Q3 2023 NICE Ltd Earnings Call
Welcome to the Nice conference call discussing third quarter 2023 result, and thank you all for holding.
All participants are at present in a listen only mode. Following management's formal presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded November 16th 2023, I would now like to turn this call over to Mr. Marty Cohen Vice President.
Your relations at Nice please go ahead.
Thank you operator with me on the call today are Barak Islam, Chief Executive Officer, and Dr. Gass pitcher Chief Financial Officer.
Before we start I'd like to point out that some of these statements made on this call will constitute forward looking statements.
In accordance with the Safe Harbor provisions of the private Securities Litigation Reform Act with 1995.
Please be advised that the company's actual results could differ materially from these forward looking statements.
Additional information regarding factors that could cause actual results or performance of the company to differ materially.
Taking these actions have a risk factors item three the company's 2022 annual report on form 20-F as filed with the Securities and Exchange Commission on March 30th 2023.
Okay.
During today's call we present, a more detailed discussion of third quarter 2023 results.
Company's guidance for the full year of 2023.
Find our press release as well as a PDF of our financial results, our Nisource Investor Relations website.
Our comments, there will be an opportunity for questions.
Let me remind you that unless otherwise noted on this call we will be commenting on our adjusted results of operations.
But in certain respects from generally accepted accounting principles as reflected mainly accounting for share based compensation.
Organization of just kind of on that loss from extinguishment of debt.
Tax effect of the noncash non-GAAP adjustments.
Differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.
Information in 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 Bruce.
Thank you Marty and welcome everyone.
We're pleased to report another strong quarter exceeding the high end of our guidance range on both total revenue and earnings per share for the third quarter of 2023.
Record total revenue of $601 million was driven by another outstanding performance in cloud revenue, which grew 22% to four Huntington $3 million.
Along with the Great Top line performance, we continued to further distance ourselves from the competition, we saw on driving profitability.
Our operating income grew 15% to $184 million and operating margin grew at Huntington 19 basis points to a record 36%.
Earnings per share came in at $2.27, representing 18% growth.
Moreover, cash flow from operations and not the Unparallel competitive advantage grew 28% to $121 million in the third quarter.
Nice continues to set the gold standard for the CX market, we always have and we will always win.
Our cloud revenue growth continues to significantly outperform the rest of the industry and on a much higher cloud revenue base.
Our outperformance is attributed to two main factors.
First we continue to consistently beat our competitors, especially at the high end of the market and in effect why didn't ingo market Cheerlead.
Our command of the high end of the market is demonstrated by the 35% last 12 months goals of six one enterprise era that we define as customers billing over $1 million annually.
Second we executed on our strategy and expanded six one into a comprehensive digital engagement and CXC I platform.
<unk> is now a meaningful growth engine by itself.
Significant incremental 10.
This powerful growth engine.
Substantiated by the fact that in Q3 <unk> was included in 80% of for our new enterprise six deals.
It was the fuel the trove drove those deals.
Additionally year to date, our six one a bookings increased 163%.
Digital engagement bookings grew 78% compared to the same period last year.
The CX market is experiencing a shift in the NIM, the Monday Nymex that tailwind for nice.
These favorable chiefs is unleashing it positive ripple effect.
It starts with heightened demand for CMC I.
This in turn is driving an accelerated demand for pellets organization, because philly I to be effective in the complex world of six there is a resolute prerequisite to converge all CX assets into a single platform.
These mandates faster decision, making for cloud adoption and migration in a market that is still only 20% penetrated in the cloud.
This shift in demand dynamics plays exactly into our competitive strengths and differentiation.
Digital engagement and 60 I are the fastest growing segments of our pipeline.
We think seven fold year over year, and representing a significant part of our new business pipeline.
The quintessential CX for enterprises is to shift as many customer service interactions as possible to be consumer led an agent less.
However, most past automation efforts failed and the hurdles to fully automate customer service do you remains today.
Yeah, you know brings a fresh enabling technology rejuvenated these airports.
That's fully ought to be successful it needs to be six specific 100% accurate fully personalised non generic and fully aligned with the brand's goals.
Above all it is imperative to deliver and non fragmented end to end customer journey that is seamless not backbreaking.
Taking the generic key ipass with either standard Ginnie I O Siloed point solutions.
<unk> doesn't work.
These foods, an awakening is creating a surge of customers turning into nice to be D. C actually I have vendor of choice.
Moreover, CMC I represent a significant incremental revenue and Tam opportunity as pricing is evolving from exclusively seat based and expanding to also include the exponentially growing volume of interactions.
In fact, we're already monetizing the need in the many deals we signed in Q3.
In a seven digit ACB deal with one of the largest cruise ship operators digital engagement and CMC I doubled the size of the deal.
Hey, I was the main determining factor for all win although multiple competitors that could only deliver slide where.
In another seven digit ACP deal. This one was allowed to repeal.
I increase the deal by six X.
This company like many other BP OS is expanding its AI capabilities to transform their business models by using more automation.
The incumbent cloud provider, which we replaced could not deliver true CXC I capabilities.
We signed a seven digit ACB deal with a major European broadband provider in this deal was 100% T I.
This customer turned to nice in our air portfolio to help them deliver better AI driven proactive service for a growing customer base.
We signed a seven digit ACB deal with a large energy distributor, where digital and AI nearly doubled the size of the deal.
As part of its strategy to incorporate AI for effective self service.
Place three legacy point solution vendors and converged everything onto six one.
The bedrock of CX C. I is underpinned by the breadth and quality of its underlying CX assets, including data knowledge and interactions.
But its power comes from their convergence.
Well and cloud are the most visible growth drivers into six market plus formulation is an extremely powerful undercurrent of growth.
It enables the convergence of all six assets and facilitates the transition from a multi vendor multi point solution environment to one that is consolidating onto a single platform.
These are evolutionary phase of plateau musician is clearly being driven by six one we fits unique convergence power.
We're seeing a tremendous increase in the number of vendors we are displacing in each new customer win.
In Q3, we sold a staggering 48% year over year increase in new customer portfolio deals.
We signed a seven digit ACB deal with one of the largest healthcare providers in the U K, replacing legacy on premise providers and converging older CX operations onto six one platform.
I had a similar platform consolidation deals included a seven digit deal with a large state government, where we replaced a legacy vendor and a hosted cloud solution.
A major international hotel chain in Asia replace multiple legacy and cloud incumbents due to the lack of complete portfolio.
And a large U S home and security company, well, we converged nine different siloed solutions onto six one.
They called catalyst fueling demand in the CX market is and will continue to be cloud defecation.
On premise hosted in a mature cloud solutions are an affliction emanating throughout the enterprise hindering speed of innovation the ability to elevate T I and the capacity to reduce of cost of ownership.
We are only now reaching the enterprise adoption cycle of cloud in the CX market.
With extremely high barrier of entry only a few players will emerge.
We are the clear leader with six one having the largest customer base by far and serving the most complex enterprises at scale.
After a decade of massive investment to build and differentiate six one we are the preeminent CX cloud vendor.
Q3 was reached with deals driven by the need of customers to cloud if I yeah.
Examples include a seven digit ACB deal with a very large east coast Medical Center, where we replaced a legacy vendor and won against other cloud vendors to bring this institution on to a unified platform.
Our top notch profitability cash flow and rock solid balance sheet provides us substantial financial flexibility.
This is clearly demonstrated by this year's accelerated buyback program the announcement of a new and even larger share repurchase plan.
And our expected 2020 full closure of the Lightbox acquisition, which we announced a few weeks ago.
<unk> is the market leader is the X per active outreach.
<unk> provides us with a strategic complementary offering that will further extend six ones market leadership with.
The combination of six one with contact engine, which we acquired two years ago and the upcoming additional fly evokes creates a conversational AI powerhouse for both inbound and outbound CX.
Additionally, the live oak's Premier and loyal customer base provides us significant opportunities to upsell and cross sell six one into that base.
Also selling <unk> into our large existing six one customer base.
Moreover, we expect a very synergetic financial outcome that will be accretive to operating income operating margin and free cash flow in 'twenty 'twenty four.
In summary, we're extremely excited about the opportunities in our market as we have dug our heels deepen innovation go to market and execution to lead the way now and beyond.
As market dynamics, the rapidly evolving pricing models, changing and organizations accelerating their money their modernization efforts, we are well prepared with the markets best six one platform six one the leading stack CIO frame and the most established cloud infrastructure that does enable us to.
Execute the winning playbook on delivering industry best cloud growth and profitability.
Moreover, we have an unbeatable dedicated senior leadership team with decades of industry experience.
Before I hand, it over to Beth.
And for this we thank you.
850 of our 8000 Nisource are based in Israel, and I couldn't be more proud of their full commitment and ongoing engagement to our customers roadmap and business.
On a personal note.
And how it goes out to the 239 hostages, including infants in El do we do.
Being held although 41 days in captivity.
And I have only one message.
Them home now.
I will now turn the call over to Beth.
Thank you Barack Q3 was characteristic of our repeated success and consistent execution that nice growing our cloud revenue profitability and cash generation at industry, leading growth rates, our third quarter revenue and EPS both X.
Ceded the high end of our guidance range total revenue for the third quarter with a record $601 million up 8% year over year, driven by the strength of our cloud business, which now represents a record 67% of our total revenue compared to 60% last year.
Sure.
Cloud revenue increased 22% year over year to a record of $403 million in the third quarter as we continue to see increasing adoption of our CX one platform by large enterprises, driven by strong demand from our digital and AI solutions.
We continue to consistently add over 200, new logos each quarter, demonstrating the large opportunity that remains in displacing legacy on premise incumbents as well as the preference of customers to adopt nisource market meeting platform CX one.
We further demonstrated the strength of our business with cloud revenue accelerating sequentially in each of the first three quarters of this year.
Services revenue, which represented 27% of total revenue with $160 million, a decrease of 3% year over year in line with our expectations product revenue, which represented 6% of total revenue in the quarter compared to 11% of <unk>.
It'll revenue last year decreased to $38 million.
Our recurring revenue further increased to a record 87% of total revenue in the third quarter compared to 82% last year and is nearly $2 billion over the trailing 12 months.
Recurring revenue is compiled comprised primarily of a combination of cloud and maintenance revenue.
From a geographic breakdown, the Americas region, which represented 84% as total revenue grew 10% year over year. The Americas region has continued to shine primarily from the success of CX one sales in the region.
The EMEA region, which represented 10% of our total revenue decreased slightly year over year. The downturn in EMEA was primarily due to our strategic shift to a recurring cloud model in contrast to a more nonrecurring premise based product revenue in the prior year.
The APAC region, which represented 6% of total revenue increased 10% year over year.
The foreign exchange headwinds and APAC Intel wins in the EMEA region offset each other such that the net currency exchange impact on total revenue was negligible.
With respect to our business units customer engagement revenues, which represented 83% of our total revenue in Q3 were $498 million a 10% increase.
<unk> won the most complete customer experience cloud platform is the primary growth driver in customer engagement led by our CX AI, where we booked a record number of enlighten deals in Q3.
Revenues from financial crime, and compliance, which represented 17% of our total revenue in Q3 and totaled $103 million delivered as expected and was flat year over year.
Like customer engagement, we are executing on our strategy to classify this segment of the market both to the high end and mid tier financial institutions through adoption of our cloud platforms excite and exceed.
In Q3, the cloud revenue growth year over year was offset by a decrease in product and services. We expect to see this cloud growth materialize in the revenue stream in future periods and for this segment to return to growth as the cloud revenue becomes more meaningful.
Similar to our top line, we delivered yet another quarter of strong profitability at nice we have always maintained a balanced approach to driving topline growth, while delivering increasing profitability.
In parallel to reporting 22% growth in our cloud revenue. This quarter, we continued to invest in the future growth of our cloud business really introduction of our local sovereign clouds CX, one offerings, while increasing our cloud margin demonstrating the positive leverage we have in our operating model.
Over the next few years, we expect our cloud gross margin to expand to at least 75% as adoption of CX, one by enterprises increases and we cross sell our higher margin applications, which are embedded in the platform, including digital and AI solutions.
Leanne, our CX, one cloud architecture provides us with unrivaled economies of scale.
In Q3 operating income increased 15% year over year to $184 million and our industry, leading operating margin increased 190 basis points to a record 36% compared to 28, 7% last year.
This expansion demonstrates our keen ability and focus on continuing to expand our operating profit margin toward our mid term financial targets of 35% over the next few years.
EBITDA increased by 16% year over year to an all time high of $203 million in the quarter. Our EBIT margin in Q3 increased to a record 33, 7%, increasing 210 basis points compared to last year.
Earnings per share for the third quarter totaled a record $2.27, an 18% increase compared to Q3 last year.
Our financial and other income was $8 million, resulting primarily from interest income earned from our healthy cash and investment portfolio offset by some foreign exchange headwinds on the revaluation of our British pound and euro receivables.
Cash flow from operations in Q3 increased 28% year over year to $121 million as a result of our strong billings and collections.
Over the past four quarters, we have generated more than $550 million in cash flow from operations.
The strength of our cash flow provides us with significant flexibility in capital allocation priorities of M&A and share buyback. Accordingly. This year, we accelerated our buyback program and in the past three quarters alone, we deployed $220 million nearly double the amount.
<unk> for share repurchases for the same period last year.
Earlier today, we announced an even larger new share repurchase program and the amount of $300 million. This new program demonstrates our continued confidence in the growth of our business and our solid financial profile.
It also reflects our ongoing commitment to return capital to our shareholders as disciplined capital allocation is fundamental to our overall strategy. We expect to fully execute this program by the end of 2024.
Total cash and investments at the end of September totaled 1 billion and $652 million, our debt net of our hedge instrument with $544 million, resulting in net cash and investments exceeding $1.1 billion.
In conclusion, our Q3 performance highlights the strength of our cloud business and the attractiveness of our digital and AI offerings, our commitment to profitable growth bolstered by our expanding market leadership and best in class financial profile enables us to deliver on our growth expectations.
For the full year 2023, we are increasing our guidance on both the top and bottom line.
For year 2023, non-GAAP total revenue is expected to be in a range of $2 billion and $350 million to 2 million and $379 million, which represents an increase of 9% at the midpoint.
Full year 2023, non-GAAP fully diluted earnings per share is expected to be in a range of $8.58 to $8.78, which represents an increase of 14% at the midpoint.
Finally, I would like to address some preliminary expectations beyond 2023.
We are expecting our full year 2020 for cloud revenue to grow by at least an industry, leading 18% year over year. This is excluding any revenue contribution from <unk>, which is expected to close sometime in the first half of 'twenty 'twenty four.
<unk> should contribute approximately $142 million on a full year basis. After assuming some revenue redundancies in the initial year of transaction transition on.
On the bottom line why box is expected to be extremely synergetic and together with the organic profit expansion is nice we expect 2020 for EBITDA to be close to $900 million and to exceed the $1 billion Mark in 2025, I will now turn the call over to <unk>.
Operator for questions operator.
Thank you we will now be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from Samad Samana from Jefferies. Please proceed.
Hi, good morning.
I just wanted to say thanks.
Best wishes for a year in my entire family and all of your colleagues impacted by tragedy in Israel.
Maybe transitioning to the business in the quarter. It's good to see the results I was wondering if maybe you could help us understand you highlighted several large deals that AI is driving.
And the impact of the ECB and the dollars, but can you maybe just help us understand within the AI portfolio. The handful of products and highlighted earlier. This year had interactions maybe which of those products are driving the biggest ACB growth or the biggest commitment and how.
How much of that book dollars like how quickly are those.
And those customers actually turning on the AI features.
Thanks, so much and thanks for the question and the <unk> earlier remarks are absolutely.
First I will say you know one of the thing I highlight highlighted before is that we see a shift in the main dynamics kind of this the repo effect. So a lot of our conversation today with customers start with the end state in mind, they want to move to AR and AI driven CX environments. They understand that you know taking the simple route.
Just deploying a simple Jennie O it didn't work for them.
Then they understand that they need to put all the CX assets. Because these are the things that are driving AI and then you know we drive a much faster decision on the clarification Airport Spa.
Specifically on the AD product to a solution that we see that our moving extremely fast and obviously in the copilot. When we think about AI in the contact center. It's a I would give it like to name. There is the concept of augmented intelligence and artificial intelligence.
Contact center, the customer service space is still very labor intensive and the ability to first bring AI to augmenting our copilot small the agent is the first priority of customer and then starting to find different often use cases and fully automate them with our what we call our autopilot.
So the two are leading product that we see are you know being prioritized by customers as a the enlighten copilot and enlighten auto pilots and the combination of the two.
In terms of just two two completed I'm sorry in terms of contribution we provided some initial percentages is starting to be a very very significant part will take a very significant part of our pipeline moving forward, we see the closing rate of AI and faster than other parts of our busy.
Because of the and priority of of customers.
The optimism moving forward.
Great and then maybe Beth a follow up question for you just as I.
Thinking about some of the growth rates that youre seeing.
AI driven bookings.
And what you've seen in terms of the cloud business. This year and then just kind of reconciling that with your the initial kind of at least 18% outlook for 'twenty 'twenty four can you help us maybe think about it.
In that 18% how are you thinking about growth.
The number of agents versus AI dollars.
Just maybe help us understand better what's being assumed today in that 18% number.
Sure. Thank you for the question some odd and we we shared that our expectation next year in terms of our initial outlook for cloud growth is at least 18% and we believe we have the opportunity to to further accelerate that as we're looking at towards our two.
2025.
And that confidence is coming both from the the large enterprise wins, we've already announced that during the course of this year.
Combined with all of the the AI and digital bookings that we've seen and we know we should highlight that those AI and digital capabilities are are really unlocking a new and.
Incremental revenue stream that is captured in that growth opportunity for us. So we have factored in the expectation of the digital and AI. Both that we've seen in our results to date are as well as the strength of the pipeline. We have looking into next year of course with our expectation.
If our forecast in the cloud we continue to have a pricing model that is a blend of both agents and then as I highlighted it's unlocking the potential now and we're seeing more and more of that in digital and AI.
Great. Thanks, again for taking my questions.
Thank you.
Our next question comes from Tyler Radke from Citi. Please proceed.
Hey, good morning, Thanks for taking the question.
The cloud revenue certainly it's nice to see the sequential acceleration this quarter I'm curious the the issues that you called out last quarter in terms of some of the weaker consumption that you saw in the SMB did that play out as you expected or was that a better better than than you feared and then.
How are you thinking about specifically that cohort ramping up into Q4, given the holiday seasonality and any further guidelines, we should be thinking about in terms of.
Q4 cloud revenue growth. Thank you.
Thank you for the question Tyler and we highlighted that last quarter and you know it's been a tighter economic cycle. This year. So we have seen that on the SMB side of our business there has been a slower.
Slower and less usage than than what we have seen in years past.
But we do know we've gone through similar cycles like this and in the past and this type of a tightening around usage is temporary we see signs of that and and see that as the overall environment economic environment is opening up and that that is.
Is going to be and impact of that is now starting to shift as we head into 2025.
And any.
Cloud revenue growth for Q4.
Yes, with we are with respect to our cloud revenue and we have shared in the past the expectation of a range for the year and we do expect to land within our guidance range at approximately around the 22% growth in cloud revenue for for the full year.
And as we've seen both in the current quarter and really throughout that this year in that 22% is is considerably higher than any of our peer group and of course, it's on a much higher cloud revenue base, which is more than $1 6 billion and recurring revenue in the cloud.
Great and a quick follow.
A follow up for Barack just on the Lightbox deal.
Yeah, great to see.
Nicole's around that being accretive I guess, just given all the organic.
Okay.
And getting that asset folded into.
Yeah.
This portfolio and I guess, what you know what why does it make sense to do this acquisition now given the.
The opportunity that youre seeing on the on the core business. Thank you.
Thank you for the question you were breaking up a bit but I think I got most of the question you in essence, you are asking on the strategic rationale of the acquisition I Hope I got it right.
So so absolutely happy to share I think live Oaks is is a great addition to the nice a portfolio.
Most of our businesses in the inbound business of customer care and customer service. We do have an album business, but no doubt it is especially specialized offering by itself and.
We started a journey several years back.
To make sure that we have not just a good offering in the outbound, but something that is evolutionary and bring conversation I capabilities also to that area of the outbound. So we started with some organic development acquired contact engender brings really a completely new with new way to think about.
Proactive outreach and then we were looking in the last food like few months almost a year and.
We were debating between them, if you'd like less than handful of good assets and someone that has a superior technology and our customer base in that area and by no doubt the leading vendor is live oak's. So that's that's the rationale yes.
Yes, we see of course, you know all of core strategies to expand into digital engagement in the eye, but and the core of our business. This is a this is a great opportunity to make sure that we cover all of all of our basis and we have a really noticed the complete with a complete and leading offering for every type of customer.
And last but not least I would say that is as the markets of the large enterprises is now shifting to the cloud. These outbound capability a more relevant in their complexity and it is a very very complicated a type of and domain expertise in all done he said.
Very typical for the large enterprises tens we start putting those are assets together makes sense then of course financially.
Uh huh it looks very very attractive so both are.
From a strategic fit as well as financially enterprise itself looks attractive in Haynesville decided to go for it.
Thank you.
Thank you.
Our next question comes from City Panic right from Mizuho. Please proceed.
Hey, this is actually Dan on for Citi. Thanks for taking my question I guess, it's good to hear about the strong AI bookings trends in southern figure AI deals I was just wondering could we get a sense of some of the early customer feedback you're getting on your new AI capabilities and then maybe what's the uptake youre seeing.
For these features between new customers and existing customers.
That's a great question. Thanks for that so first of all the feedback is phenomenal I am personally engaged with.
Many of those customers and executive I can tell you it gets.
Our visibility and open doors at the most senior level.
Of of large enterprises and most of the deals that we talked about with the brand new customers, who talked about the fact that this quarter, 80% of our new customers or new customer deals were installed and both driven by AI, but also sold with AI.
Our solutions and the deployment that we started already for past deals is just growing our in an absolutely great weights and it allows us by the way to start enjoying some more and higher consumption.
From this customer that started something relatively small and the consumption is growing and the volume of interaction is going exponentially growing.
But as you said it yourself, we have thousands of existing six.
Six one customers that have already all the assets in place and turning AI for them is actually a very very fast act and we have a dedicated sales.
Sales team that is tasked with doing exactly that.
Selling into the base.
Our most crowded marketing events, Webinars and Andy auto lead generation event.
He's with respect to AI and a lot of that is indeed with our customer base because they are already very familiar with VX, one and they see it as an easy add on.
Two there are existing environment.
Okay. Thank you.
Our next question comes from meta Marshall from Morgan Stanley. Please proceed.
Great. Thanks.
Helpful Information upfront just on kind of the early opportunity being more augmented agents and then kind of them, but they're also being an AI piece as well just wondering how you guys look at the opportunity between augmented and true kind of virtual agents just as you guys go forward.
And then just maybe as a second question.
You know given you guys believe that live box can be accretive within the first year. Just you know where are areas, where you see kind of those greatest synergies coming from thanks.
Sure. So I'll start with the first question you know I've been in the industry for now 25 years in the industry of the six markets and I've seen that our markets way before the a days trying to.
Drive automation because at the end of the day. It is a very labor intensive markets 90, some percent of the of the cost is still with with label with agents and there is obviously a desire to go for automation, but these total pass most vendors and companies talk about automation, it's either or it's either you have.
Something with an agent that is fully manual are done by the agent with some technology or fully automated task and the approach we have been taken with the <unk> and that's the reason that we have launched Copilots, an autopilot together the enlighten copilots an autopilot uses the ability to move in.
As a continuum and deliver a continuum experience for customers.
And that that makes sense and that makes us a nation much more viable. So this is why are you comfortable that they've talked about first you know not first but to start with an augmented intelligence to the agent make them much more powerful and but at the same time take those parts and the interactions that can be fully automated move them.
To full automation, but also the ability to toggle between them, we've all been probably as consumers through the experience that you start with an agent or you start we've been bought and and as soon as there is a certain ambiguity about the intent you're stuck at that point, then you you'll experience deteriorates.
The ability with six one that is a unified platform that have all the convergence assets and provide AI for both agents and for full automation. That's what allows you to break this 20, some years of failures in automation and bring it to life.
So that's with respect it out with your question about novel cause I'll hand, it over to Beth.
Yeah, so with respect to the impact and we expect a lie vocs, who have a considerable amount of synergies and be highly synergetic to to really drive.
Accretive nature to both our profitability and our cash flows.
And we have that confidence as theres quite a few overlap as you think about another public company as it pertains to G&A related costs and of course of course, we still operate in the same space as well. So we also have synergies when it comes to our go to market and in the product as well if you look it back on our <unk>.
<unk> record of making acquisitions over the past several years you can see we really have a great track record and a strong muscle and showing the delivering on the ability to to drive a healthy synergies into our operating model and that's what we expect with live acts as well.
Great. Thank you.
Okay.
Our next question comes from Pat Walraven from JMP Securities. Please proceed.
Oh, great. Thank you and Barack we're praying for you your families and especially for the safe return of the hostages.
If you look at the at the Gartner Magic Quadrant, you in Genesis or the two clear leaders in the space can you walk us through what the competitive dynamics are like with them.
When do you usually when and when do you.
Usually not win how does it work.
Thank you that so we know there is the competitive landscape is more than just us and Genesis, but needless to say you know Genesis is.
One of our competitors, we believe we're winning a we have a superior weaning rates over Genesis in many cases, Genesis and others, all the incumbents and because of their financial considerations trying to hold on to their.
Customer base and maintenance base, and that's number one and second I think giving once again the financial considerations like a very high debt.
And the way the company is being held in terms of ownership.
And I think they're very short term oriented in terms of their investment in the long term viability of the company for customers.
So I think that gives us a superiority our investments specifically in expanding into digital engagement in the eye is something that we haven't seen there and it gives us a these days a significant advantage.
And when it comes to just you know simple price war, we will do what it takes to do when the customer, but we win not just on price. We ran on the valuable position and customer understanding that nicely in Q4. The long run we don't have an exit plan, we don't need to transact in the company, we don't try to.
You know five times, a year go around and sell the company like others do.
So our management attention is 100% seven days a week 24.
Hours a day, just you know focusing on our customers and our business.
Yeah.
Thank you.
Okay.
Our next question comes from Michael Funk from Bank of America. Please proceed hi, good.
Morning. Thank you for thank you for the questions.
One for Beth took again.
And we're sponsoring earlier question about our prior comments about weaker SMB consumption.
I think you said that you felt the tightening.
Temporary and I believe I heard you say that you're expecting some positive chapter of seeing some positive shift.
Entering next year, so hopefully you could clarify.
Hit on that comment then I have one follow up if I caught it.
Yeah. Thank you for the question and Michael and in your comment was correct I did say that you know during the course of this year and then the tighter economy, we have seen some not less usage on the CX side of the house and the SMB installed base.
And that next year with our you know the economy looking brighter we are seeing are signs as well that are we will expect to see more of that consumption going back to what we have seen as historical norms of course, we expect to see that further happening throughout the course of next year.
Great and then just on just on a lot of discussion over time about how AI potentially chef.
More of the Tam spending you know away from human agents and more towards <unk>.
Solution for companies like nice provides.
Do you do you have any earlier kind of one off data points or examples and how on deals that you've signed with AI. How that has maybe shifted from say 90% of spend on humans versus 10 for technology, where that's come out on the back end of these deals.
Okay. Thanks for that so you know first of all there is a general just to clear out something quite general we don't see right now whether it's good or bad we don't see a reduction in number of agent industry right now not to speak about the fact that with 20%.
<unk> of cloud, even if there will be some reduction in number of agents. We still have a very very long way to go in winning market share on the agents.
What we see that all companies are dealing you know, it's almost like avoiding adding more labor because the number of interactions digital or not are increasing exponentially and becoming more complicated and that's where they're trying to deploy in order to avoid the internet the additional.
Our labor costs are and it's also the reason why they take the journey usually of either starting or doing together, both co pilots and autopilot and understanding that there will always be a need to a certain extent of a human agent.
Ali I think that's.
The opportunity that we have in AI is significantly higher in the very long run than the one that we have on just supporting agents for 25 or more years, we've been as a company focusing a 99% of our F. Four just on the time, where the actual consumer speak with them.
Agent all interact with an agent to do more and more of our business go beyond that which is a tam expansion for us and we find ourselves taking over legacy vendors it used to be dealing with for.
Gen one automation.
So all of those together are actually giving us a great.
Confidence in our vision and our future and the ability to fight for much fight and win for a much bigger Tam.
Great. Thank you for that I hope you and your employees are all well.
I appreciate that thank you.
Okay.
Our next question comes from Ken Fish from Piper Sandler. Please proceed.
Hey, guys. This is quentin on for Jim Josh Thanks for taking my questions.
But maybe first for you you talked a couple of times already about some lower usage and the macro pressures impacting the F&B side. This year, but maybe as we look across the entire cloud base can you talk about how net retention has trended in this quarter and then it sounds like you're kind of embedding some return or kind of a balance as we look to 2024.
Tension rates are we thinking about that correctly.
Thank you for the question and you know with respect to our to our expectations and let me address the net retention we saw quite healthy net retention during the quarter and then as we look further into next year are you know, we don't expect to see and in overnight.
Right change or a shift from that usage, but we are seeing a healthy signs there and we expect that to continue to evolve and return to a more normal as we get further away from the tighter economy that we've been in during the course of this year.
Makes sense and then Brian maybe for you obviously the government sector has always been slow to adopt new technology, especially on the cloud side, you guys announced a fairly large win with the state government. This quarter are you seeing AI and digital opportunities, creating that inflection where nowadays you're comfortable to move to the cloud.
How do you balance kind of you guys have the fed ramp others don't so what do you see that opportunity in kind of a land grabbing federal as we look at 2024. Thank you.
Yeah, it's actually quite an interesting question that you've asked and you know I had we had all of US had the same perception about government and we when we say government.
Everything from the federal government States municipalities State and local if you would like in federal and we had the exact same experience and perception with with those are you know very slow to adopt going back to Covid I think COVID-19 changed Oh, no I'm not I don't know if it's for the you know forever, but at least for.
For the foreseeable future change to very significant things with respect to technology adoption by state and local a the early days of Covid shows government agencies that they can actually move fast if.
If we if we remember the early days of Covid and all of a sudden we got from different states. Yeah. They are adopted new communication channels. They adopted a variety of technologies in a very fast way.
Our approach in nature really change their behavior.
And we see that continuing well into 2023 and also in the dialogue into 'twenty 'twenty, four which is very positive. The second thing that we like about government and still relate I believe to kind of leftovers of Covid. They all reached with budgets right. Now there is no any waiver for a recession or budget constraint.
In the sled markets and of course, we are enjoying that as well.
Operator, our next.
Our next question comes from Tim Horan from Oppenheimer <unk> Company. Please proceed.
Thanks, guys are more of a qualitative question, but can you talk about how much your AI product has improved over the last year I mean, the chachi P. T is only about a year old at this point the breakthrough nor are you using that has vastly improved the product and are you using reinforced learning where the product will be a lot better.
A year from now and just any comments on how does it compare right now to the main competition.
That's a great question, Tim you know I've been in the tech sector for more than 25 years and I've seen a variety of cycles of our technology, you know significant technology, all the way so many proprietary hardware and software.
Internet mobile and cloud and these days in the eye.
And those are aware of this technology, all and enabling technology that create the compound effect of innovation.
I think that we can all agree that's what we're seeing with there in terms of this right of compound effect.
You know if you if you're not staying up to date for a week all of a sudden it seems like can you pass by and.
And we see that with the eye the beauty going back to our business is that since we've started our journey.
Before we started it several years back but practically we started it must be full two years back because the most important.
Parts and the most important thing in order to have AI working well is the data.
Oh variety of assets, including data it's data it's knowledge. It's media. It's interactions ended the review team information from all of those assets.
<unk> is a unique unbeatable position, where we have you know years.
All of this data in the tens and hundreds of billions of interactions and knowledge assets and other things. So the answer the short answer is yes, we are seeing a tremendous improvement in both the accuracy and relevancy.
And on top of that of course, we have more and more out of the box models, which dramatically shorten and simplify the deployment for customers. We have today more than a thousand enlighten models for every.
Possible or most possible CX scenario and that's what we do for a living so we are becoming SPX AI powerhouse both in terms of the assets and the technology of course, we in order to.
Focus on our core competencies, where we're relevant and when relevant we leverage some generic technologies like Jenny I and others in order to focus our efforts on the things that are.
All are uniquely for us and that are needed in order to take it and make it a viable options for the six markets.
Oh very helpful. So is it fair to say six months a year from now the product will be dramatically better and do you think you're pretty far ahead of your competitors.
Absolutely first of all I, 100% sure it will be even better every every you know every quarter I myself spend a lot of time these days.
And with my passion to technology, and I like to state working both in customer environment and in our labs, if you would like and I see the the cycles of improvement at all you know on a weekly basis and in terms of us vis vis the competition I think we are years ahead of our competitors.
Both of the ones that I'll have you know Oh it leads more sizable but also the issue of the points of machines. It goes back to my point about it's not enough just to have the technology. It is important to have the platform and our years of investments building six one is a platform that can contain and managing converge.
All the assets together. This is what makes the idea for US working this convergence spiral six one is second to none.
Thank you.
Our next question comes from Arjun.
<unk> from William Blair. Please proceed.
Yeah. Thank you, it's actually Rachel on for origin.
Body outfit.
Hey, guys.
I wanted to ask it seems like it's still pretty early days for migrating existing customers to the cloud could you talk a little about the opportunity for AI to drive increased conversion RPC.
Any other potential catalyst to accelerate the pace of migrations.
Yeah. Thank you for the question Rachel So you know we said it numerous times in the past actually consumed in our financials is that.
We've built already a $1 6 billion a D. C. One six give or take $1 billion revenue of cloud without tapping much into the legacy customer base of ours and predominantly taking over in markets, where we did not have any presence in and this is the ACD market.
And this is where the market is still only 20% penetrated.
Aye.
Providing first of all it's a growth engine by itself, but I believe as I mentioned before it can be a catalyst for those decisions and we seats in the both pipeline as well as the discussions we have with customers because of that ripple effect that I talked about before let's start with they want the AI in order to have the eye they understand.
They need to converge all assets into our platform and for that of course, the prerequisite is to be in the cloud was a true native cloud solution that is scalable.
There are environment, so that narrative is true both for.
Competitive customers that we don't have presence, where we replace the incumbent's someone asked before about certain competition. We replaced a lot of those vendors this quarter, including the one that was mentioned before but it's also true for us starting to tap.
Accelerate the conversion of the existing customer base, the AUM from customer base of nice.
Great. Thank you.
This concludes our question and answer session.
I'd like to turn the floor back over troop Iraq, Iran for closing comments.
Thank you very much everyone for joining us we appreciate your support and partnership and of course.
The warm and the housewarming words from everyone. Thank you very much have a great day.
This.
Todays teleconference. You may disconnect your lines at this time, thank you for participating.
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