monday.com 2022 Q1 results

[chang88]

See https://ir.monday.com/news-and-events/news-releases/news-det…

Management Commentary:

“In the first quarter we made meaningful progress in capturing our large market opportunity with strong top line growth and increasing net dollar retention,” said monday.com founder and co-CEO, Roy Mann. “We are excited to take the next step in our product evolution with the introduction of monday Work OS products,” said monday.com founder and co-CEO, Eran Zinman. “These new end-to-end products will provide our customers with more robust solutions containing advanced features and capabilities to address their specific needs.”

“Q1 was another quarter of great execution at monday.com, led by strong demand with larger customers,” said Eliran Glazer, monday.com CFO. “While growing and scaling the company will remain our top priority, we are equally focused on improving capital efficiency and operating leverage as we move forward.”

First Quarter Fiscal 2022 Financial Highlights:

• Revenue was $108.5 million, an increase of 84% year-over-year.
• GAAP operating loss was $67.5 million compared to a loss of $37.8 million in the first quarter of 2021; GAAP operating margin was negative 62% compared to negative 64% in the first quarter of 2021.
• Non-GAAP operating loss was $43.8 million compared to a loss of $23.3 million in the first quarter of 2021; non-GAAP operating margin was negative 40%, the same as first quarter of 2021.
• GAAP net loss per basic and diluted share was $1.48 compared to GAAP net loss per basic and diluted share of $3.52 in the first quarter of 2021; non-GAAP net loss per basic and diluted share was $0.96 compared to non-GAAP net loss per basic and diluted share of $0.63 in the first quarter of 2021.
• Net cash used in operating activities was $12.9 million, with negative adjusted free cash flow of $16.2 million compared to net cash used in operating activities of $0.6 million and negative $1.6 million of adjusted free cash flow in the first quarter of 2021.

Recent Business Highlights:

• Net dollar retention rate was over 125%.
• Net dollar retention rate for customers with more than 10 users was over 135%.
• Net dollar retention rate for customers with more than $50,000 in annual recurring revenue (“ARR”) was over 150%.
• The number of paid customers with more than $50,000 in ARR was 960, up 187% from 335 as of March 31, 2021.
• The percentage of ARR attributable to customers with more than $50,000 in ARR was 22%, up from 12% in the first quarter of 2021.
• Announced the launch of monday Work OS products consisting of monday sales CRM, monday marketer, monday dev and monday projects.
• Announced a new partnership agreement with Software House International (SHI), one of North America’s largest IT solutions providers.

Financial Outlook:

For the second quarter of the fiscal year 2022, monday.com currently expects:

• Total revenue of $117 million to $119 million, representing year-over-year growth of 66% to 69%.
• Non-GAAP operating loss of $35 million to $33 million and negative operating margin of 30% to 28%.
  For the full year 2022, monday.com now expects:
• Total revenue of $488 million to $492 million, representing year-over-year growth of 58% to 60%.
• Non-GAAP operating loss of $139 million to $135 million and negative operating margin of 28% to 27%.

Additional data from me

Revenue by quarter in the past

          
         Q1     Q2        Q3      Q4
2019            17       21       26
2020     32     36       42       50
2021     58     70       83       96
2022    108

They guided 101 for this quarter. An actual of 108 represents a 7% beat.

• Guiding 118 next quarter that represents a 8% QoQ and 68% YoY growth. At a similar 7% beat, their revenue would be 126, or 16% QoQ and 80% YoY growth.
• Free cash flow was much worse and negative like the management said in the 2021 Q4 call.
• They revised their 2022 Full Year Guidance from 472.5, or 53.5% YoY growth at the mid point in Q4 2021, to 490, or 59% YoY growth in this quarter.

[PaulWBryant]

Sequential growth the last 4 quarters:

2021 Q2: 19.7%
2021 Q3: 17.6%
2021 Q4: 15.1%
2022 Q1: 13.6%

The guide does imply that with a similar beat it would tick back up to 16%+ next quarter. That is very good, of course. The problem is that they haven’t shown much progress at all on profitability. I don’t want to be a slave to what the market is focusing on right now, but the progress – or lack thereof – is important to me. They improved the FY operating loss guide from a $142m to $135m. Yaaaaaawn. I was really hoping they’d provide a huge upgrade, balancing investing in their own growth with a recognition that they need to prove they can actually be a business with good operating leverage at some point. That’s still a big question mark for me.

I went ahead and sold. It still feels like the bottom, or close. And heck, maybe they get acquired. But I’d rather have the bullets (cash) to fire elsewhere.

Bear

[WillO2028]

YoY of +84% was good; but, fortunately Monday guided for next quarter. It was not great.
I don’t usually pay attention to guides. But, they’ve already got a month of insight into next quarter so I think it’s safe believe there will be additional slow down in company revenue growth and that their not just setting up for positive surprise. I continue to like much of their growth story otherwise. I believe they provide the best low/no code work automation products that once set into a companies work flows are not going to be replaced unless something 10x better comes along. And with their continues innovation this moat will be maintained. I don’t see a regulatory moat as with Cloudflare or Snowflake and somewhat with Bill.com.

[ExponentialDave]

Yeah, I came to pretty similar conclusions as Bear.

I sold out of Monday last week (just feels like earnings are too high risk these days to hang on to lower conviction stocks through earnings, and Monday had been a tier 3 conviction for me for the past several months).

Based on the results, overall, I am not inclined to retake my position in Monday.

–QoQ revenue growth showed its 3rd straight quarter of deceleration, from 19.7% → 17.6% → 15.1% → 13.6%

–QoQ guidance for next quarter is stronger than usual at 9.7% (avg was previously ~6.5%)

–Enterprise customer growth of >$50k was strong at 21% QoQ. However this is weaker than usual, and their worst performance going as far back as Q2 2019.

–Path to profitability metrics look bad for this quarter across the board

–NG Op margin jumped to -40%, which was averaging about -12% over the prior 3 quarters. This -40% is the SAME that it was in the comparable quarter last year. But before this quarter, it looked obvious they would do much better than -40%. But here we are…

–NG net loss was much higher than last years, coming in at $-43.2m vs -$24.4m last year.

–Net dollar retention rate for cust > 10 users was > 135%

This wasn’t a nightmare of a quarter, but rev growth is slowing, and the argument that they are moving to profitability is weaker.

If I still had my MNDY position AND the macro environment was better, I’d probably be trimming my position heavily after earnings like this. But profitability is a key part of the investment thesis, and it is now in jeopardy.

[bulwnkl]

I’m with you guys on selling my position. I was a bit concerned with the degrading cash situation, no path to profitability other than management stating that scaling is important to them, and I was disappointed that they didn’t include the customer count.

[SaulR80683]

I had gotten out a couple of weeks ago, but if I hadn’t, these numbers would have done it for me:

• Adj operating loss was $43.8 million worsening from a loss of $23.3 million a year ago

• Adj EPS was a loss of 96 cents worsening from a loss of 63 cents a year ago [Losing 96 cents a share is a bunch]

• Operating cash flow was a loss $12.9 million, worsening from a loss of $0.6 million a year ago.

• Adj free cash flow of a loss of $16.2 million worsening from a loss of $1.6 million a year ago

[bulwnkl]

Permastonks,
We’ve also held stocks for several years. I would say whatever type of investor you consider yourself, it’s a good idea to determine what your thesis is for holding a stock, and when that thesis is proven incorrect, you should change course.

For me, I like to see a solid business that I believe in, growing revenue, growing margins, and increasing free cash flow. Revenue growth decelerated, margins shrunk, and free cash flow shrunk. I sold based on business results, not because of stock momentum.
I don’t consider acknowledging that my criteria was not being met and moving out of a stock momentum investing. Stock price doesn’t impact my decision to sell, but business results do.

For the record here’s my stocks and holding time:

Mercardo Libre 5 yr.
Data Dog 2 yr.
Z Scaler 7 mo.
Bill.com 7 mo.
Sentinel One 4 mo.
Snowflake 4 mo.
MongoDB 4 mo.

This is hardly jumping in an out of stocks. And, yes, this has been a hard year for me too. If your going to point out that some choose to move out of stocks, you should also point out that many on this board have stuck it out during some very steep stock declines. Most momentum investors are concerned with stock price movement, clearly the majority on this board don’t set their criteria based on stock movement. And, yes, I would like to find stocks that I can hold for a lifetime and have market beating returns too.

For me, I have done well getting out when my thesis is broke. If long-term buy and hold, regardless of the business results, is for you. By all means, follow that course. If your initial research is good, you might beat the market. Over the long-term, this style works well for me.

Best,
bulwnkl

[brittlerock]

Nice summary Chang.

I had already sold half my position over a week ago, and I had sold it down even further last week. I based the decision to sell on no new information. I have just become wary of the space Monday is operating in. I held positions in both Asana and Smartsheets some time ago, but sold those positions to free up cash in order to buy Monday.

But in the end, Monday offers their customers a productivity tool. Of course, businesses like to improve productivity, but there is nothing mission critical about it. This is not like cyber-security (S, CRWD, NET, ZS even DDOG to some extent) or a vital DBMS (MDB, SNOW sort of). Monday is not a “must have” product. I retired 12 years ago, so maybe things have changed, but while I was still working, management was always skeptical about productivity tools. They were not an easy sell.

Anyway, as soon as I saw $108.5 I placed sell orders before the market opened for my few remaining shares (I live on the West coast, I was out of bed early this morning). I had hoped for no less that $110, closer to $112 would have made me very happy, but I was not happy. Sell seems to be the consensus. Not everything about the report was bad, but overall it was disappointing. Unfortunately, I must say that Monday has been a disappointing investment from the get-go. Yet, it seemed so promising a while ago.

[rtichy]

I’m going to throw on a small observation about Monday’s tool, here. People keep saying it’s “not mission critical” but I took a sales call from a solar installer (Sun Badger, out of Madison WI, fwiw) and part of their pitch included saying that, as the customer, I’d be kept in the loop regarding the planning and execution(and inevitable hiccups) via their use of the web-hosted Monday to oversee the project plan.

Seems like it is “mission critical” to them if it is both client-facing and their project management tool. I’d also like to add that many here seem to think that Microsoft is thoroughly entrenched in businesses, and I’d suggest that there are a lot of businesses below a certain size that either are not, or would like to not be, joined at the hip to Microsoft’s Office 365 offerings. Mr. Softy is plenty unpopular outside the Fortune 1000 for charging too much for products that seem to need endlessly updating, and have just ‘existed’ for going on 35 years, now.

-Another Rob

[A_ce]

Even though the operating margins were not good this quarter, they explained the reasons in the earnings call. They also said their bottom line would improve this year and next year. They have an operating margins guidance of negative 27% (from 40% this quarter is already an improvement). And if we believe they are sandbagging, the operating margin could be even better.

People here also talk about decelerating revenue, but by the guidance for Q2 and the usual beat, I see clearly some reacceleration. So I don’t really understand why people are already calling for decelerating revenue.

I just read the earnings call transcript and it was actually quite positive. They just released 4 new products and confirmed that they were not included in the guidance.

« Our customers use monday for many use cases, but those four releases stood out and has the most potential.

I would say that we see a lot of traction in our sales CRM product, but also our developer product is very interesting. We still have demand in the marketing products as well. And obviously, project management for us, it’s really the sweet spot. So we see a lot of momentum in each one of those.

I would say that when we kind of planned the guidance and our model, we didn’t take those products into account. They are still new and we have a lot of growth to do in each one of them. But definitely, we see a lot of positive signs and a lot of very excited selling customer feedback from our customers using them. So we’re very excited for the future of those products. »

Even though they don’t expect any meaningful impact from it in the short term, they also kinda say that these new products would be bigger than their current products. If this is true, I don’t really see their revenue growth decelerating anytime soon.

I feel like some people took a decision about the stock without even reading about how the company is doing in its entirety.

I agree that the bottom line was not great, but let’s not forget they invested a lot during this first quarter. I recommend reading the earnings call to have more details.

I don’t see a lot of downside for the stock from here with this valuation, but during these troubling times we never know. And if the bottom line doesn’t improve in the next few quarters, the upside potential for the stock will of course diminish. But I feel it is a bit too soon to call for that, specially after reading this good earnings call.

[A_ce]

Forgot to specify the operating margin guidance is for the full year.

[Rubenslash]

My take:

• Revenue in line with market expectations considering the guidance provided in Q4. 14% QoQ growth is better than what all other companies followed here reported so far (DDOG, ZI, NET, CFLT & BILL)

• Guidance for Q2 was VERY GOOD. A 6% beat (similar to this Q) would result in 16% QoQ growth and 79% YoY. Yes this is a slowdown in YoY but they are operating at 500M ARR now. Deceleration is expected and normal. How many SaaS companies can actually show >70% growth at 500M ARR like Monday is delivering? Only the very best have been able to show these numbers. (CRWD, DDOG, SNOW, ZM, NOW come to my mind)

• Profitability weak as they are reinvesting everything for growth. This is the right thing to do! Look at the net retention rates once they onboard customers: I want them to invest as much as possible in sales & marketing to onboard as many customers as possible and then grow 30-50% a year within that customer. If you deduct the 11M $ superbowl spend in Q1, their FCF would have been close to breakeven. Management indicated that they front-loaded hiring and S&M spend and expect operating leverage to improve throughout fiscal 2022 and into fiscal 2023.

• 50% of F500 companies are customer. This is way higher than I expected. Monday.com often lands a customer with just one or a few teams and then expands throughout the entire organization. The 135% NRR for >10 customers and 150% NRR for >50K customers shows the massive potential for growth within their customer base. Every office worker is a potential user!

• Announcement of the product suite and 4 new products (CRM, projects, dev & marketing) on top of their WorkOs platform. This will increase the revenue / seat opportunity. One of the weaknesses vs. DDOG / SNOW is that in a seat model, you are per definition limited to the number of seats available in an organization and revenue doesn’t grow along with usage beyond the growth in seats (such as SNOW with the exponential increase in data). Monday.com however continues to release new products that expand the revenue / seat opportunity. These 4 products are based on actual customer demand as these were among the four most common use cases of the WorkOS platform. Management also highlighted that these products will allow for more specific audience targeting and lowering customer acquisition costs.
  Last quarter, they also announced Monday Workforms and Monday Canvas that provide an incremental revenue opportunity, although small vs. the overall business (the latter product is intended to compete with private visual collaboration Miro, last valued at 17.5B $ - although probably now worth 80% less).

• Flexibility of their low code / no code platform: their platform can be used for almost any use case. Management indicated in the call that they will go after vertical solutions. Monday.com offers the opportunity for companies to consolidate some of their CRM, marketing, dev spend on Monday rather than using multiple different vertical point solutions.

• Continues to add >50k ACV customers at a rapid pace: 167 new additions or 21.1% sequential growth, which is 114% annualized.

• I already highlighted the best-in class high net retention rates, management also indicated in the call that they could see the net retention rates stabilising around these rates: “I believe we are going to see potentially a few basis point improvements, but we believe this is kind of stabilizing, and we are going to see these rates over time.”

• Valued at 6 times NTM revenue. This is a terminal multiple for software companies that can achieve good FCF margins. Market expectations are VERY LOW. If we learned anything over the last 6 months, it’s that valuations DO MATTER. If a company can beat what the market is expecting and pricing in, we can expect good returns.

• Strong glassdoor ratings. I don’t put too much weight into these but it gives some additional information. 97% approves of the CEO and 90% recommend to a friend. Company culture is important.

Overall, it looks like the company is doing very well. My conviction isn’t as high as DDOG or SNOW for example but I can’t put all my money in just two or three companies. Happy to keep my 5-10% allocation for now, but I absolutely do want to see operating leverage once the growth starts to slow down into the 50-60% range.

[WillO2028]

Reubenslash posted his view of Monday.com Earnings Report and has me wishing I hadn’t been so hasty, in my getting entirely out of this company https://discussion.fool.com/my-take-revenue-in-line-with-market-…. He wrote out everything I was thinking; but, I didn’t write it out. I kept my posts about it ‘balanced’ and wish I didn’t. My maintaining an opinion, supporting my general feeling without concern for what others think, is not necessarily falling into confirmation bias. Now I must fight confirmation bias by not letting the fact that I sold too much and bought others, each of which lost me money so far, keep me from getting back into Monday.com.

What I did: I sold 2% of my ~13% Crowdstrike position to buy back some Monday.com

Why I did it:
Thanks Rubenslash😉. I wouldn’t say VALUATION MATTERS, as Rubenslash did. IMO, It’s a little vague. I’d say how I value a company matters. Seems a lot of people try to guess what Mr. Market Values by watching share price. I agree with Saul, that’ll make you crazy . I remember when I tried to breakdown how I value a company in a short list, to keep things simple. I still need permission from people like Rubenslash to even consider EV/S as small part of how I value a company.

I sometimes sell if I think a company will no longer be discussed here, Saul’s Board being such a valuable resource with people like Rubenslash posting counter arguments without breaking any rules.
Monday is not a turn around story or broken in anyway. And they did warn of their ‘frontloading’ expenses to the first quarter in particular last CC. I’m confident we’ll continue to hear from many others about Mondays company performance going forward.

[buynholdisdead]

Well Saul warned you all not to follow him. Do your own research. This is not an investment news letter but a board to discuss growth stocks.

Andy

[Baconski]

Why I am holding on to Monday.com which is currently 16% of my portfolios.

I will go over the Earnings report, Earnings Call from May 16th, and also a JPMorgan Investor interviewing Roy and Eran on May 23rd.

Let’s start with notes from that 35 min JPMorgan interview. Listening to it helped me to retain my conviction in this company.
As you listen, you can hear the excitement in their voices, they are giddy, they love what they are doing, the see the value they create is validated by the feedback from businesses adopting Monday.com WorkOS platform.

https://jpmorgan.metameetings.net/events/tmc22/sessions/4201…

- Our ambition was to create new kind of software, generic and flexible, people to build their own tools on top of our software.

- 170 countries customers, 200 diff vertical industries. 70% non tech segments. Strong indication for ease of use of platform.

- Why is the business scaling so fast? how do you do it? - Two things. very efficient, scaling in smart way. We are building as infrastructure so we can move fast. We package on top as value. You can reconfigure platform.

- Market is infinite.

- We see the shift in the category of project management. With monday they use it for many use cases, not only project management. It’s not building in rigid way, you can build on top of it, reconfigure it. It can also be a project management.

- We invest in the platform and everyone gains from it. It’s a platform rather than verticalized software

- Infinite market. 1 billion knowledge workers in the world. It’s for everyone. (We also have truckers)

- you are building the tools that run your business. You build your tool to build your business. We run the core of operations. core of business.

- What is the secret sauce? The product is beautiful and easy to use. we want amazing experience, if people spend hours using your too, you want it easy and beautiful.

- every company is unique, every company goes through evolution, you want to give them tools to evolve.

- What does a user population look like ? We have Builders and Changers; as you discover your need you can jump in and change the software.

- people open a board on monday and ask themselves, how am I going to manage this, they can define it. thats the magic part, you can change it

- We have 4 products to price separately, yes, we package our product as a CRM for example, but customers discover they can build on top of it. We want to be enterprise ready for those 4 packaged products. Most used use cases. People search for solutions, we want to be found, that’s why we package

- We are super efficient, we are about returns, for every dollar we get more than $4 back. we improve the funnel, the product, the experience.

- in Q1 we ramped up, we want to see the same return for invested dollar. We front load a lot of expenses but we expect that to return

- how do we know what to build next? Big Brain, our in-house tool. We optimize all we do. Big Brain tells us what we need to focus on, what to build.

- Did the pandemic help you grow faster? Now that people return to office is there a slow down? No, It was net zero. Now it’s better for us, people are in the office so they discuss processes and they can change Monday.com platform. all in all, the market now is better for us.

When I listened to this Analyst interview and to the Earnings call I kept thinking of a Theory of JOBS TO BE DONE by Clayton Christensen https://hbr.org/2016/09/know-your-customers-jobs-to-be-done

FYI, Matthew Prince of Cloudflare was Christensen’s student at Harvard Business School. Christensen is also famous for “The Innovator’s Dilemma” and “Disruptive Innovation” and I encourage you to learn his body of work business theory.

Anyway, back to JOBS TO BE DONE theory: “Every day stuff happens to us. Jobs arise in our lives that we need to get done. Some are little jobs, some are big ones. When we realize we have a job to do, we reach out and pull something into our lives to get the job done. – What products to you hire to get that job done”

And to me Monday.com WorkOS is that product, it’s a platform for JOBS TO BE DONE. Little jobs, big jobs, jobs that can be modeled, reconfigured, recreated. Companies have JOBS TO BE DONE, employees can hire monday.com and the reconfigure either existing workflows or start from scratch on an empty canvas how they want to approach the JOBS TO BE DONE.

Second point from Christensen that came to mind: Disruptive Innovation. I keep hearing in Monday.com presentations that 70% of wins are greenfield opportunities, they are not displacing anyone. They compete with ‘non-consumption’, there are no incumbents, they provide a service for JOBS TO BE DONE that are currently done by email, spreadsheets, shared docs etc…

Well, enough of this philosophy. I just wanted to bring that up so when you listen to Roy and Eran talk about Monday.com platform try to see if you can apply the lenses of theory from Clayton Christensen.

NOW back to Earnings announced on 5/16/22:

On 3/9/22 at Q4 they told us they would make up-to $102M in Q1, guiding for 6.8% QoQ growth, and 73% YoY.

They delivered $108.5M, a 13.6% over previous Q, a 6.4% beat, and 84% YoY. They added $13M more than previous Q. My worry was that they have been adding about $12.5M over the last 2 quarters so I wanted this to be 13M or above.

On TTM we are now at $357.6M, 16% over last Q, 90% YoY growth. Here be the numbers table last 4 Q from latest to previous Q

REVENUE
        Q122    Q421    Q321    Q421    Q121
OUTLOOK 119.0	102.0	88.0	75.0    ?
QoQ%    9.7%	6.8%	6.0%	6.2%
YoY     69%	73%	76%     76%

ACTUAL
BEAT    6.4%	8.5%	10.7%   ?
REV$    108.5	95.5	83.0	70.6    59.0
QoQ     13.6%	15.1%	17.6%	19.7%   17.8%
YoY     84%	91%	95%	93%     84%

ADDED$
QoQ     13.0	12.5	12.4	11.6    8.9
YoY     49.5	45.4	40.4	34.1    27

TTM$    357.6	308.1	262.7	222.3   188.2
QoQ     16%	17%	18%	18%     17%

Adjusted Gross Profit was 89%, similar to last 5 quarters. So that’s solid

Their S&M spend was 100% of revenue, ouch, harsh. They did tell us they will ‘front load Q1’ expenses for the year. They also told us that this is what they did in previous Q1, that this is a Monday playbook to GoToMarket. I am ok with that. They also said that part of the spend was $11M on Super Bowl Ad (I believe they wanted Brand Recognition) and they also spent $10M on headcount increase (that came up in earnings call).

Back in Q4 they told us they adjusted Operating Income was going to be at least -45M and they came in at -43.8, so that’s not surprise there. Overall I see the path to profitability over the next 6 quarters. They tell us that for every $1 spend they generate $4 in revenue. SBC this Q was in line with previous Quarters.

Customers: They did not disclose total customer count, as of last Q they had 152K customers and they keep using 150K+ figure in this Q. They also disclosed that 70$ of ARR comes from 10+ customers (but they don’t tell use how many customers in that segment), however they told use the Dollar Net Retention for 10+ is at 135%, healthy expansion

However their 50K+ customer count went up to 960, they added 167 customers this Q, 21% more than last Q, and 187% YoY.

CUSTOMERS 50K+
        Q122    Q421    Q321    Q421    Q121
50K+    960	793	613	470	335
QoQ%    21%	29%	30%	40%	27%
YoY%    187%	200%	231%	226%	219%

ADDED
QoQ     167	180	143	135     71
YoY     625	529	428	326     230

They have 625 more customers now than a year ago in Q121. 22% of ARR comes from those customers.
They disclosed that 85% of revenue comes from PRO and Enterprise Peers accounts.
Dollar Net Retention for this segment is over 150% (same as last Q). very healthy expansion.

It’s good to say mention the Marketplace metric, they have 126 apps now, up from 108 in previous Quarter, this is not yet a significant revenue stream but growing.

Headcount increased a lot, they added 220 people, 21% more than last Q, for a total of 1284 employees in the world. At this point the company culture will show us how well those employees are integrating (I mean 1/5th of new people) into a cohesive whole over the next 12 months.

Cash and Cash Equivalents at $849.6M. Plenty of cash on hand to keep expanding.

I am ok with all the numbers. If I didn’t already own this business I would be a buyer here, and given that they have been punished by Mr Market I can see it going up in the next 12 months. I think fundamentals are strong.

Let’s get to the ‘confidence’ in the story, Let’s dig into Prepared Remarks and Q&A session of Earnings call to find ‘confidence’, ‘worry’ or other unexpected utterances so frequently heard on calls.

Prepared Remarks and Q&A

https://www.fool.com/earnings/call-transcripts/2022/05/16/mo…

Highlights:

CUSTOMERS

• 50% of the Fortune 500 companies use our platform, up from 38% just a year ago
• we are investing in creating more value for these customers, including in security, governance, and compliance requirements
• 50K+ customers NDR 150%
• 10+ users NDR 135%
• total customers NDR 125%
• 70% of our customers coming from non-tech

HEADCOUNT

• We’ve also been very successful in meeting our aggressive talent requirement targets.

PARTNERS

• excited to announce we have signed an authorized reseller agreement with SHI International, one of North America’s largest IT solution providers
• partnered with Vogue for the Met Gala’s first-ever branded content software partnerships. Using our platform, the Met G

PRODUCTS

• Work OS product suite with four new products, each with their own unique pricing models (baconski here: it’s worth to notice this is a packaged bundle of workflows that customers could have built themselves from scratch but monday here is selling it as a ‘starter’ where people can then reconfigure themselves as their business evolves)
• Customers can add more products at any given time or move data between products.

Moving on to Q&A: There were 11 analysts on the call. Analysts positive mentions ‘congrats on a great quarter’, ‘very healthy’, ‘great start of the year’, ‘accelerating acquisition of new customers’, ‘billings increased sequentially’. There were some signs of worry like: ‘inflation’, ‘potential price increase’, ‘recession’.

I will not copy and past all the Q&A, you can read it all here
https://www.fool.com/earnings/call-transcripts/2022/05/16/mo…

I will extract the essential Q and essential Answers that provide the color to the Question asked. I tried to delete plenty of non-essential sentences, and utterances.

Question: on macro worry, recession, any changes in demand? AND you sound very confident you can improve operating leverage, how you expect to do that?

• we see a lot of demand, and we feel confident about where we are as a business and our ability to keep growing
• we are obviously aware of the macroeconomics now and what’s happening, keeping an eye on it.
• why we are confident about the margins getting better. This is what we said we are going to do on the last call. Q1 is an outlier, we front-loaded expenses, just as we did in Q121, going back to normal in Q2, S&M in low 80%

Question: Your product announcements, interesting evolution, how do you envision adding more suites to these 4 you announced? Will you create more?

• Lot of demand from our customers for those solutions. we felt it makes a lot of sense to mature them and to make our solutions more deep, more features, more capabilities, pack them in a proper way, have specific onboarding and specific feature sets for each one of them.
• Packaging those products independently gives us the ability to sell them separately and have different pricing for each one, while benefiting from having the entire company on our Work OS Platform. Strategic move.

Question: 150% NDR for 50K+ customers, what do you see driving such a large number?

• we mentioned previously there is a shift in our business that we’ve added Sales Team few years ago, and we see constant growth within the Enterprise segment.
• we invest a lot in the product, having enterprise security, stuff that opens more and more doors to those customers

Question: your largest deployment is 7K seats, any chance of breaking through that ceiling? You also produce more than 50% of rev outside USA, can you provide confidence of growth specifically in Europe? Any degradation at all? Or all systems go?

• we see the Sweet Spot always growing (Baconski here: I am going to call Roy The Sweet Spot Mann, he mentioned Sweet Spot several times in a call)
• we are widening our approach to more and more customers, also depth of solutions that we offer.
• nothing unique in Europe or elsewhere. We don’t see any signs of softness
• 70% of customers from non-tech industries. over 200 verticals (baconski: I think they also disclosed they are in 200 countries and 14 languages)

Question: how does Q on Q acceleration in new customers acquisition look like? Can you clarify?

• we have increased our S&M this Q. This is part of our playbook, we plan a year throughout.
• our Q1 customer acquisition very efficient.
• we managed to maintain very high efficiency in acquiring new customers, and this is a huge investment for us going forward as we feel this is the right thing to do given the huge opportunity that we have as a company.
• Our unit economics remain strong and very efficient as we managed to scale our marketing efforts

Question: I think 60% of Fortune 500 is now Customers of yours. Any nuances in how they purchase your products compare to smaller customers?

• first of all, the vast majority of customers do land and expand. They start with a small account and then we expand over time.
• every new deal we have is a door open for another deal, meaning we always expand within our customer base. You can see that in the NDR
• On the other side, we do see larger deals happening up front, they start bigger, and we also expand faster. that’s a trend that’s been happening in the last two years
• as monday grows as a brand, customers understand it’s a solution and they can trust us more and more, we see more of those top-down deals starting.

Question: how do you compare you 4 products you announced to the ‘best-of-breed’ solutions out there?

• it doesn’t mean we are competing with other large enterprise solutions, we actually integrate really well into them.
• we are enhancing our integration into Salesforce and Atlassian for example.
• we see a lot of deep integrations into companies’ workflows
• partnerships, with SHI (shi.com) actually opens the door for a lot of enterprise customers in America.

Question: what about government sector, public sector? Any meaningful presence?

• definitely the new partnership with SHI is very strategic for us. As we go more to enterprise companies and larger enterprises, definitely, this specific sector is very interesting for us. So this specific partner is working in North America with a lot of focus on local government and other companies. And for us, this is a very strategic part of allowing our products to be available to more sectors and more parts of our customer base. So definitely, we’re going to invest more resources into that going into the future.

(baconski here: well, so not a lot of presence in public sector yet)

Question: NDR across all users increased substantially this Q. Is that a function of the shift to Enterprise mainly? tell us how we should see this?

• first, we are seeing product improvement because we are very focused on continuing to innovate and invest in our products So this is one of the reasons for the expansion.
• Second, is our ability to expand within existing customers once they unlock the value of the monday product. Together with the additional solutions – product solutions that we introduced, they continue to increase the number of seats and number of verticals horizontally.
• I would expect with regards to the numbers that we got to a point, this is really best in the industry to be above 125% for total customers and about 150% to enterprise.
• I believe we are going to see potentially a few basis point improvements, but we believe this is kind of stabilizing, and we are going to see these rates over time

Question: which of those 4 products is the fastest growing use case for monday?

• Our customers use monday for many use cases, but those four releases stood out and has the most potential.
• we see a lot of traction in our sales CRM product, but also our developer product is very interesting. We still have demand in the marketing products as well. And obviously, project management for us, it’s really the sweet spot.
• when we planned the guidance and our model, we didn’t take those products into account. They are still new and we have a lot of growth to do in each one of them. But definitely, we see a lot of positive signs and a lot of very excited selling customer feedback from our customers using them. So we’re very excited for the future of those product

Question: You no longer show 10+ customers ARR metric but can you comment on that? Also your sequential billings increased quite a bit, any large deals this Q?

• Last time we disclosed 70% of ARR from 10+ customers, it continues to improve.
• 85% of ARR comes from customers buying the PRO and ENTERPRISE. Trend continues to move forward
• Calculated Billings is not a leading indicator, we usually look at growth: Rev, NDR, Customers. Those are leading indicators
• but we saw a sequential increase in billings versus the previous one.

Question: you had pretty sizable headcount increase, and front loading, what drove you to do this? AND what’s the distribution of this headcount? US? other regions?

• our increase in spend. About $11M Super Bowl advertising, Another $10M increase in headcount.
• usually we accelerate hiring in Q1, it was opportunity to increase our sales force.
• and the rest of the increase, give or take, is increasing the performance market.
• as mentioned previously, we managed to scale our performance marketing, while keeping the same efficiency and unit economics in terms of acquiring new customers. So we’re very happy about our investment in terms of performance marketing
• history of the company, we’ve been doing this around each year during January.
• we hired people in US and outside, Combo if Israel, US, London, Sydney and other places.

Question: We introduction of 4 products, do you anticipate any changes to your sales and goto market?

• we see here a huge opportunity, mainly because those products allow us to market to specific audiences and specific customers.
• we can have more targeted marketing to those audiences as opposed to broadcast to a mass audience when we talk about the Work OS.
• Having those independent products will allow us to have more specific targeting, resulting in what we already seen early signs of lower customer acquisition costs and better adoption in terms of acquiring new customers.
• Over time, and this is the big opportunity here, we can – we already see that as well. We see those customers expanding from that specific use case to start with.
• To more use cases and eventually as part of our vision of the company to have the whole company working on the Work OS platform. So this is part of the reason why we’re so excited about those new products, not only that it allows us to have a more efficient go-to-market, but better onboarding and more potential to expand within an organization.
• didn’t model this year according to any results from them.

Question: Are you seeing any changes to competitive landscape? or are you mostly landing in greenfield opportunities?
Are you seeing any vendor displacement?

• we gone through the same environment that we saw before. 70% of the deals, we see no competition. It’s still a huge greenfield in terms of the opportunity and our ability to acquire new customers.
• In terms of this new product, definitely in each one of those categories that our existing competitors, it’s still early days. But as I’ve mentioned, from what we already see by releasing those products and doing, although limited, but some marketing to them, we see a lot of efficiency in terms of customer acquisition and process and other growth opportunity in terms of go-to-market. So this is kind of basically the dynamics that we see.
• for the last two years, we’ve been marketing to those exact 4 segments, What we’re doing now is another step of evolution of packaging it as separate products, but we’ve always had those solutions that monday customer adopted. So we feel very confident in this going forward

Question: What signals do you use to trigger direct sales engagement? spent threshold? usage metrics? What’s your approach?

• usually the way customers adopt monday is bottom-up. And we see customers starting using monday from all companies, all sizes and different roles, different positions within the company. The way our sales algorithm work is that, whenever a customer signs up, we ask that customers advances detail during the final process about company size, their role in the company and how large a deployment they want. And also we’re using third-party tools to enrich that information. Using all that information, we classify accounts that have potential to grow.
• Once we see paying account with engagement within the account and the potential to grow to, let’s say, 1,000 people or more. Our sales team is engaging that customer.
• The customer is already using monday, happy with a product and then we try to expand the usage. Usually, it’s a short sales cycle, which leads to future sale cycles as well.
• We see an opportunity to create a strong outbound motion. We see a strong opportunity to create a B2B mechanism where we can market to senior executives.
• we are investing in all fronts in terms of customer acquisition and creating more opportunities for our sales team

Question: Can you talk about the kind of growth you’re seeing from the partner channel?

• YES, partners important (baconski here: that question was not very good)

Question: Given the inflation, we see vendors change pricing, any potential price increase?

• new products we intend to have diff pricing for each. depends on industry.
• But currently, we don’t have any specific plans to raise prices.

Question: Can you update us on the marketplace, traction you’re seeing there, updates on the monetization plan? And then also does the annual guidance include any contributions from marketplace?

• our marketplace is something that’s very important for us as we sell the company. Last quarter, we released our own payment system within the marketplace. app developers can now monetize their app using our payment platform.
• We didn’t release any numbers attached to it. But just to give you the sentiment, we see very good results from that new release, new asset developers that create new applications, see higher conversion rates, more customers are willing to pay using that payment system.
• it’s something that made a huge impact on our cost base and we continue to invest. We see the number of developers going up, the number of applications being created, and also used going up consistently quarter on quarter. So we continue to heavily invest into that.
• I wouldn’t say it has much impact on our revenues yet because it’s still small numbers. But going forward, this is a big part of the product, it has a lot of potential as well.

Question: Given that you just started hiring heavy-duty sales capacity, and your NDR 150% for 50k+, Could this metric even get better?

• this is the first quarter that we released NDR $50,000 for accounts, and we’re super happy with it.
• those customers have a lot of room to grow. We still have much more scale to having them.
• over time, we’ll commit to keep releasing that metric quarter over quarter. But we do see this metric stabilizing. But going forward, definitely, we’re going to have more upsell opportunities.
• Now with the new products that we’ve released and also the WorkForms and the Canvas, we’re going to need more opportunities to expand our usage with other products. So definitely, there’s potential for that number to go up. But as it is right now, when we also benchmark this compared to other companies, this is definitely best NDR numbers. And we’ll continue to invest in those enterprise customers.

So, that’s it. Lots of good questions and answers. The business is firing on all cylinders. We’ll keep looking for Operating margin improvement, better customer counts next Q.

Good luck to all the longs on Monday.com, Cheers

Baconski.