NICE Ltd. (NICE) Q1 2026 Earnings Call Transcript

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Overview

The earnings call summary and Q&A section indicate positive sentiment. Despite some concerns about the deflationary effect of large customer contracts, the company is positioned for future AI growth with strategic long-term agreements. The rapid integration of Cognigy, strong international growth, and technology partnerships further bolster this outlook. Additionally, the $600 million share repurchase program is a positive indicator for shareholder returns. While there are some areas of uncertainty, the overall sentiment is positive, suggesting a likely stock price increase of 2% to 8% over the next two weeks.

Key Financial Performance

Total Revenue $769 million, a 10% year-over-year growth. Foreign exchange contributed approximately 1% to this growth.

Non-GAAP EPS $2.64, above the high end of guidance ranges.

Cloud Revenue $603 million, representing 79% of total revenue and a 14.6% year-over-year growth (approximately 12% excluding Cognigy). Growth driven by strong adoption of CXone and AI-driven use cases.

AI ARR $345 million, representing 66% year-over-year growth and now accounting for 14% of cloud revenue.

Cloud Backlog Growth 27% year-over-year including Cognigy; 24% excluding Cognigy.

AI Backlog Growth 78% year-over-year.

International Revenue Growth 30% year-over-year, driven by large enterprise deployments and partner ecosystem contributions.

Services Revenue 16% of total revenue, declined 12% year-over-year due to migration of on-premise installed base to cloud.

Product Revenue 5% of total revenue, increased 23% year-over-year, driven by financial crime and compliance business.

Customer Engagement Revenue $636 million, representing 83% of total revenue and a 7% year-over-year increase.

Financial Crime and Compliance Revenue $133 million, representing 17% of total revenue and a 23% year-over-year increase.

Gross Margin 68.4%, reflecting planned investments in scaling global cloud infrastructure and AI workloads.

Operating Income $200 million, resulting in an operating margin of 26%.

Cash Flow from Operations $179 million.

Free Cash Flow $149 million, impacted by timing differences in bonus payments and planned investments including Cognigy.

Share Repurchases $253 million, representing 3.5% of market capitalization, with shares outstanding declining 5% year-over-year.

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Operating Highlights

CX AI Opportunity: NiCE is leveraging its fully AI-native platform to deliver transformative outcomes, with AI ARR increasing 66% year-over-year and representing 14% of cloud revenue. 100% of CXone enterprise deals included AI solutions.

Cognigy Integration: Cognigy is now integrated into CXone, enabling unified AI solutions. This integration has accelerated innovation, such as Automated Insights, which identifies AI-driven business impacts and generates production-ready AI agents.

New AI Capabilities: Introduced advanced testing for AI performance, expanded multimodal engagement, and deeper MCP integration, further differentiating NiCE in the market.

International Expansion: International revenue grew 30%, with strong adoption of cloud platforms in EMEA and APAC. Cloud revenue in these regions grew over 50% year-over-year.

Large Enterprise Deployments: Secured multimillion-dollar ACV deals through GSI partners, reflecting strong demand in international markets.

Operational Efficiencies with AI: AI deployment reduced project timelines significantly, e.g., modernizing administrative pages in 6 weeks instead of 18 weeks.

Cloud Revenue Growth: Cloud revenue grew 14.6% year-over-year, driven by CXone and AI adoption.

Portfolio Review: Exploring options for non-CX assets to maximize shareholder value, though no decisions have been made.

AI Monetization Strategy: NiCE monetizes all consumer interactions across voice, digital, and AI, positioning itself as a leader in the CX AI market.

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Risk or Challenges

Cloud Revenue Growth: Potential near-term pressure on net revenue retention (NRR) due to the transition towards AI-driven capabilities, which may compress certain CX components.

AI Integration and Expansion: Challenges in integrating and scaling AI solutions, including Cognigy, while ensuring consistent performance, trusted data handling, and alignment with complex operational and regulatory requirements.

International Expansion: Risks associated with expanding into underpenetrated international markets, including potential operational challenges and market-specific regulatory hurdles.

Customer Renewals and Commitments: Proactive commercial actions with marquee customers to accelerate AI adoption may create phasing effects in revenue recognition, impacting short-term financial performance.

Cloud Infrastructure Investments: Planned investments in scaling global cloud infrastructure and supporting increased AI workloads may temporarily impact gross margins.

Portfolio Review: Uncertainty surrounding the exploration of strategic options for non-CX assets, which could impact focus and resource allocation.

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Guidance & Outlook

Full Year 2026 Revenue Guidance: Total revenue is expected to be in the range of $3.170 billion to $3.190 billion, representing an 8% increase at the midpoint.

Full Year 2026 Cloud Revenue Growth: Cloud revenue growth is projected to be in the range of 13% to 15%.

Full Year 2026 Earnings Per Share (EPS) Guidance: Fully diluted EPS is expected to be in the range of $10.98 to $11.18.

Second Quarter 2026 Revenue Guidance: Total revenue is expected to be in the range of $761 million to $771 million, representing 5.5% year-over-year growth at the midpoint.

Second Quarter 2026 Earnings Per Share (EPS) Guidance: Fully diluted EPS is expected to be in the range of $2.60 to $2.70.

Operating Margins for Full Year 2026: Operating margins are expected to be at the higher end of the 25% to 26% range.

AI Revenue Contribution: AI represents 14% of cloud revenue and is expected to grow, with AI backlog growth at 78% year-over-year and AI pipeline growth accelerating.

International Revenue Growth: International markets are expected to remain a durable and meaningful growth driver, with strong adoption of cloud platforms in underpenetrated regions.

AI Expansion and Adoption: Strong interest from existing customers in AI offerings is expected to drive long-term commitments and revenue growth.

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Shareholder Return Plan

Share Repurchase Program: NiCE executed significant share repurchases during Q1, repurchasing a record $253 million of shares, representing 3.5% of its market capitalization. Shares outstanding at the end of March were approximately 58.5 million shares, a decline of 5% year-over-year. The company exited the first quarter with $745 million of authorized buyback and remains committed to share repurchases exceeding 50% of its free cash flow this year.

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Key Q&A

Q:What does Sierra raising $950 million for their AI agents mean for NiCE?

A:Scott Russell explained that it validates the incredible market potential of AI, particularly in the CX market. He emphasized that while creating automated agents for simple flows is easy, enterprises need platforms that handle complex scenarios with security, observability, and interoperability. NiCE is positioned as a leader in the AI space with growing pipeline, backlog, and bookings.

Q:Why did NiCE's Q2 revenue guidance show a step down to 5% from 9%+?

A:Scott Russell and Beth Gaspich explained that the variability in cloud growth is due to deliberate commercial actions to drive future AI growth. NiCE made decisions to lock in AI business with large marquee customers, which shortened sales cycles and increased AI revenues but created near-term variability in existing products and timing differences. They emphasized that these actions are for long-term growth.

Q:What trends are being seen in the Cognigy customer base, and is the 200 bps contribution from Cognigy still expected this year?

A:Beth Gaspich confirmed that the 200 bps contribution from Cognigy is still expected. She highlighted the rapid integration of Cognigy into the CXone platform, the growing pipeline, and the opportunity to cross-sell Cognigy into NiCE's installed base globally.

Q:How should the deflationary effect of large customer contracts be understood, and was this previously contemplated?

A:Beth Gaspich clarified that the deflationary effect was not previously contemplated. NiCE took proactive actions with large customers to secure long-term AI commitments, which led to near-term variability but positioned the company for accelerated AI growth. Scott Russell emphasized that these actions were offensive moves to seize AI opportunities.

Q:What is the status of sales hiring and investments, and is the current headcount sufficient?

A:Scott Russell stated that NiCE has been active in acquiring AI sales expertise and enabling the existing sales force. He emphasized that the focus is on productivity and expansion rather than increasing headcount. Beth Gaspich added that Q1 sales and marketing expenses were higher due to go-to-market kickoff activities, but the trend will be lower for the rest of the year.

Q:What is the exploratory process regarding financial crimes and public safety businesses?

A:Scott Russell mentioned that NiCE is in an exploratory process to assess these businesses, focusing on long-term growth and maximizing shareholder value. He did not provide specific details.

Q:Is NiCE trading near-term traditional CX revenue for future AI revenue, and how do customer ramps on AI play out?

A:Scott Russell confirmed that NiCE is making short-term trade-offs for long-term AI success. Customers are moving quickly to adopt AI, and NiCE is securing long-term agreements as the embedded AI platform. This approach provides immediate savings for customers while positioning NiCE for future growth as AI expands.

Q:What are the puts and takes of AI going into backlog, and how does it translate into revenue?

A:Beth Gaspich explained that while NiCE's AI products are ready for immediate deployment, customers often require time for data preparation and testing. Initial revenue comes from customer commitments, with additional revenue from expanded AI usage. Scott Russell added that NiCE's platform provides production-grade AI agents with quantifiable ROI, ensuring predictable outcomes for customers.

Q:Is there an opportunity for greater technology partnerships or integrations?

A:Scott Russell confirmed that NiCE is expanding technology partnerships, including with ServiceNow and AI players. NiCE's platform provides production-grade AI capabilities with security and observability, making it a strong partner in the ecosystem. NiCE also collaborates with point AI solutions while maintaining its competitive edge as an end-to-end platform.

Q:What is the durability of international growth, and are there any macro-related callouts?

A:Scott Russell and Beth Gaspich highlighted strong international growth, with cloud revenue growing 50% year-over-year. They emphasized that international markets are underpenetrated, providing significant opportunities for durable growth.

Q:Why are some customers opting for term renewals instead of moving to the cloud?

A:Beth Gaspich explained that term renewals are more common in the financial crime and compliance business, where customers prefer continuity. However, these customers intend to shift to the cloud in upcoming renewals. CX business has already largely migrated to the cloud.

Q:What is the impact of interaction-based pricing versus seat-based pricing, and why did NiCE take action now?

A:Scott Russell explained that NiCE is leveraging its competitive strength and taking decisive actions to secure long-term AI commitments. The shift to interaction-based pricing aligns with customer needs for bankable savings and positions NiCE as the embedded AI platform for large enterprises.

Q:What is the role of process mining in monetizing bookings and backlog?

A:Scott Russell highlighted that NiCE's platform uses data and Cognigy to provide production-grade AI agents with quantifiable ROI. This capability simplifies deployment and ensures high-quality outcomes, making it a key driver for monetizing bookings and backlog.

Q:What components of CX revenue are under pressure, and how significant is this?

A:Scott Russell stated that only a very small percentage of CX revenue components, such as call recording, are under pressure. These are not significant and do not impact the overall strength of NiCE's cloud products.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details about the exploratory process regarding financial crimes and public safety businesses, stating only that it is focused on long-term growth and shareholder value.

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Earnings Word Cloud

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

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