Q4 2022 Nice Ltd Earnings Call
Welcome to the Nice conference call discussing fourth quarter 2022 results and thank you all for holding all participants are in a listen only mode. Following management's formal presentation instructions will be given for the question and answer session I've never Minder. This conference in being recorded February 23rd 2020.
I would now like to turn the call over to Mr. Marty Cohen, Vice President Investor Relations at Nice. Please go ahead.
Thank you operator with me on the call today are Barack Ilan, Chief Executive Officer, and best catch gas pitcher Chief Financial Officer.
Before I start I'd like to point out that some of the statements made on this call will constitute forward looking statements.
Accordance with the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please be advised that the company's actual results could differ materially from these forward looking statements.
Additional information regarding the factors that could cause actual results or performance of the company to differ materially.
Change in the section entitled Risk factors in item three of the company's 2021 annual report on form 20-F as filed with the Securities and Exchange Commission on April 5th 2022.
During today's call, we will present, a more detailed discussion of fourth quarter and full year 2022 results and the Companys guidance for the first quarter and full year 2023.
Following our comments there'll 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 generally accounting generally accepted accounting principles as reflected mainly in accounting for acquisition related revenue and expenses amortization of intangible assets and accounting.
For stock based compensation.
The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release I will now turn the call over to Brook.
Thank you Marty and welcome everyone.
We're happy to report another quarter of outstanding results with profitable growth momentum.
2022 was another landmark year as we crossed significant milestones highlighting our success and paving the way for future growth.
We crossed $2 billion in total revenue achieved 60% and cloud revenue as a percent of total revenue.
Continued to move swiftly towards the 30% plus operating margin witnessed a massive expansion in AI adoption and had the best year ever for both new customer acquisition and new partner Onboarding.
The strong finish to the year led to a full year 2022, total revenue growth of 30% and 14% in constant currency.
Driving the strong results is our continued excellent execution in the cloud and cloud revenue increased 27% for the full year 2022, and similarly in Q4.
Our strategy has always been to execute in the top line, while expanding profitability and this continued throughout 2022, ending the year with robust growth and profitability.
For the full year 2022, our gross margin increased 50 basis points to 73, 1%. Our operating margin was 50 basis points to an industry, leading 28, 7% and we reported earnings per share of $7.62 representing growth of 70.
Percent.
Much of this growth in profitability was driven by further expansion in our cloud gross margin, which increased 230 basis points to 70% to 70% in 2022, demonstrating the superiority of our cloud architecture that makes us unique in our market.
Moreover for the full year 2022, we generated $480 million in operating cash and ended the year with a total cash position of more than $1 5 billion.
Giving us the capital flexibility that is unparalleled in our markets.
<unk> by far in the best competitive position in our industry operationally innovative Lee and financially providing us significant opportunities ahead to capture a large and expanding market.
These opportunities fall into four categories as we say today.
Cloud expansion in a vastly under penetrated the enterprise market.
Accelerating demand for complete platform as the market standard the rise of AI and the financial distress of our competitors.
Let me expand on all four.
First cloud.
Our CX cloud adoption, which 20% it is extremely nascent in the large enterprise market.
Over the next two years, we expect to see enterprises make a meaningful shift to the cloud. However, the high end of the market is a completely different ballgame.
Requires the ability to address both complexity and scale and this can only be addressed with our true native seamlessly integrated platform six one.
And that brings me to the next opportunity, which is platform and the new market standards.
Superior CX is all about the ability to serve the consumer in the most fluent and seamless way.
Enterprises are now realizing that this cannot be achieved by loosely integrating dozens of Siloed point solutions, which is the common approach promoted by vendors in our industry.
The only way to achieve ultimate six success is by adopting of cloud platform that was purposely built natively from the ground up with a full suite of solutions.
This is exactly what we have done over the last seven years as we invested more than 12000 engineering. Many years building six one to become the leading CX platform.
The third opportunity is the rise of AI.
In the upcoming decade, the most valuable companies will no longer be software companies.
But those are transforming to AIA companies.
<unk> organization are reaching the limit in their ability to achieve further operational gains with the simple automation also by current enterprise software solutions.
AI is the next transformational wave.
To become an AI leader software companies Master three key assets.
Cloud platform that has been widely adopted <unk>.
Mass amounts of historical data and industry specific domain expertise.
<unk> is the only one in our industry with these three assets we.
We have spent the last several years building and deploying enlighten fully embedded and six one transforming it from a software platform to an AI platform and creating an unbridgeable gap in our AI leadership.
Just a few weeks ago, we were the first to release a groundbreaking integration between enlighten III and Chad GPT pioneering human like interaction in CX conversational AI, demonstrating our unparalleled innovation.
The fourth opportunity related to our ability to capitalize on the financial distress that many of our competitors are experiencing.
The <unk> competitive landscape is split between legacy incumbents that are struggling to service tremendous debt and small players who are dependent on continuous difficult to obtain capital injection.
This situation is raising growing concerns with enterprises, who want to partner with vendor, but also both long term long term financial viability as.
As well as significant commitment to rapid innovation.
<unk> is the only vendor in the six markets that is extremely profitable investing heavily in R&D and at the same time has a net cash position of more than $1 billion.
Our strong financial position gives us greater flexibility to innovate and acquire to further fuel growth, while continuing to drive increased profitability.
These four opportunities will all apparent in our Q4 deals.
We signed an eight digit deal with one of the largest banks in Latin America, which adopted a large part of our six one portfolio.
Was the replacement of three legacy on premise competitors we.
We are highly recognized by this customer for our success with large enterprise implementations, our extensive digital and self service capabilities and the ability to deliver the future needs on single scalable platform.
We signed another eight digit deal with one of the largest Canadian insurance companies.
We replaced the legacy incumbents as this customer is moving from an on premise architecture to a full cloud implementation and selected nice due to the completeness and native functionality of our digital and self service capabilities in CX, one providing the customer the ability to global digital footprint.
With a single vendor.
In yet another eight digit deal allows U S. Based <unk> company is consolidating their complicated on premise text deck provided by multiple legacy vendors with six one is the unified cloud platform.
This customer chose nice for our market leadership and financial stability.
We signed an multitude of seven digit deals in Q4, including a large insurance company, who is moving to the cloud we have six one and one of the largest U S independent mortgage providers, replacing the on premise legacy vendor that has recently announced the sunset several of their solutions.
In another seven digit deal we extended our portfolio of digital solution at a well known online bank.
We won the deal over a digital pure play vendors as a result of the six one unified agent experience across multiple channels, which is a distinct competitive advantage of the <unk> platform.
We also signed multiple seven digit deals in international markets, demonstrating the growing demand for cloud in EMEA and APAC.
One deal was with a U K based energy company, who is displeased with an existing in flexible on premise solution proving increasingly costly to maintain.
We won't have six one for the platform superior functionality and support for digital customer journeys, demonstrating faster, Hawaii and operational efficiencies.
In the APAC region, we signed our largest six one deal to date, which was a seven digit deal with a multinational Asia based technology company.
In wrapping goals required and Nextgen digital platform that has more scale that was more scalable and provides full conversational AI.
Okay.
In summary, 2022 was a year in which we surpassed significant milestones and continued to outperform on all financial measures.
We operate in markets with an abundance of short term and long term opportunities.
Our platforms are serving the most mission critical processes of small and large enterprises across multiple verticals.
So our financial strength and rapid innovation over the past several years, we opened an unbridgeable gap versus our competitors.
We look forward to leveraging our leading position to capture additional market share in 2023 and in the years to come.
Before I close I want to thank our employees for another great year.
It is because of fuel arden's indication and passionate desire to succeed as we can.
Continue to take nice to another level of achievement.
Our fully energized and ready to charge forward in 2023 and look forward to another excellent year.
I will now turn the call over to Beth.
Thank you Barak and good day, everyone I am pleased to provide an analysis of our financial results and business performance for the fourth quarter of 2022, and our outlook for the first quarter and full year 2023.
Our financial results in the fourth quarter continued to demonstrate the strength in our business with year over year growth for both total revenue and EPS and double digit.
Total revenue for the fourth quarter with $569 million up 10% year over year.
Constant currency total revenue in Q4 with $576 million and increased 12% year over year above the high end of our guidance range.
Cloud revenue was $359 million in the fourth quarter, which was an increase of 26% year over year in constant currency cloud revenue was $361 million and increased 27% year over year.
Cloud revenue increased sequentially by 9% quarter over quarter similar to the sequential growth in Q4 of last year.
Our cloud growth of 27% for the full year was consistent with our expectation and reflects the resiliency of our business and strong demand for the unmatched breadth and depth of our cloud solution.
Cloud revenue represented a record 63% of total revenue up from 55% in Q4 last year.
Product and services revenue results were as expected demonstrating the continued shift of our business to the cloud.
Product revenue, which represented 9% of hurdle revenue in the quarter decreased 24% to $49 million and services revenue, which represented 28% of total revenue with $161 million, a slight decrease year over year.
Recurring revenue, which mainly comprises our cloud and maintenance revenue increased further year over year to a record 85% of total revenue in the fourth quarter compared to 80% in the same period last year.
From a geographic breakdown, the Americas region, which represented 83% of total revenue grew 12% year over year.
The EMEA region, which represented 11% of our total revenue increased 1% year over year and 11% in constant currency APAC, which represented 6% of total revenue grew 2% year over year and 5% in constant currency.
The growth in both EMEA and APAC revenue in the quarter was driven by the growing adoption of our cloud solutions.
Moving to our business unit breakdown.
Customer engagement revenues, which represented 82% of our total revenue in Q4 were $467 million, an 11% increase and 12% increase in constant currency compared to last year.
CX one our customer experience cloud platform is the engine driving our growth in customer engagement, both by establishing new logo beachhead and by selling into our installed base.
Revenues from financial crime, and compliance, which represented 18% of our total revenue in Q4 and totaled $102 million increased 6% year over year and 9% in constant currency.
And all segments of the market, where we operate our cloud platforms remain our number one strategic focus and growth driver, resulting in our expectation that our cloud revenue will continue to become a greater percentage of total revenue.
As a result, we expected product and services will continue to fluctuate on a quarterly basis as the concentration of our cloud business continues to reach new highs.
Now to profitability.
At <unk>, we continue to distinguish ourselves in our market as a company that consistently delivers strong try amber result of growth in our revenue profitability and operating cash generation. Our gross profit grew 10% year over year to $413 million.
Total gross margin in Q4, with 72, 6% compared to 73% in Q4 last year.
Cloud gross margin increased 230 basis points and was a record 75% in Q4.
Our expanding cloud gross margin is a testament to the efficiency of our cloud infrastructure, coupled with increasing enterprise adoption of our high margin portfolio of cloud software solution.
In Q4 operating income increased by 12% year over year to a quarterly record of $163 million and our industry, leading operating margin increased to 28, 6% compared to 28, 2% last year.
This quarter, our financial and other income with $10 million driven by a combination of interest income earned from our cash and investment portfolio combined with the strong favorable impact from exchange rate movements.
I'd like to highlight the financial and other income includes revaluation of non U S. Dollar denominated balance sheet accounts at the end of each quarter, which can increase quarterly fluctuation.
In Q4, EBITDA increased by 14% year over year to a quarterly record of $184 million.
Bringing our annual EBITDA, just under $700 million.
Our industry, leading EBIT margin in the fourth quarter increased to 32, 4% compared to 31, 5% last year.
Earnings per share for the fourth quarter totaled a record $2 <unk> an.
An increase of 18% compared to Q4 last year.
Cash flow from operations in Q4 with $177 million.
An increase of 57% compared to last year for the full year, our cash generated from operations totaled $480 million.
Last quarter, we continued to repurchase shares in the amount of $25 million and a total of $145 million for the full year 2022, which is nearly double the amount repurchased in 2021.
We plan to further accelerate our share repurchases in 2023 and complete the $250 million program announced last quarter by the end of the current year.
Total cash and investments at the end of December totaled $1 billion and $572 million, our debt net of hedge instrument with $542 million, resulting in net cash and investments of $1 billion.
Before I conclude my remarks, I would like to highlight a few expectations relative to our 2023 outlook.
Our guidance is based on the U S. Dollar at this point in the year based on current foreign exchange rates, we do not anticipate a material impact to our total revenue for the full year 2023.
We anticipate our cloud revenue to continue to grow at a healthy rate in a range of 22% to 25% in 2023 with secular growth of 25% in the next several years stemming from the significant increase of cloud penetration in the large enterprise market.
We expect to continue to deliver the strong operational excellence, which has been a constant mainstay of our strategy. We have consistently delivered operating income growth and double digit yes.
And we expect similar double digit growth in our full year operating income for 2023.
We expect our effective tax rate during the year to be between 21 and 22%.
Our first quarter and full year 2023 revenue and EPS guidance is as follows.
For the first quarter of 2023, we expect total revenue to be in the range of $559 million to $569 million.
<unk>, 7% year over year growth at the midpoint.
We expect the first quarter 2023 fully diluted earnings per share to be in a range of $1 92.
To $2, <unk>, representing 9% year over year growth at the midpoint.
For the full year 2023, we expect total revenue to be in the range of $2 billion and $345 million to $2 million and $365 million, representing 8% growth at the midpoint compared to full year 2022.
We expect the full year 2023 fully diluted earnings per share to be in a range of $8 28 to.
Two $8 48, representing 10% growth at the midpoint compared to full year 2022, 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. Thank.
If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue.
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One moment, please while we poll for questions.
Okay.
Yeah.
Thank you. Our first question is from Samad Samana with Jefferies. Please proceed with your question.
Hi, Good morning, Thanks for taking my questions, maybe Barack one to kick off with you theres been a lot of chatter around AI and the opportunities there in the contact center in particular, and you mentioned it a little bit in your opinion required remarks, but I'm. Just curious what are the attach rates looking like for enlighten and how is that impacting you.
Overall deal size, our win rates that you're seeing and it has nice monetizing that opportunity.
Yes. Thank you somebody I appreciate the question so I <unk>.
Highlighted not just in this quarter I think you. We showed you fuel journey when it comes to AI for the past three years. This has been.
A strong and leading pillar in our innovation in the past three years.
We came out with enlighten in several years back and more and more innovation and we have we.
We believe the most robust and significant natively built AIA platform out there and as I mentioned in my earlier remarks, 2022 was a landmark year for AI as we experienced massive adoption of <unk>.
AI base.
Based on the enlighten.
So first in terms of the attachment rate, we see it growing in a dramatic way.
We see we see it across the board in multiple verticals and all sizes of.
Customers, both existing and new by the way.
It's serving as a key differentiator for us.
I think that AI is while it's still in the early days on what it can do for the CX business. There is now realization of enterprises and I find myself when meeting with customers.
Most of them already tried something and realize that just implementing kind of a siloed over point solution with AI.
Really deliver the solution at scale and it doesn't provide the full.
Complexity no that is.
In order to serve.
And more complex scenarios and then when they see what we can offer with <unk> and recently, including the integration of <unk> is a completely.
A different ballgame in terms of further monetization.
I'll give you two kind of two.
Two comments on that one.
It increases our deal size in a pretty meaningful way because if you think about it.
We spoke historically a lot about the number of seats.
Which represents where the core of our business was in the past.
But AI opens that open up.
The potential total addressable market for us as we move from a share of seats to sheriff interaction and you think about overall interactions that are not necessarily attended by a person. We are talking about the very significant amount of interactions that are growing in exponential way. So that's one.
Way to think about the opportunity and also what we see.
In in the business and the second thing is to think about a particular deal where it might be.
Even relatively small.
Contact center footprint with few hundreds of seats, but all of a sudden if you think about the digital footprint and the introduction of conversational AI.
It can be a pretty almost a mega.
Customer for US and then the last thing I'll say now is a good example will be the deal that I mentioned in Asia Pacific, which was our largest in our history. When it comes to six one which was exactly what happened for a customer that's a very very small contact center, but a very dramatic.
And digital footprints with the true needs for conversational AI.
Very helpful and then Beth maybe a follow up for you.
Cloud revenue guidance for 20%, 25% growth for the full year.
That's a pretty strong starting point I'd say the only question I had is how should we think about maybe what.
And that guidance from a macro perspective, or a timing of up 2022 bulk deals going live just given that the range at the midpoint is kind of below that 25% long term growth rate that you gave and just how should we think about what went into that guidance or what what's assumed for for 2023 specifically.
Yes. Thanks for the question Tim on so as you highlighted we provided a range of cloud revenue growth expectation between 22 and 25%. Therefore for the year of 2023 of course that the following a really impressive growth we had in our cloud of 27% for the full year last.
Year, and 26% and the <unk>.
Fourth quarter.
We saw that relative to our closer closest competitor our growth rate was considerably higher.
On the cloud business and of course, we're at a scale that nearly double.
Some of our nearest competitor so with respect to what we expect in terms of how that will play out. The range was provided as it does include some caution relative to the overall macro environment. In 2025, we do believe we have line of sight to the higher end of that range and of course, we will continue.
Need to update that as the year progresses.
Maybe just to add one more award here are some of them on the.
<unk>.
Moving forward with <unk>.
<unk> the scale that we have we sold so the sequential growth from Q3 and Q4 that was similar to last year at 9%, which shows that we continue to accelerate drilling in the cloud.
I think the message with this.
Guidance.
Vis vis what we hear and see from the competitive landscape is that we are taking market share.
Great. Thank you both for that color I appreciate it.
Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your question.
Thank you and good morning, I wanted to touch on the competitive landscape, obviously avaya has been in the headlines with the bankruptcy.
It's probably easy to imagine how you how you're benefiting from that but I actually wanted to ask you outside of Avaya with with some of your other competitors. Just what are you seeing there are share gains increasing and what do you think is the.
The biggest differentiator.
Today in terms of your product set versus the competitors outside of Avaya. Thank you.
Sure no problem so.
You're correct with your observation and I mentioned it in one of those four big opportunities, we see both for the showing that short and the long term I think the fixed market has a truly unique competitive landscape right now and as I've said, it's divided between Avaya and another large.
A player Alder that are really struggling to basically servicing decks and we know for effect that the management team.
Spending the majority of their time, focusing on cash flow and how to service a desk with very very high interest rate and as a result of that they need to take tough decisions that will impact both the short term, but also the long term as they are limiting the investment that they can do.
Innovation and I believe we are taking decisions.
That are impacting negatively.
<unk> ability to compete.
And again, both the short term and the long term. So that's one competitive landscape and I think it's a provide greater opportunity for us we see it already.
That customers and partners are starting to.
Move away.
From selecting these platform.
<unk> side of the market.
As you have mentioned are a customer of.
Silicon vendors.
They're either in the last basically since day, where they started.
They basically were banking on a continuous injection of capital will either losing money or close to breakeven.
And that is no longer the case and they no longer have the ability to do that and.
And we hear about a lot of cost reduction activities that they are doing and others that are starting now to experienced deceleration a significant one in the growth rates and are focusing their efforts on profitability.
And we've operated since ever.
And looking for profitable growth, we have the muscles and the know how in the company.
On how to drive growth drive profitability and the same time, we are constantly investing at least 15% of our revenues in R&D, making sure that we continue to open a gap in our list of differentiation is just getting bigger and bigger budget by today, and we think that it will be.
Very hard to potentially impossible.
For others, especially in this.
Economy.
To compete with us in the long run and I think one one a single says that look on his part.
As we know more.
Most all of our competitors went through several rounds of layoffs and we actually we are actually hiring people due dates.
Got it thank you and Beth on those.
The guidance for 2023.
You commented that product revenue can have some fluctuations, which we certainly seen that in years past, but I'm curious if there is a broader just mix shift.
That.
Is occurring that Youre embedding in 2023 aside from the usual volatility just given that the cloud guidance was relatively strong in line to slightly ahead of the street, but.
Total revenue was it was quite a bit lower so maybe is there.
A bigger shift or something youre doing on the sales incentive side to drive a bigger mix shift to cloud if you could just kind of elaborate on.
The product assumptions in that outlook. Thank you.
Yeah. Thanks, Tyler it's a great question and it is embedded in our guidance for next year, we saw that our cloud revenue as a percentage of our total revenue mix in Q4 was at a record 63%.
We expect that momentum.
Our cloud to continue to drive our overall growth and of course that means that the mix will continue to be further concentrated as more cloud revenue.
As the natural result of that of course that means our premise space business and particularly our new product revenue is expected to see reductions in the current year and looking forward and of course that theyre completely aligned with our expectations and our strategic focus to do really.
Continue our transformation fully as a cloud company across all of our business segments.
Just to add to that because you're asking about the sales incentives. So the answer is absolutely. Yes. We think this is not just a year we've done it in the past few years, but this is this is the time for us to go all in going back to the comment before about the competitive landscape.
And prioritize the clouds in everything that we do by the way across all our business line.
We believe it's the right thing for both the mid and the long term and as a result of that as Beth said, we are going to experience.
A decrease in product revenue.
But it's the right thing for <unk>.
Building.
<unk> is a very large and fast growing cloud company, especially with the fact that our cloud is coming it's north of 70% gross margin.
That is not just a top line play. It also allows us to build an extremely profitable business moving forward.
Thank you.
Thank you. Our next question is from James Fish with Piper Sandler. Please proceed with your question.
Hey, guys. Thanks for the questions here.
Barack for you.
Obviously, some are already kind of brought up AI, but I was kind of wondering.
You guys are thinking about how AI can actually accelerate or exchange cloud conversions in the next few years are you starting to see kind of that acceleration interest in the pipeline already because of AI.
Versus kind of what youre seeing over the last I don't know 12 18 months.
What's going to differentiate nice AI kind of moving forward.
So the answer is yes, we believe that a.
It is yet another driver for customers that sit on the legacy on premise platform.
AI is definitely one more driver to move to the cloud. It is almost impossible to have an effective conversational AI solution using your own frame or legacy hosted solution due to the three assets that I've mentioned, which is the flexibility of our cloud platform.
Yes and of course, using these story called data in real time, which can be achieved only in the cloud. So cloud is almost if you would like a prerequisite in order to really enjoy the full benefits of AI and yet another reason why customer removed and we see more and more customer understand us and I understand.
It's not just about moving their contact center to the cloud and they'll no longer no longer interested in kind of just like for like they want to have like full better.
And looking more and more on on this shift is a transformational move.
In order to on one hand is improving the service. They can provide you those customer.
Move to digital and at the same time starting to offer.
As a force multiplier if you would like offer very effective.
Environment.
And we believe that the investments massive investments that we've done in the past five years, including some very important technological acquisition, we've done back in 2020 in 2021.
Putting us today in the best position to capture this opportunity.
That's helpful. And then for you I mean, what are you guys seeing on the expansion rates on cloud relative to the last few quarters and can you remind us how much you get relative on the cross sell side versus the up selling and how youre kind of expecting expansion rates will change and 23 versus what you saw in <unk>.
Wanted to just given kind of the macro environment.
Yeah. Thanks, James Yes, when we when we look at.
The expansion, we see of our customers given the fact that the TX one is really the most comprehensive suite.
That form and the industry. It has a significant amount of opportunity for us to go back into the existing base of our <unk> customers and continuing to sell more and more of the platform.
<unk> talked about in one of those great opportunities for US is around the uses of AI and enlightened us embedded in CX one.
As well as all of our digital capabilities. So we see that continued expansion of CX, one and what the <unk> would look like for our customers. In addition to that of course, we still have our legacy maintenance base.
That said, we also have converting over time through the cloud of course that gives us additional expansion opportunities as well because we typically see a very nice uplift.
Those customer shift over to using <unk> and that can look anywhere from two to three times upwards to nine to 10 times. So it's a combination of expansion both from the existing <unk> users as well as the conversion of our existing legacy customer base and I will add to that specifically.
We saw it in the.
Second half last year, and even more so in Q4 and Beth mentioned that both of our NOL net retention rate our pool and our monthly active user all grew very nicely in Q4.
And at the higher percentage than we've seen before.
And you've seen it in the sequential growth in the cloud between Q3 and Q4.
Thanks, guys.
Thank you. Our next question is from Rishi Galeria with RBC. Please proceed with your question.
Wonderful thanks, so much for taking my questions.
Brook I wanted to start by going a little bit further down the path I know we've had a lot of discussion on the call today, but I wanted to ask specifically about chat GPT.
You have made some announcements around that maybe can you give us.
Longer term vision for how you intend to incorporate some of chat Gpt's technology, along with your own AI and what that looks like and maybe how that can end up actually being a competitive advantage because obviously chat GPT can be used by other.
Competitors out there, but I'm sure being able to combine it with your own AI systems. It starts to be a competitive advantage. So maybe a little bit more color there would be helpful and I've got a follow up for Bob.
Sure. Thanks, Thanks for that so yes, we are the first to announce several weeks back.
The integration of <unk>, we are always happy to be the first analysis.
They're rushing.
Rushing to follow below our direction.
And the reason why we have managed to be the first one is the fact that we have.
Enlighten fully embedded <unk> six one I know we've been working on that for several years and we have pretty mass adoption of enlighten, which allows us to relatively easily integrate a variety of.
Tools like Google dialogue flow that is kind of a different thing, but obviously <unk> and I will mention owing to the fact that don't forget that we also have a pretty unique partnership with Microsoft.
Which I think panel hinting to also certain elements down the road.
We can do on this combination.
Specifically about why.
Customers will choose or choosing.
To adopt <unk> for CX for purposes for CX. One if there isn't is that if they just try to use <unk> as is in the contact center, it's not going to fly on us is going to not going to have much and the reason for that is that.
CX is a pretty unique environment.
And we are using a subset of <unk> that allows us to allow our customers to benefit from some of the strength of <unk>, but at the same time using our.
Unmatched data repository to have a subset of.
Well trained cheju beauty with the front end unified front end that we have both to the customer as well as by the way to the agent in order to access information in a very easy way, so customer really get here and win win situation between the two and I can tell you that since we are in.
Introducing to the market we had some alpha.
Customers and then with the announcement itself.
We have a lot of interest and already engaged with multiple processes with customers and as I said before I believe with just the beginning and <unk> is just one I believe of multiple.
Generative AI solutions that will come up in the market.
Alright wonderful thanks, that's really helpful.
Apologies if I missed this earlier, but when you think about the guidance for 2023 and specifically the EPS guidance.
Can you help us understand what are you assuming in below the line adjustments in financing and other.
Interest and all of that just trying to better understand.
If you think about the EPS numbers, how much of that is going to be driven by EBIT.
EBIT margin expansion versus below the line adjustments. Thanks.
Yeah. Thanks, Rishi when we look at our EPS and the operating income for next year I highlighted on the call that our operating income is expected to continue to grow in double digits as we've seen for the last many many quarters.
So we'll continue to keep that that sharp eye and kenai around driving profitability from our operations.
With respect to EPS of course, we expect that to likewise to continue to grow in double digits.
And what you can generally expect below the line and as I kind of highlighted on in my remarks was that we have a healthy amount of cash in our balance sheet and we have a nice interest income stream coming from that.
However, in the fourth quarter in particular it was.
Kind of at a higher point than what we would typically expect to see as a result of the strong gain that we had from exchange rate. So you should keep that in mind. When you are looking at 2023, but really the main focus is that.
Continue to really drive and manage our business driving that double digit growth in profitability and that's what we expect to see.
It's coming from our operations.
Wonderful thank you.
Thank you. Our next question is from Michael Funk with Bank of America. Please proceed with your question.
Yes. Thank you for the questions. This morning, a couple if I could so we've heard from others. This quarter about pressure in specific verticals weaker demand would love to hear you maybe compare contrast, your own experience given the relatively strong cloud guidance that you gave for for 'twenty correct.
Yes, we don't see any.
Significant change that they can.
<unk>.
Provided with a certain <unk> associated with a certain vertical and as I mentioned before our net retention rate in Q4 actually.
Went up percentage wise.
I'll mention again, the sequential growth and also the guidance is such that we don't expect we don't see a weakness in particular.
A vertical obviously, we're cautious even though we are all watching the economy, but we believe we're taking market share and it gives us strength also for our business.
We are well diversified across roughly 11% to 12 different vertical.
So as we've seen in the past, even if the ease of certain weakness in a certain vertical balance itself on another vertical. So we're not necessarily concern on a particular vertical that is kind of significant for our business.
And then I'll return to shareholder if you're going to see the commitment to returning incremental capital this year.
Given your relatively strong net cash position and cash flow generation, how should we think about target leverage target cash.
And potential incremental returns to shareholders going forward.
Yes. Thank you.
We highlighted today earlier that we've just recently announced a new buyback program of $215 million last quarter and today, we mentioned that it's our intent networking actually fully execute against that $250 million buyback. During the course of 2023. So it continues to be a priority.
For us too.
Now lets return to our shareholders and as you mentioned, we're generating roughly about $500 million of cash from our operations each and every year. So that represents about half of that amount generated from our operations is of course that means we continue to have a lot of ample powder also to look at the act.
Position opportunity position.
Maybe I'll add to that also that if you if you.
Look at our and this is not new but you look at the.
Our differences between our non-GAAP and GAAP and the main component is stock based compensation.
We are the we are a very.
Effective our efficiency to conduct vis a vis some other companies' alder and it's not a big components.
Which again goes back to the.
We don't dilute further.
And like some other companies are doing with respect to the total.
Non diluted fully diluted shares.
Okay. Thank you for the question Dan in the highlights.
Okay.
Thank you operator question as group. Our next question is from meta Marshall with Morgan Stanley . Please proceed with your question.
Hi, This is Mary on for meta Thanks for taking our question I wanted to ask you about your partnerships you have invested in partnerships meaningfully over the past couple of years and I was just wondering where you're seeing where you're seeing traction with your partnerships. Thanks.
Yes. Thanks for the question I mentioned before the 2020 was indeed, a record deal for US not just in terms of the number of new customers, but also in terms of new partnerships.
And I believe that there is first of all it is.
Very important in being a big part of our go to market strategy and we are highly committed to that and we see great traction. The traction we are seeing right now is in three main areas. The first one as we further expand internationally, we're signing more and more partners and all of those international markets. That's one area.
Second is the <unk>.
Significant realization of partners of.
The legacy.
Incumbent on premise vendors like Avaya genesys.
Realizing that.
They need to go with different vendor that have also.
<unk> financial viability and they come to us that's the second one and a third is kind of new commerce into the CX space as I mentioned before customers are looking more and more to look in the transition to the cloud is the Moreover, transformative move than just a like for like so you see more of the large concern.
<unk> firm.
Stepping into this market and we see them.
Making a bigger impact in the markets and there are some great partnership we have with these guys.
Yes.
Thank you.
Thank you. Our next question is from Tim Horan with Oppenheimer. Please proceed with your question.
Thanks, guys I'm going to stay on the AIC can you talk a little bit about how unique your AI product is or grocery or competing with at this point.
And how long did it take you to curate the data to be able to kind of really put it to use and I guess can you talk about your experiences with chat GPT, what the product is like.
Any surprises how are hesitant to kind of integrate.
Okay.
Thanks, Thanks for the question so.
One of the thing that we're very happy with is that about five six years ago. We saw the potential of the rise of AI and what can what can you do or what's going to be doing.
The CX business and we started to invest in open a division in the company that invested heavily in research develop and development and making sure that it's not just decide siloed solution, but is well embedded in six one we have today 500 engineers dedicated.
<unk> two <unk> solution and they are working.
Good day, and night to continue and enhance the AG capabilities.
Better than six one and the core engine is as we mentioned always is enlighten and we're getting to the point to this point in the market, where we have already <unk>.
Significant mileage in many many different customers and more and more use cases.
Which allows us to take it to the next step.
<unk> experienced to date with <unk> has been very good the integration itself is not the difficult part that's kind of the easy part because <unk> is such an open platform. So it was a relatively easy to integrated in.
The interesting part is actually the data repository and the fact that we have this historical data you asked about how big is it it is.
As a gigantic we're talking about.
And information derived from tens of billions of historical.
Data.
<unk> vertical per use case.
And I think we've demonstrated some of that in the latest analyst day happy to do that.
Again in the upcoming Investor and Analyst day that we have and that's what really allows us to take change if we can make it.
Fully operational in our CX environment and this is a truly big differentiation that we have because just integration is not enough.
And how unique do you think your product is.
Can you just talk about the experience the quality and maybe any other findings on what people are using it for.
I believe it's very unique.
And Thats, what also we view from that from our customers It goes to the.
The two points or three points that I've mentioned, one is the fact that it's fully embedded in our platform that is being built from the ground up natively with AI capabilities.
Second is the amount of data, we already injected and the fact that it's easy for us to train.
The models and build new models.
In a very very fast way and constantly join them in a very seamless way.
And then not to take away from the domain expertise of those hundreds of people we have in the company now this is not new for them.
And we are engaged today with dozens of different customers have different <unk>.
<unk> that are already working to to implement that hey, they are using <unk> without GPT, but GPT can be a great add on to the experience.
Thank you.
Thank you there are no further questions at this time I would like to hand, the floor back over to <unk> for any closing comments.
Thank you very much all for joining us.
Happy to summarize a great year and we're looking forward for an excellent 2020 have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.