Upwork Inc. (UPWK) Earnings Call Transcript & Summary

Hi, everyone. I'm Nat Schindler. I'm very happy to have Upwork management here. We got both Hayden Brown, CEO; and Jeff McCombs, CFO. So we get the -- this is the A game here. We get the whole team. So we're really excited to have you and luckily both local. So this is nice you come up the Hill to have a conference.

Thanks for having us.

Yes.

Let me just start out with the question that everybody is asking about absolutely everything, macro. How -- walk through actually -- and because it's not just macro what people are feeling in the future. Walk through with me a little bit -- and us on how the pandemic affected you and affected your customers and suppliers, the talent? And how you're feeling about the future and what you're seeing?

Yes. Thank you for the question. We could not be more excited about the future and frankly, the pandemic really, I think, kicked off letting the genie out of the bottle around remote work. And that was a big deal for us because prior to the pandemic when we went to go talk to customers about our offering, we would often hear from them things like, "Wow, that sounds amazing, we want the access to the talent you have on your platform, the value proposition around quality, speed, value, all of this is really great, but we don't actually have a remote work strategy or we don't know how to do remote work with our talent. So we don't know that we can adopt your platform." And after the pandemic, everything we saw with this massive experiment of remote work, every company has figured out something around how they can work remotely, tools for this, culture for this, some aspect of this. Even if they themselves may be back in the office, sometime, part time, certainly, remote work is a much more viable strategy for so many companies around the world and in the U.S. So this has been a tectonic shift in the landscape and certainly for customers thinking about Upwork, this barrier that they had in the past, perhaps around remote work wouldn't work with my team has completely changed. And now with this global kind of war for talent and people really trying to figure out how they can serve, how they can find talent that they need, remote work is no longer this barrier. In fact, it's the opposite where they're really trying to figure out how do they use the remote work skill they learned in the pandemic as an asset and a catalyst for accessing the talent they need outside the borders perhaps where they were previously hiring. So that has completely shifted. During the pandemic, we saw certainly some acceleration in our business that was meaningful. But as we look at the future, we think this is really just the beginning as work is in the beginning of a transformation. I think the next 5 to 10 years, the work are really going to look very different than even what we saw in the last 2 years, as people have just started to pull the thread on if remote work is possible for their businesses, how does that really change, not just where they're working, but who they're working with, how the work is getting done, what the tooling looks like. And like all of these things, I think, are going to be really transformed for many businesses. So for us, as much as we've seen a lot of change and acceleration in our business over the last 2 years, we really believe the exciting chapters are ahead of us as we work with many more companies, many of whom are still not even aware about Upwork to really serve them with the talent and the tools that they need for this next chapter of work, which is much more distributed, much more remote and has many attributes that we'll be building together with them.

All right. So it's clear you're in the early stages of a transition from staffing companies and other contract work providers occurring offline to occurring online. Can you go a little deeper into that and just say, help us work through the numbers of where we are in that transition, where are -- where is the world versus going to a manpower to staff up something that really should be remote versus going to an Upwork?

Yes. I mean we see this as over a $1 trillion market opportunity. We're in the early innings. Our platform has a few billion dollars of GSV projected for this year. So this is very small relative to the total addressable market. And I definitely want to make sure we come back also to your question about the economy.

Yes, I wanting to get that too.

So let's not forget about that. I think that is really important. But in terms of the transformation, I think broadly in the ecosystem, customers are very familiar. Many of them are familiar with contingent work. They are using manpowers or staffing agencies and all of this. But the full digital transformation of what it means when you start thinking about connecting with talent online and what it means when you can really unlock the full power of that, that's a very different paradigm. Because then suddenly, the speed, the cost savings, the agility that you have as an organization, it's a completely different model than when you're just working with an off-line provider to get some local kind of bodies in the door to do some stuff. And so our model is radically different than that in terms of what it offers from a value standpoint and in terms of how the businesses engage with the talent and engage themselves in terms of -- they're not just filling holes in the business with some contingent workers. They're usually building programs where they are -- these are highly skilled workers coming in remotely, but coming in and working directly with their teams on a lot of different programs that are very different from how kind of, I think, contingent staffing typically works.

Okay. And so related to this and related to the first question, going back to the economy question. I would -- it would be my guess that the staff -- contract work of any sort is a canary in the coal mine for a recessionary impact because companies are less -- more likely to cut back on projects first, then cut back on employees. And then probably is a come out of a downturn much quicker because it's easier to turn on contract labor than it is to turn on employees. Is that a reasonable assumption? And what are you seeing occur? And I think, obviously, you're getting share gains. So it's hard to really separate out the 2, but what are you seeing occurring in the economy?

Yes. I want to make sure you get [indiscernible], Jeff. But what we've seen in our business, if we look back even to 2008, 2009. I joined in 2011. So I wasn't there in 2008, 2009, but I do know what our numbers showed in terms of, frankly, a very different performance than what staffing providers have seen in previous recessions. So for us, we've actually seen acceleration in recessions. We were growing at 100% year-over-year in 2008, which was an increase from the previous year. So I think for us, we've historically seen our business during times of economic uncertainty, people actually turn to us as an alternative when they are not comfortable hiring full-time workers. They don't want to lay that cement in their business. They're thinking, well, I don't really have clarity, I'm going to use solution that gives me more flexibility, more cost savings. Typically, on our platform, people are saving 30%. That's something we've seen documented again and again with our customers. They get the flexibility of knowing they can turn those contracts on and off as to the needs and demand. So we've actually seen a very different pattern, I think, than the traditional staffing industry in terms of how our business has performed through good times and bad times. Typically, when the economy is looking darker, people want from us more of that flexibility. And then when the is coming back, they actually want from us the ability to hire workers really fast because the median time to hire in our platform is 1 day. And so they can bring those workers on immediately, start having them add value to their business when, in fact, it takes so much longer to hire a full-time worker. So we see that, that -- those inflection points in the economy actually are times when we tend to do really well. Jeff, do you want to add?

Yes. And there's a variety of different dynamics and trends in the macro economy that impact us. And obviously, if companies are hiring fewer folks, that's one, that there is a downward pressure. But in the face of that, there's a share shift dynamic that you alluded to, that in times of disruption, companies are more likely to look at different ways of doing things than they did in the past. And so we view our biggest competition is the old way of doing things. And individuals anchor on how they know how to hire and staff projects from the past. And so whether the economy is accelerating or decelerating, those things that cause them to have to shift more quickly cause them to think about us more than they would have had that not happened. So that's the positive impact that we saw in 2008 that caused our active clients to grow by over 100% year-over-year. And that's -- those different trajectories of the downward pressure of the overall economy having less hiring, but share shifts taken away. So who knows how all this unfolds going forward. But in the face of people reevaluating how they get work done, our value proposition resonates incredibly well in terms of can I higher talent more cheaply, faster, better and have a more flexible cost base. So whether you are emerging from that inflation or from that recession and you're nervous about layering on fixed cost base of FTEs, you typically want to bring on talent like you get on a platform like ours. If you're in a robust economy, you can't get talent quickly enough, so you go to a platform where you can get it in a day which is us. And as you enter into a recession, you don't want to have those fixed cost base, so you're more open to the value proposition that we have in our platform.

Makes sense, but I want to go push back only a little. Coming in just after the start of the Ukraine war, you guys pulled your guidance. Now partially, that's supply, but can you double-click a little bit on that and why that's somewhat contradictory to share gains and easier growth in a world that is becoming more and more remote.

Sure. I'll start. So we -- I think it was March 7, we announced that we were suspending operations in Russia and Belarus. And we have about 10% of our overall business activity in Russia, Belarus, Ukraine as measured by if either side, the client or the freelancer is in that region. So we were suspending operations. We didn't know what was going to happen with Ukraine at that point in time. Was it going to fall to Russia quickly? And so we were uncomfortable. And that day, we were also at an investor conference on stage, and we felt it was prudent to pull the guidance because we didn't know how all that would play out. It turns out that after Q1, we think there was about $1 million of overall impact in Q1. Now that was less than we would expect in Q2 because there's only 1 month of quarter, the announcement of suspending operations wouldn't kick in until May 1. And so we do think that there's a more impact in Q2 than in Q1, but we were very much impressed by the durability of the platform that Ukraine, while it fell quickly, activity in Ukraine, it immediately spiked back up to 90% or over 90% of pre-invasion levels. One of the areas that we're particularly concentrated in that region is our web and mobile software development category, where about 25% of our global activity in that category is done by freelancers in that region. And so we didn't know how that shock to that system would impact things. And we monitored closely the fill rate, what percentage of jobs that are posted or filled by folks and the hourly rate of the projects, how would they move. And it was remarkable that we saw no meaningful impact from those 2 dynamics. Now clearly, if Ukraine were to fall, that would be another shock to the system. So it's still possible, but we were really impressed by the durability of the platform. And so I think it's a different dynamic than the overall macro economy one.

Yes. I want to really make that clear. We pulled that guidance based on the actions we were taking to suspend activity in that region. Had nothing to do with the macro outlook at the time. It was really just based on those actions that we were taking.

Makes sense. And that actually brings up a really good question because you're saying that the durability of the platform. And your yet 25% in certain high-value categories are coming from engineers in there. Now that's the supply side of your equation, talent. Does that tell you that you have enough supply from around the world that even if the best engineer in the world happens to be in Russia for doing this project, maybe there's some awesome Ruby on Rails guy in Russia, and he was getting lots of work. But if some big clients in the U.S. because you have very few, if any, real clients in that area, right? Payers. So some big client in the U.S. wants to do something, they really can just switch to some guy in the Philippines or some guy in wherever who could do it the same. Is that basically what you have learned?

Yes, I think we learned a couple of things. One was there was a ton of resiliency in the talent supply of the platform, where when certain regions of the world, the talent was not available to do work, other talent was able to come online and do that work. So that was definitely one takeaway. We have such a global talent base in 180 countries. Certainly, there was that offsetting factor. We also saw, I think, a lot of talent did relocate out of Russia and Belarus. And we don't know exactly how much of that will continue to happen, but we do have a program, where we're very clear to articulate to our customers -- our talent side customers, this is not penalizing you. We are not trying to sever our relationships with you. We simply know we can't be operational in these 2 markets for a lot of reasons. And so your reputation is safe, your money is safe. If you relocate out of Russian and Belarus, you can reactivate your profile from another part of the world where we are operational. And we have seen a number of our customers do that and come online in Latvia or Estonia or Poland and continue working with us. And we have really robust identity verification to make that possible. So we have seen some of that activity persist. And then I think the final point has been the Ukrainian side of the equation has been huge. I mean the Ukrainian resilience that we've all seen, I think, globally has been astonishing and specifically on our platform, Ukrainian talent base, we've seen sign-ups at all-time record levels, activity from Ukrainians at all-time record levels, both in the web and mobile software development category, I think, partially offset over time, some of that supply loss that we probably did see from Russia and Belarus as well as in other categories as well. So we've seen a lot of activity there, and I think a lot of support from the Ukrainians who are very behind the decision that was very unfortunate, but we did feel the right one that we had to suspend our operations in those other 2 geos. So a lot of different dynamics there.

So can we expect that you guys will be totally comfortable reinstating normal guidance behavior as of the -- going forward at this point.

Thanks for the question. So we reinstated guidance on the Q1 call for both Q2 and the year on the revenue front for the year. We didn't reinstate EBITDA gains. We widened the range on our revenue, we typically would be about $10 million. We widened it to $20 million. And we didn't reinstate the EBITDA primarily because we hadn't yet made the decisions of like if we end up at the [ 590 versus 610 ], what -- would we make any different cost-based decisions? And we just felt a bit weird providing a clear EBITDA range with that additional variability. And we said that if our revenue range likely tightens this next quarter, then we would probably provide EBITDA guidance this quarter. Our -- what we flagged was the rest of the business outside the region was right on track with our prior guidance. The 2 big variables that were impacting the wider range from the revenue perspective were, we want to know what level of substitution is going to happen, meaning I'm a client that's working with talent in that region, and I'm now no longer able to work with that Russian or Belarusian talent. What do I do? Do I end up stopping working the platform? Do I find someone new? Does that person end up moving out and do I continue working for them? And we have our hypotheses as to how -- exactly how it will play out, but we want to see the data. Lots of people have appealed to move out. We proved many of those appeals. We ourselves, in essence, a customer on the platform. We've moved a bunch of our folks out. So there's that point. But we want to see how that substitution plays out, and that will determine how much of the revenue or business activity that was being done in Russia and Belarus continues on. And then the second point, this is really more related to the full year guidance as opposed to Q2 is what happens in Ukraine. Like we felt comfortable it wouldn't be a short -- a quick fall of Ukraine. We didn't know how that would appear in the first -- when it first happened. But we don't know on a long-term basis what happens. And so we wanted to make room in the guidance for the various geopolitical outcomes that could play out. We haven't come up with our new guidance and you'll be hearing more about that in Q2.

Okay. So probably, when as far into that as we can go at this point, let's go a little different. As you look to make the switch, switch this $1 trillion worth of potential contract labor or talent acquisition value that can be moved online. As that happens, what are the real important technologies to move it online that you really need to work on and build out that your clients are requesting so that they are going to be more capable of doing it?

I think a lot of them we have. I don't think it's -- at this point, I don't think it's a lot about technology breakthroughs. I think it's a lot more about behavioral change and awareness. I mean this is why one of the centerpiece investments we're making right now is around brand awareness because we have the solutions, we see the proof points every day, we have the customers being so successful with this model and yet so many other customers who could be doing that simply are not aware that this is happening. They have disbelief when we share with the metrics like hours to make a hire or median hiring time of 1 day on our platform, like literally their minds kind of like explode that this is a possibility today or they think that -- or can't be done this way because they're so used to these old models still. So we're really trying to raise the awareness, move that sub-10% type of awareness that we think we have in the market today around our own brand and around the category to something much greater because we know and we can see the success that's happening today. And if only the other 90% plus of businesses out there were aware that this solution exists, they could be having the success too. So I think it's less of a technology breakthrough that's needed, it's much more of awareness and a willingness to try the solution that some of the other customers are having success with.

Makes sense. And I know the marketing has been the big controversy since your Q4 guide when you started this campaign. How do you -- brand marketing is always hard to judge. How -- and especially when you're talking about enterprise brand marketing, it's -- how are you judging that campaign? How are you judging the awareness you're creating? And how -- where do you make the determinations whether or not it's working or not?

Yes. We aspire to take the exact same approach we've had on performance marketing and sales from an investment philosophy perspective, understanding there's some key differences in terms of the ability to measure it. And what I mean by -- we aspire to have the same approach is that on performance marketing and on sales economics, we want -- we're asking the business to grow, to invest as much as they possibly can, wherever we can get a target return meaningfully above our weighted average cost of capital. So if we can get a roughly 25% IRR, and the performance marketing team comes and says, "Hey, listen, I have $10 million more I can deploy on social, SEM, whatnot", we want them coming with that because we know that's a good long-term investment for the company, even if it's a negative EBITDA impact in the quarter in which it is spent. That same approach applies to brand marketing. The challenge, obviously, is the ability to connect the dollar in with the output is much harder. And so we are taking very much a triangulation-based approach. We're doing our own media mix modeling analysis to try to correlate the dollars in the various marketing activities we have with the performance of the business. We're looking at top of the funnel metrics, whether it's traffic, client registrations, whatnot. We're looking at the conversion funnel impact. Does this brand spend -- allow folks that come to us to have greater awareness, trust and whatnot and move through that funnel at a greater pace. We're also doing brand awareness trackers to understand the sentiment on a more granular level. Our hypotheses are we can move unaided brand awareness meaningfully from where it's at. And secondly, that if we do that, it will translate into real business outcomes. This is a journey. It's not something that we turn on and a month later, we understand how is the spend performing. What we flagged in the last quarter call was that we saw good progress in terms of traffic activities were up meaningfully versus we used Q3 is the quarter we were comparing to because we didn't have a lot of brand spend in that quarter. And client registrations were also up meaningfully against -- both traffic and client registrations were up 20% to 25% relative to Q3 numbers. So those are good early metrics. What else -- would you add to that anything?

Yes. I mean, I think that's how we're thinking about. We have to be patient in terms of brand investments going to take time to kind of see the full fruits. We have these early kind of success points that we're looking at is. It looks like this is working for us. But we just hired a new CMO, who started in January, Melissa Waters. She's phenomenal. And she's really guiding the ship in terms of the investments that we're going to be making through the rest of this year and ahead. I think we'll be laser-focused on building this brand awareness around Upwork, around our category and really cracking open, I think this giant opportunity that we have to really educate customers around the huge successes they can have here around. It's kind of amazing to -- I think so many of our customers are -- they can have better speed, better quality and better cost on our offering, and they kind of can't believe they can get all 3 of those things. So we have some work to do to really educate the market around this.

And we are looking at the benefits fairly broadly in terms of what is both the acquisition and retention benefits, not just for our enterprise customers, but also our self-service customers. What's the benefit on our free renter side. We are much more a demand-constrained, client-constrained environment than freelance. But we know that when we typically run these campaigns, we also have an influx of freelancers join the platform. So we're looking at the totality of all that and trying to understand, hey, do the investments make sense in line with that.

And If you think about that on a longer-term basis, making that investment makes total sense as you're seeing the world rethink how work works. So step into that while you can. But what do you think the long-term margin opportunity for the company should be and how long do you think we can expect until we get there?

Yes. Our approach, I'll start, part of your first question, I'll come back to the margin. We -- as we went through COVID, we do believe that our numbers were positively impacted by the period of COVID, but we think the bigger impact was really the change in the opportunity. The fact that folks now that used to say there's no way that I can build and grow my business with remote talent. Now if it was physically possible for their business, knew that most likely they would need to have a remote talent strategy going forward. So brand marketing before in that environment before they understood that, would have faced a real challenge that it just wouldn't have been received all that well, at least from an acquisition perspective, potentially from a retention perspective. So we believe there's the opportunity to meaningfully move growth if we're able to have that impact there. If it doesn't work, then those dollars will end up falling to the bottom line because we won't continue spending those in that area. Our belief on the EBITDA margin is that this is a business that can do 30% to 35% EBITDA margin. Before we had pulled our guidance on EBITDA at the time of the Ukraine, we had said that our target for the year was basically breakeven with the $80 million of investment in brand marketing. We're not -- we are actively driving to achieve leverage in cost of revenue in G&A. We're not trying to -- we're not focusing our investments in sales and marketing and R&D from -- on leverage. We basically want to go back to my philosophy on -- we want to invest as much as we possibly can to drive that long-term value wherever the returns are comfortably above our required threshold. Sometimes, we get the question of like, why are you guys spending like it's 2021 when it was revenue at all costs, and we never sent like that. We have this discipline of, if it was a bad investment just because it drives some revenue, but relative to the returns of redelivering the target, we weren't doing that. So our investment philosophy is not changing from that perspective. And we happen to be in a good leadership position from an R&D perspective that we have the most revenue in the category. We can invest more than others. It's a massive market opportunity, and we want to continue investing to continue to grow that lead. And so over time, we think that we'll get G&A down to 8% to 10% of revenue while the gross profit margin of 80% to 85%, sales and marketing will probably normalize at maybe 25-ish percent, and we'll be able to achieve those 30% to 35%. We haven't put a time frame on it, primarily because the better we do at finding additional opportunities to continue investing in sales and marketing, the longer term, it will push out that number and the more business value we will be creating for the long-term value creation.

Now how are -- how is the competition -- there's 3 different types of competition. Obviously, there's a lot of online talent agency, talent companies, and they're mostly very small relative to you. So it's actually put those guys [indiscernible]. How are the offline talent companies and staffing companies responding to this. They're obviously seeing the future of work has changed. Remote work is common. How are they going to respond to this? And how have they responded to you in the past?

I think a lot of them are trying to bolt on or build like a digital component to their businesses around online staffing component. So some of them have made some acquisitions. I think some of them have tried to build like a first-party digital solution. And I think it's really hard for them. I think one of the hardest things is around transitioning their core business model because for an off-line provider, their business model is predicated on the idea of these kind of localized pods of sales reps who have like local book of business, local staffing talent that's kind of like in their book that they guard jealously from anyone coming in and trying to put on some like shared server or a shared database because this is their bread and butter. So I think the incentives inside their businesses based on how those kind of sales organizations have been built make it really challenging for them to transition to kind of a digital business model. And then there's the whole tech DNA problem, which is another factor of how do you build a digital product as an offline business and kind of really embrace that into the team and the culture and make that successful. So I think they face a lot of steep hurdles as they've been trying to do that, but they recognize that the writing is on the wall, and I think it's pretty scary for them.

One thing I wanted to follow up on. What have you done on your policy on return to the office?

Well, we never had a face time culture. We were always working in a distributive model.

Always practice what you preach, which is good.

That's right.

I just wanted to make sure.

Our San Francisco office was pretty empty before the pandemic and we were looking at each other like, can we even [indiscernible] office. So we are remote-first, and we made that decision really early in pandemic because, again, we had shifted to a remote-first strategy rapidly. We have about now, I think, about 2,700 people in the organization, about 700 of whom are employees and the remainder are independent freelancers who work for us directly. So about 2/3, 3/4 of our team is freelance. And that's how it's always been at Upwork. And so we work remotely. We have a couple of offices, but those are really kind of landing spots for which to come in when they want to collaborate or get together. And that works great for us. It's worth great for us always, not having a face time culture and really focusing on deliverables. But we do have always done this and we've always complemented our kind of remote orientation with getting teams together for 4-plus years. We had our agile teams, which we're globally distributed with engineers all over Europe or Asia, working with PMs who are also distributed. We would get those teams together once a year, once every 2 years for these 1-week meet-ups to really build bonding, go to dinner together, do a museum trip, like they would do things usually in like Prague or Italy or someplace where all the team could meet. And so I think there's a lot of misnomers around this idea of remote work means like you never got together in person, you never see each other, and that's not how we've ever practiced it at Upwork. I think the pandemic version of remote work that people have lived through isn't what remote work really needs to be. And so I think as we hopefully move past like the worst phases of the pandemic, we can all experience a version of remote work that looks more similar to how we've always practiced from what working at Upwork. That really marries up like the best of being distributed and flexible and giving people the autonomy and the freedom and the trust that they need and deserve with in-person when it makes sense to build a little bit more of that personal relationship which it doesn't take a while. Literally, we would do like once or twice a year, and that is enough to then complement with Google Hangouts and Zoom and everything else with the amazing tools and technology that we all have.

Great. I really -- I like that you are very much practice what you preach kind of the company. I want to make sure anyone has any questions in the audience, can reach out any time, please jump in. Okay. A couple of things just go on to what you said, Jeff, earlier. You want to get to 80% to 85% gross margins. You're at 73%. What are the steps to get there? Is it software solution? Why aren't you there?

Yes. Our gross profit margin, first off, will be increasing this year from the 73%, probably most notably, given the pricing and packaging change that we announced last quarter. Our biggest component of our cost of revenue is payment costs. So basically, credit card costs that sometimes it's a little bit confusing is why can like a 2% to 3% fee be such a big component relative to a 73% gross profit margin. But that 2% to 3% is on our GSV. And so when you apply it as a percentage of our revenue, it's a much larger percentage of revenue, basically 6x greater so given our take rate. So payment costs is one of the big areas that we'll be able to continue to drive. And if you -- we have, in some respects, you can think of our -- we have a small portion of our business, which is our managed service business, which is low tens of millions of dollars of revenue in GSV. It has a different accounting treatment, where 100% of the GSV is recognized as revenue. And so it's accounting definition of gross profit is much lower. It's more like the take rate almost. And so that -- if you exclude that portion of the business, the gross profit would be above 80%. And that is a relatively small portion of the overall business right now. We'll continue to optimize hosting costs, customer service costs, payment costs going forward. So those are really the key -- the 3 primary things. And then take rate expansion also helps drive gross profit. So we indicated that our take rate will end up higher at the end of this year than we started the year. It has been, over time, trending down due to a very good dynamic in the business, which is more -- clients are spending more with their freelancers than they have in the past. And as they do that, more of their spend ends up at the lower end of the price tier with a tiered service fee model. And so given the structure of that model, we end up having a downward pressure on that component of our take rate. But our Enterprise, Talent Scout and Project Catalog all are growing faster than the rest of the business and have higher take rates. So that will also apply upward pressure on take rate, which will be good for gross profit as well.

So there's always been a concern with take rate for your company is that the challenge would be that eventually you start working with some talent that you find, maybe it's a Ukrainian developer who's great and he does 1 project, 2 projects. He's now worked for you for months. And suddenly, you're like, why don't I pay you direct and we can keep this going as a freelancer. And so there's a pressure to get out of the take rate. But you also have a project where you are able to sell just your software into a company and say bring your own talent and you still get the take rate. So can you describe to me a little bit why that investor thought that take rates would have worry about being green marketed is not a threat and -- or it hasn't been the threat that the investors thought it would be. And what is going -- what -- why your solution is so valuable that companies will use and pay you a take rate even if they're using their own talent.

Yes. I'm happy to start on this one, and jump in, Jeff. I think we've seen for both clients and talent over the last couple of years, this dynamic where they're seeing more and more value out of the kind of like back office, payrolling and other functionality or tooling that we give both sides. So in the example of the bringing own talent offering that we have for like our enterprise and larger clients as well as our marketplace clients, I think as they're building these distributed teams, more and more of them are realizing they don't have a great alternative in the market versus what Upwork offers to really bring all of their independent talent vendors, et cetera, onto a single platform that gives them a single view into who these people are, how much they're being paid, what those relationships are. And in the case of our enterprise clients, a lot of them are finding consolidate that talent to our platform, lots of things get unlocked. So teams in the organization who didn't previously have visibility into all of these relationships suddenly can access, wow, somebody marketing is using this vendor or this independent talent. I want to start using them too. They get pricing advantages because maybe there was a really cozy relationship with a partner who is just kind of increasing facing every year, and suddenly, they've brought them into our platform and they can sort of a competitive bidding process, either within the existing vendors they had or against marketplace talent that they're able to source through Upwork. So -- and then they get a bunch of management reporting, et cetera, a single billing, et cetera. So there's all kinds of benefits that our enterprise clients are getting from that offering. On the talent side, we've seen a lot of them, and this was painful to see during the pandemic. We heard from them, wow, I have these trusted relationships with clients who I've been worked with -- sourced myself, worked with Upwork, never thought to bring them on to Upwork, they went through economic troubles during the pandemic, and suddenly, they weren't paying me anymore. And if I had brought them onto your platform, I would have had the payment guarantee and I would have known that money was safe and escrow and I would have gotten it. So I think as many of our customers have realized that even their most trusted clients can hit hard times, well intentioned and they never mind the spikes in scamming that happens on the Internet, especially during pandemic, recessions, like any event, this stuff just goes through the roof. I think customers are realizing the benefits of things like our payment protection and the escrow model, like all of these things that they benefit from on our platform are totally worth the price tag. It just gives them so much that peace of mind that they know they're going to get paid, which is the #1 thing if you talk to an independent entrepreneur or freelancer that they worry about, am I going to get paid, am I going to have to chase that bill. And so I think again, we heard from a lot of folks that even their trusted partners were suddenly not paying them through some of these like more rocky times and they wish that they had been using some of the protections they get from our platform.

Makes sense. So you guys have been -- probably started out more as an SMB solution amongst your clients, smaller clients needing quick talent. You're having a lot of growth in enterprise. But you look at your overall numbers, you're still thousands of dollars of spend on the platform, not hundreds of thousands or millions of dollars are spent, and yet you have some massive enterprise clients. What is the process of getting in a large enterprise client? And then what is the process of getting -- once you get that enterprise client to sign up to get them to use it throughout the organization? So if you can kind of walk through the sales cycle on how it works.

Yes. I mean, our target large enterprise clients that spend $1 million or more a year from us. So that's kind of the standard profile. And we've worked hard to get an enterprise model working that achieves that or more. We definitely have customers, like the one I think we mentioned in our letter, 2 quarters ago that achieved that plus in a matter of just, I think, 1 or 2 quarters of ramping up on our platform. So I think we've certainly figured the model where I think kind of there is 2 kind of easy paths. One is some customers, even the large enterprises, start out using our marketplace kind of self-service, and the team in marketing or in a technology will just start using the product and then our sales team identifies them, makes contact, starts to understand what their use cases are, builds the relationship and then basically builds more of a program with that organization to get more value unlocked with them in terms of what they're trying to achieve. The second path is with a company that may be interested in a remote work or contingent staffing pilot with us, whatever that looks like, and we can set that up with them kind of out of the gate through our enterprise sales team. In either of those cases, to answer the second part of your question, to grow the account, what we've seen is it's really important to have champions beyond just a single department that we might start out with and really get those introductions across the organization. And since we are a horizontal platform, with strength in technology, in marketing and operations, we can do so much for these businesses. And to your point, One of the things that's, yes, frustrating, but also so exciting is these customers have so much more a way to spend with us, and we can unlock so much more with them. So we are definitely on the journey, both in the self-service part of our business and with the sales team of -- what they do is make these connections in other parts of the business, build those relationships. And usually, they -- once we have the success, say, in the technology team, then use that as a proof point to say, okay, marketing, you can see what's going on here in technology. And by then, we have the MSA signed or whatever else, do you want to leverage some of this kind of same model for your organization, what are your pain points, and then we kind of build out from there.

That brings up a question for you, Jeff. As you add all of these clients who spend $1 million plus a year. This is spend per client number that you guys give out or put out as a metric, is that meaningful?

Yes. So our total, we have 792,000 clients spends within the last year. Those clients ended up spending 18% more year-over-year as of March 31, 2021. If you were to tick out Enterprise, we have in the 300-ish range number of customers that were sold by our sales team that are averaging close to $1 million. If you were to take that out of the overall number, not overly meaningful in terms of changing the growth rates of that spend per client. It will become increasingly meaningful. We've given the dynamic -- we've given our goal for enterprise sales-led customer revenue by 2025 of $300 million, which is about a 70% CAGR from 2021. And the team is growing. The team is growing quickly. They're executing incredibly well against the unit economics. The spend per client is growing nicely. They typically start off by a couple of hundred thousand dollars per year, grow to $1 million by year 3. But overall, the spend per client for the 792,000 other clients is also growing attractively.

Okay. We're over time, but I have one last question for you guys. You are a global platform for talent. You have talent in every -- not every probably, but pretty close every country in the world. But the vast overwhelming majority of your clients are in a very few number of countries, particularly the U.S. How do you expand internationally and really take this global.

Yes. This is an exciting opportunity for us. I think when we look at our current business, we are the market leader in the U.S. We're also the market leader outside the U.S., even though we're still English language on the website and contracts are consummated in U.S. dollars, even though we do have local currency pay in and pay out in about 28 currencies globally. So I think the last 2 years plus, we've been very focused on expanding our product portfolio, launching the other pieces of what we wanted to have in our Work Marketplace around Talent Scout, Catalog, et cetera. But as we look ahead, certainly, bringing language capabilities into the products that are more multilingual than English, more mobilization. I think those things will be very exciting as we want to unlock even more growth than what we've seen. We have seen in recent quarters, in some cases, international growth has actually outpaced U.S.-based client growth recently, I think, it's been about even in the last quarter. But this is a big opportunity for us. So I think when we -- my belief is we have to tackle things as a company with a lot of focus. In the past, I've shared some of things we've been very focused on. But I think when we want to tackle this one, it will be with lot of focus, and it will be exciting to see what we can do.

Okay. Great. Thank you very much.

Thank you.

Thank you.