Q1 2024 Upwork Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Upwork Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the upward Q1 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised.

Didn't hear an automated message advising you your hand, just raised to withdraw your question. Please press star. One again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, David Neeleman, Vice President Investor Relations. Please go ahead.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Niederman, Vice President, Investor Relations. Please go ahead.

David Niederman: Thank you. Welcome to Upwork's discussion of its first quarter 2024 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.

David Neeleman: Thank you welcome to <unk> discussion of its first quarter 2024 financial results joining.

David Neeleman: Joining me today are Hayden Brown, <unk>, President and Chief Executive Officer, and Eric <unk>, Chief Financial Officer.

David Niederman: 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, please refer to our SEC filings available on the SEC's 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 quarterly report on Form 10-Q for the three months ended March 31, 2024. In addition, reference will be made to certain non-GAAP financial measures.

David Neeleman: Following managements prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.

David Neeleman: During this call we may make statements related to our business that are forward looking statements under federal Securities laws.

David Neeleman: Forward looking statements include all statements other than statements of historical fact.

David Neeleman: These statements are not guarantees of future performance.

David Neeleman: Rather are subject to a variety of risks uncertainties and assumptions.

David Neeleman: Our actual results could differ materially from expectations reflected in any forward looking statements.

David Neeleman: 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.

David Neeleman: Formation will also be set forth in our quarterly report on Form 10-Q for the three months ended March 31 2024.

David Niederman: Information regarding non-GAAP financial measures, including reconciliations to their most directly comparable GAAP financial 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, and comparisons of the first quarter of 2024 are to the first quarter of 2023. All financial measures are GAAP and must be cited as non-GAAP.

David Neeleman: In addition reference will be made to certain non-GAAP financial measures.

David Neeleman: Information regarding non-GAAP financial measures, including reconciliations to their most directly comparable GAAP financial measures can be found in the press release that was issued this afternoon on our Investor Relations website at investors Dot up our dot com.

David Neeleman: Unless otherwise noted reported figures are rounded in comparisons of the first quarter of 2024 after the first quarter of 2023.

David Neeleman: All financial measures are GAAP unless cited as non-GAAP.

Hayden Brown: With that, I will turn the call over to Hayden. Welcome everyone to Upwork's first quarter 2024 earnings call. Upwork started the year off strong with first quarter revenue of $190.9 million, representing 19% growth year over year. Our commitment to running a profitable business continued in the first quarter as GAAP net income was $18.4 million, and adjusted EBITDA was $33.3 million. These results reflect the strength of our business and ability to deliver consistent results even in a fluid operating environment.

Speaker Change: With that I will turn the call over to hit.

Speaker Change: Welcome everyone to <unk> first quarter 2024 earnings call.

Speaker Change: <unk> started the year off strong with first quarter revenue of $190 9 million.

Speaker Change: Representing 19% growth year over year.

Speaker Change: Our commitment to running a profitable business continued in the first quarter GAAP net income was $18 4 million and adjusted EBITDA was $33 $3 million. These.

Speaker Change: These results reflect the strength of our business and the ability to deliver consistent results even in a fluid operating environment.

Hayden Brown: Our unwavering focus on increasing operating leverage while investing in future growth is allowing us to raise our 2024 outlook for both revenue and adjusted EBITDA. We are committed to continuing to grow operating leverage into 2025 and beyond. Erica will share details on these plans in a few minutes.

Speaker Change: Our unwavering focus on increasing operating leverage while investing in future growth is allowing us to raise our 2020 outlook for both revenue and adjusted EBITDA.

Speaker Change: We are committed to continuing to grow operating leverage into 2025 and beyond Erika.

Speaker Change: Erica will share details on these plans in a few minutes.

Hayden Brown: Our marketplace business continues to deliver steady GSV performance within a dynamic macro environment, as GSV again exceeded $1 billion for the quarter. Historically, one of the most important leading indicators of GSB growth has been the addition of new clients. And we were very pleased to drive active client growth of 5% year over year to 872,000 in the first quarter. In addition to growth via attracting new clients, we are driving growth in GSV via product innovations.

Erica: Our marketplace business continues to deliver steady GSV performance within a dynamic macro environment.

Erica: The FDA again exceeded $1 billion for the quarter.

Erica: Historically, one of the most important leading indicators at GSV growth is the addition of new clients and we were very pleased to drive active client growth of 5% year over year to 872000 in the first quarter in.

Erica: In addition to growth via attracting new clients.

Erica: <unk> growth in GSV the of product innovations. These include investing in new AI enabled products.

Hayden Brown: These include investing in new AI-enabled products, features, and partnerships that equip clients and freelancers to achieve desired outcomes faster and easier than ever before. With the launch of these new experiences and encouraged by early success signals showing a lift in GSV, we anticipate our growth rate will continue to accelerate. Our strength in revenue growth stems from several areas, including our ads and monetization products, which display impressive performance and stand out as the fastest growing revenue stream for Upwork. The Freelancer Plus subscription, which provides freelancers with connections and tools to develop new skills, increase their visibility, and improve their efficiency with AI, had over 100,000 active subscribers in the first quarter.

Speaker Change: <unk> and partnerships that are quick clients and freelancers to achieve desired outcomes faster and easier than ever before with.

Speaker Change: With the launch of these new experiences and encouraged by early success signals showing a lift in GSV, we anticipate our growth rate will continue to accelerate.

Speaker Change: Our strength in revenue growth stems from several areas, including our app and monetization products, which displayed impressive performance and standout as the fastest growing revenue stream for a park the.

Speaker Change: The freelancer, plus subscription, which provides <unk> with connect and tools to develop new skills increase their visibility and improve their efficiency with AI had over 100000 active subscribers in the first quarter.

Hayden Brown: Year over year, we've grown subscribers 60% and driven 76% growth in revenue from this offering. And we continue to make Freelancer Plus more compelling for customers, as a subscription now includes exclusive access to Upwork Chat Pro powered by GPT-4 and customized with Upwork data. In the first quarter, we also premiered instant consultations, a new way for clients to get expert advice within minutes from skilled professionals who are online and available to consult in real time, ultimately getting projects started and completed faster.

Speaker Change: Year over year, we've grown subscribers, 68% and driven 76% growth in our revenue from this offering.

Speaker Change: And we continue to make free surplus more compelling for customers as a subscription now includes exclusive access to upward Chad Crow powered by <unk>, four and customized with upward data.

Speaker Change: In the first quarter. We also premiered instant consultations a new way for clients to get expert advice within minutes from skilled professionals, who are online and available to consult in real time.

Speaker Change: Secondly, getting projects started and completed faster.

Hayden Brown: Building instant consultations on top of our already successful consultations product is a promising avenue for us because we've seen the repeat usage rate of regular consultation clients is more than 50% higher than that of clients who start with a standard marketplace engagement. We're optimistic that instant consultations will gain similar traction and produce similar results.

Speaker Change: Building instant consultations on top of our already successful consultations product is a promising avenue for us because we've seen that repeat usage rate of regular consultation clients is more than 50% higher than that of client to start with a standard marketplace engagement, we're optimistic that instant consultations will gain similar.

Speaker Change: Traction and produce similar results.

Hayden Brown: Demand for Upwork services was also evident in the fleet of new partners signing up for our burgeoning Upwork partner experts program in the first quarter. These partnerships are designed to drive incremental GSV by acquiring clients who are active in third-party SaaS ecosystems and can benefit from talent on Upwork that is specialized in deploying, customizing, and maintaining these SaaS technologies. In Q1, GoDaddy, BigCommerce, and Constant Contact joined existing partners like OpenAI and ClickUp and are now able to connect their customers directly with exactly the right freelancer on Upwork at exactly the moment they need to get work done, thus enabling greater usage of their own products.

Speaker Change: Demand for <unk> services was also evident in the fleet of new partners signing up for our burgeoning upward partner experts program in the first quarter.

Speaker Change: These partnerships are designed to drive incremental GSV by acquiring clients, who are active in third party SaaS ecosystems and can benefit from talent on a park that has specialized in deploying customizing and maintaining these SaaS technologies.

Speaker Change: In Q1, Godaddy Big Commerce, and constant contact joined existing partners like open AI and click up and are now able to connect to their customers directly with exactly the right freelancer on upward at exactly the moment they need to get work done thus, enabling greater usage of their own products.

Hayden Brown: This is a true multidimensional win-win in which our partners, their customers, who become our clients, and Upwork talent and shareholders all benefit. The Enterprise Business Unit exhibited very good progress in the first quarter, with accelerated revenue growth at 10% year-over-year.

Speaker Change: This is a true multi dimensional win win in which our partners there are customers, who become our clients and upward talent and shareholders all benefit.

Speaker Change: The enterprise business unit exhibited very good progress in the first quarter with accelerated revenue growth at 10% year over year.

Hayden Brown: Momentum in signing new customers continues, exceeding our own target by adding 28 new enterprise client logos in the first quarter, including WPP, Unisys, and Ansys. Building atop our December announcement of inaugural vendor management system and managed service provider partnerships, we are rapidly expanding the workforce management ecosystem in which talent pools on Upwork can be tapped and leveraged, bringing on Workday, Vimli, and Kelly OCG as enterprise suite partners, with Kelly OCG serving as our first MSP partner.

Speaker Change: Momentum in signing new customers continues.

Speaker Change: Seeding our own target by added 28, new enterprise client logos in the first quarter, including W. P P UNICEF and ancestors.

Speaker Change: Building a top our December announcement of inaugural vendor management systems and managed service provider partnerships. We are rapidly expanding the workforce management ecosystem in which talent pools on upward can be tapped and leveraged bringing on workday nimbly and Kelly OCG as enterprise suite partners with Kelly OCG.

Speaker Change: Serving as our first MSP partner.

Hayden Brown: The velocity of our product innovation is rapidly increasing. We are shipping new features to our clients and freelancers on a daily basis. The speed to market of new features and experiences on the platform is accelerating so quickly that we realized we needed to provide our customers with a single place and moment to get to know all of the enhancements we have released and new ways they can use our platform to get more done.

Speaker Change: Philosophy of our product innovation is rapidly increasing.

Speaker Change: We are shipping new features to our clients and freelancers on a daily basis, the speed to market of new features and experiences on the platform is accelerating so quickly that we realized we needed to provide our customers with a single place and moment to get to know all of the enhancements, we have released and new ways. They can use our platform to get more done.

Hayden Brown: As a result, yesterday, we launched Upwork Updates, our new semi-annual product showcase that highlights what's new with our innovative products, features, and partnerships across the world's work marketplace. Upwork Updates will help educate our customers and the market about the value of our offering and the rapid progress we are making in delivering the features that enable them to work faster, better, and more effortless than ever. One highlight of our Spring 2024 update is the launch of UMA, which stands for Upwork Mindful AI.

Speaker Change: As a result yesterday, we launched upward updates our new semi annual product showcase that highlights what's new with our innovative product features and partnerships across the world It's worth marketplace.

Speaker Change: Updates will help educate our customers in the market about the value of our offering and the progress we are making and delivering the features that enable them to work faster better and more effortlessly than ever.

Speaker Change: One highlight of our spring 2024 update is the launch of Umar, which stands for upward mindful AI.

Hayden Brown: We're developing UMA on top of industry-leading large language models and fine-tuning it with trillions of tokens of highly relevant Upwork platform data across a range of work interactions. Today, UMA Intelligence underpins key steps in the hiring and matching process, which is critical to clients and freelancers getting started and completing more high-quality work faster.

Speaker Change: We're developing ummah on top of industry, leading large language models and fine tuning it with trillions of tokens of highly relevant upward platform data across a range of work interactions.

Speaker Change: Today, My intelligence underpins key steps in the hiring and matching process, which is critical to clients and freelancers getting started and completing more high quality work faster Houma powers, New features like best match insights and AI powered matching capability that surfaces, not just the best talent, but the most relevant skill.

Hayden Brown: UMA powers new features like Best Match Insights, an AI-powered matching capability that surfaces not just the best talent but the most relevant skills, qualifications, and client reviews to help clients make hiring decisions with ease and confidence. UMA's capabilities also power performance improvements for recent innovations and experiences, including Upwork's Job Post Generator, Proposal Tips, and Upwork Chat Pro. We're also excited to introduce UMA as an indispensable work companion accessible via an easy-to-use conversational interface that guides clients and freelancers to success throughout their Upwork journey. We've started to roll out UMA on the Upwork homepage, and in subsequent releases, we will expand its capabilities to other areas of the platform.

Speaker Change: <unk> qualifications and client reviews to help clients make hiring decisions with ease and confidence.

Speaker Change: We must capabilities also power performance improvements to recent innovations and experiences including upward job post generator proposal tips and upward chat pro.

Speaker Change: We're also excited to introduce Houma as an indispensable work companion accessible via an easy to use conversational interface, the guys clients and freelancers to success throughout their upward journey.

Speaker Change: We've started to roll out more on the upper homepage and in subsequent releases, we will expand capabilities to other areas of the platform.

Hayden Brown: We're building UMA to serve as an always-on intelligent companion for our customers, assisting them across the entire Upwork experience. Our very early testing of UMA is already showing benefits as a conversational companion for new customers; clients who used UMA started spending on Upwork in their first month at a 7% higher rate than non-users. These very early lift signals are compelling and are only the beginning because UMA will continue to get smarter and more effective with additional customer usage, which trains the model.

Speaker Change: We are building <unk> to serve as an always on intelligent companion for our customers assisting them across the entire upward experience.

Speaker Change: Our very early testing is already showing benefits as a conversational companion for new customers climb.

Speaker Change: Clients, who used whom I started spending on upward in their first month at a 7% higher rate than non users. These.

Speaker Change: He's very early lifts signals are compelling and are only the beginning because houma will continue to get smarter and more effective with additional customer usage, which trains the model.

Hayden Brown: Additionally, Luma will improve its capabilities and extend its customer and business impact as it is released across more experiences on our platform. At the end of last year, we acquired AI startup Headroom and deepened our bench of technical talent and leadership in this area. ULMA is an illustration of how this team is accelerating the delivery of our vision for how to serve customer needs using AI.

Speaker Change: Additionally, <unk> will improve its capabilities and extended customer and business impact as it is released across more experiences on our platform.

Speaker Change: At the end of last year, we acquired AI startup headroom and deepened our bench of technical talent and leadership in this area.

Speaker Change: As an illustration of how this team is accelerating the delivery of our vision for how to serve customer needs using AI is a key development towards realizing a much larger vision as we leverage AI to deliver an experience where customers move from idea to outcome from dream to delivery powered by a combination.

Hayden Brown: It's a key development towards realizing a much larger vision as we leverage AI to deliver an experience where customers move from idea to outcome, from dream to delivery, powered by a combination of AI and humans working effortless together. To further catalyze this new reality and solidify Upwork as the premier destination for where that happens most effectively, we continue to expand the ecosystem of partners, offering industry-leading tools through our apps and offers page, and welcoming a cohort of new partners, including Dropbox, Notion, and iStock by Getty Images.

Speaker Change: That's AI and humans working effortlessly together.

Speaker Change: To further catalyze this new reality and solidify upward as the premier destination for where that happens most effectively.

Speaker Change: We continue to expand the ecosystem of partners offering industry, leading tools through our App and offers Pete welcome a cohort of new partners, including Dropbox notion and I stopped by Getty images.

Hayden Brown: Data shows that freelancers are already ahead of their full-time employee peers inside businesses in the adoption of AI tools. The Upwork Research Institute found that freelancers are more than two times more likely to regularly use generative AI in their work versus non-freelance professionals.

Speaker Change: <unk> shows that freelancers are already ahead of their full time employee peers insight businesses in the adoption of AI tools.

Speaker Change: Upper Research Institute found that freelancers are more than two times more likely to regularly used generative AI in their work versus non freelance professionals.

Hayden Brown: Our goal is to equip freelancers on Upwork with preferential access to the best tools to become the most highly skilled and sought-after AI-enabled talent pool in the world. This directly taps into a growing chorus of client demand for skilled workers who already know how to create exponential business value using these technologies. We're already serving this need, as evidenced by the 50% year over year growth rate in our AI services category in Q1.

Speaker Change: Our goal is to equip freelancers on our pork with preferential access to the best tools to become the most highly skilled and sought after and enable the talent pool in the world.

Speaker Change: This directly tapped into a growing chorus of client demand for skilled workers, who already know how to create exponential business value using these technologies.

Speaker Change: We're already starting this need as evidenced by the 50% year over year growth rate and our AI services category in Q1.

Hayden Brown: We are extremely excited for our customers to benefit from the many new products, features, and partnerships included in our Spring 2024 update to supercharge their businesses and work. If you haven't yet, take a moment to visit Upwork.com slash updates, where you can learn more about these exciting innovations and how they address customer needs.

Speaker Change: We are extremely excited for our customers to benefit from the many new products features and partnerships included in our spring 2024 update to supercharge their businesses and work if.

Speaker Change: If you haven't yet to take a moment to visit upward dot com slash updates, where you can learn more about these exciting innovations and how they address customer needs.

Erica Gessert: This encouraging start to the year, including our rapid pace of innovation and enhanced financial outlook on both revenue and adjusted EBITDA, gives us confidence in the year ahead, our growth prospects, and the exciting long-term framework for Upwork's profitability. We look forward to continuing to update you on our progress in the quarters to come. With that, I will turn it over to Erica to review our financials. Thanks, Hayden.

Speaker Change: This encouraging start to the year, including our rapid pace of innovation and enhanced financial outlook on both revenue and adjusted EBITDA gives us confidence in the year ahead, our growth prospects and the exciting long term framework for <unk> profitability, we look forward to continuing to update you on our progress in the quarter.

Speaker Change: To come.

Speaker Change: With that I will turn it over to Erica to review our financials.

Erica: Thanks Hayden.

Erica Gessert: While we've accelerated our pace of innovation in all the ways Hayden just outlined, in Q1, we also rapidly identified new levers to deepen our focus on durable, profitable growth. We are committed to driving revenue growth and growing operating margins regardless of the macroeconomic backdrop we're executing in, and our first quarter results and increased outlook for 2024 clearly show our ability to do that. And I am delighted to say that our plans to continually and meaningfully grow our operating leverage extend beyond 2024.

Erica: Well, we've accelerated our pace of innovation in all the ways Hayden just outlined in Q1, we also rapidly identify new levers to deepen our focus on durable profitable growth.

Erica: We are committed to driving revenue growth and growing operating margins for godless of the macroeconomic backdrop, we're executing them and our first quarter results and increased outlook for 2024, clearly show our ability to do that.

Erica: And I'm delighted to say that our plans to continually and meaningfully grow our operating leverage extend beyond 2024.

Erica Gessert: Our highly profitable business model, with gross margins over 75%, as well as the investments we're making in operational improvements like engineering productivity and back-office automation, mean that we can make clear and concrete commitments to growing our margins and free cash flow for the foreseeable future. As I strategize with Hayden and the team, I've grown confident in our ability to drive growth while also increasing profitability and adjusted free cash flow. We are now in a position to commit to hitting 35% adjusted EBITDA margin in the next five years, and I'm confident we can increase our operating leverage each and every year as we get there.

Erica: Our highly profitable business model with gross margins over 75% as well as the investments, we're making in operational improvements like engineering productivity and back office automation.

Erica: You know that we can make clear and concrete commitments to growing our margins and free cash flow for the foreseeable future.

Erica: As they strategize with Hayden and the team I've grown confident in our ability to drive growth, while also increasing profitability and adjusted free cash flow.

Erica: We are now in a position to commit to hitting 35% adjusted EBITDA margin in the next five years and I'm confident we can increase our operating leverage each and every year as we get there.

Erica Gessert: Turning back to our most recent results, I'll hit a few highlights. Revenue growth in the first quarter was very strong, growing 19% year over year to $190.9 million, and this was driven in part by the final transition to the new flat fee pricing structure we started last year. Marketplace revenue was $164.3 million and grew 20% year over year.

Speaker Change: Turning back to our most recent results I'll hit a few highlights.

Speaker Change: Revenue growth through the first quarter was very strong growing 19% year over year to $190 9 million and was driven in part by the final transition to the new flat fee pricing structure, we started last year.

Speaker Change: Marketplace revenue was $164 3 million and grew 20% year over year.

Erica Gessert: In our Enterprise Business Unit, our unique breadth of offerings drove total enterprise revenue growth of 10% year-over-year to $26.6 billion. Within Enterprise revenue, Enterprise Solutions revenue was $11.7 million and grew 3% year-over-year. Managed services performed particularly well, driving revenue of $14.9 million, representing growth of 17% year-over-year. Our active client base continues to grow, driven by increasing demand, with growth in Q1 in both activations and reactivations. We added over 20,000 new active clients in the first quarter of 2024, and we now have over 872,000 active clients, representing 5% year-over-year growth. This is the highest growth in active clients in two years. Turning to some additional color on GSB.

Speaker Change: In our enterprise business unit, our unique breadth of offerings drove total enterprise revenue growth of 10% year over year to $26 $6 billion.

Speaker Change: Within enterprise revenue Enterprise solutions revenue was $11 7 million and grew 3% year over year.

Erica: Managed services performed particularly well driving revenue of $14 $9 million representing growth of 17% year over year.

Erica: Our active client base continues to grow driven by increasing demand with gross in Q1 in both Activations and reactivation.

Erica: We added over 20000, new active clients in the first quarter of 2024, and we now have over 872000 active clients, representing 5% year over year aircrafts.

Erica: This is the highest growth in active clients in two years.

Erica: Turning to some additional color on J S P.

Erica Gessert: Excluding the impact on GSV growth rates from the pricing change, we estimate Q1 GSV growth would have been approximately 3% year over year. While GSV grew approximately 1% year-over-year, this included some temporary headwinds associated with the final transition to our simplified flat-feet pricing structure, which occurred on January 1st. While we naturally see some temporary headwinds to GSV as we make the appropriate strategic adjustments to our pricing structure, these changes are driving growth for our business and a simplified value proposition for our customers, making it easier to price and negotiate contracts.

Erica: Excluding the impact of GSV growth rate from the pricing change, we estimate Q1 GSV growth would have been approximately 3% year over year.

Erica: Oh, Yes, we grew approximately 1% year over year. This included some temporary headwinds associated with the final transition to our simplified flat pricing structure, which occurred on January 1st.

Erica: While we naturally see some temporal headwinds to GSV as we make the appropriate strategic adjustments to our pricing structure.

Erica: These changes are driving growth for our business and a simplified value prop for our customers.

Erica: It easier to price and negotiate contracts.

Erica Gessert: Even after these changes, our marketplace take rate, at 17.7%, remains one of the lowest in the industry, which means that we have the capacity to continue to develop targeted monetization opportunities on the platform that will bring value to our customers. Non-GAAP gross margin continued to improve both on a year-over-year and a sequential basis. The Non-Gap Gross Margin of 77.1% increased nearly 200 basis points year over year. Non-GAP operating expense was $116.6 million in the first quarter, representing 61 percent of revenue, a significant reduction compared to the $125.8 million or 78 percent of revenue in the comparable prior year period.

Erica: Even after these changes our marketplace take rate of 17.7% remains one of the lowest in the industry, which means that we have the capacity to continue to develop targeted monetization opportunities on the platform that will bring value to our customers.

Erica: non-GAAP gross margin continued to improve both on a year over year and sequential basis.

Erica: non-GAAP gross margin of 77, 1% increased nearly 200 basis points year over year.

Erica: non-GAAP operating expense was $116 6 million in the first quarter, representing 61% of revenue a significant reduction compared to the $125 8 million or 78% of revenue in the comparable prior year period.

Erica Gessert: For the first quarter, non-GAAP R&D expense was $45.1 million, increasing 23% year over year, as we continue to accelerate our pace of innovation and new product releases, culminating in our Upwork updates announcement and our launch of UMA yesterday. The sequential increase in R&D also reflects the growth of our AIML talent bench through the acquisition in Q4 of Headroom and other investments. Even with our commitment to ongoing innovation, we anticipate growth in R&D expenses to moderate in the future through our work on engineering productivity and other levers.

Erica: For the first quarter non-GAAP R&D expense was $45 $1 million, increasing 23% year over year as we continue to accelerate our pace of innovation and new product releases, culminating in our upward updates announcement and our launch of <unk> yesterday.

Erica: The sequential increase in R&D also reflects the growth of our AI ml talent bench.

Erica: Through the acquisition in Q4 of headroom and other investments.

Erica: Even with our commitment to ongoing innovation, we anticipate growth in R&D expenses to moderate in the future through our work on engineering productivity and other levers.

Erica Gessert: Non-GAAP sales and marketing expense of $44.9 million declined 27% year-over-year, even as we continue to accelerate our active client growth. Our provision for transaction losses remains low at $0.9 million for Q1, representing less than 1% of total revenue.

Erica: non-GAAP sales and marketing expense of $44 $9 million declined 27% year over year.

Erica: Even as we continued to accelerate our active client growth.

Erica: Our provision for transaction losses remains low at zero point $9 million for Q1, representing less than 1% of total revenue.

Erica Gessert: PFTL benefited from some one-time items in the first quarter, and we expect our absolute dollar run rate to be slightly higher going forward, while still remaining very low as a percentage of revenue. Adjusted EBITDA was $33.3 million in the first quarter, representing a margin of 17.4%. Our profitable business model continues to generate gap earnings per share growth, which includes the impact of stock-based compensation. For the first quarter of 2024, fully diluted GAP earnings per share was $0.13. Adjusted free cash flow for the first quarter was $15.5 million.

Erica: P F T L benefit benefited from some one time items in the first quarter and we expect our absolute dollar run rate to be slightly higher going forward, while still remaining very low as a percentage of revenue.

Erica: Adjusted EBITDA was $33 $3 million in the first quarter, representing a margin of 17, 4%.

Erica: Our profitable business model continues to generate GAAP earnings per share growth, which includes the impact of stock based compensation.

Erica: For the first quarter of 2024 fully diluted GAAP earnings per share was <unk> 13 cents.

Erica: Adjusted free cash flow for the first quarter was $15 $5 million.

Erica Gessert: Adjusted free cash flow is lower in the first quarter every year due to the timing of our employee bonus payout. Cash, cash equivalents, and marketable securities were approximately $490.6 million at the end of the first quarter. I'm very pleased to highlight our active execution of our share repurchase authorization and our commitment to ongoing shareholder return. In the first quarter, we repurchased approximately 5.2 million shares.

Erica: Adjusted free cash flow is lower in the first quarter every year due to the timing of our employee bonus payout.

Erica: Cash cash equivalents in marketable securities were approximately $496 million at the end of the first quarter.

Erica: I'm very pleased to highlight our active execution of our share repurchase authorization.

Erica: I want to emphasize our commitment to ongoing shareholder returns.

Erica: In the first quarter, we repurchased approximately five 2 million shares.

Erica Gessert: And as of April 23rd, we have completed the entire $100 million repurchase program, repurchasing approximately 8.1 million shares. This program represents a return of value to our shareholders, and we expect our share count in 2024 to be lower than in 2023. Turning to guidance, for the second quarter, we expect to produce revenue in the range of $190 to $195 million, representing 14.2% year-over-year growth at the midpoint. For adjusted EBITDA, we are guiding to a range of $32 to $36 million, which represents an adjusted EBITDA margin of 17.7% at the midpoint. We anticipate non-GAAP diluted EPS to be between $0.21 and $0.23.

Erica: And as of April 23rd we have completed the entire $100 million repurchase program.

Erica: Approximately $8 1 million shares.

Erica: This program represents a return of value to our shareholders and we expect our share count in 2020 for it to be lower than in 2023.

Erica Gessert: Our outlook for weighted average shares outstanding for the quarter is now in the range of $139 to $141 million. For the full year 2024, we are increasing our revenue guidance to $770 to $782 million, representing 12.6% year-over-year growth at the midpoint. As we mentioned in our last earnings call, we expect our year-over-year revenue growth rates to moderate in the second half of 2024 as we lap the pricing changes implemented in 2023.

Erica: Turning to guidance for the second quarter, we expect to produce revenue in the range of $190 million to $195 million, representing 14, 2% year over year growth at the midpoint.

Erica: For adjusted EBITDA, we are guiding to a range of $32 million to $36 million, which represents an adjusted EBITDA margin of 17, 7% at the midpoint.

Erica: We anticipate non-GAAP diluted EPS to be between 21 and 23 cents.

Erica: Our outlook for weighted average shares outstanding for the quarter is now in the range of $139 million to $141 million.

Erica: For the full year 2024, we are increasing our revenue guidance to $770 million to $782 million, representing 12, 6% year over year growth at the midpoint.

Erica: As we mentioned in our last earnings call, we expect our year over year revenue growth rates to moderate in the second half of 2024 as we lap the pricing changes implemented in 2023.

Erica Gessert: For Adjusted EBITDA, we are increasing our guidance to a range of $140 million to $150 million, up from our previous guidance of $125 million to $135 million and representing a margin of 18.7% at the midpoint. This increase reflects our multi-quarter efforts to identify structural and persistent efficiencies in our business. Through these efforts, we will increase our operating margin every quarter this year. We expect full year 2024 non-GAP diluted EPS to be between $0.88 and $0.92, up from our guidance last quarter of $0.77 to $0.81.

Erica: For adjusted EBITDA, we are increasing our guidance to a range of $140 million to $150 million up from our previous guidance of $125 million to $135 million and representing a margin of 18, 7% at the midpoint.

Erica: This increase reflects our multi quarter efforts to identify structural and persistent efficiencies in our business.

Erica: Through these efforts, we will increase our operating margin every quarter this year.

Erica: We expect full year 2024, non-GAAP diluted EPS to be between 88 to 92 cents.

Erica: From our guidance last quarter of 77 to 81 cents.

Erica Gessert: This improvement is driven both by our focus on efficiencies as well as our share repurchase program. For the full year, weighted average shares outstanding will decline to a range of $140 to $144 million, down from our prior guidance last quarter of $148 to $152 million.

Erica: This improvement is driven both by our focus on efficiencies as well as our share repurchase program.

Erica: For the full year weighted average shares outstanding will decline to a range of $140 million to $144 million down from our prior guidance last quarter of $148 million to $152 million.

Operator: As I survey our progress in the first few months of 2024, I am excited about Upwork's trajectory. We are at the forefront of the future of work. Our business model and our position as a market leader mean that we can invest in innovation, achieve ongoing profitability gains, and produce adjusted free cash flow to fund our business while driving strong shareholder returns. We are committed to producing steady and significant operating margin and adjusted free cash flow growth this year, next year, and into the future.

Erica: As I survey our progress in the first few months of 2024, I am excited about upper trajectory.

Erica: We are at the forefront of the future of work.

Erica: Our business model and our position as a market leader I mean that we can invest in innovation achieved ongoing profitability gains and produce adjusted free cash flow to fund our business, while driving strong shareholder returns.

Erica: We are committed to producing steady and significant operating margin and adjusted free cash flow growth. This year next year and into the future and because of the profitability of our marketplace model. We can continue to invest in growth as we do it.

Operator: And because of the profitability of our marketplace model, we can continue to invest in growth as we do. As always, I want to extend thanks to our incredible team at Upwork for their contributions this quarter. I am seeing our pace of execution accelerate every single day, and I am proud to be part of this great team. And with that, we will take your questions. Thank you. As a reminder to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: As always I want to extend thanks to our incredible team at up work for their contributions this quarter.

Speaker Change: I am seeing our pace of execution accelerate every single day and I am proud to be part of this great team.

Speaker Change: And with that we will take your questions.

Speaker Change: Thank you and as a reminder to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you. Please limit yourself to one question and one follow up one moment, while we compile our Q&A roster.

Operator: We ask that you please limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. Our first question is going to come from the line of Andrew Boone with JMP Securities. Your line is open. Please go ahead. Thank you for taking my question. This is Matt on behalf of Andrew Boone.

Speaker Change: Our first question is going to come from the line of Andrew Boone with JMP Securities. Your line is open. Please go ahead.

Speaker Change: Thank you for taking my question. This is Matt on for Andrew My first one is maybe can you just provide any color on the performance of cohorts.

Erica Gessert: My first one is, maybe can you just provide some color on the performance of cohorts? And if there's any change that you're seeing as far as the stabilization of spend there, anything would be helpful there. And then my second question is, is it great to see the 100,000 active subscribers for Freelancer Plus? Can you give us any color on how big this can get over time? Thank you. Yeah, hey, Matt, this is Erica.

Matt: Any change that you're seeing as far as the stabilization of spend there anything would be helpful. There and then my second question is it's great to see the 100000.

Matt: Active subs for freelancer plus.

Matt: Could you give us any color on how big this can get to over time. Thank you.

Erica Gessert: Thanks for the question. Yeah, we publish our cohort chart once a year in our 10k. And as I talked about, I think it was at your conference, that, you know, that's an annual cohort chart, and we actually have seen some stabilization in terms of newer cohort spend in 2024. In terms of your question on Freelancer Plus and how big that can get over time, I'd say, you know, we're really excited about the progress we've already made on the ads and monetization roadmap so far.

Matt: Yeah, Hey, Matt. This is Erica thanks for the question Yeah, we publish our cohort chart once a year and are in our 10-K and as I talked about I think actually I was at your conference.

Erica: Yes, that's an annual cohort chart and we actually have seen some stabilization in terms of newer cohorts spend.

Erica: In 2024.

Speaker Change: In terms of your question on freelance surplus and how big that can get over time.

Speaker Change: We're really excited about the progress we've already made with ads and monetization road map. So far you know we mentioned that this is already.

Erica Gessert: You know, we mentioned that this is already the kind of fastest growing area of our business from a revenue perspective today, and we're still in the early innings. So specifically on Freelancer Plus, there are definitely opportunities to continue to enhance that offering. We added Upwork Chat Pro very recently, and that has generated a lot of excitement, but we also see opportunities to continue to enhance value there and with other aspects of how we build memberships and membership value on our platform.

Speaker Change: Kind of fastest growing area of our business from a revenue perspective today and we're still in early innings. So specifically on France surplus there are definitely opportunities to continue to enhance that offering we added upward chat pro very recently and that has.

Speaker Change: Generated a lot of excitement, but we also see opportunities to continue to enhance value there and with other aspects of how we build memberships and membership value on our platform, but I think stepping back the bigger story here is generally with as a monetization as a lever for this business, which does have a lot of runway. If you look at other marketplace models out there.

Erica Gessert: But I think stepping back, you know, the bigger story here is generally monetization as a lever for this business, which does have a lot of runway. You know, if you look at other marketplace models out there, companies like Airbnb, Instacart, others, see upwards of 25% of their revenue coming from ads and monetization, and we're nowhere near that today. So it's going to be unique to Upwork for us to figure out, you know, how big this can be, and we certainly don't have that number in mind today.

Speaker Change: He is like Airbnb instant card, others see upwards of 25% of their revenue coming from asset monetization and we're nowhere near that today. So it's going to be unique to upward for us to figure out how big this can be and we certainly don't have that number in mind today, but we are working diligently to ensure we do unlock the value here in a way that.

Operator: But we are working diligently to ensure we do unlock the value here in a way that is really driving both take rate expansion and GSV growth, because those things really can go hand-in-hand when you look at things like Kinect pricing, memberships, third-party partnerships that generate revenue. Like, all of these things can be creative on both sides of that equation, and we're very focused on unlocking that. Thank you so much. Thank you and one moment as we move on to our next question. And our next question is going to come from the line of Maria Ripps on Canaccord.

Speaker Change: It is really driving both take rate expansion and GSV growth because those things really can go hand in hand, when you look at things like connects pricing memberships are third party partnerships that generate revenue like all of these things actually can be accretive to both sides of that equation and where we're very focused on unlocking that.

Speaker Change: Thank you so much.

Speaker Change: Sure.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Yeah.

Speaker Change: And our next question is going to come from the line of Maria <unk> with Canaccord. Your line is open. Please go ahead.

Operator: Your line is open. Please go ahead. Hi, this is Matt on behalf of Maria.

Operator: Thanks so much for taking the question. Just on the increased full-year revenue guidance, is that largely a function of the momentum you're seeing with freelancer costs and the ads products? Or just wondering if there's any component of that that relates to upside to GSV?

Speaker Change: Hi, This is Matt on for Maria Thanks, So much for taking the question just on the increased full year revenue guidance is that largely a function of the momentum you're seeing with freelancer costs in the ads products or just wondering if there is any component of that that relates to upside. The GSV and then more broadly just any color you can share around how youre thinking about GSV.

Speaker Change: For the balance of the year and if we could see some acceleration in the back half would be great. Thanks, so much.

Erica Gessert: And then more broadly, just any color you can share around how you're thinking about GSV growth for the balance of the year. And if we could see some acceleration in the back half, that would be great. Thanks so much.

Speaker Change: Yeah sure. Thanks for the question, Matt maybe I will take it in and can add any color.

Speaker Change: So just on the on the revenue outlook I mean, I think we are.

Speaker Change: Absolutely are seeing some growth.

Speaker Change: Strong growth in our asset monetization products as we said they are the fastest growing revenue stream on the platform and and we have seen some incremental strength there and we're also seeing some nice strength in the enterprise business and so some very good kind of leading indicators actually on both sides of the business in the marketplace and the enterprise.

Speaker Change: And kind of new client growth, that's also giving us.

Speaker Change: So good confidence in terms of leading indicators for GSP growth later and enter into 2025 and beyond.

Erica Gessert: Yeah, sure. Thanks for the question, Matt. Maybe I'll take it, and Hayden, can I add some color?

Speaker Change: Sure and what I would add Matt around GSV acceleration for the balance of the year is.

Hayden Brown: So, just on the revenue outlook, yeah, I mean, I think we are absolutely seeing some growth, you know, good, strong growth in our ads and monetization products. As we said, they're the fastest-growing revenue stream on the platform, and we have seen some incremental strengths there. We're also seeing some nice strengths in the enterprise business and, you know, some very good, you know, kind of leading indicators, actually, on both sides of the business, in the marketplace and the enterprise, in terms of new client growth that's also giving us some good confidence in terms of leading indicators for GSP growth later and, you know, into 2025 and beyond. Sure, and what I'd add, Matt, around GSB acceleration for the balance of the year is that USB growth is our top priority as a company.

Speaker Change: You have to be growth is our top priority as a company. We're very active we are working on this and we're seeing some really good green shoots as.

Hayden Brown: You know, we're very actively working on this, and we're seeing some really good green shoots. As Erica mentioned, active clients are one leading indicator that we're seeing progress on this. You know, 5% growth is already a great sign from this past quarter. And a second thing is that our product innovations are indicating that releases like UMA can really move the needle, early as it is, in terms of, you know, driving traction around client spend and client metrics. So it does take time for these things to layer through at the size and scale of our customer base, driving the adoption of these products.

Speaker Change: As Ark mentioned active clients is one leading indicator that we're seeing progress on that in a 5% growth already.

Speaker Change: A great sign from this past quarter.

Speaker Change: Second thing is our product innovations are indicating that releases like Omar can really move the needle early as it is in terms of driving traction around client spend in client metrics. So it does take time for these things to layer through at the size and scale of our customer base and driving the adoption of these products. So.

Hayden Brown: So I want to be clear that this is a multi-quarter and multi-year endeavor, but the product innovations that we're driving are really laser focused on this. Maybe I'll just also emphasize one point, which is that GSV growth was dampened slightly in the quarter from the structural changes and the kind of final changeover to the new flat fee pricing structure. So, you know, absent that, we estimate the GSV growth would have been about 3% this quarter, which is a little bit of an uptick, you know, and so we're really encouraged by that as well. Very helpful. Thank you both.

Speaker Change: To be clear that this does is a multi quarter multi year endeavor, but the product innovations that we're driving are really laser focused on this.

Speaker Change: Maybe I'll just actually just also emphasize one point which is.

Speaker Change: GSV growth was dampened slightly in the quarter from the structural changes in the kind of final changeover to the new flagship pricing structure. So.

Speaker Change: So absent that we estimate that gesture growth would've been about 3% this quarter, which is a little bit of an uptick.

Speaker Change: And so we're really encouraged by that as well.

Speaker Change: Very helpful. Thank you both.

Speaker Change: Thank you and one moment as we move onto our next question.

Speaker Change: Yes.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Speaker Change: And our next question is going to come from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Operator: Thanks so much for taking the questions. Maybe me too, if I can, you know, following up on that answer on GSV growth, can you maybe just unpack for us how you're thinking about the components that have held back growth in GSV as maybe some of the dynamics around fee changes have impacted the headwind that you just highlighted? And that we should be thinking about the building blocks for growth in GSV as we get deeper into the year, just in terms of what's in your control versus elements that are out of your control as you see some of that growth evolve.

Eric Sheridan: Thanks, so much for taking the questions maybe two if I can follow up on that answer on GSV growth can you, maybe just unpack for us how you're thinking about the components that have held back growth in GSV as maybe some of the dynamics around fee changes have impacted the headwind that you just highlighted and that we should be.

Eric Sheridan: About the building blocks for growth in GSV as we get deeper into the year just in terms of what's in your control versus elements that are out of your control as you see some of that growth evolve and then as to some of the investments you talked about especially the internal ones. How do you think about elements of investments driving either incremental growth through the remainder of this year versus also.

Operator: And then as to some of the investments you talked about, especially the internal ones, how do you think about elements of investments driving either incremental growth through the remainder of this year versus also investments that are balanced towards driving increased productivity and efficiency gains that might show up on the margin front? Thanks so much.

Eric Sheridan: That's been set or balanced towards driving increased productivity and efficiency gains that might show up on the margin front. Thanks, so much.

Erica Gessert: All right. You packed a lot in there, Eric, so let me see if I can hit everything. So on GSV growth, like I said, we do have about two points of headwind in Q1, and that actually is through the year, just from the final cutover with the pricing change. But I think beyond that, you know, we see a lot of really strong leading indicators that give us a lot of confidence that, you know, our GSV growth is going to kind of continue to tick up.

Eric Sheridan: Alright, you packed a lot in there Eric So let me see if I can if I can hit everything on GSV growth like I said, we do have about two points of headwind in Q1 and that actually are through the year.

Eric Sheridan: From the final cutover took with the pricing change I think beyond that.

Eric Sheridan: We've really tried to highlight we see a lot of really strong leading indicators that give us a lot of confidence that our January growth is going to kind of continue to tick up.

Erica Gessert: The active client growth is really encouraging, and some of the strength on the enterprise side that we see kind of falling into late this year and into next year. And then, you know, also a lot of experiments on the platform with a lot of the new experiences we've just launched with UMA. Hayden highlighted some of the positive benefits we're seeing with very early experimentation with UMA that we think are just going to get better and better.

Eric Sheridan: The active client growth is really encouraging some of the strength on the enterprise side that we that we see kind of falling into late in this year and into next year.

Eric Sheridan: And then.

Eric Sheridan: That also has a lot of the experiments on our platform with a lot of the new experience as we've just launched with Irma.

Eric Sheridan: <unk> highlighted some of the positive benefits we are seeing with very early experimentation with that we think are just going to get better and better so.

Erica Gessert: So, you know, all these new experiences we see as being, you know, GSV growth stimulators, and we expect to, you know, help us advance into next year. Real quick on investments, I will, you know, touch on that.

Eric Sheridan: All of these new experiences we see as being.

Eric Sheridan: GSV growth stimulators, and we expect to help us advance into next year.

Speaker Change: Real quick on investments I will I'll touch on it.

Erica Gessert: In terms of driving growth, look, we've been investing in R&D quite a bit over the last few years here in order to really accelerate the innovations on the platform that we've been talking about. Just as a reminder, we closed the headroom deal in Q4, and the addition of that team and really the growth of the AIML bench is an investment in the future growth of our platform. And it culminated in the launch of UMA and other things.

Eric Sheridan: In terms of driving growth look we are we've been investing in R&D.

Eric Sheridan: Quite quite a bit over a few years here.

Eric Sheridan: Order to really accelerate the innovation on the platform that we've been talking about.

Eric Sheridan: Just as a reminder, we closed the headroom deal and in Q4, and the addition of that team.

Eric Sheridan: And really the growth of the AI ml bench as an investment in the future growth of our platform.

Eric Sheridan: And it has culminated in the launch of <unk> and other things. So I think there's plenty of growth to come that said.

Erica Gessert: So I think there's plenty of growth to come. That said, you know, I do expect that the R&D growth will moderate, you know, starting kind of as we advance through this year and certainly into next year.

Eric Sheridan: I do expect that the R&D growth will moderate.

Eric Sheridan: Starting kind of in as we advance through this year and certainly into next year.

Erica Gessert: As we really invest in tools for engineering productivity, cost of revenue, and data optimization, we're really in the early innings here. And so I see those investments really paying off at the end of this year and into next year. Great, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Matt Farrell with Piper Sandler.

Eric Sheridan: We really invest in tools for engineering productivity.

Eric Sheridan: And cost of revenue also data optimization, we're really in the early innings here and so I see those investments are really paying off into at the end of this year and into next year.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and one moment as we move onto our next question.

Speaker Change: And our next question is going to come from the line of Matt Farrell with Piper Sandler. Your line is open. Please go ahead.

Erica Gessert: Your line is open. Please go ahead. Thanks for taking my question and awesome work on the profitability side, maybe on the 35% adjusted EBITDA target within five years. What size or scale do you think you need to be at in order to reach that target?

Matthew F. Farrell: Thanks for taking my question and Awesome work on the profitability side, maybe on the 35% adjusted EBITDA target within five years.

Operator: And on the cost side, how much more additional efficiency or leverage do you have at this point to help you achieve that goal over the next couple of years? Yeah, sure. Look, maybe it's good to kind of just take a step back real quick, and I'll make sure to answer your question in terms of what we think we need from a scale point of view to achieve this. I mean, the short answer is, I've gained confidence over the past year, working with the teams, looking at all the cost optimization opportunities in front of us, that, you know, we can achieve significant and meaningful operating leverage in this business, absent of meaningful growth and scale.

Matthew F. Farrell: What size of scale do you think you need to be at in order to reach that target.

Matthew F. Farrell: On the cost side, how much more additional efficiencies or leverage do you have at this point to help you achieve that goal over the next couple of years.

Speaker Change: Yeah sure look.

Speaker Change: Maybe it's good to kind of just take a step back real quick and I'll make sure to answer your question on in terms of what we think we need from a scale point of view to achieve this I mean, the short answer is.

Speaker Change: Ive gained confidence over the past year working with the teams looking at all the cost optimization opportunities in front of us that we can achieve significant meaningful operating leverage in this business.

Matthew F. Farrell: Absent of meaningful growth in scale so.

Matthew F. Farrell: If you look at kind of a journey over the past year. When I came into this last year, we committed to being profitable we advance very very quickly on that journey even absent.

Operator: So, you know, if you look at kind of the journey over the past year, you know, when I came into business last year, we committed to being profitable. We advanced very, very quickly on that journey, even absent of, you know, kind of meaningful volume growth, and, you know, got to kind of, you know, mid-teens EBITDA margins in just about six months. Last year was all about, you know, focusing on sales and marketing optimization. And some of the benefits that we've been able to achieve in our business with active client growth and other things, even while significantly reducing our marketing spend, have given me a tremendous amount of confidence that we continue to optimize in these areas. And honestly, you know, last year was all about sales and marketing optimization.

Matthew F. Farrell: Kind of meaningful volume growth and <unk> got to kind of mid teens.

Matthew F. Farrell: EBITDA margins in just about six months.

Matthew F. Farrell: Last year was all about focusing on sales and marketing optimization and some of the benefits that we've been able to yield in our business with active client growth and other things, even while significantly reducing our marketing spend has given me a tremendous amount of confidence that we continue that can continue to optimize in these areas.

Erica Gessert: We're now looking, you know, I've been working very deeply with the teams, looking at engineering productivity, like I said, data optimization, many, many other places in the organization where we think we can gain significant yields. So, you know, I think that we can certainly continue to gain operating leverage even in, you know, a relatively, you know, lower growth environment. That said, we will continue to invest in growth, and there's no reason, given the kind of gross margin profile of this business, that we can't continue to invest in growth while producing operating leverage.

Matthew F. Farrell: And honestly last year was about sales and marketing optimization. We're now looking I've been working very deeply with the teams looking at engineering productivity.

Matthew F. Farrell: I said data optimization. Many many other places in the organization, where we can where we think we can gain significant yield.

Matthew F. Farrell: So I think that we can.

Matthew F. Farrell: Certainly continue to gain operating leverage even in a relatively lower growth environment that said, we will continue to invest into growth and Theres No reason, where given the kind of gross margin profile of this business that we can't continue to invest in growth while producing operating leverage. So I think we think that we're convinced we can do.

Erica Gessert: So, you know, I think we think that we're convinced that we can do both, but, you know, really, the GSV growth that we're investing in now will, you know, really be just on top of the operating leverage that we can achieve. Yeah, another way that I'd answer that question, Matt, is to say, you know, we're here, we are here to build a really big business.

Matthew F. Farrell: Both but really the GSV growth that we're investing in now.

Matthew F. Farrell: Really be just on top of the operating leverage that we can achieve.

Hayden Brown: We want to drive this business to tremendous scale, and we're pacing ourselves to continue to invest in growth and create meaningful leverage increases every year towards that 35% target, which is, you know, within five years. We're moving there aggressively. But, you know, we're investing in growth towards that real scale of the business while enhancing leverage, and we know we can do that kind of thing irrespective of the pace of the growth of the business.

Speaker Change: Yeah, another way that I'd answer that question, Matt as to say we're here. We're here to build a really big business, we want to drive this business to tremendous scale.

Speaker Change: And we are pacing ourselves to continue to invest in growth and create meaningful leverage increases every year towards that 35% target, which is within five years like we are moving them aggressively.

Matthew F. Farrell: But we're investing in growth towards that real scale of the business, while enhancing leverage and we know we can do that kind of irrespective of the pace of the growth of the business.

Hayden Brown: And as a follow-up, you've hit on the active client growth acceleration now a couple of times, I guess, in the backdrop of the lower sales and marketing spend. What do you think is driving this dynamic in a more steady macro? And are the customers that are joining Upwork more recently, do they look and feel any different than they have historically? Yeah, they do.

Matthew F. Farrell: And as a follow up you've hit on the active client growth acceleration now a couple of times I guess in the backdrop of the lower sales and marketing spend like what do you think is driving this dynamic into more steady macro and are the customers that are joining up work more recently.

Matthew F. Farrell: Look and feel any different than they have historically.

Hayden Brown: I think that what's driving it is the execution that Erica mentioned earlier around sales and marketing. You know, we've done a really great job over many quarters, building the muscle in those areas, and that's delivering results for us. You know, our value proposition has always resonated and has continued to resonate in this macro, where clients are really looking for flexibility; they're looking for the specialized skills that we have on this platform.

Matthew F. Farrell: Yeah. They do I think that what's driving it is the execution that Eric mentioned earlier around sales and marketing we've done a really great job over many quarters.

Matthew F. Farrell: Building the muscles in those areas and that's delivering results for us our value proposition has always resonated and is continuing to resonate in this macro where clients are really looking for flexibility, they're looking for the specialty specialized skills that we have on this platform.

Matthew F. Farrell: But we've really been delivering with our sales and marketing efforts to be extremely efficient and attract in clients, who broadly do look like past clients I wouldn't say, there's anything really notably different about them and they were coming in and they're ramping up with us I will just add that you know that some of the new expect experiences on the platform that are enabled by the AI.

Hayden Brown: But we've really been delivering with our sales and marketing efforts to be extremely efficient and attract clients who broadly do look like past clients. I wouldn't say there's anything really notably different about them, and they're coming in, and they're ramping up with us.

Hayden Brown: I'll just add that, you know, some of the new experiences on the platform that, you know, are enabled by the AI investments we've been making are also really advancing the journey from prospect to active client. So, for example, the job post generator that we launched last year; over 70% of new customers are using that tool in order to post jobs and then, you know, get to activation. So I think there's, you know, it's a combination of factors of the performance marketing engine really humming, you know, even as we've reduced costs and, you know, some of the new experiences on the platform that we've introduced.

Matthew F. Farrell: Since we've been making are also really advancing the journey from prospect to active clients. So the job pest generator that we launched last year over 70% of new customers are using that tool in order to post jobs and then get to activation. So I think it's a combination of factors of the performance marketing engine really humming.

Matthew F. Farrell: And even as we reduce cost and some of the experience of a platform that we've introduced.

Hayden Brown: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Bill with Jeffrey's. Your line is open, please go ahead. Hi, thank you. This is John Biantro-Brenfell.

Speaker Change: Thank you and one moment as we move onto our next question.

Speaker Change: And our next question is going to come from the line of Brent Thill with Jefferies. Your line is open. Please go ahead.

Speaker Change: Alright. Thank you. This is John again for Brent Thill.

Operator: One more question on GSV. So you mentioned the adjusted is 3% in Q1 and 2.2 headwind, and that'll last through the rest of the year. And it sounds like, even adjusting for that, it might accelerate.

John: One more question on GSP you mentioned, the adjusted is 3% in Q1 and two points of headwind and that might that will last through the rest of the year.

John: And it sounds like also.

John: Even adjusting for that it might accelerate just wanted to kind of clarify that that's what you're seeing.

Operator: Just wanted to kind of clarify that that's what you're seeing. And then maybe related to that, on the macro side, if you could talk about how things look in terms of spend per cohort or hours per project, anything you're noticing on a macro level. Thank you. Yeah, I think you got it on the temporary headwind that we're seeing from the pricing change. We estimate that at about 2% of GSV growth and, you know, impacted us in Q1 and throughout the year. From there, you know, we'll lap that, and I think, you know, for all the reasons we've talked about, expect to see GSV, you know, continue to step up. Oh, and the next question on the macro.

John: Then.

John: Maybe related to that on the macro side, if you could talk about.

John: How things look in terms of the spend per cohort of Arthur project anything that you would normally see on a macro level. Thank you.

John: Yeah.

Speaker Change: I think you've got it.

Speaker Change: On the temporary headwind that we're seeing from the pricing change we estimate that at about 2% of GSV growth.

Speaker Change: And it impacted us in Q1 and throughout the year.

Speaker Change: From there we will lap that and I think for all the reasons, we've talked about expect to C. G.

Speaker Change: <unk>.

Speaker Change: To step up.

Speaker Change: And the next question on the macro.

Erica Gessert: Yeah, look, I mean, I think just in general, the macro, you know, we're still seeing a lot of dynamism and, you know, out there in the environment, inflationary environment still affecting consumers and small businesses, you know, corporations still quite budget conscious. I think, you know, the reality is, is that we've been really kind of an oasis of stability, I think, within some of this, you know, broader environment And also, you know, we've said for a few quarters now that we intend to produce growth, growing our profit margins and revenue, regardless of the macro.

Speaker Change: Look I mean, I think just in general the macro we're still seeing a lot of diamond dynamism and out there in the environment.

Speaker Change: Inflationary environment still affecting consumers and small businesses.

Speaker Change: Corporations still quite budgets budget conscious I think.

Speaker Change: The reality of it is we've been really kind of an oasis of stability I think within this some of this broader environment.

Speaker Change: And also we have said for a few quarters now that we intend to produce growth.

Speaker Change: And growing our profit margins and revenue regardless of the macro and I think we're really showing that with our current results.

Erica Gessert: And I think we're really showing that with our current results. More broadly, I think, you know, if, you know, any kind of underlying detail, I think we, like I said, I think we continue to see, you know, very, you know, very good growth in our, in kind of the small business side, very small business side of our platform. And some of the negative impacts from, you know, large businesses from last year are moderating in the current environment. Thank you.

Speaker Change: More broadly I think if any kind of underlying detail I think we like I said I think we continue to see.

Speaker Change: Very good growth in our in kind of the small business side very small business.

Speaker Change: Our platform.

Speaker Change: And some of that negative kind of impacts from large business from last year is moderating in the current environment.

Speaker Change: Thank you.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Ron Josey with Citi. Your line is open. Please go ahead. Hey guys, thanks for the question. This is Jake on behalf of Ron.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Ron Josey with Citi. Your line is open. Please go ahead.

Operator: First, wanted to ask on the enterprise side, could you talk more about the benefits of the new VMS partnerships and specifically progress you're making in terms of focusing more on the growth side of the equation with the larger clients? And then second, just on how great it is to see the AI categories growth. Any additional color you could share there in terms of the mix of this growth from existing clients versus new clients and any trends in terms of spend or wages within that category? Sure, Jake.

Ronald Victor Josey: Hey, guys. Thanks for the question. This is Jake on for Rob.

Jake: First wanted to ask on the enterprise side could you talk more about the benefits the new Vms partnerships, and specifically I guess youre, making in terms of focusing more on the <unk>.

Jake: Span side of the equation with the larger clients.

Jake: And then second just on good to see the AI categories growth.

Jake: Any additional color you could share there in terms of mix of this growth from existing clients versus new clients and any trends in terms of spend or wages.

Jake: Within that category. Thanks.

Hayden Brown: Speaking about the enterprise VMS partnership, so the reality there is that so many of the enterprise customers that we are serving today and are looking to break into already have existing relationships with VMS and MSP partners, you know, partners themselves. And so when we go through the work of partnering with those providers, it really opens up new opportunities where the spend that those customers are funneling into those platforms becomes available for us to basically participate in and, you know, basically bid on or, you know, offer up talent for and become, you know, an approved vendor of record around.

Speaker Change: Sure Jake speaking about the enterprise Vms partnerships. So the reality there is so many of the enterprise customers that we are serving today.

Speaker Change: And are looking to break into.

Speaker Change: Already have existing relationships with our Vms and MSP.

Jake: Partners themselves and so when we go through the work of partnering with those providers. It really opens up new opportunities where spend that those customers are funneling into those platforms becomes available for us to basically participate in and basically bid on or offer a talent.

Jake: Four.

Jake: And become.

Jake: Proved vendor of record around so it really opens up.

Hayden Brown: So it really opens up the dollars available to Upwork, both within existing customers who are using VMSs and for new prospects. Sometimes it's a condition of them working with us or certainly a big selling point when they realize that we can work with their existing VMS.

Jake: Dollars available to upward both within existing customers, who are using <unk> and for new prospects, sometimes it's a condition of them working with us or certainly a big selling point when they realize that we can work with their existing Vms. So it's early that's executing the strategy, but we're very excited about what it can do and opening up the enterprise opportunity.

Hayden Brown: So, it's early, you know, for us to execute the strategy, but we're very excited about what it can do in opening up the enterprise opportunity to your question about the AI categories and kind of what's going on there. Yeah, this is, you know, a tremendous, tremendous area for us, with the 50% year over year growth, specifically in AI services, in addition to just generally seeing clients looking for talent across all the categories we serve, where that talent is equipped and enabled using AI tools.

Jake: Tier to your question about the.

Jake: The AI categories and kind of what's going on there. Yeah. This is a tremendous tremendous area for us with a 50% year over year growth specifically in AI services. In addition to just generally seeing.

Jake: Clients looking for talent across all the categories, we serve where that talent is equipped and enabled using AI tools and I think the interesting fact, there is the data shows that only about 9% of internal employees are using AI tools on a regular basis compared to 20% of freelancers and compared to more than 50%.

Hayden Brown: And I think that the interesting fact there is, you know, the data shows that only about 9% of internal employees are using AI tools on a regular basis compared to 20% of freelancers and compared to more than 50% of freelancers on Upwork who are equipped and using these tools. So, when we talk to businesses, they're saying, you know, I need to upskill my workforce. I can't do it fast enough.

Jake: Our freelancers on upward who are equipped and using these tools. So when we talk to businesses, they're saying I need to Upskill My workforce I can't do it fast enough. Let me instead turned up work and find the talent that is skilled in these areas and so we're serving a lot of different needs here I would say we are seeing.

Hayden Brown: Let me instead turn to Upwork and find the talent that is skilled in these areas. And so we're serving a lot of different needs here. And I would say we are seeing premium wages in some of these areas.

Hayden Brown: It's probably not quite as strong as it was maybe three or four quarters ago, like it's moderated a little bit, but there is still a demand for a lot of this work. And this talent is still highly, highly in demand, as evidenced by the fast growth we saw last quarter, which was, I would note, on top of, I think, quadruple digit growth a year ago in that same area. Thanks a lot.

Jake: Premiums premium wages in in some of these areas is probably not quite as strong as it was maybe three or four quarters ago like is moderated a little bit but there is still a delta for a lot of this work and talent is still highly highly in demand as evidenced by the faster growth. We saw last quarter, which was I would note on top of I think our.

Jake: Digit growth a year ago in that same area.

Speaker Change: Thanks, a lot.

Jake: Sure.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Rohit Kulkarni with Roth MKM. Your line is open. Please go ahead.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Rohit Kulkarni with Ross M. Cam. Your line is open. Please go ahead.

Operator: Hey, thank you for taking my questions. I guess on the ads and monetization side of things, maybe just talk about the strategy and the footprint that you think you have there. And in terms of it's been the fastest growing revenue stream for you guys for quite some time. And how do you see the runway in terms of delivering more growth on that? And then as far as the 24 model is concerned, any extra color on the drivers and assumptions in terms of how we should think about take rate from year on out as well as client growth? What are you thinking about for the rest of the year? Sure, Rohit.

Rohit Rangnath Kulkarni: Hey, Thank you for taking my questions I.

Rohit Rangnath Kulkarni: I guess on the odds and monetization side of things, maybe just talk about the strategy and the footprint that you think you have there.

Rohit Rangnath Kulkarni: In terms of its been the fastest growing revenue stream for you guys for quite some time.

Rohit Rangnath Kulkarni: How do you see the runway in terms of unpacking more growth on that and then.

Rohit Rangnath Kulkarni: As far as the 24 model is going through and any extra color on the drivers and assumptions in terms of how should we think about.

Rohit Rangnath Kulkarni: Take rate from here on out as well as client growth how are you thinking about there.

Rohit Rangnath Kulkarni: For the rest of the year.

Erica Gessert: So on ads and monetization, you know, our strategy here is to build monetization levers that are really congruent with creating more value overall for our customers, and these things go hand in hand. And I think that's what we've really proven with the work we've done already. So, you know, we're encouraged by the progress made, but certainly there's a lot more that we think we can do. And I think, you know, examples of that span everything from enhancing memberships on the platform to continuing to price connect more accurately to continuing to bring in revenue from new streams, like our partnership program. So there's really a lot of runway here.

Speaker Change: Sure. So on AD monetization our strategy here is to build the monetization levers that are really congruent with creating more value overall for our customers and these things go hand in hand, and I think that's what we've really proven with the work already so we're encouraged by the progress made but.

Speaker Change: Certainly theres a lot more that we think we can do and I think examples of that span.

Speaker Change: Everything from enhancing memberships on the on the platform to continuing to.

Speaker Change: [noise] price connects more accurately to continue to bring in revenue from new streams like our partnership program. So there's really a lot of runway here and I think again, our goal is going to be governed around enhancing our take rate, but doing so in a way that really is creating more value for customers and getting them to spend more overall with us which is really the ultimate goal.

Erica Gessert: And I think, again, our goal is going to be governed around enhancing our take rate but doing so in a way that really is creating more value for customers and getting them to spend more overall with us, which is really the ultimate goal. In terms of the outlook for take rate and client growth, you know, I think for the rest of the year, you know, obviously we have a big step up in Q1.

Speaker Change: <unk>.

Speaker Change: In terms of the outlook for take rate and client growth.

Speaker Change: I think for the rest of the year, obviously, we had a big step up in Q1 as I said that that was associated with that.

Erica Gessert: As I said, that was associated with the cutover to the pricing plan, which, you know, really, by all measures, has been incredibly successful and, you know, well accepted by our clients and freelancers. I think for the rest of the year we'll expect take rate to, you know, not have obviously as big a step up, but we do expect really some of the continued advancement in ad monetization to add a little bit to take rate as we move through the year.

Speaker Change: Cutover on the pricing plan, which really by all measures has been incredibly successful and.

Speaker Change: Well accepted by our clients.

Speaker Change: Freelancers.

Speaker Change: Thank you for the rest of the year, we will expect take rates.

Speaker Change: Not have obviously as big as big a step up in.

Speaker Change: But we do expect really that some of the continued advancement on either monetization to add add add a little bit to take rate as we move through the year.

Erica Gessert: And client growth, I mean, things are going really nicely with our client acquisition engine, as we've kind of emphasized a few times on the call. Both activations and reactivations are doing nicely. So we do expect client growth to continue, you know, each quarter through the year. Okay, thanks, Sheridan.

Speaker Change: And Congress I mean things are going really nicely with our client acquisition engine as we've kind of emphasized a few times on the call.

Speaker Change: Both activations and reactivation are doing nicely. So we do expect client growth to continue.

Speaker Change: Each quarter through the year.

Operator: Thanks, Erica. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Marvin Fong with BTIG. Your line is open. Please go ahead. All right. Good evening.

Speaker Change: Okay. Thanks, Adam Thanks Erika.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Marvin Fong with <unk>. Your line is open. Please go ahead.

Operator: Thanks for taking my questions. Congratulations on the performance. So, two questions for myself. First, I would like to double-click on reactivation.

Marvin Milton Fong: Hi, good evening, Thanks for taking my questions. Congratulations on the on the on the performance so.

Marvin Milton Fong: Two questions for myself, so I wouldn't like to.

Marvin Milton Fong: Double click on on reactivation.

Marvin Milton Fong: Something we haven't talked as much about in the past, but I don't know for at least the some other companies in E. Commerce, you know reactivated buyers reactivated customers as well.

Erica Gessert: It seems like something we haven't talked about as much in the past, but for at least some other companies in e-commerce, you know, reactivated buyers or reactivated customers have become a major source of new clients. So, could you just kind of talk about how big that pool is for you guys and, you know, your initiatives to kind of get more past customers reactivated? And then a question just on GSV per client. I know it was down this quarter, but it looks like. I know that onboarding new clients is a drag on that metric. So, I was just wondering if you could kind of unpack that.

Marvin Milton Fong: A major source of new clients. So could you just kind of talk about how big that pool is for you guys and.

Marvin Milton Fong: And your initiatives to kind of get you get more cost cuts.

Marvin Milton Fong: Customers are reactivated and then a question just following on GSV per clients.

Marvin Milton Fong: No.

Marvin Milton Fong: It was down this quarter it looks like I know that onboarding, new clients of the drug.

Marvin Milton Fong: On that metrics I was just wondering if you could kind of unpack that.

Erica Gessert: You know, if we just look at, you know, existing cohorts, is the spend behavior declining, flat, or increasing? Thanks. Sure, Marvin. So on the first question, look, you know, I will note that reactivation trends have been accelerating for us, and it is a nice source of growth for active clients. We haven't broken it out.

Speaker Change: If we just look at it.

Speaker Change: This thing cohorts.

Speaker Change: And behavior.

Speaker Change: The declining or flat or increasing.

Speaker Change: Yeah.

Speaker Change: Sure Martin so on the first question.

Martin: I will note that that reactivation.

Martin: Trends have been accelerating for us and it is a nice source of growth for active clients.

Erica Gessert: I don't think we will. But, you know, as I said, it's kind of, it is kind of a nice tailwind for us. And look, I think that within the work that we're doing in terms of client reactivation, some of the performance marketing work that we do is also now aimed at client reactivation. Also, all of the work that we're doing, some of this, the new Upwork updates launch that we just did yesterday, all of this work is aimed at both attracting new clients and reattracting clients. Who maybe haven't been using the platform lately and letting them know all the new experiences that are being launched.

Speaker Change: We haven't broken it out we I don't think we will.

Speaker Change: But as I said, it's kind of it is kind of a nice tailwind for us.

Speaker Change: And look I think that.

Speaker Change: Within the work that we're doing.

Speaker Change: A client client reactivation.

Speaker Change: Some of the performance marketing work that we do is also now is aimed at quiet reactivation also all of the work we're doing some of this.

Speaker Change: The new epoch updates launch that was mistake.

Speaker Change: Yesterday.

Speaker Change: All of this work is aimed at.

Speaker Change: Both attracting new clients and re attracting clients.

Speaker Change: Who maybe haven't been using the platform lately.

Speaker Change: Letting them know of new experiences that are being launched.

Speaker Change: So theres a lot going on there on GSV for client.

Speaker Change: I'll just emphasize to you that.

Speaker Change: That metric is a trailing 12 month metric so it does have.

Speaker Change: So it is kind of picking up some of it's still some of the vas.

Speaker Change: <unk>.

Speaker Change: Kind of macroeconomic impacts that we had last year.

Speaker Change: But overall you're right.

Speaker Change: To the extent, we're activating lots of new clients that will be a drag on GSV proactive client.

Speaker Change: And the activity of retain clients has has started to stabilize compared to what we saw last year.

Speaker Change: Okay. That's perfect. Thanks, so much.

Speaker Change: Thank you and I'm showing no further questions at this time I would like to hand, the conference back to Hayden Brown for closing remarks.

Hayden Brown: Thank you everyone for joining us we appreciate your interest in up work and look forward to keeping you posted on our progress next quarter.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

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Erica Gessert: So there's a lot going on there in GSB for clients. I'll just emphasize to you that that metric is a trailing 12 month metric. So it does have some, it is kind of picking up some of the still some of the vacillations of kind of macroeconomic impacts that we had last year.

Speaker Change: Good day and thank you for standing by welcome to the upward Q1 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear.

Speaker Change: And automated message advising you. Your hand is raised to withdraw your question. Please press star. One again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, David Neeleman, Vice President Investor Relations. Please go ahead.

Erica Gessert: But overall, you're right that to the extent we're activating lots of new clients, that will be a drag on GSB for active clients. And the activity of retained clients has started to stabilize compared to what we saw last year. Okay, that's terrific. Thanks so much.

Operator: Thank you and I'm showing no further questions at this time and I would like to hand the conference back to Hayden Brown for closing remarks. Thank you everyone for joining us. We appreciate your interest in Upwork and look forward to keeping you posted on our progress next quarter. This concludes today's conference call. Thank you for participating and you may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day, and thank you for standing by. Welcome to the Upwork Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

David Neeleman: Thank you welcome to upwards discussion of its first quarter 2024 financial results. Joining me today are Hayden Brown, <unk>, President and Chief Executive Officer, and Eric Gessert upward Chief Financial Officer.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised.

David Neeleman: Following managements prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement during.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Niederman, Vice President, Investor Relations. Please go ahead.

Speaker Change: During this call we may make statements related to our business that are forward looking statements under federal Securities laws.

David Niederman: Thank you. Welcome to Upwork's discussion of its first quarter 2024 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.

Speaker Change: Forward looking statements include all statements other than statements of historical fact.

David Niederman: 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, please refer to our SEC filings available on the SEC's website and also on our investor relations website, as well as the risks and other important factors discussed in today's earnings press release.

Speaker Change: These statements are not guarantees of future performance, but rather are subject to a variety of risks.

Speaker Change: Certainties and assumptions.

Speaker Change: Our actual results could differ materially from expectations reflected in any forward looking statements.

Speaker Change: 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.

David Niederman: Additional information will also be set forth in our quarterly report on Form 10-Q for the three months ended March 31, 2024. In addition, reference will be made to certain non-GAAP financial measures. Information regarding non-GAAP financial measures, including reconciliations to their most directly comparable GAAP financial 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, and comparisons of the first quarter of 2024 are to the first quarter of 2023. All financial measures are GAAP and must be cited as non-GAAP.

Speaker Change: Additional information will also be set forth in our quarterly report on Form 10-Q for the three months ended March 31 2024.

Speaker Change: In addition reference will be made to certain non-GAAP financial measures and information regarding non-GAAP financial measures, including reconciliations to their most directly comparable GAAP financial measures can be found in the press release that was issued this afternoon on our Investor relations website at investors that upward dot com.

Speaker Change: Unless otherwise noted reported figures are rounded in comparisons of the first quarter of 2024 after the first quarter of 2023.

Speaker Change: All financial measures are GAAP unless cited as non-GAAP.

Hayden Brown: With that, I will turn the call over to Hayden. Welcome everyone to Upwork's first quarter 2024 earnings call. Upwork started the year off strong, with first quarter revenue of $190.9 million, representing 19% growth year over year. Our commitment to running a profitable business continued in the first quarter, as GAAP net income was $18.4 million, and adjusted EBITDA was $33.3 million. These results reflect the strength of our business and ability to deliver consistent results even in a fluid operating environment.

Speaker Change: With that I will turn the call over to him.

Speaker Change: Welcome everyone to <unk> first quarter 2024 earnings call.

Speaker Change: <unk> started the year off strong with first quarter revenue of $190 9 million.

Speaker Change: Representing 19% growth year over year.

Speaker Change: Our commitment to running a profitable business continued in the first quarter as GAAP net income was $18 $4 million and adjusted EBITDA was $33 $3 million.

Speaker Change: These results reflect the strength of our business and the ability to deliver consistent results even in a fluid operating environment.

Hayden Brown: Our unwavering focus on increasing operating leverage while investing in future growth is allowing us to raise our 2024 outlook for both revenue and adjusted EBITDA. We are committed to continuing to grow operating leverage into 2025 and beyond. Erica will share details on these plans in a few minutes.

Speaker Change: Our unwavering focus on increasing operating leverage while investing in future growth is allowing us to raise our 2020 outlook for both revenue and adjusted EBITDA.

Speaker Change: We are committed to continuing to grow operating leverage into 2025 and beyond Erica will share details on these plans in a few minutes.

Hayden Brown: Our marketplace business continues to deliver steady GSE performance within a dynamic macro environment, as GSE again exceeded $1 billion for the quarter. Historically, one of the most important leading indicators of GSB growth has been the addition of new clients. And we were very pleased to drive active client growth of 5% year over year to 872,000 in the first quarter. In addition to growth via attracting new clients, we are driving growth in GSV via product innovations.

Speaker Change: Our marketplace business continued to deliver steady GSV performance within a dynamic macro environment as GSE again exceeded $1 billion for the quarter.

Speaker Change: Historically, one of the most important leading indicators of GSV growth is the addition of new clients and we were very pleased to drive active client growth of 5% year over year to 872000 in the first quarter in.

Speaker Change: In addition to growth via attracting new clients.

Speaker Change: <unk> growth in GSV the product innovations. These include investing in new AI enabled products.

Hayden Brown: These include investing in new AI-enabled products, features, and partnerships that equip clients and freelancers to achieve desired outcomes faster and easier than ever before. With the help of these new experiences and encouraged by early success signals showing a lift in GSV, we anticipate our growth rate will continue to accelerate. Our strength in revenue growth stems from several areas, including our ads and monetization products, which display impressive performance and stand out as the fastest growing revenue stream for Upwork. The Freelancer Plus subscription, which provides freelancers with connections and tools to develop new skills, increase their visibility, and improve their efficiency with AI, had over 100,000 active subscribers in the first quarter.

Speaker Change: Features and partnerships that are quick clients and freelancers to achieve desired outcomes faster and easier than ever before with.

Speaker Change: With the launch of these new experiences and encouraged by early success signals showing a lift in GSV, we anticipate our growth rate will continue to accelerate.

Speaker Change: Our strength in revenue growth stems from several areas, including our app and monetization products, which displayed impressive performance and standout as the fastest growing revenue stream for a park the.

Speaker Change: The pronounced our plus subscription, which provide sprinklers with connect and tools to develop new skills increase their visibility and improve their efficiency with AI had over 100000 active subscribers in the first quarter.

Hayden Brown: Year over year, we've grown subscribers 60% and driven 76% growth in revenue from this offering. And we continue to make Freelancer Plus more compelling for customers, as a subscription now includes exclusive access to Upwork Chat Pro powered by GPT-4 and customized with Upwork data. In the first quarter, we also premiered instant consultations, a new way for clients to get expert advice within minutes from skilled professionals who are online and available to consult in real time, ultimately getting projects started and completed faster.

Speaker Change: Year over year, we've grown subscribers, 60% and driven 76% growth in our revenue from this offering and we continue to make free on surplus more compelling for customers as a subscription now includes exclusive access to upward Chad Crow powered by <unk>, four and customized with upward data.

Speaker Change: In the first quarter. We also premiered instant consultations a new way for clients to get expert advice within minutes from skilled professionals, who are online and available to consult and real time, ultimately getting projects started and completed faster.

Hayden Brown: Building instant consultations on top of our already successful consultations product is a promising avenue for us because we've seen the repeat usage rate of regular consultation clients is more than 50% higher than that of clients who start with a standard marketplace engagement. We're optimistic that instant consultations will gain similar traction and produce similar results.

Speaker Change: Building instant consultations on top of our already successful consultations product is a promising avenue for us because we've seen the repeat usage rate of regular consultation clients is more than 50% higher than that of client to start with a standard marketplace engagement, we're optimistic that instant consultations will gain similar.

Speaker Change: Traction and produce similar results.

Hayden Brown: Demand for Upwork services was also evident in the slate of new partners signing up for our burgeoning Upwork Partner Experts Program in the first quarter. These partnerships are designed to drive incremental GSV by acquiring clients who are active in third-party SaaS ecosystems and can benefit from talent on Upwork that is specialized in deploying, customizing, and maintaining these SaaS technologies. In Q1, GoDaddy, BigCommerce, and Constant Contact joined existing partners like OpenAI and ClickUp and are now able to connect their customers directly with exactly the right freelancer on Upwork at exactly the moment they need to get work done, thus enabling greater usage of their own products.

Speaker Change: Demand for <unk> services was also evident in the fleet of new partners signing up for our burgeoning upward partner experts program in the first quarter.

Speaker Change: These partnerships are designed to drive incremental GSV by acquiring clients, who are active in third party SaaS ecosystems and can benefit from talent on a park that has specialized in deploying customizing and maintaining these SaaS technologies.

Speaker Change: In Q1, Godaddy bank of Commerce and constant contact joined existing partners like open AI and click up and are now able to connect their customers directly with exactly the right freelancer on upward at exactly the moment they need to get work done thus, enabling greater usage of their own products.

Hayden Brown: This is a true multidimensional win-win in which our partners, their customers, who become our clients, and Upwork talent and shareholders all benefit. The Enterprise Business Unit exhibited very good progress in the first quarter, with accelerated revenue growth at 10% year-over-year. Momentum in signing new customers continues, exceeding our own target by adding 28 new enterprise client logos in the first quarter, including WPP, Unisys, and Ansys. Building atop our December announcement of inaugural vendor management system and managed service provider partnerships, we are rapidly expanding the workforce management ecosystem in which talent pools on Upwork can be tapped and leveraged, bringing on Workday, Vimli, and Kelly OCG as enterprise suite partners, with Kelly OCG serving as our first MSP partner.

Speaker Change: This is a true multi dimensional win win in which our partners there are customers, who become our clients and upward talent and shareholders all benefit.

Speaker Change: The enterprise business unit exhibited very good progress in the first quarter with accelerated revenue growth at 10% year over year.

Speaker Change: Momentum in signing new customers continues exceeding our own target by added 28, new enterprise client logos in the first quarter, including W. P P Unisys and answers.

Speaker Change: Building atop our December announcement of inaugural vendor management system and managed service provider partnerships. We are rapidly expanding the workforce management ecosystem in which talent pools on upward can be tapped and leveraged bringing on workday nimbly and Kelly OCG as enterprise suite partners with Kelly OCG.

Speaker Change: Serving as our first MSP partner.

Hayden Brown: The velocity of our product innovation is rapidly increasing. We are shipping new features to our clients and freelancers on a daily basis. The speed to market of new features and experiences on the platform is accelerating so quickly that we realized we needed to provide our customers with a single place and moment to get to know all of the enhancements we have released and new ways they can use our platform to get more done.

Speaker Change: Philosophy of our product innovation is rapidly increasing.

Speaker Change: We are shipping new features to our clients and freelancers on a daily basis, the speed to market of new features and experiences on the platform is accelerating so quickly that we realized we needed to provide our customers with a single place and moment to get to know all of the enhancements, we have released and new ways. They can use our platform to get more done.

Hayden Brown: As a result, Yesterday, we launched Upwork Updates, our new semi-annual product showcase that highlights what's new with our innovative products, features, and partnerships across the world's work marketplace. Upwork updates will help educate our customers and the market about the value of our offering and the rapid progress we are making in delivering the features that enable them to work faster, better, and more effortless than ever. One highlight of our Spring 2024 update is the launch of UMA, which stands for Upwork Mindful AI. We're developing UMA on top of industry-leading large language models and fine-tuning it with trillions of tokens of highly relevant Upwork platform data across a range of work interactions. Today, UMA Intelligence underpins key steps in the hiring and matching process, which is critical to clients and freelancers getting started and completing more high-quality work faster.

Speaker Change: As a result yesterday, we launched upward updates our new semi annual product showcase that highlights what's new with our innovative product features and partnerships across the world to work marketplace.

Speaker Change: Updates will help educate our customers in the market about the value of our offering and our branded progress we are making and delivering the features that enable them to work faster better and more effortlessly than ever.

Hayden Brown: UMA powers new features like Best Match Insights, an AI-powered matching capability that surfaces not just the best talent but the most relevant skills, qualifications, and client reviews to help clients make hiring decisions with ease and confidence. UMA's capabilities also power performance improvements for recent innovations and experiences, including Upwork's Job Post Generator, Proposal Tips, and Upwork Chat Pro. We're also excited to introduce UMA as an indispensable work companion accessible via an easy-to-use conversational interface that guides clients and freelancers to success throughout their Upwork journey. We've started to roll out UMA on the Upwork homepage, and in subsequent releases, we will expand its capabilities to other areas of the platform.

Speaker Change: One highlight of our spring 2024 update is the launch of Umar, which stands for upward mindful AI.

Speaker Change: We're developing umar on top of industry, leading large language models and fine tuning it with trillions of tokens of highly relevant upper platform data across a range of work interactions.

Speaker Change: Today, My intelligence underpins key steps in the hiring and matching process, which is critical to clients and freelancers getting started and completing more high quality work faster Houma powers, New features like best match insights and AI powered matching capability that surfaces, not just the best talent, but the most relevant skills.

Speaker Change: <unk> qualifications and client reviews to help clients make hiring decisions with ease and confidence muskie.

Speaker Change: We must capabilities also power performance improvements to recent innovations and experiences including upward job posts generator proposal tips and upward chat pro.

Speaker Change: We're also excited to introduce Newmar as an indispensable work companion accessible via an easy to use conversational interface, the guys clients and freelancers to success throughout their upward journey, we've started to rollout more on the upper homepage and in subsequent releases, we will expand capabilities to other areas of the.

Hayden Brown: We're building UMA to serve as an always-on intelligent companion for our customers, assisting them across the entire Upwork experience. Our very early testing of UMA is already showing benefits as a conversational companion for new customers; clients who used UMA started spending on Upwork in their first month at a 7% higher rate than non-users. These very early list signals are compelling and are only the beginning because UMA will continue to get smarter and more effective with additional customer usage, which trains the model.

Speaker Change: We are building <unk> to serve as an always on intelligent companion for our customers assisting them across the entire upward experience.

Speaker Change: Our very early testing is already showing benefits as a conversational companion for new customers.

Speaker Change: Clients, who used whom I started spending on upward in their first month at a 7% higher rate than non users.

Speaker Change: He's very early lifts signals are compelling and are only the beginning because puma will continue to get smarter and more effective with additional customer usage, which trains the model.

Hayden Brown: Additionally, Luma will improve its capabilities and extend its customer and business impact as it is released across more experiences on our platform. At the end of last year, we acquired AI startup Headroom and deepened our bench of technical talent and leadership in this area. ULMA is an illustration of how this team is accelerating the delivery of our vision for how to serve customer needs using AI.

Speaker Change: Additionally, <unk> will improve its capabilities and extended customer and business impact as it is released across more experiences on our platform.

Speaker Change: At the end of last year, we acquired AI startup headroom and deepened our bench of technical talent and leadership in this area.

Speaker Change: As an illustration of how this team is accelerating the delivery of our vision for how to serve customer needs using AI.

Hayden Brown: It's a key development towards realizing a much larger vision as we leverage AI to deliver an experience where customers move from idea to outcome, from dream to delivery, powered by a combination of AI and humans working effortless together. To further catalyze this new reality and solidify Upwork as the premier destination for where that happens most effectively, we continue to expand the ecosystem of partners, offering industry-leading tools through our apps and offers page, and welcoming a cohort of new partners, including Dropbox, Notion, and iStock by Getty Images.

Speaker Change: A key development towards realizing a much larger vision as we leverage AI to deliver an experience where customers move from idea to outcome from dream to delivery powered by a combination of AI and humans working effortlessly together.

Speaker Change: To further catalyze this new reality and solidify upward as the premier destination for where that happens most effectively we continue to expand the ecosystem of partners offering industry, leading tools through our App and offers Pete welcoming cohort of new partners, including Dropbox notion and <unk>.

Speaker Change: By Getty images.

Hayden Brown: Data shows that freelancers are already ahead of their full-time employee peers inside businesses in the adoption of AI tools. The Upwork Research Institute found that freelancers are more than two times more likely to regularly use generative AI in their work versus non-freelance professionals.

Speaker Change: Data shows that freelancers are already ahead of their full time employee peers inside businesses in the adoption of AI tools.

Speaker Change: The upfront research Institute found that freelancers are more than two times more likely to regularly use generative AI in their work versus non freelance professionals.

Hayden Brown: Our goal is to equip freelancers on Upwork with preferential access to the best tools to become the most highly skilled and sought-after AI-enabled talent pool in the world. This directly taps into a growing chorus of client demand for skilled workers who already know how to create exponential business value using these technologies. We're already serving this need, as evidenced by the 50% year over year growth rate in our AI services category in Q1.

Speaker Change: Our goal is to equip freelancers on our pork with preferential access to the best tools to become the most highly skilled and sought after AI enabled talent pool in the world.

Speaker Change: This directly tapped into a growing chorus of client demand for skilled workers, who already know how to create exponential business value using these technologies.

Speaker Change: We're already serving this need as evidenced by the 50% year over year growth rate and our AI services category in Q1.

Hayden Brown: We are extremely excited for our customers to benefit from the many new products, features, and partnerships included in our Spring 2024 update to supercharge their businesses and work. If you haven't yet, take a moment to visit Upwork.com slash updates, where you can learn more about these exciting innovations and how they address customer needs.

Speaker Change: We are extremely excited for our customers to benefit from the many new products features and partnerships included in our spring 2024 update to supercharge their businesses and work is.

Speaker Change: If you haven't yet to take a moment to visit upward dot com flash updates, where you can learn more about these exciting innovations and how they address customer needs.

Hayden Brown: This encouraging start to the year, including our rapid pace of innovation and enhanced financial outlook on both revenue and adjusted EBITDA, gives us confidence in the year ahead, our growth prospects, and the exciting long-term framework for Upwork's profitability. We look forward to continuing to update you on our progress in the quarters to come. With that, I will turn it over to Erica to review our financials. Thanks, Hayden.

Speaker Change: This encouraging start to the year, including our rapid pace of innovation and enhanced financial outlook on both revenue and adjusted EBITDA gives us confidence in the year ahead, our growth prospects and the exciting long term framework for <unk> profitability.

Speaker Change: We look forward to continuing to update you on our progress in the quarters to come.

Speaker Change: With that I will turn it over to Erica to review our financials.

Erica: Thanks Hayden.

Erica Gessert: While we've accelerated our pace of innovation in all the ways Hayden just outlined, in Q1, we also rapidly identified new levers to deepen our focus on durable, profitable growth. We are committed to driving revenue growth and growing operating margins regardless of the macroeconomic backdrop we're executing in, and our first quarter results and increased outlook for 2024 clearly show our ability to do that. And I am delighted to say that our plans to continually and meaningfully grow our operating leverage extend beyond 2024.

Erica: While we have accelerated our pace of innovation in all the ways Hayden just outlined in Q1, we also rapidly identified new levers to deepen our focus on durable profitable growth.

Erica: We are committed to driving revenue growth and growing operating margins for godless of the macroeconomic backdrop, we're executing in our first quarter results and increased outlook for 2024, clearly show our ability to do that.

Erica: And I am delighted to say that our plans to continually and meaningfully grow our operating leverage extend beyond 2024.

Erica Gessert: Our highly profitable business model, with gross margins over 75 percent, as well as the investments we're making in operational improvements like engineering productivity and back office automation, mean that we can make clear and concrete commitments to growing our margins and free cash flow for the foreseeable future. As I strategize with Hayden and the team, I've grown confident in our ability to drive growth while also increasing profitability and adjusted free cash flow.

Erica: Our highly profitable business model with gross margins over 75% as well as the investments, we're making in operational improvements like engineering productivity and back office automation.

Erica: That we can make clear and concrete commitments to growing our margins and free cash flow for the foreseeable future.

Erica: As they strategize with Hayden and the team I've grown confident in our ability to drive growth, while also increasing profitability and adjusted free cash flow.

Erica Gessert: We are now in the position to commit to hitting 35% adjusted EBITDA margin in the next five years, and I'm confident we can increase our operating leverage each and every year as we get there. Turning back to our most recent results, I'll hit a few highlights. Revenue growth in the first quarter was very strong, growing 19% year over year to $190.9 million, and was driven in part by the final transition to the new flat fee pricing structure we started last year. Marketplace revenue was $164.3 million and grew 20% year-over-year.

Erica: We're now in the position to commit to hitting 35% adjusted EBITDA margin in the next five years and I'm confident we can increase our operating leverage each and every year as we get there.

Speaker Change: Turning back to our most recent results I'll hit a few highlights.

Erica: Revenue growth in the first quarter was very strong growing 19% year over year to $190 9 million and was driven in part by the final transition to the new flat fee pricing structure, we started last year.

Erica: Marketplace revenue was $164 3 million and grew 20% year over year.

Erica Gessert: In our Enterprise Business Unit, our unique breadth of offerings drove total enterprise revenue growth of 10% year-over-year to $26.6 billion. Within Enterprise revenue, Enterprise Solutions revenue was $11.7 million and grew 3% year-over-year. Managed services performed particularly well, driving revenue of $14.9 million, representing growth of 17% year-over-year. Our active client base continues to grow, driven by increasing demand, with growth in Q1 in both activations and reactivations. We added over 20,000 new active clients in the first quarter of 2024, and we now have over 872,000 active clients, representing 5% year-over-year growth. This is the highest growth in active clients in two years. Turning to some additional color on GSB.

Erica: In our enterprise business unit, our unique breadth of offerings drove total enterprise revenue growth of 10% year over year to $26 $6 billion.

Erica: Within enterprise revenue Enterprise solutions revenue was $11 7 million and grew 3% year over year.

Erica: Managed services performed particularly well driving revenue of $14 9 million representing.

Erica: Representing growth of 17% year over year.

Erica: Our active client base continues to grow driven by increasing demand with growth in Q1 in both Activations and reactivation.

Erica: We added over 20000, new active clients in the first quarter of 2024, and we now have over 872000 active clients, representing 5% year over year growth.

Erica: This is the highest growth in active clients in two years.

Erica: Turning to some additional color on GSV.

Erica Gessert: Excluding the impact on GSV growth rates from the pricing change, we estimate Q1 GSV growth would have been approximately 3% year over year. While GSV grew approximately 1% year over year, this included some temporary headwinds associated with the final transition to our simplified flat fee pricing structure, which occurred on January 1st. While we naturally see some temporary headwinds to GSB as we make the appropriate strategic adjustments to our pricing structure, these changes are driving growth for our business and a simplified value proposition for our customers, making it easier to price and negotiate contracts.

Erica: Excluding the impact of GSV growth rate from the pricing change, we estimate Q1 GSV growth would have been approximately 3% year over year.

Erica: Oh, Yes, we grew approximately 1% year over year. This included some temporary headwinds associated with the final transition to our simplified flat pricing structure, which occurred on January 1st.

Erica: While we naturally see some temporal headwinds to GSV as we make the appropriate strategic adjustments to our pricing structure.

Erica: These changes are driving growth for our business and a simplified value prop for our customers.

Erica: It easier to price and negotiate contracts.

Erica Gessert: Even after these changes, our marketplace take rate, at 17.7%, remains one of the lowest in the industry, which means that we have the capacity to continue to develop targeted monetization opportunities on the platform that will bring value to our customers. Non-GAAP gross margin continued to improve both on a year-over-year and a sequential basis. The Non-GAAP Gross Margin of 77.1% increased nearly 200 basis points year over year. Non-GAAP operating expense was $116.6 million in the first quarter, representing 61% of revenue, a significant reduction compared to the $125.8 million or 78% of revenue in the comparable prior year period.

Erica: Even after these changes our marketplace take rate of 17, 7% remains one of the lowest in the industry, which means that we have the capacity to continue to develop targeted monetization opportunities on the platform that will bring value to our customers.

Erica: non-GAAP gross margin continued to improve both on a year over year and a sequential basis.

Erica: non-GAAP gross margin of 77, 1% increase nearly 200 basis points year over year.

Erica: non-GAAP operating expense was $116 6 million in the first quarter, representing 61% of revenue a significant reduction compared to the $125 8 million or 78% of revenue in the comparable prior year period.

Erica Gessert: For the first quarter, non-GAAP R&D expense was $45.1 million, increasing 23% year-over-year, as we continue to accelerate our pace of innovation and new product releases, culminating in our Upwork updates announcement and our launch of UMA yesterday. The sequential increase in R&D also reflects the growth of our AIML talent bench through the acquisition in Q4 of Headroom and other investments. Even with our commitment to ongoing innovation, we anticipate growth in R&D expenses to moderate in the future through our work on engineering productivity and other levers.

Erica: For the first quarter non-GAAP R&D expense was $45 1 million, increasing 23% year over year as we continue to accelerate our pace of innovation and new product releases, culminating in our upward updates announcement and our launch of Uber yesterday.

Erica: The sequential increase in R&D also reflects the growth of our AI ml talent bench.

Erica: Through the acquisition in Q4 of headroom and other investments.

Erica: Even with our commitment to ongoing innovation, we anticipate growth in R&D expenses to moderate in the future through our work on engineering productivity and other levers.

Erica Gessert: Non-GAAP sales and marketing expense of $44.9 million declined 27% year-over-year, even as we continue to accelerate our active client growth. Our provision for transaction losses remains low at $0.9 million for Q1, representing less than 1% of total revenue.

Erica: non-GAAP sales and marketing expense of $44 9 million declined 27% year over year.

Erica: Even as we continue to accelerate our active client growth.

Erica: Our provision for transaction losses remains low at zero point $9 million for Q1, representing less than 1% of total revenue.

Erica Gessert: PFTL benefitted from some one-time items in the first quarter, and we expect our absolute dollar run rate to be slightly higher going forward, while still remaining very low as a percentage of revenue. Adjusted EBITDA was $33.3 million in the first quarter, representing a margin of 17.4%. Our profitable business model continues to generate gap earnings per share growth, which includes the impact of stock-based compensation. For the first quarter of 2024, fully diluted GAP earnings per share was 13 cents. Adjusted free cash flow for the first quarter was $15.5 million.

Erica: P F T L benefit benefited from some one time items in the first quarter and we expect our absolute dollar run rate to be slightly higher going forward, while still remaining very low as a percentage of revenue.

Erica: Adjusted EBITDA was $33 $3 million in the first quarter, representing a margin of 17, 4%.

Erica: Our profitable business model continues to generate GAAP earnings per share growth, which includes the impact of stock based compensation.

Erica: For the first quarter of 2024 fully diluted GAAP earnings per share with 13 cents.

Erica: Adjusted free cash flow for the first quarter was $15 $5 million.

Erica Gessert: Adjusted free cash flow is lower in the first quarter every year due to the timing of our employee bonus payout. Cash, cash equivalents, and marketable securities were approximately $490.6 million at the end of the first quarter. I'm very pleased to highlight our active execution of our share repurchase authorization and our commitment to ongoing shareholder returns. In the first quarter, we repurchased approximately 5.2 million shares.

Erica: Adjusted free cash flow is lower in the first quarter every year due to the timing of our employee bonus payout.

Erica: Cash cash equivalents in marketable securities were approximately $496 million at the end of the first quarter.

Erica: I'm very pleased to highlight our active execution of our share repurchase authorization.

Erica: I want to emphasize our commitment to ongoing shareholder returns.

Erica: In the first quarter, we repurchased approximately five 2 million shares.

Erica Gessert: And as of April 23rd, we have completed the entire $100 million repurchase program, repurchasing approximately 8.1 million shares. This program represents a return of value to our shareholders, and we expect our share count in 2024 to be lower than in 2023. Turning to guidance, for the second quarter, we expect to produce revenue in the range of $190 to $195 million, representing 14.2% year-over-year growth at the midpoint. For adjusted EBITDA, we are guiding to a range of $32 to $36 million, which represents an adjusted EBITDA margin of 17.7% at the midpoint. We anticipate non-GAAP diluted EPS to be between $0.21 and $0.23.

Erica: And as of April 23rd we have completed the entire $100 million repurchase program repurchasing approximately.

Erica: $8 1 million shares.

Erica: This program represents a return of value to our shareholders and we expect our share count in 2020 for it to be lower than in 2023.

Erica Gessert: Our outlook for weighted average shares outstanding for the quarter is now in the range of $139 to $141 million. For the full year 2024, we are increasing our revenue guidance to $770 to $782 million, representing 12.6% year-over-year growth at the midpoint. As we mentioned in our last earnings call, we expect our year-over-year revenue growth rates to moderate in the second half of 2024 as we lap the pricing changes implemented in 2023.

Erica: Turning to guidance for the second quarter, we expect to produce revenue in the range of $190 million to $195 million, representing 14, 2% year over year growth at the midpoint.

Erica: For adjusted EBITDA, we are guiding to a range of $32 million to $36 million, which.

Erica: <unk> adjusted EBITDA margin of 17, 7% at the midpoint.

Erica: We anticipate non-GAAP diluted EPS to be between 21 23.

Erica: Our outlook for weighted average shares outstanding for the quarter is now in the range of $139 million to $141 million.

Erica: For the full year 2024, we are increasing our revenue guidance to $770 million to $782 million, representing 12, 6% year over year growth at the midpoint.

Erica: As we mentioned in our last earnings call, we expect our year over year revenue growth rates to moderate in the second half of 2024 as we lap the pricing changes implemented in 2023.

Erica Gessert: For Adjusted EBITDA, we are increasing our guidance to a range of $140 million to $150 million, up from our previous guidance of $125 million to $135 million and representing a margin of 18.7% at the midpoint. This increase reflects our multi-quarter efforts to identify structural and persistent efficiencies in our business. Through these efforts, we will increase our operating margin every quarter this year. We expect full year 2024 non-GAP diluted EPS to be between $0.88 and $0.92, up from our guidance last quarter of $0.77 to $0.81.

Erica: For adjusted EBITDA, we are increasing our guidance to a range of $140 million to $150 million up from our previous guidance of $125 million to $135 million and.

Erica: <unk> a margin of 18, 7% at the midpoint.

Erica: This increase reflects our multi quarter efforts to identify structural and persistent efficiencies in our business.

Erica: Through these efforts, we will increase our operating margin every quarter this year.

Erica: We expect full year 2024, non-GAAP diluted EPS to be between 88 to 92.

Erica: Up from our guidance last quarter of 77 to 81.

Erica Gessert: This improvement is driven both by our focus on efficiencies as well as our share repurchase program. For the full year, weighted average shares outstanding will decline to a range of $140 to $144 million, down from our prior guidance last quarter of $148 to $152 million.

Erica: This improvement is driven both by our focus on efficiencies as well as our share repurchase program.

Erica: For the full year weighted average shares outstanding will decline to a range of $140 million to $144 million down from our prior guidance last quarter of $148 million to $152 million.

Erica Gessert: As I survey our progress in the first few months of 2024, I am excited about Upwork's trajectory. We are at the forefront of the future of work. Our business model and our position as a market leader mean that we can invest in innovation, achieve ongoing profitability gains, and produce adjusted free cash flow to fund our business while driving strong shareholder return.

Erica: As I survey our progress in the first few months of 2024 I'm excited about <unk> trajectory.

Erica: At the forefront of the future of work.

Erica: Our business model and our position as a market leader I mean that we can invest in innovation achieved ongoing profitability gains and produce adjusted free cash flow to fund our business, while driving strong shareholder returns.

Erica Gessert: We are committed to producing steady and significant operating margin and adjusted free cash flow growth this year, next year, and into the future. And because of the profitability of our marketplace model, we can continue to invest in growth as we do so. As always, I want to extend thanks to our incredible team at Upwork for their contributions this quarter. I am seeing our pace of execution accelerate every single day, and I am proud to be part of this great team.

Erica: We are committed to producing steady and significant operating margin and adjusted free cash flow growth. This year next year and into the future and because of the profitability of our marketplace model. We can continue to invest in growth as we do it.

Speaker Change: As always I want to extend thanks to our incredible team at up work for their contributions this quarter.

Speaker Change: I am seeing our pace of execution accelerate every single day and I am proud to be part of this great team.

Erica Gessert: And with that, we will take your questions. Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: And with that we will take your questions.

Speaker Change: Thank you and as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you. Please limit yourself to one question and one follow up one moment, while we compile our Q&A roster.

Operator: We ask that you please limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. Our first question is going to come from the line of Andrew Boone with JMP Securities. Your line is open. Please go ahead. Thank you for taking my question. This is Matt on behalf of Andrew Boone.

Speaker Change: Our first question is going to come from the line of Andrew Boone with JMP Securities. Your line is open. Please go ahead.

Erica Gessert: My first one is, maybe can you just provide some color on the performance of cohorts? And if there's any change that you're seeing as far as the stabilization of spend there, anything would be helpful there. And then my second question is, is it great to see the 100,000 active subscribers for Freelancer Plus? Can you give us any color on how big this can get over time? Thank you. Yeah, hey, Matt, this is Erica.

Speaker Change: Thank you for taking my question. This is Matt on for Andrew My first one is maybe can you just provide any color on the performance its cohorts.

Matthew F. Farrell: Any change that you're seeing as far as the stabilization of spend there anything would be helpful. There and then my second question is it's great to see the 100000.

Speaker Change: Active subs for freelancer plus.

Speaker Change: Could you give us any color on how big this can get to over time. Thank you.

Erica Gessert: Thanks for the question. Yeah, we publish our cohort chart once a year in our 10k. And as I talked about, I think it was at your conference, that, you know, that's an annual cohort chart, and we actually have seen some stabilization in terms of newer cohort spend in 2024. In terms of your question on Freelancer Plus and how big that can get over time, I'd say, you know, we're really excited about the progress we've already made on the ads and monetization roadmap so far.

Speaker Change: Yeah, Hey, Matt. This is Erica thanks for the question Yeah, we publish our cohort chart once a year and are in our 10-K and.

Erica: As I talked about I think actually it was at your conference.

Erica: Yes, that's an annual cohort chart and we actually have seen some stabilization in terms of newer cohorts spend.

Erica: In 2024.

Erica: In terms of your question on freelance surplus and how big that can get over time.

Erica: We're really excited about the progress we've already made with ads and monetization roadmap. So far we mentioned that this is already.

Erica Gessert: You know, we mentioned that this is already the kind of fastest growing area of our business from a revenue perspective today, and we're still in the early innings. So, specifically on Freelancer Plus, there are definitely opportunities to continue to enhance that offering. We added Upwork Chat Pro very recently, and that has, you know, generated a lot of excitement.

Erica: Kind of fastest growing area of our business from a revenue perspective today and we're still in early innings, so specifically on France or plus there are definitely opportunities to continue to enhance that offering we added upper chat pro very recently and that has.

Erica: Generated a lot of excitement, but we also see opportunities to continue to enhance value there and with other aspects of how we build membership then membership value on our platform, but I think stepping back the bigger story here is generally with asset monetization as a lever for this business, which does have a lot of runway. If you look at other marketplace models out there.

Erica Gessert: But we also see opportunities to continue to enhance value there and with other aspects of how we build memberships and membership value on our platform. But I think, stepping back, the bigger story here is generally about ads and monetization as a lever for this business, which does have a lot of runway. You know, if you look at other marketplace models out there, companies like Airbnb, Instacart, others see upwards of 25% of their revenue coming from ads and monetization, and we're nowhere near that today. So, it's going to be unique to Upwork for us to figure out how big this can be, and we certainly don't have that number in mind today.

Erica: As like Airbnb instant card, others see upwards of 25% of their revenue coming from asset monetization and we're nowhere near that today. So it's going to be unique to upward for us to figure out how big this can be and we certainly don't have that number in mind today, but we are working diligently to ensure we do unlock the value here in a way.

Erica Gessert: But we are working diligently to ensure we do unlock the value here in a way that is really driving both take rate expansion and GSV growth, because those things really can go hand-in-hand when you look at things like Kinect pricing, memberships, third-party partnerships that generate revenue. Like, all of these things can be creative on both sides of that equation, and we're very focused on unlocking that. Thank you so much. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Maria Ripps on Canaccord.

Erica: It is really driving both take rate expansion and GSV growth because those things really can go hand in hand, when you look at things like <unk> pricing memberships.

Erica: Third party partnerships that generate revenue like all of these things actually can be accretive to both sides of that equation and we're very focused on marketing that.

Speaker Change: Thank you so much.

Speaker Change: Sure.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Maria <unk> with Canaccord. Your line is open. Please go ahead.

Operator: Your line is open. Please go ahead. Hi, this is Matt on behalf of Maria.

Operator: Thanks so much for taking the question just on the increased full-year revenue guidance. Is that largely a function of the momentum you're seeing with freelancer costs and the ad products? Or just wondering if there's any component of that that relates to upside in the GSV?

Speaker Change: Hi, This is Matt on for Maria Thanks, So much for taking the question just on the increased full year revenue guidance is that largely a function of the momentum you're seeing with freelancer costs in the ads products or just wondering if there's any component of that that relates to upside. The GSV and then more broadly just any color you can share around how youre thinking about GSV.

Operator: And then more broadly, just any color you can share around how you're thinking about GSV growth for the balance of the year. And if we could see some acceleration in the back half, that would be great. Thanks so much.

Speaker Change: For the balance of the year and if we could see some acceleration in the back half would be great. Thanks, so much.

Erica Gessert: Yeah, sure. Thanks for the question, Matt. Maybe I'll take it, and Hayden, can I add some color?

Speaker Change: Yes sure. Thanks for the question, Matt maybe I'll take it in hand can add any color.

Erica Gessert: So, just on the revenue outlook, yeah, I mean, I think we are absolutely seeing some growth, you know, good, strong growth in our ads and monetization products. As we said, they're the fastest-growing revenue stream on the platform, and we have seen some incremental strengths there. We're also seeing some nice strength in the enterprise business and, you know, some very good, you know, kind of leading indicators actually on both sides of the business in the marketplace and the enterprise in kind of new client growth.

Speaker Change: Just on the on the revenue outlook I mean, I think we are.

Speaker Change: Absolutely are seeing some growth good strong growth in our asset monetization products as we said, they're the fastest growing revenue stream on the platform and and we have seen some incremental strength there and we're also seeing some nice strength in the enterprise business and some very good kind of leading indicators actually on both sides of the bill.

Speaker Change: And that's in the marketplace and the enterprise.

Speaker Change: And kind of new client growth, that's also giving us.

Erica Gessert: That's also giving us, you know, some good confidence in terms of leading indicators for GSB growth later and, you know, into 2025 and beyond. Sure, and what I'd add, Matt, around GSB acceleration for the balance of the year is that USB growth is our top priority as a company.

Speaker Change: So good confidence in terms of leading indicators for GSP growth later and into 2025 and beyond.

Speaker Change: Sure and what I would add Matt around GSV acceleration for the balance of the year is.

Hayden Brown: You know, we're very actively working on this, and we're seeing some really good green shoots. As Erica mentioned, active clients are one leading indicator that we're seeing progress on this. You know, 5% growth is already a great sign from this past quarter. A second thing is that our product innovations are indicating that releases like UMA can really move the needle early as it is in terms of, you know, driving traction around client spend and client metrics. So it does take time for these things to layer through at the size and scale of our customer base, driving the adoption of these products.

Speaker Change: Yes, the growth is our top priority as a company. We're very active we are working on this and we're seeing some really good green shoots as.

Speaker Change: As Ark mentioned active clients is one leading indicator that we're seeing progress on that 5% growth already.

Speaker Change: A great sign from this past quarter, a second thing is our product innovations are indicating that releases like Omar can really move the needle early as it is in terms of driving traction around client spend in client metrics. So it does take time for these things to layer through at the size and scale of our customer base and.

Speaker Change: Driving the adoption of these products. So I want to be clear that this does is a multi quarter multi year endeavor, but the product innovations that we're driving are really laser focused on this.

Hayden Brown: So I want to be clear that this is a multi-quarter and multi-year endeavor, but the product innovations that we're driving are really laser focused on this. Maybe I'll just also emphasize one point, which is that GSV growth was dampened slightly in the quarter from the structural changes and the kind of final changeover to the new flat feed pricing structure. So, you know, absent that, we estimate the GSV growth would have been about 3% this quarter, which is a little bit of an uptick, you know, and so we're really encouraged by that as well. Very helpful. Thank you both.

Speaker Change: Maybe I'll just actually just also emphasize one point which is.

Speaker Change: GSV growth was dampened slightly in the quarter from the structural changes in the kind of final changeover to the new flagship pricing structure. So.

Speaker Change: Absent that we estimate that gesture growth would've been about 3% this quarter, which is a little bit of an uptick.

Speaker Change: And so we're really encouraged by that as well.

Speaker Change: Very helpful. Thank you both.

Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Yes.

Speaker Change: And our next question is going to come from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Operator: Thanks so much for taking the questions. Maybe me too, if I can, you know, following up on that answer on GSV growth, can you maybe just unpack for us how you're thinking about the components that have held back growth in GSV as maybe some of the dynamics around fee changes have impacted the headwind that you just highlighted? And that we should be thinking about the building blocks for growth in GSV as we get deeper into the year, just in terms of what's in your control versus elements that are out of your control as you see some of that growth evolve.

Eric Sheridan: Thanks, so much for taking the questions maybe two if I can follow up.

Eric Sheridan: On that answer on GSV growth could you, maybe just unpack for us how you're thinking about the components that have held back growth in GSV as maybe some of the dynamics around fee changes have impacted the headwind that you just highlighted and that we should be thinking about the building blocks for growth in GSV as we get deeper into the year.

Eric Sheridan: Terms of what's in your control versus elements that are IV control as you see some of that growth evolve and then as to some of the investments you talked about especially the internal ones. How do you think about elements of investments driving either incremental growth through the remainder of this year versus also investments that are balanced towards driving increased productivity and efficiency gains that might show up.

Operator: And then as to some of the investments you talked about, especially the internal ones, how do you think about elements of investments driving either incremental growth through the remainder of this year versus also investments that are balanced towards driving increased productivity and efficiency gains that might show up on the margin front? Thanks so much.

Eric Sheridan: On the margin front. Thanks, so much.

Erica Gessert: All right, you packed a lot in there, Eric, so let me see if I can hit everything. So on GSV growth, like I said, we do have about two points of headwind in Q1, and that actually is through the year, just from the final cutover with the pricing change. I think beyond that, you know, we've really tried to highlight, we see a lot of really strong leading indicators that give us a lot of confidence that, you know, our GSV growth is going to kind of continue to tick up.

Speaker Change: Alright packed a lot in there Eric So let me see if I can if I can hit everything on GSV growth like I said, we do have about two points of headwind in Q1 and that actually are through the year.

Eric: From the final cutover with the pricing change I think beyond that.

Eric Sheridan: We've really tried to highlight we see a lot of really strong leading indicators that give us a lot of confidence that our January growth is going to kind of continue to tick up.

Erica Gessert: The active client growth is really encouraging. Some of the strengths on the enterprise side that we see kind of falling into late this year and into next year. And then, you know, also a lot of experiments on the platform with a lot of the new experiences we just launched with UMA. Hayden highlighted some of the positive benefits we're seeing with very early experimentation with UMA that we think are just going to get better and better.

Eric Sheridan: The active client growth is really encouraging some of the strength on the <unk>.

Eric Sheridan: Enterprise side that we that we see kind of falling into late in this year and into next year.

Eric Sheridan: And then.

Eric Sheridan: That also has a lot of the experiments on the platform with a lot of the new experience as we've just launched with Irma.

Eric Sheridan: <unk> highlighted some of the some of the positive benefits, we're seeing with very early experimentation with that we think is just going to get better and better so.

Erica Gessert: So, you know, all these new experiences we see as being, you know, GSV growth stimulators, and we expect to, you know, help us advance into next year. Real quick on investments, I will, you know, touch on that.

Eric Sheridan: Yes.

Eric Sheridan: All of these new experiences, we see as being GSV growth stimulators, and we expect to help us advance into next year.

Speaker Change: Real quick on investments I will I'll touch on it.

Erica Gessert: In terms of driving growth, look, we've been investing in R&D quite a bit over the last few years here in order to really accelerate the innovations on the platform that we've been talking about. Just as a reminder, we closed the headroom deal in Q4, and the addition of that team and really the growth of the AIML bench is an investment in the future growth of our platform. And it culminated in the launch of UMA and other things.

Speaker Change: In terms of driving growth look we are we've been investing in R&D.

Eric Sheridan: Quite a bit over a few years here and.

Eric Sheridan: In order to really accelerate the innovation on the platform that we've been talking about.

Eric Sheridan: Just as a reminder, we closed the headroom deal.

Eric Sheridan: In Q4, and the addition of that team.

Eric Sheridan: And really the growth of the AI ml bench.

Eric Sheridan: As an investment in the future growth of our platform.

Eric Sheridan: And it has culminated in the launch of <unk> and other things. So I think there's plenty of growth to come that said.

Erica Gessert: So I think there's plenty of growth to come. That said, you know, I do expect that the R&D growth will moderate, you know, starting kind of as we advance through this year and certainly into next year.

Eric Sheridan: I do expect that the R&D growth will moderate.

Eric Sheridan: Starting kind of in as we advance through this year and certainly into next year.

Erica Gessert: As we really invest in tools for engineering productivity, cost of revenue, and data optimization, we're really in the early innings here. And so I see those investments really paying off at the end of this year and into next year. Great, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Matt Farrell with Piper Sandler.

Eric Sheridan: As we really invest in tools for engineering productivity.

Eric Sheridan: And cost of revenue also data optimization.

Eric Sheridan: In the early innings here and so I see those investments are really paying off into at the end of this year and into next year.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and one moment as we move onto our next question.

Speaker Change: And our next question is going to come from the line of Matt Farrell with Piper Sandler. Your line is open. Please go ahead.

Erica Gessert: Your line is open. Please go ahead. Thanks for taking my question and awesome work on the profitability side, maybe on the 35% adjusted EBITDA target within five years. What size or scale do you think you need to be at in order to reach that target?

Matthew F. Farrell: Thanks for taking my question and Awesome work on the profitability side, maybe on the 35% adjusted EBITDA target within five years.

Operator: And I guess on the cost side, how much more additional efficiency or leverage do you have at this point to help you achieve that goal over the next couple of years? Yeah, sure. Look, maybe it's good to kind of just take a step back real quick.

Matthew F. Farrell: What size of scale do you think you need to be at in order to reach that target.

Matthew F. Farrell: Yes on the cost side, how much more additional efficiencies or leverage do you have at this point to help you achieve that goal over the next couple of years.

Erica Gessert: And I'll make sure to answer your question in terms of what we think we need from a scale point of view to achieve this. I mean, the short answer is, I've gained confidence over the past year, working with the teams, looking at all the cost optimization opportunities in front of us, that, you know, we can achieve significant and meaningful operating leverage in this business, absent of meaningful growth and scale.

Speaker Change: Yeah sure look.

Speaker Change: Maybe it's good to kind of just take a step back real quick and I'll make sure to answer your question on in terms of what we think we need from a scale point of view to achieve it.

Speaker Change: Short answer is.

Speaker Change: Ive gained confidence over the past year working with the teams looking at all the cost optimization opportunities in front of us that we can achieve significant meaningful operating leverage in this business.

Speaker Change: Absent of meaningful growth in scale so.

Speaker Change: If you look at kind of a journey over the past year.

Erica Gessert: So, you know, if you look at kind of the journey over the past year, you know, when I came into business last year, we committed to being profitable. We advanced very, very quickly on that journey, even absent of, you know, kind of meaningful volume growth, and, you know, got to kind of, you know, mid-teens EBITDA margins in just about six months. Last year was all about, you know, focusing on sales and marketing optimization.

Speaker Change: When I came into this last year, we committed to being profitable we advance very very quickly on that journey even absent.

Matthew F. Farrell: Kind of meaningful volume growth and <unk> got to kind of mid teens.

Matthew F. Farrell: EBITDA margins in just about six months.

Matthew F. Farrell: Last year was all about focusing on sales and marketing optimization and some of the benefits that we've been able to yield in our business with active client growth and other things, even while significantly reducing our marketing spend has given me a tremendous amount of confidence that we continue that can continue to optimize in these areas.

Erica Gessert: And some of the benefits that we've been able to achieve in our business with active client growth and other things, even while significantly reducing our marketing spend, have given me a tremendous amount of confidence that we continue to optimize in these areas. And honestly, you know, last year was about sales and marketing optimization.

Matthew F. Farrell: And honestly last year was about sales and marketing optimization. We're now looking I've been working very deeply with the teams looking at engineering productivity.

Matthew F. Farrell: I said data optimization. Many many other places in the organization, where we can where we think we can gain significant yield.

Matthew F. Farrell: So I think that we can.

Matthew F. Farrell: Certainly continue to gain operating leverage even in a relatively lower growth environment that said, we will continue to invest into growth and Theres No reason, where given the kind of gross margin profile of this business that we can't continue to invest in growth while producing operating leverage. So I think we think that we're convinced we can do.

Erica Gessert: We're now looking, you know, I've been working very deeply with the teams, looking at engineering productivity, like I said, data optimization, many, many other places in the organization where we think we can gain significant yields. So, you know, I think that we can certainly continue to gain operating leverage even in, you know, a relatively, you know, lower growth environment. That said, we will continue to invest in growth, and there's no reason, given the kind of gross margin profile of this business, that we can't continue to invest in growth while producing operating leverage.

Erica Gessert: So, you know, I think we think that we're convinced that we can do both, but, you know, really, the GSV growth that we're investing in now will, you know, really be just on top of the operating leverage that we can achieve. Yeah, another way that I'd answer that question, Matt, is to say, you know, we're here to build a really big business.

Hayden Brown: Both but really the GSV growth that we're investing in now.

Matthew F. Farrell: Really be just on top of the operating leverage that we can achieve.

Hayden Brown: We want to drive this business to tremendous scale, and we're pacing ourselves to continue to invest in growth and create meaningful leverage increases every year towards that 35% target, which is, you know, within five years. We're moving there aggressively. But, you know, we're investing in growth towards that real scale of the business while enhancing leverage, and we know we can do that kind of thing irrespective of the pace of the growth of the business.

Speaker Change: Yes, another way that I'd answer that question, Matt as to say we're here. We're here to build a really big business, we want to drive this business to tremendous scale.

Matthew F. Farrell: And we are pacing ourselves to continue to invest in growth and create meaningful leverage increases every year towards that 35% target, which is within five years like we are moving them aggressively.

Matthew F. Farrell: But we're investing in growth towards that real scale of the business, while enhancing leverage and we know we can do that kind of irrespective of the pace of the growth of the business.

Hayden Brown: And as a follow-up, you've hit on the active client growth acceleration now a couple of times. I guess in the backdrop of the lower sales and marketing spend, what do you think is driving this dynamic in a more steady macro? And are the customers that are joining Upwork more recently, do they look and feel any different than they have historically? Yeah, they do.

Matthew F. Farrell: And as a follow up you've hit on the active client growth acceleration now a couple of times I guess in the backdrop of the lower sales and marketing spend like what do you think is driving this dynamic and the more steady macro and are the customers that are joining up work more recently.

Hayden Brown: Look and feel any different than they have historically.

Hayden Brown: I think that what's driving it is the execution that Erica mentioned earlier around sales and marketing. You know, we've done a really great job over many quarters, building the muscle in those areas, and that's delivering results for us. You know, our value proposition has always resonated and has continued to resonate in this macro, where clients are really looking for flexibility; they're looking for the specialized skills that we have on this platform.

Matthew F. Farrell: Yes, they do I think that what's driving it is the execution that Eric mentioned earlier around sales and marketing we've done a really great job over many quarters.

Matthew F. Farrell: Building the muscles in those areas and Thats delivering results for us our value proposition has always resonated and is continuing to resonate in this macro where clients are really looking for flexibility, they're looking for the specialty specialized skills that we have on this platform.

Matthew F. Farrell: But we've really been delivering with our sales and marketing efforts to be extremely efficient and attract in clients, who broadly do look like past clients I wouldn't say, there's anything really notably different about them and they were coming in and they're ramping up with us I will just add that the some of the new experiences on the platform that are enabled by the AI.

Hayden Brown: But we've really been delivering with our sales and marketing efforts to be extremely efficient and attract clients who broadly do look like past clients. I wouldn't say there's anything really notably different about them, and they're coming in, and they're ramping up with us.

Hayden Brown: I'll just add that, you know, some of the new experiences on the platform that, you know, are enabled by the AI investments we've been making are also really advancing the journey from prospect to active client. So, for example, the job post generator that we launched last year; over 70% of new customers are using that tool in order to post jobs and then, you know, get to activation. So I think there's, you know, it's a combination of factors of the performance marketing engine really humming, you know, even as we've reduced costs and, you know, some of the new experiences on the platform that we've introduced. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Phil with Jeffries.

Matthew F. Farrell: Since we have been making are also really advancing the journey from prospect to tack of clients. So the job pest generator that we launched last year over 70% of new customers are using that tool in order to post jobs and then get to activation. So I think it's a combination of factors of the performance marketing engine really humming.

Matthew F. Farrell: Even as we reduce cost and some of the next transfer platform that we've introduced.

Speaker Change: Thank you and one moment as we move on to our next question.

Matthew F. Farrell: And our next question is going to come from the line of Brent Thill with Jefferies. Your line is open. Please go ahead.

Operator: Your line is open. Please go ahead. Hi, thank you. This is Chan Bian on behalf of Brent Bell.

Matthew F. Farrell: Alright. Thank you this is John Byun for Brent Thill.

Operator: One more question on GSV. So you mentioned the adjusted is 3% in Q1 and 2 points of headwind, and that'll last through the rest of the year. And it sounds like, even adjusting for that, it might accelerate.

Chan Bian: One more question on GSP you mentioned, the adjusted is 3% in Q1 and two points of headwind and that might that will last through the rest of the year.

John Byun: And it sounds like also.

John Byun: Even adjusting for that it might accelerate just wanted to kind of clarify that.

Erica Gessert: Just wanted to kind of clarify that that's what you're seeing. And then maybe related to that, on the macro side, if you could talk about how things look in terms of spend per cohort or hours per project, anything you're noticing on a macro level. Thank you. Yeah, I think you got it on the temporary headwind that we're seeing from the pricing change. We estimate that at about 2% of GSV growth and, you know, it impacted us in Q1 and throughout the year.

John Byun: What you're seeing.

Matthew F. Farrell: And then maybe related to that on the macro side, if you could talk about.

Matthew F. Farrell: How things look in terms of the spend per cohort of Arthur project anything you're noticing on a macro level. Thank you.

Speaker Change: Yeah, I think you've got it.

Speaker Change: On the temporary headwind that we're seeing from the pricing change we estimate that at about 2% of GSV growth.

Speaker Change: And.

Erica Gessert: It impacted us in Q1 and throughout the year.

Speaker Change: From there we will lap that and I think for all the reasons, we've talked about expect to see.

Speaker Change: <unk>.

Matthew F. Farrell: To step up.

Erica Gessert: From there, you know, we'll lap that and I think, you know, for all the reasons we've talked about, expect to see GSV, you know, continue to step up. Oh, and the next question on the macro. Yeah, look, I mean, I think just in general, the macro, you know, we're still seeing a lot of dynamism and, you know, out there in the environment, you know, inflationary environment still affecting consumers and small businesses, you know, corporations still quite budget conscious, I think, you know, the reality is, is we've been really kind of an oasis of stability, I think, within this, some of this, you know, broader environment.

Matthew F. Farrell: And the next question on the macro.

Speaker Change: Look I mean, I think just in general the macro we're still seeing a lot of diamond dynamism and out there in the environment.

Speaker Change: Inflationary environment still affecting consumers and small businesses.

Matthew F. Farrell: Corporations still quite budgets budget conscious I think.

The reality of it is we've been really kind of an oasis of stability I think within the sum of this broader environment.

Erica Gessert: And also, you know, we've said for a few quarters now that we intend to produce growth, growing our profit margins and revenue, regardless of the macro, and I think we're really showing that with our current results. More broadly, I think, you know, if you look at any kind of underlying detail, I think we, like I said, I think we continue to see, you know, very, you know, very good growth on the, you know, very small business side of our platform, and some of the negative kind of impacts from, you know, large businesses from last year are moderating in the current environment. Thank you.

Operator: And also we have said for a few quarters now that we intend to produce growth.

Matthew F. Farrell: And growing our profit margins and revenue regardless of the macro and I think we're really showing that with our current results.

Erica Gessert: More broadly I think.

Operator: Any kind of underlying detail I think we like I said I think we continue to see.

Matthew F. Farrell: Very good growth in our in kind of the small business side very small business side of our platform.

Hayden Brown: And some of that negative kind of impacts from large business from last year is moderating in the current environment.

Speaker Change: Thank you.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Ron Josey with Citi. Your line is open. Please go ahead. Hey guys, thanks for the question. This is Jake on behalf of Ron.

Speaker Change: Thank you and one moment as we move on to our next question.

Erica Gessert: And our next question is going to come from the line of Ron Josey with Citi. Your line is open. Please go ahead.

Ronald Victor Josey: Hey, guys. Thanks for the question. This is Jake on for Rob.

Operator: First, wanted to ask on the enterprise side, could you talk more about the benefits of the new VMS partnerships and specifically progress you're making in terms of focusing more on the growth side of the equation with the larger clients? And then second, just on how great it is to see the AI categories growth. Any additional color you could share there in terms of the mix of this growth from existing clients versus new clients and any trends in terms of spend or wages within that category? Thanks. Sure, Jake.

Jake: First wanted to ask on the enterprise side could you talk more about the benefits the new Vms partnerships and specifically progress youre, making in terms of focusing more on the <unk>.

Operator: Span side of the equation with the larger clients.

Jake: And then second just on great to see the AI categories growth.

Operator: Any additional color you could share there in terms of mix of this growth from existing clients versus new clients and any trends in terms of spend or wages.

Operator: Within that category. Thanks.

Hayden Brown: Speaking about the enterprise VMS partnership, so the reality there is that so many of the enterprise customers that we are serving today and are looking to break into already have existing relationships with VMS and MSP partners, you know, partners themselves. And so when we go through the work of partnering with those providers, it really opens up new opportunities where the spend that those customers are funneling into those platforms becomes available for us to basically participate in and, you know, basically bid on or, you know, offer up talent for and become, you know, an approved vendor of record around.

Speaker Change: Sure Jake speaking about the enterprise Vms partnerships. So the reality there is so many of the enterprise customers that we are serving today.

Hayden Brown: And are looking to break into.

Jake: Already have existing relationships with.

Speaker Change: MFS and MSP.

Hayden Brown: <unk>.

Speaker Change: Partners themselves and so when we go through the work of partnering with those providers. It really opens up new opportunities where spend that those customers are funneling into those platforms becomes available for us to basically participate in and basically bid on or offer a talent for.

Hayden Brown: And become.

Operator: Proved vendor of record around so it really opens up the dollars available to upward both within existing customers, who are using <unk> and for new prospects, sometimes it's a condition of them working with us or certainly a big selling point when they realize that we can work with their existing Vms. So it's early.

Hayden Brown: So it really opens up the dollars available to Upwork, both within existing customers who are using VMSs and for new prospects. Sometimes it's a condition of them working with us or certainly a big selling point when they realize that we can work with their existing VMS.

Hayden Brown: So it's early, you know, for us to execute the strategy, but we're very excited about what it can do for opening up the enterprise opportunity. To your question about the AI categories and kind of what's going on there. Yeah, this is, you know, tremendous, a tremendous area for us, you know, with the 50% year over year growth, specifically in AI services, in addition to just generally seeing clients looking for talent across all the categories we serve, where that talent is equipped and enabled using AI tools.

Hayden Brown: Excluding the strategy, but we're very excited about what it can do and opening up the enterprise opportunity.

Matthew F. Farrell: Tier to your question about.

David Niederman: The AI categories and kind of what's going on there. Yeah. This is a tremendous tremendous area for us with a 50% year over year growth specifically in AI services.

Hayden Brown: In addition to just generally seeing.

Hayden Brown: Clients looking for talent across all the categories, we serve where that talent is equipped and enabled using AI tools and I think the interesting fact, there is the data shows that only about 9% of internal employees are using AI tools on a regular basis compared to 20% of freelancers and compared to more than 50 person.

Hayden Brown: And I think that the interesting fact there is, you know, the data shows that only about 9% of internal employees are using AI tools on a regular basis compared to 20% of freelancers and compared to more than 50% of freelancers on Upwork who are equipped and using these tools. So when we talk to businesses, they're saying, you know, I need to upskill my workforce. I can't do it fast enough.

Hayden Brown: Sent our freelancers on upward who are equipped and using these tools. So when we talk to businesses, they're saying I need to Upskill my workforce I can't do it fast enough. Let me instead turned upward can find the talent that is skilled in these areas and so we're serving a lot of different needs here I would say we are seeing.

Hayden Brown: Let me instead turn to Upwork and find talent that is skilled in these areas. And so we're serving a lot of different needs here. I would say we are seeing premium wages in some of these areas. It's probably not quite as strong as it was maybe three or four quarters ago, like it's moderated a little bit, but there is still a delta for a lot of this work, and this talent is still highly, highly in demand, as evidenced by the fast growth we saw last quarter, which was, I would note, on top of, I think, quadruple Thanks a lot.

Hayden Brown: Premiums premium wages in in some of these areas is probably not quite as strong as it was maybe three or four quarters ago like is moderated a little bit but there is still a delta for a lot of this work and talent is still highly highly in demand as evidenced by the faster growth. We saw last quarter, which was I would note on top of I think our.

Hayden Brown: <unk> digit growth a year ago in that same area.

Speaker Change: Thanks, a lot.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Rohit Kulkarni with Roth MKM. Your line is open. Please go ahead.

Hayden Brown: Sure.

Speaker Change: Thank you and one moment as we move on to our next question.

Operator: And our next question is going to come from the line of Rohit Kulkarni with Ross and Cam. Your line is open. Please go ahead.

Operator: Hey, thank you for taking my questions. I guess on the ads and monetization side of things, maybe just talk about the strategy and the footprint that you think you have there. And in terms of it's been the fastest growing revenue stream for you guys for quite some time. And how do you see the runway in terms of delivering more growth on that? And then as far as the 24 model is concerned, any extra color on the drivers and assumptions in terms of how we should think about take rate from year on out as well as client growth? What are you thinking about for the rest of the year? Sure, Rohit.

Rohit Rangnath Kulkarni: Hey, Thank you for taking my questions I.

Operator: I guess on the odds and monetization side of things, maybe just talk about the strategy and the footprint that you think you have there.

Operator: In terms of its been with Forest Park was growing revenue stream for you guys for quite some time.

Rohit: How do you see the runway in terms of unpacking more growth on that and then.

Rohit: As far as the 24 model has gone from any extra color on.

Rohit: With drivers and assumptions in terms of how should we think about.

Operator: A decrease from here on out as well as client growth how are you thinking about there.

Rohit: For the rest of the year.

Erica Gessert: So on ads and monetization, you know, our strategy here is to build monetization levers that are really congruent with creating more value overall for our customers, and these things go hand in hand. And I think that's what we've really proven with the work we've done already. So, you know, we're encouraged by the progress made, but certainly there's a lot more that we think we can do. And I think, you know, examples of that span everything from enhancing memberships on the platform to continuing to price connect more accurately to continuing to bring in revenue from new streams, like our partnership program. So there's really a lot of runway here.

Rohit: Sure. So on AD monetization our strategy here is to build the monetization levers that are really congruent with creating more value overall for our customers and these things go hand in hand, and I think that's what we've really proven with the work already so we're encouraged by the progress made but.

Erica Gessert: Certainly theres a lot more that we think we can do and I think examples of that span.

Erica Gessert: Everything from enhancing memberships on the on the platform to continuing to.

Erica Gessert: [noise] price connects more accurately to continue to bring in revenue from new streams like our partnership program. So there's really a lot of runway here and I think again, our goal is going to be governed around enhancing our take rate, but doing so in a way that really is creating more value for customers and getting them to spend more overall with us which is really the ultimate goal.

Erica Gessert: And I think, again, our goal is going to be governed around enhancing our take rate but doing so in a way that really is creating more value for customers and getting them to spend more overall with us, which is really the ultimate goal. In terms of the outlook for take rate and client growth, you know, I think for the rest of the year, you know, obviously we have a big step up in Q1.

Erica Gessert: <unk>.

Erica Gessert: In terms of the outlook for take rate and client growth.

Erica Gessert: I think for the rest of the year, obviously, we had a big step up in Q1 as I said that that was associated with that.

Erica Gessert: As I said, that was associated with the cutover to the pricing plan, which, you know, really, by all measures, has been incredibly successful and, you know, well accepted by our clients and freelancers. I think for the rest of the year we'll expect take rate to, you know, not have obviously as big a step up, but we do expect really some of the continued advancement in ad monetization to add a little bit to take rate as we move through the year.

Erica Gessert: Cut over on the pricing plan, which really by all measures has been incredibly successful and.

Erica Gessert: Well accepted by our clients.

Erica Gessert: Freelancers.

Erica Gessert: I think that for the rest of the year, we will expect take rate to it.

Erica Gessert: Not have obviously as big as big a step up in.

Erica Gessert: But we do expect really that some of the continued advancement on either monetization to add add add a little bit to take rate as we move through the year.

Erica Gessert: And client growth, I mean, things are going really nicely with our client acquisition engine, as we've kind of emphasized a few times on the call. Both activations and reactivations are doing nicely. So we do expect client growth to continue, you know, each quarter through the year. Okay. Thanks, Sheridan. Thanks, Erica. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Marvin Fong with BTIG. Your line is open. Please go ahead. Good evening.

Erica Gessert: And Congress I mean things are going really nicely with our client acquisition engine as we've kind of emphasized a few times on the call.

Marvin Milton Fong: Both activations and reactivation are doing nicely. So we do expect client growth to continue.

Marvin Milton Fong: Each quarter through the year.

Marvin Milton Fong: Okay. Thanks, Adam Thanks Erika.

Marvin Milton Fong: Thank you and one moment as we move on to our next question.

Erica Gessert: And our next question is going to come from the line of Marvin Fong with <unk>. Your line is open. Please go ahead.

Operator: Thanks for taking my questions. Congratulations on the performance. So, I have two questions for myself.

Marvin Milton Fong: Hi, good evening, Thanks for taking my questions. Congratulations on the envelope on the performance.

Operator: So, I would like to double-click on reactivation. It seems like something we haven't talked about as much in the past, but for at least some other companies in e-commerce, reactivated buyers or reactivated customers have become a major source of new clients. So, could you kind of talk about how big that pool is for you guys and, you know, your initiatives to kind of get more past customers reactivated? And then a question just on GSV per client. I know it was down this quarter, it looks like. I know that onboarding new clients is a drag on that metric. So, I was just wondering if you could kind of unpack that.

Marvin Milton Fong: Two questions for myself, so I wouldn't like to.

Operator: Double click on on reactivation.

Operator: Something we haven't talked as much about in the past, but I don't know for at least some other companies in e-commerce reactivated buyers reactivated customers has become.

Operator: A major source of new clients. So could you just kind of talk about how big that pool is for you guys.

Operator: Okay.

Operator: Our initiatives to kind of get you get more.

Operator: Customers are reactivated and then a question just following on GSV per clients.

Operator: No.

Operator: It was down this quarter it looks like I know that onboarding, new clients of the drug.

Erica Gessert: You know, if we just look at, you know, existing cohorts, is the spend behavior declining, flat, or increasing? Thanks. Sure, Marvin. So on the first question, look, I will note that reactivation trends have been accelerating for us, and it is a nice source of growth for active clients. We haven't broken it out yet. I don't think we will, but as I said, it's kind of, it is kind of a nice tailwind for us.

Marvin: On that metrics I was just wondering if you could kind of unpack that.

Erica Gessert: If we just look at it.

Erica Gessert: This thing cohorts.

Erica Gessert: <unk> behavior.

Marvin: Declining or flat or increasing.

Erica Gessert: Yes.

Marvin: Sure. So on the first question.

Erica Gessert: I will note that that reactivation.

Marvin: Trends have been accelerating for us and it is a nice source of growth for active clients.

Speaker Change: We haven't broken it out I don't think we will.

Erica Gessert: But as I said, it's kind of it is kind of a nice tailwind for us.

Erica Gessert: And look, I think that within the work that we're doing in terms of client reactivation, some of the performance marketing work that we do is also now aimed at client reactivation. Also, all of the work that we're doing, some of the new Upwork updates that we just did yesterday, all of this work is aimed at both attracting new clients and reattracting clients. Who maybe haven't been using the platform lately and letting them know all the new experiences that are being launched.

Erica Gessert: And look I think that within the work that we're doing.

Erica Gessert: A client client reactivation.

Erica Gessert: Some of the performance marketing work that we do is also is now is aimed at client reactivation also all of the work we're doing some of this.

Erica Gessert: The new epoch updates launch that was mistake yesterday and all.

Erica Gessert: All of this work is aimed at.

Erica Gessert: Both attracting new clients and re attracting clients.

Erica Gessert: Who maybe haven't been using the platform lately and were kind of letting them know all new experiences that are being launched.

Erica Gessert: So theres a lot going on there on GSV for client.

Erica Gessert: So there's a lot going on there in GSB for clients. I'll just emphasize to you that that metric is a trailing 12 months metric. So it does have some, it is kind of picking up some of the still some of the vacillations of kind of macroeconomic impacts that we had last year.

Speaker Change: I'll just emphasize to you that.

Erica Gessert: That metric is a trailing 12 month metric so it does have.

Erica Gessert: So it is kind of picking up some of it's still some of the.

Erica Gessert: Vacillation of kind of macroeconomic impacts that we had last year.

Erica Gessert: But overall, you're right that to the extent we're activating lots of new clients, that will be a drag on GSB for active clients, and the activity of retained clients has started to stabilize compared to what we saw last year. Okay, that's terrific. Thanks so much. Thank you, and I'm showing no further questions at this time, and I would like to hand the conference back to Hayden Brown for closing remarks. Thank you everyone for joining us. We appreciate your interest in Upwork and look forward to keeping you posted on our progress next quarter. This concludes today's conference call. Thank you for participating, and you may now disconnect.

Erica Gessert: But overall you are right.

Erica Gessert: Right.

Erica Gessert: To the extent, we're activating lots of new clients that will be a drag on GSV proactive client.

Hayden Brown: And the activity of retain clients has has started to stabilize compared to what we saw last year.

Speaker Change: Okay. That's perfect. Thanks, so much.

Erica Gessert: Thank you and I'm showing no further questions at this time I would like to hand, the conference back to Hayden Brown for closing remarks.

Erica Gessert: Thank you everyone for joining us we appreciate your interest in up work and look forward to keeping you posted on our progress next quarter.

Erica Gessert: This concludes today's conference call. Thank you for participating and you may now disconnect.