May 13, 2021
Marty Cohen
With me on the call today are Barak Eilam, 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 provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the company's actual results could differ materially from these forward-looking statements.
Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2020 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 23, 2021. During today's call, we will present a more detailed discussion of first quarter 2021 results and the company's guidance for the first quarter and full year 2021.
Following our comments there will be an opportunity for questions. Let me remind you that, unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from Generally Accepted Accounting Principles, as reflected, mainly in accounting for acquisition-related revenues and expenses, amortization of intangible assets and accounting for stock-based compensation.
The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. We'd also like to remind you that we are hosting our virtual investor day on May 25 in conjunction with our interactions live user conference, a special program for analysts and investors and the presentation from nice executives and product and technology sessions.
If you haven't received a registration email, please email us at [email protected]. I'll now turn the call over to Barak.
Barak Eilam
Thank you, Marty, 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 five years than they have in the previous 15. Next gen consumers demand channel of choice in seamless experience and to keep up enterprises need to raise their game in driving customers to inspection to maintain loyalty among consumers.
To accomplish this, organization are accelerating the 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're 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 billion total addressable market for nice.
We witnessed strong evidence of these growth opportunities throughout 2020 and it is continuing in 2021 as demonstrated by a very strong first quarter results across the board. Total revenue increased 11% to $457 million, which exceeded our guidance range and cloud revenue grew 33%, both of which were fueled by CXone.
The CXone pipeline in bookings reached record levels in Q1. Unlike cloud transitions by other companies, our overall revenue growth is accelerating due to a combination of two drivers to our cloud business.
First, cloud conversions of our existing on-premise product, resulting in higher annual revenue per customer and second, a net new cloud business in [indiscernible] digital and self service, solutions that we did not previously offer in the on-premise model. In Q1, due to our success in the large enterprise market, our cloud gross margin continue to rapidly increase going 470 basis points to 67.6% and that drove the overall gross margin which increased 180 basis points to 72.7%.
Operating income increased 17% to $129 million and operating margin grew 130 basis points to 28.2%. This led to a 58% increase in earnings per share to $1.54 which also exceeded our guidance range and we generated $164 million in operating cash flow in Q1.
The underpinning of the strong financial performance in our ongoing growth are the result of owning the best and broader set of assets we have assembled for both innovations and acquisitions to create CXone. These assets include omni-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, medium, 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 [indiscernible] and WM in Gartner's Magic Quadrant.
As the demand for channel of choice has become mainstream among consumers, the need for digital has never been greater among enterprises. In Q1, we witnessed an increase of 2.5 times in digital interactions.
This rapid growth in digital demonstrate the fast growing appetite that enterprises have to digital transform and CXone has the broadest set of digital assets in the industry. CXone's native capabilities allows businesses to reach consumers wherever the digital journey begins whether it's search engine, social network, or mobile application, AI-Powered small 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 offerings with the introduction of the CXone expert following the acquisition of MindTouch. This expands the capabilities of our platform by embedding knowledge into the digital journey.
This is another step in extending the breadth and depth of CXone by natively integrating best of breed capabilities. Our extensive investment in the past three years in AI led to the introduction of Enlighten.
It is the AI brain in the core of CXone that is embedded across our entire platform, greatly enhancing 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 assets in place, we also have a go to market that is unparalleled in delivering CXone to all market segments, small, mid and large enterprises, as well as international. International expansion has been a key strategic initiative for CXone and we're seeing great results.
In Q1, International bookings grew three times compared to the same quarter last year as we're seeing great momentum in our international partner expansion program. For small and midsized enterprises, we are also working with dozens of channel partners in a rapidly expanding partner ecosystem that includes carriers, the [stellar] partners, collaboration vendors, CRM providers, value added resellers and system 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 to the channel. We also have a large ecosystem of Devon Partners that are building solutions for fast going [face of] change marketplace.
There are over 150 solutions in the marketplace and over 400 APIs to extend CXone for CRM, web, mobile apps, AI and automation, among many other categories. [indiscernible] large enterprises has been our domain expertise for many years.
This domain expertise together with the large global enterprise sales organization are reasons why we are clearly differentiated from our competitors in this segment of the market and why we continue to stay going momentum here. Q1 exhibited further evidence of this.
In Q1, we signed many seven digit ACV CXone deals with new customers. New customer deals included the large hospitality chain where we replaced the incumbent on premise legacy provider.
We won this deal for the all in one aspect of CXone platform and the ability to easily add digital channels, analytics down the road. We signed a seven digit ACV deal with a large federal government agency, which required a scalable model for the cloud and FedRAMP authorization.
There was a seven digit deal with the leading dental insurance company, as they will be replacing the on premise legacy systems from the incumbent. They will be moving forward with more automation, cutting edge workforce engagement, and digitally transforming their businesses Nice.
We also signed a very large ACV deal with a well known online publishing company. In addition to new customers, we sign many large expansion deals which demonstrate the power of our platform as these customers continue to expand the relationship to Nice by adding on solutions easily and seamlessly over time.
Large expansion deals included a seven digit ACV deal with a leading business process outsourcer in the large healthcare company where we expanded and replaced incumbent. This escrow company expanded with CXone to further advance the cloud transformation project in contact center.
Other seven digit expansion deals included one with the major airlines for [Portfolio Fire Solutions] including analytics, as they are preparing themselves for a major post-pandemic business surgeons. We also signed a seven digit expansion 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 seven digit ACV deal with a very large Latin American telecom group, which is a new customer.
We won this deal due to the flexibility, agility and extensibility of our cloud platform and replaced the incumbent who could only offer a hosted version of the on-premise product. There was a seven digit deal with a preeminent telecom company in the APAC region.
Also in APAC we signed a seven digit deal with a major telecom company for a portfolio for a solution. In the UK, we signed seven digit deals with the government agency for RPA and a telecom company for analytics.
In financial crime and compliance, we've continued to sign large deals, including seven digit deals with a very large bank for compliance, a major brokerage firm for fraud and robotics, automation and international bank for a portfolio of our fraud and AML solution, among many others. We also continue to witness increasing success in the medium financial institutions with our extensive platform.
In summary, after a strong start to the year, with the best asset in place, an unmatched go to market and partner ecosystem, a record pipeline and robust bookings and mostly untapped $25 billion of path going term we believe we're in the best competitive position to capture many opportunities in 2021 and beyond. I would like to take this opportunity and invite all of you to our Annual Investor Day in conjunction with our interactions user conference.
Interactions live is the CX industry's largest virtual event with over 25,000 customers and partners in attendance and a great lineup of keynote speakers. I will now turn the call over to Beth.
Beth Gaspich
Thank you, Barak, and good day everyone. I'm pleased to provide the analysis of our financial results and business performance for the first quarter of 2021 and provide our outlook for the second quarter and full year.
Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million, compared to $411 million 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 80% 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% and 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 million for the first quarter, a 13% increase compared to the same quarter last year. In our other business unit, financial crime and compliance revenues were $88 million for the first quarter, 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 million and grew 11% while EMEA revenues represented 12% of total revenue and grew 16% to $56 million.
APAC revenues which represented 6% of our total revenue in Q1 totaled $27 million and grew 6% compared to Q1 last year. Part of our growth strategy is to expand our cloud reach internationally.
This ongoing expansion of CXone across multiple regions is one of the key growth drivers for our continued cloud growth. Our gross profit grew 14% to a quarterly record of $332 million in the first quarter compared to $292 million for the first quarter 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 first quarter cloud gross margin was 67.6%, an increase of about 470 basis points which was largely the result of increased scale and our cloud business. As our cloud business continues to grow we expect further expansion in our cloud gross margin.
In Q1 operating income increased to $129 million compared to $111 million in Q1, 2020 and operating margin was 28.2% compared to 26.9% last year, due to an increase in revenue coupled with stable operating cost ratios. Earnings per share for the first quarter totaled $1.54, an increase of 15% compared to Q1 last year, resulting from the improvement in gross and operating margins.
We experienced another strong quarter and operating cash flow which totaled $164 million in Q1, an increase of 6% compared to last year. Total cash and investment at the end of March 2021 totaled $1,561 million.
Net of debt of $685 million. Our net cash totaled $876 million.
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 second quarter of 2021 we expect total revenue to be in the range of $445 million to $455 million. We expect the second quarter 2021 fully diluted earnings per share to be in a 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 million to $1,820 million. We are also increasing the range of our guidance for the full year 2021 fully diluted earnings per share to be in a range of $6.19 to $6.39.
I will now turn the call over to the operator for question. Operator?
Operator
Thank you. At this time we will be conducting a question and answer session.
[Operator Instructions] Our first question is from Samad Samana with Jefferies. Please proceed with your questions.
Samad Samana
Hi, good morning, and thanks for taking my questions. Maybe Barak one for you, in terms of the pipeline for CXone deals.
It's great to hear what you -- what the company did in the quarter, but just maybe help us understand what demand looks like as we last this time last year, where there was a surge in interest and just maybe what the deal pipeline looks for CXone for the next quarter and for the rest of the year?
Barak Eilam
Hi Samad, thank you for the question. So yes, we see, as you saw in the earlier remarks, great momentum in the CXone.
And I highlighted that we see it both with new customer with a great growth in new logos versus the last year of 38% in the quarter as well as expansion and specifically, I highlighted two other thing, which was tremendous growth that we see in the international market. We are expanding 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 was record high in Q1 looks very, very good in all of those segments both in new logos, expansion and internationally.
We are, we feel very positive about the market dynamics with data 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 as result of what they experienced last year, they need to further accelerate and bring forward plans of shifting to the cloud as well as digitally transformed.
So that's what we see. On top of that, as I mentioned, the expansion of not just adding more capacity, we're starting to see the power of CXone with the breadth of solutions that are natively integrated and fully owned by us or customer easily adding those solutions and it adds up to both booking and buildings.
Samad Samana
Great. And Beth may be one for you.
I don't want to steal the thunder from the company's upcoming analyst briefing. And maybe we'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 to 2Q outlook and for the rest of the year as far as cloud revenue growth rates?
Beth Gaspich
So as we look on guidance for the rest of the year starting with the 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 at really over the next three years, we expect our cloud growth to be a 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 year guidance.
Samad Samana
Great, thanks for that, that additional clarity. I really appreciate it.
And then just maybe one housekeeping question. On the services revenue, I know normally it goes down sequentially from 4Q to 1Q but just anything worth noting there?
Was that more due to shift to the cloud in this quarter? Or just maybe help us understand that ongoing seasonal trend?
Beth Gaspich
Yes. It's a good question and of course, it really is reflective of the ongoing shift that we're 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 of 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 the 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 10 times as generally what you see is that those customers will actually adopt multiple solutions off the CXone platform at the time that they might migrate.
Samad Samana
Great, thanks for my questions and look forward to connecting soon at interactions.
Barak Eilam
Thank you Samad.
Operator
Thank you. Our next question is from Sanjit Singh with Morgan Stanley.
Please proceed with your question.
Sanjit Singh
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 does that conversion on CXone at home trended going into 2021?
Barak Eilam
So last year with the outbreak of the pandemic back in March we immediately launched CXone at home. It has two aspects of it.
First of all, we wanted to support customers or prospects that means that did not have the ability to move home. But also a way for them to get a taste of the cloud and kind of make this potential studious appeal, though it wasn't there.
And it resulted with, of course a lot of momentum. I think two things happen as a result.
First of all, we realize as a result of that that we can get customers on boarded in a much faster pace. When we started with the CXone at home, all of a sudden, customers shifted to CXone in a matter of 24 to 48 hours at scale, which was really phenomenal.
And we continue and doing that as we speak. But I believe both this campaign and generally now seeing the market is as I said before it's accelerating the overall move in the market into the clouds and with the enterprises 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 progress of the time. Needless to say, there are many other positive dynamics that we see in our business.
Not all of them related directly to those initiatives or to the pandemic. And these are, as I said, both digital transformation and a lot of injections of AI.
And I think that our strategy that we put together several years back and both internal innovation and all of the acquisition we've done including the recent one with MindTouch allowing us to be the only one in the market out there that can offer customers a full breadth of solutions in one native cloud platform, even if they don't need all of that in day one. Customers are very receptive to the notion that it the future proof solution and they don't need to continue and be kind of the system integrator of the industry or buying from a cloud vendor that are practically active almost as resellers instead of a platform.
Sanjit Singh
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 bad it expressing itself? I noticed that the product revenue growth grew year-over-year for the first time.
So when you think about those bookings, how's that coming through in terms of cloud versus on prem and just broader CXone traction internationally?
Barak Eilam
So thanks. My comment on the international obviously, product was much healthier this quarter.
But this particular comment on the 3x was actually about CXone and cloud. So this is where we see the -- the Nice to increase.
It's part of it as a result of both of those markets, but also our plan about two years ago to invest both in the technology and the availability. But also of course in the go to market and further expand our investments both internally and expanding our partner network in many of those international markets and we're starting to see that.
So we are starting to see it in the booking. We believe it will become more pronounced in revenue as soon as those bookings converted into revenue in the cloud.
I think you're seeing already this quarter some healthy growth rate in some of our international market and we expect that to continue.
Sanjit Singh
Excellent. Thank you.
Congrats.
Barak Eilam
Operator
Thank you. Our next question comes from Tim Horan with Oppenheimer.
Please proceed with your questions.
Tim Horan
Thanks, guys. Can you talk about what else you need to do to expand international?
Is it product development go to market and maybe just where are you in that whole process? What stage you were in?
Thank you.
Barak Eilam
Thanks for that. So we already have a very solid playbook and today we're much more confident in that playbook after seeing this result internationally.
We have put ourselves at least two years ago on kind of prioritizing international markets. They're all relevant but obviously, they're different in size and different in maturity.
From a technology perspective because we're a native cloud solution the trends over public cloud and a positive environment it's very easy for us to open or to make availability of the platform in any country or continent out there. And today, we have this availability in dozens of different countries.
So from a technological perspective we're there. Also since we have built the CXone from the ground up several years back, the ability to localize it, both in terms of language in terms of also specific features that are needed for specific regulations in different countries is also pretty easy for us.
Thirdly, is relationship with local telcos in order to have availability of both voice and some digital services. We have very clear playbook for that.
And it's a very easy thing. For the most of the effort right now is on the go to market front.
And there are two aspects to goes go to market. It's nice historically, have very strong presence in some territories we have leadership in place.
We have sales people in place. Resale 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 expand the 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 certain international markets. Finally took a decision that this is not an option, but it's mandatory for them to shift into the cloud.
It's something we saw domestically probably five or six years ago, now we're seeing it in international market. And we're very happy to meet to be among the first to engage international market.
And win the hearts and the minds 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.
Tim Horan
Thank you.
Operator
Thank you. Our next question is from Tyler Radke with Citi.
Please proceed with your questions.
Tyler Radke
Hey, thanks for taking my question. First question, just wanted to double back a little bit on the strength that you saw on product revenue this quarter.
Just trying to understand if that kind of exceeded your internal expectations, kind of what was the drivers of that? And, you're seeing anything unusual in the pipeline where we could maybe see more product strength throughout the rest of the year?
Barak Eilam
Yes. So product is of course less of another recurring business.
So we are seeing it might fluctuate from one quarter to the second. Needless to say that our strategy is that we go cloud first and most of our new customers, if not all of them are going with cloud and many of our existing customer expanding or converting to the cloud.
But we have a very large customer base in certain markets. We still prefer to continue and buy products in an on premise fashion till they will convert to the cloud.
Sometime, it's 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 pipeline is very healthy for product as well. But again the main focus of ours is the cloud and the cloud revenue and we will continue to cater of course to the product element and we expect you to continue to fluctuate from one quarter to another.
Tyler Radke
Thanks. That's helpful.
So my follow up. I know you talked about a large, I believe is a hotel chain or hospitality group kind of modernizing on CXone 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 things reopen? Are you starting to see signs that those impacted industries would 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?
Barak Eilam
Yes. So when it comes to, I think what we have learned in our past and it's indicative, I believe, also for the future that customer service is a mission critical for companies, regardless of the situation of their business.
They still have customer. They want to stay in touch with the customers.
Customers is the most important asset. I would say that 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, they still have, although many hotels were closed and airlines had 10% volume versus usual in terms of flights that are, they still have a ton of need to provide customer service, people calling or people interacting with them about cancellation, questions, inquiries, my frequent flyer status or my frequent hotel status and things like that.
What we have seen specifically in travel and tourism and some other industries is that they're already seeing right now and maybe it's indicative to what you're going to see in the 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 they're experiencing a lot of positive bookings on their business. And they are preparing themselves.
So they need more capacity and they've learned through the pandemic, that there is a better way to do it. So they are taking advantage of this, of the experience to both shift to the cloud as well as are starting to offer certain digital services.
And lastly, in many of those cases, their employees are either still working from home or they're planning to do it in a hybrid model and for that, they're realizing that they need further advanced capabilities coming from our workforce engagement area.
Tyler Radke
Thank you.
Operator
Thank you. Our final question comes from Tavy Rosner with Barclays.
Please proceed with your questions.
Tavy Rosner
Yes, thanks for taking the question. At first I wanted to get a sense when we look at the cloud growth, almost that growth comes from new customers, new logo versus converting some of your, I would say legacy customers?
Barak Eilam
Yes. So you – you characterized it correctly that as a company, I think I've mentioned it in my opening remarks.
Cloud formation as a company is a quite unique. We believe in a positive way, that it's not just the re-class of revenue and shifting it from the product to cloud.
You're not going to end up this transition, just re-classing our customer base, shifting it from the product to the cloud. We have great opportunity.
The first thing is happening, that we have two sources of growth to our cloud business. First is what you have mentioned and this is converting our existing workforce engagement and other customers who sit on our on-prem business and converting it to the cloud.
But the second thing is a result of our strategy five years ago to step into the adjacent market to [precast], digital and self service. These are solutions in the market we just did not have presence in and we are 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 converting new [precast] opportunities.
We believe that the conversion of WM into Cloud will accelerate at a certain point. It is somewhat also attached to the [indiscernible] sale offering.
And as Beth mentioned before, when we see such a conversion, it's not one to one, it's actually giving us an uplift in a 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 shift to the cloud.
Tavy Rosner
Thanks for that. Much appreciated.
Operator
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session.
I will now turn the call over to Barak Eilam for closing remarks.
Barak Eilam
Thank you all for joining us. We really look forward to see you in couple of weeks to our interactions live event with a great agenda and great interactions we will have together.
Thank you and have a great day.