All right. Welcome everybody as we close out the Nasdaq Conference. I'm delighted to have NiCE here and have Beth Gaspich, CFO of NiCE. I am filling back in as Meta Marshall, previously covered communication software, so very familiar with Beth and the story.
Yes, thank you. Thank you for having us. We appreciate it. NiCE to see you again.
Great. You know, thanks for having you back at Nasdaq. We'll appreciate it. You know, investor sentiment on CCaaS has been a little bit challenged despite kind of positive commentary towards the AI opportunity from NiCE, your peers in the space, as well as kind of consistent optimism in our channel checks. Just where do you feel like that disconnect lies? And is there a path to kind of closing that?
Yeah, it's a great question, I would say. But probably the primary misconception is to really understand that AI is a tailwind and a key growth driver for NiCE. As we've looked at our performance year to date, we've seen our AI revenue that's embedded in our cloud platforms soaring at more than 40%. It's a key driver for us in enabling the customer experience platform that we deliver really end-to-end capabilities to optimize the customer experience, the customer journey, doing it in a cost-effective manner for customers, and so first, that expertise that we have in AI, then further amplified and accelerated through the recent acquisition that we did of Cognigy, which is another leader in the market in agentic AI, coupled with NiCE as a leader in CCaaS really brings the strength of all of that together.
So, the combination of that along with our expertise specific to CX is really critical for our ongoing success and the confidence we have in our growth. You know, there are a lot of options today in terms of AI capabilities, but what we do is very specific to our customer experience domain. And we have the full CX stack end-to-end and how we engage with the customer and being that face or the single pane of glass for the consumer with our customers.
I got it. So, I mean, you talked about a big disconnect in just how much you're kind of capitalizing on AI, which I think is one misconception that people have. But another one is just, okay, what if agents, you know, get caught? Just why do you ultimately believe that NiCE is best positioned kind of relative to competitors and versus kind of other peers coming into the space when it comes to kind of addressing some of these kind of arguments and opportunities?
Yeah, so it comes from a couple of different places. One is we have a fundamental strength in our core CCaaS business. If you've been following us this year, we have outperformed our guidance each and every quarter with an expectation of a 12% growth quarter after quarter in our cloud revenue coming from the core of our AI as the key growth driver, and as we look specifically on Q3, we see that our year-over-year cloud backlog has actually increased to 13% year-over-year growth, so it gives us that confidence looking ahead of that continued growth, and that's again, even prior to the acquisition of Cognigy, which will add further amplification and acceleration to the combination of AI with the strength of our overall platform.
Okay. Yeah, so that acceleration is really important to kind of point out. On that point, you spoke to kind of win rates against CX competitors increasing within Q3. Can you just walk us through, you know, you've obviously had new management over the last year. Just what are some of the drivers of that improvement and how can we think about the sustainability of that?
So we're very excited about the recent expansion we've seen and increased win rates as well as strong bookings out of the third quarter and just positivity looking forward with our backlog and other general indicators. With Scott Russell, our new CEO, coming on board this year, he brings an enormous amount of wealth of expertise. You know, he was part of SAP helping to drive the transformation from on-premise to the cloud, growing from about EUR 8 billion in cloud revenue to, I believe, about EUR 17 billion. And so he has done that transformation. And as we look at the opportunity ahead of us for NiCE, we see that our area in CCaaS is still highly underpenetrated in the cloud.
So today there's about an estimate of only about 40% penetration of organizations that have yet already shifted over to the cloud and are operating customer experience in the cloud. So there's still a huge runway that is ahead of us. And Scott brings that expertise to NiCE. Some of the key areas that he brings great experience, first of all, is that migration from premise to the cloud, also really building strong ecosystems and strategic partnerships. And so we're excited around all of the strategic partnerships we've already announced this year. That includes Salesforce, ServiceNow, Snowflake, AWS, RingCentral. So we're either introducing new partnerships and/or expanding the ones that we have.
So, the combination of all of those things along with really the real-time capabilities we have in our platform that are unmatched and unparalleled in the market are a combination of why we believe we're seeing this increase in expanded win, the things and actions that we've already taken to date, and they're being demonstrated in the results.
Okay, got it. At your recent investor day or capital markets day, you outlined a plan to kind of double the cloud revenue over the next four years, reaching 17%-19% cloud revenue growth by 2028. Can you just walk us through kind of the assumptions underpinning that confidence? You spoke to some of what you've just seen, but what are the markers that kind of gave you that confidence in that?
Yeah, so there's multiple key drivers and growth catalysts that are underpinning that confidence. I would start off with AI being a growth driver. We had AI that has been part of our strength and our platform for many years at NiCE, so we have AI capabilities that are both augmenting agents in the contact center as well as AI agents as well. Earlier, you also mentioned the pricing model, and so our pricing model also accommodates that ongoing shift that we'll see in the interchangeability between human agents and AI-based agents, so that's a huge benefit that we have. Similarly, that exists also with the ability for us to handle both voice as well as digital channels through those capabilities, so those are huge advantages in terms of AI and the way we interact and interchangeability between human and AI agents.
The second thing that I would highlight is just the depth of our offering. If you look at any leading analyst report, for example, Gartner, we are in the top right quadrant. And that's because we are really successful in the large enterprise. It is not easy to be able to service the large enterprise. We have years of experience doing so. And part of that is due to the depth and breadth of the platform that we have through CXone. So that allows us to go in and cross-sell and upsell to these customers. So you have the combination of AI as a catalyst, you have our ongoing cross-sell and upsell, and you have the fact that the ecosystem generally is only about 40% migrated to the cloud.
So all of the migrations that have yet to happen are generally in the large enterprise where we thrive and have a great deal of experience. And all of that is incremental for us in terms of revenue because this is routing in the cloud. So we're taking market share from those premise players as we do that. The final thing that I would highlight in terms of one of the other catalysts is our international momentum. We have focused a lot over the past few years of investing heavily internationally, really driving our go-to-market as well as our infrastructure and introducing sovereign clouds. It's another competitive advantage and differentiation we have at NiCE.
There are very few companies that can deliver at the scale that we are for very large multinational and government agencies that can provide the level of data residency, security that's required, and really getting those customers and organizations comfortable from a compliance and regulatory perspective. So we have all of that to offer as well.
Okay. And what you just said about international might kind of answer part of the next question, but you also kind of spoke to operating margins kind of taking a step back in 2026 before kind of recovering. Can you just kind of break down some of those investments that you're making and explain why, you know, think now is kind of the right time to make those investments?
Yeah, so a combination of our position as a market leader, the strength of our real-time CX-specific platform, our AI capabilities, and coupled with Scott coming on board with his immense experience, we just feel like this is really the opportune time 60% of the market has yet to shift to the cloud. The strength that we have and the combination both in CX expertise, servicing the client, driving optimal customer journeys, coupled with that AI and experience means that we really see now is the time to make those investments to set us up for long-term sustained growth and long-term shareholder value as well.
Okay. I mean, do you want to maybe outline what some of those kind of key investments are?
Yeah, of course, so during the course of our recent capital markets day, we shared that we expect to spend about an additional $160 million during the course of 2026 and that we'll continue to make incremental spend over the course of 2026, 2027, and 2028, with the broadest spend and incremental amount being in 2026, so it's really divided in three different areas. There's in our cost of delivery that we're providing in terms of the cloud platform itself, our R&D area, and as well as go-to-market. When I dive a little further into each of those, in the cost of delivery, first of all, I talked about the success we've seen in international momentum, so we're making certain investments there around sovereign cloud, building infrastructure.
We're also looking to accelerate time to value for customers, meaning that we are using further implementation partners as well as part of our delivery model to drive that accelerated value for customers and providing our solutions very quickly into their operations. We also have what we refer to as AI centers of excellence, creating repeatable frameworks for customers as we deliver to the very high end of the market. So those are just a few of the investments we're making around the cost of delivery. If we break it down then and look at the R&D area, the R&D area is predominantly embedding Cognigy fully into our CX platform, as well as adding additional AI capabilities that are necessary in the large enterprise, but also to allow us to further scale into new TAM.
So adding AI capabilities, for example, and other functionality that are extending us further into mid and back office workflow as well. And then finally, on the go-to-market, I talked earlier about strategic partnerships. So we are looking to utilize those strategic partnerships and actually invest there to ensure strong positive execution, sales enablement, and using AI tools in our sales organization as well, as well as ongoing hiring of our sales force into the further momentum we see coming.
Okay. You know, just spoke to at your analyst day, you spoke to kind of the TAM expanding to $31 billion-$72 billion. Some of that was from this mid and back office that you just spoke kind of making investments in. Just why do you think that that could be such a good opportunity for you guys?
It's a great opportunity, and we see that TAM expansion because we're so well positioned within CX. I mentioned that we are a market leader today and have a strong portion of the market share of that TAM opportunity as one of the leaders. As we look ahead in terms of that TAM opportunity and how we fit into the broader TAM, there are two areas that are a natural extension for NiCE as we execute on our strategy looking forward. The first is looking at extending beyond the front office to mid and back office. NiCE and our CXone platform is both an orchestration layer and interaction layer. We are the sole primary point of contact between our enterprise customers and their consumers or citizens in the cases of governments.
So, we are looking to further that relationship and moving into the mid and back office through the capabilities we have with workflow automation and further agentic AI capabilities that we are going to even further amplify from the recent acquisition of Cognigy. So agentic AI capabilities shift beyond conversational layers and allow more complex execution of a specific task. So, an example would be there if you are reaching out to your insurance broker and looking for a new insurance policy. Today, we can help you provide knowledge management, address questions, put you in contact to resolve any issues you have. As we look forward, that's going to continue to move forward. For example, if you want a new policy, we will be able to, through our orchestration layer, fully fulfill that as one interaction with the consumer. So, it's a natural extension for us from beyond the front office shifting into the mid and back office. That's one area of TAM expansion.
The second area of TAM expansion is that to date, the CCaaS platform that we offer at NiCE has been predominantly inbound focus, meaning that consumers are reaching into organizations to problem-solve, to ask questions, to gain education for a variety of reasons. And we have an enormous amount of experience and vast amounts of data that help resolve quickly those types of inbound requests. But we also now have more and more assets from recent acquisitions we have done with Cognigy, but other assets we have acquired over the last few years, which are outbound oriented, and they are more proactive in nature rather than reactive. So, this also opens up a great TAM opportunity for us.
And where you see that as an example is, for example, today, if you are a customer and you are reaching out to inquire with your airline about flight information, we have proactive capabilities that if we see that you have been looking online potentially to upgrade, we can use our same software and our same platform from an outbound basis to actually offer you, "Listen, we would like to upgrade you at a reduced cost," as an example.
Yeah.
So that would be an opportunity that brings us more into the top line growth for our customers, where up until now, it's been more focused on cost effectiveness, cost efficiency. So that's still an enormous amount of our business, but we have other opportunities extending that I've just talked about.
Okay. Kind of leveraging a lot of that LiveVox acquisition.
That's right.
Yeah. Okay. Maybe turning to Cognigy. The conversational AI space is crowded and is expanding, um, but Cognigy had been a leader within that space. You know, what made Cognigy the best fit for you guys relative to your roadmap versus maybe some of the other players within the space?
It starts with the strength of the technology itself and the ability to scale. More than 50% of our cloud revenue today comes from large enterprise, which we define as one million plus ARR. And it is not easy to operate in large enterprise. It means that you need to be able to design and deliver software that can really scale and handle an enormous amount of interactions, both for us, both voice, as well as going through digital channels. And so we have an active M&A team that's always looking at the market, understanding the different capabilities that exist in the market. And we identified and had a relationship with several different players, but we saw the strength of what Cognigy was doing in the market, as well as a proven ability to, uh, provide and deploy solutions in large enterprise.
So Cognigy today has a number of marquee, well-known global organizations. Lufthansa is a great example of a very large, well-known company where they have great success deploying their solutions in a very, uh, you know, efficient and easy way. And so, for us that ability to demonstrate they are effective, can deploy and scale at the same level that we can at NiCE, and bringing two market leaders together just made perfect sense and further enhancing the AI capabilities that we had already embedded into our platform.
Okay. So kind of a perfect match from an end market and technology standpoint. Just how do you go about kind of cross-selling to each other's bases?
So Cognigy has been to date predominantly focused internationally and have just more recently started selling into the Americas. And I would say the reverse is true for NiCE, where we have great success in the Americas, and we've started to see really NiCE momentum internationally over the last couple of years. So, it's natural that we have a great opportunity without a lot of overlap of customers for us to cross-sell CXone into their install base, for Cognigy to obviously sell into our existing install base. So, both directions of cross-selling
Yeah.
As well as Cognigy, will continue to sell on a standalone basis as well. So, for organizations that may even not be ready to move to the cloud, we will be selling the Cognigy agentic AI capabilities to those organizations, which may even be on top of on-premise players that eventually we will look to, again, accelerate that migration over to our CX1 platform.
Yeah. Got it. On AI and self-service ARR reached $268 million in Q3, grew 49% year over year, or 43% excluding Cognigy. You know, given AI now represents about 12% of cloud revenue, what's the path to reaching 30% of cloud revenue by 2028? Uh, you know, is that just all of the things you just laid out are executed on? Just how did you think about what cloud penetration do we need to get to to kind of get to those numbers?
So we have a very stringent financial model that we do internally at NiCE, where we look at how we expect to cross-sell into the different regions, into the different install bases, as well as bringing in new logos as well. All those go into that, along with just looking at the success and momentum we have seen both standalone at NiCE, where those 40% plus rates are coming even pre-Cognigy. We also see the momentum that Cognigy has been driving on a standalone basis. And at the time of the close of the acquisition, we announced that we expect Cognigy on their own to exit 2026 with 85 million of ARR, and we're well on track for that.
So I think the combination of the momentum we're seeing and the pipeline, of course, along with proven opportunities that we've closed throughout the course of this year, where nearly all of our large enterprise deals include part of our AI offering on our platform.
Okay. And then just how does kind of increasing consumption model revenue or kind of consumption revenue impact kind of your visibility of the business?
AI interaction volume drives AI revenue growth over time. As customers continue to expand their usage and the consumption above the commitments that they have with us, that continues to drive further growth above the committed revenue. I mentioned the backlog of the 13% excluding Cognigy at the end of Q3 that would indicate a potential for accelerated growth in the core of our cloud. That, of course, is what's on the RPO or the remaining performance obligations that are committed. On top of that, there's also the potential for incremental consumption-based usage over that and beyond that.
Okay. Uh, you know, mentioned previously that NiCE had made substantial progress in kind of expanding its partnership ecosystem. Just how should we think about kind of the timeline of these becoming more meaningful or just kind of how they contribute to growth? Is this mostly lead gen? Just like how are you thinking about partnerships contributing to the growth algorithm?
So we've signed a significant number of partnerships this year, either new or expanded, and Scott has been a large part of building that ecosystem. When we think about the impact of that, some of those partnerships have already been in place today, and in most of those players, we have both a tight technical integration and partnership, as well as often a selling and either referral or reseller model as well. so when you think about what the impact is, some of that will come sooner than later, I would say the area where we would expect to see the more near-term impact starting to show up is, for example, in our relationship with AWS, where we're selling through the AWS marketplace, so it's an area of opportunity to broaden the go-to-market distribution through using that marketplace more than we have in the past.
That is something that you can see start coming in more in the near term and earlier part of 2026. But most of those partnerships take time to train their salesforce and educate them around sales enablement, educate them also, as well as kind of the newer capabilities around AI and what we have for agentic AI. So you should expect that that looks more towards the back half of 2026, really into 2027. And we're creating those partnerships for really driving long-term sustained top line growth.
Okay. And then maybe just as a final question for me, we get a question a lot around, um, you know, have this strong competitive positioning, profitable FCC business for Financial Crimes and Compliance business. We often hear just like, "Why is this asset still core to NiCE?" And just how should we think of that as a part of NiCE's story, particularly just given what you're seeing in the contact center market?
Yeah. So, I think we're proud of the success we have across both of our business segments, CX as well as FCC. Uh, you know, clearly, at this point, CX represents about 85% of our total revenue. So, it certainly gets more airtime and we spend more time talking about it. But we continue to be very excited and pleased with the performance of the FCC business. It's a great business, is profitable, has many long-term global FIs that have been customers that continue to come back and buy with us year after year. And it has its own leadership and management team that largely operates independently on a day-to-day basis. So, it's a business we continue to be very excited about in addition to CX.
I think with respect to the overall portfolio of NiCE, this year is no different than any year that we always look at the portfolio of assets and the business segments that we are investing as an organization, um, and as part of our annual strategy process, look at what is the best way to ultimately drive long-term shareholder value, and of course, that's part of the consideration that we go through annually.
Got it. All right. W ell, Beth, thanks so much for being here today. It was great talking to you.
Yes. Thank you for having me. Thank you.