NICE Q3 2026 Earnings Call Transcript

NICE (NASDAQ:NICE) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

NICE reported Q3 2026 revenue of $791 million, exceeding guidance with a non-GAAP EPS of $2.84, driven by strong performance in CXAI and international markets.

Cloud revenue grew 10.6% year-over-year, with AI ARR increasing 46% and accounting for 16% of cloud revenue, highlighting strong underlying demand despite slower adoption in non-core areas.

The company is focusing on accelerating cloud growth by enhancing AI adoption, strengthening the CXAI platform, expanding partnerships, and pursuing international market growth.

Operational highlights include significant enterprise wins, a 5% workforce reduction to streamline operations, and a notable 27% growth in CXone backlog, underscoring competitive strength.

Management expressed optimism about future growth, reiterating 2026 revenue guidance and raising EPS guidance while acknowledging the need to improve cloud growth amid present challenges.

Full Transcript

OPERATOR

Welcome to the NICE conference call discussing third quarter 2026 results, and thank you all for holding. All participants are at present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded November 4, 2026. I would now like to turn this call over to Mr. Ryan Gilligan, Vice President of Investor Relations at NICE. Please go ahead.

Ryan Gilligan (Vice President of Investor Relations)

Thank you, operator. With me on today’s call are Scott Russell, Chief Executive Officer, and Beth Gaspich, Chief Financial Officer. Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the Company’s actual results could differ materially from these forward-looking statements.

Additional information regarding the factors that could cause actual results or performance of the Company to differ materially is contained in the section entitled Risk Factors in Item 3 of the Company’s 2025 Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on February 26, 2026. During today’s call we will present a more detailed discussion of third quarter 2026 results and the Company’s guidance for the full year 2026. A copy of today’s press release and investor presentation can be found on NICE’s investor relations website. Following our comments, there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles, as reflected mainly by accounting for share-based compensation, amortization of acquired intangible assets, acquisition and divestiture related expenses, gains on intercompany foreign currency transactions, amortization of deferred financing costs, amortization of discount on debt, the tax effect of the non-GAAP adjustments, and the tax rate impact resulting from the non-U.S. intercompany transaction. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today’s press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties, and assumptions.

I will now turn the call over to Scott.

Scott Russell (Chief Executive Officer)

Thank you, Ryan, and good morning, everyone. In the third quarter, we continued to showcase ourselves at the center of the evolving CXAI market. In Q3, total revenue was $791 million and non-GAAP EPS was $2.84, both above the high end of our guidance ranges. We’re pleased with this performance and our progress against our key growth areas, including CXAI, our partner ecosystem, and international markets. However, we recognize there is more to do to drive faster cloud growth.

I’ll spend some time this morning talking through the market and the opportunities we see ahead. I’ll go into our strategic priorities, where we’re focusing our efforts, and how we’re leveraging our competitive advantages to seize these opportunities. Let me start with where we see the market heading because it shapes everything we are building. Customer experience is a growing market, with more consumers interacting with brands every day. Historically, the number of interactions a consumer could initiate was constrained by time. Personal AI agents fundamentally change that equation. As these agents begin interacting with brands on behalf of consumers, they have the potential to multiply demand for customer engagement at a scale we’ve never seen before.

That makes the digital front door a priority for enterprises today. The enterprises that win will be those that embrace this change, making it easy for consumers and their personal AI agents to engage with their brands. That requires a CXAI platform capable of managing the growing volume and complexity of customer interactions while orchestrating every experience across voice, digital, human, and AI at enterprise scale. This is where NICE leads. We already have the enterprise infrastructure in place to support this next generation of customer experience.

NICE Cognitive today supports 800 Way and MCP alongside voice and digital channels so enterprises can expose the same services, knowledge, and system connections to consumers and their personal AI agents. We’re also proud to be collaborating with Meta and other industry partners in developing the Personal Agent Protocol, an open standard for how personal agents connect to businesses and their AI agents. By helping define how personal agents engage with brands, we’re making sure that every enterprise can meet its customers wherever they choose to show up.

Leading this transition starts with a clear view of where value will be created. As enterprises deploy more agents, models, and specialized capability, value shifts to orchestration. We believe the winners will be those that offer a CXAI platform that runs the full customer experience, connecting every channel, system, model, and worker—both human and AI—with the data and context to orchestrate every interaction intelligently. That’s what sets NICE apart.

Traditional CCaaS providers and AI point solutions each address parts of the customer experience, but neither delivers the complete, unified platform that we do. As AI takes on more autonomous work, trust and accountability matter even more. This is where NICE has another unique advantage. We’re taking decades of CX experience and a proven track record of operating at enterprise scale to CXAI, where NICE Cognitive provides the governance to define what AI agents can decide, reliability at global scale, and a complete audit trail of every interaction, outcome, and action.

The more accountability an enterprise establishes, the more autonomy it safely unlocks. We’re seeing this play out in the market. We’re engaging with enterprises that previously selected AI-native point solutions but are now looking for end-to-end visibility and control that CXone provides. These competitive advantages give me strong conviction in our ability to capture the significant growth opportunity ahead. In Q3, cloud revenue grew 10.6%, or 12.2% excluding an atypical customer credit, which Beth will discuss shortly. Importantly, our organic cloud growth rate excluding that customer credit improved slightly from Q2 to Q3. While that’s an encouraging sign, I recognize that our cloud growth today is not where it needs to be. There are two primary dynamics at work. First, we’ve had strong AI bookings this year, but as we discussed last quarter, enterprises are taking a measured approach to AI adoption, particularly given their stringent requirements for security, governance, and scale in mission-critical workflows.

We remain confident in our ability to monetize that demand as adoption scales. Second, we’re seeing slower growth in certain cloud revenue streams outside our core CXAI platform, particularly standalone hosted workforce management, network connectivity, and financial crime and compliance. These businesses continue to grow, but at a slower pace than CXone and AI. Importantly, workforce management within the CXone platform continues to perform well, reinforcing its value as a part of our unified suite.

We are not standing idly by in the face of these challenges. We have a clear plan to build on the core strengths of our business, investing in the areas where we have the greatest opportunity and accelerate cloud growth. To do so, we’re executing against the following key priorities. First, we’re focused on accelerating enterprise AI adoption and monetization. The underlying demand is strong. AI ARR grew 46% year over year and now represents 16% of cloud revenue.

Within AI, NICE Cognitive continues to be the key growth driver, with revenue increasing nicely quarter over quarter. As a reminder, virtually all of our AI revenue comes from production deployments rather than pilots. Q3 was Cognigy’s strongest quarter of the year for both deal volume and new customers. Added AI backlog grew approximately 40% year over year, reflecting continued demand even as we lapped the closing of last year’s Cognigy acquisition.

The opportunity now is to convert more of that demand into revenue. As we discussed last quarter, we put several initiatives in place to help customers move faster from initial deployment to broader adoption. We’re increasing scale through partner certifications and delivery capacity, accelerating speed through targeted forward-deployed engineering engagements, and making our products easier to adopt through product-led innovation. Coming out of NICE Labs, we’re already seeing tangible progress of our initiatives.

Since the end of Q2, we have fully staffed our FTE team and engagements are ramping significantly, and since launching in Q2, NICE Labs have delivered significant product innovation including real-time voice-to-voice model integration, enabling natural full-duplex conversations, and the ability to use AI coding agents to build Cognigy agents in minutes. With Cognigy penetration still in its early stages across our install base, we see significant growth opportunity ahead.

Second, we’re doubling down on our unified CXAI platform, building on the strength of CXone, which was recently recognized as a leader in the 2026 Gartner Magic Quadrant for Contact Center as a Service. In Q3, customer interactions increased across all channels, with AI interactions growing faster than voice and digital. CXone seat count continued to increase with growth accelerating sequentially, reinforcing our view that human agents will remain critical to customer experience even as AI takes on more interactions.

CCaaS win rates have strengthened throughout the year and CXone backlog grew 27% year over year, significantly outpacing the total cloud backlog growth of 15%. Our competitive strength is reflected in the commitments we secured this quarter, including from four of the world’s largest enterprises, each with annual revenues of approximately $100 billion or more. We closed an eight-digit ACV deal for CXone with a leading global telecommunications provider, a new logo for NICE; one of the largest healthcare organizations in the U.S. signed a seven-digit ACV expansion of Cognigy; a global automotive manufacturer and financial services provider renewed CXone and added a seven-figure commitment to Cognigy; and one of the world’s largest technology companies signed a seven-digit ACV expansion of CXone. These wins reflect a common theme: at this scale, customer experience is mission critical, and enterprises need a single CXAI platform that is proven in production.

These customer commitments, together with our recognition by Gartner and Forrester across CCaaS and conversational AI, reinforce the strength of our individual solutions and the competitive advantage of bringing them together on a unified CXAI platform. That’s why we’re continuing to deepen that advantage. We’re making our platform more composable, allowing enterprises to adopt our capabilities individually or as a part of a unified offering. We’re also expanding our AI capabilities for regulated industries and advancing our ability to manage and optimize a hybrid human and AI workforce, and we’re strengthening our go-to-market with dedicated motions to capture these opportunities.

Third, we continue to lean into our strategic partner ecosystem. We’re expanding our relationship with the world’s leading GSIs. In Q3, GSI-driven ACV grew nearly sevenfold year over year, and Cognigy Practitioner Certifications, our highest tier, nearly quadrupled amongst our partners from Q2 to Q3, expanding our capacity to help customers adopt AI faster and demonstrating our partners’ growing commitment to Cognigy. Finally, we continue to focus on driving growth in international markets where cloud adoption remains underpenetrated. Cloud migrations, our expanding partner ecosystem, and a growing demand for sovereign cloud deployments are creating multiple durable drivers of growth. AI is also becoming an increasingly important part of our international business, represented the majority of new bookings in the quarter. In Q3, international revenue grew 33% year over year.

We’ve also expanded our reach with our first Cognigy wins in Japan, Singapore, and the Philippines, and our first combined CXone and Cognigy deal in China. And with GSI engagement continuing to build, we see significant opportunity to extend that growth. To support our priorities, we’re making the business faster, more efficient, and even more customer-centric. By leveraging AI, we’re simplifying our organization, reducing management layers, and strengthening our partner-led go-to-market and delivery capabilities. This includes reducing our global workforce by approximately 5%. These are never easy decisions and we do not take this step lightly. But we believe, along with the other steps that we’re taking, that this will help us drive greater efficiency across our business while enabling continued investment in the key growth priorities.

To close, we are operating in a rapidly evolving market with significant opportunity ahead, and I believe NICE has the platform, strategy, partners, and customer relationships to lead this next phase of CXAI. As I said at the start of the call, core CXAI, our partner ecosystem, and international markets are key growth areas that are delivering strong momentum. At the same time, we recognize our cloud growth needs to improve and we’re taking decisive action.

We’re doubling down on the areas of greatest opportunity and advancing our operating model to execute with greater speed and efficiency. These actions, together with the momentum we’re seeing across our CXAI platform, give me confidence in our ability to accelerate cloud growth and deliver sustainable, long-term value for our shareholders. Before passing it to Beth, I want to comment briefly on our previously announced exploration of alternatives for our non-CX assets.

We continue to work with advisors and do not have a further update at this time. With that, I’ll turn the call over to Beth.

Beth Gaspich (Chief Financial Officer)

Thank you, Scott. We delivered third quarter financial results with both total revenue and earnings per share exceeding the high end of our guidance ranges. While we are pleased with our total revenue performance in the quarter, we continue to be focused on driving faster cloud revenue growth. Additionally, we are taking important steps to shorten the time from customer demand to revenue, streamline our operating model, improve efficiency and position NICE for greater operating leverage.

Turning to revenue, total revenue for the third quarter was $791 million, up 8% year over year. The outperformance relative to the guidance was primarily driven by stronger than expected product revenue, mostly in our financial crime and compliance segment. Cloud revenue was $623 million, representing 79% of total revenue and increasing 10.6% year over year. In the quarter, we provided a $10 million credit to resolve an atypical customer-related matter, $9 million of which was recorded against non-CXone cloud revenue with the remainder recorded in services.

Excluding it, total revenue would have been up 9% year over year and cloud revenue would have been up 12.2%. The matter is fully resolved, there is no further exposure in future periods and the customer relationship and their ARR is intact. Additionally, foreign exchange was a negligible impact on cloud revenue growth compared to a 40 basis point tailwind in Q2. Together, the customer credit and lower foreign exchange benefit explain the difference between our reported cloud growth and our expectations at the start of the quarter.

Cognigy contributed approximately 170 basis points of inorganic cloud revenue growth in the quarter as we lapped the acquisition in early September. Looking at the underlying drivers of our cloud business, CX AI reached $392 million, increasing 46% year over year and representing 16% of cloud revenue. Excluding the customer credit, cloud net revenue retention was 106%, remaining stable sequentially, reflecting healthy retention and expansion across our customer base. NRR is even stronger among our largest enterprise customers, supported by deeper adoption and broader use of our CX AI platform.

Turning to our premise-based revenue streams, services revenue was $129 million, representing approximately 16% of total revenue and decreased 7% year over year, reflecting the continued migration of customers from on-premise deployments to cloud. Product revenue was $39 million, representing approximately 5% of total revenue and increased 30% year over year, primarily driven by strong growth in financial crime and compliance. Turning to our business segments, customer engagement revenue totaled $656 million, representing 83% of total revenue and increased 7% year over year. Growth was driven primarily by the strength of our CX AI offerings. Financial crime and compliance revenue totaled $135 million, representing 17% of total revenue and increased 13% year over year, reflecting the high value of our on-premise product and services offerings and customers’ continued commitment to renew and invest in our products even as some FCC customers are taking longer to make the transition to cloud.

Turning to our geographic performance, the Americas region, which represented 81% of total revenue, grew 3% year over year. Growth was driven by cloud revenue and higher product revenue, partially offset by the expected decline in services revenue and the aforementioned customer credit. International continued to be an important growth driver during the quarter, representing 19% of total revenue, growing 33% year over year, driven by 45% growth in EMEA.

International cloud revenue increased an impressive 50% year over year on a constant currency basis, reflecting strong cloud momentum and the continued success of our global go-to-market and partner ecosystem. Importantly, several of the large enterprise wins we’ve secured internationally remain in the early stages of their revenue ramp, with some already live and scaling and others still progressing toward deployment. Turning to profitability, gross margin for the quarter was 66.5%, and excluding the customer credit, total gross margin would have been 67%. Operating income was $214 million, resulting in a strong operating margin of 27%. We now expect to finish the year slightly above the high end of our 25% to 26% operating margin range while continuing to invest in AI innovation, go-to-market initiatives and our partner ecosystem. Earnings per share for the third quarter were $2.84, coming in above the high end of our guidance range as a result of outperformance in both total revenue and operating margin.

Turning to cash flow, operating cash flow for the quarter was $98 million and free cash flow totaled $69 million. Free cash flow in the quarter was impacted by a combination of cash items including acquisition and divest expenses, advisory-related fees, timing-related impact on collections and an office closure. We remain focused on improving cash generation through the transformation actions we are taking and greater operational efficiency. We ended the quarter with $351 million in cash and short-term investments and no debt on our balance sheet.

Turning to capital allocation, we repurchased $72 million of our shares during the third quarter. Shares outstanding at the end of September were approximately 57.5 million shares, a decline of 6% year over year. Year to date we have executed $383 million of share repurchases representing 6% of our market capitalization. An increase of approximately 18% on a year to date basis, reflecting our continued commitment to returning capital to shareholders.

Before turning to our outlook, I want to provide some financial context on the operational plan Scott discussed. As we look beyond 2026, we are taking additional steps to accelerate execution across the company, drive a faster operating rhythm that shortens the time from customer demand to value and to deliver incremental operating leverage. As part of this initiative, we are reducing our global workforce by approximately 5% as we expand our use of AI technologies and make adjustments in slower growing areas of our business.

These efficiencies will be concentrated primarily in product development as well as go-to-market, customer support and services. We are streamlining these functions to support a more customer-centric approach while increasingly leveraging GSIs and other partners to deploy our platform. As a result, we expect to record restructuring charges of approximately $15 to $20 million, primarily in Q4 2026, which will be excluded from our non-GAAP results.

As Scott mentioned, these actions will drive greater efficiency across our business, supporting additional investment in key strategic growth areas. These actions also give us greater confidence in our ability to achieve our 2028 operating margin target. Our updated 2026 outlook includes the expected near-term impact of these savings. Turning to guidance for the full year 2026, we are reiterating our total revenue guidance and raising our EPS guidance. Full year 2026 revenue is expected to be in the range of $3 billion and $170 million to $3 billion and $190 million. This represents growth of 8% at the midpoint. We are updating our full year 2026 cloud revenue growth to be approximately 12% excluding the impact of the customer credit discussed earlier. Let me elaborate on the factors impacting our outlook and importantly distinguish those dynamics from the underlying healthy performance of our core CXone platform.

First, our growing mix of large enterprise customers is resulting in more gradual AI revenue ramps and lower demand for network connectivity services. Second, standalone workforce management cloud revenue is still growing but at a slower pace as demand increasingly shifts toward broader CXone platform deployments where workforce management continues to perform well. Our focus is on cross-selling the broader CXone platform to these customers where we see greater long-term growth opportunity.

Third, financial crime and compliance cloud migrations are progressing more slowly than anticipated, with some customers electing to renew their on-premise deployments with Actimize, as evidenced by our strong product growth this year. Lastly, so far in Q4 we’ve seen less of the typical seasonal uplift in cloud revenue than we experienced last year. Despite these challenges, the underlying fundamentals of our core CXone platform remain healthy. CXone revenue growth excluding network connectivity has outpaced our overall cloud revenue growth each quarter this year. Additionally, CXone backlog is growing in the mid- to high-20% range, well ahead of our overall cloud backlog growth of 15%. These trends reinforce the healthy underlying demand we continue to see for our core CX AI platform. Full year fully diluted earnings per share are now expected to be in the range of $11.12 to $11.32.

We are updating our full year 2026 free cash flow margin outlook to be in a range of approximately 10% to 12% on a reported basis, or approximately 12% to 14% excluding non-recurring items related to acquisition, divestiture and restructuring. This revised outlook reflects the additional non-recurring items listed above, increased investments in our partner ecosystem and higher than expected cash tax payments. As we look ahead, our priorities remain clear: execute against the opportunity in CX AI, continue investing in our areas of greatest growth potential and operate with increasing efficiency and discipline. We believe the actions we outlined today strengthen our foundation for long-term growth and value creation. With that, I’ll turn the call back to the operator for questions.

OPERATOR

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one. Again, we kindly ask that you limit your questions to one and one follow-up for today’s call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Arjun Bhatia with William Blair and Company. Your line is open.

Arjun Bhatia (Analyst)

Perfect. Thank you very much for taking my questions. Scott, I wanted to maybe start with the personal agents. I know you talked about this a little bit in your opening remarks, but I’m curious how you just think the rise of Muse and Instinct and whatever else is to come in the future, how that impacts the CX space. It seems like we’re sort of due for a volume explosion of customers reaching out to brands, maybe vice versa also. But how does that impact NICE?

And how do you help your customers sort of manage that increase in volume and interaction that’s likely to come here?

Scott Russell (Chief Executive Officer)

Thanks for the question. You’re right — I think the impact is a seismic one, and the best way I can describe it is to put it in a simple context. Today, companies of all sizes, I just described it, they’re deploying autonomous AI agents to do work for them. They’re doing the work in the space, but they’re doing work in all sorts of parts of the enterprise. So why wouldn’t customers do the same thing? The reality is they will. Customers will use agents to perform work for them, just like enterprises will.

And so, yes, we’re in the very early stages, but we’re already seeing it begin to take shape. Interactions on our platform are continuing to grow across all interactions, all channels, with AI interactions growing fastest. But what’s really encouraging for me is a couple of things. First, enterprises see this shift coming and they’re coming to NICE. They’re coming to us for guidance on how to prepare. They want to make sure that their digital front door is ready to engage with these personal agents. They don’t want to get caught short because ultimately behind that agent is their customer.

And that’s why our work with Meta and others on the personal agent protocol — how to define these agents and how they’re going to work with businesses — is important, I think. There was a Gartner survey that was done recently — they surveyed 5,000 consumers — and more than half said that they would use an AI assistant to handle customer service interactions on their behalf. So while it’s early, I firmly believe personal AI agents will become an important new channel for customer experience. And enterprises need to handle the demand, the volume, the scale, the security, the auditability, the interaction complexity, the interoperability with the human when the agent can’t get the job done to give great customer experience. And so it’s an exciting outlook for us because that reinforces the need for a CX AI platform.

Beth Gaspich (Chief Financial Officer)

Yeah, thank you for the question. Let me start by talking about the headwinds related to the core CX areas. I would start by highlighting that, you know, on the Q2 call, I actually referenced that we were seeing some slowness in terms of some of the anticipation coming into the year around the cloud migrations we expected versus what we’ve experienced. So what we’ve experienced — and you see in the product revenue — is great strength that we’ve delivered and, you know, it evidences our customer base, particularly in FCC, recognizing the strength of that business, continuing to buy our on-premise products.

So really healthy trend, yet different than what was our anticipation. As we step into next year, I think that we’ll continue to see a bit of a mix in terms of the customers, really around a timing difference of when they will continue to purchase our on-premise products, which has been very strong as you see in the revenue, relative to the cloud migrations. When you think about the other challenges that we’ve highlighted today on the call, a number of them — I think the standalone hosted workforce engagement as well as the pace of AI adoption, which I called out last quarter as well.

Certainly, I’ll take the hosted workforce engagement first. I think we do see that we have continued growth there, and really what we’re seeing is working well is WEM that is embedded within the CXone platform, and that is going quite well. But we do expect to see that the standalone hosted offerings will continue to wind down over time. When we talk about the AI adoption, while the ramp was a bit slower than we originally anticipated, that is really where we have the greatest opportunity. Looking forward, we’re still in very early stages of ramping with several very large enterprise customers. We also have customers that are still in the backlog in AI that haven’t yet gone into revenue. And we highlighted that Q3 was really the strongest quarter we’ve seen in terms of Cognigy bookings this year.

So all of that is coming in the future in terms of the AI ramp. And then finally, I think the last comment that I would make there is, as I reflected in my remarks as well, it’s important to highlight that when you look at the core of where we are focused as a company, which is our CX AI platform, each and every quarter this year our overall cloud growth for the CX AI platform was growing greater than our overall cloud revenue growth.

Scott Russell (Chief Executive Officer)

Yeah. And maybe if I can just add one comment in addition to what Beth described, I remain confident that we will accelerate cloud growth in 2027 and in 2028. We’re operating in a growing market. As I mentioned before, our CX AI platform is performing strongly. We’ve got a differentiation. So whilst these dynamics, you know, have created a little bit of uncertainty about the slope and the trajectory, the acceleration is clear. And I guess the last thing that I would say is the market has reinforced our leadership position with CX AI.

Just when you look at the cloud backlog growth, if you look at CXone backlog growth, it grew 27% year over year in Q3. So we know that we’ve got the asset, the products, and the durability to be able to win in the area that is the most important to our company.

OPERATOR

Your next question comes from the line of Elizabeth Porter with Morgan Stanley. Your line is open.

Elizabeth Porter (Analyst)

Great. Thank you so much for the question. With the streamlined organization, can you put a finer point on how you’re balancing the opportunity to improve margins with the need to invest in the AI innovation? Clearly, there’s more going on in the go-to-market around FTEs and customer deployment capabilities. So should we think about the RIF as primarily a source of incremental margin expansion or as a way to fund investment in the higher-growth areas of the business?

And any context for how we should think about the trajectory into 2027? Thank you.

Beth Gaspich (Chief Financial Officer)

Yeah, thank you for the question. First, I would say that the workforce change that we announced today is predominantly focused around having greater customer centricity and also having a leaner organization to be able to drive the operating rhythm faster, to make approvals faster — just generally to increase our speed internally. When you think about the margins, you know, what I would highlight is we’ve been very pleased with our operating margin performance this year.

I announced earlier that we expect to actually come in above the range for the full year in terms of the expectation for operating margin. In the third quarter, we delivered a 27% operating margin on a non-GAAP basis. So I think you’re already seeing that we’re managing the cost profile well. However, at the same time we will continue to look to invest in the business. I think what you’ve seen — the combination of what we’re already doing in terms of how we’re managing the business from a cost structure, as well as the opportunity from this reduction and ongoing efficiencies — will give us really strong confidence that we are well on track to deliver the operating margin that we discussed of 27% in 2028. So you can see that we’re already on track for that.

As we go into the fourth quarter earnings announcement next quarter, we’ll give you a little more color specifically on what the balance is between the reinvestment relative to the workforce change that we made and announced earlier today. But certainly we expect margins to continue to be on track and better looking ahead.

Elizabeth Porter (Analyst)

Great. We clearly hear the remarks on cloud growth expected to accelerate in fiscal 2027 and fiscal 2028. As we just think about the linearity into next year, should we expect cloud growth to improve progressively as these AI deployments ramp, or is there an acceleration that is more dependent on faster specific enterprise implementations going live? And then I believe there was a reference for Q4 seeing less than the typical seasonal uplift in cloud revenue.

Just how should we think about that Q4 run rate impacting the fiscal 2027 trajectory?

Beth Gaspich (Chief Financial Officer)

Yeah, thank you. So let me take them in two parts. First, I want to talk about the linearity for 2027. You know, as we’ve highlighted today, we have seen some challenges in the business in some of these slower-growing areas. We’re in the process, obviously, of closing out year-end as well as our annual budget process, so we’re not really prepared to speak to any kind of linearity in terms of expectations for cloud growth next year. Of course, we’ll address that as we come into the next quarter.

With respect to Q4 specifically, I think a few things that I would call out there is first, as the implied cloud revenue growth in the fourth quarter, of course this is a first quarter where we no longer have that inorganic contribution from Cognigy. As you’ve seen throughout the course of this year, I think we’ve been pretty much right, as expected, in terms of the contribution we received, the inorganic contribution from Cognigy. But of course we’re now lapping that one-year anniversary which happened towards the end of September, so we are now going to be all organic in the fourth quarter.

I think the other important highlights that I would make is really, more importantly, the tough comp that we had coming out of last year. Last year we had a nice tailwind on foreign exchange that was about a 50 basis point tailwind in our fourth quarter of 2025 that we were able to include in our growth there, as well as we had some pretty strong seasonality and an uptick in seasonality. So both of those things were what we saw and experienced in the fourth quarter of 2025.

So, as of today, we do not see that same seasonal uptick yet currently in what we’ve seen quarter-to-date. So we are not factoring that into our fourth quarter as well. So it’s a combination of those factors as we kind of refine the fourth quarter expectation.

OPERATOR

Your next question comes from the line of Samad Samana with Jefferies. Your line is open.

Samad Samana (Analyst)

Hi, good morning, and thank you for taking my questions. I guess first to maybe kind of continue the conversation around the cloud revenue guidance — you know, it’s whipsawed around for most of 2026. I guess help us understand: did you take a more conservative approach to Q4? Have you further de-risked the guidance? I mean it’s still a fairly strong sequential uptick required to hit the full-year guide. That’s implied in the fourth quarter. So maybe help us unpack — did you take some variables down to the studs?

And then I have a follow-up question as well.

Beth Gaspich (Chief Financial Officer)

Yeah, thank you for the question. Look, I think first I’d like to actually use this as an opportunity to talk about what we’ve seen throughout the course of this year. You know, first I would highlight that if you look at our year-to-date cloud growth overall we’ve had a 12.6% growth. So, you know, solid performance. You know, very much pleased with, you know, that performance. We’d like to have obviously seen it higher, but 12.6 I think we feel is quite solid.

If you break that out now and look at the organic piece of that, as I said, I think the Cognigy contribution to that has been pretty much aligned with our expectation this year. So if you remove that, the organic growth has been at 10.2% on a year-to-date basis. So both the cloud growth, both organically and inorganically, we’ve seen has remained solid in the teens. I think as we look at the fourth quarter, I provided the reasons really that we’re taking into consideration not seeing that seasonality uplift that we saw last year, as well as not having that foreign exchange tailwind that we experienced last year that is not anticipated.

Samad Samana (Analyst)

And then, Scott, maybe as a follow-up, like a big picture question. Appreciate that there’s a lot of transition going on inside of the business, but I guess help me reconcile the explosive growth that we’re seeing at, whether some of these AI-native startups and/or the labs versus the experience where maybe enterprises are deploying AI a bit more slowly with you guys. Is that because of the nature of the function itself? Is that something to do with wanting to try new toys maybe versus with existing vendors?

Just help me reconcile those two elements that are happening at the same time, because I think that’s also—I think we would have expected more of an acceleration in AI adoption more broadly, and even some—I think the bookings data slowed down a little bit this quarter, so any color would be helpful. Thank you so much.

Scott Russell (Chief Executive Officer)

Yeah, no problem, Samad. So I guess there’s a couple of things. It’s been a really interesting dynamic throughout the year on how customers are acquiring and purchasing AI. I think you can see the evolution of the market. In the first half, we saw a huge influx of proof of concepts, pilots, customers trialing, and they’re in discovery mode. They’re trying to figure out what’s the capability, how easy it is to deploy agents, what operational complexity that it brings.

And what’s been interesting is a lot of those deployments are quite standalone in nature. They handle simple use cases, and so you can do that. And we’ve seen that in Cognigy. It’s been very strong to be able to deploy that. What we’re now seeing increasingly, and it’s partly summed up because we continue to operate at the top end of the market—we continue to deal with the world’s largest organizations—they are much more worried about scale. Can those agents handle thousands concurrently? Can it do the authentication? Can it have the security? Does it have the audit trails? Does it have the operational rigor to be able to do handoffs with their contact centers that are operating at huge scales, tens of thousands of people?

So when you put it in that context and you’re trying to then deploy it in a multifaceted, multichannel way, and you’re trying to get consistency across your customer experience, we see it more and more coming to the platform. And I think what you’ll see—and this isn’t just a comment about NICE—is what you’ll see is companies will look to use their existing assets like CXone that now has an embedded AI capability that is able to handle that mission criticality, and that they will then look to that as their primary platform of choice.

And we’re already seeing it. To give you an example, we had a multinational hospitality company that came back. They had an AI point solution, and now they’ve come back and said, all right, we’ve tested the concept, we know it works, we know what we can do. Now they’ve come back to NICE and they said we need greater control and ability of the AI agent performance in the context of its broader contact center. And we’re going to see that more and more.

Last but not least, I do need just to call this out. I can’t comment on any of these AI players, but what I will say is this: our AI revenue is production only—doesn’t include services, doesn’t include the deployments, doesn’t include pilots, doesn’t include POCs. So when you think about the AI revenue that we are sharing, it is only when it is operating in production for these customers, not all the work that leads up to it. And I think you’ll find that’s a pretty big distinction.

OPERATOR

Your next question comes from the line of Sidi Panagrahi with Mizuho. Your line is open.

Chad Tbaugh (Analyst)

Great, thanks. This is Chad Tbaugh on here for Citi. I just wanted to ask about the heavier investments that you’ve made this year in sales and marketing and R&D to enable the forward cloud revenue growth acceleration. Wondering if you could give us an update on those investment pillars and what you’re seeing today that provide confidence in the acceleration. And then secondly, just a clarification around the headcount reduction. Is it fair to assume that those are sort of confined to the non-core areas?

Scott Russell (Chief Executive Officer)

Okay, so I’ll answer the first part and then I’ll hand to Beth for any additional context on the financial numbers. So the investments that we’ve made, they’re already bearing fruit. As I mentioned in my opening comments, the best example is we’ve made a pretty significant shift in our go-to-market around use of field-deployed engineers, use of NICE Labs, and the rollout of our partner ecosystem and the certifications, the expansion of partner capability.

So those investments have now allowed us to have an increased capacity that allows customers to be able to deploy and adopt in a much more faster, agile, and not resource-constrained way. So we’re not seeing the fruits of that labor yet, but I’m very confident. One of the reasons why I’m indicating I’ve got cloud growth acceleration confidence is because when you think about the backlog and the great bookings performance that we’ve had over the past 12 months-plus, we’ve now got to be able to turn that into the revenue and the revenue acceleration.

And so this is about converting rather than trying to win it in the first place. The second comment that I would make is the go-to-market needs to be agile. One of the things we’ve learned—and it’s back to Samad’s question a bit as well—the go-to-market needs to adapt to different buying behaviors. I was with a customer, a major customer of ours, two days ago, and we were just talking about their demand of what they expected from an AI agent three months ago versus today. They’re already with Cognigy, they’re already leveraging our platform, but now they’ve got a much higher standard of requirement in terms of the deployment requirements than maybe what they did when they were in discovery phase.

So our go-to-market needs to cater for different organizational maturity—the regulated, you know, those in highly regulated industries versus others—those that have got high customer service. And now with the advent, you know, with personal AI agents, the customer’s decision about how they’re going to deal with that has huge implications on the way that we prioritize which flows will happen with the AI agents and what will be handled by their contact center.

So all of this means that our go-to-market needs the agility. I think when it comes to the workforce side, I think we made the comment that yes, clearly we looked at the slower-growing areas and used that to get operational efficiency. But this also includes areas where, for example, in research and development, our team are leveraging AI tools to increase productivity materially, together with, as Beth rightly mentioned, simplicity in our organization—reviewing, removing layers of management, and span of control to give us much more agility in operating across all of our business.

OPERATOR

Your next question comes from the line of Rishi Jaluria with RBC. Your line is open.

Rishi Jaluria (Analyst)

Oh, wonderful, thanks. This is Rishi Jaluria, by the way. Maybe two questions. First, you know, look, in light of the cloud guide coming down again—and look, I understand kind of the moving pieces here—you know, I want to rewind the clock back to the analyst day, I think a year ago, if my timelines are correct, you know, when you talked about accelerating cloud growth, being driven by Cognigy, being driven by AI and kind of the core. Can you maybe walk us through what is your level of confidence in that reacceleration?

You know, what are kind of the building blocks to get there? How should we be thinking about timeline? And then I’ve got a quick follow-up.

Scott Russell (Chief Executive Officer)

Yeah, sure. Thanks, Rishi. So I remember the analyst day very well, and I sit here today with the same confidence about acceleration. We’re in a great market—it is. But I think what’s very clear, we’re not satisfied with where we’re at on the cloud growth today. We are not satisfied. There is no doubt that we can do more, we can do better. And the good news is the things that we invested in—if you remember that day, I talked about AI acceleration with Cognigy—it’s on track.

AI economy is delivering what we are expecting, performing really well. I talked about international markets. You’ve seen the growth of international markets sequentially for us and being a durable growth driver. I talked about the partner ecosystem—now it’s a force enabler and a multiplier for us. I talked about the core CX platform and migrate and putting it onto the core and winning out the CCaaS with the CCaaS CX AI platform. Growing cloud backlog at 27%—really strong.

So the things that we focus, the things that are delivering durable growth, the things that are where the market has demand, I feel with the same level of conviction. But what I would say is clearly as the year has progressed, with all of the things that we’ve talked about on today’s call—some of the challenges that we talked about, the AI adoption curve, the slope and the trajectory of that reacceleration—you know, we are obviously revisiting and we’re looking at it and we’ll provide further update in our 2027.

But I want to reiterate confidence on ’27 and ’28 cloud acceleration because we’ve got the capability in the market to do that.

Rishi Jaluria (Analyst)

Yep, okay, got it. That’s helpful. And then maybe just going back to the topic of personal agents, you know, look, I think we’ve all seen the kind of viral growth of Muse, Instinct, now Dots. I’m sure there’s more to come and the proliferation will only grow from here. Maybe can you just help us understand mechanically how would that, you know, how would that impact your business in terms of revenue, in terms of kind of mix, in terms of model? Just want to maybe fully clarify that.

There’s been a lot of investor debate about exactly mechanically how that would play out. So, you know, if in fact that kind of thesis plays out, we will see more personal agents, especially leveraging voice as a channel. Maybe just help us understand both within the core and Cognigy mechanically how that would work out. Thanks.

Scott Russell (Chief Executive Officer)

Yeah, it’s a great question. And, and I. It’s, it’s a topic that is top of mind for every one of our customers. Just back on the prior question, I should have mentioned before, whilst we’re not satisfied with our cloud growth, our total revenue has been strong and we’ve been delivering to what we had indicated both last year and at the beginning of this year. And so whilst we will definitely deliver, we think we can do better on the cloud. I’m really pleased with how the company has been able to manage that changing mix and deliver strong operating margin performance as well.

But back to your question. So there’s a few ways that you can view this. First and foremost, the dimensions that we look at are the following. One is, what does it do for total interactions? And as you could probably expect, the total interaction volume in the market has been relatively stable, slightly growing year on year. So historically it’s been more about how much you can capture of that. Our expectation, and it’s based on our customer feedback, is interaction volumes will accelerate.

It’s the same as what enterprises are doing. Enterprises using agents to do work, personal agents for each of us as consumers will do the work on our behalf. And that means that the constraint of time is no longer there. They don’t have a time constraint. And I think anybody who’s been interacting with any of these platforms, it’s going to become commonplace. That means that the agents will be interacting with service channels, customer experience platforms with a higher volume of interactions than what we’ve historically seen.

So it’s not just displacing work, it’s increasing work. The second is consumer behavior, where you’ve got consumers who, because they don’t have the constraint in time, are trying to model that. I was talking to hospitality, travel and transport companies and they’re trying to figure out, well, how many times is a consumer going to interact through their agents, through news or bots or whatever they’re using to discover, to change flights, to upgrade, to ask for credits. They’ve got no constraints so you can do more and more volume.

And so one of the things enterprises are thinking about is how do they handle that. Last but not least is, what does that mean for us? Well, this is one of the advantages of having a world-class AI platform because we monetize based on interactions. Now we have offered our customers outcome-based pricing. We’ll deliver a containment rate or a resolution and a solution that allows us to monetize that volume. And I would just highlight that historically seat-based revenue is fantastic because it’s predictable, but the more efficient the agent is, we don’t necessarily get to monetize that volume.

With the AI agents having to be AI agents at the enterprise, need to absorb that volume. For the most part we’re able to monetize that by interaction. So it is my expectation that we’re going to have really good conversations with our customers about how do they manage an economically viable way for them to handle higher volumes, use of agents, great customer experiences, which involves human and AI, and do it in a way that delivers real value for them.

And that is one of the reasons why we have confidence in our long-term cloud growth outlook, because it’ll be driven based on that AI volume, interactions increasing materially.

Beth Gaspich (Chief Financial Officer)

And Scott, I would just add to that. I think that you highlighted, but it’s important to note that our pricing model today already allows for that. So there’s nothing that’s required for us to reach to the customer. That happens naturally and we’re already prepared as a natural part of our business to embrace that additional growth that we expect to see.

OPERATOR

Your next question comes from the line of James Fish with Piper. Your line is open.

James Fish (Analyst)

Hey guys, thanks for sneaking me in here. Going back to kind of the slower growth buckets, you know, especially as a large value proposition for NICE has been around one platform offering workforce engagement and contact center together. Can you just unpack for us? Are we fully penetrated on workforce engagement and migrations, or why is that former core seeing such a slowdown as that had been a big value proposition for you guys? And just as my follow-up, Beth, on gross margin, you guys called out like, excluding the credit it would be 67%, but that still would have been a little bit light of what we’ve been seeing and what all of us were estimating.

So are we still having to discount on some of these larger renewals or how to think about that as we finish out the year? Thanks.

Scott Russell (Chief Executive Officer)

Yeah, great question, Jim. I’ll handle the first one and then I’ll hand it over to Beth for the second. So I’m glad you asked it because it is important to provide the clarity on workforce management included in CXone as that unified platform. It’s actually performing really well. I expect that to continue. Enterprises are increasingly managing that hybrid human-AI workforce and CXone with Cognigy embedded is the platform that allows us to do that.

Where we’re seeing the slower growth and what we’ve pulled out is when it’s on a standalone cloud workforce management. So it’s selling to enterprises that do not have CXone. So the growth of that business has changed. So it’s healthy, it’s still growing, and it’s got great customer references, but it’s growing at a slower rate. And so we’re obviously trying to help support our customers managing the transition onto the unified platform because we know that where that is the go-for.

For the customers that want the standalone, we still try to then be able to convince them to take the full CCaaS. But that’s the reason why it’s only a slower growth on a purely standalone basis rather than the unified platform. Our unified strategy is on song and continues to perform well. And Beth, on the second question.

Beth Gaspich (Chief Financial Officer)

Yeah, sure, and thanks for the question, Jim. I think with respect to cloud gross margin, first I’ll highlight it. It’s completely unrelated to any kind of renewal events really. There are two things that are driving the cloud cost of revenue that you’re seeing in the quarter. The first is really the hosting and infrastructure costs that are related to these large enterprise and cognitive deployments we’ve talked about. We’re incurring a lot of those costs and loading the cost prior to getting the fully ramped revenue.

So as they become live and get to where we expect as a typical run rate and continue to, you know, expand through more use case adoptions, we’ll see that growth in terms of the profitability and a positive uptick into the gross margin. So that’s the first. The second is, you know, we’ve talked about some of the partners we’re using as well this year. I think we’re using some of those as well. And so some of that is also impacting into the margin. But really the greatest impact is the AI that I talked about. I think as we reach scale, of course we expect to see those stabilize and continue to expand in the future, both from the AI expanded adoption, but as well a lot of the internal efficiency initiatives that we’re driving as well.

OPERATOR

Your next question comes from the line of Patrick Walravens with Citizens. Your line is open.

Patrick Walravens (Analyst at Citizens JMP Securities)

Oh, great. Thank you. Scott and Beth, can we talk a little bit more about the $10 million credit to resolve an atypical customer related matter? I mean, obviously you can’t tell us who it is, but just can you talk a little bit about what happened there so investors can develop their own confidence that it’s really atypical?

Beth Gaspich (Chief Financial Officer)

Yeah, listen, I think what’s important is to talk about what it’s not. It was not a pricing discount, it was not anything tied to a renewal event. It was really an internal matter related to a customer. As I said, one large, long-standing customer, unique situation. And I think from our standpoint, what’s important to highlight is that it’s fully resolved. We don’t have any exposure in future periods and, you know, the customer relationship is unimpacted, their ARR is intact.

Patrick Walravens (Analyst at Citizens JMP Securities)

Okay. Have you ever had something that big before?

Beth Gaspich (Chief Financial Officer)

We have not. Which is why we refer—yeah, we have not. Which is why we have specifically referred to it as atypical. It is not something that we have s