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monday.com Ltd. (MNDY) Q2 2022 Earnings Call Transcript

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monday.com Ltd. (NASDAQ: MNDY)
Q2 2022 Earnings Call
Aug 08, 2022, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day. My name is Charlie and I'll be your conference operator today. At this time, I'd like to welcome everyone to monday.com's second quarter fiscal year 2022 earnings conference call. I'd now like to turn the call over to monday.com's director of investor relations, Mr.

Byron Stephen. Byron, please go ahead.

Byron Stephen -- Director, Investor Relations

Good day, 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 2022. Joining me today are Roy Mann and Eran Zinman, co-CEOs of monday.com; and Eliran Glazer, monday.com's CFO. We released our results for the second quarter fiscal year 2022 earlier today. This quarter we have introduced a new shareholder letter with our results commentary for the quarter.

You can find the shareholder letter, along with our investor presentation that accompanies our prepared remarks, and a replay of today's webcast, under the News and Events section of our 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.

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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. With that, let me turn the call over to Roy.

Roy Mann -- Co-Chief Executive Officer

Thanks, Byron. Good day, everyone, and welcome to our second quarter earnings call. It's been one year since our IPO and monday.com continues to grow. Our total revenue in Q2 was $123.7 million, up 75% from Q2 last year.

We continue to move upmarket at a fast pace, growing our enterprise customer base to more than a thousand customers this quarter while maintaining our best-in-the-industry net dollar retention rate. We continue to see strong growth across all customer segments with enterprise customers leading the way. In the second quarter of fiscal 2022, we finished with 1,160 enterprise customers, a 147% year-over-year increase. The second quarter saw significant improvement in our operating margin as we continue to make our business more efficient.

Since the company was founded, we've generated approximately $4 in recurring revenue for every $1 we burn. The secret behind our efficiency is our BigBrain analytics platform. If you've ever visited our offices, you've seen dashboards on nearly every wall displaying insights from BigBrain, our in-house business intelligence tool. BigBrain collects over 200 million events a day, which informs each of our marketing campaigns and every interaction we have with our customers.

By measuring everything, we empower our employees to make efficient, data-driven decisions, optimizing for cash flow and maximizing efficiency. Another key part of our long-term strategy is expansion of our product offering. This past quarter we announced our new Work OS product suite. And we've already seen impressive adoption.

Within two months, we have had over a thousand new paying accounts sign up with our new Work OS product. Our new end-to-end products are tailored by vertical and built on top of the monday Work OS platform, including monday projects, monday sales CRM, monday dev, and monday marketer. Customers can now switch between products within their Work OS platform, so they can unify work across their organization. We're committed to being best-in-class in every one of our product categories, and we're confident that we can achieve that, thanks to the flexibility and unique infrastructure of our Work OS.

These new products expand and elevate our go-to-market strategy and create additional entry points for new customers to our platform. Let me now turn it over to Eran to walk you through how customers are using monday.com to run their businesses better.

Eran Zinman -- Co-Chief Executive Officer

Thank you, Roy. monday.com is core to our customer's business success. We're proud of the efficiency they're reaching with the Work OS platform. With the customer base of more than 152,000 in over 200 countries and 200 different industries, our customers spend thousands of their first use cases.

We've pulled a handful of examples to give you a sense of that range. Renault Group recently signed up with monday.com and now uses the Work OS platform to share and manage the communication activities of its brands around the world. They're using the platform to increase their communication functions, collaboration, and efficiency across 39 countries. As part of their goal to innovate the property industry, Savills turned to monday.com to execute impactful marketing campaigns across the global markets.

Our implementation consultants are partnered with Savills to standardize their marketing processes, minimize wasted time, and align faster decisions with their KPIs and OKRs. Lastly, in a Total Economic Impact study released in March, Forrester cited Motorola used of monday.com for its global internal creative agency. The report showed that Motorola had significant cost saving, along with increases in overall productivity, producing an overall return on investment of 346%. Reading this report was really exciting.

We built monday.com as a unifying workspace that increases operational efficiency and productivity, and it's amazing to see that in action. Our dedicated product alignment team works on meeting the complex needs of our increasing enterprise customer base. This past quarter, we prioritized making our platform even more resilient and reliable with less platform friction and more customizable administrative permissions. We improved our platform infrastructure and database, strengthened our board stability by 75%, improved our board loading time by over 15%, extended our multi-region architecture, and made our core building blocks world worthy with hundreds of fixes and improvements across boards, dashboards, and docks.

In addition to those platform improvements, we've prioritized the granular, customizable security, and administration features that our customers need, including editing permissions by sub-item and item-specific review information. These new features have helped us maintain our best-in-industry retention rates and enabled our IRR. Finally, every quarter, our customer success managers help hundreds of customers reach their business goals and add measurable value to the company. For example, in Q2, one of our customer success managers worked with a larger consumer goods customer to maintain 100% of the monday.com licenses of remaining employees during layoffs.

Our efforts resulted in more than 65% jump in average monthly active paying users and high satisfaction with the platform. At the same time, we're improving the way we communicate with customers around the platform. We started rolling out support over chat as well as an email to the CEO feature, which allows users to directly send us feedback. Both initiative have shown us where our platform can grow while creating customer engagement.

Let me now turn back over to Roy.

Roy Mann -- Co-Chief Executive Officer

Thank you, Eliran. Our marketplace and partnership continues to be one of our larger growth drivers across our company, increasing our ability to serve any and all types of organizations. At the end of Q2, our partner ecosystem consists of 177 active channels partners, 417 new referral partners, and over 150 marketplace apps with 30 monetized apps that showed meaningful traction. Such strong product innovation, expanding ecosystem, and consistent growth is only possible with our amazing team.

We finished Q2 with nearly 1,500 monday.com employees around the world. And even as we grow, we maintain our culture and employee engagement levels. We see that not just from our internal surveys, but from outside the world as well, winning two major workplace awards this year with Fortune certifyng monday as a great place to work and Inc recognizing us as one of the best workplaces of 2022. With this success, we remain committed to aid nonprofits with digital transformation through our Digital Lift initiative, including our commitment to donate 10% of our equity over time to foundations.

During the past quarter, we launched a Digital Lift product and opened application for a year-long grant up to $100,000. In parallel, our Emergency Response Team partnered with organizations around the world to streamline their relief efforts. We leverage the monday.com platform to support humanitarian and disaster relief efforts of NGOs on the ground, including initiatives in Durban, Ukraine, and more. All in all, it's been a strong, impactful quarter and we're excited to see what the next quarter brings.

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

Eliran Glazer -- Chief Financial Officer

Thank you, Roy, and thank you to everyone for joining our call. Today, I will review our second quarter results in detail and provide an updated guidance for the third quarter and full year 2022. We delivered another strong quarter of growth, driven by customers increasingly adopting the broader monday.com Work OS and our product suites across their organizations. Total revenue came in at $123.7 million in the second quarter, up 75% from the second quarter a year ago.

Additionally, we saw significant margin expansion during the quarter stemming from our platform-based land and expand strategy and operational efficiencies. We continue to see strong expansion within our existing customer base, which is reflected in our best-in-industry retention rates. Our net dollar retention rate remained stable across all categories in the second quarter. Net dollar retention rate for customers with more than $50,000 in ARR was over 150%.

Net dollar retention rate for customers with more than 10 users was over 135%, and our net dollar retention rate for all customers was above 125%. As a reminder, our net dollar retention rate is a trailing four quarters weighted average calculation. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referring to a 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%. In the medium to long term, we continue to expect gross margin to remain in the high 80% range. Research and development expense was $24 million or 19% of revenue, compared to 16% in the year-ago quarter. We will continue to invest significantly in R&D throughout the remainder of the year as we build our product suite and scale our Work OS platform both horizontally and vertically.

Sales and marketing expense was $86.7 million or 70% of revenue, compared to 79% in the year-ago quarter. We anticipate sales and marketing expenses as a percentage of revenue to remain at the low to mid-70s throughout the remainder of the year. G&A expense was $14.6 million or 12% of revenue, compared to 9% in the year-ago quarter, reflecting increased cost since becoming a public company. Operating loss was $15.4 million and operating margin was negative 12%.

Net loss was $14.9 million. Total employee headcount was 1,489, an increase of 205 employees since Q1 2022. We hired across all major functions with over 60% of new hires in customer-facing role. We anticipate that the levels of hiring will slow in the second half of fiscal year 2022.

Moving on to the balance sheet and cash flow. We ended the quarter with approximately $834.6 million in cash and cash equivalents. Net cash used in operating activities was $14.1 million in the quarter. Deferred revenue increased to $177.9 million at the end of the second quarter, up from $160 million at the end of the first quarter.

Adjusted free cash flow was negative $19.2 million and included year-end bonus payments of $6.6 million and an insurance payment of $7 million. Adjusted free cash flow margin as defined as adjusted free cash flow as a percentage of revenue was negative 15.6%. Adjusted free cash flow is defined as net cash from operating activities, less cash used for property and equipment, and capitalized software costs, excluding non-recurring items. Now let's turn to our updated outlook for fiscal year 2022.

For the third quarter of fiscal year 2022, we expect our revenue to be in the range of $130 million to $131 million, representing growth of 57% to 58% year over year. We expect a non-GAAP operating loss of $25 million to $24 million. For the full year 2022, we now expect revenues to be in the range of $498 million to $502 million, representing growth of 62% to 63% year over year. We expect a full year non-GAAP operating loss of $112 million to $108 million and a negative operating margin of 22% to 21%.

With the recent strengthening of the U.S. dollar, we now expect FX to negatively impact our full year revenue growth, estimated by approximately 300 basis points. Given the concerns about the macro economy and the market, we have provided prudent yet achievable forward-looking guidance. It should be noted that we did see some softness in demand in Europe at the end of Q2.

And while one month is not enough data to extrapolate a longer trend, we are closely monitoring the demand environment across all areas of our business and will be transparent with our investors about our expectations. We clearly have momentum across all of the areas critical for us to drive sustained levels of higher revenue growth over the long term, including new customer acquisition, strong net dollar retention, and an expanding product suite. Our strategic focus remains on balancing healthy investment in the business with improving efficiency and profitability. We'll continue to measure and monitor our returns and adjust investment levels as needed.

I'll now turn it over to the operator for your questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Kash Rangan of Goldman Sachs. Kash, your line is now open.

Kash Rangan -- Goldman Sachs -- Analyst

A reporting on a day like Monday, I wouldn't expect anything less from monday. Spectacular results, congratulations to the entire team. I had two questions. One is with the rebranding around the Work OS and having new functionality focused on the developer, marketer, CRM, etc., how are sales cyles changing for the company and who are the kind of targets you're able to reach out to and what kind of budgets are you able to tap into? That's one thing.

And second is more of a financial question. You talked about operating efficiencies, and I'm curious how you do that while not sacrificing the growth potential of the company. Thank you so much once again.

Eran Zinman -- Co-Chief Executive Officer

Yeah. Thanks, Kash. This is Eran, I'll answer the first part of your question and then I'll hand it over to Eliran. So first of all, it's not a rebranding.

We see this more of an evolution from where we were. So just as a reminder, originally, the platform up until this day is very dynamic and flexible, allows everybody to build anything on top of our Work OS. And then last quarter, we took it a step further and further packaged our product as a CRM product, as a tool for developers, a tool for marketers. And we saw great momentum in the last quarter just reported that we saw more than 1,000 paying customers using those products in addition to using the work management platform.

And this is again part of our strategy. We offer the flexible platform but in addition to that, we help customers envoy with those specific solutions. We see this create better dynamics in terms of our ability to sell to larger enterprises, ability to land new customers while also offering the flexibility which to grow into once to start using this initial product. So overall, this increases the ability to go to market and also land larger customers and offer better solutions for our customers.

Eliran Glazer -- Chief Financial Officer

Hi, Kash. This is Eliran. With regard to your questions, as a reminder, we always said that we invest based on the returns that we see from our investments. And this is the playbook of monday.

So when we think about investing into the future, we are focusing on making sure that we invest in product and engineering and we grow the revenue generating sales that come as we did. In H1, we hired a lot of employees, added a lot of talent, and we continued to invest also in online marketing. But the important thing is if it doesn't meet our guidance, internal expectations, with regards to return, we kind of take it in a more modest way. So from our perspective, we continue to invest when we see the returns that we are used to.

And this is the playbook that we operate in accordance.

Kash Rangan -- Goldman Sachs -- Analyst

Thank you so much.

Operator

Thank you. Our next question comes from Ittai Kidron of Oppenheimer. Your line is now open.

Ittai Kidron -- Oppenheimer and Company -- Analyst

Thanks, guys, and nice numbers. And Eliran, maybe could just talk about the softness you're seen late in the quarter in Europe. How much of this do you think is macro, is FX, a little bit more of a play here. And maybe you can give us some color on the month of July.

Has that weakness continued into July or you've seen an improvement? Help us think about. Have you qualified what you've seen into the rest of the year guidance.

Eliran Glazer -- Chief Financial Officer

Hey, Ittai. It's Eliran. So as we said, we did see some softness in Europe. We think it's broad based.

It's not specific countries, but you see it across many countries and also not specific to any segments. It started in June. We also see it in July, to be honest. And if you combine into this the FX impact, it's also definitely something that we should account for.

So we said that in Q2, we estimate the FX impact approximately 2% negative on our growth rate and we estimate that by the end of the year, it's going to be around 300 basis points. We don't have a crystal ball, but looking at the macro economy and geopolitical terms with the Russia-Ukraine war, inflation, and everything, we definitely monitor carefully the level of impact on our businesses and and we adjust our assessment accordingly. So I would assume that we should take it into account even when we took it -- when we speak about guidance probably by the end of the year.

Ittai Kidron -- Oppenheimer and Company -- Analyst

Got it. And just as a follow up regarding your expectations of a slower hiring in the second half of the year. Is that just because you've kind of pretty much did what you needed to do on headcount or again, this is with the macro environment in mind, trying to be a little bit more cautious and focused on margins?

Eliran Glazer -- Chief Financial Officer

So when you think about hiring, we did what we expected to do in H1. We hired the positions that we think we needed in order to scale the companies for future growth. Now we are more focused in H2 on bringing additional headcount, definitely not only related to the macro economy, but this is according to the plans that we had originally. And also looking at the macro economy, but this is not the main driver.

So we are going to slow down the hiring and focus on positions that we know help us to complete the supporting functions to scale the company.

Ittai Kidron -- Oppenheimer and Company -- Analyst

Very good. Thanks, guys.

Operator

Thank you. Our next question comes from Arjun Bhatia of William Blair. Arjun, your line is now open.

Arjun Bhatia -- William Blair and Company -- Analyst

Perfect. Thank you very much for taking my questions and congrats on a great quarter, guys. I wanted to touch on the enterprise traction. It seems like you're getting really good performance in that 50k cohort.

you talked about. I think this was the highest sequential add that we've seen. Can you just talk about the dynamics that you're seeing there? Is that customers expanding seats? Are those new customers landing at those high ARR metrics? And then I'm curious, as customers do grow with you, is there -- are you starting to see more consolidation of spend on monday across several different software solutions perhaps and departments as well? Thank you.

Eran Zinman -- Co-Chief Executive Officer

Yeah. Hi, Arjun. This is Eran. So definitely, we're very focused on our enterprise customer segment.

I keep seeing great growth there and we see the momentum increasing over time. So definitely we see return on that investment and we're committed to continuing to invest going forward. I would say that to your question specifically, we do see larger initial deals as a trend. So definitely that's one trend.

I would say that the additional new products that we launched last quarter definitely also make a big impact on the customers, our ability to sell more products over time and expand their usage. So definitely another trend that we're seeing. Also in regard to your question about consolidation, I think that's kind of in addition to what Eliran said with the macro economy, we see here a great opportunity for us as a company because a lot of our customers realize that they can do much more with monday as a platform. They might have several use cases, but now they see the potential of extending monday throughout many more departments and perhaps consolidate a few different tools under monday.

So definitely we are starting to see this as a trend. So that's also very interesting, something we're kind of also pushing given the macro economy.

Arjun Bhatia -- William Blair and Company -- Analyst

Very helpful. Thank you. And just -- I think, Eliran, you just touched on this because I wanted to maybe ask a little bit more pointedly. When you think about the go-to-market strategy in the back half of the year, how much are you balancing between performance marketing versus the direct sales investments? Is it just that the direct sales investments are already made and you don't need to add more, or are you pulling back on performance marketing even further in this environment? How do you do that in the back half?

Eliran Glazer -- Chief Financial Officer

Hey, Arjun. So as a reminder, when we spoke about -- in Q1, we said that we frontloading expenses in online marketing in Q1, which was an outlier. And then when we continue in Q2 going forward, it's going to be a more modest investment. We continue to invest in performance marketing.

We believe this is an important go-to-market tool for us driving and generating leads. In addition to that, we also continue to hire salespeople. But it's going to be into kind of, if you think about it, first, we are looking at the return on investment that we are doing on performance marketing. And second, we are going to hire in a slower pace the addition of salespeople and CPMs in the partners team.

Arjun Bhatia -- William Blair and Company -- Analyst

OK. Got it. Thank you. And congrats again, guys.

Operator

Thank you. Our next question comes from Scott Berg of Needham. Scott, your line is now open. Please go ahead.

Scott Berg -- Needham and Company -- Analyst

Hi, everyone. Thanks for taking my questions and congrats on a really nice quarter. I guess two questions here. First of all, I wanted to start on on partner impact on the quarter before I discuss some of the some of the momentum that you're having here.

But if you look at kind of your new bookings in the quarter or whether it was directly through a partner or just influence from your ecosystem, how would you compare the traction in the quarter, say, versus a year ago?

Eliran Glazer -- Chief Financial Officer

In partners? Hi, Scott. It's Eliran. So we continue to see strong momentum with our partners channel. We now have -- with regard to global expansion, we are covering new markets where we do not have risks directly.

To -- As of today, we have more than 177 active channel partners with 26 channel partners added on Q2 and we have outside of monday, additional of 470 new referral partners in Q2. So overall, we see momentum. Obviously, with the current situation in Europe, potentially there might be some slowdown in the future, but this is something that we account for and measuring or looking at on a constant basis.

Scott Berg -- Needham and Company -- Analyst

Got it. Helpful. And then from a follow-up question perspective, I know there was a question that was already asked. I think Kash asked it on the new Work OS launches recently, the new functionality there.

But how should we think about the impact on that and on your bookings going forward? Is that more to help lands with new customers or does it help to expand with your existing customers better? Thank you.

Roy Mann -- Co-Chief Executive Officer

Hey, Scott it's Roy. So that move with introducing new products was both of the things you said. One, it allows us to open up new markets and have other customers consider monday on a different approach and gain more market share and more quickly. And on the other hand and especially in these times, it helps customers expand into new use cases, adding more departments, adding more use cases and deepening their usage of monday even within existing departments.

So it plays on both ends and that's how we see.

Scott Berg -- Needham and Company -- Analyst

Great. Great. Congrats on a good quarter. Thanks for taking my questions.

Roy Mann -- Co-Chief Executive Officer

Thank you.

Pinjalim Bora -- J.P. Morgan -- Analyst

Great. Thank you for taking the question and congrats on a great quarter. I want to ask you on retention. I know you don't give the fidelity.

I guess we know it's been pretty stable over a certain amount of time. Is there a way to understand qualitatively the directionality of that metric? And how has gross dollar retention been trending in the business?

Eliran Glazer -- Chief Financial Officer

Hi, Pinjalim. It's Eliran. And congratulation for the first time you're covering us. So good question on retention.

So when we speak about retention, we mentioned that we believe we are now at the stage where it's stabilized. So we also spoke about ranges. When we are -- now with all customers above 125%, and when we think about the range, probably the range of we expect is between 122% to 125%. If we think about 10-plus users, it's 135% to 140%.

And when we think about enterprise customers or 50k, it's around 145% to 150% and above. So potentially this is kind of the ranges that we believe that are going to be. With regards to gross retention, we look at gross retention -- obviously, it's getting better. The fact that we are actually getting more momentum with customers with 10-plus users and enterprise accounts, also improving our growth retention -- we usually don't disclose this number, but this is getting better as we continue to move upmarket.

Pinjalim Bora -- J.P. Morgan -- Analyst

OK, understood. One follow for you, Eliran. Obviously, you said you're seeing some softness in Europe. You said it continues into July.

I see the upside to the revenue guidance is a little bit timid versus prior years or prior quarters. Is there a pause? Is it possible to kind of estimate what kind of impact going back to remodeling at this point and what other assumptions are baking into the guidance?

Eliran Glazer -- Chief Financial Officer

So naturally, when we look at guidance, we take into account all of the number of considerations inclusive of, of course, the geopolitical situation as well as the FX impact and other macroeconomy environment that that is out there. So this is part of the way we measure. This is part of the way we do our projections, so we take it into account all together.

Pinjalim Bora -- J.P. Morgan -- Analyst

Understood. Thank you.

Operator

Thank you. Our next question comes from Brent Bracelin of Piper Sandler. Brent, your line is now open.

Brent Bracelin -- Piper Sandler -- Analyst

Thank you for taking the question here. I wanted to go back around some of the momentum you're seeing here with the enterprise customers. Vendor consolidation is a narrative we're starting to hear a little bit more about. You've obviously came out with the new Work OS platform that expands the reach into CRM, dev, marketing.

Are you seeing that play out and drive some of the momentum record number of enterprise customers this quarter or not? Is that a narrative you're going to lean in more on? Just love to get your views around the opportunity you see with kind of your little across platform, given vendor consolidation is a narrative, which I hear a lot more in the enterprise space.

Eran Zinman -- Co-Chief Executive Officer

Yeah. Thanks, Brent. So this is Eran. So, I mean, definitely we see this as a great growth driver.

I don't think we're going to see like immediate impact in terms of our already great momentum in the enterprise customers. It might take some more time to kind of have another growth on top of the already existing growth that we have. But definitely in terms of consolidation, this is something that's really helpful. So the timing was really right considering what we've seen in the market.

And if you think about it, Monday is literally one of the best platforms to do consolidation on because from day one monday was very flexible, very generic. It allowed -- and customers already used it for many use cases. So already customers even before -- I've seen that happen now in the market of use monday for a variety of use cases. Some companies run all the department, they use cases on top of our platform.

So I think we're in a great position as a company to offer that consolidation. It happened with customers in the past and definitely we've seen that conversation right now and we're pushing that through our customer success and sales team. And even get feedback from customers that go in through this process. So definitely something with the big upside that we have as a company and we'll continue to offer that to our customers as we go forward.

Brent Bracelin -- Piper Sandler -- Analyst

That's helpful color. And then just, Eliran, as we just think about maybe the path to positive free cash flow here. You have certainly a very strong balance sheet, over $800 million in cash. You only burnt $14 million.

But how much of that cash position do you think you're going to need to consume before you kind of get to positive free cash flow? Thanks?

Eliran Glazer -- Chief Financial Officer

Hey, Breny. It's Eliran. So with regard to free cash flow, maybe to start and say that we expect margins in H2 to improve as part of the business growth. I don't know to tell you the exact number of how much we are going to consume.

But I think if we continue to deliver the growth and improved margins as we see now, so potentially with regards to free cash flow, as we said in the past, is going to be low double digits free cash flow as a percentage of revenue by the end of the year. And I would assume that somewhere next year in H2, we're going to see a shift toward breakeven or some free cash flow positive. So this is kind of the plan. And if you think about the range that we are currently consuming, I expect it's not going to be very meaningful from our total cash.

Brent Bracelin -- Piper Sandler -- Analyst

Helpful color. Thank you.

Operator

Thank you. Our next question comes from Andrew DeGasperi of Berenberg. Andrew, your line is now open.

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

Thanks for taking my question. I know this has been asked several times on this call, but in terms of the annual guidance, what I just want to make clear is you flagged a weakness in Europe and you said that you're accounting for that, but are you also accounting for any additional potential weakness in other regions or end markets as part of the guide that you have for the year.

Eliran Glazer -- Chief Financial Officer

Hey, Andrew. It's Eliran. When we look at the guidance, we examine a wide range of potential outcomes and set our guidance to the level that we feel confident that we'll be able to meet and exceed. Certainly the wide range of potential outcomes include the macroeconomy environment that could be worse and potentially the geopolitical situation can be longer than expected.

So we try or we make sure we take it into account to a certain extent. We don't want to be completely conservative, opportunistic. So we take all of this into account when we do the projections.

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

Thanks for that. And then just one on your pricing strategy. I know you haven't raised prices since 2019. Just curious to know, given the inflationary and wage pressures a lot of companies are facing, are you thinking or changing that or are you taking a closer look at it?

Eran Zinman -- Co-Chief Executive Officer

Yeah. Andrew, this is Eran. So we haven't made any significant changes to our pricing structure. If anything, we always tried to make it easier and simpler for our customers, I would say, as we mentioned, we have a big upside with our new Work OS product that offer us the ability to charge a premium over our work management platform while giving this value to our customers.

So definitely this is a big upside that we have also in terms of pricing and in engagement and usage. We also see this as a potential to increase the number of seats within accounts. So that's a big upside that we have in terms of pricing. But in regards to our kind of basic pricing model, we don't expect to see any kind of changes right now.

Roy Mann -- Co-Chief Executive Officer

Yeah. Hi, it's Roy. I would add that given our motion to enterprise we see a lot more and the percentage of seats, which are enterprise within our revenue, is growing. So it is not a price increase, but it is like a much more significant portion.

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

Thanks for that.

Operator

Thank you. Our next question comes from David Hynes with Canaccord. David, your line is now open.

David Hynes -- Canaccord Genuity -- Analyst

Hey, good morning, guys. Thanks for taking the question. So R&D spend ticked up a little bit, right? You're clearly investing in the product. I'm curious, what do you see is the more significant opportunity? Is it is it horizontal expansion of Work OS or vertical expansion?

Roy Mann -- Co-Chief Executive Officer

Hi. It's Roy. So we actually see both. Like the reason we launched the product is because we saw of our path horizontal moves, and what customers actually did with us.

We took that and launched the product so we can go deeper inside each one and be best in class within every vertical. What happens outside these products is that customers onboard to the Work OS and still use us for many more use cases, which we, in the future, will probably turn into products as well. So all of these product move was actually to get deeper into areas.

David Hynes -- Canaccord Genuity -- Analyst

Yeah, yeah. OK. And then a follow up for Eliran. Just the softness you're seeing versus your expectations, is that showing up more in top-of-funnel activity or expansion momentum?

Eliran Glazer -- Chief Financial Officer

Hi, DJ. It's Eliran. I think it's both. On one hand, when you think about expansion, so the conversations are different.

If you think about companies now, the sales cycles are taking longer, companies are taking -- some of the companies out there are making decisions with regards to the level of spend, with regard to the level of expansion. This is on the expansion side. On the top of funnel, when you get into new audiences, definitely the spend or the online spend that companies are doing is different. Therefore, there is, I believe, some slowdown in this -- in the environment as part of the macroeconomy challenges.

David Hynes -- Canaccord Genuity -- Analyst

Yeah. OK. Makes sense. Thank you guys for the color.

Operator

Our next question comes from Derrick Wood of Cowen and Co. Derrick, your line is now open.

Unknown speaker

Great. Thanks, guys. It's Ed on for Derrick. Nice quarter.

The Renault Group was an impressive win. They have 170,000 employees. Was this a displacement or greenfield? And could you give us any color how many seats this deployment is? And then to reach, like, close to 50k seat levels, what would need to improve on the product to get to those levels?

Eran Zinman -- Co-Chief Executive Officer

Can you just repeat the first part of your question. You are breaking up a little bit. The first part?

Unknown speaker

Sorry. The Renault Group was impressive. They have 170,000 employees. Just trying to get a feel for the size of this by seats and whether this was displacement or greenfield?

Eran Zinman -- Co-Chief Executive Officer

OK. yeah. So this is Eran. So it's a very significant deployment.

We didn't disclose the amount of seats, but it's a very significant deployment. I would say a few hundred. It's more to the kind of top part but definitely this is an account that we play a very strategic role in and we continue to expand our footprint within this account. Part of the reason we're so excited, also the upsell opportunity that we have with that customer and the ability to expand to more departments over time.

And this is just one use case out of many that we saw this quarter of larger enterprises that adopt monday on a big scale and continue to scale over time.

Roy Mann -- Co-Chief Executive Officer

And the second part of your question? Sorry. Yeah. Can you repeat --

Unknown speaker

Yeah, so to get to higher seat level numbers that -- like to get to 50k plus seats, what would need to improve on the product side to get there?

Eran Zinman -- Co-Chief Executive Officer

Yeah. So I don't think it's much of things that need to be improved with the product, although we keep investing more and more in some of the product features that allow enterprise companies to scale. First of all, it's a process. Companies go and scale over time gradually.

So we definitely see this as a process. Our future enterprise customers are now growing, and this is part of the reason why we see so much momentum in that group. But our sweet spot is still under 10,000. We continue to invest and raise the bar every year and we'll continue as a company to invest in a lot of the larger enterprise to use monday, both from a security perspective, governance, and also in terms of features.

We're heavily invested into that part of the business.

Unknown speaker

Great. Thanks. And then, Eliran, on the Billings number, was there anything -- the upside was a little softer. Was there anything invoicing, flexibility wise to customers that impacted this? And is this expected to persist in the second half?

Eliran Glazer -- Chief Financial Officer

Sure. So billings tend to be a bit lumpy and we do not measure the business or manage the business through billing. We look at net dollar retention rate, revenue growth, and customer growth. If you think about revenue growth on a sequential basis, we grew 14% quarter by quarter and 75% year over year.

So this is the measures that -- the metrics that we use to look when we look at the business as well as comparison are more difficult this quarter when we are getting bigger on the numbers.

Unknown speaker

Great. Thank you.

Operator

Thank you. Our next question comes from Brent Thill of Jefferies. Brent, your line is now open.

Brent Thill -- Jefferies -- Analyst

Thanks. I'm curious if you could update us on your quota carrying sales rep hiring planned for the year. Have you changed your plan relative to kind of what you're seeing? Can you just give us any color in what you're expecting this year?

Eliran Glazer -- Chief Financial Officer

Hey, Brent. It's Eliran. So with regards to quota carrying, we didn't change the plan. The numbers grew -- continue to grow.

This is another area together with R&D that we invest and continue to invest even with the current environment. So the plans are -- remained as we did them -- when we did the plan for the year.

Brent Thill -- Jefferies -- Analyst

And just real quick, what you're embedding in your overall guidance, are you seeing in a flat environment, an improving environment or slightly worsening environment? How would you characterize your guidance relative to the back half in your plan?

Eliran Glazer -- Chief Financial Officer

So as I mentioned earlier in most of my replies, we do account for the macro economy, environment, and the geopolitical challenges to continue by the end of the year. Again, I don't have a crystal ball and I don't have better expectations than anyone else. We're trying to be a bit cautious, remaining optimistic with regards to next year. But by the end of this year, we think it's going to be the same environment that we see today.

Brent Thill -- Jefferies -- Analyst

Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from Robert Simmons of D.A. Robert, your line is now open.

Robert Simmons -- D.A. Davidson -- Analyst

Hey. Thanks for taking the question. Sorry, if my audio is a little off. You have 30 apps so far.

Is there [Audio gap] to expect that the number of apps that will become monetized over the next quarter or three years? And then are you earning revenue on those that are currently monetized? And if not, what's the [Audio gap] for doing so?

Eran Zinman -- Co-Chief Executive Officer

Yeah. Hi, Robert. This is Eran. So definitely we have, like, very good momentum in our marketplace.

We continue to invest there and working with other third-party developers and companies that to help them kind of develop apps on top of our marketplace. We did launch our payment service in the marketplace two quarters ago and we see great momentum. We see app developers moving from independent payments to use our payment system and also new developers that join the marketplace using our payment system. It's still not significant, I would say, compared to our total revenue, but it's growing very nicely.

so definitely we're keeping tracking that. And for us, as we mentioned previously, it's a very strategic part of our product and we see this as our ability to expand our use cases and offer long-tail solutions to our customers. So definitely a lot of investments in terms of R&D and our focus over in the marketplace. So we're very happy with the mometum.

Robert Simmons -- D.A. Davidson -- Analyst

Great. Thanks, guys.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Byron Stephen -- Director, Investor Relations

Roy Mann -- Co-Chief Executive Officer

Eran Zinman -- Co-Chief Executive Officer

Eliran Glazer -- Chief Financial Officer

Kash Rangan -- Goldman Sachs -- Analyst

Ittai Kidron -- Oppenheimer and Company -- Analyst

Arjun Bhatia -- William Blair and Company -- Analyst

Scott Berg -- Needham and Company -- Analyst

Pinjalim Bora -- J.P. Morgan -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

Andrew DeGasperi -- Berenberg Capital Markets -- Analyst

David Hynes -- Canaccord Genuity -- Analyst

Unknown speaker

Brent Thill -- Jefferies -- Analyst

Robert Simmons -- D.A. Davidson -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends monday.com Ltd. The Motley Fool has a disclosure policy.


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