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spk09: Good morning and welcome to the Monday.com fourth quarter fiscal year 2023 earnings conference call. Today's conference is being recorded. 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 would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Byron Stephen, Director of Investor Relations. Please go ahead.
spk21: Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for Monday.com's fourth quarter and fiscal year 2023. 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 fourth quarter and fiscal year 2023 earlier today. You can find our quarterly shareholder letter along with our investor presentation at 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 the currently available information. These statements involve risks 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.
spk04: Thank you, Byron, and thank you, everyone, for joining us today. As we reflect on our recent Elevate World Tour, including our first ever Investor Day, we are filled with an incredible sense of energy and purpose as we embark on 2024. The events were a resounding success, bringing together customers, analysts, and investors from around the world. Our Elevate World Tour provided us with an opportunity to connect with our users, demo our latest AI and CRM product advancements, and gather valuable feedback. The enthusiasm and engagement displayed in our attendance were truly inspiring, reaffirming our commitment to delivering innovative products that empower teams to achieve their full potential. Furthermore, the additions of our first ever Investor Day was a significant milestone. It allowed us to showcase our progress, present our vision for the future, and highlight our expected financial performance in the coming years. The positive response we received from the investment community fuels our motivation and drives us to reach new heights in the years ahead. Now, turning to our business results for the year, 2023 was a year of incredible growth and progress at monday.com. Despite the prevailing global economic and geopolitical uncertainties, we exceeded all expectations. Revenue of fiscal year 2023 grew a remarkable 41% driven by strong customer acquisition and expansion, especially with our larger accounts. In addition to a strong top line, we continue to see improving efficiency and reported record annual non-gap operating margin and free cash flow. Our commitment to innovation played a key role in the success of 2023. Over the past year, we launched new capabilities and delivered hundreds of new features, including Monday AI and Monday workflows. We also elevated our mobile experience and enhanced our security, data protection, and permission settings. Let me now turn it over to Iran to walk you through some additional product highlights. Thank you, Roy.
spk05: In 2023, we upgraded our infrastructure with MondayDB, which boosted board performance by 5x. MondayDB continues to exceed expectations and remains on schedule. We are now entering Phase 2.0 with a focus on the most complex work scenarios, allowing customers to build and manage workflows at scale, without being limited by performance constraints. This quarter, we're excited to announce the launch of Monday Code. Monday Code provides a secure, serverless environment within the WorkOS platform, where developers can host and run apps with Monday security and compliance standards built in. With Monday code, developers can now avoid the heavy lifting associated with setting up and managing production servers and more easily create apps for our marketplace. Let me now turn to pricing. Following several months of extensive testing, we recently introduced an updated pricing model ahead of schedule. As part of the rollout, we notified our customers that we'll be updating lead prices across our product suite. Our customers are at the heart of everything we do, and we've heavily invested in providing the best-in-class WorkOS platforms and products. We believe that our products have evolved to provide even greater benefits and meet the ever-changing needs of our customers. The updated pricing model reflects the value and quality that our products deliver, ensuring that our customers receive the best possible return on their investment. As we enter 2024, we are more energized than ever to continue innovating and pushing the boundaries of what is possible. Our focus remains on enhancing our workers' platform and product suite, expanding our enterprise presence, and delivering unparalleled value to our customers. Looking ahead, we are well positioned to build our achievements and continue our upward trajectory with a strong customer base, a focus on innovation, and a resilient business model. Money.com is poised for sustained growth and success in the coming years. With that, I'll now turn over to Eliran to cover our financial and guidance.
spk26: Thank you, Iran, and thank you to everyone for joining our call. Today, I'll review our fourth quarter and fiscal 2022 results in detail and provide initial 2024 guidance. As Roy highlighted, Q423 was a strong finish to an exceptional year. Total revenue in Q423 came in at $202.6 million, up 35% from a year-ago quarter. Revenue for fiscal year 23 was $729.7 million, up 41% from the prior year. Our overall net dollar retention rate declined slightly in Q423 to 110%, reflecting continued macroeconomic headwinds. We currently anticipate reported NDR to begin to recover in the second half of fiscal year 24. As a reminder, our net dollar retention rate is a trailing four-quarter weighted average calculation. As Eran mentioned, We have recently revised our release prices to accurately reflect the enhanced value of our work operating system platform and product suite for our customers. We expect that this price adjustment will contribute an estimate of $15 to $20 million of revenue in fiscal year 24. 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 gap to non-gap financials in our earnings release. Fourth quarter gross margin was 90%. In the medium to long term, we continue to expect gross margin to remain in the high 80s range. Research and development expense was $33.3 million in Q4 2023, or 16% of revenue, in line with the year-ago quarter, and $117.8 million in fiscal year 2023, or 16% of revenue, down from 18% in the prior year. We plan to increase investment in R&D for the foreseeable future as we build out our product suite and scale our work operating system platform both horizontally and vertically. Sales and marketing expense was 110 million in Q4 23 or 54% of revenue in line with the year ago quarter. and $413 million in FY23 or 57% of revenue compared to 69% in the prior year. G&A expense was $17.3 million in Q423 or 9% of revenue compared to 10% in the year-ago quarter and $63 million in FY23 or 9% of revenue compared to 11% in the prior year. Net income was $33.7 million in Q4-23, up from $22.2 million in Q4-22, and $94.9 million in fiscal year 23, up from a loss of $33.4 million in fiscal year 22. Diluted net income per share was $0.65 in Q4-23 and $1.85 in fiscal year 23, based on $51.6 million and $51.2 million fully diluted shares outstanding, respectively. Total employee headcount was 1,854, an increase of 110 employees since Q3 23. We expect to ramp hiring in fiscal year 24 with a continued focus on our R&D product and sales team as we built out our platform and product suites. Moving on to the balance sheet and cash flow, we ended the quarter with $1.12 billion in cash and cash equivalents, up from $1.05 billion at the end of Q3 2023. In Q4 2023, free cash flow was $55.4 million, and free cash flow margin, as defined as free cash flow as a percentage of revenue, was 27%. In fiscal year 2023, free cash flow was $204.9 million, and free cash flow margin was 28%. 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 outlook for fiscal year 2024. For the first quarter of fiscal year 2024, we expect our revenue to be in the range of $207 million to $211 million, representing growth of 28% to 30% year-over-year. We expect non-GAAP operating income of $8 million to $12 million, and an operating margin of 4% to 6%. We expect free cash flow of $56 million to $60 million, and free cash flow margin of 27% to 29%. For the full year 2024, we expect revenue to be in the range of $926 million to $932 million, representing growth of 27% to 28% year-over-year. We expect full-year non-GAAP operating income of $58 million to $64 million and an operating margin of 6% to 7%. We expect full-year free cash flow of $200 million to $206 million and free cash flow margin of approximately 22%. I'll now turn it over to the operator for your questions.
spk09: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll take our first question from Kash Rangan at Goldman Sachs.
spk22: Hey, guys. Thank you so much, Roy, Eran, and Eliran for giving us all the details. Two quick ones. One is when you look at the growth algorithm, we talked about 27 points of growth. But I look at customers with 10-plus users as a general proxy. That's grown about 20%, and then you have net expansion rate 110%. So just that base logic alone should give you a pretty decent level of growth. And then when I dig underneath the numbers, as everybody did, the 50K-plus ARR customers, it's growing faster, 56%, and 100K is growing even faster. So help us understand how you constructed the guidance in light of the This Q in the metrics that suggested the underlying business is healthier than the guidance might seem to suggest. Also, net expansion rates, you said second half of 24, you expect an improvement. I'm wondering if you can add a little bit more commentary on what you saw in the quarter that gives you the confidence that you can see some improvement. Thank you so much once again.
spk26: Thank you for the question. So with regards to our guidance philosophy, this has not necessarily changed. We're focused on providing always prudent, achievable, and responsible guidance based on the latest data that we have. You know, we mentioned the price increase, so it's still early days, and it's going to be staged throughout the year, and then we would like to make sure that we understand what would be the impact throughout the year. With regard to demand that we already took into account, nothing has changed much from what we saw in Q4 of last year. Still some headwinds in the macroeconomy environment, and we assume this will continue also in Q1 and Q2. So this is with regard to guidance. With regard to your question on NDR, so, you know, when thinking about NDR, we're looking at the trailing 12 months, as well as the weighted average. Just as a reminder, we report weighted average. So as I mentioned, with regards to guidance, we're still seeing lingering macro headwinds where customers are still cautious in the spend. We said that we expected to stabilize in the second quarter of 2024. However, it's important to mention that the overall growth retention has had even a small improvement. And, you know, longer term, we remain optimistic with an updated pricing model and further scaling Monday DB and the product suite.
spk25: that is going to be uh showing uh you know an optic at the second half of the year we'll move to our next question from pendulum bora at jp morgan oh great hey uh thank you for taking the questions earlier on maybe on uh digging in a little bit more on the pricing side you said 15 to 20 uh in the analyst that you're talking about 10 and you have materially kind of changed the timing of the price increase release. So maybe help us understand what are the assumptions that you're making to get to that 15 to 20 in terms of churn. Maybe you're assuming more of the existing to come in the second half of the year. Maybe dig in a little bit more.
spk05: Yeah, Pendulum. Hi, it's Saran. I'll start with regarding to the growth of the price change and then I'll go over to Eliran to talk about the assumptions for the rest of the year. So overall, our initial plan also when we presented during the investor day was to roll out the new updated pricing model around June towards H2, beginning of H2. And we actually managed to finish our A-B testing sooner than that, and we were ready in terms of our technical stack. So we decided to make it, I would say, three or four months earlier than we initially thought. So we thought kind of mid-June. and it's now starting to roll out to existing customers. So it's like three, four months head start in terms of the process. Again, this is the first time we've ever done a price increase to our existing base. In the past, we've done it to new customers. So we also try to be cautious here, and we're still learning. I would say that so far from what we see, reaction from customers were good. We didn't see anything we didn't expect. Everything was in line with our models, so we remain very optimistic.
spk26: Yeah, and maybe to continue on what Iran is saying with regards to the assumption on the numbers, because we advanced it in a quarter, we assumed that there was going to be an impact of around 15% to 75% on what we said on the investor day. So if you take the 10 million, This is roughly between 15% to 20%. And I think one of the things that you even mentioned, I believe, in your coverage when we introduced it in the investor day, we don't know to anticipate the churn. So just as a reminder, 80% of our customers are annual subscribers, 20% are monthly. And we took into account certain assumptions. Currently, it's going to be something that we are going to see effectively in February when it's kicked in. So we took some assumptions with regard to possible scenarios, and that is what we baked into the numbers.
spk25: Yep, understood. One question for Roy, and I'll see the floor. We have recently heard from some of your customers that Monday is becoming kind of an orchestration engine rather than just a work management platform. Somebody was saying that Monday is a layer between Workday and Jira. Another person orchestrating, a manufacturer orchestrating between different number of their systems. Do you see Monday becoming that orchestration layer facilitating kind of business workflow across multiple systems in an environment?
spk04: Hi, it's Roy. So thank you for the question. Yes, that's part of how we see the platform. We worked a lot into creating the workflow tool and integrations and automation. So definitely we see cross-company workflows handling also orchestration between many other tools. But we also see Monday as a platform that kind of trickles through areas that you don't have software or you couldn't have specific software and completes any workflow you want. So other than us creating products for core needs of the organization that they do know, okay, we want it to also fit into areas where you just need an extra input or another process in place and then obviously connect any other tool you want in your stack to work together.
spk18: Understood. Very helpful. Thank you.
spk09: We'll go next to Brent Bracelin at Piper Sandler.
spk06: Thank you. I had two quick ones if I could. Number one, if I look at the number of Monday dev net new ads that actually accelerated on a quarter-over-quarter basis in Q4, could you talk a little bit about kind of what drove the momentum there, a little surprise and acceleration at this point? And then one quick follow-up. Thanks.
spk05: Hi, Brent. This is Iran. So overall, we continue to improve the product and also improve our go-to-market. As we mentioned, over time, we open our multi-product suite to more and more customers, and we're now finalizing the final batch of it. It should be over by the end of Q1. So as more of our users are exposed to our multi-products and we improve the acquisition engine and improve the features, We've seen the acceleration. We shared some data during the investor day, but overall, we continue to see good momentum with all products.
spk06: Perfect. And then, obviously, I know you've been trying to focus on larger enterprise customers. We saw a record number of those net new 50K cohort customers. You talked about the big deal. Could you just walk us through the pipeline of large deals going into next year? Is that going to continue to be an area of strength, or... Is that more seasonal that you'd expect to happen more in Q4? Thanks.
spk05: Hey, Brent. It's Iran again. So definitely, we continue to see good momentum in our pipelines. So during the investor day, we mentioned accounts with over 25,000 seats, but we continue to see other opportunities like that. Some are smaller, some are larger, but definitely a very good momentum in the pipeline. So we expect it to be throughout the year, not just concentrated in Q4.
spk19: Helpful color. Thank you, guys.
spk09: We'll move next to Steve Enders at Citi.
spk08: Okay, Gary. Thanks for taking the questions. Maybe just to start on Elevate World Tour, I guess, what has been the feedback that you've had from customers on some of the newer products, newer initiatives, and what was kind of the most excitement around for some of those newer solutions that you have coming out?
spk05: Yeah, Steven, this is Iran. So, overall, the feedback from customers were really good. There was a mixture of customers that used Monday for Work Management and CRM and Dev, and I think that the The places where we saw the best feedback was around going deep on our platform, both in terms of scale and performance, but also a lot of new features that we have in the roadmap and definitely around security that allows them to increase the usage. Overall, the feedback was good. And also, we got great feedback on other testimonials. I think just seeing the variety of use cases really open the mind of our customers of what they can achieve more out of Elevate. And we continue to plan to continue and do this event annually going forward and scale the event as well.
spk08: Great to hear. And then maybe just on the free cash flow guide for the year, How should we be thinking about, I guess, seasonality of that and, you know, looking at the one key strengths in particular? Are there any factors that we should be keeping in mind there and kind of any assumptions on maybe some of the early renewal activity from price increases coming into the quarter?
spk26: Sure, Steven. Tell Iran. So with regards to free cash flow, I would say that the second quarter and the fourth quarter, this is the time when we pay bonuses. You know, in Q2, we pay bonuses for the employees and for the quota-carrying people. And in Q4, we're paying bonuses for the self-quota-carrying people. So you would see probably a slightly decline if you compare it to Q1. Overall, because 80% of our customers are on an annual contract and 20% are monthly, this is something that contributes to the scale and the strength of the free cash flow. On the other hand, you know, this allows us also to continue to invest. So potentially there are going to be quarters that we are going to see opportunities. It might open an opportunity to invest. Therefore, there might be some systemality. But other than what I said, it's pretty much stable throughout the year.
spk19: Yes, perfect. Thanks for taking the questions.
spk09: We'll go next to Arjun Bhatia at William Blair.
spk19: Perfect.
spk13: Thank you, guys. I wanted to ask on the new products, it looks like we're set to roll those out to the entire customer base in Q1 here. Can you just give us a sense of how you're expecting contribution and cross-sell from those solutions to take place throughout the year and then maybe one on the go-to-market as it relates to those. Do you anticipate, at least as you get into the enterprise, that there might be an overlay sales team or specialist sales teams that are just focused on selling CRM and dev or the whole suite versus maybe just focusing entirely on work management? I guess, how do you see the go-to-market evolving as these products go out to the entire customer base here?
spk04: Hi Arjun, it's Roy. So I'll answer the first part of the pricing and how it looks like throughout the year. So the way we model it, we see that we have monthly and yearly. So the monthly will be first in the first like month or so. And then throughout the year as the renewal rate comes for yearly customers, they will renew.
spk05: Yeah, and I think you specifically asked about the the cross-sell between the Mutu products. So just because the price increase, it was mostly for work management. We didn't increase the price of the other products. Throughout the year, we shared in the previous quarters that we see a large amount of cross-sell being done between the products. And we continue to see such momentum also in Q4 and going to Q1. So again, it's hard to model because it's still small numbers. We do expect this to be substantial going forward. Regarding the sales team architecture, so definitely we're going to see teams specializing in each one of those products. So right now it's more of like one team doing the sales process, but we're starting to have more people specialized in selling CRM and Monday dev. And over time, we're going to see those teams scaling as we scale the revenue for each one of those products.
spk13: Okay, perfect. That's helpful. And then maybe one on the actual how the growth impact might change. I know this year it actually ended up being a very strong year from a new customer ads perspective. And with the price increase layering in this year, how do you anticipate the growth trajectory might get impacted between new customer ads versus expansion versus expansions with existing customers.
spk04: Hi, it's Roy. So we've A-B tested that, of course, like the price increase. So we can say, like, we didn't see any material change to the ARR we get from the price increase, and we obviously had to shift to, but there was obviously a small change in conversion in the number of customers we get, but that's, like, mostly smaller customers. So overall, we see that as a very positive effect long-term as well.
spk19: All right, perfect. Thank you, guys.
spk09: We'll take our next question from DJ Hines at Canaccord.
spk14: Hey, good morning, guys. Maybe just building on the thread around go-to-market strategy, can you talk about how you're thinking through the strategy with product bundles? I'm just curious, as the portfolio continues to expand, Where do you see the most linkage between solutions? What might that look like? When could you do something on this front? Any color there would be interesting.
spk05: Yeah, hi, DJ. It's Ron. So right now we don't offer any bundles yet to our customers. They can buy each product individually and then over time purchase other products as well. But going forward, we're definitely going to offer a bundle to our customers. Bear in mind that we also have Monday work canvas and work forums in addition to CRM, dev, and work management. So going forward, we're going to offer bundles, maybe with a little bit of discount if you take two or three products, and maybe offer that as, like, one solution. So, for example, for companies focused on dev, we might offer Monday dev, and in addition to that, Monday work management to manage the projects as part of just the dev team. Uh, so that's something, uh, we've probably got to start rolling out, uh, this year again, we'll, we'll AB test that and we'll get feedback from our sales team, but definitely something that we're going to roll out, um, in the next year, in this year. Sorry. Okay.
spk14: Yep. Understood. And then as you look at your nearly 2300 customers that spend 50 K plus per year, In how many of those would you say there's a centralized buying center versus, you know, maybe still a dependence on departmental level decisioning? I'm just trying to think about, you know, at what point or level of spend do customers start thinking about strategies for standardizing around Monday and kind of what you can do to move that effort forward?
spk05: Yeah, so I would say it's mixed. Part of it is kind of more dope down decision where the company kind of buys Monday throughout. Not the whole company, but like a management decision. And some of it is more department-based or VP-based in a specific region within the company. But we're seeing a shift. We're seeing a shift where more and more Monday becomes a significant platform within the company, driven by management. So definitely there's a shift towards that.
spk19: Perfect. Thank you guys for the call.
spk09: We'll go next to Derek Wood at TD Callen.
spk10: Great. Thank you. At the analyst day, you guys guided for a base case of high 20%, low 30% in the medium term. And maybe it's not the right way to look at it, but if I take the price increase impact out, you're guiding for around 25%. So it's had below that kind of base case rate. Just wondering if you'd flag anything in terms of bringing that down. Maybe you could comment on the SMB part of the market. Other companies have flagged incremental pressure there. And can you just comment on kind of what you're seeing in the Middle East given the war?
spk26: Yeah. So, hi, it's Elivan. With regards to the guidance, we said that mostly what's going – there were two scenarios that we focused in. There was the base case scenario, and there was the lower case scenario, and the thing that we focused on was the NDR. We said based on the behavior of the NDR, we're going to kind of – see what model fit better throughout the year. I think now we feel that it's something in between. MDR, as we said, is going to probably stabilize at H2 of this year, and we took it into account as part of our guidance, so we embedded into the numbers. And this is the main reason for us to kind of assume this guidance. With regards to the Middle East war, we didn't see any impact on our numbers. We are a global company, so nothing that... you know, word calling out until now. Since it's actually begun, we actually didn't see anything, and hopefully we're going to continue to see no impact on our business.
spk10: Great. Helpful color. I'm curious, you guys have pricing going up, I guess, this week for existing customers. I know this is the first time you've done that, but you can often see pull-forward dynamics where people want to buy, lock in, see expansion before pricing goes up. Would you expect any kind of pull-forward in Q1? I'm just curious what you're seeing in terms of buying behavior right now.
spk05: Yeah, Derek, it's Iran. So far, as we said, it's starting to roll out next week, i.e., taking into effect. So far, in terms of churn and downgrade, we saw some numbers pretty much in line with our expectations. The reactions from customers were overall good. We didn't get any negative reactions. Overall reception of customers was good. Again, this is the first time we've ever done it, not just as a public company, but ever. So we also want to be cautious and be aware that we're not aware of the whole dynamic of how this will roll out. So maybe being a bit more cautious here at the company. But overall, so far, the signals look good. And I think after Q1, we'll have a better understanding of the dynamic and how this will roll out throughout the rest of the year.
spk26: Yeah, yeah, and hi there. This is Aliran. Maybe I will add that it takes a while for it to layer into the model simply because they're effective when the agreements are signed, you know, upon renewals, and that happens over the course of time for the annual multi-year agreements or annual contracts. So this is why we are not really, you know, can't anticipate all the behavior, but as Aliran said, so far signs are good.
spk19: Got it. Okay, thank you.
spk09: We'll move next to Brent Phil at Jefferies.
spk11: Thanks. When you look at the results relative to your guide, Q4 was the lowest magnitude beat you've had as a public company. And I'm just curious, was there anything in Q4 that didn't meet your expectations, or are we just simply going through a cycle of you're still beaming, but the magnitude's coming down, and that's kind of what you're anticipating in the guide? I think everyone's trying to kind of reconcile what happened in Q4, and then obviously it seems like that's leading into the more conservative guide for this year.
spk26: It hasn't. It's Iran. Yeah, I would say it's the latter. The macroeconomy headwinds do still exist. They didn't change from what we have seen in the past. I think customers are still cautious with their spend, and that is why probably there was an impact on our Q4 results, also going into this macroeconomy situation, also going into the beginning of this year.
spk11: Okay. And just real quick on the Q1 margin guide, you exited at 10%. You're guiding 4 to 6. Is this just a heavier upfront load, or is there anything changing here as it relates to trajectory of margin?
spk26: Sure. So when we did the invest today, we said that our number one focus for 2024 is going to be increasing top line throughout investment. There is some seasonality, obviously, because Q1, you always put more on the performance marketing because this impacts the entire year. But we said that the focus is going to be on top line and we're not going to improve seasonally. operating margin in the way we did in the past. So I would have expected to improve, but it's just in line with what we have said.
spk17: Great. Thanks.
spk09: We'll go next to George Iwanze at Oppenheimer.
spk16: Thank you for taking my questions. So with the continued strong adoption of Dev and Sales CRM, Are you seeing any changes to the way you're landing, both with new customers and then on the competitive landscape?
spk19: Yeah. Hi, George. This is Ron.
spk05: So, look, obviously when we land with CRM and Dev, we see different competitors as opposed to work management. I would say that still 50% of the deals so far that we saw in CRM And Dev, we didn't compete with anybody. I would say the rest of the 50% people will consider Monday compared to other players. And in terms of work management, it pretty much remained the same. I would say it's 70% Greenfield, and then the rest, we see some competition. So there's a little bit more competition in CRM and Dev, but still we see other, but as I mentioned, we see other players that we compete against in those specific products.
spk16: Just following up on that, can you give us maybe some color on the work you're doing on the services side, and do you have any feedback on how the timing of that launch could go forward this year?
spk05: Yeah, so we continue to build the Monday service and plan to launch it on schedule H2 this year. So far, we have a bunch of customers in beta. Feedback so far is really good. And as I mentioned, like we... had our users, a lot of our users already using Monday to manage some aspects of ITSM and service within the company. So we talk with them, we learn from them, and this kind of sets the set of features that we're going to launch as part of the first version.
spk19: Thank you.
spk09: We'll go next to Taylor McGinnis at UBS.
spk12: Yeah, hi. Thanks so much for taking my question. On NDR, can you comment on the performance of the quarterly number and what you saw? So was there stabilization with the 3Q number such that we can begin to see NDR trough? Or are you still seeing pockets of incremental weakness in the macro? And if so, you know, what does that look like? Thanks.
spk26: Hi, this is Eliran. By and large, we're still seeing it stabilizing pretty flat of what we have seen in prior monthly training 12 months. Obviously, with the impact of price increase and potentially all the additional products and add-ons that we are adding to our customers and incremental value, we expect it, as I said, to get better in H2 of this year.
spk19: Great. Thank you.
spk09: Our next question comes from Jason Salino at KeyBank Capital Markets.
spk15: Great. Thanks for fitting me in and all the colors so far. One question on linearity. Curious what you saw in terms of top of funnel demand and conversion exiting the quarter and then anything in the first few weeks if you're willing to provide. Thanks.
spk04: Yeah, hi, it's Rui. So we see very healthy top of funnel activity, like we increased marketing, we saw more leads, more pipeline generated, so it's all in line with what we expected.
spk15: Okay, excellent. And then maybe as my quick follow-up, the environment for performance-based marketing, the pricing, I think it's kind of stabilized over the last several quarters, but when we think about the upcoming Are you making any change here from what you saw in 2023? Thanks.
spk05: Yeah, Jason, this is Iran. So it's pretty much in line with what we saw last year's overall. Prices compared to the past are still lower, but stabilizing doesn't improve more than that. As we said, we saw very healthy so far pipeline generation and new customer signups coming into 2024. So rural pipeline is healthy. Cost of that pipeline is also healthy in line with what we saw last year. So efficiency more or less remains the same.
spk19: Thank you.
spk09: We'll go next to Ivan Feintsev at Tigris Financial Partners.
spk02: Hi, good morning. Thank you for taking my question. What do you see the functionality as being the biggest driver of new customer adoption or customer increase use?
spk05: Yeah, Ivan, this is Ron. So I wouldn't say it's much of a specific product functionality. I think it's a combination of our efficient performance marketing engine and also our products becoming more and more dominant. So our products would allow us to acquire customers from different parts within companies, so the VP of sales, the VP of R&D, work management, obviously. So that, in addition to our existence performance marketing engine, just allow us to have a very healthy customer acquisition engine.
spk02: And what do you see, though, as the biggest use case is that new customers are signing up for or using it for?
spk04: Hi, it's Rui. So our biggest segment by far is the work management, which is very varied. We have very different use cases within work management, whereas in CRM and Dev, it's more focused on being more specific, more targeted, obviously. So with that, our ability to target work management in the moment is very broad.
spk02: And one last question, where do you see the opportunity to roll out increasing AI functionality within a lot of these products?
spk04: Hi, it's Rui again. So AI is a core part of the way we see the platform evolve. Like we've introduced like in Investor Day a few areas we're launching AI in. And currently we launched some of the few, one building block in the automation segment and we see great enthusiasm around it because we really allow our customers to build and kind of use AI on their own how they want it in their workflows. And we are also thinking about and doing, adding AI into the core of service when we launched it and other products. So we're putting a lot of emphasis there as we think this will allow us to grow a lot and again, like democratize AI and give it to our customers.
spk02: Then one last question to kind of support the price increase. Where do you see the development of added value that will help easier, you know, your clients easier pay the price increase?
spk04: Hey, so Roy again. So like Aaron mentioned, we've never done this before. So I think the feedback we got until now from customers is that they get it. Like we've added so much value in the past few years to the platform without increasing the price. And so I think we see acceptance of that change now. So I think it's behind us, as well as always bringing more value to the platform. So we see wide acceptance of the new price.
spk09: We'll go next to Scott Berg at Needham & Company.
spk07: Hi, everyone. Two questions for me. Thank you. First of all, with more proof points on the AI side with Monday AI, I guess how much more confident are you in the company's ability to actually monetize some functionality in there just now that you've had more of a chance to get some feedback from customers?
spk04: Hi, so this is a great question. I think it's still ahead of us, like pricing specific to AI, although we're thinking and working on it. I do think it will allow us to penetrate faster and get more market segments for the products that we include AI with. So I see a lot of upside there, but we're still working on monetizing the AI. Like automations is an example, we just launched it. So I think it's too much early days to say how impactful the pricing of that will be.
spk07: Got it. Helpful. And then my follow-up question is on your million-dollar customer cohorts that... or excuse me, 100K, 1,000 customer cohorts that you're announcing. I know at the conference, the analyst day, you announced that you're the largest customer ever at 25,000 seats. Historically, there's been a big focus on seat expansions and moving into some of these larger accounts. But as we think about that cohort going forward, how much of the growth there will be driven by customers expanding seats or adding additional functionality that they're going to be paying on top of the core user charges?
spk05: Hi, it's Ron. I would say that the vast majority of growth is probably going to be by seed expansion, but also we'll be able to sell them more functionality, the new products, add-ons we're preparing, we're going to launch, so like extension modules. But overall, you know, those enterprise accounts tend to increase more in terms of seats and usage over time, as opposed to smaller businesses that it's harder for them to extend the amount of seeds. So overall, like this cohort, we expected to have better NDR, more seed extension over time.
spk19: Great. Thank you for taking my questions.
spk09: And that concludes the question and answer session and today's conference call. Thank you for your participation. You may now disconnect. Thank you. you Bye. music music Thank you. Bye. Thank you. you Good morning and welcome to the Monday.com fourth quarter fiscal year 2023 earnings conference call. Today's conference is being recorded. 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 would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Byron Stephen, Director of Investor Relations. Please go ahead.
spk21: Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for Monday.com's fourth quarter and fiscal year 2023. 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 fourth quarter and fiscal year 2023 earlier today. You can find our quarterly shareholder letter along with our investor presentation at 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 the currently available information. These statements involve risks 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.
spk04: Thank you, Byron, and thank you, everyone, for joining us today. As we reflect on our recent Elevate World Tour, including our first ever Investor Day, we are filled with an incredible sense of energy and purpose as we embark on 2024. The events were a resounding success, bringing together customers, analysts, and investors from around the world. Our Elevate World Tour provided us with an opportunity to connect with our users, demo our latest AI and CRM product advancements, and gather valuable feedback. The enthusiasm and engagement displayed in our attendance were truly inspiring, reaffirming our commitment to delivering innovative products that empower teams to achieve their full potential. Furthermore, the additions of our first ever investor day was significant milestone. It allowed us to showcase our progress, present our vision for the future, and highlight our expected financial performance in the coming years. The positive response we received from the investment community fuels our motivation and drives us to reach new heights in the years ahead. Now, turning to our business results for the year, 2023 was a year of incredible growth and progress at Monday.com. Despite the prevailing global economic and geopolitical uncertainties, we exceeded all expectations. Revenue of fiscal year 2023 grew a remarkable 41%, driven by strong customer acquisition and expansion, especially with our larger accounts. In addition to a strong top line, we continue to see improving efficiency and reported record annual non-GAAP operating margin and free cash flow. Our commitment to innovation played a key role in the success of 2023. Over the past year, we launched new capabilities and delivered hundreds of new features, including Monday AI and Monday workflows. We also elevated our mobile experience and enhanced our security, data protection, and permission settings. Let me now turn it over to Iran to walk you through some additional product highlights. Thank you, Roy.
spk05: In 2023, we upgraded our infrastructure with MondayDB, which boosted board performance by 5x. MondayDB continues to exceed expectations and remains on schedule. We are now entering Phase 2.0 with a focus on the most complex work scenarios, allowing customers to build and manage workflows at scale, without being limited by performance constraints. This quarter, we're excited to announce the launch of Monday Code. Monday Code provides a secure, serverless environment within the WorkOS platform, where developers can host and run apps with Monday security and compliance standards built in. With Monday code, developers can now avoid the heavy lifting associated with setting up and managing production servers and more easily create apps for our marketplace. Let me now turn to pricing. Following several months of extensive testing, we recently introduced an updated pricing model ahead of schedule. As part of the rollout, we notified our customers that we'll be updating these prices across our product suite. Our customers are at the heart of everything we do, and we've heavily invested in providing the best-in-class WorkOS platforms and products. We believe that our products have evolved to provide even greater benefits and meet the ever-changing needs of our customers. The updated pricing model reflects the value and quality that our products deliver, ensuring that our customers receive the best possible return on their investment. As we enter 2024, we are more energized than ever to continue innovating and pushing the boundaries of what is possible. Our focus remains on enhancing our workers' platform and product suite, expanding our enterprise presence, and delivering unparalleled value to our customers. Looking ahead, We are well positioned to build our achievements and continue our upward trajectory with a strong customer base, a focus on innovation, and a resilient business model. Money.com is poised for sustained growth and success in the coming years. With that, I'll now turn it over to Eliran to cover our financial and guidance.
spk26: Thank you, Iran, and thank you to everyone for joining our call. Today, I'll review our fourth quarter and fiscal 2022 results in detail and provide initial 2024 guidance. As Roy highlighted, Q4-23 was a strong finish to an exceptional year. Total revenue in Q4-23 came in at $202.6 million, up 35% from a year-ago quarter. Revenue for fiscal year 23 was $729.7 million, up 41% from the prior year. Our overall net dollar retention rate declined slightly in Q4-23 to 110%, reflecting continued macroeconomic headwinds. We currently anticipate reported NDR to begin to recover in the second half of fiscal year 24. As a reminder, our net dollar retention rate is a trailing four-quarter weighted average calculation. As Eran mentioned, We have recently revised our list prices to accurately reflect the enhanced value of our work operating system platform and product suite for our customers. We expect that this price adjustment will contribute an estimate of $15 to $20 million of revenue in fiscal year 24. 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 gap to non-gap financials in our earning release. Fourth quarter gross margin was 90%. In the medium to long term, we continue to expect gross margin to remain in the high 80s range. Research and development expense was $33.3 million in Q4 23, or 16% of revenue in line with the year-ago quarter, and 117.8 million in fiscal year 23, or 16% of revenue, down from 18% in the prior year. We plan to increase investment in R&D for the foreseeable future as we build out our product suite and scale our work operating system platform both horizontally and vertically. Sales and marketing expense was 110 million in Q4 23, or 54% of revenue, in line with the year-ago quarter, and $413 million in fiscal year 23 or 57% of revenue compared to 69% in the prior year. G&A expense was $17.3 million in Q4 23 or 9% of revenue compared to 10% in the year-ago quarter and $63 million in fiscal year 23 or 9% of revenue compared to 11% in the prior year. Net income was $33.7 million in Q4-23, up from $22.2 million in Q4-22, and $94.9 million in fiscal year 23, up from a loss of $33.4 million in fiscal year 22. Diluted net income per share was $0.65 in Q4-23 and $1.85 in fiscal year 23, based on $51.6 million and $51.2 million fully diluted shares outstanding, respectively. Total employee headcount was 1,854, an increase of 110 employees since Q3 2023. We expect to ramp hiring in Fiscal Year 2024, with a continued focus on our R&D product and sales team as we build out our platform and product suites. Moving on to the balance sheet and cash flow, we ended the quarter with $1.12 billion in cash and cash equivalents, up from $1.05 billion at the end of Q3 2023. In Q4 2023, free cash flow was $55.4 million, and free cash flow margin, as defined as free cash flow as a percentage of revenue, was 27%. In fiscal year 2023, free cash flow was $204.9 million, and free cash flow margin was 28%. 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 outlook for fiscal year 2024. For the first quarter of fiscal year 2024, we expect our revenue to be in the range of $207 million to $211 million, representing growth of 28% to 30% year-over-year. We expect non-GAAP operating income of $8 million to $12 million, and an operating margin of 4% to 6%. We expect free cash flow of $56 million to $60 million and free cash flow margin of 27% to 29%. For the full year 2024, we expect revenue to be in the range of $926 million to $932 million, representing growth of 27% to 28% year-over-year. We expect full-year non-GAAP operating income of $58 million to $64 million and an operating margin of 6% to 7%. We expect full-year free cash flow of $200 million to $206 million and free cash flow margin of approximately 22%. I'll now turn it over to the operator for your questions.
spk09: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll take our first question from Kash Rangan at Goldman Sachs.
spk22: Hey, guys. Thank you so much, Roy, Eran, and Eliran for giving us all the details. Two quick ones. One is when you look at the growth algorithm, we talk about 27 points of growth, but I look at customers with 10 plus users as a general proxy, that's grown about 20%, and then you have net expansion rate 110%. So just that base logic alone should give you a pretty decent level of growth. And then when I dig underneath the numbers, as everybody did, the 50K plus ARR customers, it's growing faster, 56%, and 100K is growing even faster. So help us understand how you constructed the guidance in light of the This cue in the metrics that suggested the underlying business is healthier than the guidance might seem to suggest. Also, net expansion rates, you said second half of 24, you expect an improvement. I'm wondering if you can add a little bit more commentary on what you saw in the quarter that gives you the confidence that you can see some improvement. Thank you so much once again.
spk26: Thank you for the question. So with regards to our guidance philosophy, this has not entirely changed. We're focused on providing always prudent, achievable, and responsible guidance based on the latest data that we have. You know, we mentioned the price increase, so it's still early days, and it's going to be staged throughout the year, and then we would like to make sure that we understand what would be the impact throughout the year. With regard to demand that we already took into account, nothing has changed much from what we saw in Q4 of last year. Still some headwinds in the macroeconomy environment, and we assume this will continue also in Q1 and Q2. So this is with regard to guidance. With regard to your question on NDR, so, you know, when thinking about NDR, we're looking at the trailing 12 months, as well as the weighted average. Just as a reminder, we report weighted average. So as I mentioned, with regards to guidance, we're still seeing lingering macro headwinds. Our customers are still cautious in the spend. We said that we expect it to stabilize in the second quarter of 2024. However, it's important to mention that the overall growth retention has had even a small improvement. And, you know, longer term, we remain optimistic with an updated pricing model and further scaling Monday DB and the product suite. that is going to be showing, you know, an optic at the second half of the year.
spk09: We'll move to our next question from Pendulum Bora at J.P. Morgan.
spk25: Oh, great. Hey, thank you for taking the questions. Earlier on, maybe digging in a little bit more on the pricing side, you said 15 to 20. In the analyst, you were talking about 10, and you have materially kind of changed the timing of the price increase release. So maybe help us understand what are the assumptions that you're making to get to that 15 to 20 in terms of churn. Maybe you're assuming more of the existing to come in the second half of the year. Maybe dig in a little bit more.
spk05: Yeah, Pendulum. Hi, it's Saran. I'll start with regarding to the growth of the price change and then I'll go over to Eliran to talk about the assumptions for the rest of the year. So overall, our initial plan also when we presented during the investor day was to roll out the new updated pricing model around June towards H2, beginning of H2. And we actually managed to finish our A-B testing sooner than that, and we were ready in terms of our technical stack. So we decided to make it, I would say, three or four months earlier than we initially thought. So we thought kind of mid-June, and it's now starting to roll out to existing customers. So it's like three, four months head start in terms of the process. Again, this is the first time we've ever done a price increase to our existing base. In the past, we've done it to new customers. So we also try to be cautious here, and we're still learning. I would say that so far from what we see, reaction from customers were good. We didn't see anything we didn't expect. Everything was in line with our models, so we remain very optimistic.
spk26: Yeah, and maybe to continue on what Iran is saying with regards to the assumption on the numbers, because we advanced it in a quarter, we assume that there's going to be an impact of around 15 to 75% on what we said on the investor day. So if you take the 10 million, This is roughly between 15% to 20%. And I think one of the things that you even mentioned, I believe, in your coverage when we introduced it in the investor day, we don't know to anticipate the churn. So just as a reminder, 80% of our customers are annual subscribers, 20% are monthly. And we took into account certain assumptions. Currently, it's going to be something that we are going to see effectively in 16th of January, sorry, February when it's kicked in. So we took some assumptions with regard to possible scenarios, and that is what we baked into the numbers.
spk25: Yep, understood. One question for Roy, and I'll see the floor. We have recently heard from some of your customers that Monday is becoming kind of an orchestration engine rather than just a work management platform. Somebody was saying that Monday is a layer between Workday and Jira. Another person orchestrating, a manufacturer orchestrating between different number of their systems. Do you see Monday becoming that orchestration layer facilitating kind of business workflow across multiple systems in an environment?
spk04: Hi, sorry. So thank you for the question. Yes, that that's part of how we see the platform. We worked a lot into creating the workflow tool and integrations and automation. So definitely we see cross company workflows handling also orchestration between many other tools. But we also see Monday as a platform that kind of trickles through areas that you don't have software or you couldn't have specific software and completes any workflow you want. So other than us creating products for core needs of the organization that they do know, okay, we want it to also fit into areas where you just need an extra input or another process in place, and then obviously connect any other tool you want in your stack to work together.
spk18: Understood. Very helpful. Thank you.
spk09: We'll go next to Brent Bracelin at Piper Sandler.
spk06: Thank you. I had two quick ones if I could. Number one, if I look at the number of Monday dev net new ads that actually accelerated on a quarter-over-quarter basis in Q4, could you talk a little bit about kind of what drove the momentum there, a little surprise and acceleration at this point? And then one quick follow-up, thanks.
spk05: Hi, Brent. This is Iran. So overall, we continue to improve the product and also improve our go-to market. As we mentioned, over time, we open our multi-product suite to more and more customers, and we're now finalizing the final batch of it. It should be over at the end of Q1. So as more of our users are exposed to our multi-products and we improve the acquisition engine and improve the features, We've seen the acceleration. We shared some of the data during the investor day, but overall, we continue to see good momentum with all products.
spk06: Perfect. And then, obviously, I know you've been trying to focus on larger enterprise customers. We saw a record number of those net new 50K cohort customers. You talked about the big deal. Could you just walk us through the pipeline of large deals going into next year? Is that going to continue to be an area of strength, or... Is that more seasonal that you'd expect to happen more in Q4? Thanks.
spk05: Hey, Brent. It's Iran again. So definitely, we continue to see good momentum in our pipelines. So during the investor day, we mentioned accounts with over 25,000 seats, but we continue to see other opportunities like that. Some are smaller, some are larger, but definitely a very good momentum in the pipeline. So we expect it to be throughout the year, not just concentrated in Q4.
spk19: Helpful color. Thank you, guys.
spk09: We'll move next to Steve Enders at Citi.
spk19: Okay, great.
spk08: Thanks for taking the questions. Maybe just to start on Elevate World Tour, I guess, what has been the feedback that you've had from customers on some of the newer products, newer initiatives, and what was kind of the most excitement around for some of those newer solutions that you have coming out?
spk05: Yeah, Steven. This is Iran. So overall, the feedback from customers were really good. There was a mixture of customers that used Monday for Work Management and CRM and Dev. And I think the The places where we saw the best feedback was around going deep on our platform, both in terms of scale and performance, but also a lot of new features that we have in the roadmap, and definitely around security that allows them to increase the usage. Overall, the feedback was good, and also we got great feedback on other testimonials. I think just seeing the variety of use cases really open the mind of our customers of what they can achieve more out of Elevate. And we plan to continue and do this event annually going forward and scale the event as well.
spk08: Great to hear. And then maybe just on the free cash flow guide for the year, how should we be thinking about, I guess, seasonality of that and You know, looking at the one key strengths in particular, are there any factors that we should be keeping in mind there and kind of any assumptions on maybe some of the early renewal activity from from price increases coming into the quarter?
spk26: Sure, Steven. Tell Iran. So with regards to free cash flow, I would say that the second quarter and the fourth quarter, this is the time when we pay bonuses. You know, in Q2, we pay bonuses for the employees and for the quota-carrying people. And in Q4, we're paying bonuses for the self-quota-carrying people. So you would see probably a slightly decline if you compare it to Q1. Overall, because 80% of our customers are on an annual contract and 20% are monthly, this is something that contributes to the scale and the strength of the free cash flow. On the other hand, you know, this allows us also to continue to invest. So potentially there are going to be quarters that we are going to see opportunities. It might open an opportunity to invest. Therefore, there might be some systemality. But other than what I said, it's pretty much stable throughout the year.
spk19: Yes, perfect. Thanks for taking the questions.
spk09: We'll go next to Arjun Bhatia at William Blair.
spk19: Perfect.
spk13: Thank you, guys. I wanted to ask on the new products, it looks like we're set to roll those out to the entire customer base in Q1 here. Can you just give us a sense of how you're expecting contribution and cross-sell from those solutions to take place throughout the year and then Maybe one on the go-to-market as it relates to those. Do you anticipate, at least as you get into the enterprise, that there might be an overlay sales team or specialist sales teams that are just focused on selling CRM and dev or the whole suite versus maybe just focusing entirely on work management? I guess how do you see the go-to-market evolving as these products go out to the entire customer base here?
spk04: Hey Arjun, it's Roy. So I'll answer the first part of the pricing and how it looks like throughout the year. So the way we model it, we see that we have monthly and yearly. So the monthly will be first in the first like month or so. And then throughout the year as the renewal rate comes for yearly customers, they will renew.
spk05: Yeah, and I think you specifically asked about the the cross-sell between the Mutu products. So just because the price increase, it was mostly for work management. We didn't increase the price of the other products. Throughout the year, we shared in the previous quarter that we see a large amount of cross-sell being done between the products. And we continue to see such momentum also in Q4 and going to Q1. So again, it's hard to model because it's still small numbers. We do expect this to be substantial going forward. Regarding the sales team architecture, so definitely we're going to see teams specializing in each one of those products. So right now it's more of like one team doing the sales process, but we're starting to have more people specialized in selling CRM and Monday Dev. And over time we're going to see those teams scaling as we scale the revenue for each one of those products.
spk13: Okay, perfect. That's helpful. And then maybe one on the actual how the growth impact might change. I know this year it actually ended up being a very strong year from a new customer ads perspective. And with the price increase glaring in this year, how do you anticipate the growth trajectory might get impacted between new customer ads versus expansion versus expansions with existing customers.
spk04: Hi, it's Roy. So we've A-B tested that, of course, like the price increase. So we can say, like, we didn't see any material change to the ARR we get from the price increase, and we obviously had to shift to, but there was obviously a small change in conversion in the number of customers we get, but that's, like, mostly smaller customers. So overall, we see that as a very positive effect long-term as well.
spk19: All right, perfect. Thank you, guys.
spk09: We'll take our next question from DJ Hines at Canaccord.
spk14: Hey, good morning, guys. Maybe just building on the thread around go-to-market strategy, can you talk about how you're thinking through the strategy with product bundles? I'm just curious, as the portfolio continues to expand, Where do you see the most linkage between solutions? What might that look like? When could you do something on this front? Any color there would be interesting.
spk05: Yeah, hi, DJ. It's Ron. So right now we don't offer any bundles yet to our customers. They can buy each product individually and then over time purchase other products as well. But going forward, we're definitely going to offer bundles to our customers. Bear in mind that we also have Monday work canvas and work forums in addition to CRM, dev, and work management. So going forward, we're going to offer bundles, maybe with a little bit of discount if you take two or three products, and maybe offer that as, like, one solution. So, for example, for companies focused on dev, we might offer Monday dev, and in addition to that, Monday work management to manage the projects as part of just the dev team. Uh, so that's something, uh, we've probably got to start rolling out, uh, this year again, we'll, we'll, I beat test that and we'll get a feedback from our sales team, but definitely something that we're going to roll out, um, in the next year in this year. Sorry. Okay.
spk14: Yep. Understood. And then as you look at your nearly 2,300 customers that spend 50 K plus per year. In how many of those would you say there's a centralized buying center versus, you know, maybe still a dependence on departmental level decisioning? I'm just trying to think about, you know, at what point or level of spend do customers start thinking about strategies for standardizing around Monday and kind of what you can do to move that effort forward?
spk05: Yeah, so I would say it's mixed. Part of it is kind of more dope down decision where the company kind of buys Monday throughout. Not the whole company, but like a management decision. And some of it is more department-based or VP-based in a specific region within the company. But we're seeing a shift. We're seeing a shift where more and more Monday becomes a significant platform within the company, driven by management. So definitely there's a shift towards that.
spk19: Perfect. Thank you guys for the call.
spk09: We'll go next to Derek Wood at TD Callen.
spk10: Great. Thank you. At the analyst day, you guys guided for a base case of high 20%, low 30% in the medium term. And maybe it's not the right way to look at it, but if I take the price increase impact out, you're guiding for around 25%. So it's had below that kind of base case Just wondering if you'd flag anything in terms of bringing that down. Maybe you could comment on the S&P part of the market. Other companies have flagged incremental pressure there. And can you just comment on kind of what you're seeing in the Middle East given the war?
spk26: Yeah. So, hi, Tehran. With regards to the guidance, we said that mostly what's going – there were two scenarios that we focused in. There was the base case scenario and there was the lower case scenario. And the thing that we focused on was the NDR. We said based on the behavior of the NDR, we're going to kind of – see what model is fit better to our throughout the year I think now we feel that it's something in between and they are as we said it's going to probably stabilize at H2 of this year and we took it into account as part of our guidance so we embedded into the numbers and this is the main reason for us to kind of assume this guidance with regards to the Middle East war we didn't see any impact on our numbers we are a global company so nothing that you know word calling out until now since in fact it's actually began begun we actually didn't see anything and hopefully we're going to continue to to see no impact on our business great helpful color appears you guys have pricing going up I guess this week for your for existing customers
spk10: I know this is the first time you've done that, but you can often see pull-forward dynamics where people want to buy, you know, lock in, see expansion before pricing goes up. Would you expect any kind of pull-forward in Q1? I'm just curious what you're seeing in terms of buying behavior right now.
spk05: Yeah, Derek, it's Iran. So far, as we said, it's starting to roll out next week, i.e., taking into effect. So far, in terms of churn and downgrade, we saw some numbers pretty much in line with our expectations. The reactions from customers were overall good. We didn't get any negative reactions. Overall reception of customers was good. Again, this is the first time we've ever done it, not just as a public company, but ever. So we also want to be cautious and be aware that we're not aware of the whole dynamic of how this will roll out. So maybe being a bit more cautious here at the company. But overall, so far, the signals look good. And I think after Q1, we'll have a better understanding of the dynamic and how this will roll out throughout the rest of the year.
spk26: Yeah, yeah, and hi there. This is Aliran. Maybe I will add that it takes a while for it to learn into the model simply because they're effective when the agreements are signed, you know, upon renewals, and that happens over the course of time for the annual multi-year agreements or annual contracts. So this is why we are not really, you know, can't anticipate all the behavior, but as Aliran said, so far signs are good.
spk19: Got it. Okay, thank you.
spk09: We'll move next to Brent Phil at Jefferies.
spk11: Thanks. When you look at the results relative to your guide, Q4 was the lowest magnitude beat you've had as a public company. And I'm just curious, was there anything in Q4 that didn't meet your expectations, or are we just simply going through a cycle of you're still beaning, but the magnitude's coming down, and that's kind of what you're anticipating in the guide? I think everyone's trying to kind of reconcile what happened in Q4, and then obviously it seems like that's leading to the more conservative guide for this year.
spk26: It hasn't. It's a little – yeah, I would say it's the latter. It's the macroeconomy headwinds are still – do still exist. They didn't change from what we have seen in the past. I think customers are still cautious with their spend, and that is why probably there was an impact on our Q4 results, also going into this macroeconomy situation, also going into the beginning of this year.
spk11: Okay. And just real quick on the Q1 margin guide, you exited at 10%. You're guiding 4 to 6. Is this just a heavier upfront load, or is there anything changing here as it relates to trajectory of margin?
spk26: Sure. So when we did Invest Today, we said that our number one focus for 2024 is going to be increasing top line throughout investment. There is some seasonality, obviously, because Q1, you always put more on the performance marketing because this impacts the entire year. But we said that the focus is going to be on top line and we're not going to improve operating margin in the way we did in the past. So I would have expected to improve, but it's just in line with what we have said.
spk17: Great. Thanks.
spk09: We'll go next to George Iwanze at Oppenheimer.
spk16: Thank you for taking my questions. So with the continued strong adoption of dev and sales CRM, Are you seeing any changes to the way you're landing, both with new customers and then on the competitive landscape?
spk19: Yeah. Hi, George. This is Iran.
spk05: So, look, obviously when we land with CRM and Dev, we see different competitors as opposed to work management. I would say that still 50% of the deals so far that we saw in CRM And Dev, we didn't compete with anybody. I would say the rest of the 50% people will consider Monday compared to other players. And in terms of work management, it pretty much remained the same. I would say it's 70% Greenfield, and then the rest, we see some competition. So there's a little bit more competition in CRM and Dev, but still we see other, but as I mentioned, we see other players that we compete against in those specific products.
spk16: Just following up on that, can you give us maybe some color on the work you're doing on the services side, and do you have any feedback on how the timing of that launch could go forward this year?
spk05: Yeah, so we continue to build Monday service and plan to launch it on schedule H2 this year. So far, we have a bunch of customers in beta. Feedback so far is really good. And as I mentioned, like we... had our users, a lot of our users already using Monday to manage some aspects of ITSM and service within the company. So we talk with them, we learn from them, and this kind of sets the set of features that we're going to launch as part of the first version.
spk19: Thank you.
spk09: We'll go next to Taylor McGinnis at UBS.
spk12: Yeah, hi. Thanks so much for taking my question. On NDR, can you comment on the performance of the quarterly number and what you saw? So was there stabilization with the 3Q number such that we can begin to see NDR trough, or are you still seeing pockets of incremental weakness in the macro? And if so, what does that look like? Thanks.
spk26: So, hi, this is Eliran. By and large, we're still seeing it stabilizing pretty flat of what we have seen, you know, in prior monthly training 12 months. Obviously, with the impact of price increase and potentially all the additional products and add-ons that we are adding to our customers and incremental value, we expect it, as I said, to get better in H2 of this year.
spk19: Great, thank you.
spk09: Our next question comes from Jason Salino at KeyBank Capital Markets.
spk15: Great. Thanks for fitting me in and all the color so far. One question on linearity. Curious what you saw in terms of top of funnel demand and conversion exiting the quarter and then anything in the first few weeks that you're willing to provide. Thanks.
spk04: Yeah, hi, it's Rui. So we see very healthy top of funnel activity, like we increased the marketing, we saw more leads, more pipeline generated, so it's all in line with what we expected.
spk15: Okay, excellent. And then maybe as my quick follow-up, the environment for performance-based marketing, the pricing, I think it's kind of stabilized over the last several quarters, but when we think about the upcoming
spk05: year you know are you making any change here from what you saw in 2023 thanks yeah jason this is iran so so it's pretty much in line with what we saw last year's overall um prices compared to the past are still lower but stabilizing doesn't improve more than that as we said we saw very healthy so far um pipeline generation and new customer signups coming into 2024 So rural pipeline is healthy. Cost of that pipeline is also healthy in line with what we saw last year. So efficiency more or less remains the same.
spk19: Thank you.
spk09: We'll go next to Ivan Feintzeff at Tigris Financial Partners.
spk02: Hi, good morning. Thank you for taking my question. What do you see the functionality as being the biggest driver of new customer adoption or customer increase use?
spk05: Yeah, Ivan, this is Ron. So I wouldn't say it's much of a specific product functionality. I think it's a combination of our efficient performance marketing engine and also our products becoming more and more dominant. So our products would allow us to acquire customers from different parts within companies, so the VP of sales, the VP of R&D, work management, obviously. So that, in addition to our existence performance marketing engine, just allow us to have a very healthy customer acquisition engine.
spk02: And what do you see, though, as the biggest use case is that new customers are signing up for or using it for?
spk04: Hi, it's Rui. So our biggest segment by far is the work management, which is very varied. We have very different use cases within work management, whereas in CRM and Dev, it's more focused on being more specific, more targeted, obviously. So with that, our ability to target work management in the moment is very broad.
spk02: Then one last question. Where do you see the opportunity to roll out increasing AI functionality within a lot of these products?
spk04: Hi, it's Rui again. So AI is a core part of the way we see the platform evolve. Like we've introduced like an investor day a few years areas we're launching AI in, and currently we launched some of the few, one building block in the automation segment, and we see great enthusiasm around it because we really allow our customers to build and kind of use AI on their own how they want it in their workflows. And we are also thinking about and doing, adding AI into the core of service when we launched it and other products. So we're putting a lot of emphasis there as we think this is, will allow us to grow a lot and again, like democratize AI and give it to our customers.
spk02: Then one last question to kind of support the price increase. Where do you see the development of added value that will help easier, you know, your clients easier pay the price increase?
spk04: Hey, so Roy again. So like Aaron mentioned, we've never done this before. So I think the feedback we got until now from customers is that they get it. Like we've added so much value in the past few years to the platform without increasing the price. And so I think we see acceptance of that change now. So I think it's behind us, as well as always bringing more value to the platform. So we see wide acceptance of the new price.
spk09: We'll go next to Scott Berg at Needham & Company.
spk07: Hi, everyone. Two questions for me. Thank you. First of all, with more proof points on the AI side with Monday AI, I guess how much more confident are you in the company's ability to actually monetize some functionality in there just now that you've had more of a chance to get some feedback from customers?
spk04: Hi, so this is a great question. I think it's still ahead of us, like pricing specific to AI, although we're thinking and working on it. I do think it will allow us to penetrate faster and get more market segments for the products that we include AI with. So I see a lot of upside there, but we're still working on monetizing the AI. Like automations is an example. We just launched it, so I think it's too much early days to say how impactful the pricing of that will be.
spk07: Got it. Helpful. And then my follow-up question is on your million-dollar customer cohorts that... or excuse me, 100K,000 customer cohorts that you're announcing. I know at the conference, the analyst announced that you're the largest customer ever at 25,000 seats. Historically, there's been a big focus on seat expansions and moving into some of these larger accounts. But as we think about that cohort going forward, how much of the growth there will be driven by customers expanding seats or adding additional functionality that they're going to be paying on top of the core user charges?
spk05: Hi, it's Ron. I would say that the vast majority of growth is probably going to be by seed expansion, but also we'll be able to sell them more functionality, the new products, add-ons we're preparing, we're going to launch, so like extension modules. But overall, you know, those enterprise accounts tend to increase more in terms of seats and usage over time, as opposed to smaller businesses that it's harder for them to extend the amount of seeds. So overall, like this cohort, we expect it to have better NDR, more seed extension over time.
spk19: Great. Thank you for taking my questions.
spk09: And that concludes the question and answer session and today's conference call. Thank you for your participation. You may now disconnect.
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