Upwork Q1 2025 Earnings Report

Upwork EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.25
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: $0.22

Upwork Revenue Results

• Actual Revenue: $192.71 million
• Expected Revenue: $188.49 million
• Beat/Miss: Beat by +$4.22 million
• YoY Revenue Growth: +0.90%

Upwork Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 5, 2025
• Conference Call Time: 5:00PM ET

Upwork (NASDAQ:UPWK), together with its subsidiaries, operates a work marketplace that connects businesses with various independent professionals and agencies in the United States, India, the Philippines, and internationally. The company's work marketplace provides access to talent with various skills across a range of categories, including administrative support, sales and marketing, design and creative, and customer service, as well as web, mobile, and software development. Its work marketplace also enables clients to streamline workflows, such as talent sourcing, outreach, and contracting. The company's work marketplace offers access to various functionalities for remote engagements with talent, including communication and collaboration, ability to receive talent invoices through their work marketplace, and payment protection. Its marketplace offerings include Upwork Payroll and Upwork Enterprise, as well as managed and escrow services. The company was formerly known as Elance-oDesk, Inc. and changed its name to Upwork Inc. in May 2015. Upwork Inc. was incorporated in 2013 and is headquartered in San Francisco, California.

Upwork Q1 2025 Earnings Call Transcript

Key Takeaways

• Upwork delivered a record Q1 with $192.7 million in revenue—above the high end of guidance—and $56 million in adjusted EBITDA, driving a 29% adjusted EBITDA margin.
• Core marketplace metrics improved as GSV per active client rose 3% year-over-year and for the third consecutive quarter, aided by search, recommendation, and AI-powered enhancements.
• AI initiatives are gaining traction: Upwork hosts 80,000+ AI specialists, AI-related GSV grew 25% year-over-year, and Ooma-powered features lifted proposal engagement by 58% QoQ.
• Upscale offerings are fueling larger-client growth—active Business Plus clients doubled QoQ (40% are net new), and enterprise efforts are in transition to capture more contingent staffing budgets.
• For full-year 2025, Upwork reiterated revenue guidance of $740–760 million and raised adjusted EBITDA outlook to $190–200 million, aiming for a 35% margin and strong free cash flow.

Presentation

[Operator]

Good day, thank you for standing by. Welcome to Upwork's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Samuel Meehan, Vice President of Investor Relations.

[Operator]

Please go ahead.

[Samuel Meehan, VP - IR at Upwork]

Thank you, and welcome to Upwork's discussion of its first quarter twenty twenty five financial results. Joining me today are Hayden Brown, Upwork's President and Chief Executive Officer and Erica Gessert, Upwork's Chief Financial Officer. Following management's prepared remarks, they will be happy to take your questions. But first, I'll review the Safe Harbor statement. During this call, we may make statements related to our business that are forward looking statements under federal securities laws.

[Samuel Meehan, VP - IR at Upwork]

Forward looking statements include all statements other than statements of historical fact. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward looking statements. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today's earnings press release. Additional information will be set forth in our quarterly report on Form 10 Q for the quarter ended 03/31/2025 when filed.

[Samuel Meehan, VP - IR at Upwork]

In addition, reference will be made to certain non GAAP financial measures. Information regarding non GAAP financial measures, including reconciliations to their most directly comparable GAAP financial measures, can be found in the press release that was issued this afternoon on our Investor Relations website at investors.upwork.com. Unless otherwise noted, reported figures are rounded. Comparisons for the first quarter of twenty twenty five are to the first quarter of twenty twenty four. Adjusted EBITDA, adjusted EBITDA margin, and free cash flow are non GAAP financial measures, and all other financial measures are GAAP unless cited as non GAAP.

[Samuel Meehan, VP - IR at Upwork]

Now, I'll turn the call over to Hayden.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Good afternoon, and welcome to Upwork's first quarter twenty twenty five earnings call. Upwork had a strong start to the year as our first quarter results beat our plan on both the top and bottom lines. Revenue of $192,700,000 exceeded the high end of our guidance range, Combined with consistent cost discipline that led to record high adjusted EBITDA of $56,000,000 and adjusted EBITDA margin of 29%, we have proven quarter after quarter that we can execute well and lead our industry in any market environment. Our business is extraordinarily resilient and our strategy and execution have resulted in industry leading performance over multiple years despite the uncertain operating environment. Additionally, Upwork is not directly exposed to announced tariffs nor to ongoing federal cost savings measures.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Our core marketplace performed well in Q1 where GSV per active client grew year over year for the first time in six quarters and increased sequentially for a third consecutive quarter. We also drove sizable GSV outperformance in Marketplace through several product enhancements to search recommendations and other customer experiences. Upwork has helped businesses reinvent through every work transformation of the last twenty years, enabling them with the highly skilled talent required to deliver cloud solutions, build e commerce storefronts, and embrace the eras of mobile and social media. With AI being the next and biggest paradigm shift for organizations, Upwork is becoming the critical infrastructure for enabling the combination of humans and AI to work together to achieve business outcomes. While AI is rapidly changing every company from the smallest startups to the largest enterprises, an AI skills gap exists today with 63% of employers citing a lack of AI skills as the top barrier to transforming their businesses.

[Hayden Brown, President & Chief Executive Officer at Upwork]

We are a critical resource to clients as they navigate this tectonic transformation. One of the world's largest social media platforms has engaged highly skilled math experts on Upwork to safeguard the quality of their training data for integral LLMs. Multiple companies, including one of the top pharmaceutical companies in the world, have relied on a South Carolina based AI and data science agency on Upwork for healthcare specific low code apps and AI solutions. A mid sized law firm in Florida that specializes in representing veterans turned to Upwork freelancers to transform their knowledge management system with AI, building a custom GPT to organize their massive corpus of documents and access key information in an instant. These examples are a testament to how Upwork's talent base constantly evolves to meet new business needs.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Today, we have a deep reservoir of 80,000 AI specialists on our platform globally who have already put their expertise to work in designing, developing, and deploying AI systems for clients, and that pool is growing every day. Clients of all sizes are coming to Upwork to find this expert AI talent for complex, long term projects ranging from model training and tuning, to integrating LLMs into new products, to building AI powered workflows across departments. As our customers have been embracing AI, we ourselves have been racing ahead to make Upwork a truly AI native platform. Our investments in Ooma, Upwork's mindful AI, are transforming our customer experience by offloading mundane tasks and making the work journey on Upwork more productive and seamless. This is just the beginning of how with Ooma, we envision providing customers with a fully capable AI work agent that can do everything from informing hiring decisions, helping freelancers win work, to end to end project management.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Ooma powered features we recently launched, like proposal writing and candidate evaluation, experienced strong uptake. We saw 52% more users engaging with Ooma overall in Q1 than in Q4 twenty twenty four, including a 58% lift in engagement with Ooma powered proposal writing as just one example. AI features have already had positive impacts across our platform, driving up volumes of proposals and bids, new client conversion, hiring rates, contract volumes, time to hire, time to start, and freelancer earnings. We are encouraged by the impact of these advancements in making Upwork the leading AI native work marketplace operating at scale. Our significant AI investments are paying off both organically and as we have put capital to work through tech and talent acquisitions that have accelerated our AI roadmap.

[Hayden Brown, President & Chief Executive Officer at Upwork]

In Q4, we successfully integrated Objective AI's native search technology and team. As planned, this team is already injecting incremental innovation capacity into our business, contributing new capabilities in search and match that are showing promising effects on GSV. Upwork is well positioned to lead this AI revolution for our category with clear advantages in the largest work dataset and scaled marketplace, the right talent and tech platform, and ample R and D investment. We have much more in store throughout 2025, including building more personalized AI powered experiences for acquisition and onboarding that set up customers for immediate success, along with AI matching features that improve hiring efficiency and drive superior hiring outcomes. We made solid progress in Q1 on our strategies to unlock spend from larger clients.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Upwork Business Plus, our new premium marketplace offering focused on larger clients is performing well. Active clients on Business Plus more than doubled quarter over quarter, reflecting both net new additions and upgrades from our standard marketplace plan. Business Plus has become an attractive value proposition for new customers, with approximately 40% of active Business Plus clients being new customers. This is true without any significant paid marketing, a testament to the offering's value proposition meeting a clear client need. Taken together, Business Plus and Enterprise are delivering growth in GSE and revenue from large customers.

[Hayden Brown, President & Chief Executive Officer at Upwork]

With the first half of twenty twenty five representing transitional quarters for Enterprise, we are on track with our plan and making steady progress. As we mentioned last quarter, our enterprise strategy is evolving as we align our approach to access a greater share of traditional contingent staffing budgets, and we will share more on these developments on the enterprise front in coming quarters. The strength of our business is evident in record first quarter revenue, adjusted EBITDA and adjusted EBITDA margin. Following our better than expected results in Q1 and our continued accelerated execution, we are reiterating our revenue guidance for the full year and increasing our adjusted EBITDA guidance range for 2025. We're excited about the massive opportunities ahead of us in AI, enterprise, and ads and monetization, along with the pace at which we are innovating and executing to realize those opportunities.

[Hayden Brown, President & Chief Executive Officer at Upwork]

2025 will be a year where we continue our market share gains while growing profitability, free cash flow, and long term shareholder value. We are confident we have the right model, talent, investments, and plan to deliver results in 2025 and to continue on the path for more meaningful top line growth in the future. With that, I'll turn the call over to

[Hayden Brown, President & Chief Executive Officer at Upwork]

our CFO, Erica Gessert.

[Erica Gessert, Chief Financial Officer at Upwork]

Thanks, Hayden. Upward kicked off 2025 delivering a strong first quarter, driven by outperformance in our core marketplace. Our Q1 revenue of $192,700,000 was a record for our first quarter. Our focused disciplined approach to margin expansion was evident across our business, as our gross margin reached 78.3% and our adjusted EBITDA margin was our highest ever at 29%.

[Erica Gessert, Chief Financial Officer at Upwork]

We are firmly on track to achieve our five year thirty five percent adjusted EBITDA margin target, and we are raising our full year 2025 adjusted EBITDA guidance. While the macro environment remains turbulent, we continue to deliver even after multiple quarters of macroeconomic pressures. First quarter GSV of $988,000,000 was stronger than we expected coming into the year, and we're encouraged by some early signals from continued enhancements in search, match, and other key platform capabilities, which helped to drive some positive customer spend dynamics. Average GSV per active client increased 3% year over year following multiple quarters of sequential growth, giving us confidence in the value that we are driving for customers. GSV per active client grew year over year in every client segment.

[Erica Gessert, Chief Financial Officer at Upwork]

This was driven by our large client segment in which GSV per active grew 11% year over year. While our active client count continues to experience some pressure, this is a cumulative effect of the top of funnel demand pressure our business and many others have been experiencing over the past year. To address the challenging demand environment, we have rebalanced our performance marketing spend to focus on higher LTV clients. So while total volume of active clients may be down year over year, we are attracting higher quality customers and contracts. Even with these adjustments, it's worth noting that in Q1, we saw client activations increase quarter over quarter for the first time in over a year.

[Erica Gessert, Chief Financial Officer at Upwork]

As a result of these dynamics, Q1 revenue grew 1% year over year, above our guidance for the quarter. This performance is particularly notable in the context of the unstable macro environment and the fact that we are lapping strong take rate growth in Q1 of twenty twenty four. Enterprise revenue of $26,400,000 was relatively flat year over year as we shifted our sales team's focus to the growth of Business Plus on the marketplace, along with higher value, more strategic retained accounts. Managed services revenue grew 3% year over year to $15,300,000 in the first quarter. We have made tremendous strides on our enterprise strategy over the past few quarters.

[Erica Gessert, Chief Financial Officer at Upwork]

And while we are in a transitional phase with the enterprise business, we are more excited than ever about the enterprise strategy at Upwork. Our marketplace take rate was 18.3% in Q1 twenty twenty five, compared to 17.7% in the first quarter of twenty twenty four, driven by continued growth in our ads and monetization business. We expect relatively stable take rates throughout 2025. We continue to focus on introducing new and innovative ways to bring value to our customers, and we expect to launch new products and experiences that will drive meaningful take rate expansion in 2026 and beyond. Non GAAP gross margin reached a record high of 78.3%, as we continue to execute disciplined cost management across every part of our business.

[Erica Gessert, Chief Financial Officer at Upwork]

Non GAAP operating expense was $98,100,000 in the first quarter or 51% of revenue compared to 61% of revenue in the first quarter of twenty twenty four. Adjusted EBITDA was $56,000,000 in the first quarter, leading to a record adjusted EBITDA margin of 29%. We reported GAAP net income of $37,700,000 in the first quarter, a 105% increase over 2024 and a record for any first quarter in our company's history. Free cash flow for the first quarter was $30,800,000 In the quarter, we utilized $33,100,000 in cash to buy back 2,300,000.0 shares as part of our commitment to driving long term shareholder value. Cash and cash equivalents were approximately $622,000,000 at the end of the first quarter.

[Erica Gessert, Chief Financial Officer at Upwork]

Now turning to guidance. For the second quarter of twenty twenty five, we expect to produce revenue in the range of 184,000,000 to 189,000,000 For adjusted EBITDA in the second quarter, we are guiding to a range of 45,000,000 to $49,000,000 which represents an adjusted EBITDA margin of 25% at the midpoint. As we indicated last quarter, Q1 is expected to be the high watermark for margins in our business this year, as we reinvest in the ample growth opportunities in front of us. As our first quarter results demonstrate, we are making strong and steady progress towards our 35% adjusted EBITDA margin goal, while investing in key growth levers, particularly enterprise and AI enablement strategies to reignite top line growth in our business. For the full year 2025, we are reiterating our revenue guidance range of between $740,000,000 and $760,000,000 We remain confident in this guidance based on what we see today.

[Erica Gessert, Chief Financial Officer at Upwork]

Our excellent execution and improving customer dynamics offset the slight macro headwinds that weighed on our customer activity in the quarter, and these dynamics are factored into our guidance. Looking further out, our pace of execution and our multiple growth levers give us confidence that we will resume revenue growth in 2026. As a result of our strong operational execution and business model, we are increasing our full year adjusted EBITDA guidance to be in the range of 190,000,000 to $200,000,000 or 26% adjusted EBITDA margin at the midpoint. This represents a four point margin expansion versus 2024. Our ability to meaningfully expand margins even in a tough operating environment reflects our commitment to profitability and shareholder value.

[Erica Gessert, Chief Financial Officer at Upwork]

We expect full year 2025 non GAAP diluted EPS to be between $1.05 and $1.1 up from our 2024 results. On stock based compensation, we have been taking proactive steps to reduce our SBC expense, and these actions will have a lasting benefit on our recorded stock based comp. Stock based compensation is expected to be between 60,000,000 and $65,000,000 for the year. I'll briefly touch on our capital allocation strategy. We have a 100,000,000 buyback authorization in place, of which we had approximately $67,000,000 remaining at the end of Q1.

[Erica Gessert, Chief Financial Officer at Upwork]

We intend to fully offset any dilution from stock based compensation this year through stock repurchases. Beyond that, taking into account the current market environment, we intend to be opportunistic in deploying the remainder of the authorization. Before closing, I'd like to take a moment to acknowledge the unusual times we are all navigating through. It's in times like these that the strongest, most resilient businesses stand out from the field and ultimately emerge as winners. Our rapid pace of innovation, inherently profitable and high cash yield business, and cost optimization muscle will serve us incredibly well as we navigate through the next uncertain months and quarters.

[Erica Gessert, Chief Financial Officer at Upwork]

The opportunities for Upwork are tremendous, and we are excited about the road ahead. Our team is executing better than ever, and I want to thank everyone at Upwork for your commitment to excellence and innovation. With that, we'd be happy to take your questions. Thank you.

[Operator]

Our first question comes from Eric Sheridan with Goldman Sachs. Your line is open.

[Eric Sheridan, Analyst at Goldman Sachs]

Thank you so much for taking the questions. Maybe two if I could. The first one just on the broader economy, the base case that you're assuming from this point through the end of the year in your broader guidance and whether we should be expecting there's be any sort of input changes either in client activity or client growth that are sort of at the base of what you're sort of guiding to? Or is it sort of taking what you know now and just sort of projecting it out just so we better understand that? And then on the AI product side, really exciting to hear the stats in the prepared remarks about how it's driving volumes inside the broader business.

[Eric Sheridan, Analyst at Goldman Sachs]

How do you think about AI being a driver of a mixture either of new client growth, volumes among clients, or pricing over time, just so we understand the monetization elements of AI in the business? Thanks so much.

[Erica Gessert, Chief Financial Officer at Upwork]

Hey, Eric. Maybe this is Eric. I'll take the first one. You know, we were really pleased with the customer spend dynamics that we saw in q one, which are really driven by improvements to our product, some of the improvements in search and match, other platform enhancements through AI, and this contributed to the increase in GFC per active client by 3%. Now offsetting that, we did see some slight macro headwinds that weighed on customer activity, particularly at the top of the funnel in the quarter.

[Erica Gessert, Chief Financial Officer at Upwork]

The impact was minimal, but it did have some slight impact to our customer behavior. Both of these dynamics, both the growing customer spend and a little bit on the persistent macro headwinds are factored into our guidance.

[Hayden Brown, President & Chief Executive Officer at Upwork]

I'll just add, Eric, that some of the observations we have from recent customer conversations really underscore the resilience of our platform in this uncertain time. What we're hearing from them is they're feeling some degree of uncertainty in their day to day, but they still have truly mission critical business needs that they need to get done, and they're getting done on Upwork. So one example client we spoke to this quarter, InnoData, they're a global data engineering company. They needed a bench of talent Upwork, including some domain experts in the with masters and PhDs to do a lot of AI model work across 20 languages for them. And they're continuing with that work.

[Hayden Brown, President & Chief Executive Officer at Upwork]

They're plowing ahead, even though they recognize the uncertain environment. And I say this is pretty typical of what we're hearing across the platform. Getting to your second question around AI and some of the stats we shared, our view is that there's two big thematics for our business related to AI, both of which are real catalysts, we're starting to see that. The first one is around providing the world with this AI skill talent it needs, companies like Innodata finding the people they need here. And that is a driver of both new client acquisition, it can drive up volumes in the platform.

[Hayden Brown, President & Chief Executive Officer at Upwork]

And certainly, we've seen already that AI related work is commanding approximately a 40% premium in terms of freelancer earnings. So it really hits on all three of the metrics you asked about. The other thematic, of course, is the one we mentioned around Ooma and the work we're doing to make our platform fully AI native. And this is where we're already seeing some of the evidence around these features actually impacting, you know, all the things you asked about. We're seeing, you know, more volumes of proposals and bids, new client conversion, hiring rates, contract volumes, time to hire, time to start, like all of these things are moving up.

[Hayden Brown, President & Chief Executive Officer at Upwork]

So again, we see that as we make Ooma more of a fully functioning agent, that is going to really drive the flywheel of metrics for our business in both of these ways. So we're excited about the progress. It's still early, but there's a lot more coming out over this year as we invest in both our AI platform category and then also the platform itself in terms of Ooma.

[Eric Sheridan, Analyst at Goldman Sachs]

Great. Appreciate it.

[Operator]

One moment for our next question. Our next question comes from Bernie McTurney with Needham and Company. Your line is open.

[Bernie Mcternan, Senior Research Analyst at Needham & Company]

Great. Thanks for taking question. I just wanted to focus on the nice growth that you're seeing in larger customers, mentioned up 11% in the quarter and focusing some of your marketing efforts more on higher LTV customers. Is this a shift is this I guess, the shift driven by what you're seeing in the marketplace or more so driven just a change in LTV to CAC goals? Hayne, your comments in the beginning certainly seem to want to highlight that you're seeing very large organizations choose Upwork increasingly.

[Bernie Mcternan, Senior Research Analyst at Needham & Company]

So just wanted to see if it's what you're doing or do you think it's the marketplace shifting? Thank you.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Yeah. So what we've seen is this combination of efforts to unlock our spend from larger customers really is working. And that's where we saw that year over year growth in large customer spend in q one when we measured across both enterprise and business plus. And this is part of our focus strategy that we began last year with the release of business plus and with some of the changes to our enterprise area to really go after this larger customer segment in some new ways. So it's very consistent with that, that we're seeing these results.

[Hayden Brown, President & Chief Executive Officer at Upwork]

It's still early. And as I mentioned, the first two quarters of the year will be more traditional on the enterprise side, but we're really setting ourselves up for growth towards the end of the year and into 2026.

[Bernie Mcternan, Senior Research Analyst at Needham & Company]

Understood. Thanks, Hayden.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Yeah, thanks.

[Operator]

One moment for our next question. Our next question comes from Ron Josey with Citi. Your line is open.

[Ron Josey, Analyst at Citigroup]

Great. Thanks for taking the question. Hayden, you mentioned on the call better search and recommendation product enhancements within the core and that's helping to drive just the flywheel. Talk to us a little bit more about what those enhancements were and the benefits there. And then, Erica, I think you mentioned a change in go to market, meaning something around search and client acquisition.

[Ron Josey, Analyst at Citigroup]

Would love to hear just the profile you're seeing as a result from this change in go to market. Thank you.

[Hayden Brown, President & Chief Executive Officer at Upwork]

So Ron, what we saw on the search recommendation side is some new features we released around semantic search, a new recommendation experience, as well as enhancements to our client dashboard. Some of these things launched at the end of Q4 and some launched throughout Q1. But all of them together are really driving our client metrics in a really positive way. And we have a lot more of this coming. We just integrated the objective team that we bought at the end of last year into our team, and their technology is also getting integrated in.

[Hayden Brown, President & Chief Executive Officer at Upwork]

So there's gonna be a lot more that we're launching in the search and recommendations area that I think is gonna really benefit the business.

[Erica Gessert, Chief Financial Officer at Upwork]

And maybe, Ron, to your second question. Optimization of our performance marketing spend has been really effective in channel experimentation and lifting our average LTV per client acquisition. But even more importantly, underlying the growth in GSP proactive client on the platform, see a lot of bright spots actually, you know, overall hourly rates have actually been relatively steady over the past few quarters. But where we've seen lift is an average hours per contract up 5% year over year, fixed price spend per contracts of 12% year over year. And these are all related to, you know, all the customer experience improvements that we've been, you know, talking about, and in particular, the AI enablement platform.

[Ron Josey, Analyst at Citigroup]

Super helpful. Thank you.

[Operator]

One moment for our next question. Our next question comes from Andrew Boone with Citizens. Your line is open.

[Andrew Boone, Managing Director at Citizens JMP]

Thanks so much for taking the question. I wanted to go back to Business Plus. Given the fact that the Business Plus is now seizing a little bit and you guys have more information, Can you talk about the new clients that are coming on and kind of the evolution of what was that easier on ramp for larger enterprises and what business process is unlocking? And then, Erica, sales and marketing had a multiyear low. Can you just talk about the cost guidance as it relates to 2025?

[Andrew Boone, Managing Director at Citizens JMP]

I think 1Q was supposed to be the peak EBITDA margin quarter, but how do we think about potential investments or or anything else that would that we should be thinking about for margins going forward? Thanks so much.

[Hayden Brown, President & Chief Executive Officer at Upwork]

On the business plus side of things, what that's really unlocking is a bigger funnel of larger customers, both new that are coming into the platform for the first time and existing marketplace customers who are upgrading into this offering. And so the customer feedback and the signs we're seeing already are super encouraging here that the strategy is working. We're seeing new customers in Business Plus really adopting the features that are part of that plan at high rates. So that includes things like access to our enterprise vetted talent, access to a special shortlisting capability, net 30 payment terms. So these things are driving customers to then have higher client conversion rates, you know, from registration to job posts and from registration to start, as well as higher average spend per client when you compare these clients to our standard marketplace customers.

[Hayden Brown, President & Chief Executive Officer at Upwork]

So we've got really good encouraging signs of product market fit for the plan, and we're continuing to invest and tune it over the course of this year.

[Erica Gessert, Chief Financial Officer at Upwork]

Yeah, and Andrew, this is Erica. In terms of your questions on kind of margin cadence and where we're investing, sales and marketing was at an all time low in Q1. We talked a lot in Q4 about you know, the optimization of the enterprise business about, you know, improving both cost to serve and cost to acquire through the through the business plus strategy. And so you are seeing that reflected in our numbers. But we're also very clear, like you said, that Q1 would be the high watermark for margins for this year.

[Erica Gessert, Chief Financial Officer at Upwork]

And so we do intend to reinvest. We see ample opportunities for growth in this business. Hayden talked in the prepared remarks about, you know, enterprise just being a transitional period for enterprise. And we do intend to reinvest there to unlock some of the contingent labor TAM that we've been talking about, as well as on the R and D side continued investment in AI enablement of platform. So you will see those investments come through in Q2 and Q3 this year.

[Erica Gessert, Chief Financial Officer at Upwork]

But, you know, I think we've shown over time that we can both invest in growth and create meaningful margin expansion. So we feel really good about both.

[Andrew Boone, Managing Director at Citizens JMP]

Thank you.

[Operator]

One moment for our next question. Our next question comes from Brad Erickson with RBC Capital Markets. Your line is open.

[Brad Erickson, Equity Analyst at RBC Capital Markets]

Yeah. Thanks. Can you talk again about the top of funnel pressures related to macro and it's been, I guess, last several quarters. So I think it's kind of the hiring and staffing environment. Talk through kind of the puts and takes as AI maybe has sort of like unclear effects on a net basis on those hiring trends and how you think that might translate to your business?

[Brad Erickson, Equity Analyst at RBC Capital Markets]

Thanks.

[Erica Gessert, Chief Financial Officer at Upwork]

Yeah. So our active client number overall, you know, we've talked a lot about the kind of top of funnel demand pressure that we've seen. Active client number is a trailing twelve months number. So that encompasses, you know, a lot of, you know, all of the kind of pressures we've seen over the past four quarters. Now, one thing to remember about our active client activation is that more than 50% of them come from kind of broader organic or unpaid channels.

[Erica Gessert, Chief Financial Officer at Upwork]

So that's where we're really seeing the macro forces play in. Don't think we see any kind of focused impact from AI, either positive or negative. Overall, we see AI as an ongoing tailwind for our business given the growth of that category.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Yeah, that's really evident 25% year over year growth we saw in GSC from AI related work. And so we continue to see the positive opportunity here is much more substantial than any risk. We've really seen no change in terms of AI related degradation of any kind of works or work or project types over the last quarter. We're really just looking at the opportunity here, which is quite formidable.

[Brad Erickson, Equity Analyst at RBC Capital Markets]

Got it. And then maybe just a follow-up, if I could, a broader question with the tariffs. I recognize your the lack of exposure here. But as you talk with your customers, everyone's kind of in the same boat of uncertainty. But talk about your client conversations where maybe there is exposure and I don't know, just anything sound different, say, with your smaller clients versus your larger clients?

[Brad Erickson, Equity Analyst at RBC Capital Markets]

Curious, just kind of if you're hearing any divergent views between those groups? Thanks.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Sure, when we talk to customers, I wouldn't say there's any one answer partly because we serve such a heterogeneous range of customers and across the major board categories. But a few of the thematics are, while the uncertainty is there for a lot of customers, many of them that we're speaking to, they haven't changed, you know, their decision making around investing in the work on our platform. They're continuing because they have critical things they need to get accomplished. And the uncertainty in the environment isn't really getting in the way of that. Now, of course, things can change if the economy worsens substantially.

[Hayden Brown, President & Chief Executive Officer at Upwork]

But right now, what we've really seen is people hanging in there, continuing to spend, continuing to do the work they need to, a slight headwind at the top of our funnel. But that's consistent with the commentary we hear from customers, which is that the work they're doing with us is essential.

[Brad Erickson, Equity Analyst at RBC Capital Markets]

That's great. Thanks.

[Operator]

One moment for our next question. Our next question comes from Brent Thill with Jefferies. Your line is open.

[John Byun, Senior VP at Jefferies Financial Group]

Hi, thank you. This is John Bian for Brent Thill. Maybe one more around the macro side of things. You mentioned there's no direct exposure from tariffs and so on, but I want to see if can talk about maybe indirect or second order exposure in the public sector, whether fed or state and local in terms of where the clients are doing their prices. I don't if have that sort of visibility.

[John Byun, Senior VP at Jefferies Financial Group]

And then you alluded to some high impact features to launch in Q2. I don't know if you can go into a little bit more detail. Thank you.

[Erica Gessert, Chief Financial Officer at Upwork]

Maybe John, I'll take the question on the macro. We really don't see any impacts from the public sector job releases. And in general, as Hayden already articulated, I think we haven't seen any impact from any of the recent tariff announcements on customer behavior whatsoever.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Yeah, and I'd say underscoring the fact that our exposure, I think, is in a good spot. We have 131 categories of work that were active in the past quarter, and 58 of those had a million dollars of GSV or more flowing through them. And so again, I think this is just where the diversity of the work happening, the diversity of our client base is a really positive thing around the resilience of our business. In terms of the high impact features that are launching in Q2, we're going be doing a lot more in the search and recommendations area, building on the tech and the talent that we brought in last year with the objective team. We're also going to be investing a lot in our Ooma AI agent, really evolving Ooma from being able to do specific tasks, like evaluate your candidates or help you draft a proposal to being an end to end full service companion that can really help customers, both clients and talent across the entire workflow.

[Hayden Brown, President & Chief Executive Officer at Upwork]

And that is from hiring all the way through project management and work delivery. So there's gonna be a lot more coming out over both Q2 and the rest of the year as we enhance Ooma and, bring those capabilities into the hands of our customers.

[John Byun, Senior VP at Jefferies Financial Group]

Thank you.

[Operator]

One moment for our next question. Our next question comes from Rohit Kulkarni with ROTH Capital Partners. Your line is open.

[Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Hey, thanks. AI high level question. I guess, it's been a few quarters you've disclosed how AI related GSV is growing faster. And so perhaps kind of at at what point or at what scale do you think AI would be big enough for the overall GSV to start growing again? Maybe at how far out in the future do you think that scale you could reach?

[Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC]

And then I have a couple of follow ups on take rate and EBITDA.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Rohit, so our expectation is that we do see reacceleration of GSV growth next year, And that's going come through from a combination of the AI related investments we're making, as well as the work we're doing in the enterprise area and on asset monetization, specifically driving the revenue side of the equation. So this is not a far out prediction for us. This is something we can see and have line of sight to in 2026. And our confidence is really underscored by, both the early metrics we're seeing from Ooma related features that we've launched on the one hand, and then the other side of the AI strategy, the growth that as you point out, we continue to see from AI related work. They're growing 25% in the quarter.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Some categories like prompt engineering grew 52% year over year. And I'll also note that we are seeing no incremental disruption at all, no disruption at all from legal and design creative categories that people are all saying, should be disrupted. We're actually seeing growth in those areas. And the work is becoming more complex, more valuable, really tapping into the specialized nature of the experts on the platform. So this is exciting for us as we think about growing from both AI related areas, as well as the broader ecosystem that we host.

[Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. And then maybe actually a macro question on the enterprise side of things. Any call out or any change in visibility or the way deals are getting closed or the way large enterprises are making decisions at the same velocity or not over the last, call it, six to eight weeks?

[Hayden Brown, President & Chief Executive Officer at Upwork]

I wouldn't say we've seen any notable changes in the last six to eight weeks. You know, we did see, you know, overall in the platform come from slower trends from the beginning of the year, but nothing has really changed on the enterprise side specifically. You know, it's always a large sales cycle. That hasn't changed. I think if anything, Business Plus is helping us open up more large customers faster, so that's an accelerant for us right now, but no other real changes.

[Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Thank you. And last, around take rate, maybe for you, Erica. Maybe talk about the why behind the take rate outlook that you just shared. I know it's unchanged from previously, but just there is a natural upward bias one would expect, but just maybe talk through that.

[Erica Gessert, Chief Financial Officer at Upwork]

So first of all, take rate is the expansion that we saw in Q1 is primarily due to the really great ongoing growth in as in monetization. To your point, revenue from as in monetization Q1 grew 23% And actually connects, we had the highest, revenue quarter ever on connects. But, you know, as you know, we made significant progress in 2024, expanding our take rate. And so we've really given ourselves room in 2025 for some ongoing experimentation and you know, work on take rate in order to test some of our take rate strategies for more meaningful take rate expansion 2026. So you can expect relatively flat take rate throughout the rest of this year, as we kind of gave ourselves room for that work.

[Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay, thank you.

[Operator]

Moment for our next question. Our next question comes from Nat Schindler with Scotiabank. Your line is open.

[Nat Schindler, Managing Director - Equity Research at Scotiabank]

Yes. Hi. Thank you. Mostly for Erica. Looking at your guidance, and I know you said that this would be the high watermark for your EBITDA.

[Nat Schindler, Managing Director - Equity Research at Scotiabank]

But if I look at what you did this quarter being up about 8,000,000 above the midpoint of your guidance and then compare it to your raise of the year by about 10,000,000, but then add to the fact that you're also increasing your stock based comp from your previous guide, respectively not raising any EBITDA for the back half of the year and keeping revenue the same. Is this conservatism or are you do you really have places to spend that will really change the, particularly the sales and marketing line for the next few quarters?

[Erica Gessert, Chief Financial Officer at Upwork]

You know, I think we were, you know, appropriately conservative with our guidance. But you know, overall, this really just reflects our plans to invest in, like I said, that the ample growth opportunities that we have for this business. So we really do, you know, the benefits that we're already seeing from the investments in Ooma, as well as, you know, we have plans for continued expansion of the enterprise business and investment there. So there's a lot to come. But our guidance is reflective of both our over performance and actually a little bit of pushing through some of the incremental cost optimization that we saw in Q1 into the rest of the year.

[Erica Gessert, Chief Financial Officer at Upwork]

So it's a balanced outlook.

[Nat Schindler, Managing Director - Equity Research at Scotiabank]

Okay, and then just secondly, probably for Hayden, just help me begin. I know everybody's harping on that kind of the macro situation, but, I mean, it should be on everyone's mind. Can you walk us through really how contract labor, particularly white collar contract labor where you guys focus is impacted? I know it's been actually fairly impacted already, coming off of COVID and having a kind of a multiyear white collar recession. But if unemployment rate spikes, if a recession occurs, how does that usually play out across your world of contract labor or contingent labor?

[Hayden Brown, President & Chief Executive Officer at Upwork]

Sure. So as you referenced, we have seen two years now of suppressed demand overall because of interest rates and inflation that have really been prompting customers to be more conservative spend, to hold off on certain types of work, etcetera. And that's obviously impacted not just our business, but the broader contingent staffing space overall, and we've done better than others. Now, if unemployment spikes, there's kind of puts and takes on that for us. On the one hand, depending on the conditions in the broader economy, like interest rates, we could see customers continue to be cautious or even more cautious with spend on our platform because they're being conservative and just holding off on deploying capital around labor.

[Hayden Brown, President & Chief Executive Officer at Upwork]

On the other hand, we've also seen in certain environments that are transitional or kind of suppressed from a broader macro, that some customers prefer spending more on contingent staffing because they don't want to commit to long term full time employees. And so it's likely that we see a mix of those things if the economy gets a lot worse. It's impossible to say right now what that mix would look like. But I do think it's a positive that even with the uncertainty that's really shown up over the past four months of this year, our platform is doing great. We are not seeing changes in spend other than some, you know, lighter top of funnel from the beginning of the year, but nothing new even in the last couple weeks since some of the April announcements from the government.

[Hayden Brown, President & Chief Executive Officer at Upwork]

So I think we're in a good spot based on everything we know now.

[Nat Schindler, Managing Director - Equity Research at Scotiabank]

Okay, thank you.

[Operator]

One moment for our next question. Our next question comes from Martin Fong with BTIG. Your line is open.

[Marvin Fong, Director at BTIG]

Great. Good evening. Thanks for taking my questions. Just to start. I think we've covered a lot of ground here, but on Ooma, you've cited numerous benefits and other specific examples.

[Marvin Fong, Director at BTIG]

I was just wondering at a higher level. Have you have you done any work trying to quantify how much benefit Ooma has had in terms of like GSV growth? Is there any sort of single number percentage impact that you could help us think through how much so far Ooma has benefited the company? And then the second question, just you know, I think you've said on the tariff question and the macro, I mean, that you've you have noticed top of funnel, some slight weakening, I think you characterized it as, but you also have said, you know, no impact from public sector, significant impact from tariffs. I just like to kind of square all those statements together.

[Marvin Fong, Director at BTIG]

I mean, what would you attribute like the slight weakness at top of the whole? That'd be great. Thanks.

[Hayden Brown, President & Chief Executive Officer at Upwork]

Marvin, on the Ooma side of things, some of those early indicators that I shared around, you know, increasing volume of proposals, lifts in hiring rates, incremental earnings, those are definitely translating into GSV gains. And that's something we have internally quantified and factored into our current guidance. And it's certainly a small contributor also to our Q1 overperformance on GSV. So we feel good about what that's doing. It's not just driving our funnel, but it is driving real spend behaviors.

[Hayden Brown, President & Chief Executive Officer at Upwork]

And that's also why we have confidence that as we continue executing our roadmap, this will be a contributor to GSV acceleration in 2026.

[Erica Gessert, Chief Financial Officer at Upwork]

And maybe just to clarify Marvin, the comments on the macro. Impact to top of funnel that I was describing is really a Q1 phenomenon. So it predates any announcements from the federal government. That's been, know, we saw a little bit of an uptick on some of those top of funnel demand metrics in q1, but it's been sort of an impact to our overall business. But to be clear, when when the tariffs came out in April, we saw no, no incremental impact.

[Marvin Fong, Director at BTIG]

Okay, That's very helpful. Thanks

[Marvin Fong, Director at BTIG]

so much.

[Operator]

And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Participants

Executives

• Samuel Meehan, VP - IR
• Hayden Brown, President & Chief Executive Officer
• Erica Gessert, Chief Financial Officer

Analysts

• Eric Sheridan, Analyst at Goldman Sachs
• Bernie Mcternan, Senior Research Analyst at Needham & Company
• Ron Josey, Analyst at Citigroup
• Andrew Boone, Managing Director at Citizens JMP
• Brad Erickson, Equity Analyst at RBC Capital Markets
• John Byun, Senior VP at Jefferies Financial Group
• Rohit Kulkarni, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Nat Schindler, Managing Director - Equity Research at Scotiabank
• Marvin Fong, Director at BTIG