Ladies and gentlemen, thank you for standing by, and welcome to the Upwork Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like
to hand the conference over to your speaker today, Denise Garcia, Investor Relations. Thank you. Please go ahead, ma'am.
Thank you. Welcome to Upwork's discussion of its Q4 and full year 2020 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 the COVID-nineteen pandemic on our business and current and future impacts of actions we have taken in response to the COVID-nineteen pandemic are forward looking statements and related to matters that are beyond our control and changing rapidly. 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 press release.
Additional information will also be set forth in our annual report on Form 10 ks for the year ended December 31, 2020, when filed. In addition, reference will be made to non GAAP financial measures. Information regarding reconciliation of non GAAP to GAAP measures can be found in the press release that was issued this afternoon on our Investor Relations website at investors. Upwork.com. As always, reported figures are rounded unless otherwise noted.
Comparisons of the Q4 of 2020 or to the Q4 of 2019 and comparisons for the full year 2020 are to the full year 2019. All measures are GAAP unless cited as non GAAP. The prepared remarks corresponding to the information reviewed on today's conference call will also be available on our Investor Relations website shortly after the call has concluded. Now, I'll turn the call over to Hayden.
Thanks, Denise, and thank you all for joining today. I'm pleased to report that 4th quarter revenue grew 32% year over year to reach $106,000,000 and 4th quarter gross services volume grew 33% year over year to reach 728,000,000 This is our best year over year growth performance since going public and was driven by our aggressive execution during the pandemic to enable our customers with a better way to work. I applaud our team for greatly expanding our operating capabilities to serve our customers today, while simultaneously building towards the future we envision, our reordering of the world of work with independent talent at the heart of every business. COVID has forced a mass experiment of remote work across the business landscape, proving what we always knew. Old models of work were in need of and capable of change.
People can be just as if not more productive when not in an office. Nearly a year into the pandemic, we see that remote work is actually getting easier, as shown in our recently published Economist Report, Future Workforce. But to focus solely on remote work would be to overlook something much more important. While most see 2020 as the year when people figured out how to work remotely, We see a much bigger trend emerging. There is a new openness across the spectrum of our clients to rethink not just where work happens, but to rethink who does the work and how it gets done.
They realize that much of their critical work needs a more flexible, Dynamic, skilled and efficient solution, it needs to be done by independent talent. And this is where the real power of Upwork's work marketplace is unleashed. Companies that truly want to work with the best people for the job at hand are realizing that many of the best professionals today are now freelancers. This is an undeniable new reality In an age where in the U. S.
Alone more than 50% of Gen Z college grads and 59,000,000 Americans are now freelancers. So many more companies are awakening to this truth. Small businesses to large enterprises are bringing independent talent on to do more work ever closer to the core of their companies. We see that the work landscape has shifted and we believe this has increased our total addressable market opportunity to more than $1,000,000,000,000 With this incredible potential still ahead of us, It's evident that the step change comfort that companies gained with remote work last year was only the first step on the path towards this exciting horizon. As we step into this new era of work, we see the work world rapidly evolving.
The biases and barriers between full time employees Independent talent are dissolving quickly as their contributions are being equally valued and increasingly sought after at every level of the organization. We see everyone benefiting in this new way of working. Full time employees gain access to much needed partners who can traverse the increasingly fluid walls of their companies. Freelancers are able to contribute critical skills and expertise, while continuing to work on their own terms. And companies benefit from harnessing the power of a global, of agility and speed in an ever changing environment.
We know what it takes to unlock the market opportunity ahead of us. It takes more than being a gig company, a talent network or a vertically integrated single category provider. To unlock the tremendous potential ahead requires being the work marketplace for the world. For clients, This means serving them with the multiple ways that they want to find and build their virtual talent bench, Whether that is posting jobs in our talent marketplace, one click models like project catalog, Complex project and team collaboration offerings like our agency solution, recruiting services such as TalentScout where our specialized recruiters pinpoint pre vetted talent that aligns with our clients' goals or our range our full range of enterprise solutions. For independent talent, being the work marketplace means serving them with high quality clients and varied earning opportunities that they seek.
The control to dial up or down the pipeline of work they want as they build their freelance careers a suite of offerings to support their businesses and the tools to nurture trusted client relationships for the long term. We know from experience that the ability to build trusted long term relationships on our platform makes the work being done on our work marketplace further differentiated from what happens in other parts of the freelance economy. It is the unique characteristics of freelancing on Upwork that enables companies to change their entire operating models to rely on the independent talent on our platform and to completely reconsider not just with whom they work, but also how they get core work done, gaining incredible agility, productivity and efficiency in the process. When businesses and talent fully embrace the power that they gain from this reimagining of what's possible, we see that they have tapped into the full potential of our work marketplace. Our singular focus this year is bringing this Transformational awareness to the market in a bigger way, while continuing to enhance and innovate our platform as we bolster our position as not just the market leader, but the only company offering these unique capabilities.
This is our 2021 strategy. We are innovating, scaling and evangelizing the work marketplace for the world. With that perspective, let's step back and take a look at our 4th quarter performance focusing on the key drivers of our growth, namely new client acquisition, client retention, product and sales. I'll start with new client acquisition. We started the year with an aggressive plan for growth in SEO, SEM, mobile and international and we executed strongly against that plan, adding a record number of new clients at attractive acquisition costs.
We acquired new clients at a faster clip and with greater efficiencies during the Q4 than in any of the previous quarters since becoming a public company. The efficiencies and success of Programs we have been building with discipline throughout the year were evident. For example, new clients from SEM grew 86% year over year in Q4 and 50% for the year as a whole. Our laser focus in 2020 on tuning our marketing programs around lifetime value was also apparent as the new clients we acquired in Q4 spent over 10% more per client than new clients in the same quarter of the previous year. We saw our best quarter of growth in both international and mobile client acquisition with further runway ahead.
In 2021, we will increase our SEM spend given these strong signals in order to drive additional We were pleased with an acceleration to 102% in the 4th quarter as our core clients increased by more than 6,400, 64% more than the increase in Q4 2019. GSV from clients acquired before Q4 was up 30% and GSP from clients acquired before 2020 was up 27% as existing and new clients deepened their usage of to build, operate and grow their companies. I'd like to now talk about some of our 4th quarter product developments, which are being led by our new Chief Product and Experience Officer, Sam Bright, who joined us from eBay in November. Last quarter, we announced Project Catalog, a brand new way to use Upwork. We launched Project Catalog a Full month earlier than planned across 300 marketplace categories.
The customer response has been positive. Project Catalog allows Role based work with smaller, well defined projects and serves as a strong discovery engine for the rest of the platform. We see Project Catalog as an ideal complement to our other offerings, together broadening the spectrum of pathways to get work done in our work marketplace. In the quarter, we expanded our direct contracts offering for freelancers to enable them to invoice and bill their clients for hourly work in addition to using our escrow protections for fixed price jobs. While this offering is still nascent, we see freelancers continue to grow the portfolio of clients and work they are billing through our platform as they consolidate more of their freelance work on Upwork.
Throughout the course of 2020, we saw increased demand from clients wanting to Onboard their various team members and agencies on to Upwork for easy and unified billing, program management and collaboration and competitive bidding in our marketplace. Our larger clients are enthusiastic about our Bring Your Own Talent or BYOT solution, Not just because we automatically handle all of the money movement, local currency payments on a global scale and associate Paperwork, but also because for our enterprise compliance clients, we solve the worker classification other headaches normally associated with these tasks, which are increasingly daunting for many companies in a fragmented and distributed work landscape. To enhance this experience, we launched an integrated onboarding process in Q4 that reduced our industry leading start time on payroll contracts from 9 to 2.5 days. This past quarter, we landed a global tech firm that onboarded over 1,000 freelancers running over $1,000,000 through this BYOT product all within Q4. We are bullish on the prospects that our highly attractive offering has for the expanding set of clients seeking solutions for their challenges paying and project managing distributed teams.
Building the world's work marketplace means both developing and integrating best of breed tools that customers love to use for their work. During the Q4, we announced a partnership with Zoom that integrates Zoom's video and voice communication tools into Upwork. This provides our customers a frictionless and secure communications experience for interviewing candidates, vetting opportunities and collaborating on projects. The customer feedback has been phenomenal, resulting in a significant increase in calls and collaboration activity on our platform and is an example of the types of further integrations we have in the pipeline. Our sales team has fully implemented the changes we announced last quarter and has been making progress against our sharper go to market strategy.
Our team is engaged in strategic conversation at the highest levels to help Clients implement and manage their remote and independent talent programs and is pleased by the reception in the market. One example was recent work we did for a leading global technology conglomerate. The client needed a solution that would enable them continue working with their existing independent talent, while aggressively scaling their team. We seamlessly onboarded more than 30 freelancers in 5 countries in the first day and now serve as the operational backbone of their globally distributed team spanning 30 subcategories of work. Since inception, the account has seen 400% growth in new projects.
2020 was a watershed year for Upwork. We understood early on that although the tide of remote work was rising, It was imperative to create long term strategies that would retain customers on our platform and grow their value over time, well after COVID passed, laying the foundation for Upwork's durable long term growth. As we look to 2021, our focus is clear. We have a single strategic priority, innovating, scaling and evangelizing the work marketplace for the world. We are humbled and excited to be in a position to transform work so positively for so many people, pursuing with purpose Our mission to create economic opportunities, so people have better lives.
I'll now turn the call over to Jeff to discuss our financial results in more detail.
Thanks, Hayden. Our Q4 and full year financial results were strong increasing efficiencies in our business and delivering products ahead of schedule. Now I will discuss the financial results for the Q4 and full year 2020 and provide our revenue and EBITDA guidance for the Q1 and full year 2021, which we included in our earnings release filed earlier today. GSP in the 4th quarter and full year was 7 $28,000,000 $2,500,000,000 respectively, and represents strong year over year growth of 33% 21%. Revenue grew 32% year over year to $106,000,000 in the 4th quarter and grew 24% to 374,000,000 In the full year 2020, marketplace revenue for the Q4 was $97,000,000 reflecting a year over year increase of 34%.
For the full year 2020, marketplace revenue was $338,000,000 an increase of 26% from 2019. Managed services revenue grew 15% to $9,300,000 in the 4th quarter and was $35,000,000 for the full year. I want to touch briefly on our strong beat versus Q4 revenue guidance. Our business typically experiences a seasonal slowdown Starting in November and peaking in the last 2 weeks of the year, this year, the seasonal slowdown was virtually nonexistent, which we had not assumed in guidance. In addition to particularly strong acquisition and quarter over quarter retention, this atypical seasonality was a key driver behind the revenue beat in the 4th quarter.
We hypothesized that this was due to COVID and COVID related restrictions, reducing holiday travel and social gatherings An increase in the amount of work that was being done during this period relative to prior years, we wouldn't anticipate this atypical seasonality to repeat in 2021. Total core clients grew by approximately 17% year over year or 6,460 in the 4th quarter to 145,400 with gross new core clients in the quarter growing 36% year over year and net additions of core clients up 64% year over year. Client spend retention accelerated from 100% in Q3 to 102% in Q4 as the spending strength of clients acquired in 2019 and earlier performed well. Our overall take rate in the 4th quarter was 14.6%, in line with Q4 'nineteen, but down slightly from the 14.8% we saw in Q3. This decrease was driven primarily by a higher percentage of revenue being earned in the lower pricing tiers due to clients spending more with their freelancers as well as changes we made in connects to improve liquidity by better balancing the number of job posts and proposals.
Non GAAP gross profit was $78,000,000 for the 4th quarter or 73 percent of revenue and $270,000,000 for the full year 72% of revenue. With respect to the 4th quarter, non GAAP operating expenses were $70,000,000 representing 66% of revenue, down from 69% in 2019, with G and A decreasing from 19% to 15% and transaction losses remaining flat at 1%, While sales and marketing increased from 31% to 32% and R and D increased from 18% to 19%. With respect to the full year, non GAAP operating expenses were $264,000,000 representing 71% of revenue, up from 70% in 2019, with sales and marketing increasing from 31% to 34% and R and D increasing from 19% to 20%, while G and A decreased from 18% to 15%. Non GAAP net income was $7,800,000 in the Q4 of 2020 compared to $3,400,000 in the Q4 of 2019. For the full year, non GAAP net income was $100,000 compared to $5,500,000 for 20.19.
Our basic and diluted non GAAP net income per share was $0.06 in the Q4 of 2020 as compared to $0.03 in the Q4 of 2019. Our basic and diluted non GAAP net income per share was $0.05 in both the full year 2020 and the full year 2019. Adjusted EBITDA was $9,600,000 in the Q4 of 2020 compared to $3,500,000 in the Q4 of 2019 and materially above our guidance, primarily the results of the flow through of the revenue beat. For the full year 2020, adjusted EBITDA was 14,000,000 compared to $7,400,000 for 2019. Now let's move on to guidance.
We are guiding 1st quarter revenue between $107,000,000 $109,000,000 and full year revenue between $460,000,000 470,000,000 representing 24% year over year growth at the midpoint. We expect GSV growth to be slightly stronger as marketplace revenue will likely grow faster Specific revenue. We remain bullish on the investment opportunities in Brinavess and will continue funding growth initiatives while closely monitoring our performance to achieve our return thresholds. As such, we expect 1st quarter EBITDA to be between $2,000,000 $3,000,000 and full year EBITDA to be between $12,000,000 $16,000,000 We will continue to manage costs with discipline while preserving our cash and maintaining our strong balance sheet, which included cash and marketable securities of approximately $170,000,000 at the end of the 4th quarter. While the unique macro environment continues to make forecasting this year more challenging than usual, we expect the strength we have seen in our business to persist, and our current outlook calls for relatively consistent quarter over quarter growth throughout the year.
We remain committed to a long term revenue growth rate 20 plus percent. We ended the year with solid execution across all areas of the business, and we enter 2021 well positioned to drive growth as we continue to execute on our plans and capture an even larger share of our market opportunity. On a final note, We are hosting a virtual Investor Day, June 15, and we'd like to personally invite all of you to join us. We will provide
Please stand by while we compile the Q and A roster. Our first question comes from the line of Nick Jones from Citi. Your line is now open.
Great. Thanks for taking the questions. 2 for me. I guess, first, can you expand a little bit, Hayden, on Project Catalog and what the early traction is in beta and now what you're seeing once it's launched? And then I guess a follow-up on that is how should we think about Upwork's take rate as the project catalog gains traction?
I think The price points that could potentially increase take rate over time is more transactions funded through there. Thanks.
Thanks, Nick. Yes, we've been really gratified by the response in the market to catalog so far. It's really a great way for new clients to Discover what's possible in Upwork and really dip their toe into freelance talent overall and it has a fantastic discovery engine back to it and then they can use catalog as a way to then graduate to some of our larger, more complex project based work with freelancers on the platform. It's also shown to be a nice way for clients who are already using Upwork for larger complex projects to really round out and add on additional small projects to complement the work they're already doing in the marketplace. So it's still really early in the offering.
We launched it a month early in January, But the signs are very positive and we see it as a complement as we build out the single work marketplace that really provides our clients and our talent all of the ways that they want to work together and collaborate inside the ecosystem. And Jeff, I don't know if you want to address the points on take rates.
Sure, Nick. So on take rates, as you know, our pricing for Project Catalog is the same model that we have for the talent marketplace. However, given that the average size of the projects on Project Catalog, we would expect to be smaller, more of them will end up in the higher priced tiers. So on average, we would think that we'll have a higher take rate there. And as Project Catalog represents a Larger and larger percentage of the overall market, it will drive upward pressure and take rate as
it does that. Great. Thank you for taking the questions.
Thank you. Our next question comes from the line of Ron Josey from JMP Securities. Your line is now open.
Great. Thanks for taking the question and happy New Year. Aime, I wanted to ask a little bit more about the cohort spend. I think you mentioned pretty strong growth across GSV for both 2020 cohorts and cohorts prior to 2020 and client retention rates reached 102. So Can you talk just about the drivers here of cohort spend?
And obviously, the main question is sustainability. And I think one of the my second question here, Hayden and Jeff, I think one of the core Imperatives last year, Hayden, was to just generate more high quality matches. And I wanted to hear the progress there and maybe, Jeff, As that relates to your comment on the changes on the CNX program, if you can just elaborate a little bit more, that'd be great. Thank you.
Thanks, Ron. What we've seen has been really strong broad based acceleration in spend across pretty much every client cohort, both from new clients and retained clients. So GSE from clients acquired before Q4 was up 30%. GSE from clients acquired before 2020 was 27%, and that was part of what drove our CSR to 102% this past quarter with that 6,400 increase, which is the largest So our view is that this is an increase that is certainly not just related to pandemic related work. What we're hearing from clients is they're really shifting workloads to freelancers that are part of their core operations, deepening their relationships further with the financers on the platform.
And our view is that this is really sticky. As we hear from customers, They don't want to go back to the ways that they were working pre pandemic. They see Upwork as a continued part of their ongoing operations. And so our expectation is that this higher spend retention in many cases really will stay and stick well after the pandemic recedes because the client behaviors themselves are changing and the value they're seeing in these relationships is really long term. So this is a highly sustainable model for them.
In terms of your question around about high quality matches and that Last year, I'd say we've been making really good progress there. Some of the dynamics we've mentioned around Connect's revenue and some of the changes to that program has been Part of powering more and more matching on the platform, especially as we've seen the influx of freelance talent over the last year continue to be so strong. We're very focused on making sure that every job that's posted, every client is finding exactly that right talent match for them. And so that Connects program is just one piece of the puzzle along with a lot of the data science changes and technical changes on the platform that we've been making to continue to improve fill rates, accelerate the time that clients and freelancers are finding to actually get matched up on the platform, etcetera. And so we feel like the progress there has been really positive and actually has been one of the pieces of the puzzle in terms of making sure that matches are happening quickly, spend is happening and that is showing up in both the acquisition spend numbers and the retention spend numbers.
That's great. Thank you very much. Great quarter.
Thanks. Thank you. Our next question comes from the line of Marvin Fong from BTIG. Your line is now open.
Great. Thanks for taking my questions and congrats on the great quarter. Just a question, a couple of questions. So last quarter you talked about the targeting 20% growth in 2021 and now you've actually given us guidance. It looks Like it's a little bit above that, maybe 23% to 26% growth.
Just curious if you could talk about the APIs that you're tracking, are you seeing actually stronger growth in that than where we stood 3 months ago? Just talk about your optimism there. And then My second question is just on enterprise. If you could just kind of elaborate more on how the sales force
With respect To guidance, as we looked at Q4, we saw really strong performance really across all dimensions of the business, including acquisition and spend per client, both setting record levels for us. And as we think through the year ahead, We're assuming that we're able to our guidance reflects we're able to continue to build on those elevated levels and acquire new clients. And you're right that that does reflect 23% to 26% growth for the year ahead of what we had guided last quarter to 20%. And we really we saw inflection point change in the performance of our cohorts In Q3 and Q4, it does make it really tricky to forecast that going forward because the predictability of customer behavior in the past is, It's a little bit less given that it improved so much, but we're assuming that we can hold on to that higher level performance given that we really do think that the Changes that are happening are permanent and structural in nature, and all of that's reflected in the guidance going forward. And so those numbers, the Performance we saw both in acquisition retention inform our retention curves and acquisition forecast that are included in guidance.
And then with respect to sales, we currently Sales represents 10% to 20% of our overall economics of the business depending upon what metric you look at. The team has done great work digesting the changes that we announced in Q4 and are continuing to execute against the strategy. And we'll evaluate in the future when we want to increase our investment there as we get more and more data in terms of the overall performance.
Terrific. Thanks so much, Jeff. Appreciate it.
Thank you. Our next question comes from the line of Brent Phil from Jefferies. Your line is now open.
Hi, thank you. This is John Bien for Brent Thill. I had Two questions on Project Catalog, and I realize it's early, but if you could talk about maybe how much you're assuming in this year's 2021 guidance. And then if you could give some color on year to date trends, obviously, we're almost at the end of February. I mean, it sounds like all the strength from Q4 has sustained, but any sort of color you could add would be great.
Thank you.
Sure. So with respect to Project Catalog, as we mentioned in the script, it is included in our overall guidance. It is early. So we don't have a ton of great data to forecast a rapidly growing project like Project Catalog, But we've taken our best guess and it is reflected in our overall guidance. In terms of January performance and how we're trending for the year.
Obviously, we've taken that into consideration in terms of the guidance that we provided. We've seen good strengths continue across the business and that's reflected in the guidance. Thank you.
Thank you. Our next question comes from the line of Logan Thomas from Stifel. Your line is now open.
Hi, Aidan and Jeff. I was wondering if you could talk about the Enterprise segment drill down on that a little bit more Given the changes that you're seeing in talent procurement and organizational behavior and the benefit that that's having on the platform, I guess specifically As it relates to enterprise, if you could just talk about sales productivity and maybe how conversations you're having or what you're seeing And the sales cycle, which can tend to be longer and how you're thinking about that year to date? And then the second piece would just be If you could just address your views on competitive intensity in your key markets, How you're thinking about competitive interest in the opportunity and your position against that? Thanks.
Sure. I'd say, our client mindsets, as we talk to folks in the market, are really evolving rapidly in our favor. We talk to enterprise customers all the time who are increasingly creating their virtual talent benches on Upwork, moving more organizational capabilities to use independent talent in more and new ways. And that's really where the conversations with clients are shifting from last year, I think they were really focused on How do we work remotely? And now we're starting to have more conversations around, we work remotely now by default, how do we use that as a real tool to tap into this independent Talent workforce, which is out there all around the globe ready to do work for us.
And that's where we're hearing conversations with clients right now, shifting from the where to the who and how element of really how Upwork can be part of their talent strategies going forward and understanding that that has to be how they stay competitive in the market well after this pandemic recedes. In terms of the competitive intensity, we know this is a big attractive market and so competition never surprises us. We also know from experience that competitors can really struggle to build big successful businesses. So we stay very focused on our strategy, Investing in and maintaining the advantages that we have, I think some of the big ones that we focus on are scale. We know we already have more than 3.5 times the gross services volume and more than approximately 2 times the revenue of the next largest player in our space.
And that means we have the deepest highest quality talent network, which is a huge differentiator for clients of all sizes as they're contemplating How to engage with independent talent at scale. They want high quality talent that is highly reliable and we offer that in a way that no one else does. I think a second thing we really focus on is the trust and safety element of our platform, where we know companies are very concerned about How do they find people they can trust that are highly reliable and how clients and talent want to know that their money is safe, that they can use this model at scale. And that is something that we've had to build up over many years, but it's very hard for another competitor to replicate. I think the last thing around our strategic focus is really the focus on building the work marketplace, where we know that to win in this space requires not just having one offering or one capability, but really serving clients and talents with a spectrum of ways that they cannot just do small project work or larger project work, but actually do both.
And that is where we are uniquely differentiated and how we can serve Our customers with small through to the very large project needs that they have, and I think those things are the things where we are executing Very rapidly continue to innovate and really be the pioneer. And as I look forward, I really couldn't be more excited about what's ahead for Upwork and for our customers.