Welcome to the NICE Conference Call discussing First Quarter 2021 Results, and thank you all for holding. All participants at present are in a listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded, May 13, 2021. I would now like to turn the call over to Mr.
Marty Fowen, VP, Investor Relations at Knight. Please go ahead.
Thank you, operator. With me on the call today are Barak Elam, Chief Executive Officer Beth Gaspich, Chief Financial Officer and Eran Liron, Executive Vice President, Corporate Development. Before we start, I would like to point out that some of the statements made on this call will constitute forward looking statements. In accordance with the Safe Harbor Divisions 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 And Item 3 is 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 Q1 2021 results and the company's guidance for the Q2 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 Commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles This is reflected mainly in accounting for acquisition related revenues and expenses, amortization of intangible assets and accounting for stock based compensation. Differences between non GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.
We We'd also like to remind you that we are hosting our virtual Investor Day on May 25 in conjunction with our Interactions Live A special program for analysts and investors will include presentations from NICE executives and product and technology sessions. If you haven't received a registration email, please email us at irnice.com. I I'll now turn the call over to Barak.
Thank you, Marty, and welcome, everyone. As we are nearly halfway through 2021, Our world is already changing at an accelerated pace. Consumer experiences will change more in the next 5 years Than they have in the previous 15. Next gen consumers demand channel of choice and seamless experience And to keep up, enterprises need to raise their game in driving customer satisfaction to maintain loyalty among consumers. To accomplish this, organizations are accelerating their adoption of cloud, digital, sophisticated analytics and AI.
This is creating immense opportunities in the market in which we operate and for the solution that we develop and deliver. We are seeing increased adoption in cloud, digital, automation and self-service, solutions and technologies that we have successfully encapsulated into the broadest, deepest and most complete platforms in both customer engagement and financial crime and compliance. These platforms Will enable us to capture significant growth opportunities in what we foresee as a more than a $25,000,000,000 total addressable market for Knight. We witnessed strong evidence of these growth opportunities throughout 2020 and it is continuing In 2021, as demonstrated by our very strong first quarter results across the board. Total revenue increased 11% to $457,000,000 which exceeded our guidance range And cloud revenue grew 33%, both of which were fueled by CXone.
The CXone pipeline and bookings Reached record levels in Q1. Unlike cloud transitions by other companies, our overall revenue growth accelerating due to a combination of 2 drivers to our cloud business. 1st, cloud conversions of our existing on premise product, resulting in higher annual revenue per customer. And second, a net new cloud business, Inticast Digital Development Self-service solutions that we did In Q1, due to our success in the large enterprise market, Our cloud gross margin continued to rapidly increase growing 4 70 basis points to 67.6 percent And that drove the overall gross margin, which increased 180 basis points to 72.7%. Operating income Increased 17% to $129,000,000 and operating margin grew 130 basis points to 28.2%.
This led to a 50% increase in earnings per share to 1.64 dollars which also exceeded our guidance range, And we generated $164,000,000 in operating cash flow in Q1. The underpinning of the strong financial performance and our ongoing growth are the result of owning the best set of assets we have assembled For both innovations and acquisitions to create CXone. These assets include only channel routing, digital, Workforce engagement, analytics, AI and automation. We have successfully integrated these best of breed technologies into CXone, which is a single unified native cloud platform delivered to all segments of the market, small, mid and large enterprises. This deliberate and prudent strategy of combining all these assets was recognized by Gartner and many other industry analysts As NICE is the only company that is a leader in both stickers and WM in Gartner's Magic Quadrant.
As the demand for channel of choice has become mainstream consumers and the need for digital has never been greater among enterprises. In Q1, We witnessed an increase of 2.5 times in digital interactions. Growth in digital and digital demonstrate the fast growing appetite Enterprises have digital transformed and CXone has a broader set of digital assets in the industry. TakeOne's native capabilities allows businesses to reach consumers wherever the digital journey begins. Whether a search engine, social network or mobile application, AFART's smart digital self-service is ready to handle all interactions either proactive or responsive to all customer needs.
A few weeks ago, we further enhanced our digital offering with the introduction of CXone Expert following the acquisition of MIMTOUCH. This expands the capabilities of our platform by embedding knowledge in the digital journey. This is another step in extending the breadth and depth of CXone by natively integrating best of breed capabilities. Intensive investment In the past 2 years, AI led the introduction of an item. It is the AI and core of Styx Fund that is embedded across our entire platform, Greatly announcing every single solution on the platform.
We have seen great success with Enlighten among large enterprises in telecom, healthcare, hospitality And other sectors. With these asset based, we also have a go to market that is unparalleled in delivering CDX-one to all market segment, small, mid and large enterprises as well as international. International expansion has been a key strategic initiative for CXone and We are seeing great results. In Q1, international bookings grew 3 times compared to the same quarter last year As we are seeing great momentum in our international partner expansion program. For small and mid sized enterprises, We are also working with dozens of channel partners in a rapidly expanding partner ecosystem, includes carriers, referral partners, collaboration vendors, CRM providers, value add resellers and Centimeters integrators.
We continue to see strong growth in bookings with our partners and we witnessed 38% growth in new logos in Q1 with many of those coming through the channel. We also have a large ecosystem of DevOne partners That are building solutions for our fast growing ZX Exchange marketplace. There are all 150 solutions in the marketplace and over 400 APIs To extend CXone for CRM, web, overlaps, AI and automation, among many other categories. Our route to large enterprises has been our domain expertise for many years. This domain expertise together with a large global enterprise sales organization Our reasons why we are clearly differentiated from our competitors in this segment of the market and why we continue to see growing momentum here.
Q1 exhibited further evidence of In Q1, we signed many 7 digit ACV61 with new customers. New customer deals, including the large hospitality chain, where we replaced the incumbent on premise Lexi processor, we wanted to explore the all in one aspect of CXone platform and the ability to easily add sales channels and analytics down the road. We signed a 7 digit ACV deal with a large federal government agency, which requires a scalable model for the cloud and federal authorization. There was a 7 digit deal with a leading dental insurance company They will be moving forward with more to mention cutting edge workforce engagement And digitally transformed their business lines. We also signed a very large Xvie deal with a well known online publishing company.
In addition to new customers, we find many large pension deals, which demonstrate the power of our platform as these customers continue to expand their relationship with NICE By adding on solutions easily and seamlessly over time, large expedition deals included a 7 digit ATV deal With a leading business process outsourcer and a large healthcare company where we expanded and replaced in current. This healthcare company expanded with To further advance their cloud transformation project in the contact center. Other 7 digit execution deals include with the major airline for portfolio of our Including analytics as they are preparing themselves for a major post pandemic business resurgence. We also signed a 7 digit attention deal With a major social media company, which will deploy several solutions from our workforce engagement portfolio as well as analytics. We're also seeing tremendous momentum for CXone internationally with some very large international deals that were signed in the quarter.
There was a 7 digit ACV deal with a very large Latin Telecom Group, which is a new customer. We want to build the flexibility, agility and extensibility of our cloud platform And replace the incumbents who only offer a hosted version of the off premise product. There was a 7 digit deal With a preeminent telecom company in the APAC region. Also in APAC, we signed a 7 digit deal with a financial telecom company for a portfolio of our solutions. In the UK, we signed 7 digit deals with a government agency for RBA and a telecom company for analytics.
In Financial Credit Compliance, we continue to sign large deals, including 7 digit deals with a very large bank for compliance, a major brokerage room for fraud and robotics automation, An international bank for portfolio of our fraud enabled solutions among many others. We also continue to witness increasing success in the mid tier financial institutions In summary, a strong start to the year with DASIM play in an average market And Partner Ecosystem, a record pipeline and robust bookings, mostly untapped $25,000,000 past going time, we believe we are in best position To capture many opportunities in 2021 and beyond, I would like to take this opportunity and invite all of you to our annual Enzo Day In conjunction with our InterXions user conference, InterXions Live is the CX industry's largest virtual event with over 25,000 customers partners in attendance and a great lineup of keynote speakers. I will now turn the call over to Beth.
Thank you, Barak, and good day, everyone. I'm pleased to provide the analysis of our financial results and business performance for the Q1 of 2021 and then provide our outlook for the Q2 year. Total revenue for the Q1 accelerated to 11%, reaching a record of $457,000,000 Compared to $411,000,000 in the same period of last year. For the first time, total revenue in Q1 exceeded total revenue in Q4, demonstrating our shift to a predominantly cloud company with about 8% recurring revenue. Total revenue growth was again driven by our impressive cloud revenue, which grew 33% year over year.
As expected, due to our ongoing transition to the Cloud that is growing rapidly, we expect to have a long term trend of overall higher revenue growth. Cloud revenue represented 50% of our total revenue in the quarter compared to 42% last year and recurring revenue stood at 78% of total revenue in the quarter compared to 75% last year. Our cloud revenue is primarily being driven by CXone in all segments of the market. While we are clearly differentiated and continue to achieve great success in large enterprises, we are also seeing tremendous achievements both internationally and in the mid market as well. In the quarter, 50% of our revenue was generated from cloud And the other half of our revenue was comprised of our product and services, which accounted for 15% 35% of total revenue respectively.
Moving to our business unit breakdown. Customer engagement revenues, which represented 81% of our total revenue in Q1, totaled $369,000,000 for the Q1, a 13% increase compared to the same quarter last year. In our other business unit, Financial Crime and Compliance revenues were $88,000,000 for the Q1, which was an increase of 6% from Q1 last year and represented 19% of our total revenue. Breaking down total revenue by geographic region, we saw double digit growth in the Americas And EMEA region. Americas, which represented 82% of our revenue in Q1, totaled $374,000,000 and grew 11%, While EMEA revenues represented 12% of total revenue and grew 16% to $56,000,000 APAC revenues, which represented 6% of our total revenue in Q1, totaled $27,000,000 and grew 6% compared to Q1 last year.
Part of our growth strategy to expand our cloud reach internationally, this ongoing expansion of CS1 across multiple regions Our gross profit grew 14% to a reported record of $332,000,000 in the Q1 compared to $292,000,000 for the Q1 of 2020. The gross margin increased to 72.7% compared to 70.9% in Q1 last year. The increase in gross margin is mainly attributed to the growth from CXone. In the Q1, cloud gross margin was 67.6%, An increase of about 4.70 basis points, which was largely the result of increased scale in our cloud business. As our cloud business continues to grow, we expect further expansion in our cloud gross margin.
In Q1, operating income Increased $129,000,000 compared to $111,000,000 in Q1 2020, and operating margin was 28.2% compared to $0.269 last year due to an increase in revenue coupled with stable operating cost ratios. Earnings per share for the Q1 totaled $1.54 an increase of 15% compared to Q1 last year, resulting from improvements in growth and operating margins. We experienced another strong quarter in operating cash flow, which totaled $164,000,000 into 1, An increase of expense compared to last year. Total cash and investments at the end of March 2021 totaled 1,561,000,000 Net of debt of $685,000,000 our net cash totaled $876,000,000 Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on opportunities consistent with our growth strategy and capital allocation plans. I will conclude my remarks with guidance.
For the Q2 of 2021, we expect Total revenue to be in the range of $465,000,000 to $455,000,000 We expect the Q2 of 2021 fully diluted earnings per share to be in the range of $1.45 to $1.55 For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1,800,000,000
$2,820,000,000
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 $6.19 to $6.39 I will now turn the call over to the operator for questions. Operator?
Thank you. At this time, we will be conducting a question and answer session. A confirmation Our next question is from Samad Samana with Jefferies. Please proceed with your question.
Hi, good morning and thanks for taking my questions. Maybe Barak, one for you in terms of the pipeline for CXone deals. That's great to hear what you what company did in the quarter, but just maybe help us understand what demand looks like as we lapped this time last year where there was a surge And interest in just maybe what the deal pipelines for 61 for the next quarter and for the rest of the year?
Hi, Saman. Thank you for the question. So yes, we see, as you saw in the earlier remarks, great momentum in Swan and I highlighted that we see it both with a new customer with a great growth in new logos versus last year of 38% in the quarter as well as expansion and specifically I highlighted 2 other things, which was tremendous growth that we see in the international market. So we are Spending and leveraging on the presence that we have over there and of course digital. The pipeline as I mentioned as well beyond the booking that It was a record high in Q1.
It looks very, very good. All of those segments, both in new logos, Expansion internationally. So we feel pretty positive about the market dynamics. We see it from a segments perspective in all segments of the market And we see the enterprise market continue to be very strong as more and more large enterprises are realizing post The pandemic is a result of what they had experienced last year, the need to further accelerate and bring forward the plans of shifting to the cloud As well as digitally transformed. That's what we see.
On top of that, as I mentioned, the expansion are not just Adding more capacity, we are starting to see the power of CXone with a breadth of solutions that are Natively integrated and fully owned by us, our customer easily adding those solutions and it adds up to our both booking and billings.
Great. And Beth, maybe one for you. I don't want to steal the thunder from the company's upcoming analyst briefing and Maybe you'll address it there. But just I think cloud revenue is on top of everybody's mind and it was another strong performance this quarter. But I appreciate product revenues It can be volatile, but how should we think about maybe cloud revenue guidance embedded in that 2Q outlook and for the rest of the year as far as cloud revenue growth rates?
So as we look
at the guidance
for the rest of the year, starting with Q2, we expect our cloud growth to continue to be strong and looking forward for the rest of the year as well. From a longer term perspective, looking out really over the next 3 years, we expect our cloud growth to be at 25% or greater. And looking at the given year in 2021 on a full year basis, we expect that our cloud growth will be even greater than that and that's kind of reflected in the full guidance.
Great. Thanks for that additional clarity. I really appreciate it. And then just maybe one last question on the services revenue, I I know normally it goes down sequentially from 4Q to 1Q, but just anything worth noting there? Was that more due to a shift to the cloud this quarter?
Just Maybe help us understand that ongoing seasonal trend?
Yes, it's a good question. And of course, it really is reflective of the ongoing shift that we are seeing to the cloud. We had 33% growth in the cloud in Q1. And as expected that over time, we expect that the cloud business and the concentration The cloud revenue is going to continue to increase. And on the other side of that, of course, the largest portion of our service Revenue is maintenance.
And in practice, what we see is that as our customers are converting from being on premise Customers and shifting over to the cloud and most of that's coming from CXone. We generally see a very nice uplift anywhere from 2 to 3 times on an apples to apples basis, but that uplift we have seen in practice can be all the way up to 9 or as generally what you see is that those customers will actually adopt multiple solutions off the CXone platform at the time They migrate.
Great. Thanks for my questions and look forward to connecting student interactions.
Thank you, Samaj.
Thank you. Our next question is from Sanjit Singh with Morgan Stanley. Please proceed with your question.
Thank you for taking the questions and my congrats on a really strong Q1. I wanted to go back to sort of this time last year and Some of the initiatives around CXone at home and whether you still think that's a source of potential new leads, Whether it's the mid market or the enterprise, how is that conversion on CS:one at home trended going into 2021?
So last year, with the outbreak of the pandemic back in March, we immediately launched CXone at home. It had Two aspects of it. First of all, we wanted to support customers, the prospect that needs, but it's not the ability to move back home, but also a way for them to get a taste And kind of make this potential fear this appeal wasn't there. And it resulted with, of course, a lot of momentum. I think 2 things happened as a result.
First of all, we realized that a lot of that weak customer onboard a much faster pay. When we started with CXone at home, all of a sudden customers shifted CXone in a matter of 24 to 48 hours at scale, which was really phenomenal. We continue and doing that as we speak. But I believe both this campaign and generally announcing the market, as I said before, it's accelerating the overall Moving the market into the cloud and with the enterprise of getting ready to do that in the next few years versus much further down the road, and we are happy to see that and I think it will accelerate the focus of the You've said there are many other positive dynamics within our business, not all of them related directly to those initiatives or to the pandemic. And as already said, both digital transformation and a lot of injections of the AI.
And with our strategy, That's what we gave us a few years back and also internal innovation and all of the vision we've done, including the recent one with MindTouch, Allowing us to be the only one in the market louder that can offer customers a full breadth of solutions in a one native cloud platform, Even if they don't need all that in day 1, customers are very receptive to the notion that it's a future proof solution And they don't need to continue and be kind of the system integrator of the entry or buying from a cloud vendor that are practically Are asking almost as resellers instead of the platform.
That makes perfect sense. And thank you for that, Barak. The one thing I wanted to follow-up on was your comment on international bookings growing 3x year over year. Just wanted to see get a sense of how that's expressing itself. I noticed that the product revenue growth grew year over year for the first time.
So think about those bookings. How is that coming through in terms of cloud versus on prem and just broader SKIP one traction on international?
So thanks. My comment on the international, obviously, product was much healthier this quarter, but the particular comment The 3x was actually about TechOne and cloud. So this is where we see the nice increase. It's part of It's a result of both those markets, but also our plan about 2 years ago to invest Both in the technology and the availability, but also, of course, in the gold market and to expand our investments, Both internally and spending our partner network in many of those international markets and we're starting to see it. So we're starting In the booking, we believe it will become more pronounced in revenue as soon as those bookings are converted into revenue in the club.
I think you're seeing already this quarter Fantastic growth rate in some of our international markets, and we expect that to continue.
Excellent. Thank you. Congrats.
Thank you.
Thank you. Our next question comes from Tim Horan with Oppenheimer. Please proceed with your question.
Thanks guys. Can you talk about
what else you need to do to expand international is product development, go to market and maybe just where are you in that whole process, what's made you in? Thank you.
Thanks for that. So we already have a very solid playbook and we are much more confident in the playbook after These results internationally, we have put ourselves at least 2 years ago and kind of prioritizing international markets that are all relevant, but Obviously, they are different in size and different in maturity. From a technology perspective, because we are an native cloud solution that runs over Public cloud and in a positive environment, it's very easy for us to open To make the availability of the deployment any country or continent out there. And today, we have this availability in dozens of these countries. So from a technological perspective, also since we have built the CXone from the ground up several years back, The ability to localize it in terms of language, in terms of also specific features that are needed for specific regulations in different countries It's also pretty easy for us.
Thirdly is the relationship with Alcoa. At Elcoa, the availability of both, avoid some digital services. We have a very good playbook for that and it's a very easy thing to do. So most of the effort right now is on the go to market front and there are 2 aspects to go to market. Since NICE historically have very strong presence in some territories, we have leadership in place, we have sales people in place, presales delivery people And we have offices in many of those countries.
It's mainly of expansion and reopening Or anything like that. So that's one investment that we continue to do. And the second investment is to continue to Standard partner ecosystem, I think there is now we're seeing a great realization of partners that were kind of sitting on the fence when it comes to cloud in In the international markets, finally to a decision that this is not an option, but it's mandatory for them to Shifting to the cloud, it's something we saw domestically probably 5 or 6 years ago. Now we're seeing it in international market. And And we're very happy to meet to be among the 1st Tugate international market and win the heart and mind of many of those partners.
And we saw it very, very nicely and we continue to sign up a lot of those partners on a monthly and quarterly basis. Thank
you. Thank you. Our next question is Tyler Radke with Citi. Please proceed with your question.
Hey, thanks for taking my question. First question, just wanted to go back a little bit on the strength that you saw on prop revenue this quarter. Just trying to understand if that kind of exceeded your internal expectations, kind of what was the drivers of that and if you're seeing anything unusual In the pipeline, where we could maybe see more product strength throughout the year?
Yes. Product is, of course, less of another carrying business. So we are seeing it might fluctuate from 1 quarter to the 2nd. It is to say that our strategy that we go out first and most of our new customers, all of them are going with cloud And many of our existing customers are expanding to the cloud. But we have a very large customer base.
In certain markets, we still prefer to continue and buy products In on premise fashion, Tilde will compare it to the cloud. It's sometimes part of the conversation we have with them and building the roadmap with them. So it's the least predictable part of our business as you can imagine. But actually the Python is pretty healthy for our product as well. But Again, the main focus of ours is the cloud and the cloud revenue and we'll continue to cater of course to the product element and we expect
So my follow-up, I know you talked about Large, I believe is a hotel chain or hospitality group, kind of modernizing on CS1 this quarter. I'm curious as you look at the pipeline and you think about maybe industries that were the most impacted Last year, do you think as things reopen, are you starting to see signs that those impacted industries could be tailwind to the pipeline going forward? Just kind of curious What you've observed thus far in some of the harder hit industries from a COVID perspective?
Yes. So when it comes to I think what we have learned in our past and it's indicative of our outlook for the future that customer service It is a mish critical for companies regardless of the variation of their business. They still have customers who want to stay in touch with their customers. Customers is the most important So even at the peak of the pandemic last year, March, April, May, if you think about this particular segment you've mentioned, travel and tourism, All the way through the summer, we still have although many hotels were closed and airlines had 10% volume versus the usual in terms of flights, etcetera, They still have a need to provide customer service, people calling or people interacting with them About cancellation, questions, inquiries, my frequent flyers out there, so my frequent hotel hotels and things like that. What we have seen specifically in travel and tourism and some other industries is that they are already seeing right now and maybe it's indicative To what we're going to see future in the industry, and they're seeing already a lot of volume of people preparing for the summer months and even for the holidays Of this year and experienced a lot of positive bookings on their business and preparing themselves.
So they need more capacity And they have seen through the pandemic that there is a better way to do it. So they are taking advantage of the experience to both shift to the cloud As well as are starting to offer digital services. And lastly, in many of those cases, their employees Either still working from home or they are planning to do it in a hybrid model. And for that, they are realizing that they need further advanced capabilities Coming from our workforce engagement area. Thank you.
Thank you. Our final question comes from Tavy Rosner with Barclays. Please proceed with your question.
Yes. Thanks for taking the questions. First, I want to get a sense, when we look at the cloud growth, how much of the excess risk comes from New customers, I guess, new logos, which is converting some of your, I would say, legacy customers.
Yes. So you characterized correctly that as a company, and I think I've mentioned it in my opening remarks, Our cloud transformation as a company is quite unique. We believe in positive way that it's not just a reclass of renew and shifting It's from the price of cloud. They're not going to end up this transition, just reclassing our customer base, shifting it from the product to the cloud. We have a great It's interesting.
It's happening that we have 2 sources of growth to our cloud business. First is what you have mentioned and this is Very. Our existing, workers engagement and other customers who sit on our on prem business and converting it to the cloud. But the second thing is the results of our strategy 5 years ago to see into the adjacent market, so the TICAS, digital and self-service. These are solutions in a market we just did not have presence in and we're not operating in this segment As an on premise company, so this is a brand new revenue for us.
Today, the majority of the Business of the cloud revenue come from the second part, which is brand new Seacast opportunities. We believe that the conversion of WM into cloud will accelerate at a certain point. It It is somewhat also attached to the CCaaS offering. And as Beth mentioned before, when we see such a conversion, it's not one to 1, It's actually giving us an uplift and customer that used to be an on prem customer of ours, we can easily see Two times or more revenue from that customer as they ship to the cloud.
Thanks for that. Much appreciated.
Thank you. Ladies and gentlemen, we have reached the question and answer session. I will now turn the call over to Barakah on closing remarks.
Thank you all for joining us. We really look forward to see you in a couple of weeks at our interactions at our event with a great agenda and great interactions we'll have together. Thank you and have a great day.
This concludes today's conference and you may now disconnect your lines at this time. Thank you for your participation. Have a great day.