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

Please welcome to the stage monday.com's Co-Founder and Co-CEO, Roy Mann, alongside Daniel Lereya, Yoni Osherov, Eliran Glazer, Shiran Nawi and our moderator, Byron Stephen.

Well, thank you all for joining us. We really appreciate a lot of you having to take long flights, a few red eyes from what I understand. So we appreciate you being part of the investor Q&A session here at monday. I think the last time we had an investor Q&A session was at Elevate 2023, 10 months ago, and a lot has changed with monday in 10 months. So it's kind of -- I just want to introduce everybody real quick and just talk about how it's evolved in their area. So Eliran Glazer at the end, our Chief Financial Officer, overseen record free cash flow, record operating profit and GAAP profitability for the first time. So Eliran deserves a lot of credit there. Shiran Nawi, our Chief People and Legal Officer, overseeing a massive head count, global talent that we're adding this year, increasing talent head count by 30% globally. So Shiran, I know you're quite busy, so thanks for joining us. Yoni Osherov, Yoni has seen -- overseen our largest head count -- larger seat count go from 7,000 to now 80,000. So the go-to-market motion has been amazing, and Yoni deserves a lot of credit for that. And Daniel Lereya, who oversees -- our Chief Product and Technology Officer, mondayDB, great execution on that. And all the stuff we're doing multiproduct, Daniel's team is responsible for that. And last but certainly not least, our Co-Founder, Co-CEO, Roy Mann, seeing us in a decade go from a start-up to now $1 billion in ARR, amazing journey that we've been on so far.

My credit is that I brought all of them.

Yes, full credit here. As you guys might notice, we are a half founder and half CEO short. Eran was feeling ill, so he couldn't make the trip. But I know we have the team here to answer all of your questions. So that is essentially the session. We're going to open it up for Q&A. We have a couple of mic runners here. So feel free to raise your hand and ask questions. For anybody online, we are streaming this. So if you do have questions, feel free to e-mail us at [email protected] for your question, and we'll try to get you in. With that, let's get started.

This is Pinjalim from JPMorgan. Great presentation overall. Okay. I wanted to ask you on AI. Obviously, you are infusing AI all over the platform. You're talking about the AI blocks, which is part of the platform itself. One thing we did not hear from you is AI agents, and it seems like the entire software industry suddenly has leaned on to AI agents. monday did talk about it a year ago on -- you said monday bots, and that was part of that slide deck I remember. But maybe talk about how do you think about those monday bots kind of coming into fruition in the future in this AI-based architecture? And then the second part of that is, how do you envision kind of the evolution of pricing and packaging in the future with some portion of the work maybe done by AI agents versus humans?

AI bots, you take that?

Yes. So I think we've done a lot in AI, as you've seen, and we take that like we see a lot of opportunity for us to get into the core of what we do and add the technology there. Like we shared, like the blocks is one thing. And I think we talked about the blocks as being step 1 and the bots being step 2 to that area, and that's still how we think about it. Agents essentially are the one who like you give them a task and they iterate on it until they succeed. So essentially, we'll get into those such blocks that you can give them a task, and they can achieve it at some point or iteratively. But I think like the thing that I feel that after like Salesforce presentation in HubSpot and like the dust is starting to settle on some things. And we understand that we need to take that technology and put it really inside the product. It's like having that work for us like for the tasks that our customers hire us to do. So that's what we're doing next. It's not rocket science. It's good product. It's implementing that. And I feel that's what we're starting to see now. It's like actually taking the assets we have, the goals we have, what our customers expect us to have and like blow their minds with how fast they can do things and things that took them for like, I don't know, hours or look impossible, they can now just like happen seamlessly. So that's what we're doing with the monday product AI. So you want to add?

Yes. Just to add, I think that for us, the biggest challenge is how to make people really adopt AI in a way that actually leverage the business outcomes. And I think that in that sense, like we chose to start with the AI blocks because as you've seen in the session just before this Q&A, I think people like currently are building the trust on this technology and the fact that they can leverage it so easily, so quickly. But also because it's part of the monday platform and play with the same rules, they have the control, they have the visibility and they are building trust. And I think that this is a very important step and also a very valuable one where people can actually take these blocks, integrate them with their existing workflows. So it's not a major new change but immediately gets a lot of value. So we're really excited about that, and we're really excited about how people are adopting it. And definitely, moving forward, we have a lot more things coming on, our products, which we have also specific things that we want to do like the risk analyzer that Roy has shown in the demo, and of course, also taking the next steps with bots.

Yes. And regarding pricing, just like completing what you asked, like we feel that the automation part are something you consume, and we'll probably go for pricing on consumption over time. But the AI products, it's probably going to be in the tiers. And in some products like service, it's going to allow us to penetrate the market and succeed faster than others in bringing that change. And the product itself is going to be priced according to completion and not so much seats, okay, because it's AI driven. So it's in the pricing of the product itself.

Alex Zukin with Wolfe Research. It feels like there's a tremendous amount of enthusiasm on the CRM product today. The e-mail marketing introduction cements that. The service product, there's clearly a lot of excitement about that. I want to ask you maybe on the dev product and broader, bigger picture. When you go from $1 billion in revenue, $10 billion in revenue, which I would imagine is the goal at some point, how do you think that it breaks down between the current product set? Is it a quarter or each? Is it CRM is half and everything else -- help us understand that a little bit. And then maybe secondarily, a lot of evolution in the competitive landscape. One of your competitors getting acquired, I think, today, pricing adjustments from some of the other CRM vendors. Just curious on kind of how you see the competitive field evolving.

So when I look at our revenue makeup over time, like there's a lot of ways to slice it, okay? Like you can slice it by product. But like the way we're thinking about it is sliced on company size because if you look at our history, we have like over 225,000 customers. And a lot of them are small, obviously. But as we grow, we see a larger portion come from larger companies. And with them, we see that when they make a strategic decision to go on monday, okay, it's like all in, and they will probably use a lot of our products. And if I go down the line to $10 billion, like you said, like eventually, we'll move from doing bottom-up kind of sales to doing top-down kind of sales, value selling and then verticalizing. I don't know if it will happen then. I assume it will. And then when you verticalize essentially, you sell a solution to a vertical and you don't really look at the product. It's like you tie a solution, a whole solution, 2.like you solve it. They don't care if it's like 5 products or 2 or how you go around solving it, but you solve that problem. So I don't think we can predict how the product will be. I think it's rather like the size of companies and the depths we get into the many use cases inside, and then down the line, you said $10 billion. Like we're not looking to verticalize now, but we will.

Alex, maybe I will just add one thing. So everything that we achieved until now was organic. So when you think about the next page, next stage or the next phase of monday, there are products that we don't know even how to name them today, but they are going to be developed because monday is a very innovative company, and we always have all these thoughts about the next. The way we think about it, we do 3 years and 5-year plans. We say where we want to be in 5 years from now, what is the strategy, product, region, geography, people, cash, M&A. Then we go backward, and we start to plan in accordance with that. And we keep rolling it like a rolling forecast, a rolling model. So I would tell you that some of the things we don't know today, but we are going to develop them. We name them XYZ. I have no idea. We're going to do probably M&A because we are getting cash, and we have north of $1.2 billion as of second quarter. And I think the combination of existing customers that we're going to attract more share of wallet, also taking from -- market share from some of the competitors, this, together with everything that we did and we described today and based on our execution in the past, is going to take us to the next level.

And then Alex' question on competitive positioning, competitive environment. Yoni, anything you want to say? Have we seen any real changes in the competitive environment with some recent changes that we're seeing with some of our work management peers?

Yes. I think we are obviously -- first of all, it depends on the product. We see different competitors based on different products, but we've been going upmarket quite significantly in the last year or 2, and we're seeing the more mature players of the market that are that are coming up. It happened for us in work management. But likewise also in CRM, as we go up market, we are also seeing players that we haven't met before when we played only in the SMB space. So I think that the landscape is changing for us as we mature and evolve as a company.

Excellent. I know Alex didn't really asked about this, but I'm kind of curious. As we've been adding more and more head count, are we looking at a broader base of some of our peers that we've been hiring? Are we targeting a certain persona or profile?

Of course. And I think as we grow as a company and obviously going and expand more upmarket, also the profiles of our head count are changing to adjust to the right selling technique, talking with the right executive and personas in those companies. So we are quite shifting with our product, with our market and also our head count.

Excellent. Great. Next question.

This is Vijay from Dilation Capital. So your platform is quite flexible, and that's been the fundamental driver for growth. But there is a fundamental trade-off between flexibility and performance. So with mondayDB, you sort of try to address the trade-off. Now you talk about increasing items per board and per dashboard. The question that we have is, what's the extent of the scale unlock that you can achieve? And how would you like to monetize that?

Sorry, yes, there's a lot of background noise. So I know it's around mondayDB and scaling and flexibility. Anything specific you -- we can easily talk about mondayDB all day.

What's the extent of scale unlock that's going to be possible here? And how do you monetize that?

So first of all, I want to say that for us, mondayDB is super strategic project because it's something that we've been working on for quite some time now. And monday's architecture is very unique in the way that we actually give our customers the power to build anything that they want in a flexible way. The underlying infrastructure basically is a schema-less one, meaning that each and every one of our customers is actually building software in its own way. And with that, mondayDB was the most important part, in our eyes, in our infrastructure to make sure that we allow this unique flexibility but not compromising on scale and on performance. So we just, as you saw, announced that we finished the rollout of mondayDB 2.0, which is around scale. And I think that with mondayDB 2.0, we are in a place that we feel very good about our offering and about the ability to build very elaborated and complex workflows on top of the platform. But with that, this is something that we are constantly pushing further. And I think that for our products, they have specific needs. Each product is different. It's not like the generic way of the platform in which we feel mondayDB 2.0 places us in a position that we are fully comfortable with. Now we want to pay more attention about specific vectors in each and every one of our products. And I think that with each such progress, we sell customers leveraging the platform in more ways, doing more new use cases that we haven't seen before, and we are really excited about that. I believe that as a platform company, we should continue and invest in it and continue and push the bar in order to allow more complexity and more scale as time passes by.

Thank you, Daniel. Next question?

Taylor McGinnis with UBS. Maybe a 2 parter. The first one, it's been about a year since we got an update on the traction that you guys are seeing with CRM and dev. So even if just qualitative, I would love to just see the progress that you guys have made till now. And then the second part of that question, you announced a lot of really interesting features on the CRM and dev side. So as you've seen that product evolve today, are you seeing more -- able to go head to head with some of the incumbents? Is it still largely greenfield? Are you seeing more displacements? And when you think about the part of the work management base that's addressable for those products, where are we, I guess, in this medium term?

So first of all, I think that we're really excited about our products. And like with the high pace of innovation, we also see the satisfaction goes within our customers. And our like compass for building the additional value in the products is the demand that we see. So for instance, in monday sales CRM, I can share that one thing that we are really excited about is that aside from the fact that we are now -- and over the last year like really deepened the offering that we have for sales teams, now we are expanding and we are opening a new, I would say, grounds with marketing capabilities. So in that sense, I feel that these are all investments that as we are doing this investment, we are doing it with a lot of confidence because this is the feedback that we get, both from our existing customers and also from new customers that are coming in. And I just want to say that for work management, personally, I feel that the category is constantly evolving. And I feel that today, more organizations understand what does it mean. There is suddenly a category for that. We hear more for customers -- from customers, especially the large ones. They do understand the importance of having some kind of a solution to align everything across the organization to connect the strategy to the execution, to get visibility to how resources are being utilized across different departments and on the company level. So I really believe that the value that we are adding now to work management will also benefit our existing customer base in new ways and with new significant value. And so we are also very excited about work management and about the fact that it has a very bright future in our eyes.

I don't know about sharing numbers on traction. I [ touch ] CRM. But like we're very happy with the progress there and also with dev, so nothing to update on the models. But yes, when Byron says, we can share.

Brent Bracelin with Piper Sandler here. I wanted to maybe direct the questions for Yoni and Eliran around the cross-sell opportunity. As we think about the product lands, a lot of them have been landing with new customers. I think, Daniel, in your session, you kind of position that Work OS as a platform and these apps on top of it. So as we think about future capabilities in the next year that you're adding, what's the customer interest in cross-sell? And Eliran, as you think about how you execute packaging, does that change a little bit as cross-sell becomes a more important unlock for you possibly maybe next year?

Yes. So I think that cross-sell will become a bigger, bigger portion of what we do to drive business. It really depends on the customer segment. The way we segment the market within monday is SMBs, mid-market and enterprise. And not all of the products are exactly in the same rail. So we are seeing very good success in cross-sell within the SMB since we started that, but we are in a clear motion of going upmarket. And part of the expectation is that as we do that -- by the way, when I'm saying upmarket, it's not just about larger organization, but it's also adopting a top-down SLG motion. We've built a very good PLG motion, but we are now very focused on building a very strong SLG motion to augment that. And then cross-sell becomes much easier. You're already talking to someone senior within the organization who kind of has a bird's-eye view of the organization, and it's easier to penetrate in that motion. So I think as we'll have a stronger and stronger SLG motion, we'll start to see more cross-sell also within the larger deployments that we have. It's a journey that we are kind of in the middle of at the moment, but that's the expectation that we have.

Brent, to your question on pricing, one of the things that we did, we started this year basically. In the past, the pricing was the work management platform, and on top of it, we charge for CRM. And there, between 25% to 50% on the baseline pricing of the work management. This year, we started to detach. Now you can buy CRM as a stand-alone. You can buy dev as a stand-alone, and you have a different pricing because we don't want customers to feel like they're obligated to buy work management and then to buy CRM. So we are creating flexibility in the pricing scheme, in the pricing model that we'll continue to develop, continue to evolve and going into different models, consumptions like what Roy mentioned earlier. So it's going to be -- pricing is going to be becoming more important for us as we continue to develop more products, and we are going to create different packages of pricing. So customers will have flexibility in the way they buy our product.

It's Steve Enders from Citi. I want to ask a little bit about -- you launched a ton of new products today or a lot of new innovation. What do you think is the most incrementally monetizable here over the next couple of years? Where do you see the most opportunity? And then secondly, you talked about M&A potentially becoming a piece of the strategy here moving forward. What does M&A look like for monday? Like what kind of opportunities would you look for?

That monetization part like...

Monetization. So we've introduced a lot of things, so like what do we think is going to be the most impactful?

So I think we're doing a lot of things in terms of monetization that like bring more value to customers. Right now, like we've done some add-on work, which was -- which looks really promising. And customers really love it. Especially the larger ones, as they use us more and more, want those additional services and like products we put on, even like security and those kind of stuff. And I think cross-sell would prove to be like something more customers, as they lean in more towards monday, like tend to take more products and use us more. So I think that's also going to be something that is significant. And obviously, the addition of the new product itself, the service, although there is some overlap because like we said, a lot of our customers already use us for internal ticketing. And when we launched the new product, it's going to gain a lot of traction from existing customers. So it might be like shifting a little bit of revenue. But like I think over time, we're going to penetrate a new market and have like a different -- a new TAM to go after. So that will also be significant.

Eliran, you want to talk to some of the M&A targets?

Yes, with regards to M&A. So we said it in the past. So we did a lot of groundwork over the past few months, mapping, sourcing, identifying the strategy that we have as part of M&A and corp dev going forward. I believe that at first, we are going to concentrate on companies of millions to $10 millions of dollars rather than big acquisitions. We're not going to acquire, at least for now, revenue or customers. It's mostly product, features that will complete our solutions either in CRM, in AI, in work management. So these are the things that we are looking at, so tens of millions of dollar probably acquisitions unless something very major opportunity that can be close to 100. This is close to $100 million, but this is something that I don't envision to happen in the next 12 months.

Yes. So we've got a lot of efforts to build that muscle first. All right. Another question?

It's Ryan Mac from Barclays. I know it's early, but any insight as to where you think you'll see the most significant early adoption of monday AI? Would love to hear you think any product or customer size can see the most initial early adoption.

Can you repeat the questions?

It was really just around AI adoption, what we're seeing.

Okay. Yes, there's a lot of background noise. Okay. So about AI, I think that -- as I mentioned, I think the biggest challenge for our customers is to do the slip in terms of like really taking the value. I think that at the beginning, when we started with AI, we did a lot of things across the platform. But with the AI assistant and things that like I think became some kind of table stakes right now. And we didn't feel that there is like a meaningful value there or at least not something that is repeating in terms of like the usage and the value that people are getting. And since we introduced the AI blocks, although it takes time for people to adopt it and we say that people are trying it and then they're getting more excited about that, I feel that it's a different story because we suddenly see different patterns of retention. We see people that are actually getting value in a much more profound way. So the feedbacks are really great. They are initial. And it's important to say AI is a journey, and I think also we are going to continue and evolve together with the technology, and we are super excited about that. But I think that now with the AI blocks, once people are integrating it with the business workflows, they see the value. And for us, this is a very good confirmation to this direction and to the fact that with time, it will become more and more meaningful. And even just as an anecdote, we've been in Elevate London and here in Elevate in New York. And after the AI session, a lot of customers are coming to get more information and to see how they can actually integrate it with their current workflows. So it's very exciting. And a lot of things to come in the future as well.

Yes. So we've got a lot of great feedback on -- we've got a lot of great feedback on the blocks. And I saw some of the things customers build with them. It's crazy and it really is -- we give them the power to build stuff. And they do it, and it's really cool. And like it's part of the vision. It's not like it was a test, but we're committed to this path.

So from the sounds of it, it sounds like cocktail hour has started. So we want to wrap up here. We have time for one more quick question.

It's Gili Naftalovich from Goldman Sachs. Can you hear me? Okay. So just on the strategies that you guys outlined for 2025, take a little bit of a different lens to them versus what we've seen in the last 2 years because it does sound like there are a lot more -- the business workflows and the reporting, there are a lot more for the enterprise. So how are you guys -- how do you expect this to change the selling or adoption motion you may see in the market? And when we're tracking the momentum that you guys are seeing on the traction there, should we be looking more at existing customers versus maybe new customers, which were the kind of the metric points that I think were the anchors for CRM in depth. And? Then I have one last one, if I can, after.

So like you're asking because like we didn't -- we're not hearing like. How are we doing with enterprise adoption or large customer adoption or...

Can you hear me? Okay. Just more thinking about the adoption and the go-to-market of like these new initiatives for 2025 that, Daniel, you kind of set out in the keynote. And when we're thinking, like those seem different than going to SMBs or new customers and saying, hey, we have CRM, hey, we have service, you should come to monday for that. So how should we be thinking about the adoption?

So we are seeing that we need to add more go-to-market, different go-to-market ways. And specifically, when we look into our customer base, it's like massive right now. And we see a huge opportunity to readdress the existing customers, give them more value, scale within. We're very partially penetrated. And I think we put a lot of emphasis there also with the new products. Okay. Service, I think, is a good example. And we chose, instead of like doing let's say, Google first, we do existing customer first and going like to larger deployments like day 1 rather than go the SMB path again with that product as well. So it's not that it's not easy to sign up, give it a try, self-serve all the stuff we love. It's that we see that we have that new engine, okay, of existing customers that we can address.

When you have 225,000 customers and you only scratch the surface, there is obviously the ARR. The future ARR will come from them. It's not going to be the same ratio because as you continue to grow the business, we can consolidate on our existing customers. We already see customers that are consolidating, sorry, on us, buying, doing cross-sell, buying one product, buying other products. We do still see a very healthy top of funnel coming from new customers. But we don't want to tell you that it's going to be like what we saw in the past like bringing double-digit growth in new customers because you become a $1 billion company going into $10 billion, the mix of the business is changing. This is why we continue to innovate to offer a lot of things to existing customers. And the bulk of the ARR will come from them we anticipate while maintaining healthy top of funnel and new customers.

Excellent. Thank you all for coming. Thank you to the monday management team for joining us. On your way out as a token of our appreciation and to highlight the $1 billion in ARR, we do have a [ Llama ] LEGO. So please feel free -- it is a collectible item, but we encourage you to pick one up, and look forward to seeing you again. Thank you.