Q1 2025 Upwork Inc Earnings Call
Michael Jackson, Andrew Meehan, Michael Meehan, Michael Meehan, Michael Meehan,
[inaudible]
Speaker Change: Good day and thank you for standing by. Welcome to Upwork's first quarter 2025 earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session need to press star 1-1 on your telephone, you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would like to end the conference over to your speaker today. Samuel Meehan, Vice President of Investor Relations, please go ahead.
Samuel Meehan: Thank you, and welcome to Upwork's discussion of the Terce Quarter 2025 Financial Results.
Samuel Meehan: Joining me today are Hayden Brown, Upwork's President and Chief Executive Officer, and Erica Gessert, Upwork's Chief Financial Officer.
Samuel Meehan: Following management prepared remarks, they will be happy to take your questions.
But first, I'll review the safe harbor statement.
Samuel Meehan: During this call, we may make statements related to our business that are forward looking statements under federal securities laws.
Samuel Meehan: for looking statements include all statements other than statements of historical fact.
Samuel Meehan: These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions.
Samuel Meehan: Our actual results could differ materially from expectations reflected in any forward-looking statement.
Samuel Meehan: 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.
Samuel Meehan: as well as the risks and other important factors discussed in today's earnings press release.
Samuel Meehan: Additional information will be set forth in our quarterly report on form 10Q for the quarter ended March 31st, 2025 when filed.
Samuel Meehan: In addition, reference will be made to certain non-GAAP financial measures.
Samuel Meehan: Unless otherwise noted, reported figures are rounded, comparisons for the first quarter of 2025 are to the first quarter of 2024.
Samuel Meehan: 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 Upwork's first quarter 2025 earnings call. Upwork had a strong start to the year as our first quarter results feed our plan on both the top and bottom lines.
Hayden Brown: Revenue of $192.7 million exceeded the high end of our guidance range.
Hayden Brown: Combined with consistent cost discipline that led to record high at Justin EBITDA of $56 million and at Justin EBITDA margin of 29 percent, we have proven quarter after quarter that we can execute well and lead our industry in any market environment.
Hayden Brown: Our business is extraordinarily resilient and our strategy and execution have resulted in industry leading performance over multiple years, despite the uncertain operating environment.
Hayden Brown: Additionally, Upwork is not directly exposed to announced tariffs, nor to ongoing federal cost
Hayden Brown: Our core marketplace performed well in Q1, where GSC per active client grew year-over-year for the first time in six quarters and increased sequentially for a third consecutive quarter. We also drove sizable GSC outperformance in marketplace through several product enhancements to search, recommendations, and other customer experiences.
Hayden Brown: Upwork has helped businesses reinvent through every work transformation of the last 20 years.
Hayden Brown: Enabling them with the highly skilled talent required to deliver cloud solutions, build e-commerce storefronts, and embrace the eras of mobile and social media.
Hayden Brown: with AI being the next and biggest paradigm shift for organizations. Upwork is becoming the critical infrastructure for enabling the combination of humans and AI to work together to achieve business outcomes.
Hayden Brown: While AI is rapidly changing every company from the smallest startups to the largest enterprises, an AI skills gap exists today with 63% of employers citing a lack of AI skills as the top barrier to transforming their businesses.
Hayden Brown: We are a critical resource to clients as they navigate this tectonic transformation.
Hayden Brown: One of the world's largest social media platforms has engaged highly skilled math experts on Upwork to safeguard the quality of their training data for integral LLM.
Hayden Brown: Multiple companies, including one of the top pharmaceutical companies in the world, have relied on a South Carolina-based AI and data science agency on Upwork for healthcare-specific low-code apps and AI solutions.
Hayden Brown: A midsize law firm in Florida that specializes in representing veterans, turned to Upwork Freelancers to transform their knowledge management system with AI, building a custom GPT to organize their massive corpus of documents and access key information in an instant.
Hayden Brown: These examples are a testament to how Upwork's talent base constantly evolves to meet new business needs.
Hayden Brown: Today, we have a deep reservoir of 80,000 AI specialists on our platform globally, who have already put their expertise to work in designing, developing, and deploying AI systems for clients, and that pool is growing every day.
Hayden Brown: Clients of all sizes are coming to Upwork to find this expert AI talent for complex long-term projects ranging from model training and tuning to integrating LLMs into new products to building AI-powered workflows across departments.
Hayden Brown: As our customers have been embracing AI, we ourselves have been racing ahead to make Upwork a truly AI native platform.
Hayden Brown: Our investments in UMA, Upwork's Mindful AI, are transforming our customer experience by offloading mundane tasks and making the work journey on Upwork more productive and seamless.
Hayden Brown: This is just the beginning of how with Uma, we envision providing customers with a fully capable AI work agent that can do everything from informing hiring decision.
to helping freelancers win work, to end-to-end project management.
Hayden Brown: Uma Power features we recently launched, like Proposal Rating, and Candidate Evaluation. Experience strong uptake.
Hayden Brown: We saw 52% more users engaging with Uma overall in Q1 than in Q4 2024, including a 58% list in engagement with Uma-powered proposal writing as just one example.
Hayden Brown: AI features have already had positive impacts across our platform, driving up volumes of proposals and bids, new client conversion, hiring rates, contract volumes, time to hire, time to start, and freelancer earnings.
Hayden Brown: We are encouraged by the impact of these advancements in making Upwork the leading AI native work marketplace operating at scale. Our significant AI investments are paying off both organically and as we have put capital to work through tech and talent acquisitions that have accelerated our AI roadmap.
Hayden Brown: In Q4, we've successfully integrated objective AI's native search technology and team. As planned, this team is already injecting incremental innovation capacity into our business, contributing new capabilities in search and match that are showing promising effects on GSV.
Hayden Brown: Upwork is well positioned to lead this AI revolution for our category with clear advantages in the largest work data set and scaled marketplace, the right talent and tech platform and ample R&D investment.
Hayden Brown: We have much more in store throughout 2025, including building more personalized AI-powered experiences for acquisition and onboarding that set up customers for immediate success, along with AI matching features that improve hiring efficiency and drive superior hiring outcomes.
Hayden Brown: We made solid progress in Q1 on our strategies to unlock spend from larger clients.
Hayden Brown: Upwork Business Plus, our new premium marketplace offering focused on larger clients, is performing well. Active clients on Business Plus more than doubled quarter over quarter, reflecting both net new additions and upgrades from our standard marketplace plan.
Hayden Brown: Business Plus has become an attractive value proposition for new customers with approximately 40% of active business plus clients being new customers.
Hayden Brown: This is true without any significant paid marketing, a testament to the offering value proposition meeting a clear client need.
Hayden Brown: Taken together, business plus and enterprise are delivering growth in GSC and revenue from large customers.
Hayden Brown: With the first half of 2025 representing transitional quarters for enterprise, we are on track with our plan and making steady progress.
Hayden Brown: As we mentioned last quarter, our enterprise strategy is evolving as we align our approach to access a greater share of traditional contingent staffing budgets and we will share more on these developments on the enterprise front in coming quarters.
Hayden Brown: The strength of our business is evident in record first quarter revenue, adjusted EBITDA, and adjusted EBITDA margin.
Hayden Brown: We're excited about the massive opportunities ahead of us in AI, enterprise, and ads and monetization along with the pace at which we are innovating and executing to realize those opportunities.
Hayden Brown: 2025 will be a year where we continue our market share gains while growing profitability, free cash flow, and long-term shareholder value
Hayden Brown: We are confident we have the right model, talent, investments and plan to deliver results in 2025 and to continue on the path for more meaningful top-line growth in the future. With that, I'll turn the call over to our CFO , Erica Gessert.
Hayden Brown: Thanks Hayden. Upwork kicked off 2025 delivering a strong first quarter driven by outperformance in our core marketplace.
Erica Gessert: Our Q1 revenue of $192.7 million was a record for a first quarter.
Erica Gessert: Our focused, disciplined approach to margin expansion was evident across our business as our gross margin reached 78.3% and our adjusted evict on margin was our highest ever at 29%.
Erica Gessert: We are firmly on track to achieve our five year 35% adjusted EBITDA margin target and we are raising our full year 2025 adjusted EBITDA guidance.
Erica Gessert: While the macro environment remains turbulent, we continue to deliver even after multiple quarters of macroeconomic pressures.
Erica Gessert: First quarter GSV of 988 million was stronger than we expected coming into the year, and were encouraged by some early signals from continued enhancements in search, match, and other key platform capabilities, which helped to drive some positive customer spend dynamics.
Erica Gessert: Average GSV per active client increased 3 percent year-over-year following multiple quarters of sequential growth, giving us confidence in the value that we are driving for customers.
Erica Gessert: G.S.V. per active client grew year-over-year in every client segment.
Erica Gessert: This was driven by our large client segment in which GSB Proactive Group 11% year-over-year.
Erica Gessert: While our active client count continues to experience some pressure, this is the cumulative effect of the top of funnel-demand pressure our business and many others have been experiencing over the past year.
Erica Gessert: To address the challenging demand environment, we have rebalanced our performance marketing spend to focus on higher LTV clients.
Erica Gessert: So while total volume of active clients may be down year-over-year, we are attracting higher quality customers and contracts.
Erica Gessert: Even with these adjustments, it's worth noting that in Q1 we saw client activations increase quarter of a quarter for the first time in over a year.
Erica Gessert: As a result of these dynamics, Q1 revenue grew 1 percent year-over-year above our guidance for the quarter.
Erica Gessert: This performance is particularly notable in the context of the unstable macro-environment and the fact that we are lapping strong take rate growth in Q1 of 2024.
Erica Gessert: Enterprise revenue of 26.4 million was relatively flat year-over-year, as we shifted our sales teams focus to the growth of business plus on the marketplace, along with higher value more strategic retained account.
Erica Gessert: Managed Services Revenue grew 3% year-over-year to 15.3 million in the first quarter.
Erica Gessert: We have made tremendous strides on our enterprise strategy over the past few quarters.
Erica Gessert: And while we are in a transitional phase with the enterprise business, we are more excited than ever about the enterprise strategy at a point.
work.
Erica Gessert: Our marketplace take rate was 18.3% in Q1 2025, compared to 17.7% in the first quarter of 2024, driven by continued growth in our ads and monetization business.
We expect relatively stable take rates throughout 2025.
Erica Gessert: We continue to focus on introducing new and innovative ways to bring value to our customers, and we expect to launch new products and experiences that will drive meaningful take-grade expansion in 2026 and beyond.
Erica Gessert: non-GAAP Gross Margin reached a record high of 78.3%. As we continue to execute discipline cost management across every part of our business.
Erica Gessert: Non-depth operating expense was 98.1 million in the first quarter, or 51% of revenue, compared to 61% of revenue in the first quarter of 2024.
Erica Gessert: Adjusted EBITDA was 56 million in the first quarter, leading to a record adjusted EBITDA margin of 29 percent.
Erica Gessert: We reported GapNet income of 37.7 million in the first quarter, a 105% increase over 2024, and a record for any first quarter in our company's history.
Erica Gessert: Three cash flow for the first quarter with 30.8 million. In the quarter we utilize 33.1 million in cash to buy back 2.3 million shares as part of our commitment to driving long-term shareholder value.
Erica Gessert: Cash and Cash equivalents were approximately 622 million at the end of the first quarter, now turning to guidance
Erica Gessert: For the second quarter of 2025, we expect to produce revenue in the range of 184 to 189 million.
Erica Gessert: For adjusted EBITDA on the second quarter, we are guiding to a range of 45 to 49 million, which represents an adjusted EBITDA margin of 25% at the midpoint.
Erica Gessert: As we indicated last quarter, Q1 is expected to be the high water mark for margins in our business this year, as we reinvest in the ample growth opportunities in front of us.
Erica Gessert: As our first quarter results demonstrate, we are making strong and steady progress towards our 35% adjusted EBITDA margin goal while investing in key growth levers, particularly enterprise and AI enablement strategies to reignite top line growth in our business.
Erica Gessert: For the full year 2025, we are reiterating our revenue guidance range of between 740 and 760 million.
Erica Gessert: We remain confident in this guidance based on what we see today.
Erica Gessert: Our excellent execution and improving customer dynamics offset the slight macro headwinds that weigh down our customer activity in the quarter, and these dynamics are factored into our guidance.
Erica Gessert: Looking further out, our pace of execution and our multiple growth levers give us confidence that we will resume revenue growth in 2026.
Erica Gessert: As a result of our strong operational execution and business model, we are increasing our full year adjusted EBITDA guidance to be in the range of 190 to 200 million or 26% adjusted EBITDA margin at the midpoint.
This represents a four-point margin expansion versus 2024.
Erica Gessert: Our ability to meaningfully expand margins, even in a tough operating environment, reflects our commitment to profitability and shareholder value. We expect full year 2025 non-GAAP diluted EPS to be between $1.5 and $1.10 up from our 2024 results.
Erica Gessert: On Stockbreeze Compensation, we have been taking proactive steps to reduce our SPC expense.
Erica Gessert: and these actions will have a lasting benefit on our recorded stock-based comp.
Erica Gessert: Stockbase Compensation is expected to be between 60 and 65 million for the year.
I'll briefly touch on our capital allocation strategy.
Erica Gessert: We have a $100 million buyback authorization in place, of which we had approximately $67 million remaining at the end of Q1.
Erica Gessert: We intend to fully offset any delusion from stock-based compensation this year through stock repurchases.
Erica Gessert: Beyond that, taking into account the current market environment, we intend to be opportunistic in deploying the remainder of the authorization.
Erica Gessert: Before closing, I'd like to take a moment to acknowledge the unusual times we are all navigating through.
Erica Gessert: It's in times like these that the strongest, most resilient businesses stand out from the field and ultimately emerge as winners.
Erica Gessert: Our rapid pace of innovation, inherently profitable and high cash yield business and cost optimization muscle will serve us incredibly well as we navigate through the next uncertain months and quarters.
Erica Gessert: The opportunities for Upwork are tremendous, and we are excited about the road ahead.
Erica Gessert: Our team is executing better than ever, and I want to thank everyone at Upwork for your commitment to excellence and innovation.
With that, we'd be happy to take your question.
Speaker Change: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you are seeing with yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.
Speaker Change: Our first question comes from Eric Sheridan, the Goldman Sachsville line is open.
Eric Sheridan: Thank you so much for taking the questions. Maybe two if I could. The first one just on the broader economy, you know, the base case that you're assuming from this point through the end of the year in your broader guidance and whether we should be expecting there's be any sort of input changes either in client activity or client growth that are sort of at the base of what you're sort of guiding to or is it sort of taking what you know now and just sort of projecting it out. Just we better understand that. And then on the AI product side, I'm really excited to hear the stats.
Eric Sheridan: in the prepared remarks about how it's driving volumes inside the broader business. How do you think about AI being a driver of a mixture either of new crying growth, volumes among clients or pricing over time? Just we understand the monetization elements of AI in the business. Thanks so much.
Eric Sheridan: Okay, Eric, maybe this is Eric, I'll take the first one.
Eric Sheridan: You know, we were really pleased with the customer spend dynamics that we saw in Q1.
Eric Sheridan: which are really driven by improvement to our product, some of the improvements in search and match.
Eric Sheridan: and other platform enhancements through AI, and this contributed to the increase in GFB for active client by 3%
Eric Sheridan: Now, upsetting that we did see some slight macro headwinds that weighed on customer activity, particularly at the top of the funnel in the quarter.
Eric Sheridan: The impact was minimal, but it did have some slight impact to our customer behavior, so both of these dynamics, both the growing customer spend and a little down the persistent macrohead when they're factored into our guidance.
Eric Sheridan: I'll just add, Eric, that some of the observations we have from recent customer conversations really underscores the resilience of our platform in this...
Eric Sheridan: You know, uncertain time. What we're hearing from them is they're feeling, you know, some degree of uncertainty in their day-to-day but they still have truly mission-critical business needs that they need to get done and they're getting done on Upwork.
Eric Sheridan: So, one example client we spoke to this quarter in a data, they're a global data engineering company, they needed a bunch of talent at work, including some domain experts with masters and PhDs to do a lot of AI model work across 20 languages for them.
Eric Sheridan: and their Continuum at that work. They're plowing ahead even though they recognize the uncertain environment and our data is pretty typical of what we're hearing across the platform.
Speaker Change: Getting to your second question around AI and some of the stats we shared
Speaker Change: You know, our view is that there's two big synetics for business related to AI, both of which are real catalysts and we're starting to see that.
Speaker Change: The first one is around providing the world with this AI skill talent it needs, you know, companies like Interdata finding the people they need here. And that is a driver of both new client acquisition. It can drive up, you know, volumes in the platform. And certainly we've seen already that AI-related work is commanding approximately a 40% premium in terms of freelance earnings. So it really hits them all through the metrics you ask about.
Speaker Change: The other schematic, of course, is what we mentioned around UMA and the work we're doing to make our platform fully AIDF.
New Point, Conversion, Hiring Raids
Speaker Change: Contract volumes, time to hire time to start, like all of these things are moving up [inaudible]
Speaker Change: So again, we see that as we make Buma more of a fully functioning agent, that is going to really drive the flywheel of metrics for our business in both of these ways. So we're excited about the progress. It's still early, but there's a lot more coming out over this year as we invest in both your AI platform category and then also the platform itself in terms of Buma.
Appreciate it.
One moment for our next question.
Bertie McDermott: Our next question comes from Bernie McTernan, with need of company. Your line is open.
Bertie McDermott: Great, thanks to the question. I just wanted to focus on the nice growth that you're seeing in the larger customers, mentioned up 11% in the quarter.
Bertie McDermott: and focusing some of your marketing efforts more on higher LTV customers. Is this a shift? I guess this is a shift driven by what you're seeing in the marketplace or more so driven just a, you know, changing LTV the cat goals.
Speaker Change: You know, Hayden, your comments at the beginning certainly seem to want to highlight that you're seeing very large organizations choose upwork increasingly. So I just want to see if, you know, if it's what you're doing or you think it's the marketplace shifting. Thank you.
Speaker Change: Yeah, so what we've seen is this combination of efforts to unlock our spend from larger customers really is working, and that's where we saw that year of your growth in large customers spend in Q1 when we measure it across both enterprise and business plus.
Speaker Change: And this is part of our focus strategy that we began last year with the release of Business Plus and with some of the changes to our enterprise area to really go after this larger customer segment in some new ways.
Speaker Change: So it's very consistent with that, that we're seeing these results. It's still early, and as I mentioned, the first two quarters of the year will be more traditional on the enterprise side, but we're really setting ourselves up for growth towards the end of the year and into 2020.
Andrew Schett, thank you.
Yeah, me. One moment for our next question.
Speaker Change: Our next question comes from Ron Josie with City, your line is open.
Ron Josie: Great, thanks for taking the question. Hayden, you mentioned on the call better search and recommendation product enhancements within the core and that's helping to drive.
Ron Josie: Just the flywheel. Talk to us a little bit more about what those enhancements were and the benefits there. And then, Eric, I think you mentioned a change in go to market, meaning something around search and client acquisition.
Speaker Change: Just the profile you're seeing as a result from this changing good market. Thank you.
Speaker Change: I'm also getting integrated in, so there's going to be a lot more that we're launching in the search directly nations area that I think is going to really benefit the business.
and maybe run to your second question.
Speaker Change: You know, our optimization of our performance marketing spend has been really effective in kind of channel experimentation and lifting our average LTV per client acquisition, but even more importantly, kind of in the, you know, underlying the growth in GSB proactive client on the platform, we see a lot of bright spots actually.
Speaker Change: Um, you know, overall hourly rates have actually been, you know, relatively steady over the past three quarters, but where we've seen left is an average hours per contract, up 5% year over year.
Speaker Change: Sixth price spend for contracts of 12 percent year over year and these are all related to all the customer experience improvements that we've been talking about and in particular the AI enablement of the platform.
Tigger Doppel, thank you.
One moment for our next question.
Speaker Change: Our next question comes from Andrew Boone, which citizens relied as open.
Andrew Boone: Thanks so much for taking a question. I want you to go back to business plus. Given the fact that the business plus is not soothing a little bit, you guys have more information.
Andrew Boone: Can you talk about the new clients that are coming on and kind of the evolution of what was that easier on land for larger enterprises and what business classes are mocking?
Andrew Boone: and then Erica Cells and Marketing had a multi-year low. Can you just talk about the cost guidance as it relates to 2025? I think once you were supposed to be the peak even a margin quarter but how do we think about potential investments or anything else that we should be thinking about for margins going forward. Thanks so much.
Thank you. Thank you. Thank you.
Calend,
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Andrew Boone: So these things are driving customers to then have higher client conversion rates, you know, from registration to job post and from registration to start, as well as higher average spend for client when you compare these clients.
Andrew Boone: to our city market place customers. So we've got really good encouraging signs of product market fit for the plan and we're continuing to invest and tune it over the course of this year.
Erica Gessert: Yeah, and Andrew, this is Eric, in terms of your questions and on kind of margin cadence and where we're investing.
Speaker Change: So yeah, sales and marketing was in an all-time low in Q1. We talked a lot in Q4 about the optimization of enterprise business, about improving those costs to serve and cost to acquire through the business plus strategy. And so you are seeing that reflected in our numbers.
Speaker Change: But we're also very clear, like you said, that Q1 would be the high watermark for margins for this year and so we do intend to reinvest. We see ample opportunities.
Hayden Brown: for grossness. There's this, Hayden talked in the prepared remarks about...
Hayden Brown: You know, Enterprise Dipping of a Transitional Period for Enterprise and we do intend to reinvest there to unlock some of the contingent labor tab that we've been talking about.
Hayden Brown: As well as on the R&D side, continued investment in the A&A boom in the platform. So you will see those investments come through in Q2 and Q3 this year, but I think we've shown over time that we can both invest in growth and create meaningful margin expansion. So we feel really good about both.
Thank you.
One moment for our next question.
Speaker Change: Our next question comes from Brad Erickson with RBC Capital Markets, your line is open.
Brad Erickson: Yeah, I think he talked again about the top of final pressure. It's really the macro and it's been just consistent left of a quarters. I think it's kind of the hiring and staffing environment.
Speaker Change: Talk through kind of the puts and takes of AI and maybe has sort of like unclear effects on a net basis on those hiring trends and how you think that might translate to your business if you could. Thanks.
Speaker Change: Yeah, so our active client number, overall, we've talked a lot about the top of funnel demand pressure that we've seen. Our active client number is a train line 12 months number, so that encompasses.
You know, a lot of...
Speaker Change: You know, all of the kind of brushes we've seen over the past four quarters. Now one thing to remember about our active client activations is that more than 50% of them come from kind of broader organogram page channels, so that's where we're really seeing the macro forces play in. I don't think we see any kind of
Speaker Change: focused impact from AI, either positive or negative. Overall, we see AI as an ongoing tail and for our business given the growth of that category.
Yeah, we're all really eminently...
Speaker Change: 25% year-rear growth we saw in GSC from Adelaide Work, and so we continue to see that the positive opportunity here is much more substantial than any risk. We've really seen no change in terms of, you know, Adelaide degradation of any kind of works or work or project types over the last quarter. We're really just looking at the opportunity here, which is quite formidable. We're really looking at the positive opportunity here. We're really looking at the positive opportunity here. We're really looking at the positive opportunity here.
Thank you.
Speaker Change: Got it, and then maybe just a follow-up if I could broader question with the tariffs.
Speaker Change: I recognize your little lack of exposure here, but you know, you talk with your customers.
Speaker Change: Everyone's kind of in the same boat of uncertainty, but talk about your client conversations where maybe there is exposure and I don't know, just anything from different say with your smaller clients versus your larger clients, truth, just kind of if you're hearing any divergent views between those groups. Thanks.
Speaker Change: For, you know, when we talk to customers, I wouldn't say there's any one answer, partly because we serve such a heterogeneous range of customers and across from each of our board categories.
but a few of the semantics are...
Speaker Change: While the uncertainty is there for a lot of customers, many of them that we're speaking to, they haven't changed their decision making around investing in the work on our platform. They're continuing because they have critical things they need to get accomplished.
Speaker Change: The uncertainty in the environment isn't really getting in the way of that. Now, of course, you know, things can change if the economy worsens substantially but right now what we've really seen is
Speaker Change: People hanging in there, continuing to spend, continuing to do the work they need to, you know, a slight headwind at the top of our funnel, but that's consistent with the commentary we hear from customers, which is that the work they're doing with us is essential.
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That's great, thanks
One moment for our next question.
Speaker Change: Our next question comes from Brent Hill, with Jeffries, and Linus Othman.
Speaker Change: Hi, thank you. This is John again for Brinthell. Maybe one more around the macro side of things. You mentioned there's no direct exposure from tariffs and so on, but let's see.
Speaker Change: If you can talk about me, be indirect or second-order exposure in the public sector, whether fair or stay at a local in terms of where the clients are doing their prices, I don't get that sort of disability.
Speaker Change: and then you alluded to some high impact feature salons in Q2, I don't know if you can go into a little bit more detail. Thank you.
Speaker Change: Maybe John , I'll take the question on the macro. You know, we really don't see any impacts from, from, you know, kind of the public sector, you know, job releases. And, you know, in general, as Hayden, RDR, articulated, I think, you know, we haven't seen any impacts, you know, from many in recent care of announcements on customer behavior whatsoever.
Speaker Change: Yeah, and I'd say, you know, underscoring the fact that our exposure, I think, is in a good spot. You know, we have 131 categories of work that were active in the past quarter and 58 of those.
Speaker Change: had a million dollars of GSC or more flowing through them. And so again, I think this is just where the diversity of the work happening, the diversity of our client base is a really positive thing and run the resilience of our business.
Speaker Change: In terms of the high impact features that are launching in Q2, we're going to be doing a lot more in the search and recommendations area, you know, building on the tech and the talent that we brought in last year with the objective team. We're also going to be investing a lot in our UMA AI agent, you know, really evolving UMA from being able to do specific tasks like evaluate your candidates or, you know, help future after proposal. [inaudible]
Speaker Change: to being an end-to-end, full-service companion that can really help customers both clients and talent across the entire workflow. And that is from hiring all the way through project management and work delivery. So there's really a lot more coming out over both Q2 and the rest of the year as we enhance UMA and bring those capabilities into the hands of our customers.
Thank you.
One moment for our next question.
Speaker Change: Our next question comes from Rohit Kulkarni with the Roth Capital Partners. Your line is open.
Rohit Kulkarni: Hey, thanks. AI, high level question. I guess it's been a few quarters. You've disclosed how AI at near the GSU is going faster.
Rohit Kulkarni: and so perhaps at what point or at what scale do you think AI would be big enough for the overall GSC to start growing again?
Rohit Kulkarni: maybe at how far out in the future do you think that scale you could reach and then have a couple follow ups on take rate and EBITDA?
Rohit Kulkarni: Brilliant. So, our expectation is that we do see re-exceleration of GSC growth next year. And that's going to come through from a combination of the AI-related investments we're making, as well as the work we're doing in the enterprise area and on admonition, associated with driving the revenue size equation.
Rohit Kulkarni: So, this is not a far out, you know, prediction for us. This is, you know, something we can see and have won a fight too in 2026.
and Our Confidence
Rohit Kulkarni: is really underscored by both the early metrics we're seeing from rumor-related features that we've launched on the one hand and on the other side of the AI strategy, the growth that as you point out, we continue to see.
Rohit Kulkarni: from AI-related work. They grow 25% in the quarter. Some categories like prompt engineering grew 52% of your career. And I also note that we are seeing
Rohit Kulkarni: No incremental disruption at all, no disruption at all from legal and design creative categories that people are all saying, you know, should be disrupted. We're actually seeing growth in those areas and the work is becoming more complex, more valuable, really tapping into the specialized nature of the expert on the platform. So this is exciting for us as we think about growing from both AI-related areas as well as the broader ecosystem that we host.
Rohit Kulkarni: Okay, and then maybe actually a macro question on the enterprise side of things. Any call out or any change in visibility or the way deals are getting closed or the way large enterprises are making decisions at the same velocity or not over the last call it six to eight weeks.
Rohit Kulkarni: I wouldn't say we've seen any notable changes in the last six to eight weeks, you know, we did see, you know, overall on the platform come some slower trends from the beginning of the year, but nothing has really changed on the enterprise size specifically. You know, it's always a little more detailed cycle that hasn't changed. I think if anything business plus is helping us open up more large customers faster, so that's an accelerant for us right now, but no other real changes.
Erica Gessert: Okay, thank you. And last around take rate, maybe for you Erica, maybe talk about the why behind the take rate outlook that you just shared. I know it's unchanged from previously, but there is a natural upward bias, one would expect, but just maybe talk through that.
Erica Gessert: So first of all, take great. The expansion that we saw in Q1 is primarily due to the really great ongoing growth and agmonization.
Erica Gessert: to your point, revenue from IZone Modization Q1 through 23% and actually connects with the highest revenue quarter ever on connects.
Erica Gessert: But, you know, as you know, we made significant progress in 2024, expanding our taker end, so we've really given ourselves a room in 2025.
Erica Gessert: for some ongoing experimentation and work on take-rate in order to test some of our take-rate strategies for more meaningful take-rate expansion in 2026. So you can expect relatively flat take-rate throughout the rest of this year as we kind of gave ourselves room for that work.
Okay. Thank you. What?
Point number for our next question.
Nat Schindler: Our next question comes from Nat Schiddler, where the Scotia Venture line is open.
Nat Schindler: Yes, hi, thank you, mostly for Erica. I'm looking at your guidance.
Nat Schindler: and I know you said that this would be the high-mortem mark for your ebid job, but if I look at what you did this quarter being up about 8 million above the midpoint of your guidance and then compare it to your raise of the year by about 10 million
Nat Schindler: But then add to the fact that you're also increasing your stuck base comp from your previous guide. Perfectively not raising any EBITDA for the back half of the year and keeping revenue the same.
Nat Schindler: Is this conservatism, or do you really have places to spend that will really change the particular sales and marketing line from the next few quarters?
Nat Schindler: You know, I think we were, you know, appropriately conservative with our guidance, but you know, overall this really just reflects our...
Nat Schindler: plans to invest in, like I said, the ample growth opportunities that we have for this business, so...
Nat Schindler: We really do, you know, the benefits that we're already seeing from the investments in UMA.
Nat Schindler: as well as, you know, we have plans for, you know, continued expansion of the enterprise business.
Nat Schindler: and investment there. So there's a lot to come but you know our guidance is reflective of both our overperformance and actually a little bit of you know pushing through some of the incremental cost optimization that we saw in Q1 into the rest of the year. So it's a balanced outlook.
Okay, and then just secondly, probably for Hayden, just- [inaudible]
I hope you think I know every day for being on that kind of...
Nat Schindler: The macro situation, but I mean, it should be on everyone's mind.
Speaker Change: Can you walk us through really how contract labor, particularly white collar contract labor, where you guys focused?
Speaker Change: It's impacted. I know it's been actually fairly impacted already, coming off of COVID and having a multi-year white color recession, but if unemployment rate spikes, the recession occurs.
Speaker Change: How does that usually play out across the your world of kind of contract-wise or contingent-laden?
Speaker Change: Sure, so as you kind of reference, we have seen two years now of suppressed demand overall because of interest rates and inflation that have really been prompting customers.
Speaker Change: to be more conservative and to hold off on certain types of work, etc. And that's obviously impacted not just our business, but the broader contingent staffing space overall, and we've done better than others.
Speaker Change: Now, if unemployment spikes, you know, they're kind of put the taste on that for us. On the one hand
Speaker Change: depending on the conditions in the broad economy like interest rates.
Speaker Change: We could see customers continue to be cautious or even more cautious.
Speaker Change: with Spend on our platform because they're, you know, being conservative and just holding them off on deploying capital around labor. On the other hand, we've also seen in certain environments that are transitional or kind of suppressed from a broader macro that some customers prefer spending more and contingent staffing because they don't want to commit. Thank you very much.
to long-term full-time employees. [inaudible]
Speaker Change: And so it's likely that we see a mix of those things if the economy gets a lot worse. It's impossible to say right now what that mix would look like, but I do think it's a positive that even with the uncertainty that's really shown up over the past.
Speaker Change: You know, four months of this year, our platform is doing great, we are not seeing changes in spend other than some, you know, lighter top of funnel from the beginning of the year, but nothing new, even in the last couple of weeks since some of the APO announcements from the government. So they bring a good spot based on everything we know now.
Okay, thank you.
One moment for our next question.
Marvin Fong: Our next question comes from Marvin Fong with BTIG. Your line is open.
Marvin Fong: Great, good evening. Thanks for taking my questions. Maybe just a start. I think we've covered a lot of ground here, but on Uma, I'm excited.
Marvin Fong: Numerous Benefits and other specific examples. I was just wondering at a higher level.
Have you done any work trying to...
quantify how much
Marvin Fong: Benefit Uma has had in terms of like GSB growth, is there any sort of single number percentage impact that you could help us think through how much so far Uma has benefited the company?
Marvin Fong: And then the second question, I just, you know, I think you've said on the terrif question and the macro, I mean that you have noticed top of funnel.
Marvin Fong: Some slight weakening, I think you characterize it as, but you also have said, you know, no impact from public sector, no significant impact from terrorists. I just like to kind of square all those things together. I mean, what would you attribute like the slight weakness at top of someone? That'd be great. Thanks.
Speaker Change: Marvin, on the pneumachyde thing, some of those early indicators that I shared around, you know, increasing volume of proposals, lifted hiring rates.
Speaker Change: in his federal earnings, like those are definitely translating into GSB gains, and that's—
Speaker Change: We have internally quantified and factored into our current guidance and it's certainly a small contributor also to our Q1 over performance on GSB. So we feel good about what that's doing. It's not just driving our funnel, but it is driving real spend behaviors, and that's also why we have confidence that as we continue executing our Numa road map, this will be a contributor to GSB acceleration in 2026.
Marvin Fong: and maybe just to clarify, Marvin, the comments on the macro. Let's hear our thoughts.
Marvin Fong: The impact atop a funnel that I was describing is really a Q1 phenomenon, so it predates any announcements from the federal government.
Marvin Fong: And that's been, you know, we've got a little bit of an uptick on some of those, you know, top of funnel, demand metrics in Q1, but it's been sort of an impact to our overall business.
Marvin Fong: But to be clear, when the tariffs came out in April , we saw no incremental impact.
Okay, that's very helpful. Thanks so much.
Speaker Change: And I'm not showing any further questions at this time, and as such this does conclude today's presentation, we thank you for your participation. You may now disconnect and have a wonderful day.
Speaker Change: This is a production of WESO. Thank you for watching. This is a production of WESO.
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Speaker Change: St. Louis, Andrew Meehan, Samuel Meehan, Samuel Meehan, Samuel Meehan, Matthew Farrell,
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Speaker Change: and the American Hockey Club. The American Hockey Club, the American Hockey Club, is a non-profit organization that provides voluntary training to students and faculty in the United States. We are proud to be part of the American Hockey Club. We are proud to be part of the American Hockey Club. We are proud to be part
Speaker Change: This is the story of a young man named Hayden Brown. He was born in a small town in New York City. He grew up in a small town in New York City. He grew up in a small town in New York City. He grew up in a small town in New York City. He grew up in a small town in New York City.
and and and and and and
. . . .
[inaudible] John Deere, John Deere,