Upwork Inc. (UPWK) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Upwork Third Quarter 2019 Q&A Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Palmira Gerlach. Please go ahead, ma'am.

Hi, and good afternoon, and welcome to Upwork's discussion of its third quarter 2019 Q&A call. Leading the discussion today are Stephane Kasriel, Upwork's President and Chief Executive Officer; and Brian Kinion, Upwork's Chief Financial Officer. Following Stephane's brief introductory remarks, we will be happy to take your question. But first, let me review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the 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. 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. 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 and stockholder letter that were issued this afternoon on our Investor Relations website. Please note that the stockholder letter is now available on our Investor Relations website at investors.upwork.com. Now I'll turn the call over to Stephane.

Hello, and thank you for joining the call. Earlier this afternoon after the market closed, we released a stockholder letter as well as our quarterly press release and filed our 10-Q for the third quarter with the SEC offering a detailed look at our results. We will open up the call to Q&A shortly, but I first wanted to cover some brief highlights. We're very pleased with our third quarter. Revenue grew 23% year-over-year to $78.8 million. Marketplace revenue grew 25% year-over-year to $70.7 million. Core clients grew 19% year-over-year to approximately 120,500. Client spend retention was 104%, with client spend retention from clients on the Upwork Business and Enterprise offerings above 125%. Gross margin expanded more than 3 points year-over-year to 71%. We continue to see great opportunity and clear signs that our investments are paying off. While our market opportunity is very large, we are still in the early stages of a long-term shift in how work gets done, and this is what is driving our decision to invest further across 3 initiatives where we have experienced early success, sales, marketing and product. As such, we announced our plan to further invest in our growth initiatives, including increasing sales headcounts ending Q3 with 65 quota-carrying account executives with 90 planned by the end of Q4. And with that, I look forward to discussing our results further in Q&A. Operator, Brian and I are now ready to take your questions.

[Operator Instructions]. And our first question coming from the line of Mark Mahaney from RBC.

I'm sorry, I'm going to ask a couple of questions. One, can you just go through the gross margin improvement year-over-year to what extent - that was a mix shift or whether there were core factors driving that? Secondly, in terms of the Q4 guidance, it looks like you beat your guidance for the third quarter, but your new guidance is a little bit lower than what you had implied before in your full year guidance. Just speak to that, please. And then third, in terms of these investments in new areas, you talked about increasing the sales headcount from 65 to 90. Can you talk about other changes or other new areas of investments in that marketing in the product side?

Sure. So there's three different questions. Let me make sure I get them in order. So gross margin is a combination of mix shift and through operational leverage. So the mix shift comes from managed services growing slower than marketplace, and managed services because of GAAP accounting rules, we recognized the gross, so the GSV, we recognized as revenue. And so when managed services is growing slower than the marketplace, which it has in the last few quarters, and we expect it to continue moving forward. That means that take rate is going in one direction and gross margin is going in the other, right? And so that's the mix shift. The true operational leverage that we're getting is a combination of payment costs, which is the number one source of cost of revenue where progressively we're shifting people to ACH. And also, we are continuing to improve the different initiatives, some of which I described in the stockholder letter, the different initiatives to strengthen our payments platform as well as another big source of cost of revenue is AWS cost. And we've been focused on making sure that AWS cost was growing slower than GSV and slower than revenue, and we have been successful in doing that for the last several quarters. So those are real margin expansions, if you will. If you're looking purely at the marketplace side of the business, if you look at the ratio of gross profit for the marketplace over revenue for the marketplace, you find it to be pretty close to 90 - sorry, to 80%, which is kind of what we've said in the long term, although we think we can get to a gross margin level of 80% to 85%. And on the marketplace side of this, we are already getting really close to that. To answer your question about guidance, I would say some of the revenue that we expected to get very early in Q4 ended up happening really late in Q3. So there's a little bit of a shift from Q3 and Q4 that explains some of this. I mean net-net, we are talking about $1 million between the 2 quarters. So the back half of the year, we're going to do about $150 million of revenue. So $1 million between $150 million is still pretty accurate, I would say. So there's some of that. There's also just the fact that from a lapping standpoint, Q4 is a little bit more difficult than Q3-wise. And so we do expect Q4 to be a little bit less strong than Q3 has been. And then the - to your third question about sales and what else are we doing. As you can imagine, it's a massive effort for the company to be dramatically increasing the size of the sales team. And we are encouraged to do this because sales people are hitting their numbers. And when they hit their numbers, the ROI of that investment is very sound. We also think that we have lots and lots of leads as well, over 10,000 companies that are using Upwork today on the Basic or Plus product that have not been touched by sales and who look like the type of customers that should be upgrading to Business Enterprise. So we think we have lots of leads. We think that the salespeople that we've had in place are generating a good ROI. In order to ramp up, we do have to create a little bit of growing pains. So we've had to promote some of the top performers to sales management roles. We've promoted some of the sales development reps who were generating those leads in the first place to sales executive roles. And we've changed our marketing approach to do a lot more ABM, a lot more brand advertising, relatively speaking less ACM than before. So there's a lot moving pieces at the same time, but it's a combination of product, marketing and sales in a very integrated way and in a way that is probably more aligned than it's ever been in the company. And generally, everybody's really focused on this idea of companies that have 100 employees or more will become the majority of the business in the future even though at this stage, it's only about 20% of the business.

And our next question coming from the line of Ron Josey with JMP Securities.

Those are very helpful questions from Mark. But maybe longer or bigger picture, Stephane, you talked about the 10,000 clients that are using Plus and Basic today. Just talk about the penetration there. Last quarter, you talked about the first half of the year seeing, I think, around 60-or-so new contracts won. So just talk about the penetration, how you're going against that and how you're selling into those 10,000? And then in the letter, you talked about not yet reaching full potential for sales productivity, where growing sales force is the right thing to do, understood. But can you just talk to us how do you reach that full potential? How far away are you from reaching that full potential?

Sure. So maybe start with the second question around sales productivity. It's good enough, meaning like the CAC to LTV is sound. It gives us a good ROI, a strong payback period. You will see it in the numbers, however. But in the short term, it increases sales and marketing as a percentage of revenue and, therefore, puts downward pressure on EBITDA. The unit economic being strong, over time, this will more than pay for itself. It will also help us get to scale faster, which gives us more leverage on G&A and more leverage in R&D. So it's the right type of investment for the business. That being said, we do want to continue to improve sales rep productivity. And that comes, frankly, from, I would say, 3 different angles. One, which is sales operations itself and partly just stabilize the sales team. The issue of promoting lots and lots of people is you're removing some of your best performers in a specific role and moving them to become new - in a new role, and that causes some amount of stress in the system. Another angle is around marketing efficiency. We hired Lars a few months ago now who came more from a traditional B2B enterprise sales and marketing background, and he's helping us shift from a very self-service online-only type of approach to doing marketing to something that is more of a partnership with sales where the role of marketing is to do sales enablement, to do field marketing, to do demand generation, to drive marketing qualified leads into the sales development team and then eventually into the account executive and account management team. And lastly, I would say from a product standpoint, we focus a bigger part of our R&D efforts in sales productivity and sales efficiency. Features like single sign on that makes it easier for existing users to sign up more hiring managers or internal tools that we can use to help the sales team get access to a consolidated view of the data across the different data sources that we have internally.

Number of deals.

Oh, sorry. Your other question was on the number of deals. Yes. I mean it's kind of a continuation of what we saw last quarter. The Upwork Enterprise Business continues to be one that is driven quite a bit by the sales team itself, and the sales cycle remains multiple months. The Upwork Business account tends to be a lot of up sales from the traditional marketplace, much more sales driven and where the sales cycle is more like a few weeks. And then the other thing about Upwork Business is, not only is it high velocity, but you're starting with customers that are spending money already. So what happens is as they upgrade, we increase the take rates because it goes from the Upwork - Basic Upwork Plus take rate to the Upwork Business take rate, which is significantly higher, and they start spending more money almost instantly. So it's a faster cycle that also ramps up faster, if you will. But one of the numbers I wanted to call out that we wrote in the stockholder letter because we got a lot of questions about that last quarter is this notion of client spend retention. And people kept on asking me, is client spend retention better for the bigger customers than it is for the smaller customers? And while the overall client spend retention for the business is about 104% at this stage, the client spend retention for the clients that are signed up for Upwork Business, Upwork Enterprise has been north of 125% for several quarters now.

Our next question coming from the line of Brent Thill with Jefferies.

This is John Byun for Brent Thill. I guess on some of the more detailed guidance, you talked about the trend for the first half and second half being a little bit low and high, I believe. Is that really mainly due to a comparison? Or are there other fundamental factors there? And then in terms of the guidance and the new revenue standards, would that mean that it might potentially be more back-end loaded in the second half due to the deferrals?

Yes. So let me try to answer the question in 2 pieces. One is kind of the overall trends in the business, and then the second one is how does it look from a quarter standpoint, right? So if you look at the overall trend in the business, we've been acquiring about 5,000 core clients every quarter, more or less, for the last several quarters. And we think that trend is going to continue for the foreseeable future. Obviously, the base keeps on getting bigger, right? So if it's a constant number of core client adds, then as a percentage it goes down slightly over time. The second thing that we think is going to happen is client spend retention has peaked at 108% a couple of quarters ago. It's back to 104% right now. And we see a trend where it's probably going to soft land slowly back into the historical average over 100 - around 100%. And we can talk in more detail as to why that is. Within the marketplace take rates, which is higher than it's been in several quarters, is now stabilizing more or less at the new rates. And again, we can get into the details of why that is. But the changes we have made to pricing and monetization in the last few quarters, the mix shift between Business Enterprise and the Basic product, all of these things drive a more or less constant marketplace take rate moving forward. And then managed services has been growing slower than the marketplace for several quarters in a row, and we expect it to continue that way, right? So all of these things together mean that when people are modeling the future of the business, that's - those are some of the key inputs into figuring out what the model looks like. Now in terms of what that looks like from a quarter standpoint, realize that this quarter - this year, we had relatively weaker Q1 and Q2 and relatively stronger Q3 and Q4. And so from a lapping standpoint, that makes Q1 and Q2 next year easier and Q3 and Q4 of next year a little bit harder. And so if you think about marketplace revenue as a key component of the overall business, relatively speaking marketplace revenue is going to be stronger in Q1 and weaker in Q3 and Q4. Add to that the fact that there's a number of Mondays that is also somewhat different between next year and this year. And next year is a leap year, which is 1 more day. And so if you're looking at it, Q1 is going to be relatively stronger from that standpoint, whereas Q3, Q4 are going to be a little bit more challenging. Now of course, that's more than 12 months from now. So hopefully, we can do all sorts of other things to try to get above and beyond those numbers, but that's what we have line of sight for at this stage.

And then all of these numbers, obviously, are under 605. So we are working with a lot of those under the 606 standard. So we would as of January 1, 2019, have an adjustment to our balance sheet, retained earnings and deferred revenue. And that would bleed over time. We're still determining the impact, but we do not believe that it's going to be material to our consolidated income statement going forward. But when we do give our Q4 call, at that point, we'll do everything in our 606, but you can anticipate it to not be that material.

Our next question coming from the line of Hao Yan with Citi.

I've two questions here. So first, the State of California recently passed the legislation of Assembly Bill 5, which requires the reclassification of independent contractors as full time employees and just written fixed benefit. Can you discuss about the impact of reclassification on your business? And how would you assess the change you might be seeing in volume on freelance economy as a whole? Second, I guess can you also share some related thoughts around M&A strategies? How would you define a suitable M&A target? And in terms of complementary business that could strengthen your market positions, would you focus on vertical integration or rather geographic expansion?

Great question. Thank you. So let me start with AB5. So AB5 is codifying into law what was a court justice decision from a court case called Dynamex, which is going back in my memory - excuse me a little bit, but somewhere between 12 and 18 months ago. So I think most companies who think about worker classification and we are definitely there have been operating under the assumption of AB5 for quite a few quarters already. There's a few things to it. So first of all, some of the work that's being done through platforms like Upwork is actually excluded from AB5. And if you look at the text of the law, there's various mentions about - around professional services being excluded. So that's one component of it. The second component of it is the fact that we actually also are payrolling services. So we would - we call it freelancing, but some of the work in Upwork is under a 1099, some of the work on Upwork is done through a W-2. Through our product offering we have called Upwork Payroll. It's actually a profitable product. So we actually, somewhat selfishly make more money on W-2 engagements than we make on 1099 engagements. So it's - may potentially a concern for other freelancers. They're not very happy to be forced to become W-2. But from our standpoint, we potentially make more money from it. And then the last point, I would say, is California freelancers at this stage are low single-digit percentage of the overall GSV and revenue for the business. And so at this stage, it's not a meaningful part of the business. But again, when the work needs to get classified as W-2, we offer the payrolling offering. When the client is an Upwork Enterprise client and they subscribed to our compliance offering, we actually make the decision for them, and we indemnify them if we get it wrong. And then the last thing, I would say, is there's a pretty significant substitution effect, which is something that we tell regulators all the time. If you're making it harder for freelancers in California to be competitive, clients will hire freelancers in Colorado or Arizona or, frankly, outside of the U.S. And so not necessarily in the best interest of local freelancers to be impacted by those types of regulations. And then your question about M&A. We hired Amanda Vinson as our new SVP of Corporate Strategy and Corporate Development a few weeks ago. And one of the things she's working on is building a suite, a more well-defined strategy around M&A that allows us to be more proactive and more disciplined in how we look at opportunities. But I would say, big buckets for us would be either companies that offer additional capabilities that we don't have internally or companies that bring the types of clients and the types of talents that we want to get into the business. The latter might look companies like us. There might be other tech marketplaces for freelance work or they might be very traditionally run professional staffing firms and then everything in between. There are plenty of companies out there that are semi-tech enabled, but mostly services companies and we'd be looking at them. In the former, we'd be looking at capabilities that we can sell to either the clients or the freelancers on Upwork. And this would include things that I've mentioned when we were doing our IPO, but we're very interested in topics around financial services for freelancers. We're interested in benefits for freelancers. We're interested in collaboration tools, education, training and certification those types of things. But I would say, at this stage, it's very open. We are just getting our team started to look at some of these opportunities.

Our next question coming from the line of Marvin Fong with BTIG.

So I did want to drill down actually on the take rate stabilization since you did mention that you would - we could go deeper into that, and I certainly would like to. Just curious just some of the tailwind sort of suggesting that take rate will stabilize from here on out would sort of suggest that the - some of those tailwinds may have played out already. If you could just kind of go further into your thought process behind that, that'd be great.

Sure. So maybe I can start with the headwinds to explain where we've been, right? So there's been three things that were driving take rate down. One is managed services growing slower than the marketplace, which is, by design, we sell the marketplace offering more then we sell the managed services offering. But because of revenue recognition policy, managed services is recognized as 100% take rate, whereas the rest of our business is recognized as the net revenue being the take rate. And so when managed services is growing slower than marketplace, it puts downward pressure on take rate. Now that's one headwind. Second one was we were actively pushing clients to pay us by ACH instead of paying us by credit card. As I mentioned earlier on the call, our number one source of cost of revenue is credit card fees. When we can get clients to pay us by ACH, we lower that cost of revenue. In order to convince them to do it, we give them a discount for doing it. And that puts downward pressure on take rate. And then the third thing was the - on Upwork Plus and Upwork Basic, the freelancers pay us a tiered service fee, which goes down over time as they earn more money from a given clients, right? And it's based on lifetime earnings of a specific relationship between a specific client and a specific freelancer. But at the beginning of our relationship, the freelancers pay us 20%, and then it goes down to 10%, and then it goes down to 5%. And over time, as client spend retention has been north of 100%, what that means is a lot of these relationships graduate from the 20% to the 10% to the 5%. And so the effective freelancer tiered service fee has progressively continued to come down. And if you look at the graphics that we pushed in the stockholder letter, you see how the take rate coming from the freelancer side on the tiered service fee keeps on going down, right? So those are the headwinds. And they would have continued to happen if it weren't for the changes that we've made recently. And so the changes we've made recently, one was a - just a onetime bump increase to the clients' payment processing fee. So when clients pay us by credit card on Upwork Basic or Upwork Plus, until a few months ago, we would charge them an extra 2.75%. Now that rate went from 2.75% to 3%, right? So that's a onetime increase to the price. Second thing we've done was launching a new version of the virtual currency that is - that we called Connects that the freelancers use in order to bid on jobs. And we've reduced the number of free Connects, but we've also reduced the cost of Connects. And the goal was to both improve quality. So forcing people to think a little bit more about whether they were truly interested and available and qualified for a job before applying to it, but also, at the same time, improving monetization. The third thing we've done was to introduce Upwork Plus and Upwork Business. Upwork Plus has a $50 per month subscription fee. It is more or less the same product that used to be called Upwork Standard, which did not have a subscription fee. And so there's $50 per month of additional revenue coming from the clients that choose Plus instead of downgrading to Basic. And then Upwork Business, we've talked about in the past. A big chunk of Upwork Business is upgrading clients from Basic or Plus to Business. And Business has a $500 per month subscription fee, and the take rate does not have a sliding scale like it has for Basic and Plus. And so it's 10% on the buyer side, 10% on the freelancer side. And then last but not least, there's a lot of payment-related - we have a pretty deep payments and fintech platform embedded inside of Upwork. And there's also sublevels both on the buyer side, the payment side of the platform and on the freelancer side, the disbursement side of the platform where we constantly innovate to either reduce the cost or increase the revenue that comes from it. In some cases, it's things that we control on our end. In other cases, it's things that we renegotiate with the providers that we partner with.

Okay. Great. And if I could, a few follow-ups. So now that we're - now, I guess, over a quarter into the new membership plan, could you update us on what you're seeing in terms of the adoption of Upwork Plus versus Basic? And then the other question is just in the shareholder letter, you referenced - client spend retention trending back to 100%. And it seems like you called out the U.S. marketplace, the retention rate not being as good. Do you have any thoughts on why that particular channel is - the retention - why the retention is not as strong as it started out at?

Sure. Yes. So let me start with the second one. So U.S. to U.S. domestic clients, so clients will only use us to hire U.S.-based freelancers, tend to spend more early in their life cycle. They tend to post higher-value jobs, hire people at a much higher rate, and the early jobs tend to be longer. However, they tend to retain less, which is new information, frankly, to all of us because we are just starting to see the early cohorts from last year. And conversely, what we find is that clients who starts with the U.S. domestic marketplace and then graduate to hiring people outside of the U.S. end up spending significantly more than clients who stay within the U.S. marketplace. And so one initiative we've started to work on is that graduation path. How do we get clients? It's actually it's getting the training wheels off, if you will. People are more comfortable hiring in the U.S. But we find that they end up spending more and retaining more if they also hire freelancers outside of the U.S. And so we're progressively building a graduation path, if you will, where once we feel like you're comfortable enough with using the platform, we introduce you to non-U.S.-based freelancers. Now to answer your question on why do clients in the U.S. retain less when they only hire U.S.-based freelancers, we don't know for sure. But that is one very clear explanation for this, which we hear constantly, it's what the industry calls, conversion or temp to hire or contract to hire, right, which is if you find a great freelancer who's based - especially if they're based in the same states that you're based, and you decide that you want to work with them full time, at that point, you just make them your full-time employee and you take them off of the platform. And it's something that, historically, we've discouraged people to do. We've considered it to be a fine, essentially, like we'll fine you and we'll say that you're misbehaving for doing it. I think you'll see us over the next few quarters building that capability to the product and saying, look, if you want to convert this person to a full-time employee, that's actually completely fine with us, but you have to pay us a conversion fee just like you would for a traditional professional services firm, if you will. To your question about adoption, the way the system is designed, everybody who - every company that we believe to have more than 10 employees starts with a trial period on Plus. So we're not getting people to start on Basic and upgrade them to Plus, we are starting all of this bigger companies on Plus. They get somewhere between 1 and 2 months for free. And after that, they can choose to either stay or opt out and go to the Basic plan. And at this stage, what we found is that, that approach works better and that the opt out rates is better than what we expected it to do. And so at this stage, the Plus revenue is completely incremental to business that we would have had before, and the churn rate or the downgrade rate from Plus to Basic is lower than we expected it to be.

Our next question coming from the line of Drew Kootman with Cantor Fitzgerald.

I wanted to go back to sales hiring real quick. Once you get through this big push of hiring over the next couple of quarters and year, just curious how you see that the team involving over time in terms of size. And then second question, just any changes to the longer-term margin expectations? And more importantly, what kind of time frame are you looking at now that 2020 might be impacted a little?

Yes. So there's two ways you can accelerate the sales-driven revenue. One is more salespeople and the second one is better sales productivity, right? And so what I mentioned, I think, in the stockholder letter is this year, about 20% of incremental revenue comes from sales, which means 80% of our incremental revenue does not, right? And so at this stage, sales continues to represent a pretty small percentage of the overall business and a relatively small percentage of the incremental business. That is not what the time looks like. That is not what our ambition looks like. So we need sales to grow significantly faster than the business in order for it to contribute a more meaningful part of the overall business and an even more meaningful part of incremental business. So I think you'll find us to continue - as long as the engine continues to run well, you'll see us continue to hire salespeople at a pretty significant rate. And given a certain level of productivity, sales headcount is going to be growing more or less in line with revenue that is driven by sales. That being said, obviously, we do want to invest in sales productivity improvements. And that includes marketing, it includes product, et cetera, et cetera. The impact it has on the model itself, as you can imagine, what it means is sales and marketing as a percentage of revenue will go up slightly. It's not going to be overnight, and it's not going to be massive, but you're going to see a few percentage points over time. Conversely, because it allows us to get to scale faster, you'll see us get leverage in G&A and in R&D faster than we would have had before. So essentially, the goal is to try to get to that equilibrium faster than we would otherwise by accelerating some of the sales hiring.

And as we noted in the stockholder letter as well is that the marketplace is pretty profitable at generating cash as well as the managed services, which allows us to invest in the Enterprise investment.

Our next question coming from the line of Logan Bender with First Analysis.

Just a couple. As far as usage patterns that you see in the market, just from macroeconomic perspective, have you seen any kind of cautious behavior or anything that would indicate maybe a slowdown in spending environment from the corporate side going forward? And then maybe just talk about the business versus enterprise opportunity, as far as like your sales team focus. Or you think the better opportunity that's maybe more profitable as the business or the large Fortune 500s there or employees 1,000 and more? Or where is your - where are you kind of fine-tuning your sales focus going forward with the new sales reps?

Sure. So I'd say we're not seeing any impacts of the economy. One of our economies looked at how's the U.K. business doing compared to the risk of Brexit and the general fear that small businesses have in the U.K. And it doesn't seem like much is going on. So we seem to be fairly resilient to exchange rates, to economic cycles and all of that. To answer your question about mid-market versus the larger companies, we - most of the hiring we're doing right now is in the mid-market. In fact, a lot of the hiring we're doing right now is fairly junior sales development reps. Because the existing sales development reps who've been with us, for some of them for a couple of years now, are getting promoted to account executives. So we're building this pipeline of relatively entry-level junior sales development reps who eventually graduate to become sales executives on the mid-market team and from there potentially become sales executives on the large accounts and strategic team. So partly, it's a faster sales cycle. It's easier to find lots and lots of resources to be able to serve that market, et cetera, et cetera. Partly, it's also a time frame issue. The - we're very proud of the relationship we have with Microsoft and some of the other Fortune 500 companies in the world. And I do think that if you look 10 years out, these will be major, major clients and a significant part of our revenue. But if you look at it today, the mid-market is going to be probably a much bigger opportunity over the next 2 to 3 years than the very large companies. And so the result, we'll continue to hire some amount of sales reps in the large accounts and strategic team, but we'll be doing a lot more hiring in the mid-market team. And to answer your question about products, therefore, Upwork Business should be growing faster than Upwork Enterprise.

Okay. Great. And then one - maybe one last quick one I can sneak in. Of the 10,000 leads that you mentioned, how should we think about the split between U.S. and abroad opportunity in that? If you can give us more dimension on that.

Yes. Right now, we're looking - so our sales team is based in the U.S. We don't have a ton of foreign language capabilities. And so at this stage, we're really looking at U.S. and Canadian companies only. And in some cases, we're looking at the U.S. subsidiary of any international company. When we have a U.S. company that also operates abroad, we'll be happy to serve them abroad as well. But for the most part, we're really targeting U.S. and Canada-based companies only.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect. Have a great day.