Q1 2024 NICE Ltd Earnings Call
Welcome to the Nice conference call discussing first quarter 2024, our results and thank you all for holding.
All participants are at present in a listen only mode.
Following managements formal presentation instructions will be given for the question and answer session.
Minder at this conference is being recorded May 16th 2024, I would now like to turn this call over to Mr. Marty Cohen VP Investor Relations at Nice. Please go ahead.
Thank you operator with me on the call today are broke a long chief Executive Officer, and best Gaspar <unk> Chief Financial Officer.
Before we start I'd like to point out that some of the statements made on this call will constitute forward looking statements in accordance with the Safe Harbor provisions of the private Securities Litigation Reform Act of 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 is contained in the section entitled risk factors in item three the company's 2023 annual report on form 20-F as.
As filed with the Securities Exchange Commission on March 27th 2024.
During today's call, we will present, a more detailed discussion of first quarter 2024 results and the Companys guidance for the second quarter and full year 2024.
You can find our press release.
It's P D F somewhat financial results <unk> Investor Relations website.
Following our comments there will be an opportunity for questions.
Let me remind you that unless otherwise noted on this call we will be commenting on our adjusted results of operations, which differ in certain respects from agenda.
Generally accept generally accepted accounting principles as reflected mainly in accounting for share based compensation amortization of acquired intangible assets acquisition related and other expenses.
The amortization of discount on debt and loss from extinguishment extinguishment of debt and the tax effect of the 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.
We'd also like to remind you that we're hosting our investor day on June 11 in conjunction with our interactions user conference in Las Vegas.
The special program for analysts and investors want to presentations from nice executives.
And access to the innovation, so while you'll see several or many different types of stimulus.
If you haven't received the registration email please email us at I R ice dot com.
I'll now turn the call over to Barak.
Thank you Marty and welcome everyone.
Earlier today, we reported strong first quarter results starting the year on a high note.
We also announced my planned transition of the CEO of nice.
This decision has not been easy for me is leading this incredible team and serving our customers partners and investors for the past 10 years has been one of the greatest privileges with my life.
With the company poised for continued success and after 25 years at nice I believe it is the right time for me to step down.
The board and I have initiated a search process for my successor to ensure that nice will continue on our journey of little sheep growth and profitability.
Nice has been my home for more than half of my life and I will continue to lead the company with the same passion as they did for my entire career until the end of this year as well as to support a smooth transition to my successor.
And now to first quarter earnings.
We are thrilled to start the year with a positive momentum evidenced by a robust performance across the board, while continuing to outpace the market.
We reported total revenue of $659 million, which reached the high end of our guidance range and represented an increase of 15% from the same quarter one year ago.
Our industry, leading cloud growth.
Remain the driving force behind our strong top line performance, showing an increase of 27% year over year.
We also continued to deliver great profitability as demonstrated by 170 basis point increase in our operating margin, which ended the quarter at 33%, marking a significant milestone in our continued delivery of profitable growth.
We far exceeded the high end of our guidance for EPS, finishing the quarter at $2 58.
Which was an increase of 27% compared to one year ago.
Completing the exceptional first quarter execution, we once again demonstrated superior cash flow generation totaling a record $254 million in operating cash for the quarter, an increase of 30% year over year.
Our continued strong performance over the past several years as well as in the first quarter are attributed to our unmatched platform strategy.
Building a best in class platform that is as comprehensive as six one the men's years of focused effort and massive investments.
It cannot be done overnight.
By stitching, together, Siloed and disconnected point solution.
This is even more profound pronounced in CX because it is a market that is highly specialized and the barrier of entry is nearly insurmountable.
Anticipating the future trajectory of the six markets, our proven strategy and meticulously Architected six one from day, one to excel as the Premier six platform.
Combined with unwavering consistent execution is now driving our market leadership with the ultimate effector.
The industry is the industry's highest cloud win rate Trailblazing digital convergence and fully leveraging the tremendous Dx AI opportunity.
Let me elaborate and provide a few examples on each.
Six one as dominant as the most enterprise ready cloud platform is fueling nicer unmatched win rates.
In every evaluation or RFP six one stands out as the most complete is exemplified for its ease and speed to migration to its best in class demonstrates an integrated portfolio of solution and both Unparallel scalability.
In Q1, we once again continued to win in the enterprise market as evidenced by the volume of portfolio deals, indicating a rising trend of enterprises choosing six one in the future cloud platform over the legacy on premise all these spreads cloud point solutions.
For example in a seven digit deal one of the world's largest health care companies is continuing to move more of its point solutions due to the scalability of six one further displacing multiple incumbent legacy vendors.
In another deal that showcases the completeness of six one allows pharmacy outsourcer turned to nice to simplified CX and deliver to its customers a better experience offered by a unified platform.
In the process they eliminated point solution providers.
A large retail supply company was also looking to unify their tech stack because their existing disjointed infrastructure was breaking down.
In this deal the customer selected six one or where the competition due to its proven ease of migration is provided by multiple references.
For nearly three decades, there was a clear separation in the CX space between voice solution providers and digital interaction providers.
Conversely, six one was billed in the first and only customer centric platform natively converging all touch points and all interactions triggering a rapid paradigm shift in the market over the past couple of years.
This shift is now removing the lines between these siloed subcategories, resulting in enterprises consolidating the legacy digital CX into six one.
Our digital convergence star as evidenced by a staggering eight out of every 10, new enterprise customers selecting CX one over the last two years to manage all their customer interactions, including multiple digital touch points and by the exceptional five fold growth in the volume of digital.
Interaction manageable six one.
In Q1, we signed a seven digit deal with a large state credit Union, which is a great example of the digital convergence six one is driving this.
This existing customer began its is there anybody migrations migrating from a legacy incumbent into six one and is now leveraging the platform to consolidate several of its siloed digital point solutions into six one.
In another seven digit deal.
Well known consumer loan company is consolidating its dx and forging the digital strategy on six one so the adoption of our digital and AI portfolio.
Increasingly on self service to help improve customer experience.
Well, if you think of your IL six is one doubtfully revolutionary.
Impact is quite different than commonly held perceptions.
Everything considered simple in CX, such as checking your account balance possible research returns and refunds as well as thousands of other services and inquiries are already fully automated.
Today's 50 million CX agents around the globe are dealing with the most complex and unconventional service scenarios, almost all of which are non repetitive tasks.
There is a heightened understanding among among enterprises, but the next level of six automation can only be achieved by highly specialized AI platform.
This is the exact reason why six one with its unparalleled extensive repository of crucial data knowledge and interaction.
Is the platform of choice for a growing number of small and large enterprises.
Accordingly, we saw a remarkable 200% year over year surge in the number of enlightened AI deals in Q1.
We are seeing numerous examples of how the adoption of even just one use case of fee increases.
The increase of the customer our pool by 40% or more demonstrating the tremendous monetization potential as well.
Further expand our AI leadership with both existing and new customers.
Moreover, in the first quarter every six deal about $1 million HCV, including AI.
For example in a seven digit deal a large agricultural manufacturing company is moving away from its disparate set of point solutions to six one to unify its technology stack and is in the process developing a <unk> strategy as evidenced by the purchase of a portfolio of.
Our AI solutions, including enlighten autopilot.
And others.
A similar impetus was behind a seven digit deal with a large Canadian telecommunication company.
In which we won against several competitors and which the breadth and depth of six one AI made nice the obvious choice.
We also won a seven digit deal with a very large U K based bank with selected six ones first and foremost is the.
Cornerstone for the <unk> strategy, and we see significant expansion opportunities.
In this deal will replace the longstanding incumbent Ti pure play point solution provider.
Innovation is flourishing and six one as evidenced by our rapidly expanding enlighten AI portfolio, including co pilots for agents and supervisor autopilot Auto summary action XO and others. In addition to the thousands of six one anymore.
Those.
The speed of innovation on six one is allowing us to deliver capabilities at a record pace.
A good example is our recently released enlighten XM, which went from inception to general availability in three months.
Moreover, the innovation to customer adoption curve in the strongest we've ever seen.
As an example, we introduced enlighten copilot less than a year ago at interactions 2023, and then just a few months, we signed dozens of new and existing enterprise customers, who are already using it today.
In summary, Q1 was marked by significant financial achievements multiple large customer wins and rapid innovation all of which were sourced from the platform power of six one.
Our years of massive investments building six one is the leading platform in the CX market continues to driver a successful 2024 and beyond.
We are operating in a market that is still nascent in the areas of cloud digital and AI.
Giving the lease areas still hold considerable growth potential and coupled with the power of six on platform, we see significant long term opportunity for sustained growth and profitability.
Before I finish I would like to share that we are very excited for our annual user conference the largest in the CX industry, taking place in Las Vegas, which is only a few weeks away.
It is a perfect opportunity for all attendees to witness the platform part of CX, one from our own experts as well as from an impressive list of leading enterprises.
Our agenda features marquee customers that adopted six one as they migrated to the cloud converge all CX assets and are already seeing the benefits of 19 <unk> Inc.
Including Sony Hunter Douglas the standout Henry Schein Hyatt Seafood Bank Lexisnexis, how you can take capital consumers cellular realtor com Keybanc, Banco do Brazil, United way, Google Concentrix, Julie Paypal and many many others.
I would like to take this opportunity and invite all of you. So annual Investor Day on June 11, which is taking place in conjunction with interactions.
We look forward to seeing you there I will now turn the call over to Beth.
Thank you Brock at nice we stand out as an industry leader that repeatedly demonstrates sustained balanced growth. Our strong start to 2024 displays. Our continued success with exceptional Q1 results in all key financial measures revenue growth, increasing profitability and healthy cash flow.
Generation.
Total revenue was a record $650 million up 15% year over year.
non-GAAP EPS of $2 58 exceeded the high end of our guidance range and we have generated more than $620 million in operating cash over the last 12 months cloud revenue, which now represents a record 71% of our total revenue compared to 64% last year increased.
27% year over year in line with expectations to a record $468 million.
The growth was driven by the ongoing strength of our organic cloud business as well as the inclusion of <unk> a leader in outbound engagement. This new edition to CX. One further enhances the breadth of our platform, which particularly attracts large enterprises and is consistent with the trends we are seeing where customers are moving tonight.
To eliminate siloed niche vendors and converge on CX, one for all of their complex CX specific names.
Our existing installed base continues to migrate to the cloud, which is one of the drivers of our cloud revenue growth as expected. This migration results in a shift from maintenance revenue, which is included in our services revenue to cloud revenue in this transition we generally see an uplift ranging from two to 10 times and our customers.
<unk>.
Accordingly services revenue was $149 million represented 23% of total revenue and decreased 7% year over year product revenue from on premise sales, which represented 6% of total revenue in the quarter compared to 8% of total revenue last year.
Was reduced however, it exceeded our expectations, resulting mostly from several customers electing to purchase some of our on premise offerings.
With the ongoing expansion of cloud business across both our segments. Our recurring revenue further increased to 88% of total revenue in the first quarter compared to 85% last year.
Recurring revenue is comprised primarily of a combination of cloud revenue and maintenance revenue, which is a component in our services revenue.
From a geographic breakdown, the Americas region, which represented 85% of total revenue in Q1 grew 18% year over year. The Americas region has continued to excel primarily from the success of <unk> sales in the region.
Outside of the Americas, we continue to see an accelerating shift from selling on premise solutions to our cloud platforms. This transition to the cloud mask the underlying strength of the cloud growth we are experiencing in our international regions.
The EMEA region, which represented 10% of our total revenue increased 7% year over year, the APAC region, which represented 5% of total revenue decreased slightly year over year.
The year over year changes for both our international regions resulted from healthy growth in cloud revenue, which offset a decline in on premise related revenue.
The foreign exchange headwinds in APAC in <unk>, and EMEA offset each other such that the net currency exchange impact on total revenue was negligible.
Both of our business segment started the year on a high note customer engagement revenues, which represented 84% of our total revenue in Q1 were a record $551 million, a 17% increase CX one the most comprehensive enterprise grade CX cloud platform is the growth.
Driver and customer engagement increasingly led by the growing contribution from our digital and AI offerings.
Revenues from financial crime, and compliance, which represented 16% of our total revenue in Q1 and totaled a record $108 million increased 8% year over year, driven by the increase in cloud revenue and strong on premise product contribution.
From the close of the Lifelock acquisition in late December last year. Our teams have been laser focused on our planned integration activities. This purposeful attention resulted in an immediate positive healthy contribution to our profitability from the start of 2024.
Our cloud gross margin totaled 69, 8% in Q1, a slight decrease compared to last year as we continue to invest in global expansion of our cloud platforms. Thanks to our scalable cloud architecture, we continue to expect to reach our target of 75% cloud gross margin in the next three to five years.
As a result of the increasing enterprise cloud adoption, which is correlated with an increase in the attach rates of our digital and AI solutions.
In Q1 operating income increased 22% year over year to an all time high of $200 million and our healthy operating margin increased 170 basis points to 33% compared to 28, 6% last year.
The strong profitability was driven by our continued best in class growth of cloud revenue, coupled with cost synergies from our recent acquisitions and a strong muscle and driving operating leverage.
Earnings per share for the first quarter far exceeded our expectations totaling $2 and 58, 827% increase compared to Q1 last year.
Cash flow from operations in Q1 was a record $254 million, an increase of 30% compared to last year. Our last 12 months operating cash flow totaled $621 million, yielding an exceptional 25.2% cash flow margin.
The strength of our cash flow generation and outstanding balance sheet enables us to capitalize on M&A opportunities like our recent acquisition of live ops and to execute on our 300 million share buyback program to return capital to our shareholders.
In Q1, we repurchased shares totaling $42 million, we plan to complete our 300 million share buyback program by the end of this year.
In Q1, we also used $87 million to pay the last portion of our 2017 convertible notes in the last two quarters alone. We completed the acquisition of live box repaid the remaining principal on our 2017 convertible notes and repurchased a healthy number of shares we made all of these significant cash.
Interactions, while simultaneously generating our best ever infusion of cash from operations and ultimately increasing our cash balance from last quarter.
With total cash and investments at the end of March totaling $1 billion and $503 million, our net cash and investments exceeded $1.045 billion.
In conclusion, our first quarter performance exhibited continuous strong financial health of our business driven by the growing demand for our CX AI offerings successful integration of live ops and strategic execution of delivering consistent profitable growth along with outstanding cash generation.
We are pleased with our strong first quarter opening for the year and looking forward. We expect to continue delivering on an industry best financial performance throughout 2024.
Now I'll close with our total revenue and non-GAAP EPS guidance for the second quarter and full year 2024.
For the second quarter of 2024, we expect total revenue to be in the range of $657 million to $667 million, representing 14% year over year growth at the midpoint.
We expect the second quarter 2024 fully diluted earnings per share to be in a range of $2 and 53.
To $2 63, representing 21% year over year growth at the midpoint for.
For the full year 2024, we are maintaining our previous revenue guidance and raising our EPS guidance, we reiterate our full year 2024, total revenue, which is expected to be in a range of $2 billion and $715 million to $2 billion and $735 million an increase.
<unk>, a 15% at the midpoint we.
We now expect full year 2024 fully diluted earnings per share to increase to a range of $10 53.
To $10 73, which represents an increase of 21% at the midpoint I will now turn the call over to the operator for questions operator.
Thank you.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd 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.
Our first question comes from the line of some odd Simona with Jefferies. Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
Rock sad to hear that you will be leaving us in a little bit less than a year, but maybe let's start there I know the press release gave some details that has a planned transition, but can you give us any sense of how long that you've been considering this.
And maybe why now.
And then it kind of in conjunction with that what characteristics are you looking for in the next CEO is somebody who has scaled a cloud software business is in a different type of skill set and what would the ideal.
Future CEO look like.
Operator can you hear the management team.
Not hearing anything right now one moment, while we check for technical difficulties.
Yeah.
I'm, sorry, ladies and gentlemen.
We're now back.
And Matt I apologize the in the Middle of your question. The line drop on our end can you. Please repeat the last the last part of your question.
Yeah no problems.
I was basically asking how long you'd been contemplating.
The transition and then just asking the question about.
Looking forward are you looking for in the next year somebody who has scaled a software business to certain levels are you looking for somebody with a.
Different type of skill set just as you envision what the next CEO of nice should look like what are the characteristics of the company is looking for.
Thanks, So much I appreciate the question again I apologize everyone. The line on our end the drop so is there as you read in the in the press release, we always believe in full transparency and this is exactly what you sold today.
We're very transparent about how we are conducting this transition in a very organized way with no rush and I believe that you know after 10 years of the C. O in 25 years of the company.
The right way for me to two transition is doing it in such a way from a very strong position of the company nicely and outstanding Foundation, both operationally and financially.
Leadership position in the markets business momentum.
And my plan is to stay as is.
So until the end of the year and used this time together with the board to conduct a poll for search for my successor.
Both internally and externally and two and then by the way to to stay engaged.
Engage with the company for at least a part or all of them.
Part of 2025 and consult on anything that is needed on the strategic aspect in the support of the company I Love knife. This.
Is my home and I'll continue to support the company.
And I'm not rushing to any other place at the moment in terms of four and we're looking forward looking further the right sales person to take the company to the next level someone that has experience in the scale of nice in enterprise software.
Software, we believe that we can have a very good list of candidates, both internally and externally and eventually the board.
And our support them well.
We will make the decision to make sure that there is the right speed both in terms of the ability to execute moving forward.
But not less important we will continue the great culture, and we have with nice in supporting and working together with the 8500, the nicer as around the globe.
I appreciate that and then back maybe just a follow up for you Jim.
If I think about the first quarter. The cloud revenue was a little bit better than expected can you just remind us are we still tracking to that 18% organic cloud revenue growth for the year.
And any update on maybe whether that's tracking ahead of plan and how we should think about organic cloud revenue for the rest of 2024.
Yeah. Thanks for the questions demand. So yeah. We are highly pleased with the start of the year end to the cloud growth that we're seeing and as we look forward throughout the course of this year, our cloud revenue expectations that havent changed.
Understood. Thank you guys.
Thank you so much.
Thank you. Our next question comes from the line of meta Marshall with Morgan Stanley. Please proceed with your question.
Great. Thanks, maybe first question for me just.
Any commentary on live box integration and just you know how that is proceeding both from how you guys are.
Same kind of revenue opportunities as well as opportunities to kind of optimize.
Costs and then just as a second question.
Just in terms of any commentary around kind of macro understanding that hasnt had much impact to the portfolio, but just with smaller customers I think we've seen a pick up and headwinds this quarter, if you've seen anything.
Thanks.
Thanks for the question me that I think I'll start I think first of all lets say you know we're extremely proud that we have started off really on a great note. This year with the integration of live ox, it's going seamlessly right. According to our plans and you can see that in our financial results and I think the <unk>.
Overall, our financial results are very consistent with our expectations and you can see that we talked about the of the synergy opportunity last year in advance of the close of the deal and we've delivered on that right out of the gate this year.
So that's already.
No.
Reaping the benefits from the synergies, we've been able to to realize and on the revenue side, we knew that coming into this year there would be some.
Initial overlap of some of the customers and that really the revenue opportunity is really looking forward. We are integrating the sales organization and looking ahead to 2025 and beyond.
That's the point when we really expect to kind of put more gas on the pedals and with respect to driving the top line, but as I said, we're really pleased the execution is going it is exactly as we planned and we are really happy to see the results of that in our first quarter results.
And I'll take the second question just to follow up just to its first dive Wilkes.
Beside the financials, obviously on the product side, we see great excitement from customers. Both 19 customers very happy with the opportunity to adopt <unk> solutions and vice versa and the pipeline to join pipeline is is looking extremely promising.
Although the second question about macro.
I don't have any kind of breaking news here to share I think we see the exact same trends that we've seen before in all segments of the market.
We believe as I said in my earlier remarks that on all of those.
Expect winning to the cloud.
Spending into digital and of course, the big opportunity in AI.
Is the core of investment of center of investment today of large enterprises and our prime focus obviously the big win is all of those very large enterprises that are expanding and standardizing on us.
Speaker Change: Great. Thanks.
Thank you. Our next question comes from the line of tolerance Tyler Radke with Citi. Please proceed with your question.
Yes, thanks for taking the question and Brian Congratulations on 25 years.
I guess I wanted to follow up on <unk> question. I mean, obviously 25 years is an incredible run but arguably the companies that you know one of the more interesting times in the market here with generative AI, taking off so I guess I'm curious personally like what what are you hoping to get out of the next.
Three years three to five years.
What are you going to do next.
Probably what was a difficult decision but.
Clearly, there's a lot of opportunity ahead of the company. So I'm just curious personally.
You're looking to do next.
Okay, Great question and Needless to say you described it correctly. So there's not an easy decision is I'm still in a very mixed emotion because I do believe the opportunity for nice is tremendous there arent too many company in such a great position and exciting market amazing.
Team leadership position it doesn't get much better than that having said that you know being 10 years as a CEO I personally believe that the.
At some point the leader after 10 years needs too.
Transition and hand, the handoff, the torch to to someone else.
And you do.
Do it in a way.
That is not a sudden and not in five minutes, but are there in a very organized.
Transition and make sure that there is a strong continuity. So there is never a good time for it.
But I've decided to do it now and this acquisition what exactly I'm going to do next does not my Prime focus right now I'm.
100% focused on executing our 2024 plan finder.
Finding the successor, and then continue supporting the transition.
And what I'm going to do next is downstream that I'll have to think about it.
I'm 49, I'm very bad at Gulf So probably.
Have to find something else to do.
Okay.
Alright, well hope opening at Euro golf score that but.
A follow up for Beth so on the cloud guide appreciate the reiteration of that for the for the full year, but I.
I guess in the quarter, you talked about on Prem strength surprising you to the upside.
In the full year revenue target wasn't.
Right so.
I guess, how should we square the lack of a raise on the full year revenue target with stronger on Prem.
Mix in the quarter and if I look at the.
Calculated organic growth in cloud this quarter I think it was around 18, 5% depending on the assumptions so that doesn't leave a whole lot of room for slowing organic growth throughout the full year. So just help us understand your confidence in that 18% organic growth for the rest of the year. Thank you.
Yeah. Thank you. So I think you asked a few different questions. So I'll try to make sure I have addressed let's start with the full year I think as we look at the full year revenue guidance. We're at we're stepping out of the first quarter and you know we have an expectation of $2 7 billion and total revenue.
This year. So it's a substantial amount of revenue we continue to grow and I think as we looked at the first quarter results we.
We had a $4 million be coming in near the high end of our guidance, we said listen 4 million on on such a large number of $2 7 billion really don't feel the need in the Grand scheme of things that it's you know consequential to the overall number.
And so that was kind of the decision we made let's let's hold still early in the year. As you said I think we're really pleased that we've stepped into the year with a strong performance and of course, that's our expectation as we look forward as well.
All aspects of our business and you know you can see in the cloud growth that we continue to really excel in and really are a leader in our market.
Thank you.
Thank you. Our next question comes from the line of CD <unk> with Mizuho Securities. Please proceed with your question.
Thank you. Thanks for taking my question and congratulation for a remarkable.
Carriers are nice so my question on the AI monetize and you guys talked about one example, how customer out of pool went up by 40% and monetization. So I'm wondering what what kind of pricing.
Pricing model, if all being I know you guys started with isn't an idea and you were talking about you says best so what kind of pricing model Youre seeing and do you think that will become most prevalent with this AI powered contact center and also if you could talk about remind us how quickly this AI bookings translate into revenue.
Yeah. Thanks I appreciate the question I think you characterized it correctly.
I was trying to give not just in this quarter also in past quarters.
Indications and examples and anecdotes on how this thing is evolving first I'll say the speed of innovation as I've mentioned, there's just tremendous I've never seen anything like that how fast.
The six one classroom because it has all data and knowledge, it's kind of the natural habitat for for AI, how fast we can release capabilities and then how fast customers are adopting at both existing and new in terms of the monetization.
Most of the contact center industry historically.
Because it was very much agent base most of the pricing is per user.
You said that correctly and today, we are monetizing on AI predominantly based on the volumes or interactions and less about users. So the right way to think about it is that if you have an organization that is adopting six one on digit with digital channels and with AI. There is a certain user base price for the agent spending on which.
Bundle or package that they buy an R is complete with a lot of capabilities and we don't have cost of Pinot integrated.
Solutions, it's all natively there and then.
The AI as they start either to augment agents with AI capabilities or any other elements of free I, usually the monetization is per day number of interaction, which is which are expected and we're seeing it to grow continue to grow exponentially. So that's our that's how we envision it moving forward thus.
How it looks a sofa it opens up a tremendous opportunity.
Because we're not talking just about converting.
Agent capacity to AI, we're talking about and we're seeing the expansion of our business to channel and touch points that we never played in so think about all the variety of touch points and organization have with the eye. We are now taking over.
These areas that's before that were not part of our business.
Now how fast it will impact in revenue.
It will grow and we will start at some point maybe to provide more information about it but it's becoming a more significant part of our bookings at the moment.
That's great color and that are very impressive profitability and cash flow, but my question is on the SMB segment. You you cited about some weakness in.
The SMB segment last year. So has it driven fairly stable in Q1 or are you seeing any kind of incremental pressure in the small business side.
And remind us what percentage is SMB for us.
Yes, Eddie Thank you first of all we don't actually segment the customer base, we've never broken down the segmentation of our revenue between the customer size. We can say that of course enterprise customers are are driving more and more of our revenue growth as we move up market and take additional market share.
And with the with the with respect to the SMB customer base and in some of the compression that we were seeing last year I really mentioned last quarter that we had seen a kind of a stabilization around that compression you know we had seen it heavier throughout the course of 2023, and then of course towards the end.
Of ear and coming into this year, we've seen that that compression really kind of stabilized. So now we see that we are at a kind of a business as usual stabilization on the SMB side and so as we've always had we continue to add.
New business, both and that that installed base of large enterprise, adding new logos and selling marcela to existing customers as well.
Great. Thank you.
Thank you. Our next question comes from the line of Pat Walraven with citizens JMP. Please proceed with your question.
Oh, great. Thanks, very much and congratulations on the quarter and Brock Congratulations John on your 25 years I.
Speaker Change: I hope that.
David and the board are able to find a successor, who is as good as fit for nice today as you were over the last 10 years.
So Beth my question is for you.
Are you, having any thoughts about retiring because with the CEO transition coming I'm pretty sure. All your investors would agree with me that would be it would be great to have continuity in the CFO role.
Pat Youre trying to age May ear, I don't I'm not trying to Asia. We just wanted to ask you.
Yes.
No no of course.
All I'm Gonna horribly Miss that Barack and now you know we're a great team that works together, but no I don't have any plans of any upcoming retirement I enjoy working with barack but I enjoy working really with all the team here at nice and and left nice it the same way that we all do that.
No change in plans for me.
Okay, great. Thank you.
Thank you our next question.
Comes from the line of Arun <unk> with William Blair. Please proceed with your question.
Yes.
Thank you.
Brian maybe one for you to start off with when you. When you think about where you are seeing.
Bookings growth for them in line and on the AI side.
How much of that is going to be focused more on existing customers that want to add on AI capabilities versus.
Perhaps new customers that are making a re platforming decision are saying okay.
This was the right time to really switch our capex into surgery.
Go deeper into it.
Enter into AI and now that we are going through this pretty significant re architect.
It's a great question. Thank you. So I would say first of all every conversation today, either because the customer.
Asked who started this way or we initiated it start with PDI there.
The reason for that is that you know.
Automation and the desire to have automation in the contact center is not new.
As I said before 25 years and from day, one it was all about automation.
But all the things that we're simple in the contact center I believe already fully automated I gave you example on my earlier remarks.
And automation up until a I kind of forgot stock and now there is an opportunity with AI, but at the same time, our customer a very savvy and anyone to transit allows customer service organization understand the complexity of the of that business and it's not easy to automate and it's not just drawing.
Some L. L M Woo Jin AI into the mix and hoping for the best.
They understand variety of things like the issues of privacy security, having the right data.
Well integrated and generally they understand the notion that.
You know you need to have a certain to highly specialized AI to do work in this in this environment. So what we see these days a lot of customers that at the beginning you know the hype of the past year try to put something into the environment.
Very low return or got into kind of hit the wall and there they are coming to us because understand that the power of the platform and.
And the power of the platform goes to the fact that an employee.
An employee can can find themselves in organized themselves even in somewhat of a messy environment.
Domestic environment is toxic for AI and you have to have all the knowledge the data interactions in a single place in six one is a perfect environment for that.
That's what that's what we see and this is the reason for the I believe for the fast adoption, having said that there is also our understanding that it's not an overnight there are different flavors in the journey of AI.
Phase of augmenting the agents, making the mechanics bidder and then there is the concept of who's the copilot, whether it's the agent or D. I become the copilot and exchange of knowledge between between them and then they are fully.
Automation opportunities.
And to manage that you need a good partner and ice has always been that volatile and thats, what we see both with existing customers and new customers.
Rick.
Helpful. Thank you and then.
Last one for you just when we're thinking of cloud growth.
You're reiterating the 18% organic target.
How should we think about how much your own on Prem to cloud migrations are driving core revenue growth for you and when you look out throughout 'twenty four.
Is that should we expect that to increase given some of the dynamics that we've talked about working our customers wanted to invest more in cloud in NII and you can just give us a sense for how we should think about the shape of the contribution from your own migrations.
Yeah, sure and in terms of our existing install base I would say, we see a relatively steady state there that data each and every quarter. We have a certain number of our customers legacy customers that are continuing to move onto our cloud platforms and particularly of course the next one.
It is something that we continue to expect to see and as I said you know the indications effort for this year. It looked like it's generally a business as usual and but I think with the introduction of a I N and our digital offerings. We're seeing a pipeline that is you know adding incremental deal value.
And that will also be a reason for customers to actually probably look to migrate sooner than later so as we look into the following quarter is an end year I do think there will come a time that will start to see some additional acceleration of the existing install base as those very large enterprise customers start to.
To plan their moves.
And just a reminder that when.
When we do see those those customers migrate.
Mentioned that in my remarks earlier today, we generally see a very nice and steady a significant uplift in there or are you now it can be anywhere from two to three times and we have customers that are 10 times or higher in terms of uplift to that so it certainly will continue to be a growth driver for us.
Perfect very helpful. Thank you.
Yeah.
Thank you. Thank you.
Our next question comes from the line of Jim Fish with Piper Sandler. Please proceed with your question.
Hey, guys. This is quentin on for Jim Thanks for taking my question.
Barack maybe first for you underneath the cloud business can you talk about the drivers of growth here between how much is coming from expansion of your existing base versus you know that conversion of the large enterprise pipeline that you guys have driving net new dollars.
Color you can provide on the net retention rates you saw this quarter relative to prior quarters.
Okay. Thanks for the thanks for the question, Jim It's always for US the combination of the two between expansion and the new.
The beauty of the markets we operate in that it's still only I would say 20 some percent in the clouds or there is a very a healthy runway and predominantly at the enterprise market. So our focus is of course, a lot on an existing cloud customer that many thousand that we have but also.
'bout land grab of new customer and debuted at the two constant Pcs that customer.
Our new customers adopt us in different ways. Some go all in day, one by everything deploy everything and some department by Department and we continue to see the <unk> of these customers growing. So there is no change that we've seen in <unk> and <unk>.
The.
Mix between new and existing customers.
Okay.
Understood. That's helpful and then Beth maybe for you.
To ask it more directly how much revenue did my box actually contribute here in Q1, and then with a full quarter of wrapping our hands around the business are you still expecting that $142 million of contribution for the full year or any change to that thank you.
So thanks for the question, Jim and to be clear our.
Last year, we provided direction of of the cloud revenue split expectation between lie Vox and cloud revenue that was not coming from live box just to provide real clarity to the stakeholders in order to understand the expectations of our cloud revenue this year, but consistent with every acquisition we have always done at nice.
Once we close the deal we don't actually separately disclose the financial results of the.
Beyond that the business segments, which is how we've always conducted our business. So we won't be providing a specific breakdown as I commented earlier just in terms of giving color I think as I said, where we're quite pleased with our revenue and cloud this quarter.
And feels that the stepping into the air live ox is very much aligned with what we were looking to achieve with that acquisition. So I think we're very pleased and beyond that again, we won't be providing any further segmentation as I've said, we've reiterated that the cloud revenue for the year expectation is unchanged.
<unk>.
Understood. Thank you.
Thank you. Our next question comes from the line of Mike Latimore with Northland Capital markets. Please proceed with your question.
Yeah, great. Thanks, Thanks very much.
Speaker Change: Yes Barack he mentioned that AI gets you into some.
Touch points that nice is not addressed in the past can you just elaborate a little bit on what the.
Speaker Change: These touch points are and also I guess separately is there any quantification of cloud bookings growth in the quarter.
Sure. Thanks, Mike So.
You know I described in my I always describe it as the different drivers of our business the shift to the cloud of of CX environments, and then the convergence and the expansion into digital and AI. There are separate but obviously they also work together and the impact each other so one of the thing with our AI capabilities.
Customers understand that in order to really have.
What is the ultimate goal of the Holy Grail of CX two to have a seamless journey for customers one should not look at the different touch points of interaction separately.
And as Brexit silos between what was in the market for years.
Different subcategories of someone provide the voice channel some avoided shared some of the e-mails daman provide reflect knowledge into into search or social engagement and there is understanding the core of the interaction is what you need to consolidate on and we are the core of that interaction.
Managing voice historically is the most complicated children. If you sold V. I forgot you can solve AI and automation for all the other things. So what we see more through the knot is that customers consolidate into six one they bring knowledge into six one day bring data into knowledge to six one and obviously our interactions and then you have an old.
<unk> view of the customer and then in this environment.
Flores.
So that's that's the reason that this trend that we see.
Speaker Change: With respect to two booking we don't provide comments.
Comments on looking we provide.
Certain different anecdotes about deals and as you can see like in any other quarter. We had many many deals we highlight the very large one many seven figure deals.
Speaker Change: Of which many of them are brand new customers.
Alright, very good thank you.
Thanks.
Thank you. Our next question comes from the line of Catharine <unk> with Rosenblatt Securities. Please proceed with your question.
Alright. Thank you for taking my question something less sexy you introduced a ucas solution recently can you pretty much give us some puts and thoughts on what the decision was to do that does that impact or not impact your relationship with ring central Thank you.
Okay.
Yes. Thanks for the question I don't think I'm going to surprise, you by saying that the Yukos Margaret.
Theres been commoditized.
And it's no longer a premium capability. It's also easy to deliver and so you know we have a capability. We always have and we had some requests from customer a relationship referring grow strong and we operate in certain segments of the market together and some other segments of the market.
We operate in a in a different way so no change on that.
Alright, Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Richie Deloria with RBC capital markets. Please proceed with your question.
Hi, This is Richard polling on for Richie Deloria today, Thanks for taking my question.
So obviously AIG can play a role across the kind of entire call center lifecycle cell I guess early days are you seeing any particular use cases that are standing out.
Yeah.
It's a great question.
We see a lot of different use cases and.
I'm very.
I'm very encouraged by the pace of adoption of those use cases.
Because as I mentioned before when we think of the I would think about it in two different way, we translated to augmented intelligence and artificial intelligence. So there is about when it can work side by side.
Speaker Change: With the.
The CX professionals that is a is a is a human and there isn't automation.
A full automation of certain tasks or certain journeys. So I mentioned on the call several of our solutions.
Solutions was relate to a value whether it's a co pilot for agents and supervisors all the summary, XO for a variety of sister capabilities and the list goes on and on I didn't want to list everything. So the list with I believe we will continue to grow and the minute you have a platform that have again all of those assets together.
It's really easy to start using more and more.
Use cases.
Got it thank you.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. <unk> for any final comments.
Thank you everyone for joining us best Marty AI I and the rest of the management team are looking forward to see you at our Investor Day in Vegas in the June 11th have a great day. Thank you so much.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.