UPWORK, INC Q3 FY2026 earnings call

• Strategic Shift to High-Value Work: The platform continues its rotation toward higher-value, more complex work and larger clients, with active client count at 717,000.
• Enterprise Expansion (Lifted): Accelerated migration of legacy enterprise customers to the Lifted platform. Signed three net new enterprise logos in healthcare, retail, and tech. Announced the acquisition of WorkMotion to accelerate global Employer of Record (EOR) capabilities.
• SMB Growth via Business Plus: Rapid adoption of 'Business Plus' is driving higher spend. It attracts new clients (40% of active users had their first spend on this product) and retains existing ones. GSV per active client reached a record high of $5,418.
• AI Integration and New Demand Channels:
  • Launched MCP Server in August, allowing AI agents to tap into Upwork’s marketplace. Connects usage through MCP reached a >$3 million annual revenue run rate.
  • Announced 'Upwork Now' in public beta, providing real-time access to online freelancers within AI tools.
  • AI-skilled talent GSV grew 55%, reflecting increased client demand for AI implementation expertise.
• Leadership Transition: CFO Erica Gessert will step down on January 1st, 2027. Peter Sanborn (Chief Business Officer) will succeed her as CFO.
• Operational Efficiency: Non-GAAP operating expenses were 45% of revenue (down from 50% in Q3 2025). Adjusted EBITDA margin was 34.4%. Free cash flow conversion was 84%.

The transcript does not provide a granular financial breakdown by specific product segment (e.g., Enterprise vs. SMB) in terms of absolute revenue contribution percentages. However, it highlights key metrics for strategic pillars:

• Lifted (Enterprise): Expects GSC to exceed 30% year-over-year growth in 2026 inclusive of WorkMotion acquisition.
• SMB (Business Plus): Delivered 120% year-over-year revenue growth and 132% year-over-year GSV growth in Q3. Business Plus accounts for 8% of total GSV.
• AI Talent: GSV from AI-skilled talent increased 55% year-over-year to $112 million.
• Total Company: Generated $914 million in Gross Service Volume (GSV) and $186 million in Revenue.

• Full Year 2026 Revenue: Raised to $742–$750 million (previously implied lower range). Includes ~$4 million from WorkMotion in Q4.
• Full Year 2026 Adjusted EBITDA: Raised to $236–$240 million (margin midpoint of 32%).
• Full Year 2026 Non-GAAP Diluted EPS: Expected between $1.45 and $1.47.
• Q4 2026 Revenue: Expected between $169–$177 million.
• Q4 2026 Adjusted EBITDA: Expected between $51–$55 million (margin midpoint of 31%).
• Q4 2026 Non-GAAP Diluted EPS: Expected between $0.30 and $0.32.
• Stock-Based Compensation: Assumed at approximately $50–$53 million for full year 2026, with expectations to step down in 2027.

• Demand Channel Disruption: Traditional search traffic is declining due to shifts from web-based search to AI assistance, impacting customer acquisition channels.
• Low-Value Work Rotation: Continued exit of low-value work from the platform creates headwinds for top-line growth, particularly in the first half of 2027.
• Integration Costs: Near-term dilution in margins expected due to WorkMotion integration costs and timing of marketing expenses.
• Marketplace Mix Shift: Introduction of Lifted and WorkMotion may cause sequential declines in overall marketplace take rate due to business mix changes.

Q: Josh Chan asked about the strategy behind acquiring WorkMotion and its financial impact.

A: Hayden Brown explained that WorkMotion accelerates Upwork's global Employer of Record roadmap, moving beyond US/Canada coverage. It allows Upwork to serve global contingent employment needs, improving win rates and lowering cost-to-serve. Erica Gessert added that WorkMotion contributes ~$4M in Q4 revenue and grows ~20% YoY, offering significant synergy potential for the Lifted business.

Q: Josh Chan followed up on marketplace traffic trends and 2027 outlook.

A: Hayden Brown noted that while low-value work rolls off and digital search faces pressure from AI shifts, Upwork is pivoting to AI-integrated demand channels like the MCP server. Erica Gessert projected headwinds in H1 2027 due to these pressures but expects improvement in H2 2027 as the base shrinks and high-growth products (Business Plus, Ads) offset declines. She emphasized focusing on revenue and margin targets given GSV unpredictability.

Q: Stephanos Crist asked about the Q4 EBITDA margin guidance decline and the new AI GSV metric.

A: Erica Gessert attributed the margin dip to expense timing, including WorkMotion integration costs and deferred marketing spend from Q3. Hayden Brown clarified that they sunsetted the old 'AI-related GSV' metric because AI skills are now de facto in most jobs. The new metric tracks GSV from talent with AI skills on their profiles, showing robust underlying demand across categories like strategy and consulting.

Q: Carter Parlette inquired about Business Plus features and Lifted pipeline progress.

A: Hayden Brown highlighted that Business Plus resonates due to access to high-quality talent, team-based hiring features, and net-30 payment terms, targeting larger SMBs. Regarding Lifted, he reported strong momentum with three new logos closed and an expanding pipeline. He emphasized that migrating legacy enterprise clients to Lifted is a major opportunity to capture share of wallet in their $100M+ contingent budgets, further validated by the WorkMotion acquisition.

Q: Ron Josey asked about drivers of take rate expansion and sales/marketing channel shifts.

A: Hayden Brown stated that take rate expansion is driven by scaling monetization experiments (variable fees, ads) refined over the past year. He noted strong ROI on recent social/video/influencer marketing spend and international acquisitions. Erica Gessert added that marketplace take rate bias remains upward due to Business Plus growth, though Lifted mix may moderate overall take rate. She confirmed ~3-4 points of EBITDA margin dilution in 2027 due to Lifted scale and integration costs, but confidence in long-term stability.