All right. Welcome to day two of the UBS Tech Conference. My name is Seth Gilbert. I'm one of the SMID Software Analysts, SMIDCAP Software Analysts here at UBS. And today we're joined by Beth Gaspich, the CFO of NiCE. So thank you so much for being here.
Yeah, thanks, Seth, for having us.
Amazing. You have a relatively new CEO. We'll just jump right into it.
Sure.
You have a relatively new CEO, Scott Russell.
Yeah.
Can you talk about some of the strategic priorities and maybe how they've changed under his leadership?
Yeah, absolutely. So we were very excited this year at the start, out of the gate of 2025 to have Scott Russell join us from SAP. Scott was a key driver at SAP and really driving the transformation in that area with cloud, migrating from premise to cloud, ultimately growing from about EUR 8 billion to over EUR 17 billion for SAP. So he has great experience on continuing to drive and capitalize on the opportunity of organizations that are moving from premise to the cloud. So it was a great opportunity to have him bring in his expertise to help us really capitalize on the next transformation at NiCE.
Got it. You recently hosted a Capital Markets Day as well. One of the main takeaways I think we had was you're well positioned to win in the CX/AI market and about accelerating growth. It's another key takeaway. I guess what gives you the conviction that you'll be able to hit the revenue targets and maybe you can discuss any recent acquisitions like Cognigy that might have played into that?
Yeah, it's a great question. I think we're very excited. Scott came on board because he saw the opportunity in front of us at NiCE and the strength of the assets that we have. So he has really brought on some strategic priorities that will continue to allow us to drive that growth and continue to accelerate growth in the future. I think I would start with we have a great skill set of AI. It's core to what we do at NiCE and embedded in our core offering. We have recently, as you highlighted, further amplified the strength of that technology through the acquisition of Cognigy, which is a conversational and agentic AI leader in the space and customer experience.
So when we bring together both the opportunity in front of us with the ongoing migration of organizations and large enterprise from being on-prem over to the cloud, where today there's still about 60% of enterprises have not yet made that shift, combined with the strength of our AI capabilities, it presents a tremendous opportunity looking ahead. Now, as you start to actually unpack that in terms of what gives us confidence, I think first of all, we see strength in our core business. Throughout this year, we've consistently achieved our expectations on our cloud growth. We have seen 12% routinely cloud growth of our core business throughout the course of this year. And most recently, at our Capital Markets Day, we disclosed our cloud backlog, which there we see a 15% growth year-over-year. That's inclusive of the acquisition of Cognigy.
We also see 13% growth in the cloud, excluding Cognigy. So when you look at the indication of the strength of the recent bookings, our strong win rates, and other strong indicators, we see that there are clear signs of potential accelerated growth both in our core business, even prior to the acquisition of Cognigy. So the combination of the two really gives us this conviction looking forward and the strength of the underlying metrics in our business, and also what we've seen from Cognigy both through pre-acquisition and, of course, post-acquisition and the strength of the business that they're driving as well.
Got it. Another key takeaway at the Capital Markets Day, you're doing some substantial investments in 2026 related to cloud and AI to accelerate revenue, and I just wanted to know if we could touch on this a little bit. Can you provide a little bit more detail into some of these areas? Maybe you can touch on when you expect margins to recover and how much of the margin compression might be due to M&A?
Yeah, I would start with the backdrop that we have financial excellence at NiCE. If you look on the strength of our overall performance, we're about a $3 billion total revenue company driving healthy 70% or so gross margins, 30% plus operating margins. So that's really the core of where we start with our business. And I talked about the opportunity ahead of us, and those are also some of the reasons that Scott Russell decided to join NiCE, is looking at the opportunity ahead of us with the ongoing migration of on-premise to the cloud, but also the opportunity that agentic AI creates for us in terms of how we deliver that into the customer experience market.
So, what we looked at is really with the indicators of the recent accelerated growth in the core business indicators, as well as the acquisition of Cognigy. We really wanted to capitalize on the opportunity now and into 2026 to invest further to drive long-term sustained top-line growth. And when you look at those investments, we've estimated to be about $160 million of investments that will be incremental during the course of 2026. And it breaks down really in, I would say, three buckets. There is a bucket of CX and AI and cloud delivery. There is a bucket of go-to-market, and there is a bucket that is related to our product roadmap. When you look at the different components of how you unpack that, first of all, I would highlight that most of this investment of the $160 million is unrelated to Cognigy and the acquisition.
There is a modest level of investment there as well. However, most of this is really core to our existing business and continuing to drive growth there. So when you start to get into more of the details of what's included in that $160 million, on the cost of cloud, what you'll see is a combination of both continued investments in areas such as sovereign cloud. We offer our software and our AI cloud platforms into large enterprise. We have, in the last couple of years, had wonderful momentum internationally, seeing strong growth.
Part of the area that we're investing there is continued investment in sovereign cloud, meaning that we are actually deploying our CXone cloud platform in regional areas to address data residency, to also ensure we have proper feet on the ground in those areas to support those sovereign clouds, as well as important infrastructure that's underlying those clouds as well. So that's an example of some of the areas we're investing in in cost of goods sold. Also, we're further investing in our third-party partners that we use for deploying our solutions as well. So that's kind of giving flavor around some of the cost of sales. When you move on into the R&D, we are continuing to invest in our product roadmap and our CXone offering predominantly. We today have more than 50% of our revenue that is with large enterprise customers.
And so for those customers, we are continuing to add capabilities that will further provide additional functionality to those customers. And that's part of the product roadmap investment that will be consistent with the overall offering of our CX platform and inclusive of our AI capabilities. And then finally, on the go-to-market side, for the go-to-market aspect, it's a combination of both people bringing in additional subject matter experts around all of the different offering that we provide. It is also really capitalizing on a lot of the strategic partnerships that we have signed earlier this year. So with the strategic partnerships, we have either added new partnerships or strengthened existing partnerships throughout the course of this year with AWS, Salesforce, ServiceNow, Snowflake. And with those key partnerships, we are further broadening our go-to-market capabilities.
Often that will also include expanding further on portals or marketplaces with some of those organizations. So that is also built into the go-to-market. And then finally, we are also investing in internal AI tools for our sales organization as well. So that's just an area of kind of some further granularity around the spend plan for next year.
Got it. Super helpful. I want to switch to the competitive landscape a little bit. There's all these splashy headlines for AI-native companies nowadays. You have competitors like Zoom, Salesforce, Agentforce, and Amazon. They've been ramping as they've been in the market for a little bit longer with their respective products. Has this changed, in your view, the competitive landscape at all? Are you seeing some of those maybe AI-native competitors coming up, or are you playing in a little bit of a different market?
First, I would share from our standpoint, we view it as validation that we are in a great space, that customer experience is an area where others are investing and are interested in. It means that it's an exciting opportunity, which is exactly why we're looking to capitalize on this opportunity now with the strength of our portfolio. What sets us apart at NiCE is really the power of the platform. Our platform is fully integrating omnichannel routing, analytics, workforce engagement, and agentic capabilities that we offer. It's unique in the sense that it's an interaction layer and orchestration layer that really can't be matched or paralleled by other offerings that are out in the marketplace.
And of course, this is also further complemented by the strong set of proprietary data models that we have that are specific for CX and customer experience, and that actually can be used to complement our AI capabilities and drive better outcomes for our customers, both in terms of average handling time as well as the end consumer sentiment. So we're packaging all of that together in a platform that is really unparalleled and one of the reasons why we continue to be a leader in our space in customer experience.
Got it. Maybe one more on the competitive landscape. You're also partners with companies like Salesforce and Amazon. So I'd be curious to know a little bit about the push and pull of those relationships. Are these partnerships creating value for you today?
So we operate in a space where there is a considerable amount of co-opetition, which is normal in enterprise software. And it's yet another indication of validation that these players in the market that are partnering with us and other players as well really are looking to take advantage of the opportunity that exists in these markets. I mentioned several of the partners where we have relationships and expanded relationships. So for many years, we have been highly integrated with Salesforce and other CRMs in terms of the offering, which provides a better experience both for the employees that are using the platform as well as the experience that the consumer receives. So there's a co-opetition in terms of the nature of how we interact with the partners. So it's beneficial and ultimately a win-win both for them and us by providing this seamless integration to our customers.
In many cases, most of these partners are both integration partners that we integrate the solutions and applications with. And in most cases, they are also resellers or referral partners. And at NiCE, during the course of this year, 73% of our CXone new bookings have been partner-led. So they're also really critical as we look forward to the next step of our continued growth and accelerated top-line expectation by having that extended relationship both from the technical integration aspect, but also the reseller and referral relationships that we have as well.
Got it. One more on partnerships as well. We had Vlad Shmunis from RingCentral on stage yesterday. They also have a pretty substantial partnership with NiCE, and they just renewed it as well. But they also have their own solution. So I'd be curious to know how that partnership continues to evolve and how you see that relationship moving forward.
Yeah, so we've been partnering with RingCentral for many years, and we're very happy that we just recently, as you highlighted, renewed that relationship with Ring. I think when you think about RingCentral, where they operate and where we operate at NiCE, it's very distinct that the offering that RingCentral has is appropriate for the lower end of the market in terms of really more of the SMB space. But they partner with NiCE specifically because as they move up market and into the large enterprise, they need a player and an offering that can support the complexity and the ability to scale in the very large enterprise. And so that's where we fit in and why they come to us to have a strong relationship with to really enter and have ability to step into the high end of the market where we really thrive at NiCE.
Got it. Makes sense. AI is growing. We've seen that from at least one of your competitors, Five9, who we also have on stage. And in 3Q, Five9 came in a bit light on the non-AI subscription revenue growth. Can we spend a moment talking about AI versus non-AI? Is AI leading to a decline in seats at all? And how are you thinking about the split here? Both are important, but I'd be curious to get your thoughts.
So in our business, the key driver of our business is our CXone platform. There are components and solutions as part of the platform that are AI-specific, and then there is the core of the business, which is more of omnichannel routing and WEM and analytics. So what we see in the core of the business is that the largest growth driver, not surprisingly, is our AI growth. And we've continued to report on that through the course of this year with strong growth. Recently, in Q3, 43% year-over-year growth in our AI and Salesforce capabilities off our CXone platform. So we see that as a strong growth driver. And the other aspects of our business, we continue to see nice growth there as well. But really, the key driver is the overall AI component of the offering.
So as we look forward, one of the pieces of information that we're looking at that gives us confidence is both that core steady growth that we're seeing in the core of the business and the non-AI aspects, and then, of course, accelerated and being amplified further by the AI acceleration and trend that we're seeing there. And at NiCE, our pricing model is designed in a way that as AI interactions accelerate and continue to expand, our AI revenue accompanies that. And so that gives us confidence, again, in terms of the go-forward aspect with what we're seeing in AI, but also coupled with the strong kind of steady growth in the foundational layer of the platform.
And why do you bother pricing? Because it's something that we hear from investors and from our channel checks as well. I think there's periods of time where you're able to take price, and then there's periods of time where we hear from the channel that pricing is moving down. So I'd be curious to get your thoughts on where we are in pricing today. Has it been moving up, down, left, right? And then also with AI, it's maybe a little bit of a new area of budget for some folks, some of your customers. And some of your customers might be willing to spend, and others may be not as willing to spend. So I guess a two-parter. One is where are we kind of in the current pricing environment, and how is AI impacting the pricing environment?
Yeah, it's a great question. I think I would step back first and just highlight a little bit of the structure and how we enter into commercial agreements with customers. We sell CXone across all aspects of the market in terms of the size of customer, SMB on up to very large enterprise. However, really, where we thrive and where we see the greatest opportunity ahead is in the large enterprise. And I highlight that when you think about the commercial structure, typically what you see is those large enterprises are entering into a committed spend with us over a multi-year period. And so then you apply the pricing model that's inside of that. And how the pricing model works is it's really two-pronged. So we have a hybrid approach. One prong is based on users or seats, and the other is based on sessions or interactions.
And so, for those customers, those customers can either buy the human-led agent seats under the agent-based pricing. And for more of the AI capabilities that are AI agents, for those, they tend to be interaction-based pricing. And then, of course, there are sometimes offerings that we provide, such as a co-pilot where we are actually augmenting the human agent in the contact center that will have a component of both users and sessions. So our pricing model has really been in place for some time that allows for the shift that we've been seeing to ever-increasing volumes of more and more agentless interactions or AI-based interaction volumes. So that is what we're seeing as a trend.
I think when you think about the non-AI-based pricing or the user pricing, it's more or less remained stable in terms of the overall price that you would think on a per-user basis for the platform.
Got it. And then as you continue to move further up market with some of these larger deals and these larger deals start to ramp, can you talk about how that will change the revenue mix and maybe even the margin mix at NiCE? And then maybe as a follow-up, can you talk about some of the puts and takes associated with this mix shift towards larger customers?
Absolutely. At our most recent Capital Markets Day, I actually shared some data around the stickiness of our customers, that our customers continue to come back, and we will cross-sell and upsell into the customers with a multitude of solutions that we have on our platform. At the high end of the market, there's a high level of complexity that's required around customer experience, and that entails having all of these different capabilities that are needed to deliver upon that, so that is all embedded in the offering that we're providing.
Got it. And then maybe switching over to the international side. In terms of international expansion, can you talk a little bit about the sovereign clouds and how you guys differentiate there?
Yeah, with respect to our international momentum, we have seen some really great growth in the past couple of years. And in fact, we have signed two 100 million TCV deals out of our international region over the past couple of years. So we're seeing really strong momentum selling our cloud and AI platform there. As a result of that, we have continued to invest in sovereign cloud environments. And sovereign cloud is where we're deploying our CXone platform into regions to have data residency that will also include a high level of data security and compliance that's required in these different regions. So it's an area where we are distinct in terms of the ability to offer these sovereign cloud environments.
It's given a great competitive advantage for those organizations, especially large enterprise and governmental agencies that are looking for the level of scalability and confidence in our security and compliance capabilities to the size and scale that we can deliver at NiCE. It's an area where we're continuing to invest in. I highlighted earlier as one of the areas that we are investing and continuing to invest in during the course of 2026 to continue to capitalize on the opportunity. Because as we look at the international markets, they're still highly underpenetrated in terms of the opportunity to shift customers onto the cloud and further that through the AI offering as well.
Got it. And how does this set you apart from your competition, if at all? Are there some of your competitors where you might compete with a market that offer more of the sovereign clouds as much as you guys do? Or is it a big point of differentiation for you when you go into these meetings with customers?
It's a very highlighted point of differentiation. And NiCE is very distinct in our ability to be able to offer this level of sovereign deployment in country, especially at the size and scale that is required for the large organizations that we're dealing with. And of course, these customers can continue to buy more and more of the offering as we continue to offer more AI capabilities that also allow them to continue to shift from the higher cost of human labor over to using our AI capabilities. So it's a great ROI for our customers, and it drives incremental revenue for us.
Got it. Maybe we'll shift over a little bit to capital allocation, and I'd be curious to know what you're thinking about share purchases and also maybe you can touch on furthering M&A as a tool in the toolkit.
Sure. When we think about our capital allocation strategy, there's essentially three pillars. One of which is continued prioritization of investment. So that's investment both back into our business organically and that we've talked a little bit about. It's also ongoing investment that may be through M&A. The second pillar would be share buybacks that we continue having a program. And then the third is just the strength of our overall financial foundation as a company, but the robust balance sheet that we have and the significant amount of cash flow we generate. So let me talk a little bit more about each one. When we think about investment, if we look at what's expected in 2026, we expect most of that prioritized investment to be the $160 million that we talked about of incremental spend back into the business.
We just recently concluded the acquisition of Cognigy, and that's where most of our focus is expected to be during the course of the coming 12 to 18 months, is continuing to drive momentum in that business and prioritize the integration that we're looking forward to, the accelerated growth that will come from that acquisition. So that's with respect to acquisitions. In addition to that, we do leave ourselves open to potentially doing more tuck-in type acquisitions. And so that is something that as we look at what our customers are looking for in terms of additional capabilities into the platform, that we leave ourselves open for additional acquisitions. The second pillar I mentioned was the share buyback. So earlier this year, we mentioned a $500 million share buyback. We have already increased through the end of Q3 an 18% increase in our share buyback on a year-to-date basis.
It continues to be a priority for us in terms of the buyback. And we're in a beneficial position that we generate a significant amount of healthy cash flow at NiCE. In fact, we've generated almost $700 million over the last 12 months. So that allows us to continue to utilize that $500 million buyback program that we have in place. And then finally, the health of our balance sheet. And with our balance sheet, our balance sheet currently is debt-free. We just paid off some of the debt on our balance sheet at the end of the third quarter. So we also remain open to taking on additional financing, really up to the level about one times EBITDA in terms of potential financing that we might consider taking as well. So those are kind of the three pillars and kind of adding some additional color around capital allocation.
Got it. Thank you so much. I think that's all the time we have for today. Thank you for joining us, and thanks for being here.
Yes, thank you for having us. Appreciate it. Thank you.