Dear Shareholders:
Leaders are often defined by their ability to elevate their perspective. Those that do navigate with strategic foresight, anticipate market shifts and spot hidden opportunities. There is nothing so limiting as viewing opportunities through the same lens as yesterday's challenges. A change of perspective is the spark that ignites accelerated growth.
For nearly four decades, NICE has been triumphantly navigating the dynamic landscapes across multiple industries, embracing the winds of change altering our external business environment and stirring transformation within our very core. Fanning the flames of innovation, harnessing the waves of evolving market demands and hardwiring a culture of strong execution have stood as the cornerstones on which NICE thrives. Our on-going commitment to proactively shape the future requires a habitual change in perspective, not just as a necessity but as an invaluable asset on our journey forward.
A New Perspective on Market Forces
Enterprise initiatives, investments and projects in the foreseeable future will be founded on an amalgamation of three fundamental technological driving forces: Cloudification, Digitalization and AI-ization. Conventional wisdom confines the strength of each of these forces to its inherently apparent business potential, squandering opportunities and overlooking their true transformative potential. A more sophisticated approach, one that reevaluates these forces through the prism of an elevated new perspective, recognizes that they are fundamentally reshaping the enterprise software market as we know it, creating an overarching generational movement.
Cloudification → Grand Refactoring
Cloud is typically thought of as a way for organizations to consume technology in a new non-localized, standardized and virtualized way. However, a panoptic perspective on cloudification uncovers its real impact: Driving a grand refactoring throughout the entire enterprise software market, forcing the re-writing from scratch of billions of lines of code natively in the cloud and forcing all software players to modernize their tech stack. This is the exact reason for the incredible shift we see in market forces, the rise of new software leaders and the collapse of once-iconic players who fell behind.
Digitalization → Grand Convergence
For several decades, the software market has devolved into an endless array of distinct categories, with enterprises unwittingly forced to become the de facto integrators of disjointed point solutions. Digitalization has quickly made its way to the top of every CIO’s agenda, not as the presumptive modernization effort - but rather as a defiant revolt against this over-fragmentation, forcing a complete blurring of clear-cut lines between software categories, and driving a grand convergence.
AI-ization → Grand Fusion
The biggest unsolved execution challenge preventing enterprises to thrive as they scale remains that of streamlining people, processes and technology. AI-ization is about to reshape many aspects of our lives, but when it comes to organizations, its ultimate role will be a force of grand fusion, finally bringing these three constituents together in the most natural and effortless way.
Our Strategy Beyond the Obvious
The act of aligning with these three grand forces: refactoring, convergence and fusion is rewriting the benchmark for leadership in our era. When these forces are brought together and unified in the right way by a company with a bold vision - the result is epic. Reframing the NICE journey of the past decade with these fresh new perspectives in mind, reveals that our strategy all along was riding directly on top of these transformations, winning the races across all our markets.
We were the ones that triggered the cloudification cycle of our markets, refactoring all our solutions, building them from the ground up natively in the cloud. Today we own the undisputed market leading platforms CXone, Xceed, X-sight and EvidenCentral.
We continuously led a smart convergence of adjacent software categories, expanding the definition of our addressable markets. To name but a few, we completely reshaped the CX market, combining buying decisions on ACD, WEM and Analytics - into one. We coined FRAML as the standard framework for fighting financial crime, and we made a market-changing case-study-worthy move, reimagining the way evidence is managed across the entire Criminal Justice system.
We are the major force for AI fusion in our specific markets, and the only vendor with the complete set of AI must-have assets: largest collection of unique historical and current data, most relevant knowledge elements and unmatched domain expertise.
The Road Ahead: Fueled by Possibilities
This fresh take on our journey and underlying market forces is also unveiling a grand opportunity for NICE. We are fortunate to lead markets of remarkable opportunity. Not only are they vast and constantly expanding, but they also manifest unique attributes: we navigate secular markets, solving critical problems that transcend economic fluctuations; we tackle complex challenges, requiring feature-rich solutions that preclude any chance of commoditization, giving rise to high barriers of entry that keep potential competitors at bay; we enjoy an abundance of opportunities fueled by the distinctive lag of technology adoption emblematic to our markets; we are focused on markets burdened by soaring labor-driven costs exceeding 90% of total expenditures, ripe for the massive shift of spend from labor to automation.
NICE is exceptionally well-positioned to become the eminent winner of this grand opportunity, given our sui generis assets: we are categorically recognized as the top leader in every market we operate in; we offer the most complete, robust and dominant platforms; we deliver a wide-ranging portfolio that is as rich in its breadth as it is profound in its depth; we own the most critical data elements that form the foundational crux for AI; we established a powerful wide-reaching ecosystem that envelops the entire world. On top of it all, we are a highly profitable company, with an industry-leading balance sheet, a springboard for our incomparable track record of successful organic and inorganic growth.
2024 and Onwards: Growth Pillars Realized
The past year was filled with tremendous growth and expansion across the board, leading to record achievements and crossing many success milestones: 22% cloud revenue growth, $2.4 billion of total revenue, 70.5% non-GAAP cloud gross margin, non-GAAP operating margin of 30%, non-GAAP EPS growth of 15% and record cash generation of $561 million. Above all, 2023 will be remembered for two era-defining landmarks for NICE - taking command of the digital engagement market and charting the course of AI in our industries.
As we enter 2024, it is now unmistakably clear that AI has established itself as an overarching catalyst, propelling our four vectors of growth.
- AI fuels our cloud win rate - with only 20% of our markets shifted to the cloud, we are witnessing an enterprise cloud inflection point, where the lion’s share of exciting large-scale cloud transitions is about to take place. AI is turbo-charging our differentiation, substantially expanding our already high cloud win rates, as evidenced by the nearly 1,000 new customers added in 2023, displacing competitors with each newly acquired logo.
- AI as the bedrock of rapid expansion into digital - NICE is a digital trailblazer, encompassing the entirety of all digital engagements. Our disruptive AI is a formidable convergence power, igniting a wave of migrations from legacy 1.0 digital vendors to NICE. This is now the fastest expanding part of our business, reflected by an astonishing 6X annual growth in the volume of digital engagements managed by NICE, cementing us as the industry’s fastest growing digital platform.
- AI fusion powers our platform adoption – Enterprise buyers are pivoting 180 degrees from multiple point solutions to building and simplifying their tech stack by standardizing on a single platform. This trend is now gaining a significant boost because it is the only viable way to implement AI that works. Platforms don’t appear overnight. It takes strenuous planning with ongoing strategic decisioning, along with a decade-long engineering investment. The force of this AI tailwind can be fully observed in our soaring 200% platform booking growth in Q4 2023.
- AI as endless source for lucrative new use-cases – We are experiencing a surge in the number of customers and prospects approaching us after trying to leverage general purpose generative AI technologies, unsuccessfully. They come to us with a clear realization that our specialized AI, with its thousands of constantly evolving and expanding models, based on billions of interactions, is the only viable option. NICE is quickly becoming the AI powerhouse of our markets as demonstrated by a staggering 375% increase in Q4 2023 Enlighten AI bookings.
The Wind in NICE’s Sails
The cornerstone of our success lies in our remarkably diverse and global workforce – our 8,500 NICErs. We are bringing together passionate individuals from all corners of the world, a collaborative mix of long-time NICErs, recent joiners and talent coming from acquired companies, united by their deep-seeded passion for innovation and winning. Together, we are creating an environment where fresh perspectives interlock, sparking groundbreaking ideas, allowing us to consistently push boundaries and be lead the evolution in our markets.
The ripple effect of our unwavering culture extends far beyond the four walls of our company. We see ourselves as threads woven into the global tapestry, and we believe in strengthening the fabric of the communities in which we operate. Our passionate NICErs are generously sharing their time and expertise to leave a lasting positive footprint through impactful projects.
I believe that the rules of engagement for public companies have changed and there’s an imperative for businesses to play a larger role in society. As CEO, I feel compelled to use my voice as a catalyst for positive change, publicly addressing wide-impacting topics, especially during moments of critical importance.
We are at the forefront of an exciting new era with endless possibilities. Leading this remarkable company is an on-going honor. To our customers, partners, and shareholders – your longstanding trust is the fuel that propels us forward and we thank you for that. Together, we share a vision, not just for success, but for shaping the very future of our industry.
Excellence blooms in the fertile ground of transformed perspectives, nurturing a bright future for NICE. I am incredibly excited to continue on this journey with you.
Sincerely,
Barak Eilam
Chief Executive Officer
