Q3 2024 NICE Ltd Earnings Call
[music].
Welcome to the Nice conference call discussing third quarter 2024 results 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 14th.
2024, I would now like to turn this call over to Mr. Marty Cohen VP Investor Relations at Nice. Please go ahead.
Marty Cohen: Thank you operator with me on the call today are Barak, <unk>, Chief Executive Officer, and best gas switch Chief Financial Officer.
Marty Cohen: Before we start I'd like to point out that some of the statements made on this call will constitute forward looking statements.
Marty Cohen: Accordance with the Safe Harbor provisions of the private Securities Litigations Reform Act of 1995.
Marty Cohen: Please be advised that the company's actual results could differ materially from these forward looking statements.
Marty Cohen: Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled.
Marty Cohen: Entitled Risk factors in item three.
Marty Cohen: The company's 2023 annual report on form 20-F as filed with the Securities and Exchange Commission on March 27 2024.
Marty Cohen: During today's call will present, a more detailed discussion of third quarter 2024 results and the company's guidance for the full year of 2024.
Marty Cohen: You'll find our press release as well as P. D S. As our financial results on <unk> Investor Relations website.
Marty Cohen: Following our comments there will be an opportunity for questions.
Marty Cohen: 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 Jeremy generally accepted accounting principles.
Marty Cohen: As reflected mainly in accounting for share based compensation.
Marty Cohen: Amortization of acquired intangible assets acquisition related and other expenses amortization of discount on debt and loss on extinguishment extinguishment of debt and tax effect of the non-GAAP adjustments.
Marty Cohen: The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.
Speaker Change: Information on some of our comments discussed on this call may contain forward looking statements that are subject to risks uncertainties and assumptions and I'll now turn the call over to Barak.
Thank you Marty and welcome everyone.
Barak: We're thrilled to announce yet another excellent quarter, where we exceeded the high end of our expectations, beating the upper limit of our guidance on total revenue and earnings per share.
Barak: This remarkable performance doesn't just highlight our competitive edge and to redefine the propelling us leg.
Barak: Ahead of the industry and fortifying Knight as the go to partner for enterprises across the globe.
Barak: Our success speak loud and clear when businesses want excellence they turned to <unk>.
Barak: We reported total revenue of $690 million in Q3, representing an increase of 15% compared to the same quarter last year.
Barak: With cloud revenue growing 24% to $500 million exceeding.
Barak: Exceeding the 2 billion Mark.
Highest cloud growth on the largest cloud revenue base in our industry.
Barak: Our scale and superior platform architecture continues to drive outstanding profitability.
The numbers speaks volume operating income surged, 20% to reach $221 million and operating margin climbed by 140 basis points to a record 32%.
Barak: This resulted in an impressive 27% leap in EPS, although last year's same quarter.
Barak: Keeping $2.88 for Q3.
Barak: To top it off we delivered exceptional cash flow generating $159 million in operating cash and 32% increase compared to Q3 last year and continuing the year over year trend of accelerating cash flow.
Barak: This strong financial performance is a result of our continued excellent execution showcasing just horsepower, we're pulling ahead and reshaping the industry landscape.
Barak: Year to date, we have displaced legacy on Prem competitors.
Barak: Over 100 large enterprises.
Barak: Additionally, while the 45, leading Brian turning to nice this year following fails because deployment by other cloud vendors.
Barak: Our partner ecosystem is flourishing with over 40, new partners joining ranks from the beginning of the year <unk>.
Barak: Including over 20 International partners, all of which chose to join the success of <unk> and our powerhouse Dx one platform.
Barak: These results are more than numbers.
They are a resounding testament to our industry defining leadership.
Barak: We are on the precipice of the era of exponential impact fundamentally reshaping the landscape of enterprise software.
Barak: Artificial intelligence is cutting through the traditional distinction between systems of record workflow and intelligent.
Barak: This paves the way for the creation of hydro platform with each with each market domain, serving as the comprehensive system of everything for the first time.
Barak: Concurrently we found ourselves in an airport where enterprise users on the desktop are rapidly being the phone on their central position in organizational workflow replaced by an alternative control points that are essential for delivery AI driven automation.
Barak: To navigate this tectonic shift softer leaders must swiftly master new capabilities.
Barak: Just as the transition to the cloud and decade ago necessitated telco providers evolve from core to builders to SaaS operator.
Barak: New era will demand that they also excel as data Q right.
Barak: These transformative model will not only reshape monetization strategies, but also unlock unprecedented avenues for value creation.
In the realm of customer service. This era of exponential impact is poised to be pivotal propelling technology to assume a central role in service delivery.
Barak: Historically, the customer service equation has been heavily skewed with 90% reliance on human resources and nearly 10% on technological solutions.
Barak: Today, we possess the tools to invert this equation, bringing us closer than ever to fully automated customer service.
Barak: Both precision and scale.
Barak: Nevertheless, the journey towards a turnkey automation and customer service is fraught with challenges with.
Barak: With significant barriers to domain expertise only those vendor fortified deep resources and robust foundation in customer service, including agent workflow and knowledge will successfully make this leap.
Speaker Change: It's nice we possess all of that and then I'm Revel unrivaled advantage.
Speaker Change: IMAX CRM and generic Big Tech, we manage billions of customer service interactions every year, providing exclusive unfettered access to customer intent at any given time.
Speaker Change: The most important ingredient for customer service automation.
Speaker Change: These together with our vision resources and technological prowess and put us in a unique position to lead this transformation.
Speaker Change: A few weeks ago, we unveiled our new mission for nine two.
Speaker Change: To spearhead the wave of customer service automation and scale and without most precision.
Speaker Change: We're achieving this with the introduction of six one empower our market leading hyper platform meticulously designed to facilitate end to end automation and customer service.
Speaker Change: Six one empower enables enterprises to design build and operate the customer service framework from agents to workflows to knowledge management within a single integrated platform.
Speaker Change: With customer set with customer service specific functional AI.
Speaker Change: Next one empower equip themselves to.
Speaker Change: To deliver orchestrated intelligent customer service that addresses the needs of every business the organization.
Speaker Change: Yes.
Speaker Change: Six one is the culmination of over a decade of relentless innovation combined with <unk> unique set of assets and substantial investment.
Speaker Change: Today, I would like to share insights from our Q3 results that showcase how we are advancing these transformative capabilities for customer service workflows agents and knowledge.
Speaker Change: In Q3, we continue to see an acceleration in our portfolio deals that demonstrate the desire of customers to master customer service workflows by consolidating multiple disjointed solution onto six one.
Speaker Change: This included an impressive number of Ace <unk> three.
Speaker Change: 25% growth in the ACB of workflow driven portfolio deals and 32% growth in the number of seven figure <unk>.
Speaker Change: Customers.
Speaker Change: A large healthcare company embarked on a sweeping business transformation uniting 20 separate operations under one roof, which resulted in a seven digit ACB deal that display three legacy ACB providers.
Speaker Change: They chose <unk> won not only for its complete portfolio flexible its ability to automate and streamline customer service workflows within unit and for the fossil group.
In yet another remarkable seven digit ACB win the power of six one is the customer service orchestration platform capture the trust of our major medical technology Giants.
Speaker Change: Frustrated by the cloud ACB provider, which had been in place for EMEA two years and failed to deliver a true customer service transformation. It turned to nine showing once again by six one in the clear choice for leading businesses.
Speaker Change: Agents, whether human or AI.
Speaker Change: The backbone of customer service work.
Speaker Change: An increasing number of leading enterprises are choosing life for agent augmentation and automation recognizing that success requires specialized domain expertise unique data enriched capabilities.
Speaker Change: Six one AI proficiency proficiency at an AA level goes well beyond slides and demos.
The results are real and tangible proof of our speedy progress in this fast growing area of customer service.
Speaker Change: In Q3, the ACB of six on copilot soared six fold compared to the same period last year.
Speaker Change: Since launching we have welcomed 140 AI agent auto summary customers.
Speaker Change: Signing just this past quarter and a three fold increase in the ACB of all the summary in Q3 compared to the same period last year.
Speaker Change: All demonstrating rapidly increasing momentum.
Speaker Change: These numbers speak volumes about the explosive growth of our agent to CCI solution and the powerful energy behind our AI driven deals with large enterprises.
Speaker Change: In one such impressive seven digit ACB deal a major global payments technology company was looking to empower augment and automate the customer service agents.
Speaker Change: They selected <unk> with full AI capabilities to replace the formal cloud provider with solutions, including AI Auto summary, and six one agent co pilots.
Speaker Change: In another seven figure ACB deal a leading financial advisory giant is also pushing the AI to the forefront of their customer service strategy.
With a powerful dual copilot and autopilot on six one infusing their agents and operations with the advanced intelligence. These.
<unk> utilization is set to provide dramatic ROI, while enriching the customer journey.
Speaker Change: Data is the new Oracle enterprise software.
Knowledge is we're truly powers AI like.
Speaker Change: Like high octane fuel.
Speaker Change: And customer service.
Speaker Change: Is the essential energy source that enables seamless workflow management empowers agents information.
Speaker Change: For over a decade, we have amassed an unparalleled mission critical amount of depth of data and knowledge positioning us to lead this wave of customer service automation.
Speaker Change: This foundation makes six one the only platform capable of managing and deploying knowledge at scale for AI powered customer service automation.
Speaker Change: It's also the first time that enterprises 10 centrally manage all the customer service area knowledge assets, while applying enterprise grade gathering.
Speaker Change: Thank you say along the ACB ROFO foundational knowledge technology powered by enlightened grew by an impressive 163% compared to the same period last year.
This wave of interest has also driven a remarkable more than twofold ACB increase year over year in excellent auto titles are fully automated AI agent seamlessly powered end to end workflows on six one leveraging knowledge.
Speaker Change: We signed a large seven figure ACB deal with one of the top names in cruise lines showcasing exactly how this organization is putting knowledge in the hearts of the six one strategy.
Already a valued customer.
Speaker Change: Now going all in with six one autopilot to deliver a full customer service automation, thanks to nicely unique knowledge assets.
Speaker Change: In yet another large seven digit ACB deal a major Midwest healthcare provider also selected six one for customer service automation leveraging license knowledge powered autopilot.
Speaker Change: This is one example out of many where customers select six one not only to replace legacy systems, but also is there AI automation partner instead of their CRM and other digital providers.
Speaker Change: It demonstrates the criticality of knowledge that uniquely exist in our leading interaction centric platform Dx one.
Speaker Change: These large enterprise deals represent just a glimpse into the deals we continue to sign quarter after quarter showing case show great showcase.
Speaker Change: Casing the transformative capabilities of six one is a platform that advances powerful foundational intelligence for customer service agents workflows and knowledge.
Speaker Change: Additionally, Q3 customer service automation and deal driven by AI included one of the largest financial institution in Canada, and very large regional healthcare company, a well known construction service company, a giant OLED marketplace, one of the largest global telecom companies and many others.
Speaker Change: Our success story continues to gain recognition across the industry with recent accolades from Gardner prestigious annual reports.
Speaker Change: Not only do we hold our strong leadership position in the magic quadrant, but we will also the only vendor in the leaders quadrant to advance while others move downwards.
Even more exciting <unk> highlighted our AI capabilities.
Speaker Change: It is a clear strength and acknowledgment of our leadership in shaping the future.
Speaker Change: Our impressive financial results this past quarter and loan type major deal signing especially at the high end of the market and our groundbreaking innovation like six one empower are just the tip of the iceberg.
Speaker Change: Beneath the surface, we're financially rock solid backed by strong balance sheet, the industry's largest and most elite go to market team and rapidly expanding partner network and the biggest R&D team in the business.
Speaker Change: With all this momentum and the expected accelerated cloud growth in Q4, we are poised to charge ahead on an exciting path forward.
Speaker Change: And finally.
Speaker Change: As this will be my last earnings call I want to express my gratitude to each of you for the trust and support you have shown me over the years.
Speaker Change: Leading this company has been one of the greatest honors of my life.
Speaker Change: Together with 9009 soon we have built <unk>.
Speaker Change: Into a multibillion dollar global category leader.
Speaker Change: I have full confidence in <unk> continued leadership due to the strength of our team.
Speaker Change: The resilience of our vision and the many opportunities ahead.
I will continue to drive the company through the end of the year and ensure a smooth transition to Scott Russell, who will assume the CEO position on January one.
Beth: I will now turn the call over to Beth.
Beth: Thank you Brock.
Beth: Proud to report another quarter of excellent financial performance with results in Q3 exceeding the high end of our guidance range for both total revenue and EPS.
Grew 15% year over year paired with impressive profitability as our operating margin reached an all time high of 32%.
Beth: We've continued to demonstrate our strong ability to unlock operating leverage while we scale, our business, which now exceeds $2 billion and cloud annual recurring revenue.
Speaker Change: Frank with also demonstrated once again by our robust last 12 months free cash flow margin, which exceeded 25% in the third quarter.
Speaker Change: Total revenue was a record $690 million with total revenue growth of 15% in the quarter comprised of healthy growth both in the cloud and in our product revenue recurring revenue increased to nearly 90% of total revenue compared to 87% last year.
Speaker Change: <unk>.
Speaker Change: Cloud revenue, which now represents 72% of our total revenue compared to 67% last year increased 24% year over year to a record $500 million.
Speaker Change: Our cloud growth rate continues to outpace our industry, even as we operate on a much larger revenue base and scale.
Speaker Change: Our third quarter cloud growth was driven predominantly by CX, one where we're displacing both on premise legacy vendors as well as other see cats vendors.
Speaker Change: TX <unk> complete suite and unique ability to consolidate all CX needs of enterprise customers and are one of a kind unified AI platform is driving our sales pipeline and superb win rates that.
That growth was evidenced in Q3 by the 33% year over year increase in the number of our greater than $1 million.
Speaker Change: See excellent customers further the attach rate for those customers with 100% in the quarter.
Speaker Change: Our CX one backlog from signed deals has greatly expanded over the prior year with two main changes in the mix first a much larger portion of it is coming from large enterprises and second a growing part of this backlog is attributed to our AI solutions.
Speaker Change: This provides great potential for future revenue, but it will take longer to deploy and recognize.
Speaker Change: As such we now expect year over year cloud growth or 2024, excluding live ops to be 16% to 17%.
Midpoint of this expectation implies an acceleration of growth in Q4, and we are already seeing positive seasonality momentum and healthy customer turn ups and the first month of the fourth quarter.
Speaker Change: Services revenue, which was $150 million represented 22% of total revenue and decreased 6% year over year as expected mainly due to our transition to the cloud where we are adding less new maintenance revenue associated with our premise based solutions.
Speaker Change: Product revenue, which represented 6% of total revenue in the quarter grew nicely year over year stemming from several large on premise enterprise deals and increased 6% year over year.
Speaker Change: From a geographic breakdown, the Americas region, which represented 85% of total revenue in Q3 grew 17% year over year. The Americas region has continued to excel as we are consistently replacing competitors on premise legacy solutions with CX. One in addition to <unk>.
Speaker Change: Another expansion of our existing <unk> customer base.
Speaker Change: The EMEA region, which represented 10% of our total revenue increased 14% year over year, driven by robust growth in cloud revenue.
Over 50% of our EMEA total revenue was generated from the cloud in Q3, and we expect our growth in this region to continue to further shift to increasing recurring revenue as a result of cloud wins this year already in our backlog.
Speaker Change: The APAC region, which represented 5% of total revenue decreased 12% due to a larger amount of on premise business with upfront recognition in the prior year versus strong cloud revenue growth this year, which is recognized over time.
Speaker Change: International Cloud revenue from the combined EMEA and APAC regions now represents 10% of our total cloud revenue and there remains enormous future growth potential and is highly underpinned underpenetrated customer experience market.
Speaker Change: We delivered strong results across both our business segments customer engagement revenues, which represented 84% of our total revenue in Q3 were a record $578 million, a 16% year over year increase.
Speaker Change: The growth in customer engagement with <unk> revenue predominantly by the growth in CX, one, particularly with our AI offerings.
Speaker Change: That are being adopted by customers across all verticals.
Speaker Change: Revenues from financial crime, and compliance, which represented 16% of our total revenue in Q3 and totaled a record $111 million increased 8% year over year, driven primarily by an increase in cloud revenue, where we are seeing continued positive traction selling our X sight and <unk>.
Speaker Change: In cloud platform across global financial institutions.
Moving to profitability, our cloud gross margins totaled 69, 7% in Q3, as we continue to scale and invest in international expansion in cloud that is already bearing fruit.
Additionally, unlike others in our industry, our CX one platform utilizes our proprietary AI solutions that don't rely on generic <unk> and therefore, our AI is more accretive to our gross margin.
We remain steadfast in our expectation to reach our 75% cloud gross margin target in the medium term.
Speaker Change: In Q3 operating income increased 20% year over year to $221 million and our healthy operating margin expanded 140 basis points trade tremendous record of 32% compared to 36% last year.
Speaker Change: Our strong operating leverage coupled with continued wins and higher margin large enterprise market positions us well and we are raising our expectation to finish the year at approximately $850 million of operating income and in excess of the 31% operating margin target.
Speaker Change: What we shared at our June Investor day, and to achieve our 35% operating margin target within the medium term.
Speaker Change: Earnings per share for the third quarter far exceeded our expectations coming in well above our guidance range at $2 and 88, 827% increase compared to Q3 last year.
Speaker Change: The ongoing confidence in our business combined with our commitment of returning value to our shareholders was evidenced in our high performing Etfs results this quarter, which benefited from our strong profitability combined with the accelerated buyback we have undertaken this year.
Speaker Change: Cash flow from operations in Q3 with $159 million, an increase of 32% year over year over the last 12 months, we have generated free cash flow of $668 million.
Speaker Change: Yielding a free cash flow margin of 25% a level unrivaled in our industry.
Speaker Change: This exceptional financial profile enables us to expand our market leadership by reinvesting and innovate innovative AI growth initiatives pursue strategic M&A opportunities and enhance shareholder returns through our share buyback program.
In Q3, we repurchased shares totaling $86 million, completing our $300 million share buyback program and started implementing our larger $500 million share repurchase program.
Speaker Change: Total cash and investments at the end of September totaled $1 billion and $527 million.
Speaker Change: Our debt stands at $458 million, resulting in net cash and investments exceeding $1 billion and $68 million.
Speaker Change: In conclusion, our third quarter results stand out in our industry, demonstrating our proven ability to simultaneously drive strong growth in both total revenue and profitability. Our strong execution has resulted in excellent financial results across the board this quarter and with great.
Speaker Change: AI momentum, it's clear that we are poised for ongoing success.
Speaker Change: Before I turn to guidance I'd like to take a moment to express on behalf of the entire nice team our deepest gratitude to barack.
Speaker Change: His leadership has been nothing short of extraordinary and east Foster to workplace culture that inspires all of us.
Speaker Change: Thanks to his vision and direction, we're primed and ready to seize the many exciting opportunities that lie ahead.
Speaker Change: We're equally excited to start our next chapter with Scott Russell, joining us as our new CEO in January and we look forward to deliver ongoing success for years to come.
Speaker Change: Now I'll close with our total revenue and non-GAAP EPS guidance for the full year 2024.
Speaker Change: For the full year 2024, we are maintaining our previous total revenue guidance and raising our EPS guidance, we reiterate our full year 2024 total revenue guidance, which is expected to be in the range of $2 billion and $715 million to $2 billion and 735.
Speaker Change: An increase of 15% at the midpoint.
Speaker Change: We now expect full year 2024 fully diluted earnings per share to increase to a range of $10 and 95 to $11 and 15.
Speaker Change: Which represents an increase of 26% at the midpoint I will now turn the call over to the operator for questions operator.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from the line of Tyler Radke from Citi. Your line is open.
Tyler Radke: Tyler Hi, good morning.
Tyler Radke: Sorry, I was on mute good morning, everyone. Thanks for taking the question.
Speaker Change: Could we just go back to the commentary around.
Speaker Change: Revenue mechanics that Youre seeing on cloud you talked about.
Speaker Change: Some slower ramp ups.
Speaker Change: More customer driven or is it that.
Speaker Change: Revenue recognition dynamics are different in cloud and then as a follow up could you just talk about how that.
Speaker Change: Growth should trend in cloud heading into next year. Thank you very much.
Sarah and good morning, so with respect to the commentary around cloud I'll give you a little more color, which is first as you know we delivered our best ever CX, one bookings quarter.
Speaker Change: Last quarter and we now have the greatest backlog that we've had at record highs of CX one signed deals.
Speaker Change: As we look in terms of the timeline for the record revenue recognition. There is no change in any accounting AI does not change that however, we are signing more and more seven digit and eight digit ACB deals with large enterprise customers that combined with the success, we're having of.
Speaker Change: Our AI solutions co pilots auto pilot auto summary, bringing more complexity into those deployments and that is what were seeing take hold and in some of our revenue and changes in our estimates. So what we do know is that those deployments are ultimately results in various.
Speaker Change: Sticky customers that continue to increase their customer lifetime value with us, but again it is not any kind of change in the accounting, it's really coming from the strength of the backlog, we have but more and more large enterprise customers.
Speaker Change: Okay.
Speaker Change: To add to that about your second question as we mentioned on the remarks, we are seeing acceleration in the cloud growth rates in the fourth quarter, where you have given guidance for next year, you mentioned that but we.
We see from October buildings in activity, both deter announcement mentioned as well as.
Speaker Change: The billings overall.
Speaker Change: Very good signs for the fourth quarter.
Speaker Change: Okay.
Speaker Change: Yes. Your next question comes from the line of Citi Panic right from Mizuho. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thanks for taking my question just a follow up to the earlier question.
Speaker Change: So one of the key driver for.
Speaker Change: <unk> is that 70% still on Prem and almost a cloud, but when you look at your growth and your comprehensive as well compared to last year, what sort of change that you're seeing from customer moving to cloud on Prem to cloud you see some kind of delay from their side in terms of evaluating.
Speaker Change: AI or anything macro are you seeing anything anything.
Speaker Change: Of that nature of any <unk>.
Speaker Change: Great.
Speaker Change: I wouldn't say there is a change.
Speaker Change: Changing all of that but I'll go back to what we said already.
Speaker Change: Our winning the higher end of the.
Speaker Change: Markets.
Speaker Change: As we mentioned earlier year to date.
Speaker Change: One and displays more than one hundreds.
Speaker Change: Accounts, where the legacy.
Speaker Change: On premise provider.
Speaker Change: Was the incumbents and we are also starting to see a nice trend of displacing.
Speaker Change: Places, where the customer already selected the cloud provider, but failed to deliver we signed more than 45 of those from the beginning of the year. So that's the that's the positive momentum yes. It is about moving from legacy to the cloud, but this is more so than it is about the notion of automating customer.
Speaker Change: So listen we're very happy to see that in almost 100% of those deals are not just.
Speaker Change: Selling like for like if you would like just from on Prem to cloud, but other than many of our AI solutions.
Speaker Change: The significant acceleration in the footprint and the usage of solutions vitals customers in the future.
Speaker Change: Your next question comes from the line of meta Marshall from Morgan Stanley. Your line is open.
Speaker Change: Okay, great. Thanks I.
Speaker Change: I appreciate the commentary about some of these deals taking longer to get ramp I guess.
Speaker Change: I would think some of these large deals that would be coming revenue in the second half would have been kind of signed.
Speaker Change: A year ago, or so and so is it.
You know that there are kind of going back and making sure that they have all of the AI tool kits.
Speaker Change: And kind of revisit Ana and adding to.
Speaker Change: What those implementations are going to be and that some of the elongation I guess I just wanted to get a sense of.
Speaker Change: Are these older deals that are kind of impacting the second half of this year or how we should be thinking about that.
Speaker Change: And then second just any commentary on <unk>.
<unk> is it kind of performing <unk>.
Speaker Change: As expected for now thanks.
Thank you for the questions I'll start by talking about the deployments that we highlighted first we launched our AI solutions a co pilot in auto pilot back in Investor Day of 2023, and generally right out of the gate, we saw great success in broth just high.
Speaker Change: Highlighting that we've seen that great success continue on into this year.
Speaker Change: So while customers are quite familiar with our traditional <unk> platform. When it comes to our AI solutions. They are newer solutions for them and they are more thoughtful as they consider how AI will be deployed within their organizations.
Speaker Change: To your point about the timing of these deals. It really is is kind of coming back to both the complexity that we see with large enterprise deals and of course, we've had more and more of those from last year coming into 2024, as well inclusive of as I said, the thoughtful deployment around the newer a.
<unk> that we offer.
Speaker Change: If I also comment on the question about live ops Sumit.
So we continue to perform as we expected for the live portion of the business. We are seeing that <unk> business being more and more integrated into our <unk> platform. Our go to market across the board.
Speaker Change: Your next question comes from the line of Rishi <unk> from RBC capital markets. Your line is open.
Speaker Change: Wonderful. Thanks, so much for taking my questions and then Brock.
Speaker Change: A pleasure working with you and.
Speaker Change: Look forward to seeing the next chapter in your career.
Speaker Change: Maybe just two quick ones from me I wanted to continue thinking about kind of the ramps on the cloud side.
Speaker Change: Maybe can you can you be explicit in terms of how has that ramp over time changed in terms of the.
Speaker Change: Alive from booking to when deals go live and is that purely just a function of closing larger deals and maybe they are more complex and thats why they are taking longer to ramp.
Speaker Change: Into live production or is there something else and maybe related to that if we take a step back and you think about the analyst day, where you kind of laid out.
Speaker Change: Our long term model and talking about getting to 80% cloud penetration over the next several years, maybe can you walk us through from your perspective as these deals start to ramp up what's the kind of right organic cloud growth rate that you would be that you'd be happy with.
In terms of kind of going towards those long term targets. Thanks.
Speaker Change: Sure. Thanks Rishi.
Speaker Change: Let me start by saying that.
So I don't want to repeat on what we have said already about generally we have numerous motions in our business. Obviously there is the more mid sized customers.
Speaker Change: But we've been always been signing that doesn't change we have great opportunity and we're seeing it already where those customers are new loans.
Speaker Change: Easily, adding a variety of capabilities and because of the flexibility of six one auto summary was a great example of that but as we go into the more interesting part of the market and we will be more and more large customers on our end from the technology side of the platform is ready to onboard those customers in day one.
Speaker Change: But the markets.
Speaker Change: Customer service automation is not it's not just about the move from on Prem to cloud. That's the easy part if you would like it is about as I said before.
Speaker Change: The engineering workflow, taking out agents from the world flows and embedding AI instead, so that some customers take a bit longer but when it happens it happens in a massive scale and it's going to be there forever because its going to replace people with our technology.
But to add tremendous value.
Speaker Change: So it's a it's the revenue that has a much higher profitability and much higher custom.
Speaker Change: Customer lifetime customer value.
Speaker Change: We see as Beth said before a significant backlog that we have for six one with that change of mix them give us optimism about the future.
Speaker Change: And as we mentioned before in Q4, given what we've seen in October already.
Speaker Change: Estimating acceleration in the cloud.
Speaker Change: Your next question comes from the line of Jim Fish from Piper Sandler Your line is open.
Speaker Change: Hey, guys I do want to hit on that last point for rocket you. Just made I mean, you guys have acquired toy box earlier in the quarter.
Speaker Change: It looks like $45 million.
Speaker Change: Cash outflow here for our math kind of points to about $20 million of contribution. So first can you talk about what gives you strategically.
Speaker Change: When it closed and what we're supposed to be expecting in terms of contribution kind of moving forward.
Speaker Change: Yeah, I'll I'll take that and then.
Speaker Change: Barack to add any further commentary I think first of all it's important to highlight that the play what play box with a technology tuck in acquisition with a purchase price of around $40 million.
Speaker Change: We also saw some published articles that.
Speaker Change: Considerably exaggerated.
Speaker Change: Revenue related to those deals.
And again I highlighted it's immaterial in terms of revenue contribution in our Q3 results.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Samad Samana from Jefferies. Your line is open.
Speaker Change: Hey, everyone. Good morning. This is bill <unk> on for Steve Bard Barack we wish you best of luck in your future endeavors.
Speaker Change: In terms of the question <unk>.
Speaker Change: This last reported several larger software vendors have introduced Gen. <expletive> Autonomous AI solutions, how do you see <unk> market position evolving because these companies that you partner with seemingly offer a competing solutions.
Speaker Change: I appreciate it.
Billy: The comment Billy.
Billy: And thanks for the question.
Billy: As I mentioned before I think we are.
Billy: Although it's been two years since the launch if you like of <unk>.
General and TV.
Billy: The adoption cycle for enterprises like many other technological side is much slower than our own adoption as individuals.
Billy: I think we will over the hype into reality and there is understanding the taking.
Something generics doesn't towards for enterprises, it might edge the ability to.
Billy: Get further access to knowledge based and others, but to make it functional takes there's some things we're talking about something called function as our AI and that's what happens when you take the right knowledge.
Billy: Yes.
Billy: Agents in workflow and connected to all the backend processes and back end system of customer service.
Billy: We have something as I said before that is critical.
Billy: An unparalleled when it comes to customer service information, we have at any given time <unk> time access to the customer intents and without a real time access to the customer intent.
Billy: Can't really automate customer service, we have we convinced them and we have the historical <unk>.
Billy: Tens of billions of interactions customer intents that allows us to provide not just functionally but.
Billy: But also one that looks at scales and precision.
Billy: Seeing a lot of those enterprises.
Billy: After two years of trying something generic equal small point solutions coming to us as I understand that in order to broaden it and to really think its customer service automation at scale and not just for specific small use case.
Billy: To take a much more strategic approach and this is exactly what we see in our booking and the examples I gave you in my earlier remarks.
Billy: So a few of the menu that we're seeing.
Speaker Change: Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
Speaker Change: Alright.
Going back to the some of the longer implementation times.
Speaker Change: I was hoping you could just maybe touch a little bit.
How much longer we should expect some of these deals will take.
Speaker Change: Are we talking managed service talking quarters, given the increased complexity and then Frac would love to hear a little bit about do you see cash displacement. So youre seeing what is the main driver of that fully.
Speaker Change: Stan I think the on Prem wins.
Speaker Change: What's what's driving nice to win over other see cash lenders that have already kind of got a foot in the door. Some of your customers. Thank you.
Speaker Change: Sure. Thanks for the thanks for the question. So as we mentioned before it is the largest backlog, but it hasnt change of mix.
Speaker Change: It really depends in many cases on the customer. We are also working very closely and for partners to.
We were able to drive this adoption by my customers I can't really quantify it right now, but the beauty that as soon as it's up and running we see an increase in both adoption building and eventually as I said before the lifetime value of the <unk>.
Speaker Change: Length of this customer at the time that they were going to stay with volunteers and as long as it's extremely sticky solutions about the wins as I mentioned before we see an acceleration in the wind older.
Speaker Change: <unk> C and provide the on Prem providers like Cisco Avaya Genesys all of those legacy providers, but we are seeing and maybe that's something you can easily slip from the Gulf of Magic quadrant, we see that customers, who signed up especially customers scheme sign up with.
Speaker Change: <unk> cloud provider and already move kind of to the cloud coming a year or two after to us.
Speaker Change: And move from the cloud providers to six one I gave you example, we have many more of those.
Speaker Change: In the backlog.
Speaker Change: Our ecosystem of partners and actually help us with that many of those partners that work with those cloud providers tend to us.
Speaker Change: Essentially it's the reputation build brands and when it comes to these customer success.
Speaker Change: Your next question comes from the line of Timothy Horan from Oppenheimer. Your line is open.
Timothy Horan: Thanks, guys. So do you think the cloud acceleration can continue into next year and the cloud gross margin ticked down a bit can you just talk about that.
Timothy Horan: Trends there and then just on this point on the workflow reengineering by enterprises do you think you have a good handle on that now or are you at a stage where you can implemented relatively quickly. Thank you.
Hi, Jim I'll take the first happening and then hand it over to.
Speaker Change: Barack and as we highlighted earlier today with respect to tier two cloud growth, we're not commenting yet on 2025 of course, we will provide an update on expectations as we provide our fourth quarter results.
Speaker Change: Again, I'll, just say again, we are expecting acceleration of our cloud revenue growth in the fourth quarter and we've already completed the month of October. So we can see statistics of our customers. We can see that the seasonality kicking in and particularly in some of our retail customers and now it looks like it's going to be a nice season.
Speaker Change: There and that will help.
Speaker Change: Helped drive the seasonality and growth along with the healthy trend of switch happened in the first month as well.
Speaker Change: You also asked about our cloud gross margins.
Speaker Change: One of the things that I highlighted earlier today was that we had really great growth in EMEA. This quarter, 14% that was underscored by our cloud growth and it's really evidence, saying some initial very early positive signs that we're seeing great cloud traction internationally.
But we have made some significant investments outside of the Americas, both in EMEA and APAC region, and Thats, what youre seeing is a bit of pressure on our fixed cost and those reasons associated with the cloud but of course as you know cloud revenue is recognized over time. So we're going to see continue to see great economies.
Speaker Change: Of scale as we continue to deliver on the backlog and the pipeline that we're seeing in those regions and then I'll hand, it over to <unk> for the rest of the question I. Appreciate the question on the World flows and I think Thats key for the future of customer service automation industrial reason.
Speaker Change: We are spending so much time on that and I've tried to give a bit more color on that.
Speaker Change: The desire to automate customer service is not new to exist for the last 30 years with very full results. If you think about it.
Speaker Change: There've been a few waves in the last few years.
Speaker Change: Our hopes to different technologies, if you remember the days of RPI.
Speaker Change: That was supposed to bring automation, we can make parallel between RPI and almost like 50 will predictive analytics.
Speaker Change: But it's been basically delivered automation at the task level, which is definitely not enough to drive for automation and then the early days of Gen AI augmented and rules specific roles and customer service, but they didn't touch the full workflow.
Speaker Change: And we didn't deliver the right gains or a full automation, we believe from what we're seeing that only functionally.
Speaker Change: With.
Speaker Change: Our system platform that oversees all customer service workflows, including all different roles all different function is what will eventually deliver spoon.
Customer service automation and Thats why we have launched six one empower it's the evolution of six one we have all the knowledge we have all the agents and now we have all well.
Speaker Change: Workflows in order to design build.
Speaker Change: And of course, automate and operate all of those that will improve moving forward and the other tactical effort to automate customer service. We believe will result in what we've seen in the past 2030 years, which is very small local automation versus enterprises really want and need.
Speaker Change: Your next question comes from the line of Patrick Wall Raymond from citizens JMP. Your line is open.
Oh, great. Thank you and Barack we're going to Miss you.
I think one place where where there's some investor confusion.
Speaker Change: Love to hear your perspective on it is.
Speaker Change: Who has the right to win.
Speaker Change: When it comes to AI Skus like auto summary knowledge management.
Speaker Change: So it's a big Bank for example is using the Salesforce service cloud.
Speaker Change: And they're not using <unk>.
Speaker Change: Has the right to win those AI Skus and why.
It's a great question and we as I mentioned with full find ourself in medical nutrition with customers who are.
Speaker Change: Asking themselves. The exact same question pushes ultimate my customer service should it come from <unk>.
Speaker Change: And generic Victor or should it come from a CRM.
Speaker Change: And after the Tri variety of angled to understand what I mentioned before a you'll need the domain expertise, we understand customer service inside out actually through a partnership with one of those big tent, we realize that they'll go to market team cannot talk or even they don't understand what customer service is all about.
Speaker Change: When it comes to.
Speaker Change: The us versus the CRM, obviously, there is a room for CRM and customer service is the system of record, but it comes when it comes to full automation as I mentioned before you can't automate something unless you have the customer intent the analogy I like to give to that is non Google is the best advertising platform in the world because they know.
Speaker Change: What is the consumer desire and intent at any given time, given where they are writing in their search the customer intent.
And only really exist in real time in the interaction itself, we have an interruption centric platform.
Speaker Change: We own the only one that's really have the ability to automate workflows end to end and more and more customers understand that we coexist with the CRM in those environments, but we see more and more of those assets from digital engagement in AI.
Coming to the six one direction instead of other either point solutions or the system of transactional records, which uses CRM.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Michael Funk from Bank of America. Your line is open.
Michael Funk: Great. Thank you all thank you for the questions. This morning.
Michael Funk: And I guess the first one is actually more of a request than a question part question part request.
Speaker Change: I get the comments on the backlog.
Speaker Change: Record levels of backlog off of our stand longer deployment times for the large enterprise and AI solutions.
Speaker Change: I think that with the bears are picking that though.
Speaker Change: <unk>.
Organic cloud revenue growth is lower.
Speaker Change: And no certainty around acceleration of that what would be helpful. I think is if you could provide some commentary maybe today or in the future about the go live timing expectations for that backlog.
Speaker Change: So we can actually baked that into our estimates in the future.
Speaker Change: That would be very helpful.
More and more details around that.
Speaker Change: Question for me is a competitive environment.
Speaker Change: And are you seeing any changes in win rates execution pricing pressure in the competitive environment, and if so where regionally or is that up market or down market.
Speaker Change: We are first of all about the first one we took them out.
Speaker Change: We will of course consider it moving forwards. So I appreciate the advice on the second one on the win rates, we feel that our win rates.
Accelerating and growing in the last 18 months, we feel that.
Speaker Change: When it comes to the large enterprise and some of the.
Speaker Change: The other players that wanted to go into this market.
Speaker Change: Arent able to scale.
We feel that some of our competitors are strategizing Engel, taking short term decisions because of silicone financial structure or certain desire exit of the company.
And we feel that some of the seeing some of the big Tech that wanted to get into this market and made that.
Speaker Change: Big noise, just six months ago, we haven't seen anything in the field. So we feel there's a real rate.
Speaker Change: <unk> is going well and accelerating and we are optimistic to continue in this market.
We were very happy to see that Goldman thinks the same with the recent in Q.
Speaker Change: And Michael I did want to just quickly kind of address the comments you made about the request because first of all I guess.
Speaker Change: Once you are.
Speaker Change: State again that one of the things we highlighted in the quarter as we saw a 33% year over year and the increase of the number of 1 million plus <unk> customers and again it just highlights the large number of enterprise customers that we're winning and what we're seeing.
In the backlog when we think about the timing it's important to say that technically with CX one in our platform. We have the ability to deploy our solution in a matter of days and we have plenty of instances, where we've shown that we have the capability to do that but as Barack high.
Speaker Change: Delighted earlier, especially as you're starting to consider about you know large organizations rethinking about how AI and how our co pilot on auto pilot will actually re envision kind of a seamless process workflow, it's a much more thoughtful deployment.
Speaker Change: And so that's why we don't give specifics on the deployment time, because we have customers. We continue to operate in all segments of the market that are deploying very very quickly, but as we go into the large enterprise with customers that are buying a great amount of capabilities and it can take upwards six nine even 12 months out.
Speaker Change: They're deploying some of the AI based solution. So that's just to give you a bit more color. It is something we've kind of shared a bit in the past and just to give you a sense of of the.
Speaker Change: What to expect in terms of timing.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Catherine <unk> from Rosenblatt. Your line is open hi, Thank you for taking my question.
Speaker Change: And one of my questions.
Speaker Change: Other new logos, what would be the attachment rate for <unk>, because you launch that product I believe last March April may timeframe. It was announced that came in on the market before the Investor day, and what types of trends are you seeing with the UC and Cc attachment is really the question in the large.
Speaker Change: Enterprise. Thank you.
Speaker Change: So thanks for the question, we launched one six which is <unk>.
Speaker Change: UK solutions full fledged <unk> solution for five Bucks per channel.
Speaker Change: Earlier in the year, we see tremendous traction and many deals are signing.
Speaker Change: Obviously, it's more applicable for the lower end of the market.
Speaker Change: And that uniqueness in the higher end of the markets is boring and obsolete because it's being displaced by.
Speaker Change: Basically by team completely separate from the secrets in the contact center solution and there is no real need.
Speaker Change: For future Lucas in the higher end of the market, but for our customers if any size, we make it available, but we see the demand mainly on the lower end of the market and we're very happy with the traction.
Speaker Change: As we get.
Speaker Change: Your next question comes from the line of Chris Reimer from Barclays. Your line is open.
Chris Reimer: Hi, Thanks for taking my question.
Chris Reimer: Was wondering if you could comment on the traction well this fall.
Chris Reimer: Kick this quarter in the product and what do you think is driving that stickiness, there what kind of customers are or on the product segment.
Chris Reimer: Solutions.
Speaker Change: Yeah. Thanks for the question.
Yes, I think that if you look on our growth youll see that quarter after quarter in our overall revenue growth is being driven by the cloud. This quarter, we had a nice year over year growth in product as well and what you see is from time to time, there are generally a select and lesser and lesser number of large enterprise.
Speaker Change: Customers that just haven't yet figured out exactly their roadmap to the cloud is often occurs with.
Speaker Change: Organizations, which are.
Speaker Change: Where cloud has not yet penetrated much of the market theyre in very early stages. So generally youll see that tend to be more outside of the Americas also we tend to see that from time to time in our FCC or <unk> business.
Speaker Change: Where cloud is still more in the early days and so you will have those customers as you saw this quarter.
<unk> purchased our premise based solutions.
Speaker Change: And your final question comes from the line of Michael Latimore from Northland Securities. Your line is open.
Michael Latimore: Alright, great. Thanks very much.
Speaker Change: Yes, when you talked about cloud accelerating in the fourth quarter.
Speaker Change: Are you, referring to a sequential change there or an improvement in our year over year growth rate.
Speaker Change: The year over year growth rate do you expect it to be.
Speaker Change: Above or below the.
Speaker Change: The guidance, we've given for the year.
Speaker Change: So with respect to the fourth quarter, we do expect the year over year growth rate in Q4 to exceed the year over year growth rate in Q3. In addition, we expect the.
Speaker Change: The sequential contribution and cloud to exceed.
Speaker Change: Going from quarter to quarter this year relative to what we experienced one year ago. So what it means for the fourth quarter or for the full year again, you can you can do the math, but it.
Speaker Change: It is showing that the expectation for Q4 is an acceleration increase and as we've highlighted a few times on the call.
Have our usage coming out of October which gives us some nice confidence as we head into the end of the year.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to Barack Ilan I'm CEO for closing remarks.
Barack Ilan: Thank you all for joining us today and once again, thank you for the many years of partnership.
Barack Ilan: And we will continue to drive the business to the end of the year and handing over to company disclose with a great team over here and nice will continue to thrive. Thank you very much.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Barack Ilan: Okay.
Barack Ilan: Okay.
Barack Ilan: Yeah.