monday.com Ltd. Q2 FY2021 Earnings Call

Thank you for joining us and welcome to the monday.com Q2 fiscal 2021 earnings call. I will now pass the call to your host, Keenan Zopf. Please proceed.

Certain statements made on the call today may 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. Additionally, non-GAAP financial measures may 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 is posted on our Investor Relations webpage at IR.monday.com. With that I will turn the call over to Roy Mann, Co-CEO of monday.com.

Thank you and thank you, everyone, for joining us today. We are very excited to have completed the successful IPO and to announce very strong results for our first quarter as a public company. As you've seen from our press release, our business continues to accelerate across revenues, paying customers and customer expansion. We generated $70.6 million in revenue, up 94% year-over-year. Eliran, our CFO, will provide you with more financial detail and commentary on what drove Q2 results. He will also provide our guidance for the rest of the year. Since this is our first earnings call as a public company, I'd like to take a few minutes to tell you a bit about monday.com. We have also posted a slide deck on our IR website that provides you with additional color on our business and a review for our Q2 financials. When we first started monday.com, we started with a mission: to give our customers the power to create their own work software. To do that, we revolutionized the way people use software, giving them the same low code/no code capabilities once reserved for software creators and designers. Today, more than nine years later, our customers use monday.com in ways we could have never imagined, across virtually limitless use cases and in organizations of all sizes. With that mission, we are leading in a new category called Work OS.

Thank you, Roy. Before we dive deeper into our platform, we'd like to highlight our market opportunity. Our Work OS is broadly applicable for any organization and team across a growing number of use cases. According to estimates from IDC, our total addressable market was $56.1 billion in 2020 and will grow to $87.6 billion in 2024. Further, we believe our Work OS platform is applicable across the 1.25 billion information workers that industry analysts estimate exist globally. Now, let's dive deeper into our platform. Our cloud-based platform is a no code/low code framework. It consists of modular building blocks that allow our customers to create their own software applications and work management tools. By using our platform, our customers can simplify and accelerate their digital transformation, create a unified workspace across departments, and increase operational efficiency and productivity. Our software is simple enough for anyone to use; yet it is powerful enough to drive core functionality within any organization. Our platform also integrates with other systems and applications, creating a new connective layer for organizations that links departments and bridges information silos. We believe this makes our Work OS a core solution that customers can rely on to run their business. Our customers are our partners. We are continuously molding our future together. We distinguished customers with more than 10 users from our broader customer base, and they are the core focus of our sales and marketing efforts. The revenue growth rate of our customers with more than 10 users has outpaced the rest of the business in each of our previous fiscal years and our expectation is that such customers will continue to grow in the future. Moreover, our ability to successfully move upmarket is demonstrated by the consistent growth in the number of our enterprise customers, which we define as customers with more than $50,000 in ARR. We ended the quarter with 470 enterprise customers compared to only 144 in the year-ago quarter, an increase of 226%. We employ an efficient go-to-market model, combining our extensive self-service funnel and a direct sales approach, which consists primarily of our sales team, our customer success and partner teams as well as our apps marketplace. I want to share some of our product solution go-to-market approach. Product solutions are complete products, horizontal or vertical, built on top of the Work OS platform. This allows customers with different intents to find and adopt monday.

Thank you, Eran. We took our no limits approach to new heights to allow any developer to build on top of monday.com with monday apps. We added even more freedom with our apps marketplace where each customer can extend the platform on their own. This no limits approach leads to happy customers that not only love our product but also feel they are a part of our journey. As the number of our customers grew, we heard more and more stories on how we changed their business and, for some, their lives. We began to feel an ever growing sense of responsibility, a responsibility to be there for our customers with world-class support and an ever improving platform that allows them to do anything their business demands or their imagination takes them towards. This responsibility extends towards the communities we live in as well. We saw the amazing impact monday.com has on nonprofit organizations. From work we have done together, we see that many nonprofit organizations have a massive technological divide, a divide that prevents them from making the impact that they seek. Our Equal Impact initiative aims to close that digital divide with long-term, ambitious goals for making a lasting impact on nonprofit organizations. With our knowledge and resources in digital transformation, running business and scaling teams, we aim to be a partner for the world's nonprofit organizations who want to make a positive change for all of us. I want to give a quick shout-out to our employees. monday.com's success happened only because of our amazing employees and the strong culture of transparency, ownership and trust we have built together. All of us at monday feel we share the same goal and walk on the same path forward. We believe that we are on the cusp of a massive change in work software. If the last 10 years were defined by the SaaS cloud, then the next 10 years will be focused on giving people the power to create software that fits their own needs. We believe that we are best positioned to be the leaders in this change. We have built the company to take such an opportunity head on while keeping our culture, our values, and the love we still have towards creating beautiful, powerful digital products. Today, we are thrilled to introduce a completely new capability to monday.com's Work OS platform, monday workdocs. Workdocs represents the next step in our Work OS platform. Documents provide a great canvas for people to start their work in. We see this as a massive opportunity to expand how monday is adopted so our customers can create no code/low code work software. With monday workdocs, our customers now have the ability to manage their work, ideas, and data in a completely unstructured way. Our workdocs include two powerful technologies embedded in them: our real-time engine and document connectivity. We believe document-based collaboration is crucial for many work processes. That's why we've built our real-time engine from scratch. It's a completely new technology that allows for hundreds of people to work together on the same document. It's a strong foundation that will allow us to take document collaboration to uncharted territories. Another critical part of our workdocs is that they are connected to other applications. We see this as part of our connectivity layer that the Work OS provides. We allowed any monday object such as widgets, charts, and views to be embedded into documents. This means that our workdocs have live objects that update in real time whenever their source of data changes. So, monday workdocs are never stale because they are connected documents. This makes workdocs another no code way for our customers to build work applications on top of monday.com Work OS. Traditional documents were never designed to be used in the way many teams use them today. Teams use documents to start work processes and collaborate together, but the documents themselves were never created to support this. We see this as an opportunity to turn these beginnings of documents into real work tools that people can use to work together better. Workdocs represent the next step in our journey to give our customers the ability to create their own work software, no matter how they begin or continue their work. Until now, boards were the sole entry point to our platform. Workdocs are an additional unstructured, more flexible way to onboard and deepen adoption in companies. Workdocs are now live and working on monday's Work OS and are available to all our plans.

Thank you, Roy. In Q2, we officially launched a free tier of monday.com Work OS. This is geared to small teams and limited only to two users. We believe that this is an excellent way to drive awareness and broader adoption among a new set of audiences. We are encouraged by the early response to the free offering and see this as a way to seed monday usage and ultimately drive conversion to enterprise customers. We had a great quarter in terms of customer wins and expansions. These were broad-based across industry verticals with major companies including Headspace, Mintel, Adyen, and Wellington Altus. Let's talk about Headspace as an example. Headspace is a very well-known mindfulness and meditation app dedicated to improving the health and happiness of the world. Headspace has begun to use monday.com Work OS to increase collaboration and efficiency for all of their marketing and creative processes across the globe. In order to win, subscription-based companies like Headspace must operate real-time, adjusting to changes in each of their markets every day, which is why they chose our platform. This win is another example of how monday can help high-growth global companies, and we are very happy to be a part of their growth and success. During Q2, we continued to expand our partnership ecosystem. To that end, we kicked off new strategic alliances with global systems integrators across key industries such as manufacturing and real estate, including Hitachi Solutions and NTT-Data. We accelerated our growth and expansion into the Latin America market with new channel partners, customer deals, increasing our ARR in this region. As part of our expansion into new markets, we also added Polish as an additional language available on our platform, increasing the total number of languages to 14. One of the things that we are most excited about is that we are truly developing a monday.com ecosystem of third parties, interfaces, partners, and developers that collectively drive usage and multiple monetization opportunities. You will be hearing much more from us on this front in the coming quarters and years. As I hope has come through in our presentation and our comments today, monday.com is a highly differentiated company with a strong and unique point of view about the future of work and collaboration. We are capturing a massive market opportunity that is expected to reach over $85 billion in the next few years. monday.com can help drive results for almost every business of every size around the world. We are very excited to speak with the analysts covering the Company and the investors who are joining us on this journey today. I'll turn it over to Eliran to cover our financials and guidance.

Thank you, Roy and Eran, and thank you to everyone for joining our call today. We are very excited about the opportunities we see for the Company to continue to grow and evolve. I will go through our second-quarter results, then discuss in more detail the business and close with guidance. We were pleased with the results for the quarter, which demonstrated continued high growth at scale. Revenue in the second quarter came in at $70.6 million, up 94% year-over-year led by large expansions within our existing customer base. Our net dollar retention rate for customers with more than 10 users was over 125% and our net dollar retention rate for all customers was over 111%. As a reminder, our net dollar retention rate is a trailing four-quarter weighted average calculation. Also, our focus on moving upmarket is working. We ended the quarter with 470 enterprise customers, up 226% from 144 in the year-ago quarter. On the hiring front, during the last two quarters, we added more than 170 employees to monday.com, particularly focusing on R&D and sales and marketing. These new hires account for more than 70% of the new talent added during this period. We ended Q2 with more than 850 employees globally and we plan to continue investing aggressively in adding new talent with a focus on R&D and our enterprise sales force. Next, I'll provide more detail on the second-quarter financial results. Before turning to expense items and profitability, I would like to point out that, unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Gross margin came in at 89.7%, up from 88.3% in the year-ago quarter. Research and development expense was $11.2 million or 16% compared to 20% in the year-ago quarter. We continue to invest significantly in R&D, including high growth in our engineering headcount, but the pace of our revenue growth has outpaced the investment growth. Sales and marketing expense was $55.5 million or 79% of revenue compared to 101% in the year-ago quarter. The improvement was driven primarily by lower marketing investments as we are becoming more efficient, allocating our marketing spend to focus on customers with 10-plus users and enterprise customers. We continue to make substantial investments in our sales organization and have significantly expanded our sales team over the last year. Similar to R&D, the pace of our revenue growth has outpaced the investment growth. G&A expense was $6.5 million or 9% of revenue, compared to 8% in the year-ago quarter reflecting increased costs of being a public company. Operating loss was $9.9 million and operating loss margin came in at 14%. Net loss was $11.3 million and loss per share was negative $0.26. Moving on to the balance sheet and cash flow. We ended the quarter with approximately $878 million in cash, cash equivalents, short-term deposits, and restricted cash. Net cash used in operating activities was $0.4 million in the quarter. Adjusted free cash flow was negative $1.5 million and was driven by strong collection stemming from our strong billings in Q4 and Q1. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, excluding nonrecurring items such as costs related to the buildout of our corporate headquarters in Tel Aviv. Now turning to our outlook for the third quarter and the full year of 2021. We believe we can deliver high growth for the foreseeable future as we are addressing a large and growing market, and we believe we are well-positioned to be one of the long-term winners in this space. There are more than 1 billion global knowledge workers today that could potentially use monday. We are introducing Q3 and full-year guidance as follows. For the third quarter of fiscal year 2021, we expect our revenue to be in the range of $74 million to $75 million, representing growth of 74% to 76% year-over-year. We expect non-GAAP operating loss of $26 million to $25 million. For the full year 2021, revenues are expected to be in the range of $280 million to $282 million, representing growth of 74% to 75% year-over-year. We expect full year non-GAAP operating loss of $93 million to $91 million and negative operating margin of between 33% and 32% compared to a negative operating loss of $86.2 million in 2020 and negative operating margin of 53%. We believe we can deliver high growth for the foreseeable future as we are addressing a large and growing market that is still very early in its maturity. As a result, we will continue to prioritize investments in the business over near-term profitability, and we continue to make progress against our growth phase target margins. I'll also note that we intend to be active with regard to Investor Relations and will be conducting a number of non-deal roadshows and started to present at investor conferences in September. With that, I'll turn it over to the operator for questions.

Kash Rangan, Goldman Sachs.

Hi, thank you very much. Lovely day, fantastic results and congratulations on the first quarter as a public company. What a great start. Roy, one question for you. You talked about sales and marketing investments. Can you talk about - how should we think about how productive did the shift towards more selling and a little bit less marketing as it pertains to sales and marketing is likely to drive traction in the enterprise going forward? Because it certainly seems that you had a great quarter but you're just getting started building out and scaling your sales effort for the enterprise. And one for you, Eliran. It does look like you made significant progress with operating margin and free cash flow, yet your guidance still calls for a snapback to previous services losses. So, just wondering if there's any specific investment you are making in the second half or just trying to keep things conservative and wait till the quarters prove themselves? Thank you so much, congrats.

Hey, Kash, thank you. It's Roy. So, yes, we are putting a lot of emphasis on growing. Like we mentioned before during the IPO, we have a funnel that is driven by no touch, like we do marketing that we get leads. Those leads become paying customers. And our sales force is addressing those customers after they pay and help them scale. So, while we invest a lot in marketing, we see that we're doing that in a more efficient way, which is what you can see with the results this quarter. Our approach to new customers is becoming more efficient, while we scale the sales team and its approach to grow our customers much more effectively. So, you see both of these working really well and I think we are, as we mentioned before, seeing our sales team that has been growing over the last two years reach more maturity and it's working better and better.

Kash, hi. This is Eliran. With regards to your question on guidance, so first of all, we are very confident in our guidance and we feel comfortable with the plan that we have to continue to invest aggressively. One of the things that's important for us to say is that, while we did very good results in Q2, we are going to continue to invest aggressively in the second half of the year in order to generate additional hyper growth at scale. Just in terms of numbers, our capital efficiency is well above 2.5. Just as a reminder, for every dollar that we invest, we basically generate more than $2.5 in terms of ARR. So, there is a huge opportunity; it is a greenfield market. Therefore, we would like to ensure we don't pass this opportunity and continue to invest. And there are going to be additional costs. We are going to continue to hire aggressively in sales and marketing, R&D. We are going to have the full impact of our new headquarters in Tel Aviv. We are going to continue to invest across other places in the organization. Hopefully we are going to see some of that continued growth as we continue to go forward. Does this answer your question, Kash?

Absolutely. Great start. Congratulations. Thank you so much.

Mark Murphy, JPMorgan.

Good morning. This is Matt Coss on behalf of Mark Murphy. I will add my congratulations on the quarter. Can you talk to us about the distribution of new use cases by prepackaged solutions versus someone using monday to build something completely from the ground up? And then maybe you can help us understand how many of your customers who have adopted prepackaged solutions are using the low code/no code advantages of the platform to really customize their application.

Sure. This is Eran. Can you just repeat the first part of the question, please?

Yes. So, if you have a sense of your customers using monday.com, new customers buy a prepackaged solution versus using monday to build their own application from the ground up.

Yes, okay. So, this is Eran. So, basically the majority of our customers usually start with one use case and then over time expand to more use cases. I would say the vast majority start with a prepackaged solution, just because usually the way it works is that they search for a very specific problem they're trying to solve. And this is kind of how we lead them through the ongoing process. But I think the interesting part of that, over time, we see two trends. One is further customizing their existing solution, meaning matching that to their need. But then finding more and more product solutions they can use and expanding the usage within the organization. And also building their own kind of solutions on their own, their own templates and use cases. In terms of the low code/no code, so basically everybody using monday essentially is using the no code capability, building the board itself and customizing the components is essentially, if you think about it, building a database to capture data. And as we disclosed during the IPO process, over 90% of our customers use automation and integration. So, it's pretty popular within enterprise accounts. So, I would say, broadly speaking, every customer of monday is leveraging our no code and low code capabilities.

Brent Thill, Jefferies.

Thank you. I was curious if you could spend a little more time on the enterprise traction and maybe provide some examples of where you're seeing great traction. I think maybe if you could also talk about your largest deployment and give us a little more color in terms of how that buildout is going.

Yes, so we see very high growth in the customers over $60,000, over 226% year-over-year growth. From our side of the Company, this is a strategic part of our business going forward. We do invest heavily into the no-touch and bringing in new pay customers into our funnel. But at the same time, as we mentioned at the beginning of the call, we invest heavily into making the product better for enterprise customers, keep adding features and capabilities. And this part of the business is growing significantly faster than the whole of the business. Those customers demonstrate very high net retention numbers; they expand more and we are keeping and launching new features to that part of the business going forward.

Yes, it's Roy. I can add that in enterprise we are focusing on security control features and governance. And that's basically enabling us to get into larger customers. They want it and we need to just open the door right now by enabling all those features. That's where our biggest focus is product-wise.

Great. And just curious if there were any geographic trends that you're seeing that are different between the US, EMEA, and APAC. Anything stand out? There have been a lot of questions as it relates to the return to the office as some people have been coming back in. Have you seen any noticeable differential in customer behavior? Obviously, the numbers suggest that it doesn't really matter what environment we are in for you guys right now, given the great growth. But any color on that would be helpful.

So, as a reminder, we experienced rapid growth before COVID and we anticipate continuing to grow at a fast pace after COVID as well. Hopefully, that will happen soon. To recap, 52% of our revenue comes from outside the US, and 38% is generated within the US. Additionally, 70% of our customers are non-tech. We have also added Polish as another language on our platform, which brings our total to 14 languages. Essentially, we are expanding within our current customer base in the regions where we already operate. Furthermore, we leverage our partner channel in areas without a direct sales force to enhance our presence within the partner ecosystem, allowing us to reach additional markets where we do not have a comprehensive operation.

Bhavan Suri, William Blair.

Let me echo my congrats. That is a great quarter out of the gate. I guess I want to touch on the enterprise traction. You have added more than 100 customers to the $50,000+ ARR. I guess I'm trying to understand how much of this do you attribute to the product getting more sophisticated and its ability to handle complex workflows? Or do you think it's more driven by the fact that direct sales motion and customer adoption is maturing? How would you balance those two?

My short answer will be both. We've observed the combination of two forces. One is that we have more sales representatives in our company who are becoming more experienced. The second factor is our significant investment in the product for enterprise accounts, and we plan to continue that. We are making substantial improvements to ensure the product is more scalable. As we move forward, we see larger accounts increasingly adopting monday. Another interesting trend is that every sales cycle within our existing accounts leads to another sales cycle. It’s an ongoing process of discovering new use cases and new departments that can utilize monday. It’s not just a one-time deal but rather a continuous process, which is why we are seeing larger accounts engage with us.

I understand. I would like to discuss the freemium offering a bit more. Can you explain the impact you have observed on the top of the funnel due to the freemium model? I believe it makes sense that this will lead to growth, but have you noticed any customers downgrading to freemium, perhaps because they only need a limited number of features? Have you seen this trend at all, where customers move in a direction we wouldn't prefer? Thank you.

Sure, this is Eran again. This is very exciting for us. As we launched this free tier, we've noticed an increase in customers using monday. It hasn't negatively affected our existing customer conversions to paid plans nor has it harmed our ability to acquire new customers; instead, it has enhanced our customer acquisition efforts. We haven't observed any impact on our current customers, as they are not downgrading their plans. Interestingly, although it’s still in the early stages, we are starting to see a new type of funnel develop with freemium accounts, which may eventually convert into paying customers. I believe this will expand the visibility of monday's capabilities and increase the number of people who are aware of how they can utilize our tool.

I would just add that our free tier is now limited to only two users. So, it's not really impacting the larger customers, it's just a way to allow smaller users to keep on using us.

Got you, got you. That is very helpful. Thanks for the color, gentlemen, and congrats again.

Brent Bracelin, Piper Sandler.

Thank you and good morning or good afternoon. I wanted to revisit the growth drivers of the business. Growth accelerated to 94%, and you're raising your full-year growth outlook to 75%. We were at around 60% going into the quarter. As you evaluate the overall business, what aspects are performing better? It seems enterprise is strong and existing customers are also strong. Is that the primary factor behind your optimism, with stronger adoption and expansion than anticipated? Is the strength widespread, or is there a specific region or segment that is outperforming? The business appears to be significantly stronger, and your optimism has increased. I'm trying to understand the main drivers behind this growth. Thank you.

I believe all your points are valid. Our growth is clearly fueled by long-term trends and strong momentum in the market. We continue to acquire new customers, while also expanding within our existing customer base, which is evidenced by our net dollar retention rate now exceeding 125%, up from 121% in Q1. We're also seeing significant momentum in the enterprise sector, with our enterprise accounts increasing by 226% year-over-year. The indicators suggest this trend will keep increasing. I think this success speaks to our position as a market leader and the brand awareness supported by our recent IPO. Since our organizational changes in mid-2018, we are now witnessing the benefits of those investments. All these factors contribute to our optimism regarding this growth and the potential for continued expansion.

Great to hear there and appreciate that color. I guess on the flipside of that, operating losses have narrowed meaningfully in the quarter. It looks like your guidance suggests that operating losses here could continue to narrow. Is that a function of just not being able to hire as aggressively as you would like? I know it's a tight labor market right now. Or is there something structurally more efficient about your sales and marketing spend where you feel you can drive this hyper growth without aggressively investing as much as you have in the past? Just trying to understand why you are kind of narrowing the operating loss here for the second half of the year. Thanks.

So, as I mentioned earlier, Brent, we are not trying to optimize costs. Actually, we are going to continue and invest aggressively. But definitely we see some efficiencies within our sales and marketing investment. But we will continue to invest aggressively. I don't want to think about it as an indicative kind of direction as we are operating in accordance with what we presented in our growth phase model. We are going to see further additional costs, I believe, in the second half of the year. As I mentioned, we just moved to the new building. We are going to continue to hire aggressively. Even though there are some challenges with hiring, we are still hiring very well. And there are going to be salary increases. We are going to have events by the end of the year. So, I think we are going to incur costs that really are going to be incurred in the second half of the year. But obviously we are working in accordance with our growth phase operating model.

Helpful color. Great to see the momentum in the business. Thank you.

Ittai Kidron, Oppenheimer.

Hey guys, great quarter out of the gate, good stuff. I wanted, maybe Roy and Eran, to talk about workdocs, the announcement you made today, if you could give us a little bit more color. And more interestingly, how does that work its way into your pricing plans? What are the odds that within the next 12 to 18 months you actually raise prices across your plans?

Yes, it's Roy. So, that's super exciting, the workdocs. Essentially we see a lot of starting points for monday in our monday boards, which are a very structured way of information. The documents essentially allow customers to start with an unstructured way, right? Like you start something and then usually it stops with old fashioned docs. With monday, we saw a massive opportunity with continuing that work on the platform, adding more people. So, we see this as a new way for customers to start using monday. The docs, as you asked, are accessible to everyone. We don't want to limit that by pricing tier and those kinds of limitations because we want everyone to start. We will, in the future, consider adding more tiers into the documents for extended functionality, but we don't have that now.

And if I can add, Ittai, this is Eran. So, another point that's super interesting is the combination between growth and workdocs. So, the fact that you can embed into a workdoc a board where you can actually change the board from within the docs and have several people working together in this very intuitively and in real time is, again, a power multiplier in terms of usage. You can have a doc within a board. So, combining those two products together, I think will generate very exciting ways that our customers can leverage the power of both.

Great. Maybe as a follow-up, if you could update us on right now how big is your largest deployment, how many seats are in your largest deployment?

Frankly, currently it is 7,000 seats. This is a customer that we have, this is the biggest account we currently have.

Got it. Excellent. Good stuff. Thanks.

DJ Hynes, Canaccord.

Great start here, thanks for taking the questions. Just one from me. I'll direct it at Eran, but anyone feel free. I was hoping you could talk a little bit about coexistence with other work management tools in your large enterprise accounts. I look at Fortune 500 penetration for guys like Smartsheet, Asana, yourselves. There's clearly overlap there. So, hoping you could talk about how you see this playing out. Will there always be room for multiple vendors in these large accounts? Or do you think they consolidate around a single vendor over time? And how do you position monday to be that vendor?

Thanks DJ. It is Eran. It's a great question. Overall, monday is a Work OS. So, essentially there's a lot of things that could build within monday, but one of the key things that are super important for us being a Work OS is to integrate really well with other tools. So, essentially our goal is not to replace all tools within the organization, but to be a place where people can build stuff and manage a lot of the core functionality within monday. Any app that an organization already uses can be integrated into monday. Data can be presented within monday; you can change things, and data can be synced back into a third-party application. So, essentially it is our philosophy to work well with everybody. We are not trying to replace everything within an organization, so I don't think it is a point of consolidation. But very likely we are positioned in a way that we're kind of the work customization, the backbone that connects everything within an organization, if that makes sense.

Perfect. Thank you guys, congrats on the start.

Derrick Wood, Cowen and Company.

Great, thanks for taking my questions and congratulations on my end as well. Maybe first one for Eliran. The enterprise net revenue retention rate you mentioned was 125%, up from 121% last quarter. Could you unpack how much has come from improvements in gross retention and how much is from stronger expansion trends? And then speaking about expansion, project management is a core area for you. But we get a lot of questions from investors, what are the next most popular two or three use cases and what's growing the fastest? So, if you could comment on that as well that would be helpful.

Certainly. Regarding the use cases, I will wait for Roy or Eran to address that later. However, I want to start by discussing our net dollar retention rate. Our primary focus is on customers with more than 10 users, which includes enterprise accounts and those under $50,000. We are observing significant growth within this existing customer base. As a reference point, looking at our recent cohorts, we have noted that we are attracting larger accounts, leading to increased annual recurring revenue and better retention rates. The average net dollar retention over the past four quarters is showing improvement, reflecting the positive impact of these cohorts, which in turn has resulted in our net dollar retention reaching 125%. Additionally, this growth is being driven by our expansion within enterprise accounts. Now, regarding use cases, should I pass this on to Roy?

Yes, perfect.

Roy, I will defer to you on the use cases.

We see a significant trend in CRM adoption for smaller to midsize use cases. Many of our customers are creating their own specific use cases, managing operations across over 190 different business sectors. These sectors include manufacturing plants and clinical research, where they run production rather than just managing projects. Essentially, they develop their own processes and tools to facilitate their operations, which aligns more with workflow process management.

Hi, everyone. I also echo my congratulations on the strong first post-quarter IPO results. I guess the first question is, and I don't know who wants to take it, but it's on the workdocs, and not specifically the product, but just how you think about pricing more in general going forward. Today you released the functionality or you talked about the functionality being included in the base price. But do you ever get to a situation, maybe over the next couple years, where you modularize or componentize some of that functionality and sell that as an upsell premium tier versus an all-you-can-eat-today scenario?

Thank you for the question, Scott. This is Eran. It's a great question. When we launched workdocs today, our intention was to make it available across all pricing plans. We believe that encouraging usage and increasing the number of users in an organization makes sense for everyone to access monday. Regarding future pricing strategies, we think of it in terms of packaging various product solutions we provide. Different industries have varying pricing levels; for instance, we can charge more per user in CRM compared to other sectors. Moving forward, our plan is to package our products more distinctly for these solutions, allowing for differentiated pricing and possibly different tiers for these offerings. This approach is certainly part of our roadmap.

Great. It's Roy. The partners play a significant role in our future plans. Firstly, as you mentioned, they assist us with global expansion in areas where we lack a sales team. Additionally, we are collaborating with many of them to provide solutions for larger enterprises that wish to customize the platform and integrate it with other systems. They greatly aid us with professional services, and many are major contributors to our marketplace by developing applications and other resources used across the platform. We have a diverse range of partnerships; not all of them are identical, but collectively, these partnerships are central to our vision moving forward.

Thanks for taking my question and congrats on going public. First I guess I wanted to ask and follow up on the competition question. I know that a lot of other work management tools are also chasing the larger end of the market or the enterprise customer. So, I was just wondering if any of these bids are competitive that you are seeing right now or are they mostly greenfield?

We see a significant opportunity in this market, especially following our IPO. In around 70% of the deals we encounter, there is virtually no competition. Customers typically rely on email, spreadsheets, and PowerPoint for communication and collaboration, indicating a desire to enhance their efficiency. While this doesn't feel entirely like a new market, in about 30% of the deals we handle, we face more targeted competition. For instance, if a customer is using monday for CRM, we might compete with small to medium-sized business CRMs. In project development, we could face competitors in the project management sector. Overall, this represents a substantial opportunity for growth within the market.

That's helpful. And just as a follow-up, these other solutions, the CRM, the software development, the HR, it seems pretty unique relative to your competitors and it seems to also, I guess, expand into other end markets that there's some bigger players in like Salesforce. So, I was just wondering, are you really just focused on that smaller end of the market with these tools and you don't really see these other larger software companies in that field or those fields?

So, that's a really great question, because we see a lot of those verticals as a go-to-market for us. Like we want to put the foot in the door and get into companies. And as we scale, we are partnering and integrating into those larger players, as you mentioned. Meaning that we see ourselves as unifying the workspace, like creating unified workspaces for companies with no code/low code capabilities and integrations that really connect all those tools you mentioned to the rest of the organization and allowing them to create more workflows with them. If they want to replace, fine. But usually the bigger pain points are connecting, breaking silos, having people work together. So, it is a two-way go-to-market that we land on the smaller use cases and even small size CRMs. And we have a lot of large enterprises that start with a small one on different stuff that they use. So, it's a great foot in the door for us even for enterprises and then we integrate with larger players.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.