NICE Ltd. (NICE) Q2 2025 Earnings Report, Transcript and Summary

Hello, and welcome to the NICE conference call discussing second quarter 2025 results, and thank you all for holding. [Operator Instructions]. As a reminder, this conference is being recorded August 14, 2025. I would now like to turn this call over to Mr. Marty Cohen, Vice President, Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Scott Russell, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. Before we start, I'd like to point out that some of the statements made on this call will constitute forward-looking statements in accordance with the safe harbor positions 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 titled Risk Factors in Item 3 of the company's 2024 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 19, 2025. During today's call, we will present a more detailed discussion of second quarter 2025 results and the company's guidance for the third quarter and full year 2025. You can find our press release as well as PDFs of our financial results on NICE's Investor Relations website. Following our comments, there'll 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 share-based compensation, amortization acquired intangible assets, acquisition-related and other expenses, amortization of discount on debt and also from extinguishment of debt and the tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks uncertainties and assumptions. And I'll now turn the call over to Scott.

Thank you, Marty, and welcome everyone this morning. We're proud to report another strong quarter, with total revenue exceeding our high end of our guidance range and earnings per share coming in at the high end of that range. In Q2, total revenue reached $727 million driven by 12% year-over-year growth in our cloud business as expected with an NRR of 111%. AI is the heart of our strategy, and we are leading the AI-first transformation in the customer experience market. While others focus on consolidating legacy CCaaS platforms, we're accelerating in a different AI future-focused direction. This commitment is reflected in our exceptional 42% year-over-year growth in AI and self-service ARR which grew to $238 million in the second quarter. Our AI automation and augmentation solutions embedded in CXone Mpower are the catalysts behind this momentum. Enterprises understand that providing a seamless customer experience results in the ultimate reward, loyal and repeat customers. Our one-of-a-kind platform has reimagined this harmonious customer journey and is fueling our outstanding performance in AI, evidenced by our strong Q2 AI bookings, including a sixfold year-over-year increase in Copilot deals. And this is just the beginning. Our momentum will only accelerate as we integrate Cognigy's industry-leading CX-AI, conversational and agentic capabilities upon the closing of the transaction to deliver human-like AI-first customer experiences. Our ability to rapidly innovate and bring industry-leading CX AI quickly to market, both organically and through acquisitions is a direct result of our continued financial strength, our strong profitability and rock solid balance sheet. The core value of CXone Mpower platform can be explained in two simple ways: First, we make customer engagement simple and intuitive with a single pane of glass that lets our customers manage all interactions across every point of engagement. Second, the platform intelligently orchestrates across agents, automation and systems of record in real time. Cognigy will act as a force multiplier to significantly advance and accelerate the capabilities of CXone Mpower. On the customer engagement side, Cognigy's AI agents will be orchestrated natively within our platform, reasoning and responding in real time to make consumer experiences faster, more human, and more personal. And on the orchestration side, Cognigy becomes a part of a fully connected platform, gaining access to richer data, more expansive workflows and shared knowledge and models. This is an environment where Cognigy's AI will thrive, growing smarter with every interaction. It is truly a compounding advantage as more organizations adopt CXone Mpower, both our platform and Cognigy's capabilities growing stronger together. With this bold step, we are clearly poised to expand our leadership in the AI-first evolution in customer experience. Some examples of our AI success in Q2 include a standout 7-digit ACV AI win, which came from a major electric utility that choose CXone Mpower replacing two incumbents. They sought a seamless customer experience and a stronger self-service needs directly aligned with our strengths. With CXone Mpower, they're gaining a unified end-to-end platform and in AI-powered tools like Copilot, Auto Summary and other self-service solutions which are significantly enhancing the customer service. In another notable 7-digit ACV AI-driven win, a leading global medical device company is using CXone Mpower to boost cold containment, enable intelligent and enhance agent support. Already a strong advocate for a unified approach, they chose MPower for its ability to extend AI across the customer journey, highlighting how enterprises are leveraging the platform to elevate self-service and drive measurable ROI. In another AI-driven deal, a major financial services provider, SS&C Technologies and a long time NICE customer is adding Copilot after a successful autopilot deployment to meet boost efficiency and enhance agent-customer experiences. This deepening investment reflects growing trust in NICE's AI portfolio and its impact on building a more agile intelligent workforce. Partnerships have always been a cornerstone of our growth strategy. And this year, we're proud to welcome exciting new alliances with industry leaders like ServiceNow, AWS and Snowflake. We're also thrilled to extend and reinvigorate our long-standing partnership with RingCentral. Together, we'll continue to collaborate on go-to-market initiatives, leveraging the strength of RingCentral Contact Center powered by NICE CXone Mpower. We're also excited to announce our deepened strategic partnership with Salesforce to enhance integration between NICE CXone Mpower and Salesforce Service cloud. Together, we're investing in expanding support for bring your own contact center, including customer managed channels and NICE's industry-leading capabilities. This strengthened collaboration unlocks powerful new functionality and sets the stage for continued joint innovation and growth. At Interactions, the power of our ecosystems was on full display, the energy from our partners, customers and industry analysts was extremely positive. Customer and partner attendance surged 33% year-over-year. C-level engagement increased 41%, clear evidence that key decision-makers are leaning in with us. The momentum from interactions is already directly translating into pipeline impact and confirming what we already knew, interactions is a catalyst for growth and provides a clear validation of our business momentum. Another area where we see significant and accelerating growth potential is across our international markets. Enterprises are increasingly adopting end-to-end solutions with AI adoption gaining momentum, the demand for comprehensive and intelligent AI platform like CXone Mpower is growing rapidly. We're also seeing strong traction with our sovereign cloud deployment of our platform, particularly in countries like Germany and France. These dynamics play directly to NICE's strengths, and are fueling continued international growth as reflected in the large-scale deals we're now closing in these regions. As we shared last quarter, together with our partner, Route 101, we secured a landmark agreement with the Department of Work and Pensions, or DWP, home to one of the European continent's largest customer service operations with a total contract value exceeding $100 million. These major wins saw us successfully displace two key competitors as the organization selects the CXone Mpower to support tens of thousands of agents. In a 7-figure plus ACV international win, with a leading German health insurer, AOK PLUS choose CXone Mpower over an incumbent citing our unified platform and sovereign cloud as the key differentiators. The deal included a fundamental for future AI adoption and marked a major competitive displacement with our seamless end-to-end solution standing out against rivals fragmented third-party approach. And we also signed a significant 7-figure ACV deal with a leading U.K.-based insurance company displacing 3 legacy vendors as a part of a major transformation to modernize their customer service operations. They selected CXone Mpower as the foundation for this initiative and adopted both Autopilot and Copilot as they embark on their AI journey. In summary, I joined NICE at the beginning of 2025, which I'm sure everyone remembers, and I was truly excited about the immense opportunity in the coming years. As I outlined at the beginning of this year, I've been keenly focused on specific strategic focus areas to drive NICE forward. And I'm really pleased to report we are making strong progress across the board. I'm committed to leading the AI revolution, and we've delivered both organically with 42% growth in AI and off service revenue, or ARR, and inorganically through our acquisition of Cognigy. We emphasized the importance of strategic partnerships to scale our impact. And in a short time, we've launched collaborations with ServiceNow, AWS, Snowflake and Salesforce with more to come, while also deepening our relationship with RingCentral. International expansion was another key priority. And this year, we've signed one of the largest deal in our history, alongside accelerating cloud adoption in international markets which Beth will iterate on shortly. Importantly, we're achieving all of this with disciplined operating rigor, maintaining industry-leading profitability while thoughtfully deploying capital through acquisitions and share repurchases. Before I hand it over to Beth, pending the closing of Cognigy, I want to remind you that we're planning our Capital Markets Day in New York in October. We're looking forward to sharing a deeper look at what lies ahead for NICE as we head into 2026 and beyond, including midterm financial targets and the latest development surrounding the Cognigy acquisition. I'll now hand the call over to Beth.

Thank you, Scott. I'm pleased to share another quarter of strong financial execution. Total revenue of $727 million increased 9% year-over-year, resulting from a combination of healthy growth in the cloud paired with strong product revenue contribution stemming from the Financial Crime and Compliance segment. cloud revenue performed in line with our expectations with 12% year-over-year growth, contributing $541 million and representing 74% of our total revenue. Our solid cloud growth in the second quarter was driven by our CX AI and self-service ARR, which increased 42% year-over-year to $238 million and now represents 11% of our cloud revenue. This strong momentum highlights the underlying strength of core Mpower AI offering, which we believe will be further amplified with expected acquisition of Cognigy. The growth is primarily driven by the strong momentum seen with our key AI solutions, including Autopilot, Copilot, Knowledge Management and Proactive AI, which are predominantly built on a consumption model. Our cloud NRR for the trailing 12 months of Q2 remained at a healthy level of 111%, highlighting durability of our customer relationships and ongoing cross-sell and up-sell momentum. Our expertise in delivering scalable enterprise-ready software continues today in both our cloud and Premise offerings demonstrated in our Q2 results. In addition to the solid performance of our cloud business, product revenue outperformed in Q2. Increased 29% year-over-year driven by successful pull-forward of term renewal activity that was originally anticipated in the third quarter and included in our third quarter expectations and successfully pulled into Q2 stemming from our Financial Crime and Compliance segment. Our services revenue, which represented 19% of our total revenue, declined 5%, in line with our expectations. From a geographic breakdown. The Americas region, which represented 84% of revenue in Q2 increased 9% year-over-year with double-digit cloud revenue growth and strong product revenue, which was partially offset by a decrease in services related revenue. Our international business demonstrated strong revenue growth in the second quarter as our cloud business continues to drive this expansion with our demonstrated success of large enterprise scale wins. In the Asia Pacific region, one major deal signed in Q2 of last year with Services Australia has successfully ramped and is now contributing to our quarterly cloud results. Meanwhile, we're excited about a second significant win with DWP in the EMEA region where we expect revenue contribution to begin ramping in Q2 of 2026. Our international revenue contribution increased from last year, and we expect this trend to continue. EMEA revenue increased 11% and 15% on a constant currency basis year-over-year. APAC revenue increased 17% year-over-year and similarly on a constant currency basis. Together, our international revenue increased 13% year-over-year and 16% on a constant currency basis. Our international business continues to represent significant long-term growth opportunities for us. These regions remain under-penetrated in terms of cloud adoption, and now we're seeing tangible traction as investments in sovereign cloud and strategic partnerships become more meaningful in our results. Turning to our business segments. Customer Engagement revenue, which represented 82% of our total revenue in the quarter was $597 million, increasing 8% year-over-year, driven by the strong growth in our cloud business in all geographies, which offset the continued transition of our premise-based business. Revenues from Financial Crime and Compliance, which represented 18% of total revenue in Q2 and totaled $130 million performed well ahead of our expectations, growing to 19% year-over-year. This was due primarily to a significant increase in product revenue that I previously highlighted as well as continued strong cloud revenue growth. Moving to profitability. Our total gross margin was 69.3% compared to 70.7% last year, a slight decline primarily due to increased cloud spend. In tandem with the success of our international business, we are increasingly investing in our cloud infrastructure across multiple regions. Our operating income in Q2 increased 9% year-over-year to $220 million, and our best-in-class operating margin totaled 30.2%. Earnings per share for the second quarter was $3.01, a 14% increase compared to last year. Our cash flow from operations in Q2 was $61 million. The decrease year-over-year is due primarily from a nonrecurring tax expense in the quarter and timing of some large anticipated customer collections, which shifted to receipt a few days post quarter-end. 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. Our balance sheet remains robust with total cash and investment at the end of June totaling $1.632 billion while total debt stood at $460 million, resulting in net cash and investments of $1.2 billion. We expect to repay this debt at maturity in mid-September. In summary, we are pleased with the strong first half to 2025, marked by solid exclusion and continued momentum across our key strategic growth catalysts, rapid AI adoption, embracing both automation and augmentation, continued cloud adoption in the large enterprise and international market segments and expansion opportunities within our large installed base. These results, along with our strong balance sheet and cash generation provides the financial flexibility to invest decisively in innovation, both organic and through acquisitions. Looking ahead, we're excited about the opportunity to share more financial details with the anticipated acquisition of Cognigy, including our general midterm outlook at our upcoming Capital Markets Day. Now I will close with guidance for total revenue and non-GAAP EPS for the third quarter and full year 2025. It's important to note that our planned acquisition of Cognigy is expected to close during the fourth quarter of 2025, subject to regulatory approval and therefore, this guidance excludes any planned impact from this proposed transaction. For the third quarter of 2025, we expect total revenue to be in the range of $722 million to $732 million, representing 5% year-over-year growth at the midpoint. We expect the third quarter 2025 fully diluted earnings per share to be in the range of $3.12 to $3.22, representing 10% year-over-year growth at the midpoint. For the full year, we are reaffirming our prior revenue guidance. Full year 2025 total revenue is expected to be in a range of $2.918 billion to $2.938 million which represents an increase of 7% at the midpoint. We continue to expect year-over-year cloud revenue of growth of 12% for the full year. We also continue to expect our non-GAAP operating margin to an increase in estimated 50 basis points year-over-year. We are raising the full year 2025 non-GAAP fully diluted earnings per share guidance, which is now expected to be in a range of $12.33 to $12.53 which represents an increase of 12% at the midpoint. I will now turn the call over to the operator for questions. Operator?

[Operator Instructions] Your first question comes from Meta Marshall with Morgan Stanley.

Great. Maybe a couple of questions. Just how are you guys thinking about the level of investment -- or kind of what is the correct appropriate level of investment to make right now? You've clearly talked about a lot of new kind of burgeoning partnerships and kind of exciting things with AI, just kind of looking to get a little bit more commentary on how you're thinking about operating margins and just the puts and takes there in the near term? And then just second, kind of what gives you confidence in kind of that 12% growth target for the year on cloud just kind of given what you've seen in the first half?

Thanks, Meta. So I'll start kind of addressing your question. In terms of the level of investment, you can see the level of investment we've made around the cost of cloud that we've highlighted now and that you see in our gross margin in the first half of this year. And we're really pleased with how that's paying off. We're already seeing the international revenue expansion there, where much of that additional investment was made to really invest in that international business that we have. And so we're seeing great momentum there. With respect to what it means in terms of operating margins in the near term, as I shared, we still expect to see a 50 basis point year-over-year increase over last year's results in the current year of 2025. And of course, as we step into 2026, that's part of what we plan and look forward to sharing more in terms of level of investment at our Capital Markets Day that we're looking forward to. With respect to your other question around the cloud revenue expectation. We came into the year saying we see a comfort to deliver on the 12%. We have successfully done that. Solid performance with 12% in both Q1 and Q2. And I'll add that we expect that 12% to continue to be delivered in the third quarter as well. We have a good line of sight on our business in the Q3, and so as we look on the fourth quarter, and I've highlighted in prior calls, we had a higher level of seasonality than what we've typically seen in the quarter of last year. So we're keeping that in mind that we have this higher baseline for comparison. But overall, we're very pleased. I think you can also see the great growth that we're experiencing in the AI with the increase to the 42% year-over-year growth in our AI and self-service ARR. And so that we expect to continue to contribute as well. There are other areas of our business where we have not seen the same level of strong performance this year. One of those that we would just call out is around LiveVox. During the course of 2024, LiveVox was performing in line with our expectations as we stepped into this year, we are seeing some softness in that business. We're still very excited about it as an asset, but it is creating a bit more kind of a weight on the 12% expectation for the year, which is why we're maintaining again, full confidence around it and optimism looking toward to 2026, but that does create a little more uncertainty in terms of the fourth quarter.

The only thing what i would add to that is what -- on the cloud revenue growth. Look, our core platform, CXone Mpower is really strong. So is AI. You can see that in the ARR numbers. And so when you think about the backlog, you think about the pipeline, you think about the way forward, we have confidence with that. But no doubt, some short-term challenges around the headwinds that Beth mentioned around LiveVox, but that doesn't change the outlook that we have.

The next question comes from Siti Panigrahi with Mizuho.

Congrats on a good quarter. Just wanted to dig into the margin side, mainly your cloud gross margin has come down below 70%. I assume that's the AI investment. How should we think about the gross margin going forward for cloud? And in the same context, could you help us understand the 50 bps margin expansion, where do you see most of the leverage this year?

Yes. Thanks for the question, Siti. So in terms of the margin, you'll see that we were a little bit sub-70% both in Q1 and Q2 of this year. And I've actually remarked previously that, that was expected. It is intentional. We are investing to drive accelerated growth, and that is the plan. And a lot of that was focused in the first quarter a bit more in some areas around acceleration of our go-live time frame that we had highlighted. And so some of that came into play in the first quarter, as well as, again, really a focus on the international momentum and business there where we're putting in certain infrastructure that's necessary to drive that growth in those regions. So as we look on the back half of this year, first of all, we did have some -- we always -- there's always some timing difference, meaning that we had some large spend, I would say, on the marketing side in the first half of this year around our annual interactions conference. We also had our re-branding exercise, and so as we look at the back half, we should see some leverage in terms of the OpEx around some of those things with a bit less spend as we've spent more in the first half. And then also is the gross margin. So while we don't expect the gross margin to change dramatically, and you should expect in the coming quarters to kind of see that flattish overall cloud gross margin profile. We do believe that there's some opportunity to see some elevation that will lead to that higher operating margin in the second half of this year. And I think the other thing we would highlight is if you look on our historic results, one of the things we are very strong around is our muscle in driving operating leverage. So we've intentionally made these investments now, but we fully expect to use that muscle to drive margin expansion on the gross margin over time as well.

The next question comes from Tyler Radke with Citi. The next question comes from Rishi Jaluria with RBC.

Maybe I want to start with the expanded or renewed RingCentral partnership. Definitely was very pleased to see that. Can you expand a little bit in terms of what led to that, especially with RingCentral, they came out their own CCaaS solution or signaling themselves as being a competitor and this seemed like a little bit of a reversal from that. Maybe you could talk about how the deal came together and if there's been any changes in revenue share or royalty or anything like that? And then I've a quick follow-up.

Sure. Thanks, Rishi. I'll take this one. So look, it was really pleasing that our organizations that had a long-standing successful partnership that we were able to be able to renew with renewed focus. First of all, I think it's an acknowledgment that -- and I know that the Ring team also spoke about this. We've got the leading CXone Mpower CCaaS platform in the enterprise segment. We are the market leader. And with our AI capabilities and the strength that we're building in that portfolio, combined with RingCentral's market-leading UCaaS capabilities and communication capabilities, it's a natural partnership. So I think once we work through how we were going to collaborate, make it effective and combined together, it was obvious that a collaboration was in benefit not only to our two organizations for our customers. The second thing that I would highlight is partnerships in the enterprise technology space are not always about exclusivity of -- there is always going to be areas where there's overlaps of portfolio and capabilities. And so between our two organizations, we took a mature approach to this. What brings us together and the combined value is tremendous for customers. And yes, while they have certain capabilities, and frankly, we do a bit overlap with some of theirs, our combined proposition to the enterprise segment is a no-brainer. So I think what it can do is give confidence to our existing customers as well as future customers that want to leverage the combined portfolio that we both bring and that gives us confidence in the way forward.

And then, Beth, I appreciate the color you've given in terms of cloud growth and some of the underperformance in LiveVox. Maybe can you expand a little bit on what is causing that underperformance? And if we look forward, obviously, the Cognigy deal has yet to close, as you said, closing at some point during Q4. Are there any kind of takeaways or things that we should maybe think about as that deal closes to maybe prevent underperformance that -- they can do just kind of drive better performance or prevent something like what's happening with LiveVox from happening there?

Yes. Thank you for the question. So with respect to LiveVox, I think there's always certain assumptions you're making around the retention of your customer base and the ongoing health of some of those relationships. What we've seen this year is some churn in some of the customers that was larger than anticipated. So the momentum that we had expected, combined with the new business is not getting the same level of uptick in the growth as anticipated. So overall, it is creating some dilution in our organic growth that we expected to see in the cloud. We're certainly really excited about the upcoming acquisition of Cognigy, of course pending to regulatory approval, and it's something that we anticipate will create momentum not only from just the integration of their capabilities into CXone Mpower, but also what that means for driving a pause momentum along with the rest of our business, which will be sold together with that as part of the overall platform. So I think pending the timing and the close of that acquisition, that should again give us some potential upside opportunity that we could see that during the course of this year.

Yes. The thing that I would add to what Beth mentioned, Rishi, is two things. First of all, LiveVox's capability, notwithstanding the short-term challenges and slight headwinds that we saw in 2025 in the first half as an asset around outbound capabilities strategic for us to be able to deliver full scope of customer experience for our customers, it's a really important asset. And so the way we view it is, okay, we've got an integral capability that will be architected and is in the process of being built into the core CXone Mpower platform with both our world-class inbound capabilities, with LiveVox's outbound capabilities, that's a strategic advantage. So sort of short-term hit, long-term gain is the way that we're viewing that. And then the only thing that I would say is back to the Cognigy point that Beth made is subject to closing, of course, we very much look at that in a long-term strategic growth. This is not about short-term revenue quarter-on-quarter. This is about long-term sustained growth for our company and for value for our customers.

The next question comes from Tyler Radke with Citi.

First question for you, Beth. I just wanted to follow up on some of the LiveVox commentary, and specifically, how to think about the puts and takes of those headwinds on the business in Q3, Q4. So I certainly understand there's some unanticipated churn that's impacting the model. But are you saying that the 12% may not be achievable now by Q4 or potentially there's some offsets to that? Obviously, AI revenue did accelerate this quarter -- so just help us understand, like do you think the 12% is no longer a good target kind of each quarter for the full year? Or are you able to offset that churn with strength in the rest of the business?

Yes. So let me start by saying I've reiterated or we've reiterated our expectation. We're fully confident that we will achieve 12% year-over-year growth for the full year. As you've seen -- we have delivered that in Q1. We delivered on that in Q2. We delivered on that as well, and we're expecting to deliver on that as well in Q3. We're very confident around our ability to achieve that benchmark as well. As we look in the fourth quarter, if you do the math, obviously, because we've had 12.4% growth in Q1, 12.3% in Q2, expect 12% in Q3, that would expect a slightly lighter growth in the fourth quarter. So the comments that I made about LiveVox, by the way, are not specific to Q3 and Q4, that is something that has already been embedded really in the quarter that we're sitting in now in terms of the growth. So I think the point being is, one, we're completely confident and very highly staying with the 12% confidence level for the full year in delivery. With LiveVox, we're calling it out as something that we came into the year also with the expectation we'd be able to potentially outperform higher than the 12% and highlighting LiveVox is one of the reasons that we are seeing some pressure on the overall cloud growth.

Great. And then a follow-up for Scott. Just on the large deal front, I think last quarter, you announced a 9-figure deal with a large European customer. What are you seeing just on the large deal pipeline is kind of the sales cycles remained consistent. Do you have kind of additional sort of 9-figure stuff in the pipe for the second half? And how are you just thinking about kind of the revenue ramp from some of these large deals that you signed over the past year?

Yes, it's a great question. So first and foremost, we do see large deals, larger deals in our pipeline going forward, not only in the second half of this year, but also into 2026. In terms of the buying behavior, I think there's two comments that I would make. The market is definitely moving. There's been a lot of discussion in the CX market and in the CCaaS market about the on-prem shift to the cloud, and there are some vendors that are only running that playbook. What is clear, is large organizations need to know that when they shift that they are enabling AI capability, they've got to be able to have self-service. They've got to be able to have augmented service. They've got to be able to then have a combination of capabilities that are delivering the enterprise scale, the reliability that you get with a large contact center on these 9-digit deals, but you've also got the ability to coexist and do that seamlessly with an AI platform that is -- and only we're the ones who are able to do that. So what we're seeing is that buying shift is involving more and more insights sort of around the AI capabilities of the core platform and how they are able to leverage those as a part of their transition and their move of increasing demands from consumers that have got an expectation of instantaneous response instantaneous resolution and an ability to be able to do so through their interaction with their brands. That comes into the deal mix. It's not delaying cycle, but it is certainly a bigger part of the evaluation as they're considering their entire CX platform. And we definitely have a strong pipeline of large deals with major customers that fits our strength in the enterprise segment, not just internationally, but also in North America.

The next question comes from Arjun Bhatia with William Blair.

[indiscernible] on for Arjun Bhatia. As your AI portfolio evolves, have you noticed a change in the pace of migration of on-prem contact into solutions to the cloud? In other words, curious to hear if you're seeing increased demand for being on the cloud and preparation for AI and agenetic AI?

Great question. It sort of links a little bit to what I mentioned before, but let me give a little bit more color. When customers are evaluating, they're sitting on legacy on-prem platforms, and we've talked about this -- you can determine whether it's 35%, 40% of the market from on-prem moving to the cloud. But there is still a significant customer base that are on-prem platform that are moving to the cloud. What is clear is that they are evaluating the AI capabilities of that platform as a part of that move. That is different than 12, 18 months ago. 12, 18 months ago, they were looking at the cloud move now. They're looking at a move that leverages cloud capabilities, but the AI capabilities are part of that platform is essential, which is why our existing investments around on CXone Mpower, our foundational data models, the amazing label data and the assets that we already have, which how was our Copilot powers our Autopilot. It's driving that 42% year-on-year growth that we saw in ARR in the second quarter. But also a recognition that self-service through a conversational AI and agentic AI platform that we're obviously looking forward to subject to closing with Cognigy is a key element of what customers are looking at. So the buying behavior is definitely becoming more detailed around the AI capabilities as well as historic CCaaS capabilities. And that's why we're very confident that we're leading the way. We are the company that has the most complete AI platform together with our existing strength in CCaaS. And that's what the market are expecting. They don't want fragmented solutions anymore. They want a unified platform.

The next question comes from Jim Fish with Piper Sandler.

What are you guys hearing from customers on net agent growth versus deployment of AI, particularly given the recently introduced U.S. regulation that's being discussed about mandating sort of AI versus human disclosure at the beginning of an interaction and within the United States itself? And I've got a follow-up to that.

So in simple terms, our customers are clearly trying to leverage AI capabilities, Autopilot for self-service, Copilot for augmented service and auto summary and those capabilities and the movement of the of the agents moving to a AI agents is not -- is clearly planned. It's not happening faster or slower than our anticipation. It's happening in line with what we're expecting. But what's -- what I find interesting is the contact centers and the human agents are doing more. They're able to handle the increased volume of interactions. And I think this gets lost sometimes in the view about, well, how many AI agents versus human agents? The amount of interactions that brands are receiving is double-digit growth in terms of the volume. So they're having an increased demand from their customers and their consumers. and they need to be able to do that seamlessly and inter-operate between AI agent and human agent. And that means that they're able to serve that as that growth of demand increases. And then the second thing that I would say is an increasing number of our customers are doing revenue orientated activities, value-generating activities on top of delivering customer service. And I would highlight the outbound capability that I mentioned before of LiveVox becomes -- is just a good example of a really critical capability that we can not only help our customers perform a service task from intent to fulfillment. But as there is a revenue or a sales opportunity that requires outbound, it comes on the same platform. So that's what we're seeing, but there's no dramatic shift in the number of human agents, but we clearly expect that over time, more and more self-service will drive that.

And just to follow up on the numbers side of that, Beth. It's nice to see the stability of NRR. Is there a way to think about the expansion level that's coming from cross-selling core solutions versus the AI solutions versus kind of the up-sell of net agent growth of your installed base?

Yes. Thanks for the question, Jim. I would say you've seen that our NRR has remained healthy at 111%, and it really reinforces the health of our existing customer base. I mean, we're on a more than $2 billion plus cloud ARR. And so a large portion of our revenue is continuing to come from our cross-sell and up-sell efforts. So the AI is really a key growth driver for us, and I highlighted earlier, it's already 11% of our cloud revenue when you look at the CX AI and self-service contribution. So that is certainly a key growth driver as we look to our customers and what we're selling to our customers, both with our existing installed base as well as the new logos that we're bringing on. So we're continuing to focus on a combination of all of those with the largest portion coming from the existing installed base. And as I said, I think what we're also seeing around that is the opportunity of international expansion. So the combination of the healthy NRR at the 111%, which is already embedding the effectiveness we're seeing in the cross-sell, up-sell and bringing on the new logos like some of the big deals that we've just recently announced, including the one with DWP in the international region.

The next question comes from Pat Walravens with Citizens.

Great. Scott, for you first, I love the willingness and focus on a mature approach around partnerships. And I would like to get a little more of the detail and background on the expansion of the partnership with Salesforce. This is an area where investors have a ton of questions, which is when both Salesforce and NICE are in the same account, and they have Agentforce and you have your AI solutions that are growing so fast. Who has the right to deliver which parts of AI where? How do you guys figure that out?

Yes. So I appreciate the feedback on the strategic partnerships. And I think as mentioned before, there is a lot of -- for enterprises, they're trying to figure out who are the major organizations they partner with, as they deliver business outcomes, whether it be for their employees, for their partners and in our situation for their customers. And these partnerships matter because it is clear that you need not only the capabilities that NICE brings, our market-leading AI capabilities the power of the CCaaS platform, the understanding at real detail the interactions, the intense the nuances of the consumers, the billions of interactions, but also how that seamlessly integrates into the data and insights of not only CRM platforms such as Salesforce but also other mid-office and back office platforms. So how do we navigate this? Well, there's a couple of really important principles. Number one, it is our belief, and it is strong belief, validated by the market's response to us that when it comes to customer service, you need an integrated single pane of glass. Companies do not want fragmentation in front of their customers. They just do not. And when you think about AI, it brings enormous opportunity, but it also brings the potential for fragmentation. So they do not want fragmentation between their different vendors as they deliver customer service. It needs to be orchestrated. And that means leveraging the strengths of the single pane of glass where we handle all types of interactions at huge volumes but also the interoperability with enterprise platforms such as Service cloud Voice that Salesforce brings that deliver other capabilities and system of record and updating CRM and sales and other capabilities as they're fulfilling those customer needs. So what we're really doing is through product engineering together, building new capabilities where we're able to do that more seamlessly, which removes the friction points for our customers. And there are overlaps in portfolio and I need to be candid with every one of our partners, we have overlaps in portfolio. It's okay. We rely on the strength of what we are focused on, which is being the best CX AI platform to deliver that single pane of glass system of engagement for our customers. But we're also saying, we know that we're going to co-exist, and we're going to proactively do so with the other companies that are in your enterprise tech space. And I think when you do that, it gives companies our customers' confidence. They now have confidence that when I choose NICE and I choose Salesforce, I've got a seamlessly integrated platform, but I also have the same flexibility if I choose ServiceNow or I choose Amazon and the others, and that's the approach that we're taking to this, to reduce the friction or the uncertainty for our customers. And I'm very confident that, that will result in not only improved sales but improved collaboration between our companies delivering value for our joint customers.

That's super helpful. And Beth, as a follow-up, when did you guys know that LiveVox was becoming a drag on the cloud growth?

So Pat, I think that throughout the course of last year, the performance was in line with our expectations, and we were pleased with what we were doing there in the business. As we stepped into this year, we started to see some signs of softness and that has started to play out. So of course, that's taken into consideration when we reiterate the top line expectation and the cloud growth. So yes, so we've started to see some softness. And obviously, we're taking a lot of actions to correct that because we do feel really excited about the opportunity and the potential to turn that around. So there is the ability to change that trajectory. But yes, so it's been -- we've seen it in the last several months.

The next question comes from Michael Funk with Bank of America.

So Beth, one of your competitors has mentioned that they are hearing from their customers that the customers expected less strength in 4Q. So softer seasonality than in previous years. Wondering if you're hearing similar comment then I have one follow-up, please.

Yes. Thanks for the question. We're not seeing that. I mentioned the high bar that we had last year, which we've taken into consideration. But as we look across our customer base, no, we're not hearing that. And in fact, we know that some of the other competitors in our arena actually have concentrated positions in terms of industry verticals, which we don't have. So, one of the strengths that we've had at NICE is when we look at our customers is we're well diversified as well across multiple different verticals. And so that always gives us that less exposure to anything that would potentially have a macro impact. But we don't see anything like that. We're not expecting it, and we expect -- there's no signs of any kind of softness in seasonality expected.

Yes. I think to reiterate, we don't see that softness.

Great. Thank you for the clarification. And then a bit of a higher-level question. I understand you're hoping you do better than 12% this year, LiveVox is maybe impacting that a bit. But is there a tipping point that you expect or something we can be watching from the outside to signal accelerating growth in cloud revenue, where I think a lot of investors are focused on that moving back higher hopefully, into the teens, mid-teens over time.

Yes. I think at Capital Markets Day, that's where we're looking forward to get into some further detail and granularity of what we expect to see both organically as we look ahead, but also the impact that we'll see from Cognigy, that we integrated into Mpower. So that's the point of really when we're looking to give more clarity. But as I highlighted earlier, I think we're very excited about this acquisition, and we believe that this will also be yet another reason that we can kind of further increase the positive momentum and the growth that we're seeing in our cloud business.

So quickly one more, if I could. So the LiveVox churn, was that primarily competitive churn? Or is that LiveVox customers retrenching and pulling back their total spend?

It was not competitive at all. It was more so a couple of handful of organizations that actually had decided to kind of create some of their own capabilities in-house predominantly. So it wasn't going to a competitor. It was then looking for other options to try and bring those capabilities in-house. I will say that in other scenarios like that, where we've seen customers attempt to do that, that it will often come back to us at a later point when they find out that they aren't able to effectively do that. So these are couple of handful of customers that we're talking about there. So that's kind of been the experience in it, but it's not competitive. It's really kind of these one-off scenarios.

The next question comes from Tim Horan with Oppenheimer.

Just two clarifications for you, Beth and a question. What was the equipment revenue or product revenue pull-through this quarter? I think you're saying gross margin should be relatively stable now?

Thank you for the question. So with respect to the product revenue, the contribution that we were able to successfully pull from the third quarter and our expectation there shifted into Q2, and that was contributing about $13 million in terms of revenue contribution, somewhere between $13 million to $14 million additional revenue that we pulled from Q3 into Q2. With the gross margin, again, I think you should expect that you'll continue to see kind of in that 69% to 70% more or less cloud gross margin in the near term. And as we step into 2026 and of course, with these deals, these large deals that we've signed continuing to ramp like service Australia, that's a good example where that customer and the revenue contribution has really just started to trickle into the quarter. So we'll also see the benefit where we've made those investments. We'll start to see the cumulative impact of the cloud on the other side of that, that will pull up the gross margin in the future quarters.

And then on AI, where are you seeing the most adoption at this point and the most productivity improvements? And can you talk about what is impacting ARPU. I'm sure there's pluses and minuses, like I'm sure the IBR is getting replaced by some IVAs, but there's a whole bunch of other products that are upcoming. Can you just talk about that balance there of ARPU increases versus declines?

Yes. So I'll cover that one. Look, the growth in our AI is across the portfolio, if I just sort of summarize our three key capabilities Autopilot, which is our self-service capability, Copilot which is obviously augmented and then Auto Summary, which is also part of augmenting and supporting our live agents, human agents. I think I mentioned in the opening, we had a sixfold increase in Copilot deals. So we're seeing obviously strong momentum. And it's -- if you think about it, it's a pretty natural extension or up-sell for our customers where they've got -- they're leveraging CXone Mpower. They use the platform really successfully. They're looking to introduce those AI capabilities. So Copilot is a key part of that growth. Autopilot also really strong, but that's where we're very excited about what Cognigy will bring going forward because they are the market-leading conversational AI platform and their ability to be able to provide that in a seamless and an integrated way with our data becomes very exciting. As it relates to ARPU, Tim, actually, no real change. So I guess the good news is it's incrementality because we're not seeing an erosion on the ARPU was the result of the introduction of the AI capabilities. I don't expect that to change. In fact, if anything, the value of our platform in serving agents continues to increase with capabilities such as LiveVox and others, let alone the AI capabilities, which we're able to monetize independently and very successfully.

The next question comes from Thomas Blakey of Cantor.

Just wanted to maybe unpack a lot of the details here. And Beth, thank you for providing the details you did, especially on the AI and self-service numbers. If we look into the second half, I just wanted to, again, kind of take apart the assumptions in core kind of CCaaS and AI themselves. I know you don't guide by product. But just if you unpack the numbers that you've given at Analyst Day and here, there seems to be a little bit of a decel like in this kind of call it core. And maybe that's all LiveVox is the answer, but I'd love to just kind of unpack that. And on the second question, was LiveVox kind of impact enough to maybe be a headwind to NRR,? 111%, if there's anything you want to call out there?

Yes. Thank you for the question. In terms of unpacking the second half and the different pieces of the cloud. AI, as you can see, continues to be really the key growth driver of our cloud. We went from 39% year-over-year growth in the ARR in the first to 42% in this quarter. So it's demonstrating the strength and momentum we're seeing there in the sales cycle and those customers coming into the revenue stream. With respect to outside of the AI specific solutions that are part of the Mpower, you really have a portion of the organic CX business. You also obviously have some FCC business. Both of those businesses continue to be healthy. We're happy with their performance and in line with our expectations. So it is, as we've highlighted predominantly the LiveVox business as well as a few other kind of legacy more hosted cloud. It's very immaterial overall, but that are out there in terms of underperforming that contribute that piece to the overall. But we're very pleased with looking at the core of what we're offering into the market and leading the market and our Mpower platforms and also the platforms we see in our FCC and Public Safety businesses as well. With respect to your second question around our NRR. There's always a potential for the NRR to move from quarter-to-quarter. We don't expect it to have a material change. But again, we're -- we don't really forecast NRR. So we'll continue to keep you posted. We expect to keep it healthy and certainly kind of comparable to the levels you've seen.

The next question comes from Catharine Trebnick with Rosenblatt Securities.

So quick question on what kinds of benefits do you expect to see from ServiceNow, AWS and Snowflake? I know you covered Salesforce to some extent. But to also, when would we see incremental revenue from some of these newer partnerships?

Yes. So all of these partnerships are -- have both elements from a go-to-market point of view as well as -- but more importantly, from a product and an integration. So taking engineering work. So in the case of AWS and ServiceNow, in particular, our engineering and our product teams are working together in collaboration, building out the orchestration capabilities. And so for customers, second half, more importantly, in Q4, is when we'll be able to then bring those and make them available to market. We are already seeing pipeline and demand that gives us confidence that, that will start turning into revenue opportunities and growth. But I think it's more in 2026 when we'll see that. As it relates to the go to market, the only other comment I would make is that we often see where customers will ask about the collaboration. So whilst they understand that the deeper integration between our portfolio is coming, and it's a part of the cloud road map of both companies. They want to know what that road map looks like because they're building it into their long-term buying decisions. It's not just about short-term integration. So again, we're already seeing the indications on pipeline even if revenue is in '26.

This concludes the question-and-answer session. I'll turn the call to Scott Russell for closing remarks.

Look, thank you, everyone, for joining this morning. I just wanted to reiterate our confidence in not only our performance in Q2, but our outlook for the full year, as we had stated at the beginning of the call, reiterating our full year guidance, reiterating the strength of our business that is powered by AI, but also no matter what the puts and takes are, we're in a position of strength, and you can expect that going forward. And last but not least, I want to thank Marty and the team for an incredible tenure in leading out of the Investor Relations for NICE. I've been the beneficiary of his leadership in over the last 6 months and wishing him the very best in the future. I know he's been a strong allied friend for many of you. So congrats, Marty, and we wish you the very best.

Thank you Scott.

This concludes today's conference call. Thank you for joining. You now disconnect.