Monday.com Earnings Highlights

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Highlights of the Quarter

• Strong Growth: Monday.com reported robust growth, with Q2 revenue reaching $236.1 million, up 34% year-over-year.
• Record Customer Expansion: The company added a record number of 100K-seat customers, contributing to the overall growth in the large customer cohort.
• MondayDB 2.0 Launch: Monday.com launched MondayDB 2.0, enhancing scalability by allowing customers to manage boards with up to 100,000 items and dashboards with up to 500,000 items.
• AI Integration: Significant progress in AI integration, with a third-party GenAI chatbot deployed for customer service, resolving 50% of tickets automatically. New GenAI features were also introduced, including auto-generated action items and thread summaries.
• Operational Efficiency: Achieved record non-GAAP operating profit and the first-ever GAAP operating profitability in the company's history.
• Product Success: Monday CRM continues to exceed expectations, expanding to over 20,000 accounts since its launch in 2022. The company also introduced new features to Monday Work Management and Monday Dev, including a roadmap tracker.
• New Product Development: Monday Service, a new product, is currently in beta and expected to be fully released by the end of 2024.
• Financial Outlook: The company expects Q3 2024 revenue to be in the range of $243 million to $247 million, with full-year 2024 revenue projected to be between $956 million and $961 million.
• Customer Retention: Overall net dollar retention rate was stable at 110% in Q2 2024, with an expectation of slight improvement by year-end.
• Enterprise Customer Adoption: Monday.com saw strong traction among enterprise customers, with significant expansion within existing accounts and increased usage across various teams.
• Free Cash Flow: Free cash flow for Q2 2024 was $50.8 million, with a margin of 22%. The company expects full-year free cash flow to range from $270 million to $275 million.

Catch Up by Reading the Earnings Call

Thank you for standing by. I would like to welcome everyone to the Monday.com second quarter fiscal year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the call over to Byron Stevens, Vice President of Investor Relations. Please go ahead.

Byron Stevens:
Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for Monday.com's second quarter fiscal year 2024. Joining me today are Roy Mann and Aaron Zinman, co-CEOs of Monday.com, and Elrond Glazer, Monday.com's CFO. We released our results for the second quarter fiscal 2024 earlier today. You can find our quarterly shareholder letter along with our investor presentation and a replay of today's webcast under the news and events section of our IR website at ir.monday.com. Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on currently available information. These statements involve risk and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our investor relations website. Now, let me turn the call over to Roy.

Roy Mann:
Thank you, Byron, and thank you everyone for joining us today. Since our debut in NASDAQ three years ago, we have made significant progress in realizing our vision of becoming the platform to run the core of all work for customers. In that time, we have transitioned from a single product offering to a true platform with multiple products. This transition and our strong execution have allowed us to nearly double our customer base, triple annual recurring revenue, and increase our largest customer seat count tenfold. Our impressive growth trajectory aside, Monday.com's unique strength lies in our ability to achieve this expansion while driving operational efficiency. This quarter, we achieved a record non-gap operating profit and notably attained gap operating profitability for the first time in the company's history. Our investments in the enterprise go-to-market and platform infrastructure through MondayDB continue to yield promising results. In December 2023, we announced a significant increase in our largest seat count, growing over threefold to 25,000. This quarter, we are pleased to announce another significant milestone. Our largest seat count has more than tripled once again to reach 80,000 seats. Beginning with the finance and product teams to address multiple use cases, this multinational healthcare company rapidly extended its Monday usage to encompass additional teams within the organization. Impressed by our WorkOS's ease of use and customization capabilities, the company made a strategic decision in Q2 to expand Monday work management across the entire organization to address all work and project management needs. Let me now turn it over to Iran to walk you through some of our product highlights for the quarter.

Eran Zinman:
Thank you, Roy. Our efforts to enhance our underlying architecture with MondayDB remains on schedule and reach another exciting milestone in Q2 with the launch of MondayDB 2.0. MondayDB 2.0 will elevate scalability, enabling customers to manage boards with up to 100,000 items and linked items, and dashboards with up to 500,000 items, significantly advancing their work capabilities. AI continues to be a top priority, and we are actively integrating it across all areas of Monday. In mid-2023, we deployed a third-party GNI chatbot for managing chat-based customer service tickets, yielding impressive results. The chatbot has resolved around 50% of customer service tickets automatically. The initial success had led to a significant increase in chat ticket volume and reduced our reliance on external support for ticket management, as customers benefit from the chatbot quick and accurate responses. We expect this trend to continue through 2025 and beyond, as GenAI further enhances our efficiency in meeting customer needs. Additionally, we are leveraging GenAI to improve the user experience through advanced automation and text management collaboration. In Q2, we introduced the new GenAI features to the Monday platform, including auto-generated action items, thread summaries, and enhanced text extraction capabilities. We continue to make significant progress in enhancing and expanding our product suite. Monday CRM has been a major success, and it continues to exceed expectations, expanding to over 20,000 accounts since its launch in 2022. In Q2, we introduced several new features, including email engagement tracking and timeline reminders to further enhance its functionality. For Monday Work Management, we are focused on addressing the needs of larger accounts. In Q2, we launched our portfolio solution for enterprise work management, which has already shown strong initial adoption. Monday Dev continued to resonate with customers by offering a comprehensive suite of tools for managing the entire development process. This quarter, we introduced a roadmap tracker, which enables users to visualize company epics, track progress, and focus on key commitments. And finally, our latest product, Monday Service, is now on beta and is scheduled for full release by the end of 2024. We remain highly enthusiastic about its potential. In closing, we are less than a month away from the kickoff of our annual conference, Elevate. Elevate is a must-attend event for Monday.com passionate customers and anyone excited about work tech. This year's Elevate will take place in London, New York City, and Sydney over the coming months. Please join us live or online as we will share our vision, strategy, and product roadmap, allowing you to gain deeper insights into our product and future plans. With that, I'll now turn it over to Eliran to cover our financials and guidance.

Eliran Glazer:
Thank you, Eran, and thank you to everyone for joining our call. Before I walk you through our second quarter results in detail, let me first give you a brief update on pricing. Our new pricing structure that was introduced in Q1 24 continues to yield positive results and has now been extended to approximately 40% of our customer base. We maintain our forecast of a 25 million in revenue benefit from this new pricing structure for fiscal year 24, which project a total revenue benefit of 75 to 80 million from fiscal year 24 to fiscal year 26. We delivered strong results in Q2, marked by robust revenue growth and enhanced profitability. These results highlight our effective execution and the strong demand of our work operating system products across companies of all sizes. Total revenue in Q2-24 came in at $236.1 million, up 34% from the year-ago quarter. Our overall net dollar retention rate was stable in Q2-24 at 110%, reflecting the recent pricing updates and strong demand for our work operating system products. we continue to anticipate reported NDR to remain stable throughout fiscal year 24, with an expected small improvement by the end of the year. As a reminder, our NDR is trailing four-quarter weighted average calculation. For the reminder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financial in our earnings release. Second quarter gross margin was 91%. In the medium to long term, we continue to expect gross margin to remain in the high 80s range. Research and development expense was $36.9 million in Q2 24, or 16% of revenue compared to 16% in Q2 23. Sales and marketing expense was 120.7 million in Q2-24 or 51% of revenue compared to 56% in Q2-23 G&A expense was 18.2 million in Q2-24 or 8% of revenue compared to 8% of revenue in Q2-23 Net income was 49.3 million in Q2-24 up from 21 million in Q2-23 Diluted net income per share was $0.94 in Q2-24, best on 52.2 million fully diluted shares outstanding. Total employee headcount was 2,110 employees, an increase of 122 employees since Q1-24. We expect to ramp throughout fiscal year 24 with a continued focus on our R&D, product, and sales team as we build out our platform and product suite. Moving on to the balance sheet and cash flow, We ended the quarter with $1.3 billion in cash and cash equivalents, up from $1.1 billion at the end of Q4-23. In Q2-24, free cash flow was $50.8 million and free cash flow margin, as defined as free cash flow as a percentage of revenue, was 22%. Free cash flow is defined as net cash from operating activities, less cash used for property and equipment, and capitalized software costs. Now let's turn to our updated outlook for fiscal year 2024. For the third quarter of fiscal year 2024, we expect our revenue to be in the range of $243 million to $247 million, representing growth of 28% to 31% year-over-year. we expect non-gap operating income of 19 million to 23 million and an operating margin of eight percent to nine percent we expect free cash flow of 70 million to 74 million and free cash flow margin of 29 to 30 percent for the full year 2024 we expect revenue to be in the range of 956 million to 961 million representing growth of 31 to 32 percent year over year We expect full year non-GAAP operating income of 100 million to 105 million and an operating margin of 10% to 11%. We expect full year free cash flow of $270 million to $275 million and free cash flow margin of 28% to 29%. Let me now turn it over to the operator for your questions. Thank you.

Analyst:
As a reminder, if you'd like to ask a question, please press star and the number 1 on your telephone keypad. We'd also like to ask you to please kindly limit yourself to one question and one follow-up. Thank you. With that, we will begin the question and answer session. And your first question comes from the line of Brent Brason from Piper Sandler.

Analyst:
Good morning.

Analyst:
Good morning and thank you for taking the question here. I wanted to touch base on the large customer cohort. You added a record number of 100K customers this quarter from a net ad perspective. The net expansion metrics actually improved here despite some macro headwinds. Can you just talk through what seems to be resonating in this environment that's still challenged with those larger customers, why they're turning to Monday? It would be super helpful. Thanks.

Eran Zinman:
Yeah, Brent. Hi, this is Eran. So, yeah, we continue to see strong traction in our larger accounts. A lot of them are just accounts we already had on the platform that continue to expand and grow, 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 really healthy, even given the environment right now. So that's basically what contributed to the increase in the $50K and $100K and also their NDR.

Analyst:
Helpful color there as a follow-up, Eloran. I know you talked about kind of trying to still wanting to reinvest in the business. Op margins came in here better than expected in the quarter. Is that improvement tied to some of those customer support cost savings that you referenced using GenAI, or are there other factors that contribute to margin outperformance here in the first half?

Eliran Glazer:
Hey, Brent. It's Eliran. Sure. I would say some of it related to the fact that we are using GenAI in customer success, so we don't need as many people as we used to in the past. In addition to that, we're always speaking about efficient growth. So on one hand, while we are behind on hiring this quarter, we have some ambitious plans on hiring, as well as our spend on the performance marketing that is related to the big brain system that we have. then this is something that we always monitor. So as part of our efficient growth, we kind of look at our cost as well, not only on the top line, and this is the result of some of the things that I mentioned.

Analyst:
Fantastic. Phenomenal results, guys. Thanks for the color.

Analyst:
Thank you. Your next question comes from the line of Jackson Ader from KeyBank Capital Market. The line is open.

Analyst:
Thanks for taking our 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? It doesn't have to be the 80,000-seat, but like the large customers versus SMB utilization.

Roy Mann:
Hi, this is Roy. So you mean utilization in terms of like their seat count versus their usage of it or use cases?

Analyst:
Yeah. Yeah. Like, you know, you've got a hundred people and 70 of them really use it every day. And, you know, I don't know, 30 kind of check in every once in a while, like utilization of the product, meaning like how often they're using it. And I guess like if there's any measure of depth to how they're using it as well.

Roy Mann:
Yeah, so we have a lot of different measurements, obviously, and we see ourselves as a core tool. We go after core use cases, meaning it manages the core of work, and we see really high engagement across our customer base. Having said that, being part of the flywheel motion, what we see is that you have a team using a core use case which runs really the core of what they do, and then they invite other people that are helping them or connecting to them. And the flywheel motion means that over time, they will start creating their own core use case, and then we scale there. So we have two tiers, if you like, of types of customers, the one who are like in the main use case and the one who are kind of like more invited and part of others' workflows. And that's how we grow over time.

Analyst:
Okay. All right, great. And then actually staying kind of on the product side, for MondayDB, can you guys just put the scalability in context? 100,000 items on a board, 500,000 on a dashboard sounds like a lot, but can you compare that maybe to what those statistics look like under Monday DB 1.0 and then maybe even prior to Monday DB being rolled out last year?

Eran Zinman:
Yeah, Jackson, this is Eran. So compared to Monday DB 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 steps in terms of scale of what the boards can contain.

Analyst:
Okay. Awesome.

Eran Zinman:
That's helpful. Thank you.

Analyst:
Thank you. Your next question comes from the line of Alex Zukin from Wolf Research. The line is open.

Analyst:
Hey, guys. Thanks for taking my question 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 did it compare to your expectations and how to think through, again, this kind of macro, dicey macro environment that we seem to be in for this year?

Eliran Glazer:
Sure. Hey, Alex, this is Eliran. So with regards to demand, a few things that I would like to highlight. So SMB, the strength of Monday, and it continues to perform very well. In terms of what we see, demand environment in general, in terms of macro, is inconsistent and choppy. We also saw it from other companies that mentioned it. But the fact that despite persistent macro challenges, we see the demand steady across all segments. This is something that is very encouraging for us. And in addition to that, maybe to provide the KPI to demonstrate the strength is our growth retention is at record levels. But, you know, but we're still seeing some cautious spend environment with many other customers. So all in all, pretty consistent with what we saw in the past. It's not getting any better, but it's not getting any worse. And we maintain our strength in, you know, SMBs and across all segments.

Analyst:
Yeah, and maybe I have to... Sorry.

Eliran Glazer:
Yeah, go ahead.

Eran Zinman:
No, just you also asked about the large deal that we closed. So maybe this is Eran. So maybe just to give you some more color on this, it's a European-based multinational healthcare company. They were actually an existing customer of Monday since I think about 2020, four years now. They started, the first use case was mostly focused on finance and R&D, managed workflows 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 close now, they made the decision to consolidate on Monday and kind of basically standardized the whole company on the platform. So that's the largest account, but it's a very healthy expansion and long kind of use case over the years and happy partners of them since 2020.

Analyst:
Perfect. And maybe just as a follow-up, on the CRM sales net customer ads going forward, it's been about 4,000 now a quarter of the past two. Is this the right way to think about it going forward? And given the launch of DBT, of the 2.0 version of MondayDB, is it fair to think that we should start to see that ASRPC go a little higher on the sales side as well?

Eran Zinman:
I think this is Eran again. So I think it's a fair assessment to say that's going to be the pace. Most of the growth is still coming from existing users, so it's less of a case of MondayDB making a huge impact on the numbers. It's mostly customer acquisition of new customers that kind of generate and kind of help this number grow.

Roy Mann:
Yeah, and if we're talking about the CRM product, like we see nice growth and we're always going up market and improving our capabilities, so we do expect us to be able to get a bigger ACV, let's say, for CRM.

Analyst:
Perfect. Thank you, guys. Congrats again.

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