NICE Ltd.
Q1 2021 Earnings Call Transcript
Published:
- Marty Cohen:
- With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eran Liron, Executive Vice President, Corporate Development. Before we start, I would 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 3 of the company's 2020 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 23, 2021.
- Barak Eilam:
- Thank you, Marty, welcome everyone. As we are nearly halfway through 2021 our world is already changing at an accelerated pace. Consumer experiences will change more in the next five years than they have in the previous 15. Next gen consumers demand channel of choice in seamless experience and to keep up enterprises need to raise their game in driving customers to inspection to maintain loyalty among consumers. To accomplish this, organization are accelerating the adoption of cloud, digital, sophisticated analytics and AI. This is creating immense opportunities in the market in which we operate and for the solution that we develop and deliver. We're seeing increased adoption in cloud, digital, automation and self service solutions and technologies that we have successfully encapsulated into the broadest, deepest, and most complete platforms in both customer engagement and financial crime and compliance. These platforms will enable us to capture significant growth opportunities in what we foresee as a more than a $25 billion total addressable market for nice. We witnessed strong evidence of these growth opportunities throughout 2020 and it is continuing in 2021 as demonstrated by a very strong first quarter results across the board. Total revenue increased 11% to $457 million, which exceeded our guidance range and cloud revenue grew 33%, both of which were fueled by CXone. The CXone pipeline in bookings reached record levels in Q1.
- Beth Gaspich:
- Thank you, Barak, and good day everyone. I'm pleased to provide the analysis of our financial results and business performance for the first quarter of 2021 and provide our outlook for the second quarter and full year. Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million, compared to $411 million in the same period of last year.
- Operator:
- Thank you. At this time we will be conducting a question and answer session. Our first question is from Samad Samana with Jefferies. Please proceed with your questions.
- Samad Samana:
- Hi, good morning, and thanks for taking my questions. Maybe Barak one for you, in terms of the pipeline for CXone deals. It's great to hear what you -- what the company did in the quarter, but just maybe help us understand what demand looks like as we last this time last year, where there was a surge in interest and just maybe what the deal pipeline looks for CXone for the next quarter and for the rest of the year?
- Barak Eilam:
- Hi Samad, thank you for the question. So yes, we see, as you saw in the earlier remarks, great momentum in the CXone. And I highlighted that we see it both with new customer with a great growth in new logos versus the last year of 38% in the quarter as well as expansion and specifically, I highlighted two other thing, which was tremendous growth that we see in the international market. We are expanding and leveraging on the presence that we have over there. And of course, digital. The pipeline, as I mentioned as well beyond the booking that was record high in Q1 looks very, very good in all of those segments both in new logos, expansion and internationally. We are, we feel very positive about the market dynamics with data from a segments perspective in all segments of the market. And we see the enterprise market continue to be very strong as more and more large enterprises are realizing post the pandemic as result of what they experienced last year, they need to further accelerate and bring forward plans of shifting to the cloud as well as digitally transformed. So that's what we see. On top of that, as I mentioned, the expansion of not just adding more capacity, we're starting to see the power of CXone with the breadth of solutions that are natively integrated and fully owned by us or customer easily adding those solutions and it adds up to both booking and buildings.
- Samad Samana:
- Great. And Beth may be one for you. I don't want to steal the thunder from the company's upcoming analyst briefing. And maybe we'll address it there. But just I think cloud revenue is on top of everybody's mind. And it was another strong performance this quarter. But I appreciate product revenues it can be volatile, but how should we think about maybe cloud revenue guidance embedded in that to 2Q outlook and for the rest of the year as far as cloud revenue growth rates?
- Beth Gaspich:
- So as we look on guidance for the rest of the year starting with the Q2, we expect our cloud growth to continue to be strong and looking forward for the rest of the year as well. From a longer term perspective, looking at really over the next three years, we expect our cloud growth to be a 25% or greater. And looking at the given year in 2021, on a full year basis, we expect that our cloud growth will be even greater than that and that's kind of reflected in the full year guidance.
- Samad Samana:
- Great, thanks for that, that additional clarity. I really appreciate it. And then just maybe one housekeeping question. On the services revenue, I know normally it goes down sequentially from 4Q to 1Q but just anything worth noting there? Was that more due to shift to the cloud in this quarter? Or just maybe help us understand that ongoing seasonal trend?
- Beth Gaspich:
- Yes. It's a good question and of course, it really is reflective of the ongoing shift that we're seeing to the cloud. We had 33% growth in the cloud in Q1. And as expected that over time, we expect that the cloud business and the concentration of cloud revenue is going to continue to increase and on the other side of that of course the largest portion of our service revenue is maintenance. And in practice what we see is that the as our customers are converting from being on premise customers and shifting over to the cloud and most of that's coming from CXone, we generally see a very nice uplift anywhere from 2 to 3 times on an apples-to-apples basis. But that uplift we have seen in practice can be all the way up to 9 or 10 times as generally what you see is that those customers will actually adopt multiple solutions off the CXone platform at the time that they might migrate.
- Samad Samana:
- Great, thanks for my questions and look forward to connecting soon at interactions.
- Barak Eilam:
- Thank you Samad.
- Operator:
- Thank you. Our next question is from Sanjit Singh with Morgan Stanley. Please proceed with your question.
- Sanjit Singh:
- Thank you for taking the questions and my congrats on a really strong Q1. I wanted to go back to sort of this time last year and some of the initiatives around CXone at home and whether you still think that's a source of potential new leads, whether it's the mid market or the enterprise? How does that conversion on CXone at home trended going into 2021?
- Barak Eilam:
- So last year with the outbreak of the pandemic back in March we immediately launched CXone at home. It has two aspects of it. First of all, we wanted to support customers or prospects that means that did not have the ability to move home. But also a way for them to get a taste of the cloud and kind of make this potential studious appeal, though it wasn't there. And it resulted with, of course a lot of momentum. I think two things happen as a result. First of all, we realize as a result of that that we can get customers on boarded in a much faster pace. When we started with the CXone at home, all of a sudden, customers shifted to CXone in a matter of 24 to 48 hours at scale, which was really phenomenal. And we continue and doing that as we speak. But I believe both this campaign and generally now seeing the market is as I said before it's accelerating the overall move in the market into the clouds and with the enterprises of getting ready to do that in the next few years versus much further down the road. And we are happy to see that and I think it will accelerate the progress of the time. Needless to say, there are many other positive dynamics that we see in our business. Not all of them related directly to those initiatives or to the pandemic. And these are, as I said, both digital transformation and a lot of injections of AI. And I think that our strategy that we put together several years back and both internal innovation and all of the acquisition we've done including the recent one with MindTouch allowing us to be the only one in the market out there that can offer customers a full breadth of solutions in one native cloud platform, even if they don't need all of that in day one. Customers are very receptive to the notion that it the future proof solution and they don't need to continue and be kind of the system integrator of the industry or buying from a cloud vendor that are practically active almost as resellers instead of a platform.
- Sanjit Singh:
- That makes perfect sense and thank you for that Barak. The one thing I wanted to follow up on was your comment on international bookings growing, 3x year-over-year. Just wanted to see get a sense of how bad it expressing itself? I noticed that the product revenue growth grew year-over-year for the first time. So when you think about those bookings, how's that coming through in terms of cloud versus on prem and just broader CXone traction internationally?
- Barak Eilam:
- So thanks. My comment on the international obviously, product was much healthier this quarter. But this particular comment on the 3x was actually about CXone and cloud. So this is where we see the -- the Nice to increase. It's part of it as a result of both of those markets, but also our plan about two years ago to invest both in the technology and the availability. But also of course in the go to market and further expand our investments both internally and expanding our partner network in many of those international markets and we're starting to see that. So we are starting to see it in the booking. We believe it will become more pronounced in revenue as soon as those bookings converted into revenue in the cloud. I think you're seeing already this quarter some healthy growth rate in some of our international market and we expect that to continue.
- Sanjit Singh:
- Excellent. Thank you. Congrats.
- Barak Eilam:
- Operator:
- Thank you. Our next question comes from Tim Horan with Oppenheimer. Please proceed with your questions.
- Tim Horan:
- Thanks, guys. Can you talk about what else you need to do to expand international? Is it product development go to market and maybe just where are you in that whole process? What stage you were in? Thank you.
- Barak Eilam:
- Thanks for that. So we already have a very solid playbook and today we're much more confident in that playbook after seeing this result internationally. We have put ourselves at least two years ago on kind of prioritizing international markets. They're all relevant but obviously, they're different in size and different in maturity. From a technology perspective because we're a native cloud solution the trends over public cloud and a positive environment it's very easy for us to open or to make availability of the platform in any country or continent out there. And today, we have this availability in dozens of different countries. So from a technological perspective we're there. Also since we have built the CXone from the ground up several years back, the ability to localize it, both in terms of language in terms of also specific features that are needed for specific regulations in different countries is also pretty easy for us. Thirdly, is relationship with local telcos in order to have availability of both voice and some digital services. We have very clear playbook for that. And it's a very easy thing. For the most of the effort right now is on the go to market front. And there are two aspects to goes go to market. It's nice historically, have very strong presence in some territories we have leadership in place. We have sales people in place. Resale delivery people. And we have offices in many of those countries. It's mainly of expansion and reopening or anything like that. So that's one investment that we continue to do. And the second investment is to continue to expand the partner ecosystem. I think there is now we're seeing a great realization of partners that were kind of sitting on the fence when it comes to cloud in certain international markets. Finally took a decision that this is not an option, but it's mandatory for them to shift into the cloud. It's something we saw domestically probably five or six years ago, now we're seeing it in international market. And we're very happy to meet to be among the first to engage international market. And win the hearts and the minds of many of those partners. And we saw it very-very nicely and we continue to sign up a lot of those partners on a monthly and quarterly basis.
- Tim Horan:
- Thank you.
- Operator:
- Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your questions.
- Tyler Radke:
- Hey, thanks for taking my question. First question, just wanted to double back a little bit on the strength that you saw on product revenue this quarter. Just trying to understand if that kind of exceeded your internal expectations, kind of what was the drivers of that? And, you're seeing anything unusual in the pipeline where we could maybe see more product strength throughout the rest of the year?
- Barak Eilam:
- Yes. So product is of course less of another recurring business. So we are seeing it might fluctuate from one quarter to the second. Needless to say that our strategy is that we go cloud first and most of our new customers, if not all of them are going with cloud and many of our existing customer expanding or converting to the cloud. But we have a very large customer base in certain markets. We still prefer to continue and buy products in an on premise fashion till they will convert to the cloud. Sometime, it's part of the conversation we have with them and building the roadmap with them. So it's the least predictable part of our business, as you can imagine. But actually the pipeline is very healthy for product as well. But again the main focus of ours is the cloud and the cloud revenue and we will continue to cater of course to the product element and we expect you to continue to fluctuate from one quarter to another.
- Tyler Radke:
- Thanks. That's helpful. So my follow up. I know you talked about a large, I believe is a hotel chain or hospitality group kind of modernizing on CXone this quarter. I'm curious as you look at the pipeline and you think about maybe industries that were the most impacted last year, do you think things reopen? Are you starting to see signs that those impacted industries would be tailwind to the pipeline going forward? Just kind of curious what you've observed thus far in some of the harder hit industries from a COVID perspective?
- Barak Eilam:
- Yes. So when it comes to, I think what we have learned in our past and it's indicative, I believe, also for the future that customer service is a mission critical for companies, regardless of the situation of their business. They still have customer. They want to stay in touch with the customers. Customers is the most important asset. I would say that even at the peak of the pandemic last year, March, April, May, if you think about this particular segment, you've mentioned travel and tourism, all the way through the summer, they still have, although many hotels were closed and airlines had 10% volume versus usual in terms of flights that are, they still have a ton of need to provide customer service, people calling or people interacting with them about cancellation, questions, inquiries, my frequent flyer status or my frequent hotel status and things like that. What we have seen specifically in travel and tourism and some other industries is that they're already seeing right now and maybe it's indicative to what you're going to see in the future in the industry and they're seeing already, a lot of volume of people preparing for the summer months, and even for the holidays of this year and they're experiencing a lot of positive bookings on their business. And they are preparing themselves. So they need more capacity and they've learned through the pandemic, that there is a better way to do it. So they are taking advantage of this, of the experience to both shift to the cloud as well as are starting to offer certain digital services. And lastly, in many of those cases, their employees are either still working from home or they're planning to do it in a hybrid model and for that, they're realizing that they need further advanced capabilities coming from our workforce engagement area.
- Tyler Radke:
- Thank you.
- Operator:
- Thank you. Our final question comes from Tavy Rosner with Barclays. Please proceed with your questions.
- Tavy Rosner:
- Yes, thanks for taking the question. At first I wanted to get a sense when we look at the cloud growth, almost that growth comes from new customers, new logo versus converting some of your, I would say legacy customers?
- Barak Eilam:
- Yes. So you โ you characterized it correctly that as a company, I think I've mentioned it in my opening remarks. Cloud formation as a company is a quite unique. We believe in a positive way, that it's not just the re-class of revenue and shifting it from the product to cloud. You're not going to end up this transition, just re-classing our customer base, shifting it from the product to the cloud. We have great opportunity. The first thing is happening, that we have two sources of growth to our cloud business. First is what you have mentioned and this is converting our existing workforce engagement and other customers who sit on our on-prem business and converting it to the cloud. But the second thing is a result of our strategy five years ago to step into the adjacent market to , digital and self service. These are solutions in the market we just did not have presence in and we are not operating in this segment as an on-premise company. So this is a brand new revenue for us. Today, the majority of the business of the cloud revenue come from the second part which is converting new opportunities. We believe that the conversion of WM into Cloud will accelerate at a certain point. It is somewhat also attached to the sale offering. And as Beth mentioned before, when we see such a conversion, it's not one to one, it's actually giving us an uplift in a customer that used to be an on-prem customer of ours we can easily see two times or more revenue from that customer as they shift to the cloud.
- Tavy Rosner:
- Thanks for that. Much appreciated.
- Operator:
- Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Barak Eilam for closing remarks.
- Barak Eilam:
- Thank you all for joining us. We really look forward to see you in couple of weeks to our interactions live event with a great agenda and great interactions we will have together. Thank you and have a great day.
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