Arjun Bhatia — Analyst, William Blair
Perfect. Thank you, guys. Appreciate it. Can you maybe just touch on the growth outlook a little bit for 2026? I think I heard that NRR might be stable in a year, but the guidance is calling for a decel, kind of overall topline growth from 27% to 18%. So it's remarkable that the guide kind of that you can still grow at that high teens range even when NRR is 110%. So maybe just touch on the different pieces of what you're expecting from customers expanding, especially in the enterprise, how much of a headwind the no-touch is, and maybe when we can start to see that turnaround. Is that late 2026, or is that 2027 dynamic? Thank you.
Eliran Glazer — CFO, monday.com
Hey, Arjun. It's Eliran. So thank you for the questions. Guidance, for now, reflects what we believe we can execute against with high confidence. It doesn't assume any rebound in performance marketing or top-of-funnel activity, and it's based on current condition with growth driven primarily by the following: upmarket and enterprise customer expansion, multi-product adoption, and disciplined investment and improving efficiency across the go-to-market model that we have. As you rightfully stated, NDR to remain flat at 110% by the end of the year. With regards to maybe the margins, we assume that we are going to go in terms of headcount growth of mid-teens, and there is also a significant impact of the Israeli appreciation of the appreciation of the Israeli shekel versus the U.S. dollar that is contributing to 100-200 basis points negative on our margins.
These are the things that we took into account when we built the budget, the guidance. Sorry.
Arjun Bhatia — Analyst, William Blair
Okay. Perfect. Thank you. And then just one Sidekick. It looks like you started the monetization strategy. You have a price in place, and you're going to turn that on in 2026. I'm just curious how you think about customers' propensity to pay for that solution, what incremental capabilities you've included in the paid additions of Sidekick, and how you think that monetization might scale throughout the year?
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Hi, Arjun. This is Eran. So we're very excited from the latest release of Sidekick. Basically, Sidekick offers our customers not just to use AI capabilities within their account, but also it kind of accesses the brain of the account. It knows everything about the work, about who you are, your place in the organization. It's also context-aware of every data and content that exists within your monday.com account. And we're also planning to integrate with third-party tools. So essentially, it becomes a business brain of the company. Where are you seeing great momentum? Sidekick is now available to all customers. It's basically offered as a paid add-on for pro and below packages, and it's part of the enterprise package. Going forward, we might have additional monetization for Sidekick, but it's a very interesting product that gives a lot of value to our customers because of its capabilities.
Arjun Bhatia — Analyst, William Blair
Wonderful. Thank you.
Scott Berg — Analyst, Needham & Company
Hi, everyone. Thanks for taking my questions. I guess I wanted to start probably with a question for Roy because I think he mentioned high level, some impact, obviously, on the cost of customer acquisition and AI in the space. I just wanted to see if you can clarify that comment. I guess, what is the impact like? My guess is it's just through the sales process as customers evaluate different technologies and functionalities. But are you seeing that impact more in those self-serve, low-touch, smaller customers, or are you also seeing some impact negatively from maybe your larger customer opportunities as well?
Roy Mann — Co-Founder and Co-CEO, monday.com
Hi. Thank you. So what we see right now in performance marketing is the same things we called out before. It just continues, meaning we see headwind in our ability to buy media, and the ROI is the same as we saw before and remains choppy. So what we're doing is shifting budgets to higher ROI channels and media, which means we're focusing more on the higher customers, the better customers with better ROI. So essentially, we're leaving the smaller ones and focusing on the better ones with higher ROI, bigger retention, and that is successful.
Eliran Glazer — CFO, monday.com
Cool. Maybe this is Eliran. Just to add to what Roy said to your question about the bigger customers, we don't see this impact on the bigger customer. We have strong momentum with the upmarket motion, and we only see it in the SMB segment, namely the S of the SMB.
Scott Berg — Analyst, Needham & Company
Very helpful. Then my follow-up would be for Eliran. If I look at your guidance for the year, your Non-GAAP operating margins implies about 11.6% for the full year. I understand there's a 1-200 basis point headwind due to FX, but that operating margin is actually lower than what you reported in fiscal 2025. The growth is, as Arjun mentioned, eight, nine, 10 points lower. Why shouldn't we see margins kind of inflect a little bit more over the next year if this kind of high teens 20% growth rate is likely probably what the right growth rate for the company is over the next year or two?
Eliran Glazer — CFO, monday.com
Hi, Scott. Thanks. So just to reiterate maybe that given the current macro and demand environment, we believe that we are putting numbers that are achievable and durable. And the biggest change in recent appreciation of the Israeli shekel happened in the last few months. We have 55% of our headcount in Israel, and this is very concentrated, primarily contributing to the impact of FX. We also prioritize investment in the SLG motion and AI, as you heard in the prepared remarks. And this is front-loaded cost that basically takes a bit longer for the payoff time. And this is the impact on margins.
Scott Berg — Analyst, Needham & Company
Very helpful. Thanks for taking my questions.
Ryan MacWilliams — Analyst, Wells Fargo & Company
Hey. Thanks for taking the question. So investors are clearly worried about the threat of AI to solve for here, but I think there's a fair case to be made that not every workflow needs to be generative and that it can make more sense to build agents off your already established workflows that work 100% of the time. So with that in mind, we'd love to hear some of the attributes about why it might make the most sense for a Monday customer to build agents within Monday itself instead of outside the platform. Thanks.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Hi, Ryan. This is Eran. So this is exactly how we think about things. I think people underestimate how important it is when you have all your data and processes and workflows inside a platform, and then the ability to create agents on top of it and get significant value because of that is exactly what we're aiming for. We've done the same with Sidekick. The fact Sidekick knows everything about your organization really helps our customers kind of figure out everything about their account. And the same goes for our agents offering. With the agents offering, not only can you scale your business based on agents, but also it knows everything about your workflows, your data, your history. It's also secure, enterprise-grade. So given all of that, we see a lot of potential in our new agent offering, and we see a lot of excitement for our products.
I think we all agree that the future of software will change over time with agents, but I think the way the transition will go is very different than how we imagine it. I think we have a significant advantage once we introduce these capabilities to capture significant value of those agents.
Ryan MacWilliams — Analyst, Wells Fargo & Company
I appreciate the color there. Then for Eliran, just on the free cash flow guidance for this year, is there any extra conservatism baked into that number? Then anything to call out in the differences between the initial starting point between the operating margin and the free cash flow margin? They just look a little tighter than in years past. Thanks.
Eliran Glazer — CFO, monday.com
Thanks, Ryan. Eliran, so a few things impacted our free cash flow forecast for 2026. One is the FX impact. The Israeli shekel, as I mentioned, is very strong versus the U.S. dollar, and it happened really fast in Q4 of last year going into this year. Obviously, we said that we are increasing investment in AI and SLG motion. There is also the lower interest rate environment, and as we move to profitability, we might be paying taxes. And the last thing is the share buyback. As we continue to prioritize opportunistic share buyback, obviously taking into account the current level of the share price, the reasons that I mentioned, all of the above is impacting our free cash flow guidance for 2026.
Josh Baer — Analyst, Morgan Stanley
Thanks for the question. Just wondering, with all the rapid pace of innovation, new technologies across the workforce, how are your customers or potential customers evaluating monday.com among all the alternatives out there? Are you seeing any shifts in sales cycles as you're moving upmarket or any changes to customer behaviors?
Casey George — CRO, monday.com
Hi. Hi, Josh. This is Casey. So a couple of things. One, obviously, by the numbers, we're very encouraged at the progress we're making upmarket. So we're showing up in different ways with these customers, especially with AI. And as I speak to customers, they're not necessarily looking for a science project. And Eran touched on this a little bit. They're interested in having a trusted partner and a trusted platform so that they can deploy this technology in a trusted way. So for that, it's showing up in our retention numbers. It's showing up in our customer acquisition and, obviously, the cohort of customers that are $50K or greater. So with that, this is truly a differentiator for us. We're not running away from AI. We're embracing this and leading the market with it. So that's what I see.
That's what we see when we engage with customers, and it's being validated in the numbers as well as we move upmarket.
Josh Baer — Analyst, Morgan Stanley
Okay. That's helpful, Casey. And just a quick follow-up on the margin topic. Any sense for gross margins in 2026?
Eliran Glazer — CFO, monday.com
Yeah. So hi, it's Eliran. What we said is in our recent investor day that we are expecting gross margin to be in the high 80s, and we believe this is going to be the case for 2026.
Josh Baer — Analyst, Morgan Stanley
Okay. Got it. Thank you.
Nate Ruiz — Analyst, KeyBanc Capital Markets
Great. Hey. This is Nate Ruiz. I'm for Jackson Ader. Thanks for taking our questions today. So I was wondering how much core versus new product growth is baked in for fiscal year 2026? Thank you.
Eliran Glazer — CFO, monday.com
Hi. This is Eliran. So maybe just to expect, when we took what we took into account is the continuity of the business that we currently see, meaning the four product lines that we have in monday.com: monday.com Work Management, monday.com CRM, monday.com Service, and monday.com Dev, continue also to see some revenue coming from the AI product that we have. So we believe this is going to be the trajectory for fiscal year 2026, mostly focusing on the existing product. And the new product will continue to become a larger part of our business as we move forward to 2027.
Nate Ruiz — Analyst, KeyBanc Capital Markets
Great. Thank you so much. Very helpful.
Mark Murphy — Head of Software Research, JPMorgan Chase & Co
Thank you. Can you please quantify the headwind from the no-touch business in 2026 or the SMB segment in general? In other words, is it a five-point headwind? Is it a 10-point headwind, etc.? And then I have a quick follow-up.
Roy Mann — Co-Founder and Co-CEO, monday.com
Hi, it's Roy. So the situation is that it's a bit choppy, okay, like we mentioned. So I can't predict the future on what performance marketing will do. I'll tell you that we looked into the year in the way that it will continue to be choppy, and that's how we built the guidance.
Mark Murphy — Head of Software Research, JPMorgan Chase & Co
Okay. So it could be you're baking in something like a five-point headwind there maybe?
Roy Mann — Co-Founder and Co-CEO, monday.com
Again, we don't know how to predict what it will do.
Mark Murphy — Analyst, JPMorgan
Yeah. Okay. And then Eliran, just thinking back to the last earnings cycle, you did blast the $1.5 billion revenue consensus for 2026. I don't think anyone really put any faith in that comment. But just irrespective, can you explain what changed fundamentally that leads to the lower outlook today? And I'm just trying to understand the, I think you said you're no longer discussing the FY 2027 revenue target, but you said somehow the fundamentals are unchanged. I think we could just use a little bit of straight talk. I'm just trying to understand what has changed here.
Eliran Glazer — CFO, monday.com
Hey, Mark. Hi, everyone. So it's a fair question, but as we said, the last time we gave guidance, we felt and we believed, based on the visibility that we had at the time, that the 1.5 number is the number that we are going to achieve. It looked reasonable to us. Since then, there is a lot of noise in the market in terms of macroeconomy. As we said, our no-touch business continued to be choppy and volatile. We didn't see the improvement that we expected to see. And we see shift in the business, and shift in the business takes time. So this is why we thought, based on what we know today, that it would be prudent to reset the guidance that we are giving.
Given the current macro, as I mentioned, and the demand environment, we believe that it's appropriate to put numbers that reflect what we can execute against. Sorry, with high confidence. This is the reason why we did this adjustment.
Mark Murphy — Head of Software Research, JPMorgan Chase & Co
Okay. So it's noise in the market, low touch being volatile. There's a shift in the business, but we don't know what you're embedding for the low-touch piece of it. We're going to kind of leave it at that?
Eliran Glazer — CFO, monday.com
Yeah. We are expecting it not to get any better from what we have seen in fiscal year 2025. We didn't see the improvement that we hoped for or we believed that we were going to see. We believe it might be choppy. It might be. It will be choppy throughout 2026.
Brent Thill — Analyst, Jefferies
Thanks. When you think about the enterprise go-to-market motion, I think there's been a lot of pent-up concern about what's happening there and the strategy. Can you just maybe walk through what you're seeing at the higher end of the market?
Casey George — CRO, monday.com
Yeah. So we're seeing a couple of things. One, we continue to accelerate upmarket on the back of a couple of things. One, obviously, our clients like our products. They really do. One, that's the first one. Second one is they look to vendor consolidation, right? They're looking to rationalize their vendor suite, and we have a very healthy portfolio that we can offer to our clients so they continue to consume more of our products. And then the expansion piece. Since it's early days of us moving upmarket, the ground's very fertile. And so when they're looking to consolidate, we're well-positioned to take advantage of that. So those are three of the key factors for us. And then I would say it's early days again, but the acceleration of AI, we're engaging in different conversations than we were before because of the technology we have embedded in our platform.
Pretty bullish on the move upmarket and looking forward to another good year.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Maybe one thing I would add, Ryan. This is Eran.
Casey George — CRO, monday.com
Go ahead.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Just wanted to add one more thing on top of what Casey said, is that we actually see high levels of gross retention across our 50K cohort. Now at 91%, this number has been growing quarter after quarter for the past two years. And also, we see renewal rates in the high 90s. So overall, I would say that this segment of the business has been performing really well. We have high degree of confidence, not just for the execution so far, but also forward-looking.
Brent Thill — Analyst, Jefferies
Just a quick follow-up, Casey. Are you still hiring pretty aggressively on enterprise reps, or is that slowed down?
Casey George — CRO, monday.com
We're growing our headcount in the organization in the mid-teens, especially around our AI specialists.
Howard Ma — Analyst, Guggenheim Securities
Great. Thanks for taking the question. I have two. I'll just ask them together. The first for Eliran, a lot of effort was put into building the FY 2027 target. So I just want to be sure, is it off the table altogether, or is that still a possible scenario? But maybe it's more of a high-end scenario. And then for either Roy or for Eran, what indications have your customers given you that they want to standardize on monday.com as both a provider of agents, so sales and service agents, and also an agentic workflow orchestration platform? Because as they evaluate other agentic tools that are offered by the Frontier Labs and the hyperscalers, I imagine there's a lot of choice out there. So what gives you the confidence that you will retain and expand this usage on monday.com? Thank you.
Eliran Glazer — CFO, monday.com
Hey, Howard. This is Eliran. Two first questions, and then I will defer to Roy and Eran. As I said, due to the macroeconomy and the choppiness that we have seen, this is the 2027 number is currently off the table, and we are focusing on fiscal year 2026 execution.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. And maybe, Howard, on the second part of the question about AI, I think most look, I feel the whole industry is living and breathing AI and aware of all the changes and improvement. But most of our customers—and I don't think we're in a unique position—are still trying to figure out what's the best way to leverage that technology. And for them, the best way to leverage that technology is use already systems they're using before where they have most of the data and the context and the workflows. And with that, they're trying and a vendor that they trust and love to use. And on that, they're trying to leverage their capabilities. They're more coming from a place of curiosity and trying to understand what's the best way to leverage that technology.
Because of the relation that we built and the way they use the product, they look to us as the vendor of choice. So we see the interest. We see the engagement with the customers. We see the excitement on any new AI feature that we introduce. That gives a lot of confidence that Monday can offer significant value with our AI offering.
Roy Mann — Co-Founder and Co-CEO, monday.com
Yeah. And hi, this is Roy. I can add that we also have Monday Vibe, which is basically the only vibe tool out there that is enterprise-grade and to the level that companies would adopt internally. And we've built it that way. So there's a lot of interest in that, and it just blows their mind what they can build with it. And joining to what Casey said about consolidation, that's one of the main drivers. If you can take all those small ones, small applications, and merge them, it's very interesting for all our customers.
Steven Enders — Analyst, Citigroup
Hi. Great. Thanks for taking the questions this morning. Maybe just starting on monday vibe, I guess, what are maybe the main use cases that you're seeing customers build with that? And then how do you kind of view the learnings that you've had so far to potentially drive those kind of incremental use cases or kind of broaden them out across the rest of the customer base and drive incremental ARR from here?
Roy Mann — Co-Founder and Co-CEO, monday.com
Thank you. So it's Roy. So we see a really wide variance in what customers do with Vibe because essentially, they can do anything they want, and it's connected to their existing data platform users. So we see things from very small stuff like creating dashboards and presentation of data and reports to the higher end of building complete, really meaningful, large applications on top of it that they couldn't do before. And a lot of the great stuff we see is that in some areas where we were maybe it was a vertical or those type areas that we were not going to develop specific features for, Vibe completes the gap and creates an amazing solution together with the whole of the other offering we have on the platform. And regarding monetization, this is a super we shared the numbers.
For us, it's the beginning, and we're going to see where it evolves.
Steven Enders — Analyst, Citigroup
Okay. Great to hear. Then maybe just on the performance marketing dynamics, I just want to clarify. It seems like you're assuming that's not getting better for 2026. It's kind of baked into the guide. I guess I just want to clarify that point. Then I guess, secondly, just in terms of those dollars shifting to other channels, just what kind of ROI are you seeing, and just how are you kind of viewing, I guess, improvement or timeline in terms of those other channels beginning to drive, I guess, incremental performance from here?
Roy Mann — Co-Founder and Co-CEO, monday.com
Yeah. Thank you. So yeah, we expect 2026 to not be different than what we've seen so far with the choppiness in the performance marketing. And it mainly affects the small businesses, like Eliran said, in the smaller area. And we run a lot of campaigns, and we're shifting the budget to the ones who bring us the larger customers. They have larger landing, and they have more expansion opportunity and higher retention. So essentially, we're making that shift and driving more and more into those areas because they have much higher ROI for us, okay?
David Hynes — Analyst, Canaccord Genuity
Hey. Thank you. So maybe just going back to the Vibe coding, can you talk a bit about what you're seeing in terms of the decisioning process around choosing a Vibe coding platform? I realize it's early, but as best as you can tell, are customers piloting multiple Vibe coding tools and then settling on one? Is there going to be coexistence of all these different platforms inside of the same organization? I'm just trying to get a better sense for competitive dynamics here and kind of how those decisions are being made.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Hi, DJ. This is Eran. So I think we need to distinguish between two different things. One is that we added the ability to Vibe code on top of a platform. So an existing Monday customer and by the way, we're one of the only few enterprise companies that offer currently Vibe coding within their platform. So our customers basically can leverage their existing data, workflows, and processes, and basically Vibe code on top of that almost anything they want in our platform. And our customers are building unbelievable things. This is part of the momentum that we see, the excitement that we see from our customers. And for me, I think Vibe coding is an ability that maybe going forward, a lot of the software vendors will at some point embrace.
In addition to that, in addition to the ability to Vibe code within the platform, we also created a new go-to-market that allow customers looking for a new Vibe coding solution to find Monday as one of the alternatives. The thing is that we're very focused around work and enterprise-grade solutions. So unlike the tools that exist today, which are more kind of consumer SMB-oriented, the way we built it is that we built it on top of the Monday platform. So basically, all the databases, all the data structure are based within Monday. So you enjoy all the security. You can afterwards integrate it with third-party platforms. And it's a different kind of tool with a different kind of offering compared to what exists in the market today.
David Hynes — Analyst, Canaccord Genuity
Yep. Yep. Okay. That's helpful context. And then Eliran, follow-up for you. So 91% gross retention in that 50K-plus cohort. Is that the right level? Are you happy with that, or do you see potential to drive gross retention gains over time? And I guess the second part of that question, those that are churning off the platform, are they consolidating to other packaged work management vendors, or are you seeing firms trying to bring some of that functionality in-house and kind of build it themselves?
Eliran Glazer — CFO, monday.com
Hi, David. So in terms of gross retention, not only that this is historical highs in Q4 of 2025, but this is the cadence that we have seen over the past few quarters. So we have reasons to believe that once we continue to offer the additional product and we continue to extract more revenue from existing customer base with AI products that are providing us stickiness and retention, this number will continue to go up. With regards to the and by the way, and I don't know to what level, but we saw an improvement, so we believe this is something that we will continue. With regards to the churn, I don't know to tell you that any one of the customers who churned is going to consolidate products on other platforms.
On the contrary, I think that what we offer on monday.com on the platform, the multi-product, the AI product that are layered within our platform allows customers to actually consolidate on us. While it's still early days, and we see mostly AI adoption and engagement that is significant, the churn is probably the lower-end customers on the S mostly that potentially either churning due to price or other reasons. But we don't see a churn of customers who want to consolidate on the platform.
Damon Coggin — Analyst, Barclays
Hey, guys. This is Damon Coggin off of Raimo Lenschow. Thanks for taking the question. It looks like net retention may have fell slightly short of your expectation in the fourth quarter. Was this primarily driven by pressure down market, or was there anything else that drove this?
Eliran Glazer — CFO, monday.com
Hi. This is Eliran. The reduction in net retention, the 100 basis points, is mostly due to pricing that we are starting to lap. As a reminder, we introduced a pricing increase or price adjustment two years ago. And after the rollout to all our customers, 250,000 customers completed this. So this is what we assume to be the main reason going from 111 to 110. And I just want to mention that overall trailing 12 months, NDR was trailing sorry, NDR was stable from Q3 to Q4. And just as a reminder, our NDR is the weighted average of the last four quarters. So this is important that we have seen stabilization within the quarters and linearity.
Speaker — Analyst, TD Cowen
Great. Thanks, guys. This is Cole on for Derek. Can you just walk through what's embedded in the guidance for next year across customer growth, seat growth, and cross-sell versus upsell? I think there was a comment earlier that the agentic offerings could increase productivity while headcount stays flat. So just thinking about that and squaring it with seat growth assumptions for next year. Thanks.
Eliran Glazer — CFO, monday.com
Yeah. Hi. It's Eliran. So what we baked into guidance for next year is upmarket and enterprise customer expansion, continue the multi-product adoption. We also said that we are going to be disciplined of the level of investment, and we are going to improve efficiency as we continue to reshape our go-to-market model. We mentioned that NDR is going to remain at 110% flat. We're not expecting to see a significant increase in number of customers. We said it in the past. We have more than 250,000 customers, and we would like to extract our revenue within these customers. And we see this by our ACV actually growing, and we see bigger and more significant customers replacing the smaller customers.
The last thing is we also took into account the negative FX impact on margins between 100-200 basis points, mostly due to the appreciation of the Israeli shekel.
Alex Zukin — Analyst, Wolfe Research LLC
Hey, guys. Thanks for taking the question. Maybe just wanted a quick follow-up for me. Can you maybe give us a bit of an update on monday CRM and monday service? Kind of how did they perform versus expectations in the quarter in terms of their contribution to net new ARR today and how we should think about those, particularly as you're moving up market for next year?
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Hi, Alex. This is Eran. So overall, we're very happy with the progress of both CRM and service in Q4. Q4 was a little bit tended to benefit work management. Q4 was more enterprise deals-oriented. So work management is kind of our more mature enterprise product. So it's not that the products underperform. It's just work management overperformed in Q4. It's more of a seasonal thing. And overall, we're very happy with the progress so far with CRM, the new monday CRM product. monday service performs very well. And as we've mentioned throughout the call, we expect the products to continue to be a larger and larger part of our revenue going forward. Momentum is strong, and this is how we see it going to 2026.
Billy Fitzsimmons — Analyst, Piper Sandler
Hey, guys. Can we maybe dig a little deeper in terms of some of the dynamics impacting the subchannel? I know this is tough to do, but help separate a little bit what you attribute to macro and what, if anything, you attribute to maybe potential AI experimentation headwinds if you're seeing anything there. Because one of the debates that came up for the last week generally across all software is that maybe SMB customers are more willing to experiment with plugins or Vibe coding, or SMB customers are maybe being more sensitive right now around pricing or price increases. So I know it's tough to comment on in terms of direct anecdotes because they're some of your smallest customers, and it goes to the self-serve channel. But any color in terms of what you're seeing and hearing in real time would be helpful.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Hi, Bill. This is Eran. So hopefully, I got your question right. You broke up a little bit. But overall, in terms of the top-of-funnel activity, we don't see any change in terms of the competition dynamics. We see that Roy talked about the choppiness that we see, and we see that that choppiness contributed to the impact we've seen in the top-of-funnel. We didn't see anything else. We didn't see anything new in sales calls or when customers compare us to other vendors. So we don't see any material impact from anything. And on the contrary, we offer a lot of new AI capabilities within the platform, not just for existing users, but also to new users. We change our messaging around our ads. We change our messaging around our homepage to be more AI-oriented.
So again, to summarize, we don't see any impact currently from any AI company, and we're shifting our product regardless to be more AI-native.
Allan Verkhovski — Analyst, BTIG
Hey. Thanks, guys. I wanted to just ask on pricing here. What drove the decision to raise price on service, and how are you thinking about potentially raising price on other products within the portfolio? Thanks.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. I'm not sure which price raise you refer to. So we didn't increase pricing recently on any of our products. We introduced a price increase about a year and a half ago, and it's been that one-time price increase that we introduced. We didn't change pricing to our existing products.
Eliran Glazer — CFO, monday.com
Maybe other than the pricing list that we have, then we move more customers.
Matt Bullock — Analyst, Bank of America Merrill Lynch
Great. Thanks for the question. I wanted to ask a follow-up on the free cash flow margin guidance. I understand there's some effects in there, your growing headcount, investing in sales-led growth. But maybe if you could clarify what's baked in in terms of incremental cash taxes, lower interest income. And then I wanted to ask a follow-up because I think you mentioned something about the buyback program relative to free cash flow, so I just wanted to clarify there.
Eliran Glazer — CFO, monday.com
Yeah. Sure. It's Eliran. So I will repeat what I said earlier. So the biggest impact is the appreciation of the Israeli shekel on the free cash flow. 55% of the headcount is based in Israel. We have seen over the past year a reduction of more than 20% in the U.S. dollar versus the Israeli shekel. We have a hedging strategy. So we were able to defend some of it. We are doing a rolling forecast of 12 months. But still, the decline was so sharp, the shekel recovered really significantly, so it's obviously impacted our cost and our free cash flow numbers. In addition to that, we are looking at a reduction of around 1% in interest rates environment, and we have a significant amount of cash. Obviously, this impacts our return in terms of the interest that we are getting. Sure, buyback.
We said that we are going to be opportunistic. At the end of last year, we already acquired in 2025, $135 million. In 2026, we will continue with the same program, but we're going to be opportunistic having in mind the current level of the share price. So we obviously also took it into account because if we buy shares, then the cash is not used to get interest. And as I mentioned, as we become more profitable, there is a potential or we may be paying taxes throughout the year pending on our progress. So these are the reasons for the adjustment of the free cash flow.
Taylor McGinnis — Analyst, UBS Global Research
Yeah. Hi. Thanks so much for taking my questions. The first one is, so even if we adjust for the FX headwind, it still looks like operating income and free cash flow margins are down a bit on a year-over-year basis. So could you just unpack the drivers of that more specifically? So when you talk about investment with AI, does that mean we could see gross margin pressure as we head into this year? Does that mean you need to make bigger platform or architecture changes for an AI world? Is it really just a function of this continued shift up market? I guess where in the line items could we see it? And then what are these investments actually going towards?
Eliran Glazer — CFO, monday.com
Hi, Taylor. It's Eliran. To your point, first of all, you're accurate with regards to gross margin. If we're going to invest with AI, we said that we are going to see gross margin mid-80s% to high-80s%, and we used to have 90%. This is something that we took into account. In addition to that, last year or in 2025, we increased our headcount significantly, mostly around SLG motion and R&D and product people. This is also going to be the area of investment this year, much less than last year. But still, this is the place where we're going to invest. And because we had significant hiring at Q4 of last year, we are seeing now the impact in terms of cost. We're going to prioritize investment in AI where we see the opportunity based on the returns as well.
To summarize, it's mostly headcount around SLG and AI. We might see investment that it's taking into account, some adjustment to the gross margin where we said we're going to be mid-80s-high-80s, and the FX impact, which is significant, unfortunately. This is it.
Eran Zinman — Co-Founder and Co-CEO, monday.com
Yeah. Just to add to what Eliran said, sorry, Taylor. Just wanted to comment on a previously asked question, not yours, Taylor, but I think it was Arjun who asked about it, the price increase for service. So just asked the team to double-check. And it seems like there's an 18% increase to a subset of core customers, the Monday Service. So it's not a significant amount. It's a small amount of customers, but just wanted to point that out and give some more color on that.
Mark Schappel — Analyst, Loop Capital Markets
Hi. Thank you for taking my question. Eliran, could you just discuss to what extent customers are expecting your new AI capabilities to be bundled into, say, existing subscriptions versus paying for them as a premium add-on? And maybe also talk about how that's either shaping or not shaping your packaging and monetization strategy in the coming year.
Eliran Glazer — CFO, monday.com
Hi, it's Eliran. I think, Casey, probably better for you to take it.
Casey George — CRO, monday.com
Yeah. Happy to. So thank you for the question. So our AI capabilities are foundational in our platform. They're embedded in our workflows. And based on the feedback we've gotten from customers, they really enjoy the predictability of PPU pricing, and they like to consume those capabilities that way. With that said, some of the more compute-intensive workloads that drive outputs with these workloads, we are charging and monetizing that through credits. And our customers like the mix of both of those. So again, it's early, and we're very encouraged that this model is going to be working [inaudible].