Welcome to the NICE Conference Call discussing Second Quarter 2021 Results and 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 at 5th, 2021. I would now like to turn the conference over to Mr.
Marty Cohen, VP, Investor Relations at NICE. Please go ahead.
Only. Thank you, operator. With me on the call today are Barak Elam, Chief Executive Officer and Beth Gaspich, to our 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 to the information contained in the section entitled Risk Factors in Item 3 of the company's 2020 Annual Report on Form 20 F as filed with the Securities and Exchange Commission on March 23, 2021. During today's call, we will present a more detailed discussion of Q2 2021 results and the company's guidance for the Q3 and full year 2021. Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this only in accounting for acquisition related revenue and expenses, amortization of intangible assets and accounting for stock based compensation. Only.
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.
Up. 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 5 years.
Unlike traditional cloud transitions that are focused on simply switching from license to subscription model. Our overall revenue growth is accelerating due to a combination of 2 to our cloud business. 1st, net new cloud business in CCaaS, digital and self-service solutions that we did not previously offer in the on premise model And 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 The acceleration in the growth of our total revenue will continue over the next few years. While the clarification of our markets continues to speed up, we are experiencing another major opportunity in the CX market as it expands to full digital CX.
And just like 5 years ago, in cloud, NICE is well positioned 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 markets, a market in which enterprises of all sizes We're beginning to shift to the cloud. Customer service organizations were exploring the cloud for its agility, pace of implementation, elasticity, of capability and overall lower total cost of ownership. At the same time, they expected a customer service solution with 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, Knight became the clear leader of this fast evolving market. Our leadership is achieved for 4 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 un impeded 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 high end of the market and our global footprint.
And the 4th is our relentless innovation demonstrated by the hundreds of added features and functionalities In CXone every year, our cutting edge AI with enlightened 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 $1,000,000,000 revenue run rate company, 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.
And today, digital is similar to what cloud was for us 5 years ago. In LightCloud, the opportunity in digital is enormous. The expansion of customer service interactions into Full Digital is in full swing with the growing part of consumer journeys taking place at digital touch points. Up. There is a clear realization that Gen1CX 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 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 consumers touch points. 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 SmoltEdge 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 is 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. Now 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 UK. 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 of the incumbent legacy Gen 1 providers that cannot meet the digital demand of today's consumers. And 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 One application 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 a 7 digit ACV CXone deal with 1 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 and 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, and 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. Continued 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 deals with Floud European Bank, a large UK based insurance broker And one of the largest banks in Germany.
In summary, Q2 was 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 Knight 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.
Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and business and listen to our performance for the Q2 of 2021 and provide our outlook for the Q3 and full year. Our Q2 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 Q2 reached a record of $459,000,000 compared to $395,000,000 in the 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 up.
We exited the quarter with an annual cloud revenue run rate of more than $1,000,000,000 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 momenting shifting to digital and self-service. Our new solutions, CXone Expert and CXone Smart Reach We're both significant in winning some of the key large enterprise digital deals in the quarter. The Americas region today is still our primary market, up, 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 of $381,000,000 for the 2nd quarter, an 18% increase compared to the same quarter last year.
In Financial Crime and Compliance, revenues were $78,000,000 for the 2nd 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 $332,000,000 in the 2nd quarter compared to $281,000,000 for the Q2 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 up 67.7 percent in Q2.
We continue to expect improvements in our cloud gross margin as our cloud business expands. Only. In Q2, operating income increased by 16% year over year to $130,000,000 up. Earnings per share for the Q2 totaled $1.57 an increase of 15% compared to Q2 last year. We experienced another strong quarter in operating cash flow, which totaled $81,000,000 in Q2, an increase of 37% compared to last year.
Total cash and investments at the end of June 30, 2021, $795,000,000 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 Q3 of 2021, we expect total revenue to be in the range of of $460,000,000 to $470,000,000 We expect the 3rd quarter to 2021 fully diluted earnings per share to be in a range of $1.51 to $1.61 up. For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of of $1,835,000,000 to $1,855,000,000 We are also increasing the range of our guidance for the full year 2021 fully diluted earnings and answer session. I will now turn the call over to the operator for questions.
Operator?
We will pause momentarily to assemble our roster. Our first question comes from Samaneh, I apologize, listen Samana from Jefferies. Please go ahead.
Hi, Greg. Good morning and thanks for taking my questions. It's Great to see the cloud results. So, Barak, maybe we'll kick it off the top and it feels like you talked a lot more about digital And your efforts there this quarter. And 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.
And is that making larger enterprises
ups. 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 up. A couple of years ago, and we've been executing in the last few quarters, both organically and to acquisitions. First, I would say that we believe that the leadership in CCaaS, if you remember, when we stepped into CCaaS, we have converged Seacast WM Analytics and became a leader with CXone with that. And today, we believe that the future is by converging that with digital.
That's what we hear from Customers, that's what they want to see. In terms of the potential, it's enormous. If you think of TCAT and the way we think about it, 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. And the cost of an agent today is about $50,000 a year on average.
It can get up to that level.
So in
the industry, there are 15,000,000 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 SICAS and full Digital CX, and I talked about the notion of organization wanting to see the next generation of digital CX versus the 1st gen solutions. So 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 and we believe that we'll continue to see the trend as both the The communication of our market together with Digital CX are starting to accelerate.
Great. And 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. So I'm just curious on maybe what you think the what 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?
Only. So first, I'll say one thing that we can one insight from this particular transaction 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. So that's one more
proof point to the future term of this market, so that's one more proof point to that. The second, if you'd like a 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. And 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
And there aren't too many players in this market.
And actually Five9 were not a leader in the Gautner MQ And then being taken out by a video collaboration or video collaboration player is actually a 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 markets, the direction and the need from customers is to offer full digital CX That includes CCaaS, Workforce Engagement, Analytics and 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 solved their problem.
So quite frankly, we're happy with the to upcoming disruption to them, and 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.
And 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. Can you maybe just I know you get 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 has given longer term guidance, but just how should we think about the short term cloud revenue growth trends?
Yes. Thanks for the question, Samad. So as you've seen, we've been consistently delivering 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 to our cloud, but 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.
And in the current year, we're comfortable that we'll be in excess of the 25% growth.
Great. Thank you both for taking my questions. Congrats on the quarter.
Thank you.
Our next question comes from Pat Walravens from GMP Securities. Please go ahead.
Great. Thank you and congratulations. Hey, Brock, back to this sort of the how the industry is changing question. I had sort of a 2 part question. Part 1 is, How important is it to have the call center software writing directly on top of The global communications infrastructure, so that would be the idea, I guess, with Five9 and Zoom.
And then, people say that's also part of the appeal of Talkdesk writing on top of Twilio. So I'd love to hear your thoughts on that theme and whether That's really important or not. And then also your thoughts on Talkdesk competitively.
Only.
So 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 So that it's a different buyer between video collaboration and CCAS. The other thing that we're seeing and talked about it a lot in past quarters is that while there is some of that behavior in the lower end of the market, as you go up market, These are usually decisions that are taken separately. And also, the fact that In the higher end of the market, the need from customers is much more about the expanding from CCAP to a full digital 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, because the type of transformation customers are looking for Is significant. So 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 Togdeft, 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 players as far as we know. They are private companies, so we don't know for sure. But we don't they're 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 into acquisition and completeness, if you would like, of the suite.
Great. Thank you for that perspective.
Our next question comes from Tassie Rozner 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. So I guess the first part of the question would be, If you can give a sense of what proportion of new revenue is coming up from existing customer transitioning to the cloud As opposed to new logos. And 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.
And 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. So if you remember at my opening remarks, I talked about what I believe is quite unique in our clarification story for the company. And we are not just a company that takes its customer base and converting it to the cloud And basically reclassing 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 It's derived by 2 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.
So for us, it's a complete upside, just new business, Not converting any existing revenue that we have. And that is to your question, that is the predominant, the larger part and allowed us to 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 prem. And by the way, when we do that, in most cases, we see a major uplift because, a, even for a like Like, the annual revenue run rate from such customers will at least double. But if we manage to sell the full CXone suite, Which is the case in many situations, the multiple is much more than just doubling.
And to the last part of your question, whether we get a pushback from customers, so I would 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. And we have a lot of customers at the higher end of the market that see us as a trusted advisor. And 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 Spending 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, they are starting just as analytic, and they gain confidence and then they expand from that. So we've seen in the last few quarters a lot of those beaches in multiple accounts, which we believe create for us Very strong expansion opportunities in the future.
Great. Thank you for the detailed feedback. I 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. First, 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 to vendors out there that white label CXone. So there's I guess some evidence of having the same buying at the center for UCaaS and CCaaS, but maybe can you talk a little bit philosophically, do you not see any convergence of this over time?
Is the partnership the right strategy? Or What would need to happen in the market for you to consider having your own UCaaS solution? And then I've got a
follow-up. Only.
First of all, we have, as you said, a lot of partnerships in the in variety parts of our ecosystem. UCaaS is one of them and we have one with RingCentral and few others and we're very, very happy with this partnership. It give us a great expansion to our go to market and it's also allowing us To focusing on being leaders in CCaaS and someone like Craig Ring to be a leader in UCaaS and in video collaboration, 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 and this is to expand CCAS to the full offering and expanded 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. And 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. And this is probably the right use for our time, both organically and also to the right acquisition strategy for us.
Okay, great. That's helpful. And then I just wanted to maybe drill down on the to 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 as well as new customers. Thanks.
Sure. So as you heard both myself and Beth earlier, we're very happy with What we are seeing with the Financial Crime and Compliance business. I spoke specifically, by the way, about 3 very large 8 digit Financial Common Compliance division or business, so we're very happy with the momentum that we see there. And 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 You yet see it in the revenue, but we definitely see it in the booking. And it's divided into 2 parts of the market.
One part of the market is the mid market. Following the acquisition of Guardian Analytics, we now have the platform called Xseed, which is 100% cloud. For us, it's a brand 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 Exceed. So that's one area of cloud growth for Financial Crime and Compliance. And the rest of the business is just now starting its clarification 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, but I would say it's where customer engagement was 3 years ago in terms of its cloudification cycle, But we are starting to see the acceleration and we are ready for that and more and more customers are asking about it And 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 Wilconco on for Meta Marshall. So 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 The biggest hurdle to getting them to transition, whether that be security, complexity, scope of how to think about Digital transformation. And second, as you do you think you can maintain 25% In other words, concurrent channels support that growth? Thank you.
Sure. So let me I'll start with the first question. The 2 obviously are connected. So you asked about what's the hurdle of cloud to move to shift to the cloud and you also asked about in the context of digital transformation. So 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 and we find ourselves less and less facing customers that don't want to move to the cloud 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, and we support all of that as a market leader. But 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. And we actually see a wave of large enterprises that thought they have moved to the cloud and they basically Went to the legacy provider and the legacy provider sold them a hosted solution, And 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 rich, very fast titles of innovation and of course, all the of different security features and capabilities.
So I think those hurdles are starting to disappear very, very fast. And the biggest hurdle for them today is mainly about managing the transition, justifying the economics In terms of past depreciation and things like that, and we support customers in that move. And that brings me to the second part of your question, No, 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. So I would say that large enterprises needed 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. So 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.
Yes, it's a good I do feel observation, Tim. There is a lot of noise in what is digital and let me try and help To create some clarity over here. So if you think about the enterprise market, All enterprises or most enterprises already have some kind of some capability Our technology or solution to serve customers and consumers through digital channels, whether that will be an email, a chat, asynchronous up. 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. And from 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. And 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 investments in R and D in that area I'll ask you to do exactly that, to get the same experience you get with your friends and family with your service providers. And the secret If you would like over here, it's 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. And this data is actually feeding The self-service, which is kind of the basics of digital, and that's what makes self-service work. This enormous amount of data that we have that enable us to trade a self-service and to make digital work.
That's a big difference. And this is what we see today as 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 of the GEN-one solutions. And an evidence to that is, as we said, 41% of the deals in Q1 had all or some of our digital capabilities.
So 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. And it's a very Significant differentiation that we believe that will serve us well as we continue to progress into Digital CX.
Our next question is from Daniel Bartus from Bank of America. Please go ahead.
Great. Hey, guys. Thanks for taking the questions. I 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
operator. So we have these 2 businesses in the company. We are very, very familiar as an example to improve the detection of the fraud and providing some unique capabilities that many other fraud
Okay, great. Thanks for entertaining that, Brock. And then maybe just a quick clarification for Beth. I think the guidance for the full year implies 11.5% growth this year. And I keep hearing the language of you guys expect to accelerate that going forward.
So is it right to assume 12% or more growth for 'twenty
So you're correct that we've just recently revised and increased our full year guidance with 11% growth at the midpoint of our guidance for 2021. And of course, given the health that we've seen in our cloud business this year and and in prior years 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 and listen. And so 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, that top line growth for total revenue will continue to accelerate.
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. Jim, 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 Accelerating investments, obviously, kind of the trends around the hybrid workforce and remote work we're a strength in many ways in looking at call center solutions. But 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.
It's a great question and it's kind of it continues to evolve. I'll remind you that March of last year where all of those contact centers virtually overnight had to move actually move virtual Actually, it's very hard for them to enable it if they don't have the agility in the solution like cloud, etcetera, which accelerated, as we know, The shift of this adoption. So that was the first part. And 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 We'll come back to the offices or kind of sort of the hybrid. So it started with the basic of the ability to work from Anywhere, but then if you have your employees work from anywhere and starting to raise other things that requires our technology, How do you monitor the exterior and how do you monitor the cost?
How do you allow more agility and flexibility to the work for especially the younger Generation. So it allows us to expand quite significantly our offering to many of our customers and support them From this point on, the type of conversation 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 And monitor the level of experience and how this move between back and forth from office to home is working, Needless to say, cloud. So it's accelerating all the above. And we believe this is here to stay regardless of how long the COVID will stay with us, hopefully not for long for COVID, but it's basically accelerated Things we thought could happen a few years down the road and they're happening now.
Great. Thank you. And if I could That's a follow-up for Beth, and apologies if you cover this in detail. I've been hopping around a few earnings calls this morning. But 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.
Yes, 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 on the line in the teens in both Q1 and Q2 of this year. And given kind of the strong level of confidence we have.
We're increasing the midpoint of our revenues to by $35,000,000 in terms of the total revenue guidance for the year. And so 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%. And of course, the revenue is mostly continuing to come on the confidence and the health we've seen of our cloud business and specifically CXone is a continued driver in that growth.
Thank
This concludes our question and answer session. I would now like to turn the conference back over to Barak Alam 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.