Monday.com Q2 FY2025 Earnings Call Transcript

Monday.com Ltd. (NASDAQ:MNDY) reported its second-quarter earnings results ahead of Monday’s opening bell.

Below are the transcripts from the Q2 earnings call.

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OPERATOR

Please wait. The conference will begin shortly. Good day. My name is Bella and I’ll be your conference operator today at this time I would like to welcome everyone to Monday.com’s second quarter fiscal year 2025 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.

Byron Stephen (Vice President of Investor Relations)

Hello everyone and thank you for joining us on today’s conference call to discuss the financial results for Monday.com’s second quarter fiscal year 2025. Joining me today are Roy Mann and Eron Zinman, Co CEOs of Monday.com and Eliron Glazer, Monday.com’s CFO. We release our results for the second quarter fiscal year 2025 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.

Roy Mann

thank you Byron and thank you everyone for joining us today. We are pleased to report another outstanding quarter for Monday.com, underscored by robust revenue growth of 27%. This performance reflects surging demand for our platform and the powerful value we deliver to customers across industries. Our relentless focus on efficiency is bearing fruit with Q2 non GAAP operating margin of 15%, a testament to the strength of our business model and disciplined execution. We continue to make significant strides in our AI offering, expanding capabilities and accelerating innovation to empower teams and drive impactful results at scale. In Q2. Customer adoption of our AI capabilities accelerated across the Monday.com platform with users performing 46 million AI driven actions since launch, a strong indicator of increasing engagement and the growing value that our AI tools deliver. This quarter we introduced Monday Magic, Monday Vibe and Monday Sidekick, three AI powered capabilities that mark a major step forward in our evolution from work management to work execution. These innovations enable users to instantly generate workflows, build secure custom applications without code and receive proactive context aware support all within the Monday.com platform. By embedding AI into the heart of our product, we’re unlocking new levels of speed, flexibility and productivity for teams across every industry. Let me now turn it over to Iran to walk you through some of our business highlights for the quarter. Thank you Roy. The enterprise continues to be our fastest growing segment and the investments we have made in offering for these customers are bearing fruit. In Q2 we achieved a record number of net new adds of customers paying over 100,000 annually, further validating our traction with enterprise organizations. We are very excited to share that Monday CRM has recently reached $100 million in annual recurring revenue, marking a significant milestone in our product rapid growth. This achievement underscores the strong demand for a flexible, customizable CRM platform and the trust our customers place in Monday.Com to part their business operation. Reaching this benchmark reflects our lengthy focus on innovation, customer experience and expanding the capabilities of our CRM to address evolving market needs. We are very excited to build on this momentum as we continue to scale and deliver exceptional value to our customers. We recently announced the appointment of Eric Beber as Monday.Com new chief marketing officer. Based in our New York City office, Harris Beber brings over 20 years of marketing leadership from leading global organizations, most recently overseeing global marketing for Google Workspace and previously serving as CMO at Waze and Vimeo where he was instrumental in driving significant growth and innovation. At Monday.Com, harris will lead our global marketing organization and drive forward our evolving strategy focused on creative human centered storytelling to support continued dynamic growth. We are pleased to announce the appointment of Adhi Dhar as our first Chief Customer Officer. In this important role, Adeee will be responsible for overseeing the end to end customer journey including adoption, retention and long term satisfaction. Adeee will continue to serve as Chief Operating Officer until a successor is appointed. Lastly, we’re happy to invite all of you to our upcoming Investor Day on September 17th as part of this year Elevate New York conference. Investor Day 2025 will be a key moment to showcase our progress and ambition. Whether you join us in person or virtually, you’ll hear directly from our leadership team as we highlight our achievement and outline our long term vision, strategy and product roadmap. We look forward to sharing deeper insights into our business and the opportunities ahead. With that, I’ll now turn it over to Eliran to cover our financial and guidance. Thank you Elran and thank you to everyone for joining our call. Q2 marked another strong quarter with solid revenue growth and improving efficiency. Total revenue came in at 299 million, up 27% from the year ago quarter. Our overall NDR was 111% and in Q2 we now expect overall NDR to be stable at 111% throughout fiscal year 2025. 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 non GAAP financial measures. We have provided a reconciliation of GAAP to non GAAP financials in our earnings release. Second quarter gross margin was 90% in the medium to long term, we continue to expect gross margin to be in the high 80s range. Research and development expense was 59.2 million in Q2 or 20% of revenue, up from 16% in the year ago quarter. Sales and Marketing expense was 1 39.2 million in Q2, or 47% of revenue compared to 51% in the year ago quarter. Net income was $58.3 million in Q2 2025, up from $49.3 million in Q2 2024. Diluted net income per share was $1.09 in Q2 based on 53.3 million fully diluted shares outstanding. Total employees headcount was 2,867, an increase of 172 employees since Q1. We continue to expect to grow headcount by approximately 30% in fiscal year 25. Moving on to the balance sheet and cash flow, we ended the quarter with $1.59 billion in cash and cash equivalents, up from $1.53 billion at the end of Q1. Adjusted free cash flow for Q2 was $64.1 million and adjusted free cash flow margin was 21%. Adjusted free cash flow margin is defined as adjusted free cash flow as a percentage of revenue. We remain on the target to meet our investor day goal, generating over $1 billion in free cash flow from fiscal year 23 to fiscal year 26. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software cost, plus costs associated with the build out and expansion of our corporate headquarters. Now let’s turn to our updated outlook for fiscal year 2025. For the third quarter of fiscal year 2025, we expect our revenue to be in the range of 311 million to $313 million, representing growth of 24% to 25% year over year. We expect non GAAP operating income of 34 million to 36 million and an operating margin of 11% to 12%. For the full year 2025, we expect revenue to be in the range of 1.224 billion to $1.229 billion, representing growth of approximately 26% year over year. We expect full year non GAAP operating income of $154 million to $158 million and an operating margin of approximately 13%. We expect full year adjusted free cash flow of $320 million to $326 million and adjusted free cash flow margin of 26% to 27%. Let me now turn it over to the operator for your questions.

OPERATOR

At this time I would like to remind everyone, in order to ask a question, please press star one and we do request for today’s session that you please limit to one question and one follow up. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of cash Rangan with Goldman Sachs. Your line is now open. Please go ahead.

Goldman Sachs Analyst

Hi. Thank you very much for the chance to ask your question. Nice results. But I’m wondering that you’re pivoting to the enterprise NDR and the enterprise is picking up the growth rate in the second half is good but. But you didn’t take it up. Typically there is a bit of a raise to the second half expectations as you finish up the first half and the product customer adds for the new products also seem good. But it feels like you’re waiting to hit an inflection point in the business where the new products and the pivot to the enterprise can stabilize the growth rate, maybe cause a bit of an inflection, but we’re not quite there yet. I would love to get your thoughts. And also simultaneous with that inflection that you’re looking to achieve, presumably you’re adding on a couple of new executives as well. So help us walk through all the puts and takes of the executive ads and the inflections that you’re looking to achieve in your business. Thank you so much.

Eron Zinman

Yeah, hi Keshe, this is Eron. So first of all, like you mentioned, we really put we brought in our go to market leadership, pointing Casey as our CRO and Harris now as a CMO and also Adee is our chief customer officer. And I think a lot of this will greatly contribute to increasing momentum with the upmarket part of the business, improving retention of customers and driving more expansion over long term. And on the other hand, like you mentioned, we also have the engine of going multi product Just as a reminder, while work management is very mature for enterprise customers and kind of high end mid market, the newer products, the CRM dev and service are currently more serving the SMB segment. So on one hand we feel the multi product strategy really help bundling and selling more products to kind of more the lower tier SMB bid market part of the business. While the changes we’ve done to go to market team and organization and a lot of other things is driving upmarket expansion. So I think both things are contributing to continued expansion of our revenue and growth. Although it’s definitely two separate efforts that over time as we mature the products and sell to higher tier customers will become one.

OPERATOR

Thank you. Your next question comes from the line of Alex Zukin with Wolff Research. Please go ahead.

Wolff Research Equity Analyst

Hey guys, thanks for taking the question. I guess maybe can you talk about the demand environment, the spending environment and specifically was there anything different with the linearity in the quarter, particularly with the large deals. And I have a quick follow up. Cool. I can take the marketing or demand side.

Roy Mann

Hi, it’s Roy. So we do see a lot of demand in different areas like in CRM that we can grow in, we shift things into mobile. But we do see some pressure from Google on the new side though it’s not something we didn’t encounter before, so it’s considerably small on that respect. And within like the CRM we do shift a lot of resources into other areas. Okay, like that we see a better place to grow. Like you know, we have the big brain and we monitor all the performance stuff so we see areas that we are more efficient in so we move resources there. Yes Alex, this is maybe just to add to what Roy said, to summarize. So demand in general remains very strong upmarket, we have record net adds for the 100k customers and we see a very good traction and momentum in the up market, mid and upmarket customers. As Roy said, we are seeing some softness within the down market due to the changes in the Google algorithm. But this is temporarily we believe and we’re already taking action, actions proactively to address this and we believe this is going to be recovered going into the second half of the year. Overall, our enterprise momentum, the record large customer additions and continued expansion within our fastest growing segments provide us with a lot of confidence and we feel very comfortable with the second half of the year. Perfect. And then maybe just in the context of improving enterprise traction, talk a little bit about billings. They were, it seemed like they were down a little bit sequentially from a deceleration perspective, it decelerated a little bit maybe. Is that still the right way to think about a forward looking metric? Is it possible that we’ll get an RPO comment at some point if that’s a better gauge of traction and maybe just comment a little bit more on nrr specifically how we should think about it progressing through the year. Sure. So with regards to calculated billings, we said it in the past few times, this is an imperfect measure of our business. We look at ARR growth. This is something because of I wouldn’t want to take you through the accounting things but we don’t record the deferred revenue only on a cash basis and this is why we don’t think it’s the right measurement of the business. With regards to ndr, as expected, we said there also prior quarter debt, the lapping of the 2024 price increase is going to impact on NDR. This is why the number came down from 112 to 111 and we believe this is going to be stabilized through the end of the year. The flip side of it is we see a very strong momentum with gross retention that continues to improve and the heads of the customers in enterprise, both the 50k customers and 100k customers we believe are going to contribute to the expansion of they are in the beginning of next year. Perfect. Thank you guys.

OPERATOR

Your next question comes from the line of Jackson Ader with Keybanc Capital Markets. Please go ahead.

Keybanc Capital Markets Equity Analyst

Great. Thanks for taking our questions. Guys, couple on sales, hiring and productivity. So first is sales hiring either in the enterprise or elsewhere building in line behind or ahead of your expectations as you headed into the year? Yeah.

Eron Zinman

Hi Jackson. So this is Iran. So we ramped up pretty significantly in the first half of the year. Our main strategic areas were mostly sales and marketing, hiring across all fronts, people who specialize in the new products and also people that are kind of more focused on the enterprise part of the business. So it’s pretty much in line with our plans and we continue to hire more people in the second half of the year and again we see great inventory within our own customer base for more extension. We see healthy top of funnel movement with new customers. So overall there’s more room to grow within the sales team and we’ll continue to hire coming into H2 in the beginning of next year.

Eliron Glazer

Jackson, maybe this is Eliran just to add to what Iran said and we ...