Upwork Inc. (UPWK) Earnings

Management highlights

### Strategic Priorities & Core Progress - Growth is focused on three core pillars: SMB, Enterprise, and AI-enabled work, with a company-wide strategy of prioritizing high-value client quality over raw volume - SMB segment: Business Plus GSV grew 174% year-over-year, beating plan. GSV per active client hit a new record of $5,230, up 5% year-over-year, marking the eighth consecutive quarter of sequential growth for this metric - Enterprise segment: Lyfted platform development and customer adoption remain on track; initial customer migrations to the new platform launched on schedule in Q2, with strong positive customer feedback. The segment captured larger, higher-value contracts, including a recently won multi-million dollar global enterprise RFP that would not have been possible before Lyfted - AI product innovation: Upwork launched the Upwork MCP server, which enables Upwork talent and jobs to be embedded directly into any compatible AI tool, allowing both clients and freelancers to hire, manage, and deliver work without leaving their preferred AI environments. Integrations with ChatGPT and Claude were already completed in Q2 ### Customer & Demand Shifts - AI automation is reducing demand for low-complexity, low-value work on the platform, but is generating substantial new demand for AI-skilled human talent and higher-value complex projects. Management estimates that total AI-related work is significantly larger than the $330 million explicit run rate, as nearly half of freelancers report their recent work is AI-related even though only 16% of job posts explicitly mention AI - Client acquisition is being diversified away from Google SEO, with investments in new AI-aligned channels including answer engine optimization (AEO) and LLM-based referrals. Upwork currently holds an 18 percentage point lead in AI-based mentions and referrals over its closest peer - Cost discipline: A May 2026 restructuring is expected to deliver $70 million in annualized operating expense reduction, with $40 million in realized savings in full-year 2026, allowing continued funding for growth pillars while expanding operating leverage ### Capital Structure Updates - Upwork closed a new $150 million revolving credit facility with a $50 million accordion, positioning the firm to repay its August 2026 convertible notes at maturity, while supporting share repurchases, opportunistic M&A, and disciplined capital allocation - Year-to-date 2026, Upwork has repurchased approximately 8.3 million shares

Guidance

- Full-year 2026 guidance was revised downward from prior ranges due to persistent near-term AI automation acceleration and ongoing SEO headwinds: revenue is now expected to be $730–$750 million, adjusted EBITDA is expected to be $225–$235 million (31% adjusted EBITDA margin at the midpoint), and non-GAAP diluted EPS is expected to be $1.38–$1.43. Stock-based compensation is projected to be $60–$65 million for the full year. - Q3 2026 guidance was also set lower: revenue is expected to be $176–$184 million, adjusted EBITDA is expected to be $50–$54 million (29% adjusted EBITDA margin at the midpoint), and non-GAAP diluted EPS is expected to be $0.31–$0.33. - Management maintained its expectation for continued full-year take rate expansion, and confirmed its 25% full-year 2026 GSV growth target for the Lyfted enterprise platform remains on track. - Management is increasing paid customer acquisition investment by an incremental $5–$10 million in the second half of 2026, driven by improved 22% quarter-over-quarter cost per new contract start and strong returns from testing new channels.

Segment performance

Upwork does not break out formal product segments, but reports key revenue and performance by its core business lines: 1) Core Marketplace GSV: $966 million, pressured by AI automation of low-complexity work, subdued labor markets, and SEO headwinds; 2) High-margin ancillary revenue streams (Dynamic Pricing, Connex, talent subscriptions, Business Plus): Revenue from these levers grew 15% year-over-year, with Connex and talent subscriptions contributing 15% of total company revenue; 3) AI-related work: Explicitly defined AI-related jobs grew 22% year-over-year to a $330 million annualized GSV run rate, with the AI strategy and consulting category growing 51% year-over-year; 4) Enterprise/Lyfted: GSV per enterprise account grew 7% year-over-year to its highest level in over three years, with employer of record (EOR) GSV growing 29% year-over-year; 5) Overall company performance: Total Q2 2026 revenue was $191.7 million, with a 19.8% total take rate. Non-GAAP gross margin was 77%, adjusted EBITDA was $64.1 million (33.4% adjusted EBITDA margin), and free cash flow was $35.9 million (including one-time restructuring cash payments).

Risks & headwinds

- AI automation is accelerating the erosion of demand for low-complexity, highly automatable work faster than management previously expected, pulling forward the decline of this segment of GSV and pressuring top-line growth in the near term - Ongoing changes to Google search page layout and SEO algorithm updates have reduced non-brand search referrals to Upwork, and impacts are expected to continue worsening through the end of 2026, with no stabilization observed as of Q2. This has compounded existing pressures on new client acquisition. - Continued subdued macro labor market conditions are also pressuring platform demand and active client counts, which declined to 763,000 in Q2 due to both macro conditions and strategic shifts to prioritize quality over volume. - The pace and duration of the ongoing work industry transition to AI-integrated work is difficult to predict, creating uncertainty around the timing of a return to more normalized growth.

Analyst Q&A

• Q: Ron Josie (Citi) asked for more details on SEO challenges and the expected business impact of the newly launched Upwork MCP server. /

  A: Management confirmed SEO headwinds are an industry-wide trend from Google search page changes that reduce external referrals, and impacts accelerated in Q2 on top of AI automation and a weak labor market. To counter this, Upwork is diversifying acquisition channels and increasing incremental paid spend by $5–10 million in H2 2026. For the MCP server, it was built in response to existing AI agent activity on Upwork, and enables any AI tool to embed Upwork’s marketplace, letting clients and freelancers work within their preferred AI environments while maintaining Upwork’s trust and quality guarantees. No other platform can offer on-demand human talent at this scale for AI integrations.

• Q: Eric Sheridan (Goldman Sachs) asked how long the current AI transition will last, and how much of the current active client base will shift to higher-value AI work versus rebuilding the client base. /

  A: Management noted the timing of the transition is hard to predict, but Upwork is structurally positioned to be a long-term beneficiary as high-value AI work grows, with existing positive trends including 174% Business Plus GSV growth. Management added that the shift is an expansion, not a replacement: existing small and medium clients are already shifting their workloads to be more AI-oriented across all segments, rather than requiring a full replacement of the existing client base.

• Q: Bernie McTernan (Niedermann Company) asked why explicitly categorized AI work growth slowed to 22% YoY, and why take rate beat expectations sequentially. /

  A: Management explained the 22% growth in explicitly categorized AI work understates total AI work on the platform: nearly half of freelancers report their recent projects are AI-related, but only 16% of clients explicitly mention AI in job posts now that AI competence is assumed for most work. For take rate, overperformance was driven by stronger-than-expected ad monetization (including dynamic pricing) alongside Business Plus growth, and management expects take rate to continue rising in H2 2026.

• Q: John Byen (Jefferies) asked for an update on Lyfted customer migration and pipeline, and whether SEO impacts have stabilized. /

  A: Management confirmed Lyfted customer migrations launched on schedule in June, are progressing well with positive customer feedback, and the sales pipeline remains healthy, keeping full-year 2026 25% GSV growth on track. New enterprise capabilities including EOR have allowed Upwork to win larger contracts it could not have competed for previously. For SEO, impacts accelerated in Q2 and have not stabilized; management expects further deceleration through the end of 2026, which is already baked into the updated guidance.