monday.com - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good day. My name is Janice, and I'll be your conference operator today. At this time, I would like to welcome everyone to monday.com's first 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 (VP 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 first quarter fiscal year 2025. Joining me today are Roy Mann and Eran Zinman, Co-CEOs of monday.com, and Eliran Glazer, monday.com's CFO. We released our results for the first 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 irmonday.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 risk 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 (Co-CEO)

Thank you, Byron, and thank you everyone for joining us today. We are pleased to report that 2025 is off to an exceptional start for monday.com. In Q1, we delivered robust revenue growth of 30% year-over-year, achieved record quarterly operating profit, and generated our highest-ever cash flow for a single quarter. These results reflect the strengths of our multi-product offering, the dedication of our teams, and our continued focus on operational excellence. We also continue to invest in product innovation, including the launch of new monday work management capabilities and AI-powered features, which are being rapidly adopted by our customers. As of the end of Q1, we've seen our user perform more than 26 million AI actions to date, up more than 150% since the end of 2024.

We are thrilled to see such rapid growth in usage of AI as our customers utilize the features to automate complex tasks, extract insights, and accelerate decision-making. Our strong financial performance and disciplined operations position us to weather any uncertainties in the year ahead. During times of market volatility, customers increasingly rely on monday.com for our flexible platform and cost-effective solutions. Our adaptable product suite and scalable pricing enable businesses to stay agile, optimize resources, and confidently manage the changing demands. Let me now turn it over to Eran to walk you through some of our business and product highlights of the quarter.

Eran Zinman (Co-CEO)

Thank you, Roy. The enterprise continues to be our fastest-growing segment and presents significant opportunities for market share expansion, and we are excited to be strengthening our efforts with these customers. In Q1, we launched a set of new capabilities available exclusively in the work management enterprise tier, designed to provide business leaders with enhanced visibility and control over execution across departments. This includes exciting new features such as AI-powered risk insights, AI-powered portfolio reports, managed templates, resource planning capabilities, and more. We are also very happy to announce the appointment of Casey George as Chief Revenue Officer. Casey brings nearly 30 years of experience in scaling enterprise software organizations and driving strategic market expansion. Most recently, he served as Executive Vice President of Global Sales at Click, where he oversaw $1.3 billion in annual recurring revenue and led a global team of over 1,000 employees.

His leadership track record also includes senior roles at Talent, Variant, and IBM, where he successfully built and aligned go-to-market organizations across multiple business environments. Casey will be based out of our North America headquarters in New York City. This marks an exciting milestone as we welcome our first global C-level leader to monday.com. We are confident that his expertise will further accelerate our enterprise growth, strengthen customer relationships, and support the next phase of our go-to-market strategy. In sum, the strong momentum we achieved at the close of 2024 has continued into the first months of 2025, setting a solid foundation for sustained growth. Looking ahead, we remain confident in our ability to execute on our strategic initiatives and capitalize on the significant growth opportunities that lie before us.

Despite recent macroeconomic uncertainty, we believe that our strong product offering, resilient business model, and disciplined approach position us well to build market share and continue delivering value for customers and shareholders. With that, I'll now turn it over to Eliran to cover our financials and guidance.

Eliran Glazer (CFO)

Thank you, Eran, and thank you to everyone for joining our call. As Roy and Eran mentioned, Q1 marked a strong start to 2025 with solid revenue growth and improving efficiency. Total revenue came in at $282 million, up 30% from the year-ago quarter. Overall NDR was stable at 112% in Q1, with improving retention for our larger customers' cohort. As a reminder, our NDR is a 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. First 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 $53.8 million in Q1, or 19% of revenue, up from 16% in the year-ago quarter.

Sales and marketing expense was $135.9 million in Q1, or 48% of revenue, compared to 56% in the year-ago quarter. Net income was $58.4 million in Q1 2025, up from $31.7 million in Q1 2024. Diluted net income per share was $1.10 in Q1, based on 53 million fully diluted shares outstanding. Total employee headcount was 2,695, an increase of 187 employees since Q4. We continue to expect to grow headcount by approximately 30% in fiscal year 2025. Moving on to the balance sheet and cash flow. We ended the quarter with $1.53 billion in cash and cash equivalents, up from $1.41 billion at the end of Q4. Adjusted Free Cash Flow for Q1 was $109.5 million, and adjusted Free Cash Flow margin was 39%. Adjusted Free Cash Flow margin is defined as adjusted Free Cash Flow as a percentage of revenue.

We remain on target to meet our Investor Day goal of generating over $1 billion in Free Cash Flow from fiscal year 2023 to fiscal year 2026. Adjusted Free Cash Flow is defined as net cash from operating activities, less cash used for property and equipment, and capitalized software cost, plus cost associated with the build-out and expansion of our corporate headquarters. Now let's turn it to our updated outlook for fiscal year 2025. For the second quarter of fiscal year 2025, we expect our revenue to be in the range of $292 million-$294 million, representing growth of 24%-25% year-over-year. We expect non-GAAP operating income of $32 million-$34 million, and an operating margin of 11%-12%.

For the full year 2025, we expect revenue to be in the range of $1,220 million-$1,226 million, representing growth of 25%-26% year-over-year. This forecast now assumes a negative impact from FX of less than 100 basis points. We expect full year non-GAAP operating income of $144 million-$150 million, and an operating margin of approximately 12%. We expect full year adjusted Free Cash Flow of $310 million-$316 million, and adjusted Free Cash Flow margin of 25%-26%. Let me now turn it over to the operator for your questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press the star and the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Sir, your first question is coming from the line of Kash Rangan with Goldman Sachs. Please go ahead.

Kash Rangan (Managing Director)

Thank you so much. Congratulations on a spectacular start to the year. With the new addition of your Chief Revenue Officer coming on board, I'm curious to get your take on what are the things about the go-to-market approach from monday.com, which has worked really so beautifully, that you preserve with this new executive going forward? What are the things that you would like to be done differently, especially with the broader diversification of the product? We've got multiple products now. You've got the work management. You've got a dev. You've got CRM, a whole bunch of ITSM, etc. Given that the company wants to scale and become even more successful, what changes in go-to-market do you foresee ahead? Thank you so much, and that's it for me.

Eran Zinman (Co-CEO)

Hey, Kash. This is Eran. First of all, I want to say we're very excited for Casey to join. He actually joined last week, and it's been a long process, and we feel very confident about Casey and his joining the company. I can say that on one hand, I think, like you mentioned, it's a machine that we built over the years that combines product-led growth with sales-led motion. I think we would love to preserve our ability to do both performance marketing and to do more top-down selling at the same time. Also, the multi-product strategy has been very successful. Definitely want to preserve that and scale that. I think Casey brings a lot of experience overall, but even more specifically, I think can help accelerate our go-to-market, our up-market motion.

It's been one of our most strategic pillars and things we'll be focused on as a company. Casey brings a lot of expertise and knowledge about selling to larger enterprises and scaling that operation. I'm sure it's going to help us accelerate what we've already been doing, in addition to improving a lot of the things, increasing efficiency. I think it's going to be a smooth transition with a lot of potential upside going forward.

Kash Rangan (Managing Director)

Super. Thank you so much.

Operator (participant)

Your next question is coming from the line of Alex Zukin from Wolfe Research. Please go ahead.

Alex Zukin (Managing Director and Senior Analyst)

Hey, guys. Thanks for taking the question. Congrats on a great quarter. Maybe just run us through what you saw this quarter from the CRM and the service business. Then dev, it looked surprisingly strong, actually, according to our numbers. Just maybe give us a little bit of an explanation there. On NDR, it was solid at flat at 112%. There were some moving pieces where it looks like it's continuing to strengthen up market. Maybe help us understand how to think about that going forward as we go through 2025. Thanks, guys.

Eran Zinman (Co-CEO)

Yeah. Thanks, Alex. This is Eran. Yeah, we see great momentum overall with our product suite. More specifically, Q1 had a strong performance in terms of net adds of customers. I think part of it is the seasonality of our performance marketing spend. Traditionally, Q1 is a strong quarter for us in terms of performance marketing investment. Because of the nature of those products and the fact that it is a new go-to-market for us, just the net adds that we saw in Q1 were high and kind of aligned with our expectations. With that, I would say service is not just an SMB product. We see 70% of the AR for monday service coming from mid-market and enterprise segments. Also strong momentum there. For monday dev, we are very encouraged with the go-to-market. We are making some changes and optimizations, and overall, we feel there is good momentum.

Overall, it's pretty much aligned with what we expected from Q1. Momentum is strong across all products, and we're continuing the investment in terms of performance marketing going forward. In terms of retention, I'll refer to Eliran.

Eliran Glazer (CFO)

Yeah. Sure. Hey, Alex. It's Eliran. With regards to NDR, look, while we haven't seen any changes in customer behavior, there is more uncertainty in the macroeconomic environment. When we think about NDR, currently, it's around 112%. We believe it's going to be slightly below 112% potentially by the end of the year, having in mind the uncertainty that currently exists.

Operator (participant)

Your next question comes from the line of Pinjalim Bora with JPMorgan. Please go ahead.

Pinjalim Bora (Executive Director)

Just want to ask only a question. It seems like that's growing exponentially. Maybe talk about that strength. How much of that is experimentation at this point versus being added to production workflows or automations? Have you heard any kind of productivity improvements from customers, and have you started kind of monetizing the AI actions at this point?

Roy Mann (Co-CEO)

Yes. Hi, it's Roy. Yeah, we're very happy with the adoption on a lot of levels. First off, we see a lot of customers get a lot of value out of those actions, and the numbers are great, but they do not really represent the value. It is like real business value in a lot of aspects. We are monetizing it. I would say the usage we see is deep in many areas, but the monetization is still in early stages, and we're experimenting with it. We do see a correlation between usage and pricing and the fact that people do actually pay when they get the real value.

Pinjalim Bora (Executive Director)

Understood. One quick follow-up for Eliran. Eliran, can you help us understand the FX impact in Q1? It seems like you're kind of taking down the FX headwind assumption, which kind of makes sense, but the guidance is not coming up as much, right? I wanted to ask you, I think you said you're not seeing any change in behavior, but is that purely based on prudence, or is there anything that you're seeing at this point?

Eliran Glazer (CFO)

Yeah. Sure, Pinjalim. So we did have some negative FX impact to Q1 revenue, but as a reminder, when we started the year, once the tariff was announced, FX became very volatile. Going into April, there is some more balanced kind of trend. We assume that the effect for the entire year is going to be less than 1%. The reason not everything is reflected in the guidance is because we did take a more conservative approach with regards to our expectations for the end of the year because of the macroeconomic situation and the uncertainties that still exist.

Operator (participant)

Your next question is coming from the line of Arjun Bhatia with William Blair. Please go ahead.

Arjun Bhatia (Co-Group Head)

Perfect. Thank you, guys, and congrats on the strong Q1 here. One if I can ask, it seems like the up-market motion, it seems like you're seeing quite a bit of success there, especially with the core work management offering moving up. I guess my question is, as the work management offering moves up market, does that drag your other solutions up market as well with CRM, service, dev, and what kind of traction are you seeing there? Are those kind of on their own independent trajectory to enterprise, kind of on its own from work management? How would you think about that? Thank you.

Roy Mann (Co-CEO)

Hi, it's Roy. Yeah, you're right. Work management is going a lot up market. We're leading that category also in all the reviews, and we're seeing a lot of deep features or capabilities that we're releasing that enterprise really need to manage things at scale. Regarding other products, it varies according to each product. For example, service is obviously targeted into the larger customers, like mid-market to higher size, while CRM, we see a lot of success in the SMB low-mid market. One may not have that impact on the other, like you suggested, and each product has their own path. Having said that, I'll tell you we push all the products upward all the time. As we increase the capabilities and deepen each product suite ecosystem, we naturally go up market.

Operator (participant)

Your next question is coming from the line of Steve Enders with Citi. Please go ahead.

Steve Enders (Equity Research Analyst)

I just want to dig in a little bit more onto the guide and just want to get a better sense for how the uncertainty that you're seeing with customers is playing out with the assumptions that you're making. Just anything on, I guess, related to deal cycles or deals pushing or conversion rate change assumptions. Just how is the, I guess, uncertainty actually kind of manifested into how you're thinking about, I guess, what's incrementally changed with the outlook versus before?

Eliran Glazer (CFO)

Sure. Hey, Steve. It's Eliran. First of all, overall customer growth, we believe it's going to be in the mid to high single-digit growth year-over-year. We still continue to believe that the FX impact, as I mentioned earlier, is going to be less than 1%, as we have seen it's very volatile. Overall, NDR that always is taken into account as part of guidance, we said it's going to be slightly below 112%. We do not have any revenue from AI that we are currently taking into account in fiscal year 2025, and we have a very small amount of monday service revenue that we built into the guidance. I think all of that is, again, with some uncertainty in the market, still exists with everything that is going on.

We did take a more conservative approach, and we want to see how it's going to develop throughout the year.

Operator (participant)

I just wanted to remind everyone that if you'd like to ask a question, press star one on your telephone keypad. Your next question is coming from the line of Brent Thill with Jefferies. Please go ahead.

Brent Thill (Tech Sector Leader)

Thanks. I'm curious if you could just give us a sense of what you saw in April versus March and how the current quarter's trending. I'm just curious if you looked at enterprise versus SMB, any notable trends that you're seeing. Thanks.

Eran Zinman (Co-CEO)

Hey, Brent. This is Eran. Yeah, I mean, across all segments, enterprise and SMB is pretty consistent throughout Q1 and also going into April. We do not see any major changes. Still, enterprise are our fastest-growing segment, but pretty much in line with what we saw in Q1. We have seen very strong demand in terms of mid-market and SMB in Q1 and also going into April. Like we mentioned, the net adds were strong in Q1, as we expected. I would say all in all, it is pretty much in line. We do not see anything special going into April.

Operator (participant)

Your next question is coming from the line of Brent Bracelin with Piper Sandler. Please go ahead.

Brent Bracelin (Head of Technology Equity Capital Markets)

Thank you for taking the call here. Wanted to double-click into the larger cohort of customers. Another good quarter here of expansion. How much of the momentum here is driven by cross-sell, where larger enterprises are actually adding new apps versus expansion? Obviously, expansion has been the biggest driver of the move-up market. Wondering how much of a role cross-sell has now as well in aiding that move. Thanks.

Eran Zinman (Co-CEO)

Yeah. Hi, Brent. This is Eran. Look, definitely, a lot of the expansions or a lot of the enterprise accounts are coming from expansions of accounts that kind of grew within the platform. We do see more and more accounts that close kind of bigger deals from the beginning, but I would say still the vast majority is accounts expanding. We do see more cross-sell. Definitely, on monday service, it is more meaningful, but also happens with other products. I would say the vast majority of the major expansions we see today are based on adding a significant amount of seats and not significant cross-sells yet. Over time, we think this will change, obviously.

Brent Bracelin (Head of Technology Equity Capital Markets)

Helpful color. And then just one follow-up for Eliran if I could. You talked a little bit about linearity in the quarter. Could you talk about geo? Obviously, we're all kind of nervous around what happens next. It sounds like things continue to plug along here for you. From a geo perspective, was there any sort of unusual activity by any sort of geography? Or again, was it still pretty balanced for what you've seen so far?

Eran Zinman (Co-CEO)

Yeah. Hey, Brent. The short answer is demand has been healthy and consistent across all regions in Q1. We did not see anything that we can call out in a different manner.

Brent Bracelin (Head of Technology Equity Capital Markets)

Fair enough. Thank you.

Operator (participant)

Your next question is coming from the line of Jackson Ader with KeyBanc Capital Markets. Please go ahead.

Jackson Ader (Managing Director and Equity Research Analyst)

Thanks for taking our questions, guys. The first one on dev, the customer addition saw a really nice bounce back here in the first quarter. Could we just get an update on where we are in the timing of kind of dev's repositioning in the market? Thank you.

Eran Zinman (Co-CEO)

Yeah. Hi, Jackson. This is Eran. Look, I mean, overall, we're happy with the progress with monday dev, and definitely, we see momentum there, and the team is doing a great job, and it's good for customers. I would say the thing that drove most of the change in terms of customer adds in Q1 was stronger performance marketing that we were able to span efficiently. There's not major go-to-market change in monday dev, and it's more of a seasonality, I would say, that's kind of skewed a little bit towards Q1. Yeah, I mean, overall, we're happy with the progress. The team is launching a lot of new features and capabilities, and there's good feedback from customers. Overall, we're happy with the progress and the momentum.

Jackson Ader (Managing Director and Equity Research Analyst)

Okay. Great. And then just as a quick follow-up, I mean, if you think, okay, periods of uncertainty and that might manifest itself in the business, I mean, do you expect that that would be, how would that show up? Would it be your performance marketing channels, kind of top of funnel becomes more difficult? Is it people buying more standard basic instead of pro? What does that look like if it were to happen?

Roy Mann (Co-CEO)

Hi, it's Roy. I think what we saw in the past is that for larger enterprises, it takes more time to buy, more decision-making, and they might optimize way more, scrutinize overseas, and see that each one is really used over time. That is where we see things. I can say right now, from where we look at things, the demand is very healthy, okay, and we're able to continue and invest in growth in a very good way and also expand really well. Again, that is what happens, and sometimes that is what we see in different geos.

Operator (participant)

Your next question is coming from the line of Michael Berg with Wells Fargo Securities. Please go ahead.

Michael Berg (VP)

Hi there. Thanks for taking my questions and congrats on the quarter. I wanted to touch on the hiring plans. You had another uptick on year-over-year growth. I know there's a lot of focus around hiring enterprise sales reps. Maybe you can help us get us some better color on the typical timing of ramps for enterprise sales reps and how much of the contribution from this new cohort of sellers is embedded in the guidance. Thanks.

Eran Zinman (Co-CEO)

Yeah. Hi, Michael. This is Eran. Yeah, I mean, overall, we see strong hiring trends in Q4 and into Q1. Just to mention, in Q1, we added about 187 new employees, and overall, there are almost 2,700 people in the company. We expect to see this going into Q2 and the remainder of the year. Just as a reminder, we expect to grow our headcount this year by about 30% overall. I would say the vast majority of our investment goes into the CR organization, so mostly around sales, people that are joining the enterprise motion, and also R&D. That is a big part of our investment in terms of improving product and our roadmap. Yeah, look, we see a lot of opportunity to upsell and expand our existing customer portfolio. The hiring pretty much started with the performance that we see and the return on investment.

So far, we're very happy with the results, and we continue to invest through the remainder of the year.

Michael Berg (VP)

Helpful. Thank you.

Operator (participant)

Your next question is coming from the line of Tom Blakey with Cantor. Please go ahead.

Tom Blakey (Managing Director)

Hey, guys. Thanks for squeezing me in here. Just maybe a couple of quick ones. You mentioned the use of MCP in your shareholder letter. There's been an uptick in that in recent months. I'd just like to know how you're planning on using that, and if it's going to open up the Work OS platform for other agents and other applications across other larger platforms. That's the question. Then secondly, as you're moving up market, any changes in competition that you're seeing, maybe in the recent kind of months in Q1, in recent months, any change there that you're seeing, any win rate changes, that'd be helpful as well. Thanks for taking the question.

Roy Mann (Co-CEO)

Cool. Hi, it's Roy. Regarding the MCP, it's super exciting. It's a new way for LLMs to interact with the platform, and I think we're happy we're one of the first to kind of release it and adopt it. It is going to, in general, allow anyone to interact better with Monday, also to build stuff to work with the platform better. Our approach is being very open also to developers and our customers that can build whatever they want. I think MCP is a great addition into that AI toolset. It's very early days, right? Like you say, it's being picked up. It was invented in the last quarter. That's moving really quickly, and I think a lot of really good things are coming that way.

Eran Zinman (Co-CEO)

Regarding the second part of the question, we don't see any changes in terms of—this is Eran—we don't see any changes in terms of competition or win rates across enterprise and SMB mid-market segment. No changes here.

Operator (participant)

Your next question is coming from the line of Michael Funk with Bank of America. Please go ahead.

Matt Bullock (Equity Research Associate)

Great. Good morning. This is Matt Bullock on for Mike Funk. My question's on monday CRM. Looks like a really strong quarter with net adds accelerating. Maybe if you could just comment on what you're seeing out there in terms of competition, who you're seeing out there most often during RFPs, win rates, and then maybe what's resonating most significantly with customers from a functionality standpoint.

Eran Zinman (Co-CEO)

Yeah, definitely. Hi, this is Eran. In terms of CRM, we do not see any changes, I would say, in the last quarter in terms of competition. I would say the players we kind of meet the most would be Pipedrive, Zoho, SugarCRM, HubSpot from time to time. It is mostly, I would say, players that focus right now on SMB mid-market. That would be the most. I think here the power of the platform, the flexibility play a major role in why we win and why customers prefer to purchase Monday over other solutions. We definitely keep investing into the product, and over time, we will sell to hopefully larger and larger enterprise as we add more enterprise functionality.

Matt Bullock (Equity Research Associate)

Got it. Thank you.

Operator (participant)

Your next question is coming from the line of Raimo Lenschow with Barclays. Please go ahead.

Raimo Lenschow (Managing Director)

Perfect. Thank you. Thanks for squeezing me in. Question on cash flow. You had a very strong one in Q1. Was there anything special in there that we should be aware of, and how should we think about seasonality for the rest of the year there? Thank you.

Eliran Glazer (CFO)

Sure. Hi, it's Eliran. With regards to seasonality, Q1 is usually our strongest quarter. In Q2, you have the bonus payments to the salespeople, the results of the hiring in Q1, the salary increases, and the comp adjustment that we're doing in Q1. Some events, though, they're all kind of in Q2. Q1, usually at the beginning of the year, we see strong billings and collections from customers that acquired our products and solutions at the end of the year. Overall, in accordance with what we gave as part of our full-year guidance, this is the level that we're expecting throughout the year.

Raimo Lenschow (Managing Director)

Okay. Perfect. Thank you.

Operator (participant)

Your next question is coming from the line of DJ Hines with Canaccord. Please go ahead.

DJ Hynes (Managing Director)

Hey, good morning, guys. Eliran, if we strip price out from the NRR calculus, what do the underlying trends look like there? Are they more stable, or are they still trending upwards?

Eliran Glazer (CFO)

I think they're more stable, pretty much. We said last year that the contribution of price increase would be around 1-2%. Now, obviously, the impact was mostly last year, so I would say more stable by and large.

DJ Hynes (Managing Director)

Yep. Makes sense. Eran or Roy, if I think back to last year, Q2, Q3, you had some pretty major seat expansion deals with some of your largest customers. I'm curious what the appetite looks like within those folks for additional product adoption, right? I mean, they've recently made big bets with you guys. Is there some digestion that needs to happen, or does that increased surface area actually make it more likely that they add additional functionality sooner?

Eran Zinman (Co-CEO)

Yeah. Hi, DJ, it's Eran. Look, I think when it comes to CRM and dev, I think those products are not mature enough in order to be kind of cross-sell to large enterprises. We're talking here, let's say, over 10,000 seats. We've seen some maybe surprising momentum with monday service, where there's more adoption with the larger enterprises. Here, I think there's an opportunity for more cross-sell to larger customers. I think it's still premature for CRM and dev, but with monday service, there's more potential. We're starting to see more and more cross-sell, not just for SMBs in mid-market, but also for enterprise customers.

DJ Hynes (Managing Director)

Perfect.

Roy Mann (Co-CEO)

Yeah. If I can add.

Eran Zinman (Co-CEO)

No, please, Roy.

Roy Mann (Co-CEO)

Yeah, so we do see for some of them that they adopted really well, and people are using, and they have appetite, like you said, for growth.

DJ Hynes (Managing Director)

Excellent. Thank you, guys.

Operator (participant)

Your next question is coming from the line of Conner Murphy with Capital One. Please go ahead.

Conner Murphy (Senior Software Engineer)

Hey, good morning, guys. Thank you. I just want to take another crack at the NDR downtick in guidance. In the last quarter, you thought it was stable for the year. This year, it sounds like now it's going to be below 112%. Can you just unpack that a little more? It sounds like trends are stable through April. Expansion sounds pretty good with larger customers. Is it purely just conservatism because of the macro, or is there anything else you guys can give us on that? Thank you.

Eliran Glazer (CFO)

Hey, Conner, it's Eliran. No, again, it's mostly the recent uncertainty, and we did take some conservatism to our NDR expectations because really, we do not know how it's going to evolve throughout the year. I would say this is probably the most significant factor.

Operator (participant)

Your next question is coming from the line of Scott Berg with Needham. Please go ahead.

Scott Berg (Senior Analyst)

Hi, everyone. Nice quarter. Eliran, I wanted to expand on an answer you gave to—I think it was Brent earlier—around a geographic kind of traction, what you've seen there. It looks like your European business, in particular, did see some kind of, I don't know, meaningful growth deceleration in the quarter. Was it something on the sales side, or was there an FX component? Trying to understand why that growth in that particular geo was meaningfully different from last quarter. Thank you.

Eliran Glazer (CFO)

Hi, Scott. It's Eliran. With regards to Europe, Europe for the past last year, we saw some weakness when we called it out versus North America. North America continued to be strong. I think with Europe, there are some challenges in the region in some places. Overall, I think we are getting a more clear picture. We're actually stabilizing. Still not what we have seen in North America, but overall, we are pretty happy with the progress that we are seeing there.

Scott Berg (Senior Analyst)

Understood. Thank you.

Operator (participant)

Your next question is coming from the line of Taylor McGinnis with UBS. Please go ahead.

Taylor McGinnis (Equity Research Analyst)

Yeah. Hi. Thanks so much for taking my question. If I look at the guide from Q2, Q3, Q4, it implies stability and growth in the mid-20s. Eliran, could you just walk us through the different assumptions and what is supporting your comfort in stability in the mid-20s? I think before you talked about price contributing an incremental $40 million and then seeing CRM, dev, and service scaling to maybe low teens ARR. Any changes in those inputs or second-half growth catalysts that could offset some of the macro headwinds potentially? Thanks.

Eliran Glazer (CFO)

Sure. Nothing hyperbole. Nothing has changed. Our approach and philosophy to guidance has been consistent. As I said, it is a bit more conservative due to the factors that I mentioned earlier. Just to recap them really quickly, the overall NDR that is going to be below 112%, the FX impact, potentially customer growth that is going to be mid to high single digits. In the past, we said high single digits, but we got to a scale of 245,000 customers at the end of last year, and now we are focusing more on expanding rather than growing them. We are still going to increase headcount in significant way, 30%. I think all of these reasons are taken into account when we think about the guidance, but nothing really changed in the philosophy or the way we are building our guidance.

Taylor McGinnis (Equity Research Analyst)

Perfect. Thank you.

Operator (participant)

Your next question is coming from the line of Ellen Rokovsky with Scotiabank. Please go ahead.

Ellen Rokovsky (Director IT Regulatory Change Management)

Hey, thank you for taking the question. Can you unpack what stands out in terms of what types of customers are using AI credits more than others? Then considering the financial framework you laid out at the last analyst day through fiscal 2026, can you just reconcile what kind of macro we're in today relative to the base case scenario? Thanks, guys.

Roy Mann (Co-CEO)

Okay. I'll take the AI one. What we see now is that with AI blocks, we've released something that is a very core capability. It's something that you can do. Where we see it adopting the most is where we have champions that are more tech-oriented or solution-oriented, and they are playing with it. They use it. What we are doing now is understand those use cases and then rolling them out and explain more deeply with templates, with use cases to other customers, like what can they use it for and how can they build a solution that really gives them value. It's like any technology. You start with the people who adopt it, and then you productize it more and more and more and give it in more people's hands.

Eliran Glazer (CFO)

Sure. Hi Ellen. It's Eliran.

I'm now going to take the question on the investor day model. We are still in the base case based on current performance. We haven't seen anything guided to a weakened macro. When we see it, we call it out, like we said about our conservative approach to guidance. We do see some improvements to the margins that we have said that we are going to get at the investor days. Other than that, we continue with the base case scenario.

Operator (participant)

Your next question is coming from the line of Rob Oliver with Baird. Please go ahead.

Rob Oliver (Senior Research Analyst)

Great. Thank you, guys. Good afternoon. Two-part question on go-to-market. First, on the Casey George hire, just would love to hear from you guys, perhaps Roy, what was it about his background in particular that made him the right fit for you guys? I'm sure you guys certainly had your pick. Then secondly, would just be curious, as you have more success moving upmarket, how, if at all, the partner strategy needs to evolve? Thank you very much.

Eran Zinman (Co-CEO)

Yeah. Hi, Rob. This is Eran. I would say a combination of a few things. I've mentioned the enterprise experience at the beginning of the call, so that definitely was a key part of why we felt like Casey can be a major accelerator to our strategy. Also, I think his previous experience was one in large enterprise, but also in smaller companies. In his last company, he managed a large scale of customers, over 50,000 customers. I think he kind of brings the knowledge of, on one hand, going upmarket and dealing with large enterprises. On the other hand, dealing with a large amount of organization as customers, so understanding funnels, large numbers, and kind of more of an analytical approach to sales and go-to-market.

Overall, I think for us, it was the perfect fit in terms of, on one hand, understanding the complexity of managing a large customer base, but on the other hand, scaling to large enterprises and doing more top-down selling. I would say also on a personal level, we felt strong connection and felt like this can be a great opportunity to work together, and kind of we saw eye to eye on what's important for us in terms of managing the team and scaling the team going forward. That is kind of the high level. As I said, we're very excited for him to join and be part of the team.

In terms of the partner strategy, I would say that pretty much did not change in the last quarter, but overall, I would say a combination of, one, focus on additional geographies that we do not have sales presence, and partners help us reach enterprise customers and scale our sales operation. They also bring a lot of technical expertise. A lot of our partners are doing professional services to customers. They help with anywhere from data migrations, integration. They help them build solutions on top of monday.com. They offer white-glove implementation services for customers. We have partners who specialize in specific industries, so they can help with specific knowledge on specific implementation for industry. Overall, I would say we continue to invest. Partners is a big part of our go-to-market motion as a company, if anything, to become more significant over time.

I think Casey sees the same way as we do about partners and potential, and we continue to invest in that part of the business going forward.

Operator (participant)

Again, if you'd like to ask questions, press star one on your telephone keypad. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.