Q2 2023 NICE Ltd Earnings Call
year over year driven by the strength of our cloud business, which now represents a record 66% of our total revenue compared to 59% last year. Cloud revenue increased 23% to a record of 382 million dollars in the second quarter as we continue to see increasing adoption of our CX-1 platform by large enterprises. The year over year growth and our cloud revenue resulted from a healthy mix in three key areas. Expansion of our vast install base through upsells.
cross-sell adoption of a rich portfolio of applications, and new customer additions. Services revenue, which represented 27% of total revenue, was $159 million, a decrease of 5% year-over-year. Product revenue, which represented 7% of total revenue, was $1.5 million.
Speaker 1: Welcome to the NICE Conference Call, discussing Second Quarter 2023 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. As a reminder of this conference is being recorded August 17, 2023.
of our revenue is expected and is part of our cloud-first strategy, as our customers increasingly transition from on-premise to cloud. Our recurring revenue further increased to a record 86% of total revenue in the second quarter compared to 83% last year. Recurring revenue is comprised primarily of a combination of cloud and maintenance revenue. From a geographic breakdown, the Americas region, which represented 83% of total revenue, grew 9% year over year. The EMEA region, which represented 11% of our total revenue, grew 9% year over year.
I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations, at Nice. Please go ahead.
Thank you operator, with me on the call today, our Baroque Alon, Chief Executive Officer, and Beth Gaspitch, Chief Financial Officer. Before we started, 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 1995 Please be advised the company's actual results could differ materially from these forward-looking statements.
increased 14% year over year and 13% in constant currency. The APAC region, which represented 6% of GXE. CX1, the most advanced digital and AI market leading customer experience interactions cloud platform is the continuous primary growth driver in customer engagement.
Additional information regarding the factors that could cause actual results, or performance of the company to differ materially, is contained in the section entitled to this factor is the item three of the company's 2022 annual report on form 20F as filed with the Security Census and Exchange Commission on March 30, 2023.
Our emergence as an AI and digital leader in this space was evident in the new bookings in the quarter, with a 70% increase year-over-year in digital bookings and will be a clear revenue growth driver of our business looking forward.
During today's call, we will present a more detailed discussion of second quarter 2023 results and the company's guidance for the third quarter in full year 2023.
You can find our press release as well as PDFs of our financial results on NYSE's Investor Relations website.
Revenues from Financial Crime and Compliance, which represented 17 percent of our total revenue in Q2, and totaled $100 million, delivered as expected, a decrease of 2 percent year-over-year.
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 just results of operations, which differ in certain respects from generally accepted accounting principles.
Similar to customer engagement, our strategy to cloudify this segment of the market is gaining momentum through adoption of our cloud platforms excite and exceed.
As we reflected mainly in accounting for surveys compensation, amortization of acquired intangible assets, acquisition of related expenses, amortization of discount on debt and loss from extinguishment of debt, and the tax effect of the non-gap adjustments.
We are progressing well on the cloudification of the financial crime and compliance customer base with a significant revenue uplift from every customer that has been converted. We expect to see this growth further accumulate in the financial crime and compliance revenue stream in future periods.
The differences between the non-gap adjust results and the equivalent gap figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. I'll now turn the call over to Brock.
Now to profitability. Our gross profit grew 7% year-over-year to $416 million.
Total gross margin in Q2 was 71.6% compared to 73.3% in Q2 last year.
Thank you Marty and welcome everyone.
Our momentum continued into Q2 as evidenced by another strong quarter, highlighted by another double-digit growth across all key financial metrics.
The decrease in total gross margin is attributed to the decrease in product gross margin as a result of a change in the product revenue mix.
Total revenue increased 10% to $581 million, driven by continued strong growth in the cloud, which grew 23% yield over year, outpacing the rest of the industry and at a much larger scale.
Cloud gross margin increased 20 basis points year over year to 70.3% in Q2.
We expect our cloud gross margin to continue to expand over time as our financial crime and compliance, public safety, and CX1 international expansion gains scale. We continue to see further enterprise adoption of the CX1 platform.
In addition, our industry leading superior profitability was once again reinforced in Q2, and it has become an unremitting financial competitive advantage. CloudGhost margin continued to increase to 70.3%. Operating income increased 10%
as well as increasing volume-based usage from both digital and AI. The ongoing growth in our cloud revenue, combined with the expanding cloud gross margin, will also lead to an expansion of our overall gross margin.
to 170 million dollars and our operating margin grew to 29.2 percent up 20 basis points fill the year.
In Q2, operating income increased by 10% year over year to $170 million, and our industry-leading operating margin increased 20 basis points to 29.2% compared to 29% last year.
PPS came in at $2.13 representing an increase of 15%.
Those strong results demonstrate the rapid progress we are making as we expand our total addressable market and leadership from core customer service to the broader CX category.
EBITDA increased by 10% year-over-year to $187 million in the second quarter. Our best-in-class EBITDA margin in the second quarter increased to 32.1%, increasing slightly compared to last year.
This broader expansion encompasses digital engagement and conversational AI where we are rapidly capturing marketer. Nice strategic positions for complete coverage of all customer service interactions, digital and voice. Agent Assault Enterprise want to consolidate onto a cloud platform with a single vendor.
Earnings for share for the second quarter total record $2.13, a double-digit increase of 15% compared to Q2 last year.
Our financial and other income was $11 million resulting from interest income earned from our healthy cash and investment portfolio and the foreign exchange revaluation of our balance sheet.
but they also wanted to partner with a vendor that can take them into the future digitally as they are expanding their self-service and IVA capabilities on CX1 replacing legacy digital point solution providers. We signed a seven-digit deal with one of the largest hotel chains in the world.
Cash flow from operations in Q2 increased fourfold to $65 million compared to the prior year as a result of our strong billings and collections. Over the past four quarters, we have generated more than half a billion dollars in cash flow from operations. We have also generated more than half a billion dollars in cash flow from operations in Q2. Over the past four quarters, we have generated more than half a billion dollars in cash flow from operations in Q2.
replacing the incumbent Gen1 digital solution. With CX1's AI-driven knowledge management capability, this company can now provide more advanced digital self-service for its customers.
The strength of our cash flows provides us with significant flexibility and capital allocation priorities of M&A and shared buyback.
We signed a seven-digit deal with a loud global payment processor, as they're consolidating on our six-one-digit platform to future proofs their digital needs.
Accordingly, we continue to execute on the accelerated $250 million dollar share repurchase program to be completed by the end of this year.
In Q2, we repurchased shares in the amount of $65 million and executed 53% of that plan as of the end of June .
The emergence of AI coupled with generative AI is the most significant time expansion opportunity for NICE in all of our markets and in the CX space in particular.
Total cash and investments at the end of June totaled $1,662,000,000. Our debt net of a hedge instrument was $543,000,000 resulting in net cash and investments exceeding $1.1 billion.
The investment we made in building a lighting over the last years as an embedded AI foundation of CX-1 with hundreds of CX-specific models is now emerging as a concrete material differentiation and revenue growth opportunity. And this is underscored by a record quarter of enlightened bookings.
Moreover, all of our $1 million plus ACB deals in the quarter included AI.
In the first half of this year, we continue to demonstrate the strength of our business with notable growth in our overall revenue, cloud revenue, profitability, and cash flow generation. Our consistent approach to drive a healthy mix of both top and bottom line growth is evident, and we remain committed to this excellence looking ahead to the second half of this year. Now, before I hand it over to the operator, I will conclude my remarks with guidance.
We signed a seven digit AI deal with a major communications company, which is looking to expand its capabilities around proactive conversational AI and our advanced innovation was the only one that provided small self-service. We signed a seven digit deal with allowed energy.
For the third quarter of 2023, we expect total revenue to be in the range of $590 million to $600 million, representing 7% year-over-year growth at the midpoint.
to fully transform to a eye-powered self-service.
This customer is looking to greatly expand its digital interaction volume to trusted conversation lii and selected cx1 so its air precision and skillability.
We expect the third quarter 2023 fully diluted earnings per share to be in a range of $2.10 to $2.20, representing 12% year-over-year growth at the midpoint. We are raising our full year 2023 total revenue and EPS guidance. We now expect total revenue to be in the range of $2 billion.
A very large consumer electronics company signed a 7-digit AI deal as they want to consolidate their self-service experience for sales and service, replacing their legacy bots with 6-1-8.
and light an AI in just all voice and digital interactions.
Continuously identifies opportunities for automation and then fully executes interaction flows to self-service.
and $353 million to $2,373,000,000 representing 8% growth at the midpoint compared to full year 2022.
We had many other large enterprise enlightened deals, including one of the largest banks in the world, and a Fortune 500 filter company. From these deals and the ongoing momentum we're seeing with AI, we expect to generate significant future revenue resulting from the consumption-based pricing model of AI, which is tightly linked to the fast-growing volume of self-service interactions. Customer demand for enlightened has been strong ever since we began delivering to the market. During our extremely successful interactions customer conference back in June , we announced three new groundbreaking solutions leveraging the powerful combination of enlightened and generative AI. Enlightened co-pilot, turbocharging, customer service employees, enlightened autopilot, the next generation conversational AI, and enlightened actions, a whole new paradigm to manage the X. Subsequently, the enlightened pipeline has rapidly accelerated. In fact, enlightened bookings in Q2 were greater than the previous five quarters combined. We continue to win the cloudification cycle in our market across all segments and geographies, especially at the higher end of the market. Our high win rate is also leading to our unmatched profitable growth. The investments that we have made in building 6.1 is a native cloud platform with a suite of more than 45 applications have resulted in record adoption of incremental applications by our customers leading to continuous growth in the average revenue per user.
We now expect full year 2023 fully diluted earnings per share to be in a range of $8.40 to $8.60, representing 12% growth at the midpoint compared to full year 2022.
This includes our expectation that operating income will continue to achieve double-digit growth. I will now turn the call over to the operator for questions. Operator?
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Samana with Jefferies. Please proceed with your question. Hi, good morning. Thanks for taking my question. So, maybe first, Barack, one for you. Interactions was at a very interesting time. It was kind of about the height of the AI commentary. I'm curious maybe what customer conversations following the conference have been like, particularly around some of the new products that you mentioned, and how we should think about maybe the pipeline that's built out of interactions this year.
versus prior years given the interest levels around AI. Thanks for the question, Samad. So yeah, we had a very exciting interactions. Many of you attended it and it was well attended beyond our expectations. We actually had
You know many many hundreds of people more than we expected, but I'm glad we could have accommodated everyone And the content of course was great both what we have provided but also what many customers presented in the different breakout sessions
First I'll say, and I mentioned it in my earlier remarks, it created a very significant positive momentum into our pipeline. A lot of opportunities we have now in the pipeline that are progressing nicely.
started at the event and many that existed before the event either matured further or even allowed us actually to win some deals in the quarter itself and even more so in July and Q3. So that's about that. Which is specifically
there was a very big interest and a lot of conversation with respect to the introduction of the new models of Enlighten, Enlighten copilot, autopilot and actions and needless to say that you know earlier this year there is a lot of call it hype about generative AI
Things are starting to sink in and enterprises are starting to realize that the right way for them to adopt it. Adopting generative AI is not taking something generic that is not necessarily 100% precise or well-secured or well-connected to the platform.
and they needed a lot of expertise in Enlighten in order to introduce it into their CX environment and as a result we did see the success, as I mentioned on the call, with Enlighten record booking in Q2 booking of Enlighten.
equal or actually more than the previous five quarters together and we see the momentum continues in the pipeline. So all in all, very successful interaction and we're very happy. Cloud revenue for the quarter was completely aligned with our expectations and we're very pleased with that result.
Got it. Thank you for taking my questions. Thank you. Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question. Just as it relates to the core business and how your traditional sales cycles for CX1 are progressing, is the conversation around AI causing any delays in kind of core CX1? Can you just kind of talk about the puts and takes of the excitement around AI? Sure. I actually think it helps us in the win rate of winning CX1. And we see it happening, as I mentioned, 100% of our seven digit and higher deals in the quarter CX1 deals included AI. So some of them were driven by AI and some it was an add-on to the process. So that's one thing.
It also allows us to expand the scope and help in getting both the funds and the support when it comes to adopting CX-1. It's no longer just the legacy, let's replace an Avaya, Genesis or something like that or 5.9, voice only, but other much broader both digital engagement and taking over both the agent-assisted and the consumer-led conversations or interactions. As a result of that, the scope is much bigger and it helps us to...
compete vis-a-vis those competitors that do not have something equivalent to to enlighten. So you can look at it both as a standalone business or driver for our growth but also as something that fuel and the core driver of our business which is the cloudification cycle of the CX market still with a very long gone way to it.
Okay, great. Just to follow up Beth.
So on the full year for cloud revenue, I think last quarter you talked about 22 to 25 percent. It sounds like, you know, maybe you are seeing some sales cycles elongate at the large enterprise, which you know, you're certainly not the only ones there. How should we think about full year cloud revenue growth?
would you steer us towards the lower end of that 22 to 25? Any way to kind of frame the glide path on the deceleration in the second half would be helpful. Thank you. Yeah, thanks for the question, Tyler. You know, we came into this year talking about a range of 22 to 25% expectation in our cloud.
first half of this year. And we remain, as I said, optimistic about the pipeline and the business momentum we're seeing. So at this point, we continue to stand behind the range and obviously as we come out of two, three, we'll provide additional color at that point.
Great, thank you. Thank you. Our next question comes from the line of Siti Pangrahi with Missoujo Securities. Please proceed with your question.
Thank you. Thanks for taking my question. It's good to see some of the deals you highlighted with AI and digital. But could you give some color around like your AI attach rates? How does it look like for the new logos, new customer? And then the deals you're signing, what kind of mix you're seeing in...
in terms of expansion versus new customer? So I'll start at the bottom line, and thanks for the question. The bottom line is that we see it all over. We see it both with new logos, we see it both in expansion of AI within the very large...
talking to us about AI regardless of the infrastructure that we have and our AI can be vendor agnostic. So we compete on all of those categories with a great differentiation. And it's, as I said, I believe our biggest time expansion opportunity. And it's not just theoretical, these investments we have made in the past several years are now materializing into real business.
and a significant opportunity. The other thing that we like about it is that regardless of how it starts the expansion the natural expansion opportunity is significant. Most of those deals we price them on a consumption base and that consumption base is linearly attached to the harmony interaction ingested.
By enlighten and as a result of that something that's small at a certain size if you think about us forward It will continue to grow naturally as more and more interaction digital interaction voice interactions agent assisted complete service all that are going to enlighten
and with every interaction that goes through that, first there is more revenue, second it becomes better and stronger. So this is exactly what we wanted to see and the results in Q2 on that regard are phenomenal and it's more than just early indication, it's a real and significant business.
And we, you know, the pipeline indicates moving forward, we will continue to do the same.
That's a great color, Barack. And a follow up to Beth. It's impressive to see how you expand operating margin despite gross margin going down. So could you help us understand a little bit on the gross margin dynamics like going forward and how should we think about this margin expansion and inverse?
is the operating leverage mostly going to come from sales and marketing? Yeah, thank you for the question. As you look at our cloud gross margin, and if you look at how we've expanded it over the last several years, we've expanded our cloud gross margin by over...
you know, 600 basis points over a few years. And it shows that we have a really strong muscle in scaling our cloud business. You know, currently we have a lot of our newer business segments that are kind of in the less mature stages of their cloud business. That includes our financial crime and compliance business, public safety.
scale. We're confident that they are also going to be further accreted into the cloud gross margin. And of course that's on top of the great expansion that we see in the core of our CX1 business, both from strong attach rates that we have of the really deep set of applications across the CX1 platform.
And also, of course, the accretive nature that we see from our digital and AI applications on the cloud gross margin. So a combination of all of those factors, we're confident and we actually shared at our recent investor day that we expect to continue to see our cloud gross margin and in fact share that, you know, we're confident we'll see a separate...
Thank you.
Thank you. Our next question comes from line of Rishi with RBC Capital Markets. Please proceed with your question.
Hi, this is Rich Bolin on for Rishi Jhuloria. Thanks for taking my question. So I guess first one is just.
As we think about some of these new AI capabilities between co-pilot, autopilot, and action,
Is there anyone that stands out as kind of being maybe a more immediate revenue driver versus a long term? And then I guess just second aspect of that question do we have any like sense for the adoption curve of the consumption element and just kind of
How long does it take the customer to start to ramp up some of those volumes and if we have any early proof points just kind of around that?
Sure, let me let me address the first one. Great questions. So in terms of the pipeline, we see those out differently customers when they speak to us about AI and they hear about enlighten and they want to learn more. They want to see all of it because they see the value of how co-pilot augment their existing users. They see the
Autopilot allows them to really go into self-service in the right way. And action is a completely new paradigm on how managing CX and it changes dramatically the way they think and see CX. In terms of what we've seen customers are starting with, many are starting with co-pilot.
because they want to take the technology first to existing processes with the agents. It's also putting it with the agents versus first with the customer. And this is kind of the safest way to go. But it also allows them to move quickly from co-pilot to autopilot because if something works extremely well with the agent and you can automate it.
Very relatively easy you can migrate it into the autopilot So that's what we see more often than not starting with the copilot moving into Autopilot and that that's about that and the adoption as we continue of course will update about the specific adoption that we see for the three solutions of environment.
We do see customers that deployed on Lightning and are deploying on Lightning starting to ingest a lot of information through that. There is a understanding of our customers and general understanding that generative AI is good up to a certain point.
They needed to be connected to all the back-end systems and CX1 is the best platform for that when it comes to CX. And of course they needed to be aligned with the brand. We don't want generic answers to their consumers or to the agents.
So you add all of that together and the amount of data going through that, I believe that we'll see a significant expansion, but it's still I think too early to say what is the exact rate of expansion.
Thank you, that's very helpful. And then just one for Beth. You talked a little bit about the accretion from digital and AI. Can you maybe, I guess, peel that back a little bit and tell us kind of what you're seeing on the group C CAS business?
Yeah, thank you. So, what we're seeing again is early days on the consumption side, but certainly with core of our AI offerings, these were enlightened is a solution that was organically developed.
is native here at NICE, and so we have very attractive margins. And we can see that as the customers see those use cases playing out in the organization, it drives expanded adoption throughout those organizations. And as that happens, we're seeing that, as I mentioned, the market is very secretive further to the margins.
So that is something that we're already starting to see out. And of course, both in terms of our revenue streams and our margins, we see both digital and AI continuing to be nice growth drivers in both respects.
Thank you.
larger contribution of product and premise-based revenue. So we're seeing that transition and we'll expect to continue to see that happen throughout the course of this year as that business continues to drive success in the cloud. So this is a very transitional year for that FCC business and of course...
the key growth driver, but we will always consider potentially breaking out the cloud revenue contributions from non-CX revenue in the future.
Maybe I'll just add one more thing to that. When we look now on the conversion of existing financial common compliance customers to the cloud, originally we expected them to be in the magnitude of two to two and a half times from both of you. Maybe Barack just to follow up.
What are you seeing competitively in the CCAS and WEM space, particularly any change around pricing and acceptance for more of that interactions-based pricing and any color commentary for how you're thinking about the second half pipeline for some of these 70 figure size deals, particularly in your financial services vertical that you guys are historically very strongly.
to see Kaz and web space, particularly any change around pricing and acceptance for more of that interactions based pricing and any color commentary for how you're thinking about the second half type line for some of these seven, eight figure size deals, particularly in your financial services vertical that you guys are historically very strong with. Thanks, guys.
and this is exactly the point that it's starting to happen in a more meaningful way. In this situation a lot of the small players are having hard time to either compete or to deliver and we see ourselves both winning those deals and in some cases we see them when we are not winning the deal, those deals come back to the table six months or eight months later after the customer realized that they selected someone that cannot scale or not provide a level of complexity at scale than the other competitors provide.
We also see some of our competitors struggling to take or taking decision based on their debt liabilities and as a result of that not doing necessarily the right thing for the long term of their success or the market success.
and we of course enjoy that situation. And last but not least, I think we're enjoying very much the fact that as both Beth and I said before, we have built 6.1 as a native cloud platform. We invested a lot in that north of many, many thousands of many years that were invested in the platform with a lot of applications.
and now we have expanded into digital and AI. So we are the great convergence, doing the great convergence, if you would like, of this market. And as a result of that, the competitive landscape for the potential term is much bigger because we are taking the shell out of the...
legacy digital engagement space and the new AI space. So in that regard, CCAS, the definition of CCAS is much broader right now and it allows us to compete better vis-a-vis the comparative landscape.
Thank you.
Yes, our next question comes from the line of Patrick Walravens with J&P Securities. Please proceed with your question.
Oh great, thank you.
Barack, do you expect over time to see pressure on your seat count as people adopt your AI solutions?
We don't see it yet. Only 20% of the CX market is in the cloud. So for us, unlike some other companies that used to be the incumbent in the routing or the on-premise ACD paradigm for us every time.
of an historical revenue. So if I look on the next few years, the runway is very significant. With respect to general agent, our seat count if you would like within the customer base, we don't see shrinking as customers are adopting self-service solutions, maybe not yet, maybe not ever. Just because the demand, the general demand for service is going so fast with more digital channels being introduced by both consumers and enterprises. So a lot of the self-service effort is actually being used in order to avoid new agents.
to be added to the label market and do that through self-service. So I don't expect it to happen anytime soon and if and when it will happen seven years down the road, I believe that our business is going to be so robust.
on the self-service business, that it's actually going to be a critic to us because when we go and we migrate. That's really helpful, thank you. Thank you. Our next question comes from line of Matt Stotler with William Blair. Please proceed with your question. Hey there, thank you for taking the questions. I maybe just want to start off with, we'd love to get an update on what you're seeing with the conversion of the on-prem installed base.
Thanks for the question, Matt. So I think we provided in the past several updates on that. I'll give a bit more color, but if I'm not wrong, the recent analyst, they actually provided a great...
examples of what happened when those customers convert. But if you look at our customer base, our historical, what we call WEM customer base, that was predominantly at the higher end of the market, very few of those customers migrated to the cloud. And that's a great opportunity on the maintenance. So we're still in the early days of this conversion. If you look at our cloud business,
all together. Most of it was a few upsides for nice, not a result of any conversion. And only now we're starting to convert the base, including winning, and continue to win brand new business for the company.
And then a follow up maybe on what you're seeing internationally and specifically in Europe . I know over the some point in the quarter you had an announcement that CX1 is now in EU sovereign cloud platform and obviously you're seeing faster than corporate average growth in that geography. So I'd love to just get an update on the adoption trends you're seeing as specific to EMEA and any key investment.
We always operate in international markets, prime international markets, but with CX-1 introduction several years back, we realized that at some point we are going to franchise and expand from the US to other territories. And we've done this investment in a variety of geographies.
and started to do it one at a time. So first of all, most of the investment is behind us. We invested both in terms of the infrastructure and in terms of the go-to-market and building the right partnerships. Beth talked about it before with respect to our gross margin that a lot of that investment is behind us.
and now we're going to leverage on that investment. As a result, we're going to see expansion of the growth margin. We're seeing great success in some of those territories and that's one of the reasons that led us to decide to have actually a cloud environment that is EU sovereign.
in order to further support the EU and the pipeline in a variety of international territories all the way from Asia Pacific, Cuba, and Latin America is very promising.
Thanks again. Thank you. Our next question comes from the line of Chris Reimer with Barclays. Please proceed with your question.
Hi. Most of my questions have been asked already, but maybe just two quick housekeeping ones for Beth. Looking at the product gross margin, it's coming in a little lower than historically.
Is this the new level as this segment kind of drops out? And regarding financial income, is this an appropriate level considering where rates are right now and your cash balance?
Yeah, thank you for the questions, Chris. First, with respect to the product gross margin, you will see, of course, that our product gross margin will vary from quarter to quarter based on the mix of the products that we're selling during the quarter. A lot of our products have now...
We see the customers buying that in the cloud. And so the mix of what you saw on this quarter is probably a bit more typical of what you would typically see. However, it is a bit more deflated than what you would expect looking ahead. In this quarter, in addition to the product mix, we also had some a bit of one-time kind of...
That's probably more typical of what you would expect to see. Again, I'll caveat that by saying, you know, it is dependent on the product mix, but that's probably much more likely of a typical product gross margin in our business. With respect to the financial income that we demonstrated this quarter.
Of course, we have a healthy cash and investment portfolio. A couple of things to highlight. I would say here was quite healthy during the quarter. It was a bit inflated. First, we have a revaluation of our non-US denominated recei-
that's being demonstrated in that financial income that makes it a little bit higher than we would typically expect by more than you know somewhere in the range of about a million and a half dollars so you would have to kind of assume that that will not be likely to reoccur.
And of course, sometimes that can go in the opposite direction for us. And so we always, of course, keep that in mind as well as we look forward. And then additionally, of course, as you look at the portfolio that we have, our investment policy generally looks for us to hold our positions until maturity. And so.
considered as you're looking at the overall financial income. So those are the two key areas to keep in mind.
Excellent. Thank you. That's very helpful. That's it for me.
So, very helpful. That's it for me.
Thank you. Our next question comes from the line of Tim Horan with Oppenheimer & Company. Please proceed with your question. Thanks guys. Can you just touch on the two or three maybe key technologies you used in AI to roll out these new products? And can you just talk about how much better the AI products are now maybe versus where they were a year ago?
I know it's early days, but can you tell her?
Sure. You know, we use first and foremost, you know, it's important to understand that one of the most important thing with AI, no disrespect to the algorithms or specific product is the data that you have in order to train and build your AI. And that's the real key differentiator, you know, algorithms can
a superior one. We have billions and tens of billions of historical interactions both current and historical completely labeled, completely clean, verticalized for specific use cases and that's what makes Enlighten so relevant and so unique in the CX space and actually I don't remember if we demonstrated that during interaction if not we'll be happy.
run certain scenarios through enlightened versus any kind of generic AI solution and the difference is night and day and our customers many of them already try to deploy generic AI in their environment and
This is exactly the point that they encounter, the issue of precision, but precision in context.
And that's the reason why they are selecting Enlighten.
So this is what we're doing, of course, we are augmenting technologies, different generative AI technologies and using them as a layer, if you would like, within Enlighten in order to make it more accessible in terms of what I call consumable responses.
the AI. So the mix of the two together is the winning combination. Thank you and any color and how much better how much of an improvement you've seen in the product or is quite the same.
We see, you know, the past 12 months we've seen a dramatic improvement and it is to say the more deployment we have with customers the more use cases we have. So I think we're seeing what is typical from a new domain or technology that the early days will be.
of initial deployment and it's actually more than initial deployment. The improvement is exponential and we have customers using Enlighten in a variety of scenarios and got to level of precision that are beyond their expectations and are extremely applicable to what they need.
Thank you. Thank you. Our next question comes from the line of Maitha Marshall with Morgan Stanley . Please proceed with your question.
I just wanted to get a sense of does the pricing increase? Is completion rates increase? How dynamic is that pricing? Do you feel like it's still dynamic from your part and you guys are still figuring it out just as it ramps? Maybe that's the first question. Do you feel like it's still dynamic from your part and you guys are still figuring it out? Maybe that's the first question. Do you feel like it's still dynamic from your part and you guys are still figuring it out?
I apologize we missed the first part of the question but if I think I got it the question was about the pricing the consumption based pricing of Enlighten and you know how stable it is and what we kind of see in terms of dynamics that was the question.
Yeah, just is it, you know, are you guys still trying to figure out the pricing and do you feel like there's opportunities as completion rates increase to kind of increase the pricing that you're seeing on the consumption basis?
So we have a pricing out with customers and it is right now received very well by enterprises and customers and the reason that I believe it is accepted by customers right now is because of the tremendous ROI it has.
I'll remind us again that a cost of a service representative in a typical CX environment is roughly $50,000-$60,000 a year and this is just a label, not the technology. All the technology that's supporting that agent usually...
or roughly $5,000 to $6,000. So 90% of the cost in CX still goes, so the investment still goes into labour.
So when we replace or augment certain tasks or make those agents much more efficient or completely take them out of the equation we tap into this significant labor can
Hence, that's the way we look at it and we can get 25% of those savings. It's a tremendous uplift For our revenue moving forward. So right now it is accepted by customers and we see the potential I believe there will be certain dynamics up and down But we are in early days and the land grab situation
taking the time or, you know, elongating the time to implementation to really train systems with kind of their own data or trained kind of enlightened with their own data or are they kind of leveraging your vertical specific expertise, you know, kind of out of the box initially. Thank you.
Yes, so what's beautiful about Enlighten is that it has hundreds of CX specific models right out of the box because of what I've mentioned before, the many, many billions of interactions we've trained Enlighten with. The second thing is that we as a company, we are not just a generic AI company.
So right out of the box, Enlightened provides significant value to customers. Needless to say, that as the solution work in a certain customer environment, it continues to constantly further fine-tune it and improvement and it also helps our general models that help other customers.
as well. But the value is from day one from the deployment. Great, thank you so much.
but the value is from day one from the deployment. Great, thank you so much. Thank you.
Thank you. Our final question this morning comes from the line of Mike Funk with Bank of America. Please proceed with your question.
Hi, great. This is Matt on for Mike Funk.
I appreciate the question. So we've seen some peers call out varying degrees of strength and weakness in prior quarters within verticals like consumer, health care, financial services. Can you provide any incremental color on trends within the quarter and future expectations and whether or not certain verticals are more or less excited by AI potential? Thanks. We actually see strength across all verticals.
than our competition. I think you've seen it in our business in the past and today. Our business is well diversified. We operate across multiple verticals and we have a tremendous win rate over the competition. So we continue to see the strength in the business and we believe we're winning market share.
I'm familiar with some of those comments from the competition and we're okay for them making those comments and we'll continue to win the market.
Excellent. Thank you.
Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Alam for any final comments.
Thank you all for joining us today. Thank you very much for the questions and the partnership and we look forward to speaking to you again soon. Thank you.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.