monday.com Ltd. Ordinary Shares 2026 Q2 Earnings Call

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 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. Thank you everyone for joining us today. Over the past nine 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 22nd, 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. 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 100K+ and 500K+ customers in Q2 reflect 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 product adoption continues to accelerate and customers' response to our new direction continued 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're 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 product to invest beyond the default 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 roadmap. We believe that giving 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're building an AI workspace for teams with focused products where we can genuinely lead in 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 lay prior pricing actions taken in fiscal years 2024 and 2025.

As a reminder, our NDR is a trailing four quarter weighted average calculation. For the remainder 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 19% in the year ago quarter. Research and development expense was $83 million in Q2, or 23% of revenue, up from 20% in a 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 US 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 $1.070 billion in cash equivalents, and marketable securities, compared to $1.210 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 cost, plus cost associated with the build-out of our corporate headquarters. Let's now turn it 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-$370 million, representing growth of 16%-17% year-over-year. We expect non-GAAP operating income of $57 million-$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 million-$1,474 million, representing growth of 19%-20% year-over-year. We expect full year non-GAAP operating income of $230 million-$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-$290 million, with adjusted free cash flow margin of 19%-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.