UPWORK, INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a record year for Upwork with all-time highs in full-year revenue, adjusted EBITDA, and adjusted EBITDA margin. The company optimized operations to be more efficient and agile.
• AI-related work on the platform saw significant growth: GSV from AI-related work grew 60% year-over-year in 2024, with prompt engineering up 93% in Q4 2024. AI-related work is higher paying, with freelancers earning 44% more per hour on AI projects.
• The enterprise segment outperformed targets in Q4 2024, with GSV per active enterprise account growing year-over-year for the first time in recent quarters. Managed services revenue grew 12% in 2024.
• Ads & monetization revenue grew 51% in 2024, with Freelancer Plus revenue up 58%. The business continues to introduce new ads and monetization products.
• Non-GAAP operating expense was 57% of revenue in 2024, a 9 percentage point improvement from 2023, reflecting disciplined cost management.

Segment Performance

• Marketplace: Fourth quarter marketplace revenue was $163.7 million, a 4% increase year-over-year compared to $157.5 million in Q4 2023. For the full year 2024, marketplace revenue contributed to the total record revenue of $769.3 million.
• Enterprise: Fourth quarter enterprise revenue was $27.8 million, up 5% year-over-year. Full year enterprise revenue was $107.2 million, up 4% year-over-year. Managed services revenue grew 8% year-over-year in Q4 2024 and 12% for the full year to $59.4 million.

Guidance

• Q1 2025: Revenue expected to be in the range of $186 million to $191 million. Adjusted EBITDA guided to $46 million to $50 million (25.5% midpoint margin).
• Full Year 2025: Revenue anticipated between $740 million and $760 million. Adjusted EBITDA guided to $180 million to $190 million (25% midpoint margin). Stock-based compensation expected to be approximately $15 million per quarter. Non-GAAP diluted EPS expected between 105 and 110.

Risks

• Macro environment uncertainty, with top-of-funnel weakness continuing into 2025 and a six to nine-month lag in business impact from macro changes.
• Uncertainty around the pace of macroeconomic improvement and its effect on business performance, as the business is sensitive to macroeconomic indicators with a lag.

Question and Answer Q: Maria Ripps asked about revenue guidance and AI impact.

A: Erica Gessert noted macro headwinds and continued uncertainty, while Hayden Brown highlighted AI's positive impact on GSV, with prompt engineering up 93% in Q4 2024.

Q: Andrew Boone asked about marketplace take rates and Uma.

A: Erica Gessert discussed take rate trends being modest in 2025, while Hayden Brown explained Uma's role in improving matching, with 70% of new clients using Uma-powered job post generator and bid volumes up 2.5% with proposal writing.

Q: Stefanos Crist asked about cost savings and investments.

A: Erica Gessert outlined cost reduction areas in enterprise and R&D, and mentioned minor investments in growth catalysts like AI and enterprise strategy.

Q: Brad Erickson asked about GSV trends and product/services for take rate.

A: Erica Gessert discussed GSV drivers, including AI-related work, and Hayden Brown highlighted opportunities in subscriptions, advertising products, and additional monetization tiers.

Q: Josh Chan asked about enterprise improvements and margin.

A: Hayden Brown discussed enterprise focus on top clients, managed services growth, and margin outlook, noting Q4 margin was 26.2% and 2025 guidance reflects continued margin focus.

Q: Jared Osteen asked about capital allocation and visibility.

A: Hayden Brown discussed capital allocation for growth opportunities and share repurchases, while Erica Gessert emphasized visibility challenges due to macro uncertainty but confidence in guidance given controlled factors.

Q: John Byun asked about month-to-month trends and sales/marketing spend.

A: Erica Gessert noted normal seasonality in month-to-month trends and explained sales/marketing spend reduction as part of cost management, excluding performance marketing spend.

Q: Marvin Fong asked about GSV per client and guidance.

A: Erica Gessert discussed GSV per client drivers, including AI-related work's higher rates, and noted caution due to macro headwinds but steady trends expected for the rest of the year