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Operator
Good day. My name is Eric and I’ll be your conference operator today at this time I would like to welcome everyone to Monday.com’s third quarter fiscal year 2025 earnings conference call. I would like to turn the call over to Monday.com’s Vice President of Investor Relations, Mr. Byron Stephen. Please go ahead.
Byron Stephen (Vice President of Investor Relations)
Hello everyone and thank you for joining us on today’s conference call to discuss the financial results for Monday.com’s third quarter fiscal year 2025. Joining me today are Roy Mann and Aaron Zimmon, Co CEOs of Monday.com, Eliran Glazer, Monday.com CFO and Casey George, Monday.com’s 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.
Roy Mann (Co-Chief Executive Officer)
Thank you Byron and thank you everyone for joining us today. In Q3 we delivered another quarter of strong results and disciplined execution putting us firmly on track toward our investor day revenue target of 1.8 billion of FY27. We saw robust net additions of over 100k and 500k 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 position Monday.com strongly for its next phase of growth. Our Q3 results follow a highly successful investor day where we showcased our evolution into multi product and AI powered platform. The event drew nearly 1,000 online participants over four times the viewership from 2023, reinforcing investor confidence in our vision and the significant opportunity ahead as we execute toward our FY27 goals. Additionally, our Elevate user conference in New York City and London reached new heights in both scale and impact. Attendance more than doubled year over year, reflecting our growing excitement around our platform and the new AI capabilities. These events not only amplified customer enthusiasm and engagement, but also generated record engagement and strong pipeline heading into 2026, setting the stage for continued customer expansion and growth. Let me now turn it over to Erwan to walk you through some of our business highlights for the quarter.
Eran Zinman (Co-Chief Executive Officer)
Thank you Roy the investments we’ve made in our sales organization over the past year continue to drive strong results. We deliver solid net additions among larger customers, saw improved net dollar retention for accounts over 50k in arrangement 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 that target larger opportunities. While these motions come with longer sales cycles, they are yielding higher quality pipeline and position us well for sustainable growth. Moving on, our multi product strategy is delivering strong results, expanding Monday.com reach across more teams and use cases. New 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 its gradual release in July, Monday Vibe has seen rapid adoption with customers creating more than 60,000 apps to power their unique workflows. Built directly on Monday.com enterprise grade infrastructure, these apps are secure, scalable and fully integrated with granular permissions and team context. To better reflect the value customers are realizing, we introduced a new pricing model that lets users select a tier aligned with their AI needs, from unlimited free access to build and test apps to paid tiers that scale as the usage grows. We also recently introduced Agent Factory, a new AI product that lets anyone design and manage intelligent agents to automate complex workflows. Operating as a standalone solution with flexible consumption based pricing, these agents function as integrated team members handling tasks like updating CRM records, sending emails and scheduling follow ups. 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 powered platform. We’re entering the next phase of durable profitable growth that will create meaningful long term value for shareholders. With that, I’ll now turn it over to Eliran to cover our financial and guidance. 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 MDR was 111% in Q3. We continue to expect overall NDR to be stable at 111% for fiscal year 25. As a reminder, our NDR is trailing 4/4 weighted average calculation for the reminder of the financial metrics disclosed. Unless otherwise noted, I will be referencing non GAAP financial measures. We have provided reconciliation of GAAP to non GAAP financials in our earnings release. Third quarter gross margin was 90% in the medium to long term, we continue to expect gross margin to be in the high 80s range. Research and development expense was 57.8 million in Q3, or 18% of revenue, up from 17% in the year ago quarter. Sales and Marketing expense was 1 51.8 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 headcount was 3,018 employees, an increase of 151 employees since Q2. We continue to expect to grow headcount by approximately 30% in fiscal year 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 $1,226,000,000 to $1,228,000,000 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
At this time I would like to remind everyone in order to ask a question, please press STAR followed by the number one on your telephone keypad. We ask that participants please limit themselves to one question, one follow up question. Your first question comes from the line of cash Rangan with Goldman Sachs. Please go ahead.
Goldman Sachs (Equity Analyst)
Hi, thank you very much. Good to see the quarterly results. I’m also curious to get your perspective on two things. One is as you look at the spending environment with the next calendar year, calendar 26th, 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 looks like a smaller magnitude of beat relative to what we’ve come to expect of Monday in the past prior quarters. If you could talk about what might be behind the numbers, that is the go to market transition, et cetera, that hopefully will set you up for very good success in the years ahead. But I wonder if the go to market transition, the pivot towards larger deals, also causes the kind of upside that we’ve come to expect in the results and the guidance looking forward 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. Thank you so much.
Eran Zinman (Co-Chief Executive Officer)
Hey Kash, this is Iran. Maybe just to start, before I start answering your question, I know this is your last earning call, so just want to say thank you for the whole period and the coverage throughout the years. Just to the first part of the question and then I can defer to everyone 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 of 50k, 100k, half a million, we see acceleration. Our go to market strategy in terms of landing 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 cross availability. More customers are buying more products. Definitely more and more customers are interested in AI features and AI products and I think a lot of the new announcements and new features that we launch 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 AI features that we offered and we announced during the investor day.
Goldman Sachs (Equity Analyst)
Yeah, thanks Aran.
Roy Mann (Co-Chief Executive Officer)
Hey Keshe, it’s early on with regards to the guidance and you know, in Q3 and what we provided. So the more measurable bit is mostly due to timing effect as we rebalance investments over the higher ROI areas. And it relates to your question. So we see the direct sales motions, the new products like Monday service, CRM and channels such as video and social media actually providing higher roi and they tend to have a longer sales cycle. But we see a very positive momentum. When you look at the 50k customers, 100k customers, 500k 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.
Casey George (Chief Resource Officer)
Yeah, 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, you know, 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 multi product journey, which obviously has just begun, all indications are we’re going to have a much more material impact on the revenue associated with customers consuming more than one product. 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.
Goldman Sachs (Equity Analyst)
Thanks so much and best wishes for the journey ahead.
Operator
Thanks Cash. Your next question comes from the line of Jackson Ader with Keybanc Capital Markets. Please go ahead.
KeyBanc Capital Markets (Equity Analyst)
Great. Thanks for taking our questions. 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 multi year, I would expect deferred revenue to have to outgrow recognize revenue. And so I’m just curious what the dynamics are there that that are causing deferred revenue to come in below revenue. Thank you.
Eliran Glazer (Chief Financial Officer)
Hi Jackson, it’s telegram. 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 but 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 tend to see the RPO as a better measurement going into next year. Okay, all right, great. That’s fair. And then what should we take from you know the implied growth rate here for the fourth quarter is like 22 and a half, 23% or so year over year growth. What should we take as signal for the right level to be thinking about 2026? So we are going to provide our initial expectation for fiscal year 2026 in our next quarter earnings. And I think in Investor day we provided a good outline. We said that we’re 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’re growing on the revenue but also expecting operating and free cash flow margin to expand.
KeyBanc Capital Markets (Equity Analyst)
Got it. Okay, thank you very much.
Operator
Your next question comes from the line of Arun Bhatia with William Blair. Please go ahead.
William Blair (Equity Analyst)
Yes, perfect. Thank you so much. I want to maybe just go back to the fact that 26 might see some improvement given that you’re rebalancing investment. Can you, can you just maybe elaborate a little bit on where the investment is going, what you might expect. Your kind of goals are for 2026 to either re accelerate growth and then I think ln, I heard you say 30% increase in headcount this year. I’m curious how your plans are shaping up for 2026 within that investment investment framework. Thank you.
Eran Zinman (Co-Chief Executive Officer)
Yeah. Hi Arjun, this is Iran. 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 our going up market worked really well. Just as a reminder, just three years ago, it seems like a big stretch, but right now the majority of the business is based on 50k, 100k, half a million dollar accounts. We see those accounts have much better retention, much more expansion, much more stability. Definitely changes the nature of the business and we see some of that as ...
