NICE Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 16, 2024

There are 11 speakers on the call.

Operator

Welcome to the NICE Conference Call discussing First Quarter 2024 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 May 16, 2024. I would now like to turn this call over to Mr.

Operator

Marty Cohen, VP, Investor Relations at NICE. Please go ahead.

Speaker 1

Thank you, operator. With me on the call today are Barak Elam, Chief Executive Officer and Beth Gaspich, Chief Financial Officer. Before we start, I'd 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 2023 Annual Report on Form 20F as filed with the Securities and Exchange Commission on March 27, 2024.

Speaker 1

During today's call, we will present a more detailed discussion of Q1 2024 results and the company's guidance for the Q2 and full year 2024. You can find our press release as well as PDFs of our financial results on NYSE'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 and generally accepted accounting principles as reflected mainly in accounting for share based compensation, amortization of acquired intangible assets, acquisition related and other expenses, amortization of discount on debt and loss from extinguishment of debt and the tax effect of the non GAAP adjustments. Differences between the non GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

Speaker 1

The information and some of our comments discussed on this call may contain forward looking statements that are subject to risks, uncertainties and assumptions. We'd also like to remind you that we're hosting our Investor Day on June 11 in conjunction with our Interactions User Conference in Las Vegas. The special program for analysts and investors will include presentations from NICE executives and access to the innovations hall where you'll see several or many different types of demos. If you haven't received the registration email, please email us at irnice.com. And I'll now turn the call over to Barak.

Speaker 2

Thank you, Marty, and welcome, everyone. Earlier today, we reported strong Q1 results, starting the year on a high note. We also announced my planned transition as the CEO of NICE. This decision has not been easy for me, as leading this incredible team and serving our customers, partners and investors for the past 10 years has been one of the greatest privileges of my life. With the company poised for continued success and after 25 years at NICE, I believe it is the right time for me to step down.

Speaker 2

The Board and I have initiated a search process for my successor to ensure that NICE will continue on our journey of leadership, growth and profitability. NICE has been my home for more than half of my life and I will continue to lead the company with the same passion as I did for my entire career until the end of this year, as well as to support a smooth transition to my successor. And now to our Q1 earnings. We are thrilled to start the year with a positive momentum, evidenced by a robust performance across the board, while continuing to outpace the market. We reported total revenue of CAD659 1,000,000 which reached the high end of our guidance range and represented an increase of 15% from the same quarter 1 year ago.

Speaker 2

Our industry leading cloud growth remained a driving force behind our strong top line performance, showing an increase of 27% year over year. We also continue to deliver great profitability as demonstrated by 170 basis point increase in our operating margin, which ended the quarter at 30.3%, marking a significant milestone in our continued delivery of profitable growth. We far exceeded the high end of our guidance for EPS, finishing the quarter at $2.58 which was an increase of 27% compared to 1 year ago. Completing the exceptional first quarter execution, we once again demonstrated superior cash flow generation, totaling a record $254,000,000 in operating cash for the quarter, an increase of 30% year over year. Our continued strong performance over the past several years as well as in the Q1 are attributed to our unmatched platform strategy.

Speaker 2

Building a best in class platform that is as comprehensive as CXone demands years of focused effort and massive investments. It cannot be done overnight or mimicked by stitching together siloed and disconnected point solution. This is even more profound pronounced in CX, because it is a market that is highly specialized and the barrier of entry is nearly insurmountable. Anticipating the future trajectory of the CX market, our proven strategy and meticulously architecting CXone from day 1 to excel as the premier CX platform combined with unwavering consistent execution is now driving our market leadership with the ultimate rate factor. The industry's highest cloud win rate, trade basing digital convergence and fully leveraging the tremendous CXAI opportunity.

Speaker 2

Let me elaborate and provide a few examples on each. CXone's dominance as the most enterprise ready cloud platform is fueling NICE's unmatched win rates. In every evaluation or RFP, CXone stands out as the most complete, is exemplified for its ease and speed to migration tool, its best in class CMX less integrated portfolio of solution and boast unparalleled scalability. In Q1, we once again continued to win the enterprise markets as evidenced by the volume of portfolio deals indicating a rising trend of enterprises choosing CXone as their future cloud platform over their legacy on premise or disparate cloud point solutions. For example, in a 7 digit deal, one of the world's largest healthcare companies is continuing to move more of its point solutions due to the scalability of CXone further displacing multiple incumbent legacy vendors.

Speaker 2

In another deal that showcases the completeness of CXone, a large pharmacy outsourcer turned to NICE to simplify CX and deliver to its customers a better experience offered by a unified platform. In the process, they eliminated point solution providers. A large retail supply company was also looking to unify their tax stack because their existing disjointed infrastructure was breaking down. In these deals, the customer selected CXone over the competition due to its proven ease of migration as provided by multiple references. For nearly 3 decades, there was a clear separation in the CX space between voice solution providers and digital interaction providers.

Speaker 2

Conversely, CXone was built as the 1st and only customer centric platform natively converging all touch points and all interactions, triggering a rapid paradigm shift in the market over the past couple of years. This shift is now removing the line between these siloed subcategories resulting in enterprises consolidating the legacy digital CX into CXone. Our digital convergence far is evidenced by a staggering 8 out of every 10 new enterprise customers selecting CXone over the last 2 years to manage all the customer interactions, including multiple digital touch points. And by the exceptional 5 fold growth in the volume of digital interactions managed by CXone. In Q1, we signed a 7 digit deal with a large state credit union, which is a great example of the digital convergence CXone is driving.

Speaker 2

This existing customer began its journey by migrating from a legacy incumbent into CXone and is now leveraging the platform to consolidate several of its siloed digital point solutions into CXone. In another 7 digit deal, a well known consumer loan company is consolidating its CX and forging their digital strategy on CXone through the adoption of our digital and AI portfolio to rely increasingly on self-service to help improve customer experience. While fusing AI in CX is undoubtfully revolutionary, its impact is quite different than commonly held perceptions. Everything considered simple in CX such as checking your account balance, password research, returns and refunds as well as thousands of other services and inquiries are already fully automated. Today's 50,000,000 CX agents around the globe are dealing with the most complex and unconventional service scenarios, almost all of which are non repetitive tasks.

Speaker 2

There is a heightened understanding among enterprises that the next level of CX Automation can only be achieved by highly specialized AI platform. This is the exact reason why CXone with its unparalleled extensive repository of crucial data, knowledge and interaction is the platform of choice for a growing number of small and large enterprises. Accordingly, we saw a remarkable 200% year over year surge in the number of Enlightened AI deals in Q1. We're seeing numerous examples of how the adoption of even just one use case of AI increases the customer ARPU by 40% or more demonstrating the tremendous monetization potential as we further expand our AI leadership with both existing and new customers. Moreover, in the Q1, every CX deal above $1,000,000 ACV included AI.

Speaker 2

For example, in a 7 digit deal, a large agricultural manufacturing company is moving away from its disparate set of point solutions to CXone to unify its technology stack and in the process developing a CX AI strategy as evidenced by the purchase of a portfolio of our AI solutions, including Enlighten Autopilot and others. A similar impetus was behind a 7 digit deal with a large Canadian telecommunication company, a deal in which we won against several competitors and which the breadth and depth of CXone AI made NICE the obvious choice. We also won a 7 digit deal with a very large UK based bank, which selected CXone's first and foremost as the cornerstone for the CXAI strategy and we see significant expansion opportunities. In this deal, we replaced a long standing incumbent AI pure play point solution provider. AI innovation is flourishing on CXone as evidenced by rapidly expanding Enlighten AI portfolio, including co pilot for agents and supervisor, autopilot, auto summary, actions, XO and others, in addition to the thousands of CXone AI models.

Speaker 2

The speed of AI innovation on CXone is allowing us to deliver capabilities at a record pace. A good example is the recently released Enlighten XM, which went from inception to general availability in 3 months. Moreover, the innovation to customer adoption curve is the shortest we've ever seen. As an example, we introduced Enlightened Copilot less than a year ago at Interxion 2023 and in just a few months we signed dozens of new and existing enterprise customers who are already using it today. In summary, Q1 was marked by significant financial achievements, multiple large customer wins and rapid innovation, all of which were sourced from the platform power of CXone.

Speaker 2

Our years of massive investment, building CXone as the leading platform in the CX market continues to drive our success for 2024 and beyond. We are operating in a market that is still nascent in the areas of cloud, digital and AI. Given that these areas still hold considerable growth potential and coupled with the power of CXone platform, we see significant long term opportunities for sustained growth and profitability. Before I finish, I would like to share that we are very excited for our Annual User Conference, the largest in the CX industry taking place in Las Vegas, which is only few weeks away. It is a perfect opportunity for all attendees to witness the platform power of CXone from our own experts as well as from an impressive list of leading enterprises.

Speaker 2

Our agenda features marquee customers that adopted CXone as they migrated to the cloud, converge all CX assets and are already seeing the benefits of NICE CX AI, including Sony, Hunter Douglas, The Standard, Henry Schein, Hyatt, Sithler Bank, LexisNexis, Hyundai Capital, Consumer Cellular, Realtor.com, KeyBank, Banco DO Brasil, United Way, Google, Concentrix, Chewy, PayPal and many, many others. I would like to take this opportunity and invite all of you to our Annual Investor Day on June 11, which is taking place in conjunction with InterXions. We look forward to seeing you there. I will now turn the call over to Beth.

Speaker 3

Thank you, Barak. At NICE, we stand out as an industry leader that repeatedly demonstrates sustained balanced growth. Our strong start to 2024 displays our continued success with exceptional Q1 results in all key financial measures: revenue growth, increasing profitability and healthy cash flow generation. Total revenue was a record $650,000,000 up 15% year over year. Non GAAP EPS of $2.58 exceeded the high end of our guidance range, and we have generated more than $620,000,000 of operating cash over the last 12 months.

Speaker 3

Cloud revenue, which now represents a record percent of our total revenue compared to 64% last year, increased 27% year over year, in line with expectations to a record $468,000,000 The growth was driven by the ongoing strength of our organic cloud business as well as the inclusion of LiveVox, a leader in outbound engagement. This new addition to CXone further enhances the breadth of our platform, which particularly attracts large enterprises and is consistent with the trends we are seeing where customers are moving to NICE to eliminate siloed niche vendors and converge on CXone for all their complex CX specific needs. Our existing installed base continues to migrate to the cloud, which is one of the drivers of our cloud revenue growth. As expected, this migration results in a shift from maintenance revenue, which is included in our services revenue, to cloud revenue. In this transition, we generally see an uplift ranging from 2 to 10 times in a customer's ARR.

Speaker 3

Accordingly, services revenue was $149,000,000 represented 23% of total revenue and decreased 7% year over year. Product revenue from on premise sales, which represented 6% of total revenue in the quarter compared to 8% of total revenue last year was reduced. However, it exceeded our expectations resulting mostly from several customers electing to purchase some of our on premise offerings. With the ongoing expansion of cloud business across both our segments, our recurring revenue further increased to 88% of total revenue in the Q1 compared to 85% last year. Recurring revenue is comprised primarily of a combination of cloud revenue and maintenance revenue, which is a component in our services revenue.

Speaker 3

From a geographic breakdown, the Americas region, which represented 85% of total revenue in Q1, grew 18% year over year. The Americas region has continued to excel primarily from the success of CXone sales in the region. Outside of the Americas, we continue to see an accelerating shift from selling on premise solutions to our cloud platforms. This transition to the cloud masks the underlying strength of the cloud growth we are experiencing in our international regions. The EMEA region, which represented 10% of our total revenue, increased 7% year over year.

Speaker 3

The APAC region, which represented 5% of total revenue, decreased slightly year over year. The year over year changes for both our international regions resulted from healthy growth in cloud revenue, which offset a decline in on premise related revenue. The foreign exchange headwinds in APAC and tailwinds in EMEA offset each other such that the net currency exchange impact on total revenue was negligible. Both our business segments started the year on a high note. Customer engagement revenues, which represented 84 percent of our total revenue in Q1, were a record $551,000,000 a 17 percent increase.

Speaker 3

CXone, the most comprehensive enterprise grade CX Cloud platform is the growth driver in customer engagement, increasingly led by the growing contribution from our digital and AI offerings. Revenues from Financial Crime and Compliance, which represented 16% of our total revenue in Q1 and totaled a record $108,000,000 increased 8% year over year, driven by the increase in cloud revenue and strong on premise product contribution. From the close of the LiveVox acquisition in late December last year, our teams have been laser focused on our planned integration activities. This purposeful attention resulted in an immediate positive healthy contribution to our profitability from the start of 2024. Our cloud gross margin totaled 69.8% in Q1, a slight decrease compared to last year as we continue to invest in global expansion of our cloud platforms.

Speaker 3

Thanks to our scalable cloud architecture, we continue to expect to reach our target of 75% cloud gross margin in the next 3 to 5 years as a result of the increasing enterprise cloud adoption, which is correlated with an increase in the attach rates of our digital and AI solutions. In Q1, operating income increased 22% year over year to an all time high of $200,000,000 and our healthy operating margin increased 170 basis points to 30.3% compared to 28.6% last year. The strong profitability was driven by our continued best in class growth of cloud revenue, coupled with cost synergies from our recent acquisitions and a strong muscle in driving operating leverage. Earnings per share for the Q1 far exceeded our expectations, totaling 2 point $5.8 a 27% increase compared to Q1 last year. Cash flow from operations in Q1 was a record $254,000,000 an increase of 30% compared to last year.

Speaker 3

Our last 12 months operating cash flow totaled $621,000,000 yielding an exceptional 25.2 percent cash flow margin. The strength of our cash flow generation and outstanding balance sheet enables us to capitalize on M and A opportunities like our recent acquisition of Livox and to execute on our $300,000,000 share buyback program to return capital to our shareholders. In Q1, we repurchased shares totaling $42,000,000 We plan to complete our 300,000,000 share buyback program by the end of this year. In Q1, we also used $87,000,000 to pay the last portion of our 2017 convertible notes. In the last two quarters alone, we completed the acquisition of LiveVox, repaid the remaining principal on our 2017 convertible notes and repurchased a healthy number of shares.

Speaker 3

We made all these significant cash interactions while simultaneously generating our best ever infusion of cash from operations and ultimately increasing our cash balance from last quarter. With total cash and investments at the end of March totaling $1,503,000,000 our net cash and investments exceeded $1,045,000,000 In conclusion, our Q1 performance exhibited the continuous strong financial health of our business, driven by the growing demand for our CXAI offerings, successful integration of LiveVox and strategic execution of delivering consistent profitable growth along with outstanding cash generation. We are pleased with our strong Q1 opening for the year and looking forward, we expect to continue delivering on an industry best financial performance throughout 2024. Now I'll close with our total revenue and non GAAP EPS guidance for the Q2 and full year 2024. For the Q2 of 2024, we expect total revenue to be in the range of $657,000,000 to $667,000,000 representing 14% year over year growth at the midpoint.

Speaker 3

We expect the Q2 2024 fully diluted earnings per share to be in a range of $2.53 to $2.63 representing 21% year over year growth at the midpoint. For the full year 2024, we are maintaining our previous revenue guidance and raising our EPS guidance. We reiterate our full year 2024 total revenue, which is expected to be in a range of $2,000,000,000 $715,000,000 to $2,735,000,000 an increase of 15% at the midpoint. We now expect full year 2024 fully diluted earnings per share to increase to a range of $10.53 to $10.73 which represents an increase of 21% at the midpoint. I will now turn the call over to the operator for questions.

Speaker 3

Operator?

Operator

Thank you. Our first question comes from the line of Samad Samana with Jefferies. Please proceed with your question.

Speaker 4

Hi, good morning. Thanks for taking my questions. Barak, sad to hear that you will be leaving us in a little bit less than a year, but maybe let's start there. I know the press release gave some details that it was a planned transition, but can you give us any sense of how long that you've been considering this and maybe why now? And then kind of in conjunction with that, what characteristics are you looking for in the next CEO?

Speaker 4

Is it somebody who scaled a cloud software business? Is it a different type of skill set? What would the ideal future CEO look like? Operator, can you hear the management team?

Operator

I'm not hearing anything right now. One moment while we check for technical difficulties. I'm sorry, ladies and gentlemen. We're now back.

Speaker 2

Ahmad, I apologize. In the middle of your question, Ahmad, I apologize. In the middle of your question, the line dropped on our end. Can you please repeat the last part of your question?

Speaker 4

Yes, no problem. So I was basically asking how long you've been contemplating the transition and then just asking the question about looking forward, are you looking for in the next CEO somebody who scaled a software business to certain levels? Are Are you looking for somebody with a different type of skill set just as you envision what the next CEO of NICE should look like? What are the characteristics that the company is looking for?

Speaker 2

Thanks, Samad. Appreciate the question. Again, I apologize everyone the line on our end drop. So as you read in the press release, we always believe in full transparency and this is exactly what you saw today. We're very transparent about how we are conducting this transition in a very organized way with no rush.

Speaker 2

And I believe that after 10 years as the CEO and 25 years of the company, the right way for me to transition is doing it in such a way from a very strong position of the company, NICE and outstanding foundations both operationally, financially, a leadership position in the market, business momentum. And my plan is to stay as the CEO till the end of the year and use this time together with the Board to conduct a proper search for my successor, both internally and externally. And then by the way, to stay engaged with the company for at least a part or a big part of 2025 and consult on anything that is needed on the strategic aspect and support the company. I love NICE. This is my home and I'll continue to support the company and I'm not rushing to any other place at the moment.

Speaker 2

In terms of who are we looking for, we're looking for the right salesperson to take the company to the next level, someone that have experience in the scale of NICE in enterprise software. We believe that we can have a very good list of candidates, both internally and externally. And eventually, the Board and I'll support them will make the decision to make sure that there is the right fit both in terms of the ability to execute moving forward, but not less important, we'll continue the great culture we have with NICE and supporting and working together with the 8,500 NICERs around the globe.

Speaker 4

Appreciate that. And then Beth, maybe just a follow-up for you. If I think about the Q1, the cloud revenue was a little bit better than expected. Can you just remind us, are we still tracking to that 18% organic cloud revenue growth for the year? And any update on maybe whether that's tracking ahead of plan and how we should think about organic cloud revenue for the rest of 2024?

Speaker 3

Yes. Thanks for the question, Samad. So, yes, we're highly pleased with the start of the year and the cloud growth that we're seeing. As we look forward throughout the course of this year, our cloud revenue expectations haven't changed.

Speaker 4

Understood. Thank you, guys.

Speaker 2

Thank you, Samad.

Operator

Thank you. Our next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.

Speaker 5

Great. Thanks. Maybe first question for me. Just any commentary on LiveVox integration and just how that's proceeding both from how you guys are seeing kind of revenue opportunities as well as opportunities to kind of optimize costs? And then just as a second question, just in terms of any commentary around kind of macro understanding that hasn't had much impact to the portfolio, but just with smaller customers, I think we've seen a pickup in headwinds this quarter, if you've seen anything worth noting.

Speaker 5

Thanks.

Speaker 3

Thanks for the question, Meta. And I think I'll start. I think first of all, we'd say, we're extremely proud that we have started off really on a great note this year with the integration of LiveVox. It's going seamlessly right according to our plans. And you can see that in our financial results.

Speaker 3

I think the overall financial results are very consistent with our expectations. And you can see that we talked about the synergy opportunity last year in advance of the close of the deal and we've delivered on that right out of the gate this year. So that's already reaping the benefits from the synergies we've been able to realize. And on the revenue side, we knew that coming into this year, there would be some initial overlap of some of the customers and that really the revenue opportunity is really looking forward. We are integrating the sales organization and looking ahead to 2025 and beyond.

Speaker 3

That's the point when we really expect to kind of put more gas on the pedals with respect to driving the top line. But as I said, we're really pleased. The execution is going is exactly as we planned, and we are really happy to see the results of that in our Q1 results.

Speaker 2

And I'll take the second question just to follow-up just to add first on LiveVox. Beside the financials, obviously, on the product side, we see great excitement from customers, both NICE's customers, very happy with the opportunity to adopt LiveVox solutions and vice versa. And the pipeline, the joint pipeline is looking extremely promising. About the second question, about macro, I don't have any kind of breaking news here to share. I think we see the exact same trends that we've seen before in all segments of the market.

Speaker 2

We believe, as I said in my earlier remarks, that on all of those aspects, winning the cloud, expanding into digital and of course, the big opportunity in AI, this is the core of investment, the center of investment today of large enterprises. And our prime focus, obviously, the big win is all of those very large enterprises that are expanding and standardizing on us.

Speaker 5

Great. Thanks.

Operator

Thank you. Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Speaker 6

Yes, thanks for taking the question. And Bharat, congratulations on 25 years. I guess I wanted to follow-up on Samad's question. I mean, obviously, 25 years is an incredible run, but arguably the company is at one of the more interesting times in the market here with generative AI taking off. So I guess I'm curious personally like what are you hoping to get out of the next 3 to 5 years?

Speaker 6

What are you going to do next in probably what was a difficult decision, but clearly there's a lot of opportunity ahead of the company. So I'm just curious personally what you're looking to do next.

Speaker 2

Great question. And needless to say, you described it correctly, it was not an easy decision. It's I'm still in a very mixed emotion, because I do believe the opportunity for NICE is tremendous. There aren't too many companies in such a great position, an exciting market, amazing team, leadership position. It doesn't get much better than that.

Speaker 2

Having said that, being 10 years as a CEO, I personally believe that at some point, a leader after 10 years needs to transition and hand off the torch to someone else. And you do it in a way that is not sudden and not in 5 minutes, but they're in a very organized transition and make sure that there is a strong continuity. So there is never a good time for it, but I've decided to do it now in this position. What exactly I'm going to do next, that's not my prime focus. Right now, I'm 100% focused on executing our 2024 plan, finding the successor and then continue supporting the transition.

Speaker 2

And what I'm going to do next is something that I'll have to think about it. I'm 49. I'm very bad at golf. So I probably have to find something else to do.

Speaker 6

All right. Well, hope we can get your golf score down. But a follow-up for Beth. So on the cloud guide, appreciate the reiteration of that for the full year. But I guess in the quarter you talked about on prem strength surprising you to the upside.

Speaker 6

In the full year, revenue target wasn't raised. So I guess how should we square the lack of a raise on the full year revenue target with stronger on prem mix in the quarter? And if I look at the calculated organic growth in cloud this quarter, I think it was around 18.5% depending on the assumptions. So that doesn't leave a whole lot of room for slowing organic growth throughout the full year. So just help us understand your confidence in that 18% organic growth for the rest of the year?

Speaker 6

Thank you.

Speaker 3

Yes. Thank you. So I think you asked a few different questions, which I'll try to make sure I've addressed. Let's start with the full year. I think as we look at the full year revenue guidance, we're stepping out of the Q1 and we have an expectation of $2,700,000,000 in total revenue this year.

Speaker 3

So it's a substantial amount of revenue. We continue to grow. And I think as we looked at the first quarter results, we had a $4,000,000 beat coming in near the high end of their guidance. We said, listen, dollars 4,000,000 on such a large number of $2,700,000,000 dollars Really don't feel the need in the grand scheme of things that it's consequential to the overall number. And so that was kind of the decision we made.

Speaker 3

Let's hold still early in the year. As you said, I think we're really pleased that we've stepped into the year with a strong performance. And of course, that's our expectation as we look forward as well across all aspects of our business. And you can see in the cloud growth that we continue to really excel and really are a leader in our market.

Operator

Thank you. Our next question comes from the line of Siti Panigrahi with Mizuho Securities. Please proceed with your question.

Speaker 7

Thank you. Thanks for taking my question. And Bharat, congratulations for a remarkable career at NICE. So my question on the AI monetization, you guys talked about one example how customer ARPU went up by 40% in monetization. So I'm wondering what kind of pricing model evolving?

Speaker 7

I know you guys started with agent and IVN, you were talking about usage best. So what kind of pricing model you're seeing and you think that will become most prevalent with this AI powered contact center? And also if you could talk about remind us how quickly this AI bookings can translate into revenue?

Speaker 2

Yes, thanks. Appreciate the question. I think you characterized it correctly. And I was trying to past quarters, some indications and examples and anecdotes on how this thing is evolving. 1st, I'll say the speed of innovation, as I've mentioned, is just tremendous.

Speaker 2

I've never seen anything like that, how fast on the CXone platform, because it has all data and knowledge. It's kind of the natural habitat for AI, how fast we can release capabilities and then how fast customers are adopting it, both existing and new. In terms of the monetization, most of the contact center industry historically, because it was very much agent based, most of the pricing is per user. But you said that correctly, and today we are monetizing on AI predominantly based on volumes or interactions and less about users. The right way to think about it is that if you have an organization that is adopting CXone on with digital channels and with AI, there is a certain user base price for the agent depending on which bundle or package that they buy and ours complete with a lot of capabilities and we don't have cost of integrated solutions.

Speaker 2

It's all natively there. And then the AI as they start either to augment agents with AI capabilities or any other elements of AI, usually the monetization is per day number of interaction, which are expected and we're seeing it to grow or continue to grow exponentially. So that's how we envision it moving forward. That's how it looks so far. It opens up a tremendous opportunity because we're not talking just about converting agent capacity to AI.

Speaker 2

We're talking about and we're seeing the expansion of our business to channel and touch points that we never played in. So think about all the variety of touch points an organization have. With AI, we are now taking over these areas that before that were not part of our business. Now how fast it will impact into revenue? It will grow, and we will start at some point maybe to provide more information about it, but it's becoming a most significant part of our booking at the moment.

Speaker 7

That's great color. And Beth, very impressive profitability and cash flow. But my question is on the SMB segment. You cited about some weakness in that SMB segment last year. So has it driven fairly stable in Q1?

Speaker 7

Or are you seeing any kind of incremental pressure in the small business side? And remind us what percentage

Speaker 6

is the SMB for us?

Speaker 3

Yes, Siti, thank you. First of all, we don't actually segment the customer base. We've never broken down the segmentation of our revenue between the customer size. We can say that, of course, enterprise customers are driving more and more of our revenue growth as we move up market and take additional market share. With respect to the SMB customer base and some of the compression that we were seeing last year, I really mentioned last quarter that we had seen a kind of a stabilization around that compression.

Speaker 3

We had seen it heavier throughout the course of 2023. And then of course, towards the end of the year and coming into this year, we've seen that compression really kind of stabilize. So now we see that we are at a kind of a business as usual, stabilization on the SMB side. And so as we've always had, we continue to add new business both in that installed base as a large enterprise, adding new logos and selling more to existing customers as well.

Speaker 7

Great. Thank you.

Operator

Thank you. Our next

Speaker 4

Congratulations on the quarter and Brock, congratulations to you on your 25 years. I hope that David and the Board are able to find a successor who is as good as fit for NICE today as you were over the last 10 years. So Beth, my question is for you. Are you having any thoughts about retiring? Because with the CEO transition coming, I'm pretty sure all your investors would agree with me that it would be great to have continuity in the CFO role.

Speaker 3

Pat, you're trying to age me here. I don't I'm not trying

Speaker 4

to age you. We just want to kick you around.

Speaker 3

No, no. Of course, we're all going to horribly miss Barak, and we're a great team that works together. But no, I don't have any plans of any upcoming retirement. I enjoy working with Barak, but I enjoy working really with all the team here at NICE and love NICE the same way that we all do. So no change in plans for me.

Speaker 4

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Arun Bhatia with William Blair. Please proceed with your question.

Speaker 8

Yes, perfect. Thank you. Barak, maybe one for you to start off with. When you think about where you're seeing bookings growth from Enlighten and on the AI side, how much of that is going to be focused more on existing customers that want to add on contact center synergy contact center synergy and go deeper into AI now that we are going through this pretty significant re architect?

Speaker 2

Great question. Thank you. So I would say, first of all, every conversation today, either because the customer asked to start it this way or we initiated, it starts with AI. The reason for that is that automation and the desire to have automation in the contact center is not new. I've been here before 25 years and from day 1, it was all about automation.

Speaker 2

But all the things that were simple in the contact center, I believe are already fully automated. I gave you example on my earlier remarks. And automation up until AI kind of got stuck and now there is an opportunity with AI. But at the same time, our customer are very savvy and anyone that runs a large customer service organization understand the complexity of that business and it's not easy to automate and it's not just throwing some LLM or Gen AI into the mix and hoping for the best. They understand a variety of things like the issues of privacy, security, having the right data, well integrated and generally they understand the notion that you need to have a certain highly specialized AI to work in this environment.

Speaker 2

So what we see today is a lot of customers that at the beginning, the hype of the past year, try to put something into the environment, either a very low return or got into kind of hit the wall. And now they're coming to us because they understand that the power of the platform. And the power of the platform goes to the fact that an employee, any employee can find themselves and organize themselves even in somewhat of a messy environment. The messy environment is toxic for AI and you have to have all the knowledge, the data interactions in a single place and CXone is a perfect environment for that. So that's what we see and this is the reason for the I believe for the fast adoption.

Speaker 2

Having said that, there is also understanding that it's not an overnight. There are different flavors in the journey of AI. They're in the phase of augmenting the agent, making them 10x better. And then there is the concept of who is the co pilot, whether it's the agent or the AI become the co pilot and exchange of knowledge between them. And then there are fully automation opportunities.

Speaker 2

And to manage that, you need a good partner and ICE has always been that partner and that's what we see both with existing customers and new customers.

Speaker 8

Perfect. Very helpful. Thank you. And then Beth, one for you. Just when we're thinking of cloud growth, I know you're reiterating the 18% organic target.

Speaker 8

How should we think about how much your own on prem to cloud migrations are driving cloud revenue growth for you? And when you look out throughout 'twenty four, is that should we expect that to increase given some of the dynamics that we've talked about with customers wanting to invest more in cloud and AI? And just give us a sense for how we should think about the shape of the contribution from your own on prem migrations?

Speaker 3

Yes, sure. In terms of our existing install base, I would say we see a relatively steady state there that each and every quarter we have a certain number of our customers, legacy customers that are continuing to move on to our cloud platforms and particularly of course CXone. It's something that we continue to expect to see. And as I said, the indications for this year look like it's generally business as usual. But I think with the introduction of AI and our digital offerings, we're seeing a pipeline that is adding incremental deal value, and that will also be a reason for customers to probably look to migrate sooner than later.

Speaker 3

So as we look into the following quarters and year, I do think there will come a time that we'll start to see some additional acceleration of the existing installed base as those very large enterprise customers start to plan their moves. And just a reminder that when we do see those customers migrate, I mentioned it in my remarks earlier today, we generally see a very nice and steady significant up lift in their ARR. It can be anywhere from 2 to 3 times and we have customers that are 10 times or higher in terms of uplift to their ARR. So it certainly will continue to be a growth driver for us.

Speaker 4

Perfect. Very helpful. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Jim Fish with Piper Sandler. Please proceed with your question.

Speaker 9

Hey, guys. This is Quintin on for Jim Fish. Thanks for taking our questions. Bharat, maybe first for you. Underneath the cloud business, you talk about the drivers of growth here between how much is coming from expansion of your existing base versus that conversion of the large enterprise pipeline that you guys have driving net new dollars?

Speaker 9

Any color you can provide on the net retention rates you saw this quarter relative to prior quarters?

Speaker 2

Yes. Thanks for the question, Jim. It's always for us a combination of the 2 between expansion and new. The beauty of the market we operate in that it's still only, I would say, 20 some percent in the cloud. So there is a very healthy runway and predominantly at the enterprise market.

Speaker 2

So our focus is, of course, a lot on our existing cloud customers, the many 1,000 that we have, but also about land grab of new customer. And the beauty that we constantly see is that customers new customers adopt us in different ways. Some go all in day 1, buy everything, deploy everything in some department by department and we continue to see the ARR of these customers growing. So there is no change that we've seen on trend either on NRR or the mix between new and existing customers.

Speaker 9

Understood. That's helpful. And then Beth, maybe for you, maybe to ask it more directly, how much revenue did Livebox actually contribute here in Q1? And then with the full quarter of wrapping your hands around the business, are you still expecting that $142,000,000 of contribution for the full year or any change to that? Thank you.

Speaker 3

So thanks for the question, Jim. And to be clear, last year, we provided direction of the cloud revenue split expectation between LiveVox and cloud revenue that was not coming from LiveVox just to provide real clarity to the stakeholders in order to understand the expectations of our cloud revenue this year. But consistent with every acquisition we've always done at NICE, once we close a deal, we don't actually separately disclose the financial results of beyond the business segments, which is how we have always conducted our business. So we won't be providing a specific breakdown. As I commented earlier, just in terms of giving color, I think, as I said, we're quite pleased with our revenue in cloud this quarter and feels that the stepping into the year, LiveVox is very much aligned with what we were looking to achieve with that acquisition.

Speaker 3

So I think we're very pleased. And beyond that, again, we won't be providing any further segmentation. As I've said, we've reiterated that the cloud revenue for the year expectation is unchanged.

Speaker 9

Understood. Thank you.

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.

Speaker 9

Yes, great. Thanks very much. Yes, Barak, you mentioned that AI gets you into some touch points that NICE has not addressed in the past. Can you just elaborate a little bit on what those touch points are? And also, I guess separately, is there any quantification of cloud bookings growth in the quarter?

Speaker 2

So thanks, Mike. So I describe in my I always describe it as the different drivers of our business, the shift to the cloud of CX environments and then the convergence and the expansion into digital and AI. They are separate, but obviously they also work together and they impact each other. So one of the things with our AI capabilities, customers understand that in order to really have what is the ultimate goal, the Holy Grail of CX, to really have a seamless journey for customers. 1 should not look at different touch points or interactions separately.

Speaker 2

And it breaks the silos between what was in the market for years, these different sub categories of someone provide the voice channels, someone provide the chat, someone the email, someone provide reflect knowledge into search or social engagement. And there is understanding that the core of the interaction is what you need to consolidate on and we are the core of that interaction. We managing voice historically is the most complicated channel. And if you solve AI for that, you can solve AI and automation for all the other things. So what we see more so than not is that customers consolidate into CXone, they bring knowledge into CXone, they bring data into knowledge to CXone and obviously all interactions.

Speaker 2

And then you have an holistic view of the customer and then in this environment, AI flourish. So that's the reason, that's the trend that we see. With respect to booking, we don't provide comments on booking. We provide certain different anecdotes about deals. And as you can see, like in any other quarter, we had many, many deals.

Speaker 2

We highlight a very large one, many 7 figure deals, of which many of them are brand new customers.

Speaker 9

Very good. Thank you.

Speaker 2

Thanks.

Operator

Thank you. Our next question comes from the line of Catharine Trebnick with Rosenblatt Securities. Please proceed with your question.

Speaker 3

All right. Thank you for taking my question. Something less sexy. You introduced a UCaaS solution recently. And can you pretty much give us some put some thoughts on what the decision was to do that?

Speaker 3

Does that impact or not impact your relationship with RingCentral? Thank you.

Speaker 2

Yes, thanks for the third question. I don't think I'm going to surprise you by saying that the U. K. S. Market is has been commoditized and it's no longer a premium capability.

Speaker 2

It's also easy to deliver. And so we have a capability. We always have and we had some requests from customer. Our relationship with Fringo is strong and we operate in certain segments of the market together. In some other segments of the market, we operate in a different way.

Speaker 2

So no change on that.

Speaker 3

All right. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Rishi Jaluria with RBC Capital Markets. Please proceed with your question.

Speaker 10

Hi. This is Richard Polin on for Rishi Jaluria today. Thanks for taking my question. So obviously AI can play a role across the kind of entire call center lifecycle. So I guess early days, are you seeing any particular use cases that are standing out?

Speaker 6

Yes.

Speaker 2

It's a great Yes. It's a great question. We see a lot of different use cases, and I'm very encouraged by the pace of adoption of those use cases because as I mentioned before, when we think of AI, we think about it in 2 different ways. We translate it to augmented intelligence and artificial intelligence. So there is the part when it can work side by side with the CX professional that is a human and there is an automation, a full automation of certain tasks or certain journeys.

Speaker 2

So I mentioned on the call several of our solutions with relate to AI, whether it's a copilot for agents and supervisors, auto summary, EXO for variety of CISA capabilities and the list go on and on. I didn't want to list everything. So the list, I believe, will continue to grow. And the minute you have a platform that have again all of those assets together, it's really easy to start using more and more use cases.

Speaker 10

Got it. Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Elam for any final comments.

Speaker 2

Thank you everyone for joining us. Beth, Marty, I and the rest of the management team are looking forward to see you at our Investor Day in Vegas in June 11. Have a great day. Thank you so much.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • CEO transition: Barak Elam, after 10 years as CEO and 25 years at NICE, will step down by year-end with a board-led search under way to secure his successor and maintain the company’s growth trajectory and culture.
  • Strong Q1 performance: NICE reported revenue of $659 million, up 15% YoY, with cloud revenue rising 27%, operating margin up 170 bps to 30.3%, non-GAAP EPS of $2.58 (+27%), and record operating cash flow of $254 million (+30%).
  • CXone platform leadership: The unified CXone platform achieved industry-leading cloud win rates, securing major enterprise portfolio deals that displaced legacy on-premise and siloed point solutions.
  • Digital convergence: Eight out of ten new enterprise customers chose CXone to manage all voice and digital interactions, driving a 5-fold increase in digital interactions year-over-year.
  • AI momentum: Deals for the Enlighten AI portfolio surged 200% YoY, AI was included in every $1 million+ ACV deal, and single AI use cases lifted customer ARPU by 40% or more.
A.I. generated. May contain errors.
Earnings Conference Call
NICE Q1 2024
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