Q4 2023 Upwork Inc Earnings Call
Operator: Go to Beadaholique.com for all of your beading supplies needs! Good day, and thank you for standing by. Welcome to the Upwork, Excuse me, welcome to the Upwork, quarter and full year 2023 financial results conference call. At this time, all participants are in a listen-only mode.
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Good day, and thank you for standing by.
Welcome to the upward.
Without giving.
Welcome to the upward.
Fourth quarter and full year 2023 financial results conference call.
At this time, all participants all of us to not only mode.
Operator: After the speaker's presentation, there will be a question and answer session. If you would like to ask a question, please press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
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I would now like to turn the conference over to David Neeleman, Vice President of Investor Relations. Please go ahead.
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Thank you welcome to upwards discussion of its fourth quarter 2023 financial results. Joining me today are Hayden Brown, <unk>, President and Chief Executive Officer.
David Neumann: Thank you. Welcome to Upwork's discussion of its fourth quarter 2023 financial results. Joining me today are Hayden Brown, Upwork's president and chief executive officer, and Erica Gessert, Upwork's 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 laws. Forward-looking statements include all statements other than statements of historical fact.
Erika Desert 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 laws forward. Looking statements include all statements other than statements of historical fact, these statements are not guarantees of future performance, but rather are subject to a variety of risks uncertainties and assumptions.
David Neumann: 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 statement. For a discussion of the material risks and other important factors that could affect our actual results, see Please refer to our SEC filings available on the SEC website and also on our investor relations website, as well as the risks and other important factors discussed in today's earnings press release. Additional information will also be set forth in our annual report on Form 10-K for the three months ended December 31st, 2023. In addition, reference will be made to certain non-GAAP financial measures.
Our actual results could differ materially from expectations reflected in any forward looking statements.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC website and also on our Investor Relations website as well as the risks and other important factors discussed in today's earnings press release additional information will also be set forth.
In our annual report on Form 10-K for the three months ended December 31, 2023 and.
In addition reference will be made to certain non-GAAP financial measures information regarding reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this afternoon on our Investor Relations website at investors dock upward Dot com.
David Neumann: Information regarding the reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this afternoon on our investor relations website at investors.upwork.com. Unless otherwise noted, reported figures are rounded in comparison to the fourth quarter of 2023 or to the fourth quarter of 2022. All financial measures are GAAP unless cited as non-GAAP.
Unless otherwise noted reported figures are rounded in comparison to the fourth quarter of 2023 are to the fourth quarter 2022.
Financial measures are GAAP unless cited as non-GAAP.
Hayden Brown: Now I'll turn the call over to Hayden. Welcome everyone to Upwork's fourth quarter and full year 2023 earnings call. I'm excited to review our accomplishments for the year and speak to our plans for the future. We gained further momentum in the fourth quarter, with fourth quarter revenue of $183.9 million through 13.9% year over year, reflecting accelerating growth over the past three quarters. Full-year revenue grew 11.5% year-over-year to
Now I will turn the call over to Hayden.
Welcome everyone to <unk> fourth quarter, and full year 2023 earnings call.
I'm excited to review our accomplishments for the year and speak to our plans for the future.
We gained further momentum in the fourth quarter.
Fourth quarter revenue of $183 9 million grew 13, 9% year over year, reflecting accelerating growth over the past three quarters.
Full year revenue grew 11, 5% year over year to $689 1 million.
Hayden Brown: We continued to demonstrate strong profitability with GAAP net income of $46.9 million and adjusted EBITDA of $73.1 million for the full year, which is the highest adjusted EBITDA result in our company's history. This success was made possible by our dedicated Upwork team, and I want to thank them for their disciplined effort. 2023 was a significant year for the world of work.
We continued to demonstrate strong profitability with GAAP net income of $46 9 million and adjusted EBITDA of $73 1 million for the full year, which is the highest adjusted EBITDA results in our company's history.
This success was made possible by our dedicated upper team and I want to thank them for their disciplined efforts.
2023 was a significant year for the world of work as the worlds largest work marketplace upward played a critical role in helping them more than 850000 clients and.
Hayden Brown: As the world's largest work marketplace, Upwork plays a critical role in helping the more than 850,000 clients and millions of independent professionals we serve adapt to new realities and modernize how they work. There are three key areas of focus that we saw pay dividends in 2023. AI Investments, Partnerships, and Ads and Monetization. We built innovative new AI-powered features and platform experiences across every category of work. In the fourth quarter, we opened up the waitlist for Upwork Chat Pro, a work tool powered by OpenAI GPT-4 and embedded into the Upwork experience to help customers solve challenging tasks, boost productivity, and do their best work fast.
<unk> of independent professionals, we serve.
<unk> to new realities and modernize how they work.
There are three key areas of focus that we saw pay dividends in 2023.
AI investments partnerships and asset monetization.
We built innovative new AI powered features and platform experiences across every category of work in.
In the fourth quarter, we opened up the waitlist for upward chat pro.
Work tool powered by open AI GBT for and embedded into the outbreak experience to help customers solve challenging tasks boost productivity and do their best work faster.
We've already received over 150000 sign ups and the waitlist is growing every day.
Hayden Brown: We've already received over 150,000 signups, and the waitlist is growing every day. Our AI-powered job post generator tool has also proven to be a major boost for clients, significantly increasing task completion speed and improving results. And lastly, findings from the first version of our Proposal Tips tool showed that freelancers using it secured work at a higher rate than those not using it.
Our AI powered job post generator tool has also proven to be a major boost for clients significantly increasing task completion speed and improving results.
Lastly findings from the first version of our proposal tips tool showed the freelancers using it secured work at a higher rate than those not using it.
Despite only being available for a short time. These AI powered tools are already having a strong positive impact and we are committed to further developing this exciting technology for the benefit of our customers.
Hayden Brown: Despite only being available for a short time, these AI-powered tools are already having a strong, positive impact, and we are committed to further developing this exciting technology for the benefit of our customers. We also forged constructive partnerships in 2023 with specific objectives in mind. The first objective involves establishing Upwork as a go-to destination for experts in different types of work.
We also forced constructive partnerships in 2023 with specific objectives in mind.
The first objective involved establishing upward as a go to destination for experts in different types of work.
This included launching our third quarter partnership with open AI.
Hayden Brown: This included launching our third quarter partnership with OpenAI. Since signing OpenAI, we have signed a dozen additional partners through a similar model, with more on the horizon. The second objective was establishing partnerships with companies such as Adobe, Amazon, Miro, Jasper, and ClickUp, aimed at increasing the speed and quality of work delivered on Upwork. While this strategy is in its early stages, customer feedback has been extremely positive. Finally, on ads and monetization, we made a strong push to enable talent on our platform through a number of offerings that empower them to stand out from the crowd and highlight their unique skills. Our suite of ads and monetization products was the fastest-growing revenue stream for Upwork in 2023, and the efficacy of these tools is being proven in real time. Using these products, talent can signal to prospective clients that they are ready to start a project immediately, boost proposals to secure work, and promote their profiles at the top of a client's search results when a client is searching for talent. When clients send invitations to collaborate with freelancers using an availability badge, those invitations are accepted 77% more often.
Since signing open AI, we have signed a dozen additional partners through a similar model with more on the horizon.
The second objective was establishing partnerships with companies such as Adobe Amazon Miro, Jasper and click up aimed at increasing the speed and quality of work delivered an up work. While this strategy is in its early stages customer feedback has been extremely positive.
Finally on AD monetization, we made a strong push to enable talent on our platform through a number of offerings and empower them to standout from the crowd and highlight their unique skills.
Our suite of AD monetization products was the fastest growing revenue stream for upward in 2023 and the efficacy of these tools is being proven out in real time.
Using these products talent can signal to prospective clients that they are ready to start a project immediately boost proposals to secure work.
Their profiles at the top of our client search results when a client is searching for talent when.
Client sent invitations to collaborate with freelancers using an availability batch those limitations are accepted 77% more often.
Hayden Brown: A successfully boosted proposal increases a freelancer's chance of getting hired by approximately 20%. And finally, thanks to ongoing enhancements to our Freelancer Plus subscription offering for talent, we saw enrollments increase 76% year over year. We're excited to grow this suite of products and support our customers in the year ahead. Turning to enterprise, we continue to be well-positioned to capture, share, and drive value. In December, we announced an initiative to make it easier for enterprise customers to use Upwork within their existing workforce management system. We've launched partnerships with major vendor management system, or VMS, platforms, SAP Fieldglass, and FlexTrack within our enterprise suite.
Accessibly boosted proposal increases of freelancers chance of getting hired by approximately 20%.
And finally, thanks to ongoing enhancements to our freelancer plus subscription offering for talent, we saw enrollments increased 76% year over year.
We're excited to grow this suite of products and support our customers in the year ahead.
Turning to enterprise.
We continue to be well positioned to capture share and drive value.
In December we announced an initiative to make it easier for enterprise customers to use upwards within their existing workforce management systems.
Launched partnerships with major vendor management system, or Vms platforms, SAP feel glass and flex track within our enterprise suite we.
Hayden Brown: We plan to drive further enterprise growth through these integrations and by expanding these arrangements to additional VMS partners to be announced this year. The differentiation of our enterprise suite is what attracted 31 leading organizations like Instacart, Checkout.com, and New York University to become new enterprise clients in the fourth quarter, innovating how they work at scale. We are proud of the foundation of efficiency and pace of acquisition we built for the enterprise business in 2023 and are confident in our plans to reaccelerate this business in 2024. Of course, one trend dominated the discourse more than any other last year.
We plan to drive further enterprise growth through these integrations and by expanding these arrangements to additional Vms partners to be announced this year.
The differentiation of our enterprise suite is what attracted 31, leading organizations like instant cart checkout Dot Com and New York University to become a new enterprise client in the fourth quarter innovating how they work at scale.
We are proud of the foundation of efficiency and pace of acquisition, we built for the enterprise business in 2023 and are confident in our plans to Reaccelerate. This business in 2024.
Of course, one trend dominated the discourse more than any other last year.
The rise of artificial intelligence.
Last summer when we unveiled the first set of AI innovations in our ecosystem. We said, what we believed AI would be a game changer for work deliver major wins for professionals and companies alike.
Hayden Brown: The Rise of Artificial Intelligence, last summer when we unveiled the first set of AI innovations in our ecosystem. We said what we believed: AI would be a game changer for work, deliver major wins for professionals and companies alike, and be an avenue for the world to work smarter. We saw that AI tools held tremendous promise to enhance work experiences and enable professionals to be more productive and fulfill their potential.
Can be an avenue for the world to work smarter.
We saw that AI tools held tremendous promise to enhance work experiences and enable professionals to be more productive and fulfill their potential.
While still early in the journey my conviction in that vision is stronger than ever.
We have made significant progress toward our goal of making upward the preeminent destination for AI related talent and work.
Hayden Brown: While still early in the journey, my conviction in that vision is stronger than ever. We have made significant progress toward our goal of making Upwork the preeminent destination for AI-related talent and work. We are also continuing to expand our range of AI-based solutions that supercharge our customers' ability to get work done. In Q4, we acquired AI startup Headroom and welcomed Headroom's founder, Andrew Rabinovich, as our head of AI and machine learning. Andrew is one of the world's leading scientists in deep learning and computer vision.
We're also continuing to expand our range of AI based solutions, the supercharge, our customers' ability to get work done.
In Q4, we acquired AI startup headroom and welcomed headroom as founder Andrew Rabinovich as our head of AI and machine learning Andrew is one of the world's leading scientists and deep learning and computer vision.
He worked for years in leadership positions at Google Brain, and Magic leap and his background and expertise will enable us to accelerate our work to re imagine how we serve customer needs using human centered AI as the new building block for innovation.
This year with our expanded internal AI team, we are fundamentally re envisioning the full outbreak experience, we look forward to sharing more on our exciting progress in vision in the coming year.
Hayden Brown: He worked for years in leadership positions at Google Brain and Magic Leap, and his background and expertise will enable us to accelerate our work to reimagine how we serve customer needs using human-centered AI as the new building block for innovation. This year, with our expanded internal AI team, we are fundamentally re-envisioning the full Upwork experience. We look forward to sharing more on our exciting progress and vision for the coming year. As we look to the year ahead, we're focused on three strategies that guide our investment. These strategies are, first, to win key customer and work segments via specialization.
As we look to the year ahead, we're focused on three strategies that guide our investments.
These strategies are first win key customer and work segments via specialization.
<unk> is already known for the breadth and diversity of our marketplace.
This year, we are executing on the opportunity to layer in greater category specialization to enable high value customer and work offerings to thrive more readily in our ecosystem.
You've seen us take early steps in this direction with our focus on the AI talent vertical last year.
We help clients more easily connect with top tier AI talent via targeted partnerships with organizations like open AI feature.
Hayden Brown: Upwork is already known for the breadth and diversity of our marketplace. This year, we are executing on the opportunity to layer in greater category specialization to enable high-value customer and work offerings to thrive more readily in our ecosystem. You've seen us take early steps in this direction with our focus on the AI Talent Vertical last year. We help clients more easily connect with top-tier AI talent via targeted partnerships with organizations like OpenAI, feature launches like consultations for AI work, and a dedicated talent storefront with our AI services hub.
Future launches like consultations for AI work.
And a dedicated talent storefront with our AI services hub.
These efforts led to 70% growth in GSV and the AI and machine learning subcategory on upward and are the makings of a playbook for continued specialization approaches in this and other categories across our marketplace.
Our second strategy is to build the world's most innovative work platform.
We are pursuing bold innovations that use the newest technologies to remove friction and enhance delight among our customers.
As evidenced by our already launched features and plans to leverage AI to re imagine the upward experience.
In addition to our own internally developed apps and features we're leveraging partners both to distribute talent on upward into third party ecosystems and to empower talent on our marketplace with access to cutting edge tools.
Hayden Brown: These efforts led to 70% growth in GSV in the AI and machine learning subcategory on Upwork and are the makings of a playbook for continued specialization in this and other categories across our marketplace. Our second strategy is to build the world's most innovative work platform. We are pursuing bold innovations that use the latest technologies to remove friction and enhance the user experience among our customers, as evidenced by our already launched features and plans to leverage AI to reimagine the Upwork experience. In addition to our own internally developed apps and features, we're leveraging partners both to distribute talent on Upwork into third-party ecosystems and to empower talent on our marketplace with access to cutting-edge tools. This year, we will further expand our partner ecosystem for customers.
This year, we will further expand our partner ecosystem for customers.
Our third strategy is to build a foundation for ongoing profitability growth over multiple years.
We're in the early chapters of our ads monetization journey and we'll continue building on the strong foundations, we have established to unlock more value for customers and shareholders over time.
In 2023, we were successful in our shift of profitability delivering a 16, 6% adjusted EBITDA margin in Q4, and we remain committed to an enduring focus on expanding margins this year and in years to come.
These are the pillars that will guide upward in 2024.
I look forward to providing updates as we progress through the year.
With that I will turn it over to Erica to review our financials.
Thanks, Hayden I'm delighted to be here to share more specifics on our strong financial momentum as we enter into a promising 2024.
Hayden Brown: Our third strategy is to build a foundation for ongoing profitability growth over multiple years. We are in the early chapters of our ads and monetization journey and will continue building on the strong foundations we have established to unlock more value for customers and shareholders over time. In 2023, we were successful in our shift to profitability, delivering a 16.6% adjusted EBITDA margin in Q4. And we remain committed to an enduring focus on expanding margin this year and in years to come. These are the pillars that will guide Upwork in 2024. I look forward to providing updates as we progress through the year. With that, I will turn it over to Erika to review our financials. Thanks, Hayden.
2023 was a year of heightened uncertainty across the world and in business.
Marked by volatility and geopolitical events in capital markets.
It is an environment, where the rules of the game changed rapidly.
Within this dynamic we move to focus our business on adjusted EBITA margin and free cash flow generation with tremendous success.
In just six months, we moved from negative profitability to a business with adjusted EBITDA margins in the high teens.
We showed strong operational agility quickly identify opportunities for efficiencies across our business.
Our focus on greater efficiency is yielding tremendous results.
Our performance marketing engine is working better than ever.
Erika Gessert: I'm delighted to be here to share more specifics on our strong financial momentum as we enter into a promising 2024. 2023 was a year of heightened uncertainty across the world, and in business, marked by volatility in geopolitical events and capital markets. It was an environment where the rules of the game changed rapidly. Within this dynamic, we moved to focus our business on adjusted EBITDA margins and free cash flow generation with tremendous success. In just six months, we moved from negative profitability to a business with adjusted EBITDA margins and a high team. We should have strong operational agility, quickly identifying opportunities for efficiencies across our business. Our focus on greater efficiency is yielding tremendous results. Our performance marketing engine is working better than ever.
In Q4, we saw 20% growth in our new client starts driven by performance marketing.
CAC in the same period improved by 24% year over year.
We also had excellent success with higher value clients segments, which we expect to have an outsized impact on revenue and L. T V.
And in enterprise sales, we were able to increase our client acquisition in Q4, even with our rationalized sales force. These.
These positive actions helped to drive total active client growth up 5% year over year in the fourth quarter, we've seen a dynamic market environment in 2023 returned our business into one of steady growth.
For the full year 2024, we expect to continue this progress producing strong year over year growth in active clients revenue adjusted EBITDA and adjusted free cash flow.
Erika Gessert: In Q4, we saw 20% growth in our new client starts driven by performance marketing, while our CAC in the same period improved by 24% year-over-year. We also had excellent success with higher-value client segments, which we expect to have an outsized impact on revenue and LTV. And, in enterprise sales, we were able to increase our client acquisition in Q4, even with our rationalized sales force. These positive actions helped to drive total active client growth of 5% year-over-year in the fourth quarter.
Our momentum exiting 2023, and our plan for 2024 gives us conviction that we can provide strong business results and serve our customers, even an uncertainty economic conditions.
This confidence is based on our growing business efficiency, our culture of innovation and the pipeline of new products that we have planned for 2024 and beyond.
For the fourth quarter, GSV again exceeded $1 billion.
And with $4 1 billion for the full year 2023.
Fourth quarter GSV growth was positively impacted in part by the timing of client payments to freelancers, which included an additional week in Q4 versus the fourth quarter of 2022.
Erika Gessert: Within a dynamic market environment in 2023, we turned our business into one of steady growth. For the full year 2024, we expect to continue this progress, producing strong year-over-year growth in active clients, revenue, adjusted EBITDA, and adjusted free cash flow. Our momentum from 2023 and our plan for 2024 gives us conviction that we can provide strong business results and serve our customers even in uncertain economic conditions. This confidence is based on our growing business efficiency, our culture of innovation, and the pipeline of new products that we have planned for 2024 and beyond. For the fourth quarter, GSB again exceeded $1 billion and was $4.1 billion for the full year 2026.
Revenue growth again showed sequential acceleration growing 13, 9% year over year to $183 9 million.
Compared to 10, 8% growth in Q3 marketplace revenue was $157 $5 million.
Turning to our enterprise business unit I want to note that in accordance with our internal operating model. We are now reporting enterprise revenue separately from marketplace revenue and the business unit includes both managed services and enterprise solutions revenue.
In the fourth quarter total enterprise revenue was flat year over year at $26 4 million, which reflects the ongoing macro impacts to this customer segment that we've highlighted throughout 2023.
Enterprise revenue increased modestly from Q3 to Q4.
Our active client base continues to grow.
Added 15000, new active clients in the fourth quarter of 2023, ending the year with approximately 851000 active clients.
Erika Gessert: Fourth quarter GSV growth was positively impacted, in part, by the timing of client payments to freelancers, which included an additional week in Q4 versus the fourth quarter of 2022. Revenue growth again showed sequential acceleration, growing 13.9% year-over-year to $183.9 million, compared to 10.8% growth in Q3. Marketplace revenue was $157.5 million.
Underpinning this growth in the fourth quarter, we had the strongest year over year growth and new client acquisition and reactivated clients and more than two years.
Only about a quarter of our new client acquisition comes from performance marketing. So we are also seeing strong organic growth.
I want to spend a moment to provide some detail on GSV dynamics.
While we continue to see a slight decline in GSV proactive client this.
This is partially attributable to the mix shift to newly activated clients, who have lower spend early in their lifecycle.
Erika Gessert: Turning to our Enterprise Business Unit, I want to note that, in accordance with our internal operating model, we are now reporting enterprise revenue separately from marketplace revenue, and the business unit includes both managed services and enterprise solutions revenue. In the fourth quarter, total enterprise revenue was flat year over year at $26.4 million, which reflects the ongoing macro impacts to this customer segment that we've highlighted throughout 2020. Enterprise revenue increased modestly from Q3 to Q4. Our active client base continues to grow. We added 15,000 new active clients in the fourth quarter of 2023, ending the year with approximately 851,000 active clients. Underpinning this growth in the fourth quarter, we had the strongest year-over-year growth in new client acquisition and reactivated clients in more than two years. Only about a quarter of our new client acquisition comes from performance marketing, so we are also seeing strong organic growth. I want to spend a moment to provide some detail on GSV Dynamics.
Our average client increases their spend on our platform over time. So this new client acquisition is an important indicator of future growth.
GSV per newly active client was up modestly year over year in the fourth quarter non-GAAP gross margin declined slightly on a sequential basis largely associated with one time items, but improved nicely year over year growth for the fourth quarter of 2023 and also for the full year Q.
Q4, non-GAAP gross margin of 75, 3% increased 60 basis points year over year full.
Full year 2023, non-GAAP gross margin of 75, 5% increased 120 basis points year over year from 74, 3% for the full year in 2022.
non-GAAP operating expense was $111 $8 million in the fourth quarter, representing 61% of revenue compared to $121 6 million or 75% of revenue in the comparable prior year period for the fourth quarter non-GAAP R&D expense was $39 6 million increasing <unk>.
16% year over year as we continued to invest in the product innovation and platform enhancements that Hayden has discussed.
non-GAAP sales and marketing expense of $44 9 million declined 24% year over year.
As we maintained our strategy of efficient growth.
Erika Gessert: Well, we continue to see a slight decline in GSB per active client. This is partially attributable to the mixed shift to newly activated clients who have lower spend early in their life cycle. Our average client increases their spend on our platform over time, so this new client acquisition is an important indicator of future growth. GSV per newly active client was up modestly year over year in the fourth quarter. Non-GAP gross margin declined slightly on a sequential basis, largely associated with one-time items, but improved nicely year over year, both for the fourth quarter of 2023 and also for the full year.
And non-GAAP G&A expenses of $25 1 million grew 15% year over year coming off of two quarters of negative year over year growth as we filled some key positions executed various projects in the fourth quarter.
Our provision for transaction losses remained steady at $2 1 million for Q4, representing just 1% of total revenue adjusted EBITDA was $30 5 million in the fourth quarter, representing a margin of 16, 6%.
For the full year 2023, adjusted EBITDA was $73 1 million our highest ever.
Cash cash equivalents and marketable securities with approximately $550 million in the fourth quarter down slightly from approximately $555 million in the prior quarter.
Erika Gessert: Q4 non-GAAP gross margin of 75.3% increased 60 basis points year-over-year. Full year 2023 non-GAAP gross margin of 75.5% increased 120 basis points year-over-year from 74.3% for the full year 2022. Non-GAAP operating expense was $111.8 million in the fourth quarter, representing 61% of revenue compared to $121.6 million, or 75% of revenue in the comparable prior year period.
This decline is due to the timing of client payments to freelancers that I mentioned earlier.
Cash as of January 31 of this year with $608 million, which is more indicative of our growing cash balance trends than the end of year result.
We are pleased that our profitable business model is translating to GAAP earnings per share growth, which includes the impact of stock based compensation.
For the fourth quarter of 2023 fully diluted GAAP earnings per share was <unk> 13.
And for the full year 2023, it was <unk>.
I'm also happy to announce the disclosure of a new metric adjusted free cash flow. We are starting to report this metric to reflect our commitment to growing profitability and strong cash yield of our business. Our adjusted free cash flow for the full year 2023 was $48 $3 million. Please.
Erika Gessert: For the fourth quarter, non-GAAP R&D expense was $39.6 million, increasing 16% year over year as we continued to invest in the product innovation and platform enhancements that Hayden has discussed. Non-GAAP sales and marketing expense of $44.9 million declined 24% year-over-year, as we maintained our strategy of efficient growth. And non-GAP-GNA expenses of $25.1 million grew 15% year-over-year, coming off of two quarters of negative year-over-year growth, as we filled some key positions and executed various projects in the fourth quarter. Our provision for transaction losses remains steady at $2.1 million for Q4, representing just 1% of total revenue. Adjusted EBITDA was $30.5 million in the fourth quarter, representing a margin of 16.6%. For the full year 2023, Adjusted EBITDA was $73.1 million, our highest ever. Cash, cash equivalents, and marketable securities were approximately $550 million in the fourth quarter, down slightly from approximately $555 million in the prior quarter.
Please refer to the key definitions slide in our earnings presentation for further detail on the calculation of adjusted pre cash flow.
Turning to guidance.
For the first quarter of 2024, we expect to produce revenue in the range of $183 million to $188 million.
Renting 15% year over year growth at the midpoint and.
And for adjusted EBITDA range of $28 million to $32 million, which.
And adjusted EBITDA margin of 14% at the midpoint.
We expect first quarter 2024, non-GAAP diluted EPS to be between 17% and 19%.
For the full year 2024, we are guiding revenue to a range of $760 million to $780 million, representing 12% year over year growth at the midpoint and.
For adjusted EBITDA range of $125 million to $135 million, representing a margin of 17% at the midpoint I.
I want to highlight that the cadence of quarterly sequential revenue growth is expected to moderate slightly in the back half of 2024.
This is primarily due to lapping of the pricing change that we have discussed on prior calls.
Our year over year growth and adjusted EBITDA margin reflects the profitability of our business model and our commitment to durable profitable growth.
We expect full year 2024, non-GAAP diluted EPS to be between 77 and 81.
Erika Gessert: This decline is due to the timing of client payments to freelancers that I mentioned earlier. Cash as of January 31st of this year was $608 million, which is more indicative of our growing cash balance trends than the end-of-year results. We are pleased that our profitable business model is translating to GAAP earnings per share growth, which includes the impact of stock-based compensation. For the fourth quarter of 2023, fully diluted GAAP earnings per share was $0.13, and for the full year 2023, it was $0.06.
Stock based compensation is expected to be in the range of approximately $20 million per quarter for 2024.
As we look beyond 2024, it is important to note our key financial priorities.
From a topline perspective, we will be focused on driving growth through innovation and our marketplace offering.
And driving a reacceleration in our enterprise business unit.
At the same time, we will maintain our commitment to growing profit margins.
As I've dug into our business over the past year I continue to have unwavering conviction in our ability to produce durable profitable growth with expanding margins over multiple years.
Well, we have made great progress in 2023, our journey to increase with efficiency and productivity in this business is still in the early innings.
Erika Gessert: I'm also happy to announce the disclosure of a new metric, adjusted free cash flow. We are starting to report this metric to reflect our commitment to growing profitability and the strong cash yield of our business. Our adjusted free cash flow for the full year 2023 was $48.3 million.
I see many opportunities for ongoing operating leverage.
Increasing scale growth of new revenue streams, and ongoing productivity and efficiency improvements.
Erika Gessert: Please refer to the key definition slide in our earnings presentation for further detail on the calculation of adjusted pre-cash flow. Turning to guidance, For the first quarter of 2024, we expect to produce revenue in the range of $183 million to $188 million, representing 15% year-over-year growth at the mid-pandemic, and for Adjusted EBITDA, a range of $28 million to $32 million, which represents an Adjusted EBITDA margin of 14% at the mid-term. We expect the first quarter of 2024 non-GAP diluted EPS to be between 17 and 19 cebs.
I'm excited about the growth we have planned for 2024.
We as a management team are committed to producing value for our customers for our employees and for our shareholders on an ongoing basis.
I want to thank our fantastic team at work for their tireless commitment to profitability growth and innovation.
And with that we'd be happy to take your questions.
Thank you as a reminder, if you would like to ask a question. Please press star one one on your telephone as.
As well please wait for your name and company to Vietnam Acquaint to see what's your question one moment, while we compile the Q&A roster.
Our first question today will be coming from Maria <unk> of Canaccord. Your line is open.
Great. Thanks, so much for taking my questions.
First I appreciate all the call in terms of guidance anything you can share about maybe GSV crude this year and then maybe help US understand what's included in your revenue guidance in terms of contribution from your take rate expansion.
Erika Gessert: For the full year 2024, we are guiding revenue to a range of $760 million to $780 million, representing 12% year-over-year growth at the mid, and for Adjusted EBITDA, a range of $125 million to $135 million, representing a margin of 17% at the mid. I want to highlight that the cadence of quarterly sequential revenue growth is expected to moderate slightly in the back half of 2024. This is primarily due to the lapping of the pricing change that we have discussed on prior calls. Our year-over-year growth and adjusted EBITDA margin reflect the profitability of our business model and our commitment to durable, profitable growth. We expect full-year 2024 non-GAAP diluted EPS to be between $0.77 and $0.81. Stock-based compensation is expected to be in the range of approximately $20 million per quarter for 2020.
Yes, sure Thanks, Brett Hi.
So first and foremost I will say for GSV growth and transfer before we do expect to drive some modest year over year growth in GSV in 2024.
As we all know we're coming out of a couple of really volatile years, and the broader economic environment in which a lot of companies saw impacts to their growth.
We're really confident that we have the right strategy in place to grow GSV over the long term.
Just in terms of what we're contemplating from revenue growth essentially would take rate in 2024, obviously, we do expect I think as everyone is pretty well acquainted with.
The strategic change in our pricing to a flat fee pricing that we announced in 2023.
At the beginning of this year, the remaining 5% contracts did step up to 10%.
Erika Gessert: As we look beyond 2024, it's important to note our key financial priorities. From a top-line perspective, we will be focused on driving growth through innovations in our marketplace offering and driving re-acceleration in our enterprise business. At the same time, we will maintain our commitment to growing profit margins. As I've dug into our business over the past year, I continue to have unwavering conviction in our ability to produce durable, profitable growth with expanding margins over multiple years. While we have made great progress in 2023, our journey to increase both efficiency and productivity in this business is still in the early innings. I see many opportunities for ongoing operating leverage through increasing scale, growth of new revenue streams, and ongoing productivity and efficiency improvement.
So we do expect to step up and take rate from Q4 into into Q1. So we will expect some tailwind from take rate ongoing into 2024.
Overall, I would say the dynamics of that price change have been extraordinarily good and.
It's really reflects the health of the strength of the platform.
I'd add that as we think about the CFC growth in 2024 and beyond there's really two levers that were focused on the first one is around winning key customers and where excitements with specialization of our product and go to market and you saw us executing on that already last year with the playbook in the AI category in particular, which really led to the 70% <unk>.
And the AI machinery sub category, which we mentioned that we're going to be expanding that playbook. This year and I think that will start to contribute to that just the growth this year, but also ramp into future years.
Other side. If you are focused on is building the world's most innovative work platform and there is a tremendous opportunity around that with our AI strategies. We did acquire the company headroom in Q4, and that's really accelerating our entire roadmap around innovating the platform and launching new features and we have a number that we already put out.
Erika Gessert: I'm excited about the growth we have planned for 2024, and we as a management team are committed to producing value for our customers, for our employees, and for our shareholders on an ongoing basis. I want to thank our fantastic team at Upwork for their tireless commitment to profitability, growth, and innovation. And with that, we'd be happy to take your questions. Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone.
In Q4, but again the product pipeline there is really robust. So we're very excited about how that's going to layer in over the coming years.
Got it that's very helpful. And then maybe secondly, you've talked a lot about sort of new AD products and the things like connect.
Driving take rate expansion on the freelancer side, but just wondering whether there is any opportunity to introduce maybe additional products on the client side to drive so the take rate expansion and then more broadly how are you thinking about sort of your long term pricing power on the on both sides of the marketplace.
Operator: As well, please wait for your name and company to be announced before you proceed with your question. One moment while we compile the Q&A roster. Our first question today will be from Maria Ripp of Canaccord. Your line is open.
I think we're still very early in that adds a monetization journey I think what we saw in 2023 was very exciting in terms of momentum with those products and.
Certainly you are right, we focus more on some of the talent side features and functionality, which suggests there is a lot more we can do on the client side as well. So I think there's more to come there. We think this is early innings every healthy marketplace seems to have very robust.
Maria Ripps: Great. Thanks so much for taking my questions. First, I appreciate all the calls in terms of guidance. Anything you can share about maybe GSV growth this year, and then maybe help us understand what's included in your revenue guidance in terms of contribution from your take rate expansion. Yeah, sure. Thanks, Maria, and hi.
AD products and we believe we can we can build that too as evidenced by the progress we've already made so more to come there. If this is definitely something that we're leveraging this year and in terms of pricing power I think the success of our.
Erika Gessert: So first and foremost, I'll say for GSB growth in 2024. We do expect to drive some modest year-over-year growth in GSB in 2024. Look, as we all know, we're coming out of a couple of really volatile years in the broader economic environment in which a lot of companies saw impacts to their growth. But we're really confident that we have the right strategy in place to grow GSB over the long term. Just in terms of, you know, what we're contemplating from revenue growth associated with TakeGreat in 2024, obviously, you know, we do expect, I think, as everyone is pretty well acquainted with the strategic change in our pricing to a flat fee pricing structure that we announced in 2023. At the beginning of this year, the remaining 5% contracts did step up to 10%, and so we do expect a step up in TakeGreat from Q4 into Q1. Hence, we will expect some tailwinds from TakeGreat ongoing into 2024.
Our pricing changes over the course of the last year have already demonstrated I think that we have a good handle on what that what that pricing power. It looks like in the marketplace and that the value of the offering is really robust all the pricing changes. We've made have really resulted in changes in line with our expectations in terms of adoption churn rates et cetera.
There has been no surprises in those had been a resounding success. So we're going to continue to lean into the opportunities there.
Create valuable for shareholders, but also for our customers through these types of products I just had one more nuance there which is the reason we talk about ads and monetization is that these products are kind of multi dimensional right. We have we have.
Because they are probably more traditional AD products like the Mr proposal product that's shown really nice growth. We also have some of our new subscription products with freelancer, plus where we're offering new value props to our freelancers and seeing really good uptake there and I think there's just there's a lot more we can do with some of these products and so that's one of the things that gives us.
<unk> kind of growth.
These revenue streams over time.
Got it that's very helpful. Thank you for the color.
Thank you one moment for the next question.
Okay.
And our next question will be coming from Bernie.
Mckiernan of Needham and company your line is open.
Hayden Brown: And just overall, I would say the dynamics of that price change have been extraordinarily good, and, you know, it really reflects the health and the strength of the platform. I'd add, Maria, that as we think about GSB growth in 2024 and beyond, there are really two levers that we're focused on. The first one is around winning key customers and work segments with specialization of our product and go-to-market.
Great. Thank you for taking the questions.
Just wanted to dig into digging on the performance marketing a bit.
Interesting comments that.
You guys made in terms of the return that Youre seeing and so just wanted to see if that was macro driven or if it's really changes in what youre doing in performance marketing and I think its the latter so just any tam.
Tangibles and specifics you could give would be really helpful. Thank you.
Yes, I definitely don't think it's macro driven at all.
Hayden Brown: And you saw us executing on that already last year with the playbook in the AI category, in particular, which really led to the 70 percent growth in the AI and machine learning subcategory, which we mentioned. So we're going to be expanding that playbook this year, and I think that will start to contribute to that GSB growth this year, but also ramp into future years. The other strategy we're focused on is building the world's most innovative work platform, and there's a tremendous opportunity around that. With our AI strategies, you know, we did acquire the company Hedroom in Q4, and that's really accelerating our entire roadmap around innovating the platform and launching new features. You know, we have a number that we already put out in Q4, but again, the product pipeline there is really robust. So we're very excited about how that's going to be rolled out over the coming year. I got it.
Think that the team has spent a lot of time optimizing the performance marketing spend obviously ramped down our brand spend in 2023.
And really focused in on that performance marketing engine, and we're seeing benefits on multiple fronts right. So.
We're seeing our tech as I as I.
Noted in the prepared remarks, our CAC is down 24% year over year.
We also we're also accessing the customers that we are adding are coming from higher value segments kind of in the SP plus segment and so I think all these factors together are just reflecting the fact that our performance marketing investments in the engine itself.
We did a lot of work building new models in 2023, so all those things combined are really driving momentum there.
Understood and then just on enterprise.
Given the change in reporting it there'll be a bit more explicitly modeled now I know.
Reaccelerate that growth is a priority, but just any other color you can give just in terms of.
Do you think that business can go over the next couple of years.
Hayden Brown: That's very helpful. And then, maybe secondly, you've talked a lot about sort of new ad products and things like connect that are driving take rate extension on the freelancer side. But just wondering whether there is any opportunity to introduce maybe additional products on the client side to drive for the take rate extension. And then, more broadly, how are you thinking about sort of your long-term pricing power on both sides of the marketplace? I'd say, you know, we're still very early in the ads and monetization journey. I think what we saw in 2023 was very exciting in terms of the momentum with those products. And certainly, you're right, we focus more on some of the talent side features and functionality, which suggests there is a lot more we can do on the client side as well. So I think there's more to come there. We think this is just the early innings.
Yes, Bernie I think we expect to see modest growth in the business in 2024 with acceleration at the end of the year and into 2025 through the course of 2023, we were really focused on driving efficiency and productivity of the business, particularly on the land side and that did yield. The addition of 31, new logos in Q4, which was our highest.
And the year.
And I feel good about that given that it's still fluid macro environment and despite all of that our go to market improvements has definitely been effective. This year. We're also extremely focused on improvements on the sand side of our business, which really drives up spend per client account and as you might imagine this takes longer to get the results, but we have been taking.
Such as our Vms integration partner launches in December and then we'll kind of continue to expand and have impacts through this year and help drive that modest acceleration we expect this year.
Great. Thanks, Hey, Thanks Erika.
Yes.
Thank you one moment for the next question.
Our next question will be coming from Andrew Boone.
Well Jamie your line is open.
Hayden Brown: You know, every healthy marketplace seems to have very robust advertising products. And we believe we can build that too, as evidenced by the progress we've already made. So more to come there. This is definitely something that we're leveraging this year. And in terms of pricing power, you know, I think the success of our pricing changes over the course of the last year has already demonstrated that we have a good handle on what that pricing power looks like in the marketplace and that the value of the offering is really robust. You know, all of the pricing changes we've made have really resulted in changes in line with our expectations in terms of adoption, churn rates, etc. You know, there's been no surprises, and those have been a resounding success.
Thanks, So much for taking my question, it's great to see marketplace GSP accelerated from 3% to <unk>.
Is there any help you can provide as we think about cohorts that are underlying that and just a more stable macro and how it cohort serve responding.
So I do want to emphasize on GSV number one as I said, we are expecting kind of modest year over year growth in 'twenty 'twenty, four and just reframe it.
In Q4 of 2023, we did see and I talked a little bit about this in the prepared remarks, we did see some benefit on a year over year growth rate point of view because of the timing of payments from clients to freelancers on the day of the week of that happens because they're 14 Sundays in Q4.
Ended on a Sunday, we did get a modest uptick in GSV growth in Q4 because of that so we do expect it to purchase regret to moderate just a little bit.
Hayden Brown: So we're going to continue to lean into the opportunities there to, you know, create value both for shareholders but also for customers through these types of products. Yeah, I just had one more nuance there, which is that the reason we talk about ads and monetization is that these products are kind of multidimensional, right? We have what would be considered more traditional advertising products, like the Boosted Proposal product that's shown really nice growth. We also have some of our new subscription products, like Freelancer Plus, where we're offering, you know, new value propositions to our freelancers and seeing really good uptake there. And I think that there's a lot more we can do with some of these products, and so that's one of the things that gives us confidence in, you know, kind of growing these revenue streams over time.
Still be up in Q1, but.
A little bit to a lesser degree as we go into the year.
Okay.
Thanks, and then I had a I had a big question Big picture question, maybe for hidden.
Think about a platform fee of 10% and I compare that to fiber at 20% is that the right comparison as I think about the potential for you guys to continue to increase price on the platform is there anything else, we should be thinking about as we think about the relativity of pricing versus competitors.
In a broader picture sense. Thanks, so much.
Yes, Andrew we're very focused on ensuring that the pricing that we have really aligns with our model our products and the value we create for customers, which is a pretty different model than fiber, which is we have long term high value relationships here and we monetize those through a variety of mechanisms. So I would say.
Maria Ripps: That's very helpful. Thank you for the call. Thank you. One moment for the next question. And our next question will be coming from Bernie McTermin of Needham & Company. Your line is open.
We are early still and unlocking the full value of the mentioned earlier around things like AD monetization, which are a different vehicle for monetizing things like time and attention on our platform.
And certainly there is room for take rate expansion through vehicles like that one.
Operator: Great. Thank you for taking the questions. I just wanted to dig in on performance marketing a bit. I thought it were some pretty interesting comments that you guys made in terms of the return that you're seeing. And so I just wanted to see if that was macro-driven or if it really changes what you're doing in performance marketing. And I think it's the latter. So just any tangibles or specifics you could give would be really helpful.
However, we're not contemplating.
As to our fee structure right now I think we did a really great job with the 10% the platform fee. It has been extremely successful.
As I mentioned is that we've been able to see and measure and I think it's a good place to be right now, but there are other ways that we can continue to create value and monetize that value for customers and we're very focused on doing that this year and in years ahead.
Great. Thank you.
Thank you one moment for the next question.
Our next question will be coming from Cornell medical of UBS. Your line is open.
Erika Gessert: Thank you. Yeah, I definitely don't think it's macro-driven at all. I think that we've, you know, the team has spent a lot of time optimizing the performance marketing spend. Obviously, we've ramped down our brand spend in 2023 and really focused in on that performance marketing engine, and we're seeing benefits on multiple fronts, right? So we're seeing, you know, our CAC, as I noted in the prepared remarks, our CAC is down 24% year-over-year. We also, we're also adding customers that are coming from higher value segments, kind of in the, you know, SB plus segments, and so I think all these factors together are just reflecting the fact that our performance marketing investments and the engine itself, we did a lot of work building new models in 2023, understood.
Alright, Thank you for taking my questions one on <unk>.
Terms of the jobs that the freelancers are getting from the from the view.
Alright. Thank you are there.
Is that any different in nature.
From the jobs that you're a tradition.
Client base used to do.
So that is that is one part.
Another part of the same thing would be in terms of.
Duration of the projects in terms of the amount of the total project in <unk>.
Most of the rate, but our do you see any difference between new clients versus older clients.
And then how about housekeeping question on the balance sheet side.
Understood.
We get the adjusted free cash flow measure.
And that kind of reflects that delta because of the extra the.
Extra week, but.
Youll have funds held in escrow, which went up significantly driven client receivables to be trimmed up significantly and deferred revenue, which went down.
Hayden Brown: And then just on enterprise, you know, given the change in reporting, it will be a bit more explicitly modeled now. I know, re-explaining that growth is a priority, but any other color to give just in terms of, you know, where you think that business can go over the next couple of years. Yeah, Bernie, I'd say we expected to see modest growth in the business in 2024, with acceleration at the end of the year and into 2025. You know, through the course of 2023, we were really focused on driving efficiency and productivity across the business, particularly on the land side. And that did yield fruit.
Significantly when compared to the recent past so can you talk about that too. Thank you.
Hi.
<unk> talked a lot in there so let.
Let me, let me start to break it out so let's start with your first question in terms of the jobs that freelancers are getting from new clients.
So.
I wouldn't say that the new clients coming on the platform, which we do anticipate to be now.
This strong growth driver for GSV going forward I wouldn't characterize that there is.
Theres any significant mix shift.
In Q4 with the new jobs that clients are hiring for.
I think just in general that the general dynamics of the platform that we've been seeing over the last couple of quarters are persistent with new client acquisition and those obviously are that.
Hayden Brown: The addition of 31 new logos in Q4, which was our highest number of logos in the year, and I feel good about that, given that it's still a fluid macro environment. And despite all of that, you know, our go-to-market improvements have definitely been effective. This year, we're also extremely focused on improving the expansion side of our business, which really drives up spend per client account. And as you might imagine, this takes longer to get results, but we have been taking steps such as our VMS integration partner launches in December, and those will kind of continue to expand and have impact through this year and help drive that modest acceleration that we expect this year. Great. Thanks, Hayden.
I related jobs are one of our biggest growers.
And you know and we actually also continue to see some pretty interesting dynamics on the platform. Some of our biggest growth categories. In Q4 were actually categories that some of the conventional wisdom thought.
I guess get disrupted by AD, but we're not seeing that things like legal things like logos.
For marketing and sales other things like that are actually showing good nice healthy growth dynamics in Q4, so and that's consistent with the way that we're seeing client adds come on to the platform as well.
In terms of duration and that kind of total project project.
Hayden Brown: Thanks. Thank you. One moment for the next question. Our next question will be coming from Andrew Boone of J&P Securities. Your line is open. Thanks so much for taking my question.
Total that you asked.
Similar to last quarter, we saw on a sequential basis. The average hours per contract just increased ever so slightly quarter to quarter.
And overall I would say that those those dynamics remain pretty persistent.
Operator: It's great to see Marketplace GSV accelerate from 3Q to 4Q. Is there any help you can provide as we think about the cohorts that are underlying that and just a more stable macro and how cohorts are responding? So, I do want to emphasize GSV, number one, as I said, you know, we are expecting kind of modest year-over-year growth in 2024 on the GSV front. In Q4 of 2023, we did see, and I talked a little bit about this in the prepared remarks, we did see some benefit on a year-over-year growth rate point of view because of the timing of payments from clients to freelancers on the day of Because there were 14 Sundays in Q4, the quarter ended on a Sunday, and we did get a modest uptick in GSV growth in Q4 because of that.
Over time.
Yes.
And I'm just trying to look at my list of questions here rate per hour also is pretty flat quarter to quarter. So not a lot not a lot to point to there and then on the questions on the balance sheet. So.
Just for clarity sake on the adjusted free cash flow adjustment and why we did it first and foremost the reason that we are making this adjustment to free cash flow is to make sure that we are truly reflecting our strong and growing cash position.
We're committed to driving on an ongoing basis. The reality is is that the.
The day of the week and the core depending on the day of the week that the quarter ends on we may have a significant but temporary fluctuation in cash flow from operations because of the pre funding of client payments to freelancers in our escrow account. So this happened in Q4 when the quarter ended on a Sunday.
Erika Gessert: So, we do expect GSV growth to moderate just a little bit, still be up in Q1, but a little bit to a lesser degree as we go into the year. Thanks. And then I had a big picture question, maybe for Hayden.
And the reality is is that that pre funding then gets paid back within days each week and so that's why there's a little bit of fluctuation in it can show quite a difference in cash balances compared to what actually ended up in our corporate cash account.
Hayden Brown: If I think about a platform fee of 10%, and I compare that to Fiverr at 20%, is that the right comparison as I think about the potential for you guys to continue to increase prices on the platform? Is there anything else we should be thinking about as we think about the relativity of pricing versus competitors in a broader sense? Thanks so much.
So hopefully that clarifies that question.
And deferred revenue.
That is consistent with the reduction that we've been seeing quarter to quarter on an ongoing basis and its part of the revenue recognition that we're seeing from the tiered from the former tiered pricing change now to this flat fee pressure change.
So hopefully I know I also packed a lot of answers to that question hopefully I covered everything for you.
Thank you no in fact.
If I could follow up so when we look at deferred revenue, we looked at deferred revenue breakdown or does that kind of imply that maybe maybe the total number of projects that are longer term projects the value of those projects just kind of going down.
Hayden Brown: Yeah, Andrew, you know, we're very focused on ensuring that the pricing that we have really aligns with our model, our products, and the value we create for customers, which, you know, it's a pretty different model than Fiverr, which is, you know, we have long-term, high-value relationships here, and we monetize those through a variety of mechanisms. So, I would say we are still early in unlocking the full value, as you mentioned earlier, around things like ads and monetization, which are a different vehicle for monetizing things like time and attention on our platform, and certainly, there is room for take rate expansion through vehicles like that one. However, we're not contemplating, you know, changes to our fee structure right now.
No no that's not that is not accurate the reason that the deferred revenue has declined is because we.
Because of the dynamic of tiered pricing versus flat fee pricing in the past we were required to defer more revenue.
Because we were different contract reprice at different rates and we are no longer required to do that with our new coffee brands.
Thanks, So much does not having nothing to do with your duration. Okay. Yes sure no problem. Thank you. Thank you.
Yes.
Thank you one moment for the next question.
Okay.
Okay.
Okay.
And our next question will be coming from Ron <unk> of Citi. Your line is open.
Great. Thanks for taking the question, maybe Hayden to two higher level questions and one on NII and then one on ads products just on AI. We're just seeing significant traction in the number of tools and products that are pork offers across the buyers and three last year. So can you just tell us maybe how this is changing or improving the overall supply and demand.
Hayden Brown: I think we did a really great job with moving to the 10% platform fee. It has been extremely successful on all the dimensions that we've been able to see and measure, and I think it's a good place to be right now, but there are other ways that we can continue to create value and monetize that value for customers, and we're very focused on doing that this year and in the years ahead. Great, thank you.
And just the vibrancy of the marketplace. That's an AI tool and then on AD products currently available badges proposals or or having a good impact here in longer term, where do you think working advertising go as a percentage of revenue given your comments on.
Erika Gessert: Thank you. One moment for the next question. Our next question will be from Kunal Madakar of UBS. Your line is open.
Operator: Hi, thank you for taking my questions. One, in terms of the jobs that the freelancers are getting from the new clients that you added, is that any different in nature from the jobs that, you know, your traditional client base used to do? So that is one part.
The complementary aspects of marketplaces.
Yes.
Sure Ron on the AI front, we're seeing really good traction so far in terms of the adoption of the tools that we've been watching for talent. So upper chat pro which was built on opening is GBP four has.
Erika Gessert: And then, you know, another part of the same thing would be in terms of, you know, the duration of the projects, in terms of the amount of the total project, in terms of the rate per hour, do you see any difference between, you know, new clients versus older clients? And then, on the balance sheet side, I want to understand how we get the adjusted free cash flow measure. And, you know, that kind of reflects the delta because of the extra Sunday or the extra week.
With lineups.
We've seen tools like Jasper Adobe Adobe tools in one code was burnt others definitely getting a lot of trial interests from talent and overall.
As with this platform shift to AI.
What we've seen in other previous shifts around neutral is a technologist filters are with the faster.
The second one just ramp up their skills and so this is what's happening right now they are eagerly adopting these tools and really using them to drive performance metrics around productivity and quality of work. So even though it's still early days in some of the indicators out there that this is happening and we're going to continue to pursue our strategy. This year.
Erika Gessert: But, you know, you have funds held in escrow, which went up significantly, trade and client receivables, which went up significantly, and deferred revenue, which went down significantly when compared to the recent past. So can you talk about that too? Thank you. I packed a lot in there, so let me start to break it down.
Your account with the best possible out there.
Your second question on AD products.
Is an interesting question for us and certainly we're thinking a lot about it if you look at companies like <unk> or others I think in their F. One they said they had something like 25% or 20% of their revenue comes from ads and so it certainly seems like we have a lot of headroom to grow this business I think it's too early for us to say exactly how big that runway is but we are.
Erika Gessert: So let's start with your first question in terms of the jobs that freelancers are getting from new clients. So I wouldn't say that the new clients coming on the platform, which we do anticipate to be a nice, strong growth driver for GSB going forward, I wouldn't characterize that there's any significant mix shift in Q4 with the new jobs that clients are hiring for. I think, just in general, that the general dynamics of the platform that we've been seeing over the last couple of quarters are persistent with new client acquisition, and that obviously, AI-related jobs are one of our biggest growers.
Certainly early innings of unlocking that path and the fact that this was the fastest revenue grower for us in the past year, and we see more runway with both the existing offerings scaling up as well as new offerings that we can put in the hands of our customers I think is a great sign of the value creation opportunity ahead of us.
Thank you Ed.
Sure.
Yeah.
Thank you one moment.
The next question.
Okay.
Okay.
And our next question will be coming from John by them.
Erika Gessert: And we actually continue to see some pretty interesting dynamics on the platform. Some of our biggest growth categories in Q4 were actually categories that some of the conventional wisdom thought might get disrupted by AI, but we're not seeing that, things like legal, things like logos for marketing and sales. Other things like that are actually showing good, nice, healthy growth dynamics in Q4. And that's consistent with the way that we're seeing client ads come onto the platform as well. In terms of duration and the total project, the totals that you asked for.
Of Jefferies. Your line is open.
Hi, Thanks. This is John again for Brent Thill.
First question was on the guidance. So Q1, you said, 15% growth for your 11, 7% I think.
So obviously some deceleration so to you, which you did talk about but is there anything else. We should think about other than the lapping the price moves I mean.
Average out to about 12% looks like you would have just stepped down quite a bit by Q4 I'm not sure how to think about that curve. Thank you.
No, Hey, Hey, John.
No look I think that when we introduced our new kind of flat fee pricing structure back in May and I think we talked about then that we would probably see a lapping effect in terms of growth rates in the back half of 'twenty 'twenty four and given the pacing of when that pricing changes is moving through so that's really the major dynamic.
Erika Gessert: Similar to last quarter, we saw on a sequential basis that the average hours for contracts just increase ever so slightly quarter to quarter. And overall, I would say that those dynamics remain pretty persistent over time. And I'm just trying to look at my list of your questions here.
Like in the back half of the air.
And like we've said, we've kind of been touching a lot on some of the other kind of nascent new revenue streams that we've that we've gotten going in 2023, and I think we have kind of just a lot more work to do on execution and launching.
Erika Gessert: The rate per hour is also pretty flat, quarter to quarter, so not a lot to point to there. And then there are the questions on the balance sheet. Just for clarity sake on the adjusted free cash flow adjustment and why we did it, first and foremost, the reason that we are making this adjustment to free cash flow is to make sure that we are truly reflecting our strong and growing cash position, which we're committed to driving on an ongoing basis. The reality is that, depending on the day of the week that the quarter ends on, we may have a significant but temporary fluctuation in cash flow from operations because of the pre-fund So this happened in Q4 when the quarter ended on a Sunday. And the reality is that that pre-funding then gets paid back within days each week. And so that's why there's a little bit of fluctuation, and it can show quite a difference in cash balances compared to what actually ends up in our corporate cash account. So hopefully that clarifies that question.
Supporting some of these additional newer initiative change, which we're confident we can kind of build and showed growth in the future. So I think overall.
Yes, we will see a little bit of moderation in the back half of 2024, and a growth rate point of view, but we feel pretty confident with the combination of kind of growth vectors that we've got in our pipeline that we'll be able to produce double digit revenue growth on an ongoing basis.
Great. Thank you and then.
The second question was on the acquisition was that.
I don't think preventable combo is that just kind of a talented team.
I don't know if the $3 million I E on the casual inventory intangibles on the balance sheet it might be that or.
Any revenue associated with that or just the AD Tech talent acquisition. Thank you.
Yes. This is really about.
But the team and the talent and certainly we're really excited about this because Andrew.
Andrew and his expertise are.
It could be extremely meaningful in terms of accelerating our roadmap around AI and machine learning. He comes from his global leadership roles at Google and Magic Leap and the fact that his vision and his team's excitement to join us given our assets of data in our vision and future of work.
Erika Gessert: The reduction in deferred revenue is consistent with the reduction that we've been seeing quarter to quarter on an ongoing basis, and it's part of the revenue recognition that we're seeing from the former tiered pricing change now to this flat fee pricing. So hopefully, I know I packed a lot of answers into that question. Hopefully, I covered everything for you. Thank you. Now, in fact, I could follow up.
Really controlling it is extremely exciting to us but this was this is not about revenue was really more about the team and our shared vision around what we're doing and I think it's going to be exciting to see what we can launch this year and in coming years, given the combined efforts.
Yes.
Great. Thank you very much.
Erika Gessert: So then, when we look at deferred revenue, we see deferred revenue going down. Does that kind of imply that maybe maybe the total number of projects that are longer-term projects, the value of those projects is kind of going down? No, no, that is not accurate. The reason that deferred revenue has declined is because of the dynamic of tiered pricing versus flat fee pricing. In the past, we were required to defer more revenue because different contracts were priced at different rates, and we're no longer required to do that with our new flat fee pricing. So it does not have anything to do with duration.
Thanks.
Thank you one moment for the next question.
Okay.
Next question will be coming from Brad Erickson of RBC capital markets. Your line is open.
Hi, Thanks.
First just going back to the GSV comments, you called out the modest growth for 'twenty four.
But then obviously you also called out to seeing some of this nice success in the performance marketing channels. So I guess, just kind of wondering why maybe not be a little bit more aggressive maybe with advertising in 'twenty four is that kind of embedded in your guidance to some degree and then secondly.
Secondarily.
Generally no.
Recognize you mentioned the pledge to kind of drive margin expansion from here. So just curious the same goes for sales and marketing intensity within the P&L.
Erika Gessert: Okay, yeah, sure, no problem. Thank you, thank you. Yes, thank you. One moment for the next question. And our next question will be coming from Ron Hosey of City Your Line is open. Great, thanks for taking the question. Maybe Hayden, two higher-level questions, one on AI and then one on advertising products.
Going forward. Thanks.
Yes sure.
I think I'll first to say, we do not we don't plan to.
To increase our brand marketing spend in 2024.
And that's largely because we don't we don't think we need to right now.
Operator: Just on AI, we're just seeing significant traction in the number of tools and products that Upwork offers across both buyers and freelancers. So can you just tell us maybe how this is changing or improving the overall supply and demand and just the vibrancy of the marketplace? That's on AI tools.
Like I said, we saw really nice step up increase in <unk>.
In new active clients in the back half of the year underneath the covers there in Q4.
We had the highest new client acquisition that we've seen on the platform.
In two years and I just want to remind people that the performance marketing engine is performing extraordinarily well and we're super pleased with optimization, there and we think we can drive more growth in 2024, 75% of our new client acquisition is it comes from organic or unpaid channels. So we really do have some nice tail.
Hayden Brown: And then on ad products, you know, clearly they'll build badges because proposals are having a good impact here. And longer term, where do you think advertising can go with the percentage of revenue, given your comments on, you know, just the complementary aspect to marketplaces? Thank you. Sure, Ron.
<unk> behind us on this and so at this point in time, we don't feel the need to reinvest in brand marketing and all of our marketing.
<unk> planned expenditure is contemplated in the guidance for this year.
Hayden Brown: On the AI front, we're seeing, you know, really good traction so far in terms of the adoption of the tools that we've been launching for talent. For example, Upwork Chat Pro, which was built on OpenAI's GPT-4 platform, has more than 150,000 signups. We've seen tools like Jasper, Adobe's tools, Amazon Codeswper, and others, you know, definitely getting a lot of trial interest from talent.
Going forward over over the future years.
We this marketplace business is it's a highly profitable business, we have 75% gross margins now I think we see opportunities over the medium term two to even improve that and I think we have the flexibility in the model too.
Consider reinvestments in growth, whether it be ongoing investments in R&D or back into brand as we go forward and still produce the growing profit margins that we've committed to.
Hayden Brown: And overall, as with this platform shift to AI, and as we've seen in other previous shifts around new tools and technologies, freelancers are always the fastest to adopt these technologies and ramp up their skills. And so this is what's happening right now. They're eagerly adopting these tools and really using them to drive performance metrics around productivity and quality of work. So even though it's still early days for some of this, the indicators are there that this is happening, and we're going to continue to pursue our strategy this year to empower our talent with the best possible tools out there. To your second question on ad products, you know, this is an interesting question for us, and certainly we're thinking a lot about it. If you look at companies like Instacart or others, you know, I think in their F1, they said they had something like 25 or 28% of their revenue coming from ads.
So I feel comfortable with with a lot of different scenarios, there, but we're confident in growing both profit margins and free cash flow.
Yes.
Got it thank you.
Thank you one moment for the next question.
Yes.
And our next question will come from Rohit.
Lonnie of raw and King your line is open.
Thank you.
A couple of questions first just on <unk>.
They are already contributing to <unk> growth.
70% growth in GSV from.
Maybe if you could call out any anecdotes or any.
Emerging new use cases, where do you feel.
But a.
The bigger opportunity for you to do the matching all around.
Use cases and.
Or what kind of upward due more to tap into this new.
And the opportunity and then second just on the active client growth and creation of a couple of quarters in a row uptick in new clients. So perhaps talk about the.
Hayden Brown: And so it certainly seems like we have a lot of headroom to grow this business. I think it's too early for us to say exactly how big that runway is, but we are certainly in the early innings of unlocking that path. And the fact that this was the fastest revenue grower for us in the past year, and we see more runway with both the existing offerings scaling up, as well as new offerings that we can put in the hands of our customers, I think is a great sign of, you know, the value creation opportunity ahead of us. Thank you. Thank you. One moment for the next question. And our next question will be coming from John Byrne of Jaffrey's. Your line is open. Hi, thank you. This is John again for Brent Thill.
The why and how sustainable is that Oh, what are you.
You can do your guidance around.
Sort of a near term plan growth, perhaps macro deck hiring or whatnot.
Sure. So on your first question just to clarify what we saw this past quarter was our AI and machine learning subcategory grew 70% year over year and that was.
Yes.
A really great result, and it was due to I think what youre asking about which was all of the investments we are making in growing this category in this area.
Through things like our AI services hub, which we launched last year, our marking efforts in this area, where we're focused both on marketplace customers and enterprise customers, who all can benefit from the talent in our ecosystem.
Operator: My first question was, so on the guidance, so Q1, you said 15% growth, four-year 11.7%, I think. So obviously some deceleration through the year, which you did talk about, but is there anything else that we should think about other than the lapping and the price move? I mean, to average out to about 12%, it looks like you would have to step down quite a bit by Q4. I'm not sure how to think about that curve. Thank you. No, hey, hey John.
<unk> specializes in this area, where we've been curating those.
For enterprise customers and for our partners such as open AI through that partnership and so in terms of use cases, we're really seeing.
The full range of AI experts being called upon whether it's for training models, whether it's for data labeling and curation.
An interesting.
SaaS is that people are really looking for.
Erika Gessert: No, I think, you know, look, I think that, you know, when we introduced our new kind of flat fee pricing structure back in May and, you know, I think we talked about then that we would probably see a lapping effect in terms of growth rates in the back half of 2024 given, you know, the pacing of when that pricing changes is moving through. So that's really the major dynamic in the back half of the year and, you know, like we've said, we've kind of been touching a lot on some of the other kind of nascent new revenue streams that we've that we've gotten going in 2023 and, you know, I think we have, you know, kind of just a lot more work to do on execution and launching and supporting some of these additional new revenue streams which we're confident we can kind of build and show growth in the future.
Daily skilled experts in a variety of places to review, resulting outputs a model that really ensure the accuracy because theres a big quality control issue around a lot of these models as you might imagine so there's a very there's a very active set of clients and talent in this space and it continues to grow.
And I don't think there is more we can do we're just leading into this with product marketing talent curation partnership we're kind of putting all of our weapons against us to really make sure we're capitalizing on that opportunity.
Eric I can probably comment on your client growth question yeah.
Client growth I think I don't know that we.
Yes.
That there is I would say look the macro environment remains fluid.
Our business and platform are very stable and growing.
So the most recent environment of Tech layoffs, I don't think we see as a big factor for us.
We've been as high as a kind of articulate already we've seen really strong momentum there I think it's a combination of.
Just the attractiveness of our platform the resilience of our marketplace in this environment and even on the enterprise side I think the latest spate of Av.
Erika Gessert: So, you know, overall, I think we'll see a little bit of moderation in the back half of 2024 on a growth rate point of view, but we feel pretty confident with the combination of the kind of growth vectors that we've got in our pipeline that we'll be able to produce double-digit revenue growth on an ongoing basis. Great, thank you. And then the second question was, was in the AI acquisition? I mean, I don't think it provides more columns, it's just kind of a talent acquisition. I don't know if the $3 million I see on the cashless inventory intangibles or in the balance sheet might be that. Any revenue associated with that, or just a tech talent acquisition?
Earnings releases really shows that.
People are still really really focused on profitability and even within that environment. We've seen nice acceleration on the land side of our business, we keep growing really nice logos with instant cart checkout dot com, others, signing up and so I think just the attractiveness of our offer even within this environment is really evident with.
Being able to add add freelancers faster cheaper or easier than some of the competition. That's out there. So I think we're feeling good about our ability to perform in this environment.
Great. Thank you. Thank you guys.
Thank you one moment for the next question.
Okay.
Our next question is coming from Mark Marvin Fong of <unk>. Your line is open.
Hi, good evening thanks.
Hayden Brown: Yeah, this was really about the team and the talent, and certainly we're really excited about this because Andrew and his expertise are going to be extremely meaningful in terms of accelerating our roadmap around AI and machine learning. You know, he comes from incredible leadership roles at Google and Magic Leap, and the fact that his vision and his team's excitement to join us, given our assets and data and our vision for our future work, you know, we're really conjoined is extremely exciting to us. But this was, yeah, this was not about revenue; it was really more about the team and our shared vision for what we're doing. And I think it's going to be exciting to see what we can launch this year and in the coming years, given the time. Great, thank you very much.
Ian here.
Maybe first question I think maybe.
People listening you might like.
Appreciate this kind of hearing a bigger picture overview on the nice quarter, just kind of like what areas of the business.
Maybe from a geography or a category standpoint are doing well or perhaps.
Underperforming I know you called out but.
Maybe some of your other key verticals.
Software programming just curious how.
Everything at a higher level playing.
Playing out.
Yes, sure maybe I'll take this one.
I think there's really not there's really nothing notable on the Geo front things have been pretty our mix has been pretty steady and persistent really throughout 2023 and into 'twenty 'twenty four so not much to note there on the category front, yes, we've talked about AI, we're really excited about the momentum there.
Hayden Brown: Thanks. Thank you. One moment for the next question. The next question will be coming from Brad Erickson of RBC Capital Markets. Your line is open.
For in terms of the kind of software type jobs continues to be a very very large category for us.
Operator: Hi, thanks. So first, just going back to the GSB comments, you called out this modest growth for 24. But then, obviously, you also called out to seeing some of this nice success in the performance marketing channel. So I guess I'm just kind of wondering why maybe not be a little bit more aggressive, maybe with advertising in 24 that kind of embedded in your guidance to some degree. And then secondarily, generally, know, you know, recognize, you mentioned the pledge to kind of drive margin expansion from here. So just curious if the same goes for sales and marketing intensity within the P&L going forward. Thanks.
And maybe just you know.
I also noted in some of the bigger growers for us and one of my other answers around legal around sales and marketing, even though their design we've seen.
Seen some nice growth in Q4, and some of these categories and GSV.
Some of the categories that nets, the headwinds I think.
We've also talked about this.
We absolutely have seen some some headwinds and volume from from the categories that I think people would expect in translation writing, but these are categories that were threatened far before the advent of chat GPT and in fact, even with these categories, where we see some volume type headwinds there are some really interesting dynamics underneath.
Anything, which we actually see strong wage accretion in both these categories because it's really the very very smallest.
Erika Gessert: Yeah, sure. Look, I think I'll first just say, you know, we do not, we don't plan to, increase our brand marketing spend in 2024. And that's largely because we don't, we don't think we need to right now.
You know kind of quickest jobs that are that are getting disrupted in fact in the writing category interesting and interestingly enough in Q4, the average hours per job went up 20% year over year in that category.
Erika Gessert: I mean, I, you know, we, like I said, we saw a really nice step up, you know, increase in new active clients in the back half of the year. Under the covers there in Q4, we had the highest new client acquisition that we've seen on the platform in two years. And I just want to remind people that, you know, the performance marketing engine is performing extraordinarily well, and we're super pleased with the optimization there. And we think, you know, we can drive more growth in 2024. But 75% of our new client acquisition comes from organic or unpaid channels. So, you know, we really do have some nice tailwinds behind us on this. And so, you know, at this point in time, we don't feel the need to reinvest in brand marketing, and all of our marketing, you know, planned expenditure is contemplated in the guidance for this year.
Yeah.
It's a tremendously diverse platform, there's a lot going on.
I really do think we see sort of pluses and minuses across multiple multiple categories.
That's terrific. Thanks for that color and then my other question.
I think you are.
Your guidance for EBITDA margin for the year.
19%.
At the midpoint, which is not dissimilar from the fourth quarter margin performance.
Just curious on what are some of the puts and takes on margins for the full year or are there some areas.
All of Opex that you.
I think you've cited G&A is also key roles, but any other areas you might be.
Feeling the need to invest a little bit more.
Or just kind of trying.
Trying to understand the margin picture there.
Yes.
Yeah sure.
Yes.
Super Super proud of is the very rapid progress we've made in 2023.
Erika Gessert: Going forward over the future years, you know, we, this marketplace business is a, it's a highly profitable business. You know, we have 75% growth margins now. I think we see opportunities over the medium term to even improve that, and I think we have the flexibility in the model to, you know, consider reinvestments in growth, whether it be ongoing investments in R&D or, you know, back into the brand as we go forward and still produce the growing profit margins that we've committed to. So I feel comfortable with a lot of different scenarios there, but we're confident in growing both profit margins and pre-cash flow. Got it, thank you.
And on a year over year basis, obviously, our guide contemplates both strong year over year revenue growth and strong margin accretion on the year over year basis. I think we were really clear as we were marching through 2023 that we did intend to continue to balance margin accretion with investment in growth and that is really what 'twenty 'twenty four is all about.
But underlying our guidance, we really do expect really very modest year over year growth in total operating expenses significantly lower than what we expect from revenue growth and we're committed to showing that leverage over multiple years as we've been emphasizing.
A line by line I think the dynamic will be quite similar too.
How we manage this year.
We'll continue to invest in R&D.
That line will grow the fastest and that makes sense because of all of the kind of ml team investments and.
The new product pipeline that we have planned for 2024, which I think is really exciting.
Erika Gessert: Thank you. One moment for the next question. Our next question will be coming from Rohit. Kalani of Roth, MKM, your line is open.
Sales and marketing Opex will be down again year over year.
And we'll continue to optimize that area and as we described.
Operator: Hey, thank you. A couple questions. First, just on this AI contributing to GSV growth, 70% growth in GSV from AI. Maybe you could call out any anecdotes or any emerging new use cases where you feel there is a bigger opportunity for you to do the matching around AI use cases. And then second, just on active client growth, an encouraging couple of quarters in a row with an uptick in new clients. Perhaps we could talk about why and how sustainable that is.
Performance marketing is performing really well, we're going to balance investing in growth with that with continuing to optimize and G&A will also be similarly managed to 2023 and that we will continue to manage that line item to show significant operating leverage on an ongoing basis.
Okay.
So hopefully that gives thats great.
No that was perfect. Thank you very much Erika and thanks Jade.
Sure.
Thank you one moment for the next question.
Okay.
Our next question is coming from Matt Farrell.
Piper Sandler your line is open.
Hayden Brown: What are you embedding into your guidance around the near term client growth, perhaps macro tech hiring or whatnot? Go ahead. So on your first question, just to clarify what we saw this past quarter was our AI machine learning subcategory grew 70% year over year and that was, You know, a really great result. And it was due to, I think, what you're asking about, which was all of the investments we are making in growing this category in this area through things like our AI services hub, which we launched last year, our marketing efforts in this area, where we're focused both on marketplace customers and enterprise customers who all can benefit from the talent in our ecosystem, who are specialized in this area where we've been curating those talents for enterprise customers and for partners such as OpenAI through that partnership.
Thanks, and congrats on the strong results just one for me.
You had really strong free cash flow in Q4, improving profitability in 2024, I know you made a small acquisition, but it doesn't look like you executed any of your buyback we'd love just to hear about the thoughts around cash strategy as we move throughout the year, particularly in this kind of more stable backdrop the macro side.
Thanks.
Yes sure Great question, Thanks for that.
So absolutely.
We were super pleased to get the stock buyback authorized in Q4, it's obviously a new muscle for US is the first one that's ever been approved for a park.
Similarly, we're super happy to close our very first acquisition in Q4.
So we did not buy back any stocking in Q4. However, we continue to believe that our stock is a great value at these levels and we do intend to execute that.
Hayden Brown: And so in terms of use cases, you know, we're really seeing the full range of AI experts being called upon, whether it's for training models, whether it's for data labeling and curation. And I think an interesting fact is that, you know, people are really looking for highly skilled experts in a variety of places to review the results and outputs of models that really ensure accuracy because there's a big quality control issue around a lot of these models, as you might imagine. So there is a very active set of clients and talent in this space, and it continues to grow. And I don't think there's anything else we can do.
Buyback in 2024.
At the same time I think that.
We really do believe that 2024 should also presents some some additional opportunities for us to utilize our balance sheet and our growing cash position to identify additional tuck in acquisitions, where we can add to our growing stable of talent as well as.
Maybe capability building to continue to advance our roadmap. So we're going to continue to be active out there and we think there are opportunities for us to utilize our balance sheet with really good ROI.
Hayden Brown: We're just leading into this with, you know, product, marketing, talent curation, partnership. We're kind of putting all of our weapons into this to really make sure we're capitalizing on this opportunity. Erica can probably comment on your client growth. Yeah, on active client growth. I think, you know, I don't know that we feel that there's, you know. I would say, look, the macro environment remains fluid. Our business and platform are very stable and growing. So, you know, the most recent environment of tech layoffs I don't think we see as a big factor for us.
Awesome. Thank you so much.
Alright. Thanks.
Thank you Robin I'd like to turn the call back over to David Neeleman for closing remarks, Vice President of Relations go ahead.
Thank you 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 up work Dot Com. This concludes our call.
Thank you all for joining you may disconnect now.
Erika Gessert: You know, we've been, you know, as I've kind of articulated already, we've seen really strong momentum there. I think it's a combination of, you know, just the attractiveness of our platform, the resilience of our marketplace in this environment. And even on the enterprise side, I think the latest spate of earnings releases really shows that, you know, people are still really, really focused on profitability.
Okay.
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Yes.
[music].
Erika Gessert: And, you know, even within that environment, we've seen nice acceleration on the land side of our business. We keep growing, you know, really nice logos with Instacart, Checkout.com, others signing up. And so I think, you know, just the attractiveness of our offer, even within this environment, is really evident with, you know, you know, being able to add freelancers faster, cheaper, easier than, you know, some of the competition that's out there.
Erika Gessert: So I think, you know, we're feeling good about our ability to perform in this environment. Great. Thank you. Thank you, guys. Thank you. One moment for the next question. Our next question is coming from Marvin Fong of VTIG. Your line is open. Good evening. Thanks for sleeping in here.
Sure.
[music].
Yes.
Hmm.
[music].
Operator: Um, maybe the first question, I think maybe people listening might appreciate this kind of hearing a bigger picture overview of the, you know, a nice quarter, just kind of like what areas of the business, maybe from a geography or a category standpoint, or, or doing well, or perhaps are underperforming. I know you call it AI, but, you know, maybe some of your other key verticals, like, like, software programming, just curious how everything at a higher level is kind of playing out. Yeah, sure. Maybe I'll take this one.
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Erika Gessert: Um, you know, I think there's really not anything notable on the geo front. Things have been pretty, you know; our mix has been pretty steady and persistent, really throughout 2023 and into 2024. So not much to note there. On the category front, you know, yeah, we've talked about AI, and we're really excited about the momentum there. You know, software and services, kind of software-type jobs, continues to be a very, very large category for us. And maybe just, you know, I also noted some of the bigger growers for us in one of my other answers around legal, around sales and marketing, even logo design. We've seen, you know, we've seen some nice growth in Q4 and some of these categories in GSV. You know, some of the categories that see headwinds, I think those are the, we've also talked about this. We absolutely have seen some headwinds in volume from, from, you know, the categories that I think people would expect in translation and writing. But these are categories that were threatened far before the advent of chat GPT.
Yeah.
Okay.
Hum.
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Okay.
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Okay.
Okay.
[music].
Erika Gessert: And in fact, even with these categories, where we see some, you know, volume-type headwinds, there's some really interesting dynamics underneath in which we actually see strong wage accretion in both these categories because it's really the very, very smallest, you know, kind of, you know, quickest jobs that are getting disrupted. In fact, in the writing category, interestingly enough, in Q4, the average hours per job went up 20% year over year in that category. So, you know, there's just a, it's a tremendously diverse platform. There's a lot going on here. And I really do think we see sort of pluses and minuses across multiple categories. That's terrific! Thanks for that color!
Yes.
[music].
Erika Gessert: And my other question is, I think your guidance for EBITDA margin for the year is close to 17% at the midpoint, which is not dissimilar from the fourth quarter margin performance. So just curious on what are some of the puts and takes on margins for the full year. There's some areas of OPEX that you, you know, I don't, I think you cited GNA.
Yes.
Okay.
[music].
Erika Gessert: You mentioned some key roles, but any other areas you might be feeling the need to invest a little bit more or just kind of trying to understand the margin picture there? Thanks. Yeah, sure.
Okay.
[music].
Erika Gessert: Yes, like, you know, we're super, super proud of the very rapid progress we made in 2023. And on a year-over-year basis, obviously, our guide contemplates both strong year-over-year revenue growth and strong margin accretion on a year-over-year basis. I think we were really clear as we were marching through 2023 that we did intend to continue to balance margin accretion with investment in growth, and that is really what 2024 is all about.
Erika Gessert: But underlying our guidance, you know, we really do expect very modest year-over-year growth in total operating expenses, significantly lower than what we expect from revenue growth. And we're committed to showing that leverage over multiple years, as we've been emphasizing. Line by line, I think the dynamics will be quite similar to how we managed this year.
Yeah.
[music].
Yes.
[music].
Erika Gessert: We'll continue to invest in R&D. That line will grow the fastest, and that makes sense because of all of the kinds of AI and ML team investments and really the new product pipeline that we have planned for 2024, which I think is really exciting. Sales and marketing operating costs will be down again year-over-year, and we'll continue to optimize that area. And, as we described, I think performance marketing is performing extremely well. We're going to balance investing in growth with that and continuing to optimize. And G&A will also be similarly managed to 2023, in that we will continue to manage that line item to show significant operating leverage on an ongoing basis. That's great. Oh, no, that was terrific.
Okay.
[music].
Okay.
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Erika Gessert: Thank you very much, Erica, and thanks. Sure. Thank you. One moment for the next question. Our next question is coming from Matt Farrell of Piper Sandler. Your line is open.
Operator: Thanks and congratulations on the strong results. Just one for me, you know, you had really strong cash flow for improving profitability in 2024. I know you made the small acquisition, but it doesn't look like you executed any of your buyback.
Erika Gessert: We'd love just to hear about, you know, the thoughts around cash strategy as we move throughout the year, particularly in this kind of more stable backdrop from the macro side. Thanks. Yeah, sure. Great question.
Okay.
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Yeah.
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Erika Gessert: Thanks, Matt. So absolutely, look, we were super pleased to get the stock buyback authorized in Q4. It's obviously a new muscle for us.
Erika Gessert: It's the first one that's ever been approved for Upwork. Similarly, we were super happy to close our very first acquisition in Q4. So, you know, we did not buy back any stock in Q4. However, we continue to believe that our stock is a great value at these levels, and we do intend to execute that buyback in 2024. At the same time, I think that, you know, we really do believe that 2024 should also present some additional opportunities for us to utilize our balance sheet and our growing cash position to identify additional, you know, tuck-in acquisitions where we can add to our, you know, growing stable of talent, as well as, you know, maybe capability building to continue to advance our roadmap.
Yes.
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Sure.
Yes.
Okay.
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Erika Gessert: So we're going to continue to be active out there, and we think there are opportunities for us to utilize our balance sheet with really good ROI. Awesome. Thank you so much. All right, thanks. Thank you. I would now like to turn the call back over to David Niederman for closing remarks, Vice President of Relations.
Okay.
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David Neumann: Thank you. On behalf of the entire Upwork team, thank you for joining us today. And thank you for your interest in Upwork. If you need any clarifications or have any follow-up questions, please do not hesitate to reach out to me at investor@upwork.com.
David Neumann: This concludes our call. Thank you all for joining. You may disconnect now. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thanks for watching! ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
Yeah.