monday.com Ltd. Q1 FY2022 Earnings Call

Good day. My name is Melissa, and I'll be your conference operator today. At this time, I would like to welcome everyone to monday.com's First Quarter Fiscal Year 2022 Earnings Conference Call. I would like to turn the call over to monday.com's Director of Investor Relations, Mr. Byron Stephen. Please go ahead.

Good day everyone, and thank you for joining us on today's conference call to discuss the financial results for monday.com's first quarter fiscal year 2022. Joining me today are Roy Mann and Eran Zinman, co-CEOs of monday.com and Eliran Glazer, monday.com's CFO. We released our results for the first quarter fiscal year 2022 earlier today. Our earnings materials are available on our Investor Relations website. There you will find the investor presentation that accompanies our prepared remarks and a replay of today's webcast under the News and Events section. Certain statements made on the call today will be forward-looking statements which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations 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. With that, let me turn the call over to Roy.

Thanks Byron. Good day everyone and welcome to our Q1 2022 earnings call. Our first quarter revenue grew 84% to a record $108.5 million. This is an exciting milestone for us, as it represents our first $100 million revenue quarter as a company. We continue to see strong demand for our product with our sales teams driving new logo acquisition and strong expansion within our existing customer base during the quarter. 50% of the Fortune 500 companies use our platform, up from 38% just a year ago. To address the needs of our customers in the enterprise segment, we are investing in creating more value for these customers, including in security, governance and compliance requirements. Because we see enterprise customers as an important, growing segment of our business, we are releasing our net dollar retention rate for enterprise customers with more than $50,000 in ARR and their percentage of our total ARR. In Q1, the total number of these customers was 960, up 187% from a year ago. These enterprise customers with more than $50,000 ARR now represent 22% of our total ARR. As we continue to go up market, more customers are increasing their adoption and usage of monday across the organizations. In Q1, the net dollar retention rate for customers over $50,000 in ARR was above 150%. This high NDR reflects our potential to continue to expand among large customers. Please refer to our Q1 investor presentation for historical comparisons for these metrics. Among customers with more than 10 users, net dollar retention rate is above 135%. And among all customers, the net dollar retention was over 125%. As a reminder, our net dollar retention rate is a trailing four quarter weighted average calculation. In the first quarter, we increased sales and marketing spend by approximately $50 million, up 84% from Q1 '21. These sales and marketing efforts accelerated our acquisition of new customers while keeping the same marketing efficiency metrics. We've also been very successful in meeting our aggressive talent recruitment targets. We believe that these efforts have great potential to grow our business over time, as also our strong net dollar retention rate indicates. As we expand our customer base, we continue to invest in and grow our partner ecosystem to serve our customers. This quarter, we are excited to announce we have signed an authorized reseller agreement with SHI International, one of North America's largest IT solutions providers. This partnership will help us work with and sell to more public, state and local agencies and federal agencies in the United States. Our customers span industries and use cases, and they use monday.com to run complex operations around the world. Recently, we partnered with Vogue for the Met Gala's first-ever branded content software partnership. Using our platform, the Met Gala set designer managed the core workflows for fashion's biggest night of the year. Let me now turn it over to Eran to walk you through how we plan to better serve our larger customers.

Thank you, Roy. This quarter, we are excited to announce the launch of our new Work OS product suite with four new products, each with their own unique pricing models. These new products represent an exciting new evolution of our existing product solutions, based on the momentum and success we've seen among our customers. We are stepping up our product solutions to become four new, end-to-end products: monday projects, monday dev, monday marketer, and monday sales CRM. Marketing and creative teams use monday marketer to manage marketing and creative processes all in one place. Product, design and R&D teams can plan, execute and collaborate to deliver better products, faster using monday dev. Project managers use monday projects to run, manage, and track projects and portfolios. And sales teams use monday sales CRM to manage all aspects of their sales cycle. Work OS products are complete end-to-end products built on top of the monday.com Work OS. They are designed to comprehensively address the needs of a specific use case and live within the entire Work OS ecosystem with seamless integrations and connectivity. Customers can add more products at any given time or move data between products. That way, when customers purchase one of our new products, they also receive the same flexibility, connectivity, and ease-of-use that they know and love from monday.com. Those new products will allow us to better address growth within our existing accounts and capture new markets. With these products, we are better positioned to compete and win deals against vertical tools in specific markets. We plan to gradually increase the rate of accounts with access to the products, with the goal to fully launch them to all our customers later this year. Let me now turn it back over to Roy.

Thank you, Eran. To close, it's amazing to see the progress we've made in a short time period. Our growth efforts in Q1 placed us on a new growth trajectory, breaking the 100 million revenue per quarter milestone. Our market-leading retention rate and focus on our enterprise segment continue to drive our product focus and vision. We're proud of the work we've made to evolve monday.com from a single product company to a multiple product company. Two of the reasons we've been able to do this include one, the work and continued dedication of our amazing team across the globe. The second is our flexible architecture, which has allowed us to execute extremely quickly and with high quality to meet the growing needs of our customers. This emphasis on agile and quick execution at a high level has enabled us to continue to meet the requirements of customers across verticals, with 70% of our customers coming from non-tech industries. With that, I'll now turn it over to Eliran to cover our financials and guidance.

Thank you, Roy and thank you to everyone for joining our call. Today, I'll review our first quarter results in detail and provide updated guidance for the second quarter and full year 2022. We continue to deliver strong growth driven by customers increasingly adopting the broader monday Work Operating System platform across their organization. As Roy mentioned, revenue surpassed $100 million for the first time ever this past quarter. Total revenue came in at $108.5 million in the first quarter, up 84% from a year ago. Growing and scaling the company remains our top priority. With a large and growing market opportunity in front of us and with most deals still being greenfield, we executed on an ambitious hiring plan this quarter and remain committed to investing in top-tier talent to scale the company. We ended the first quarter with 1,284 employees globally, representing an increase of 220 employees, our largest headcount growth quarter on record. Over half of the added headcount during the past year is attributable to increases in client-facing roles and R&D. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First quarter gross margin was 89%. In the medium to long term, we continue to expect gross margin to remain in the high 80% range. Research and development expense was $19.2 million or 18% of revenue. We'll continue to invest significantly in R&D as we build out our product offerings and scale our Work Operating System platform both horizontally and vertically. Sales and marketing expense was $108.6 million or 100% of revenue compared to 100% of revenue in the year-ago quarter. This includes one-time Super Bowl advertising costs of $11 million during the quarter. As mentioned above, we accelerated our hiring of employees during the quarter reflecting our ability to attract some of the best talent to scale the business. As we have front-loaded certain expenses that have driven our growth, we anticipate sales and marketing expense as a percentage of revenue to come down to low 80% by the end of the year. G&A expenses were $12.4 million or 11% of revenue, compared to 10% in the year-ago quarter reflecting increased costs since becoming a public company. Operating loss was $43.8 million, and operating margin was negative 40%. Net loss was $43.2 million and loss per share was negative $0.96. It is important to note that as we scale the company, we remain focused on improving operating margins and capital efficiency. We anticipate that operating margins will improve throughout the year and into fiscal year '23. Moving on to the balance sheet and cash flow. We ended the quarter with approximately $849.6 million in cash and cash equivalents. Net cash used in operating activities was $12.9 million in the quarter. Adjusted free cash flow was negative $16.2 million reflecting the additional investments we made during the quarter. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, excluding non-recurring items. Now let's turn to our updated outlook for fiscal year 2022. For the second quarter of fiscal year 2022, we expect our revenue to be in the range of $117 million to $119 million representing growth of 66% to 69% year-over-year. We expect a non-GAAP operating loss of $35 million to $33 million. For the full fiscal year '22, we now expect revenue to be in the range of $488 million to $492 million representing growth of 58% to 60% year-over-year. We expect a full year non-GAAP operating loss of $139 million to $135 million and a negative operating margin of 28% to 27%. Looking ahead, we'll continue to invest in growth with a strong focus on driving business efficiency. With that, let me now turn it over to the operator for questions.

We'll be taking our first question today from Kash Rangan of Goldman Sachs. Kash, please go ahead.

Hi, great to see monday's results on a Monday. Congratulations on an excellent start of the fiscal year. Roy, could you chime in on the macroeconomic environment? Obviously, everybody is concerned about recession and the value proposition of software. Can you just give us your take on how customers are prioritizing Monday? Have you noticed any changes in the demand environment as the quarter progressed? And secondly, maybe this is an added-on question as well. You sound very confident that we can improve operating leverage for the business as the year unfolds. Can you just give us a little bit more detail and color as to how you expect this operating leverage to really come to fruition? Thank you so much, and congratulations.

Hi Kash, thank you for the question. So I'll start, and then Eliran will follow up. So we saw a great Q1 in terms of our ability to grow and find new customers. And we see a lot of demand and we feel confident about where we are as a business and our ability to keep growing. So that's from the results we saw. We are obviously aware of the macroeconomics now and what's happening, and we're keeping a very close watch on everything that is unfolding.

Hi Kash, it's Eran. So to your question, with regards to why we are confident about the margins getting better. So as a reminder, this is what we said we're going to do on the last call, on the last earnings call. So from a spend perspective, if we think about Q1 in sales and marketing, for example, this is an outlier. We did it in accordance with monday's playbook. If you look back at Q1 2021, we front-loaded all these expenses, we invested in bringing the best headcount that we can, which was on record. From now on, we believe that we are going to continue to invest in accordance with efficiency metrics, unit economics, taking into account the net dollar retention rates that we have, the payback time, the cart. Altogether, when we are going back to normal in Q2, as we mentioned in the script, S&M, for example, is going back to low 80s. We believe that we are going to leverage the investments that we did and benefit from the fact that this will improve margins and capital efficiency.

Wonderful, thank you so much.

Thank you, Kash. We'll take our next question today from Arjun Bhatia of William Blair. Arjun, please go ahead.

Perfect. Thank you very much. And congrats on a great quarter to the team. Maybe for Roy or Eliran around the Work OS product suite announcement seems like a very interesting evolution for the company. I'm curious, does that bundle in capabilities like WorkForms and Canvas like some of the more recent products that you've launched into each of these suites from a pricing and packaging perspective? And then as you think about the future, how do you envision adding more suites to this, to the four that you've announced today? Is there room to, you know, create more additional products suites, like IT or other use cases that you might go after in the future?

Yes, thanks Arjun, for the question. This is Eran. So first of all, we're very excited about launching those new four products. Like you've mentioned, this is an evolution to the product solutions that we offered before. But really what we've done as a company is to take all those products and run that forward. We saw a lot of demand from our customers, a lot of usage on those product solutions. We felt it makes a lot of sense to mature them and to make our solutions deeper, with more features and more capabilities, packed in a proper way, have specific onboarding and specific feature sets for each one of them. Going forward, we're dedicated as a company to continue investing in each one. Obviously, also, the fact that we're able to package those products as independent products will also give us the ability to sell them separately and have different pricing for each one, while benefiting from having the entire company on our Work OS platform. So for us, it's very strategic. In terms of the other products that we announced in the previous quarter, meaning the WorkForms and the Canvas, those are two other products that are independent of our platform and those products and we'll continue to offer them to our customers separately with separate pricing, if that answers your question.

Yes, perfect. No, that's very helpful. And then I had noticed the 50k NRR disclosure at 150%-plus, obviously very healthy. But it's also ticked up quite a bit from last year or from when it was - from where it was for four quarters ago. What are you attributing that uptick to? Is it the ability to retain your customers better? I think you called out maybe wall-to-wall adoption a little bit more. I would just love to hear a little bit more about the drivers that have driven that enterprise net retention rate higher.

This is Roy. We’ve been discussing a shift in our business for some time now. A few years ago, we expanded our sales team, and we've seen consistent growth in the enterprise segment. Our customer base is increasing, as reflected in the metrics we’ve shared, and there’s continuous expansion within each customer. Our engagement with these companies is also growing. We can expect this trend to continue as we focus on acquiring more enterprise customers. Additionally, we are making significant investments in our product, particularly in enhancing enterprise security, which is unlocking more opportunities in these markets and customer segments.

Perfect. That's very helpful. Thank you very much, and congrats again, guys.

Thank you.

Thank you, Arjun. Our next question comes from the line of Mark Murphy from JPMorgan. Mark, over to you.

Thank you very much, and I'll also add my congrats on a very healthy looking top line and a great start to the year. First question is, I believe your largest deployment is sitting at 7,000 seats. Do you have line of sight into when you might break through that ceiling, either through an expansion process or perhaps even landing a new customer with a larger footprint? And then secondly, kind of following up on Kash's question earlier. Because you produced more than half of revenue outside of the U.S., can you provide any sense of business confidence specifically in Europe, and overall pipeline growth in Europe? We're just wondering if there's any degradation at all, as many other software companies have seen, or is it basically feel like it's all systems go for monday at this point?

Yes, thank you, Mark. It's Roy, and then I'll let Eliran address the other one. We're, like I mentioned, really excited about enterprise. We see the sweet spot always growing, and we're widening our approach to more and more customers, as you can see in the growth in the number of customers, and also the depth of solutions that we offer them. So I think we have like great results also in NDR. And you know, definitely a major focus area for the company.

Hi Mark, it's Eliran. As of right now, we are seeing nothing unique in Europe or elsewhere. Growth rates in Europe are comparable to the overall company. This is good news for us. The company has a very diverse customer base of more than 150,000 customers in our last earnings, and the number continues to grow. We serve SMB to the largest global companies across all kinds of industries and geographies. Therefore, we don't see any sign of softness yet in this term.

And maybe one more thing I would add, Mark, this is Eran, is that still 70% of our customers come from non-tech companies. We serve over 200 different business verticals. So we have a very diverse customer base. As a result of that, we're not affected by any specific sector, or any strategic trend that we've seen.

Thank you very much.

Thank you, Mark. We'll take our next question today from Scott Berg of Needham. Scott, please go ahead.

Hi, everyone, congrats on the new quarter. Thanks for taking my questions. I guess first one was I think it was Eran's commentary about accelerating acquisition of new customers. Can you help maybe qualify or quantify that statement a little bit in the quarter? I know you don't report total customers necessarily, but how should we think about what that quarter-over-quarter acceleration looks like?

Yes Scott, this is Eran. So I think the best indicator is that we've increased our sales and marketing expense this quarter. Eliran mentioned that this is part of our playbook and how we kind of plan our year throughout. But one thing we can comment just to give you some more color is that our customer acquisition in Q1 remained very efficient. We measure everything, every click and every new customer acquisition cost. We managed to maintain very high efficiency and acquire new customers. This is a huge investment for us going forward as we feel this is the right thing to do given the huge opportunity that we have as a company. So our economic unit economics remain strong and very efficient as we've managed to scale our marketing efforts.

Got it, helpful. And then from a follow-up perspective, I know there was commentary I think it was 60% of the Fortune 500 is now customers of yours in some scenario. How should we think about how those customers purchase today relative to some of your smaller customers? Is the purchasing motion or I guess the products you're buying very similar and is it larger seat count, or have you noticed any nuances of how they acquire that might be different from your historical smaller customer?

Hi Scott, it's Roy. And so I think alongside the growth we have in enterprise, we see a close shift in those adoption partners. So first of all, the vast majority of customers do land and expand. They start with a small account and then we expand over time. So like every new deal we have is an door open for another deal. Meaning we always expand within our customer base. You can see that in the NDR. So that's one. On the other side, we do see larger deals happening upfront. They start bigger and we also expand faster so that's a trend that's been happening in the last two years even. I think as monday grows as a brand, as customers understand it's a solution and they can trust more and more, we see more of those top-down deals starting. Hope that helps.

Thanks very much. Thank you. Congrats again.

Thank you, Scott. We will now move over to our question from Brent Thill of Jefferies. Brent, over to you.

Thank you. This is John Byun for Brent Thill. I had two questions on the new Work OS products. Just wondering, you know, half full featured, and maybe this is, you know, like the best of breed solutions out there. Does that mean you're going to compete more versus some of the partners you're integrating with, and I guess timing on G&A. And then second on your SHI. We saw partnership, does that mean you're making a bigger push into the U.S. public sector? How's your presence today? Thank you.

If you don't mind, this is Eran. Just repeat the first part of your question. You were breaking up?

Sure, on the new Work OS products, in terms of capabilities, how do they compare versus best of breed solutions out there? Does this mean you're competing more versus some of the partners that you integrated with and any update on timing for general availability?

Hi, thank you. It's Roy here. So it doesn't mean that we're competing with other large enterprise solutions. We actually integrate really well into them. This quarter, we're also enhancing our integration into Salesforce and Atlassian. We see a lot of deep integrations into companies' workflows in many ways. The partnership with SHI actually opens the door for a lot of enterprise customers in America, and yes, we're excited about that.

Thank you. Our next question is about the timing for general availability.

Yes, I think we missed the second part of the question? Yes. Sorry, you're breaking up the second question. If you could repeat that, please. Thank you.

Yes, so in the prepared remarks, I think you mentioned that they do a lot with the U.S. government sector. So I'm wondering, does that mean you're making a bigger push into the U.S. public sector? And do you have a meaningful presence today in that sector or industry?

Yes, thank you. This is Eran. So that only, you know, the new partnership with SHI is very strategic for us. As we go more to enterprise companies and larger enterprises, this specific sector is very interesting for us. This strategic partner is working in North America, with a lot of focus on local government and other companies. For us, this is a very strategic part of allowing our products to be available to more sectors and more parts of our customer base. So definitely, we're going to invest more resources into that going into the future.

Thank you for that.

Thank you.

Thank you. Our next question comes from Brent Bracelin of Piper Sandler. Brent, please go ahead.

Thank you. Maybe I'll start here with Eliran. The net dollar retention across all users has increased pretty substantially here this quarter. Is that a function of just the mix shift to enterprise? Maybe can you talk a little bit about churn at all, but just a little surprised to see that that metric continue to move up? I suspect it's all enterprise, but just trying to understand why you're seeing that improve so much here sequentially? Thanks.

Hi Brent, it's Eliran. So thank you for the question. Obviously, I would say that first, we are seeing product improvement because we are very focused on continuing to innovate and invest in our products. This is why we are hiring R&D talent. This is one of the reasons for the expansion. Second is our ability to expand within existing customers. Once they unlock the value of the monday product together with the additional product solutions that we introduced, they continue to increase the number of seats and number of verticals horizontally. I would expect with regards to the numbers that we got to a point, this is really best in the industry to be above 125% for total customers and above 150% to enterprise. I believe we are going to see potentially a few basis point improvements, but we believe this is stabilizing, and we are going to see these rates over time.

So it makes sense. I guess, Eran following up on the four monday products. Intuitively it seems like monday products would be the bulk of the use cases. But maybe could you talk about which of those four use cases, sales, marketing, projects, dev is kind of the fastest-growing use case for monday? That would be helpful. Thanks.

Yes, Brent, thank you. So first of all, we're excited about all four. Part of the reasons that we focus on those four is that we see a lot of demand. Our customers use monday for many use cases, but those four really stood out as having the most potential. I would say that we see a lot of traction in our sales CRM product, but also our developer product is very interesting. We see a lot of demand in the marketing products as well. Project management for us is really the sweet spot. We see a lot of momentum in each one of those. I would say that when we kind of planned the guidance and our model, we didn't take those products into account. They are still new, and we have a lot of growth to do in each of them. But definitely, we see a lot of positive signs and a lot of very exciting customer feedback from our customers using them. So we're very excited for the future of those for us.

Hi Roy, I've something more to add. So I'd like to add to what Eran said. What next monday special is the fact that you can build anything you want on top of it. That's also true for each one of these products. So if you adopt one, you can still build whatever you want on top of each one and also connect them together and have them work really well together because it's all one platform, it's all built on top of the Work OS. I think that's all something important to understand when customers are adopting them. They can still do anything else they want, even now, on top of the other bases of products.

Thank you.

Thank you, Brent. Our next question comes from Andrew DeGasperi of Berenberg. Andrew, over to you.

Thanks. Hi, everyone. I just had a question in terms of one of the metrics you used to provide. Just wondering how that trended, the percent of ARR from over 10 users. I know you gave the over 50k. But just wondering if you had anything to add to that comment. And then secondly, in terms of your deferred, it sequentially increased quite a bit. I was just wondering if there's any kind of larger sort of bigger deals that you've added this quarter. Anything that you could provide would be appreciated.

Hi Andrew, this is Eliran. With regards to your first question, so the share of ARR from customers with 10-plus users continues to improve. Last time we disclosed, it was above 70%. As part of us going up market together with enterprise accounts, we see this trend continue to improve, and they are becoming more meaningful in our total ARR. I can tell you that more than 85% of our customers' ARR is coming from customers that are buying the pro and enterprise use. So this is definitely a trend that we see continue moving forward. With regards to your question, second question you were asking about calculated billing. Just to make sure what you were asking about.

Yes, that's correct. It was a sequential increase.

Yes. We are very happy with the increase; we said it in the past that calculated billing is not a leading indicator of our business. We usually look at growth revenue growth, net dollar retention rate, and number of customers. This is more of a leading indicator. Obviously, there is going to be fluctuations with calculated billings, but we definitely saw a sequential increase this quarter versus the previous one.

That's helpful. And if I may add another one on sales and marketing. You mentioned you front-loaded it in Q1. We obviously had a pretty sizeable headcount increase. I was just wondering what drove you to do that this quarter? And secondly, can you maybe provide a little more data in terms of where the distribution of this headcount is? Is it mostly U.S. or other regions? Thank you.

Yes, Andrew, this is Eran. To provide more details on the increase in spending, about $10 million to $11 million was allocated to Super Bowl advertising, which we highlighted in the previous quarter. Additionally, around $10 million is related to increased headcount. We typically ramp up hiring in Q1 for various roles, including salespeople, customer success managers, and customer support, and the impact of this will reveal itself in the upcoming quarters. We saw this as an opportunity to grow our sales team. The remaining increase primarily comes from boosting performance marketing. Historically, we've experienced strong market demand for our type of product in Q1, which tends to carry over into Q2, Q3, and Q4, with a noticeable acceleration in Q1. For us, this is an excellent opportunity. As I've mentioned before, we successfully scaled our performance marketing while maintaining the same efficiency and unit economics for customer acquisition. We are very pleased with our investment in performance marketing.

I can add, it's Roy, if you look at the history of the company, you know, we've been doing this around each year. During January, compared to last year, we kept the same efficiency metrics and ratios. We're really happy with that ability.

And Andrew, this is Eliran adding to the discussion about the distribution of the headcount we hired. We brought in personnel from various locations outside of the U.S., excluding Israel. It's a mix of teams from Israel, the U.S., London, Sydney, and other parts of the world. For our sales and marketing efforts, we are also in the process of hiring enterprise sales managers and quota-bearing personnel to support our growth outside the U.S.

Thank you.

Thank you, Andrew. Our next question comes from George Iwanyc of Oppenheimer. George, please proceed with your question.

Thank you for taking my question. So maybe just following up on the sales comments, with the introduction of work, the new Work OS products, do you anticipate any changes to your sales and go-to-market ocean layering in either specialists or putting more focus on particular verticals?

Yes, hi, thanks it's Roy, George, sorry. And so we're.

I'll take this, this is Eran. So in terms of our go-to-market for those new world-class products, definitely, we see a huge opportunity, mainly because those products allow us to market to specific audiences and specific customers. We can have more targeted marketing to those audiences, as opposed to having a broader broadcast to a mass audience when we talk about the Work OS. Having those independent products will allow us to have more specific targeting resulting in what we already see early signs of lower customer acquisition costs, and, you know, better adoption in terms of acquiring new customers. Over time and this is the big opportunity here. We already see that as well. We see those customers expanding from that specific use case that just start with to more use cases and eventually, you know, as part of our vision of the company to have the whole company working on the Work OS platform. This is part of the reason why we're so excited about those new products. Not only that it allows us to have a more efficient, go-to-market, but better onboarding, and more potential to expand within an organization.

Yes, I only wanted to add, it's Roy, that we see this as a long term, like all these products that we released, you know, it's not something it's a gradual change into those areas. Like Eran mentioned, we didn't model this year according to new results from them.

Are you noticing any shifts in the competitive landscape, particularly regarding whether you're primarily targeting new opportunities, experiencing vendor displacement, or adjusting how you manage multiple products for individual customers?

Yes, so this is Eran. We've kind of the same environment that we saw before. 70% of the deals, which we see no competition, it feels still a huge greenfield in terms of the opportunity and our ability to acquire new customers. In terms of these new products, definitely in each one of those categories, we have existing competitors. It's still early days, but as I've mentioned, from what we already see, by releasing those products, and doing limited, but some marketing to them, we see a lot of efficiency in terms of customer acquisition, and profits and other growth opportunity in terms of go-to-market. So this is kind of basically the dynamics that we see.

Yes, and I can add that, you know, we'll emphasize that we, for the last two years, have been marketing to those exact four segments. What we're doing now is another step of evolution of packaging it as separate products, but we've always had those solutions that monday customer adopted, so we'll feel very confident in this going forward.

Thank you very much.

Thank you, George. We will now move over to our next question, which comes from DJ Hynes of Canaccord Genuity. DJ, please go ahead.

Hi, good morning, guys. Just one question on my end, Roy or Eran. Can you just remind me of the signals that you guys use internally to trigger direct sales engagement? Like are you looking at spend thresholds? Is it usage metrics? And I guess the question is, given the strength you're seeing in your largest cohorts, which I assume is favorably impacted by direct sales touch? Does it make you think direct sales engagement even earlier in the funnel would be beneficial? Like how do you think about that?

Yes, thank you, David, DJ, so this is Eran. Thank you for that question. This is a great question because, like we've mentioned, usually the way customers adopt monday is bottom up. We see customers starting using monday from all companies, all sizes, and different roles, different positions within the company. The way our sales algorithm works is that whenever a customer signs up, we ask that customers advanced details during the final process about company size, their role in the company, and how large deployment they want. We're also using third-party tools to enrich that information. Using all that information, we classify accounts that have potential to grow. Once we see a paying account with engagement within the account and a potential to grow to let's say 1000 people or more, all sales teams engage with that customer. It's a different process, because the customer is already using monday, happy with the product. We try to expand the usage more with the top end, and usually it's a short sales cycle, which leads to future sales cycles as well. The motion is pretty much the way I've described it. Your question you asked about any change that we see. We see a lot of opportunity on top of that. We see an opportunity to create a strong outbound motion; we see a strong opportunity to create a B2B mechanism where we can market to senior executives. So definitely that's a huge upside that we have as a company which we also invested in.

Excellent. Thank you for the color.

Thank you, DJ. Our next question comes from Derrick Wood of Cowen. Derrick, please go ahead.

Thanks for taking my questions. You guys keep announcing some new SI Partners. You've mentioned SHI, and you've mentioned Tata in the past. Can you just talk about the kind of growth you're seeing from the partner channel and what kind of incremental leverage you're expecting this year?

Hi, it's Eliran, hi Derrick. It's Roy. We see a lot of the partnerships we have with them is something that is long-term. Obviously, the bigger the partner, and the larger customers they address. You know, the true significant results is a flywheel that takes more time. We're very bullish on those partnerships, as you mentioned that we're having them and putting a lot of densities on it. We see partners as true partners because they add a lot of value to customers in many ways that especially large ones. We definitely see this as strategic for the company.

Got it. I wanted to ask about pricing too, given the inflation rates, and we're seeing other vendors change pricing. How are you guys thinking about potential price increases? Or, you know, what kind of price changes can we expect coming out of these new products being launched? Thank you.

Hi, Derrick, this is Eran. Thank you for the question. So basically, I'll start with the product. In terms of the new products, we do intend to have different pricing for each one of those products depending on the industry. But that's regardless of the macroeconomics and inflation. It's more about our go-to-market and what people expect from each of those product segments. In terms of inflation, we monitor everything that's going on very closely. Currently, we don't have any specific plans to raise prices, but we're continuing to monitor, and if anything changes, we evaluate as we go.

Understood. Thanks.

Thank you, Derrick. We'll take our next question from Robert Simmons of D.A. Davidson. Robert, please proceed with your question.

Thank you. Guys, can you update us on the marketplace even traction you're seeing there, updates on the monetization plans? And then also does the annual guidance include any contributions from marketplace?

Yes, Robert, this is Eran, thank you for the question. Our marketplace is something that's very important for us as we sell the company. Last quarter, we released our own payment system within the marketplace. Developers can now monetize their apps using our payment platform. We released any numbers attached to it. But just to give you the sentiment, we see very good results from that new release. New app developers that create new applications see higher conversion rates more customers are willing to pay using that payment system. This made a huge impact on our marketplace. We continue to invest in the number of developers going up and the number of applications being created. Additionally, usage is going up consistently quarter-over-quarter. We continue to heavily invest in that. I wouldn't say it has much impact on our revenues yet because it's still small numbers. But going forward, this is a big part of the product that has a lot of potential as well.

Got it. Great. Thank you very much.

Thank you, Robert. Our final question is a follow-up question from Kash Rangan of Goldman Sachs. Kash, the floor is yours.

Hi, thank you so much for taking my question. I'm curious, just given that you just started hiring heavy-duty sales capacity that you're already starting to see net expansion rate and 50,000 plus customers at 150. Could this metric even get better as you progress? That's it from me.

Yes, Kash. This is Eran. Thanks for the follow-up question. So this is the first quarter that we released our NDR accounts and you know, we're super happy with it. Definitely, those customers have a lot of room to grow. We still have much more scale to have them. I would say that over time we'll commit to keep releasing that metric quarter-over-quarter, but we do see this metric stabilizing. But going forward, definitely we're going to have more upsell opportunities. Now with the new products that we've released and also the WorkForms and the Canvas, we're going to need more opportunities to expand our usage with other products. So definitely there's potential for that number to go up but as it is right now, when we also benchmark this compared to other companies, this is definitely best-in-class NDR numbers, and we'll continue to invest in those enterprise customers.

Kash, your line is still open. Okay, thank you Kash. That was our last question today. So we would like to conclude by thanking you for joining the call, and we wish you a lovely rest of your day. You may now all disconnect.