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Nice Ltd (NASDAQ:NICE)
Q4 2019 Earnings Call
Feb 13, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the NICE conference call discussing Fourth Quarter and Full Year 2019 Results, and thank you all for your holding. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder this conference is being recorded on February 13, 2020.

I would now like to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please proceed.

Marty Cohen -- Vice President, 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'd 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 in 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 presenting more detailed discussion of fourth quarter 2019 results and the company's guidance for the first quarter and full year 2020. Following our comments, there will be an opportunity for questions.

Let me remind you that unless otherwise noted on this call we will be commenting on our adjusted results of operations, which differ in certain respects from Generally Accepted Accounting Principles, as reflected mainly in accounting for acquisition-related revenues and expenses. Amortization of intangible assets and accounting for stock-based compensation. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

We'd also like to remind you that we are hosting our Investor Day on May 12 in conjunction with our annual Interactions User Conference in Las Vegas. The special program for analysts and investors will include meetings with NICE executives, presentations from customers, product and technology sessions and access to the solutions showcase. If you haven't registered please, email us at ir@nice.com.

I'll now turn the call over to Barak.

Barak Eilam -- Chief Executive Officer

Thank you, Marty, and welcome everyone. I'm glad to be on the call with you today. 2019 was a seminal year for NICE, a year in which we saw many key components of our strategy materialize in the market. In 2019, cloud became mainstream in the enterprise segment, including at the upper end of that market. No longer solely the realm of early adopters, most enterprises now consider cloud as the platform to transform their customer service. Furthermore, CCaaS is growing fast outside the US and CXone grew rapidly in both Europe and Asia. Our differentiated platform approach of negatively fusing omnichannel routing, WFO, analytics and AI has been widely accepted as requirements for successful experience transformation, as evidenced by the strong endorsements we received from all leading industry analysts.

Several key partners including, Atos and NTT, also adopted CXone in 2019, as the vehicle to transform their customer base to the cloud. We also transformed the digital engagement market by embedding the most advanced digital engagement platform natively into CXone. Our Financial Crime and Compliance cloud platform also had a very strong year. We onboarded five times more customers in 2019 versus the prior year, along with an extremely successful launch of the X-Sight marketplace, signing 40 new partners in just six months. 2019 was also a breakthrough year, with the launch of our digital evidence management cloud platform called Investigate. We won multiple marquee deals with key police forces in several countries. Investigate is shaping up to be clear leader in a new category that will help bring public safety organizations into the digital age. We are very pleased with the progress we made in 2019 with our CXone, X-Sight and Investigate platforms and we are exiting the year with strong momentum across all three.

We also priced on financially in 2019, as we ended the year on a high note with strong financial results. For the year, total revenue increased 9% to $1.577 billion, driven by another strong year of cloud revenue, which increased 28%. The strong top line results led to a further increase in profitability. Operating income was $434 million, which was an increase of 13% compared to 2018 and operating margin increased 115 basis points to 27.5% compared to last year. These strong operating results led to a 12% increase in earnings per share to $5.31. Also in 2019, we signed a very large number of new logos, deals over $1 million and competitive replacements, all exhibiting significant increases from the previous year.

2019 marked the end point of our NICE 2020 plan. We exceeded all our strategic and financial goals we set for ourselves at the onset of the plan. The success we had with NICE 2020, paves the way for our next chapter, NICE 2025. While NICE 2020 was characterized by the transformation of NICE, NICE 2025 embodies us becoming a transformation leader with the platforms that empower organizations to lead their own transformation into the new decade. We expect that by 2025, cloud will become the default choice for all enterprises globally. Digital engagements will grow exponentially and virtually every process will be powered by AI and automation. NICE is the de facto platform of choice that is enabling these changes as our cloud leadership continues to expand into all segments and globally, as we become a true digital centric company and as our AI and analytics capabilities become even smarter and easier to consume.

So let me now dig into some of the details by reflecting on 2019 and how that paves the way for 2025. In 2019, cloud took the lead driven by our CXone cloud platform. Cloud revenue grew by 28% and represented 38% of our total revenue. Just this past quarter, we continued to experience more examples of large enterprises, embracing the cloud with CXone, including many seven digit ACV deals from multiple industries. These deals included a large global core banking provider, a large global learning company, a well known home services company, a large insurance broker, an international government agency, a fitness company, a nationwide auto dealer and a healthcare company. As we move toward 2025, the vast majority of the market opportunity is ahead of us as cloud is significantly underpenetrated in all segments of the market.

In customer experience, we are in an excellent position to capitalize that CXone is already clearly established as the leading cloud platform. In Financial Crime and Compliance, the X-Sight cloud platform is paving the way for significant time expansion, as it enables us to capture the mid-market that was not previously available to us. And in public safety, thousands of organizations have yet to embrace the cloud, giving us tremendous opportunities to bring to -- the end-to-end evidence management market into the cloud with the Investigate platform. With these great prospects ahead of us, we believe that our cloud revenues can move from the current 38% to over 60% of our total revenues over the next several years, along with continued improvement in cloud gross margins.

While cloud is a strong driver of our business, digital is also fueling growth as organizations are moving more aggressively toward digital transformation. We are ahead of the curve, as we have pivoted our entire portfolio toward digital. In fact, on Cyber Monday in 2019, we had a record breaking digital customer service interaction powered by CXone, with a 78% increase compared to last year. We acquired Brand Embassy, which provides a significant digital expansion to CXone and we are already seeing many customers take on the additional digital channels. In 2019, we witnessed an increase in X-Sight deals, driven by both digital banks and digital transformation of traditional financial services companies. Also, during the past year, NICE Investigate was launched and already became the premier digital platform for public safety, with more than 10 leading public safety organizations, selecting the platform as the vehicle to help launch them into the digital era. As we head toward 2025, like the cloud, the digital revolution will accelerate with the continued rise of the digital generation and organizations will be faced with disruption as they fight to win the digital battlefield. We believe, that this will double the opportunity for CXone.

In Financial Crime and Compliance, digital is presenting the largest ever time expansion opportunity for X-Sight as the number of companies providing financial services is expected to triple. In public safety, thousands of organizations will focus their energy on moving from paper to digital. Investigate was developed in the last three years and launched last year to capitalize on this tremendous opportunity. The mass amount of digital data that is being captured provides organizations an opportunity to make faster and more intelligent decisions by harnessing the power of AI and analytics. Through innovation and acquisitions, we have established ourselves as the clear analytics leader. In 2019, we witnessed continued strong growth of revenues coming from our analytics and AI-based solutions.

In Q4 we signed a seven digit deal with a European bank for our Compliance Center solution and a seven digit deal with another European financial institution for holistic compliance. There was a seven digit deal with an online payment provider for a portfolio of our analytics solution and a seven digit deal with a large clothing retailer that also included a portfolio of our analytics solutions. We signed a seven digit deal with a large bank for our Employee Engagement Manager solution, a seven digit deal with a financial services organization for a portfolio of analytics including RPA and Nexidia analytics as well as a seven digit deal with a large telco for interaction analytics. We have also several seven digit analytics deals, with various global financial institutions as well as a casino that included our AI powered [Indecipherable] solution.

As we move forward to 2025, the volume of data will continue to accelerate. While organizations have started to deploy point solutions around analytics and AI, the real opportunity for us is to build on our analytics leadership and advance toward becoming an AI hub in all our markets. Given our 10 years of success in analytics, our domain expertise and the vast amount of data on our platform, we are in the best position to take analytics and AI to the next level making them smarter and easier to consume. CXone will evolve into an AI powered self-service platform. X-Sight will capture more market opportunities as the autonomous Financial Crime and Compliance platform powered by AI. And Investigate with its built-in AI capabilities will narrow the gap between the exponential growth of evidence data and limited public safety resources. While the cloud, digital and AI, each alone provides tremendous avenues for growth together as interconnected pillars they provide an even greater growth opportunity as we push forward with NICE 2025.

In closing, we are already the undisputed cloud platform leader in our market with CXone, X-Sight and Investigate. As we look ahead, it is this platform strategy that will continue to separate NICE from its competitors. We have the assets, the people, and the technology to lead us into the next chapter at NICE. The NICE of 2025 will be a transformative version of NICE 2020. I also want to take this opportunity to thank all our employees around the globe for their outstanding commitment and contribution in helping us exceed the goals we set for ourselves with NICE 2020. We have an excellent team at NICE that has proven itself time and again, which gives me great confidence to take on the mission of NICE 2025.

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 business performance for the fourth quarter and full year 2019 as well as our outlook for the first quarter and full year 2020. Total revenues for the fourth quarter reached $431 million, an increase of 4% from $413 million in the same period of last year. Full year revenue was $1.577 billion, which represented 9% growth over 2018 full year revenue of $1.453 billion.

Our total revenue growth was driven by our continued successful execution in the cloud as our cloud revenue grew 25% in the fourth quarter and 28% for the full year 2019. Customer Engagement revenues for the fourth quarter were $335 million, a 3% increase over the same quarter in 2018 and represented 78% of our total revenues. For the full year, Customer Engagement revenues were $1.268 billion, an increase of 9% compared to the full year 2018. Financial Crime and Compliance revenues for the fourth quarter increased by 10% and were $96 million, representing 22% of total revenues. For the full year, Financial Crime and Compliance revenues were $309 million, an increase of 7% compared to the full year 2018.

Recurring revenue for the fourth quarter and full year continued to increase and reached 71% and 72% respectively of total revenue compared to 66% and 69% respectively for the same period last year. Cloud revenues accounted for 39% and 38% of total revenue for the fourth quarter and full year up 6 percentage points compared to the same periods last year. Product revenues accounted for 19% of total revenue in the fourth quarter and 17% for the full year. Service revenues accounted for the remaining 42% of total revenue in the fourth quarter and 45% for the full year 2019.

Looking at geographies, Americas contributed $328 million to total revenue in the fourth quarter and $1.238 billion to the full year revenue, which represented 1% and 9% growth respectively. Revenues in EMEA increased by 2% to $57 million in the fourth quarter and for the full year EMEA revenues increased 4% to $217 million. Revenues in EMEA increased 8% for the full year on a constant currency basis. APAC revenues in the fourth quarter increased 34% to $46 million and full year revenue increased 8% to $123 million.

And now to profitability. We continue to grow our gross profit to a record high. In the fourth quarter, it reached $314 million compared to $297 million in the fourth quarter of 2018. For the full year, gross profit increased 9% and was $1.125 billion compared to $1.032 billion for the full year 2018. In the fourth quarter, gross margin grew 90 basis points from 71.9% to 72.8%, driven by our fast growing cloud gross margin which continued to increase and reached 63.8% compared to 59.9% in the same quarter last year. Operating income increased to $130 million and $434 million representing growth of 9.3% and 13.3%, respectively for the fourth quarter and full year 2019. Full year operating margin expanded 110 basis points to 27.5% and we expect to see further growth over the next several years to 30% operating margin as a result of our continued revenue growth and the leverage in our financial model. We continue to remain committed to expand profitability over time.

Earnings per share for the fourth quarter grew 6.8% and reached an all time high of $1.58 compared to $1.48 in the fourth quarter of last year. Full year 2019 earnings per share was $5.31, representing growth of 12%. We experienced another strong quarter of cash generation, which was $91 million and the full year cash flow from operations was $374 million. Total cash and financial investments were $981 million at the end of December 2019 and total debt was $465 million net of issuance costs and the equity component associated with our convertible debt.

With cash and financial investments near $1 billion as we exited 2019 combined with consistent ongoing strong cash generation, we announced earlier today, a new share repurchase program in the amount of $200 million. The new program demonstrates our confidence in our business and financial performance. It also reflects our ongoing commitment to return capital to our shareholders as disciplined capital allocation is fundamental to our overall strategy.

I will conclude my remarks with our guidance. For the first quarter of 2020, we expect total revenue to be in the range of $406 million to $416 million. We expect the first quarter of 2020 fully diluted earnings per share to be in an expected range of $1.27 to $1.37. For the full year 2020, we expect total revenue to be in the range of $1.690 billion to $1.710 billion. We expect full year 2020 fully diluted earnings per share to be in an expected range of $5.65 to $5.85. We expect effective tax rate for 2020 to be in the range of 21% to 23%.

To conclude, we are looking forward to seeing you at our Investor Day on May 12, which is taking place in conjunction with our Interactions Conference in Las Vegas. I will now turn the call over to the operator for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Hugh Cunningham. Please go ahead. You're live in the call.

Hugh Cunningham -- Analyst

Can you give us a bit more color on where you expect to find the more attractive growth opportunities related to your 2025 plan?

Barak Eilam -- Chief Executive Officer

Sure. Thanks for the question. So going back to my earlier remarks the three domains that I've -- the three pillars that I've covered are cloud, digital, and AI or AI analytics and this is -- each and every one of them by itself have tremendous growth opportunity for us across all our businesses. Obviously, as you interconnect them, there is an even bigger opportunity. Just to say a few words on each. So on the cloud side, while we've seen tremendous success in the past two years in growth, we believe that the market is still seriously underpenetrated and there is a lot -- a very long runway over here in all segments of the market as all the enterprises are moving to the cloud and the larger enterprises just started their journey to the cloud. So that's one avenue. And it will go through 2025, but also way beyond even 2025. The second one as I mentioned is digital. While the conversation and the early adoption of digital for many organizations started in the previous decade many of them are still in the early stages to transform themselves on the digital front. And for us in all different segments of where we operate, it actually presents a significant growth opportunity and TAM expansion as I mentioned before.

And on the AI front which is of course connected to the fact that it's in the cloud and we have a lot of the data through our cloud and the fact that we also provide a lot of our services on the digital front, the challenge of the previous decade of storing and capturing the data belong to the past. And moving forward, the energy organization is moving to enable people throughout the enterprise to navigate through this data. And the biggest challenge is the efficiency in data scientists. It will not be solved just by adding more personnel. It must be solved with technology and we are best positioned because we have as I said the data, the domain expertise and of course the platform to support it.

Hugh Cunningham -- Analyst

Thanks, Barak. Just one follow up and this is sort of more of a big picture question. I'm not sure if you have an answer to it, but what you're describing looks like a transformation not just of NICE but really of the entire industry. And I'm wondering, I see the opportunities, you've discussed the opportunities and you've discussed sort of one vulnerability, which is the shortage of data scientists. But do you see as a result of this big transformation any other vulnerabilities opening up not for you, but for customers? And do you see a role for NICE in solving those vulnerabilities? And specifically, I'm talking about things like when cloud started to emerge there was concern about security, that sort of thing.

Barak Eilam -- Chief Executive Officer

Yeah, so it's a good point. On the cloud side I think by and large given the advancement of cloud and the fact that enterprises are still much more confident and comfortable to take innovation from the cloud I think that's by and large behind us. Of course, there need to be a lot of focus on that moving forward, but I think that's behind us and those concerns are manageable. And I think as I mentioned on the AI front and the analytics front, the deficiency in data scientists as I mentioned, but the biggest vulnerability of organizations that I see from conversation with customers and where we engage a lot is the pace of innovation. They want to move to digital. They want to move to the cloud, but the two are interconnected. With the current infrastructure the legacy on-premise from different providers, their journey to digital is extremely slow.

So actually one is fueling the other. And the fact that we offer both, we are completely digital-centric and we are the safe choice to move to a real cloud solution again in all the different markets where we operate that -- the organizations are starting to see the weakness the pace of that move and I think it's a great opportunity for us.

Hugh Cunningham -- Analyst

Okay. Thanks Barak, Thanks guys and Good luck.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from Rishi Jaluria, and he's from D.A. Davidson. Please go ahead.

Rishi Jaluria -- DA Davidson -- Analyst

Hey guys, thank you so much for taking my question. Barak, let me start with you, you talked a little bit in the prepared remarks about the success you're having with the Financial Crime and Compliance on the cloud side of the business. Maybe can you help us understand a, where are you getting these customers? Are you getting any deployments at some of the larger ones, or is it more at the mid-sized financial institutions? And then just in terms of scale, obviously CXone has been the primary driver on the cloud side. Is there a point at which the -- what you're doing with X-Sight starts to become a material driver on the cloud? And then I've got a follow-up for that.

Barak Eilam -- Chief Executive Officer

Yeah, so indeed what we said in the previous few calls is that you're starting to see a lot of traction with X-Sight in the cloud and it will take time for it to ramp up. I provided an update that we onboarded five time more customers in 2019 versus 2018, which is tremendous. For us it's actually a great TAM expansion opportunity, historically. We've been providing Financial Crime and Compliance solution to the higher end of the market, very large financial services. The mid-market was not very available to us because those organizations have a hard time to buy and adopt these solutions on an on-premise way.

As we launched Essentials and X-Sight, it's completely opened up for us the mid-market and this is exactly where we see the opportunity. So, most of it today is in the mid-market even by the way very substantial in size financial services. At some point, we believe it will also grow up market. So we have an opportunity on both sides over here. So it's a very healthy mix. And yes, we are going in the very similar direction of what we've done with CXone. We didn't just came out with cloud offering, but a full-blown platform, X-Sight leveraging many of the know-how and the domain expertise we had with CXone. And we're starting to see the success. In the fourth quarter, you saw double digit growth on the Financial Crime and Compliance business. Also annually, the growth rate was faster than 2018. So, we are very optimistic about the potential there.

Rishi Jaluria -- DA Davidson -- Analyst

Great, thanks. That's helpful. And then Beth just wanted to ask margins question. So, operating margins have definitely been continuing to improve over time, but it looks like on the cash flow side cash flow margins have gone down I think pretty meaningfully -- maybe not meaningfully, but dropped a little bit over the past two years. Can you maybe help us understand why this is and how we should be thinking about drivers for cash flow margin expansion from here? Thanks.

Beth Gaspich -- Chief Financial Officer

Sure. Thanks for the question Rishi. As we look on our cash flow from net ops over the last three years, we've actually had very healthy cash generation from our business. Consecutively, in each of the last three years, we generated nearly $400 million of positive net cash from our operations. And if you recall, actually earlier this year during the course of the second quarter, we utilized some of the net cash flow to take the opportunity to enter into some agreements on the prepaid side with some of our vendors to lock in discounts that will benefit us going forward. So it's actually been giving us opportunities to put that cash to use. And we've done that both through these longer term agreements that locked in these discounts as well as it allowed us to introduce our new stock buyback plan given the confidence we have really in our cash generation.

Rishi Jaluria -- DA Davidson -- Analyst

All right, perfect. Thank you so much, guys.

Operator

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

Sanjit Singh -- Morgan Stanley -- Analyst

Good morning and thank you for taking the question. And congrats on the really strong cloud growth to end the year. Barak, I had a question for you on sort of the partner enablement strategy. You sort of mentioned in your script Atos and NTT, broadly as you think about the partner strategy, where has the traction been to date in 2019? And as we look to next year, where are these partners in terms of ramping up their capabilities and then trying to generate pipeline for NICE across CXone and X-Sight?

Barak Eilam -- Chief Executive Officer

Sure. So actually in 2019, I talked about it a bit, but if I look at it -- if I reflect on '19 and I compare it to '18 and '17, was a major acceleration in our partner strategy. During '19, we said that we want to do it in '18 and '19 was a record in terms of how many partners we have managed to onboard during the year. I think that the changes that we saw during '19 a lot of partners are coming to us instead of us looking for them.

And the reason for that is a few -- twofold, I would say. The first one, as we started to expand with CXone globally, and we entered some new territories for CXone. We had a lot of partners approaching us looking to move or to adopt us as their cloud choice as they start to move their customer base from on-premise to cloud and as customers demand a true cloud solution with CXone. So that's one part. Since those partners have a lot of know-how in terms of the -- in this particular case, in terms of the customer service market, onboarding them was relatively easy. It's more about educating them about the cloud and less about the industry, which is great. It means a very fast onboarding for these partners. And as I've mentioned, already in Q4 we got a few deals from those partners that onboarded just a quarter or two before that.

The other program we are very happy with as you heard is our marketplace. I gave the update on the X-Sight marketplace, which was for us a great surprise, positive surprise. We just launched six months ago and onboarded 40 different technology partners. And I didn't provide an update, but the CXone marketplace is also growing very extremely well with way north of 150, if I'm not mistaken partners, as part of this program allowing us to offer to our customers a really wide ecosystem of solutions. And that's also when I look forward, it is the core element of our strategy since we operate in so many different segments of the market and globally. By that way, we can actually cater to all segments of the market in a very effective way and it allows us a very strong footprint throughout all different regions.

Sanjit Singh -- Morgan Stanley -- Analyst

I appreciate that Barak. That's very helpful. And then one follow-up if I may. Just around the Investigate platform, which is kind of the third major cloud platform that's coming into the portfolio. We talked about Analyst Day and like sort of customer engagement that TAM being around $12 billion over the next couple of years and Financial Crime and Compliance going from $2 billion to $4 billion. How do you sort of think about sizing the opportunity for Investigate? And what does that competitive environment look like in that segment of the market versus your traditional core markets?

Barak Eilam -- Chief Executive Officer

Sure. So, we have a very large customer base in the public safety domain. It is a very healthy customer base that we are very happy to have. They are very loyal customers for many, many years, thousands of customers as I've mentioned. And we enjoyed working with them and catered to them for years. What we have seen and started to work on in the last few years is that those guys will get bombarded very soon with the task of how to manage evidence. This is taking us way beyond our traditional role in this market. And we saw that the opportunity is actually to build a platform that will be -- that helps those public sector organization to manage evidence in the digital era in an A to Z. It's a much bigger role than what we had with those organizations defined.

And we worked on that for a couple of years. We piloted with a few customers. We had some partners, design partners. And we basically launched it late in '18 and we started to market it during '19. We had some initial success in Europe and surprisingly it started to move very fast. And in the second half of the year, we also saw ourselves selected in numerous places also in the US. So, that's the traction that we see as I mentioned just in 2019 alone, just from launching it, came very substantial large public safety organizations adopted that. It's hard to estimate right now what will be the size of that market. We believe it's substantial. And it's just the beginning of this market and we believe that this adoption will accelerate. As we move forward then we have better understanding of the full potential over here and trying to quantify it, of course, we'll share that with you.

Sanjit Singh -- Morgan Stanley -- Analyst

I appreciate it Barak. Thank you.

Operator

Thank you. Next question comes from Paul Coster from JP Morgan. Please go ahead.

Paul Coster -- JP Morgan -- Analyst

Yeah, thanks for taking my questions. First off, Barak, I wonder if you can comment on both the convergence and alignment with hyperscale cloud platforms. By convergence I mean there's some evidence that Amazon, for instance, is embedding some cloud functionality for enterprises into its platform. And by alignment I mean that some of the leading providers with customer engagement solutions are sort of aligned with, and you can argue that, with some of the cloud providers. So, I'm just wondering how you see that playing out if you see it as an accurate description of the situation in the first place?

Barak Eilam -- Chief Executive Officer

Yeah, we actually see it as a great opportunity. This market of customer service exists for many years. And the fact that we see more and more parties interested to play in this market, it's a great evidence that this is a sizable market with a potential for significant TAM expansion. So, it's another evidence that the next few years are going to be extremely exciting in this market. On the flip side of it, which is very good for us, it's a highly specialized market and it's a very feature rich market in terms of its capabilities and what is required in order to provide customer engagement solutions for small and large enterprises. It's not just scale or complexity, it's the combination of complexity and scale.

And that's what we have been doing for the past 30 years. So, it's prepared us very well to that moment and the acceleration that we see in our business. We actually have a cooperation with many of the vendors that you have mentioned and we believe that them playing in this market actually helps us to accelerate the move of customers to the cloud. And there is a place in the market for both the infrastructure players like the one that you've mentioned for the provider of the public cloud and the specialized applications where we play.

Paul Coster -- JP Morgan -- Analyst

Very good. The other question I've got is, I apologize for being so conceptual here, but as I hear you talk about cloud and digital and AI and robotics and so on, it seems that it can be applied to pretty much any transaction or process or control environment and pretty much any domain Blockchain, ERP, CRM you name it, it seems applicable. What is it that you do not do? I mean in five years from now is there reason to expect you to be way beyond customer experience customer service?

Barak Eilam -- Chief Executive Officer

So, I agree that if you look on the set of technologies that we have and what we do and the pillars I've talked about, they are applicable for many different enterprise software domains. However, I'm a big believer first of all in focus and that's something that we've done I believe well in the last few years. And the second thing that relates to that, I'm a strong believer of -- in domain expertise. I think that that's what our customers are looking to get from us. Not just I think I see it, it's not just selling them generic technologies the domain expertise. And it's even stronger when you are now -- as we set course to be the AI hub of our market. AI while certain algorithms and machine learning can be referred to as generic, the real AI solution, you must have domain expertise in that field. And that takes a lot. And we're actually in a great position, because if you think about what we bring to the table when it comes to AI, we bring the two most important things that allows you to create AI dominancy.

The first one is data. We have vast amount of data that is going through one or any of our solutions. And the second thing is domain expertise. At NICE, besides a lot of technology experts, we have people that have tens of years of experience in customer service, and tens of years of experience in compliance, and financial crime and compliance, and tens of years of experience in public safety. When you combine them together, you get what we believe is a superior platform with this domain expertise. It does open up possibility and I agree with you that we may end up deciding to go to yet a fourth or a fifth vertical potentially.

Paul Coster -- JP Morgan -- Analyst

Okay, thank you. Helpful.

Operator

Thank you. Next question comes from Tavy Rosner from Barclays. Please go ahead.

Tavy Rosner -- Barclays Capital -- Analyst

Hi, Good afternoon. Thanks for taking my question. Barak, you mentioned, you have a strong competitive and strategic positioning. I'm just looking at some of the cloud names that are growing extremely fast and some of the legacy players also announcing technologies that sound similar to yours. So I'm wondering are these guys kind of closing the gap from a technology standpoint, or you consider that you still have a step ahead when it comes to technology and innovation?

Barak Eilam -- Chief Executive Officer

So as you know we are -- have invested, we are investing and will continue to invest heavily in R&D. We believe that the portion of our investment in R&D is ahead of many others. And if you look on the recent report from almost all analysts, I think all of them, whether it's Gartner or others, and you look on where they position us on the Magic Quadrant and others there is a significant gap between us and others. Obviously, we will continue to invest in innovation to make sure that we get -- not just remain but also extend itself. Particular to those platforms I've mentioned so far if you take CXone, for example, no one else in the market as far as I know put together and we've done it more than 3.5 years ago omnichannel routings, WFO, analytics and digital and combined it under one platform. I think that allows us to open a significant gap. And as a result of that the great wins within the market.

Tavy Rosner -- Barclays Capital -- Analyst

So it's-- that's helpful and then you mentioned in your prepared remarks, the several acquisitions that you made over the last five years. And I guess looking ahead, should we expecting a similar pace or now-- is now in a different place? and therefore you don't really have to allocate your cash toward acquisition, but rather returning to shareholders?

Barak Eilam -- Chief Executive Officer

So we indeed have done some what we believe are very good acquisitions in the last two years and we got we believe a great return on those acquisitions. Also it allowed us to advance our offering quite significantly and complete our offering to build the three platforms I've mentioned. Of course, given the fact that our position in the market and the fact that we would like to further augment our leadership and our growth, we will continue to be active on the M&A front. Having said that, we believe that we have everything that we need in order to execute on the NICE 2025 vision and strategy that I've mentioned. And one example of that level of confidence is that we announced a share buyback program earlier today to make sure that we are doing the right thing on the capital allocation to the shareholders.

Tavy Rosner -- Barclays Capital -- Analyst

Thank you, Barak.

Operator

Thank you. Next question comes from Dan Bergstrom from RBC Capital Markets. Please proceed.

Dan Bergstorm -- RBC Captial Market -- Analyst

Yeah, thanks for taking my question. Thanks for the look at the opportunity forward here to 2025 very exciting. Around that you talked to the early stage of the digital transformation and the opportunities around TAM expansion. I guess maybe to build on Paul's question, could you dig a little deeper there, what are some of those TAM expansion opportunities in digital transformation How could you look to leverage your data and domain expertise there?

Barak Eilam -- Chief Executive Officer

Sure. So let's -- I'll refer to the three different, if you would like segments. The first one on CXone, we're already in the leadership position, strong leadership position in customer engagement and we are starting to see a dramatic increase in digital interactions and the requirement of enterprises to further grow omnichannel and provide a cohesive and coherent service to all channels. That by itself, as I mentioned is going to double the TAM potential for CXone. I gave some example of that, what we saw in Cyber Monday the major growth over there. And we are well prepared for that, because we acquired Brand Embassy earlier in '19. We integrated that into the business and we already saw initial deals in Q4. So that's one example.

On the Financial Crime and Compliance, the reason why we believe digital can present a tremendous TAM expansion opportunity is actually the market itself. Both new banks, digital banks given the digital opportunity are created and we see them coming to us as they would like to make sure they comply with regulation and mitigate fraud and other assets. So, actually new customers and the second part of the TAM expansion is that the traditional banks are trying to completely rebuild all of the processes starting from customer due diligence, KYC, understanding who is the customer, AML processes, fraud processes and basically build them from scratch in digital and that's a brand new business for us.

And lastly on the public safety domain, as I mentioned that market is way behind in terms of digital transformation. They can no longer stay behind, because as I've mentioned the biggest issue is how do you manage the vast amount of evidence on every investigation in every case. And here as well we prepared ourselves in the last several years and launched right on time in '19 the Investigate platform and we see the traction. So we see all of those evidence and great examples, but we believe that this is still early and there is a long runway over here as the organization will transform digitally in the upcoming decades.

Dan Bergstorm -- RBC Captial Market -- Analyst

Thanks Barak, very helpful. And then for Beth, Beth could you help us with the magnitude of increasing cloud in the fourth quarter here versus priors quarter -- prior quarters in the year? Is that just the seasonality of builds through the year much like the business overall or are there other things in the fourth quarter here that we should keep in mind?

Beth Gaspich -- Chief Financial Officer

Sure. Thanks for the question, Dan. We had very nice growth of our cloud revenue in the fourth quarter, it grew at 25%. And as a reminder, Q4 was a purely organic growth in the cloud. So there weren't any anomalies. It was really just the momentum that we've seen throughout the year playing through in our cloud revenue for the fourth quarter. And of course, we do have some seasonality that we experienced in the cloud line item, but overall, it was really just demonstrating the growth coming through in our cloud growth this year.

Dan Bergstorm -- RBC Captial Market -- Analyst

Thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from Ryan Koontz and he's from Rosenblatt. Please go ahead.

Ryan Koontz -- Rosenblatt -- Analyst

Hi, thanks for the question. If you could step back and look at the macro environment can you contrast the adoption of the digital transformation kind of program environment across your major geos, US Europe and APAC? Thank you.

Barak Eilam -- Chief Executive Officer

Sure. So we see a lot of similarities. I'll try to give some characteristics for different territories. I believe all the three transformation, I mentioned are touching all enterprises globally. Obviously, cloud adoption we see in the US is ahead of Europe and APAC at least in our relative market. So there's still tremendous opportunity in Asia Pacific and Europe. And actually, in 2019, we saw very nice growth relatively speaking in those territories. So the adoption is starting to ramp up. On the digital front, actually it really depends per country. US is advanced, there are some Asian countries that are way more advanced. And European country, I would say a bit behind. I don't want to be too generic over here. It really depends by country.

And the issue of AI and analytics the combination is just global. The main issue is that, I would say that storing data etc. as I mentioned is a challenge that belongs to the previous decade. And the shortage in data scientists is coming from the fact that all enterprises globally understand that in order to differentiate vis-a-vis the competition, they need to use data in the most effective way, which will give them differentiation. And for that, they are looking for people that understand data and they're fighting for data scientists. There is a limit to how much they can fight on them. They're still going to fight on them of course and we're going to see a growth in data scientists. There is a potential shortage these days of already two million data scientists globally and it's going to expand. So they are now turning on to how do you take technology, our technology in this case, and add it into the enterprise in a way that almost every employee can have data scientist capabilities.

Ryan Koontz -- Rosenblatt -- Analyst

Helpful. Thanks very much.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from Daniel Ives and his from Wedbush. Please go ahead.

Daniel Ives -- Wedbush -- Analyst

Thanks. Great quarter again. So could you maybe just talk about, when you think about cloud and just the move that we're seeing on the customer service side, just talk about how maybe conversations are changing. Go into more strategic more of the platform approach in terms of what customers are looking for versus maybe six months, 12 months, 18 months ago? And maybe [Indecipherable] about Barak like, how much of it is the product versus what's happening in the market? Like if you just think about it.

Barak Eilam -- Chief Executive Officer

Sure. So, if I try to think about the conversation, I participated in dozens of them with customers in the last few months and quarters and I also look a bit back. One of the things that's changed dramatically and that already belongs to I would say '18 is that there is no longer conversation about whether we should move to the cloud, I'm talking from the customer viewpoint, we don't hear it anymore. Is cloud safe and things like that. Of course, they are doing due diligence and so on and so forth. But that phase of educating why cloud is better, I think by and large is behind us almost in all segments of the market.

Customers today say we would like to move to the cloud. The key question for them is we know what's the end state. what's the journey? What's the best way for us to do that? Obviously the larger the customer is the more complicated it is for them given the variety of integrations that they have complexity, fast depreciation and so on and so forth. But I think that the real thing that is changing, if I look on the past year is the better understanding of customers that cloud by itself is the technology, it's the vehicle of delivery, but it's about what it enables them. And it's not just economics and it's not just the infrastructure. It's about I would say two things. One is unique to our market and one I believe is to several other markets as well.

The first one is the pace of innovation, the understanding that regardless of cost etc. the fact that you deploy a true cloud solution and native cloud solution with all the capabilities, you can move your pace of innovation as an organization from once every two years to something that happens constantly by demand. That -- this is huge, it's something that is dramatic in their ability to move forward at the organization. And that I believe is true for a variety of enterprise software verticals and the industry. The one that is quite unique to the customer engagement market is the power of elasticity. If you think about the customer service, and you think about the ups and downs that they have in terms of demand given different seasonality they have in the business and the fact that instead of buying to the maximum capacity in an on-premise session, they can procure from someone like us that offers full elasticity, not all cloud solutions offer that elasticity, that's huge for them and their ability to navigate through both their business and their financials. So that's the type of conversation we see these days.

Daniel Ives -- Wedbush -- Analyst

Great. Very insightful and great job again.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from Walter Pritchard from Citi. Please go ahead.

Walter Pritchard -- Citi -- Analyst

Hi, thank you. Question for Beth and a question for Barak. Beth, on the gross margins you've highlighted the sort of buy downs of -- probably connectivity and other costs for cloud. And I'm curious when you look at the improvements you've had year-over-year in gross margin and then how you're thinking about that into 2020, what factors would you point to that have been most impactful to those gross margin improvements and then as you look into which of those are the most sustainable going forward?

Beth Gaspich -- Chief Financial Officer

Sure. Thank you for the question, Walter. As we look on our gross margin, we have had nice year-over-year expansion and you can really see that coming through in the fourth quarter in particular around our cloud gross margins, which expanded 400 basis points just in the fourth quarter year-over-year alone. And so we have consistently had very nice product and services gross margins. We continue to really maintain the level of attention to driving the efficiency across our organization around those two areas, but cloud is an area where we've really continued to capitalize and will see further expansion going into 2020. It's coming from a number of areas. First of all, just the fact that as we're moving into the larger enterprise, we have a land and expanding approach. That allows us to go in and continue to sell software, which comes at a higher margin and higher profitability versus the network connectivity. So that's driving more to the bottom line. At the same time, we're also looking at our cloud operations similar to the way that we've looked on our services business over the past few years, really just driving a lot of operational efficiencies and cost control around the business. So those are some of the areas that we'll continue to focus on throughout 2020 and that we are confident we'll continue to drive the overall margin profile higher.

Walter Pritchard -- Citi -- Analyst

Thank you. And then Barak on the -- just there's a question asked earlier on the Hyperscale entry into the market. And I guess what we're seeing as well you have some of the traditional CRM players pushing into the telephony channel maybe haven't been there in the past. Are you seeing any change in the landscape in terms of who's a partner and who's a competitor, if you look at kind of the Q4 selling season versus where you were last year and in the past, and I mean particularly, among the CRM type players.

Barak Eilam -- Chief Executive Officer

Yeah, yeah. No, we don't see any dramatic change. You know that we have a partnership with all different adjacencies to our markets, CRM, unified communication or UCaaS, [Indecipherable] of course and other resellers. Some have more technology partnerships. Some have more go-to-market partnerships. And actually both the partnership on the UCaaS side and on CRM, which is adjacent to our market is very successful. We just recently -- I believe it was a couple of weeks ago a bit more, we announced an extended partnership with Zendesk. Our partnership with Salesforce is going extremely well. These are not our main channels to the market. But actually customers are very happy with those partnerships, because it allows them to have better integration between those, like in many industries and we welcome that. These days it's all -- it's a combination of corporation and some other competition. Because sometimes it's hard to know what -- when a certain market or capability ends and the other one starts. But I think overall it's healthy. It keeps us all honest with customers. And we will continue to do that and we're happy with this mode of let's call it competition, it's a healthy one.

Walter Pritchard -- Citi -- Analyst

Great, thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

There are no further questions at this moment.

Barak Eilam -- Chief Executive Officer

Well, thank you all very much for joining us. And we look forward to see you at our Interactions event in May. Thank you. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Marty Cohen -- Vice President, Investor Relations

Barak Eilam -- Chief Executive Officer

Beth Gaspich -- Chief Financial Officer

Hugh Cunningham -- Analyst

Rishi Jaluria -- DA Davidson -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Paul Coster -- JP Morgan -- Analyst

Tavy Rosner -- Barclays Capital -- Analyst

Dan Bergstorm -- RBC Captial Market -- Analyst

Ryan Koontz -- Rosenblatt -- Analyst

Daniel Ives -- Wedbush -- Analyst

Walter Pritchard -- Citi -- Analyst

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