Q3 2024 monday.com Ltd Earnings Call
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Speaker Change: Good day. My name is Ezra and I'll be your conference operator today. At this time, I would like to welcome everyone to Monday.com's third quarter fiscal year 2024 conference call. I would like to turn the call over to Monday.com's Vice President of Investor Relations, Mr. Byron Stephen. Please go ahead.
Byron Stephen: Hello everyone, and thank you for joining us on today's conference call to discuss the financial results for Monday.com's third quarter fiscal year 2024. Joining me today are Roy Mann and Eran Zinman, co-CEOs of Monday.com, and Eliran Glazer, Monday.com CFO.
Byron Stephen: Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.
Byron Stephen: 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 our Investor Relations website. Now, let me turn the call over to Roy.
Roy Mann: Thank you, Byron, and thank you, everyone, for joining us today. We're fresh off another strong quarter in Q3, highlighted by improving retention trends, strong financial performance, and robust product development. This quarter also marked significant milestone for Monday.com as we surpassed $1 billion in annual recurring revenue.
Roy Mann: Reaching the $1 billion ARR milestone is not just a number. It's a pivotal moment in our company's journey, and we are ready to build on that momentum.
Roy Mann: With a total addressable market of over 100 billion, growing 14% annually across four markets.
Roy Mann: Work Management, PRM, Service Management and Software Development, there is a substantial opportunity ahead. To drive our next stage growth, we remain committed to deepening and expanding our product offering and increasing our global presence.
Roy Mann: As the landscape of work evolves, we are determined to stay ahead of the curve by continuously investing in technology, exploring new markets, and fostering a culture of agility. Monday.com is not just keeping pace with the industry, we are shaping its future.
Speaker Change: Before I turn it over to Eran, I'd like to cover a few changes in our management team. First, we are pleased to announce the appointment of Adi Dar as Chief Operating Officer, with over 20 years of experience driving sustainable growth in global tech companies.
Eran Zinman: Ajit brings significant expertise to our executive team and has already made a strong impact since joining us a few months ago.
Eran Zinman: On a different note, we would like to share that our Chief Revenue Officer, Yoni Yoshav, has informed us that he will depart the CRO role at the end of December.
Eran Zinman: Since joining in 2017 as VP Global Sales and Marketing and becoming the CRO in 2022, Yoni has been instrumental in developing our sales and partner channels.
Eran Zinman: During Yoni's tenure, we have seen remarkable growth with ARR increasing from $10 million to over $1 billion.
Speaker Change: We are deeply grateful for his contribution and wish him all the best in his future endeavors.
Speaker Change: We are conducting a global search for Yoni's successor and he will continue to serve as an advisor until the CRO is appointed.
Eran Zinman: Let me now turn it over to Eran to walk you through some of our product highlights for the quarter. Thank you, Roy.
Eran Zinman: I'm pleased to share highlights from our recent flagship user conference, Elevate, which took place in London, New York City, and Sydney. This year's event was the largest ever, with attendance doubling compared to last year.
Eran Zinman: Thank you to all who joined us. For those who could not attend in person, we invite you to participate in Elevate Online on December 4th.
Eran Zinman: Our Elevate conference provided us with a platform to showcase our latest product innovations. This year, we featured Monday AI, which includes no-code AI building blocks that customers can tailor to their specific business needs.
Eran Zinman: We also highlighted our second larger product, Monday CRM, and our vision to expand its capabilities behind sales, fostering collaboration across various revenue teams.
Eran Zinman: Upcoming features will include email marketing functionality, enabling teams to manage their campaigns directly within Monday CRM.
Eran Zinman: Additionally, we're excited to demo our latest product, Monday Service, at Elevate. Although still in beta, Monday Service has shown promising cross-sell potential, and it's on track for release by the end of 2024.
Eran Zinman: As we expand our product offerings and support our customers' growth, we are committed to building a robust platform for scalable work.
Eran Zinman: At Elevate we announce the next iteration of MondayDB is now live. MondayDB 2.0 is all about scale and allows boards with up to 100,000 items and leaked items and a dashboard with half a million items.
Eran Zinman: Lastly, we are pleased to report that Monday Work Management continues to gain significant traction with enterprise customers.
Eran Zinman: In Q3, our second largest customer increased their seat count from 25,000 to 60,000 as part of their initiative to simplify and consolidate the technology stack.
Eran Zinman: This represents a remarkable 24-fold increase in the receipt count since 2022.
Speaker Change: With that, I'll now turn it over to Eliran to cover our financial and guidance.
Eliran Glazer: Thank you Eran and thank you to everyone for joining our call. Q3 was another strong quarter for Monday.com with solid revenue growth and profitability and improving retention.
Eliran Glazer: We are pleased that Fiscal Year 2024 is on target to be above our base case guidance outlined at our December Investor Day. Having surpassed $1 billion in ARR, we are now focused on leveraging our momentum to advance into the next stage of growth for the company.
Eliran Glazer: Total revenue in Q3'24 came in at $251 million, up 33% from the year-ago quarter.
Eliran Glazer: Overall NDR increased to 111% in Q3-24. We expect NDR to be stable through the end of the year. As a reminder, our NDR is trailing 4.25 weighted average calculation.
Eliran Glazer: For the reminder of the financial metrics disclosed, unless otherwise noted, I will be referencing a non-GAAP financial measure. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.
Eliran Glazer: Third quarter gross margin was 90%. In the medium to long term, we continue to expect gross margin to remain in the high 80s range.
Eliran Glazer: Research and development expense was $43 million in Q3'24, or 17% of revenue, compared to 15% in Q3'23.
Eliran Glazer: Sales and marketing expense was $130.3 million in Q3'24 of 52% of revenue compared to 54% in Q3'23.
Eliran Glazer: General and administrative expense was $21.4 million in Q3-24 or 9% of revenue compared to 8% in Q3-23.
Eliran Glazer: Net income was $45 million in Q3-24, up from $33 million in Q3-23. Diluted net income per share was $0.85 in Q3-24, based on 52.6 million fully diluted shares outstanding.
Eliran Glazer: Total employee headcount was 2305, an increase of 195 employees since Q2-24.
Eliran Glazer: We expect to increase headcount by mid-30% in FY24 with continued focus on our R&D, product and sales teams as we build out our platform and product suite.
Eliran Glazer: Moving on to the balance sheet and cash flow, we ended the quarter with $1.34 billion in cash and cash equivalents, up from $1.29 billion at the end of Q2'24.
Eliran Glazer: Free cash flow for Q3-24 was $82.4 million and free cash flow margin as defined as free cash flow as a percentage of revenue was 33%.
Eliran Glazer: It should be noted that free cash flow for the quarter was impacted by a one-time net cash incentive of approximately 11 million for our new London office rental agreement. Free cash flow is defined as net cash from operating activities, less cash used for property and equipment, and capitalized software costs.
Eliran Glazer: Now let's turn to our updated outlook for fiscal year 2024.
Eliran Glazer: For the fourth quarter of fiscal year 2024, we expect our revenue to be in the range of $260 million to $262 million, representing growth of 28% to 29% year-over-year.
Eliran Glazer: We expect an on-gap operating income of $29 million to $31 million and an operating margin of 11% to 12%. We expect free cash flow of $63 million to $66 million and free cash flow margin of 24% to 25%.
Eliran Glazer: For the full year 2024, we expect revenue to be in the range of $964 million to $966 million, representing growth of approximately 32% year-over-year.
Eliran Glazer: We expect full year non-GAAP operating income of $121 million to $123 million and an operating margin of 12% to 13%.
Speaker Change: We expect full year free cash flow of $286 million to $289 million and free cash flow margin of approximately 30%. Let me now turn it over to the operator for your questions.
Thank you.
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Speaker Change: Our first question comes from the line of Kelly Naftalovich with Goldman Sachs. Your line is open.
Speaker Change: Hey team, it's Gilly on for Cash. Thanks for taking the question and congrats on reaching the $1 billion run rate mark. Two questions if I may. As we see your larger cohort supporting an inflection in NRR, but we see a softening of your net new customer ads, can you share how Monday's engagement with customers is evolving and whether you are seeing any changes in the broader demand or competitive environment?
Yeah, hi Gary, it's Eran.
Eran Zinman: First of all, as you mentioned, we see good retention results. Our NRR is improving, and also our gross retention is at record level, historically.
Eran Zinman: So overall, we see better retention with small and larger customers.
Eran Zinman: So overall, if I take everything, we see demand to be steady, pretty similar to what we saw in previous quarters in terms of retention of customers and also in adding new customers.
Eliran Glazer: Hi Gili, this is Eliran. Maybe I will add one more thing is that with the new product that we introduced
Eliran Glazer: Service, we see also, you know, we see our MN Service, we see Crossfield.
Eliran Glazer: in between our existing customers and new customers that continue to add additional potential momentum to our sales.
Speaker Change: Perfect. Thanks. And when we think about your growth initiative that you just mentioned, as well as the hiring.
Thank you, so this is Eran again. So...
Speaker Change: The fact that we hire more salespeople is basically because we see a lot of demand and a lot of opportunity.
Speaker Change: within our own customer base. So it makes sense building towards growth for
2025.
Speaker Change: So we're pretty confident on that and our plans for 2025 as well.
Speaker Change: and we're investing a lot into that and growing that as well. So, I would say that both in expanding existing customers and acquiring new customers is according to our original plan and demand and the market looks very stable.
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Speaker Change: Our next question comes from the line of Pinja Limbora with J.P. Morgan. Your line is open.
Speaker Change: Thank you for taking the questions. It seems like you're seeing half of paying customers for service come from cross-sell and I think the product is still in beta, right?
Speaker Change: Do you think service might have a much bigger cross-sell opportunity with a CRM and that you might actually realize it faster than CRM?
Yeah, hi, it's Roy.
Speaker Change: So, we do see a great opportunity to cross-sell with service. It is, like you mentioned, still in beta and very early stage, so, like, it's not something we see as a significant part of our, let's say, revenue next year, but we do see it as a huge growth potential going forward. Too soon to tell how it will measure up compared to CRM.
Speaker Change: Okay, understood. I want to ask you on net retention as well, just as a follow-up. It seems like you're seeing an uptick, but it seems like the uptick is largely in the large customer segments. Maybe talk about how much of that is due to feed unlocks from MondayDB versus CrossSell, and maybe broadly, Eliran, has that metric turned a corner as we look, you know, into the next several quarters?
Speaker Change: Yeah, so, hi, Benjamin Itzeliran. So, again, we are pleased with our NDR, you know, it increased to 111%. You know, this is ahead of our expectations.
Speaker Change: And I think that we expect it to be largely stable in Q4.
Speaker Change: to your question if it's going to be a turn point going into next year. So we foresee opportunity for continuous improvement in fiscal year 25.
Speaker Change: This is the result of the fact that we continue to go off-market.
Speaker Change: Potentially, the impact of the price increase around 100 to 200 basis points, and I would say it's also broad-based across all customers with gross retention also getting to record high.
Understood. Thank you very much.
Speaker Change: Next question comes from the line of Brent Braslin with Piper Sandler. Your line is open.
Speaker Change: Thank you. Good morning. I wanted to touch base on service again. What are the key kind of product milestones you're looking for that product to hit in order to GA? I know it's been a pretty successful beta, but what are the key last parameters that you'd like to see before that's released? And then one quick follow-up on guidance.
Eran Zinman: Yeah, so hi, Brian, this is Eran. So like everyone mentioned, we're very excited about Minds of Service. It feels like there's a huge opportunity there.
especially cross selling that product to existing customers.
Eran Zinman: Because of that, and because we see them in also from a larger...
customers.
Eran Zinman: We just want to make sure that, you know, one, the product is mature enough so it can scale within our existing customers, not just the smaller ones, but also the mid-market enterprise customers.
Eran Zinman: And then there's a bunch of features that we're planning to finalize before the official launch.
One of them is...
Eran Zinman: Customer Portal, where people can create tickets, and also some AI functionality.
that's webbing into the product.
We feel that we're pretty close to launching the...
The full release of that product.
and the feedback from customers.
Eran Zinman: It's very good. So overall, we're very excited. There seems to be strong demand in terms of go-to-market and also great reception from customers who already use the product.
Speaker Change: Eliran, the guidance here has been pretty consistent all year, 28-30% forward outlook here for four consecutive quarters now. How would you frame the demand going into year-end here?
Eliran Glazer: So the main environment, as Eran said, the main environment has been very stable, it's broad-based, we still see strong momentum coming from S&B and continue to move up market.
Eliran Glazer: Getting slightly better going into next year based on what we heard from other companies.
Eliran Glazer: But there are still some signs of choppiness in some, you know, some segments. So I would say, I don't want to tell you that it's going to be a dramatic change going into next year, but it's going to be a combination of, we see a strong momentum on our business, but there is some choppiness in the market.
Helpful color. Thank you.
Speaker Change: Next question comes from the line of Ryan McWilliams with Barclays. Your line is open.
Speaker Change: Hey guys, thanks for the question. Just to follow up on Brian's question, as we think about our models for next year and building up to our estimates for 2025, any early insight into the things to think about maybe as we, you know, continue on with the price increase into next year? Maybe should we look at 4Q as a reasonable starting point? Just any breadcrumbs we can use from our models for next year growth. Thanks.
Eliran Glazer: Hi, it's Eliran. So, you know, we will give our fiscal year 2025 guidance as part of next of next fiscal year.
Eliran Glazer: But we remain optimistic that, you know, with Monday's service, with the price increase that we did, with the growth sale opportunity, with the fact that, you know, momentum continues to be good, we are going to see some potential upside also next year.
Speaker Change: Excellent and then you guys have seen really strong product development with the new product line releases but any thoughts on M&A here like would it make sense to maybe acquire some built-on AI capabilities just to see if you know your thought process changed around that but at this point too much
Eran Zinman: Yeah, hi Ryan, this is Eran. So yeah, definitely. We have an M&A team. We're constantly monitoring the market and looking for opportunities.
Eran Zinman: Next question comes from the line of Brent Thiel with Jeffries. Your line is open.
Brent Thiel: Thanks. With Yanni's leaving, can you just talk through the transition and ultimately in past sales transitions?
Speaker Change: It takes some time to settle in. What gives you confidence maybe this isn't as big of a turbulence or perhaps it is? Give us a sense of how you're going to manage that.
Yeah, Brent, so this is Eran. So,
Speaker Change: So basically, Yoni will stay in his role until the end of the year, and then he will remain the company as an advisor until we find a replacement for CRO. We're pretty confident that we'll be able to find a new source of company.
Speaker Change: In the near future, we're looking for new candidates across the globe.
Speaker Change: and there's a lot of great talent out there and we're doing like an orderly transition plan. We got everything covered and we get great management as part of our
Speaker Change: leadership and leadership in our CR organization. So we're pretty confident that things will remain stable and we have ambitious plans for 2025.
Speaker Change: Great, and then can you just give us a quick update on the CRM traction, you know, what mile markers are you are you proud of and what are what's kind of the next chapter as we head in the next year that you're excited to cross with CRM? Thanks.
Yeah, hi, Roy.
Speaker Change: So, within CRM, we are always looking to scale it up a notch in terms of the sizes of business work.
Speaker Change: Approaching part of it is like scaling the infrastructure like we announced to support large data sets.
Speaker Change: and also adding AI to many areas that really facilitate and make sales process much faster and robust. So we're super excited about CRM. It remains a very strong and growth area for us and we keep investing in it.
Thanks.
Speaker Change: Next question comes from the line of Jackson Ader with KeyBank Capital Markets. Your line is open.
Speaker Change: Great, thanks for taking our questions guys. The first one is on the sales rep motion. Can we just kind of go over what that typical motion looks like?
Speaker Change: Are they trying to sell into net new high-level purchasers? Is it rounding up disparate teams that might be used Monday across an organization?
Speaker Change: you know bringing them all together and then I'm just curious like how this role might change with the leadership changes in that organization. Thanks.
Speaker Change: And, of course, the most important thing is that everyone is welcome. I'm sure we'll get to see each other in a few days. I hope you're all doing well. And I hope to see you all soon. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Yeah. Hi, Jackson. This is Eran.
Speaker Change: Very broadly, in general, the way our organization is built is that we have different teams that focus on different go-to-markets, meaning SMB, mid-market and enterprise customers, and then within each one of those segments
Speaker Change: We have AEs and AMs. AEs focus on acquiring and converting new businesses to sign up or have interest in using the platform.
Speaker Change: And AMs, which is the most significant part of our CR organization, are focused on expanding existing customers. What they usually do is either expand an existing use case or find new buyers within the organization to sell them additional use cases or additional products.
Speaker Change: We're planning to scale that. As part of the Sea Orange transition, I think it's also present an opportunity. We're also going off market and definitely it's opportunity to expand that motion. We're gonna bring more season sales reps.
Speaker Change: and perhaps leadership that have expertise in scaling to the enterprise segment as well. So all in all, this is how the team is built, and we're planning to scale that and invest more heavily into larger accounts.
Okay. All right. Great. Understood. And then, um,
Speaker Change: My second question is actually also on go-to-market, but it's more in down-market, that kind of funnel on the low-end.
But has there been any impact?
from your pricing increases.
Speaker Change: on maybe the, has there been a commensurate increase in performance marketing spend to try and land those customers in the funnel, given that now, you know, you've got an increased lifetime customer value, you assume from the higher prices, but I'm curious how that impacts the performance marketing spend. Thank you.
and before the pricing and after and obviously and what
Speaker Change: fewer number of customers, but higher quality ones that have more potential to scale upward. And this is in line with the strategy we have in the sales team and like the whole company is geared toward like, taking our sweet spot if you like.
Okay, great. Thank you.
Speaker Change: Next question comes from the line of Alex Zukin with Wolf Research. Your line is open.
Hey, guys. Maybe just the very large customer expansion.
Speaker Change: Can you talk a bit about what they adopted? Was there a consolidation motion with respect to that? And maybe just the pipeline for those types of deals as you kind of go into the end of the year and have a quick following.
Eran Zinman: Hi Alex, this is Eran. So, this is a company that has grown a lot since 2023, over 24x increase.
Eran Zinman: Just until recently, they had 25,000 suits, and now we have this additional...
Agreed.
What they do happen is they got more...
Eran Zinman: departments using the products across the team. We now have departments from consulting, infrastructure, finance, operations, and also the sales team.
Eran Zinman: And also more room to grow, the civic is great. And if you add that to the other large customers that we announced in the previous quarter, we see great traction in terms of not just lending larger accounts, but also extending them over time. So we see more and more of those deployments that land within our platform.
Perfect. And then maybe just...
Speaker Change: With the management changes, what does Adi bring to the table that he didn't have before? And maybe why was that the right time for this addition? And as you think about Yoni's replacement, how important is larger enterprise sales experience in that?
With respect to that
Eran Zinman: This is Eran. First off, we're very excited for you to join. I think it brings experience in two ways.
Eran Zinman: is scaling, building a lot of organizations. He had experience managing very big organizations with the...
Eran Zinman: A lot of people, a lot of departments and complexity, and I think expertise and knowledge can really help us scale the organization, not just in terms of management, but also in terms of processes, business processes.
Strategic processes that we have.
So definitely we already see great impact from that.
That would be very helpful.
Eran Zinman: Also, he has a lot of technology expertise in different domains, but he really understands technology, understands the SaaS business, and knows how to...
Eran Zinman: You know, leverage and increase also, you know, sales orgs, and it brings a lot of expertise around those areas as well.
Speaker Change: Hi Roy, I can add that Adi is someone we rely on a lot during this transition period and he helps us across the company.
Eliran Glazer: There was a second part, this is Eliran, there was a second part on the question, I remind you Eliran about the CRO, how important it is to have experience in going up market.
Yeah, so definitely in terms of the UCRO that...
Eliran Glazer: We're looking for somebody that could help us go through this transition that we're going through as a company.
Eliran Glazer: We invested a lot into that, and as part of that, Yoni has been busy positioning the sales team.
Eliran Glazer: In this new role, we also continue that momentum. We've already made a lot of progress, great progress on that front. And I'm sure that once we find the right person to join the company, he or she will help us complete this transition.
Perfect.
Speaker Change: Next question comes from the line of Arjun Bhatia with William Blair. Your line is open.
Thank you, guys.
Speaker Change: It sounds like there's campaign management capabilities that are going to be now built in-house. Can you talk a little bit about what your long-term ambitions are for Monday CRM? And could we in the future expect this to become a full-on kind of sales and marketing suite that lives inside Monday? And if so, how do you think about kind of the build versus buy versus partner motion for CRM in particular?
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Hi, it's Roy.
Speaker Change: So CRM is essentially built on Monday WorkOS, which gives it amazing capabilities in terms of...
Speaker Change: flexibilities and the complexity it can manage and also the connectivity to the rest of the organization.
Speaker Change: So I think this is something that our customers really appreciate and want.
Speaker Change: and the connectivity across the organization, being able to do things connectively with other departments. And those additions you mentioned kind of connect to that as well and add more
i
Speaker Change: Byron Stephen, Eran Zinman, Byron Stephen, Eran Zinman, Byron Stephen, Eran Zinman, Byron
Speaker Change: Okay, understood, thanks Roy. And then if I can just turn to the quarter for a second, certainly 32% growth.
Speaker Change: is very strong. I think when I look at the sequential growth from Q2 to Q3,
Eliran Glazer: Sure, Arjun. This is Eliran. First of all, we are pleased with Q3 performance.
Eliran Glazer: We had an exceptional performance in Q2, it set an high bar for Q3.
Eliran Glazer: and you know if you think about what we presented even in the investor day we are going to be above our expectation in fiscal year 24.
Eliran Glazer: Nevertheless, you know, in Q3, we saw some continued shopping, I think, in the macro including, you know, pure enterprise customers, if you look at the total ads, which was impacted in part by slower hiring in sales.
Eliran Glazer: You know, as I said, we have a very strong Q2, an outlier, and slower than expected growth in Monday's area with people to focus on developers. So I would say all of the above created some light September, but we're seeing already strong momentum in October.
Okay, got it. That's helpful. Thank you, Eran.
Speaker Change: Byron Stephen, Eran Zinman, Byron Stephen, Eran Zinman, Byron Stephen, Eran Zinman, Byron
Speaker Change: Next question from Michael Berg with Wells Fargo Securities. Your line is open.
Eran Zinman: Yeah, so this is Eran. So, just a quick update on pricing. The new pricing, the Amendment on Targets, should be fully rolled out by July of 2025, so we're still kind of in the middle of the process.
Eran Zinman: So far it's been rolled out to about 50% of our customers. We see about 30% impact, 30 million, sorry, impact for Fiscal Year 2024. And total impact from the price increase will be about $80 million between Fiscal Year 2024 and Fiscal Year 2026.
Eran Zinman: So those are kind of the updated figures. But just to give you some more colors, we are going really well with the price increase. Reception of customers is good. We don't see any kind of negative feedback, so we continue to roll out the pricing as we plan.
helpful and then a quick follow-up on service
Speaker Change: It looks like it's expected to be GA here in Q4. We had heard through the grapevine that there might have been some delays. Anything to point to there, any color versus potentially prior expectations around GA? Obviously, the feedback sounds incredibly strong from the ecosystem as well as from Elevate, so anything to help point us in the right direction there would be helpful. Thanks.
Eran Zinman: Yeah, so this is Eran. So, there's no delay. Basically, we plan to roll it out by the end of the year, and this is largely when...
Eran Zinman: we released the full version. Just to remind you, it's already available for customers in beta with great reception and feedback, and they use the product. So around the end of the year, beginning of next year, you know, January, we'll announce the product to be GA, and then kind of open it up for our entire customer base. But the product is up and running, and
Thank you.
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Speaker Change: Our next question comes from the line of Mike Funk with Bank of America. Your line is open.
Speaker Change: Thank you for the question today, guys. Just a quick one, thinking about the revenue growth trajectory and the factors that go into that, we did see either a flattening or decline in the customer net additions across.
Speaker Change: Sierra, I'm in depth this quarter. You know, you mentioned the price impact, 30 million for 24, it's probably an uptick from what you had before, and then not expecting a lot of contribution from service.
Eliran Glazer: Hi Jason, it's Eliran. So, as we said in prior quarters, you know, as part of the price increase
Eliran Glazer: We said that we expect a high single-digit ad of new customers compared to the prior year. However, the ACV and the land is bigger. And this is something when we already finished last year with 225,000 customers. Obviously, the ads, in terms of percentage, are going to be slightly lower than what you have seen in the past.
Eliran Glazer: With regards to service, strong momentum. We expect it to continue to next year. This is in line with what we saw with CRM, great adoption between our customers, sorry, among our customers. So this is something that we think will contribute to next year.
Speaker Change: And price increase, as Eran mentioned, will continue to contribute by between 2024 to 2026 around $80 million, so...
Speaker Change: Nothing much has changed from what we have seen in the past, other than what I mentioned earlier with regards to enterprise net edge in Q3, as well as some softness in there.
Speaker Change: And also, hi, Troy. I can add that, like you mentioned, like, size.
Existing customer, I mean, is that so?
Speaker Change: Okay, and just to confirm that my notes are correct, the $30 million impact for fiscal 24 from price net wasn't increased from $25 million previously?
Here, 25.230, correct.
Speaker Change: Our next question comes from the line of Derek Wood with TD Cowen. Your line is open.
Speaker Change: Thanks guys. So you've been pushing up market pretty aggressively in recent quarters and I'm just wondering if this is having any impact to
Speaker Change: deal cycle timeframes. I imagine, you know, as you start doing more multi-thousand seat deals, there's more buyers involved and a longer sales cycle. So just wondering if perhaps there's a little more seasonality coming into the model because of these bigger deals and.
Speaker Change: You know perhaps a little less activity in a Q3 and a little more of a flush of activity in Q4 Is that the right way to be thinking about it in any comment?
Speaker Change: How you're seeing pipelines of large 1,000 seat plus deals headed into Q4?
Speaker Change: As I mentioned earlier we came on the back of a very strong Q2 and obviously Q3 you have July and August which are traditionally
Speaker Change: of Vacations in Europe and potentially in the U.S., but I don't want to kind of provide this as a...
the seasonality kind of dramatic changes we have seen.
Speaker Change: As I said, potentially with the fact that there is some...
Speaker Change: still macro headwinds to a certain extent in some areas of the market. You know, macro is still choppy. Potentially, this is contrary to some of the fact that we saw less enterprise customer ads.
Speaker Change: and, as I mentioned also, the Monday dev that was more soft than we anticipated. But again, looking at October, you know, we are seeing still momentum, very positive, and, you know, I don't know to tell you that this was a strong seasonality trend in U3.
Speaker Change: , we have a lot of talk about the the the the the the the the the the the the
Speaker Change: Some stats in the past on Greenfield percentage of deals, has that changed much as your market positioning has evolved?
Roy Mann: Hi, it's Roy. So, I think as we push towards larger deals, we see more competition on deals.
Roy Mann: You look at the average, I'm not sure if it's changed or not, but definitely within CRM we are
Roy Mann: competing against other players but while a lot of the new adoption comes from Greenfield still but they are comparing us to competitors
Speaker Change: Next question comes from the line of DJ Heinz with Canaccord. Your line is open.
DJ Heinz: Hey guys, thanks for taking the question. Any updates on the partner ecosystem, especially as you go further up market, you know, growth there, contribution of the business, your ability to monetize that activity, any trends emerging that are worth calling out?
Eran Zinman: Hi DJ, this is Eran. No major updates, but we continue to see great momentum with our partner ecosystem.
Eran Zinman: What we see over time is more and more partners are also delivering services to our customers, not just helping them with the implementation, but also help them customize the platform.
Eran Zinman: We're also starting to see more partners that specialize in each one of our
Eran Zinman: specific products. So more partners that focus on CRM, more partners that focus on debt products. And I'm sure as we launch Monday's service,
We're going to add more of our stuff.
Eran Zinman: have expertise in that. But overall we continue to see great momentum with the partner ecosystem, remain a significant part of our revenue composition and in terms of helping larger customers on board and use the platform.
Eran Zinman: Got it. And then maybe a follow-up on service, just based on the beta usage you've seen to date, how much of the demand has been for internal ticketing use cases versus customer facing support? And do you see that kind of evolving over time with public availability here on the horizon? [inaudible]
Eran Zinman: Yeah, so maybe, this is Eran, so maybe important to emphasize, we don't just see IT service.
Eran Zinman: Given the current use cases, it's very broad across the company, not just for IT, but across almost any department.
Okay, okay, got it. Thank you guys, appreciate the call.
Speaker Change: Next question comes from the line of Steve Anders with Citi. Your line is open.
Okay, great. Thanks for taking the questions here.
Speaker Change: I guess I just want to ask on some of the choppiness that you're seeing and...
Speaker Change: Some of the impacts we saw this quarter, I guess, maybe, how is that being accounted for in the Q4 outlook? Is there maybe some incremental conservatism that's being baked in or accounted for here? Can you all just think about maybe some of the moving pieces that you're kind of incorporating in the outlook?
Eliran Glazer: Yes, Steve, hi, it's Eliran. So, I think I spoke about it earlier, but I will repeat, I mean, you know, we continue to see steady demand across all business segments and, you know, it's consistent growth rate. As we said, growth retention is at record levels, but there is some co-suspend environment with many of our customers.
Eliran Glazer: And in Q3, we saw some continued choppiness in the macro. So again, we saw entropies, although it's the fastest growing segment that we have, we saw fewer entropies in Q3. As I said, it was impacted in part by slower hiring in sales and on the back of very strong Q2.
Eliran Glazer: So, I don't want to tell you that, you know, we beg conservatives, and as we always said,
Eliran Glazer: You know, when we provide guidance, we try to do it in a prudent way, based on all the information that we know in the quarter.
Eliran Glazer: We account for all the things that we know today. In addition, the company is growing and becoming more mature. We want to make sure that we are providing the most accurate guidance possible while maintaining strong conviction in meeting our estimates.
Okay, perfect. That's a helpful context there.
Speaker Change: And I guess just following up on that, I think it's the sales hires, it's maybe...
A little bit slower, I think.
Speaker Change: I guess I just want to clarify that comment. And I guess, secondly, just how are you kind of thinking about future sales and growth and maybe how that should kind of layer into a layer into the hiring plans going into next year?
Just, Stephen, the last part of the question about hiring.
Speaker Change: Yeah, just how you're thinking about future sales and talent adds and I guess the pace of that as we head into 2025.
Eran Zinman: Thanks for firing. So, Steve, this is Eliran, I will take it. So, you know, as we said, Celis Arring was lower than what we anticipated in Q3, but we expect it to rebound in Q4. And, you know, we plan to ramp up hiring for Celis quota carriers in Q4 and in Q5, the areas of investment will continue to be product R&D and go to markets. We were mentioning that, you know, as we look at the evolution of the business, [inaudible]
Eran Zinman: with all the changes that we are doing in the CRO. So obviously, as I mentioned earlier, we're going to hire people in the segment of account management enterprise to continue to deepen within existing customer base, but momentum will continue to be strong across hiring.
Speaker Change: Next question comes from the line of Scott Berg. We did need him. Your line is open.
Speaker Change: Hi everyone, thanks for taking my questions. First one I wanted to jump on was your R&D spend took kind of an abnormal increase quarter over quarter especially relative to you know historical seasonality between Q2 and Q3. Can you help us maybe unpack and understand what's you know driving the big R&D increases? Is there a specific product or something else in the strategy or is it just general hiring for R&D?
Eliran Glazer: Hi Scott, it's Eliran. So, you know, over the last few quarters we continue to say that an area of investment for us is going to be R&D and product.
Thank you.
MondayDB, AI Capability
feature and functionalities. All of these things require talent.
Eliran Glazer: And this is something that we continue to do proactively, so we had strong overall Ireland strength in Q3, and particularly for product and R&D, as well as operations.
Eliran Glazer: So, all of that is contributing to the fact that R&D is becoming more significant quarter over quarter.
Speaker Change: Helpful, Eliran. And then as you think about your sales and marketing hiring, you've talked a couple times how that was a little bit behind in the third quarter. Do you catch up on the hiring there in the fourth quarter, or is this going to be, you know, an item that persists into maybe early 25?
Speaker Change: Yes, so we expect it to rebound in Q4. Again, with all the changes that we are doing, obviously, we are looking at all the plans. And also going into fiscal year 2025, we would like to make sure that we will ramp up hiring for self-taught carriers.
Great, thanks for taking my questions.
Speaker Change: Next question comes from the line of Taylor McInnis with UBS. Your line is open.
Taylor McInnis: Yeah, hi, thanks so much for answering my questions today. The first one would just be in thinking about the $5 million raise from price to the full year rep guide, can you maybe provide a little bit more color on how much of the upside came from outperformance on price in 3Q versus what you are expecting for 4Q? And just the reason why I ask is, you know, you've mentioned some of like the macro choppiness
Taylor McInnis: I'm just curious if, you know, some of like the sales hiring or that macro choppiness was a bottleneck to 3Q and if there's any, you know, areas on that choppiness that you'd called in particular. Thanks.
Speaker Change: If you recall, when we did the price increase, it actually was launched at the end of February early this year, and we said at the time that we don't know what would be the impact, what would be, because this is the first time we do it, what would be the churn of the customers in accordance with the price increase. Overall, it became better than what we anticipated. For most customers, it has been largely a non-event.
Speaker Change: You know gross retention has been improved. So I would say that the 5 million extra is the fact that the profile of the customers and their momentum is better than what was anticipated. So this was a good surprise for us.
Speaker Change: Perfect. And then just as we think about the one-point uptick in NRR, could you maybe like unpack that a little bit more? So was that largely due to price or are you seeing, you know, cross-seller seat expansions actually drive some of that upside? Is this more work management stable? And then I know you're talking about expecting NRR to be stable and the outlook for 4Q. I think you made a comment earlier about, you know, seeing some good momentum in October. So is that just really prudence or anything to keep in mind there from a seasonal perspective? Thanks.
Speaker Change: Yeah, so I think it's all of the above, all of the above.
Meaning pricing is contributed around 100 to 200 basis points
Speaker Change: for the reported NDR in fiscal year 24 as a whole. We said that, you know, it's going to be stable in Q4, around 111 percent. There is potentially some upside in next year, too early to say, but so far we're seeing good momentum going also into October.
Speaker Change: And our last question comes from the line of Itay Kidron with Oppenheimer. Your line is open.
Speaker Change: Thanks, I made it. A couple of questions for me. First on Dev, it's been somewhat underwhelming since you've announced it. Can you talk about from a either a feature or go-to-market standpoint what needs to change in the product for you to get a better and more consistent contribution here?
Speaker Change: Yeah, hi Ty, it's Ron. So, first of all, we're happy with the progress with the Monday that it might not grow as fast as CRM but the growth
We're very pleased with it.
With Monday Dev, we're very focused on software developers.
Speaker Change: So it might be justified that it takes a little bit longer to scale compared to CERN, which is kind of more...
of a broad use case.
Speaker Change: But we kind of now in the, we finalized the kind of refocusing of our go-to-market.
Speaker Change: We added specific features that are more tailored towards developers. It might be more slowdown in the NetEdge in the short term, but in the long term, we're pretty confident in the product. We see great feedback about using the product, great use cases, and retention of the customers who do that. So, overall, we're happy with the progress, and we continue to invest into that product.
Speaker Change: That's great. And then for you, Roy, in your prepared remarks, oh I think it was Eran, I'm sorry, you talked about that AI blocks up quite significantly, quarter of a quarter. Can you talk about
Speaker Change: evolution here? How do we think about AI blocks? First of all, how would this change, let's say, a year from now? And what do you expect it to do to customer pattern in the context of
Speaker Change: expansion, moving up price tiers, how do you see this impacting that?
Speaker Change: Yeah, so yeah, the adoption, we're very pleased with the adoption, like I mentioned in terms of total AI actions, it grew for more than 250% compared to Q2.
and the AI blog through 150% from Q2.
Speaker Change: So overall, we see more and more customers adopt those blocks, people incorporate them into their automation, they create a lot of processes within the product that involves AI within that. And over time, we are planning to roll out a monetization tied with AI, where we're going to generate clear and efficient value for our customers.
Speaker Change: We're definitely very happy to see the progress with the AI features, the adoption of AI features, and over time we're going to add the ability to monetize that as well.
Speaker Change: Eran, is that a 25 the time frame for monetization on AI?
Eran Zinman: Yeah, we don't have a specific date, but it might be in 2025, but we can commit to that.
We're not modeling for that in the plan for 2025.
Very good. Appreciate it. Thank you.
Speaker Change: Ladies and gentlemen, that concludes the question and answer session. Thank you all for joining. You may now disconnect.