Nice Ltd (NICE) 2017 Q2 法說會逐字稿

Welcome to the NICE Conference Call discussing Second Quarter 2017 Results, and thank you all for holding. (Operator Instructions) AS a reminder, this conference is being recorded August 3rd, 2017. I would like now to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please go ahead.

Thank you, Operator. With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eron Liron, Executive Vice President, Marketing and 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 the performance of the company to differ materially is contained in the section entitled, Risk Factors, in Item 3 of the company's 2016 annual report on Form 20-F, filed with the Securities and Exchange Commission on April 21, 2017.

During today's call, we will present a more detailed discussion of second quarter 2017 results and the company's guidance for the third quarter and full year 2017. 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. Differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release, and I'll now turn the call over to Barak.

Thank you, Marty, and welcome, everyone. I'm glad to be on the call with you today and very pleased to report continued momentum in our business. Q2 represented another strong quarter for both the top and bottom lines, with revenue, operating income, and earnings per share all achieving double-digit growth compared to the same quarter last year.

Revenues were $315 million, which was an increase of 34%. Operating income was $72 million, representing 27% growth and earnings per share came in at 90 cents, an increase of 14%. The strong results that we continue to report are filtering down to where it counts, as we generated a 131% increase in operating cash flow in Q2 compared to the same period last year.

Also of considerable note in Q2 was the nice balance we struck between cloud and product revenue. We reported strong year-over-year double-digit growth in cloud revenue, which also increased 8% sequentially over the previous quarter, and product revenue grew 9% year-over-year.

Our consistently strong financial performance is the result of the ongoing successful implementation of the strategic plans we have put in place over the past several years. Last quarter, I shared with you our four strategic pillars that are the foundation of NICE2B, our strategic plan. We believe that these four pillars -- cloud, omnichannel, analytics and artificial intelligence -- are the four areas of our greatest growth opportunities to help us execute on our NICE2B strategy.

This week, we revealed a significant milestone in our NICE2B strategy. We announced CXone, which is a giant leap forward for NICE and the industry, by combining the best of NICE, inContact and Nexidia. CXone is the industry's first fully-integrated open unified cloud platform. CXone, with its open architecture and hundreds of APIs, is a platform for the customer service market on which NICE and its growing ecosystem of partners can leverage the value of our four strategic pillars to the benefit of any enterprise.

At the core of the CXone platform are the powerful combination of the industry-leading omnichannel routing, workforce optimization, analytics, automation and artificial intelligence. The CXone platform is based on a unified true open cloud foundation that delivers turnkey telephony, full elasticity, easy integration, and enterprise-grade solutions that fit any size company.

A little over a year ago, when we announced the acquisition of inContact, we said that we would introduce a fully-integrated solution to help reinvent the customer service market. Since NICE and nContact came together, hundreds of our engineers have been working diligently to deliver on that promise. CXone not only delivers this integrated solution, but goes well beyond that as a full platform which also allows customers and partners to integrate, extend, and enhance its capabilities.

As a truly-unified single cloud platform, comprising enterprise-grade solutions with full functionality, and which fits companies of all sizes, CXone represents a significant competitive differentiation for NICE and exemplifies our expanding market leadership.

Our four strategic pillars are not only the driving force behind the launch of CXone, they are also very evident in our Q2 execution. Let me provide you with some examples of deals that illustrate how we are progressing on all fronts, including signing very large contracts, continued competitive replacement momentum, and the rapid pace of new customer acquisition.

In reference to large contracts, we signed an 8-digit deal with a major healthcare insurance company, extending our analytics footprint and replacing one of their existing vendors. We signed a large 7-digit deal with one of the biggest tech companies in the world for analytics. We signed a 7-digit deal with a major financial institution and long-time customer, extending our analytics footprint.

Competitive replacements are another trend that continued in Q2. In addition to the 8-digit deal mentioned above, we had the biggest ever European replacement of a major competitor in a large 7-digit deal with a major telecom company. Another replacement deal was with a major health insurance company for customer journey solutions. We signed a 7-digit competitive replacement deal with a global financial services company for Enterprise Risk Case Management, and we closed a 7-digit for AML and fraud with a financial services customer, replacing the incumbent provider. This was also a new customer. In fact, Q2 was a record quarter for new customers, assisted by the strengthening alliance between NICE and our partners.

In cloud, we continued to see great momentum with NICE inContact. We signed well over 200 contracts including 150 new logos as we continued to drive growth with our integrated NICE and inContact suite of solutions. Other new customers included a 7-digit deal with a financial services company that was focused on compliance. There were new customers for our real time authentication solution, including three financial institutions looking to reduce average handle time time and prevent fraud. We also signed one of the largest investment firms in the world as a new customer in a 7-digit deal for a back office suite.

It is also important to note that we signed 14 new logos in artificial intelligence and automation in Q2, which was on top of the 10 new logos we signed in Q1. These new logos included a 7-digit deal with a large telecom company in addition to the other well-known enterprise brands.

We are witnessing a very robust market for artificial intelligence and automation, and we are well-positioned with our unique combination of attended and unattended automation, our AI-enabled robots, and our growing network of partners.

In summary, as the competitive environment is changing and market disruptions are emerging, including acceleration of the shift towards the cloud, we have taken the lead by capturing the opportunities that these changes provide. The release of CXone is a key milestone in a string of successful accomplishments that demonstrates our agility, proves our clear market leadership, and validates our innovative and winning approach.

Moreover, we raised our guidance for the year, reflecting our continued business momentum. I will now turn the call over to Beth, who will review our financial results.

Thank you, Barak, and good day, everyone. I am pleased to provide you with an analysis of our financial results and business performance for the second quarter of 2017, as well as our outlook for the third quarter and full year 2017.

The financial results represent continued operations and exclude the businesses that were divested in 2015. However, the cash flow statement includes the result of both divestitures. And now, I will review the results.

Revenues for the second quarter was $315 million, which represented an increase of 34% from $235 million in the same period of last year. Customer Engagement revenues were $254 million, compared to $172 million last year, and Financial Crime and Compliance revenues were $61 million compared to $63 million for the same period last year.

Product revenues accounted for 22% of total revenues in the second quarter. Cloud revenues accounted for 27% of total revenue, and services accounted for the remaining 51% of total revenue in the second quarter of 2017.

Our recurring revenue has grown significantly, and now represents 66% of total revenue compared to 52% last year.

On a regional breakdown, revenues in the Americas were $244 million in the second quarter, an increase of 51% compared to the second quarter of 2016. Revenues in EMEA were $43 million for the second quarter 2017 compared to $48 million in the second quarter of last year. Excluding the impact of currency exchange rates, EMEA revenues were $45 million. Revenues for the Asia-Pacific region were $28 million for the second quarter 2017, an increase of 10% compared to last year.

Gross profit in Q2 increased 34% to $222 million compared to $166 million last year. Gross margin in Q2 was 70.5% compared to 70.4% in Q2 last year. The gross margin improvement was due to the increase in revenue, as well as the continued improvement in the services organization, despite the consolidation of inContact, which historically had a lower gross margin compared to NICE.

Operating income in the second quarter increased 27% to $72 million, compared to $57 million last year. Operating margin reached 22.8% compared to 24% last year. The change in the operating margin is the result of the consolidation of inContact and higher sales and marketing cost associated with higher revenue.

The effective tax rate for the quarter was 20.8% for the second quarter compared to 19.5% in the same quarter last year. As a result of some decrease in the corporate tax rate in Israel, our tax rate declined from the prior quarter. We expect the tax rate to be approximately 21% for the remainder of 2017.

In the second quarter of 2017, we had net financial expense of $1.3 million as a result of the debt we issued in connection with the acquisition of inContact, compared to a net financial income of $2.9 million in Q2 2016.

Earnings per share for the second quarter increased to $0.90 compared to $0.79 last year, a growth of 14% despite the financial expense and higher tax rate versus last year. Second quarter cash flow from operations was $69, an increase of 131%. Total cash and financial investments were $440 million at the end of June 2017, and total debt was $444 million net of issuance cost and the equity component associated with our convertible debt.

As part of our share repurchase plan, we bought back shares totaling $8 million during the second quarter.

And now, I will turn to guidance. For the third quarter 2017, we expect total revenues to be in a range of $315 million to $325 million, and fully-diluted earnings per share to be in a range of $0.89 to $0.95. For the full year of 2017 we are reiterating revenues to be in an expected range of $1.330 billion to $1.354 billion. We are increasing fully-diluted earnings per share to be in an expected range of $3.90 to $4.10.

That concludes my comments. I will now turn the call over to the operator for questions.

(Operator Instructions) Your first question is from Shaul Eyal from Oppenheimer & Co.

Barak, the CXone, the way we look at it, it could become a longer-term game changer as we think about contact center migration into the cloud, and I think the overall evolution of the contact center. Can you provide us with some more color on the capability? How does it differentiate NICE from the competition, product-wise? Is the fact that an organization could be up and running within 60 days, a major differentiator? And with CXone, are you beginning to run into a different type of competitor?

To do that, I'll just give a quick background. As you remember, we acquired inContact about a year ago, and as I said on my previous remarks, we've been working diligently to provide the market our commitment to integrate platforms from the products, from NICE and inContact, into an integrated suite. But, we've done way more than that, and release CXone as a platform which I'll go back to that in just one second. Meanwhile, quite dramatic acceleration, positive for us and some certain dynamics in the market took place in the last, I would say, 6 to 8 months. Legacy players that are holding the balk share of the install base at the moment are going through a very significant financial stress, and do not have a future-proof solution, not to speak about cloud. We saw certain consolidation in the market of certain players, and that presents a certain challenge for them and for customers, if they have multiple and different solutions, and we're seeing different sides of the market in a very siloed way. And we saw certain new players coming into the market. All of those elements together created what we feel at the moment, which is a major acceleration in the market, of enterprise customers starting to look for migrating their solutions into a future-proof one. And, customers have had legacy solutions for many, many years, are now deeply engaged in both conversation as well as actual deployment and purchasing of future-proof solutions. The leads of CXone give us a lot of differentiation vis-a-vis all of the dynamics that I've mentioned. First, it is an enterprise-grade solution, that have the complete set of offerings from both NICE, inContact, and Nexidia. It gives us a very significant benefit over several SMB and small competitors out there, that are far from being ready with an enterprise-grade solution in position. NICE-inContact is a very strong, viable solution for all segments of the market. The second thing, the fact that it is a native cloud solution using a public cloud, AWS, with micro services, with a very quick turnout and elasticity, it provides us a unique differentiation, one that we believe will take many years, if at all, for the legacy players, the on-premise players, to really catch up, and customers do look for these type of capabilities in the platform and CXone provides that. Lastly, it's one solution. It's one solution that covers all segments of the market, small and big. It's a platform that fits all different sizes, and provides us a very significant differentiation over vendors that are now consolidating that need to, or coming to the market with multiple solutions for different segments of the market. It's very hard for customers to understand whether they can scale up or down under a single solution. Above all of that, this platform not just comprises our own development. It is an open platform. We already have multiple partners, as you've seen yesterday, and more are joining, to provide their product and their solutions. Anyone that operates in the customer service market. And we believe that the ecosystem will continue to grow, hence any enterprise that adopts CXone not only can enjoy the very significant R&D resources, innovation coming out of NICE, but also to integrate any technology out there and enjoy the very open platform that we have. Bringing it all together, we believe it creates for us a lot of differentiation, opening a very significant gap vis-a-vis the competitors that we see out there.

Got it, and one additional, if I just may? Europe, looking a little soft when compared to some of the other regions,reflecting probably overall recent market trends. Can you talk to us with respect to some of the dynamics taking place currently in EMEA?

Yes, it's not very different from what we've seen a quarter or two ago. First of all, there is some impact of the foreign exchange this year versus last year. The strength of the dollar over the pound, and the Euro versus last year, there's still impact of that. And we have some improvement to do in operations which we are taking forward, as you heard in my previous remarks. We had the biggest ever replacement in Europe, it's one of our major competitor's largest customer, if not the largest of them, full replacement of them. So, we believe that the different tweaks that we've done to the operation there will yield positive results in the future.

The next question comes from the line of Greg McDowell from JMP securities.

Two quick questions. The first one is, in previous calls you've talked a lot about competitive replacements, but it's duly noted that you seem to be talking about even more competitive replacement deals in Q2 than normal. So, if you could just comment on whether or not replacement deals are actually accelerating, and if you could talk about some of the drivers for why that's happening in the market right now? Thanks.

Sure. So, indeed, it's been a few quarters now that we see very healthy trends of competitive replacements. Different sizes of competitive replacements, for both from large competitors as well as small competitors. I will contribute this success, I believe, to a few things. I think the main one is obviously the breadth of our offering, and a few areas in our offering that I believe will open quite a significant gap. And it goes to the four strategic pillars I've talked about. So, on the analytics front, we have I believe today, both with the historical NICE's analytics and the addition of Nexidia, the combination of the two, we have today a quite unique IP that is very hard to match, and we're even fueling it even further, that getting us to positions will -- it's a no-brainer for customers to move into the analytics solution from NICE. So, that's one area that I believe is accelerating our competitive replacements. The second one is the cloud. The market in a certain pace, different areas of the market, is adopting cloud faster. Customers are more and more educated about the difference between a semi-cloud solution in the nature of hosted and other, which is not far from the on-premise with certain change in the commercial, versus the real benefit of a true cloud solution that allows them to have future-proof with very first turn up, is very fast innovation cycle and that gives us also a very nice competitive edge. The other two pillars also provide benefit to the replacement. As I mentioned, the omnichannel effect that vis-a-vis some of the legacy providers, it's no longer just a single channel. We look on the complete customer journey versus some providers, but all the others that have solutions, so very siloed approach for a very specific channel. That provides us another differentiation. And lastly, the recent addition of machine learning capabilities and artificial intelligence also give us some great differentiation. I talked about the momentum of seeing automation. In fact, we're actually already replacing some of the automation vendors out there that were not that fast to add cognitive capabilities and AI to their offering. And with the addition, as well as the strong basic capabilities within automation, it also guides some of those replacements.

Great, thank you, and one quick follow-up. I know you went into detail already on the CXone platform, but I was just wondering about some of the mechanics, I guess contractually, for CXone and how we should view the rate or the pace at which the existing customer base would migrate over to CXone from their existing NICE platform. So, I guess a two-part question. Number one, contractually should we view this as a potential uplift to numbers, as customers move to CXone-based contracts? Does it provide an opportunity to upsell additional products? And I guess part B of the question is, what is the pace, how quickly will the customer base migrate over to this platform? Thanks.

So, we are aiming CXone to both, we'd like both parts of the market, of course our existing customer base but not less important, a very large addressable market where we do not have presence in today, or not in that particular segment, where they all are certain legacy players that have a very significant market share, and have legacy on-premise solutions. And some of those vendors right now are in a very significant financial stress, and customers are very concerned about it. So, we are aiming in both areas. We also as part of the CXone, released several migration options to customers, and it's part of our valuable position with CXone, which allows customers to go anywhere from light adoption all the way to full adoption in day one. And since it's a very open platform, customers have the ability to choose which part of their offering they're actually moving to the cloud, and it is a full migration, meaning it's not necessarily losing the history or anything like that, of the existing solution. Furthermore, we have designed CXone in a way vis-a-vis the existing customer base, that there is strong data compatibility. So, customers that today have any type of legacy solutions [indecipherable] have the ability to adopt different elements of CXone and have day one connectivity to their existing NICE and inContact, and exceed the solutions that they have, and either slowly or faster migrate things with that. In terms of the actual pace, obviously we will monitor that and we will report, but we already think the announcement on Monday can tell you we're getting a lot of traction, again from both existing customers as well as from new customers and prospects.

Your next question is from Jonathan Ho, from William Blair.

I just wanted to start out with the financial crime and compliance business. Can you give us a little sense of maybe what happened with that business? It seemed to grow a little more slowly this year, or potentially declined.

Sure. I think we've seen it also last year, and the same goes this year. The last two quarters, this business grew very, very fast, close to the 20% between Q4 and Q1. This quarter due to a kind of slippage of a couple of deals, we saw even a decline in this business in the quarter. We do expect much stronger second half of the year, and still our expectation is to continue and to grow this business in the double digits. Similarly last year, if you'll remember, we had certain quarters that were even flattish, and then followed by very strong growth, and we expect the same phenomenon with certain quarterly lumpiness in this business. But overall, the trend that we expect is continue to grow double digit.

Got it, and then could you talk a little bit about the distribution channel, and maybe what changes come with CXone? Do you need to continue investing in the channel to go more direct? I just want to get a sense for what that means in terms of the changes.

Sure, so let me talk a little bit about the overall ecosystem that we are planning to further develop, given CXone announcement. So, already today we have a very robust network of partners that are taking us to the markets, both the legacy NICE and the inContact of today, as I mentioned on the previous conference call. Since the acquisition, many of those partners adopted both sides of the house and are now reselling solutions from NICE and inContact and the combined offerings. With CXone, all of those partners will start of course to resell the platform as well, and be part of the growing ecosystem, and we continue to do that, this is very attractive sensitive covering all segments of the market, and available in all geographies. It is becoming very attractive to partners from all sizes, and we believe that network will grow. Furthermore, CXone has now two additional programs. One is the CX Exchange, which basically allows technology partners and solutions partners to come with their own product and offer them on top of that platform, so customers can choose to connect with their many APIs that we have, either existing or future products that they want, to the platform. And we also have the ability to work with some of those technology partners to resell their solution and enjoy some of those revenues. And lastly, we have the DEVone program which allows, actually, IP developers, either customers or system integrators or any other IP developers, to further integrate and develop new solutions on top of the platform. So as you can see, this new approach or updated approach, allowing us to be even more friendly and inviting to any type of partners and resellers, as well as technology partners, and we believe that the ecosystem would just continue and grow.

Your next question comes from Walter Pritchard from Citi.

Hi, two questions on my end. I guess the first one, on the guidance for the year you raised the earnings guidance and didn't raise the revenue guidance, can you just make sure we understand the nuances there, and what drove the raise of EPS without the raise of revenue?

As you highlighted for the revenue guidance for the year, we reiterated the revenue, in terms of what we've previously guided, and increased on the bottom line. And essentially, the guidance we've provided with the revenue, we've basically been very close in terms of the actual results both in Q1 and Q2 for our actual performance versus the guidance that we gave. And looking forward into the second half of the year, we're comfortable that where we've previously put the guidance, we're still seeing that in terms of the appropriate level of revenue. On the bottom line for the EPS, if you might recall, we actually outperformed in the first quarter on EPS, and we raised the guidance at the end of Q1. And during this quarter, we again beat the bottom line in terms of the midpoint of our range by about $0.03. So, we felt it was appropriate, obviously, to attribute the outperformance from the current quarter into the full year EPS number, as well as at this point in time as we look at this second half of the year, we've continued to have a lot of focus on profitability and operational excellence. We'll continue to have that same focus, and we have adequate visibility to be comfortable, that that's the appropriate guidance based on the view that we have for the remainder of the year.

Maybe I'll add to that, Walter, one of the things that you can see in the results and we're very satisfied with that, and obviously attributes to our increase in the profitability and increase in the guidance of (technical difficulty) [profitability] is the gross margin. IF you look on the gross margin this quarter versus Q2 of last year, actually it increased, while we actually added a very significant cloud business of inContact, which was a much lower gross margin. So, we're very happy with the optimization that we are doing in the gross margin, which is going very well, well and beyond our expectations.

Then just a second question, on the security issue that is highlighted in the press, understanding a bit more has come out in terms of what happened, there. But sometimes, those issues can impact sales cycles. I'm wondering, is there any evidence of that, or anything you'd report back in terms of impact from that news?

No, there was no, we haven't seen any impact. Obviously, we were informing or updating any customer that had any inquiry on that. It was a singular event, not related to any specific product so far as we said, a human error, unfortunate one, but we overcame that quite quickly and we haven't seen any impact to the business.

The next question is from Dan Bergstrom from RBC Capital Markets.

Most of my questions have been answered at this point, but we've noticed that there is a NICE-inContact road show taking place in several markets in the third quarter, here. From the agenda, it really looks like you're highlighting the move to the cloud at analytics. Just curious if you've done anything like that in the past? And then, is it geared more towards demand generation, around the new platform? Or, just to move existing customers to the cloud or new solutions?

Yes, we have announced this road show. Actually, the road show itself came from a demand from customers to see us in different places. As you know, we have many ways to market our solutions, we have the annual user conference of ours which is the biggest in our industry, and which happens once a year. And many of our customers and prospects are arriving to this event, as well as a lot of virtual events. But, from time to time when see the demand customers would like us to do a road show, and come to them. And right now, what we see is a lot of customers that have legacy solutions would like us to come as a trusted advisor and educate them on cloud. They all want to move to the cloud, they know what's the endpoint, the end game, for them. They know what's the starting point today, and it's a lot about how you get from point A to point B, and that's the main reason for the road show. Obviously, CXone will be a very significant part of the road show, already from the announcements, we've got a lot of requests from customers to learn more. And, we invited them to join the road show when we already have very high registration for this road show. So, it's one more way for us to interact in a very effective way with customers, but also with a lot of prospects. A lot of prospects arriving to those road shows.

Your next question is from Tavy Rosner from Barclays.

Most of my questions were answered, so maybe just two quick ones. First, the sales and marketing slightly higher than usual on a percentage of sales basis. Just wondering, maybe if that's just a one-off, or we can expect this level to stay higher as a result of the inContact acquisition?

If you look at the sales and marketing as a percentage of revenue, you will see that there is some quarter seasonality, and in particular in Q2 we generally -- and we did this year, as well -- have our annual user conference, called Interactions, that occurred. And by the way, we had record turn out this year, which we're very happy with. So, that resulted in some increase in comparison with the prior quarter as a percent of revenue. As well, with the launch of CXone, as you can imagine there was always in addition some investment and focused around having an appropriate launch. So, those were really the two primary drivers for the increase, so it is not something that we look at as kind of ongoing. But, a bit of quarter seasonality.

And lastly, in regards to the integration of inContact and the streamlining aspect of it, where are you in the process, and are there anymore cost cutting that you can do there, or is it already reflected in the numbers?

Obviously, inContact are fully in our numbers. I think from integration, the highlight of this quarter or the highlights that came out this week, but it's a lot of work that was put in the last more than 12 months in the launch of CXone. As I've mentioned, hundreds of our engineers worked on this project in the last 12 months, diligently, with a goal to release it indeed on time as we committed to our customers and to the market. And we even further surprise, if you would like, positively the market that it's not just a suite, but a full platform. And we are very happy, I think it's great evidence for the integration. Other type of integration ongoing as planned, again, inContact is -- we keep it of course with all of the management over there, and they continue to operate great, but a lot of sales synergies, marketing synergies, corporate synergies, are in place in order to of course further accelerate our plans. And we're very happy with the integration at the moment.

Your next question from Paul Coster, from JPMorgan.

Barak, you mentioned that artificial intelligence is one of the four key pillars. Can you give us some actual examples of customers that have deployed it, and for what application? And to what extent can this go downmarket?

Sure. So, as you know, historically NICE has a lot of assets in automation, in both the markets in where we play both in the customer engagement domain, as well as in the financial crime and compliance. And as I think we all know, this is a very human, labor-intensive type of work. And if you look on all those environments, one of the thing that characterizes environments, is that there are a lot of legacy back-end applications in order to operate and manage very basic stuff, and very basic activities. Of course, for many who have asked, and many others and of course the customers, would like to drive operational efficiency. If you look on those tasks down by labor or by human being, many of them can be automated. And in the last few years, we've found robotics technology will manage and constantly automating a lot of those processes. There were, and there still are, a lot of low-hanging fruit in many of those processes. For example, certain processes of a wrap up of a call in the customer engagement, that even after the interaction with the customer ends there can be five, six, seven minutes of a lot of back-end processes that need to be done by the human, and many of them are repetitive and can be replaced easily by a robot. Same goes, for example, to our financial crime and compliance business, where banks are constantly trying to reduce the compliance cost. And if you look on tasks like basic investigation down through case management, or anti-money-laundering processes, also done through case management, those are very repetitive tasks and we have started with our robots, to automate it. The way it was done up until I would say, a year past ago, it was done by mapping those processes and then guiding the robot to follow a very, very specific flow. It's still extremely efficient of course, and there is clearly a lot of opportunities to go ahead and do that. But, what we do today more than before, is we added cognitive capabilities to those robots. So, instead of teaching the robot, they're almost actually from machine learning, is observing if you would like, what you have been doing and finding different patterns, and at certain points if you'd like, I will try to visualize it, the robot actually raises its hand and saying, wait a minute, I can take it from this point on, and actually I can do it even better and even faster. And these are the artificial intelligence capabilities and the cognitive capabilities we are adding, and it's quite astonishing to see the different capabilities in those fields. And the amount of opportunity and efficiency those can drive. So, this is the direction and these are the usage, and the use cases we see, and I think you'll see both in Q1 and Q2 the accelerated adoption, 10 new logos, completely new logos in Q1, and 14 new logos in Q2, and the pipeline moving forward seems to be very promising.

Okay, got it. As you think about growth, Barak, can you to some extent force rank the opportunities in front of you? Is it the new logos by competitive wins? Is it expanding into the mid-market? Is it cross-selling to existing customers? How do you think of your opportunities in terms of ease and magnitude?

I would say that it's -- almost I would say it's all of the above. We are, I believe, in a certain unique point in the history of the company, where given the different strategies we've executed on, we have opportunities in all of those areas. And I'll explain briefly. First of all, we believe that the trend of the competitive replacement that we've seen the last few quarters will continue, and potentially will accelerate, given the market dynamics, given that some of the vendors out there did not prepare themselves both for the transition to the cloud, as well as to the most sophisticated IP we have in our offering. The second thing, it's a trend that we also see for several quarters and potentially can accelerate, at the higher end of the market in the past we -- it took us three or four cycles to sell different products for our portfolio one at a time, to our largest customers. And seeing the evidence or the conclusion that you can derive from the large deals that we are reporting quarter-after-quarter, is that many of our Fortune 500 customers are deciding to go with multiple elements of our portfolio all in day one, and the result of that, it is accelerating things that in the past took several years to adopt. And lastly, for the first time in the history of NICE, given the acquisition of inContact and the growing ecosystem around us, we are also well-positioned to the mid-market and below. We have learned a lot from the acquisition of inContact and we see today people that are experts in the SMB market. We've been a well-oiled machine to address this market, and at the same time, NICE educated the inContact people about what does it take to go enterprise, and enterprise-grade, and the offering that we have today can offer all segments of the market, cloud helps a lot. Because with a cloud solution, it's feasible to take a single solution and address all segments of the market all at once, which was some of the barriers in the past with just on-premise solutions. So, wrapping it all together, we see opportunities indeed in all of those areas, and we are trying to maximize our efforts on all of them.

your next question from Jeffrey Kessler from Imperial Capital.

Looking at the ecosystem that you've built around you, and looking at the customers that you have been talking to, you've been winning, but the ones now that you were talking to in the pipeline, what vertical areas do you think are going to be most receptive to the new platform, the most quickly? Will it be financial? Will it be retail? And, how can you split it up between the old, let's say modernizing the old customer relationship desk, versus those customers that want to start anew who have not had those desks before? How can you start them up de novo?

Sure, so actually we're trying to focus the 6 and 9 months ago, I'm getting this question, which verticals are more likely to accelerate their move to the cloud and adopt those type of directions? And I actually will say, it's all of the above. And if in the past it was certain verticals were earlier to adopt, and cloud solutions and other solutions, we see this trend everywhere. Having said that, I'll tell you that while everyone are adopting, there are certain industries -- just as an example -- that have a significant change by the month and by the quarter, in the number of interactions, customer interactions they are managing. And the cloud provides a very significant benefit to those customers. Retail is an example, travel and tourism, and some others. Because of the elasticity of the cloud, it allows them to manage those costs in a very effective way versus the legacy solutions that they had. So, we are addressing all verticals with that. I think that what you've seen our results in Q2, which is not the first time, and appear interesting, and we said it in the past when we were asked, while our cloud business is growing -- not just year-over-year, it grew sequentially in a very nice way and can hint at the potential growth moving forward -- also, the on-premise, the product business of ours, the perpetual business, grew very nicely this quarter. And where the two growing so nicely, you can see a very nice adoption at the higher end while the cloud is gaining momentum, and see that we are not necessarily cannibalizing our own install base, but further gaining momentum and gaining share.

One follow-up question, so several of the legacy service providers that you have gone up against, and probably taken some share from, have talked about and increasingly talked about moving, improving their platforms, moving up to the cloud, realizing that they're still in most cases and maybe all cases, behind you. How are you looking over your shoulder? What are you doing to make sure that you stay ahead of competitors who in some cases, have significant resources to throw at something even though they may not have the DNA that you have to make something cloud-based?

In this, there are certain, I think for us the beauty of the customer service market, and specifically the omnichannel one and the routing market, that it was dominated for many years by several vendors that slowly but safely reduced their R&D investment almost to the bare minimum of several single-digit percentage of their revenue. I think that what we see, my interpretation and what I hear from customers today, that these reached a certain breaking point in terms of customer willingness to continue to invest in something that hasn't seen any significant innovation R&D for years. Shifting the solution to the cloud, an on-premise solution to the cloud, and you can see it in many other enterprise software industries, requires very significant investment. When we evaluated that about in the last two years, we figured out that the right way for us to do it is by making sure that we are joining forces with someone that is leading and done this investment in actually the last 10 years, built their company ground-up, purely from the cloud. And that has been inContact, and I think it's a major asset that we have. To replicate that, not that it's not feasible, it requires many, tens and hundreds of millions of dollars, that some of us would like to [until] to migrate into that. And I think by that, we have opened quite a significant gap. Yes, there is competition out there, but we also continue to invest, and invest heavily. I think we know by now what it takes for customers to migrate to cloud in an effective way, and CXone from our perspective is that platform. Once again, it's native cloud, true cloud, and enterprises to date more and more understand that when they move to the cloud, they really want to gain the full benefit from the cloud which can come with such a solution. And anything in between, which is a hosted solution or a single tenant cloud, or a cloud that is not fully complete, is not what the enterprise market needs. And I believe that we have it, and of course we'll continue to evidence, and we will continue to fight out there against all the competition.

That was the last question, I now hand back to Barak for closing comments.

Okay, thank you very much everyone for joining us, and have a great day. Thank you.