiting the benefits in the way they run their processes, their workflow, their tasks, their customer service. And so at a macro level, we are actually optimistic about the landscape, about the potential for us. I don't see any concerns from a headwind from that point of view And the real opportunity for us is to initially put that into bookings and then ultimately that will then convert into revenue as time goes as we deliver the value for them and that's where our emphasis is Beth.

Yes. I don't know that there's much more to add. I think you've explained the opportunity ahead of us and we've already said that essentially we to this 12% growth is going to be equally distributed across each quarter in terms of that 12%. So we believe we have an opportunity to revisit that and we'll obviously update throughout the course of the year because there is a great what we see in practice is that they do not turn everything on day one. There is gradual ramp. And then the consumption and usage benefits us. So again, we will continue to monitor all of those and that is what we've seen in [indiscernible] [indiscernible] At this time, I would like to ask everyone to limit your questions to one due to time restraint. And your next question will come from the line of James Fitch with Piper Sandler.

Hey, guys. This is Quentin on for Jim Fish. Thanks for taking our question.

Beth, maybe my one for you. In the Analyst Day early in the year, I think we highlighted a 113% net retention rate for CXone customers Obviously, you talked about some slower revenue recognition that probably declined that a little bit. But any color you can give us to where we're at exiting the year for net retention rates, how you think about expansion for customers in '25? Is this assuming we can as we think about the forward guide or the kind of the balance of net new.

Yes. Thank you for the question, Quentin. And as you highlight, highlighted, NRR is something that we shared at our Investor Day It continues to remain healthy and is not a factor that we've considered of any expectation that we'll have any deterioration. And add in fact, as we talked about, we see that more as an opportunity us some of the portfolio on CXone NICE Empower that we have been deploying and will continue to deploy So, I would just highlight one of the other things that Scott and I spent a lot of time talking about is the opportunity for us to kind of provide some additional disclosures from time to time some of these metrics. So while that hasn't been our practice in the past, I think certainly it's something that Scott will let you speak to. I know you desire and but in short, I do want to ensure that it's understood that we continue to see a healthy NRR and don't expect deterioration as being a part of the guide.

Yes. So just on the NRR, there's no doubt that we see upside on that and that would be our expectation going forward and I don't see any concern there. But the best point there's no doubt that in our business, there are a lot of different factors that lead ultimately to the revenue growth retention of customers customers, expansion of customers, being able to improve reduce and compression and more importantly expand the usage, speed up deployments. There's a lot of different factors So I've definitely got the desire and the intent to increase the transparency for our investors So as we move forward, your understanding and and the explanation of how we're driving the business, how we're driving the growth opportunity that we've talked about can be understood and then shared to the investor base.

Your next question comes from the line of Arjun Bhatia with William Blair and Company.

Thank you so much. Scott, maybe one for you. Can you just talk a little bit about, AgenTek AI and I certainly see that as an important trend going forward here. But when you think about our customers are viewing, Ejentic AI versus Copilot versus human agents. How do you see this balance from those three playing out? Genentech really making it that much easier for you to maybe sell into the customer base is the ROI much more evident. Just talk about a little bit about what you're seeing in sales cycles and demand on the Agendix NICE.

Great question, Arjun. And And I need to be I need to highlight only fifty days NICE, so be aware, although I have obviously interact with a lot of customers and partners already. So I feel like I've got a good understanding not only of the market, but also the needs. There's a few factors that that we see. The first is Agentic AI and the capability and the possibility it's clear. And I think all of our customers see that They see the potential of a continuous learning interact and being able to drive productivity, to drive efficiency. But in customer service, there's a few variables that are really loud and clear for our First, when they interact, it's got to work.

Why do human agents Because the human agent can interact with complex or simple card and they need to make sure that that intent, that consumer request gets fulfilled. And so when they deploying a GenTek AI in a consumer context they had the same expectation real time real time capability, high quality response, speed of resolution. Now we see that as an advantage for us because we obviously understand with our knowledge, with our platform, with our models already about how we use that to help the agents be able to serve those consumers and our self-service platform. So for us, it's an extension on a single platform to be able to fulfill that And a lot of our customers are not looking for generic platforms when it comes to consumers [indiscernible] So I think what you'll see as we look forward is the context sensitivity, the domain knowledge on the data and the interaction who the actual user is, is it an employee, a supplier, in our case a consumer it does matter. The second is I was intrigued when I spoke to a number of customers that they're filing Agentic AI in the back but they're leveraging a single platform at the front.

So they don't want to be able to trial in front of their They're not going to take that risk. They're looking at a single platform. That's why for us the platform, that unified platform of voice digital AI becomes really important because they're not looking for breakpoints on the interaction. That will deliver to poor customer service poor efficiency. They don't want that fractured lots of break points between tech. So So it's interesting how it will play out. Am very optimistic about customer service being a really I think it's going to be one of the use cases that will be proven AgenticAI to be able to deliver on the ROI I do believe firmly that we will see over time a reduction NICE increase of AI agents but the combination and the interactivity is going to be the key rather than you go to one channel or other. You need to have a unified platform to be able to fulfill a consumer who frankly doesn't really care about how who they interact, they just want their service [indiscernible] And that's what we zeroed in on.

Your next question comes from the line of Michael Funk with Bank of America. Great. Thanks for the question. This is Matt on for Mike.

Maybe can you help us frame the expectations for contribution from the Ring [indiscernible] relative to the 2024 run rate. Is that a headwind we should be considering in the context of the 12% organic cloud revenue growth guidance?

Yes. Thank you for the question. Ring is one of many, many partners that is part of our ecosystem. We have many different partners that are actually working with us tending to be at the SMB and lower end of the market. We don't expect to have any kind of negative impact to our revenue and that is not a consideration.

And Scott, maybe you can Yes.

We'll call us say, I mean, I've interacted on pretty regular basis with Vlad and the team. I mean, we see the potential of the partnership being able to drive value, particularly for our SMB customers, one of our many partners that are able to deliver an end to end proposition to serve our customers. So certainly no negative impact when it comes to our our full year outlook. Yes.

At the end of the day, we still have the best in class CX-one in platform and that's what customers are looking to get Your next question comes from the line of Patrick Walravens with Citizens JMP.

Great. Thank you. And Scott, welcome great to have you here.

I was wondering if you could share your thoughts in terms of M and A, [indiscernible] NICE, now that you're here and two sides to that question. The first side is What you might consider acquiring and the other side is how you feel about like the financial crime and compliance business and the public safety and justice business and whether it might make more sense to divest those over time and focus on the core opportunity around customer experience and customer engagement.

Thank you, Pat, for the question. And and thank you for the warm welcome. Look, there's no doubt. I mentioned in the [indiscernible] that I provided [indiscernible] It's a remarkable financial position that we're in. We've got obviously a very strong balance sheet. We generate cash and we're able to from our operations exceptionally well And that gives us optionality There is no doubt that when I look forward and our ability to be able to what we believe our customers need not only on the AI side, but that flat [indiscernible] We're looking at organic growth for sure because we've got a great platform already, but it does give us optionality on on the inorganic NICE, but it's got to be driving value that will deliver long term growth for our business and for our customers and that is where my headspace is at, but also what I think the needs of this business is. And that's true not only on the CXone side, that's all of the business As it relates to FCC, all I can say is it is a vital part of our business. It's a well business and I think what I can say is when we get together as I shared earlier, I'm looking looking forward to sharing more details about our strategy, how that will put into a growth plan and the details behind it I'll be more than happy to share more on those expectations are for both organic and inorganic moves.

Your next question comes from the line of Catherine Trebnick with Rosenblatt.

Well, thank you for taking my question and welcome Scott. So just you've talked a lot about your point of market, large deals, bookings, etcetera. What's the strategy for the mid market? Because it seems to me that the mid market customers that you deploy have a faster turn to revenue. So could you explain to us Your thoughts on the mid market.

Yes. So the first one, you're right. Talked a lot about being the upper end and there's no doubt that we've got a platform that caters for the scale and the real time needs at the upper end.

But that's also true for the mid market. The mid market also needs scale and real time. I firmly believe that our platform and our capability conserve the mid really well a simpler deployment timeframe, that comes back to partnerships by the way because our our deployment partners to be able to in an agile sharp way of being able to quick deployment, being able to serve that to the mid market because they're looking to grow their business, they're looking for high NPS of their customers, want to fulfill it in a more efficient way. And I do think that capability goes to the mid market. And then clearly, it's the small end, that's obviously through partnerships, through distribution means to be able to to bring our platform, our capability, which is the best in the market and then do that into the small end as well.

So I know I've highlighted a lot on the enterprise side because clearly we know that's a but I also see a tremendous growth opportunity to mid market. I will highlight that I mentioned international expansion. I've got a lot of experience in growing businesses and scaling them around the world. Quite often, that starts in the mid market and goes up because The U. S. Is clearly a large enterprise market. But around the world, you've got a much bigger mid market space and I think we've are well set up to be able to capitalize on that opportunity.

Given that we've already got presence in most of those markets globally.

Your next question comes from the line of Thomas Blakely with Cantor.

I just wanted to double click on agentic AI and kind of better understand in terms of the 12% guide, how much how much uptake is kind of embedded in that guide?

From our checks and you talked about increased complexity and elongated sales cycles, this is certainly a cutting edge technology and I just wanted to maybe just circle back there. And if for Beth, it's related to that question along or one part question. What kind of pricing uplift could you assume from a subscription basis, even if it is consumption based? Overall, any type of pricing commentary AgenTek AI is consumed, what that would manifest itself from a like for like customer? That'd be helpful.

Yes, great question. And I'll start and then Beth, I'll hand over to you on the second part. So I want to reiterate again, and I know we've mentioned it a couple times, but we've taken a prudent guidance. We've taken a prudent guidance because whilst we're super optimistic about the potential, when you win these large or these enterprise deals, Energetic AI with its capabilities and also the deployment timeframes, we want to be really clear that we're trying to accelerate it, but also that takes time for that to ultimately convert into revenue. When you you understand the operating model that we run.

I believe the Genentech AI will be a cornerstone of our growth. As you look forward into the midterm, the growth will come from our AI platform to be able to deliver that But it's the current run rate of our business is obviously factored factored into the 12% revenue and maybe Beth, you can comment a little bit.

Yes, sure. In terms of the pricing uptick, first, I would highlight that AI is embedded across really everything that we do. When you consider our platform, [indiscernible] agentless as well. So we are still a continuing to have AI that's embedded on the pricing NICE. It's part of the agent based pricing. But even we're turning more and more towards a consumption based model on the agentless side because that is the way of the future. So when we look at that, we have multiple examples where we see customers with receiving great ROI from the adoption. They're able to cost, they're able to increase their spend in technology and our AI platform. And on the other side of that for us, again, the up that we receive is a broad range depending on what level of AI that the customer is adopting. But as we've described, 97% of our large enterprise deals last year included our AI offerings. And so they are we're consistently seeing that that is driving a nice average increase in our deal size. And so as I said, it's a broad range, but we see that playing out. And of course, as the customers continue to further adopt and continue to ramp up usage on those platforms that will play out over time and as part of the growth acceleration we expect to see in the future.

Your final question comes from the line of Timothy Horan with Oppenheimer.

Thanks a lot guys.

The 7% revenue growth you're guiding to, what do you think the industry is growing at overall? And can you talk about maybe the competitive impact or any changes that you're seeing? I guess, particularly from from sales force and their partnerships out there and the other other cloud providers, any change out there? And I guess, ultimately, is AI going to be accretive to your overall industry revenue growth or will it hurt overall industry revenue growth Thanks for the question. Back and make sure we've covered everything. First, with respect to the total revenue growth, I think it's it's important to highlight that you can't always put us side by side with some of the other players because we are still a hybrid of both the cloud company and a premise based business. Of course, the cloud mix is changing and continuing to expand further and further. In fact, we reached 74% of our overall revenue trend we continue to expect. But certainly the total revenue is taking into consideration that transition of the premise customers, and that's a declining part of the business when you think about the premise that offsets the real potential and growth that we see in the cloud.

That's specifically why we call out our expectation in the cloud, which is really where we're focused We are continuing to drive that acceleration. And again, it's more about us driving the cloud growth faster, even though it may end sometimes come at the expense in a near term quarter because that is consistent with our overall strategy and direction as a company. And Sam, was there again, I don't know if you had other questions we didn't get to.

Just the competitive intensity, has it changed much out there? It seems like sales force and some of the cloud providers have ramped up their offerings?

Yes, let me cover that.

So first of all, there is a it's a dynamic market, I will say that. Tim.

There is no doubt that there is and there's a lot of hype There's a lot of slide where there's a lot of noise that you can easily see. What we see in service is that to deliver the efficiency and the automation that our customers need in customer service and the real time that I mentioned before, needs to be and the AgentiKai opportunity it's got to be on a single platform. They're not interested in our their consumers using differing platforms, differing interactions without it being unified under and the orchestration being. So whilst yes, we see others that have got a capability that I would argue that is really good for interactions that are static or more systems of record where you're it makes for good marketing AI or other things that CRMs can provide. As it relates to customer service, that real time interaction between digital human and AI agent becomes the critical factor And I am I'm convinced that the market will continue to go that way. There will be generic AI but that will have that will have standard platforms, but the value will come from the ones that really understand the data be able to apply that data and deliver it and that is NICE.

I will now turn the call back over to Scott Russell for closing remarks.

So first of all, thank you everyone for the kind words of welcome. In my first earnings call. I look forward to working with you as we go forward and have a wonderful day ahead. Thank you so much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.