Monday.com (MNDY) Q3 2023 Earnings Call Transcript

Monday.com (MNDY 2.81%)
Q3 2023 Earnings Call
Nov 13, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by and welcome to the monday.com third quarter fiscal year 2023 earnings conference call. I would now like to welcome Byron Stephen, head of investor relations, to begin the call. Byron, over to you.

Byron Stephen -- Director, 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 2023. 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 third quarter 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 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. As we reflect on our most recent quarter, it is with heavy hearts that we acknowledge the recent tragic events that have unfolded in Israel. Our thoughts are with all those affected by recent violent terrorist attacks. In this time, the impact on the current situation of our global operations is minimal, and we remain confident in our ability to meet all our business and financial targets.

In terms of revenue, Israel accounts for a low single-digit percentage of our total ARR. While only approximately 7% of our global workforce have been called up for reserve duty, our global employees have gone above and beyond to seamlessly fill any gaps to help ensure our business continues to run smoothly. Furthermore, all of our data server are distributed globally across North America, Europe, and Australia, ensuring our operations will continue seamlessly. We are monitoring the situation closely and will make necessary adjustments to our plans as needed.

Now, let me turn to our results this quarter. We are pleased to share that we have achieved another quarter of strong growth, impressive margin improvement, and amazing cash generation. In Q3, we continued to demonstrate our ability to scale with efficiency, posting record non-GAAP operating margin of 13% and a record free cash flow margin of 34%. I'll now turn it over to Eran to walk you through some of our product highlights this quarter.

Eran Zinman -- Co-Chief Executive Officer

Thank you, Roy. We remained focused on our multiproduct strategy and ensuring that our products can successfully enable cross-functional collaboration for our customers. Our new products continued to show a remarkable cross-sell opportunity with 2,534 initial work management accounts adopting one of our new products. We are dedicated to providing exceptional solutions that meet the evolving needs of our customers, and we believe that our new products will play a pivotal role in achieving this.

Our target is to open access to our new monday sales CRM and monday dev products to all customers by the end of Q1 of next year. In Q2, we successfully completed mondayDB 1.0. With the completion of that phase, all monday customers have been transitioned to our new cutting-edge infrastructure, and initial feedback has been amazing. Users are noticing a meaningful boost in performance and capabilities of the Work OS platform.

Our next phase, mondayDB 1.1 dashboards, is now alive and already showing significant improvements in load times and performance of our largest and most complex dashboards. We're also beginning to see great initial results from our new monday AI capabilities, specifically the AI formula builder and the AI solution builder. Formula builder is already saving users time and effort and, to date, has helped over 5,000 users build advanced formula capabilities. We're excited about the opportunities we see ahead as we seek to generate meaningful value for our customers through the power of AI.

The AI solution builder is also receiving very positive feedback from customers who are utilizing it to easily set up fully operational personalized boards. As always, we are very proud of the monday.com team achievement in this quarter, and we remain highly confident in our opportunities ahead. As a reminder, we will be hosting our first Investor Day as a company at our New York City Elevate conference on December 6th. We look forward to seeing many of you in person and sharing our vision, strategy, and product road map, allowing you to gain deeper insights into our operations and future plans.

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

Eliran Glazer -- Chief Financial Officer

Thank you, Eran, and thank you to everyone for joining our call. Today, I'll review our third quarter fiscal 2023 results in detail and provide updated guidance. We reported strong results in Q3 with record quarterly free cash flow and non-GAAP operating income for the third consecutive quarter. Our results in the quarter demonstrate our consistent execution, as well as the healthy customer demand we see for the monday.com Work operating system platform and our products.

Total revenue came in at 189.2 million in Q3, up 38% from the year-ago quarter. Our overall net dollar retention rate remained steady in Q3, reflecting our continued resilience through a more challenging macroeconomic environment. While our full year 2023 guidance still assumes NDR to be slightly below 110%, we are encouraged by the signs of stabilization that we witnessed during the most recent quarter. As a reminder, our net dollar retention rate is trailing four-quarter weighted average calculation.

For the remainder 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 89%. In the medium to long term, we continue to expect gross margin to be in the high-80s range.

Research and development expense was 28.1 million, or 15% of revenue, compared to 19% in Q3 2022. In the medium to long term, we anticipate R&D expense as a percentage of revenue to be in the high teens as we build out our product suite and scale our Work operating system platform, both horizontally and vertically. Sales and marketing expense was 101.5 million, or 54% of revenue, compared to 60% in Q3 2022. G&A expenses was 15.2 million, or 8% of revenue, compared to 11% in Q3 2022.

Net income was 33 million, up from 2.6 million in Q3 2022. Diluted net income per share was $0.64 based on 51.5 million fully diluted shares outstanding. Total employee headcount was 1,744, an increase of 98 employees since Q2 '23. We expect to continue hiring over the next year with a focus on our R&D, product and sales teams as we build out our platform and product suite.

Moving on to the balance sheet and cash flow. We ended the quarter with $1.05 billion in cash and cash equivalents at the end of Q3 '23, up from 989 million at the end of Q2 '23. Free cash flow for Q3 '23 was 64.9 million; and free cash flow margin, as defined as free cash flow as a percentage of revenue, was 34%. Free cash flow is defined as net cash from operating activities less cash used for property and equipment and capitalized software costs.

Now, let's turn to our updated outlook for fiscal year 2023. For the fourth quarter of fiscal year 2023, we expect our revenue to be in the range of 196 million to 198 million, representing growth of 31% to 32% year over year. We expect non-GAAP operating income of 7 million to 9 million and an operating margin of 4% to 5%. For the full year 2023, we now expect revenue to be in the range of 723 million to 725 million, representing growth of 39% to 40% year over year.

We expect full year non-GAAP operating income of 47 million to 49 million and an operating margin of approximately 7%. I'll now turn it over to the operator for your questions. Operator.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Kash Rangan with Goldman Sachs. Please go ahead.

Kash Rangan -- Goldman Sachs -- Analyst

Hi. Thank you very much, and I'm happy to hear that your employees are safe, and I wish that your workforce continues to be very safe with the tumult that's going on. With respect to the business, first of all, congratulations on the quarter. I'm curious to hear you further expand the thoughts on the stabilization you saw in the expansion rate in the quarter.

And also, as you take a step back with the broadening out of the platform and the capabilities and the different buying centers and the personas that you can go after such as dev, CRM, and who knows what's in store in the future, how is the go-to-market approach as a company changing -- you're good entrepreneurs who've been through multiple businesses before. You can understand the nuances of how go-to-market might have to evolve given the broadening of the product. Just curious to hear your thoughts on those two things. Thank you so much.

Eliran Glazer -- Chief Financial Officer

Hi, Kash. This is Eliran. I will answer your first question, and then I will refer to Eran to address your second question. So, with regard to the stabilization of the NDR, as a reminder, we are looking at NDR as a weighted average of the last four quarters.

So, what we saw when you are looking at the trailing 12 months, basically, it's that it's flattening. We saw a decline in the past that was -- as part of also the macroeconomic headwinds and the fact that expansion was lower than we anticipated or what we saw in the past. But over the last few months, we saw that on a month-by-month basis, basically, it's flattening, and this is encouraging us to believe that there is going to be potentially stabilization to the long term. And this is also driven by the fact that we see a very healthy top-of-funnel demand and additional new customers that are joining the platform.

Eran Zinman -- Co-Chief Executive Officer

Yeah. And this is Eran, Kash. So, regarding the new products, our product ecosystem, and how it helps in terms of our go-to-market, so definitely having multiple personas and multiple verticals really helps in two ways, really. One is our ability to do both performance marketing across multiple verticals just make our acquisition much more efficient.

And this goes all the way to events and exhibitions, and we have different, basically, personas that can buy the software. But more than that, it can -- it allow us to be more aggressive because our LTV for each customer is much greater. We don't just compete in one vertical, but a customer might start with a CRM and then extend into work management or vice versa. So, the total LTV of each customer is much greater, which allows us to be potentially more aggressive going forward in how we acquire customers.

So, it -- definitely, it opened us our ability to acquire customers and expand them over time.

Kash Rangan -- Goldman Sachs -- Analyst

Wonderful. Many thanks and congratulations again.

Operator

Our next question comes from the line of Pinjalim Bora with J.P. Morgan. Please go ahead.

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Thanks and congrats on the quarter from me as well. Can I ask you on the top-of-the-funnel comment that you just made? Maybe help us understand the momentum going into Q4 so far and if the conversion rates of the top of the funnel so far in Q4 that you have seen has been consistent or not versus Q3.

Eran Zinman -- Co-Chief Executive Officer

Yeah. So, in terms of customer acquisition on top-of-funnel activity, we see still very strong demand, very stable. It's across all customer size, both SMB and more enterprise customers. We continue to grow our enterprise segment.

It grew 57% year over year in the last quarter. And like we've mentioned, like the only impact that we're seeing right now is less seat expansion from existing customers. But apart from that, our customer acquisition, the momentum that we see with new customers across all products is very stable and strong.

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Understood. Thank you for that. And if I can ask you on the regional structure, the hybrid regional structure that you have kind of embarked upon. A few questions on that, just on that change that you're making.

Can you help us understand what portion of your sales is driven by outbound today and where do you see that kind of going? And as these regional heads kind of start building their teams, should we expect kind of an acceleration in the sales rep hiring going into next year and how are you layering in kind of the CRM and the dev go-to-market in that outbound motion?

Eran Zinman -- Co-Chief Executive Officer

Yeah, Pinjalim. This is Eran. You were breaking up a little bit. You were asking about the outbound momentum that we see.

Is that correct?

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Yeah, the regional --

Eran Zinman -- Co-Chief Executive Officer

Did I get it right?

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

I was talking to the regional sales structure.

Eran Zinman -- Co-Chief Executive Officer

Yeah. OK. Yeah. So, basically -- yeah, sorry.

Go ahead.

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

The regional sales structure that you were highlighting --

Eran Zinman -- Co-Chief Executive Officer

Regional sales structure.

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Leadership. Yes.

Eran Zinman -- Co-Chief Executive Officer

Yeah. So, basically, we announced last quarter that we promoted both Jamison to be regional manager for North America and Dean for APAC region. And definitely, it's part of the movement that we're seeing of stronger presence in both of those regions, but also scaling those regions dramatically. As we said, we're also doing a lot of outbound sales, reaching larger customers, Fortune 500 customers, in addition to our performance marketing.

So, for us, it's continuing that momentum as a company, and it just gives us, over time, more access to larger and larger enterprises, and we continue to scale that effort.

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Thank you.

Operator

Our next question comes from the line of Steve Enders with Citi. Please go ahead.

Steve Enders -- Citi -- Analyst

OK. Great. Thanks for taking the question and glad to hear everyone is safe over at monday. I guess maybe just would like to kind of start on that part.

I think you called that 7% of employees have been called up to reserves at this point. I guess how do you go about managing the organization when you have that level of disruption? And I guess secondarily, as you think about hiring, and it seems like there's continued expectations for that going into next year, how do you think about what that means for future hiring plans and backfilling some of those called-up individuals there?

Roy Mann -- Co-Chief Executive Officer

Hey, it's Roy. So, the impact we have right now on the plans we have is minimal. There is an impact, but it's something we're dealing with and it's -- it has a very short-term effect. Regarding hiring, we're -- have a very strong hiring plan for next year and also this year.

So, we're on track, and that's been going well.

Eran Zinman -- Co-Chief Executive Officer

Yeah. Maybe, Steven, this is Eran. I can add that Israel only accounts for a low single-digit percentage of our ARR and there's very little impact over there, although we see a little bit but very small impact, and it's a small part of our revenue. And also, in terms of data servers, it's all distributed globally.

We don't have currently any data centers in Israel, across North America, Europe, Australia. So, in terms of data integrity, servers, operation, we see no impact. And as we mentioned, on the business side, it's minimal impact, mostly to Israeli customers.

Steve Enders -- Citi -- Analyst

OK. Gotcha. That's helpful. And then just on the free cash flow in the quarter, I mean, really, really strong there.

I guess anything to call out that was either one-time in nature or how should we be thinking about maybe some of the puts and takes there as we think about going into next quarter or next year?

Eliran Glazer -- Chief Financial Officer

Hey. Hi, Steve. It's Eliran. Yeah.

So, you know, 34%, obviously, is a very high percentage, and we would like to think about it as a one-off, although we said that we are going to be slightly above 20%, you know, originally when we gave Q2 guidance, so by the end of the year. It's mostly about, I would say, disciplined spending, you know, as part of the improving efficiency. And even though with, you know, the macro environment, we have a very consistent customer collections and billings. We don't come across any significant issues.

Actually, it's very healthy. And also, just to be fair, with over $1 billion in bank -- in the bank on the balance, we continue to generate nice returns with the environment of inflation. So, all of the above is very healthy for us in terms of efficient free cash flow.

Steve Enders -- Citi -- Analyst

Perfect. Thanks for taking the questions.

Operator

Our next question comes from the line of Brent Bracelin with Piper Sandler. Please go ahead.

Brent Bracelin -- Piper Sandler -- Analyst

Good morning. Here, we'll echo the best wishes and support here for you, your family, and colleagues who were impacted by the tragedy in Israel. Maybe, Roy, obviously, super impressed with the strong execution given some of the challenges. Obviously, we're seeing some mixed trends in SMB.

I wanted to pivot a little bit toward the future product, specifically the monday.com AI assistant. Can you just talk a little bit about what you're seeing there in that beta, what the early response has been? And I have one quick follow-up.

Roy Mann -- Co-Chief Executive Officer

Yeah. Hi. It's Roy. So, the AI was very nicely accepted with building boards.

So, we used the assistant to kind of help customers build things that are usually complex like the formula builder and like the board and the workflow itself. And we saw that people kind of were surprised about the suggestions they got and said like they were really happy with the boards they got from the AI. So, it's kind of like it's really an assistant that onboards customers and help them get the most out of the system right now.

Brent Bracelin -- Piper Sandler -- Analyst

Very encouraging. And then I guess as a follow-up for you, Eliran, you know, impressed here by continued improvement in margins. It sounded like you're leaning a little bit in on performance marketing. The LTV to CAC sounds like it's improving.

Can you continue to kind of sustain margins here even while getting a little aggressive with performance marketing spend just given the returns you're seeing right now?

Eliran Glazer -- Chief Financial Officer

So, Brent, hi. I think that, you know, the lever that is most, I would say, impactful of the numbers on a quarter basis is definitely the performance marketing because it allows us either to spend when we see the return or to hold back if we don't see the return. From our perspective, things have not really changed from the last few quarters. So, you know, we kind of manage the spend in accordance with the returns that we see.

We don't see anything -- it's not getting any better, but it's not getting any worse in terms of what the returns that we are seeing. You know, maybe some of the competitors have already started to spend more on the performance marketing, but for us, it's pretty much what we anticipated or what we saw in prior quarters. We actually thought that, you know, when the year goes by, we might see more aggressive behavior from other players, but we didn't so far. So, as long as it meets our return criteria, we continue to spend.

And if it will be that a more aggressive spend will provide us better results, then we are going to do it.

Brent Bracelin -- Piper Sandler -- Analyst

Great to see impressive execution here, guys. Thanks.

Operator

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

Arjun Bhatia -- William Blair and Company -- Analyst

Perfect. Thank you, guys, and all of my best wishes to you all in Israel. First, maybe just to start on, I noticed that the upmarket trends look very strong, right, especially the percentage of ARR that you're getting from your large 50K-plus customers. Can you just talk a little bit about if you're seeing any difference in customer behavior between those larger enterprise customers that are deployed on monday versus smaller customers, whether it's in terms of upsell or seat expansion, etc.? Thank you.

Eran Zinman -- Co-Chief Executive Officer

Yeah. Hi, Arjun. This is Eran. So, yeah.

Overall, in terms of our enterprise accounts, as I've mentioned, we see great momentum. Those enterprise accounts tend to upgrade more and increase their seat cap more over time. So, definitely, we see higher levels of NDR. In terms of usage, there's a little bit of a difference between the way SMBs use us and enterprise customers.

SMBs, what we see is they usually consolidate on monday, managing a lot of departments and almost their entire operation on monday. In enterprise customers, usually, we solve two or three kind of main business use case for them, and then over time, they might add more departments. But it's more of a gradual process. But definitely, in terms of retention, stability, growth, we invest a lot in enterprise customers because, over time, they generate more revenue and tend to expand more.

Arjun Bhatia -- William Blair and Company -- Analyst

OK. Got it. Perfect. That's very helpful.

And then just going on to mondayDB, it sounds like the next phase here is going to be on API enhancements and then improving scalability. How much is that impacting your ability to go after these larger customers and show them the scalability and the improvements you're making in infrastructure to get them to use monday? Is that something that you're seeing already or something that we anticipate further down the road as more DB versions get rolled out?

Eran Zinman -- Co-Chief Executive Officer

Yeah. This is Eran again. So, definitely, you touched on the point here because I think one of the things that really helped us accelerate scale within enterprise customers is mondayDB. We mentioned this during the beginning of the earnings call, but we got great feedback from version 1.0.

We saw customers already scaling the operation in how they use monday. And now, with the release of 1.1, we've really accelerated a major part, which a lot of enterprise use, which is dashboards. It's been a significant boost to how they use the platform. And usually, it's managers and high-level management that use dashboards.

So, definitely, this is a huge game-changer for our ability to scale within the enterprise. And we have a lot of other subversions that we aim to launch in terms of mondayDB, and we feel that each iteration really helped us accelerate our penetration into larger enterprises.

Arjun Bhatia -- William Blair and Company -- Analyst

All right. Perfect. Thank you and congrats on the strong execution here, guys.

Operator

Our next question comes from the line of Derrick Wood with TD Cowen. Please go ahead.

Unknown speaker

Great. Thanks. It's Andrew, and I'll echo my -- our thoughts to everyone in Israel. Eliran, on the sales CRM, strong net new growth, 11,000 customers is about 6% of your total base.

If that keeps growing, do you think we could see this become a material contributor to revenue next year and also moving into the mid-market?

Eliran Glazer -- Chief Financial Officer

Hi, Derrick. It's Eliran. Yeah. So, CRM is growing really nicely.

And, you know, just as a reminder, we plan to finish opening access to the CRM and then to all customers by the end of Q1 next year. So, definitely, we expect this to continue to grow. You know, although it's still early days, we just announced it earlier this year, but cross-selling opportunity looks very encouraging. And, you know, since we have introduced the product suite, we have 2,500-ish work management accounts that have added, you know, to the additional product.

So, I think that, over time, with the fact that we are increasing the sales reps number and we are going to focus on cross-selling and upselling, I think that we are going to see a more proactive sales motion, and then it's going to be -- resulted in further growth next year.

Unknown speaker

Great. And then also for you, Eliran, the ARR from 50K-plus, a nice uptick to 31% of ARR, any color on what drove that, and is that mostly existing expansions or are you seeing larger lands, too, and should this kind of continue to uptick into next year?

Eliran Glazer -- Chief Financial Officer

Yeah. Derrick, I think it's all of the above. It's -- we are landing bigger. We are -- you know, we have a multiproduct strategy that, now, customers find us to be part of their core, you know, business operation.

The fact that we are growing the sales team and we bring people who are expecting selling to enterprise accounts. So, all of the above. I think once you unlock the value of monday and you see how it contributes to bigger organizations and a bigger audience within the organizations, this is something that continue to drive the upmarket motion, together with, of course, the mondayDB.

Unknown speaker

Awesome. Thank you.

Operator

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

Brent Thill -- Jefferies -- Analyst

Thanks. Eliran, can you just walk us through what you're seeing through the start of the quarter, even the last month? Have you seen any change in customer behavior or is it the same consistency you're speaking to that you saw in the last quarter?

Eliran Glazer -- Chief Financial Officer

Hey, Brent. We're still seeing, you know, what we saw in prior quarters. As I said earlier, it's not getting any better, but it's not getting any worse. I think there is still, you know, a lot of pressure on the economy.

I would say sometimes choppy. You know, customers are still very cautious on their spend. Sales cycles are still taking longer. But, you know, on the other hand, we are still seeing a very healthy, you know, customer demand and top-of-funnel activity.

So, I think these are kind of offsetting one another and contributing to our execution.

Brent Thill -- Jefferies -- Analyst

And just back on the enterprise, that momentum looks really encouraging. If there are one or two customer data points and not necessarily naming the customer, but maybe what you've been shocked at or has been significant in terms of milestones, is there -- in terms of seat count or in terms of how they're deploying, can you -- is there any more color you can add to what is giving you encouragement, what you're seeing in that segment?

Eran Zinman -- Co-Chief Executive Officer

Yeah, Brent. So, still, our largest deployment is about 7,000 seats, but maybe I can share more color that we are seeing, you know, very interesting deals in the pipeline. We see more momentum of larger enterprise interested in buying monday and do a much wider deployment. So, definitely, we see this momentum within our customer interest and customer pipeline that we're seeing, so that gives us a lot of insight that we're evolving and it opens the door to bigger and bigger deals going forward.

Eliran Glazer -- Chief Financial Officer

Yeah. And maybe maybe, Brent, just to add to Eran, this is Eliran, the level of engagement that we see, we have some internal metrics like active paying people and, you know, active seats, there, we are seeing strong momentum as well. So, this is something that is encouraging for us to believe that, you know, we're going to see continued growth in the enterprise usage within the existing customers and new customers.

Brent Thill -- Jefferies -- Analyst

Good to hear. Thank you.

Operator

Our next question comes from the line of George Iwanyc with Oppenheimer. Please go ahead.

George Iwanyc -- Oppenheimer and Company -- Analyst

Thank you for taking my question, and I'll add my best wishes for everyone's safety. Maybe going back to the AI topic, can you give us some perspective on how you feel this maybe changes the competitive environment?

Roy Mann -- Co-Chief Executive Officer

Hi. It's Roy. So, I think like customers don't really know what to expect from AI. It's not as if like everyone is demanding this or that.

I think we're in a phase that everyone is trying to explore what works. And it's not the easiest thing to make -- to turn AI into a really great product for customers. And I think we're on a really good track with the results we've seen and shared. So, I don't think it's still like something that is materially competitive, but it might be in the future.

George Iwanyc -- Oppenheimer and Company -- Analyst

And then just following up on all the new product additions that you're putting into the platform, can you maybe provide some perspective on pricing and the type of leverage you're getting from the additions?

Roy Mann -- Co-Chief Executive Officer

Yeah. So, we're experimenting with things and seeing what are we going to do with pricing. We feel that like the introduction of new products will allow us to cross-sell and then extract and give more value to customers and like allow us to have like a higher dollar value for each customer, alongside other improvements that we're making to the platform in various advancement in every area, in the work management, in the CRM, that will also expose us to new customers and new use cases and, again, like improve that cycle of expansion.

George Iwanyc -- Oppenheimer and Company -- Analyst

Thank you.

Operator

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

DJ Hynes -- Canaccord Genuity -- Analyst

Hey, guys. I'll echo the sentiment of others and add my congrats on the quarter. I'm curious what you're seeing in terms of activity and engagement in the marketplace ecosystem. It seems like, you know, as you make improvements in scalability and continue to roll out new products, there's just that much more surface area for partners to build around.

So, curious if you're seeing any signs of that playing out and what it can mean for the model over time?

Eran Zinman -- Co-Chief Executive Officer

Yeah. Hi, DJ. It's Eran. So, definitely, we see a good momentum there.

We're starting to see more and more kind of more significant ARR coming from our marketplace. The partnership with both Appfire and Adaptavist are growing really nicely. It takes time. But currently, those two partners have some of the most popular apps in our marketplace, so definitely, we see the momentum that they bring, and their experience is definitely helpful.

So, we're very encouraged with everything we see. We see some very cool applications built not just for the platform but for each one of our apps, so for CRM, for work management, for dev. So, definitely, this really enriches the marketplace and the opportunity for each one of them. And in addition to the bigger partners, we continue to see a large momentum of smaller and indie developers that build on the marketplace.

So, all in all, like we're very encouraged with the development and type of applications that are being built.

DJ Hynes -- Canaccord Genuity -- Analyst

Yeah. OK. Good to hear. And then how do you think about sizing the opportunity for monday dev maybe relative to CRM? I mean, I assume it's probably narrower, but trying to get an understanding of kind of the composition of your customer base, how big that developer footprint is, and kind of what it means for the serviceable opportunity for dev in the base, realizing it's a multiyear journey?

Eran Zinman -- Co-Chief Executive Officer

Yeah. So, this is Eran again. Yes. So, look, I mean, that is -- it has great momentum.

It's a little bit younger compared to CRM. But again, if we compare it to how we grew as a company, like it is growing faster than monday itself. So, it, also, have great momentum as a product, and I think there's great players right now in this market that proved that you can build a huge business out of it. So, we're definitely, you know, encouraged by the growth.

We're encouraged by seeing the type of customers that adopt the product. Still, we have a lot of features we need to complete. But all in all, it looks very promising -- as promising, I would say, as CRM a year ago. So, definitely something we invest a lot into, and very encouraged with the results we see so far.

DJ Hynes -- Canaccord Genuity -- Analyst

Great. Thanks for the color.

Operator

[Operator instructions] Our next question comes from the line of Scott Berg with Needham and Company. Please go ahead.

Scott Berg -- Needham and Company -- Analyst

Hi, everyone. Nice quarter, and I will certainly echo the concerns with all -- what you all are dealing with right now. Good luck. A couple of questions from me.

Eliran, you talked about sales and marketing expecting to be in the high teens. You know, in the intermediate term, your spend in sales -- or excuse me, R&D in the high teens. Your R&D spend really hasn't been in the high teens for several quarters. How should we think about your investments there? Is -- are we going to see kind of a ramp back up to the high teens or what does that kind of balance look like, I guess?

Eliran Glazer -- Chief Financial Officer

Hello, Scott. So, it's a great question. I would say that in fiscal year '23, to your point, we probably are now looking at more mid-teens. So, first of all, when you think about hiring, we continue to hire in R&D.

We continue to invest in R&D. The reason why we see a lower cost to a certain extent on the short term, because on the longer term, we believe it's going to continue to grow, it's, first of all, the FX currencies. The R&D team is mostly based in Israel, all of the people. So, we took advantage or we benefit from the fact that the dollar was strong versus the Israeli shekel.

We had some accounting things like allocation that impacted both cost of sales, as well as R&D, you know. And it is mostly going to be dependent on the recruitment progress. So, we continue to hire aggressively. R&D people are not easy to find.

Always, there is a good fight for them. But we will continue to hire and expand the team. And, you know, we believe that for the next year, we are going to see this number grow.

Scott Berg -- Needham and Company -- Analyst

Understood. Helpful. Thank you. And then from a follow-up perspective, you talked about net revenue retention trends start to trough out the last couple of quarters.

I know it's items like CRM and dev tools are still reasonably new in terms of customer adoption and how you're selling them. But from your early statistics, how are those modules or tools impacting your net revenue retention rate? Are you seeing some different trends there versus the overall work management platform? Thank you.

Eran Zinman -- Co-Chief Executive Officer

Yeah. This is Eran. So, look, it's still early days in terms of, you know, just the amount of revenue and our experience with it, but I can share that, overall, in terms of engagement and potential expansion, we see an upside there. I think it's just because of the nature of the products that some of them are more sticky than others and kind of once you get a team start using it, you get the whole department potentially using that tool.

So, definitely, we see an option there for higher NDR, both in dev and CRM. But again, it's still early days. We don't have a lot of cohort data yet. But just judging by the nature of usage right now, it definitely has an upside there.

Scott Berg -- Needham and Company -- Analyst

Excellent. Thanks again.

Operator

Our next question comes from the line of Taylor McGinnis with UBS. Please go ahead.

Taylor McGinnis -- UBS -- Analyst

Yeah. Hi. Thanks for taking the question, and like everyone else, I want to extend thoughts to you all and everyone at monday and Israel, and well done on the execution this quarter considering the circumstances. So, just looking at the 4Q rev guide, it looks really solid.

And assuming some upside, we could actually start to see an acceleration in quarter-over-quarter growth. So, first, can you maybe talk about what you've seen in terms of the demand environment that's giving you comfort in this outlook? And then second, there's been some evidence in -- within other software companies this quarter of softening SMB trends and some other macro events. So, can you talk about some of -- can you just provide more color on the assumptions being embedded in the guide for the environment and maybe the level of conservatism for some of these events? Thanks.

Eran Zinman -- Co-Chief Executive Officer

Hi, Taylor. This is Eran. Thanks for joining. So, I can comment on the demand, and maybe Eliran can talk a little bit about the guidance for next quarter.

So, in terms of demand, like we mentioned, we see very strong demand not just in SMBs but also in enterprise customers. And in terms of usage and expansion, we also see positive signs. So, overall, like Eliran mentioned, although the environment is still kind of choppy like in the beginning of the year, in terms of demand and stability of demand, like we feel very comfortable. So, that's in terms of what we see in the market.

I don't know if you want to add anything, Eliran, in terms of guidance for Q4 or --

Eliran Glazer -- Chief Financial Officer

Yeah. So, I would say that with regards to guidance, we always report what we know, you know, when we do the guidance, so we take into account the latest trend that we are seeing, and they are not -- they haven't really changed much over the year. As I said earlier, we still have a challenging macroeconomic conditions with some moderate pressure on NDR. And as we mentioned, we continue to expect full year NDR to be slightly below 110%, but we do expect it to level off at the end of this year.

You know, with regard to the top-of-funnel demand and strong new customer growth, it offset some of the trends that we are seeing. And I believe this is taking into account the fact that we introduced, first, mondayDB, as well as the CRM and dev, in, you know, other multiple use cases. So, you know, while there is -- to summarize, while there is some pressure coming from the macroeconomy, it is definitely offset by the top-of-funnel strong demand that we are seeing from new customers.

Taylor McGinnis -- UBS -- Analyst

Great. Thanks so much.

Operator

Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Please go ahead.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Great. Thanks for taking my question. I'll start with maybe a philosophical question. Roy, I know you said that it's too early and no one really knows yet, but a lot of software companies, including your content -- collaborative work management peers, are rolling out these AI features and bundling them in the core products.

But it seems like AI might become table stakes. If this is the case, how do you think AI can still be a differentiator?

Roy Mann -- Co-Chief Executive Officer

Hi. Appreciate the philosophical question. So, I'll tell you what, like the AI, we can divide into two areas. One is the table stakes area, right, like making AI, improve the software itself and its usability.

And I think that's less monetizable, but like improved performance overall of everything. And the other part is adding more productivity components with the AI that customers will pay for. And I think there is a good upside. We're looking at what everyone is doing across the field, not only in productivity in AI, and we're putting a lot of emphasis on it.

We have a strong team working on it. And I feel we have a lot to say because monday is a true platform, and we are able to take and like make AI very accessible for the customers that come to us and want to build workflows, improve their business. We're really able to take that power and give it to them, but that's like a work in progress, and I think that will not be table stakes.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Great. Thank you. And then, Eliran, you mentioned having a lot of cash, you know, crossing the billion-dollar mark, and you're generating more. Maybe can you speak to some of your capital deployment strategy?

Eliran Glazer -- Chief Financial Officer

Yeah. So, you know, with regards to cash, obviously, it's going to be used for corporate initiatives. We're going to continue to invest in -- investing in the business, bringing in and hiring people, expanding the, you know, leadership team, the management team, you know, as well as thinking about non-organic growth opportunities. We are going to look potentially next year at companies thinking about M&A, again, mostly tuck-in, acqui-hiring, you know, complementary products.

But this is something that we definitely starting to think about and to deploy potentially in the next 12 to 18 months.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Excellent. Thank you.

Operator

Our next question comes from the line of Robert Simmons with D.A. Davidson. Please go ahead.

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

Hey. Thanks for taking the question. So, it's great to see the apps, CRM and dev, scaling so well. I'm wondering where have you seen the most kind of uptake for those by vertical or by geography?

Eran Zinman -- Co-Chief Executive Officer

Yeah. Robert, this is Eran. So, you're asking where do we see the most -- what do you mean, like uptake? Just --

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

Yeah. Like where are you seeing the strongest adoption by customers for the -- for sales and dev?

Eran Zinman -- Co-Chief Executive Officer

In terms of vertical, like we see adoption across all verticals and also across different sizes. I would say, in terms of company sizes, we don't see, you know, large enterprise currently adopting monday sales CRM or monday dev. But definitely, we see the bar rising. It started with small teams and expanding into hundreds of people.

And we'll continue to grow as we add more features and more complexity. In terms of industry, it's really across the industry, both tech companies and non-tech. Obviously, dev is more focused on tech. But in terms of sales CRM, we really see a wide variety of verticals and different kinds of companies that adopt the products, pretty similar to what we saw in monday work management product.

Yeah. So, this is the color we have right now.

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

OK. Got it. And then the two other apps you launched at the same time, how are those performing so far?

Eran Zinman -- Co-Chief Executive Officer

Can you repeat the question? Sorry. How's what?

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

Your two other apps you launched at the same time, as those two, how are those performing so far? Are those starting to ramp to expectations, understanding it's a little bit earlier, but yeah.

Eran Zinman -- Co-Chief Executive Officer

Well, we have a bunch of products that we launched. We had monday WworkForms and monday WorkCanvas that we launched as part of that. We previously have -- we had an initial product called monday Marketing, but we kind of discontinued that and merged that into monday work management. And in terms of the other products, WorkCanvas and WorkForms, they're still kind of in their initial phase.

We see nice momentum there, but it's still kind of in a small scale compared to the other products that we have.

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

Great. Thanks.

Operator

[Operator instructions] There are no further questions at this time. I would like to thank our speakers for today's presentation and thank you all for joining us. [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

Pinjalim Bora -- JPMorgan Chase and Company -- Analyst

Steve Enders -- Citi -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

Arjun Bhatia -- William Blair and Company -- Analyst

Unknown speaker

Brent Thill -- Jefferies -- Analyst

George Iwanyc -- Oppenheimer and Company -- Analyst

DJ Hynes -- Canaccord Genuity -- Analyst

Scott Berg -- Needham and Company -- Analyst

Taylor McGinnis -- UBS -- Analyst

Jason Celino -- KeyBanc Capital Markets -- Analyst

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

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