Q4 2019 Earnings Call
[music].
You touched on telephone as a reminder, this conference call is being recorded I would now like turn the conference over to your House Nussbaum near a Girl Act director of Investor Relations. Please go ahead.
Hi, and welcome to Appworks discussion of its fourth quarter and full year 2019 financial result, leading the discussion today, our Hayden Brown, Appworks, President and Chief Executive Officer, and Brian Kinyon Appworks Chief Financial Officer. Following management's prepared remarks, we'll be happy to take your questions but.
First let me review the Safe Harbor statement. During this call. We may make statements related to our business that are forward looking statements under federal Securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks uncertainties and assumptions our actual results could differ materially from expectations.
Reflected in any of the forward looking statements for a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available under the FCC website and on our Investor Relations website as well the risks and other important factors discussed in today's press release.
In addition reference me will be made to non-GAAP financial measures information regarding reconciliation of non-GAAP to GAAP measures can be found in the press release. It was issued this afternoon on our Investor Relations website at investors to Upwork Dot com.
As always reported figures are rounded unless otherwise noted comparisons of the fourth quarter of 2019 are to the fourth quarter of 2018 and comparisons for the full year 2019 or to the full year 2018, all measures our GAAP unless cited as non-GAAP.
As we have disclosed previously we adopted the new revenue recognition standard accounting standards codification topic fix so six A.S.C. six so six on December 30, Onest 2019.
On a modified retrospective basis effective January Onest 2019, this primarily affects our tiered pricing program for freelancers services fee, which results in a deferral of revenue.
Financial results for the reporting period. During 2019 are presented in accordance with the new revenue recognition standard although for purposes of comparison to our prior guidance and our fiscal year 2018 results. We will also be discussing certain of our 2019 results under assay six both five our press release filed today.
The includes for the first time, the additional information to reconcile the impact of the adoption of this revenue standard on our financial results for reporting periods 2019. Additionally, we have posted a presentation on the Investor section of our Investor Relations website with details regarding the impact of A.S.C. six so six adoption on a reported FFO.
Financial results. Please note that their prepared remarks corresponding to the information reviewed on today's conference call will also be available on our Investor Relations website. Shortly after the call is included now I'll turn the call over to Hayden.
Thanks, Palmyra and thanks, everyone for dialing in today.
When I joined upward eight years ago. It was clear to me that this company is positioned at the crossroads four major secular trends.
First a plan it blanketed by Internet access offering the potential to connect people across the globe like never before.
Second better and better collaboration tool, making remote work increasingly comparable to being face to face.
Third shifting sands in our labor force in which people increasingly demand to work differently seeking freedom from the traditional nine to five workplace and greater autonomy and win in for whom they work and fourth an increasing war for talent with companies running out of options for how to attract and retain the types of workers that they need to.
To be competitive.
This company was founded on a transformational idea that today seems like an inevitability high quality work and workers available on demand at the touch of a button.
Well this is a future that we have envisioned for quite some time the signals I see within our business today suggest we're close to reaching a tipping point.
While demand for our services from small businesses has always been and continues to be strong today, we are seeing the tied to turn in larger company context.
We've gained evangelists at mid sized to fortune 500 companies, one third of whom are our clients.
This is igniting new conversations amongst executives in corporate America about how broken today's models are for sourcing and working with skilled talent.
These companies increasingly recognize that the so called skills gap can be bridge by leveraging talent from beyond their local regions and from sources outside of their traditional staffing vendors.
These larger companies now realize that appworks on demand talent solution is a critical pathway for them to not just achieve bottomline objectives, but to exceed it topline goals.
Because I dynamic workforce model that Leverages upwork can deliver sought after innovation and the necessary talent to fuel the digital transformations that so many companies are grappling with.
Upwards opportunity is immense.
We're pursuing a 560 billion dollar market of professional service jobs that can be performed remotely we're driving a transformation in the labor market that will be a seismic as the impact of E commerce on retail and as disruptive as a sharing economy has been on fixed asset industries.
We are the largest only talent solution and our suite of product offerings is designed for all companies in need of professional talent.
But even though we've been building strong foundations over many years I believe that we're just getting started.
Our goal is to become the world's top provider of flexible talent solutions by attracting the best clients with the best work opportunities for the world's best talent.
With that in mind I believe upper can be a higher growth business that we can grow into and sustain at 20% plus year over year growth rate for the long term.
My Chief focus is to make that a reality.
Since becoming CEO on January Onest, I've prioritize setting up our teams to execute a focused at 2020 growth acceleration plan.
Earlier this month I made significant organizational changes to enable us to streamline the delivery of our end to end customer experiences.
Given our business model in which each year's performance is significantly driven by recurring spend from past cohorts of clients. The results of this year's organizational changes and our strategic growth investments may not immediately appear.
However, the important growth work, we do this year will set us up for accelerating growth towards the 20% target in the years to come.
To that end I see the unique opportunity I have right now as the new CEO to step back and take stock of our business relative to its potential I.
I spent my first two months immersed with our clients are freelancers, our partners, our internal teams investors and industry leaders listening closely to their ideas and assessing all aspects of our business I've set us up to execute on a strong growth plan. While also beginning to evaluate a number of operate.
Communities that will enable upward to better fulfill its transformational potential.
I'm, taking my first hundred days to develop a fresh perspective, and I look forward to sharing specifics on opportunities and key decisions and our future earnings calls and investor updates.
Before I recap, our 2018 performance and our outlook for 2020 I want to express my gratitude to fund Kasriel, who in December decided to step down from the president and CEO position he held for over four years.
I had the pleasure working with Stephane for seven years, and he was an excellent leader, who ushered upward from being a small startup into being the largest online talent solution.
Was honored to take the baton firms defined as president and CEO of Upwork last month, and I couldn't be more excited about what's to come.
Within Upwork I've known for bold leadership, a long term strategic focus and my deep passion for our mission and our business.
I spent part of my childhood and common do Nepal and have seen firsthand that talent is everywhere, but opportunities are not.
I'm incredibly proud of the work, we do to achieve our mission to create economic opportunities. So people have better lives.
And of our dedicated workforce, both our employees and the talent to freelancers, who worked for us directly.
Working together, we have a distinct advantage and our ability to since sustainably accelerate appworks growth due to our uniquely talented teams collaborative culture market know, how large scale marketplace and our technology leadership.
I would like to recap 2019 with a focus on fourth quarter performance also share my perspective on our 2020 expectations and the work already happening to move us to a higher growth trajectory in future years.
I'm pleased to report a strong fourth quarter with revenue at 80.7 million exceeding our previously provided guidance of 79 to 79.5 million.
This brought our full year revenue to 302.6 million also exceeding our guidance of 301 to 301.5 million.
Please note that these numbers are under the assay six or five revenue recognition standards, which will discuss in more detail later.
Our fourth quarter and full year, GSV with 549 million and 2.09 billion respectively.
Now, let's dive into the drivers of topline performance in 2018.
GSV is driven by two factors.
And from our large retained client base and spend from our newly acquired clients.
Our client spend retention rate as of December 30, Onest 2018 was 100, 102%.
This is lower than our all time high of 108% as of December 30, Onest 2018.
We have found that the 108% retention rate was driven by the launch of our domestic marketplace in 2017, which led to an increase in hourly rates on the site that was most pronounced in 2018 and started to normalize in 2019. In addition, after the launch a subset of us clients engage solely us freelancers and have exhibited lower.
Our client spend retention than the rest of our clients.
As this dynamic is stabilizing in our marketplace, we're seeing our client spend retention rate revert closer to our historical levels.
Expected to stabilize around 98% to 100%.
In terms of spend from newly acquired clients 2019, largely met our goals with respect to spend per client, but we saw some softness in our Q4 core client additions, adding approximately 4000 core clients in the fourth quarter.
Some of this as a byproduct of our emphasis on the addition of larger client companies and the expansion of our footprint within existing accounts, where we believe we have significant headroom.
Our overall take rate in Q4 was 14.6% up from 14.3% one year prior.
Our marketplace take rate improved to 13.4% in Q4 compared to 12.8% a year prior.
We achieved this take rate improvement by making several changes last year.
Number one we saw good adoption of our new paid clients subscription plans, which have higher monetization characteristics, both in the subscription fee and to take rate.
Number two we also changed both the cost of Connex, which are their virtual tokens used by freelancers when submitting proposals and the number of connex required to submit a proposal. This was part of an effort to improve proposal quality, but a byproduct of this was improving monetization in the back half of 2019.
Lastly, we increased our client payment fee for upper basic and plus from 2.75% to 3%.
Now, let's talk about our cost structure, where we saw continued improvement in the management of our cloud computing costs, which largely accounted for the improvement in our fourth quarter gross margin to 71% versus 69% in the fourth quarter of 2018.
Within operating expenses, we realized leverage in several areas, but namely our Andy.
Lastly, we achieve success in decreasing transaction losses via ongoing efforts and our trust and Cc and our payments programs.
As a result, these efforts drove larger than expected improvements in our adjusted EBITDA.
Next I'd like to drill down on our sales team, which is an important part of our long term strategy.
As I mentioned earlier, we are seeing a change in the enterprise market and we're positioning ourselves to take advantage of it.
Just a few years ago. The most frequent question our sales team received from prospective clients was about why they should consider a solution like upwork.
Today. The top question, we get is how they can use our solution. They recognize the need to evolve their talent strategy and want to know how to get started.
This is a major shift in mindsets, indicating a growing market readiness for our solution.
Our sales efforts are highly synergistic with our existing self service marketplace business.
One of the great benefits of our business is that we have a strong pipeline of accounts that start on our self service offerings and are ready to upgrade to upwork business and enterprise as they scale.
In 2018, we created specialized tools for our sales reps with some focusing on landing new accounts and others focused on expanding existing accounts.
This specialization was successful.
Contributing to improved Salesforce productivity.
Given the traction we are seeing with both upgrading existing customers as well as landing new deals and our healthy 18 to 24 month payback period on sales resources. A number we believe we can continue to improve we substantially increase the size of our sales team over the course of 2018.
We ended the year, achieving our hiring plan of approximately 90 quota carrying sales reps about half of whom we're fully ramped.
In general it takes about six months for a new ramp reps to ramp to full productivity.
Overall, while still relatively small in their contribution to our total business. Our sales team achieved strong growth and meaningful traction in 2018, and I see runway to continue investing in our sales model in future quarters.
Our strong sales team with excellent return economics will be essential to unlocking the giant portion of enterprise spend within the $560 billion market opportunity we are pursuing.
While 2018 was a solid year I believe we can grow that business faster in future years.
Immediately upon transitioning into this role I Reoriented the company to execute on a simplified strategy focused on three objectives that will set us up for growth acceleration in 2021 and beyond.
These are.
Number one attract more bigger clients.
Number two enable more spend per client and number three make more high quality matches, particularly in our technical categories of web mobile and software development.
Let me talk about our first priority, which is to attract more bigger clients.
While perspective customers have increasingly heard of upwork, they often under estimate the strategic advantages we offer.
To many of them think Upwork is simply a site for hiring freelancers for small gigs in.
In reality over 85% of our more than 2 billion dollar GSV in 2019 was derived from a large engagements and complex projects not small gig work.
Our community of talented professionals receives an average project feedback rating above 90% above 90, and our clients rate upwork with a net promoter score of above 60 by comparison traditional staffing firms have an average NPS score of four.
All of this data indicates that there is a major perception versus reality GAAP about our business and this year, we're working aggressively to close this gap.
Last month, we launched a new brand campaign, which targets professional staffing buyers and showcases our platform strengths for longer term high quality work with rated review to talent.
To ensure that we're attracting and converting the right clients. We are optimizing our lead funnel for sales as well as innovating our self service client Onboarding experience.
I want to share. An example of a client who is starting to tap into the full value we can provide.
Electrify is one of the new Upwork enterprise clients that we acquired in Q4.
Electrify as a global AI and machine learning product company based in New Jersey, Theyre already experiencing two to three times increased productivity within their product teams by using Upwork.
Electrified product team is forecasting a 25% increase in the number of products. They plan to develop and launch in 2020 versus 2018, because by using Upwork. They are able to quickly find and work with experts that meet their exact business needs.
We're focused on helping more companies like electrify realized the tremendous potential that they have to achieve their business goals by using upwork in more substantial ways.
Next I'd like to talk about our second priority, which is to enable more spend per client.
We're working on several initiatives to drive faster and broader adoption of upwork within organizations that use our platform.
Specifically, we're rolling out initiatives to help customers rapidly scale the number of active hiring managers in each account and to increase the size of contracts flowing through our platform.
To do this we're investing in an extensive product roadmap from business friendly capabilities like single sign on to improving our upwork employer of record offering to more quickly scale payrolls relationships on our site.
We're also investing in a more robust temp to hire offerings for full time work.
These and other changes are aimed at enabling more clients to get longer term larger and more ongoing work done via our site.
Our third priority is to make more high quality matches, particularly in our technical categories of web mobile and software development.
Technical categories of work account for a substantial portion of our total GSV and yet these are not our fastest growing categories today.
We believe these categories can grow significantly faster, given our count supply and the ever growing demand for quality technical talent in the labor market.
To tap into this we're deploying similar playbook to the one we successfully built last year to accelerate the design categories.
And now that I've discussed our three strategic pillars for the year to attract more bigger clients to enable more spend per client and to make more high quality tech matches I'd like to turn the call over to our CFO Bryan Canyon for additional details on our financials. After he concludes I'll wrap up our prepared remarks with some closing.
Yeah.
Thank you Haven and good afternoon, everyone.
My remarks today, we'll start with the impact on our financial state results from the adoption of two accounting standards, we were required to drop in 29 team.
Then I will discuss our financial results for the fourth quarter and full year 2019 for rental revenue guidance for the first quarter and full year 2020, which we included in the earnings release filed earlier today.
We adopted a FC 42, which is a new leasing standard as of January Onest 29 team using the effective method.
Recorded a ride of use asset in corresponding lease liability.
Consolidated balance sheet for approximately 22 million.
The impact or consolidated statement of operations was immaterial.
As we previously disclosed we were required to adopt assay six so six which is a new revenue recognition accounting standard.
We adopted six so six on December 30, Onest 29 team on a modified a retrospective basis effective January one 2019.
The amount and timing of revenue recognized during 2019 remains largely unchanged across our offerings on the renewal of this adoption.
However, the most notable impact relates to our tiered pricing program for freelancers services.
For freelancers working with clients that are on our Upwork basic and plus offerings, we have a tiered free master service fee schedule based on cumulative lifetime billings by the freelancer to each client.
Under the new standard we will affect the lead to for a portion of a higher upfront fee and then recognize it ratably over the estimated time that we received the lower fee.
The impact on the adoption was a record 11.8 million of deferred revenue, where the corresponding entry to accumulated deficit.
Which represents the net impact of our tiered free lesser services schedule from the assumption of its implementation in 2016 to the end of 2018.
The net impact on our 29 team marketplace revenue was approximately 2.1 million less on their six so six versus six so far.
We were reporting revenue on a go forward basis under six or sex and we expect the impact of this adoption to import to impact marketplace revenue that would have been recorded under 65 by approximately $750000 per quarter or approximately 40 million for the full year 2020.
We have included additional information in the press release tables to reconcile the impacts of adopting bolstered so six and 42 on our financial results for reporting periods in 2019.
Additionally, we have posted a presentation on the Investor section of our web site at investors that Upwork dot com with details regarding the impacts of adopting the new six so six revenue standard on a reported financial results.
As reported under 66 total revenue increased by 19% year over year to 80.3 million in the fourth quarter and by 19% to 300.6 million for the full year.
Total revenue that whatever reported number six so five increased by 20% year over year 80.7 million in the fourth quarter.
And increased to 302.6 million for the full year 2019.
Marketplace revenue as reported under six so six increased by 21% year over year to 72.2 million in the fourth quarter, representing 90% of our total revenue.
And increased by 20% year over year to 268.3 million for the full year 2019.
Marketplace revenue that would have been reported under six so five increased by 22% year over year to 72.6 million in the fourth quarter, representing 90% of our total revenue.
And to 270.4 million for the full year, 2019, which was a 21% increase over the previous year.
Managed services revenue increase in the fourth quarter to 8.1 million and to 32.3 million for the full year 2019.
FC six so say no impact on managed services revenue.
As reported under 66 non-GAAP gross profit increased in the fourth quarter plenty 19, 57.5 million, representing 72% of revenue compared with 69% in the fourth quarter 2018.
Non-GAAP gross profit under six so six increasing the full year of 29 team to 212.9 million representing 71% of revenue.
Non-GAAP sales and marketing expenses were $24.8 million in the fourth quarter 2019, representing 31% of revenue compared with 26% in the fourth quarter 2018.
Non-GAAP sales and marketing expenses were 93.3 million for the full year 2019, representing 31% of revenue compared with 28% for the full year 2018.
Non-GAAP R&D expenses were 14.4 million in the fourth quarter 29 team, representing 18% of revenue compared with 20% and the fourth quarter of 2018.
Non-GAAP R&D expenses were 50 657.6 billion for the full year 2019, representing 19% of revenue compared with 21% for the full year 2018.
Non-GAAP operating expenses were 15 million in the fourth quarter of 2019.
Visiting 19% of revenue compared with 18% in the fourth quarter of 2018.
Non-GAAP General expenses were 54.7 million for full year of 2019, representing 18% of revenue compared with 16% for the full year of 28 team.
We expect sales and marketing R&D and Jane expenses to increase in absolute dollars port fluctuate as a percentage of revenue from period to period.
Transaction losses.
Decreased a 1.2 million in the fourth quarter 2019 or $3.9 million for the full year 29 team.
Presenting approximately 1% of revenue.
Typical range has been between one and 2%.
Under 66, non-GAAP net income was 3.4 million in the fourth quarter 2019.
Compared with non-GAAP net income of 2.7 million in the fourth quarter of 2018.
Our basic and diluted non-GAAP net income per share under 66 was three cents in each of the fourth quarters of 2019 and 28 team.
Understood. So six adjusted EBITDA was $3.5 million in the fourth quarter compared with adjusted EBITDA of 3.6 million in the fourth quarter of 2018.
Now I'd like to share our forward looking guidance for 2020, which is on a fixed so six basis.
For the first quarter point 20, we expect revenue in the range of 81.5 million to 82.5 billion.
For the full year 2020, we expect revenue in the range of 340 million to 345 million.
Our revenue growth rate always vary from period to period due to a variety of factors.
Specific factors influencing the shape of year over year performance. This year include.
Q1 is expected to be stronger on a year over year your basis in part because of the number of monday's. So that as a day, we recognize our client payment processing and administration fee for the week.
The first quarter 2019 at 12, Monday's, whereas the first quarter 2020 has 13 monday's.
In Q2, we are anticipating further adjustments to how come next I'll use on our side to drive high quality matches.
And we expected that to put some downward pressure on revenue.
Last year, we adjusted the number of connex required to submit a proposal.
As we continue to optimize this to drive quality proposals and increased fill rates for jobs on our platform.
We expect to see some negative revenue impact this year.
In Q3 in Q4, we're not expecting monetization improvement. So most of the pricing changes that impact is us in the second half of 2019, which results in some year over year comparison headwind.
In addition, Q3 of 19 had 14, Mondays, where Q3 or 2020 has 13 monday's.
Lastly, we expect our managed services revenue to grow slower in 2020 as our primary focus is on increasing client usage.
Okay and spend on our marketplace offerings.
All that said I would like to emphasize that we're expecting fairly coast consistent sequential quarterly growth over the course of 2020.
As I mentioned earlier, we are confident this business can have strong profitability economics over the long term.
This year. However, our focus is on investing for growth in order to capture our large market opportunity.
We will manage costs with discipline.
Not prioritize achieving a particular EBITDA margin and as such we're not guiding to EBITDA range. This year.
Before turning the call back to Haven, I'd like to say that we're committed to providing regular investor updates as we've done in the past and look forward to more face to face meetings as the year progresses, now I'll turn it over to Hayden to share some concluding remarks.
Thanks, Brian.
Above all else I want the takeaway of this call to be that Upwork is incredibly well positioned to capture a huge market opportunity executing on a focused strategy that will deliver 20% growth and increasing profitability over time.
We see critical secular trends converging and we are ready to take advantage of the changing landscape of how we work.
We have a unique leadership position and know how in digital and remote remote work and technology platform with incredible scale data asset, including millions of users and trillions of unique matching data points, which together enable us to deliver better quality talent faster more effectively and at higher scale and any.
And that exists.
We're well positioned to own a significant share of the large and growing market for contingent professionals with early success and growing penetration of both the self service market as well as the large enterprise space.
My number one priority is to make our potential as a market leader and a higher growth business a reality.
While 2020 will be a transition year as we laid the foundation for the future I'm confident that our efforts to strengthen our core self service business and expand the impact of our sales team will yield results.
I appreciate that continued confidence of our investors, who share our vision and who I believe will be rewarded.
One of the best things about my job is that I get to see in here from our customers every day, both those at giant corporations and those at small mom and pop shops.
In recent conversations upper clients and freelancers use words like Super human and Batman to describe how they feel when using our product our customer speak with our about how our company has truly changed what they thought was possible for themselves and their businesses.
Our tremendous opportunity to be a generation defining company that changes People's lives for the better motivates me and all of US at Upwork every single day.
We are confident in the future and excited about the opportunities ahead.
We look forward to answering your questions about our results and our outlook operator, we're ready for questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then one number one key on your touched on telephone. If your question has been asked are you wish to remove your stock from the Q. Please pressed accounting.
Your first question comes from the line of Mark Mahaney from RBC. Your line is helpful.
Thanks, I would like asked two questions. Please hayden of the thanks for letting up the three initiatives to accelerate growth going into 2021, which of those three but could you just rank order them in terms, which those three you think will be easiest and which of the three will be.
Hardest to achieve and then Brian will you ring fence at all the.
The bottom line for us in 2000, you'd like what you're willing to accept and what you aren't willing to accept.
Could we would it be could it be euro Steve EBITDA losses, do you want to run into breakeven Im sorry, you may have covered effort I think I may Miss that just if you're not giving specific guidance that you lease ring fencing. It pit levels that we should at least not expect we should not be surprised by or should not expect as investors. Thank you.
Mark Thanks for the question in terms of ranking our priorities I think the number one focus for us is really around increasing our client spend retention and that metric is driven by really all three of the priority as I outlined.
In particular in priority number to where we're talking about increasing the efficacy for clients to do longer term solutions on our site like payroll and temp to hire offerings.
In objective number one where were tackling larger clients, who typically we've seen have a lot more to spend and also have better retention characteristics for us I think those are just some examples of how really all three of the pieces are critical to driving that overall growth, but the umbrella that we're really focused on is how do we improved clients under pension overtime.
Time, because there's a lot of runway there and we think we can do it with the strategy we've laid out.
Yeah. Thanks, Mark for your question on the EBITDA so.
Our goal is to make the company a higher growth business sustaining 20% year over year over the long term and so with that mine, we plan to operate with cost discipline as we've done in the past.
We will look to the redeploy capital to the highest growth opportunities, especially in sales and marketing as we see clear LTV to CAC hurdles.
We continuously evaluating those best options and we wanted optionality in order to drive that growth without being constrained by a profitability target. This year, but I would say that both payment I will manage this business accordingly and not.
Growth at all costs kind of conversation.
Okay. Thank you.
And your next question comes from the lineup Ron Josey from JMP Securities. Your line is open.
Hi, This is David on for Ron.
Can you talk about your sales hiring plan for 2020, and then for Brian.
Under 660 deferred more marketplace revenue in Threeq you can you provide more color on that please thank you.
Yes, so David our focus is definitely on capturing long term value and creating that long term value and so sales is an important part of that strategy. We saw really good performance last year from our sales team on a number of metrics, including the 18 to 24 month payback period, but also exceeding some of our targets around on new deals as an exam.
And so as we look towards the rest of this year, we have a hiring plan around sales, but really have identified a number of gating metrics, but as we see the sales team achieving that will trigger more or less hiring based on the performance and so we are expecting continued consistent hiring within the sales organization, but we will dynamically.
Make decisions around that based on the team's performance.
Yes. Thanks for your question on six so six.
It's based upon the build of that freelancers service fee overtime, and so it can vary a little bit quarter by quarter and what we guided was basically around 750, a quarter going forward in 2020.
But if you look back historically at some of the numbers there they do move around a little bit on a quarter to quarter basis, but based on our forecast going forward. It looks like its pair fairly even.
Depending on again, the estimated time of wind freelancers can move around from the 2010 five buckets.
And so it's basically more of a timing issue than anything else and we'll have to continue to assess the estimated time of when they will get to that 5% chair on a go forward basis, which could move numbers, Rob I won't be about material.
That's helpful. Thank you.
Yes.
And your next question comes from the line Brent tell from Jefferies. Sir Your line.
Hi, Thanks very much this is our champion for Brent.
Thanks, again for filling out the strategy in terms of returning to 20% growth I mean, I can't give guidance, but yes.
How wide is that timeline and what is required to do that exists in Moscow and you have to hit in terms is the mix from your larger companies or any specific.
Achieves that you need you to return to that level.
Absolutely so the fundamentals of our business I want to emphasize our really strong and as we're looking ahead over this year as Brian mentioned, we are seeing the expectation of consistent quarter over quarter outgrowth in the business that being said the 20% target is what we're aiming for and we want to get there as soon as possible.
It's going to take some time as we lay out the as you continue with the investments that I outlined in terms of the strategy around driving more larger clients into our product, helping them spend more on on bigger and more programmatic efforts.
As well as with our focus on the technical category and really acceleration. There. So we want to be realistic as you look forward around how long those things will take I can tell you that new my experience in that business is that.
There's two different type of changes we can typically make one category of changes are things that are around pricing or monetization that often we introduce and that can be more of like a systemic shock and have a material impact immediately front for better or worse.
The other types of changes, we make our usually introducing new features new offerings things like that that given the recurring nature of habitual behavior that drives so much of any single years performance.
It will take the next year or the third year for those impacts to fully scale out to the to the full business and so we are working hard to get to that goal as fast as possible, but we're realistic that some of these investments will take a little bit assigned to materialize.
Okay. Thank you.
And your next question comes from the line of Marvin fall from BP I'd, Sir Your line is open.
Great. Thank you for taking my questions.
I, just I wanted to drill down on that wallet retention target the 98% to 100% I'm just curious if that so what degree is that being impacted by I guess the idea that some people might be hired full time off platform, if not for that would wallet retention be above 100% and then.
To get questions on just that.
What are the potential economics.
To have work when one.
Freelancers hired off the platform is that how material cannot be.
Clients been retention is a big focus for us and so we're really working to.
Not just watch that number hit the historical levels, which is the number we share 9800%. That's a pattern we've seen in the business for a long time and so.
The revision to that number is something that we could foresee but that being said our priority is to try to me that not happen and try to increase client spend retention through the strategies around it and pursuing larger clients getting larger product on the guidance and so I think to your question around taking our freelancers off the site, which certainly does happen.
And every marketplace has some of that behavior kind of endemic to it one of the focus areas that we're doing we're working on this year is a lot of our client the said hey, I really want to work with this amazing feelings are I found help meet figure out how to do that.
In a different way like I want to payroll them. This is a long term relationship and a lot of the solutions that we have there, including our payroll solution has been that prominent in front of users on that easy for them to identify and start using and so one of the things we're doing to help with clients vendor attention, but more fundamentally also to serve the needs of the customers as they are telling us with.
They want is make that the offerings around klansman around.
Payroll and around implement a record services and around scenarios like temp to hire things that people can much more readily do directly inside of our current product experience and that way. They have an option to do that without having to basically circumvent our platform and so those are the types of investments that I think really create more value for users in terms of.
Expanding our offering and the ways that they can use us.
Also come back to improving that client spend retention number overtime and so that's a big focus for us this year.
Great and the second one if I may just.
Brian you alluded to the change in that connects Paul the.
Starting the second quarter could you maybe elaborate on that and then also.
Give us some sense will that move the take rate measurably.
As we think about the interplay of revenue in the us before for 2020. Thanks.
Just to chime in on the Connex question on one of the things we changed last year around connect was introducing.
More of a strong payment model around connects for freelancers and that was really aiming at how do we improved the quality of the proposal that filters are submitting and save them more time from submitting many many proposals that ultimately we're not going to be.
Successful with clients and so that was the change that we introduced last year in that really did help with monetization in the back half of the year as a byproduct of that it was it was more successful given that we expected on monetization.
And this year I want to be really clear that we are focused on growing the business over the long term, including really healthy G fee growth and not making decisions that.
Increase in year revenue, but are not driving sustainable healthy marketplace characteristics and so as we look at that connects framework that we introduced last year. There is room to optimize the pricing inside of that framework. So that we get more high quality proposals increase match rates with clients and that does help us over the long term into.
But having really healthy recurring usage, but in the short term that will mean, some monetization reductions as we.
To optimize the pricing in that program, so that kind of the context on the changes, we're making and and why I think this is part of again really focus on long term health of the business.
John I think on voters, Brian No I think that the I mean, Marvin somebody got it I mean, we've said this in the prepared remarks that we're anticipating the connects adjustments to reduce revenue in Q2 and throughout 2020, but it's all for long term growth. It's all about driving quality proposals and more fill rate improvements we want to make sure that you took that into account building or model.
As and part of what we said as well as the sequential quarterly growth you can kind of see that being consistent throughout the year and you can take that into account under models.
Great. Thanks, a lot both you and congratulations again.
Thanks.
Moving on we also have a question coming from Nandan Amladi from Guggenheim Partners. Your line is open Sir.
Thank you good afternoon, my thanks for taking my question.
I wanted to ask about the composition of the sales game I know you stocked up on you said about half of the assist in those not productive.
Can you talk about your emphasis on the mid market versus large enterprise and Neil versus up so.
Yes, so right now the team is structured to cover.
All the size of account kind of inside of our segmentation. So we've got a large accounts team has strategic accounts team as well as mid market and the volume of opportunities right. Now is certainly in the mid market team because they are really the ones pulling from the broader marketplace and a lot of the customers that have.
Turning to reach the limitations of the lower price plans that we offering really are needing to scale up and use upwork business and Upwork enterprise. So from a sales team standpoint during theirs.
A lot of personnel in that part of the team, but we are still really focused on making sure that we have strength with our enterprise and larger customers because they have such large programmatic spend and we can offer them to scale, what they need it to deploy that spend and to really using a systematic way is the goal. So we're not.
We're kind of covering all our bases there in terms of the reps kind of bringing on each cargo market in terms of land versus expand kind of within that structure that that focus on a different.
Clients sizes by segment there are land teams and expand teams that earlier focus on January that activity and as I mentioned the investments we made last year in specializing those roles has been really successful in both sides expanding new deals as well as drilling within the existing customers we have.
Yeah, I would just say some of the skill in specific areas of our clients means that being touched by both sales and services as a significant accelerator to unlock that spend but they have and so once we do land on that it's critical for us to unlock that project and staff augmentation, causing all that out as we see us pretty solid payback.
Period of 18 to 24 months on our enterprise deals.
Which we feel we can improve overtime as we ramp more about salesforce.
Thank you.
Your next question comes from the line of Heidrick Kookmin from Cantor Fitzgerald. Your line is.
Hi, Thanks for taking my call I'd, Brian I know you touched on all the quarterly impacts that are happening this year and the tough comps in the second half I'm. Just curious if you could discuss where you see the year over year growth rate, maybe bottoming out or do you think thats more of a 2021 thing on the way that 20%.
Yes, so great question.
I would anticipate based upon but what we gave you guys on the sequential growth periods and the year over year comp periods. We have is that you will see the growth deceleration. So basically we stabilize or bottom out in the back half of the year with acceleration expected in 2021 as we do a lot of these investments and it takes a while saving said for us to see.
The results with some of the investments they take a while to move through the marketplace and things like that so that's that would be where I would actually the you're rolling.
Great and then just with the recent market volatility just curious how much volatility you guys assume for the economy and guidance.
Yes, I mean were our marketplace is fairly predictable.
Based upon spend in the retention and things like that I mean, the always.
Macroeconomic things that are going on and we are discussing this morning, the corona viruses like how would that impact for us.
But we don't have a supply chain in China.
This is remote work and so people can get worked from that perspective, and so I would say, there's not a lot of macroeconomic things that we're factoring into our guidance right now.
But we do monitor those things.
Perfect. Thank you.
I was just to add to that I think we have seen in the past and would expect in the future. Some degree of competing countervailing factors. You know if there is a downturn certainly a lot of customers may pull back spending a lot of places, but often we've seen there is a flight to value and I think thats, where our solution is barely very valuable as well as it.
Really let people tap into kind of distributed teams and things like that that they may be more interested in in a briefing when there's kind of lean times and they have to reassess their workforce. So we had a really successful year back in 2000, 8009, and we haven't baked into the future for our current forecast any.
Specific impact from market volatility.
Thanks, Sam Thanks.
Our next question comes from the line of Corey Greendale from first analysis. Your line is open.
Given guys. Thank you for taking my question is Logan under Corey maybe a question on marketing spend in 2020, you mentioned awareness earlier should we anticipate materially higher marketing spend in 2020 or how should we think about that that expense going forward.
We're definitely focused on closing the gap around not just awareness, but I'm more the realization and consideration of upper for more of the strategic larger projects comp I Jackson, I think thats, where were seeing an opportunity in the market today, where a lot of customers, who maybe do know about.
I don't have the rate perception about how strategically we can help them out.
This year, we are maintaining our brand investments in a similar way to last year and Weve rebooted. The campaign starting in January with updated messaging that really goes after closing that perception versus reality GAAP as we look out over the year. We are still focused on maintaining healthy CAC LTV ratios I think it's really critical that we do not at.
The ops.
Any kind of strategy that some other companies do around kind of growth at all costs or.
Growth at the expense of really sensibility. So right now we are investing in the areas, where we feel like there is a profitable return and we are doing some amount of brand spend there, but compared to folks like indeed in Super Cruder ours. Our investment there are an order of magnitude smaller and we think thats the right thing for right now we're.
Not ready to go on pull the trigger on some giant increase in brand spend so right now we are evaluating opportunities looking at the economics, and we'll continue to optimize our marketing spend as we as we see outperform.
Okay, great and and maybe a product functionality question for you hadn't what are you hearing from your customers are some of your large customers that maybe aren't spending as much as you think they should are they giving his feedback that you lack this X X Y Z functionality and this is a must have a need to have a nice to have once that discussion look like.
Yes, so customers always have a long list of requests as you now.
We have incredibly great feedback from customers I mean, just two weeks ago I was meeting with our customer Advisory Board, which include some of our representatives from some of our biggest companies that we serve today and I'd say it really depends on the market segment.
I think we have really strong product market fit across the board and we're just kind of dialing the features and functionality based on on certain requirements I think that's where one of our advantages as when you go to a large customer on a lot of the times the things they need around governance and reporting on security and compliance those are.
Our really unique needs and we've been investing for years and building out solutions that serve those needs and I think those are the types of things that really will continue to be differentiators for us as we continue to attack larger parts of the market and sell into larger companies. So I'm excited about the foundations that we've built on and certainly we'll continue to innovate the product offerings.
Fantastic. Thank you.
I'm showing no further questions at this time I will not like to turn the conference back to Arpus centre for any closing remarks.
Thank you all for joining the call today and you can hang up operator.
Ladies and gentlemen, this concludes today's conference call. Thank you all for joining you may now disconnect.
Hi.
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