Q4 2021 Upwork Inc Earnings Call

February 10, 2022

Okay.

Good day, thank you for standing by.

Fourth quarter 2021 earnings conference call.

All participants are in a listen only mode.

The speaker's presentation, there will be a question answer session.

Jack a question during the session.

One on your telephone please.

Be advised that today's conference is being recorded.

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I'd like to hand, the conference over to Evan Barbosa.

Vice President of Investor Relations. Please go ahead.

Thank you welcome to upward <unk> discussion of its fourth quarter and full year 2021 financial results.

Leading the discussion today are Hayden Brown upwards, President and Chief Executive Officer, and Jeff will cones upwards Chief Financial Officer.

Following managements prepared remarks, we will be happy to take your questions.

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 laws. These statements are not guarantees of future performance, but rather.

They are subject to a variety of risks uncertainties and assumptions.

Results could differ materially from expectations reflected in any forward looking statements.

In addition, any statements regarding our current and future impacts of the COVID-19 pandemic on our business and our current and future impacts.

Actions, we have taken in response to the COVID-19 pandemic.

Forward looking statements related to matters that are beyond our control and changing rapidly.

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 website and on our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter.

Additional information will be set forth in our annual report on Form 10-K for.

For the year ended December 31, 2021, when filed and.

In addition reference will be made to non-GAAP financial measures information regarding 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.

As always reported figures are rounded unless otherwise noted.

<unk> of the fourth quarter of 2021 are to the fourth quarter of 2020 and comparisons to the full year of 2021 to the full year of 2020, all GAAP measures. 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 fourth quarter full year 2021 earnings call.

2021 was a remarkable year for our park.

Not only in how far we pushed our business forward, but also in how clearly it has set our path for continued performance in 2022 and beyond.

<unk> grew 41% year over year to reach $3 5 billion in revenue grew 35% year over year to reach $503 million for the full year 2021.

During the fourth quarter, we surpassed $15 billion in lifetime talent, earning an upward.

<unk> achievements highlight the magnitude of impact we have had and signal how we are leading the global movement to re imagine work.

Last year, we launched a host powerful products and features including project catalog talent Scout and virtual talent bench as well as valuable partnerships with technology and benefits providers, such as <unk> and catch we have successful high profile collaborations with leading brands, including Budweiser, Inc.

And cash launched the perfect brand campaign to raise awareness of tough work to customers and prospects and in the third quarter as a result of our confidence in the long term value creation opportunity in enterprise sale, we announced our intention to double the number of account executives on our sales team by the <unk>.

End of 2022.

And we are just getting started we believe timing matters and timeframe matters in terms of timing.

Time continues to be now for investing in our business to win customer market share at a time when customer needs for our offering are accelerating and our brand awareness is low we will do this with conviction in the year ahead as planned because we are building a powerful and sustainable business.

With a leading share economics and growth rates for the long term.

In terms of timeframe 2021 was the first year executing our three part strategy to innovate evangelize and scale our work marketplace.

We have always known this strategy will take multiple years to fully deliver and we are pleased with our progress to date.

Due to this progress and are confident in our execution, we are accelerating our target of achieving a $1 billion in revenue by one year to 2024 up from our previous timeline of 2025 with a compound annual growth rate of approximately 25% over the next three years.

Yeah.

We're also excited to announce that we are setting an enterprise revenue target of $300 million by 2025.

Most 10 times, what we delivered in 2021, which represents a compound annual growth rate over the next four years of more than 70%.

Our innovation ambitions are bigger than ever.

With the backdrop of the work awakening, a time in which people are reevaluating what they want in work and life and realigning our priorities. Accordingly, we have embraced and expanded vision for upward as the world work marketplace.

We build for companies to walk into the new operating model of the new World and we build for talent.

Blacks into new ways of working.

We anticipate that the businesses to embrace this work awakening will be poised to out innovate companies, who do not.

2022 is the year that upward takes the next steps in <unk>.

<unk> from being the largest global freelance marketplace as measured by GSV to broadening our horizon as the world work marketplace.

Our focus has evolved because the world has evolved.

The old binary notion of freelance versus full time employee work are being revisited in a world where remote work is ramping where career and work innovation is happening all around us and where talent and clients are searching for new solutions to both new and old.

<unk> are struggling with.

Many professional are seeking to unbundle aspect of traditional full time work to get benefits in new ways, while others are seeking new benefits without shackling themselves to a full time job.

We are poised to innovate these solutions with and for our customers and our strong foundation help us do just that.

We have distinctive knowhow and building and delivering relationship centered flexible solutions for knowledge workers, we have product in the market that already empower workers to seamlessly transition from freelance to full time work and back and we have teams that already designed and deliver modern work.

Model at scale for our enterprise clients.

This year, we will build on our existing foundation with a lineup of new offerings that will continue to make the transition from freelance to full time and vice versa and the integration of both working models seamless for all our customers.

We are.

Our focused on accelerating the work awakening and powering professionals by building their online home for work that grows and flexes with them across their career and as their needs change and for businesses delivering a singular destination that gives them access to the free.

Lance and full time professionals they need on the work marketplace that makes these powerful relationships and the tools to manage them a foregone conclusion.

We have always seen ourselves as the pace centers of innovation and work and in a time when the speed and creativity with which people are constructing their careers is accelerating and companies are rethinking. Their workforces are park will be the work marketplace that empowers them to achieve their goals.

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

At this time as a reminder to ask a question star one on your telephone.

Your question. Please press the pound key.

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Foster.

Our first question comes from right.

Maria rips from Canaccord may begin.

Hi, Thanks, so much for taking my questions.

I just wanted to ask about sort of your customer count in the quarter here any update you can share with us on roughly what portion of your customers on the platform are now sort of being driven by project catalog and I know you previously said it was 10%.

But anything you can share with that.

Then sort of now with this product are sort of about that this product has been around for some time what portion of customers who sort of came in a wildcard project catalog are now engaging with the platform sort of more deeply and then I have a quick follow up.

Sure. Thanks, Brent we are seeing really great progress with project catalog definitely every quarter, we have seen increases in the number of customers coming in through catalog and the bigger picture for US here is this product is really designed as a new way to capture the imaginations of customers, who may not know how to engage with <unk>.

On the talent on our work marketplace gives them a way to get started but that's one click model and then of course be able to cross sell to them other ways of working with talent and for sure to your question. We have seen that hypothesis validate that we are seeing a significant number of these customers actually going further than just catalog and using the talent marketplace.

Our talent scout or other ones of our offerings and similarly, our existing talent marketplace and other customers have been.

Crossing over and using catalog as well so we're seeing really great validation that customers do have these needs that span different types of products different types of use cases and that adoption has been really supporting the whole thesis at the work marketplace is what's required to meet the needs of all customers.

Got it and then maybe a bigger picture question sort of as many companies are struggling with labor shortages here are there any categories or verticals on the platform, where you perhaps have seen an acceleration of growth as a result of that and maybe related to that are there any verticals, where you feel like the platform.

Would benefit from a sort of a deeper pool of talent.

Sure, we're really seeing tremendous strength across the board in all of our categories right now and we've seen acceleration and some of our biggest categories. We've seen some smaller categories like accounting and consulting which grew at 72% year over year in the past quarter or so.

In this market, we're actually not seeing negative we're seeing this war for talent happening in the world at large and despite that the value proposition of whats available on upward is actually increasing with talent we see.

Sign ups from new talent and active engagement from existing talent at or near record levels continuously and I think that really speaks to the broader story of the work awakening and the fact that talent are now looking for a different value proposition in the world at large and what we have to offer really meet that value proposition. So well so there's a ton of help there.

We're excited about what that means both for now and the future.

Got it. Thank you very much I appreciate the color.

And our next question will come from Eric Sheridan from Goldman Sachs May begin.

Thank you so much for taking the questions. Maybe two two part question about can you in terms of the marketing investments you are calling out that would put some margin pressure on in 'twenty, two just give us a little bit of looking back and what you've seen in the business, where now is the right time to lean in on those marketing investments and try to scale the platform we could see.

<unk> C and then looking further out than just 'twenty two how should we be thinking about elements of <unk>.

Wanting to capture leverage in the model as you grow in scale versus continuing those investments on a multiyear view. Thank you so much.

Eric Our view is that timing does really matter around this investment and specifically this is such a favorable environment for us to be making the investment and we see that this is a unique moment because of the work awakening businesses have never been more in need of our products and on the other side professionals are really rethinking their priorities and are really drawn into them.

Model that we have we know at the same time that our unaided brand awareness amongst our target client is in the single digits and we imagine how much bigger our business can be if we are able to double or triple that awareness and to your point about looking backwards. This investment is absolutely a continuation of our strategy that we initiated in 2021, we've been for <unk>.

Caring for this as we launched the work marketplace category in May of last year, and then the back half of last year began increasing that brand investment theme. The signal early as it was that this was working and then in January brought on Melissa waters as our CMO to further set us up to really be building a world class brand that shape the category that same customer.

Behavior in our category and really sets us up to be making this investment with a lot of confidence. This year, let me hand, it off to Jeff to talk a bit more about the rest of your question.

Thanks, Ed.

Yeah, our investment philosophy with respect to brand marketing is exactly the same as it's been with sales and performance marketing. Our goal is to invest as much as we possibly can wherever we can get returns that we think are comfortably above our weighted average cost of capital.

And with respect to brand marketing just like sales and performance marketing, we're focused on driving real business outcomes and what that means for US is we're trying to drive more clients and increased spend from our existing clients and so we want to see we have a hypothesis that as we increase our unaided brand awareness that that will convert into.

Real business outcomes that.

While we bring patients to this we know that it's going to take time to move our brand awareness and to test and learn into this to understand what is the optimal mix of creative and channel and Geo and reach and frequency and whatnot.

So we bring that patients to it that being said, we also bring an urgency like all of you to try to understand how are the how is the spend converting.

In the interim and so we're looking at top of signal metrics traffic client registrations prevents a registration branded search queries.

We also look at the proxy metrics how are we moving brand consideration Howard moving brand awareness.

How are we moving brand relevance et cetera.

But ultimately the goal is to absolutely move.

The investment into real business outcomes and in terms of the impact on long term margins. We absolutely believe this is a business that can deliver 30% to 35% long term EBITDA margins.

We are actively driving leverage in cost of revenue G&A.

But we also see this as a.

A great opportunity to focus on our top priority, which is growing the business by investing in those areas that are returning.

Attractive dollars, whether that's sales performance marketing.

Brand marketing whatnot.

The early results were seeing at the top of the funnel with respect to brand marketing are encouraging. So we're excited to be pushed on this front.

Great. Thank you for all the color.

Sorry about that our next question comes from the line of Bernie Mcternan from Needham Your line is open.

Great. Thanks for taking the questions maybe just to zero in on the on the revenue guidance or long term revenue guidance moving the $1 billion of revenue up by year only about six months. After the guide what's been made primarily outperforming expectations and then on enterprise expecting $300 million is that.

Should we be.

Assuming that you guys keep bringing on more and more land account reps or is that maybe a different thought process and maybe how steep the curve from that and how businesses are spending your provide some interesting data in terms of how big some of these businesses are.

<unk> on the platform.

Excellent. Thank you much for the questions.

In terms of the $1 billion goal to really the way we thought about this as we've talked to key themes happening in the business first off Super excited about the results of our enterprise efforts. The team did a great job in 2021, hitting the unit economic productivity targets that we had we know that those are attractive investments to make so that's why we're doubling the sales.

Force in 2022.

And that caused us out.

To be comfortable with a long term target of $300 million in 2025.

And the second dynamic is that we saw.

Really strong performance in our spend per client so whether that is the 15% year over year improvement in the 771000 clients that we have on the platform or.

Those their spending over $100000 per year that increased by 51%.

Or $1 million spenders that increased by 61% year over year in terms of the number of those stood.

So those two dimensions caused us to be comfortable with a target of $300 million of enterprise revenue in 2025, which then gave us comfort that we can bring in our $1 billion revenue target from 25% to 2024.

And with respect to how we're going to get to that $300 million in enterprise revenue.

Hi.

We don't need any productivity improvements per rep from what we're seeing from the team right now which is great now that being said, we'll continue to focus on making sure that we're as effective and productive as we possibly can.

And and continue investing to hire additional reps as we indicated we're going to double those in 2022, we absolutely do need to continue investing in those reps, which is which is a great investment for the company.

The rep growth will probably roughly mirror the growth of the revenue between now and 2025.

Thanks for the question.

Great. Thanks, Jeff.

Sure.

Our next question will come from the line of Marvin Fong from <unk> you may begin.

Great. Thanks for taking my questions.

Couple of them have already been answered but.

But maybe we could start on take rate I think the largest.

The decrease quarter over quarter than we've seen in the last few quarters and I know you mentioned.

More uptake.

Longer term relationships.

Just looking forward in terms of sort of the cadence.

And how that might evolve in 2022, I know you mentioned it should be up very slightly and maybe you could just give us a little more breakdown between like your first quarter guidance.

What it take rate look there quarter over quarter, and then for the balance of the year and then I'll have al.

On the follow up.

Sure. Thanks Barbara.

So yes.

Youre right in that our take rates.

Spend per clients seem to be inversely correlated so given the pricing model that we have.

We're as clients who for your answers find more successful on the platform.

End up spending more within those existing relationships the average take rate.

Progresses I guess.

The price that Theyre charge goes from 20% to 10% to 5% and therefore, the average take rate feels a little pressure. So the strength that we saw and the average spend per client going up 15% year over year.

It was reflected in a little bit of take rate pressure quarter over quarter.

And as we look out into 2022, we do expect that on average for the year. The take rate will be higher than we're exiting 2021, that's going to be driven by a number of a number of dynamics a few initiatives that we're working on.

Including <unk>.

Growth in project catalog or talent Scout enterprise with all three of those have higher take rates than the rest of the business. So we would expect.

Those dynamics.

To be lifting take rate a bit throughout the year.

Kind of more in Q2 and beyond than in Q1, but we're excited to see lift there.

Thanks Martin.

And a follow up if I may just I think you did highlight how how spending per client is up no matter, how you cut it maybe.

Maybe you could just kind of drill down I mean are they.

Doing more and more projects are the <unk>.

The project is going up.

I'm sure there's some interplay between the two but maybe just kind of talk about that and then how you are.

Modeling those two as you would give us these longer term targets and what the GSV growth coming from more from spend per client or new clients any color there would be great.

Yes, so with respect to.

The spend per client we have seen.

A lot of success in.

The longer term projects on our on our platform. So.

Hourly projects had been growing at a faster rate than fixed price projects.

The number of hours within those projects has been increasing over time.

We are also seeing increases in hourly rates, but surprisingly that's been relatively consistent over the last several years. So it's really clients and freelancers finding more value in the platform and extending the duration with which they're using there.

They are using the platform.

In terms of growth going forward, where would we expect growth to come from.

We really do expect that to come from bolt. Obviously, we're pleased that our average spend per client is up 15% that being said, it's still yes.

In the $4000 range, we think theres significant opportunity to continue increasing that for many years to come.

And.

Also understand that we served 771000 customers client on the client side. This past year, we do think theres lots more room over the long term to continue growing that and that goes directly to the brand marketing efforts.

Hayden touched upon.

We believe if we can increase awareness of our offering that we have the opportunity to meaningfully move those business metrics and new clients is absolutely one of the key ones there.

That's great. Thanks, so much Jeff I appreciate it.

Sure.

Our next question comes from the line of Matt <unk> from Piper Sandler you may begin.

Thanks, guys. Congrats on the really strong results in the pulling in of the $1 billion.

I just wanted to dive a little bit deeper into the enterprise opportunity.

What really remains the biggest overhang with potential customers in that space today, and how do you overcome that overhang to kind of drive to your $300 million target that you laid out today.

Thanks, Matt.

There's really not a big barrier to hitting that $300 million target other than executing really well against that Paul I think we have a lot of confidence that we're on that path and we see the proof points with our performance we have delivered around things like the 78% year over year growth in the new deal on the land side.

Q4 enterprise revenue up 65% year over year, and $1 million Fender spenders up 61% year over year. So the.

The momentum we're seeing in that part of the business has been great and the execution there.

Is really strong and we think we can continue that execution and that's what's going to take us to that $300 million goal I think however, there's such a big market opportunity. There that we're trying to unlock that's where really awareness is one of the big <unk>.

<unk>, where we think so many of these customers and we know from the brand awareness data don't know about us haven't heard about that.

Thank you.

The times they are hearing.

<unk> talk tracks from our competitors in the market, mainly legacy staffing firms, who maybe already working with our customers around what we can offer and so that's really the bigger unlock in terms of how else. We are trying to accelerate that space is just getting our name out there and getting the story out there that will further amplify I. Thank all of our efforts in the <unk>.

Business, both on the sales side of the house performance marketing Halo effects and efficiency improvements hopefully over time those types of things now clearly it's early days with this investment Jeff talked about some of the goals and the ways, we're really being disciplined about measuring that but I think one of the biggest challenges as these firms haven't heard about us and so our sales teams are going in and educating them.

But we think there's more we can do to make that job easier for them.

Awesome and then as I think about 2022.

Is there a sense of seasonality that returns to the business hopefully as we come out of Covid here. This year or are we still in a place where just the market dynamics and the growth that you are highlighting that seasonality really doesn't exist given the broader opportunity ahead.

Yes, it's a great question, obviously COVID-19 is incredibly hard to predict and it will be probably given up trying to.

Exactly understand how that behaves but release.

Our numbers.

<unk>, followed kind of a week to week and month to month level of seasonality.

Since I don't know maybe mid ish 2021 now clearly.

Clearly certain business dynamics too.

Over Ryan that seasonality so.

With respect to our enterprise offering if you just looked at those numbers, there's not a whole lot of seasonality that comes into play in terms of the overall revenue growth there because it is driven much more by.

New new new.

Exactly we have how many accounts, they're bringing in.

And new account managers and all of those sorts of dynamics.

We do see that there is a.

Obviously, the dynamics that were driven or the that week to week metrics that were driven throughout COVID-19 look different now.

And our goal would be to obviously then those curves as much as we can to make sure that our growth drivers.

Are the primary things that they are driving the business forward and youre seeing that absolutely play out on the enterprise side Youre seeing that play out in the spend per account and then we hope that with brand marketing and we're able to do that same thing that's absolutely the intention with those investments.

Awesome. Thank you so much congrats again.

Thank you.

Our next question from Andrew.

Andrew Boone from JMP Securities you may begin.

Hi, guys. Thanks for taking my questions. Two please so first with wage inflation across the board can you just talk about how that impacts your market.

What are the dynamics that we should be thinking about from the outside.

And then the second question is 2021 was a major year for product launches.

As we think about your enterprise goal in the $300 million.

What else are enterprises are asking for Brian I think Haden you mentioned your prepared comments that there was a fluidity between freelancers and full time workers is there anything else that we can expect for 2022. Thank you so much.

Sure so on the wage inflation side.

I can definitely characterize that we talked a little bit earlier in the call about the talent dynamics not slowing down if anything they're faster than ever in terms of talent really being interested in this model we see.

Talent set their own wages on our platform and they're doing that in a really healthy way today wages are strong.

Also see that clients in a tight labor market really see our value proposition resonating as more strongly than ever globally, they're looking at different wages and labor arbitrage becomes more of an issue. They also start to see even more sharply that we have a competitive edge over traditional talent businesses like staffing agencies, who have these really steep.

That's compared to our direct account model and therefore are even more hard pressed and even in normal times to compete on an economic basis never mind. The fact that our quality is so much more superior to theirs.

And all of that we are in a really strong position in a tight labor market. However, we still face the reality that so many just can we just haven't heard of us. So they don't even know that these advantages exist on our platform.

To your second question around what our enterprises asking for a lot of it is building off of the.

<unk> solutions have already been giving them things like bring your own talent compliance offerings, where they are trying to build these hybrid teams of workers.

Even easier for their workforce to have a single log in a single place to go to source talent break down the barriers between what a freelance worker is doing an employee is doing because often times.

That matter is not consequential different does not consequential anymore, and so we're really helping them build these things out programmatically and so when we look at our product roadmap for enterprises.

This leasing is around.

Giving them more of the access to those different talent pools, and a much more seamless way.

It just.

Easy for customers to do that without having to worry about things like how is this person going to classify do I need to think about all of the back office things to do in order to get started with this person whether they are full time worker or freelance worker and so we're really leaning into the reality of that that is how the customers are thinking about leasing today those distinctions are no longer nearly.

As important as they once were and building a single destination on our work marketplace for new employee enterprise customers to come in and use our solution that way even more than they have been able to do so in the past.

Thank you.

Yes.

Our next question will come from Ryan.

Carney.

And partners you may begin.

Hey, Thanks and Goodnight.

Very nice quarter.

Very optimistic guidance I guess on the brand marketing can you recap in terms of about $47 million spent last year $80 million this year.

Across.

The quarters, where did that come from.

What was the learning that made you more bullish on spending or doubling down on more band marketing in terms of quantified the facts that we can learn from outside.

Yes, I think I'll touch on a few things there with respect to the $47 million in 2021.

As we mentioned.

We really.

Started investing more aggressively in the second half and we launched the work marketplace in may of last year.

Spent a bit around that in Q2 of last year and then from Q3 to Q4, we increased the brand spend from $8 million to $17 million, we mentioned that for 2022.

Our current our current target is $80 million.

With a little bit more front end loaded than then.

Q4 of this year, but roughly in line with the levels that we saw in Q4 of 2021.

Yes.

We are with all that being said we've been at this for several quarters I'm trying to lay the foundation to be able to go aggressively against this opportunity and we know that it's going to take time, we are absolutely taking a test and learn approach we want to understand what works best across reach and frequency by Geo by channel all of those different intersections.

And yes.

As we get those learnings, we're going to move the dollars to the areas that are performing well and move them away from the areas, where we're not getting the target performance.

And so that really is the mentality.

We're approaching this.

And we believe that there is a significant opportunity that if we can absolutely converts.

Or meaningful lift our unaided awareness.

We have the opportunity to turn that into real business outcomes.

But theres a lot of work to do ahead of us to get there.

Okay.

I know in the last few months you have started to experiment with advertising and more subscriptions to both sellers and buyers any update.

As to where you are with these two new initiatives.

I'd say, it's definitely early days, but we're very excited about the paid AD products that we have launched rohit. They are.

New way for us to do basically two things one is <unk>.

Create new high quality signals in our marketplace around things like intense and availability and who is really interested in what and why and so those signaling factors have been really valuable in terms of increasing things like match quality on the platform and then secondarily. They also create opportunities for further monetization.

And that is also an exciting piece of the puzzle. So it's early days on both of the <unk>.

Products, you've launched boosted that proposals availability batches and things like that but I think these do represents a really nice new opportunity for us to be both improving the product experience and match quality, while also monetizing the business in new ways.

And the availability of that just yet just moved out of beta into Georgia last week or so.

So we're looking forward to see how those perform more broadly.

Okay, if I could ask one kind of competitive dynamic question are you seeing.

Any changes in new players emerge.

Any comments on Microsoft Linkedin launching their services marketplace.

Do you see them you see them in the broader ecosystem as such.

I mean, the space is dynamic it hasn't really changed quarter over quarter, and we don't really hear anything about those types of competitors in the market from customers. So we're just staying focused on our business our strategy. It's working it's unlocking the space and.

Thank you and Thats the story for US we're not hearing a lot of noise about anybody else.

Okay. Thank you very much from that.

Thank you and our last question will be from urine Britton Hill.

Sorry, Brent Thill from Jefferies you may begin.

Hi. Thank you. This is a champion for bank Bill just a couple of things just.

Maybe housekeeping or in smaller topics I.

Just wondering if you had seen any impact or benefit from Omi crime late in Q4, So far in Q1, and then secondly on the Opex line items in Q4 as a percentage of revenue pretty.

Pretty much all of the Opex lines moved up is that sort of trend we should expect to the rest of the 22 or is it really more concentrating in marketing.

Thank you.

Sure. Thank you.

So with respect that omicron.

As far as far as we can tell.

The dynamics and trends in the business warrants meaningfully driven by.

The surge in omicron.

We did see nice strength in the business post Thanksgiving a bit stronger than we had expected.

But any any attempt to kind of.

Correlate that with omicron, either geographic or from a timeframe perspective didn't result in us having a strong conviction that it came from <unk> with respect to Opex.

As you know.

As we said our overall approach is we want to invest as aggressively as we possibly can wherever we're seeing the returns so in sales and marketing.

Youre going to see healthy growth.

And in that line item driven by both brand marketing and our sales efforts as well as performance marketing.

R&D, we are aggressively moving to build out the work marketplace beyond where we currently have it.

And so youll see that grow as well and then we're trying to drive leverage.

In G&A and cost of revenue.

Obviously, all in pursuit of delivering that long term, 30%, 35% EBITDA margin.

Thank you thanks John .

Thank you I'm not showing any further.

Any further questions in the queue I turn the call over to Aaron <unk> for any closing remarks.

Okay.

On behalf of the entire upper 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 at a port Dot Com. This concludes our call. Thank you.

This concludes today's conference call. Thank you participating you may now disconnect everyone have a great day.

[music].

Good day, thank you for standing by.

Our fourth quarter 2021 earnings conference call.

This time, all participants are in a listen only mode.

Speaker presentation, there will be a question answer session.

A question during the session Chris Star one on your telephone.

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 Mr. Today, Evan Barbosa.

Thanks, President of Investor Relations. Please go ahead.

Thank you welcome to upward <unk> discussion of its fourth quarter and full year 2020 financial results.

The discussion today are Hayden Brown upwards, President and Chief Executive Officer, and Jeff look homes upwards, Chief Financial Officer.

Following managements 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 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 and.

In addition, any statements regarding our current and future impacts of the COVID-19 pandemic on our business cards.

Current and future impacts of Alex.

We have taken in response to the COVID-19 pandemic.

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 website and on our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter.

Additional information will be set forth in our annual report on Form 10-K .

For the year ended December 31, 2021 when filed.

Always reported figures are rounded unless otherwise noted comparisons of the fourth quarter of 2021 are to the fourth quarter of 2020 and comparisons to the full year of 2021 to the full year of 2020, all GAAP measures. 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 fourth quarter and full year 2021 earnings call.

2021 was a remarkable year for <unk> not only in how far are we pushed our business forward, but also in how clearly it has set our path for continued performance in 2022 and beyond.

<unk> grew 41% year over year to reach $3 5 billion and revenue grew 35% year over year to reach $503 million for the full year 2021.

Additionally, during the fourth quarter, we surpassed $15 billion in lifetime talent earnings on our part.

This achievement highlights the magnitude of impact we have had.

Signal, how we are leading the global movement to re imagine work.

Last year, we launched a host of powerful products and features including project catalog talent Scout and virtual talent bench as well as valuable partnerships with technology and benefits providers, such as Lille and catch we had successful high profile collaborations with leading brands, including Budweiser.

Kristen Kish launched the perfect brand campaign to raise awareness of work the customers and prospects and in the third quarter as a result of our confidence in the long term value creation opportunity in enterprise sale, we announced our intention to double the number of account executives on our sales team by the.

End of 2022.

And we are just getting started we believe timing matters and timeframe matters in terms of timing. The time continues to be now for investing in our business to win customer market share at a time when customer needs for our offering are accelerating and our brand awareness is low.

So we will do this with conviction in the year ahead as planned because we are building a powerful and sustainable business with a leading share economics and growth rates for the long term.

In terms of timeframe 2021 was the first year executing our three part strategy to innovate evangelize and scale. Our work marketplace. We have always known this strategy will take multiple years to fully deliver and we are pleased with our progress to date.

Yeah.

We're also excited to announce that we are setting an enterprise revenue target of $300 million by 2025.

Most 10 times, what we delivered in 2021, which represents a compound annual growth rate over the next four years of more than 70%.

Our innovation ambitions are bigger than ever.

With the backdrop of the work awakening, a time in which people are reevaluating what they want in work and life and realigning their priorities. Accordingly, we have embraced and expanded vision for up work as the world work marketplace.

We build for companies to walk into the new operating model of the new World and we build for talent.

Flex into new ways of working.

We anticipate that the business is to embrace this work awakening will be poised to out innovate companies, who do not.

2022 is the year that upward takes the next steps in evolving from being the largest global freelance marketplace as measured by GSV to broadening our horizon as the worlds work marketplace.

Our focus has evolved because the world has evolved.

The old binary notion of freelance versus full time employee work are being re visited in a world where remote work is rampant where career and work innovation is happening all around us and where talent and clients are searching for new solutions to both new and all the challenges.

<unk> are struggling with.

Many professionals are seeking to unbundle aspect of traditional full time work to get benefits in new ways, while others are seeking new benefits without shackling themselves to a full time job.

We are poised to innovate these solutions with and for our customers and our strong foundation to help us do just that.

We have distinctive knowhow and building and delivering relationship centered flexible solutions for knowledge workers, we have product in the market that already empower workers to seamlessly transition from <unk> to full time work and back and we have teams that already design and deliver modern work.

Model at scale for our enterprise clients.

This year, we will build on our existing foundation with a lineup of new offerings that will continue to make the transition from freelancers to full time and vice versa and the integration of both working models seamless for all our customers.

We are.

Our focus on accelerating the work awakening and powering professionals by building their online home for work that grows and flexes with them across their career and as their needs change and for businesses delivering a singular destination that gives them access to the free.

Lance and full time professionals they need on the work marketplace that makes these powerful relationships and the tools to manage them a foregone conclusion.

We have always seen ourselves as the pace centers of innovation in work and in a time when the speed and creativity with which people are constructing their careers is accelerating and companies are rethinking. Their workforces are park will be the work marketplace that empowers them to achieve their goals.

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

At this time as a reminder to ask a question press star one on your telephone.

Your question. Please press the pound key.

Please standby, we can cause it to move roster.

Our first question comes from right.

Maria rips from Canaccord may begin.

Hi, Thanks, so much for taking my questions.

I just wanted to ask about sort of your customer count in the quarter here any update you can share with us on roughly what portion of your customers on the platform.

Being driven by project catalog and I know you previously said it was 10%.

Alright, but anything you can share with that.

Then sort of now with this product sort of about that this product has been around for some time what portion of customers who sort of came in a wildcard project catalog are now engaging with the platform sort of more deeply and then I have a quick follow up.

Sure. Thanks, Maria we are seeing really great progress with project catalog definitely every quarter, we have seen increases in the number of customers coming in through catalog and the bigger picture for US here is this product is really designed as a new way to capture the imaginations of customers, who may not know how to engage with renal.

On talent on our work marketplace gives them a way to get started but that's one click model and then of course be able to cross sell to them other ways of working with talent and for sure to your question. We have seen that hypothesis validate that we are seeing a significant number of these customers actually going further than just catalog and using the talent marketplace.

Our talent scout or other ones of our offerings and similarly, our existing talent marketplace and other customers have been.

Got it and then maybe a bigger picture question sort of as many companies are struggling with labor shortages here are there any categories or verticals on the platform, where you perhaps would have seen an acceleration of growth as a result of that and maybe related to that are there any verticals, where you feel like the platform.

Would.

From a sort of a deeper pool of talent.

Sure we're really seeing.

Tremendous strength across the board in all of our categories right now and we've seen acceleration in some of our biggest categories. We've seen some smaller categories like accounting and consulting which grew at 72% year over year in the past quarter or so.

In this market, we're actually not seeing negatives, we're seeing this war for talent happening in the world at large and despite that the value proposition of whats available on upward is actually increasing with talent we see.

We're excited about what that means both for now and the future.

Got it. Thank you very much I appreciate the color.

And our next question will come from Eric Sheridan Irma Goldman Sachs May begin.

Thank you so much for taking the questions. Maybe two two part question. If I can do in terms of the marketing investments you are calling out that would put some margin pressure on in 'twenty, two just give us a little bit of looking back and what you've seen in the business right. Now is the right time to lean in on those marketing investments and try to scale the platform. It gets the <unk>.

Maturity that you see and then looking further out than just 'twenty two how should we be thinking about elements.

Wanting to capture and leverage in the model as you grow in scale versus continuing those investments on a multiyear view. Thank you so much.

Caring for this as we launched the work marketplace category in May of last year, and then the back half of last year began increasing that brand investment theme. The signal early as it was that this was working and then in January brought on Melissa water, who is our CMO to further set us up to really be building a world class brand that shape the category that <unk> customer.

Behavior in our category and really sets us up to be making this investment with a lot of confidence. This year, let me hand, it off to Jeff to talk a bit more about the rest of your question.

Thanks Hayden.

Real business outcomes now.

So we bring that patients to it that being said, we also bring an urgency like all of US try to understand how are the how is the spend converting.

In the interim and so we're looking at top of signal metrics traffic client registrations prevents a registration branded.

Search queries.

We also look at the proxy metrics how are we moving brand consideration. However, we're moving brand awareness.

How are we moving brand relevance et cetera.

But ultimately the goal is to absolutely move.

The investment into real business outcomes and in terms of the impact on long term margins. We absolutely believe this is a business that can deliver 30% to 35% long term EBITDA margins.

We are actively driving leverage in cost of revenue G&A.

But we also see this as a.

A great opportunity to focus on our top priority, which is growing the business by investing in those areas that are returning.

Attractive dollars, whether that sales performance marketing.

Brand marketing whatnot.

The early results were seeing at the top of the funnel with respect to brand marketing are encouraging. So we're excited to be pushing on this front.

Great. Thank you for all the color.

Sorry about that our next question comes from the line of Bernie Mcternan from Needham Your line is open.

Great. Thanks for taking the questions maybe just to zero in on the on the revenue guidance, our long term revenue guidance moving the $1 billion in revenue up by year only about six months. After the guide what's been made primarily outperforming expectations and then on enterprise expecting $300 million is that.

Should we be.

Assuming that you got.

Guys keep bringing on more more land account reps or is that maybe a different thought process and maybe how steep the curve how businesses are spending your provide some interesting data in terms of how big some of these businesses are.

<unk> on the platform.

Excellent. Thank you much for the questions.

In terms of the $1 billion goal to really the way we thought about this as we saw two key themes have been in the business first off Super excited about the results of our enterprise efforts. The team did a great job in 2021, hitting the unit economic productivity targets that we had we know that those are attractive investments to make so that's why we're doubling the sale.

Force in 2022.

And that caused us now.

To be comfortable with a long term target of $300 million in 2025.

And the second dynamic is that we saw.

Really strong performance in our spend per client so whether that is the 15% year over year improvement in the 771000 clients that we have on the platform or.

Those their spending over $100000 per year that increased by 51%.

Or $1 million spenders that increased by 61% year over year in terms of the number of those.

And with respect to how we're going to get to that $300 million in enterprise revenue.

Hi.

And and continue investing to hire additional reps as we indicated we're going to double those in 2022, we absolutely do need to continue investing in those reps, which is which is a <unk>.

<unk> investment for the company.

And the Rep growth will probably roughly mirror the growth of the revenue between now and 2025.

Thanks for the question.

Great. Thanks, Jeff.

Yes.

Our next question will come from the line of Marvin Fong from <unk> you may begin.

Great. Thanks for taking my questions.

Couple of them have already been answered but.

Maybe we could start on take rate I think the larger.

Decrease quarter over quarter than we've seen in the last few quarters and I know you mentioned.

More uptake.

Longer term relationships.

Just looking forward in terms of sort of the cadence.

And how that might evolve in 2022, I know you mentioned that you'd be up very slightly and maybe you could just give us a little more breakdown between like your first quarter guidance.

What does take rate look there quarter over quarter, and then for the balance of the year and then I have a friend.

On the follow up.

Sure. Thanks Barbara.

So yes.

Youre right in that our take rates.

Our spend per clients seem to be inversely correlated so given the pricing model that we have.

We're as clients and for you answers find more successful on the platform.

And end up spending more within those existing relationships the average take rate.

Progresses I guess.

The price that Theyre charge goes from 20% to 10% to 5% and therefore, the average take rate yoga little pressure. So the strength that we saw and the average spend per client going up 15% year over year.

It was reflected in a little bit of take rate pressure quarter over quarter.

Including <unk>.

Growth in project catalog or talent Scout enterprise, which are all three of those have higher take rates than the rest of the businesses. So we would expect those dynamics to.

To be lifting take rate a bit throughout the year.

Kind of more in Q2 and beyond than in Q1.

We're excited to see lift there.

Thanks Mark.

And a follow up if I may just I think you did highlight how how spending per per client is up no matter, how you cut it maybe.

Maybe you can just kind of drill down I mean are they.

Doing more and more projects are the <unk>.

The project is going up.

I'm sure there's some interplay between the two but maybe you can just kind of talk about that and then how you are.

Modeling those two as you would give us these longer term targets and what the GSV growth come from more from spend per client or new clients any color there would be great.

Yeah, so with respect to.

The spend per client we have seen.

A lot of success in.

The longer term projects on our on our platform. So.

Hourly projects had been growing at a faster rate than fixed price projects.

The number of hours within those projects has been increasing over time.

Using the platform.

In terms of growth going forward, where would we expect growth to come from.

We do expect that to come from both obviously, we're pleased that our average spend per client is up 15% that being said it's still.

In the $4000 range, we think theres significant opportunity to continue increasing that for many years to come.

And.

Also understand that we served 771000 customers client on the client side. This past year, we do think theres lots more room over long term to continue growing that and that goes directly to the brand marketing efforts.

The Hayden touched upon.

We believe if we can increase awareness of our offering that we have the opportunity to meaningfully move those business metrics and new clients is absolutely one of the key ones there.

That's great. Thanks, so much Jeff I appreciate it.

Sure.

Our next question comes from the line of Matt Farwell.

Piper Sandler you may begin.

Thanks, guys. Congrats on the really strong results in the pulling in of the $1 billion target.

I just wanted to dive a little bit deeper into the enterprise opportunity.

What really remains the biggest overhang with potential customers in that space today and.

How do you overcome that overhang to kind of drive to your $300 million target that you laid out today.

Thanks, Matt.

There's really not a big barrier to hitting that $300 million target other than executing really well against that goal I think we have a lot of confidence that we're on that path and we see the proof points with our performance we've delivered around things like the 78% year over year growth in the new deals on the land side.

Q4 enterprise revenue up 65% year over year, and $1 million Fender spenders up 61% year over year. So the.

The momentum we're seeing in that part of the business has been great and the execution. There is is really strong and we think we can continue that execution and that's what's going to take us to that $300 million goal I think however, there's such a big market opportunity. There that we're trying to unlock that's where really awareness is one of the big efforts, where we think so many of these customers that we know.

From the brand awareness data don't know about us haven't heard about that they do.

Sometimes theyre hearing negative talk tracks from our competitors in the market, mainly legacy staffing firms, who may be already working with those customers around what we can offer and so that's really the bigger unlock in terms of how else. We are trying to accelerate that space is just getting our name out there and getting the story out there that will further amplify.

I. Thank all of our efforts in the business both on the sales side of the house performance marketing Halo effects and efficiency improvements hopefully over time those types of things now clearly it's early days with this investment and Jeff talked about some of the the goals and the ways, we're really being disciplined about measuring that but I think one of the biggest challenges as these firms haven't heard about us and to our <unk>.

Teams are going in and educating them, but we think there's more we can do to make that job easier for them.

Awesome and then as I think about 2022.

Yes, it's a great question, obviously COVID-19 is incredibly hard to predict and probably given up trying to.

Exactly understand how that behaves but release.

Yeah.

Our numbers have followed kind of a week to week and month to month level of seasonality.

Since I don't know maybe.

Mid ish 2021 now clearly.

Clearly certain business dynamics too.

Over run that seasonality so.

New new new.

The account execs that we out how many accounts they're bringing in.

And new account managers and all of those sorts of dynamics.

But we do see that there is a.

The dynamics that were driven or the that week to week metrics that were driven throughout COVID-19 look different now.

And our goal would be to obviously then those curves as much as we can to make sure that our growth drivers.

To do that same thing that's absolutely the intention with those investments.

Awesome. Thank you so much congrats again.

Thank you.

Our next question comes from Andrew.

Andrew Boone from JMP Securities you may begin.

Hi, guys. Thanks for taking my questions two please.

First with wage inflation across the board can you just talk about how that impacts your market.

What are the dynamics that we should be thinking about from the outside and then the second question is 2021 was a major year for product launches.

As we think about your enterprise goal in the $300 million.

What or what else are enterprises are asking for Brian I think Haden you mentioned your prepared comments that there was a fluidity between freelancers and full time workers is there anything else that we can expect for 2022. Thank you so much.

Sure so on the wage inflation side.

I can definitely characterize that we talked a little bit earlier on the call on that talent dynamics, not slowing down if anything they're faster than ever in terms of talent really being interested in this model we see.

Talent set their own wages on our platform and they're doing that in a really healthy way today wages are strong. We also see that clients in a tight labor market really see our value proposition resonating some more strongly than ever globally, they're looking at different wages and labor arbitrage becomes more of an issue. They also start.

To see even more sharply that we have a competitive edge over traditional talent businesses like staffing agencies, who have these really steep markups compared to our direct account model and therefore are even more hard pressed and even in normal times to compete on an economic basis never mind. The fact that our talent quality is so much more superior to theirs.

And all of that.

We are in a really strong position in a tight labor market.

However, we still face the reality that so many of US can we just haven't heard of us. So they don't even know that these advantages success on our platform.

Your second question around what our enterprise is asking for.

Lot of it is building off of the <unk>.

Solutions, we've already been giving them things like bring your own talent compliance offerings, where they are trying to do these hybrid teams of workers.

That matter is not consequential that different does not consequential anymore and so we're really helping them build these things out programmatically and so when we look at our product roadmap for enterprises a lot of this loosening is around.

Giving them more of the access to those different talent pools, and a much more seamless way and making it just.

Easy for customers to do that without having to worry about things like how is this person going to classify do I need to think about all of the back office things to do in order to get started with this person whether they are full time worker or freelance worker and so we're really leaning into the reality of that that is how the customers are thinking about these things today those distinctions are no longer nearly.

As important as they once were and building a single destination on our work marketplace for new employee enterprise customers to come in and use our solution that way, even more than they've been able to do so in the past.

Thank you.

Yes.

Our next question will come from Ryan Roberts.

Carney.

And partners you may begin.

Hey, Thanks and Goodnight.

Very nice quarter.

Very optimistic guidance I guess on the brand marketing can you recap in terms of about $47 million spent last year $80 million this year.

Across.

The quarters.

The spend come from.

What was the learning that made you more bullish on spending or doubling down on more brand marketing in terms of quantifying. The fact that you can learn from outside.

Yes, I think I'll touch on a few things there with respect to the $47 million in 2021.

As we mentioned we really.

Started investing more aggressively in the second half and we launched the work marketplace in may of last year.

Spent a bit around that in Q2 of last year and then from Q3 to Q4, we increased the brand spend from $8 million to $17 million, we mentioned that for 2022.

Our current our current target is $80 million.

With a little bit more front end loaded than Q.

Q4 of this year, but roughly in line with the levels that we saw in Q4 of 2021.

We are with all of that being said we've been at this for several quarters I'm trying to lay the foundation to be able to go aggressively against this opportunity and we know that it's going to take time, we are absolutely taking a test and learn approach we want to understand what works best across reach and frequency by Geo by channel.

All of those different intersections.

Yes.

We get those learnings, we're going to move the dollars to the areas that are performing well and move them away from the areas, where we're not getting the target performance.

And so that really is the mentality.

That we're approaching this.

And we believe that Theres, a significant opportunity that if we can absolutely converts.

Or meaningfully lift our unaided awareness.

We have the opportunity to turn that into real business outcomes.

But theres a lot of work to do ahead of us to get there.

Okay.

I know in the last few months you have started to experiment with advertising and more subscriptions to both sellers and buyers.

A bit too.

Where you are with both of these two new initiatives.

I'd say, it's definitely early days, but we're very excited about the paid AD products that we have launched rohit. They are a new way for us to do basically two things one is.

And then secondarily. They also create opportunities for further monetization and that is also an exciting piece of the puzzle. So it's early days on both of the.

Products, you've launched boosted our proposals availability batches and things like that but I think he's do represent a really nice new opportunity for us to be both improving the product experience and match quality, while also monetizing the business in new ways.

And the availability of Atlas jet just moved out of beta into Georgia last week or so.

So we're looking forward to see how those perform more broadly.

Okay, if I could ask one kind of competitive dynamic question.

Seeing any changes in new players emerge.

Any comments on Microsoft Linkedin launching their services marketplace, how do you see them.

<unk> them in the broader ecosystem as such.

I think that's the story for US we're not hearing a lot of noise about anybody else.

Okay. Thank you very much from bridge.

Thank you and our last question will be from urine of Britton Hill.

Sorry, Brent Thill from Jefferies you may begin.

Hi. Thank you. This is a champion for bank Bill just a couple of maybe housekeeping.

Keith Taylor and smaller topics just.

Just wondering if you had seen any impact or benefit from omicron late in Q4, So far in Q1, and then second on the Opex line items in Q4 as a percentage of revenue pretty.

Pretty much all of the Opex lines moved up is that sort of trend we should expect through the rest of the 22 or is it really more concentrating in marketing.

Thank you.

Sure. Thank you.

So with respect that omicron.

As far as as far as we can tell.

The dynamics and trends in the business warrants meaningfully driven by.

The surge in omicron.

We did see nice strength in the business post Thanksgiving a bit stronger than we had expected.

But any any attempt to kind of.

Correlate that with omicron, either geographic or from a timeframe perspective didn't result in us having a strong conviction that it came from <unk> with respect to Opex.

As you know.

As we said our overall approach is we want to invest as aggressively as we possibly can wherever we're seeing the returns so in sales and marketing.

Youre going to see healthy growth.

And in that line item driven by both brand marketing and our sales efforts as well as performance marketing.

R&D, we are aggressively moving to build out the work marketplace beyond where we currently have it.

And so youll see that grow as well and then we're trying to drive leverage.

In G&A and cost of revenue.

Obviously, all in pursuit of delivering that long term, 30%, 35% EBITDA margin.

Thank you thanks Ron.

Great.

I assure you even further.

Any further questions in the queue, alright ill turn the call over to Aaron for any closing remarks.

Okay.

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

This concludes today's conference call. Thank you participating you may now disconnect everyone have a great day.

Q4 2021 Upwork Inc Earnings Call

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