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

Strong Double Digit Growth in Operating Income and Earnings Per Share

Recurring Revenue Increased to 72% of Total Revenue

HOBOKEN, N.J.--(BUSINESS WIRE)--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
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 industry’s 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 8^th, 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 [phone], International [phone], 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 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 [phone], 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 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 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.

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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