monday.com Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 16 speakers on the call.

Operator

Good day. My name is Jean Louis, and I will be your conference operator today. At this time, I would like to welcome everyone to monday.com's First Quarter Fiscal Year 2023 Earnings Conference Call. I would like to turn the call over to monday.com's Director of Investor Relations, Mr. Byron Stephen.

Operator

Please go ahead. Call.

Speaker 1

Hello, everyone, and thank you for joining us on today's conference call to discuss financial results for monday.com's Q1 fiscal year 2023. Conference call. Joining me today are Roy Mann and Aaron Zeman, co CEOs of monday.com and Elrond Glaser, monday.com's CFO. Call. We released our results for the Q1 earlier today.

Speaker 1

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. Call.

Speaker 1

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. Call. 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.

Speaker 2

Thank you, Byron, and thank you, everyone, for joining us today. After a strong fiscal year of 2022, we are happy to say that we kept the momentum going with an exceptional Q1 in fiscal year 2023. Despite the persistent uncertainties in the macro environment, we continue to invest in our growth and profitability at scale, and we are seeing the results. Q1 revenue totaled €162,300,000 an increase of 50% year over year. We generated a record €38,700,000 in free cash flow during the quarter and are well positioned in meeting our goal of positive free cash flow for the 3rd straight year.

Speaker 2

Additionally, we are pleased to report call. We are now guiding to positive non GAAP operating profit for fiscal year 2023, 2 years ahead of expectations. Eliron will walk you through our guidance in more detail. Customers acquisition continued to be exceptionally strong. Our fastest growing customer segment remains the enterprise, where we grew customers by 75% to 16 183 customers, marking a record number of quarterly net new enterprise customers.

Speaker 2

Call. Equally impressive has been the fast adoption and strong customer feedback of our Monday sales CRM product. Customers love Monday sales CRM call as it's more customized and easy to use than traditional CRM tools. In Q1, we opened our Monday sales CRM to a selection of our existing consumer base and the response has been tremendous. Total sales in CRM account accelerated to 5,441 accounts, call, representing a record number of quarterly net new sales CRM accounts.

Speaker 2

We are incredibly pleased about all the recent business and product accomplishments this quarter and believe we are well positioned to deliver our goals for fiscal year 2023 and beyond. Let me now turn it over to Eran to walk you through some of our recent innovation conference.

Speaker 3

Thank you, Roy. This quarter, we are excited to announce our plans for incorporating AI into our WorkOS platform, comp, which we already started implementing. The key components of our AI strategy include increasing money.com users' efficiency, increasing our own internal efficiency and in the future harnessing the power of our proprietary data spanning over 200 different business verticals. Call. This month, the first version of monday AI assistant is going live with features such as automated task generation, call, e mail composition and document summaries, all features which will greatly increase the efficiency, speed and general experience of our users.

Speaker 3

Call. In June, we are opening our platform to 3rd party developers to build AI apps on the monday.com work class, increasing collaboration and speedy innovation. These apps will be available on our monday AI assistant infrastructure. Call. Internally, too, we are focusing on using monday.com data to enhance our operations through AI, call, including automating parts of our sales operations, our customer experience and adding an AI layer to our in house business intelligence tool, Big Brain.

Speaker 3

Call. Finally, we plan to harness our data to help future customers navigate the best ways to set up and maintain the most optimal work close at Automations as well as connect the right people to the right processes. This can significantly improve money.com's speed of adoption within companies and further enhanced data driven product development initiatives. This quarter, we're also delighted to kick off the first phase of call. As a reminder, mondaydb is a brand new data infrastructure from the monday work OS platform, call.

Speaker 3

Enabling bigger workflows, larger boards and dashboards, more robust developer capabilities and improved overall performance. Call. MongoDB is being released in multiple phases over the next year, with each phase expected to boost performance and scale. Call. The first phase of MoneyDB is focused on Monday boards.

Speaker 3

Now available to 30% of accounts, MoneyDB 1.0 call is already having a big effect on board performance and load times, especially on large and complex boards. Call. MoneyDB 1.0 loads boards with thousands of items within a matter of seconds, allowing customers to work with bigger, more complex workflows than ever. Call. We expect MoneyDB 1.0 to be rolled out to all customers by the end of Q2.

Speaker 3

In addition to our innovation efforts, we continue to make strides in accelerating our efforts in building our apps marketplace. This quarter, enterprise collaboration app provider, the Databisk Group, join us for an app accelerated project. The event focused on introducing several potential new apps and supercharging Adaptavist's first money.com app unlimited sub items, which has quickly become a customer favorite. Working with a large enterprise app providers such as Adaptavist and Upfire will allow us to build our strong foundation and take our marketplace to the next level. With that, let me turn it back over to Roy.

Speaker 2

Thank you, Eran. Call. We continue to make progress on our ESG efforts and leading publications are taking notice. Monday.com's emergency response team recently received an call. Honorable mention in the corporate social responsibility category of Fast Company's 2023 World Changing Ideas List.

Speaker 2

Call. This prestigious list honors initiatives that use companies' platforms and power to help advance change either internally for the community call for the world at large. To read more about our emergency response team's effort and all of our ESG initiatives, call. Please see our recent published 2022 ASG report. None of our achievements this quarter would have been possible without our amazing monday.com team.

Speaker 2

We continue to invest in our people with recent opening of the new APAC headquarters in Sydney and increased our call. Overall headcount in the quarter to 1582 employees. We are grateful to all our employees for their hard work and their contribution to the strong start to fiscal 2023. With that, I'll now turn it over to Eliran to cover call.

Speaker 4

Thank you, Roy, and thank you to everyone for joining our call. Today, I'll review our Q1 fiscal 2023 results in detail and to provide updated guidance. We started the year exceptionally strong. Total revenue in Q1 came in at 162 point $3,000,000 up 50% from the year ago quarter. Excluding the impact of foreign exchange, revenue grew 51% year over year.

Speaker 4

As expected, our overall net dollar retention rate declined slightly in Q1, reflecting slower enterprise customer seat expansion amid the challenging micro economy environment. We continue to expect moderate pressure on NDR throughout fiscal year 2023. As a reminder, our NDR is a trailing 4 quarter weighted average calculation. For the remainder of the financial metrics disclosed, unless otherwise noted, call. I will be referencing a non GAAP financial measures.

Speaker 4

We have provided a reconciliation of GAAP to non GAAP financials in our earnings release. 1st quarter gross margin was 90%. In the medium to long term, we continue to expect gross margin to remain in the high 80s range. Research and development expense was $28,500,000 or 18 percent of revenue in line with Q1 2022. We plan to continue investing significantly in R and D in fiscal year 2020 3 as we build out our product suite and scale our Workhorse platform both horizontally and vertically.

Speaker 4

Sales and marketing expense was $102,700,000 or 63% of revenue compared to 100% in Q1 2022. G and A expense was $15,800,000 or 10% of revenue compared to 11% in Q1 2022. Net income was $7,200,000 up from a loss of $43,200,000 in Q1 2022. Diluted net income per share was $0.14 based on 50,800,000 fully diluted shares outstanding. As Roy mentioned, total employee head count was 1582, an increase of 33 employees since Q4 2022.

Speaker 4

We expect to continue throughout fiscal 2023 with the focus on our R and D and product team as we built out our platform and product suite. Moving on to the balance sheet and cash flow. Call. We ended the quarter with $935,600,000 in cash and cash equivalents, up from 885 point $5,000,000 at the end of Q4 2022. Free cash flow for Q1 was $38,700,000 and free cash flow margin as defined call.

Speaker 4

As free cash flow as a percentage of revenue was 24%. We now expect to report positive free cash flow on a consistent quarterly basis moving forward and to achieve our 3rd consecutive year of being free cash flow positive in fiscal 2023. Call. Free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs. Call.

Speaker 4

Now let's turn to our updated outlook for fiscal year 2023. For the Q2 of fiscal year 2023, we expect We expect our revenue to be in the range of $168,000,000 to $170,000,000 representing growth of 36% to 37% year over year. We expect non GAAP operating income of $2,000,000 to $4,000,000 and an operating margin of 1% to 2%. For the full year 2020 call. We now expect revenue to be in the range of $702,000,000 to $706,000,000 representing growth of 35% to 36% year over year.

Speaker 4

We expect full year non GAAP operating income of $8,000,000 to $12,000,000 and an operating margin of approximately 1%. Call. I'll now turn it over to the operator for your questions.

Operator

We will now begin the question and answer session.

Speaker 5

Call.

Operator

Your first question comes from the line of Kash Rangan of Goldman Sachs. Please go ahead.

Speaker 6

So thank you very much. Congratulations on these fantastic results. It's always good to see Monday's results on a Monday. Question for you is, if you look at the packaging of the Monde persona packaging of Monde based on individual call. You have a CRM application right now.

Speaker 6

What other applications do you foresee coming down the research and development organization? And where do you draw the line between what monday does versus leaving it to the 3rd parties to build applications on top of the platform? Thank you so much.

Speaker 2

Call. Hi. It's Roy here. So that's a great question of where are we taking the capabilities this platform forward towards our growth. So our strategy now is to focus call.

Speaker 2

This year on the core products that we have, like CRM is doing amazingly well and we're pushing on that. We're doubling down on what we're really good at, which is project and work management and the dev is also out of beta and that's a great momentum there. Going forward, when we're looking into where we are going into and where we are not, we're seeing Monday going into areas where it is very highly differentiated across the organization, like meaning call. The customers will know exactly which product to take and we're not going down specific vertical areas, the long tail. And this is something we're going to leave for the community to fill call.

Speaker 2

As it's like and we're building out within the company teams that focus on each specific product and taking it to be best in class.

Speaker 6

Call. I have a follow-up for Erwan. Thank you. Roy, if you can expand on the generative AI capabilities and what kind of large language call. So you guys, you've taken advantage of, is it your own model and what is the future product strategy for generative AI on on the Monday platform?

Speaker 6

Thank you so much. That's it for me.

Speaker 5

Yes. Thanks, Kash. Thanks for the question. So when we think about AI and we mentioned that briefly In our intro, so we think about different aspects. 1, our audio capabilities that we added into the product.

Speaker 5

Call. So a lot of the things that you can do now with monday could be automated using AI, whether it's creating content, meaning generating documents within a platform, generating call. The fact is to make the platform work for you. So automations, formula, all those things That are for 2 to be low code, we also enable with AI to further automate that. So that's one aspect.

Speaker 5

The second call. Expect is making our own company more efficient, optimizing sales processes, customer success and so on. So I think that in the long term has the potential to improve margins and to improve the company efficiency. But if I think about long term, monday has a very unique data today. If you think about it, we have customers across so many verticals and they all use monday in different ways.

Speaker 5

And over time, We generated so many ways of how customers work with monday and how they leverage the platform. So it's really unique data set. And going forward, We're thinking about adding capabilities that allow customers that are new to the platform or want to explore more opportunities to the platform to generate for them different ways to work. So I think that's going to be a big game changer for us as a company. In terms of vendors, we use multiple vendors, not one specific.

Speaker 5

We didn't build the AI capabilities themselves ourselves, but we're using different vendors and teach the AI using our unique data set.

Operator

Call. Your next question comes from the line of pendulum bohra of JPMorgan. Please go ahead.

Speaker 7

Call. Hey, guys. This is Noah on for Pendulum. Congrats on a great quarter and thanks for taking our questions. I I just wanted to touch a little bit about the monday DB infrastructure upgrade.

Speaker 7

Could you maybe just provide some context as to What the customer feedback has been since rolling that out? And just any more color around it would be really helpful. And I also have a quick follow-up. Thank you.

Speaker 5

Call. Yes. Thanks, Binjal, and this is Iran. So first of all, we're very excited with the progress of Money fee. We over our schedule in terms of releasing that to our users, it's now open to 30%.

Speaker 5

I would say that generally speaking from the customers that's already open for them, reactions are super positive, especially for the larger customers who have large boards, they used to experience high load times for their boards and content That dramatically improved with the new MongoDB and reactions are super positive. Our plans going forward is to further release this 1st version, MongoDB 1.0 to all of our customers by the end of Q2. And again, this is ahead of plan. We initially call. Thought about leasing by the end of the year.

Speaker 5

But just to remind you, this is just version 1.0. Further throughout the year, we're going to release Additional version with further improvements. So a lot of exciting things are happening, but overall very happy with the gradual release so far. Reactions are call. Super positive and there's a lot of things that will happen going forward.

Speaker 8

Thanks. And then just for

Speaker 7

a quick follow-up, what are some of the levers you're pulling to drive the strong guidance on margins? Thanks.

Speaker 4

Call. Hi, Tim, Jalene. It's Eliran. So when we are looking at guidance, what drove the bid was $7,000,000 more on the revenue side. On the expenses side, we had $5,000,000 less of expenses due to improved call.

Speaker 4

The ratings of the marketing expenses as well as best consultants than we anticipated. In addition, we had some additional OpEx savings across call. Multiple operating expenses like headcount, the fact that we are below 10, slightly, travel and other quarter operating expenses that we were we achieved on savings. And when we look into guidance, we always take into account the latest guidance that we are seeing. So obviously, we are looking at currently the challenging macroeconomic conditions that probably are going to continue to applied some moderate pressure on NDR.

Speaker 4

So we're looking at around 110% cover for all population and around 115 to 120 for 10 plus users and 50 ks. While Seeing this, we're also seeing a consistent top of funnel demand and strengthening customers growth that will drive further growth into the future. So overall efficiency and cash generation is looking good. Call. And obviously, with CRM and Development, this is something that we also anticipate will contribute to the growth of the business.

Speaker 4

So we took all of this into account when we did the guidance for the

Operator

call. Your next question comes from the line of Jackson Ader of SVB. Please go ahead.

Speaker 9

Call. Great. Thanks for taking our questions, guys. The first one is, I think, on the continued growth. If you had to think about what call.

Speaker 9

Is there has there been a change in the competitive environment that's allowed you to maybe win more deals from legacy competitors? Is it the same story that we've seen other competitors start to recede in their investments? Like can you rank order some of the things that are causing the outperformance on the top line?

Speaker 5

Yes. Hi, Jackson. This is Arun. So Look, I don't think we can pinpoint one specific factor, but I would say the fact that monday offering is so broad, it's not call. Not exposed to one specific sector.

Speaker 5

Also just to remind you, 70% of our customers are non TAC, only 30% are TAC. I think we have very high stability in our customer base. Also, we continue to see very strong demand and we double On marketing, we still have been very bullish and there is more demand than ever before. And I think the quality of customers that are joining us right now is even higher than before because given what's happening in the economy, everybody is searching for a solution are really kind of putting a lot of effort into that. So I think all those things combined create a great environment of opportunity for us as company and we'll continue to invest.

Speaker 5

I think also the success we've seen with the CRM and now with the dev product and continued innovation in our guide. That's really helped scaling customers and acquiring new ones.

Speaker 4

Maybe, Jason, this is Eliane. I'll just add to what Eran said. In prior quarter. As you mentioned, big brain and our ability to actually look at every campaign and see the returns, while others pull back, we actually double down our investment. So call.

Speaker 4

So we continue with this playbook of Monday. When we see good returns, we continue to invest. And this is something we believe is providing us with differentiation versus

Speaker 9

call. Okay. All right. Great.

Speaker 4

And then the follow-up is,

Speaker 9

I guess, more conceptual. When you guys talk about focusing on the core product and kind of letting the 3rd party develop the vertical specific applications like going deep in their own vertical. I'm curious how that actually works. So what happens if somebody goes really deep on a specific vertical. And then are you guys then maybe subject to having to maintain or develop capabilities on top of this industry specific stuff that maybe you didn't plan on.

Speaker 9

And so your product roadmap kind of gets out of, I don't know, like out over your skis. I'm just curious how that will work maybe 2 years from now?

Speaker 2

Hey, it's Roy. So that's a great question. Question. Actually, because monday is a platform, a true platform and an open one, everyone can develop whatever they need. So whatever like builders want to build, they never hit the wall because it's all open.

Speaker 2

They can develop their own missing capabilities for that vertical. And that's why we're also opening it up for them. So essentially, it's never going to limit us. What it will do is provide a lot of very wide feedback on where we should take the platform. And those capabilities that we offer.

Speaker 2

Developers are also the same ones that we ourselves are developing our own products. So we are completely aligned with our ecosystem. And so it's one roadmap and like just helps us speed up in those long tails that we would probably not go into anyway.

Operator

Call. Your next question comes from the line of Arjun Bhatia of William Blair. Please go

Speaker 7

ahead. Call.

Speaker 6

Hey, guys. Thanks for taking the questions. Maybe I just wanted to circle back on the product solutions. It seems like CRM is doing really well. It looks like you doubled the more than doubled the customer base since last quarter.

Speaker 6

What are you seeing with the other product solutions. It looks like I think there's 2 or 3 other ones at least that are in market. Would love to hear how progress on those are going. And As you roll those out, what does that do for vendor consolidation at your customers? Is that something that can increase as those get introduced to the market?

Speaker 5

Yes, Arjun, this is Arun. Thanks for the question. So as As we mentioned during the call, so CRM is doing really well. Also that product is gaining a lot of momentum. We actually just announced it out of beta.

Speaker 5

So this is an out of product we're very excited about. We've already seen great signs of very good momentum in terms of acquiring customers. The project management, we actually kind of renamed that to work management. It's a broader category. Again, this is the bread and butter of Monday.

Speaker 5

We continue to double down on that adding more features and capabilities. And in terms of marketing, we're actually consolidating that into the work management as it's much more of a vertical of work management. And going forward, we plan to release more kind of horizontal large products like that. So So overall, when we look at the overall strategy of packaging the platform into products and adding more deep features and capabilities, we're very pleased with call. Progress and how it's going.

Speaker 5

And already now we've seen signs of our ability to cross sell those products and having customers with multiple products being sold to them, whether it's upfront or after the initial purchase of one product. So I think going forward, this is a lot of upside baked into our model. Guide baked into our model.

Speaker 6

Perfect. Thanks, Eiran. And then one for Eliran. Call. I noticed the commentary that NRR is going to be pressured a little bit more.

Speaker 6

Is it fair to say that a lot of the traction that you're seeing is call. Coming on the new customer side and would love to hear some color on where if that's the case where some of those new customers Are coming from? Does that tend to be displacements? Or are you seeing expansion into new customer segments? Any color there would be helpful.

Speaker 4

So with regards to NGL in general, As we said, we continue to see slowdown in expansion of fees compared to a year ago. Larger customers especially have become more cautious call. With the budget, if you think about what happened in Q3 and Q4 of last year, and we believe it's going to persist by the end of this year as well. On the positive side, we believe that the NDR decline has been offset by strong customer acquisition. So the fact that we are actually Seeing a very healthy top of funnel activity with the expansion into CRM and dev and other use cases is going to bring, we believe, next year some recovery on that front.

Speaker 4

It's important to say that growth retention has remained stable. This is something that we are very much encouraged by. And as part of going upmarket with enterprise accounts, we're call. Lending in larger customers from day 1, so expansion is probably going to be a bit more slower.

Speaker 6

Call. All right, perfect. Thank you so much and congrats on the strong quarter guys.

Speaker 4

Thank you.

Operator

Call. Your next question comes from the line of Brent Bracelin. Please go ahead.

Speaker 10

Good morning. Thank you. I wanted to go back to the demand picture here. Clearly, I get we're in a challenging environment, but The strength of demand here is impressive here in the quarter and outlook despite

Speaker 7

the moderating

Speaker 10

NDR. What's driving the optimism here for you guys year for the guide up for June and full year. Is it larger new lands? Are you really excited about the CRM cross sell into the installed base, maybe a mix shift to higher tier pricing. Just walk us through what's driving your near term optimism with the caveat of the challenges you face?

Speaker 10

Thanks.

Speaker 4

Call. Hi, Brent. This is Elijan. So we are seeing strong customer demand of our WorkOS platform and product suite call. Basically around all customer segments.

Speaker 4

So this is not something that we can call out that is unique. It's across the board Having in mind the multiple use cases that we have and again the fact is 70% for our customers and Antech also provides us with some strength. Call. On the other end, as we said, we continue to see a slow enterprise customer seat expansion, but this is mostly related to the challenging macro environment. However, if you think about where we see the strength is the largest number of net new enterprise customers in the quarter call.

Speaker 4

Subscribers, 80% of our contracts are now annual versus almost 70% a year ago. So we are kind of became more of an annual subscribers if you About the profile, which should stay upfront. So I believe all these things together with the additional add ons and functionalities That we are adding, monday TV, as mentioned earlier, is providing us with some positive view for the rest of the year, Q2 fiscal year 2020 3.

Speaker 10

Helpful color there. It sounds like pretty broad company strength. Last question for me is just a follow-up on profitability. Clearly surprised us here this quarter call. On positive cash flow guiding to profitability for the full year, you have over $900,000,000 in cash.

Speaker 10

The commentary suggests you're not done improving efficiencies internally. What do you do with all that cash?

Speaker 4

The $1,000,000 actually the $935,000,000 question. So what we are trying to do is, obviously, we are going to continue to invest in the business. Call. Priority number 1 is priority growth sorry, organic growth reinvesting into growing the company. We have a lot of initiatives expanding the platform, the product, the corporation and obviously a global reach to build the market share further.

Speaker 4

Verifying that Monday is a very innovative company. So This is something we would like to continue, not only thinking about 2023, but also on the longer term in 2024 and beyond. We're also thinking about potentially When the market now is becoming more normal, potentially, there are going to be opportunities for an M and A. It can be small tuck in acquisition, which is more like call. Opportunistic or strategic, and then we can also enhance or escalate our product roadmap.

Speaker 4

But this is not something that is going to be on the call. But obviously longer term we're thinking about non organic growth as well as organic growth.

Operator

Call. Your next question comes from the line of Steve Enders of Citigroup. Please go ahead. Call.

Speaker 8

Great. Thanks for taking the question here. I guess I want to ask on the kind of customer feedback from CRM Now that it's being sold and pushed back into the customer base, I mean, are you primarily seeing like net new CRM use cases coming from that or is there some level of converting customers over who may already be using Some of the monday platform for CRM like functionality there?

Speaker 2

It's Roy. So we're seeing both. We're seeing that we are really well positioned for Customers maturing from the long tail of CRM product for the smaller ones, the more rigid ones, and they see in monday The flexibility that they need to really operate their business and then they're maturing from an existing CRM. But call. The CRM space is also a huge area in digitization.

Speaker 2

A lot of customers are coming from literally nothing and where and they find us there. So we're really seeing both, call. It's a really exciting market for us as it opens the door for a lot of other opportunities as CRM is really call? Very wide, widely used in different scenarios within large customers.

Speaker 8

Okay, got you. That's helpful context there. And I guess On the competitive outlook and kind of what you're seeing out there in the marketing world, how should we think about like Where we are in terms of the cost per ad at this time and has there been kind of any change in the environment out there in the past quarter versus maybe we were seeing it in the back half of last year?

Speaker 2

Yes. Stu Roy, so I would say we're still seeing it the cost per ad and media is Still way cheaper than it was a year ago, and I think it stabilizes now compared to a quarter ago. It's not dropping anymore. But that still puts us in a very good place, and we're still gaining market share compared to, let's say, last year. Call.

Speaker 2

So for us, it's a really good space and it's a very it's one that the costs are moderate and very good. And as well, like Eran mentioned before, like the customers we're gaining now are also ones that really are looking call. It's not a nice to have for them. They really are looking for them if they're to put their money in there. So they're like better customers on average than we would have seen like a year ago.

Operator

Call. Your next question comes from the line of Jason Delino of KeyBanc Capital Markets. Please go ahead.

Speaker 11

Call. Great. This is Devin on for Jason today. Thanks for taking our question. Maybe just one from us.

Speaker 11

Wanted to double click on the strong enterprise customer net add of 200, really nice acceleration there. I just want to ask, are you seeing more opportunities in the marketplace just because you have more products, for example, the Monday dev is out of beta? Call? Or is it just attributed to the strong go to market team execution there that drove the acceleration? Thanks.

Speaker 5

Call. Hi, thanks for the question. This is Eran. So I don't think it's specifically related to Monday CRM or that. I think call.

Speaker 5

It's more about our continued momentum and our investment into the enterprise tier. We keep adding features and capabilities, keep scaling our sales team and partners team. So I I think that's a result of our investment and we'll continue to invest and accelerate that part of the business. So I think that's call. Our focus has been as a company for the last few years and we continue to double down on that.

Operator

Call. Your next question comes from the line of Brent Thill of Jefferies. Please go ahead. Call.

Speaker 7

Thanks. Just if you could double click on the enterprise strength and ultimately what you're doing to to help build out that go to market to continue the impressive penetration of market? Call.

Speaker 5

Yes, Brent, this is Arun. Thanks for the question. So I think it's pretty much what I said about I think MongoDB is definitely something that we see that will help to accelerate our ability to not just acquire enterprise customers, but also to scale them. And we also see a trend where we see enterprise customers lying bigger on initial deals, meaning customers upfront are buying bigger licenses and seats. So I think that's another very positive trend that we're seeing.

Speaker 5

Maybe put a little bit of pressure on MDR, but overall, very good trend that we're seeing. Call. And again, we continue to develop a lot of apart from MNODB, a lot of features around security, admin, permissions. We just this quarter released a bunch of features. So I think all that investment really drives the enterprise growth.

Speaker 7

Call. And just real quick in terms of your assumptions in the back half of the year, I think you beat Q1 by roughly $7,000,000 but you raised your guidance more than double that beat. So it seems that your visibility and your confidence level is pretty high. Can you just speak to The factors that you're taking into account on the back half of your guidance.

Speaker 4

So overall hey Brent, it's Eliane. Overall, we took into account the fact guidance. Basically, we had a strong Q1, so it's going to impact the rest of the year. So we definitely kind of account for that when we provided the guidance for the year. As I mentioned earlier, although we had some moderate pressure on NDR, we assume that we're going to continue to see positive around 110 Overall NDR for entire customers and around $120,000 for the $50,000 NDR.

Speaker 4

So If we will continue to see the top of funnel demand and we continue to see strong new customers growth as we've seen, call. Together with efficiency, the overall efficiency and cash generation, we believe this is something that provide us with call. Some positive view on the rest of the year. So this is something that allows us to make this guidance.

Operator

Call. Your next question comes from the line of Scott Berg of Needham. Please go ahead. Call.

Speaker 12

Hi, everyone. Thanks for taking my questions. Apologies for the background noise here. I want to start off talking about other applications on the Monday Work OS with the success of your CRM solution. Can you envision a world maybe a year or 3, 4 years from now that you've built other prepackaged applications versus users just using the Freeform platform?

Speaker 4

Call. Scott, this is Ron. Can you just repeat the last part of

Speaker 5

the question? Sorry, there was some noise.

Speaker 12

Call. Yes, I know. Just how do you think about building other kind of pre built applications on the Monday Work OS? You've had success with CRM, but cost. Instead of having it just be a free form platform that customers can build themselves on top of, how do you think about just adding other kind of pre built applications?

Speaker 5

Call. Yes, got it. Thanks, Scott. This is Arun. So, yes, definitely we've seen success with CRM and Dev.

Speaker 5

Obviously, work management is a huge one for us years ago. Going forward, we're probably going to call. Add a few more kind of core products to our product suite, might be HR, might be other categories we're going to double down on. So we're open on adding new products. We see a lot of opportunity within our own customer base.

Speaker 5

We see demand from our own customer base. So definitely there's opportunity there and the results from CRM and also that now are very encouraging. Call. And like we mentioned for the long tail, we're going to open it up for 3rd party vendors to extend our product suite. But overall, call.

Speaker 5

If you can have me to envision Monday 2, 3 years, I see a company offering a very strong product suite, maybe quarter, 5, 6 potential products that are kind of core to the company in addition to a long offering of long tail solutions from different kind of more nuanced vertical industries. So that's how kind of I envision the Mondays we're going forward.

Speaker 2

Hi, it's Roy here. So I can add that we have a lot of visibility into what's working and what's not call. Because like you said, like monday is a platform. Our customers are building whatever they want on top of us. And when we see something succeeds exceptionally call.

Speaker 2

And identify use case and a penetration point, it's very it's much more clear to us where to start and what is the need that call. Is out there. So we have great visibility into like the areas that we might go into next, some

Speaker 5

of them, Eran mentioned. Call.

Speaker 12

Excellent. Thank you. For my last question, I wanted to talk about traction within your partner ecosystem. You gave plenty of commentary on the overall business right now in this general macro environment. Have you seen any changes specifically within your partner ecosystem in terms of how they're bringing Net new customers or new opportunities.

Speaker 12

Thank you.

Speaker 5

Yes. Thanks, Scott. So overall, we see we continue to see Great momentum with our partner ecosystem. They continue to kind of extend our ability to sell across different regions. But also

Speaker 4

I think call. Some trend that

Speaker 5

we've seen that is increasing is our ability to do professional services for our customers. As we go up market with larger enterprises. I think the fact that our enterprises help onboard those customers and develop customized feature for them really help us scale our enterprise offering. So we see great momentum with our partner ecosystem. It's a great extension of our ability to sell and we continue to invest

Operator

call. Queue. Our next question comes from the line of George Iwanyc of Oppenheimer. Please go ahead. Call.

Speaker 7

Thank you for taking my question and congrats on the strong results. Eran, maybe building in a little bit more color on your AI commentary. How do you see this changing the competitive landscape? Do you see this as a net positive? Comment.

Speaker 7

How do you see it changing kind of the seat growth opportunity?

Speaker 2

Hey, it's Roy. So call. We're super excited about AI because when you think about it, monday has always been a place call. We gave customers more power to build their own software, more power to run their own businesses in the way that they want to win. Call.

Speaker 2

Like AI is exactly that. Like it's a technology. It's something that people want to harness. And monday is like in an area that call. We feel we're in a great place to offer that alongside everything else we do.

Speaker 2

So I do think It's too early to say like what competitive edge it will give us. But as a leader in this category, I feel Like it's a great opportunity for us and definitely going to be like huge value for our customers and like we're super excited about it.

Operator

Call. Your next question comes from the line of Derrick Wood of TD Cowen. Please go ahead.

Speaker 7

Call. Hey guys, thanks. A lot of questions on the enterprise side, which is great to see. Maybe I'll take the other side of that and just ask about the SMB cohort. Just give us a sense for how that's trending?

Speaker 7

Has there been any change in churn rates kind of what you're expecting through the year and kind of an update and focus at the lower end of the market. Call.

Speaker 5

Yes. Thanks, Derek. I think it's a great question because, obviously, we put a lot of focus on our enterprise segment. But I think if anything in the last few quarters, I think SMBs also showed their strength. I think the call.

Speaker 5

We have a mixture of both enterprise, but also SMBs as part of our business model really was a big benefit for us as a company. Surprisingly, call. SMBs net retention was pretty much stable given the current economy. We saw SMBs stabilizing on Monday, adding more solutions, gains, unifying different tools into Monday. So I think that's a very interesting segment in the long term as well.

Speaker 5

So if anything, just to show the fact that we need to double down not just an enterprise, but also the SMBs like we've done throughout the years. Call. And we see a lot of stability in that part of the business. Obviously, keep investing, but very interesting dynamic here.

Operator

Call. Our next question comes from the line of David Hynes of Canaccord. Please go ahead.

Speaker 11

Hey, thanks guys. Two quick ones on Monday DB. So with the phased approach to the rollout there, the 30% of accounts that are live, Did you start with your largest customers who would see the most benefit or how did that play out? And then second, Arun, I'd love to hear you talk a little bit about call. What V2 and V3 of that effort looks like?

Speaker 11

Like where will the focus be in future iterations of Monday DB?

Speaker 5

Call. Yes. Thanks, DJ. So overall, when we started initially, we started with the smaller accounts, but then we just cleanup for different sizes of accounts. Some of the largest accounts were, I would say, the most eager to get MoneyDB.

Speaker 5

So We actually rolled those accounts sooner. So now we have a mixture of both small accounts, but also very large accounts using MoneyDB. The most gain was obviously in the larger accounts. Smaller accounts, business experience much lag, but the larger ones did. So we saw most of the benefit over there.

Speaker 5

Version 1.0 is focused mainly on consuming data and viewing data where the next two versions are going to focus on different cards of the platform. For example, dashboards are going to be blazing fast going forward. Call. We're going to offer more scaling opportunities, so that means larger data sets. And I think those further assessments in the products will be a big game changer because it will just allow us to be significantly better than where we are today and offer significant different customers the ability to use monday.

Speaker 5

So Looking forward for the next version. I think the first step is always the hardest and the next phases will be easier to implement.

Operator

Call. Your next question comes from the line of Andrew DeGasperi of Bergen sorry, of Berenberg. Please go ahead.

Speaker 13

Thanks. Good morning and thanks for fitting me in. I just had one question on the monday dev platform you're planning to roll out. I know it's already accessible to existing customers, but just wondering, being out of beta at this point. I mean, is it essentially live with all of essentially everything that it would come with?

Speaker 13

Call. And then maybe, could we touch on like in terms of the customer adoption, could it be similar to monday CRM in terms of how quickly Do you think that could ramp up?

Speaker 5

Yes. Thanks, Andrew. So Yes. Monday. That is now out of beta.

Speaker 5

It doesn't mean that all the features are out there. It's far from where We want our product to be, we have a lot of exciting features we plan to roll out. We just reached a place of stability and scale that we feel comfortable call. Migrating Monday out of beta. We've seen great momentum.

Speaker 5

That's one of the reasons why it was important for us to emphasize that. It's hard to compare it to CRM because it's kind of earlier phase of the CRM, but we're very encouraged We've seen the momentum that we've seen in the product. And overall, when I look at both the CRM and the dev, we're very please with the rate of adoption, with the feedback that we're getting and if the momentum gives this way, this is a great win for us as a company.

Operator

Call. Your next question comes from the line of Shelby Sayrafi of FBN Securities. Please go ahead.

Speaker 14

Yes. Thank you very much. So I'm very impressed by your billings growth, which was 43%, up from 41% in Q4 and it came in 11% above consensus versus in line basically the prior two quarters. So what drove that strong billings speed? Was it pricing?

Speaker 14

Was it enterprise? Was it geo? Any other factors?

Speaker 4

Call. Hey, Shelby, it's Eliran. So as a reminder, we said that billing is an imperfect measure of the underlying health of the business. It's a bit lumpy. We look at revenue growth, we look at new customers.

Speaker 4

Nevertheless, we did see strong new customers demand in Q1. The combination of 80% of the contracts are now annual, paying upfront, also contributing for the call. The fact that the billing number has gone up. In addition, largest number of net new enterprise customers in the quarter, we added More than 200 enterprise customers, the combination of these two drivers together with the Strong top of funnel activity drove the billing upside.

Operator

Call. And your next question comes from the line of Robert Simmons of D. A. Davidson. Please go ahead.

Speaker 15

Hi. Thanks for taking the question. So I was wondering where have you seen the fastest uptake of sales CRM so far? Has Has there been a vertical or a geography that's been the most receptive to it?

Speaker 5

Call. Sorry, can you repeat the question?

Speaker 15

Yes, yes. I was wondering on sales CRM. Where have you seen the most receptivity to it? Is it in certain verticals or geographies or

Speaker 5

specific segment or industry. I think that was pretty much across the board, different industries, different verticals looking for a strong solution. I think what was surprising for us is that there is a good balance between customers looking for kind of their first version of CRM, call. But also a lot of customers migrating from existing solutions. They've been using a CRM for different reasons, imagine their sales operation.

Speaker 5

And now they wanted to kind of go to the next level and about Monday CRM, including the large percentages. So that call. Interesting kind of insight into those customers. We just now in the last quarter started to open it up for our existing customers call. And going forward, we plan to offer that solution kind of more proactively.

Speaker 5

So there's also upside to that. Call.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call back over to Byron for closing remarks.

Speaker 9

Call. Thank you for everyone for joining the call today and hope you have a great rest of the day. Call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
monday.com Q1 2023
00:00 / 00:00
Remove Ads