Ladies and gentlemen, thank you for standing by, and welcome to the Upwork Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Denise Garcia, Investor Relations. Thank you, please go ahead, ma'am.

Thank you. Welcome to Upwork's discussion of its Fourth Quarter and Full Year 2020 Financial Results. Leading the discussion today are Hayden Brown, Upwork's President and Chief Executive Officer; and Jeff McCombs, Upwork's Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. In addition, any statements regarding the current and future impacts of the COVID-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 that are beyond our control and changing rapidly. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 when filed. In addition, reference will be made to non-GAAP financial measures. Information regarding reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this afternoon on our Investor Relations website at investors.upwork.com. As always, reported figures are rounded, unless otherwise noted. Comparisons of the fourth quarter of 2020 are to the fourth quarter of 2019, and comparisons for the full year 2020 are to the full year 2019. All measures are GAAP unless cited as non-GAAP. The prepared remarks corresponding to the information reviewed on today's conference call will also be available on our Investor Relations website shortly after the call has concluded. Now, I'll turn the call over to Hayden.

Thanks Denise, and thank you all for joining today. I'm pleased to report that fourth quarter revenue grew 32% year-over-year to reach $106 million, and fourth quarter gross services volume grew 33% year-over-year to reach $728 million. This is our best year-over-year growth performance since going public and was driven by our aggressive execution during the pandemic to enable our customers with a better way to work. I applaud our team for greatly expanding our operating capabilities to serve our customers today, while simultaneously building towards the future we envision. A reordering of the world of work with independent talent at the heart of every business. COVID has forced the mass experiment of remote work across the business landscape, proving what we always knew. Old models of work were in need of, and capable of change. People can be just as, if not more, productive when not in an office. Nearly a year into the pandemic, we see the remote work is actually getting easier, as shown in our recently published Economist Report: Future Workforce. But, to focus solely on remote work would be to overlook something much more important. While most see 2020 as the year when people figured out how to work remotely, we see a much bigger trend emerging. There is a new openness across the spectrum of our clients to rethink not just where work happens, but to rethink who does the work and how it gets done. They realize that much of their critical work needs a more flexible, dynamic, skilled, and efficient solution - it needs to be done by independent talent. And this is where the real power of Upwork's work marketplace is unleashed. Companies that truly want to work with the best people for the job at hand are realizing that many…

Thanks, Hayden. Our fourth quarter and full year financial results were strong, and I'm looking forward to the year ahead. I joined Upwork to be part of a team passionate about our mission, and I am proud to see that we are executing strongly against our strategy, increasing efficiencies in our business, and delivering products ahead of schedule. Now, I will discuss the financial results for the fourth quarter and full year 2020 and provide our revenue and EBITDA guidance for the first quarter and full year 2021, which we included in our earnings release filed earlier today. GSV in the fourth quarter and full year was $728 million and $2.5 billion, respectively, and represents strong year-over-year growth of 33% and 21%. Revenue grew 32% year-over-year to $106 million in the fourth quarter and grew 24% to $374 million in the full year 2020. Marketplace revenue for the fourth quarter was $97 million, reflecting a year-over-year increase of 34%. For the full year 2020, marketplace revenue was $338 million, an increase of 26% from 2019. Managed services revenue grew 15% to $9.3 million in the fourth quarter and was $35 million for the full year. I want to touch briefly on our strong revenue guidance. Our business typically experiences a seasonal slowdown starting in November and peaking in the last two weeks of the year. This year, the seasonal slowdown was virtually non-existent, which we had not assumed in guidance. In addition to particularly strong acquisition and quarter-over-quarter retention, this atypical seasonality was a key driver behind the revenue beat in the fourth quarter. We hypothesize that this was due to COVID and COVID-related restrictions reducing holiday travel and social gatherings and increasing the amount of work that was being done during this period relative to prior years. We wouldn't…

[Operator Instructions] Our first question comes from the line of Nick Jones from Citi. Your line is now open.

Thanks for taking the questions. Two from me. I guess first can you expand a little bit, Hayden, on Project Catalog, and what the early traction is in beta? And now what you're saying, once it's launched. And then I guess a follow-up on that is, how should we think about Upwork's take rate as the project catalog gains traction? I think the price points that could potentially increase take rate over time is more transactions funded through there. Thanks.

Thanks, Nick. Yes, we've been really gratified by the response to the market to catalog so far. It's really a great way for new clients to discover what's possible on Upwork and really dip their toe into freelance talent overall, and it has a fantastic discovery engine aspect to it, and then they can use catalog as a way to then graduate to some of our larger, more complex project-based work with freelancers on the platform. It's also shown to be a nice way for clients who are already using Upwork for larger complex projects to round out and add-on additional small projects to complement the work that we already doing in the marketplace. So, it's still really early in the offering. We launched it a month early in January, but the signs are very positive and we see it as complement as we build out the single work marketplace that really provides our clients and our talent, all of the ways that they want to work together and collaborate inside the ecosystem. And Jeff, I don't know if you want to address the points on take rate?

Sure, Nick. So on take rates, as you know our pricing for Project Catalog is the same model that we have for Talent Marketplace. However, given that the average size of the projects on project catalog, we would expect to be smaller, more of them will end up in the higher price tiers. So on average we would think that, will have a higher take rate there and as project catalog represents a larger and larger percentage of the overall market, it will drive upward pressure and take rate as it does that.

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

Thanks for taking the question and Happy New Year, Hayden, I wanted to ask a little bit more about the cohort spend, I think you mentioned pretty strong growth across GSV for both 2020 cohorts and cohorts prior to 2020 and client retention rates reached 102. So can you talk just about the drivers here of cohort spend and obviously the main question is sustainability and I think one of the - my second question here Hayden and Jeff, I think one of the core imperatives last year, Hayden, was to generate more high quality matches. And I wanted to hear the progress there and maybe Jeff, as that relates to your comment on the changes on the Connects program, if you can just elaborate a little bit more that'd be great. Thank you.

Thanks, Ron. What we've seen has been really strong broad-based acceleration of spend across pretty much every client cohort, both from new clients and retained client. So GSV from clients acquired before Q4 was up 30%, GSV from clients acquired before 2020 was up 27%, and that was part of what drove our CSR to 102% this past quarter with that 6,400 increase, which is you know the largest [indiscernible] we've seen since being a public company. So our view is that, this is an increase that is certainly not just related to pandemic related work. What we're hearing from clients is they're really shifting workloads to freelancers that are part of their core operations, deepening their relationships further with the freelancers on the platform. And our view is that, this is really sticky. As we hear from customers, they don't want to go back to the ways that they're working pre-pandemic, they see Upwork as a continued part of their ongoing operations. And so our expectation is that, this higher spend retention in many cases really will stay and stick well after the pandemic recedes, because the client behaviors themselves are changing and the value they're seeing in these relationships is really long-term. So this is a highly sustainable model for them. In terms of your question around about high quality matches in that focus last year, I'd say we've been making really good progress there. Some of the dynamics we've mentioned around Connects revenue and some of the changes to that program has been part of powering more and more matching on the platform, especially as you've seen the influx in freelance talent over the last year continue to be so strong. We're very focused on making sure that every job that's posted, every client is finding exactly [indiscernible] talent match for them. And so that Connects program is just one piece of the puzzle, along with a lot of the data science changes and tactical changes on the platform that we've been making, to continue to improve fill rates, accelerate the time that clients and freelancers are finding to actually get matched up on the platform, et cetera. And so we feel like the progress there has been really positive and actually has been one of the pieces of the puzzle, in terms of making sure that matches are happening quickly, spend is happening. And that is showing up in both the acquisition spend numbers and the retention spend numbers.

Our next question comes from the line of Marvin Fong from BTIG. Your line is now open.

Great. Thanks for taking my questions and congrats on the great quarter. Just a question, couple of questions. So last quarter you talked about the targeting 20% growth. And in 2021 and now you've actually given us guidance, it looks like it's a little bit above that maybe 23% to 26% growth. Just curious if - you could talk about the KPIs that you're tracking. Are you seeing actually stronger growth in that, than where we stood three months ago? Just talk about your optimism there. And then my second question is just on enterprise, so, if you can just kind of elaborate more on how the salesforce performed there and what might be embedded in your guidance for 2021? Thanks.

Sure. Thanks, Martin. Appreciate it. With respect to guidance, as we looked at Q4, we saw really strong performance really across all dimensions of the business, including acquisition and spend per client both setting record levels for us. And as we think through the year ahead, we're assuming that we're able to - our guidance reflects, we are able to continue to build on those elevated levels and acquire new clients. And you're right that does reflect 23% to 26% growth for the year, ahead of what we had guided last quarter to 20%. And we really, we saw a inflection point change in - in the performance of our cohorts in Q3 and Q4. It does make it really tricky to forecast that going forward, because the predictability of customer behavior in the past is, it's a little bit less, given that it improved so much. But we're assuming that we can hold on to that higher level performance, given that we really do think that the changes that are happening are permanent and structural in nature and all that's reflected in the guidance going forward. And so those numbers, the performance we saw both in acquisition, retention inform our retention curves and acquisition forecast that are included in the guidance. And then with respect to sales, we will be currently - sales represents 10% to 20% of our overall economics of the business depending upon what metrics you look at. The team is - has done great work [to digest the] [ph] changes that we announced in Q4 and are continuing to execute against the strategy and we’ll evaluate in the future when we want to increase our investment there, as we get more and more data in terms of the overall performance.

Our next question comes from the line of Brent Thill from Jefferies. Your line is now open.

This is John, on behalf for Brent Thill. I had two questions on Project Catalog, and I realize it's early, but if you could talk about maybe how much you assuming, this year's 2021 guidance. And then, if you could give some color on year-to-date trend. Obviously, we're almost at the end of February. I mean, it sounds like all the strength from Q4 has sustained, but any sort of color you could add would be great. Thank you.

Sure. So, with respect to project catalog, as we mentioned in the script, is included in our overall guidance. It is early, so we don't have a ton of great data to forecast a rapidly growing project like Project Catalog, but we've taken our best guess is reflected in our overall guidance. In terms of January performance and how we're trending for the year, obviously, we've taken that into consideration, in terms of the guidance that we provided. We've seen good strengths continue across the business and that's reflected in the guidance.

Our next question comes from the line of Logan Thomas from Stifel. Your line is now open.

Hi, Hayden, Jeff. I was wondering if you can talk about the enterprise segment drill down on that a little bit more, given the changes that you're seen in talent procurement in organizational behavior, and the benefit that's having on the platform. I guess, specifically as it relates to enterprise, if you could just talk about sales productivity and maybe how conversations you're having or what you're seeing in the sales cycle, which can tend to be longer and how you're thinking about that year-to-date? And then the second piece would just be, if you could just address your views on competitive intensity in your key markets. How you're thinking about competitive interest and the opportunity and your position against that? Thanks.

Sure. I'd say our client mindsets, as we talk to folks in the market are really evolving rapidly in our favor. We talk to enterprise customers all the time, who are increasingly creating their virtual talent ventures on Upwork. Moving more organizational capabilities to use independent talent in more and new ways, and that's really where the conversations with clients are shifting. From last year, I think, they were really focused on how do we work remotely, and now we're starting to have more conversations around. We work remotely now by default, how do we use that as a real tool to tap into this independent talent workforce, which is out there, all around the globe ready to work for us. And that's where we're hearing conversations with clients right now, shifting from the where to the who and how element of really how Upwork can be part of their talent strategy is going forward, and understanding that has to be, how they stay competitive in the market, well, after this pandemic recedes. In terms of the competitive intensity, we know this is a big attractive market and so competition never surprises us. We also know from experience that competitors can really struggle to build big successful businesses. So, be stay very focused on our strategy, investing in and maintaining the advantages that we have. I think, some of the big ones that we focus on our scale, we know we already have more than 3.5 times the gross services volume and more than approximately two times the revenue of the next largest player in our space. And that means we have the deepest, highest quality talent network, which is a huge differentiator for clients of all sizes, as they're contemplating how to engage with independent talent at scale. They…

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.