monday.com Ltd. (MNDY) Earnings

Management highlights

### Strategic Shift to AI-Powered Work Management - Completed the most significant strategic shift in company history, transitioning from software that helps people manage work to a unified workspace where people and AI agents complete work together. - On July 22, reduced global workforce by approximately 20% to streamline operations, remove excess management layers, and reallocate savings to AI product development and go-to-market capabilities. - The company crossed the $1.5 billion ARR milestone in July 2026, demonstrating the durability of the core business during the strategic transition. ### Product and Pricing Updates - Early adoption of the new AI-focused seat and credit pricing model, launched in May 2026, has outperformed expectations, with customers regularly topping up consumption beyond default credit packages, proving customers see clear value in the new AI offerings. - Management is sharpening focus on Monday CRM and Monday Service, giving each dedicated product development, go-to-market, and investment roadmaps to pursue category leadership, while reducing focus on other product lines to reduce complexity. - AI adoption continues to accelerate across all customer segments (downmarket and upmarket), with customers actively paying for AI capabilities rather than just receiving them as add-ons. ### Operational and Financial Highlights - Q2 non-GAAP operating margin expanded to 17% (up from 15% year-over-year), despite a 210 basis point negative impact from appreciation of the Israeli Shekel relative to the U.S. dollar. - Non-GAAP net income was $65.5 million, up from $58.3 million year-over-year, with diluted net income per share of $1.48. - Adjusted free cash flow was $52.3 million, for an adjusted free cash flow margin of 14% in the quarter. - Net Dollar Retention (NDR) was 109% for Q2, with management expecting modest near-term pressure as the company laps prior pricing increases from 2024 and 2025. - The company completed its authorized $870 million share repurchase program during the quarter, with no remaining authorization for future repurchases. ### Go-to-Market Updates - The company is prioritizing upmarket enterprise growth, and is aligning top resources and quota-carrying sales capacity to this segment, while leveraging partner ecosystems for more efficient downmarket go-to-market. - The company is scaling its forward-deployed engineer initiative to help enterprise customers deploy AI solutions, building deeper customer relationships and supporting larger deal sizes.

Guidance

- For Q3 FY2026, management expects revenue in the range of $368 million to $370 million, representing 16% to 17% year-over-year growth. It expects non-GAAP operating income of $57 million to $59 million, for an operating margin of ~16%, with a projected 100 to 200 basis point negative FX impact. - For full-year FY2026, management expects total revenue between $1.466 billion and $1.474 billion, representing 19% to 20% year-over-year growth. Full-year NDR is expected to be ~108%. - The full-year guidance incorporates the short-term operational impact of the July 2026 workforce restructuring, does not assume a rebound in top-of-funnel performance marketing, and accounts for expected NDR pressure from lapping prior pricing increases. - Management expects total employee headcount to be down approximately 20% year-over-year at the end of FY2026. - Non-GAAP operating margin is expected to expand further in FY2027, as the full-year benefit of the restructuring is realized, with positive top-line growth impact expected from the restructuring and AI expansion next year. - The updated full-year guidance is deliberately conservative, with management maintaining a philosophy of under-promising and over-delivering during this period of strategic transition.

Segment performance

Overall Q2 FY2026 total revenue was $365 million, growing 22% year-over-year. AI ARR doubled sequentially from Q1 to Q2, and accounted for 17% of net new ARR added in Q2, and remains a small share of total ARR at ~1% overall. Customers over $100K ARR grew 37% year-over-year, and customers over $500K ARR grew 68% year-over-year, leading record net customer additions in the $100K+ and $500K+ cohorts. Among focused product segments: Monday CRM and Monday Service now operate as independent units with dedicated go-to-market and R&D, and saw moderate net new ARR growth in the quarter due to strategic repositioning. Monday Dev has been de-emphasized relative to CRM and Service, as the company re-evaluates its product strategy amid shifting developer workflows, though the product continues to be supported and sold.

Risks & headwinds

- The 20% workforce reduction creates short-term operational disruption and execution risk that management has incorporated into the conservative guidance, with potential for near-term top-line impact as the organization restructures. - Ongoing appreciation of the Israeli Shekel relative to the U.S. dollar creates ongoing downward pressure on reported operating margins, particularly for R&D costs which are mostly incurred in Shekels. - Top-of-funnel performance marketing for downmarket segments remains volatile, in line with prior expectations, and management is not counting on a near-term rebound in this channel. - While early AI adoption trends are strong, AI monetization is still in early days, with uncertainty around long-term stabilization of NDR and how quickly AI ARR will grow to move core operating metrics. - Softness in downmarket new customer growth and slower-than-expected adoption of existing focused product lines (CRM, Service, Dev) creates near-term net new ARR headwinds during the strategic pivot.

Analyst Q&A

• Q: Downmarket new customer growth has been soft, but AI and upmarket are strong. How would you characterize the overall current demand environment? /

  A: AI adoption is strong across both downmarket and upmarket segments, with positive reception for new AI features and the new pricing model. There has been no meaningful change in the demand split between downmarket and upmarket since the start of the year, in line with prior expectations. The company continues to see record net customer additions in the $100K+ and $500K+ cohorts, with gross retention at historical highs, confirming the upmarket strategy is working. The company is allocating top resources to its highest-value enterprise AI opportunities.

• Q: Your updated full-year guidance is weaker than prior market expectations. What changed in the last 90 days, and did you add extra conservatism? /

  A: The primary change is the 20% workforce reduction announced in July, which creates expected short-term operational disruption that management incorporated into guidance. The guidance also reflects lapping prior strong growth and expected near-term NDR pressure from prior price increases. Guidance remains disciplined through the organizational and strategic transition, but management has strong long-term conviction in the company's growth trajectory. Guidance does not assume a rebound in performance marketing, consistent with prior commentary.

• Q: R&D as a percentage of revenue has risen amid AI investment. How long will elevated R&D levels last? /

  A: Management does not expect R&D as a percentage of revenue to meaningfully increase further from current levels. R&D will remain a major ongoing investment as the company builds new AI capabilities and transitions its platform, but no significant future upside to the current ratio is expected. Part of the recent increase in the R&D share is driven by appreciation of the Israeli Shekel, since most R&D staff are based in Israel.

• Q: The new AI credit pricing model is off to a strong start, but will AI monetization eventually stabilize NDR, and could it come at the cost of other expansion? /

  A: It is still very early days for the new pricing model, and management is still experimenting, so it is too early to predict when or if AI adoption will stabilize NDR. The key early positive signal is that customers regularly use up their allotted AI credits and purchase top-ups, creating a completely new expansion vector that did not exist before, when growth only came from adding more human seats. Early data is very encouraging, but long-term impacts are still uncertain.

• Q: Where were the 20% headcount cuts concentrated, and what roles are you continuing to invest in? /

  A: Cuts were concentrated in non-quota-carrying roles and downmarket resources, as the company flattens management layers and shifts focus to upmarket enterprise. The company is continuing to grow quota-carrying sales headcount for mid-market and enterprise segments, and is accelerating investment in upmarket initiatives including the forward-deployed engineering model. Downmarket go-to-market will increasingly leverage the existing partner ecosystem for more efficient coverage. R&D for AI product development remains a protected investment area.