Upwork Inc

NASDAQ:UPWK

Earnings Call Analysis

Upwork's Strong Q3 Performance Raises Forecast

Upwork reports another successful quarter, boasting a striking 10% year-over-year growth with revenue expectations of $680 million to $685 million. They're elevating their full year 2023 adjusted EBITDA guidance to $67 million to $71 million, looking to double past performance since going public. Spanning areas like ads and monetization has led to this optimistic revision. Upwork's focus on efficiency led to the accomplishment of goals while promising sustained growth and value for shareholders. A surge in generative AI roles illustrates Upwork's ascension as the go-to destination for leading clients. Consistently aiming for boosted revenue and EBITDA margins, Upwork remains firmly set on nurturing steady progress and profitability.

Upwork Showcases Robust Growth and Margin Expansion

Upwork has transformed its financial picture this quarter, recasting itself as a destination for both valuable AI-related talent and improved platform matching speed. Revenue climbed to $175.7 million, up 11% year over year, with GAAP net income reaching $16.3 million, which is a leap forward considering adjusted EBITDA also grew significantly to $31.2 million, indicating sharp margin improvement.

Enterprise Segment Poses New Opportunities and Challenges

As Upwork delves further into the Enterprise space, the company reports a notable 21% increase in new Enterprise logos from last quarter. The company has also experienced a striking 43% quarter-over-quarter growth in high-value Enterprise customers. Nonetheless, while Managed Services saw a 4% uptick in revenue, Enterprise revenue suffered a slight decrease of 3% to $12.1 million.

Improved Take Rate and Client Growth

The company's total take rate has improved to 17.1%, up from 16.3% in the previous quarter and active clients have grown by 2% both year-over-year and from the prior quarter. Their focus on trimming costs contributed to this progress, with non-GAAP operating expenses dropping to 59% of revenue and transaction loss provisions remarkably down by 84% year-over-year.

Non-GAAP Financials Indicate Strong Performance

Non-GAAP measures reveal a thriving business with a non-GAAP gross profit of $133 million or 76% of revenue. Non-GAAP net income also saw a seismic shift from a loss of $4.2 million in the previous year to a $28.9 million income this quarter. Additionally, adjusted EBITDA margin jumped to 18% from a negative 2% in the year-ago quarter — a testament to the company's efficiency measures.

Cash Flow and Assets Show Heath and Promise

Upwork's commitment to profitable growth is paying off with a striking increase in operating cash to $37 million for the quarter, supplemented by a hefty $555 million in cash, cash equivalents and marketable securities. These reflect a solid financial position that may support anticipated reinvestment in organic growth and innovation.

Forward Guidance Denotes Confidence and Continued Growth

Looking toward Q4 2023, Upwork forecasts revenue between $175 million and $180 million, culminating in a full-year guidance between $680 million and $685 million, a desired 10% growth at the midpoint. Expected fourth quarter adjusted EBITDA between $24 million and $28 million suggests margins between 13.5% to 15.8%, with the full year EBITDA guidance raised to between $67 million and $71 million. Moreover, the company aims to exit the year with about a 15% EBITDA margin, illuminating Upwork's conviction in its strategic plan.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Upwork Q3 2023 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 first speaker today, David Anhalt, Manager of Investor Relations. Please go ahead.

[David Anhalt, executive]

Thank you. Welcome to Upwork's discussion of its third quarter 2023 financial results. Joining me today are Hayden Brown, Upwork's President and Chief Executive Officer; and Erica Gessert, 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 law. Forward-looking statements include all statements other than statements of historical facts. These statements are not guarantees of future performance but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter. Additional information will also be set forth in our quarterly report on Form 10-Q for the 3 months ended September 30, 2023.

In addition, reference will be made to certain non-GAAP financial measures. Information regarding a reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our Investor Relations website at investors.upwork.com. As always, unless otherwise noted, reported figures are rounded in comparisons of the third quarter of 2023 or to the third quarter of 2022. All financial measures are GAAP unless cited as non-GAAP.

Now I'll turn the call over to Hayden.

[Hayden Brown, executive]

Thanks, David. Thank you all for joining us today. In the third quarter of 2023, Upwork continued to drive durable, profitable growth while advancing our position as the world's work marketplace. We made significant progress on our goal to become the preeminent destination for AI-related talent and work, while also improving the efficiency, effectiveness and speed to match on our platform through improvements to our core product experiences and capabilities.

In the third quarter, we made huge strides on our financial goals. We achieved better-than-expected results, generating third quarter 2023 revenue of $175.7 million, up 11% from a year ago. We recorded GAAP net income of $16.3 million and adjusted EBITDA of $31.2 million this quarter, demonstrating a very rapid margin improvement.

We also continue to make important investments in near- and long-term growth opportunities. These include adding new features and functionality to the platform, including new innovations to our ads and monetization products. These products contribute revenues to Upwork but more importantly, they contribute to the efficiency of the platform by helping professionals and clients connect more quickly.

One of our most ambitious growth goals is to foster the most AI-empowered independent professionals in the world. In pursuit of this, we greatly enhanced our AI Services hub, which has seen a 10x increase in average monthly visitors since its launch in the second quarter. And just yesterday, announced an extension of the hub with a new suite of generative AI apps offers and educational content especially designed for talent.

Our scale as the world's work marketplace has aided us in creating a deep and diverse ecosystem of partners that span education, technology and special offers for clients and talent. New featured partnerships for AI-powered apps and offers for independent professionals include industry-leading companies, like Adobe, Amazon, ClickUp and Miro, that have advanced integration of generative AI into their tools and services, alongside educational AI skill-based courses and content from leading providers, like Coursera, Jasper and Udemy that form a new education marketplace on Upwork Academy.

We also launched limited access to Upwork Chat Pro, a new generative AI application embedded directly on Upwork's platform and powered by GPT-4. Upwork Chat Pro utilizes unique insights from Upwork about independent professionals to provide specific, contextualized responses and recommendations that are relevant to the needs of professionals on Upwork, assisting them in starting, creating and completing projects more efficiently and effectively.

In the third quarter, we continued on our journey to unlock the vast opportunity in the Enterprise space, increasing our new Enterprise logos in the quarter by 21% versus Q2 2023. We added 23 new Enterprise clients in the third quarter, expanding our customer roster with notable new organizations like Dropbox, IT’SUGAR, Moderna and Florida State University. We also drove substantive growth in our highest value cohort of customers as the number of Enterprise clients in the third quarter, spending $5 million or more over the trailing 12 months, growth 43% quarter-over-quarter.

We continue to be pleased with the progress we are making toward our long-term strategy of providing companies with the talent, skills and tools they need to get critical work done through harnessing the power of generative AI on the platform, innovating on behalf of all our customers, optimizing our operations and running our business to drive durable, profitable growth. We are on track to deliver a record year in 2023 in both revenue and adjusted EBITDA, and have set a steady course for sustained momentum in the quarters ahead.

I'll now turn it over to Erica for more details on the financials.

[Erica Gessert, executive]

Thank you, Hayden, and hello, everyone. I'm delighted to be here with you today to review a very successful third quarter. GSV again exceeded $1 billion in the third quarter. Revenue grew 11% to $175.7 million, with marketplace revenue of $161.7 million. The Enterprise business unit, which includes Managed Services and Enterprise revenue, was flat quarter-over-quarter with revenue of $26.1 million. This quarter, Managed Services revenue increased 4% year-over-year to $14 million, while Enterprise revenue, which is reported as a part of marketplace revenue, was down 3% to $12.1 million. These offsetting growth rates are due to the movement of a customer to Managed Services during the quarter.

Total revenue growth was the result of take rate expansion, driven by strength in our ads products and our move in 2023 to a simplified flat fee pricing structure. Total take rate in the third quarter of 2023 was 17.1%, up from 16.3% in the previous quarter, and from 15.4% in the third quarter of 2022.

Active clients increased 2% year-over-year and quarter-over-quarter to approximately $836,000. Active client growth was driven both by improvements to our client retention as well as improvements in efficiency and acquisition of new clients. In particular, we saw strong improvement to our performance marketing efficiency in the quarter. GSV per active client decreased slightly by 1% year-over-year to $4,906, a reflection of the strong active client growth in the quarter.

Non-GAAP gross profit was $133 million or 76% of revenue in the third quarter, compared to 75% in the third quarter of 2022. Non-GAAP operating expenses for the third quarter of 2023 were $103.5 million, representing just 59% of revenue, compared to 78% in the prior year period, with R&D expense increasing 16% year-over-year, offset by sales and marketing expense decreasing by 26% year-over-year, and G&A decreasing by 2% year-over-year.

Provision for transaction losses decreased a remarkable 84% year-over-year. The strong improvements in operating costs were the result of aggressive management action to focus on efficiency and profitable growth. We will continue to identify ways to improve our efficiency while also investing in innovation to grow our business.

In the third quarter, we made huge strides in our focus on durable profitable growth. Non-GAAP net income was $28.9 million in the third quarter of 2023 compared to non-GAAP net loss of $4.2 million in the third quarter of 2022. Our non-GAAP net income per basic and diluted share was $0.20 in the third quarter of 2023 as compared to non-GAAP net loss per basic and diluted share of $0.03 in the third quarter of last year. This rapid improvement is the result of our ability to quickly identify areas of cost optimization and efficiency.

Adjusted EBITDA was $31 million in the third quarter, compared to negative $2.9 million in the third quarter of 2022. Adjusted EBITDA margin was 18% in the third quarter of 2023, compared to adjusted EBITDA margin of negative 2% in the third quarter of last year. Our strong adjusted EBITDA results are due to revenue over performance as well as the implementation of the cost optimization programs we've discussed. We are very pleased with our ability to rapidly identify these cost efficiencies in our business, which we expect in part to reinvest in organic growth in future quarters.

In Q4 2023, we remain committed to our previous guidance of exiting the year at approximately 15% EBITDA margin. Our focus on profitable growth is also increasing our cash balances, with cash from operating activities of $37 million in the third quarter. And cash, cash equivalents and marketable securities of approximately $555 million.

I am also delighted to announce that our Board of Directors have approved a share repurchase program with authorization to purchase up to $100 million of our outstanding share to common stock. This is a testament to our strong financial performance and ongoing commitment to durable profitable growth.

Turning now to guidance. We are guiding fourth quarter revenue to between $175 million and $180 million, which resulted in full year revenue guidance to between $680 million and $685 million, which represents a 10% year-over-year growth rate at the midpoint. We're raising our revenue guidance primarily due to the revenue over performance we saw in the third quarter, particularly around our ads and monetization products.

We expect fourth quarter adjusted EBITDA to be between $24 million and $28 million, which represents an adjusted EBITDA margin of 13.5% to 15.8%. We're also raising our full year 2023 adjusted EBITDA guidance to be between $67 million and $71 million.

We continue to be on pace to post an adjusted EBITDA in 2023 that is more than double that of any year since we went public. We also expect to generate positive free cash flow on an ongoing basis. The third quarter has been another successful one for Upwork's business, and I'm proud of our team's ability to rapidly execute on our efficiency goals.

Going forward, we will continue to balance our commitment to strong steady growth of revenue and EBITDA margin expansion, while also focusing on shareholder value. I want to thank the fantastic Upwork team for everything they contribute every day to driving value for our customers and building a growing successful business.

Thank you, and we'll now turn the call to your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Matt Farrell of Piper Sandler.

[Matthew Farrell, analyst]

Congrats on the really strong results. You highlighted throughout the shareholder letter, the continued innovation on the AI front. Would love just to hear how sentiment among both talent and clients is evolving around the topic. Have things slowed down at all? Or is it full steam ahead?

[Hayden Brown, executive]

Thanks, Matt. Absolutely. Definitely, sentiment is very positive on this front. I'd say, clients and talent are both pretty eager to take advantage of what's out there in the ecosystem, and more specifically the innovations that we've been launching on our own platform, including some of the really exciting partnerships that talent can now take advantage of directly on Upwork, leveraging tools like Amazon CodeWhispere, Miro, ClickUp and others yesterday.

So we're seeing, Upwork talent is the first and at the forefront of all of these AI adoptions because freelancers know, this is what puts bread and butter on the table, their ability to work quickly and effectively to deliver incredible outcomes for clients is absolutely transformed by these tools and technologies. So the sentiment amongst talent is strong, with what we announced yesterday also with our own innovations around Upwork Chat Pro, which is powered by GPT-4 and embedded across the Upwork platform. We're seeing a lot of interest in that product as well. So there's just, I think, a lot of excitement there on both the clients side and the talent side.

[Matthew Farrell, analyst]

And I know you aren't going to provide any quantitative commentary for 2024. But what are some of your priorities for next year, whether it's areas of investments, opportunities for outsized growth, anything you could highlight would be great?

[Hayden Brown, executive]

Sure. As we look at the data on our platform, it's obviously early days in the growth of some of these generative AI, skills and work. But we did see already Generative AI categories of work were up 34% quarter-over-quarter in Q3. We're seeing AI and Machine Learning growing tremendously, data science and analytics growing tremendously. So this is a priority for us in terms of really building Upwork to be the preeminent destination for where clients of every size can come and find this talent. And again, this year, we're already starting to see that, even off of the smaller base that we're growing from.

So next year, we're going to continue to deliver the tools and technologies for talent so they can be effective. We're going to continue to innovate around the products and solutions on our own platform. So both clients and talent can leverage generative AI powered features and functionality on Upwork. And we're continuing to leverage our partner ecosystem as part of that, ensuring that everyone who comes and uses Upwork is not just using our own tools, but the best tools in business to deliver work because we are a work business after all.

[Erica Gessert, executive]

Matt, this is Erica. I'll just add. As you said, we're not giving any specific guidance on 2024 at this point. That said, we said last quarter, and it remains consistent, we are committed as a business to year upon year improving our revenue growth rates from '23 to '24, and improving our EBITDA margin year-over-year. So that remains very, very consistent from what we said last quarter. And obviously, we'll give you more concrete guidance when we report Q4.

[Operator]

Next question comes from the line of Kunal Madhukar of UBS.

[Jason Napier, analyst]

This is Jason on for Kunal from UBS. I have a couple of questions. The first one is on OpEx. So in terms of OpEx, could you help us understand how to think about the new run rate of sales and marketing spend for Q4 as well as 2024, if possible, in the percentage of revenue? As it has been declining consistently in the last several quarters of the 39%, 38% range. It was also a lot lower than expected for Q3. So if you could provide some details around the underlying drivers of that marketing spend efficiency, it would be greatly appreciated.

[Erica Gessert, executive]

Yes. Sure, Jason. Well, so obviously, at the beginning of the year in Q1, when we announced the reductions, our decision to reduce our brand spend, we did indicate that, that would be kind of gradual reduction over the course of the year. So I think Q3, kind of reductions are consistent with that. We did actually see some very good efficiencies on the performance marketing front in Q3. Just kind of more efficient yield on that spend, which also enabled us to reduce cost.

But we're not giving guidance on 2024. So I am not going to update you on any specific run rates there. I will say, from an EBITDA margin point of view, as we committed too earlier in the year, we expect to exit 2024 and Q4 -- sorry, 2023 and Q4 round about the 15% EBITDA margin. And again, we'll give you more concrete guidance on 2024 when we guide for the year.

[Jason Napier, analyst]

Yes. So that's sort of my next question, which is on EBITDA. You have said before, EBITDA margin typically peaks in Q4, but dropped sequentially in Q1, in the decimal of 200 to 300 basis points. Given the stronger-than-expected EBITDA guide for Q4, how would you characterize the magnitude of sort of a sequential decline in EBITDA margin off of the 50% Q4 guide?

[Erica Gessert, executive]

Yes, sure. So look, as I talked about last quarter -- listen, when I came into the business in Q1, we committed to reduction in brand spend, and we also reduced costs really kind of on the sales side as well. I talked about last quarter the fact that we were going to continue to look for cost efficiencies in the business, which we have done, I think, very, very effectively.

I'm actually incredibly proud of the team for working hard to identify places where we can reduce cost and the very high EBITDA margin in Q3 of 18% reflects our ability to do that. That's not just kind of in discretionary expenses but also in reducing spend in longer-term projects in favor of reinvesting in growth in kind of more near-term opportunities.

Things like the AI partnerships we just announced, other AI/ML innovations and product platform improvements that we plan to invest into in Q4 in order to enable growth in 2024. So we are deploying some investment in -- right now in Q4, ahead of 2024, and that's why you'll see a little bit of margin offset and closer to kind of the 15% range as we exit the year. But that's appropriate as we remain committed to profitable growth going forward.

[Operator]

Next question comes from the line of Logan Reich of RBC.

[Logan Reich, analyst]

Congrats on the strong quarter. Just wanted to ask a macro question, on just what you guys are sort of seeing on the macro backdrop and in trends with your clients as it pertains to both active clients and then also spend per client. Just wondering if there's anything to call out there on a geography basis or like a size of client basis? And then also, just any sort of impact from the conflict in the Middle East.

[Erica Gessert, executive]

Yes, sure. This is Erica. Maybe I'll take this one. Hayden, can you -- obviously, you can add anything.

So I would say that we haven't seen any real material improvement in the macro environment in Q3. The external macro trends continue to be, I would characterize as uneven and a little difficult to anticipate. And honestly, sometimes, even changing months to months. This all lends itself to customers tending to keep their pure strength a little bit tighter, and we're seeing this especially on the large business side.

Even despite this, what -- we're focused on what we can control. And as we said in the prepared remarks, we continue to add active clients, up 2% year-over-year and quarter-over-quarter, and our new enterprise logo growth was up 21% quarter-over-quarter. So we're really pleased with our ability to execute in what we consider to be kind of continuing an uneven environment.

Another really important point is that, we are increasing our revenue from monetization strategies like the ads products that we talked about, and again, in the prepared remarks. These are things like boosted proposals and also subscription products like Freelancer Plus. And these aren't just bringing revenue to Upwork or increasing customer lifetime value, they're also driving efficiency on the platform and enabling talent to get jobs faster. Our talent who use Boosted Proposals, for example, have about a 25% higher chance of securing a job.

So we've said for a couple of quarters now that we're really focused on untethering ourselves from the macro environment. And I think our results really do display the success in doing that. So really proud of what we've been able to do, and we're committed to both, like I said, improving revenue growth rates year-over-year and expanding EBITDA margin.

[Hayden Brown, executive]

Yes. And Logan, just to address the question about GSV and client side. I don't think there's anything notable to call out there. Nothing really major this quarter. I'd say, our very small business clients actually are the ones like leading the pack in terms of their performance. But nothing specific to mention.

In terms of the conflict in the Middle East. Obviously, this is incredibly heartbreaking. And we are really -- just our hearts are with everyone who is impacted by this terrible tragedy. It's absolutely shocking and deeply sad to see these devastating events unfolding and impacting civilians in such a horrific way. We have a very small number of team members across the region whose safety and well-being we're focused on. We don't anticipate any impact to our business as our GSV from that area is negligible.

[Operator]

Next question comes from the line of Bernard McTernan of Needham & Company.

[Bernard McTernan, analyst]

Just wanted to double click on the ads marketplace. Can you go a little bit deeper into this opportunity? The shareholder letter spells how it's driving conversion. But how much is this being used right now? How much do you think it could be used in the future? And if it could provide Upwork pressure on take rate over a longer period of time? And then just to follow up on the take rate, when should we expect to see the full benefit of the pricing changes in the take rate? And if it's possible to decouple those 2 in terms of the sequential growth and the take rate this quarter?

[Hayden Brown, executive]

Sure, Bernie. We have a lot of runway on this ads and monetization area of the business. And we've been building the strategy over the last couple of years, and we're really starting to see it [indiscernible]. As Erica mentioned earlier, one thing that we love the most about this is it's not just about monetizing the business. It's about doing so in a way that advances customer goals around talent being discoverable, people who are really excited to get jobs and are qualified to do so, being found faster in the marketplace.

So we're seeing data such as talent using availability badges receiving 50% more invite than those who are not, clients are 62% more likely to actually get their invites accepted, or invite those or work with those who are badged talent.

Boosted Proposals is another feature here that is increasing professional likelihood to get higher by approximately 25%. So overall, this is actually still early in the strategy because there are other features and functionality around different types of ad products as well as optimizing those that we've already launched, which we think will provide further opportunities in 2024 and beyond.

So that's kind of the bigger picture. We really are focused on the efficiency, the equitability and the optimization around these features. And certainly, I think that's a plus for both customers and for our shareholders over time.

[Erica Gessert, executive]

And maybe just a little bit more color on your question on how to think about the dynamic between the flat fee pricing structure and the ads and monetization products. When we -- so we made the transition to the simpler pricing structure in May of this year. And when we did that, we said that we would -- we expected to get accretion from take rate over sort of the next 4 quarters. And just as a reminder, at the end of the year is when the 5% tier moves up to 10%. And of course, we've given a long runway to those -- the talent at 5% to have time to adjust and price appropriately with their clients.

But that also means that we will get additional accretion from the pricing change itself into the first half of next year. We're not breaking out the exact dynamics. But we did say at the time when we made the price change in May, that over the next several quarters, we get, call it around about a point of total accretion, and so that kind of remains consistent.

[Operator]

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

[Sang-Jin Byun, analyst]

This is John Byun for Brent Thill. I want to get back maybe a little bit on the macro. You mentioned it's been hard to predict month-by-month. But is there anything you've seen in terms of monthly linearity, including through, I guess, first tick of November so far? I mean, anything notable other than maybe for seasonality?

[Erica Gessert, executive]

Sorry, I just want to make sure I understood the question. You're asking, in kind of in Q4, if we're seeing any kind of changing dynamics? Was that the question?

[Sang-Jin Byun, analyst]

I mean, each month of Q3 as well as through Q4 so far. Yes.

[Erica Gessert, executive]

I mean -- like I said, I mean, I would say that we're not seeing any notable changes. I think, just -- I think as we're all observing the sort of environment of uncertainty is affecting all types of businesses spend in this environment. Maybe I can give you a little kind of color on some of the underlying trends in the platform. One example we're seeing is that new clients coming on to the platform. We have seen good growth, like we said, active clients growing, more members coming on the Enterprise side. The one thing we're seeing is that new clients are ramping spend a bit more slowly than what we saw a couple of years ago. We do think that, that clearly speaks to just some of the macro impacts.

Another thing is that we're seeing some bright spots, also in kind of hours per contract are up slightly quarter-over-quarter. And actually, when we look at even the year over 2-year trends, hours per contract are up about 10%. So I think that, that shows that there is good, strong robust growth happening on the platform.

[Sang-Jin Byun, analyst]

Maybe -- and then on the AI skill set and so on. I think you shared 1 metric but is there anything else to share in terms of how that's ramping in terms of projects and talent, [ putting ] up skills. And I mean I guess the average rate is much higher as well but anything else you could add that would be great.

[Hayden Brown, executive]

John, so in terms of how projects and talent skills are trending, I think we're seeing just a lot of positives in terms of what the overall impact of AI is to the platform right now. I think that's really the headline.

So we're seeing growth in categories like AI and Machine Learning, which is up to 62% year-on-year. Data science and analytics is another big growth category for us, up 30% in job posts. And -- so I think the thing to understand is, even though we are measuring like every single thing in the business around some of these AI specific impact, it's also important to understand the AI positive growth we're seeing is in both categories that are specifically AI and generative AI-type categories as well as a growth in demand for talent across categories of work where people want -- content writers who are using AI in their work or translators who are using AI in their work. And so we're actually seeing that shift as well.

And in those cases, what we're seeing is, talent who are using these new tools are actually commanding premiums in terms of their wages, which is extremely positive as we see kind of the mix shift around that work actually evolving and seeing the talent themselves upskilling, and again, adding tools for their tool kit, which again goes back to the strategy you see us deploying around some of the partnerships. So we're seeing the growth in specific categories as well as talent across category, it's really evolving how they're working and getting the benefits of these new tools as they go.

[Operator]

Next question comes from the line of Rohit Kulkarni of ROTH MKM.

[Rohit Kulkarni, analyst]

A couple of questions. One on Enterprise net adds. Anything you'd flagged that leads you to believe that this kind of inflection or the uptick that we are seeing in new client additions, is this trend is sustainable, perhaps due to the team productivity of [ reps ] or maybe there's macro that you think you are now in a new sustainable cadence of growing net adds in Enterprise?

And then quick clarification on Erica's comments. I guess, regarding '24, what are you trying to say that you're committed to improving revenue growth rate, which means accelerating growth rate from '23 to '24. Just want to clarify that.

[Hayden Brown, executive]

Yes, Rohit. So on the Enterprise side, the continued improvement we're seeing in adding new logos to the portfolio is definitely a testament to the hard work we've been doing to increase the Land team productivity. And that started back in Q1 and has been kind of a steady march, and it's certainly continuing under Zoe's leadership of the Enterprise business unit.

And I think it also speaks to the value of our products despite the macro backdrop, which is certainly challenging, I think, for many and most businesses in this environment. So we're continuing to execute there and feel good that, that is going to be a sustaining trend. It may not be perfectly even quarter-to-quarter, but certainly, the demand is there, and we're getting more and more efficient at completing that demand.

[Erica Gessert, executive]

Yes. And on the question on 2024, I really appreciate the clarifying question to make sure everyone understands that. What we've committed to, is year-over-year, from 2023 to 2024, to have our growth rate increase on revenue.

Similarly, year-over-year, from 2023 to 2024, our EBITDA margin is also expected to increase. That's what we talked about last quarter, that remains consistent. And obviously, we'll -- like I say, we will give more detailed guidance on 2024 on the Q4 call. But it's really on a full year versus full year growth rate and margin that we are making in comparison.

[Rohit Kulkarni, analyst]

Great. If I could add one more. On GSV, what would it take for the GSV to kind of start to grow beyond the ZIP code that it has been in the last, call it, 3, 4 quarters. I know pricing has changed a lot and that may be weighing on the GSV. But just overall, how should we think about GSV as in your algorithm into revenue growth as such?

[Erica Gessert, executive]

Yes. We're not guiding to GSV right now, nor have we traditionally done so. And look, I would say that there's really no doubt that GSV is being affected by the macro environment. Like I said to some of the earlier questions, there really is a lot of uncertainty still out there, and trends in settlement can kind of change month to month these days. And what we're seeing is that, that translates takes general hesitation for all types of businesses to spend into this environment.

Like I said, there are some really nice bright spots under the covers, kind of I referenced the kind of sequential increase on hours per contract. We do see some very good dynamics there on a kind of year-over-2-year basis. And so I think that we do expect that also some of the investments that we're making on the platform into new innovative AI experiences, other things like that, will continue to help us on the GSV front as well. But we'll give more of an update on that as we approach 2024.

[Operator]

Our next question comes from the line of Andrew Boone of JMP Securities.

[Andrew Boone, analyst]

I wanted to go back to sales and marketing. Erica, is there a framework that you have or that we should be thinking about as we think about maybe demand coming back and macro improving, and what that would mean to sales and marketing at large? Meaning, is it artificially low right now but there will be a period where it expands? Or do you have a framework in which we should apply?

[Erica Gessert, executive]

So a couple of things on that. I would say, we're really pleased with the performance marketing -- the performance of our performance marketing spend. We do see some improvements in yield there. We're going to continue to balance our commitment on EBITDA margin accretion with investments into growth. Right now, that -- those investments in new growth are really focused on R&D.

The other thing that you've seen us do since we reduced our brand spend at the beginning of the year is make some surgical investments in brand spend around new product and feature launches. We certainly do plan to do that next year as well. And so you will see us from time to time making brand spend investments. I think beyond that, it's a little bit too early to tell. Beyond the fact that -- I think that over time, while balancing kind of EBITDA margin accretion, I do think that we believe that we can make a good return on brand investment as macro factors return.

[Hayden Brown, executive]

Yes. The other thing I'd add on this, Andrew, is on the sales side specifically. We're very focused as you can see from the performance of our numbers on the Enterprise side right now, on increasing the efficiency in our model and on sales team optimization. I mean this is a great time for us to be doing that and driving those improvements, which we think we can continue to deliver over time, which will help us in any demand environment, the current macro or an improved macro, and just help us have a more efficient team to deliver the results that we want.

[Andrew Boone, analyst]

And then, Hayden, I wanted to ask you a product question. So Upwork Chat Pro, I understood this is a -- basically a first version of the product. How do you see AI tools evolving as you guys help freelancers be more efficient on the platform?

[Hayden Brown, executive]

This is definitely a first version of -- frankly, there's a lot of different features that we have been working on here. We launched the features in Q2. This is the latest one in Q3 and Q4, we've got more in the pipeline. And we're going to continue experimenting. I think to the question of how do these tools evolve? There are so many different touch points that we have with talent across their life cycle of matching with clients, of delivering the work with clients, and really delivering great outcomes.

And so I think we are still in the early days of -- with the partnership side, making sure that they have amazing tools, the best in the market at their fingertips, at discounted rates, and knowing which are the best tools to be using to deliver that work. And then within our own platform with Chat Pro, clearly, there's a lot we can do to smooth out the workflows, to give them an even better experience for the work delivery through the pieces of the puzzle that we serve them with directly.

So, again, this is early days. I think these tools are going to get better and better, both our own tools and those in the market. And we're just really excited to be pushing things forward, innovating on the forefront and getting a ton of customer feedback along the way that we'll continue to guide product road map as we go.

[Operator]

Our next question comes from the line of Eric Sheridan of Goldman Sachs.

[Eric Sheridan, analyst]

I hope everyone on the team is well. I'll just ask maybe one big picture one as we've gotten through a lot of the big topics. When you look at these newly announced partnerships, can you take a step back and help us better understand what that will do to demand and supply on the platform over the longer term? And how we should be thinking about potentially partnerships, like you're announcing potentially improving the return or the efficiency of your go-to-market strategy over the medium to long term?

[Hayden Brown, executive]

Thank Eric. We're doing a number of different types of partnerships right now. And we still feel really good about this progress because as we look at it, it's really building an ecosystem that is valued by customers and further differentiates Upwork, leveraging our unique data, our insights, our scale to really strengthen our competitive moat.

And so to your question about return on the investment and the go-to-market strategy, medium to long term, there's a bucket of partnerships we're doing on our client acquisition, which really is about -- if you saw the OpenAI partnership we did on the previous quarter. This is an example of how we use a partnership to give talent to customers who otherwise may not know about Upwork and really use that as an acquisition vehicle, look through OpenAI in this case to get to their end customer and give them the account they need right here on Upwork.

And that is a really early and yet exciting opportunity for us to replicate that model with other partners who we have lined up and very eager to work within that kind of capacity, so that they can give access to their end customers, the type of talent we have on Upwork to really achieve their business goals. So there is a whole acquisition motion that's possible there. And again, we're in the early days of building that out and seeing how it could play over the medium and long term.

Then there are the other types of partnerships we are doing around tools for talent, which really are around driving our flywheel around the value of talent and the platform, the efficacy of their work delivery, the quality of the results that they deliver. And as you can imagine, the more effective they are in delivering this work, the higher value they are and that really just drives again our flywheel, which helps like all of the metrics and characteristics of what Upwork is.

And then the third category is around the education partnerships, so with things like Coursera and Udemy, which again is around enabling talent to upskill and self-skill in new and better ways, particularly in this moment around this AI revolution, which is incredibly relevant. And again, that will touch our flywheel as the talent on Upwork is the most AI enabled, is delivering those 10x, 30x outcome. This is a place to come find that talent. And again, that will drive some of our metrics over time as that strategy delivers.

So again, it's early days on all of this but that's how it kind of connects to our broader vision for the existing business, our existing flywheel and things like client acquisition in particular.

[Operator]

[Operator Instructions] Our next question comes from the line of Maria Ripps of Canaccord.

[Maria Ripps, analyst]

First, is there anything you can share with us in terms of how we should think about the pace of customer growth in 2024? Is this largely a function of the macro environment, improved sales productivity or something else?

[Erica Gessert, executive]

Sure. Again, we're not giving any specific guidance on it. Look, I think that it's probably a combination of all of those things. I think, we've been really, really pleased with the progress on sales productivity specifically, and in particularly, the sequential growth on new logos on the Enterprise side, considering all of the work that we've done on optimizing for efficiency in that business.

So that's been really, really good. Again, a combination of that, the benefits we're seeing on the performance marketing side and just the lower CAC that we're seeing there is also contributing. And certainly, some of the macro environment would also be helpful. But I think, on an ongoing basis, we do believe that the continued optimizations that we're making on the platform should help us.

[Maria Ripps, analyst]

Got it. That's very helpful. And then is there any data that you track that sort of demonstrates that you are perhaps gaining share? Obviously, there's been a ton of progress on the product side. But broadly, how do you view your competitive positioning in this sort of uncertain hiring environment?

[Hayden Brown, executive]

Maria, I think we view our competitive position as strong or stronger than ever, frankly. There's a lot of data you can look at. I think it's -- our -- the place we sit in the industry is a very interesting one as the market leader and certainly building a new way of working. But as I look at the data points we have around our competitive set and certainly everything we're executing on to take advantage of the strength we have in this business around our size, our scale, our data asset, our incredible customer base, the product innovations we've already built but along the ones that we are launching on a weekly basis.

I think all of those things really lend themselves to our continued strength as we pull ahead of competitors, not to mention the partners now that are so eager to work with us as they see that strengthen Upwork and are eager to be part of our ecosystem.

[Maria Ripps, analyst]

Congrats on the strong quarter.

[Erica Gessert, executive]

Thank you so much, Maria.

[Operator]

All right. Thank you for your questions. I am showing no further questions at this time. I would now like to turn the call back to David Anhalt for closing remarks.

[David Anhalt, executive]

Thank you. On behalf of the entire Upwork team, thank you for joining us today, and thank you for your interest in Upwork. If you need any clarifications or have any follow-up questions, please do not hesitate to reach out to me at [e-mail]. This concludes our call.

[Operator]

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.