Upwork Inc. (UPWK) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Upwork Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the conference over to your speaker today, Denise Garcia. Please go ahead.

Welcome to Upwork's discussion of its third quarter 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-19 pandemic on our business and current and future impacts of actions we have taken in response to the COVID-19 pandemic are forward-looking statements and related to matters beyond our control and are 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 quarterly report on Form 10-Q for the three months ended September 30, 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 third quarter of 2020 are to the third quarter of 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 third quarter revenue of $97 million, representing 24% year-over-year growth and exceeding the high end of our guidance range. Gross Services Volume grew 23% year-over-year and accelerated quarter-over-quarter due to a continued secular shift toward remote and independent work, coupled with strong execution by our team against our growth strategy. Our third quarter performance was fueled by both existing clients and new clients, who adopted Upwork in record numbers. At the start of the quarter, we recognized that some clients continued to face pandemic-related challenges, and we prepared for the possible impact on our business. Our stronger-than-expected third quarter was driven by our customers’ accelerating adoption of Upwork, acknowledging the value we offer, regardless of their situation or condition. The value we create is inherent in what we are. Upwork is the world’s largest work marketplace, as measured by GSV, connecting businesses with independent talent. We enable trusted relationships between clients and freelancers that result in high-quality work outcomes, at a speed and with a value otherwise unachievable. Once clients realize what can be accomplished on Upwork, they proactively and strategically build a Virtual Talent Bench of freelancers with whom they work time and again, across a widening range of use cases. And, in turn, freelancers’ earnings power on Upwork expands as they build a business best suited to their own needs. Thus, we are leading a shift to a new way of working. Along those lines, I would like to read a quote from a recent article in the Harvard Business Review titled Rethinking the On-Demand Workforce, which surveyed 700 U.S. business leaders on the topic. The authors observe “That companies are leveraging high-skills platforms in large numbers came as no surprise to us, because in recent years we’ve seen how they can increase labor force flexibility, accelerate time to market, and enable innovation. We were impressed, however, by the variety of engagements that companies are making with the platforms. They’re seeking help with projects that are short- and long-term, tactical and strategic, specialized and general. What’s more? 90% of the leaders we surveyed, C-suite and frontline, believe these platforms will be core to their ability to compete in the future.” As the pioneer in our space, we have been building capabilities and tools for a world now increasingly ready to use them. Our vision is to place independent talent at the heart of every business. Everything we do is, and will continue to be, focused on powering our customers’ progress. With that backdrop, I’d like to discuss our third quarter performance, first through the lens of our ability to generate new business via client acquisition and then through the lens of our ability to generate new spend via existing client retention. After that, I’d like to highlight a couple of timely topics related to what we’re doing to continue to make Upwork the single destination for every business to realize their full potential by working with independent talent. Starting with new client acquisition, we maintained the elevated pace of new client registrations which appeared in the second quarter. This boost translated into meaningful GSV and revenue growth during the third quarter. In fact, we are seeing that cohorts of our clients acquired since the beginning of the second quarter are spending at higher levels than similarly aged cohorts from prior quarters. We expect the strong recent performance in new client acquisition will continue to positively impact our growth moving forward. Nimble execution against our strategic growth initiatives has contributed to the growth we’ve seen in client acquisition. We strategically deployed messaging to resonate with businesses in search of remote work solutions, and simultaneously increased our investment in paid acquisition channels by 41% year-over-year, at equal or better cost per acquisition. We were able to do this by expanding our SEM presence on mobile, expanding our international reach and improving our bidding algorithm. As a result, both our U.S. and international client registrations grew at record levels. In addition, we continued to drive improvements in SEO performance as well as conversion optimization through the funnel. In Q3, we saw an 89% year-over-year increase in client registrations from the SEO channel as a result of a disciplined and systematic set of improvements we have been making over the past year. We also launched a new content management system to develop and deploy our key SEO landing pages more effectively. Now, let’s shift gears to client retention, which was strong in the third quarter. Client spend retention was steady at 100% and the number of customers graduating to be core clients, which are our largest spenders, grew significantly faster in the third quarter than it had in previous quarters. Our focus has been to make it as easy as possible for clients to work more deeply and broadly with the full array of talent on Upwork, and for talent to similarly expand their earning power on Upwork. We hear from clients again and again about the new potential they unlock for their businesses by building their own Virtual Talent Bench of team members on Upwork. Once a client works with a freelancer on Upwork, they consider that freelancer to be part of their extended team, perpetually available on their Upwork Virtual Talent Bench. The client may go back to that freelancer every month or once a year, but that connection doesn’t typically end with the project. Our goal is to help clients unlock productivity gains by utilizing an ever deeper and wider Virtual Talent Bench. And the benefit to talent is similar, by building a roster of clients that they work with on a repeat basis, they spend less time winning new work, and more time doing the work they love, with clients that they have strong and trusted relationships with spanning many years. I’d like to highlight a client making strides to develop their Virtual Talent Bench. One of our large technology clients recently transitioned all open employee requisitions to Upwork and decreased their time to hire 10x from 80 days down to eight days. They were able to lower costs by more than 50% while achieving their growth goals. Based on the success of the program, this client is working to expand the program by 50 or more freelancers from Upwork by the end of the year. They have told us how extraordinary it has been to find people to do work that previously they only imagined they could have done by full-time employees. And the Upwork talent working with this client is able to leverage their skills and expertise while growing their own business. We are working with some of our largest clients to unlock the full benefits they realize by building a Virtual Talent Bench on Upwork that integrates their Upwork and non-Upwork talent on our platform. Our Bring Your Own Talent or BYO service, which grew 37% year-over-year in Q3, allows clients to centrally and seamlessly manage the entirety of their independent workforce program and projects on one platform, whether or not the talent was sourced via Upwork, and whether or not that talent is an independent contractor or employed through our employer-of-record service. Enterprise clients, in particular, have started to uncover the full value of this service, which gives them the visibility and controls they require for high scale workforce programs without sacrificing strong relationships with incredible, trusted talent for critical work. Now, I’d like to drill down a bit on our enterprise customers, specifically as it related to our sales strategy. We recently completed a comprehensive analysis of the economics of our sales efforts. The key finding was that the lifetime value of the customers on our Enterprise service plan are compelling, but that of the customers on our Business service plan, relative to the support costs, are less so. While Enterprise plan customers spend an average of $1 million per year, Business plan customers spend less, yet carry significant costs to support. We are confident that we can acquire and support the type of clients currently on our business plan more efficiently through our self-service marketplace solutions - the Basic and Plus plans, thereby freeing up the Business plan-related sales and support resources for higher-return investment opportunities. Consequently, we are strategically realigning our sales organization to target new accounts with greater than 250 employees, and new clients with fewer employees will be served via our self-service offerings. Our sales team is refocusing its energy on selling the Enterprise plan, targeting its capabilities against the right opportunities. As part of this process, we will reduce our sales team by approximately one-third, focused primarily on those who were selling the Business plan to smaller customers. We do not take such decisions lightly, but rather with full consideration of what is best for all of our stakeholders. These actions do not change our near- or long-term growth expectations. In fact, this move sharpens our sales focus on our strategic priorities of getting more, bigger clients and enabling more spend per client. Our recent analyses, resulting in tighter account targeting criteria and a smaller, more fit-for-purpose team, strengthen our ability to grow the business faster by selling our Enterprise plan into truly large accounts that meet our criteria, enabling them to build a virtual talent bench of high-quality freelancers to unleash their full business potential. One recent example of an Enterprise customer building their virtual talent bench on Upwork is Zendesk, an integrated customer support software company with more than 4,000 employees. Zendesk became a client in the second quarter, at first experimenting with how to uncover strategic value using talent found on our work marketplace. Now, their virtual talent bench is extensive and growing, with teams across Zendesk using Upwork across seven categories from accounting and administrative support to engineering and software development. Next, I’d like to highlight another way in which we are expanding our platform to more effectively serve our customers. Last week, we announced the launch of Project Catalog, a curated collection of pre-scoped projects easily purchased via an e-commerce click and buy experience. It provides a new way for clients and freelancers to work together on the Upwork platform and is part of an ongoing expansion of the Upwork experience. Project Catalog is in beta now, and it will launch to all customers in February of next year. We created Project Catalog based on feedback from freelancers and clients looking for expanded ways to engage on Upwork. For clients, Project Catalog represents an easy way to quickly purchase some of the most popular services freelancers offer, from website development and graphic design to videos and digital marketing. For example, a client that wants to create an animated explainer video can search Project Catalog and quickly choose from a range of pre-packaged options. For new clients, Project Catalog represents an additional pathway to discovering the incredible array of work solutions offered by the world of talent on Upwork. For existing clients, Project Catalog can augment larger and more complex role-based work with smaller, well-defined tasks, such as adding voice over to a video project, logo design to a brand identity project, or copywriting to a website redesign project. For our freelancers, Project Catalog is an opportunity to augment the businesses they’ve built on Upwork with a new way to market and sell the services they do time and again, thereby amplifying their earning power. The response from freelancers to the Project Catalog beta has been impressive, significantly exceeding our goals within the first few weeks. Long-time Upwork freelancers have told us how excited they are to create a new income stream by showcasing their top services, such as building responsive websites with WordPress, creating explainer videos or writing a series of blog posts. In closing, I want to look to the future. This has been a challenging year for the world, and it’s impossible to know what lies ahead. Despite the uncertainty, Upwork sees a future that is rich with possibility and opportunity for our clients and talent. We are committed to removing the constraints of established work norms in order to unlock our customers’ true potential. Through the Upwork marketplace, our customers don’t just find each other, they discover a transformational way of working. We know this firsthand at Upwork, where approximately two-thirds of all of our internal talent are freelancers from the Upwork marketplace. Our vision at Upwork is that independent talent works at the heart of every business. And I couldn’t be more excited about our trajectory for helping more businesses discover the power of independent talent, making that vision a reality. I’ll now turn the call over to Jeff to discuss our financial results in more detail.

Thanks Hayden. I’m now one quarter in and have had the opportunity to dive into our business. A few things stand out. First, I’m impressed by the passion of the team and its focus on delivering on our mission. Second, as I suspected when I decided to join Upwork, the pandemic is driving material, structural changes in the way work is done. And third, we are well-positioned and have an amazing opportunity to support freelancers and clients in achieving their potential in this new world of work. As I dive into the business, I am evaluating what metrics will be most helpful for the investment community in evaluating our performance and potential for value creation. Some of our current metrics, including client spend retention and core clients, are fairly lagging in nature and don’t provide as much real-time insight into how the business is currently performing as we’d like. We are planning an Analyst Day in the first half of next year to provide a more in-depth look at the go-forward strategy, near-term priorities and potentially new metrics. Now, let’s look at the third quarter numbers. GSV in the third quarter was $655 million, a 23% year-over-year increase. Revenue in the third quarter was $97 million, reflecting a 24% year-over-year increase, driven by marketplace revenue growth. Marketplace revenue was $88 million, reflecting a year-over-year increase of 26%, driven by freelancer tiered service fee revenue, payments revenue which benefited from more foreign exchange fees due to growth in international revenue, and revenue from connects, which are our virtual tokens for freelancers. Managed services revenue was $9 million. Core clients grew by approximately 5,600 to 139,000 at the end of the third quarter, with new core clients in the quarter growing 24% year-over-year. Client spend retention was 100%, and we expect the spending strength of existing clients in Q3 will help push this metric up in future quarters. As Hayden referenced, our retention performance in Q3 exceeded our own expectations for a couple of reasons. First, we anticipated that many of our small business customers would be negatively impacted by macroeconomic conditions in ways that would cause them to pull back spending on our platform. While this did happen to some of our clients, it was less than we had prepared for. Second, cohorts of clients we acquired in the past year performed well, bolstering GSV and revenue, even though they will not impact our client spend retention number this quarter. Our overall take rate in the third quarter was 14.8%, and our marketplace take rate dropped slightly from 13.7% in Q2 to 13.6% in Q3. This decrease was almost entirely driven by an increase in deferred revenue resulting from more revenue being earned in the 20% and 10% tiers in Q3 than in Q2 due to strong client acquisition in Q3. Non-GAAP gross profit was $70.4 million, or 73% of revenue. Non-GAAP sales and marketing expenses were $32.4 million, representing 33% of total revenue as compared to 32% in the third quarter of 2019. The increase was driven by investments to drive brand awareness, performance marketing, and sales. Non-GAAP R&D expenses were $18.3 million, representing 19% of total revenue, consistent with the third quarter of 2019. Non-GAAP G&A expenses were $14.3 million, representing 15% of total revenue as compared to 18% in the third quarter of 2019. We will continue to drive leverage in G&A as we scale for growth. Transaction losses were $0.7 million in the third quarter, representing approximately 1% of total revenue, at the low-end of our typical 1% to 2% range. Consistent with Q2, the pandemic and faster payouts have not increased transaction losses as much as we had anticipated. Non-GAAP net income was $5 million in the third quarter of 2020 compared to non-GAAP net income of $1.1 million in the third quarter of 2019. Our basic and diluted non-GAAP net income per share was $0.04 in the third quarter of 2020 as compared to a non-GAAP net income per share of $0.01 in the third quarter of 2019. Adjusted EBITDA was $6.7 million in the third quarter compared to adjusted EBITDA of $2.0 million in the third quarter of 2019. We are guiding fourth quarter revenue between $96 million and $98 million and expect year-over-year GSV growth to be in line with revenue growth. We remain bullish on our business opportunities and will continue funding growth initiatives while closely monitoring our performance to achieve our ROI thresholds. Looking at the investments we plan to make in Q4, we expect EBITDA margin to be in the low-single digits. 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 over $155 million at the end of the third quarter. As we look to the future, while uncertainty in the overall environment remains from COVID, we are excited about where the business is headed. In terms of 2021, we are targeting revenue growth of 20% with an EBITDA margin in the low single digits. We plan to provide formal guidance on our next quarterly earnings call. Thank you, and we will now take your questions.

Thank you. [Operator Instructions] And our first question coming from the line of Brent Thill with Jefferies. Your line is now open.

Good afternoon. Hayden, as it relates to the change in the mid-market sales team, I'm curious if you could just walk through how you're reallocating towards the enterprise. And is there any disruption that happens in the short-term given some of deals that were in flight, or is the disruption minimal? And you think that ultimately this is just a kind of a win-win move in making this change?

Thanks, Brent. Yes, the big theme for this quarter around the sales transition is I think it is a win-win. It's really that we're getting a lot more focused. So we're not anticipating any kind of disruption. Our existing customers, we're going to continue to support in a really smooth way that works for them and for us. But as we step back and look at some of the findings that we had from the analysis that we did, number one was we concluded that we can really serve the types of customers we had been going after with the business accounts, really more cost effectively with a self-service model, and I think that's a really positive thing for us. Second, it's critical that we did reconfirm that our enterprise accounts have compelling economics, spending on average $1 million per year, and going forward, we're really focusing our reps on a much more set – targeted set of opportunities with big returns, with those bigger account types. And I think we're setting them up for success with some of the changes we're making to really nail those opportunities and those large accounts, which is where there is a lot of market opportunity for us. So, against the backdrop of so much having changed with COVID, and our client mindsets having evolved rapidly towards a higher comfort with remote work and enterprise customers, I think really leaning into new strategic opportunities, I feel really good about how we're set up with the sales team to go after those opportunities and tapping into companies like the one we talked about earlier, a large tech company moving all of their racks onto our platform and really leaning into, I think what is, for a lot of executives, this light bulb moment about how they can work differently as their organizations have adapted to remote work and are really learning new tools and behaviors. So this is a big moment, I think for a lot of organizations they're rethinking their strategies and their talent strategies. And I think our sales team is now set up in a new way to go after where we see the biggest opportunities in the market with really no disruption to the current business.

Maybe just a quick cleanup on – for Jeff on just linearity. What you saw throughout the quarter? And into the current quarter, it sounds like a lot of companies are seeing the underlined foundation strengthening a little bit. What are you seeing just high level directionally in terms of that improvement?

Sure. Thanks, Brent. The performance of the business has been strong and with COVID impacting things we're seeing week to week volatility, albeit at elevated levels. So we're confident in the guidance we provided of 20% to 22% for Q4. And yes, that's really how we're thinking about it.

Great. Thank you.

Our next question coming from the line of Ron Josey with JMP Securities. Your line is now open.

Great. Thanks for taking the question. Hey, I want to ask maybe a bigger picture. You're now three quarters, and three plus quarters, and your role here is leading the organization. Understood we just talked about the changes of sales force, but maybe from a product side or just overall, can you just talk about how some of these changes you made in the past couple of, call it, nine months or so have led to this, call it, back to 20-plus-percent growth in revenue in GSV? And then also I thought it was interesting to launch the product – Project Catalog, maybe talk a little bit more about that if you could. Thank you.

Sure. So I think what we're seeing is really the strategy is coalesced around our position being the leader and having built a true work marketplace for our customers, which is differentiated in bringing together multiple ways that they can use our platform, both clients and freelancers to really connect with – on the client side, connect with a distinct, independent professional talent all over the world and build these virtual talent benches that are very enduring, very strategic for them, and really enable them to work with independent talent for both small through large projects. And I think that's a value proposition that's been true for our business for many, many years, but this year we've really been kind of accelerating. I think the tempo of some of the work around the product expansion, and that is evident with some of the more recent releases, including the project catalog piece, which I think rounds out our offering in terms of giving customers yet another way that they can connect with independent talent, get started quickly with small projects that then can graduate into longer term and media relationships that we're already really good at serving through our platform. And so as we've been launching that product in its beta form, what we've been hearing from customers is they're excited to have yet another way that they can use Upwork to do additional types of work or in the case of freelancers for them to package up type of projects that they've been doing for customers in many cases on a repeat basis. And now they can build those income streams even more readily by prepackaging that work and have it be instantly kind of a click and buy experience that customers can activate immediately. So the product strategy has always been about being a single definition, where clients and freelancers really can take advantage of the full breadth of ways that a work marketplace such as ours can serve them and pull together that full potential that we unlock for customers and so Project Catalog really rounds that out. I'd say the second thing that I think you're seeing from us is just the execution strength over the last 10 months has been a real focus for us. And that's been true on the marketing side with a lot of improvements on acquisition, on brand marketing. I mean, we've been really building a lot of the momentum there, and I think that's coming through in the numbers that you see for Q3 and something that we're going to be continuing to push on as well as things like partnerships we've been working with Citrix, with Zoom, with others to really be sure that we are putting Upwork front and center where our clients are, as well as making sure that the tools that our clients are using are front and center in their Upwork experience, where they need to be. And so all of this is about continuing to make sure that we are the market leader in our space and are bringing exactly what our customers are looking for right for them. At this moment when I think they're really looking to us for, all of the needs that they have in a time when remote work and independent talent I think is even more top of mind than ever before.

That's great. Thank you.

And our next question coming from the line of Logan Thomas with Stifel. Your line is open.

Hi, thanks for the question. Wondering if you could talk about the mix of GSV in the quarter by job type? Maybe with an emphasis on the newly acquired clients, wondering if GSV has been more in line with the historically disclosed mix 65% being larger jobs, 20% agency spends, 15% on gig work or if that mix has shifted in more recent quarters, particularly this quarter? And then the second part of that on mix is just performance by job type and vertical, where you're seeing strength, and where you’re – how you're thinking about the sustainability and some of those verticals, whether it's IT, marketing or web services related, et cetera. Thanks.

Sure. Thanks for the question. I'll start with that. Really the strength that we've seen in the quarter has been very broad-based. So largely across all categories have seen strong growth, an acceleration from Q2 into Q3, a few categories of particular notes that showed strength in acceleration was web mobile software development, sales marketing, design and creative. There were a few that also performed strongly, but not as per – not as strong that included translation and IT and networking services. We also saw strength both in newly acquired clients, as well as those clients that we have acquired in the past. So performance from a retention perspective was up, spend was up on a per client basis, really strong performance across the board; nothing to call out in terms of a particular area that was stronger or weaker, including agency versus non-agency. So really the strength was broad-based across virtually every dimension.

Yes. And if I can just add to that, Jeff, I think if you zoom out and think about what that trend really means for our business, I think that kind of underscores the fact that some of it is the secular shift of people just saying, oh, this remote work thing that I thought was so hard and was holding me back from using a platform like Upwork for the range of things that Upwork has always offered customers suddenly that speed bump for them has become not an issue. And so the full range of things that we've offered for quite some time, we're seeing that lift across categories, across customer types, across hourly work and fixed price work, across agency work and independent contractor work. And so again, I think that is a testament to not just the breadth of our platform, but the fact that I think customers are just finding it so much more feasible once they've gotten comfortable with working digitally, working remotely, suddenly all of these things become appealing to them. It's not just about a single vertical or a single work model, which is exciting, I think a great tailwind for the business going forward.

Okay. Thanks, Hayden and Jeff. And if I can just tack on one more to that, we typically thought of the businesses would be more driven from a supply and demand perspective by the client side, of course. But just if you could spend a moment on the freelancer side and there's obviously been a pretty unprecedented supply of freelancers, is there a way that you're thinking about this uptick in interest from the freelancer side and has that had any measurable or meaningful benefit to results or to the trends that you're seeing and within that, some of the products around that you've created like the Expert-Vetted talent program, how has that performed and are you seeing meaningful demand from that, from the client side? Thanks.

Sure. We're seeing a very high engagement from our freelancers at all levels. Certainly we've seen that at peak levels during the pandemic and have continued to be really strong in Q3. I'd say this is where we're really trying to lean-in to their feedback and make sure that they have the full set of tools and opportunities to build their businesses and really make sure that they're getting the full income that they want out of working on Upwork. And that's where launching new things such as Project Catalog or the offering that we've been building out around direct contracts, which is another way that they can actually build their existing book of business that they may have outside of Upwork through the Upwork global billing platform, with escrow with the security that we can provide them using everything that we have there. It’s another example of how we're really trying to support them through the pandemic and make sure that they have all of the business tools that they need to build their freelancing businesses. So I'd say we are seeing interest from our customers on things like the Expert-Vetted program and they rely on all of the trust signals that we've built up over many years, including that one and others such as top rated and all of the ratings and reviews that are a rich part of the Upwork marketplace, for sure. But I'd say we're really just leaning on both the client side and the talent side right now to listen to customers, understand where they want new signals or new ways to earn income in the case of our talent in particular, and trying to innovate around those experiences to make sure that we are just building the velocity there and increasing their experiences, so that they are building all of that great income and talent supply on our platform and that's something we're seeing a lot of success in the past quarter.

Okay. Thanks for the detail Hayden.

Yes.

[Operator Instructions] And our next question coming from line of Marvin Fong with BTIG. Your line is open.

Great. Thanks for taking my questions and welcome aboard Jeff. I'm just wanting to follow-up first on Project Catalog, a very interesting product. I'm just curious from your testing and the way you're thinking about it strategically, should we expect it to be entirely complimentary or do you expect any kind of cannibalization or competing with the existing way you're going to market? And then secondarily on Project Catalog, do you think that will start out as sort of a smaller project size kind of in line with what other competitors that have a similar go to market? And then I have a follow-up.

Thanks, Marvin. We really see this as highly complementary to the existing business, not cannibalistic in that business something that really adds on to the existing ways that clients and talent are already using Upwork. So in the case where a customer's already doing an animated video, they can use Project Catalog to get the voiceover work done for that video in even higher velocity way, for example. And on the talent side, again – where talent are already doing many of similarly repeated projects for customers and they can now package those up, have their existing clients do that work in a way that we still keep that work on our platform, but also attracting new clients to buy those services from them using this offering, which is I think very attractive for new clients to immediately imagine and see the outcomes that they're going to get from freelancers through this more pre-packaged experience. So our belief is, that this is a nice way for new customers to have an entry point into the marketplace that may start small. And to your question about the size of the projects, I think our belief is that many of these will be smaller than a typical project on Upwork, but it's a great gateway for them to get a taste of the platform, get an understanding of what an independent freelancer can do for them. And then we have all of the robustness of a very mature product offering that has the proven characteristics around building those long-term relationships, where our talent can help graduate those customers from that smaller project into a longer-term relationship, an hourly contract, perhaps a larger complex project. And that's where I think there's a beautiful synergy between those smaller projects in the catalog offering and the larger complex work, and the longer project work, which is already such a staple on Upwork. So I think there's a great benefit to both of those things working really well together. And that's the feedback that we've gotten so far from customers. I mean, it's very early days of course in the offering, but they really do see how these things can be both an entry point for new customers and students are saying, hey, I can bring in new businesses way as well as add-on to large projects, smaller offerings around the edges that could be additive as well.

Great. Thank you for that one. And then my up is just on, what's – you're talking about the cost. I think you said your cost per acquisitions are doing very well at or better than historical rates. I'm just curious, how would you characterize sort of the supply environment in terms of pricing or cost per clicks, stable, and then secondarily, given sort of the rate at which potentially clients are becoming more valuable, do you think you might increase the amount you're willing to spend on – before to onboard the clients and thinking that their lifetime value is going to be higher? Thanks.

Sure. Thanks for the question. So in terms of what we're seeing or how we're responding to the lifetime value improvements and what we're doing from a cost per acquisition perspective, our methodology obviously to figure out where we can earn the required return that we're looking to achieve. So as our lifetime value – as we have competence our lifetime values are changing and will persist, we'll adapt our marketing strategies and cost practices that we're willing to spend. We clearly saw improvements in the quarter on both the LTV front and the cost per acquisition front, and are adjusting. We do need to make sure that we pay attention to the sustainability of those. So clearly it's limited data that we have, we don't know how long these levels will stay, but they're continuing to perform at this level. In terms of the question of are we seeing prices get tighter, kind of as we're moving into Q4. We haven't noticed anything material yet on that front, so it's not impacting our ability to spend whatsoever.

Great. Thanks very much, Jeff. Appreciate it.

Sure.

And our next question is coming from the line of Rohit Kulkarni from MKM Partners. Your line is now open.

Great. Thanks. A couple of questions on the CL3 alignment, I'm wondering whether you can give more color on kind of the enterprise sales people, are you hoping to have them kind of categorized as like hunters versus gatherers or are they more along the lines of more of a client relationship? And then in terms of – kind of second question would be on 2021 guidance as in impressive, I think like the 20% revenue growth, but wondering like on the margins what – kind of directionally, what types of incremental investments are you looking at, next year, if you could give any more color on those lines?

Sure, I’d say – I would say that the sales team – I'd say broadly can characterize it as, a split of hunters and gatherers. We have a strong land and expand model that includes both identifying and growing customers who sometimes do start as self service customers inside of our marketplace offering. And so we will see at times, very large companies that have individual users or department leads that actually find out in our marketplace account begin using one of our free or low cost offerings. And our sales team actually identifies those users and then builds the relationship and helps grow those account into true enterprise customers that have that spend characteristics that we talked about ramping to that $1 million plus target. We also have teams that are working on maturing companies that don't start out self-service on our offering at all, but rather work with our sales team directly to say, begin a pilot project, have some initial use cases that they build out using Upwork, have those wins inside of a team or a department. And then, those become wonderful proof points inside the organization to go ahead and scale out further across teams, departments, and across the entire company. And so it really is a land and expand motion that can start in a couple of different ways, depending on whether the account may have already started organically using Upwork or whether that relationship is developed directly through the sales team. But it really is something that our team – our management side of the house does spend time and energy building those relationships and helping expand those accounts over time. And I'll let Jeff comment on some of the other aspects of your question.

Sure. Thanks. So with respect to 2021, we noted that we're targeting 20% revenue growth. We're excited that we were able to achieve the 20% plus goal that Hayden set out earlier in the year. And we said with respect to 2021 that we would do so with an EBITDA margin in the low-single digits. Our top priority right now is to continue investing progress. And it's a significant market and there's lots of opportunities to continue doing that. We'll provide more details in the next quarterly earnings, but it'll be across the board from marketing products, Project Catalog, et cetera. So we're excited about the opportunities to deploy more capital against the opportunity and look forward to providing more insights into that in the next earnings call.

Okay. Thank you guys.

Thank you. And I'm not showing any further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.