monday.com Ltd. Q1 FY2023 Earnings Call

Good day. My name is John 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. Please go ahead.

Hello, everyone. And thank you for joining us on today's conference call to discuss financial results for monday.com's first quarter fiscal year 2023. 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 earlier today. You can find our quarterly shareholder letter along with our investor presentation, and a replay of today's webcast under the News & 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 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. Now, let me turn the call over to Roy.

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 $162.3 million, an increase of 50% year-over-year. We generated a record $38.7 million in free cash flow during the quarter and are well positioned in meeting our goal of positive free cash flow for the third straight year. Additionally, we are pleased to report that we are now guiding to positive non-GAAP operating profit for fiscal year 2023, two years ahead of expectations. Eliran will walk you through our guidance in more detail. Customer acquisition continued to be exceptionally strong. Our fastest growing customer segment remains the enterprise where we grew customers by 75% to 1,683 customers, marking a record number of quarterly net new enterprise customers. Equally impressive has been the fast adoption and strong customer feedback of our monday sales CRM product. Customers love monday sales CRM as it is more customer-friendly and easy to use than traditional CRM tools. In Q1, we opened our monday sales CRM to a selection of our existing customer base and the response has been tremendous. Total sales CRM accounts accelerated to 5,441 accounts, representing a record number of quarterly net new sales CRM accounts. 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 efforts.

Thank you, Roy. This quarter, we're excited to announce our plans for incorporating AI into our Work OS platform, which we've already started implementing. The key components of our AI strategy include increasing monday.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. This month, the first version of monday AI Assistant is going live, with features such as automated task generation, email composition, and document management— all features which will greatly increase the efficiency, speed, and overall experience of our users. In June, we are opening our platform to third-party developers to build AI apps on the monday.com Work OS, increasing collaboration and speedy innovation. These apps will be available on our monday AI Assistant infrastructure. Internally too, we are focusing on using the monday.com data to enhance our operations through AI, including automating parts of our sales operations, our customer experience, and adding an AI layer to our in-house business intelligence tool, BigBrain. Finally, we plan to harness our data to help future customers navigate the best ways to set up and maintain optimal workflows and automations, as well as connect the right people to the right processes. This can significantly improve monday.com's speed of adoption within companies and further enhance data-driven product development initiatives. This quarter, we're also delighted to kick off the first phase of mondayDB. As a reminder, mondayDB is a brand new data infrastructure for the monday Work OS platform, enabling bigger workflows, larger boards and dashboards, more robust developer capabilities, and improved overall performance. mondayDB is being released in multiple phases over the next year, with each phase expected to boost performance and scale. The first phase of mondayDB is focused on monday Boards. Now available to 30% of accounts, mondayDB 1.0 is already having a significant effect on board performance and load times, especially on large and complex boards. mondayDB 1.0 loads boards with thousands of items within a matter of seconds, allowing customers to work with bigger, more complex workflows than ever. We expect mondayDB 1.0 to be rolled out to all customers by the end of Q2. In addition to our innovation efforts, we continue to make strides in accelerating efforts in building our apps marketplace. This quarter, enterprise collaboration app provider, the Adaptavist Group, joined us for an app accelerator project. The event focused on introducing several potential new apps and supercharging Adaptavist's first monday.com app, Unlimited Subitems, which has quickly become a customer favorite. Working with a large enterprise app provider such as Adaptavist and AppFire will allow us to build a strong foundation and take our marketplace to the next level.

Thank you, Eran. We continue to make progress on our ESG efforts and leading publications are taking notice. monday.com's emergency response team recently received an honorable mention in the corporate social responsibility category of Fast Company's 2023 World Changing Ideas List. This prestigious list honors initiatives that use companies' platforms and power to help advance change, whether internally for the community or for the world at large. To read more about our emergency response team's efforts and all of our ESG initiatives, please see our recently published 2022 ESG report. None of our achievements this quarter would have been possible without our amazing monday.com team. We continue to invest in our people with the recent opening of the new APAC headquarters in Sydney and increased our overall headcount in the quarter to 1,582 employees. We are grateful to all our employees for their hard work and their contributions to the strong start to fiscal 2023. 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 fiscal 2023 results in detail and provide updated guidance. We started the year exceptionally strong. Total revenue in Q1 came in at $162.3 million, up 50% from the year-ago quarter. Excluding the impact of foreign exchange, revenue grew 51% year-over-year. As expected, our overall net dollar retention rate declined slightly in Q1, reflecting slower enterprise customer seat expansion amid the challenging macroeconomic environment. We continue to expect moderate pressure on NDR throughout fiscal year 2023. As a reminder, our NDR is a trailing four-quarter weighted average calculation. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing our non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First 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 $28.5 million or 18% of revenue, in line with Q1 2022. We plan to continue investing significantly in R&D in fiscal year 2023 as we build out our product suite and scale our Work OS platform both horizontally and vertically. Sales and marketing expense was $102.7 million or 63% of revenue compared to 100% in Q1 2022. G&A expense was $15.8 million or 10% of revenue compared to 11% in Q1 2022. Net income was $7.2 million, up from a loss of $43.2 million in Q1 2022. Diluted net income per share was $0.14, based on 50.8 million fully diluted shares outstanding. As Roy mentioned, total employee headcount was 1,582, an increase of 33 employees since Q4 2022. We expect to continue hiring throughout fiscal 2023 with a focus on our R&D and product teams as we build out our platform and product suite. Moving on to the balance sheet and cash flow. We ended the quarter with $935.6 million in cash and cash equivalents, up from $885.9 million at the end of Q4 2022. Free cash flow for Q1 was $38.7 million and free cash flow margin, as defined 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 third consecutive year of being free cash flow positive in fiscal 2023. Free cash flow is defined as net cash from operating activities less cash used for property and equipment and capitalized software costs. Now let's turn to our updated outlook for fiscal year 2023. For the second quarter of fiscal year 2023, we expect our revenue to be in the range of $168 million to $170 million, representing growth of 36% to 37% year-over-year. We expect non-GAAP operating income of $2 million to $4 million and an operating margin of 1% to 2%. For the full year 2023, we now expect revenue to be in the range of $702 million to $706 million, representing growth of 35% to 36% year-over-year. We expect full-year non-GAAP operating income of $8 million to $12 million and an operating margin of approximately 1%. I'll now turn it over to the operator for your questions.

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

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 monday based on individual persona, you have the CRM application right now. 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 third parties to build applications on top of the platform?

That's a great question about where we are taking the capabilities of the platform forward towards our growth. So, our strategy now is to focus this year on the core product 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. The development is also out of beta, and that's great momentum there. Going forward, when we're looking into where we are going and where we are not, we're seeing monday going into areas where it is highly differentiated across the organization, meaning that 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 in as it's like – and we're building out within the company teams that focus on each specific product and take it to be best-in-class.

If you can expand on the generative AI capabilities and what kind of large language models are you guys taking advantage of? Is it your own model? And what is the future product strategy for generative AI on the monday platform?

When we think about AI, and we mentioned that briefly in our intro, we think about different aspects. One are already capabilities that we added into the product. So a lot of the things that you can do now with monday can be automated using AI, whether it's creating content, meaning generating documents within the platform, generating tasks. So all of that can be done using AI. Also, another aspect is to make the platform work for you. So, automations, formulas, all those things that are presumed to be low-code, we also enable with AI to further automate that. So that's one aspect. The second aspect is making our own company more efficient, optimizing sales processes, customer success, and so on. I think that, in the long term, has the potential to improve margins and improve company efficiency. But if I think about the long term, monday has a very unique dataset. If you think about it, we have customers across so many verticals. And they all use monday in different ways. And over time, we generate so many ways of how customers work with monday and how to leverage the platform. So it's really a unique dataset. And going forward, we're thinking about adding capabilities that allow customers that are new to the platform or want to explore more opportunities through the platform to generate for them different ways to work. 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. We didn't build the AI capabilities ourselves, but we're using different vendors and teaching the AI using our unique dataset.

Your next question comes from the line of Pinjalim Bora of J.P. Morgan.

This is Noah on for Pinjalim. Congrats on a great quarter. I just wanted to touch a little bit about the mondayDB infrastructure upgrade. 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.

This is Eran. At present, we're very excited with the progress of mondayDB. We're over our schedule in terms of releasing that to our users. It's now open to 30%. I would say that, generally speaking, from the customers that it's already open for them, reactions are super positive, especially for the larger customers who have large boards. The user experience, high load times for their boards and content, that has dramatically improved with the new mondayDB and reactions are super positive. Our plans going forward are to further release this first version, mondayDB 1.0, to all of our customers by the end of Q2. And again, this is ahead of plan. We initially thought about releasing by the end of the year. But just to remind you, this is just version 1.0. Further, throughout the year, we're going to release additional versions with further improvements. So a lot of exciting things are happening. But, overall, we are very happy with the gradual release so far. Reactions are super positive. And there are a lot of things that will happen going forward.

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

It's Eliran. When we're looking at guidance, what drove the beat was we did $7 million more on the revenue side. On the expense side, we had $5 million less of expenses due to improved operating costs, the marketing expenses, as well as fewer consultants than we anticipated. In addition, we had some additional OpEx savings across multiple operating expenses, like headcount. In fact, we are below plan slightly. Travel and other operating expenses that we were aware of. And when we look into guidance, we're always taking into account the latest trends that we are seeing. So, obviously, we are looking at the current challenging macroeconomic conditions that probably will continue to apply some moderate pressure on NDR. So we're looking at around 110% overall NDR for all populations and around 115% to 120% for 10 plus users and $50K contracts. While we're seeing this, we're also seeing a consistent funnel demand and strengthened customer adoption that will drive further growth in the future. So overall efficiency and cash generation is looking good. And, obviously, with CRM in development, this is something that we also anticipate will contribute to the growth of the business. So we took all of this into account when we did the guidance for the year.

Your next question comes from the line of Jackson Ader of SVB.

The first one is, I think on the continued growth, if you had to think about what – 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 at other competitors, starting to recede in their investments? Like, can you rank order some of the things that are causing the outperformance on the top line?

This is Eran. I don't think we can pinpoint one specific factor. But I would say the fact that monday's offering is so broad, it's not exposed to one specific sector. Also, just to remind you, 70% of our customers are non-tech; only 30% are tech. I think we have very high stability in our customer base. Also, we continue to see very strong demand. We have doubled down on marketing. We have remained very bullish, and there's more demand than ever before. I think the quality of customers that are joining us right now is even higher than before. Given what's happening in the economy, everybody is searching for a solution, 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 a company, and we'll continue to invest. I think also the success we've seen with the CRM and now with the development product and continued innovation in our product really helps us scale customers and acquire new ones.

This is Eliran. Just to add to what Eran said, in prior quarters, we mentioned the BigBrain brand and our ability to actually look at every campaign and see the returns, while others pull back. We actually doubled down on our investment. 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 our competition.

The follow-up is, I guess, more conceptual. When you guys talk about focusing on the core product and kind of letting the third party develop the vertical-specific applications, like going deep into 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, 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 two years from now.

It's Roy. That's a great question. Actually because monday is a platform, a true platform and an open one, everyone can develop whatever they need. So whatever builders want to build, they never hit a wall because it's all open; 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. The capabilities that we offer developers are also the same ones that we ourselves are developing our own product. We are completely aligned with our ecosystem. So, it's one roadmap and just helps us speed up in those long tail that we would probably not go into anyway.

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

Maybe I just wanted to circle back on the product solutions. It seems like CRM is doing really well. You've more than doubled the customer base since last quarter. What are you seeing with the other product solutions? I think there are two or three others at least that are in market and would love to hear how progress on those is 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?

Arjun, this is Eran. As we mentioned during the call, CRM is going really well. Also, the development product is gaining a lot of momentum. We actually just announced that it's out of beta. This is another product we're very excited about. We are seeing 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. We'll continue to double down on that, adding more features and capabilities. In terms of marketing, we're consolidating that into the work management as it's much more of a vertical of work management. Going forward, we plan to release more large horizontal products like that. Overall, when we look at the overall strategy of packaging the platform into products and adding more deep features and capabilities, we are very pleased with the progress and how it's going. And already now, we've seen signs of our ability to cross-sell those products and have customers with multiple products being sold to them, whether it's upfront or after the initial purchase of one product. I think going forward, there's a lot of upside baked into our model.

One for Eliran. I noticed the commentary that NRR is going to be pressured a little bit more. Is it fair to say that a lot of the traction that you're seeing is coming on the new customer side? And would love to hear some color, if that's the case, where some of those new customers are coming from. Does that tend to be displacements? Are you seeing expansion into new customer segments? Any color there would be helpful.

With regard to NDR, we continue to see slowdown in expansion of sales compared to a year ago. Larger customers especially have become more cautious with their budgets, considering what happened in Q3 and Q4 of last year, and we believe it will 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. The fact that we are actually seeing very healthy top-of-funnel activity with the expansion into CRM and other use cases is expected to bring some recovery on that front next year. It's also important to note that growth retention has remained stable. This is something that we are very encouraged by. As part of going upmarket with enterprise accounts, we're landing larger customers from day one, so expansion will probably be a bit slower.

Congrats on the strong quarter, guys.

Your next question comes from the line of Brent Bracelin.

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 the moderating NDR. What's driving the optimism here for you guys for the guide up for June and the full year? Is it larger new lands? Are you really excited about the CRM cross-selling and 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.

This is Eliran. We're seeing strong customer demand for our Work OS platform and product suite across all customer segments. This is not something that we can call out as unique; it's across the board, having in mind the multiple use cases that we have. And again, the fact that 70% of our customers are non-tech also provides us with some strength. On the other hand, as we said, we continue to see 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, the largest number of net new enterprise customers in the quarter came this quarter. This is the biggest; I think more than 200 customers were added this quarter. If you think about the structure of the subscribers, 80% of our contracts are now annual versus almost 70% a year ago. So, we kind of became more of a- and our subscribers, if you think about the profile, which pays upfront. I believe all of these things together, along with the additional add-ons and functionalities that we are adding, mondayDB, as mentioned earlier, provide us with a positive view for the rest of Q2 and fiscal year 2023.

Sounds like pretty broad-based strength. Last question for me is just a follow-up on profitability. Clearly surprised us here this quarter with positive cash flow, guiding to profitability for the full year. You have over $900 million in cash. The commentary suggests you're not done improving efficiencies internally. What do you do with all that cash?

It's a million dollar – actually, it's a $935 million question. What we are trying to do is, obviously, we are going to continue to invest in the business. Priority number one is organic growth; we want to reinvest into the growing company. We have a lot of initiatives, expanding the platform, the product, the operations, and obviously global reach to build the market share further. monday is a very innovative company. This is something we would love 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 will be opportunities for M&A. It can be small tuck-in acquisitions, which is more opportunistic or strategic, and then we can also enhance or escalate our product roadmap. But this is not something that is going to be on the shorter term. However, we are thinking about non-organic growth as well as organic growth in the longer term.

Your next question comes from the line of Steve Enders of Citigroup.

I just want to ask about the kind of customer feedback from CRM now that it's been sold and pushed back into the customer base? 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?

It's Roy. We're seeing both. We're seeing that we are really well positioned for customers maturing from the long tail of CRM products for the smaller ones, the more rigid ones. They see in monday the flexibility that they need to really operate their business. Then they're maturing from an existing CRM. The CRM space is also a huge area in digitization. A lot of customers are coming from literally nothing and wondering where they can find us there. So we're really seeing both and it's a really exciting market for us as it opens the door for a lot of other opportunities as CRM is widely used in different scenarios within large customers.

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

It's Roy. So I would say we're still seeing the cost per add in media is still way cheaper than it was a year ago. 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. We are still gaining market share compared to, let's say, last year. For us, it's a really good space and it's one where the costs are moderate and very good. As Eran mentioned before, the customers we're gaining now are also ones that are really looking for solutions. It's not just a nice-to-have for them; they really want them if they put their money in there. So they're better customers on average than we would have seen a year ago.

Your next question comes from the line of Jason Celino of KeyBanc Capital Markets.

Great. This is Devin on for Jason today. Maybe just one from us. Wanted to double click on the strong enterprise customer net add of 200, a really nice acceleration there. Want to ask, are you seeing more opportunities in the marketplace just because you have more products? For example, the monday devs is out of beta. Or is it just attributed to the strong go-to-market team execution there that drove the acceleration?

This is Eran. I don't think it's specifically related to monday CRM or dev. I think it's more about our continued momentum and our investment in the enterprise tier. We keep adding features and capabilities, continuing to scale our sales team and partner team. I think that's the result of our investment. We'll continue to invest and accelerate that part of the business; that's been our focus for the last few years, and we continue to double down on that.

Your next question comes from the line of Brent Thill of Jefferies.

Just if you could double click on the enterprise strength and ultimately, what you're doing to help build out that go-to-market to continue the process of penetration in the market.

This is Eran. I think it's pretty much what I said about continued demand. I think mondayDB is definitely something that we see will help to accelerate our ability to not just acquire enterprise customers but also to scale them. We also see a trend where we see enterprise customers landing bigger, our initial deals, meaning customers upfront are buying bigger licenses and seats. I think that's another very positive trend that we've seen. This may be putting a little bit of pressure on NDR. Overall, a very good trend that we've seen. Again, we continue to develop a lot of—apart from mondayDB, many features around security, admin, permissions. We just released a bunch of features this quarter. I think all that investment is really driving the enterprise growth.

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

It's Eliran. Overall, we took into account the fact that we had a strong Q1; it's going to impact the rest of the year. We definitely counted for that when we provided the guidance. As I mentioned earlier, although we had some rate pressure on NDR, we assume we will continue to see positive around 110% overall NDR for entire customers and around 120% for the 50k NDR. If we continue to see the top-of-funnel demand and stronger new customer growth, as we've seen, along with efficiencies in overall efficiency and cash generation, we believe this is something that provides us with a positive view on the rest of the year, allowing us to make this guidance.

Your next question comes from the line of Scott Berg of Needham.

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, three, four years from now that you've built other prepackaged applications versus users just using the freeform platform?

This is Eran. Can you just repeat the last part of the question? Sorry, there was some noise.

Just how do you think about building other kind of prebuilt applications on the Monday Work OS? You've had success with CRM. But outside of having it just be a freeform platform that customers can build themselves on top of, how do you think about just adding other kind of prebuilt applications?

Definitely, we've seen success with CRM and dev. Obviously, work management is a huge one for us years ago. Going forward, we're probably going to add a few more core products to our product suite. It might be HR, or other categories we're going to double down on. So, we are open to adding new products; we see a lot of opportunity within our own customer base, and we see demand from our own customer base. There is definitely opportunity there, and the results from CRM and dev are very encouraging. For the longtail, we'll open it up for third-party vendors to extend our product suite. Overall, if you can have me envision monday in two, three years, I see a company offering a very strong product suite, maybe four, five, six potential products that are core to the company, in addition to a long offering of longtail solutions from different nuanced vertical industries. That's how I envision the monday suite going forward.

It's Roy. I can add that we have a lot of visibility into what's working and what's not. Because like you said, monday is a platform; our customers are building whatever they want on top of us. When we see something succeed exceptionally and identify a use case in a penetration point, it's much clearer to us where to start and what is the need that is out there. We have great visibility into the areas that we might go into next, some of them Eran mentioned.

For my last question, I want to talk about traction within your partner ecosystem. You give plenty of commentary about 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?

Overall, we continue to see great momentum with our partner ecosystem. They continue to extend our ability to sell across different regions. Some trends we've seen that are increasing are our ability to do professional services for our customers. As we go upmarket with larger enterprises, I think the fact that our enterprises help onboard those customers and develop customized features for them helps us scale our enterprise offering. We see great momentum with our partner ecosystem. It's a great extension of our ability to sell, and we continue to invest in that part of the business.

Our next question comes from the line of George Iwanyc of Oppenheimer.

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

It's Roy. We are super excited about AI because when you think about it, monday has always been a place where we gave customers more power to build their own software, more power to run their own businesses in the way that they want to run. AI is exactly that; it's technology. It’s something that people want to harness. We feel that monday is in a great position to offer that alongside everything else we do. I do think it's too early to say what competitive edge it will give us. However, as a leader in this category, I feel it's a great opportunity for us and is definitely going to provide huge value for customers. We're super excited about it.

Your next question comes from the line of Derrick Wood of TD Cowen.

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; 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?

I think it's a great question because, obviously, we put a lot of focus on our enterprise segment. However, I think in the last few quarters, SMBs also showed their strength. The fact that we have a mixture of both enterprise and SMBs as part of our business model really benefited us. Surprisingly, SMBs' net retention was pretty much stable given the current economy. We saw SMBs stabilizing on monday, adding more solutions, unifying different tools into monday. I think that's a very interesting segment in the long term as well. If anything, we need to double down not just on enterprise but also on SMBs as we've done throughout the years, and we see a lot of stability in that part of the business. Obviously, we'll keep investing, but there's a very interesting dynamic here.

Our next question comes from the line of David Hynes of Canaccord.

Two quick ones on mondayDB. 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? Secondly, Eran, I'd love to hear you talk a little bit about what v2 and v3 of that effort looks like. Where would the focus be in future iterations of mondayDB?

Overall, when we started initially, we began with the smaller accounts. But then we opened it up for different sizes of accounts. Some of the largest accounts were, I would say, the most eager to get mondayDB. Therefore, we rolled those accounts out sooner. We now have a mixture of both small and large accounts using mondayDB. The most gains were seen from the larger accounts. Smaller accounts didn't experience much lag, but the larger ones did. We saw most of the benefit over there. Version 1.0 is focused mainly on consuming data and viewing data. The next few versions are going to focus on different parts of the platform. For example, dashboards are going to be blazing fast going forward. We'll offer more scaling opportunities, meaning larger data sets. I think those further investments in the products will be a big game changer because it will allow us to be significantly better than we are today and offer significant advantages to different customers using monday. We look forward to the next version. The first step is always the hardest, but the next step will be easier to implement.

Your next question comes from the line of Andrew DeGasperi of Berenberg.

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, is it essentially live with everything that it would come with? Can we touch on, in terms of customer adoption, could it be similar to monday CRM in terms of how quickly do you think that could ramp up?

Monday dev is now out of beta. However, that doesn't mean that all the features are available yet. It's far from where we want the product to be. We have many exciting features we're planning to roll out. We've just reached a place of stability and scale that we feel comfortable migrating monday dev out of beta. We're seeing great momentum, and that's one of the reasons it was important for us to emphasize that. It's hard to compare it to CRM because it's somewhat early in the development phase compared to CRM, but we're very encouraged by the momentum we're seeing in the product. Overall, I look at both the CRM and the dev products and I'm very pleased with the rate of adoption and the feedback we're getting. If the momentum keeps up, this will be a great win for us as a company.

Your next question comes from the line of Shebly Seyrafi of FBN Securities.

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 billing speed? Was it pricing? Was it enterprise? Was it geo? Any other factors?

It's Eliran. 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 and new customers. Nevertheless, we did see strong new customer demand in Q1. The combination of 80% of the contracts being annual and paid upfront also contributed to the fact that the billing number has gone up. In addition, the largest number of net new enterprise customers in the quarter were added; we added more than 200 enterprise customers. The combination of these two drivers, along with strong top-of-funnel activity, drove the billing upside.

And your next question comes from the line of Robert Simmons of D.A. Davidson.

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

Can you repeat the question?

I was wondering on sales CRM, where you have seen the most receptivity to it? Has it been certain verticals, or geographies, or any kind of color that would be helpful?

I can't point to any specific segment or industry. I think that was pretty much across the board—different industries, different verticals looking for a solution. What was surprising for us was that there’s a good balance between customers looking for their first version of CRM and a lot of customers migrating from existing solutions. They've been using a CRM for different reasons to manage their sales operation and now are wanting to take it to the next level by adopting monday CRM. That was an interesting insight into those customers. We have started to open it up for our existing customers in the last quarter. Going forward, we plan to offer that solution more proactively. That leaves upside to that.

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

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

Thank you.

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