Q3 2022 Monday.Com Ltd Earnings Call
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Okay.
Good day my name is Alex and ill be your conference operator today at this time I would like to welcome everyone to Monday Dot Coms third quarter fiscal year 2022 earnings Conference call I would now like to turn the call over to Monday Dot Coms director of Investor Relations. Mr. Barnes Steven. Please go ahead good.
Good day, everyone and thank you for joining us on today's conference call to discuss the financial results on Monday Dotcom third quarter fiscal year 2022, joining me today are Roy man in Iran. Zinman co Ceos of Monday, Dotcom and L around Glaser Monday Dotcom CFO .
We released our results for the third quarter fiscal year 2022 earlier today, you can find our quarterly shareholder letter along with our Investor presentation and a replay of today's webcast under the news <unk> events section of our IR website at IR Dot Monday Dot com.
Certain statements made on the call today will be forward looking statements, which reflect managements best judgment based on currently available information.
These statements involve risks and uncertainties that may cause actual results to differ from our expectations.
Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward looking statements.
Additionally, non-GAAP financial measures will be discussed on the call reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on the Investor Relations website.
With that let me now turn the call over to Roy.
Thanks, Byron and good day, everyone and welcome to our third quarter earnings call. We are pleased to say that Q3 was another terrific quarter for Monday Dot com.
We posted strong growth with enterprise customers saw continued momentum in our new <unk> product suite with Monday CRM exceeding expectation.
Scaled our global workforce and operations and did it all while generating positive adjusted free cash flow. We ended the quarter with a revenue of $136 9 million, reflecting growth of 65% year over year on a reported basis.
Or 68% on an FX adjusted basis, adjusted free cash flow of $14 million, representing a 10% adjusted free cash flow margin.
We are closely monitoring uncertainties in the macro environment and the impact it's having on our customer and our business. We currently see two primary headwinds first we continue to see pockets of stress in our customer base in particular in Europe .
We have some indication of softness spreading to other region.
Second since we have a large presence of business outside of the U S. The strong U S. Dollar has negatively impacted reported results and represents an FX headwind to revenue growth. Despite these uncertainties new customer demand remains solid and acquisition efficiency improved in Q3.
While others are pulling back we continue to see opportunities and invest for growth and gained market share with our inhouse business intelligence to big brain. We track every marketing campaign in detail, allowing us to easily adapt to changes in the business environment let.
Let me now turn it over to Iran to walk you through our Q3 product highlights. Thank you Leroy.
As already mentioned our strong growth this quarter continues to be led by enterprise customers.
With our enterprise base growing to 116% year over year in Q3.
We achieved this by delivering several key updates that are tailored to the needs of larger customers.
We continue to invest heavily in the overall performance of the workhorse platform, adding more enterprise features and functionality and building our direct sales organization in order to land larger and extend more with enterprise customers.
Most notably this quarter, we enhanced board load times by 25%.
Improve our mobile experience to achieve an amazing 99, 8% crash free rate and significantly improve our strategic integrations with both salesforce and Judah to make them as seamless as possible.
As a result as of Q3 customers with 10, plus users now represent 76% of <unk> up from 70% area ago cut.
Customers with more than 50, K a R. R.
Now represent 26% of <unk> up from 18% a year ago, we intend.
To provide these two metrics on a quarterly basis going forward.
Next I would like to highlight the continued success of our world class product suite, which represent a huge opportunity for money dot com and just five months since their launch we've seen over 3000, new customers adopt at least one of the new <unk> products.
We are extremely encouraged by the adoption that we're seeing in these early stages.
For Monday sales CRM, which consists of over half of the new work with product sign ups.
Monday sales CRM is already rated as one of the best CRM and the market. According to <unk> and we continue to focus on making it even better through investments such as new layouts, and new reporting widget that.
As a reminder, these new <unk> products have only been made available to new customers and we're excited to all the products out to our existing customer base in the new future.
With that let me now turn it back over to Roy. Thank you Erin earlier this month over 97000 registrants from over 174 countries came together for our annual online conference elevate.
This exciting event offered customers training and product workshops on ways to make the most out of the worker with deep insights on how to boost efficiency and improve workflows and inspiring talks from leading companies and fellow customers.
We are also hosting additional invite only events for industry leaders in New York City, London, and Sydney This month.
And we are extremely excited to meet many of our customers and partners in person in the coming weeks.
Hello, elevate we opted to plan one three in honor of every registrant in place of sending physical gifts.
Now we are taking this step further and we will plan 265000 trees across four different <unk> in southeast Africa over the next 18 months. This effort is a reflection of our ongoing commitment to making the planet sustainable.
Equity balances.
This effort is a reflection of our ongoing commitment to making the planet sustainable equitable and six finally, such strong consistent innovation in growth this quarter wouldn't be possible without our amazing team, which grew this quarter to over 1550 employees around the world. We continue to invest in our people with new.
Offices in New York City, Chicago, Miami in Tokyo, We believe these spaces, we will invite even more collaboration and community for our teams, while providing the flexibility they need to be successful.
These offices, signifying not only where we are right now, but where we're going in the future. We are very proud of the growth. We achieved this quarter and look forward to carrying this momentum into the end of the year with that I'll turn it over to <unk> to cover our financial and guidance. Thank you Roy and thank you to everyone for joining our call.
Today I'll review, our third quarter results in detail and provide updated guidance for the fourth quarter and full year 2022 with.
We continue to deliver strong growth driven by customers increasingly adopting the broader Monday dot com <unk> and our product suite across the organizations total revenue came in at $136 9 million in the third quarter up 65% year over year on an as reported basis and 68% on an FX.
Adjusted basis.
Additionally, we saw continued operating margin expansion during the quarter stemming from our platform based lend and expense strategy and operational efficiencies.
Coming off historical highs, our net dollar retention rate or <unk> declined slightly in the third quarter negatively impacted by a strong U S dollar and our increasing ability to lend larger initial deals and therefore customers with more than $50000 in IRR was over 145% and therefore.
Customers with more than 10 users was over 135% and our MBR for all customers was over 120% as a reminder, our net dollar retention rate is a trailing four quarter weighted average calculation.
For the remainder of the financial metrics disclosed unless otherwise noted I will be referencing non-GAAP financial measures.
We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.
Third quarter gross margin was 89% in the medium to long term, we continue to expect gross margin to remain in that.
Range.
Research and development expense was $26 3 million or 19% of revenue compared to 17% in the ergo quarter.
We will continue to invest significantly in R&D throughout the remainder of the year as we build our product suite and scale are warcraft platform, both horizontally and vertically.
Marketing expense was $82 4 million or 60% of revenue compared to 73% in the ergo quarter, we anticipate sales and marketing expense as a percentage of revenue to be in the mid to high 60% range in Q4.
G&A expense was $16 2 million or 11% of revenue compared to 11% in a year ago quarter.
<unk> growth was $2 2 million and operating margin was negative 2%.
Net income was $2 6 million diluted net income per share was <unk> <unk> based on $50 3 million fully diluted shares outstanding.
Total employee head count was 1552, an increase of 63 employees since last quarter, we continued to execute on our hiring playbook that we laid out at the beginning of the year with elevated hiring in the first half and the much lower rate in the second half.
Anticipate that this current level of hiring will be consistent moving forward.
Moving on to the balance sheet and cash flow, we ended the quarter with $852 6 million in cash and cash equivalents net cash provided by operating activities was $20 million in the quarter.
Adjusted free cash flow of $14 million, including approximately $7 million from financial income adjusted free cash flow margin was 10% adjusted free cash flow is defined as net cash from operating activities less cash used for property and equipment and capitalized software costs, excluding nonrecurring items now, let's turn to our App.
<unk> outlook for fiscal year 2022.
For the fourth quarter of fiscal year 2022, we expect our revenue to be in the range of $140 million to $142 million representing growth of 47% to 49% year over year, we expect our non-GAAP operating loss of 22 million to $20 million for.
For the full year 2022, we now expect as reported revenue to be in the range of 509 million to $511 million representing growth of 65% to 66% year over year. We now expect our full year non-GAAP operating loss of $83 million to $81 million and the negative operating margin of approximately 16%.
With the recent strengthening of the U S. Dollar we estimate that at the current spot rates FX will negatively impact our full year revenue growth estimate by approximately 300 basis points.
Given the concerns about the macro economy and the market. We have provided what we believe to be achievable forward looking guidance. Please note that will be introduced guidance for the full year 2023 in our fourth quarter earnings.
In sum, we remain committed to balancing healthy growth in the business, while also staying disciplined on improving efficiency and profitability.
We have an abundance of great opportunities ahead, and will continue to make decisions with the longer term view.
I'll now turn it over to the operator for your questions.
As a reminder, if you'd like to ask a question a compressed star one on your telephone keypad. If you would like to withdraw. Your question you May Press Star two please ensure you're on mute locally when asking your question.
First question for today comes from Steve Enders of City, Steve Your line is now open.
Hi, great. Thanks for thanks for taking the question.
I just wanted to dig in a little bit more into.
Some of the outlooks that youre seeing out there.
Particularly what youre, saying on that side.
Are there any kind of any change in customer dynamics either way.
Yes.
The FX impact that came in in the quarter or anything around.
Deal durations or a split between kind of SMB or enterprise that youre seeing out there with customers.
Yes, sure Hi, Steve This is.
Iran.
So first of all.
We can start way all our underlying fundamentals are very strong we continue to see very strong enterprise growth.
<unk>.
Meaning very high and stable and we can see the early adoption of our new World class product.
As we mentioned also in the previous quarter, we continue to see the same FX headwinds that we had and.
And have an impact on our revenue growth and also in Dr and as we mentioned as well we see some softness in Europe that also continued into Q3.
Mark You mentioned in addition to that.
So where do we start to see some indications that the softness kind of spreading a bit more broadly.
So definitely we can see that as well.
We're not gonna perspective.
Performance marketing, we continue to heavily invest in acquiring new customers I would say that.
Okay.
Mission for us.
Customers lower bids in the market and definitely it's enough.
And for Us.
In a larger market share and also our free to paid conversion overall funnel remains very stable.
All of that into account.
The fundamentals remain very strong and we continued to gain momentum.
Okay.
Okay.
That's helpful. That's great great to hear.
I guess, just again on the kind of data.
Profitability upside in the quarter.
Hey, guys can you dig a little bit more about kind of what were the drivers there and are there any kind of delay in.
And spend that you had maybe you shifted some things in <unk>.
Maybe some change in kind of hiring expectations can you just kind of dig in what really drove the.
Yes, Thank you again.
Back in <unk>.
Hello, It's David Kelley on so first of all welcome to the conference meeting for the first time.
Okay.
Operating in accordance with our playbook, we have a system called.
Big brain that is measuring everything that we do and going back to what Ron said, our performance marketing and marketing spend overall is lower than anticipated because cost per sign up went down. Therefore, we benefit from these efficiency, obviously, we beat the top line by $6 million and this impacted.
Good morning.
Sure.
Alright.
Our discretionary spending if there is not necessarily a things to do events or 12 of them and obviously, we are more cautious with the level of spend so all of these together combined with our.
The way, we manage the business from an efficiency perspective, and the playbook that we apply drove the.
Great margins that we saw in this quarter.
Okay perfect I appreciate it I appreciate the color and thanks for taking my questions.
Thank you. Our next question comes from that pendulum Bora from J P. Morgan. Your line is now open. Please go ahead.
Yes.
Oh, Great Hey, guys. Thank you for.
The question and congrats on the quarter I wanted to ask in the workplace products it seems pretty impressive results.
<unk>.
Can you help us understand what kind of price point, those things those new products and landing at CN.
Seems like CRM is doing well what about the other parts.
The three products and then.
How should we think about the contribution of those products this year.
Yes, and John Thanks for the question.
So definitely we're very excited and encouraged from the results we're seeing so far with the new products I would say ultimately are successful.
Currently stands out as being the most dominant one.
We mentioned that over 50%.
Tumors that are buying those back.
Brian the CRM product.
And just to mention that all those new customers are basically new paying customers. So we just opened up.
Now just for new customers, we haven't started.
So all of those products has a different price point and definitely thats.
Another upside that we think in the account.
To put that into the model yet because it's still early days and small numbers, but definitely the momentum that we're seeing and the growth is very encouraging and very promising for the future. That's probably the reason why we're so excited about this.
Understood.
One question for <unk> on billings.
When we look at the sequential billings growth seems a little bit muted I was wondering if you can tease out the FX impact on billing or if youre seeing any kind of the.
Change in invoicing duration, and how should we think about billings going forward do you think it did lag revenue in the near term.
Sure so.
When we speak about calculated billings I mentioned this is not.
The best measure of our business, we believe revenue growth customer growth in India are the best indicators of the health of the business.
Calculated billings were definitely impacted by the FX. If you think about the fact that 30% so far.
He is in currencies that are not U S dollar name.
10% euro above 5% British pound.
Okay.
Okay.
Currency definitely has impact on the calculated billings.
Overall.
Okay. Thank you.
Thank you. Our next question comes from Brent <unk> from Piper Sandler Brent Your line is now open.
Good morning, and.
Great to see the momentum of the business and returned to positive free cash flow I wanted to double click into the CRM product.
Whats resonating with customers here on the product is the profile of new customers changing is that a larger customer willing to spend more from a from a user perspective. This is a smaller customer any color you could provide around that.
That type of customer and what's resonating with that type of customer for the new CRM product would be great. Thanks.
Hi, This is Roy so.
Yes, so I think CRM is.
We tapped into a new market, we see new customers of our new kind.
And we also see.
Them, comparing us to product to other companies that we were not compared to before.
So like Ron said.
The type of customers that are joining us are completely new it's like it's not existing customers and so obviously they start off.
Like.
A different scale they want different things and this is very encouraging for us because.
It's Bruce for US Monday is a true platform that has completely different products on it and obviously CRM requests differ greatly from.
Okay.
One amendment.
Their customers he may have them and manage the whole lifecycle of the customer.
One of the great.
Power is that we see that customers buy into Monday in CRM is its customer visibility. The fact that they can really do everything with it.
Never get to one.
And thats something that.
A lot of it gives us a massive competitive edge compared to other platforms that they compare us to.
Sure.
Answer the question.
Helpful color there for sure and then I guess earlier on as you just think about sales and marketing efficiency pretty dramatic improvement in just two or three quarter period here can we just double click into kind of the drivers of it was there element of lower CPM pricing, that's helping here just walked through.
You were able to drive such and such impressive improvement in sales and marketing efficiency.
Hey, Brent.
So in prior quarters and I think throughout the.
At the time that we gave.
The earnings calls we are operating in accordance with our playbook and we said that we have the ability due to big brand and efficiency metrics that we are operating we haven't.
Ability to.
The performance.
So what happened.
Because the market environment has become more challenging across the board.
In general so the cost per click or cost per sign up is much lower today and therefore, we are benefiting.
As we mentioned in the in the kind of the beginning of the call. We have the ability to measure every campaign. Every every component we do what is the return. Therefore, we were able to relatively quickly adjust the spend in addition in H. Two also we said that we are going to be more prudent on hiring.
And look at other discretionary cost that relates to marketing. So altogether. This helped us to reduce the cost of marketing sales and marketing in general.
Great to see I appreciate the color. Thank you.
Thank you. Our next question comes from Jackson Alba from SVP Securities Jackson. Your line is now open.
Great.
Good morning, Thanks for taking my questions guys.
First one actually if we can just follow up on that comment on hiring.
We've been rolling out.
Are you more offices than the U S and I'm, just curious what youre seeing in the labor market whether it.
A little bit maybe easier to hire some of the talent that you are looking for these days than it was say six or 12 months ago.
Hi, Jack.
We don't see much of a change obviously now when companies. Unfortunately, some reductions in force and other companies.
It's easier to hire people, but I don't know to tell you that this is a dramatic move because I think people are still working for this company. So overall I would say a lighter or more.
Easier environment, but not dramatically.
<unk>.
Okay, Alright that makes sense and then the.
Follow up is on is on the European market.
You kind of called out the struggles there, but I'm curious, whether you're seeing any may be competitive.
Impact just in terms of.
Tough environment, maybe seeing some of the younger smaller.
More.
Startups receipt from the European market is it looks like it's going to be a tougher environment in the coming months.
Hey, Jackson's ROI, so, yes, we definitely see less.
Yeah.
It's easier for us compared to others because of the stability of the platform because of the fact that we mentioned a few times about the marketing and the fact that we are still out there pushing.
Pushing the product so all in all for us because of the stability of the company and the platform we see it as a positive.
I can add that.
A lot of stuff.
Sure.
We were always like.
<unk> said with our playbook, while other companies spend way more gave like.
Different discounts and those kind of stuff and we don't see that.
Any more so I can say.
It's now easier for us to gain more market share.
Okay, Alright, thank you very much.
Thank you. Our next question comes from <unk> <unk> from Oppenheimer. Your line is now open. Please go ahead.
Thanks, and nice results as Ron in your prepared remarks, you talked about the decline at the net dollar retention rate explaining it as initial lands are getting bigger.
Could you be a little bit more specific like what what is an initial land right now and how did it change over the past year.
Okay. So first of all as a reminder, our Netherlands tension right is best in the industry.
And we mentioned that.
Overtime, we are going to see a range. If you think about what we said also in prior quarters. So we said that we believe that the right range would be around $145 to 150% for our customers with 50 K.
We said that we are going to remain around 135% for customers with 10, plus users and between 120% to 125% for all customers. So there is the impact first of all FX with 30% of their are coming from customers that are paying nonetheless currency. Obviously your starting point is different for me.
Our ending point.
Kind of impacted in few basis points are nevertheless, retention rates and obviously in Europe .
Part of the macro economy environment is also.
Pending some customers are waiting.
Can makers too.
Waiting with decisions to kind of expand their usage of Monday product. So the combination of these two is impacting nevertheless retention rate.
Don't expect any dramatic moves, but this is the range that we feel comfortable with.
Okay, and then can you talk about the competitive landscape has anything changed in the past quarter.
And maybe you could tie it into churn has anything insurance changed thank you.
Yes, thanks, good guidance as they are on so.
I'll start with the second part of your question. So we didn't see any.
Anything meaningful of an impact to unite our churn or downgrade.
Which I think kind of thoughts of stability that we've seen in our existing customer base apart from FX in terms of usage, we haven't seen anything significant.
And overall.
I think you might address part of your question sorry.
The competitive landscape.
Anything on that front any changes.
Yes, I appreciate that.
So already mentioned this a little bit.
So in terms of marketing wise, we don't we see that we're able to grab a larger market share some of the other competitors.
Terrific as well as our marketing spend which allowed us to grab a larger percentage and also this translates into the actual deals and the deals that we view.
The competition, which only 30%, 70%, we see still no competition in the 30% that we do see less adventures and also some of the competitors, which we're very aggressive in terms of discounts.
Aggressive so definitely we see momentum here, where we're able to move to win more deals and deals that we compete with other players.
Got it cool thank you.
Thank you. Our next question comes from DJ Hynes of Canaccord. Your line is now open. Please go ahead.
Hey, good morning, guys Congrats on nice results.
So at the elevated you guys spent some time talking about infrastructure upgrades that should improve scalability I'm wondering if you could just unpack that a bit like what were the big changes what should that enable you to do and any color on that front would be helpful.
Yes.
Thanks for the question Vijay This is Ron So yes definitely this is something that we've worked really hard on obtaining the last six months and we continue to heavily invest I think part of our scale as a company we attracted larger customers and also our existing customers are really scaling the operation on Monday part of it presents some challenges in terms of.
<unk>.
Handling larger and larger datasets, improving performance and keep improving whether you're using on so definitely it's a very positive trend that we've seen but at the same time, we are constantly improving.
Performance speed scalability.
Definitely something we're putting a lot of focus on.
Okay.
Okay.
Okay.
My apologies, we are having some audio issues. Please hold as I find a solution.
Yeah.
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Okay.
Okay.
Sure.
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Okay.
Okay.
Yeah.
Hey can you hear it.
Thank you for your patience, we have reestablished connection with the speaker team.
D. J if you could just repeat your question. Your line is now open.
<unk>. Your line is now open. Please go ahead.
Hey, guys can you hear me now.
Yes, we can hear you. Thank you.
Awesome, Alright, so I think.
Ron you were talking about some of that infrastructure upgrades.
Improved scalability, what the big changes were what that enabled you to do any color along those lines would be helpful.
Yeah. Thanks, Vijay hopefully you can hear me fine now.
So as I've said.
What changed was that our customers grew larger and their operation within Monday scaled or usage.
And part of that we also Scott in our own infrastructure.
Because we want to deliver an optimal experience for our customers. So definitely we're putting a lot of efforts over there.
<unk> is using Monday, more and more over time, which is very encouraging but we wanted to have a seamless experience doing that and don't suffer from a performance and scalability issues. So we've done a lot of changes and improvement and we're committed to do that in the upcoming quarters.
Got it and then maybe a follow up Loren just on the sales and marketing line can you remind me how much of that line item.
People base versus maybe more discretionary spend that you can flex up and down on the latter kind of what's the strategy in the current environment.
Hey, DJ yes sure so.
Goodbye.
So I would say around 30% to 35 percentage performance marketing and about 65% is payroll and related for sales customer success partners head count and related so all in all if we would like to adjust sales and marketing cost relatively.
Just the performance marketing and therefore, we are able to do quick wins, if need based on our efficiency metrics.
Yeah perfect. Thank you guys.
Yeah.
Thank you.
Thank you. Our next question comes from Derrick Wood of Cowen and company Derrick. Your line is now open. Please go ahead.
Oh, Hey, guys. Thanks, Andrew on for Derrick.
Just one for me actually.
When are you planning to open up.
The suite too.
Through existing customers and could that be an incremental growth lever early next year. Thanks.
Yes, thanks for the question.
So.
We're definitely going to be.
In the upcoming future, but right now we're focused on keep iterating on the product and improving it.
I get a lot of interest from existing customers about those new products and once we filled our mature enough we will definitely open them up for our existing customers.
They are a great opportunity for cross sell and upsell for existing customers many of them are using.
Many cases, but I'm wondering.
Their usage.
So theres a lot of upside baked into that opportunity, but we wanted to do it in a proper way and as I mentioned, we've already seen great momentum from new customers. So.
We'll keep improving in <unk> on those products.
Great. Thanks, Congrats on the quarter.
Thank you. Our next question comes from Frank Lee of Credit Suisse.
Your line is now open.
Hi, very nice quarter, and particularly be enterprise customer adds and margin improvement.
You've already touched on parts of this but I was wondering if you could talk more deeply about your how your go to market strategy is changing as companies look to cut costs.
And also how is the focus of the conversation changing at your larger customers. Thank you.
Sure.
Yes, the first part of your question.
Okay.
Close of cost cutting.
So a lot of companies as you mentioned R&R I'm kind of going through their SaaS stack, we'll reevaluate in the tools that theyre using.
But for US we mentioned this in the previous quarter and definitely we see this trend increases this presents a great opportunity a lot of companies are listening to consolidation.
No.
SaaS tools that they're using.
And Monday is really built from the bottom up for that purpose. Because every customer is Monday use money for many use cases some of them are kind of reevaluating until they are using or thinking about moving their operations to mondays oriented.
Also did an operation within the company, where we guided our entire customer success team and sales team to offer that proactively to customers and we also see success and momentum there.
It's hard to tell how much this will scale over time, but definitely we're seeing customers doing that.
Monday as I've mentioned, it's a great offering to do that so.
Definitely an opportunity there.
Hi, its Rory I would add that.
<unk>.
The churn side, we see a lot of stability within our customer base. So.
It talks to the platform and how much it's a core for many of our customers.
And I think we missed your second part of the question strategy, where we can repeat that.
Sure. The second part was just held the focus of conversations is changing at your larger customers if at all.
Thank you.
Yes, hi, it's really so.
It's definitely a different conversation in terms of like the length of.
When we talk to new customers the length. It takes to create to close a deal the number of people involved then.
Those kind of things are happening now.
I think for for.
A lot of us.
Around the world there are a lot of companies and we see that definitely is something thats coming.
Companies are looking into and changing how they acquire new tools.
Sure.
Okay.
Thank you very much.
Yeah.
Thank you.
Our next question comes from Andrew <unk> from <unk>, Andrew Your line is now open.
Thanks for fitting me in I guess, my first question and a follow up to Djs earlier on performance marketing versus sales head.
Head Count I was just wondering the 35% number.
Is it typically I guess, where historically it hasn't been.
And I guess, how should we expect that going forward would it be at this level or do you think it will ramp up.
Yeah.
Andrew.
So historically, if you look at Monday, five years ago, and I think I mentioned it in the past it was an 80% to 90% performance marketing, but over time, we introduced a sales led organization that including salespeople partners customer success managers and.
And obviously the app marketplace.
Over time, I think that we care a lot about the performance marketing to generate leads it gets us to new audiences. It brings a lot of traffic of healthy traffic I would say and if we continue to operate in accordance with our playbook I would say that 30% by and large will continue to be it can be 25 can be 30 to about around 30% will continue to be.
Performance marketing as long as it meets our.
Efficiency criteria. In addition to that we will continue to invest in bringing head count.
Surprise accounts mid tier and SMB, So I would say 25 30 $65 70.
Breakdown.
That's helpful. And then in terms of your referral partners I can sorry, I jumped sequentially I just wondered are.
Are you doing anything different there we should should we expect that continued momentum.
Yes. So did you do invest in our partner ecosystem definitely growing and expanding I would say is the partners are a little bit more affected.
Headwinds that we see in Europe , because most of them are not basic in the U S.
Our partner business.
Footprint.
For us as we mentioned is a strategic part of growing our business Greg went through both the markets and territories and we continue to scale and grow there.
And also not just with referral, but also with larger more strategic partners.
Over time so.
Yes, it's a great on those to market and expansion options for our audience across the globe and we will continue to operate that.
Okay.
That's helpful. Thank you.
Thank you. Our next question comes from Scott Berg of Needham. Your line is now open.
Hi, everyone. Congrats on a great quarter and thanks for taking my question I guess to get to.
Two quick questions here.
The first one how are your top of funnel activities today in the current macro versus maybe what you saw.
Months ago to start start Q3, or even six months ago to start Q2.
Hi, Todd it's Troy so.
You broke up for a second you were talking about the funding that we see.
Customer funnel, yes, yes.
Yes, just top of customer funnel activities in terms of maybe.
These are complex eight today versus the last two quarters.
Yes, so like we mentioned, it's very healthy we still see the same.
Volume and then we keep.
With our efficiency metrics like gaining more market share.
More customers.
The sales cycle has been longer.
In that respect, but we see a lot of quality customers.
Tito strong demand for the platform.
Across the board so.
It's very stable.
And maybe Scott this is Ron.
You can see in our shareholder letter.
Actually a test.
<unk>.
The growth in unit Count and also shows the performance marketing, but I've already mentioned our top of funnel remains very stable, even though that in terms of efficiency, we managed to spend less in order to provide those.
But what we mentioned and it's very important for us to demonstrate that.
Yes.
Greater efficiency matched to acquire a fair amount of customers.
Okay.
Okay.
Great and last question for me is your enterprise growth was very strong again in the quarter, how much how much of that growth is coming from new initial lands versus expansions from those those types of customers today and how do you expect that to maybe trend over the next couple of quarters as a result.
Yeah, Hi, Scott Thanks, Tony on again, I think it's both we are lending with the new products that we have the CRM and other multiple use cases that we that are being part of our platform. So we landed customers.
So it's a combination of new customers and expansion of existing customer.
Yeah.
Yes.
Great. Thanks for taking my questions.
Yeah.
Thank you. Our next question comes from Jason Selene of Keybanc capital markets. Jason Your line is now open.
Great. Thanks for fitting me in a really good results here.
When you mentioned in a prior response September and October are you starting to see some softness spread looks like youre, meaning managing through it quite well, but to what magnitude can.
Can you clarify and it was it more F&B in any regions.
Our calling out thanks.
Yes, Jason this is Ron.
Yes, so as we mentioned.
Fix headwinds and <unk>.
Okay.
We saw in Europe , I wouldn't say any.
Any significant impact on one particular group, neither smbs or larger enterprise I would say, it's kind of across the board, but definitely and if our customers are a bit more stable or.
Don't see any kind of major impact compared to smbs, but overall, we're very diverse in terms of our customer base.
Any industries as a reminder, only 30% of our customers are tech companies, 70% are non tech and we have over 200 different business verticals. So all in all.
Okay Alright.
Great.
Our existing customer base, but we don't see any kind of major group that's been affected more than any other group.
Great. Thanks.
Okay.
Thank you. Our next question comes from Robert Simmons of D. A Davidson Robert Your line is now open.
Hey, Thanks for taking the question I was looking at the marketplace.
186 apps, there and I think about 20% or monetize I guess, what's a reasonable expectation for the boosts revenue you're going to see from that next year.
Closer to 1% or could it be more meaningful than that.
Yeah, Hi, so.
Things like we're not going to we're not relying for next year on their marketplace revenue is something that we built any of our models on.
And.
Something that we just released.
So far behind and time in the monetization of it.
And I wouldn't.
Build on that although we do see a strong momentum there are a lot of interest from developers.
And it's very healthy and we do see the future of Monday being as an open platform and providing.
A lot of third party developers building on our great things. So we are excited about it but we didn't model.
Next year.
With the marketplace.
Got it Okay and then.
The decline of net.
How much of that is purely from FX and how much is it from other factors.
Factors like longer and slower sales cycles.
So hydro, but it's early and I would say, 2% to 3% by and large is coming from.
FX and the rest is.
The macroeconomic environment.
<unk>.
I would also add.
Increasing.
I would also add the increasing deal sizes initially.
As we ramped up the sales team and we got better and better the initial deal size grew obviously.
In the past they started with less vigor self serve.
<unk>, Okay. They started very small and so the LDR ended somewhere and then.
We have the brand grow and customer demand grew like they want initial deal sizes that are bigger and that also has an effect on the India.
Okay.
Thank you. Our next question comes from sharply Serafini from <unk> Securities. Your line is now open. Please go ahead.
Yes. Thank you very much so I noticed that your head count growth slowed to like 63 from over 200. The prior two quarters I wanted to know whether there has been recently a deliberate decision to slow down head count growth.
And separately related maybe it's.
Your expense growth for Q4 seems to run.
To your guidance imply an acceleration and year to year growth.
Versus Q3, and so it seems to me that your R&D line is going to accelerate is that true and if so.
Why is it accelerating so much.
Hi, Chablis, Italy, so welcome onboard.
With regards to your first question in power quarters, We mentioned that we're going to hire most of the people in H one frontloaded of expenses because we believe this is what will drive revenue into 2022, and the rest of the year and we mentioned that we're going to be more prudent and have a more moderate hiring.
In <unk>, we are continuing to hire in places.
Really important for us to continue to innovate R&D and solid R&D went up from 17% a percentage of revenue to 19% and we also will continue to focus on revenue generating head count. So this is with regards to your first question. Your second question I wasn't sure that you've said accelerating top line just to make.
Sure.
No.
I'm getting in my model that your R&D expense growth is going to be something like a 100% in Q4 versus 84% in Q3.
Right.
Directionally that correct and if so why are you going to be accelerating your R&D expense growth.
Yes, so I think if I Miss Susan So we continue to invest as I mentioned and bear.
Bear in mind that there is also most of the hiring of R&D is in Israel. So there is asking some part which also impact.
In terms of that.
The bulk of significant.
Significant part of our customers are just to make sure that they understand I believe.
However, your question.
Okay. Thank you.
Thank you. Our next question comes from Jacob <unk> from William Blair.
Your line is now open.
Hey, Thanks for taking my questions and congrats on the quarter.
Following up on the product solutions, it's great to see the strong adoption here and appreciate the color on CRM, but once you open those solutions.
<unk> base, how do you think that monetization path forward given a number of those customers may already be using some type of CRM template that you at least a year or two ago.
Yes Jake.
Thanks for the question. This is <unk>, so the new product that we released.
Didn't provide much more value than a template basically what we've done in both of those products is to go very deep feature wise and each one of those products. We added a lot of functionality is proprietary to specifically CRM or developer tools. So it's not just.
Templates or boys, a dashboard package for that purpose, but a lot of R&D effort has gone into that.
I think new customers are getting a lot of value from that and I'm sure that already that also existing customers will get a lot of value for you.
Part of that is that will help them for those who want to move.
We will build the migration tool.
It will help them drive those new products, but.
Focusing on our clients.
And over time, we will start offering those who can work with express existing one and as I said, we see a lot of potential there.
Great. That's really helpful. And then it seems like growth in the partner channel is really starting to accelerate for both referral partners and the apps marketplace are there any specific product type solutions that you've seen partners prioritizing the sales process really build more tailored solutions on top of the platform.
Yes. So this is Ron again, so apart from extending our global workforce.
Right.
Kind of more opportunity for our products worldwide.
Also offer the ability to customers too.
Customize their product to help them onboard to help them build more workflows and processes. So far that also drive the growth.
Each one of those territories, and we really see them as a value added partner.
So definitely that's something that's really kind of help with acceleration and as I said, we're continue to invest heavily into those partners.
And over time, I think it will continue and growing rapidly.
Great. Thanks for taking my questions and congrats on the great quarter.
Thank you our final question for today comes from Brent Thill of Jefferies. Brent. Your line is now open. Please go ahead.
Thanks.
Just a question on some of your deployments I think in the past you've talked about one of your larger customers was pushing over 7000 seats are you starting to see the 10000 plus seat deals open up are you still is that 7000 seats still the largest deployment you have right now.
Yes. So this is Ron.
So definitely overtime, we're increasing our we weren't we really kind of working our sweet spot fashion, meaning that we keep increasing the average.
Enterprise deal size up until a year ago. It was around 2006, we increased it to 5000 and that means that we're able to those.
Quicker and quicker.
And basically we continue to improve the product.
Offers to scaled operation and we expect this number to increase.
We see this as more of a <unk>.
For us it's great.
Sales motion within our sales team as opposed to specific.
<unk>.
Customer.
In terms of landing a very large deal.
Okay.
Thank you we have no further questions for today. So that concludes today's conference call. Thank you all for joining you may now disconnect.
[music].
Yeah.