Hello, everyone. Oh, I'm sorry, I'm standing just to start it. Oh, stand the whole thing. We do. Hi, everyone. I'm Nat Schindler, internet analyst here, obviously, and I've got Hayden and Erica from Upwork. These are pretty short, 30 minutes, so we're gonna go pretty quick. If you don't know what Upwork does, read the 10-K before you come in here. Okay, let's just jump right into it. The overarching topic that is affecting everybody in my space right now, and clearly has been affecting you, and don't blame me for our specialty sales list of disrupted companies, AI. Let's talk about this a little bit. I think the bare case is pretty simple, that people believe that AI will replace some of the work that freelancers do on your platform, and so there'd be less need for freelancers in the general. How do you respond to that? Yeah, let's start with that. you know, I saw an ad recently that said, "AI won't take your job, but someone working with AI will," and I think that sums up our view of the opportunity for Upwork. Freelancers are already using AI in every single category we serve. It's making them better, faster, cheaper at what they do, and we know from the laws of supply and demand that people buy more, not less, of what is better, faster, cheaper for them. Our view is that this is a huge opportunity, both in terms of creating net new jobs. We see this already. Last, in the last three months, we saw a 1,000% increase in jobs in AI-related categories on our site. We also saw a 1,300% increase in searches for AI-related work on our site. We're seeing an explosive demand for people with the skills to serve this burgeoning ecosystem of work, and we're also seeing that workers are adopting these tools to make their own work product better and more competitive in the ecosystem. I think there's a huge tailwind for workers who. We already know that freelancers are the fastest to upskill, reskill, and adopt the best tools in their space. They do this a lot faster than captive in-house employees because they have to. It's what puts, you know, food on their table. This is gonna make them even more competitive, you know, relative to staffing firms, relative to in-house workers. The fact that freelancers are and will continue to be the best at doing the types of work they do, and the most competitive in the ecosystem, I think is gonna give them an even further advantage relative to alternatives in the spaces that they serve. This is a huge, I think, opportunity for freelancers in general, and freelancers on our platform in particular, that we're really looking to fuel. Okay, that makes a lot of sense. I've always had a comment that freelancers are the most adaptive people in the economy. They're the fastest to do anything new. If they've been replaceable with AI, do you really think any of you have a job still? Sorry. Totally. I mean, and to that, to that point, Nat, I mean, we were talking to some talent, you know, Erica and I. Yeah ... even just in the last two weeks, seeing them, how quickly they are adapting this into all of the categories on our platform. You know, I was talking to someone, Jackie, who's doing consulting services, helping businesses figure out how to use AI across the work that they, you know, do in their businesses, and then she's actually turning around and helping them adopt the technologies. We talked to this guy, Marcus, who does content development. He's using ChatGPT to do rebranding work for talent for his clients, and then he's actually turning around and helping them figure out what prompts they can be using to do that work themselves. Again, we're seeing this in every category. The talent is so sharp in terms of figuring out how to apply this to their work and turning that into new business opportunities. Let's go, just go a little deeper on that. When you talked about the 1,000% increase in AI-related searches, Can you talk more about the types of work that these people are doing that are AI, that first, that the businesses are searching for people to help them with AI? What do they want? Talk about how the freelancers, as you just mentioned, there are some examples of how the freelancers are actually using AI. Sure. I mean, the work itself is everything from data engineering, data labeling, machine learning. There's a lot of different categories of work that actually is required to deliver the models that we're all seeing and using and playing with every day to the market. Y ou know, these models actually don't build themselves, so there's a lot of that work that's happening. There's the fact that people are using these products and getting results that they actually need to be checked by humans or tuned by humans, and so there's that category as well. There's the fact that a lot of companies are trying to figure out, how do we integrate these models, these large language models, these chat models, into our own products and solutions for our customers? How do we find the talent that can actually go in and do that integration work themselves? Those are just some examples of where talent is needed to apply the technology, to build the technology, to integrate the technology into the products and services that a lot of us are either using already or will be using soon, and that's where I think a lot of clients are coming to Upwork to look for the talent across all of those workflows. Okay. We can just put AI to bed then. Let's move on. I'm tired of talking about it. This last quarter, you definitely saw, and for your guidance for the year, you've seen some further macro weakness, and it's kinda changed your strategy of this. Can you go a little more detail into what the macro weakness you saw here, and how it contrasted from what people were seeing and what you were seeing over the last year, and how you see this playing out for the rest of the year? Sure. The macro weakness we saw showed up a little bit differently in the two parts of the business that we serve. We have our enterprise business, and we have the SMB business that largely is kind of using our self-service marketplace product. The slowdown we saw was most noticeable in the enterprise business. This was more than 50% responsible for the takedown in our guidance. This was disproportionately impactful for our outlook for the rest of the year. That was really because we saw larger enterprises that we serve, both in our existing portfolio and those that we would be bringing in from a net new deals standpoint, both slowing down their deal flow with us, just because they themselves were saying, "Look, we don't even have the decision authority to sign new deals, or our budget caps have come down in this environment. We're on pause in terms of what we can do because we are experiencing layoffs, budget freezes, things like that in their own decision-making processes. We saw a number of our customers, who themselves were doing those types of, were experiencing those economic headwinds, were doing layoffs, were doing budget management across their entire business, not just what related to Upwork, saying, "You know, we thought we would be stepping up our spend this year. In fact, we're gonna be holding it steady or even decreasing it, because we're taking these cost management initiatives across the business. In the enterprise space, we saw a pretty severe change in Q1 versus what we would have normally seen if the macro environment isn't what it is, and what we would normally see in a, in a year that wasn't impacted in that way. In the SMB side of the business, we've actually seen a lot of resiliency despite the macro. The number of clients continues to grow in that space, the hours per contract continues to grow in that space, but we have seen a little bit of softness in terms of what would ordinarily be the rate increases, in terms of the hourly wages growing year-over-year with the talent. That has been somewhat headwinded in this environment, where wage growth has been slower on our platform than it ordinarily is, because of both customers saying, "You know what? We're constraining our budgets more, so we're not increasing the amount that we're spending on a per-hour basis with talent the way we normally do." I think generally, we've also seen so much influx of talent on our platform. Prices are very competitive, and so that's a good thing for clients who are getting a good deal, but that means that the annual increase in per-hour rates that we normally see on the platform has been slower this year than what we've seen in the past. The SMBs reacted earlier. You saw that last year. How have you seen that play out historically? Also, can you just remind everybody what the percentage of your business, roughly, that's SMB versus enterprise? Yeah. It's more than 80/20, about. Yeah. Yeah, the SMB is the vast majority of the business. Right. Enterprise is a minority of the business right now. 50%, more than 50% coming. From enterprise. ... the 20% is a big hit. It's a big hit. That's right. Our expectations for that side of the business were for significant growth this year. It is still gonna be a growing part of the business, but a lot less than what we had previously expected because of these impacts on the macro side. Okay. I think we did, we didn't go over the. Last ... to the SMBs, and how they responded last year, and how they have kind of adjusted to the slow walk to recession. We did see some of the macro headwinds in the SMB side of the business, was just some slowed growth, starting in the back half of last year and continuing through this year. I wouldn't say those patterns changed noticeably, but what we did see, in terms of a little bit more softness in Q1 than we had baked into the forecast, was more around that hours per contract growth, which slowed down relative to our expectations of what we would see in a non-macro-impacted year. That was probably the biggest delta there. We also saw more of a lower spend on the SMB side, actually, in our larger SMB customers, which is consistent with the idea that it's the larger customers, who are doing more of the budget management right now. The smaller customers are continuing more the way they used to, but our larger SMB customers are the ones who are being a little bit more cautious in this environment. Okay, that's interesting. Now, as you go towards the enterprise guys that are really been the change in your business, has there been a change in your ability to land, or is it adjusted ability for these businesses to kind of increase, spend, or begin new, you know, kind of changes that are happening? You know, we've seen impact on both sides. That led to one of our major decisions, which was to reduce the size of our enterprise sales team this year, to rightsize that team with what we're seeing in terms of the activity metrics on both land and expand. We did see impacts on both. Given the way our model works, and how in-year revenue is mostly driven by existing customers continuing to spend or expanding their spend with us, I would say, the, a change in outlook in terms of our expectations of our existing customers expanding their spend the way we would expect in a non-macro-impacted year, is probably what impacted us more in terms of the guidance numbers that we reduced for this year. have you seen- Do you want to jump on that? I was just gonna add a couple of things. The revenue impact was coming from sort of the expand piece of it, and the fact that just. Like, I, myself came from a large enterprise company before coming to Upwork. You know, all company budgets are kind of being curtailed right now. People are firing, not hiring, right? Mm-hmm. You know, the first thing that goes when enterprises cut their budgets, is vendor spend, you know, and then, you know, FTEs. There's this swing right now that's kind of going back, and so that actually hits both the land and the expand on the enterprise side, right? Because these budgets are either getting cut or they're getting you know, like curtailed a bit. That's what we saw. I think that the decision to reduce the sales team, by Upwork was really an observation of some of these trends, and I think was actually very prudent. On the enterprise side, do you have any industry concentrations that are seeing... for example, being around here, technology-oriented, where you're seeing more, you know, layoffs, while the overall economy is actually seeing really robust hiring? Yeah, we did see more impact from our tech companies. That's true. I mean, we do... We're you know, we're not overly indexed just on that one sector, but that is an area where we do have a lot of our corporate customers, and they were more impacted right now, that definitely did flow through to some of our economics. Yeah, I think on the enterprise side, it's sort of across the board, you know. It is. ... Yeah. I mean, there are sort of CPG, other industries where we're seeing kind of budgets getting just cut or just more caution, right? With money being more expensive and the companies focusing on profitability in general. Do you think customers that are just delaying projects, are they just gonna say, "I'm not gonna do this new, you know, build out of the new piece, you know, internal piece of software that we need to use for something, so I don't need to hire that contract developer? Yeah. they're start anything? I mean, you know, Hayden also has, you know, a lot of conversations with customers. I mean, the reality is, right, when companies are in this kind of, you know, pendulum swing that they're in right now, what they're doing is they're pausing work, right? The demand for work is not going away. Companies are just reducing their FTEs, or they're reducing their vendor spend. They're pausing the work that they wanna get done later. You know, when the pendulum starts to swing back, actually, it's a very good time for a company like Upwork. Companies don't have the FTEs in-house. They may not wanna hire them again, right? Right away, but they have work to do that they want to get done, and that's a great time for us to come in. I think related to that, we did talk last quarter about in our, like, previous quarter, about these different phases of decision-making that we see clients going through. We definitely are talking to a lot of customers who've been slashing budgets first and asking questions later, about how they actually meet the demands of the organization around getting the work done. It's, you know, they're under intense pressure to meet certain numbers, to just put things on pause, and then scrambling on the other side to be like, "Okay, I hit my budget goal, but now what? You know, I have to do 100 things with 60% of the budget. Let me figure out which things are actually gonna get done and get cut." It's been. I think, what we're seeing in the environment is a, it's a lot of, like, cut first, ask questions later, and figure out, you know, how to, how to meet the ends there. They're, they're coming back to figure out, okay, like, I was talking to a customer in New York last week. They know their existing model does not work to deliver the amount of things they have to do. They cannot do it through their traditional in-house employee team. They have to use Upwork to get a lot of that work done. They've, you know, addressed their budget needs. They're figuring out, "Okay, how do I retool? What do I do next? How do I do this?" It's like a multi-phased process, where, you know, companies have just been kind of, like, going through the pain of that and coming through out the other side to figure out answers next. It's not... You know, they're not done yet. They're kind of figuring out, "We did the budget thing, now we've got to retool the work," and they'll be coming back to us to figure out how to do that in the future. Okay, that makes sense. Of these, new, with newer cohorts, are you seeing any change? Are they completely On the enterprise side, where you have contractor relationships, are they truly churning out and just saying, "No, we're not working with you, for now," or are they just dialing back? No. Actually, a lot of them are not churning out at all. Some of them are just downgrading to our marketplace plan, which is less expensive. Okay. That is one path for many customers. Some of them are just putting things on pause and saying, "Look, let's come back in a month or quarter, you know, when we have better visibility into our budget and when we've worked through, you know, some of these cost containment measures." There's definitely a variety of paths. We are hearing loud and clear from so many customers that even if they have to put things on hold now, they know the strategic value, and they will be coming back through one of these avenues in the future. A lot of the time, you know, one thing Erica and I have talked about is, when we talk about churn, it's often, just churn in dollars. Dollars ... not actually customer churn that we see. Yeah. We see people bringing down their spend, but it's not that they're leaving the platform altogether. It's just that they're reducing that activity in some way. Yeah, it's just the average contract size coming down, rather than. Okay ... customers actually churning out. They're not going back to Manpower, They're just using less. Okay, that makes perfect sense. That's right. Contrary to this or some sort of contradictory to this macro impact on investment, you also raised prices, or at least simplified prices, that in a, in a way that's higher. Isn't that contradictory? How are customers reacting to that change in price? Well, we lowered prices. We actually lowered prices. Our headline fee for talent went from 20% to 10%, which is a big deal. That's a 50% reduction in fees for talent, and that's a big deal because previously, talent were seeing a 20-10-5 fee structure, and that 20% that we previously charged on the first $500 of a new relationship, meant that talent were pricing in that 20% for the full duration of a relationship, and that's a big deal. If a talent was expecting to pay that 20% forever, that was baked into their fee, and that was potentially dampening client demand because they were seeing that full- Yeah ... 20% price in there. We reduced that headline fee to 10% flat for the lifetime of the relationship, meaning that now talent can price in not an expectation of 20%, but of 10%. That brings down overall pricing on the platform completely, and that has the opportunity to unlock demand in terms of clients posting more projects, because Upwork just got a better deal for them, and hiring more because they'll see, you know, more of that, better value from Upwork talent and bringing more work as a result. That is really one of the key things about the better pricing structure that we just aligned to. On the back end, we do monetize more for longer-term relationships, because that 5% fee we used to have for 10,000 and above relationships now went up to 10%. We've really just restructured the pricing to give talent a better deal at the front, clients more opportunity to experience value from Upwork talent and from the platform, and then we capture more value at the back end, in a different way than at the front end. Overall, across the normal practice of your business, unless everybody changes how they use talent, your average take rate goes up over time? Our take rate does go up because our platform does deliver long-term, high-value relationships for, you know, clients and talent. Right. That is the heart of what we do. Regardless of how the talent priced it, you know, 20%, we only took 20% on the first $500, right? Yeah. Yeah. We do think this is in the interest of the platform long term, in terms of stimulating more of those long-term relationships actually starting and maturing, rather than people being deterred from doing that because they felt like, you know, it was a higher, more expensive, you know, product at the, at the outset. Well, the reason you had the low price on the long-term project was eventually, they become very used to working with that person. They've already found the person through you, now they theoretically could gray market you, could go around you at some way, if they're talking about month-long projects. Does that change anything in going from 5 to 10 on the long term? Nat, it turns out we add a lot of value through the entire relationship, and they don't need to leave us. Okay. You know, we have a lot of good data on this from when we had a flat fee structure pre-2016. We feel really confident with how we add value through the entire duration of the relationship, and this is a really a win for both talents, clients, and Upwork. Turning it over to somewhat related to what you said about pricing, how the talent prices on your platform. How have inflationary pressures, as well as macro pressures, so less demand for long-term work from some of your clients, but at the same time, inflationary pressures, how has that affected how talent is pricing on the platform? As we mentioned earlier, we actually have not seen. You know, normally, what we see is every year, talent prices increase by kind of a steady amount on the platform in aggregate. You can imagine that's driven by a bunch of things. You know, we have over 110 categories of work on the platform. We have geographical dispersion across, you know, 180 countries. There's a lot of factors that go into what the kind of average hourly rate across the entire platform is. Generally, we do see a step-up every year. We haven't seen that same step-up this year at the same rate that we have seen in previous years. Our belief is that's because of two things. One is the macro environment is putting more pressure on pricing from a client, kind of what they're willing to spend out of pocket. As we mentioned earlier, we are seeing clients still actually spend more in terms of number of hours per project, so they're increasing the amount of work getting done, but they're putting more pressure on hourly rates. We've also seen, since COVID, an explosive amount of talent on the platform. Both new people coming in and signing up, and our existing talent reengaging and wanting to do more work on our platform. That's creating a lot of competition for work that also is probably headwinding rates, again, in certain places, not across the board. You know, you can imagine there's pockets of places where hourly rates are going up, other places where they're more stable. In aggregate, that's where we're not seeing that step up right now, at dynamics specifically, that are driving what's going on with the platform. Yeah. The increase of supply in the platform, you saw it with COVID, obviously, more people at home. As businesses have pushed work from, the return to office, has that increased demand, has that pushed some people into freelance work and into your platform, or people not wanting to remain permanently virtual? I think there's a massive secular trend here that is really not impacted by the return to office policies. I mean, we saw people running towards this way before COVID, we've seen it explode with COVID, as people have gone back into the office. We have tons of clients who are in office still engaging with remote teams of freelancers, and it doesn't really matter. I think certainly everyone discovered during the pandemic that they loved flexibility, freedom, not commuting, you know, all those things, and that made online freelancing even more attractive. You know, on the margin, for sure, I think more people are thinking about working this way. We've got, you know, close to 60 million Americans working as freelancers already. I think these work policies, you know, they don't really impact whether people are working... either willing to work with freelancers or working on our platform. There's just, like, such a massive trend here that's happening, that we're riding. Makes sense. Speaking of riding that massive trend, previously, you were pushing, as we came out of COVID, you pushed a big brand, awareness campaign because the idea was, look, the world has learned that you can work remotely, so why won't we- Yeah Lean into this. Yeah ... and advertise and show people that we can help them have remote talent at a better price. Recently, you pulled on that brand campaign. Walk us through the decision and what are going to be the impacts? The genesis of the brand campaign was the insight that awareness is one of the biggest things, the biggest gaps that we need to close in the market. You know, we have an amazing offering. It's better, faster, and cheaper than any traditional alternative for hiring, getting work done. It's hugely transformative for the businesses we serve. Most of the clients that we should be working with don't even know this category exists, don't even know that Upwork exists. Yeah. The insight was, if we can move from our single-digit awareness that we have had to double digit, you know, that could be explosive growth for the business. What we're seeing in this environment is our confidence and our ability to translate a brand awareness investment into clients spending money on our platform in a meaningful timeframe that we feel really good about with that investment, is just lower. We've talked a bit about what enterprise customers are doing. You know, Erica talked about they're curtailing spend. They're just thinking about the bottom line right now and driving, you know, efficacy in the short term. Us investing in awareness right now in this moment, feels less productive and less justifiable than in a different type of a macro environment. We still believe in the awareness goal. We think that's a big one for Upwork, and we are pursuing that through some other channels. We will probably revisit this question of brand in the future, and, you know, TBD what we decide to do there. At this moment, in this environment, it doesn't feel that we can have that line of sight to the ROI on that investment the way we would want to be comfortable continuing to invest at the level we were investing previously. Yeah, the awareness investment was effective. It was very effective, actually. Totally. The awareness grew 40% with the brand investment. It's just that the confidence that it would convert to revenue just you know, wasn't high enough. It's something that I actually think we need. You know, the awareness issue for Upwork continues to be one. It's something that we can continue to invest in in the future when the time is right. ...Obviously, the other side of this, kind of pulling back on that and going for profitability right now, your margins are gonna go up pretty dramatically. Assume we have this recession in the back half, because everybody keeps saying we will, and 2024, we go back to a more normal environment. Do you lean in again and go back to, have margins go backwards again, or is the new level of margins gonna be kind of a baseline? I think, yeah, I'll talk to it. You know, look, we're very focused on profitable growth. I think that's gonna be an ongoing theme for us. It's not gonna end in 2023. I think this... You know, You know, that said, look, I mean, first and foremost, you know, we are cutting back on brand spend, we've reduced the ranks of our enterprise sales force right now to get to the most productive. That said, we're still investing very handily in R&D and other areas of the business, and able to produce profitable growth. We're investing in growth. We're gonna continue to grow, and as we enter 2024 and beyond, we're gonna absolutely revisit brand spend. I don't think we're gonna walk away from profitability. Will you walk back profitability, or does it? I don't know yet, Nat Schindler. We'll see. She just got here a few weeks ago. Give her a minute. I did start on. We'll hold the line. I mean, we've always known this business can be very profitable and a high-growth business. Yeah Our eyes are on that prize. You know, we want-. Right We know this business can do both, and so we're gonna focus on delivering that. I mean, the TAM for this business is too big to, you know, to only focus on margin, on bottom line margin growth. We think we can do both. I'm certainly confident we can. There's certainly ongoing leverage we can gain in the business, and we can take some of that and reinvest in the areas for growth. Okay, these presentations are quick. We're at three minutes left. I really wanna go to anyone in the audience, if you guys wanna jump in here with any questions. Okay, Anyone wanna jump in? Comprehensive. We answered all of them. Sorry, we were trying to go pretty quick. Going back to the margin question, realistically, you had reasonably high margins earlier. You went to a more aggressive growth stance. Where do you think this business... You talked about the TAM for this business. This is large, and you can take more and more share in this, so it's a question of growth to margin. Where is kind of your Rule of 40, if you wanna call it that, where do you see that settling in a normal economy? I think the, you know, the Rule of 40 rule, if you will, is probably sort of a good target for us. I'm not gonna make a call right now on which year we're gonna hit it. I think it's a very sensible target for a business like this one. Yeah, I'm still working on our long-term plan. I'm gonna give it a couple of months. Yeah, we, I mean, we have incredible assets, you know, given our market position. Like, the leader in our space, you know, the customer base that we have, the data asset that we have, which, by the way, you know, we didn't talk about the opportunities that we ourselves are leveraging from a GenAI perspective, like in our product, in our go-to market, et cetera. There's just a lot we're gonna be unleashing here that I think is really exciting. Yeah ... as we keep, you know, leading our market position forward here. I think with all of that, you know, this has been a tough economy, and to your point, you know, if BofA and others are saying it's gonna be a recession in the back half of the year, we'll see where that takes us. We're really playing offense going, you know, into the next couple of quarters, positioning the business so that even as enterprise customers and others are ready to spend again, you know, we'll be ready to partner with them to do that on Upwork. internal GenAI, No giant spending on NVIDIA chips? We- Sorry. We've got a great platform of talent that we can actually use to develop any AI tools that we. We do. Yes, but please use others' tools. You don't need to make your own large language model. Don't. Sorry. Okay, well, anyone can jump... I'm at one minute. Anyone? Come on. Okay, Stuart. I'll ask a question. The sector is so fragmented, right? There's many private companies, a lot of funding in the last couple of years, probably because you've been so successful, right? You know, you're kind of a, the leader in the space. How do you think about strategic growth, you know, over the next couple of years, kind of given your leadership and scale versus a lot of the fragmentation in point solutions? I mean, I think we have a huge advantage, in terms of our ability to execute on the work marketplace strategy that we've been building, because we aren't just a point solution for, you know, one type of freelance work. We recently launched our full-time offering, which lets people graduate, you know, freelance relationships into full-time offerings. We have the enterprise suite, so people can grow either from small businesses to large, or start self-service and then move into more programmatic work. We really have this full suite of offerings, which enables us to box out competitors who are either just offering point solutions or single category solutions versus us as a horizontal provider. That lets us do a lot of things with our marketing and share of wallet, you know, growth strategies. That's really a virtuous flywheel for us. I think all of that has been already a huge advantage that we'll continue to leverage. In a world of GenAI, the data asset we have is tremendous. The talent scale asset we have is tremendous, as we talked about at the top of the meeting. There's, I think, a lot more that we will be putting to work to really continue to push forward, you know, ahead of others in this space, which is very exciting. I think he wants to know if you want- Yeah, partner, buy. ... to buy any of these small guys. That's a good... Yeah, good question. It's also the It's also the option. Yeah. I mean, yeah, I don't think. The good news is I don't think we need to do any acquisitions to execute. Yeah on our strategy. I think, you know, we always opportunistically look at what's going on in the market, but I don't think it's critical. Yeah, I would say we get a lot of outreach. You know, at this point, we also have a lot of partnership opportunities, and so I think we're gonna, you know, we'll certainly consider stuff, but, you know, for some of these very, very small, kind of low growth point solutions, it just may not be the right thing for us. Great! We are past time. God, it's quick. It's very fast. Thanks, Nat. Thanks. Bye.