Upwork Inc.

Good day. Thank you for standing by. Welcome to Upwork's second quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Samuel Meehan, Vice President of Investillations. Please go ahead.

Thank you and welcome to Upwork's discussion of its second quarter 2025 financial results. Joining me today are Hayden Brown, Upwork's President and Chief Executive Officer, and Erica Gesser, 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 security laws. 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 may differ materially from expectations reflected in any forward-looking statement. 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 June 30, 2025 when filed. In addition, reference will be made to certain non-GAAP financial measures. information regarding non-GAAP financial measures, including reconciliation 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 of the second quarter of 2025 are to the second quarter of 2024. 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. Now, I'll turn the call over to Hayden.

Good afternoon, and welcome to Upwork's second quarter 2025 earnings call. Upwork delivered another record quarter on both the top and bottom lines. We generated our highest ever Q2 revenue of 194.9 million with our outperformance driven by AI enhancement of the platform, accelerated client hiring in AI-related work, ads and monetization strategies, and our thriving Business Plus offering. We also exceeded our guidance by generating net income of 32.7 million and adjusted EBITDA of 57.1 million resulting in a 16.8% profit margin and 29.3% adjusted EBITDA margin. Based on our performance in the first half of the year and positive momentum, we are raising our full year guidance for both revenue and adjusted EBITDA. Our strong results and increased guidance underscores the success of our AI and M&A strategies in attracting and converting larger clients in the marketplace. This increase is driven in part by a more than $80 million in-year lift in GSV attributable to our AI and customer experience enhancements. Our innovation velocity was on display in our summer 2025 Upwork updates announced on July 23rd. This product release was rooted in our unique ability to combine the world's best human talent with cutting edge AI to deliver unparalleled outcomes and pioneering customer experiences We are seeing the fruits of evolving UMA, Upwork's mindful AI, into a more fully capable, always-on AI work agent. Clients can now leverage UMA to interview talent on their behalf and find the right fit, saving them time on manual reviews. This capability also helps freelancers find work faster, interviewing on their own time, and showcasing their skills more effectively than a cover letter can. New UMA-powered Upwork video meetings generate transcripts, summaries, and action items, which enhance collaboration, propose project milestones, and turn meetings into real progress. We completed the integration of Objective AI's AI-native search technology and released several core search and recommendation enhancements, including contextually aware UMA-powered search. These drove a 4% lift in average spend per contract and 3% increase in Connects revenue compared to our prior feature set. Finally, a reimagined AI-driven job posting experience provides tailored, actionable tips to clients based on our differentiated trove of work interaction data. And on the talent side, UMA proposal writer enhancements led to a 58% increase in freelancers utilizing UMA to submit a bid compared to the previous product experience. Our strategy to rapidly grow AI work across categories is also working. as GSV from AI-related work accelerated to 30% year-over-year growth from 25% in the first quarter. Businesses are coming to Upwork to access our pool of 250,000 AI experts offering more than 365 unique AI skills. This work spans everything from model tuning and generative design to LLM integration and prompt engineering. For example, one of the largest multinational CPG companies is tapping into AI developer talent on Upwork to build AI-powered, interactive, personalized ordering systems and to redesign the user experience for some of the world's most recognizable brands. The number of clients posting AI jobs grew 38% year over year, a positive future GSD signal as clients engaging in AI work spend more than three times as much as the average client on the platform. GSV from prompt engineering grew 51% year-over-year in Q2. And categories that not long ago seemed ripe for AI substitution, like accounting and bookkeeping, video and animation, and contract law, are actually being augmented and accelerated by AI tools, leading to category growth due to demand for human creativity and judgment. While we continue to see the simplest tasks and smallest projects substituted by AI in some categories, like writing and translation. Our GSV is now outperforming expectations. We expect AI augmentation to continue across many categories on our platform, supporting growth of GSV per active client. With accelerating momentum in AI work and much higher average spend, AI is an important growth multiplier for us. In our marketplace, Business+, our premium plan for teams and larger SMB clients, continues to exceed our goals in attracting and expanding share of wallet with larger customers. Active Business Plus clients increased 45% quarter over quarter, while GSV from those clients surged 190% quarter over quarter. Importantly, Business Plus appeals to both existing customers as well as new prospects. 35% of Business Plus clients in Q2 were brand new to Upwork. Business Plus' success is a key beachhead for our strategy to serve larger businesses in our marketplace with a differentiated and tailored value proposition. Ads and monetization offerings were a strong contributor in the quarter, as revenue from these products grew 17% year-over-year, including 19% year-over-year growth in Connects revenue and 13% year-over-year growth in Freelancer Plus subscription revenue. These products empower freelancers to improve their visibility and increase the yield on their efforts while also expanding our take rate. In the second quarter, we made huge strides on our strategy to expand our share of Wallet with large enterprise customers, which is a transformational opportunity. Today, we are announcing two acquisitions by our new wholly owned Upwork Enterprise subsidiary. These acquisitions complete our feature set in enterprise and together with our existing capabilities, enable us to offer a unique, highly differentiated solution. We've always been the best-in-class provider of independent contractor talent and management for enterprises. To tap into the remainder of our clients' contingent work spend, spanning employer of record, staff augmentation, statement of work, and other contract types, we historically relied on EOR partners and workarounds to deploy our IC talent management solution for other contract types. While this approach enabled us to support a variety of programs for our clients, our reliance on partners and lack of a more versatile and deeply integrated workforce management solution limited our ability to deploy our tremendous talent pool against the full range of opportunities enterprise customers approached us with. We therefore made the decision to bring these critical capabilities in-house, doing so positions Upwork with a single digitally native contract agnostic and global solution that holistically supports contingent work program needs. This is why I am so excited to share the update on our M&A progress today. In Q2, our wholly owned subsidiary acquired Bubty, a contingent workforce management platform built to support large enterprises. Our enterprise subsidiary has also signed a definitive agreement to acquire Ascend, a digitally native employment solution for contingent W-2 work. We expect that transaction to close in the second half of this year. This combination of assets completes our enterprise offering, bringing talent sourcing, contracting, and workforce management in a unified experience, purpose-built for large companies and every type of contingent work. This is a powerful combination. It accelerates our ability to capture a greater share of the $650 billion contingent workforce TAM, and we expect it to begin driving meaningful GSV and revenue growth starting in late 2026. Underpinning all of this are rapidly expanding AI workflows across our company. Our focused and disciplined efforts to reinvent our processes with AI are increasing our internal efficiency, and therefore margin profile, while allowing our teams to spend their time wisely on the highest impact work. Over 35% of our deployed code is now AI generated. And in our search team, fine-tuned LLM evaluations of match quality have reduced our model iteration time and cost by over 70%. This is how we are now able to deliver faster, higher quality product releases. Q2 was a standout quarter. Our three-pronged strategy centered on AI, ads and monetization, and enterprise is exceeding our expectations and bolsters our confidence in a GSV growth outlook for 2026. Today, our platform is more powerful, our customers are more engaged, our team is more effective, and our opportunity is bigger than ever. I'd like to thank our incredible team for their talent and dedication, and our customers for their trust and partnership. With that, I'll turn it over to Erica.