monday.com - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good day. My name is Eric, and I'll be your conference operator today. At this time, I would like to welcome everyone to monday.com's Third Quarter Fiscal Year 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 third quarter fiscal year 2025. Joining me today are Roy Mann and Eran Zinman, Co-CEOs of monday.com, Eliran Glazer, monday.com CFO, and Casey George, monday.com CRO. We released our results for the third 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 our 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-Founder and Co-CEO)

Thank you, Byron, and thank you everyone for joining us today. In Q3, we delivered another quarter of strong results and disciplined execution, putting us firmly on track toward our investor day revenue target of $1.8 billion for FY2027. We saw robust net additions of over 100,000 plus and 500,000 plus paying customers, reflecting the strengths of our go-to-market engine and the expanding demand of our platform. We also reported our largest ever non-GAAP operating profit, reinforcing our ability to scale efficiently while continuing to invest in innovation. The combination of accelerating customer expansion, record profitability, and surging engagement with our AI offering positioned monday.com strongly for its next phase of growth. Our Q3 results follow a highly successful investor day, where we showcased our evolution into a multi-product and AI-powered platform.

The event drew nearly 1,000 online participants, over four times the viewership from 2023, reinforcing investor confidence in our vision and the significant opportunity ahead as we execute toward our FY27 goals. Additionally, our Elevate User Conference in New York City and London reached new heights in both scale and impact. Attendance more than doubled year over year, reflecting our growing excitement around our platform and the new AI capabilities. These events not only amplified customer enthusiasm and engagement but also generated record engagement and strong pipeline heading into 2026, setting the stage for continued customer expansion and growth. Let me now turn it over to Eran to walk you through some of our business highlights for the quarter.

Eran Zinman (Co-Founder and Co-CEO)

Thank you, Roy. The investments we've made in our sales organization over the past year continue to drive strong results. We deliver solid net additions among larger customers, saw improved net dollar retention for accounts over $50,000 in ARR, and achieved accelerating RPO growth, all reinforcing the effectiveness of our up-market strategy and disciplined execution. We continue to rebalance our go-to-market investment towards mid-funnel channels to target larger opportunities. While these motions come with longer sales cycles, they are yielding higher quality pipeline and position us well for sustainable growth. Moving on, our multi-product strategy is delivering strong results, expanding monday.com reach across more teams and use cases. New product now accounts for over 10% of total ARR, surpassing our 2025 goal ahead of schedule. New bundle offering combining Work Management with CRM, Service, and Dev provides a unified, cost-efficient experience while accelerating cross-sell momentum.

Within CRM, our new AI-powered Monday Campaigns product has seen rapid adoption since September launch, reinforcing our vision of a connected sales and marketing suite. Since its gradual release in July, Monday Vibe has seen rapid adoption, with customers creating more than 60,000 apps to power their unique workflows. Built directly on monday.com enterprise-grade infrastructure, these apps are secure, scalable, and fully integrated with granular permissions and team context. To better reflect the value customers are realizing, we introduced a new pricing model that lets users select a tier aligned with their AI needs, from unlimited free access to build and test apps to paid tiers that scale as the usage grows. We also recently introduced Agent Factory, a new AI product that lets anyone design and manage intelligent agents to automate complex workflows.

Operating as a standalone solution with flexible consumption-based pricing, these agents function as integrated team members, handling tasks like updating CRM records, sending emails, and scheduling follow-ups. To simplify the AI experience, we're rolling out a new AI credit system in Q4, shaped by extensive customer feedback, providing a more transparent and intuitive way to scale AI usage and measure impact across organizations. This quarter results reflect the incredible dedication of our teams and the trust our customers place in monday.com every day. With accelerating customer expansion, record profitability, and growing enthusiasm for our AI-powered platform, we're entering the next phase of durable, profitable growth that will create meaningful long-term value for shareholders. With that, I'll now turn it over to Eliran to cover our financial and guidance.

Eliran Glazer (CFO)

Thank you, Eran, and thank you to everyone for joining our call. Q3 was another strong quarter for monday.com, highlighted by solid revenue growth supported by our success with larger customers and continued improvement in operational efficiency. Total revenue came in at $317 million, up 26% from the year-ago quarter. Our overall NDR was 111% in Q3. We continue to expect overall NDR to be stable at 111% for fiscal year 2025. As a reminder, our NDR is trailing four quarters 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 reconciliation of GAAP to non-GAAP financials in our earnings release. Third 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 $57.8 million in Q3, or 18% of revenue, up from 17% in the year-ago quarter. Sales and marketing expense was $151.8 million in Q3, or 48% of revenue, compared to 52% in the year-ago quarter. General and administrative expense was $27 million in Q3, or 9% of revenue, compared to 9% in the year-ago quarter. Operating income was a record $47.5 million in Q3, up from $32.2 million from the year-ago quarter, and operating margin was 15%. Net income was a record of $61.9 million in Q3 2025, up from $45 million in Q3 2024. Diluted net income per share was record $1.16 in Q3, based on 53.3 million fully diluted shares outstanding. Total employee headcount was 3,018 employees, an increase of 151 employees since Q2. 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, down from $1.59 billion at the end of Q2. Marketable securities were $211.7 million at the end of Q3, up from $60.1 million at the end of Q2. Adjusted free cash flow for Q3 was $92.3 million, and adjusted free cash flow margin was 29%. Adjusted free cash flow margin is defined as adjusted free cash flow as a percentage of revenue. 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 to our updated outlook for fiscal year 2025.

For the fourth quarter of fiscal year 2025, we expect our revenue to be in the range of $328 million to $330 million, representing growth of 22% to 23% year over year. We expect non-GAAP operating income of $36 million to $38 million, and an operating margin of 11% to 12%. For the full year of 2025, we expect revenue to be in the range of $1,226 million to $1,228 million, representing growth of approximately 26% year over year. We expect full year non-GAAP operating income of $167 million to $169 million, and an operating margin of approximately 14%. We expect full year adjusted free cash flow of $330 million to $334 million, and adjusted free cash flow margin of approximately 27%. 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, please press star, followed by the number one on your telephone keypad. We ask that participants please limit themselves to one question, one follow-up question. Your first question comes from the line of Kash Rangan with Goldman Sachs. Please go ahead.

Kash Rangan (Analyst)

Hi, thank you very much. Good to see the quarterly results. I'm also curious to get your perspective on two things. One is, as you look at the spending environment for the next calendar year, calendar 2026, what is top of mind for your customers, and where does Monday stand in terms of spending priority? Also, secondly, when you look at the results, it does look like a smaller magnitude of beat relative to what we've come to expect of Monday in the past prior quarters. If you could talk about what might be behind the numbers, that is, the go-to-market transition, etc., that hopefully will set you up for very good success in the years ahead.

I wonder if the go-to-market transition, the pivot towards larger deals, also causes the kind of upside that we've come to expect in the results and the guidance looking forward to the fourth quarter and the year ahead. If there's any go-to-market transition that we should be thinking about as you work through these numbers. Thank you so much.

Eran Zinman (Co-Founder and Co-CEO)

Hey, Kash. This is Eran. Maybe just to start, before I start answering your question, I know this is your last interview call at covering us, so I just want to say thank you for the whole period and the coverage throughout the years. Just to your first part of the question, and then I can defer to everyone about guidance and Casey. In terms of customer demand, like you mentioned, we see a transition in the business basically across all customer segments, the $50,000, $100,000, $500,000. We see acceleration. Our go-to-market strategy, in terms of adding bigger accounts, is working really well, and we see accelerating on all fronts. In terms of what customers are asking for, definitely we see an increase in terms of our cross-ability. More customers are buying more products. Definitely, more and more customers are interested in AI features and AI products.

I think a lot of the new announcements and new features that we launched really resonate with customers. Overall, we see very healthy demand across all customer segments. We see healthy demand with our existing products and specifically with the new AI features that we offered and we announced during the Investor Day.

Eliran Glazer (CFO)

Yeah, thanks, Eran. Hey, Kash, it's Eliran. With regards to the guidance and in Q3 and what we provided, the more measurable beat is mostly due to timing effect. As we rebalance investments, our higher ROI areas, and it relates to your question. We see the direct sales motions, the new products like Monday Service, CRM, and channels such as video and social media actually providing higher ROI. They tend to have a longer sales cycle, but we see very positive momentum when you look at the $50,000 customers, $100,000 customers, $500,000 customers. They're all accelerated in this quarter going into next year. This provides us a lot of confidence with regards to our next year assumptions. Maybe, Casey, you can add what are top of mind of customers next year.

Casey George (CRO)

Yeah, we just finished up our world tour with Elevate. Tens of thousands of customers and partners came out to hear everything we had to offer, especially around our AI offerings. The consensus back was, "I'm not taking full advantage of Monday." Obviously, when we only have 6% of our customers consuming more than one product, the opportunity for us is significant. As we start this multi-product journey, which obviously has just begun, all indications are we're going to have a much more material impact on the revenue associated with customers consuming more than one product. At this point, it's early, but all signs and indications are that this is going to be a significant contribution for us going forward.

Kash Rangan (Analyst)

Thanks so much, and best wishes for the journey ahead.

Casey George (CRO)

Thanks, Kash.

Operator (participant)

Okay, next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Please go ahead.

Jackson Ader (Managing Director and Software Equity Research)

Great. Thanks for taking our questions. The first one that I had was on the move-up market and its impact on deferred revenue or billing. As you guys keep signing kind of long or larger customers and maybe longer-term contracts, more heavily weighted toward annual and even multi-year, I would expect deferred revenue to outgrow recognized revenue. I am just curious what the dynamics are there that are causing deferred revenue to come in below revenue. Thank you.

Eliran Glazer (CFO)

Hey, hi, Jackson. It's Eliran. Just as a reminder, with regards to billing, we said it in the past, this is not the perfect measurement of our business because it's based on a cash basis, not accrual basis. As a reminder, we tend to be more conservative on that. Therefore, there are some fluctuations with regard to that. We think a better measurement of this, this is an RPO. RPO is a new metric for us that we disclosed in the Investor Day. As you can see, it's accelerating quarter over quarter, and it also reflects the full contract value that we see going up market. We think there is going to be some timing of the billings. This is why it's not a perfect measurement. Therefore, we tend to see the RPO as a better measurement going into next year.

Jackson Ader (Managing Director and Software Equity Research)

Okay. All right, great. That's fair. What should we take from the implied growth rate here for the fourth quarter? Is like 22.5%, 23% or so, year-over-year growth. What should we take as a signal for the right level to be thinking about 2026?

Eliran Glazer (CFO)

We are going to provide our initial expectation for fiscal year 2026 in our next quarter earnings. I think in the Investor Day, we provided a good outline. We said that we're going to be $1.8 billion by fiscal year 2027, and we are committed to achieving this number and to the guidance we have provided during the Investor Day. This is something that not only we are growing on the revenue, but also expecting operating and free cash flow margin to expand.

Jackson Ader (Managing Director and Software Equity Research)

Got it. Okay, thank you very much.

Operator (participant)

Okay, next question comes from the line of Arjun Bhatia with William Blair. Please go ahead.

Arjun Bhatia (Partner and Software Research Analyst)

Yes, perfect. Thank you so much. I want to maybe just go back to the fact that in 2026, might see some improvement given that you're rebalancing investment. Can you just maybe elaborate a little bit on where the investment is going, what you might expect your kind of goals are for 2026 to either re-accelerate growth? I think, Eliran, I heard you say 30% increase in headcount this year. I'm curious how your plans are shaping up for 2026 within that investment framework. Thank you.

Eran Zinman (Co-Founder and Co-CEO)

Yeah, hi, everyone. This is Eran. I can start. Look, we feel very confident on the strategy and how it's going so far. Specifically, I can point out our going-up market worked really well. Just as a reminder, just three years ago, it seemed like a big stretch, but right now, the majority of the business is based on $50,000, $100,000, $500,000 accounts. We see those accounts have much better retention, much more expansion, much more stability. Definitely changes the nature of the business, and we see some of that as far as the results, but we're very confident on where we're heading with those customers. We feel the potential to do more cross-sale, more expansion over time will really pay off. In addition, as we mentioned during the Investor Day, we do a lot of investment in terms of product.

We're executing in the last three or four quarters like never before, adding a lot of AI features, functionality. Those are really well received with our customer base. There's a lot of excitement. Casey mentioned Elevate. We got great feedback from customers across the board. All in all, looking at all the investment we made and all the innovation in the product, we feel very confident in where we're headed and how our customers are using the product.

Eliran Glazer (CFO)

Hey, Arjun, this is Eliran. Just to answer your question on headcount. As we said, we expect hiring to remain focused on sales, product, and R&D this year. We estimate it to be around 30% growth in headcount by the end of the year. We think that as for next year, and we already said it in the Investor Day, we believe the numbers are going to be closer to 20% in terms of adding additional headcount. It is going to start to decelerate already in H2 of this year going into next year. We think most of the investment already is behind us, so we are going to see less investment in headcount next year.

Arjun Bhatia (Partner and Software Research Analyst)

Okay. Understood. Very helpful. Thank you. And then one just on Vibe, because it seems like it's getting very good adoption, 60,000 apps, I think, in a short number of months. What are customers building on Monday Vibe, and is that different from what you see them, how you've seen them historically use sort of the Monday work management platform?

Roy Mann (Co-Founder and Co-CEO)

Yeah, hi, it's Roy here. Vibe is amazing. We see that customers are really leaning into it, and it's filling up a lot of gaps. I feel like as a product, it triggers their imagination. Whatever they want out of software, they just put in there, and they build stuff we wouldn't have imagined. Like some of them we shared in the Investor Day letter, fill gaps, build the software of their dreams. It's all built on top of the Monday infrastructure, meaning it's enterprise-grade. The data is saved, everything they expect from the platform itself, they get into Vibe, and some of them are leaning really hard into it.

Arjun Bhatia (Partner and Software Research Analyst)

Perfect. Thank you so much.

Operator (participant)

Okay, next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

Joshua Baer (Equity Research Analyst)

Great. Thanks for the question. I wanted to ask on the product bundles that you're starting to introduce this quarter in Q4. I guess first, is there a change on the product side from a capabilities or integration perspective, or is it more about the go-to-market and pricing? I guess the follow-up is, what is the change here? Is it effective discounts? What's the goal here, and which parts of the market are you trying to target with this? Thanks.

Casey George (CRO)

Yeah, Casey George here. I'll take this one. We just launched bundles. We launched three bundles here last month, so this quarter. We obviously have a lot of visibility in how customers use our products. What we saw in the market, there were three in particular that stood out where there were pretty consistent use cases with Work Management and Service, CRM and Work Management, and around our CRM and Service. What we did was we put those into the market, and there is some commercial advantage for the customer to consume those, but it's also ease of use because these are ready-built bundles that they can deploy very quickly and get value from them immediately.

We saw in particular industries where these were pretty pervasively used, and therefore, we bundled them up, made them available to the market and our sales team in early days, but we are seeing very good traction with these bundles here in the first quarter since they've been launched.

Joshua Baer (Equity Research Analyst)

Okay, great. Thank you.

Operator (participant)

Okay, next question comes from the line of Brent Thill with Jefferies. Please go ahead.

Eran Zinman (Co-Founder and Co-CEO)

Thank you. Just going back to the guidance, I don't think there's a time in our model where you didn't raise guidance on the quarter out. I think many are asking what's happening? What are the causes for this obviously to see your stock pre-market and what's happening? I think a little more explanation is needed to better understand what happened there.

Eliran Glazer (CFO)

Yeah, hi, Brent. It's Eliran. Maybe as a reminder, we keep saying it every quarter, it's important our guidance approach is consistent with prior quarters. It hasn't changed, and we didn't change the philosophy. As we said in prior quarter, the more measured bid reflects timing effects as we rebalance investments towards ROI areas. We are investing in performance marketing where we see the return on investment. Due to our big brain capabilities, when we see high returns, we are investing in performance marketing, and we see immediate dollars. As we started to shift towards up market, obviously, there is a timing effect because the investment is taking longer to see the results. However, the momentum and the trends are very positive.

There is a timing effect, as I mentioned, that's flowing into the next quarters, and it's impacting the numbers that we're seeing this year in terms of revenue and ARR.

Brent Thill (Software and Internet Research)

Okay. From Casey's approach, I know it's still early in his journey, but I think many are asking how that transition is going up market, what's still needed to go, what's going well. I think everyone loves to hear his thoughts.

Casey George (CRO)

Yeah, no, thank you. It is going exceptionally well. If I point you back to the key metrics that we follow around moving up market, the $50,000, $100,000, $250,000, and $500,000, we accelerated on all of those. You may ask yourself, why is that important? If you understand that the first deal is typically a $50,000 deal, not a million-dollar deal, and it starts at the $50,000, goes to $250,000, and then accelerates into hopefully a seven-figure deal, we're seeing that trend continue. I'll point to three big wins we had in the quarter, all over $1 million. All three of those started three or four years ago at probably around $50,000, and they accelerated over the course of the three or four years. Love to talk about a couple of those opportunities, and particularly one of them, a large logistics company in Europe that is consuming 5,000 seats.

1,500 of those are CRM. We obviously have work management, and then there's service seats associated with that win. Here's a large logistics company that's consuming 5,000 seats across three of our products that was over $1 million this quarter. We have a large tech company that uses our product across about 10 different departments. Most importantly, they use it to manage all of their M&A. That's another company that started with us three, four years ago, around $50,000. All of the metrics that we follow are accelerating and obviously encouraging signs for our ability to move up market.

Brent Thill (Software and Internet Research)

Great. Thank you.

Operator (participant)

Okay, next question comes from the line of Mark Murphy with JPMorgan. Please go ahead.

Mark Murphy (Analyst)

Thank you very much. The metrics are clearly strong with your larger customers. Can you speak to what you saw in mid-market and below? For instance, how did the down market business trend versus internal plans, or is there much of a spread in the growth rate there if we compare it to that over $100,000 cohort?

Eran Zinman (Co-Founder and Co-CEO)

Yeah. Hi, Mark. This is Eran. I can start. Look, looking at Q3, top-of-funnel trends were choppy overall. We saw some continued volatility in paid search performance. However, the good news is that towards the end of the quarter, we saw encouraging stabilization in new sign-up and top-of-funnel. Overall, I would say going forward, the pipeline remained healthy. A lot of it is based on up market, but also the bottom-up mid-market part also looks healthy going forward. We saw solid growth in large and high-quality opportunities, both touch and no touch. Overall, I say we remain confident that all the actions that we've done in terms of top-of-the-funnel, how we rebalance our acquisition channels, and all the investment we've made in the last quarter will pay off going forward.

Mark Murphy (Analyst)

Okay. As a follow-up, at what point would you think the traffic buildup you are seeing from LLMs, I think you refer to that as AIO, and some of the other channels would be able to make up for what you are losing on the Google search side? Is it conceivable to get back to a net neutral position coming out of Q4 or maybe sometime in the first half of 2026?

Roy Mann (Co-Founder and Co-CEO)

Yeah. Hi, it's Roy. What we see is that we are able to shift the budgets of our marketing towards more sales-led sources and rebalance them and get an ROI. Like Eliran mentioned, these channels take a bit longer to mature, and that's what we see now. We also are getting a lot of traffic from an increasing amount of traffic from AI. It's too soon to tell if it'll fill that gap, but we are already filling it with a different strategy.

Mark Murphy (Analyst)

Thank you.

Operator (participant)

Okay, next question comes from the line of Scott Berg with Needham. Please go ahead.

Scott Berg (Managing Director and Senior Research Analyst)

Hi everyone. Thanks for taking my questions here. I think it was Eran earlier talked about some early traction with some of the AI functionality that your customers are using. Just wanted to see if you had some, maybe any specific use cases or maybe internal corporate departments that you are willing to call out that you're seeing maybe the most early traction from some of the AI use cases. Thanks.

Casey George (CRO)

Yeah, Casey George here. It's actually been pretty fascinating. We launched a lot of these offerings at Elevate, and I had the opportunity to spend some time with some pretty significant customers at Elevate. The resounding feedback was, "This is a very powerful tool and can solve a lot of problems in our organization." Specifically, we had a large, highly regulated insurance company in Europe who needed to solve a reporting issue, right? Typically, they had to acquire some software to go do that at roughly $150,000 that they really didn't want to spend. They didn't get a ton of value out of the software. They went home that night or to their hotel, and in 20 minutes, they built a better tool that they could use that they would effectively get far more value out of.

Obviously, they did not have to spend the $150,000. There was another large retailer I spent time with who pretty much did the same thing. They had a reporting gap in their organization. They have been trying to solve it for an entire year. They are on the spot with some help from our team, developed a reporting tool in a matter of less than 30 minutes, and effectively solved the problem, as I said, that they have been trying to solve for a year. It is a super powerful tool. As Roy mentioned, it is on a platform, an enterprise platform that is already integrated in their organization. Their ability to deploy that and get value from it instantaneously is super powerful for them. We continue to see use cases like that pop up all over the place. Obviously, we are pretty encouraged with early signs.

Scott Berg (Managing Director and Senior Research Analyst)

Understood. Helpful. Maybe a modeling question for Eliran as you pivot to some of these other channels that you guys started last quarter from a sales and marketing, go-to-market kind of perspective is, how should we think about leverage of sales and marketing kind of in the near term? Do those channels still require, I guess, some over-investment here in the short term to effectively turn them on? Do you expect to still see some leverage there given that you're not spending in maybe that Google channel as much? Thank you.

Eliran Glazer (CFO)

Hey, Scott. Eliran here. As a reminder, we have a hybrid model, which is a combination of PLG, the performance marketing spend that we already mentioned. We are shifting to other channels as well as the headcount that quota carrying around partners, sales channels, and customer success. Overall, when we are thinking about going into the investment, we believe that the share of the performance marketing as a percentage of total S&M is going to decline. Potentially, in total dollar value, it may stay flat or slightly below, but we are going to see the investment mostly in headcount. It is going to be more moderated than what we have seen in the past. The momentum, as we said, continues to be very strong. We are expanding within existing customer base. You can see it with the NDR to 50K customers, 100K customers, and up market motion. ACV is going up. Lending is bigger. This would be an area of investment, but more moderate to what we have seen in the past.

Scott Berg (Managing Director and Senior Research Analyst)

Okay.

Operator (participant)

Next question comes from the line of Steve Enders with Citi. Please go ahead.

Steve Enders (Equity Research Analyst)

Okay, great. Thanks for taking the questions this morning. I guess I just want to dig a little bit more into just the performance marketing channel specifically. I guess it would be great to kind of get a breakdown for kind of what you saw within the paid Google channel, I guess, hopefully through October if you have that. Then, I guess, secondarily, just how the ramp in the other channels is working and how that's kind of, I guess, trending versus your expectations there.

Eran Zinman (Co-Founder and Co-CEO)

Yeah. Hi, Stephen. This is Eran again. Look, as I mentioned, we talked briefly about this during the Investor Day. Our Google AdWords channel accounts for less than 10% of our new revenue. Overall, like I've mentioned, we saw some choppiness Q3, but towards the end of the quarter, we saw stabilization. That is across Google AdWords and across all other channels. We see very healthy top-of-funnel activity. Also, the pipeline looks very healthy. It is growing according to our plans. I think overall, we're feeling confident going forward with our acquisition strategy. We also mentioned during the Investor Day, the quality over the quantity. We continue to see a trend of this: high-quality customers, bigger lands, more expansion, high retention. Overall, we feel confident about the strategy and confident about our ability to continue and acquire new top-of-funnel activity.

Steve Enders (Equity Research Analyst)

Okay. All right. Great. That makes sense. I guess on the guidance, again, just understand Q4 is coming down a little bit. I guess on the back of that, I guess what maybe gives the confidence as we think through 2026 and 2027 that you still feel good about that $1.8 billion number, especially as we think about lapping some of the price increases going into next year? Just, yeah, how should we think through those factors and what gives you all the confidence behind those numbers?

Eliran Glazer (CFO)

Hey, hi, Eliran. Good question. When we think about a few reasons why we are confident in next year numbers, first, the demand and expansion from our larger customers. We are accelerating year-over-year growth for all up-market customers. You have seen $50,000, $100,000, and $500,000. I mentioned earlier, we are accelerating year-over-year growth of RPOs, and we are improving $50,000 NDR. In addition to that, we have the multi-product adoption that continues to trend positively. CRM is becoming very significant with more than $100 million in ARR, and we are seeing customers increasingly adopting multiple solutions. We are only in the early innings of customers that are adopting more than one product, and only, I think it was 6% that we said in Investor Day, and now we are doing much, much better. AI product engagement is accelerating.

We're focused on educating, and we're focused on adoption of customers in the market, and we see a very healthy adoption of AI products that we believe are going to monetize next year in a more significant way. As Eliran mentioned, we have signs of stabilization in top-of-funnel at the end of the quarter that we are encouraged by that going into the fourth quarter and into next year.

Steve Enders (Equity Research Analyst)

Okay. Perfect. Thanks for the questions.

Operator (participant)

Okay. Next question comes from the line of Alex Zukin with Wolfe Research. Please go ahead.

Alex Zukin (Research Analyst)

Okay. Hey, guys. Maybe just since we're bundling kind of all the new products into one category now, maybe what's the latest on monday.com's CRM service products in terms of traction in the quarter? How much they're contributing to net new ARR today? I have a quick follow-up question on the model.

Casey George (CRO)

Yeah. Casey, I'll take this one. So CRM, as we just mentioned, eclipsed $100 million this year in a very short amount of time, I think less than two years. We continue to see traction, of course, across SMB and mid-market in particular. With service, this has really been a great story for us. It's only nine months in, but we continue to see even more significant contribution coming from service. I believe our size of service customers has 2x'd that of other products. So service continues to accelerate. Obviously, nine months in, we don't have a year-to-year compare, but we're very bullish on both of those products going into next year.

Alex Zukin (Research Analyst)

Got it. Maybe, Eliran, just for you, you've had a couple of questions regarding how you feel maybe about next year specifically. I think just given some of the changing dynamics that you're mentioning around channels and how you're going to market and shifting spend, what seemingly is a little bit of a change in terms of your guidance for Q4 versus previous years and periods in terms of passing through the beat and this timing adjustment, maybe just help us pace how we should think about the growth. Are you comfortable with where consensus is for next year? Is it something where it may be a little bit more back-end loaded and you could actually see acceleration in 2027 because of some of these timing adjustments that you're calling out? I think it'd be really helpful for us to just understand the pacing of growth given some of these evolving dynamics.

Eliran Glazer (CFO)

Hey, Alex, Eliran here. I think I mentioned it earlier, but if you think about where we're going to be in fiscal year 2027, we said that we're going to achieve $1.8 billion in revenue. We feel very confident with that. We feel very confident with the number based on everything that we see today. This is something that when we made the assumptions, we took into account the trends that we see today. We made some assumptions about the cross-sale motion, the new products that we are launching to the market, the fact that AI is going to be monetized to a certain extent, and the fact that we are going to expand within existing customer base. Having all of this, taking all of this into account, we feel that the $1.8 billion in fiscal year 2027 is achievable. In the interim, we are confident with the consensus number for next year as well.

Alex Zukin (Research Analyst)

Perfect. Thank you, guys.

Operator (participant)

Okay. Next question comes from the line of D.J. Hynes with Canaccord. Please go ahead.

D.J. Hynes (Research Analyst)

Hey, good morning, guys. Eliran, does the new AI pricing model and the introduction of Agent Factory feel like it gives you more or less visibility into the model? I'm just trying to think about how these changes may impact the ability to forecast the business if AI becomes a more meaningful driver going forward.

Eliran Glazer (CFO)

Hey, it's Eliran. With regard to visibility, it's early days. As I said earlier, we are focused on education and adoption within our customer base. It gives us confidence that we see that there is a strong momentum. However, it's not something that is going to be very meaningful in terms of revenue next year. We take it into account, but it's not very meaningful.

D.J. Hynes (Research Analyst)

Okay. Maybe I can go back to Jackson's question. I mean, obviously, we saw the acceleration in the RPO metrics that you're sharing. Are you seeing changes in contract duration as you go further up market? Is that a tailwind to that RPO metric?

Casey George (CRO)

Yeah, this is Casey for sure. Obviously, as you move up market, we would like longer-term contracts, and obviously, our customers would as well. So we are seeing an acceleration on the term length for our contracts as we move up market.

Eliran Glazer (CFO)

Yeah. Maybe just to add to Casey.

D.J. Hynes (Research Analyst)

Yeah.

Eliran Glazer (CFO)

Yeah. Just to add to Casey, kind of what we see is basically that the percentage of ARR in terms of contract duration for multi-year is becoming more meaningful in terms of the numbers, coming from 5% five years ago to now around 13%. We see the annual contracts are going from 65% to 70%. Altogether, when you combine the annual plus the multi-product, you're getting more than 80% of ARR coming from annual plus multi-product. This is something that the trend continues.

D.J. Hynes (Research Analyst)

Okay. Got it. Thank you.

Operator (participant)

Okay. Next question comes from the line of Raimo Lenschow with Barclays. Please go ahead.

Raimo Lenschow (Managing Director)

Perfect. Thank you. Can I stay on RPO? If I look at the old decks and the new numbers, it looks like you restated it, and the numbers came down a little bit. Can you just explain what was going on there?

Eliran Glazer (CFO)

Yeah, sure. It's Eliran. When we presented the numbers in the Investor Day to us during mid-August, and the RPO is a new metric for us, and upon further review post-Investor Day, we made some adjustment to ensure consistency and accuracy across period. This was part of our auditor's review of Q3, and they signed off the RPO data presented in our Q3 earnings. We're confident that this metric, as I said earlier, to Jackson's question, provides a clear and reliable view in terms of our contracted revenue-based and future growth visibility going into next year.

Raimo Lenschow (Managing Director)

Okay. Perfect. Okay. So then we should be clean on RPO going here? Or it's just a change on accounting, basically?

Eliran Glazer (CFO)

Yes. Correct.

Raimo Lenschow (Managing Director)

Okay. Perfect. Okay. That's all I have. Thank you.

Operator (participant)

Okay. Next question comes from the line of Derek Wood with TD Cowen. Please go ahead.

Derrick Wood (Managing Director)

Great. Thanks. You mentioned that up-market motions carry longer sales cycles, but you did see really strong growth in up-market KPIs, new customers accelerating, RPO accelerating. Are you seeing up-market pipelines tracking even higher than your revenue growth? If not, for longer sales cycles, you could be even stronger? I guess given Q4 tends to be when larger deals have seasonal flush dynamics, how do you think Q4 is setting up, and anything to share with how the quarter is tracking to date?

Casey George (CRO)

We do continue to see an acceleration in our pipeline as we move up market. As it relates to the quarter, all I would say is that when you move up market, obviously, you create somewhat of a hockey stick in the quarter and in the year. As we progress up market, we continue to see that phenomenon play out. We are very encouraged with the pipeline that we built up market. Again, we have not really even started with the cross-sell motion. We are bullish that that will only add additional pipeline to the year.

Derrick Wood (Managing Director)

Got it. Thanks. On the AI side, I mean, when you look at Magic, Vibe, Sidekick, Agent Builder, what would you call out as getting the most traction? How would you rank this group in terms of potential adoption over the next year or two?

Casey George (CRO)

Vibe is definitely taking off. That is, there's been a resounding excitement around that offering. Obviously, we just announced it, but I had the opportunity, as I mentioned, to spend some time with customers at Elevate. There was a ton of excitement around that. As I mentioned, a couple of use cases. There's a dozen more that I could speak to where customers are literally using it that day and getting value from it. We're obviously, as I mentioned, very early on, but we're super excited about the prospects of Vibe, most particularly because we're in the market to absorb that. We're the work management company. We're in a perfect spot for customers to change how they work and actually do work for them instead of just managing it. These offerings do absolutely that, whether it's our agents or Vibe. Again, pretty excited where we are, looking forward to next year and seeing how that develops as we go.

Eliran Glazer (CFO)

Maybe just to add to what Casey mentioned, this is Eliran. So I 100% agree. Vibe right now presents the best opportunity for monetization, and we see the most momentum with. I would say in addition to that, we feel that Monday agents can also unlock new go-to-markets, a new type of customer that we didn't have before. We are equally excited about this one, both for our existing customer base, but also for our ability to tap into new types of customer audiences.

Derrick Wood (Managing Director)

Great. Thank you.

Operator (participant)

As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Rob Oliver with Baird. Please go ahead.

Rob Oliver (Senior Research Analyst)

Great. Thank you. Good morning. My question's for Casey. So Casey, obviously, a lot of changes going on on your side. On the comment relative to sales cycles, the first part of my question is on the longer sales cycles. Obviously, those are going to lengthen as you move up market, but it does sound like a comment. It's a bit of a change from when you were on stage a few months ago. Just wanted to understand, putting aside the obvious change in sales cycles as you move up market, which is clearly having success, kind of what changed in the market? I had a quick follow-up.

Casey George (CRO)

Yeah. I do not think there has really been a whole lot of change. What I would say is we have to do two things at once, and we are. We still have our high-velocity business in SMB that continues to pace at a healthy rate. Then we layered in the up-market motion, which I am stating the obvious, which those sales cycles are typically a little bit longer. Again, we have to do two things at once, and we are. Still very encouraged. My strategy has not changed, and it is consistent with what I mentioned at Investor Day.

Rob Oliver (Senior Research Analyst)

Got it. Helpful. As you think about that move-up market, obviously, you guys have a very powerful partner network in the low to mid-range. I know you're thinking a lot about partners moving up market as well. Is there a way for us to think about how partner contribution may play a role and perhaps as a percentage of new business or how you're thinking about those partner relationships and also ownership of those accounts in terms of an internal versus a partner basis? Thanks.

Casey George (CRO)

Yeah. The ecosystem has always been very strategic to us and will continue to be. We continue to grow our partner ecosystem almost daily, especially as it relates to some of our new offerings. We have new partners coming on board that want to take advantage of our CRM offering, our service offerings, and obviously now our AI offerings. It is not just about the existing ecosystem we have today. It is about recruiting the right partners to give us depth and breadth across the different regions. Obviously, depending on the region, they play a more significant role, especially as we look at some of the emerging markets in APJ and LATAM. They play a very significant role, and we are really growing in those regions on the back of that partner ecosystem. I am super excited about where we are with the ecosystem, even more excited about where it is going.

Rob Oliver (Senior Research Analyst)

Helpful. Great. Thank you.

Operator (participant)

Okay. Next question comes from the line of Tom Blakey with Cantor. Please go ahead.

Tom Blakey (Managing Director and analyst)

Hey, thanks for taking my questions here. Just two for me. On the sales cycles and the move-up market, I do not think any of that is necessarily new. You have been very articulate in terms of laying that out even before Analyst Day. Just wondering if anything maybe kind of like downticked in terms of expectations there in the most recent couple of months. Things are just maybe taking a little longer. The deals are getting more complicated as they become more penetrated, a victim of success, so to speak. Secondly, double-clicking on the S&B, you are doing so well in these metrics that you are talking about with regard to NRR and RPO at the high end and the decel that is kind of implied into this $1.8 billion estimate for calendar 2027.

Has anything changed in terms of—I know you've been asked a couple of times on the call—but gross churn on the SMB side near term? What are your expectations? You did a good job articulating what the calendar 2027 estimates are, kind of a bridge there. What are you expecting in terms of SMB with regard to that $1.8 billion, so near term and long term on SMB? Yes. Thank you so much.

Casey George (CRO)

This is Case. I'll answer the first part, and I'll hand it to Eliran. If you understand, when we talk about moving up market, it does not necessarily mean we are talking about the Fortune 100, right? We are moving up through mid-market. Quite honestly, the larger accounts are coming to us. As it relates to some of the sales cycle, it is just the natural sales cycles we see as we move up market. That has not changed. That is consistent. We plan for that, and that has played out in a very healthy way in the numbers, right? On the SMB side, that has been a very consistent business for us. It continues to be. We see acceleration, especially with the opportunity to sell the full platform because we can sell the full platform into that customer set, including our AI offerings. Really no change.

I wouldn't highlight any concern whatsoever. It's playing out exactly as I expected. In some instances, it's actually playing out better. I'll hand it to Eliran for some of the guidance on the SMB.

Eliran Glazer (CFO)

Yeah. Tom Hi, Eliran, to your question on gross retention. Gross retention is now historically high, and we see this improvement going from fiscal year 2023. This is a result of the fact that we are going off market, but also as part of the price increase that we have done, and the quality of the customers that are joining the platform has been better. With regard to your question about sales cycle, I just want to give kind of more of a macro overview. I think that over the past few quarters, not only for Monday, but in general, there is some choppiness in the market with some uncertainties.

Therefore, customers, with regard to all businesses, are making probably decisions. It takes them longer with everything that is going on. I would say it's more of a macro thing, but we are seeing a positive momentum as part of our experience with Casey.

Tom Blakey (Managing Director and analyst)

Thank you. Thank you. Very helpful.

Operator (participant)

Okay. Next question comes from the line of Matt Bullock with Bank of America. Please go ahead.

Matt Bullock (Equity Research Associate)

All right. Great. Appreciate you taking the question. I wanted to ask about Salesforce productivity. Obviously, you're adding quite a few quota-carrying reps on the managed sales side. Is sales productivity tracking in line with expectations? Maybe remind us how long it takes a typical enterprise or up-market sales rep to ramp, and then should we start to see more of those benefits in 2026 as we get more maturity of that Salesforce?

Casey George (CRO)

Yeah. We're seeing productivity move in the right direction, a very healthy direction. I would tell you this is the part I'm most excited about, right? If you think about all the offerings we have available to the market, we're going to be our best reference. When I say that, we're using the technology that we're taking to market to effectively make our sellers more productive. We have our AI agents. We have our customer success AI agents. We have a number of internal processes where we're leveraging AI. It's not just about us going to market with these offerings. It's about making our sellers more productive, and AI is playing a huge role in that. Our productivity continues to improve. I do expect an even greater improvement next year because of some of the changes we're making with our AI agents.

Matt Bullock (Equity Research Associate)

Fantastic. One quick follow-up, if I could. It sounds like maybe the embedded contribution for 2026 from AI products is expected to be a little bit more measured. If you could help us think about what's embedded in terms of the assumptions for the 2027 $1.8 billion revenue target, is there anything you can give us in terms of the embedded AI product contribution? If not, maybe just the core versus the multi-products. That'd be helpful. Thank you.

Eliran Glazer (CFO)

Hi. It's Eliran. As I mentioned earlier, there are not going to be any new products other than the AI products that we introduced to the market. As a reminder, we have more than 250,000 customers. Very few of them are using—a very low percentage of them are using more than one product. The cross-sale motion is going to be very strong between, for example, service and work management. CRM will continue to be strong with the Monday campaign that we introduced just recently. We are expecting some revenue from AI products, but as you said, it is going to be more moderate. The impact of that can be on the retention of our existing customer base.

It's not directly revenue, but the fact that our gross retention is better, the fact that we have more stickiness on the platform is generating more revenue opportunities that are going to impact other products as well. Taking all of this into account provides us with the confidence on going into $1.8 billion in fiscal year 2027.

Matt Bullock (Equity Research Associate)

Thank you.

Operator (participant)

Your last question comes from the line of Taylor McGinnis with UBS. Please go ahead.

Taylor McGinnis (Equity Research Analyst)

Yeah. Hi. Thanks so much, Tom, for taking my questions. Maybe just the first one. I know you guys have gotten this question in a number of ways, but just to be a little bit clearer. If it's my understanding, it sounds like the success that you guys are seeing up market maybe isn't just yet to offset some of the choppiness or softness down market. Maybe that is what led to the Q4 guidance cut. Can you just talk through and give a little bit more clarity on what got tougher? Is it that you thought up market would have been growing faster to offset the slower growth down market, or did something within SMB and down market get softer than before?

Eliran Glazer (CFO)

Yeah. Hi, Taylor. This is Eliran. I do not think it is a matter of something that has got harder in terms of acquisition. It is just a shift in the type of customer that we acquired during this quarter. As we said, we have pivoted some of the budget to different channels. We saw those bringing great pipeline. This pipeline takes a little bit longer to convert. It is not that one is at the expense of the other, just different type of customer. Overall, this serves our strategy: going up market, higher quality of customers, and if anything, just accelerates the motion that we already started.

Taylor McGinnis (Equity Research Analyst)

Perfect. Thanks. Just my last one is, Eliran, you talked earlier about comfort in the street numbers for next year. Just curious, in order to hit those numbers, do we need to start to see stabilization in the core work management business, maybe adjusted for some of the bigger changes in price? If so, could you just speak to when it sounds like there's still choppiness in some trends out there, is that something that's embedded in the outlook for next year? Maybe you could just speak to your comfort in the assumptions and how we think about that number going forward. Thanks.

Eliran Glazer (CFO)

Hey, Taylor. With regards to numbers for next year, as I said, we are going to present them in our next earnings release in February. We're going to provide you full visibility and transparency with regards to the assumptions that we are taking into account. I did say that we have some confidence in next year numbers as a fact of everything that all the trends that we are seeing now, the momentum that we are seeing up market, as well as the fact that we are starting to see stabilization in our down market top of funnel activity. These are the things that make us feel comfortable about the content for next year.

Roy Mann (Co-Founder and Co-CEO)

Hi, Roy. I can add that Work Management is our leading product, and we see that we are succeeding with our up market strategy mainly through Work Management. It's like we're leading that market, and we see great potential going forward and growing with it as well.

Taylor McGinnis (Equity Research Analyst)

Thank you so much.

Operator (participant)

There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.