monday.com Q3 2024 Earnings Report

monday.com EPS Results

• Actual EPS: $0.85
• Consensus EPS: $0.61
• Beat/Miss: Beat by +$0.24
• One Year Ago EPS: $0.15

monday.com Revenue Results

• Actual Revenue: $251.00 million
• Expected Revenue: $246.17 million
• Beat/Miss: Beat by +$4.83 million
• YoY Revenue Growth: +49.50%

monday.com Announcement Details

• Quarter: Q3 2024
• Date: 11/11/2024
• Time: Before Market Opens
• Conference Call Date: Monday, November 11, 2024
• Conference Call Time: 8:30AM ET

monday.com (NASDAQ:MNDY) is a software-as-a-service (SaaS) company that provides a cloud-based Work Operating System (Work OS) designed to help teams plan, organize and track their work. The platform offers customizable workflows that support project management, task delegation, time tracking and collaboration across departments. monday.com’s visual interface enables users to create boards, automations and dashboards to centralize information and streamline processes without requiring extensive coding knowledge.

The company’s product portfolio includes monday Work OS, which can be adapted for use cases ranging from marketing campaign management and sales pipelines to software development sprints and human resources onboarding. Users can extend functionality through integrations with popular third-party tools such as Slack, Zoom, Microsoft Teams and Google Workspace. monday.com also maintains an App Marketplace where customers and partners can build and share custom integrations, widgets and specialized applications to further tailor the platform to specific industry or organizational needs.

Founded in 2012 in Tel Aviv by Roy Mann and Eran Zinman—who continue to lead the business as co-chief executive officers—monday.com rebranded from its original name, daPulse, in 2017. The company has since expanded its global footprint with offices across North America, Europe and Asia, serving a diverse customer base of businesses of all sizes. monday.com completed its initial public offering on the Nasdaq exchange under the ticker symbol MNDY in June 2021, marking a significant milestone in its evolution as a publicly traded technology provider.

monday.com Q3 2024 Earnings Call Transcript

Key Takeaways

• Q3 revenue reached $251 million, up 33% year-over-year, with a Net Revenue Retention rate of 111%.
• Achieved a $1 billion annual recurring revenue milestone, marking a key inflection point in the company’s growth.
• Adoption of Monday AI blocks surged 150% since Q2, with new CRM enhancements and a beta release of Monday Service on track for year-end.
• Pricing updates contributed about $30 million to fiscal 2024 revenue and are projected to add $80 million by 2026, without driving significant churn.
• Net new customer additions eased in Q3 amid price increases and a choppy macro backdrop, which could temper future expansion.

Presentation

[Operator]

Good day. My name is Desiree 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 earnings 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, VP of Investor Relations at monday.com]

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. We released our results for the third quarter fiscal 2024 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.monday.com. 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. 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.

[Byron Stephen, VP of Investor Relations at monday.com]

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, Co-CEO at monday.com]

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 a significant milestone for monday.com, as we surpassed $1 billion in annual recurring revenue. 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, Co-CEO at monday.com]

With a total addressable market of over $100 billion growing 14% annually across four markets, work management, CRM, 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 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. 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.

[Roy Mann, Co-CEO at monday.com]

With over 20 years of experience driving sustainable growth in global tech companies, Adi Dar brings significant expertise to our executive team and has already made a strong impact since joining us a few months ago. On a different note, we would like to share that our Chief Revenue Officer Yoni Osherov has informed us that he will depart the CRO role at the end of December. 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. During Yoni's tenure, we have seen remarkable growth with ARR increasing from $10 million to over $1 billion. We are deeply grateful for his contribution and wish him all the best in his future endeavors.

[Roy Mann, Co-CEO at monday.com]

We are conducting a global search for Yoni's successor and he will continue to serve as an advisor until the CRO is appointed. Let me now turn it over to Eran to walk you through some of our product highlights for the quarter.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Thank you, Roy. 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 our largest ever with attendance doubling compared to last year. 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. 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, Co-Founder and Co-CEO at monday.com]

We're excited to report initial strong adoption with a remarkable 150% increase in the use of AI blocks since Q2. Looking ahead, monday AI will be integrated throughout our entire product suite, enhancing functionality across the platform. We also highlighted our second largest product, monday CRM, and our vision to expand its capabilities beyond sales, fostering collaboration across various revenue teams. Upcoming features will include email marketing functionality enabling teams to manage their campaigns directly within monday CRM. 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. As we expand our product offerings and support our customers' growth, we are committed to building a robust platform for scalable work. At Elevate, we announced the next iteration of mondayDB is now live.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

mondayDB 2.0 is all about scale and allows boards with up to 100,000 items and linked items and a dashboard with 500,000 items. Lastly, we are pleased to report that monday Work Management continues to gain significant traction with enterprise customers 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. This represents a remarkable 24-fold increase in their seat count since Q2 2022. With that, I'll now turn over to Eliran to cover our financials and guidance.

[Eliran Glazer, CFO at monday.com]

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. We are pleased that fiscal year 2024 is on target to be above our base case guidance outlined at our December Investor Day.

[Eliran Glazer, CFO at monday.com]

Having surpassed $1 billion in ARR, we are now focused on leveraging our momentum and to advance into the next stage of growth for the company. Total revenue in Q3 2024 came in at $251 million, up 33% from the year ago quarter. Overall, NDR increased to 111% in Q3 2024. We expect NDR to be stable through the end of the year. As a reminder, our NDR is trailing four-quarter weighted average calculation for the remainder of the financial metrics disclosed. Unless otherwise noted, I will be referencing a non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. 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, CFO at monday.com]

Research and development expense was $43 million in Q3 2024 or 17% of revenue compared to 15% in Q3 2023. Sales and marketing expense was $130.3 million in Q3 2024 or 52% of revenue compared to 54% in Q3 2023. General and administrative expense was $21.4 million in Q3 2024 or 9% of revenue compared to 8% in Q3 2023. Net income was $45 million in Q3 2024, up from $33 million in Q3 2023. Diluted net income per share was $0.85 in Q3 2024 based on $52.6 million fully diluted shares outstanding. Total employee headcount was 2,305, an increase of 195 employees since Q2 2024.

[Eliran Glazer, CFO at monday.com]

We expect to increase headcount by mid-30% in fiscal year 2024 with continued focus on our R&D product and sales team as we build out our platform and product suite. 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 2024. Free cash flow for Q3 2024 was $82.4 million and free cash flow margin as defined as free cash flow as a percentage of revenue was 33%. 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, CFO at monday.com]

Now let's turn to our updated outlook for fiscal year 2024. For the fourth quarter of fiscal year 2024, we expect our revenue to be in the range of $260 million-$262 million, representing growth of 28%-29% year over year. We expect a non-GAAP operating income of $29-$31 million and an operating margin of 11%-12%. We expect free cash flow of $63 million-$66 million and free cash flow margin of 24%-25%. For the full year 2024, we expect revenue to be in the range of $964 million-$966 million, representing growth of approximately 32% year over year. We expect full year non-GAAP operating income of $121 million-$123 million and an operating margin of 12%-13%.

[Eliran Glazer, CFO at monday.com]

We expect full year free cash flow of $286 million-$289 million and free cash flow margin of approximately 30%. Let me now turn it over to the operator for your questions.

[Operator]

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Our first question comes from the line of Gili Naftalovich with Goldman Sachs. Your line is open.

[Gili Naftalovich, VP of Equity Research of Software at Goldman Sachs]

Hey team, it's Gili on for Kash. Thanks for taking the question and congrats on reaching the $1 billion run rate.

[Gili Naftalovich, VP of Equity Research of Software at Goldman Sachs]

Mark, two questions. First, as we see your larger cohort supporting an inflection in NRR, but we see a softening of your net new customer adds. 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?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, hi Gili, it's Eran. So 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. So overall we see better retention with small and larger customers. We do see a little bit less customer adds, but that's part of our price increase and part of our strategy that we focus not just on SMBs but also on large enterprises. 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 with customers and also in adding new customers.

[Eliran Glazer, CFO at monday.com]

Hi Gili, this is Eliran.

[Eliran Glazer, CFO at monday.com]

Maybe I will add one more thing is that with the new product that we introduced, Service, we see also, you know, with CRM and Service you see cross sales in between our existing customers and new customers that continue to add additional potential momentum to our sales.

[Gili Naftalovich, VP of Equity Research of Software at Goldman Sachs]

Perfect, thanks. And when we think about your growth initiatives that you just mentioned, as well as the hiring uptick that we saw in this quarter and what we're expecting in 4Q, how are you thinking about that expansion versus larger new land, especially in the backdrop of the second largest customer that you saw in expansion there?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

So this is Eran again. The fact that we hire more salespeople is basically because we see a lot of demand and a lot of opportunity within our own customer base. It makes sense building towards growth for 2025. We're pretty confident on that and our plans for 2025 as well. And again, like as we grow, more revenue is coming from existing customers as they upgrade, buying more products and adding more seats. But our acquisition engine and bringing new customers remains a very strong part of the business and we're investing a lot into that and growing that as well. I would say that both in extending existing customers and acquiring new customers, it's according to our original plan and demand and the market looks very stable.

[Operator]

Our next question comes from the line of Pinjalim Bora with JPMorgan. Your line is open.

[Pinjalim Bora, Executive Director of Equity Research at JPMorgan]

Oh, great. Thank you for taking the questions. 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. So do you think Service might have a much bigger cross sell opportunity versus CRM and that you might actually realize it faster than CRM?

[Roy Mann, Co-CEO at monday.com]

Yeah, hi, it's Roy. 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 measures up compared to CRM.

[Pinjalim Bora, Executive Director of Equity Research at JPMorgan]

Okay, understood. I want to ask you on net retention as well, just as a follow up.

[Pinjalim Bora, Executive Director of Equity Research at JPMorgan]

Seems like you're seeing an uptick, but seems like the uptick is largely in the large customer segments. Maybe talk about how much of that is due to seat unlocks from mondayDB versus cross sell and maybe broadly Eliran, has that metric turned the corner as we look into the next several quarters?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, so hi Pinjalim, it's Eliran. So again we are pleased with our NDR. It increased to 111%. This is ahead of our expectations and I think that we expect it to be largely stable in Q4. 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. This is the result of the fact that we continue to go up market potentially the impact of the price increase around 100-200 basis points.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

I would say it's also broad-based across all customers with the gross retention also getting to record high.

[Pinjalim Bora, Executive Director of Equity Research at JPMorgan]

Understood, thank you very much.

[Operator]

Next question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.

[Brent Bracelin, Head of Technology Equity Capital Markets at Piper Sandler]

Thank you. Good morning. 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, Co-Founder and Co-CEO at monday.com]

Yeah, so hi Brent, this is Eran. So like everyone mentioned, we're very excited about monday Service. It feels like there's a huge opportunity there, especially cross-selling that product to customers. Because of that and because we see them and also from our larger customers, we just want to make sure that 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, Co-Founder and Co-CEO at monday.com]

And then there's a bunch of features that we're planning to finalize before the official launch. One of them is the customer portal where people can create tickets and also some AI functionality that we added into the product. We feel that we're pretty close to launching the full release of that product and the feedback from customers is 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.

[Brent Bracelin, Head of Technology Equity Capital Markets at Piper Sandler]

Helpful. And then Eliran, the guidance here been pretty consistent all year. 28%-30% forward outlook here for four consecutive quarters. Now how would you frame just the demand going into kind of year end here?

[Eliran Glazer, CFO at monday.com]

So demand environment. Hey Brent, as Eran said, demand environment has been very stable. It's broad based.

[Eliran Glazer, CFO at monday.com]

We still see strong momentum coming from SMB and continue to move up market. I would expect it to be, you know, getting slightly better going into next year based on what we heard from other companies. But there are still some signs of choppiness in some, you know, some segments. So I would say I don't know 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.

[Brent Bracelin, Head of Technology Equity Capital Markets at Piper Sandler]

Helpful color. Thank you.

[Operator]

Next question comes from the line of Ryan MacWilliams with Barclays. Your line is open.

[Ryan MacWilliams, Software Equity Research Analyst at Barclays]

Hey guys, thanks for the question. Just to follow up on Brent's question. As we think about our models for next year and building up to our estimates for 2025, any early insight into things to think about as we 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, CFO at monday.com]

Hi, it's Eliran. So you know we will give our fiscal year 2025 guidance as part of next earnings call but we remain optimistic that you know with monday Service, with the price increase that we did with the cross-sell opportunities, with the fact that you know momentum continue to be good, we are going to see some potential upside also next year.

[Ryan MacWilliams, Software Equity Research Analyst at Barclays]

Excellent.

[Ryan MacWilliams, Software Equity Research Analyst at Barclays]

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 bolt on AI capabilities just to see if your thought process changed around that at this point? Too much.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

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. Once we find the right one, we definitely try to afford this opportunity. But given the cash reserves that we have and the opportunity that we have as a company, we're definitely looking into that as well.

[Operator]

Next question comes from the line of Brent Thill with Jefferies. Your line is open.

[Brent Thill, Tech Sector Leader of Software/Internet Research at Jefferies]

Thanks. With Yoni's leaving, can you just talk through the transition and ultimately in past sales transitions, it takes some time to settle in. What, what gives you confidence? Maybe this isn't as big of a turbulence or perhaps it is, but give us a sense of how you're going to manage that?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, Brent. So this is Eran. So basically Yoni will stay in his role until the end of the year and then he will remain as an advisor until we find a replacement for a CRO. We're pretty confident that we'll be able to find a new successor for the company in the near future. We're looking for a new candidate across the globe and there's a lot of great talent out there and we're doing like orderly transition plan.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

We got everything covered and we get great management as part of our leadership and leadership in our CRO organization. So we're pretty confident that things will remain stable and we have ambitious plans for 2025.

[Brent Thill, Tech Sector Leader of Software/Internet Research at Jefferies]

Great. And then can you just give us a quick update on the CRM traction, you know, what milestones are you proud of and what's kind of the next chapter as we head into next year that you're excited to cross with CRM. Thanks.

[Roy Mann, Co-CEO at monday.com]

Yeah. Hi Roy. So within CRM, we are always looking to scale it up a notch in terms of the sizes of business we're approaching. Part of it is like scaling the infrastructure like we announced to support large data sets and also adding AI to many areas that really, you know, facilitate and make sales process much faster and robust.

[Roy Mann, Co-CEO at monday.com]

So, we're super excited about CRM remains a very strong growth area for us and keep investing in it. Thanks.

[Operator]

Next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Your line is open.

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

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? Are they trying to sell into like net new high level purchasers? Is it rounding up kind of disparate teams that might be using monday across an organization and 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.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah. Hi Jackson, this is Eran. So very broadly in general, the way our CRO 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 we have AEs and AMs.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

AEs focus on acquiring and converting new businesses that sign up or have interest in using platforms, and AMs, which are the most significant part of our CRO organization, are focused on expanding ACV in 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. We're planning to scale that as part of the CRM transition. I think this also presents an opportunity. We're also going off-market and definitely it's opportunity to expand that motion. We're going to bring more seasoned sales reps 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.

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

Okay, all right, great. Understood.

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

And then my second question is actually also on go to market, but it's more in inbound marketing, that kind of the funnel on the low end. Has there been any impact from your pricing increases? 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.

[Roy Mann, Co-CEO at monday.com]

Hi it's Roy. So our performance marketing like always is driven by results. And we've done the tests and before the pricing and after and obviously what you see is less pure number of customers but higher quality ones that has more potential to scale upward. And this is in line with the strategy we have in the sales team.

[Roy Mann, Co-CEO at monday.com]

And like the whole company is geared toward like taking our sweet spot, if you like, higher.

[Jackson Ader, Managing Director at KeyBanc Capital Markets]

Okay, great, thank you.

[Operator]

Next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

[Alex Zukin, Managing Director of Software Equity Research at Wolfe Research]

Hey guys, maybe just the very large customer expansion. Can you talk a bit about what they adopted was, you know, 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, Co-Founder and Co-CEO at monday.com]

Yeah. Hi Alex, this is Eran. So this succeeds. The company has grown a lot since 2023 over 24x increase. Just until recently they had 25,000 seats and now we have this additional upgrade. What basically happened is they got more departments using the product across the team. We now had departments from consulting, infrastructure, finance, operations and also the sales team. So all in all it's become a very significant tool within that company and also more room to grow. The feedback is great.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

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 landing larger accounts but also extending them over time. We see more and more those deployments that land within our platform.

[Alex Zukin, Managing Director of Software Equity Research at Wolfe Research]

Perfect.

[Alex Zukin, Managing Director of Software Equity Research at Wolfe Research]

And then maybe just with the management changes, what does Adi bring to the table that you didn't have before? Maybe why was that the right time for this addition? And as you think about Yoni's replacement, how important is kind of larger enterprise sales experience with respect to that?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah. So this is Eran. So first of all very excited for Adi to join. I think he brings experience in two ways. One is Adi building large organizations. He had experience managing very big organization with a lot of people, a lot of departments and complexity. And I think his 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's definitely very helpful.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Also we have a lot of technology expertise in different domains. But you really understand technology, understand the SaaS business and know how to leverage and increase also, you know, sales org and brings a lot of expertise around those areas as well. So all in all I think it will bring a lot to the table and will help us scale the company past this point.

[Roy Mann, Co-CEO at monday.com]

Yeah. Hi, Roy. I can add that he's someone we rely on a lot during this transition period and he helps us across the company.

[Eliran Glazer, CFO at monday.com]

There was a second part. This is Eliran. There was a second part on the question. I'll remind you, Eran, about the CRO, how important it is to have experience in going up market.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Definitely in terms of the new CRO that we're looking for, we're looking for somebody that will help us go through this transition that we're going through as a company. We invested a lot into that and as part of that Yoni has been busy transitioning the sales team and in this new role we also look to continue that momentum. Really made a lot of progress, great progress on that front. I'm sure that once we find the right person to join the company, he or she will help us complete this transition.

[Operator]

Next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

[Arjun Bhatia, Co-Group Head of Technology, Media, and Communications at William Blair]

Thank you guys. I want to go back to monday CRM for a bit. I think you announced some pretty interesting new capabilities at Elevate. 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?

[Roy Mann, Co-CEO at monday.com]

Hi, it's Roy. So CRM is essentially built on monday Work OS, which gives it amazing capabilities in terms of flexibilities and the complexity it can manage and also the connectivity to the rest of the organization.

[Roy Mann, Co-CEO at monday.com]

So I think this is something that our customers really appreciate and want, the connectivity across the organization, being able to do things connectively with other departments, and those additions you mentioned kind of connected to that as well and add more wholeness to the CRM suite that we see ourselves building over time.

[Arjun Bhatia, Co-Group Head of Technology, Media, and Communications at William Blair]

Okay, understood. Thanks Roy. And then if I can just turn to the quarter for a second. Certainly 32% growth is very strong. I think when I look at the sequential growth from Q2 to Q3, it looks a little bit lighter than we've seen historically. So can you just touch a little bit on what happened this quarter, what trends you saw in the business, and whether there's any timing elements from the move up market that we should consider as we're just thinking about the financials this quarter and going forward?

[Eliran Glazer, CFO at monday.com]

Sure.

[Eliran Glazer, CFO at monday.com]

Jun, this is Eliran. First of all, we are pleased with Q3 performance. You know, we're still a Rule of 60 company. You know, we had an exceptional performance in Q2. It set a high bar for Q3 and you know, if we think about what we presented even in the investor day, we are going to be above our expectation in fiscal year 2024. Nevertheless, you know, in Q3 we saw some continued choppiness in the macro, including, you know, fewer enterprise customers. If you look at the total add, which was impacted in part by slower hiring in sales, you know, as I said, we had a very strong Q2, an outlier and slower than expected growth in non-dev areas with people too focused on developers. So I would say all of the above created some light September, but we're seeing already strong momentum in October.

[Arjun Bhatia, Co-Group Head of Technology, Media, and Communications at William Blair]

Okay, got it.

[Arjun Bhatia, Co-Group Head of Technology, Media, and Communications at William Blair]

That's helpful. Thank you, Eran.

[Operator]

Next question from Michael Berg with Wells Fargo Securities. Your line is open.

[Michael Berg, SMID-Cap Software Analyst at Wells Fargo Securities]

Hi, thanks for taking my question. Congrats on the quarter. I want to turn back to pricing real quick. There hasn't been much of an update in the last couple quarters on contribution from pricing. Is there any incremental color there from the potential contribution in the quarter or for the year or in the quarter? Whether it be quantitative or directional. Thank you.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah. So this is Eran. So just a quick update on pricing. The new pricing remain on target to be fully rolled out by July of 2025. So we're still kind of in the middle of the process. 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 2024 and fiscal year 2026.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

So those are kind of the updated figures. But just to give some more color. We are doing really well with the price increase. Reception from customers is good. We don't see any kind of negative feedback. So we continue to roll out the pricing as we plan.

[Michael Berg, SMID-Cap Software Analyst at Wells Fargo Securities]

Helpful and then a quick follow up on Service. 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 that points to that, 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, that would be helpful. Thanks.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah. So this is Eran. So there's no delays.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Basically we plan to roll it out by the end of the year and this is largely when we release the full version. Just to remind you, it's already available for customers in beta with great reception of, do they can, 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 it's great feedback from customers. So it's pretty much on schedule.

[Michael Berg, SMID-Cap Software Analyst at Wells Fargo Securities]

Thank you.

[Roy Mann, Co-CEO at monday.com]

Yeah, we're waiting for the operator. [crosstalk] Okay.

[Operator]

Our next question comes from the line of Mike Funk with Bank of America. Your line is open.

[Mike Funk, SVP at Bank of America]

Yeah, thank you for the question today guys. Just 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 CRM and dev this quarter. You mentioned the price impact. $30 million for 2024. Slight uptick from what you had before and then not expecting a lot of contribution from Service next year. So maybe just help me think through those factors and how they're going to impact revenue growth. If I'm missing anything and if maybe we are hitting a point when law of large numbers is catching up to us in terms of maintaining 30% plus.

[Eliran Glazer, CFO at monday.com]

Hi Jason, it's Eliran.

[Eliran Glazer, CFO at monday.com]

As we said in prior quarters, as part of the price increase we said that we expect a high single digit add of new customers compared to 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 add in terms of percentage are going to be slightly lower than what you have seen in the past 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. This is something that we think will contribute to next year, and price increase as Eran mentioned will continue to contribute by between 2024 to 2026 around $80 million.

[Eliran Glazer, CFO at monday.com]

Nothing much has changed from what we have seen in the past other than what I mentioned earlier with regards to enterprise net add in Q3 as well as some softness in the and also.

[Roy Mann, Co-CEO at monday.com]

Hi it's Roy, I can add that like you mentioned like size. So we have a very large amount of existing customers and large portion of our sales team is focused on increasing adoption within existing customers and also product more roadmap is geared towards growth within existing customer if that helps.

[Mike Funk, SVP at Bank of America]

Okay. And just to confirm that my notes are correct, the $30 million impact for fiscal year 2024 from price and that was an increase from $25 million previously.

[Roy Mann, Co-CEO at monday.com]

Yes, $25 million went to $30 million correct.

[Mike Funk, SVP at Bank of America]

Great. Okay, thank you all very much.

[Operator]

Our next question comes from the line of Derrick Wood with TD Cowen. Your line is open.

[Derrick Wood, Managing Director at TD Cowen]

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 deal cycle timeframes. I imagine, you know as you start doing more multi thousand seat deals there's more buyers involved and longer sales cycle. So just wondering if perhaps there's a little more seasonality coming into the model because of these bigger deals and 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? And any comment on how you're seeing pipelines of large thousand seat plus deals heading into Q4?

[Eliran Glazer, CFO at monday.com]

Yes, thank you, it's Eliran, so you know as I mentioned earlier we came on the back of a very strong Q2 and obviously Q3.

[Eliran Glazer, CFO at monday.com]

You know you have July and August which are traditionally months of vacations in Europe and potentially in the U.S. But I don't want to kind of provide this as a seasonality kind of dramatic changes we have seen as I said potentially with the fact that there is some still macro headwinds to a certain extent in some areas of the market. Macro still choppy. Potentially this contributes to some of the fact that we saw less enterprise customer adds. And as I mentioned also the monday dev that was softer than we anticipated. But again looking at October we are seeing still momentum very positive and I don't know how to tell you that this was a strong seasonality trend in Q3.

[Derrick Wood, Managing Director at TD Cowen]

Got it. And then maybe just to touch on just the competitive landscape.

[Derrick Wood, Managing Director at TD Cowen]

I mean, I guess as you've pushed into new product areas more upmarket, as some stats in the past on like Greenfield percentage of deals like has that changed much as your market positioning has evolved?

[Roy Mann, Co-CEO at monday.com]

Hi. So I think as we push towards larger deals we see more competition and deals you look at the average. I'm not sure if it's changed or not, but definitely within CRM we are competing against other players. But while a lot of the new adoption comes from Greenfield still but they are comparing us to competitors.

[Derrick Wood, Managing Director at TD Cowen]

Yeah, that makes sense. Okay, thank you.

[Operator]

Next question comes from the line of D.J. Hynes with Canaccord Genuity. Your line is open.

[D.J. Hynes, Managing Director and Software Lead Analyst at Canaccord Genuity]

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, any trends emerging that are worth calling out?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, hi D.J., this is Eran. So no, no major updates but we continue to see great momentum with our partner ecosystem. 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 even more. We're also starting to see more partners that specialize in each one of our specific products or more partners that focus on CRM or partners that focus on those products. And I'm sure as we launch monday Service we're going to add more partners that have expertise in that.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

But overall, we continue to see great momentum with the partner ecosystem. It remains a significant part of our revenue composition and, in terms of helping larger customers onboard and use the platform.

[D.J. Hynes, Managing Director and Software Lead Analyst at Canaccord Genuity]

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?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, so maybe this is Eran. So maybe important to emphasize we don't just see IT service. What we've seen currently from different use cases that we have. We see obviously IT service, but we see a lot of ticketing around HR, around operations, all the way to finance, marketing teams and customer support, internal customer support ticketing.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Currently we don't plan to position monday Service as outside facing support platform, but mostly within the company. But given the current use cases, it's very broad across the company, not just for it, but across almost any department.

[D.J. Hynes, Managing Director and Software Lead Analyst at Canaccord Genuity]

Okay. Okay, got it. Thank you guys. Appreciate the color.

[Operator]

Next question comes from the line of Steve Enders with Citi. Your line is open.

[Steve Enders, Equity Research Analyst at Citi]

Okay, great. Thanks for taking the questions here.

[Steve Enders, Equity Research Analyst at Citi]

I guess I just want to ask.

[Steve Enders, Equity Research Analyst at Citi]

On some of the choppiness that you're seeing and you know, some of the impacts you 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? Just, can you all just think about maybe some of the moving pieces that you're kind of incorporating in the outlook?

[Eliran Glazer, CFO at monday.com]

Yeah, Steve, hi, it's Eliran. So I think I spoke about this earlier, but I will repeat. I mean, you know, we continue to see steady demand across our business segment and you know, it's consistent growth rate. As we said, gross retention is at record levels. But there is some cautious spend environment with many of our customers. And in Q3 we saw some continued choppiness in the macro. So again we saw enterprise.

[Eliran Glazer, CFO at monday.com]

Although it's the fastest growing segment that we have, we saw fewer enterprise customers in Q3. As I said, it was impacted in part by slower hiring in sales and on the back of very strong Q2. So I don't want to tell you that, you know, we bake conservatism as we always said. 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 and we count all the, you know, all the things that we know today. In addition, you know, the company is growing and becoming more mature and we want to make sure that we are providing the most accurate guidance possible while maintaining, you know, strong conviction in meeting our estimates.

[Steve Enders, Equity Research Analyst at Citi]

Okay, perfect.

[Steve Enders, Equity Research Analyst at Citi]

That's helpful context there. And then I guess just following up on that, I think you said the sales hires is maybe a little bit slower. I guess I just want to clarify that comment and I guess secondly, just how are you kind of thinking about future sales head count growth and maybe how that should kind of layer into the hiring plans going into next year?

[Eliran Glazer, CFO at monday.com]

Just. Steven, the last part of the question about hiring. You broke up?

[Steve Enders, Equity Research Analyst at Citi]

Yeah, yeah.

[Steve Enders, Equity Research Analyst at Citi]

Just how you're thinking about future sales headcount adds and I guess the pace of that as we head into 25.

[Eliran Glazer, CFO at monday.com]

Thanks for firing. So Steve, this is Eliran. I will take it. So you know, as we said, sales hiring was slower than what we anticipated in Q3, but we expect it to rebound in Q4 and you know, we plan to ramp up hiring for sales quota carriers in Q4 and in fiscal year 2025. The areas of investment will continue to be product, R&D and go-to-market. Worth mentioning that if we look at the evolution of the business with all the changes that we are doing in the CRO.

[Eliran Glazer, CFO at monday.com]

So, obviously 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.

[Steve Enders, Equity Research Analyst at Citi]

Okay, perfect.

[Steve Enders, Equity Research Analyst at Citi]

Thanks for taking the questions.

[Operator]

Next question comes from the line of Scott Berg with Needham. Your line is open.

[Scott Berg, Senior Analyst at Needham]

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 historical seasonality between Q2 and Q3. Can you help us maybe unpack and understand what's driving the big R&D increase? Is there a specific product or something else in the strategy or is it just general hiring for R&D?

[Eliran Glazer, CFO at monday.com]

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 product. Having in mind everything that we are doing innovation is in the core of everything we do in monday. You know, introducing new product, investing in existing product, mondayDB, AI capabilities, feature and functionalities.

[Eliran Glazer, CFO at monday.com]

All of these things require talent and this is something that we continue to do proactively. So we had strong overall R&D plans in Q3 and particularly for product and R&D and as well as operations. So all of that is contributing to the fact that, you know, R&D is becoming more significant quarter-over-quarter.

[Scott Berg, Senior Analyst at Needham]

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 an item that persists into maybe early 2025?

[Eliran Glazer, CFO at monday.com]

Yeah, so we expect it to rebound in Q4 again with all the changes that we are doing.

[Eliran Glazer, CFO at monday.com]

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 sales quota carriers.

[Scott Berg, Senior Analyst at Needham]

Great. Thanks for taking my questions.

[Operator]

Next question comes from the line of Taylor McGinnis with UBS. Your line is open.

[Taylor McGinnis, Equity Research Analyst at UBS]

Yeah. Hi, thanks so much for answering my question today. The first one would just be in thinking about the $5 million raised from pricing to the year revs guide, can you maybe provide a little bit more color on how much of the upside came from outperformance on pricing 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. Just curious if some of like the sales hiring or that macro choppiness was a bottleneck to 3Q and if there's any areas on that choppiness that you'd call out in particular.

[Taylor McGinnis, Equity Research Analyst at UBS]

Thanks.

[Eliran Glazer, CFO at monday.com]

Yeah, so hi Taylor it's Eliran, 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. For most customers it has been largely a non-event. Gross retention has been improved. So I would say that the $5 million extra is the fact that the profile of the customers and the momentum is better than what we anticipated. So this was a good surprise for us.

[Taylor McGinnis, Equity Research Analyst at UBS]

Perfect. And then just as we think about the one-point uptick in NDR, could you maybe like unpack that a little bit more? So was that largely due to price or are you seeing cross-sell seat expansions actually drive some of that upside? Is this more work management stable? And then I know you're talking about expecting NDR to be stable and the outlook for 4Q. I think you made a comment earlier about seeing some good momentum in October. So is that just really prudence or anything to keep in mind there from a seasonal perspective? Thanks.

[Eliran Glazer, CFO at monday.com]

Yeah, so I think it's all of the above. All of the above meaning pricing. We've contributed around 100-200 basis points to the reported NDR in Q3. You know we expect pricing that we continue to positively contribute approximately 200 basis points for the reported NDR in fiscal year 2024 as a whole. We said that you know it's going to be stable in Q4 around 111%. There is potentially some upside in next year. Too early to say but so far we're seeing good momentum going also into October.

[Operator]

Our last question comes from the line of Ittai Kidron with Oppenheimer. Your line is open.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer]

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?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, hi, it's Eran. So first of all we're happy with the progress with monday dev. 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 so it might be justified that it takes a little bit longer to scale compared to CRM which is kind of more of a broad use case. But we kind of now in the we finalize the kind of refocusing of our go to market, we add in specific features that are more tailored towards developers.

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

It might be more of a slowdown in the net adds 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 today. So overall we're happy with the progress and we continue to invest in that product.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer]

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 to quarter. Can you talk about 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 patterns in the context of expansion, moving up price tiers? How do you see this impacting that?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, so yeah, the adoption, like I mentioned, in terms of total AI actions, it grew more than 250% compared to Q2 and the AI blocks grew 150% from Q2. So overall we see more and more customers adopt those blocks. People incorporate them into their automations. They create a lot of processes within the product that involve 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. So definitely we're 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.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer]

Eran, is that a 2025 time frame for monetization on AI?

[Eran Zinman, Co-Founder and Co-CEO at monday.com]

Yeah, we don't have a specific date but it might be in 2025, but we can commit to that.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer]

All right.

[Roy Mann, Co-CEO at monday.com]

We're not modeling for that in the plan for 2025.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer]

Very good. Appreciate it. Thank you.

[Operator]

Ladies and gentlemen. That concludes the question and answer session. Thank you all for joining. You may now disconnect.

Participants

Executives

• Roy Mann, Co-CEO
• Byron Stephen, VP of Investor Relations
• Eran Zinman, Co-Founder and Co-CEO
• Eliran Glazer, CFO

Analysts

• Steve Enders, Equity Research Analyst at Citi
• Alex Zukin, Managing Director of Software Equity Research at Wolfe Research
• Taylor McGinnis, Equity Research Analyst at UBS
• Pinjalim Bora, Executive Director of Equity Research at JPMorgan
• Derrick Wood, Managing Director at TD Cowen
• Arjun Bhatia, Co-Group Head of Technology, Media, and Communications at William Blair
• Gili Naftalovich, VP of Equity Research of Software at Goldman Sachs
• Scott Berg, Senior Analyst at Needham
• Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer
• D.J. Hynes, Managing Director and Software Lead Analyst at Canaccord Genuity
• Mike Funk, SVP at Bank of America
• Michael Berg, SMID-Cap Software Analyst at Wells Fargo Securities
• Brent Bracelin, Head of Technology Equity Capital Markets at Piper Sandler
• Jackson Ader, Managing Director at KeyBanc Capital Markets
• Brent Thill, Tech Sector Leader of Software/Internet Research at Jefferies
• Ryan MacWilliams, Software Equity Research Analyst at Barclays