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

Good afternoon, everyone. Welcome to our next session with monday.com. My name is Bob McCooey. I'm the Vice Chairman of NASDAQ. We're joined by the executive leadership team at Monday. Thank you very much for joining us again at the NASDAQ Investor Conference here in London. Let's get right into it. I want to make sure everybody in the audience knows what Monday is all about. So can you give a little introductory words about Monday, the history. And more importantly, I think, what you originally set out to build and how that's changed over the course of kind of the past decade or so.

Yes. So I can start.

Cool.

So we started Monday with the idea of making software for companies fun that people will actually love using software because we didn't so much with a lot of the tools we used. We needed to add development to them to make it what we wanted. And we have kind of like my past background is development, and so does my co-founder Eliran. And so we could develop stuff. And we saw that like a lot of people can't and they get stuck and they get frustrated. And so we started by creating a platform and the first go-to-market was project management because it was the easiest one and best fit. But from the beginning, we wanted it to be bigger, something that connects the organization and be at the core of how people work, like that it will run what they actually work on. And initially, we thought of like tech companies, but it's like when we launched it, it was like successful in like so many different verticals. We have now over 200 different business verticals. Basically, every type of company you can think of uses us like from manufacturing plants, people do clinical trial research with us. They manage, I don't know, some I heard manage hotels, but basically run anything you want. And over the years, they formed a category of work management, which is like way broader than project management. But because we are a platform, we're not tied to that vertical, and we are also -- so on top of the platform, we launched other products. We launched CRM. We launched dev and our service is coming this year. So they are completely different markets and like the testament of which is like when you see our competitors in each market, they're not competing with each other, none of them, okay? Because we're able -- because we're a platform to kind of like build to completely different audiences. And that's like one of our, I don't know, key reasons for success.

And ease of use.

Ease of use, yes, it's like -- it's funny because like we've built something that is like really customizable and you can do whatever you want with it, but like the onboarding itself, you build your own product, but you don't know it because it's that easy.

I mean we use it at NASDAQ. We're users. I go on there all the time. And just -- it's very intuitive, which I think is one of the things that makes it -- at least from my perspective, makes it so successful. Is that the feedback that you get from clients?

Yes. It's like -- when you have like defined problem, you can kind of like top-down force people to use something. But when you want them to use it, actually, you have to make it simple, fun, like consumer stuff, what we used to. And I think like more and more software will have to be simpler and more fun.

Hopefully, yes. Hopefully.

Yes, you're right, hopefully.

So you indicated that you've launched specific products for CRM, product development and services coming. What's the benefits of these packaged solutions versus allowing customers to build on their own version of the Monday platform? And should we expect even more new products coming out?

Yes. So our products and for each one of these products, we compete with a different competitor set, and that's how we see it. And our vision is being best-in-class in each one of these areas. And the reason we package that is like people built CRMs on top of our platform before. But when you want to scale and you want to go to larger companies, they want your commitment to that road map that you're actually solving this problem and not they just like use it like that. So that's how we came to package. And it's not really a solution. It's like a real product. We have a dedicated team for each one, their own go-to-market. It's like a mini company within Monday. But the reason it's so good is because of the connectivity as well. The fact it's a platform, you can -- everything we add to one product kind of benefits all the rest and every capability we add goes into everyone. So we have that like a compound effect, we call it, that we add one capability, but like all the products improve because of it.

Eliran?

Not much to add.

No, no. Okay. Good. So you touched on this already, but kind of -- it seems like there's different target customers and also with different competitors that are involved. At the end of the day, why would someone choose Monday versus one of these other competitors and especially in some of the most competitive markets, I'm assume the U.S. is a fairly competitive market versus some of the established players like CRM, for example, why would someone choose you?

Yes. So I think each product is different. And like also something to note is that a lot of our customers come from a greenfield market, like they digitize, they come from nothing. A lot of the deals, they just want to make sense of their organization and they come to us. But in CRM, obviously, a very competitive market. So a good example would be that -- we started CRM and within 6 months, we went from 0 to being the top 4 in G2 Crowd in the review site, and there are hundreds of CRMs there. And the reason because of the power of the platform that like -- and in CRM specifically, like we see a huge gap, like if you either have like rigid small CRMs and the large ones like Salesforce, where you can customize them, but it costs a lot and there is an implementation cost as well. And we're kind of like solving that problem in the middle. It's still very easy, very simple, but you can do anything you want. We brought something new to the -- like a trade-off. There is no trade-off. But we're obviously not our strategy is not to compete with enterprises and stuff like CRM is still like, let's say, a younger product, and it has a road map to go up and up to larger audiences. And in the project management and work management space, we're obviously leading that market of work management, and we're mature. We have larger customers and lot of big...

Maybe I will add to this, that we created a PLG product that actually reached $1 billion in a sustainable growth fashion, like efficient, generating free cash flow, profitability in terms of the company performance. And many of the products that we created basically came from the customer. So we started to work management, but why did we choose CRM? Customers started to use Monday for CRM solutions. And they said, why wouldn't you develop a CRM solution? Same goes with dev, same goes with service. So once you win the heart of the customers with your product because PLG means that you actually experience the product, you love it, you use it, and you want to continue to evolve on that. And we get all these amazing things that actually the customers on the platform that we have, we have also a marketplace where one developer sells to the other. And there are all these ideas that they are developing and enriching the products and enhancing the solution. So for us, it's easier to kind of continue to build on what they give us, not only what we give them. And it goes back to everything that Roy said and you asked him about -- it's almost like almost counterintuitive because if you say, how does Monday sells a software to run a hotel chain management or fleet of trucks, we don't. They are out there probably on the shelf solutions for that. But we give you the building blocks, the LEGO bricks to build a solution that will manage your hotel chain and your -- chain of hotel, sorry, and your fleet of trucks. So you build the product that fits your needs, fits your aspirations. So it's easier to kind of like it and continue to expand with it.

So could we actually say that many companies talk about them being a platform, but you guys really are a platform like truly have created the platform where people are able in your words, to build on top of it versus others just kind of throw out the word platform because it's a convenient word to throw out.

I think it's true for a lot of companies like everyone want to be a platform, but the question is like are you built in that way? Like for us, it's not -- we didn't build a project management tool or a CRM. We built like a database that can be adapted to anything. We build like expandable UI set that you can with the marketplace that everyone can build on top of. And essentially, that's like how our infrastructure is built. So it's really hard to become a platform post building stuff because you need to then go back and like tear out stuff. So we did it like day 1. And yes...

That probably is one of the keys to the success, right?

Definitely. And customers -- so it also gives us different go-to-market, which is like allows us to grow faster. It gives us -- it gives customers the knowledge they're never going to hit the wall, whatever they want to develop further on or customize, they know they can do it, and that win deals.

So obviously, CRM, as we just discussed, has been a great success since its launch. And now you have Monday service coming out of beta this year. So should the investors expect a similar kind of growth trajectory as they've seen with CRM?

So like the reason we come out with new products is we really believe in them. We see the demand. We see customers want it, but it's actually every one of our products have a different go-to-market. So CRM really fits into our performance marketing and go-to-market. So it was like just like really a perfect fit to what we're doing. And what we're seeing with service, which shows like great and promising early results is that we're able to go to market to existing customers because it's -- service essentially is like EPM and it's like for everyone in the enterprise. It's not just IT or it's -- sorry, it's ESM, enterprise service management. It's like everywhere, you need like tickets, you need requests. So it might be legal, it might be finance, it might be IT as well. So wherever we land within work management, the same person that we talk with can also take service. So we're really optimistic about it and show great early results, but we'll have to see.

Good. So talk a little bit about the business model, like how do you charge? How do you grow it from or how you're charging? How do you expand margin that way?

I will take it. So when you think about Monday kind of we are always planning 3, 4 years in advance and even more than that, just to get conceptually the strategy and then what we do today in order to execute on this strategy. So the business model is annual subscribers plus monthly subscribers to the platform. I would say that more than 80% of the subscribers are annual. They pay upfront, and this is what generates the ARR. The growth is coming from the fact that you are basically -- we have 225,000 customers at the end of 2023. So the way we operate is a hybrid business model. You have the top of funnel, the kind of the online marketing channel that is very efficient, and we measure everything through an internal BI system called BigBrain. We measure the return on the investment. We get the customers into the platform and then they can expand and scale with us. And in addition to the online marketing and top of funnel, we have the sales-led organization, which includes sales partners, customer success managers that basically are speaking with the customers and expanding across the segments. We have 3 segments that we service. One is SMBs, mid-market and enterprise. These are the customer segments that we are servicing. And the way we continue to grow within the business is by adding additional seats every year upon renewal, you either have additional seats or cross-sell or upsell within existing customer base. So the model is very stable on that front because you have the recurring ARR that is coming from the existing customers and you have the new customers that are joining the platform and growing with us. For example, the 2 largest seat customers that we have in Monday, one is 80,000 seats, a health care European company and the other 60,000 seats for a technology global company started with hundreds of seats in Monday. Over time, they expanded. So this is the model. You land, you expand, and this is the way. And we are going to develop additional models in the future as part or expand into top-down when you actually land bigger from the top to the bottom rather than just coming from the small groups and growing upmarket.

And is the sales channel individuals? Is it a combination of lead demand from online? Like how are you doing your marketing?

Yes. So in terms of go-to-market, you get the leads from the -- the bulk of it currently is getting the leads from the online marketing machine, which is very efficient. They get the leads. And then based on certain enrichment, they are starting to work with the customers. But we're also starting to see more top-down deals that are coming. We have almost 2,400 employees at the end of, say, October. More than 50% are what we call the front office, the sales organization, sales, marketing, customer success, customer support and partners. So this kind of the growth engines of the business in addition to the online marketing.

Got you. Got you. So staying on that, what are you seeing in the demand environment? Are there signs of stabilization, differences by customer size, by industry, different verticals? Help us understand that a little better.

Yes, sure. So when we did Q3 results, we said that we saw some softness in the month of September and then October was better. We still see some choppiness in the market. Macro economy, still some challenges, mostly in Europe, Middle East and Asia Pacific. North America is stable. So broad-based, we are seeing some stability in some parts of the world, but still experiencing some challenges in other places. I can say that if you think about macro economy, it doesn't get any worse. I think actually, it gets better in some areas like North America, but still, we're not out of the...

In EMEA, we see some softness.

And how about APAC? Is that a big region for you?

It's not a very big region. It's expanding. There's -- we see some slight softness in some countries because we operate in entire APAC, but overall, it's becoming more stable.

Got you. So let's look at into next year. What are the investment priorities that you both have to continue to drive your growth? And what do you think about balancing growth versus profitability if we see the macro continue to improve?

So when we look into next year, we're making a big investment in growing the team, growing the sales team. We have new products. We can -- we feel we can go to market faster, but it is an investment like it takes them time to ramp and -- but -- so this is the plan and also deepening our investment in R&D in each of the products. So instead of like adding new ones, which we can do because we see a lot of other places we can grow and we'd rather focus and improve the existing product suites like CRM, deepening it and adding more capabilities, investing in service, in dev and so on.

I would add to that, that we believe that the opportunity in front of us is huge. Some of our competitors have been bought. Some are kind of lagging, and we are taking market share. But for that, we will need to invest. We feel almost like when we went public in 2021, we said we are going to be profitable in free cash flow in 2025. We actually advanced it in 2.5 years. We are generating a lot of cash. We are profitable. And to a certain extent, we think maybe we underinvested in 2024 to capture the opportunity. So we will do some investment. We do want to make sure that this is what we call sustainable investment and responsible investment. But definitely, as Roy said, we want to make sure that we strengthen the sales team, we strengthen the R&D team because innovation is in the core of everything that we are doing. And together with all the kind of the new trends that are out there, AI and further growth into service, there is a unique opportunity out there for us to capture.

So let's stay on that theme for a second. Some pretty aggressive hiring plans that you have for going from this year, especially into next. Are there certain regions you're focused on? Are you opening up new offices? How should the investors think about that?

Yes, we're all of the above. Like we're investing a lot in North America. We're opening new offices in Europe. Germany and France localizing. Brazil is doing great, and we're investing there.

Yes. Outside of we are -- when you think about the investments, it's going to be mostly in the -- see our organization outside of Israel, scaling and bringing more talent to drive the business further.

Good. So you touched on enterprise earlier. Kind of -- I know you've been -- had a big push into enterprise over the past few years. Where does that stand? How is -- how are you going to continue to be successful in there? Where are you in the journey on focusing on enterprise?

So yes, I can start. So when we think about enterprise, we have 2 things. One is improving the platform itself, let's say, for scale and security and governance and standardization. We're adding a lot of them now to allow our customers to scale significantly to manage like thousands of people and their processes together. It's like a huge task. And so we're giving them more tools to be able to handle those things. So that's on one hand. On the other hand, it's more internal, how we do sales. Like Eliran mentioned, we've done PLG type growth, meaning it's more a consultative sale, like you sign up, we give you a call, ask you what you wanted to achieve and help you achieve it. And when we are like also adding the SLG movement is like owning the problems, okay? It's like it's a change a lot of companies go through like from PLG to SLG. And that's like we're kind of like in the middle of it. And that will allow us essentially to go and talk with more C-levels, making more top-down decisions in the entire organization to adopt Monday. So that's what we're hoping to see more.

Yes. And maybe just if I summarize it or package it in a way that is simple, we are investing in the platform with MondayDB and now we finished 2.0 that will allow speed, scale and performance of the platform. We are adding -- we are investing in the product. So you have the 4 products that we have that will allow customers on the enterprise to do -- to use all of the products of Monday without having to go to different technology stack or other softwares. We're investing in people. We spoke about it. We're looking at pricing, already did. We'll continue to improve pricing, and we are making sure that our performance is -- and execution is better. So all of these things that are going in parallel, these are kind of areas that we -- the organization is going to execute on in order to get to the enterprise.

Do you find today that you're at a place where people moving from one firm to another are now a sales channel for you where someone's used it and now goes to a new firm and [indiscernible] demands that it's there to be in order for them to be successful.

It's actually -- yes, I don't know the volume of it, but we now like...

It would be great to know that, but you don't -- if I'm using it or my team is using it, then they go to work at a different company and they say, "Oh, man, I just...

I love Monday.

I was able to use Monday. Like why are we doing this? It's be so much more efficient if we were using Monday for that.

We have like stories about people forcing new companies to do it because they know it will succeed and they'll gain like...

They'll get a star.

Yes. They know they will. So a lot of them are doing it. So yes, it's always fun to watch.

Yes, it's funny. You go to all these places and people say, yes, I use Monday. And it's like at first, it was small, but now it's something that is becoming more kind of -- the brand awareness is much better.

So I've gone through almost this entire time, and I haven't asked you a question about AI. So yes, I know I does pretty good.

How much time you have...

I know, I know, we only have less than 5 minutes. So you've introduced a number of AI features in the past year. Talk about the broader vision for AI at Monday and the adoption, not only to date, but how you feel like you're going to monetize AI in the future?

Yes. So first off, we're like super excited about AI. I think it will allow us to move our vision way faster and like really give superpowers to people, we already do. And like I'll be very programmatic. Like we have really 3 main pillars of AI. One, is democratizing AI, much like we did with building software. We've added that. It was released like -- I talked about it in the -- not the last Elevate, the one before, our user conference. And it's like a great success. People use it. The adoption is growing and growing. And essentially, it allows customers to automate on their own. They use AI inside our automations and columns and essentially do stuff they couldn't do before automatically, like reading e-mails, summarizing them, creating action items automatically and assigning people, doing a lot of work that humans needed to do before. So that's one thing. The other part is like we're taking AI and putting it inside each one of our products to take it to the next level, essentially, like I'll give you an example, project management. So project management historically, and I don't mean managing one project. I mean like managing hundreds of projects together. Like you don't have predictability. You don't know what will go wrong. You don't know really want to fix it. And if you try and figure that out, you need to like harass a lot of people within the organization all the time. And there is a limit to what you can do. And essentially, you need people to tell you when there are risks. What we did is create like an automatic risk recognition area. It like kind of takes hundreds of projects and every day assesses the risk on time, on budget, on headcount and gives you like a true risk map for everything that moves every day and you can act upon and people -- everyone sees it within the project. And it's essentially things humans couldn't have done before. Its project meant from being less predictable to being more predictable. We're going to, I hope, shift the entire how you manage projects from -- to being more reliable for everyone. And that's just like one. In sales, we have like a huge amount of features to help salespeople and like summarize and train and all those stuff. So that's like the second pillar. And the third pillar is agents. I want to call them bots because agents is a technology, it's not a product. But anyway, you'll be able to hire like take a bot and essentially one of the bots will be probably expert in Monday, and you'll tell them to do stuff, like take these 2 bots, connect them and like filter the items by ownership of people in EMEA. You can write that in text. You'll do all that stuff. And you can imagine how much work or how hard it is to do it with filters and copying stuff. So -- and that part we're really excited about because we'll be able to open it up for the marketplace and allow external developers to also develop their own agents that can run on Monday and help our customers. So like a long answer and a detailed one. But I think like with AI, we need to go to the details and because there's a lot of hype, a lot of like promises. And we personally want to be more concrete and like say what we're going to do and actually do it rather than like say.

Well, thank you. We couldn't go through 30 minutes without having at least one detailed question on AI. Eliran Glazer, Roy Mann, thank you for joining us here at the Nasdaq Conference and sharing your insights.

Thank you for having us.