Q4 2024 Upwork Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the upward fourth quarter and full year 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 answer session.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Samuel Me I'm Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you and welcome to a board discussion of its fourth quarter and full year 2024 financial results joining.
Hayden Brown: Joining me today are Hayden Brown, <unk>, President and Chief Executive Officer, and Eric I guess or outbreaks Chief Financial Officer.
Hayden Brown: Following management's prepared remarks, they will be happy to take your questions.
Hayden Brown: But first I'll review the Safe Harbor statement.
Hayden Brown: During this call we may make statements related to our business that are forward looking statements under federal Securities laws.
Hayden Brown: Forward looking statements include all statements other than statements of historical fact these.
Hayden Brown: These statements are not guarantees of future performance, but rather are subject to a variety of risks uncertainties and assumptions.
Hayden Brown: Our actual results could differ materially from expectations reflected in any forward looking statements.
Hayden Brown: For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC website and on our Investor Relations website as well as the risks and other important factors discussed in today's earnings press release.
Hayden Brown: Additional information will also be set forth in our annual report on Form 10-K for the year ended December 31, 2024 when filed.
Hayden Brown: In addition reference will be made to certain non-GAAP financial measures information.
Hayden Brown: 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 work Dot com.
Hayden Brown: Yes, otherwise noted reported figures are rounded comparisons of the fourth quarter of 2020 for arch in the fourth quarter of 2023 and comparisons of the full year of 2024 are to the full year of 2023.
Adjusted EBITDA adjusted EBITDA margin and free cash flow are non-GAAP financial measures and all other financial measures are GAAP unless cited as non-GAAP now I'll turn the call over to Hayden.
Hayden Brown: Good afternoon, and welcome to <unk> fourth quarter and full year 2024 earnings call.
Albert: Albert had a record year in 2024 with all time highs for full year revenue adjusted EBITDA and adjusted EBITDA margin.
Albert: The strategic foundation for upward has never been stronger nor more timely.
Albert: As the AI work type builds organizations of all sizes are seeking out more flexible talent models that match their needs for new and emerging skills with partners, who integrate cutting edge AI technology and valued human workers seamlessly and at scale to rapidly deliver on their priorities at the <unk>.
Albert: Time professionals across geographies specialties and industries, one digitally powered ways of working that give them easy access to more autonomy flexibility on earning power.
Albert: Albert is uniquely positioned to capitalize on these massive work trends, we are delivering new and exciting ways for businesses to access the expert global talent and work outcomes. They need for highly skilled professionals to find a lucrative work opportunities and grow their independent careers.
Albert: Last year it was a year of transformation for our park, we achieved a record performance in the face of a challenging macroeconomic environment, we optimize the organization to increase efficiency and execution velocity, creating a leaner more agile company that is moving faster than operating more profitably than ever before.
Albert: We gained market share and substantially outperformed the incumbent staffing industry, a testament to the inherent advantages of our business model the resilience of our platform and industry, leading innovation and scale.
Albert: We grew revenue, 12% year over year in 2024 compared to an estimated 9% year over year decline in the broader staffing industry.
Albert: This was the sixth consecutive year of double digit growth outperformance for up work compared to the staffing industry and we expect the strategic moves we made in 2024 to fuel our continued industry outperformance this year.
Albert: 2025 will be a year of accelerated execution around our focused portfolio of growth catalysts.
Albert: Enterprise and adds a monetization.
Albert: I'll discuss each of these catalysts and how they loaded the spring for 2026, setting us up for long term success.
Albert: First AI.
Albert: We've rapidly unlocked demand for AI related work on our platform.
Albert: GSV from AI related work grew 60% year over year in 2024 lifted by subsets of AI work like prompt engineering, which was up 93% year over year in the fourth quarter.
Albert: AI related work is substantially higher paying with freelancers working on AI related projects.
Albert: 44% more per hour than those working on non AI related projects across the platform in 2024.
Albert: And the number of upper clients engaging in AI related projects grew 42% year over year in 2024.
Albert: An encouraging signal about the ability of our model and the talent on our work to continuously address critical skill gaps and business needs at the most advanced technology Frontiers. We're also leveraging AI on our platform to underpin the evolution of predictive and delightful conversational customer experiences.
Albert: In 2024, we improved customer productivity engagement and work outcomes with Umar.
Albert: <unk> mindful AI.
Albert: For example, more than 70% of new clients are opting into using our ummah powered job post generator and its use is increasing job post activity job posts quality and jobs fill rates.
Albert: For example.
Albert: Our high value jobs from new clients are feeling or an 8% higher rate since the introduction of Houma, we added additional capabilities to them over the course of 2024, such as proposal writing for talent, which lifted bid volumes by two 5%.
Albert: Our fourth quarter acquisition of objective AI and AI need of search as a service company is already enhancing our search and match results, helping us end the year with all time high fill rates.
Albert: As we accelerate execution of our AI roadmap in 2025.
Albert: <unk> and our other innovations will continue to drive our flywheel with even better matching experiences more productivity for customers and higher quality outcomes.
Speaker Change: Second enterprise.
In Q4, we outperformed our enterprise targets.
Speaker Change: Which is one of the main reasons for our over performance in the quarter compared to our overall revenue guidance.
Speaker Change: We saw increased engagement from retained customers in the quarter with GSV proactive enterprise account growing year over year for the first time in recent quarters.
Speaker Change: Managed services revenue also grew 12% year over year in 2024, reflecting increasing demand for delivery of fully managed work outcomes amongst some of our largest clients.
Speaker Change: Overall enterprise was a $107 million business for us in 2024 growing 4% year over year against an incredibly challenging macroeconomic environment and with enterprise companies for trimming budgets across the board.
Speaker Change: We've taken further steps to capture the enterprise opportunity with the announcement of our pork business plus in October.
Speaker Change: Business plus as a premium plan that provides a smooth glide path for larger clients and is closing the gap between our current marketplace and enterprise offerings.
Speaker Change: The launch of business pluses unlocking a higher velocity approach to the enterprise market with both sales and self service channels working in tandem to activate and retain high value clients.
Speaker Change: We acquired over 1000 active users of business plus since launch and are seeing higher conversion rates of clients using business plus moving from registration to job posts and registration to projects start when compared to our overall marketplace clients.
Speaker Change: <unk> plus is just one of multiple expansion opportunities underway for us to take increased wallet share in enterprise, including ongoing product work and integrations with several partners as we pursue new growth opportunities.
Speaker Change: Finally, our ads and monetization business continued to provide a substantive revenue tailwind, while enhancing marketplace quality efficiency and take rate.
Speaker Change: The monetization of revenue grew 51% year over year in 2024, with freelancer, plus revenue, increasing 58% year over year as we further augmented the value of that subscription package for talent.
Speaker Change: We continued to introduce new adds and monetization products and capabilities and make our existing options more effective for customers.
Speaker Change: We expect as a monetization to drive continued take rate increases in 2025, albeit at a more modest pace as we lapped changes made in 2024 continue to settle and optimize current ads and monetization products 2024 was a transformational year for upward as we injected further discipline and agility.
Speaker Change: <unk> into the business 2025 will be marked by accelerated execution as we build on last year's progress.
Executing with the speed of a start up and the scale of a market leader to deliver record profitability now and durable growth in the years ahead.
Speaker Change: This year, we intend to gain further market share from traditional staffing firms leveraging our competitive edge as a source for the most in demand talent, including those with AI skills and Notching bigger wins for our enterprise business.
Speaker Change: We are investing in AI innovation to rapidly re imagine the way our business operates every corner of our platform experience and how our customers achieve outcomes with our continued advances of Umar as an always on work agents and integration of objective a is AI first search technology, serving as prime examples.
Speaker Change: Samples these accelerated priorities combined with the inherent size scale and yield advantages of our business will allow us to continue to lead our category.
Speaker Change: As we build the future of humans and AI powered work. We are excited about the strategic plan, we are rapidly executing to deliver a powerful combination of growth.
Speaker Change: <unk> ability and shareholder value in the quarters and years ahead.
Speaker Change: With that I'll turn the call over to our CFO Eric Guesser.
Eric Guesser: Thanks Hayden.
Speaker Change: <unk> finished 2024 and a position of strength within a tough operating environment.
Speaker Change: Our pace of execution continues to accelerate and despite the headwind in environment of the past couple of years, our financial position has never been stronger.
Speaker Change: For the full year in the fourth quarter of 2024, we delivered record revenue and profitability and our growing free cash flow profile and strong balance sheet give us tremendous flexibility even as the operating environment for our industry remains challenging and unpredictable.
Hayden Brown: The strong profitability characteristics of our marketplace model give us confidence that we will continue to increase margins and generate value for our customers and shareholders while investing in growth over the next few years, we have been building the growth levers Hayden just outlined to be catalysts for our business over the medium to long term and when macroeconomic conditions.
Hayden Brown: Improve these catalyst will be additional growth drivers for us.
Hayden Brown: As we head into 2025, our outlook reflects our caution with regard to the current macroeconomic environment.
Hayden Brown: Well some of the indicators, we watch for our business such as the Jolts report another macro data showed signs of stabilization in Q4, they remain at multiyear lows.
Hayden Brown: Historically these indicators tend to have a six to nine months lag effect on our business.
Hayden Brown: The current macro uncertainty makes us cautious about the outlook for 2025, but despite that upward continues to perform well and we are executing across every area of our business.
Hayden Brown: Now onto our results.
Hayden Brown: As I mentioned, we are ending the year with record high revenue and profitability.
Hayden Brown: Gross margin was 77, 7% for Q4 and 77, 4% for the full year 2024.
Hayden Brown: Adjusted EBITDA margin was 26, 2% for Q4 and 21, 8% for the full year 2024, both all time highs.
Hayden Brown: Our adjusted EBITDA margins have expanded by 26 points in the last eight quarters and we remain on track to hit our five year, 35% adjusted EBITDA margin target.
Hayden Brown: Revenue grew 4% year over year to $191 5 million in the quarter and 12% for the full year to a record $769 3 million.
Hayden Brown: Above our previous guidance and driven by stronger than expected engagement from retained enterprise end market places clients.
Hayden Brown: When normalized for the Sunday effect Q4 revenue growth was 8% year over year as.
Hayden Brown: As a reminder, GSV and revenue growth rates were impacted by fewer Sundays in the fourth quarter and 2024 versus 2023.
Hayden Brown: Excluding the Sunday effect GSV declined three 6% year over year in Q4, and it's been relatively stable for three quarters now following the top of funnel pressure, we experienced in the second quarter.
Hayden Brown: In Q4, we drove better than expected performance across both our marketplace and our enterprise business units.
Hayden Brown: Fourth quarter marketplace revenue was $163 7, million% to 4% increase compared to 157 5 million in the fourth quarter of 2023.
Hayden Brown: And we continue to grow our enterprise business in a challenging market with total enterprise revenue, increasing 5% year over year to $27 8 million in Q4, and 4% year over year to $107 2 million for the full year.
Hayden Brown: As I mentioned last quarter business pluses reported as marketplace revenue and we expected our traditional enterprise plan deal number to decline in the fourth quarter as we shifted our focus to the growth of the business plus and higher value more strategic accounts.
Hayden Brown: During the fourth quarter, we closed 21 traditional enterprise deals managed services revenue grew 8% year over year for the fourth quarter and 12% to $59 4 million for the full year.
Hayden Brown: Reflecting steady demand for outcome based delivery of work and our focus on expanding share of wallet amongst our largest enterprise clients.
Hayden Brown: Our active client base at the end of 2024, it was 832000, reflecting top of funnel weakness experienced earlier in the year.
Hayden Brown: Our average spend our GSV per active client showed continued strength in the fourth quarter, increasing sequentially across every business segment for the second consecutive quarter.
Hayden Brown: We are very pleased with this progress which is a reflection of the substantial customer experience improvements we've invested in over the past several quarters.
Hayden Brown: Including the launch of <unk> and the AI enablement of our platform.
Hayden Brown: Our marketplace take rate was 18, 1% in Q4 of 2024 compared to 15, 9% in the fourth quarter of 2023.
Hayden Brown: Driven by pricing improvements and continued growth in our ads monetization business.
Hayden Brown: And turning 25, we expect more modest take rate accretion driven by the ongoing growth in our asset monetization businesses, rather than wholesale pricing changes.
Hayden Brown: We continue to focus on introducing new and innovative ways to bring value to our customers in our marketplace and.
Hayden Brown: And we expect to continue to launch new experiences that will drive meaningful take rate expansion in 2026 and beyond.
Hayden Brown: non-GAAP gross margin reached a record high of 78% as we continued to execute disciplined cost management across every part of our business.
Hayden Brown: non-GAAP operating expense was $102 7 million in the fourth quarter for.
Hayden Brown: For the full year non-GAAP operating expense was $442 3 million or 57% of revenue a nine percentage point improvement over 2023.
Hayden Brown: This reflects our continued focus on cost management, and we expect to see additional cost savings in our operating expenses in 2025 as the actions taken at the end of last year flow through to our full year results.
Hayden Brown: Adjusted EBITDA was $50 2 million in the fourth quarter, representing adjusted EBITDA margin of 26, 2%.
Hayden Brown: Adjusted EBITDA in the fourth quarter excludes the impact of a $19 2 million charge associated with the operational realignment that we acknowledged in October.
Hayden Brown: For the full year adjusted EBITDA was a record $167 6 million and well ahead of our guidance range of $155 million to $159 million, reflecting our commitment to prudent cost management and profitable growth.
Hayden Brown: In the coming years, we will continue to raise the bar on our yield expectations for this business.
Hayden Brown: We reported GAAP net income of $147 2 million for the fourth quarter, which included a $140 3 million tax benefit due to evaluation allowance release.
Hayden Brown: Excluding this benefit we reported non-GAAP net income of $42 4 million for the fourth quarter.
Hayden Brown: For the year non-GAAP net income was $147 1 million a historic high.
Hayden Brown: Stock based compensation of $68 4 million in 2024 declined 8% from the year prior and was well below our guidance of less than $20 million per quarter for the year.
Hayden Brown: This decline is a result of the proactive steps, we have taken to reduce stock based compensation.
Hayden Brown: These actions will have a lasting benefit on a recorded stock based compensation and GAAP profitability.
Hayden Brown: Free cash flow for the fourth quarter was $34 7 million, including the impact of restructuring related charge of $17 1 million.
Excluding this charge free cash flow was $51 $8 million, an all time high.
Hayden Brown: We generated $139 1 million in free cash flow in the full year, which we expect to strategically use to drive long term shareholder value by supporting the development of our business and share buybacks in 2025.
Hayden Brown: Cash cash equivalents and marketable securities were approximately $622 million at the end of the fourth quarter.
Hayden Brown: Now turning to guidance.
Hayden Brown: For the first quarter of 2025, we expect to produce revenue in the range of $186 million to $191 million for adjusted EBITDA in the first quarter, we are guiding to a range of $46 million to $50 million, which represents an adjusted EBITDA margin of 25, 5% at the midpoint of the range.
Hayden Brown: Our disciplined execution in 2024 gives us high confidence that we will make strong and steady progress on our 35% margin goal over the next few years, while investing in important growth levers that will reignite topline growth in our business.
Hayden Brown: For the full year 2025, we anticipate revenue between 740 and $760 million.
Hayden Brown: We are investing in growth catalysts, including the continued AI enablement of our platform the advancement of premium products like business, plus and new strategies and enterprise it hasn't monetization, which we expect to bear fruit in 2026.
Hayden Brown: Our pace of execution and the multiple growth levers that we have gives us confidence that we will resume revenue growth next year.
Hayden Brown: Stock based compensation is expected to be approximately $15 million per quarter in 2025.
Hayden Brown: A significant reduction to 2024 levels.
We reduced stock based compensation in 2024, and our results for the full year were well below our guidance range, reflecting our disciplined approach to SBC and a reduction in force.
Hayden Brown: We have taken proactive steps to adjust the balance between stock based in cash compensation and this will result in beneficial trends on stock based compensation going forward.
Hayden Brown: As a result of our ongoing discipline and the strength of our business model. We expect our full year adjusted EBITDA will be in the range of $180 million to $190 million.
Hayden Brown: 25% adjusted EBITDA margin at the midpoint.
Hayden Brown: Our ability to meaningfully expand margins even in a tough operating environment reflects our commitment to profitability and driving shareholder value.
Hayden Brown: We expect Q1 to be the high point for adjusted EBITDA margin in 2025, as we make some minor additional investments in growth levers throughout the year.
Hayden Brown: We expect full year 2025, non-GAAP diluted EPS to be between one five and $1 10 up from our 2020 for our results.
Hayden Brown: For the full year, we expect weighted average shares outstanding between $138 million to $142 million, excluding any potential impacts from stock repurchases.
Hayden Brown: A bit more on our share count outlook as it relates to our repurchase authorization and capital allocation strategy.
Hayden Brown: Given the durable profitability and strong cash generation of our business, we have a capital allocation strategy in place that is intended to fully offset dilution from stock based compensation through stock repurchases.
Hayden Brown: And with continued confidence in our ability to execute on our long term plan, we intend to opportunistically utilize share repurchases to reduce our total share count over time.
I'll close by saying that we are excited about the opportunities for this business and we are very proud of our ability to execute strongly in this challenging environment.
Hayden Brown: 2024 was a record year for upward in terms of revenue GAAP net income and adjusted EBITDA.
Hayden Brown: We ended the year with all time high adjusted EBITDA margins, and we are well on our way to our 35% adjusted EBITDA margin target.
Hayden Brown: We've been hyper focused on cost discipline and have successfully taken the opportunity to expand our profitability.
Hayden Brown: We delivered growth well in excess of traditional staffing firms and we continue to take market share from them.
Hayden Brown: Looking ahead, we are investing in the right growth levers that we expect will pay off in accelerated GSV and revenue growth with an even greater velocity when there's no macro headwinds subside.
Hayden Brown: As always I want to close by thanking our incredible team at up work for their contributions this quarter and their unparalleled creativity focus and pace of execution.
That we'd be happy to take your questions.
Hayden Brown: Thank you and as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please standby will compile the Q&A roster one moment for our first question.
Hayden Brown: Our first question will come from the line.
Speaker Change: Maria Rips from Canaccord Your line is open.
Maria Rips: Great. Thanks, so much for taking my questions.
Speaker Change: First just in terms of your revenue guidance. It looks like your full year outlook implies modestly higher revenue declines. After Q1 can you maybe just talk about some of the dynamics driving that.
Maria Rips: Yes, Sir.
Speaker Change: Thanks for the question.
Maria Rips: Obviously, it's very straightforward.
Maria Rips: Third year for us.
Maria Rips: Revenue and EBITDA.
Maria Rips: As we know.
Maria Rips: The business has encountered.
Maria Rips: Cumulative years.
Maria Rips: The macro headwinds.
Maria Rips: And right now as we enter 2025.
Maria Rips: Say that.
The dial in.
Maria Rips: I was hoping the final havent havent really changed unfortunately.
Maria Rips: It is important to note of course also the business.
Maria Rips: Nine months lag in our business.
Maria Rips: When.
Maria Rips: When the macro starts to change and so there's a lot of uncertainty out there.
Maria Rips: And.
Maria Rips: 285 guidance reflects that.
Maria Rips: Got it that's helpful. And then secondly, appreciate all the detail on <unk>.
Maria Rips: But can you maybe share a little bit more color on AI and impact on your business, especially kind of in light of the recent industry developments.
Maria Rips: And I guess, what are some of the building blocks to perhaps accelerate AI related GSV spend on the platform.
Maria Rips: <unk> from 60% you reported last year.
Maria Rips: Sure. Yes, we are really excited about the advancements in AI and all the new technology, that's coming forward at such an incredible pace, because we see that upward really benefits from this broader AI trends.
Maria Rips: Our platform is highly flexible and what we've seen is that it takes us to whatever customer demand for what it looks like including whatever combination of humans that technology are working together to deliver great outcomes for customers in the past are you seeing upper state shift very naturally and rapidly as work itself has evolved. So if you look back to the early two thousands.
Maria Rips: We had no social media managers are marketers that before the launch of the iPhone. There were very few mortgage offered on our platform, but those roll in categories of work today are driving our platform into upper grew rapidly when customer demand appears.
Maria Rips: So what we're seeing today in a similar shape shifting as AI is evolving with the talent mix on network really being repaid before our eyes as AIG.
Maria Rips: Our emerging this is evident from the GSV that we saw in proppant here about 90% or would it work growing 60% year over year in 2024, and this shift is really happening across not just the AI categories themselves. We report on but also on all 125 categories and 10000 still areas where workers early.
Maria Rips: Opting these new technologies and improving their value proposition to customers delivering better faster and more compelling works to customers at the rate of these technology changes. So this is a very positive trend for us we're clearly benefiting already and we're excited about that unlocks even as we ourselves are innovating on our own platform with the launch.
Maria Rips: AI capability.
Maria Rips: Advanced over 'twenty, 'twenty, four and coming for even more in 2025. So this is a fun and exciting is the amount of trust.
Hayden Brown: Great. Thank you Hayden Thank you Erika and that's very helpful.
Ray: Thanks, Ray one moment for our next question.
Speaker Change: Our next question will come from the line of Andrew Boone from citizens. Your line is open.
Andrew Boone: Thanks, So much for taking my questions I wanted to go to a marketplace take rates. There was a sequential decline from <unk> can you guys. Just help explain that and then talk about the trajectory of marketplace take rates as we think about 2025. So there isn't any reason to think that that would step down again or should we see more stability there and then.
Andrew Boone: Thinking more broadly about <unk> and the potential to improve liquidity on the platform can you just speak to that what what does AI on law, because you basically improve they can touch formation of matching freelancers to demand. Thanks, so much.
Andrew Boone: Andrew I'll take the take rate question first.
Andrew Boone: Yes, when we have a pretty.
Andrew Boone: Q3 results, we actually did give an indication that we would be doing some testing in Q4 that you could kind of have some.
Andrew Boone: The effect on the sequential take rate.
Andrew Boone: Accretion, but thats one time in nature.
Andrew Boone: That form and we fully expect take rate to continue to grow as we go into 2025 that would be it albeit at a.
Andrew Boone: Much more modest rate than expected.
Andrew Boone: The 260 basis points in 2020.
Sure.
Andrew Boone: We do.
Overall, we have a lot of headroom to go.
Andrew Boone: The strategy that we do the same for take rate.
Andrew Boone: Hey time to test and to learn.
Andrew Boone: Whether it's on the platform. So train five should be sort of a modest year, but we fully expect that some of the kind of promising take rate strategies that we've got.
Andrew Boone: Development right now will be ready to launch in late 2025 in early January.
Andrew Boone: Yeah.
Andrew Boone: Andrew on the site.
Andrew Boone: Unlocks through better mapping, let me give you a little color there so our ability to invest in Q, the AI informatics and wash AI work companion Umar last year in April and then enhance the capabilities over the course of the year integrating with our October really is a big differentiator the way it attracts.
Andrew Boone: Clearly drive better matching on our platform.
Andrew Boone: As an example, when we launched the <unk> capabilities with the job posts generator, we've seen tremendous adoption of that more than 70% of new clients are using that power job pushed generator, which is venturing into more job posts per client as trains more chocolates qualities of better quality post coming into our marketplace and are increasing our fill rate.
Andrew Boone: Mapping specifically until rates, specifically are moving because of things like the quality of the quotes that are being written and on the other side of the equation freelancers, who have adopted the proposal writing capability are actually bidding at a higher rate. So their bid volumes are up two 5%.
Andrew Boone: In the first phase of this work we've been deliberate enhancing core matching components of our ecosystem with whom our capabilities. We're seeing the adoption, we're seeing that translate into gains on things like 8% or higher.
Andrew Boone: Fill rates on our highest value jobs for new clients, which has been again another great outcome of that.
Andrew Boone: The second phase of work, while Youre going to see from US is we will not be where companion evolving much more into a fully blown.
Andrew Boone: Agents, and that's where we'll be able to take on even more tasks and work from our customers that they can offload to execute or lab work, but we're already seeing the wins from the first phase of this work and are excited about how we're accelerating that with the acquisition we made last year.
Andrew Boone: The amount that we have had.
Speaker Change: Great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Next question will come from the line of Bernie Mcternan from Needham Your line is open.
Speaker Change: Hi, This is stefanos crist, calling in for Bernie Thanks for taking our questions.
Speaker Change: Just wanted to ask on the $60 million of cost savings I think they were announced mid Q4, so should we be more room in 'twenty five.
Speaker Change: What areas can we expect to see those and then you also mentioned some minor investments through 25 can you also just provide some more color there. Thank you.
Speaker Change: Yes sure.
Speaker Change: When we announced the cost reductions in October.
Last year, we I'll make them again, they work sort of across our business. We really took us several quarters to think through the cost reductions that we made.
Speaker Change: And operational realignment of the business.
Speaker Change: The places where they are focused on the <unk>.
Enterprise business.
Speaker Change: And the new bifurcated strategy that we've got focusing on our largest enterprise accounts for acquisition and then launching to the splits on the marketplace, which of course opened up some of the enterprise value prop to our marketplace customers.
Speaker Change: That is greatly reduced our cost to acquire and our cost to serve on the enterprise side and then we did also rationalize our R&D portfolio.
Speaker Change: Take a much more focused approach to R&D G&A has relatively lesser benefits on a year over year basis in those two categories. However, we do see it longer kind of longer term opportunity in G&A as well.
Speaker Change: And what was the second question.
Speaker Change: Oh.
Speaker Change: 25, yes.
Speaker Change: Okay.
Speaker Change: In terms of the vessels and this.
Speaker Change: This is really this.
Speaker Change: Three growth catalysts.
Speaker Change: Investment areas outlined on the call.
Speaker Change: We're very very focused on additional investments in AI enabled in our platform and in the advancement of our enterprise strategy. So it's a minor investment there, but these are relatively minimal and we'll just have a little bit kind of a slightly lower margin in Q2 and Q3 versus Q1.
Speaker Change: Got it thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Brad Erickson from RBC capital markets. Your line is open.
Brad Erickson: Hi, Thanks for taking the questions.
Speaker Change: First for Eric I guess, what the GSV declines you've been seeing lately, obviously, you mentioned kind of no changes to the top of the funnel headwind.
Speaker Change: Sort of what's behind that but maybe speak to things that might be in your control for trying to get that GSP back to growth versus what's out of your control.
Hayden Brown: And then second for Hayden.
Speaker Change: You guys are talking about contemplating call. It other products and services that could expand take rate over time I'm wondering if you could expand on that a bit obviously, we have add managed services and then the newer launches like business plus just curious to learn maybe a bit more about some of the adjacencies, where you see opportunities.
Hayden Brown: For that.
Speaker Change: The driver thanks.
Speaker Change: Yeah, Brian Thanks for the question in terms of GSV.
We are seeing.
Speaker Change: And top of funnel weakness is kind of a.
Speaker Change: Highlighted last year coming into 2025 and that gives us some caution on our outlook.
Speaker Change: We have some very positive signals.
Speaker Change: In our retail client base.
Speaker Change: Okay.
Speaker Change: Enterprise customer in Q4 increased engagement.
Speaker Change: <unk>.
Speaker Change: <unk> increased 2% year over year in the quarter and that's after multiple quarters of negative growth.
Speaker Change: We also saw our overall retained client base grew 9% year over year in Q4, and also as I highlighted GSE proactive client increased across all business segments in the quarter for the second quarter. So we're really pleased with some of the dynamics, we're seeing under the covers there.
Speaker Change: In terms of what we can control we have outlined the strategic investments, we're making I would add to that in terms of our asset monetization strategies, we have multiple.
Speaker Change: Take rate strategies that we can deploy including some that are very GSV beneficial leg like the business strategy of launching that take rate accretive product with enhanced value proposition on the marketplace and there is more to come there as we develop a new strategy new tiers for this filing in 2026.
Speaker Change: Sure.
Speaker Change: The products and services on a take rate area.
Speaker Change: <unk> take rate to 160 basis points in 2024 to an all time high of 19, 4%.
Speaker Change: So we feel good about the pace of our execution and expansion in this area and are taking of course, a more measured approach. This year, but there is a big portfolio of opportunity here and I'll work My way. So some of the specific opportunities for us are around first of all subscriptions, we launched the business plus subscription last year and today, we have basically one subscription plan.
Speaker Change: <unk>.
Speaker Change: On the marketplace upgrade side for clients and one on the sensor side. So there is more opportunity for us to both enhance those plans the value prop.
Speaker Change: Tito refined pricing of those plants and add more subscription tiers over time.
Speaker Change: Another big opportunity for us is around our current advertising products. Just in Q4, we launched some client side advertising products for the first time that renew and Theres more things. We can do because we have so much audience inside of our marketplace on both the client side, but there's more runway there as well the final thing I'd mention is there are places, where we can monetize kind of AD hoc value.
Speaker Change: Competition and get services, either offered by us or our third party partners, we've done a little bit of experimentation with us to date, but certainly it's not something that is mature at this time and so there is a runway of opportunity. There. So when we look at all of them together and we feel great about what the opportunity is ahead, even though we're going to be more in some of the development phase on some of these things in this year.
Speaker Change: The opportunity for our customers to absorb some of the price changes we've made over the last one and a half years.
Speaker Change: Got it that's great. Thanks.
Speaker Change: One moment for our next question.
Speaker Change: The next question will come from the line of Josh Chan from UBS. Your line is open.
Josh Chan: Hi, good afternoon, thanks for taking my questions.
Josh Chan: I guess on the enterprise side it sounds like things are turning a corner a bit there. So I was wondering if you could give a little bit more color on why you think youre seeing the improvements that you or anything kind of whats driving the improved trajectory there. Thank you.
Josh Chan: Sure Josh I'd say, we've been focusing more of our resources in the enterprise area on our top biggest clients, where they are really looking to expand wallet share with these customers that was part of the focus then re organization work. We did in Q4 and that is certainly paying off which I would note is remarkable given the amount of change that the team absorbed.
Josh Chan: In the fourth quarter.
Josh Chan: Also seen just a kind of signifiers here in our managed services offering continues to really resonate with customers. They grew 12% year over year in the quarter, we saw higher year end spend in the quarter in terms of customers kind of running through the end of the year and wanted to spend more with us as the year was closing out.
Josh Chan: And then we also saw one trend that was interesting our GSE for active enterprise account actually did grow year on year on year basis for the first time in recent quarters. So we feel good about where this business is as we enter this year building on that momentum in the business plus side of things, where again, there's a lot of activity happening a lot of.
Josh Chan: And the funnel, but again this is kind of a year, where we're building into the new strategy and not really expecting a bigger growth for us in 2026 and beyond.
Speaker Change: Great. Thanks for the color there and then maybe one on margin I guess, you achieved 26% margin in Q4 with not much help probably from the streamlining initiatives. So I guess was there anything one tiny there or I guess could there be some upside to what you're guiding for 25 because of the slowing through with it.
Speaker Change: Cost savings in 'twenty five thanks for the color.
Speaker Change:
Speaker Change: Thanks, Josh.
Speaker Change: Thank you for it yes, I mean, we did we actually executed a little bit faster than we expected to and some of the cost savings in Q4 to get to the 26% margin in 2025.
Speaker Change: Our guidance our guidance at this point I think we're constantly looking at cost optimization opportunities in this business and we are obviously very very committed to that does that kind of margin progress.
Speaker Change: That we've talked about.
Speaker Change: Growing margins, each and every year to the 35%. So we do see additional cost opportunities across the business a little bit longer term in nature.
Speaker Change: By and large we expect us to hit 2026, I would just remind you as well that we did make the objected acquisition at the end of Q4.
Speaker Change: That also has a slight impact on offset.
Speaker Change: R&D in 2025.
Speaker Change: That's great. Thank you both for the color.
Speaker Change: One moment for our next question.
Speaker Change: Next question will come from the line of Rohit Kulkarni from Roth Capital Partners. Your line is open.
Jared: This is jared on for Rohit Kulkarni.
Speaker Change: How would you anticipate your capital allocation philosophy to evolve now that you might be generating 25% to $30 million in free cash flow every quarter going forward.
Speaker Change: And secondly from an end market standpoint, and with the macro stabilization seen in Q4, how would you characterize your visibility and your confidence in annual guidance. Thank you.
Speaker Change: Sure on capital allocation.
Speaker Change: I would say overall, our capital allocation strategy is very.
Speaker Change: Very judiciously invest in that's very focused on organic growth opportunities that we've been talking about on the call, but youre right as as we've really accelerated the profitability and free cash flow gains in this business.
Speaker Change: Now able to drive long term shareholder return.
Speaker Change: Proactive capital allocation strategy so.
Speaker Change: We have now a track record of taking action on these kind of smaller tech and talent acquisitions and so we'll continue to look for M&A.
Speaker Change: As to enhance our roadmap and accelerate our strategic path.
Speaker Change: As a market leader.
Speaker Change: But and lastly, I'd say, we're very very focused on returning capital to shareholders 'twenty 'twenty four we deployed our first ever $100 million share repurchase.
Speaker Change: 72% of our free cash flow last year to repurchase shares.
Going forward, we intend to fully offset dilution from stock based compensation and we also plan to opportunistically reduce our share count over time.
In terms of the visibility and the confidence in guidance given the background.
Speaker Change: Yes, we talked a lot about the macro I think even even this morning inflation worries point to the fact that we won't see unfortunately in interest rates coming down anytime soon we are really focused on what we can control and we're very very confident in.
Speaker Change: In the guidance that we've given.
Speaker Change: That we should be able to perform.
Speaker Change: As long as the macro kind of remains as it is if there are shocks to the system of course.
Speaker Change: That would affect all businesses that said if the macro were to start to improve of course, we would expect that our business would follow that.
Speaker Change: Six to nine month lag.
Speaker Change: Alright. Thank you one moment our next question.
Speaker Change: Our next question comes from the line of John <unk> from Jefferies. Your line is open.
Speaker Change: Thank you this is John in for Brent Thill at Jefferies.
Speaker Change: Couple of question just want to see if you could maybe talk about what you saw in terms of linearity on a month to month trends.
Speaker Change: And related to that.
Speaker Change: I don't know if you saw any pause the acceleration around elections or inauguration.
Speaker Change: Either positive or negative and then second more on the numbers big step down in sales and marketing in Q4.
Speaker Change: And I guess it was post restructuring, but I'm wondering if there was any other.
Speaker Change: Factors behind that because it had been running over 40 million for five quarters in a row. Thank you.
Speaker Change: Yeah in terms of the last two months linearity I would say that broadly our month to month trends in Q4 and coming into Q1 that followed our sort of normal seasonality. We did see some unexpected strength as we've outlined.
Speaker Change: At the end of Q4.
Speaker Change: Really and our GSV proactive client.
Speaker Change: But like I said, both on the enterprise and on the marketplace side. So we've seen growth in both both both business units.
Speaker Change: And that's kind of sequential growth that we have in our year over year growth that we haven't seen in several quarters.
Speaker Change: But I don't think Theres anything, particularly of note in terms of the <unk>.
Speaker Change: <unk>.
Speaker Change: The election and other things.
Speaker Change: We haven't seen a particular change in behavior.
Speaker Change: Our client base coming from that.
Speaker Change: I think it remains to be seen what will happen given all of that the pace of the policy decisions coming out of the new administration.
Speaker Change: And then on the big step down in the first sales and marketing I mean, this really is the cost reductions that we've talked about.
Speaker Change: Focused on the enterprise business and we also did take some cost reductions we talked about this on the Q3 call.
Speaker Change: We reduced non working marketing spend we have not reduced spend on performance marketing, which remains a good a good channel for acquisition channel for us.
Roy Channel: Roy Channel.
Roy Channel: Thank you.
Roy Channel: Thank you for a moment for our next question.
Speaker Change: Next question comes from the line of Marvin Fong from <unk>. Your line is open.
Speaker Change: Alright, great. Thank you for taking my questions pretty much all been asked here I just like to maybe ask one on that increase we're seeing in the GSV per client.
Could you maybe break that down.
Speaker Change: A step further in terms of whats the components driving that is it.
Speaker Change: Hours per project hourly rate.
Speaker Change: And Relatedly any are you are you kind of assuming that.
Speaker Change: Whatever youre seeing in terms of trends kind of persisting in <unk> and <unk>.
Speaker Change: 25, or what sort of underpinning your expectations for for your for your guidance with respect to those items.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: In terms of drivers we have.
Speaker Change: Have not seen an increase in hourly rates.
Speaker Change: Been consistent over the last couple of years.
Speaker Change: And I think that that's very much kind of a macro part of the macro headwinds.
Speaker Change: I would note that there are certain categories on our platform, including the highest growth category that you get a higher rate within that category. So AI work get them at a 44% wage accretion versus versus non AI work on the platform. So to the extent that that continues to grow as it has.
Speaker Change: That would be the fastest growing category in the platform.
Speaker Change: We should continue to see some benefits there now for the for the for.
Speaker Change: For the remainder of the year.
Speaker Change: Like I've said, given the macro headwinds multiple layers of macro headwinds that we've been kind of enduring we are looking with caution just simply because I think that future is a bit unpredictable as the macro environment. So.
Speaker Change: Right now I think we're sort of looking at realm.
Speaker Change: Relatively steady GSV proactive client.
Speaker Change: Going forward for the rest of the year and also you have to take into account, we do have seasonality in our business with Q2, and Q3 being relatively lower than Q1.
Yes.
Speaker Change: Got it thanks, so much Erika I appreciate it.
Speaker Change: Got it.
Speaker Change: Yeah.
Speaker Change: This concludes our Q&A for today. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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