Monday just came out with results

Investment Analysis Clubs Saul’s Investing Discussions
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Here’s what they guided to:

Financial Outlook:

For the fourth quarter we currently expect:

  • Total revenue of $142 million, up 49%.
  • Adj operating loss of $20 million and negative operating margin of 14%.

Here’s what they just came in at:

  • Revenue was $149.9 million, an increase of 57% year-over-year, or 60% on an FX-adjusted basis.

*Adj operating income was $14.3 million compared to a loss of $9.9 million in the fourth quarter of 2021; Adj operating margin was positive 10% compared to negative 10% in the fourth quarter of 2021.

I’m glad I build my position back to 10.4% though I seemed to be the only one on the board still in it. It’s now up $13.54, or 10.35% in the pre market. The advantage of overly conservative guidance. :grinning:

Best,

Saul

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Here are my notes from the earnings call that concluded a moment ago.

Monday Q4 FY 22
Analyst Q/A and additional Remarks From Co-CEOs/CFO
02/13/2023

Eran Zinman, Co-CEO
Roy Mann, Co-CEO
Eliran Glazer, CFO

Monday DB, their new product will allow for unlimited expansion.
Adjusted OI for the first time
Fastest growing segment was enterprise, that grew 84%.
$5 in ARR for every $1 of cash burn.
Achieved positive FCF for the second year in a row.
CRM offering is receiving excellent response, reviews and feedback to existing customer.
One of the world’s largest banks has become a customer.
Upfire collaboration will allow MNDY to take their business to the next level.
FY 23 will continue to expand and plan to expand upmarket w/ expanded product suites, expect to deliver positive FCF for the 3rd year in a row.
Net Dollar Retention Rate remained consistent except for their largest customers.
Gross margin was 90%, and they expect to be in the upper 80’s in FY 23.
Plan to invest significantly in R&D in 2023 to expand suite of offerings.
Expect to continue hiring for R&D.
Outlook:
Q1 RY23: Rev $154 to $156 (up 44%)
Full year FY23: $688 to $93M (up 33%)

Q Please provide assumptions in FY 23 guidance, which is more conservative than usual.
A Some challenging macro conditions. Seeing improving efficiencies in their business.

Q CRM seems solid and 12-13% of new customers. What is the typical size of CRM customers you’re landing?
A Only offered to new customers at the present time. Expect to offer to existing customers in the near future. Mixture of SMBs and larger companies.

Q Momentum in marketer as well as sales. Is there a price point that’s resonating? When will you roll it out to new customers.
A Releasing to existing customers, plan to do this August 1, 2023.

Q Outlook on EBIT line. How should we think about where you’re investing and incremental OPEX and similar to the outlook. Is there a pause in the investments you’re making on the headcount, etc?
A OI saw increase because it cost them less to grow income (scaling). Now going into Q1 they will continue to invest and plan to reach profitability by end of 2025 as well as FCF.

Q How do you view the marketplace opportunity?
A Really care about the marketplace being a huge opportunity for them. Opening up the platform completely. App providers can really build on top of the platform and partners believe MNDY is a greast platform to build upon.

Q MNDY DB will be rolled out in 2024. Was initiative based on customer feedback. Partnership initiative: What is your goal? New markets, new geographies by opening up the platform?
A MNDY DB is in the core of their infrastructure and the next phase of being able to build upon their platform. Allows them to build way bigger applications on top of MNDY’s platform. Infrastructure move to move them to the next level.

Q Net dollar retention for $50K and above customers? What’s driving the weakness?
A With enterprise accounts, they’re coming off a high. Slowdown in seats in largest customers. Seeing decline mostly due to macro economy.

Q Europe
A See less of an impact, relatively stable and see positive signs on the horizon.

Q Seeing displacement from other work mgt tools or mostly from productivity tools?
A When looking at new customers, still see greenfield. New deals are not against a competitor. Win new deals because of what customers see they can do in the future.

Q Hiring
A Will increase hiring to increase approx. 10% this year.

Q One of the fucuses will be to expand upmarket.
A Go to market, they have a bunch of plans. New products will impact this and opens up MNDY to new types of buyers. Big game changer w/ different personas, expand marketing channels, companies. They see great momentum in acquiring additional customers. In a good position for hiring beyond 2023.

Q CRO, what changes is he making?
A CRO was managing sales AND marketing and he was promoted to include customer support too. This will allow for greater collaboration and optimize go to market because he has a wider look. Much better collaboration. This will create greater efficiencies.

Q Not seeing headwind w/ SMBs, why are you seeing more stability w/ SMBs than many other companies?
A SMBs can consolidate offerings under MNDY. They see stabilizing of demand.

Q R&D declined sequentially for the first time. Headcount?
A 18% for the year. Impact due to currency exchange in Israel. Long-term they believed 22-24%, but now expect it to be closer to 22%. They’ll obviously adjust as necessary. Year end headcount is north of 300, don’t remember exact number. They expect to continue to hire, as they have very big plans.

Q Guidance, what are you betting in terms of macro? Enterprise slowdown?
A Believe it will same macro this year as it is now. Guidance is what they see now. It’s more about the macro environment, MNDY’s customers are charged per user.

Q Verticalization roadmap?
A They are relying on the partners to extend the marketplace offerings they currently offer. It’s a great power they have, with 170 partners flew into Israel and they had a great collaboration event on how they can expand.

Q Performance marketing and spend?
A 30% Performance marketing and 70% sales.

Q Gross retention.
A 120%. Coming off a historical high, the larger customers are conscious of how much they’re spending. Slowdown in expansions of larger customers was slowdown in MBR.

Q Enterprise slowdown.
A Tech sector impacted more, however it’s 30% of their customers. Hard to tell about larger customers being more mindful of how much they’re spending.

Q How did top of funnel look in December vs. start of qtr.
A Historically 1st quarter is historically much stronger. They anticipate very strong demand in 1sr qtr.

Q Net retention rate. Is this metric going to step down significantly.
A It may go down 5 to 10%

Q Performance marketing pulling back. Is this other collaboration competitors.
A Don’t necessarily see who they are, they do however see they’re getting more customers for less money.

Q Hiring
A Focus on product and R&D. Currently continuing with the number they have, but the bulk of the hiring will be in R&D.

Q Do you have a number of competitors who are pulling back?
A Bid on adds in Google, Facebook, etc. They see they can get the same ad placement for less cost. They know what’s working and have a way to track the ROI for every dollar spent on sales and marketing.

Q Given the success you’ve seen on the marketing? Why not step on marketing even more and capture even more market?
A The reasons for not doing so more, they have stepped on the gas. If they see more opportunity, they’ll take the opportunity to do so.

Q AI opportunities to expand?
A Now that they see the barrier was lowered so much, they’ve opened up the platform to allow anyone to build AI tools on top of MNDY. Plan to have an AI hackathon soon. Will see long sales opportunities to expand use cases to summarize content.

sjo

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I have a 8 percent or
so position.

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Here’s a bit more detail. Very contagious upbeat tone from the two Co-CEO’s. New partnerships and path for vehicles for growth were discussed (see my notes in previous post). Personally, I’m excited about BILL.com and its future.

Revenue grew 9.5% sequentially from $137M to $150M.

Adjusted gross profit margin was 90%, slightly up 1% sequentially from 89%

Adjusted operating margin was up 8X sequentially from ($2.2M) to $14.3M

Adjusted net income was up 8X sequentially from $2.6M to $22.2M

Adjusted free cash flow and Adjusted free cash flow margin both doubled sequentially

Net dollar retention rate remained above 120%

Guidance: First quarter of FY 2023:

  • Revenue: $154 million to $156 million, representing y/y growth of 42% to 44%.
  • Non-GAAP operating loss of $19 million to $17 million and negative operating margin of 13% to 12%.

FY 2023:

  • Total revenue of $688 million to $693 million, representing y/y growth of 33% to 34%.
  • Non-GAAP operating loss of $36 million to $32 million and negative operating margin of approximately 5%.

sjo

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For those interested in a more traditional view of earnings… here is EPS:

For the quarter:
“non-GAAP net income per basic share and diluted share was $0.47 and $0.44, respectively, compared to non-GAAP net loss per basic and diluted share of $0.26 in the fourth quarter of 2021.”
<Rob: Very Good!>

For 2022 overall:
“non-GAAP net loss per basic and diluted share was $0.73, compared to non-GAAP net loss per basic and diluted share of $1.33 in fiscal 2021.”

For 2023:
“Non-GAAP operating loss of $36 million to $32 million and negative operating margin of approximately 5%.”

Overall, I like the progress on operating profitably in 2022, but the 2023 forecast doesn’t seem to indicate management expects more progress on that front. Personally, I’ve shifted most of my portfolio into companies with positive EPS… yielding very satisfactory results (so far) for my portfolio. Not saying that money losing companies are a bad thing… just saying that money making companies can be pretty darn good.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Actually Rob - I think there will be continued progress on the operating margin and profitability leverage front and they’ve called that out in the numbers (which probably have some conservatism built in):
FY 2023 Non-GAAP Operating Loss = -$34m at the mid point of the forecast (-5% margin)
FY 2022 Non-GAAP Operating Loss = -$47.1m (-9%)
FY 2021 Non-GAAP Operating Loss = -$52.6m (-17%)

Frankly and it is early days in the reporting season, it feels as though every single tech company has reached the same conclusion (or has been encouraged to by their boards of directors or the Street), that growth has to be responsible and if that means layoffs and reprioritising profitable growth with positive cash flow at the expense of go go go growth at all costs then that’s the new mandate.

Bill, Cloudflare, Monday, GitLab in their announcements have all signalled as much and have generally been rewarded for it - even Palantir announced adjusted GAAP profits today and Karp et al have always been the last team in tech to care about profitability.

I’m happy to have maintained about a 4% holding in Monday having topped up a little near the bottom during the year last year.

I found the strength in the enterprise customer cohort intriguing and reassuring.

I was also very enthused by the additional modules they are bringing out in CRM and DB - these have massive universal potential and add significant use cases to the suite of Monday Work OS modules.

Additionally Monday signalled with the Appfire announcement and further details in the prepared remarks that they see themselves becoming a platform play (like SalesForce), on which other apps can reside. If they pull that off then they have a much stronger business than simply a pure SaaS standalone software suite.

Ant

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Thanks for putting that together, Ant. That’s useful.

But personally, at this point I’m interested in EPS. Positive EPS. If they’re reducing their loss, that’s nice… but I don’t give a hoot unless there is that positive EPS thing.

Just my personal criterion at this time.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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No, you are not the only one still in Monday. Last week I built my position up to 11% just before earnings. My thoughts on the company were really more about the competition. IMO, Asana and Smartsheet are the primary contenders and I see them as going nowhere.

I still don’t see Monday as a business imperative, but for those companies that want an Office OS (or whatever you label it), Monday is hands down the best game. The same two guys who created Wix used the proceeds from the sale of that company to apply very similar technology in the creation of Monday. It’s a low/no code highly customizable application for project management/office automation.

In this environment, it is easy to find a lot of reasonable reasons to not invest in anything, to just stay out of the game and sit on cash. I admit that my current cash position is quite high.

But going into earnings, Monday was up about 75% since last November. We all know that market trend is not necessarily indicative of a good investment, but in this case it reinforced my conviction that Monday was likely to have a good to great earnings report. And that they did. Additionally, the guidance was notably above the analyst’s consensus.

After Bill’s disappointing report last week (I exited my position this morning), Monday’s report was more than welcome.

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Here’s what I liked about the report.

(1) DOING MORE WITH LESS

I had previously highlighted how management swiftly shifted its tone from “growth at all costs” to “balancing investing with improving efficiency.”

The plan seems to be going well so far. Monday actually finished the quarter with less FTEs than they had the previous quarter! Importantly, the key metrics don’t show that the business was impaired much with less resources. Also, notice he trend in S&M as a percent of revenue:

Q1’22: 107%
Q2’22: 78%
Q3’22: 66%
Q4’22: 59%

Obviously Monday could be generating a higher revenue growth rate with more S&M spend. However, I’m pleased about management’s prioritization of profits, as dollars today are worth much more than dollars tomorrow given inflation. Also, it shows that the business can scale, and their business is not just about “buying growth.”

(2) COMPETITION RESILIENCY

There was a lot of talk about the collaboration tooling being highly competitive; but, Monday seems to be fairing well. Mentions of Monday in job openings are up 12% YoY (and rising) while Asana’s are -28% YoY (and declining).

Even though paying customers are not rising as fast as during the pandemic, adding >30k customers in a year is no small feat (e.g., >8k more than Cloudflare). And while some of these customers may be very small, I view the 151 quarterly enterprise customer adds as positive.

–

Now, here’s what I don’t like:

(1) STALLING REVENUE ON A SMALL BASE

Notice the net new revenue added over the past few quarters:
Q2’21: $11.6
Q3’21: $12.4
Q4’21: $12.5
Q1’22: $13.0
Q2’22: $15.2 (promising)
Q3’22: $13.2
Q4’22: $13.0

That is as linear as a deceleration gets. So assuming nothing drastically changes over the next year, it will mean that Monday will go from being a 91% YoY grower to a ~40% grower in two years.

Now, I’m not saying growing at 40% is bad, but what I’m saying is that if the ‘alpha’ that can surprise the market would have to break a trend of +$12-$13M growth each quarter that has been going on for almost 2 years already.

(2) CUSTOMER EXPANSION

We know that large customers are an extremely important part of Monday’s thesis (76% ARR comes from customers with 10+ users). But with enterprises focused on cost cutting, Monday seems to be really suffering here. Adding the post-Covid office return, and the slowdown seems even more dramatic.

NDR dropped for customers with >$50k ARR for the second consecutive quarter. Management expects the decline to continue due to the lagging effect NDR has, “we anticipate that it might go down in the larger accounts, between 5% to 10% more this year. There’s a lagging effect every month due to the trailing 12 months, and we’re accounting at weighted average.”

Side note – I don’t think they should be doing a weighted average of that metric, as a handful of super large customers would create upward distortions.

–

So, where to go from here? Even with the ~10% share price appreciation, Monday is valued at 10x NTM Revenue, with solid growth, while committing to generate free cash flow all of this year. I see an opportunity for upside there.

However, with the linear deceleration and drop of enterprise expansion, I’m struggling to clarify why I’m holding, other than “I see good value from here…”

-RMTZP

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I’m still in it, sad it’s only a 5.5% position for me.

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This was a very good decision. There were a few times when I almost pulled the trigger on taking a normal position in Monday when it was trading around $80-$90. However, I have been trying to invest primarily in enterprise and other companies that have decent growth and a very large TAM (TTD, CRWD, DDOG, MDB, SNOW, NET, SHOP & SQ) as well as a couple of old-school companies (AAPL, CMG & UI - unfortunately got out of UI a bit too early last year and moved the funds into growth stocks that got hammered - Now is the time to sell UI and buy just about any Saul stock). I would have had to sell something to buy into MNDY.

This has served me pretty well over the years and especially over the past year. But I’m certain that it will stunt the growth of my portfolio going forward, because a “risk-on” mindset seems to be creeping back into the markets.

I just have to tip my hat to those of you who had the co-jones (or smarts) to stay in and continue to invest more in MNDY.

DJ

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I am also still in Monday with a small position (5% after shares rose). Since the numbers were discussed quite a bit already, I will mostly share a few product- and strategy-ralted thought I have on the business and its latest report.

Something I was critical about in the past is Monday’s positioning. They can do anything for anyone, which is very, very broad.

I am now very positively surprised by their product strategy, where they basically develop specific solutions for specific problems.

For instance, a CRM for companies who need to track their customer activities. They developed something similar, the Monday marketer and a solution for development. With these specific solutions they can now address specific buyer personas that have a specific need, and then expand from their with their platform of infinite possibilities.
All these specific products are well-received, as can be seen by:

  • positive customer feedback,
  • now featured positively on G2 in these specific areas,
  • 50% of new customers on CRM and the remaining 50% are split on their dev & marketing tool) → so basically all new customers seem to have been landed via these more specific products and can later be expanded on the platform.

These products are competitive in their area and Monday can win deals based on their additional platform advantage.

Additionally, I think their marketplace focus can provide interesting opportunities, both in “solving customer problems”, which they couldn’t solve themselves capacity-wise, but also increasing their GTM reach.

Finally, I like how they continue to focus on their up-market trajectory, since this is the area with the:

  • Most expanding customers with most expansion opportunities
  • Most significant contribution to ARR

What do they do to move up-market?

  • Address enterprises via specific products: CRM, Marketer, etc. as intro, then the expand using more of the product.
  • Monday will also focus their outbound in Marketing on Enterprises.
  • Promoted internal CRO and gave home also customer support to align GTM efforts.
  • Significant investments into R&D planned (I assume towards Enterprise features)

All in all I think this was solid, most positive surprise for me were profitability, positioning & product strategy & revenue beat.

Lowlights for me are slowing Retention Rates & Enterprise customer growth and well, revenue outlook at their current size (but I know it is hard to expect great revenue outlook these days, so this is not a real lowlight).

Hope these thoughts are helpful.

Best
Lisa

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Hi AnalogKid70,

I cannot fully speak for the complexity of their tech, but I don’t think that they offer a simple program. Rather, it is quite a sophisticated and open platform that allows users to build pretty much anything on top of it, based on a uniform set of data (in contrast to many other tools in project management that cannot reference data used in multiple places, but create redundant data that is not synched).

In terms of their moat I think they a building on that by providing competitive products like the CRM, that are backed by the option of users building other stuff on top of that. Additionally, thy build out the market place which could create an ecosystem which would increase their moat.

I don’t think their moat is comparable to e.g. Snowflake (much more extensive and mature) or Cloudflare (extremely hard to replicate, world-wide infrastructure), but I would not disregard their moat because the UI is easy-to-use.

Regarding the giants copying technology, I think that is a risk many younger companies with “only” software products are prone to. But I assume it would not be tooo easy to replicate since their platform DNA differs from other providers as far as I can judge.

I am with you with e.g. Asana and Co., these are also very unattractive to me to invest in, but I think Monday offers much more beyond task management and therefore, is also less prone to competition, which usually is fierce in the “pure taks/project management” area.

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In fairness, this is the worst of their ads…but I agree with the sentiment. It has always smelled like “Peloton” to me, which was fantastic if you knew it was a flash in the pan and when to get out, but a lot of people were taken in by the hype and seemed surprised when it ended.
More importantly though, to me at least, has been management decisions on ad spending, office space, and other purchases. I’m not confident they know how to deal with a downturn.
Kudos to all who are making the stock work for them, but I don’t have those “Saul-like” instincts :slight_smile: so I’m staying away.

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I was wrong on MNDY. I see that now.

I was always skeptical of MNDY’s product potential. Over my professional career, I have used several work-management tools mandated by my employers. None of them seemed to add any value to our jobs. They came across as chores - we had to provide updates about what we were working on, how much was complete and left to do and we published reports and more reports and a few more reports…not sure if anyone was even reading them.

So when a company like MNDY comes along and promises to change all that, one can perhaps understand my doubts.

Based on this Q4 earnings report, I now know that I misjudged the management team’s ability to lead the company to healthy growth and profitability. I was concerned with their rampant FTE and real estate expansion…oh and that expensive Superbowl 2022 ad (insert facepalm emoji here). Apparently they knew what they were doing.

Pre-earnings, the stock short float was about 9%. Therefore a lot of the move up was likely a short squeeze. According to GS, over the first two weeks of Feb, 80% of the move up in tech stocks has been due to short covering and 20% has been due to investors buying in long positions. MNDY benefited from this phenomenon, which btw is the second highest such instance in a decade.

However, that does not take away from the excellent execution by the company’s management, especially being such a young company.

Congrats to everyone who owns MNDY or bought it at the lows of Nov 2022.

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