Q2 2020 Upwork Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Upwork second quarter 2020 earnings Conference call.
At this time all participant lines are in listen only mode. After the speakers presentation, there will be a question and answer session.
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I'd now like to turn the conference over to your host today, Denise Garcia Investor Relations. Please go ahead.
Welcome to Appworks discussion of its second quarter 2020 financial results, leading the discussion today are Hayden Brown, Appworks, President and Chief Financial Officer, and Brian Canyon, Appworks, departing Chief Financial Officer and current is.
Guys or to the CEO also on the line as Jeff becomes Appworks incoming Chief Financial Officer. Following management's prepared remarks, we will 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 the 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 forward looking statements. In addition, any statements.
Regarding the current and future impacts of the Cobot 19 pandemic on our business and current and future impacts of actions. We've taken in response to the Coven 19 pandemic are forward looking statements and related to matters beyond our control and are changing rapidly for a discussion of the material risks risks and other important factors that could affect our actual results. Please.
For two or FCC filings available on the FCC website and on our Investor Relations website as well as the risks and other important factors discussed in todays press release I.
Additional information will also be set forth in our quarterly report on form 10-Q for the three months ended June Thirtyth 2021 filed in addition reference we 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 that investors got Upwork dotcom as always reported figures are rounded unless otherwise noted comparisons of the second quarter 2020 are to the second quarter of 2018, all measures are GAAP unless.
Cited as non-GAAP the 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 has concluded now I'll turn the call over to Hayden.
Thanks, Denise and thank you all for dialing in today I.
I want to start by spending or team for thriving in a fully remote work environment, while continuing to put our customers at the center of everything we do.
Overnight knowledge workers everywhere have adopted a remote working model that is testing companies and individuals in new ways and I'm incredibly proud of the work our team has been doing to bring our own 20 years of remote work experience to bear in supporting companies large and small in navigating the remote works landscape.
The seismic trend towards remote work and more flexible working models continue to move in our favor and this was illustrated by numerous data points from our fourth annual works future workforce report released a June.
Our study found that 45% hiring managers have frozen fulltime hiring and yet 72% are continuing or increasing their usage of independent professionals underscoring the focused companies have today on cost management and workforce flexibility.
The breakthroughs companies are making in the adoption of remote work and their focus on creating a more agile workforce is increasing the appeal of our online freelance talent solution.
Against this backdrop I'm pleased to report second quarter revenue of 87.5 million, representing 19% year over year growth and exceeding the high end of our guidance range.
And from new clients was a larger contributor than usual this quarter as we onboarded in activated a record number of new clients.
We benefited from the structural shift in favor of remote work and LIBOR flexibility and drove performance to our continued investments in brand performance marketing and use case specific content and marketing outreach.
The other key driver of our revenue was spend from retained clients a predictable and meaningful spend level from retained client is a critical differentiator of our business model and we are proud of the degree to which our customers have continued to lie on Appworks relent talent as an essential part of their own operations through the economic downturn.
As evident by the addition of more than 4000 additional clients to our core client roster this quarter.
And while some of our clients pulled back spending due to macroeconomic factors with the onset of the pandemic and deepening recession in April retention spend it trended upward thereafter, bringing client spend retention to 100% for the quarter.
Now I'd like to share more about the progress you've made in the second quarter as well as the plans we are executing against with respect to our three strategic growth pillars in the third quarter.
First on our strategic priority to get more bigger clients.
In Q2, we saw significant traction with business customers from the launch of more than 50, new solution focused pages, demonstrating the specific ways that businesses can leverage freelancers on appworks for immediate needs.
We're also continuing to build the drumbeat of awareness with larger customers via our works together talent grants program in which we're seeing a frequent talent showcased at demonstrates the applicability upward freelance talent to some of the most pressing challenges being addressed by organization today.
For example, one grant recipient buoy health based in Boston is an AI powered healthcare navigation platform that is using appworks freelancer content creators and designers help consumers navigate cobot 19, and other healthcare journeys.
Another recipient Zandi based in Cape Town, Johannesburg, and MACRA is enlisting user interface and user experience designers found on upwork to enable machine learning experts in locations around the world to participate in virtual Hackathons just sold cobot 19 challenges.
In Q3, we are excited to be leveraging these powerful stories from these and other talent grant recipients to build awareness of Appworks using a multichannel messaging and advertising campaign, but just launched this campaign targets, both SMB and enterprise buyers with an emphasis on business publications podcasts and television.
Our sales team experienced impressive top of the funnel activity, but a slowdown in new deal close rates in Q2 as larger businesses were at various stages and managing their response to the current recession.
However, we saw close rate improvements in June which have continued into the current period given the strong indicators. We are seeing with three consecutive month of all time high sales excepted opportunities and improving deal close rate trends, we have confidence and where things are headed.
Next with respect to our second strategic priority of enabling more spend per client, we successfully increased client hiring activity in our most valuable categories, including technical categories and customer support.
As companies around the world adapted their tools and strategy is to take advantage of digital systems and technologies. In Q2, we found success driving adoption of Upwork for a range of needs served by freelancers, and our web mobile and software development category and I T and networking category.
As companies large and small found themselves fielding an increase volume of customer contacts and in some cases struggled to pivot there onsite customer support teams to work in a distributed manner. We supported a number of clients such as Microsoft to successfully expand or launch new teams of multi language Custer's customer support.
Agents already adept at remote work.
We're also excited to have partnered with Citrix to make it easy for clients to provision and de provision appworks freelancers and agencies onto their corporate tools using citrix is virtual desktop solution.
We continue to advance our strategy of increasing spend per client by supporting clients to adopt upward for additional use cases.
Our highest spending customers are those that use upwork for payment and management of their own independent contractors. In addition to using upwork for sourcing new flexible talent.
This quarter as more customers reevaluated their talent programs in a fully remote work environment, we were able to achieve significant adoption of our bring your own talent functionality, which allow clients to onboard preexisting individual contractors and agencies onto our platform for global unified billing and him.
Visibility and reporting strong spend controls a worker classification option for peace of mind and centralized team management.
[noise] has another example of enabling broader use case adoption amongst clients we entered into a partnership in Q2 with business talent group, which offers access for our clients to their network of professional business consultants, while also enabling us to access BTG additional client base, which includes 50% of the fortune 100.
In Q3, we are continuing to support customers adjusting to the remote work reality with further enhancements to our bring your own talent offering in addition to making it even easier for our customers to scale their usage of upward for talent sourcing as well as remote team payments and management across their organizations in light of.
The current environment and heightened customer interest in solutions that enable them to manage distributed team centrally we're expanding the availability of our employer of record offering to all our customers. So they can convert their upward freelancers to be employees without leaving our platform and so that they can easily onboard and pay their own distributed employees.
Not just freelancers via the Upwork platform.
Our third strategic priority is to make more high quality matches with a focus on our high value technical categories of work.
We saw a huge global demand in Q2 for technical talent to address critical business needs in a digital first world and we exceeded our goals for matching technical talent with exciting high impact project and goal based work on our site.
In Q2, we made significant enhancements to our semantic search and matching system, improving the relevance of search results and increasing client efficiency and search. We also released a new premium talent pool called Upwork expert vetted talent, which builds on our deep expertise in vetting talent for our most selective entered.
Prize clients.
This solution makes available to our customers on a broader scale a pool of highly skilled talent identified via a unique combination of machine and human power talent bedding and creation.
In Q3, we will continue to expand our vetted talent pools, as we as well as our core systems offer a matching experience differentiated by the specificity speed and quality of the talent matches. We offer in addition to being laser focused on our three strategic growth priorities we're deeply.
Committed to regional Justice and this commitment is integrated into many aspects of our work.
We are building and scaling strategies of practices as an anti racist company with a particular focus on supporting our black team members, we're holding ourselves accountable to a number of diversity inclusion and belonging commitments have taken an open and transparent approach to discussing these efforts because we believe that this is an important way we can contribute to the low.
Charger overdue national conversation about racism in America.
As part of this work and consistent with our mission to create economic opportunities. So people have better lives, we remain dedicated to ensuring that upward as a platform were all people regardless of skin color gender or any protected characteristic can compete on a level playing field and have opportunities to do incredible work.
It is consistent with that 60% of the work together talent grant recipients are organizations owned or led by members of underrepresented groups or our diversity focused organizations to 18% of the grid teas are U.S. black owned led or focused organizations.
In Q3, we are continuing to invest in enhancements to our platform that better enable clients to use upwork to achieve their own supplier diversity goals.
As we look ahead, we see companies building is during skills capabilities and cultural norms that embrace remote work as part of their permanent status quo.
This increases the comfort within businesses of all sizes to work with remote talent on Appworks.
We also expect businesses to increasingly seek out solutions that enable them to more dynamically manage personnel and vendor costs through any economic climate and believe we are uniquely positioned to meet these needs.
With that in mind, we expect continued strength in new client acquisition in Q3.
At the same time, we recognize that some of our existing customers may struggle further should the recession deepen and have anticipated in our guidance.
We remain confident in our growth strategy and excited about the runway ahead of us.
The widespread cultural acceptance of remote work across the economy. It serves as a meaningful enabler for customers to adopt our solution at a larger scale and underscores the positive long term trajectory of our business and its potential to achieve sustained revenue growth of 20% or more in the years to calm.
As you may have seen today, we also shares the news that Jeff Koons will be joining upwork as chief financial officer, succeeding Brian Canyon.
Ensure a smooth transition Brian will stay on as an advisor to the company through October 2020.
Jeff joins us from Dr. on demand, where he served as CFO.
It was also previously CFO at open table CFO at Flipboard and head of global business operations at Facebook.
His significant executive leadership experience will help expand appworks finance and operational capabilities and adds tremendous value to our business. We're thrilled at to welcome him to the team.
I want to thank Brian for his significant contributions to upwork throughout his tenure.
Sure so grateful for his leadership and dedication.
Now I'll turn the call over to Brian and then to Jeff to briefly introduce himself.
Thank you for the time, we're taking hello, everyone.
Before I get into our second quarter financial results.
The share a few parting words.
It has been an honor to work with such an amazing team over the years I'd like to thank everyone enough work for the partnership support.
Serving as CFO of Fourk has been a career highlight the company does on a great path.
Forward seeing upward succeed well into the future.
I'd like to introduce Jeff and then we'll turn to the second quarter results.
Thank you, Brian head and Hello, everyone I'm very excited to join up work at such a transformational time for the company now more than ever before the flexibility. The upper provides is critical to businesses and freelancers alike. I look forward to working closely with Hayden and the rest of the leadership team to execute on upward revision of connecting.
Businesses with great talent now back to bring to wrap up with the second quarter results.
Thanks, Jeff.
Second quarter for those services volume was 582 million at our revenue was 87.5 million, reflecting a 19% year over year increase.
Marketplace revenue was 78.5 million, reflecting a year over year increased 19%.
Services revenue was 9.1 billion.
As we've shown on the last call we began surpassed pre crisis levels on numerous top performing client activity metrics, such as client registrations and new job posting early to mid April.
These new client relationships resulted in revenue at the higher tiers of our tiered freelancer service fee.
Revenue was also boosted by clients that retention that improve over the course over the quarter.
Lastly, our revenue performance was driven by better than expected usage of Tenax.
So its virtual getting tokens and equipment related project on a remote services.
Our core clients grew by approximately 4200 33300 ended the second quarter.
And our clients been retention for the quarter was 100%.
Our overall take rate in the second quarter was 15% at our marketplace take rate came in.
2.7%.
Non-GAAP gross profit was 62.3 million or 71% of revenue, which was consistent with the second quarter 49.
Non-GAAP sales and marketing expenses were 32.1 million, representing 38% of total revenue as compared to 32% in the second quarter of 2019.
The increase was driven by investments to drive brand awareness performance marketing and sales.
Non-GAAP R&D expenses were 17.8 billion, representing 20% of total revenue as compared to 19% in the second quarter 2019.
This increase was driven by our continued investment and product innovation.
Non-GAAP operating expenses were 13.4 million, representing 15% total revenue as compared to 18% in the second quarter 2019, we will continue to drive leverage in DNA as we scale for growth.
Transaction losses were 1 million in the second quarter.
Visiting approximately 1% of total revenue at the low end number typical 1% to 2% range.
And expected increase in transaction losses associated with the impact of the pandemic did not materialize in the second quarter.
We expect operating expenses will increase in absolute dollars, but fluctuate as a percentage of revenue from period to period as we continue to invest for growth.
Non-GAAP net loss was 3 million in second quarter of 2020 compared to non-GAAP net income of 1 billion.
Second quarter 2019.
Our basic and diluted non-GAAP net loss per share was three cents in the second quarter 2020, as compared to a non-GAAP net income per share of one cents in the second quarter of 29.
Adjusted EBITDA loss is 1.2 million in the second quarter compared to positive adjusted EBITDA of 1.2 million in second quarter 2019.
Considering the macroeconomic uncertainty related to the pandemic potential volatility and how this may impact or retain customer base.
Third quarter revenue between 89 million in 91 million.
Note that in Q3, we would be lapping monetization initiative that will moderate year over year growth comparisons in the second half of 2020.
We remain bullish on our business opportunities will continue funding growth initiatives, we're closely monitoring our performance to achieve our ROI thresholds.
We'll continue to manage costs with discipline, while preserving our cash and maintaining our strong balance sheet, which included cash and marketable securities of over 146 million. After you ended the second quarter.
Thank you we will now take your questions.
As a reminder, ladies and gentlemen, if you'd like to ask the question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound game.
Please standby, we compile the Q and a roster.
Our first question comes from Brent, though with Jefferies. Your line is now open.
Thank you Omni then I'm curious if you could just give US essentially you mentioned you you saw off close rates starting to improve can you just talked to.
What you're seeing currently now in the current period and.
Brian Great working with you and best of luck I guess your own just love to hear.
I think theres little concern about the transition and maybe just talk through this.
From kind of your perspective that'd be helpful. Thank you.
Hey, Brian So in terms of the sales question, we're seeing really good progress on the sell side around expanding spend with existing customer accounts, and we really leaned into the opportunity this past quarter to partner with our customers, helping them navigate the transition to remote work and bring our expertise to bear and not really showed up with customers.
Like Microsoft as we help them expand deployments of things like customer support agents and other types of freelancers, who can really help them I think navigated. This challenge we did not see the conversion rate and we wanted to see in terms of new clients.
Signing up and I think that's something where we feel really good about the top of the funnel where in the indicators are strong with ourselves I'd be opportunity set all time highs, but with the closures of haven't quite there yet and we really see customers, having the president and you just because of the overall economic downturn and that is starting to really improve in June and.
Those indicators are coming much more back to life, what we're seeing in March April time period, where I think I'd just add installs a lot of customers that they were not being the panamax fashion and kind of come to terms of what that meant for the business.
So our focus has been retooling come up for sale back that our approach to really meet customers, where they are mixture that that attracts our revenue with them and as has been building. The returns I mentioned with improving deal closed rates in the mortgage and period and as we stepped back and look at all that we do continue to believe that having a strong sales.
Team is critical piece of unlocking the larger 550 billion dollar Tam that we're addressing and it's really heartening to see especially over the last few months. So much customer mindsets are evolving as you know in the past before all the work from home efforts that customers have been going through the fact that the freelancers on.
Upper or remote was one of the key objections, but the sales team running into inside of the accounts and that was something that a lot of customers or prospective customers just weren't that comfortable with.
And the fact that over the course of a few months people's minds around their openness to working remote freelancers and the idea that what used to be one of the Q actually missiles process is now becoming a key asset in the thought process has shifted really rapidly. So overall, we feel really good about where things are headed and the numbers are shrink.
Backed that up as well.
Yes, Brian Yeah go ahead.
Go ahead, Brian This is Dave Thanks, Brent.
Leaving immediately and I'm here for a few months.
A smooth transition to said, Jeff up for success, but we've.
Done a good job of building a strong infrastructure and then laid a good framework for him to build off of.
Remediated the material weakness as of this June thirtyth filings, you'll see that in the 10-Q so.
Thats good news as well I haven't decided what's next.
Take some time on with my family and I'll be.
Very good and happy upward shareholder as well.
Great Thanks to up more color to that Brent I.
I think Brian has been an incredible partner and I think we've been having a lot of conversations just since I stepped into the CEO role about the direction of the company and our focus right now on really driving strategic growth priorities and I'm excited that Jeff is really bringing in a strategic lends to financial leadership no. His numerous roles as a CFO harkening back to.
His days, leading business operates the Facebook as well as executive leadership experience at a number of businesses and Brett drawing on his mark two sided marketplace experience. He has been CFO at open table and Dr. on demand. So I think Jeff is going to be an incredible partner really diving into our strategies and our growth priorities as we're moving the bid.
Sport in this next chapter.
Our next question comes from Mark Mahaney with RBC capital markets. Your line is now open.
Okay. If I could just about three quick ones on the Citrix partnership I know you talked about Hayden, but.
Any how do you think about the materiality that partnership to.
Two upward if it's successful it translates into what perhaps in terms of.
<unk> client retention current client acquisition et cetera, Secondly, just go through again why your growth outlook for the following quarter your growth in the June quarter really held steady with a earlier quarter and you've got this little bit deceleration in the September quarter, I think what you're saying is that you just want to be conservative careful because economic recovery is very uncertain and.
So you're still seeing kind of mix signs from your clientele would just go through why we're not seeing kind of consistent or even accelerating growth in Q3, and then finally, Brian just in terms of the business model just thinking about this going forwards.
For your business or for Appworks business is there a is there are cost savings because of.
A world remote work from home capabilities, I think that was already pretty largely adopted in your and your and your company anyway, but I just wonder as we look at all these companies as we've had this dramatic change and how people work does that just mean a lot of corporate that gene a expense savings. Thanks a lot.
Hey, Mark so on the Citrix question really the partnership and the launch that we deal with them at the upper count solution that sits within this citrix workspace enables our larger customers to seamlessly integrate freelancers into their virtual work environments and give them safe and secure access to the systems and tools that they need to do high impact.
Worked for these customers and so in the immediate term that just launched them. So we're not expecting it material right away, but I think it does represent a great opportunity pressed to expand.
The answer adoption with sectors customers, which are numerous around the world as well as you know it's part of our larger strategy to continue to integrate into the tools and the places where our larger customers are doing work and are looking to have freelancers be very effective in helping with or their strategies and there are various our workloads that need to get done so I think thats lumpy.
This is a very early days right now, but certainly as part of our broader strategy to be relevant and really a seamlessly integrated tool inside of enterprise with spaces to your second question around the grouse growth outlook I think we're very realistic about where the economy is right now and so we've seen incredible acquisitions.
And in Q2, and we are expecting that to continue in Q3, let me step back and see 30 million Americans unemployed stimulus programs, largely dried up and potentially not more forthcoming for individuals or small businesses.
It's quite possible that we're going to be heading into a deeper recession and a lot of our customers who weathered the storm very well so far some of them may need to go into some kind of deeper hibernation or term spending further in order to get through the next couple of months that are ahead. So we feel incredibly gratified by the performance they've had so far and frankly the clients Ben.
In retention trends.
The fact of your added another 4000 plus clients to our.
Core client roster this quarter.
Really great numbers, but as you look ahead to August and September we are anticipating the economy is going to get worse, and but that is going to impact a subset of our customers and so that is something that we baked into our models and part of that is offset by the strength in acquisition, which we see continuing but we're anticipating that that that.
Declined just in the macroeconomic situation is going to trickle through to some of our retention spend as well.
Yes on the the going remote.
Obviously, there is nobody in the office. So there are things like food costs, and and things like that in the office than we've ever talk tremendously, we're going virtual on a bunch of events and the biggest piece of that as we were looking your real estate footprint. So we have three offices.
In two in the Bay area. So we're re imagining what Santa Clara could look like as more of a collaborative space as we probably won't come back to that office to January Onest of 2021.
The San Francisco Office, we are in the process of trying to sublease that space, but that market is very soft right. Now. So we didn't do not anticipate seeing any some lease this year in 2020.
And then Chicago, we just completed the build out of the second floor and the team has gone back and that office as of yesterday on a modified basis and so they're there sort of getting up and running.
We've taken a lot of those costs and redeploy them and the company into investments for its things like a marketing, where we again to drive ROI positive growth.
And so we've been looking it at all those opportunities.
The redeploying them or appealing to the bottom line and we have people going back to the offices. We have to also do some things around PB social destined thing and we have re imagined. So there were some spends we're going to have to do to get those offices ready for when people can go back to be offices.
Okay. Thank you Brian Thank you Havent.
Our next question comes from Nick Jones with Citi. Your line is now open.
Hi, Thanks for taking my question and just to kind of on I guess, it's in line of thinking I.
I guess first.
Has there been any shift in project size since IPO bid.
Kind of hit the seen here is a growing or shrinking and I guess, what are you, saying, there and I guess second.
Is the focus on larger customers potentially coming at a cost maybe getting higher volume.
Smaller customers and I guess I asked if we see some pretty significant growth at a companies like waxing shopify and a lot of smbs kind of kind of figure out how to have a digital presence.
But maybe focusing on larger customers are you may be missing out on some of these smaller customers they need.
Need assistance kind of building out their presence with a lot of the.
The.
Services, the freelancers I know part provide.
Thanks, Nick in terms of project sizes, I'd say, we've actually seen project sizes hold steady through the last quarter and if anything we've seen a shift in favour of higher value work on the platform and higher value clients continuing to be really active so.
There has been a massive shift, but we're continuing to make traction with larger clients and just higher value work in general which is the goal of ours.
To your question about.
Is the are the larger customers kind of taking away from our ability to to focus on an acquirer smaller customers. You know our strategy. This year has been to be about both we've never said that we are pursuing midmarket or enterprise customers at the expenses smaller customers, we continue to see or SMB opportunity as being extremely attractive and frankly.
Can you invest marketing dollars there based on our ROI calculations. There is great LTV in acquiring a lot of those customers and so that's certainly one avenue of acquisition for US and continues to be one piece of the puzzle and so as we look at driving growth across our business.
We think theres, a huge opportunity with larger customers, but do not feel the need to neglect are smaller customers either especially in this environment. I think your points are all taken that some of the smaller customers are very fast right now to be pivoting and adapting in this environment.
Bumping into digital solutions, and they're very agile and we've seen some of that on our website. You were small customers have been very active in very successful in working with freelancers and our solution as they have been adopting they're smaller very small businesses even through the last few months. So I think you know our focuses on driving growth across our customer segments, we think that.
Over the long term to get our 560 billion dollar Tam unlocked Midmarket enterprise and enterprise customers are very important.
But small customers are a key part of the puzzle and they helped drive a lot of the marketplace velocity talent curation embedding, there's a lot of activity they generate inside of our business. That's very valuable. So I'd say, we're really covering all of our bases right now I don't see it doesn't matter or.
Great. Thank you.
Our next question comes from Logan Thomas with Stifel. Your line is now open.
Okay.
Ill follow up on a prior question.
With the answer regarding clients trimming spend the next couple of core quarters or potentially pulling back in different areas wondering you based on your visibility or conversations you have with clients and are there certain categories or verticals of projects, where clients are thinking of trimming spend or is.
More of a broad based comment in that.
Dockets of clients maybe.
Hey, more softness in their business and pulling back and in the second question relates to the surgeon and matching initiatives wondering if you could highlight.
Maybe what one or two of the improvements made in two team is most incremental for you and going forward what are some of the other aspects you'd like to focus on within searching and matching and yes. If fill rates is the best way to think about the outcome of those efforts. If you could help frame where fill rates are today.
Today, we think they could go over the longer term.
That would be helpful. Thank you.
In terms of the crusher and pockets of clients and what we're hearing at or expecting add this quarter in terms of pullback in spending Logan, it's really just an expectation that given the volatility in the broader market. Some customers are going to struggle. So we haven't gotten any indications of specific.
[noise] customer types or categories of work on our site that seem to be more exposed overall the data that we have suggests that approximately 80% or more of the work on our platform is considered a central or somewhat essential by our customers and so the extent that they are in business. They are going to be doing that work on our platform.
The extent that the economy forces them into hibernation or a shuttering of their businesses, obviously that doesn't have an effect on how they're spending with us. So we feel that it's more about the macro conditions and how exposed a subset of our customers are going to end up being can they get through another three to six months.
And that's an open question.
To your second point around certain match fill rate is an important part of how we think about a measure success. There I'd say, our overall efforts are around providing increasingly tailored experiences that really speak to specific categories of work and the types of matching experiences the customers look for in value in those category.
Yes, and so this year, we're particularly focused on tuning the searching and matching experiences in our technical categories and so we've been innovating around for example, the profiles that freelancers use in those categories and that includes both like the underlying dataset the way that feel interest expressed their skills and expertise the way that are matching algorithms.
Consume and kind of process that information and then surface really relevant results based on a client query or client job post and so that's where we're doing a lot of work that kind of starts in the you why layer and it goes all the way down to the technical infrastructure to really kind of retool and redeliver.
The different parts of the system that deliver excellent results on a consistent basis for customers around that and some of the things we look at our relevancy measures accelerate as a key one as well, but even things like speed of the result than for example, this past quarter, we increased our visitor site.
Mr speed by 10, X. and those types of improvements do go a long way both for the user experience and for.
The at the at the relevancy that the customers are seeing so we're continuing to tune those engine because at the end of the day a key piece of our value proposition is clearly our ability to match incredible talent with exactly the demand the customers have and so making our system very adept at that is a key pieces kind of technical innovation that we focus on.
That's great. Thanks, Ed.
Our next question comes from Ron Josey with JMP Securities. Your line is now open.
Great. Thanks for taking the question Brian will we'll Miss you for sure. So I had to maybe one bigger question that might have been addressed earlier heading but hopefully can provide some additional commentary and then another one on client spend retention and so just bigger question you talked about 45% of hiring managers of frozen fulltime hiring and so.
I get the risks around the 30 million unemployment.
And and not knowing what the future holds but Hayden can you talk to us a little bit more about what that opportunity could look like in how your conversations of have been well when talking a larger enterprises that well hiring is frozen.
Working projects still need to get done and the ability for up work to ramp up and down things pretty quickly and then the next question just on clients been retention declined 100%, we're expecting the stiff just any color on how this improved for the quarter. Most importantly, whether this trend can continue as we lap the product changes from a year ago March. Thank you.
Thanks, Ron So in terms of your first question around what the opportunity looks like with larger clients and kind of where their heads are right. Now I think what we're hearing is this has been a just a massive opportunity for them to reevaluate a lot of aspects of their business and not just in the context of how do they navigate through the crisis, which I think was where they were.
For three months to four months ago. It was all about how do we get through this what do I need to do kind of in an emergency contact to survive where the conversations are today is much more about how do I set myself up for the long term I've learned a bunch of thank the last few months about where my business was not resilient, where things were brittle where I was exposed to risk.
And frankly, I think a lot of executives have realized that not only as those pandemic, probably not going to go away in the immediate future, but they're also seeing from of the advantages around what they're getting from a remote work standpoint, but they didnt anticipate and so for example, some of the data that we have is more than 50% of hiring managers.
Well the shift remote work has gone better than expected.
Yes, I think 20 or 30% of Cfos are saying that remote work will be part of the status quo for a number of rolls going forward, where it was not that that way in the past and so the conversations we're having are really around what is your workforce strategy going forward, where are there opportunities and your organization to have a much more dynamic talent model and.
But cannot do for you how can that become not just something thats part of getting through a pandemic, but actually part of a strategic advantage and a competitive differentiator for you in the long term and I think that's where the really interesting conversations are happening where companies are taking a longer view to this potentially also taking a little more time to figure out and make them.
The decisions around that because those are big decisions.
But that's where they are saying how does appworks fit into this bigger picture of what my talent strategy might look like going forward, which is very different where the cost profile for my team than my employees might look very different and we've also platted lot of interesting data recently around that where we're seeing the premium that companies pay for having workers in the top 15 most.
Expensive cities in the world in the U.S., rather is 40% versus getting those same rolls filled in other geographies. So I think a lot of those realities are starting to sedan and the larger companies are very interested in figuring out how do they come up with a new strategy. That's much more dynamic that both take both take into account remote work as a perm.
That reality for their workforce and also take into account the opportunity leverage and distributed team, which can now include freelancers, because they're starting to break down some of those barriers where previously I felt like this has to be employees in my office and now they're realizing it doesn't need to be that when they've kind of learned so much in the past three months about what's possible and how they can but.
Actually work differently to solve some of the challenges that they had even before all best skills gap challenges re skilling challenges talent access challenges like all of those things are still waiting for them on the other side of this crisis and they're starting to see how remote work and freelancers can be a strategic tool for tapping into new solution. So some of those kind of perennial call that they feel.
Based so I think those are some of the really interesting conversations with larger customers.
Your second question was around our outlook for.
Q3, I think given what we saw in Q2 and kind of where we think client spend retention was going to go.
Theres.
Yeah, I think on that you know what it really remains to be seen what happens in macro environment.
We saw really strong trends where clients under hedged in April did hit a trough and then at climbed out through the rest of the quarter and bounce back to a strong kind of pre pandemic level by June by the end of June and so if you think about that trajectory, which was really positive.
The macro and macro conditions continuing to improve Ben the client spend retention number will benefit from that if they worsen then that's going to put more pressure on that number. So I think it remains to be seen.
What goes on with with the broader environment and how that impacts some of these customers that are a big part of our retained base.
Thank you Hadnt makes most sense.
Thanks.
Our next question comes from Marvin phone with BTG. Your line is now open.
Great. Thank you for taking my questions.
Two to two questions first on the guidance I think maybe I'll just be helpful.
I know you said, it's dependent on the macro environment. If you could just potentially kind of bracket that in terms of just know how severe.
Downturn would it take the kind of hit the 79 and versus the 81 is up more of a base case, what does that assume some improvement if you could just kind of give us the assumptions behind that and I know that you also have some degree of visibility just how much visibility you have given we're already in August and there's some legs in your and your business.
And then secondly.
They go to help investors if we could as you could go a little further into the workforce management and.
No the opportunity there I think you know relative to say.
The 550 billion dollar opportunity or your your core client base.
How many of those are kind of targets for the incremental workforce management solution and where are you guys in terms of penetration opportunity I imagine, it's like the first or second inning, but it's a good does expand on the that'd be great.
Thanks, Marvin so in terms of guidance assumptions are basically the base cases that the first half of the quarter is better than the second half and it really depends on again the performance of our retained clients overall, we're assuming that acquisition for Q3 continues to be really strong we saw.
Be strong consistently through Q2, and we've modeled that to be continued to be the case in Q3.
But we know that for us in our business even acquired clients as they come in the door take time to register they've got to post their first job higher their first freelancer start spending with that individual and ramp up that spend over time and potentially ramp up with morphing answers overtime and so even in an environment, where our acquisition is incredibly strong it.
It does take a little bit a time for that to fully flow through to our numbers and so that's just one of the kind of dynamics of our business.
But acquisition, we modeled and to be very strong for Q3 on the retention side, we are expecting the first half of the quarter to be better than the second half when we're expecting that there is more of a macroeconomic headwinds for our retain customers more similar to what we saw in the first half of Q2, frankly, if you expect kind of like a double debt, where we saw March April.
Weakness with our retain base at the end of Q1 and early Q2, and then it bounced back we're expecting.
That kind of debt at the end of Q3 kind of similar to what we saw in early Q2. So that's essentially kind of the boundary put on it and that's that's what we're expecting based on just the factors that we see in the broader landscape.
For your second question, which was around let me just make sure I understood. It was around kind of our workforce management solution overall.
Right like right pretty much the whole gamut, the employer record and the view, yes royalties.
Understood I understand opportunity because it does come up a lot.
Yes, so I think what's interesting and exciting about this is if you're going to think about the investment we're making around our products and services as really a true platform and Upwork is not just a point solution for.
One or two transactions or one France, or you might higher one day, but really as a single one stop shop type of destination for a business that needs a range of talent solutions and that that range of television that we can serve includes certainly our talent sourcing option your core marketplace and everything around that.
Built up over many years, but increasingly and I'd say, particularly in this environment, we're seeing a lot of demand for customers, saying, Hey, you know you guys are doing great with giving me new talent, how can I bring existing contractors vendors others that are working with in other venues onto the upwork. So that I can pay them all in one place.
We have peace of mind that this is all being managed in a single single way I had really good cost control through your platform I come all the benefits that we offer so that's where the runway bring your own talent offering I think the value proposition. There has only stronger in the last month as people are really stepping back and reassessing their talent programs Holistically and then related to the.
That we've had for many years, an employer of record offering where we can give basically payroll services to our customers. So that they can have both freelance talent and payroll talent through our site and that's something that's been kind of have limited.
Adoption for as limited set of our larger customers.
When hearing a lot of demand for that type of a solution from customers, who either want to payroll existing workers that they have they want to bring onto our service or has treatments relationships that they want to transition into employment relationships and so we're doing work right now to expand the availability of that offering to be able to reach more customers. Because we are seeing so much of.
That demand and so I can give you step back and again think about our solution broadly as a platform through which our customers are saying we want to work with you up Oregon kind of got talent and kind of work with our talent through up or in a multitude of ways and we're serving them in those broader ways and what we see as we do that is our highest spending clients.
Are those that actually use asked for multiple use cases, they use us for not just you know talent sourcing, but also for something like be bring your own talent and so thats an area, where I think we can drive a lot of stickiness retention broader adoption because we're we're serving them in a lot of different ways that then give us new frontiers to expand the account.
As was retain those customers overtime. So thats I think maybe one way to put those different pieces of the offering in the broader context of our strategy, which is around both targeting larger customers and growing that spend and sticking us overtime.
Great. Thank fit in and let me to say welcome aboard Jeff and and Brian Best of luck to you on your next endeavor.
Thank you Marvin.
Thank you much.
And that concludes today's question and answer session.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect everyone have a great day.
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