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

Hey, everyone. I'm Pinjalim Bora, SMID Cap Analyst at JPMorgan. Delighted to have here with us the monday.com team on a Tuesday. Co-CEO and Co-Founder, Eran Zinman; and then Eliran, CFO of monday as well. Guys, welcome to the conference.

Thank you.

Thank you for having for having us.

Maybe we can start off with a little bit of introduction about yourself quickly and talk about -- a little bit about monday.com for the people in the audience that do not know the story.

Yes. So I'm Eran, Co-Founder and Co-CEO at monday. We actually started monday 12 years ago in 2012 with my co-founder, Roy. And Eliran, our CFO.

Yes. So I'm Eliran. I've joined monday about 3.5 years ago. Before that, most of my career in global tech companies in Israel and in U.S., pretty much that.

Yes. And just to give background about monday, for those of you who don't know. So monday is basically a very unique product. It's a platform that's built in a very unique way. It's 100% flexible. We let our customers do whatever they want with the product. And what I mean by that is that they have full control over how to use the product and how they build it. And then on top of that -- on top of the platform that we built, we built vertical products. So we have monday work management, monday CRM and monday dev. They have different go-to-markets and different user interfaces that are all built on that platform.

Yes. Great. So your results have been extremely impressive by any standard, that to pretty uneven macro backdrop, especially in the SMB world, you're generating 30% -- growing 30% year-over-year run rate over $850 million, $800 million, all recurring in a highly competitive market as well. So talk about that secret source. How much of it is product that you were just talking about? How much of it is just the PLG motion that you have built? Maybe talk a little bit about that?

Yes. So I think it's a combination of both, I would say. The product play a major role. The fact that the product is so flexible and easy to use and intuitive, created -- a few things that are quite unique. We have -- 70% of our customers are non-tech customers actually. We also have many business verticals and many geographies. So the fact the system is so flexible, just have -- allow us to have a wide variety of use cases. And also, we created a very strong PLG and go-to-market engines. We have an engine called BigBrain. It's basically a way for us to acquire media and do very efficient performance marketing. That actually allowed us in the last 2 years, when the economy change. A lot of the players, not just in our market, but other markets really pulled back in terms of our performance marketing budget. And we kind of kept the same momentum because we have full measurement over how much we spend and what's the efficiency of that. And we continue to do this up until this day. So I think the combination of that product and a strong go-to-market really allowed us to create a very strong and financially successful company.

Yes. Maybe I would add to what Eran said, SMBs, so, Pinjalim, we spoke about it few times, many companies in the industry and in general, kind of complaining that the SMB is a challenge for them. And I think we have proven that SMBs still a strength -- an area of strength for monday. We continue to grow this segment and the mid-market. I think in general, as Eran said, many of the payers are actually pursuing upmarket. But for us, it's important to maintain the investment in all segments. And this is an area of strength for us because it allows us also to evolve upmarket, but also to develop additional products, which allows the SMBs and mid-market to consolidate on monday, to benefit from the fact that they may land at, for example, work management, but they can use CRM or dev. So the -- there are cross-sell and upsell opportunities. And we continue to invest in the platform and in the product. And I think this is the combination that in addition to what Eran said, kind of continued to impact on our results.

Yes. I want to talk about the evolution of kind of the use cases on monday, right? Eran, maybe from the beginning that you have seen until now, whenever we talk to customers, more recently, we are hearing monday being used as they call it, the business automation hub or business execution hub is another word I have heard, right? And people are kind of using monday to orchestrate a workflow, not just within kind of different parts of monday, but also outside of monday. I've heard some customers talk about orchestrating or connecting monday with Workday and Jira. I heard about a manufacturing company that's connecting different parts of the kind of the CPQ process, different disparate tools to monday to drive a manufacturing process. Maybe talk about that evolution, what are you seeing within that customer base?

Yes, definitely. So like we said, monday is fully flexible. And I think that's part of the beauty. Basically, our customers are creating workflows and automation that we never imagine that they will do because every company is different, and by giving them that ability, they just go wild and build things that we could never imagine. So monday is something that was very important for us from the beginning is to focus on the core work. We want to manage the core of what actually drives the business for our own customers, not being a nice to have tool, but to drive the core of their business. And for a lot of them, that means being the system of records, but also creating automation, and trying to automate significant parts of what drives their business. And part of it is the automation, part of it is integrations that we have. If you think about it, there's so much information that's been siloed right now when people are using different apps. You might be using Salesforce, but then only the sales team have access to that. You might be using Workday, but only the HR team have access to that. And by using monday, they actually connect different tools in different departments and kind of liberate the data and create like one place for everybody to see the flow of data and have visibility over processes within the organizations. So we've seen definitely more and more on that, especially as we go upmarket and we have larger enterprises using the product.

Yes. And this one, Eran and Eliran, both can probably take. But one question that we keep on hearing from investors is the growth runway in the core. The core has done really well, and you have CRM dev, let's forget all of that right now, right? But the core, you have been adding over $200 million in revenue in the last 2 years. There's a little bit of pricing this year. But even then, you're kind of close to $200 million, if I take out the $25 million. But trying to understand how much growth runway is left within the core, right? If I do some math, I can get to like mid-single digits millions of users for the core. So I'm trying to think, if you are -- what's your aspiration, right? Is your aspiration to be like a Slack with tens of millions of seats or like 365, Microsoft 365 or Word 365 with hundreds of millions of seats, right? How do you see that growth runway in the quarter?

Eran, you want...

Okay. So probably more of a combination between a Salesforce and a ServiceNow in terms of the businesses that we address. I don't think we want to be kind of more consumer-oriented. I think Office 365 is a more kind of broad tool that's being used by individual users across the globe. Like I mentioned, we want to manage the core of what drives businesses. That's why we focus on CRM, dev, work management. And I feel our potential and where we want to be as a company is a place where businesses going forward will buy monday for their own company across like buying 2 or 3 products, a monday suite, and managing the core departments across the organization. And in terms of growth, and that's very important, like when you mentioned us growing as a company forward. It's obvious that as you scale as a SaaS company, we'll continue to have a very strong acquisition engine, but the majority of growth will come from our existing customer base. And for that, we're building new engines. So obviously, cross-sell plays a big part of that, those new products. If until 2 years ago, we had one vector of expansion, which was basically seat count. Now we have multiple vectors. So one is seat count still, the other is additional products for different departments. So it's not just selling more to one department. We now have access to the sales team, the dev team. Going forward, we're going to launch monday service. So access for the IT team. So we have more potential within organizations. And also, we launched add-on. So anywhere from premium support to enterprise guardian, so kind of more premium services on top of the license. So in a nutshell, going forward, we're going to have more opportunities to sell to our existing base, which will increase MDR and we'll increase our ability to expand with the organizations as well.

Okay. So seats within the existing is probably one of the bigger drivers than the rest of this stuff at this point in time, right? And you recently upgraded your infrastructure with mondayDB. I'm assuming that's kind of opening up that seat count conversations. You've already talked about 25,000 seat deal. I will not name the customer, although I think everybody knows who it is. But do you see the potential for that kind of trend to continue? You're adding seat counts of that scale going forward?

Yes. Yes. We are. We're already have few interesting deals in the pipeline on the back of such deal that cannot be named. But also, we are investing in the way that I spoke earlier with a few investors, and we call it kind of for me, like I call it, the 5Ps like we invest in the platform, mondayDB. We invest in the product. We invest in people. We bring people in sales organization that are more scalable in terms of selling to the C level and V level within organization. We're also investing in the management team, leadership team of monday to scale the organization globally. We have close to 200 -- sorry, 2,000 employees by now. We're looking at the pitch. How do you sell to the C level? What pain points are you solving? Not only the features and functionalities, but also tell me what is the core problem of your organization, and I can sort it out. So between product, people, platform, pitch and performance, this is something that we are going to continue to focus in order to continue to grow the business.

Yes. Maybe talk about from an architecture standpoint, that mondayDB, how important is that? Why has it opened up that aperture of larger seats for you?

Yes. So maybe I'll explain what mondayDB is. As I mentioned in the beginning, monday has a very unique product because it's fully flexible. Unlike, I would say, traditional SaaS companies where they were built for very specific use cases. When you were built for a very specific use case, it's very easy to kind of optimize the database you're using because you know exactly how people are going to use the product, what query is it going to run, what reports they're going to need. And with monday, our customers have full control over the database. So everybody is using it in a different way. And in a way, they create their own data bases. So for that, we created a very important piece of technology we call mondayDB, which basically allows our customer to have a database of their own, however they want it, without us having like premature knowledge about how it's going to be used. But at the same time, we offer great performance and also the ability to scale significantly on mondayDB. And that piece of technology, we work for a very long time. We're very proud of it, and we're going to launch additional versions coming up. When we launched different versions of mondayDB, that was a big unlock for enterprise customers. They've been using monday, they wanted to scale further, and we allowed them to do 10x on scale. We allowed them to do 5x on performance. And we're going to release more major versions coming up, and we're very proud of that part of the business and what it's enabled us to do and scale into the enterprise.

Yes. Let me switch gears on the macro, and this more historically speaking, Eliran. When we came out of last quarter in Q4, I think you had seen a little bit of softness in December. The narrative was that, that softness kind of flowed into January at that time. But when we now look at the results, it's actually pretty solid. So what did you see in February, March? Did things start to pick up overall, maybe talk about that?

Yes. So in December and January of last year, when we kind of finished 2023, we're a bit more -- we saw softness in, as you said, in the market in December and January. Deals that we were expected to close in December were not closed or were delayed into January, longer sales cycles. And I think still the macroeconomy is a situation that -- I don't know if it's going to get any better or it's going to get any worse. I think there is some stability. In February and March, we saw some uptick. At the time, we also, in December, we didn't know what would be the reaction to the price increase that we did because this was the first time that we did a price increase to our existing customer base. So it's also kind of we were not sure how it's going to be rolled out and how it's going to be perceived Perception of it was very good, receptance by customers was very encouraging, better than what we anticipated originally. And I think this has to do with the fact that we added a lot of value over the years to the customers. So we feel better. We feel more confident in our ability to achieve the numbers that we said we're going to achieve in terms of the guidance for the entire year. But I don't know yet to call it a trend because I see what's going on around us, with other companies that reported, but it's -- we are more positive on that front.

How would you characterize kind of the top of the funnel activity help at April, May so far?

It's looking good. It's very healthy. We had 225,000 customers at the end of last year. We added around 40,000 new customers. And going back to the first question, this is something that is super important for us to continue to have healthy top of funnel activity because this is something that is going to evolve over time. And so we care about going upmarket, but again, bringing new customers all the time, we focus on that as well.

Yes. That was more tactical. So more strategically, when I talk to investors, and I get a lot of pushbacks also on monday.com. I have heard this pushback about when monday is a core work OS system and CRM, dev, well, specifically CRM, very competitive market, very difficult to go into, ITSM competitive market, difficult to go into. So monday's act too is a question mark. We don't know yet. So maybe how -- what did you share with those investors to kind of change their minds, right, in terms of proof points, to kind of convince them at this point that you'd be successful in those markets as well?

Yes. First of all, I think that competitive markets are great. It means there's demand in that market. And when we competed in work management, I think there were another 100 alternatives when we started the company. So I don't think that's an indication of our ability to succeed or not. I feel maybe what they're missing and what I'm trying to explain to investors is that we offer something that's very different from the current solutions in the market today. For example, in the CRM space, right now, we -- when we compete on deals, we might see a Pipedrive or Zoho or HubSpot. And I actually did quite a lot of user interviews like why are you choosing monday over one of those players? And the answer is always the same. Although we're missing features compared to, let's say HubSpot. The main reason is that they want that custom ability to their product. At some point, when you use what we call a rigid product, you want to have your own workflows. You want to create something that's kind of unique to how you work as a sales team. And then usually, the next stop for most of those customers was to use Salesforce because it's an enterprise software, you could build anything you want with their API. But it's very costly to set up and very costly to maintain, and the license cost is very high. So for them, seeing monday as an alternative was something they didn't have before because monday gives a product that is as customizable, let's say, as a Salesforce as a ServiceNow. But it's very easy to use. It doesn't cost a lot to customize and you can do it yourself. And that's a huge benefit in each one of those categories. And even though we might be competing with a dozen other vendors in that space, nobody can offer the same level of customability that we offer as a platform in any one of those verticals. And customers get it. They want to buy a platform. They want to have that power over their destiny, and this is why we win most of those deals.

Maybe I would add to Eran, when we went public 2 years ago, one of the questions was about monday is just another Asana or Smartsheet or another player in this category that we don't show what it is exactly. And then we kind of were able to differentiate ourselves. And then we got questions about efficient growth versus growth at all cost because it was all about growth. But then we've proven the model to be efficient because we were able to grow the business, achieve record free cash flows and profitability. And I don't want to kind of overstress it, but very few companies actually that went public in the [ cohort ] of 2021 actually achieve these kind of things. So one of the things we don't do is we don't congratulate ourselves too much. We understand this is a journey, and the journey is long. And we have this strategy for the next 3 and 5 years. And we understand that we need to decide today what we need to do in order to be successful in 3 in 5 years. So I don't want to tell you maybe the journey upmarket is not going to be like Salesforce in 3 years or ServiceNow. But there is a huge mid-market playground for us that is underserved to a certain extent. So if you ask me in 3 years, we're going to have 1 million customers rather than 500, and we're going to be more of market, I don't know. But we are taking few routes, and we're investing all of the segments and focus on execution. So again, I don't know it until I don't have a crystal ball, but the journey for us is we continue to kind of look 3, 5 years down the road and invest today in order to get there.