NICE(US:NICE)2025-03-19 20:43PART I Key Information This section outlines the significant risks facing the company, categorized into business and market risks, operational risks, security and intellectual property risks, regulatory challenges, and financial condition risks Risk Factors - The company operates in highly competitive markets against established software vendors and new entrants from adjacent markets (e.g., CRM, UCaaS), which could lead to pricing pressure and loss of market share2932 - Rapid technological changes, particularly the evolution and adoption of AI and Generative AI, require significant R&D investment, with failure to innovate potentially rendering products obsolete373943 - Growth is highly dependent on the cloud-based SaaS business, relying on third-party platforms like Amazon and Microsoft, and facing challenges in ensuring cloud revenue growth compensates for declining on-premises business444752 - The business relies on third-party software (e.g., LLMs) and infrastructure, where loss of access could disrupt service delivery and require costly redesigns71 - Cybersecurity incidents or breaches of the company's or its third-party providers' systems could lead to unauthorized access to sensitive customer data, resulting in significant legal, financial, and reputational damage878991 - The company is subject to a complex and evolving global regulatory environment, including data privacy laws (e.g., GDPR, CCPA), cybersecurity regulations, and emerging AI legislation, increasing compliance costs and potential liabilities109115116 - Quarterly results may be volatile due to factors like the timing of large customer orders, shifts to consumption-based pricing models, and general economic conditions affecting customer spending119120121 - As a global company, operations are exposed to foreign currency exchange risks, particularly fluctuations between the U.S. dollar and the NIS, EUR, GBP, and INR, which can impact expenses and earnings126 Information on the Company NICE Ltd. is a global enterprise software leader providing AI-powered cloud platforms for Customer Engagement and Financial Crime & Compliance, with a strategy centered on leveraging domain-specific AI and extensive data assets History and Development of the Company - Founded in 1986, NICE has evolved into an enterprise software leader in cloud, analytics, digital, and AI, with key acquisitions including Actimize (2007) and inContact (2016)167 - In August 2024, the Board of Directors appointed Scott Russell as the new CEO, effective January 1, 2025, succeeding Barak Eilam after his 10-year tenure169 Business Overview - NICE operates in two main markets: Customer Engagement, with its CXone Mpower AI platform, and Financial Crime and Compliance, offering AI solutions to prevent fraud and money laundering175 - The company's strategy is centered on AI as a catalyst for growth, focusing on increasing cloud win rates, expanding into digital, driving platform adoption, extending automation, and creating new AI-driven use-cases176192 - Key industry trends driving demand include the shift to AI-driven automation, the evolution of cloud platforms to be AI-first, the rise of AI copilots, and the critical need for AI trust and explainability182 - In the Customer Engagement market, NICE competes with Amazon Connect, Genesys, Five9, and TalkDesk, while in Financial Crime and Compliance, competitors include SAS, FICO, Oracle, and Verafin271274 - The company holds 575 U.S. patents and has 230 pending patent applications, relying on a combination of patent, trade secret, copyright, and trademark law to protect its proprietary technology100254 Organizational Structure - NICE Ltd. has numerous wholly-owned subsidiaries across the globe, with significant operations in the United States (Actimize Inc., inContact Inc., NICE Systems Inc.), Israel (Actimize Ltd.), India, and the United Kingdom275276 Property, Plants and Equipment - The company leases its primary office facilities, including its Israeli headquarters in Ra'anana (165,000 sq ft), North American headquarters in Hoboken, NJ (60,000 sq ft), and other key locations in London, Singapore, Atlanta, and Salt Lake City277 Operating and Financial Review and Prospects For fiscal year 2024, NICE reported a 15.0% increase in total revenues to $2.74 billion, driven by 25.4% growth in cloud revenue, which now represents 72.5% of total revenue Results of Operations Revenue Breakdown (2024 vs. 2023) | Revenue Type | 2024 ($M) | 2023 ($M) | % Change | | :--- | :--- | :--- | :--- | | Cloud | 1,984.2 | 1,581.8 | 25.4% | | Service | 596.0 | 641.4 | (7.1)% | | Product | 155.1 | 154.3 | 0.5% | | Total | 2,735.3 | 2,377.5 | 15.0% | - The 15% total revenue growth was primarily driven by a 25.4% increase in cloud revenue, reflecting strong demand for the CXone Mpower platform and increased cloud adoption in the Financial Crime and Compliance segment334337 Operating Expenses (2024 vs. 2023) | Expense Category | 2024 ($M) | 2023 ($M) | % Change | | :--- | :--- | :--- | :--- | | Research and development, net | 360.6 | 322.7 | 11.7% | | Selling and marketing | 642.3 | 599.1 | 7.2% | | General and administrative | 276.9 | 252.3 | 9.8% | | Total operating expenses | 1,279.7 | 1,174.1 | 9.0% | - Net income increased by $104.3 million to $442.6 million in 2024, driven by higher revenue and operating income, partially offset by increased operating expenses to support innovation and growth353 Liquidity and Capital Resources - As of December 31, 2024, the company had $1,621.7 million in cash, cash equivalents, and short-term investments, considered sufficient to meet working capital and capital expenditure needs for at least the next 12 months355358 Cash Flow Summary (2024 vs. 2023) | Cash Flow Activity | 2024 ($M) | 2023 ($M) | | :--- | :--- | :--- | | Net cash from operating activities | 832.6 | 561.4 | | Net cash used in investing activities | (397.4) | (293.6) | | Net cash used in financing activities | (456.6) | (290.3) | - Net cash from operations increased significantly to $832.6 million in 2024, primarily due to higher net income and favorable changes in working capital359 - Financing activities in 2024 included $369.2 million for share repurchases and $192.1 million for repayment of long-term debt362 Directors, Senior Management and Employees This section provides details on the company's leadership, compensation practices, and workforce, including the Board of Directors, senior management, executive compensation, equity incentive plans, and board practices governed by Israeli law Directors and Senior Management - The company's leadership includes Chairman of the Board David Kostman and CEO Scott Russell, who assumed the role on January 1, 2025368370379 Compensation - Aggregate compensation for 19 directors and executive officers in 2024 was approximately $11.1 million in salary and fees, plus $1.4 million in benefits, governed by a shareholder-approved policy389390 - In 2024, officers and directors received options for 92,301 ordinary shares and 178,622 restricted share units under the company's equity-based compensation plans392 Board Practices - As an Israeli company, NICE is subject to corporate governance practices under Israeli Companies Law, including requirements for outside directors and specific committee structures (Internal Audit, Audit, Compensation)398401 - The Board has established an Internal Audit Committee, an Audit Committee, a Compensation Committee, a Nominations Committee, and a Mergers and Acquisitions Committee to oversee various aspects of corporate governance400 Employees Employee Headcount by Year | Year | Total Employees | | :--- | :--- | | 2024 | 8,726 | | 2023 | 8,384 | | 2022 | 7,926 | - As of December 31, 2024, the company had 8,726 employees, with the largest concentrations in the Americas (3,723) and APAC (3,457) regions, and main functional areas being Customer Support (2,994) and R&D (3,070)426 Major Shareholders and Related Party Transactions As of March 16, 2025, the company is not aware of any beneficial owner holding 5% or more of its outstanding ordinary shares, with approximately 76% held by ADS holders of record in the United States - As of March 16, 2025, NICE is not aware of any beneficial owner holding 5% or more of its ordinary shares, with Capital Research Global Investors, a previous 5%+ holder, no longer meeting this threshold447 - Approximately 76% of the company's outstanding ordinary shares are held by ADS holders of record in the United States448 Financial Information This section refers to the consolidated financial statements included in Item 18, noting that legal proceedings are not expected to have a material effect and there are no current plans to pay dividends - The company is involved in various legal proceedings arising from the ordinary course of business but does not believe they will have a material effect on its financial position or results451 - NICE has no current plans to make future dividend payments; any potential dividends are at the discretion of the Board of Directors452 Additional Information This section details the company's corporate structure, governance, and material contracts, including articles of association, fiduciary duties, approval processes, and the terms of its 0% exchangeable senior notes due 2025 Memorandum and Articles of Association - The company is organized under Israeli Companies Law, which codifies fiduciary duties (duty of care and loyalty) for office holders and requires disclosure and specific approval processes for transactions involving personal interests456461462 - Executive compensation is governed by a Compensation Policy that must be approved by the compensation committee, Board of Directors, and shareholders at least once every three years468 Material Contracts - The company has $460 million in aggregate principal of 0% exchangeable senior notes due September 15, 2025, with an initial conversion price of approximately $299.19 per ADS495496497 - The 1.25% exchangeable senior notes issued in 2017 fully matured on January 15, 2024, and were settled in cash494 Taxation - As an Israeli company, NICE benefits from reduced tax rates under Israel's "Special Preferred Technology Enterprise" and "Preferred Technology Enterprise" programs, with tax rates as low as 6% or 12% on qualifying income505507509 - For U.S. holders, dividends paid by NICE are generally expected to be "qualified dividend income" taxable at lower capital gains rates, provided holding period requirements are met and the company is not classified as a Passive Foreign Investment Company (PFIC)537 - The company does not believe it will be classified as a PFIC for the current taxable year, which would subject U.S. holders to adverse tax consequences546 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from foreign currency exchange rates and interest rate fluctuations, using derivative instruments to hedge against volatility in non-dollar currencies and managing interest rate risk through fixed-rate debt and investment-grade securities - The company is exposed to foreign exchange fluctuations, primarily in NIS, GBP, EUR, INR, and PHP, and uses currency forward and option contracts to hedge forecasted non-dollar cash flows555 - As of December 31, 2024, the company had outstanding currency forward contracts to hedge payroll and other expenses totaling approximately $211.13 million556 - Interest rate risk is managed through fixed-rate debt and an investment portfolio of high-grade securities, including $460 million in 0% exchangeable senior notes due 2025560561563 PART II Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2024, with an unqualified attestation report from the independent registered public accounting firm - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2024580 - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, an assessment attested to by the independent registered public accounting firm583584 Other Information This section covers various governance and compliance topics, including audit committee financial experts, the Code of Ethics, fees paid to the principal accountant, share repurchases, insider trading policy, and the comprehensive cybersecurity risk management program overseen by the Board of Directors Principal Accountant Fees and Services Fees Paid to Independent Auditors (in thousands) | Service Type | 2024 Fees ($) | 2023 Fees ($) | | :--- | :--- | :--- | | Audit | 1,144 | 1,150 | | Audit-related | 369 | 95 | | Tax | 468 | 438 | | Total | 1,981 | 1,683 | Purchases of Equity Securities by the Issuer and Affiliated Purchasers - During 2024, the company repurchased a total of 2,080,635 shares at a weighted average price of $177.44 per share592593 - The Board of Directors authorized a $300 million share repurchase program in November 2023 (completed in 2024) and an additional $500 million program in June 2024593 Cybersecurity - The company maintains a Cybersecurity Risk Program to assess, identify, and manage material risks from cyber threats, overseen by the Corporate VP of Information Security who reports to the CFO600607 - The Board of Directors has ultimate oversight of cybersecurity risk management and receives regular updates on threats and the program's status, with the Internal Audit Committee also reviewing cybersecurity risks and controls608 - The company holds multiple security certifications, including ISO 27001, FedRAMP, SOC 2 Type II, and PCI DSS for relevant business lines, and utilizes third-party experts for threat monitoring and penetration testing601602603 PART III Financial Statements This section contains the company's consolidated financial statements for the fiscal year ended December 31, 2024, prepared in accordance with U.S. GAAP, including the Report of Independent Registered Public Accounting Firm and detailed financial statements with notes Report of Independent Registered Public Accounting Firm - The independent auditor, Kost Forer Gabbay & Kasierer (a member of Ernst & Young Global), issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position of the company620 - The auditor also issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2024, based on the COSO 2013 framework621635 - Revenue recognition was identified as a Critical Audit Matter due to the significant judgments required in accounting for contracts with multiple performance obligations, determining standalone selling prices, and the timing of revenue recognition626627628 Consolidated Financial Statements Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2024 ($M) | 2023 ($M) | | :--- | :--- | :--- | | Total Current Assets | 2,504.8 | 2,312.9 | | Goodwill | 1,849.7 | 1,822.0 | | Total Assets | 5,295.9 | 5,117.6 | | Total Current Liabilities | 1,474.4 | 1,120.3 | | Total Long-Term Liabilities | 218.3 | 642.8 | | Total Shareholders' Equity | 3,603.2 | 3,354.5 | Consolidated Income Statement Highlights (Year Ended Dec 31) | Metric | 2024 ($M) | 2023 ($M) | | :--- | :--- | :--- | | Total Revenue | 2,735.3 | 2,377.5 | | Gross Profit | 1,825.7 | 1,609.3 | | Operating Income | 546.0 | 435.2 | | Net Income | 442.6 | 338.3 | | Diluted EPS ($) | 6.76 | 5.11 | - During 2024, the company completed two acquisitions for a total consideration of $68.9 million, following the acquisition of LiveVox Inc. for $424.1 million in December 2023663669 - As of December 31, 2024, the company had remaining performance obligations of approximately $3.07 billion for contracts with an original duration greater than one year, with the majority expected to be recognized as revenue over the next 24 months701702