monday.com Ltd.

Good day. My name is Desiree, 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 2024 earnings conference call. I would like to turn the call over to Monday.com's vice president of investor relations, Mr. Byron Stephen. Please go ahead.

Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for Monday.com's third quarter fiscal year 2024. Joining me today are Roy Mann and Aaron Zimmern, co-CEOs of Monday.com and Elrond Glazer, Monday.com CFO. We released our results for the third quarter fiscal 2024 earlier today. You can find our quarterly shareholder letter along with our investor presentation and a replay of today's webcast under the news and events section of our IR website at ir.monday.com. Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on currently available information. These statements involve 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.

Thank you, Byron, and thank you everyone for joining us today. We're fresh off another strong quarter in Q3, highlighted by improving retention trends, strong financial performance, and robust product development. This quarter also marked significant milestones for Monday.com as we surpassed $1 billion in annual recurring revenue. Reaching the $1 billion ARR milestone is not just a number. It's a pivotal moment in our company's journey, and we are ready to build on that momentum. With a total addressable market of over $100 billion, growing 14% annually across four markets. work management, CRM, service management, and software development, there is a substantial opportunity ahead. To drive our next stage growth, we remain committed to deepening and expanding our product offering and increasing our global presence. As the landscape of work evolves, we are determined to stay ahead of the curve by continuously investing in technology, exploring new markets, and fostering a culture of agility. Monday.com is not just keeping pace with the industry, we are shaping its future. Before I turn it over to Iran, I'd like to cover a few changes in our management team. First, we are pleased to announce the appointment of Adidar as Chief Operating Officer, with over 20 years of experience driving sustainable growth in global tech companies. Adi brings significant expertise to our executive team and has already made a strong impact since joining us a few months ago. On a different note, we would like to share that our Chief Revenue Officer, Yoni Oshrov, has informed us that he will depart the CRO role at the end of December. Since joining in 2017 as VP Global Sales and Marketing and becoming the CRO in 2022, Yoni has been instrumental in developing our sales and partner channels, During Yoni's tenure, we have seen remarkable growth with ARR increasing from $10 million to over $1 billion. We are deeply grateful for his contribution and wish him all the best in his future endeavors. We are conducting a global search for Yoni's successor and he will continue to serve as an advisor until the CRO is appointed. Let me now turn it over to Iran to walk you through some of our product highlights for the quarter.

Thank you, Roy. I'm pleased to share highlights from our recent flagship user conference, Elevate, which took place in London, New York City, and Sydney. This year's event was the largest ever, with attendance doubling compared to last year. Thank you to all who joined us. For those who could not attend in person, we invite you to participate in Elevate Online on December 4th. Our Elevate conference provide us with a platform to showcase our latest product innovations. This year, we featured Monday AI, which include no-code AI building blocks that customers can tailor to their specific business needs. We're excited to report initial strong adoption with a remarkable 150% increase in the use of AI blocks since Q2. Looking ahead, Monday AI will be integrated throughout our entire product suite, enhancing functionality across the platform. We also highlighted our second larger product, Monday CRM, and our vision to expand its capabilities behind sales, fostering collaboration across various revenue teams. Upcoming features will include email marketing functionality, enabling teams to manage their campaigns directly within Monday CRM. Additionally, we're excited to demo our latest product, Monday Service at Elevate. Although still in beta, Monday's service has shown promising cross-sell potential, and it's on track for release by the end of 2024. As we expand our product offerings and support our customers' growth, we are committed to building a robust platform for scalable work. At Elevate, we announced the next iteration of MondayDB is now live. MondayDB 2.0 is all about scale and allows boards with up to 100,000 items and leaked items and a dashboard with half a million items. Lastly, we are pleased to report that Monday work management continues to gain significant traction with the enterprise customers. In Q3, our second largest customer increased their receipt count from 25,000 to 60,000 as part of their initiative to simplify and consolidate the technology stack. This represents a remarkable 24-fold increase in their receipt count since 2022. With that, I'll now turn it over to Eliran to cover our financial and guidance.

Thank you, Eliran, and thank you to everyone for joining our call. Q3 was another strong quarter for Monday.com with solid revenue growth and profitability and improving retention. We are pleased that Fiscal Year 24 is on target to be above our base case guidance outlined at our December investor date. Having surpassed $1 billion in ARR, we are now focused on leveraging our momentum to advance into the next stage of growth for the company. Total revenue in Q3-24 came in at $251 million, up 33% from the year-ago quarter. Overall NDR increased to 111% in Q3-24. We expect NDR to be stable through the end of the year. As a reminder, our NDR is trailing four-quarter weighted average calculation. For the reminder of the financial metrics disclosed, unless otherwise noted, I will be referencing a non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financials in our earning release. Third 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 $43 million in Q3 24, or 17% of revenue, compared to 15% in Q3 23. Sales and marketing expense was $130.3 million in Q3 24, or 52% of revenue, compared to 54% in Q3 23. General and administrative expense was $21.4 million in Q3-24, or 9% of revenue compared to 8% in Q3-23. Net income was $45 million in Q3-24, up from $33 million in Q3-23. Diluted net income per share was $0.85 in Q3-24, based on 52.6 million fully diluted shares outstanding. Total employee headcount was 2,305, an increase of 195 employees since Q2 24. We expect to increase headcount by mid-30% in fiscal year 24, with continued focus on our R&D, product, and sales team as we build out our platform and product suite. Moving on to the balance sheet and cash flow, we ended the quarter with $1.34 billion in cash and cash equivalents, up from $1.29 billion at the end of Q2 2024. Free cash flow for Q3 2024 was $82.4 million, and free cash flow margin, as defined as free cash flow as a percentage of revenue, was 33%. It should be noted that free cash flow for the quarter was impacted by a one-time net cash incentive of approximately $11 million for our new London office rental agreement. Free cash flow is defined as net cash from operating activities, less cash used for property and equipment, and capitalized software costs. Now let's turn to our updated outlook for fiscal year 2024. For the fourth quarter of fiscal year 2024, we expect our revenue to be in the range of $260 million to $262 million, representing growth of 28% to 29% year-over-year. We expect a non-GAAP operating income of $29 million to $31 million and an operating margin of 11% to 12%. We expect free cash flow of $63 million to $66 million and free cash flow margin of 24% to 25%. For the full year 2024, we expect revenue to be in the range of $964 million to $966 million, representing growth of approximately 32% year-over-year. We expect full-year non-GAAP operating income of $121 million to $123 million and an operating margin of 12% to 13%. We expect full year free cash flow of $286 million to $289 million and free cash flow margin of approximately 30%.

Let me now turn it over to the operator for your questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to redraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Our first question is... comes from the line of Kelly Naftalovich with Goldman Sachs. Your line is open.

Hey, team. It's Kelly on for cash. Thanks for taking the question, and congrats on reaching the $1 billion run rate mark. Two questions, if I may. As we see your larger cohort supporting an inflection in NRR, but we see a softening of your net new customer ads, can you share how Monday's engagement with customers is evolving and whether you're seeing any changes in the broader demand or competitive environment?

Yeah. Hi, Gary. It's Iran. So first of all, as you mentioned, we see good retention results. Our NRR is improving, and also our gross retention is at the record level, historically. So overall, we see better retention with small and larger customers. We do see a little bit less customer ads, but that's part of our price increase and part of our strategy. that we focus not just on SMBs, but also on larger enterprises. So overall, if I take everything, we see demand to be steady, pretty similar to what we saw in previous quarters in terms of retention of customers and also in adding new customers.

Hi, Gili, this is Eliran. Maybe I will add one more thing, is that with the new product that we introduced, service, we see also, you know, with CRM and service, you see cross-sales in between our existing customers and new customers that continue to add additional potential momentum to our sales.

Perfect. Thanks. And when we think about your growth initiatives that you just mentioned, as well as the hiring uptick that we saw in this quarter and what we're expecting in 4Q, how are you thinking about that expansion versus larger new lands, especially in the backdrop of the second largest customer that you saw in expansion there?

So this is Ron again. The fact that we hire more salespeople is basically because we see a lot of demand and a lot of opportunity within our own customer base. So it makes sense building towards growth for 2025. So we're pretty confident on that and our plans for 2025 as well. And again, as we grow, more revenue is coming from existing customers as they upgrade, buying more products, and adding more seats. Our acquisition engine and bringing new customers remains a very strong part of the business, and we're investing a lot into that and growing that as well. So I would say that both in expanding existing customers and acquiring new customers, it's according to our original plan, and demand and the market looks very stable.

Our next question comes from the line of Pinjalim Bora with JP Morgan. Your line is open.

Oh, great. Thank you for taking the questions. It seems like you're seeing half of paying customers for service come from cross-sell. And I think the product is still in beta, right? So do you think service might have a much bigger cross-sell opportunity versus CRM and that you might actually realize it faster than CRM?

Yeah, hi, it's Rui.

So we do see a great opportunity to cross-sell with service. It is, like you mentioned, still in beta and very early stage. So, like, it's not something we see as a significant part of our, let's say, revenue next year. But we do see it as a huge growth potential going forward. Too soon to tell how it will measure up compared to CRM.

Okay, understood. I want to ask you on net retention as well, just as a follow-up. It seems like you're seeing an uptick, but it seems like the uptick is largely in the large customer segments. Maybe talk about how much of that is due to seat unlocks from Monday DB versus cross-sell, and maybe broadly, Eliran. Has that metric turned a corner as we look into the next several quarters?

Yeah. So, hi, Angelina, Mr. Eliran. So, again, we are pleased with our NDR. You know, it increased to 111%. You know, this is ahead of our expectations. And I think that we expect it to be largely stable in Q4. To your question, if it's going to be a turn point going into next year, so we foresee opportunity for continued improvement in fiscal year 25. This is the result of the fact that we continue to go off market. Potentially, the impact of the price increase around 100 to 200 basis points. And I would say it's also broad-based across all customers with the growth retention also getting to record high.

Understood. Thank you very much.

Next question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.

Thank you. Good morning. I wanted to touch base on service again. What are the key kind of product milestones you're looking for that product to hit in order to GA? I know it's been a pretty successful beta, but what are the key last parameters that you'd like to see before that's released? And then one quick follow-up on guidance.

Yeah. So hi, Brian. This is Aaron. So Like everyone mentioned, we're very excited about Mind of Service. It feels like there's a huge opportunity there, especially cross-selling that product to existing customers. Because of that, and because we see them and also from our larger customers, we just want to make sure that, you know, one, the product is mature enough so it can scale within our existing customers, not just the smaller ones, but also the mid-market and enterprise customers. And then there's a bunch of features that we're planning to finalize before the official launch. One of them is the customer portal where people can create tickets and also some AI functionality that we added into the product. We feel that we're pretty close to launching the full release of that product and the feedback from customers is very good. So overall, we're very excited. There seems to be strong demand in terms of go-to-market and also great reception from Customers already use the product.

Helpful. And then, Alaron, the guidance here, been pretty consistent all year, 28% to 30% forward outlook here for four consecutive quarters now. How would you frame just the demand going into kind of year-end here?

So demand environment, as Iran said, demand environment has been very stable. It's broad-based. We still see, you know, strong momentum coming from SMB and continue to move up market. I would expect it to be, you know, getting slightly better going into next year based on what we heard from other companies. But there are still some signs of choppiness in some, you know, some segments. So I would say I don't want to tell you that it's going to be a dramatic change going into next year, but it's going to be a combination of we see a strong momentum on our business, but there is some choppiness in the market.

Helpful color. Thank you.

Next question comes from the line of Ryan McWilliams with Barclays. Your line is open.

Hey, guys. Thanks for the question. Just to follow up on Brent's question, as we think about our models for next year and building up to our estimates for 2025, any early insight into things to think about maybe as we, you know, continue on with the price increase into next year? Maybe should we look at 4Q as a reasonable starting point? Just any break-ins we can use from our models for next year growth? Thanks.

Hi, Celeron. So, you know, we will give our fiscal year 2025 guidance as part of next year. Any calls? But we remain optimistic that with Monday service, with the price increase that we did, with the growth sell opportunity, with the fact that momentum continues to be good, we're going to see some potential upside also next year.

Excellent. And then you guys have seen really strong product development with the new product line releases. But any thoughts on M&A here? Would it make sense to maybe acquire some bolt-on AI capabilities just Let's see if, you know, your thought process changed around that at this point.

Yeah. Hi, Ron. This is Ron. So, yeah, definitely. We have an M&A team. We constantly monitor the market and looking for opportunities. Once we find the right one, we definitely, you know, try to afford this opportunity. But, you know, given the cash reserves that we have and the opportunity that we have as a company, we're definitely looking into that as well.

Yeah.

Next question comes from the line of Brent Thiel with Jefferies.

Your line is open.

Thanks. With Yanni's leaving, can you just talk through the transition and ultimately in past sales transitions, it takes some time to settle in. What gives you confidence? Maybe this isn't as big of a turbulence or perhaps it is, but give us a sense of how you're going to manage that.

Yeah, Brent, so this is Ron. So basically, Yoni will stay in his role until the end of the year, and then we will remain the company as an advisor until we find a replacement for CRO. We're pretty confident that we'll be able to find a new source of company in the near future. We're looking for a new candidate across the globe. And there's a lot of great talent out there. And we're doing an orderly transition plan. We've got everything covered. And we get great management as part of our leadership and leadership in our CR organization. So we're pretty confident that things will remain stable. And we have ambitious plans for 2025. Great.

And then can you just give us a quick update on the CRM traction? What mile markers are you are you proud of and what's kind of the next chapter as we head into the next year that you're excited to cross with CRM?

Thanks.

Yeah, hi, it's Roy. So within CRM, we are always looking to scale it up a notch in terms of the sizes of business work. Approaching part of it is scaling the infrastructure like we announced to support large data sets, and also adding AI to many areas that really facilitate and make sales process much faster and robust. So we're super excited about CRM, remains a very strong growth area for us, and keep investing in it.

Thanks.

Next question comes from the line of Jackson Ader with KeyBank Capital Markets. Your line is open.

Great. Thanks for taking our questions, guys. The first one is on the sales rep motion. Can we just kind of go over what that typical motion looks like? Are they trying to sell into net new high-level purchasers? Is it rounding up kind of disparate teams that might be using Monday across an organization? you know, bringing them all together. And then I'm just curious, like, how this role might change with the leadership changes in that organization. Thanks.

Yeah. Hi, Jackson. This is Iran. So very broadly, in general, the way our CRO organization is built is that we have different teams that focus on different go-to markets, meaning SMB, mid-market, and enterprise customers. And then within each one of those segments, we have AEs and AMs. AEs focus on acquiring and converting new businesses to sign up or have interest in using platforms. And AMs, which is the most significant part of our CR organization, are focused on expanding existing customers. What they usually do is either expand an existing use case or find new buyers within the organization to sell them additional use cases or additional products. We're planning to scale that. As far as the CEO in transition, I think it's also presenting an opportunity. We're also going off-market and, you know, definitely it's an opportunity to expand that motion. We're going to bring more seasoned sales reps and perhaps leadership that have expertise in scaling to the enterprise segment as well. So all in all, this is how the team is built, and we're planning to scale that and invest more heavily into larger accounts.

Okay. All right. Great. Understood. And then my second question is actually also on go-to-market, but it's more in down-market, that kind of the funnel on the low end. Has there been any impact from your pricing increases on maybe the has there been a commensurate increase in performance marketing spend to try and land those customers in the funnel, given that now you've got an increased lifetime customer value, you assume, from the higher prices? But I'm curious how that impacts the performance marketing spend. Thank you.

Hi. So our performance marketing, like always, is driven by results. And we've done the test and before the pricing and after, and obviously what you see is less fewer number of customers, but higher quality ones that have more potential to scale upward. And this is in line with the strategy we have in the sales team and like the whole company is geared toward like taking our sweet spot, if you like, higher.

Okay, great. Thank you.

Next question comes from the line of Alex Zukin with Wolf Research. Your line is open.

Hey, guys. Maybe just the very large customer expansion. Can you talk a bit about what they adopted? Was there a consolidation motion with respect to that? And maybe just the pipeline for those types of deals as you kind of go into the end of the year and have a quick follow-up.

Yeah, hi Alex, this is Iran. So this is the company has grown a lot since 2023 over 24X increase. Just until recently they had 25,000 switch and now we have this additional upgrade. What basically happened is they got more departments using the product across the team. We now had departments from consulting, infrastructure, finance, operations, and also the sales team. So all in all, it's become a very significant tool within that company and also more room to grow. The feedback is great. And if you add that to the other large customers that we announced in the previous quarter, we see great traction in terms of not just landing larger accounts, but also extending them over time. So we see more and more of those deployments that land within our platform.

Perfect.

And then maybe just With the management changes, what does Adi bring to the table that he didn't have before, and maybe why was that the right time for this addition? And as you think about Yoni's replacement, how important is kind of larger enterprise sales experience with respect to that?

Yeah, so this is Iran. So first of all, we're very excited for Adi to join. I think it brings experience in two ways. One is scaling, building large organizations. He had experience managing a very big organization with a lot of people, a lot of departments and complexity. And I think his expertise and knowledge can really help us scale the organization, not just in terms of management, but also in terms of processes, business processes, strategic processes that we have. So definitely, we already see a great impact from that. That's definitely very helpful. Also, we have a lot of technology expertise in different domains, but we understand technology, understand the SaaS business, and know how to, you know, leverage and increase also, you know, sales orgs, and it brings a lot of expertise around those areas as well. So all in all, I think it will bring a lot to the table and will help us scale the company path at this point.

Yeah.

Hi, Rui.

I can add that we, Adi is someone we rely on a lot during this transition period, and he helps us across the company.

There was a second part. This is Aliran. There was a second part on the question I remind you, Aliran, about the CRO, how important it is to have experience in going up markets.

Yeah, so definitely in terms of the UCL role that we're looking for, we're looking for somebody that will help us go through this transition that we're going through as a company. We invested a lot into that, and as part of that, Yoni has been busy transitioning the sales team, and in this new role, we also look to somebody to continue that momentum. We already made a lot of progress, great progress on that front, and I'm sure that once we find the right person to join the company, he or she will help us complete this transition.

Perfect.

Next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Thank you, guys.

I want to go back to Monday CRM for a bit. I think you announced some pretty interesting new capabilities at Elevate. It sounds like there's campaign management capabilities that are going to be now built in-house. Can you talk a little bit about what your long-term ambitions are for Monday CRM? And could we in the future expect this to become a full-on kind of sales and marketing suite that lives inside Monday? And if so, how do you think about kind of the build versus buy versus partner motion for CRM in particular.

Hi, it's Roy. So CRM is essentially built on Monday WorkOS, which gives it amazing capabilities in terms of flexibilities and the complexity it can manage and also the connectivity to the rest of the organization. So I think this is something that our customers really appreciate and want, the connectivity across the organization, being able to do things connectively with other departments. And those additions you mentioned kind of connect to that as well and add more wholeness to the CRM suite that we see ourselves building over time.

Okay, understood.

Thanks, Ryan. And then if I can just turn to the quarter for a second, certainly 32% growth is very strong. I think when I look at the sequential growth from Q2 to Q3, it looks a little bit lighter than we've seen historically. So can you just touch a little bit on what happened this quarter, what trends you saw in the business, and whether there's any timing elements from the move-up market that we should consider as we're just thinking about the financials this quarter and going forward?

Sure, John. This is Eliran. First of all, we are pleased with Q3 performance. You know, we're still a little 60 company. You know, we had an exceptional performance in Q2. It set an eye bar for Q3. And, you know, if you think about what we presented even in the investor day, we are going to be above our expectation in fiscal year 24. Nevertheless, You know, in Q3, we saw some continued shopping at the macro, including, you know, pure enterprise customers, if you look at the total edge, which was impacted in part by slower hiring in sales. You know, as I said, we had a very strong Q2, an outlier, and slower than expected growth in Monday there, with people to focus on developers. So I would say all of the above created some light September, but we're seeing already strong momentum in October.

Okay. Got it. That's helpful. Thank you, Oren.

Next question from Michael Berg with Wells Fargo Securities. Your line is open.

Hi. Thanks for taking my question. Congrats on the quarter. I wanted to turn back to pricing real quick. There hasn't been much of an update in the last couple of quarters on contribution from pricing. Is there any incremental color there from the potential contribution in the quarter or for the year or in the quarter, whether it be quantitative or directional.

Thank you. Yeah, so this is Iran.

So just a quick update on pricing. The new pricing demand on Target to be fully rolled out by July of 2025. So we're still kind of in the middle of the process. So far, it's been rolled out to about 50% of our customers. We see about 30% impact, 30 million, sorry, impact for fiscal 2024. And total impact from the price increase will be about $80 million between fiscal 2024 and fiscal year 2026. So those are kind of the updated figures. But just to give you some more colors, we are going really well with the price increase. Reception of customers is good. We don't see any kind of negative feedback. So we continue to roll out the pricing as we plan.

Helpful. And then a quick follow-up on service. It looks like it's expected to be GA here in Q4. We had heard through the grapevine that there might have been some delays. Anything to point to there, any color versus potentially prior expectations around GA? Obviously, the feedback sounds incredibly strong from the ecosystem as well as from Elevate. So anything to help point us in the right direction there would be helpful. Thanks.

Yeah, so this is Ron. So there's no delay. Basically, we plan to roll it out by the end of the year, and this is largely when we release the full version. Just to remind you, it's already available for customers in beta, the great reception of DPEC, and they use the product. So around the end of the year, beginning of next year, you know, January, we'll announce the product to be GA, and then kind of open it up for our entire customer base, but the product is up and running and there's great feedback from customers. So it's pretty much on schedule.

Thank you.

Our next question comes from the line of Mike Funk with Bank of America. Your line is open.

Yeah, thank you for the question today, guys. Just a quick one. Thinking about the revenue growth trajectory and the factors that go into that, You know, we did see either a flattening or, you know, decline in the customer net additions across CRM and Dev this quarter. You know, you mentioned the price impact, $30 million for 24. I think it's a slight uptick from what you had before. And then not expecting a lot of contribution from service next year. So maybe just help me think through those factors and how they're going to impact, you revenue growth, if I'm missing anything, and if maybe we are hitting a point when law of large numbers is catching up to us in terms of maintaining 30% plus.

Hi, Jason. It's Elivan. So as we said in prior quarters, you know, as part of the price increase, we said that we expect a high single-digit head of new customers compared to prior year. However, the ACV and the lend is bigger. And this is something when we already finished the last year with 225,000 customers, obviously the ads in terms of percentage are going to be slightly lower of what you have seen in the past. With regards to service, strong momentum. We expect it to continue to next year. This is in line with what we saw with CRM, great adoption between our customers, sorry, among our customers. So this is something that we think will contribute to next year. And price increase, as Iran mentioned, will continue to contribute by between 2024 to 2026, around $80 million. So nothing much has changed from what we have seen in the past, other than what I mentioned earlier with regards to enterprise and net edge in Q3, as well as some softness in there.

And also, hi, Troy. I can add that, like you mentioned, size. So we have a very large amount of existing customers and a large portion of our sales team is focused on increasing adoption within existing customers and also a product roadmap is geared towards growth within existing customer . Okay.

And just to confirm that my notes are correct, the $30 million impact for fiscal 24 from price, and that was an increase in $25 million previously?

Yes, $25 million to $30 million, correct. Great. Okay, thank you all very much.

Our next question comes from the line of Derek Wood with TD Cowen. Your line is open.

Oh, thanks, guys. So you've been pushing up market pretty aggressively in recent quarters. And I'm just wondering if this is having any impact to deal cycle timeframes. I imagine, you know, as you start doing more multi-thousand seat deals, there's more buyers involved and a longer sales cycle. So just wondering if perhaps there's a little more seasonality coming into the model because of these bigger deals and, you know, perhaps a little less activity in a Q3 and a little more of a flush of activity in Q4. Is that the right way to be thinking about it? And any comment of how you're seeing pipelines of large 1,000 seat plus deals heading into the Q4?

Yes, Derek, it's Eliran. So, you know, as I mentioned earlier, we came on a very strong, we came on the back of a very strong Q2, and obviously Q3, you know, you have July and August, which are traditionally months of vacations in Europe and potentially in the U.S., but I don't want to kind of provide this as a seasonality kind of dramatic changes we have seen. As I said, potentially with the fact that there is some still macro headwinds to a certain extent in some areas of the market. You know, macro is still choppy. Potentially, this is contrary to some of the fact that we saw less enterprise customer ads. And as I mentioned, also the Monday debt was more soft than we anticipated. But again, looking at October, you know, we're seeing still momentum, very positive. And, you know, I don't want to tell you that this was a strong seasonality trend in Q3.

Got it. And then maybe just to touch on just the competitive landscape, I mean, I guess as you've pushed into new product areas, more upmarket, give us some stats in the past on, like, Greenfield percentage of deals. Like, has that changed much as your market positioning has evolved?

Hi, sorry. So I think as we push towards larger deals, we see more competition in deals. If you look at the average, I'm not sure if it's changed or not, but definitely within CRM, we are competing against other players, but while a lot of the new adoption comes from Greenfield still, but they are comparing us to competitors.

Yeah, that makes sense. Okay, thank you.

Next question comes from the line of DJ Hines with Canaccord. Your line is open.

Hey, guys. Thanks for taking the question. Any updates on the partner ecosystem, especially as you go further up market? You know, growth there, contribution of the business, your ability to monetize that activity. Any trends emerging that are worth calling out?

Yeah, hi, DJ. This is Iran. So no major updates, but we continue to see great momentum with our partner ecosystem. What we see over time is more and more partners are also delivering services to our customers, not just helping them with the implementation, but also helping them customize the platform even more. We're also starting to see more partners that specialize in each one of our specific products, so more partners that focus on CRM, We're part of the focus on that product, and I'm sure as we launch Monday service, we're going to add more partners that have expertise in that. But overall, we can see great momentum with the partner ecosystem. We remain a significant part of our revenue composition and in terms of helping larger customers onboard and use the platform.

Got it. And then maybe a follow-up on service. Just based on the beta usage you've seen to date, How much of the demand has been for internal ticketing use cases versus customer-facing support? And do you see that kind of evolving over time with public availability here on the horizon?

Yeah, so maybe this is Iran. So maybe important to emphasize, we don't just see IT service. What we've seen currently from the different use cases that we have, we see obviously IT service, but we see a lot of ticketing around HR, around operations, all the way to finance, marketing teams, and customer support, internal customer support, ticketing. Currently, we don't plan to position Minds of Service as an outside-facing support platform, but mostly within the company. But given the current use cases, it's very broad across the company. That's just for IT, but across almost any department.

Okay. Okay. Got it. Thank you, guys. Appreciate the call.

Next question comes from the line of Steve Anders with Citi. Your line is open.

okay great thanks for taking the questions here um i guess i just want to ask on some of the choppiness that you're seeing and uh you know some of the impacts that you saw this quarter i guess maybe how is that being accounted for in the the q4 outlook is there maybe some incremental conservatism that's being uh baked in our canon for here just you know just think about maybe some of the the moving pieces that you're you're kind of incorporating in the outlook

Yeah, Steve, hi, it's Eliran. So I think I spoke about this earlier, but I will repeat, I mean, you know, we continue to see steady demand across our business segment and, you know, it's consistent growth rate. As we said, growth retention is at record levels, but there is some cautious spend environment with many of our customers. And in Q3, we saw some continued choppiness in the macro. So again, We saw enterprise, although it's the fastest-growing segment that we have, we saw fewer enterprise customers in Q3. As I said, it was impacted in part by slower hiring in sales and on the back of very strong Q2. So I don't want to tell you that, you know, we beg conservatives, and as we always said, you know, when we provide guidance, we try to do it in a prudent way based on all the information that we know in the quarter. And we account for all the, you know, all the things that that we know today. In addition, the company is growing and becoming more mature, and we want to make sure that we are providing the most accurate guidance possible while maintaining strong conviction in meeting our estimates.

Okay, perfect.

That's a helpful context there. And then I guess just following up on that, I think you said the sales hires was maybe a little bit slower. I guess I just want to clarify that comment. And I guess secondly, just how are you kind of thinking about future sales time count growth and maybe how that should kind of layer into the hiring plans going into next year?

Just Steven, the last part of the question about hiring, you broke up a little bit.

Yeah, just how you're thinking about feature sales and talent ads and I guess the case of that as we head into 25.

Case of hiring. So, Steve, this is Erdogan. I will take it. So, you know, as we said, sales hiring was lower than what we anticipated in Q3, but we expected to rebound in Q4. And, you know, we plan to ramp up hiring for sales quota carriers in Q4 and in fiscal year 25. The areas of investment will continue to be product R&D and go to market. It's worth mentioning that, you know, if we look at the evolution of the business with all the changes that we are doing in the CRO, so obviously, as I mentioned earlier, we're going to hire people in the segment of account management, enterprise, to continue to deepen within existing customer base. But momentum will continue to be strong across hiring.

Okay, perfect. Thanks for taking the questions.

Next question comes from the line of Scott Berg. We need him. Your line is open.

Hi, everyone. Thanks for taking my questions. First one I wanted to jump on was, Your R&D spend took kind of an abnormal increase quarter over quarter, especially relative to historical seasonality between Q2 and Q3. Can you help us maybe unpack and understand what's driving the big R&D increases? Is there a specific product or something else in the strategy, or is it just general hiring for R&D?

Hi, Scott. It's Eliran. So, you know, over the last few quarters, we continue to say that an area of investment for us is going to be R&D and product. Having in mind everything that we are doing, innovation is in the core of everything we do. Monday, you know, introducing new product, investing in existing product. Monday, DB, AI capabilities, feature and functionalities. All of these things require talent, and this is something that we continue to do So we had strong overall hiring plans in Q3, and particularly for product and R&D, as well as operations. So all of that is contributing to the fact that R&D is becoming more significant quarter over quarter.

Helpful, Eliran. And then as you think about your sales and marketing hiring, you've talked a couple times how that was a little bit behind in the third quarter. Do you catch up on the hiring there in the fourth quarter, or is this going to be an item that persists into maybe early 2025?

Yeah, so we expect it to rebound in Q4. Again, with all the changes that we are doing, obviously we are looking at all the plans. And also going into fiscal year 2025, we would like to make sure that we will ramp up hiring for self-loathing carriers.

Great. Thanks for taking my questions.

Next question comes from the line of Taylor McKinney with UBS. Your line is open.

Yeah, hi. Thanks so much for answering my questions today. The first one would just be in thinking about the $5 million raise from price to the full year rep guide, can you maybe provide a little bit more color on how much of the upside came from outperformance on price in 3Q versus what you are expecting for 4Q? And just the reason why I ask is, you know, you've mentioned some of, like, the macro choppiness. Just curious if, you know, some of like the sales hiring or that macro choppiness was a bottleneck to 3Q and if there's any, you know, areas on that choppiness that you'd called in particular. Thanks.

Yeah. So I'll tell everyone. If you recall, when we did the price increase, it actually was launched at the, you know, the end of February, early this year. And we said at the time that we don't know what would be the impact, what would be, because this is the first time we do it, what would be the churn rate. of the customers in accordance with the pricing risk. Overall, it became better than what we anticipated. For most customers, it has been largely a non-event. You know, gross retention has been improved. So I would say that the $5 million extra is the fact that the profile of the customers and the momentum is better than what we anticipated. So this was a good surprise for us.

Perfect. And then just as we think about the one-point uptick in NRR, could you maybe unpack that a little bit more? So was that largely due to price, or are you seeing cross-seller seat expansions actually drive some of that upside? Is this more work management stable? And then I know you're talking about expecting NRR to be stable in the outlook for 4Q. I think you made a comment earlier about seeing some good momentum in October. So Is that just really prudence or anything to keep in mind there from a seasonal perspective? Thanks.

Yeah. So I think it's all of the above. All of the above, meaning pricing we've contributed around 100 to 200 basis points to the reported NDR in Q3. You know, we expect pricing that we continue to contribute approximately 200 basis points for the reported NDR in fiscal year 24 as a whole. We said that it's going to be stable in Q4, around 111%. There is potentially some upside in next year.

Too early to say, but so far we're seeing good momentum going also into October.

And our last question comes from the line of Itai Kidron with Oppenheimer. Your line is open.

Thanks. I made it. A couple of questions for me. First on Dev, it's been somewhat underwhelming since you've announced it. Can you talk about from either a future or go-to-market standpoint, what needs to change in the product for you to get a better and more consistent contribution here?

Yeah. Hi, Ty. It's Ron. So first of all, what happened with the progress with the Monday dev, it might not grow as fast as CRM, but the growth, we're very pleased with it. With MondayDev, we're very focused on software developers. So it might be just a project that takes a little bit longer to scale compared to CRM, which is kind of more of a broad use case. But we kind of now in the, we finalized the kind of refocusing of our go-to-market. We added specific features that are more tailored towards developers. It might be more slow down in the NetEd in the short term, but in the long term, we're pretty confident in the product. Great feedback about using the product, great use cases, and retention of the customers who do that. So overall, we have it with the progress, and we continue to invest into that product.

That's great. And then for you, Roy, in your prepared remarks, oh, I think it was Iran, I'm sorry. You talked about that AI blocks up quite significantly quarter to quarter. Can you talk about evolution here? How do we think about AI blocks? First of all, how would this change, let's say, a year from now? And what do you expect it to do to customer pattern in the context of expansion and moving up price tiers? How do you see this impacting that?

Yeah, so yeah, the adoption, we're very pleased with the adoption. Like I mentioned, In terms of total AI actions, it grew from more than 250% compared to Q2. And the AI blocks grew 150% from Q2. So overall, we see more and more customers adopt those blocks. People incorporate them into their automation. They create a lot of processes within the product that involve AI within that. And over time, we are planning to roll out a monetization tied with AI, where we're going to generate a clear and efficient value for our customers. So definitely, we're very happy to see the progress with the AI features, the adoption of AI features, and over time, we're going to add the ability to monetize that as well.

Ron, is that a 25 timeframe for monetization on AI?

Yeah, we don't have a specific date, but it might be in 2025, but we can commit to that.

All right. We're not modeling for that in the plan for 2025.

Very good. Appreciate it. Thank you.

Ladies and gentlemen, that concludes the question and answer session.

Thank you all for joining. You may now disconnect.