Welcome to the NICE conference call discussing first quarter 2018 results. 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 May 10, 2018. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead, sir.
Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer, Beth Gaspich, Chief Financial Officer, 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 2017 annual report on Form 20-F, as filed with the Securities and Exchange Commission on March 30th, 2018.
During today's call, we will present a more detailed discussion of first quarter 2018 results and the company's guidance for the second quarter and full year 2018. The first quarter results and the guidance do not include the acquisition of Mattersight, as the acquisition has not yet closed. 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 revenue 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. Additionally, NICE adopted the new accounting standard ASC 606 in the first quarter of 2018 on a modified retrospective basis.
This means our results for the reporting periods beginning on or after January 1st, 2018, are presented under the new standard, while prior period amounts before January 1st, 2018, are not adjusted. All financial data for the first quarter of 2018, as well as guidance for the second quarter and full year 2018, are provided under ASC 605. We chose to do this to provide better transparency and comparability to 2017 financial data, which was reported under ASC 605. We'd also like to remind you that we are hosting our Investor Day on May 15th in conjunction with our annual user conference in Orlando. The special program for analysts and investors will include meetings with NICE executives, presentations from customers, product and technology sessions, and access to the solutions showcase. If you haven't registered, please email us at ir@nice.com. 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 and pleased to announce a strong start to the year. In the first quarter, we exceeded the high end of our guidance on the top line, reporting revenues of $341 million, which represented an increase of 11% compared to Q1 last year. Operating income was $84 million, which was an increase of 14% compared to last year, and earnings per share grew 16% to $1.03 per share compared to Q1 of last year. We also reported another strong quarter of operating cash flow of $137 million. Cloud continued to be a strong driver of our revenue growth, and it accelerated further in Q1. Cloud revenues increased 33% in the first quarter of 2018 compared to the first quarter of 2017.
Additionally, cloud represented 31% of total revenues compared to 26% in the first quarter of 2017, and we continue to capture high-quality cloud revenue, as evidenced by the continued increase in our cloud profitability. Our cloud gross margin grew to 64% compared to 60% one year ago. The driving force behind our strong cloud performance is CXone, as our vision for CXone has become a reality and has been the linchpin to our cloud success. We signed 147 new CXone logos in Q1, and we continue to see significant acceleration in the adoption of CXone in the enterprise segment with multiple deals well over 1,000 seats. For example, we had a seven-digit ACV deal with an e-commerce retail company, which was a replacement of an existing on-premise provider. This customer committed for a minimum term of five years, bringing the total value of the deal to $20 million.
We signed a seven-digit ACV deal with a Fortune 100 global manufacturer, which is moving its legacy on-premise-based technology to the cloud that will support 100-plus countries to help improve customer experience. We also signed a seven-digit ACV deal with a customer service outsourcer, replacing an incumbent on-premise provider. The deal was driven by CXone scalability, ease of management, and elasticity. We also witnessed additional cloud success with our financial crime and compliance essential solutions. For example, we signed a seven-digit ACV deal with a new financial services customer for Essential AML and Fraud, replacing the incumbent provider, which could not scale for a growing business. We are winning in the cloud as demonstrated by our results. Also evidence of our cloud success is the increase in the number of partners that are embracing our cloud platform.
We now have more than 100 partners that have joined our DEVone partner program, who are bringing unique added value to the CXone platform through a record number of solutions, making it the most complete and rich customer service cloud platform. For example, we have a partner providing chat builder technology with artificial intelligence, another partner offering digital contracting and identity verification, and another partner delivering visual IVR, advanced agent-caller collaboration, and service bots. This is just a select few of the new technologies that have become part of the CXone platform that are extending value to all of our customers. Additionally, rapid innovation around CXone continued with our recent spring release that provides new omni-channel customer experience insights, enhanced workforce collaboration, and elevated omni-channel customer experiences.
Since CXone is a true native cloud platform, together with NICE owning the best assets in omni-channel routing, WFO, and analytics, we are in a unique position to continue to further differentiate our offerings. Another strong driver to our success is analytics. Example of our continued winning analytics include a 7-digit expansion deal with a large financial institution and long-time customer for our new NICE COMPASS solution. NICE COMPASS helps financial institutions automate the compliance assurance process, which is necessary today as financial institutions are under growing pressure from global regulations, including MAR, Code of Conduct, and MiFID II. We also signed a 7-digit expansion deal with a large financial institution for commercial and deposit bank solutions as part of the customer's ongoing strategic effort to implement a single unified financial crime platform.
We signed a 7-digit deal with a large provider of financial software for our Voice of the Customer analytics solution, and they chose NICE for our depth of analytics and our ability to scale. We also signed an analytics deal with a large health insurer, replacing one of our competitors. We also witnessed continued strong momentum and rapid adoption of our AI-infused analytics solutions. We had very robust year-over-year booking growth of close to 100% for our robotics automation solution in Q1. The fast adoption is being driven by the increasing need for automation around growing number of different processes, including processes related to GDPR. Our robotic solution, which is part of our cognitive process automation platform, will enable the automation of operational, compliance-driven business processes that are essential for organizations to uphold GDPR, which become enforceable on May 25th.
We also added new subscriber for Actimize Watch, which is part of our autonomous financial crime management offering that uses consortium data and state-of-the-art machine learning and artificial intelligence. All of the large financial services organizations that have subscribed to Actimize Watch are continuously capturing the benefits of faster and better fraud detection. We are continuously looking for opportunities to innovate and enhance our analytics and cloud offerings. Two weeks ago, we announced the acquisition of Mattersight, a cloud-based analytics for the customer service market. Mattersight brings a strong team capabilities, domain expertise, and great customers. We look forward to closing this acquisition in the second half of this year and join forces with Mattersight to further strengthen our analytics value proposition. In summary, we are happy with the strong start to the year. It is our winning approach that has enabled us to continue to strengthen our industry-leading position.
Through both innovation and acquisition, we continue to secure industry-best assets to help us capture the many opportunities ahead of us, and we look forward to the remainder of 2018 to continue to leverage the assets we have in place. I'm looking forward to seeing you next week at Interactions, our annual user conference, which is the largest in our industry. We're expecting a record number of over 2,000 customers in attendance this year and 127 customer speakers at various breakout sessions throughout the event. I will now turn the call over to Beth, who will review our financial results.
Thank you, Barak, good day, everyone. I am pleased to provide you with an analysis of our financial results and business performance for the first quarter, as well as our outlook for the second quarter and full year 2018. Now I will review the results. Revenue for the first quarter was $341 million, which represented an increase of 11% from $308 million in the same period of last year. Customer engagement revenues for the first quarter were $275 million, an increase of 13% compared to $243 million last year, and financial crime and compliance revenues were $66 million, a slight increase from the same period last year. Product revenues accounted for 19% of total revenue in the first quarter. Cloud revenues accounted for 31% of total revenue in the first quarter, and services accounted for the remaining 50% of total revenue in the first quarter.
Recurring revenue for Q1 2018 continued to increase, driven by our strong growth in cloud revenue, reached 69% of total revenue compared to 65% in the same quarter of last year. On a regional breakdown, revenues in the Americas were $257 million in the first quarter, an increase of 8% compared to Q1 2017. Revenues in EMEA increased 26% to $55 million for the first quarter, compared to $44 million last year. Revenues for the Asia Pacific region were $28 million for the first quarter, an increase of 12%. Gross profit in the first quarter increased 12% to $241 million, compared to $215 million last year. Gross margin in Q1 also increased to 70.6%, from 69.9% in Q1 last year. The gross margin was achieved as a result of year-over-year margin increases in all aspects of our business, cloud, services, and product.
Operating income in the first quarter grew 14% to $84 million compared to $74 million last year. Operating margin increased to 24.6% compared to 23.9% last year. The increase in the operating margin is the result of strong operating leverage in our financial model. The effective tax rate for the quarter was 21.3%, compared to 23.2% in the same quarter last year. The tax rate has declined primarily as a result of a lower corporate tax rate in the U.S. We expect the effective tax rate for 2018 to be in the range of 21%-23%. Earnings per share for the first quarter increased to $1.03 compared to $0.89 last year, representing growth of 16%. First quarter cash flow from operations was strong and reached $137 million compared to $133 million last year.
Total cash and financial investments were $647 million at the end of March 2018, and total debt was $450 million net of issuance cost and the equity component associated with our convertible debt. Before I turn to guidance, I want to remind everyone that last quarter I highlighted that we expect our revenue to be less back-end loaded this year. This expectation remains unchanged, since as demonstrated in our first quarter results, our cloud revenue is becoming a larger portion of our revenue. As mentioned earlier, we adopted the new revenue recognition accounting standard, ASC 606, during the first quarter of 2018 on a modified retrospective basis. However, we elected to provide guidance for Q1 2018 and the full year 2018 using the accounting standard ASC 605 for non-GAAP purposes.
We chose to do this to provide better transparency and comparability to 2017 financial data, which was reported under ASC 605. Now to guidance. For the second quarter 2018, we expect total revenue to be in a range of $338 million-$348 million and fully diluted earnings per share to be in a range of $1-$1.06. For the full year 2018, we are increasing our guidance for revenue and fully diluted earnings per share. We now expect total revenue to be in a range of $1,434,000,000 -$1,458,000,000 , and fully diluted earnings per share to be in a range of $4.43-$4.63. The full year 2018 guidance does not include the acquisition of Mattersight since the acquisition has not yet closed. I will now turn the call over to the operator for questions. Operator?
Thank you very much. Ladies and gentlemen, your question and answer session will now begin. If you wish to ask a question, please key star one on your telephone. If you then decide to withdraw your question, simply key star two. That's star one on your telephone to ask a question. Your first question comes from the line of Shaul Eyal of Oppenheimer. Please go ahead.
Thank you. Good afternoon, Barak, Beth, Eran, and Marty. Congrats on yet another set of results. Barak, I wanted to dive more into the strong outperformance NICE has exhibited during this quarter. I know you've mentioned e-book [audio distortion], but I wanted to understand if there's any other underlying trends pushing this business higher, and how can we be thinking about it going forward as 2018 unfolds?
Thank you, Shaul. Your line was breaking up a bit. I think I got the question with regards to the trends and around the cloud
Which was a strong reason for the outperformance this quarter. I would say that the main reason behind it is obviously CXone. We definitely see acceleration in the adoption. To be more granular, I'll say that what we saw, and the reason for the good increase, first of all, we see more customers. We're winning more deals. I've mentioned the numbers of deals on my previous remarks, but more so in the larger enterprises, customers with well above 1,000 seats that are adopting it. The higher end of the market is moving to the cloud, and that's the first benefit and the first reason for the acceleration. The second one is, since CXone is a fully integrated platform that has all the different components from NICE, Nexidia, and inContact, we see a much higher attach rate of solutions like WFO and analytics to the core channel routing.
As a result of that, the price itself, what we managed to get from a customer, increased in quite a significant way. The last one is because of the nature of the CXone platform, that it is a true native cloud platform. The time from booking to actual activation, what we call turnups, is shortened dramatically. Obviously, it benefits our revenue. It's also benefiting, quite dramatically, customer that used, in the past, in the on-premise environment, to see projects that took one year or more. All of a sudden, they're experiencing turnup time of anywhere from days to weeks.
Got it. Thank you for that, Barak. My follow-up is either for Eran or Barak, also maybe you want to contribute your insight. It's actually on Mattersight. I think some of us here on the call, we know Mattersight. We know their history. At least from my end, seems to be one of those small companies with great technology that was never able to really take it off. I know it has to do with some performance issues, maybe some management turnover. What's the strategic plan you guys had in mind once the acquisition is closed? Bringing it up to the same corporate level from a margin perspective, like NICE core, correlating that with Nexidia, maybe. I know these guys have taken more of a special vertical focus. How do you think about it going forward?
Sure. We announced the acquisition of Mattersight just a couple of weeks ago. As you heard, both Barak mentioned and Beth, the numbers, both in data number, of course, and in the guidance that isn't yet in the numbers. We expect the closing to happen sometime in the second half of the year. The rationale from our perspective is that, as I mentioned, it's a good company. Some interesting technological assets and good talent. We have a lot of synergies between the two companies, which we're trying. We, of course, plan to take those synergies into consideration and some great customers. We believe that with their technological assets, there will be some very interesting things we will be able to integrate into both Nexidia and the CXone platform, including the technology called PBR. As we get closer to the actual closing, of course, we'll provide more updates.
Fair enough. Thank you for that, Barak. See you all next week. Good luck.
Thank you.
Thank you for your question. Your next question is from the line of Dan Bergstrom of RBC Capital Markets. Please go ahead.
Yeah, thanks for taking my question here. On CXone, you talked about already having an update to the product here with the spring release last week. Could you talk about the update cadence we should expect here, what this gives you versus competitors as far as an ability to roll out updates like this, and then maybe anything you'd like to highlight from the new release? Sounds like there's been some enhancements to feedback management and some updates on the WFO side.
Sure. As you know, we have spent quite a bit of time in building CXone in the last, I would say, almost a year and a half or two years, with the combined teams of NICE and inContact. We launched CXone mid-last year, after a heavy investment that we've done in the platform itself. Now that we have this platform, what we are experienced and what our customer can expect from us moving forward is a very rapid cycles of innovation. The spring release that we announced indeed one week ago is a first of many. In each one of those cycles, because of the nature of this platform, we are able to do several things.
First of all, we are able to add a lot of features that are across the different products that I've mentioned, WFO and analytics and Voice of the Customer, et cetera. Things that cannot be enabled just by integrating products. You actually need to have a platform for them. We are at that stage. We believe that it gives us a very significant differentiation. Those of you who will attend our user conference and investor analyst conference, next week, will be able to see how you can actually see all the different products under a single platform, single administration, single reporting. Sounds kind of obvious, this is something that never existed and doesn't exist till this point in the customer service market, and our customers and prospects are very excited about it.
Moving ahead, we see enabling a lot of workflows as we're working on them right now, infusing analytics to all the different processes, as well as further enabling a lot of the innovation that will come from the very large ecosystem of partners that joined in the last year or so to the platform. Bringing all this together, this rapid innovation is significant. Of course, every customer that standardizes in CXone, the minute we have a new release, immediately overnight, their environment is getting updated. We have this ability now to update hundreds and thousands of environments at any scale, and they're enjoying those benefits. Something that doesn't exist on the on-premise environment as well as doesn't exist with other hosted or cloud environments that are a combination of multiple products from different vendors.
Great. Thanks, Barak.
Thank you.
Thank you.
Your next question is from the line of Walter Pritchard of Citi. Please go ahead.
Hi. Thanks. Just a first clarification from Beth. Could you just run the segment breakout on a 605 basis? I think we're just seeing that on a 606 basis, really. Revenue, I mean.
Yes. Thank you for the question, Walter. As we've highlighted on the call, all of our non-GAAP results, we are reporting on a non-GAAP ASC 605 basis, and we've done that intentionally to create better transparency and an apples-to-apples comparison in the current non-GAAP numbers for 2018 relative to 2017. In terms of creating more information regarding the segments, I believe is what you've asked, the information that I highlighted during the call, all of that was under ASC 605. The customer engagement revenues in the first quarter was $275 million, which increased 13% over last year, and financial crime and compliance was $66 million in the first quarter, with that's a slight increase over last year.
The product services and cloud. Can you just run through those numbers just to make sure we have that, was more what I meant by segment?
Yes, certainly. Again, the product revenues accounted for 19% of our total revenue in the first quarter. Our cloud revenues accounted for 31% of total revenue in the first quarter, and the services accounted for the remaining 50%. In terms of the year-over-year performance, we've already highlighted that cloud was really the primary driver of growth in the first quarter, with a growth of 33% year-over-year.
Okay. Then just Europe for Barak. Europe looked really strong, and I guess we're used to seeing cloud adoption probably first happen in the U.S. and then move into Europe. I'm wondering if you're seeing an acceleration in cloud in Europe or otherwise, what drove the strong performance you saw out of Europe?
I think it's all the above. We see good momentum in Europe, good adoption of our solution, some good differentiation. Analytics is very strong in Europe. Also the preparation of GDPR, we created some great opportunities with our robotics automation that helps organizations to get themselves prepared into GDPR, which we believe will continue way into the adoption of GDPR as organizations so far, many of them, created a lot of manual processes in order to be able to manage consent and the right to be forgotten, and so on and so forth. We see a lot of demand right now to take those cross-system and enterprise-wide processes and now automate them with robotic process automation.
Got it. Just last one. On the services side, that line was quite strong versus what we were expecting. I know you don't break out pro serve, but directionally, was that pro serve? Wondering if product trends continue with the transition to the cloud, do you still expect medium, long-term growth in services?
With respect to services, again, our services revenue line item includes both maintenance and professional services, and we don't break out the revenue or the growth separately. However, we can say that overall, we continue to have strong services that are being provided as part of the overall business. With respect to our maintenance, we continue to have a very strong retention rate in our maintenance revenue that's consistent with really strong industry standards around enterprise software. On the product revenue side, it's not surprising that we do see more variability from quarter to quarter, which is more natural from the sense that we also have perpetual-based software. We'll see more variability in that line.
Great. Thank you.
Thank you.
Thank you for your question. Your next question is from the line of Sanjit Singh of Morgan Stanley. Please proceed.
Thank you for squeezing me in, and congrats on a nice start to the year. Barak, I had a couple of questions on CXone, just in terms of some of the trends that you're seeing With respect to net new customers, what are they bringing on first? Are they bringing on the entire solution, both the WFO and the contact center side? And then in terms of the existing customer base, what are some of the trends there? Are they looking at moving WFO to the cloud, or are they looking at displacing their current contact centers infrastructure?
Sure. I'll start with the first one, the net new customers. As you've heard from my previous remarks, we continue to see a significant amount of new logos added to our CXone. If in the past it was more difficult for them to go with the omni-channel routing and other solution we yet integrated, now with CXone, we see a lot of adoption just right out of the gate for the full suite, which include multiple solution, you mentioned WFO, analytics, Voice of the Customer, et cetera. Customers see now the demonstration of the unified suite, and they want altogether because in the cloud, they no longer look at it as a distinct siloed solution. They see a great benefit from across products and cross-platform processes. We see a significant increase, as I mentioned, in the attachment rate day one, just right out the gate.
This is about new customers. About existing customers, obviously, as we acquired inContact, they have relatively a small portion of their install base, or their customer base that has WFO solution. This is mainly because inContact had to purchase this solution from another vendor, not from NICE, and they didn't have very significant incentive to actually go and promote it. Our sales people are highly incentivized to go and do the cross-selling and upselling. Obviously, these customers, as they move to CXone, they see the benefits, and we see a lot of demand from existing customers to also adopt the solution. As I mentioned before, as we further extend the richness of CXone, there will be more and more solution available.
Besides going after new customers, we will have the ability to go to the install base time and again and cross and upsell to these customers.
That's very helpful. For my follow-up, I noticed in your script you had a lot of sort of positive commentary on the financial crime and compliance business. I noticed that this quarter growth was relatively modest in the low single digits. Should we take that to mean that the pipeline, or at least in terms of revenue for the rest of the year, that there could be some acceleration on the financial crime and compliance side of the business?
Sure. I've mentioned some of the very interesting deals in our financial crime and compliance business, including we see a faster adoption to cloud. Obviously, when we start to adopt cloud, the revenue growth will come a bit later. Second, the autonomous financial crime management solution in the form of Actimize Watch. There are a lot of exciting things happening in this segment. This quarter is somewhat of a tough comparison. Last Q1 of 2017, the growth in the financial crime and compliance business was actually 20%. It's a pretty tough comp. I think we've seen in the last, I would say, couple of years, we see fluctuation within quarters in terms of growth rate. Overall, we're very optimistic about the healthiness of the business. Actually, the pipeline generation growth, just in the past quarter, just in Q1, was a record high.
Very good. Congrats. Thank you.
Thank you.
Your next question is from the line of Gabriela Borges of Goldman Sachs. Please go ahead.
Good morning. Thanks for taking my question. Congrats on the quarter. Barak, you mentioned a couple of times this idea of attach rates going up and pricing or contract value going up because customers are adopting more things from NICE. Is there a way to think about the relative size of the upsell? In other words, if you have an existing customer or a new customer that previously would've only engaged with you on the WFO side, how much bigger does the deal get when they start buying things like analytics and they start buying the entire platform along with ACD as part of the CXone platform? Thank you.
Sure. Obviously, every customer is different from another. I'll try to give you some idea of what are the potential upsides versus buying the very basics. As I've mentioned, that CXone, because of the way it is designed, because of the value it brings, it creates a lot of appetite for customers to take either everything or at least have a roadmap to onboard all the different solutions. Without mentioning specific price for competitive reason, obviously, a basic customer might adopt either just a WFO or just an omni-channel routing. The minute they start to add that, plus network connectivity, plus analytics, plus certain other things, the annual rate that we see from such a customer can move several turns. Instead of an X, it can go up even 2 and 3x for these type of solution, if they take everything.
It really depend on so many different variable. The beauty about CXone is that they have the ability to turn on and off capabilities Features as they want because the payment or the billing is monthly and per capability, and they have a greater elasticity in the model. Many verticals would like to have, and the only way to get it is with the cloud solution, like CXone. They want to grow and shrink in a very rapid way, and CXone elastic model allows that.
That's very helpful. Thank you. The follow-up is just on the sales force. At a high level, could you just remind us how you're incentivizing the sales force specifically? Is there a move to encourage the sales force to sell more of CXone and more of cloud type business versus the old perpetual license model? When you do sign the longer-term cloud contracts, how are you thinking about billing multiple years versus maybe getting a commitment for multiple years and billing annually? Maybe just a little more on how the contracts are structured and whether the sales force is incentivized to sign multi-year deals. Thank you.
Sure. From a sales force, what's important for us is to be extremely flexible to what customer wants. Some customers want to go cloud all in. Some would like to see a transition. You have to think that large customers, they all want to go to the cloud. Their problem, mainly, is how to move from point A to B in a way that will be the most beneficial for their business, for their economics, et cetera. From our sales people, obviously, they're incentivizing both, and there are certain levers up and down. The most important thing for us is that they will do what's right for the customer, and we guide them in the right way, which eventually we believe is the win-win formula, with regard also to our future success.
With regards to, hold up, what was the second part of the question? I'm sorry.
Just how you're thinking about the commitment to multi-year agreements. When you get a seven-figure ACV deal, is there typically a commitment for the customer to stay for multiple years? Are you billing one year up front? Are you thinking about billing multiple years up front? Just a little bit on if you can get longer-term contracts and how those are structured.
Sure. First of all, we are billing most of our customers on a monthly basis because of the ups and down in the elastic model, and customer like it very much. Some customers choose to take a longer-term commitment, like the one that I've mentioned before, because they would like to actually have a certain framework to their work with us, and some go on an annual commitment, and even some go lower than that. What we see in terms of our retention rate is that the solution is such mission-critical, and it's so embedded into their business processes, that even if the customer is not committed contractually for several years, they do stay with us for many years. Actually, the lifetime of the customer with our solution is getting longer and longer.
I appreciate the color. Thank you.
Thank you.
Thank you. Your next question is from the line of Tavy Rosner of Barclays. Please go ahead.
Hi. Thanks for taking my question. Most of them have been answered. Just had a quick one on margins. First of all, what's driving the expansion of the cloud gross margin? Perhaps just to follow up, where you mentioned of the impact of having your existing customer potentially adopting CXone, you mentioned revenue in upselling them. I was wondering what's the effect regarding margins on the same potential customer.
Sure. Thank you for the question. We had very strong cloud gross margins in the first quarter. If you look back onto the first quarter as to post the acquisition of inContact in Q4 2016, and you follow up until today, you'll see that we've consistently focused on driving profitability. We are highly focused in terms of driving efficiencies into the cloud business. We've taken several steps to just continue to enhance our cloud margins. A couple of the things that we've actually looked at, one is that, with our cloud business, we are able to actually look at how we route the calls. We've started to use our own ability to look at routing to basically have improved and smarter routing and to lower the cost.
In addition, as we've done in our other services parts of the business, we're also looking to utilize hiring talent in lower cost regions that will enhance us over time. Finally, I would say the third driver is really the power of the combined entity in terms of the cloud business, where we've been able to go back and really just use our strength with our vendors through additional negotiations, in terms of our overall services that we utilize. It's been a continued focus. We expect to continue to have great leverage in the model, it's really, we're seeing that driven by the increase of the top line in the cloud revenue as well, which we expect to continue to be able to demonstrate over time.
I'll address the second part of your question, Tavy. Just before that, just one more comment on what Beth said. As we move further into larger and larger customers, as I've mentioned on my opening remarks, gross margin of cloud is expected to improve given the economy of scale. CXone architecture by itself, giving us great leverage in the margin unit economics, and CXone is great. With respect to cross-selling, you're absolutely right. When we have an existing customer, as I mentioned, because of the nature of the integrated products under the platform of CXone, turning on, if you would like, capabilities, whether it's WFO or analytics, in terms of the leverage, the gross margin is very, very high. It's not deploying a separate solution like other vendors need to bring yet another environment or sometime contract a third party.
It's all under the same environment, actually the same platform, hence there is incremental revenue with little to zero incremental in cost.
Thank you very much. See you next week.
Thank you for your questions, ladies and gentlemen. I will now hand the call over to Barak Eilam. Thank you.
Thank you all for joining us this morning, and we look forward to seeing you next week in Orlando. Thank you.
Thank you, sir. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you very much indeed for joining.