NICE Ltd. Form 20-F Summary
Business context and reporting period
NICE Ltd. is an Israel-based enterprise software company reporting under U.S. GAAP. This Form 20-F covers the fiscal year ended December 31, 2021; the filing does not provide a separate fourth-quarter income statement. NICE operates primarily in Customer Engagement and Financial Crime and Compliance, offering cloud, on-premises and related services, including CXone, X-Sight and Xceed.
The company serves more than 25,000 organizations in over 150 countries, including 85 of the Fortune 100. Cloud adoption, digital customer interaction, artificial intelligence, automation and financial-crime prevention were identified as primary market drivers.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1,921.2 million | $1,648.0 million | 16.6% |
| Cloud revenue | $1,018.6 million | $777.3 million | 31.0% |
| Services revenue | $660.1 million | $687.5 million | (4.0%) |
| Product revenue | $242.4 million | $183.2 million | 32.4% |
| Gross profit | $1,296.7 million | $1,086.1 million | 19.4% |
| Gross margin | 67.5% | 65.9% | Up 1.6 points |
| Operating income | $263.9 million | $242.0 million | 9.0% |
| Operating margin | 13.8% | 14.7% | Down 0.9 points |
| Net income | $199.2 million | $196.3 million | 1.5% |
| Diluted EPS | $2.98 | $2.98 | Flat |
| Cash flow from operations | $461.8 million | $480.3 million | (3.8%) |
Cloud revenue represented 53.0% of total revenue in 2021, compared with 47.2% in 2020. Cloud gross margin increased to 59.7% from 56.3%, primarily due to scale and operating efficiencies. Product gross margin increased to 90.8% from 87.9%, while services gross margin was broadly stable at 71.0%.
Operating expenses rose 22.4% to $1,032.8 million, including research and development of $271.2 million, selling and marketing of $536.2 million, and general and administrative expense of $225.4 million. Stock-based compensation expense was $156.4 million, compared with $103.5 million in 2020.
Cash, debt and liquidity
- Cash and cash equivalents were $378.7 million at December 31, 2021; short-term investments were $1,046.1 million, for total cash and short-term investments of approximately $1.425 billion.
- Cash flow from operations was $461.8 million. Investing cash outflows were $261.5 million, including $142.8 million for acquisitions, $42.4 million for capitalized internal-use software and $24.8 million for property and equipment.
- Financing cash outflows were $261.8 million, including $177.3 million of debt repayment and $73.2 million of share repurchases.
- Debt carrying value was $825.2 million, consisting primarily of $460.0 million of 0% exchangeable senior notes due 2025 and $110.2 million of 1.25% exchangeable senior notes due 2024, together with unamortized discounts and issuance costs.
- Contractual obligations totaled approximately $1.110 billion, including debt obligations of $866.0 million, operating leases of $131.5 million and unconditional purchase obligations of $96.1 million.
- Management stated that existing cash and cash equivalents were expected to fund working capital and capital expenditure needs for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by Customer Engagement, which increased by $224.7 million, and Financial Crime and Compliance, which increased by $48.5 million.
- Cloud revenue increased substantially as CXone expanded among new and existing customers, including in the mid-market and large-enterprise segments.
- Services revenue declined as existing on-premises customers migrated toward cloud offerings; product revenue rebounded from the COVID-19-related slowdown in 2020.
- Gross margin improved, but operating margin declined because research and development, selling and marketing, and general and administrative expenses grew faster than revenue.
- Net income growth was limited by higher operating expenses and financial expenses. Financial expenses and other, net increased to $23.3 million from $4.9 million, primarily due to a loss on extinguishment of debt and lower investment income.
- NICE completed three acquisitions in 2021 for total consideration of approximately $154.2 million, including ContactEngine for approximately $94.9 million.
- The company repurchased 290,271 shares for approximately $73.2 million during 2021 and held approximately 11.3 million treasury shares at year-end.
- Employee count increased 11.3% to 7,102 at December 31, 2021, with particularly strong growth in research and development and APAC personnel.
Guidance, outlook, management commentary and risks
The filing does not provide a clear numerical revenue or earnings forecast for 2022. Management’s stated strategy is to continue expanding CXone and other cloud platforms, increase digital, AI and automation capabilities, migrate customers from on-premises solutions, pursue acquisitions and cross-sell across the Customer Engagement and Financial Crime and Compliance businesses.
Key risks include intense competition and pricing pressure; dependence on continued cloud and SaaS adoption; reliance on third-party cloud, hosting, network and platform providers; service outages and customer service-level commitments; cybersecurity, privacy and data-protection obligations; rapidly changing technology; acquisition execution and integration; foreign-exchange exposure; employee recruitment and retention; tax audits and changing international tax rules; and potential economic, geopolitical and COVID-19-related disruption.
Unusual or important items include the $13.97 million loss on extinguishment of 2017 Notes, the December 31, 2021 election to settle the principal of the exchangeable notes in cash, and the expected January 1, 2022 adoption impact of ASU 2020-06. NICE expected that adoption to increase retained earnings by approximately $8.8 million, reduce additional paid-in capital by approximately $28.8 million, increase long-term debt by approximately $24.8 million, reduce deferred tax liabilities by approximately $3.9 million and increase debt issuance costs by approximately $0.8 million.
The filing also discloses Israeli tax assessments of $16.0 million for 2014 and $14.7 million for 2015; management stated that it had provided amounts it believed were sufficient for expected settlement. During the first quarter of 2022, NICE settled $18.1 million of 2017 Notes in cash and expected to settle an additional $2.0 million of requested exchanges in the second quarter of 2022.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Revenue recognition involving multiple performance obligations and standalone selling prices was identified as the critical audit matter.
Most important facts for investors to verify
- Verify the sustainability of cloud growth and the effect of continued migration from services and on-premises revenue to subscription-based cloud revenue.
- Reconcile the reported debt balances, cash-settlement elections, note conversions and 2022 maturity or exchange obligations.
- Assess whether expense growth, particularly stock-based compensation, research and development, and selling and marketing, is consistent with future operating-margin targets.
- Review acquisition contributions, purchase-price allocations, goodwill of $1.607 billion and potential impairment exposure.
- Evaluate liquidity after acquisitions, debt repayments, share repurchases and cash settlement of exchangeable notes.
- Monitor the $77.0 million uncertain tax-position balance, Israeli tax assessments and eligibility for Israeli Preferred Technology Enterprise benefits.
- Review cybersecurity, data privacy, third-party cloud dependency and service-level risks, including possible credits, refunds, penalties or customer attrition.
- Confirm the accounting and diluted-EPS effects of ASU 2020-06 and the cash-settlement treatment of the exchangeable notes.