monday.com Stock

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to monday.com's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Byron Stephen, Vice President of Investor Relations. Please go ahead.

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 2026.

Joining me today are Roy Mann and Eran Zinman, co-CEOs of monday.com; Eliran Glazer, monday.com's CFO; and Casey George, monday.com's CRO.

We released our results for the third quarter fiscal year 2026 earlier today. You can find our quarterly shareholder letter, along with our investor presentation and a replay of today's webcast under the News & Events section of our IR website at ir.monday.com.

Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.

Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website.

Now, let me turn the call over to Roy.

Thank you, Byron, and thank you, everyone, for joining us today. We recently wrapped up another successful Elevate user conference in New York City with a record number of attendees. It was a strong reminder of how engaged our customers and partners are as we move into the next phase of the company. That engagement extends well beyond the conference.

In Q3, we saw our largest customer deployment expand to over 87,000 seats, a sign of the trust large enterprises place in our platform. We were also proud to see monday work management recognized as a leader in the Gartner Magic Quadrant for Collaborative Work Management.

Our third quarter results show the strength of our foundation. Revenue was $378 million, up 19% year-over-year. We also delivered record non-GAAP operating income of $89 million with a record 24% non-GAAP operating margin.

At the same time, we're navigating broader market headwinds. These contributed to some moderation in our growth rate, net dollar retention and net additions this quarter. We're also in the middle of a major transition as a business, shifting our core vision from managing work to doing the work with people and AI agents operating together. Our strategy comes down to 4 things.

First, we're making our product to be AI first, moving from managing work to executing it and helping our customers bring AI into their daily work. Second, we are accelerating our move upmarket, focusing our go-to-market on higher-value enterprise customers. Third, we're gradually moving more customers to hybrid pricing, combining seats with usage-based AI consumption, so customers pay for the work our platform actually does. And fourth, we're selling with service and implementation, pairing our products with hands-on support.

That includes monday Frontier, our new forward deployed engineering offering, which helps customers adopt AI faster and see value sooner. A transition of this scale takes time, and it brings some near-term friction into our results, but we are confident this is the right strategy. We're executing with urgency, and we're excited about the opportunity ahead.

With that, I'll turn it over to Eran, who will walk you through these headwinds in more detail and share some of our product highlights from the quarter.

Thank you. As Roy said, we're going through a major transformation as a company. We saw 3 specific headwinds in Q3 that impacted our results and are shaping how we think about the rest of 2026. First is the restructuring we announced in July, which reduced our workforce by roughly 20% during the quarter. Executing it creating some near-term disruption, but it puts us in a leaner, more focused position as we move forward.

Second, the down market remains under pressure, and we're continuing to strategically shift our go-to-market focus toward higher-value enterprise opportunities. As a result, SMB customer additions were lower and SMB logo churn was higher. This is by design, and we expect it to continue.

And third, we saw a more deliberate buying behavior and longer sales cycles as customers take a closer look at how AI fits into their business. This reinforced why we are pairing our product with service and implementation, and we remain confident in that approach.

Now, let me turn to the product progress we made in the quarter. AI is becoming a real part of our business. AI ARR reached $36 million at the end of the quarter, led by growing use of AI credits. That growth reflects customers moving beyond experimentation and paying for AI as part of how they work.

Customers are also actively putting our agents to work. Monday agents surpassed 6 million agent interactions in less than 2 quarters, a sign that they're being used in real workflows every day. This momentum is why we're investing so heavily in AI across the company. It shapes how we build our products, how we serve our customers and how we operate. We are encouraged by the early traction, and we see significant opportunity as more customers adopt AI across their organizations.

We also recently launched Harmony, a voice AI agent platform built by monday for enterprise sales teams. Harmony combines voice technology from our OneAI acquisition with our own small language models. Each model does one job, such as qualifying leads, capturing data or handling objections. Because the models are small and run mostly on our infrastructure, responses take only about 200 milliseconds from the customer speech to Harmony reply. So conversations feels natural.

At Elevate 2026, we also launched monday Frontier, a new service organization built to help customers transform their business with AI. Frontier is staffed by 4 deploy engineers who partner directly with customers to identify where AI can have the greatest impact on core business processes. This includes building a solution, implementing it and continuously monitoring it over time.

Beyond tailored FDE implementation, Frontier offers multiple tiers of support, including professional services, webinars and one-on-one enablement. Frontier gives customers a clear hands-on path to put AI to work in their businesses.

As we look ahead, we are building on a strong foundation with a profitable business, a growing base of large enterprise customers and the platform that teams rely on every day. Our customer relationships continue to deepen. And with monday Frontier, we are now better positioned to partner with them on their AI transformation. We are executing with focus and urgency with a clear AI-first strategy and a team aligned behind it. We are confident in the path ahead of monday.

With that, I'll turn it over to Eliran to cover our financials and guidance.

Thank you, Eran, and thank you to everyone for joining our call. Today, I'll review our third quarter fiscal year 2026 results in detail and provide updated fiscal year 2026 guidance. Total revenue for the third quarter came in at $378 million, up 19% from the year ago quarter. Our overall NDR was 108% in Q3. We continue to expect to see some short-term modest pressure on NDR for the rest of the fiscal year.

As a reminder, our NDR is a trailing 4-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.

Third quarter gross margin was 88% compared to 90% in the year ago quarter. Research and development expense was $70 million in Q3 or 19% of revenue, up from 18% in the year ago quarter. Sales and marketing expense was $145.4 million in Q3 or 39% of revenue compared to 48% in the year ago quarter.

General and administrative expense was $29.1 million in Q3 or 8% of revenue compared to 9% in the year ago quarter. Operating income was $89.4 million in Q3, up from $47.5 million in the year ago quarter, and operating margin was a record 24%, up from 15% in the year ago quarter.

Net income was $93.6 million in Q3 compared to $61.9 million in the year ago quarter. Diluted net income per share was $2.14 in Q3 based on 43.8 million fully diluted shares outstanding. Total employee headcount was 2,479, a decrease of 690 employees since Q2 of '26. We expect headcount to be down approximately 20% year-over-year at the end of fiscal year 2026.

Moving on to the balance sheet and cash flow. We ended the quarter with $1.1 billion in cash, cash equivalents and marketable securities compared to $1.07 billion at the end of Q2 2026. Net cash provided by operating activities for Q3 was $20.4 million. Adjusted free cash flow for Q3 was $63 million and adjusted free cash flow margin was 17%.

Adjusted free cash flow excludes $47.2 million of restructuring-related cash payments made during the quarter. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, plus costs associated with the build-out of our corporate headquarters and restructuring-related cash payments.

Let's now turn to our updated outlook for fiscal year 2026. For the fourth quarter of fiscal year 2026, we expect our revenue to be in the range of $380 million to $382 million, representing growth of approximately 14% year-over-year. We expect non-GAAP operating income of $68 million to $70 million with an operating margin of approximately 18%, assuming a negative FX impact of 100 to 200 basis points. For the full year 2026, we expect revenue to be in the range of $1.473 billion to $1.475 billion, representing growth of approximately 20% year-over-year.

We expect full year non-GAAP operating income of $268 million to $270 million with an operating margin of approximately 18%, which assume negative FX impact of 100 to 200 basis points. We expect full year adjusted free cash flow of $282 million to $288 million with adjusted free cash flow margin of 19% to 20%, which assumes a negative FX impact of 100 to 200 basis points.

Let me now turn it over to operator for your questions.

[Operator Instructions] Our first question comes from the line of Ryan MacWilliams with Wells Fargo.

Just on monday credits, I would love to hear about the adoption curve and how that's going with your customers in the quarter. And do you feel like the familiarity with consumption models within your platform is just becoming more evident with customers? Like a year ago, they were based on subscription, but now I think with many other AI tools and yourself, they're becoming more comfortable with usage. But are you seeing that in your business so far?

Yes. Ryan, this is Eran. Thank you for the question. So overall, as we announced AI ARR reached $36 million. It's still early, but it's came in quickly. I think a few observations of what we've seen with the customers so far. So we started to introduce the hybrid pricing to our customers. We're doing it gradually. We've seen very nice adoption in terms of AI credit utilization among our 50,000 accounts and above. Over 30% of those accounts pay for AI credits and use it.

So we see very nice adoption across that customer group. And we're actually seeing better adoption on the 50,000 segment compared to the rest of the population. So 4x, 4.4x adoption and usage of AI compared to the rest of the population. So overall, we see very nice adoption and willingness to pay on the 50,000 segment of the business. It's still feel early, but definitely, we feel the momentum.

Excellent. And then, Eliran, really strong profitability in the third quarter. Anything to call out there on a onetime basis? And then also just like as you think about from here with monday, like is there advantages to like maybe like dialing down from the SEO spend you can get more profitability on or maybe something like using more AI internally? I guess how can we think about the potential to improve free cash flow from here for monday?

Sure. So Ryan, let me first break it down to you in terms of -- so we did the restructuring in Q3, and we had savings of about $100 million that we said we're going to reinvest in the business by way of AI, by way of employee retention. And this is something that we have done, and we'll continue to invest in the business. Strong Q3 profitability was basically the result of the RIF. But if you take into account additional savings indirect such as less travel, less marketing events and seasonality due to summer vacation, then we benefit from that, and we got into a profitability of 24%.

When you look into Q4, this is something that we are going to normalize Elevate event is going to happen in Q4 -- sorry, happened in Q4. So this is a cost that we took into account. The cost of the compensation update that we did is now going to be part of Q4 going into 2027. So a normalized run rate would be what we put in our guidance.

And with regards to free cash flow, I will remind you that free cash flow follows ARR, meaning the cash generation is driven by mostly ARR, and therefore, there is timing differences between revenue recognition and our billing of ARR customers as part of our ongoing subscription.

Our next question comes from the line of Arjun Bhatia with William Blair.

For Roy or Eran, I know you guys are sort of in this transformation. I think you pointed out a couple of times how the product is changing and the market is changing and AI is having such an impact. And I'm just curious when you're thinking about the business from here, like is this -- do you think this is a quarter, like a few quarters long transformation? I know it's hard to tell. Does it take a few years? Like I'm just curious from the inside, how you're thinking about the timing of all the changes that are happening in the business? Like when do we get back to somewhat of a steady state?

Yes. Arjun, this is Eran again. So look, first of all, it's a broad change. We're changing the product, changing our go-to-market. We're shifting our sales team. We added the services organization, the monday Frontier we announced. So this is a broad company-wide change and transformation that we're going through as a company. It's a change that we believe in. It's very strategic for us. And based on the feedback that we've seen from customers and the adoption, we believe it's the right change for the company.

In regards to the timeline, look, it's not a change that will happen in the quarter. We're looking at that to continue into 2027. It's a major change. But definitely, we're excited about this. We feel it's the right change for the company. And we feel -- it definitely emphasized all the things that we're doing with our customers and the feedback that we hear for them.

Yes. I can add that it's like it aligns with the strategy we had until now of going upmarket, which we just see it as like a natural step forward with we are accelerating.

Okay. Perfect. Understood. Yes, that makes sense and helpful to see how you're thinking about it. And then going into the AI capabilities, it seems like -- I guess you pointed out the 50,000 segment is where a bulk of the adoption is occurring. Is that -- is there something unique about those customers? Or are you allocating more resources in terms of handholding with those customers to get them implemented on your AI capabilities? And then how do you think Frontier might impact that cohort and even some of the larger cohorts that you have?

Yes. So it's Roy. So we do see, like, Eran mentioned, like larger implementations within the larger cohorts, 50,000 plus. And we see this as like we have very strong champions there, and there are like specific use cases that are really helping them. And so they adopt it faster and deeper. And this also -- and a lot of other customers, just like with our conversations with them, ask us for help. They want guidance. They want to they see also other customers to those of you who have been to Elevate, you saw a lot of amazing use cases of customers gaining like 35% more revenue from using agents and saving, like hours and like really accelerating their whole operations.

So a lot of our customers see those examples and want us to help them do it, and that's why we're investing in that segment more with Frontier and generally gearing up to helping them more adopt it.

Next question comes from the line of Scott Berg with Needham.

I wanted to -- I guess, first touch on the sales challenges in the quarter. I get the sense the upmarket slowness traction was new for you all? Or I guess, was the commentary that you made, was it different than maybe what you've seen in the last couple of quarters? Just trying to help unpack maybe the delta between the current quarter and the first half of the year.

Thank you for the question. This is Casey George. So what we saw in 3Q was some elongated sales cycles. There's a couple of things that contributed to that. One, obviously, we've made a strategic shift to move upmarket. And with that comes exposure to those buying cycles, right? They have more stakeholders. Obviously, they're being very diligent on how they consume AI. But we can't ignore there was disruption and some distraction with the risk, and that lingered candidly a little longer than we thought. So I think those 2 things contributed pretty significantly in the quarter. So obviously, we're focused on that as we approach this quarter.

Understood. And then Eliran, if I look at the costs in the quarter. We know you went through with the reduction in force in July. Are all those expenses completely out of the model as of the end of the September quarter? I know some of the expenses normalized like with Elevate, et cetera, in fourth quarter, but I just didn't know if any of those reductions will bleed in the fourth quarter as well. Just trying to think about the cost base on a run rate basis going forward.

Scott, Eliran. Yes, all of the cost that's related to the restructure is out of the Q4 numbers. But I just want to remind you again that we said that, the majority of the savings that we had as part of the restructure, which was $100 million growth, we're going to reinvest in the business. So already, some of it is reinvested in Q4 cost by way of compensation, by way of AI cost that's related to our operation. And obviously, the elevated event is not related to the risk, but this is also part of our Q4 results. So a normalized -- a more normalized way to look at this is Q4.

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

Okay. Maybe just following up on the sales headwinds that you saw in the quarter. I guess with the disruption from the RIF coming through and now processing that for a few months, are you starting to see things normalize from that perspective? And I guess, as it kind of relates to the guide for Q4, like are you assuming that there is, I guess, the same level of disruption kind of baked into the guide for Q4? Or is it being assumed to normalize and kind of return back to normal as you think about what's embedded in the outlook for Q4?

Yes. Obviously, we're keeping a close eye on it. We're just past the RIF. So we'd like to see a couple more months before we make any indication on whether or not there's still lingering effects from the RIF. With that said, we continue to accelerate our investment upmarket and a big push is our monday Frontier. What's very clear, as you heard from Roy, our customers need help. They're looking for implementation services. They're looking for guidance on how they build AI assets, how it can incorporate into the business process.

And so we're aligning with that demand as we move upmarket. The consequence of that, obviously, is the lower end of the market where we see a lot of pressure continues to decelerate. And obviously, with longer sales cycles, that's contributing to some of the performance in 3Q. So we're going to keep a close eye on it.

And Steve, this is Eliran. Maybe let me take you through what we -- what is embedded in our 2026 guidance. So it assumes similar trends to what we have seen in Q3. There is no meaningful change in macro buying environment. We still believe it's going to persist by the end of the year also going into 2027. As Case said, and we continue to see down market headwinds, and we don't see any improvement in top of funnel. There is a more deliberate buying behavior and longer sales cycles in up market, and this is what we just spoke about.

We do expect to see growing AI adoption, and we are going to be disciplined on our cost management. We also want to relate to NDR. We believe it's going to go down 1% to 107%. With regards to headcount, when you compared to the end of 2025, we're going to be 20% down on headcount by the end of 2026. And we expect between 100 to 200 basis points negative FX impact on our margins. And all of the above, these are the considerations that we took when we build the budget -- when we build the guidance for Q4 and fiscal year 2026.

Okay. Perfect. No, that's helpful commentary there. And then maybe with Frontier, it seems like there's a lot of investment around that going into next year in particular. I guess just how are you thinking about how much incremental reinvestment is going to be made versus that 20% headcount reduction? And just, I guess, what does that mean for how you're thinking about potential growth for next year and maybe like what the -- or what the margin structure might look like for next year as well?

Yes. Steven, this is Eran. So look, I feel, first of all, I can share from talking with customers, monday customers and non-monday customers. I feel there's a lot of confusion today in the market about buying AI and implementing AI. Customers want return on investment. They want to adopt AI to actually make impact on their business.

Now we just came back from Elevate, our annual conference, and we heard it across the board. Customers rely on monday. They have a lot of data and context within monday. They have everybody already working within the monday platform. And for them, it's obvious they want to use our AI capabilities in order to get that return on investment for their business and make actual business impact.

What we heard from all of them is that they need help. They cannot do it on their own. They need help. They need guidance. And it really reassured our strategic investment in monday Fontier. We plan to hire, to scale that part of the business to offer more services to our customers and help them with implementation. Some of it will be an expansion of our existing professional services, but a lot of it will be for deployed engineers that can actually deploy into our customers' companies and help them make impact. And we can share our 2027...

Initial thoughts.

Yes.

Yes. Steve, it's Eliran again. So obviously, we're going to give fiscal year '27 guidance at our next earnings. But maybe to say, again, that part of the $100 million savings that we did, we are going to reinvest in hiring and bringing people that are going to be joining the services function within monday going into next year. It's not going to be very significant like what we have seen in the past in terms of headcount, additional headcount. And this is something that we are currently working on the 2027 plans. We're in the middle of our work. And obviously, we'll have better answers or we'll know better by the end of the year going into February.

Next question comes from the line of Howard Ma with Guggenheim Securities.

My first question is for either Eran or Roy. As we transition to this hybrid usage plan -- usage plus-seats model, rather, where do you believe you have the most pricing power based on your current usage patterns? Are part of the longer sales cycles related to increased IT budget pressures? Like are those becoming more of an issue? And how are you helping your customers compare monday ROI today versus other AI native solutions?

Yes. So we -- like the hybrid pricing, I feel initially like it was harder for customers to adopt it, but I think they become more and more receptive to it because it become more of a market standard over time. They get a lot of value from using AI. That's something that's really important for us. I've shared previously that we see very good adoption of paying accounts in the 50,000 segment of buying AI, but also using AI.

All of them are using and leveraging our AI capabilities. But definitely, as Case mentioned, it caused a little bit of a longer sales cycle. There's more people involved in the buying decision. It's a little bit of a longer implementation. Definitely, we see some impact there, but we really believe in that. It opens up new growth opportunities of expansion within accounts. and definitely change how customers use the product.

Yes. And it's Roy here. And when we talk with our largest customers, they have a lot of their workflows embedded within monday. And when we talk with them about expansion, they want to expand. And like Case said, it's like a lot of those conversations like take longer and it's a longer sales cycle, and we have more scrutiny. But definitely, we see it on top of the opportunity we have with the larger customers.

For Eliran, your Q4 guidance implies only about $3.5 million of sequential revenue growth or about 1%. If you were to compare this to prior to the RIF, how much would you chalk up to -- I'm thinking kind of 3 categories, continued SMB weakness, some of the lost sales productivity due to the RIF on the enterprise side. And I think maybe there's a little bit more incremental FX headwind. And maybe there's some incremental conservatism versus before too, but I'm not sure. Can you kind of just help us compare before and after? And as we look ahead, is your base case that revenue decelerates from this point forward?

So obviously, when we are presenting Q4 guidance, we're going down from 19% into 14%. It implies slowdown. And we called it out this quarter, and let me reiterate this. So we said there is a down market headwind that we softer small customer trends, and this is something that we believe is not going to get better going into Q4 and even will continue to 2027.

We are seeing more deliberate buying behavior and longer sales cycles. Part of it is impacted obviously by the RIF. So customer takes also a closer look at how AI fits into the businesses. And this is what maybe slows down a bit the market expansion and upgrade. And we are also looking at the near-term disruption, maybe not directly from the people that was part of the RIF, but the way it impacts the organization.

So I would assume that there is an impact on the numbers, but I don't want to quantify it exactly. And what we're saying always is we are trying and we are being prudent in our outlook. AI ARR is growing quickly. And we believe that the moderation in guidance reflects a moment transition, not a change in direction for the long term.

Next question comes from the line of Raimo Lenschow with Barclays.

This is Damon Kogan on for Raimo. Just staying on the topic of continued AI ARR traction, can you help us bridge the $36 million of ARR between stand-alone AI products, separately purchased credit packages and the allocated value of AI credits included in your subscription plans? Just trying to understand the primary monetization in -- of where that $36 million is coming from.

Yes. This is Eran. So basically, the way our customers are now paying for AI capabilities is buying those packages of credits. And those credits are being used for all the consumption within the platform. So I would say the vast majority is coming from monday vibe and monday agents, where agents is growing very quickly and also the rest of the capabilities. But you can think about it as a pool of credits that customers buy and able to expand, and it's being used across all of our AI capabilities within the product.

Yes. I'll just add the vast majority is a recurring [ Technical Difficulty ] which means it's [ Technical Difficulty ].

Got it. Sounds good. And then just on the new products reaching 11.7% of ARR, I think that's only about 10 basis points above 2Q. Can you just explain some of the dynamics going on with the mix there? And how we should think about that on a go-forward basis? Is some of the greater focus on upmarket impacting some of the growth of CRM, dev or service?

Yes. So this is Eran. So definitely, the multi-products are more exposed to the market dynamics. So because they're mostly on acquisition of new customers, we see the nonmarket pressure have greater impact on their growth. However, and we disclosed this as part of the shareholder letter, we see larger customers continue to adopt more multiproduct.

If we look at the 50,000 customer segment, 41% of them are using more than one product, and it's up from 29% of last year. So again, so I would say it's 2 things. One is the continued pressure on the down market. The second is our focus on the 50,000 account segment.

Our next question comes from the line of DJ Hynes with Canaccord.

Eliran, I know you don't want to give guidance for next year. But if we roll all this forward, based on what you're seeing today, how far do you think we are from stability in growth? Like are we talking quarters? Is it a year? Is it longer? Just any kind of big picture thoughts on that would be helpful.

DJ, Eliran. So yes, on the revenue side, we're exiting Q4 with a 14% guidance with multiple headwinds that we called them out in this call and in Q3. I think that we are probably a few quarters from getting back to something that implies more stability. It's not going to be a quick fix, probably going to be throughout 2027, a couple of quarters.

Okay. That's helpful. And then second, how should we think about margin contribution based on how you're planning to price Frontier? Like if that business is successful, can it be a margin-neutral effort? Is the intention to price those services more aggressively to ultimately drive consumption over time? Like how are you thinking about the impact from the services business alone on margins?

Yes. So it's hard to separate because what we've seen so far is that when we do deploy -- before deploy engineers into customers, their usage is going up, their AI consumption is going up. So it's really hard to quantify. I think our focus is not to create a services business, but to increase adoption and usage and deep implementation for our customers. All in all, I think this is the way to help our customers implement AI in a deep sense. So we feel this is a strategic move for us, and it's hard to quantify exactly what the margin that will be.

Next question comes from the line of Elizabeth Porter with Morgan Stanley.

Maybe following up on DJ's question. Given the transition, what are some of the leading indicators that should improve first if this transition is working? And does the operating plan require a recovery in self-service demand? Or can enterprise and incremental AI spending support stronger growth independently?

Elizabeth, this is Eran. So I would focus on a few things, which we are focused as well as a company. One is the 50,000 segment. This is something that we heavily focused on in terms of acquiring customers, retaining customers and upgrading customers. So this is a segment that we're very focused on going forward. And the second is AI adoption. This is a big focus for us in the company. We continue to heavily invest into AI capabilities. We've seen -- we just shared as far as the letter, over 6 million interactions of agents, over 120 million interactions in blocks, almost 5 million in sidekick. So those are the things we closely monitor in the company.

For us, we wanted to build an AI product that people use on a day-to-day basis. And what we've seen so far is great usage, mainly from the 50,000 segment. So this is what we focus on. We kind of see a path forward where this segment becomes the main thing that we focus on as a company and they adopt AI heavily with Frontier and through the product.

Great. And then maybe just as a follow-up. In Q2, I believe that there was already some disruption included in the guidance with the risk. And now that you've seen some of that kind of roll through. What are some of the measurable effects that you've seen thus far in terms of sales capacity and pipeline conversion? And is there any risk that disruption could get worse before it starts to get better? Just wanted to understand kind of where we are on the potential forward risk versus have a lot of those kind of come behind us and is there improvement to come on the impact from the disruption?

Yes. We definitely -- this is Case. We've definitely seen some productivity gains. While there was a lot of disruption, a lot of noise in the system, we have improved productivity over the last few quarters, and we expect that to continue. We're going to be opportunistic as we add more headcount as we see growth, we'll align to that. And we have -- so I'd like to say, plenty of dry powder to go add more headcount where we see demand.

I don't want to admit that the disruption is completely behind us. We do have a little bit of a hangover there, but we're monitoring it closely and optimistic we can get to the other side fairly quickly. As it relates to some of the upmarket, you've heard some of the metrics. And for me, where I sit, the 50,000 cohort has demonstrated the biggest opportunity where we see the most seat expansions, where we see best AI consumption on an exponential basis. So we're going to continue to align to that segment and accelerate our upmarket motion.

Next question comes from the line of Jackson Ader with KeyBanc.

The first one is actually on down market. If I think about the -- what made monday so competitive down market, it was the ease of use of the product and hence, the really strong product-led growth down there. So I'm just curious like what has changed? Is there -- is it a different competitive environment? Is it more price sensitive? Is it all about AI features and experimentation? I'm just curious what is different today versus maybe 3 or 4 years ago when that segment was really humming.

Yes. So...

Yes. Jack -- sorry, go ahead, Roy.

Okay. I can start and then feel free to jump in, Case. So first of all, like we really still -- the user experience, the ease of use is a key part of the monday offering, and that will never change. I think it's important down market and especially upmarket as you want to drive more adoption and ease of use. Actually, some of the most significant feedback that we get from customers on the upmarket is the ease of use, especially with AI, which initially seems very complex for a lot of people.

I think what did change and continue to change is company's ability to acquire new customers through traditional performance marketing channels. Customer discovery and evaluation are changing and evolving. And we see less reliance on traditional search and more reliance on AI-driven channels. We see increase in MCP usage in discovery through the LLM. These changes create more volatility at the top of the funnel for us as a company, and it's particularly in the self-serve segment. And we expect those segments and dynamic to persist going forward.

Yes. The only thing I would add is we're not giving up on this segment, obviously, we do have a vast ecosystem that can support these customers. And we're doing more to enable our partner network to go after this segment. And we'll continue to partner with the channel as well.

Our next question comes from the line of Tom Blakey with Cantor Fitzgerald.

Maybe circling back on a couple of questions we've gotten prior. I'd love to double-click on the AI, how it's causing this kind of like pause in buying. I know it's been asked a couple of different ways, but I'd love to get a little bit more on like maybe the pricing environment or where -- just your insights in terms of consolidated spend and overall pricing environment there with regard to where folks are kind of spending money on AI here as we go into the deeper kind of inference stage of AI?

And then maybe a second question, if I could just ask them both at once. It's just the notion of AI ARR. It looks great. Thank you for the data point. When we look at like ARR per kind of customer cohort, things are flattening out a little bit. So I'd like to hear just a little bit more color in terms of how incremental this AI ARR is per customer even upmarket?

Yes. So what we see as it relates to some of the buying behavior upmarket is customers -- they have to figure out where they're going to apply AI in their business process that's causing elongated sales cycles. Obviously, they're being very deliberate on how they spend and they need more predictability as it relates to some of these assets.

So we're helping them with that, that we're moving them from evaluation to adoption and Frontier will help us with that, but also our partner network will as well. And there's some affirming data points that you've heard. We've seen in our 50,000 cohort of customers where usage is up 4.4x. And then even on the agent side, where we see 10x we have an active AI agents in this cohort as well. So the demand is there. The metrics support it, but we are seeing where customers are being a little bit more deliberate on how they consume AI and accommodating their budgets. And I'll leave it to Eliran to comment on the second question.

Yes. Maybe just to add, Eliran, that AI now is a new line item in the budget for a lot of companies. So obviously, when they think about their software buying, it's not only a tactical decision, but also something that relates to their strategy going forward. So this is something that obviously impacts their purchasing of any software. And with regards to AI ARR, it's not incremental yet. It's part of our overall ARR. And there is some -- when you look at the total number of the ARR that we achieved throughout the quarter.

Yes. Just like -- it is like an addition to the -- it is an addition and like customers pay for AI extra to their regular pricing, which makes us see that there is a lot of expansion opportunities. Even with the small ones, some of them pay way more than their seats-plus, but this is like an opportunity going forward.

Next question comes from the line of Samik Chatterjee with JPMorgan.

This is Mashu on for Samik. My question is primarily on Frontier. Can you kind of tell us whether this is a long-term kind of business for monday? Or is it a shorter-term dynamic to drive AI adoption like you've laid out? And then I know you've said it's too early to tell kind of what the margin implications are of Frontier. But if Frontier is margin dilutive, where else to get OpEx leverage from in the business against the 20% to 25% long-term margin target?

Yes. Samik (sic) [ Mashu ], this is Eran. So Frontier is definitely a strategic thing for us as a company. This is the way the customers are adopting AI in these days. If you want to do a deep change and make real impact for our customers, they need handholding in order to achieve that. What we presented in Elevate is a few case studies where we mentioned them that our customers are making like significant changes to their business, driving revenue 35%, reducing cost of operation by weeks or months into a few hours. These are not -- these are like real-world usage that we've seen our customers achieving with our help and support. And we want to expand this to the rest of our customer base. So we're going to expand monday Frontier. We're going to approach more of our existing base and new customers. It might have some pressure on margins, but I think the benefit that we will get in terms of licenses and AI consumption will be much higher than the investment that we're going to do in terms of cost.

This is Eliran. Maybe just to add to what Eran said. So when you look at us, we have -- we have a strong track record of improving efficiency. And in Q3 is a continuation of that. So while we are going to obviously prioritize top line growth over our bottom line, we are committed to improving our both GAAP and non-GAAP margin as the business continues to scale. And this is something that when we look at the longer term, we are also looking at margin expansion.

Next question comes from the line of Derrick Wood with TD Cowen.

This is Cole Erskine on for Derrick. In regards to the changing down market landscape, it sounds like maybe this has gotten a little bit worse in the last 90 days. So going forward, upmarket is obviously a big opportunity for you guys. How are you thinking about balancing investments there with investments down market and how you're looking to maybe remedy some of the headwinds that you're seeing right now?

Yes. This is Eran. So look, we're shifting our marketing budgets. I can also share that we've done an experiment with performance marketing to shift some of the budget to agentic acquisition. We spend, I think, at some point, about 25% of our marketing budget towards buying more agent customers. Unfortunately, that didn't convert as much as we wished.

But we continue to make those changes and experiments in the company. We're also shifting some of the performance marketing budgets to other channels. We're going to do more events, more field marketing, meet more of our customers face-to-face, invest more into headcount into the sales team and monday Frontier. So we're making those changes. We're not abandoning the self-serve segment down market, but definitely shifting budget to focus more on the 50,000 segment.

Our next question comes from the line of Brent Thill with Jefferies.

This is John Byun on for Brent Thill. Maybe just kind of related to your previous question, but wondering if you could discuss maybe some of the specific actions you're taking to offset the near-term operational headwinds you highlighted in the beginning.

And then another question for Eliran might be the free cash flow margin was much weaker than the operating margin. And I know there's an adjustment for restructuring. You mentioned also billings timing, but wondering if there's anything else that might explain that.

Yes. So just on the first part of the question, as I said, we're shifting budget in terms of marketing. We continue to hire in Q4 and into 2027 headcount for our sales team, headcount from monday Frontier. We see a lot of demand in our existing base and also the new customers that are approaching us. So this is how we're changing and adopting the company.

In regards to free cash flow, I'll leave it to Eliran.

Yes. I will just repeat what I said earlier. Cash flow is driven by ARR and the issues that we called out this quarter are waiting on ARR growth in the near term and also putting pressure on the cash flow. To call them out, this is the down market that remains a headwind. And obviously, we used to see the swipe of a credit card. And as we see less net adds coming from the down market, there is a timing with regards to the cash generation. And in the upmarket, we're seeing more deliberate buying behavior and longer sales cycles and some of the transactions are being pushed to the end of the quarter, the back end of the quarter, and also this is impacting our free cash flow.

Next question comes from the line of Alex Zukin with Wolfe Research.

This is Ivan here on the line for Alex. So maybe the first question, going back to the 50,000-plus ARR cohort, which you guys said is kind of the focus area. But like if we look at the numbers, I think the sequential net adds on the new business side are down a little bit and also the NRR in this segment is down as well. So can you maybe just talk a little bit about what's driving the net adds being lower? Like what are you seeing in terms of the acquisition?

And then on the NRR side, AI seems to be up in this cohort a lot. So I guess what is the offsetting effect that is putting pressure on this NRR? Are seats going down or what is going on there? And then I have a quick follow-up.

Yes. This is Case. We continue to see seat expansion in this cohort, which is obviously a positive indication. And as I mentioned earlier, our AI consumption is the highest in this cohort as well. We did see, as I've already mentioned, some challenges as it related to the reps, hangover there disruption. We're hopeful that we're beyond that here into this quarter.

And then typically, as you move upmarket, as I've said, you exposed to some of those buying cycles. The other thing is I just have to say, 3Q is not fun for any sales organization. I'd like to say it's the worst quarter of the year. So some seasonality plays into that as well, I think. So those 3 things are contributing to some of the softness, but we're hyper focused on this cohort giving us the biggest opportunity going forward.

And then the other question I had is, how are you guys thinking about monetizing sort of the headless usage-based features like MCP and API calls? And how much do you guys think there can be an upside from that? My understanding is that that's currently not being monetized.

So far, we've got over 75 million MCP requests from customers through our MCP and it continues to grow. Currently, we don't have any monetization plan for that apart from the monetization we charge for usage and fees. And currently, we don't have any plans to change that at this point.

Next question comes from the line of Taylor McGinnis with UBS.

Just first one, nice uptick in AI ARR. So when customers adopt usage-based pricing, could you provide a bit more color on how that's playing out in terms of impact to total contract spend? So are customers adopting credits at the expense of seats? Is it more additive to current seat spend? I guess, how are they responding to those changes?

It's Roy. So it's obviously hard to say because they have like one behavior with seats. And like I said, we see expansion in seat in general. But like -- it's generally an addition and it's recurring. And what they want is to see the results, okay? They want to understand it. They are -- they care a lot about measuring the output they get out of credit, and we are there to support them with that. And also, we've said that a few times with Frontier, give them really get in and help them drive expansion in the core use cases and really implement AI in the best way.

Next question comes from the line of Matt Bullock with Bank of America.

Maybe just a quick one on the down market. I think you mentioned that you saw some uptick in SMB logo churn as you're shifting upmarket. Can you help us think through some of the drivers or what you attribute that to? Are you allocating less customer experience resources as you're shifting more upmarket? Is it just a fogger and more competitive environment? Anything would be helpful there.

Yes...

Go ahead, Case. Yes.

Yes. What I see are a couple of things, and Eran can add to this if you'd like. Obviously, we're making a deliberate effort to shift upmarket. We also see that, that segment of the business is more sensitive to some of the macro conditions in the economy. And then as we've already talked about, those customers discover and buy software differently with AI. So those 3 things, and again, some of the risk had some consequences there, but some of that was delivered as we moved our focus upmarket. So those 3, 4 things definitely are contributing factors.

Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining. You may now disconnect.

Please welcome the monday.com management team to the stage.

Great. Thank you all for joining us at Elevate 2026, and thank you, particularly for management putting on this investor Q&A session. I really appreciate it. I'm Byron Stephen, Vice President of Investor Relations. To my left, I've got Eliran Glazer, Chief Financial Officer of monday.com; Eran Zinman and Roy Mann, who are Co-Founders and Co-CEOs of monday.com; and Casey George, our CRO. So this is an open format. I will remind everybody that we will be reporting our Q3 earnings here very shortly. So we'll try to keep this less focused on numbers and not talking about our Q3 -- upcoming Q3 results, but more on strategy and product as much as possible. Anybody who is listening to this on audio, we are live streaming this through our Investor Relations website. If you have any questions, feel free to e-mail us at [email protected], and we'll be happy to take those questions as well. So we've got 2 mic runners around here, and we'll just open it live for Q&A.

Can you hear me, okay? Great. Steve Enders from Citi. Thanks for hosting this great event today. Maybe just want to ask on a lot of focus on agents and trying to drive adoption. I guess, how are you thinking about the organic getting people to adopt it that way versus needing a services element? And I guess what are you kind of doing with Frontier and the services model to enable that for your clients?

Yes. Thanks for the question. So look, I think I'll start first with generally speaking. Feedback that we constantly hear from customers is that nobody is skeptical about AI. Everybody understands AI is a transformative technology. I think we're now in a phase of adoption where customers are saying, we've been on the side of let's do token max and just buying AI for the sake of buying AI. And we're now transitioning into a phase in the industry where customers are saying, we want to see return on investment. We want to see actual business impact, whether it's reducing cost or increasing the top line revenues. And I think there's a big gap between the fact that technology exists to actually adopting it.

We hear it across the board from customers, customers who bought licenses to use all kind of AI software, but saw marginal gain in terms of efficiency. And they understand and the feedback we hear is that in order to drive a real change in their own company, in their own business, they need deep adoption and guidance more than anything. We heard that feedback. What we announced in our keynote earlier this morning is first that we're establishing a new organization called monday Frontier. It's basically a combination of managed services, forward-deployed engineers. We're going to scale this massively going to 2027.

We see a lot of demand from customers who basically say, we want your experts to drive the change within monday, the deployment of monday. And what we also hear from them is that they want to do it on the platform because they have most of the data inside monday, the contacts. They have people already using the platform from across the company. And something we emphasized during our keynote is that we want people and agents working together. Having people build agents in a siloed way doesn't help. In order to drive real change, you need people and agents, data and context all in one place. So I think this is a big opportunity for us. This is the way company is going to adopt AI going forward. And this is exactly what we're going to focus on as a company.

Matt Bullock, BofA. We hear a lot about context being critical from software vendors. It would be great if you could help us understand the context that lives inside the monday platform, how you guys differentiate versus a lot of peers in that context advantage? And then high level, your strategy for API, MCP and allowing third-party agents to tap into that context longer term.

Yes. So I can take this. So yes, it is critical. It's like a bunch of things. It's context, but also guardrails, okay? Like access to data and governance, has just been with the CAB. That's like one of the #1 concerns in enterprises. Okay, I have my data in here, but like I really want to know who is accessing what, when and to trust that. So that's like another really critical element. And the context is work for us, okay? Like you want the agent to do stuff. It knows what all the team did and your project, your company, your role, what do you need to accomplish? It's already in there. And so that's a critical part.

And then it knows also to ask for other stuff that might be in other areas. And we see this as like the magic part, right? Like you ask it knows already. And like Daniel shared on the stage, he said, like what do you need to do for it? So nothing. And I think that's like a killer part because it's also -- it's not only that it's easy to use, it also allows us to create really good agents because we know before and we can analyze all the data ahead of time, so the agent can also suggest stuff. It also knows it and it's a better agent. It's not just like pulling the data. It's also like having the right agent to do that stuff and look in the data in a certain way. But that's one part of it.

And the other -- I'll answer your question of like external agents. We don't think we're going to be the only agent platform and it's all in one. There is obviously a massive advantage for having a suite that covers everything like we are doing. But there's also a lot of power in connecting to anything else, okay? So whether it's any other source of data that you can pull in and any other agent that you can pull in, and we're equally dedicated to opening up the platform because, again, like we said, the real value comes from having everything work together, okay? When I write something to you and your agent jumps in the conversation and whether it's on monday or not and have that context or another context, you can imagine like synergies happen and it becomes like a multiplier. So we can also provide all of it if like you're a smaller customer probably, but for the larger enterprises, we're going to be like a bigger, let's say, piece of the puzzle of all their AI infra.

And maybe just to be more specific. So today, you can use monday through the API or MCP, everything is open. You can use monday headless if you want. And also, you can import any third-party agent, whether it's on Claude, ChatGPT or even personal agents into the platform, it's going to be like any other user. And we don't distinguish between native built agent within the platform to third-party agents.

Arjun Bhatia with William Blair. Roy, around your keynote, I think, was highlighted change as like a pretty important theme. It seems like there's a lot of changing, obviously, in the environment in the market and then at the company also. Historically, like we've always looked at monday through the lens of work management, CRM, dev, et cetera, service. Is that still the right way to kind of think about the company? Or does that need to evolve? And are you going to become sort of AI agent orchestration? And is there a new sort of framework or product lens through which we should sort of view the business going forward?

Yes, it's a good question. I think it definitely evolved, I would say, specifically in the last year in 2 ways. One, I think historically, monday was perceived as just a project management software. I would say more broadly like work management, but a very project-oriented sense. I think all the use cases you've seen today and from customers and also I think Daniel highlighted in his own presentation, this has evolved tremendously in the last few years. People today, what they do on monday is to manage critical business processes. Now it's different kind of processes across the company that there isn't like an off-the-shelf software to do that. But if you have monday, flexibility and nature of how you can use the product, companies from different industries manage critical business processes.

I think in a way, this is a big opportunity also in the age of AI because as much as our goal as a company remains the same, which is to drive acceleration for businesses, improve their efficiency and revenue, I think the TAM has dramatically increased, not decreased because what now companies or our customers can do with the platform is much greater in terms of the business impact that they can generate on top of us. And just in terms of CRM and service, so also with CRM and service, we think this way. So they've taken a more independent path of how they evolve, also putting a lot of emphasis on agentic offering that we offer in each one of those verticals.

Yes. And from my perspective, it's like -- you can look at it like work management, has like -- it's always been a place to kind of connect the organization collaboratively. And you can think about it that it's like expanded a lot with agents because what they do is very general with us, and they can connect, like customers can connect a lot of different aspects of the organization. You can argue that other agents do the same. And there, I think like the, let's say, historical quadrants is in question, right, because the borders are kind of diffusing between areas, and that's also why it's important for us to first connect to other vendors.

And I think that's where the customers are that they are asking themselves what do we want? Like it's not as if AI was a technology that was born to solve the problem. It's now a technology looking for things it can improve. And I think that's what customers are doing. And with that, borders are kind of like blurred in a way for the different boxes. And I think we -- and that's what I think Eran mentioned is an opportunity for us in a lot of ways because we're entrenched in the white space and connectivity of a lot of things. And so if we go to market well, we'll capture that area.

DJ Hynes from Canaccord. So there's tons of great AI ROI examples today in the presentation, whether it was growth, productivity efficiency. To me, it seems like a lot of the examples you cited skewed a little bit more SMB or departmental. A, is that the right read for where we are today? And then B, like what needs to be the unlock to take that into the enterprise, right? Is Frontier part of that? Maybe I'll leave it there and any observations you have of kind of where we are in that evolution.

Yes. So I can start. So we actually tried to give a mixed use case study. So we had one from a 100-person company, one from a 10,000-person company. Actually, we're seeing way more adoption with our enterprise customers on AI agents, triple the adoption compared to SMBs. So I think we have a larger portion of SMB in terms of percentage, of course, from the total customer count. But in terms of adoption, willingness to use, willing to spend, we see much more potential in the enterprise segment. And also our strategy is very much focused on continuing to go upmarket and focus on enterprise customers. I think in a way, and Roy just mentioned, we just met with the Customer Advisory Board, speaking a lot with enterprise customers, they're actually thinking about monday as a potential solution to how they can adopt AI because their biggest fear is that if we give AI all the freedom in the world without guardrails, it can hurt their business, and there's a lot of concern around it.

Because we built our agents and our AI offering on the monday platform, which is enterprise safe and secure, they have full control. They know exactly what data is in it. I feel they feel much more confident, and I think monday Frontier will accelerate that because rather than saying, we trust the brand, we trust the company, we trust the product, people love the product. I need your help with those experts to find those use cases kind of make an impact on my business. I think this is our biggest opportunity, and this is the biggest segment we're going to go after in the next year.

The only thing I'd add there is we have to be successful at both. So the product organization is hyper focused on building what I'd call accelerators. So as an SMB customer, if you can give them 80%, they can get all the way home with the rest of the agent. That's one of the things we're hearing loud and clear. And as Eran just mentioned, as we move upmarket, it is very clear and our customers are screaming it. Please help me. I don't know where to start. I don't know how to do this. I need someone to ask the right questions, right? And so that little bit has surprised us, I would say that the enterprise has been such a huge growth opportunity for us for agents. But we got to do both.

Taylor McGinnis with UBS. Two-part question on Frontier because that seems to be the big announcement coming out of today. The first is, this seems like a bit of a change in strategy for you guys because if you think about monday historically, it's been very easy to get up and running. So one, could you give us a sense of how big of a lift that might be for you guys just in terms of costs and bringing all that hiring in?

And then secondly, to the extent that you guys have been trialing Frontier with some customers, I would love to just hear early feedback on what you guys are seeing with ROI and use cases being unlocked and payback periods. Just anything that you guys could give us a sense for what this opportunity could become?

Yes. I'll start and you can continue. Like just one point that is important for me to highlight. It's still the core of monday to make things easy and simple. And when I think you saw that in the presentation. It's critical for us. The Frontier part is to help them think about the business, the value and not about using it, it's about then we'll build something and they'll own it, okay? It's about holding their hand and helping them and be consultative in that respect.

Yes. I think what Roy is saying is exactly correct. I think the problem is not the user interface or the easiness to use. I think this is something we know very well how to do. I have a lot of confidence on that front. I think the biggest problem is to identify which areas in your business can be improved with AI and then how do you drive the change? Because it's usually from our experience, like it's not like one thing needs to change and there's multiple people involved, multiple risks involved, and it's very complex. Look, we've been very focused, working closely with our customers in the last 6 months.

Like I said, they love the brand, they love the product. They have good usage and already a lot of data in it. It's a big advantage. I think one of the biggest issues right now with AI -- with companies trying to implement AI is the go-to-market. It's a very noisy market. Everybody is saying the same message. And people don't know -- they feel fatigued about all the messages they hear around them. And eventually, they want to go with brands they trust. So I think it really plays to our benefit. We've seen a lot of success so far. This gives us the confidence to scale monday Frontier going forward to do more implementation like this. So we're going to hire for that this year and next year. We're going to put a lot of focus on that and offer it to majority of existing and new deals.

Great. I have one question online that's been submitted. It's going to be for Eliran. Without discussing near-term guidance, if growth remains below historical levels, how would you adjust spending to protect free cash flow?

So we continue to operate, as we said in Q2 when we disclosed the numbers, we continue to operate in a way that is efficient, meaning we're looking at growth. But on the same time, we're looking at our bottom line, continue to be efficient on the way we manage post-RIF, and we did the RIF and we announced it. And we said that we had a gross savings of potentially $100 million that we're going to invest the majority of it, but we are still looking at our cost components such as AI cost, such as investment in headcount. So we keep the balance of investing, but also looking at the efficiency metrics that we always look at.

Allan Verkhovski with U.S. Bank BTIG. Congrats on a great event. The keynote energy was phenomenal. I want to ask a follow-up question to one of the things you were talking about earlier, which is around your API limits. And so I think I heard that customers are now getting notified when they exceed their daily API limit, and you'll be monetizing API add-ons next year. So can you talk about the activity and factors you saw that led you to begin enforcing these limits? How meaningful can this be? And then lastly, can you talk about how the user mix has trended between monday.com users that are exclusively using your MCP versus broader AI capabilities inside of monday?

So first of all, we always had limits to our API as per plan so that haven't changed. But basically, when we think about pricing strategy, and this is something we announced a few quarters ago, we want to lean more of a hybrid model of seats and consumption. We unify that credit system. So whether you use monday Vibe or agents or AI calls within the board or AI workflows, it's going to take the credit from one pool of credit.

And we're going to allow a customer to not just pay for seats, but have a consumption model in addition to that. Over time, I think we'll introduce more and more of those capabilities into the product as we see that customers are leveraging the platform in different ways and want to allow them to scale regardless of their headcount. So again, like over time, I think it will shift, but I think we're very focused on a hybrid model right now. So we kind of might see more features like that coming into play.

Elizabeth Porter from Morgan Stanley. I wanted to follow up on the idea of the different quadrants and how AI is blurring some of the lines between these. And so my question is, does the shared AI layer change some of the cross-sell opportunity across work management, CRM, service and dev? And what are you seeing from customers as it relates to AI driving a willingness to adopt more products versus just monetizing more of those existing deployments?

We continue with a multiproduct strategy and all of our AI capabilities and our assets span across all of our products. So that's definitely an integrated point that our customers really like, right? So they can leverage what they built in work management and also leverage that in CRM and service, et cetera. So that obviously helps us as we cross-sell.

The second part of your question was -- remind me? Yes. And obviously, if they can use some of these assets across multiple products, obviously, their utilization goes up. So it is a self-fulfilling prophecy in a lot of ways, and we are starting to see that. We did accelerate some of our capabilities in CRM. So some of the agents that we built that were specifically for CRM came online sooner than our AI workspace. So those things have helped us in the reverse with our AI workspace platform. So it's, again, a self-fulfilling prophecy.

If I use Daniel's metaphor from his session about batteries being included, I think work management broadly is a more diverse product. Every customer is using it in a different way. I think the benefit of both CRM and service specifically is that we can build very specific agents and AI use cases that are built specifically for CRM and service. So it's a little bit easier to adopt for our customers, and there's a lot of potential with those specific agents as well. So it's a little bit of a different use case. I feel monday Frontier will be, let's say, more needed for the work management part where CRM and service, again, this is just our intuition is going to be more easy to adopt using the built-in agents that we offer.

Mark Schappel with Loop Capital. Regarding the rebranding strategy, I was wondering if you could just talk a little bit about what specific commercial problem the rebrand is intended to solve here. Would it be like limited enterprise awareness, the perception that you're just kind of a work management tool? Maybe just talk a little bit more about the rebrand strategy.

Yes. I mean, first of all, we feel -- we've been with the monday logo for a long time. This is after we rebranded from our previous name, which was the Pulse. And we're very excited for this change. It's not a major change as it was back then, but it's -- I think we feel that the company's strategy have evolved since then and the offering we could offer to our customers much greater than what it was. We've seen that from the use cases. We're seeing that from the feedback we get from customers. I think in a way, it will open up people to listen more to our story and kind of rethink what monday can be for them.

I think now with everything going on in the market, there's a lot of noise. I think it's a method for us to stand up a little bit above the noise, tell the monday story again. I think for a lot of customers that heard about monday in the past, they still perceived maybe as a limited work management or project management. I think in a way, the rebrand will help us reposition monday as the AI workspace for teams, open up new messaging and new ways to come to customers, they can do much more with the platform today, and also talk about the fact we're going to be there to help them solve and maybe find opportunities to leverage AI more. So I think it's more of a facelift, a way to tell story again, open up to new customers and continue going upmarket the way we've done in the past few years.

I have one more question online. I think this one is probably more for Casey. What most often limits expansion within enterprise customers? And what are you changing to address it?

I would say a lot of our opportunities as we move upmarket, as you can imagine, these enterprise customers have multiple platforms, right? So there's constantly rationalization going on with their vendors. And this is where we shine a lot of times. We typically win in these instances. So what typically happens and it slows us down sometimes is they've got to organize whatever they have today and figure out how they're going to move it to us. So to the extent we can help them accelerate that with our services to migrate over, that's great. As you can imagine, they build a lot of workflows and a lot of different platforms, and it's tightly integrated into what is a pretty complex infrastructure. So that's the one thing that slows us down sometimes. I don't think that's unique to us, but we do see that a lot. And we see it a lot because a lot of our expansion opportunity upmarket is taking out the competitor.

This is Ivan Radojicic from Wolfe Research. Maybe one question on the voice AI agent Harmony that you launched, which is obviously pretty exciting, and it's one of the highest growing markets out there, but also one of the most competitive ones with a lot of AI start-ups competing in there. So maybe what are you like seeing there with early adoption and early feedback? And then two, what do you think will be your right to win? And what differentiates you there versus other products -- products in the market? Is it like specific use cases or anything around the models? What is sort of the right to win there?

Yes. So it started with us making a decision that voice is a strategic path for us or like something a capability we like the platform to have. So we acquired OneAI, the start-up, and that's like the seed that grew Harmony. And essentially, the product has a lot of unique capabilities. We build our own models, like really small lightweight models that identify a lot of stuff really needed to have high-quality conversations and high-quality voice conversations.

Just to give an example, when someone answers, like identify it's a voicemail and not start talking into the voice mail as if it was a real person. So like we're really good at that and a lot of other stuff. And so we do have some advantages right now that we're winning over competitors in quality, but I think it's like more strategically something we need to own and to incorporate in a lot of other solutions and especially with the Frontier that we see a lot of the use cases. If you pull voice in, it kind of solves for -- opens up the door to a lot of other use cases and connectivity throughout the organization.

I'll just add to that, that 2 things. One, it's a separate website, separate go-to-market, Harmony.ai. So we separated that from the platform. It's a completely separate product. We -- one of our assets as a company, we have over 200,000 customers. So again, the go-to-market right now is very fuzzy. A lot of our customers express interest in voice agents. So I take this opportunity to sell that to our customer base.

And also, what we've seen from customers is a lot of the times that a voice call from their own customers become a process later on within the company. I feel there's a big chance of 1 plus 1 equals 3 here, integration with monday, making it each call, make it in a workflow.

So we'll also see some integration there. But they have their own go-to-market and they're approaching our existing customers. They have a booth here at Elevate, and we see a lot of interest from our existing customers.

I'll add one thing here as well. And I think those of you who know this industry and market with contact centers. I think everyone would agree it's probably the most ripe industry for disruption. And this platform is not an SMB platform necessarily. It scales all the way up to the largest customers. So we can support and go all the way up to the top of the market.

And as I just said, in a market that is ripe for disruption. And the stack that they have built in this platform is second to none. So it's a huge opportunity. We're super excited about it. And I'm even more excited about the fact that we can continue to support our upmarket motion.

Having said that, it is a startup. So we're just starting, and then we'll see...

Mashu Nishi from JPMorgan. Casey, you touched on this earlier, but with a significant portion of your ARR still from the sub-$50,000 customer cohort, how much are you going to continue -- start to offer Frontier to your lower scale customers? And on that point, we've been hearing from kind of channel partners that maybe the enterprise customers are receiving a little bit more attention in terms of standing up monday's AI products. Do you see that as true? And how much are you going to invest into kind of your base customer cohort?

The timing of your question is very good. We just had a couple of strategic partner meetings. And what I would tell you is our FTE motion is, for the most part, in place to support our mid-market and upmarket customers, right, enterprise. Obviously, we could not scale that for our 50,000 SMB customers.

We are leaning on and building a program and a model where our partner ecosystem supports those customers with prebuilt assets, obviously, services. This is what they do and it is what they do very well, and they're very interested in this space and building out a set of resources that can go deliver for those customers. So it's -- we're doing both, but through a different channel and our FTE motion really there to support our upmarket customers.

Yes. Again, like going upmarket is one of our most strategic things we're focused on in the company. When we went public in 2021, I don't remember the exact number, but I think we have a single-digit percentage of accounts that are $50,000 or above. We've been gradually kind of replacing our customer base, now over 40%, and we'll continue to grow that segment going forward. It's a strategic direction for us as a company.

I mentioned this earlier to a previous question. We see much more adoption of AI agents within our enterprise segment, 3x compared to SMB, relatively speaking. So we're very focused on that. Frontier is going to focus on that mid-market and above. And we see great adoption and willingness to adopt more AI and the ability to pay for that. So definitely more kind of focus on where we're going anyway as a company.

I have another question online for Eliran. How do you determine how much cash to retain versus return to shareholders?

So as a reminder, we did the buyback that we completed in Q3. It was an $870 million program that we announced. When we did the analysis, what would be the amount that we think is appropriate for us in terms of capital allocation, we said, okay, what it would be the requirements of cash in order to run the business, just an example for 6 months without interruption. What would be the amount of cash we need for potentially M&A. With regards to M&A, we said that we're going to look at tens of millions and not hundreds of millions. This is what the strategy that we defined.

And the third thing was looking at shareholder return by way of share buyback that we did. So this is the way we also think going forward in terms of the strategy and our execution plan. We're not thinking currently about any additional buyback, but this is something that if in the future, we want to think about it, then we have the flexibility. But the main purpose or uses of our cash is running the business and keeping some cash for potential M&A.

[ Rashid ] From [ Fund ]. My question is for enterprise movement. How much of enterprise growth you guys are thinking from coming from having more agents and seat usage versus more product penetration?

And a second part of that is kind of a dumb question, I like asking a dumb question. How do you define a true enterprise? For an example, if I have 200, 300 seat customer, but I have a lot of your products, so I could easily be spending $100,000 with you. So what is a true enterprise customer for you guys?

Well, we identify enterprise anything over 1,000 seats. Is that right, [ Paige ] 1,000. So I always play with that definition. So the definition has changed, but 1,500 is -- thank you -- is the amount that we identify for an enterprise customer. And I don't get that confused with like Enterprise tier. That's our highest tier. But if you see any stats where we break it out like enterprise, mid-market, SMB, enterprise is over 1,500 employees.

But if we -- there's 1 caveat there. If we do see a customer that has the potential based on how they're using the platform and they have growth potential, we do treat them as we would a customer that has 1,500-plus seats. So we have an ability to do that, and we do that on a regular basis.

I would add one more thing that changed now because of the new offering. Let's say, if we had a 1,000-people account and we had like wall-to-wall deployment like 1,000 people in the enterprise, we felt like we capped the ability to expand. Now with the hybrid model, the fact we have consumption, so we see this as a potential to expand. So it's no longer like an account that we kind of reached its limit. So we try to upsell it like agents and vibe.

So I think it's opened up a new vector for expansion that was previously limited by the amount of people within the enterprise, within the company. And now with the consumption, the hybrid model, it opens up new opportunity for expansion. So you might see like a mid-market account paying equivalent annual contract that an enterprise could only pay previously.

Howard, do you have questions?

Howard Ma with Guggenheim Securities. For what it's worth, I don't think the Pulse is such a bad name because you could kind of play on words. If it was a ....

Pulse. So it's not PAUSE. Yes anyways.

I digress. My question is, -- have you guys done an analysis on the incremental usage that the -- your platform scalability investments unlock? And how much of that usage you believe will take the form of agents? And then Eran, you mentioned pricing earlier, pricing packaging. Could you see that evolving into more agentic tiers?

Yes. So maybe I'll start with the pricing part. So look, I think everybody is trying to figure out what's the best way to price AI offering. I think we see this already -- I think it's a larger problem than just how monday's pricing this product because you see also the Frontier labs when you price per token and you manage to reduce the token cost, what happens to revenue and how this affects the run rate of those businesses? So we -- first of all, with Frontier, we try to think about more of a solution that we can tailor to our customers as opposed to just pricing on tokens and usage.

So we're thinking about also new potential pricing strategies. What I'm trying to say is, it's a moving target. I think we'll evolve a lot over the next year or 2 and learn what customers are looking for in terms of predictability, attaching price to results, and we'll adjust along the way. I think what's important to emphasize what I said earlier is that it's no longer just a seats model. It's a hybrid model, and we'll continue to expand it as we move forward. Just on the first part of your question, sorry, I forgot the first part.

Just measuring the incremental usage scalability some of your customers...

Yes. Yes, we heard that a lot today. Yes. So it's like a lot of them see that as opening the door for leaning 100% on us. Like some of them have maybe a few vendors, and they want to say, we want to go all in on you, and that's an unlock for a lot of those stuff.

And we see it also as a like critical path to agent usage and AI usage. Why? Because there will be so much more information in the system because of agents. We need the scale, we need the speed, we need all of that. So for us, it's like kind of like the same investment, both in enterprise and in the future of AI on the platform.

Great. As a reminder, if you have -- if you're listening online, please feel free to submit any questions to [email protected], I'll be happy to ask those questions.

I do have one for Casey. What are the biggest opportunities to improve rep productivity and what needs to change to realize them?

Yes. So very proud of the direction of our rep productivity. We've done a lot with our RevOps organization to build in processes that streamline a lot of the things they do, right? Obviously, our reps want to spend more time doing what they love, which is selling. So if we can remove as much of that as possible, it's a big help for us. One thing that we did, and you heard this in the keynote, you've heard this a couple of times, and I think this is the best thing we could have done as a company, definitely since my tenure started.

But we had an agentic week, right? And so we unlocked the power of the platform. We handed it to every individual in the entire company. We said, "Hey, go build. We're going to take the week off. We're going to go build assets. You come up with whatever you want." We gave them no guardrails whatsoever. And you'd be amazed the creativity and the things they thought of. And of course, a lot of the sales reps came up with processes and built AI capabilities that removed a lot of the administrative things they do, some of the things that they don't want to do again, they want to go sell.

And so we created a ton of productivity or capacity in our system by leveraging our own platform. The other thing I would tell you, and it's -- and I can say this, I've worked at and been a leader at a number of technology companies, some of the best in the world. I've never been at a company where everyone was a super user of what you were selling, right? So we all love the platform. We've used it before AI.

Now with AI, it just exploded. So our productivity on the back of us all using our existing platform has just exploded. So we've continued to keep a close eye on that. We no longer have to grow our sales headcount in a linear fashion to support our growth. We are growing our headcount, but we don't have to do it in the same linear fashion as we've done in the past because our productivity has increased so much.

It's also -- we did something really interesting. We connected the platform to BigBrain to our data source. And so it's like everyone out of the bat have access to their data and like all their sales data and everything. So they pulled up their own agents, reports, whatever they wanted. And it's also like to the previous question of context, that's like been a massive unlock of context for the stuff we build internally that we connected our own data lake into the platform. And it's a bespoke connection, but we're -- obviously, any one of our customers and we're going to help them do that as well.

Ryan Mac, Wells Fargo. So I want to talk about the fusion of AI through the economy. And I'm happy to say that my uncle who's a plumber in Philly called me today and said, we got to talk about this AI thing. And I was like, okay, we've broken containment. And he want to talk about voice, which was interesting.

But I guess I have a 2-part question for Eliran here, like just a lot has changed about how we think about AI, but how people are adopting it. So I know you're not giving financial targets today, but has AI usage or investment maybe changing the way you think about the financial components of monday's business could be going forward?

And then for Eran, for those customers that like have been on the front foot of adopting AI throughout their organization, whether through monday or larger AI labs or different AI features or implementations. How have you seen those more AI-forward customers change their monday implementation?

I will start. So with regard to internally how we use AI. So 1.5 years ago or maybe 14 months, we hired 5 people in the finance team. None of them was a financial person. They were project managers. They were developers. And what we did is we established a team that all -- everything that they do, they have to look at all the processes in finance now also outside of finance and automate the processes.

And there is a belief for some reason that you will get immediate ROI. I spoke with one of the investors here earlier, and I said that I'm attending all kinds of webinars. And people are saying, we are using AI.

And then there is a question, how many people did you let go because of AI and no one did. How many people you didn't hire because of AI, it starts to do something. So I think for us, there is a lot of work that we are doing. But currently, it's not reducing or it's actually replacing. I think there is a transition period of about, I would say, 18 to 24 months in which we're going to complete.

And people are having now more time to do things that are more strategic or they can be more knowledgeable about other things that working with other parts of the organization, replacing repetitive actions like I will give examples, customers' billings, matching with invoices and all kinds of manual things with regards to budgeting with regards to free cash flow modeling, with regards to the modeling of the business itself.

We now ran -- I will give an example. I'm proud of it. We worked on it for the past 6 months. We took an Excel spreadsheet, and we basically that was everything, the Bible of monday, and we now run it in different AI tools in order to like a statistical model, business model. It takes a lot of time.

So I would say by way of efficiency, people are doing much more with AI tools. There is a lot of work still involved. Over time, I think we're going to see the productivity gains coming very soon, but already, we're changing the landscape of how we operate in monday.

And that's the finance team, right?

The finance team.

I can share stuff we're doing in the R&D team. It's like about 30% of the code is now being written automatically by AI. And I don't -- like 100% of the code is being written by AI, but it's developers. Like 30% is just like automatic, like bugs coming in and cycle through like without anyone touching it. It helps there because we have the infrastructure to validate quality, okay? We had it all set up before. But in other areas, like Eliran said, we're building it and -- for our customers.

One anecdote once he told me about 1.5 years ago, he said 1 day, we sit in an earnings call and you and 7 agents.

I wanted to do it before.

I said -- it's the agent fleet. We see the legal aspect of that. I think it was the legal hurdles, not the IR hurdle.

Just on your second part of the question about how we see enterprises adopt AI, the ones that are actually kind of more forward-leaning. So look, definitely, some customers are more forward-leaning and more experimental with AI. Look, for SMBs, it's easier, but also they're less willing to pay, I would say, because the impact is not just great as enterprise companies.

With enterprise companies, we see some. But as I've said, we see a lot of them need guidance and help with adoption. This is why we put so much focus on monday Frontier, and we tend to double down on that. I will say we did see some customers building incredible things. The way we think about this is also how we can increase usage.

If you attended Daniel's session, one feature that we introduced recently was agent directory because a lot of our customers say, we built amazing agents. We want to share it with the rest of the company. Some customers build an agent that anybody in the company can ask it questions about the business, they connected to the data source. Some we build an agent that can process receipts and a lot of other things.

So we're trying to think about what kind of features can we build for enterprise customers to drive virality and to increase agent adoption, the same way we've done for other features we developed. This is one example, and we plan to launch more of these. So definitely thinking about how the product can encourage more people to create agents to use agents, other people are using.

If you think about it, this is a big problem right now in companies. Individuals might be very proficient. They might use Claude or ChatGPT or any other vendor. But when it comes to actually sharing what they've been building with other people, making it official, who's taking responsibility for that? For us, every agent we've built, we have a human owner that's responsible because AI is a great technology, but it will make it -- never take responsibility for mistakes.

You can trust me that was never going to happen. We need to be accountable. We, our customers, are accountable for the results, and they want to track what the agents are doing. They want to have a log of what's going on. So we -- the way we think about our product is exactly that, how we can give them the confidence of what they're doing, how we can drive virality and make this -- make the technology available to everybody in the organization.

I was wondering if you could spend a minute talking about any trends that are different or a high level if it needs to be on the SEM side. And I think maybe more importantly, looking forward, the -- what SEM was 10 years ago and what you built with BigBrain should probably be pretty useful for like agent-led growth, agents who are deciding whether they're going to use a product management tool to handle themselves and choosing monday.

And alongside of that is obviously the GEO stuff. But I'm just curious whether there's any effort inside the company or thought or you're seeing any early results from what I'm sure is work to do to surface in those places the same way you've surfaced really efficiently in SEM.

Definitely. First of all, we have the partnerships with Anthropic and ChatGPT. We've heard that 1 of the top vendors that they recommend in terms of integrations. We see our MCP usage and discovery exponentially growing month-over-month. So definitely, it's a new way to discover the product. We see very good conversions for that. At the same time, as we disclosed, I think over a year ago, we've seen the pressure on the top of funnel.

And I think the industry is going through a shift where previously it was about displaying ads for people doing search or surfing online. We're shifting now to more decision-making and agent recommendation. And I think over time, it will shift more towards that. We're very focused on that. We have teams working on that on those partnerships and discovery.

We'll see. It didn't offset the pressure we felt previously. But I think things will eventually will come into equilibrium of discovery. And of course, we'll do whatever in our power and our BigBrain engine to seize every opportunity that presents itself.

We are seeing internal like AI opportunities, like you mentioned, like agents optimize stuff automatically and also launch campaigns, multilingual like right off the bat, stuff we couldn't do before, I create like 100 ads and not one like nothing -- like almost no time. So those stuff, we're rolling it out now and also closing the loop.

So I think like we're going to see some gains from it. But again, like Eran said, nothing changed from what we reported before on the pressure in that area.

Ivan Feinseth, Tigress Financial Partners. Going back to Harmony, how do you see the product developing to gain the ability to increasingly interact? And where do you see deployments, let's say, like in apps eventually, even as early as next year, for example, phones are going to go from a regular operating system and using apps to a voice-activated interface that then the operating system drives the agents that interact and drive the transactions. For example, I think that's going to be like a huge opportunity for voice interfaces as well as the growing demand for voice interfaces in all levels of customer service.

Yes. So the question was -- I don't know if you want to get it...

Yes. I can start if you want. Yes. So again, Harmony is a very interesting opportunity. I'll just say that Harmony's product can do both things. It can do outbound calling. So for example, calling sales prospects and customers and also a very popular use case is inbound calling. So customers calling into the business. It kind of takes over the business phone number and route calls and basically work against the script of what you wanted to do.

I think over time, what we're going to see is like explosion of agents doing calls, agents calling one another and scheduling appointments and acquiring businesses. I don't know -- I'm not sure what's the end game of that. I just feel customers' expectations in terms of the level of service going to expect how fast we're going to get a response.

It's going to dramatically change and businesses that won't adopt such a tool will be left behind. So I feel we're going to see an explosion in that field. And like we said, like this is strategic for us. We acquired OneAI. We built it into Harmony. We plan to offer that to our customers. We feel it's a big opportunity.

We're focused more in the mid-market enterprise segment and not the SMB segment on that product. And again, like I feel it has a great potential.

We have time for one more quick question.

[ Ian McHugh ] with Jefferies. I guess I'm wondering just on the shift from the seat-based to the seat-based plus usage model, just like broadly, what inning we're in there? Any color on like number of customers that are using usage, if they're topping up their tokens? And then if there's been any pushback by customers of the new model?

Yes. So overall, it was very well received within our customer base. We are introducing improvements and adjustments as we move forward. A lot of the features we've built in the last few months is to provide more visibility into the way they're consuming their credits.

That was a big request from our customers. So in the admin section, actually, there's a whole booth here just for the admin section, pretty wild people really excited about that. We have like a full report of who consumes what per month over time.

We're also trying to experiment with credits to like give personal users credits and then overall company pool credits. So we'll adjust it over time. Overall, it was very well received. I think it's becoming more of an industry standard going forward. And over time, we learn how to properly improve the way we package it to customers. But definitely, customers' reception for that and willingness to pay have changed in the past year.

Yes. And but we still get the same feedback everyone gets that they want predictability, okay, which is hard to give them because it depends on usage, but like that's like a shift we see for everyone, okay, moving from super predictable models to a consumption-based one. But within that boundaries like they understand it, and we're solving for a lot of those issues like Eliran said.

Great. With that, that concludes our time. I appreciate management for making time for our investors, and I want to thank the investors, particularly for some of you that have traveled to be here. We really appreciate it.

For those of you in the room, we do have some swag in the back, if you're interested and some additional snacks as well. So thank you once again, and hopefully, we'll get to see you at the rest of the Elevate sessions. Thank you.

Thank you.

Good day. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to monday.com's Second Quarter Fiscal Year 2026 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.

Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for monday.com's Second Quarter fiscal year 2026. Joining me today are Roy Mann and Eran Zinman, co-CEOs of monday.com; Eliran Glazer, monday.com's CFO; and Casey George, monday.com's CRO.

We released our results for the second quarter of fiscal year 2026 earlier today. You can find our quarterly shareholder letter, along with our investor presentation and a replay of today's webcast under the News and Events section of our IR website at ir.monday.com. Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.

Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website.

Now let me turn the call over to Roy.

Thank you, Byron, and thank you, everyone, for joining us today. Over the past 9 months, monday.com has undergone the most meaningful strategic shift in our history. We moved from building software that helps people manage work to building software that does the work with people and AI agents operating together in a single unified workspace. That shift changed our product, our strategy and how we serve our customers. It also required us to change ourselves.

On July 22, we reduced our global workforce by approximately 20%. It was the hardest decision we have made since founding the company. The people who left were talented colleagues who built something we are proud of, and we are grateful for everything they contributed. We are also certain it was the right call. Our focus is not to protect where we are, but to position us for where we are going. Most of the savings will be reinvested in the people, products and AI. What changes is how we operate with fewer management layers, smaller teams and real decision-making authority and a go-to-market model built around the deeper customer partnership that AI deployment demands.

Our Q2 results reflect the strength of the business we are building from. Q2 revenue grew 22% year-over-year, while Q2 non-GAAP operating margin expanded to 17%. The record net additions of $100,000-plus and $500,000-plus customers in Q2 reflects the continued strength of our upmarket motion. Larger customers continue to be an important driver of our business, and we remain focused on deepening these relationships as we expand our AI capabilities. In July, we crossed $1.5 billion in ARR, a milestone that reflects the durability of our core business even as we reshape the company around AI. More telling than any single metric is that AI products adoption continues to accelerate and customers' response to our new direction continue to exceed our expectations.

I'll now turn it over to Eran to bring that progress to life.

Thank you, Roy. The clearest evidence that our strategy is working is what we are seeing in AI adoption. AI ARR doubled from Q1 to Q2 and now represents 17% of net new ARR added in the quarter. This is a meaningful signal, not because the absolute number is large yet, but because the rate of change tells us customers are actively choosing our AI capabilities, not simply inheriting them. Equally encouraging is the early reception to our new seat and credit pricing model launched in May. The adoption has been strong out of the gate, and customers are engaging deeply enough with our AI products to invest beyond the digital package. Pricing models only work when customers see value worth paying for. We are beginning to see that.

We are sharpening our focus on monday service and monday CRM, each addresses a distinct buyer, a distinct set of workflows and a distinct AI opportunity. Going forward, each will operate with its own dedicated product development, its own go-to-market motion and its own investment road map. We believe that given each product the focus and accountability is the fastest path to category leadership in both CRM and service management. Taken together, these moves reflect the same logic as our organizational restructuring, fewer things, more focus, done with greater conviction. We're not trying to win every category, but we are building an AI workspace for teams with focused products where we can generally lead and removing the complexity that was slowing us down.

With that, I'll turn it over to Eliran to cover our financials and guidance.

Thank you, Eran, and thank you to everyone for joining our call. Today, I'll review our second quarter fiscal year 2026 results in detail and provide updated fiscal year 2026 guidance. As Roy mentioned, we have had a strong start to 2026. Total revenue in Q2 came in at $365 million, up 22% from the year ago quarter. Our overall NDR was 109% in Q2. As we move through the back half of fiscal year 2026, we may see some modest pressure on NDR as we lap prior pricing actions taken in fiscal years 2024 and 2025. As a reminder, our NDR is a trailing 4-quarter weighted average calculation.

For the reminder of the financial metrics disclosed, unless otherwise noted, I'll be referencing non-GAAP financial measures. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Second quarter gross margin was 89% compared to 90% in the year ago quarter. Research and development expense was $83 million in Q2 or 23% of revenue, up from 20% in the year ago quarter. Sales and marketing expense was $149.4 million in Q2 or 41% of revenue compared to 47% in the year ago quarter. General and administrative expense was $30.7 million in Q2 or 8% of revenue compared to 9% in the year ago quarter.

Operating income was $61.1 million in Q2, up from $45.1 million from the year ago quarter, and operating margin was 17%, up from 15% in the year ago quarter. Operating margin in Q2 had an approximately 210 basis points negative FX impact, mainly from the appreciation of the Israeli shekel compared to the U.S. dollars. Net income was $65.5 million in Q2 compared to $58.3 million from the year ago quarter. Diluted net income per share was $1.48 in Q2 based on 44.4 million fully diluted shares outstanding. Total employee headcount was 3,169, a decrease of 42 employees since Q1 2026. We expect headcount to be down approximately 20% at the end of fiscal year 2026.

Moving on to the balance sheet and cash flow. We ended the quarter with $1.07 billion in cash, cash equivalents and marketable securities compared to $1.21 billion at the end of Q1 2026, reflecting $182 million of share repurchase executed during the quarter. As of the end of Q2, the entire $870 million authorization was utilized, and no shares are available for future share repurchase under the program. Adjusted free cash flow for Q2 was $52.3 million and adjusted free cash flow margin was 14%. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs associated with the build-out of our corporate headquarters.

Let's now turn to our updated outlook for fiscal year 2026. For the third quarter of fiscal year 2026, we expect our revenue to be in the range of $368 million to $370 million, representing growth of 16% to 17% year-over-year. We expect non-GAAP operating income of $57 million to $59 million with an operating margin of approximately 16%, assuming a negative FX impact of 100 to 200 basis points. For the full year 2026, we expect revenue to be in the range of $1.466 billion to $1.474 billion, representing growth of 19% to 20% year-over-year. We expect full year non-GAAP operating income of $230 million to $234 million with an operating margin of approximately 16%, which assumes a negative FX impact of 100 to 200 basis points. We expect full year adjusted free cash flow of $280 million to $290 million with adjusted free cash flow margin of 19% to 20%, which assume a negative FX impact of 100 to 200 basis points.

Let me now turn it over to the operator for your questions.

[Operator Instructions] And our first question comes from the line of Ryan MacWilliams with Wells Fargo.

AI and upmarket seems to be doing well, but new ads down market seems to be less strong. How would you characterize overall what you're seeing in your current demand environment?

Yes. Ryan, this is Eran. So I would say those are 2 separate things. One, in terms of AI, we see very good adoption across all segments, down market and upmarket. We're very encouraged from the adoption, the reception of the new features that we added, the capabilities and also with our new pricing model. And when it comes to the overall differentiation maybe between the down market and the upmarket, it's pretty much the same since we started the year. We don't see any meaningful change in demand environment pretty much as we expected and guided for. Our teams continue to execute well, and we continue to see very strong growth in our upmarket motion. So overall, we're very encouraged from the AI adoption across all segments, and the rest is behaving as we expected at the beginning of the year.

Yes. Ryan, this is Casey. I'll add a couple of things. we are seeing record net adds in our $100,000 and $500,000 cohort of customers. So this is an affirming data point that all the things we're doing to move upmarket is working. We are also seeing where clients are looking for help to embrace some of these AI solutions. So this is where we're really leaning in with our best resources getting behind our highest value opportunities.

And the other data point, I think that's very interesting, our gross retention is also at historical highs. So all these things together land for a very compelling enterprise upmarket motion.

And Eliran, I'd love to hear how you thought about guiding for the full year in this evolving environment. Did you take any additional conservatism in either the 3Q guide or the full year guide compared to last quarter's or previously?

Ryan, it's Eliran. So first, our guidance does not assume any rebound in performance marketing or top of funnel activity. This is in line with what we said in the past, and we planned the year based on the current condition with growth driven by main upmarket and enterprise customer expansion, as Casey mentioned, AI adoption, which is really encouraging and also disciplined investment and efficiency, taking advantage of some AI capabilities internally. We also mentioned that in the remarks that NDR is going to be around 108%. This we took into account and headcount growth is going to be down 20% when you compare to the end of 2025, the number. And these are the things that we took into account.

Our next question comes from the line of Arjun Bhatia with William Blair.

This is Alinda Li on for Arjun Bhatia. Customers with more than $100,000 ARR grew 37% and customers with more than $500,000 ARR grew 68%. What factors are driving the acceleration at the high end of the customer base? And what differentiates these customers from the broader customer cohort here?

So thank you for your question. This is Casey George. So what we were seeing upmarket, first of all, for monday, it's pretty fertile ground. We're still early in our upmarket motion. So we continue to grow and get into customers that were traditionally a part of. So that's one element. We obviously see expansion with our customers. So we land small and then grow pretty quickly.

The other thing we see is around vendor rationalization. So more and more customers are looking to consolidate vendors, and we play pretty well there as well. And then the last thing is around AI. Most customers want to have context around their AI solutions. And so they're deploying on platforms. And obviously, we think we're well positioned for customers who want to embrace AI to deploy on our platform and get help where needed from our resources. So those are some of the things we're seeing as we move upmarket.

Awesome. And what trends are you seeing in the sales cycle? Are customers exhibiting any kind of increased budget sensitivity or taking longer to finalize purchasing decisions?

We haven't seen anything material as it relates to sales cycles. I would say, though, when you move upmarket, you get exposed to their buying cycles. And traditionally, they are a little bit elongated, but we're landing larger as well. So I'm pretty pleased with how the sales organization is executing at this point. So again, no real material change other than just being exposed to buying cycles to larger customers.

Next question comes from the line of Scott Berg with Needham.

I wanted to follow up on what you've seen in the demand environment and maybe ask the question a little bit more directly. I guess what's changed in your view on the demand environment for the last 90 days? Because your updated revenue guidance is a little weaker than what we saw 90 days ago. And I think that was probably the heart of probably Ryan's question there, but would love to understand what the smaller differences are here.

Scott, it's Eliran. So the thing that has changed that we announced in July of 2022, we announced the risk in the organization. And obviously, there is a short-term impact throughout the risk that we took into account when we did the guidance. It also reflects the lapping of a period of strong growth and some near-term NDR pressure that we have seen due to the pricing increase that is now lapping, and we are being responsible. We always try to be responsible, but we do have a strong conviction on the trajectory, and the moderation of the guidance reflects our discipline and a moment of transition in the organization as we continue to move upmarket and also restructuring the organization.

Understood. And then from a follow-up question, as I look at your model this quarter and the last couple of quarters, your R&D expenses as a percentage of revenue have ticked up. Obviously, you all are going through a pretty big investment phase to the platform and add more AI functionality. But how long do you think the elevated R&D levels last? I think one question some of us are trying to understand in some of the other companies you cover along with monday is, is this a level you feel like you have to continue to spend at? Or is this kind of a short-term dynamic you think just to, I guess, level set the platform to a new set of functionality?

Yes. Scott, this is Eran. So look, we invested heavily into R&D. Like Eran said, we're building into the future. We're making big changes to the platform. We don't see meaningful increase going forward, but definitely, this remains a big investment for us. As Eran said, we're in a moment of transition. We're building new motions, a lot of new capabilities. We're executing like never before. We'll continue to invest in R&D, but I don't think it will meaningfully going to go up significantly going forward.

Maybe Scott to add to what Eran said, by way of a percentage of revenue because the Israeli shekel has been getting very strong versus the U.S. dollar. You also see some of the cost of R&D because the bulk of the R&D people are based in Israel.

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

Okay. Maybe just on the newly released plan and the rollout there, the AI functionality. Just maybe what have you seen so far in terms of how customers are adopting it and how their behavior is maybe changing as that rolls out?

Yes. It's Roy. So we see 2 patterns that we expected, like existing customers and new customers. Both are adopting nicely with slight difference between the 2. And we also see something that is encouraging to us that they top up and reach the end of their consumption bucket and then add more, which is, for me, like the best indication that they get value and want more of it and are not just using what they have on the original plan.

Yes. Maybe just to add to what Roy said, before the changes in the product and the pricing, the only way customers could expand was to add more people and more seats. This is the first time since we added the new agent that we see customers expand not only on the seats for humans, but on AI consumption. And for us, this represent a new vector of growth that didn't exist before, which is part of why we believe so much in our strategy and why we believe so much this is a fundamental change in how the company will be able to grow going forward.

Okay. That's good to hear. And then maybe just on the Work OS side and a bit of a slowdown in terms of -- I guess, the slowdown in terms of the expansion on that product set. Just I guess, what's maybe kind of happening within that product area across CRM or service or dev? And then like what impact do you kind of expect the new management structure to have on those -- on that adoption curve moving forward?

Yes. So look, part of the reason why we've done the reduction in force is just to change the structure and to allow our teams to move faster. We want to give our teams more autonomy, reduce management layers. And part of it was to also allow CRM and service to execute faster, to reduce dependencies with other teams, give them more autonomy. They're also adding a lot of the genic features to their own products. And work management essentially became the AI workspace for teams. So there, we're moving to a very high velocity, adding new capabilities for our customers. So overall, we feel more focused. We feel the teams are moving faster, making more significant changes to the product. And we feel this is extremely important now in the time of transition.

Next question comes from the line of Howard Ma with Guggenheim Securities.

Your AI ARR doubling quarter-on-quarter is encouraging, but I'm sure you guys have considered that there's still a lot of uncertainty out there and how monetization will ultimately play out. So my question is, as you look ahead, do you think that the new mandatory AI pricing model that, that will be an absolute benefit? Or does it come at the expense of lesser expansion? Is that something that you've baked in? I imagine it's also introducing more buyer uncertainty. I mean if it's working, it will force decision against other alternatives, right? And if I put some numbers to it, too, it should ultimately -- if you can monetize AI drive NRR stabilization. So if you can talk to -- I know there's a lot in there. But if you can talk to it ultimately will show up or when it should show up more in the -- in metrics like NRR.

This is Roy. So it's still early days, okay? We're still experimenting a lot, and I agree with you that like there are a lot of like new experiments also in the market with the pricing and how this behaves. Since we are in the early days, I can't tell you when this will stabilize or increase NRR. But what we do see from the very early numbers, what I mentioned, is that customers do reach the end of their allotted quota and then they increase it and top up, which is, like Eran said, a new vector for us that exists. Again, still small numbers, really encouraging results, and we can't like predict right now how it's going to play out in a year or so.

Okay. And I guess as a follow-up for Eliran. I also want to ask about your guidance philosophy. Can you walk us through the decision not to pass through any of the Q2 upside to the full year? I imagine that's probably one scenario you considered. And if you ultimately believe AI adoption will be net additive, why not flow through at least part of the beat just even as a positive signal?

Howard, so as I mentioned earlier, with regards to the philosophy, it hasn't changed. A few things we took into account, I said earlier, so we're observing the near-term cost of the 20% workforce, and this is something that we had to take into account because there is going to be a short-term impact. And we did not want to lay an aggressive top line raise on top of the execution risk that hasn't fully played out yet. We said that at the beginning of the year also with regards to the top of funnel that we took it into account. And we prefer to underpromise and overdeliver through a transition. This is a big transition for us and raise revenue guidance now and with some uncertainties that we still have throughout the year.

Next question comes from the line of Derrick Wood with TD Cowen.

I guess first on the go-to-market side, could you just give us a sense as to how much change you've made on the direct sales side of the house? How are the go-to-market playbooks going to change? And how do you think about any disruption risk or how long it will kind of take under any kind of new strategies?

Yes. Thank you for your question. So consistent with what we've been doing for the past year, we've been aligning our resources, our best resources upmarket to capture what we think is a significant opportunity. And this is playing out, as I mentioned, in some of the record net adds with $100,000 and $500,000 customers. As I mentioned earlier, we're also seeing where clients need help. They need help to deploy some of these purpose-built apps, AI apps, agents to go solve real business problems. So we're going to accelerate the 4 deployed engineer model we have to capture this opportunity and again, align our best resources behind our highest value opportunities.

So as it relates to what we're doing upmarket, this is just a continuation with some acceleration. We're also training the sales team as we go. So there's not some big training event that has to happen. We've been training the sales team, and we think they're pretty fluent already with the AI story. So this is just incremental to what they're doing today. So we're well positioned, and we're going to continue to invest upmarket supported by our FTE motion.

Great. Helpful. And then just on the 20% headcount cut, you're raising operating margins a couple of hundred bps. You said you're going to reinvest in that. Can you just double-click on exactly where you want to reinvest, how we should think about the margin trajectory next year in light of all of this? And maybe any early thoughts on top line growth trends for next year as well?

So Derrick, it's Eliran. So we said that the annualized cost savings from a growth perspective is expected to be $100 million. We said we're going to invest the vast majority of it is going to be into talent, product, AI. Obviously, there is a lot of cost related to AI. So this is something that will reduce, obviously, the savings.

With regards to operating margin, we expect it to expand next year. We already raised it for fiscal year 2026. This is only because we have partial year benefit of the restructuring, but we expect it to continue to grow going into 2027. And with regards to top line growth, once we complete the restructure, obviously, there is going to be together with the expansion of AI and the training of the salespeople, we expect it's also going to impact positively on our top line next year.

Next question comes from the line of Raimo Lenschow with Barclays.

Perfect. Can I go back to -- on the guidance side? So you talked about the short-term risk from the changes and then the pricing coming off. I mean the pricing coming off, you kind of should have known. So that's not new, but like -- then more on short-term rest on the headcount change. Did you -- and it's maybe for Casey then, did you change anything in terms of how you approach it? Or was it just the overall risk to the organization? Or did you just have some resource reallocations that needed to be happened, so you have less sales capacity, et cetera?

Ryan, so basically, when you do a change like this in our organization, it's a big transition, and we don't know what would be the impact on the short term across the organization. So we wanted to be more responsible in the way we looked at it throughout the year. We wanted to be cautious on how we accelerated expectations. Therefore, we thought it's the right thing to assume a certain impact on our numbers, and that is why we -- the bid that we did in Q2 did not flow throughout the rest of the year.

Yes. Okay. Perfect. But no change to how you sell it's just like more just overall disruption.

Correct.

Next question comes from the line of Brent Thill with Jefferies.

I just wanted to follow up on Raimo's question. I guess, are you making changes on the go-to-market where you're reducing the go-to-market team in a material way? Because, again, I think it wasn't very clear to his question what is actually going on in the go-to-market.

Yes. The restructure of the go-to-market organization was primarily focused around non-quota carriers and downmarket resources. And we believe this will afford us the opportunity to accelerate our investment upmarket, which includes our new 4 deployed engineer model and obviously continuing to grow our sales resources upmarket, meaning mid-market and enterprise. So we expect our headcount for that cohort of our sales team to grow for the year. And then the other thing I'll mention is we do see an opportunity for us to leverage our incredible ecosystem of partners to support us down market, which is a much more efficient sale.

Okay. And then on deferred revenue, it hasn't been down in the last 9 quarters. It was down sequentially. What's driving that?

Brent, it's Eliran. We're looking at RPO as the metric that we use to show the strength of the business and the health of the business. And this is the measurement that we refer. With regards to calculated billing, we said in the past that this is not an imperfect measure for monday due to the fact that we don't recognize it on an accrual basis, but on a cash basis.

Next question comes from the line of Elizabeth Porter with Morgan Stanley.

I just wanted to double-click on the NDR. You mentioned stepping down a little bit as you lap the pricing and previously adjusted the 108% could represent a floor. Just wanted to get a sense for what gives you the confidence in that level today? And where do you see kind of more upside from stabilization expanding kind of AI, multiproduct adoption? Or is there any risk kind of downside pressure from seat growth in the smaller customer trend remaining under pressure?

Thank you, Elizabeth. It's Eliran. So as we said, for fiscal year 2026, we expect NDR to be 108% due to the fact that tier upgrades and multiproduct expansion has been slightly below our original expectations. But we are encouraged on the flip side of it, we're encouraged by the gross retention that is at historical highs. We are seeing a very good momentum on the retention side and expansion upmarket, as Casey mentioned before. We are still seeing a double-digit seat growth year-over-year in enterprise. And this is, we believe, will offset some of the negative impact that we are seeing from the lapping of the price increase that we took into account in 2024 and 2025.

Great. And then just as a follow-up on the AI ARR doubling sequentially. Can you just help us break down kind of where that acceleration is coming from? I know you have some products like Vibe, AI Blocks and Sidekick. But you also mentioned that customers are starting to buy more of the credit packs. Has that monetization started to come through at all? And when do we think that, that could start move the needle a little bit more?

Yes. Elizabeth, this is Eran. So first of all, I'd say it's amazing to see that the focus on our strategy in building those new capabilities is starting to pay off. We see customers not only adopting like a onetime one-off AI usage, but consistently using AI capabilities, increasing their spend and just putting them as part of their workflow. So we're very encouraged to that. The adoption is much deeper in terms of how customers adopt AI. Mostly is customers adopting AI. Some of it is customers expanding. But just the rate of change quarter-over-quarter is very encouraging. The usage patterns are very encouraging and the value that we get, and the feedback is also very encouraging. So we're very happy with this trajectory. As we said, it's still on absolute numbers, it's still small. But for us, it's more about the trend, the vectors that we've seen and the fact we have much more room to grow given those changes. So we're very encouraged by that, and we see great momentum.

Next question comes from the line of Alex Zukin with Wolfe Research.

This is Evan here for Alex. Can you unpack a little bit sort of the down market demand environment and overall performance? So in the past, you've talked about sort of no touch and touch segment within mid-market and SMB. And our understanding was that after Q1, you expected a bit of an uptick in 2Q from the touch segment because that's sort of seasonally stronger. So how have these 2 parts of down market performed relative to your expectations, especially in the context of total sort of sequential ad revenue being a little bit weaker than in the past?

Yes. This is Eran. So look, we have nothing new to report regarding paid search. The top of funnel environment remains volatile, but pretty much in line with our expectation. And we continue to manage performance marketing cautiously. Obviously, if we see an opportunity to expand, we'll do that. But currently, it's pretty much in line with our expectations.

Next question comes from the line of Taylor McGinnis with UBS.

Maybe first one is, if I look at net new ARR from CRM, dev and service, it was a bit softer than what we've seen in past quarters. So could you just share some of the drivers behind that in the quarter? And as a second part to that, it looks like AI is moving in the right direction. So with the focus amongst your customers on AI and maybe that being a priority, I'm curious if that's causing disruption elsewhere. So as they're adopting it, how is that impacting appetite to expand seats and acquire additional modules elsewhere?

Yes. Taylor, this is Eran. So look, the slowdown reflects 2 dynamics. One hand, we have softer conditions in the down market, like I just mentioned, new product adoption is more concentrated. And we are doing a deliberate shift in terms of the go-to-market towards more enterprise sales and upmarket motion. Also, of course, our AI pivot is significant. The products themselves are changing, adding new capabilities, adding Agentic capabilities to their own products. So there's some near-term headwinds.

But look, the way we see it throughout the whole company and not just specifically for the product, we believe what our investors are looking for is for us to make the right decision towards the future to make right calls for the trajectory of the company, and we're not trying to optimize the short term. So we feel we're doing all the right things, building new capabilities, improving the product, improving the platform. And it's more a thing of a timing than a trajectory. As our AI capabilities embedded across our new products and our enterprise motion, we expect those product ARR to reaccelerate going forward.

Perfect. And then second one is just on the AI product. So it looks like by my math, maybe that's around 1% of ARR today, but you've seen good momentum in the last 2 quarters. So any sense on where you think that could go in 1 to 2 years as a percentage of ARR? And what do you think is going to be the most needle-moving products or credit adoption that drives that?

Yes. So as we mentioned, the AI ARR is doubling quarter-over-quarter for some quarters already. It represents currently 70% of our net new ARR. And even more encouraging than the revenue is the actual adoption and the feedback we get from customers. So it's accelerating. It's real. It's growing out really nicely. We're very happy with the trajectory. And look, obviously, we want to be confident. And as much as we'll be able to share going forward, we will. We continue the migration to C plus credit pricing model. We see deep consumption patterns. And as Casey mentioned, we're changing our go-to-market to support it as well. And we also plan to add more AI capabilities. So obviously, if this will grow over time, we'll be able to disclose more details. But again, what we look at is not the absolute number, but the trajectory and the speed of growth that we've seen so far.

Next question comes from the line of Billy Fitzsimmons with Piper Sandler.

I'll maybe ask a little more directly than one of the prior questions. As we think about the expense structure of the business with the 20% reduction in the workforce, can you just help us think about the most impacted roles at monday by OpEx line versus parts of the business you're maybe protecting or continuing to invest in? Based on the prior answers, it sounds like you're continuing to invest heavily in R&D and those teams are moving faster because of Agentic coding tools and new processes. What about on the sales and marketing line? Because it sounds like the guide was partially due to expected disruption there, but it seems like there's kind of 2 things here, new sales processes around product changes and then the headcount changes. So to be a little clear in one of the answers to the earlier questions, quota-carrying sales reps at the high end haven't changed, right? You're continuing to make investments there and that line is -- or your headcount there is growing, right?

Correct. So from where I sit -- this is Casey George. So from where I sit, we have the luxury of a lot of things to sell. My job is to make sure that we're all focused on the right things at the right time. And so our strategy is to get behind where we see the biggest opportunity, and that is really upmarket. As it relates to the resource action, we concentrated on a couple of things in the organization, as I mentioned earlier. We flattened the organization, one; two, we focused down market where it's not as an efficient sell, where we think we can leverage partners more. It's non-QC roles, nonquota-carrying roles as well. So we got aligned around the right opportunity in front of us. And at this point, it's -- we're just going to continue what we're doing and driving value with those higher-end opportunities.

Makes sense. And then a quick one. Eliran, what are you assuming on FX for the full year guidance for revenue?

So for revenue -- Bill, it's Eliran. So for revenue until now, we didn't report anything. It was below 100 basis points. Now we expect -- we expect it to be around 100 to 110 basis points tailwind on the revenue side. And -- but on the cost side, due to the fact that the Israeli shekel is very strong versus the U.S. dollar, we expect between 100 to 200 basis point negative impact on the cost side.

Next question comes from the line of Matt Bullock with Bank of America.

It sounds like there are obviously a lot of changes on the go-to-market and product development side to go after the CRM and service opportunity. But could you provide an update on the strategy for monday dev? Is that being deemphasized at all or not so much?

Yes. So monday dev is still a product that we sell and offer, but definitely because of the changes in the dev environment where a lot of the way developers work has changed over the past year. Obviously, this product got less focused. We're kind of rethinking our strategy there. Maybe we need to add more capabilities, maybe we need to change the trajectory of the product. So it's still a product we support and sell. But definitely, it's got a different focus than CRM and service. Going forward, we might have different plans for that, but that's currently how we view it.

Got it. And then not to beat a dead horse here, but I wanted to follow up on the enterprise sales rep count because that's been growing, I believe, consistently above 20% for the last years and even in the first quarter. The risk wasn't concentrated in quota-carrying reps and you're continuing to invest there. But would you expect that 20% plus headcount growth for the enterprise sales reps to continue? Or should we expect some deceleration there?

Overall, we expect it to be flat.

And our last question comes from the line of Mark Schappel with Loop Capital Markets.

Regarding your forward deployed engineering initiative, could you just talk a little bit about how your FTEs are actually being deployed today? Are they primarily an implementation resource? Are they a sales enablement tool? Or are they just more kind of part of the kind of product delivery model?

Yes. Mark, this is Eran. So look, this is a very strategic change for us because we see a change in the market. Customers want to adopt AI, but a lot of them don't know how to do it. They want assistance. They want the company to help them deploy products. And we see this as a very strategic for the company. Like Casey mentioned, it's a new motion. We're building the team. We have already a few initial successes of implementation with customers. We're planning to scale that significantly. I think this will lead eventually to us landing bigger deals, more enterprise contracts, have a deeper relationship with our customers and also approach buyers on like more senior buyers in the management layer. So it's a strategic shift for us. It's not going to be overnight. We have a large sales force. but we're committed to that. It's something that we feel is right for the company. It's right for the current environment in terms of AI, and we'll scale it as fast as we can going forward.

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

Welcome, everybody, and thank you for joining us. It's a great pleasure to be with Roy Mann, Co-Founder and Co-CEO of monday.com; and Eliran Glazer, Chief Financial Officer. Roy and Eliran thank you for joining us. For those that aren't familiar, you guys mind doing a quick introduction of yourself and let us know what problems monday.com is solving today?

Yes, sure. So Roy Mann, Founder, CEO of monday.com. So monday have around -- Eliran, our CFO.

Yes.

And monday has around 250,000 paying customers. We have customers for -- across over 200 different business industries, and that's really everything. And what they use us for is to manage workflow and really orchestrate their entire operations. So we have like even manufacturing plants, people manage clinical trial research on monday, manage all kinds of operations. One of our largest deployments is like 80,000 people. So that's like massive company managing their whole complex project management and everything around it across everyone.

So it's like it can go into expansive depth and scale while also being super simple. So like everyone can pick it up, use it, manage their own stuff. And that's why we win because it's like really simple. People love it, employees love it, but you can also get into a massive depth. And recently, we changed the vision of the company from managing work, managing stuff to doing the work, which is doing it with AI. And quite recently, we launched our agent platform. But before that, we also had like a vibe coding on top of that platform, which has like been really successful and was our fastest adopted product and other AI capabilities. And now we've completely changed the vision and the pricing and everything to go AI.

You hit on the exact topic I was going to hit on next, which is you're transforming to an AI work platform, right? It's not work management with AI features, but a redefinition of what your platform is and what it's supposed to be used for. Can you just in your mind, why now, why this magnitude of the rearchitecture? And what are you enabling customers to do that they couldn't do in kind of the previous paradigm that you had?

Yes. So like we call it sprinkling AI on top of your product. That's what everyone has been doing so far. And unless you're like all in there, then it's very hard to also change the go-to-market to go after like the new kind of demand that is coming, okay? Like AI is going to be a way bigger market than software in terms of spend and like the value it brings. And obviously, it's the future. We have to go over it. So no sense of like not going all in. And all-in means, basically, we also changed the pricing model. Like if until now, it was seat-based, now it's also consumption-based. But -- and like new customers have to have AI in there. Why? Because this is who we are.

Like we have agents, it's the base of all stuff, but we enjoy the core offering of monday of being a massively scalable and easy-to-use orchestration system. So essentially, if in the future, everyone will have an agent or 2 or 10 doing work for them, then monday is the best place or we're building everything that is needed for people and agents to work together in large companies, okay? So you have auditing, you have monitoring, you can know that the work has been done, account for it. Also, the pricing is super important and the accountability on the pricing and seeing that you can monitor and perform. So we're really taking the agentic world into what we really know well, large enterprises and like collaborative areas.

Yes. You said that AI is going to be a way bigger market than software. I think there's a lot of people who think that if you look at some of the valuations of these private LLM companies, and you might think that as well. But you -- I think you say from a practical standpoint, you have 250,000 customers, right? What gives you confidence in that statement that AI is going to be such a bigger market? And then as a second piece, when you look at some of your most innovative customers, the ones who are leading in the most, how are they using it? Because I imagine like you said you kind of have to go all in even from the customer perspective.

So I think around 6 months ago, I started the monday agent labs, which is like our initiatives to like be on the frontier of agents. Like I built personally like my background is development. So I'm back to that. And I build the whole agent harness and everything myself to kind of test it and we're testing stuff out. And if you come and work with my teams right now in the labs, it looks like Black Mirror. We have like really -- it's like fun like you have a group of agents and people working together. They have names. They have personalities like we know which one does what and how and whatever.

And they also are part of the conversation, and they're doing a lot of lifting on anything, okay, really. And like we build a lot of them on OpenClaw, which is very cutting edge, very unstable and less reliable. And the idea of the labs is to take the -- first of all, to be in the cutting-edge environment and like to know what to expect, and I can give you some really cool examples of how is it that agents and people work together when it's like really working well, but then also translate it into what people can adopt, because I don't think people can adopt OpenClaw, It's very unstable. It breaks all the time. It's like unpredictable, very hard to like harness to whatever you want to do. So that's the stuff we fixed and brought into the monday agents.

So I can give you like one cool example of like a story sort of.

Go for it.

So in the teams I work with, we developed a lot of like tools and experimental tools and whatever. So I had my agent in the group and someone else has had their agent. And I asked their agent to do something for me. And she said, like, okay, I can't because I don't have that API endpoint to do what you asked. And then my agent on the team who has access to the repository told her like, hey, I can develop that for you. So she went on, developed the API for that agent, gave her the link. She used it and did what I asked her. And then they were high fiving each other in the group. "Oh, thank you. You're amazing." I know, it's great that you're here and like whatever, like it's woah.

Okay. So like I asked for one thing and then another agent listened in, not to what I asked, but what she said and did another thing I didn't intend for like thought about and then they work together to solve the problem and come back to me with what I asked for. So I think this is kind of like a scenario that you would expect to happen for everyone. We're not yet there. People are not yet there. expectations are not there. And it's also hard to harness and adopt.

And that's what we built in monday, and that's the future we're kind of building towards that you'll have those environments where they can talk, that they have the same information, the same infrastructure of connectivity to other platforms and API and everything. And it's out of the box. Like if you need to connect your agent to everything, you're not going to be able to do it.

So think about the IT connecting your data system into monday, which it's already connected, okay? We have the APIs for everything. But now you can make it accessible for agents. So any employee building an agent, boom, it's accessible to all the data that they need from their sales force, from projects, from their financial system, HR system, anything, okay, and is able to do way more stuff out of the box. And I think those kind of stuff is like when you scale those solutions and make them accessible for everyone.

That was a great anecdote, and you weren't joking about the Black Mirror analogy at all there. Hopefully, it ends better than those episodes usually end. I want to turn it over to [ Jaden ], but one quick question for you, Eliran. Q2 guide for -- was at the midpoint of $355 million. I think it's about 1% sequential growth from Q1 to Q2, tighter than you guys have kind of historically guided. creates a little bit of debate. If you're bearish, it's not as good as usual. If you're bullish, it's room for you guys to kind of beat and it's a good conservative guide. How would you frame it? And what do you think is the biggest swing factor in terms of like what the potential outcomes are?

So in terms of how to frame it is last year, just as a reminder, we announced 2 years ago a pricing adjustment. It was in effect last year, contributed around $10 million in average per quarter. This year, we see less of this impact, obviously, because it's lapping at the end of Q2. So this is the main reason why Q2 versus Q1 on a consecutive basis is only 1%. But we also look at a year-over-year basis. In addition to that, the fact that we are -- the business model of monday, we called it out that we are seeing softness in the lower part of the business, the SMBs.

But on the other hand, we see very strong momentum on the enterprise, but there is also timing differences because when you have the SMBs and they swap a credit card at no-touch, you get ARR and revenue immediately. But when you have it as an enterprise business, it's towards the back end of the quarter, and therefore, there is a timing with regards to when the revenue is being recognized from ARR. So these are the main 2 differences.

What we believe to be a potential strong momentum going into the rest of the year and will drive potentially. Positive news is continued success in the AI. AI in Q1 was 10% of net added ARR, which was mainly driven by vibe, which was very successful, monday AI Blocks and sidekick. And in addition to that, the strong momentum that we are seeing within enterprise customers expanding -- continue to expand definitely with the new offering that we have.

Yes. Putting some of those AI products into the broader financial picture of the story. On the Q1 call, Roy, you disclosed that AI was approximately 10% of net new ARR, adding you to a smaller list of software companies that have very much made that AI contribution clear. Where are we on that AI adoption S-curve inside the monday base? Is the typical buyer still experimenting with just a single agent? Or are we looking at production deployments across the broader portfolio?

So I think we're in the early stages of those adoptions. Even with vibe, which is like a vastly popular product, we still see a lot of room to grow. And with agents coming out, like we we're super positive towards the future and hoping it will be like even more faster adopting than other stuff, basically, because the UI is super simple -- sorry, to generate an agent, you just need to -- like if you want an agent to, let's say, go over your e-mails and send you a weekly summary of something, you just -- that's what you ask. Go over my e-mail, create an agent and go over my e-mails and whatever, and then you'll ask you like you want me to connect your Gmail and you'll click a button, that's it, it's done. So it's that simple.

If you wanted to do any kind of other work, that's exactly how simple it is still to create one. And it's inherently connected to everything in Monday. So if you wanted to automate like the stuff you have with us, which is the core work. We already have all the data you have of your operation, your inventory, those kind of stuff. So imagine what you can ask agents to do and automate those stuff. So I think that's where people will start, and it's huge values even for SMBs, mid-market and enterprise, it's like -- I think it's going to bring massive value to customers. So...

I want to add maybe one thing. I think this is probably now we are about completing 12 months, the first cycle of native AI companies versus SaaS companies. There was a FOMO in the market. Everybody was trying to buy consumption-based then people bought a lot of AI and suddenly, the budgets are becoming very significant, and we need to manage the cost. So now experimenting, they would want to see immediate value. They want simplicity. They want to see how it helps them to do what they want to do from doing the work or from managing the work, to doing the work. And I think we're coming at the right time on that front with the S-curve. This is why I think it's the beginning, as what Roy said. And now people or some of the customers are going to be more confident in what they want, and we have the right offering.

And what gates or changes the acceleration of that slope of adoption? Is it the product? Is it feature parity that they need to be there? Or do customers just not really know what they need yet or even how to build what they need?

Yes. So I feel like it's the last thing you said, like basically, everyone was minding their own business while AI came. It's not something that people say, oh, I really need it, and then we invented that technology. So a lot of them are, I think, being forced to kind of deal with it, okay? And if last year, everyone talked about it, this year, they have budget and are testing stuff.

And a lot of them might still get like resistance from the teams, okay, because you'll say, oh, I have an agent to do that. And I'll tell you like it's not doing good enough job because I feel my job is at risk, okay? So -- and I think next year, what I expect customers to be more forced into doing it. Why? Because if you're not, then you're behind professionally. This year, they can still make excuses, okay? And on a positive way of saying it, they still don't really understand what they can do with it. So we see a lot of requests from us for customer success for FDEs, like forward deployed engineers to actually come and help them do those transformation.

So we do see a lot of positive approaches, but I think it's not that easy for them to adopt. I can share that when we released agents, we had Agent Week in monday, inside monday, and we created over 5,000 different agents in 1 week with crazy stuff, and we're going to release all the examples and everything so customers will have ideas of what they can expect and do, but people build amazing stuff that would otherwise would not have been done, like going after all our -- like thousands of web pages and looking for like broken links and broken things, like going and checking our brand across all our assets and that it's aligned. Creating like research on competitors and updating the battle cards for sales agent real time.

Like there is a news in the morning, it's in there, okay? So they're always up to date. That's something that like inherently is not. And like I can go on for like so many different stuff we've built. So I think that's inspiring. That's going to be inspiring for a lot of customers to try stuff out and like really try and get the value out of.

Yes. I mean the agentic opportunity here sort of seems incredible. Eliran, from a modeling perspective, for people who are trying to figure out what that looks like within the monday business, is it right to frame the AI contribution as addition on top of seat growth or seats? Or is this something that eventually sort of rebases the whole book and maybe we remove a seat or 2, but we add 10 or 20 agents on top. Sort of walk us through how that looks.

Yes, sure. So on the short term, definitely, it's an addition. So the pricing model for new customers, it's going to be comprised of seat-based plus tokens. You have to buy credits in order for you to use monday. And we are agnostic on what AI product you're going to use. You have 1,000 credits, use them the way they deem appropriate. This is also important for customers. I mentioned earlier that many of them that only looked at the consumption, suddenly lost track of budgets.

As a CFO, I see now the usage of AI automation. It's becoming meaningful. And I have to tell OE develop less, I'm joking. But this is the idea. So I think in the short term, definitely a combination of the 2. It will give customers predictability, visibility, some control on the budgets. And as we continue to scale, we are going to board onboard gradually the existing customers that have seats. So yes, it's going to be a combination of the 2. And potentially on the longer term, it might be skewed towards consumption because some of the -- you will have the seats number may be going to be steady, but consumption and usage of AI will be more significant. But it will happen, I think, in the mid- to longer term rather than immediate term.

Right. No, that combination that you talked about is actually a great segue into the next question, which is on May 6, you announced something very interesting, the seats-plus-credits hybrid model. We are very much watching this partly because if you can pull it off, it's a great example for what software companies should be doing to sort of help to fight against this "software narrative" going around right now.

You framed the shift on the call, Roy, by saying, as AI takes on more work for our customers, our business grows with it. Can you walk us through the customer side mechanics here? How does the buyer decide what credit pack to commit to? What do true-up cycles look like? And I know it's extremely early here, but like what is early customer feedback on this addition or this new model?

Yes. So I can share anecdotal stuff. It's like you said, really just launched like 2 weeks ago. So I wouldn't draw any lines into the future from this. But like -- we saw a few customers on the self-serve side that like have been with us for 5 years and have not scaled to other products, have not scaled in seats because they're like that size and just now adopted agents and started like digitizing their whole company. And like -- so that's amazing to me, because it looks like something people -- specific people really want everyone wanting on the promise.

Like I personally feel that like in, throughout my years as a geek, I saw all the sci-fi movies and they promised us like AI sidekick, right, like the positive ones, right? You have Jarvis and Cortana and those kind of stuff. And I think we have that now. And I think people want that. It's not by accident that we have that in movies, because you want that site kick that does the work for you, that you ask stuff that is smarter than you, that is like more capable in some ways and, let's say, less -- more socially awkward in other ways and like has less stacked. But like that's exactly what they are. And it's amazing that we have that technology.

And I think like people will find that easier to adopt and ask stuff. And those agents that we have today have 2. And essentially, OpenClaw kind of like introduced that, and we took that and put it in our agents, which is 2 very fundamentally different qualities than what we had until now in AI, which is self-improving and self-reflecting. You can ask the agent, what did you do yesterday, okay? What calls did you answer? What like stuff you did you do? And he'll know what he did and can summarize that, create reports on it, do whatever you want.

But then you can say like, but yes, I see you did this call and it's not good enough, okay, because you didn't do this and that and you say, oh, okay. And look into its own code and see what it can improve and improve it. So it's self-improving. So I think those 2 qualities did not exist like, let's say, 6 months ago. Where you had like agentic systems that are automatic and you needed to -- if you wanted to change the unit, you needed to go into the code and the architecture and figure out what the problem is and change it and then monitor the quality or the output because the agent wouldn't know what it's doing on its own.

So I think that -- those 2 stuff create like a completely different product offering that is way more easier for everyone to like adopt because you talk with the agent, like you talk with the person, you train them for the job, right? Like this is what you need to do to answer, you test it, like you ask questions, see what it answers, and say, why did you not know our pricing, let's say, if you want an agent to answer customer tickets. And he says, because I don't have the information on pricing. And say, okay, so like go into that website, whatever take it and then you ask it again until you are happy. And then you say, okay, how can I connect you to the website that you answer customers. So like you work with the agent on the job that you're training the agent for.

Right. Continuing on this sort of Sci-fi Black Mirror, Jarvis' sort of topic, Agentalent.ai is something -- one of the more exciting things that you've launched this year. For those of you in the audience that don't know, it's a managed marketplace where enterprises can effectively hire AI agents built on AWS, piping into Anthropic and similar models from the other vendors. I've scrolled through it a couple of times and seeing an agent that can basically carry out a task for you, that you would otherwise hire a human to do is incredibly interesting and sort of makes it feel a lot more real. So can you talk about where Agentalent.ai fits into the monday platform? And how customers are adopting things like that?

Yes. So basically, Agentalent is something we launched out of the monday agent labs. So it's an experimental thing that we see across the whole ecosystem and not necessarily the platform. Specifically, what it does is like it's a marketplace. And if we have these type of agents that are self-reflective, self-improving, why not hire them? Because you can ask them for the job. So that's what we did. We -- and what is the easiest thing any company can do to adopt AI is open a job position, right? Like everyone knows how to do that.

So we said, okay, if you have no idea what AI is, you don't want to build your own agents, but you have a job for an agent, list it with us. And then we opened it up for the whole, let's say, open source or agent building community, which a lot of people just like bought OpenClaw and other [ clause ] and whatever that they will apply for the role, and we have some positions already occupied to do social stuff, to do like checks and external stuff. And it's really cool to see companies who have less idea about the technology and having a lot of people with a lot of knowledge about the technology bridge the gap and connect together.

So essentially, you're not -- we built a whole screening process for agents and that we open source. So if you hire an agent to do your social media, you want to test them out and create a test and then like have the best agent pass the test and have scores. So we kind of like give the test out for free as an open source for everyone to build agents that like comply to that. And it's really cool.

And what I expect is that people will also sign up for monday, build agents and be able to apply for their jobs. So that's how we tie it into a whole ecosystem. But again, it's an experimental thing. It's like an idea into how we see the future of agents and people working together.

Anecdotally, I don't know if like half related, but I saw today a tweet, and I think it's real that the big accounting firms -- I did my training at KPMG, are looking for more AI experts than CPAs or potential accountants, which is something that is speaking about talent and developing and everything. It's -- I don't know if I should be scared or worried or...

You're old enough to not be scared.

Turning to more of the human side of the business. Headcount is a big topic in 2026 in this sort of agentic world. How is monday thinking about heading into 2026? Where are you adding people? Where are you holding flat? Where you maybe rethinking, any sort of thoughts there?

Yes. So we said that we are going to be -- in the last earnings call, we said that we are going to be flat as of Q1, so around 3,200 employees by the end of the year, places where we're looking at -- so we are very efficient on the G&A. We don't have -- if you look at the G&A as a percentage of revenue, it's 8% or 9%, depending on the quarter. We're efficient there. So we would probably look at things like sales and marketing. Still, we are above 45% as a percentage of revenue. There are room for us to make some improvements there. For example, SDRs and BDRs rather than having people who are calling customers, we will have -- we already have agents that are doing it. We developed it internally. It's also related to some of the things that with the acquisition of OneAI.

We're looking at product. We're looking at engineering, marketing. These are the places. And obviously, we're looking at the business support function, but the bulk of the adjustment, if required, is going to be around S&M engineering and product. And what we're doing is because we also care a lot about the culture of monday is that in the past, automatically, whenever someone was let go or someone left, we used to replace him. Now we're doing -- we're saying, wait, before we replace someone, let's just look what we can do and potentially have efficiencies with AI. But we do care about having our people -- the people and the person in the loop of the AI. So it's going to be staged.

And we're also making massive changes in how the organization work. We're flattening the R&D team, breaking it out to smaller teams. They work faster and like on a lot more things because of it, we see a lot of efficiency there. And we're also having new roles, which people don't talk about. So like FDEs forward deployed engineers, we didn't have until now, but customers really want them to help them drive adoption of AI and stuff. So that's like a new position that we're scaling on, which is like awesome. So yes.

Is there a tangible way to sort of quantify that return you're seeing on incorporating AI internally?

So it's a really good question because you see some people do what they do best being done like 100x faster, okay, like building a landing page. It's now like instant and doing way more stuff and analyzing things and finding more problems we didn't before, which saves a lot and you do a lot more. So yes, we definitely see it and everyone like using agents are like ecstatic because it's like, wow, I'm like on a different level in my career.

The question is, I feel like the real value is when you remove the person from the loop, meaning that like I'll give an example. If we have a salesperson and he has a document with the customer that they need to go through like a legal doc. And you need a legal person to go over it. And now an agent goes over the doc and like red lines it and stuff. If the legal person needs to approve it, then it's not really AI. Why? Because like the salesperson still needs to wait. If it's completely automatic, then boom. It's like it changes the whole business dynamic because now I can do that on the call with you. Okay. Let's give it to the agent, boom, and like I got a red line back and like this is fine. This is not. Let's continue conversation, you close it in one loop.

So -- and imagine the customer has the same agent on their side, and they like -- you might have a person in the middle, you let the agents talk and close the deal. So I think those kind of stuff we'll start seeing soon where the legal team is in charge of like building the agent that does the red lining rather than have the lawyer empowered by doing instead of like 2 hours work, like 5 seconds. So I think that's like -- it looks like [ 1,000 ], but it's not, if it's in the loop and it's -- so I think also for us, but also for other companies, that's coming for a lot of like nondevelopment areas. In the R&D, we've had like massive changes.

Right. I know we're coming up on time, so I'm going to pass it back off to Arti.

Yes. To close Roy and Eliran, if we're sitting here a year from now at the next conference, what is one thing that you think the audience will come to appreciate that they might not at this current moment? What are you seeing that's going to surprise them?

I think the one thing that I think is -- everyone is talking about it, but it's super not clear is how much organization will resist the change, okay? Because you bring an agent that does something and no one wants to be replaced. And in developers, I saw it that they're hesitant and then they like the technology and they go on top of it and use it. But I think in a lot of positions, they're not able to do it, okay? Because if you're adopting it, then you're being replaced.

And so I think we're going to see a lot of that, and it's interesting to see the future that we envision that like you want the productivity and you don't want the organization to resist. You want to take them along with you to gain the upside of like producing more, selling more and doing more business rather than slowing yourself down and saying, oh, that's not good enough, okay? So I think like there's going to be a lot of adoption challenges that the right products need to solve and also scalability and our ability to like monitor and a lot of those kind of stuff rather than just the technology itself and how good or like cool it is, real-world problems in adopting AI.

Yes. Do you -- how does that friction get resolved? How are people going to adopt this technology if it's going to replace them?

So I think unless you bring them along, they're not -- they're trying to resist as much as they can. I have a lot of stories for like in the past for like companies that could just like not do the change. Like they saw the companies tanking without the change and still couldn't do it because like everyone resisted. So I think that's like, you need to bring people along with you, and I think we're going to introduce a lot of and find good practices of how to do it.

And I think going around seeing ads of like, is your job secure? Why hire people? Hire an agent. I think that's like not the right approach for anyone in this adoption of this technology, okay? You need to bring the people along with you to make the change and like show them that this is the future of their careers. And they need to make it, okay? It's like not everyone can make it. like you need to adapt yourself as a person into this new technology and being able to make the change. But I think employers need to give that option and path for people.

Yes. Awesome. Great note to end on, and thank you very much for your time and insight.

Thank you.

Thank you.

Good day. My name is [ Dedra, ] and I will be your conference operator today. At this time, I would like to welcome everyone to monday.com's First Quarter Fiscal Year 2026 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.

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 2026.

Joining me today are Roy Mann and Eran Zinman co-CEO's of monday.com; Eliran Glazer, monday.com's CFO; and Casey George, monday.com's CRO. We released our results for the first quarter of fiscal year 2026 earlier today. You can find our quarterly shareholder letter, along with the investor presentation and a replay of today's webcast under the News and Events section of our IR website at ir.monday.com.

Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements.

Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website.

Now let me turn the call over to Roy.

Thank you, Byron, and thank you, everyone, for joining us today. Monday.com delivered a strong start to 2026. Q1 revenue grew 24% year-over-year reflecting sustained demand for our platform as enterprises consolidate their work infrastructure. We generated a record $49 million in operating profit, demonstrating that our growth is increasingly efficient.

Adjusted free cash flow margin expanded to 29%, underscoring the financial durability of our business model. Gross retention continued to improve in Q1, reaching historical highs for the company, reflecting how deeply monday.com is embedded in how our customers run their businesses.

Enterprise momentum continued to build with 42% of ARR coming from our customers with over $50,000 in ARR. A record number of new customers with over $500,000 in ARR and average contract values continue to expand, reinforcing that the consolidation of work Instructure onto monday.com is a durable enterprise-led trend. The market is also responding to our AI product.

Approximately 3% of our net new ARR in Q1 was driven by AI, a figure we expect to grow as our AI offering expand and mature. We are also seeing the benefits of AI play out in sanmina.com itself. Since 2025, AI has driven a 32% increase in our output per developer and a 38% reduction in product time to market. AI gives our engineers the bandwidth to be more rigorous about the architecture, edge cases and long-term maintainability.

The result is a team that ships more and breaks less. We believe this is an early but meaningful signal of what AI native engineering looks like in practice, and we intend to keep pushing on that frontier.

Now let me turn it over to Eran to walk you through some of the significant progress we've made in our AI-driven products during the quarter.

Thank you, Roy. At our Investor Day last September, we laid out a fundamental shift in how we see monday.com. Not a platform that helps teams manage work, but one that actually does the work for them. Last week, we do the most significant step in that journey, changing our core offering from monday Work Management to monday AI work platform. This is not a feature release or a rebrand.

We have rearchitectured the core of our platform around single belief that work should be orchestrated between humans and AI agents at scale from a single system of records. AI agents that execute work flexible software that adopts to how teams operate and enterprise-grade governance all grounded in monday DV are single source of truth that give AI the context to drive real outcomes.

This quarter, we took that foundation further with Money DB 3.0, delivering 100x increase in scale from 100,000 items for our board to over $10 million with high performance low latency execution designed to accelerate AI adoption rather than constrain it. A stand-alone AI tool that can automate a task, monday can run an entire operation.

And with more than 250,000 customers already running their work in said monday, we have a data advantage that no point solution can replicate. Alongside the platform launch, we're making an equally important change to how customers pay for monday. We recently introduced a new seats credit pricing structure for new customers, moving to consumption-based pricing that aligns what customers pay with the value AI actually delivers.

As AI agent takes on more work across organizations, revenue expands naturally without requiring additional seats purchases. We plan to allow existing customers to opt in to this new model with enterprise customers receiving complementary AI packages to support adoption at scale. In addition to that, we are excited to announce our agreement to acquire One AI.

Their team spending years, solving one of the hardest problems in enterprise AI, making voice agents that actually work in production environments. With this acquisition, we are bringing native voice capabilities directly into the AI work platform, extending the way agents can engage with customers and teams. We're not managing monday.com as a company defending its position.

We are rebuilding it as the company that defines what an AI work platform means for businesses. Q1 was a strong step in that direction. We remain focused on execution, and we look forward to demonstrating continued progress throughout 2026.

With that, I'll turn it over to Eliran to cover our financial and guidance.

Thank you, Eran, and thank you to everyone for joining our call. Today, I'll review our first quarter fiscal year 2026 results in detail and provide updated fiscal year 2026 guidance.

As Roy mentioned, we have had a strong start to 2026. Total revenue in Q1 came in at $351 million, up 24% from the year ago quarter. Our overall NDR was 110% in Q1. we now expect overall NDR to slightly decline by the end of fiscal year 2026. As a reminder, our NDR is a trailing 4 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 89% compared to 90% in the year ago quarter. Research and development expense was $78.4 million in Q1 or 22% of revenue, up from 19% in the year ago quarter. Sales and marketing expense was $158.2 million in Q1 or 45% in revenue compared to 48% in the year ago quarter.

General and administrative expense was $28.6 million in Q1 or 8% of revenue compared to 9% in the year ago quarter. Operating income was $49 million in Q1, up from $40.8 million from the year ago quarter, and operating margin was 14%, similar to the year ago quarter. Operating margin in Q1 had an approximately 190 basis points negative FX impact, mainly from the appreciation of the Israeli shekel compared to the U.S. dollar.

Net income was $56 million in Q1 compared to $58.4 million from the year ago quarter. Diluted net income per share was $1.15 in Q1 based on 48.9 million fully diluted shares outstanding. Total employee head count was 3,211 an increase of 56 employees since Q4 '25. For the remainder of fiscal year 2026, we expect head count to stay largely flat, reflecting the productivity gains AI is already delivering across our organization.

Moving on to the balance sheet and cash flow. We ended the quarter with $1.21 billion in cash, cash equivalents and marketable securities compared to $1.67 billion at the end of Q4 2025, reflecting $553 million of shares repurchase executed during the quarter. As of the end of Q1, approximately $182 million remained available under our existing share repurchase authorization program. Adjusted free cash flow for Q1 was $102.8 million, and adjusted free cash flow margin was 29%.

We now estimate that the accelerated share buyback executed during Q1 will reduce full year 2026 adjusted free cash flow by approximately $20 million. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, plus costs associated with the build-out and expansion of our corporate headquarters.

Let's now turn to our updated outlook for fiscal year 2026. For the second quarter of fiscal year 2026, we expect our revenue to be in the range of $354 million to $356 million, representing a growth rate of 18% to 19% year-over-year. We expect non-GAAP operating income of $46 million to $48 million with an operating margin of 13% to 14%, which assumes a negative FX impact of 100 to 200 basis points.

For the full year 2026, we expect revenue to be in the range of $1.466 billion to $1.475 billion, representing growth of 19% to 20% year-over-year. We expect full year non-GAAP operating income of $185 million to $191 million, with an operating margin of approximately 13%, which assumes a negative FX impact of 100 to 200 basis points. We expect full year adjusted free cash flow of $280 million to $290 million with adjusted free cash flow margin of 19% to 20%, which assumes a negative FX impact of 100 to 200 basis points.

Let me now turn it over to the operator for your questions.

[Operator Instructions] And our first question comes from the line of Raimo Lenschow with Barclays.

This is Damon Kogan of for Raimo. Can you help us understand the new updated NDR guide. As I think about the Q1 results and the full year guide, it seems like stabilization throughout the business and then I look at the NGR guide and print across your cohorts. It just seems like there's more stability in results than maybe the guide. Any help there would be great.

Ryan, this is Eliran. Thank you for the question. So there is a lot of retention and expansion side that we are very positive on. Gross retention is at historical highs. We're still seeing double-digit fee growth year-over-year in our mid-market and enterprise customers, 34% of our 50,000 customers court has adopted more than one product. It was 29% in Q4. So we're seeing a lot of positive signs.

As a reminder, we are lapping the pricing actions from 2024 2 years ago in 2025. And they increased our NDR by 12%. We're going to lap this at the end of Q2 or during -- sorry, at the end of Q2. And we don't believe that expansion or new adoption will now be enough to offset some of the pricing growth over that we have seen in the past.

Got it. And I guess, can you just provide an update on the top of funnel demand that you're seeing now compared to the end of 2025. I know the initial 2026 guide did imply some degradation to telefunnel. So I guess just what is the updated full year guide now implied maybe compared to Q1.

Yes, this is Eran. So look, we have nothing new to report with Pay Search. Overall, the top of funnel environment remains soft, but it's pretty much in line with our expectations that we gave in the beginning of the year. I would say that on top of that, ACV of new lands is increasing across touch and no touch. So we've seen high-quality leads coming into the platform. And we continue to manage performance marketing cautiously. So pretty much in line with what we expected.

Next question comes from the line of Josh Baer with Morgan Stanley.

Congrats on a good quarter. I wanted to talk a little bit more about the new sets credits pricing model. Maybe to start, like can you just provide a little more context on how exactly that works? And then also wondering what are the impacts in 2026 from the new model?

Yes. Josh, this is EranSo maybe I can start and then hand it over to Casey. So look, we're very excited for this change. It's the biggest change in the company history we're changing the core offering of our products with the new native agents within the platform, customers be able to do the actual work in addition to managing work. Part of that change is that new customers will have 2 vectors of expansion.

One with seats, meaning the more people they add, the more they pay for seats that the same way it used to be. But there's an additional factor on top of that for AI credit. So the more they consume a credit the more they pay, the more they're going to use our agents and other functionality. For existing products, it's going to be gradual.

I'll let Casey kind of cover the change we're going to do with existing ones.

Yes. So we spend a lot of time -- oh, hi, Josh, by the way, we spend a lot of time of getting feedback from our customers. And what we've rolled out is very consistent with how they want to consume value in our platform. As you heard from along with our new customers, it is -- it comes with seeds plus credits. Our existing customers, it's going to be an opt-in motion.

So we'll work with them over the next a couple of years as they look to move into this model. We are going to incentivize those customers to move to the new model, especially with our touch customers, where we spend a lot of time with them building use cases and finding new ways for them to consume our platform leveraging AI.

Got it. And so for -- as far as 2026, are there any assumptions on the impacts from the new model, either from the new customers who are on it? Or I guess also, what are the assumptions as far as the adoption from existing customers? And then just last on this subject...

It's Eliran. So Josh, it's still early stage. -- we will have a much clearer picture in the coming months, and then we can provide update or more color on what we are going to see. For now, we didn't assume any significant impact or any impact on the numbers.

Ader with KeyBank Capital Markets.

I guess if I can just quickly follow up on that pricing model as well. Are you guys actually seeing either slowing in employee head count or seat growth at existing customers? Or are you just kind of making this change in anticipation just to decouple yourselves from being so dependent on seats. I'm curious whether it's forward-looking or you're actually seeing it today?

Yes. Thank you for the question. We have not seen any degradation in demand relative to seats. We have seen those customers looking to use our platform leveraging AI. And that's why we've launched this new platform.

So overall, the demand continues to be strong for new seats, and we actually see acceleration in some of the emerging markets where we've invested. So upmarket is strong. Seat demand continues to be very solid, and they're taking on new workloads, leveraging AI.

Great. Okay. Actually, if we -- I'll stick with you. The larger lands from the direct sales motion with larger trying to land a little bit more upmarket. Curious how that's trended? I know the 50,000, 500,000 seats, but curious whether that's driven by new lands or are people kind of graduating up into that segment of the customer base.

Yes. And it's both. We saw double-digit growth for both mid-market and enterprise segments relative to seats. -- our ACV grew 22% year-to-year. Gross retention at historical highs. And obviously, with RPO, we see some seasonal decline in which we're anticipating. It's pretty much in line with what we've seen in prior Q1 performance. Pipeline is very strong. As a matter of fact, our March was 1 of the strongest months we've ever had.

So as we move upmarket, as we've talked about before, we get exposed to the buying cycles of those larger customers. So we see less linearity in the quarter, but we're delivering in the last month of every quarter seems to be consistent.

Next question comes from the line of Mark Murphy with JPMorgan.

And I'll add my congrats on a very nice performance. So with the understanding you had a solid quarter and the gross revenue retention improved. Could you share what you are observing within the customer base in the last several months as Claude code and Claude cowork have proliferated glue pretty rapidly.

In other words, I'm just curious what are your customer conversations like regarding those products, they do bring forward some advancements in cogeneration, no, low code, agentic. Wondering if some of your customers are maybe using them in conjunction with monday or maybe something that you just don't see popping up too much?

Yes. It's Roy. So yes, we see a lot of comers having purchased Claude. And what our vision is, is having agents and people work together on the same platform, and that also includes external agents. So if you noticed, we opened up the platform completely to have any agent that is even external to monday sign up on itself and get an account a seat. .

And so that touches what Eran said on the hybrid model of having agents, whether they are external, they will have seats and our internal agents, which work really well within the monday platform and also external with other platforms. So this is the future we see, and that's like perfectly aligned, and it's great to see adoption of AI.

Maybe I'll just add on top of that. I think there's a big difference between people using blood or equivalent products on their own and using that around work with other people in cooperation -- and we see a lot of customers.

I think agents essentially -- it's an amazing technology, it can be used in different ways. But I think where we shine is exactly how customers want to adopt it in a way that's kind of integrating their work, working with other people and native agents built within a work platform. So I think a lot of our customers are looking for a solution like that. We're going to can leverage AI and put out into their existing workflows.

Okay. And then as a quick follow-up, the stat that shows 10% of new ARR in Q1 was driven by AI. It's pretty impressive. Could you drill down into the stats so we just understand how are you driving that? What are you counting in there? Is it monday vibe? Is it the agent for AI workflow? is it the AI credit pack, if someone grades to Pro or enterprise and you deem that to be AI influenced or relating to some project, would you count something like that in there, et cetera?

Yes. This is Eran. So when we say AI contribution, we mean direct contribution, not contribution made possible by AI. Currently, it doesn't include an agent's product because it was just released about a week ago.

Currently, what drives the AI revenue is our existing offering, including 5 AI blocks psychic and so on. Obviously, with agents, we have expectations for this going forward, but it's still early days.

Next question comes from the line of Howard Ma with Guggenheim Securities.

I want to add my congratulations on a strong quarter as well. I want to ask about pricing and packaging. If we look 6 months from now, so heading into 2027, how much of your customer base do you think will be on this new seat base plus usage-based pricing model. And do you expect different adoption trends between mid-market versus large enterprise? And one more part to is, where does 1 AI fit into pricing, it will be a separate add-on.

Yes. So this is Eran. So look, as I said, we're opening up the ability to purchase agents from new customers. We feel the adoption for these ones is going to be very gradual. So it's hard to estimate that right now. I think we'll be able to provide more color going forward. New customers will buy both seats and AI credits. But again, it's really hard to give any more information about this right now. I would say that we're very excited for the Wana acquisition. It's a very strong team with a lot of special knowledge about those agents.

We plan to integrate that deeply into our AI work platform also into our CRM. In terms of the commercial side, we're still working through the precise package in passing. But definitely, it's going to be part of our AI credit consumption model. So overall, I think it's a great addition to the team. They bring a lot of knowledge and expertise. I think overall voice we need to separate the technology from the adoption.

Adoption is very complex among every customer. And I think they bring a lot of knowledge and expertise to help drive more adoption within our existing customer base.

Okay. Got it. And a follow-up for Eliran, I want to ask about the -- your expectation for head count being flattish this year. I think last quarter, you had called out headwinds from the Israeli shekel appreciation -- foregone interest payments due to share buybacks and cash taxes. I think those are the 3 items. I think the head count being flat should give you a lot of cushion relative to those headwinds unless there are any other headwinds that we should consider.

So with regards to head count being flat, this is being staged throughout the year. So there is still the impact of the hiring that we have done in prior years and the fact that the shekel is strong versus the dollar. So there is going to be some benefit from that, but we're going to see it more into -- going into next year rather than this year.

Next question comes from the line of Steve Enders with Citi. Okay.

Great. Maybe just following up on some of the guide philosophy. And I think trying to understand a little bit better just the upside that you saw this quarter. I guess, a, like what was the kind of key factors that drove the revenue upside?

And then I guess, the kind of moving forward, how should we think about, I guess, the kind of what's kind of assumed there and maybe what's different in the guide velocity versus what we saw in 1Q?

Steve, this is Eliran. So nothing has changed since what we have provided in Q1, but what we have seen is the outperformance was broad-based. It wasn't driven by any single segment and core to region, it was broad-based. Of course, [indiscernible] momentum remains strong, as Casey spoke about.

We have record net adds of 500,000, and we continue to grow upmarket. And obviously, the air contribution. As we mentioned, 10% of the net new ARR approximately is coming from -- so this is encouraging drivers that kind of drove the results and the bid for this quarter.

Okay. Okay. That makes sense. And then on -- I guess I want to follow up on some of the agents' discussion. And just kind of curious to how you're kind of viewing the monetization angle for both first-party agents and also for a third party? And I guess, kind of where you kind of feel like you have the right to win on using monday homegrown agents versus where it makes sense for third-party agents to be utilized instead?

Yes, it's Roy. So we see that agents are going to be everywhere. Like really, people will have them for many different things like personal assistance, and maybe other different agents. And those, we want to allow them to monday to help people manage whatever they want to manage, whether it's even to know what's going on.

Monday's own agents are really, really good at execution and analyzing and executing work and doing that together with other people. So the collaboration part being built on top of monday give them access to all the data seamlessly and they're out of the box, working really well, while people can customize them to do any kind of work and also connect them to other platforms.

So we feel, as part of the future vision we have of doing the work and not only managing the work, those agents are going to be the best collaborative agents between people and agents together.

Next question comes from the line of Brent Thill with Jefferies.

This is John on for Brent Thill. Two questions. On the credit pricing, the table has a lot of parameters depending on what type of usage there is. But -- and even at $0.01 per credit, I mean that could balloon of for customers. So I'm wondering how customers will measure what's been the customer reception on that new pricing table?

And then second question, I don't know if you can talk a little bit about the in-quarter NDR since, I guess, thousand-plus has come down a little bit. And you did a little bit pricing lapping defacto.

This is Casey George. So as it relates to the pricing model for AI credit, so it's been clear from our customers that they want transparency and control and governance of those credits. So we're giving them that as part of the platform, right? So they can see exactly who's using the credits. What is it used for?

They can scope out the work that's being done that they can plan accordingly for their AI credit usage. So we're seeing that as a big driver for our platform. We continue to get feedback from customers that, that's what they want to see. So we're giving that power to the customers so that they can cover their credits.

I'll hand it back to Eliran to answer the follow-on question.

This is Eliran. John, I will answer the question on the MDR. So John, to your question, so first of all, lending expand dynamics. So we are seeing recent enterprise deals, they are landing bigger but larger customers typically commit to a multiyear agreement with more tractor expansion. So if you think about the 100,000 customers, they are lending and taking multiyear deals. .

So this is 1 of the reasons why we are saying that 100,000 NDR is slightly below the 501. It's not related to churn. Actually, our growth retention is at all-time high. And we expect -- and it's important to that we expect 1% or 2% of temporary pressure for the upmarket and the metrics for the remainder of fiscal year 2026 as well have the pricing benefit that we spoke about.

Next question comes from the line of DJ Hynes with Canaccord.

Eliran, does the addition of usage-based elements into the model more effectively match your revenue with your costs tied to AI so that we could see better gross margin preservation over time?

So as I said, when we were in the Investor Day, we said that we expect gross margin to be mid-80s. We were used to 90%, but because of the computing cost of AI, we said that we are expecting for the short term or for the foreseen future to have some impact. Overall, again, we're not seeing yet a significant impact on our gross margin. but we believe there is going to be additional cost regarding computing costs related to AI.

Okay. And then, Eran, maybe following up with you 1 on the product side. Does the addition of voice capabilities with 1 AI push you any closer to turning service into more of a customer-facing application over time?

Yes. So I think currently, we're going to focus mostly on the integration into CR M&A work platform going forward. It's definitely also an opportunity for the service team. But overall, I think voice capabilities are important almost in any product right now.

And like I said, the hardest part is not using technology, but actually customize it to your own needs. And I think both with agents and voice, this is exactly where we can shine. I think people are amazed at the technology where it's very hard to use it, especially when it's used through a prompt or a very hard-to-use user interface. And I think a monday really can help customers adopt agents and also voice agents in a very easy and intuitive way.

Next question comes from the line of Zukin with Wolfe Research.

Maybe the first one on new product ARR. It was north of 11% now, it continues to grow nicely. But maybe just -- can you dig in a little bit on the interplay between CRM and service, maybe share some details on that progress in the quarter.

Yes. So this is Eran. So I'll just give a kind of high-level numbers. So as we said, new products account for over 11% of our ARR. We see significant opportunity to accelerate a cross-sell presentation, especially in mid-market segments. We see more and more customers adopting more than 2 products and even more. CRM, as we said, we suppressed $100 million. We continue to grow very nicely, mostly in the SMB segment. And the new product campaigns is off to a strong start as well.

In regards to service, we still see 70% of our ARR coming from mid-market and enterprise. So the ACV is the highest across all products. Most of the growth with service is driven by seat expansion and cross-sell with customer support workflows. So overall, we continue to see good demand across the [indiscernible] service. We continue to see acceleration -- not acceleration, but expansion of seats and usage. And we're very happy with the adoption so far.

Okay. Perfect. And then maybe just a second one. The the comment on maybe why the 50,000 and 100,000 ARR sequential adds were a bit lower. I realize some of that is seasonality, but I think in the last 6, 9 months, you talked about shifting performance marketing from lower end resources towards the upmarket, higher end.

Maybe just comment on the performance of that shift. Is that driving out performance? Is that something we'll see later this year as seasonality improves?

Alex, this is Eliran. So we said that there is some seasonality usually with Q4 and Q2 are the strongest stock market performance. We saw record net adds of $100,000 in Q4 of last year. So there was possibly some pull forward. And when we look at the mid and upmarket metrics, we look at them as a whole.

So if you think about the 50,000 and the 500,000 customers, they were very healthy with 500,000 net adds at historical highs. So we look at them all together, and this is what kind of the way we view it.

Next question comes from the line of Taylor McGinnis with UBS.

So you mentioned that the strength in the quarter was broad-based, but it did seem like a bit of a turnaround from the trends that we saw last quarter and the upside was higher. So I guess anything surprised you in the quarter in terms of areas that were stronger than expected?

And then when you think about some of those trends, maybe you could unpack what you're seeing at the start of 2Q as well. And then not to throw too many questions in there, but just a housekeeping item. Do you mind impacting FX impact to revenue in the quarter and what's being expected for the full year guide?

Taylor, this is Eliran. So as we said, I think the positive surprise was a contribution with ARR growing to almost 10% of net add ARR coming from the AI product, and this is something that we are very pleased with. .

Other than that, we continue to see the upmarket momentum that we have seen in the past and enterprise customers continue to grow with the 500,000 net adds and numbers. With regards to FX, we did see small tailwinds from FX in Q1, but it didn't impact the overall reported growth rate. So it was very small.

Next question comes from the line of Allan Verkhovski with BTIG.

Congrats on the strong quarter here. Can you talk about the level of engagement you've seen with your MCP? What types of customers you've seen use it more? Are there any trends you've seen thus far in terms of expansion activity of customers that have used MCP. And then I've got a quick follow-up.

Yes. This is Eran. So yes, we see some usage through the MCP protocol. And overall, like we see more and more agents signing up to the platform. We actually did invest a lot of work making monday accessible to agents and make it easy to agents to use the platform and sign up, but it's still not very significant numbers.

Yes. It's small numbers, but like the ones who use it have a way stronger retention profile.

Got it. And then maybe just as a follow-up to an earlier one about your guidance. It looks like the Q2 revenue guide implies lower sequential growth in Q1 despite being a seasonally stronger quarter. So can you just unpack like what are you factoring in there? How much of it is prudent versus maybe potential impacts from any new dynamics you're seeing there?

This is Eliran. So what we said is basically that we provided our guidance based on everything that we know today. And we believe that with the investment that we are doing on AI and the fact that we're going to see the impact throughout the year. We remain focused basically on managing your expectation rather than looking at just the next quarter.

So on the cost side, we are investing in our product and GTM capabilities. The potential increase of expenses from AI, as I mentioned earlier, compute. We are expecting this to be increasing throughout the year. And there is an inherent uncertainty on how that revenue ramps when we are thinking about throughout the rest of the year. So when we take all of this together into account, our guidance does imply some moderation in H2.

And our next question comes from the line of Matt Bullock with Bank of America.

I wanted to follow up on the 10% of net new ARR comes from AI products. It seems like it was one of the sources of upside in the first quarter. So maybe it would be helpful if you could help us think through the assumptions for consumption-based revenue or AI product revenue for the 2026 guide and how to think about that as a potential upside lever as we move throughout the year.

Yes. Matt, this is Eran. So look, as I said, all the revenue that we got this quarter was not from agents and consumption, mostly driven by in NAA blocks and sake. We still don't know how to model and expect revenue coming from agents and token-based usage. Happy to give some more color next quarter, but it's really hard to kind of model it out right now.

Understood. And then just 1 quick follow-up, if I could, as well. Can you just help me think through some of the incentives you're going to be providing the enterprise customers to migrate them over to the new sees usage model?

Yes, happy to. So our customers today are buying AI capabilities a la carte. We'll continue to make that offer available to them, but we're also looking at ways for where they can buy just like our new customers where they get incentives for buying AI packages along with their products. So that's how we're looking at it. That has not been announced yet. We'll look to do that.

And again, it's an opt-in policy for our existing customers, we are not forcing any of our existing customers to move. But again, we're going to make it highly incentivized for them to do that.

Yes. And just to add to that is it's not a migration. It's like very -- it's like a click the switch kind of thing. There's nothing they really need to do other than agree to it. So there's no sort of migrating anything.

Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining. You may now disconnect.

Good day. My name is Deere, and I will be your conference operator today. At this time, I would like to welcome everyone to monday.com's Fourth Quarter and 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.

Hello, everyone, and thank you for joining us on today's conference call to discuss the financial results for monday.com's Fourth Quarter and Fiscal year 2025. The -- joining me today are Roy Manan, Eran Zinman, Co-Chief monday's com; Elara Laser, mondaycom CFO; and Casey George, monday.com's CRO. We released our results for the fourth quarter of 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 & Events section of our IR website at ir.monday.com. Certain statements made on the call today will be forward-looking statements, which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.

Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website. Now let me turn the call over to Roy.

Thank you, Byron, and thank you, everyone, for joining us today. As we reflect on the past year, we are proud of the progress monday.com has made across every dimension of the business. We delivered another year of strong disciplined execution with revenue growing 27% year-over-year an operating margin reaching 14%. These results underscore the durability of our model, the strength of our go-to-market engine and our ability to scale profitably while continuing to invest in the long term. .

In 2025, we continue to make meaningful progress winning further upmarket. Larger customers are increasingly standardizing on monday.com to support more complex critical workflows across their organizations. Customers with more than 50,000 in ARR now represents 41% of total IRR, reflecting strong expansion within existing accounts and success in landing larger, more strategic customers. At the high end, we delivered a record net adds of customers with over 100,000 plus in ARR.

And customers with over $500,000 in ARR grew 74% year-over-year. underscoring our ability to support enterprise-scale deployments. At the same time, no-touch channels continue to operate in a choppy demand environment, particularly among the smaller customers, which we expect to persist in 2026. We -- what this means in practical terms is that the cost to acquire and expand self-serve customers have increased over the past year, and the returns on those investments have been below historical levels.

We do not see the same dynamic in our touch business, which have continued to accelerate in this past year. In response, we continued to shift investment to higher ROI opportunities that drive demand and success for larger customers. In addition, we continue to meaningfully improve the entire customer buying process, leveraging AI agents to improve conversion, adoption and engagement of all our customers. Now let me turn it over to Eran to walk you through some of the significant progress we've made in our AI-driven products during the quarter.

Thank you, Roy. During our Investor Day in September 2025, we showed the fundamental shift in monday.com vision from helping customers manage work to actually doing the work for them. Over the last 5 months, we've executed relentlessly against that vision. This was not an incremental change. We've meaningfully rearchitected the core of our platform. and redefine what our products do for customers.

Today, monday.com is evolving into an AI-powered work execution platform built around 3 distant layers of AI value. First, AI agent, which is now in beta and AR workflows. These allow customers to create an on-demand workforce of AI agents that can reason, act and execute across their workflow effectively enabling businesses to scale output without scale and headcount. Second is Monday 5. Over the past few months, Vie has taken a major leap forward. customers can now build full applications rely on top of their Monday data and workflows and consolidate additional business processes into a single intelligent platform.

And third, AI psyche Sahas evolved into the central intelligence layer of every account, the gateway and the brain of the system, enabling customers to ask questions, surface insights and take action across all the data and workflows. We've seen very strong demand and accelerating adoption of Monday AI across our customer base. Mine blocks have already powered more than 77 million actions.

Sika has processed over 0.5 million user messages and early beta users of AI agents are blown away from its capabilities. Teams are increasingly reliant on monday.com not just to organize work, but to make decisions, automate outcomes and execute faster with confidence. Monday Vibe is also off to an exceptional start. It is the fastest product in Monday's history to surpass $1 million of ARR, highlighting customer willingness to pay for its value and signaling meaningful revenue potential ahead.

The pace of adoption reinforce our confidence that vibe can become a significant growth driver as we scale. We are proud of the progress we made in 2025 and encouraged by the momentum we've seen across the business. Looking ahead to 2026, we believe we are still early in this transition. As AI becomes a core driver of customer value and differentiation, monday.com is uniquely positioned to lead with the powerful platform, a clear upmarket strategy and a global team focused on embedding intelligence deeply across workflows, we believe monday.com is well positioned to deliver durable profitable growth in the years ahead. With that, I'll turn it over to Eliran to cover our financial guidance.

Thank you, Evan, and thank you to everyone for joining our call. Today, I'll review our fourth quarter and fiscal year 2025 results, in detail and provide initial fiscal year 2026 guidance. As Roy mentioned, we are very pleased with our results in 2025. Total revenue in Q4 came in at $334 million up 25% from the year ago quarter and $1.32 billion in fiscal year 2025, up 27% from the prior year. Our overall NDR was 110% in Q4. .

We expect overall NDR to be stable at 110% in fiscal year 2026. As a reminder, our NDR is trailing fourth 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. Fourth quarter gross margin was 89% and 90% for the fiscal year 2025. We Research and development expense was $67.7 million in Q4 or 20% of revenue, up from 18% in the year ago quarter and $238.5 million in fiscal year 2025 or 19% of revenue, up from 17% in the prior year.

Sales and marketing expense was $159.9 million in Q4 or 48% of revenue compared to 48% of revenue in the year ago quarter and $586.8 million in fiscal year 2025 or 48% of revenue, down from 51% in the prior year. General and administrative expense was $29.2 million in Q4 or 9% of revenue compared to 9% in the year ago quarter and $106.9 million in fiscal year 2025 and or 9% of revenue, up from 8% in the prior year.

Operating income was $41.9 million in Q4, up from $40.3 million from the year ago quarter and operating margin was 13%. Operating margin in Q4 had an approximately 180 basis point negative FX impact mainly from the depreciation of the Israeli shekel compared to the U.S. dollar. For fiscal year 2025, operating income was $175.3 million or 14% of revenue compared to 14% of revenue in the prior year, reflecting an approximately 110 basis points impact from FX. Net income was $55 million in Q4 '25 compared to $57.3 million in Q4 '24. For fiscal year 2021, net income was $233.6 million up from $183.3 million in fiscal year '24.

Diluted net income per share was $1.04 in Q4 and $4.40 in fiscal year 2025 based on $52.9 million and $53.1 million fully diluted shares outstanding, respectively. In the fourth quarter of 2025, we recognized a $61.2 million noncash income tax benefit related to deferred tax assets, reflecting our sustained profitability. Because this is a discrete nonoperational item, it is excluded from non-GAAP net income. Looking ahead, we may begin paying cash taxes in the near future.

Total employee headcount was 3,155, an increase of 137 employees since Q3. Looking ahead to fiscal year 2026, we expect headcount growth in the mid-teens percentage range with incremental investment primarily directed our sales and R&D. Moving on to the balance sheet and cash flow. We ended the quarter with $1.5 billion in cash and cash equivalents compared to $1.53 billion at the end of Q3, reflecting $135 million of share repurchases executed during the quarter.

As of the end of Q4, approximately $735 million remained available under our existing share purchase authorization program. Adjusted free cash flow for Q4 was $56.7 million, and adjusted free cash flow margin was 17%. In fiscal year 2025, adjusted free cash flow was $322.7 million and adjusted free cash flow margin was 26%. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment and capitalized software costs, plus costs associated with the build-out and expansion of our corporate headquarters.

Before I discuss guidance for fiscal year 2026, I did want to touch on our approach to guidance moving forward. Our confidence in the underlying fundamentals of the business and our long-term financial trajectory remains unchanged since our Investor Day in September. Given the evolving nature of the AI landscape, and the choppiness in the no-touch demand environment, we believe it is responsible to keep our near-term communication focused on what we can execute and deliver with high confidence.

As a result, we will no longer be discussing our previously provided 2027 targets, but we'll be centering our discussion on our 2026 outlook, which reflects the continued momentum we see across our AI work platform, new product introductions and upmarket sales motion. We remain committed to disciplined execution, which is consistent with our track record, and we will revisit long-term targets when there is a greater visibility and it's appropriate to do so.

Let's now turn to our outlook for fiscal year 2026. For the first quarter of fiscal year 2026, we expect our revenue to be in the range of $338 million to $340 million, representing growth of approximately 20% year-over-year. We expect non-GAAP operating income of $37 million to $39 million, with an operating margin of 11% to 12%, which assumes a negative FX impact of 100 to 200 basis points. For the full year of 2026, we expect revenue to be in the range of $1.452 billion to $1.462 billion, representing growth of 18% to 19% year-over-year. We expect full year non-GAAP operating income of $165 million to $175 million, with an operating margin of 11% to 12%, which assumes a negative FX impact of 100 to 200 basis points.

We expect full year adjusted free cash flow of $275 million to $290 million with adjusted free cash flow margin of 19% to 20%, which assumes a negative FX impact of 100 to 200 basis points. Let me now turn it over to the operator for your questions.

[Operator Instructions] And our first question comes from the line of Arjun Bhatia with William Blair..

Perfect. Appreciate it. Can you maybe just touch on the growth outlook a little bit for 2026. I think I heard that NRR might be stable in the year, but the guidance is calling for a decel and overall top line growth from 27% to 18%. So it's remarkable that the guide kind of that you can still grow at that high-teens range even when NRR is $110 million. So maybe just touch on the different pieces of what you're expecting from customers expanding, especially in the enterprise, how much of a headwind the no touch is? And maybe when we can start to see that turnaround. Is that late '26? Or is that 2027 dynamic?

Arjun, it's Eliran. So thank you for the questions. Guidance for now reflects what we believe we can execute against with high confidence. It doesn't assume many reports in performance marketing or top of funnel activity. And it's based on current condition with growth driven primarily by the following: upmarket and enterprise customer expansion, multiproduct adoption and disciplined investment and improving efficiency across the go-to-market model that we have.

As you rightfully stated, NDR to remain flat at 110%, sorry, by the end of the year. With regards to maybe the margins, we assume that we are going to go in terms of headcount growth of mid-teens, and there is also a significant impact of the Israeli appreciation of the -- sorry, appreciation of the Israeli shekel versus the U.S. dollar that is contributing 100 to 200 basis points negative on our margins. So these are the things that we took into account when we build the budget -- the guidance, sorry.

Okay. Perfect. And then just 1 on sidekick. It looks like you started the monetization strategy. You have a price in place and you're going to turn that on in 2026. I'm just curious how you think about customers' propensity to pay for that solution? What incremental capabilities that you've included in the paid additions of [indiscernible] and how you think that monetization might scale throughout the year? .

Yes. Arjun, this is Eran. So -- we're very excited from the latest release of TICC, basically psychic offer our customers not just to use AI capabilities within their account, but also they kind of access the brain of the accounts. He knows everything about the work, about who you are, you place an organization. It's also a context where of every data and content [indiscernible] within your monday.com. .

And we're also planning to integrate with third-party tools, so essentially it becomes like a business brand of the company. We're already seeing great momentum. Sidekick now available to all customers it basically offers the paid add-on for Pro and below packages and as far as the enterprise package. Going forward, we might have additional monetization for psychic but it's a very interesting product that gives a lot of value to our customers because of its capabilities.

Next question comes from the line of Scott Berg with Needham. .

Hi, everyone. I guess wanted to start probably with the question for Roy because I think you mentioned high level, some impact, obviously, on the cost of customer acquisition and AI in the space. I just wanted to if you can clarify that comment. I guess what is the impact like? My guess is that's just in the -- through the sales process, customers evaluate different technologies and functionalities. But are you seeing that impact more on those self-serve low-touch smaller customers? Or are you also seeing some impact negatively from maybe your larger customer opportunities as well?

Thank you. So what we see right now in performance marketing is the same things we called out before, it just continues meaning we see headwind in our ability to buy media and the ROI is the same as we saw before and remains choppy. So what we're doing is moving -- shifting budgets to higher ROI channels and media, which means we're focusing more on the higher customers, the better customers with better ROI. So essentially, we're driving -- we're leaving the smaller ones and focusing on the better ones with higher ROI, bigger retention. So -- and that is successful.

Maybe this is Eliran, add to what Roy said to your question about the bigger customers, we don't see this impact on the bigger customer. We have a strong momentum with the upmarket motion, and we only see it in the SMB segment, namely of the .

Very helpful. And then my follow-up would be for Eliran. If I look at your guidance for the year, your operating margin, non-GAAP operating margins implies about 11.6% for the full year. And I understand there's a 100 to 200 basis point headwind due to FX. But that operating margin is actually lower than what you reported in fiscal '25 and the growth is as Arjun mentioned, 8, 9, 10 points lower. Why shouldn't we see margins kind of inflect a little bit more over the next year if this kind of high teens 20% growth rate is likely the -- probably what the right growth rate for the company is over the next year or 2?

Scott, thanks. So just to reiterate, maybe that given the current macro and demand environment, we believe that we are putting numbers that are achievable and doable. And the biggest change in recent appreciation of the Israeli shekel happened in the last few months. We have 55% of our headcount in Israel, and this is a very concentrated primarily contributing to the impact of FX.

We also prioritize investment in the SLG motion and AI, as you heard in the prepared remarks. And this is front-loaded cost that basically takes a bit longer for the payoff time. And this is the impact on margins.

Next question comes from the line of Ryan Mcilliams with Wells Fargo. .

So investors are clearly worried about the threat of AIA sulfur here, but I think there's a fair case to be made that not every workflow needs to be generative and that it can make more sense to build agents off your already established workflows that work 100% of the time. So with that in mind, we'd love to hear some of the attributes about why it might make the most sense for a Monday customer to build agents within Monday itself instead of outside the platform.

Yes. Ryan, this is Eliran. So this is exactly how we think about things. I think people aren't the estimate how is important is when you have all your data and processes and workflows inside the platform and then the ability to create agents on top of it and get significant value because of that is exactly what we're aiming for.

We've done the same with sidekick, -- the fact sidekick knows everything about the organization really helps our customers kind of figure out everything about their account. And the same goes for our AH agents offering. With the agents offering, not only you can scale your business based on agents, but also it knows everything about your workflows, your data, your history, -- it's also secured enterprise grade.

So given all of that, we see a lot of potential in our new agent offering, and we see a lot of excitement for our products. I think we all agree that the future of software will change over time with agents. But I think the way the transition will go is very different than how we manage it. And I think we have significant advantage once we introduce these capabilities to capture significant value of those agents.

Appreciate the color there. And then Eliran, just on the free cash flow guidance for this year, is there any extra conservatism baked into that number? And then anything to call out on the differences between the initial starting point between the op margin and the free cash flow margin, they just look a little tighter than a year's past.

Thanks, Ryan, everyone. So a few things impacted our free cash flow forecast for 2026 1 is the FX impact. Israeli shekel, as I mentioned, is very strong versus the U.S. dollar, and it happened really fast in Q4 of last year going into this year. Obviously, we said that we are increasing investment in AI and SLG motion. There is also the lower interest rate environment. And as we move to profitability, we might be paying taxes. And the last thing is the share buyback as we continue to prioritize opportunistic share buyback, obviously, taking into account the current level of the share price. The reasons that I mentioned, all of the above is impacting our free cash flow guidance for 2026 .

Our next question comes from the line of Josh Baer with Morgan Stanley.

Just wondering with all the rapid pace of innovation, new technologies across the workforce, how are your customers or potential customers evaluating Monday among all the alternatives out there. Are you seeing any shifts in sales cycles as you're moving upmarket or any changes to customer behaviors? .

Josh, this is Casey. So a couple of things. One, obviously, by the numbers, we're very encouraged that the progress we're making upmarket. So we're showing up in different ways with these customers, especially with AI and as I speak to customers, they're not necessarily looking for a science project, and Ryan touched on this a little bit. They're interested in having a trusted partner and a trusted platform so that they can deploy this technology in a trusted way.

So for that, we are -- it's showing up in our retention numbers. It's showing up in our customer acquisition and obviously the cohort of customers that are $50,000 or greater. So with that, this is truly a differentiator for us. We're not running away from AI. We're embracing this and leading the market with it. So -- that's what I see. That's what we see when we engage with customers, and it's being validated in the numbers as well as we move upmarket.

Okay. That's helpful, Casey. And just a quick follow-up on the margin topic. Any sense for gross margins in 2026?

Yes. Eliran. What we said is in our recent Investor Day that we are expecting gross margin to be mid to high 80s, and we believe this is going to be the case for 2026. .

Next question comes from the line of Jackson Ader with KeyBanc Capital Markets. .

This is Nate Reis on for Jackson Ader. So I was wondering how much core versus new product growth is baked in for fiscal year 2026. .

This is Eliran. So maybe just to expect when we took -- what we took into account is the continuous of the business that we currently see meaning the 4 product lines that we have in Monday, Monday Work Management, Monday, CRM, Monday Service and Monday dev, continue also to see some revenue coming from the AI product that we have. So we believe this is going to be the trajectory for fiscal year 2026, mostly focusing on the existing products. And the new products will continue to become a larger part of our business as we move forward to 2027.

Next question comes from the line of Mark Murphy with JPMorgan. .

Can you please quantify the headwind from the no touch business in 2026 or the segment in general? In other words, is it a 5-point headwind? Is it a 10-point headwind, et cetera? And then I have a quick follow-up. .

It's Roy. So the situation is that it's a bit choppy, okay, like we mentioned. So we don't -- I can't predict the future on what performance marketing will do. I'll tell you that like we looked into the year in a way that it will continue to be choppy and that's like how we would be great.

Okay. But -- so it could be -- you're baking in something like a 5-point headwind there maybe? .

Again, we don't know how to predict what it will do. .

Yes. Okay. And then, Eliran, just thinking back to the last earnings cycle, you did bless the $1.5 billion revenue consensus for 2026. I don't think anyone really put any faith in that comment. But just irrespective, could you explain what changed fundamentally that leads to the lower outlook today? And I'm just trying to understand the -- I think you said you're no longer discussing the FY '27 revenue target, but you said somehow the fundamentals are unchanged. I think we could just use a little bit of straight talk. I'm just trying to understand what has changed here.

Mark, it's Eliran. So it's a fair question. But as we said the last time we gave guidance, we felt -- and we believe based on the feasibility that we had at the time that the 1.5 number is a number that we are going to achieve, it looks reasonable to us. Since then, there is a lot of noise in the market in terms of macro economy, as we said, our no-touch business continued to be choppy and volatile.

We didn't see the improvement that we expected to see. And we see shift in the business and shifting the business takes time. So this is why we thought, based on what we know today, that it would be prudent to reset the guidance that we are giving. And we -- given the current market, as I mentioned, and the environment, we believe that it's appropriate to put numbers that reflect what we can execute again. Again, sorry, with high confidence and this is the reason why we did this adjustment.

Okay. So it's noise in the market, low touch being volatile, there's a shift in the business, but we don't know what you're embedding for the low touch piece of it? Is that -- we're going to kind of leave it at that?

Yes. We are expecting it not to get any better from what we have seen in fiscal year 2025. We didn't see the improvement that we hope for or we believe that we are going to see. So we believe it might be choppy. It might be. It will be choppy throughout 2020. .

Next question comes from the line of Brent Thill with Jefferies.

When you think about the enterprise go-to-market motion, I think there's been a lot of pent-up concern about what's happening there and the strategy. Can you just maybe walk through what you're seeing at the higher end of the market. .

Yes. So we're seeing a couple of things. One, we continue to accelerate up market on the back of a couple of things. One, obviously, our clients like our products, they really do. One, that's the first one. Second 1 is they look to vendor consolidation, right? They're looking to rationalize their vendor suite, and we have a very healthy portfolio that we can offer to our clients, so they continue to consume more of our products.

And then the expansion piece since it's early days of us moving upmarket, the ground is very fertile. And so when they're looking to consolidate, we're well positioned to take advantage of that. So those are 3 of the key factors for us and then I would say it's early days again, but the acceleration of AI. We're engaging in different conversations than we were before because of the technology we have embedded in our platform. So we're pretty bullish on the move-up market and looking forward to another good year.

Yes. Just wanted to add 1 more thing on top of what Casey said is that we actually see price levels of gross retention across our 50,000 cohort now at 91%. This number has been growing quarter after quarter for the past 2 years. And also, we see renewal rates in the high 90s. So I would say that this segment of the business is doing performing really well. We have a high degree of confidence, not just for the execution so far, but also forward-looking.

And just a quick follow-up, Casey here. Are you still hiring pretty aggressively on enterprise reps? Or has that slowed down? .

We're growing our head count in the organization by -- in the mid-teens especially around our AI specialists.

Next question comes from the line of Howard Ma with Guggenheim Securities.

Great. I have 2. I'll just ask them together. The first for Eliran, a lot of effort was put into building the FY '27 target. So I just want to be sure, is it off the table altogether? Or is that still a possible scenario, but maybe it's more of a high-end scenario? And then for either Roy or for Eliran, what indications have your customers given you that they want to standardize on monday.com's both a provider of agents or sales and service agents and also in a genetic workflow orchestration platform because as they evaluate other HNT tools that are offered by the Frontier lives and per I imagine there's a lot of choice out there. So what gives you the confidence that you will retain and expand this usage on monday.com. .

Howard, this is Eliran. To your first question, and then I will defer to Roy Elon as I said, due to the macroeconomy and the choppiness that we have seen, this is the 2027 number is currently off the table, and we are focusing on fiscal year 2026 execution. .

Yes. And maybe or than the second part of the question about AI. I think most -- look, I feel the whole industry is living and breathing AI where all the changes and improvement. But most of our customers, and I don't think we're in a unique position, I'm still trying to figure out what's the best way to leverage that technology. And for them, the best way to lever that technology is used or the systems they're using before where they have most of the data in the context and the workflows.

And with that, the triad a vendor that they trust and love to use, and on that, they're trying to leverage the ability. They're more coming from a place of curiosity and trying to understand what's the best way to technology. And because of the relations that we've built and the way to use the product, they look to us as the vendor of choice. So we see the interest, we see the engagement with the customers. We see the excitement on any new AI feature that we introduce. That gives a lot of confidence that Monday can offer significant value with our AI offering.

Yes. This is Roy. I can add that we also have Monday Vibe, which is basically the only Vibe tool out there that is like enterprise grade and like to the level that companies would adopt internally, and we've built it that way. So there's a lot of interest in that, and it just blows their mind what they can build with it and joining to what Casey said about consolidation, that's like 1 of the main drivers, if you can take all those small ones, small application and merge them, it's very interesting for all our customers. .

Next question comes from the line of Steve Enders with Citibank.

[indiscernible] this morning. Maybe just starting on Monday vibe. I guess what are maybe like the main use cases that you're seeing customers build with that? And then how do you kind of view the learnings that you've had so far to potentially drive those kind of incremental use cases or kind of broader them out across the rest of the customer base and drive incremental ARR from here?

Thank you. So it's Roy. So we see really wide variance in what customers do with Vibes essentially, they can do anything they want and it's connected to their existing data platform users. So we see things from very small stuff like rating dashboards and presentation of data and reports; two, the higher end of building complete really meaningful large applications on top of it that they couldn't do before.

And a lot of the great stuff we see is that in some areas where we were -- maybe it was a vertical or those type areas that we were not going to develop specific features for vibe completes the gap and it's like an amazing solution together with the other offering we have on the platform. And regarding monetization, this is like a super we shared the numbers. And for us, it's like the beginning, and we're going to see where it evolves.

Okay. Great to hear. And then maybe just on the performance marketing dynamics. Does -- I just want to clarify, it seems like you're assuming that's not getting better this -- for '26 was kind of like baked into the guide. I guess I just want to clarify that point. And then I guess, secondly, just in terms of those dollars shifting to other channels? Just what kind of like ROI are you seeing? And just how are you kind of viewing I guess, improvement or time line in terms of those other channels beginning to drive, I guess, incremental performance from here.

Yes. Thank you. So yes, we expect 26% to not be different than what we've seen so far with the choppiness in the performance marketing. And it mainly affects the small businesses, like Eliran said, in the smaller area. And -- we run a lot of campaigns and we're shifting the budget to the ones who bring us larger customers. They have larger landing and they have like more expansion opportunity and higher retention. So essentially, we're making that shift and driving more and more into those areas because they have a much higher ROI for us, okay? .

Next question comes from the line of David Hynes with Canaccord. .

So maybe just going back to the Vibe coating. Can you talk a bit about what you're seeing -- what you're seeing in terms of the decisioning process around choosing a vibe quoting platform. I realize it's early. But as best as you can tell, like are customers piloting multiple biocoatingtools and I'm settling on one? Is it going to be coexistence of all these different platforms inside the same organization.

I'm just trying to get a better sense for competitive dynamics here and kind of how those decisions are being made.

Yes. Vijay, this is Ron. So I think we need to distinguish between 2 different things. One is that we added the ability to live code on top of the platform. So an existing Monday customer and by the way, we're 1 of the only only a few enterprise companies that offer currently vibe coating within their platform. So our customers basically can leverage their existing data, workflows and processes and basically vibe code on top of that, almost anything they want in our platform.

And our customers are building unbelievable things. This is part of the momentum that we see, the excitement that we see from our customers. And -- for me, I think vibe code is an ability that may be going forward, a lot of the software vendors will, at some point, embrace. In addition to that, in addition to the ability to vibe code within the platform, we also created a new go-to-market that allow customers looking for a new vibe coating solution to fund Monday as 1 of the alternatives.

The thing is that we're very focused around work an enterprise-grade solution. So unlike the tools that exist today, which are more kind of consumer SMB oriented. The way we built it is that we build it on top of the monday.com platform. So basically, all the databases, all the data structure are based within Monday. So you enjoy all the security, you can afterwards integrate it with third-party platforms. And it's a different kind of tool with a different kind of offering compared to what exists in the market today.

Yes. Yes. Okay. That's helpful context. And then Eliran, follow-up for you. So 91% gross retention in that 50,000 plus cohort -- is that the right level? Are you happy with that? Or do you see potential to drive gross retention gains over time? And I guess the second part of that question like those that are churning off the platform, are they consolidating to other packaged work management vendors? Or are you seeing firms trying to build -- bring some of that functionality in-house and kind of build it themselves?

It's Eliran. So in terms of gross retention, not only that this is historical highs in Q4 of 2025. But this is the cadence that we have seen -- we have seen over the past few quarters. So we have reasons to believe that once we continue to offer the additional product and we continue to extract more revenue from existing customer base with AI products that are providing a stickiness and retention.

This number will continue to go up. With regards to the -- and by the way, and I don't know to what level, but we saw an improvement. So we believe this is something that we will continue. With regards to the churn, I don't want to tell you that any 1 of the customers who churned is going to consolidate products on other platforms. On the contrary, I think that what we offer on Monday, on the platform, the multi-product, the AI product that are levered within our platform allows customers to actually consolidate on us while it's still early days, and we see mostly AI adoption and engagement that is significant, the churn is probably the lower end customers on the S mostly that potentially either turning due to price or other reasons.

But we don't see a churn of customers who want to consolidate on the platform.

Next question comes from the line of Raimo Lenshow with Barclays.

This is Damon Cogen on for Raimo. It looks like net retention may have fell slightly short of our expectation in the fourth quarter. Was this primarily driven by pressure down market? Or was there anything else that drove this?

This is Eliran. The reduction in net retention, the 100 basis points is mostly due to pricing that we are starting to lap. As a reminder, we introduced the pricing increase or price adjustment 2 years ago. And after the round of all of our customers, 250,000 customers completed this. So this is what we assume to be the main reason going from 100 and to 110 million. And I just want to mention that overall trailing 12 months ND was trailing, sorry, NDR was stable from Q3 to Q4. And just as a reminder, our NDR is a weighted average of the last 4 quarters. So this is important that we have seen stabilization within the quarters and linearity.

Next question comes from the line of Derek Wood with TD Cowen.

Great. This is Cole on for Derek. Can you just walk through what's embedded in the guide for next year across customer growth, see growth and cross-sell versus upsell. I think there was a comment earlier that the genetic offerings could increase productivity while head count stays flat. So just think about that and squaring it with seat growth assumptions for next year?

Yes. It's Eliran. So what we baked into guidance for next year is up market and enterprise customer expansion, continued the multiproduct adoption, we also said that we are going to be disciplined of the level of investment, and we are going to improve efficiency as we continue to reshape our go-to-market model. We mentioned that NDR is going to remain at 110% flat.

We're not expecting to see a significant increase in number of customers. We said that in the past, we have more than 250,000 customers and we would like to extract our revenue within these customers. And we see this by our ACV actually growing, and we see bigger and more significant customers replacing the smaller customers. And the last thing is we also took into account a negative FX impact on margins between 100 and 200 basis points, due -- mostly due to the appreciation of the Israeli shekel.

Next question comes from the line of Alex Zukin with Wolfe Research.

Maybe just 1 quick follow-up for me. Can you maybe give us a bit of an update on Monday CRM and Monday service, kind of how did they perform versus expectations in the quarter in terms of their contribution to net new ARR today and how we should think about those, particularly as you're moving upmarket for next year. .

Yes. This is Eran. So Overall, we're very happy with the progress of both CRM and service in Q4. Q4 was a little bit tend to benefit work management. Q4 was more enterprise deals oriented. So work management is kind of our more mature enterprise products. So it's not that the products underperform just work management overperforming in Q4. It's more of a seasonal thing. And overall, we're very happy with the progress so far with CRM, the new Monday campaign product, Monday Service performs very well. And as we've mentioned throughout the call, we expect the products to continue to be a larger and larger part of our revenue going forward. Momentum is strong, and this is how we see it going to 2026.

Next question comes from the line of Billy Fitz Simon with Piper Sandler. .

Can we maybe dig a little deeper in terms of some of the dynamic impact in sort of channel? And I know this is tough to do, but help separate a little bit what you contribute to macro? And what if anything you attribute to maybe potential AI experimentation headwinds if you're seeing anything there? Because 1 of the debates that came up for the last week, generally across all software that maybe SMB customers are more willing to expert plug-ins or by coding or SMB customers are maybe being some more sensitive breadth right now around pricing or price increases. So I know it's tough to comment on in terms of direct anecdotes because they're some of your smallest customers and bigger to self-serve channel. But any color in terms of what you're seeing in ring in wheel eye would be helpful. .

Yes. Bill, this is Eran. So also I got your question right. You broke up a little bit, but Overall, in terms of the top of funnel activity, we don't see any change in terms of the competition dynamics. We see that Roy talked about choppiness that we see. And we see that, that choppiness contributed to the impact we've seen in the top of funnel. We didn't see anything else. We didn't see anything new in sales calls or when customers compare us to other vendors. So we don't see any material impact from anything.

And on the contrary, we offer a lot of new AI capabilities within the platform, not just for existing users, but also to new users. We changed our messaging around our ads. We changed our message around the homepage to be more AI-oriented. So again, to summarize, we don't see any impact currently from an AI company, and we're shifting our product regardless to be more native.

Next question comes from the line of Allan Verkhovski with BTIG.

Thanks, guys. I wanted to just ask on pricing here. What drove the decision to raise price on service? And how are you thinking about potentially raising price on other products within the portfolio?

Yes. I'm not sure which price raise you referred to. So we did increase pricing recently on any of our products. We introduced a price increase about 1.5 years ago, and it's been that onetime price increase that we introduced, we didn't change pricing to our existing products. Maybe .

Other than the pricing lift that we have then, we move more customers .

Next question comes from the line of Matt Bullock with Bank of America.

I wanted to ask a follow-up on the free cash flow margin guidance. I understand there's some FX in there, you're growing headcount, investing in sales-led growth. But -- maybe if you could clarify what's baked in, in terms of incremental cash taxes, lower interest income. And then I wanted to ask the fall because I think you mentioned something about the buyback program relative to free cash flow. So I just wanted to clarify there. .

Yes, sure. It's Eliran. So I will repeat what I said earlier. So the biggest impact is the appreciation of the Israeli shekel on the free cash flow, 55% of the head count is based in Israel. We have seen, over the past year, a reduction of more than 20% in the US dollar versus the Israeli shekel. We have an hedging strategy. So we were able to defend some of it. We are doing a rolling forecast of 12 months. But still, the decline was so sharp, Israel recovered really significantly. So it's obviously impacted our cost in our free cash flow numbers. .

In addition to that, we are looking at a reduction of around 1% in the interest rate environment, and we have significant amount of cash. Obviously, this impacts our return in terms of the interest that we are getting share buyback. We said that we are going to be opportunistic. At the end of last year, we already acquired 100 -- in [indiscernible] million, $135 million in 2026.

We will continue with the same program, but we're going to be opportunistic having in mind the current level of the share price. So we obviously also took it into account because if we buy shares, then the cash is not used to get interest, and as I mentioned, as we become more profitable, there is a potential or we may be paying taxes throughout the year depending on our progress. So these are the reasons for the adjustment of the free cash flow.

Next question comes from the line of Taylor McGinnis with UBS.

The first 1 is, so even if we adjust for the FX headwind, it still looks like operating income and free cash flow margins are down a bit on a year-over-year basis. So could you just unpack the drivers of that more specifically. So when you talk about investment with AI, does that mean we could see gross margin pressure as we head into this year, does that mean you need to make bigger platform architecture changes for an AI world? Is it really just a function of this continued shift up market? Like I guess, where in the line items could we see it? And then what are these investments actually going towards?

Hi, Telo, it's Eliran. So to your point, first of all, you're accurate with regards to gross margin. If we're going to invest as we -- with AI, we said that we are going to see gross margin mid-80s to high 80s, and we used to have 90%. So this is something that we took into account. In addition to that, last year or in 2025, we increased our headcount significantly, mostly around SOG motion and R&D and product people. This is also going to be the area of investment this year, much less than last year, but still, this is the best way we're going to invest. .

And because we had significant hiring at Q4 last year, we are seeing now the impact in terms of cost. We're going to prioritize investment in AI where we see the opportunity based on the returns as well. So it's mostly to summarize. It's mostly head count around SLG and AI. We might see investment that is taking into account some adjustment to the gross margin in the -- where we said we're going to be mid-80s to high 80s and the FX impact, which is significant, unfortunately, but this is it.

Just to add to what an said. Sorry, here. Just wanted to comment on the previously asked question, not yours Taylor, but I think with Eliran who asked about it, the price increase for servers. So just ask the team to double check. And it seems like there's an 18% increase to a subset of cohort of customers, the joint mines of service. So it's not a significant amount. It's a small amount of customers, but just wanted to point it out and give some more color on that.

And our last question comes from the line of Mark Schappel with Loop Capital Markets.

Eliran, could you just discuss to what extent customers are expecting your new AI capabilities to be bundled into, say, existing subscriptions versus paying for them as a premium add-on. And maybe also talk about how that's either shaping or not shaping your packaging and monetization strategy in the coming year. .

Hi, Teliran. I think, Casey, probably better for you to take it. .

Yes. Happy to. So thank you for the question. So our AI capabilities are foundational in our platform. They're embedded in our workflows and based on the feedback we've gotten from customers, they really enjoy the predictability of PPU pricing, and they like to consume those capabilities that way. With that said, some of the more compute-intensive workloads that drive outputs with these workloads. We are charging and monetizing that through credit and our customers like the mix of both of those. So it's -- again, it's early, and we're very encouraged that this model is going to be.

Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining in. You may now disconnect. Everyone, have a great day.

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, Vice President of Investor Relations, Mr. Byron Stephen. Please go ahead.

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 ir.monday.com.

Certain statements made on the call today will be forward-looking statements. which reflect management's best judgment based on currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Additionally, non-GAAP financial measures will be discussed on the call. Reconciliations to 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.

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 towards our Investor Day revenue target of $1.8 billion of FY '27. We saw robust net additions of over 100,000 plus and 500,000-plus paying customers, reflecting the strength 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 multiproduct and AI-powered platform. The event grew nearly 1,000 online participants over 4x the viewership from 2023, reinforcing investor confidence in our vision and the significant opportunity ahead as we execute towards our FY '27 goals.

Additionally, our Elevate user conference in New York City and London reach 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.

Thank you, Roy. The investments we've made in our sales organization over the past year continues to drive strong results. We delivered solid net additions among larger customers, improved net dollar retention for accounts over $50,000 in ARR and achieve accelerating RPO growth, all reinforcing the effectiveness of our upmarket 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 high-quality pipeline and position us well for sustainable growth. Moving on, our multiproduct strategy is delivering strong results. expanding Money.com reach across more teams and use cases. New products now account for over 10% of total ARR, surpassing our 2025 goal ahead of schedule. New bundle offering combining work management with CRM, service and Dev provide a unified, cost-efficient experience while accelerating cross-sell momentum. And within CRM, our new AI powered money campaigns product has seen rapid adoption since September launch, reinforcing our vision of a connected sales and marketing suite. Since this gradual release in July, Monday Vibe has seen rapid adoption with customers creating more than 60,000 apps to part of their unique workflows built directly on money.com enterprise-grade infrastructure. These apps are secure, scalable and fully integrated with granular permissions and theme contacts.

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 pay 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 stand-alone solution with flexible consumption-based pricing, these agents function as integrated team members, penduling tasks like updated CRM records, sending e-mails and scheduling full ups. And 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 power 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.

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 '25. As a reminder, our MDR is trailing 4 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 a 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 '25, up from $45 million in Q3 '24. Diluted net income per share was record $1.16 in Q3, based on 53.3 million fully diluted shares outstanding. Total employee head count was 3,018 employees, an increase of 151 employees since Q2. We continue to expect to grow head count by approximately 30% in fiscal year '25.

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 costs, plus costs associated with the build-out and expansion of our corporate headquarters.

Now let's turn to our updated outlook for fiscal year 2025. For the 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 billion to $1.228 billion, 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 Instructions] Your first question comes from the line of Kash Rangan with Goldman Sachs.

Good to see the quarterly results. I'm also curious to get your perspective on 2 things. One is as you look at the spending environment on the next calendar year down to '26, 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, this looked like a smaller magnitude of beat relative to what we've come to expect on monday in the past prior quarter. So if you could talk about what might be behind the numbers that is the go-to-market transition, et cetera, that hopefully will set you up for a very good success in the years ahead. But I wonder if the go-to-market transition, the pivot towards larger deals also cost us the kind of upside that we've company expect in the results and the guidance looking forward into 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.

Kash, this is Eran. Maybe just to start before I sort answering your question, I know this is your last earning call [indiscernible]. 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 add on about guidance and Casey.

So in terms of customer demand, like you mentioned, we see a transition in the business basically across all customer segments, the 50,000, 100k, 0.5 million, we see acceleration. Our go-to-market strategy in terms of any bigger accounts is working really well, and we see accelerating on all fronts. In terms of what customers are asking for. So definitely, we see an increase in terms of our profitability.

More customers are buying more products. Definitely, more and more customers are interested in AI features and our products. And I think a lot of the new announcements and new features that we launched really resonates with customers. So overall, we see a very healthy demand across all customer segments. We see healthy demand with our existing products and specifically with the new air features that we offered, and we announced during the Investor Day.

Thanks, Eran. Kash, it's Eliran. With regards to the guidance in Q3 and what we've provided. So the more measurable bet is mostly due to timing effect as we rebalance investments or the higher ROI area, and it relates to your question, so we see the direct sales motion, the new products like monday Service, CRM and per channel such as video and social media actually providing higher ROI. And they tend to have a longer sales cycle, but we see a 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.

So this provides us a lot of confidence with regards to our next year assumptions. And maybe, Casey, you can add what are top of mind of customers next year.

Yes. We just finished up our world tour with Elevate. So 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. And obviously, when we only have 6% of our customers consuming more than one product, the opportunity for us is significant. And so as we start this multiproduct 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. So 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.

Your next question comes from the line of Jackson Ader with KeyBanc Capital Markets.

The first one that I had was on the move-up market and its impact on deferred revenue or billings as you guys keep signing kind of long -- or larger customers and maybe longer-term contracts, more heavily weighted toward annual and even multiyear. I would expect deferred revenue to outgrow recognized revenue. And so I'm just curious what the dynamics are there that are causing deferred revenue to come in below revenue.

Jackson, it's Eliran. Just as a reminder, when you -- with regards to billings, 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. So therefore, there are some fluctuations with regard to that. And 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. And as you can see, it's accelerating quarter-over-quarter and it also reflects the full contract value that we see going up market. So we think there is going to be some timing of the billings. This is why it's not perfect measurement.

Therefore, we intend to see the ARPU is a better measurement going into next year.

Okay. All right. Great. That's fair. And then 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 a signal for the right level to be thinking about 2026?

So we are going to provide our initial expectation for fiscal year 2026 and our next quarter earnings. And I think in the Investor Day, we provided good outline. We said that we are going to be $1.8 billion by fiscal year '27 and we are committed to achieving this number and to the guidance we have provided during the Investor Day. So -- and this is something that not only we are growing on the revenue but also expecting operating and free cash flow margin to expand.

Next question comes from the line of Arun Bhatia with William Blair.

Yes, perfect. I want to maybe just go back to the fact that '26 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 reaccelerate growth? And then I think Eliran, I heard you say 30% increase in head count this year? I'm curious how your plans are shaping up for 2026 within that investment framework.

Yes, this is Eran. So I can start. So look, we feel very confident on the strategy and how it's going so far, specifically, I can point out, are going upmarket worked really well. Just as a reminder, just 3 years ago, it seems like a big stretch. But right now, the majority of the business is based on $50,000-$100,000, $0.5 million accounts. We see those accounts as much better retention, much more expansion, much more stability, definitely changes the nature of the business, and we see some of that as for the results, but we're very confident on where we're heading with those customers. We feel the potential to do more cross-sell, more expansion over time will really pay off.

In addition, as we mentioned during the Investor Day, we -- a lot of investment in terms of product. We're executing in the last 3 or 4 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've got great feedback from customers across the board. So all in all, looking at all the investments we've made and all the innovation in the product, we feel very confident in where we had it and how our customers are using products.

Arjun, this is Eliran. Just to answer your question on head count. So 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 head count by the end of the year. And we think that as for [indiscernible], and we already said it in the Investor Day that we believe the numbers are going to be closer to 20% in terms of adding additional headcount. It's going to start to decelerate already in H2 of this year going into next year. And we think that most of the investment already is behind us. So we're going to see less investment in head count next year.

Okay. Understood. Very helpful. And then 1 just on vibe because it seems like it's getting very good adoption, 60,000 apps, I think, in a number of months, what are customers building on monday value? I mean is that different from what you see the -- how you've seen them historically use sort of the money work management platform?

Yes. It's Roy here. So Vibe is amazing, like we see that customers are really leaning into it and it's filling up a lot of gaps. And I feel like as a product, it triggers their imagination. Like whatever they want out of software. They just like put in there and they built like stuff we wouldn't have imagined like some of them we shared in the investor letter, fill gaps, build like the software or [indiscernible] and it's all built on top of the monthly infrastructure, meaning it's like enterprise grade. The data is everything they expect from the platform itself, they get into vibe and some of them are leaning really hard into it.

Your next question comes from the line of Josh Baer with Morgan Stanley.

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 an integration perspective? Or is it more about the go-to-market and pricing? And I guess the follow-up is like what what is the change or here? Is it effective discounts? Like what's the goal here? And which parts of the market are you trying to target with this.

Yes, Casey George here. I'll take this one. So we just launched bundles. We launched 3 bundles here this last month, so this quarter. We obviously have a lot of visibility on how can customers use our products. And what we saw in the market, there were 3 in particular that stood out where there was pretty consistent use cases with work management and service CRM and work management and around our CRM and service and so 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.

And again, 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.

Your next question comes from the line of Brent Thill with Jefferies.

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

Brent, it's Eliran. So 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 it reflects timing effects as we rebalance investments towards ROI areas.

So we are investing in performance marketing where we see the return on investment. And due to our big brand capabilities, when we see high returns, we are investing in performance marketing, and we see [indiscernible] dollars. As we started to shift our upmarket, 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. So there is a timing effect, as I mentioned, that's flowing into the next quarters and is impacting the numbers that we are seeing this year in terms of revenue and [indiscernible]

Okay. And from Casey's approach, I know it's still early in his journey, but I think many are asking how that transition is going upmarket, what's still needed to go? What's going well? everyone loved to hear his thoughts.

Yes. No, thank you. It is going exceptionally well. If I point you back to the key metrics that we follow around moving upmarket, the $50,000, $100,000, $250,000 and $500,000. We accelerated on all of those. And you may ask yourself why is that important? If you understand that the first deal is typically a $50,000 deal, not a $1 million deal and it starts at the 50 goes to $250 and then accelerates into hopefully a 7-figure deal.

We're seeing that trend continue. I'll point to 3 big wins we had in the quarter, all over $1 million. All 3 of those started 3 or 4 years ago at probably around $50,000 and they accelerated over the course of the 3, 4 years. Love to talk about a couple of those opportunities and particularly one of the largest 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 fees associated with that win.

So here's a large logistics company that's consuming 5000 seats across 3 of our products that was over $1 million this quarter. We had 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, and that's another company that started with us 3, 4 years ago around 50,000. So all of the metrics that we follow are accelerating and obviously, encouraging signs for our ability to move upmarket.

Next question comes from the line of Mark Murphy with JPMorgan.

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 downmarket 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?

Yes. Mark, this is Eran. I can start. So Look, looking at Q3, a couple of [indiscernible] trends were choppy overall. We saw some continued volatility in Phase II performance. However, the good news are that towards the end of the quarter, we saw encouraging stabilization in new sign-up and top of funnel -- so overall, I would say, going forward, the pipeline remains healthy. A lot of it is based on upmarket, but also the bottom-up mid-market part also is healthy going forward. So we saw a solid growth in large and high-quality opportunities, both touch and no touch. And overall, I'd say we're really confident that all the actions that we've done in terms of top of the funnel, how we replace our acquisition channels and all the investments we've made in the last quarter, we paid off going forward.

Okay. And as a follow-up, at what point would you think the traffic buildup that you're seeing from LLM, I think you referred to that as AIO and some of the other channels would be able to make up for what you're 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 '26?

Yes. It's Roy. So what we see is that we are able to shift the budget of our marketing towards like more sales-led sources and rebalance them and get an ROI. And 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 AIO, it's too soon to tell if it will fill that gap, but we are already feeling it with a different strategy.

Next question comes from the line of Scott Berg with Needham.

I think it was Eran earlier talked about some early traction with some of the functionality that your customers are using. I just wanted to see if you had some -- maybe any specific use cases or maybe internal corporate departments that you willing to call out that you're seeing maybe the most early traction from some of the AI use cases.

Yes, Casey George here. It's actually been pretty fascinating. We launched a lot of these offerings that Elevate and I had the opportunity to spend some time with some pretty significant customers at Elevate and the resounding feedback was this is a very powerful tool and could solve a lot of problems in our organization. But specifically, we had a large highly regulated insurance company in Europe who needed to solve a reporting issue, right? And 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 this -- out of this software. And so they went home that night or to their hotel. And in 20 minutes, they built a better tool that they could use that would effectively get far more value out of. And obviously, they didn't have to spend $150,000. There was another large retailer I spent time with who pretty much did the same thing that a reporting gap in their organization. They've been trying to solve it for an entire year. They're on the spot with some help from our team developed a reporting tool in a matter of less than 30 minutes and effectively solve the problem, as I said, that they've been trying to solve for a year.

So it's a super powerful tool. And as Roy mentioned, it's on a platform or an enterprise platform that's already integrated in their organization. So their ability to deploy that and get value from it instantaneously is super powerful for them. So we continue to see use cases like that pop up all over the place. So obviously, we're pretty encouraged with early signs.

Understood. Helpful. And then 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 overinvestment here in the short term to effectively turn them on? Or would we -- or do you expect to still see some leverage there, given that you're not spending and maybe that Google channel as much.

Scott, Eliran here. So 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 head count that quota carrying around partners, sales channels and customer success.

So 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's going to be more moderate than what we have seen in the past. And the momentum, as we said, continues to be very strong. We are expanding within existing customer base. You can see it with the MDR or 50,000 customers, 100,000 customers an upmarket motion, ACV is going up, lending is bigger. So this would be an area of investment, but more moderate to what we have seen in the past.

Your next question comes from the line of Steve Enders with Citi.

I guess I just want to dig a little bit more into just the performance marketing channel, specifically? And just 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? And then I guess, secondarily, just how the kind of the ramp in the other channels is working and how that's kind of, I guess, trending versus your expectations there?

Yes. Steven, this is Eran again. So look, as I mentioned, we talked briefly about the [indiscernible] in the Investor Day. Our Google AdWords channel accounts for less than 10% of new revenue and overall, like I mentioned, we saw some choppiness Q3, but towards the end of the quarter, we saw a stabilization. And that's across Google AdWords and across all other channels, we see very healthy double funnel activity. Also, the pipeline looks very healthy. It's growing according to our plans.

So look, I think overall, we feel confident going forward with our acquisition strategy. And also we also mentioned during the Investor Day, the quality of the quantity. We continue to see a trend of this, our equality customers, bigger land, more expansion, high retention. So overall, we feel confident about the strategy and confidence about our ability to continue to acquire new top-of-funnel activity.

Okay. All right. Great. That makes sense. And then I guess on the guidance, again, just -- I 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 '26 and '27 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 yes -- how should we think through those factors and what gives you all the confidence behind those numbers?

So when we think about a few reasons why we are confident in next year numbers. First, demand and expansion from our larger customers. So we're accelerating year-over-year growth for all upmarket customers.

So you have seen $50,000, $100,000 and $500,000 I mentioned earlier. We're accelerating year-over-year growth of RPO and we are improving 50,000 NDR. In addition to that, we have the multiproduct adoption that continues to trend positively. CRM is becoming very significant with more than $100 million in 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're doing much, much better. AI Product engagement is accelerating. We were focused on educating, and we are 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. And as Eran 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.

Next question comes from the line of Alex Zukin with Wolf Research.

Maybe just since we're bundling kind of all the new products into one category. Now maybe what's the latest on Monday CRM service products in terms of traction in the quarter? how much they're contributing to net new ARR today? And then I've got a quick follow-up question on the model.

Yes, Casey, I'll take this one. So CRM, as we just mentioned, eclipsed the $100 million this year in a very short amount of time, I think, less than 2 years. We continue to see traction, of course, across SMB and mid-market and particularly, with service, this has really been a great story for us. It's only 9 months in, but we continue to see even more significant contribution coming from service. I believe our size of service customers is 2x that of other products.

So service continues to accelerate. Obviously, 9 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.

Got it. And then maybe Eliran, and just for you, if you've had a couple of questions regarding how you feel maybe about next year specifically. I think it's 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 '27 because of some of these timing adjustments that you're calling out, I think it would be really helpful for us to just understand the pacing of growth given some of these evolving dynamics.

Alex, Eliran here. So I think I mentioned it earlier, but if you think about where we're going to be in fiscal year '27, we said that we are 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. And this is something that we -- when we made the assumptions we took into account the trends that we see today we made some assumptions about the cross-sell 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.

So having all of this into -- taking all of this into account, we feel that the $1.8 billion in fiscal year '27 is achievable in the interim, we are confident with the consensus number for next year as well.

Your next question comes from the line of DJ Hynes with Canaccord.

Eliran, 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?

It's Eliran. So with regards 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 the -- in terms of revenue next year. So we take it into account, but it's not very meaningful.

And 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.

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

Yes. Maybe to Casey -- just to add to Casey, kind of what we see is basically that the percentage of AR in terms of contract duration. So multi is becoming more meaningful in terms of the numbers coming from 5% 5 years ago to now around 13%. And -- we see the annual contracts are going from 65% to 70%. So altogether, when you combine the annual plus the multi-product, you're getting more than of ARR coming from annual plus multiproduct. And this is something that the trend continues.

Your next question comes from the line of Raimo Lenschow with Barclays.

Perfect. Can I stay on RPO? Like, if I look at the old deck 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?

Yes, sure. It's Eliran. So when we presented the numbers in the Investor Day, it was during mid-August, and the ARPU is a new metric for us and upon further review post Investor Day, we made some adjustment to ensure consistency in accuracy Prospera. This was part of our auditors review of Q3 and the signed off the RPO data presented in our Q3 earnings -- and we are confident that these metrics, as I said earlier, to check some questions, provide a clear and reliable view in terms of our contracted revenue based and future growth visibility going into next year.

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

Yes, correct.

Your next question comes from the line of Derrick Wood with TD Cowen.

So you mentioned that upmarket motions carry longer sales cycles, but you did see really strong growth in upmarket KPIs, new customers accelerating RPO accelerating -- so are you seeing upmarket pipelines tracking even higher than your revenue growth? And if not for longer sales cycles, you could be even stronger. And I guess, given Q4 tends to be when larger deals have seasonal flush dynamics, how do you think Q4 is setting up? And any kind of share with how the quarter is tracking to date?

We do continue to see an acceleration in our pipeline as we move upmarket. 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 upmarket, we continue to see that phenomenon play out. But we're very encouraged with the pipeline that we've built up market. And again, we haven't really even started with the cross-sell motion. So we're bullish that, that will only add additional pipeline for the year.

Got it. And on the AI side, I mean, when you look at Magic side tick agent builder, what would you call out as getting the most traction or how would you rank this group in terms of potential adoption over the next year or 2?

[indiscernible] has definitely taken off. That is -- there's been a resounding excitement around that offering. Obviously, we just announced that that I had the opportunity, as I mentioned, pension customers that elevate -- there was a ton of excitement around that. And 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.

So 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. So 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. And these offerings do absolutely that, whether it's our agents or Vibe. So again, pretty excited where we are. looking forward to next year and seeing how that develops as we go.

Maybe just to add to what Casey mentioned, this is Eran. So I 100% agree 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 money agents can also unlock new go-to-market, a new type of customer that we didn't have before. So we excited about this one, both for our existing customer base, but also our ability to step into new type of customer audiences.

[Operator Instructions] Next question comes from the line of Rob Oliver with Baird.

My question is for Casey. So Casey, obviously, a lot of changes going on on your side. On the comment relative to sales cycles, I just -- 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 that comment is a bit of a change from when you were on stage a few months ago.

So I 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? And then I had a quick follow-up.

Yes, I don't think there's really been a whole lot of change. What I would say is we have to do 2 things at once, and we are -- we still have our high velocity business in SMB. That continues to pace at a healthy rate. And then we layered in the upmarket motion, which I'm stating the obvious, which those sales cycles are typically a little bit longer. But again, we have to do 2 things at once, and we are. So still very encouraged. My strategy hasn't changed, and it's consistent with what I mentioned at Investor Day.

Got it. Helpful. And then as you think about the move up market, obviously, you guys have a very powerful partner network, the low to mid-range and 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 internal versus a partner basis?

Yes. 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 offering. So it's not just about the existing ecosystem we have today. It's about recruiting the right partners to give us depth and breadth across the different regions. Obviously, depending on the region, they pay you a more significant role, especially as you 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.

So I'm super excited about where we are with the ecosystem, even more excited about where it's going.

Your next question comes from the line of Tom Blakey with Cantor.

Just 2 for me. On the sales cycles and the move up market. I don't think that's necessarily new you've been very articulate in terms of laying that out even before Analyst Day. Just wondering if anything maybe kind of like a downtick 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. And then secondly, double clicking on the SMB.

You're doing so well in these metrics that you're talking about with regard to NRR and RPO at the high end and the decel that's kind of implied into this $1.8 billion estimate for calendar '27. Has anything changed in terms of -- I know you've been asked a couple of times on the call about gross churn on the SMB side near term? And what are your expectations? You did a good job articulating what the calendar '27 estimates of 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. So this is Casey. I'll answer the first part, and I'll hand it to Eliran. So -- if you understand, when we talk about moving upmarket, it doesn't necessarily mean we're talking about the Fortune 100, right? We're moving up through mid-market. And quite honestly, the larger accounts are coming to us. So as it relates to some of the sales cycle, it's just the natural sales cycles we see as we move up market. That has not changed. That's consistent. We planned for that, and that's 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 a full platform. Because we can sell the full platform into those -- that customer set, including our AI offerings.

So 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.

But I'll hand it to Eliran for some of the guidance on the SMB

Tom, it's Eliran, to your question on gross retention. So gross retention is now historically high, and we see this improvement going from fiscal year '23. This is a result of the fact that we are growing our 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 regards to your question about sales cycle, I just want to give kind of a 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. And therefore, customers with regards to all businesses are making probably decisions. It takes them longer with everything that is going on. And I would say it's more from a macro team, but we are seeing a positive momentum as part of our parents with KC.

Your next question comes from the line of Matt Bullock with Bank of America.

I wanted to ask about sales force 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 upmarket sales rep to ramp? And then should we start to see more of those benefits in '26 as we get more maturity in that sales force.

Yes. We're seeing productivity move in the right direction in 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. And when I say that, we're using the technology that we're taking to market to effectively make our sellers more productive.

So we have our AI agents. We have our customer success customer success AI agents. We have a number of internal processes that we're leveraging -- so 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. So 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.

Fantastic. And then 1 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, but -- maybe 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 product contribution? Or if not, maybe just the core versus the multi products, that would be helpful.

It's Eliran. So as I mentioned earlier, there are not going to be any new products other than the air products that we introduced to the market. As a reminder, we have more than 250,000 customers and very few of them are using a very low percentage of them are using more than 1 product. So the cross-sell motion is going to be very strong between, for example, service and work management, CRM will continue to be strong with monday [indiscernible] that we introduced just recently. We are expecting some revenue from AI product. But as you said, it's going to be more moderate. But the impact of that can be on the retention of our existing customer base. It's not directly revenue, but the fact that our growth 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.

So taking all of this into account, provide us with the confidence on going into $1.8 billion in fiscal year '27.

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

Maybe just the first one, I know you guys have gotten [indiscernible] question in a number of ways, but just to be a little bit clear. So if it's my understanding, it sounds like the success that you guys are seeing up market maybe isn't just yet offset some of the choppiness or sepsis down market. And so maybe that is what led to the 4Q guidance cut. So can you just talk through and give a little bit more clarity on like what got tougher? Is it that you thought upmarket would have been growing faster to offset this lower growth down market? Or did something within SMB and down market gets softer than before?

Tyler, this is Eran. So I don't think it's a matter of something that's got harder in terms of acquisition, just a shift in the type of customer that we acquired during this quarter. So as we've said, we've pivoted some of the budget to different channels, we saw those bringing great pipeline. Just this pipeline takes a little bit longer to convert. So it's not at 1 of the expense of the other, it just different types of customers. But overall, this serves our strategy, going up market, higher quality of customers and if anything, just accelerate the motion that we already started.

Perfect. And then just my last one is, Eliran, you talked earlier about comfort in the Street numbers for next year. So just curious, in order to like hit those numbers, do we need to start to see like stabilization in the core work management business, maybe adjusted for some of the bigger changes in price? And then 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're thinking about that number going forward?

Taylor. So 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 [indiscernible] with regard 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 downmarket top of funnel activity.

These are the things that makes us feel comfortable about consensus for next year.

And it's Roy, I can add that like work management is our leading product, and we see that we are succeeding with our upmarket strategy mainly through work management. So it's like we're leading that market, and we feel like great potential going forward and growing with it as well.

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.