Nice Ltd (NICE) Q1 2021 Earnings Call Transcript

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Nice Ltd (NICE -0.65%)
Q1 2021 Earnings Call
May 13, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the NICE Conference Call Discussing First Quarter 2021 Results, and thank you all for holding. [Operator Instructions]. As a reminder, this conference is being recorded May 13, 2021.

I would now like to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE, please go ahead.

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, Corporate Development.

Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be advised that the company's actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2020 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on March 23, 2021.

During today's call, we will present a more detailed discussion of first quarter 2021 results and the company's guidance for the second quarter and full year 2021. Following our comments, there will be an opportunity for questions. Let me remind you that, unless otherwise noted on this call, we will be commenting on our adjusted results of operations which differ in certain respects from generally accepted accounting principles, as reflected mainly in accounting for acquisition-related revenues and expenses, amortization of intangible assets and accounting for stock-based compensation and differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

We'd also like to remind you that we are hosting our Virtual Investor Day on May 25 in conjunction with our Interactions Live user conference; a special program for analysts and investors along with presentations from NICE executives and product and technology sessions. If you haven't received a registration email, please email us at [email protected].

I will now turn the call over to Barak.

Barak Eilam -- Chief Executive Officer

Thank you, Marty and welcome, everyone. As we are nearly halfway through 2021, our world is already changing at an accelerated pace. Consumer experiences will change more in the next five years than they have in the previous 15. Next gen consumers' demand channel of choice and seamless experience, and to keep up, enterprises need to raise their game in driving customer satisfaction to maintain loyalty among consumers. To accomplish this, organizations are accelerating their adoption of cloud, digital, sophisticated analytics and AI. This is creating immense opportunities in the market in which we operate and for the solution that we develop and deliver.

We are seeing increased adoption in cloud, digital, automation and self-service; solutions and technologies that we have successfully encapsulated into the broadest, deepest, and most complete platforms in both customer engagements and Financial Crime and Compliance. These platforms will enable us to capture significant growth opportunities in what we foresee as a more than a $25 billion total addressable market for NICE.

We witnessed strong evidence of these growth opportunities throughout 2020 and it is continuing in 2021 as demonstrated by a very strong first quarter results across the board. Total revenue increased 11% to $457 million, which exceeded our guidance range. And cloud revenue grew 33%, both of which were fueled by CXone. The CXone pipeline and bookings reached record levels in Q1.

Unlike cloud transitions by other companies, our overall revenue growth is accelerating due to a combination of two drivers to our cloud business. First, cloud conversions of our existing on-premise products resulting in higher annual revenue per customer and second, a net new cloud business in CCaaS digital and self-service solutions that we did not previously offer in the on-premise model.

In Q1 due to our success in the large enterprise market, our cloud gross margin continued to rapidly increase; growing 470 basis points to 67.6% and that drove the overall gross margin, which increased 180 basis points to 72.7%. Operating income increased 17% to $129 million and operating margin grew 130 basis points to 28.2%. This led to a 15% increase in earnings per share to $1.54, which also exceeded our guidance range and we generated $164 million in operating cash flow in Q1.

The underpinning of the strong financial performance and our ongoing growth are the result of owning the best and broader set of assets we have assembled through both innovations and acquisitions to create CXone. These assets include omnichannel routing, digital, workforce engagement, analytics, AI and automation. We have successfully integrated these best-of-breed technologies into CXone, which is a single unified native cloud platform delivered to all segments of the market; small, mid, and large enterprises. This deliberate and prudent strategy of combining all these assets was recognized by Gartner and many other industry analysts as NICE is the only company that is a leader in both CCaaS and WEM in Gartner's Magic Quadrant.

As the demand for channel of choice has become mainstream among consumers, the need for digital has never been greater among enterprises. In Q1, we witnessed an increase of 2.5 times in digital interactions. This rapid growth in digital demonstrate the fast growing appetite that enterprises have to digitally transform and CXone has the broadest set of digital assets in the industry. CXone native capabilities allows businesses to reach consumers wherever their digital journey begins. Whether a search engine, social network, or mobile application, AI-powered, now digital self-service is ready to handle all interactions either proactive or responsive to all customer needs.

A few weeks ago, we further enhanced our digital offering with the introduction of CXone Expert following the acquisition of MindTouch. This expands the capabilities of our platform by embedding knowledge into the digital journey. This is another step in extending the breadth and depth of CXone by natively integrating best-of-breed capabilities.

Our extensive investment in the past few years in AI led to the introduction of Enlighten. It is the AI brain in the core CXone that is embedded across our entire platform, greatly enhancing every single solution on the platform. We have seen great success with Enlighten among large enterprises in telecom, healthcare, hospitality and other sectors. With these assets in place, we also have a go-to-market that is unparalleled in delivering CXone to all market segments; small, mid, and large enterprises, as well as international.

International expansion has been a key strategic initiative for CXone and we are seeing great results. In Q1, international bookings grew three times compared to the same quarter last year as we are seeing great momentum in our international partner expansion program. For small and mid-sized enterprises, we are also working with dozens of channel partners in a rapidly expanding partner ecosystem that includes carriers, affiliate partners, collaboration vendors, CRM providers, valuable sellers and system integrators. We continue to see strong growth in bookings with our partners and we witnessed 38% growth in new logos in Q1 with many of those coming through the channel.

We also have a large ecosystem of DEVone partners that are building solutions for our fast-growing CXexchange marketplace. There are over 150 solutions in the marketplace, and over 400 APIs to extend CXone for CRM, Web, mobile apps, AI and automation, among many other categories.

Our route to large enterprises has been our domain expertise for many years. This domain expertise, together with a large global enterprise sales organization, are reasons why we are clearly differentiated from our competitors in this segment of the market, and why we continue to see growing momentum here. Q1 exhibited further evidence of this. In Q1, we signed many seven-digit ACV CXone deals with new customers. New customer deals included a large hospitality chain where we replaced incumbent on-premise legacy provider. We won this deal following the all-in-one aspect of CXone platform and the ability to easily add digital channels and analytics down the road.

We signed a seven-digit ACV deal with a large federal government agency, which required a scalable model for the cloud and FedRAMP authorization. There was a seven-digit deal with a leading dental insurance company as they will be replacing their on-premise legacy systems from the incumbent. They will be moving forward with more automation, cutting-edge workforce engagement, and digitally transforming their business with NICE. We also signed a very large ACV deal with a well-known online publishing company.

In addition to new customers, we signed many large expansion deals, which demonstrate the power of our platform, as these customers continue to expand their relationship with NICE by adding on solutions easily and seamlessly over time. Large expansion deals included a seven-digit ACV deal with a leading business process outsourcer and a large healthcare company where we expanded and replaced the incumbents. This healthcare company expanded with CXone to further advance their cloud transformation project in contact center.

Other seven-digit expansion deals included one with a major airlines for a portfolio of our solutions, including analytics as they are preparing themselves for a major post-pandemic business resurgence. We also signed a seven-digit expansion deal with a major social media company which will deploy several solutions from our workforce engagement portfolio, as well as analytics.

We're also seeing tremendous momentum for CXone internationally with some very large international deals that were signed in the quarter. There was a seven-digit ACV deal with a very large Latin American telecom group, which is a new customer. We won this deal due to the flexibility, agility and extensibility of our cloud platform and replaced the incumbent who could only offer a hosted version of the on-premise product.

There was a seven digit deal with a pre-eminent telecom company in the APAC region. Also in APAC, we signed a seven-digit deal with a major telecom company for a portfolio of our solutions. In the U.K., we signed seven-digit deals with a government agency for RPA and a telecom company for analytics.

In Financial Crime and Compliance, we continue to sign large deals, including seven-digit deal with a very large bank for compliance; a major brokerage firm for fraud and robotics automation, an international bank for a portfolio of our fraud and AML solutions, among many others. We also continue to witness increasing success in the mid-tier financial institutions with our exchange platform.

In summary, after a strong start to the year, with the best assets in place and unmatched go-to-market and partner ecosystem, a record pipeline and robust bookings and mostly untapped $25 billion of fast growing TAM, we believe we are in the best competitive position to capture many opportunities in 2021 and beyond.

I would like to take this opportunity and invite all of you to our Annual Investor Day in conjunction with our Interactions user conference. Interactions live is the CX industry's largest virtual event with over 25,000 customers and partners in attendance and a great lineup of key note speakers.

I will now turn the call over to Beth.

Beth Gaspich -- Chief Financial Officer

Thank you, Barak, and good day, everyone. I'm pleased to provide the analysis of our financial results and business performance for the first quarter of 2021 and provide our outlook for the second quarter and full year. Total revenue for the first quarter accelerated to 11%, reaching a record of $457 million compared to $411 million in the same period of last year. For the first time, total revenue in Q1 exceeded total revenue in Q4, demonstrating our shift to a predominantly cloud company with about 80% recurring revenue. Total revenue growth was again driven by our impressive cloud revenue, which grew 33% year-over-year. As expected, due to our ongoing transition to the cloud, that is growing rapidly, we expect to have a long-term trend of overall higher revenue growth.

Cloud revenue represented 50% of our total revenue in the quarter compared to 42% last year, and recurring revenue stood at 78% of total revenue in the quarter compared to 75% last year. Our cloud revenue is primarily being driven by CXone in all segments of the market. While we are clearly differentiated and continue to achieve great success in large enterprises, we are also seeing tremendous achievement, both internationally and in the mid market as well.

In the quarter 50% of our revenue was generated from cloud and the other half of our revenue was comprised of our product and services, which accounted for 15% and 35% of total revenue, respectively.

Moving to our business unit breakdown. Customer Engagement revenues, which represented 81% of our total revenue in Q1, totaled $369 million for the first quarter, a 13% increase compared to the same quarter last year. In our other business unit, Financial Crime and Compliance, revenues were $88 million for the first quarter, which was an increase of 6% from Q1 last year and represented 19% of our total revenue.

Breaking down total revenue by geographic region, we saw double-digit growth in the Americas and EMEA regions. Americas, which represented 82% of our revenue in Q1, totaled $374 million and grew 11%, while EMEA revenues represented 12% of total revenue and grew 16% to $56 million. APAC revenues, which represented 6% of our total revenue in Q1, totaled $27 million and grew 6% compared to Q1 last year. Part of our growth strategy is to expand our cloud reach internationally. This ongoing expansion of CXone across multiple region is one of the key growth drivers for our continued cloud growth.

Our gross profit grew 14% to a quarterly record of $332 million in the first quarter compared to $292 million for the first quarter of 2020. The gross margin increased to 72.7% compared to 70.9% in Q1 last year. The increase in gross margin is mainly attributed to the growth from CXone. In the first quarter, cloud gross margin was 67.6%, an increase of about 470 basis points, which was largely the result of increased scale in our cloud business. As our cloud business continues to grow, we expect further expansion in our cloud gross margin.

In Q1, operating income increased to $129 million compared to $111 million in Q1 2020, and operating margin was 28.2% compared to 26.9% last year due to an increase in revenue, coupled with stable operating cost ratios.

Earnings per share for the first quarter totaled $1.54, an increase of 15% compared to Q1 last year, resulting from the improvement in gross and operating margins. We experienced another strong quarter in operating cash flow, which totaled $164 million in Q1, an increase of 6% compared to last year.

Total cash and investments at the end of March 2021 totaled $1,561 million. Net of debt of $685 million, our net cash totaled $876 million. Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on opportunities consistent with our growth strategy and capital allocation plans.

I will conclude my remarks with guidance. For the second quarter of 2021, we expect total revenue to be in the range of $445 million to $455 million. We expect the second quarter 2021 fully diluted earnings per share to be in a range of $1.45 to $1.55. For the full year 2021, we are increasing the range of our guidance for total revenue to be in the range of $1,800 million to $1,820 million. We are also increasing the range of our guidance for the full year 2021 fully diluted earnings per share to be in a range of $6.19 to $6.39.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Samad Samana with Jefferies. Please proceed with your question.

Samad Samana -- Jefferies -- Analyst

Hi, good morning and thanks for taking my questions. Maybe, Barak, one for you in terms of the pipeline for CXone deals. It's great to hear what the company did in the quarter, but just maybe help us understand what demand looks like as we lap this time last year where there was a surge in interest and just maybe what the deal pipeline looks for CXone for the next quarter and for the rest of the year?

Barak Eilam -- Chief Executive Officer

Hi, Samad, thank you for the question. So yes, we see, as you saw in the earlier remarks, a great momentum in CXone and I highlighted that we see it both with new customer, with great growth in new logos versus the last year of 38% in the quarter, as well as expansion and specifically I highlighted two other thing which was tremendous growth that we see in the international market, so we are expanding and leveraging on the presence that we have over there. And of course, digital.

The pipeline, as I mentioned as well, beyond the booking that was record high in Q1, looks very, very good in all of those segments, both in new logos expansion and internationally. So we are -- we feel pretty positive about the market dynamics. We see it from a segment perspective, in all segment of the market and we see the enterprise market continue to be very strong as more and more large enterprises are realizing, post the pandemic, as a new result of what they had experienced last year, they need to further accelerate and bring forward their plans of shifting to the cloud, as well as digitally transform. So that's what we see.

On top of that, as I've mentioned, the expansion are not just adding more capacity, we are starting to see the power of CXone with the breadth of solutions that are natively integrated and fully owned by us or customer easily adding those solutions and it adds up to our, both, bookings and billings.

Samad Samana -- Jefferies -- Analyst

Great. And, Beth, maybe one for you. I don't want to steal the thunder from the company's upcoming analyst briefing and maybe I'll address it there, but just adding cloud revenue is on top of everybody's mind and it was another strong performance this quarter. But I appreciate product revenue can be volatile, but how should we think about maybe cloud revenue guidance embedded in that 2Q outlook and for the rest of the year as far as cloud revenue growth rates?

Beth Gaspich -- Chief Financial Officer

So as we look on guidance for the rest of the year, starting with Q2, we expect our cloud growth to continue to be strong and looking forward for the rest of the year as well. From a longer-term perspective, looking out really over the next three years, we expect our cloud growth to be at 25% or greater, and looking at the given year in 2021 on a full year basis, we expect that our cloud growth will be even greater than that and that's kind of -- it reflected in the full-year guidance.

Samad Samana -- Jefferies -- Analyst

Great, thanks for that additional clarity. I really appreciate it. And then just maybe one housekeeping question. On the services revenue, I know, normally, it goes down sequentially from 4Q to 1Q, but just anything worth noting there? Was that more due to a shift to the cloud in this quarter? Or just maybe help us understand that ongoing seasonal trend.

Beth Gaspich -- Chief Financial Officer

Yeah, it's a good question. And, of course, it really is reflective of the ongoing shift that we are seeing to the cloud. We had 33% growth in the cloud in Q1. And as expected, that over time, we expect that the cloud business and the concentration of cloud revenue is going to continue to increase. And on the other side of that, of course, the largest portion of our service revenue is maintenance and in practice what we see is that as our customers are converting from being on-premise customers and shifting over to the cloud, and most of that's coming from CXone, we generally see a very nice uplift anywhere from 2 to 3 times on an apples-to-apples basis, but that uplift, we have seen, in practice, can be all the way up to 9 or 10 times as, generally, what you see is that those customers will actually adopt multiple solutions of CXone platform at the time that they migrate.

Samad Samana -- Jefferies -- Analyst

Great, thanks for my questions and look forward to connecting soon at Interactions.

Barak Eilam -- Chief Executive Officer

Thank you, Samad.

Operator

Thank you. Our next question is from Sanjit Singh with Morgan Stanley. Please proceed with your question.

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you for taking the questions and my congrats on a really strong Q1. I wanted to go back to sort of this time last year and some of the initiatives around CXone@home and whether you still think that's a source of potential new lead, whether it's the mid-market or the enterprise. How has that conversion on CXone@home trended going in into 2021.

Barak Eilam -- Chief Executive Officer

So last year, with the outbreak of the pandemic back in March, we immediately launched CXone@home. It has two aspects of it. First of all, we wanted to support customers or prospects of means that did not have the ability to move home, but also a way for them to get a taste of the cloud and kind of make this potential [Indecipherable] appeal though it wasn't there and it resulted with, of course, a lot of momentum. I think two things happened as a result. First of all, we realized, as a result of that, that we can get customers on-boarded in a much faster pace. When we started with CXone@home, all of a sudden, customers shifted to CXone in a matter of 24 to 48 hours at scale, which was really phenomenal. And we continue and doing that as we speak. But I believe both this campaign and generally now seeing the market is, as I said before, it's accelerating the overall move in the market into the cloud, and we see enterprises are getting ready to do that in the next few years versus much further down the road, and we are happy to see that and I think it will accelerate the progress of the TAM.

Needless to say, there are many other positive dynamics that we see in our business, not all of them related directly to those initiatives or to the pandemic. And these are, as I said, both digital transformation and a lot of injections of AI. And I think that our strategy that we put together several years back and both through internal innovation and all of the acquisition we have done, including the recent one with MindTouch, allowing us to be the only one in the market out there that can offer customers a full breadth of solutions in one native cloud platform, even if they don't need all of that in day one. Customers are very receptive to the notion that it's a future proof solution and they don't need to continue and be kind of the system integrator of the industry or buying from a cloud vendor that are practically -- are acting almost as resellers instead of a platform.

Sanjit Singh -- Morgan Stanley -- Analyst

That makes perfect sense. And thank you for that, Barak. The one thing I wanted to follow up on was your comment on international bookings growing 3 times year-over-year. I just wanted to see and get a sense of how that's expressing itself. I noticed that the product revenue growth grew year-over-year for the first time. So when you think about those bookings, how is that coming through in terms of cloud versus on-prem and just broader CXone traction internationally?

Barak Eilam -- Chief Executive Officer

So, thanks. My comment on the international, obviously, product was much healthier this quarter but this particular comment on the 3 times was actually about CXone and cloud. So this is where we see the nice increase. It's part of -- it's a result of both those markets, but also our plan about two years ago to invest both in the technology and the availability, but also, of course, in the go-to-market and further expand our investments, both internally and expanding our partner network in many of those international markets. And we're starting to see. So we're starting to seeing it in the booking, we believe it will become more pronounced in revenue as soon those bookings convert into revenue in the cloud. I think you're seeing already, this quarter, some healthy growth rates in some of our international markets and we expect that to continue.

Sanjit Singh -- Morgan Stanley -- Analyst

Excellent. Thank you. Congrats.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Tim Horan with Oppenheimer. Please proceed with your questions.

Timothy Horan -- Oppenheimer -- Analyst

Thanks, guys. Can you talk about what else you need to do to expand international? Is it product development, go-to-market? And maybe just where are you in that whole process? What stage you're in? Thank you.

Barak Eilam -- Chief Executive Officer

Thanks for that. So we already have a very solid playbook and today we're much more confident in that playbook after seeing these results internationally. We have put ourselves at least two years ago on kind of prioritizing international markets. They're all relevant, but obviously they are different in size and different in their maturity. From a technology perspective, because we are a native cloud solution, the trends over public cloud and a positive environment, it's very easy for us to open or to make availability of the platform in any country or continent out there. And today we have this availability in dozens of different countries. So from a technological perspective, we're there. Also since we have built the CXone from the ground up several years back, the ability to localize it both in terms of language, in terms of also specific feature that are needed for specific regulations in different countries is also pretty easy for us.

Thirdly, the relationship with local telcos in order to have availability of both voice and some digital services, we have a very clear playbook for that and it's a very easy thing to do. So most of the effort right now is on the go-to-market front and there are two aspects to go-to-market. Since NICE historically have very strong presence in some territories, we have leadership in place, we have sales people in place, pre-sale, delivery people, and we have offices in many of those countries, it's mainly of expansion and reopening or anything like that. So that's one investment that we continue to do.

And the second investment is to continue to expand the partner ecosystem. I think there is now -- we're seeing a great realization of partners that were kind of sitting on the fence when it comes to cloud in certain international markets, and finally took a decision that this is not an option, but it's mandatory for them to shift into the cloud. It's something we saw domestically probably five or six years ago. Now, we're seeing it in international markets and we're very happy to be among the first doing it in international markets and win the heart and the minds of many of those partners. And we saw it very nicely and we continue to sign up a lot of those partners on a monthly and quarterly basis.

Timothy Horan -- Oppenheimer -- Analyst

Thank you.

Operator

Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your question.

Tyler Radke -- Citi -- Analyst

Hey, thanks for taking my question. First question, just wanted to double back a little bit on the strength that you saw on product revenue this quarter. Just trying to understand if that kind of exceeded your internal expectations, kind of, what was the drivers of that and if you're seeing anything unusual in the pipeline where we could maybe see more product strength throughout the rest of the year.

Barak Eilam -- Chief Executive Officer

Yeah. So product is, of course, less of a -- not a recurring business. So we are seeing it might fluctuate from one quarter to the second. Needless to say that our strategy that we go cloud first and most of our new customers, if not all of them, are going with cloud and many of our existing customers are expanding or converting to the cloud. But we have a very large customer base in certain markets, They still prefer to continue to buy products in an on-premise fashion till they'll convert to the cloud. Sometime it's part of the conversation we have with them and building the roadmap with them. So it's the least predictable part of our business, as you can imagine. But actually the pipeline is pretty healthy for product as well. But again, the main focus of ours is the cloud -- in the cloud revenue and we'll continue to cater, of course, to the product element and we expect it continue to fluctuate from one quarter to another.

Tyler Radke -- Citi -- Analyst

Thanks, that's helpful. So my follow-up, I know you talked about a large, I believe, of a hotel chain or hospitality group kind of modernizing on CXone this quarter. I'm curious as you look at the pipeline and you think about maybe industries that were the most impacted last year, do you think -- as things reopen, are you starting to see signs that those impacted industries to be tailwinds to the pipeline going forward? Just kind of curious what you've observed thus far in some of the harder hit industries from a COVID perspective.

Barak Eilam -- Chief Executive Officer

Yeah. So when it comes to -- I think what we have learned in our past and it's indicative, I believe, also for the future, that customer service is mission-critical for companies, regardless of the situation of their business. They still have customers, they want to stay in touch with those customers. Customer is the most important asset. So I would say that even at the peak of the pandemic, last year, March, April, May, if you think about this particular segment you've mentioned of travel and tourism, all the way through the summer, they still have, although many hotels were closed and airlines had 10% volume versus usual in terms of flights etc., they still have a ton of need to provide customer service. People calling or people interacting with them about cancellation, questions, inquiries, my frequent flyer status or my frequent hotel status and things like that.

What we have seen specifically in travel and tourism and some other industries is that they are already seeing right now, and maybe it's indicative to what we're going to see in the future in the industry and they are seeing already, a lot of volume of people preparing for the summer months and even for the holidays of this year and they are experiencing a lot of positive booking on their business and they are preparing themselves. So they need more capacity and they've learned through the pandemic that there is a better way to do it. So they are taking advantage of this -- of the experience to both shift to the cloud, as well as -- or starting to offer certain digital services.

And lastly, in many of those cases, their employees are either still working from home or they are planning to do it in a hybrid model. And for that they're realizing that they need further advanced capabilities coming from our workforce engagement area.

Tyler Radke -- Citi -- Analyst

Thank you.

Operator

Thank you. Our final question comes from Tavy Rosner with Barclays. Please proceed with your question.

Tavy Rosner -- Barclays -- Analyst

Yeah, thanks for taking the question. At first, I wanted to get a sense when we look at the cloud growth, how much of that was growth from new customers, that new logo versus converting some of your, I would say, legacy customers?

Barak Eilam -- Chief Executive Officer

Yeah, so you characterized it correctly that as a company, and I think I've mentioned it in my opening remarks, our cloud transformation as a company is quite unique. We believe in a positive way, that it's not just a reclass of revenue and shifting it from the product to cloud. You're are not going to end up this transition just reclassing our customer base, shifting it from the product to the cloud. We have great opportunity that we're seeing it happening that we have two sources of growth to our cloud business. First is, what you have mentioned and this is converting our existing workforce engagement and other customers who sits on our on-prem business and converting into the cloud. But the second thing is the result of our strategy five years ago to step into the adjacent market to CCaaS, digital and self-service, these are solutions in a market we just did not have presence in, and we were not operating in these segments as an on-premise company. So this is a brand new revenue for us.

Today, the majority of that business of the cloud revenue come from the second part, which is brand new CCaaS opportunities. We believe that the conversion of WEM into cloud will accelerate at a certain point. It is somewhat also attached to the CCaaS offering and, as Beth mentioned before, when we see such a conversion, it's not one- to-one, it's actually giving us an uplift in a customer that used to be an on-prem customer of ours. We can easily see two times or more revenue from that customer as they shift to the cloud.

Tavy Rosner -- Barclays -- Analyst

Thanks for that, much appreciated.

Operator

Thank you, ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Barak Eilam for closing remarks.

Barak Eilam -- Chief Executive Officer

Thank you all for joining us. We really look forward to see you in a couple of weeks at our Interactions Live event, with a great agenda and great interactions we'll have together. Thank you and have a great day.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Marty Cohen -- Vice President, Investor Relations

Barak Eilam -- Chief Executive Officer

Beth Gaspich -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Timothy Horan -- Oppenheimer -- Analyst

Tyler Radke -- Citi -- Analyst

Tavy Rosner -- Barclays -- Analyst

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