Monday's layoffs saved $100 million. They also hurt sales, executives admit
The company's 20% cut lifted margins to a record, but guidance now implies 14% growth.
Monday.com's 20% workforce reduction drove record profit margins this quarter, but the company's own executives said on Monday that the disruption it caused hurt sales and will weigh on growth into 2027.
Total headcount fell to 2,479 at the end of September, down 690 from the second quarter, CFO Eliran Glazer said. He said strong third-quarter profitability "was basically the result of the RIF," or reduction in force, with help from lower travel and marketing-event costs and the summer slowdown. The company's non-GAAP operating margin was a record 24%, up from 15% a year earlier. Glazer said the layoffs saved about $100 million, which the company plans to mostly reinvest "by way of AI, by way of employee retention." He said Q4 will "normalize": it carries the cost of a compensation update and the Elevate customer conference, and operating margin is guided to about 18%.
The price is showing up in sales. Chief Revenue Officer Casey George said the layoffs caused "disruption and some distraction" that "lingered, candidly, a little longer than we thought," and that there is still "a little bit of a hangover." Co-CEO Eran Zinman listed three headwinds for the quarter: the restructuring, pressure in the small-business market, where customer additions fell and churn rose "by design," and "more deliberate buying behavior and longer sales cycles" as customers weigh how AI fits their business. Revenue rose 19% to $377.5 million, ahead of guidance, but fourth-quarter guidance of $380 million to $382 million implies growth of about 14% and only about $3.5 million of sequential growth. Glazer said part of the slowdown is "obviously" due to the layoffs but declined to quantify it. He expects net dollar retention to fall to about 107% from 108%, and said stability is "probably going to be throughout 2027, a couple of quarters" away.
The company is also rethinking how it finds customers. Zinman said monday.com once put about 25% of its marketing budget toward "agentic" customer acquisition, an experiment that "didn't convert as much as we wished," and is shifting money to events, field marketing and sales. Glazer said customers are discovering software less through traditional search and more through AI channels, which adds volatility at the top of the funnel in the self-serve segment.
The layoffs themselves were costly. monday.com paid $47.2 million in cash on restructuring in the quarter, $32.0 million to employees and $15.2 million to settle and exit leased offices. The income statement shows only $10.0 million, because a $13.8 million credit from reversing stock compensation for departing employees offset $23.7 million of costs. The company has recorded $31.4 million through nine months, including $21.4 million booked in Q2 for exiting Israeli office space, against the $45 million to $55 million net it estimated when it announced the plan on July 22. The company said about 630 people, 20% of the workforce, would be cut.
Cash generation weakened too. Operating cash flow fell to $20.4 million from $95.1 million, and adjusted free cash flow, which excludes the restructuring payments, fell to $63.0 million from $92.3 million. Glazer said cash flow follows annual recurring revenue, and that fewer small-business customers paying by credit card and enterprise deals slipping to the end of the quarter are weighing on it. The company ended the quarter with $1.1 billion in cash and marketable securities, up from $1.07 billion at the end of the second quarter. It spent $735 million on buybacks in the first nine months, none in Q3.
The company's bet is on AI and on selling to larger customers. AI ARR reached $36 million, mostly from credits that customers buy on top of their seat-based subscriptions, though Zinman said it is "not incremental yet" and is included in total ARR. Among customers paying more than $50,000 a year, he said, over 30% buy AI credits. monday.com is launching Frontier, a service staffed by forward-deployed engineers, and will keep hiring for it and for sales in 2027. Zinman said it "might have some pressure on margins."
