Earnings Call: Q2 2021

Aug 5, 2021

Welcome to the NICE conference call discussing second quarter 2021 results. Thank you for holding. All participants are at present in 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 August 5th, 2021. I would now like to turn the conference over to Mr. Marty Cohen, VP Investor Relations at NICE. Please go ahead. Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer, and Beth Gaspich, Chief Financial Officer. 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 23rd, 2021. During today's call, we will present a more detailed discussion of second quarter 2021 results and the company's guidance for the third quarter and full year 2021. 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 difference 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. We are pleased to announce an excellent quarter marked by an acceleration in all our key financial metrics. Cloud revenue continues to flourish with 32% growth, while total revenue continued to accelerate well into the teens, increasing 16% year-over-year. Driving this acceleration is our solid and consistent execution in cloud during the past five years. Unlike traditional cloud transitions that are focused on simply switching customers from license to subscription model, our overall revenue growth is accelerating due to a combination of two drivers to our cloud business. First, net new cloud business in CCaaS, digital, and self-service, solutions that we did not previously offer in the on-premise model. Second, cloud conversions of our existing on-premise products, resulting in higher annual revenue per customer. As our cloud revenue continues to experience rapid growth and is becoming a larger share of our total revenue, we expect that the acceleration in the growth of our total revenue will continue over the next few years. While the cloudification of our market continues to speed up, we are experiencing another major opportunity in the CX market as it expands to full digital CX. Just like five years ago in cloud, NICE is well-positioned to take on and grow its leadership position with yet another great market opportunity in digital. Back in 2016, we made a major strategic transformation at NICE by making an aggressive move to the cloud with the acquisition of inContact. It was a strategy to capitalize on rapidly changing market, a market in which enterprises of all sizes were beginning to shift to the cloud. Customer service organizations were exploring the cloud for its agility, pace of implementation, elasticity, scalability, and overall lower total cost of ownership. At the same time, they expected a customer service solution with a full set of capabilities and applications combined into a single cloud-native suite. With the acquisition of inContact, we embarked on a massive investment to deliver what organizations of all sizes needed, and that resulted in CXone, the market-leading native CX cloud platform. Since then, NICE became the clear leader of this fast-evolving market. Our leadership is achieved through four contributing unique ingredients. The first is our assets, particularly omni-channel routing, workforce engagement management, high-value analytics, AI, digital and self-service, all native to and seamlessly integrated into CXone. The second is our unimpeded focus on the CX market. The third is our distinct competitive advantage in large enterprises due to the breadth and depth of our platform, our domain expertise at the height of the market, and our global footprint. The fourth is our relentless innovation demonstrated by the hundreds of added features and functionalities in CXone every year. Our cutting-edge AI with Enlighten and unique enhancements that evolve CXone into a full enabled digital platform. All four of these ingredients are critical factors in delineating our market leadership. In cloud, we identified a rapidly growing market, set a clear strategy, and executed well. As a result, we are now a $1 billion revenue run rate cloud company. Cloud revenue continues to exhibit rapid growth, and it now represents more than 50% of our total revenue, compared to less than 5% prior to the launch of CXone. Today, digital is similar to what cloud was for us five years ago. Like cloud, the opportunity in digital is enormous. The expansion of customer service interactions into full digital is in full swing, with a growing part of consumer journeys taking place at digital touchpoints. There is a clear realization that Gen-1 CX solutions, which have a disjointed interaction management approach and cannot cover and maintain context through the entire customer journey, are preventing organizations from participating in the most critical part of their consumers' experiences that are taking place in digital. This realization creates a major disruption and increasing demand for unified next gen CX platforms that can manage all interactions across every consumer touchpoint, from digital to voice, for any service need, in both a responsive and proactive manner. With the investments we made in digital CX, both organically and through acquisitions over the past 18 months, we have evolved CXone into a complete platform with a unique set of solutions that can now cover all consumer touchpoints. CXone now allows organizations to move from managing interactions just in the contact center to owning the entire customer journey. This was achieved with the recent launch of CXone SmartReach and CXone Expert that expanded CXone into a full proactive engagement platform using advanced conversational AI driven by state-of-the-art knowledge management in more than 35 digital channels. Moreover, what also makes our platform rise well above other solutions in the market, and the glue that makes our platform unique, is the massive amount of CX data we have processed over the past few decades. This data, coupled with AI and machine learning, is crucial to enable smart conversational self-service among all the digital channels. This large volume of data, our domain expertise, and CXone as the best seamless integrated digital platform in the market today, embody a powerful combination of assets. With these assets, we now have a major opportunity in front of us as we put our digital CX platform in the hands of organizations worldwide and take the clear market lead in digital and self-service. To switch gears and turn to our quarterly results, in which we reported very strong metrics across the board. Digital transformation, strong growth in the large enterprise market, analytics and AI, and international are the key business pillars that are driving our success. First, the number of deals that included digital increased 41% in Q2. CXone digital deals included 7-digit ACV deals with a very large financial services company, a well-known European-based home improvement retailer, and one of the largest digital broadband providers in the U.K. They also included a large healthcare company, a well-known clothing retailer, a state government agency, and a cloud-based agile software company, among many others. Many of these digital deals are being signed by large enterprises and almost all are competitive replacements of the incumbent legacy Gen-1 providers that cannot meet the digital demands of today's consumers. That brings me to our success in the large enterprise market in Q2, where we saw an increase of 60% in 7-digit deals. Moreover, we are witnessing an increasing quarterly trend where multiple CXone applications are being sold in each deal. This is a testament to the seamless integration and the breadth and depth of our CXone platform, as well as our strength and leadership in the large enterprise market. This competitive differentiation enables us to gather more revenue per seat and more total overall seats. A few examples of large enterprise deals included 7-digit ACV CXone deals with one of the world's largest hotel chains, a digital payments company, and a large, well-known health insurance company. They also included a large broadband provider, a business outsourcer, and an online marketplace for health insurance. Analytics and AI are key areas of strength at NICE, as they are injected into almost everything we do. In Q2, for example, we signed multiple 7-digit deals for Enlighten, our market-leading AI solution. The deals including a leading lodging online marketplace company and a provider of vehicle lifecycle management software. Analytics and AI are also driving accelerated growth in our financial crime compliance business, including 3 very large 8-digit deals, 1 deal with a very large insurance provider, and 2 deals with very large financial institutions. Another key area I mentioned is international. We have continued to expand our global go-to market through our partner ecosystem, as well as growing our local presence. We're seeing the positive impact in our results as international bookings doubled in the quarter. In addition, the number of deals outside of the U.S. continue to rapidly grow in number and size. For example, international deals included a 7-digit deal with an Australian energy company and a 7-digit deal with a very large Japanese telecom company. We signed 7-digit deal with large European banks, a large U.K.-based insurance broker, and one of the largest banks in Germany. In summary, Q2 was a very strong quarter on all fronts. We are now beginning to witness the impact of cloud revenue, representing more than half of our business, which is driving the acceleration of our total revenue growth. Our strong financial performance reflects the increasing leadership gap between NICE and our competitors. This widening gap is being driven by our solid execution in cloud and digital, our strength at the high end of the market, where we believe we are unmatched in our offering and domain expertise, and CXone, the most complete customer experience platform in the market today. We are excited for the continued opportunities ahead of us, with only 10% of the market that has converted to cloud and digital and self-service barely in the first innings of its transformation. As the clear leader in our industry, we believe we are by far in the best competitive position to capitalize on the opportunities ahead. Thank you, and I will now turn the call over to Beth Gaspich. Thank you, Barak. Good day everyone. I am pleased to provide the analysis of our financial results and business performance for the second quarter of 2021, and provide our outlook for the third quarter and full year. Our second quarter financial results were excellent, with 16% year-over-year growth on the top line, a 32% increase in cloud revenue, and further improvement in the cloud gross margin, which is a testament to the scalability and efficiency of our cloud business. Total revenue for the second quarter reached a record of $459 million compared to $395 million in the same period of last year. Total revenue growth was again driven by our impressive cloud revenue, in which its relative share of our overall revenue continues to increase and stood at 54% of total revenue in Q2. Product revenue represented 10% of total revenue, and services revenue represented the remaining 36% of total revenue. We exited the quarter with an annual cloud revenue run rate of more than $1 billion. Our cloud business is expected to continue to thrive as we further penetrate the market, continue to add new logos, and convert existing on-premise customers to the cloud, in which the conversion typically results in a significant uplift in annual contract value. Our recurring revenue increased to 82% of total revenue in the quarter, compared to 80% last year. Our cloud revenue is primarily being driven by CXone in all segments of the market, with market momentum shifting to digital and self-service. Our new solutions, CXone Expert and CXone SmartReach, were both significant in winning some of the key large enterprise digital deals in the quarter. The Americas region today is still our primary market, which represented 80% of total revenue in Q2 and which grew 15% year-over-year. We are continuing to see more growth in the international market as we are driving further traction with our international partners. We reported very strong growth in EMEA, which represented 14% of our total revenue and grew 43% year-over-year. APAC represented 6% of our total revenue in Q2. Moving to our business unit breakdown. Customer engagement revenues, which represented 83% of our total revenue in Q2, totaled $381 million for the second quarter, an 18% increase compared to the same quarter last year. In financial crime and compliance, revenues were $78 million for the second quarter, which was an increase of 9% from Q2 last year and represented 17% of our total revenue. Our gross profit year-over-year growth accelerated to a record 18%, totaling $332 million in the second quarter, compared to $281 million for the second quarter of 2020. For the first time, cloud gross profit represented over 50% of our total gross profit. Gross margin increased to 72.2% compared to 71% in Q2 last year. The increase in gross margin was mainly attributed to an increase of 200 basis points in the cloud gross margin, which reached a record 67.7% in Q2. We continue to expect improvements in our cloud gross margin as our cloud business expands. In Q2, operating income increased by 16% year-over-year to $130 million compared to $111 million in Q2 2020, and operating margin was 28.2% like last year. Earnings per share for the second quarter totaled $1.57, an increase of 15% compared to Q2 last year. We experienced another strong quarter in operating cash flow, which totaled $81 million in Q2, an increase of 37% compared to last year. Total cash and investments at the end of June 30, 2021 totaled $1 billion and $408 million. Net of debt of $613 million, our net cash totaled $795 million. Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on strategic acquisitions that are consistent with our digital growth strategy and capital allocation plans. I will conclude my remarks with guidance. For the third quarter of 2021, we expect total revenue to be in the range of $460 million-$470 million. We expect the third quarter 2021 fully diluted earnings per share to be in a range of $1.51-$1.61. For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1,835 million-$1,855 million. We are also increasing the range of our guidance for the full year 2021 fully diluted earnings per share to be in a range of $6.26-$6.46. I will now turn the call over to the operator for questions. Operator? Our first question comes from Samad Samana from Jefferies. Please go ahead. Hi, great. Good morning, and thanks for taking my questions. It's great to see the cloud results. Barak, maybe we'll kick it off the top. It feels like we talked a lot more about digital and your efforts there this quarter. I'm curious, just if you think about the upmarket success that you're seeing, how do you feel about digital as far as expanding maybe the average deal size, as you attach that more and more frequently? Is that making larger enterprises accelerate their shift to the cloud? Yeah. Thanks for the question. As I said in my earlier remarks, this shift or expansion actually that we see to digital is both what we hear from our customers, as well as what we put as our strategy a couple of years ago, and we've been executing in the last few quarters, both organically and through acquisition. First, I would say that we believe that the leadership in CCaaS, if you remember, when we stepped into CCaaS, we have converged CCaaS WFM and analytics and became a leader with CXone with that. Today, we believe that the future is by converging that with digital. That's what we hear from our customers. That's what they want to see. In terms of the potential, it's enormous. If you think of CCaaS and the way we think about it's technology that is supporting and connecting consumers to contact center agents. The beauty of digital and self-service that, if it is done right, it can actually eliminate the need for the agent. The cost of an agent today is about $50,000 a year on average. It can get up to that level. In the industry, there are 15 million agents, and by the time of when we get to a point that we can start reducing this number by moving into digital and self-service, you can easily calculate the potential of this market. Needless to say that in order to do that, you need a full suite of the offering combining CCaaS and full digital CX. I talked about the notion of organization wanting to see the next generation of digital CX versus the first gen solution. If you take all of that, what we see is that in those deals that I spoke about, it increases the wallet share for us quite dramatically, and definitely at the high end of the market. We believe that we'll continue to see the trend as both the cloudification of our market together with digital CX, are starting to accelerate. Great. Then, just maybe as a follow-up, I have to ask, there's obviously huge news in the industry with Five9 and Zoom announcing that they plan to merge together. I'm just curious on maybe what you think the implications are for NICE and what you see as an opportunity coming out of that potentially or how you think about NICE's positioning in the market as a consequence? Yeah. First I'll say, one insight from this particular transaction is that we see what we said all the time, that the potential in the customer engagement market is huge. Usually, large players don't step and don't acquire into markets that do not have a big TAM. I think that particular transaction, as well as others, represent the potential of the future TAM, the current and the future TAM of this market. That's one more proof point to that. The second, if you'd like, lesson learned from that is that anyone that have the desire to organically build and develop into this market, it's too late. It's a highly complicated feature-rich market that requires a lot of domain expertise. In order to build and be competitive in this market, the only way for someone to get into this market is to buy into this market, there aren't too many players in this market. Actually, Five9 were not a leader in the Gartner MQ, them being taken out by a video collaboration player is actually good news for us. The last one, going back to what I said on the call, we believe that in order to win the customer engagement market, the direction, and the need from customers is to offer full digital CX offering that includes CCaaS, workforce engagement, analytics, AI, digital, and self-service. That's where we were busy in the last 18 months, and this is where we see the success today. In this particular transaction, I don't think Zoom is giving Five9 any of those assets. I don't see how it solves their problem. Quite frankly, we're happy with the upcoming disruption to them. We believe we have a very solid position, both with our offering as well as many other partners that we have, and we do great business together. Great. Then maybe just one for you, Beth, and then I'll turn it over. Just the cloud revenue was really impressive, staying well above 30% even as the comp got tougher. I know you give total revenue guidance. Can you maybe just help us understand in shorter term how we should think about the linearity of cloud revenue growth? I know that the company's given longer term guidance. Just how should we think about the short-term cloud revenue growth trends? Yeah, thanks for the question, Samad. As you've seen, we've been consistently delivering a really healthy growth in our cloud business. Looking on the first half of the year gave us confidence, obviously, on the visibility and line of sight looking forward. We remain really optimistic and in a good place with respect to cloud revenue looking forward. As you know, we don't give specific guidance with respect to our cloud. I can reiterate what we've shared already in the past, which is that if you look over the next few years, we're confident that we'll see a 25% growth or higher. In the current year, we're comfortable that we'll be in excess of a 25% growth. Great. Thank you both for taking my questions. Congrats on the quarter. Thank you. Our next question comes from Pat Walravens from JMP Securities. Please go ahead. Oh, great. Thank you, and congratulations. Hey, Barak, back to this sort of how the industry is changing question. I have sort of a two-part question. Part one is how important is it to have the call center software riding directly on top of the global communications infrastructure? That would be the idea, I guess, with Five9 and Zoom. People say that's also part of the appeal of Talkdesk riding on top of Twilio. I'd love to hear your thoughts on that theme and whether that's really important or not. Also your thoughts on Talkdesk competitively. Thanks for the question. Most of our deals are not driven or combined with unified communication, and for sure not with video collaboration. We haven't seen any traction on that. It's a different buyer between video collaboration and CCaaS. The other thing that we're seeing, and I've talked about it a lot in past quarters, is that while there is some of that behavior in the lower end of the market, if you go up-market, these are usually decisions that are taken separately. Also, the fact that in the higher end of the market, the need from customers is much more about the expanding from a CCaaS to a full digital CX offering with everything that I've mentioned before. It's a very feature-rich offering, very complicated, if you would like, sales cycle in that regard. It's not because the sales cycle is complicated, it's because the type of transformation customers are looking for is significant. We don't see too much of that, and especially not at the higher end of the market. Specifically about, I think you asked about Talkdesk, right? Right. We don't see them a lot. I think they are competing more at the lower end of the market. They are much, much smaller player as far as we know. They are a private company, so we don't know for sure. They are not a leader in our market, and it's one more competitor in the market that we see. They're lacking, of course, a lot of the things we have done, both organically and through acquisition, and the completeness, if you would like, of the suite. Great. Thank you for that perspective. Our next question comes from Tavy Rosner from Barclays. Please go ahead. Hi. Good afternoon. Thanks for taking my questions. I just wanted to talk a little bit about the transition to the cloud. I guess the first part of the question would be if you can get a sense of what proportion of new revenue is coming up from existing customer transitioning to the cloud as opposed to new logos. I guess as a follow-on, I'm assuming that NICE sales approach kind of your entire customer base and try to convert them from on-prem to CXone. I guess, do you ever get pushback from customers saying, "Listen, we're happy with our on-prem solution. It's working. No need for CXone. At least no need in the near future." I'm just curious to get your perspective. Sure. If you remember, at my opening remarks, I talked about what I believe is quite unique in our cloudification story for the company. We are not just a company that takes its customer base and converting it to the cloud and basically doing the reclassification of its revenue. Our cloud transformation, and you've seen it in the last few years, and you continue to see it in a more pronounced way in the last few quarters, is derived by two separate dynamics. First of all is us stepping into a market, the CCaaS market, and now the full digital CX market, with new cloud solutions, with the CXone platform, that we did not previously offer in the on-premise. For us, it's a complete upside, just new business, not converting any existing revenue that we have. To your question, that is the predominant, the larger part and the larger share both of the revenue as well as the new business. It means that there is still a pretty long runway for us to continue and do that, and at the same time, to start and accelerating the conversion of the existing customer base that we have that are still on on-prem. By the way, when we do that, in most cases, we see a major uplift because, A, even for a like for like, the annual revenue run rate from such a customers will at least double. If we manage to sell the full CXone suite, which is the case in many situation, the multiple is much more than just doubling. To the last part of your question, whether we get a pushback from customers. I'll say that today, for most customers, the question of if they're going to move to the cloud is no longer on the table. It's mainly about the sequence and when and how, and we find ourselves as a leader in the market in many cases, not just as a vendor, but as a consultant to our customers. We have a lot of customers at the higher end of the market that see us as a trusted advisor. Many of those large customers, for a variety of reasons, are doing it in a moderate way. I think that the last thing I'll say that the beauty is that as we're expanding the offering that we have in CXone, and a customer can have it all, can start in one set of solution or different set of solutions. We see a lot of customers that have some initial concerns, as you hinted at the beginning, actually starting with some part of CXone. They are starting just as digital, or they are starting just as analytics, and they gain confidence, and then they expand from that. We've seen the last few quarters, a lot of those beaches in multiple accounts, which we believe create for us a very strong expansion opportunities in the future. Great. Thank you for the detailed feedback. Appreciate it. Thank you. Our next question comes from Rishi Jaluria at D.A. Davidson. Please go ahead. Hey, this is actually Rishi Jaluria from RBC. Thanks for taking my questions. I wanted to go back to the question on CCaaS and UCaaS that Pat had brought up. I know you partner with some of the UCaaS vendors out there that white labels CXone. There's, I guess, some evidence of having the same buying center for UCaaS and CCaaS. Maybe can you talk a little bit philosophically, do you not see any convergence of this over time? Is the partnership the right strategy? What would need to happen in the market for you to consider having your own UCaaS solution? I've got a follow-up. First of all, we have, as you said, a lot of partnerships in variety of parts of our ecosystem. UCaaS is one of them. We have one with RingCentral and few others. We're very happy with this partnership. It give us a great expansion to our go-to market. It's also allowing us to focusing on being leaders in CCaaS and someone like Ring to be a leader in UCaaS and in video collaboration. Both companies are doing extremely well and will continue, of course, to do that. At the same time, we think that the right investments for us is not to go in that direction, and definitely not into video collaboration, but rather to do what our customers want from us. This is to expand CCaaS to the full offering, and expand it into digital. I spoke about the opportunity before. That's what we've been doing in the last 18 months. I think the players that could not execute on that strategy had to sell themselves and being taken out from the market. This is the right investment for the long run. That's what our customers need. This is what consumer preferences are in the customer service and customer engagement market. This is probably the right use of our time, both organically and also to the right acquisition strategy for us. Okay, great. That's helpful. I just wanted to maybe drill down on the FCC side of the cloud business. Can you talk a little bit about what sort of momentum or traction you're seeing on the cloud side there, both with migrations as well as new customers? Thanks. As you've heard both from myself and Beth earlier, we're very happy with what we are seeing with the financial cloud and compliance business. I spoke specifically, by the way, about 3 very large 8-digit deals for this business. 1 of them is the largest in the history of the financial cloud and compliance division or business. We're very happy with the momentum that we see there. What we're starting to see in this business, that is historically a very on-premise business, we are starting to see a shift to the cloud. We yet see it in the revenue, but we definitely see it in the booking. It's divided into 2 parts of the market. 1 part of the market is the mid-market. Following the acquisition of Guardian Analytics, we now have the platform called Xceed, which is 100% cloud. For us, it's a pure upside because we did not have the right product nor the go-to market to go after the mid-market, and that's exactly what we're doing these days with Xceed. That's one area of cloud growth for financial cloud and compliance. The rest of the business is just now starting its cloudification process, and we are starting to see the dynamic moving there. It is behind, if you would like, versus the customer engagement business. Behind meaning, in its evolution to the cloud. I would say it's where customer engagement was 3 years ago in terms of its cloudification cycle. We're starting to see the acceleration, and we are ready for that. More and more customers are asking about it. It's a great opportunity, and we also see there in this business the ability to accelerate the business with the similar multiple I talked about in terms of the conversion from on-prem to cloud. All right. Wonderful. Thank you. Thanks. Our next question comes from Meta Marshall from Morgan Stanley. Please go ahead. Hi, this is Dave Lucanco on for Meta Marshall. Two questions from our end, and thank you for the questions. First, as larger customers start down the cloud transformation path, what are you seeing as far as what will be the biggest hurdle to getting them to transition, whether that be security, complexity, scope of how to think about digital transformation? Second, do you think you can maintain 25% cloud growth rate targets without larger customers really making a more meaningful move towards cloud? In other words, can current channels support that growth? Thank you. Sure. I'll start with the first question. The two obviously are connected. You asked about what the hurdle of large customers to shift to the cloud, and you also ask about, in the context of digital transformation. My answer to that, I'm being asked this question numerous times in the last few years, and it keeps evolving. A few years ago, you're right, it was about concerns about the cloud and security and latency and ownership and things like that. Those disappeared, we find ourselves less and less facing customers that don't want to move to the cloud, or they have other reasons. Needless to say that in order for those customers to move to the cloud, they need to gain trust in all the standard security, privacy, and so on and so forth. We support all of that as a market leader. All of them, I believe, understand, all large enterprises, that unless you move to a real cloud solution, a native cloud solution, you don't gain the real benefit of the cloud, which is actually not even the economics and other things. It's about the pace of innovation. We actually see a wave of large enterprises that thought they've moved to the cloud, and they basically went to the legacy provider, and the legacy provider sold them a hosted quote, unquote "solution," which is called the cloud solution. They didn't gain all of those benefits I've talked about, including the pace of innovation, et cetera. There is better realization of these large enterprises that the real cloud solution is only a cloud solution that is natively built on a public cloud, full feature reach, very fast cycles of innovation, and of course, all the different security features and capabilities. I think those hurdles are starting to disappear very fast. The biggest hurdle for them, today, is mainly about managing the transition, justifying the economics in terms of past depreciations and things like that, and we support customers in that move. That brings me to the second part of your question. How confident, or can we sustain or can we meet this at least 25% cloud growth in the next few years without the large enterprises? I would say that large enterprises needs to sell part of the equation of how we get to that. We see it happening. We don't believe there is a reason for large enterprises all of a sudden to stop cloud adoption. On the contrary, we think that post-COVID, it accelerated the realization of that need. We don't have that type of concern. Got it. Thank you. Our next question comes from Tim Horan from Oppenheimer. Please go ahead. Thanks a lot, guys. There seems to be a lot of terrible products out there for digital interaction at this point. It seems like a lot of companies have the product, but out of my experience, it's not been good anyway. Can you talk maybe a little bit about what percentage of the market do you think has more of a cloud-based digital interaction and maybe just a little bit about what you think your flow share is or market share on an incremental basis is in this market? Thanks. It's a good few observation, Tim. There is a lot of noise in what is digital, and let me try and help to create some clarity over here. If you think about the enterprise market, all enterprises or most enterprises already have some capability or a technology or a solution to serve customers and consumers through digital channels, whether that will be an email, a chat, asynchronous channels, and so on and so forth. Needless to say, we are all consumers. We're not very happy with the experience. I keep saying, the type of experience we should get from our providers is the same as we have as we communicate with our friends and family. For all the reasons, we don't get it today. The reason for that is that those Gen 1 type of digital solutions that were adopted actually many years ago and still being adopted here and there, is that they are very siloed solutions. They look at each channel differently. They don't have the breadth and depth and connectivity among the different channels. They don't connect well to the contact center. While they might have some functionality of both, it's a very point solution that is addressing things in a very narrow way. What we have done after understanding the need from our customers in the last 18, 24 months, we have expanded CXone by making several technological acquisitions, as well as massive investment in R&D in that area to have the full capabilities on the 1 native platform, which is CXone, which allows you to do exactly that, to get the same experience you get with your friends and family, with your service providers. The secret sauce, if you would like over here, is not just the capabilities, it's also the data. We have 2 decades of CX data that we have mastered as well as the domain expertise. This data is actually feeding the self-service, which is kind of the basics of digital. That's what makes self-service work. It's enormous amount of data that we have that enable us to train the self-service and to make digital work. That's the big difference, and this is what we see today when we interact with customers, with large enterprises. When we approach them with what we have built, they actually understand this is exactly what they were looking for, what they are missing in the legacy or the Gen 1 solutions. An evidence to that is, as we said, 41% of the deals in Q1 had all or some of our digital capabilities. It's a pretty incredible accomplishment, this product that you've kind of created. Do you think anyone's close to the features and functionality that you have at this point? It's a highly fragmented market, and I'm separating here on purpose between capabilities and the data and domain expertise. You might find players there that might have the capabilities but do not have either the distribution capability or the connectivity to something like CXone, or they don't have the data, which as I've mentioned, it's something that we have thanks to being actually 3 decades in the customer engagement business. It's a very significant differentiation that we believe that will serve us well as we continue to progress into digital CX. Thank you. Again, if you have a question, please press star then one. Our next question is from Daniel Bartus from Bank of America. Please go ahead. Great. Hey, guys. Thanks for taking the questions. Wanted to ask first about the financial crime and compliance business, just at a high level. What is the benefit of having this along with the customer engagement business, and should you begin to separate these more, or are they already pretty separated? We have these two businesses in the company. We're very familiar to improve the detection of fraud and providing some unique capabilities that many other fraud or anti-fraud providers do not have. Okay, great. Thanks for entertaining that, Barak. Then maybe just a quick clarification for Beth. I think the guidance for the full year implies 11.5% growth this year. I keep hearing the language of you guys expect to accelerate that going forward. Is it right to assume 12% or more growth for 2022 and 2023? Am I reading into this a little too much? Thanks. Yeah. Thank you for the question. You're correct that we just recently revised and increased our full year guidance with 11% growth expected at the midpoint of our guidance for 2021. Of course, given the health that we've seen in our cloud business this year and in prior years as well, as well as really the increasing kind of predictability and visibility we have on a go-forward basis. That, combined with the mix that we're seeing, changing to become more and more cloud-centric, with cloud actually reaching a high this quarter of 54% of our total revenue. We expect to see those trends continue. In short, that means yes. As we look on the annual growth of our total revenue, we do expect that to be something we see annually in the future as well, that top-line growth for total revenue will continue to accelerate. That's great to hear. Thanks, guys. Thank you. Our next question comes from Tyler Radke from Citi. Please go ahead. Hey, good morning, everybody. I wanted to start with just a higher level question. Just as you think about kind of the return to a lot of these call centers getting back in person, do you think that's a catalyst for kind of accelerating in investment? Obviously, kind of the trends around hybrid workforce and remote work were a strength in many ways in looking at call center solutions. Just kind of curious as things reopen up, in geos where you've seen that, if you've seen that play out as a catalyst, as people kind of go back to full in-person. Yeah. It's a great question, and it kind of continues to evolve. Remind you that March of last year, where all of those contact centers virtually overnight had to actually move virtual, to work from home. We're talking about 50 million people that almost together went to work from home and not from the offices. That was the first kind of shock for a lot of those contact centers, realizing that actually it's very hard for them to enable it if they don't have the agility and the solution like cloud, et cetera, which accelerated, as we know, the shift of this adoption. That was the first part. Since then, we've been seeing a lot of those organizations indeed accelerating, understanding that they need to be more flexible in the future because there is a lot of uncertainty whether it will be a full comeback to the offices or kind of sort of a hybrid. It started with the basic of the ability to work from anywhere. If you have your employees work from anywhere, it's starting to raise other things that requires our technology. How do you monitor the experience? How do you monitor the cost? How do you allow more agility and flexibility to the work for especially the younger generation? It allows us to expand quite significantly our offering to many of our customers and support them at that need. From this point on, the type of conversation we have with our customers is exactly as you suggested. It's about supporting full hybrid and at the same time, having more analytical capabilities in order to monitor the level of experience and how this move between back and forth from office to home is working. Needless to say, cloud. It's accelerating all the above. We believe this is here to stay regardless of how long the COVID will stay with us. Hopefully not so long for COVID, but it's basically accelerated things we thought would happen years down the road, and they're happening now. Great. Thank you. If I could ask a follow-up for Beth, and apologies if you covered this in detail. I've been hopping around a few earnings calls this morning. Just wanted to unpack the second half guidance a little bit. It looked like a pretty strong raise across the board, but just trying to see if that raise was mainly coming from cloud. Any type of further breakout you could give us how to think about kind of the moving pieces in revenue that's implied in your outlook? Yeah, sure. Thanks for the question. I think I've talked about it a little bit, but I'm happy just to kind of emphasize again. I think looking on the second half of the year comes on the back of a really strong performance this quarter and of course, a strong performance in the first half generally that gives us greater visibility looking forward into the second half of the year as well. We've seen growth rates both on top and bottom line in the teens in both Q1 and Q2 of this year. Given kind of the strong level of confidence we have, we're increasing the midpoint of our revenues by $35 million in terms of the total revenue guidance for the year. We feel really positive and that we've set great healthy targets for the full year that are both in the teens with midpoints around 11%. The revenue is mostly continuing to come from the confidence and the health we've seen of our cloud business, and specifically CXone is a continued driver in that growth. Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Barak Eilam for closing remarks. Thank you all very much for joining us today, and have a nice day. Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.