UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27466
NICE LTD.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Israel
(Jurisdiction of incorporation or organization)
13 Zarchin Street, P.O. Box 690, Ra’anana 4310602, Israel
(Address of principal executive offices)
Tali Mirsky
Corporate VP, General Counsel and Corporate Secretary
Tel: +972-9-7753151
E-mail: tali.mirsky@nice.com
13 Zarchin Street, P.O. Box 690, Ra’anana 4310602, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
American Depositary Shares, each
representing
one Ordinary Share, par value one
New Israeli Shekel per share
Trading Symbol
NICE
Name of Each Exchange
On Which Registered
NASDAQ Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the
annual report: 62,398,221 Ordinary Shares, par value NIS 1.00 per share (which excludes 12,376,606 treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days:
☐ Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
☒ Yes ☐ No
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer ☒
Non-Accelerated Filer ☐
Accelerated Filer ☐
Emerging Growth Company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☒
☐
☐
U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has
elected to follow:
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐ Item 17 ☐ Item 18
☐ Yes ☒ No
PRELIMINARY NOTE
This annual report contains historical information and forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to NICE’s business, financial condition and results of
operations. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,”
“strategy,” “continue,” “goal” and “target” and similar expressions, as they relate to NICE or its management, are
intended to identify forward-looking statements. Such statements reflect the current beliefs, expectations and
assumptions of NICE with respect to future events and are subject to risks and uncertainties. The forward-looking
statements relate to, among other things: operating results; anticipated cash flows; gross margins; adequacy of
resources to fund operations; our ability to maintain our average selling prices despite the aggressive marketing and
pricing strategies of our competitors; our ability to maintain and develop profitable relationships with our key
distribution channels; the financial strength of our key distribution channels; and the market’s acceptance of our
technologies, products and solutions.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to
differ materially from those contained in any forward-looking statements made by us; any such statement is qualified
by reference to the following cautionary statements. Many factors could cause the actual results, performance or
achievements of NICE to be materially different from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements, including, among others, changes in general economic and
business conditions, competition with existing or new competitors, success and growth of cloud Software-as-a-Service
business, successful execution of our growth strategy, difficulties in making additional acquisitions or effectively
integrating acquired operations, dependency on third-party cloud computing platform providers, hosting facilities
and service partners, rapidly changing technology, cyber security attacks or other security breaches, privacy concerns
and legislation, changes in currency exchange rates and interest rates, the effects of additional tax liabilities resulting
from our global operations and various other factors, both referenced and not referenced in this annual report. These
risks are more fully described under Item 3, “Key Information – Risk Factors” of this annual report. Should one or
more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may
vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or
projected. All forward-looking statements are made only as of the date hereof. NICE does not intend or assume any
obligation to update these forward-looking statements. Investors should bear this in mind as they consider forward-
looking statements and whether to invest or remain invested in NICE’s securities.
In this annual report, all references to “NICE,” “we,” “us,” “our” or the “Company” are to NICE Ltd., a company
organized under the laws of the State of Israel, and its wholly owned subsidiaries. For a list of our significant subsidiaries,
please refer to page 49 of this annual report.
In this annual report, unless otherwise specified or unless the context otherwise requires, all references to “$” or
“dollars” are to U.S. Dollars, all references to “EUR” are to Euros, all references to “GBP” are to British Pounds, all
references to “CHF” are to Swiss Francs, all references to “NIS” are to New Israeli Shekels and all references to “INR” are to
Indian Rupee. Except as otherwise indicated, the financial statements of and information regarding NICE are presented in
U.S. dollars.
TABLE OF CONTENTS
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
History and Development of the Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Information
The Offer and Listing
Additional Information
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
[Reserved]
Item 13.
Item 14.
Item 15.
Item 16.
Item 16A. Audit Committee Financial Expert
Code of Ethics
Item 16B.
Principal Accountant Fees and Services
Item 16C.
Exemptions from the Listing Standards for Audit Committees
Item 16D.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16E.
Change in Registrant’s Certifying Accountant
Item 16F.
Item 16G.
Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17.
Item 18.
Item 19.
Index to Financial Statements
Financial Statements
Financial Statements
Exhibits
Page
1
1
1
23
52
52
66
79
80
80
81
97
100
102
102
102
102
103
103
103
104
104
105
105
106
106
106
F-1
PART I
Item 1.
Identity of Directors, Senior Management and Advisers.
Not Applicable.
Item 2.
Offer Statistics and Expected Timetable.
Not Applicable.
Item 3.
Key Information.
Selected Financial Data
The following selected consolidated balance sheet data as of December 31, 2018 and 2019 and the selected
consolidated statements of income data for the years ended December 31, 2017, 2018 and 2019 have been derived from our
audited consolidated financial statements included in this annual report. These financial statements have been prepared in
accordance with United States generally accepted accounting principles, or U.S. GAAP, and audited by Kost, Forer, Gabbay
& Kasierer, a member of EY Global. The selected consolidated statements of income data for the years ended December 31,
2015 and 2016 and the selected consolidated balance sheet data as of December 31, 2015, 2016 and 2017 have been derived
from other consolidated financial statements not included in this annual report and have also been prepared in accordance
with U.S. GAAP and audited by Kost, Forer, Gabbay & Kasierer, a member of EY Global. The selected consolidated
financial data set forth below should be read in conjunction with and are qualified by reference to Item 5, “Operating and
Financial Review and Prospects”, the consolidated financial statements and notes thereto and other financial information
included elsewhere in this annual report.
2015
Year Ended December 31,
2017
2018
2016
2019
OPERATING DATA:
Revenues
Products
Services
Cloud
Total revenues
Cost of revenues
Products
Services
Cloud
Total cost of revenues
Gross profit
Operating expenses:
Research and development, net
Selling and marketing
General and administrative
Amortization of acquired intangible assets
Total operating expenses
Operating income
Financial and other income (expense), net
Income before taxes on income
(In thousands, except per share date)
$ 317,900
$
306,252
$
318,946
$
263,805
$
269,100
573,033
35,934
623,783
85,507
652,040
361,166
719,531
461,183
709,064
595,748
926,867
1,015,542
1,332,152
1,444,519
1,573,912
53,032
250,022
34,679
337,733
677,809
141,528
268,349
116,569
17,187
543,633
134,176
10,305
144,481
51,065
225,020
192,588
468,673
863,479
181,107
361,328
129,071
41,902
713,408
150,071
(20,411)
129,660
31,065
229,671
236,079
496,815
947,704
183,830
370,659
153,323
42,276
750,088
197,616
(10,901)
186,715
22,926
218,990
289,852
531,768
1,042,144
193,718
399,304
168,022
42,383
803,427
238,717
(4,444)
234,273
66,363
222,783
14,436
303,582
623,285
128,485
225,817
90,349
12,528
457,179
166,106
5,304
171,410
1
Taxes on income (tax benefits)
Net income from continuing operations
Discontinued operations:
Gain on disposal and income (loss) from
discontinued operations
Taxes on income (tax benefits)
Net income from discontinued operations
Net income
2015
30,832
140,578
152,459
34,206
118,253
258,831
Year Ended December 31,
2017
2018
2016
21,412
123,069
(13,631)
143,291
27,377
159,338
(8,235)
(2,086)
(6,149)
—
—
—
—
—
—
2019
48,369
185,904
—
—
—
116,920
143,291
159,338
185,904
Basic earnings per share from continuing
operations
Basic earnings (loss) per share from discontinued
operations
Basic earnings per share
Weighted average number of shares used in
computing basic earnings per share
Diluted earnings per share from continuing
operations
Diluted earnings (loss) per share from discontinued
operations
Diluted earnings per share
$
$
$
$
$
$
2.36
1.99
4.35
59,552
2.29
1.93
4.22
$
$
$
$
$
$
2.06
$
2.37
$
2.60
$
2.99
(0.10) $
1.96
$
— $
2.37
$
— $
2.60
$
—
2.99
59,667
60,444
61,387
62,120
2.02
$
2.31
$
2.52
$
2.88
(0.10) $
1.92
$
— $
2.31
$
— $
2.52
$
—
2.88
Weighted average number of shares used in
computing diluted earnings per share
61,281
61,035
62,119
63,309
64,661
BALANCE SHEET DATA*:
Working capital**
Total assets
Shareholders’ equity
2015
2016
At December 31,
2017
(In thousands)
2018
2019
$
256,089
$
13,713
$
132,154
$
201,217
$
160,272
1,849,613
1,415,149
2,631,876
1,511,332
2,845,086
1,749,561
3,207,366
2,016,613
3,609,905
2,257,266
*Including assets and liabilities that are accounted for as discontinued operations.
**Including deferred revenues and advances from customers that are classified as long-term liabilities.
Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in
our other filings with the Securities and Exchange Commission (“the SEC”), including the following risk factors which we
face, and which are faced by our industry. The risks and uncertainties described below are not the only ones facing us. Other
events, circumstances or factors that we do not currently anticipate or that we currently do not deem to be material risks may
also affect our business, results of operations and financial condition. Our business, financial condition and results of
operations could be materially and adversely affected by any of these risks.
2
Risks Relating to the Global Environment
Conditions and changes in the local and global economic environments may adversely affect our business and
financial results.
Adverse economic conditions in markets or regions in which we operate can harm our business. Our results of
operations can be affected by adverse changes in local and global economic conditions, slowdowns, recessions and economic
instability. To the extent that our business suffers as a result of such unfavorable economic and market conditions, including a
potential downturn as a result of COVID-19 (as further described below), our operating results may be materially adversely
affected. In particular, enterprises may reduce spending in connection with their contact centers, financial institutions may
reduce spending in relation to trading floors and operational risk management (as IT-related capital expenditures are typically
lower priority in times of economic slowdowns), and our customers may prioritize other expenditures over our solutions. In
addition, enterprises’ ordering and payment patterns are influenced by market conditions and could cause fluctuations in our
quarterly results. If any of the above occurs, and our customers or partners significantly reduce their spending or significantly
delay or fail to make payments to us, our business, results of operations, and financial condition would be materially
adversely affected.
The financial services sector is one of our main industry verticals. If there is deterioration or a crisis in the economic
and financial stability of financial institutions, customers in this sector, including our top tier customers, could fail to make
payments to us, reduce spending or delay or postpone orders, or there could be less demand for our products in this sector.
This could have a material adverse effect on our sales to this sector and our results of operations.
Disruption to the global economy could also result in a number of follow-on effects in addition to a slow-down in
our business, including a possible (i) negative impact on our liquidity, financial condition and share price, which may impact
our ability to raise capital in the market, obtain financing and secure other sources of funding in the future on terms favorable
to us, and (ii) decrease in the value of our assets that are deemed to be other than temporary, which may result in impairment
losses.
We face risks relating to our global operations.
We sell our products and solutions throughout the world and intend to continue to increase our penetration of
international markets. Our future results could be materially adversely affected by a variety of factors relating to international
transactions, including:
•
•
•
•
•
•
•
•
governmental controls and regulations, including import or export license requirements, trade protection
measures and changes in tariffs;
compliance with applicable international and local laws, regulations and practices, including those related
to trade compliance, anticorruption, data privacy and protection, tax, labor, employee benefits, customs,
currency restrictions and other requirements;
fluctuations in currency exchange rates;
longer payment cycles in certain countries in our geographic areas of operations;
potential adverse tax consequences, variations in effective income tax rates and tax policies among
countries where we conduct business, including the complexities of foreign value added tax systems;
political instability, armed conflicts, terrorism and security concerns;
reduced or limited protection for intellectual property rights in some countries; and
general difficulties in managing our global operations.
On June 23, 2016, the United Kingdom (the “UK”) held a referendum in which voters approved an exit from the
European Union (the “EU”), commonly referred to as “Brexit”, and on March 29, 2017 the UK delivered to the EU the
3
official separation notice in accordance with Article 50 of the Lisbon Treaty. As of January 31, 2020, the UK is no longer a
member of the EU.
Some of our customers, suppliers and partners (i) sell or buy high volumes of goods or services to and from the EU;
(ii) have highly integrated UK-EU supply chains; (iii) rely heavily on their EU staff; or (iv) operate in highly regulated areas.
The UK is currently in a transition period, which is scheduled to last until December 31, 2020, and, as we do not know the
exact separation and trade terms that the British Government will negotiate with the EU, it is difficult for NICE to predict the
impact that it will have on our operation and/or financial results. Brexit could, among other outcomes, disrupt the free
movement of goods, services, and people between the UK and the EU, impose new regulatory costs and burdens, including
customs duties or tariffs, have a detrimental impact on the UK and EU economies, and harm business activities in all sectors.
As a result, our customers or partners may significantly reduce their spending with us or significantly delay or fail to make
payments to us, and our business, results of operations, and financial condition could be materially adversely affected.
The U.S. administration is renegotiating certain existing international trade agreements, adopting a new trade policy,
imposing tariffs on certain goods and attempting to change the policies of international trade organizations. All of these could
result in the increase of our costs and decrease of our margins. We do not know at this time what additional changes, if any,
the U.S. administration will make, and what the impact on us of any of those changes may be. However, any such changes
may have a significant impact on our business and operation, which may adversely affect our financial results.
Changes in the political or economic environments, business spending, and the availability and cost of capital in the
countries in which we operate, especially in Israel and the U.S., including the impact of such changes on foreign currency
rates and interest rates, and the impact of economic conditions on underlying demand for our products and services, could
have a material adverse effect on our financial condition, results of operations and cash flow.
As a result of our global presence, especially in emerging markets, we face increasing challenges that could adversely
impact our results of operations, reputation and business.
In light of our global presence, especially in emerging markets such as those in Asia, Eastern Europe and Latin
America, we face a number of challenges in certain jurisdictions that provide reduced legal protection, including poor
protection of intellectual property, inadequate protection against crime (including bribery, corruption and fraud) and breaches
of local laws or regulations, unstable governments and economies, governmental actions that may inhibit the flow of goods
and currency, challenges relating to competition from companies that already have a local presence in the market and
difficulties in recruiting sufficient personnel with appropriate skills and experience.
Local business practices in jurisdictions in which we operate, and particularly in emerging markets, may be
inconsistent with international regulatory requirements, such as anti-corruption and anti-bribery laws and regulations
(including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act) to which we are subject. Although we
implement policies and procedures designed to ensure compliance with these laws, we cannot guarantee that none of our
employees, contractors, partners and agents, as well as those companies to which we outsource certain of our business
operations, will not violate our policies or applicable law. Any such violation could have an adverse effect on our business
and reputation and may expose us to criminal or civil enforcement actions, including penalties and fines.
Furthermore, the increased presence of our global operations in emerging markets, including outsourcing of certain
operations to service providers in such markets (such as India and the Philippines), could impact the control over our
operations, as well as create dependency on such external service providers. This method of operation may impact our
business and adversely affect our results of operation.
Our business, facilities or operations could be adversely affected by events outside of our control, such as natural
disasters or health epidemics.
Natural disasters or other unexpected events that adversely affect the business climate in any of our markets could
have a material adverse effect on our business, financial condition and results of operations. Our business operations may be
subject to interruption by natural disasters, fire, power shortages, telecommunications failures, epidemics and other events
beyond our control. Although we maintain disaster recovery and business continuity plans, such events could make it difficult
or impossible for us to deliver our products and services to our customers, and could decrease demand for our products and
services.
4
In December 2019, a strain of novel coronavirus (COVID-19) causing respiratory illness emerged in the city of
Wuhan in the Hubei province of China. Since then, COVID-19 has spread to many countries and is impacting the markets
globally. COVID-19 has created significant volatility in global markets, including the market price of our securities. The
spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus,
especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted, and
additional cities are considering, quarantining regulations which severely limit the ability of people to move and travel, and
require non-essential businesses and organizations to close their physical offices.
COVID-19 is contributing to a general slowdown in the global economy and may affect our business, results of
operations, financial condition and our future strategic plans. At this time, the extent to which the COVID-19 may impact our
financial condition or results of operations is uncertain. Furthermore, due to our subscription based business model, the effect
of the COVID-19 may not be fully reflected in our results of operations until future periods, if at all.
Risks Relating to our Business, Competition and Markets
The markets in which we operate are highly competitive and we may be unable to compete successfully.
The markets for our products, solutions and related services are, in general, highly competitive. Our competitors
include a number of large, established developers and distributors. Some of our principal competitors or potential competitors
may have advantages over us, including greater resources, a broader portfolio of products, applications and services, larger
patent and intellectual property portfolios and access to larger customer bases, all of which would enable them to better adapt
to new or emerging technologies or customer requirements or devote more resources to the marketing and sale of their
products and services. Additionally, continued price reductions by some of our competitors, particularly at times of economic
difficulty, may result in our loss of sales or require that we reduce our prices in order to compete, which would adversely
affect our revenues, gross margins and results of operations.
Additional competition from new potential entrants to our markets, including new technology vendors competing in
specific areas of our business, may lead to the widespread availability and standardization of some of the products and
services we provide, which could result in the commoditization of our products and services, reduce the demand for our
products and services and drive us to lower our prices.
In recent years, some of our competitors have increased their presence in our markets through internal development,
partnerships and acquisitions. Infrastructure and/or enterprise software vendors, such as those from the traditional enterprise
business intelligence and business analytics sector, Customer Relationship Management (“CRM”) vendors or Platform as a
Service (PaaS) vendors, have entered or may decide in the future to enter our market space and compete with us by offering
comprehensive solutions (whether through internal development or through acquisition of any of our competitors). In
addition, some Unified Communications as a Service (“UCaaS”) providers have acquired or may continue to acquire small
contact center as a Service (“CCaaS”) organizations that compete with us in the very lower end of the market. If we are not
able to compete effectively with these market entrants or other competitors, we may lose market share and our business,
financial condition or results of operations could be adversely affected.
In light of the intense competition in our markets, successful development, positioning and sales execution of our
products is a critical factor in our ability to successfully compete and maintain growth. Therefore, we must continue making
significant expenditures on research and development, marketing and sales to compete effectively. In addition, our software
solutions may compete with software developed internally by potential clients, as well as software and other solutions offered
by competitors. We cannot ensure that the market awareness or demand for our new products or applications will grow as
rapidly as we expect, or that the introduction of new products or technological developments by others will not adversely
impact the demand for our products.
Successful marketing of our products and services to our customers and partners will be critical to our ability to
maintain growth. We cannot assure that our products or existing partnerships will permit us to compete successfully. The
market for some of our solutions is highly fragmented and includes a broad range of product offerings, features and
capabilities. Consolidation through mergers and acquisitions, or alliances formed, among our competitors in this market, who
may have greater resources than we have, could substantially influence our competitive position.
5
As we expand into new markets, we are faced with new challenges, including new competition, which may possess
specific assets, relationships, know-how, and technologies that enable our competitors to better respond to customer
requirements or preferences or devote greater resources to the development, promotion and sale of their products.
Additionally, prices of our solutions may decrease throughout the market due to competitive pressures. Further, in
relation to our cloud offering, we may be affected by the pricing of certain infrastructure services, such as in the area of
Platform as a Service and network connectivity, which would in turn affect the rates we offer to our customers. This could
have a negative effect on our gross profit and results of operations.
Our Cloud Software-as-a-Service business model may not be successful.
Our cloud-based business has grown significantly, and therefore we are more dependent now on the success of this
area of our business. If we are not able to compete effectively, generate significant revenues or maintain the profitability of
our cloud offerings, or if we do not successfully execute our cloud strategy or anticipate the cloud needs of our customers,
our revenues could decline.
In addition, the increasing prevalence of cloud and Software-as-a-Service ("SaaS") delivery models offered by us
and our competitors may unfavorably impact pricing in both our on-premises enterprise software business and our cloud
business, as well as overall demand for our on-premises software product and service offerings, which could reduce our
revenues and profitability. With our move to cloud-based solutions, we cannot guarantee that revenues generated from our
cloud offerings will compensate for a loss of business in our on-premises enterprise software business.
Further, cloud computing may make it easier for new competitors to enter our markets due to the lower up-front
technology costs and easier implementation and for existing market participants to compete with us on a greater scale. Such
increased competition is likely to heighten the pressure on us to decrease our pricing, which could have a negative effect on
our revenues, profitability and results of operations.
The business model of our cloud offerings differs from the business model for the sale of products and services. Our
cloud offerings are generally purchased by customers on a subscription basis and revenues from these offerings are generally
recognized ratably over the term of the subscriptions. Therefore, the shift to SaaS-based sales could result in a delay in
revenue recognition and materially adversely affect our results of operations and our rate of growth.
Moreover, our subscription model also makes it difficult for us to rapidly increase our revenue through additional
sales in any period, as revenue from new customers must be recognized over the applicable subscription period.
We may not be able to successfully execute our growth strategy.
Our strategy is to continue investing in, enhancing and securing our business and operations and growing our
business, both organically and through acquisitions. Investments in, among other things, new markets, products, solutions,
and technologies, research and development, infrastructure and systems, geographic expansion, and additional qualified and
experienced personnel, are critical to achieving our growth strategy. Growth of our revenue depends on the success of all
these factors, including our ability to capture market share, attract new clients, develop our strategic partnerships, introduce
our solutions and services to new global markets, strengthen and improve our solutions through significant investments in
research and developments and successfully consummate and integrate acquisitions. However, such investments and efforts
may not be successful, and, even if successful, may negatively impact our short-term profitability with the objective of
achieving long-term expansion or growth.
Our success depends on our ability to execute our growth strategy effectively and efficiently. If we are unable to
execute our growth strategy successfully and properly manage our investments and expenditures, our results of operations
and stock price may be materially adversely affected. In addition, as a result of the execution of our growth strategy, our
short-term profitability may be negatively impacted, including as a result of an acquisition.
We cannot guarantee that we will be able to sustain our growth in future years. Our new solutions might not achieve
wide market acceptance, and therefore might fail to support revenue growth. The failure to implement our growth strategy
successfully could affect our ability to sustain growth and could materially adversely affect our results of operations.
6
Our business could be materially adversely affected as a result of the risks associated with acquisitions and
investments. In particular, we may not succeed in making additional acquisitions or be effective in integrating such
acquisitions.
As part of our growth strategy, we have made a significant number of acquisitions (see Item 5, “Operating and
Financial Review and Prospects—Recent Acquisitions” in this annual report for a description of certain recent acquisitions).
We expect to continue to make acquisitions and investments in the future as part of our growth strategy. We frequently
evaluate the strategic or tactical opportunities available related to complementary businesses, products or technologies. There
can be no assurance that we will be successful in making additional acquisitions. Even if we are successful in making
additional acquisitions, integrating an acquired business into our operations or investing in new technologies may: (1) result
in unforeseen operating difficulties and large expenditures; and (2) absorb significant management attention that would
otherwise be available for the ongoing development of our business, both of which may result in the loss of key customers or
personnel and expose us to unanticipated liabilities.
Other risks commonly encountered with acquisitions include the effect of acquisitions on our financial and strategic
position, the inability to integrate successfully or commercialize acquired technologies and achieve expected synergies or
economies of scale on a timely basis and the potential impairment of acquired assets. Further, we may not be able to retain
the key employees that may be necessary to operate the businesses we acquire and we may not be able to attract, in a timely
manner, new skilled employees and management to replace them.
In recent years, several of our competitors have also completed acquisitions of companies in our markets or in
complementary markets. As a result, it may be more difficult for us to identify suitable acquisitions or investment targets or
to consummate acquisitions or investments once identified on acceptable terms or at all. If we are not able to execute on our
acquisition strategy, we may not be able to achieve our growth strategy, may lose market share, or may lose our leadership
position in one or more of our markets.
We often compete with others to acquire companies, and such competition may result in decreased availability of, or
an increase in price for, suitable acquisition candidates. We also may not be able to consummate acquisitions or investments
that we have identified as crucial to the implementation of our strategy for other commercial or economic reasons. Further,
we may not be able to obtain the necessary regulatory approvals, including those of competition authorities and foreign
investment authorities, in countries where we seek to consummate acquisitions or make investments. For those and other
reasons, we may ultimately fail to consummate an acquisition, even if we announce the intended acquisition. Also, even if we
do consummate acquisitions, we may do so on less favorable terms and/or may be subject to certain conditions or
commitments imposed by such authorities and agencies that may impact post-acquisition integration or have an adverse effect
on our business.
We may require significant financing to complete an acquisition or investment, whether through bank loans, raising
of debt or otherwise. In connection with our November 2016 acquisition of inContact, we incurred additional indebtedness
pursuant to the credit agreement (the "Credit Agreement") that we entered into in connection with our senior secured credit
facility (the "Credit Facility") and, through our wholly owned subsidiary Nice Systems, Inc. (“Nice Systems”), through the
issuance of exchangeable senior notes (the “Notes”). In the future, we cannot assure that such financing options will be
available to us on reasonable terms, or at all. If we are not able to obtain the necessary financing, we may not be able to
consummate a substantial acquisition or investment and execute our growth strategy. In addition, if we consummate one or
more significant acquisitions in which the consideration consists, in whole or in part, of our ordinary shares or American
Depositary Shares (“ADSs”) representing our ordinary shares, our shareholders may suffer immediate dilution of their
interests in us or the value of their interests in us. Our shareholders may also suffer substantial dilution if we issue ADSs
upon the conversion of the Notes.
Future acquisitions or investments may also require us to incur contingent liabilities, amortization expenses related
to intangible assets and impairment of goodwill, any of which could have a material adverse effect on our operating results
and financial condition. In addition, we may knowingly enter into an acquisition that will have a dilutive impact on our
earnings per share.
7
If we are unable to develop or maintain our relationships with existing and new distributors and strategic partners,
our business and financial results could be materially adversely affected.
We have agreements in place with many distributors, dealers and resellers to market and sell our products and
services in addition to our direct sales force across all geographies in which we operate. In certain regions, such as Asia and
Eastern Europe, we predominantly work through such partners. Our financial results could be materially adversely affected if
our contracts with distribution channel partners or our other partners were terminated, if our relationship with our distribution
channel partners or our other partners were to deteriorate, or if the financial condition of our distribution channel partners or
our other partners were to weaken.
We believe that developing partnerships and strategic alliances, including through the implementation of our
partnership programs, is an important factor in the successful marketing of our products and execution of our growth strategy.
In some markets we have only recently started to develop a number of partnerships and strategic alliances. We may not be
able to develop such partnerships or strategic alliances on terms that are favorable to us, if at all. Failure to develop such
arrangements that are satisfactory to us may limit our ability to successfully market and sell products and may have a material
adverse effect on our business and results of operations.
We leverage strategic relationships with third parties such as system integrators and technology and telephony
providers. We also license technology from certain third parties. Certain of these license agreements permit either party to
terminate all or a portion of the agreement without cause at any time.
As our market opportunities change and we grow our business and expand in certain markets and territories, our
dependency on particular distribution channels and strategic partners may increase or we may need to create new strategic
partnerships and alliances to address changing market needs. We may not be successful in maintaining, creating or expanding
these channels and partnerships, which may negatively impact the development of our business, our growth, gross margins
and results of operations. We may also develop dependency on certain strategic partners and vendors, and should we have to
find alternatives in the market, our development efforts and business may be negatively impacted.
In addition, the execution of our growth strategy also depends on our ability to create new alliances and enter into
strategic partnerships with certain market players and maintain those relationships. Even if we are able to enter into such
alliances, it may be under terms that are not favorable to us, or we may not be able to realize the benefits that are anticipated
through such alliances. If we are not successful at these efforts, we may lose sales opportunities, customers and market share,
which may have a material adverse effect on our business and results of operations.
We are dependent on third-party cloud computing platform providers, hosting facilities and service partners.
We rely on computer hardware leased and software licensed from, as well as cloud computing platforms provided
by, third parties in order to offer our services, including Platform as a Service provided by strategic partners, such as
Amazon, Microsoft, Rackspace, Equinox and Level3. These hardware, software and cloud computing platforms may not
continue to provide competitive features and functionality, or may not be available at reasonable prices or on commercially
reasonable terms. The inability to use any of these hardware, software or cloud computing platforms could significantly
impact our business, increase our expenses and otherwise result in delays in providing our services until equivalent
technology is either developed by us, or, if available, is identified, obtained through purchase or license and integrated into
our services. As we grow our business, we will continue to depend on both existing and new strategic relationships with such
vendors. Our inability to establish and foster these relationships could adversely affect the development of our business, our
growth and our results of operations.
The markets in which we operate are characterized by rapid technological changes and frequent new products and
service introductions.
We operate in several markets, each characterized by rapidly changing technology, new product introductions and
evolving industry standards. The introduction of products embodying new technology and the emergence of new industry
standards might exert price pressures on our existing products or render them obsolete. Our markets are also characterized by
consistent demand for state of the art technology and products. Existing and potential competitors might introduce new and
enhanced products that could adversely affect the competitive position of our products.
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We believe that our ability to anticipate changes in technology and industry standards and to successfully develop
and introduce new, enhanced and differentiated products, on a timely basis, in each of the markets in which we operate, is a
critical factor in our ability to grow our business. As a result, we expect to continue to make significant expenditures on
research and development, particularly with respect to new software applications, which are continuously required in all our
business areas. In the event that we do not anticipate changes in technology or industry practices or fail to timely address
market needs or not be able to provide the products that are in demand, we may lose market share and our results of
operations may be materially adversely affected.
Further, customer adoption of new technologies may be slower than we anticipate. We cannot assure that the market
or demand for our products and solutions will be sustained or grow as rapidly as we expect (if at all), that we will
successfully develop new products or introduce new applications for existing products, that such new products and
applications will achieve market acceptance, or that the introduction of new products or technological developments by
others will not render our products obsolete. In addition, our products must readily integrate with major third-party telephone,
security, front-office and back-office systems. Any changes to these third-party systems could require us to redesign our
products, and any such redesign might not be possible on a timely basis or achieve market acceptance. Our inability to
develop products that are competitive in technology and price and responsive to customer needs could have a material
adverse effect on our business, financial condition and results of operations.
Risks Relating to Our Offerings and Operations
Customers' move to communication channels other than voice could materially and adversely affect the success of our
voice solutions.
Our voice solutions currently generate, and in recent years have generated, a significant portion of our revenues, and
we will continue to rely on the sales of our voice solutions and recurring revenues, such as subscription and maintenance
services, in the next several years. The trend of enterprise customers moving from voice to other means of communication
with the enterprise (such as self-service, e-mail, messaging applications, social media and chat), may result in a reduction in
the demand for our voice platform and applications. Although we have expanded our product portfolio to adjust to such
changing demands in alternative communication channels, there can be no assurance that the voice solutions market will not
decline significantly or that revenues generated from our voice solutions will not be significantly impacted. In addition,
changes in regulations could reduce the need for voice recording, which would reduce the demand for our voice recording
and platform. Any of the above may have a material adverse effect on our business, financial condition or results of
operations.
Some of our enhanced services are dependent on leased network connectivity lines, and a significant disruption or
change in these services could adversely affect our business.
A significant portion of our cloud software solutions are provided to customers through a dedicated network of
equipment we own that is connected through leased network connectivity lines based on Internet protocol with capacity
dedicated to us. We also move a portion of our voice long distance service over this dedicated network.
We lease network connectivity lines and space at co-location facilities for our equipment from third-party suppliers.
These co-location facilities represent the backbone of our dedicated network. If any of these suppliers is unable or unwilling
to provide or, if we desire, expand their current levels of service to us, the services we offer to customers may be adversely
affected. We may not be able to obtain substitute services from other providers at reasonable or comparable prices or in a
timely fashion. Any resulting disruptions in the services we offer that are provided over our dedicated network would likely
result in customer dissatisfaction and adversely affect our operations. Furthermore, pricing increases by any of the suppliers
we rely on for our dedicated network could adversely affect our results of operations if we are unable to pass through pricing
increases.
We rely on multiple internet service providers to provide our customers and their clients with connectivity to our
cloud contact center software. While we have multiple redundancies and backups, a failure by these service providers
to provide reliable services could cause us to lose customers and subject us to claims for credits or damages.
We depend on internet service providers to provide uninterrupted and error-free service through their
telecommunications networks. We exercise little control over these third-party providers, which increases our vulnerability to
problems with the services they provide, including failures relating to internet accessibility in general. When problems occur,
9
it may be difficult to identify the source of the problem. Service disruption or outages, even if not caused by our products or
services, may result in loss of market acceptance of our offering and any necessary remedial actions may force us to incur
significant costs and expenses.
We rely on third-party network service providers to originate and terminate public switched telephone network calls,
and thus significant failures in these networks could harm our operations.
For our business in the unified communications market, we leverage the infrastructure of third-party network service
providers to provide telephone numbers, public switched telephone network call termination and origination services, and
local number portability for our customers rather than deploying our own network throughout the United States. If any of
these network service providers ceases operations or otherwise terminate the services that we depend on, the delay in
switching our technology to another network service provider, if available, could have an adverse effect on our business,
financial condition or operating results.
Sale of software applications and a multi-product offering may require significant resources and delay our recognition
of revenues.
Sale of software applications and multi-product offering may be complex, and require, among other things,
customization and implementation, and be subject to a prolonged sale process. These factors could result in a delay in
revenue recognition and materially adversely affect our results of operations.
A significant portion of our business relies on software applications. We cannot guarantee that our customers’
adoption of software applications will meet our expectation and planning. As a result, certain applications may not reach the
critical mass in sales and revenues necessary to offset the high cost of developing and maintaining such applications, which
could negatively affect our results of operation.
We rely on software from third parties. If we lose the right to use that software, we would have to spend additional
capital to redesign our existing software to adhere to new third-party providers or develop new software.
We integrate and utilize various third-party software products as components of our products and solutions to
enhance their functionality. Our business could be disrupted if functional versions of these software products were either no
longer available to us or no longer made available to us on commercially reasonable terms. Also, in the event that any of
these third-party vendors is unable to meet our requirements in a timely manner or that our relationship with any such vendor
is terminated, we may experience disruption in our business until an alternative source of supply can be obtained. Any
disruption, or any other interruption in a vendor’s ability to provide components to us, could result in delays in making
product deliveries or inability to deliver, which could have a material adverse effect on our business, financial condition and
results of operations.
In addition, some of our third-party vendors use proprietary technology and software code that could require
significant redesign of our products in the case of a change in vendor. If we lost the right to use such third-party software, we
would be required to spend additional capital to either redesign our software to function with alternate third-party software or
develop these components ourselves. As a result, we might be forced to limit the features available in our current or future
products and solutions offerings and the commercial release of our products and solutions could be delayed.
Incorrect or improper use of our products and services or failure to properly provide professional services and
maintenance services could result in negative publicity and legal liability.
Our products and solutions are complex and are deployed in a wide variety of network environments. The proper use
of our software requires training and, if our software products are not used correctly or as intended, there may be inaccurate
results. Our products may also be intentionally misused or abused by clients who use our products. The incorrect or improper
use of our products and solutions or our failure to properly provide professional services and maintenance services, including
installation, training, project management, product customizations and consulting to our clients may result in losses suffered
by our clients, which could result in negative publicity and product liability or other legal claims against us.
10
Undetected errors or malfunctions in our products or services could impact demand for our products and services,
and we could face potential product liability claims directly impairing our financial results.
Despite extensive testing by us and by our clients, our products and services may include errors, defects, failures,
bugs or other weaknesses that could result in unanticipated downtime for our customers, product returns, loss of or delay in
market acceptance of our products and services, loss of competitive position, or claims by customers or others. In addition,
our customers may inadvertently use our services in inadvertent ways that may cause a disruption in services for other
customers attempting to use our services. Correcting and repairing such errors, failures or bugs could entail significant costs
and could cause interruptions, delays or cessation of our products and services.
As our customers use our services for important aspects of their business, any errors, defects, disruptions in service
or other performance problems could significantly damage our customers’ businesses and ultimately harm our reputation. As
a result, customers could elect not to renew our services or delay or withhold payment to us. We could also lose future sales
or customers may make warranty or other liability claims against us, which may harm our business and adversely affect our
results. In particular, some of our customers, including financial institutions, may suffer significant damages as a result of a
failure of our solutions to perform their functions. The occurrence of any of these events could result in our inability to attract
or retain customers, and adversely affect our revenues, financial condition and results of operations.
Although we attempt to limit any potential exposure through quality assurance programs, insurance and contractual
terms, we cannot assure that we will be able to eliminate or successfully limit our liability for any failure of our solutions.
Any product liability insurance we carry may not be sufficient to cover our losses resulting from any such product liability
claims. The successful assertion of one or more large product liability claims against us could have a material adverse effect
on our results of operations and financial condition.
We provide certain service level commitments to our customers, which could cause us to provide credits for future
services if the stated service levels are not met for a given period and could adversely impact our revenue.
Our customer agreements for cloud offerings provide service level commitments. If we are unable to meet the stated
service level commitments or suffer extended periods of unavailability for our service, we may be contractually obligated to
provide these customers with credits for future services, and in some cases refunds, or be liable for penalties. Our revenue
could be adversely impacted if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements
with our customers. Any such extended service outages could harm our reputation, revenue and operating results.
We depend on our ability to recruit and retain qualified personnel.
In order to compete, we must recruit and retain executives and other key employees. Hiring and retaining qualified
executives and other key employees is critical to our business, and competition for highly qualified and experienced
managers in our industry is intense. There is no guarantee that additional key management members will not leave the
Company, or if they do, that we will be able to identify and hire qualified replacements, or that the transition of new
personnel will not cause disruption in our business.
In addition, due to our growth, or as a result of regular recruitment, we will be required to hire and integrate new
employees. Recruiting and retaining qualified engineers and computer programmers to perform research and development
and to commercialize our products, as well as qualified personnel to market and sell those products, are critical to our
success. There can be no assurance that we will be able to successfully recruit and integrate new employees.
There is intense competition to recruit and retain highly skilled employees in the technology industry, which has
increased due to the millennial workforce continuing to value multiple company experiences over long tenure. We have
suffered from attrition in our workforce in previous years and we believe that such attrition will continue in the future. We
may not be able to offer current and potential employees a compensation package that is satisfactory in order to keep them
within our employment.
In certain locations in which we have development centers, the rate of attrition is high and could have a negative
impact on our ability to retain our employees in such centers, timely develop our products and service our customers. In
addition, the migration of development and other activities and functions to low-cost countries (such as India) may result in
disruption to our business due to differing levels of employee knowledge, expertise and organizational and leadership skills,
greater employee attrition and increased cost of retaining our most highly-skilled employees.
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An inability to attract and retain highly qualified employees may have an adverse effect on our ability to develop
new products and enhancements for existing products and to successfully market such products, all of which would likely
have a material adverse effect on our results of operations and financial position. Our success also depends, to a significant
extent, upon the continued service of a number of key management, sales, marketing and development employees, the loss of
any of whom could materially adversely affect our business, financial condition and results of operations.
Information and Product Security and Intellectual Property
If our security measures or those of our third-party hosting facility providers, cloud computing platform providers, or
third-party service partners are breached, and unauthorized access is obtained to customers’ data, our data or our IT
systems, our reputation may be harmed, and we may incur significant legal and financial exposure and liabilities.
Our products and services involve the storage and transmission of customers’ and their end users’ proprietary and
other sensitive information, including financial information and other personally identifiable information. In addition, some
of our customers use our products to compile and analyze highly sensitive or confidential information, and we may encounter
such information or data when we perform service or maintenance functions for our customers. Security breaches could
expose us to a risk of loss or unauthorized use of this information, litigation and possible liability. While we have security
measures in place, we may from time to time be subject to security breaches, including as a result of intentional misconduct
by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our
IT systems, our customers’ data or our data, including our intellectual property and other confidential business information.
In addition, while we have internal policies and procedures for employees in connection with performing services involving
our customers' confidential information, the perception or fact that any of our employees has improperly handled sensitive
information of a customer or a customer’s end user could negatively affect our business.
Cyber security attacks are becoming increasingly sophisticated and, in many cases, may not be identified until a
security breach occurs. If we fail to recognize and deal with such security attacks and threats and if we fail to update our
products and solutions and prevent such threatened attacks in real time to protect our customers’ or other parties’ sensitive
information, whether retained in our systems or by our customers using our products and services, our business and
reputation will be harmed. The costs of recognizing and addressing security attacks and threats and updating our products and
solutions, may be significant.
Our products and services, including our cloud offerings, may be vulnerable to cyber-attacks, even if they do not
contain defects. If there is a successful cyber-attack on one of our products or offerings, even absent a defect or error, it may
also result in questions regarding the integrity of our products or services generally, which could cause adverse publicity and
impair their market acceptance and could have a material adverse effect on our results or financial condition.
Third parties may attempt to breach our security measures or inappropriately take advantage of our solutions,
including our SaaS and hosting services, through computer viruses, electronic break-ins and other disruptions. Additionally,
third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user
names, passwords or other information to gain access to our customers’ data, our data or our systems. Furthermore, our
customers may authorize third-party technology providers to access their customer data, and some of our customers may not
have adequate security measures in place to protect their data that is stored on our services. Because we do not control our
customers or third-party technology providers, or the processing of such data by third-party technology providers, we cannot
ensure the integrity or security of such transmissions or processing. Malicious third parties may also conduct attacks designed
to temporarily deny customers access to our services. Any security breach could result in a loss of confidence in the security
of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.
While we maintain insurance coverage to protect us against a broad range of risks, including in relation to security
breaches and cyber security attacks, we could still be subject to risks of losses that might be beyond the limits, or outside the
scope, of coverage of our insurance and that may limit or prevent indemnification under our insurance policies. This potential
insufficiency of insurance coverage could result in an adverse effect on our business, financial position, profit, and cash
flows.
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Interruptions or delays in our services through security breaches or cyber-attacks, could impede on our ability to
deliver services, which could harm our relationships with customers, adversely affect our results of operation and
subject us to liability.
Any interruptions or delays to our services, whether as a result of third-party error, security breaches or cyber-
attacks, and whether accidental or willful, could harm our relationships with customers and partners and our reputation. This
in turn could cause a reduction in our revenue, subject us to liability, and cause us to issue credits or pay penalties or cause
customers to fail to continue service, any of which could adversely affect our business, financial condition and results of
operations. In the event of damage or interruption, our insurance policies may not adequately compensate us for any losses
that we may incur.
We are also dependent on our computer databases, billing systems and accounting computer programs, network and
computer hardware that houses these systems to effectively operate our business and market our services. Our customers may
become dissatisfied by any system failures that interrupt our ability to provide our service to them. Substantial or repeated
system failures would likely significantly reduce the attractiveness of our services. Therefore, significant disruption or failure
in the operation of these systems could adversely affect our business and results of operations.
Facilities and infrastructure used to provide services may be subject to security breaches, failures, or disruptions that
could harm our operations, financial condition and reputation.
We currently serve our customers from third-party data center hosting facilities and cloud computing platform
providers. While we have security measures in place that are aligned with applicable industry standards, they may be
breached due to third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or
otherwise, and result in someone obtaining unauthorized access to our or our third-party vendors’ systems and infrastructure.
This could result in interruptions in our services, which may cause us to issue credits or pay penalties, cause customers to
terminate their subscriptions and adversely affect our attrition rates and our ability to attract new customers, all of which
would reduce our revenues. Also, we may not be entitled to indemnification or to recuperate any such loss or damage from
third-party service providers, which may result in us bearing alone the burden of any such liability or losses.
Facilities at which customer data is stored or through which we render our services may be vulnerable to damage or
interruption from power or network connectivity failures, criminal acts, including cyber-attacks, and similar events. These
facilities may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct, as well as legal or
administrative actions or requirements that may limit or delay operation at the facilities. Despite precautions we require such
third-party vendors to take, the occurrence of such damage or interruption, a decision to close the facilities without adequate
notice or other unanticipated problems at these facilities, could result in lengthy interruptions in our services. Even with
disaster recovery and business continuity arrangements in place, our services could be interrupted.
We provide some of our services through computer hardware that we own and that is currently located in third-party
web hosting co-location facilities maintained and operated in various locations globally. Our hosting providers do not
guarantee that our customers’ access to our solutions will be uninterrupted, error-free or secure. Our operations depend on our
providers’ ability to protect their and our systems in their facilities against such damage or interruption. Our back-up
computer hardware and systems may not have sufficient capacity to recover all data and services in the event of an outage
occurring simultaneously at all facilities. In the event that our hosting facility arrangements are terminated, or there is a lapse
of service or accidental or willful damage to such facilities, we could experience lengthy interruptions in our service as well
as delays and/or additional expense in arranging new facilities and services. Any or all of these events could cause
interruptions in our services. In addition, the failure by our third-party hosting facilities to meet our capacity requirements
could result in interruptions in our service or impede our ability to scale our operations.
We may face risks relating to inadequate intellectual property protection and liability resulting from infringement by
our products or solutions of third-party proprietary rights.
Our success is dependent, to a significant extent, upon our proprietary technology. We currently hold 336 U.S.
patents and 65 patents issued in additional countries covering substantially the same technology as the U.S. patents. We have
103 patent applications pending in the United States and other countries. We rely on a combination of patent, trade secret,
copyright and trademark law, together with non-disclosure and non-competition agreements, as well as third-party licenses to
establish and protect the technology used in our systems. However, we cannot assure that such measures will be adequate to
protect our proprietary technology, that competitors will not develop products with features based upon, or otherwise similar
to our systems, that third-party licenses will be available to us or that we will prevail in any proceeding instituted by us in
order to enjoin competitors from selling similar products. In most of the areas in which we operate, third parties also have
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patents which could be found applicable to our technology and products. Such third parties may include competitors, as well
as large companies, which heavily invest in their patent portfolios, regardless of their actual field of business. Although we
believe that our products and solutions do not infringe upon the proprietary rights of third parties, we cannot assure that one
or more third parties will not make a claim or that we will be successful in defending such claim.
We generally distribute our software products under software license agreements that restrict the use of our products
by terms and conditions prohibiting unauthorized reproduction or transfer of the software products. However, effective
copyrights and other intellectual property rights protection may be inadequate or unavailable to us in every country in which
our software products are available, and the laws of some foreign countries may not be as protective of intellectual property
rights as those in the United States and Israel. Consequently, we may be unable to prevent our proprietary technology from
being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect
our technology. Policing the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult
and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights,
to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly,
despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual
property.
From time to time third parties allege or claim patent infringements. In defending ourselves against any such claims
or actions we could be subject to substantial costs and diversion of management resources.
In addition, to the extent we are not successful in defending such claims, we may be subject to injunctions with
respect to the use or sale of certain of our products or to liabilities for damages and may be required to obtain licenses which
may not be available on reasonable terms. Any of these may have a material adverse impact on our business or financial
condition.
We face risks relating to our use of certain “open source” software tools.
Certain of our software products contain a limited amount of open source code and we may use more open source
code in the future. In addition, certain third-party software that we embed in our products contains open source code. Open
source code is code that is covered by a license agreement that permits the user to liberally use, copy, modify and distribute
the software without cost, provided that users and modifiers abide by certain licensing requirements. The original developers
of the open source code provide no warranties on such code.
As a result of our use of open source software, we could be subject to suits by parties claiming ownership of what
we believe to be open source code and we may incur expenses in defending claims that we did not abide by the open source
code license. In addition, third-party licensors do not provide intellectual property protection with respect to the open source
components of their products, and therefore we may not be indemnified by such third-party licensors in the event that we or
our customers are held liable in respect of the open source software contained in such third-party software. If we are not
successful in defending against any such claims that may arise, we may be subject to injunctions and/or monetary damages or
be required to remove the open source code from our products. Such events could disrupt our operations and the sales of our
products, which would negatively impact our revenues and cash flow.
Moreover, under certain conditions, the use of open source code to create derivative code may obligate us to make
the resulting derivative code available to others at no cost. The circumstances under which our use of open source code would
compel us to offer derivative code at no cost are subject to varying interpretations. If we are required to publicly disclose the
source code for such derivative products or to license our derivative products that use an open source license, our previously
proprietary software products may be available to others without charge. If this happens, our customers and our competitors
may have access to our products without cost to them, which could harm our business.
We monitor our use of such open source code to avoid subjecting our products to conditions we do not intend. The
use of such open source code, however, may ultimately subject some of our products to unintended conditions so that we are
required to take remedial action that may divert resources away from our development efforts.
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Risks Relating to Regulatory Environment
Privacy concerns and legislation, evolving regulation of cloud computing, cross-border data transfer restrictions and
other regulations may limit the use and adoption of our offering, adversely affect our business and increase
compliance costs.
Governments are adopting new laws and regulations addressing data privacy and the collection, processing, storage
and use of personal information. These laws and regulations may be inconsistent across jurisdictions and are subject to
evolving and differing (sometimes conflicting) interpretations. In some cases, foreign data privacy laws and regulations, such
as the European Union’s General Data Protection Directive (“GDPR”), the country-specific laws and regulations that
implement that directive, the Brazilian General Data Protection Law (“LGPD”), and state laws in the U.S. on privacy, data
and related technologies, such as the California Consumer Privacy Act (“CCPA”), also govern the processing of personal
information. While we have invested in readiness to comply with applicable requirements, these and other requirements could
reduce demand for our services, slow the pace at which we close sales transactions, restrict our ability to store and process
data or, in some cases, impact our ability to offer some of our solutions and services in certain locations or our customers’
ability to deploy our solutions globally. Compliance with these regulatory requirements may be onerous, time consuming and
expensive, especially where these requirements are inconsistent from jurisdiction to jurisdiction or where the jurisdictional
reach of certain requirements is not clearly defined or seeks to reach across national borders. If we are unable to comply with
these specific requirements, guidelines, or privacy and information security legislation in general, it could materially
adversely affect our business, results of operations and potentially subject us or our customers to liability resulting from a
breach of such regulations. Even the perception that the privacy of personal information is not satisfactorily protected or does
not meet regulatory requirements could inhibit sales of our products or services and could limit adoption of our cloud-based
solutions.
Moreover, failure to comply with privacy legislation or procedures may cause us to incur civil liability to
government agencies, customers, shareholders and individuals whose privacy may have been compromised.
Furthermore, our customers expect us to meet voluntary certification or other standards established by third parties.
If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our
solutions to certain customers and could harm our business.
Industry-specific regulation and other requirements and standards are evolving and unfavorable industry-specific
laws, regulations, interpretive positions or standards could harm our business.
Our customers and potential customers conduct business in a variety of industries, including financial services and
telecommunications. Regulators in certain industries have adopted and may in the future adopt regulations or interpretive
positions regarding the use of cloud computing and other outsourced services. The costs of compliance with, and other
burdens imposed by, industry-specific laws, regulations and interpretive positions may limit our customers’ use and adoption
of our services and reduce overall demand for our services. Compliance with these regulations may also require us to devote
greater resources to support certain customers, which may increase costs and lengthen sales cycles. For example, some
financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls or
require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. If we are unable to
comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use our services
where required, our business may be harmed. If in the future we are unable to achieve or maintain industry specific
certifications or other requirements or standards relevant to our customers, it may harm our business and adversely affect our
results.
Our revenues would be adversely affected if we fail to adapt our products and services to changes in rules and
regulations applicable to the business of certain clients, such as rules and regulations regarding securities trading, broker sales
compliance and anti-money laundering, which could have an impact on their need for our products and services. There are
growing compliance and regulatory initiatives and changes for corporations and public organizations around the world that
are driven by events and concerns such as accounting scandals, security threats and economic conditions.
In certain industries in which we operate, there may be regulations or guidelines for use of SaaS, hosting and cloud-
based services that mandate specific controls or require enterprises to obtain certain approvals prior to outsourcing certain
functions. In addition, we may be limited in our ability to transfer or outsource business to certain jurisdictions and may be
limited in our ability to undertake development activity in certain jurisdictions, which may impede on our efficiency and
adversely affect our business results of operations.
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Changes in the legal and regulatory environment could materially and adversely affect our business, results of
operations and financial condition.
Our business, results of operations and financial condition could be materially and adversely affected if laws,
regulations or standards relating to our business and products, us or our employees (including labor laws and regulations) are
changed or new ones are implemented. Such implemented laws and regulations include requirements in the United States,
Europe and other territories in relation to data privacy and protection, anti-bribery and anti-corruption, foreign investment,
import and export, labor, tax and environmental and social issues.
While we attempt to prepare in advance for these new initiatives and standards, we cannot assure that we will be
successful in our efforts, that such changes will not negatively affect the demand for our products and services, or that our
competitors will not be more successful or prepared than us.
Alternatively, any substantial changes resulting in a reduction in the implementation or elimination of rules and
regulations that apply to a certain sector of our business, such as deregulation in the area of compliance, could result in a
decrease in demand by customers, which could materially and adversely affect our business and results of operations.
Risks Relating to Our Financial Condition
Our quarterly results may be volatile at times, which could cause us to miss our forecasts.
We generally provide forecasts as to expected future revenues in the coming fiscal quarters and fiscal year. Our
revenue and operating results can vary and have varied in the past, sometimes substantially, from one quarter to another.
These forecasts are based on management estimation and expectations, our then-existing backlog and an analysis of
assumptions and assessments that may not materialize or end up being inaccurate. We may not meet our expectations or those
of industry analysts in a particular future quarter. Our quarterly operating results may be subject to significant fluctuations
due to the following factors: the timing and size of customer orders, delays in issuance or shifting of customer orders (as
often happens when customers postpone their buying decisions to the end of the budgetary year), variations in distribution
channels, mix of products and services, new product introductions, competitive pressures and general economic conditions. It
is difficult to predict the exact mix of products and services for any period, as well as within the product category between
interaction-related platforms and related applications and transactional related platforms and applications. Changes in the mix
of products and services across our different business lines may significantly impact our revenues. Further, the period of time
from order to delivery of our platforms and applications is short, and therefore our backlog for such products is currently, and
is expected to continue to be, small and substantially unrelated to the level of sales in subsequent periods.
In addition, we derive a substantial portion of our sales through indirect channels, making it more difficult for us to
predict revenues because we depend partially on estimates of future sales provided by third parties. Changes in our
arrangements with our network of channel partners or in the products they offer, such as the introduction of new support
programs for our customers, which combines support from our channel partners with back-end support from us, could affect
the timing and volume of orders. Furthermore, our expense levels are based, in part, on our expectations as to future
revenues. If our revenue levels are below expectations, our operating results are likely to be adversely affected, as most of our
expenses are not variable in the short term.
Fluctuations in our results of operations may result from, among other things, our ability to retain and increase sales
to existing customers, attract new customers and satisfy our customers’ requirements, the timing and success of new product
introductions and enhancements or product initiation by our competitors, the purchasing and budgeting cycles of our
customers and general economic, industry and market conditions. Additionally, as a high percentage of our expenses,
particularly employee compensation and other overhead costs, are relatively fixed, a variation in the level of sales, especially
at or near the end of any quarter, may have a material adverse impact on our quarterly operating results.
While seasonality and other factors mentioned above are common in the software and technology industry, this
pattern should not be considered a reliable indicator of our future revenue or financial performance. Many other factors,
including general economic conditions, may also have an impact on our business and financial results.
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We face foreign exchange currency risks.
Exchange rate fluctuations affect our operations. We experience risks from fluctuations in the value of the NIS,
EUR, GBP, INR and other currencies compared to the U.S. dollar, the functional currency in our financial statements. A
significant portion of the expenses associated with our Israeli and Indian operations, including personnel and facilities related
expenses, are incurred in NIS and INR, respectively, whereas most of our business and revenues are generated in dollars, and
to a certain extent, in GBP, EUR and other currencies. If the value of the dollar decreases against these foreign currencies,
our earnings may be negatively affected. As a result, we may experience an increase in the costs of our operations, as
expressed in dollars, which could adversely affect our earnings.
We monitor foreign currency exposure and may use various instruments to preserve the value of sales transactions,
expenses and commitments, however this cannot assure our full protection against risks of currency fluctuations that could
affect our financial results. As part of our efforts to mitigate these risks, we use foreign currency hedging mechanisms, which
may be ineffective in protecting us against adverse currency fluctuations and can also limit opportunities to profit from
exchange rate fluctuations that would otherwise be favorable. For information on the market risks relating to foreign
exchange, please see Item 11, “Quantitative and Qualitative Disclosures about Market Risk” in this annual report.
We currently benefit from local government programs as well as international programs and local tax benefits that
may be discontinued or reduced.
We derive and expect to continue to derive significant benefits from various programs including Israeli tax benefits
relating to our “Preferred Technology Enterprise” programs and certain grants from the Israel Innovation Authority (formerly
known as the Office of the Chief Scientist of the Ministry of Economy) of the State of Israel (the “IIA”) for research and
development.
To be eligible for tax benefits as a Preferred Technology Enterprise, we must continue to meet certain conditions.
While we believe that we have met and continue to meet the conditions that entitle us to previously obtained Israeli tax
benefits, there can be no assurance that the Israeli Tax Authorities will agree.
To be eligible for IIA-related grants and benefits, we must continue to meet certain conditions, including conducting
the research, development, manufacturing of products developed with such IIA grants in Israel, and providing the IIA with an
undertaking that the know-how to be funded, and any derivatives thereof, is wholly owned by us, upon its creation. In
addition, we are prohibited from transferring to third parties the know-how developed with these grants without the prior
approval of a governmental committee and, possibly, paying a fee. See Item 4, “Information on the Company—Research and
Development” in this annual report, for additional information about IIA programs.
If grants, programs and benefits available to us or the laws, rules and regulations under which they were granted are
eliminated or their scope is further reduced, or if we fail to meet the conditions of existing grants, programs or benefits and
are required to refund grants or tax benefits already received (together with interest and certain inflation adjustments) or fail
to meet the criteria for future Preferred Technology Enterprises, our business, financial condition and results of operations
could be materially adversely affected.
Additional tax liabilities resulting from our global operations could materially adversely affect our results of
operations and financial condition.
As a global corporation, we are subject to income, non-income and transactional tax regimes in Israel, the United
States, India and various foreign jurisdictions, which are unsettled and may be subject to significant change. Our effective tax
rate could be materially affected by changes in tax rulings, tax laws, regulations, administrative practices, principles,
applicability of special tax regimes, or changes in interpretations of existing tax laws, including changes to the global tax
framework, in the jurisdictions in which we do business. Such changes could come about as a result of economic, political,
and other conditions. Additionally, our effective tax rate could be affected by changes in the mix of earnings in countries
with differing statutory tax rates, changes in the valuations of our deferred tax assets and liabilities, tax implications of
acquisitions, expansion into new territories, intercompany transactions, changes in foreign currency exchange rates, changes
in our stock price and uncertain tax positions. Although we believe that our provision for income taxes and our tax estimates
are reasonable, tax authorities may disagree with certain positions we have taken. From time to time, we are subject to
income and other tax audits in various jurisdictions, the timing of which is unpredictable. We regularly assess the likelihood
of an adverse outcome resulting from these examinations to determine the adequacy of our tax accruals. While we believe we
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comply with applicable tax laws and have adequate balance sheet reserves related to tax positions, there can be no assurance
that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. If we are
assessed additional taxes, it could have a material adverse effect on our results of operations and financial condition.
In recent years we have seen tax law and regulatory changes in the U.S., EU and other jurisdictions, including
changes that may be impacted as a result of tax policy recommendations from organizations such as the Organization for
Economic Co-operation and Development (“OECD”). Such legislative changes in one or more jurisdictions in which we
operate may require us to change the manner in which we operate our business, and may have implications on our tax liability
and have a material adverse effect on our results of operations and financial condition.
In October 2015, the OECD published its final package of measures for reform of the international tax rules as a
product of its Base Erosion and Profit Shifting (“BEPS”) initiative, which was endorsed by the G20 finance ministers. Many
of the initiatives in the BEPS package required and resulted in specific amendments to the domestic tax legislation of various
jurisdictions and to existing tax treaties. We continuously monitor these developments. Although many of the BEPS measures
have already been implemented or are currently being implemented globally (including, in certain cases, through adoption of
the OECD’s ‘multilateral convention’ to effect changes to tax treaties which entered into force on July 1, 2018 and through
the EU’s ‘Anti-Tax Avoidance’ Directives), it is still difficult in some cases to assess to what extent these changes would
impact our tax liabilities in the jurisdictions in which we conduct our business or to what extent they may impact the way in
which we conduct our business or our effective tax rate due to the unpredictability and interdependency of these potential
changes. Further, for the past several years, the OECD has had a specific focus on the taxation implications of e-commerce
business, generally referred by the OECD as the “digital economy”. In the fourth quarter of 2019, the OECD released details
on its proposed approach which would, among other changes, create a new right to tax certain “digital economy” income not
necessarily based on traditional nexus concepts nor on the “arm’s length principle”. At this point, there is a lack of consensus
agreement among the key members, specifically by the U.S., with the latest OECD proposal. The U.S. has expressed that it
would generally support a solution along the lines proposed by the OECD only if the solution was in the form of a “safe-
harbor” rather than a mandatory requirement. A failure to reach full consensus on an executable plan within the tight
timeframe under which the OECD is operating could result in individual jurisdictions legislating digital tax provisions in an
uncoordinated and unilateral manner, and further result in greater or even double taxation that companies may not have
sufficient means to remedy. For example, a number of jurisdictions, including the UK, France and Italy, have already adopted
or have formally proposed legislation to effect the taxation of certain e-commerce business based on differing criteria and
metrics. Efforts to alleviate this increased tax burden will increase the cost of structuring and compliance as well as the cost
of doing business internationally. It is not yet clear to what extent these digital tax provisions would apply to us. Any changes
to the taxation of our international activities may increase our worldwide effective tax rate and adversely impact our financial
position and results of operations.
Further, the prospective taxation by multiple jurisdictions of e-commerce businesses could subject us to exposure to
withholding, sales, VAT and/or other transaction taxes, in such jurisdictions where we currently or in the future may be
required to report taxable transactions. The imposition of new laws requiring the registration for, collection of, and payment
of such taxes, could result in substantial tax liabilities, create increased administrative burdens and costs, require us to change
the manner in which we operate or otherwise adversely affect our business and results of operations.
The U.S. Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Reform”), significantly changed how corporate business
entities are taxed in the U.S. The application of the U.S. Tax Reform is subject to uncertainties. The U.S. Tax Reform
includes certain provisions that have applied to us and that may change the valuations of our deferred tax assets and liabilities
and may increase our overall tax liabilities. We have implemented certain steps to optimize our global tax structure, but there
can be no assurance that our global tax liabilities would not increase as a result of the Tax Act. In addition, due to the
uncertainty involved in applying certain provisions of the Tax Act to our group, we made reasonable estimates for the effects
on our financial statements. The U.S. Treasury Department, the Internal Revenue Service and other standards-setting bodies
may issue guidance on how the provisions of the Tax Act will be applied that is different from our interpretation. The U.S.
Tax Reform requires complex computations not previously required or produced, and significant judgments and assumptions
in the interpretation of the law were made in producing our provisional estimates. As we continue our analyses, and interpret
any additional guidance, it is possible that the final impact may differ from our current assessment of our business and
effective income tax rate, and our profitability may be adversely affected.
In response to the U.S. Tax Reform, several sovereign foreign jurisdictions, as well as administrative bodies such as
the EU and the OECD, have expressed reservations and raised concerns about certain provisions, and it is possible that
formal challenges or reactionary regulatory legislation may be instituted by one or more of such foreign authorities that could
ultimately adversely affect us.
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We might recognize a loss with respect to our financial investments.
We invest most of our cash through a variety of financial investments. If the obligor of any of our financial
investments defaults or undergoes reorganization in bankruptcy, we may lose a portion of such investment and our assets and
income may decrease. In addition, a downturn in the credit markets or the downgrading of the credit rating of our investments
could result in a reduction in the market value of our holdings and reduce the liquidity of our investments, which could
require us to recognize a loss at the time of liquidation and would adversely affect our assets and income.
We are subject to a number of restrictive covenants under the Credit Agreement, which restrict our business and
financing activities.
The Credit Agreement imposes, and the terms of any future debt may impose, operating and other restrictions on us.
Such restrictions limit or prohibit, among other things, our and our subsidiaries’ ability to incur or guarantee additional debt,
pay dividends, repurchase or retire our equity interests or subordinated debt, transfer or sell our assets, make certain payments
or investments and capital expenditures, create liens, engage in certain transactions with our affiliates and merge or
consolidate with other companies.
The restrictions under the Credit Agreement may, in certain circumstances, prevent us from taking actions that
management believes would be in the best interests of our business, and may make it difficult for us to successfully execute
our business strategy or effectively compete with companies that do not have similar restrictions. In the event of any event of
default under the Credit Agreement, the lenders under the Credit Agreement could elect to terminate their commitments or
cease making further loans and accelerate the outstanding loans, and, in any such case, we could ultimately be forced into
bankruptcy or liquidation. Because the indenture governing the Notes and the Credit Agreement has customary cross-default
provisions, if our obligations under the Credit Agreement are accelerated we may be unable to repay or refinance the amounts
due under the Credit Agreement or the Notes.
Our debt could adversely affect our financial condition and impact our business needs and plans.
In connection with our November 2016 acquisition of inContact, we incurred indebtedness pursuant to the terms of
the Credit Agreement and through the issuance of the Notes. The debt incurred could have adverse consequences to our
financial condition and business. For example, it could:
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increase our vulnerability to general adverse economic and industry conditions;
make it more difficult for us to satisfy our other financial obligations;
make it more difficult for us to make strategic acquisitions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt,
thereby limiting the availability of our cash flow to fund working capital, capital expenditures and other
general corporate purposes;
expose us to interest rate fluctuations since the interest on the Credit Agreement is imposed at variable
rates;
make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and
acceleration of such debt;
limit to some extent our flexibility in planning for, or reacting to, changes in our business and the industry
in which we operate;
place us at a competitive disadvantage compared to our competitors that have less debt and comparable
resources;
limit to some extent our ability to borrow additional funds as needed;
restrict our ability to prepay the Notes or to pay cash upon exchanges of the Notes; and
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limit to some extent our ability to pay dividends, redeem stock or make other distributions.
Our ability to make payments on and to refinance our debt, to fund planned capital expenditures and to maintain
sufficient working capital will depend on our ability to continue to generate cash in the future. This is subject to general
economic, financial, competitive, business, regulatory and other factors that may be beyond our control. We cannot assure
that our business will continue to generate sufficient cash flow from operations or that future borrowings will be available to
us under the Credit Agreement or from other sources in an amount sufficient to enable us to service our debt, or to fund our
other liquidity needs or execute on our strategic plans. If our cash flow and capital resources are insufficient to allow us to
make scheduled payments on our debt, we may need to reduce or delay capital expenditures, sell assets, seek additional
capital or restructure or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a
material adverse effect on our business, financial condition or results of operations. We cannot assure that we will be able to
refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above
alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate
sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial
condition and the value of our outstanding debt. Our ability to restructure or refinance our debt will depend on the condition
of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may
require us to comply with more onerous covenants, which could further restrict our business operations. A failure to comply
with the covenants and other provisions of our outstanding debt could result in events of default under such instruments,
which could permit acceleration of our Notes and borrowings under our Credit Agreement. Any required prepayment or
exchange of our Notes or Credit Facility as a result of an event of default or fundamental change triggering such right would
lower our current cash on hand such that we would not have those funds available for use in our business, which could
adversely affect our operating results.
The accounting method for convertible debt securities that may be settled in cash, such as the Notes, may have a
material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, an entity must
separately account for the liability and equity components of convertible or exchangeable debt instruments (such as the
Notes) that may be settled entirely or partially in cash upon exchange in a manner that reflects our economic interest cost.
The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the
additional paid-in capital section of shareholders’ equity on our consolidated balance sheet, and the value of the equity
component would be treated as original issue discount for purposes of accounting for the debt component of the Notes. As a
result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of
the amortization of the discounted carrying value of the Notes to their principal amount over the term of the Notes. We will
report lower net income (or greater net loss) in our financial results because ASC 470-20 requires interest to include both the
current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our
reported or future financial results.
In addition, convertible or exchangeable debt instruments (such as the Notes) that may be settled entirely or partly in
cash are not required to be included in our diluted share count if we have the ability and intent to settle exchanges in cash. If
we elect to settle the Notes in ADSs, according to the treasury stock method, the transaction is accounted for in the diluted
share count, as if the number of ADSs that would be necessary to settle the Notes are deemed issued. We cannot be sure that
we will be able to continue to demonstrate the ability or intent to settle exchanges in cash or that the accounting standards in
the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in
accounting for the ADSs deliverable upon exchange of the Notes, our diluted earnings per share would be adversely affected.
If we fail to maintain effective internal controls over financial reporting, it could have a material adverse effect on our
business, operating results, and the price of our ordinary shares and ADSs.
Effective internal controls are necessary for us to provide reliable financial reports and prepare consolidated
financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles and
U.S. securities laws, as well as to effectively prevent material fraud. Because of inherent limitations, even effective internal
control over financial reporting may not prevent or detect every misstatement. In addition, if we fail to maintain the adequacy
of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal control over financial reporting. Furthermore, as we grow our business or acquire businesses, our internal controls
may become more complex and we may require significantly more resources to ensure they remain effective. In addition, we
may identify material weaknesses or significant deficiencies in our internal control over financial reporting. Failure to
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maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities
and could have a material adverse effect on our business and operating results, investor confidence in our reported financial
information, and the market price of our ordinary shares and ADSs.
Current and future accounting pronouncements and other financial reporting standards and principles might have a
significant impact on our financial position and negatively impact our financial results.
We prepare our consolidated financial statements in accordance with U.S. GAAP. These principles are subject to
interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in
these principles can have a significant effect on our reported results and may even retroactively affect previously reported
transactions. Additionally, the adoption of new or revised accounting principles may require that we make significant changes
to our systems, processes and controls. Changes resulting from these new standards may result in materially different
financial results and may require that we change how we process, analyze and report financial information and that we
change financial reporting controls.
We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements
and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their
interpretation, we might be required to change our accounting policies.
This could lead to risks associated with our ability to react in a timely manner to new accounting pronouncements
and financial reporting standards and unpredictable changes in interpretation of standards. Any one or more of these events
could have an adverse effect on our business, financial position, and profit.
Risks Relating to our Securities
The market price of each of our ADSs, ordinary shares and the Notes is volatile and may decline.
Numerous factors, some of which are beyond our control, may cause the market price of our ADSs, ordinary shares
and the Notes to fluctuate significantly. These factors include, among other things:
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Quarterly variations in our operating results;
Changes in expectations as to our future financial performance, including financial estimates by securities;
Perceptions of our company held by analysts and investors;
Additions or departures of key personnel;
Announcements related to dividends;
Development of or disputes concerning our intellectual property rights;
Announcements of technological innovations;
Customer orders or new products by us or our competitors;
Acquisitions or investments by us or by our competitors and partners;
The exchangeability of the Notes for ADSs;
Hedging or arbitrage trading activity involving ADSs by holders of the Notes;
Modification of hedge positions by counterparties to the hedge transactions we entered into simultaneously
with the issuance of the Notes, including the possible entry into or unwinding of derivative transactions
with respect to the ADSs or the purchase or sale of the ADSs or other NICE securities in secondary market
transactions;
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Currency exchange rate fluctuations;
Earnings releases by us, our partners or our competitors;
General financial, economic and market conditions;
Political changes and unrest in regions, natural catastrophes;
Market conditions in the industry and the general state of the securities markets, with particular emphasis
on the technology and Israeli sectors of the securities markets; and
General stock market volatility.
Our ADSs and ordinary shares are traded on different markets and this may result in price variations.
Our ADSs have been listed on The NASDAQ Stock Market since 1996 and our ordinary shares have been traded on
the Tel Aviv Stock Exchange, or the “TASE”, since 1991. Trading in our securities on these markets takes place in different
currencies (our ADSs are traded in U.S. dollars and our ordinary shares are traded in New Israeli Shekels), and at different
times (resulting from different time zones, different trading days and different public holidays in the United States and Israel).
As a result, the trading prices of our securities on these two markets may differ due to these factors. In addition, any decrease
in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other
market.
Substantial future sales or the perception of sales of our ADSs or ordinary shares, or the exchange of a substantial
amount of Notes, or perception thereof, could cause the price of our ADSs or ordinary shares to decline.
Sales of substantial amounts of our ADSs or ordinary shares in the public market, or the perception that these sales
could occur, could adversely affect the price of our ADSs and ordinary shares and could impair our ability to raise capital
through the sale of additional shares. Such sales may also make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a desirable price.
Additionally, future exchanges of the Notes for ADSs, or the perception that these exchanges may occur, could
reduce the market price of the ordinary shares or ADSs. This could also impair NICE’s abilities to raise additional capital
through the sale of its securities.
The market prices of the ordinary shares and the ADSs, which may fluctuate significantly, will directly affect the
market price for the Notes.
We expect that the market price of the ordinary shares and the ADSs will affect the market price of the Notes. This
may result in greater volatility in the market price of the Notes than would be expected for non-exchangeable notes. The
market price of the ordinary shares and the ADSs will likely fluctuate in response to a number of factors, many of which are
beyond our control. Holders who receive ADSs upon exchange of the Notes will therefore be subject to the risk of volatility
and depressed prices of ADSs. In addition, we expect that the market price of the Notes will be influenced by yield and
interest rates in the capital markets, our creditworthiness and the occurrence of certain events affecting us that do not require
an adjustment to the exchange rate. Fluctuations in yield rates in particular may give rise to arbitrage opportunities based
upon changes in the relative values of the Notes and ADSs. Any such arbitrage could, in turn, affect the market prices of
ADSs and the Notes.
We have not registered, and do not currently intend to register, the Notes, the ADSs into which the Notes are
exchanged or exchangeable or the ordinary shares represented thereby. There are restrictions on Noteholders’ ability
to transfer or resell the Notes, ADSs and the underlying ordinary shares.
The Notes, the ADSs deliverable upon exchange of the Notes and the ordinary shares represented thereby were
offered and sold pursuant to an exemption from registration under the Securities Act and applicable state securities laws, and
we have not registered, and do not currently intend to register, the Notes, the ADSs or such ordinary shares. Therefore,
Noteholders may transfer or resell the Notes only in a transaction registered under or exempt from the registration
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requirements of the Securities Act and applicable state securities laws and may be required to bear the risk of their investment
for an indefinite period of time.
The fundamental change and make-whole fundamental change provisions of the Notes may delay or prevent an
otherwise beneficial attempt to acquire our company.
The fundamental change prepayment rights of the Noteholders under the Notes, which would allow Noteholders to
require that we prepay all or a portion of their Note upon the occurrence of a fundamental change, and the provisions under
the Notes requiring an increase to the exchange rate for exchanges in connection with a make-whole fundamental change, in
certain circumstances may delay or prevent an acquisition of NICE that would otherwise be beneficial to our shareholders.
It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the United States,
or to serve process on our officers and directors.
Service of process upon us, our Israeli subsidiaries, directors and officers, and Israeli advisors, if any, named in this
annual report, may be difficult to obtain within the United States. Additionally, it may be difficult to enforce civil liabilities
under U.S. federal securities law in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a
violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an
Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is
found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and
costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel
addressing these matters.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company,
which could prevent a change of control, even when the terms of such a transaction are favorable to us and our
shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds,
requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters
that may be relevant to these types of transactions.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders
whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. These and
other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if
such an acquisition or merger would be beneficial to us or to our shareholders.
See Item 10, “Additional Information—Mergers and Acquisitions” in this annual report, for additional discussion
regarding anti-takeover effects of Israeli law.
Item 4.
History and Development of the Company.
Our History
NICE was founded on September 28, 1986, as Neptune Intelligent Computer Engineering Ltd., with the vision to
digitize unstructured data previously captured using analog means. Such digitization enabled the vast improvement of the
capture, distribution, storage and security of such data. On October 14, 1991, the Company was renamed NICE-Systems Ltd.,
expanding its mission to the Customer Service market, to become a leading global provider of Workforce Optimization
software applications, as well as adding solutions for the Public Safety sector. As computing power evolved, it became
feasible to perform analytics on unstructured data. NICE launched Interaction Analytics products allowing customers to
understand and act on the captured data. In 2007, NICE acquired Actimize, a leader in Financial Crime and Compliance
analytics solutions, and added real-time transaction data analytics and other solutions to prevent financial fraud. In 2016,
NICE acquired inContact, a leading provider of cloud contact center software and agent optimization tools, enabling the
industry’s first fully integrated and complete cloud contact center solution suite.
On June 6, 2016, we were renamed NICE Ltd., which is our legal and commercial name. Today, NICE is an
enterprise software leader in both the Customer Engagement and Financial Crime and Compliance markets. Our solutions
help organizations create exceptional customer experiences, improve Public Safety and prevent Financial Crime, based on
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cloud platforms that combine Digital and Omnichannel capabilities, advanced Analytics, smart Automation and Artificial
Intelligence (AI).
NICE is a company limited by shares organized under the laws of the State of Israel. Our Israeli offices are located
at 13 Zarchin Street, P.O. Box 690, Ra’anana 4310602, Israel (Tel. +972-9-775-3151). Our subsidiary, NICE Systems, Inc.
has been appointed as our Agent for Service in the United States, and is located at 221 River Street, Hoboken, New Jersey
07030.
Principal Capital Expenditures
In the last three fiscal years, our principal capital expenditures were the acquisition of other businesses and
repurchases of our ADRs. For information regarding our acquisitions and ordinary share repurchases, please see Item 5,
“Operating and Financial Review and Prospects—Recent Acquisitions,” and “Liquidity and Capital Resources,” in this
annual report. For additional information regarding our ordinary share repurchases, please also see Item 16E, “Purchases of
Equity Securities by the Issuer and Affiliated Purchasers,” in this annual report.
For a breakdown of total revenues by products and services and by geographic markets for each of the last three
years, please see Item 5, “Operating and Financial Review and Prospects – Results of Operation,” in this annual report.
About NICE
NICE is a global enterprise cloud software leader, serving two main markets: Customer Engagement and Financial
Crime and Compliance. Our core mission is to transform experiences to be extraordinary and trusted. Our software is used by
customer service organizations of enterprises of all sizes and verticals, and by compliance and fraud-prevention groups in
leading financial institutions.
We help organizations transform customer experiences with solutions aimed at understanding consumer journeys,
creating smarter hyper-personalized connections, managing omnichannel interactions and providing digital-centric self-
service capabilities. We also help organizations transform their workforce experience with solutions aimed at engaging
employees, optimizing operations and automating processes. Additionally, we help financial services organizations make
experiences safer with solutions aimed at predicting needs and identifying risks to prevent money laundering and fraud, as
well as ensuring compliance in real-time.
NICE is at the forefront of several industry technological disruptions: the growing maturity of analytics and AI, the
adoption of cloud platforms by enterprises, the expansion of use of digital channels to communicate with customers, and the
shift by financial institutions to integrated risk management solutions for end-to-end financial crime prevention. Our solutions
form a comprehensive and unified portfolio based on our unique domain expertise for driving customer experience
transformation and preventing financial crime as well as enhancing public safety. These solutions are built on innovative
cloud platforms that are digital-first, integrating advanced analytics, AI and automation in a wide range of business
applications.
We rely on several key assets to drive our growth:
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Our market-leading open cloud platforms for Customer Engagement and Financial Crime and Compliance,
which natively embed analytics, automation, AI, and digital capabilities, and are protected by a broad array
of patents.
Our ability to provide solutions that cover all market segments, from small to mid-sized business to large
scale Fortune 100 enterprises.
Our extensive portfolio of applications allow our customers to benefit from a wide range of both cloud and
on-premises solutions.
Our broad array of proprietary technologies and algorithms in the domains of automation, analytics,
machine learning, speech-to-text, natural language processing, personality-based routing and others.
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Our access to data for improving our algorithms through machine learning and AI, which relies on a
combination of our expansive customer base, cloud deployments and domain expertise.
Our market leadership, which makes us a well-recognized brand and creates top-of-mind awareness for our
solutions in our areas of operation.
Our large partner ecosystem enables us to reach and serve a large number of customers across many
countries.
Our loyal customer base: today, more than 25,000 organizations in over 150 countries, including 85 of the
Fortune 100 companies, use NICE solutions.
Our ability to quickly drive mainstream adoption for innovative solutions and new technologies and trends,
which we introduce to the market through our direct sales force and distribution network.
Our skilled employees and domain expertise in our core markets allows us to bring our customers the right
solutions to address key business challenges and build strong customer partnerships.
Our services, customer support and operations, which enable our customers to quickly enjoy the benefits of
our solutions, with multiple deployment models in the cloud or on-premises throughout the world and
support for full value realization and customer success.
Our customers, across multiple sizes and verticals, including banking, telecommunications, healthcare, insurance,
retail, travel, gaming, public safety, state and local government, are benefiting from the tangible and practical business value
that our solutions provide.
Industry and Technology Trends
Following are the key cross-industry trends that we have identified as driving demand for our solutions:
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Organizations prefer using open software platforms as the foundation for their applications. Open
platforms provide unified and fully-integrated solutions that are all based on a shared framework of service,
allowing for fast innovation, easy deployment, flexible functionality and an enhanced ecosystem of solution
providers. Third-party solutions can be easily added to extend the functionality of the platform to match a
customer’s or industry specific needs.
Cloud solutions are becoming the standard for enterprise organizations. Cloud solutions have been
popular mostly for small and mid-size organizations, allowing them to achieve flexible and cost-effective
deployment models for their enterprise software. These include SaaS, CCaaS, and other cloud-based
solutions. Cloud enables fast deployment, easy scaling, and fast
innovation. We are seeing cloud
deployments in large to very large organizations, meeting such organization's requirements around security,
scale, and other items.
Organizations are going through digital transformations, automating previously manual processes and
providing customers various digital means by which to interact with the organization which are deeply
integrated with the organization's systems and processes. Such digital transformations allow for more
efficient processes, faster response time and empowerment of employees and customers.
Artificial Intelligence and Automation are disrupting businesses across all industries by applying
scalable intelligence on a vast amount of data. AI and automation help organizations sustain
competitiveness and differentiation by streamlining and automating complex business processes and
generating meaningful insight from vast data.
There is a growing awareness among organizations, consumers and regulators of the value of
personal information, and an increased concern with how this data is being collected and stored.
Organizations are required to gain and maintain trust
trust, and governments are
increasingly regulating how users' information is gathered and managed. The GDPR and CCPA appear to
be part of the global trend seeking to hold organizations accountable for how they address privacy and data.
their customers'
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Customer engagement trends that are driving demand for our solutions:
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Consumer demand for a holistic omnichannel experience that is effortless and consistent across all
touchpoints has become a standard requirement. While consumers move constantly between devices
and channels, their expectation is for consistent experiences across all communication channels and a
seamless transition from one channel to another. They easily and often traverse these channels, depending
on their task, location, time-of-day or even progress within a certain process. The number of channels is
continuously growing, but consumers view them all as part of a single experience. Organizations are
expected to quickly adapt to the large variety of channels as well as to view them seamlessly in the same
way their consumers do and offer a reliable and consistent experience across all touch points.
Increased use by consumers of Next Generation Digital Channels as first choice for interaction with
organizations. Next Generation Digital Channels comprise mainly messaging and social applications. The
nature of these channels is different from Voice and First Generation Digital Channels (e.g., email, chat)
due to the asynchronous response times and capability to measure the duration of an interaction. Younger
generations show a clear preference for messaging channels when interacting with customer service.
Organizations need to make sure they offer these channels as a communication alternative.
Organizations rely more on analytics and AI to further improve customer experience as well as the
general performance of the contact center. Organizations are increasingly adopting a customer-centric
strategy to better understand each individual customer, including its needs and preferences, and to respond
accordingly. Organizations are increasing the use of AI to achieve focused decisioning and real-time action
solutions – being proactive and predictive. Front and back office functions seek to employ analytics to
better optimize their operations. These tools include, among others, cognitive engagement solutions, like
interactive communications, predictive analytics and machine learning. Furthermore, smart and self-
learning machines allow the enhancement of self- service, real-time guidance and analytics-based insights
(including speech and text analytics), behavioral analytics and techniques focused on profiling, trending
and pattern detection. As a result, organizations increasingly use these technologies to provide faster and
more efficient customer service.
Adoption of Robotic Process Automation (RPA) solutions keep growing in the contact center in order
to increase agent efficiency and productivity while reducing costs. RPA helps to significantly reduce the
number of manual and time-consuming tasks agents and employees need to perform, freeing them to spend
time in added-value activities. RPA can be divided into unattended and attended automation. With
unattended RPA, companies are looking to fully automate back-office processes at scale with no human
intervention. With attended RPA the bots can work as virtual assistants to agents dramatically improving
the contact center's workforce capabilities.
Organizations are looking for ways to engage their employees in personalized and adaptive ways to
improve workforce productivity and satisfaction. Contact center employees are heterogenic with
different needs and requirements. These employees, especially those that belong to the “millennial”
generation, expect organizations to hear their voice and engage them individually. Successfully engaging
and motivating these employees in a personalized manner reduces attrition levels, hiring and on boarding
efforts and improves the experience level of the team, resulting in a better experience for end-customers.
Chat and conversational bots are being deployed to contain and deflect calls and interactions into
self-service. Organizations are looking for new and advanced digital means to improve customer
satisfaction and reduce cost. Further development of intelligent bots will improve operational processes,
ensure compliance with rules and regulations, increase flexibility in customer interactions with the contact
center, as well as decrease error rate and wait time while providing a personalized experience. This
technology will increase self-service channels containment and allow the human workforce to focus on
more complex value-added services.
Public Safety Answering Points (PSAP) are adopting next generation communication infrastructure
to enable digital emergency communication. Next generation PSAPs enable people to communicate
through new digital channels enhanced with capabilities such as sharing media, location and other forms of
digital data. The vast amount of new information available to PSAPs intensifies the need for enterprise-
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grade, secure platforms for gathering, managing and ensuring compliance of public safety data to support
digital evidence collection and investigation.
Financial Crime and Compliance trends that are driving demand for our solutions:
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crime and ensuring stringent
Preventing financial
compliance and evolving regulatory
environments. Regulatory scrutiny of financial institutions continues to apply pressure on organizations to
adopt more advanced regulatory compliance technology. Furthermore, regulators have been expanding their
focus from the largest financial institutions to a broader market, including smaller banks and alternative
financial service providers, all creating increased demand for compliance related solutions.
An unpredictable threat landscape environment. The growing number of data breaches and cyber
security incidents put increasing amounts of personally identifiable information and sensitive data at risk of
exposure. This information can be used to open accounts that can be used for laundering money, terrorist
financing, account fraud, market manipulation, social engineering, and more. Such potential risks threaten
an organization’s reputation, as well as create large financial exposures due to both losses as well as fines.
In addition, the large volumes of data, related to both internal and external threats, place an enormous
operational burden on organizations. Having the ability to deploy advanced technologies such as machine
learning and automation to address these threats, becomes increasingly critical to financial services
organizations.
An increasing need to control cost of compliance. The regulatory pressures and increasing threat
landscape have driven a sharp increase in the number of risk and compliance personnel, which in turn has
dramatically increased the cost of compliance. Organizations are turning to technology to allow them to
control these costs without compromising their compliance adherence and while continuing to lower their
exposure to financial crime.
An integrated risk management platform is becoming more prevalent. The ever-expanding risk
landscape and sophistication of financial criminals, as well as the need to keep costs in check, creates a
growing need for a single view of financial crime-related risk, thereby allowing organizations to aggregate
and analyze the different detection signals coming from throughout the financial services organization.
Financial institutions are seeking a single platform that aggregates all such information from across the
organization, with the capabilities to analyze it, act on it and present it in a single dashboard to both
operations and executives.
Process automation and machine learning are increasingly used to automate financial investigation
tasks where it may not be necessary to have human involvement. This frees up investigators from low
value, high volume manual tasks so that they may better focus on more important and strategic tasks. This
leads to better resource utilization,
increased accuracy and productivity, and improved return on
investment.
Financial services providers are increasingly considering introducing Blockchain based solutions.
Blockchain can provide high levels of security and transparency to financial transactions, as well as
decrease costs through its decentralized structure. This decentralization can also help decrease financial
risks, as each transaction is stored with a highly difficult to hack cryptographic mechanism. It can also
support secure and transparent data sharing between financial organizations and the creation of
consortiums.
Financial institutions are being disrupted by digital players providing improved experiences and
more personalized products and services. Most banking services and many other financial areas are
being challenged by neo-banks, fintech companies and other digital players. Consumers have increased
expectations for faster and frictionless processes leading financial institutions to heavily invest in digital
banking capabilities. In terms of risk, digital banking moves the consumer away from the branch creating
new risks around identity verification, customer due diligence and general monitoring of consumer
financial behavior. The expectations for fast response times drive financial institutions to re-design their
compliance processes to be able to respond in minutes rather than days or weeks, which in turn requires
broader adoption of automation.
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Strategy
Our long-term strategy is to further strengthen our leadership position in both Customer Engagement and Financial
Crime and Compliance market segments, as well as further enhance our position in adjacent markets. During 2019, we
continued to execute on our long-term strategy through both organic activity and acquisitions, enhancing our position as a
leader in both markets.
Leading Organizations through the Experience Transformation
We intend to continue leading the market by leveraging several major industry trends and providing solutions to
support the major transformations our customers are undergoing, as follows:
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Cloud Transformation – we provide a cloud-native open platform for our Customer Engagement and
Financial Crime and Compliance offerings. This allows us to facilitate our customers adopting the cloud as
a means to accelerate innovation and reduce integration, implementation and operational efforts.
Digital Transformation - we enable businesses to deliver digital-first omnichannel service, including the
ability to service customer across multiple channels, provide digital banking and help public safety
organizations shift to digital interaction and digital evidence.
Customer Experience Transformation - we intend to continue developing tools to allow our customers to
achieve a better understanding of their consumers, adapting the experience to their personalities, needs and
behaviors and drive a proactive approach to identify intent, predict next best action and protect customers
from being compromised.
Analytics, AI and Automation Transformation – our domain expertise and advanced technology in the
areas of machine learning, AI and automation, as well as our unique access to data to train these algorithms
via our cloud offering, allows us to provide market leading AI-driven smarter processes to our customers,
addressing numerous business use cases across all our market segments.
Workforce Transformation - we continue to lead the evolution of Adaptive Workforce Engagement,
providing solutions aimed at meeting employees´ expectations across their entire lifecycle, helping improve
work-life balance and increasing employee motivation and retention. Improving employees' engagement
allows organizations to remain attractive for younger generations such as Gen-Y (Millennials) and Gen-Z,
entering the workforce.
Strengthening our market leadership
Our brand, global reach, financial resources, extensive domain expertise and ability to deliver solutions for large, as
well as small and mid-sized organizations, will further anchor our market-leading position.
We plan to continue to develop our open cloud platforms for Customer Engagement and Financial Crime markets to
enable unified integrated solutions that offer fast innovation and easy implementation. These platforms allow us to deepen
our direct relationships with our customers, nurture our partner ecosystem and create new growth opportunities.
In our Customer Engagement business, we will continue to expand our offering through our NICE inContact CXone
platform. With CXone we are now able to provide the broadest suite of analytics and AI-infused integrated applications for
customer service, all on an open cloud-native foundation. Alongside our existing offering, we plan to lead in new product
categories, as we introduce novel solutions and enter additional market segments. We will continue to extend our leading
market position for cloud contact center solutions, catering to organizations of all sizes and replacing legacy on-premises
infrastructure players. We will also continue to enable our customers to extend our solutions through innovative third-party
solutions via our DEVone dedicated partner ecosystem that our customers can self-select through our platform's CXexchange
application marketplace. Our Investigate cloud platform allows public safety organizations to transform to the digital age,
managing response, investigation and prosecution in digitally and embedding analytics and AI throughout the process.
In our Financial Crime and Compliance business, we will continue to expand our Autonomous Financial Crime
Management offering, allowing financial services organizations to merge innovative technologies to seamlessly connect data,
and apply machine learning, advanced analytics and automation to turn raw data into intelligence. We will also continue
developing X-Sight, the industry’s first cloud Platform as a Service for Financial Crime and Compliance. We recently
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launched X-Sight Marketplace, the first Financial Crime and Compliance ecosystem, allowing our customers to enhance the
functionality of our offerings through integration with best-in-class providers, innovation and customizable solutions. These
offerings enable us to add value to our existing customers, as well as expand our reach and open-up new opportunities,
considerably increasing our total addressable market.
Continuing to offer our full solutions portfolio to our existing customer base
One of our main assets is our growing customer base. We believe there are many opportunities to up-sell and cross-
sell within our existing customer base. This includes increasing our customers’ exposure to the full breadth of our portfolio.
We continue to provide our customers with new benefits by expanding the offering they already use, adding new products
and migrating our customers to the cloud.
Continuing organic innovation and development, while also pursuing acquisitions
We intend to continue investing in innovation and development and continue to augment our organic growth with
additional acquisitions that will broaden our product and technology portfolio, expand our presence in selected verticals,
adjacent markets and geographic areas, broaden our customer base, and increase our distribution channels.
Maximizing the synergies across our businesses
At NICE, we value and promote a synergetic approach to our platforms and solutions. We will continue leveraging
the fact that many of our solutions are based on common cloud architectures as well as on methodology of capturing and
analyzing massive amounts of structured and unstructured data, providing real-time insight and driving process automation.
Maximizing these synergies and cooperation between our business areas is a key pillar of our corporate strategy.
We have several joint offerings across our business segments and combined go-to-market efforts. We will continue
leveraging our extensive complementary domain expertise, technological know-how, capabilities and development, in order
to grow our business through additional cross-sell and up-sell opportunities.
Offering a flexible delivery model
Our strategy is to offer our solutions in alignment with both on-premises and cloud-based enterprise software
delivery models, adjusting our solutions to our customers’ changing needs and maturity levels.
In the open cloud-based model we are providing our customers faster access to innovation, and more flexibility,
while at the same time lowering their Total Cost of Ownership (TCO). Given the growing demand for these SaaS cloud
models, we continue to expand our portfolio and grow our market leadership across all segments, from small business to the
largest enterprises, as well as enabling our existing customers to broaden their use of our products.
We also continue to offer our solutions through an on-premises model. In this model customers purchase a license to
use our software indefinitely, while also purchasing related professional services and annual software maintenance. We also
offer some of our solutions under a term license, according to which customers purchase a license to use our software for a
fixed period.
We intend to continue offering our solutions in a variety of delivery models, which enables us to be flexible in
effectively addressing our customers’ needs. This, in turn, will enable us to focus on growth and improving profitability.
Increase our footprint in select geographical regions
As part of our growth strategy, we are expanding our business in select regions outside the United States, where we
can further grow and establish our presence in less penetrated, growing markets. We are doing this by leveraging our existing
offering and partner ecosystem, in both the Customer Engagement business as well as the Financial Crime and Compliance
business.
In 2019, we significantly expanded our offering and presence in several markets across the globe. Moving forward,
we plan to continue investing in these markets while also expanding our offering in additional markets, including South
America, Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC).
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Customer Engagement Business Strategy
Our strategy is to extend our market leading position in the Customer Engagement space, while continuing to
expand beyond the contact center to the different customer experience channels and touch points with multiple delivery
models. We intend to achieve this by providing solutions that focus on:
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Offering NICE inContact CXone, the global leading unified cloud customer experience platform that
combines Omnichannel Routing for voice and digital channels, IVR, self-service, Customer Journey
Analytics, Adaptive Workforce Optimization (WFO) and Automation.
Offering solutions for all customer touchpoints, as well as solutions that benefit back office operations,
retail branches, and self-service channels with the ability to easily connect future channels.
Leveraging Robotic Process Automation to automate manual tasks across our customers' operations, while
using our advanced AI based Automation Finder capabilities to identify processes suitable to automate.
Offering our customers the ability to extend our solutions through innovative third-party solutions from our
DEVone dedicated partner ecosystem,
they can self-select using our platform’s CXexchange
application marketplace.
that
Leading cloud transformation across the entire Customer Engagement portfolio for all market segments and
regions to enhance flexibility, agility and lower total cost of ownership TCO.
Transforming the workforce through Adaptive Workforce Optimization (Adaptive WFO), by providing
tools that understand the individual employee's preferences and needs, and empower and enhance the
employee experience across its lifecycle, in order to drive motivation and reduce attrition.
Infusing analytics, AI and automation into every element of our Customer Engagement offerings.
Applying advanced interaction analytics to better understand interaction context, sentiment and customer
personality, and use Predictive Behavioral Routing (PBR) to connect customers with the most suitable
contact center employee.
Managing the customer experience thorough a customer experience management platform that is able to
capture customer feedback across all touch points, generate specific insights and take action to address the
needs of CX Officers and other stakeholders in order to improve customer loyalty and satisfaction.
Extending our offering to the PSAP to support next generation digital emergency communication, ensuring
compliance and enabling enhanced digital evidence collection and investigation
Offering a leading unified cloud-based Digital Evidence Management and Investigation platform, NICE
Investigate, that integrates and consolidates all forms of evidence information - data and media from police
records and dispatch management systems.
Financial Crime and Compliance Business Strategy
We plan to continue extending our market leading position and our addressable market, while supporting the move
to the cloud by financial institutions. We also plan to leverage our capabilities to facilitate both better financial crime
protection and help our customers realize significant cost reductions. We intend to achieve this by focusing on:
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Delivering integrated Financial Crime and Compliance solutions that help financial services organizations
to identify issues faster and earlier.
Providing X-Sight, our cloud-native platform for Financial Crime and Compliance solutions. X-Sight
combines data and analytics agility, promoting the Autonomous Financial Crime Management vision and
our ability to cross-sell solutions. Our cloud platform leverages Big Data, machine learning, advanced
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automation and other technologies to help customers reduce the cost of operations, while increasing their
adherence to compliance and preventing financial crime.
Offering X-Sight AI, a data driven, machine learning, analytics managed service (Actimize Watch) or do-it-
yourself toolset (X-Sight Studio) to optimize analytic models and develop new analytics by leveraging
insights from a market-wide view of transactions.
Providing X-Sight Marketplace, an ecosystem of innovative third-party solutions where our customers can
select complementary solutions to extend or complement our platforms and products.
Continuing to focus on our tier 1 and tier 2 customers by providing them with solutions to meet their needs
via both cloud and on-premises models.
Leveraging our cloud-based Essentials solutions to expand our market reach to mid-size banks and
financial institutions.
Offering our solutions to verticals outside of the traditional financial services, such as technology, gaming,
energy, insurance, healthcare, industry regulators, government agencies, as well as to fintech and
alternative payments providers.
Continuing to cross-sell and up-sell into our existing customer base around the world.
Partnering with world-class consultancy and other firms to identify additional significant opportunities.
Increasingly selling holistic solutions, combining Financial Crime and Compliance offerings with Customer
Engagement offerings.
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I.
Offering Overview - Customer Engagement
Consumer and employee experience expectations are constantly evolving, being driven by technology enablers and
ever-changing cultural and behavioral norms. These dynamics are challenging organizations to differentiate themselves
through efficient, effective and high quality customer experiences that are digital, including agent-assisted and self-help
channels, that are consistent and personalized across all touch points. In addition, organizations must find ways to generate
business insights, better understand and predict customer intent and create smarter customer connections. They need to
accomplish these objectives while containing operational costs and adhering to regulations.
NICE's comprehensive portfolio of solutions empowers organizational change across major market transformations
our customers are undergoing, enabling the creation of extraordinary customer and employee experiences:
Our Cloud Native Open Platform, CXone, supports contact centers of all sizes and geographic locations – from
small single sites, to distributed remote agents, to global enterprises. The platform is open and extensible, with over 300
Application Program Interfaces (APIs) and over 140 development partners participating in our DEVone partnership program.
CXone allows organizations to compete on innovation and routinely transform experiences with speed and sophistication,
overcoming expensive and lengthy innovation and product cycles, and eliminating painful integrations by having a unified
modern architecture with automatic upgrades.
Our Digital-first Omnichannel Customer Service solutions, part of CXone, enable organizations to deliver service
on a multitude of digital channels. NICE offers a complete digital-first omnichannel Customer Engagement platform,
supporting over thirty digital and self-service channels, allowing organizations to easily add and integrate new and emerging
channels. Our smart digital-first omnichannel routing capabilities empower organizations to interact with their customer in a
seamless and effortless way by providing a fully unified environment, combining voice and digital channels, allowing for a
single view of experiences. The AI driven Predictive Behavioral Routing (PBR) helps direct the customer to the best service
by employing machine learning to predict the best match for the customer based on their past behavior, needs and
personality.
Our Customer Experience Management solutions empower organizations to find new and improved ways to
understand their customers, their employees and their processes. We enable this by uniquely combining customer feedback,
interactions-based analytics insight and journey analytics to get a holistic view of the customer experience across all
channels. Using advanced analytics engines, we analyze every aspect of the customer experience to generate automated
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actionable insight and create hyper-personalized experiences in real-time that are based on the customer’s personality-type,
interests, preferences and history. Organizations can also leverage these smart analytics and AI algorithms to predict
customer intent, and proactively act on it in the right channel and at the right time. We can also connect the customer to
interact with the most suitable contact center agent based on these hyper-personalized understandings.
Our AI Driven Smarter Processes solutions leverage Automation and AI to optimize internal processes and
enhance digital presence across all business areas, both in and outside the contact center. We use real-time decisioning
identify and prioritize the top processes that should be automated to optimize workforce
engines to help uncover,
productivity. We offer smart and quick self-service capabilities, enabling smart chatbots that are seamlessly woven into the
omnichannel routing platform, allowing an effortless move from a Bot to another channel, and a full range of automation,
from unattended robots to virtual attendants who guide the employee in real time on their desktop.
Our Adaptive Workforce Engagement solutions enable organizations to understand their employees in new ways
that take into consideration their personal attributes and preferences and create an adaptive environment to meet employees'
expectations for an environment that is flexible and preference-based, promoting a better work-life balance. We leverage AI
to provide customized goal-setting based on employee persona and to support adaptive coaching methods and motivate each
employee through advanced gamification that creates a shared sense of accomplishment. NICE creates accurate multi-skill
multi-site forecasting to manage the complex workforce by applying advanced AI to forecast and schedule correct staffing,
manage quality, lower cost and improve performance across skills, locations, channels and employee preferences.
Our Platform and Solutions’ Core Capabilities
Our platform and solutions both in the cloud as well as on-premises empower businesses to transform the
experiences they provide to their customers and employees, through the following core capabilities:
Open Cloud Platform, CXone, delivers a comprehensive digital-first omnichannel offering in the contact center as
a Service (CCaaS) market. It powers rapid innovation with an extensible enterprise-grade platform that scales securely,
deploys quickly, and serves customers of all sizes globally. We believe that we provide industry-best availability and offer
easy customization through RESTful APIs and our developer program, plus the CXexchange marketplace for pre-built
integrations from ecosystem partners. The combination of the above capabilities enables organizations to improve customer
experience and achieve business and operational goals. Solutions are available individually or as part of an integrated suite.
Smart Omnichannel Routing, Recording and Self-service (IVR) enables organizations to run their contact center
in the cloud, record structured and unstructured customer interaction and transaction data, and route customer interactions
across inbound/outbound voice and dozens of digital channels in a hyper personalized manner to ensure agents positively and
productively interact with customers. All channels are unified into a single consistent omnichannel experience enabling
organizations to deliver service on any channel chosen by their consumers, ensuring interactions are seamlessly routed across
all touchpoints, and consumers can seamlessly move between channels, while keeping the same context, same employee, and
have a single view of the insight coming from all channels. Organizations gain business flexibility by quickly deploying
agents anytime, anywhere, including remote/home-based agents and implementing changes to customer routing and IVR in
hours, not months. Our AI-powered routing transforms customer experience with hyper-personalization in the cloud, enabling
an understanding of customers’ communication preferences and behavioral characteristics. This understanding leads to better
connections between customers and employees, resulting in immediate and measurable benefits to an organization’s bottom
line.
Omnichannel, Real-time Customer Experience Analytics enables organizations to uncover the valuable data and
insights hidden in customer interactions and customer journeys. It uses advanced technology for analyzing speech, text, call
flow, feedback, customer sentiment and employee desktop activity, in order to understand the root cause of service issues,
connect the customers with the best employees to handle the interaction, and to drive business results. Analysis of the
customer journey across various touchpoints, transactions and events allow organizations to have a comprehensive view of
customer intents and actions throughout that journey, understand the context of each contact, uncover patterns, predict needs
and personalize interactions in real time. They also leverage Big Data infrastructure and predictive analytics models to
identify and sequence individual customer interactions across time and touch points, including calls, text, IVR, web, self-
service and others.
Machine Learning, Automation and AI Capabilities are embedded everywhere to improve internal processes,
from deploying AI Chatbots to powering more accurate staffing forecasts, to automatically categorizing interactions based on
content and sentiment. Our Advanced Process Automation solutions provide a comprehensive range of robotic solutions, all
as part of a single automation platform. It includes robotic automation of mundane and manual processes to employee
desktop guidance with NICE’s Employee Virtual Attendant (NEVA), which prompts guidance in the context of the live
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customer interaction or the process the employee is working on. These solutions enable organizations to make the right
decision during individual interactions and across a large number of interactions, eliminating errors and providing future
next-best-action guidance.
Workforce Optimization and Employee Engagement Management uses AI and machine learning for long-term
planning, forecasting and scheduling and leverages intelligent automation for intraday activities. It effectively forecasts
workloads and scheduling staff in an adaptive and automated manner, considering agent preferences and personal attributes,
enabling greater flexibility for the agent to perform schedule-changes while meeting operational goals. It drives organizations
to improve an agent’s individual productivity, by creating an employee-adaptive environment, identifying performance gaps,
delivering on targeted coaching and training, fostering performance-driven operations and culture, and embedding the voice
of the customer into daily operations to engage employees.
Addressing Business and Operational Needs
Our platform and solutions are designed to address various organizational business initiatives, both inside and
outside the contact center. Below is the list of available NICE Customer Engagement solutions, grouped by these main
initiatives:
1. Provide Digital-First Customer Service
Solutions and Capabilities
Description
Automatic Contact Distributor
(ACD) and Interactive Voice
Response (IVR)
Ensures customer requests are routed to qualified agents or resolved with self-service
through a skills-based omnichannel routing engine that provides a universal queue for
real-time interaction management, and a consolidated interface with a seamlessly
integrated IVR for routing strategies across all supported channels.
Personal Connection Proactive
Outbound
Customer Interaction Channels
Provides inside sales an easier way for sales teams to attain quota by connecting with
more prospects every day and for customer service teams with the ability to reduce
inbound calls through personalized, low cost, and proactive outbound notifications, such
as text/SMS or email.
Enables contact centers to service customers via any channel, focusing on self-help and
digital channels, with extensive routing options, consolidated reporting and a state-of-
the-art agent interface. Channels include inbound and outbound voice, callback,
voicemail, email, chat, text/SMS, work items, and dozens of digital messaging and social
media channels.
2. Use an Open Cloud Platform for Faster Innovation
Solutions and Capabilities
Description
Customer Relationship
Management (CRM) Integrations
Delivers pre-built integrations with leading CRM environments, such as Salesforce.com,
and empowers agents to personalize omnichannel customer service. Provides seamless,
bidirectional CRM integrations with the contact center that increase agent efficiency and
independence by delivering a real-time 360-degree view of the customer.
Unified Communications
(UCaaS) Integrations
Network and Voice Connectivity
Solutions
Delivers pre-built or partner-provided integration with Unified Communication tools that
enables seamless collaboration between contact center agents and experts in their
organization. This easy to deploy integration provides a single solution for formal and
informal contact center agents.
Includes a Voice as a Service network connectivity suite that delivers flexible and
reliable telephony services built specifically for the contact center, offering a full range
of telephony options, with guaranteed voice quality. Through proactive diagnostic tools
and extensive telephony expertise, we guarantee voice quality based on Mean Opinion
Score (MOS).
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3. Adhere to Compliance and Mitigate Risk
Solutions and Capabilities
Description
Contact Center Omnichannel
Recording
Provides comprehensive omnichannel interaction recording: voice, video, chat, email,
and social media, and is integrated with all telephony environments and hybrid networks.
It delivers all the advantages of a thorough and robust recording platform, both on-
premises and in the cloud over a fully dedicated and operated public or private cloud
designed for high availability and redundancy. Supports thousands of concurrent IP
streams: capturing, forwarding in real time, recording and archiving in a single platform
while ensuring customer safety and minimizing organizational risks, with its
encompassing compliance solution, certified for PCI DSS3 and HIPAA.
NICE Trading Recording (NTR) Compliance trading floor recording and capture, based on the compliance policies of
financial institutions, ensuring a lower total cost of ownership than traditional blanket
recording methods. It enables organizations to capture, monitor and analyze interactions
and transactions in real time, in order to proactively minimize risks, detect potential
regulatory breaches, and improve investigative capabilities. The solution delivers
comprehensive, integrated capabilities to effectively manage the complex, ongoing, high-
risk exchange of interactions and transactions between traders, firms and their
counterparties.
Compliance Omnichannel
Recording
Compliance Center
Trading Floor Compliance
Solutions
Communication Surveillance
Proactively captures and retains all customer interactions across multiple touch points to
help ensure compliance with government regulations, such as the Dodd-Frank Wall
Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Security Exchange
Commission Rule 17a-4, the Health Insurance Portability and Accountability Act, the
Sarbanes–Oxley Act, the Payment Card Industry Data Security Standard, the Financial
Services Authority and Medicare Improvements for Patients and Providers Act, the
GDPR, the CCPA, as well as with internal policies. Compliance Recording is also an
invaluable tool to resolve disputes, perform investigations and verify sales, as well as
provide redundancy and disaster recovery capabilities to meet business continuity
requirements.
Empowering organizations to manage all interactions compliance activities in one place
in a smart and automated way. Compliance center enables detecting breaches, defining
policies and carrying out audits relating to regulations such as PCI DSS, HIPAA, SEC,
MIFID II, and GDPR. Compliance center includes compliance dashboards that provide
an aggregated view on regulatory topics and Do-It-Yourself policy management hub to
see, manage and automate all compliance activities in one repository. It also includes a
dedicated application to gain compliance insights, trigger real- time notifications to
agents related to recording assurance, audio loss and offers manual commands for PCI
DSS with pause and resume.
Enables organizations to capture, monitor and analyze interactions and transactions in
real time, in order to proactively minimize risks, detect potential regulatory breaches,
counter fraudulent activities, and improve investigative capabilities. These solutions
deliver comprehensive, integrated capabilities to effectively manage the complex,
ongoing, high-risk exchange of interactions and transactions between traders, firms and
their counterparties.
Monitors trading activity by analyzing conversations from trading turrets, fixed and
mobile phones, email, text, instant messaging, chat and social media using speech
analytics, machine-learning and natural language processing. It automatically highlights
potential risks and enables compliance officers and analysts to see emerging trends so
that compliance breaches and fraud can be averted whilst keeping false positives at a
minimum. It also enables organizations to meet global regulatory requirements with fully
auditable workflows and reporting functionality that fulfill the needs for a robust
supervision and investigation process.
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Communication Compliance
Assurance
Complaint Management
Transcription
Managed Services
Facilitates the automation of compliance assurance. NICE COMPASS reduces the risk of
a regulatory violation by verifying all endpoints are recording prior to the beginning of
the trading day and proactively identifying unrecorded calls. It also significantly
increases efficiency by automating litigation hold requests, retention periods for all
regions and lines of business, and moves, adds and changes (MAC), among other items.
Enables organizations to use analytics to identify interactions at risk and manage the
process of handling the complaint.
Fully automates the manual processes around retrieving, downloading and transcribing
trade-related communications. Provides organizations with the ability to accelerate
investigations, improve responsiveness to regulators and quickly search for keywords.
A proactive support plan that was designed to complement our traditional support
offering by adding four support options to proactively address problems before they
escalate. Our four-pronged advanced services approach protects against recording loss by
proactively monitoring your firm’s global recording estate around-the clock, ensuring all
sites are on the latest software release, and providing a single point of contact and
accountability for problem resolution, backed by a team of expertly trained support
engineers.
4. Increase Operational Efficiency
Solutions and Capabilities
Description
Performance Management
Workforce Management
Employee Engagement
Management
Quality Central
Nexidia Analytics
Maps enterprise business objectives to group and individual goals, and tracks and reports
performance. It also automates critical managerial activities, including data analysis,
identification of improvement areas, employee coaching, recognition, and performance
improvement, allowing front-line managers to become more effective and efficient in
developing their teams. Performance Management also includes unique capabilities, such
as gamification and SMART programs, to engage, motivate, facilitate coaching and align
employees around common and personalized business goals.
Forecasts an organization’s interactions load, using sophisticated AI algorithms,
schedules agent shifts across multiple sites with appropriate skills to manage and
optimize the level of customer service resources in multi-skilled environments. It
measures agent and team performance and provides real-time change management to
proactively respond to changing conditions.
Real-time analysis and management of understaffing and overstaffing which provides
adaptive and proactive intra-day scheduling that supports agent needs and preferences
while also ensuring that a company’s operational goals and KPIs are achieved. The
application also allows self-management of schedules through an intuitive mobile
application and an intelligent automation engine anytime, anywhere and on-the-go,
allowing employees to perform sophisticated transactions like shift bidding and shift
swaps, setting preferences, reporting absences, and receiving immediate confirmation.
Automates contact center quality assurance processes and selection of interactions for
evaluation based on performance data. Leveraging NICE’s innovative and leading AI and
machine learning engines to measure agent behavior and performance, the solution
facilitates root-cause evaluation, with easy drill down to agents and interactions missing
their Key Performance Indicator targets. Quality programs can improve agent
performance results across voice, email, chat, and digital social media channels.
Analyzes large to massive quantities of customer interactions across multiple channels to
identify hot topics and root causes quickly, and to produce actionable insights. Driven by
NICE’s innovative and leading AI and machine engine specifically designed based on
NICE’s decades of experience processing and analyzing interactions across all industry
verticals, Nexidia Analytics uncovers the insights businesses need to improve processes,
enhance customer experience, increase sales, increase employee engagement, reduce
attrition, optimize marketing campaigns and reduce operational costs. Nexidia Analytics
can also process live customer voice interactions in real-time, identifying opportunities to
improve the Customer Experience, increase sales, and ensure compliance – all while the
agent is still speaking with the customer.
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Back Office Proficiency
Essentials
Automates manual processes, integrates data from employees’ desktops, improves
forecast accuracy, enables managers to view and manage resource capacity, and
empowers back office employees to improve their own performance. It also provides
tools to ensure regulatory compliance and accuracy, elevating the level of service
customers receive across the entire enterprise.
Real-time Authentication (RTA) Provides end-to-end authentication for contact centers. Based on voice biometrics, it
NEVA (NICE Employee Virtual
Attendant)
Robotic Automation
Desktop Analytics
automatically verifies the caller’s claimed identity within the first few seconds of a call
through natural conversation with an agent. Leveraging its unique Single Voiceprint
capability, RTA uses the same voiceprint across channels, allowing effortless
authentication on the IVR or mobile application as well. Combining voice biometrics
with additional authentication factors, RTA offers risk-based authentication across
multiple channels. It improves the level of security and reduces operational costs.
Introduced in 2018, NEVA is an avatar interface, addressing attended processes taking
place on the employee’s desktop. NEVA is triggered automatically by the employee’s
desktop actions, providing relevant, contextual guidance for efficiency, sales and
compliance, in real-time. Leveraging external integrations, the employee can
alternatively activate NEVA using chat or voice. NEVA overlooks an agent’s desktop
activities and pops up with guidance in the context of the live customer interaction or the
process the employee is working on. This solution will automate desktop activities when
appropriate or will trigger an unattended bot to complete a task and free the employee to
deal with higher value activities. NEVA includes a process discovery tool, named
Automation Finder, to identify additional process optimization candidates using
unsupervised machine learning algorithms.
Robotic solution for the automation of routine back office and Contact Center processes.
Operated on virtual machines and monitored centrally, these robots handle unattended
end-to-end processes, essentially performing any routine task which the human user
would otherwise do manually. These processes are typically the repetitive, mundane,
error-prone processes which do not require human intervention.
Identifies desktop productivity gaps and process best practices by monitoring and
collecting data about employee daily activities: for any applications used (including
specific pages within the application), web sites visited, computer idle/locked mode, as
well as the time the employee spent in each application/state. Applications can be
classified as productive/non-productive or non-work related.
Interactive Voice Response
(IVR) Analytics
Enables organizations to reduce customer effort by increasing IVR containment rate,
reducing IVR repeat calls, agent transfers, drop-offs and deflections and dramatically
improving Contact Center efficiency.
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5. Improve Customer Experience
Solutions and Capabilities
Description
Predictive Behavioral Routing
(PBR)
Satmetrix Customer Experience
Management
Customer Journey Analytics
Customer Churn
6. Increase Sales
AI-powered routing transforms customer experience with hyper-personalization in the
cloud. An analytics based understanding of customers’ communication style and
experience preferences utilizes machine learning and AI techniques to best match leads
to customers and employees. Across Contact Center KPIs, personalized customer
connections result in immediate and measurable benefits to an organization’s bottom
line.
Collects and analyzes comprehensive data from multiple interaction touch points and
channels across customer life cycle; proactively solicits customer feedback from any
touch point, including text message, email, IVR, mobile app, and online forms in
scheduled cadences or immediately following an interaction through their channel of
choice; and leverages indirect and unsolicited feedback channels. Delivers analytics that
allow companies to understand the business practices and behaviors that drive customer
loyalty, using metrics including Net Promoter Score® (NPS®), customer satisfaction,
Customer Effort Score, or custom metrics. Drives strategic and operational
improvements to increase retention and revenue opportunities. Delivers insights across
departments with role-specific analytics, reporting, and alerts.
Helps organizations optimize their overall customer interactions process across multiple
touch points. The solution automatically constructs and visualizes a cross-channel map of
the customer journey, providing insights into trends and focus areas for improvement.
Based on NICE’s innovative and leading AI and machine learning engine, NICE Journey
Excellence Score (JES) uses predictive models to measure customer experience at the
journey level, identifying successful outcomes and highlighting journey events that cause
failure and customer dissatisfaction. JES's models automatically assign contact reasons to
every interaction, revealing customer behavior patterns, predicting customer’s next
action and the ideal response for achieving the desired goal. The solution highlights
opportunities for self-service channel containment and offers real-time guidance for an
improved customer experience.
Utilizing NICE’s leading machine learning engine, NICE’s Customer Churn solution
analyzes historic consumer defection data to identify the patterns in consumer behavior
and create models for predicting future customer churn. The solution understands causes
and effects of customer churn and how to design procedures to reduce the defection rate.
The solution prioritizes at-risk customers based on search results combined with
customer data and collects information to refine retention marketing offers that are better
tailored to customer types and demographics.
Solutions and Capabilities
Sales Performance Management Provides the end-to-end ability to create, manage and distribute all aspects of a
Description
commissions program. It automates the process of commission, bonus and incentive
administration, in support of any type of variable pay system that rewards employees for
achieving targets aligned with the business strategy.
Real Time Web Personalization Uses customer intelligence, predictive models and machine learning to make insightful,
Contact Center Sales
Effectiveness
real-time personalization decisions during customer interactions over the Web. The
solution helps organizations improve customer retention, increase online conversion
rates, and deliver better service by taking the next-best-action.
Helps organizations optimize their Contact Center sales campaigns. Utilizing NICE’s
leading machine learning engine, NICE’s Sales Effectiveness solution locates and
quantifies specific events by identifying the optimal agent behaviors that drive Contact
Center sales in each environment. The solution builds metrics to align with corporate
objectives such as offers made versus up-sell opportunities. It correlates data points such
as customer spend and purchase history to build predictive models, prioritizing
customers with a propensity to buy and creating the next-best offer. It also helps identify
high-performing agents and generate sales best practices based on their behavior.
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7. Improve Public Safety Emergency Response and Investigation Optimization
Solutions and Capabilities
Description
NICE Investigate
NICE Inform
Streamlines the entire investigation process by automating the collection, analysis and
sharing of all digital case evidence – from Records Management Systems, CAD,
interview room and emergency call audio recordings, documents, photos, private and
public CCTV, body-worn and in-car video, social media and more. It transforms the
investigative process so detectives can build and close cases faster.
Enables emergency centers and public safety agencies and organizations across various
industries to capture, consolidate, synchronize and manage growing multimedia incident
information and evidence efficiently and effectively. NICE Inform captures and
synchronizes event information from a variety of sources including: radio and call audio,
video, text, screens, Computer-Aided Dispatch (CAD) systems, Geographic Information
Systems, and others, enabling investigators and other stakeholders to more easily and
completely visualize and understand what happened during each incident response. NICE
Inform also supports investigations through rapid assembly and sharing of case evidence.
Helps optimize emergency response by evaluating quality and compliance of incident
communications – saving time, money and resources, while continuously fine-tuning and
improving performance to provide better service to first responders and the public.
NICE Inform Intelligence Center Automatically collects and consolidates information from emergency call taking, radio,
dispatch, quality assurance and other systems, and delivers critical metrics in actionable
dashboards and reports. It helps emergency communication centers understand what
happened during an incident, how it happened, what is happening now in the center, and
what is performing or not. With this new insight into operations, decision makers can
address the key challenges to improve their centers' effectiveness during an incident,
service to citizens and work more efficiently with the agencies for which they dispatch.
NICE Multimedia Recording
Reliably records and synchronizes emergency calls, including digital, analog, and VoIP
calls, conventional and P25 radio transmissions, text interactions, video, images, console
screens, locations from geographic information systems, and integrated feeds from other
sources such as CCTV video. NICE multimedia recording also spans all forms of next
generation emergency communications in a unified solution, including inbound and
outbound text messages agnostic to text aggregation solutions or delivery methods. NICE
Inform also synchronizes this information into a complete timeline enabling stakeholders
to more easily and completely visualize, understand and improve incident response.
II.
Offering Overview - Financial Crime and Compliance
Financial institutions are regularly challenged with prevention of fraud and money laundering, and compliance
adherence. They have a common need for risk management solutions that will help them stay ahead of the evolving landscape
of threats and efficiently adapt to changes in business and regulatory requirements.
Furthermore, many organizations that are not
including alternative payment
platforms, cryptocurrency exchanges, gaming, fintech and others, find themselves under similar threats and under increasing
regulatory scrutiny and need to quickly adjust and ensure adherence with those requirements.
traditional financial
institutions,
We are a global
leader in advanced analytics-based applications for fighting financial crime and ensuring
compliance. We provide organizations with proven capabilities for real-time and cross-channel fraud prevention, anti-money
laundering, brokerage compliance and enterprise-wide case management. With this set of solutions, financial institutions can
tighten risk controls, lower operational and information technology costs, enhance investigation efficiency and improve
customer experience.
We serve the Financial Crime and Compliance needs of hundreds of organizations, including many of the world’s
top financial institutions, regulatory authorities and emerging fintech companies. Our solutions monitor millions of financial
transactions daily, enabling organizations to mitigate the risk of financial crime, improve compliance and reduce operational
costs.
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Our open platform serves as an end-to-end Financial Crime and Compliance solution. This allows our customers to
use a unified platform instead of integrating multiple solutions, whether home-grown or from third-party vendors. The NICE
platform handles the entire process, including detection, investigation, remediation and reporting. Such integrated open
platform allows our customers to improve detection, lower costs, keep tight control over their process and automate
regulatory reporting.
In 2018, we introduced X-Sight, the market's first cloud-based Financial Crime Risk Management Platform-as-a-
Service (PaaS), that enables financial services organizations (FSO) to transition to the cloud. Our Autonomous Financial
Crime capabilities, which incorporate AI and advanced automation into our platform, allow organizations to further increase
detection, reduce noise and automate many previously manual routine tasks. In addition, our ActOne offering introduces
analytics and automation to financial crime investigation processes.
Our Actimize Watch solution allows us to better protect financial institutions from criminal threats by leveraging the
cloud and machine learning technologies. Organizations that subscribe to the cloud delivered service benefit from our data
scientists tuning their analytics and creating new machine learning models that can be seamlessly deployed in their
production environment. Actimize Watch customers further benefit from the collective intelligence of Actimize and peer
organizations, as new threats that are detected are shared with all other customers of the service. As such, Actimize Watch
serves as an inoculation, protecting all organizations from an attack perpetrated against a specific organization.
Mid-size financial institutions are finding themselves under increased pressure to adopt compliance best practices.
Our Essentials platform is a cloud-based Financial Crime and Compliance solution that enables smaller organizations to
enjoy the capabilities previously only afforded to large organizations.
We plan to continue to expand our addressable market by providing cloud solutions to smaller institutions and by
expanding to non-traditional financial institutions. We also expand our value to our customers by leveraging AI, the cloud
and robotic automation which facilitate both better protection and significant cost reductions.
Our Platform and Solutions’ Core Capabilities
Core platform: Financial Crime and Compliance solutions (also known as NICE Actimize solutions) share a single,
flexible and scalable core platform that enables financial services organizations to expand the use of NICE’s solutions over
time. We recently launched X-Sight, the industry’s first cloud PaaS for Financial Crime and Compliance. This eases
implementation and lowers total cost of ownership.
Autonomous Financial Crime Management (AFCM): By merging data, analytics and automation technologies,
financial services organizations can increase detection, improve their operational efficiencies, and reduce costs. Raw data
becomes actionable intelligence by applying machine learning, advanced analytics and automation. This innovative process
will create a unique environment that more effectively addresses the challenges and pain points that financial services
organizations are facing by allowing them to tailor their operations to lower costs and drive greater profitability, all while
improving accuracy and throughput. Autonomous Financial Crime Management also allows organizations to configure which
decisions to direct to human experts, supporting semi-autonomous to fully autonomous operations.
Analytical models and flexible tools: The core platform provides dozens of out-of-the-box analytical models with
each specific solution, as well as flexible tools that can be used to develop and customize analytical models, data sources, and
business processes at both the business and IT levels.
Multi-channel transaction management: The solutions are proven to capture and analyze thousands of financial
transactions a second from a variety of sources and channels.
Domain-specific advanced analytics: Comprehensive, domain-specific solutions detect anomalous customer or
employee behavior in real time, leveraging industry-proven analytics.
Real-time decisioning and enforcement: A real-time decisioning engine draws on analyzed data to trigger alerts
that enable optimal enforcement and resolution. Built-in capabilities for comprehensive workflow and investigation allow
effective alert management.
Solutions are available individually or as an integrated whole.
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Addressing Business Needs
Our platforms and solutions are designed to address various organizational business initiatives. Below is a list of the
currently available NICE Financial Crime and Compliance solutions, grouped by these main initiatives:
1. Investigations and Case Management
Solutions and Capabilities
Description
ActOne
ActOne Automate
Quality Assurance
Productivity Studio
Notifications and Attestations
Enables organizations to better manage and mitigate organizational risk by providing a
single view across the business. It serves as a central platform for managing alerts, cases,
investigations, and regulatory reporting, across multiple lines of business, channels,
products, and regions, turning them into actionable insights.
Includes both attended and unattended robots. Attended robots are digital assistants that
live in the case manager on analyst desktops and collaborate with them as needed during
the day. These robots can be used on demand – as for copying and pasting or navigating
between systems and screens – to help analysts complete their evidence gathering
processes and get to a decision point faster and more accurately. Unattended robots are a
digital workforce, working 24/7 without human intervention. These robots can be used to
fetch data from legacy systems and update enterprise systems so data is always in the
right place. As no integrations are needed, implementations are faster and cheaper. The
solution also includes Automation Finder, a data driven analytics based tool that enables
organizations to quickly identify activities that would benefit from automation, thereby
reducing the time and effort.
Helps risk and compliance teams create a truly closed-loop, end-to-end investigation
process. With it, compliance and quality teams can collaborate in order to reduce re-
opens, work more efficiently and lower risk.
Allows organizations to increase speed and efficiency, without compromising on
accuracy. Teams are empowered to understand their productivity by seeing gaps and
bottlenecks in their workflows, as well as patterns and trends in their activities.
With Actimize Notifications and Attestations, management and internal audit can gain
oversight of their teams, ensuring everyone is aligned; teams can mitigate risk by
lowering organizational and personal accountability risk; and teams can improve their
efficiency with quick access to all past and present notifications without leaving the case
management platform.
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2. Detect and Prevent Money Laundering
Solutions and Capabilities
Description
Suspicious Activity Monitoring
Watch List Filtering
Customer Due Diligence
Leverages transaction analytics to offer end-to-end coverage for detection, scoring,
alerting, workflow processing and reporting of suspicious activity to make sure nothing
'slips through the cracks'. It supports the full investigation life cycle and, with NICE’s
integrated case management platform, improves staff productivity, allowing for
compliance with regulatory obligations in a cost-effective manner.
Provides enterprise-wide customer and transaction screening against multiple watch lists,
for end-to-end sanctions list coverage. It identifies and manages sanctioned or high-risk
individuals and entities, with real-time name recognition capabilities, providing
organizations the ability to conduct accurate name matching to prevent non-compliance
occurrences.
Provides integrated risk-based rating and continuous monitoring of accounts throughout
the entire customer life-cycle, from initial applicant onboarding to periodic reviews of
existing customers. It is an open, flexible platform that can adapt to unique requirements
across business segments, regions, and jurisdictions.
CTR Processing and Automation Provides seamless automated Currency Transaction Reporting (CTR) processing to
Suspicious Transaction Activity
Reporting
ActimizeWatch for SAM
AML Essentials
ensure compliance with U.S. Bank Secrecy Act standards, and to optimize CTR
processes for efficiency and cost-effectiveness. This allows for the reduction in manual
intervention and errors. Built-in validation tools and flexible capabilities enhance the
quality and timeliness of completed reports while letting organizations adapt to changing
regulatory and business needs.
Global regulatory reporting forms. Provides operational efficiency needed to handle the
increase in form filing requirements, including e-filing where applicable.
A managed analytics service to address FSOs’ challenges in keeping their Anti-Money
Laundering (AML) systems optimized. This service brings data scientists to
organizations that may find it restrictive to build out their own data science teams and
pair them with AML expertise. Managed analytics provides cost-predictability that
continuously optimizes the system, whereas existing tuning practices are costly and
therefore infrequent and commonly avoided. This service also provides FSOs the ability
to benchmark their AML performance against similar institutions, enabling them to self-
improve, be more prepared for, and have more confidence around regulatory audits.
A cloud-based offering that uses the same power and experience of our enterprise
solutions, with coverage that includes Transaction Monitoring, Customer Due Diligence,
and Sanctions Screening, offers rapid deployment and reduces overhead to make
compliance easier and at a lower total cost of ownership.
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3. Prevent Fraud
Solutions and Capabilities
Description
ActimizeWatch for Fraud
Fraud Essentials
Card Fraud
Digital Payments Fraud
Solutions
X-Sight Studio
Employee Fraud
Check Fraud
Authentication-IQ
A cloud-based managed services solution to optimize analytics. ActimizeWatch
continuously monitors the transactional data for individual FSOs to assess when analytics
must be tuned, and leverages insights from a market-wide view to proactively optimize
analytics for members of the service. ActimizeWatch uses machine learning analytics to
assess cross-market transactional data and identify fraud patterns within individual
organizations and across the market. ActimizeWatch proactively optimizes analytics
using automation for quick delivery of implementation-ready models and features.
A cloud-based offering that uses the power and experience of our enterprise solutions.
The Fraud Essentials solution serves as both a single and cross-channel solution for
online banking and mobile banking channels. It can detect fraud perpetrated against
enrollments, address or account-based bill payments, and inter-bank transactions such as
wire, ACH, etc.
Enables card issuers, acquirers and processors to detect fraudulent transactions, whether
ATM, PIN, signature point-of-sale, or without a physical card. Market leading profile
based behavioral analytics take into account all available transaction, reference and
location data to provide holistic coverage of card and account takeover. Solution includes
the Actimize Digital & Mobile Wallet Fraud, which protects customers from digital
account takeover and organizations from fraud liability and negative brand reputation.
Monitors and protects a full range of wallet activity, including card/account provisioning,
card present and not present purchases, person-to-person transfers, bill payments, and
account-service events.
The Actimize Pre-Paid Card Fraud solution identifies and prevents fraud in the pre-paid
sector. From ATM to point-of-sale (POS) and Card-Not-Present (CNP), all transactions
can be identified, interdicted on and alerted in real time.
Provides end-to-end protection against third-party fraud on any type of payment (like
ACH, Wire, P2P, SEPA, TCH/RTP and more) tailored for the specific needs of retail and
commercial banks. The Actimize Digital Payments Fraud solutions protect the full
lifecycle of the transaction, both at the customer accessing channels – online portal,
mobile app, APIs, IVR, Contact Center – and at the backend, at the payment hub level.
Using our unique expert-infused machine learning analytic we calculate a real-time risk
score for every transaction and provide customers with a turnkey solution to resolve
alerts and investigate fraud cases. Our solutions serve as a central “risk hub” that enables
the sharing of internal and third-party data from multiple channels for fraud and cyber
detection, operations, and investigations. By accurately and efficiently coordinating
customer lifetime value, transaction amounts and service history, the solution optimizes
fraud prevention by offering greater insight into cross-channel authentication and
facilitates interdiction strategies.
Enables customers to expand their Actimize Fraud solutions with their own models and
analytics. The DIY studio also enables our customers to develop a fraud solution for use
cases which go beyond the available packaged Actimize fraud solutions.
Offers advanced analytic monitoring capabilities and flexible configuration options to
detect fraudulent employee activity and violation of corporate policy across the
enterprise, business lines, and channels. Comprehensive investigation tools are supported
by multichannel data ingest, multi-country data and policy requirement configurations,
secure and auditable user access levels, and automated configurable workflows, enabling
banks to efficiently sift through employee audit reports and build cases to support
fraudulent employee activity.
Helps financial institutions minimize deposit fraud losses by providing comprehensive
account activity monitoring. The solution analyzes risk across silos of data and lines of
business, consolidates suspicious activity notifications into account and customer level
alerts, and allows real-time decisioning to safely accelerate fund availability and enhance
customer satisfaction.
Manages multiple authentication methods and risk-based decisions by creating a
complete customer profile, based on historical authentication activity, account servicing,
and transactional behavior which is then used to identify suspicious behavior at log-in or
throughout a session, producing real-time actionable risk scores. In addition, the solution
manages the process of step up authentication, choosing the appropriate method,
producing alerts and enabling real-time interdiction. Finally, it provides alert and case
management in a unified context to prioritize investigations and optimize workflow
across the enterprise.
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4. Adhere to Financial Markets Compliance
Solutions and Capabilities
Description
SURVEIL-X Holistic
Surveillance
Provides a holistic view across trade, voice and eCommunications data, proactively
analyzing all trading interactions, while monitoring the full trade life cycle in conjunction
with relevant news events. SURVEIL-X's AI-powered multi-dimensional analytics go far
beyond looking at one-time events, calculations and thresholds to analyze and correlate
communications, trade and related data streams. Deeper analysis and correlation enable
the identification of true risks and understanding of intent behind actions taken. Uncovers
connected activities and actions, and pieces them together without manual intervention,
delivering a single compliance alert and view of what occurred with intuitive
visualizations showing events together with market data.
Communications Surveillance Monitors trading activities and behaviors by analyzing conversations from trading
Buy / Sell Side Markets
Surveillance
turrets, fixed and mobile phones, email, text, instant messaging, chat and social media
using speech analytics, machine-learning and natural language processing. It
automatically extracts details of financial transactions and highlights potential risks,
enabling compliance officers and analysts to see emerging trends so that compliance
breaches and fraud can be averted whilst keeping false positives at a minimum. It also
enables organizations to meet global regulatory requirements with fully auditable
workflows and reporting functionality that fulfill the needs for a robust supervision and
investigation process. Additionally, the technology learns and adapt to customer data and
allows more accuracy over time.
Helps financial organizations meet global regulatory requirements and protects from
reputational damage and financial losses by searching for abusive trading patterns. The
solution provides Full Asset Class coverage to address the global regulatory requirements
including both exchange traded products and OTC (over-the-counter) trades. Specialized
analytics are designed to process today's HFT (high frequency trading) volume and
detect different types of risks, including Spoofing, Layering, Fictitious Orders and more.
The solution also addresses the complex requirements around Insider Dealing news
based, Cross Market/Cross Product and Frontrunning. Our patented correlation engine
automates the reconstruction process and helps the Compliance Analyst understand the
intent behind a suspicious trade by creating the full life cycle of a trade, including
communication events.
Enterprise Conflicts Management Offers a unified approach to maintain controls and detect conflicts of interest before they
Wealth Management Sales
Practices and Suitability
Surveillance
ActimizeWatch Compliance
Trade Reconstruction
occur on a global, enterprise-wide scale. Enables organizations to effectively manage
employee requests for personal trades by evaluating details of the proposed trade in real
time and automatically determining whether the request should be approved, rejected, or
escalated to a supervisor for approval. The solution includes detection models that
compare executions with the employee’s trade request history to determine if the trade
was pre-cleared and approved, and to reconcile the trade details with the terms and
conditions of the approved trade request.
Provides coverage for a broad range of sales practices and suitability issues, including
Regulation Best Interest (RegBI) compliance, helping organizations meet current and
future global regulatory requirements and ensure investment recommendations are
consistent with each customer’s suitability profiles. It also includes a comprehensive
toolset that allows organizations to automate sales practice compliance processes, extend
out-of-the-box analytics and visualize overall risks. By automating oversight and
supervision, organizations can ensure consistency and maintain a consolidated audit trail,
lowering regulatory risk while improving productivity and efficiency.
Unique end-to-end managed analytics service designed to improve a firm’s agility,
detection accuracy and overall compliance effectiveness. ActimizeWatch Compliance’s
approach helps organizations continuously fine-tune its detection capabilities. Our team
conducts a thorough analysis of a client's data and assess how well its detection models
are performing, meets with the client to review the findings, update and fine-tune models
as needed, and implement those new models in the client's environment.
Dramatically reduces time and effort spent identifying and collecting needed data related
to trading activity. Trade Reconstruction simplifies the reconstruction of a trade by
aggregating, normalizing, analyzing, indexing and correlating data across structured and
unstructured data sources. Natural Language Processing is used to extract financial data
out of voice and electronic communications in order to correlate to trade events, enabling
organizations to quickly react to regulatory or legal inquiries.
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Strategic Alliances
We sell our Customer Engagement and Financial Crime and Compliance solutions worldwide, both directly to
customers and indirectly through selected partners to better serve our global customers. We partner with companies in a
variety of sales channels, including service providers, system integrators, consulting firms, distributors, value-added resellers
and complimentary technology vendors. These partners form a vital network for selling and supporting our solutions and
platforms. We have established a cross-organization business partner program, which provides full support and a broad
portfolio of sales tools to help our partners promote the NICE offerings, helping to drive mutual revenue growth and success.
Our strategic technology partnerships ensure full integration with the NICE offerings, delivering value added
capabilities that address a variety of technology environments. Our DEVone program includes more than 140 partners, allows
third-party software providers to integrate with our CXone platform and extend its functionality.
Professional Service and Support
The NICE Professional Services and Support organization enables our customers to derive sustainable business
value from our solutions.
The Professional Service and Support offerings include a variety of services - both standalone and bundled with our
products - to enable our customers to create sustained business value. We address all stages of the technology lifecycle,
including defining requirements, planning, design, implementation, customization, optimization, proactive maintenance and
ongoing support.
Enabling Value
Solution Delivery optimizes solution delivery and enables our customers to achieve their specific business and
organizational goals, on time and on budget. NICE solutions are delivered by certified project managers, technical experts,
and application specialists. We follow a proven methodology that includes business discovery to map solutions to business
processes.
Value Realization Services (VRS) ensure quick, deep and sustained adoption of the NICE solutions. These services
enable our customers to leverage the features and functionalities of our solutions to drive immediate & long-term results,
aligned to their specific business case, accelerating their return on investment. The services are specifically designed to
address the top short and long-term business concerns we heard through working with hundreds of customers across the
globe. VRS teams work with customers during all phases of solution implementation – before, during and after go-live. We
begin working with customer teams as soon as the project is kicked off, when the solution goes live, and for months after the
solution is implemented. Our experience has shown that our customers benefit greatly from access to NICE VRS resources
once they begin using the solution. This post-implementation engagement allows us to build skill and ownership within
customer teams, embed changes within the customer organization and determine ROI from the solution.
Managed Services empowers organizations to meet short term objectives, such as lowering handle time or
improving sales rates, along with achieving long term goals such as customer retention. Our team of experienced practitioners
work with customers, guiding the process of collecting interactions, prioritizing subjects to study, conducting analysis and
most importantly, developing plans that put the results of the analysis into action.
Customer Education Services provide users with the necessary knowledge and skills to operate NICE solutions
and to leverage their capabilities to meet customer needs. These services are offered both before and after the deployment of
NICE solutions.
Sustaining Value
Customer Success means working hand-in-hand with our customers to identify areas that can maximize business
value and minimize complications, ensuring continued delivery of business benefits.
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Cloud Services ensure that solutions hosted in the NICE cloud run optimally, maximizing availability, performance
and quality, while ensuring the security of customer information. This is delivered by using sophisticated proprietary utilities
and automations that operate in a proactive manner, providing the means to avoid impacting customer and business
operations. This includes: Cloud architecture teams that design cloud service delivery and operation architectures; Cloud
Security teams that ensure that we set and meet the required Security certifications; Cloud Infrastructure teams that manage
both virtual and physical infrastructure requirements; Cloud DevOps teams that implement the utilities and automations while
working with our product development teams to optimize our solutions for the cloud environment; and the 7X24 Cloud
Application Support teams that monitor and manage the solutions for our customers, ensuring world class up-time,
performance, scalability and security. The NICE Cloud utilizes multiple underlying technologies to give our customers many
paths to the cloud – these include: Physical Data Centers and Public Cloud providers such as AWS and Azure. NICE
maintains multiple Cloud Certifications including SOC 3; SOC 2 Type II – Applications; HITRUST; ISO:27001 and PCI.
Customer Support and Maintenance responds to customer requests for support on a 24/7 basis, using advanced
tools and methodologies. NICE offers flexible service level agreements to meet our customers’ needs. Our solutions are
generally sold with a warranty for repairs of software defects or malfunctions. Software maintenance includes an
enhancement program with (in the majority of cases) an ongoing delivery of “like-for-like” upgrade releases, service packs
and hot fixes. NICE also offers a Technical Account Management service or TAM. The TAM is a designated manager
responsible for escalation management and overall customer care services.
Proactive Maintenance addresses issues before they can significantly impact our customers’ businesses. These
offerings include:
•
•
Advanced Services – Technical experts perform system-level audits to ensure ongoing compliance with
operational specifications as well as specific product customizations tailored to the requirements of the
customer.
Application Performance Services – A 24/7 function that proactively monitors NICE-hosted and
customer-premises environments with triage, resolution and escalation of system alarms.
Managed Technical Services (Technical and Operation) – NICE offers a suite of managed technical and
operation services that enable the customer to fully outsource all necessary responsibilities and functions required in order to
manage the NICE solutions. This service includes: dedicated onsite and remote support engineers, system management,
system operation, updates and upgrades.
Manufacturing and Source of Supplies
The vast majority of our solutions is software-based and is deployed by open cloud platform and standard
commercial servers.
There is a small portion of our products that have certain hardware elements that are based primarily on standard
commercial off-the-shelf components and utilize proprietary in-house developed circuit cards and algorithms, digital
processing techniques and software. These products are IT-grade compatible.
We manufacture those of our products that contain hardware elements through subcontractors. Our manufacturers
provide us with turnkey manufacturing solutions including order receipt, purchasing, manufacturing, testing, configuration,
inventory management and delivery to customers for all of our product lines. NICE is entitled to, and exercises, various
control mechanisms and supervision over the entire production process. In addition, the manufacturer of a significant portion
of such products, which is a subsidiary of a global electronics manufacturing service provider, is obligated to ensure the
readiness of a back-up site in the event that the main production site is unable to operate as required. We believe these
outsourcing agreements provide us with a number of cost advantages due to such manufacturer's large-scale purchasing
power and greater supply chain flexibility.
Some of the components we use have a single approved manufacturer while others have two or more options for
purchasing. In addition, we maintain an inventory for some of the components and subassemblies in order to limit the
potential for interruption. We also maintain relationships directly with some of the more significant manufacturers of our
components. Although certain components and subassemblies we use in our existing products are purchased from a limited
45
number of suppliers, we believe that we can obtain alternative sources of supply in the event that such suppliers are unable to
meet our requirements in a timely manner.
We have qualified for and received the ISO-9001:2015 quality management, as well as the ISO 27001:2013
information security management and ISO 14001:2015 environmental management certifications.
Research and Development
We believe that the development of new products and the enhancement of existing products are essential to our
future success. Therefore, we intend to continue to devote substantial resources to research and new product development,
and to continuously improve our systems and design processes in order to reduce the cost of our products. Our research and
development efforts have been financed through our internal funds and through some programs sponsored through the
government of Israel.
We believe our research and development effort has been an important factor in establishing and maintaining our
competitive position
In 2019, we were qualified to participate in seven programs funded by the IIA to develop generic technology
relevant to the development of our products. Such programs are approved pursuant to the Law for the Encouragement of
Industrial Research and Development, 1984 (the “Research and Development Law”), and the regulations promulgated
thereunder. We were eligible to receive grants constituting between 40% and 50% of certain research and development
expenses relating to these programs. Some of these programs were approved as programs for companies with large research
and development activities and some of these programs are in the form of membership in certain Magnet consortiums.
Accordingly, the grants under these programs are not required to be repaid by way of royalties. However, the restrictions of
the Research and Development Law described below apply to these programs. In 2017, 2018 and 2019 we received a total of
$2.1 million, $1.4 million, and $2.6 million from the IIA programs, respectively.
The Research and Development Law generally requires that the product incorporating know-how developed under
an IIA-funded program be manufactured in Israel. However, upon the approval of the IIA (or notification in the event set
forth below, as the case may be), some of the manufacturing volume may be performed outside of Israel, provided that the
grant recipient pays royalties at an increased rate, which may be substantial, and the aggregate repayment amount is
increased, which increase might be up to 300% of the grant (depending on the portion of the total manufacturing volume that
is performed outside of Israel). Following notification to the IIA (and provided the IIA did not object), up to 10% of the grant
recipient’s approved Israeli manufacturing volume, measured on an aggregate basis, may be transferred out of Israel, subject
to payment of the increased royalties referenced above.
The Research and Development Law also provides that know-how developed under an approved research and
development program may not be transferred to third parties without the approval of the IIA. Such approval is not required
for the sale or export of any products resulting from such research or development. The IIA, under special circumstances,
may approve the transfer of IIA-funded know-how outside Israel, including, in the event of a sale of the know how or sale of
the grant recipient, provided that the grant recipient pays to the IIA a portion of the sale price paid in consideration for such
IIA-funded know-how or in consideration for the sale of the grant recipient itself, as the case may be, which portion will not
exceed six times the amount of the grants received plus interest (or three times the amount of the grant received plus interest,
in the event that the recipient of the know-how has committed to retain the R&D activities of the grant recipient in Israel after
the transfer).
The Research and Development Law imposes reporting requirements with respect to certain changes in the
ownership of a grant recipient. The law requires the grant recipient, its controlling shareholders and non-Israeli interested
parties to notify the IIA of any change in control of the recipient, or a change in the holdings of the means of control of the
recipient that results in becoming an interested party directly in the recipient. Further, if the interested party is non-Israeli,
requires the party to undertake to the IIA to comply with the Research and Development Law. In addition, the rules of the IIA
may require prior approval of the IIA or additional information or representations in respect of certain of such events.
Furthermore, the Research and Development Law imposes reporting requirements in the event that proceedings commence
against the grant recipient, including under certain applicable liquidation, receivership or debtor's relief law or in the event
that special officers, such as a receiver or liquidator, are appointed to the grant recipient.
46
Failure to satisfy the Research and Development Law’s requirements may subject us to mandatory repayment of
grants received by us (together with interest and penalties), as well as expose us to criminal proceedings. In addition, the
Government of Israel may from time to time audit sales of products which it claims incorporates technology funded through
IIA programs which may lead to additional royalties being payable on additional products.
The funds available for IIA grants out of the annual budget of the State of Israel were reduced in recent years, and
the Israeli authorities have indicated in the past that the government may further reduce or abolish IIA grants in the future.
Even if these grants are maintained, we cannot presently predict what would be the amounts of future grants, if any, that we
might receive.
We may participate from time to time in the European Community Framework Program for Research, Technological
Development and Demonstration, which funds and promotes research. There are no royalty obligations associated with
receiving such funding.
Intellectual Property
We currently rely on a combination of trade secret, patent, copyright and trademark law, together with non-
disclosure and non-compete agreements, to establish and/or protect the technology used in our systems.
We currently hold 336 U.S. patents and 65 patents issued in additional countries covering substantially the same
technology as the U.S. patents. We have 103 patent applications pending in the United States and other countries. We believe
that the improvement of existing products and the development of new products are important in establishing and maintaining
a competitive advantage. We believe that the value of our products is dependent upon our proprietary software and hardware
continuing to be “trade secrets” or subject to copyright or patent protection. We generally enter into non-disclosure and non-
compete agreements with our employees and subcontractors. However, there can be no assurance that such measures will
protect our technology, or that others will not develop a similar technology or use technology in products competitive with
those offered by us. In most of the areas in which we operate, third parties also have patents which could be found applicable
to our technology and products. Such third parties may include competitors, as well as large companies, which invest millions
of dollars in their patent portfolios, regardless of their actual field of business. Although we believe that our products do not
infringe upon the proprietary rights of third parties, there can be no assurance that one or more third parties will not make a
claim or that we will be successful in defending such claim.
In addition, to the extent we are not successful in defending such claims, we may be subject to injunctions with
respect to the use or sale of certain of our products or to liabilities for damages and may be required to obtain licenses which
may not be available on reasonable terms.
We own the following trademarks and/or registered trademarks in different countries: Actimize, Actimize logo,
NICE Adaptive WFO, NICE WFM, NICE Voice of the Customer, NICE Work Force Management, NICE Incentive
Compensation, NICE Real Time Solutions, NICE Trading Recording, NICE Uptivity, NICE Air, NICE Communication
inContact Logo, NICE
Surveillance, Customer Engagement Analytics, Decisive Moment, Fizzback, IEX,
inContact, Insight from Interactions, Intent. Insight. Impact., Last Message Replay, Mirra, NICE, NICE Analyzer, NICE
Engage, NICE Engage Platform, NICE Interaction Management, NICE Sentinel, NICE Inform, NICE Inform Lite, NICE
Performance Compliance, NICE Inform Media Player, NICE Inform Verify, NICE Logo, NICE Perform, NICE Incentive
Compensation Management, NICE Real Time Solutions, NICE Trading Recording, NICE Proactive Compliance, NICE
Seamless, NICE Security Recording, NICE SmartCenter, NICE, NiceLog, Nexidia, Nexidia ((!)) Logo, Nexidia Interaction
Analytics, Nexidia Advanced Interaction Analytics, Nexidia Search Grid, Neural Phonetic Speech Analytics, Own the
Decisive Moment, Scenario Replay, Syfact, Syfact Investigator, TotalView, inContact Cloud Center Solutions, Supervisor
on-the-go, VAAS, Voice as a Service, Personal Connection, InTouch, Echo, inCloud, CXone, CXone Logo, NICE inContact
CXone, NICE Perform Compliance, NICE Performance Management, inContact Automatic Contact Distributor, inContact
Personal Connection, inContact Interactive Voice Response, inContact Work Force Management, Mattersight, Mattersight
Logo, Mattersight See What Matters and Chemistry of Conversation, Net Promoter, Satmetrix, NPX and NPS.
inContact,
Seasonality
The majority of our business operates as an enterprise software model, which is characterized, in part, by uneven
business cycles throughout the year and under which a significant portion of customer orders are entered into in the fourth
quarter of each calendar year, due primarily to year-end capital purchases by customers and holiday season spending in our
47
cloud subscription models. Such factors have resulted in 2017, 2018 and 2019 first quarter revenue being lower than revenue
in the fourth quarter of the preceding calendar year. We believe that this trend will continue in the near future. While seasonal
factors such as these are common in the software and technology industry, this pattern should not be considered a reliable
indicator of our future revenue or financial performance. Many other factors, including general economic conditions, also
have an impact on our business and financial results. See “Risk Factors” under Item 3, "Key Information" of this annual
report for a more detailed discussion of factors which may affect our business and financial results.
Regulation
Data Privacy and Cyber-Related Security Restrictions
We are subject to applicable data privacy and cyber-related security restrictions in countries in which our customers
and their end-users are located, including the United States, Israel and the EU, specifically in relation to our SaaS, hosting
and cloud-based services, as well as other outsourced services. For example, on April 14, 2016, the European Parliament
formally adopted the GDPR, which became effective on May 25, 2018. In the event we do not comply with such data privacy
and cyber-related security restrictions, due to disruption of our information technology systems or breaches of our data
security, we may be subject to significant financial penalties.
We are also subject to domestic data privacy laws, such as the CCPA that came into effect on January 1, 2020, and
the LGPD which is scheduled to enter into effect in August 2020. We are evaluating the business impact of compliance with
the CCPA, as well as other emerging data privacy laws and regulations.
As part of our effort to comply with such regulations and mitigate any future risks related to data privacy and cyber-
security, we have adopted certain internal policies and procedures such as our Information Security Policies, Cyber &
Information Security Incident Response Policies, Business Continuity Plans, Risk Assessment Procedures and Vendor
Management Policies. In addition, we received the ISO 27001:2013 information security management certification and SOC2
Type II, PCI, Hitrust and FedRamp certifications were provided to the relevant business lines (as required).
Export Restrictions
We are subject to applicable export control regulations in countries from which we export goods and services,
including the United States, Israel and the United Kingdom. Such regulations may apply with respect to product components
that are developed or manufactured in, or shipped from, the United States, Israel and the United Kingdom, or with respect to
certain content contained in our products. For Brexit impact on the UK and EU, please see Item 3, “Key Information - Risk
Factors”. There are restrictions that apply to software products that contain encryption functionality. In the event that our
products and services are subject to such controls and restrictions, we may be required to obtain an export license or
authorization and comply with other applicable requirements pursuant to such regulations.
European Environmental Regulations
Our European activities require us to comply with Directive 2002/95/EC of the European Parliament on the
Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, and Directive 2011/65/EU of
the European Parliament on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic
Equipment (together “RoHS”). RoHS provides, among other things, that producers of electrical and electronic equipment
may not place new equipment containing certain materials, in amounts exceeding certain maximum concentration values, on
the market in the EU. We are also required to comply with the European Community Regulation on chemicals and their safe
use (EC 1907/2006) that deals with the Registration, Evaluation, Authorization and Restriction of Chemical substances
(“REACH”, SVHC-173), which requires producers to manage the risks from chemicals used in their products and to provide
safety information on the substances found in their products.
Our products meet the requirements of the RoHS and REACH directives and we are making every effort in order to
maintain compliance, without adversely affecting the quality and functionalities of our products. If we fail to maintain
compliance, including by reason of failure of our suppliers to comply, we may be restricted from conducting certain business
in the EU, which could adversely affect our results of operations.
Our European activities also require us to comply with Directive 2002/96/EC of the European Parliament on Waste
Electrical and Electronic Equipment (“WEEE”). The WEEE directive covers the labeling, recovery and recycling of IT/
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Telecommunications equipment, electrical and electronic tools, monitoring and control instruments and other types of
equipment, devices and items, and we have set up the operational and financial infrastructure required for collection and
recycling of WEEE, as stipulated in the WEEE directive, including product labeling, registration and the joining of
compliance schemes. We are taking and will continue to take all requisite steps to ensure compliance with this directive. If
we fail to maintain compliance, we may be restricted from conducting certain business in the EU, which could adversely
affect our results of operations.
Similar regulations have been, or are being, formulated in other parts of the world. We may be required to comply
with other similar programs that are enacted outside Europe in the future.
Competition
We believe that our solutions have several competitive advantages (as set forth above in “Our Solutions” section in
this Item 4 – “Business Overview”) as well as their scale, performance and accuracy, comprehensiveness of solutions and
broad functionality.
We are leaders in the Customer Engagement space. We compete against WFO players such as Aspect, Calabrio,
Genesys and Verint. In the CCaaS market, which is a part of the Contact Center Infrastructure market that is still mainly held
by traditional on-premises players, we compete against Amazon Connect, Avaya, Five9, Genesys and TalkDesk, as well as
other niche vendors. We also compete against certain Unified Cloud Communications vendors (UCaaS), such as 8x8 and
Vonage (who acquired in 2018 New Voice Media, a CCaaS provider), which offer basic CCaaS capabilities. In addition, we
are seeing some CRM companies that provide a subset functionality of our broader offerings.
We are leaders in the Financial Crime and Compliance space. We compete against niche vendors that provide one
subset of functionality to protect against a specific risk and against vendors that provide a more comprehensive offering. Such
vendors include BAE Systems, FICO, NASDAQ Smarts, Oracle and SAS Institute.
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Organizational Structure
The following is a list of our significant subsidiaries and other subsidiaries, including the name and country of
incorporation or residence. Each of our subsidiaries listed below is wholly-owned by us.
Name of Subsidiary
Nice Systems Australia PTY Ltd.
NICE Systems Technologies Brasil LTDA
NICE Systems Canada Ltd.
Nice Systems China Ltd.
Nice France S.A.R.L.
NICE Systems GmbH
NICE APAC Ltd.
NICE Systems Kft
Nice Interactive Solutions India Private Ltd.
Nice Technologies Ltd.
Actimize Ltd.
Nice Japan Ltd.
NICE Technologies Mexico S.R.L.
NICE Netherlands B.V.
Nice Systems (Singapore) Pte. Ltd.
Nice Switzerland AG
Actimize UK Limited
NICE Systems Technologies UK Limited
NICE Systems UK Ltd.
Brand Embassy Ltd.
Actimize Inc.
Nice Systems Inc.
Nice Systems Latin America, Inc.
Nice Systems Technologies Inc.
Mattersight Corporation
Nexidia Inc.
inContact Inc.
inContact Bolivia S.R.L.
Nice inContact Philippines Inc.
Property, Plants and Equipment
Country of Incorporation or Residence
Australia
Brazil
Canada
China
France
Germany
Hong Kong
Hungary
India
Ireland
Israel
Japan
Mexico
Netherlands
Singapore
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
United States
United States
Bolivia
Philippines
Our executive offices and engineering, research and development operations are located in North Ra’anana, Israel.
The offices occupy approximately 250,627 square feet, with an annual rent and maintenance fee of approximately $9.8
million in 2019 and thereafter, paid in NIS and linked to the Israeli consumer price index. The lease for these offices in our
Northern Ra’anana facilities will expire in October 2022.
We have leased various other offices and facilities in several other countries. Our headquarters in each region consist
of the following facilities:
•
Our North American headquarters in Hoboken, New Jersey, occupies approximately 60,000 square feet.
We consolidated our North American locations into this one office location in November 2016, and we
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sub-leased our two former facilities in New Jersey and New York for the remainder of their respective lease
terms through 2023 and 2021, respectively;
Our EMEA headquarters in London, occupies approximately 22,500 square feet (of which 5,543 square
feet are sub-leased for a term ending in 2023); and
Our APAC headquarters in Singapore occupies approximately 8,000 square feet.
•
•
We also have additional material leased facilities, consisting of the following:
•
•
Americas facilities located in –
◦
◦
◦
Salt Lake City, Utah – an office that occupies approximately 128,000 square feet;
Atlanta, Georgia – two offices that occupy together approximately 43,000 square feet; and
Additional offices are located in Colorado, Texas, Ohio and California.
APAC facilities include an office space located in Pune, India, which occupies approximately 135,000
square feet and includes a research and development and service center. There are also additional APAC
offices located in Bangalore, Manila, Hong Kong and Tokyo.
We believe that our existing facilities are adequate to meet our current needs and substantially adequate to meet our
foreseeable future needs.
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Item 4A.
Unresolved Staff Comments.
None.
Item 5.
Operating and Financial Review and Prospects.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes and other financial information included
elsewhere in this annual report. This discussion contains certain forward-looking statements that involve risks, uncertainties
and assumptions. As a result of many factors, including those set forth under Item 3, “Key Information - Risk Factors” and
elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking
statements. For more information about forward-looking statements, see the “Preliminary Note” that precedes the Table of
Contents of this annual report.
Overview
NICE is a global enterprise cloud software leader, serving two main markets: Customer Engagement and Financial
Crime and Compliance. Our core mission is to transform experiences to be extraordinary and trusted. Our software is used by
customer service organizations of enterprises of all sizes and verticals, and by compliance and fraud-prevention groups in
leading financial institutions.
We help organizations transform customer experiences by understanding consumer journeys, creating smarter
hyper-personalized connections, managing omnichannel interactions and providing digital-centric self-service capabilities.
We also help organizations transform their workforce experience by engaging employees, optimizing operations and
automating processes. We help financial services organizations make experiences safer by helping predict needs and identify
risks to prevent money laundering and fraud, as well as ensure compliance in real-time.
NICE is at the forefront of several industry technological disruptions: the growing maturity of analytics and AI, the
adoption of cloud platforms by enterprises, the expansion of use of digital channels to communicate with customers, and the
shift by financial institutions to integrated risk management solutions for end-to-end financial crime prevention. Our solutions
form a comprehensive and unified portfolio based on our unique domain expertise for driving customer experience
transformation and preventing financial crime as well as enhancing public safety. These solutions are built on innovative
cloud platforms that are digital-first, integrating advanced analytics, AI and automation in a wide range of business
applications.
We rely on several key assets to drive our growth:
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Our market-leading open cloud platforms for Customer Engagement and Financial Crime and Compliance,
which natively embed analytics, automation, AI, and digital capabilities, and are protected by a broad array
of patents.
Our ability to provide solutions that cover all market segments, from small to mid-sized business to large
scale Fortune 100 enterprises.
Our extensive portfolio of applications allow NICE’s customers to benefit from a wide range of both cloud
and on-premises solutions.
Our broad array of proprietary technologies and algorithms in the domains of automation, analytics,
machine learning, speech-to-text, natural language processing, personality-based routing and others.
Our access to data for improving our algorithms through machine learning and AI, which relies on a
combination of our expansive customer base, cloud deployments and domain expertise.
Our market leadership, which makes us a well-recognized brand and creates top-of-mind awareness for our
solutions in our areas of operation.
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Our large partner ecosystem enables us to reach and serve a large number of customers across many
countries.
Our loyal customer base: today, more than 25,000 organizations in over 150 countries, including 85 of the
Fortune 100 companies, use NICE solutions.
Our ability to quickly drive mainstream adoption for innovative solutions and new technologies and trends,
which we introduce to the market through our direct sales force and distribution network.
Our skilled employees and domain expertise in our core markets allows us to bring our customers the right
solutions to address key business challenges and build strong customer partnerships.
Our services, customer support and operations, which enable our customers to quickly enjoy the benefits of
our solutions, with multiple deployment models in the cloud or on-premises throughout the world and
support for full value realization and customer success.
Our customers, across multiple sizes and verticals, including banking, telecommunications, healthcare, insurance,
retail, travel, gaming, public safety, state and local government, are benefiting from the tangible and practical business value
that our solutions provide.
COVID-19 Update
In January 2020, the World Health Organization declared the recent COVID-19 outbreak a public health emergency.
We are actively monitoring the situation and have already taken certain precautionary and preemptive actions to minimize
impact to our business and our employees, including, but not limited to, changes to employee work locations, employee travel
and cancellation of certain marketing events. In addition, we have and will continue to monitor and take actions to abide with
all federal, state and local regulatory requirements. Neither the duration nor the spread of the COVID-19 virus can be
predicted. In this respect, see also the discussion under Item 3.D. “Risk Factors—Risks Relating to the Global Environment
—Our business, facilities or operations could be adversely affected by events outside of our control, such as natural disasters
or health epidemics.” We will continue to drive uninterrupted business continuity in our operations while we closely track
developments and may take further actions based on regulatory mandates, or that we determine are in the best interests of our
employees, customers, partners, suppliers, and shareholders.
Recent Acquisitions
The following acquisitions were accounted for by the acquisition method of accounting, and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, or as an asset
acquisition when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or
group of similar identifiable assets. The results of operations related to each acquisition are included in our consolidated
statement of income from the date of acquisition.
During 2019, we acquired certain companies, accounted for as a business combination and asset acquisition (see also
Note 2z to our consolidated financial statements included elsewhere in this annual report). The financial results of the
acquired companies are included in our consolidated financial statements, from their respective acquisition dates, and the
results from each of these companies were not individually material to our consolidated financial statements. In the
aggregate, the total preliminary purchase price for these acquisitions was approximately $26.7 million cash. We preliminary
recorded $15.7 million of identifiable intangible assets, based on their estimated fair values, and $14.5 million of residual
goodwill. The preliminary fair value estimates and assumptions for the assets acquired during 2019 were based upon
preliminary calculations and valuations, and the estimates and assumptions for these acquisitions are subject to change as we
obtain additional information during the respective measurement periods (up to one year from the respective acquisition
dates).
On August 20, 2018, we completed the acquisition of Mattersight Corporation ("Mattersight"), a leading provider of
cloud-based analytics for customer service organizations. We acquired Mattersight for total consideration of approximately
$105.1 million. This acquisition brings together the market’s leading behavioral analytics and NICE's advanced cloud
innovation capabilities, empowering organizations to improve customer experience through deep understanding of the
customer persona. The acquisition enables organizations to benefit from an enhanced analytics solutions portfolio in the
cloud, while driving personalization and efficiently creating real-time connections between customers and service.
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Off-Balance Sheet Transactions
We have not engaged in nor been a party to any off-balance sheet transactions, as defined in Item 5 of Form 20-F.
Critical Accounting Policies
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Management believes that the estimates,
judgments and assumptions used are reasonable based upon information available at the time they are made.
Management believes that the significant accounting policies, which affect its more significant judgments and
estimates used in the preparation of the consolidated financial statements, and those that are the most critical to aid in fully
understanding and evaluating our reported results, include the following:
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Revenue recognition;
Costs to obtain contracts;
Impairment of long-lived assets;
Income taxes;
Legal contingencies
Business combination;
Stock-based compensation;
Marketable securities;
Fair value of financial instruments; and
Exchangeable senior notes.
Revenue Recognition. We generate revenues from sales of software products, services and cloud, which include
software license, SaaS, network connectivity, hosting, support and maintenance, implementation, configuration, project
management, consulting and training. We sell our products directly through our sales force and indirectly through a global
network of distributors, system integrators and strategic partners, all of whom are considered end-users.
We recognize revenues in accordance with ASC No. 606, "Revenue from Contracts with Customers" ("ASC 606").
Under this standard, we recognize revenues when a customer obtains control of promised goods or services in an amount that
reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition
for contracts that are within the scope of this standard, we perform the following five steps:
1) Identify the contract(s) with a customer
A contract with a customer exists when (i) there is an enforceable contract with the customer that defines each
party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or
services; (ii) the contract has commercial substance; and (iii) we determine that collection of substantially all consideration
for goods or services that are transferred is likely based on the customer’s intent and ability to pay the promised
consideration. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of
factors, including the customer's historical payment experience.
2) Identify the performance obligations of the contract
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We enter into contracts that may include multiple performance obligations. We account for individual products and
services separately if they are distinct – i.e., if a product or service is separately identifiable from other items in the contract
and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
3) Determine the transaction price
The transaction price is determined based on the consideration to which we will be entitled in exchange for
transferring goods or services to the customer.
Payment terms and conditions vary by contract type. In instances where the timing of revenue recognition differs
from the timing of invoicing, we generally do not include a significant financing component in our contracts since our sale
prices are not subject to billing terms and the purpose of our contracts is not to receive financing from, or provide financing
to, customers. In addition, the Company uses the practical expedient and does not assess the existence of a significant
financing component when the difference between payment and revenue recognition is a year or less.
Revenue is measured based on the consideration specified in a contract with a customer, excluding taxes assessed by
a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we
collect from a customer. We enter into contracts that can include various combinations of products and services, which are
generally capable of being distinct and accounted for as separate performance obligations.
4) Allocate the transaction price to the performance obligations of the contract
We allocate the transaction price to each performance obligation identified based on its relative standalone selling
price ("SSP") out of the total consideration of the contract.
We use judgment in determining the SSP. If the SSP is not observable through standalone transactions, we estimate
the SSP by taking into account available information such as geographic or regional specific factors, internal costs, profit
objectives, and internally approved pricing guidelines related to the performance obligations.
We typically establish a SSP range for our products and services, which is reassessed on a periodic basis or when
facts and circumstances change. SSP for products and services can evolve over time due to changes in Nice pricing practices
that are influenced by intense competition, changes in demand for products and services, and economic factors, among
others.
For products for which the SSP cannot be determined based on observable prices given that the same products are
sold for a broad range of amounts (i.e., the selling price is highly variable), the SSP included in a contract with multiple
performance obligations is determined by applying a residual approach whereby all other performance obligations within a
contract are first allocated a portion of the transaction price based upon their respective SSP's, with any residual amount of
transaction price allocated to these product revenues.
5) Recognize revenue when (or as) the entity satisfies a performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised
product or service to the customer.
Software license revenues are recognized at the point in time when the software license is delivered and the
customer obtains control of the asset.
Support and maintenance service revenues are recognized ratably over the term of the underlying maintenance
contract term. Renewals of maintenance contracts create new performance obligations that are satisfied over the term with the
revenues recognized ratably over the period of the renewal.
Professional services revenues are recognized as services are performed. We derive our cloud revenues from
subscription services, which are comprised of subscription fees from granting customers access to our cloud computing
services and from network connectivity.
Revenue from subscription services is recognized either ratably over the contract period or based on usage, and
revenue from network connectivity is based on customer call usage and is recognized in the period the call is initiated.
Costs to Obtain Contracts. We capitalize sales commission as costs of obtaining a contract when they are
incremental and if they are expected to be recovered. We apply judgment in estimating the amortization period, by taking into
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consideration customer contract terms, history of renewals, expected length of customer relationship, as well as the useful life
of the underlying technology and products. Amortization of sales commission expense is included in selling and marketing
expenses in the accompanying consolidated statements of income. For costs that we would have capitalized and amortized
over a period of one year or less, we elected to apply the practical expedient and expense these contract costs as incurred.
Commission expense for the years 2019, 2018 and 2017 were $93.1 million; $76.8 million and $92.2 million, respectively.
Impairment of Long-Lived Assets. Our long-lived assets include goodwill, property and equipment and identifiable
other intangible assets that are subject to amortization.
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible
and intangible assets acquired. Under ASC 350, "Intangible - Goodwill and Other" ("ASC 350"), goodwill is not amortized,
but rather is subject to an annual impairment test. ASC 350 requires goodwill to be tested for impairment at the reporting unit
level at least annually or between annual tests in certain circumstances and written down when impaired. Goodwill is tested
for impairment by comparing the fair value of the reporting unit with its carrying value. ASC 350 allows us to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the
qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is
required. If it does result in a more likely than not indication of impairment, the two-step impairment test is performed.
Alternatively, ASC 350 permits us to bypass the qualitative assessment for any reporting unit and proceed directly to
performing the first step of the goodwill impairment test.
During the fourth quarter of each of the fiscal years ended December 31, 2017, 2018 and 2019, we performed a
qualitative assessment for our reporting units and concluded that the qualitative assessment did not result in a more likely
than not indication of impairment, and therefore no further impairment testing was required. Accordingly, no impairment
charge was recognized during any of such fiscal years.
Our other long-lived assets (besides goodwill) and identifiable intangibles that are subject to amortization are
reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment," whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include any
significant changes in the manner of our use of the assets and significant negative industry or economic trends. Upon
determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate
undiscounted projected future cash flows to the carrying amount of the asset, an impairment charge is recorded for the excess
of the carrying amount over fair value. No impairment charge was recognized during any of such fiscal years.
Income Taxes. To prepare our consolidated financial statements, we estimate our income taxes in each of the
jurisdictions in which we operate, and in certain of these jurisdictions, our income taxes our calculated based on our
assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdiction. The entitlement to such
benefits depends upon our compliance with the terms and conditions set out in these laws.
We account for income taxes in accordance with ASC 740, "Income Taxes." This topic prescribes the use of the
liability method whereby deferred tax asset and liability account balances are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. We provide a valuation allowance, if necessary, to reduce deferred tax
assets to the amount that is more likely than not to be realized. Deferred tax assets and deferred tax liabilities are presented
under long-term assets and long-term liabilities, respectively.
We implement a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the
tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is
more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount
that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.
We classify interest and penalties on income taxes (which includes uncertain tax positions) as taxes on income.
Legal Contingencies. We are currently involved in various claims and legal proceedings. We review the status of
each matter and assess its potential financial exposure. If the potential. loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.
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Business Combination. We apply the provisions of ASC 805, “Business Combination,” and we allocate the fair
value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on
their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable
assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed,
management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates
in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships,
acquired technology and acquired trademarks from a market participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable and, as a result, actual results may differ from estimates.
We account for a transaction as an asset acquisition pursuant to the provisions of ASU 2017-01, "Clarifying the
Definition of a Business," when substantially all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business. Asset
acquisition-related costs are capitalized as part of the asset or assets acquired.
Stock-based Compensation. We account
stock-based compensation in accordance with ASC 718,
"Compensation - Stock Compensation" ("ASC 718"), which requires the measurement and recognition of compensation
expense based on estimated fair values for all share-based payment awards made to employees and directors. ASC 718
requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing
model and account for forfeitures as they occur.
for
We recognize compensation expenses for the value of our awards, which have graded vesting, based on the
accelerated attribution method over the requisite service period of each of the awards.
We estimate the fair value of stock options granted using the Black-Scholes-Merton option-pricing model, which
requires a number of assumptions: the expected volatility is based upon actual historical stock price movements; the expected
term of options granted is based upon historical experience and represents the period of time that options granted are
expected to be outstanding; the risk-free interest rate is based on the yield from U.S. Federal Reserve zero-coupon bonds with
an equivalent term; and the expected dividend rate (an annualized dividend yield) is based on the per share dividend declared
by our Board of Directors. For information on our dividend payments, see Note 14d to our consolidated financial statements
included elsewhere in this annual report.
We measure the fair value of restricted stock based on the market value of the underlying shares at the date of grant.
Marketable Securities. We account for investments in debt securities in accordance with ASC 320, "Investments -
Debt and Equity Securities." Management determines the appropriate classification of its investments in debt securities at the
time of purchase and re-evaluates such determinations at each balance sheet date.
Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market prices.
Unrealized gains and losses are reported in a separate component of shareholders' equity in accumulated other comprehensive
income (loss). Gains and losses are recognized when realized, on a specific identification basis, in our consolidated
statements of income.
Our securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are considered to be
impaired, the impairment charge is recognized in earnings when a decline in the fair value of its investments below the cost
basis is judged to be other-than-temporary. Factors considered in making such a determination include the duration and
severity of the impairment, the reason for the decline in value, the potential recovery period and our intent to sell, including
whether it is more likely than not that we will be required to sell the investment before recovery of cost basis. For securities
with an unrealized loss that we intend to sell, or it is more likely than not that we will be required to sell before recovery of
their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings. For securities
that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit
losses, while declines in fair value related to other factors are recognized in accumulated other comprehensive income (loss).
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Fair Value of Financial Instruments. We apply ASC 820, "Fair Value Measurements and Disclosures" ("ASC
820"). Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. We measure our
investments in money market funds classified as cash equivalents, marketable securities and our foreign currency derivative
contracts at fair value.
In determining fair value, we use various valuation approaches. ASC 820 establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs
are inputs that reflect our assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
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Level 1 - Valuations based on quoted prices in active markets for identical assets that we have the ability to
access. Since valuations are based on quoted prices that are readily and regularly available in an active
market, valuation of these products does not entail a significant degree of judgment..
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of
factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the
transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment and the investments are categorized as Level 3.
Our marketable securities, exchangeable senior notes and foreign currency derivative contracts are classified within
Level 2. For more information, see Note 3, Note 10 and Note 15 to our consolidated financial statements included elsewhere
in this annual report.
The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables and trade payables,
approximate their fair value due to the immediate or short-term maturities of these financial instruments. The carrying
amount of the loan approximates its fair value due to the fact the loan bears a variable interest rate.
Exchangeable Senior Notes. We apply ASC 815 “Derivative and Hedging” (“ASC 815”) and ASC 470
“Debt” (“ASC 470”). Under these standards, we separately account for the liability and equity components of convertible
debt instruments that may be settled in cash in a manner that reflects our nonconvertible debt borrowing rate. The liability
component at issuance is recognized at fair value, based on the fair value of a similar instrument that does not have a
conversion feature. The equity component is based on the excess of the principal amount of the debentures over the fair value
of the liability component, after adjusting for an allocation of debt issuance costs, and is recorded as additional paid in capital
in excess of par. Debt discounts are amortized as additional non-cash interest expense over the expected life of the debt.
Recently Adopted Accounting Standards
We adopted ASU No. 2016-02 as of January 1, 2019, using the modified retrospective transition method of applying
the new standard at the adoption date. Therefore, upon adoption, we recognized and measured leases without revising
comparative period information or disclosures.
Upon adoption, we recognized total right of use (“ROU”) assets of $120.6 million, with corresponding lease liabilities
of $139.2 million on our consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease
payments. The adoption did not impact the beginning balance of retained earnings, or prior year consolidated statements of
income and statements of cash flows.
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For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies – Leases Liability
above and Note 11 - Leases.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities,” amending the eligibility criteria for hedged items and transactions to expand an entity’s
ability to hedge nonfinancial and financial risk components. The new guidance eliminates the requirement to separately
measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge
item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The
amended presentation and disclosure requirements must be adopted on a prospective basis, while any amendments to cash
flow and net investment hedge relationships that exist on the date of adoption must be applied on a “modified retrospective”
basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of
adoption. The new guidance was effective on January 1, 2019 and the adoption did not have a material impact on our
consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326)" ("ASU 2016-13").
The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider
in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted
information incorporates more timely information in the estimate of expected credit loss, which will be of greater use to users
of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. The adoption of ASU 2016-13 is not expected to have a
significant impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04 "Intangibles - Goodwill and Other (ASC 350): Simplifying the
Accounting for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates step 2 of the goodwill impairment test,
which requires the calculation of the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its
assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the
fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have a
significant impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract.” The new standard requires capitalization of the implementation costs incurred in a cloud computing
arrangement that is a service contract, with the requirements for capitalization costs incurred to develop or obtain internal-use
software. The new standard also requires presenting the capitalized implementation costs and their related amortization and
cash flows on the financial statements to be presented consistently with the prepaid amounts and fees related to the associated
cloud computing arrangement. Capitalized implementation costs will be required to be amortized over the term of the
arrangement, beginning when the module or component of the cloud computing arrangement that is a service contract is
ready for its intended use. The standard will be effective for the Company beginning on January 1, 2020, with early adoption
permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The adoption of ASU 2018-15 is
not expected to have a significant impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The amendments in ASU 2018-13
remove, modify and add disclosures for companies required to make disclosures about recurring or nonrecurring fair value
measurements under Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted. Certain
amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The
amendments in ASU 2018-13 are disclosure-related only and as such, the adoption of ASU 2018-13 is not expected to have a
significant impact on our consolidated financial statements.
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Results of Operations
The following table sets forth our selected consolidated statements of income for the years ended December 31,
2018, and 2019, expressed as a percentage of total revenues (totals may not add up due to rounding).
Revenues
Products
Services
Cloud
Cost of revenues
Products
Services
Cloud
Gross profit
Operating expenses
Research and development, net
Selling and marketing
General and administrative
Amortization of acquired intangibles
Total operating expenses
Operating income
Financial expenses and other, net
Income before taxes
Taxes on income
Net income
2018
2019
18.3 %
17.0 %
49.8
31.9
100.0
45.1
37.9
100.0
2.2
15.9
16.3
34.4
65.6
12.7
25.7
10.6
2.9
51.9
13.7
0.8
12.9
1.9
11.0
1.5
13.9
18.4
33.8
66.2
12.3
25.4
10.6
2.7
51.0
15.2
0.3
14.9
3.1
11.8
Comparison of Years Ended December 31, 2018 and 2019
For a comparison of years ended December 31, 2017 and 2018, please refer to Item 5 in our annual report on Form 20-F
for the year ended December 31, 2018, filed with the SEC on April 5, 2019.
Our
revenues increased by approximately $129.4 million, or 9%,
from $1,444.5 million in the year
ended December 31, 2018 to $1,573.9 million in the year ended December 31, 2019. The increase consisted of a $109
million increase in Customer Engagement revenue and a $20.4 million increase in Financial Crime and Compliance revenue.
The revenue growth of our Customer Engagement business segment in 2019 is mainly attributed to the increased
demand for our cloud offerings including the ongoing expansion of our customer base into the mid-market and a full year
inclusion of the 2018 acquisition of Mattersight.
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The revenue growth in our Financial Crime and Compliance business segment in 2019 is primarily attributed to new
solution offerings and cloud expansion in the mid-market.
Product revenues
Service revenues
Cloud revenues
Total revenues
Years Ended December 31, Percentage
(In millions)
2018
2019
Change
2018-2019
$
263.8
$
719.5
461.2
269.1
709.1
595.7
2.0 %
(1.4)
29.2
$
1,444.5
$
1,573.9
9.0 %
Our product revenue was $269.1 million in 2019 compared to $263.8 million in 2018. The increase of 2.0%, or $5.3
million in product revenues is primarily attributed to increased demand for our Financial Crime and Compliance solutions.
Our service revenues in 2019 decreased by 1.4%, or $10.4 million, to $709.1 million compared to $719.5 million in
2018, mainly due to decrease in professional services revenues from on-premise implementations resulting primarily from
our transition to increased cloud delivery of our solutions.
Our cloud revenues in 2019 increased by 29.2%, or $134.5 million, to $595.7 million compared to $461.2 million in
2018, mainly due to growing demand for our cloud platforms including new customers buying cloud-based solutions, our
expansion in the mid-market and full year inclusion of the 2018 acquisition of Mattersight.
Revenue by Region
United States, Canada and Central and South America (“Americas”)
Europe, the Middle East and Africa (“EMEA”)
Asia-Pacific (“APAC”)
Total revenues
Years Ended December 31, Percentage
(In millions)
2018
2019
Change
2018-2019
$
$
1,123.9
$
1,234.5
9.8 %
206.9
113.7
216.2
123.2
4.5
8.4
1,444.5
$
1,573.9
9.0 %
Revenue in Americas increased in 2019 by 9.8%, or $110.6 million, to $1,234.5 million compared to $1,123.9
million in 2018, mainly due to increased demand for our Customer Engagement Solutions delivered via our cloud platforms
and to the full year inclusion of the 2018 acquisition of Mattersight.
Revenue in EMEA increased in 2019 by 4.5%, or $9.3 million, to $216.2 million compared to $206.9 million in
2018, mainly due to increased demand for our Financial Crime and Compliance solutions. Revenues in EMEA increased 8%
in 2019 on a constant currency basis.
Revenue in APAC increased in 2019 by 8.4%, or $9.5 million, to $123.2 million compared to $113.7 million in
2018. Growth in revenue in 2019 is mainly due to increased demand for our Financial Crime and Compliance solutions.
61
Cost of Revenues
Cost of product revenues
Cost of service revenues
Cost of cloud revenues
Total cost of revenues
Years Ended December 31, Percentage
(In millions)
2018
2019
Change
2018-2019
$
$
31.1
$
229.7
236.0
496.8
$
22.9
219.0
289.9
531.8
(26.3)%
(4.7)
22.8
7.0 %
Our cost of product revenues in 2019 decreased by $8.2 million, or 26.3%, compared to 2018 and decreased as a
percentage of product revenue compared to 2018, mainly due to a shift in the proportion of sales attributed to our different
products sold during 2019.
Our cost of service revenues in 2019 decreased by $10.7 million, or 4.7%, compared to 2018 and decreased as a
percentage of service revenue. The decrease as a percentage of service revenue in 2019 is primarily attributed to increased
efficiency in our services organization.
Our cost of cloud revenues in 2019 increased by $53.9 million, or 22.8%, compared to 2018 and decreased as a
percentage of cloud revenue. The increase is primarily due to increase in our cloud sales, the 2018 acquisition of Mattersight
and amortization of internal use software. The decrease as percentage of revenue is primarily due to scaling in our cloud
business and efficiencies in our internal operations.
Gross Profit
Gross profit on product revenues
as a percentage of product revenues
Gross profit on service revenues
as a percentage of service revenues
Gross profit on cloud revenues
as a percentage of cloud revenues
Total gross profit
as a percentage of total revenues
Years Ended December 31, Percentage
(In millions)
2018
2019
$
232.7
$
88.2 %
489.9
68.1
225.1
48.8
947.7
65.6 %
$
$
246.2
91.5 %
490.1
69.0
305.9
51.3
1,042.2
66.2 %
Change
2018-2019
5.8 %
—
35.9
10.0 %
Our gross profit on product revenues was $246.2 in 2019 compared to $232.7 in 2018, representing an increase of
$13.5 million, or 5.8%, which is mainly attributed to the increased demand for our Financial Crime and Compliance solutions
as a result of increased demand of financial institutions throughout our markets. Our gross profit of product revenue as
percentage of product revenue increased to 91.5% in 2019 compared to 88.2% in 2018, mainly due to a shift in the proportion
of sales attributed to our different products sold during 2019.
Our gross profit on service revenues was $490.1 in 2019 compared to $489.9 in 2018 and increased as a percentage
of service revenue to 69.0% in 2019 compared to 68.1% in 2018. Increase in service revenue gross margin in 2019 is mainly
attributed to efficiencies in our service organization.
Our gross profit on cloud revenues in 2019 increased by $80.8 million, or 35.9%, compared to 2018 and increased as
a percentage of cloud revenue to 51.3% in 2019 compared to 48.8% in 2018. Increase in cloud gross profit and margin is
mainly attributed to scaling in our cloud business and efficiencies in our internal operations.
62
Operating Expenses
Research and development, net
Selling and marketing
General and administrative
Amortization of acquired intangible assets
Total operating expenses
Years Ended December 31,
Percentage
(In millions)
2018
2019
Change
2018-2019
$
$
183.8
$
370.7
153.3
42.3
750.1
193.7
399.3
168.0
42.4
803.4
5.4 %
7.7 %
9.6 %
0.3 %
7.1 %
Research and Development, Net. Net research and development expenses increased by $9.9 million to $193.7
million in 2019 compared to $183.8 million in 2018, and represented 12.3%and 12.7% of revenues in 2019 and 2018,
respectively. The increase in research and development expenses is attributed mainly to an increase in headcount to further
drive innovation in our solutions, to support the transition to cloud platforms and as a result of the full year inclusion of the
2018 acquisition of Mattersight.
Selling and Marketing Expenses. Selling and marketing expenses increased by $28.6 million to $399.3 million in
2019 compared to $370.7 million in 2018, which represented 25.4% and 25.7% of total revenues in 2019 and in 2018,
respectively. The increase in selling and marketing expenses is attributed primarily to increase in marketing costs related to
lead generation and driving increased brand recognition and the full year inclusion of the 2018 acquisition of Mattersight.
General and Administrative Expenses. General and administrative expenses in 2019 were $168.0 million compared
to $153.3 million in 2018, which represented 10.7% of total revenues in 2019, as compared to 10.6% of total revenues in
2018. The increase in general and administrative expenses is attributed primarily to increase in headcount and to the full year
inclusion of the 2018 acquisition of Mattersight.
Amortization of acquired intangible assets. Amortization of acquired intangible assets included in the operating
expenses in 2019 and 2018 were $42.4 million and $42.3 million respectively, representing 2.7% and 2.9% of our revenues,
respectively.
Financial Expenses and Other, net
Financial expenses and other, net
Years Ended December 31,
(In millions)
2018
2019
$
10.9
$
4.4
Percentage
Change
2018-2019
(59.6)%
Financial Expense and Other, net. Financial expenses and other, net, decreased by $6.5 million to $4.4 million in
2019 compared to $10.9 million in 2018. The decrease in financial expenses and other, net is attributable primarily to
increasing interest income due to both higher yield on our investment portfolio and higher investments balances.
Taxes on Income. Total tax expenses were $48.4 million in 2019 and $27.4 million in 2018. Our effective tax rate
was 20.6% in 2019 and 14.7% in 2018.
The increase in 2019 of $21 million in tax expenses is primarily due to the increase in the pre-tax income in 2019
and the impact of the U.S. Tax Reform, which reduces certain tax deductible expenses. See Note 2 and Note 13 to the
consolidated financial statements included in this annual report for more details about the U.S. Tax Reform and its effects.
The increase in our effective tax rate from 14.7% in 2018 to 20.6% in 2019 is mainly due to an increasing proportion
of our revenue in the U.S., which imposes higher tax rates than many of the other jurisdictions in which we operate, and the
above mentioned impact of the U.S. Tax Reform.
63
The majority of our income in Israel continues to benefit from lower tax rates, which was 12.0% in 2019 and 2018,
pursuant to our Preferred Technology Enterprise programs, which is discussed in Note 13 of our consolidated financial
statements under the caption “Taxes on Income”.
Net Income from continuing operations. Net income increased by $26.6 million to $185.9 million in 2019
compared to $159.3 million in 2018. The increase in 2019 resulted primarily from an increase in our revenue and gross profit,
partially offset by higher operating expenses and tax expenses.
Liquidity and Capital Resources
In recent years, the cash generated from our operating activities has financed our operations as well as the
repurchase of our ordinary shares. Generally, we invest our excess cash in highly liquid investment grade securities. As of
December 31, 2019, we had $981.5 million of cash and cash equivalents and short-term and long-term investments, as
compared to $730.8 million at December 31, 2018.
Cash provided by operating activities was $374.2 million and $396.6 million in 2019 and 2018, respectively. Net
cash from operations in 2019 consisted primarily of net income of $185.9 million, adjusted for non-cash activities such as
depreciation and amortization of $173.2 million, stock-based compensation of $80.9 million as well as working capital
changes derived from an increase in deferred revenues of $13.8 million, increase in accrued expenses and other liabilities of
$31.7 million, decrease in deferred taxes of $12.2 million and increase in trade receivables of $29.9 million. Net cash from
operations in 2018 consisted primarily of net income of $159.3 million, adjusted for non-cash activities such as depreciation
and amortization of $157.1 million, stock-based compensation of $67.2 million as well as working capital changes derived
from an increase in deferred revenues of $92.8 million, increase in accrued expenses and other liabilities of $48.1 million,
decrease in deferred taxes of $30.2 million and decrease in trade receivables of $72.6 million.
Net cash used in investing activities was $344.3 million and $460.8 million in 2019 and 2018, respectively. In 2019,
net cash used in investing activities consisted primarily of payment for the acquisition of Brand Embassy in the amount of
$21.9 million, net investment in marketable securities and short-term bank deposits of $256.3 million and purchase of
property, equipment of $27.3 million and capitalization of internal use software costs of $34.7 million. In 2018, net cash used
in investing activities consisted primarily of payment for the acquisition of Mattersight in an amount of $104.8 million, net
investment in marketable securities and short-term bank deposits of $292.3 million and purchase of property, equipment of
$31.4 million and capitalization of internal use software costs of $32.2 million.
Net cash used in financing activities was $42.7 million and $16.3 million in 2019 and 2018, respectively.
In 2019, net cash used in financing activities was attributed primarily to the repurchase of our ordinary shares of
$47.3 million which were partly offset by proceeds from issuance of shares upon exercise of options of $5.4 million. In 2018,
net cash used in financing activities was attributed primarily to the repurchase of our ordinary shares of $26 million and
repayment of a short-term bank loan, which were partly offset by proceeds from issuance of shares upon exercise of options
of $19.0 million.
We believe that based on our current operating forecast, the combination of existing working capital and expected
cash flows from operations will be sufficient to finance our ongoing operations for the next twelve months.
Research and Development and Intellectual Property
For information on our research and development policies and intellectual property, please see “Research and
Development” and “Intellectual Property” under Item 4, “Information on the Company” in this annual report.
Trend Information
For information on trends in our industry, please see Item 4, “Information on the Company—Business Overview—
Industry and Technology Trends” in this annual report.
For more information on trends, uncertainties, demands, commitments or events that may have a material effect on
revenue, please see Item 3, “Key Information—Risk Factors” in this annual report.
64
Contractual Obligations
Set forth below are our contractual obligations and other commercial commitments as of December 31, 2019 (in
thousands).
Contractual Obligations
Debt obligations, including estimated
interest *
Operating Leases
Unconditional Purchase Obligations
Severance Pay**
Total Contractual Cash Obligations
Uncertain Income Tax Positions ***
Total
531,975
165,336
65,374
14,596
777,281
64,884
Payments Due by Period
Less than 1
year
10,254
1- 3 years
228,830
3-5 years
292,891
More than 5
years
—
23,118
35,136
38,929
28,130
21,817
2,108
81,473
—
68,508
295,889
316,816
81,473
*
**
***
Debt obligations mainly include senior exchangeable notes and loan. The principal balances of the senior
exchangeable notes are reflected in the payment periods in the table above based on their respective contractual
maturities assuming no conversion. However, the conversion period for this Notes was open as of January 1, 2020,
and as such the value of the senior exchangeable notes is included within current liabilities on our consolidated
balance sheets. See Note 15 to our consolidated financial statements included elsewhere in this Annual Report for
further details.
Severance pay relates to accrued obligations to employees as required under applicable labor laws. These obligations
are payable only upon termination, retirement or death of the respective employees.
Uncertain income tax positions under ASC 740 are due upon settlement and we are unable to reasonably estimate
the ultimate amount or timing of settlement. See Note 13(i) of our consolidated financial statements for further
information regarding our liability under ASC 740.
Other Commercial Commitments
Guarantees
Amount of Commitment Expiration Per Period
Total
Amounts
Committed
4,776
Less than 1
year
1- 3 years
3- 5 years
More than 5
years
4,451
325
—
—
65
Item 6.
Item 6A.
Directors, Senior Management and Employees.
Directors and Senior Management.
The following tables set forth, as of April 5, 2020, the name, age and position of each of our directors and executive
officers and, in regard to our directors, any of the committees of our board of directors on which they serve and whether any
such director is an outside director:
Audit
Committee
Member
Compensation
Committee
Member
Internal
Audit
Committee
Member
Mergers and
Acquisitions
Committee
Member
Nominations
Committee
Member
Outside
Director*
Members of the Board of Directors
Name
Age
Position
David Kostman
55
Chairman of
the Board of
Directors
Rimon Ben-
Shaoul
75
Director
Dan Falk
75
Director
Yocheved Dvir
67
Director
Yehoshua
Ehrlich
70
Director
Leo Apotheker
66
Director
Joe Cowan
71
Director
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Zehava Simon
61
Director
X
*
See Item 6, “Directors, Senior Management and Employees—Board Practices— Outside Directors.”
66
Members of Management
Name
Barak Eilam
Beth Gaspich
Eran Liron
Barry Cooper
Craig Costigan
Paul Jarman
Shiri Neder
Tali Mirsky
Age
45
54
52
49
59
50
44
47
Position
Chief Executive Officer
Chief Financial Officer
Executive Vice President, Marketing and Corporate Development
President, Enterprise Group
Chief Executive Officer, NICE Actimize
Chief Executive Officer, NICE inContact
Executive Vice President, Human Resources
Corporate Vice President, General Counsel and Corporate
Secretary
David Kostman has served as one of our directors since 2001 (with the exception of the period between June 2007
and July 2008), and as our Chairman of the Board since February 2013. Mr. Kostman is currently co-CEO and board member
of Outbrain, Inc. and serves on the board of directors of ironSource Ltd. and Tivit S.A. and is a member of Nanoosh LLC.
Mr. Kostman is also a former board member of publicly traded Retalix Ltd. (acquired by NCR). From 2006 until 2008, Mr.
Kostman was a Managing Director in the investment banking division of Lehman Brothers, heading the Global Internet
Group. From April 2003 until July 2006, Mr. Kostman was Chief Operating Officer and then Chief Executive Officer of
Delta Galil USA, a subsidiary of publicly traded Delta Galil Industries Ltd. From 2000 until 2002, Mr. Kostman was
President of the International Division and Chief Operating Officer of publicly traded VerticalNet Inc. Prior to that Mr.
Kostman worked in the investment banking divisions of Lehman Brothers from 1994 to 2000, focusing on the technology and
Internet sectors, and NM Rothschild & Sons from 1992 to 1993, focusing on mergers and acquisitions and privatizations. Mr.
Kostman holds a Bachelor’s degree in Law from Tel Aviv University and a Master’s degree in Business Administration from
INSEAD.
Rimon Ben-Shaoul has served as one of our directors since September 2001. Between 2001 and 2005, Mr. Ben-
Shaoul has served as Co-Chairman, President, and Chief Executive Officer of Koonras Technologies Ltd., a technology
investment company controlled by LEADER Ltd., an Israeli holding company. Since 2002 Mr. Ben-Shaoul serves as
Chairman of Grand AutoMotive LLP. Mr. Ben-Shaoul also served as a director of MIND C.T.I. Ltd., BVR Systems Ltd. and
several private companies. In addition, he served as the President and Chief Executive Officer of Polar Communications Ltd.,
which manages media and communications investments. Mr. Ben-Shaoul also served as the Chairman of T.A.T Technologies
Ltd., a public company listed on NASDAQ and TASE. Between 1997 and 2001, Mr. Ben-Shaoul was the President and Chief
Executive Officer of Clal Industries and Investments Ltd., one of the largest holding companies in Israel with substantial
holdings in the high-tech industry. During that time, Mr. Ben-Shaoul also served as Chairman of the Board of Directors of
Clal Electronics Industries Ltd., Scitex Corporation Ltd., and various other companies within the Clal Group. Mr. Ben-Shaoul
also served as a director of ECI Telecom Ltd., Fundtech Ltd., Creo Products, Inc. and Nova Measuring Instruments Ltd. From
1985 to 1997, Mr. Ben-Shaoul was President and Chief Executive Officer of Clal Insurance Company Ltd. and a director of
the company and its various subsidiaries. Mr. Ben-Shaoul holds a Bachelor’s degree in Economics and Statistics and a
Master’s degree in Business Administration, both from Tel-Aviv University.
Dan Falk has served as one of our outside directors since 2001. From 1999 to 2000, Mr. Falk was President and
Chief Operating Officer of Sapiens International Corporation N.V. From 1985 to 1999, Mr. Falk served in various positions
in Orbotech Ltd., the last of which were Chief Financial Officer and Executive Vice President. From 1973 to 1985, he served
in several executive positions in the Israel Discount Bank. Mr. Falk also serves on the board of directors of Ormat
Technologies Inc., and until recently served on the board of directors of each of Attunity Ltd. and Orbotech Ltd. Mr. Falk
holds a Bachelor’s degree in Economics and Political Science and a Master’s degree in Business Administration, both from
the Hebrew University, Jerusalem.
67
Yocheved Dvir has served as one of our outside directors since January 2008. Since 2000, Ms. Dvir has served as a
strategic advisor in business development affairs to multiple companies and initiatives. Ms. Dvir also serves on the board of
directors of Menorah Insurance Company and its subsidiary, Xenia Venture Capital and Endey Med. She recently served on
the boards of Alrov Real Estate, Visa Cal, Trendline Business Information & Communications Ltd., Israel Corporation Ltd.,
ECI Telecom Ltd., Strauss Industries Ltd., Phoenix Holding and Phoenix Insurance Co. Between 1990 and 2000, Ms. Dvir
served as a Senior Vice President of the Migdal Group. Ms. Dvir joined the Migdal Group in 1981 and, until late 2000, held a
number of senior financial and managerial positions, including Head of the Group’s Economics Department (1986-1988),
Head of the Group’s Corporate Office from 1989 to 1992, Head of the Group’s General Insurance Division and Corporate
Office from 1993 to 1997, Group CFO from 1997 to 1999, and Head of the Group’s Strategic Development Division and
Marketing Array and Risk Manager in 2000. Ms. Dvir holds a Bachelor’s degree in Economics and Statistics from the
University of Haifa and completed studies towards a second degree in Statistics from the Hebrew University of Jerusalem.
Yehoshua (Shuki) Ehrlich has served as one of our directors since September 2012. Mr. Ehrlich is an active social
investor, serving as Chairman of "Committed to Give", a group formed by Israeli social investors for promoting philanthropy
in Israel and several other social organizations. Mr. Ehrlich also serves as a board member of the American Joint Distribution
Committee and a board member of AfterDox, an angels' investment group. Between the years 2000 and 2010, Mr. Ehrlich
served as Managing Director at Giza Venture Capital, where he focused on the communications, enterprise software and
information technology sectors. Additionally, Mr. Ehrlich had a fifteen-year career with Amdocs, a public software company
specializing in billing, CRM, order management systems for telecommunications and Internet service providers. In his last
role at Amdocs, Mr. Ehrlich served as Senior Vice President of Business Development. Mr. Ehrlich holds a Bachelor of
Science in Mathematics and Computer Science from the Tel Aviv University.
Leo Apotheker has served as one of our directors since August 2013. Mr. Apotheker was the Managing Partner and
co-founder of Efficiency Capital SAS, a growth capital advisory firm, from 2012 to 2014. From 2010 to 2011, Mr. Apotheker
served as Chief Executive Officer of Hewlett Packard. From 2008 to 2010, he served as Chief Executive Officer of SAP AG.
In addition, he is currently chairman of the board of Unit4, a leading Dutch software company, and Syncron AB, Vice
Chairman and Lead Director of Schneider SE, and a member of the board of MercuryGate, P2 Energy Services and Taulia
Inc. Mr. Apotheker holds a Bachelor’s degree in Economics and International Relations from the Hebrew University of
Jerusalem.
Joe Cowan has served as one of our directors since August 2013. From October 2013 until September 2017, Mr.
Cowan was the CEO and director of Epicor. Since September 2016 Mr. Cowan has been a director of ChannelAdvidsor, Inc.
and since January 2019 the Chairman of the Board of SAI Global a private company owned by Baring Private Equity Asia.
During 2013, Mr. Cowan also served as President of DataDirect Networks, Inc. From 2010 until 2013, Mr. Cowan served as
the Chief Executive Officer and President of Online Resources Corp. During 2009, he served as an Operating Executive and
Consultant at Vector Capital. From 2007 to 2009, Mr. Cowan served as the Chief Executive Officer of Interwoven Inc. From
2004 to 2006, Mr. Cowan served as the President and Chief Executive Officer of Manugistics Inc. and Manugistics Group
Inc. Prior to that, Mr. Cowan served in various senior executive positions, including as the Chief Operating Officer of Baan
Co. NV and Avantis GOB NV. He has been a Director of DataDirect Networks, Inc. between 2011 and February 2013. Mr.
Cowan has also served on the boards of various publicly traded companies, including ChannelAdvidsor Inc., Interwoven Inc.,
Online Resources Corporation, Manugistics Group Inc. and Blackboard Inc., as well as several private companies. Mr.
Cowan holds an M.S. degree in Electrical Engineering from Arizona State University and holds a B.S. degree in Electrical
Engineering from Auburn University.
Zehava Simon has served as one of our outside directors since July 2015. Ms. Simon served as a Vice President of
BMC Software Inc. from 2000 until 2013, most recently as Vice President of Corporate Development. From 2002 to 2011,
Ms. Simon also served as Vice President and General Manager of BMC Software in Israel. Prior to that, Ms. Simon held
various positions at Intel Israel, which she joined in 1982, including acting as leader of Finance and Operations and Business
Development for Intel in Israel. Ms. Simon is currently a board member of Audiocodes Ltd., a public company traded on
NASDAQ and TASE, Nova Measurements, a publicly-traded company on NASDAQ and TASE, and Amiad Water Systems,
a public company traded on the London Stock Exchange. Ms. Simon is a former member of the board of directors of
Insightec Ltd., M-Systems Ltd. (acquired by SanDisk Corp.) and Tower Semiconductor Ltd. Ms. Simon holds a B.A. in
Social Sciences from the Hebrew University, Jerusalem, a law degree (LL.B.) from the Interdisciplinary Center in Herzliya
and an M.A. in Business and Management from Boston University.
68
Barak Eilam has served as Chief Executive Officer since April 2014. In his previous position with NICE, Mr.
Eilam was President of our American division from July 2012 to March 2014. Prior to that, Mr. Eilam was the head of sales
and the general manager of the Enterprise Group in the Americas. From 2007 to 2009, Mr. Eilam founded and served as the
general manager of the NICE Interaction Analytics Global Business Unit. Mr. Eilam has also served in a variety of executive
positions within NICE, managing different aspects of
the business in product development, sales and product
management. Before joining NICE in 1999, Mr. Eilam was an officer for an elite intelligence unit in the Israeli defense
forces. Mr. Eilam holds a Bachelor's degree in Electrical and Electronics Engineering from Tel Aviv University.
Beth Gaspich has served as our Chief Financial Officer since October 2016. Ms. Gaspich joined NICE as CFO of
the Financial Crime and Compliance division NICE Actimize in September 2011, where she was responsible for finance,
legal and business operations. Prior to joining NICE, she was Chief Financial Officer for Archive Systems, Inc., a privately
held document management software provider. She also served as Vice President of Finance at RiskMetrics Group, Inc., a
cloud-based risk management software company. Ms. Gaspich was one of the founding members of RiskMetrics Group and
assisted in taking the company through a successful public offering on the NYSE in January 2008. Prior to that, Ms. Gaspich
held several other senior positions throughout her career at large global financial institutions, including JP Morgan and Price
Waterhouse. Ms. Gaspich holds a B.A. in Accounting from the University of Missouri.
Eran Liron has served as our Executive Vice President, Marketing and Corporate Development since October
2013, and as Executive Vice President, Corporate Development since February 2006. From 2004 to 2006, he served as
Director of Corporate Development at Mercury Interactive Corporation, a software company, and prior thereto he held
several business development positions at Mercury Interactive. Before joining Mercury, Mr. Liron served in several
marketing roles at software startups and at Tower Semiconductor. Mr. Liron holds a Bachelor of Science degree from the
Technion – Israel Institute of Technology and a Doctorate in Business from the Stanford Graduate School of Business in
California.
Barry Cooper has been with NICE since March 2011 and serves as our Enterprise Group President as of January
2019. From May 2016 until December 2018, he served as our Chief Operating Officer (COO). Prior to serving as COO, Mr.
Cooper served as Vice President, Business Operations for APAC from March 2011 until June 2013, and as of July 2013 and
until assuming the role of COO, he served as Executive Vice President, Professional Services and Cloud. Prior to joining
NICE, Mr. Cooper was a Management Consultant at Accenture; the Head of Customer Service, IT and Billing at Time
Telekom, Malaysia; and Vice President of Professional Services, APAC for CSG Systems, later Comverse. Mr. Cooper holds
a First Class Bachelor of Computer Science and Mathematics with Honors from Salford University in the United Kingdom.
Craig Costigan has served as NICE Actimize CEO since November 2018. From 2016 to 2018, he served as
President of Capital Markets & Credit at Fidelity National Information Services Inc. (FIS), where he managed a team of
approximately 4,000 staff worldwide, overseeing risk, compliance, credit, security finance, securities processing and market
data solutions and services for over 2,000 banks, broker dealers, investment firms, hedge funds, insurance companies and
clients in the financial market. Prior to that, Mr. Costigan served as President of the Risk, Compliance and Global Securities
Business at SunGard. Mr. Costigan holds a BS in Economics from Northeastern University.
Paul Jarman has served as NICE inContact CEO since November 2016 and served as inContact CEO from January
2005 until we acquired inContact. From December 2002 until becoming CEO in January 2005, Mr. Jarman served as
inContact’s President. Prior to December 2002, he served as inContact’s Executive Vice President. Mr. Jarman was
instrumental in guiding inContact from its roots in telecommunications to its strategic offering of cloud-based contact center
solutions and has been a part of every major enhancement the company has made since 1997. Mr. Jarman led inContact's
listing on NASDAQ. Prior to joining inContact, he was an executive with HealthRider, Inc. Mr. Jarman holds a Bachelor of
Science degree in Accounting from the University of Utah.
Shiri Neder has served as our Executive Vice President, Human Resource since February 2018. Prior to joining
NICE, Ms. Neder was the Corporate Vice President, Head of Human Resources at Nova Measuring Instruments. Prior to that,
Ms. Neder worked at Amdocs as Vice President, Human Resources for the Product and Delivery organizations and served as
head of Amdocs’ Talent Development organization.
In addition, Ms. Neder has held positions at Microsoft where she
established the Human Resources function for the Telecom division as well as served as Regional Senior Human Resources
Manager for the EMEA region. Ms. Neder holds a B.A. in Social Science and an M.A. in Law from Bar Ilan University.
69
Tali Mirsky has served as our Corporate Vice President, General Counsel and Corporate Secretary since March
2018. From 2010 to early 2018, she served as Global Vice President of Legal Affairs and Corporate Secretary at Frutarom
Industries Ltd., where she led the company’s M&A transactions in addition to managing the company’s legal department and
handling all legal matters and corporate and securities related items. Prior to that, Ms. Mirsky served as Vice President,
General Counsel and Corporate Secretary of Alvarion, led Business and Legal Affairs at Nicast and Midbar Tech and was an
associate with Naschitz Brandes & Co law office. She holds an LL.B. in Law and Business Administration from IDC,
Herzliya and is admitted to practice law in Israel.
There are no family relationships between any of the directors or executive officers named above.
Item 6B.
Compensation.
(a) Aggregate Executive Compensation
The aggregate compensation paid to or accrued on behalf of all our directors and executive officers as a group of 19
persons during 2019 consisted of approximately $8.7 million in salary, fees, bonus, commissions and directors’ fees and
approximately $0.3 million in amounts set aside or accrued to provide pension, retirement or similar benefits, but excluding
amounts we expended for automobiles made available to our officers, expenses (including business travel, professional and
business association dues and expenses) reimbursed to our officers and other fringe benefits commonly reimbursed or paid by
companies in Israel.
Our compensation policy for our executive management team, as approved by our shareholders, following the
recommendation of our compensation committee and approval by our Board of Directors (as amended, the "Compensation
Policy"), is annually reviewed and approved by our Board of Directors, as is any bonus payment made under the policy.
We have a performance-based bonus plan for our executive management team. The plan is based on our overall
performance, the particular unit performance, individual performance and the results of the customer satisfaction survey
conducted annually. The measurements can change from year to year, based on a combination of financial parameters,
including revenues, booking and operating income. The plan is reviewed and approved by our compensation committee and
Board of Directors annually, as is any bonus payment under the plan.
During 2019, our officers and directors received, in the aggregate, (i) options to purchase 79,820 ordinary shares,
that include 37,040 options with an exercise price equal to the par value of the ordinary shares (the “par value options”), and
(ii) 123,257 restricted share units, under our equity based compensation plans. The options (other than the par value options)
have a weighted average price of $151.63 and all options will expire six years after the date of grant. The restricted shares
units are granted at par value of the ordinary shares.
Pursuant
to the requirements of
the Israeli Companies Law, 5759–1999 (the “Israeli Companies Law”),
remuneration of our directors requires shareholder approval. Compensation and reimbursement for outside directors (as
described below) is statutorily determined pursuant to the Israeli Companies Law. Effective as of July 1, 2015, our
shareholders approved the payment to each of our non-executive directors, including outside directors, of an annual fee of
$40,000 and a meeting attendance fee of $1,500 for each Board meeting attended (whether in person or through media), and
$1,000 for each Board committee meeting attended (whether in person or through media) (in each case paid in U.S. dollars or
in NIS based on the exchange rate on July 1, 2015), subject to additional value added tax, as applicable.
On July 9, 2015, at our 2015 annual general meeting of shareholders, following the recommendation of our
compensation committee and approval by our Board of Directors, our shareholders approved an amended Compensation
Policy for directors and officers. In addition, our shareholders approved a special annual cash fee for the Chairman of the
Board in the amount of NIS 450,000 (equivalent to approximately $124,723). The special annual fee is subject to adjustment
for changes in the Israeli consumer price index after September 2012. At the Company's special general meeting held on
December 21, 2016 and annual general meeting held on September 18, 2019, following the recommendation of our
compensation committee and approval by our Board of Directors, our shareholders approved certain amendments to the
Compensation Policy, as further discussed below in Item 10, "Additional Information. – Approval of Office Holder
Compensation" in this annual report.
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(b) Individual Compensation of Covered Executives
The following describes the compensation of our five most highly compensated executive officers in 2019, based on
the total of salary costs, bonus cost and equity costs for equity granted and expensed in 2019 ("Covered Executives").
The compensation specified below is broken down into the following components (all amounts specified below are
in terms of cost to the Company, as recorded in our financial statements). U.S. dollar amounts indicated for Salary, Bonus
and Equity Costs are in thousands of dollars.
(1)
(2)
(3)
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by
to the extent applicable to each Covered Executive, payments,
applicable law which may include,
contributions and/or allocations for pension, severance, vacation, travel and accommodation, car or car
allowance, medical insurances and risk insurances (e.g., life, disability, accidents), phone, convalescence
pay, relocation, payments for social security, and other benefits consistent with the Company's guidelines.
Bonus Costs. Bonus Costs represent bonuses granted to the Covered Executive with respect to the year
ended December 31, 2019, paid in accordance with the Company's performance-based bonus plan or as
detailed in footnotes below.
Equity Costs. Represents the expense recorded in our financial statements for the year ended December 31,
2019, with respect to equity granted in 2019 and in previous years (if applicable). For assumptions and key
variables used in the calculation of such amounts see Note 14b of our audited consolidated financial
statements.
i.
ii.
iii.
iv.
v.
Barak Eilam – CEO. Salary Costs - $949; Bonus Costs - $1,208; Equity Costs - $2,681 expense
recorded in 2019 for equity granted in 2019 and $8,261 expense recorded in 2019 for equity
granted in previous years.
Paul Jarman – CEO, NICE inContact. Salary Costs - $620; Bonus Costs - $627; Equity Costs -
$773 expense recorded in 2019 for equity granted in 2019 and $1,975 expense recorded in 2019
for equity granted in previous years.
Yaron Hertz – President, NICE Americas. Salary Costs - $452; Bonus Costs - $549 and $894
expense recorded in 2019 for equity granted in 2019 and $871 expense recorded in 2019 for equity
granted in previous years.
Barry Cooper – President, Enterprise Group. Salary Costs - $446; Bonus Costs - $384; Equity
Costs - $950 expense recorded in 2019 for equity granted in 2019 and $808 expense recorded in
2019 for equity granted in previous years.
Beth Gaspich – CFO. Salary Costs - $436; Bonus Costs - $417; Equity Costs - $930 expense
recorded in 2019 for equity granted in 2019 and $793 expense recorded in 2019 for equity granted
in previous years.
Board Practices
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Israeli
Companies Law, relating to such matters as outside directors, the internal audit committee, the internal auditor and approvals
of interested party transactions. These matters are in addition to the ongoing listing conditions of the NASDAQ and other
relevant provisions of U.S. securities laws. Under applicable NASDAQ rules, a foreign private issuer may generally follow
its home country rules of corporate governance in lieu of comparable NASDAQ requirements, except for certain matters such
as composition and responsibilities of the audit committee and the independence of its members. For further information, see
Item 16G, “Corporate Governance” of this annual report.
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General Board Practices
Our articles of association provide that the number of directors serving on the Board shall be not less than three but
shall not exceed thirteen. Our directors, other than outside directors, are elected at the annual shareholders meeting to serve
until the next annual meeting or until their earlier resignation, death, bankruptcy, incapacity or removal by an extraordinary
resolution of the general shareholders meeting. Directors may be re-elected at each annual shareholders’ meeting. The Board
may appoint additional directors (whether to fill a vacancy or create new directorships) to serve until the next annual
shareholders meeting, provided, however, that the Board shall have no obligation to fill any vacancy unless the number of
directors is less than three.
The Board may, subject to the provisions of the Israeli Companies Law, appoint a committee of the Board and
delegate to such committee all or any of the powers of the Board, as it deems appropriate. Notwithstanding the foregoing and
subject to the provisions of the Israeli Companies law, the Board may, at any time, amend, restate or cancel the delegation of
any of its powers to any of its committees. The Board has appointed an internal audit committee under the Israeli Companies
Law that has three members, an audit committee that has five members, a compensation committee that has five members, a
nominations committee that has two members and a mergers and acquisitions committee that has six members. In addition,
from time to time the Board may appoint an ad hoc committee for certain purposes, such as the review, negotiation and
recommendation of approval of M&A transactions. We do not have, nor do our subsidiaries have, any service contracts
granting to the directors any benefits upon termination of their service as Board members.
Outside Directors
Except as discussed below, under the Israeli Companies Law companies incorporated under the laws of Israel whose
shares have been offered to the public in or outside of Israel are required to appoint at least two “outside” directors. Pursuant
to regulations under the Israeli Companies Law that took effect in April 2016, a NASDAQ-listed company that does not have
a controlling shareholder is entitled to opt out of the provisions of the Israeli Companies Law requiring at least two outside
directors and certain related requirements, so long as the company complies with the SEC regulations and NASDAQ listing
rules regarding independent directors and the composition of the audit and compensation committees. In December 2016, our
shareholders approved amendments to our articles of association, pursuant to which our Board of Directors may elect to opt
out of such requirements for appointment of outside directors (together the "2016 Relief Amendments"). According to the
2016 Relief Amendments, an outside director that was appointed prior to a company opting out of such requirements may
continue in office until the end of his or her then-current term or until the end of the second annual general meeting convened
after the applicable company opts out of the requirement, whichever is earlier. At this time, our Board of Directors has not
made an election to opt out of such requirements.
Outside directors are required to possess professional qualifications as set out in regulations promulgated under the
Israeli Companies Law. The Israeli Companies Law provides that a person may not be appointed as an outside director if (i)
such person or person’s relative or affiliate has, at the date of appointment, or had at any time during the two years preceding
such date, any affiliation with the company, a controlling shareholder thereof or their respective affiliates; or (ii) in a
company that does not have a 25% shareholder, such person has an affiliation with any person who, at the time of
appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company. In
general, the term “affiliation” includes: an employment relationship; a business or professional relationship maintained on a
regular basis; control; and service as an office holder.
No person may serve as an outside director if the person’s position or other activities create or may create a conflict
of interest with the person’s responsibilities as an outside director or may otherwise interfere with the person’s ability to serve
as an outside director. Until the lapse of two years from termination of office, a company or its controlling shareholder may
not give any direct or indirect benefit to the former outside director.
Outside directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:
•
•
the majority of shares voted at the meeting shall include at least a majority of the shares of non-controlling
shareholders present at the meeting and voting on the matter (without taking into account the votes of the
abstaining shareholders); or
the total number of shares of non-controlling shareholders voted against the election of the outside directors
does not exceed two percent of the aggregate voting rights in the company.
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The initial term of an outside director is three years and may be extended for up to two additional three-year terms.
Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each only if the internal
audit committee and the Board of Directors confirm that, in light of the outside director’s expertise and special contribution to
the work of the Board of Directors and its committees, the reelection for such additional period is beneficial to the company.
Reelection of an outside director may be effected through one of the following mechanisms: (1) the Board of Directors
proposed the reelection of the nominee and the election was approved by the shareholders in the same manner required to
appoint outside directors for their initial term; or (2) one or more shareholders holding one percent or more of a company’s
voting rights or the outside director proposed the reelection of the nominee, and the reelection is approved by a majority of
the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a
personal interest in the matter as a result of their relations with the controlling shareholders, provided that the aggregate votes
cast in favor of the reelection by such non-excluded shareholders constitute more than two percent of the voting rights in the
company. An outside director may be removed only in a general meeting, by the same percentage of shareholders as is
required for electing an outside director, or by a court, and in both cases only if the outside director ceases to meet the
statutory qualifications for appointment or if he or she has violated the duty of loyalty to us. Unless we actually adopt the
applicable relief provided under the 2016 Relief Amendments, each committee of the Company’s Board of Directors which is
empowered to exercise any of the Board’s powers is required to include at least one outside director, provided that each of the
internal audit committee and compensation committee must include all of the outside directors. At this time, our Board of
Directors has not made an election to opt out of such requirements.
An outside director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law
and is otherwise prohibited from receiving any other compensation, directly or indirectly, from the company. In accordance
with such regulations, our shareholders approved that our outside directors are to receive compensation equal to that paid to
the other members of the Board of Directors. For further information, please see Item 6, “Directors, Senior Management and
Employees—Compensation” in this annual report.
Financial and Accounting Expertise
Pursuant to the Israeli Companies Law, our Board of Directors has determined that at least one member of our Board
of Directors must be an “accounting and financial expert.” The Israeli Companies Law requires that all outside directors must
be “professionally qualified.” Under applicable NASDAQ rules, each member of our audit committee must be financially
literate and at least one of the members must have experience or background that results in such member’s financial
sophistication. Our Board of Directors has determined that each of Dan Falk and Yocheved Dvir is an “accounting and
financial expert” for purposes of the Israeli Companies Law and is financially sophisticated for purposes of applicable
NASDAQ rules. See also Item 16A, “Audit Committee Financial Expert” in this annual report.
Independent Directors
Under the rules of the NASDAQ, a majority of our directors are required to be “independent” as defined in
applicable NASDAQ rules. All of our directors satisfy the respective independence requirements of NASDAQ.
In addition, our Articles of Association provide that, if we do not have a shareholder that holds 25% or more of our
issued and outstanding share capital, a majority of the directors must be "independent" as defined in the Israeli Companies
Law and the regulations promulgated thereunder. If we have a shareholder that holds 25% or more of our issued and
outstanding share capital, then at least one third of the directors must be "independent." All of our directors satisfy the
respective independence requirements of the Israeli Companies Law. The qualifications for independent directors under the
Israeli Companies Law are similar to those for outside directors, as described above under “Outside Directors”, including the
nine-year term limit and the ability to extend such term beyond nine years upon the approval of our internal audit committee
and Board of Directors.
Internal Audit Committee
The Israeli Companies Law requires public companies to appoint an internal audit committee. The role of the
internal audit committee under the Israeli Companies Law is to examine flaws in the management of the company’s business
in consultation with the internal auditors and the independent accountants, and to propose remedial measures to the Board.
The internal audit committee also reviews interested party transactions for approval as required by law, including approval of
the remuneration of a director in any capacity, which also requires Board, compensation committee and shareholder approval.
The internal audit committee also assesses our internal audit system and the performance of our internal auditor and oversees
73
the implementation and enforcement of our compliance program. Under the Israeli Companies Law, an internal audit
committee must consist of at least three directors, including all of the outside directors. The members of the internal audit
committee must satisfy certain independence standards under the Israeli Companies Law, and the chairman of the internal
audit committee must be an outside director. The following may not serve as members of the internal audit committee: the
chairman of the Board of Directors, any director employed by the company or by its controlling shareholder or by an entity
controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling
shareholder, any director who derives most of its income from the controlling shareholder and a controlling shareholder or
any relative of a controlling shareholder. Pursuant to the 2016 Relief Amendments, the Company may elect to opt out of the
composition and attendance rules set with respect to the internal audit committee under the Israeli Companies Law, so long as
the company complies with the SEC regulations and NASDAQ listing rules regarding the composition and attendance rules
in that respect. At this time, our Board of Directors has not made an election to opt out of such requirements.
All of the current members of our internal audit committee (presently comprised of Yocheved Dvir (Chairman), Dan
Falk and Zehava Simon) meet these qualifications.
Internal Auditor
Under the Israeli Companies Law, the Board of Directors must appoint an internal auditor, proposed by the internal
audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s activities
comply with the law and orderly business procedures. Under the Israeli Companies Law, the internal auditor may be an
employee of the company but may not be an interested party or office holder, or a relative of any interested party or office
holder and may not be a member of the company’s independent accounting firm or its representative. We have appointed an
internal auditor in accordance with the requirements of the Israeli Companies Law.
Audit Committee
The NASDAQ rules require that the audit committee of a listed company be composed of at least three directors,
each of whom is (i) independent; (ii) does not receive any compensation (except for board fees) from the company; (iii) is not
an affiliated person of the company or any subsidiary; and (iv) has not participated in the preparation of the company’s (or a
current subsidiary’s) financial statements during the past three years. All of the current members of our audit committee
(presently comprised of Rimon Ben-Shaoul (Chairman), David Kostman, Dan Falk, Yocheved Dvir and Zehava Simon) meet
the NASDAQ standards described above.
Our audit committee has adopted a charter specifying the committee’s purpose and outlining its duties and
responsibilities which include, among other things, (i) appointing, retaining and compensating the company’s independent
auditor, subject to Board of Directors and shareholder approval, (ii) pre-approving all services of the independent auditor, (iii)
reviewing the annual audited financial statements and quarterly financial statements and the content of our earnings press
releases, and (iv) overseeing our accounting and financial reporting processes and the audits of our financial statements. Our
audit committee is also authorized to act as our “qualified legal compliance committee.” As such, our audit committee will be
responsible for investigating reports made by attorneys appearing and practicing before the SEC in representing us, of
perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar material violations
of U.S. law by us or any of our agents.
We believe we currently meet the applicable NASDAQ requirements with respect to our Audit Committee and we
intend to continue to take all actions as may be necessary for us to maintain our compliance with applicable NASDAQ
requirements with respect to our Audit Committee.
Compensation Committee
As required by NASDAQ rules, our compensation committee approves the compensation of our executive officers.
The compensation committee is also authorized to approve the grant of stock options and other securities to eligible grantees
under our benefit plans pursuant to guidelines adopted by our Board of Directors. However, grants of stock options and other
securities to our executive officers also require approval of our Board of Directors. Under the Israeli Companies Law, the
Board of Directors of a public company must establish a compensation committee. Pursuant to the 2016 Relief Amendments,
the Company may elect to opt out of the relevant composition and attendance rules set under the Israeli Companies Law, and
to comply with the SEC regulations and NASDAQ listing rules that apply to the composition and attendance rules of a
compensation committee. At this time, our Board of Directors has not made an election to opt out of such requirements and
74
we have continued to comply with the Israeli Companies Law with respect to the composition and attendance rules of a
compensation committee, as our compensation committee consists of at least three directors who satisfy the independence
qualifications detailed above in “Internal Audit Committee”, and the chairman of the compensation committee is an outside
director.
Under the Israeli Companies Law, the role of the compensation committee is to recommend to the Board of
Directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders
based on specified criteria,
to review its
implementation and to approve the actual compensation terms of office holders prior to the approval thereof by the Board of
Directors.
to review modifications to the Compensation Policy from time to time,
Pursuant to the NASDAQ rules, our compensation committee is required to consist of at least two members, with all
members of the compensation committee required to be independent, unless we elect to take advantage of the exemption
provided to foreign private issuers to comply with home country practice instead of the listing rules of exchanges such as
NASDAQ, which we do not presently intend to do. The determination of whether a director is independent takes into account
all factors relevant to whether a director has a relationship with the Company which would be material to such director’s
ability to be independent from management in connection with carrying out the duties of a compensation committee member.
Factors required for consideration in making this determination specifically include (i) the source of compensation of such
director (including any consulting, advisory or other compensatory fee paid to such director) and (ii) whether such director is
affiliated with the Company or one of its affiliates or subsidiaries. Pursuant to the NASDAQ rules, we are also required to
have a compensation committee charter, which, among other things, must set forth the scope of the compensation
committee’s responsibilities and how they will be carried out, as well as grant the compensation committee the power to
retain compensation advisers following consideration of certain factors that may be indicative of a conflict of interest by the
compensation adviser in rendering compensation advice.
Our Board of Directors adopted a compensation committee charter that includes the requirements of the NASDAQ
rules. However, the charter provides that if there is any conflict between the responsibilities and requirements set forth therein
and either the Israeli Companies Law or the Compensation Policy, the latter will govern. For information regarding the
Compensation Policy, see Item 10, “Additional Information – Memorandum and Articles of Association – Approval of Office
Holder Compensation” in this annual report.
We do not believe that there are any existing conflicts between the compensation committee charter and either of the
Israeli Companies Law or the Compensation Policy. However, if any such conflict should develop, such that we are no longer
in compliance with the requirements of the NASDAQ rules, we intend to utilize the foreign private issuer exemption
described above with respect to such requirement, and in accordance with the NASDAQ rules we will disclose the practice
that we follow in lieu of the applicable NASDAQ requirement in our future annual reports.
All of the current members of the compensation committee, Dan Falk (chairman), Yocheved Dvir, Joe Cowan, Leo
Apotheker and Zehava Simon, satisfy the respective independence requirements of both the NASDAQ rules and the Israeli
Companies Law.
Nominations Committee
As required by NASDAQ rules, our nominations committee recommends candidates for election to our Board of
Directors pursuant to a written charter. Both of the current members of this committee, David Kostman and Dan Falk, are
independent directors.
Mergers and Acquisitions Committee
Our Board of Directors has delegated powers with respect to the review and recommendation of mergers and
acquisitions and related investments and transactions, which are then subject to approval by the Board of Directors. The
committee also has limited authority to approve mergers and acquisitions for consideration up to a certain amount. All of the
current members of this committee, David Kostman (chairman), Dan Falk, Rimon Ben Shaoul, Yehoshua Ehrlich, Leo
Apotheker and Joe Cowan, are independent directors.
75
Employees
As of December 31, 2019, we had 5,996 employees worldwide, which represented an increase of approximately
8.9% from December 31, 2018.
The following table sets forth the number of our full-time employees at the end of each of the last three fiscal years
as well as the main category of activity and geographic location of such employees:
Category of Activity
Customer Support*
Sales & Marketing
Research & Development
General & Administrative
Total
Geographic Location
Israel
Americas
Europe
Asia Pacific
Total
2017
2,095
1,169
1,396
548
5,208
913
2,557
510
1,228
5,208
At December 31,
2018
2,196
1,210
1,482
616
5,504
856
2,649
512
1,487
5,504
2019
2,344
1,294
1,695
663
5,996
864
2,751
531
1,850
5,996
*
Including the number of employees designated under "Operations" in previous reports.
We also utilize temporary employees in various activities. On average, we employed 63 temporary employees and
obtained services from 1,027 consultants (not included in the numbers set forth above) during 2019.
Our future success will depend in part upon our ability to attract and retain highly skilled and qualified personnel.
Although competition for such personnel is generally intense, we believe that adequate personnel resources are currently
available to meet our requirements.
In almost all jurisdictions, we are not a party to any collective bargaining agreement with our employees or with any
labor organization. However, we are subject to certain labor related statutes and certain provisions of collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the Coordinating Bureau of Economic
Organizations (including the Industrialists’ Association of Israel) that apply to our Israeli employees by order of the Israeli
Ministry of Labor and Welfare. These statutes and provisions principally deal with the length of the work day and the work
week, minimum wages, insurance coverage of work-related accidents, determination of severance pay and the provisions of
other employment matters. Israeli law generally requires the payment of severance pay by employers upon an employee’s
death, retirement or termination of employment by the employer without due cause. We currently fund our ongoing severance
payment obligations in Israel by making monthly payments to approved severance funds or insurance policies. For more
information please see Note 2p of our consolidated financial statements. In addition, according to the National Insurance
Law, Israeli employers and employees are required to pay predetermined sums to the National Insurance Institute, an
organization similar to the U.S. Social Security Administration. These contributions entitle the employees to benefits in
periods of unemployment, work injury, maternity leave, disability, reserve military service and bankruptcy or winding-up of
the employer. Since January 1, 1995 these contributions also include payments for national health insurance. The payments to
the National Insurance Institute are equal to approximately 14.6% of an employee’s salary (up to a certain cap as determined
from time to time by the law), of which the employee contributes approximately 6.6% and the employer contributes
approximately 8.0%.
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In addition, we pay severance benefits to our employees located elsewhere in accordance with local laws and
practices of the countries in which they are employed, including our U.S. based employees pursuant to the U.S. Federal
Department labor legislation and requirements and local state regulations.
Employment Agreements
We have employment agreements with our officers. Pursuant to these employment agreements, each party may
terminate the employment without cause by giving a 30, 60 or 90 day prior written notice (six to twelve months in case of
certain senior officers). In addition, we may terminate such agreement for cause with no prior notice. The agreements
generally include non-competition and non-disclosure provisions, although the enforceability of non-competition provisions
in employment agreements may be limited under applicable law.
Share Ownership
As of March 17, 2020, our directors and executive officers then-serving beneficially owned options to purchase an
aggregate of 278,317 ordinary shares that were vested on such date or that are scheduled to vest within 60 days thereafter, or
approximately 0.44% of our outstanding ordinary shares. The options have an average exercise price of $58.82 per share and
expire between 2020 and 2027. No individual director or executive officer beneficially owns 1% or more of our outstanding
ordinary shares.
The following is a description of each of our option equity plans under which awards were outstanding during 2019.
2008 Share Incentive Plan and 2016 Share Incentive Plan
In June 2008 the Company adopted the 2008 Share Incentive Plan (the “2008 Plan”) and in February 2016 the
Company adopted the 2016 Share Incentive Plan (the “2016 Plan”, and together with the 2008 Plan, the “Plans”). The
Company adopted the Plans to provide incentives to employees, directors, consultants and/or contractors by rewarding
performance and encouraging behavior that will improve the Company’s profitability.
Under each of the Plans, the Company's employees, directors, consultants and/or contractors may be granted any
equity-related award, including: any type of an option to acquire the Company ordinary shares; share appreciation right; share
and/or restricted share award (“RSA”); restricted stock unit (“RSU”) and/or other share unit; and/or other share-based award
and/or other right or benefit under the Plans, including any such equity-related award that is a performance based award (each
an “Award”). In regard to the 2008 Plan, please see the discussion below regarding performance-based awards beginning
calendar year 2014.
Generally, under the terms of the Plans, unless determined otherwise by the administrator of the Plans, 25% of an
Award granted becomes exercisable on the first anniversary of the date of grant and 6.25% becomes exercisable once every
quarter during the subsequent three years. Specifically with respect to RSUs and options granted with an exercise price equal
to the nominal value of an ordinary share (“par value options”), unless determined otherwise by the Board of Directors, 25%
of the RSUs and the par value options granted become vested on each of the four consecutive annual anniversaries following
the date of grant. Certain executive officers are entitled to acceleration of vesting of Awards in the event of a change of
control, subject to certain conditions. Awards with a vesting period expire six years after the date of grant. Pursuant to a
resolution of the Company's Board of Directors dated February 4, 2014, options that are performance-based and that were
granted during calendar year 2014 and thereafter shall expire seven years following the date of grant. The maximum number
of shares that may be subject to Awards granted under each of the Plans is calculated each calendar year as 3% of the
Company’s issued and outstanding share capital as of December 31 of the preceding calendar year (pursuant to an
amendment of the 2016 Plan approved by the Board of Directors on October 2, 2019). Such amount is reset for each calendar
year. Awards are non-transferable except by will or the laws of descent and distribution.
Following an amendment made in December 2010 to the 2008 Plan and also applied under the 2016 Plan (the “2010
Amendment”), options granted under such plan are granted at an exercise price equal to the average of the closing prices of
one ADR as quoted on the NASDAQ market during the 30 consecutive calendar days preceding the date of grant, unless
determined otherwise by the administrator of the Plans (including par value options in some cases).
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Prior to the 2010 Amendment, the options were granted at an exercise price of not less than the fair market value of
the ordinary shares on the date of the grant, subject to certain exceptions that could be approved by the Company's Board of
Directors, including in some cases par value options.
The Company’s Board of Directors also adopted an addendum to the Plans for Awards granted to residents of Israel
(the "Addendum") and resolved to elect the "Capital Gains Route" (as defined in Section 102(b)(2)) of the Israeli Income Tax
Ordinance-5721-1961 (“Tax Ordinance”) for the grant of Awards to Israeli grantees. There is also a U.S. addendum under
each of the Plans that applies to non-qualified stock options for purposes of U.S. tax laws.
The Plans are generally administered by our Board of Directors and compensation committee, which determine the
grantees under the Plan and the number of Awards to be granted. As of March 17, 2020, options and restricted share units to
purchase 68,220 ordinary shares were outstanding under the 2008 Plan at a weighted average exercise price of $23.49. As of
March 17, 2020, options and restricted share units to purchase 2,539,961 ordinary shares were outstanding under the 2016
Plan at a weighted average exercise price of $8.29.
Nexidia Inc. 2005 Stock Incentive Plan
In 2005, Nexidia adopted the Nexidia Inc. 2005 Stock Incentive Plan (the “Nexidia Plan”), to attract and retain
Nexidia’s employees, directors, consultants and advisors and to align the interests of such recipients with the interests of
Nexidia’s shareholders. Under the Nexidia Plan, the grantees can receive incentive and non-qualified options to acquire
shares of Nexidia’s common stock, restricted stock awards, restricted stock units and stock appreciation rights.
Pursuant to the terms of the Nexidia acquisition agreement, we assumed and converted Nexidia’s stock options and
restricted stock units originally granted under the Nexidia Plan into stock options and restricted stock units of NICE,
respectively.
As of March 17, assumed Nexidia options to purchase 4,833 shares of NICE were outstanding under the Nexidia
Plan, at a weighted average exercise price of $4.07. We have registered, through the filing of a registration statement on Form
S-8 with the SEC under the Securities Act, 173,860 ordinary shares for issuance under the Nexidia Plan.
inContact, Inc. 2008 Equity Incentive Plan
In 2008, inContact adopted the inContact, Inc. 2008 Equity Incentive Plan, as subsequently amended in June 14,
2012 (as amended, the “inContact Plan”) to enhance inContact’s ability to attract and retain those employees, officers,
directors and consultants who are expected to make important contributions to inContact and any of its subsidiaries and to
align the interests of such recipients with the interests of inContact’s shareholders. Under the inContact Plan, the grantees can
receive incentive and non-qualified options to acquire shares of inContact’s common stock and can receive stock appreciation
rights.
Pursuant to the terms of the inContact Merger Agreement, we assumed and converted inContact’s stock options,
restricted stock awards and restricted stock units originally granted under the inContact Plan into stock options, restricted
stock awards and restricted stock units of NICE, respectively.
As of March 17, 2020, assumed inContact options and restricted share units to purchase 16,676 shares of NICE
were outstanding under the inContact Plan, at a weighted average exercise price of $31.83. We have registered, through the
filing of a registration statement on Form S-8 with the SEC under the Securities Act, 476,114 ordinary shares for issuance
under the inContact Plan.
Mattersight Corporation, 1999 Stock Incentive Plan
In 1999, Mattersight adopted the Mattersight Corporation 1999 Stock Incentive Plan, as amended in June 14, 2012
(the “Mattersight Plan”) to enhance Mattersight’s ability to attract and retain directors (including Non-Employee Directors),
officers, other key employees, consultants, independent contractors by motivating such persons to act in the long-term best
interests of the company’s stockholders.
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Pursuant to the terms of the Mattersight Agreement and Plan of Merger, we assumed and converted Mattersight
restricted stock awards units originally granted under the Mattersight Plan into restricted share awards of NICE under the
Mattersight Plan.
As of March 17, 2020, assumed Mattersight restricted share awards to purchase 2,123 shares of NICE were
outstanding under the Mattersight Plan. The exercise price per share underlying the restricted share awards is equal to the
nominal value of an ordinary share. We have registered, through the filing of a registration statement on Form S-8 with the
SEC under the Securities Act, 13,242 ordinary shares for issuance under the Mattersight Plan.
e-Glue Software Technologies Inc., 2004 Stock Option Plan
In 2004, e-Glue adopted the 2004 Stock Option Plan, as subsequently amended on June 9, 2010 (the “2004 e-Glue
Plan”), for the grant of awards to employees, directors and service providers of e-Glue and its subsidiaries.
Pursuant to the terms of the e-Glue acquisition agreement, we assumed and converted the outstanding stock options
and restricted share units granted by e-Glue under the 2004 e-Glue Plan that did not expire upon closing of the e-Glue
acquisition into stock options to purchase ordinary shares of NICE and restricted share units of NICE, respectively.
As of March 17, 2020, assumed e-Glue Options to purchase 350 ordinary shares of NICE were outstanding under
the 2004 e-Glue Plan. The exercise price per share underlying the options and restricted share units is equal to the nominal
value of an ordinary share. We have registered, through the filing of a registration statement on Form S-8 with the SEC under
the Securities Act, 76,035 ADRs for issuance under the 2004 e-Glue Plan.
Merced Systems, Inc. 2001 Stock Plan and Merced Systems, Inc. 2011 Stock Plan
In each of 2001 and 2011, Merced adopted the Merced Systems, Inc. 2001 Stock Plan, as amended (the "2001
Merced Plan") and the Merced Systems, Inc. 2011 Stock Plan (the "2011 Merced Plan"), respectively, to afford an incentive
to employees and consultants of Merced and to promote the success of Merced’s business.
Pursuant to the terms of the Merced acquisition agreement, we assumed and converted (i) options and restricted
shares originally granted under the 2001 Merced Plan into stock options to purchase ordinary shares of NICE and restricted
shares of NICE, respectively, and (ii) options and restricted share units originally granted under the 2011 Merced Plan into
stock options to purchase ordinary shares of NICE and restricted share units of NICE, respectively.
As of March 17, 2020, assumed Merced options to purchase 481 ordinary shares of NICE were outstanding under
the 2001 Merced Plan and the 2011 Merced Plan, at a weighted average exercise price of $12.35. We have registered, through
the filing of a registration statement on Form S-8 with the SEC under the Securities Act, 343,288 ordinary shares for issuance
under the 2001 Merced Plan and the 2011 Merced Plan.
Item 7.
Major Shareholders and Related Party Transactions
Major Shareholders
The following table sets forth certain information with respect to the beneficial ownership of our ordinary shares,
with respect to each person known to us to be the beneficial owner of 5% or more of our outstanding ordinary shares,
reported as of March 17, 2020. None of our shareholders has any different voting rights than any other shareholder.
Janus Henderson Group plc and Janus Henderson Enterprise Funds
201 Bishopsgate EC2M 3AE United Kingdom
Name and Address
Number of
Shares
Percent of
Shares
Beneficially
Owned (1)
4,894,021 (2)
7.8 %
_______________
(1)
Based upon 62,580,513 ordinary shares issued and outstanding as of March 17, 2020.
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(2)
Janus Henderson Group plc reported that these shares are held by managed portfolios. This information is based
upon a Schedule 13G/A filed by Janus Henderson Group plc with the SEC on February 13, 2020.
As of March 17, 2020, we had 48 registered ADS holders of record in the United States, with our ADS holders
holding in total approximately 54% of our outstanding ordinary shares, as reported by JPMorgan Chase Bank, N.A., the
depositary for our ADSs.
To our knowledge, we are not directly or indirectly owned or controlled by another corporation or by any foreign
government and there are no arrangements that might result in a change in control of our company.
Related Party Transactions
None.
Item 8.
Financial Information.
Consolidated Statements and Other Financial Information
See Item 18, “Financial Statements” in this annual report.
Legal Proceedings
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the
ordinary course of our business. While the outcome of these matters cannot be predicted with certainty, we do not believe
they will have a material effect on our consolidated financial position, results of operations, or cash flows.
We are not involved in any legal proceedings that we believe, individually or in the aggregate, will have a material
adverse effect on our business, financial condition or results of operation.
Dividends
We do not have any plans at this time to make any future dividend payments. Payment of future dividends, if any,
will be at the discretion of our Board of Directors and will depend on various factors, such as our statutory profits, financial
condition, operating results and current and anticipated cash needs. In the event cash dividends are declared by us, we may
decide to pay such dividends in Israeli currency. Under current Israeli regulations, any cash dividend in Israeli currency paid
in respect of ordinary shares purchased by non-residents of Israel with non-Israeli currency may be freely repatriated in such
non-Israeli currency, at the rate of exchange prevailing at the time of conversion. For more information regarding the taxation
implications of the dividend plan, see “Item 10 - Additional Information - Taxation” of this annual report.
Significant Changes
There are no significant changes that occurred since December 31, 2019, except as otherwise disclosed in this
annual report and in the annual consolidated financial statements included in this annual report.
Item 9.
The Offer and Listing.
Trading in the ADSs
Our ADSs have been quoted on the NASDAQ Stock Market under the symbol “NICEV” from our initial public
offering in January 1996 until April 7, 1999, and thereafter under the symbol “NICE.” Prior to that time, there was no public
market for our ordinary shares in the United States. Each ADS represents one ordinary share.
JPMorgan Chase Bank, N.A. is the depositary for our ADSs. Its address is 4 New York Plaza, Floor 12, New York,
New York 10004.
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Trading in the Ordinary Shares
Our ordinary shares have been listed on the Tel-Aviv Stock Exchange, or TASE, since 1991 under the symbol
“NICE.TA”. Our ordinary shares are not listed on any other stock exchange and have not been publicly traded outside Israel
(other than through ADSs, as noted above).
Item 10.
Additional Information.
Memorandum and Articles of Association
Organization and Register
We are a company limited by shares organized in the State of Israel under the Israeli Companies Law. We are
registered with the Registrar of Companies of the State of Israel and have the company number 52-0036872.
Objectives and Purposes
Our objectives and purposes include a wide variety of business purposes,
including all kinds of research,
development, manufacture, distribution, service and maintenance of products in all fields of technology and engineering and
to engage in any other kind of business or commercial activity. Our objectives and purposes are set forth in detail in Section 2
of our memorandum of association.
Directors
Our articles of association provide that the number of directors serving on the Board shall be not less than three but
shall not exceed thirteen. As discussed above in Item 6, “Directors, Senior Management and Employees – Board Practices –
Outside Directors,” in December 2016, our shareholders approved amendments to our articles of association, pursuant to
which our Board of Directors may elect to opt out of such requirements and we would not be required to have outside
directors serve on our Board of Directors. Our directors, other than outside directors, are elected at the annual shareholders
meeting to serve until the next annual meeting or until their earlier death, resignation, bankruptcy, incapacity or removal by
resolution of the general shareholders meeting. Directors may be re-elected at each annual shareholders’ meeting. The Board
may appoint additional directors (whether to fill a vacancy or create new directorship) to serve until the next annual
shareholders meeting, provided, however, that the Board shall have no obligation to fill any vacancy unless the number of
directors is less than three. Our officers serve at the discretion of the Board.
The Board of Directors may meet and adjourn its meetings according to the Company’s needs but must meet at least
once every three months. A meeting of the Board may be called at the request of any two directors. The quorum required for
a meeting of the Board consists of a majority of directors who are lawfully entitled to participate in the meeting and vote
thereon. The adoption of a resolution by the Board requires approval by a simple majority of the directors present at a
meeting in which such resolution is proposed. In lieu of a Board meeting, a resolution may be adopted if all of the directors
lawfully entitled to vote thereon consent not to convene a meeting.
Subject to the Israeli Companies law, the Board may appoint a committee of the Board and delegate to such
committee all or any of the powers of the Board, as it deems appropriate. Under the Israeli Companies Law, the Board of
Directors must appoint an internal audit committee comprised of at least three directors. The function of the internal audit
committee is to review irregularities in the management of the Company’s business and recommend remedial measures. The
committee is also required, under the Israeli Companies Law, to approve certain related party transactions and to assess our
internal audit system and the performance of our internal auditor. Notwithstanding the foregoing, the Board may, at any time,
amend, restate or cancel the delegation of any of its powers to any of its committees. The Board has appointed an internal
audit committee which has three members, an audit committee which has five members, a compensation committee which
has five members, a nominations committee which has two members and a mergers and acquisitions committee which has six
members. For more information on the Company’s committees, please see Item 6, “Directors, Senior Management and
Employees—Board Practices” in this annual report.
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Fiduciary Duties of Officers
The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive
officers, owe to a company. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of
loyalty includes avoiding any conflict of interest between the office holder’s position in the company and his personal affairs,
avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive
personal advantage for himself or others, and revealing to the company any information or documents relating to the
company’s affairs which the office holder has received due to his position as an office holder.
Approval of Certain Transactions
The Israeli Companies Law requires that an office holder of a company promptly disclose any personal interest that
he or she may have and all related material information known to him or her, in connection with any existing or proposed
transaction by the company. In addition, if the transaction is an extraordinary transaction as defined under Israeli law, the
office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents,
descendants, spouse’s descendants and the spouses of any of the foregoing. In addition, the office holder must also disclose
any interest held by any corporation in which the office holder is a 5% or greater shareholder, director or general manager or
in which he or she has the right to appoint at least one director or the general manager. An extraordinary transaction is
defined as a transaction not in the ordinary course of business, not on market terms, or that is likely to have a material impact
on the company’s profitability, assets or liabilities.
In the case of a transaction which is not an extraordinary transaction, after the office holder complies with the above
disclosure requirement, only Board approval is required unless the articles of association of the company provide otherwise.
The transaction must not be adverse to the company’s interest. Furthermore, if the transaction is an extraordinary transaction,
then, in addition to any approval stipulated by the articles of association, it also must be approved by the company’s internal
audit committee and then by the Board of Directors, and, under certain circumstances, by a meeting of the shareholders of the
company. An office holder who has a personal interest in a transaction that is considered at a meeting of the Board of
Directors or the internal audit committee generally may not be present at the deliberations or vote on this matter, unless the
chairman of the Board or chairman of the internal audit committee, as the case may be, determined that the presence of such
person is necessary to present the transaction to the meeting. If a majority of the directors have a personal interest in an
extraordinary transaction with the company, shareholder approval of the transaction is required.
It is the responsibility of the audit committee to determine whether or not a transaction should be deemed an
extraordinary transaction. In addition, as a result of a recent amendment to the Israeli Companies Law, the audit committee
must also establish (i) procedures for the consideration of any transaction with a controlling shareholder, even if it is not
extraordinary, such as a competitive process with third parties or negotiation by independent directors, and (ii) approval
requirements for controlling shareholder transactions that are not negligible.
The Israeli Companies Law applies the same disclosure requirements to a controlling shareholder of a public
company, which includes a shareholder that holds 25% or more of the voting rights if no other shareholder owns more than
50% of the voting rights in the company. Extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, and the terms of management fees of a controlling shareholder or compensation of a
controlling shareholder who is an office holder, require the approval of the audit committee, the Board of Directors and the
shareholders of the company by simple majority; provided that either such majority vote must include at least a simple
majority of the shareholders who have no personal interest in the transaction and are present at the meeting (without taking
into account the votes of the abstaining shareholders), or that the total shareholdings of those who have no personal interest in
the transaction who vote against the transaction represent no more than two percent of the voting rights in the company. Any
such extraordinary transaction whose term is longer than three years requires further shareholder approval every three years,
unless (with respect to transactions not involving management fees or employment terms) the internal audit committee
approves that a longer term is reasonable under the circumstances.
In addition, under the Israeli Companies Law, a private placement of securities requires approval by the Board of
Directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:
•
the securities issued amount to 20% or more of the company’s outstanding voting rights before the
issuance;
82
•
•
some or all of the consideration is other than cash or listed securities or the transaction is not on market
terms; and
the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s
outstanding share capital or voting rights or that will cause any person to become, as a result of the
issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.
According to the Company’s articles of association, certain resolutions, such as resolutions regarding mergers and
windings up, require approval of the holders of 75% of the shares represented at the meeting and voting thereon.
Approval of Office Holder Compensation
interest
Under the Israeli Companies Law, we are required to adopt a compensation policy, recommended by the
compensation committee, and approved by the Board of Directors and the shareholders, in that order, at least once every three
years. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder
and those who have a personal
in the matter (similar to the threshold described above). Following the
recommendation of our compensation committee and approval by our Board of Directors, our shareholders approved such
Compensation Policy at our 2013 annual general meeting of shareholders. The Compensation Policy was thereafter re-
approved and amended at our 2015 annual general meeting and 2016 special meeting of shareholders, in each case following
the recommendation of our compensation committee and approval by our Board of Directors. The re-approval and
amendment of the Compensation Policy was considered and voted on at our 2018 annual general meeting of shareholder held
on May 14, 2018, however we did not obtain the requisite majority for the re-approval. On June 4, 2018, our Board of
Directors, based on the recommendation of our compensation committee, concluded, following consideration of shareholder
votes and re-examination of the Compensation Policy, that the re-approval of the Compensation Policy is for the benefit of
the Company, and based on a detailed analysis and as permitted under the Companies Law, resolved to re-approve the
Compensation Policy as was previously approved by our shareholders and in the form approved in the 2016 special meeting,
without the amendments rejected by our shareholders at the 2018 annual general meeting of shareholders. At our 2019 annual
general meeting, and following the recommendation of our compensation committee and approval by our Board of Director,
our shareholders approved an amendment to the Compensation Policy. In general, all office holders’ terms of compensation –
including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability
insurance and the grant of an exemption from liability - must comply with the Company's Compensation Policy. Although
NASDAQ rules generally require shareholder approval when an equity based compensation plan is established or materially
amended, as a foreign company we follow the aforementioned requirements of the Israeli Companies Law.
In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider
who is considered a controlling shareholder generally must be approved separately by the compensation committee, the
Board of Directors and the shareholders of the company, in that order. Notwithstanding, a company's compensation
committee and board of directors are permitted to approve the compensation terms of a chief executive officer or of a
director, without convening a general meeting of shareholders, provided however, that such terms: (1) are not more beneficial
than such officer’s former terms or than the terms of his predecessor, or are essentially the same in their effect; (2) are in line
with the Compensation Policy; and (3) are brought for shareholder approval at the next general meeting of shareholders.
The compensation terms of other officers require the approval of the compensation committee and the Board of
Directors. An amendment of existing compensation terms of an office holder who is not a director, if the compensation
committee determines that the amendment is not material, requires the approval of the compensation committee only.
Pursuant to regulations promulgated under the Israeli Companies Law, an amendment of the existing compensation terms of
office holders who are subordinate to the chief executive officer, if the amendment is not material and the changes are in line
with the existing Compensation Policy, requires only the chief executive officer’s approval. In accordance with such
amendment, on December 21, 2016, our shareholders approved an amendment to the Compensation Policy, which provided
our Chief Executive Officer the authority to approve non-material changes to the compensation terms of office holders
subordinated to him, without seeking the approval of the compensation committee.
The Compensation Policy sets forth the guidelines for the compensation of our office holders. It is tailored to ensure
a compensation which balances performance targets and time horizons through rewarding business results and long-term
performance. The Compensation Policy requires that compensation of our officer holders include a mix of fixed amounts
(such as annual based salaries), variable performance-based components (such as performance-based cash incentive
compensation), and long term incentive components (such as long-term equity based compensation, including performance
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based equity). Pursuant to the Compensation Policy, performance-based compensation granted may be based on our overall
performance, the particular unit performance, individual performance and the results of the customer satisfaction survey
conducted annually. Our Compensation Policy includes applicable clawback provisions.
Duties of Shareholders
Under the Israeli Companies Law, a shareholder has a duty to act in good faith towards the company and other
shareholders and to refrain from abusing his or her power in the company including, among other things, voting in a general
meeting of shareholders on the following matters:
•
•
•
•
any amendment to the articles of association;
an increase of the company’s authorized share capital;
a merger; or
approval of interested party transactions which require shareholder approval.
In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the
outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles of association, has
the power to appoint or prevent the appointment of an office holder in the company, is under a duty to act with fairness
towards the company. The Israeli Companies Law does not describe the substance of this duty but provides that a breach of
his duty is tantamount to a breach of fiduciary duty of an officer of the company.
Exemption, Insurance and Indemnification of Directors and Officers
We provide our directors and officers with indemnification letters whereby we agree to indemnify them to the fullest
extent permitted by law. On September 19, 2011, at our 2011 annual general meeting of shareholders, after the approval of
the audit committee and the Board, our shareholders approved a modified form of indemnification letter to ensure that our
directors are afforded protection to the fullest extent permitted by law.
Exemption of Office Holders
Under the Israeli Companies Law, an Israeli company may not exempt an office holder from liability for breach of
his duty of loyalty but may exempt in advance an office holder from liability to the company, in whole or in part, for a breach
of his duty of care (except in connection with distributions), provided the articles of association of the company allow it to do
so. Our articles of association do not allow us to do so.
Office Holder Insurance
Our articles of association provide that, subject to the provisions of the Israeli Companies Law, including the receipt
of all approvals as required therein or under any applicable law, we may enter into an agreement to insure an office holder for
any responsibility or liability that may be imposed on such office holder in connection with an act performed by such office
holder in such office holder's capacity as an office holder of us with respect to each of the following:
•
•
•
•
a violation of his duty of care to us or to another person;
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable
grounds to assume that his act would not prejudice our interests;
a financial obligation imposed upon him for the benefit of another person;
a payment which the office holder is obligated to make to an injured party as set forth in Section 52(54)(a)
(1)(a) of the Israeli Securities Law, 5728-1968, as amended (the "Securities Law") and Litigation Expenses
(as defined below) that the office holder incurred in connection with a proceeding under Chapters H'3, H'4
or I'1 of the Securities Law; and
84
•
any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder.
Indemnification of Office Holders
Our articles of association provide that, subject to the provisions of the Israeli Companies Law, including the receipt
of all approvals as required therein or under any applicable law we may indemnify an office holder with respect to any
liability or expense for which indemnification may be provided under the Companies Law, including the following liabilities
and expenses, provided that such liabilities or expenses were imposed upon or incurred by such office holder in such office
holder's capacity as an office holder of us:
•
•
•
•
•
•
a monetary liability imposed on or incurred by an office holder pursuant to a judgment in favor of another
person, including a judgment imposed on such office holder in a settlement or in an arbitration decision that
was approved by a court of law;
reasonable Litigation Expenses, expended by the office holder as a result of an investigation or proceeding
instituted against him by a competent authority, provided that such investigation or proceeding concluded
without the filing of an indictment against him and either (A) concluded without the imposition of any
financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial
liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of
criminal intent (mens rea) or in connection with a financial sanction;
“conclusion of a proceeding without filing an indictment” in a matter in which a criminal investigation has
been instigated and “financial liability in lieu of a criminal proceeding,” have the meaning ascribed to them
under the Israeli Companies Law. The term “Litigation Expenses” shall include, without limitation,
attorneys’ fees and all other costs, expenses and obligations paid or incurred by an office holder in
connection with investigating, defending, being a witness or participating in (including on appeal), or
preparing to defend, be a witness or participate in any claim or proceeding relating to any matter for which
indemnification may be provided;
reasonable Litigation Expenses, which the office holder incurred or with which the office holder was
charged by a court of law, in a proceeding brought against the office holder, by the Company, on its behalf
or by another person, or in a criminal prosecution in which the office holder was acquitted, or in a criminal
prosecution in which the office holder was convicted of an offense that does not require proof of criminal
intent (mens rea);
a payment which the office holder is obligated to make to an injured party as set forth in Section 52(54)(a)
(1)(a) of the Securities Law, and Litigation Expenses that the office holder incurred in connection with a
proceeding under Chapters H'3, H'4 or I'1 of the Securities Law; and
any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office
holder.
The foregoing indemnification may be procured by us (a) retroactively and (b) as a commitment in advance to
indemnify an office holder, provided that, in respect of the first bullet above, such commitment shall be limited to (A) such
events that in the opinion of the Board of Directors are foreseeable in light of our actual operations at the time the
undertaking to indemnify is provided, and (B) to the amounts or criterion that the Board of Directors deems reasonable under
the circumstances; and further provided that such events and amounts or criterion are set forth in the undertaking to
indemnify, and which shall in no event exceed, in the aggregate, the greater of: (i) 25% of our shareholder’s equity at the time
of the indemnification or (ii) 25% of our shareholder’s equity at the end of fiscal year of 2010.
We have undertaken to indemnify our directors and officers pursuant to applicable law. We have obtained directors'
and officers' liability insurance for the benefit of our directors and officers. The Company currently has a directors and
officers liability insurance policy limited to $100 million (the “Policy”), at an annual premium of approximately $952,000.
Our internal audit committee, Board of Directors, and shareholders have approved the Company’s “Side A” Difference in
Conditions extension of the Policy, limited to an additional $25 million, which provides the directors and officers with
personal asset protection in situations when other sources of insurance or indemnification fail or are not available (the
“Extended Policy”). The Extended Policy portion is at an additional annual premium of approximately $61,000.
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Limitations on Exemption, Insurance and Indemnification
The Israeli Companies Law provides that a company may not exempt or indemnify an office holder, or enter into an
insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:
•
•
•
•
a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or
indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act
would not prejudice the company;
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly (other
than if solely done in negligence);
any act or omission done with the intent to derive an illegal personal benefit; or
a fine, civil fine or ransom levied on an Office Holder, or a financial sanction imposed upon an Office
Holder under Israeli Law.
Required Approvals
In addition, under the Israeli Companies Law, any exemption of, indemnification of, or procurement of insurance
coverage for, our office holders must be approved by our audit committee and our Board of Directors and, if the beneficiary
is a director, by our shareholders. We have obtained such approvals for the procurement of liability insurance covering our
officers and directors and for the grant of indemnification letters to our officers and directors.
Rights of Ordinary Shares
Our ordinary shares confer upon our shareholders the right to receive notices of, and to attend, shareholder meetings,
the right to one vote per ordinary share at all shareholders’ meetings for all purposes, and to share equally, on a per share
basis, in such dividends as may be declared by our Board of Directors; and upon liquidation or dissolution, the right to
participate in the distribution of any surplus assets of the Company legally available for distribution to shareholders after
payment of all debts and other liabilities of the Company. All ordinary shares rank pari passu in all respects with each other.
Our Board of Directors may, from time to time, make such calls as it may think fit upon a shareholder in respect of any sum
unpaid in respect of shares held by such shareholder which is not payable at a fixed time, and each shareholder shall pay the
amount of every call so made upon him (and of each installment thereof if the same is payable in installments).
Meetings of Shareholders
An annual general meeting of our shareholders shall be held once in every calendar year at such time and at such
place either within or without the State of Israel as may be determined by our Board of Directors.
Our Board of Directors may, whenever it thinks fit, convene a special general meeting at such time and place, within
or without the State of Israel, as may be determined by the Board of Directors. Special general meetings may also be
convened upon shareholder request in accordance with the Israeli Companies Law and our articles of association.
The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by
proxy who hold or represent between them at least 25% of the outstanding voting shares, unless otherwise required by
applicable rules. Although NASDAQ generally requires a quorum of 33-1/3%, we have an exception under the NASDAQ
rules and follow the generally accepted business practice for companies in Israel, which have a quorum requirement of 25%.
A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and
place or any time and place as the chairman may designate with the consent of a majority of the voting power represented at
the meeting and voting on the matter adjourned. At such reconvened meeting the required quorum consists of any two
members present in person or by proxy.
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Mergers and Acquisitions
A merger of the Company shall require the approval of the holders of a majority of 75% of the voting power
represented at the annual or special general meeting in person or by proxy or by written ballot, as shall be permitted, and
voting thereon in accordance with the provisions of the Israeli Companies Law. Upon the request of a creditor of either party
of the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that
as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In
addition, a merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposal for
the merger has been filed by each party with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger
was approved by the shareholders of each party.
The Israeli Companies Law also provides that an acquisition of shares of a public company must be made by means
of a tender offer if, as a result of the acquisition, the purchaser would become a 25% or greater shareholder of the company
and there is no existing 25% or greater shareholder in the company. An acquisition of shares of a public company must be
made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 45% or greater shareholder of
the company and there is no existing 45% or greater shareholder in the company. These requirements do not apply if the
acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a
25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a
45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The tender offer
must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding
shares, regardless of how many shares are tendered by shareholders. The tender offer may be consummated only if (i) at least
5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer
exceeds the number of shares whose holders objected to the offer.
If as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s outstanding shares, the
acquisition must be made by means of a tender offer for all of the outstanding shares. If as a result of a full tender offer the
acquirer would own more than 95% of the outstanding shares, then all the shares that the acquirer offered to purchase will be
transferred to it. The law provides for appraisal rights if any shareholder files a request in court within six months following
the consummation of a full tender offer, but the acquirer is entitled to stipulate that tendering shareholders forfeit their
appraisal rights. If as a result of a full tender offer the acquirer would own 95% or less of the outstanding shares, then the
acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares. Shareholders may
request an appraisal in connection with a tender offer for a period of six months following the consummation of the tender
offer, but the purchaser is entitled to stipulate as a condition of such tender offer that any tendering shareholder renounce its
appraisal rights.
Material Contracts
inContact Acquisition Agreement
On May 17, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with inContact Inc.
and Victory Merger Sub Inc., a wholly owned subsidiary of ours (the “Merger Sub”). On November 14, 2016, pursuant to the
terms of the Merger Agreement, Merger Sub merged with and into inContact, with inContact surviving the merger as a
wholly owned subsidiary of ours. At the effective time of the merger, each outstanding share of inContact common stock (the
“inContact Shares”) (other than (i) shares owned by inContact or us, (ii) for which inContact stockholders exercised appraisal
rights under Delaware law, or (iii) outstanding restricted stock) was cancelled and converted into the right to receive $14.00,
without interest. Also, at the effective time of the merger, outstanding vested inContact RSUs and stock options were
cancelled in exchange for the right to receive in cash (a) in the case of RSUs, $14.00 for each inContact share subject to such
vested RSU, less any required tax withholding, and (b) in the case of stock options, the excess, if any, of $14.00 over the
applicable per share exercise price for each inContact share underlying a vested stock option, less any required tax
withholding. Additionally, outstanding unvested inContact RSUs, stock options and restricted stock at the effective time of
the merger were cancelled and converted into RSUs with ADSs to be received upon settlement, options to acquire ADSs and
restricted ADSs, respectively, in each case with the number of ADSs subject to such award (and in the case of options, the
exercise price) adjusted pursuant to an exchange ratio determined based upon the average closing price of ADSs for the ten
trading days immediately preceding the closing date for the transaction. Other than the number of ADSs subject to such
unvested equity awards (and in the case of options, the adjusted exercise price), the unvested equity awards remain subject to
the same terms and conditions that the cancelled equity awards were subject to, including as to vesting and settlement.
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Credit Agreement
On November 14, 2016, in connection with the consummation of the inContact acquisition, we and Nice Systems
entered into a secured Credit Agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative
Agent. The Credit Agreement provides for a term loan facility of $475 million and a revolving facility of $75 million. The
Credit Agreement is guaranteed by most of our Israeli and U.S. material subsidiaries, including NICE Systems, and secured
by substantially all assets of our and the guarantors’ assets, subject to certain customary exceptions.
Unless terminated earlier, loans outstanding under the term loan facility mature and commitments under the
revolving facility expire on November 14, 2021. The term loan amortizes in equal quarterly installments in annual amounts
(expressed as percentages of the loans made under the term loan facility on November 14, 2016 (the initial funding date of
the term loan facility)) at the repayment rate of 1.25% during the period from March 2017 to December 2019 and 2.50%
during the period from March 2020 to November 2021, with the remaining balance due on the final maturity date of the term
loan facility.
We have the right to prepay borrowings under the Credit Agreement and to reduce the unutilized portion of the
revolving credit facility, in each case, at any time without premium or penalty (except for Eurodollar breakage fees, if any).
In January 2017, we used the net proceeds of the Notes offering described below to repay a principal amount of $260 million,
which resulted in $5.3 million amortization of debt issuance costs. In addition, the contractual principal payments for the loan
have changed and we will pay the entire remaining principal of $215 million on the final maturity date of the term loan
facility. We are required to prepay borrowings under the term loan facility with all of the net cash proceeds of sales or
dispositions of assets or other property, subject to certain reinvestment rights and other exceptions. The interest rates under
the Credit Agreement are variable based on LIBOR or an alternate base rate at the time of the borrowing, plus a margin to be
determined based on our leverage as measured by a ratio of consolidated total net indebtedness to consolidated EBITDA (the
“Consolidated Total Net Leverage Ratio”) and ranging from 1.25% to 2.00%, in the case of LIBOR rate loans, or 0.25% to
1.00%, in the case of base rate loans. A commitment fee will accrue on the average daily unused portion of the revolving
facility at the rate ranging from 0.25% to 0.50%, depending on the Consolidated Total Net Leverage Ratio, accordingly the
revolving facility rate was initially set at 0.375% per annum and 0.25% per annum as of December 31, 2019.
The Credit Agreement contains customary covenants, which include, among others, limitations or restrictions on the
incurrence of indebtedness, the incurrence of liens and entry into sales and leaseback transactions, mergers, transfers, leases,
licenses, sublicenses or dispositions of any asset, including any Equity Interest (as defined in the Credit Agreement) owned
by us or any of our subsidiaries, transactions with affiliates and certain transactions limiting the ability of subsidiaries to pay
dividends, in each case, subject to certain exceptions. The Credit Agreement also includes a requirement, to be tested
quarterly, that we maintain a Consolidated Total Net Leverage Ratio, as of the last day of any fiscal quarter ending on or after
March 31, 2017 and on or prior to December 31, 2018, that does not exceed 3.00 to 1.00 and as of the last day of any fiscal
quarter ending thereafter, does not exceed 2.50 to 1.00. For these ratios, consolidated EBITDA and consolidated interest
expense are calculated in a manner defined in the Credit Agreement. The Credit Agreement also includes customary events of
defaults.
Notes and Indenture
On January 18, 2017, NICE Systems issued $287.5 million aggregate principal amount of the Notes. The Notes are
the general unsecured obligations of NICE Systems, guaranteed by us. The sale of the Notes generated net proceeds of
approximately $260.1 million. The Notes were issued pursuant to an indenture (the “Indenture”) among us, NICE Systems
and U. S. Bank National Association, as trustee (the “trustee”).
The Notes bear interest at a fixed rate of 1.25% per year, payable semiannually in arrears on January 15 and July 15
of each year, beginning on July 15, 2017. The Notes will mature on January 15, 2024, unless earlier prepaid, redeemed or
exchanged, and are not redeemable at NICE Systems’ option prior to their maturity date, except in the event of certain tax
law changes. In the event certain conditions are met during set periods, the conditional exchange feature of the Notes may be
triggered, meaning that holders of Notes are entitled at their option to exchange the Notes at any time during such specified
periods. As disclosed in Note 15 to our consolidated financial statements, the conditional conversion feature of the Notes was
previously triggered and the Notes are currently convertible at the option of the holders.
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Subject to satisfaction of certain conditions and during certain periods as aforementioned, at the option of the
holders the Notes are exchangeable for (at our election) (i) cash, (ii) ADSs or (iii) a combination thereof. The exchange rate
was initially set at 12.0260 ADSs per $1,000 principal amount of Notes (equivalent to an initial exchange price of
approximately $83.15 per ADS). The exchange rate is subject to adjustment in some events. In addition, following certain
corporate events that occur prior to the maturity date or NICE Systems’ delivery of a notice of tax redemption, in certain
circumstances NICE Systems will increase the exchange rate for a holder who elects to exchange its Notes in connection with
such a corporate event or tax redemption, as the case may be.
If we or NICE Systems undergo a fundamental change (as defined in the Indenture), holders may require NICE
Systems to prepay for cash all or part of their Notes at a prepayment price equal to 100% of the principal amount of the Notes
to be prepaid, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change prepayment date.
The Indenture contains customary events of default. In the case of an event of default arising from certain events of
bankruptcy, insolvency or reorganization, with respect to us, NICE Systems or any of our subsidiaries that is a significant
subsidiary (as defined in the Indenture), all outstanding Notes will become due and payable immediately without further
action or notice. If any other event of default, other than for the failure to file reports described below, occurs and is
continuing, then the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare the
Notes to be due and payable. The Indenture further provides that with respect to an event of default arising from the
Company’s failure to comply with the obligations to timely file any document or report that it is required to file with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as applicable, we may elect to pay additional interest
on the Notes as the sole remedy for such event of default during the period indicated below. Additional interest will accrue on
the Notes at a rate equal to (i) 0.25% per annum of the principal amount of the Notes outstanding for each day during the
period beginning on, and including, the date on which such event of default first occurred and ending on the earlier of (x) the
date on which such event of default is cured or validly waived and (y) the 90th day immediately following, and including, the
date on which such event of default first occurred and (ii) if such event of default has not been cured or validly waived prior
to the 91st day immediately following, and including, the date on which such event of default first occurred, 0.50% per
annum of the principal amount of notes outstanding for each day during the period beginning on, and including, the 91st day
immediately following, and including, the date on which such event of default first occurred and ending on the earlier of (x)
the date on which the event of default is cured or validly waived and (y) the 180th day immediately following, and including,
the date on which such event of default first occurred.
Exchange Controls
Holders of ADSs are able to convert dividends and liquidation distributions into freely repatriable non-Israeli
currencies at the rate of exchange prevailing at the time of repatriation, pursuant to regulations issued under the Currency
Control Law, 5738–1978, provided that Israeli income tax has been withheld by us with respect to amounts that are being
repatriated to the extent applicable or an exemption has been obtained.
Our ADSs may be freely held and traded pursuant to the General Permit and the Currency Control Law. The
ownership or voting of ADSs by non-residents of Israel, except with respect to citizens of countries that are in a state of war
with Israel, are not restricted in any way by our memorandum of association or articles of association or by the laws of the
State of Israel.
Taxation
The following is a discussion of Israeli and United States tax consequences material to our shareholders. The
discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible
tax considerations.
Holders of our ADSs should consult their own tax advisors as to the United States, Israeli or other tax consequences
of the purchase, ownership and disposition of our ADSs, including, in particular, the effect of any foreign, state or local taxes.
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Israeli Tax Considerations
The following is a summary of both the general corporate tax laws applicable to companies in Israel, with special
reference to their effect on us; and a discussion of the material tax consequences to purchasers of our ordinary shares or
ADSs related to our domicile in Israel. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special
treatment under Israeli law. To the extent that the discussion is based on new tax legislation which has not been subject to
judicial or administrative interpretation, we cannot assure that the views expressed in the discussion will be accepted by the
appropriate tax authorities or the courts. The discussion is not intended, and should not be construed, as a legal or
professional tax advice and is not exhaustive of all possible tax considerations.
General Corporate Taxation in Israel
Generally, Israeli companies are subject to corporate tax on taxable income, including capital gains, at the rate of
23% for 2018 and 2019 tax years and thereafter. However, the effective tax rate payable by a company that is eligible for tax
benefits under the Israeli Law for the Encouragement of Capital Investments -1959, and in particular the 12% rate under the
Preferred Technology Enterprise regime (as discussed below), may be considerably less.
We are permitted to measure our Israeli taxable income in U.S. dollars pursuant to regulations published by the
Israeli Minister of Finance, which provide the conditions for doing so. We believe that we meet, and will continue to meet,
the necessary conditions and as such, we measure our results for tax purposes based on the U.S. dollar/NIS exchange rate on
December 31 of the relevant tax year.
Tax Benefits under the Israeli Law for the Encouragement of Capital Investments, 1959, as amended.
Pursuant to the Israeli Law for Encouragement of Capital Investments-1959 (the “Investments Law”) and its various
amendments, under which both the Company and its Israeli subsidiary have been granted "Approved Enterprise" status, we
have derived and expect to continue to derive significant tax benefits relating to our “Approved, Privileged, and Preferred
Enterprise” programs for which we were eligible up to and including the 2016 tax year, and relating to Preferred
Technological Enterprise program for the 2017 and subsequent tax years. To be eligible for these tax benefits, one must
continue to meet certain conditions. In the event we are considered as having failed to comply with these conditions, in whole
or in part, the eligibility for the benefits may be canceled and we may be required to refund the relevant amount, including
interest and inflation adjustments. As of December 31, 2019, we believe that we are in compliance with all the conditions
required by the Investments Law.
In December 2016, the Israeli Knesset passed a number of changes to the Investments Law. These changes became
retroactively effective beginning January 1, 2017, following promulgation of Regulations by the Finance Ministry in May
2017 to implement the “Nexus Principles” based on OECD guidelines published as part of the Base Erosion and Profit
Shifting (BEPS) project. The Regulations provide rules for implementation of the tax regime, that applies to both the
Company and its Israeli subsidiary, effective from the 2017 tax year and onwards.
Benefits under the “Preferred Technology Enterprise” regime, effective for 2017 and subsequent tax years, include:
•
•
•
A reduced 12% corporate tax rate (or 7.5% for entities located in Development Area A) on qualifying
income deriving from eligible intellectual property (“Preferred Technology Income”), subject to a number
of base conditions being fulfilled, including a minimal amount or ratio of annual R&D expenditure and
R&D employees, as well as having at least 25% of annual income derived from export.
A 12% capital gains tax rate on the sale of a preferred intangible asset to a foreign affiliated enterprise,
provided that the asset was initially purchased from a foreign resident at an amount of NIS 200 Million or
more.
A withholding tax rate of 20% for dividends paid from Preferred Technology Income (with an exemption
from such withholding tax applying to dividends paid to an Israeli company). Such rate may be reduced to
4% on dividends paid to a foreign resident company, subject to certain conditions regarding percentage of
foreign ownership of the distributing entity.
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The effective tax rate applying to our Preferred Technology Enterprise is calculated based on the Nexus Principals
introduced by the OECD, taking into account eligible and ineligible R&D expenses incurred by us, as prescribed in the
Regulations.
Income from sources other than the Preferred Technology Income are taxable at regular corporate tax rates of 23%
for 2018, 2019 and subsequent years.
Full details regarding our Preferred and Preferred Technology Enterprises may be found in Note 13(a)(1) of our
consolidated financial statements.
Tax Benefits and Grants for Research and Development
Israeli tax law allows, under specified conditions, a tax deduction for expenditures, including capital expenditures,
for the year in which they are incurred. These expenses must relate to scientific research and development projects and must
be approved by the relevant Israeli government ministry, determined by the field of research, and the research and
development must be conducted for the promotion of the company and carried out by or on behalf of the company seeking
such deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through
government grants for the financing of such scientific research and development projects. Expenditures not so approved are
deductible over a three‑ year period.
Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969
Under the Law for the Encouragement of Industry (Taxes), 1969 (the “Industry Encouragement Law”), Industrial
Companies (as defined below) are entitled to the following tax benefits, among others:
•
•
•
•
deductions over an eight-year period for purchases of know-how and patents;
deductions over a three-year period of expenses involved with the issuance and listing of shares on a stock
market;
the right to elect, under specified conditions, to file a consolidated tax return with other related Israeli
Industrial Companies; and
accelerated depreciation rates on equipment and buildings.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any
governmental authority. Under the Industry Encouragement Law, an “Industrial Company” is defined as a company which is
an Israeli resident for tax purposes, which at least 90% of the income of which, in any tax year, determined in Israeli
currency, exclusive of income from government loans, capital gains, interest and dividends, is derived from an “Industrial
Enterprise” owned by it.
An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial
production activity. We believe that we currently qualify as an Industrial Company within the definition of the Industry
Encouragement Law. No assurance can be given that we will continue to qualify as an Industrial Company or that the
benefits described above will be available in the future.
Taxation Consequences to Purchasers of our Shares
Taxation of Holders of Ordinary Shares
The following discussion refers to the tax consequences to holders of our ordinary shares. However, the same tax treatment
would apply to holders of our ADSs
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Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for
Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and
non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s
country of residence provides otherwise. The Tax Ordinance distinguishes between real gain and inflationary surplus. The
inflationary surplus is a portion of the total capital gain equivalent to the increase of the relevant asset’s purchase price
attributable to an increase in the Israeli consumer price index, or a foreign currency exchange rate, between the date of
purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Taxation of Israeli Residents
Israeli individuals are generally subject to a tax rate of 25% on capital gains derived from the sale of shares, whether
listed on a stock market or not, unless such shareholder is considered a “significant shareholder” at any time during the 12-
month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least
10% of any means of control in the company), in which case the tax rate will be 30%. Commencing with the 2017 tax year,
individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual taxable income
exceeding a certain threshold (NIS 649,560 for 2019, linked to the annual change in the Israeli Consumer Price Index). For
this purpose taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend
distributions.
Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of listed shares.
Different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial
public offering.
Taxation of Non-Israeli Residents
Both individual and corporate non-Israeli residents are generally exempt from Israeli capital gains tax on any gains
derived from the sale of shares publicly traded on the TASE provided such gains did not derive from a permanent
establishment of such shareholders in Israel. Non-Israeli residents are also exempt from Israeli capital gains tax on any gains
derived from the sale of shares of Israeli companies publicly traded on a recognized stock market outside of Israel, provided
such shareholders did not acquire their shares prior to the issuer’s initial public offering (in which case a partial exemption
may be available), that the gains did not derive from a permanent establishment of such shareholders in Israel. However, non-
Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25%
in such non-Israeli corporation; or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such
non-Israeli corporation, whether directly or indirectly.
In addition, the sale, exchange or disposition of our ordinary shares by a U.S. resident individual or corporate
shareholder (for purposes of the U.S.-Israel Tax Treaty), and who holds ordinary shares as a capital asset, is also exempt from
Israeli capital gains tax under the U.S.-Israel Tax Treaty unless either (i) the U.S. resident shareholder holds, directly or
indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale;
(ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel;
or (iii) such U.S. resident shareholder is an individual and was present in Israel for 183 days or more during the relevant
taxable year. If the above conditions are not met, the U.S. resident would be subject to Israeli tax, to the extent applicable.
However, under the U.S.-Israel Tax Treaty, the gain would be treated as foreign source income for United States foreign tax
credit purposes and such U.S. resident would be permitted to claim a credit for such taxes against the United States federal
income tax imposed on such sale, exchange or disposition, subject to the limitations under the United States federal income
tax laws applicable to foreign tax credits.
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Taxation of Dividends Paid on our Ordinary Shares
Taxation of Israeli Residents
Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our
ordinary shares, other than bonus shares (share dividends) or stock dividends. The tax rate applicable to such dividends is
25% or 30% for a shareholder that is considered a significant shareholder at any time during the 12-month period preceding
such distribution. Dividends paid out of profits sourced from ordinary income are subject to withholding tax at the rate of
25%. Dividends paid from income derived from our Approved and Privileged Enterprises are subject to withholding tax at
the rate of 15%. Dividends paid as of January 1, 2014 from income derived from our Preferred Enterprise and Preferred
Technology Enterprise will be subject to withholding tax at the rate of 20%. We cannot assure that we will designate the
profits that are being distributed in a way that will reduce shareholders’ tax liability. For information with respect to the
applicability of Income Surtax on distribution of dividends, please see "Capital Gains Tax on Sales of Our Ordinary Shares"
and "Taxation of Israeli Residents" above in this Item 10.
Dividend distributions to Israeli resident corporations are generally not subject to a withholding tax.
Taxation of Non-Israeli Residents
Non-residents of Israel, both companies and individuals, are generally subject to Israeli income tax on the receipt of
dividends paid on our ordinary shares, at the aforementioned rates applicable to Israeli residents, which tax will be withheld
at source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence.
Under the U.S.-Israel Treaty, the maximum Israeli withholding tax on dividends paid by us is 25%. The U.S.-Israel
Tax Treaty further provides for a 12.5% Israeli dividend withholding tax rate on dividends paid by an Israeli company to a
U.S. corporation owning at least 10% or more of such Israeli company’s issued voting power for, in general, the part of the
tax year which precedes the date of payment of the dividend and the entire preceding tax year. The lower 12.5% rate applies
only to dividends paid from regular income (and not derived from an Approved, Privileged or Preferred Enterprise) in the
applicable period and does not apply if the company has more than 25% of its gross income derived from certain types of
passive income (if the conditions mentioned above are met, dividends from income of an Approved, Privileged or Preferred
Enterprise are subject to a 15% withholding tax rate under the U.S.-Israel Tax Treaty). Residents of the United States
generally will have withholding tax in Israel deducted at source. They may be entitled to a credit or deduction for United
States federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in United States
tax legislation.
An individual or corporate non-resident of Israel who has dividend income derived from or accrued in Israel, from
which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel with respect to such income,
provided such income was not derived from a business conducted in Israel by the taxpayer.
U.S. Federal Income Tax Considerations
The following is a summary of the material U.S. Federal income tax consequences that apply to U.S. holders
(defined below) who hold ADSs as capital assets for tax purposes. This summary is based on the U.S. Internal Revenue Code
of 1986, as amended (the “Code”), existing final, temporary and proposed regulations thereunder, judicial decisions and
published positions of the Internal Revenue Service and the U.S.-Israel income tax treaty in effect as of the date of this annual
report, all of which are subject to change at any time (including changes in interpretation), possibly with retroactive effect.
On December 22, 2017, the United States enacted the U.S. Tax Reform which alters significantly the U.S. Federal income tax
system, generally beginning in 2018. Given the complexity of this new law, U.S. holders should consult their own tax
advisors regarding its potential impact on the U.S. Federal income tax consequences to them in light of their particular
circumstances.
This summary is also based in part on representations by JPMorgan Chase Bank, N.A., the depositary for our ADSs,
and assumes that each obligation under the Deposit Agreement between us and JPMorgan Chase Bank, N.A. and any related
agreement will be performed in accordance with its terms.
This summary does not address all U.S. Federal income tax matters that may be relevant to a particular prospective
holder or all tax considerations that may be relevant with respect to an investment in ADSs.
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This summary does not address tax considerations applicable to a holder of an ADS that may be subject to special
tax rules including, without limitation, the following:
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•
dealers or traders in securities, currencies or notional principal contracts;
financial institutions;
insurance companies;
real estate investment trusts;
banks;
investors subject to the alternative minimum tax;
tax-exempt organizations;
regulated investment companies;
investors that actually or constructively own 10 percent or more of our voting shares;
investors that will hold the ADSs as part of a hedging or conversion transaction or as a position in a
straddle or a part of a synthetic security or other integrated transaction for U.S. Federal income tax
purposes;
investors that are treated as partnerships or other pass through entities for U.S. Federal income tax purposes
and persons who hold the ADSs through partnerships or other pass through entities;
investors whose functional currency is not the U.S. dollar; and
expatriates or former long-term residents of the United States.
This summary does not address the effect of any U.S. Federal taxation other than U.S. Federal income taxation. In
addition, this summary does not include any discussion of state, local or foreign taxation or the indirect effects on the holders
of equity interests in a holder of an ADS.
You are urged to consult your own tax advisor regarding the foreign and U.S. Federal, state and local and
other tax consequences of an investment in ADSs.
For purposes of this summary, a “U.S. holder” is a beneficial owner of ADSs that is, for U.S. Federal income tax
purposes:
•
•
•
•
an individual who is a citizen or a resident of the United States;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States or any political subdivision thereof;
an estate whose income is subject to U.S. Federal income tax regardless of its source; or
a trust if:
(a)
(b)
a court within the United States is able to exercise primary supervision over administration of the
trust; and
one or more United States persons have the authority to control all substantial decisions of the
trust.
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If an entity that is classified as a partnership for U.S. federal tax purposes holds ADSs, the U.S. federal income tax
treatment of its partners will generally depend upon the status of the partners and the activities of the partnership. Entities that
are classified as partnerships for U.S. federal tax purposes and persons holding ADSs through such entities should consult
their own tax advisors.
In general, if you hold ADSs, you will be treated as the holder of the underlying shares represented by those ADSs
for U.S. Federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the
underlying shares represented by those ADSs.
U.S. Taxation of ADSs
Distributions
Subject
to the discussion under “Passive Foreign Investment Companies” below,
the gross amount of any
distribution, including the amount of any Israeli taxes withheld from these distributions (see “Israeli Tax Considerations”),
actually or constructively received by a U.S. holder with respect to ADSs will be taxable to the U.S. holder as a dividend to
the extent of our current and accumulated earnings and profits as determined under U.S. Federal income tax principles.
Distributions in excess of earnings and profits will be non-taxable to the U.S. holder to the extent of, and will be applied
against and reduce, the U.S. holder’s adjusted tax basis in the ADSs. Distributions in excess of earnings and profits and such
adjusted tax basis will generally be taxable to the U.S. holder as a capital gain from the sale or exchange of property. We do
not maintain calculations of our earnings and profits under U.S. Federal income tax principles. If we do not report to a U.S.
holder the portion of a distribution that exceeds earnings and profits, the distribution will generally be taxable as a dividend
even if that distribution would otherwise be treated as a non-taxable return of capital or as a capital gain under the rules
described above. The amount of any distribution of property other than cash will be the fair market value of that property on
the date of distribution. The U.S. holder will not, except as provided by Sections 245 and 245A of the Code, be eligible for
any dividends received deduction in respect of the dividend otherwise allowable to corporations.
Under the Code, certain dividends received by non-corporate U.S. holders will be subject to a maximum income tax
rate of 20%. This reduced income tax rate is only applicable to dividends paid by a “qualified foreign corporation” that is not
a “passive foreign investment company” and only with respect to shares held by a qualified U.S. holder (i.e., a non-corporate
holder) for a minimum holding period (generally 61 days during the 121-day period beginning 60 days before the ex-
dividend date). We should be considered a qualified foreign corporation because (i) we are eligible for the benefits of a
comprehensive tax treaty between Israel and the U.S., which includes an exchange of information program, and (ii) the ADSs
are readily tradable on an established securities market in the U.S. In addition, based on our current business plans, we do not
expect to be classified as a “passive foreign investment company” (see “Passive Foreign Investment Companies” below).
Accordingly, dividends paid by us to individual U.S. holders on shares held for the minimum holding period should be
eligible for the reduced income tax rate. In addition to the income tax on dividends discussed above, certain non-corporate
U.S. holders will also be subject to the 3.8% Medicare tax on dividends as discussed below under “Medicare Tax on
Unearned Income”.
The amount of any distribution paid in a currency other than U.S. dollars (a “foreign currency”) including the
amount of any withholding tax thereon, will be included in the gross income of a U.S. holder in an amount equal to the U.S.
dollar value of the foreign currencies calculated by reference to the exchange rate in effect on the date of receipt, regardless
of whether the foreign currencies are converted into U.S. dollars. If the foreign currencies are converted into U.S. dollars on
the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the
dividend. If the foreign currencies received in the distribution are not converted into U.S. dollars on the date of receipt, a U.S.
holder will have a basis in the foreign currencies equal to its U.S. dollar value on the date of receipt. Any gain or loss on a
subsequent conversion or other disposition of the foreign currencies will be treated as ordinary income or loss.
Generally, dividends received by a U.S. holder with respect to ADSs will be treated as foreign source income for the
purposes of calculating that holder’s foreign tax credit limitation. Subject to certain conditions and limitations, any Israeli
taxes withheld on dividends at the rate provided by the U.S.-Israel tax treaty may be deducted from taxable income or
credited against a U.S. holder’s U.S. Federal income tax liability. The limitation on foreign taxes eligible for the U.S. foreign
tax credit is calculated separately with respect to various categories of income, including “passive” income and “general”
income. The rules relating to foreign tax credits and the timing thereof are complex. U.S. holders should consult their own tax
advisors regarding the availability of a foreign tax credit under their particular situation.
95
Sale or Other Disposition of ADSs
If a U.S. holder sells or otherwise disposes of its ADSs, gain or loss will be recognized for U.S. Federal income tax
purposes in an amount equal to the difference between the amount realized on the sale or other disposition and such holder’s
adjusted tax basis in the ADSs. Subject to the discussion below under the heading “Passive Foreign Investment Companies,”
such gain or loss generally will be a capital gain or loss and will be a long-term capital gain or loss if the holder had held the
ADSs for more than one year at the time of the sale or other disposition. Long-term capital gains realized by individual U.S.
holders generally are subject to a lower marginal U.S. Federal income tax rate (currently up to 20%) than the marginal tax
rate on ordinary income. In addition to the income tax on gains discussed above, certain non-corporate U.S. holders will also
be subject to the 3.8% Medicare tax on net gains as discussed below under “Medicare Tax on Unearned Income”. Under most
circumstances, any gain that a holder recognizes on the sale or other disposition of ADSs will be U.S. sourced for purposes of
the foreign tax credit limitation and any recognized losses will be allocated against U.S. source income.
If a U.S. holder receives foreign currency upon a sale or exchange of ADSs, gain or loss, if any, recognized on the
subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and will generally be
income or loss from sources within the United States for foreign tax credit limitation purposes. However, if such foreign
currency is converted into U.S. dollars on the date received by the U.S. holder, the U.S. holder generally should not be
required to recognize any gain or loss on such conversion.
A U.S. holder who holds shares through an Israeli stockbroker or other Israeli intermediary may be subject to Israeli
withholding tax on any capital gain recognized if the U.S. holder does not obtain approval of an exemption from the Israeli
Tax Authorities or claim any allowable refunds or reductions. U.S. holders are advised that any Israeli tax paid under
circumstances in which an exemption from (or a refund of or a reduction in) such tax was available will not give rise to a
deduction or credit for foreign taxes paid for U.S. federal income tax purposes. If applicable, U.S. holders are advised to
consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption or reduction.
Medicare Tax on Unearned Income
Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on all or a
portion of their “net investment income,” which includes dividends and net gains from the sale or other dispositions of ADSs
(other than ADSs held in a trade or business).
Passive Foreign Investment Companies
For U.S. Federal income tax purposes, we will be considered a passive foreign investment company (“PFIC”) for
any taxable year in which either 75% or more of our gross income is passive income, or at least 50% of the average value of
all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, passive
income includes dividend, interest, royalty, rent, annuity and the excess of gain over losses from the disposition of assets
which produce passive income. If we were determined to be a PFIC for U.S. Federal income tax purposes, highly complex
rules would apply to U.S. holders owning ADSs.
Based on our estimated gross income, the average value of our gross assets and the nature of our business, we do not
believe that we will be classified as a PFIC in the current taxable year. Our status in any taxable year will depend on our
assets and activities in each year and because this is a factual determination made annually at the end of each taxable year,
there can be no assurance that we will not be considered a PFIC for any future taxable year. If we were treated as a PFIC in
any year during which a U.S. holder owns ADSs, certain adverse tax consequences could apply. Given our current business
plans, however, we do not expect that we will be classified as a PFIC in future years.
You are urged to consult your own tax advisor regarding the possibility of us being classified as a PFIC and
the potential tax consequences arising from the ownership and disposition (directly or indirectly) of an interest in a
PFIC.
96
Backup Withholding and Information Reporting
Payments of dividends with respect to ADSs and the proceeds from the sale, retirement, or other disposition of
ADSs made by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. holder as may be
required under applicable U.S. Treasury regulations. We, or an agent, a broker, or any paying agent, as the case may be, may
be required to withhold tax (backup withholding), currently at the rate of 24%, if a non-corporate U.S. holder that is not
otherwise exempt fails to provide an accurate taxpayer identification number and comply with other IRS requirements
concerning information reporting. Certain U.S. holders (including, among others, corporations and tax-exempt organizations)
are not subject to backup withholding. Any amount of backup withholding withheld may be used as a credit against your U.S.
Federal income tax liability provided that the required information is timely furnished to the IRS. U.S. holders should consult
their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an
exemption.
Foreign Asset Reporting
Certain U.S. Holders who are specified individuals or specified domestic entities are required to report information
relating to an interest in our ADSs on IRS Form 8938 (Statement of Specified Foreign Financial Assets), subject to certain
exceptions (including an exception for shares held in accounts maintained by financial institutions). U.S. Holders are
encouraged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their
ownership and disposition of our ADSs.
Documents on Display
We are subject to certain of the information reporting requirements of the Securities and Exchange Act of 1934, as
amended. As a foreign private issuer we are exempt from the rules and regulations under the Securities Exchange Act
prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt
from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Securities Exchange Act, with
respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements with
the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Securities Exchange Act.
NASDAQ rules generally require that companies send an annual report to shareholders prior to the annual general meeting,
however we rely upon an exception under the NASDAQ rules and follow the generally accepted business practice for
companies in Israel. Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an
independent accounting firm, electronically with the SEC and post a copy on our website. We also furnish to the SEC
quarterly reports on Form 6-K containing unaudited financial information after the end of each of the first three quarters.
The SEC maintains a website that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, and our SEC reports can be viewed or downloaded there. The
address of this web site is http://www.sec.gov. In addition, information that we furnish or file with the SEC, including annual
reports on Form 20-F, current reports on Form 6-K, proxy and information statements and any amendments to, or exhibits
included in, those reports are available to be viewed or download, free of charge, on our website at http://www.nice.com as
soon as reasonably practicable after such materials are filed or furnished with the SEC. Information contained, or that can be
accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein, and
we have included our website address in this annual report solely for informational purposes.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk.
General
Market risks relating to our operations result primarily from weak economic conditions in the markets in which we
sell our products and changes in interest and exchange rates. To manage the volatility related to the latter exposure, we may
enter into various derivative transactions. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in
earnings and cash flows associated with changes in currency exchange rates. It is our policy and practice to use derivative
financial instruments only to manage such exposures. We do not use financial instruments for trading purposes and we are
not a party to any leveraged derivative.
97
Foreign Currency Risk
We conduct our business primarily in U.S. dollars but also in the currencies of Israel, the UK, the EU and India as
well as other currencies. Thus, we are exposed to foreign exchange fluctuations, primarily in NIS, GBP, EUR and INR. We
monitor foreign currency exposure and from time to time we may use various instruments to preserve the value of sale
transactions and commitments, however, this cannot assure us protection against risks of currency fluctuations. For more
information regarding foreign currency related risks, please refer to Item 3, “Key Information—General Risks Relating to
Our Business” of this annual report. We use currency forward contracts and option contracts in order to protect against the
increase in value of forecasted non-dollar currency cash flows and to hedge future anticipated payments.
As of December 31, 2019, we had outstanding currency option and forward contracts to hedge payroll and facilities
expenses and lease obligations, denominated in NIS, INR and PHP, in the total amount of approximately $129 million. The
fair value of those contracts was approximately $2.72 million. These transactions were for a period of up to one year.
The following table details the balance sheet exposure (i.e., the difference between assets and liabilities) in our main
foreign currencies, as of December 31, 2019, against the relevant functional currency.
Functional currencies
(In U.S. dollars in millions)
USD
GBP
EUR
CAD
MXN
AUD
BRL
SGD
Other
currencies
Foreign currencies
USD
GBP
EUR
CAD
AUD
MXN
CHF
JPY
INR
SGD
HKD
ILS
PHP
BRL
Other currencies
—
28.2
5.1
7.2
6.1
4.7
(0.3)
0.9
(11.6)
(8.0)
(3.8)
(13.5)
(4.2)
2.2
(0.1)
14.6
—
13.7
0.5
(0.1)
0.0
0.1
0.0
—
0.0
—
0.0
0.2
(0.6)
0.0
—
—
—
—
—
—
—
—
—
—
—
(0.4)
2.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.6
(0.1)
—
—
—
—
—
—
—
—
—
—
—
(0.2)
(1.4)
—
—
—
—
—
—
—
—
—
—
—
0.0
0.0
—
0.0
—
—
—
—
—
0.0
—
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
(0.4)
0.0
The table below presents the fair value of firmly committed transactions for lease obligations denominated in
currencies other than the functional currency:
Less than 1 year
1-3 years
3-5 years
Over 5 years
Total
(In U.S. dollars in millions)
New Israeli Shekel
Other currencies
2.26
4.32
4.18
5.64
16.40
7.45
11.84
—
—
19.29
98
Total
9.71
16.16
4.18
5.64
35.69
Interest Rate Risk
We are subject to interest rate risk on our investments and on our borrowings.
In November 2016, we completed the acquisition of inContact and utilized $475 million in debt financing with a
variable interest rate toward payment of the consideration in the transaction.
As of December 31, 2019, the outstanding principal amount of the term debt was $215 million.
The floating rate term loan is exposed to market risk due to fluctuations in interest rates which may affect our
interest expense.
On January 18, 2017, we issued $287.5 million aggregate principal amount of the Notes. The Notes bear interest at a
fixed rate of 1.25% per year.
Our outstanding debt obligations,
the corresponding interest rates, currency and repayment schedules as of
December 31, 2019, are set forth in the table below in U.S. dollar equivalent terms.
Currency
Fixed Rate:
USD
Floating Rate:
USD
Total:
Debt issuance costs, net
of amortization
Unamortized discount
Total:
Total
amount
Interest
rate
2019
2020
2021
2022
2023
(In millions)
$287,500
1.25 %
3.05 %
215,000
$215,000
215,000
502,500
(5,422)
(32,182)
$464,896
2024 &
thereafter
$ 287,500
$ 287,500
Our investments and outstanding debt are exposed to market risk due to fluctuations in interest rates, which may
affect our interest income, interest expense and the fair market value of our marketable securities portfolio.
Our marketable securities portfolio consists of investment-grade corporate debentures, U.S. Government agencies
and U.S. treasuries. As of December 31, 2019, 86.6% of our portfolio was in such securities and the remainder was in dollar
deposits.
We invest in dollar deposits with U.S. banks, European banks, Israeli banks and money market funds. As of
December 31, 2019, 13.4% of our portfolio was in such deposits. Since these investments are for short periods, interest
income is sensitive to changes in interest rates.
The weighted average duration of the securities portfolio, as of December 31, 2019, is 1.92 years. The securities in
our marketable securities portfolio are rated generally as A+ according to Standard and Poor’s rating or A1, according to
Moody’s rating. Securities representing 3.3% of the marketable securities portfolio are rated as AAA; securities representing
22.0% of the marketable securities portfolio are rated as AA; securities representing 67.9% of the marketable securities
portfolio are rated as A; and securities representing 6.1% of the marketable securities portfolio are rated as BBB+ and
securities representing 0.5 % of the marketable securities portfolio are rated as BBB- after being downgraded during the last
year.
99
The table below presents the fair value of marketable securities which are subject to risk of changes in interest rate,
segregated by maturity dates:
Corporate debentures
U.S. treasuries
U.S. government agencies
Amortized Cost
Estimated fair value
Up to 1
year
182.3
6.3
3.0
1-3 years 4-6 years
388.7
13.0
—
115.7
3.8
17.0
Total
686.7
23.1
20.0
Up to 1
year
182.7
6.3
3.0
1-3 years 4-6 years
391.9
116.6
13.0
—
3.8
17.0
Total
691.3
23.2
20.0
Total
191.6
401.7
136.5
729.7
192.0
405.0
137.4
734.4
Other risks and uncertainties that could affect actual results and outcomes are described in Item 3, “Key Information
—Risk Factors” in this annual report.
Item 12.
Description of Securities Other than Equity Securities.
American Depositary Shares and Receipts
Set forth below is a summary of certain provisions in relation to charges and other payments under the Deposit
Agreement, as amended, among NICE, JPMorgan Chase Bank, N.A. as depositary (the "Depositary"), and the owners and
holders from time to time of ADRs issued thereunder (the “Deposit Agreement”). This summary is not complete and is
qualified in its entirety by the Deposit Agreement, a form of which has been filed as Exhibit 1 to the Registration Statement
on Form F-6 (Registration No. 333-203623) filed with the SEC on April 24, 2015.
Charges of the Depositary
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against
deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock
dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or
event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities
or whose ADRs are cancelled or reduced for any other reason, $0.05 for each ADS issued, delivered, reduced, cancelled or
surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received
in respect of a share distribution, rights or other distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing
shares or by any party surrendering ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a
stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a
distribution of ADSs), whichever is applicable:
•
•
•
a fee of $1.50 per ADR for transfers of certificated or direct registration ADRs;
a fee of up to $0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
a fee of up to $0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary
in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and
shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during
each calendar year and shall be payable in the manner described in the next succeeding provision);
100
•
•
•
•
•
•
a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary or any of
its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in
connection with compliance with foreign exchange control regulations or any law or regulation relating to
foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of
securities (including, without limitation, deposited securities), the delivery of deposited securities or
otherwise in connection with the depositary's or its custodian's compliance with applicable law, rule or
regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the
record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by
billing such holders or by deducting such charge from one or more cash dividends or other cash
distributions);
stock transfer or other taxes and other governmental charges;
cable, telex and facsimile transmission and delivery charges incurred at the request of an ADR holder in
connection with the deposit or delivery of shares;
transfer or registration fees for the registration of transfer of deposited securities on any applicable register
in connection with the deposit or withdrawal of deposited securities;
in connection with the conversion of foreign currency into U.S. dollars, the fees, expenses and other
charges charged by JPMorgan Chase Bank, N.A. or its agent (which may be a division, branch or affiliate)
so appointed in connection with such conversion; and
fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage or
execute any public or private sale of securities under the deposit agreement.
The depositary may generally refuse to provide services until it is reimbursed applicable amounts, including stock
transfer or other taxes and other governmental charges, and is paid its fees for applicable services.
The fees and charges an ADR holder may be required to pay may vary over time and may be changed by us and by
the depositary. Our ADR holders will receive prior notice of the increase in any such fees and charges.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian)
pursuant to agreements from time to time between us and the depositary. The charges described above may be amended from
time to time by agreement between us and the depositary.
Fees paid by the Depositary
Our depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and
maintenance of the ADR program upon such terms and conditions as we and the depositary may agree from time to time. The
depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program
or otherwise upon such terms and conditions as we and the depositary may agree from time to time.
During 2019, we received a payment in the amount of approximately $625 thousand from the depositary as
reimbursement for expenses we incurred in 2019 in relation to the maintenance and administration of the ADR program.
101
Item 13.
Defaults, Dividend Arrearages and Delinquencies.
PART II
None.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds.
None.
Item 15.
Controls and Procedures.
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of NICE’s management, including its
Chief Executive Officer and Chief Financial Officer, of the effectiveness of NICE’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that NICE’s disclosure
controls and procedures were effective as of such date.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial
reporting, as such term is defined in Rule 15d-15(f) under the Securities Exchange Act. Our internal control over our
financial reporting system was designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements
and even when determined to be effective can only provide reasonable assurance with respect to financial statements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.
Our management based its assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management
has concluded that, as of December 31, 2019, our internal control over financial reporting is effective.
Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, Kost, Forer, Gabbay & Kasierer, a member of EY Global
independently assessed the effectiveness of our internal control over financial reporting and has issued an attestation report,
which is included under Item 18 on page F-4 of this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by
this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over
financial reporting.
Item 16A.
Audit Committee Financial Expert.
Our Board of Directors has determined that each of Dan Falk and Yocheved Dvir meets the definition of an audit
committee financial expert, as defined in Item 407 of Regulation S-K and is independent under the applicable regulations.
102
Item 16B.
Code of Ethics.
We have adopted a Code of Ethics that applies to our principal executive and financial officers, and that also applies
to all of our employees. The Code of Ethics is publicly available on our website at www.nice.com. Written copies are
available upon request without charge. If we make any substantive amendments to the Code of Ethics or grant any waiver
from a provision of this code to our chief executive officer, principal financial officer or corporate controller, we will either
disclose the nature of such amendment or waiver on our website or in our annual report on Form 20-F.
Item 16C.
Principal Accountant Fees and Services.
Fees Paid to Independent Auditors
Fees billed or expected to be billed by Kost, Forer, Gabbay & Kasierer, a member of EY Global, and other members
of EY Global for professional services for each of the last two fiscal years were as follows:
Services Rendered
Audit (1)
Audit-related (2)
Tax (3)
Total
2018 Fees
2019 Fees
$
$
$
$
971
141
487
1,599
$
$
$
$
862
75
465
1,402
(1)
(2)
(3)
Audit fees refer to audit services for each of the years shown in this table which include fees associated with the
annual audit for each of 2018 and 2019 (including an audit in each such year in accordance with section 404 of the
Sarbanes-Oxley Act), certain procedures regarding our quarterly financial results submitted on Form 6-K,
consultations concerning financial accounting and various accounting issues and performance of local statutory
audits.
Audit-related fees relate to assurance and associated services that traditionally are performed by the independent
auditor, which include due diligence investigations and audit services related to other statutory or regulatory filings,
mainly those related to mergers and acquisitions.
Tax fees refer to professional services rendered by our auditors, which include tax compliance, tax advice on actual
or contemplated transactions, tax consulting associated with transfer pricing and global mobility of employees.
Policies and Procedures
Our audit committee has adopted a policy and procedures for the pre-approval of audit and non-audit services
rendered by our external auditors, Kost, Forer, Gabbay & Kasierer, a member of EY Global. The policy, which is designed to
ensure that such services do not impair the independence of our auditors, requires pre-approval from the audit committee on
an annual basis for the various audit and non-audit services that may be performed by our auditors. If a type of service, that is
to be provided by our auditors, has not received such general pre-approval, it will require specific pre-approval by our audit
committee. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-
approval by our audit committee. The policy prohibits retention of the independent auditors to perform the prohibited non-
audit functions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also considers whether
proposed services are compatible with the independence of the public auditors.
Item 16D.
Exemptions from the Listing Standards for Audit Committees.
Not applicable.
103
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
During 2019, we repurchased our ordinary shares as described in the table below.
Period
(a) Total
number of
shares
purchased
(b) Average
price paid per
share
(c) Total
number of
shares
purchased as
part of publicly
announced
plans or
programs
(d) Maximum
number (or
approximately
dollar value) of
shares that may
yet be
purchased
under the plans
or programs
January 1 - January 31
February 1 - February 28
March 1 - March 31
April 1 - April 30
May 1 - May 31
June 1 - June 30
July 1 - July 31
August 1 - August 31
September 1 - September 30
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
(In dollars, except share amounts)
83,028
—
—
—
—
39,418
1,911
175
58,084
40,915
68,566
43,268
335,365
106
—
—
—
—
138
139
150
146
146
153.40
149.61
137.22
83,028
—
—
—
—
39,418
1,911
175
58,084
40,915
68,566
43,268
335,365
101,100,485
101,100,485
101,100,485
101,100,485
101,100,485
95,669,437
90,238,388
84,807,340
79,376,291
73,945,243
68,514,195
63,083,146
On January 10, 2017, we announced that our Board of Directors authorized a program to repurchase up to $150
million of our issued and outstanding ordinary shares and ADRs. This share repurchase program commenced on April 7,
2017. On February 12, 2020, our Board of Directors authorized an additional program to repurchase up to $200 million of our
issued and outstanding ordinary shares and ADRs, following completion of the program approved in 2017, which has $39
remaining available for purchase as of March 17, 2020. Repurchases may be made from time to time in the open market or in
privately negotiated transactions in accordance with applicable securities laws and regulations. The timing and amount of the
repurchase transactions will be determined by management and may depend on a variety of factors including market
conditions, alternative investment opportunities and other considerations.
These programs do not obligate us to acquire any particular amount of ordinary shares and ADRs and each program
may be modified or discontinued at any time without prior notice.
Item 16F.
Change in Registrant’s Certifying Accountant.
None.
104
Item 16G.
Corporate Governance.
We follow the Israeli Companies Law, the relevant provisions of which are summarized in this annual report, rather
than comply with the NASDAQ requirements relating to: (i) the quorum for shareholder meetings (see Item 10, “Additional
Information – Memorandum and Articles of Association – Meetings of Shareholders” in this annual report); (ii) shareholder
approval with respect to issuance of securities under equity based compensation plans (see Item 10, “Additional Information
– Memorandum and Articles of Association – Approval of Certain Transactions” and “Approval of Office Holder
Compensation” in this annual report); and (iii) sending annual reports to shareholders (see Item 10, “Additional Information –
Documents on Display” in this annual report).
Item 16H.
Mine Safety Disclosure.
Not Applicable.
105
PART III
Item 17.
Financial Statements.
Not Applicable.
Item 18.
Financial Statements.
See pages F-1 through F-53 of this annual report attached hereto.
Item 19.
Exhibits.
Exhibit No.
Description
1.1
1.2
2.1
2.2
2.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Amended and Restated Memorandum of Association, as approved on December 21, 2006 (English
translation) (filed as Exhibit 1.1 to NICE Ltd.’s Annual Report on Form 20-F filed with the SEC on June 13,
2007, and incorporated herein by reference).
Amended and Restated Articles of Association, as amended on December 21, 2016 (filed as Exhibit 1.2 to
NICE Ltd.’s Annual Report on Form 20-F filed with the SEC on April 21, 2017, and incorporated herein by
reference).
Form of Share Certificate (filed as Exhibit 4.1 to Amendment No. 1 to NICE Ltd.’s Registration Statement
on Form F-1 (Registration No. 333-99640) filed with the SEC on December 29, 1995, and incorporated
herein by reference).
Form of Deposit Agreement including Form of ADR Certificate (filed as Exhibit 1 to NICE Ltd.’s
Registration Statement on Form F-6 (Registration No. 333-203623) filed with the SEC on April 24, 2015,
and incorporated herein by reference).
Description of Securities
NICE Ltd. 2016 Share Incentive Plan (filed as Exhibit 4.3 to NICE’s Annual Report on Form 20-F filed with
the SEC on March 23, 2016, and incorporated herein by reference).
NICE Ltd. 2008 Share Incentive Plan, as amended (filed as Exhibit 99.1 to NICE’s Immediate Report on
Form 6-K filed with the SEC on May 28, 2015, and incorporated herein by reference).
e-Glue Software Technologies, Inc. 2004 Stock Option Plan, as amended (filed as Exhibit 4.4 to NICE Ltd.’s
Registration Statement on Form S-8 (Registration No. 333-168100) filed with the SEC on July 14, 2010, and
incorporated herein by reference).
Fizzback Group (Holdings) Limited Employee Share Option Scheme (filed as Exhibit 4.4 to NICE Ltd.’s
Registration Statement on Form S-8 (Registration No. 333-177510) filed with the SEC on October 26, 2011,
and incorporated herein by reference).
Merced Systems, Inc. 2001 Stock Plan (filed as Exhibit 4.4 to NICE Ltd.’s Registration Statement on Form
S-8 (Registration No. 333-179408) filed with the SEC on February 7, 2012, and incorporated herein by
reference).
Merced Systems, Inc. 2011 Stock Plan (filed as Exhibit 4.5 to NICE Ltd.’s Registration Statement on Form
S-8 (Registration No. 333-179408) filed with the SEC on February 7, 2012, and incorporated herein by
reference).
NICE Ltd.’s Executives & Directors Compensation Policy (filed as Annex A in Exhibit 99.1 of NICE’s
Immediate Report on Form 6-K filed with the SEC on June 1, 2015, as amended on September 18, 2019 as
set forth in Exhibit 99.1 of NICE’s Immediate Report on Form 6-K filed with the SEC on August 8, 2019,
and incorporated herein by reference).
inContact, Inc. 2008 Equity Incentive Plan (filed as Exhibit 4.4 to NICE Ltd.’s Registration Statement on
Form S-8 (Registration No. 333-191176) filed with the SEC on November 15, 2016, and incorporated herein
by reference).
Nexidia Inc. 2005 Stock Incentive Plan (filed as Exhibit 4.4 to NICE-Systems Ltd.’s Registration Statement
on Form S-8 (Registration No. 333-191176) filed with the SEC on March 23, 2016, and incorporated herein
by reference).
Mattersight Corporation 1999 Stock Incentive Plan (filed as Exhibit 4.4 to NICE Ltd.’s Registration
Statement on Form S-8 (Registration No. 333-226930) filed with the SEC on August 20, 2018, and
incorporated herein by reference).
Credit Agreement, dated November 14, 2016 (filed as Exhibit 4.15 to NICE Ltd.’s Annual Report on Form
20-F filed with the SEC on April 21, 2017, and incorporated herein by reference).
106
4.12
4.13
8.1
12.1
12.2
13.1
13.2
15.1
101
Indenture, dated January 18, 2017 (filed as Exhibit 4.16 to NICE Ltd.’s Annual Report on Form 20-F filed
with the SEC on April 21, 2017, and incorporated herein by reference).
inContact Agreement and Plan of Merger, dated May 17, 2016 (filed as Exhibit 4.17 to NICE Ltd.’s Annual
Report on Form 20-F filed with the SEC on April 21, 2017, and incorporated herein by reference).
List of significant subsidiaries.
Certification by the Chief Executive Officer of NICE Ltd., pursuant to Section 302 of the Sarbanes-Oxley
Act 2002.
Certification by the Chief Financial Officer of NICE Ltd., pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification by the Chief Executive Officer of NICE Ltd., pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by the Chief Financial Officer of NICE Ltd., pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Consent of Kost, Forer, Gabbay & Kasierer, a member of EY Global.
The following financial information from NICE Ltd.’s Annual Report on Form 20-F for the year ended
December 31, 2019, formatted in Inline XBRL ("iXBRL"): (i) Consolidated Balance Sheets at December 31,
2019 and 2018; (ii) Consolidated Statements of Income for the years ended December 31, 2019, 2018 and
2017; (iii) Statements of Changes in Shareholders’ Equity and Comprehensive Income for the years ended
December 31, 2019, 2018 and 2017; (iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2019, 2018 and 2017; and (v) Notes to Consolidated Financial Statements.
107
NICE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
IN U.S. DOLLARS
INDEX
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F - 2
F - 6
F - 7
F - 9
F - 10
F - 12
F - 14
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
NICE Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NICE Ltd. and its subsidiaries (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related
notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated April 6, 2020 expressed an unqualified opinion thereon.
Adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic
606):
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for
revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with
Customers (Topic 606), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or disclosures to which its relate.
F-2
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Revenue Recognition:
Description of
the Matter
As described in Note 2 to the consolidated financial statements, the Company generates revenues mainly
from licensing its software products and services, including cloud-based services. The Company enters
into contracts with customers that often include promises to transfer multiple products and services, which
are accounted for separately if they are distinct performance obligations. In such contracts, the transaction
price is then allocated to the distinct performance obligations on a relative standalone selling price basis
and revenue is recognized when control of the distinct performance obligation is transferred. Revenues
from cloud-based services, are recognized either ratably over the contract period or based on usage, as
applicable.
The accounting for contracts with multiple elements which include a software license requires the
company to exercise significant judgment in determining revenue recognition for these contracts and
include (a) identification and determination of whether products and services are considered distinct
performance obligations that should be accounted for separately (b) determination of stand-alone selling
prices for each distinct performance obligation that are not sold separately. For products that are not sold
separately, directly observable data is generally not available, which requires the Company to make
significant assumptions regarding the stand-alone selling prices of the related performance obligations (c)
timing of when revenue is recognized) for each distinct
the pattern of transferring control (i.e.,
performance obligation. For cloud-based revenues recognized based on usage,
the processing and
recognition of revenue are highly automated and involves capturing and pricing significant volumes of
data.
Given these factors, the related audit effort in evaluating management’s judgments in determining revenue
recognition for these customer contracts was extensive and required a high degree of auditor judgment.
How We
Addressed the
Matter in Our
Audit
Our principal audit procedures related to the Company’s revenue recognition for these customer contracts
included the following:
We obtained an understanding, evaluated the design and tested the operating effectiveness of the
Company's process and controls to identify and determine the distinct performance obligations, the relative
standalone selling price for each performance obligation and the determination of the timing of revenue
We evaluated the methodology and tested the reasonableness of management’s estimate of stand-alone
selling prices on a sample basis for products and services that are not sold separately.
We selected a sample of customer agreements and performed the following procedures among others: (1)
obtained and read contract source documents for each selection, including master agreements, and other
documents that were part of the agreement, (2) tested management’s identification of significant terms for
completeness, including the identification and determination of distinct performance obligations, (3) tested
management’s calculations of revenue and the associated timing of revenue recognition, (4) we involved
IT professionals with specialized skill and knowledge to assist in testing certain internal controls over the
Company’s revenue process, including controls over the capture related usage transactional information
through the Company’s IT systems. On a sample basis, we tested usage and observed that usage attributes
such as duration and type of service were captured in the relevant IT systems
/s/ KOST FORER GABBAY & KASIERER
A Member of EY Global
We have served as the Company's auditor since 1995.
Tel-Aviv, Israel
April 6, 2020
F-3
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of NICE Ltd.
Opinion on Internal Control over Financial Reporting
We have audited NICE Ltd.'s and its subsidiaries (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018 and the
related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2019, and the related notes and our report dated April 6, 2020
expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
F-4
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A,
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ KOST FORER GABBAY & KASIERER
A Member of EY Global
Tel-Aviv, Israel
April 6, 2020
F-5
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
NICE LTD. AND ITS SUBSIDIARIES
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments
Trade receivables (net of allowance for doubtful accounts of $ 9,815 and $ 8,464 at
December 31, 2019 and 2018, respectively)
Prepaid expenses and other current assets
Total current assets
LONG-TERM ASSETS:
Long-term investments
Other long-term assets
Property and equipment, net
Deferred tax assets
Operating lease right-of-use assets
Other intangible assets, net
Goodwill
Total long-term assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2019
2018
$
228,323
$
210,772
319,622
116,972
242,099
243,729
287,963
87,450
875,689
861,241
542,389
124,034
141,647
30,513
106,196
411,019
1,378,418
244,998
74,042
140,338
12,309
—
508,232
1,366,206
2,734,216
2,346,125
$
3,609,905
$
3,207,366
F-6
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables
Deferred revenues and advances from customers
Current maturities of operating leases
Exchangeable senior notes
Accrued expenses and other liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Deferred revenues and advances from customers
Accrued severance pay
Deferred tax liabilities
Loan
Operating leases
Other long-term liabilities
NICE LTD. AND ITS SUBSIDIARIES
December 31,
2019
2018
$
30,376
$
245,792
21,519
251,583
391,685
29,617
221,387
—
—
373,908
940,955
624,912
26,045
14,596
52,509
213,313
103,490
1,731
35,112
15,986
44,140
455,985
—
14,618
Total long-term liabilities
411,684
565,841
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Share capital-
Ordinary shares of NIS 1 par value:
Authorized: 125,000,000 shares at December 31, 2019 and 2018; Issued: 74,774,827
and 74,367,450 shares at December 31, 2019 and 2018, respectively; Outstanding:
62,398,221 and 61,769,554 shares at December 31, 2019 and 2018, respectively
Additional paid-in capital
Treasury shares at cost – 12,376,606 and 12,597,896 Ordinary shares at December 31,
2019 and 2018, respectively
Accumulated other comprehensive loss
Retained earnings
Total shareholders' equity
18,961
1,568,035
18,849
1,499,986
(554,146)
(33,299)
(527,417)
(46,616)
1,257,715
1,071,811
2,257,266
2,016,613
Total liabilities and shareholders' equity
$
3,609,905
$
3,207,366
The accompanying notes are an integral part of the consolidated financial statements.
F-7
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except share and per share data)
Revenues:
Products
Services
Cloud
Total revenues
Cost of revenues:
Products
Services
Cloud
Total cost of revenues
Gross profit
Operating expenses:
Research and development, net
Selling and marketing
General and administrative
Amortization of acquired intangibles
NICE LTD. AND ITS SUBSIDIARIES
Year ended December 31,
2018
2017
2019
$
$
269,100
709,064
595,748
$
263,805
719,531
461,183
318,946
652,040
361,166
1,573,912
1,444,519
1,332,152
22,926
218,990
289,852
31,065
229,671
236,079
51,065
225,020
192,588
531,768
496,815
468,673
1,042,144
947,704
863,479
193,718
399,304
168,022
42,383
183,830
370,659
153,323
42,276
181,107
361,328
129,071
41,902
Total operating expenses
803,427
750,088
713,408
Operating income
Financial expenses and other, net
Income before taxes on income
Taxes on income (tax benefit)
Net income
Basic earnings per share
Diluted earnings per share
238,717
4,444
234,273
48,369
185,904
2.99
2.88
$
$
$
197,616
10,901
186,715
27,377
159,338
2.60
2.52
$
$
$
150,071
20,411
129,660
(13,631)
143,291
2.37
2.31
$
$
$
Weighted average number of shares used in computing:
Basic earnings per share
62,120
61,387
60,444
Diluted earnings per share
64,661
63,309
62,119
The accompanying notes are an integral part of the consolidated financial statements.
F-8
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
NICE LTD. AND ITS SUBSIDIARIES
Net income
Other comprehensive income (loss), net of tax:
Year ended
December 31,
2018
2017
2019
$
185,904
$
159,338
$
143,291
Change in foreign currency translation adjustment
2,458
(9,261)
13,529
Available-for-sale investments:
Change in net unrealized gains (losses)
Less - reclassification adjustment for net gains (loss) realized and
included in net income
Net change (net of tax effect of $(913), $351 and $(113))
Cash flow hedges:
6,260
(467)
5,793
(574)
(18)
(592)
(860)
6
(854)
Change in unrealized gains (losses)
Less - reclassification adjustment for net gains (losses) realized and
included in net income
5,495
(8,630)
6,821
(429)
4,781
(5,586)
Net change (net of tax effect of $(691)), $370 and $0)
5,066
(3,849)
1,235
Total other comprehensive income (loss)
13,317
(13,702)
13,910
Comprehensive income
$
199,221
$
145,636
$
157,201
The accompanying notes are an integral part of the consolidated financial statements.
F-9
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands
NICE LTD. AND ITS SUBSIDIARIES
Share
capital
Additional
paid-in
capital
Treasury
shares
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders'
equity
Balance as of January 1, 2019
$
18,849
$
1,499,986
$
(527,417) $
(46,616) $
1,071,811
$
2,016,613
Exercise of share options
Stock-based compensation
Issuance of treasury shares under
share-based compensation plan
(556,655 ordinary shares)
Treasury shares purchased
Other comprehensive income
Net income
112
—
—
—
—
—
1,907
82,033
(15,891)
—
—
—
—
—
19,300
(46,029)
—
—
—
—
—
—
13,317
—
—
—
—
—
—
185,904
2,019
82,033
3,409
(46,029)
13,317
185,904
Balance as of December 31, 2019
$
18,961
$
1,568,035
$
(554,146) $
(33,299) $
1,257,715
$
2,257,266
Share
capital
Additional
paid-in
capital
Treasury
shares
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders'
equity
Balance as of January 1, 2018
$
18,595
$
1,420,813
$
(507,705) $
(32,914) $
850,772
$
1,749,561
Effect of adopting ASU 2014-09:
"Revenue from Contracts with
Customers (ASC 606)"
Exercise of share options
Stock-based compensation
Issuance of treasury shares under
share-based compensation plan
(203,575 ordinary shares)
Treasury shares purchased
Other comprehensive loss
Equity awards assumed for
acquisitions
Net income
—
254
—
—
—
—
—
—
—
16,143
67,223
(4,976)
—
—
783
—
—
—
—
7,574
(27,286)
—
—
—
—
—
—
—
—
(13,702)
—
—
61,701
—
—
—
—
—
—
159,338
61,701
16,397
67,223
2,598
(27,286)
(13,702)
783
159,338
Balance as of December 31, 2018
$
18,849
$
1,499,986
$
(527,417) $
(46,616) $
1,071,811
$
2,016,613
The accompanying notes are an integral part of the consolidated financial statements
F-10
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands
NICE LTD. AND ITS SUBSIDIARIES
Share
capital
Additional
paid-in
capital
Treasury
shares
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders'
equity
Balance as of January 1, 2017
$
18,280
$
1,317,539
$
(488,573) $
(46,824) $
710,910
$
1,511,332
Effect of adopting ASU 2016-09:
Improvements
to Employee Share-Based
Payment Accounting
Exercise of share options
Stock-based compensation
Issuance of treasury shares under
share-based compensation plan
(147,347 ordinary shares)
Equity components of
exchangeable note
Treasury shares purchased
Other comprehensive income
Dividends paid ($ 0.16 per share)
Net income
—
315
—
—
—
—
—
—
—
1,908
17,133
56,980
—
—
—
(3,642)
5,296
30,895
—
—
—
—
—
(24,428)
—
—
—
—
—
—
—
—
—
13,910
—
—
6,208
—
—
—
—
—
—
(9,637)
143,291
8,116
17,448
56,980
1,654
30,895
(24,428)
13,910
(9,637)
143,291
Balance as of December 31, 2017
$
18,595
$
1,420,813
$
(507,705) $
(32,914) $
850,772
$
1,749,561
The accompanying notes are an integral part of the consolidated financial statements.
F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
NICE LTD. AND ITS SUBSIDIARIES
Cash flows from operating activities:
Net income
$
185,904
$
159,338
$
143,291
Adjustments required to reconcile net income to net cash provided by
Year ended
December 31,
2018
2017
2019
operating activities:
Depreciation and amortization
Stock-based compensation
Accrued severance pay, net
Amortization of premium and discount and accrued interest on
marketable securities
Deferred taxes, net
Changes in operating assets and liabilities:
Trade receivables, net
Prepaid expenses and other current assets
Trade payables
Accrued expenses and other liabilities
Operating lease right-of-use assets, net
Deferred revenues
Long term liabilities
Operating lease liabilities
Amortization of discount on debt
Other
173,230
80,864
(1,964)
(53)
(12,208)
(29,863)
(76,180)
777
31,730
19,104
13,810
(311)
(18,839)
9,236
(1,079)
157,142
67,223
1,020
(598)
(30,172)
(72,583)
(29,852)
(3,526)
48,095
—
92,768
(1,024)
—
8,670
108
156,301
56,980
(788)
646
(70,805)
37,735
(6,839)
2,665
25,541
—
41,624
(5,169)
—
13,547
(67)
Net cash provided by operating activities
374,158
396,609
394,662
Cash flows from investing activities:
Purchase of property and equipment
Purchase of investments
Proceeds from investments
Payments for business and asset acquisitions, net of cash acquired
Capitalization of internal use software costs
(27,293)
(619,060)
362,713
(25,972)
(34,679)
(31,442)
(429,500)
137,180
(104,776)
(32,225)
(39,889)
(133,423)
64,295
(76,027)
(27,936)
Net cash used in investing activities
(344,291)
(460,763)
(212,980)
The accompanying notes are an integral part of the consolidated financial statements.
F-12
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from financing activities:
Proceeds from issuance of shares upon exercise of options
Purchase of treasury shares
Dividends paid
Capital lease payments
Proceeds from issuance of exchangeable senior notes, net
Repayment of loan
Repayment of short-term debt
NICE LTD. AND ITS SUBSIDIARIES
Year ended
December 31,
2018
2019
5,428
(47,276)
—
(816)
—
—
—
19,048
(26,004)
—
(876)
—
—
(8,436)
2017
19,240
(24,428)
(9,637)
(137)
260,135
(260,000)
—
Net cash used in financing activities
(42,664)
(16,268)
(14,827)
Effect of exchange rate changes on cash
(979)
(5,781)
4,421
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(13,776)
242,099
(86,203)
328,302
Cash and cash equivalents at the end of the year
$
228,323
$
242,099
$
Supplemental disclosure of cash flows activities:
Cash paid during the year for:
Income taxes
Interest
Non-cash activities:
Decrease in other receivables with respect to exercise of share options
Increase in accrued expenses and other liabilities with respect to
purchase of treasury shares
$
$
$
$
65,200
11,493
$
$
42,858
12,319
— $
53
35
$
1,282
$
$
$
$
171,276
157,026
328,302
33,029
7,910
138
—
The accompanying notes are an integral part of the consolidated financial statements.
F-13
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:- GENERAL
a. General:
NICE Ltd. and its subsidiaries (the "Company") is a global enterprise cloud software leader, serving two
main markets, Customer Engagement and Financial Crime and Compliance. The Company's core mission
is to transform experiences to be extraordinary and trusted. The Company's software is used by customer
service organizations of enterprises of all sizes and verticals, and by compliance and fraud-prevention
groups in leading financial institutions.
The Company help organizations transform customer experiences with solutions aimed at understanding
consumer journeys, creating smarter hyper-personalized connections, managing omnichannel interactions
and providing digital-centric self-service capabilities. The Company also help organizations transform their
workforce experience with solutions aimed at engaging employees, optimizing operations and automating
processes. Additionally, The Company help financial services organizations make experiences safer with
solutions aimed at predicting needs and identifying risks to prevent money laundering and fraud, as well as
ensuring compliance in real-time.
NICE Ltd. is at the forefront of several industry technological disruptions: the growing maturity of
analytics and AI, the adoption of cloud platforms by enterprises, the expansion of use of digital channels to
communicate with customers, and the shift by financial institutions to integrated risk management solutions
for end-to-end financial crime prevention. The Company's solutions form a comprehensive and unified
portfolio based on its unique domain expertise for driving customer experience transformation and
preventing financial crime as well as enhancing public safety. These solutions are built on innovative cloud
platforms that are digital-first, integrating advanced analytics, AI and automation in a wide range of
business applications.
b. Acquisitions:
1. Acquisitions in 2019:
During 2019, the Company acquired certain companies, accounted for a as business combination and
an asset acquisition (see also note 2z). The financial results of the acquired companies are included in
the Company’s consolidated financial statements, from their respective acquisition dates, and the
results from each of these companies were not individually material to the Company’s consolidated
financial statements. In the aggregate, the total preliminary purchase price for these acquisitions was
approximately $26,671 in cash. The Company preliminary recorded $15,683 of identifiable intangible
assets, based on their estimated fair values, and $14,480 of residual goodwill. The preliminary fair
value estimates for the assets acquired assumed for these acquisitions completed during 2019 were
based upon preliminary calculations and valuations, and the estimates and assumptions for these
acquisitions are subject
information during the
to change as the Company obtains additional
respective measurement periods (up to one year from the respective acquisition dates).
2. Acquisition of Mattersight Corporation in 2018:
On August 20, 2018,
the Company completed the acquisition of Mattersight Corporation
("Mattersight"), a leading provider of cloud based analytics for customer service organizations. The
Company acquired Mattersight for total consideration of $105,053.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:- GENERAL (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
Upon acquisition, Mattersight became a wholly-owned subsidiary of the Company. The acquisition
was accounted for as a business combination. This method requires, among other things, that assets
acquired and liabilities assumed in a business combination be recognized at their fair values as of the
acquisition date. The Company recorded core technology, customer
relationships, customer
backlog and goodwill in amount of $50,852; $7,757; $5,439 and $48,579, respectively. The estimated
useful life of the core technology, customer relationships, and customer backlog are 5 to 7 years, 7
years, and 2 to 3 years, respectively.
Goodwill generated from this business combination is attributed to synergies between the Company's
and Mattersight's respective products and services. The goodwill is not deductible for income tax
purposes. The fair value estimates of assets acquired and liabilities assumed from this acquisition
were based on a preliminary valuation, which was finalized during 2019 as part of the measurement
period. See Note 8 regarding changes during 2019.
The results of Mattersight's operations have been included in the consolidated financial statements
since August 20, 2018. Pro forma results of operations related to this acquisition have not been
prepared because they are not material to the Company's consolidated statement of income.
3. Acquisitions in 2017:
During 2017, the Company acquired certain companies. These acquisitions were not significant
individually or in the aggregate. The financial results of the acquired companies are included in the
Company's consolidated financial statements from their respective acquisition dates, and the results
from each of these companies were not individually material to the Company's consolidated financial
statements. In the aggregate, the total purchase price for these acquisitions was approximately
$76,870. The Company preliminarily recorded $2,291 of net tangible liabilities and $51,015 of
identifiable intangible assets, based on their estimated fair values, and $28,145 of residual goodwill.
The fair value of assets acquired and liabilities assumed from those acquisitions were based on a
preliminary valuation which was finalized during 2018 as part of the measurement period. See Note 8
regarding changes during 2018.
4. Acquisitions related costs:
During 2019, 2018 and 2017, acquisition related costs amounted to $720, $1,249 and $970
respectively, and were included in general and administrative expenses.
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements were prepared in accordance with United States Generally Accepted
Accounting Principles ("U.S. GAAP").
a. Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates, judgments and assumptions. The Company's management believes that the
estimates, judgments and assumptions used are reasonable based upon information available at the time
they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
F-15
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b. Financial statements in United States dollars:
The currency of the primary economic environment in which the operations of NICE Ltd. and certain
subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of NICE
Ltd. and certain subsidiaries.
NICE Ltd. and certain subsidiaries' transactions and balances denominated in dollars are presented at their
original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with
ASC 830, "Foreign Currency Matters". All transaction gains and losses from remeasurement of monetary
balance sheet items denominated in non-dollar currencies are reflected in the statements of income as
financial income or expenses, as appropriate.
For those subsidiaries whose functional currency has been determined to be a non-dollar currency, assets
and liabilities are translated at year-end exchange rates and statement of income items are translated at
average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate
component of accumulated other comprehensive income (loss) in shareholders' equity.
c. Principles of consolidation:
Intercompany transactions and balances have been eliminated upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term unrestricted highly liquid investments that are readily convertible into cash,
with original maturities of three months or less at acquisition.
e. Marketable securities:
The Company accounts for investments in debt securities in accordance with ASC 320, "Investments - Debt
and Equity Securities". Management determines the appropriate classification of its investments in debt
securities at the time of purchase and re-evaluates such determinations at each balance sheet date.
Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market
prices. Unrealized gains and losses are reported in a separate component of shareholders' equity in
accumulated other comprehensive income. Gains and losses are recognized when realized, on a specific
identification basis, in the Company's consolidated statements of income.
The Company's securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets
are considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair
value of its investments below the cost basis is judged to be other-than-temporary. Factors considered in
making such a determination include the duration and severity of the impairment, the reason for the decline
in value, the potential recovery period and the Company's intent to sell, including whether it is more likely
than not that the Company will be required to sell the investment before recovery of cost basis.
For securities with an unrealized loss that the Company intends to sell, or it is more likely than not that the
Company will be required to sell before recovery of their amortized cost basis, the entire difference
between amortized cost and fair value is recognized in earnings. For securities that do not meet these
criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses,
while declines in fair value related to other factors are recognized in accumulated other comprehensive
income.
F-16
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
f.
Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the
following annual periods ranges:
Computers and peripheral equipment
Internal use software
Office furniture and equipment
Years
3 - 5
3
5 - 14
Leasehold improvements are amortized by the straight-line method over the term of the lease or the
estimated useful life of the improvements, whichever is shorter.
g.
Internal use software costs:
The Company capitalizes development costs incurred during the application development stage that are
related to internal use technology that supports its cloud services. Under ASC 350-40, internal-use software
is included in property and equipment, net in the consolidated balance sheets. Capitalization of such costs
begins when the preliminary project stage is complete and ceases at the point in which the project is
substantially complete and is ready for its intended purpose. Costs incurred in the process of software
production are charged to expenses as incurred.
h. Other intangible assets, net:
Other intangible assets are amortized over their estimated useful lives using the straight-line method, at the
following annual periods ranges:
Core technology
Customer relationships
Trademarks
Customer backlog
i.
Impairment of long-lived assets:
Years
3 – 8
3 - 7
2 - 12
2 - 3
The Company's long-lived assets and identifiable intangibles that are subject to amortization are reviewed
for impairment in accordance with ASC 360, "Property, Plant, and Equipment," whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment
indicators include any significant changes in the manner of the Company's use of the assets and significant
negative industry or economic trends.
Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a
comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset, an
impairment charge is recorded for the excess of the carrying amount over fair value. In 2019, 2018 and
2017, no impairment charge was recognized.
F-17
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. Goodwill:
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net
tangible and intangible assets acquired. Under ASC 350, "Intangible - Goodwill and Other" ("ASC 350"),
goodwill is not amortized, but rather is subject to an annual impairment test.
ASC 350 requires goodwill to be tested for impairment at the reporting unit level at least annually or
between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for
impairment by comparing the fair value of the reporting unit with its carrying value.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform
the two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more
likely than not indication of impairment, no further impairment testing is required. If it does result in a
more likely than not indication of impairment, the two-step impairment test is performed. Alternatively,
ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly
to performing the first step of the goodwill impairment test.
During the fourth quarter of each of the years presented, the Company performed a qualitative assessment
for its reporting units and concluded that the qualitative assessment did not result in a more likely than not
indication of impairment, and therefore no further impairment testing was required. Accordingly, during the
years 2019, 2018 and 2017, no impairment charge was recognized.
k. Exchangeable senior notes:
The Company applies ASC 815, "Derivative and Hedging" ("ASC 815"), and ASC 470, "Debt" ("ASC
470"). Under these standards, the Company separately accounts for the liability and equity components of
convertible debt
instruments that may be settled in cash in a manner that reflects the Company's
nonconvertible debt borrowing rate. The liability component at issuance is recognized at fair value, based
on the fair value of a similar instrument that does not have a conversion feature. The equity component is
based on the excess of the principal amount of the debentures over the fair value of the liability component,
after adjusting for an allocation of debt issuance costs, and is recorded as capital in excess of par. Debt
discounts are amortized as additional non-cash interest expense over the expected life of the debt.
l. Revenue recognition:
The Company generates revenues from sales of software products, services and cloud, which include
software license,
support and maintenance,
implementation, configuration, project management, consulting and training. The Company sells its
products directly through its sales force and indirectly through a global network of distributors, system
integrators and strategic partners, all of whom are considered end-users.
software-as-a-service, network connectivity, hosting,
Starting 2018, the Company recognizes revenues in accordance with ASC No. 606, "Revenue from
Contracts with Customers" ("ASC 606"). Under the standard, the Company recognizes revenue when its
customer obtains control of promised goods or services in an amount that reflects the consideration that the
Company expects to receive in exchange for those goods or services. To determine revenue recognition for
contracts that are within the scope of the standard, the Company perform the following five steps:
F-18
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
1) Identify the contract(s) with a customer
A contract with a customer exists when (i) there is an enforceable contract with the customer that defines
each party’s rights regarding the goods or services to be transferred and identifies the payment terms related
to these goods or services; (ii) the contract has commercial substance; and (iii) the Company determines
that collection of substantially all consideration for goods or services that are transferred is probable based
on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in
determining the customer's ability and intent to pay, which is based on a variety of factors, including the
customer's historical payment experience.
2) Identify the performance obligations in the contract
The Company enters into contracts that can include multiple performance obligations. The Company
accounts for individual products and services separately if they are distinct – i.e., if a product or service is
separately identifiable from other items in the contract and if a customer can benefit from it on its own or
with other resources that are readily available to the customer.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in
exchange for transferring goods or services to the customer.
Payment terms and conditions vary by contract type. In instances where the timing of revenue recognition
differs from the timing of invoicing, the Company determines its contracts generally to not include a
significant financing component since the Company's selling prices are not subjected to billing terms nor is
its purpose to receive financing from its customers or to provide customers with financing. In addition, the
Company uses the practical expedient and does not assess the existence of a significant financing
component when the difference between payment and revenue recognition is a year or less.
Revenue is measured based on the consideration specified in a contract with a customer, excluding taxes
assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-
producing transaction, that are collected by the Company from a customer. The Company enters into
contracts that can include various combinations of products and services, which are generally capable of
being distinct and accounted for as separate performance obligations.
4) Allocate the transaction price to the performance obligations in the contract
The Company allocates the transaction price to each performance obligation identified based on its relative
standalone selling price ("SSP") out of the total consideration of the contract.
The Company uses judgment in determining the SSP. If the SSP is not observable through standalone
transactions, the Company estimates the SSP taking into account available information such as geographic
or regional specific factors, internal costs, profit objectives, and internally approved pricing guidelines
related to the performance obligation.
The Company typically establish SSP range for its products and services, which is reassessed on a periodic
basis or when facts and circumstances change. SSP for products and services can evolve over time due to
changes in Nice Ltd. pricing practices that are influenced by intense competition, changes in demand for
products and services, and economic factors, among others.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
For product where the SSP cannot be determined based on observable prices, given the same products are
sold for a broad range of amounts (that is, the selling price is highly variable), the SSP included in a
contract with multiple performance obligations is determined by applying a residual approach whereby all
other performance obligations within a contract are first allocated a portion of the transaction price based
upon their respective SSPs, with any residual amount of transaction price allocated to these product
revenues.
5) Recognize revenue when (or as) the entity satisfies a performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring the
promised product or service to the customer. Software license revenues are recognized at the point in time
when the software license is delivered and the customer obtains control of the asset.
Support and maintenance service revenues are recognized ratably over the term of the underlying
maintenance contract term. Renewals of maintenance contracts create new performance obligations that are
satisfied over the term with the revenues recognized ratably over the period of the renewal.
Professional services revenues are recognized as services are performed.
The Company derives its cloud revenues from subscription services, which are comprised of subscription
fees from granting customers access to the Company’s cloud computing services and from network
connectivity.
Revenue from subscription services is recognized either ratably over the contract period or based on usage,
and revenue from network connectivity is based on customer call usage and is recognized in the period the
call is initiated.
Deferred revenues, which represent a contract liability, represent unrecognized fees collected mostly for
maintenance, cloud and professional services. Deferred revenues are recognized as (or when) the Company
performs under the contract. The amount of revenues recognized in the period that was included in the
opening deferred revenues balance was approximately $226,500 for the year ended December 31, 2019.
As of December 31, 2019, the aggregate amount of the total transaction price allocated in contracts with
original duration greater than one year of the remaining performance obligations was approximately
$943,500. As of December 31, 2019, the Company expects to recognize the majority of the revenue of
remaining performance obligation over the next 24 months. Such remaining performance obligations
represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606. The Company
has elected the optional exemption, which allows for the exclusion of the amounts for remaining
performance obligations that are part of contracts with an original expected duration of one year or less.
m. Costs to Obtain Contracts:
The Company capitalizes sales commission as costs of obtaining a contract when they are incremental and
if they are expected to be recovered. The Company applies judgment in estimating the amortization period
by taking into consideration customer contract terms, history of renewals, expected length of customer
relationship, as well as the useful life of the underlying technology and products. Amortization of sales
commission expense is included in Selling and Marketing expenses in the accompanying consolidated
statements of income. For costs that the Company would have capitalized and amortized over one year or
less, the Company has elected to apply the practical expedient and expense these contract costs as incurred.
Commission expense for the years 2019, 2018 and 2017 were $93,081; $76,776 and $92,166, respectively.
F-20
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
n. Research and development costs:
Research and development costs (net of grants and capitalized expenses) incurred in the process of software
production are charged to expenses as incurred.
o.
Income taxes:
To prepare our consolidated financial statements, the Company estimates its income taxes in each of the
jurisdictions in which it operates, and in certain of these jurisdictions, it is calculated based on the Company
assumptions as to its entitlement to various benefits under the applicable tax laws in the jurisdiction. The
entitlement to such benefits depends upon the Company's compliance with the terms and conditions set out
in these laws.
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". ASC 740
prescribes the use of the liability method whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the
amount that is more likely than not to be realized. Deferred tax assets and deferred tax liabilities are
presented under long-term assets and long-term liabilities, respectively.
The Company implements a two-step approach to recognize and measure uncertain tax positions. The first
step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight
of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits,
the tax position will be sustained on audit, including resolution of any related appeals or litigation
processes. The second step is to measure the tax benefit as the largest amount that is more than 50%
(cumulative basis) likely to be realized upon ultimate settlement.
The Company classifies interest and penalties on income taxes (which includes uncertain tax positions) as
taxes on income.
p.
Non-royalty grants:
Non-royalty bearing grants from the Government of Israel for funding research and development projects
are recognized at the time the Company is entitled to such grants on the basis of the related costs incurred
and recorded as a deduction from research and development expenses.
q. Concentrations of credit risk:
instruments that potentially subject
the Company to concentrations of credit risk consist
Financial
principally of cash and cash equivalents, trade receivables, marketable securities and foreign currency
derivative contracts.
The Company's cash and cash equivalents are invested in deposits and money market funds, mainly in
dollars with major international banks. Deposits in the U.S. may be in excess of insured limits and are not
insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and therefore bear
minimal risk.
The Company's trade receivables are derived from sales to customers located primarily in North America,
Europe, the Middle East, Africa and Asia Pacific. The Company performs ongoing credit evaluations of its
customers and insures certain of its receivables with a credit insurance company. A general allowance for
doubtful accounts is provided, based on the length of time the receivables are past due.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
The Company's marketable securities include investment in corporate debentures, U.S. Treasuries and U.S.
Government Agencies. The Company's investment policy limits the amount that the Company may invest
in any one type of investment or issuer, thereby reducing credit risk concentrations.
The Company entered into foreign currency forward and option contracts intended to protect cash flows
resulting from payroll and facilities related expenses against the volatility in value of forecasted non-dollar
currency. The derivative instruments hedge a portion of the Company's non-dollar currency exposure. See
Note 10 for additional information.
r.
Severance pay:
The Israeli Severance Pay Law-1963 (the "Severance Pay Law") generally requires payment of severance
pay upon dismissal of an employee or upon termination of employment in certain circumstances. The
Company makes ongoing deposits into Israeli employees' pension plans to fund their severance liabilities.
According to Section 14 of the Severance Pay Law, the Company deposits for employees employed by the
Company since May 1, 2009 are made in lieu of the Company's severance liability, therefore no obligation
is provided for in the financial statements. Severance pay liabilities for employees employed by the
Company prior to May 1, 2009, as well as employees with special contractual arrangements, are provided
for in the financial statements based upon the latest monthly salary multiplied by the number of years of
employment.
Severance pay expense for 2019, 2018 and 2017 amounted to $7,656, $13,453 and $9,862, respectively.
The Company also has other liabilities for severance pay in other jurisdictions.
The Company has a 401(k) defined contribution plan covering certain employees in the U.S. All eligible
employees may elect to contribute up to 6%-8% of their eligible compensation but generally not greater
than annual contribution of $19 in 2019, $18.5 in 2018 and $18 in 2017 (for certain employees over 50
years of age the maximum annual contribution is $25 per year in 2019, $24.5 in 2018 and $24 in 2017) of
their total annual compensation to the plan through salary deferrals, subject to IRS limits. The Company
matches 50% of employee contributions to the plan up to a limit of 6-8% of their eligible compensation. In
the years 2019, 2018 and 2017, the Company recorded an expense for matching contributions in the amount
of $8,068; $7,732 and $7,044, respectively.
s. Leases
On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842)
(ASU 2016-02) using the modified retrospective transition approach by applying the new standard to all
leases existing at the date of initial application. Results and disclosure requirements for reporting periods
beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been
adjusted and continue to be reported in accordance with our historical accounting under Topic 840.
The Company elected the package of practical expedients permitted under the transition guidance, which
allowed it to carryforward its historical lease classification, its assessment on whether a contract was or
contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. The
Company also elected to combine its lease and non-lease components for car leases and to not recognize a
lease liability and a right-of-use (“ROU”) asset on the balance sheet for leases with a term of twelve months
or less. The Company recognize the associated lease payments in the consolidated statements of income on
a straight-line basis over the lease term.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
Under Topic 842, The Company determines if an arrangement is a lease at inception. ROU assets and lease
liabilities are recognized at commencement date based on the present value of remaining lease payments
over the lease term. For this purpose, the Company consider only payments that are fixed and determinable
at the time of commencement. As most of the Company leases do not provide an implicit rate, the
Company use its incremental borrowing rate based on the information available at commencement date in
determining the present value of lease payments. The incremental borrowing rate is estimated to
approximate the interest rate on a collateralized basis with similar terms and payments. The ROU asset is
recorded net of any lease incentives received. The lease terms may include options to extend or terminate
the lease when it is reasonably certain that the Company will exercise such options. The Company's lease
agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or
other costs. Variable lease costs are expensed as incurred on the consolidated statements of income.
t. Basic and diluted net earnings per share:
Basic net earnings per share are computed based on the weighted average number of ordinary shares
outstanding during each year. Diluted net earnings per share are computed based on the weighted average
number of ordinary shares outstanding during each year plus dilutive potential equivalent ordinary shares
considered outstanding during the year, in accordance with ASC 260, "Earnings per Share".
As the Company's intention and ability is to settle the convertible debt in cash, the potential issuance of
shares related to the convertible debt does not affect diluted shares.
As further described in Note 15, the Company entered into an exchangeable note hedge transaction and
warrants transaction. While the exchangeable note hedge transaction is anti-dilutive and as such is not
included in the computation of diluted earnings per share, the warrants transaction had dilutive effect and as
such were included in the computation of the diluted earnings per share. The number of shares related to the
outstanding exchangeable note hedge transaction is 3,457,475.
The weighted average number of shares related to outstanding anti-dilutive options excluded from the
calculations of diluted net earnings per share was 4,921; 108,617 and 62,319 for the years 2019, 2018 and
2017, respectively.
u. Accounting for stock-based compensation:
The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock
Compensation" ("ASC 718"), which requires the measurement and recognition of stock base compensation
expense based on estimated fair values for all share-based payment awards made to employees and
directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the
date of grant using an option-pricing model.
The Company recognizes compensation expenses for the value of its awards, which have graded vesting,
based on the accelerated attribution method over the requisite service period of each of the awards. The
Company account for forfeitures as they occur.
The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-
pricing model, which requires a number of assumptions: the expected volatility is based upon actual
historical stock price movements; the expected term of options granted is based upon historical experience
and represents the period of time that options granted are expected to be outstanding; the risk-free interest
rate is based on the yield from U.S. Federal Reserve zero-coupon bonds with an equivalent term; and the
expected dividend rate (an annualized dividend yield) is based on the per share dividend declared by the
Company's Board of Directors. For information on the Company's dividend payments, see Note 14d
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
The Company measures the fair value of restricted stock based on the market value of the underlying shares
at the date of grant.
The fair value of certain performance share units with market-based performance conditions granted under
the employee equity plan was estimated on the grant date using the Monte Carlo valuation methodology.
v. Fair value of financial instruments:
The Company applies ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"). Under this
standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement
date. The Company measures its investments in money market funds classified as cash equivalents,
marketable securities and its foreign currency derivative contracts at fair value.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy
for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability developed based on
market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect
the Company's assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
•
•
•
Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has
the ability to access. Since valuations are based on quoted prices that are readily and regularly
available in an active market, valuation of these products does not entail a significant degree of
judgment.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide
variety of factors, including, for example, the type of investment, the liquidity of markets and other
characteristics particular to the transaction. To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair value requires more judgment
and the investments are categorized as Level 3.
The Company's marketable securities, exchangeable senior notes and foreign currency derivative contracts
are classified within Level 2 (see Notes 3, 10 and 15).
The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables and trade
payables approximate their fair value due to the immediate or short-term maturities of these financial
instruments. The carrying amount of the loan approximates its fair value due to the fact that the loan bears a
variable interest rate.
F-24
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
w. Legal contingencies:
The Company is currently involved in various claims and legal proceedings. The Company reviews the
status of each matter and assesses its potential financial exposure. If the potential loss from any claim or
legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues
a liability for the estimated loss.
x. Advertising expenses:
Advertising expenses are charged to expense as incurred. Advertising expenses for the years 2019, 2018
and 2017 were $16,040; $13,527 and $13,543, respectively.
y. Treasury shares:
The Company repurchases its ordinary shares from time to time on the open market or in other transactions
and holds such shares as treasury shares. The Company presents the cost to repurchase treasury stock as a
reduction of shareholders' equity. The Company reissues treasury shares under the stock purchase plan,
upon exercise of options and upon vesting of restricted stock units ("RSU"). Reissuance of treasury shares
is accounted for in accordance with ASC 505-30 whereby gains are credited to additional paid-in capital
and losses are charged to additional paid-in capital to the extent that previous net gains are included therein
and otherwise to retained earnings.
z. Business combination:
The Company applies the provisions of ASC 805, "Business Combination" and allocates the fair value of
purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired
based on their estimated fair values. The excess of the fair value of purchase consideration over the fair
values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values
of assets acquired and liabilities assumed, management makes significant estimates and assumptions,
especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets include, but are not limited to future expected cash
flows from customer relationships, acquired technology and acquired trademarks from a market participant
perspective, useful
lives and discount rates. Management's estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a
result, actual results may differ from estimates.
The Company accounts for a transaction as an asset acquisition pursuant to the provisions of ASU 2017-01,
"Clarifying the Definition of a Business," when substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise
does not meet the definition of a business. Asset acquisition-related costs are capitalized as part of the asset
or assets acquired.
aa. Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC 220, "Comprehensive Income".
Comprehensive income generally represents all changes in shareholders' equity during the period except
those resulting from investments by, or distributions to, shareholders. The Company determined that its
items of other comprehensive income relate to gains and losses on hedging derivative instruments and
unrealized gains and losses on available for sale marketable securities and changes in foreign currency
translation adjustments.
F-25
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following tables show the components of accumulated other comprehensive income, net of taxes, as of
December 31, 2019 and 2018:
Year ended December 31, 2019
Unrealized
gains (losses)
on
marketable
securities
Unrealized
gains (losses)
on cash flow
hedges
Foreign
currency
translation
adjustment
Total
Beginning balance
$
(1,662) $
(2,715) $
(42,239) $
(46,616)
Other comprehensive income before reclassifications
6,260
5,495
2,458
14,213
Amounts reclassified from accumulated other
comprehensive loss
(467)
(429)
—
(896)
Net current-period other comprehensive income
5,793
5,066
2,458
13,317
Ending balance
$
4,131
$
2,351
$
(39,781) $
(33,299)
Year ended December 31, 2018
Unrealized
losses on
marketable
securities
Unrealized
gains (losses)
on cash flow
hedges
Foreign
currency
translation
adjustment
Total
Beginning balance
$
(1,070) $
1,134
$
(32,978) $
(32,914)
Other comprehensive loss before reclassifications
(574)
(8,630)
(9,261)
(18,483)
Amounts reclassified from accumulated other
comprehensive income (loss)
(18)
4,781
—
4,781
Net current-period other comprehensive loss
Ending balance
(592)
(1,662) $
(3,849)
(2,715) $
(9,261)
(42,239) $
(13,702)
(46,616)
$
ab. Recently adopted accounting standards:
The Company adopted ASU No. 2016-02 as of January 1, 2019, using the modified retrospective transition
method of applying the new standard at the adoption date. Therefore, upon adoption, the Company
recognized and measured leases without revising comparative period information or disclosures.
Upon adoption, the Company recognized total right of use (“ROU”) assets of $120.6 million, with
corresponding lease liabilities of $139.2 million on our consolidated balance sheets. The ROU assets
include adjustments for prepayments and accrued lease payments. The adoption did not impact the
beginning balance of retained earnings, or prior year consolidated statements of income and statements of
cash flows.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies – Leases
Liability above and Note 11 - Leases.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities,” amending the eligibility criteria for hedged items and
transactions to expand an entity’s ability to hedge nonfinancial and financial risk components. The new
guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the
presentation of hedge gains and losses with the underlying hedge item. The new guidance also simplifies
the hedge documentation and hedge effectiveness assessment requirements. The amended presentation and
disclosure requirements must be adopted on a prospective basis, while any amendments to cash flow and
net investment hedge relationships that exist on the date of adoption must be applied on a “modified
retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as
of the beginning of the year of adoption. The new guidance was effective on January 1, 2019 and the
adoption did not have a material impact on the Company's consolidated financial statements.
ac. Recently issued accounting standards, not yet adopted:
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326)" ("ASU
2016-13"). The amendments in this update require a financial asset (or a group of financial assets)
measured at amortized cost basis to be presented at the net amount expected to be collected. The
amendments broaden the information that an entity must consider in developing its expected credit loss
estimate for assets measured either collectively or individually. The use of forecasted information
incorporates more timely information in the estimate of expected credit loss, which will be of greater use to
users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The
adoption of ASU 2016-13 is not expected to have a significant impact on the Company's consolidated
financial statements.
In January 2017,
the FASB issued ASU 2017-04 "Intangibles - Goodwill and Other (ASC 350):
Simplifying the Accounting for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates step 2
of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill by
assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been
acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its
carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds
the reporting unit's fair value. ASU 2017-04 is effective for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to
have a significant impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract.” The new standard requires capitalization of the
implementation costs incurred in a cloud computing arrangement that is a service contract, with the
requirements for capitalization costs incurred to develop or obtain internal-use software. The new standard
also requires presenting the capitalized implementation costs and their related amortization and cash flows
on the financial statements in consistent with the prepaid amounts and fees related to the associated cloud
computing arrangement. Capitalized implementation costs will be required to be amortized over the term of
the arrangement, beginning when the module or component of the cloud computing arrangement that is a
service contract is ready for its intended use. The standard will be effective for the Company beginning on
January 1, 2020, with early adoption permitted. Entities can choose to adopt
the new guidance
prospectively or retrospectively. The adoption of ASU 2018-15 is not expected to have a significant impact
on the Company's consolidated financial statements.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The
amendments in ASU 2018-13 remove, modify and add disclosures for companies required to make
disclosures about recurring or nonrecurring fair value measurements under Topic 820. The amendments in
this update are effective for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. Early adoption of this guidance is permitted. Certain amendments in
this guidance are required to be applied prospectively, and others are to be applied retrospectively. The
amendments in ASU 2018-13 are disclosure-related only and as such, the adoption of ASU 2018-13 is not
expected to have a significant impact on the Company's consolidated financial statements.
NOTE 3:-
SHORT-TERM AND LONG-TERM INVESTMENTS
Short-term and long-term investments include marketable securities in the amount of $735,717 and $488,727 as of
December 31, 2019 and 2018, respectively and short-term bank deposits in the amounts of $17,444 as of December
31, 2019.
The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of
available-for-sale marketable securities as of December 31, 2019 and 2018:
Amortized cost
December 31,
Gross unrealized
gains
Gross unrealized
losses
December 31,
December 31,
Estimated fair value
(Level 2 within the
fair value hierarchy)
December 31,
2019
2018
2019
2018
2019
2018
2019
2018
Corporate debentures
$687,886
$457,944
$
4,865
$
190
$
(271) $ (1,993) $692,480
$456,141
U.S. Treasuries
U.S. Government Agencies
23,182
19,957
21,943
10,854
82
38
—
16
(2)
(20)
(226)
(1)
23,262
19,975
21,717
10,869
$731,025
$490,741
$
4,985
$
206
$
(293) $ (2,220) $735,717
$488,727
The scheduled maturities of available-for-sale marketable securities as of December 31, 2019 are as follows:
Due within one year
Due after one year through five years
Amortized
cost
192,882
538,142
731,025
$
$
$
$
Estimated
fair value
193,328
542,389
735,717
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:- SHORT-TERM AND LONG-TERM INVESTMENTS (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
Investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair
values as of December 31, 2019 and 2018 are as indicated in the following tables:
Investments with
continuous unrealized
losses for less than 12
months
December 31, 2019
Investments with
continuous unrealized
losses for 12 months or
greater
Total Investments with
continuous unrealized
losses
Corporate debentures
U.S. Treasuries
U.S. Government Agencies
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
$
70,733
$
(117) $
48,658
$
(154) $
—
10,974
—
(20)
5,005
—
(2)
—
Fair
value
119,391
5,005
10,974
$
81,707
$
(137) $
53,663
$
(156) $
135,370
$
Unrealized
losses
$
(271)
(2)
(20)
(293)
Investments with
continuous unrealized
losses for less than 12
months
December 31, 2018
Investments with
continuous unrealized
losses for 12 months or
greater
Total Investments with
continuous unrealized
losses
$
Fair
value
231,845
14,926
7,932
Unrealized
losses
$
(754) $
(12)
(1)
Fair
value
113,870
6,791
—
Unrealized
losses
$
(1,239) $
Fair
value
345,715
Unrealized
losses
$
(1,993)
(214)
—
21,717
7,932
(226)
(1)
$
254,703
$
(767) $
120,661
$
(1,453) $
375,364
$
(2,220)
Corporate debentures
U.S. Treasuries
U.S. Government Agencies
NOTE 4:- PREPAID EXPENSES AND OTHER CURRENT ASSETS
Government authorities
Interest receivable
Prepaid expenses
Inventories
Other
December 31,
2019
2018
$
46,444
$
6,948
56,008
3,389
4,183
30,369
2,867
45,671
3,434
5,109
$
116,972
$
87,450
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:- OTHER LONG-TERM ASSETS
Deferred commission costs
Severance pay fund
Long-term deposits and other assets
NOTE 6:- PROPERTY AND EQUIPMENT, NET
Cost:
Computers and peripheral equipment
Internal use software
Office furniture and equipment
Leasehold improvements
Accumulated depreciation:
Computers and peripheral equipment
Internal use software
Office furniture and equipment
Leasehold improvements
NICE LTD. AND ITS SUBSIDIARIES
December 31,
2019
2018
$
$
79,336
$
13,201
31,497
124,034
$
57,675
12,575
3,792
74,042
December 31,
2019
2018
$
263,128
$
253,325
105,297
13,180
59,199
440,804
212,471
41,622
8,655
36,409
299,157
69,452
13,060
57,454
393,291
196,820
16,597
7,717
31,819
252,953
140,338
Depreciated cost
$
141,647
$
Depreciation expense totaled $60,174, $49,963 and $37,924 for the years 2019, 2018 and 2017, respectively.
The Company recorded a reduction of $18,653 and $11,485 to the cost and accumulated depreciation of fully
depreciated equipment and leasehold improvements no longer in use for the years ended December 31, 2019
and 2018, respectively.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:- OTHER INTANGIBLE ASSETS, NET
a. Definite-lived other intangible assets:
Original amounts:
Core technology
Customer relationships, backlog and distribution network
Trademarks
Accumulated amortization:
Core technology
Customer relationships, backlog and distribution network
Trademarks
NICE LTD. AND ITS SUBSIDIARIES
December 31,
2019
2018
$
577,692
$
258,137
44,440
880,269
281,319
170,454
17,477
469,250
720,134
393,204
55,896
1,169,234
372,895
264,463
23,644
661,002
508,232
Other intangible assets, net
$
411,019
$
b. Amortization expense amounted to $113,056, $107,179 and $118,377 for the years ended December 31,
2019, 2018 and 2017, respectively.
c. Estimated amortization expense:
For the year ended December 31,
2020
2021
2022
2023
2024
Thereafter
$
$
107,543
100,525
81,351
66,195
50,110
5,295
411,019
F-31
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:- GOODWILL
Following the Company's acquisitions in 2019 and 2018, as described in Note 1b, the changes in the carrying
amount of goodwill allocated to reportable segments for the years ended December 31, 2019 and 2018 are as
follows:
Year ended December 31, 2019
Financial
Crime and
Compliance
Customer
Engagement
Total
As of January 1, 2019
Acquisitions (*)
Functional currency translation adjustments
As of December 31, 2019
$
1,103,091 $
263,115 $
1,366,206
9,176
2,413
—
623
9,176
3,036
$
1,114,680 $
263,738 $
1,378,418
Year ended December 31, 2018
Financial
Crime and
Compliance
Customer
Engagement
Total
As of January 1, 2018
Acquisitions (*)
Functional currency translation adjustments
As of December 31, 2018
$
1,053,922 $
264,320 $
1,318,242
54,203
(5,034)
—
(1,205)
54,203
(6,239)
$
1,103,091 $
263,115 $
1,366,206
(*) Including adjustments of $(5,304) and $5,624, resulting from finalization of purchase price allocations with
respect to 2019 and 2018, respectively.
NOTE 9:- ACCRUED EXPENSES AND OTHER LIABILITIES
Payroll and related expenses
Accrued expenses
Government authorities
Other
December 31,
2019
2018
$
179,291
$
97,325
101,194
13,875
158,185
104,568
95,535
15,620
$
391,685
$
373,908
F-32
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- DERIVATIVE INSTRUMENTS
The Company's risk management strategy includes the use of derivative financial instruments to reduce the
volatility of earnings and cash flows associated with changes in foreign currency exchange rates.
ASC 815, "Derivatives and Hedging" ("ASC 815"), requires the Company to recognize all of its derivative
instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments
that are designated and qualify as hedging instruments, an entity must designate the hedging instrument, based
upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a
foreign operation.
As a result of adopting new accounting guidance discussed in Note 2, "Recently adopted accounting
pronouncements", beginning January 1, 2019, gains and losses on derivatives instruments that are designated
and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that are
attributable to a particular risk), are recorded in accumulated other comprehensive income (loss) and reclassified
into in the same accounting period in which the designated forecasted transaction or hedged item affects
earnings. Prior to January 1, 2019, cash flow hedge ineffectiveness was separately measured and reported
immediately in earnings. Cash flow hedge ineffectiveness was immaterial during 2018 and 2017.
The Company entered into option and forward contracts to hedge a portion of anticipated New Israeli Shekel
("NIS"), Indian Rupee ("INR") and Philippine peso ("PHP") payroll and benefit payments as well as facilities
related payments. These derivative instruments are designated as cash flow hedges, as defined by ASC 815 and
accordingly are measured in fair value. These transactions are effective and, as a result, gain or loss on the
derivative instruments are reported as a component of accumulated other comprehensive income (loss) and
reclassified as payroll expenses, facility expenses or finance expenses, respectively, at the time that the hedged
income/expense is recorded.
Notional amount
December 31,
Fair value
(Level 2 within the fair value
hierarchy)
December 31,
2019
2018
2019
2018
Option contracts to hedge payroll
expenses ILS
expenses INR
Option contracts to hedge facility expenses ILS
expenses INR
Forward contracts to hedge payroll
expenses ILS
expenses INR
expenses PHP
Forward contracts to hedge lease obligations PHP
Forward contracts to hedge facility expenses ILS
Forward contracts to hedge facility expenses PHP
$
16,204
$
73,950
$
21,904
1,273
2,006
67,139
10,032
2,362
4,921
2,546
433
40,391
5,200
3,874
294
800
19
80
$
(2,566)
807
(137)
80
53,500
1,333
(1,926)
—
4,452
—
—
628
50
64
—
67
12
—
187
—
—
28
$
128,820
$
181,995
$
2,719
$
(3,527)
F-33
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- DERIVATIVE INSTRUMENTS (Cont.)
The Company currently hedges its exposure to the variability in future cash flows for a maximum period of one
year. As of December 31, 2019, the Company expects to reclassify all of its unrealized gains and losses from
accumulated other comprehensive income to earnings during the next twelve months.
The fair value of the Company's outstanding derivative instruments at December 31, 2019 and 2018 is
summarized below:
Derivative assets:
Balance sheet line item
Fair value of derivative
instruments
December 31,
2019
2018
Foreign exchange option contracts
Prepaid expenses and other current assets
$
1,194
$
Foreign exchange forward contracts
Prepaid expenses and other current assets
1,525
Derivative liabilities:
888
214
Foreign exchange option contracts
Accrued expenses and other liabilities
Foreign exchange forward contracts
Accrued expenses and other liabilities
$
—
— $
(2,703)
(1,926)
The effect of derivative instruments in cash flow hedging relationship on income and other comprehensive
income for the years ended December 31, 2019, 2018 and 2017 is summarized below:
Amount of gain (loss) recognized in
other comprehensive income
on derivative, net of tax (effective portion)
Year Ended December 31,
2018
2019
2017
Derivatives in foreign exchange cash flow hedging relationships:
Forward contracts
Option contracts
$
$
2,108
3,387
5,495
$
$
(6,059) $
(2,571)
(8,630) $
3,317
3,504
6,821
Derivatives in foreign exchange cash flow hedging relationships:
Amount of gain (loss) reclassified from other
comprehensive income
into income (expenses),
net of tax (effective portion)
Year Ended December 31,
2018
2019
2017
$
$
320
$
66
$
(2,429)
(749)
(429) $
4,715
4,781
$
(3,157)
(5,586)
Option contracts to hedge payroll
and facility expenses
Statements of income line item
Cost of revenues and operating
expenses
Forward contracts to hedge payroll
Cost of revenues, operating
and facility expenses
expenses and financial expenses
F-34
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:- LEASES
The Company has entered into various non-cancelable operating lease agreements for certain of our office spaces
and motor vehicles. The leases have original lease periods expiring between 2020 and 2037. The Company does not
assume renewals in its determination of the lease term unless the renewals are considered as reasonably assured at
lease commencement.
The operating lease cost for the year ended December 31, 2019 was $22,528.
Supplemental cash flow information related to leases was as follows:
Operating cash flows from operating leases
New right-of-use assets obtained in exchange for operating lease obligations
Maturities of lease liabilities were as follows:
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Total
Supplemental balance sheet information related to leases was as follows:
Current maturities of operating leases
Long-term operating leases
Total operating lease liabilities
Weighted-average remaining operating lease term
Weighted-average discount rate of operating leases
F-35
$
$
$
Year Ended
December 31,
2019
23,404
4,975
Operating
Leases
23,118
20,003
18,926
11,951
9,866
81,472
165,336
(40,327)
$
125,009
Year Ended
December 31,
2019
$
$
21,519
103,490
125,009
10.70
4.95 %
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Commitments:
The Company is also obligated under certain agreements with its suppliers to purchase licenses and hosting
services. These non-cancelable obligations as of December 31, 2019 are $65,374.
b. Legal proceedings:
From time to time the Company or its subsidiaries may be involved in legal proceedings and/or litigation
arising in the ordinary course of business. While the outcome of these matters cannot be predicted with
certainty, the Company does not believe it will have a material effect on its consolidated financial position,
results of operations, or cash flows.
NOTE 13:- TAXES ON INCOME
a.
Israeli taxation:
1. Corporate tax:
Commencing 2012, NICE Ltd. and its Israeli subsidiary elected the Preferred Enterprise regime to
apply under the Law for the Encouragement of Capital Investments (the "Investment Law"). The
election is irrevocable. Under the Preferred Enterprise Regime, from 2015 through 2016, NICE Ltd.
and its Israeli subsidiary's entire preferred income was subject to the tax rate of 16%.
In December 2016, the Israeli Knesset passed a number of changes to the Investments Law regimes.
These changes came into law in May 2017, retroactively effective beginning January 1, 2017, upon the
passing into law of Regulations promulgated by the Finance Ministry to implement the "Nexus
Principles" based on OECD guidelines published as part of the Base Erosion and Profit Shifting
(BEPS) project. Such Regulations provide rules for implementation of the new beneficial Preferred
Technology Enterprise tax regime.
The Company believes it qualifies as a Preferred Technology Enterprise and accordingly is eligible for
a tax rate of 12% on its preferred technology income, as defined in such regulations, beginning from
tax year 2017 and onwards. The Company expects that it will continue to qualify as a Preferred
Technology Enterprise in subsequent tax years.
Income not eligible for Preferred Enterprise or Preferred Technology Enterprise benefits is taxed at the
regular corporate tax rate, which is 23% in 2019, and was 23% in 2018 and 24% in 2017.
Prior to 2012, most of NICE Ltd. and its Israeli subsidiary's income was exempt from tax or subject to
reduced tax rates under the Investment Law. Upon distribution of exempt income, the distributing
company was subject to reduced corporate tax rates ordinarily applicable to such income under the
Investment Law. Currently, income subjected to a reduced tax rate under the Preferred Enterprise and
Preferred Technology Enterprise Regime will be freely distributable as dividends, subject to a 20%
withholding tax (or lower, under an applicable tax treaty). However, upon the distribution of a
dividend from such Preferred Income to an Israeli company, no withholding tax will be imposed
In September 2013, and pursuant to a temporary Israeli government tax relief, the Company made an
election to pay reduced corporate tax on undistributed exempt income, generated under the Investment
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
Law and accumulated by the company until December 31, 2011 and be entitled to distribute a
dividend, without being required to pay additional corporate tax, from such income. NICE Ltd. duly
released its and its Israeli subsidiary's tax-exempted income through 2011. In addition, under this
election the Company was required to make and complete certain qualified investments in Israeli
"industrial projects" (as defined in the Law), by December 31, 2018, which the Company believes it
has done. Further to the election, NICE Ltd. no longer has a tax liability upon future distributions of its
tax-exempted earnings, while the Israeli subsidiary may have a tax liability upon future distributions
only with respect to its 2012 tax-exempted earnings.
2. Foreign Exchange Regulations:
Under the Foreign Exchange Regulations, NICE Ltd. and its Israeli subsidiary calculate their tax
liability in U.S. Dollars according to certain orders. The tax liability, as calculated in U.S. Dollars is
translated into NIS according to the exchange rate as of December 31st of each year.
3. Tax benefits under the Israeli Law for the Encouragement of Industry (Taxation), 1969:
NICE Ltd. and its Israeli subsidiary believe they currently qualify as an "Industrial Company" as
defined by the above law and, as such, are entitled to certain tax benefits including accelerated
depreciation, deduction of public offering expenses in three equal annual installments and amortization
of cost of purchased know-how and patents for tax purposes over 8 years.
b.
Income taxes on non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. The
Company's consolidated tax rate depends on the geographical mix of where its profits are earned. Primarily,
in 2019, the Company's U.S. subsidiaries are subject to combined federal and state income taxes of
approximately 25% and its subsidiaries in the U.K. and India are subject to corporation tax at a rate of
approximately 19% and 18.5% respectively. Neither Israeli income taxes, foreign withholding taxes nor
deferred income taxes were provided in relation to undistributed earnings of the Company's foreign
subsidiaries. This is because the Company has the intent and ability to reinvest these earnings indefinitely
in the foreign subsidiaries and therefore those earnings are continually redeployed in those jurisdictions. As
of December 31, 2019,
the amount of undistributed earnings of non-Israeli subsidiaries, which is
considered indefinitely reinvested, was $788,728 with a corresponding unrecognized deferred tax liability
of $115,505. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company
would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and
foreign withholding taxes.
c. U.S. Tax Reform:
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "U.S. Tax Reform" or
"TCJA"); a comprehensive tax legislation that includes significant changes to the taxation of business
entities. These changes include several key tax provisions that might impact the Company, among others:
(i) a permanent reduction to the statutory federal corporate income tax rate from 35% to 21% effective for
tax years beginning after December 31, 2018; (ii) a shift of the U.S. taxation of multinational corporations
from a tax on worldwide income to a modified territorial system (along with certain new rules designed to
prevent erosion of the U.S. income tax base - "BEAT"); (iii) establishing immediate deductions for certain
new investments instead of deductions for depreciation expense over time, and modifying or repealing
certain business deductions and credits; and (iv) providing a permanent deduction to corporations
generating revenues from non-US markets (known as a deduction for foreign derived intangible income -
"FDII").
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
The final impact of the TCJA may differ due to, among other things, possible changes in the interpretations
and assumptions made by the Company as a result of additional information, additional guidance or
finalization of law and regulations, that will be issued by the U.S. Department of Treasury, the IRS or other
standard-setting bodies, and which may impact the Company's future financial statements; and will be
accounted for when such guidance is issued.
d. Net operating loss carryforward:
As of December 31, 2019, the Company and certain of its subsidiaries had tax loss carry-forwards totaling
in aggregate approximately $151,959 which can be carried forward and offset against taxable income.
Approximately $73,011 of these carry-forward tax losses have no expiration date, with the balance expiring
between 31.12.25 and 31.12.37.
Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before utilization.
e. Deferred tax assets and liabilities:
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
December 31,
2019
2018
Deferred tax assets:
Net operating losses carryforward and tax credits
Intra-entity transfer of certain intangible assets (*)
Operating leases liabilities
Share based payments
Research and development costs
Reserves, allowances and other
Deferred tax assets before valuation allowance
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Acquired intangibles
Operating lease right-of-use assets
Acquired deferred revenue
Internal Use Software and other Fixed Assets
Prepaid Compensation Expenses
Deferred tax liabilities
$
31,254
$
18,798
24,398
19,017
3,645
31,090
128,202
(9,145)
119,057
(87,711)
(20,357)
(760)
(14,779)
(17,446)
(141,053)
88,528
—
—
21,631
3,473
21,838
135,470
(11,211)
124,259
(126,318)
—
(2,033)
(15,677)
(12,062)
(156,090)
Deferred tax liabilities, net
$
(21,996) $
(31,831)
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
(*) During the year ended December 31, 2019, the Company completed an intra-entity transfer of certain intangible
assets to a different tax jurisdiction. As a result of the transfer, the Company utilized net operating losses carried
forward and consequently released the valuation allowance on certain deferred tax assets, incurred a tax expense on
capital gain, released certain deferred tax liabilities and recorded a deferred tax asset.
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities, net
December 31,
2019
2018
$
$
30,513
$
(52,509)
(21,996) $
12,309
(44,140)
(31,831)
The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax
loss carry forwards and other reserves and allowances due to uncertainty concerning their realization.
f. A reconciliation of the Company's effective tax rate to the statutory tax rate in Israel is as follows:
Income before taxes on income, as reported in the consolidated
statements of income
Statutory tax rate in Israel
$
234,273
$
186,715
$
129,660
23.0 %
23.0 %
24.0 %
Year Ended December 31,
2018
2017
2019
Preferred Enterprise / Preferred Technology Enterprise benefits (*)
Changes in valuation allowance
Earnings taxed under foreign law
Tax settlements and other adjustments
U.S. Tax Reform one-time adjustment
Intangible assets transfer
Other
Effective tax rate
(7.7)%
0.7 %
17.9 %
5.8 %
(14.2)%
(4.9)%
20.6 %
(13.0)%
—
(1.8)%
7.0 %
(1.6)%
1.1 %
14.7 %
(16.8)%
— %
(4.6)%
14.3 %
(23.9)
(3.5)%
(10.5)%
(*)
The effect of the benefit resulting from the "Preferred Enterprise/Preferred Technology Enterprise benefits "
status on net earnings per ordinary share is as follows:
Basic
Diluted
Year Ended December 31,
2018
2017
2019
$
$
0.29
0.28
$
$
0.39
0.38
$
$
0.36
0.35
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
g.
Income before taxes on income is comprised as follows:
h. Taxes on income (tax benefit) are comprised as follows:
Domestic
Foreign
Current
Deferred
Domestic
Foreign
Of which:
Domestic taxes:
Current
Deferred
Foreign taxes:
Current
Deferred
NICE LTD. AND ITS SUBSIDIARIES
Year Ended December 31,
2018
2017
2019
$
$
169,236
65,037
234,273
$
$
193,664
(6,949)
186,715
$
$
188,070
(58,410)
129,660
Year Ended December 31,
2019
2018
2017
$
60,586
$
57,549
$
(12,217)
(30,172)
57,174
(70,805)
48,369
27,377
(13,631)
8,614
39,755
29,947
(2,570)
$
48,369
$
27,377
$
27,673
(41,304)
(13,631)
Year Ended December 31,
2018
2017
2019
$
29,075
$
34,370
$
(20,461)
(4,423)
22,808
4,865
8,614
29,947
27,673
31,196
8,559
23,179
(25,749)
34,366
(75,670)
39,755
(2,570)
(41,304)
Taxes on income (tax benefit)
$
48,369
$
27,377
$
(13,631)
F-40
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
i. Uncertain tax positions:
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is
as follows:
Uncertain tax positions, beginning of year
Increases/(Decreases) in tax positions for prior years
Increases in tax positions for current year
Settlements
Expiry of the statute of limitations
December 31,
2019
2018
$
58,560
$
(3,443)
15,749
—
(5,982)
43,984
5,121
13,353
(3,471)
(427)
Uncertain tax positions, end of year
$
64,884
$
58,560
All the Company's unrecognized tax benefits would, if recognized, reduce the Company's annual effective
tax rate. The Company has further accrued $3,889 and $501 due to interest and penalties related to
uncertain tax positions as of December 31, 2019 and 2018 respectively.
During the course of 2019, upon receipt of an information letter, the Company's United Kingdom
Subsidiary Group elected to register for the United Kingdom Profits Diversion Compliance Facility,
covering the years 2015-2018. NICE Ltd. is currently in the process of routine Israeli income tax audits for
the tax years 2014, 2015 and 2016. As of December 31, 2019, U.S. federal income tax returns filed by the
Company or its subsidiaries for the tax years prior to 2016 are no longer subject to audit; and to the extent
the Company or its subsidiaries generated net operating losses or tax credits in closed tax years, future use
of the net operating loss or tax credit carry forward balance would be subject to examination within the
relevant statute of limitations for the year in which it was utilized. The Company and its subsidiaries are
still subject to other income tax audits for the tax years of 2011 through 2018.
NOTE 14:- SHAREHOLDERS' EQUITY
a. The Ordinary shares of the Company are traded on the Tel-Aviv Stock Exchange and its American
Depositary Shares ("ADSs"), each representing one fully paid ordinary share, par value NIS 1.00 per share
of the Company, are traded on NASDAQ.
b. Share option plans:
2008 and 2016 Share Incentive Plan
In June 2008 the Company adopted the 2008 Share Incentive Plan (the “2008 Plan”) and in February 2016
the Company adopted the 2016 Share Incentive Plan (the “2016 Plan”, and together with the 2008 Plan, the
“Plans”). The Company adopted the Plans to provide incentives to employees, directors, consultants and/or
contractors by rewarding performance and encouraging behavior that will
improve the Company’s
profitability.
.
Under each of the Plans, the Company's employees, directors, consultants and/or contractors may be
granted any equity-related award, including: any type of an option to acquire the Company ordinary shares;
share appreciation right; share and/or restricted share award (“RSA”); restricted stock unit (“RSU”) and/or
other share unit; and/or other share-based award and/or other right or benefit under the Plans, including any
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SHAREHOLDERS' EQUITY (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
such equity-related award that is a performance based award (each an “Award”). In regard to the 2008 Plan,
please see the discussion below regarding performance-based awards beginning calendar year 2014.
.
Generally, under the terms of the Plans, unless determined otherwise by the administrator of the Plans, 25%
of an Award granted becomes exercisable on the first anniversary of the date of grant and 6.25% becomes
exercisable once every quarter during the subsequent three years. Specifically with respect to RSUs and
options granted with an exercise price equal to the nominal value of an ordinary share (“par value
options”), unless determined otherwise by the Board of Directors, 25% of the RSUs and the par value
options granted become vested on each of the four consecutive annual anniversaries following the date of
grant.
.
Certain executive officers are entitled to acceleration of vesting of Awards in the event of a change of
control, subject to certain conditions. Awards with a vesting period expire six years after the date of grant.
Pursuant to a resolution of the Company's Board of Directors dated February 4, 2014, options that are
performance-based and that were granted during calendar year 2014 and thereafter shall expire seven years
following the date of grant. The maximum number of shares that may be subject to Awards granted under
each of the Plans is calculated each calendar year as 3% of the Company’s issued and outstanding share
capital as of December 31 of the preceding calendar year (pursuant to an amendment of the 2016 Plan
approved by the Board of Directors on October 2, 2019). Such amount is reset for each calendar year.
Awards are non-transferable except by will or the laws of descent and distribution
.
Following an amendment made in December 2010 to the 2008 Plan and also applied under the 2016 Plan
(the “2010 Amendment”), options granted under such plan are granted at an exercise price equal to the
average of the closing prices of one ADR as quoted on the NASDAQ market during the 30 consecutive
calendar days preceding the date of grant, unless determined otherwise by the administrator of the Plans
(including par value options in some cases).
Prior to the 2010 Amendment, the options were granted at an exercise price of not less than the fair market
value of the ordinary shares on the date of the grant, subject to certain exceptions that could be approved by
the Company's Board of Directors, including in some cases par value options.
The Company’s Board of Directors also adopted an addendum to the Plans for Awards granted to residents
of Israel (the "Addendum") and resolved to elect the "Capital Gains Route" (as defined in Section 102(b)
(2)) of the Israeli Income Tax Ordinance-5721-1961 (“Tax Ordinance”) for the grant of Awards to Israeli
grantees. There is also a U.S. addendum under each of the Plans that applies to non-qualified stock options
for purposes of U.S. tax laws.
During 2019, the Company granted 914,194 options and restricted share units under the 2016 Plan (which
constituted 1.48% of the Company issued and outstanding share capital as of December 31, 2018).
Pursuant
to the terms of the acquisitions of, e-Glue Software Technologies Inc., Merced, Nexidia,
inContact and Mattersight, the Company assumed or replaced unvested options, RSAs and RSUs and
converted them or replaced them with the Company's options, RSAs and RSUs, as applicable, based on an
agreed exchange ratio. Each assumed or replaced option, RSA and RSU is subject to the same terms and
conditions, including vesting, exercisability and expiration, as originally applied to any such option, RSA
and RSU immediately prior to the acquisition.
F-42
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SHAREHOLDERS' EQUITY (Cont.)
The fair value of the Company's stock options granted to employees and directors for the years ended
December 31, 2019, 2018 and 2017 was estimated using the following assumptions:
Expected volatility
Risk free interest rate
Expected dividend
Expected term (in years)
2019
2018
2017
19.44%-21.54% 21.23%-21.83% 21.69%-22.90%
1.43%-2.55%
2.42%-3.04%
1.53%-2.00%
—
3.5
—
3.5
—%
3.5
A summary of the Company's stock options activity and related information for the year ended
December 31, 2019, is as follows:
Outstanding at January 1, 2019
Granted
Exercised
Cancelled
Forfeited
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Weighted-
average
remaining
contractual
term
(in years)
Weighted-
average
exercise price
Aggregate
intrinsic
value
19.82
17.86
16.46
25.70
1.20
22.16
40.08
4.47
104,731
4.35
3.27
147,545
48,955
Number of
options
1,184,847
368,375
319,860
2,765
121,161
1,109,436
425,433
The weighted-average grant-date fair value of options granted during the years 2019, 2018 and 2017 was
$121.21, $89.54 and $61.54, respectively.
The total intrinsic value of options exercised during the years 2019, 2018 and 2017 was $87,872; $68,749
and $42,592, respectively.
F-43
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SHAREHOLDERS' EQUITY (Cont.)
The options outstanding under the Company's stock option plans as of December 31, 2019 have been
separated into ranges of exercise price as follows:
Ranges of
exercise price
Options
outstanding as of
December 31,
2019
Weighted
average
remaining
contractual
term
(Years)
Weighted
average
exercise
price
$
Options
exercisable as of
December 31,
2019
Weighted
average
exercise
price of
options
exercisable
$
$
$
$
$
$
$
0.29
6.72-9.89
12.45-17.72
336.02-48.48
54.95-80.76
85.104-151.63
810,121
2,983
398
50,899
143,780
101,255
1,109,436
4.56
4.07
0.66
4.13
2.85
4.95
4.47
0.28
7.20
14.86
40.72
71.32
118.55
197,163
2,983
398
34,106
134,079
56,704
19.82
425,433
0.28
7.20
14.86
41.16
71.05
106.52
36.24
A summary of the Company's RSU and the Company's RSA activities and related information for the year
ended December 31, 2019, is as follows:
Outstanding at January 1, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Number of
RSU and
RSA (*)
1,759,070
545,819
(649,556)
(118,284)
1,537,049
(*) NIS 1 par value which represents approximately $0.29
As of December 31, 2019, the total compensation cost related to nonvested awards not yet recognized was
approximately $131,459, which is expected to be recognized over a period of up to four years.
F-44
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SHAREHOLDERS' EQUITY (Cont.)
The total equity-based compensation expense related to all of the Company's equity-based awards,
recognized for the years ended December 31, 2019, 2018 and 2017, was comprised as follows:
Cost of revenues
Research and development, net
Selling and marketing
General and administrative
Year ended
December 31,
2018
2019
$
11,244
$
11,000
$
9,239
26,650
34,897
7,363
27,455
21,405
2017
11,337
9,038
23,107
13,498
Total stock-based compensation expenses
$
82,030
$
67,223
$
56,980
c. Treasury shares:
On January 10, 2017, the Company's Board of Directors authorized a program to repurchase up to $150,000
of Company's issued and outstanding ordinary shares and ADRs. This share repurchase program
commenced on April 7, 2017. On February 12, 2020, the Company's Board of Directors authorized an
additional program to repurchase up to $200,000 of the Company's issued and outstanding ordinary shares
and ADRs, following completion of the program approved in 2017. Repurchases may be made from time to
time in the open market or in privately negotiated transactions in accordance with applicable securities laws
and regulations. The timing and amount of the repurchase transactions will be determined by the
Company's management and may depend on a variety of factors including market conditions, alternative
investment opportunities and other considerations.
These programs do not obligate the Company to acquire any particular amount of ordinary shares and
ADRs and each program may be modified or discontinued at any time without prior notice.
d. Dividends:
On February 13, 2013, the Company announced that the Board of Directors had approved a dividend plan
under which the Company paid quarterly cash dividends to holders of the Company's ordinary shares and
ADRs subject to declaration by its Board of Directors. Under Israeli law, dividends may be paid only out of
profits and other surplus (as defined in the law) as of the Company's most recent financial statements or as
accrued over a period of two years, whichever is higher, provided that there is no reasonable concern that
the dividend distribution will prevent the Company from meeting its existing and foreseeable obligations as
they come due.
On January 10, 2017, the Company announced that the Board of Directors had approved the termination of
this dividend plan in connection with the Company's adoption of a capital return strategy to optimize the
Company's long-term growth profile. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors and will depend on various factors, such as the Company's statutory profits,
financial condition, operating results and current and anticipated cash needs. Under current Israeli
regulations, any cash dividend in Israeli currency paid in respect of ordinary shares purchased by non-
residents of Israel with non-Israeli currency may be freely repatriated in such non-Israeli currency, at the
rate of exchange prevailing at the time of conversion. The total amount of annual dividend declared and
paid in 2018 and 2017 was $0.00 per share and $0.16 per share, respectively. In 2019, no dividend was
declared.
F-45
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- DEBT
In 2016, the Company entered into a Credit Agreement with certain lenders, according to which the following
credit facilities were issued: 1) a loan of $475,000, and 2) a revolving credit loan of up to $75,000.
The Credit Agreement contains a number of covenants and restrictions that, among other things and subject to
certain agreed upon exceptions, require the Company and its subsidiaries to satisfy certain financial covenants
and restrict the ability of the Company and its subsidiaries to incur liens, incur additional indebtedness, make
loans and investments, engage in mergers and acquisitions, engage in asset sales, declare dividends or redeem or
repurchase capital stock, prepay, redeem or purchase subordinated debt and amend or otherwise alter debt
agreements, in each case, subject to certain agreed upon exceptions. A failure to comply with these covenants
could permit the lenders under the Credit Agreement to declare all amounts borrowed under the Credit
Agreement, together with accrued interest and fees, to be immediately due and payable. As of December 31,
2019, the Company was in compliance with all covenants and requirements outlined in the Credit Agreement.
Loan
On January 2017, the Company prepaid a principal amount of $260,000 which resulted in $5,300 amortization
of debt issuance costs. In addition, the contractual principal payments for the loan have changed and the
Company will pay the entire remaining principal of $215,000 at the final maturity date which is December 31,
2021.
The loan bears interest through maturity at a variable rate based upon, at the Company's option every interest
period, either (a) the LIBOR rate for Eurocurrency borrowing or (b) an Alternate Base Rate ("ABR"), which is
the highest of (i) the administrative agent's prime rate, (ii) one-half of 1.00% in excess of the overnight U.S.
Federal Funds rate, and (iii) 1.00% in excess of the one-month LIBOR), plus in each case, an applicable margin.
The applicable margin for Eurocurrency loans ranges, based on the applicable total net leverage ratio, from
1.25% to 2.00% per annum and the applicable margin for ABR loans ranges, based on the applicable total net
leverage ratio, from 0.25% to 1.00% per annum.
Debt issuance costs of $10,158 attributable to the loan are amortized as interest expense over the contractual
term of the loan using the effective interest rate.
The carrying values of the liability's components are reflected in the Company's accompanying consolidated
balance sheets as follows:
Principal
Less: Debt issuance costs, net of amortization
Net liability carrying amount
December 31,
2019
2018
215,000
$
215,000
(1,687)
(2,692)
213,313
$
212,308
$
$
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- DEBT (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
Interest expense related to the liability is reflected on the accompanying consolidated statements of income for
the years ended:
Amortization of debt issuance costs
Interest expense
Total interest expense recognized
Effective interest rate
$
$
December 31,
2019
2018
1,004
$
7,676
794
7,083
8,680
$
7,877
4.01 %
3.80 %
Pursuant to the Credit Agreement, the Company has also been granted a revolving credit facility that entitles the
Company to borrow up to $75,000 through December 2021 with interest payable on the borrowed amount set at
the same terms as the term loan, as well as a quarterly commitment fee on unfunded amounts ranging from
0.25% to 0.5%, subject to the achievement of certain leverage levels. As of December 31, 2019, no amounts had
been funded.
Debt issuance costs of $1,667 attributable to the revolving credit loan are capitalized and amortized as interest
expense over the contractual term of the agreement on a straight line basis.
Exchangeable Senior Notes and Hedging Transactions
Exchangeable Senior Notes
In January 2017, the Company issued $287,500 aggregate principal amount of Exchangeable Senior Notes (the
"Notes") due 2024. The following table summarizes some key facts and terms regarding the outstanding Notes:
Issuance date
Maturity date
Principal amount
Cash coupon rate (per annum)
Conversion rate effective September 15, 2023 (per $1000 principal amount)
Effective conversion price effective September 15, 2023 (per ADS)
Due 2024
January 18, 2017
January 15, 2024
287,500
$
1.25 %
12.026
83.15
$
In the event that the last reported sale price of the company’s ADS for at least 20 Trading Days (whether or not
consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the Exchange Price (“Share Price Condition”) or
in the event of the satisfaction of certain other conditions, during set periods, as defined in the indenture
governing the Notes, the holders of the exchangeable Senior Notes will have the option to exchange the Notes
for (i) cash, (ii) ADSs or (iii) a combination thereof, at the Company's election.
As of December 31, 2019, the Share Price Condition was triggered and accordingly, the net carrying amount of
the Notes was reclassified into current liabilities.
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- DEBT (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
The Company may provide additional ADSs upon conversion if there is a "Make-Whole Fundamental Change"
in the business as defined in the indenture governing the Notes. The Notes are not redeemable by the Company
prior to the maturity date apart from certain cases as defined in the indenture governing the Notes.
Debt issuance costs of $5,791 attributable to the Notes are amortized as interest expense over the contractual
term of the loan using the effective interest rate.
The carrying values of the liability and equity components of the Notes are reflected in the Company's
accompanying consolidated balance sheets as follows:
Principal
Less:
Debt issuance costs, net of amortization
Unamortized discount
Net liability carrying amount
Equity component - net carrying value
December 31,
2019
2018
$
287,500
$
287,500
(3,735)
(32,182)
(4,488)
(39,335)
$
$
251,583
51,176
$
$
243,677
51,176
As of December 31, 2019, the estimated fair value of the Exchangeable Senior Notes, which the Company has
classified as Level 2 financial instruments are $548,984. The estimated fair value was determined based on the
quoted bid price of the Exchangeable Senior Notes in an over-the-counter market on the last trading day of the
reporting period. As of December 31, 2019,
the difference between the net carrying amount of the
Exchangeable Senior Notes and estimated fair value represents the equity conversion value premium the market
assigned to this Notes. Based on the closing price of our common stock on December 31, 2019, the if-converted
value of the Exchangeable Senior Notes exceeded the principal amount.
Interest is payable on the debentures semi-annually at the cash coupon rate; however, the remaining debt
discount is being amortized as additional non-cash interest expense using an effective annual interest rate equal
to the Company's estimated nonconvertible debt borrowing rate at the time of issuance.
Interest expense related to the Notes is reflected on the accompanying consolidated statements of income as
follows:
Amortization of debt issuance costs
Non-cash amortization of debt discount
Interest expense
Net liability carrying amount
Effective interest rate
Year Ended December 31,
2019
2018
$
$
753
$
7,153
3,594
11,500
$
4.68 %
694
6,855
3,594
11,143
4.68 %
F-48
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- DEBT (Cont.)
Exchangeable notes hedge transactions
In connection with the pricing of the Notes, the Company has entered into privately negotiated exchangeable
note hedge transactions with some of the initial purchasers and/or their respective affiliates (the "Option
Counterparties").
Subject to customary anti-dilution adjustments substantially similar to those applicable to the Notes, the
exchangeable note hedge transactions cover partial number of ADSs that will initially underline the Notes.
The note hedge transactions are expected generally to reduce potential dilution to the ADSs and/or cash
payments the Company is required to make in excess of the principal amount, in each case, upon any exchange
of the Notes.
A portion of the call-options can be settled upon a surrender of the same amounts of Notes by a holder.
Settlement can be done in cash, ADSs or a combination of both, at the Company's election.
Concurrently with the Company's entry into the exchangeable note hedge transactions, the Company has entered
into warrant transactions with the Option Counterparties relating to the same number of ADSs (3,457,475), with
a strike price of $101.82 per ADS, subject to customary anti‑ dilution adjustments.
The warrants are exercisable for a period of three months as of the notes maturity date.
U.S. GAAP requires measuring such transactions as equity components. The Company recorded a net decrease
of $20,281 in additional paid-in capital in 2017 at the initiation of the transaction.
NOTE 16:- REPORTABLE SEGMENTS AND GEOGRAPHICAL INFORMATION
a. Reportable segments:
ASC 280, "Segment Reporting", establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision maker is its Chief
Executive Officer.
Year ended December 31, 2019
Not
allocated
Total
— $
1,573,912
(130,624) $
238,717
$
$
Revenues
Operating income
$
$
Customer
Engagement
(1)
1,265,113
Financial
Crime and
Compliance
308,799
$
244,599
$
124,742
F-49
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:- REPORTABLE SEGMENTS AND GEOGRAPHICAL INFORMATION (Cont.)
Year ended December 31,
2018
Revenues
Operating income
$
$
Customer
Engagement
(1)
1,156,142
Financial
Crime and
Compliance
288,377
$
217,796
$
109,464
Not
allocated
Total
— $
1,444,519
(129,644) $
197,616
$
$
Year ended December 31, 2017
Revenues
Operating income
$
$
Customer
Engagement
(1)
1,051,350
Financial
Crime and
Compliance
280,802
$
175,247
$
101,774
Not
allocated
Total
— $
1,332,152
(126,950) $
150,071
$
$
(1) Includes the results of companies which were acquired in the years 2019, 2018 and 2017 and are being
integrated within the Customer Engagement segment.
The following table presents property and equipment as of December 31, 2019 and 2018, based on
operational segments:
Customer Engagement
Financial Crime and Compliance
Non-allocated
December 31,
2019
2018
$
126,538
$
130,425
12,437
2,672
8,262
1,651
$
141,647
$
140,338
b. Geographical information:
Total revenues from external customers on the basis of the Company's geographical areas are as follows:
Americas, principally the US
$
1,234,549
$
1,123,866
$
1,035,871
Year Ended December 31,
2018
2017
2019
EMEA (*)
Israel
Asia Pacific
212,252
3,950
123,161
202,521
4,402
113,730
186,268
3,693
106,320
$
1,573,912
$
1,444,519
$
1,332,152
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:- REPORTABLE SEGMENTS AND GEOGRAPHICAL INFORMATION (Cont.)
NICE LTD. AND ITS SUBSIDIARIES
The following presents property and equipment as of December 31, 2019 and 2018, based on geographical
areas:
Americas, principally the US
EMEA (*)
Israel
Asia Pacific
December 31,
2019
2018
$
78,911
$
3,886
51,011
7,839
90,333
2,947
40,076
6,982
$
141,647
$
140,338
(*) Includes Europe, the Middle East (excluding Israel) and Africa.
NOTE 17:- SELECTED STATEMENTS OF INCOME DATA
a. Research and development, net:
Total costs
Less - grants and participations
Less - capitalization of software development costs
Year Ended December 31,
2018
2017
2019
$
232,118
$
218,226
$
211,406
(2,556)
(35,844)
(2,171)
(32,225)
(2,363)
(27,936)
$
193,718
$
183,830
$
181,107
F-51
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:- SELECTED STATEMENTS OF INCOME DATA (Cont.)
b. Financial expenses and other, net:
Financial income:
Interest and amortization/accretion of premium/discount on
marketable securities, net
Exchange rates differences
Realized gain on marketable securities
Interest
Financial expenses:
Interest
Debt issuance costs amortization
Exchangeable Senior Notes amortization of discount
Exchange rates differences
Other
Year Ended December 31,
2018
2017
2019
$
16,678
$
7,521
$
—
—
3,855
—
—
3,778
20,533
11,299
(11,683)
(11,204)
(2,083)
(7,153)
(1,832)
(2,186)
(1,813)
(6,855)
(430)
(1,936)
2,537
241
—
1,149
3,927
(9,580)
(6,943)
(6,278)
—
(1,518)
(24,937)
(22,238)
(24,319)
Other expenses, net
(40)
38
(19)
$
(4,444) $
(10,901) $
(20,411)
c. Net earnings per share:
The following table sets forth the computation of basic and diluted net earnings per share:
1. Numerator:
Net income to ordinary shareholders
$
185,904
$
159,338
$
143,291
Year Ended December 31,
2018
2017
2019
F-52
NICE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:- SELECTED STATEMENTS OF INCOME DATA (Cont.)
2. Denominator (in thousands):
Denominator for basic net earnings per share:
Weighted average number of shares
Effect of dilutive securities:
Year Ended December 31,
2019
2018
2017
62,120
61,387
60,444
Add - employee stock options and RSU
Warrants issued in the exchangeable notes transaction
1,682
859
1,785
137
1,675
—
Denominator for diluted net earnings per share - adjusted weighted
average shares
$
64,661
$
63,309
$
62,119
NOTE 18:- SUBSEQUENT EVENTS
During 2020, the Company acquired two companies for a total consideration of approximately $53,000.
F-53
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
NICE LTD.
By:
/s/ Barak Eilam
Barak Eilam
Chief Executive Officer
Date: April 6, 2020
108
Exhibit 2.3
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act")
American Depositary Shares (“ADSs”) are listed on the NASDAQ Global Select Market and are registered under Section
12(b) of the Exchange Act. The following contains a description of the rights of the ADS holders. Shares underlying the ADSs
are held by JPMorgan Chase Bank, N.A., as depositary (the "Depositary"). The Depositary will issue the ADSs. The term
"Custodian" shall mean the Tel Aviv, Israel office of Bank Leumi Le-Israel Ltd., as agent of the Depositary. The Depositary’s
corporate trust office is located at 4 New York Plaza, Floor 12, New York, New York 10004, Attention: Depositary Receipts
Group (the “Corporate Trust Office”).
The rights of ADS holders are governed by the Fourth Amended and Restated Deposit Agreement among NICE Ltd., the
Depositary, and the owners and holders from time to time of American Depositary Receipts, or ADRs (or the “Deposit
Agreement”), a form of which has been filed as Exhibit (a) to the registration statement on Form F−6 (Registration No.
333−203623) filed with the Securities and Exchange Commission (the "SEC") on April 24, 2015. Set forth below is a summary
of the Deposit Agreement. This summary is not complete and is qualified in its entirety by the Deposit Agreement.
American Depositary Receipts ("ADRs")
ADRs, evidencing a specified number of ADSs are issuable by the Depositary pursuant to the Deposit Agreement. Each
ADS represents one ordinary share, par value NIS 1.00 per share, deposited with the Custodian or the Depositary. An ADR may
represent any number of ADSs. Only persons in whose names ADRs are registered on the books of the Depositary will be
treated by us and the Depositary as owners and holders of ADSs.
ADRs may be in either physical certificated form or in book entry form issued through the Direct Registration System,
which is the system for the uncertificated registration of ownership of securities established by the Depository Trust Company
and utilized by the Depositary. Pursuant to the Direct Registration System, the Depositary may record the ownership of ADRs
without the issuance of a certificate, which ownership shall be evidenced by periodic statements issued by the Depositary to the
holders entitled thereto.
Deposit and Withdrawal of Ordinary Shares
Our ordinary shares that are represented by the ADSs, or evidence of rights thereto, will be deposited with the Custodian
or the Depositary and registered in the name of the Depositary (or its nominee) or the Custodian (or its nominee), which will be
the holder of record of all such ordinary shares on behalf of the holders of ADRs. Subject to the terms and conditions of the
Deposit Agreement, upon deposit of ordinary shares with the Custodian or the Depositary, the Depositary will issue ADSs and
execute and deliver the applicable ADR or ADRs.
The Depositary has agreed that, upon deposit with the Depositary or the Custodian of our ordinary shares accompanied by
(i) an appropriate agreement or assignment or other instrument of transfer or endorsement in form reasonably satisfactory to the
Depositary or the Custodian and any certifications as may be required by the Depositary or the Custodian and (ii) proxies
entitling the Custodian, Depositary or their respective nominees to vote such deposited shares, the Depositary will execute and
deliver at its Corporate Trust Office, upon payment of the fees, charges and taxes provided in the Deposit Agreement, to or
upon the written order of the person or persons entitled thereto, an ADR registered in the name of such person or persons for the
number of ADSs issuable in respect of such deposit. Deposited ordinary shares will be held by the Depositary or the Custodian
for the account of the Depositary. To the extent that the provisions of or governing the underlying ordinary shares make
delivery of certificates impracticable, the underlying ordinary shares may be deposited by such delivery thereof as the
Depositary or the Custodian may reasonably accept, including, without limitation, by causing them to be credited to an account
maintained by the Custodian for such purpose with us or an accredited intermediary, such as a bank, acting as a registrar for the
shares, together with delivery of the documents, payments and delivery order referred to the Custodian or the Depositary.
Upon surrender of ADRs at the Corporate Trust Office of the Depositary and upon payment of the taxes, charges and fees
provided in the Deposit Agreement and subject to its terms, an ADR holder is entitled to delivery, to or upon its order, at the
Corporate Trust Office of the Depositary, of ordinary shares in respect of the deposited ordinary shares and any other
documents of title evidenced by the surrendered ADRs. The ADR holder will bear the risk and expense for the forwarding of a
certificated ADR in form satisfactory to the Depositary or proper instructions and documentation in the case of an uncertificated
ADR, and other documents of title to the Corporate Trust Office of the Depositary.
1
Dividends, Other Distributions and Rights
The Depositary is required to convert or cause to be converted into U.S. dollars, to the extent that in its judgment it can do
so on a reasonable basis and can transfer the resulting U.S. dollars to the United States, all cash dividends and other cash
distributions denominated in a currency other than U.S. dollars that it receives in respect of the deposited ordinary shares, and
to distribute the amount received, net of any expenses incurred by the Depositary in connection with conversion, to the holders
of ADRs. The amount distributed will be reduced by any amounts to be withheld by us or the Depositary for applicable taxes
net of expenses of conversion into U.S. dollars. If the Depositary determines that any foreign currency received by it cannot be
so converted on a reasonable basis and transferred, or if any required approval or license of any government or agency is denied
or not obtained within a reasonable period of time, the Depositary may distribute such foreign currency received by it or hold
such foreign currency uninvested and without liability for interest thereon for the respective accounts of the ADR holders. If
any conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the holders of ADRs
entitled thereto, the Depositary may make such conversion and distribution in U.S. dollars to the extent permissible to such
holders of ADRs and may distribute the balance of the currency received by the Depositary to, or hold such balance uninvested
and without liability for interest thereon for, the respective accounts of such holders of ADRs.
If any distribution upon any ordinary shares deposited or deemed deposited under the Deposit Agreement consists of a
dividend in, or free distribution of, additional ordinary shares, the Depositary shall, unless otherwise instructed by us, distribute
to the holders of outstanding ADRs, on a pro rata basis, additional ADRs that represent the number of additional ordinary
shares received as such dividend or free distribution, subject to the terms and conditions of the Deposit Agreement. The
Depositary may withhold any such delivery of ordinary shares if it has not received satisfactory assurances from us that such
distribution does not require registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”). In lieu of
delivering fractional ADRs in the event of any such distribution, the Depositary will sell the amount of additional ordinary
shares represented by the aggregate of such fractions and will distribute the net proceeds to holders of ADRs. If additional
ADRs are not so distributed, each ADR shall thereafter also represent the additional ordinary shares distributed together with
the ordinary shares represented by such ADR prior to such distribution.
If we offer, or cause to be offered, to holders of ordinary shares any rights to subscribe for additional ordinary shares or
any rights of any other nature, subject to our memorandum of association and articles of association, applicable laws and
regulations, the Depositary shall have discretion as to the procedures to be followed in making such rights available to any
holder of ADRs or in disposing of such rights and making the net proceeds available to such holder. If the Depositary
reasonably determines that it is lawful and feasible to make such rights available to all holders of ADRs or certain holders of
ADRs but not others, the Depositary may make such rights available to those holders of ADRs to whom it reasonably
determines the distribution to be lawful and feasible in proportion to the number of ADSs held by them by means of warrants or
otherwise. If making such rights available to all or certain holders of ADRs is reasonably determined by the Depositary not to
be lawful or feasible, the Depositary may sell such rights or warrants or other instruments in proportion to the number of ADSs
held by owners to whom it has determined it may not lawfully and feasibly make such rights available, and allocate the
proceeds of such sales (net of expenses, taxes and any other applicable charges) for the account of the holders of ADRs
otherwise entitled thereto upon an averaged or other practicable basis without regard to any distinctions among such holders
because of exchange restrictions, or the date of delivery of any ADR or ADRs, or otherwise. The net proceeds so allocated to
the holders of ADRs entitled thereto will be distributed to the extent practicable as in the case of a distribution of cash. If, by the
terms of the rights offering or for any other reason, the Depositary may not either (i) make such rights available to any holders
of ADRs or (ii) dispose of such rights and make the proceeds available to such holders, then the Depositary will allow the rights
to lapse.
The Depositary will not offer rights to holders of ADRs unless both the rights and the securities to which such rights relate
are either exempt from registration under the Securities Act with respect to a distribution to such holders or are registered under
the provisions of such Act. If a holder of ADRs requests distribution of warrants or other instruments, notwithstanding that
there has been no such registration under the Securities Act, the Depositary will not make such a distribution unless it has
received an opinion from our recognized counsel in the United States, upon which the Depositary may rely, that such
distribution to such holder is exempt from such registration. We are not obligated to file any registration statement in order to
permit United States holders to participate in any such rights distribution.
If the Depositary reasonably determines that any distribution of property (other than cash), ordinary shares or rights to
subscribe therefor cannot be made proportionately among the holders of the ADRs entitled thereto, or that any such distribution
is not feasible for any reason, including any requirement that we or the Depositary are obligated to withhold any taxes or other
governmental charges or that such securities must be registered under the Securities Act in order to be distributed, the
Depositary may dispose of all or a portion of such property, ordinary shares or rights in such amounts and in such manner,
including by public or private sale, as the Depositary reasonably deems equitable and practicable, and the Depositary will
2
distribute the net proceeds of any such sale, after deduction of the fees of the Depositary as provided in the Deposit Agreement,
to the ADR holders entitled thereto as in the case of a cash distribution.
The Depositary shall not be responsible for any reasonable failure to determine that it may be lawful or feasible to make
such rights available to holders of ADRs in general or any holder in particular.
If a holder of ADRs requests the distribution of warrants or other instruments in order to exercise the rights allocable to the
ADSs of such holder, the Depositary will make such rights available to such holder upon written notice from us to the
Depositary that we have elected in our sole discretion to permit such rights to be exercised and such holder has executed such
documents as we have determined in our sole discretion are reasonably required under applicable law. Upon instruction
pursuant to such warrants or other instruments to the Depositary from such holder to exercise such rights, upon payment by
such holder to the Depositary for the account of such holder of an amount equal to the purchase price of the ordinary shares to
be received upon the exercise of the rights, and upon payment of the fees of the Depositary as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such holder, exercise the rights and purchase the ordinary shares, and we shall
cause the ordinary shares so purchased to be delivered to the Depositary on behalf of such holder. As agent for such holder, the
Depositary will cause the ordinary shares so purchased to be deposited under the Deposit Agreement and shall issue and deliver
to such holder legended ADRs, restricted as to transfer under applicable securities laws.
The Depositary will not offer to the holders of ADRs any rights to subscribe for additional ordinary shares or rights of any
other nature, unless and until such a registration statement is in effect with respect to the rights and the securities to which they
relate, or unless the offering and sale of such securities to the holders of such ADRs are exempt from registration under the
provisions of the Securities Act and an opinion of counsel satisfactory to the Depositary and us has been obtained. If we intend
to distribute a dividend payable at the election of the holders of ordinary shares in cash or in additional ordinary shares, we will
give notice thereof to the Depositary at least 30 days prior to the proposed distribution stating whether or not we wish to make
such elective distribution to be made available to holders of ADRs. Upon receipt of notice indicating that we wish such elective
distribution to be made available to the holders of ADRs, the Depositary will consult with us to determine, and we will assist
the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available
to the holders of ADRs. The Depositary will make such elective distribution available to the holders of ADRs only if (i) we
have timely requested that the elective distribution be made available to the holders of ADRs, (ii) the Depositary has
determined that such distribution is reasonably practicable and (iii) the Depositary has received satisfactory documentation
including, without limitation, any legal opinions of counsel in any applicable jurisdiction that the Depositary in its reasonable
discretion may request, at our expense. If the above conditions are not satisfied, the Depositary will, to the extent permitted by
law, distribute to the holders of ADRs, on the basis of the same determination as is made in the local market in respect of the
ordinary shares for which no election is made, either (x) cash or (y) additional ADRs representing such additional ordinary
shares. If the above conditions are satisfied, the Depositary will establish a record date and establish procedures to enable the
holders of ADRs to elect the receipt of the proposed dividend in cash or in additional ADRs.
Upon any change in par value, share split, consolidation or any cancellation or other reclassification of ordinary shares, or
upon any share distribution or other distribution of securities or property not distributed to owners of the ADRs, or upon any
sale of all or substantially all of our assets, recapitalization, reorganization, merger, consolidation, liquidation, receivership or
bankruptcy, the Depositary may, in its discretion, and shall if reasonably requested by us, amend the ADRs or distribute
additional or amended ADRs (with or without calling the ADRs for exchange) or cash, securities or property (on the record date
set by the Depositary therefor) to reflect any such transaction in respect of the underlying ordinary shares, and the Depositary is
authorized to surrender any of the underlying ordinary shares in order to facilitate such transaction and sell by public or private
sale any property received in connection with any such transaction, and to the extent the Depositary does not so amend the
ADRs or make a distribution to owners of the ADRs to reflect any of the foregoing, or the net proceeds thereof, whatever cash,
securities or property results from any of the foregoing shall constitute the deposited securities and each ADS shall, to the
extent not prohibited by applicable law, automatically represent its pro rata interest in the deposited securities.
Record Dates
Whenever any cash dividend or other cash distribution shall become payable, any distribution other than cash shall be
made, or rights shall be issued with respect to the ordinary shares, or whenever the Depositary shall receive notice of any
meeting of holders of the ordinary shares or shareholders generally, the Depositary shall fix a record date for the ADSs, which
shall be, to the extent practicable, the same record date applicable to the ordinary shares, after obtaining, if practicable, our
consent if such record date is different from the record date applicable to the ordinary shares, for the determination of the
holders of ADRs who are entitled to receive such dividend, distribution or rights, or net proceeds of the sale thereof, or to give
instructions for the exercise of voting rights at any such meeting, subject to the provisions of the Deposit Agreement.
3
Reports and Other Communications
We will furnish to the Depositary all notices of shareholders’ meetings and other reports and communications that are
made generally available to the holders of ordinary shares. We will furnish any such reports and communications to the
Depositary in English. Except to the extent otherwise available online or through the SEC’s EDGAR system, the Depositary
will make such notices, reports and communications available for inspection by ADR holders at its Corporate Trust Office
when furnished by us pursuant to the Deposit Agreement. Upon our request, the Depositary will arrange for the mailing such
notices, reports and communications to ADR holders at our expense.
Voting of the Underlying Ordinary Shares
Upon receipt of notice of any meeting or solicitation of consents or proxies of holders of ordinary shares, the Depositary
shall, as soon as practicable thereafter, mail to holders of ADRs registered on the books of the Depositary a notice in English
containing (a) such information as is contained in such notice received by the Depositary, (b) a statement that each holder of
ADRs at the close of business on a specified record date will be entitled, subject to the applicable provisions of law and our
articles of association, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the ordinary shares
represented by the ADSs evidenced by such holder’s ADRs, and (c) a statement as to the manner in which such instructions
may be given. Upon the written request of a holder of ADRs on such record date received on or before the date established by
the Depositary for such purpose (the “Instruction Date”), the Depositary has agreed to endeavor, insofar as practicable and
subject to the applicable provisions of law, the Deposit Agreement, our memorandum of association and articles of association,
to vote or cause to be voted the ordinary shares represented by the ADSs in accordance with such instructions. We have agreed,
without increasing our obligations or potential liability to the holders of ADRs, to provide notice, to the extent practicable, of
any meeting of holders of ordinary shares or shareholders generally to the Depositary sufficiently in advance of such meeting in
order to enable the Depositary to vote or cause to be voted the ordinary shares represented by ADSs in accordance with the
Deposit Agreement.
If no instructions are received by the Depositary from any holder of ADRs with respect to any of the ordinary shares
represented by the ADSs evidenced by such holder’s ADRs on or before the date established by the Depositary for such
purpose, except to the extent not legally permissible, such holder will be deemed to have instructed the Depositary to vote such
ordinary shares in accordance with the recommendations of our Board of Directors as advised by us in writing, except that the
Depositary shall not vote that amount of such ordinary shares with respect to any matter as to which we inform the Depositary
(and we agree to provide that information as promptly as practicable in writing, if applicable) that (x) we do not wish the
Depositary to vote those ordinary shares or (y) the matter materially and adversely affects the rights of holders of ordinary
shares.
The Depositary shall not vote any ordinary shares other than in accordance with instructions received by holders of ADRs
or as provided in the immediately preceding paragraph.
There can be no assurance that holders of ADRs generally or any holder of ADRs in particular will receive the notice
described above sufficiently prior to the Instruction Date to ensure that the Depositary will vote the ordinary shares in
accordance with the provisions set forth above.
Inspection of Transfer Books
The Depositary will maintain at its Corporate Trust Office, facilities for the execution and delivery, registration,
registration of transfers, and surrender of ADRs and books for the registration of ADRs and transfers of ADRs, which will
include the Direct Registration System, that at reasonable times will be open for inspection by us and the holders of ADRs,
provided that such inspection shall not be for the purpose of communicating with holders of ADRs in the interest of a business
or object other than our business or a matter related to the Deposit Agreement or the ADRs.
Amendment and Termination of the Deposit Agreement
The form of the ADRs and any provisions of the Deposit Agreement may at any time be amended by agreement in writing
between us and the Depositary, in any respect that we deem necessary or desirable. If the amendment adds or increases fees or
charges (other than taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery
costs or other such expenses), or prejudices a material existing right of ADR holders, it will only become effective thirty days
after the Depositary notifies ADR holders of the amendment. At the time an amendment becomes effective, ADR holders are
considered, by continuing to hold their ADRs, to agree to the amendment and to be bound by the Deposit Agreement as
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amended. In no event may any amendment impair the right of any ADR holder to surrender his ADR and receive therefore the
ordinary shares and other property represented thereby, except in order to comply with mandatory provisions of applicable law.
The Depositary may, and whenever we direct the Depositary, it shall, terminate the Deposit Agreement by giving notice of
such termination to the holders of all ADRs then outstanding at least thirty (30) days prior to the date fixed in such notice of
such termination, provided that if the Depositary (i) shall have resigned, then notice of such termination by the Depositary shall
not be provided to the ADR holders unless a successor depositary shall not have been appointed and accepted its appointment
within 60 days of the date of such resignation, or (ii) shall have been removed, then notice of such termination by the
Depositary shall not be provided to the ADR holders unless a successor depositary shall not be operating on the 90th day after
our notice of removal was first provided to the Depositary.
If any ADRs remain outstanding after the date of termination, the Depositary thereafter will discontinue the registration of
transfer of ADRs, will suspend the distribution of dividends to the holders thereof and will not give any further notices or
perform any further acts under the Deposit Agreement, except that the Depositary will continue (i) the collection of dividends
and other distributions pertaining to the ordinary shares and any other property represented by such ADRs, (ii) the sale of rights
or property, as provided in the Deposit Agreement, and (iii) the delivery of ordinary shares, together with any dividends or
other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, after deducting
certain applicable fees, expenses and taxes, in exchange for surrendered ADRs. At any time after the expiration of one year
from the date of termination, the Depositary may sell the ordinary shares and any other property represented by such ADRs and
hold the uninvested net proceeds, together with any other cash then held, unsegregated and without liability for interest, for the
pro rata benefit of the holders of ADRs that have not theretofore surrendered their ADRs. After making such sale, the
Depositary shall be discharged from all obligations under the Deposit Agreement, except to account for net proceeds and other
cash (after deducting certain applicable fees of the Depositary, expenses and taxes) and except for certain obligations as set
forth in the Deposit Agreement. Upon the termination of the Deposit Agreement, we will also be discharged from all
obligations under the Deposit Agreement, except for certain obligations to the Depositary.
Liability of Holders for Taxes, Duties or Other Charges
Any tax or other governmental charge with respect to ADRs or any deposited ordinary shares represented by any ADR
shall be payable by the holder of such ADR to the Depositary. The Depositary may refuse to effect transfer of such ADR or any
withdrawal of deposited ordinary shares represented by such ADR until such payment is made, and may withhold any
dividends or other distributions or may sell for the account of the holder any part or all of the deposited ordinary shares
represented by such ADR and may apply such dividends or distributions or the proceeds of any such sale in payment of any
such tax or other governmental charge and the holder of such ADR shall remain liable for any deficiency.
Transfer of American Depositary Receipts
The ADRs are transferable on the books of the Depositary, except during any period when the transfer books of the
Depositary are closed, or if any such action is deemed necessary or advisable by us or the Depositary at any time or from time
to time because of any requirement of law or of any government or governmental body or commission or under any provision
of the Deposit Agreement. The surrender of outstanding ADRs and withdrawal of deposited ordinary shares may not be
suspended, subject only to:
(1)
(2)
(3)
temporary delays caused by closing the transfer books of the Depositary or our transfer books, the deposit
of ordinary shares in connection with voting at a shareholders’ meeting or the payment of dividends,
the payment of fees, taxes and similar charges, and
compliance with the United States or foreign laws or governmental regulations relating to the ADRs or to
the withdrawal of the deposited ordinary shares.
The Depositary shall not knowingly accept for deposit under the Deposit Agreement any ordinary shares required to be
registered under the provisions of the Securities Act, unless a registration statement is in effect as to such ordinary shares. As a
condition to the execution and delivery, registration of transfer, share split, combination or surrender of any ADR or withdrawal
of ordinary shares, the Depositary, the Custodian or the registrar may require payment from the person presenting the ADR or
the depositor of the ordinary shares of a sum sufficient to reimburse it for any tax or other governmental charge and any stock
transfer or registration fee with respect thereto, payment of any applicable fees payable by the holders of ADRs, may require
the production of proof satisfactory to the Depositary as to the identity and genuineness of any signature and may also require
compliance with any regulations the Depositary may establish consistent with the provisions of the Deposit Agreement. The
Depositary may refuse to execute and deliver ADRs, register the transfer of any ADR or make any distribution on, or related to,
5
ordinary shares until it or the Custodian has received proof of citizenship or residence, exchange control approval or other
information as it may deem necessary or proper.
Pre−Release of ADRs
In certain circumstances, subject to the provisions of the Deposit Agreement, the Depositary may (i) execute and deliver
ADRs before deposit of the underlying shares or (ii) deliver shares prior to the receipt of ADRs for cancellation and withdrawal
of the underlying ordinary shares. Each of these is called a pre−release. A pre−release is closed−out as soon as the underlying
shares or ADRs (as applicable) are delivered to the Depositary. The Depositary may engage in a pre−release only under the
following conditions: (1) before or at the time of the pre−release the person to whom the pre−release is being made must
represent to the Depositary in writing that it or its customer (a) owns the shares or ADRs (as applicable) to be deposited, (b)
agrees to indicate the Depositary as owner of such shares or ADRs in its records and to hold such shares or ADRs in trust for
the Depositary until such shares or ADRs are delivered to the Depositary or the Custodian; (c) unconditionally guarantees to
deliver to the Depositary or the Custodian (as applicable) such shares or ADRs; and (d) agrees to any additional restrictions or
requirements that the Depositary deems appropriate; (2) each such pre-release will at all times be fully collateralized with cash
or such other collateral as the Depositary deems appropriate; (3) such pre-release is terminable by the Depositary on not more
than five (5) business days’ notice; and (d) such pre-release is subject to further indemnities or credit regulations as the
Depositary deems appropriate. In addition, the Depositary will limit the number of pre−released ADSs to not more than 30% of
all ADSs (excluding those evidenced by pre−released ADRs). However, the Depositary reserves the right to change or
disregard this limit from time to time as it deems appropriate. The Depositary may retain for its own account any compensation
received by it in connection with the pre−releases.
General
Neither we nor the Depositary nor any of our respective directors, employees, agents or affiliates will be liable to the
holders of ADRs if by reason of any present or future law or regulation of the United States or any other country or of any
government or regulatory authority or any stock exchange, any provision, present or future, of our memorandum and articles of
association or any circumstance beyond our control, we or the Depositary or any of our respective directors, employees, agents
or affiliates is prevented or forbidden from performing its obligations or exercising its discretion under the Deposit Agreement
or is subject to any civil or criminal penalty on account of performing its obligations. Our obligations and the obligations of the
Depositary under the Deposit Agreement are expressly limited to performing such obligations specifically set forth in the
Deposit Agreement without gross negligence or willful misconduct.
6
Significant Subsidiaries
Exhibit 8.1
The following is a list of our significant subsidiaries and other subsidiaries, including the name and country of incorporation or
residence. Each of our subsidiaries listed below is wholly-owned.
Name of Subsidiary
Country of Incorporation or Residence
Nice Systems Australia PTY Ltd.
NICE Systems Technologies Brasil LTDA
NICE Systems Canada Ltd.
Nice Systems China Ltd.
Nice Systems S.A.R.L.
NICE Systems GmbH
NICE APAC Ltd.
NICE Systems Kft
Nice Interactive Solutions India Private Ltd.
Nice Technologies Ltd.
Actimize Ltd.
Nice Japan Ltd.
NICE Technologies Mexico S.R.L.
NICE Systems B.V.
Nice Systems (Singapore) Pte. Ltd.
Nice Switzerland AG
Actimize UK Limited
NICE Systems Technologies UK Limited
NICE Systems UK Ltd.
Brand Embassy Ltd.
Actimize Inc.
Nice Systems Inc.
Nice Systems Latin America, Inc.
Nice Systems Technologies Inc.
Mattersight Corporation
Nexidia Inc.
inContact Inc.
inContact Bolivia S.R.L.
Nice inContact Philippines Inc.
Australia
Brazil
Canada
China
France
Germany
Hong Kong
Hungary
India
Ireland
Israel
Japan
Mexico
Netherlands
Singapore
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
United States
United States
Bolivia
Philippines
Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a),
as adopted pursuant to §302 of the Sarbanes-Oxley Act
I, Barak Eilam, certify that:
1.
I have reviewed this annual report on Form 20-F of NICE Ltd.;
Exhibit 12.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the company's internal control over financial reporting.
Date: April 6, 2020
By:
/s/ Barak Eilam
Barak Eilam
Chief Executive Officer
Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a),
as adopted pursuant to §302 of the Sarbanes-Oxley Act
I, Beth Gaspich, certify that:
1.
I have reviewed this annual report on Form 20-F of NICE Ltd.;
Exhibit 12.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the company's internal control over financial reporting.
Date: April 6, 2020
By:
/s/ Beth Gaspich
Beth Gaspich
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the Annual Report on Form 20-F of NICE Ltd. (the "Company") for the year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Barak Eilam,
Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
April 6, 2020
By:
/s/ Barak Eilam
Barak Eilam
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.2
In connection with the Annual Report on Form 20-F of NICE Ltd. (the "Company") for the year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Beth Gaspich,
Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
April 6, 2020
By:
/s/ Beth Gaspich
Beth Gaspich
Chief Financial Officer
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-166364,
333-168100, 333-171165, 333-162795, 333-162110, 333-06784, 333-08146, 333-11842, 333-09350, 333-11154, 333-111112,
333-111113, 333-134355, 333-144589, 333-145981, 333-153230, 333-177510, 333-179408, 333-181375, 333-191176,
333-199904, 333-210341, 333-210343, 333-210344, 333-214584, 333-210341, 333-210343, 333-210344, 333-214584,
333-226930 and 333-228911) of our reports dated April 6, 2020, with respect to the consolidated financial statements of NICE
Ltd. and its subsidiaries and the effectiveness of internal control over financial reporting of NICE Ltd. included in this Annual
Report on Form 20-F for the year ended December 31, 2019.
Tel Aviv, Israel
April 6, 2020
/s/ KOST, FORER, GABBAY & KASIERER
KOST, FORER, GABBAY & KASIERER
A Member of EY Global