All right.
Okay.
All right. I think we're live. Yeah, good afternoon. I'm Josh Chan, Business Services Analyst here at UBS. Very pleased today to have Upwork join us. They are an online marketplace connecting freelancers with SMB and enterprise clients globally. With us today from the company is Erica Gessert, CFO. We'll have a fireside chat here. Feel free to raise your hand. You can send some questions in this iPad, and I'll pick them up as well. But with that, Erica, great to have you at the conference again.
Thanks for having us.
Thank you.
For having me, Josh.
Yeah. Thanks, sir. Thanks for being here. So to maybe level set the audience about Upwork, could you start by giving a brief intro about the company and for anybody that may be less familiar, and then we can dive into different topics from here?
Sure. Sounds good. Yeah. Upwork is the world's human and AI work marketplace. We are a global marketplace that connects talent from all over the world with businesses of all sizes. We serve globally. We have over 130 job types on our platform and thousands of skills to all size companies.
Great. Great. So maybe to start off with the recent return to GSV growth, so could you frame for us the GSV trajectory over the past several years and then, you know, like, why it was briefly negative, but then more importantly, you know, how you've been able to return to positive GSV growth recently?
Yeah. Sure. Yeah. Look, the past few years, particularly, I think, as companies exited the pandemic, you know, there were many pandemic beneficiaries. We were included in that. And, you know, as companies came out of the pandemic. I think it's a little bit loud. Is it? People? Sorry. As companies came out of the pandemic, I think, you know, the broader human capital industry really kinda suffered in that environment. And, you know, most of our kinda staffing industry competitors were down double digits from a volume point of view over the past few years. Upwork was relatively flat, and, you know, we, you know, kind of really worked over the past few years to invest in three key growth catalysts for our business, which we're now seeing an inflection point across all three of these areas.
So, there are really three pockets of very large TAM that we have access to that are, you know, really showing very strong growth characteristics right now. The first, of course, is the AI category of work itself. And, you know, kinda the AI opportunity for our business is, it's kind of threefold. The first is growth of the AI category, which is accelerating on our platform. It's at a run rate of about $300 million of volume on our platform right now, growing at over 50% a year and accelerating. That's largely organic growth. And so, we're making some investments now to even further catalyze the growth of that category. And so it's a super exciting time there on the marketplace. The other part of AI growth is actually the front-end customer experience and the AI enablement of the hiring experience itself.
So if you think about the, you know, the hiring experience, it's really, you know, traditionally very friction-filled, right? We're a marketplace. Our clients would come onto the marketplace, have to write up a job post, post the job, talent writes a proposal for the job, and then the client has to read through those proposals and then choose talent. Now all of that is done by AI. AI writes the job post. AI writes the job proposals. AI helps with the match, all across. And now even in more recent quarters, really in Q3, we've launched the ability for AI to do recruitment, to do interviewing, and other things. Just in 2025 alone, we saw about a $100 million GSV lift from these kind of, you know, experiences to reduce friction.
The third opportunity from an AI point of view is actually a little bit longer horizon, but introduction of actual agentic work on the platform, which we've just introduced kind of benchmark work where developers can come and test their AI agents getting to do work on the platform as well. So there's a huge growth catalyst there. And then also there's a second growth catalyst on the marketplace, which is the growth of the SMB category itself, which we can get into a little bit more.
Sure. Sure. On the AI topic, I guess there's been discussions about, you know, positive and negative effects. Clearly, you highlighted the GSV growth from AI recently. How do you think about any headwinds and what's the aggregate impact of AI in your business, you think?
Yeah. It's a really good, important question because I think that we've, you know, businesses like ours that are in the, you know, human capital contingent labor industry have had an AI overhang over our stock valuation, certainly since during my tenure in this business. And I think it's been really a misunderstanding of, you know, kind of the external markets in terms of how and where disruption happens in, you know, in the labor market. And we have actually one of the best data sets out there on this topic because we have hundreds of job types on our platform and billions of dollars of volume every year, right? So we can see very clearly where there is substitution and where there's actually augmentation from AI and then even acceleration with these kinda net new, net new job types.
The places where we did see substitution, and we've talked about this a lot, is, you know, the biggest categories that saw substitution were in writing and translation. You know, a few years ago, writing was a relatively big, big category on our platform. Now it's quite small. But even more so, where we saw substitution was we have sort of a proxy in our business that we, you know, talk about when it comes to substitution. And it's really, jobs that are $300 and less on the platform. So if you think about where AI can substitute human work, it's really in the smallest, most transactional types of work. Now, you know, so, you know, a couple of years ago, the $300 and lower job types were about 5% of our volume. It's now about 3.5%.
Our platform overall actually specializes in longer, more complex projects. So, you know, our average GSV per client is actually about $5,000 and growing. It's growing sequentially every single quarter. That is actually partly because of the growth of the AI category itself, which is 3x the GSV per client that kind of our platform averages. Then also actually the kind of our further penetration into larger SMB customers who by nature do much more complex and longer-term projects.
Sure. Any questions from the audience so far?
Mm-hmm.
Okay.
I threw a lot at you there.
Yeah. So, and then maybe transitioning to the macro backdrop, you know, which employment markets have been tough, like you mentioned. So, what's your view about where we are in the macro now, and then kind of as we're heading into 2026?
I mean, look, I would say the macro's not doing anybody any favors right now. I think that, you know, inflationary characteristics and, you know, and sort of persistent high interest rates are not great for, you know, particularly SMB spend. But that said, I think that we have really put in place the kinda growth catalysts that I described: AI, the growth of SMB, which, you know, we have really built out the, you know, the products on our platform. We have a strategy where we're kinda tiering, you know, kind of our servicing on the platform and features on the platform in order to have greater service for these larger SMB customers.
So if you actually think about the kind of history of the Upwork platform, it's really been kinda one size fits all and optimized largely for if you think about SMB, you know, customers, these are companies that are ranging from anywhere from like one to nine employees all the way up to, you know, 100-200 employees. And the needs of those customer types are very, very different, right? So if you think about, you know, a 10-person employee company, they can go right on the platform. They need a software developer for a couple of months. They can just hire. It's super easy, right? If you're in a 100-person company and you need a group of developers to, you know, build a long-term complex project, well, you probably need a real invoicing product. Like, you need Net 30 billing.
You need the ability to build teams in an easy way where they can collaborate on platform. You need the ability to have different people interview these people, all these kinds of things. We didn't offer any of those types of products that are, you know, really custom-built for these larger businesses. We just launched all of those in the past year, and really some of these features in the past couple of quarters. This is now a premium take rate product that is also aimed at these much larger businesses and longer contract types. We're starting to see some real acceleration here. In Q3, the GSV in this Business Plus category grew 36% year over year. That's also accelerating.
It's still very low penetration on our platform, you know, less than 5% of our GSV is in this kinda new tiering product. So this is a super exciting catalyst for our business as well.
Okay. And what I'm hearing you say is that regardless of what the macro is, you feel like these catalysts can kinda continue to help you grow?
Yeah. I think for us, we've really spent the last couple of years rebuilding the platform in these new profound ways, that are truly different from anything we've done before. The third area actually is in the enterprise side of our business, which is separate from the marketplace.
Mm-hmm.
And really focused on the very large, you know, Fortune 200 businesses in the world. Now, for those who don't know the contingent labor market that well, these businesses, you know, I actually came from large enterprise. These businesses spend, you know, hundreds of millions of dollars in contingent labor a year. Most of the large enterprises, you know, their kind of employment portfolio is, call it, you know, 70/30, you know, FTE to contingent labor or, you know, sometimes even more. And so there's, you know, hundreds of millions of dollars of opportunity in all these businesses. Previously, Upwork was really only offering one contract type to enterprises, which was an independent labor contract type. That meant that we only accessed about 10% of that enterprise wallet. And, you know, in Q3, we announced two acquisitions to kind of change that.
We acquired a business called Ascen, which offers all the different contract types that we weren't offering before, and then another business called Bubty, which is actually a workforce management platform that can plug in API ready into all these enterprise systems, so that's gonna be a huge game changer for us. It opens up the other 90% of a $650 billion TAM enterprise market that just was not accessible to our business before. Now we're in the middle of integration. We're not quite ready to kind of launch all these new contracts, but that's coming in 2026, and that's another reason that we feel very strongly that we can kinda be macro-agnostic as we penetrate these very large TAM opportunities.
Okay. That makes a lot of sense, so you recently had an analyst day, and you outlined some, you know, near and medium-term targets.
Yeah.
And so maybe just like stepping back, you know, what made you decide to put together an analyst day now? It really does seem like you feel like there's a little bit of an inflection?
We definitely do feel like there's an inflection point in this business, and I, you know, I think we planned the analyst day very carefully, for that reason. You know, we've been hard at work for, you know, two years on all of these strategies. You know, we actually, you know, if you go back and look, we at the end of 2024 said, you know, that we were gonna, you know, 2025 was gonna be kind of a negative GSV growth year for us as we rebuilt a bunch of these strategies and these businesses, and we even, you know, announced at the end of 2024 that we were gonna stop selling our legacy enterprise plans while we worked on this new enterprise strategy of acquiring these companies that could offer the full suite of products that these businesses needed.
And so we really did, you know, take a step back, rebuilt, and we are now seeing the benefits of that work across all three of the fronts that we have worked on, you know, AI, SMB with Business Plus, and now the enterprise business. So it's a super, super exciting time for us. And, you know, if you look at our guidance, it actually implies, you know, kind of real acceleration through the next few years. And we feel really confident in that trajectory because we, we are seeing, you know, all the nice thing is all of the strategies that we've, you know, described are things that we are already seeing traction in our business today.
Sure. Yeah. On guidance, you did guide to 2026 GSV growth of 4%-6%, which is an acceleration from 2025.
Yeah. That's right. So we just reported in Q3 2% GSV growth for our business, and that's coming off of about actually five quarters of negative GSV growth. And so there really is an inflection here. And you know, we guided to 4%-6% GSV growth for 2026 and then 7%-9% for the next three years. And so you know, we feel very confident in that trajectory. And the reason we see that acceleration is because you know, it's both on the marketplace side because of the ongoing acceleration and ramp of AI and also the AI implementation on the platform. It takes time to implement these experiences, you know, from a customer experience point of view, inject AI into the platform from a recruiting point of view. We're just about to launch AI project management.
These things take time to kind of build into the experience and then ramp. But every single time one of the kind of AI experiences that we've launched so far where we've reduced friction from the kind of historical experience, we've seen an inflection and increase in fill rate and other things on the platform that enable our growth. So we feel really confident of that ramp over time, kind of in all three of these areas.
Okay. You know, you talked about AI categories, so how do you define what's an AI GSV or not, and then, you know.
Yeah.
From, you know, in terms of the guidance, you know, what is it? What does it embed in terms of AI growth versus non-AI trajectory, I guess?
Yeah. I mean, we talk about a lot about AI on the platform because it is, you know, such an exciting time and such an, you know, seeing so much acceleration right now. Now we are a very diverse platform, though, you know, I think to your point, and we see growth across other categories too. It's a very interesting time in our business because, like I said, you know, we have such a great data set, but categories where I think people thought there was gonna be AI disruption, like design and creative, logo design, these are things that are accelerating. And actually we see, you know, within our data, we can see, you know, categories that are actually getting augmented by AI tools.
As tools get better, those categories are accelerating. Video and animation is actually one of those that, you know, some of the AI queries on our platform. AI video is kind of one of the highest that we see. We're seeing real acceleration in some of these kind of subcategories as well. Getting to your question on, you know, how do we define AI category, it is difficult. Our taxonomy in some ways can't keep up with it because of the use of AI tools. When we talk about the AI category, the vast majority of that is today, as we characterize it, is what you would think of as like typical AI work.
It's either AI infrastructure implementations, it's prompt engineering, data labeling, things like that, that are kind of the you know, underlying that growth. But there are also other, you know, we do try to identify other kind of AI-enabled job types that are somewhat in that category, although it's difficult for us to always identify them all in real time.
Sure. Do you need the non-AI categories to stabilize to hit your guidance for 2026?
I mean, many of the non-AI categories are growing nicely. Like design and creative, legal, accounting are all, you know, actually very nice growers on our platform, sales and marketing. And so, no, I mean, look, we don't need any change in our trajectory to hit our guidance for next year. That's how I'd characterize it. And I think, you know, some of the work that we're doing right now is on top, like in terms of, you know, further catalyzing the AI categories, you know, assuming, you know, some of that work really works, then that would be incremental.
Sure. Any questions from the audience?
No.
Okay, so and then maybe moving on to take rate. So implicit in your revenue guidance being higher than your GSV guidance is a slight improvement in take rate next year.
Yeah.
So what's driving that?
To take rate, you know, we have a tremendous amount of opportunity with take rate. The first most important kinda contextual piece here is that our take rate is actually quite low compared to the rest of the industry. So our take rate all in is about, you know, just under 20%. It's about 19.6%. A lot of industry comps are well into the kind of 30% take rate. So we do have room to grow here. The really nice thing about our take rate strategies that we're implementing right now is they're all very much pricing to value on the platform. So one of the biggest catalysts for us is Business Plus. It's this SMB-focused product that I described. This is a premium take rate product. So, on the client side, our clients pay 5% take rate on our platform.
Business Plus is 10% on the client side, and it's also aimed at these much larger contract types, as I described. And so, as Business Plus grows, it will be a catalyst both to volume and to take rate at the same time, which is, you know, a very nice place to be. The other area that's really interesting for us is that we just started to experiment this year on a variable freelancer fee, you know, within the platform. And in some places where we're, you know, have a surplus of supply, we'll increase take rate. And in other places, actually, we've experimented with reducing take rate in kind of lower supply categories in order to catalyze GSV.
So that's also gonna be. We're very early days. We've only experimented with a couple of categories on the platform, so this is something that will be a really nice tailwind into 2026.
Okay. And then, kinda going beyond 2026, your three-year GSV target is seven to nine. So that implies a further.
Acceleration.
Kind of acceleration from here.
Acceleration.
So, what can you talk about? What's driving that?
Yeah. Look, I mean, first and foremost, the enterprise strategy that I've outlined with our enterprise business is called Lifted. And that strategy, the game changer there is, you know, our legacy enterprise business had a very wide spectrum of contract sizes anywhere from, you know, $10 million or so, you know, all the way down to a couple hundred thousand. And, you know, what we really did was, you know, as I described, you know, added these products and services in order to open up the rest of the enterprise kind of contingent labor wallet. Now we're really exclusively going after kind of Fortune 200, you know, companies on the enterprise side. So these are contracts that are tens of millions of dollars to up to hundreds of millions of dollars contracts.
Now the great thing about that is it actually requires a very small salesforce to go after these very large contracts. But the other, you know, the other thing is that the contracting period and, you know, negotiation period for these contracts are very long. So we guided to a back half of the year next year in 2026 ramp of the enterprise business. And that's a realistic timeline because of the just contracting times. So really the growth in enterprise in 2026 and inherent in that 4%-6% GSV growth rate, it's all back half weighted, which means the real ramp is in 2027. And that's one of the things that gives us, you know, such high confidence.
We're actually, you know, we're getting tons of inbounds from our existing enterprise customers asking us to join RFPs and other things for these much larger contract sizes now, even before these platforms are integrated. So we have a lot of confidence that this is a strategy that has a lot of legs.
Okay, maybe touching on margins for a second. You know, margins meaningfully improved the last two years, 11% two years ago, now just under 29% this year.
Yeah.
So could you talk about what's driven the improvement and whether you think the current cost structure is sustainable for where you wanna take the business?
Yeah. Sure. Look, we're super proud of the margin journey. I think we've done a tremendous amount of optimization, both in the core business, and like I said, on the enterprise side. You know, I'll just talk first about, you know, our core marketplace business. Look, overall, this is an 80% growth margin business, right? And so, and there's still actually ongoing optimization we can do on the cost of service line. So this is an inherently profitable business, and a super capital light business as well, right? Our CapEx is, you know, $20 million a year or something. So this is a business that is just inherently profitable.
So, you know, I think Upwork, as you know, as I came into the business in 2023, you know, had a huge growth trajectory during the pandemic, as many pandemic beneficiaries did kind of invested into that. But as you know, as we looked at the business in 2023 and beyond, we really you know did a few things. We optimized the marketing investment. There was a lot of brand marketing that we just weren't seeing the revenue yield from. We never touched our performance marketing budget. We still have not because we get good yield out of that, and we'll continue to kind of optimize that. We've focused more on acquiring these higher quality SMB customers, but getting really good kind of ROI to CAC on that.
We very much optimized the sales force. We reduced it by, you know, kind of 50%. And the other thing that we did with this kind of Business Plus plan, launching on the marketplace, was we took some of the enterprise kind of lower-end enterprise product features, and we put them on the marketplace in a self-serve way so that we no longer had to have kind of account executives, you know, more expensive kinda cost to serve, in our business. We could just service these kinda smaller-end enterprise customers on the marketplace. So we've really optimized the business that way. And then the third way was really narrowing our R&D portfolio to focus on, you know, these, you know, kind of three growth vectors that we'd identified that would be game changers for our business.
And so, look, I've been in this, you know, kind of in finance and in enterprise for a really long time, and I've seen it over and over again. When you narrow your kind of investment portfolio on the R&D side and just focus it, you know, on a few really, you know, distinct things, your execution just gets faster and better internally. And I've seen that here. I've seen it in other businesses I've been in, and it's really enabled our execution to be faster while also optimizing our cost base.
Okay. That's encouraging. Maybe touching on the enterprise opportunity because that is something that is newer. Could you talk about, you know, what you're competing with in the enterprise market? You know, how are you going about, you know, the opportunity and, and how Upwork may be different than some of the other possible solutions that are kinda out there?
Yeah. I, you know, for those who aren't as familiar with, you know, like I said, the contingent labor market, I think it's probably hard to visualize exactly why we're so differentiated, but I'll try and describe it. You know, it's actually quite difficult for any, you know, kind of company that offers a contingent labor to offer true global kind of labor arbitrage to global businesses. And that's because most of our kind of staffing competitors are actually kind of. They're kinda geo-verticalized. Whereas we, because we have this inherent, you know, global talent pool of 18 million talent worldwide sitting, you know, on our marketplace platform, we are able to, with now these acquisitions that we've done, offer enterprises any contract type in virtually any country in the world.
And that is a truly differentiated kind of offering that no one else has done. Actually, last quarter, you know, when we launched the Lifted product, we announced it intentionally at the beginning of September because the largest contingent labor conference of the year was in mid-September. And they chose to highlight the Lifted product as in the keynote address, even though without even telling us. And that was because of the differentiation of what we're offering, in the industry. So it's super exciting. And, you know, we know from, you know, kind of the interest we're getting from our existing clients that, this is definitely new and different.
Sure. So can you frame the 18 million, you know, is that a larger pool than other companies can provide? Is it a low-cost pool, it sounds like?
Yeah. Look, I mean, the fact is we can offer, like I said, kind of, because of the global nature of our talent pool, so if you think about our marketplace business today, about 2/3 of our clients are U.S., and about 1/3 international. The opposite of true is true of talent, right? About 2/3 of the talent working on our platform is international, about 1/3 U.S. Even greater is this pool of kind of, you know, broader 18 million who are registered, active, bidding on the platform, and available for work, and that, you know, even a greater proportion of that is international, so the access to labor arbitrage for these businesses is very high. We're one of the key, the largest sources of labor arbitrage for SMBs, certainly, but then also for large enterprise.
Okay. Any questions from the audience? All right. Moving on to free cash flow. So could you talk about the sustainability of free cash flow conversion in this 85% of EBITDA range that you've kinda talked about for this year?
Yeah. Look, like I said before, so as you just articulated, our EBITDA converts to free cash flow at kinda 80%-85% +. So it's a high cash yield business. We've, you know, very proud of our margin trajectory. I'm also very confident, you know, we have a 35% margin target out there. We just reported 29% last quarter, 35% over the next few years. That's a, I would call it, very confident target for us because we have just inherent leverage in this business as, you know, as we continue to grow and we have continued cost optimization, you know, things that are longer-term in nature that we, you know, already have line of sight to over the next couple of years.
So we feel really good about that trajectory, you know, and as we continue to see the growth rates that we're starting to see, there's no reason that can't go higher over time. So, you know, there's just a lot of, you know, kind of future cash flow growth for this business as we've been, I think, showing very well over the past few years.
Sure. Sure. So there's no, like, working capital draw that.
So there's working capital movement in our business, right, because of just the timing. If you think about how our platform works, the timing of when we recognize revenue when clients, you know, when clients are billed, but then we hold an escrow, you know, some of the freelancer payments and then pay them out. So there's working capital movements from quarter to quarter, but over that just smooths out over time. And over time, like I say, our EBITDA just converts to free cash flow at 85% +.
Okay. And yeah, there's a question on that.
So how do we control for, say, like, for people who can't, who aren't qualified to do what they say they're gonna do or something like that? Yeah. Look, I mean, we, you know, we offer certain, you know, we offer certain guarantees on the platform, right? And the other thing is that the marketplace dynamic, you know, the supply and demand dynamic of the platform does also self-optimize. I mean, obviously, all marketplaces have very, you know, very strict and you know, ongoing models, you know, making sure that there's no fraud on the platform and all that kinda stuff.
You know, in terms of work quality, we, you know, make sure that we guarantee that the quality of the work on the platform and then also that you know freelancers gain reputation over time, just like any other marketplace business.
Okay.
Yeah. Not software companies. So we, you know, we're the core business is a, you know, kind of self-service, largely self-service marketplace. The competition is really, you know, there are other marketplaces, although our marketplace is unique in that we specialize in these longer-term, more complex projects. Most of the other marketplaces are kinda at the lower end of us. And then we compete with the staffing industry, but we are kinda faster, better, cheaper. Our take rates are lower. And we can just fulfill faster 'cause there's, you know, by and large, there's no human in the loop, you know, trying to source and stuff like that. And then we compete with private verticalized players.
So, you know, there are lots of, you know, kinda companies out there that offer just, you know, kind of one industry vertical, like software development or like logo design or stuff like that. But we're really one of the only platforms out there who has, you know, hundreds of job types, and companies can come and really fulfill any type of work that they want on the knowledge work side of the house.
Fiverr?
Fiverr? So Fiverr, they're, that's what I was referencing. They're sort of at the lower end. So our average GSV per client is $5,000. Theirs is about $300. So we absolutely operate in the same industry, but we sort of operate in an adjacency to them.
Word on capital allocation given this round of cash flow?
Yeah. Good way to end. Yeah, we are very active in terms of our, you know, our capital allocation strategy. You know, obviously, continue to do our organic investment and grow our margins. We have been acquisitive on the M&A side. We did the two enterprise acquisitions. We also acquired two kinda tech and talent acquisitions on the marketplace side. We'll continue to do that. And then we've been very active buying back stock, reducing our share count this year. And we'll, you know, we've committed to offsetting any kind of stock-based comp through stock buyback, but we'll continue to strategically reduce share count over time, particularly at these prices, I'd say.
Great. Yeah, with that, I think we're out of time. Thanks, Erica, for joining us.
All right. Thanks so much, Josh. Thanks, everybody.