NICE Ltd. (NICE) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary shows strong financial performance with revenue and EPS growth, a record buyback, and strategic partnerships. The Q&A section highlights confidence in achieving growth targets despite challenges, with AI and partnerships driving future gains. Although some concerns exist, the overall sentiment is positive, with guidance improvements and strategic initiatives likely to boost the stock price.

Key Financial Performance

Total Revenue $727 million, increased 9% year-over-year. Growth driven by healthy cloud growth and strong product revenue contribution from the Financial Crime and Compliance segment.

Cloud Revenue $541 million, representing 74% of total revenue, with 12% year-over-year growth. Growth driven by CX AI and self-service ARR, which increased 42% year-over-year to $238 million.

CX AI and Self-Service ARR $238 million, increased 42% year-over-year. Growth driven by strong momentum in key AI solutions like Autopilot, Copilot, Knowledge Management, and Proactive AI.

Product Revenue Increased 29% year-over-year. Growth driven by successful pull-forward of term renewal activity in the Financial Crime and Compliance segment.

Services Revenue Represented 19% of total revenue, declined 5% year-over-year. Decline in line with expectations.

Americas Revenue Represented 84% of total revenue, increased 9% year-over-year. Growth driven by double-digit cloud revenue growth and strong product revenue.

EMEA Revenue Increased 11% year-over-year (15% on a constant currency basis). Growth driven by large enterprise-scale wins and cloud adoption.

APAC Revenue Increased 17% year-over-year (similar growth on a constant currency basis). Growth driven by significant deals like Services Australia.

Customer Engagement Revenue $597 million, represented 82% of total revenue, increased 8% year-over-year. Growth driven by strong cloud business growth in all geographies.

Financial Crime and Compliance Revenue $130 million, represented 18% of total revenue, increased 19% year-over-year. Growth driven by significant increase in product revenue and strong cloud revenue growth.

Gross Margin 69.3%, compared to 70.7% last year. Slight decline due to increased cloud spend.

Operating Income $220 million, increased 9% year-over-year. Operating margin totaled 30.2%.

Earnings Per Share (EPS) $3.01, increased 14% year-over-year.

Cash Flow from Operations $61 million, decreased year-over-year due to a nonrecurring tax expense and timing of large customer collections.

Total Cash and Investments $1.632 billion, with total debt at $460 million, resulting in net cash and investments of $1.2 billion.

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Operating Highlights

AI and self-service ARR: Achieved 42% year-over-year growth, reaching $238 million in Q2 2025.

CXone Mpower platform: Driving AI automation and augmentation solutions, contributing to strong AI bookings and a sixfold year-over-year increase in Copilot deals.

Cognigy acquisition: Expected to enhance CXone Mpower capabilities, delivering human-like AI-first customer experiences.

International expansion: Strong traction in sovereign cloud deployments in Germany and France, with large-scale deals in these regions.

Major international wins: Secured a $100 million contract with the Department of Work and Pensions (DWP) and other significant deals in Germany and the UK.

Cloud revenue: Increased 12% year-over-year to $541 million, representing 74% of total revenue.

Financial Crime and Compliance segment: Product revenue increased 29% year-over-year, driven by term renewal activity.

Strategic partnerships: New alliances with ServiceNow, AWS, Snowflake, and Salesforce, along with a deepened partnership with RingCentral.

AI-first strategy: Focused on leading the AI transformation in customer experience, with significant investments in AI solutions and partnerships.

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Risk or Challenges

Regulatory Approval for Cognigy Acquisition: The planned acquisition of Cognigy is subject to regulatory approval, which could delay or impact the transaction's completion and integration.

Cloud Infrastructure Investment Costs: Increased cloud spending, particularly in international markets, has slightly reduced gross margins, indicating potential cost pressures as the company scales its cloud infrastructure.

International Cloud Adoption Challenges: While international markets present growth opportunities, they remain under-penetrated in terms of cloud adoption, which could slow revenue growth in these regions.

Customer Collections Timing: Timing of large anticipated customer collections shifted to post-quarter-end, impacting cash flow from operations in Q2.

Competition in AI and Cloud Markets: The company faces competitive pressures in AI and cloud markets, as evidenced by the need to displace incumbents in major deals.

Dependence on Strategic Partnerships: The company's growth strategy heavily relies on partnerships with ServiceNow, AWS, Snowflake, Salesforce, and others, which could pose risks if these partnerships do not yield expected results.

Currency Exchange Risks: Revenue growth in international markets is subject to currency exchange fluctuations, as highlighted by constant currency adjustments in EMEA and APAC regions.

Debt Repayment: The company plans to repay $460 million in debt at maturity in mid-September, which could impact cash reserves.

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Guidance & Outlook

Revenue Guidance for Q3 2025: Total revenue is expected to be in the range of $722 million to $732 million, representing 5% year-over-year growth at the midpoint.

Earnings Per Share (EPS) Guidance for Q3 2025: Fully diluted EPS is expected to be in the range of $3.12 to $3.22, representing 10% year-over-year growth at the midpoint.

Full Year 2025 Revenue Guidance: Total revenue is expected to be in the range of $2.918 billion to $2.938 billion, representing an increase of 7% at the midpoint.

Full Year 2025 Cloud Revenue Growth: Cloud revenue is expected to grow 12% year-over-year.

Full Year 2025 Non-GAAP Operating Margin: Non-GAAP operating margin is expected to increase by an estimated 50 basis points year-over-year.

Full Year 2025 Non-GAAP EPS Guidance: Fully diluted EPS is expected to be in the range of $12.33 to $12.53, representing an increase of 12% at the midpoint.

Cognigy Acquisition Impact: The planned acquisition of Cognigy is expected to close during Q4 2025, subject to regulatory approval. Guidance excludes any planned impact from this transaction.

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Shareholder Return Plan

Share Repurchase: Following our largest ever quarterly share repurchase in the first quarter, we repurchased shares totaling $31 million in Q2 in line with our repurchase plan for the year.

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Key Q&A

Q:How are you thinking about the level of investment and operating margins in the near term, especially with new partnerships and AI?

A:The company has made significant investments in cloud costs, which are reflected in gross margins. These investments are paying off, particularly in international revenue expansion. Operating margins are expected to increase by 50 basis points year-over-year in 2025, with more details to be shared at the Capital Markets Day. The company is confident in achieving 12% cloud revenue growth for the year, supported by strong performance in AI and self-service ARR, despite some softness in the LiveVox business.

Q:What gives you confidence in achieving the 12% growth target for cloud revenue this year?

A:The company has achieved 12% growth in both Q1 and Q2 and expects to maintain this in Q3. They have a strong pipeline and backlog, particularly in AI and the CXone Mpower platform. However, some challenges, such as softness in the LiveVox business, may create uncertainty for Q4.

Q:Why has the cloud gross margin dropped below 70%, and what is the outlook for margins?

A:The drop below 70% in cloud gross margin is intentional, driven by investments in accelerated growth, international infrastructure, and marketing efforts. The company expects margins to remain flat in the near term but anticipates some elevation in the second half of the year, leveraging operational efficiencies and investments.

Q:Can you provide details on the renewed RingCentral partnership?

A:The renewed partnership acknowledges NICE's leading CXone Mpower CCaaS platform and RingCentral's UCaaS capabilities. Despite some portfolio overlaps, the collaboration benefits both organizations and their customers by combining strengths. The partnership aims to provide a seamless and effective solution for enterprise customers.

Q:What is causing the underperformance in the LiveVox business, and how does it impact the overall growth?

A:The underperformance is due to higher-than-expected customer churn and slower-than-anticipated new business growth. This has created a drag on the overall 12% cloud revenue growth target but is not expected to prevent achieving it for the full year. The company remains optimistic about LiveVox's long-term strategic value.

Q:What is the outlook for large deals and their impact on revenue?

A:The company has a strong pipeline of large deals, including 9-figure opportunities, which are expected to contribute to revenue growth in the second half of the year and into 2026. These deals are increasingly influenced by AI capabilities and the need for seamless integration with enterprise platforms.

Q:How is the adoption of AI affecting the migration of on-prem contact center solutions to the cloud?

A:AI capabilities are now a key factor in customers' decisions to migrate from on-prem to cloud solutions. Customers are evaluating platforms based on their ability to integrate AI for self-service, augmented service, and other capabilities. This trend is driving demand for NICE's CXone Mpower platform.

Q:What are customers saying about net agent growth versus AI deployment, especially with potential U.S. regulations?

A:Customers are leveraging AI for self-service and augmented service, but the growth in interactions is increasing demand for human agents as well. The company does not see a dramatic shift in the number of human agents but expects more self-service adoption over time.

Q:What is the impact of AI on ARPU and overall revenue growth?

A:AI is driving incremental revenue without eroding ARPU. The company is successfully monetizing AI capabilities like Copilot and Autopilot, which are contributing to the 42% year-over-year growth in AI ARR.

Q:What are the benefits of partnerships with companies like ServiceNow, AWS, and Snowflake, and when will they impact revenue?

A:These partnerships focus on product integration and engineering collaboration, with new capabilities expected to be available in Q4. Revenue impact is anticipated in 2026, as these integrations are built into customers' long-term buying decisions.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific reasons for LiveVox's underperformance earlier in the year and provided limited details on how they plan to address it. Additionally, while they expressed confidence in achieving 12% cloud revenue growth, they did not provide clear guidance on how they would offset potential challenges in Q4.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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