Q1 2021 Nice Ltd Earnings Call

May 13, 2021

[music].

Welcome to the Nice conference call discussing first quarter 2021 results and thank you off the whole day I'll pause.

It depends at present are in a listen only mode.

Following managements formal presentation instructions will be given for the question and answer session.

As a reminder, this conference is being recorded May 13, 2021, I would now like to turn the call over to Mr. Marty Cohen VP Investor Relations at night. Please go ahead.

Thank you operator with me on the call today are Barak eight long Chief Executive Officer, Beth <unk>, Chief Financial Officer, and they're on their own executive Vice President corporate development 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.

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 three the company's 2020 annual report on form 20-F as filed with the Securities and Exchange Commission on March 23 2021.

During today's call, we will present, a more detailed discussion of first quarter 2021 results and the Companys guidance for the second quarter and full year 2021.

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 accounted from generally accepted accounting principles.

It reflected mainly in accounting for acquisition related revenues and expenses amortization of intangible assets.

In accounting for stock based compensation.

Differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

We'd also like to remind you that we are hosting our virtual investor day on may 25th in conjunction in conjunction with our interactions lives user conference a special program for analysts and investors want to presentations from nice executives and product and technology sessions sessions.

Haven't received a registration email.

Please email us at IR at nice Dot com.

I will now turn the call over to Barack.

Yeah.

Thank you Marty and welcome everyone.

Nearly halfway through 2021.

<unk> is already changing at an accelerated pace.

Consumer experiences will change moving to the next five years than they have in the previous 15.

Next day consumers demand channel of choice and seamless experience and to keep up enterprises need to raise our game in driving customer satisfaction to maintain loyalty among consumers.

To accomplish this organization.

Accelerating the adoption of cloud digital sophisticated analytics and AI.

This is creating immense opportunities in the market in which we operate and for the solution that we develop and deliver.

We're seeing increased adoption in cloud digital automation and self service solutions and technologies that we have successfully encapsulated into the broadest deepest and most complete platforms in both customer engagement and financial crime and compliance.

These platforms will enable us to capture significant growth opportunities in what we foresee.

More than a $25 billion total addressable market for nice.

We witnessed strong evidence of these growth opportunities throughout 2020, and it is continuing in 2020 one as demonstrated by our very strong first quarter results across the board.

Total revenue increased 11% to $457 million, which exceeded our guidance range and cloud revenue grew 33% both of which were fueled by six one.

The six one Titan and bookings reached record levels in Q1.

Unlike cloud transitions by other companies. Our overall revenue growth is accelerating due to a combination of two drivers to our cloud business.

First cloud conversions of our existing on premise product, resulting in higher annual revenue per customer.

And second and net new cloud business in CCAR digital and self service solutions that we did not previously offered in the on premise model.

In Q1 due to our success in the large enterprise market. Our cloud gross margin continued to rapidly increase going 470 basis points to 67, 6% and that drove the overall gross margin, which increased 180 basis points to $72.

7% opt.

Operating income increased 17% to $129 million.

And operating margin grew 130 basis points to 28, 2%.

This led to a 15% increase in earnings per share to $1 54.

Which also exceeded our guidance range and we generated $164 million in operating cash flow in Q1.

The underpinning of the strong financial performance and our ongoing growth are the result of owning the best and broadest set of assets, we have assembled for both innovation and acquisition to create six one.

These assets include omni channel routing digital workforce engagement analytics, AI and automation.

We are successfully integrated these best of breed technologies into six one which is a single unified native cloud platform delivered to all segments of the market small mid and large enterprises.

This deliberate and prudent strategy of combining all of these assets was recognized by Gartner and many other industry analysts.

That's nice is the only company debt is a leader in both CCAR and W. M in Gardner's Magic quadrant.

As the demand for channel of choice has become mainstream among consumers the need for digital has never been greater among enterprises.

In Q1, we witnessed an increase of two five times in digital interactions.

This rapid growth in digital in digital demonstrate the fast growing appetite that enterprises have to digital transform and fix one has the broadest set of digital assets in the industry.

It takes one native capabilities allows businesses to reach consumers wherever the digital journey begins whether a search engine social network or mobile application air powered small digital self service is ready to handle all interactions either proactive and responsive to all customer needs.

A few weeks ago, we further enhanced our digital offering with the introduction of six one expert following the acquisition of mine touch day.

This expands the capabilities of our platform by embedding knowledge into the digital journey.

This is another step in extending the breadth and depth of six one by natively integrating best of breed capabilities.

Our extensive investment in the past few years in AI related introduction of enlightened.

It is the a brain into core fix one that is embedded across our entire platform greatly enhancing every single solution on the platform.

We have seen great success with enlightened among large enterprises in telecom health care hospitality and other sectors.

With these assets in place. We also have a go to market that is unparalleled in delivering six one to all market segments.

Mid and large enterprises as well as international.

International expansion has been a key strategic initiative for six one and we're seeing great results.

In Q1 International bookings grew three times compared to the same quarter last year as we're seeing great momentum in our international partner expansion program.

For small and midsize enterprises, we're also working with dozens of channel partners in a rapidly expanding partner ecosystem that includes carriers fill partners collaboration vendors CRM providers value.

Resellers and system integrators.

We continue to see strong growth in bookings with our partners and we witnessed 38% growth in new logos in Q1 with many of those coming through the channel.

We also have a large ecosystem of partners that are building solutions for fast growing six exchange marketplace.

There are over 150 solutions in the marketplace and over 400 API to extend six one for CRM web mobile apps AI and automation among many other categories.

Our route to large enterprises has been our domain expertise for many years.

This domain expertise together with the large global enterprise sales organization are reasons why we are clearly differentiated from our competitors in this segment of the market and why we continue to see growing momentum here.

Q1 exhibited further evidence of this.

In Q1, we signed many seven digit <unk> deals with new customers.

New customer deals included the largest fatality chain, where we replaced an incumbent on premise legacy provider. We won this deal flow and the all in one aspect of fix one platform and the ability to easily add digital channel analytics down the road.

We signed a seven digit <unk> deal with a large federal government agency, which required a scalable model for the cloud and federal organization.

There was a seven digit deal with a leading dental insurance company and they will be replacing the on premise legacy systems from the incumbents.

They will be moving forward with more to nation cutting edge work force engagement and digitally transforming their business with nice.

We also signed a very large ACB deal with a well known online publishing company.

In addition to new customers, we signed many large expansion deals, which demonstrate the power of our platform as these customers continue to expand their relationships with nice by adding on solutions easily and seamlessly overtime.

Large expansion deals included a seven digit <unk> deal with a leading business process outsourcer in the large healthcare company, where we expanded and replaced incumbent.

This escrow company expanded with fix one to further advance the cloud transformation project in contact center.

Other seven digit expansion deal included one with a major airline for a portfolio of our solutions, including analytics.

Bearing themselves for a major post pandemic business the surgeons.

We also signed a seven digit expansion deal with a major social media company, which will deploy several solutions from our work force engagement portfolio as well as analytics.

We're also seeing tremendous momentum for six one internationally with some very large international deals that were signed in the quarter.

There was a seven digit <unk> deal with a very large Latin American Telecom group, which is a new customer.

We won this deal due to the flexibility agility and extensibility of our cloud platform and replaced incumbent who could only offer a hosted version of the on premise product.

There was a seven digit deal with a pre eminent telecom company in the APAC region also in APAC, we signed a seven digit deal with a major telecom company for a portfolio of <unk> solutions.

In the U K, we signed seven digit deals with the government agency for RBA and a telecom company for analytics.

In financial crime and compliance we continue to sign large deals, including seven digit deal with a very large bank for compliance and major brokerage drilling for fraud in robotics automation and international bank for a portfolio of our fraud and AML solution among many others.

We also continued to witness increasing success in the mid tier financial institutions with our exchange platform.

In summary, after a strong start to the year with the best assets in place and unmatched go to market and partner ecosystem, a record pipeline and robust bookings and mostly untapped $25 billion fast growing Tam. We believe we are in the best competitive position to capture more.

Many opportunities in 2021 and beyond.

I would like to take this opportunity and invite all of you to our annual Investor day in conjunction with our interactions user conference.

Interactions lives is the <unk>.

<unk> industries largest virtual event with over 25000 customers and partners in attendance and a great lineup of keynote speakers.

I will now turn the call over to Beth.

Thank you Barak and good day, everyone I am pleased to provide the analysis of our financial results and business performance for the first quarter of 2021, and and provide our outlook for the second quarter and full year.

Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million compared to $411 million in the same period of last year.

For the first time total revenue in Q1 exceeded total revenue in Q4, demonstrating our shift to a predominantly cloud company with about 80% recurring revenue.

Total revenue growth was again driven by our implant impressive cloud revenue, which grew 33% year over year.

As expected due to our ongoing transition to the cloud that is growing rapidly we expect to have a long term trend of overall higher revenue growth.

Cloud revenue represented 50% of our total revenue in the quarter compared to 42% last year and recurring revenue stood at 78% of total revenue in the quarter compared to 75% last year.

Our cloud revenue is primarily being driven by CX one in all segments of the market. While we are clearly differentiated and continue to achieve great success in large enterprises. We are also seeing tremendous achievements, both internationally and in the mid market as well.

In the quarter, 50% of our revenue was generated from cloud and the other half of our revenue was comprised of our product and services, which accounted for 15% and 35% of total revenue respectively.

Moving to our business unit breakdown.

Customer engagement revenues, which represented 81% of our total revenue in Q1 totaled $369 million for the first quarter.

13% increase compared to the same quarter last year.

In our other business unit financial crime and compliance revenues were $88 million for the first quarter, which was an increase of 6% from Q1 last year and represented 19% of our total revenue.

Breaking down total revenue by geographic region, we saw double digit growth in the Americas and EMEA regions.

Americas, which represented 82% of our revenue in Q1 totaled $374 million and grew 11% while EMEA revenues represented 12% of total revenue and grew 16% to $56 million.

APAC revenues, which represented 6% of our total revenue in Q1 totaled $27 million and grew 6% compared to Q1 last year.

Part of our growth strategy is to expand our cloud reach internationally. This ongoing expansion of CX one across multiple region is one of the key growth drivers for our continued cloud growth.

Our gross profit grew 14% to a quarterly record of $332 million in the first quarter compared to $292 million for the first quarter of 2020 day.

Gross margin increased to 72, 7% compared to 79% in Q1 last year.

The increase in gross margin is mainly attributed to the growth from CX one.

In the first quarter cloud gross margin with 67, 6% an increase of about 470 basis points, which was largely the result of increased scale in our cloud business.

As our cloud business continues to grow we expect further expansion in our cloud gross margin.

In Q1 operating income increased to $129 million compared to $111 million in Q1, 2020, and operating margin was 28, 2% compared to 26, 9% last year due to an increase in revenue coupled with.

Cable operating cost ratios.

Earnings per share for the first quarter totaled $1.54, an increase of 15% compared to Q1 last year, resulting from the improvement in growth and operating margin.

We experienced another strong quarter and operating cash flow, which totaled $164 million in Q1, an increase of 6% compared to last year.

Total cash and investments at the end of March 2021 totaled $1 billion and $561 million new.

Net of debt of $685 million or net cash totaled $876 million.

Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on opportunities consistent with our growth strategy and capital allocation plans.

I will conclude my remarks with guidance.

For the second quarter of 2021, we expect total revenue to be in the range of $445 million to $455 million. We expect the second quarter 2021 fully diluted earnings per share to be in a range of one dollar and 45.

Two $1 55.

For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1 billion and $800 million to $1 billion and $820 million. We are also increasing the range of our guidance for the full year 2021 fully diluted earnings per share.

<unk> to be in a range of $6 and 19.

To $6 and 39.

I'll now turn the call over to the operator for questions operator.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before.

I think the sparky.

Our first question is from Samad Samana with Jefferies. Please proceed with your question.

Hi, good morning, and thanks for taking my questions maybe Barak one for you are in terms of the pipeline for CX one deals.

To hear what you what the company did in the quarter, but just maybe help us understand what demand looks like as we as we lap. This time last year, where there was a surge in interest and just maybe what debt deal pipeline looks for CX one for for the next quarter and for the rest of the year.

Hi, Thank you for the question. So yes, we see a certain day earlier remarks, a great momentum and a six one and I highlight that debt as we see it both with a new customer with a great growth in our new logos versus the last year or 38% in the quarter.

As well as expansion and specifically I highlighted two out of thing, which is tremendous growth that we've seen day international market. So we are expanding and leveraging the presence that we have over there and of course the of course digital.

The pipeline as I mentioned as well beyond the booking that was a record high in Q1.

It looks very very good.

In all of those are segments are.

Both are in our new logos expansion and internationally. So you will feel a pretty positive about the market dynamics with data from a segment perspective in all segments of the market and we see the enterprise market continued to be very strong.

More and more large enterprises.

Realizing post the pandemic because of the result of per did experience last year the need to further accelerate and bring forward the plans of shifting to the cloud.

As well as digitally transform.

So that's our that's what we see on top of that as I've mentioned.

The expansion on I'll just.

Adding more capacity.

We're starting to see the power of plastics, one with a breadth of solutions that are natively integrated and fully owned by us or customer easily adding those are solutions and it adds up to her both bookings and billings.

Great and maybe one for you I don't want to steal the Thunder from from the company's upcoming analyst briefing and maybe I'll address it there, but just adding.

Cloud revenue is on top of everybody's mind and it was another strong performance this quarter, but.

You know I appreciate product revenue is it can be volatile, but how should we think about maybe cloud revenue guidance embedded in that <unk> outlook and for the rest of the year as far as cloud revenue growth rates.

So as we look on guidance for the rest of the year starting with the Q2, we expect our cloud growth to continue to be strong and looking forward for the rest of the year as well you know from a longer term perspective looking out really over the next three years, we expect our cloud growth to be at 25%.

Or greater.

And looking at that.

The given year in 2021 on a full year basis, we expect that our cloud growth will be even greater than that debt.

And that's kind of it reflected in our full year guidance.

Great. Thanks for that additional clarity I really appreciate it and then just maybe one housekeeping question on debt on the services revenue I know normally it goes down sequentially from <unk> to <unk>, but just anything worth noting there was was that more due to a shift to the cloud in this quarter or just maybe help us understand that ongoing seasonal trend.

Yeah. It's a good question and of course, it really is reflective of the ongoing shifts that we're seeing to the cloud we had 33% growth in the cloud in Q1 and as expected that over time, we expect that the cloud business and the concentration of cloud revenue is going to continue to increase.

And on the other side of that of course, the largest portion of our service revenue is maintenance and in practice, what we see is that.

As our customers are converting from being on premise customers and shifting over to the cloud and most of that's coming from CX. One we generally see a very nice uplift anywhere from two to three times on an apples to apples basis, but that uplift we have seen in practice can be.

All the way up to nine or 10 times as generally what you see is that those customers will actually adopt multiple solutions offer CX one platform at the time that they migrate.

Great. Thanks for my questions and look forward to connecting soon at interactions.

Thank you so much.

Thank you. Our next question is from Sanjay <unk> with Morgan Stanley. Please proceed with your question.

Thank you for taking the questions and my congrats on a really strong Q1 I wanted to go back to sort of this time last year and some of the initiatives around.

TX one at home and whether you still think Thats a source of potential new leads but it's the mid market or the enterprise.

Does that conversion on CA, one at home trend.

Trended going into 2021.

So last year, you know with the.

The outbreak of the pandemic back in March we immediately launched a CX one at home you know it has the two aspects of it you know first of all new wanted to support customers or prospects that need that did not have the ability to move our home but.

Also a way for them to get a taste of the cloud and kind of.

Make this potential spirit is to feel though it wasn't there and it resulted with of course a lot of momentum.

I think two things happened as a result.

First of all we realized as a result of debt.

Debt, we can get customers onboard it in a much faster pace you know when we when we started with a six one at home all of a sudden customers shifted to six one in a matter of 24 to 48 hours at scale, which was really a really phenomenal and we continue in doing that as we speak but I believe both this campaign and generally the ocean day market.

As I said before it's a.

Accelerating the whole the overall moving to markets into our into the cloud and we see enterprises are getting ready to do that.

In the next few years versus much further down the road and we were happy to see that and I think we are it will accelerate the progress of the after them.

Needless to say there are many other positive dynamics that we see in our business.

All of them related directly to.

To those initiatives or to the pandemic.

And these are as I said, both digital transformation and a lot of injections a day I think.

Saying that our strategy.

Debt, we put together several years back and both through internal innovation and all of the acquisitions, we've done including the recent one with.

Mine Dodge.

Bowing to us to be the only one in the market out there that can offer customers a full breadth of solutions and a one native cloud platform, even if they don't need all of that in day, one customers are very receptive to the notion that it's a future proof solution and they don't need to continue to be kind of the <unk>.

System integrator of the industry or buying from a cloud vendor that of practically.

All asking almost every centers instead of a platform.

Let me next perfect sense and thank you for that Barak. The one thing I wanted to follow up on was your comment on international bookings growing three X a year over year.

Just wanted to get a sense of how about resting itself I noticed that the product revenue growth grew year over year for the first time. So we think about those bookings how is that coming through in terms of cloud vs versus the on Prem and just broader ski excellent traction internationally.

Yes.

So thanks, Mike My comment on the international obviously product was much much healthier this quarter, but this particular chrome and to comment on the three X was actually about six one in cloud. So this is always see the debt.

The nice increase.

It's part of it's a result of both of those markets, but also our plan about two years ago to invest.

Both in the technology and the availability, but also of course in the go to market and further expand our investments.

Both internally and expanding our partner network and many of those are.

International markets and we're starting to see so we're starting to seeing it in the booking we believe it will become more pronounced in revenue as soon as those bookings converted into revenue in the in the cloud I think you were a single ready this quarter some healthy growth rates.

In some of our international markets.

And we expect that to continue.

Excellent. Thank you congrats.

Thank you.

Thank you. Our next question comes from Tim Horan with Oppenheimer. Please proceed with your question.

Thanks, guys can you talk about what else you need to do to expand international is at home.

Product development go to market and maybe just where are you in that whole process what speed you win thank you.

Thanks for that.

So we are we already have a very solid playbook and today, we're much more confident in debt playbook. After seeing this this results internationally, we have put ourselves at least two years ago.

On kind of prioritizing international markets are all relevant about the obviously the different in size and different thing their maturity.

From a technology perspective, because we are a native cloud solution to trends over.

The public cloud.

And in a positive environment, it's very easy for us to open.

Oh, two will make it a real ability of the platform in any.

Country or continent, Alder and today, we have this availability in dozens of different countries still from a technological perspective are there.

Also since we have built the.

Six one from the ground up several years back the ability to localize it both in terms of language in terms of also statistic a feature that they're needed for specific regulations in different countries is also a pretty easy for us thirdly, the relationship with local.

Telcos are in order.

We have availability of both voice and some digital services.

Very clear playbook for that and it's a very interesting for duals. So most of the effort right. Now is on the go to market front and there are two aspects to go to go to market.

Since nice historically have very strong presence in some territories. We have leadership in place we have salespeople in place free sales delivery people and we have offices and many of those countries.

It's mainly of expansion reopening or anything like that.

So that's that one investment that we continue to do and a second investment is to continue to expand the partner ecosystem. I think there is now we're seeing a greater realization of partners that we're kind of sitting on defense when it comes to cloud in certain international markets.

Finally took a decision that this is not an option, but it's mandatory for them to shift into the cloud, it's something we still domestically.

Probably five or six years ago now we're seeing it in international markets.

And we're very happy to me to be among the first doing day to international market.

And we ended the hearts and the minds of many of those partners.

And we saw it very very nicely and we continue to sign up a lot of those partners on a monthly and quarterly basis.

Thank you.

Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your question.

Hey, Thanks for taking my question first question I, just wanted to double back a little bit on the strength that you saw on product revenue this quarter.

Just trying to understand is that kind of exceeded your internal expectations.

Kind of what was the drivers of that and if youre seeing anything unusual in the pipeline, where we could maybe see more.

Alex strength throughout the rest of the year.

Yeah.

Yeah. So you know.

Product sales of course are less of a another recurring business. So we.

We are seeing it might fluctuate from one quarter to the second needless to say that our strategy that we go cloud first in most of our new customers. If not all of them are growing with cloud and many of our existing customer expanding or converting to the cloud, but we have a very large customer base.

Certain markets are still prefer to continuing by products.

And in on premise session until they convert to the cloud sometimes it's part of the conversation we have with them and building the road map.

With them. So it's a day, Lisa or the least predictable part of our business as you can imagine, but actually the pipeline is pretty healthy for a full product as well, but again the main focus of ours is the cloud.

Cloud revenue.

And we continue to Katie of course of the product elements and we expect it to continue to fluctuate from one quarter to another.

Thanks, that's helpful. So my follow up I know you talked about.

A large.

I'll leave it there.

The hotel chain or hospitality group.

Modernizing on CX, one this quarter.

I'm curious as you look at the pipeline.

And you think about maybe industries that were the most impacted last year do you think as things reopen are you starting to see signs that those impacted industries to be tailwind to the pipeline going forward just kind of curious what you have.

Thus far in some of the harder hit industries.

From a from a COVID-19 perspective.

Yeah. So.

When it comes to I think what we've learned in our Boston, It's indicative I believe also for the future that our customer service is a is a mission critical for companies regardless of the situation of their business. They still have customers that want to stay in touch with the customer the customer is the most important assets.

I would say that even at the peak of the pandemic last year, even though March April may.

If you think about this particular segment, you've mentioned of travel and tourism all the way through the summer they still have although my new hotels were closed and airlines had a 10.

<unk> volume versus new usually in terms of flights that are are they still have a ton of a need to provide.

Provide customer service.

Colin angle people are interacting with them about cancellation questions inquiries.

My my frequent flyer status or my frequent the hotel a status and things like that.

What we have seen specifically in travel and tourism in some other industries is that they are already seeing right now and maybe its indicative to what we're gonna stay in the future in the industry.

And they are seeing already a lot of volume of people preparing for the summer months and even for the holiday of this year and they're experiencing a lot of positive bookings on.

On their business.

And they are preparing themselves so they need more capacity.

And they've learned through the pandemic that there is a better way to do it. So they are taking advantage of this are.

Of the experience to both shift to the cloud as well as starting to offer a certain digital services and lastly in many of those cases, they are employees either working from home or they are planning to do it in a hybrid model and for that they are realizing that they need further advanced.

Abilities coming from our work force engagement area.

Thank you.

Thank you. Our final question comes from Paddy Rodgers with Barclays. Please proceed with your question.

Yes.

Question I wanted to go to Spain units a day.

Yes.

No.

Most of the expense growth comes from.

Question <unk>.

This is converting some of your new.

And they get the.

Okay.

Yeah.

Yeah. So.

You've characterized it correctly.

A company I think I've mentioned it in my in my opening remarks.

Our cloud transformation as a company is quite unique we believe in a positive way that it's not just a re class of of revenue and shifting it from the product to cloud zone that was going to end up this transition just re classing or customer base shifting it from the product to the cloud we have a great opportunity.

We're seeing it happening that we have two sources of growth to our cloud business.

First is what you have mentioned and this is.

<unk>, our existing workforce engagement and other customers, who sits on our on Prem business and converting it to the cloud, but the second thing is the result of our strategy five years ago to step into the adjacent market to stick us digital and self service. These are solutions.

In the markets, we adjusted not have presence in and we're not operating in this segment as an on premise company. So this is a brand new revenue for us.

To date, a majority of the of that business of the cloud revenue come from the the second part which is combined new sneak us opportunities. We believe that the conversion of W. M into cloud will accelerate at a certain point. It is somewhat also attached to the.

CCAR sale free and as Beth mentioned before when you see such a conversion it's new.

Two one to one it's actually giving us an uplift and a customer that used to be an on prem customer of ours.

Can easily see two times or more revenue from that customer as they shift to the cloud.

Thanks, so much appreciate it.

Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Barack allow for closing remarks.

Thank you all for joining us we really look forward to see a couple of weeks with our interactions of live events with a great agenda and a great kind of interactions will have together. Thank you and have a great day.

This concludes today's conference and you May now disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music] net.

Yes.

Okay.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music] EBIT.

Okay.

[music].

Yeah.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yeah.

Yes.

[music].

Okay.

[music].

Yeah.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music] net.

Yes.

[music].

Yes.

Yeah.

Okay.

[music].

Okay.

Yes.

Okay.

Yeah.

Okay.

Yes.

Okay.

Hum.

Okay.

Thanks.

Okay.

[music].

Okay.

Yeah.

With me on the call today are Barak, eight Lam, Chief Executive Officer, Beth <unk>, Chief Financial Officer, and they're on their own executive Vice President corporate development 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.

Please be advised that the companys 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.

As contained in the section entitled Risk factors in item three of the company's 2020 annual report on form 20-F as filed with the Securities and Exchange Commission on March 23 2021.

During today's call, we will present, a more detailed discussion of first quarter 2021 results and the Companys guidance for the second quarter and full year 2021.

Following our comments there will be an opportunity for questions.

As reflected mainly in accounting for acquisition related revenues and expenses amortization of intangible assets and accounting for stock based compensation.

Differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

We'd also like to remind you that we are hosting our virtual investor day on May 25.

In conjunction with our interactions lives user conference a special program for analysts and investors want to presentations from nice executives and product and technology sessions sessions if you.

Haven't received a registration email.

Please email us at IR at nice Dot Com I will now.

Now I'll turn the call over to Barak.

Thank you Marty and welcome everyone.

Israel nearly halfway through 2021.

I would it is already changing at an accelerated pace.

Consumer experiences will change moving to the next five years than they have in the previous 15.

Nextgen consumers demand channel of choice and seamless experience.

To keep up enterprises need to raise our game in driving customer satisfaction to maintain loyalty among consumers.

To accomplish these organizations are accelerating their adoption of cloud digital sophisticated analytics and AI.

This is creating immense opportunities in the markets in which we operate and for the solution that we develop and deliver.

We're seeing increased adoption in cloud digital automation and self service solutions and technologies that we are successfully encapsulated into the broadest deepest and most complete platforms in both customer engagement and financial crime and compliance.

This platform will enable us to capture significant growth opportunities in what we foresee as a more than a $25 billion.

Total addressable market for nice.

We witnessed strong evidence of these growth opportunities throughout 2020, and it is continuing in 2020 one as demonstrated by our very strong first quarter results across the board.

Total revenue increased 11% to $457 million, which exceeded our guidance range and cloud revenue grew 33% both of which were fueled by six one.

The six on Python and bookings reached record levels in Q1.

Unlike cloud transitions by other companies. Our overall revenue growth is accelerating due to a combination of two drivers to our cloud business.

First cloud conversions of our existing on premise product, resulting in higher annual revenue per customer.

And second and net new cloud business in CCAR digital and self service solutions that we did not deliver the offer in the on premise model.

In Q1 due to our success in the large enterprise market. Our cloud gross margin continued to rapidly increase growing 470 basis points to 67, 6% and that drove the overall gross margin, which increased 180 basis points to $72.

7% opt.

Operating income increased 17% to $129 million and operating margin grew 130 basis points to 28, 2%.

This led to a 15% increase in earnings per share to $1 54.

Which also exceeded our guidance range and we generated $164 million in operating cash flow in Q1.

The underpinning of the strong financial performance and our ongoing growth are the result of owning the best and broader set of assets. We have assembled for both innovation and acquisition to create six one.

These assets include omni channel routing digital workforce engagement analytics, AI and automation.

We are successfully integrated these best of breed technologies into six one which is a single unified native cloud Clarksville delivered to all segments of the market small mid and large enterprises.

This deliberate and prudent strategy of combining all of these assets was recognized by Gartner and many other industry analyst.

As nice as the only company that is a leader in both seacoast and W. M in Gardner's Magic quadrant.

The demand for channel of choice has become mainstream among consumers the need for digital has never been greater among enterprises.

In Q1, we witnessed an increase of two and a half times in digital interactions.

This rapid growth in digital in digital demonstrate the fast growing appetite that enterprises have to digitally transform and fix one has the broadest set of digital assets in the industry.

It takes one native capabilities allows businesses to reach consumers wherever the digital journey begins whether its search engine social network or mobile application Aircard small digital self service is ready to handle all interactions either proactive and responsive to all customer needs.

A few weeks ago, we further enhanced our digital offering with the introduction of six one expert following the acquisition of mine touch.

This expands the capabilities of our platform by embedding knowledge into the digital journey.

This is another step in extending the breadth and depth of six one by natively integrating best of breed capabilities.

Our extensive investment in the past two years in a.

Led to the introduction of enlightened.

It is the a brain and the core fix one that is embedded across our entire platform greatly enhancing every single solution on the platform.

We have seen great success with enlightened among large enterprises, and telecom healthcare hospitality and other sectors.

With these assets in place. We also have a go to market that is unparalleled in delivering 612 all market segments.

Mid and large enterprises as well as international.

International expansion has been a key strategic initiative for six one and we're seeing great results.

In Q1 International bookings grew three times compared to the same quarter last year, because we're seeing great momentum in our international partner expansion program.

For small and midsized enterprises.

Also working with dozens of channel partners in a rapidly expanding partner ecosystem that includes carriers, let's spill partners collaboration vendors CRM providers value of their sellers and system integrators.

We continue to see strong growth in bookings with our partners and we witnessed 38% growth with new logos in Q1 with many of those coming through the channel.

We also have a large ecosystem of day, one partners that are building solutions for fast growing six exchange marketplace.

There are over 150 solutions in the marketplace and over 400 API to extend six one for CRM web mobile apps AI and automation among many other categories.

Our route to large enterprises has been our domain expertise for many years.

This domain expertise together with a large global enterprise sales organization are reasons why we are clearly differentiated from our competitors in this segment of the market and why we continue to see growing momentum here.

Q1 exhibited further evidence of this.

In Q1, we signed many seven digit <unk> deal with new customers.

New customer deals, including the largest fatality chain, where we replaced an incumbent on premise legacy provider. We won this deal flow and the all in one aspect of six one platform and the ability to easily add digital channel analytics down the road.

We signed a seven digit <unk> deal with a large federal government agency, which required a scalable model for the cloud and federal but origination.

There was a seven digit deal with a leading dental insurance company and they will be replacing the on premise legacy system from the incumbents.

They will be moving forward with more automation cutting edge work force engagement and digitally transforming their business with nice.

We also signed a very large ACB deal with a well known online publishing company.

Large expansion deals included a seven digit <unk> deal with a leading business process outsourcer in the large healthcare company, where we expanded and replaced incumbent.

This escrow company expanded with fix one to further advance the cloud transformation project in contact center.

Other seven digit expansion deal included the one with the major airlines for a portfolio of our solutions, including analytics.

Bearing themselves for a major post pandemic business with surgeons.

We also signed a seven day expansion deal with a major social media company, which will deploy several solutions from our work force engagement portfolio as well as analytics.

We're also seeing tremendous momentum for six one internationally with some very large international deals that were signed in the quarter.

There was a seven digit ACP, we deal with a very large Latin American telecom copper group, which is a new customer.

We want this deal due to the flexibility agility and extensibility of our cloud platform and replaced incumbent who could only offer a hosted version of the on premise product.

There was a seven digit deal with a pre eminent telecom company in the APAC region also in APAC, we signed a seven digit deal with a major telecom company for a portfolio of <unk> solutions.

In the U K, we signed seven digit deals with the government agency for RBA and a telecom company for analytics.

In financial crime and compliance we continue to sign large deals, including seven digit deal with a very large bank for compliance and major brokerage film for fraud in robotics automation and international Bank for a portfolio of our fraud and AML solution among many others.

We also continued to witness increasing success in the mid tier financial institutions with our exchange platform.

We believe we are in the best competitive position to capture many opportunities in 2021 and beyond.

I would like to take this opportunity and invite all of you to our annual Investor day in conjunction with our interactions user conference.

Interactions lives.

In the third largest virtual event with over 25000 customers and partners in attendance and a great lineup of keynote speakers.

I will now turn the call over to Beth.

Thank you Barak and good day, everyone I am pleased to provide the analysis of our financial results and business performance for the first quarter of 2021 and provide our outlook for the second quarter and full year.

Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million compared to $411 million in the same period of last year.

For the first time total revenue in Q1 exceeded total revenue in Q4, demonstrating our shift to a predominantly cloud company with about 80% recurring revenue.

Revenue growth was again driven by our implant impressive cloud revenue, which grew 33% year over year.

As expected due to our ongoing transition to the cloud and that is growing rapidly. We expect to have a long term trend of overall higher revenue growth.

Cloud revenue represented 50% of our total revenue in the quarter compared to 42% last year and recurring revenue stood at 78% of total revenue in the quarter compared to 75% last year.

In the quarter, 50% of our revenue was generated from cloud and the other half of our revenue was comprised of our product and services, which accounted for 15% and 35% of total revenue respectively.

Moving to our business unit breakdown.

Customer engagement revenues, which represented 81% of our total revenue in Q1 totaled $369 million for the first quarter.

13% increase compared to the same quarter last year.

In our other business unit financial crime and compliance revenues were $88 million for the first quarter, which was an increase of 6% from Q1 last year and represented 19% of our total revenue.

Breaking down total revenue by geographic region, we saw double digit growth in the Americas and EMEA region.

<unk>, which represented 82% of our revenue in Q1 totaled $374 million and grew 11% while EMEA revenues represented 12% of total revenue and grew 16% to $56 million APAC.

APAC revenues, which represented 6% of our total revenue in Q1 totaled $27 million and grew 6% compared to Q1 last year.

Part of our growth strategy is to expand our cloud reach internationally. This ongoing expansion of CX one across multiple region is one of the key growth drivers for our continued cloud growth.

Our gross profit grew 14% to a quarterly record of $332 million in the first quarter compared to $292 million for the first quarter of 2020.

The gross margin increased to 72, 7% compared to 79% in Q1 last year. The increase in gross margin is mainly attributed to the growth from CX one.

In the first quarter cloud gross margin with 67, 6% an increase of about 470 basis points, which was largely the result of increased scale in our cloud business.

As our cloud business continues to grow we expect further expansion in our cloud gross margin.

In Q1 operating income increased to $129 million compared to $111 million in Q1, 2020, and operating margin was 28, 2% compared to 26, 9% last year due to an increase in revenue coupled with.

<unk> operating cost ratios.

Earnings per share for the first quarter totaled $1.54, an increase of 15% compared to Q1 last year, resulting from the improvements in growth and operating margin.

We experienced another strong quarter and operating cash flow, which totaled $164 million in Q1, an increase of 6% compared to last year.

Total cash and investments at the end of March 2021 totaled $1 billion and $561 million.

Net of debt of $685 million or net cash totaled $876 million.

Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on opportunities consistent with our growth strategy and capital allocation plans.

I will conclude my remarks with guidance.

Two $1 and 55.

For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1 billion and $800 million to $1 billion and $820 million. We're also increasing the range of our guidance for the full year 2021 fully diluted earnings per share.

<unk> to be in a range of $6 and 19 two.

To $6.39.

I'll now turn the call over to the operator for questions operator.

Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press star two if you like they're moving.

A question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key hour per.

First question is from Samad Samana with Jefferies. Please proceed with your question.

Hi, good morning, and thanks for taking my questions, maybe Barak one for you in terms of the pipeline for CX one deals.

Great to hear what you what the company did in the quarter, but just maybe help us understand what demand looks like as we as we lap. This time last year, where there was a surge in interest and just maybe what debt deal pipeline looks for CX one for for the next quarter and for the rest of the year.

Hi, Thank you for the question. So yes, we see a as you saw in the earlier remarks, a great momentum and a six one and I highlight that as we see it both with a new customer with a great growth in new logos versus the last year or so.

8% in the quarter as well as expansion and specifically I highlighted two out of thing, which is tremendous growth that we've seen day international market. So we are expanding and leveraging on the presence we have over there and of course of course digital the pipeline as I mentioned as well beyond the booking that was a record high in Q.

One.

It looks very very good.

In all of those.

Segment.

Both in our new logos expansion and internationally. So we are will fill a free.

Pretty positive about the market dynamics, which.

With data from a segment perspective in all segments of the market and we see the enterprise markets continued to be very strong.

More and more large enterprises.

Realizing post the pandemic because of the new adult afforded experienced last year the need to further accelerate and bring forward the plans of shifting to the cloud.

As well as digitally transform.

So that's our that's what we see on top of that as I've mentioned.

The expansion of not just the.

Adding more capacity.

We're starting to see the power of plastics one with.

The breadth of solutions that are natively integrated and fully owned by us or customer easily adding those are solutions and it adds up to a both bookings and billings.

Great and Beth maybe one for you I don't want to steal the Thunder from from the company's upcoming analyst briefing and maybe I'll address it there, but just any cloud revenue is on top of everybody's mind and it was another strong performance this quarter, but.

No I appreciate product revenue is it can be volatile, but how should we think about maybe cloud revenue guidance embedded in that <unk> outlook and for the rest of the year as far as cloud revenue growth rates.

So as we look on guidance for the rest of the year starting with the Q2, we expect our cloud growth to continue to be strong and looking forward for the rest of the year as well.

A longer term perspective looking out really over the next three years, we expect our cloud growth to be at 25% or greater.

Looking at the <unk>.

The given year in 2021 on a full year basis, we expect that our cloud growth will be even greater than that.

And that's kind of it reflected in our full year guidance.

And on the other side of that of course, the largest portion of our service revenue is maintenance and in practice, what we see is that.

All the way up to nine or 10 times as generally what you see is that those customers will actually adopt multiple solutions offer CX one platform at the time that they migrate.

Great. Thanks for my questions and look forward to connecting soon at interactions.

Thank you so much.

Thank you. Our next question is from Sanjay <unk> with Morgan Stanley. Please proceed with your question.

Thank you for taking the questions and my congrats on a really strong Q1 I wanted to go back to sort of this time last year and some of the initiatives around.

CX, one at home and whether you still think Thats a source of potential new leads whether it's the mid market or the enterprise.

Does that conversion on CA, one at home trend.

Trended going into 2021.

So last year, you know with the.

The outbreak of the pandemic back in March we immediately launched CX one at home you know it has.

Two aspects of it you know first of all new wanted to support customers or prospects that need that did not have the ability to move the home but also.

Also a way for them to get a taste of the cloud and kind of.

Make this potential spirit is to feel though it wasn't there and it resulted with of course a lot of momentum.

I think two things happened as a result.

First of all we realized as a result of debt.

Debt, we can get customers onboard it in a much faster pace you know when we when we started with six one at home all of a sudden customers shifted to six one in a matter of 24 to 48 hours at scale, which was really a really phenomenal and we continue in doing that as we speak but I believe both this campaign and generally the ocean day market.

As I said before it's a.

Accelerating the whole overall.

Moving to markets into our into the cloud and we see enterprises are getting ready to do that.

In the next few years versus much further down the road and we are happy to see that and I think we are it will accelerate the progress of the AR after them.

Needless to say there are many other positive dynamics that we see in our business not all of them related directly to them.

So those initiatives are to the pandemic.

And these are as I said, both digital transformation and a lot of injections a day I.

Saying that our strategy.

Debt, we put together several years back and both through internal innovation and all of the acquisitions, we've done including the recent one with.

Mine Dodge.

Power and gas to be the only one in the market out there that can offer customers a full breadth of solutions and a one native cloud platform, even if they don't need all of that in day, one customers are very receptive to the notion that it's a future proof solution and they don't need to continue to be kind of the <unk>.

System integrator or the industry or buying from a cloud vendor that are practically.

Operating almost every centers instead of a platform.

Let me next perfect sense and thank you for that Barak. The one thing I wanted to follow up on was your comment on international bookings growing three X a year over year.

Yeah.

So thanks, Mike My comment on the international obviously product was much much healthier this quarter, but this particular <unk> comment on the three X was actually about six one in the cloud. So this is always see the debt.

The nice increase.

It's part of it's a result of both of those markets, but also our plan about two years ago to invest.

Both in the technology and the availability, but also of course in the go to market and further expand our investments.

Both internally and expanding our partner network and many of those are.

In some of our international markets.

And we expect that to continue.

Excellent. Thank you congrats.

Thank you.

Thank you. Our next question comes from Tim Horan with Oppenheimer. Please proceed with your question.

Thanks, guys can you talk about what else you need to do to expand international is at home.

Product development go to market and maybe just where are you in that whole process what stage you and thank you.

Thanks for that.

So we are we already have a very solid playbook and do they were much more confident in that playbook. After seeing this this results internationally, we have put ourselves at least two years ago.

On kind of prioritizing international markets they'll all relevant about the obviously the different in size and different in their maturity.

From a technology perspective, because we are a native cloud solution that runs over.

Public cloud.

And it does the environment, it's very easy for us to open.

Oh to make availability of the platform in any.

Country or continent, Alder and today, we have this availability in dozens of different countries still from a technological perspective are there also since we have built the six.

Six one from the ground up several years back.

The ability to localize it both in terms of language in terms of also statistic features that are needed for specific regulations in different countries is also a pretty easy for us thirdly, the relationship with local.

Telcos in order to have availability of both voice and some digital services, we have a very clear playbook for that and it's a very interesting for duals. So most of the effort right. Now is on the go to market front and there are two aspects to growth go to market since.

Many of expansion reopening or anything like that.

So that's that one investment that we continue to do and a second investment is to continue to expand the partner ecosystem. I think there is now we're seeing a greater utilization of partners that we're kind of sitting on defense when it comes to cloud in certain international markets.

Finally took a decision that.

This is not an option, but it's mandatory for them to shift into the cloud, it's something we still domestically public.

Probably five or six years ago now we're seeing it in international markets and we're very happy to me to be among the first doing day to international market.

And we ended the heart and the mind of many of those false news.

And we saw it very very nicely and we continue to sign up a lot of those partners on a monthly and quarterly basis.

Thank you.

Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your question.

Hey, Thanks for taking my question first question I, just wanted to double back a little bit on the strength that you saw on product revenue this quarter.

Just trying to understand is that kind of exceeded your internal expectations.

Kind of what was the drivers of that and if youre seeing anything unusual in the pipeline, where we could maybe see more.

Alex strength throughout the rest of the year.

Yes so.

Product sales of course, the less of another recurring business, so and we're seeing it might fluctuate from one quarter to the second needless to say that our strategy that we go cloud first and the.

Most of our new customers, if not all of them are growing with cloud and many of our existing customer expanding or converting to the cloud, but we have a very large customer base in certain markets. They still prefer to are continuing to buy products.

And then on premise fashion until they convert to the cloud sometime its part of the conversation we have with them and building the road map.

Cloud revenue.

And we continue to Katie of course through the product elements and we expect it to continue to fluctuate from one quarter to another.

Thanks, that's helpful. So my follow up I know you talked about.

M a large.

I'll leave it at that.

The hotel chain or hospitality group.

Modernizing on CX, one this quarter.

I'm curious as you look at the pipeline.

Thus far in some of the harder hit industries.

From a from a COVID-19 perspective.

Yeah. So.

When it comes to I think what we've learned in our Boston, It's indicative I believe also for the future that our customer service is a is a mission critical for companies regardless of the situation of their business. They still have customer they want to stay in touch with the customer the customer is the most important assets.

I would say that even at the peak of the pandemic last year, even though March April may.

If you think about this particular segment, you've mentioned travel and tourism all the way through the summer they still have although my new hotels were closed and airlines had a 10.

<unk> volume versus new usually in terms of flights that are are they still have a ton of a need to flow to provide customer service people, calling Anglo people are interacting with them about cancellation questions inquiries.

My my frequent flyer status or my frequent the hotel a status and things like that.

What we have sales specifically in travel and tourism in some other industries is that they are already seeing right now and maybe its indicative to what we're gonna stay in the future in the industry.

And they are seeing already a lot of volume of people preparing for the summer months and even for the holiday of this year.

And they're experiencing a lot of positive bookings.

Their business.

And they are preparing themselves so they need more capacity and they've learned through the pandemic, but there is a better way to do it. So they are taking advantage of this.

Tav the experience to both shift to the cloud as well as starting to offer <unk> digital services and lastly in many of those cases their employees.

It is still working from home or they are planning to do it in a hybrid model and for that they are realizing that they need further advanced capabilities coming from our work force engagement area.

Thank you.

Thank you. Our final question comes from Tobey Rosner with Barclays. Please proceed with your question.

Yes, thanks for taking the question I wanted to get expense.

Good day.

Yes.

Most of that growth comes from new question.

And I guess new logos.

This is converting some of your.

They may day.

Uh huh.

Yeah, so yeah.

You've characterized it correctly.

As a company and I think Ive mentioned it in my in my opening remarks.

Cloud transformation as a company is quite unique we believe in a positive way that it's not just a re class of a of revenue and shifting it from the product to cloud zone that was going to end up this transition just re classing or customer base shifting it from the product to the cloud we have a great opportunity.

We're seeing it happening that we have two sources of growth to our cloud business.

First is what you have mentioned and this is converting our existing workforce engagement and other customers who sits on our on Prem business and converting it to the cloud, but the second thing is the result of our strategy five years ago to step into the adjacent markets to stick us digital and self serve.

These are solutions in the market. We just did not have presence in and we're not operating in this segment as an on premise company. So this is a brand new revenue for us.

To date, a majority of the of the business of the cloud revenue come from the the second part which is combined new sneakers opportunities. We believe that the conversion of W. M into cloud will accelerate at a certain point. It is somewhat also attached to the.

CCAR sale for ink and as Beth mentioned before when you see such a conversion it's not one to one.

Really giving us an uplift and a customer that used to be an on prem customer of ours.

Can easily see two times or more revenue from that customer as they shift to the cloud.

Thanks for that rich appreciate it.

Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Barack along for closing remarks.

Thank you all for joining us we really look forward to see a couple of weeks with our interactions of live events with a great agenda and are great.

The options will have together, thank you and have a great day.

Q1 2021 Nice Ltd Earnings Call

Request a DemoDemo

NICE

Nice

Earnings