Nice Ltd (NICE) 2018 Q4 法說會逐字稿

Good day, everyone, and welcome to the NICE conference call discussing fourth quarter and full year 2018 results, and thank you all for holding.

(Operator Instructions)

As a reminder, this conference is being recorded February 14, 2019.

I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eran Liron, Executive Vice President, Marketing and Corporate Development.

Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the company's actual results could differ materially from these forward-looking statements.

Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2017 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 30, 2018.

During today's call, we will present a more detailed discussion of fourth quarter and full year 2018 results and the company's guidance for the first quarter and full year 2019. Following our comments, there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles as reflected mainly in accounting for acquisition-related revenue and expenses, amortization of intangible assets and accounting for stock-based compensation. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

As we communicated in our prior earnings calls, our non-GAAP financial results for 2018 are presented under ASC 605. Effective from January 1, 2019, our non-GAAP financial results, as well as our guidance, will be reported under ASC 606. It is important to note that results throughout 2019 will be compared to ASC 606 results for 2018, not ASC 605.

We'd also like to remind you that we are hosting our Investor Day on April 16 in conjunction with our Interactions annual user conference in Las Vegas. This special program for analysts and investors will include meetings with NICE executives, presentations from customers, product and technology sessions and access to the solutions showcase. If you haven't registered, please e-mail us at ir@nice.com.

I will now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I'm glad to be on the call with you today.

With the release of our Q4 results and a look back at the full year, it is clear that 2018 was a seminal year for NICE. Our cloud business prospered, with Q4 cloud revenue growth of 29%, fueled by further adoption of CXone in the marketplace.

Some key metrics that underscore 2018 as a milestone year included 9% total revenue growth, 27% cloud revenue growth and recurring revenue increasing to 70% of total revenue. We reported 13% operating income growth, a 90-basis-point improvement in the operating margin, a 14% increase in earnings per share, and nearly $400 million of operating cash generated for the year. Furthermore, we saw a record number of new customers and significant increase in the number of competitive replacements.

As we look forward to 2019 and into the next 5 years, it also gives us the opportunity to look backward over the past 5 years at what we achieved during this time. It was a period in which we transformed NICE into a true enterprise software company. It was also during this time that we moved from being a leader in maturing markets to a leader in a total addressable market of $7 billion today, growing quickly to over $12 billion.

We accomplished this by bringing together what we believe to be the greatest assembly of assets in the industry that has allowed us to significantly scale our analytics and cloud businesses to become the clear leader in both areas. At the same time, with a key focus on operational excellence, we were able to accelerate top line growth while significantly improving profitability.

Now, with all the right assets in place, we have successfully delivered 2 profoundly differentiating platforms in the market with CXone for Customer Engagement and X-Sight for Financial Crime and Compliance. With these 2 platforms and the large total addressable market into which we can continue to expand, it is no longer suitable to just talk about leadership. Rather, and more importantly, it is time to talk about the opportunity to become the leader.

And what do I mean by this? The leader delivers truly differentiated products and superior and complete offerings, as we have done with our 2 platforms. This causes the leader to become the clear choice of customers, which leads to more R&D investment, which then again turns into more differential products and complete offerings. It becomes a perpetual cycle that continues to further support the leader's position in the market. Eventually, the ecosystem grows very large, and the leader gains the capacity to cover all markets, geographies and enterprises of all sizes at a significant competitive advantage.

So how do we become the leader? We already have a wide lead in both market share and product offerings. This gives us the advantage to continue to disrupt the status quo by aggressively moving forward for continued rapid innovation, sound execution and further differentiating NICE from our competitors.

In Customer Engagement, we will expand CXone, making it an even more comprehensive offering than it is today. We'll further grow the CXone ecosystem and drive our open cloud platform into the market for geographic expansion, deeper penetration into our customer base, and by bringing it to businesses of all sizes. We expect to see CXone as the clear choice among all enterprises. We will further inject powerful analytics into everything we do and to do -- and further augment analytics by infusing AI throughout our analytics solutions. We call this our analytics everywhere approach. Moreover, we'll be delivering more AI-fueled predictive analytics in 2019 and beyond.

In Financial Crime and Compliance, we're only at the beginning with X-Sight. Our goal is for X-Sight to be the clear new standard for financial crime and compliance customers. Like CXone, X-Sight allows us to cater to all market segments in the cloud. We already have solutions like ActimizeWatch and the recently announced IFM-X on X-Sight. IFM-X is our next-generation integrated fraud management suite that uses automation and machine learning to optimize effectiveness and reduce total cost of operating a fraud risk management system. With X-Sight, we are becoming a market facilitator for sharing data across financial services organizations.

Another building block of our strategy is Robotic Process Automation. We'll continue to differentiate ourselves in the robotics software market, where we're experiencing rapid growth. This is a market that is still in its infancy, and we are well positioned for differentiating solutions such as our leadership in attendant RPA, NEVA, which is our one-of-a-kind attendant robotic assistance and automation finder, an AI-powered solution that detects processes in the enterprise that are perfectly suited for automation.

As we march towards the goal of becoming the leader in our respective markets, we can now look forward to 5 years into the future. We expect to far exceed the $2-billion revenue mark, to see the majority of our revenue come from the cloud, and to have a greater-than-30% operating margin.

Our Q4 execution provides a glimpse into our march ahead. In Q4, CXone's presence in the market continued to spread as we firmly establish NICE as the only provider of a true open-cloud platform that seamlessly combines Omnichannel Routing, WFO, and analytics under one umbrella. We are getting multiple high marks from industry analysts, and just earlier today we announced that Gartner has positioned NICE highest as the leader in the MQ for Workforce Engagement Management for the third consecutive year.

But more importantly, we are seeing evidence of the continued growth of CXone within our customer base and among new customers. Some large CXone deals in Q4 included a 7-digit deal with a state government that had been a longtime on-premise customer with an incumbent that was replaced as this state government is quickly bringing on CXone to support an expanding number of agencies. There was another 7-digit CXone deal with one of the largest state employee retirement systems in the country. We replaced the incumbent on-premise provider as their retirement system has a mandate to rapidly move off of an on-premise contact center, they needed technology in the cloud that can accommodate their current and future needs. Other 7-digit CXone replacement deals included a very large mutual fund manager, a federal government agency, an IT services firm and an online retailer.

Analytics is another area where we continue to see strong growth, and one in which we believe we continue to outpace the market with cutting-edge technology. This includes recently announced new solutions like Back Office Proficiency Essentials, which infuses a combination of desktop analytics together with performance management that enables organizations to enhance employee performance.

And then, there is our newly announced customer Journey Excellence Score, which is an AI-powered metric that provides organizations with consistent means of measuring service quality across touchpoints over time and enables the prediction of future outcomes. In fact, NICE was recognized as a leader in customer journey analytics in 2 reports by Forrester Research.

We signed a 7-digit deal with an alternative payment provider for a portfolio of solutions including Nexidia Analytics and Compliance Center. There was a 7-digit deal with a very large insurance services company to provide analytics-driven insight to improve operational efficiency and customer satisfaction. And there was a 7-digit deal with a major airline for Nexidia Analytics to help them up-sell revenue, reduce cost and perform in-depth analysis. Other analytics deals included a 7-digit deal with an international bank for our AML suite and another 7-digit deal for both fraud and AML with a leader in prepaid credit card solutions.

We witnessed continued strong momentum for ActimizeWatch, which is our cloud-based solution that uses consortium data and state-of-the-art machine learning in artificial intelligence for fraud and AML. In one example, we signed a 7-digit ActimizeWatch deal with a very large international bank. Essentials, our cloud-based fraud and AML suite, also did well, including a 7-digit deal with a new customer, a large credit union, where we replaced incumbent.

In robotics, we signed a record number of new logos in 2018 and continued to see rapid growth in this line of business. We signed several 7-digit RPA deals, including one with a very large telecom company, one with a home services company and one which was part of a large deal with a major healthcare company. In fact, the total deal signed for this healthcare company was in the 8 digits and comprised a number of different solutions, including multiple analytics and competitive replacement of real-time authentication.

In closing, we are very pleased to end the year on a high note, but now is also the time to look into 2019 and beyond. CXone and X-Sight are our leadership platforms and our substantial, sustainable, long-term differentiators to help us become the leader. As the market continues to shift to the cloud, and specifically to platforms, we're in great position to capitalize on the many opportunities at hand. I'm also looking forward to seeing you in April at Interactions, our annual user conference, which is the largest in our industry. We're expecting a record number of customers in attendance this year.

I also want to take this opportunity to thank all of our employees around the globe for their outstanding commitment to our strategy and their contribution in making 2018 another successful year for NICE.

I will now turn the call over to Beth, who will review our financial results.

Thank you, Barak, and good day, everyone. I'm pleased to provide the analysis of our financial results and business performance for the fourth quarter and full year 2018, as well as our outlook for the first quarter and full year 2019. Before I review the numbers, I would like to remind you that all financial data included in my remarks except the guidance are presented under ASC 605.

Total revenue for the fourth quarter reached a record of $420 million, an increase of 6% from $396 million in the same period of last year. Full year revenue was a record of $1,463,000,000, which represented 9% growth over 2017. Our total revenue growth was driven by our continued successful execution in the cloud as our cloud revenue grew 29% in the fourth quarter and 27% for the full year 2018.

Customer Engagement revenues for the fourth quarter were $322 million and represented 77% of our total revenues. For the full year, Customer Engagement revenues were $1,166,000,000, an increase of 9% compared to the full year 2017.

Financial Crime and Compliance revenues were $98 million and represented 23% of total revenues. For the full year, Financial Crime and Compliance revenues were $297 million, an increase of 6% compared to the full year 2017.

Recurring revenue for the fourth quarter and full year continued to increase, and reached 65% and 70% respectively of total revenue compared to 60% and 65% respectively for the same periods last year.

Product revenues accounted for 26% of total revenue in the fourth quarter and 20% for the full year. Cloud revenues accounted for 32% of total revenue for the fourth quarter and full year, up 6 and 5 percentage points respectively. Service revenues accounted for the remaining 42% of total revenue in the fourth quarter and 48% for the full year 2018.

Looking at geographies, Americas contributed $332 million to total revenue in the fourth quarter and $1,140,000,000 to the full year revenue, which represented 6% and 9% growth respectively. Revenues in EMEA were $55 million in the fourth quarter, similar to last year, and for the full year, EMEA revenue increased 9% to $209 million. APAC revenues in the fourth quarter increased 17% to $33 million and full year revenue increased 7% to $114 million.

And now to profitability. We continue to grow our gross profit, reaching another record high. In the fourth quarter, it reached $304 million, compared to $293 million in the fourth quarter of 2017. For the full year, gross profit was $1,041,000,000, compared to $964 million for full year 2017.

Another record for us was operating income, which increased to $119 million and $379 million respectively for the fourth quarter and full year 2018. Full year operating margin expanded 90 basis points to 25.9% and we expect to see further growth over the next several years. The strong operating income and margin demonstrates the leverage in our model and our commitment to continue to expand profitability over time.

Earnings per share for the fourth quarter reached an all-time high of $1.47, compared to $1.35 in the fourth quarter of last year. Full year 2018 earnings per share was also a record of $4.69, representing growth of 14%.

We experienced another strong quarter of cash generation. Fourth quarter cash flow from operations grew 26% to $109 million and the full year cash flow from operations was a record of $397 million. Total cash in financial investments were $731 million at the end of December 2018 and total debt was $456 million net of issuance cost and the equity component associated with our convertible debt.

I will conclude my remarks with our guidance. Our guidance for the first quarter and full year of 2019 is under the accounting standard ASC 606 and will be compared to 2018 ASC 606 results. Effective from January 1, 2019, both our GAAP and non-GAAP results will be reported under ASC 606.

For the first quarter of 2019, we expect total revenue to be in the range of $370 million to $380 million. The midpoint of the guidance represents 11% growth over first quarter 2018 total revenue of $338 million. We expect first quarter 2019 fully diluted earnings per share to be in an expected range of $1.05 to $1.15. The midpoint of our guidance represents 13% growth over the first quarter 2018 earnings per share of $0.97.

For the full year 2019, we expect total revenue to be in the range of $1,558,000,000 to $1,582,000,000. The midpoint of our guidance represents 8% growth over the full year 2018 total revenue of $1,453,000,000. We expect full year 2019 fully diluted earnings per share to be in an expected range of $5.08 to $5.28. The midpoint of our guidance represents 9% growth over the full year 2018 earnings per share of $4.75.

Similar to the trend of the last 2 years, cloud revenue continues to grow as a portion of our total revenue, resulting in a more equal distribution of revenue and profitability between the quarters.

I will now turn the call over to the operator for questions. Operator?

(Operator Instructions)

And we do have a question, and it comes from the line of Shaul Eyal.

(technical difficulty). Barak, I want to go back to the topic you've addressed in your annual prepared remarks and in the press release regarding the journey towards that $2-billion revenue and 30-plus-percent operating margins, longer term, of course. Can you provide us with more color with the thinking around it? Is it all organic? How should we be thinking about the mix also between cloud, the rest of the segment? How should we be thinking about the AML business growing within this framework?

Sure. Thanks for the question, Shaul. And yes, we -- as we stand here today at the beginning of the new year, 5 years after I became the CEO of the company, similarly to what is done every year, but also 5 years ago, providing an outlook for the upcoming years, we feel that today, given the trend of our business, the markets we operate in, which are very healthy, the assets that we have built and the momentum in our business that we can also provide beyond the outlook -- the healthy outlook for the first quarter and for 2019, also some outlook for the next 5 years and provide some financial metrics to that. And we believe, based on that, that we can leave the $2-billion mark far behind. We -- more than 50% of our business by then should be in the cloud, and we're aiming to the goal of the 30% operating margin, as I said. In terms of where it's coming from, we see it right now organically. Obviously we can augment that with acquisition and further accelerate some of those numbers in the trends. And we see it in both our businesses, which are very healthy, with the recently announced, in the past year, of both CXone and X-Sight, a very similar trend with respect to analytics, AI and cloud, and the same trend that we've seen with CXone we believe will be very, very similar to what we see right now in the Financial Crime and Compliance where cloud is starting to gain very nice traction. So overall, it's an effort to give you a glimpse here, if you would like, of our strategic plan, which we feel that have good execution to the strategy in the same way that we executed on the past 5 years.

Got it, got it, understood. And also, if I may, Barak, when we look on the breakdown between the product, the cloud, the services, do you think that on the enterprise front -- so companies with 10,000-plus employees, are you maintaining, are you capturing some market share? on the SMB front it's very clear, but I want to hear your thoughts about it. And also maybe if I can squeeze another one: Avaya, these guys have been struggling over the course of the past few quarters. Can we think of NICE as some of the ingredients that have been disrupting Avaya's business, specifically as it relates to the contact center, to the routing business? Is that a fair assumption?

Sure. So I'll address first the first part of your question, and the answer is yes, in all segments. Obviously we're taking very nice share and making a lot of replacements in the low end of the market, but I believe the same is true for all the different segments of the market. 2018 was a record year for us in the number of competitive replacements, and I think that what we see is that we have 2 types of replacements. The first one is a legacy provider that did not prepare themselves to the era of the cloud. Personally, I think it's a bit too late for them to be there, given -- or knowing what it takes to, in terms of R&D investment and expertise, et cetera. So we find ourselves, in many cases, replacing the on-premise providers,I'll refer to Avaya in a second, with a cloud solution or true cloud solutions that we offer. The second type of replacement that we see is a completeness of our offering, the suite, the platform that we have with our analytics and AI capabilities, and there we are replacing, whether it's on-premise or cloud, we see it also in the on-premise, providers that have more of a smaller, limited solutions in terms of their functionality. With regards to Avaya, and in general, the family of providers that today have the lion's share of the on-premise and market share, the legacy market share, I think you can see it from -- and compare to our financials to their financials. No doubt there is a replacement cycle in the industry. We're enjoying it very much. And yes, Avaya is one of the ones, I believe, we find ourselves replacing them quite a lot.

Your next question comes from the line of John DiFucci from Jefferies.

I have a question for Barak and a follow-up for Beth. So Barak, the cloud revenue accelerated materially in the quarter, this quarter here, and the growth rate's been strong for some time, but that's a reversal after deceleration the last few quarters, and probably -- I mean, I assume just because of the law of large numbers. I'm assuming that's almost all CXone, since that incremental revenue -- since X-Sight's really new, and you also had Essentials, though, and some other cloud offerings, and I guess the question is, is it correct to assume that essentially all of the incremental cloud business is CXone?

Thanks, John. So yes, we have seen the cloud growth accelerating. We also -- the beauty of cloud, we can also have some view into the future, and giving that the strong guidance for Q1 with 11% growth overall, and yes, a lot of the acceleration is CXone, but I must say that we see some other things picking up. X-Sight and in general in Actimize, we see it in the bookings. It's still not there in the revenue. It will come in the revenue, I believe, this year, that we'll see that booking materialize into revenue. It takes time to ramp it up when it's new, but it's definitely happening. And also in some of our analytics solutions, including Nexidia, we see a very nice ramp in the cloud. So all in all, we expect the trend to continue. And we also enjoyed some very nice seasonality in Q4, and we believe we'll experience similar in Q1, as you can see.

Okay, great. So that's interesting to hear; X-Sight is actually gaining traction already in the bookings. So the -- okay, thank you. That's really helpful. And Beth, I know it's logical, but can you help us a little bit on our model? You guys guide to total revenue, and it's logical that license would continue to decline over time as more new business goes to the cloud, but as your increasing number of cloud solutions gain further traction, would -- should we be thinking that that decline could accelerate? And I ask that in the context -- because the quarter looks really strong, your guidance looks good, too, but your -- the top line is a little bit lower than the Street had you at, and I'm just wondering if it's something about the mix that's affecting that.

Yes, thanks for the question, John. I think first, to highlight, we believe that our guidance for the full year of 2019, as well as the first quarter, is quite strong. Just as a reminder, the revenue growth based on the midpoint of our guidance for the first quarter of 2019 is 11%, and I think it's a good opportunity to remind everyone that as we move into 2019, we are really comparing the year-over-year growth on an apples-to-apples basis. So it is using the revenue under ASC 606 as well as profitability compared to the 2018 financial results under 606, which we disclosed throughout the year last year, in addition to 605. So first I think it's, again, very important to make sure you're doing the true apples-to-apples comparison. With respect to the mix, as you've seen during 2018 and as expected, we do see more variability on the product and license side of the house, and we expect it will continue to see some variability from quarter to quarter. And really, one -- the strategic driver that we're seeing of cloud in our business is quite evident in our cloud growth, which we expect to continue to see as well.

Okay, so just continue to expect declines, but whether or not that accelerates is, I guess, still a question? It's kind of up to us.

Yes. As I said, I don't know that you should expect to continue to see declines. I think that you will see variability on the on-premise business from quarter to quarter, so there will be, again, generally some fluctuations and variability during the quarters of the year is what we expect.

Your next question comes from Walter Pritchard from Citi.

Just maybe following up on John's question about growth, I mean, you did consolidate Mattersight, I think, solely in Q4. Q3 was kind of a partial quarter, and that's, I think, reported mostly in cloud. Could you help us understand how much of an impact that had on cloud? And then, had a follow-up.

Sure. With respect to Mattersight, as you said, we closed that acquisition during the third quarter, and we highlighted at that time that we expected the annual run rate of revenue to be in a range of $32 million to $38 million. The actual results within Q4 were within that range, and so well within kind of what was expected. We look on the -- both the sequential growth, which was quite strong from Q3 to Q4, and you can put -- so putting Mattersight ahead, some very strong sequential growth, as well as the overall growth in our cloud business, which was 27% year-over-year in 2018 versus the prior year. So again, strong cloud momentum. As Barak said, we're also seeing very strong bookings, and as you know, with the cloud business, it takes longer to actually get that -- those bookings results carried through into the revenue, so we're also, again, quite optimistic as we go into 2019 to see the further effects of that business.

And then maybe just on 606, could you help us understand, with -- I think we get the revenue impacts with any of the expense impacts on 606. Probably a bit of a tailwind, and I know you're giving us the comparable from 2018 in both, but maybe the 2019 expense impacts from 606 would be helpful as we calibrate models.

Yes, so again, I think, as I highlighted before, what's really important to understand is that we will be measuring 2019 under 606 and we'll be comparing it to 2018 under 606. So there will be no impact in terms of the accounting change on the expenses.

Your next question comes from the line of Sanjit Singh from Morgan Stanley.

I wanted to follow up on, Barak, on some of your comments in your script on the 5-year plan. Could you describe, because I think, when thinking about your comments, it seems very ambitious in terms of the types of market segments you're going to go after, the geographic expansion, and that could mean competing with a different set of competitors than you traditionally have competed with. So from an organizational standpoint, what capabilities do you feel like you have to build to really attack sort of all geos and all segments, as sort of dictated by your strategy?

So first of all, we always believe in ambitious plans. We've done it when we started the journey 5 years ago, and I believe we executed well. And it's always important to put goals that will make us wake up every morning and drive very, very fast. I believe that, obviously, we have -- as we've changed the size of our markets, our total addressable markets, quite significantly, needless to say, we hinted to that, as we're also, already in the past 2 years, though, playing in a different ballgame, and we're playing with a broader scope and broader spectrum of competitors. Having said that, I think we're coming from the direction of the disrupters versus the incumbents in certain markets, and as disrupters, we came, I believe, quite prepared by the different assets we have assembled together in the last few years. But it's not just those assets, but it's about putting them together and bringing them with pioneering technology and the right technology, the true native cloud open platform that we have, we have the completeness of the offering, which I believe, from our experience in the day-to-day, is very, very important in the markets where we're playing today in the cloud with the trends with respect to analytics, AI, et cetera. Cloud with partial solutions might give you some entrants to the markets, but it's not a sustainable strategy. So we have built a strategy throughout the last 2 years organically, inorganically, and we have -- we now have the right assets to go with that. And this is the reason why we are providing this outlook for you on the call today. In terms of different things that we are kind of, say, missing in the company, I think that from the recent acquisitions we have done in the last 2 years, we've brought great talent, muscle and DNA to the company, combined with the great talent we had at NICE before. So spreading that throughout the company is something that we're doing and experiencing today, which I think gives us great results on the execution.

Great. I appreciate the thoughts. Then I had a follow-up on Walter's question and I guess a follow-up on John's question as well. I think what we're trying to understand is the sort of sources of growth, because it seems like the model is continuing to transition, which is sort of an obvious statement given the run-up in cloud. In terms of the existing NICE customer base, so when we think about that maintenance base, how should that -- how should we think about growth in that line? Or if -- or more generally, how are your existing on-premise customers -- are they moving to the cloud or are they expanding the cloud with new business? Is there any sort of transition with the maintenance base there?

So I think it's the combination and for us, we see it more as an opportunity than a threat. And so it, as Beth said before, and as you've seen in 2018, we will have some fluctuation in the product. We'll see some quarters where the product is growing very nicely and some that it's sluggish or declining, but overall we don't expect any acceleration or a sharp decline in this business. Actually, our maintenance business is doing extremely well and is very healthy throughout 2018 as well as in Q4, and also the outlook that we have into 2019. The reason for that is that we have, because of the way we strategize our way into the cloud, we're doing it while entering a much larger market. So our customers, first of all, we have customers that are not ours that talk about the replacements and the new logos, and for us these are brand-new opportunities, brand-new customers we've never seen revenue from, and those are coming in the cloud. Existing customers, some of them augmenting our on-premise solution with cloud, as we now added the Omnichannel Routing to our offering and analytics in the cloud, and so on and so forth, and that's as an add-on to the existing on-premise. And even in existing customers ready to move all of their on-premise solutions to the cloud, what we see versus the ongoing revenues we can see from these customers in an on-premise, anywhere from a 2x to 3x revenue, just moving that on-premise to the cloud. So we see this gradual movement, and I said in 5 years, we gave you some metrics, we believe that it will be more than half of our business, meaning the cloud.

Your next question comes from the line of Tavy Rosner from Barclay's.

Thank you for taking my questions; most of them have been asked. I had one about analytics. You talked about the strong traction you were seeing there, and I guess I was wondering, do you have a way to quantify what's the proportion of your existing customer base that are using or not using analytics, and therefore, how large is your opportunity to kind of up-sell that base?

Sure. So I think we've seen a few trends in our business with regards to analytics. I'll mention 3 of them that will help you to answer your question. The first one is that, given that we now have analytics both in the cloud as well as we're fully embedded in both X-Sight and CXone, it gives us the opportunity to provide analytics to market segments that before that, they didn't think even about adopting analytics given the sizes of their business. So it's basically taking analytics down-market. So that's one area. This is unpenetrated market for analytics. With respect to the higher end of the market, where the penetration is more significant, we actually see yet another wave of adoption of analytics customers, large enterprises that enjoy and got used to what can be done with our analytics, and the new generations of our solutions, allowing them to now further adopt and further penetrate with analytics to the complete enterprise as part of our vision, as I mentioned, analytics everywhere. And the third part is where we experienced a convergence between analytics and AI, and these are a customer that has been a user of analytics and now see the opportunity to sort of elevate the analytics further by introducing our AI solutions that are well embedded in our -- into our analytics solutions. So in a way, it's hard to just mention a penetration rate because, as I said, there are multiple layers and endless opportunity to cross-sell and up-sell, even to customers that already adopted analytics.

Okay, that's helpful. And then just looking back into the M&A story, I mean, I guess the inContact was the last large acquisition you made, and it's been quite successful, to say the least, and that's kind of going to keep you busy for a while given the opportunity out there. So I guess, looking at your net cash position, would you consider doing buybacks or dividend or something else for the time being if you don't see any large acquisition in the pipeline?

So, we have, I think, very good history of a company that is making acquisitions, and the last few acquisitions, we believe, is very successful both financially as well as strategically for the company, and allowed us to open up to such a larger addressable market, and moving us from a leader in a limited market, total addressable market, to a very fast-growing market. So that has been the past success of our acquisitions. We are constantly, as always, are active on the M&A front. We have our criteria of when and what to buy within our strategy. We see acquisition in something that can augment our strategy as it has been in the past. You're right; we have a very strong balance sheet and are very proud of our cash generation. That is an indication to the healthiness of our business. And right now we believe that we -- that this is the right place to be in looking into acquisition, but at any point of time if we will believe that there will be a better way to allocate our capital through the different measures that you said, of course, we will assess that.

Your next question comes from the line of Rishi Jaluria from D.A. Davidson.

Let me start with Barak: On CXone, you've talked in the past about kind of the APIs that you have on top of that. Would just be curious if you can maybe share how customer and partner usage has been on that front, and if you have any examples that you can provide of customers that have used those APIs, and maybe built something interesting or value-add on top of that. And then I've got a follow-up for Beth.

Sure. So the answer is absolutely, yes. One of the things that, beyond the completeness of the CXone platform and the fact that it's built on a true cloud environment, the other thing that we're very passionate about is the fact that it's open, it has all the APIs that you mentioned, and we believe that it gives us a very strong competitive edge. There are 2 -- kind of 2 main usage to these APIs and open platform. One is customers that would like to further integrate and use CXone as a platform for their business and integrated it to other systems and actually make it a mission-critical system within business processes that they have, and we see enterprises are doing that, easily integrating CXone into their environment. Obviously we enjoy it because it makes CXone much more of the mission-critical, and it makes it so much more sticky, of course, which is very, very important to us. The other thing is a lot of point solution vendors, we now already have -- north of 120 partners, technology partners, that made their solutions certified and available with CXone, and continues to grow. And this has also allowing us to continue our leadership with CXone because enterprises that have preference, for example, for (inaudible) or chatbots and application in the environment, they can use the CXone platform and embed the technology from different providers. The use cases, there are hundreds of them. I would say that a lot of our customers, the majority of them are using those APIs to the integration. And as this ecosystem grows, of course we'll provide more and more use cases. Actually a lot of our customers in the sell side, though, are looking into this community and are learning a lot from those use cases.

Got it, thanks. That's helpful. And then Beth, just going back to the earlier question around Mattersight, and if I do the math, assuming that Mattersight was purely a cloud, that actually tells me that cloud growth in Q4 was similar to what it was in Q3 on kind of an organic basis. Is my thinking directionally correct, or am I missing anything here? And then maybe just alongside that, since we're on the topic of Mattersight, just would love to hear if there's any thoughts on traction with Mattersight within the existing NICE customer base and how that's going so far. Thanks.

Thanks for the question, and again, I think, just to repeat, I think in terms of the expected performance of Mattersight, was really within the range we had expected. And generally, again, the cloud growth we experienced was strong both sequentially, as I said, even organically, from quarter to quarter, and strong growth year-over-year. Again, just further highlighting, we don't disclose the bookings results externally, but certainly we also have visibility into what the forward momentum looks like, which is, again, very strong. I think with respect to the, again, the integration of Mattersight, generally that's going well and on track with our plan.

Your next question comes from the line of Gabriela Borges from Goldman Sachs.

Good morning. This is Dan Church on for Gabriela Borges. Thanks for taking my question. I guess to start off, as we head into 2019, can you maybe share how your conversations with customers have changed, what the pipeline looks like and whether the level of sensitivity around cost control within the context on that has changed?

Well, we don't see any change in the trend from 2018. Conversations continue in the same way that they were before. Contact center and Customer Engagement in general is a top-of-mind item. It didn't change. This is the way today enterprises differentiate themselves; more and more understand that to get a seat at the table and get a seat at the boardroom these days at almost all enterprises. So we don't see any change in the dynamics, and the pipeline that was generated and is still being generated as strong as you saw in the full of 2018.

Thanks. And just as a quick follow-up, when you displace an incumbent vendor with CXone, can you maybe give us a sense for what the switching costs look like and deployment times, and is there anything you can do to make it easier for customers to switch and reduce switching costs?

Sure. So customers, of course, talk to us, and that -- they all have -- each customer is somewhat different depending on where they are in their depreciation cycle of their on-premise solution. The main reason for customers to move is not just a financial motive. Obviously it's the benefit of the innovation cycle the cloud provides them, the internal costs that they have, and we have a very health ROI model that customers adopt very nicely, and a consulting that we provide in terms of how to switch. It's commercial now, but it's also obviously a transition in terms of the transformation of the business. So yes, we provide this help to customers on how they move off, and I can tell that it is happening as we speak, and in the past there were a lot of questions about it; today, since everyone, all the customers that we meet, it's, for them, most of the cloud is no longer a question. The issue of how you transition from the economics side is less and less critical. The other -- the last thing I'll mention is that our model provides elasticity, also commercially, which is very attractive, as you off-board an on-premise of the incumbent.

And your final question comes from the line of Paul Coster from JP Morgan.

Yes, hi, and this is Mark Strouse on for Paul. Thanks for taking our questions. So there was a large enterprise storage company that talked about a pause at some of its larger customers owing to some macro uncertainty. And then NICE obviously has some strong secular tailwinds. But just curious if you're hearing anything from customers about cyclical risks or macro uncertainty?

No, we don't see anything. We talk to customers on a regular basis, on a daily basis. We haven't seen any of that signs. We read the same newspapers like all of you, and we had a concern, but we don't see it from customers. We don't see it in our business, not in the pipeline, and not in the business results.

Okay, that's helpful. And then just lastly, Beth, was there any impact in 1Q from the U.S. government partial shutdown that we need to kind of normalize for?

No, really no impact in our business that you should take into consideration.

Thank you. That was your final question; we have no further questions.

Thank you all very much for joining us, and we look forward to seeing you at Interactions in April in Las Vegas. Have a great day.

Thank you.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.