NiCE’s CFO Beth Gaspich on AI, Acquisitions and the Future of Customer Experience

On this episode of After Earnings Nice. A decades old enterprise software company listed on the NASDAQ ticker NICE. It's working to redefine customer experience and itself through ai. Today I'm joined by Beth Gaspich, the Chief financial officer of NICE to talk about the company's evolution from legacy contact center software provider to an AI forward platform. We'll talk about NICE's approach to fraud detection. It's nearly $1 billion acquisition of a conversational AI firm and how to balance financial discipline, acquisition strategy and the challenges of investor skepticism. Let's get into it. Wow. So Beth Gaspich, thank you so much for joining us today. Let's start with the basics. As we were chatting before the show started, I said I feel as though NICE is the AI company that not enough people have heard of. So just break down for us, describe the actual core business model for us in your own words.

Sure, absolutely, and thank you for having me. I'd start by saying NICE is an enterprise software company and our core focus is to help organizations manage and enhance the consumer experience and for us to help them to do that in a cost effective manner. Nice has been around and was an early pioneer of enterprise software for the contact center, but of course the way that consumers engage with businesses has changed dramatically over the years. It's gone well beyond an expectation of consumer to be able to pick up the phone, but today's consumers expect to be able to engage with businesses using digital capabilities, have automation and AI and embedded, and that is really at the core and the heart of what we do at nice that we provide AI first cloud platforms to organizations that really take and digest the AI capabilities that we have, which have been built both organically and through acquisition and embed them into that end-to-end platform. And that provides a really seamless experience between a customer and the organizations that we work with, makes them smarter, makes them simpler, and at the end of the day provides a much more satisfying experience for a consumer that's engaged with the business. So that's what our software is enabling. We talked about the organizations that have already adopted our software know as well. We're a household name inside those organizations. However, we are always out there looking to bring on more new customers beyond the 25,000 customers we have across the globe today.

Let's break it down a bit more and I have a confession to make. So actually there was a period of my career when I was actually investing in outsource business services. So BPOs, just to de jargon, that's business processing organizations. Literally the call centers often located overseas. So if I have a problem with my cable or if I have a problem with my health insurance, I'd call a call center and usually those are not operated by the actual brand names themselves. So when I was doing my homework on Nice. I thought you are sort of the engine that fuels a lot of these call

Centers

And I have in front of me, we're not going to talk about your Q3 coming up, but I've looked at your investor presentations just to give a sense of your customers, folks like UnitedHealthcare and the health insurance space, folks like TD and financial services, you've got a whole slew retail customers to your point, lots of brand names. Talk to us specifically about the technology. It's so easy to just see to the lay person, we use AI in our software. What is it exactly that your AI is doing to make that call center experience more enjoyable and more productive for someone like me?

Sure. So I would say by first thinking about the arbitrage between labor and ai, that our technology and our capabilities allows what a consumer used to do with a business through a phone call to do more and increasingly more of that through agentless capabilities. And that's actually the fastest growing parts of our business. That means when you think about the contact center, while that's still a large portion of our business, the highest growing and the fastest growing areas are really around more of those AI capabilities. So those AI capabilities are both augmenting agents, the agents that are in the contact center really trying to take the things that they used to do manually. For example, they get a use case from a customer or a problem to solve from a customer instead of trying to solve the same customer over and over, they now have knowledge management capabilities that our software can put right in front of them as they're conversing with a consumer on the other end of the line. So that AI capabilities again is making it smarter, faster, more cost efficient for an organization and how they engage with the consumer. But what's really important and what makes NICE unique and gives us a competitive advantage is that it doesn't just stop with augmenting the agent that we have those capabilities that a consumer can engage with the business without any engagement of human at all.

(05:00)
But ultimately if they need to connect the AI engagement that they may be doing over a web search and ultimately end with an agent in the contact center that is all capable in a seamless, fully integrated way through our software. So those AI abilities again, are really enhancing and augmenting the agent, but furthermore, adding automation and AI capabilities that are agentless and that's again the part of the business that we really see even further flourishing beyond the core.

Talk to us about fraud detection. You listen to a lot of the banks for example, talking about one of the fast growing areas they're concerned about is folks calling up telebank for example, and pretending to be somebody else. Talk about your deep fate detection capabilities and how you are making sure that security is top of the priority list for you all.

So first I would highlight that AI and thoughts around security and data privacy are something that have always been top of mind at nice that while LLMs and really the next gen AI capabilities were introduced end of 2022 and early 2023, our solutions have always been embedded with very complex analytics and early machine learning based ai.

(06:22)
So the things that you're talking about are really core to the solutions that we have developed over time. And by the way, we have part of our business is fraud detection and prevention. So we understand that space well. So we have always kept those different areas of data privacy, security regulation and the impact of those fast changing areas top of mind and are focused there because it's such an important part of what we offer to customers. And that's really, I think also if you look at the growth that we've seen over the past years, it really evidences that customers trust us in terms of any kind of reputational damage that they might incur. So for example, when you're talking about deep fakes as an example, we are using our A IR AI inside certain guardrails that prevents that type of third party potential bad actors from being part of that.

How do you do that though? And here's why I want to push on this a bit, Beth, at the same time as you've developed or bored, we should talk about that, the technology to create exceptional conversational ai. If you are able to generate that to serve your customers, why can't a bad actor use this exact same, the technology to penetrate your services to commit that kind of fraud?

So over the past few years with the introduction of conversational AI and next gen ai, there's been a lot of focus around hallucinations When we think about how we operate at nice, one of the unique differences for us at NICE is that we use proprietary data. We have been in business for over 30 years, and so we have billions of interactions that have gone through our software. So when we are servicing our customers and helping to refine and drive that really wonderful satisfying experience between our customers, the organization and the consumer, they're doing that using that proprietary data. So that means that it's all surrounded by the guard rails that I talked about that prevent that. And of course we have many information security experts also at NICE whose job is to continually safeguard our data and our solutions and we have multitude of different certifications that we've received from outside vendors that support and make our customers comfortable with all of that security.

I'm going to get to acquisitions in a moment, but before I do, I just want to dig a little bit deeper into the history of the business. Nice. Was founded in 1986. You've also been a public company for a long time, listed on the Tel Aviv stock exchange since 1991. So we have a tendency to associate AI and tech innovation with very recent generation of companies and there's this sort of glamor in the aura of the startup. One of the things that software companies are struggling with is a perception that AI is going to make them irrelevant. And I'm just going to look at your share price because and you're not alone in this nicest stock is down 20% year to date as of recording today, 40% down over the last five years, despite the fact that what you are describing is a solution that is in very heavy demand. How do you think about that? Is that because the market is saying you're not a new shiny toy and there are just other names out there that are getting our attention? Do you need to recalibrate how you talk about your AI story? Just talk to us about in the seat of CFO share price versus fundamental connect or disconnect.

Yes, sure. I would say when you think about what we do with our AI in particular and what it means to the space, I talked about when sort of the next gen capabilities came into the market, and I think what's happening in what you see in our share price is that first of all there's validation that we're in a really exciting space within customer experience. There are new competitors that are coming into this space. We're in a greatly evolving tam, but what we see from the interactions and examples we have with our real customers is that while some of them may early on have tried some of these capabilities around use cases with ai, what they ultimately learned was they were very siloed and disconnected and so they did not drive that enhanced experience that's so important for organizations. And that's what is really incredibly important with the platform that we provide for nice that we are embedding those high quality AI capabilities. Again, both developed internally through all of our AI experts that have been doing this for many years, but also then with more of the new pioneers and cogi, the conversational AI player that we just recently acquired.

Let's talk about that acquisition us Beth, talk about the economics about that. Talk about the size of the deal, the synergies you expect to realize and how you think about how it might change the way you go to market.

So at the core of the acquisition we just recently made, the company is called cogi. They are a conversational AI platform and we were partnering with cogi well before the acquisition. So we already had APIs, we were integrated in how we worked with 'em. Now we are post-close and we are really focusing on pulling all of those capabilities directly into the heart and integrated in our NR CX one and Empower platform. The acquisitions itself was close to a billion dollars of acquisition and I think the strength and the financial foundation we have at NICE allowed us to make that significant investment and bet on the future. And we are extremely, extremely excited about this opportunity. We have had AI at the core of our offering, but this really elevates and strengthens that opportunity to finesse and really deliver the best connected experience for consumers with our customers in this connected way that I talked about, which is not siloed.

(12:45)
If I think about even in the last quarter we had a few examples where we closed deals with new customers or even existing customers, but in some of those new opportunities, we had customers that were using six or seven different solutions to come and arrive at the same offering we have in our one platform. And that's really what we're very excited about. We bring all of these capabilities together inside of our platform and so it creates a moat relative to the other newer players that are very specific in the AI capabilities they can bring to the table.

That strategy that you've just described, Beth, there's a word for it. Platformization, right? And it's sort of been last year it was buzzword du jour and the name that I can think of that really started to socialize that term of the market was Palo Alto Networks. And if you look at that company, they went to market with a very aggressive pricing strategy that was designed to encourage corporations to dislodge those multiple solution providers and actually come to them. And Palo Alto was willing to take losses in order to do that upfront and had very high confidence that they could prove the Platformization model over time. Is that something you would consider doing at nice?

So at nice we have a very strong financial foundation, we have healthy profitability and that's important and we plan to continue to have healthy profitability as we grow our business. That being said, I think that this is a time that we are certainly reevaluating the market and the opportunity ahead of us, especially with the significant acquisition that we just made and as well as a new CEO that stepped into NICE earlier this year. So that is an area that I think we are currently evaluating and certainly will continue to run a profitable business in terms of the mix between how much profitability and how much investment we continue to make back into the company. That is something that we're actually looking forward to sharing more about. We have a capital market stay coming up.

Well, we definitely want to catch up on that. And I think just looking ahead without going into the specifics, one thing I would note is the cashflow generation of nice last quarters. This is the 12 months ending June 30th, 755 million cash from operations, higher recurring revenue. So for listeners, I hear subscription and stickiness and all the sort of things that the markets appreciate. When you think about your war trust, Beth in the seat of CFO, how are you thinking about continued acquisition strategy? If you forget dividends and buybacks and other things you might do with capital allocation for now, we'll save that for capital markets. When you think about your acquisition strategy, what is that now?

So in terms of our acquisition strategy, first and foremost in the near term, we're very much focused on the successful integration of cogi, the recent acquisition that we just closed on. And it is such a significant part of our AI story and our offering to our customers. That being said, because we do provide and we do generate a significant and healthy amount of cash, that provides us with a lot of optionality. And so typically when we think about our capital allocation priorities, it's a combination of both sheer buybacks that we do routinely as well as acquisition opportunities. So what I would share there is that in the near term that the key focus would be more of technology tuck-ins. We've done a lot of those over time and typically we're doing tuck-ins to further strengthen the core assets that we already have. And I would say that would probably be more of the near term focus. That being said, because we do have a very healthy balance sheet as well as cashflow generation, we're also not opposed and would be open to doing something larger if we feel that it's appropriate in terms of the strength and the strategy of the company.

Let's talk a bit more about those tuck-ins, Beth, because it feels as though everyone's hunting for ai, but whether to do sort of acquihires, so that's to get the team and the talent in place that perhaps one doesn't have. Now how do you think about competing to become the buyer of choice?

Well, I think kgi is a wonderful example. Kgi the acquisition that we just closed for the conversational AI platform. And the reason it's a great example is that we did not have to go out and get any external financing. So we were able to close a deal in a very short timeframe and essentially do that without having to slow down the process. So given the strength of our cash generation, it gives us more optionality to move very, very quickly. And so that's an advantage that a lot of acquirers or potential buyers of those tuck-ins have and they're not positioned in the same way. So the strength of our balance sheet, the consistency of the financial foundation we have at NICE really gives us that I would say leg up in terms of being competitive for those potential acquisitions. The other thing that I would note is when I talk about technology tuck-ins, while we are focused on ai, we've just made some large investments. So sometimes those tuck-ins may actually just be core in terms of customer experience and not necessarily AI as well.

What do you think of a model that some have pursued of corporate venture where they're actually using their balance sheet cash and saying, we are going to make a couple of bets on startups and maybe them position ourselves as the buyer of choice when they're ready to exit. Is that something that you pursue at nice?

It is something that we've used on a limited basis in the past. We have completed an acquisition of a company that used exactly that model, a CBC model where you start off with a small investment, you build a relationship with the potential acquiring or the company that you look to acquire and you ensure and get comfortable that you are driving the outcome that you expected financially as well as culturally to move forward. So we have used that model and it's actually something we intend to continue to drive and expand further given the success that we've had initially.

Let's talk about you personally a bit. Beth. Oh, she's taking a sip of water now. She's gearing up. Beth's ready. You've been the CFO of NICE for nearly a decade. Talk to us about what you were doing before that. I think this is fascinating. Give us your bio.

Well, I think before that I did many different things. I grew up in the Midwest and moved to New York City when I was young, really dazzled by the Bright Lights, big city concept. And I've never left. I've had the opportunity to really come up the track as working at public accounting, becoming a CPA. I worked for some really well-known prestigious organizations that were wonderful experiences. Pricewaterhouse, JP Morgan. I had the opportunity at JP Morgan to spin out a company called Risk Metrics where I spent about a third of my career, almost 10 years or a decade going from a small group of people ultimately into IPO and the stock exchange. And then of course I've had the opportunity to step into NICE where we have gone already through one significant transformation of the company and are in the process of the second transformation. I think the first being an enterprise software company that delivered software predominantly on premise and shifted to the cloud

(20:16)
During that time. When I stepped into my role as CFO, I think in the year prior we had about 5% of our business in the cloud. And at a billion dollars of revenue today, we will exceed 70% of our business being in the cloud and nearly a 3 billion revenue expectation this year. So that was the first incredible transformation that I've had the pleasure of being part of the team at the strategy of nice. And of course the second one is the growth and the transformation we're doing around ai, which is incredibly exciting and we've already driven a significant amount of revenue there as well that really sets us up for the next transformation. Well,

So for folks who are listening who say I'm listening to Beth a CPA, an accountant who effectively is a technologist. Now when you think about the transformation that you've described leading through and living through, how do you stay on top of technologies as they're evolving? And do you sit there and say, I'm a finance person, I should outsource the understanding of that? Or do you make sure that you yourself are sort of digging into the weeds of the technology?

So I think it's really important to understand the core of your business. And so of course I'm digging into the weeds as well. First of all, I would say I read every day as part of just even my natural persona. It's something that I enjoy doing, so I'm always reading about things that are up and coming. I think the other thing that I would highlight that's a little bit unique about me in the CFO seat is that for the last eight or so years, I've also managed our IT organization within NICE and a small corporate information security unit. So you asked me earlier about security and so I'm very close to that as well as what we're doing in our IT organization. So I think the combination of those factors, which also mandate me to understand where are the concerns of our customers, what is on the mind of our customer, what kind of questions are they asking?

(22:10)
That's kind of the starting point to really have a comfort that I am keeping ahead of the curve in terms of technology. So that's kind of where IT would say is founded in. But beyond that, as I said, I do a lot of reading recently I've been really enjoying Emily Chang on Bloomberg. She's done some fascinating YouTubes and podcasts with some of the tech titans and specifically focused on ai. So Bill Gates, Sam Altman, Satya Nadella, mark Benioff, some really interesting interviews there. So I'm always listening to, if we look at the large tech titans, what are they doing and saying, and I find that highly interesting as well in terms of addition to just reading more about AI specific capabilities.

And last question for you, which is also career related, and I've had this conversation with a couple of people and there's almost a bias you're going to hear in the question, which is I've always thought of being a CPA as one of the most challenging paths through which to start a career, but one of the most rewarding the training that's involved, the level of rigor that is involved in the studying and the testing. And I think coming on the other side, I've met folks who are CPAs who are just incredibly good at digging through, having the patience, the attention to detail, the tenacity to do sort of very forensic things. As you think about hiring the next generation of talent that has an enormous amount of AI support. Do you worry that the next gen may not have the same kind of attention to detail or the ability to at first principles the way you can?

Not at all. In fact, I see AI as a tool that enables all of us both in the work environment and at home as well. So I think if anything, it changes the nature of the type of talent that I want. Those talent that are very savvy with AI capabilities and that can bring that into the table and what that does as a company and really allows them to spend more time and use their financial acumen to understand the numbers and identify opportunities in the business opportunities to drive growth opportunities to bring more strategic thinking into the workplace. So they still need that ability to have the financial acumen and bring the certification that they would've in the past, but to use it differently so that really the simpler, easier task or thoughts that maybe they had to spend time writing documents in the past are being handled by AI and they can use more and more of those capabilities I said, to elevate the value that they bring into the organization.

Beth Gaspich, thank you very much for joining. Welcome. Come back after Capital Markets. Dave, thank you.

Appreciate it. Appreciate thanks for having me.

I'm Anne Barry and thank you for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe and share with your friends. Upcoming episodes will feature CEOs and CFOs from Scott's Miracle Grow Clear and Ferrovial. We'll see then.