Q4 2022 monday.com Ltd Earnings Call
Yes.
Thank you for your patience today's call will begin shortly please stay on the launch.
[music].
Good morning, Good afternoon, welcome to the Monday, they'll come fourth quarter fiscal year 2022 earnings Conference call. My name is that and I'll be your all parts of today.
If you'd like to ask a question during the Q&A portion of today's call may do so by pressing star one on your telephone keypad.
Ill hand, the floor over to Barbara and Steven to begin so barring. Please go ahead when you already.
Hello, everyone and thank you for joining us on today's conference call to discuss the financial results for Monday, Dot Coms fourth quarter and fiscal year 2022.
Joining me today are really man Aron Zelman <unk> Monday Dot com and other wrong Glaser Monday Dotcom CFO , we released our results for the fourth quarter and 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 and 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.
Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and on the Investor presentation for today's call, which are posted on our Investor Relations website.
Now, let me turn the call over to Roy.
Thanks, Byron and thank you everyone for joining us today.
Fiscal year 2022 was a year of significant accomplishments at Monday Dot Com, we finished the year more energized than ever with strong financial results improved efficiency and continued product innovation. We put this progress on display at our elevate 2022 words tour, where we had the opportunity.
To win with customers and partners in person, we also announced plans to launch Monday, DB, which will upgrade our infrastructure drive faster board performance and provide even more flexibility Monday VB will enhance the way working with engine run and store data.
Ensure that our platform is cumulus completely flexible and built for infinite scale supporting 100 times larger boards Q.
Q4 capped off an amazing year with strong revenue growth and free cash flow expansion. We finished the quarter with $150 million in revenue $30 million in free cash flow and achieved positive adjusted operating profit for the first time, new customer demand trends also continues to be strong and therefore.
By 2022, we added 34000, net new customers to Monday Dot Com family, our fastest growing customer segments remained enterprise, where we grew customers by 86% 2474 customers. While we are seeing healthy new customer demand, we continue to see competitors siggi.
<unk> reduced their performance marketing efforts.
As a result, we have been able to build market share and improve overall customer acquisition efficiency.
Our results demonstrate that Monday dot com continued to drive growth and profitability at scale.
Since inception, the company has now generated more than $5 <unk> for every $1 in cash burnt regardless of macro uncertainties. We believe we are well positioned for the road ahead.
Let me now turn it over to Ron to walk you through some of our business highlights for the year. Thank you Roy fiscal year 2022 was another year of phenomenal growth at <unk> Dot com, both financially and business wise, we ended the year with $519 million in revenue up 68% year over year.
Improve overall efficiency and achieve positive free cash flow for the second year in a row.
2020 was also a transformational year for our product will.
We've received incredible feedback on our new work with product suite.
Particularly on Monday sales CRM.
As a reminder, our CRM as only being made available to new customers and we finished 2022 with 2458, new mandate sales CRM accounts.
The fast adoption and strong customer feedback of Monday sales CRM has been amazing.
Customers tell us they love Monday sales CRM as its more customizable and easier to use and ended traditional CRM tools.
As we begin to slowly rollout might yourself CRM to our existing customers. We remain focused on adding more powerful features and functionality to make it the best CRM in the industry.
As already mentioned our strong growth continues to be led by enterprise customers.
This quarter, we are particularly excited to announce that one of the world's leading banks recently adopted <unk> dot com.
Would it go to move away from multiple work management and legacy communication tools money Dot com proves to be the best fit for the company.
To date over 1000 users across multiple teams have adopted many dot com and we're seeing the power of our work with enabling collaboration and efficiency.
We also made significant progress in expanding our marketplace and.
Fiscal year 2022, we increased the number of Michael's today's apps to 217, including 61 to monetize apps.
As we look to accelerate efforts in building out the marketplace. We're excited to announce a new partnership with up fire.
The world's largest enterprise collaboration app provider with a track record of creating an easy to use powerful and reliable adds for the world's most reputable companies fr will allow us to build on our strong foundation and take our marketplace to the next level.
With that let me now turn it back over to Roy. Thank you Aaron as we turn our attention to the next fiscal year. We are highly confident in meeting our growth and there's a lot we plan to accomplish it.
In FY2023 we will be focused on remaining the market leader and work management space to accomplish this we will continue to give our users exceptional customer experience with easy to use and intuitive product.
We plan to enhance our upmarket efforts through building and scaling our platform and product suite.
And expanding existing channels that will allow us to build market share we expect to accomplish all this while being committed to improving efficiency and delivering positive free cash flow for the third straight year in closing.
Ron and I want to thank the entire Monday Dot com team for your amazing work in making 2022, our most successful year yet.
Now its full steam add into an exciting 2023.
With that I'll now turn it over to <unk> to cover our financials and guidance. Thank you Roy and thank you to everyone for joining our call today I'll review, our fourth quarter and full year 2022 results in detail and provide initial fiscal year 2023 guidance. We finished fiscal year 2022 exceptionally strong.
<unk>.
Total revenue in Q4 2022 came in at $149 9 million up 57% from the year ago quarter.
And the $519 million in fiscal year, 2022 up 68% from the prior year.
Excluding the impact of foreign exchange revenue grew 60% year over year in Q4, 2022, and 71% year over year in fiscal year 2022 overall net dollar retention rate remained steady in Q4 2022, reflecting our focus on the organization with the highest expansion potential and.
Resilience through a more challenging macro economy environment, we experienced a decline in net dollar retention for our largest customers reflecting slower seat expansion in the upmarket.
As a reminder, our net dollar retention is a trailing fourth quarter weighted average calculation.
For the remainder of the financial metrics disclosed unless otherwise noted I will be reflecting non-GAAP financial measures. We've provided a reconciliation of GAAP to non-GAAP financial in our earnings release fourth quarter gross margin was 90% in the medium to long term, we continue to expand gross margin to remain in the high 80% range.
Research and development expense was $24 7 million in Q4, 2022 or 16% of revenue in line with the year ago quarter, and $94 1 million in fiscal year, 2022, or 18% of revenue up from 70% in the prior year.
We plan to invest significantly in R&D in fiscal year 'twenty three as we build out our product suite and scale, our operating system platform, both horizontally and vertically sales and marketing expense was $80 9 million in Q4, 2022, or 54% of revenue compared to 72% in the year ago quarter.
And $358 6 million in fiscal year, 'twenty, two or 69% of revenue compared to 79% in the prior year.
G&A expense was $16 million in Q4, 2022, or 10% of revenue compared to 12% in the year ago quarter, and $57 3 million in fiscal year, 2022, or 11% of revenue in line with the prior year net income was $22 2 million in Q4 2022.
And the loss of $33 4 million in fiscal year 'twenty two.
<unk> net income per share was 44 <unk> in Q4, 2022 and negative <unk> 72 in fiscal year 2022, based on $50 4 million and $45 8 million fully diluted shares outstanding respectively.
Total employee headcount.
1549, a decline of three employees since Q3 2022.
Looking to next year as we build our platform and product suite, we expect to continue hiring for R&D and product teams moving on to the balance sheet and cash flow.
We ended the quarter with $885 9 million in cash and cash equivalents up from $852 6 million at the end of Q3 2022 in Q4 2022, adjusted free cash flow was $29 7 million and adjusted free cash flow margin is defined as adjusted free cash flow.
As a percentage of revenue was 20%.
In fiscal year 2020, adjusted free cash flow was $8 1 million and adjusted free cash flow margin was 2%.
Fiscal year 2022 marks our second consecutive year being adjusted free cash flow positive and we anticipate to be adjusted free cash flow positive in fiscal year 2023.
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.
Now, let's turn to our outlook for fiscal year 2023 for the first quarter of fiscal year 2023, we expect our revenue to be in the range of $154 million to $156 million representing growth of 42% to 44% year over year, we expect our non-GAAP operating loss of 19 million to $17 million and the negative.
Operating margin of 13% to 12% for the full year 2023, we expect revenue to be in the range of 688 million to $693 million representing growth of 33% to 34% year over year, we expect our full year non-GAAP operating loss of $36 million to $32 million and a negative operating margin.
<unk> of approximately 5% I'll now turn it over to the operator for your questions.
Yeah.
Thank you. That's a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now we're preparing to ask a question. Please ensure your headsets fully plugged in and on which likely two questioners are asked to limit themselves to one question and one follow up so we can get through the queue in good time.
Star one to ask a question star to withdrawal.
Our first question today comes from Kash Rangan from Goldman Sachs. Please go ahead. Your line is open.
Hi, Kash. Your line is open. Please go ahead with your question.
Moving onto the next question is from <unk> Bora from Jpmorgan and Jonathan. Please go ahead. Your line is open.
Okay, Hey, thank you congrats on the quarter I think it seems like a good one.
I wanted to understand the guidance a bit.
Ron if you could tease out maybe the assumptions behind the guidance do you expect expansions to kind of continue to deteriorate or.
Local growth kind of slow.
So are you assuming the macro kind of stay the same will take a step down.
I understand if you are baking in a little bit more conservatism than usual for this year.
Hey, Hi, Hyping, Chilean Italy, Iran.
Thank you for the question. So what we took into account for guidance, though you always take.
The latest trends that we're seeing so as we said there is some challenging macroeconomic conditions.
Good morning.
Sure.
But on the other side, we see a complex topic.
Yeah.
The reason why we are exploring is the fact that.
Hey, Brian .
Everything functions.
Yeah.
On the budget.
So we took it into account as part of the guidance that we provided for the year.
In addition to that we are seeing improving overall efficiency and the fact that we're also generating cash and took into account as part of the guidance.
So we feel comfortable with what we provided.
If we can achieve.
Okay I understood.
On the CRM.
Customer growth and it seems pretty interesting is really solid.
I'll ask you I mean, it seems like almost 12% to 13% of your new total new customers added in the year with CRM.
I want to understand what's kind of the typical size of customers that you're landing CRM with and if youre seeing any kind of interesting expansion characteristics with those.
As they kind of understand how to expand Monday beyond CRM.
Yes, I think John this is <unk> so.
As I mentioned previously right now the CRM product is mostly offered to new customers.
This new customer.
And in terms of new customers, we get a mixture of both.
<unk>.
F&B, but also mid size and larger organization adopting the product.
We're very happy and excited with the results. The momentum has created with that product also the feedback that we get from customers.
And we cannot predict this momentum to continue into next year.
So right now we've got a healthy mixture of both small and medium sized customers into the pipeline.
Got it I'll get back into queue. Thank you.
Yeah.
The next question is from Brent price lift from Piper Sandler. Please go ahead. Your line is open.
Thank you good morning.
My question really is around Monday sales CRM Monday marketer they showed up on <unk> two.
One of the fastest.
Fastest growing new products in <unk>.
Categories can you just talk a little bit about the momentum youre seeing in marketer as well as sales and whats really driving that is there a price point that seems to be resonating with customers and then talk a little bit about.
When do you plan to roll that out to existing customers and now that was only for new customers all Nate when do you roll it out to existing thanks.
Yeah. Thanks, Brian This is Ron thanks for the question so.
We mentioned previously that about 60% of the deep end customers, our CRM customers buy the remaining 50% are split between the market during the desktop, but definitely we highlighted the CRM because it has the most momentum but also the two other product also has great momentum.
We are seeing in terms of releasing those those that.
Existing customers, we plan to do it.
At the end of each one those midyear this year and just to your comment about the <unk> I think it shows exactly our strategy that because those products are built on top of the world class platform.
Or are you pretty mature to offer a lot of advanced features and we're able to compete in each one of those market.
And achieve high rating within customers, which is.
Kind of what we expected and big part of our strategy as we build those products.
Okay.
The next question is from Steve Enders from Citi. Steve. Please go ahead. Your line is open.
Okay, great. Thanks for thanks for taking the question.
I'm going to ask a little bit on the outlook on the EBIT line.
Strong upside we saw there in the quarter I guess, how should we think about the kind of puts and takes are.
Where are you investing in.
Incremental opex may be aware, there might've been a little bit of a pullback from what youre expecting in four Q and I guess similarly for the outlook is there.
Pause and maybe some of the investments that youre, making on.
On the headcount side or just anything that we should be thinking about as we think about the EBITDA outlook for the year. Thanks.
Hey, Steve it's cellular so with regards to the first quarter.
We provide the operating.
Profit.
Mostly driven by the fact that we based on the revenue side, we saw a lower estimated spend.
Due to the fact that it cost us to acquire customers. It can be because some of the competition or the competitors that we state that pulled back and we believe this is an opportunity for us actually to take market share and to grab land.
Some of the hiring that we wanted to do in Q4 were delayed to next year.
Would like to focus on having people for.
Engineering and product.
An area that we will continue to to invest and in addition in Q4 as part of your yearend audit. There is always kind of reversal of some accruals that you are growing throughout the year. Nevertheless, I would like to emphasize that from our perspective.
We are going now into Q1, we will continue to invest.
In an efficient manner.
With regards to overall EBIT that you were asking we are currently consistent with our original plan to reach profitability borrowed before 2025 sustainable.
And with regards to free cash flow, we said that we are going to be free cash flow for the entire year not only in Asia.
Okay perfect.
All helpful context there.
I do want to ask on the on the.
Marketplace side, and the new relationship with without fire I guess, how do you kind of view the marketplace opportunity.
Evolving and moving forward and how do you think about it.
Outside partners and third parties building applications and use cases versus kind of what you are building.
Built in house.
Hi, Thank you.
And so we really care about the marketplace being a huge growth engine for us.
Investor lodging partner, who is joining us up fire is a great partner to have.
Our vision here is to build.
Very large and robust ecosystem around us.
The way, we're doing it I think.
<unk>.
That's we're opening the platform up completely.
Just as an example.
Application developers can.
Create now.
First class tickets is within the platform, it's not something that is sticking.
Great or like hidden okay. So they can really build on top of the platform.
Like we do and we really open up completely and I think they feel that they feel there that we are a great partner to build upon.
Okay, great. Thanks for taking my questions.
Thank you.
We have a question from Kash Rangan from Goldman Sachs. Please go ahead. Your line is open.
Hi, Good morning. Thank you very much congratulations on the quarter terrific 14, I'm curious to get your perspective on Monday, DB I know that it's going to be rolled out in 2024.
The data.
What's the initiative based on any specific customer feedback or is it something that youre doing more proactively.
What are the kinds of customers that you hope to land with <unk>.
Monday DB.
And since you are putting into that you could not otherwise previous could get and also with this.
This partnership initiative, where you're opening up the platform for partners to develop what kinds of applications new kinds of applications what is the goal.
Sure.
Long tail of App that you don't have the resources development that you hope to Barclays can get you into new markets or is it new geographies or is it just still the platform even more to existing customers that they can exploit new cable produce more.
Curious to get.
Your take on what you want to accomplish.
The opening up of the platform initiative. Thank you so much.
Hey, guys.
Thank you for the question so.
Monday BP is something that isn't the core of our infrastructure like we are.
We.
Highlighted how being MLS and how we built the platform on top of.
Solidago backbone that enable our customers to build whatever they want Monday begins the next phase of that we want to make it.
More scalable and like a lot of customers tell us we're doing like.
They can do flip flops grid Monday, they can do whatever they want its magic and I think were Monday becomes when it takes that magic in a scalable way and allow us to be in a way bigger applications on top of us and that opens up the door for larger.
Installment.
Different use cases that require like millions of pro.
The door for larger customers and in many ways.
But again, it's like an infrastructure moves to move us to the next level.
Regarding the marketplace.
What what we think is that.
First of all when we started it we just wanted to open it up to everyone and see what they do and they surprised us all the time with what they are doing and I think you made towards the great points like one is obviously.
Long tail.
Solving a lot of programs that we would not get too for our customers.
And another thing is.
Go to market like the market.
Those solutions and green gas.
More audience.
I think a third thing.
Very important is the fact that our customers choose us.
And the dealers because they see that they can build a future on Monday, even if they don't know exactly what they need to build now they know whatever.
They want to build never hit the wall because.
The platform is open and they can always take a partner to build whatever they want they can connect bespoke software and a lot of those stuff. So in that respect. It's also very important for us.
Those are all great moves. Thank you so much and congratulations again very happy to see this.
Thank you.
The next question is from Jackson Ader from SBB Moffat Nathanson Jackson. Please go ahead. Your line is open.
Great. Thanks for taking my questions Scott.
First one is on the.
The commentary on the net dollar retention rate and specifically in the high end that kind of 50000 and above.
What is kind of driving the weakness there or is it just people not expanding upon their annual renewals as much as you thought is there any.
<unk> shift in terms of the number of seats at some of your customers just interested in those dynamics.
Hey, Jack on Italy, Iran.
<unk>.
As a reminder, with the enterprise accounts, we're coming off historical high.
What we see it basically I think this is something that we started seeing also last year larger customers become more cautious with their budget, it's mostly seeing a slowdown in expansion of seats. So on one hand, we see a very healthy traffic of new customers new logos, that's actually buying.
On the software, but on the other end youll see the amount of expansion within existing customer base, mainly the big one is less than what we used to see in the past. We believe its current macro uncertainty that has been driving most of this behavior.
But on the other end the positive is that overall MBR remained steady at 120%. The gross churn has held up well.
We're still seeing as I said solid new customers demand.
We would say that by the end of this year, we expect additional probably.
Decline.
Due to mostly to the macroeconomic headwinds.
Okay, and actually if we just take a little bit on that theme, but maybe geographically speaking.
Europe has held up maybe better than what we expected.
Yes.
Dropping in the revenue mix by only 1% year over year.
I'm just curious in that geography, and what you guys are seeing and maybe whether it's kind of out or underperformed your expectations in 'twenty, two and what we should be thinking about for 'twenty three.
So maybe just to take a step back as a reminder, 70% of our customers are non tech and 30% of this deck. So when you think about the softness in demand that we saw last year, it's mostly around tax. So when you think about Europe , we said that we see a more for less.
This has an impact.
Potentially other thing because our the level of exposure that we have so I think that we don't see significant changes to what we saw in the past it's relatively stable.
And actually getting into the new year, we see some positive signs yet to be seen for the reminder of the year.
Okay, Alright, great. Thank you.
The next question is from George <unk> from Oppenheimer. Please go ahead. Your line is open.
Thank you for taking my question and congratulations on the results.
Layer on maybe if you can give us some more color on that competitive space you continue to add.
Solid number of new customers.
These land, mostly new and are you seeing displacement from either work management solutions or mostly.
Activity.
We have lost connection with the speaker team. Please stand public reconnect him.
Yeah.
Yes.
Okay.
Yeah.
Okay.
Thank you for your patience, we are now reconnected the speaker team.
Yeah.
George Your line is open.
Okay.
Alright, thank you.
Ron.
Basically it was asking about the competitive environment.
The pipeline generation you see is that mostly still greenfield are you displacing other productivity tools management tools at this point.
Hi, it's Roy.
Sorry for the disconnect.
So.
We're looking into new customers that joined the platform, we still see it as a greenfield.
Also the majority of the deals we do are not against any other competitor.
And within the ones that we do compete with someone.
We win mostly because of our work.
<unk> because they want the platform they want the fact that they can do.
A lot of things with it towards the future.
Okay, and Allergan, maybe digging into the hiring that you expect to do this year, how front loaded is that and what things will you be monitoring to kind of judge the pace of future hiring in upcoming quarters.
So.
And George just to relate to that we are mostly focused on building out the platform and product offering.
So the focus will be mostly on the R&D and product.
Different to prior year, we are going to probably around 10% give or take based on our needs. It is not going to be necessarily frontloaded, maybe there is going to be slightly skewed towards the H one, but overall, we are expecting a more of a balanced hiring process throughout the year and obviously, if we need to hire more than we'll make.
Decision as we progress.
Yeah.
Thank you.
Okay.
The next question comes from DJ Hynes from Canaccord <unk>.
Please go ahead your line is open.
Hey, good morning, guys.
So maybe just building off that last line of thinking there Ron.
In the shareholder letter on your prepared remarks.
One of the focus areas. This year was to expand the upmarket growth engine.
You had a great slide in the deck that shows your efficiency metrics are hanging in there really well clearly there's uncertainty out there. So just help us understand kind of how you are thinking about executing on the go to market side of things hiring there and kind of what are the key initiatives, we should be watching for this year.
Yes.
Hi, This is Rob. Thank you dk so in terms of our go to market.
We have a bunch of plans so definitely the new products are a great way to expand our go to market. The fact that we can now market specifically, the CRM product that product and marketing product just opens up Monday to new audiences and new type of buyer and just as a reminder, once a customer starts using one of those products.
Spanned two additional products and eventually get the whole company.
Monday workhorse platforms. So definitely this is big and changed here for us in terms of our ability to go to market different kind of buyers are different personas within the organizations also this year, we're going to double down on our outbound motion so expand our channels marketing channels.
More BTB enterprise focused marketing.
All those efforts together.
We will allow us to continue to execute in addition to the great momentum we already have seen performance marketing that we mentioned given.
That most of the other players in the market has pulled that we're able to each year now a greater market share and greater efficiency. So combine all those things together, we see great momentum in terms of acquiring new customers, maybe D. J D.
Sorry, just to add to what Ron said, let's do we hired.
We increased our head count and more than 50% and we believe we are now well positioned to grow to 2023 and beyond in terms of sales and marketing head count.
With regard to growing up market as well.
Yes, yes, okay, great color. Thank you guys.
The next question is from Derrick Wood from Cowen <unk> Company. Please go ahead. Your line is open.
Great. Thanks, and congratulations as well I guess, just a follow up to that you did hire your first ever <unk> in November .
Wanted to hear what the what the kind of impetus was to break out our CRM.
What changes you may be making on the go to market side.
Yeah. Thanks, Derrick this is around so actually.
Zero is actually promoted from within the company. It was managing both the sales team and the marketing team and we promoted him to be the CEO of the company basically adding also the management of the customer success group and the customer support in addition to our partners group. So first of all.
Im really proud of the oney has been doing a phenomenal job basically himself created the wholesales team from scratch.
Great job.
And with this.
Within the company. We believe this will allow for better collaboration between the different team will drive greater efficiency.
The teams working together and more optimized go to market. The fact that you have such a wide Luke.
Starting from the marketing team all the way through the sales and partners just gave so much energy to all the teams and much better collaboration. So we're already seeing the fruits of that and I feel that going into 2023. This will even creates greater efficiency within those teams.
Got it that's helpful and just maybe a follow up.
It sounds like from a macro standpoint, youre not seeing a whole lot of <unk>.
Headwind on the SMB side, it's mainly just from slower expansion activity.
The up market customers.
I guess why is it that you.
We've heard more pressure from S&P from other companies why is it.
Like you're seeing more stability on the SMB side.
Hi.
Troy.
<unk>.
It's really hard to say, but I feel like F&B is want to consolidate on.
You don't have.
Our products that solve more problems.
For then that's typically the case on Monday, obviously, the tool of tools and they can do so much with us.
Having said that the situation there is very stable like you said and we do see a very healthy top line demand.
As Don mentioned, our performance marketing and getting new.
Customers.
Two joined Monday.
Well done thanks.
Thank you.
Yeah.
Just a reminder, star one to ask a question today and participants to limit themselves to one question per person.
The next question is from Frank Lee from Credit Suisse. Please go ahead. Your line is open.
Very nice quarter and thank you for taking my question.
I noticed R&D in dollar terms declined sequentially for the very first time.
Wondering if you could talk about how we should think about leverage going forward, especially as you add features that rollout CRM customers.
New products like Monday, DB, and then if you could also share yearend headcount R&D. Thank you.
Yes, so with regards to R&D, France, Italy, Iran.
The March quarter, it's 18% for the year at 16% for the fourth quarter reason why it's mainly due to the fact that we did some cost adjustment at the end of the year there was the impact of the Israeli.
<unk>.
The exchange rate because the dollar was strong.
This product in Israel with all the R&D based in Israel, you get benefits on their payroll, which is most of the cost for R&D.
And when you think about going into 2023 and 2024.
We are in accordance with our.
Long term operating plan, which was around 22% to 24% we believe it's going to be on the lower side of it.
Roughly 20% were never very significant in terms of R&D as a percentage of revenue and this is pretty much there kind of a ballpark I would assume that we need to to maintain obviously, if we're willing to invest further on the platform.
And on Monday, ADP as we said already took it into account, but if were single receipt that we need more resources and more headcount than there is no.
We've obviously hired them.
Thank you and then also the year end head count if you don't mind and R&D.
<unk> head count.
The problem is north of 300, I don't remember the exact number but maybe just to add the other one to give you a perspective most of the bulk majority of the hiring for 2023 is going to be focused on R&D resources for US. This is the main part of the business. We plan to expand next year and put most of the efforts and the budgeting too.
So we are continuing and like always we're going to deliver.
Execution also in 2020, we have very big plans.
Okay. That's very helpful. Thank you. Thank you very much great quarter.
The next question.
Comes from Brent Thill from Jefferies. Please go ahead your line is open.
Thanks, just back on the guidance I, just wanted to better understand what you're embedding for the year.
A macro or SMB churn.
Pretty drastic slowdown in growth is just that.
Fashion conservatism or are you baking in.
Anything else to give yourself a little was around.
Hey, Brent itself. So we believe this is going to be a pretty much the same macroeconomic.
The conditions that we see now that will persist by the end of the year and we took it into account we did also take into account.
There is some slowdown on MBR from enterprise accounts, it's also baked into the numbers.
Other than that we believe is that.
Guidance is consistent with what we see as of now and.
Also with the improving overall efficiency on one hand, but.
The challenging macro economy. So we feel this is a number that we can achieve.
And that enterprise slowdown is that just as it relates to the macro having to hold on those customer slowing or is there something from a.
Internal execution that you'd like to do better there.
Yes. This is Ron thanks, Brian So I feel it's more about the macro environment and the fact that those enterprise are a bit more cautious going into 2023, maybe slowing down hiring just as a reminder, the way, which our customers is per user. So the fact that they might be selling on hiring might have an effect here.
But definitely we are seeing some optimism and some good momentum as we started the year. So I think there is some optimism make into that going forward.
Thank you.
Yeah.
The next question is from Arjun Bhatia from William Blair. Please go ahead. Your line is open.
John Your line is open please make sure you don't mean Luckily.
Hello can you hear me.
Alright perfect.
Alright, thanks, guys.
My congrats on a.
On a good quarter I wanted to touch on the product vertical integration efforts I think you mentioned that a little bit in the shareholder letter, but I'm curious what your roadmap is on virtualization and maybe what role the partners can play there.
If any in helping to reach verticals, where you may not have.
Presence right now.
Hi, Thank you Rory.
So we are in.
[music] relying a lot on the partners to both.
Expand our marketplace offerings and also to provide.
A lot of services and to help us with customers and territories, we are not present.
And I think it's a great.
Power and that we have that we have so many engaged partners just recently a lot of them like 170 of them flowing.
We had a large ah.
Event here and it was very exciting to see.
They're going to build on us and.
Really we shared with them the roadmap of the market based on how much they can do either so it's really exciting.
And.
Maybe one follow up.
For for all around us.
Do you think about just the sales and marketing spend going into next year, obviously, you're seeing efficiency there on customer acquisition, but how do you think about the trade off between performance marketing and sales led spend on the go to market side in 2023.
John So the short answer is that it will be pretty much in the same ratio that we saw in the past I would say around 30% is going to be a performance marketing based on efficiency and around 70%.
Sales and partners. So this is kind of Congress the ratio that we believe is going to continue also this year.
Okay perfect. Thank you guys.
The next question is from Robert <unk> from da Davidson. Robert. Please go ahead. Your line is open.
Hey, nice quarter and thanks for taking my questions.
Our retention number.
In the large enterprises and will you disclose as a fourth quarter number can you talk about what you actually saw in the quarter itself in terms of how that trended.
In the December quarter, and then also the gross retention what you saw there.
Hey, Robert Italy, Holland, so from an overall.
The NPL remained steady with <unk>.
The entire population with 110.
20% in gross churn has held up well, we are still seeing solid new customer demand and overall, it's growing on the larger accounts. We saw a decline as I said at the beginning of the call. As a reminder is that to be coming off historic alive.
The larger customers that become more cautious with their budgets.
Our conscience with the level of spend and we do see a slowdown in expansion of seats, mostly driven we believe by current macro uncertainty.
That is driving this behavior.
Would it be possible at any quantification.
Those factors or sidewalks.
Mark.
Thanks.
Can you repeat the question please.
What did you, possibly get a quantification on any of those factors in the quarter.
Don't have it right now.
The quantities of each contribution.
But.
The MBR, yes, so the larger one would be the slowdown in expansions.
So this is the main factor that drove going Dr.
Fever.
And they are of larger customers slow down more.
<unk> then the other ones.
Great. Thanks.
The next question is from Jason <unk> from Keybanc. Jason. Please go ahead. Your line is open.
Hey, Thanks for fitting me in.
Very nice to see the customer win at a major financial institution in the prepared remarks.
When we think about the slowdown in the seat expansions at the enterprise has it been mainly limited to your tech.
Closure.
Just curious there thanks.
Yeah.
Yeah. Thanks, Jason This is Ron.
Yes, I would say the tax sector.
Again like the thing that drives the MBR.
Mostly.
Expanding hiring more people getting multiple onboarding into the product definitely the tech sector has suffered more but just as a reminder, it's only 30% of our customers.
The other 70% more or less impacted but it is something we are seeing across the board.
Within companies and again, it's hard to tell how much is that larger organization being more cautious in how much of that will stay with us going into 2023, but this is the current trends we're seeing.
Okay, great and if I were to kind of summarize.
On the top of funnel trends it sounds like things are still very strong I am curious unlike the linearity that you saw in Q4 I guess, how did you mean that top of funnel look in December versus maybe early in the quarter. Thank you.
Hi, it's Roy so historically, we've seen that the.
First quarter is much stronger people are coming back from vacation and new year's and so.
This first quarter, we actually.
Yeah.
I anticipate it will be.
Less.
Sure.
Stronger than that.
So we do see it as a very positive sign we see very strong demand.
No.
So thats like a super positive for us.
Great. Thank you.
Yeah.
The next question is from Andrew de Gasperi from bedroom, Doug Andrew. Please go ahead. Your line is open.
Thanks for taking my questions I guess I know you've met you talked a lot about net retention rate and I know the Spaniard 12 months trailing metric I guess, what I'm trying to get at is this metrics going to step down sequentially for the larger cohorts over 10 years.
Okay.
Yes, we anticipate that it might go down in the larger accounts between 5% to 10% more this year. There is a lagging effect having in mind you. The trailing 12 months and we are counting at weighted average.
So obviously the impact is going to be throughout the year. So I believe this is probably the trend addressing.
Thanks for that and then.
Secondly, on the sales and marketing savings I know you mentioned performance marketing competitors pulling back.
I just wanted to dig a little deeper in terms of who those competitors are are we talking about other collaboration work management platforms is it a bigger part of that.
Hi, its rory so generally when we say that we remain the overall.
Competition on the keywords and on those ads. So we don't necessarily know where they are we just see that we are getting.
More customers for less money.
The next question comes from shall we say roughly from SPN Securities shall we please go ahead. Your line is open.
So thank you very much so.
It looks like you are going to be hiring in product and R&D.
23 does that mean youre going to.
We have lower sales and marketing head count.
At the end of 'twenty three could you just talk about how you intend to invest in sales and marketing this year.
Hey, Chablis Silicon. So yes, we said that we are going to focus on product and R&D, it's not necessarily mean that we're going to have lower.
With the sales and marketing if we need to hire there is going to be hiring there as well currently we are continuing with the number that we had but we see the bulk of the investment in R&D.
Okay Alright.
And I just wanted to elaborate on the competitor are pullbacks.
Answer to a prior question but.
Just if you can elaborate on that.
For example.
Do you have a number of competitors that you saw pullback.
When did you see it if there was a time that was more noticeable and what is your response are you going to be more aggressive now against your competition and just describe how you might become more so thank you.
Okay.
So yes elaborate more on that so essentially.
We've bid on ads.
Sure.
Google and Facebook and Youtube and all of those areas of performance marketing and we see that we can get the same AD placements for lower costs.
So thats essentially what we say when we say less competition, so like to be in first place.
We need to pay way less and then we get a lot more customers.
And because of that and our approach is that.
We have a big Brian we have our own measurement.
Internal measurement tools that we have.
That show Us exactly the ROI on every dollar we spend on marketing. So we know what's working so if there is a campaign that is no.
We are working less good we will lower the.
Optimistically almost.
And so I think this is a competitive advantage, we have over others, where they needed to cut back because they just did and we know what's working and so what's happened is that we've even increased.
Our budget, we'd have for performance marketing.
In January and February because we know and we see what's working and we have internal predictions to what we'll get out of it. So I think we're doing a super responsibly, we know exactly what their rois and you know thats the strategy and what its been up until now.
The next question comes from Scott Berg from Needham Scott. Please go ahead. Your line is open.
Okay.
Hi, good morning, congrats on the quarter and thanks for taking my questions.
I guess ill leave you with one in his time here.
Given the success that you've had on the <unk>.
Getting psi in those numbers have actually trended down all year I know after the large Super Bowl AD last year.
It sounds like FX was a benefit in the quarter I guess why not step on marketing a little bit more if the cost of customer acquisition is actually coming down you continue to have success, there and the competitors are pulling away why not take this opportunity to capture more market.
Hi, Scott, it's Troy. So yes, we have been doing that up to the point that we are comfortable with the results that's what.
It shows us exactly tower further we can step on the gas and we have.
So.
There isn't any point in extending its more either there is no.
Because we won't see the results that we want before we push it further but we have and we have extended the marketing.
Scott just to add to what he said from our perspective.
This is what we are also going to look at this year, if we see opportunities continuing to see the opportunities with efficiency, then we're not going to pull back we're actually going to.
Push on the on the gas in order to generate more leads and more growth for the business.
Great Thats all I have thanks for taking my questions.
The final question today comes from Alexander <unk> from Tigress Financial Partners. Please go ahead. Your line is open.
Alright. Thank you for taking my question also congratulations on the great quarter and great year.
Can you give us some insight or discussion on some of your AI initiatives and potential AI integration capabilities onto your platform.
Hey, Troy so.
<unk>.
It's obviously been amazing right like such a huge change is such a short time in AI and know that.
We see that like.
The barrier with lowered so much to create such powerful AI tools.
We naturally do at Monday, we opened up the platform and allow anyone to build on top of that so we have already.
Added many layers that enable anyone including us to build AI tools on top of Monday, and we'll soon have an AI hackathon, where we'll invite.
Anyone to build on top of the platform and essentially.
And have a dedicated section within the marketplace for AI tool that can benefit anyone and I think thats like super exciting.
And we will see like long tailored solutions for specific industries.
It's like a excited yes.
Maybe just to add this is Ron just to add more color. So one of the main building blocks that we have in the platform as our Monday docs and that was already saw a lot of potential use cases for using AI to generate automatic content and summarize content within the board. So definitely we saw some exciting poc's and we plan to expand.
Like we said the platform and start with some off the shelf solutions to start with.
Alright, Thank you and wishing you a big 2023.
Thank you. Thank you.
This concludes today's Q&A session and thus concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
[music].
Yes.