Q2 2022 Nice Ltd Earnings Call
[music].
Greetings and welcome to Tonight's Conference call discussing second quarter, 2022 result, and thank you all for holding.
All participants are at present 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 today August 18 2022.
I would now like to turn this call over to Mr. Marty Cohen VP of Investor Relations at night. Please go ahead.
Thank you operator with me on the call today are blocky, Longe, Chief Executive Officer, and best gas pitch 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 1095. Please.
Please be advised the company's actual results could differ materially from these forward looking statements.
Information regarding the factors that could cause actual results once to the company to differ materially is contained in the section titled risk factors in 93 of the company's 2021 annual report on form 20-F as filed with the Securities and Exchange Commission on April five 2022.
During today's call, we will present, a more detailed discussion of second quarter 2022 results and the Companys guidance for the third quarter and full year 2022.
Following our comments, though there will be an opportunity for questions.
Let me remind you that unless unless otherwise noted on this call we will be commenting on our adjusted results of operations, which differ in certain respects from generally generally accepted accounting principles as reflected mainly in accounting for acquisition related revenues and expenses amortization of intangible assets and accounting for stock based compensation.
non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release and with that I'll turn it over to Brock.
Thank you Marty and welcome everyone.
We are pleased to report another outstanding quarterly performance, it's nice.
Our continued steadfast growth on both the top and bottom line, which is unquestionably Harrison. The tech industry is further proof of our unique ability to deliver consistent double digit revenue and profitability growth.
For Q2, we reported $531 million in total revenue, representing a 16% increase year over year and a sixth consecutive quarter of mid teens growth.
Cloud revenue increased 27% in Q2 with the cloud exit ALR, although one 3 billion.
Our cloud growth at current scale is greater than it was when our cloud revenues were half the size.
Furthermore, our best in class cloud profitability, which increased 240 basis points year over year to 71% continues to expand and is accretive to both our gross and operating margins.
In Q2, we drove further growth in our operating income, which increased 19% as well as our operating margin, which increased 80 basis points year over year to 29%.
The strong operating results led to 18% growth in EPS, which rose to $1 86 for Q2.
Moreover, our rock solid balance sheet, which is sizable net cash position, which is the capital strength that is equal in our industry give us the fuel to see additional growth opportunities that will further extend our leadership.
The continued growth in our reported results reflect the strength of our business and the fact that we are winning the market.
And we expect to continue to win the tide turn in our industry, creating a tailwind for nine in the current environment.
First organizations are much eager to adopt point solutions.
Stepping away from companies that are financially stable.
Turning to go with large vendors that also broad cloud platform.
Second enterprises I'll fill the shifting investments in technologies that allow them to tackle increasing labor costs, but even more so to overcome the shortage of flavor.
Third most of the legacy on Prem incumbents in all market carry significant debt.
Unable to innovate and has practically no ability to expand inorganically.
And lastly, as access to capital is becoming more limited niche companies with unsustainable business model are now struggling in the market.
These data together with the fact that our solutions are mission critical in all the markets in which we operate puts us in an advanced and the changes position.
All forward looking strategy and tight execution are perfectly aligned with the convergence of plots organization classification and digitalization, creating the strongest transformational force that we've seen in all markets.
The wave of plateau mutation is the result of enterprises, a weekend realization that point solutions are actually preventing them from managing complexity at scale.
<unk> is a platform company.
Six one is winning the platform playing out market due to its unmatched breadth and depth.
It gives us the unique ability to lend beachheads faster provide a long runway for upsell and cross sell and trucks. The most complete ecosystem.
A great example of flowers enterprise platform deal in Q2 was a seven digit <unk> deal with some very large energy company and.
An existing nice analytics customer wanting to transform their entire approach to customer journey selected six one is the platform of choice moving forward.
Six one they placed multiple disjointed point solutions from legacy incumbents in.
In the process, we absorbed digital and other six one native solutions further demonstrating the significant growth in uplift opportunity. We continue to have it within a large enterprise customer base.
Codification is entering a new age of cloud at scale is large enterprises are in the cost of Delta inflammation.
These new age will illuminate the few vendors that can deliver cloud at scale.
<unk> core DNA is at the high end of the market.
Six one has the biggest global cloud deployment, the largest number of enterprise customer.
He is being adopted by nice is unmatched large enterprise customer base.
In fact, we saw a 70% increase in the number of large scale portfolio deals.
The ability to deliver these type of deals is a prerequisite to address the need of the large enterprise market in the cloud and he has a high barrier to entry.
Did utilization is exponentially advance the speed requirement for organizations.
Diesel requirements for spin, hence Bush digital one point solutions into obsolescence.
<unk>, a big void that can only be spurred by a nextgen digital approach.
Nice has evolved into a digital first company.
Six one ease of Nextgen digital consumer led platform debt on them.
That uniquely leverages, AI and massive amount of historical data, allowing enterprises to exceed the speed of the real time consumer.
In Q2, we saw rapid growth in our digital revenue, increasing 88% year over year.
These winning elements plus filmization clarification, and Digitization are manifested in our six Psi framework and opening up opportunities for us to go upmarket in large enterprises.
Spanned internationally and deliver next gen digital to our customers.
Let me start by sharing some of the wins in the large enterprise market in Q2.
We signed a seven digit deal with one of the largest insurance companies in the U S to help facilitate the ongoing transformation to the cloud.
They selected <unk> for our cloud capabilities and our commitment to innovation all the while dinner establishing night is a continued strategic partner for the future.
We signed a seven digit <unk> deal with some very large health care company.
Due to the competitive displacement of the sickest vendor, which failed to deliver scale and a clear lack of advanced feature and had issues with the integration and implementation all of which is not uncommon among point solution providers.
The customer chose to move to our advanced platform with a full suite of solution natively integrated in six one.
We signed an eight digit deal with a major U S bank, which is experiencing higher transaction volume, especially around digital and therefore needed to extend their functionality.
And there was a seven digit deal with one of the largest retailers in the U S. Taking our cloud solution.
Our international expansion is in full force in a market that is still under served for cloud and digital.
Large international deals included a seven digit cloud deal with a leading UK based entertainment company.
Since 95% of their customer interactions are digital they needed a platform with strong capabilities and the customer found our digital offering far superior to others.
We also signed a seven digit deal with a leading Dutch based media company.
With two incumbent solutions in place these customer consolidated onto six along.
We will replace the incumbent and beat other competitors vying for the deal.
In another seven digit deal a large German based financial institution expanded was nice, replacing an incumbent solution and further cementing nice as a trusted partner.
Our next Gen digital in conversational AI solutions are breaking down the silos existing and multi vendor environment.
Only six one mergers all interactions to a single platform, which is the essence of our six <unk> framework.
In Q2, we continue to sign many deals reflecting the success of our industry, leading next gen digital capabilities.
For example, we signed a seven digit competitive replacement deal, we felt well known bto.
In addition.
In addition to Alicia and elasticity and scalability of the six on platform to better manage those seasonal shifts in demand. They wanted to add digital capabilities from a single provider and to partner with nice for our next Gen six type framework.
Similar thinking was behind a seven digit deal with a large cable company, which is moving off its legacy solution and standardizing on six one to help facilitate its cloud and digital transformation.
We signed a seven digit <unk> deal with a large auto dealers, making making a strategic investment to expand more in digital to help facilitate the rapid growth and transformation driving from in person to online.
Yesterday, we announced another significant milestone to our fast growing global distribution ecosystem.
This partnership gives us top tier Microsoft Azure IP coastal status.
And six one is now available natively on agile.
This extended partnership provides full flexibility for customers to seamlessly deploy six one on deal public cloud of choice.
Furthermore, it puts it puts the full distribution part of Microsoft behind six one.
In closing, we have come to a pivotal moment in our industry.
Software leaders need to have strong financial profiles have the ability to grow profitability and deliver a true cloud native platform with a full suite of solutions.
Amy and industry with a shrinking number of viable solution providers.
As measured by a rock solid financial profile, our market, leading cloud platform, our cutting edge innovation and our domain expertise, we have proven time and again that we'll adapt leader in which enterprises want to partner with.
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 second quarter of 2022, and our outlook for the third quarter and full year 2020.
Our second quarter financial results were outstanding outperforming the high end of our guidance on both the top and bottom lines.
Total revenue for the second quarter increased 16% year over year to $531 million and non-GAAP fully diluted EPS increased 18% year over year to $1 86.
Our total revenue growth is primarily attributed to the growing contribution from cloud revenue, which represented a record 15, 9% of total revenue up from 54% in Q2 last year and increased 27% year over year for a total of $311 million.
<unk>.
Product revenue, which represented 10% of total revenue in Q2 increased 14% to $53 million and services revenue, which represented 31% of total revenue with $167 million and was flat year over year.
Our recurring revenue increased to a record 83% of total revenue in Q2 compared to 82% last year.
From a geographic breakdown, the Americas region, which represented 84% of total revenue grew 21% year over year. Our revenue mix is predominantly in the Americas, where most of our business is based on the U S. Dollar. Therefore, we generally have a little impact from foreign exchange on our total <unk>.
Revenue growth.
The EMEA region, which represented 10% of our total revenue decreased 18% year over year or 12% on a constant currency basis. The decrease in EMEA is mainly attributed to some large on premise deals that were signed in Q2 of last year, making for a tough comparison wildfire.
Revenue continued to accelerate in the international market in both EMEA and APAC in Q2 this year.
APAC, which represented 6% of total revenue grew 22% year over year or 25% at constant currency driven by strong growth in our cloud revenue.
Moving to our business unit breakdown, we experienced another strong quarter with both our business segments growing in double digits.
Customer engagement revenues, which represented 81% of our total revenue in Q2 with $429 million, a 13% increase compared to last year.
<unk> continues to serve as the main engine behind the growth in customer engagement that includes digital and conversational AI capabilities that can help drive efficiencies for customers of all sizes and in all verticals.
Our cloud growth comes from a combination of upselling into our existing installed base from our expansive portfolio of solutions on our platform as well.
Well, it's continuing to add over 200, new logos each quarter.
Revenues for our financial crime and compliance, which represented 19% of our total revenue in Q2 and totaled $102 million increased a record 31% year over year, driven by strong growth in both our cloud and premise business.
Our gross profit grew 17% year over year to $389 million gross margin increased 110 basis points to 73, 3% compared to 72, 2% in Q2 last year.
The increase in gross margin in the quarter was mainly attributed to an increase of 240 basis points and the cloud gross margin, which crossed the 70% Mark for the first time to a record 71% in Q2.
The continuous growth in our cloud gross margin stands out in our industry, demonstrating our strong ability to drive profitability at scale, while simultaneously driving continued impressive cloud revenue growth.
In Q2 operating income increased by 19% year over year to a quarterly record of $154 million and our industry, leading operating margin increased to 29%.
Earnings per share for the first quarter totaled a record $1 86, an increase of 18% compared to Q2 last year, we haven't great track record of growing both revenue and profitability, which has always been standard and the way, we run our business and which to this day has proven.
It can be very successful as well as contributing to our exceptional competitively advantaged.
Cash flow generated from operations for the first half of the year totaled $209 million.
A decline from last year, mainly due to some timing differences in the quarter.
We continue to use the change in the market environment, coupled with access to our strong cash portfolio as an opportunity to expand our share repurchases by $34 million in Q2 to a total of $98 million for the first half of 2022, almost two and a half times the amount of shares.
Purchased in the first half of the prior year.
Total cash and investments at the end of June totaled $1 billion and $435 million.
Our debt net of the hedge instrument with $540 million, resulting a net cash and investments of nearly $900 million.
I will conclude my remarks with guidance.
So in the third quarter of 2022, we expect total revenue to be in the range of $543 million to $553 million.
We expect the third quarter of 2022 fully diluted earnings per share to be in a range of one dollar and ADT.
Two $1 96.
We are raising our revenue and EPS guidance for the.
Full year 2020, we now expect total revenue to be in the range of $2 billion and $168 million to $2 billion and $188 million.
Representing 13% growth at the midpoint compared to full year 2021.
We expect the full year 2022 fully diluted earnings per share to be in a range of $7 33 to.
To $7 53.
Representing 14% growth at the midpoint compared to full year 2021, I will now turn the call over to the operator for questions operator.
Okay.
Thank you we will now be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
May press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Our first questions come from the line of smog Samana with Jefferies. Please proceed with your questions.
Hi, good morning.
Barack and bad maybe Bryan.
First one for you.
Microsoft partnership the expansion can you maybe double click on that and just help us understand.
How much of a difference it makes from a distribution distribution standpoint, what was Microsoft doing before from a go to market perspective for nice and what's changed.
Should we think about starting to impact demand for excellence.
Okay. Thanks demand so Matt thanks for the question.
So we announced it yesterday, it's been in the in the making for quite some time the relationship with Microsoft or not.
We had a relationship with Microsoft two years, but this is a big big change in <unk>.
Two parts to it first of all six one is now available in Azure as I've said, which allows the customer even more flexibility than before and as they as they consider six one and some of them prefer one public cloud versus the other and Thats, one thing I'd add to the flexibility and it allow us to address.
100% of the market.
The second thing I think which is even more portfolios and this change in distribution. So there is.
Microsoft just announced a digital contact center, which is a framework of what happens when you take a team together.
With dynamics and few other components in the recent acquisition of nuance, but the core element of the contact center come from.
A partner like Us and CX, one and we already saw it in the last few months as our team started to work in the field together.
<unk>.
It's a great match and customers like it. So there was an appetite on both sides, both aten and Microsoft to Garner Officialize it and they wanted to take it to the highest tier of cross sell relationship that they have which means that the sellers of Microsoft and now getting fully compensated.
On that at the highest rates.
From a partner solutions.
And our teams in the field, we will have the full motivation to cooperate together.
Great that's.
That's great to hear and then maybe just a follow up on guidance I know the company has given full year cloud revenue can you maybe help us understand just what youre thinking in terms of back half seasonality.
For cloud revenue.
As we think about modeling the rest of the year and kind of similar question around the product side as well.
Yeah. Thanks for the question.
We're finishing up another strong quarter with the great growth that we're seeing in our cloud growth overall at 27%.
And so as we look forward and I mentioned on the call today, we have recurring revenue of 83%, it's really being driven by the strength of our cloud business.
We see great momentum, taking on more new logos and large enterprise a great footprint expansion internationally.
So that's reflected in looking forward in terms of our guidance for the second half.
Terms of seasonality, specifically as it relates to cloud.
We mentioned earlier this year that as we looked at the full year, our cloud growth is expected to be around 27% for the year and so as you look at the full year guidance that is clearly still.
Taken into consideration and that you can use to kind of back into expected seasonality.
When we look on the product side.
On the product front, if you look back at last year in the second half of last year. We said has been extremely strong growth in our product revenue, we had 73% growth in Q3 of the product and 54% in Q4, there was a lot of pent up demand on the on premise side of our business that came out in the latter.
Half of last year. So we don't expect to see those kind of growth rates and pent up demand and prices have subsided on the on Prem side of the business. So both of those factors are taken into consideration.
With ongoing double digit revenue growth implied in both Q3 and Q4 and the guidance we provided.
Great. Thank you again for taking my questions.
Thank you.
Thank you. Our next question is coming from the line of Tyler Radke with Citi. Please proceed with your questions.
Good morning, a couple of questions to start off on the.
The macro front I guess number one Barack you talked about just seeing some.
Customers consolidate on larger platforms moving away from point solutions, I guess I'm curious how much of a.
How much of a new impact as this in the quarter.
And do you see this kind of translating into larger deal sizes, just give us a sense on kind of what's changed in the last 90 days and then <unk>.
Just in terms of what Youre seeing in term on.
On deals getting.
Acquiring extra levels of approvals or sign offs.
You see any of that.
In the second quarter, perhaps over in EMEA region, and how are you thinking about de risking the guide for the second half just should the macro environment gets tougher. Thank you.
Yes. Thanks for the question, obviously, we are monitoring that very closely and asking the same question that you're asking.
The beauty of our business and I think we.
We've seen it time.
Time, and again in the past and with 19 to 22 years.
<unk> for the last eight demand periods.
Different.
Different environment different macro environment, whats really characterize mindset thing is that in all the markets, where we operate our solutions are really mission critical.
So that's kind of one thing too to note and this is why we are.
We feel relatively okay, with even with kind of the general concern of the macro environment, specifically in Q2, and what we see right now I can say that we see a big difference versus before we do see as I said.
Actually certain benefits that we can potentially enjoy from.
I think enterprises are much less eager to partner these days either with a very small niche players that there is a question about.
<unk> staying as a standalone or even the thing as a viable business.
And the second thing there is more concern from from Big enterprises to partner with some of the large incumbents in our industry that are carrying a lot of debt.
And I'll kind of now with this interest level moving to focus on serving the debt versus investing more in R&D and it will be more challenging for them.
So all of those tailwind that I believe we know can help us moving forward. The other thing then invest mentioned are great.
Net cash and overall cash position.
Which is very unique in our industry. If you think about it most of our competitors will carry a lot of debt or convertible debt that we will have to be repaid at some point with very light if at all EBITDA.
Thank you.
The year to come, but then to give us opportunities on.
On the inorganic side of the business and further expand our leadership.
And the leadership.
Opening a gap to others.
Thanks, and follow up for Beth on the expense side.
Cash flow so.
Obviously, you're raising your full year EPS guide.
Any any changes you're contemplating on the hiring side and then secondly, you talked about some timing impacts on the.
In the quarter for operating cash flow, but just how should we think about the full year expectations any any changes to your assumption for cash flow perhaps from lower.
Collections, just given the macro environment, just help us understand how you're thinking about cash flow for the year. Thank you yeah sure I'll break them up into the sort of key pieces that address both the expenses and then the cash a little bit separately on the expense front I think for US it's generally business as usual.
We're continuing to hire as we typically do and we have lots of new physicians, we're adding in the second half of this year. They continue to be focused in the areas that we generally are looking at on the R&D fries to continue to drive innovation in the organization and our cloud platforms and.
First on the sales side continue to.
The sales engine, so that is continuing and we are hiring.
As usual.
In terms of other expenses I think if you think of kind of the opex spend generally in our <unk> ratio for us are generally pretty consistent and I would say you can kind of expect that in the back half of this year as well.
When you look at the cash flow.
The cash side, certainly there are timing differences that happened from quarter to quarter.
Q1, we actually recorded a record in terms of our collection activity with significant amount of collections coming in this quarter some of.
That had pulled into last quarter of course, and so there is timing differences for us we look really on the kind of longer term trends.
Note that we have healthy cash generation from our business, just really reflecting the overall health of our business.
What we don't see any impact from macro so the timing differences that we did have this quarter.
Werent related to any kind of customer change in behavior and in fact in our EBIT I would say even during COVID-19, we actually had very little of that predominantly because in the contact center and with CX. One we generally are operating at the higher end of the larger size.
<unk> contact centers as well so we haven't seen any change in behavior.
We expect to continue to see strong cash this year.
Thanks for taking the questions.
Thank you.
Thank you. Our next question does come from the line of Michael Funk with Bank of America. Please proceed with your questions.
Yeah. Thank you for the questions. This morning, if you've already addressed it in part, but I sort of go back to the to the sales cycle and demand underpinning the sales. So it can be relatively long for contact center.
Are you seeing any change in behavior earlier in the funnel for customers.
I can say that we see there is always anecdotes here and there and maybe an hour that customer, but those are situations appears in every quarter and I can say that we have.
See any dramatic change in that also don't forget that one of the.
Characteristic of the CX business, so the contact center business and we saw it very nicely during coverage is that it's not the one vertical industry.
Contact center or across about 12 different verticals. Each one has its own <unk>.
Absent down we'll remind you that the call with you know travel and tourism was somewhat muted and all of a sudden now travel and tourism is a very very hot.
Call, where it actually have a spike in demand just as one example out of many.
So that gives the contact center industry I believe.
Good good bottom.
And we'll keep monitoring the sales cycles, and I think by different segments.
Similar to what we've seen before.
Sure.
Thank you for that and then just on margin you're a nice increase in profitability this quarter.
What do you expect though over the next few quarters for cloth, sorry cost of cloud revenue just thinking about the inflationary environment acre potential pressure points there.
Yeah, I'd say, it's a good question you know we've had some tremendous expansion in our on our cloud margin. We're very pleased with the crossing that 70% cloud margin this quarter and of course, you know as the CFO , we're always keeping a close eye on the impact of inflation, we don't expect it to have any.
Kind of significant impact or drag on our cloud gross margin.
We'll say that we're continuing to expand our footprint internationally and so of course, we make investments outside of the Americas to continue to drive that business. So I think in terms of margin expansion we've taken.
Lots of expansion and shown that in the improvement in our cloud gross margin over time, meaning that I don't think you should expect to see that same level of continued expansion, but certainly we believe that we can continue to as we add scale growth and margin higher over an extended period, so theres really no.
Expectation that inflation will negatively impact us in the near term.
So as it relates to our cloud margins.
Just for your comment about geographic expansion.
That to me and we could maybe see some.
Short term pressure on margin if you expand.
Hey, graphically and add capacity.
Yeah, I think that generally you know what you see from US is that a pretty consistent growth occasionally you may get a slight to variability from quarter to quarter, but generally yes. Our expectation is that a significant amount of business is coming from the Americas.
And we are scaling and always driving the <unk> higher in terms of our existing installed base and that will continue to be reflected in the growth of our cloud margins.
Thank you for the time this morning.
Thank you.
Thank you. Our next question will come from the line of Chris <unk> with Barclays. Please proceed with your question.
Hi, Thanks for taking my questions and congratulations on the strong results I was wondering if you could talk about the financial crime and compliance.
And just give some color on the opportunities for that product.
And where do you see.
What kind of growth that you see.
And in what regions.
<unk> industries, maybe just finished product.
Okay.
Yes, sure. So we had a record quarter in terms of the growth of financial covenant compliance growing 31% year over year.
Which is.
Far back as I remember, it's a record the growth.
Growth for the full financial crime compliance crossing the $100 million in <unk>.
Revenue, which is just phenomenal.
Think it speaks a lot to variety of things first of all is the leadership, we have in the industry, which is unmatched too.
Any other competitor in that space.
But it also speaks about the changes within the industry in a few areas and one of the biggest disruption to banking obviously digital.
And banks in the last few years, where all consumer <unk>.
Consumers, who are consuming in banking in a much more digital formats.
Mobile apps and others and that is it depends very nicely, but the back end itself all on the backend processes.
Or still kind of left behind and as I mentioned in my earlier remarks digital means speed.
And all of those back end processes around the compliance and fraud and money laundering.
They are obviously kind of counterintuitive to speed. So there is a very significant wave of a refreshed and adopting a new approach in technologies from us that allows banks to also keep.
Keep the trucks with new customers, while at the same time.
Yes.
The backend and compliance processes to digital.
I believe we are adjusting the beginning of this rejuvenation and the same time, we are going after bigger opportunities into many markets now that we are leading in the cloud.
And that in that business and we see expansion also internationally and the last thing is that we had we started with <unk>.
A lot of new I would say fintech and fintech like companies that would like to make sure that they are fully up to date on different regulations money laundering schemes in fraud, and you add all of it together and this is kind of the reason for the acceleration we standup business.
And just in terms of competition.
For this type of product how do you feel.
How do you feel you're positioned versus competitors.
At least two.
All the analysts will work and we'll position it.
Hi is the end of the fourth quartile is the clear leader in this industry and what's unique about that will.
Probably the only vendor the only player in its market offer a fool.
Suite platform that.
Offer both.
Anti money laundering solutions fraud and transaction monitoring covering.
Very broad.
Lifecycle.
Consumer risk the risk profile of consumers and that allows us to really differentiate versus others.
And we see more and more banks and others stepping away from adopting point solutions and serving as kind of system integrators.
Between vendors and looking to partner with someone like us that can offer a platform that have both the understanding of.
How to deliver a complexity at scale, but also have a very deep domain expertise in financial services.
Alright.
Okay. Thanks, that's it for me.
Thank you.
Thank you. Our next question is come from the line of <unk> <unk> with RBC capital markets. Please proceed with your questions.
Wonderful. Thanks, so much for taking my questions and nice to see continued resilience in the business. Two from me first I wanted to start by.
What you're seeing specifically on contact center agent side right are you seeing any levels of churn rate, where the customers themselves are reducing the number of agents they have or even slowing them down for that matter you have.
Mentioned kind of a continued focus on leveraging digital solutions is that happening hand in hand, with lower agent count maybe how should we be thinking about that and then I have a follow up.
Yes. Thanks, Great question, So we don't see.
A drop in contact center agents at the same time the number the absolute number of contact center agent is not in our growing dramatically.
Move and shift between different season, and maybe that some different industries have have some changes in demand, but it's not a number we expect to grow.
In a meaningful way in the future and potentially even be flooding.
But at the same time few things that we are seeing.
In order to.
Service has become more complicated experiences mastering customer experience, becoming more complicated.
So companies are investing more in the ecosystem of those agents in order to make them much more effective and coach them better and lead them better.
As they work with consumers to spend on technology around the same agents is actually increasing in completely Paolo there is.
Significant spike.
As organizations try to.
Leap ahead in.
Catch up to the digital consumer will all consumers and I'm sure.
Do you understand what im referring to.
And to that end in order not to add.
<unk> agents in order to serve in the digital space.
The investments in both digital and conversational AI is spiking I mentioned that year over year, we saw a growth of 88% in our revenue in digital and it.
Keeps growing rapidly, but one of the greatest advantages that we have is that most enterprises are starting to realize that looking at.
Attended service Joseph Unattended service separately.
Doesn't toward and we are among the only few.
Can deliver at scale.
With one platform a full orchestration.
From an attended and unattended service with a full suite of solution, whether it's digital or other channels and that's very unique for nice.
Alright waterfall that that's really helpful and then just.
I wanted to get a sense for has there been any change in what youre seeing from customers in terms of the pace of on premise.
<unk> to the cloud has that accelerated at the slow down is it kind of maintained and how should we be thinking about the cadence of that for the rest of the year.
I think the paces as same as it was before.
Obviously, it's different in different segments of the market.
Smaller customers, where it is a relatively kind of an easy task for them to move to the cloud are already well into their journeys and large enterprises.
I will now and the cost of their transformation.
Moving that moving to that so the places I believe similarly to what it was before.
They will put the potentially more tailwind that can develop into markets one of the largest incumbent in the industry is under significant financial stress.
Once again, which.
Which will.
We already hear concerns from customers and thought about expediting.
But more importantly, there is a realization of large enterprises.
The other on Prem environment is very very complicated and when they want to move to the cloud and at the beginning it's in investments for the future and they have to have it with.
<unk> that can operate at that scale versus buying variety of point solutions and I give example at least one out of many examples of such a customer who already moved to a secret provider that was a point solution that provided many of the solution for kind of first out integration and didn't deliver and scale in.
He came to us and we won the deal and become the provider there.
Alright wonderful thank you so much.
Thank you.
Thank you. Our next question is coming from the line of line of meta Marshall with Morgan Stanley . Please proceed with your questions.
Great. Thanks, maybe jumping on that last question on the display.
Placement of the sea cash vendor that you were talking about just.
At what point in the process did they kind of realize that.
They weren't going to get an adequate solution and just kind of the timeline for you guys to get in there and displaced would be helpful. Just kind of more context on that deal and then the second question for Beth just kind of what is leading to the gross margin leverage in the cloud business or is it more dessert all my.
Deals just efficiencies found us any more context, there for where youre finding that leverage thanks.
Yes.
Sure. Thanks for the question. So I'll start and then I'll hand, it over to Beth on the gross margin so I'll refer to that customer.
I'll say, even more kind of a typical example, and this particular this customer relatively large enterprise.
Who are submitting an RSP that point that vendor to the sickest vendor.
That specialize in I would say the core of Zika, but provides.
The breadth of the auto solution like <unk> like digital and others through third parties.
With a lot of integrations.
They they started to implement it took long time. Indeed, then it failed on this scale. It further and deliver all the promises of what can be delivered only with a natively integrated solutions like ours and the customer approached us and we said we can do it immediately in the this.
This is exactly what we did then there is a clear realization of the customer that there is a very big difference between piloting something not of scale or just looking at the slide we are not doing corporate diligence.
Versus.
Coming to us adopting six one is a home everything is devoted develop natively all the solution the advance one in the core solution.
Fully it's not third party integrations.
And the ability to mine grades.
Extremely fast.
So I think as a result of that needless to say, we are winning a lot of market, but there will also be a wave I believe of customers large customers that will try on from time to time point solution and we will come back to wood will go back to us So talk to us in order to adopt eventually.
Six one, which we see it as a great opportunity and below the gross margin I'll hand, it over to Matt.
Yes. Thanks for the question <unk> I think when we talk about flat gross margin I think generally at nice.
Have a long history of.
Really driving margin expansion and all the types of business that we do as it pertains specifically to the cloud first of all it's the way that we actually have built our platform and our cloud business and we built them native to the cloud and we do it in a way that it's intentional that we can.
Really scale up in Q very large customers that we're adding each and every quarter and so it starts with how we actually build the solution native to the cloud and the second I would say is that we have and are succeeding on selling multiple solutions that if all the natively integrated into.
The platform. So we continue to go back into our existing installed base, we're selling more not only digital but multiple solutions that we're constantly adding and we have really the.
That depth and breadth of our platform offering in the industry and so that that's also showing.
And our current margins and gives us a great opportunity continue to drive that expansion, especially as we go into the large enterprise, where they have very complex needs.
Another factor I would highlight is just the stickiness of our solution, we have excellent retention rates with our customer base and our existing install base.
That drives that stickiness and keep that high recurring revenue.
And then I think the last thing I would just add is of course the expense side of that the expense management that we've always been very attentive to how we spend as an organization.
How we do.
Do you assume in the cloud et cetera, and so it's really a combination of all of those different factors the attention to really being able to scale and drive strong operating leverage.
Got it thank you.
Thank you. Our next question is coming from the line of Pat Walraven with JMP Securities. Please proceed with your question.
Oh, great. Thank you I would like to talk about the federal business a little bit.
Big picture How's it going.
Secondly, there is that that 10.
$10 million deal with the department of Transportation Federal.
Government publicly disclosed I, just love to hear what Youre doing for the FAA there and then.
Thirdly, we are heading into the seasonally strongest quarter for federal rate how does the pipeline look.
Yeah.
Yes, I appreciate it.
Listen, we're not commenting on a specific customer and deal, but I'll give you some color about the.
The business both at the federal level as well as the sled.
State and local.
Business.
First of all we have a great presence in those the industry and a great reputation and strong customer base and it's going very well.
Yes.
Couple of years ago, Covid, obviously was great.
Tailwind in that business and we saw great business through the X one over there.
We also have as you probably know and I didn't mention it on this call, but we have our public safety business, which is advancing very nicely into the full.
Sure.
Supply chain, if you like of criminal Justice and we are investing in this business extremely well, it's a market that is going through its own and digital transformation at a fast pace.
And requires a similar solution on the digital side.
So we are very bullish on this business and continue to perform to perform welder.
Okay, great. Thank you.
Thank you.
Thank you there are no further questions at this time I would now like to turn the call back over to Barack Eva for any closing comments.
Thank you all very much for joining us and we should stick with you very shortly have a great week.
Thank you.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
The rest of your day.