Nice Ltd (NICE) Q3 2020 Earnings Call Transcript

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Nice Ltd (NASDAQ:NICE)
Q3 2020 Earnings Call
Nov 12, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the NICE conference call discussing Third Quarter 2020 Results and thank you all for holding. [Operator Instructions] As a reminder, this conference is being recorded November 12, 2020.

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

Marty CohenVice President, Investor Relations

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; Beth Gaspich, Chief Financial Officer; and Eran Liron, Executive Vice President, Marketing and Corporate Development.

Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, please be advised that the Company’s actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the Company to differ materially is contained in the section entitled Risk Factors in Item 3 of the Company’s 2019 Annual Report on Form 20-F as filed with the Securities and Exchange Commission on April 6, 2020.

During today’s call, we will present a more detailed discussion of third quarter 2020 results and the Company’s guidance. 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 EilamChief Executive Officer

Thank you, Marty, and welcome everyone. We are pleased to report a very strong Q3, driven by continued rapid acceleration in our cloud business. Cloud grew to a record 35% and now represents 50% of our total revenue, which is a major milestone for NICE. We also reported 10% sequential growth in the cloud compared to Q2 and we already suppressed the more than $800 million cloud revenue run rate that we had expected by the end of the year. This strong cloud performance underscored the solid quarter overall with total revenue increasing 7% to $412 million. Operating income was $117 million, which was an increase of 10% compared to Q3 2019 and operating margin increased 95 basis points to 28.3% compared to Q3 last year. These strong operating results led to an 8% increase in earnings per share to $1.41. Additionally, operating cash flow increased 20% to $99 million in Q3 compared to the same period last year.

The acceleration in our cloud growth is being driven by several factors, including substantial growth in new customers, rapid adoption by large enterprises, new verticals that are now more than ever embracing remote service and digital transformation that has become front and center for organizations of all sizes. The strong demand for our cloud solutions from new customers can be seen by the large number of new logos we continue to sign each and every quarter. In Q3 alone, we saw an increase of over 50% in new logos compared to the same quarter last year. Many of these new customers are coming from the continued rapid adoption of our CXone cloud platform. Enterprises in all segments of the market around the world recognize CXone as the clear market-leading cloud platform to help them deliver on the cloud and digital transformations. The adoption by new customers is being driven by an acceleration in the market around cloud and digital. It is also being driven by the success we’re having with our growing ecosystem of partners that are reselling our cloud solutions as well as further penetration into international markets.

In addition, many new CXone customers were the result of an over 80% conversion rate of CXone at home to a paid subscription. We are the largest CCaaS provider in our industry, double the size of our next largest competitor and we are reporting faster growth. Much of our performance is the result of our significant competitive advantage in the large enterprise. The large enterprise market, which we define as enterprises with over 750 agents, continues to accelerate and is helping to drive the fast growth of CXone. CXone is the only platform to date that can effectively scale to both the large and mega enterprises. This is because it incorporates the seamless integration of omnichannel routing, workforce optimization and analytics, all on a single platform. Furthermore, with over 160 independent software vendors building solutions on our CXone exchange marketplace, we built the largest ecosystem of partners in the industry.

Many of our Q3 deals for CXone demonstrate our continued ability to capture share in the upper end of the market as we continue to displace the incumbent on-premise providers. We signed a seven-digit ACV deal for CXone with one of the largest hospitality operators in the world, replacing the two incumbent on-premise providers. We also signed many expansion deals for CXone as customers continue to come back to add additional seats and solutions. One of those was a very large auto credit company. We signed a seven-digit cloud deal with one of the largest global banks, also an expansion deal with a long-standing customer to add additional seats. We signed a seven-digit expansion deal for analytics with a long-standing financial services customer and two analytics expansion deals with very large existing telco customers. There was also a seven-digit ACV cloud deal with a large business process outsourcer, who took on several of our cloud solutions.

Our strength in the large enterprise has also received recognition from industry analysts. In fact, we were once again named the leader in the 2020 Gartner Magic Quadrant for Contact Center as a Service report. NICE achieved the highest overall position for its ability to execute and has been placed as a leader every year since this Magic Quadrant’s inception. In addition, the recent Forrester Wave Contact Center as a Service report identified CXone as the leader in the market with CXone receiving the highest possible score in the market presence category and securing top ranking in the current offering and strategy categories.

Our leadership in the cloud and the resulting growth is also being driven by new verticals that are embracing remote service. Among those verticals, our government and the new breed technology companies, which are growing rapidly and recognizing the increased importance of the need for agility and flexibility in the customer service operations. In the government vertical, we see continued strength in both local and federal augmented by our FedRAMP authorization for CXone. For example, in Q3, we signed a seven-digit ACV CXone deal with a very large government health organization. It took only two weeks to sign this deal for thousands of agents as they could not scale with their existing on-premise providers which we replaced. There was also the need for them to turn up quickly and rapidly scale up and down as needed to respond to varying level of demand, which demonstrates the enormous flexibility and agility of the CXone platform.

In technology, we signed a seven-digit cloud deal with a cloud sharing economy provider for portfolio for analytic solutions, including our new ENLIGHTEN AI platform. ENLIGHTEN leverages cutting edge AI and machine learning to identify and model many different behavioral patterns to help predict business outcomes. There was also a seven-digit cloud deal with the worldwide streaming music provider. While there is no doubt that we are in the midst of the digital transformation among enterprises of all sizes, we are seeing strong demand for an omni experience in those transformations. In other words, enterprises don’t want to make the same mistakes as in the past by stitching together digital solutions that operate in separate silos. It is inefficient, usually unproductive, inflexible and costly; rather they demand a single platform in which all the different digital channels are seamlessly integrated. This is where CXone is clearly differentiated with over 30 seamlessly integrated digital channels. For NICE, we are in a prime competitive position to capture the opportunities provided by these changing market dynamics as native digital solutions are in the core of our business.

In fact, just this past quarter, we witnessed a 91% sequential increase in digital volumes for CXone and a 154% increase year-over-year. In Q3, 50% of our new CXone deals included digital, including an online consulting service, a commercial water management company and a business process outsourcer. The impact of the digital transformation reaches across all our businesses, including Financial Crime and Compliance and Public Safety. In Financial Crime and Compliance, the digital capabilities of X-Sight and Xceed are driving cloud transformations. And in fact, we saw 150% increase in cloud revenue in this segment in Q3.

Digital banking presents a tremendous growth potential for us as we’re starting to see increasing data monetization opportunities. For example, in Q3, we landed additional data IQ deals as bank feels pressured to materially reduce the time to onboard new customers and therefore need to dramatically improve the processing of data from external sources. Moreover, X-Sight is becoming an industry hub for banks to advance their digital transformations by leveraging the X-Sight marketplace. The X-Sight marketplace is the industry’s first ecosystem for Financial Crime and Compliance to enable third-party innovations. To-date, we have over 50 marketplace partners. Together with these partners, customers can access multiple data sources and applications all in one place.

We’re also facilitating cloud and digital transformations in Public Safety. Just recently, we announced the launch of our Evidencentral Marketplace. It is the first open digital evidence management ecosystem of technology vendors geared toward law enforcement and criminal justice agencies. The marketplace will greatly enhance the value of our Evidencentral end-to-end digital transformation platform, which includes the NICE Investigate and NICE Inform solutions. Through the Evidencentral Marketplace, law enforcement and criminal justice agencies gain access to a wide variety of best-of-breed technology solutions critical to the investigation process. In all of our markets in which we operate, enterprises and organizations of all sizes are heavily engaged in the cloud and digital transformations. We witnessed this firsthand at our recent user conferences, interactions in September for our Customer Engagement customers and NICE Engage in October for financial crime and compliance. Both user conferences had record attendance. It was a great opportunity to showcase our market-leading platform that provide extreme agility and flexibility to our customers to help facilitate these transformations.

In closing, as cloud and digital are beginning to become mainstream, we are in a prime competitive position to capture the opportunities ahead. Moreover, we are only at the very beginning of this evolution in each of our market segments. The total addressable market for NICE is huge and continues to expand. We believe the current market opportunity is about $6.5 billion for NICE and we see that expanding — we see that expanding to over $17 billion over the next five years.

I will now turn the call over to Beth.

Beth GaspichChief 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 2020 as well as our outlook for the full year 2020. Total revenue for the third quarter reached $412 million, an increase of 7% from $387 million in the same period of last year. Total revenue growth was led once again by a remarkable cloud performance with a record growth of 35%, reaching $204 million and already exceeding the more than $800 million cloud annual revenue run rate that was expected by year-end. The sequential cloud growth between the second and third quarter of 2020 accelerated to 10% compared to 6% last year.

Another milestone for NICE was cloud revenue reaching 50% of total revenue compared to 39% last year. As a result of the strong cloud growth, recurring revenue continued to increase and accounted for 81% of total revenue compared to 74% last year. Product revenues accounted for 9% of total revenue in the third quarter and service revenues accounted for the remaining 41% of total revenue in the third quarter.

Moving to our business breakdown, Customer Engagement revenues for the third quarter were $337 million, a 7% increase over the same quarter in 2019 and represented 82% of our total revenues. Financial Crime and Compliance revenues for the third quarter were $75 million, an increase of 4% and represented 18% of total revenues.

Looking at geographies, Americas revenues grew 10% to $343 million in the third quarter. Revenues in EMEA were $44 million in the third quarter compared to $47 million last year and APAC revenues in the third quarter were $25 million compared to $27 million in the same period last year. We continue to see strong leverage in our operating model as demonstrated by our increased profitability and expanding margins. Gross profit in the third quarter reached $293 million compared to $274 million in the third quarter of 2019, and gross margin reached 71% similar to last year. The continued acceleration in our cloud business led to a 370 basis point expansion in the cloud gross margin to 65.6% compared to 61.9% in the same quarter last year.

Operating income increased 10% to $117 million and the operating margin grew to 28.3% from 27.3% last year. Earnings per share for the third quarter increased 8.5% and reached $1.41 compared to $1.30 in the third quarter of last year. Cash flow from operations in the third quarter was $99 million, an increase of 20% compared to $82 million in Q3 2019. Total cash and investments at the end of the quarter reached $1.543 billion. During the quarter, we issued a zero interest rate convertible note for $460 million. At the end of the quarter, total debt was $891 million net of issuance cost and the equity component associated with our convertible debt.

I will conclude my remarks with guidance. We’ve experienced strong growth in our cloud business throughout 2020, and as we look on the remainder of this year, we expect the strong cloud growth to continue. And during 2021, we expect to cross another significant milestone in annualized run rate of $1 billion in cloud revenue. We also expect to see the continued trend of cloud representing a greater percentage of the overall mix of our revenue as compared to the prior year. For the full year 2020, we expect total revenue to be in the range of $1.645 billion to $1.655 billion. We expect the full year 2020 fully diluted earnings per share to be in a range of $5.63 to $5.73.

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

Questions and Answers:

Operator

Thank you very much. Yes, everyone, your question-and-answer session will now begin. [Operator Instructions] We do have some questions on the line at this time and your first question comes from the line of Shaul Eyal from Oppenheimer. You are live in the call. Please go ahead.

Shaul EyalOppenheimer — Analyst

Thank you. Hi, everybody. Congrats on another solid set of results and then guidance. Barak, I actually want to start with the CXone and the way NICE is capturing significant wins within larger enterprises. I know you’ve mentioned some of the drivers. Can you also elaborate on some of the verticals, I think, that you mentioned in your prepared remarks? And does it require a longer sales cycle from prior quarters or pretty much are you seeing the same acceleration trends that we had been seeing over the course of the past few quarters, because the numbers definitely suggest that. And then I have a follow-up?

Barak EilamChief Executive Officer

Thanks, Shaul. Yeah. So indeed, we see a great adoption of CXone, an acceleration in the adoption. And as I’ve mentioned, it’s got some variety of reasons and one of them is the increase of adoption in both large enterprises as well as some relatively new verticals. They are not new to customer service, they are new to the adoption. And I would say that the two main reasons for that is, first of all, the large enterprises are getting to the point of simple realization, that the time has come to accelerate their move to the cloud. COVID accelerated that realization. It’s not related directly to COVID, but just the experience they went through.

The second thing they realized is that they really stuck on their innovation as long as they stay on either their on-premise provider or even if some of those on-premise provider migrated them to a semi-hosted solution, it didn’t solve their innovation cycle. We’re a native cloud solutions provider. CXone has both the scalability and the completeness that is really required by those large enterprises. It’s the only platform we believe that have those features and capabilities to cater to this segment of the market. And the other thing that they are experiencing is that even when they start small, if you would like, the move is very, very fast unlike what they’ve experienced in the past with migrating from one on-premise solution to another on-premise solution. So that is accelerating. At the same time, as I said at the end of my opening remarks, we believe that even with the current adoption, we are just at the beginning. And that is accelerating and there is a long runway over here.

Shaul EyalOppenheimer — Analyst

Got it, got it. Thank you for that elaborated answer. Barak, also a question on the Public Safety, pretty much you’ve discussed that kind of you kind of bringing that all those capabilities back to life, mentioned that in your Analyst Day. So can you provide us with a little bit of an update, how was recent months, even, again, the recent quarter and in that respect, anything you can share with us, shed more light on that activity?

Barak EilamChief Executive Officer

Yeah. We’re very happy with the progress of what we see in the Public Safety and as a reminder for the rest of the forum on the call. It’s a market where NICE — we’re operating in this market for actually for 30 years and we offered — we have a very large customer base, but our solution used to — or focused on a very a niche solution or one product in this market, and what’s happening in this market in the past year plus is that it is going through very similar themes we see in other markets, specifically digital transformation and that opens our eyes with different technologies we brought into this market. That, A, we can significantly broaden our footprint for Public Safety organizations, but also expand from — we are mainly in policing, and these days, we are expanding due to the offering of investigate to the wider aspects of the overall criminal justice system, all the way from defense, court, prosecution and of course policing as well. So we’re very happy with the progress. We see great traction for the solution, by the way, both in Europe and in the U.S. and even to a certain extent in certain places in Asia and we think there is something that is relatively mid-sized at the moment, but it can grow to become something very significant.

Shaul EyalOppenheimer — Analyst

Got it. Thank you. Good job. Congrats.

Barak EilamChief Executive Officer

Thank you.

Operator

Thank you very much. Your next question on the line comes from the line of Daniel Ives from Wedbush. You are live in the call. Please go ahead.

Daniel IvesWedbush — Analyst

Yeah, thanks. My question is in terms of acquisitions, can you just talk about your appetite there specifically on cloud given the strength you’re seeing? Thanks.

Barak EilamChief Executive Officer

Yeah. We continue to obviously to be very active on the acquisition front. At this point, we believe that we have all the components that we need in order to execute on our strategy, but at the same time, of course, we will not be shy from augmenting our execution with some relevant acquisition. I believe we have as a company, a good track record, not just about acquiring, but also about integrating, which is the key thing on acquisition and we have done well in the playbook that we have for acquisition. So we remain very active. I can say that the market is different now from where it was a few months ago, but since we have the strategy in front of us and that’s what will drive acquisition, we definitely have the capital if we need to go ahead and do something and we’ll continue to monitor on that area.

Daniel IvesWedbush — Analyst

Great. And then just in terms of conversations with customers, could you maybe compare in terms of the cloud appetite today versus even at the start of the pandemic when we go back to March and April, maybe compare and contrast in terms of different conversations you’re having? Thanks.

Barak EilamChief Executive Officer

Sure. I think that the conversations have, I would say, similar nature to the beginning of the year before the pandemic, but the sense of urgency changed. So the fact that organizations already took a decision that they want to move to the cloud is not new before and after the beginning of the pandemic. What changed I believe is the sense of urgency and the timeline they are providing and that’s on the same reason I mentioned on the previous answer or question on that front. So just higher sense of urgency to that, it’s more about how do we do it, what — how fast we can do it and it’s not a question about if we do it.

Daniel IvesWedbush — Analyst

Thank you. Great quarter.

Operator

Thank you very much. Your next question comes from the line of Scott Casher from Bank of America. You are live in the call. Please go ahead, sir.

Scott CasherBank of America — Analyst

Hey, congrats on the strong quarter and thank you for taking my question. You’ve hit on a little bit, but how sustainable is this cloud revenue growth and looking at your pipeline and market activity, do you think there is room for more acceleration here?

Barak EilamChief Executive Officer

So, first of all, we are of course very pleased with the 35% growth we provided for the quarter and generally, this year we saw an acceleration in our cloud growth. We’ll provide our next year guidance only in February when we report our Q4 earnings and then we’ll provide some insight as to next year. But in general, we feel confident, both for next year, as Beth said in her remarks, and also for Q4 for sure. But also moving forward, we believe this is the area of growth for us and that’s exactly where we see a change in the size of the market, the addressable market. When we talk about the market, that is $6.5 billion today and going to $17 billion. This entire growth is cloud. This is a market that is going through a cloudification, so the opportunity there. Of course, it’s for us to continue and execute and I believe that if we’ll execute as good as we have executed in the past two years, there is an opportunity to further grow that. We need to remember, in our industry in the CCaaS business, we are the largest player by far, twice the size of our next competitor and reporting a higher growth rate. So the runway is there and it’s all about execution right now.

Scott CasherBank of America — Analyst

Okay. That’s very helpful. And then just one more if I could, it looks like you saw some declines abroad. What are the market dynamics in EMEA and in APAC right now? Is this more a macro weakness or do you need to educate the market about CCaaS and invest in your channels? Thank you.

Beth GaspichChief Financial Officer

Hi, Scott. This is Beth and thanks for the question. As we look on the markets outside of the Americas, today, they are still more on-premise and license-based regions. So, we’re quite excited about the growth in the expansion we have of our cloud business. In fact, we’ve seen really a very strong year-over-year growth and cloud revenues coming from those regions, but today, you are seeing more a reflection of the variability, which we see from time-to-time in those regions given the impact of the license-based business. We’re excited about all of the partner shifts we’ve created in the last 12 months to 18 months in those regions and we’re driving additional business, but of course, cloud revenue takes longer to really be demonstrated in the revenue. So, the markets remain healthy for us and we’re excited about the cloud opportunities ahead for us in those markets.

Scott CasherBank of America — Analyst

Thank you.

Operator

Thank you very much. Your next question on the line comes from the line of Tavy Rosner from Barclays. You are live in the call. Please go ahead.

Chris ReimerBarclays — Analyst

Hi. This is Chris Reimer on for Tavy. Thank you for taking my question. Actually, what I wanted to ask has already been asked, but I will follow up with — you mentioned in your opening statement about partnerships, and I was wondering if you could expand on the evolution of the partner channel for the CXone and X-Sight platforms?

Barak EilamChief Executive Officer

Okay, thanks for that. Yes. A key pillar of our strategy [Indecipherable] is forming more and more partnership and that’s not new. It’s something we have started several years back, and today, the size of the partnership that we have both in terms of the number of partners as well as the volume of business with those partners is very substantial part of our business. And it’s also a key success factor as we go and expand into international markets as Beth mentioned before when we reported in the past few quarters on some key partnerships that we have signed and we’re very happy on the performances of those partnerships.

It is true for both CXone and for X-Sight. CXone has more mileage. So, it has more partners, but X-Sight is starting to gain also a lot of momentum with partnership as well as Xceed, which aim into the mid-market of the financial crime and compliance. And lastly, I will say that we’re very happy also with the technological partnership on the different marketplaces that we have on all the different platform that we have, it creates a very strong momentum both technologically for customers, but there is also a lot of go-to-market opportunities with these many dozens of technological partners.

Chris ReimerBarclays — Analyst

Okay. That’s very helpful. Thank you.

Operator

Thank you very much. Your next question on the line comes from Samad Samana from Jefferies. You are live in the call. Please go ahead.

Samad SamanaJefferies — Analyst

Hi, good morning. Thanks for taking my questions. And Beth, I want to follow up on the really strong cloud performance, it was very impressive. And maybe just want to peel it back just a little bit. So, can you maybe break down how much of the strength was pure CXone versus increase in contribution from X-Sight and some of the other cloud offerings on the Financial Crime and Compliance side of the business? And I have a follow-up to that as well.

Beth GaspichChief Financial Officer

Sure. Thanks for the question. And as you look at our strong cloud performance, we’ve been highlighting every quarter that more and more of our growth in the cloud is coming from multiple arenas. If you look back a year ago, really, our growth was being driven predominantly by CXone in the Americas and while that’s still a significant driving force today, of course, as I’ve mentioned, we’re seeing growth rates in double and triple digits across our other business units for Actimize for Public Safety for the regions. Of course in terms of absolute dollars, they are not as large as a contribution. So, CXone today is still predominantly driving that growth, but again, as I highlighted, we are seeing very good signs as we start to build out that cloud expansion and our other business units as well as other regions.

Samad SamanaJefferies — Analyst

Great. And then, Barak, maybe a question for you. It’s exciting to hear about the 80% plus conversion for [email protected] I’m curious if you could share any characteristics about those customers. Are they generally larger than your existing installed base? Are they on the smaller side? Is it getting you into new geographies or new verticals? Just curious how much that’s widening the aperture for NICE and who they can look at?

Barak EilamChief Executive Officer

Thanks for that. I’m trying to think, because it’s — I must say it’s across the board. I can’t characterize it on a specific territory or a specific vertical, it’s across, actually, multiple verticals. We have the success both internationally and domestically, and also different sizes. I think what is common to all of them is that they’ve experienced the need to move to work from home and they hit a wall on the limitation they had with their on-premises or hosting solutions from other providers and that came exactly on the right time for them. So, they tried it and just in a matter of days, they realized this is the right solution. So, the common thing is just a matter of how outdated their legacy solution is. Other than that, it’s across — it’s all over the place from vertical, segments and size.

Samad SamanaJefferies — Analyst

Helpful. And Beth, I’m going to break the rules. So, I’m going to squeeze a third question and just given NICE has a such broad view across so many verticals. I’m curious if you think about some of the challenged verticals that you serve maybe more in the hospitality, travel, retail, are you starting to see improvements there? Are you starting to see customers bring back service agents? Just anything you can give us qualitatively or quantitatively that shows what’s happened there trend-wise, inside of the installed base, that would be helpful.

Beth GaspichChief Financial Officer

Sure. I think we’ve highlighted in past quarters that — and Barak highlighted today in his discussion around. We are fortunate to really be driving a lot of growth and acceleration from certain verticals, which are in the government sector and really kind of new breed technology companies. So, this is really fueling and further accelerating the growth we’re seeing in the cloud. In terms of challenged verticals, I’d say we did see some initial slowdown as expected from the results of COVID. We’ve seen kind of a flattening in terms of those verticals, and certainly, we’re optimistic as we hear positive signs in the market and optimism that those are opportunities for fueling further growth as we go into 2021.

Barak EilamChief Executive Officer

Maybe just to add to that, Samad, those verticals that you referred to hospitality, travel were not very strong verticals for us before, it’s just a matter of size for us, but surprisingly, one of the deals, I think the first deal I mentioned in my opening remark was one of the largest hospitality operators in the world, that was obviously impacted by COVID, but decided to take the opportunity at this time and replace their incumbent — their on-premise providers with CXone. And generally, customer service is front and center for every organization. So, even if they are somewhat challenged with their business, it’s an area that they want to continue in excelling.

Samad SamanaJefferies — Analyst

Great. Really appreciate the color and great to see the strong cloud growth.

Barak EilamChief Executive Officer

Thank you.

Operator

Thank you very much. Your next question on the line comes from the line of Ryan Koontz from Rosenblatt Securities. You’re live in the call. Please go ahead.

Ryan KoontzRosenblatt Securities — Analyst

Hi, good morning and thanks for the question and congrats on the strong cloud growth there. You’ve clearly seen success in moving inContact up markets, and as you do that, I wonder if you’re seeing any changes in the low end of the enterprise, in the mid-market space. I’m wondering if new entrants there from some of the UCaaS players are starting to impact the competitive market or pricing in that segment? Thank you.

Barak EilamChief Executive Officer

Thanks for the question. So obviously, as I said, we see success across the board, but we are very excited about the adoption, the increased adoption of large enterprises. This is where we believe the opportunity lies ahead. But at the same time, we are not neglecting the mid-market, the SMB. We have a very strong offering, very good go-to-market capabilities, and of course, a very wide network of channel to be successful in this market. So, we are highly segmented in the way we run our go-to-market and with the way we run our services post the deal, and of course, we know how to continue to do that and we don’t see any different dynamics in those segments.

Ryan KoontzRosenblatt Securities — Analyst

Got it. Helpful. Thanks very much.

Barak EilamChief Executive Officer

Thank you.

Operator

Thank you very much. Your next question on the line comes from Sanjit Singh from Morgan Stanley. You’re live in the call. Please go ahead.

Sanjit SinghMorgan Stanley — Analyst

Thank you for taking the questions and congrats to the team on hitting 50% cloud mix, it’s really great to see. Barak, maybe I want to talk a little bit about the conversion on CXone. It’s been 80% for the past couple of quarters. Can you give us a sense of how strong a funnel that is in terms of driving either new logo acquisition or even potentially driving some of these larger ACV deals that you’re signing?

Barak EilamChief Executive Officer

Yeah. So first of all, this quarter regardless of separate from [email protected], this was one contributor, we’re very happy with the number of new logos overall. CXone of course, is one of them, but we grew 50% on new logos acquisition versus Q3 of last year. And CXone at home is one of those contributors. The way I look at [email protected] is one of the vehicles that we have as kind of lead generation, and it’s very effective lead generation. Customer comes over, they can try it very, very fast in a matter of day or two, it’s up and running, and at their disposal, live in production and it saves a ton amount of time and effort in the sales process.

So, call it a very effective piloting program or trial program, or however you want to call it, it’s just a very effective vehicle. And by the way, in the course of doing that, we’re very proud also to help some organization at the time back in May and April, where they really, really needed that support. So, we just continued the program and it created great momentum in our pipeline, but as I said, it’s one of the elements out of many.

Sanjit SinghMorgan Stanley — Analyst

And if I could just follow up Barak on that point, and we think — I mean, 50% is a pretty outstanding number, and it seems, there’s multiple elements at play. I think what’s particularly impressive is that, large enterprise customers, your traction and that side of the market is doing great there as well. So, are you guys getting better at sort of online customer acquisition? Is the sort of pace of decision making in terms of converting the pipeline increasing? What are the things that are changing today versus last year that’s driving that increased velocity in the new customer acquisition side?

Barak EilamChief Executive Officer

So, I will give it to few factors. First is generally, as I said, race into the cloud by a lot of enterprises that would like to move and move much faster versus a year ago. Second is the expansion of our go-to-market. We have more go-to-market resources, more go-to-market capabilities, and as I said, both domestically and internationally, while the revenue internationally you’re yet to see that. We actually have strength in those areas as well, which will eventually also become more pronounced in the revenue as well. So, all of those are key contributors.

The beauty about all of those new logos is even if we land such a customer and they are starting, relatively small, even if they are a big enterprise and decide to start small in one department or one area, once you’ve landed in this — this customer, and, of course, if we’re successful and customer satisfaction is high and that’s our intent of course. The opportunity for expansion and growth with that customer is very substantial and I mentioned in my opening remarks a lot of some — a lot of large deals that will follow on expansion deals from new logos that got acquired the year and two years ago.

Sanjit SinghMorgan Stanley — Analyst

Excellent, Barak. Thank you.

Barak EilamChief Executive Officer

Thank you.

Operator

Thank you very much. Your next question on the line comes from Rishi Jaluria from D.A. Davidson. You are live in the call. Please go ahead.

Rishi JaluriaD.A. Davidson — Analyst

Hey, guys. Thanks for taking my questions and nice to see continued acceleration on the cloud side. I first wanted to go back to the CXone side of the business and ask about sustainability, but not sustainability of growth rates, but thinking just about maybe the sustainability of the tailwinds that you’ve seen as a result of COVID. As we think about post-pandemic, especially with visibility into a potential vaccine, how are you thinking about those tailwinds going forward? Is there maybe even a replacement opportunity as those reopenings of offices to replace the legacy on-premise and increase the velocity of those replacements and maybe expanding that question a little bit more, as you are talking to your customers, especially the larger upmarket ones, where you have some nice traction, what is your sense for their post-pandemic playbook? Is it a kind of back to business as usual, when it’s safe to do so? Is it going to be a hybrid environment and contact centers not running at 100% capacity with some remote work options? Maybe walk us through that and then I’ve got a follow-up.

Barak EilamChief Executive Officer

So, it’s kind of, I would say several questions. I’ll try to answer. The first one is, as I’ve mentioned and we mentioned in the past two quarters, “We benefited from the reaction to COVID because it accelerated decisions with many of our customers and prospects”. On the flip side, we don’t see the negativity or a negative impact on our business when hopefully there will be a vaccine and we will all be out of this COVID situation. On the contrary, we believe that those insight and realization and experience the organization had during the pandemic will further accelerate the cloud even post the pandemic. So, we don’t see if I can call it a negative reaction to our business as the pandemic clear out.

With respect to what we hear from customers about their thoughts moving forward, it’s an interesting question and we have this dialog with a lot of customers, customers come to us to consult and ask if we know what other are doing and etc. What they really want to know from us these days is they would like to get through our analytical tools, two things. First of all, to understand the real — the productivity of their people who are now working from home for the past seven months to eight months. They’re all working from home, there’s a feeling everything is OK but different things like the customer experience, engagement, effectiveness, etc. is something that now increased the consumption of analytical tools and you heard again many of the analytics deals we had in the quarter. That’s one thing we hear from customers. And the other side of it is implementing those tools as they understand that work from home either in a hybrid mode or just working from home is here to stay potentially, and they want to make sure that those environments, the working from home environment is as effective or even more effective that they have versus working from the office.

Rishi JaluriaD.A. Davidson — Analyst

Got it. That’s really helpful. And then just a quick follow-up. As we think about the traction that you’ve had with the ecosystem and marketplace, right, with CXone and then now you’re building out this X-Sight marketplace, can you speak a little bit about kind of the longer-term vision for the marketplace and maybe the potential monetization vectors there? Thanks.

Barak EilamChief Executive Officer

So, I think there are three layers to the value within the marketplaces, and as I said, we use the same playbook in CXone, in X-Sight and in Evidencentral, which is the platform for the Public Safety. And for CXone for sure, and X-Sight, we’re already at a point where there is a scale to that network and it’s part of our go-to-market and it’s part of the cadence of customers to navigate through this ecosystem as they are looking to further expand and onboard additional capabilities on top of either CXone, X-Sight or Evidencentral. So we’re very happy with that.

So the first one is value to customers. The second thing is, we do see and we’re already starting to execute on some monetization opportunities and the monetization has, I would say a variety of options in there enriching the data in our systems and then monetizing on this and I mentioned a bit on that on the X-Sight part, but also certain charge that we can have on advanced integration and also resell opportunities and referral opportunities that we might get from this network that are very eager to leverage our go-to-market.

These are the opportunities that we see on this network and I would say that the third layer, I’m sorry, is actually a great way for us to explore M&A opportunities. We can in real time see who are those players that are very successful, who gets traction beyond slideware, but actually in real life and that allows us to have a better and more better qualification for future acquisitions.

Rishi JaluriaD.A. Davidson — Analyst

All right. Wonderful. Thank you.

Barak EilamChief Executive Officer

Thank you.

Operator

Thank you very much. And your next question on the line comes from the line of Walter Pritchard from Citi. You are live in the call. Please go ahead.

Walter PritchardCiti — Analyst

Thanks. Two questions. Just one first on the license side, there was, I think a notion last quarter that you might, you’ve seen some license deals maybe deferred and you might see that come back. I’m wondering, how you’re thinking about license especially as we move into next year? And then I had a follow-up.

Barak EilamChief Executive Officer

Yeah.

Beth GaspichChief Financial Officer

Thanks for the question, Walter. As we look at the license side of the business, I think, what we’ve seen in both Q2 and in Q3 was generally as expected. We have had some headwinds coming on the license side of the business. And as we look forward to the fourth quarter, I think we expect a bit more of the same in terms of some of that compression on the license side, and of course, on the flip side of that, the momentum we have seen on the cloud is continuing to be strong and we have ongoing momentum there.

As we look a little bit further into 2021 on the license side of the house, I think that it’s a year with new budgets coming into play and obviously some optimism around a potential vaccine and what that means on a broader scale. So, we believe we’ll likely see some stabilization on the license side next year. And certainly, as I mentioned, on the cloud front, we expect that to continue to be really the strong growth in the fourth quarter as well as looking into next year.

Walter PritchardCiti — Analyst

Great. And then just on a margin question, you’ve made good progress on gross margins generally in the cloud. I’m wondering how the larger enterprise mix within cloud impacts gross margins. I know sometimes those customers don’t bring their own telephony, and they’re just larger deals. So, they may have higher gross margin, but how should we think about as you see continued migration of that cloud mix toward larger customers, what the margin impact is at the gross level?

Beth GaspichChief Financial Officer

I think you hit the nail on the head really, which is that, that’s very true that as we go into the larger enterprise. They do often have their own telephony and of course we see them buying more of the suite across our cloud platforms, whether it be CXone, Public Safety or Financial Crime and Compliance and the X-Sight platform. So, it’s really a common theme that as you’re going into the large enterprise, they’re buying more of the software and the analytics, which is really coming at the higher margin profile relative to the telephony piece of the overall deal. So, we are seeing that it has a positive impact and that’s one of the factors that is contributing to the nice growth you’ve seen in the cloud gross margin year-over-year. I mean we’ve had almost a 400 basis point increase year-over-year. So, we expect to see more of that over time and that ongoing trend to be in place.

Walter PritchardCiti — Analyst

Great. Thanks for the detail, Beth.

Operator

Thank you very much. There are no more questions in the queue at this time. And now, I would like to hand the call back over to Barak. Please go ahead.

Barak EilamChief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Marty CohenVice President, Investor Relations

Barak EilamChief Executive Officer

Beth GaspichChief Financial Officer

Shaul EyalOppenheimer — Analyst

Daniel IvesWedbush — Analyst

Scott CasherBank of America — Analyst

Chris ReimerBarclays — Analyst

Samad SamanaJefferies — Analyst

Ryan KoontzRosenblatt Securities — Analyst

Sanjit SinghMorgan Stanley — Analyst

Rishi JaluriaD.A. Davidson — Analyst

Walter PritchardCiti — Analyst

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