Monday.Com Ltd Q2 2021 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kash Rangan - Goldman Sachs - Analyst : Hi, thank you very much. Lovely day fantastic results and congratulations on the first quarter as a public company. What a great start. Roy, one question for you. You talked about sales and marketing investments. Can you talk about -- how should we think about how productive did the shift towards more selling and a little bit less marketing as it pertains to sales and marketing is likely to drive traction in the enterprise going forward? Because it certainly seems that you had a great quarter but you're just getting started building out and scaling your sales effort for the enterprise. And one for you, Eliran. It does look like you made significant progress with operating margin and free cash flow, yet your guidance still calls for a snapback to previous [services] losses. So, just wondering if there's any specific investment you are making in the second half or just trying to keep things conservative and wait till the quarters prove themselves? Thank you so much, congrats. Roy Mann - monday.com Ltd. - Co-Founder & Co-CEO Hey, Kash, thank you. It's Roy. So, yes, we are putting a lot of emphasis on growing. Like we mentioned before in our -- during the IPO, we have a funnel that is driven by no touch, like we do marketing that we get leads. Those leads become paying customers. And our sales force are addressing those customers after they pay and help them scale. So, while we invest a lot in marketing, we see that we're doing that in a more efficient way, which is what you can see with the results this quarter. Our approach to new customers is becoming more efficient, while we scale the sales team and its approach to grow our customers way more. So, you see both of these working really well and I think we are, as we mentioned before, seeing our sales team that has been growing the last two years reach more maturity and it's working better and better.

Question: Kash Rangan - Goldman Sachs - Analyst : Absolutely. Great start. Congratulations. Thank you so much.

Question: Matt Coss - JPMorgan - Analyst : Good morning. This is Matt Coss on behalf of Mark Murphy. I will add my congratulations on the quarter. Can you talk to us about the distribution of new use cases by prepackaged solutions versus someone using monday to build something completely from the ground up? And then maybe you can help us understand how many of your customers who have adopted prepackaged solutions are using the low code/no code advantages of the platform to really customize their application. Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO Sure. This is Eran. Can you just repeat the first part of the question, please?

Question: Brent Thill - Jefferies LLC - Analyst : Thank you. I was curious if you could spend a little more time on the enterprise traction and maybe provide some examples of where you're staying great traction. I think maybe if you could also talk about your largest deployment and give us a little more color in terms of how that buildout is going. Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO Yes, so we see very high growth in the customers over 60,000, over 226% year-over-year growth. From our side of the Company, this is a strategic part of our business going forward. We do invest heavily into the no touch and bring in new pay customers into our funnel. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call But at the same time, as we mentioned at the beginning of the call, we invest heavily into making the product better for enterprise customers, keep adding features and capabilities. And this part of the business is growing significantly faster than the whole of the business. Those customers demonstrate very high net [call] retention numbers, they expand more and we are keeping and launching new features to that part of the business going forward. Roy Mann - monday.com Ltd. - Co-Founder & Co-CEO Yes, it's Roy. I can add that in enterprise we are focusing on security control features and governance. And that's basically enabling us to get into larger customers. They want it and we need to just open the door right now with enabling all those things. And that's where our biggest focus is product wise.

Question: Bhavan Suri - William Blair - Analyst : Let me echo my congrats. That is a great quarter out of the gate. I guess I want to touch on the enterprise traction. You have added more than 100 customers to the 50,000-plus ARR. I guess I'm trying to understand how much of this do you attribute to the product getting more sophisticated, it's ability to handle complex workflows? Or do you think it's more driven by the fact that direct sales motion and customer adoption is maturing. How would you balance those two? Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO So, my short answer will be both. I think we've seen the combination of two forces. One is obviously the fact that we -- between our sales team, we had more sales reps in our Company and they are becoming more experienced. So, this is one part of this effect. The second part is that we invested heavily into the product for enterprise accounts and we're [keeping] to do that. So, we're doing a lot on that front just to make the product more scalable. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call And we see that, as we progress, larger and larger accounts are able to adopt monday. And another very interesting trend that we see is that every sales cycle that (inaudible) within existing accounts is for another sales cycle. So, it's like a never ending process of finding new use cases, new departments that can use monday. So, it's not like a one-time deal that you sign off, but more of a process. So, that's where we get larger and larger accounts using us.

Question: Bhavan Suri - William Blair - Analyst : Got you, got you. That is very helpful. Thanks for the color, gentlemen, and congrats again.

Question: Brent Bracelin - Piper Sandler - Analyst : Thank you and good morning -- or should I say good afternoon. I wanted to go back to the growth divers of the business. Growth accelerated here to 94%. You are taking your full-year outlook up to 75% growth for the year. I think we were at 60% kind of going into the quarter. So, as you look at just the overall business, what's performing better? It sounds like enterprise is strong, existing customers is strong. Is that the main driver here giving you optimism, just stronger adoption and expansion than you expected? Is it broad-based, is there a particular region or segment of the business that is outperforming? It just seems like the business here is much stronger. Your optimism is much higher. Trying to understand what the primary kind of rank order drivers here of the business are. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call

Question: Brent Bracelin - Piper Sandler - Analyst : Great to hear there and appreciate that color. I guess on the flipside of that, operating losses have narrowed meaningfully in the quarter. It looks like your guidance suggests that operating losses here could continue to narrow. Is that a function of just not being able to hire as aggressively as you would like? I know it's a tight labor market right now. Or is there something structurally more efficient about your sales and marketing spend where you feel you can drive this hyper growth without aggressively investing as much as you have in the past? Just trying to understand why you are kind of narrowing the operating loss here for the second half of the year. Thanks. Roy Mann - monday.com Ltd. - Co-Founder & Co-CEO So, as I mentioned earlier, Brent, we are not trying to optimize costs. Actually we are going to continue and invest aggressively. But definitely we see some efficiencies within our sales and marketing investment. But we will continue to invest aggressively. I don't want to think about it as an indicated kind of direction as we are operating in accordance with what we presented in our growth phase model. We are going to see further additional costs, I believe, in the second half of the year. As I mentioned, we just moved to the new building. We are going to continue to hire aggressively. Even though there are some challenges with hiring, we are still hiring very well. And there are going to be salary increases. We are going to have events by the end of the year. So, I think we are going to be costs that really are going to be incurred in the second half of the year. But obviously we are working in accordance with our growth phase operating model.

Question: Ittai Kidron - Oppenheimer - Analyst : Hey guys, great quarter out of the gate, good stuff. I wanted, maybe Roy and Eran, to talk about workdocs, the announcement you made today, if you could give us a little bit more color. And more interestingly, how does that work its way into your pricing plans? What are the odds that within the next 12 to 18 months you actually raise prices across your plans? Roy Mann - monday.com Ltd. - Co-Founder & Co-CEO Yes, it's Roy. So, that's super exciting, the workdocs. So, we are -- essentially we see a lot of starting points for Monday in our Monday boards where it's a very structured way of information. And the documents essentially allow customers to start with an unstructured way, right? Like you start something and then usually it stops with old fashion docs. With monday we saw a massive opportunity with continuing that work on the platform, adding more people. So, we see this as a new way for customers to start using monday. So, the docs, as you asked, are accessible to everyone. We don't want to limit that by pricing tier and those kinds of limitations because we want everyone to start. We will in the future consider adding more tiers into the documents for extended functionality, but we don't have that now. Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO And if I can add, Ittai, this is Eran. So, another point that's super interesting is the combination between [growth] and workdocs. So, the fact that you can embed into a workdoc a board where you can actually change the board from within the dock, (inaudible) and have several people working together in this very intuitively and in real time is, again, a power multiplier in terms of [to] and vice versa. You can have a dock within a port. So, combining those two products together I think will generate very exciting ways that our customers can leverage the power of both.

Question: Ittai Kidron - Oppenheimer - Analyst : Got it. Excellent. Good stuff. Thanks.

Question: DJ Hynes - Canaccord Genuity - Analyst : Great start here, thanks for taking the questions. Just one from me. I'll direct it at Eran, but anyone feel free. I was hoping you could talk a little bit about coexistence with other work management tools in your large enterprise accounts. I look at Fortune 500 penetration for guys like Smartsheet, Asana, yourselves. There's clearly overlap there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call So, hoping you could talk about how you see this playing out. Will there always be room for multiple vendors in these large accounts? Or do you think they consolidate around a single vendor over time? And how do you position monday to be that vendor? Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO Thanks DJ. It is Eran. It's a great question. Overall main account is a Work OS. So, essentially there's a lot of things that could build within monday, but one of the key things that were super important for us being a Work OS is to integrate really well with other tools. So, essentially our goal is not to replace all tools within the organization, but to be a place where people can build stuff and manage a lot of the core functionality within monday. But any app that an organization already uses can be integrated into monday. Data can be presented within Monday, you can change things and data can be synced back into a third-party application. So, essentially it our philosophy is to work well with everybody. We are not trying to replace everything within an organization, so I don't think it is a point of consolidation. But very likely positioned in a way that we're kind of the [work customization], the backbone that connects everything within an organization, if it makes sense.

Question: Derrick Wood - Cowen and Company - Analyst : Great, thanks for taking my questions and congratulations on my end as well. Maybe first one for Eliran. The enterprise net revenue retention rate you mentioned was 125%, up from 121% last quarter. Could you unpack how much has come from improvements in gross retention and how much is from stronger expansion trends? And then speaking about expansion, project management is a core area for you. But we get a lot of questions from investors, what are the next most popular two or three use cases and what's growing the fastest. So, if you could comment on that as well that would be helpful.

Question: Derrick Wood - Cowen and Company - Analyst : Yes, perfect.

Question: Derrick Wood - Cowen and Company - Analyst : Yes, it was just that we get questions from investors on what are the most popular two or three use cases outside of core project management in terms of where you guys are seeing the most traction. I know there's a lot of different fronts that you guys compete and offer, but if you had the top two or three that would be helpful. Roy Mann - monday.com Ltd. - Co-Founder & Co-CEO Yes, so that's great. I would say one more that is CRM for smaller use cases up to midsize use cases, we see that as a big trend for us. And also we have a lot of customers that build their own use case. So, they manage -- we have customers from over 190 different business verticals. So, they do -- they run manufacturing plants, some manage clinical [prior] research, run production. So, it's not project management as much as they run their own processes and they build their own tools to run those processes. So, whatever that might be. And that's more in the workflow process management kind of space.

Question: Scott Berg - Needham & Company - Analyst : Hi, everyone. I also echo my congratulations on the strong first post-quarter IPO results. I guess the first question is, and I don't know who wants to take it, but it's on the workdocs, and not specifically the product, but just how you think about pricing more in general going forward. Today you released the functionality or you talked about the functionality being included in the base price. But do you ever get to a situation, maybe over the next couple years, where you modularize or componentize some of that functionality and sell that as an upsell premium tier versus an all-you-can-eat-today scenario? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO Yes, so thanks, Scott, for your question. This is Eran. So, it's a great question. When we launched workdocs today, our thinking that we wanted to be available in all pricing plans, because the idea was that anything that can drive usage and have more people in an organization that can use monday, it makes sense to be available in all [clients], because essentially we wanted to get everyone on board. In regards to future thoughts in terms of further pricing and packaging, so this only -- the way we think about future pricing is around packaging in terms of different product solutions that we offer. So, in different industries we have different pricing levels. For example, in CRM we can charge more poor user and other industries as well. So, our thinking going forward is to package a product more significantly for those product solutions, and then we can add differentiated pricing and perhaps different tiers for those product solutions. So, definitely going forward it is in our roadmap.

Question: Andrew DeGasperi - Berenberg - Analyst : Thanks for taking my question and congrats on going public. First I guess I wanted to ask and follow up on the competition question. I know that a lot of other work management tools are also chasing the larger end of the market or the enterprise customer. So, I was just wondering if any of these bids are competitive that you are seeing right now or are they mostly greenfield? Eran Zinman - monday.com Ltd. - Co-Founder & Co-CEO Anything that we see, this is a huge greenfield opportunity for us on -- this is [something we follow] as part of the IPO. On 70% of the deals we see literally no competition. Usually customers use email and spreadsheets and PowerPoint -- and email to communicate and collaborate. And it just seems that everybody are trying to improve how they work and make it more efficient. It doesn't feel like a greenfield. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2021 / 12:30PM, MNDY.OQ - Q2 2021 Monday.Com Ltd Earnings Call On 30% of the deals we see, I would say, more of a vertical competition. So, if somebody used monday for [CRM] for example, we might compete with SMB focused CRMs. If somebody is using project [development] we might see other competitors in the project management space. But broadly speaking, this is a huge greenfield and there's a huge opportunity to grow within this market.