Good day, and thank you for standing by. Welcome to the Upwork Q2 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Evan Barbosa, Vice President, Investor Relations. Please go ahead.

Thank you. Welcome to Upwork's discussion of its second quarter 2021 financial results. Leading the discussion today are Hayden Brown, Upwork's President and Chief Executive Officer; and Jeff McCombs, Upwork's Chief Financial Officer. Starting this quarter, we are publishing a shareholder letter rather than prepared remarks. If you haven't already read the letter, please find it on our IR website. Following Hayden's brief introductory 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 law. 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 quarterly report on Form 10-Q for the quarter ended June 30, 2021, when filed. In addition, reference will be made to non-GAAP financial measures. Information regarding a 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 second quarter of 2021 are to the second quarter of 2020. All GAAP measures or all measures are GAAP unless cited as non-GAAP. Now I'll turn the call over to Hayden.

Thanks, Evan, and thank you all for joining us today for our Q2 2021 earnings call. We are pleased to be reporting our record second quarter results with 50% year-over-year growth in GSV and 42% year-over-year growth in revenue, driven by what we believe are permanent changes to how work gets done. The Upwork team is executing well across the board, as demonstrated by our strongest sales quarter ever and 27% year-over-year growth in active clients. We continue to plant critical seeds of innovation as we build the world's most comprehensive work marketplace. In Q2, we continued to innovate with the launch of Talent Scout, which offers businesses hands-on recruiting assistance without the expensive price tag of a traditional staffing agency. With each passing quarter, we couldn't be more excited about our progress and about the sustaining long-term potential of our business. Upwork is the world's largest work marketplace as measured by GSV. We are more than a staffing firm, a giga company, a job board or a talent network. We are where more of the world's highly skilled freelancers and businesses build trusted long-term relationships so they can achieve more together. We help companies build virtual talent benches of freelancers to augment their in-house teams, fill skill gaps, increase agility and provide their employees with much needed reinforcements, helping prevent burnout. And we empower freelancers to work on their own terms, giving them more control over when and where they work, with whom they work and on what they work. Now more than ever, Upwork is uniquely positioned to serve an expanding $1.3 trillion total addressable market. The remote work experiment undertaken during COVID has changed work forever, shattering the biggest impediment to broader freelancer adoption by getting companies of all sizes comfortable with engaging team members remotely. Organizations now know they can actually build and grow their businesses with remote talent. At Upwork, we have known this for a long time, and we are leaning into this current opportunity to open our customers' eyes to the dramatically underappreciated potential of what can be gained through working with distributed teams of independent talent. We will continue to execute with discipline against our winning strategy. Our single strategic priority continues to be innovating, scaling and promoting the work marketplace for the world. In doing so, our goal is to become the de facto always-on solution for all companies of every size hiring freelancers and managing freelancer programs at scale, something from which we believe all companies should be benefiting. Thank you for joining us on this journey. We will now open the call to your questions.

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

Great. Just -- I guess just maybe 2 around Project Catalog first. I guess, Hayden, can you give an update on how Project Catalog is coming along with early traction? Maybe highlight some of the areas for improvement to really get more people engaging with it that maybe aren't familiar with Upwork as -- coming up for maybe smaller projects? And then, Jeff, GSV per active client, how should we think about the impact of that as Project Catalog takes off? Are we going to see kind of more active clients doing cheaper projects and therefore, kind of bring that number down over time? Thanks.

Thanks, Nick. So we're really pleased with the traction we've seen with Catalog so far. We mentioned that 10% of new customers in the past quarter actually are now coming in through Project Catalog, which is a testament to the fact that this is a really nice way for engaging new customers who are getting their feet wet with the freelancing model and really see Catalog as a very discoverable way for shopping for projects from freelancers, getting going and then really converting into higher spending customers over time. Because we actually are seeing catalog customers not just using catalog but actually cross-buying other types of projects inside of our marketplace, including for example, either bigger projects inside of our traditional kind of core business, as well as existing buyers of other work types -- of actually cross buying into catalog. So we're seeing this both as an acquisition engine today as well as a cross-sell opportunity with existing customers inside of the talent marketplace buying Project Catalog, which is really great and really validating the thesis around how we decided to go into this new product line. So it's really a bigger story longer term for us around giving customers a single experience inside the work marketplace, which gives them all of the ways they want to work from small projects through to bigger long-term engagements, and Catalog is just one piece of that story. And definitely, it's early innings, Nick. This is just a couple of quarters into us having this offering. But the fact that already we're seeing some of those nice numbers around new clients coming in, just is a signal of, I think, what we can do with it longer term as we continue to invest.

And with respect to your question on the impact of GSV per client, I guess I'd echo a couple of points that Hayden mentioned. First off, it's early, so I don't anticipate any material impact soon with respect to that metric. Secondly, another point that Hayden mentioned, a number of these clients, we will acquire through Catalog-related channels, and then they will hopefully use other of our product lines. And so in that respect, I wouldn't expect those clients have a materially different GSV per clients. There certainly could be the success of us getting new clients that just operate within Project Catalog and have a lower GSV per client, which would be fantastic. And that would drive up our acquisition of new customers. So overall, the revenue in GSV impact would be positive. And as we have more and more success, if they are catalog-focused customers, it certainly could have an impact of those metrics, but it's obviously a positive for the company overall.

Your next question comes from the line of Ron Josey of JMP Securities.

Great quarter on that GSV number. I wanted to maybe follow up just on the Project Catalog, Hayden. You talked about the 10% of new clients are now coming from -- the talent marketplace are now coming from Project Catalog, I believe. Can you talk just about the profile of these new clients? Are they similar to what you see on the talent marketplace? And is that 10% maybe think bigger picture? Does that get to a quarter? Where do you think that goes, call it longer term? And then maybe a quick follow-up question, actually speaking, it looks like take rates came in a little bit lower on the core marketplace here at like 13.2%. Can you just remind us what might have been driving that, is it just bigger clients on the platform or is there something else?

Yes, Ron. So I'd say we are not seeing anything that's meaningfully different about these customers versus other customers who are coming in through catalog. And I think that really speaks to the fact of two things. One, we've always had customers on Upwork who were doing smaller projects. That's always been part of our mix. And so certainly, by having catalog, this is just another fantastic way to serve either existing demand that we've had, and this is just converting them really well and continuing to appeal to perhaps a broader base of customers who have smaller projects needs that maybe weren't met as well by Upwork in the past, but now this is a higher converting model that's more appealing for those customers. So I think that's been part of our mix historically and serves those customers and other new customers who are like them really well. The second thing I'd say about those customers is, people that we're serving don't have a really fix mental model about how they want to transact, whether it's via catalog or via a talent marketplace or newer offerings like Talent Scout, they just have a need. So customers really come to us thinking, "I got to get something done. I've got a problem I've got to get solved." They're not fixated on how to get that work done, and they're really looking to us to show them how that work can get done. And so as we are building these new products, it's just opening up customers' eyes to new ways that they can get their problems solved. And a lot of these are kind of age-old problems they're trying to get solved. So I think customers have a very open mind in terms of how to get work done. When we're showing them new ways to get the work done, it's really lighting the lightbulb for them of, "Oh, this is amazing. I have a problem, Upwork is now solving that problem," and they have a very open mindset in terms of what that can look like and catalog is just kind of checking another box for them in terms of giving them an easy way to get that work done.

Sure -- And with respect to take rates, I'd bucket it into 2 different categories. So First off is 2 very positive dynamics and one is largely some accounting dynamic. So on the positive dynamic fronts, we have clients and freelancers growing nicely into their relationships very quickly and moving into the lower tiers of our tiered service fee offering. So that's a great dynamic that we love to see. Secondly, we're having success with the changes that we made to our Connects program in Q4 of last year, which is driving GSV and revenue, but impacting overall take rate and those changes will lap around Q4, a little bit into Q1 of next year. And then the second category is some accounting dynamics related to deferral and some adjustments that -- nothing notable. But part of that take rate does come from those accounting adjustments as well.

Your next question comes from the line of Brent Thill of Jefferies.

This is John Byun for Brent. So I had a question regarding linearity in the quarter. I mean how was the activity by month? Were there any notable patterns? And as you get into summer now, I mean, are you seeing any normal seasonal slowdown? Or is the activity staying better than normal with the shortage of the talent out there? And then second question maybe is on the GSV trend. I mean you've had some really big sequential jumps and increases. Should we be thinking at all about any sort of seasonal trends there at all? Or is that something that goes on for the foreseeable future given the increasing interest?

Sure. No problem. So first off, our business activity remains at elevated levels, and we're starting to see some normal seasonality patterns remain as the world kind of enters into some more normalized state post-COVID, our business metrics in terms of linearity throughout the quarter and the year are looking much more like they did in prior years to 2020, which easily showed no seasonality. But if you look back at 2019, 2018, our numbers are looking closer to that, where we see a slight drop from Q2 to Q3 as companies and freelancers take vacations and summer travel and all that sort of stuff. So we're really excited about as we're moving through this period of COVID, the business remains very elevated. We basically had a pull forward of demand from all of this, and we're continuing to operate at very high levels. Given all that, we feel great about our outlook, and that's why we increased the annual guidance and are calling for 30% year-over-year growth in Q3.

Your next question comes from the line of Rohit Kulkarni of MKM Partners.

A couple of questions. One on enterprise suite. Any color on kind of what types of projects, say, for example, some of the logos that you have in the letter. What types of projects are they doing with Upwork? Any new use cases that these enterprise customers that are unlocking for you? And quick clarification, the 29 new enterprise customers, are they net new to Upwork? Or are they converted from being non-enterprise customers? And second, kind of broad question on marketing and the rebranding campaign. Any learnings from how that has been received? It's been a few months since you launched it. Any signs that you feel encouraging around doing more or less of kind of top of funnel rebranding marketing?

Sure, Rohit. So the enterprise customers, these are new logos to our enterprise plan specifically. So we have typically done a mix in that area of upgrades from the existing marketplace as well as net new customers who are coming in to Upwork for the first time. And so the use cases there really do range across all of the categories of work on the platform. A lot of it is in design and creative, so these can be campaigns around marketing efforts that these customers are doing as well as technical work. Those are 2 of the big categories that our enterprise customers are typically doing. And I'd say the interesting thing that we're seeing with enterprises now is they've really shifted their mindsets from where they were a couple of quarters ago, where I think the whole world was in this place of crisis and adaptation and it was a very different place. And now companies are really in this mode of, they settled in, they're looking for solutions that are going to be enduring and with them for the long term. And that is really where they're building programs that are kind of enduring and part of their next phase of business as usual. I think that is very reassuring for us and the landscape as a whole as we're in this very different place than where businesses were a few quarters ago. To your specific questions around the brand, I'd say we really revamped our messaging, our creative assets, the ad campaign last quarter. Really trying to broaden out what we were talking about with regard to this work marketplace to really shift perceptions in the market around what Upwork is around the types of strategic and programmatic work that can be done through Upwork, and that can be done with freelance talent. Because I think we have today both an awareness gap in the market with single-digit unaided awareness, as well as a perception mismatch where too often, the world at large doesn't realize the level of strategic and high-impact work and the range of use cases that can be done with Upwork and with Upwork freelance talent. And I think we've started to see from the early campaigns and the testing that we've done that we are definitely having some impact with customers with that messaging. Now we have a long way to go for sure. And so we want to build on some of those learnings from Q2 and lean into that more in the back half of the year.

And two additional points on the 29 accounts. In general, our sales team benefits from the ability to tap into clients that are already spending on the marketplace. So that's a fantastic lead gen channel for them. But then the level of spend typically increases materially. So if it's a question of kind of incrementality, they significantly increase their spend once they become an enterprise plan customer. So it's not simply a replacement of existing spend just categorized differently.

Your next question comes from the line of Marvin Fong of BTIG.

Two for me, perhaps your guidance for full year, obviously implies some results or some thoughts about fourth quarter. Maybe you could just give us some clarifications on some of the underlying assumptions you're making about the fourth quarter. You identified a seasonal slowdown in the third quarter. What items might pick back up in the fourth quarter in terms of either client growth or GSV per active client? And then another financial modeling question. Your EBITDA guidance, $16 million to $20 million, would imply some slowdown given you've already generated about $14 million year-to-date. If you could just kind of call out where you might be increasing your investments since that seems like what you might be doing, that would be appreciated.

Absolutely. So with respect to our guidance in Q4, obviously, we're taking into consideration a number of dynamics, particularly if you look at a year-over-year perspective. So if you go back to Q4 2020, as we mentioned on the Q4 call, there were strong growth that surprised us in December people, in essence, didn't do the normal travel and visiting family that they would normally do. We clearly expect that, that dynamic will revert to normal behavior in Q4 of this year. Generally, if you look back at our quarter-over-quarter growth rates from Q3 to Q4, pre-2020, they're relatively muted as well. The jump from Q1 to Q2 benefit -- reflects the fact that the start of the year is often relatively slow as people are on holidays and don't ramp up nearly as quickly and therefore, you have a lower period in Q1 that caused the quarter-over-quarter jump to happen in Q2, then you have a little bit of a seasonal slowdown in Q3, relatively slow growth on a quarter-over-quarter basis into Q4. And with respect to EBITDA guidance, and obviously, all of that comes at, we're incredibly pleased that as our hypothesis that COVID has changed behavior permanently is playing out in the numbers that as pandemic severity has gone down, we're not seeing that drop in activity. We're seeing that activity remain at elevated levels. And that's what we're calling for going forward. And obviously, it's not going to show the shape of our 2020 curve. It's going to be much more normal seasonality. In terms of the EBITDA guidance for the full year, you're absolutely right. It does reflect greater investment in the company. We're excited to be able to invest more, both in performance marketing, in our sales team as well as in brand marketing that we see a really big opportunity that we talked about in the shareholder letter. And so we think this is a unique moment in time to do that, and we'll start spending more in Q4 on that point.

[Operator Instructions] There are no further audio questions at this time. Please continue.

This concludes today's conference call. Thank you for participating. You may now disconnect.