UPWORK, INC Q3 FY2024 earnings call

• Upwork continues to deliver durable, profitable growth with third quarter net income of $27.8 million and adjusted EBITDA of $43.2 million, both record highs.
• Organizational changes on October 23 are part of efficiency efforts, expected to generate $60 million in annualized cost savings, with smaller, streamlined teams and focused R&D investments.
• In Enterprise, strategy refreshed with leaner sales/support team, launch of Upwork Business Plus on October 16, signed 42 Enterprise deals in Q3 including new clients like Hunter Douglas and Bill.com.
• Rapid innovation in AI, acquired Objective to accelerate search and match performance and Uma's capabilities with images, videos, audio; acquired Headroom earlier to deepen AI talent bench.
• Pursuing client acquisition through partnerships, allowing third-party tech providers to offer embedded managed projects; expanded Upwork Partner Experts program.
• Ads & monetization products grew 35% YOY in Q3, with new products like Featured Jobs and enhancements to Boosted Profiles.

Third quarter revenue grew 10% year-over-year to $193.8 million. Marketplace revenue was $167.3 million, a 12% increase compared to the third quarter of 2023. Enterprise revenue: Traditional Enterprise plan deal numbers will decline as the year progresses, but Business Plus is now part of Marketplace. Managed Services revenue grew 5% year-over-year. The overall active client base grew 2% year-over-year to 855,000. GSV per active client increased in the third quarter versus the second quarter. Marketplace take rate reached a record high of 18.3% in Q3.

• Fourth quarter 2024 revenue expected to be in the range of $178 million to $183 million; adjusted EBITDA guidance is $38 million to $42 million.
• Full-year 2024 revenue anticipated between $756 million and $761 million (10% YOY growth at midpoint).
• Full-year adjusted EBITDA expected in the range of $155 million to $159 million.
• Full-year non-GAAP diluted EPS expected between $1 and $1.02; stock-based compensation expense expected to trend down into 2025.

• Macro environment challenges: New tech jobs at nearly 3-year low, inflationary and interest rate pressures affecting corporate spending.
• Cautious on top-line growth over the next few quarters due to ongoing macro pressures.

Q: Jake Zhang asked about 4Q guidance and freelancer promotion services.

A: Hayden Brown discussed Q4 guidance noting some top-of-funnel improvements but cautious on macro; Erica Gessert talked about freelancer promotion levers like boosted profiles, boosted proposals, Freelancer Plus, and Connect Purchases.

Q: Andrew Boone asked about investment in engineering and product resources and cost structure.

A: Hayden Brown spoke about focus on growth levers and disciplined M&A; Erica Gessert discussed $60 million cost savings initiative and margin expansion plan.

Q: Stefanos Crist asked about Objective and M&A market.

A: Hayden Brown explained Objective's AI-native search-as-a-service and M&A posture for market leadership.

Q: Maria Ripps asked about advertising spend and customer acquisition.

A: Erica Gessert said no change to high ROI marketing investments and noted relative strength on very small business side.

Q: Brent Thill asked about Managed Services traction and Business Plus.

A: Hayden Brown talked about Managed Services traction from organic demand and Business Plus being in Marketplace for cost-effective client reach.

Q: Marvin Fong asked about Business Plus client suitability and managed project services.

A: Hayden Brown explained Business Plus as a stepping stone and managed project services with partners like Ocoya and Lettuce opening new opportunities.