Welcome to the NICE Conference Call discussing First Quarter 2019 Results, And thank you all for holding. As a reminder, this conference is being recorded, May 16, 2019. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead.
Thank you, operator. With me on the call today are Barak Elam, Chief Executive Officer Beth Gaspich, Chief Financial Officer and Eran Liron, Executive Vice President, Marketing and 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 2018 annual report on Form 20 F as filed with the Securities and Exchange Commission on April 5, 2019.
During today's call, we will present a more detailed discussion of Q1 2019 results and the company's guidance for the Q2 and full year 2019. 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 generally accepted accounting principles, as reflected mainly in accounting for acquisition related revenues and expenses, amortization of intangible assets and accounting for stock based compensation. The differences between the non GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. I'll now turn the call over to Barak.
Thank you, Marty, and welcome, everyone. I'm glad to be on the call with you today. This week, we are celebrating 3 years since we announced the acquisition of InContact, which was a pivotal point for NICE and represented a seismic shift in the customer engagement market. The acquisition and the ensuing delivery of CXone gave us the first and only true native cloud platform that seamlessly incorporates the marketing routing, workforce optimization and analytics into a single platform for enterprises of all sizes. With all these assets combined, together with substantial investment in R and D since the acquisition, CXone has become the most complete platform in the market.
Furthermore, with an extensive ecosystem called DevOne and a solutions marketplace called CX Exchange, CXone brings an unmatched offering to enterprises as they expedite their transition to manage smart interactions in the cloud. Fast forward to today and CXone has opened a significant differentiation gap as evident by over 500 new CXone customers added annually by being ranked as the number one contact center cloud solution by multiple leading analysts and by the continued strong cloud revenue growth. This is a clear validation of our platform strategy. Today, we are taking the next step in the evolution of CXone by assuring in a new era in CX with the introduction of smart digital conversations. This builds on our CXone platform strategy with an additional market leading innovation that enables our customers to accelerate their transition in managing digital experiences.
This innovation is augmented by the acquisition of Brand Embassy announced earlier today and its integration into CXone. Brand Embassy brings a groundbreaking and proven digital first approach to customer service. The reality for most enterprises today is that while they recognize the importance of keeping up with consumers and offering them service in their channel of choice, they're having a hard time keeping up. Adding each type of channel requires organizations to create new dedicated service silos, which is slow, expensive and does not scale. The new push pull paradigm that we are introducing in CXone eliminates these digital agent silos.
It dramatically accelerates the adoption and lowers the cost of handling new channels of any type, whether by agent or by bot. Because it is natively embedded in CXone, it naturally benefits from the WFO analytics and AI capabilities of the platform. This in combination with over 30 supported channels that Brand Embassy brings, including Facebook, Messenger, Twitter, Apple Business Chat, WhatsApp, LinkedIn, SMS, email and live chat enables what we call smart digital conversations. CXone now removes the barriers that historically slowed down the customer experience digital revolution, allowing organizations to put digital at the forefront of their interactions with consumers. It is clear that the execution of our strategy is working as reflected in our strong results, including in Q1 where we reported year over year double digit growth in all key metrics.
This included a 12% increase in revenues to $378,000,000 Operating income was $97,000,000 which was an increase of 26% compared to Q1 of last year. And operating margin increased 230 basis points to 25.7 percent compared to the same period last year. These strong operating results led to a 22% increase in earnings per share to $1.18 Additionally, we reported another quarter of record operating cash flow with $182,000,000 generated in Q1, 33% growth over Q1 last year. Leading the way and driving our growth is cloud. Cloud revenues increased 30% in Q1 to $137,000,000 CXone is the clear differentiator for NICE and is fueling our cloud growth.
With CXone, we are penetrating all segments of the market from SMB to large enterprises. And in Q1, we saw further success on these fronts. We signed multiple 7 digit ACV CXone deals, including a large government agency, a public content to data analytics provider, a large insurance provider, a Fortune 100 product company and one of the largest retailers in the world. In all these deals, CXone was the ultimate choice for enterprises looking to replace their on premise solutions. Cloud growth was also augmented by our X Sight Essentials cloud solutions.
In Q1, we signed several 7 digit Essential deals, including a Southern U. S.-based midsized bank where we replaced the incumbent as they wanted to further to future proof their solutions by building on and leveraging our fraud management platform. We signed a 7 digit essential deal with the crypto exchange as well as with a company that operates a cloud based business payments platform. As we move forward with our Analytics Everywhere approach to inject powerful analytics into everything we do, we continue to see strong demand and growth for our analytics solutions. We signed an 8 digit deal with 1 of the largest financial institutions in the world and in the process replaced 1 of our competitors.
Other 7 digit analytics deal included 1 with top 5 U. S. Banks, 1 with a large Canadian financial institution, one with a well known entertainment resort and one with a very large pharmacy operator and one with a major healthcare organization among many others. We are continuing to further augment our analytics solutions by infusing AI throughout them. Our robotics process automation is an area within AI that we are seeing strong demand as we continue to sign many new logos.
Our clear differentiation is our domain expertise around attended RPA and Niva, which is our one of a kind attended robotics assistant. Moreover, our unique solution called Automation Finder, which is an AI powered solution that detects processes in the enterprise that are perfectly suited for automation continues to gain traction among our customers. In closing, we're excited about our extended strategy to build on our CXone platform with an additional market leading innovation that enables our customers to accelerate their transition in managing smart digital conversations. We are pleased to start the year on a high note and we have a lot of momentum behind us. I will now turn the call over to Beth, who will review our financial results.
Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and the business performance for the Q1 of 2019 as well as our outlook for the 2nd quarter and full year 2019. Total revenue for the Q1 reached $378,000,000 an increase of 12% from $338,000,000 in the same period of last year. Our total revenue growth was driven by further growth in the cloud as our cloud revenue grew 30% in the Q1 of 2019. We also saw an increase of 14% in product revenue.
Our recurring revenue continues to reflect our strong cloud growth, representing 71% of our total revenue, up from 68% in Q1 last year. Continuing the trend in the last few years, given that our cloud and overall recurring revenue have grown to become a much larger portion of our total revenue, we expect both our revenue and profitability to be more evenly distributed among the quarters this year. Customer engagement revenues for the Q1 increased 14% to $305,000,000 and represented 81% of our total revenues. Financial crime and compliance revenues increased 6% to $73,000,000 and represented 19 percent of total revenue in the Q1. Cloud revenues accounted for 36% of total revenue for the Q1, which represents an increase from 30% in Q1 last year and services revenues accounted for the remaining forty percent of total revenue in the Q1 of 2019.
Looking at geographies, Americas grew 12% and reached $289,200,000 in the Q1. Revenues in EMEA were 64 $300,000 in the first quarter, which represents growth of 18%. APAC revenues in the first quarter contributed $24,400,000 to total revenue in the Q1 of 2019 compared to $26,000,000 in the same period of last year. And now to profitability. Gross profit increased 12% to $267,000,000 in the first quarter.
Gross profit margin increased to 70.5% compared to 70.4% last year. Operating income increased 23 percent to $97,000,000 in the Q1. Operating margin increased significantly to 25.7% compared to 23.4% in the same period of last year, representing an increase of 2 30 basis points. The strong operating income and margin demonstrates the leverage in our model and our commitment to continue to expand profitability over time. Earnings per share for the Q1 increased to $1.18 compared to $0.97 in the Q1 of last year, which represents growth of 22%.
We experienced record growth during the Q1 in cash generation. 1st quarter cash flow from operations grew 33 percent to $182,000,000 Total cash and financial investments were $891,000,000 at the end of March 2019 and total debt was $458,000,000 net of issuance costs and the equity component associated with our convertible debt. I will conclude my remarks with our guidance. For the Q2 of 2019, we expect total revenue to be in the range of $373,000,000 to $383,000,000 We expect Q2 2019 fully diluted earnings per share to be in expected range of $1.16 to $1.26 For the full year 2019, we expect total revenue to be in the range of $1,558,000,000 to $1,582,000,000 We are increasing the full year 2019 fully diluted earnings per share to be in an expected range of $5.11 to $5.31 I will now turn the call over to the operator for questions. Operator?
Thank you. Your first question comes from the line of Shaul Eyal, Oppenheimer. Please go ahead. You're live in the call.
Thank you. Good afternoon, guys. Congrats on yet another set of strong results. Barak, I have a 2 part M and A related question and then I have one for Beth. So maybe starting with Brand Embassy, how should we be thinking about it, without a doubt a tuck in acquisition, but maybe help us understand where it fits with the CXone.
And I know kind of you provided us with some color, but anything additive will be extremely helpful. And also, the second half of that first question is, so now that Mattersight is probably about a year under your belt, are you happy with the contribution results, strategic direction you're taking with it? Has it been living to its expectations or maybe even exceeding those?
Thanks for the question, Shaul. Let's start with Brand Embassy and actually the broader aspect of what we announced today. So as I've described before, we see it 3 years into the acquisition of Incontact that our strategy to come up with a platform that putting different assets, leading assets on the market together and enable them to work under one platform, providing our customers tremendous value instead of purchasing point solution and integrate them by themselves. And of course also it provide us a significant differentiation and we see the momentum of CXone. In that strategy in mind, we ask ourselves and we shared that with you before, what's next, where else we can take CXone, although it has by itself a very strong momentum.
And of course, we talk to our customers and the area where we set ourselves to go next is to expand it into the broader aspect of digital first approach. We see it as we discussed with our customers while they are transitioning into the cloud and with analytics, the feedback we got from them is they also want our help as they transition to digital and they want it all combined. As we looked on different assets in that area, we developed a lot ourselves, but we find an opportunity to bring a market leader in their technology into our CXone platform. And the beauty is that, that particular company, Brand Embassy, we know them quite well. They were part and integrated as part of our DEV1 and CX exchange program.
So we saw the traction that they are getting and we basically managed to pull them in into CXone with that integration. The challenge that we are addressing, as I said in my opening remarks, is that our customers or every enterprise out there is dealing today still with every channel in a standalone, but eventually consumer would like to get a much more integrated approach and a much more cohesive one. It doesn't start in digital, it doesn't stop at voice, it's all together. But for that, we need a quite innovative approach and that's exactly what CXone brand Embassy brings together. So that's about the brand Embassy.
With respect to the question about Mattersight, the plan continues to our satisfaction. The idea of acquiring Mattersight actually very similar to what I just described on Brand Embassy, very strong technology. We wanted to have the technology in house and that's exactly what we've done with Mattersight. We have embedded the technology of Mattersight into CXone and offering that to customers. And those of you who attended interactions, our user conference saw that it was presented at the forefront of our different presentation and it got a lot of good traction during interactions and actually we have a lot of follow on as a result of that.
Got it. Got it. Thank you for that. And maybe one for Beth on product revenue 14% year over year, really stood out nicely versus our expectations to an extent cloud revenues as well. But specifically on the product front, what were the drivers this quarter?
Was there anything unusual? Is it one of those 7 or 8 digit contracts that are kicking in that are accelerating it? Now I know that you don't guide to product revenue, but generally speaking, how should we be thinking about it for the remainder of 2019? Thank you.
Yes. Thanks for the question, Shaul. And as you said, I mean, I think we were really pleased with the strong start that we had to the year, and we were able to demonstrate that both in cloud and product with the product growing at 14%. And really, it was just from strong execution. We had multiple deals that Barak talked about in terms of our activities and really strong momentum.
And as I highlighted in the last couple of quarters, with the shift we're seeing in our business and cloud growing, we expect to continue to see some variability from quarter to quarter in the mix between product and cloud. And I think the growth that we saw in product combined with the growth in the quarter for cloud really just reinforces that our cloud revenue is not replacing the product revenue.
Got it. That's a great point. Thank you, Beth.
Thank you. Your next question comes from the line of John DiFucci, Jefferies. Please go ahead. You're live in the call.
Thank you. My first question, I guess, is for Barak or Beth, because Beth, you just addressed it. Barak, in your prepared remarks, you said that you're looking, the CXone deals are oftentimes, I'm paraphrasing you, looking to replace on prem deployments. And I and Beth just made a statement that, for the most part anyway, the product the cloud business is a new business, which is what you said in the past. But I'm just wondering, are you seeing more of an effect on your installed base of WFO?
Like at some point, we may see that, right, from you. Like and at that point, we'll see some transition of maintenance into cloud. But I know that that hasn't happened much yet, but that one statement, Barak, that you made in your prepared remarks made me wonder if it's happening more.
Sure. So it's a mix of multiple things and let me try to help to expand. First of all, yes, we see a tremendous momentum with CXone. With CXone, we are replacing or we have stepped into an area where NICE did not have revenue before. This is the omni channel routing business and we are replacing left and right the legacy on premise provider over there.
So for us, it's a pure incremental business. And as I described in the past, given the magnitude of those legacy providers, we believe that there is a runway over there that will fuel our growth or will satisfy our growth for many years. It is in many cases, in some cases combined of course with WFO. But I will say that what we see over there is first, it give us more opportunities in WFO. So we are also replacing other WFO competitors because now in a much more combined way being the platform, it allow us actually also to increase our share into WFO.
And at the same time, we still see a very strong business on our on premise business and our product. I will highlight that for us when I say and when we say product, cloud revenue is just cloud. We count product term license under product, we don't count it of course under cloud. And we have multiple solutions that are still provided as a product and product revenue. And we believe that this will continue.
It can fluctuate from 1 quarter to another. But that's the direction we're seeing.
Okay. So you're not it doesn't sound like even when you said displacing or replacing on premise deployments, for the most part, you're talking about sort of the inContact assets. And in some cases, you may be replacing yourself. But in the WFO portions when there is an independent WFO deployment there. But in other cases, you're displacing competitors.
I think I get that now. Okay. And so thanks for that. And Beth, just a follow-up question. Cash flow was really strong this quarter.
And I mean it's like took a step back there to me that's take a safe step back and try to figure that out. And the swing versus our model anyway was the accrued expenses and other current liabilities line, where you had a big positive contribution when typically in the Q1 that's a negative number. And I was just wondering what that was and if should we will that sort of reverse in future quarters? So will it have a negative effect like in the next quarter or something? Just want to make sure we anticipate what's happening there.
Sure. I would say similar to the comments I made about the product revenue, it really is just a sign of our strong execution. I think we had very strong collections during the quarter. So a lot of attention internally and it's nothing atypical. I think the balance sheet and accrued expenses, sometimes there's timing differences.
So I don't think there's anything that is really noteworthy there. And we need to see positive cash flow generation throughout the year.
Okay. But that one line, I mean, the accounts receivable line would be affected by the strong collections, but the accrued expenses and other current liabilities, can you just because it's usually like a negative line, oftentimes like a negative $30,000,000 and it was positive $30,000,000 That was a huge swing this quarter. I just is there something in there that just like to understand it a little better?
Yes. As I said, John, there's really nothing noteworthy. I think with accruals, they can vary from quarter to quarter and that's just kind of part of business as usual. So there's really nothing that sticks out in there that had a significant impact on the cash.
Okay. Okay, thanks. Nice job.
Thanks. Thank you.
Thank you. Next question comes from the line of Dan Ives, Wedbush Securities. Please go ahead. You're live in the call.
Yes, thanks. So what percent of your customers do you think have moved to cloud from the call center transition if you had to approximate?
We don't share the exact percentage, but as I said before, Dan, it's again, the beauty of our cloud strategy that is based on our, of course, platform strategy is that we are stepping into areas both for our customers and other customers that we were not present before. I can name a few. First of all, NICE historically, we're not we didn't have very strong presence in the mid market. With cloud, we are now stepping in a quite dominant way and with strong presence into the mid market. And that market is shifting fast to the cloud.
And in those cases, we take it all, meaning both analytics and routing or omni channel routing and WFO and moving forward, we believe a lot of the digital channels as well. And within our installed base, it really depends on the customer. So as I said before, I think that there is still a very, very long runway of those on premise legacy providers that basically we are replacing and it's still there is still a lot to go with, many years of potential here.
Got it. And just a follow-up to that. So are the conversations becoming much more strategic with customers? I mean, it seems like that from deals and all of our checks, but maybe you could just anecdotally talk about that even comparing conversations at this user conference that you had with customers and pipeline versus maybe the last few years? Thanks.
First of all, we're very happy with the and we're positively surprised, if you would like, with the size of the event this year. On two fronts actually, both on customers having 3,000 attendees was way beyond the target we put to ourselves internally. And if you compare it to 3 years ago, that's a tremendous growth. And also by the way on the ecosystem side, the number of partners and technology partners we had in the event at some point we had just to shut down additional sponsorship, not because we didn't want it, just because we ran out of space in our showcase. So that's just in general the traction that we got.
I also can tell you as someone that is I attended probably almost all of those events since we started them as a company in the last almost 15 or so years, the people who are coming to our event are changing throughout the years. This year, we had also a lot of users, but much more executive, much more C level, we had different breakout sessions that were much more executive. I attended myself some of them as well. And the level of conversations are much more strategic. Many C and OVPs, steel levers, as I mentioned, from the largest companies in the globe that came for the conference.
So definitely the right evolution. I think it is a result of several things. First of all, the breadth offering that we have is much more strategic and getting the traction of much more senior people. That's number 1. The fact that we are providing much more strategic approach to how they shift the operation to the cloud and the fact that we are providing much more today of analytics based solutions, which are very interesting to much more of the senior people.
Thank you. Your next question comes from the line of Rishabh Jaluria, D. A. Davidson. Please go ahead.
You're live in the call.
All right. Thank you for taking my questions. Let me start with talking about the RPA side of the business. I think it's pretty clear you're getting some good interest from customers and some good momentum there. Just wanted to understand, if you look at where you've gotten some of your RPA deals, has it been mostly in selling these into the existing customer base or has there been new customers that weren't nice customers before that you've been able to kind of land with your RPA and maybe having differentiation on the attendant side?
And then I have a follow-up for Beth.
Sure. So as you said and as I provided in my opening remarks, we have great traction for RPA solution. Our we believe that the greater opportunity in the long run for RPA is within attended, which is a more complex but much higher value with much also higher stickiness, if you would like. And we augment that by a lot of AI based solutions starting from our NEVA as well as Automation Finder and few more things that will be released very soon. In terms of where do we get traction, where do we get customers, it's kind of all the above in the sense that we have a great customer base and relationship, which allow us to core sell to this customer base.
And actually, in many cases, we started the contact center and expanded into the back office. We do get traction for a lot of partnership, also completely new companies to the company. We actually have some very good traction as well for our Aktimizer channel. There are a lot of compliance related and fraud related environments that can benefit and are benefiting from automation in their environment. So many of those processes we are expert in, we are actually selling RPA into those environment into those processes as well.
Got it. Thanks. That's helpful. And then, Beth, just wanted to touch on the cloud gross margin. It looked like they did decline a bit year over year.
Just help us understand what were the drivers here and how should we be thinking about the cloud gross margin line going forward and what's going to lead to cloud gross margins kind of continuing to expand from here? Thanks.
Sure. Thanks for the question, I think as you recall, we actually acquired Mattersight in the Q3 of last year. And so it's really more comparable if you look on the cloud gross margin relative to the Q4. So if you look on quarter to quarter, you'll see that the cloud gross margin was roughly flat. And we as we've said in the past, we feel confident.
We'll continue to see the margin expand in the cloud. And this is kind of going to come from several different places. I would say, 1st, with respect to just the continued increase we're seeing in the top line and leverage we have in the model overall. And what we've said in the past is that as you start to go up market, what we see is that there's a greater attachment of the software that comes with a higher margin. And that additional software is incremental, that is driving more profitability into the cloud margin.
So we'll continue to see that. And as well as on the other side of that, we're always continuing to focus on efficiencies internally. One of the areas that we focused on is around the way that we route calls that impacts the profitability on the telephony side of the CXone offering. And so those are a few things that we're doing that give us the confidence. We'll continue to see the cloud margin expanding in the future.
Got it. Thanks. And just kind of a clarification question on that. I mean, you mentioned the impact of Mattersight, but it looks like Mattersight itself had actually higher gross margins than you do on the cloud gross margin side. So can you help us understand why is Mattersight dilutive to cloud gross margins then?
So no Mattersight actually had cloud gross margins which were less than what we were seeing in our cloud business.
Okay, got it. Thanks.
Thank you. Next question comes from Sanjit Singh, Morgan Stanley. Please go ahead.
Hi. Thank you for taking the questions and congrats on getting back to double digit revenue growth this quarter. Very nice to see. Brock, in your script, you mentioned analytics, I think an 8 figure deal in analytics and a couple of 7 figure deals. I was wondering if you could give us a sense of what the attach rate on analytics is with your cloud contact customers versus your on premise customers?
And where do you think that could go over time?
So we see a few trends that continue and actually further expanding in analytics, which I'll give you my view of what's the reason for that. First of all, it's now definitely the majority of our new business for several years now comes from analytics. And this is due to the desire of having much more sophisticated and smart solutions that our customers consume. We see several opportunities that do increase if you would like the attachment rate. First of all, we already have a very healthy customer base.
We have the largest market share according to most of the market analysts and we have a very large customer base of customers, large customers using our analytics. And those customers are coming back for more. Coming back for more is either additional use cases or expanding further in terms of capacity, the analytics. So that's one area where we see growth. It's not exactly attachment rate, it's more about expansion.
And the second thing is that as we proceeded in the last actually three and a half years in the integration of Nexidia into our solutions, it is much more embedded. Of course, it's fully embedded into CXone. And we see the attachment rates to different solution, both on premise and cloud that are growing quite dramatically. And we also see quite a good traction selling our analytics solution, which is a vendor agnostic in environment that are not native NICE environment, which again, an area that continues to grow for us. So it's kind of all the above, but expanding in all different directions.
That's very helpful. And the other part of the business I want to talk a little bit about was Financial Crime and Compliance. I think that accelerated this quarter. I think it was up 6% according to Vet Scripts. You have a new leader in the Financial Crime and Compliance and you obviously have X Sight.
What is your confidence about getting the Financial Crime and Compliance business back to sort of historical levels of growth? I know it came down last year, but what's sort of your view on the trajectory of growth in Financial Crime, both this year but maybe also longer term?
So we believe that the market is very strong, both domestically as well as globally. In Financial Crime and Compliance, we do multiple things. We are dealing with AML and Financial Markets surveillance, which are more compliance driven, but we have a lot of solutions that relates to both efficiencies as well as dealing with fraud. And the market itself is very healthy. We see a very healthy shift of not just looking at compliance, but also looking on the cost of compliance, And that allowed us actually to go and develop further capabilities into our financial crime and compliance offering, injecting AI into it in order to provide those efficiencies.
Those environments for customers are still heavy on manpower and we have the possibility and the potential to replace a lot of this manpower with robust technology that we have. This is one of the reason, actually a key reason why we embarked with X Sight, which has a very nice roadmap to it and actually very good traction with customers, which allow us now to go to our customers in areas where we were not present before and expand our footprint. The last thing is that we're starting to see very good traction for cloud for several quarters now. And I in my opening remarks, I've mentioned numerous essential deals of X Sight that are we had seen them in the revenue. They were booked and now going to step into the revenue and we'll see some growth, very nice growth in cloud also from the X Sight side of the house.
Thank you very much. Appreciate it.
Thank you. Next question comes from Davey Rosner, Barclays. Please go ahead. You're live on a call.
Hey, good afternoon. Most of my questions have been asked. So I guess 2 housekeeping ones. I was wondering if you can comment a little bit about the trend in Asia. I mean, I know it's not a key focus region for you, but just wondering why there was like a negative growth year over year?
Sure. If I'm not mistaken, I didn't look at it, but I think Q1 last year, if I'm not mistaken, was healthy for Asia. It's just a matter of quarterly fluctuation. We are positive about Asia. I think we have some great opportunities over there.
So I wouldn't look on one particular quarter. Okay. That's helpful. And then just broadly speaking,
I mean congrats on the acquisition during the quarter. Looking at your portfolio, is there anything else that you're missing and that you're seeing out there that had only specific names? I was just wondering about the acquisition pipeline.
So obviously, we're very proud with our own innovation internally. We have a tremendous investment in R and D, which we believe is the right level of investment in R and D, which keep providing us some groundbreaking innovation. But every once in a while, of course, there is an opportunity to accelerate on our strategic vectors with acquisition. And every once in a while, there is an opportunity to acquire an asset that will allow us to accelerate on the go to market. So without getting into specifics, our strategy is kind of well known.
I wouldn't get to a very specific target. We are active on the M and A front. We have a very healthy balance sheet. As you heard from Bert said before, we finalized the quarter with $890,000,000 in the bank. So we have the horsepower to make an acquisition.
And of course, for every acquisition, we look at it separately and we see if it makes sense both from strategic rationale, but of course also financially and its impact to our growth and to creating shareholder value.
Great. Thank you, Marc. Appreciate it.
Thank you.
Thank you. Next question comes from the line of Jackat Ryzhko, Citi. Please go ahead. You're live in a call.
Thank you. Looking at the favorable EPS guidance for the range for Q2, I was wondering should we extrapolate the license growth from Q1 sort of continue into Q2 and provide a little bit of a tailwind associated with the profitability mix?
So we don't guide on that. I think in the first quarter, you can see that we had really strong growth in the product revenue, and we benefited that in terms of it going directly into the bottom line. But other than that, we don't provide specific guidance there.
Okay. And then maybe a broader question. Given your leading revenue share within the cloud center market space, how are you thinking about the growth levers going forward? And that is within enterprise and then Aktimize. And that is vis a vis kind of sustaining you again within this 20% plus organic growth within your cloud line?
As we presented in our Q1, it was a very strong start for the year. We provided the guidance for the year. We on our previous call, I provided some long term view on the company with direction we would like to get to in terms of the percentage of cloud from our revenue, where we believe we'll be in the size of the company as well as our operating margin as a company. But we are guiding for the year and for the quarter and not a specific long term growth rate.
Okay. Thank you.
Thank you.
Thank you. Next question comes from the line of Dan Bergstrom, RBC Capital Markets. Please go ahead. You're live in the call.
Yes. Thanks for taking my question. So going back to Financial Crime and Compliance, crypto was mentioned that interactions as a potential opportunity. Think that seemed more aspirational to me at the time, but here you are announcing a 7 figure deal in the area. Could you talk about expanded use cases such as this or FinTech?
And then maybe drill down into that crypto deal a bit?
Sure. The definition of what is financial services when it comes to the different solution of financial crime compliance is expanding constantly. Basically, any organization that would like to take part of moving money and being responsible on moving money, one way or another, will find themselves in the need for this type of solutions. So that definition of what is the market is constantly going for us, both from an AML perspective, from anti money laundering as well as from fraud perspective. And even if they are not heavily regulated yet, what we see and we all read the headlines, they need to build the reputation and protect their reputation.
And I think we all see we've seen recently about some unfortunate incident in different crypto exchanges. So particularly or specifically in the crypto side, we see many of those exchanges and many of those that operate in this space that would like to be ahead of the curve and protect their consumer, hence they're coming to us. But it doesn't end just with crypto. It's true for anyone that is doing payment, everyone that is moving money today that would like to be very clean in terms of the eyes of the regulator, making sure that no money laundering scheme are running through their platform or through their solutions as well as, of course, dealing with fraud. Fraudsters today.
It's not that they've stopped trying to attack the banks, but obviously, they kind of expanded their addressable market as Vod served and of course expanding our addressable market.
Thanks, Barak. Very helpful.
Thank you. Next question comes from the line of Paul Coster, JPMorgan. Please go ahead. You're live in the call.
Yes. Thanks for taking my question. Beth, the G and A came down pretty significantly sequentially. Can you just talk us through that? And then can you elaborate on this comment you made about with recurring and cloud revenues being so significant now that you're going to see more linearity, understand linearity in revenues.
Will we also see more linearity in the sort of OpEx moving forward as well?
Sure. Thanks for the questions, Paul. With respect to G and A, I can say that it was a bit of an anomaly. If you look at G and A as a percent of revenue, I think you should expect in the future that it will look more consistent with what you've seen in the past. We benefited from some one time credits there during the quarter, but those will kind of normalize as we look ahead.
With respect to your second question regarding the recurring and cloud, as we've talked about in the past, I think looking forward, it does give us further transparency and predictability in our revenue overall. We are seeing more linearity. At the same time, do remember that in our cloud business, we do still have some seasonality as part of that business. There are certain end customers that are retail, for example, that have a little bit of seasonality, specifically more towards the end of the year. So you'll see some of that.
With respect to operating expenses, generally, there are certain operating expenses that are typically pretty linear from quarter to quarter. And then there are other areas such as in terms of sales and marketing costs where again you'll see a little bit more fluctuation. And obviously that's given depending on various activities during the quarter, which could be related to bookings, for example, and overall performance. So I think you'll continue to see kind of a combination of both.
Thank you. And I'm
not sure who this question goes to, but it's kind of somewhere in between CFO and CEO land. The as this business grows in coming years, where are we going to see the operating leverage? Will it actually be in the sort of gross margin space owing to cloud? Or is it going to be spread across R and D and sales, G and A? And can you sort of give us some sense of where the leverage might be most focused?
Sure. I'll answer that, Paul. So in our previous call, we talked about years down the road and we said that we would like we believe that we can aim into the area of the 30% operating margin. I think that we see a great evidence to this quarter coming up and improving by 2 30 basis points compared to Q1 of last year. And I will say that it's in multiple areas.
Yes, it is somewhat in the gross margin of the cloud. We believe that there is an opportunity for expansion over there. Although, by the way, the amortization of amortization of R and D will be present in the gross margin over there. But we have as a company as we've showed very nicely, I believe in the last 5 years, we have the ability to manage the company quite well and I believe leverage will come also from the ongoing operating expense as a company. And lastly, of course, is the scale as we grow and we're starting to bring larger and larger deals, those will provide us better return on different R and D as well as better margins on the gross margin.
Thank you. Thank you.
Thank you. We have no further questions. I would now like to turn the call back to Barak.
Thank you, everyone, for joining us, and have a great day. Thank you.
Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of the day.