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NICE Ltd.(NICE) Q1 2019 Earnings Call Transcript

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NICE, Ltd. (NASDAQ: NICE)
Q1 2019 Earnings Call
May 16, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Marty Cohen -- Vice President of Investor Relations

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 the performance of the company to differ materially is contained in the section titled "Risk Factors" in Item 3 of the company's 2018 annual report on Form 20F, 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 second quarter and full-year 2019. Following our comments, there will be an opportunity for questions.

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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 Barack.

Barak Eilam -- Chief Executive Officer

Thank you, Marty and welcome, everyone. I'm glad to be on the call with you today. This week, we are celebrating three 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 the first and only true native cloud platform that fearlessly incorporates the marketing and routing WFO 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 expedited their transition to manage smart interactions in the cloud.

Fast forward to today and CXone has opened a significant differentiation gap, as evident by over 500 new CXone customers added annually by being ranked as the No. 1 contact center cloud solution by multiple 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 marketing innovation that enables the 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 the 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 channels 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 these 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 Jet, WhatsApp, LinkedIn, SMS, email, and live chat, enables what we call smart digital conversations.

CXone now removes the barriers that historically slowed down the customer experience digital revolution, 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 in driving our growth is cloud. Cloud revenue increased 30% in Q1 to $137 million. CXone is the clear differentiator for NICE 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 seven-digit ACV CXone deals, including a large government agency, a public content and 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 own premise solutions.

Cloud Go was also augmented by our X-Sight essentials cloud solutions. In Q1, we signed several seven-digit essential deals, including the Southern US-based mid-sized bank where we replaced the incumbent as they wanted to future-proof their solutions by building on and leveraging our fraud management platform. We signed a seven-digit essential deal with a crypto exchange, as well as the company that operates a cloud-based business payment 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 eight-digit deal with one of the largest financial institutions in the world, and in the process, replaced one of our competitors.

Another seven-digit analytics deal included one with a Top 5 US bank, 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 healthcare 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 attended RPA and NIVA, which is our one-of-a-kind attended robotics systems. Moreover, our unique solution called Automation Finder, which is an AI-part solution that detects processes in the enterprise that are perfectly suited for automation, continues to gain traction in among our customers.

Or RPA was well-received at our Interactions User Conference last month, where we had record attendance of more than 3,000 people.

In closing, we are 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 will review our financial results.

Beth Gaspich -- Chief Financial Officer

Thank you, Barak and good day, everyone. I am pleased to provide the analysis of our financial results and the business performance of 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, and given that our cloud and overall recurring revenue have 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 an 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 are increasing the full-year 2019 fully diluted earnings per share to be in an expected range of $5.11 to $5.31. I will now turn the call over to the operator for questions. Operator?

Questions and Answers:

Operator

Thank you. If you do wish to ask a question, simply key * then 1. If you decide to withdraw your question or it has been answered, it's *2. So to ask a question, * then 1 on your telephone. Please stand by for your first question.

Your first question comes from the line of Shaul Eyal, Oppenheimer. Please go ahead. You're live in the call.

Shaul Eyal -- Oppenheimer -- Analyst

Thank you. Good afternoon, guys. 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. Maybe starting with Brand Embassy. How should we be thinking about it, without -- a tuck-in acquisition, but maybe help us understand where it fits with the CXone? And I know you, kind of, provided us with some color, but anything additive would be extremely helpful.

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?

Barak Eilam -- Chief Financial Officer

Thanks for the question, Shaul. Let's start with Brand Embassy. Actually the broader aspect of what we announced today, so as I described before, we received three years into the acquisition of inContact with 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 with significant differentiation and we see the momentum of CXone.

With that strategy in mind, we ask ourselves and we shared that with you before, what's next? Where else can we take CXone? Although it has by itself a very strong momentum, and of course, we talk to our customers, and areas where we set ourselves to go next, is expanded 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 the market leader and their technology into our CXone platform. And the beauty of that particular company, Brand Embassy, we know them quite well. They were a part and integrated as part of our DEVone in 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, that I said in my opening remarks is that our customers or every enterprise out there are dealing today, still, with every channel in stand-alone. But eventually, the 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, we need a quite innovative approach, and that's exactly what CXone and Brand Embassy bring 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 is actually very similar to what I just described on Brand Embassy. Very strong technology. We wanted to have the technology in-house and that's exactly what we've done with Mattersight. We have embedded the technology of Mattersight into CXone and offering that to customers. And those of you who attended Interactions, our user conference, saw that it was presented at the full front of our different presentations and it got a lot of good traction during Interactions, and actually, we have a lot of follow-on as a result of that.

Shaul Eyal -- Oppenheimer -- Analyst

Got it. Thank you for that. And it may be 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 seven- or eight-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? Thank you.

Beth Gaspich -- Chief Financial Officer

Yeah, thanks for the question, Shaul. And as you said, 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 the cloud and product with the product growing at 14%. 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 that 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 that 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.

Shaul Eyal -- Oppenheimer -- Analyst

Got it. That's a great point. Thank you, Beth.

Operator

Thank you. Your next question comes from the line of John DiFucci, Jefferies. Please go ahead. You're live on the call.

John DiFucci -- Jefferies -- Analyst

Thank you. 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? At some point, we may see that, right, from you? And at that point, we'll 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.

Barak Eilam -- Chief Executive Officer

Sure. So it's a mix of multiple things and let me try to help to expand. 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 only channel routing business and we are replacing left and right the legacy on-premise provider over there. So for us, it's a few increments of business. And as I've described in the past, given the magnitude of those legacy providers, we believe that there is a run-way over there that will fuel our growth or satisfy our growth for many years.

It is in many cases, in some cases, combined, of course, with WFO. But I would say that what we see over there is at first it gave us more opportunities than WFO, so we are also replacing other WFO competitors because now, in a much more combined way, being the platform, it allows us actually also to increase our share into WFO. 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 and 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.

John DiFucci -- Jefferies -- Analyst

Okay, so even when you said "displacing or replacing on-premise deployments," for the most part, you're talking about the in contact 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, so thanks for that.

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

Beth Gaspich -- Chief Financial Officer

Sure, I would say similar to the comment that 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. It's nothing atypical. I think the balance and accrued expenses -- sometimes there's timing differences. So I don't think there's anything that is really noteworthy there. And you just see positive cash flow generation throughout the year.

John DiFucci -- Jefferies -- Analyst

Okay, but that one line, the accounts receivable line would be affected by the strong collections, but the accrued expenses and other current liabilities -- because it's usually a negative line, oftentimes, negative $30 million, and it was positive $30 million. That was a huge swing this quarter. It's just, is there something in there? I'd just like to understand it a little better.

Beth Gaspich -- Chief Financial Officer

Yeah, 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.

John DiFucci -- Jefferies -- Analyst

Okay, thanks. Nice job. Thanks.

Beth Gaspich -- Chief Financial Officer

Thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from the line of Dan Ives, Wedbush Securities. Please go ahead. You're live on the call.

Dan Ives -- Wedbush Securities -- Analyst

Thanks. So what percent of your customers do you think you will move to cloud from the call center transition, if you had to approximate?

Barak Eilam -- Chief Executive Officer

We don't share the exact percentage, but as I said before, Dan, it's again, the beauty for our cloud strategy that is based on our, of course, platform strategy is 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 didn't have a very strong presence in the mid-market. With cloud, we are now stepping in a quite dominant market into the mid-market. And that market is shifting fast to the cloud. And in those cases, we take it all, meaning both analytics, end-routing, longer-term routing, and WFO, and moving forward, we believe a lot of digital channels, as well. And within our install base, it really depends on the customer. 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. There is still a lot to go. Many years of potential, here.

Dan Ives -- Wedbush Securities -- Analyst

Got it. And you said, Barak, that -- are the conversations becoming much more strategic with customers? 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 in the pipeline versus, maybe, the last few years. Thanks.

Barak Eilam -- Chief Executive Officer

Sure. First of all, we are very happy with, and we were positively surprised, if you would like, with the size of the event this year on two fronts, actually. Both on customers, having 3,000 attendees was way beyond the target we put to ourselves internally. And if you compare it to three 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 just in general, that's 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 who are coming to our event 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 sessions that were much more for the executive. I attended, myself, some of them, as well. And the level of conversations are much more strategic. Many senior VPs, C-levels, as I mentioned, from the largest companies in the globe that came for the conference. So definitely the right evolution.

I think it is the result of several things. First of all, the breadth offering that we have is much more strategic and getting the traction of much more senior people. That's No. 1. The fact that we are providing a much more strategic approach to how they shift the operation to the cloud, and the fact that we are providing much more to their analytic-based solutions, which are very interesting to much more of the senior people.

Operator

Thank you. Your next question comes from the line of Rishi Jaluria, D.A. Davidson. Please go ahead. You're live on the call.

Rishi Jaluria -- D.A. Davidson -- Analyst

All right, thank you for taking my questions. 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 have there been new customers that weren't NICE customers before that you've, maybe, been able to land with your RPA and having differentiation on the attended side? And then I have a follow-up for Beth.

Barak Eilam -- Chief Executive Officer

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

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

Rishi Jaluria -- D.A. Davidson -- Analyst

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

Beth Gaspich -- Chief Financial Officer

Sure, thanks for the question, Rishi. I think, as you recall, we actually acquired Mattersight in the third quarter of last year, so it's really more comparable if you'll 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 as we've said in the past, we feel confident we'll continue to see the margin expand in the cloud. It's 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 the leverage we have in the model, overall, and what we've said in the past is that as you start to go upmarket, 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've focused on is around the way that we route calls that impact the profitability on the telephony side of the CXone offering. 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.

Rishi Jaluria -- D.A. Davidson -- Analyst

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

Beth Gaspich -- Chief Financial Officer

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

Rishi Jaluria -- D.A. Davidson -- Analyst

Oh, OK. Got it. Thanks.

Operator

Thank you. Next question comes from Sanjit Singh, Morgan Stanley. Please go ahead.

Sanjit Singh -- Morgan Stanley -- Analyst

Hi, yeah, thank you for taking the question and congrats on getting back to double-digit revenue growth this quarter. Very nice to see. Barak, in your script, you mentioned analytics and, I think, an eight-figure deal in analytics and a couple of seven-figure deals. I was wondering if you can give us a sense of what the attach rate on analytics is with your cloud contacts as customers versus your on-premise customers and where do you think that could go over time?

Barak Eilam -- Chief Executive Officer

So we see a few trends that continue and, actually, further extending in analytics, which I'll give you my view of what are the reasons for that. First of all, it's now definitely the majority of our new business for several years, now, comes from analytics. 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 customer -- large customers-using our analytics. And those customers are coming back for more. Coming back for more is either additional use cases or expanding further in terms of capacity of the analytics. So that's one area where we see growth. It's not exactly attachment rate, it's more about expansion.

And the second thing is that as we proceeded in the last, actually, three-and-a-half years in the integration of the 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 analytic solution, which is a vendor agnostic in an environment that they're not a native NICE environment, which, again, an area that we continue to grow from. It's, kind of, all of the above, but expanding in all different directions.

Sanjit Singh -- Morgan Stanley -- Analyst

That's very helpful. And the other part of the business that I wanted to talk a little bit about was financial crime and compliance. Seeing that accelerated this quarter, I think it was up 6%, according to Beth's script. You have a new leader in the financial crime and compliance and you obviously have X-Sight. What is your confidence about getting the financial crime and compliance back to historical levels of growth? I know it came down last year, but what's your view on the trajectory of growth in financial crime and compliance both this year, but also, maybe, 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 email and financial market surveillance, which are more compliance-driven, but we have a lot of solutions that relate 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 at compliance, but also looking at 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 environments 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 involved with X-Sight, which has a very nice roadmap 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 that we're starting to see very good traction for cloud for several quarters now, and in my opening remarks, I've mentioned essential deals with X-Sight. We added them in the revenue. They were booked and now going to step into the revenue, and we'll see some very nice growth in cloud, also, from the X-Sight side of the house.

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you very much. Appreciate it.

Operator

Thank you. Next question comes from Tavy Rosner, Barclays. Please go ahead. You're live on the call.

Tavy Rosner -- Barclays -- Analyst

Hey, good afternoon. Most of my questions have been asked, so I guess two 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 a negative growth year-over-year.

Barak Eilam -- Chief Executive Officer

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 fluctuations. We are positive about Asia. I think we have some great opportunities over there. So I wouldn't look in one particular quarter.

Tavy Rosner -- Barclays -- Analyst

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

Barak Eilam -- Chief Executive Officer

Obviously, we are very proud of 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 has been well-known. I wouldn't get to a very specific target. We are active on the M&A front. We have a very healthy balance sheet, as you heard from Beth. Beth said before, we finalized the quarter with $890 million in the bank. So we have the horsepower to make an acquisition, of course, every acquisition, we'll look at it separately and we'll see if it makes sense, both from strategic rationale, but of course, also, financially and its impact to our goal for creating shareholder value.

Tavy Rosner -- Barclays -- Analyst

Great, thank you, Barak. I appreciate it.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from the line of Jacek Rycko, Citi. Please go ahead. You're live on the call.

Jacek Rycko -- Citi -- Analyst

Thank you. Looking at the favorable EPS guidance for the range for Q2, I was wondering, should we extrapolate to the license growth for Q1, sort of continue into Q2 and provide a little bit of a tailwind, also seen with the profitability mix?

Beth Gaspich -- Chief Financial Officer

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.

Jacek Rycko -- Citi -- Analyst

Okay, and then maybe a broader question. Given you're leading revenue share within the call center marketplace, how are you thinking about the growth levers going forward and that is within enterprise and then optimize? And that is vis-a-vis sustaining you, again, within this 20% through organic growth within your cloud line.

Barak Eilam -- Chief Executive Officer

As we presented in our Q1, it was a very strong start for the year. We provided guidance for the year. 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 and where we believe we'll be in the size of the company, as well as our operating margin in the company. But we are guiding for the year and for the quarter and not a specific long-term growth rate.

Jacek Rycko -- Citi -- Analyst

Okay, thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from the line of Dan Bergstrom, RBC Capital Markets. Please go ahead. You're live on the call.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Yeah, thanks for taking my question. 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 seven-figure deal in the area. Could you talk about expanded use cases, such as this or fintech? And that may be drilled down into that crypto deal, a bit.

Barak Eilam -- Chief Executive Officer

Sure. The definition of what is financial services, when it comes to the different solutions of financial crime and compliance, it is expanding constantly. Basically, any organization that would like to take a part of moving money and being responsible in moving money, in one way or another, will find themselves in the need for this type of solutions. With that definition, according to the market, it's constantly growing for us, both from an AML perspective, from anti-money laundering, as well as from a fraud perspective.

And even if they are not heavily regulated, yet, what we see, and we all read the headlines, they need to build the reputation and protect their reputation. And I think we've also seen recently about some unfortunate incidents in different crypto exchanges. So in this, particularly, or specifically, in the crypto side, we see many of those exchanges and many of those that operate in this space that would like to be ahead of the curve and protect their consumer, hence, they're coming to us.

But it doesn't end just with crypto. It's true for anyone that is doing payments, everyone 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 is 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 have expanded their addressable market as fraudsters. And of course, it's expanding our addressable market.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Thanks, Barak. Very helpful.

Operator

Thank you. Next question comes from the line of Paul Coster, JP Morgan. Please go ahead. You're live on the call.

Paul Coster -- JP Morgan -- Analyst

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

Beth Gaspich -- Chief Financial Officer

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 one-time credits, there, during the quarter, but those will normalize as we look ahead.

With respect to your second question regarding the recurring and cloud, as we have 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 toward 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 a combination of both.

Paul Coster -- JP Morgan -- Analyst

Thank you, and I'm not sure who this question goes to, but it's 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 this gross margin space owing to cloud, or is it going to be spread across R&D and sales, GNA? And can you give us some sense of where the leverage might be most focused?

Barak Eilam -- Chief Executive Officer

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 believed that we could aim into the area of the 30% operating margin. I think that we see great evidence to this quarter coming up and improving by 230 basis points compared to Q1 of last year. And I would 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, as a company, as we have shown very nicely, I believe in the last five 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.

Paul Coster -- JP Morgan -- Analyst

Thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

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

Barak Eilam -- Chief Executive Officer

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

Duration: 51 minutes

Call participants:

Marty Cohen -- Vice President of Investor Relations

Barak Eilam -- Chief Executive Officer

Beth Gaspich -- Chief Financial Officer

Shaul Eyal -- Oppenheimer -- Analyst

John DiFucci -- Jefferies -- Analyst

Dan Ives -- Wedbush Securities -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Tavy Rosner -- Barclays -- Analyst

Jacek Rycko -- Citi -- Analyst

Dan Bergstrom -- RBC Capital Markets -- Analyst

Paul Coster -- JP Morgan -- Analyst

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