monday.com Ltd.

Good day. My name is Alex, and I'll be your conference operator today. At this time, I would like to welcome everyone to Monday.com's third quarter fiscal year 2022 earnings conference call. I would now like to turn the call over to Monday.com's director of investor relations, Mr. Byron Stephen. Please go ahead.

Good day, everyone, and thank you for joining us on today's conference call to discuss the financial results of Monday.com's third quarter fiscal year 2022. Joining me today are Roy Mann and Aaron Zinman, co-CEOs of Monday.com, and Elrond Glazer, Monday.com CFO. We released our results for the third quarter fiscal year 2022 earlier today. You can find our quarterly shareholder letter along with our investor presentation and 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 the 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 the Investor Relations website. With that, let me now turn the call over to Roy.

Thanks, Byron. Good day, everyone, and welcome to our third quarter earnings call. We are pleased to say that Q3 was another terrific quarter for Monday.com. We posted strong growth with enterprise customers, saw continued momentum in our new WorkOS product suite with Monday CRM exceeding expectations, scaled our global workforce and operations, and did it all while generating positive adjusted free cash flow. We ended the quarter with a revenue of $136.9 million, reflecting growth of 65% year-over-year on a reported basis. or 68% on an FX-adjusted basis. Adjusted free cash flow of $14 million, representing a 10% adjusted free cash flow margin. We are closely monitoring uncertainties in the macro environment and the impact it's having on our customer and our business. We currently see two primary headwinds. First, we continue to see pockets of stress in our customer base, in particular in Europe, with some indication of softness spreading to other regions. Second, since we have a large presence of business outside the U.S., the strong U.S. dollar has negatively impacted reported results and represents an FX headwind to revenue growth. Despite these uncertainties, new customer demand remains solid. and acquisition efficiency improved in Q3. While others are pulling back, we continue to see opportunities and invest for growth and gain market share. With our in-house business intelligence tools, BigBrain, we track every marketing campaign in detail, allowing us to easily adapt to changes in the business environment. Let me now turn it over to Eran to walk you through our Q3 product highlights.

Thank you, Roy. As Roy mentioned, our strong growth this quarter continues to be led by enterprise customers, with our enterprise base growing 116% year over year in Q3. We achieved this by delivering several key updates that are tailored to the needs of larger customers. We continue to invest heavily in the overall performance of the WorkOS platform, adding more enterprise features and functionality, and building our direct sales organization in order to lend larger and expand more with enterprise customers. Most notably, this quarter, we enhanced workload time by 25%, improved our mobile experience to achieve an amazing 99.8% crash-free rate, and significantly improved our strategic integrations with both Salesforce and Jira to make them as seamless as possible. As a result, as of Q3, customers with 10 plus users now represent 76% of ARR, up from 70% a year ago. Customers with more than 50K in ARR now represent 26% of ARR, up from 18% a year ago. We intend to provide these two metrics on a quality basis going forward. Next, I would like to highlight the continued success of our WorkOS product suite, which represents a huge opportunity for Money.com. In just five months since their launch, we've seen over 3,000 new customers adopt at least one of the new WorkOS products. We are extremely encouraged by the adoption that we are seeing in these early stages, especially for Monday Sales CRM, which consists of over half of the new WorkOS product signups. Monday Sales CRM is already rated as one of the best CRMs in the market, according to G2, and we continue to focus on making it even better through advancements such as new layouts and new reporting widget types. As a reminder, these new WorkOS products have only been made available to new customers, and we are excited to roll the products out to our existing customer base in the near future.

With that, let me now turn it back over to Roy. Thank you, Eran. Earlier this month, over 97,000 registrants from over 174 countries came together for our annual online conference, Elevate. This exciting event offered customers training and product workshops on ways to make the most out of the WorkOS, deep insights on how to boost efficiency and improve workflows. and inspiring talks from leading companies and fellow customers. We are also hosting additional invite-only events for industry leaders in New York City, London, and Sydney this month. We are extremely excited to meet many of our customers and partners in person in the coming weeks. At Elevate, we opted to plant one tree in honor of every registrant in place of sending physical gifts. Now we are taking this step further and will plant 265,000 trees across four different forests in Southeast Africa over the next 18 months. This effort is a reflection of our ongoing commitment to making the planet sustainable equitable and safe. This effort is a reflection of our ongoing commitment to making the planet sustainable, equitable and safe. Finally, such strong, consistent innovation and growth this quarter wouldn't be possible without our amazing team, which grew this quarter to over 1,550 employees around the world. We continue to invest in our people with new offices in New York City, Chicago, Miami, and Tokyo. We believe these spaces will invite even more collaboration and community for our teams while providing the flexibility they need to be successful. These offices signify not only where we are right now, but where we are going in the future. We are very proud of the growth we achieved this quarter and look forward to carrying this momentum into the end of the year. With that, I'll turn it over to Eliran to cover our financial and guidance.

Thank you, Roy, and thank you to everyone for joining our call. Today, I'll review our third quarter results in detail and provide update guidance for the fourth quarter and full year 2022. We continue to deliver strong growth driven by customers increasingly adopting the broader Monday.com WorkOS and our product suite across the organizations. Total revenue came in at $136.9 million in the third quarter, up 65% year-over-year on an as-reported basis, and 68% on an ethics-adjusted basis. Additionally, we saw continued operating margin expansion during the quarter, stemming from our platform-based land and expense strategy, and operational efficiencies. Coming off historical highs, our net dollar retention rate, or NDR, declined slightly in the third quarter, negatively impacted by a strong U.S. dollar, and our increasing ability to lend larger initial deals. NDR for customers with more than $50,000 in ARR was over 145%. NDR for customers with more than 10 users was over 135%. And our NDR for all customers was over 120%. As a reminder, our net dollar retention rate is a trailing four-quarter weighted average calculation. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing a non-GAAP financial measures. We have provided reconciliation of GAAP to non-GAAP financials in our earnings release. Third quarter growth margin was 89%. In the medium to long term, we continue to expect growth margin to remain in the high 80s range. Research and development expense was $26.3 million, or 19% of revenue, compared to 17% in the year-ago quarter. We will continue to invest significantly in R&D throughout the remainder of the year as we build our product suite and scale our workforce platform both horizontally and vertically. Sales and marketing expense was 82.4 million or 60% of revenue compared to 73% in the year-ago quarter. We anticipate sales and marketing expense as a percentage of revenue to be in the mid to high 60s range in Q4. G&A expense was 15.2 million or 11% of revenue compared to 11% in a year-ago quarter. Operating loss was 2.2 million and operating margin was negative 2%. Net income was 2.6 million Diluted net income per share was $0.05, based on 50.3 million fully diluted shares outstanding. Total employee headcount was 1,552, an increase of 63 employees since last quarter. We continue to execute on our hiring playbook that we laid out at the beginning of the year, with elevated hiring in the first half and a much slower rate in the second half. We anticipate that this current level of hiring will be consistent moving forward. Moving on to the balance sheet and cash flow. We ended the quarter with 852.6 million in cash and cash equivalents. Net cash provided by operating activities was 20 million in the quarter. Adjusted free cash flow was 14 million, including approximately 7 million from financial income. Adjusted free cash flow margin was 10%. Adjusted free cash flow is defined as net cash from operating activities less cash used for property and equipment, and capitalized software costs, excluding non-recurring items. Now let's turn to our updated outlook for fiscal year 2022. For the fourth quarter of fiscal year 2022, we expect our revenue to be in the range of $140 million to $142 million, representing growth of 47% to 49% year-over-year. We expect a non-GAAP operating loss of $22 million to $20 million. For the full year 2022, we now expect as reported revenue to be in the range of 509 million to 511 million, representing growth of 65 to 66% year over year. We now expect the full year non-GAAP operating loss of 83 million to 81 million and the negative operating margin of approximately 16%. With the recent strengthening of the US dollar, We estimate that at the current spot rate, FX will negatively impact our full-year revenue growth estimates by approximately 300 basis points. Given the concerns about the macroeconomy and the market, we have provided what we believe to be achievable forward-looking guidance. Please note that we will be introducing guidance for the full-year 2023 in our fourth quarter earnings. In sum, we remain committed to balancing healthy growth in the business while also staying disciplined on improving efficiency and profitability. We have an abundance of great opportunities ahead and will continue to make decisions with a longer-term view. I'll now turn it over to the operator for your questions.

Thank you. As a reminder, if you'd like to ask a question, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Steve Enders of Citi. Steve, your line is now open.

Hi, great. Thanks for taking the question. I just want to dig in a little bit more into some of the outlook that you're seeing out there, and particularly what you're seeing on the billing side. Has there been kind of any change in customer dynamics, either with the FX impact that came in in the quarter or anything around deal durations or any split between kind of S&B or enterprise that you're seeing out there with customers?

Yeah, sure. Hi, Steve. This is Aron. So first of all, you know, one thing to start with, all our underlying fundamentals are very strong. We continue to see very strong enterprise growth. NDR keeps remaining very high and stable. And we can see the early adoption of our new WordPress product. As we mentioned also in the previous quarter, we continue to see the same ethics headwinds that we had. and have an impact on our revenue growth and also NDR. And as we mentioned as well, we see some softness in Europe that also continued into Q3. One thing to mention in addition that in September and October, we start to see some indication that the softness is kind of spreading a bit more globally. So definitely we can see that as well. But from another perspective, in terms of performance marketing, we continue to heavily invest in acquiring new customers. I would say that it becomes more efficient for us to acquire new customers, lower bids in the market, and definitely it's an option for us to gain a larger market share. And also our free-to-pay conversion, overall our funnel remains very stable. So taking all of that into account, all the fundamentals remain very strong, and we continue to gain momentum in the market.

Okay. That's helpful. It's great to hear. I guess just, again, on kind of the profitability upside in the quarter, I guess, can you dig in a little bit more about kind of what were the drivers there? Were there any kind of delay in and spend that you have that maybe you shifted some things into 4Q or maybe some change in kind of hiring expectations. Can you just kind of dig in what really drove the upside here and then give me some of the back in 4Q here?

Sure, Steve. It's Eliran. So first of all, welcome to the conference meeting for the first time. You know, we're operating in accordance with our playbook, We have a system called Big Brain that is measuring everything that we do. And going back to what Iran said, our performance marketing and marketing spend overall is lower than anticipated because cost per sign-up went down. Therefore, we benefit from this efficiency. Obviously, we beat the top line by $6 million, and this impacted on our discretionary spending. If there is not necessarily things to do, events or travel, then obviously we are more cautious with the level of spend. So all of these together combined with the way we manage the business from an efficiency perspective and the playbook that we apply, draw the great margins that we saw in this quarter.

Okay, perfect. Appreciate the color. Thanks for taking the questions.

Thank you. Our next question comes from from JP Morgan. Your line is now open. Please go ahead.

Oh, great. Hey, guys. Thank you for the question and congrats on the quarter. I want to ask, can the WorkAways product seems pretty impressive results? Can you help us understand, you know, what kind of price points those things, those new products are landing at? Seems like CRM is doing well. What about the other parts? the other three products, and then how should we think about the contribution of those products this year?

Yeah, Angel, thanks for the question. This is Zoran. So definitely we're very happy and excited and encouraged from the results we've seen so far with the new Workless products. I would say all of them are successful, but CRM definitely stands out as being the most dominant one. We mentioned that over 50% of new customers that are buying those new products are actually buying the CRM product. And just to mention that all those new customers are basically new paying customers. So we just opened up, as of now, just for new customers. We haven't started . All those products have a different price point, and definitely that's another upside that we take into account. We didn't put that into the model yet because it's still early days and small numbers. But definitely the momentum that we're seeing and the growth is very encouraging and very promising for the future. That's part of the reason why we're so excited about this.

Understood. One question for Eliran on billings. When we look at the sequential billings, growth seems a little bit muted. I was wondering if you can tease out the FX impact on billings or if you're seeing any kind of a change in invoicing duration. And how should we think about billings going forward? Do you think it could lag revenue in the near term?

Sure. So when we speak about calculated billings, we mentioned this is not the best measurement of our business. We believe revenue growth, customer growth, and NDR are the best indicators of the health of the business. Calculated billings were definitely impacted by the ethics. If you think about the fact that 30% of our ARR is in currencies that are not U.S. dollar. Name 10% Euro, about 5% British pounds, and other currencies definitely have impact on the calculated billings overall.

Okay, thank you.

Thank you. Our next question comes from Brent Bracelin from Piper Sandler. Brent, your line is now open.

Good morning and great to see the momentum in the business and return to positive free cash flow. I wanted to double click into the CRM product. What's resonating with customers here on the product? Is the profile of new customers changing? Is it a larger customer willing to spend more from a user perspective? Is it a smaller customer? Any color you could provide around The type of customer and and what's resonating with that type of customer for the new CRM product be great.

Thanks Hi, this is Roy so Yeah, so I think CRM is We tapped into a new market. We see new customers of a new kind and we also see a them comparing us to other companies that we were not compared to before. So like Iran said, the type of customers that are joining us are completely new. It's like it's not existing customers. And so obviously they start off from like a different scale. They want different things. And this is very encouraging for us. Because it proves for us that Monday is a true platform that has completely different products on it. And obviously CRM requests differ greatly from a work management request. They want to manage their customers, email them, and manage the whole lifecycle of the customer. And one of the great powers that we see that customers buy into Monday in CRM is its custom ability. The fact that they can really do everything with it and that they never hit a wall and that's something that a lot of, it gives us a massive competitive edge compared to other platforms that they compare us to. I hope this answers the question.

helpful color there for sure. And then I guess Elrond as you just think about sales and marketing efficiency, pretty dramatic improvement in just a two three quarter period here. Can we just double click into kind of the drivers of it? Was there an element of lower CPM pricing that's helping here just walk through how you were able to drive such an such impressive improvement in sales and marketing efficiency? Thanks.

Hey Brent, yeah. So in Power Quarters, I think throughout the time that we gave the earning calls, we are operating in accordance with our playbook. And we said that we have the ability, due to Big Brain and the efficiency metrics that we are operating, we have the ability to in the performance market. So what happened in the last few months is because the market environment has become more challenging across the board, In general, the cost per click or the cost per sign-up is much lower today. Therefore, we are benefiting from that, as we mentioned in the beginning of the call. We have the ability to measure every campaign, every campaign that we do, what is the return. Therefore, we were able to relatively quickly adjust the spend. In addition, in H2, also we said that we are going to be more prudent on hiring. and look at other discretionary costs that relate to marketing. So altogether, this helps us to reduce the cost of sales and marketing in general.

Great to see. Appreciate the color. Thank you.

Thank you. Our next question comes from Jackson Arbour from SVB Securities. Jackson, your line is now open.

Great. Good morning. Thanks for taking our questions, guys. First one, actually, if we can just follow up on that comment on hiring. You've been rolling out a few more offices in the U.S., and I'm just curious what you're seeing in the labor market, whether it's a little bit maybe easier to hire some of the talent that you're looking for these days than it was, say, six or 12 months ago.

Hi, Jackson. It's Eliran. Yeah, we don't see much of a change. Obviously, now when companies, there are unfortunately some reductions in force in other companies, it's easier to hire people, but I don't know to tell you that this is a dramatic move because I think the good people are still working for these companies. So overall, I would say a lighter or more easier environment, but not dramatically changed.

Okay. All right. That makes sense. And then the follow-up is on the European markets. You kind of called out the struggles there, but I'm curious whether you're seeing any maybe competitive impacts just in terms of a tough environment, maybe seeing some of the younger, smaller companies more kind of startups recede from the European market as it looks like it's going to be a tougher environment in the coming months.

Hey Jackson, it's Roy. So yeah, we definitely feel it's easier for us compared to others because of the stability of the platform, because of the fact that we mentioned a few times about the marketing and the fact that we are still out there. pushing the product. All in all, for us, because of the stability of the company and the platform, we see it as a positive. I can add that we were always, like Eliron said, with our playbook, while other companies spent way more, gave different discounts and those kind of stuff, and we don't see that anymore. So I'd say it's now easier for us to gain more market share.

Okay. All right. Thank you very much.

Thank you. Our next question comes from Etai Kydron from Oppenheimer. Your line is now open. Please go ahead.

Thanks, and nice results. Ed, running the prepared remarks, you talked about the decline in the net dollar retention rate, explaining it as initial lands are getting bigger. Can you be a little bit more specific? What is an initial land right now, and how did it change over the past year?

First of all, as a reminder, our net dollar retention rate is best in the industry. We mentioned that over time, we are going to see a range If you think about what we said also in prior quarters, so we said that we believe that the right range would be around 145 to 150% for customers with 50K in ARR. We said that we are going to remain around 135% for customers with 10 plus users and between 120 to 125% for all customers. So there is the impact of, first of all, FX, you know, with 30% of they are coming from customers that are paying in non-dollar currency. Obviously, your starting point is different from your ending point. This kind of impacted, in few basis points, our net low retention rate. And obviously, in Europe, you know, part of the macroeconomy environment is also pending. Some customers are waiting, decision makers to, you know, waiting with decisions to kind of expand their usage of Monday products. So the combination of these two is impacting net dollar retention rate. We don't expect any dramatic move, but this is the range that we feel comfortable with.

Okay, and then can you talk about the competitive landscape? Has anything changed in the past quarter? And maybe you could tie it into churn. Has anything in churn changed? Thank you.

Yeah, thank you, Ty. This is Daron. So I'll start with the second part of the question. So we didn't see anything meaningful of an impact to neither our churn or downgrade, which I think kind of ties to the stability that we've seen in our existing customer base. Apart from ethics, in terms of usage, we haven't seen anything significant. And overall, I think, does it remind you of the first part of the question? Sorry.

The competitive landscape, anything on that front, any changes?

Yeah, I appreciate that. So we already mentioned this a little bit. So in terms of marketing-wise, we see that we're able to grab a larger market share. Some of the other competitors have lowered their marketing spend, which allowed us to grab a larger percentage. And also this translates into the actual deals. And the deals that we do... see competition, which are only 30%. 70% we see still no competition. And the 30% that we do, we see less competitors. And also some of the competitors, which were very aggressive in terms of discounts, became less aggressive. So definitely we see a momentum here where we're able to win more deals in deals that we compete without players in. Got it.

Cool. Thank you.

Thank you. Our next question comes from DJ Heinz of Canaccord. Your line is now open. Please go ahead.

Hey, good morning, guys. Congrats on the nice results. So at the Elevate event, you guys spent some time talking about infrastructure upgrades that should improve scalability. I'm wondering if you could just unpack that a bit. What were the big changes? What should that enable you to do? And any color on that front would be helpful.

Yeah, thanks for the question, DJ. This is Iran. So, yeah, definitely this is something that we worked really hard on, I would say, in the last six months and to continue to heavily invest. I think part of our scale as a company, we attracted larger customers, and also our existing customers are really scaling their operation on Monday. Part of it presents some challenges in terms of, you know, handling larger and larger data sets, improving performance, and keep improving what they're using on. So definitely it's a very positive trend that we've seen, but at the same time, we're constantly improving performance, speed, scalability. So definitely something we're putting a lot of focus on.

My apologies, we are having some audio issues. Please hold as I find a solution. Thank you for your patience. We have re-established connection with the speaker team. DJ, if you could just repeat your question, your line is now open.

Hi, DJ, your line is now open.

Please go ahead.

Hey, guys, can you hear me now?

Oh, yeah, we can hear you. Thank you.

Awesome. All right. So I think, Aron, you were talking about some of the infrastructure upgrades, kind of the improved scalability, what the big changes were, what that enabled you to do. Any color along those lines would be helpful.

Yeah, thanks, DJ. Hopefully you can hear me fine now. So as I've said, what changed was that our customers have grew larger in their operation. Within Monday, scale their usage, their data sets, and a part of that, we're also scaling our own infrastructure because we want to deliver an optimal experience for our customers. So definitely, we put in a lot of effort over there. We see our customers using Monday more and more over time, which is very encouraging. but we want them to have a seamless experience doing that and don't suffer from any performance or scalability issues. So we've done a lot of changes and improvement, and we're committed to do that in the upcoming quarters.

Got it. And then maybe a follow-up, Eliran, just on the sales and marketing line, can you remind me how much of that line item is people-based versus maybe more discretionary spend that you can flex up and down? And on the latter, kind of what's the strategy in the current environment?

Hey, DJ. Yeah, sure. So if you think about it, I would say around 30% to 35% is performance marketing, and about 65% is payroll and related for sales, customer success, partners, headcount, and related. So all in all, if we would like to adjust sales and marketing costs, we would relatively adjust the performance marketing, and therefore we are able to do quick wins if need based on our efficiency metrics.

Yeah, perfect.

Thank you, guys.

Thank you.

Thank you. Our next question comes from Derek Wood of Cowen and Company. Derek, your line is now open. Please go ahead.

Oh, hey, guys. Thanks. It's Andrew on for Derek. Just one for me, actually. When are you planning to open up the suite to existing customers, and could that be

incremental growth lever early next year thanks yeah thanks for the question this is Iran so we're definitely going in the upcoming future but right now we're focused on keep iterating on the product and improving it we had get a lot of interest from existing customers about the new products and once we feel they're mature enough will definitely open them up for existing customers and We see here a great opportunity for a cross-sale and up-sale for our existing customers. Many of them are using money from many cases, but want to expand their usage. So there's a lot of upside baked into that opportunity, but we want to do it in a proper way. And as I mentioned, we're already seeing great momentum from new customers, so we keep improving and iterating on those products.

Great. Thanks. Congrats on the quarter.

Thank you. Our next question comes from Fred Lee of Credit Suisse. Fred, your line is now open.

Hi, very nice quarter, particularly the enterprise customer ads and margin improvement. You've already touched on parts of this, but I was wondering if you could talk more deeply about how your go-to-market strategy is changing as companies look to cut costs, and also how is the focus of the conversation changing at your larger customers? Thank you.

Yeah, so the first part of the question regarding cost-cutting. So a lot of companies, as you mentioned, are now kind of going through their SaaS stack or re-evaluating the tools that they're using. But for us, we mentioned this in the previous quarter, and definitely we see this trend increases. This presents a great opportunity. A lot of companies are looking into consolidation of SaaS tools that they're using. And Monday is really built from the bottom up for that purpose because every customer's Monday uses Monday for many use cases. Some of them are kind of re-evaluating the tools they're using and thinking about moving their operation to Monday, and some of them already did. We also did an operation within the company where we kind of guided our entire customer success team and sales team to offer that proactively to our existing customers, and we also see success and momentum there. So it's hard to tell how much this will scale over time, but definitely we've seen customers doing that. And Monday, as I mentioned, it's a great platform to do that. So there's definitely an opportunity there.

Yeah, and hi, it's Rui. I would add that on the churn side, we see a lot of stability within our customer base. So we talked to the platform and how much it's a core for many of our customers.

And I think we missed your second part of the question, Fred, if you were going to repeat that.

Sure. The second part was just how the focus of conversations is changing at your larger customers, if at all. Thank you.

Yeah. Hi, it's Roy. So it's definitely a different conversation in terms of, like, the lengths. of when we talk to new customers, the length it takes to close a deal, the number of people involved, and those kind of things are happening now, I think, for a lot of us around the world, a lot of companies, and we see that definitely as something that companies are looking into and changing how they acquire new tools.

Thank you very much.

Thank you. Our next question comes from Andrew De Gasperi from Berenberg. Andrew, your line is now open.

Thanks for fitting me in. I guess my first question, and a follow-up to DJ's earlier on performance marketing versus sales headcount. I was just wondering, the 35% number, what is it typically, I guess, or historically has it been, And I guess, how should we expect it going forward? Would it be at this level or do you think it will ramp up?

Andrew, it's Eliran. So historically, if you look at Monday five years ago, and I think I mentioned it in the past, it was an 80% to 90% performance marketing. But over time, we introduced a sales-led organization that's including salespeople, partners, customer success managers, and obviously the apps marketplace. Over time, I think that we care a lot about the performance marketing. It generates leads. It gets us to new audiences. It brings a lot of traffic, healthy traffic, I would say. And, you know, if we continue to operate in accordance with our playbook, I would say that 30% by and large will continue to be, it can be 25, it can be 32, but around 30% will continue to be performance marketing as long as it meets our efficiency criteria. In addition to that, we'll continue to invest in bringing headcount for our enterprise accounts, mid-tier and SMBs. So I would say 25-30, 65-70 breakdown.

That's helpful. And then in terms of your referral partners, I saw it jump sequentially. I just wondered, are you doing anything different there? Should we expect that continued momentum?

Yeah, so we continue to invest in our partner ecosystem, definitely growing and expanding. I would say the partners are a little bit more affected by the headwinds that we see in Europe because most of them are not based in the U.S. So our partner is more of a footprint. But for us, as we mentioned, it's a strategic part of growing our business. It's a great way to go to markets in certain territories. And we continue to scale and grow there. and also not just with referrals, but also with larger, more strategic partners that we partner with over time. So for us, it's a great ability to market and expansion options for our audience across the globe, and we'll continue to happen with that.

That's helpful. Thank you.

Thank you. Our next question comes from Scottsburg of Needham. Scott, your line is now open.

Hi, everyone. Congrats on the great quarter, and thanks for taking my questions. I guess we have two quick questions here. On the first one, how are your top-of-the-funnel activities today in the current macro versus maybe what you saw three months ago to start Q3 or even six months ago to start Q2?

Hi, Scott. It's Roy. So you broke up for a second. You were talking about the funnel that we see, Customer funnel.

Yeah. Yeah. Just top of a customer funnel activities in terms of maybe size or complexity today versus the last two quarters.

Yeah. So, so like we've mentioned, it's, it's very healthy. We still see, uh, the same, uh, volume and, uh, and we keep, uh, you know, with our efficiency metrics, like gain more market shares by adding more customers. The sales cycle has been longer in that respect, but we see a lot of quality customers, still strong demand for the platform across the board, so it's very stable.

And maybe, Scott, this is Iran, just to add one more, you can see in our shareholder letter, we actually attached a graph that shows the growth in the account, and also shows the spam and performance marketing. Like we mentioned, our top funnel remains very stable, even though in terms of efficiency, we managed to spend less in order to acquire those customers. This is probably what we mentioned, but it's very important for us to demonstrate that we, in greater efficiency, managed to acquire the same amount of customers over time.

Great. The last question for me is your enterprise growth was very strong again in the quarter. How much of that growth is coming from new initial lands versus expansions from those types of customers today? And how do you expect that to maybe trend over the next couple of quarters as a result?

Hi Scott, it's Elion again. I think it's both. We are lending with the new products that we have, the CRM and other multiple use cases that are being part of our platform. So we lend to customers. So it's a combination of new customers and extension of existing customers.

Great. Thanks for taking my questions.

Thank you. Our next question comes from Jason Cellini of KeyBank Capital Markets. Jason, your line is now open.

Great. Thanks for fitting me in. Really great results here. When you mentioned in a prior response, you know, September and October, you started to see some softness spread. Looks like you're managing through this quite well, you know, but to what magnitude? Can you clarify? And was it more SMB? And if any regions are worth calling out? Thanks.

Yeah, Jason, this is Aaron. Yes, so as we mentioned the headwinds and all the effect that we saw in Europe, I wouldn't say it has any significant impact on one particular group, neither SMBs or larger enterprise. I would say it's kind of across the board, but definitely enterprise customers are a bit more stable or kind of Don't see any kind of more major impact compared to SMBs. But overall, we're very diverse in terms of our customer base. Many industries, as a reminder, only 30% of our customers are tech companies, 70% are non-tech. And we have over 200 different business protocols. So I feel all in all, this creates a lot of diversity in our existing customer base. So we don't see any kind of major group that's been affected more than any other group.

Great, thanks.

Thank you. Our next question comes from Robert Simmons of DA Davidson. Robert, your line is now open.

Hey, thanks for taking the question. So, as we have the marketplace, you now have 186 apps there, and I think about 20% are monetized. What's a reasonable expectation for the boost revenue you're going to see from that next year? Are we looking at something closer to 1% or could it be more meaningful than that?

Yeah, hi. So I think we're not relying for next year on the marketplace revenue as something that we built any of our models on. And, you know, it's something that we just released not so far behind in time and the monetization of it. And I wouldn't build on that. Although we do see a strong momentum, there are a lot of interest from developers and it's very healthy. And we do see the future of Monday being as an open platform and providing a lot of like third-party developers building on us great things so we are excited about it but we we didn't model uh next year uh with the marketplace got it okay and then um the the decline of net rotation how much of that

uh is purely from fx and how much is it from other factors like longer and slower sales cycles uh so hi robert i would say two to three percent by and large is coming from uh you know fx and the rest is uh the macro economy environment and i would also add the increasing uh it's really like i would also add the increasing deal size initially like uh as we ramped up the sales team

And we got better and better. The initial deal size grew. Obviously, like in the past, they started with self-serve motion. They started very small, and so the NDR ended somewhere. And then we have the brand grow and customer demand grew like they want initial deal sizes that are bigger. And that also has an effect on the NDR.

Thank you. Our next question comes from Shabli Sarafi from FBM Securities. Your line is now open. Please go ahead.

Yes, thank you very much. So I noticed that your headcount growth slowed to like 53 from over 200 the prior two quarters. I want to know whether there has been recently a deliberate decision to slow down headcount growth. And separately, or related maybe, Your expense growth for Q4 seems to, relative to your guidance, imply an acceleration in year-to-year growth versus Q3. And so it seems to me that your R&D line is going to accelerate. Is that true? And if so, why is it accelerating so much?

Hi, Shabli. It's Eliran. So welcome on board. With regards to your first question, in power quarters, we mentioned that we are going to hire most of the people in H1, front-loaded of expenses, because we believe this is what will drive revenue into 2022 and the rest of the year. And we mentioned that we are going to be more prudent and have a more moderate hiring in H2. We are continuing to hire in places where it's really important for us to continue to innovate. R&D, you saw that R&D went up from 17% as percentage of revenue to 19%. And we're also... we continue to focus on revenue generating headcount. So this is with regard to your first question. Your second question, I wasn't sure that you said accelerating top line, just to make sure that I understand the question.

No. I'm getting in my model that your R&D expense growth is going to be something like 100% in Q4 versus 84% in Q3. Is that right? Is directionally that correct? And if so, why are you going to be accelerating your RMD expense growth?

Yeah, so I think if I understood you. So we continue to invest, as I mentioned, in RMD IRAs. Bear in mind that there is also most of the hiring of RMDs in Israel. So there is the ethics impact, which also impacts in terms of the reformation. It's a significant part of our cost in Israel. Just to make sure that they understand, I believe this will cover your question.

Okay. Thank you.

Thank you. Our next question comes from Jake Roberge from William Blair. Jake, your line is now open.

Hey. Thanks for taking my questions, and congrats on the quarter. Following up on the product-side solutions, it's great to see the strong adoption here and appreciate the cutlicker on CRM. But once you open those solutions to the existing base, how do you think that monetization path will work, given a number of those customers may already be using some type of CRM template that you released a year or two ago?

Yeah, Jake. Thanks for the question. This is Iran. So the new product that we released are – they provide much more value than a template. Basically, what we've done for those products is to go very deep future-wise in each one of those products. We added a lot of functionality. A lot of it is proprietary to, you know, specifically CRM or developer tools. So it's not just templates or, you know, boards or dashboard packs for that purpose, but a lot of R&D effort has gone into that. So I think already new customers are getting a lot of value from that. and I'm sure that also existing customers will get a lot of value from you. Part of that is that we'll help them, for those who want to move, we'll build a migration tool that will help them try those new products. But as I mentioned, we'll still be focusing on acquiring new customers, and over time we'll start offering those new workers for our existing ones. And as I said, we see a lot of potential there.

Great. That's really helpful. And then it seems like growth in the partner channel is really starting to accelerate for both referral partners and the apps marketplace. Are there any specific product type solutions that you've seen partners prioritize in the sales process or really build more tailored solutions on top of the platform?

Yeah. So, so this is Iran again. So apart from, um, extending our global workforce, uh, in terms of offering kind of more opportunity for sell our products, worldwide, those partners also offer the ability to customers to customize their product, help them onboard, help them build more workflows and processes. So part of that also drives the growth in each one of those territories. So we really see them as a value-add partner. So definitely that's something that's really going to help with acceleration. And as I said, we're continuing to invest heavily into those partners. And over time, I think it will continue and grow rapidly.

Great. Thanks for taking my questions, and congrats on the great quarter.

Thank you. Our final question for today comes from Brent Hill of Jefferies. Brent, your line is now open. Please go ahead.

Thanks. Just a question on some of your deployments. I think in the past you've talked about one of your larger customers was pushing over 7,000 seats. Are you starting to see, you know, the 10,000 plus seat deals open up or are you still, is that 7,000 seats still the largest deployment you have right now?

Yeah, so this is Iran. So definitely over time, we're increasing ours. We work, we really kind of work in a sweet spot fashion, meaning that we keep increasing the average enterprise deal size Up until a year ago, it was around 2,000 seats. We increased it to 5,000. That means that we're able to close those deals quicker and quicker. And basically, we continue to improve the product as offered to skilled operation, and we expect this number to increase. We see this more of a way for us to create an organic sales motion within our sales team as opposed to, you know, a specific... customer that we are aiming for in terms of lending a very large deal.

Thank you. We have no further questions for today. So that concludes today's conference call. Thank you all for joining. You may now disconnect.