Nice Ltd (NICE) 2019 Q1 法說會逐字稿

Welcome to the NICE conference call discussing first quarter 2019 results, and thank you all for holding. (Operator Instructions) As a reminder, this conference is being recorded, May 16, 2019.

I would now like to turn this call over to Mr. Marty Cohen, Vice President, 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 Eran 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 performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2018 annual report on Form 20-F as filed with the Securities and Exchange Commission on April 5, 2019.

During today's call, we will present a more detailed discussion of first quarter 2019 results and the company's guidance for the second quarter and full year 2019. 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.

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. This week, we are celebrating 3 years since we announced the acquisition of inContact, which was a pivotal point for NICE and represented a seismic shift in the customer engagement market. The acquisition and the ensuing delivery of CXone gave us this first and only true native cloud platform that seamlessly incorporates the market-leading routing, Workforce Optimization and analytics into a single platform for enterprises of all sizes. With all these assets combined, together with substantial investment in R&D since the acquisition, CXone has become the most complete platform in the market.

Furthermore, with an extensive ecosystem, called DEVone, and a solutions marketplace called CXexchange, CXone brings an unmatched offering to enterprises as they expedite their transition to manage smart interactions in the cloud. Fast-forward to today, and CXone has opened a significant differentiation gap as evidenced by over 500 new CXone customers added annually by being ranked as the #1 contact center cloud solution by market-leading analysts and by the continued strong cloud revenue growth. This is a clear validation of our platform strategy.

Today, we are taking the next step in the evolution of CXone by ushering in a new era in CX with the introduction of smart digital conversations. This builds on our CXone platform strategy with an additional market-leading innovation that enables our customers to accelerate their transition in managing digital experiences. This innovation is augmented by the acquisition of Brand Embassy announced earlier today and its integration into CXone. Brand Embassy brings a groundbreaking and proven digital-first approach to customer service.

The reality for most enterprises today is that while they recognize the importance of keeping up with consumers and offering them service and build channel of choice, they're having a hard time keeping up. Adding each type of channel requires organizations to create new, dedicated service silos, which is slow, expensive and does not scale. The new push-pull paradigm that we are introducing in CXone eliminates this digital agent silos. It dramatically accelerates the adoption and lowers the cost of handling new channels of any type whether by agent or by bot. Because it is natively embedded in CXone, it naturally benefits from the WFO analytics and AI capabilities of the platform. This in combination with over 30 supported channels that Brand Embassy brings, including Facebook, Messenger, Twitter, Apple Business Chat, WhatsApp, LinkedIn, SMS, e-mail and live chat enables what we call smart digital conversations. CXone now removes the barriers that historically slowed down the customer experience digital evolution allowing organizations to put digital at the forefront of their interactions with consumers.

It is clear that the execution of our strategy is working as reflected in our strong results, including in Q1 where we reported year-over-year double-digit growth in all key metrics. This included a 12% increase in revenues to $378 million. Operating income was $97 million, which was an increase of 26% compared to Q1 of last year. And operating margin increased 230 basis points to 25.7% compared to the same period last year. These strong operating results led to a 22% increase in earnings per share to $1.18.

Additionally, we reported another quarter of record operating cash flow with $182 million generated in Q1, 33% growth over Q1 last year. Leading the way and driving the growth is cloud. Cloud revenues increased 30% in Q1 to $137 million. CXone is the clear differentiator for NICE and is fueling our cloud growth. With CXone, we are penetrating all segments of the market from SMB to large enterprises. And in Q1, we saw further success on this front. We signed multiple 7-digit ACV CXone deals, including a large government agency, a public content data analytics provider, a large insurance provider, a Fortune 100 product company and one of the largest retailers in the world. In all these deals, CXone was the ultimate choice for enterprises looking to replace their on-premise solutions.

Cloud growth was also augmented by our X-Sight Essentials cloud solutions. In Q1, we signed several 7-digit essential deals, including starting U.S.-based midsized banks where we replaced the incumbent as they wanted to further to future-proof their solutions by building on and leveraging our fraud management platform. We signed a 7-digit Essentials deal with the Crypto Exchange as well as with a company that operates a cloud-based business payments platform.

As we move forward with our analytics everywhere approach to inject powerful analytics into everything we do, we continue to see strong demand and growth for our analytics solutions. We signed an 8-digit deal with one of the largest financial institutions in the world and in the process, replaced one of our competitors. Other 7-digit analytics deal, included one with top 5 U.S. banks, one with a large Canadian financial institution, one with a well-known entertainment resort and one with a very large pharmacy operator and one with a major health care organization, among many others.

We are continuing to further augment our analytics solutions by infusing AI throughout them. Our robotics process automation is an area within AI that we are seeing strong demand as we continue to sign many new logos. Our clear differentiation is our domain expertise around attendant RPA and NEVA, which is our one-of-a-kind attendant robotic assistance. Moreover, our unique solution called Automation Finder, which is an AI-powered solution that detects processes in the enterprise that are perfectly suited for automation, continues to gain traction among our customers. Our RPA was well received at our Interactions user conference last month, where we had record attendees of more than 3,000 people.

In closing, we're excited about our extended strategy to build on our CXone platform with an additional market-leading innovation that enables our customers to accelerate their transition in managing smart digital conversations. We are pleased to start the year on a high note, and we have a lot of momentum behind us.

I will now turn the call over to Beth, who'll review our financial results.

Thank you, Barak, and good day, everyone. I am pleased to provide the analysis of our financial results and the business performance for the first quarter of 2019 as well as our outlook for the second quarter and full year 2019.

Total revenue for the first quarter reached $378 million, an increase of 12% from $338 million in the same period of last year. Our total revenue growth was driven by further growth in the cloud as our cloud revenue grew 30% in the first quarter of 2019. We also saw an increase of 14% in product revenue. Our recurring revenue continues to reflect our strong cloud growth, representing 71% of our total revenue, up from 68% in Q1 last year. Continuing the trend in the last few years, given that our cloud and overall recurring revenue has grown to become a much larger portion of our total revenue, we expect both our revenue and our profitability to be more evenly distributed among the quarters this year.

Customer Engagement revenues for the first quarter increased 14% to $305 million and represented 81% of our total revenues. Financial Crime and Compliance revenues increased 6% to $73 million and represented 19% of total revenue.

Product revenues accounted for 19% of total revenue in the first quarter. Cloud revenues accounted for 36% of total revenue for the first quarter, which represents an increase from 30% in Q1 last year, and services revenues accounted for the remaining 45% of total revenue in the first quarter of 2019.

Looking at geographies, Americas grew 12% and reached $289.2 million in the first quarter. Revenues in EMEA were $64.3 million in the first quarter, which represents growth of 18%. APAC revenues in the first quarter contributed $24.4 million to total revenue in the first quarter of 2019 compared to $26 million in the same period of last year.

And now to profitability. Gross profit increased 12% to $267 million in the first quarter. Gross profit margin increased to 70.5% compared to 70.4% last year.

Operating income increased 23% to $97 million in the first quarter. Operating margin increased significantly to 25.7% compared to 23.4% in the same period of last year, representing an increase of 230 basis points. The strong operating income and margin demonstrates the leverage in our model and our commitment to continue to expand profitability over time.

Earnings per share for the first quarter increased to $1.18 compared to $0.97 in the first quarter of last year, which represents growth of 22%.

We experienced record growth during the first quarter in cash generation. First quarter cash flow from operations grew 33% to $182 million. Total cash and financial investments were $891 million at the end of March 2019. And total debt was $458 million net of issuance cost and the equity component associated with our convertible debt.

I will conclude my remarks with our guidance. For the second quarter of 2019, we expect total revenue to be in the range of $373 million to $383 million. We expect second quarter 2019 fully diluted earnings per share to be in the expected range of $1.16 to $1.26.

For the full year 2019, we expect total revenue to be in the range of $1.558 billion to $1.582 billion. We're increasing the full year 2019 fully diluted earnings per share to be in the expected range of $5.11 to $5.31.

I will now turn the call over to the operator for questions. Operator?

(Operator Instructions) Your first question comes from the line of Shaul Eyal, Oppenheimer.

Congrats on yet another set of strong results. Barak, I have a two-part M&A-related question, and then I have one for Beth. So maybe starting with Brand Embassy. How should we be thinking about it? Without a doubt, a tuck-in acquisition, but maybe help us understand where it fits with the CXone? And I know kind of you provided us with some color, but anything additive will be extremely helpful. And also, the second half of that first question is, so now that Mattersight is probably about a year under your belt, are you happy with the contribution results, strategic direction you're taking with it? Has it been living to its expectations or maybe even exceeding those?

Thanks for the question, Shaul. Let's start with Brand Embassy and actually the broader aspect of what we announced today. So as I described before, we shift players into the acquisition of inContact that our strategy to come up with a platform that putting different assets, leading assets on the market together and enable them to work under one platform, providing our customers tremendous value instead of purchasing point solution and integrate them by themselves. And of course, also it provides us a significant differentiation, and we see the momentum of CXone.

In that strategy in mind, we ask ourselves and we shared that with you before, what's next? Where else we can take CXone, although it has by itself a very strong momentum? And of course, we talk to our customers and area where we set ourselves to grow next is to expand it into the broader aspect of digital-first approach. We see it as we discuss with our customers while they are transitioning into the cloud and with analytics, the feedback we got from them is they also want our help as they transition to digital, and they want it all combined. As we looked on different assets in that area, we developed a lot ourselves, but we find an opportunity to bring a market leader in their technology into our CXone platform. And the beauty is that, that particular company, Brand Embassy, we know them quite well, they were part and integrated as part of our DEVone and CXexchange program. So we saw the traction that they are getting, and we basically managed to pull them in into CXone with that integration.

The challenge that we are addressing, as I said in my opening remarks, is that our customers or every enterprise out there is dealing today still with every channel in stand-alone but eventually, consumer would like to get a much more integrated approach and a much more cohesive one. It doesn't start in digital. It doesn't stop at voice. It's all together. But for that, you need a quite innovative approach, and that's exactly what CXone and Brand Embassy brings together. So that's about Brand Embassy.

With respect to the question about Mattersight, the plan continues to our satisfaction. The idea of acquiring Mattersight actually very similar to what I just described on Brand Embassy, very strong technology. We wanted to have a new technology in-house, and that's exactly what we've done with Mattersight. We have embedded the technology of Mattersight into CXone, offering that to customers. And those of you who attended Interactions, our user conference, saw that it was presented at the forefront of our different presentation and it got a lot of good traction during Interactions, and actually, we have a lot of follow on as a result of that

Got it. Got it. And maybe one for Beth on product revenue, 14% year-over-year. Really stood out nicely versus our expectations to an extent, cloud revenues as well. But specifically on the product front, what were the drivers this quarter? Was there anything unusual? Is it one of those 7- or 8-digit contracts that are kicking in that are accelerating it? Now I know that you don't guide to product revenue. But generally speaking, how should we be thinking about it for the remainder of 2019?

Yes. Thanks for the question, Shaul. And as you said, I mean -- I think we were really pleased with the strong start that we had to the year, and we were able to demonstrate that both in cloud and product with the product growing at 14% and really it was just from strong execution. We had multiple deals that Barak talked about in terms of our activities and really strong momentum. And as I highlighted in the last couple of quarters, with the shift we're seeing in our business and cloud growing, we expect to continue to see some variability from quarter-to-quarter in the mix between product and cloud. And I think the growth that we saw in product combined with the growth in the quarter for cloud really just reinforces that our cloud revenue is not replacing the product revenue.

Your next question comes from the line of John DiFucci, Jefferies.

My first question, I guess, is for Barak or Beth because Beth, you just addressed it. Barak, in your prepared remarks, you said that you're looking -- the CXone deals are oftentimes -- I'm paraphrasing you, looking to replace on-prem deployment. And Beth just made a statement that, for the most part anyway, the product -- the cloud business is a new business, which is what you said in the past. But I'm just wondering are you seeing more of an effect on your installed base of WFO? Like at some point, we may see that, right, from you. Like -- and at that point, you will see some transition of maintenance into cloud. But I know that, that hasn't happened much yet but that one statement, Barak, that you made in your prepared remarks made me wonder if it's happening more.

Sure. So it's a mix of multiple things, and let me try to help to explain. First of all, yes, we see a tremendous momentum with CXone. With CXone, we are replacing or we have stepped into an area where NICE did not have revenue before. This is the omnichannel routing business, and we are replacing left and right the legacy on-premise provider over there. So for us, it's a pure incremental business. And as I described in the past, given the magnitude of those legacy providers, we believe that there is a runway over there that will fuel our growth or will satisfy our growth for many reasons. It is, in many cases, in some cases, combined, of course, with WFO. But I will say that's what we see over there is that first, it give us more opportunities in WFO, so we are also replacing other WFO competitors because now in a much more combined way, being the platform, it allow us actually also to increase our share into WFO.

And at the same time, we still see a very strong business on our on-premise business and our product. I will highlight that for us, when I say and when we say product, cloud revenue is just cloud. We count product, the term license under product, we don't count it of course under cloud. And we have multiple solutions that are still provided as a product and product revenue, and we believe that this will continue. It can fluctuate from one quarter to another, but that's the direction we're seeing.

Okay. So you're not -- it doesn't sound like -- even when you said displacing or replacing on-premise deployments, for the most part, you're talking about sort of the inContact assets, and in some cases, you may be replacing yourself and the WFO portions when there is an independent WFO deployment there. But in other cases, you're displacing competitors. I think I get that now. Okay.

And Beth, just a follow-up question. Cash flow is really strong this quarter, and -- I mean it's like took a step back there, it's made us take a safe step back and try to figure that out. In the swing versus our model anyway with the accrued expenses and other current liabilities line where you had a big positive contribution when typically in the first quarter, that's a negative number. And I was just wondering what that was? And if -- should we -- will that sort of reverse in future quarters, so will that have a negative effect like in the next quarter or something? Just want to make sure we anticipate what's happening there.

Sure. I would say similar to the comments I made about the product revenue, it really is just a sign of our strong execution. I think we had very strong collections during the quarter. So a lot of attention internally, and it's nothing atypical. I think the balance sheet and accrued expenses sometimes, there's timing differences. So I don't think there's anything that is really noteworthy there, and we continue to see positive cash flow generation throughout the year.

Okay. But that one line, I mean, the accounts receivable line would be affected by the strong collections. But the accrued expenses and other current liabilities, can you just -- because it's usually like a negative line often times like negative $30 million, and it was positive $30 million. Those are huge swing this quarter. I just -- is there something in there that just like to understand it a little better?

Yes. As I said, John, there's really nothing noteworthy, I think, with accruals. They can vary from quarter-to-quarter, and that's just kind of part of business as usual. So there's really nothing that sticks out in there that had a significant impact on the cash.

Next question comes from the line of Dan Ives, Wedbush Securities.

So what percent of your customers you think you've moved to cloud from the call center transition if you had a approximate?

So we don't share the exact percentage, but as I said before, Dan, it's -- again, the beauty of our cloud strategy that is based on our, of course, platform strategy that we are stepping into areas both for our customers and other customers that we were not present before. I can name a few. First of all, NICE historically, we're not -- we didn't have very strong presence in the mid-market with cloud. We are now stepping in a quite dominant way with strong presence into the mid-market, and that market is shifting fast to the cloud. And in those cases, we take it all, meaning both analytics and routing, omnichannel routing and WFO. And moving forward, we believe a lot of the digital channels as well.

And within our installed base, it really depends on the customer. So as I said before, I think that there is still a very, very long runway of those on-premise legacy providers that basically we are replacing, and there is still a lot to grow here, many years of potential here.

Got it. And just a follow-up to that, so are the conversations becoming much more strategic with customers? I mean it seems like that from deals and all of our checks, but maybe could you just anecdotally talk about that even comparing conversations at this user conference that you had with customers and pipeline versus maybe the last few years?

So first of all, we're very happy with the -- and we're positively surprised if would you like with the size of the event this year on 2 fronts actually: both on customers, having 3,000 attendees was way beyond the target we put ourselves internally, and if you compare it to 3 years ago, that's a tremendous growth; and also, by the way, on the ecosystem side, the number of partners and technology partners we had at the event at some point, we had just to shut down additional sponsorship not because we didn't want it, just because we ran out of space in our showcase. So that's just in general the traction that we got.

I also can tell you someone that is -- I attended probably almost all of those events since we started them as a company in the last almost 15-or-so years that people were coming to our events are changing throughout the years. This year, we had also a lot of users but much more executive, much more C-level. We had different breakout session that were much more for executive. I attended myself some of them as well, and the level of conversations are much more strategic. Many are senior VPs, C-level that I mentioned from the largest companies in the globe that they came for the conference. So definitely, the right evolution.

I think it is a result of several things. First of all, the breadth of offering that we have is much more strategic and getting the traction of much more senior people. That's number one. The fact that we are providing much more strategic approach to how they shift their operation to the cloud and the fact that we are providing much more to their analytics-based solutions, which are very interesting to much more of the senior people.

Your next question comes from the line of Rishi Jaluria, D.A. Davidson.

All right. Let me start with talking about the RPA side of the business. I think it's pretty clear, you're getting some good interest from customers and some good momentum there. Just wanted to understand if you look at where you've gotten some of your RPA deals, has it been mostly in selling these into the existing customer base? Or has there been new customers that weren't NICE customers before that you've been able to kind of land with your RPA and maybe having differentiation on the attendant side? And then I have a follow-up for Beth.

Sure. So as you said and as I provided in our opening remarks, we have great traction for our RPA solution. Our -- we believe that the great opportunity in the long run for RPA is within attendant, which is more complex with much higher value with much also higher stickiness if you would like. And we augment that by a lot of AI-based solutions starting from NEVA as well as Automation Finder and few more things that will be released very soon.

In terms of where do we get traction, where do we get customers, it's kind all of the above in the sense that we have a great customer base and relationship, which allow us to cross sell to this customer base. And actually, in many cases, we started a contact center and expanded into the back office. We do get traction from a lot of partnership, also it's completely new companies to the company, and we actually have some very good traction as well for Actimize channels. So a lot of compliance-related and fraud-related environment that can benefit and are benefiting from automation in their environment. For many of those processes that we are expert in, we are actually selling RPA into those environment -- into those processes as well.

Got it. That's helpful. And then, Beth, just wanted to touch on the cloud gross margin. Looked like they did decline a bit year-over-year. Just help us understand what were the drivers here? And how we should be thinking about the cloud gross margin line going forward and where it's going to lead to cloud gross margins kind of continuing to expand from here?

Sure. Thanks for the question, Rishi. I think as you recall, we actually acquired Mattersight in the third quarter of last year, and so it's really more comparable if you look on the cloud gross margin relative to the fourth quarter. So if you look on quarter-to-quarter, you'll see that the cloud gross margin was roughly flat. And we -- as we've said in the past, we feel confident, we'll continue to see the margin expand in the cloud, and it's going kind of going to come from several different places. I would say first, with respect to just the continued increase we're seeing in the top line and leverage we have in the model overall. And what we've said in the past is that as you start to go up market, what we see is that there is a greater attachment of the software that comes with a higher margin, and that additional software is incremental that is driving more profitability into the cloud margin.

So we'll continue to see that, and as well as on the other side of that, we're always continuing to focus on efficiencies internally. One of the areas that we focused on is around the way that we route calls that impacts the profitability on the telephony side of the CXone offering. And so those are a few things that we're doing that give us the confidence we'll continue to see the cloud margin expanding in the future.

Got it. And just kind of a clarification question on that. I mean you mentioned the impact of Mattersight, but it looks like Mattersight itself had, had actually higher gross margins than you do on the cloud gross margin side. So can help us understand why is Mattersight dilutive to cloud gross margins then?

So no. Mattersight actually had cloud gross margins which were less than what we were seeing in our cloud business.

Next question comes from Sanjit Singh, Morgan Stanley.

Congrats on getting back to a double-digit revenue growth this quarter. Very nice to see. Barak, in your script, you mentioned analytics, and I think an 8-figure deal in analytics and a couple of 7-figure deals. I was wondering if you can give us a sense of what the attach rate on analytics is with your cloud contact customers versus your on-premise customers? And where do you think that can go over time?

So we see few trends that continues and actually further expanding in analytics, which I'll give you my view of what's the reason for that. First of all, it's now definitely the majority of our new business for several years now come from analytics, and this is due to the desire of having much more sophisticated and smart solutions that our customers consume. We see several opportunities that do increase, if you would like, the attachment rate. First of all, we already have a very healthy customer base. We have the largest market share according to most of the market analysts, and we have a very large customer base of customers, large customers using our analytics. And those customers are coming back for more, coming back for more with either additional use cases or expanding further in terms of capacity, the analytics. So that's one area where see growth. It's not exactly attachment rates, it's more about expansion.

And the second thing is that as we proceeded in the last actually 3.5 years in the integration of Nexidia into our solutions, it is much more embedded. Of course, it's fully embedded into CXone, and we see the attachment rates to different solutions, both on-premise and cloud that are growing quite dramatically, and we also see quite a good traction selling our analytics solution, which is a vendor agnostic in an environment that are not native NICE environment and which again an area that continue to grow for us. So it's kind of all the above but expanding in all different directions.

That's very helpful. And the other part of this I want to talk a little bit about was Financial Crime and Compliance. Seen that accelerated this quarter. I think it was up 6% according to Beth's scripts. You have a new leader in the Financial Crime and Compliance, and you also obviously have X-Sight. What is your confidence about getting the Financial Crime and Compliance business back to sort of historical levels of growth? I know it came down last year, but what's sort of your view on the trajectory of growth in Financial Crime and Compliance plus this year but maybe also longer term?

So we believe that the market is very strong both domestically as well as globally. In Financial Crime and Compliance, we do multiple things. We are dealing with AML and financial market surveillance, which are more compliance driven, but we have a lot of solutions that relates to both efficiencies as well as dealing with fraud, and the market itself is very healthy. We see a very healthy shift of not just looking on compliance but also looking on the cost of compliance, and that's allowed us actually to grow and develop further capabilities into our Financial Crime and Compliance offering, injecting AI into it in order to provide all the efficiencies. Those environment for customers are still heavy on manpower, and we have the possibility and the potential to replace a lot of this manpower with the robust technology that we have.

This is one of the reasons, actually, a key reason why we indulge with X-Sight, which has very nice road map to it and actually very good traction with customers, which allow us now to go to our customers in areas where we were not present before and expand our footprint.

The last thing is that we're starting to see a very good traction for cloud for several quarters now. And in my opening remarks, I've mentioned numerous Essentials deals of X-Sight that we [add to] them in the revenue. They were booked and now going to step into the revenue, and we'll see some growth, very nice growth in cloud also from the X-Sight side of the house.

Next question comes from Tavy Rosner, Barclays.

Most of my questions have been asked. So I guess 2 housekeeping ones. I was wondering if you can comment a little bit about the trend in Asia. I mean I know it's not a key focus region for you, but just wondering why there was like a negative growth year-over-year?

Sure. If I'm not mistaken, I didn't look at it, but I think Q1 last year, if I'm not mistaken, was relatively healthy for Asia. It's just a matter of quarterly fluctuation. We are positive about Asia. I think we have some greater opportunities over there. So I wouldn't look on one particular quarter.

Okay. That's helpful. And then just broadly speaking, I mean, congrats on the acquisition during the quarter. Looking at your portfolio, is there anything else that you're missing and that you're seeing out there? I don't need specific names, I was just wondering about the acquisition pipeline.

So obviously, we're very proud with our own innovation internally. We have a tremendous investment in R&D, which we believe is the right level of investment in R&D, which keep providing us some groundbreaking innovation. But every once in a while, of course, there is an opportunity to accelerate on our strategic vectors with an acquisition. And every once in a while, there is an opportunity to acquire an asset that will allow us to accelerate on the go-to-market.

So without getting into specifics, our strategy is kind of well known. I wouldn't get to very specific targets. We are active on the M&A front. We have a very healthy balance sheet. As you heard from Beth say it before, we finalized the quarter with $890 million in the bank. So we have the horsepower to make an acquisition, and of course, we'll -- every acquisition, we look at it separately, and we see if it makes sense both from strategic rationale but of course also financially and its impact to our growth and to creating shareholder value.

Next question comes from the line of Jacek Rycko, Citi.

And looking at the favorable EPS guidance range for Q2, I was wondering should we extrapolate the license growth from Q1 sort of continuing into Q2 and provide a little bit of a tailwind associated with the profitability mix?

So we don't guide on that. I think in the first quarter, you can see that we had really strong growth in the product revenue, and we benefited that in terms of it going directly into the bottom line. But other than that, we don't provide specific guidance there.

Okay. And then maybe a broader question. Given your leading revenue share within the cloud center market space, how are you thinking about the growth levels going forward, and that is within enterprise and then Actimize, and that is vis-à-vis kind of sustaining you again within this 20%-plus organic growth within your cloud line?

As we presented in our Q1, it was a very strong start for the year. We provided guidance for the year. We -- on our previous call, I provided some long-term view on the company with the direction we would like to get to in terms of the percentage of cloud from our revenue where we believe we'll be in the size as a company as well as our operating margin as a company, but that we are guiding for the year and for the quarter not a specific long-term growth rate.

Next question comes from the line of Dan Bergstrom, RBC Capital Markets.

Yes. So going back to Financial Crime and Compliance, Crypto was mentioned at Interactions as a potential opportunity. I think that seemed more aspirational to me at the time, but here you are announcing a 7-figure deal in the area. Could you talk about expanded use cases such as this or fintech? And then maybe drill down into that Crypto deal a bit.

Sure. The definition of what is financial services when it comes to the different solution of Financial Crime and Compliance is expanding constantly. Basically, any organization that would like to take part of moving money and being responsible on moving money, one way or another, will find themselves in the need for this type of solutions. So that definition of what is the market is constantly growing for us, both from an AML perspective or anti-money laundering as well as from fraud perspective. And even if they are not heavily regulated yet, what we've seen, we all read the headlines, they need to build their reputation and protect their reputation. And I think we all seen recently about some unfortunate incident in different crypto exchanges.

So in this, particularly or specifically in the crypto side, we see many of those exchanges and many those that operate in this space that would like to be ahead of that curve and protect their consumer, hence, they are coming to us. But it doesn't end just with the crypto. It's true for anyone that is doing payment, anyone that is moving money today that would like to be very clean in terms of the eyes of the regulator, making sure that no money laundering scheme are running through their platform or through their solutions as well as of course dealing with fraud. Fraudsters today, it's not that they have stopped trying to attack the banks, but obviously, they kind of expanded their addressable market that was served and of course, expanding our addressable markets.

Next question comes from the line of Paul Coster, JPMorgan.

Yes. Beth, the G&A came down pretty significantly sequentially. Can you just talk us through that? And then, can you elaborate on this comment you made about with recurring and cloud revenues being so significant now that you're going to see more linearity? I understand linearity in revenues. Will we also see more linearity in the sort of OpEx moving forward as well?

Sure. Thanks for the questions, Paul. With respect to G&A, I can say that it was a bit of an anomaly. If you look at G&A as a percent of revenue, I think you should expect in the future that it'll look more consistent with what you've seen in the past. We benefited from some onetime credits there during the quarter, but those will kind of normalize as we look ahead.

With respect to your second question regarding the recurring and cloud as we've talked about in the past, I think looking forward, it does give us further transparency and predictability in our revenue overall. We are seeing more linearity. At the same time, do remember that in our cloud business, we do still have some seasonality as part of that business. There are certain end customers that are retail, for example, that have a little bit of seasonality specifically more towards the end of the year, so you'll see some of that.

With respect to operating expenses, generally, there are certain operating expenses that are typically pretty linear from quarter-to-quarter, and then there are other areas such as in terms of sales and marketing cost where again, you'll see a little bit more fluctuation. And obviously that's given -- depending on various activities during the quarter, which could be related to bookings, for example, and overall performance. So I think you'll continue to see kind of a combination of both.

And I'm not sure who this question goes to, but it's kind of somewhere in between CFO and CEO land. As this business grows in coming years, where are we going to see the operating leverage? Will it actually be in the sort of gross margin space owing to cloud? Or is it going to be spread across R&D, sales, G&A? And can you sort of give us some sense as to where the leverage might be most focused?

Sure. I'll answer that, Paul. So in our previous call, we talked about NICE several years down the road, and we said that we would like -- we believe that we can aim into the area of the 30% operating margin. I think that we see great evidence too this quarter coming up and improving by 230 basis points compared to Q1 of last year. And I will say that it's in multiple areas. Yes, it is somewhat in the gross margin of the cloud. We believe that there is an opportunity for expansion over there. Although, by the way, the amortization of R&D will be present in the gross margin over there. But we have the company as we have showed very nicely, I believe, in the last 5 years, we have the ability to manage the company quite well, and I believe leverage will come also from the ongoing operating expense as a company. And lastly, of course, is the scale as we grow, and we're starting to bring larger and larger deals, those will provide us better return on different R&D as well as better margins on the gross margin.

We have no further questions. I would now like to turn the call back to Barak.

Thank you, everyone, for joining us, and have a great day. Thank you.

Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of the day.