NICE Ltd (NICE) Q2 2021 Earnings Call Transcript

Image source: The Motley Fool.

NICE Ltd (NICE -1.61%)
Q2 2021 Earnings Call
Aug 5, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the NICE Conference Call Discussing Second Quarter 2021 Results, and thank you for holding. [Operator Instructions] As a reminder, this conference is being recorded, August 5, 2021.

I would now like to turn the conference over to Mr. Marty Cohen, VP Investor Relations at NICE. Please go ahead.

Marty Cohen -- Vice President of Investor Relations

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. 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 three 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 second quarter 2021 results and the company's guidance for the third 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 revenue and expenses, amortization of intangible assets and accounting for stock-based compensation. The difference between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

I'll now turn the call over to Barak.

Barak Eilam -- Chief Executive Officer

Thank you, Marty, and welcome, everyone. We are pleased to announce an excellent quarter marked by an acceleration in all our key financial metrics. Cloud revenue continues to flourish with 32% growth, while total revenue continued to accelerate well into the teens increasing 60% year-over-year. During this acceleration, driving this acceleration is our story in consistent execution in cloud during the past five years. Unlike traditional cloud transitions that are focused on simply switching customers from license to subscription model, our overall revenue growth is accelerating due to a combination of [Technical Issues] to our cloud business.

First, net new cloud business in CCaaS, digital and self-service, solutions that we did not previously offer in the on-premise model. And second, cloud conversions of our existing on-premise products resulting in higher annual revenue per customer. As our cloud revenue continues to experience rapid growth and is becoming a larger share of our total revenue, we expect that the acceleration in the growth of our total revenue will continue over the next few years. While the cloudification of our market continues to speed up, we are experiencing another major opportunity in the CX market as it expand to full digital CX. And just like five years ago, in cloud, NICE is well-positioned to take on and grow its leadership position with yet another great market opportunity in digital.

Back in 2016, we made a major strategic transformation at NICE by making an aggressive move to the cloud with the acquisition of inContact. It was a strategy to capitalize on a rapidly changing market, a market in which enterprises of all sizes were beginning to shift to the cloud. Customer service organizations were exploring the cloud for its agility, pace of implementation, elasticity, scalability and overall lower total cost of ownership. At the same time, they expected a customer service solution with a full set of capabilities and applications combined into a single cloud-native suite. With the acquisition of inContact, we embarked on a massive investment to deliver what organizations of all sizes needed and that resulted in CXone, the market-leading native CX cloud platform.

Since then, NICE became the clear leader of this fast-evolving market. Our leadership is achieved for four contributing unique ingredients. The first is our assets, particularly omni-channel routing, workforce engagement management, high-value analytics, AI, digital and self-service, all native to seamlessly integrated into CXone. The second is our unimpeded focus on the CX market. The third is our distinct competitive advantage in large enterprises due to the breadth and depth of our platform, our domain expertise at the high end of the market and our global footprint.

And the fourth is our relentless innovation demonstrated by the hundreds of added features and functionalities in CXone every year, our cutting-edge AI which enlighten and unique enhancements that evolved CXone into a full enabled digital platform. All four of these ingredients are critical factors in delineating our market leadership. In cloud, we identified a rapidly growing market, set a clear strategy and executed well. As a result, we are now a $1 billion revenue run rate company, Cloud Company. Cloud revenue continues to exhibit rapid growth and it now represents more than 50% of our total revenue compared to less than 5% prior to the launch of CXone. And today, digital is similar to what cloud was for us five years ago. And like cloud, the opportunity in digital is enormous.

The expansion of customer service interaction into full digital is in full swing with the growing part of consumer journey taking place at digital touch points. There is a clear realization that gen one CX solutions which have a disjointed interaction management approach and cannot cover and maintain context through the entire customer journey, while preventing organizations from participating in the most critical part of the consumer's experiences that are taking place in digital. This realization creates a major disruption in increasing demand for unified next-gen CX platforms that can manage all interactions across every consumer touch points from digital to voice for any service needs in both a responsive and proactive manner.

With the investments we made in digital CX both organically and through acquisitions over the past 18 months, we have evolved CXone into a complete platform with a unique set of solutions that can now cover all consumer's touch points. The CXone now allows organizations to move from managing interactions just in the contact center to owning the entire customer journey. This was achieved with the recent launch of CXone small touch and CXone Expert that expanded CXone into a full proactive engagement platform using advanced conversational AI driven by state of the art knowledge management in more than 35 digital channels.

Moreover, what also makes our platform rise well above other solutions in the market and the glue that makes our platform unique is the massive amount of CX data we have processed over the past few decades. These data coupled with AI machine learning is crucial to enable smart conversation and self-service among all the digital channels. This large volume of data, our domain expertise and CXone is the best seamless integrated digital platform in the market today embody a powerful combination of assets. With these assets, we now have a major opportunity in front of us as we put our digital CX platform in the hands of organizations worldwide and take the clear market lead in digital and self-service.

Now, to switch gears, and tell to our quarterly results in which we reported a very strong metrics across the board. Digital transformation, strong growth in the large enterprise market, analytics and AI and international are the key business pillars that are driving our success. First, the number of deals that included digital increased 41% in Q2. CXone digital deal included seven digital ACV deals with a very large financial services company, a well-known European based home improvement retailer and one of the largest digital broadband providers in the UK. They also included a large healthcare company, a well-known clothing retailer.

A state government agency, and a cloud-based agile software company among many others. Many of these digital deals are being signed by large enterprises and almost all are competitive replacements of the incumbent legacy gen one providers that cannot meet the digital demand of today's consumers. And that brings me to our success in the large enterprise market in Q2 where we saw an increase of 60% in seven-digit deals. Moreover, we are witnessing an increasing quarterly trend where multiple CXone applications are being sold in each deal.

This is a testament to the seamless integration and the breadth and depth of our CXone systems as well as our strength and leadership in the large enterprise market. This competitive differentiation enables us to gather more revenue per seat and more total overall seats. A few examples of large enterprises deal included seven-digit ACV CXone deal with one of the world's largest hotel chains, a digital payments company, and a large well-known health insurance company. We also included the large broadband provider, a business outsourcer, and an online marketplace for health insurance.

Analytics and AI are key areas of strength at NICE as they are injected into almost everything we do. In Q2, for example, we signed multiple seven-digit deals to enlighten our market-leading AI solution. The deals including a leading lodging online market-based company and a provider of vehicle life cycle management software. Analytics and AI are also driving accelerated growth in our financial crime and compliance business including three very large eight-digit deals. One deal with a very large insurance provider and two deals with very large financial institutions.

Another key area I mentioned is international. We have continued to expand our global go-to-market through our partner ecosystem, as well as going to a local presence. And we're seeing the positive impact in our results as international bookings doubled in the quarter. In addition, the number of deals outside of the U.S. continued to rapidly go in number and size. For example, international deal included a seven-digit deal with an Australian energy company and a seven-digit deal with a very large Japanese telecom company. We signed seven-digit deals with a large European Bank, a large U.K.-based insurance broker and one of the largest banks in Germany. In summary, Q2 was a very strong quarter on all fronts. We are now beginning to witness the impact of cloud revenue representing more than half of our business which is driving the acceleration of our total revenue growth.

Our strong financial performance reflects the increasing leadership GAAP between NICE and our competitors. This widening gap is being driven by a solid execution in cloud and digital strengths at the high end of the market where we believe we are unmatched in our offering and domain expertise. And CXone, the most complete customer experience platform in the market today. We are excited for the continuing opportunities ahead of us. With only 10% of the market that has converted to cloud and digital, and self-service barely in the first innings of its transformation. As the clear leader in our industry, we believe we are by we believe we are by far in the best competitive position to capitalize on the opportunities ahead. Thank you.

And I will now turn the call over to Beth.

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 second quarter of 2021 and provide our outlook for the third quarter and full year. Our second quarter financial results were excellent with 16% year-over-year growth on the top-line, a 32% increase in cloud revenue and further improvement in the cloud gross margin which is a testament to the scalability and efficiency of our cloud business. Total revenue for the second quarter reached a record of $459 million compared to $395 million in the same period of last year.

Total revenue growth was again driven by impressive cloud revenue in which its relative share of our overall revenue continues to increase and stood at 54% of total revenue in Q2 Product revenue represented 10% of total revenue and services revenue represented the remaining 36% of total revenue. We exited the quarter with an annual cloud revenue run rate of more than $1 billion. Our cloud business is expected to continue to thrive as we further penetrate the market, continue to add new logos and convert existing on-premise customers to the cloud in which the conversion typically results in a significant uplift in annual contract value.

Our recurring revenue increased to 82% of total revenue in the quarter compared to 80% last year. Our cloud revenue is primarily being driven by CXone in all segments of the market with market momentum shifting to digital and self-service. Our new solutions, CXone Expert and CXone SmartReach, were both significant in winning some of the key large enterprise digital deals in the quarter. The Americas region today is still our primary market, which represented 80% of total revenue in Q2 and which grew 15% year-over-year. We are continuing to see more growth in the international market as we are driving further traction with our international partners. We reported very strong growth in EMEA, which represented 14% of our total revenue and grew 43% year-over-year. APAC represented 6% of our total revenue in Q2.

Moving to our business unit breakdown. Customer engagement revenues which represented 83% of our total revenue in Q2, totaled $381 million for the second quarter, an 18% increase compared to the same quarter last year. In financial crime and compliance, revenues were $78 million for the second quarter, which was an increase of 9% from Q2 last year and represented 17% of our total revenue. Our gross profit year-over-year growth accelerated to a record 18%, totaling $332 million in the second quarter compared to $281 million for the second quarter of 2020. For the first time, cloud gross profit represented over 50% of our total gross profit.

Gross margin increased to 72.2% compared to 71% in Q2 last year. The increase in gross margin was mainly attributed to an increase of 200 basis points in the cloud gross margin, which reached a record 67.7% in Q2.Operating income increased by 16% year-over-year to $130 million compared to $111 in Q2 2020. And operating margin was 28.2% like last year. Earnings per share for the second quarter totaled $1.57, and increase of 15% compared to Q2 last year. We experienced another strong quarter in operating cash flow which totaled $84 million in Q2, an increase of 37% compared to last year. Total cash and investments at the end of June 30, 2021 totaled $1,408,000. Net of debt of $613 million, our net cash totaled $795 million. Our strong cash flow generation and healthy balance sheet continue to provide us with the flexibility to capitalize on strategic acquisitions that are consistent with our digital growth strategy and capital allocation plans.

I will conclude my remarks with guidance. For the third quarter of 2021. We expect total revenue to be in the range of $460 million to $470 million. We expect the third quarter 2021 fully diluted earnings per share to be in a range of $1.51 to $1.61. For the full year 2021 we are increasing the range of our guidance for total revenue to be in the range of $1.835 billion to $1.855 billion. 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 $6.26 to $6.46.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Samad Samana from Jefferies. Please go ahead.

Samad Samana -- Jefferies -- Analyst

Good morning and thanks for taking my questions. It's great to see the cloud results. Barak, maybe we'll kick it off the top and it feels like you've talked a lot more about digital and your efforts there this quarter. And I'm curious-if you think about the up-market success that you're seeing? How do you feel about digital as far as expanding maybe the average deal size as you attach that more and more frequently? And is that making larger enterprises accelerate their shift to the cloud?

Barak Eilam -- Chief Executive Officer

Yes, thanks for the question. So as I said in my earlier remarks, this shift or expansion actually that we see to digital is both what we view from our customers, as well as what we put as our strategy a couple of years ago. And we've been executing in the last few quarters both organically and through acquisition. First, I would say that we believe that the leadership in CCaaS. If you remember, when we stepped into CCaaS, we have converged CCaaS, WEM and analytics and became a leader with CXone with that. And today, we believe that the future is by converging that with digital, that's what we hear from our customers, that's what they want to see. In terms of the potential, it's enormous. If you think of CCaaS and the way we think about it, its technology that is supporting and connecting consumers to contact center agents.

The beauty of digital and self-service that if it is done right, it can actually eliminate the need for the agents and a cost of an agent today is about $50,000 a year on average. It can get up to that level. So, in the industry, there are 15 million agents. And by the time -- we'll, when we get to a point that we can start reducing this number by moving into digital and self-service, you can easily calculate the potential of this market. Needless to say that in order to do that, you need a full suite of the offering combining CCaaS and full digital CX and I talked about the notion of organization wanting to see the next generation of digital CX versus the first-gen solutions. So, if you take all of that, what we see is that in those deals that I spoke about, it increases the volunteer for us quite dramatically and definitely at the high end of the market. And we believe that will continue to see the, trend as both the cloudification of our market together with digital CX are starting to accelerate.

Samad Samana -- Jefferies -- Analyst

Great. And then-just maybe as a follow-up, I have to ask there's obviously huge news in the industry with Five9 and Zoom announcing that their planned it to merge together. So I'm just curious on maybe what you think the-what the implications are for NICE and what you see as an opportunity coming out of that potentially or how you think about NICE's positioning in the market as a consequence?

Barak Eilam -- Chief Executive Officer

Yes, so first, I'll say one thing we can-one insight from this particular transaction is that we say what we said all the time that the potential in the customer engagement market is huge. Usually, large players don't step and don't acquire into markets that do not have a big TAM. I think that particular transaction-as well, as others represent the potential of the future TAM, the current and the future TAM of this market. So that's one more proof point to that. The second, if you'd like, lesson learned from that is that anyone that have the desire to organically build and develop into this market, it's too late. It's a highly complicated, feature-rich market that requires a lot of domain expertise. And in order to build and be competitive in this market, the only way for someone to get into this market is to buy into this market.

And there aren't too many players in this market and actually, Five nine were not a leader and the Gartner MQ and them being taken out by a video collaboration or video collaboration player is actually good news for us. The last one, going back to what I said on the call, we believe that in order to win the customer engagement market, the direction and the need from customers is to offer full digital CX offering that includes CCaaS, workforce engagement, analytics and AI digital and self-service. That's what we were building in the last 18 months and this is where we see the success today. In this particular transaction I don't think Zoom is giving a size in any of those assets. I don't see how it solved their problem. So quite frankly we're happy with the upcoming disruption to them and we believe we have a very solid position both with our offering as well as many other partners that we have. And we do great business together.

Samad Samana -- Jefferies -- Analyst

Great, and then maybe just one for you Beth and then I'll turn it over. Just the cloud revenue was really impressive, staying well above 30% even as the comps got tougher. Can you maybe just-I know get total revenue guidance, can you maybe just help us understand in shorter term how we should think about the linearity of cloud revenue growth. I know the company is given longer term guidance, but just I sure thing about the short-term cloud revenue growth trends?

Beth Gaspich -- Chief Financial Officer

Yes, thanks for the question Samad. So, as you've seen we've been consistently delivering a really healthy growth in our cloud business. Looking on the first half of the year gave us confidence obviously on the visibility in line of sight looking forward. We remain really optimistic in a good place so with respect to cloud revenue looking forward. And as you know we don't give specific guidance with respect to our cloud. But I can reiterate what we've shared already in the past which is that if you look over the next few years we're confident that you know we'll see a 25% growth or higher. And in the current year we're comfortable that we'll be in excessive of the 25% growth.

Operator

Our next question comes from Pat Walravens from JMP Securities. Please go ahead.

Pat Walravens -- JMP Securities -- Analyst

Thank you, and congratulations. Hey, Barak, back to this sort of the-how the industry is changing question. I think I have sort of a two-part question. Part one is how important is it to have the call center software riding directly on top of the global communications infrastructure, so that would be the idea I guess, with Five9 and Zoom? And then people say that's also part of the appeal of Talkdesk riding on top of Twilio. So, I'd love to hear your thoughts on that theme and whether that's really important or not and then also your thoughts on Talkdesk competitively?

Barak Eilam -- Chief Executive Officer

So, thanks for the question. Most of our deals are not driven or combined with a unified communication, and for sure not with video collaboration. We haven't seen any traction with that. It's a different buyer between video collaboration and CCaaS. The other thing that we're seeing and I've talked about it a lot in past quarters is that while there is some of that behavior in the lower end of the market.

If you go up market, these are usually decisions that are taken separately. And also, the fact that in the higher-end markets, the needs from customers is much more about the expanding from CCaaS to a full digital CX offering with everything that I've mentioned before. It's a very feature-rich offering, very complicated, if you would like, sales cycle in that regard not because the sales cycle is complicated, because the type of transformation customers are looking for is significant. So, we don't seek too much of that and especially not to the higher end of the market. Specifically about I think, you asked about Talkdesk, right?

Pat Walravens -- JMP Securities -- Analyst

Right.

Barak Eilam -- Chief Executive Officer

We don't see them a lot. I think they are competing more at the lower end of the market. They are a much more smaller player as far as we know. They are a private company so we don't know for sure. But they are-we don't-they are not a leader in our market and it's one more competitor in the market that we see. The electing of course of all of the things we have done both organically into a position and completeness, if you'd like, of the suite.

Operator

Our next question comes from Tavy Rosner from Barclays. Please go ahead.

Tavy Rosner -- Barclays -- Analyst

Thanks for taking my questions. I just want to speak a little bit about the transition to the cloud. So, I guess the first part of the question would be, if you can get a sense of, you know, what proportion of new revenues coming up from existing customer transitioning to the cloud as opposed to new logos?

And I guess as a full on-I'm assuming that Nice sells a proportion kind of your entire customer base and try to convert them from on-prem to CXOne and I guess, do you ever get push-back from customers saying, you know listen, we are happy with our on-prem solution, it's working. No need for CXOne, at least no need in the near future. I'm just curious-sorry, just curious to get your perspective.

Barak Eilam -- Chief Executive Officer

Sure. If you remember at my opening remarks, I talked about what I believe is the quite unique in our cloudification story for the company and we're not just a company that takes it's customer base and converting it to the cloud and basically reclassing the-doing the reclassification of its revenue. Our cloud transformation and you've seen it in the last few years and you continue to see it in a more pronounced way in the last few quarters is derived by two separate dynamics. First of all is us stepping into a market, the CCaaS market and now the full Digital CX market with new cloud solutions with the CXone platform that we did not previously offer in the on-premise. So for us it's a complete upside just new business not converting any existing revenue that we have.

And that tap in to your question, that is the predominant the larger parts and the larger share of both of the revenue as well as the new business. It means that there is still a pretty long runway for us to continue to do that and at the same time to start and accelerating the conversion of the existing customer base that we have that are still on-prem. And by the way, when we do that in most cases we see a major uplift because A, even for like-for-like the annual revenue run rate from such customers will at least double, but if we managed to sell the full CXone suite, which is the case in many situation, the multiple is much more than just doubling.

And to the last part of your question, whether we get a push back from customers. So I will say that today for most customers the question of, you know if they're going to move to the cloud is no longer on the table. It's mainly about the sequence and when and how and we'll find ourself as a leader in the market in many cases, not just as a vendor but as a consultant to our customers and we have a lot of customers at the higher end of the market that see us as a trusted advisor and many of those large customers for a variety of reasons. are doing it in a moderate way.

I think that the last thing I will say that the beauty of that as we are expanding the offering that we have in CXone and a customer can have it all installed in one set of solution or different set of solutions. We see a lot of customers that have some initial concerns as you hinted at the beginning actually starting with some part of CXone. They are starting just with Digital or they will start with just with Analytics and they gain confident and then they expand from that. So we see in the last few quarters, a lot of those beachheads in multiple accounts which we believe, create for us a very strong expansion opportunities in the future.

Operator

Our next question comes from Rishi Jaluria at DA Davidson. Please go ahead.

Rishi Jaluria -- RBC -- Analyst

This is actually Rishi Jaluria from RBC. Thanks for taking my questions. First I wanted to go back to the question on CCaaS and UCaaS that Tavy had brought up. I know you partner with some of the UCaaS vendors out there that white label CXone. So are there, I guess, some evidence of having the same buying center for UCaaS and CCaas, but maybe can you talk a little bit philosophically, do you not see any convergence of this over time as the partnership, the right strategy or what would need to happen in the market for you to consider having your own UCaaS solution? And then I've got a follow-up.

Barak Eilam -- Chief Executive Officer

First of all, we have registered a lot of partnerships in variety parts of our ecosystem. UCaaS is one of them and we have one with RingCentral and few others than we are very, very happy with these partnerships. It gives us great expansion to our go-to-market and it's also allowing us to focusing on being leaders in CCaaS and someone like Ring to be a leader in UCaaS and video collaboration and both companies are doing extremely well and will continue of course to do that. At the same time, we think that the right investments for us is not to go in that direction and definitely not into video collaboration, but rather to do what the customers wants from us and this is to expand CCaaS to the full offering and expanding into Digital.

I spoke about the opportunity before, that's what we've been doing in the last 18 months. I think that players that could not execute in that strategy, had to sell themselves and being taking out from the market and this is the right investments for the long run. That's what our customers need. This is what consumer preferences are in the customer service and customer engagement market. And this is probably the right use for our time both organically and also to the right acquisition strategy for us.

Rishi Jaluria -- RBC -- Analyst

Okay. Great that's helpful. And then I just wanted to maybe drill down on the FCC side of the cloud business, can you talk a little bit about what sort of momentum or traction you're seeing on the cloud side there both with migration's as well as new customers? Thanks.

Barak Eilam -- Chief Executive Officer

Sure. So as you've heard both from myself and Beth earlier, we're very happy with what we are seeing with the Financial Crime and Compliance business. I spoke specifically by the way about the three very large eight-digit deals for this business. One of them is the largest in the history of the Financial Crime and Compliance division or business, so we're very happy with the momentum that we see there. And what we're starting to see in this business that is historically a very on-premise business, we are starting to see a shift to the cloud.

We have yet to see it in the revenue, but we definitely see it in the booking. And it's divided into two parts of the market. One part of the market is the mid-market following the acquisition of Guardian Analytics, we now have the platform called Xceed is 100% cloud. For us, it's a pure upside because we did not have the right product nor the go-to-market to go after the mid-market, and that's exactly what we are doing these days with Xceed. So that's one area of cloud growth for Financial Crime and Compliance. And the rest of the business is just now starting its cloudification process, and we are starting to see that dynamic moving there. It is behind if you would like, versus the customer engagement business, behind meaning in its evolution to the cloud. But I would say it's where customer engagement was four years ago in terms of its cloudification cycle.

But we are starting to see the acceleration and we are ready for that. And more and more customers are asking about it. And it's a great opportunity. And we also see them there in this business it's a great opportunity and we also see them there in this business, the ability to accelerate the business with the similar multiple I talked about in terms of the conversion from on-prem to cloud.

Operator

Our next question comes from Meta Marshall from Morgan Stanley. Please go ahead.

Dave Nwokonko -- Morgan Stanley -- Analyst

This is Dave Nwokonko on for Meta Marshall. So two questions from our end and thank you for the questions. First, as larger customers start down the cloud transformation path, what are you seeing as far as what will be the biggest hurdles to getting them to transition, whether that be security, complexity, scope of how to think about digital transformation? And second, as you-do you think you can maintain 25% cloud growth rate targets without larger customers really making a more meaningful move toward cloud? So in other words, can current channel support that growth? Thank you.

Barak Eilam -- Chief Executive Officer

Sure. So let me-I'll start with the first question the two obviously are connected. So you ask about what is the hurdle of cloud customers to move to shift to the cloud and you also ask about in the context of digital transformation. So my answer to that, I'm being asked this question numerous times in the last few years and it keeps evolving. A few years ago, you're right. It was about concerns about the cloud and the security and latency and ownership and things like that. Those disappeared. And we find ourselves less and less facing customers that don't want to move to the cloud or they have other reasons. And needless to say that in order for those customers to move to the cloud they need to gain trust in all the standard security, privacy and so on and so forth. And we support all of that as the market leader.

But all of them I believe, understand all large enterprises that unless you move to a real cloud solution and native cloud solution, you don't gain the real benefit of the cloud, which is actually not even the economics and other thing. It's about the pace of innovation. And we actually see a wave of large enterprises that thought they have moved to the cloud and they basically went to the legacy provider and the legacy provider sold them a hosted "solution" which is called the cloud solution. And they didn't gain all of those benefits I've talked about including the pace of innovation, etc. And there is a better realization of these large enterprises that the real cloud solution is only cloud solution that is natively built on a public cloud, full feature rich, very fast cycles of innovation, and of course all the different security features and capabilities.

So I think those hurdles are starting to disappear very, very fast. And the biggest hurdle for them today is mainly about managing the transition, justifying the economics in terms of past depreciations and things like that. And we support customers in that move. And that brings me to the second part of your question, how confident can we sustain and can we meet this at least 25% cloud growth in the next few years without the large enterprises. So I would say that large enterprises needless to say, are part of the equation of how we get to that. We see it happening. We don't believe there is a reason for large enterprises all of a sudden to stop a cloud adoption on the contrary, we think that post-COVID, it accelerated the realization of that need. So, we don't have that type of concern.

Operator

Our next question comes from Tim Horan from Oppenheimer. Please go ahead.

Tim Horan -- Oppenheimer -- Analyst

Thanks a lot, guys. There seems to be a lot of terrible products out there for digital interaction at this point. It seems like a lot of companies have the product. But-however, my experience has not been good anyway. Can you talk maybe a little bit about what percentage of the market you think has more of a cloud-based digital interaction? And maybe just a little bit about what you think your flow share is or market share on an incremental basis is in this market. Thanks.

Barak Eilam -- Chief Executive Officer

Yes, it's a good view of the observation team. There is a lot of noise in what is digital, and let me try and help to create some clarity over here. So, if you think about the enterprise market, all enterprises or most enterprises already have some capability or a technology, or a solution to serve customers and consumers through digital channels. Whether that will be an email, or chat, or synchronize channels and so on and so forth. But needless to say, we are all consumers. We are not very happy with the experience. I keep saying the type of experience we should get from our providers is the same as we have as we communicate with our friends and family. And from all the reasons, we don't get it today.

The reason for that is that those joint gen one type of digital solutions that were adopted actually many years ago and still being adopted here and there is the Dell solution, they look at each channel differently. They don't have the breadth and depth and connectivity among the different channels. They don't connect well to the contact center. And while they might have some functionality of both, it's a very point solution that is address this thing in a very narrow way. What we have done after understanding the need from our customers in the last 18, 24 months, we have expanded CXone by making several technological acquisitions, as well as massive investment in R&D in that area to have the full capabilities on the one native platform, which is a CXone, which allows you to do exactly that to get the same experience you get with your friends and family with your service providers.

And the secret sauce, if you would like over here is not just the capabilities, it's also the data. We have two decades of CX data that we mastered as well as the domain expertise. And this data is actually feeding the self-service, which is kind of the basics of digital. And that's what makes self-service works. There is an enormous amount of data that we have that enable us to train the self-service and to make digital work. That's a big difference. And this is what we see today where we interact with customers with large enterprises when we approach the start we have built, they actually understand, this is exactly what they were looking for, what they are missing in the legacy of the Gen One solutions. And an evidence for that is, as we said, 41% of the deals in Q1 had all or some of our digital capabilities.

Tim Horan -- Oppenheimer -- Analyst

So, it's an pretty incredible accomplishment, these products that you've kind of created. Do you think anyone is close to the features and functionality that you have at this point?

Barak Eilam -- Chief Executive Officer

It's a highly fragmented market. And I'm separating here on purpose between capabilities and the data and domain expertise. You might find players there that might have the capabilities, but do not have either the distribution capability or the connectivity to something like CXone or they don't have the data which as I've mentioned it's something that we have. Thanks to being actually three decades in the customer engagement business. And it's a very significant differentiation that we believe that will serve as well as we can continue to progress into digital CX.

Operator

[Operator Instructions] Our next question is from Daniel Bartus from Bank of America. Please go ahead.

Daniel Bartus -- Bank of America -- Analyst

Thanks for taking the questions. I wanted to ask first about the financial crime and compliance business just at a high level. What is the benefit of having this along with the customer engagement business? And should you begin to separate these more or are they already pretty separated?

Barak Eilam -- Chief Executive Officer

So we have these two businesses in the company. We're very, very familiar as an executive team with both businesses. And one of the greatest benefits we have mentioned, two among others, is that if you think about what I describe in the last three years and the evolution and the journey and how we transformed the customer engagement business, it's actually very similar to what we're doing, what we have done and what we are going to do in the financial crime and compliance business, it's the cloudification.

This business has a ton of opportunity given digital banking and the digital disruption in financial services, and the whole notion of AI analytics. So, we are sharing a lot of the platform which allows us to accelerate quite nicely. Actually, the fundamental of CXone are helping us a lot with X-Sight and that's one great thing. The second thing is that while the customer engagement business is not just for financial services.

We are very strong in the financial services vertical within customer engagement. And with many of the large banks, they enjoy very much to have one vendor provide both in terms of relationships and the brand. And lastly, there are multiple use cases where information in the contact center is being used in our platform to improve the detection of a fraud and providing some unique capabilities that many other fraud or anti-fraud, provider do not have.

Daniel Bartus -- Bank of America -- Analyst

Okay, great. Thanks for entertaining that, Barak. And then, maybe just a quick clarification for Beth, I think the guidance for the full year implies 11.5% growth this year. And I keep hearing the language of you guys expect to accelerate that going forward. So, is it right to assume 12% or more growth for 2022 and 2023, or am I-am I reading into this a little too much? Thanks.

Beth Gaspich -- Chief Financial Officer

Yes, thank you for the question. So, you're correct that we've just recently revised and increased our full-year guidance with 11% growth expected at the midpoint of our guidance for 2021. And of course, given the health that we've seen in our cloud business this year and in prior years as well as well as really the increasing kind of predictability and visibility we have on a go-forward basis.

That combined with the mix that we're seeing changing to become more and more cloud centric with cloud actually reaching a high this quarter of 54% of our total revenue. We expect to see those trends continue. And so in short that means yes. As we look on the annual growth of our total revenue we do expect that to be something we see annually in the future as well that that top line growth for total revenue will continue to accelerate.

Operator

Our next question comes from Tyler Radke from Citi. Please go ahead.

Tyler Radke -- Citi -- Analyst

I wanted to start with just a higher level question just as you think about kind of the return to a lot of these call centers getting back in person. Do you think that's a catalyst for accelerating investments, obviously-the trends around the hybrid workforce in remote work were strengthened in many ways in looking at the call center solutions? But just kind of curious as things reopen up in years where you've seen that-if you've seen that play out as a catalyst as people kind of go back to full in-person?

Barak Eilam -- Chief Executive Officer

Yes it's a great question and it's a kind of-it continues to evolve but remind you that March of last year where all of those contact centers virtually overnight had to move, actually move virtual to work from home. We're talking about 15 million people that almost together went to work from home and not from the offices. And that was the first kind of shock for a lot of those contact centers realizing that actually it's very hard for them to enable it. If they don't have the agility and the solution like cloud, etc which accelerated, as we know, the shift of this adoption. So that was the first part. And since then we've been seeing a lot of those organizations, indeed, accelerating understanding that they need to be more flexible in the future because there is a lot of uncertainty whether it will be a full comeback to the offices or kind sort of the hybrid.

So it started with the basic of the ability to work from anywhere. But then if you have your employees work from anywhere and starting to raise other thing that requires our technology, how do you monitor the experience, how do you monitor the cost, how do you allow more agility and flexibility to the work for especially the younger generation. So it allows us to expand quite significantly our offering to many of our customers and support them with that need. From this point on the type of conversation with our customers, it's exactly as you suggested.

It's about supporting full hybrid. And at the same time having more analytical capabilities in order to monitor the level of experience and how this move between back and forth from office to home is working. And needless to say, cloud, so it's accelerating all the above and we believe this is here to stay regardless of how long the coverage will stay with us. Hopefully, not for long for COVID, but it's basically accelerated things we felt will happen in few years down the road and they're happening now.

Tyler Radke -- Citi -- Analyst

And if I could ask a follow-up for Beth and apologies if you covered this in detail I've been popping around a few earnings calls this morning, but just wanted to unpack the second half guidance a little bit. It looked like a pretty strong raise across the board, but just trying to see if that raise was mainly coming from cloud and any type of further breakout you should give us, how to think about kind of the moving pieces in revenue that are implied in your outlook?

Beth Gaspich -- Chief Financial Officer

Yes, sure thanks for the question. I think I've talked to-about it a little bit but I'm happy just to kind of emphasize again. I think looking on the second half of the year comes on the back of a really strong performance this quarter. And of course, a strong performance in the first half generally, that gives us greater visibility looking forward into the second half of the year as well. We've seen growth rates both on top and bottom line in the teens in both Q1 and Q2 of this year.

And given kind of the strong level of confidence we have, we're increasing the midpoint of our revenue to by $35 million in terms of the total revenue guidance for the year. And so, we feel really positive and that we've set great healthy targets for the full year that are both in the teens with midpoints around 11%. And of course, the revenue is mostly continuing to come from the confidence and the health we've seen of our cloud business and specifically CXone is a continued driver in that growth.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Barak Eilam for closing remarks.

Barak Eilam -- Chief Executive Officer

Thank you all very much for joining us today and have a nice day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Marty Cohen -- Vice President of Investor Relations

Barak Eilam -- Chief Executive Officer

Beth Gaspich -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Tavy Rosner -- Barclays -- Analyst

Rishi Jaluria -- RBC -- Analyst

Dave Nwokonko -- Morgan Stanley -- Analyst

Tim Horan -- Oppenheimer -- Analyst

Daniel Bartus -- Bank of America -- Analyst

Tyler Radke -- Citi -- Analyst

More NICE analysis

All earnings call transcripts