Monday.Com Ltd Q2 2024 Earnings Call Transcript

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

Question: Brent Bracelin - Piper Sandler - Analyst : Good morning and Thank youfor taking the questions here. I wanted to touch base on the large customer cohort. You added a record number of 100,000 customers this quarter from a net add perspective. The net expansion metrics actually improved here despite some macro headwinds. So can you just talk through what seems to be resonating in this environment that's still challenged with the larger customers, why they're turning to monday, would be super helpful. Thanks. Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yes, Brent, this is Eran. So yes, we continue to see strong traction in our larger accounts. A lot of them are just accounts we already have on the platform to continue to expand and grow and increase the number of users. Some of it is software consolidation, but a lot of it is just natural growth and more usage of monday within their own company. So that's continued to trend and looks fairly healthy, even given the environment right now. So that's basically what contributed to the increase in the 50,000 and 100,000, and also their NDR.

Question: Jackson Ader - KeyBanc Capital Markets - Analyst : Thank for taking my questions, guys. First one is on usage and utilization, maybe between the different customer segments. So what does utilization look like for your down the middle, small and medium-sized business customer versus maybe some of your largest customers? Not -- it doesn't have to be the 80,000 seat, but like the large customers versus SMB utilization. Roy Mann - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Hi. This is Roy. So you mean utilization in terms of like their seat count versus their usage of it or use cases?

Question: Jackson Ader - KeyBanc Capital Markets - Analyst : Okay. All right. Great. And then actually staying kind of on the product side. For mondayDB, can we -- could you guys just put the scalability in context? 100,000 items on board, 500,000 on a dashboard sounds like a lot. But can you compare that maybe to what those statistics look like under mondayDB 1.0 and then maybe even prior to mondayDB being rolled out last year? 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 12, 2024 / 12:30PM, MNDY.OQ - Q2 2024 Monday.Com Ltd Earnings Call Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Jackson, this is Eran. So compared to mondayDB 1.0, that's a 10x from the limits we had before in the prior version. And the number of items will continue to scale in future releases. So it is a significant growth, both in terms of boards and dashboards. And in future releases, we're going to have another kind of significant stats in terms of scale of what the board is going to contain.

Question: Alex Zukin - Wolfe Research - Analyst : Hey, guys. Thanks for taking my questions and congrats. Maybe just help us -- give us a flavor for kind of the demand environment, the linearity of the quarter and particularly the large deal cadence, which was, again, quite extraordinary. Maybe how did it compare to last quarter? How do they compare to your expectations? And how to think through, again, in this kind of dicey macro environment that we seem to be in for this year?

Question: Alex Zukin - Wolfe Research - Analyst : Sorry. Yeah, go ahead. Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Just you also asked about the large deal that we closed, so maybe -- this is Eran. To maybe just to give you some more color on this, it's a European-based multinational healthcare company. They're actually an existing customer of monday since about 2020, four years now. They started -- the first use case was mostly focused on finance and R&D, managed workforce and projects. And then we expanded. Now it's being used across procurement, design, internal ticketing management. And basically, last year, kind of end of last year, but closed now, they made a decision to consolidate on monday, and kind of basically standardize the whole company on the platform. So that's large accounts, but it's a very healthy expansion and long kind of use case over the years and happy partners of them since 2020. 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 12, 2024 / 12:30PM, MNDY.OQ - Q2 2024 Monday.Com Ltd Earnings Call

Question: Arjun Bhatia - William Blair - Analyst : Perfect. Thank you and congrats guys on the kind of strong quarter here. Maybe I wanted to ask about the service management product build-out. It seems like your infill data with that and maybe now you have a little bit of a better idea of what it looks like at launch. So what is your sense of how that product will differentiate versus competitive products in the market now that you have some feedback from customers? And how quickly it might scale and get adoption out of the gate compared to some of the other solutions you've launched like CRM and dev? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Thanks, Arjun, this is Eran. So first of all, we launched monday ServiceNow in beta. We already have a few dozens of customers using it and paying for the product. Look, it's very early days to say compared to -- how this will compare to monday CRM or monday dev. What we can share is that the feedback is very positive from customers, a lot of excitement. One of the things that really resonates compared to other players in the market, again, is the flexibility, kind of similar to CRM and dev products. But I think specifically for Service, it kind of -- the effect of this is even more significant to our customers because they want to automate a lot of the processes within the IT service management product, and they want to have more customability on how they catch data and how the process workflows. So this is exactly where monday shines. The feedback is very positive. People want to use this in addition to other products they're already using with monday. So it looks very promising. But again, early days. We're going to have a full towards the end of the year, and then we'll get more traction and we'll be able to share more numbers. 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 12, 2024 / 12:30PM, MNDY.OQ - Q2 2024 Monday.Com Ltd Earnings Call

Question: Ryan MacWilliams - Barclays - Analyst : Hi, guys. Thanks for taking my questions. I thought it was interesting how you added GenAI to your customer service efforts. And while interactions doubled, you were still able to reduce 30% of your external customer service account. Any learnings here as it relates to the upcoming launch of your monday Service product? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Can you repeat the last part of the question, about the --

Question: Ryan MacWilliams - Barclays - Analyst : I appreciate that color. And then just on the pricing impact, how are conversations, customer conversations been so far around contract renewal? Like are you capturing the pricing benefit you expected? And then how can we think about the contribution to net retention firm pricing this year? Thanks.

Question: Derrick Wood - TD Cowen - Analyst : Great, thanks. I'll add my congratulations. As you're driving some of the strongest growth in the SaaS market, from a competitive standpoint, would you say that win rates against core competitors have gone up? Or do you say you're tapping into new budgets you've never been in before and competing against different vendors? Just wondering how you talk about the strength of your competitive positioning. Roy Mann - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Hi. It's Roy here. So for one, I feel like we're still doing super strong on the performance marketing end. Because we have great visibilities into the return all our campaigns, we know where to put the money and see the returns. And I think like that's something we can do way better. And we still gain a larger share of the market because of that on the new side. On the other hand, really, we're still like fitting this with the greenfield space. We see most of our deals were not up against competitors. But in some areas, we do. And where we win, we win a lot because of the platform and our capabilities and the fact that companies see they can rely on us in the future as well in a lot of other things they can do. So yeah, so on all fronts, we see our future as positive competitively.

Question: Pinjalim Bora - JPMorgan - Analyst : Great. Hey. Thanks for taking my questions and congrats on a solid quarter here. One question on guidance/macro, I guess. It seems like you're raising the full-year guide by more than the Q2 beat, and you're not raising the pricing benefit for the year. So trying to understand what gives you confidence in this macro to essentially raise the core guide? Is that the large deal dynamics that you're seeing? Is that mainly because of the gross retention improving? Any color helps.

Question: Pinjalim Bora - JPMorgan - Analyst : Got it. Very helpful. Thank you. And one follow-up. Maybe talk about the pricing environment in general in this market. One of your competitors lowered prices, while almost everyone seems like raised prices. Do you see any pressure in the pricing dynamics in the market, especially among the enterprise customers? Or do you think people are looking beyond list prices for monday and kind of focusing on ROI?

Question: Gili Naftalovich - Goldman Sachs - Analyst : Hi. It's Gili Naftalovich on for Kash. Thank you for taking my question. You had impressive internal metrics regarding the implementation of GenAI services, and also mentioning the rollout of new functionality to customers on the platform. How you have seen over the last few quarters shaping your view on the technology and how it's going to be incorporated, both in the broader software ecosystem and monday, in particular? Eliran, curious to hear how you're thinking about this in terms of its ability to maybe change customers' propensity to pay or the need for the number of subscriptions a customer opt into. And I have a follow-up. Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah, sure. So yeah, look, definitely, the technology is real, and we've already seen some great benefits from adding features. I think so far, we mostly were focused on adding platform abilities in terms of AI, meaning allowing our customers the same flexibility and allow them to integrate AI workflows into their existing work streams. Kind of the next phase for us right now is to add AI capabilities into our product suite. So add specific AI features to CRM. Obviously, monday Service is going to benefit from AI features. So right now, our kind of future focus is adding more AI capabilities to the products themselves. But again, we're working on both fronts. And the feedback is good. It takes time for people to adopt those features definitely. But the ones that do, we hear great feedback.

Question: Gili Naftalovich - Goldman Sachs - Analyst : Perfect. Thanks. And how is the adoption curve this year? I mean shaping your view on pricing go-to-market more broadly, particularly as you look to the GA of Monday service and future products. Should we expect this to follow the same curve in the sense that it will be released to new customers before existing? Or are you guys taking a different approach?

Question: Michael Berg - Wells Fargo - Analyst : Hi. Congrats on the quarter. Thanks for taking my question. I wanted to touch on cash flow for a second. It looked like cash in the quarter wasn't quite as robust as operating margins, but the implied rest of your outlook looks incredibly showing, in particular in Q3, but Q4 remains a little bit low implied. Anything to point to on seasonality or timing of free cash flow, and maybe how to think about that beyond this year? And then I have a follow-up.

Question: Michael Berg - Wells Fargo - Analyst : Helpful. So to be clear, the $10 million of the incremental free cash flow raised on the incentives, and then does that also explore the pickup in CapEx?

Question: Michael Berg - Wells Fargo - Analyst : Helpful. And then a quick follow-up. So with service coming out later this year, you had three strong new products over the past, we call it, 18, 24 months. Nothing has been announced beyond that. So how could we think about new products or how you're thinking about new products or areas to focus on beyond Service from here? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. This is Eran. So right now, we don't expect to add new products in the, I would say, coming future. We're very much focused on going deep for each one. That means we're going to focus on CRM, dev, work management, obviously, and service. And going deep means adding more functionality. Maybe we're going to have like subproduct within those kind of mini products suite. But not going to open -- we're not going to open more product lines in the upcoming future.

Question: Michael Funk - BofA Global Research - Analyst : Great. Thank you for the questions this morning. I think you briefly mentioned earlier that part of what you're seeing is consolidation. A small part of your growth, but still seeing it. Anything to call out on your product advantage or reason customers are consolidating onto monday, or maybe why they're moving away from competitor products? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Hi, Mike. This is Eran. I see the main reason what we've seen -- it's not huge numbers, but it's definitely a little bit green that customer can only do it on Monday, mainly because it can do many things because of its flexibility. I think where other products don't have this ability is where they kind of build for one purpose. And then if you want to add more use cases or want to had kind of consolidate other products, it's almost impossible technically to do it. And with monday, a lot of our customers managed to it and kind of consolidate different products they're using into the platform. So just with the nature of the flexibility, it allows our customers to do more and more of that consolidation.

Question: DJ Hynes - Canaccord Genuity - Analyst : Hey, guys. Congrats on a nice quarter here and to the results. Just one for me. Eran, I want to ask you a high-level question around R&D spend. I mean you guys clearly continue to innovate quickly, but when I look at your business compared to, say, somebody like Atlassian, right, which maybe they're not the best comp given the unique P&L. But you guys spent quite a bit less on R&D. Can you just talk about that product development efficiency, what drives it? And how we should think about trends in R&D spend over time? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Hi, DJ. It's Eran. So unfortunately, from my own experience, spending more R&D doesn't always correlate to more execution. So I wish this was the case. Being efficient in terms of R&D developers, product and designers is all the goal of us, and it's very important for us. Often, what we found is sometimes having less people on the team makes it the more efficient, as opposed to having a lot of people on the team. And you've seen our execution over the years. We always believe in high-velocity execution. We drive to make an impact with our product teams and given then a lot of the ownership. We're very proud in how we manage our R&D team and execution. In terms of the percentage of spend, it might go up a little bit in terms of -- maybe Eliran can add more calls on this. But we're keen to keep our efficiency, and even more than that, we're keen to continue and execute as we scale the company.

Question: Steven Enders - Citi - Analyst : Okay, great. Thanks for taking the questions here. I guess maybe just to start, I want to ask about the, I guess, annual customers coming up for renewal and the impact of the price increases are having into that base. I guess is there a way to frame kind of how those conversations are trending? And how much of the price increase is being adopted today versus maybe that driving a discussion to drive more adoption, and maybe the price increase will come in kind of later, or in fact, will come in later down the line?

Question: Steven Enders - Citi - Analyst : Okay. That's helpful context there. And then I guess maybe we can think about the impact of metrics. I mean the 50,000, 100,000 adds came in pretty solid. I guess, how much of that is attributable to the price increases coming in here? And how should we think about the trends on those ads throughout the rest of the year? Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Hi, Steven. It's Eran. So I don't think it's had almost any impact on the growth in terms of the 50,000 and 100,000. Those conversations things longer. We expect kind of the first of the price increase to finish by the end of Q3 of next year. I think that's where most of the enterprise accounts, definitely above 50,000, where we're new and will benefit from the price increase for those accounts. So it will take another kind of full year to do the full cycle for those enterprise customers.

Question: Scott Berg - Needham & Company - Analyst : Hi, everyone. Really nice quarter here. I had a question on the [EDK CTL], certainly more than the last largest customer size of 25,000 we heard last year. But as you think about a deal that size, is that customer fundamentally purchasing anything different in terms of your functionality relative to maybe some -- maybe another customer at 500 or 1,000? Thanks. Roy Mann - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Hi. It's Roy here. So -- sorry about that. So essentially, they're not using us for anything materially different, just at scale. So they did take us on the work management ticket and managing projects and portfolios and workflows across the organization. They understand our road map. They are with us for a long time. 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 12, 2024 / 12:30PM, MNDY.OQ - Q2 2024 Monday.Com Ltd Earnings Call And essentially, when you reach those scales, there are things that are needed from the platform like, let's say, different user management and other such governance features, which we do have. And so -- and working on all the time. So the product -- the core product is the same, but the, let's say, management around is a bit different, and we have been working on those things for a long time as well.

Question: Taylor McGinnis - UBS - Analyst : Yeah. Hi. Thanks for taking my questions. The first one is that you saw a stabilization to an inflection this quarter an NRR with those larger customers. And I think that was a little earlier than expected, but you reiterated the stable NRR guide and then slight improvement in 4Q. So can you just comment on what's driving some of that conservatism despite recent trends and the uplift from price? Anything to be mindful of in the half in terms of renewal or gross retention or sources of that prudent?

Question: Taylor McGinnis - UBS - Analyst : Great. And then just as a follow-up. So it seems like CRM customer growth is trending really nicely and they're scaling well. So can you help us quantify maybe how that might be contributing to growth this year? Are we getting to the point where these could be more than just the one to two-point contributor? Any help as we think about that in this year. 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 12, 2024 / 12:30PM, MNDY.OQ - Q2 2024 Monday.Com Ltd Earnings Call Eran Zinman - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Hi, Taylor. It's Eran. So look, again, it's pretty early days for us. Although both are growing really well, and we showed some numbers in the Investor Day about CRM, and continue to grow really well above our expectations, but still it's relatively low in terms of percentage compared to our total revenue count. But given the high growth rate, over time, we expect this to become more and more material part of our revenue, internal percentages. But again, right now, it's still early days in terms of growth and relative size.

Question: Robert Oliver - Baird - Analyst : Great. Thank you. Good morning. Thanks for taking my questions. First one is on sales ramp. I know you guys referenced in your prepared remarks or in response to a question that most of your wins generally are still greenfield. But I'd be curious to know what you're seeing in terms of early trends on sales CRM, is that still a filling that void in the market at the low to mid-range where traditional CRM hasn't historically served? Or as you move upmarket, are you starting to see some bump-up against some competitors and some potential competitive displacements? Roy Mann - Monday.Com Ltd - Co-Chief Executive Officer, Co-Founder, Director Yeah. Hi, it's Roy. So I would still say we're like 50% greenfield in CRM. It's like a largely growing segment, okay, and we're like mostly growing, I think, in accounts in the SMB space. But we're going upmarket into the mid-market as well. And yes, on 50%, we do see other CRMs, which we compete against. And what the -- I think what makes us succeed and be in a really good sweet spot is, on one hand, our customability and the fact that we're really good at trading any workflow you want around CRM, obviously, if you have projects involved as well in the sales process or after that. So that's where we shine. And CRMs, in general, needs a lot of customization. That's what customers really want. And on the other hand, we're seeing great success in the performance marketing side. So we're able to capture a large -- like a great deal of the market demand.