- Revenue: $193.1 million, 15% year-over-year increase.
- GAAP Net Income: $22.2 million, highest-ever quarter.
- Adjusted EBITDA: $40.8 million, 21% adjusted EBITDA margin.
- Gross Margin: Over 77% in the second quarter.
- Marketplace Revenue: $166.8 million, 17% year-over-year growth.
- Enterprise Revenue: $26.3 million, flat year-over-year.
- GSV: Declined 2.7% year-over-year.
- GSV per Active Client: Declined 5% year-over-year.
- Active Clients: Up 6% year-over-year to 868,000.
- Marketplace Take Rate: All-time high of 18%, up 30 basis points from Q1.
- Non-GAAP Gross Margin: 77.6%.
- Non-GAAP Operating Expense: $112.2 million, 58% of revenue.
- Non-GAAP R&D Expense: $44 million, 21% year-over-year increase.
- Non-GAAP Sales and Marketing Expense: $43.9 million, 22% year-over-year decline.
- Provision for Transaction Losses: $1.8 million, approximately 1% of total revenue.
- Free Cash Flow: $33.5 million.
- Share Repurchases: $33.1 million.
- Cash, Cash Equivalents, and Marketable Securities: $497.7 million.
- Q3 2024 Revenue Guidance: $179 million to $184 million.
- Q3 2024 Adjusted EBITDA Guidance: $36 million to $39 million.
- Full-Year 2024 Revenue Guidance: $735 million to $745 million.
- Full-Year 2024 Adjusted EBITDA Guidance: $140 million to $150 million.
- Full-Year 2024 Non-GAAP Diluted EPS Guidance: $0.90 to $0.94.
- Full-Year 2024 Weighted Average Shares Outstanding: 139 million to 143 million.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Upwork Inc (UPWK, Financial) reported a 15% year-over-year increase in Q2 revenue, reaching $193.1 million.
- The company achieved its highest-ever quarter of GAAP net income at $22.2 million.
- Adjusted EBITDA was $40.8 million, representing a 21% adjusted EBITDA margin, up from 8.5% in the same quarter last year.
- Upwork Inc (UPWK) continues to benefit from the secular shift towards flexible, cost-effective alternatives to traditional staffing.
- The company is investing in AI-powered features and user experiences, which have shown promising early adoption rates.
Negative Points
- Top-of-funnel activity showed softness in Q2, with a 6% sequential deceleration in client-seeking work.
- There was a mix shift towards very small businesses, which typically have lower spend per contract and fewer contracts per client.
- Upwork Inc (UPWK) lowered its 2024 full-year revenue guidance due to macroeconomic conditions.
- Gross Services Volume (GSV) declined 2.7% year-over-year, and GSV per active client declined 5%.
- The company saw a mix shift to very small businesses, impacting average contract size and overall GSV.
Q & A Highlights
Q: Hayden, in your prepared remarks, you talked about the health of the platform in terms of balancing take rate initiatives and monetization products. Can you just speak to that in terms of how you are viewing things like Connects and pushing more monetization on to freelancers as well as also making sure that there is plenty of liquidity for the platform as well as supporting more first-time freelancers?
A: Thanks, Andrew. I'd say the work we've done so far has been incredibly successful and provides the blueprint for how we want to continue driving in balancing the factors that you're outlining because we are laser-focused on expanding take rate while making these initiatives accretive from a marketplace health and quality perspective. What we look at here is things like Connects and subscriptions and value-added services that we're enhancing the platform with really are ways for us to improve signal quality in the marketplace for us to also give talent and clients more control over when, where, and how they want to engage and to be featured or propose themselves with more priority for work, things like that. And so really, these are features and functionality in a large part or are in service of our marketplace health goals. And monetization is, in some cases, just a byproduct of how these work most effectively and really can be capitalized on for customers and for us. Stepping back and looking more broadly at the ads and monetization opportunity we have, we know that given where we are today and when we compare our opportunity to other two-sided marketplace businesses, there is a lot of run room here. And we also know specifically about features and functionality, whether it's in value-added services or further enhancements to subscriptions that there's a long road map here that we can execute on. So we feel great about the opportunity to continue to expand and build on what we've done and really continue to expand take rate in a way that is really valuable and healthy for the marketplace and for customers.
Q: Hayden, as you roll out more of these deals, can you talk about what's been successful and how that paints the picture for where you guys want to pursue additional deals going forward?
A: We view the partnership opportunity as very large, and there's certainly a lot of ways to look at this. OpenAI was our launch partner for this bigger program and really provided the starting point for the momentum that we've been building in that now we have. I'd say what success looks like for us is really using this partnership muscle that we've been building over the last few quarters to build this highly scalable, very cost effective, new way for us to bring client demand to our talent. And the unlock for us is that we don't need all of these clients to come and know about our brand or register and start with an account on Upwork for them to find success and for them to find our talent. So we're really turning our model around and bringing our talent out into the ecosystem through these partners and leveraging some of these marquee partnerships like the OpenAI one to generate what has become a very successful and fast-moving funnel here of partners who are coming to us and saying, hey, can we get in on some of this action, because these partners have ecosystems of clients and customers who themselves have needs that these partners have not always had a good way to service. So this is what's contributed to May being the highest monthly revenue partnership month we've seen to date. And the fact that in the past quarter, we doubled the number of partner deals and are still building from there. So it is still early in the opportunity, but we do see that this could be a very exciting trajectory around client acquisition and a different model for us to go forward.
Q: If the trends that you saw in June continued into July and August on -- at the bookings level, and then the guidance for take rate to be flat sequentially or for the remainder of the year relative to 2Q, is that just thinking about in this kind of top-line bookings environment is not right to be leaning in a monetization, or is there anything else we should be thinking of?
A: In terms of the trends that we saw on top of funnel, first and foremost, we actually saw very strong top-of-funnel demand signals in Q1, and we really saw that that starting to turn in kind of mid-May and then into June and July. We did see those trends get slightly worse in June and July. And so this is really what we're basing our guidance on. We fully contemplated this impact in our guidance and in fact, are now contemplating no improvement to these trends going forward. So in that way, I think we feel like we've fully de-risked our guidance for the year. On your question in terms of the take rate trends, yeah, I mean, I think we're just being prudent, again, kind of anticipating the trends that we're seeing and just looking at top-of-funnel trends, both on kind of the demand side as well as this mix shift and expecting that we'll see a little bit lighter usage in some of the ads products as well.
Q: Can you maybe just talk about your ability to sustain your EBITDA guidance? And as we look at your P&L, sort of what are some areas that you can optimize here in the near term without sort of impacting future growth as the environment improves?
A: Just in terms of maintaining the adjusted EBITDA guidance, I mean, look, this is an inherently profitable business, and we've made a tremendous amount of progress with the cost discipline muscle that we've implemented as a business. We're obviously continually making progress both on the gross margin line as well as on the OpEx line. And so we feel really, really confident that we can continue to do so. We're at 77.5% gross margin now. And we do still have some continued optimization that we can do that we're working on, on rates with hosting costs, other things like that. And then just as a reminder to everyone, we're continuing to invest in growth. Our R&D expense was up 21% year over year in Q2, and we are very, very focused on investing in the growth levers that will grow GSV into the future. So we think we know we can do both. We can continue to optimize in areas that are kind of lower ROI spend for us, optimized on the G&A line and other places, and produce that growing operating margin while investing in growth.
Q: Could you maybe talk about any recent developments as it relates to AI tools and functionality? And I know you highlighted a few in the press release. And is there any way to sort of quantify the impact of AI on your overall business?
A: In terms of the AI tools and functionality, I'd say we're very pleased with how the features and functionality we're launching, including things like our Uma, AI work companion, as well as Upwork Chat Pro, which is an AI-enabled feature for freelancers in particular, to leverage that throughout the work journey on Upwork, these are all getting very strong adoption and continue to be advancing even though they're still in their early stages. We've seen a 23
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
