Upwork Inc.

Good day and thank you for standing by. Welcome to the Upwork Q2 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during that session, you'll need to press star 1 1 on your phone. Please be advised that today's conference is being recorded And I would now like to hand the conference over to your speaker today, Mr. Evan Barbosa, VP of Investor Relations. Please go ahead, sir.

Thank you. Welcome to Upwork's discussion of the second quarter 2022 financial results. Leading the discussion today are Hayden Brown, Upwork's President and Chief Executive Officer, and Jeff McCombs, Upwork's Chief Financial Officer. Following management's prepared remarks, we 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. 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. In addition, any statements regarding the current and future impacts of Russia's invasion of Ukraine and our decision to suspend business operations in Russia and Belarus and the COVID-19 pandemic on our business and current and future impacts of actions we have taken in response to Russia's invasion of Ukraine and the COVID-19 pandemic are forward-looking statements related to matters that are beyond our control and changing rapidly. For discussion of the material risks and other important factors that could affect our actual results, please refer to the 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 shareholder letter. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, when filed. In addition, reference will be made to non-GAAP financial measures. Information regarding a reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our investor relations website at investors.upwork.com. As always, unless otherwise noted, reported figures are rounded and comparisons of the second quarter of 2022 are to the second quarter of 2021. All measures are GAAP unless cited as non-GAAP. Now I'll turn the call over to Hayden.

Thanks, Evan, and thank you all for joining us today for our second quarter 2022 earnings call. Building on the momentum of strong results of the first quarter, Upwork forged ahead on innovating, evangelizing, and scaling the world's work marketplace, growing revenue 26% year-over-year to $156.9 million in the second quarter. We continued to focus on product innovation and saw outstanding results in the form of higher customer satisfaction scores, faster time to hire, and strong client re-engagement rates from our latest innovative feature in the project catalog area called consultations. Consultations is a one-click option for clients to book time with talent for both general getting started advice and guidance on important project decisions. Its early success is leading us to expand the pilot from four categories to all 90 plus categories in the third quarter. Product enhancements in the quarter also included the introduction of project peers, which enables talent to structure their services in a way that helps clients more easily understand and match their needs to preset project scopes. Finally, we also advanced the virtual talent bench or VTB experience to enhance the ways clients can find, organize, and mobilize the expertise they need. Our continued success with larger customers and our focus on building brand awareness across the market was evident in our sales and marketing performance in the second quarter. Enterprise revenue increased 45% year over year to 12.3 million, and the number of clients that spent $1 million or more in the trailing 12 months increased significantly year over year. Our sales team achieved their deals per rep productivity targets, and we have maintained our hiring pace to stay on track to double the land team by the end of this year. We continue to focus on building Upwork into the household name in our space, investing with discipline and a focus on measurability in brand awareness. Many large recognizable companies such as Asurion, Fanatics, Newsweek, Payoneer, Pearson, and ServiceNow signed on as new enterprise plan customers in the second quarter, turning to Upwork as a high trust, high quality destination for remote work and specialized talent at scale in an increasingly low trust, fragmented, volatile world. We help clients like these respond to and prepare for economic headwinds, ensuring that organizations' growth, digital transformation, and talent innovation initiatives can progress undeterred. The success of our new client marketplace plan announced late in the first quarter was also on display with its implementation in the second quarter. This plan gives all self-service clients more features for a flat service fee while simplifying their experience, reducing friction, and providing them more value. Many clients have already derived additional benefits from the new plan via access to premium talent, advanced talent searches, utilization of activity codes, and more robust reporting capabilities. A vibrant, inclusive online community is a critical component of what makes Upwork distinctive. We are committed to ensuring our community has the full range of resources to enable talent and clients to innovate their careers and their work to unlock their full potential. In service of this, we launched Upwork Academy alongside improvements to our community to support the hundreds of thousands of actively earning talent on the platform. We've seen high levels of engagement on both Upwork Academy and community pages with over 1,200 course completions on Academy in the first month and community page views almost 50% higher than the previous month. Upwork's values are a key attraction point for our customers on both sides of our work marketplace. This is exemplified by our role as a trusted advisor in helping clients achieve their objectives with new talent from other regions following our decision to suspend operations in Russia and Belarus, where we announced that contracts with talent or clients in those countries would be required to wind down by May 1st, 2022. Since then, we've seen many global customers working with Russia and Belarus-based talent who have relocated outside of the region, as well as with alternative talent they have found through our work marketplace. With respect to business activity in Ukraine, we continue to see strong performance during the second quarter. GSV was above 90% of pre-invasion levels, once again demonstrating the resilience of professionals from Ukraine, as well as the key strengths of our platform. Overall, we estimate that the loss of revenue directly attributable to the war was approximately $4 million in the second quarter. and we expect the impact to revenue in each subsequent quarter of 2022 will be slightly less than the impact seen in the second quarter. As we look to the future, Upwork, alongside our customers, partners, and investors, faces macroeconomic conditions that are difficult to predict. While there are risks that a slowing economy puts downward pressure on some parts of our business, We also see this as a catalytic moment for leaders to reevaluate the old ways of working and operating, as well as to widen their consideration of more innovative solutions and for Upwork to capture a greater share of the market. Our business model remains durable, and we are confident that our value proposition of delivering highly skilled, diverse talent from over 180 countries more effectively, affordably, and quickly than alternatives as well as enabling clients to have greater flexibility with their cost structure, will continue to resonate even in a recessionary environment. The opportunity ahead of Upwork is massive, regardless of near-term economic conditions. In fact, business continuity, talent transformation, a flexible cost base, and cost savings will likely become even more critical in the quarters ahead. We remain focused on delivering enduring growth fueled by investments and initiatives with strong economics in every aspect of our business, from core product innovation to building our sales muscle to brand and performance marketing. Upwork is the leading digital platform that clients trust to deliver the talent they need with the exact skills to get work done and is the home that talent trusts to champion them in innovating their careers while bringing them exceptional work opportunities. There is vast potential to unlock on both sides of the world's work marketplace, and we've only just begun. Thank you for joining us on this journey. We will now open the call to your questions.