Q3 2021 Upwork Inc Earnings Call

October 27, 2021

Good day and thank you for standing by welcome to the Upper <unk> Q3, 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker presentation that will be a question and answer session.

Good question during the session you will need to press star one on your telephone.

Be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I'd now like to hand, the conference over to your first speaker today, Mr. Evan Barbosa, Vice President of Investor Relations. Please go ahead.

Thank you welcome.

Welcome to upwards discussion of its third quarter 2021 financial results, leading the discussion today are Hayden Brown, <unk>, President and Chief Executive Officer, and Jeff Macoun upwards, Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.

During this call we may make statements related to our business that are forward looking statements under federal Securities law.

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 impact of the COVID-19 pandemic on our business and current and future impacts of actions. We have taken in response to the COVID-19 pandemic are forward looking statements related to matters that are beyond our control and changing rapidly.

For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC's website and on our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter.

All information will be set forth in our quarterly report.

On Form 10-Q for the quarter ended September 32021, when filed in addition reference will be made to non-GAAP financial measures.

Information regarding the.

A reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our Investor relations website at investors that upward dot com.

<unk> reported figures are rounded unless otherwise noted comparisons of the third quarter of 2021 or two the third quarter of 2020, all measures are GAAP unless cited as non-GAAP now I'll turn the call over to Hayden.

Thanks, Kevin and thank you all for joining us today for our third quarter 2021 earnings call.

We are pleased to report another great quarter in which our team has continued to innovate, bringing us closer to realizing our vision of the world work marketplace. We've not only delivered on our strategy, but we have also started to capitalize on the opportunities that are part is uniquely positioned to realize.

As a result, GSV increased 38% year over year to reach $904 million and revenue grew 32% year over year to reach $128 million.

A number of active clients grew 25% year over year and GSV per active client grew 12% year over year proving both the strong pull of our platform and the strength of both sides of our marketplace.

We are in the early days of the adoption of independent talent and it continues to trend higher because of the sheer size of FX global population and our unique leadership vantage point, we can see a number of critical trends will dictate. The next few years of growth for not just us, but all players in the space.

First the corporate more for talent has intensified and moved to a new frontier as 10 million Americans are currently considering leaving their full time jobs to gain more flexibility freelancing.

Organizations are also increasingly realizing that the talent strategy predicated on full time employees doing all the work will be found behind.

Second a new type of career paths has emerged with half of the gen deep talent pool actually choosing to start their careers and freely rather than full time employment, reflecting an important mental shift in the workforce.

Third as more and more customers participate in this market they tend to invest in one preferred platform once they found it.

We already see this trend with larger companies as they adopt solutions like our bring your own talent product as part of their own moves towards vendor consolidation.

To capitalize on these insights as well as on our one three trillion dollars total addressable market. We are focused on a rapid succession of innovations that will empower talent and clients with powerful mutually beneficial relationships that they can initiate in a blink of an eye and leverage over the long term to meaningfully.

<unk> transformed their businesses.

These relationships feel familiar to customers in their robustness, but the range of work model supporting them from project catalog to talent marketplace to talent Scout.

Very different to the rigid work paradigm they replace.

They are flexible dynamic and fast and customers aren't able to access them anywhere else. They will define the work marketplace upon which tomorrow's businesses our belt.

In support of these trends, we continue to evolve our offerings to meet and anticipate emerging customer needs.

Project catalog was launched earlier in the year and talent Scott was launched last quarter today, we're introducing virtual talent bench a collection of features that surfaces, even deeper relationships between talent and clients than ever before.

It's a central place where clients can easily access assemble and deploy the talent they love.

With this launch we are simplifying the process of staying connected to talent.

Finding promising professionals for future projects and organizing their talent network.

These features also enable independent talent to <unk>.

Streamlines their opportunities for repeat business and enhance their ability to form stronger relationships over time.

Virtual talent bench begin to erase the barriers inhibiting collaboration with full time employees and independent talent.

Allows clients to think of and use their wider upper talent base more fluidly to enhance the capabilities of their team.

These offerings complement our other solutions in our effort to make upward the singular destination for clients to build and manage their distributed workforce such as payroll compliance and bring your own talent.

We're also very excited about new tools and benefits offered through our partnerships with Lou and catch which support talent in their transition to more autonomy through freelancing and make a long term career in freelancing, even more viable and attractive.

Together these moves addressed all of our customer segments and makeup work more instrumental in the lives of remote workers and clients.

To further support the impact of our innovations were also heavily invested in evangelizing and scaling our work marketplace.

To augment our successful performance marketing, we're now attacking our single digit unaided brand awareness by turning up the volume with an expanded brand marketing strategy that will spotlight the highly skilled professionals, who call our worth marketplace home and increase awareness of <unk> among more prospects.

On the sales front, we've had yet another record level of sales productivity and are moving forward with our plan to expand the team.

We continue to see strong execution with new enterprise plan customers in the quarter up 143% year over year and the number of customers, who spent $1 million or more in the trailing 12 months up 11% quarter over quarter.

A wonderful example of that is a leading tech company operating in online lodging marketplace that just surpassed $10 million of spend within its first year as a customer on at work.

Our program teams successfully built out a mass communication and Onboarding strategy for both hiring managers and talent at the company.

Added more than 1500 of its existing talent population to our centrally managed program through the upper platform using our bring your own talent capabilities through our enterprise suites and build new relationships with key stakeholders throughout the business to leverage <unk> to drive critical initiatives forward.

Everything we do continue to be focused on getting people to that tipping point of positive experiences faster more easily and more effectively.

This means inventing powerful new ways to form relationships in our marketplace, improving the quality and depth of our offerings already in our portfolio and creating experiences that push people to behave and think differently about how work gets done.

We have a remarkable team that knows how to open the minds of our clients and talent on every front from product and user experience to marketing sales and community building.

Our greatest strength is the fact that upward is built for the long term evolution of work that is unfolding right here and now.

With our own hybrid team and with independent talent outnumber employees by more than two to one.

And then with a distributed workforce of 2000 people across more than 80 countries was already our way of working well before Covid. We know what great things are possible when teams and companies lean into new ways of working leveraging the power of distributed talent and freelance contributors.

While leveraging the power of these capabilities does require businesses to embrace change we too are a company that has seized change opportunities by the horn increase.

Increasing our own rate of change over the past two years and we are still early in our journey, we can't wait to see what other organizations do as they seize the opportunities afforded by the unprecedented shift in how work gets done and how they utilize the tools we are building for.

Them to capitalize on this shift and improve the impact and effectiveness adaptability and inclusivity of their team.

Thank you for joining us on this journey, we will now open the call to your questions.

Thank you.

As a reminder to ask a question you would need to press star one on your telephone.

So regarding your question. Please press the pound key.

Please stand by while we compile the Q&A roster.

I show. Our first question comes from the line of Bernie Mcternan from Needham and company. Please go ahead.

Great. Thanks for taking the questions just first on the on the labor market that.

The labor shortages out there, especially in the U S have been well documented I just wondering if that's where the driver for people or demand to your marketplace I know that a lot of the charges out there maybe for jobs that could that might not be applicable to your market. So just wondering how it's been a tailwind or not and I hate and I know you touched on it maybe with the.

The corporate war for talent in your in the prepared remarks, but just any thoughts on that.

Yeah.

We definitely see that this is a moment where.

Talent is in short supply at every business and that's not a new trend I mean, certainly the war for talent with something that Ceos were talking about in wrestling with before Covid coming into Covid and now with a great. Resignations. This is something that every company is really struggling with so we're seeing some tailwind for that from that for sure, but I think what we're trying to.

Do as really lean into this moment with for example, the brand marketing increase that we're starting in Q4 to really raise the awareness that upper can be a solution for that because I think everyone understands the problem, but with our single digit unaided brand awareness on the client side. Most companies still haven't figured out that upper can really be the solution and so we're seeing a little bit of that.

A tailwind right now, but I think there's a lot more runway for us to build momentum there as companies connect the dots to the fact that freelance talent independent talent is highly skilled is on our platform is ready and able to solve so many of the challenges that these companies are wrestling with which are long term challenges that are not going to go away you know once the calendar flips over to January 1st.

2022, so we're really focused on helping them realize that this is where the solution lies.

Understood. Thank you and then I just wanted to hit on the enterprise sales force so exciting doubling the land portion of the enterprise sales Force next year can you just walk through maybe in greater detail. Why now is the right time to be making this investment and your confidence that new hires over time, we'll be able to deliver the same level of productivity that you are currently hitting.

Yeah.

Our number one focus over the last couple of quarters has been building a really high performing machine in the enterprise side.

Following a very clear gates on unit economics, following a playbook around who this sales team is selling into and what that looks like and we've just seen some really great performance from that team exceeding our goals quarter after quarter. So our confidence is very high but the playbook is working and we're just focused on expanding.

The team at a rate that we feel comfortable with where we're not going to break the model by moving too fast, but we're going to move as fast as we can to build the momentum there because we're seeing so much success with the playbook. The team has built.

Great. Thanks for taking the questions.

Thank you.

I show. Our next question comes from the line of Nick Jones from Citi. Please go ahead.

Great. Thanks for taking the question.

Maybe it would be kind of on the same line of thinking.

Hum.

It's kind of enterprise clients think about adopting the solution you know I think we're kind of thing.

And the news, there's a bit of a tug of war just between employees into coverage now on like who wants to go back to work who does it.

These kind of solutions really come up now.

As part of a solution or are they still kind of busy trying to figure out whether they are going to capitulate to employees or not.

I'll have more for both dynamics I guess the broader question is is it kind of a longer timeline to drive this kind of adoption given kind of the.

Confusion, maybe going out now on an even what their kind of core working environment is going to be like.

Yeah.

You said you want to steer clear of that tug of war, because I think the lesson that companies have learned through the pandemic is that remote work definitely works for a big portion of their workforce, whether or not theyre, calling some of those employees back into the office or not they've definitely figured out that model like ours can can actually serve them and so the conversations we're in with customers is around.

They know they need access to talent that they just can't get through some of the traditional models, whether it's full time hiring whether it's their staffing firms those solutions are not serving them and they know that remote work does work for some aspect of their work and even as we're talking to customers about pulling.

<unk> back into the office. They know some of that is going to be flexible work you know some people have been working from home.

When they're engaging with us they're trying to figure out how do I make those lessons around remote work permanent with talent solutions that are not about talent acquisition or about talent access programs that put into permanent place.

Freelancers doing workloads and programs that are built around freelancer talent that move forward into 2022 and beyond and that's not really affected by whether or not some of their employees are going to be in the office or not these programs are really irrespective of those decisions and I think that's where clients have figured out that this is so.

That they need but that's not going to be about office work or not this is just work that they need to drive our critical initiatives.

Got it. Thank you and then and then maybe other partnerships you know you make new partnerships announced I think fairly frequently lube and catch up.

Are there.

Opportunities have partnerships that are maybe more GSV enhancing like our partnership with square space or something like that where.

People are kind of vague facilitated.

Maybe to try to do it themselves, but that can quickly access South park and I guess are there barriers to entry to kind of create those types of partnerships is there kind of a reason if there's not maybe more just be enhancing.

Partnerships or maybe I'm, just thinking about this the wrong way, but would love your thoughts.

I think the partnership aspect of the business serves asking a couple of different ways and some of the ones you've rolled out so far definitely are focused on increasing stickiness of the product engagement of users serving the core needs. They've had zoom was an example of that loom is another example of that our team is also always working on multiple options are in.

The partnership space and I think as we have different partnerships to announce you'll certainly hear about those.

Got it thank you for the question.

Thank you.

Sure. Our next question comes into the line of Matt Schindler from Bank of America. Please go ahead.

Yes, hi.

For taking my question you guys are talking about are jacking up your bag brand spend doubling them or.

Coming into this next quarter or more from where you were what's the return you're looking for on that when do you think you'll get the advantage of that brand spend obviously that EBITDA in the near term, but when do we see the benefit start flowing into revenue.

Building up work into a world renowned brand is definitely and it takes some time and so this is a multi quarter or potentially multi year type of initiative, but we definitely will be looking to these investments to have an impact on the business and certainly we have.

Multiple measures around the investments that we're going to be looking at every single week every single quarter trying to triangulate that and optimize things like channels and creative building on the lessons. We had from the Q2 campaigns. We are running that certainly is informing our Q2 Q3 Q4 investments in this area. So it's definitely going to be dynamic but I.

Think we do know that brand spend is not like performance spend it doesn't give the immediate quarter return. This is a longer term investment, but one that we think is both critical and worthwhile given the trillion dollar Tam that we're going after given the fact that our unaided awareness with customers.

Is still low and we've seen some traction in the past with brand campaigns, having messaging that does resonate with customers does begin to change their views about how upper can serve them and that's really what we're going after here is building. This new category does require a level of investment and patience that we will have even as we will be very rigorous.

Measuring and managing being dynamic with that investment as we get feedback from the test will be run.

And is this brand campaign that youre going to run in the fourth quarter or start in the fourth quarter is it other than scale and scope is there any significant differences between the types of campaigns you've run in the past and on the types of brand campaigns you've run in the past how quickly did you see really returns from that spend.

It's built on the lessons of the Q2 and Q3 campaigns. So it is evolving on the platform you've already launched around the work marketplace category.

Building on those insights so it is not materially different but it is an evolution.

And I'd say it puts to work the insights there around things like channel and audience and creative So I think that's where Matt we're getting smarter every quarter as we're in the market doing brand messaging about when and how that can be effective for us. So we're putting those in place to work and those are you know, we see leading indicators around things like our aided them.

Warehouse number is starting to move and then those things eventually do translate into metrics like registration job posts.

Like that on the site, but we know again that those things take time to move through the funnel and that's where we have measurement framework set up around that so we will be patient, but also diligent in terms of watching and measuring those things as the campaigns are in the market.

And some of those great metrics.

Just to add on to that some of the metrics, David obviously moved faster whether their registrations or client starts and some metrics are much more take longer to truly understand in terms of lift to engagement and retention on the platform, which we would anticipate that the brand spend without but did you did you just take time.

Longer time to understand the true impact of that.

Great. Thanks.

Thank you.

As a reminder to ask a question you would need to press star one on your telephone towards.

So regarding your question. Please press the pound key.

I show. Our next question comes from the line of Marvin Fong from <unk>. Please go ahead.

Great. Thank you good evening, thanks for taking the questions.

First if I may on boost the proposals of very interested to see you guys mentioned that.

Is that.

I think you guys said it was and it was being tested and how likely is that to actually.

Be officially deployed on our platform and then I think it would be helpful. If.

If you could give us some idea of how youre thinking about the the opportunity whether it be in terms of revenue as a percent of GSV or or an increase in take rate. What's the opportunity there might be and then I have a follow up after that.

Sure, let's keep the party feature a booster proposals is the first time that we've introduced an auction mechanism in the marketplace, which we're really excited about Marvin because it really gives the talent a better ability to really see.

Signaled their interest around certain job opportunities and so.

And then in terms of the overall opportunity the first focus.

Of this feature in some of the other things we're doing like availability batches is not about just driving GSV and take rate. Although that is a side benefit of these are first and foremost focus is around really kind of monetizing human attention in a way that makes people.

Signal there are interest and intent around jobs on the platform and really making that for me that is highly valued and therefore, we get better signal quality around certain aspects of people's interest in jobs.

We're trying to use some of the insights we have from the initial testing to continuing to innovate in the space and then over time. These things will drive things like fill rates and generate new revenue, but right now it's early and these features and these are not things that we are expecting to generate meaningful top line impact.

In the near future.

That's yeah. That's great. Thank you and then my follow up just on just on the disclosure or the old active clients in the GSV proactive client I think active clients.

Your growth was within the mid twenties.

Think in terms of.

Actual number it was a bit of a slowdown from from prior quarters and then the GSV is moving around a little bit just wondering if you could.

It'll help us think about what that as expected this quarter and sort of what we should think about these two.

<unk> is doing in the fourth quarter. Thank you.

Sure.

We continue to see good strength on both of those metrics in Q3.

We don't provide guidance on them.

The metrics going forward.

But from a time perspective, we would expect that.

GSV per clients.

I would continue to show strength and Theres, a number of different dynamics.

The surface there.

That gives us confidence that there's good good.

Good growth to continue coming from there.

Obviously both of these numbers are we'll start to lap some of the strength that we saw over the last year and so that.

That will impact the numbers in some way, but what we're seeing in the business is with the absolute levels.

Clients spend per client and whatnot are maintaining at the kind of record levels that we set during our during the pandemic with a return to some normalcy on a week to week and month to month dynamic.

So those are really the key drivers there were pleased with the performance on both fronts and would expect that the spend per clients will continue to show strength going forward.

Alright, Thanks, Jeff. Thank you Hayden Oh sure. Thank you.

I show. Our next question comes from the line of Rohit Kulkarni from <unk> Partners. Please go ahead.

Great. Thanks, a couple of them one is on this.

Online lodging marketplace company, but.

You mentioned is the longer he doesn't even bother going to spend in the first year and then just can you talk through like what was it about this company or their use cases that led to this growth.

Can you replicate this across clients is this a load of specific.

Type of thing that this company was trying to do work.

Something that enable them to do.

Then I have a couple of other follow ups.

What we see what this company is you know the sales team had an excellent strategy in going after the right customer at the outset and not really the playbook that we've been building Ben.

<unk> ramped to the level of spending of $10 million spent in the first year is definitely not typical we see a lot of customers ramping to $1 million of spend faster and faster, although usually they don't even get to that level of spend in the year, but the good news is our team has been getting customers to that $1 million Mark.

In an increasing rate, which has been great to see.

In this case the team also did a fantastic job building this.

Rapid expansion playbook once the account was landed in terms of getting more.

More and more hiring managers within the company aware of the program and migrating all of the talent that the company was already working with onto the upper platform using our bring your own talent solution out of the gate and so we just executed incredibly well kind of top to bottom on this account.

Well again this is larger than the typical account that we might be closing is definitely not our largest and it's a playbook that the team is getting better and better at replicating which is a great time.

Okay cool.

On the enterprise and the lead.

Vanda team rather than expand do you the color that you have.

On the guidance or the spending plans over the next year can you just reconcile that with what you said back in the analyst day, I think I have been eating account execs and they could be <unk>, but are you seeing.

And then Oh is that thinking.

Uh huh.

Land and expand them as such.

Sure. So the land team continues to perform very well, we indicated that our our target productivity levels are roughly six deals per rep.

They're comfortably exceeding those levels, providing us a ton of confidence that we can invest aggressively behind behind the opportunity.

And you know.

There's a lot of work that needs to be done to make sure. We do that well. So we're balancing both that aggressiveness and operationalization challenges.

Challenges, but we expect to roughly double the team over the next year.

So I'll give you a kind of order of magnitude sense for where we would expect to end up at the end of 2022.

We really are excited by the opportunity with the enterprise space both of us so.

So you can just talked about that last customer represents.

An indication of what is possible clearly a bit of an outlier right now, but there's a there's a significant opportunity here and the execution by the team is really really strong.

Okay and last one if I could on this convertible note proceeds as in.

Any particular call out or the way you're thinking about the.

Investments organic inorganic next year.

And I think that we should think about how you could.

To be deploying the extra cushion that you have right now.

Sure I'll start.

At a high level.

Market conditions were great. So we wanted to make sure that we took advantage of those.

And <unk> built up the balance sheet to put ourselves in a good position to be able to continue to invest aggressively.

We are focused on growth and wanted to make sure that we can invest as much as we possibly can and the opportunities that clear our financial hurdles, whether that's in sales <unk> marketing tech or M&A.

So all of those are potential areas.

Are we potentially would would you use for that we are we have no updates to share them. If we did on the M&A front, but we're excited by both the organic opportunities we have to grow the company.

And we will continue to be cognizant of the inorganic opportunities out there as well.

Okay. Okay. Thanks, Jess Thanks, Adam.

Yeah.

Thank you.

Sure. Our last question comes from the line of Brent Thill from Jefferies. Please go ahead.

Hi, Thank you just with Chang on for Brent Thill had a couple of questions first on talent Scott.

It sounds like it could be helpful and I guess in with the take rate as well as potentially driving more spend per client, but wondering if you could share. Some early feedback in terms of you know where are you seeing the adoption the type of.

Customers or categories. Thank you.

We're seeing great progress with talent Scout and one of the examples of that was we increased the average time to deliver a short crisp brought that down in the quarter by 30% and I would say Brent.

Our turnaround that there were two primary claim personas that Tom Scott really goes after one is customers, who typically buy from staffing firms and are looking for a very easy out of the box way to get pre vetted talent and this really meets those needs and the other person and that this goes after is really high value clients, who are already inside of our talent.

Place and Theyre looking for an alternative when they don't want to take the time or the effort to do their own sourcing and they really want to trust us to do a lot of that upfront like work for them.

And I think even though it's very early in this offering is very new and we haven't really built all of the acquisition channels around it yet in all of the cross sell channels, even inside of our own work marketplace to expose it to customers one of the things I love about it is seeing the repeat by rates that were already getting from customers who've been through this experience once and our come.

Back in saying that was awesome I want to do that is the second time or third time, so the product market fit that we're seeing here is very high the NPS scores from customers are very high and we're just in the process of building out how to expose best to more of them. Because we think there are a lot of customers out there who really want this type of an offering.

Okay. That's very helpful. Thank you and then second question.

On advertising opportunities like that.

From reading the shareholder letter it looks like its different than the <unk>.

There'll be batch and end to end.

The boosting using kinetics.

If that is right I mean could you talk about.

What kind of advertising opportunity do you see just a little bit more detail on to how they might work.

Yes.

The opportunity here is really around enabling putting more control in the hands of both sides of the marketplace. In the case of some features we launched last quarter was availability badges boosted proposals. These are examples of giving talent more control over really signaling to the market that they're available interested in <unk>.

Work and really standing out from the crowd in the moment when they are looking for those next work opportunities and so that's what these features do clearly there are other client side opportunities as well, where they could potentially pay to get more visibility with the talent side of the marketplace. So opportunities exist on both sides for parties to increase their visibility.

In front of the other the other side of the market, but these two features.

Represents kind of our first forays into doing more to enable that increased visibility, which is a really valuable thing no. Because obviously people only team for that visibility when theyre serious they're high intent are highly qualified typically to participate in those work opportunities in the early testing we've done around that has validated some of those early hypotheses about the quality.

<unk> that those signals would generate for us not just.

Other asset values. So it's early for us in this space, but certainly an area, where I think theres a lot more runway for us.

Great. Thank you very much.

Sure.

Thank you.

Thank you. This concludes our Q&A session at this time I would like to turn the call back over to Evan Barbosa, Vice President of Investor Relations for closing remarks.

Thanks on behalf of the entire upward team. Thank you for joining us today and thank you for your interest in upward if you need any clarifications or have any follow up questions. Please do not hesitate to reach out to me at Investor upward Dot Com. This concludes our call.

Thank you. This concludes today's conference call. Thank you for participating you may all disconnect.

[music].

Hum.

Thanks, Greg.

[music].

Good day and thank you for standing by welcome to the Upper <unk> Q3, 2021 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker presentation that will be a question and answer session.

Good question during the session you will need to press star one on your telephone please.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your first speaker today, Mr. Evan Barbosa, Vice President of Investor Relations. Please go ahead.

Thank you welcome.

Welcome to upwards discussion of its third quarter 2021 financial results meeting, where the discussion today are Hayden Brown, <unk>, President and Chief Executive Officer, and Jeffrey Combs upwards, Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.

During this call we may make statements related to our business that are forward looking statements under federal Securities law.

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 current and future impacts of the COVID-19 pandemic on our business and current and future impacts of actions. We have taken in response to the COVID-19 pandemic are forward looking statements related to matters that are beyond our control and changing rapidly.

On Form 10-Q for the quarter ended September 32021, when filed in addition references will be made to non-GAAP financial measures.

Information regarding the <unk>.

A reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our Investor relations website at investors that upward dot com.

Always reported figures are rounded unless otherwise noted comparisons of the third quarter of 2021 are to the third quarter of 2020. All measures are GAAP unless cited as non-GAAP now I'll turn the call over to Hayden.

Thanks, Kevin and thank you all for joining us today for our third quarter 2021 earnings call.

We are pleased to report another great quarter in which our team has continued to innovate, bringing us closer to realizing our vision of the world work marketplace. We've not only delivered on our strategy and we have also started to capitalize on the opportunities of park is uniquely positioned to realize.

As a result, GSV increased 38% year over year to reach $904 million and revenue grew 32% year over year to reach $128 million.

A number of active clients grew 25% year over year and GSV per active client grew 12% year over year proving both a strong pull of our platform and the strength of both sides of our marketplace.

We are in the early days of the adoption of independent talent and it continues to trend higher because of the sheer size of outbreaks global population and our unique leadership vantage point, we can see a number of critical trends will dictate. The next few years of growth for not just us, but all players in the space.

The corporate Morford talent has intensified and moved to a new frontier as 10 million Americans are currently considering leaving their full time jobs gained more flexibility freelancing.

Where organizations are also increasingly realizing that a talent strategy predicated only on full time employees doing all the work we'll leave them behind.

Second a new type of career paths has emerged with half of the Gen Z talent pool actually choosing to start their careers and freely rather than full time employment, reflecting an important mental shift in the workforce.

As more and more customers participate in this market they tend to invest in one preferred platform once they found it.

We already see this trend with larger companies as they adopt solutions like our bring your own talent product as part of their own moves towards vendor consolidation.

To capitalize on these insights as well as on our $1 three trillion dollars total addressable market. We are focused on a rapid succession of innovation that will empower talent and clients with powerful mutually beneficial relationships that they can initiate in the blink of an eye and leverage over the long term to meaningfully.

Transform their businesses.

These relationships feel familiar to customers in their robustness, but the range of work model supporting them from project catalog to talent marketplace to talent scout feels very different to the rigid work paradigm they replace.

There are flexible dynamic and fast and customers aren't able to access them anywhere else. They will define the work marketplace upon which tomorrow's businesses are built.

In support of these trends, we continue to evolve our offerings to meet and anticipate emerging customer needs.

It's a central place where clients can easily access assemble and deploy the talent they love.

With this launch we are simplifying the process of staying connected to talent, finding promising professionals for future projects and organizing their talent network.

These features also enable independent talent to <unk>.

Streamlines their opportunities for repeat business and enhance their ability to farm stronger relationships overtime.

Actual talent bench begin to erase the barriers inhibitor in collaboration with full time employees and independent talent.

Allows clients to think of and use their wider upward talent base more fluidly to enhance the capabilities of their team.

We're also very excited about new tools and benefits offered through our partnerships with Lou and catch which support talent and their transition to more autonomy through freelancing and make a long term career in freelancing, even more viable and attractive.

Together these moves addressed all of our customer segments and make upward more instrumental in the lives of remote workers and clients.

To further support the impact of our innovations were also heavily invested in evangelizing in scaling our work marketplace.

On the sales front, we've hit yet another record level of sales productivity and are moving forward with our plan to expand the team.

We continue to see strong execution with new enterprise plan customers in the quarter up 142% year over year and the number of customers, who spent $1 million or more in the trailing 12 months up 11% quarter over quarter.

A wonderful example of this is a leading tech company operating in online lodging marketplace, but just surpassed $10 million of spend within its first year as a customer on at work.

Our program teams successfully built out a mass communication and Onboarding strategy for both hiring managers and talent at the company.

Added more than 500 of its existing talent population to essentially manage program through the upper platform using our bring your own talent capabilities through our enterprise suites and build new relationships with key stakeholders throughout the business to leverage <unk> to drive critical initiatives forward.

Everything we do continues to be focused on getting people to that tipping point of positive experiences faster more easily and more effectively.

We have a remarkable team that knows how to open the minds of our clients and talent on every front from product and user experience to marketing sales and community building.

Our greatest strength is the fact that upward is built for the long term evolution of work that is unfolding right here and now.

With our own hybrid team and with independent talent outnumber employees by more than two to one.

While leveraging the power of these capabilities does require businesses to embrace change we too are a company that has seized change opportunities by the horn, increasing our own rate of change over the past two years and we are still early in our journey.

We can't wait to see what other organizations deal as they see as the opportunities afforded by the unprecedented shift in how work gets done and how they utilize the tools. We are building for them to capitalize on this shift and improve the impact and effectiveness adaptability.

<unk> and inclusivity of their team.

Thank you for joining us on this journey, we will now open the call to your questions.

Okay. Thank you.

As a reminder to ask a question you would need to press star one on your telephone.

Your question. Please press the pound key.

Then by while we compile the Q&A roster.

I show our first question comes from the line of.

Ronnie Mckinnon from Needham and company. Please go ahead.

Great. Thanks for taking the questions just first on the on the labor market.

The labor shortages out there, especially in the U S have been well documented I just wondering if that's been a driver for people.

Demand to your marketplace I know that a lot of the charges out there maybe for jobs that could that might not be applicable to your market. So just wondering how it has been a tailwind or not and I know you touched on it maybe with the.

The corporate war for talent in your in the prepared remarks, but just any thoughts on that.

Yeah.

We definitely see that this is a moment where.

Talent is in short supply at every business and that's not a new trend I mean, certainly the war for talent with something that Ceos were talking about in wrestling with before Covid coming into Covid and now with a great resignation. This is something that every company is really struggling with so we're seeing some tailwind for that from that for sure, but I think what were trying.

To do is really lean into this moment with for example, the brand marketing increase that we're starting in Q4 to really raise the awareness that upper can be a solution for that because I think everyone understands the problem, but with our single digit unaided brand awareness on the client side. Most companies still haven't figured out that upper can really be the solution and so we're seeing a little bit of that.

That tailwind right now, but I think theres a lot more runway for us to build momentum there as companies connect the dots to the fact that freelance talent independent talent is highly skilled is on our platform is ready and able to solve so many of the challenges that these companies are wrestling with which our long term challenges that are not going to go away once the calendar flipped over to January one.

2022, so we're really focused on helping them realize that this is where the solution lies.

Yeah.

Yes.

Our number one focus over the last couple of quarters has been building a really high performing machine in the enterprise side.

Following a very clear gates on unit economics, following our playbook around who this sales team is selling into what that looks like and we've just seen some really great performance from that team exceeding our goals quarter after quarter. So our confidence is very high but the playbook is working and we're just focused on expanding.

Great. Thanks for taking the questions.

Thank you.

I show. Our next question comes from the line of Nick Jones from Citi. Please go ahead.

Great. Thanks for taking the question.

Great and maybe it would be kind of on the same line of thinking.

Is it kind of enterprise clients think about adopting the solution I think we're kind of thing and then there's a bit of a tug of war just between employers and the corporates now on like who wants to go back to work who does it.

Does this kind of solution has really come up now.

As part of a solution or are they still kind of busy trying to figure out whether they are going to capitulate to employees or not.

Or more.

<unk> dynamics I guess the broader question is is it kind of a longer timeline to drive this kind of adoption given kind of the.

Confusion, maybe going on now on even what their kind of core working environment is going to be like.

If you want to steer clear of that tug of war, because I think the lesson that companies have learned to dependent Mike is that remote work definitely works for a big portion of their workforce, whether or not theyre, calling some of those employees back into the office or not they've definitely figured out that model like ours can actually serve them and so the conversations we're in with customers is around.

They know they need access to talent that they just can't get through some of the traditional models, whether it's full time hiring whether it's our staffing firms those solutions are not serving them and they know that remote work does work for some aspect of their work and even if they are talking to customers about pulling.

And there comes back into the office. They know some of that's going to be we'll work. Some people have been working from home. So when they're engaging with us they're trying to figure out how do I make those lessons around remote work permanent with talent solutions that are not about talent acquisition or about talent access programs that put into permanent place free.

Freelancers doing workloads and programs that are built around freelancer.

<unk> that move forward into 2022, and beyond and Thats, not really affected by whether or not some of their employees are going to be in the office or not these programs are really irrespective of those decisions and I think that's where clients have figured out that this is something that they need but that's not going to be about office work or not this is just work that they need to drive that critical initiatives.

Got it. Thank you and then and then maybe you have partnerships.

There's new partnerships announced I think okay.

Fairly frequently lube and catch.

Are there.

Opportunities to have partnerships that are maybe more GSV enhancing like partnership with square space or something like that where people are kind of vague facilitated.

Maybe they're trying to do it themselves, but that can quickly access South park and I guess are there barriers to entry to kind of create those types of partnerships is there kind of a reason if there's not maybe margin enhancing.

Partnerships or maybe I'm, just thinking about this the wrong way, but.

Love your thoughts.

<unk> space and I think as we have different partnerships to announce we'll certainly hear about those.

Got it thank you for the questions.

Thank you.

Our next question comes into the line of Matt Schindler from Bank of America. Please go ahead.

Yes, hi.

Thanks for taking my question you guys are talking about jacking up your Bakken brand spend doubling them or.

Coming into this next quarter or more from where you were what's the return you're looking for on that when do you think youll get the advantage of that brand spend obviously that EBITDA in the near term, but when do we see the benefit.

Start flowing into revenue.

Okay.

Building up work into a world renowned brand is definitely to take some time and so this is a multi quarter or potentially multi year type of initiative, but we definitely will be looking to these investments to have an impact on the business and certainly we have.

<unk> measures around the investments that we're going to be looking at every single week every single quarter trying to triangulate that and optimize things like channels and creative building on the lessons. We had from the Q2 campaigns. We are running that certainly is informing our Q2 Q3 Q4 investments in this area. So it's definitely going to be dynamic, but I think.

We do know that brand spend is not like performance spend it doesn't give the immediate quarter return. This is a longer term investment, but one that we think is both critical and worthwhile given the trillion dollar Tam that we're going after given the fact that our unaided awareness with customers.

Is still low and we've seen some traction in the past with brand campaigns, having messaging that does resonate with customers does begin to change their views about how upper can serve them and that's really what we're going after here is building. This new category. It does require a level of investment and patience that we will have even as we will be very rigorous in.

<unk> and managing the dynamic with that investment as we get feedback from the test will be run.

And is this brand campaign that youre going to run in the fourth quarter or start in the fourth quarter is it other than scale and scope is there any significant differences between the types of campaigns you've run in the past and on the types of brand campaigns have run in the past how quickly did you see really returns from that spend.

It builds on the lessons of the Q2 and Q3 campaigns. So is evolving on the platform you've already launched around the work marketplace category.

Building on those insights so it's not materially different but it is an evolution.

And I would say it puts to work the insights there around things like channel and audience and creative So I think that's where Matt we're getting smarter every quarter as we're in the market doing brand messaging about when and how that can be effective for us. So we're putting those insights to work and those are we see leading indicators around things like our aided.

Awareness numbers, starting to move and then those things eventually translate into metrics like registrations job posts things like that on the site, but we know again that those things are take time to move through the funnel and that's where we havent measurement framework set up around that so we will be patient also diligent in terms of watching and measuring those things.

As the campaigns are in the market.

And some of those great metrics.

Just to add onto that some of the metrics to obviously move faster whether their registrations or client starts and some metrics are much more take longer to truly understand in terms of lift to engagement and retention on the platform, which we would anticipate that the brand spend without but did you did you just take time.

Longer time to understand the true impact of that.

Great. Thanks.

Thank you.

As a reminder to ask a question you would need to press star one on your telephone towards your question. Please press the pound key.

I show. Our next question comes from the line of Marvin Fong from <unk>. Please go ahead.

Great. Thank you good evening and thanks for taking the questions.

Just the first if I may on boosted proposals of very interested to see you guys mentioned that.

Is that.

I think you guys said it wasn't it was being tested at how likely is that to actually.

Officially deployed on our platform and then I think it would be helpful.

If you could give us some idea of how youre thinking about the the opportunity whether it be in terms of revenue as a percent of GSV or or an increase in take rate what the opportunity there might be and then I have a follow up after that.

Sure, but the product feature booster proposals is the first time that we've introduced an auction mechanism to the marketplace, which we're really excited about Marvin because it really gives the talent a better ability to really.

No theyre interest around certain job opportunities and so.

In terms of whenever the future will fully launch the team is still reworking some aspects of the feature in the auction mechanism based on what the initial pathway. So I don't have an exact date for you on that but we're definitely working with a lot of intensity on that because we think that the product is very valuable.

And then in terms of the overall opportunity the first focus.

All of this feature is in the other things we're doing like availability batches is not about just driving.

<unk> take rate, although that is <unk>.

Benefit of these are first and foremost focus is around really kind of monetizing human attention in a way that makes people.

Signal their interest and intent around jobs on the platform and really making that something that is highly valued and therefore, we get better signal quality around certain aspects of people's interest in jobs. So we're trying to use some of the insights we have from the initial testing.

Continuing to innovate in this space and then over time these things will drive things like fill rates and generate new revenue, but right now it's early and these features and these are not things that we are expecting to generate meaningful topline impact in the near future.

That's great. Thank you and then my follow up just on the disclosure and the all the active clients in the GSV proactive client I think active clients.

The year over year growth was within the mid twenties.

In terms of.

Actual number it was a bit of a slowdown from prior quarters and then the GSV is moving around a little bit just wondering if you could.

They will help us think about what's that as expected this quarter and sort of what we should think about Q2.

These two kpis doing in the fourth quarter. Thank you.

Sure we can.

Continued to see good strength on both of those metrics in Q3.

Don't provide guidance on them.

As a metric going forward.

But from a time perspective, we would expect that.

GSV per clients.

Would continue to show strength and Theres, a number of different dynamics beneath the surface there that.

Give us confidence that there is good.

Good growth to continue coming from there.

Obviously, the bulk of these numbers are we'll start to lap some of the strength that we saw over the last year or so.

That will impact the numbers in some way, but what we're seeing in the business is but the absolute levels.

Clients spend per client and whatnot are maintaining at the kind of record levels that we set during during the pandemic.

With a.

Return to some normalcy on a week to week and month to month dynamic.

So those are really the key drivers there were pleased with the performance on both fronts and would expect that the spend per clients will continue to show strength going forward.

Great. Thanks, Jeff Thank you Hayden.

Sure. Thank you.

I show our next.

Next question comes from the line of Rohit Kulkarni.

<unk> partners. Please go ahead.

Great. Thanks, a couple of them one is on this.

Online lodging marketplace company.

You mentioned them all.

$10 million being spent in the first year.

Can you talk through like what was it about this company.

Use cases that led to this growth.

Can you replicate difficult clients is this a lotus specific.

Type of thing that this company was trying to do or grow or something that enable them to do that.

And then I have a couple of other follow ups.

What we see with this company is the sales team had an excellent strategy in going after the right customer at the outset and not really the playbook they've been building than the.

Ramped to the level of spending of $10 million spent in the first year is definitely not typical we see a lot of customers ramping to $1 million of spend faster and faster, although usually they don't even get to that level of spend in the year, but the good news is our team has been getting customers to that and $1 million Mark.

At an increasing rate, which has been great to see.

In this case the team also did a fantastic job building this.

<unk> expansion playbook once the account was landed in terms of getting.

More and more hiring managers within the company aware of the program and migrating all of this talent that the company was already working with onto the upper platform using our bring your own talent solution out of the gate and so we just executed incredibly well kind of top to bottom on this account and I think well again this is larger than the typical account.

That we might be closing is definitely not our largest and it's a playbook that the team is getting better and better at replicating which is a great time.

Okay cool.

On enterprise.

The lead the <unk>.

<unk> rather than expanding the color that you have on the guidance or the spending plans over the next year can you just reconcile that with what you said back in the analyst day, I think I have been meeting account execs and they could be <unk> for you all.

Since then.

That thinking.

Land and expand as such.

Sure. So the land team continues to perform very well, we indicated that our our target productivity levels are roughly six deals per rep.

Comfortably exceeding those levels, providing us a ton of confidence that we can invest aggressively behind behind the opportunity.

And.

Theres a lot of work that needs to be done to make sure. We do that well. So we're balancing both that aggressiveness and operationalization.

<unk>, but we expect to roughly double the team over the next year.

So I'll give you a kind of order of magnitude sense for where we would expect to end up at the end of 2022.

We really are excited by the opportunity with the enterprise space both of those please.

Great and just talked about that last customer represents.

An indication of what is possible clearly a bit of an outlier right now, but there's a there's a significant opportunity here and the execution by the team is really really strong.

Okay and last one if I could.

This convertible note proceeds.

Any particular cause.

All out of the way Youre thinking about.

Investments organic inorganic next year.

But we should think about how you could be deploying the extra cushion that you have right now.

Sure I'll start.

At a high level.

Market conditions were great. So we wanted to make sure that we took advantage of those.

<unk> built.

<unk> built up the balance sheet to put ourselves in a good position to be able to continue to invest aggressively. Yes. We are focused on growth and want to make sure that we can invest as much as we possibly can on the opportunities that clear our financial hurdles, whether that's in sales <unk> marketing tech or M&A.

So all of those are potential areas.

That we potentially would would you use for that we have we have no updates to share them.

We did on the M&A front, but we're excited by both the organic opportunities we have to grow the company.

And we will continue to be.

Cognizant of inorganic opportunities out there as well.

Okay. Okay. Thanks, Jeff Thanks, Adam.

Okay.

Thank you.

Sure. Our last question comes from the line of Brent Thill from Jefferies. Please go ahead.

Alright. Thank you. This is John Byun for Brent Thill had a couple of questions first on talent Scott.

Sounds like it could be helpful and I guess in the take rate as well as potentially driving more spend per client, but wondering if you could share. Some early feedback in terms of you know where are you seeing the adoption the type of.

Customers or categories.

Thank you.

We're seeing great progress with talent Scout and one of the examples of that was we increased the average time to deliver a short crisp brought that down in the quarter by 30% and I would say Brent.

Our genre.

Two primary claim persona is it Tom Scott really goes after one is customers, who typically buy from staffing firms and are looking for a very easy out of the box way to get pre vetted talent and this really meets those needs and the other persona that this goes after is really high value clients were already inside of our current marketplace.

And they're looking for an alternative when they don't want to take the time or the effort to do their own thing and they really want to trust us to do a lot of that upfront legwork for them and I think even though it's very early in this offering is very new and we haven't really built all of the acquisition channels around it yet in all of the cross sell channels, even inside of our own work marketplace.

To expose it to customers one of the things I love about it is seeing the repeat by rates that were already getting from customers who've been through this experience once and are coming back and saying that was awesome I wanted to do this the second time or third time, so the product market fit that we're seeing here is very high the NPS scores from customers are very high and we are just in the <unk>.

Assess of building out how to expose best to more of the market. Because we think there are a lot of customers out there who really want this type of an offering.

Okay. That's very helpful. Thank you and then second question.

On advertising opportunities.

From reading the shareholder letter it looks like its different than the <unk>.

The available beds and.

On the boosting using connects.

If that is right I mean could you talk about.

What kind of advertising opportunity do you see just a little bit more detail on to how they might work.

I think the opportunity here is really around enabling putting more control in the hands of both sides of the marketplace. In the case of some features we launched last quarter. It was availability badges boosted proposals. These are examples of giving talent more control over really signaling to the market that they are available.

Interested in new work and really standing out from the crowd in the moment when they are looking for those next work opportunities and so that's what these features do clearly there are other clients side opportunities as well, where they could potentially pay to get more visibility with the talent side of the marketplace. So opportunities exist on both sides for parties to increase.

Their visibility in.

In front of the other the other side of the market, but these two features.

Represents kind of our first forays into doing more to enable that increased visibility, which is a really valuable thing because obviously people only pay for that visibility when theyre serious they're high intent are highly qualified typically to participate in those work opportunities in the early testing we've done around that has validated some of those early hypotheses about the quad.

<unk> that those signals will generate for us not just.

Other aspects of value. So it's early for us in this space, but certainly an area, where I think theres a lot more runway for us.

Great. Thank you very much.

Sure.

Thank you.

Thank you. This concludes our Q&A session at this time I would like to turn the call back over to Evan Barbosa, Vice President of Investor Relations for closing remarks.

Thank you. This concludes today's conference call. Thank you for participating you may all disconnect.

Q3 2021 Upwork Inc Earnings Call

Request a DemoDemo

UPWK

Upwork

Earnings