monday.com Ltd. (MNDY) Earnings Call Transcript & Summary

Welcome to the Jefferies Software Conference. My name is Brent Thill with Jefferies. Really pleased to have with us this morning, Eran Zinman, Co-Founder and he has served as Co-CEO since November of '20, having served as CTO between 2012 and 2020. He's also a member of the Board of Directors. Eran, thank you so much for joining.

It's been quite the ride since the launch of the IPO. Maybe bring us up to speed for those that don't know the story as well, a little bit about your story in monday and your value proposition to clients.

Sure. So first of all, thanks for having me, Brent. So a little bit of background about myself and Roy, my partner. So we started monday back in 2012, beginning of 2013. We kind of have a similar personal background. We were both software developers from very young age. But I would say what we're mostly passionate about is to build products that people love and enjoy using. And we both had started off prior to monday and worked in various tech companies. And throughout our careers, we used a lot of software to manage our work, manage teams, anywhere from finances to R&D teams and marketing teams. And the idea for monday or the need came from the fact that we used all that different software and we always felt like something was missing because all software essentially is very, what we call, now rigid. It means that it's built for a very specific purpose. And if you want to change something, for example, the type of data that you capture, a process that might be different in your company as opposed to the way that the software specifically was built for, you were unable to do so. But being the developers that both Roy and I have been since day 1, we knew that it's very easy to change and we can customize the software that we use. And the idea for monday was to give that same power that was only reserved to developers to everybody. And everybody -- when we say everybody, we actually mean literally everybody within the organization. So the concept behind monday, which we call a Work OS, a work operating system, is essentially allow companies to work the way they want and build their own project management, for example, their own sales and CRM management, their own HR platform and so on. We offer all those buildings blocks, which you can build into whatever solution that's applicable to you. So that's in a nutshell the idea behind it.

What's been most surprising from you having architected the product? What have you been kind of most pleasantly surprised by if you look at some of the customers and how you're using maybe even the use case of maybe it surprised you that, wow, this has kind of even exceeded my own expectations?

I mean, I would even say that everything exceeded our expectations because when we started, we thought that our customer will be start-up companies that this is like initially what we aim for. And we know how people will use the product because, again, it was very flexible. And we were very surprised at first and up until today, now it's part of our DNA, to see that 70% of our customers are non-tech. So actually the fact that people can customize their product and make it their own actually made the adoption and usage easier as opposed to forcing yourself to learn a very specific program. So the fact that our customers have the liberty to build their own software and shape it to feed their needs actually allowed us to reach so many industries, so many verticals in the non-tech segment that I feel that a vertical software today that's built for one purpose is unable to do so. So that was a huge surprise that is a big part of our company up until today.

I've used the product and I think anyone that's kind of touched it and felt the solution realizes how easy it is. Why did it take so long for someone to create this? What do you think -- what did you guys see or what was the kind of enabler for you because the way I've used it effectively, I mean, it's literally no code, right? You go and you can customize everything. You don't have to be a developer. Cynthia in accounting or Bill in -- at the front desk could use it at a hotel. Anyone can use it. But why did it take so long for this to be cracked?

I think that the beauty here is in the details because it's very easy to make such a software to be complex. And we invested so much into the user experience. And one of the concepts that we really put a lot of thought into was to help our customers go through a gradual discovery process. I think one of the problems with software today, especially software that's aimed for a larger organization, is that once you onboard, you are overwhelmed by the amount of features, options, capabilities, ways you can customize the software. It just feels like rocket science. And with monday, the beauty here is that from the first minute, and this is what we aim for, you get value. You're not -- maybe you're not familiar with everything monday can do for you, but you get value from the first minute. And over time, you discover more functionality, more depth, more things that you can do with the software and this is on purpose. And we want this to be more of a journey than to know everything from day 1. And I think that's one of the reasons why people feel it's very intuitive. They feel like it's a learning process and they become professional very quickly. It's kind of like a game, if you like.

It seems like a lot of SMBs, small and midsized businesses, have really adopted. You are getting divisions of larger companies now really taking on. I don't know if it's the right analogy kind of it's maybe Salesforce.com in the early days where it was built for small, but then big banks started using [ the next thing ], you know, standard of the company. Can you talk to this evolution from SMB to enterprise and becoming an enterprise standard? I think you have some very large customers now exceeding 5,000-plus seats. Can you walk through what you're seeing in those segments of SMB as well as what you're seeing around the enterprise?

Yes. So we actually built our sales team about 2.5, 3 years ago. Initially, monday was built with a no-touch motion. People would sign up onboard to their product and start using it without sticking with anybody. And then we saw customers organically scale from, let's say, 5, 10 people to 100, 200 and then they hit a wall. And that's kind of motivated us to build the sales team because maybe there's somebody to help them scale past that point. It's been a huge success. It's a key part of our growth and future growth going forward. It's one of the parts of the business that we heavily invest in, both in terms of product and building our sales and partners team. But one thing that was very important for us, and I feel it's very healthy, is that we always wanted the adoption to be bottoms up. I think one of the problems we suffer today that top-down decision-making process where a C-level executive makes a decision to use software, forces everybody in the organization to use it, and you end up having this what we call a shelfware, a software that nobody actually is using within the organization. So we wanted from day 1 the adoption to be real. We want people to enjoy using the product. So that's why we kind of aim to have a bottom-up adoption pattern where people actually use it and then it spreads organically. And the sales team is like the sugar on top. We help you scale past that point. But once we kind of reach out with the sales team, you have so many champions in the organizations [ shift through from you ]. It's a pretty easy sales process from that point on.

And when you think about some of these larger customers now, I think 7,000 was the last kind of larger seat count that we had heard. Are you -- when you look at the architecture, I would assume when you've seen others in the space scale into tens of thousands of users that your architect -- you're able to go to that level.

Yes, definitely. I mean our architecture today can support tens of thousands of seats, even 100,000 potentially on 1 account. We do have a few challenges in terms of making the product better for those organizations, mainly in terms of organizing the information, it's not a technical limitation. But definitely, what we see is that the size of our largest deployment is growing from one year to another and we're pretty confident that we're going to see that number also grow in next year and the year after. And overall, I think each one of our enterprise accounts, each time we finish another sales cycle with a customer, we seed the potential for the next one. So it's not like one sales cycle. It's always a follow-up opportunity to have another sales cycle. So definitely, we're going to see a trend of larger and larger customers using monday in larger deployments.

I know you love all your customers equally, but is there 1 or 2 kind of customer examples where, not naming customers, but maybe industries, where you could give investors a sense of how they're using your product?

Well, we do love them all the same. It's hard to pick. But I would say what I'm most excited about is to see non-tech customers use monday, because it just blows my mind. We have one customer, I think it was featured as part of our roadshow video, that has a huge fleet of tractors and heavy equipment and basically they manage about 2 billion of equipment within monday. And they actually -- we flew over there and shot a video footage of people inside the field open their laptops, update their position, the status of the equipment, everything being synced back to headquarters, they managed their entire service desk, so their entire call center within monday, their inventory checkups. If you were to say to me 5, 6 years ago that people will use monday to that extent, well, it will be a dream come true. So seeing that in real life and knowing that people of that company depends on monday for 100% of their operation just blows my mind.

Yes. That's great. Some of the case studies are really exciting. When you think of the free tier and what you're seeing in terms of getting those try and -- kind of playing with it and then moving to paid, can you walk through how free has been a great prime for you?

Yes. So we launched our free tier in the last quarter. And we as a company, we are very data driven. So we actually A/B tested that feature for about 11 months because we had a great conversion funnel of new customers. And we wanted to make sure that once we launch the free tier, the conversions to payment, the collection that we get won't be compromised by the fact that we launched a free tier. So we iterated a lot and got to a point where we launched a free tier without hurting any of the numbers. But what happened, which is amazing, which we got as part of that a new type of funnel. So we now have this new funnel of free accounts that while we already see early signs of them converting like a late conversion to paying accounts. In addition to the fact that it increases the exposure to the brand, more people are aware of the product and what you can do with it. So overall, it's been a win-win for us and we're excited to see going forward the effect of the additional kind of accounts and usage.

Another feature you mentioned recently is workdocs as a new entry point for users. Can you maybe just describe what this is and where you're seeing the best use cases so far?

Yes, definitely. So first of all, this is very exciting. This is another major building block that we added to the platform. The way I think about workdocs is basically we give -- people have been using anywhere from a Microsoft Word to Google Docs throughout the work for years. But those tools were built originally to serve any kind of purpose in terms of document editing, so whether you were writing a book or a blog post or wanted to design a page. And people have been kind of repurposing the original intent of that software for work. But those tools weren't built specifically for work. They weren't built for multiple people to work together. They weren't built to kind of create a live process where you can deal with objects in real time. And if you think about it, monday itself, the board, our kind of the take on Excel, people have repurposed Excel for work. They've been using Excel to manage their day to day. And we kind of took that to the next level with our board. I feel that workdocs is kind of the -- not same to word documents, where we kind of resized how, if we had to invent documents today that were built specifically for work, how it would look like. So we invested a lot in that piece of software. We actually built the entire thing ourselves, the entire engine behind it. Everything was done internally. It's a document. It's built specifically for people working together. You can have like 100 people working in one sentence. It will work flawlessly. But I think the most exciting part is to combine the boards and the documents. And I feel that [ today ] some people are very structured in how they think, hence the work, but some are unstructured. And the fact we now have both will just allow us to have more use cases, more engagement and we're already seeing very positive signs of increased usage within the platform. So it's very exciting to see the effect on long term.

One of the biggest questions we've been getting from investors is there are a lot of companies that sound similar, right? Smartsheet, Asana, even Atlassian with one of their solutions. Can you help crystallize where you see your position relative to others? And I think the other thing that's been interesting in the due diligence is a lot of customers are using multiple technologies right now. They may start with monday, but then they may actually do the work in Smartsheet. So do you believe there's a coexistence of these technologies over time that could live in one enterprise? Or do you believe that you kind of have to own the category and be the only standard inside the company? How do you view that?

Yes, it's a great question. So first of all, you mentioned Asana and Smartsheet. Those are 2 companies I personally really appreciate. But those companies are -- their purpose is project management. So they're focused on one aspect of work, which is managing projects, the way they are built, the way they're structured when you start a new project in Asana, you have a project, project has tests. And you can't manage, for example, a sales team within Asana, like you can maybe manage projects of that sales team, but you can't manage the actual deals and contacts. You can't manage inventory or HR because it's a project management tool. Same goes for Smartsheet. With monday with our low-code, no-code nature, we're actually a platform where you can shape the board to manage any part of your business. So the value proposition that we offer to our customers is much broader than that. I feel there might be some comparison because project management is one of the key ways we kind of do our go-to-market. People search for project related tools. And this is one of the ways that we capture new leads. But the way customers use monday over time once they adopt the product is very different compared to Asana and Smartsheet. And our goal going forward and within enterprise governance today is not to replace older software. Our philosophy is to coexist. This is why we invest so much in our integration. We actually have an integration with Asana. We have an integration with Jira. So if you have one team working with Asana or Jira, we'll do the best integration and connect that data back into monday. Essentially, what we want to be is to be the backbone of the organization, that Work OS, that runs into our organization and to allow other people within the organization to use other tools, if they like.

When you think about top priorities for you over the next 6 to 12 months, how would you characterize the 1 to 2, maybe there's 4, I don't know the number that you have, but if there are kind of the top, what -- how would you characterize those top priorities going forward?

Yes. So very high level. I think I'm going to go for 4. So I would say, number one is to enhance our existing building blocks like you've seen with the workdocs. So creating new building blocks and enhancing our existing building blocks. This is kind of the core of our platform. So that's number one. Number two, definitely enterprise. This is, for us, very strategic. We plan to go into larger deployments, improve the product for larger organizations. We're committed to that, both in terms of our sales and partners team but also in terms of product. Third one is to double down on being that connective layer. So more integrations, help you connect more software into monday and being that connective tissue of the organization. And number four will be our marketplace. We just launched it 2 quarters ago. We see really high usage. We see high demand from partners building applications. This is very strategic for us and we continue to invest into that as well. That will be my top 4.

On the marketplace, maybe if you can describe this, is this similar to other marketplaces where you can bring people in, but it's also a monetization engine where you can effectively take a user fee or charge a fee for some of the partners? How are you envisioning the marketplace to work economically?

Yes. So definitely, the way you described it. Currently, we don't have a payment system built into the marketplace. But I've seen amazing creativity by our partners. Some of them have created apps. And on their website, they actually charge money for using that. So they actually build their own billing system for our users to use those applications. I can share an anecdote that one of the partners reached out a few days ago and mentioned they already have more than 2,000,000 in ARR just from their monday app, which is unbelievable. You have to see that, it's exceptional. And one of their largest requests was that we build that payment system into monday because they spend more time working on the billing system than they spend on developing the actual app. So definitely, we saw a lot of demand from our developer ecosystem and we plan to launch a payment system into the marketplace. It can become huge and definitely, we're going to double down on this.

I forget to ask you the most important question about Israel and that we've seen some great companies like Wix, and the list is long, of great tech companies coming out of Israel. Can you talk to the advantage that you have and kind of what's happening there in terms of talent pool and cost bases and anything else that you think is a word to call out?

Yes. I think what happened in Israel in the past 2 or 3 years has been unbelievable in terms of the amount of unicorns coming up. I think for a very long time, everybody said that Israeli companies are kind of aiming to be sold. And I think everybody had tried to prove them wrong. So from day 1, Roy and I -- my partner, we kind of looked at this company called Wix and we said, if they've been able to create this amazing company that's serving customers on a global base and go public, maybe we should do that, too. So I would give them the credit for creating that motivation and I think a lot of companies also [ followed ]. And I think something very unique is happening here where an ecosystem of other founders really try to help one another and build great companies and I feel more is to come out of Israel. I have a lot of faith in other people. I have seen people build unbelievable software around. So it's very exciting time to be here.

That's great, Eran. Thank you so much for joining the Jefferies Software Conference and looking forward to watching your ongoing success.

Thanks for having me.