NICE Ltd (NICE) Q3 2021 Earnings Call Transcript

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NICE Ltd (NICE 1.64%)
Q3 2021 Earnings Call
Nov 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to NICE conference call discussing Third Quarter 2021 Results. And thank you all for holding. [Operator Instructions] Following management's formal remarks, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded, November 11, 2021.

I would now like to turn the call 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 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 third quarter 2020 results and the company's guidance for the 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. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release.

I will now turn the call over to Barak.

Barak Eilam -- Chief Executive Officer

Thank you, Marty and welcome everyone. We are pleased to report a banner quarter with Q3 total revenue just shy of $0.5 billion for the first time in our company's history. The quarter was characterized by continued accelerated growth across the board, underscored by 20% total revenue growth and 29% growth in the cloud. These strong Q3 results reflect the uplift we are receiving from being at the center of four key dynamics that are taking place in our industry, cloud, digital, AI and the shift to platforms.

Specialized applications natively built in the cloud at scale are now taking a central role in organization's transformations to cloud technology. CXone has become the premier native cloud specialized platform for customer experience. We built CXone with the world's largest and most comprehensive customer engagement set of solutions. We are, for the first time, ever in this industry fulfilling CX needs that for decades could not be achieved with the old paradigm of disjointed on-premise and non-cloud native solutions.

Over the past year, we have added a dozen new native CXone solutions to our portfolio with hundreds of new features. We now have over 725,000 agents in 100 countries using CXone making us by far the clear market leader. In our go-to-market, we have added 27 new partners so far this year and have expanded CXone internationally, which I'll talk about later. Consumers exponential adoption of digital is far outpacing organization's slow linear digital evolution. This is the root cause of the rapidly growing friction between consumers and service. Linear evolution will never catch up to exponential growth. Our digital strategy has one goal, to be the next-generation engine allowing organizations to radically shift from slow digital evolution and leapfrog ahead of the digital consumers.

2021 is a seminal year in our execution on this strategy, catapulting CXone to the center of the digital arena. We are already seeing tremendous success and expansion with our digital-first approach with CXone. In Q3, digital revenues grew 78%. The number of cross-sell digital deals grew 34% and the number of first-time digital-only deals grew sevenfold. Even after decades of investment in productivity, process optimization and automation tools, 87% of spend in the CX market is still attributed to labor. Artificial intelligence fused with high-quality CX data is finally starting to [Indecipherable] the axiom that only investment in incremental manpower can deliver a great customer service.

CXone with its massive CX data repository is taking giant steps toward becoming the ultimate CX AI hub as organizations shift to automated smart CX with unprecedented return on investments. Data and AI served that the catalyst to CXone rapid win rate and expansion in Q3. This is reflected in the very strong momentum we continue to see with Enlighten, which is the AI brand and the core of CXone that is embedded across our entire platform. In Q3, AI drove further demand for Enlighten as the number of Enlighten deals tripled in the quarter compared to last year.

Platforms are the only viable way to master complexity at scale. They are the ultimate glue between technology and processes for organizations. Our goal with CXone as a platform is to master the extreme complexity at scale for the CX market. There are no shortcuts in reaching this goal. The only way to achieve it is with a complete fully unified and open suites. CXone to date has more than 4,000 development many years [Phonetic] and decades of domain expertise invested toward this goal. We are the only player in the CX market that possesses all the assets natively built into one platform. In fact, seven out of 10 organization adopting CXone today are retiring three or more separate software solutions. These forward dynamics, cloud, digital, AI and platform, provides tremendous long-term growth opportunities, and we continue to strategically double down on them.

Let me now turn to Q3, where we continue to outperform our 2021 plan by expanding upmarket to the enterprise, expanding to international markets, expanding our reach through partnerships and expanding our leadership in digital. Our decade long expertise and go-to-market experience of large enterprises, which we define as organizations with at least 750 agents, is reflected in the great success we are having in the high end of the market with CXone. Overall, CXone new bookings in Q3 grew 100% year-over-year and the number of seven digits and above deals grew at 46% in Q3 versus last year. One example was an eight-digit ACV deal with one of the largest retail brokerage in the world. This customer, which was with an on-premise incumbent for many years, evaluated the cloud solution of the incumbent in selected CXone for its overall superiority, its seamless integration, and the breadth and depth of the platform.

Another large signing for CXone included a seven-digit ACV deal with a major interactive gaming company as the incumbent provider was unable to support the needs. Taking into account the large seasonality shift in the business, they needed a platform that was highly flexible and elastic. We also signed a seven-digit ACV deal with a very large federal government agency.

Other large deals for the quarter at the high end of the market included an eight-digit deal with an existing customer, a very large financial services organization that added multiple new solutions. We signed a seven-digit deal with one of the largest airlines in the world. The airline is now able to apply sophisticated analytics to 100% of their interaction volume, up from 10% to effectively understand the interactions with their customers. Other seven-digit deals with large enterprises focus on modernizing their CX platforms, including a well-known provider of human capital management solutions and a very large pharmacy company.

Another growth vector in our 2021 execution plan is international, where we see tremendous opportunities as many organizations are beginning to adopt cloud and digital at faster pace. In Q3, the number of new international CX logos as well as international bookings of CXone grew 48% compared to the same period last year, driven by major expansion with our international channel partners. International deals for CXone included a well-known Canadian-based logistics and shipping company, which was a competitive replacement. The company's focus on cloud and digital transformation to help make interactions with their customers seamless and with the support of self-service. Other large international CXone deals included a major university located in the APAC region allows Brazilian-based bank and allows suppliers of industrial products based in Australia.

Two years of rapid innovation, combined with key strategic acquisitions in digital and AI, has significantly widened the gap in our competitive differentiation in 2021 and significantly increased our win rates in Q3. Our success in digital and AI has two main drivers. The first is organization who choose to move from legacy omnichannel solution to our next-gen digital CX platform. In these cases, we are experiencing a doubling of the ACV with the adoption of digital.

A few of these examples included is a US-based BPO, an international insurance broker, a financial services organization specialized in retirement planning, a well-known vitamin and herb company, a beauty care products company, and several others.

The second driver is a transition to AI-powered self-service as organizations realize that this is the only way to address the need of their digital consumers. Some of the Q3 deals include a large waste management company, a well-known healthcare company and a large energy infrastructure company. The exact same dynamics I discussed earlier, cloud, digital, AI and the shift to platforms are fueling the accelerated growth in our financial crime and compliance segment as evidenced by the year-over-year 21% revenue growth in Q3.

We signed an eight-digit deal with a very large German bank, which selected NICE due to the scalability of the solution and breadth of functionality. In a seven-digit deal with a large European bank, they purchased a portfolio of our solutions to modernize their financial crime and compliance platform in a fast-evolving digital environment. Other large seven-digit deals included a major bank based in the UK, one of the largest US insurance companies and two of the world's largest banks.

In summary, we have taken a central role and are leading the market in shaping the four dynamics taking place in CX, cloud, digital, AI and the shift to platforms. Up until a few quarters ago, NICE was a single-digit total revenue growth company executing on its transition to the cloud. 2021 clearly reflects the dramatic change in our financial profile as we have quickly shifted to a company that is now growing its total annual revenue in double-digits, delivering fast growth in the cloud with a run rate of over $1 billion and demonstrating consistent profitability of nearly 30%. With the tremendous opportunities ahead of us and our commitment to continued solid execution, we believe that the shift that we've seen in 2021 is paving the way for continued success and expanded market leadership.

Thank you. And I will turn it 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 third quarter of 2021 and our outlook for the fourth quarter and full year. Our third quarter financial results were excellent, with 20% year-over-year growth in total revenue, which marks the third consecutive quarter that we reported year-over-year accelerated growth.

Total revenue for the third quarter reached a record of $494 million compared to $412 million in the same period of last year. Our financial performance in the quarter was reflective of the strong execution that we demonstrated across multiple fronts. We delivered double-digit year-over-year growth in both cloud and products, all three regions that we operate in and in both our business segments.

The Q3 top line was driven by another strong quarter in the cloud with 29% year-over-year growth, coupled with an outstanding performance in our product revenue, which grew 73% year-over-year. Cloud revenue contributed $262 million and represented 53% of our total revenue. Services revenue totaled $164 million and contributed 33%, and the remaining $67 million, or 14% was product revenue.

Our sequential cloud growth of 7% demonstrates the continued momentum and strength of our cloud business. We are, by far, the largest cloud provider in our industry with an annual cloud revenue run rate of more than $1 billion. Our success in the cloud is primarily being driven by our main growth engine, CXone, thanks to the continued effective execution of our expansion plan in international, large enterprises, partnerships and digital, as well as leveraging the breadth and depth of our platform with cross-sell opportunities.

In Q3, we recorded impressive revenue growth across all geographies. The Americas region, which represented 82% of total revenue, grew 19% year-over-year. Our strong international go-to-market presence and expansion with partners is contributing to our strong growth globally. The EMEA market grew 30% year-over-year and represented 12% of our total revenue. APAC grew 14% year-over-year and represented the remaining 6%.

Moving to our business unit breakdown, customer engagement revenues, which represented 82% of our total revenue in Q3, totaled $403 million, a 20% increase compared to the same quarter last year. Our continued top line growth in customer engagement is a result of our ongoing success with CXone. Revenues from financial crime and compliance, which represented 18% of our total revenue in Q3, totaled $91 million for the third quarter, which was a record increase of 21% year-over-year.

The growth in the quarter was reflective of growing cloud revenue contribution from our cloud platform X-Sight and Xceed, as well as strong product growth. While focusing on penetrating the market and driving top line growth, we continue to exhibit strong profitability and the generation of very healthy cash flow from our operations. Our gross profit accelerated to a record $358 million in the third quarter compared to $293 million for the third quarter of 2020.

Gross margin increased to 72.3% compared to 71% in Q3 last year. The increase in gross margin was mainly attributed to an increase of 154 basis points in the cloud gross margin. We expect ongoing gradual improvements in our cloud gross margin as our cloud revenues continue to deliver strong growth, and we remain confident in our ability to achieve our longer-term goal of a 70% or higher cloud gross margin. Our expanding margin is being driven by new cloud revenue streams as we are successfully establishing beachheads with new and existing customers, witnessing increasing software attach rates and driving cross-sell opportunities, while gaining efficiency and scalability on the cost side.

In Q3, operating income increased by 20% year-over-year to $140 million compared to $117 million in Q3 2020, and operating margin was 28.3%, like last year. Earnings per share for the third quarter totaled $1.68, an increase of 19% compared to Q3 last year.

We experienced another strong quarter in operating cash flow, which totaled $104 million in Q3. Total cash and investments at the end of September totaled $1.456 billion. Net of debt of $607 million, our net cash totaled $848 million. Our strong cash flow generation and healthy balance sheet continue to allow us to capitalize on synergistic strategic acquisitions that are consistent with our digital growth strategy and capital allocation plans.

I will conclude my remarks with guidance. We are raising our full-year 2021 guidance for both total revenue and EPS. For the full-year 2021, we now expect total revenue to be in the range of $1.899 billion to $1.909 billion. This implies that Q4 2021 total revenue is expected to grow between 11% and 14% year-over-year. For the full-year 2021, we now expect fully diluted earnings per share to be in a range of $6.43 to $6.53.

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

Questions and Answers:

Operator

Thank you. At this time, we'll conduct a question-and-answer session. [Operator Instructions] Our first question comes from Samad Samana with Jefferies. Please proceed.

Samad Samana -- Jefferies -- Analyst

Hi. Good morning. congrats on strong results. Barak, I wanted to clarify I thought I heard you said that CXone bookings were up 100% year-over-year. That's a really big number. So first I just want to make sure I heard correctly and it's true. Can you maybe just help us understand what's driving that strong bookings performance even as we move well beyond some of the pandemic tailwinds that the company benefited from last year.

Barak Eilam -- Chief Executive Officer

Sure. Thanks. Thanks, Samad. So yes, you've heard correctly. Booking of CXone in the quarter -- new bookings of CXone in the quarter grew 100% year-over-year. It was really a phenomenal booking, and this is following also the last few quarters of very strong bookings across the board and also with CXone as we commented on previous calls. The drivers are all the above.

Everything I mentioned in my earlier remarks, the adoption and the win rates we're experiencing at the higher end of the market. I mentioned some of those deals, and the list is too long to read on the script. The expansion into international, the fast adoption of digital, which I've mentioned that when we add digital into CXone, it doubles the ACV and sometimes even more than that. And overall, additional expansions that we see from existing customers.

Samad Samana -- Jefferies -- Analyst

Great. That's very impressive. And then maybe sticking in that theme. The digital revenue, as you mentioned, grew almost double the rate that overall cloud revenue is growing. How should we maybe think about digital revenue going forward? And how durable is that robust growth that you're seeing on the digital side specifically.

Barak Eilam -- Chief Executive Officer

We believe that digital is still is in very early innings from a variety of reasons. Digital is not new as a concept, right? Most organizations do have some form of digital, but it's solutions and siloed solutions that belong to previous generation. As I mentioned in my earlier remarks, we all see it. We are all consumers, and we are ourselves as consumers adopting digital in an exponential growth that you would like. An organization that are trying to fight it in a linear evolution will never manage to catch up. So, there is no understanding as we meet with a lot of customers that are just trying to patch or to add kind of spot or ad hoc solutions and point solution is not going to apply for them.

What we offer in digital is the combination of data, digital and AI that comes together. And that's a real major difference. The big thing about digital is how do you adopt digital, giving consumers the right experience and without inflating your manpower. And it can only be done with the right digital technology, the massive amount of data that we have in our platform, and of course, the right AI algorithms. So, we believe the sky is the limit for the potential in digital, and it's just the early days. So it's not a specific number, but it's really in early days.

Samad Samana -- Jefferies -- Analyst

Very helpful. And then, Beth, I can't not ask you a question. It wouldn't be a next earnings call without one for me for you. So just as I think about R&D expense, it jumped pretty significantly and I know the company is investing behind that. Maybe just how should we think about the shape of expenses and investments going forward, especially as the company ramps the international side? Just maybe give some context around that.

Beth Gaspich -- Chief Financial Officer

Sure. Thanks for the question. When you look on our R&D for the quarter and generally, our appetite for investing back, we see this really strong growth in the top line and we're being fueled by predominantly CXone. And of course, we are going to continue to fuel that investment and that's what you've seen in the quarter. At the same time, as a company, we've always maintained our philosophy on having a balanced approach.

We've provided a benchmark of expectation for a 30% operating margin in the future and that doesn't change. So it's a combination of a balanced approach to investing back in, but at the same time, continuing to drive the increasing profitability. And if you look on our current year as an example, you'll see we have growth in the teens, both in our revenue as well as in our operating income.

Samad Samana -- Jefferies -- Analyst

Great. Thanks for taking my questions. Congrats on all the success.

Beth Gaspich -- Chief Financial Officer

Thank you.

Barak Eilam -- Chief Executive Officer

Thank you, Samad.

Operator

Our next question comes from Rishi Jaluria with RBC. Please proceed.

Rishi Jaluria -- RBC -- Analyst

Wonderful. Thanks. And then great to see overall growth accelerate to 20%. I don't think any of us were expecting that. So really great to see. I had two questions. First, on the international traction you're seeing, maybe a housekeeping. Can you help us understand conception when you talk about international momentum and especially on the CXone side? Is this happening with internationally based customers? Is this happening with existing US customers that have big overseas presence? And alongside that, you talked about CXone doing really well internationally. Are you starting to see an inflection point in cloud appetite overseas? And then just alongside that, I have another housekeeping. Any FX impact on the quarter? And then I have a follow-up.

Barak Eilam -- Chief Executive Officer

Sure. So, I'll start on the international. So it's not the first quarter that we see internationally. In the last few quarters, we gave you some color about the momentum we see in international. I think now you also see not just in the leading indicator like the booking, you start to see it happening also in the revenue as reflected in both EMEA and APAC this quarter. And the answer is yes to the question. Yes, we see a rapid growth in an accelerated adoption in all the things that we are also seeing in the US market and saw in the US market in the past. It's very similar dynamics.

We invested heavily in the past two years in our international expansion. We had a footprint before. We are not new to international markets, but we have added a lot of capacity, both in terms of the adaptation of the platform, the people, the go-to-market, the support, the services, the language, the localization, if you would like. And now we're seeing this tremendous success and growth. With respect -- so these are not just expansions of existing US-based customers going overseas. This is -- I gave you an example of that, companies that are headquartered internationally, both in APAC and EMEA, Latin America. Of course, US companies also have multinational presence, but those we count actually under our US numbers. And with respect to the FX numbers, I'll hand it over to Beth.

Beth Gaspich -- Chief Financial Officer

And with respect to the FX numbers, I'll hand it over to Beth.

Rishi Jaluria -- RBC -- Analyst

Okay. Thanks. And then Beth, just drilling into cloud gross margins. It looks like it ticked down about 60 points. sequentially. Anything to call out there that led to that? Was that mix of software versus network connectivity or something else there? And more importantly, how should we be just thinking about that line going forward Thanks.

Beth Gaspich -- Chief Financial Officer

Yeah. We had nice growth year-over-year with about 154 basis point pickup year-over-year. What you're referring to is the sequential movement between quarters on the cloud gross margin. And of course, you're going to see some variability from quarter-to-quarter. We are expanding internationally and increasing our footprint internationally with -- comes with certain costs.

We're also starting to see the other parts of our business like financial crime and compliance, as well as public safety start to expand more. And of course, they're not at the same scale as the CXone business. So, you'll see that come into play a little bit and see some variability from quarter-to-quarter. But keep in mind, if you look at our cloud gross margin expansion over the last few years, it has been really significant. We've seen some great expansion, and we expect to continue to see that expansion over time. So, we don't focus really on the quarter-to-quarter movements. We're looking at the long-term growth. And on a longer-term growth and profitability perspective, we expect to see that cloud gross margin continue to expand. And it's coming as we go up into the larger enterprise, of course, we have higher attach rates.

So, our customers there have complex organizations, are buying more of the offerings we have on the CXone platform, for example, and that drives and expands the cloud gross margin. So that along with just the continued expansion and scale of our cloud business, we'll continue to grow the cloud gross margin. So, again, don't focus so much on the short-term quarter-to-quarter change. But long term, we still remain confident in the 70% cloud gross margin and higher than we've talked about in the past.

Rishi Jaluria -- RBC -- Analyst

All right. Wonderful. Thank you so much.

Operator

Our next question comes from Tyler Radke with Citi. Please proceed.

Tyler Radke -- Citigroup -- Analyst

Hey. Good morning, Barak. Thanks for taking my question. Wanted to just go back to the 100% plus bookings growth in CXone. Obviously, really impressive and especially considering CXone is the primary driver for the cloud business. So, I just wanted to understand a little bit on that number. Was there any type of duration tailwind that kind of elevated that number? And I'm just trying to understand how that growth rate, which clearly is above -- well above the cloud revenue growth rate should kind of impact that revenue growth rate going forward or if there's just anything unusual to call out from a duration perspective?

Barak Eilam -- Chief Executive Officer

Needless to say, we are very happy with the performances of the cloud and the booking of CXone. And we also monitor the pipeline and the pipeline moving forward seems to be very robust. It doesn't change our overall outlook. As we stated before, we believe that overall cloud are scale of north of $1 billion for cloud. We expect it to continue and be for the next few years 25% or higher.

As we step into next year, we'll look in the -- on all the backlog that we have on cloud and decide how to specifically modify or change or keep the outlook. But overall, what impact this number is obviously very large enterprises that are tapping into CXone. And if you think about large enterprises, unlike small companies, it takes longer time to convert the actual booking to the full ramp-up of the revenue.

But on the flip side of it, when they are fully on board on CXone, the expectation of retention is much, much longer. It's a very sticky, highly integrated to a lot of information. So, we are building the business correctly for the long run, thinking about it strategically, and that's the way we think about it. We wanted to, of course, provide you with this important anecdote of the booking for the quarter.

Tyler Radke -- Citigroup -- Analyst

Thanks. And Beth, if I could ask a follow-up just on the Q4 revenue guidance. Looks like that's coming in 4% or 5% above the Street and kind of what was implied in the prior guide. How are you just thinking about the relative drivers of cloud versus products in that number? It looks like you do have a pretty easy comp on the product side and obviously, you saw lots of product strength this quarter. So just curious how you are seeing kind of the composition of the deals evolve in the pipeline for Q4? Thank you.

Beth Gaspich -- Chief Financial Officer

Sure. Thanks for the question. And as you said, we are implying a higher growth than where we were last quarter in terms of Q4 looking at growth in the teens. If you compare that to quarters past, of course, we were typically in single-digits. So it is implying a strong growth. If you look at Q4 in particular, we see that on the product side, again, we had somewhat lower levels of comparison last year. And so that comes into play for Q4, but we do expect that is factored in on the product front, along with continued momentum that we are seeing in the cloud. So it's a combination of our confidence in both for the quarter.

Tyler Radke -- Citigroup -- Analyst

Thank you.

Operator

Our next question comes from Tim Horan with Oppenheimer. Please proceed.

Tim Horan -- Oppenheimer & Co. -- Analyst

Thanks, guys. Great quarter. Can you talk about what the main bottleneck is for enterprises adopting digital? And is there something that's going to change that bottleneck? Like is cloud adoption at a point where we can really see an acceleration at this point? Or are there other issues that are preventing adoption?

Barak Eilam -- Chief Executive Officer

Yeah. Great question. As we have discussions with many of our customers and prospects with respect to digital, everyone are trying something, right? They have, as I said, some legacy digital solutions in place that are very siloed, are not well connected to each other and kind of behind the consumers' expectations. So many of them have tried different point solutions from small and bigger players. And there is generally kind of a feeling of disappointment as they try those. And there is much more understanding today with organizations. What's needed in order to have a true comprehensive next-gen digital solution fully embedded with AI is the data.

The data is the key over here. Without the data, it's almost useless, even if you have a fancy digital solution. And that cannot be provided by small best-of-breed or point solution. You need the domain expertise and a huge repository in order to train new digital solutions and your bots and so on and so forth. And that's exactly what they get with CXone. So those conversations, and we're starting to see the maturation or the maturity of organization as they go through those experiences, and that's exactly what pushes them in the direction of CXone. As I said at the beginning, it's still in its early days and we believe there is a ton of potential. Even with our digital, our kind of runway as a company was great. And digital in the past year and a half with the strategic investments we've done in this area, R&D, some other places is now starting to serve as a very strong driver by itself.

Tim Horan -- Oppenheimer & Co. -- Analyst

And can you talk about the sales process of CXone in digital? I can't imagine it's just a formal bake-off. I mean, is it more of a consultative sale where you're going in and engaging the customer and basically becoming almost a partner or a consultant to the customer?

Barak Eilam -- Chief Executive Officer

Absolutely. It's much more of a consultative sale. It's a few more stakeholders on the customer side. Let's not forget that digital in many places is owned by different parties, multiple parties in the organization, and they do look for someone that come in a much more conservative approach and allow them to build the internal, if you'd like, almost coalition in that regard. And we also have great partners that we have signed up in the last year and half. Some of them even in the bigger side that are -- sometimes we bring them or they bring us into those deals. And absolutely, you're correct.

Tim Horan -- Oppenheimer & Co. -- Analyst

Thank you.

Operator

Our next question comes from Meta Marshall with Morgan Stanley. Please proceed.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thank you. One of the questions that I had is just what is your best kind of channel for some of the enterprise traction that you're seeing? Because I guess I'm just wondering about, is that largely your installed bases kind of your best entry point to those enterprise deals? Or are you finding that some of the channel relationships that you're building are kind of helping bring you into some larger conversations?

And then maybe just a second question on digital. You've noted, clearly, it's doing very well. Just want to get a sense of is that a conversation starter in a lot of deals? Or is that tending to be -- it's coming in with existing customers or kind of layering that on to existing customers? Just trying to get a sense of when that conversation is starting on the customer journey. Thanks.

Barak Eilam -- Chief Executive Officer

Sure. So let me start with the first one. One of the benefits we have as a company is that we entered the broader CX market with Sika [Phonetic] after many years that we had a lot of expertise and presence and leadership in the higher end of the market with WEM solution and WFO solutions, meaning that we have the expertise, we have much of the installed base of the WFO solutions. And that allows us -- it's a great channel into the expansion to a full CX solution, full CXi solutions with CXone. So that's a great channel. To add to that, we have added a lot of other channels and expanding much our ecosystem both internationally and also domestically in the past few years.

So all of those things are really allowing us to expand nicely into the large enterprises. And it's really -- and also the solution itself, our solutions, as I said in my earlier remarks, it's not just about complexity or scale. It's about managing complexity at scale, and that's something that we have been doing as a company and the management team has been doing for the past three years. So that's what brings us, I believe, a lot of competitive edge and advantage when it comes to the enterprise market.

With respect to the second part about digital, so it's both of them. Sometimes it's a completely digital-led, digital-first type of approach, not combined with anything else, understanding that customers would like to step into next-gen digital solutions, and we now are a market leader in that space with the recent launch of a variety of solutions as well as some assets we have acquired in this area. And in other cases, yes, it is an add-on where a customer already have, for example, a CXone contact center solution for us, and then we expand it nicely into digital. And in those cases, as I mentioned, what we see is actually doubling the ACV from strategic customer.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thank you.

Barak Eilam -- Chief Executive Officer

Thank you.

Operator

At this time, I would like to turn the call back over to management for closing comments.

Barak Eilam -- Chief Executive Officer

Thank you all very much for joining us. And have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Marty Cohen -- Vice President of Investor Relations

Barak Eilam -- Chief Executive Officer

Beth Gaspich -- Chief Financial Officer

Samad Samana -- Jefferies -- Analyst

Rishi Jaluria -- RBC -- Analyst

Tyler Radke -- Citigroup -- Analyst

Tim Horan -- Oppenheimer & Co. -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

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