Thank you. Welcome to Upwork's discussion of its fourth quarter and full year 2022 financial results. Leading the discussion today is Hayden Brown, Upwork's President and Chief Executive Officer. Following management's prepared remarks, we'll be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. In addition, any statements regarding the current and future impacts of Russia's invasion of Ukraine and our decision to suspend business operations in Russia and Belarus, and the COVID-19 pandemic on our business and current and future impacts of actions we have taken in response to Russia's invasion of Ukraine and the COVID-19 pandemic are forward-looking statements and related to matters that are beyond our control and changing rapidly. For a discussion of 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 shareholder letter. Additional information will also be set forth in our annual report on Form 10-K for the year ended December 31, 2022, 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 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 and comparisons of the fourth quarter of 2022 or to the fourth quarter of 2021 and comparisons to the full year of 2022 or to the full year 2021. 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 fourth quarter 2022 earnings call. In 2022, in the face of a dynamic environment, we made meaningful progress executing on our strategy to innovate, evangelize, and scale our work marketplace. We delivered innovative new products and features, including Project Catalog Consultations and Project Tiers, Upward Academy and our new Client Marketplace Plan for client pricing. We continued strengthening our Enterprise Suite, and our investment in brand marketing delivered measurable results. Through these innovations and investments, we made it easier and more productive for clients and talent to connect and manage their work and relationships on Upwork. For the full year 2022, GSV grew 16% year-over-year to reach $4.1 billion and revenue grew 23% year-over-year to reach $618 million. Our full year adjusted EBITDA came in at negative $4 million. In the fourth quarter of 2022, GSV grew 5% year-over-year to once again exceed $1 billion and revenue grew 18% year-over-year to reach $161.4 million. Fourth quarter adjusted EBITDA reached $1.1 million. The fourth quarter demonstrated a continuation of the macroeconomic trends that we saw in the third quarter. We observed corporate caution during the budgeting and planning cycle, leading to softer client acquisition and retention trends across our customer base. This behavior is consistent with our experience in past uncertain macroeconomic environments, where we have typically seen companies moving through a sequence of phases. In the first phase, companies will reduce their costs and freeze hiring budgets as they grapple with uncertainty or the onset of macroeconomic weakness. This is when we may see a headwind from customers reducing overall budgets. As they move into the second phase, companies realign their cost structures in a more efficient manner and start to redeploy resources to solutions such as Upwork, where they have confidence they can deliver the best returns. This is when we have typically shifted from being a headwind to a tailwind. In the final phase, as the economy shows definitive signs of improvement, companies ramp up budgets and seek to aggressively hire, characteristically turning to our solution more than others because of the speed and flexibility we offer. This is when our momentum gathers further. Today, we see many of our customers are in the first phase, realigning their budgets, with some moving into the second phase. Although this dynamic is creating near-term headwinds in our numbers, we have our eyes on the opportunity ahead of us. We are taking proactive steps to position Upwork for the full benefit the second and third phases can offer as we provide companies with rapid access to cost-effective, highly skilled global talent and flexible solutions to meet their workforce needs. To capture the opportunity ahead of us, we continue to innovate to advance Upwork's evolution from the largest global freelance marketplace to the world's work marketplace. Earlier this week, we announced our end-to-end solution for full-time hiring. This is the next step in the journey we started in 2021 to expand our offerings to support all the ways our customers want to work on Upwork. With this launch, we are bringing to bear more than 20 years of worker classification expertise as well as existing and new technology solutions to enable our customers not only to form the trusted long-term working relationships that Upwork is known for but to do so via a complete set of full-time hiring solutions now available to all our customers, enterprise clients, and marketplace clients alike. This strategic expansion affords both clients and talent further flexibility and choice in how they work together and delivers a first-of-its-kind end-to-end solution that enables businesses to easily, quickly, and cost-effectively find, vet, hire, and pay talent interested in full-time work from all around the world and offering more than 10,000 skills. Addressing global full-time work is a natural extension of our existing work marketplace and supports both our mission and the natural progression of work behaviors we see on Upwork today. Embarking on a brand awareness campaign to introduce ourselves to the many companies and hiring managers who have not been previously aware of Upwork has been an ongoing priority. Our goal has been to raise unaided awareness across a broad audience and ensure that companies and hiring managers understand our compelling value proposition. As companies are increasingly scrutinizing their internal resources and costs, we believe now is the right time to educate them about our solutions. We are pleased with the results thus far. With our 'This Is How We Work Now' campaign, which we launched in September of 2022, we have seen greater progress in increasing brand awareness than we expected. Since the September launch of our new campaign, unaided awareness has grown more than 30%, with unaided awareness among large businesses, which represent the biggest segment in our TAM, growing by more than 140%. From the third quarter to the fourth quarter of 2022, ad recall, which measures the impact of brand campaign messaging on our chosen target audience, grew 45% among large businesses, and we saw 58% growth in top-of-mind awareness, which is a measurement of being the first brand mentioned in a category. Looking at the year ahead, we also recognize the macroeconomic climate has changed rapidly, and we are moving to reduce our brand working media spend by approximately 12% in 2023 compared to 2022. Given the strong focus on measurability and testing that we have deployed to date, we can make this reduction in costs while still driving the outcomes we seek with our investment in campaigns in 2023, targeting significant continued growth in unaided awareness as well as delivering insights into how this investment impacts our downstream metrics and overall marketing efficiency as our campaigns evolve and our data sets mature. This approach is tailored to achieve our customer- and business-impacting goals while giving us more room to respond to new macroeconomic realities and continue to make strongly data-informed decisions about this investment area in the future. In our Enterprise business, revenue grew 22% year-over-year. We continued to make progress in ramping our sales force and educating our prospects and customers on the new features and enhancements we launched in the year, including flexible approval workflows, talent performance reports, and user activity reports. In the fourth quarter, we signed 26 new enterprise clients as we saw the average length of the sales cycle extend by nearly 20% as corporations made changes to and delayed their budgeting and approval processes. In the fourth quarter, this also resulted in an unprecedented increase in customers pushing their late-stage deals into 2023 as they work through these changes. Our new enterprise clients included high-quality companies like HTC, JLL, Maaco, Lucid Motors, and Sweetwater Sound, who have turned to Upwork to help them solve their workforce needs in this evolving work environment. The decision of these leading companies to source talent through Upwork is a testament to the real value we bring through both the quality of talent on Upwork as well as the ease of use and cost efficiency we provide. We are making strong progress addressing the internal enterprise sales operational growing pains we experienced last quarter. Our efforts to close the gap on them have started to fuel improvement in top-of-the-funnel activity late in the fourth quarter, and we expect to see our sales reps' productivity normalize as we move into 2023. Barring further deterioration of the macroeconomic environment, even with the elongated sales cycles we have experienced recently, we expect to be back on track with our land team at full productivity and performance by the third quarter of 2023. We see a clear path to reaccelerate our momentum in enterprise and believe the enterprise opportunity remains as attractive as ever for Upwork. In 2023, we are proceeding in a balanced and nimble manner and focusing on the things that we can control while being ready to make the most of any opportunities that may arise. For example, in December, we made a significant change to our organizational structure, moving from a purely functional to a business unit composition. With this new organizational framework, we have been able to strategically reallocate resources from a broader, more fragmented portfolio of investments that at times represented incremental opportunities to a more concentrated set of resources in all of our key business unit areas, each helmed by a leader laser-focused on delivering customer and business outcomes with attractive growth and return opportunities. As a result, we have set ourselves up for the future with increased efficiency, agility, and accountability throughout the organization. We remain committed to achieving our goal of adjusted EBITDA profitability in 2023 and aim to increase our adjusted EBITDA margin by a few hundred basis points per year as we progress toward our previously communicated long-term target of an adjusted EBITDA margin of 30% to 35%. A critical part of our strategy is to remain disciplined with regard to our cost management, and we are focused on increasing our operating leverage, targeting 2023 revenue growth in excess of operating expense growth. We are entering 2023 on offense, ready to capture the opportunity ahead of us. With our leading cost-effective solutions, we are uniquely positioned to meet customers where they are and benefit as customers learn about and turn to Upwork for their full range of talent and work needs. We remain steadfast in our long-term vision, and we'll continue to innovate, evangelize, and scale Upwork as the world's work marketplace in 2023 and beyond. We will now open the call to your questions.

Our first question comes from Matt Farrell of Piper Sandler.

You mentioned that many customers are still in the first phase of the macro planning process, but some are moving into the second phase. Maybe just help us understand how you're thinking about the transition to each phase as we move throughout the year. And what is embedded in guidance from a transition perspective? And is there anything that Upwork can do to push customers from one phase to another amid the uncertain macro?

Sure. Let me frame first how we formulated our guidance, Matt, which I think will help answer those questions. So we did see a softening of certain acquisition and retention trends in the back half of last year, and that informed how we thought about this year, as we've seen customers coming out of the gate, in some cases, slower than we would see in a normal year and in line with the trends we saw in the back half of last year. So that is really informing how we're thinking about the year ahead and has baked into our guidance the trends that we are seeing in the business right now. Our view is, talking to customers, that a lot of them in Q4 and coming into Q1 have really been reevaluating budgets, looking at their spend levels kind of based on the macro uncertainty ahead, and that showed up with things like elongated deals and things getting pushed for some customers from Q4 to Q1. In terms of transitioning to the second phase, we do see some customers leaning into the solution with Upwork more heavily, but this is still outweighed by, I think, some of the headwinds that we've seen from that first phase for some customers. And so we're really doing what we can do to control, as you asked about, the outcomes here by doing a few things. One is we've addressed the issues on the sales side that were holding us back at the end of last year in the top of the funnel. And it's going to take a little time for those to flow through, but that work has already happened. The second thing is we're focusing our attention on the sales team on the accounts that have the highest probability of spend and expansion, which we are doing actively and evaluating constantly where to spend time and effort. And then overall, our sales and marketing activity at this moment is really laser-focused on spreading the message around Upwork's benefit and value proposition at a time when our cost savings options, the agility that we offer customers, those aspects are so resonant in the landscape. And that's one of the reasons we are continuing to invest in our brand marketing this year because this is something that most of our target market just doesn't know they can get from Upwork. So all of those things help connect customers into what Upwork can offer and get them out from Phase 1 of being a little scared of the environment to Phase 2, seeing how Upwork can be the solution in this environment.

And maybe a follow-up on your announcement earlier this week moving into full-time hiring. It makes a lot of sense based on your mission. What has been the initial feedback from both buyers and talent? And how should we think about this expansion impacting 2023 from a financial perspective?

We have received very positive feedback from our customers regarding this. As mentioned earlier, over 2 million talents have expressed their interest in participating in the contract-to-hire option, seeking these types of work opportunities. On the client side, we have experienced strong demand with over 40,000 jobs posted this year as we progressively introduce this option to customers. The response has been encouraging. Customers recognize this as something they have been aiming to do with Upwork or, for some larger clients, they have already been implementing this approach. It feels familiar and is a natural extension of our existing relationships, as clients come to us for long-term projects that sometimes transition into payroll and full-time employee arrangements. Regarding the impact of this offering in 2023, we are still in the early stages of assessing its effect on our numbers. Therefore, our outlook for this year is grounded in our current business situation rather than anticipated gains from this new offering. Historically, new offerings do receive a strong response, but it usually takes time for their effects to be reflected in our financials, and this situation may follow that pattern as well.

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

Hayden, I want to revisit the topic of full-time hiring. Considering a more comprehensive offering that includes our product catalog, full-time hiring, and the core marketplace, could you discuss how we view this as a way to attract new clients rather than just pursuing additional sales to our existing clients? Additionally, could you provide an overview of the net additions during the quarter? This is the second quarter, and we understand the ongoing challenges in the macro environment. Is there anything else you can share that would help us understand the net additions for 2023?

Sure, Andrew. In terms of the full-time offering, I'd say this is definitely just the next step in us delivering on the vision we shared a couple of years ago around really becoming the world's work marketplace and giving clients all of the ways that they want to hire and talent all of the ways that they want to work. And so you're absolutely right that we have opportunities both to essentially cross-sell our existing client and talent base into this offering as well as market this to new customers who might not have considered Upwork before because we didn't have this as something that we were going and putting in front of them at the outset as part of our acquisition strategy. I'd say our focus for the near term is really around the first opportunity, which is around existing customers, more than going out and building new channels with new customers just because we think there's such a rich opportunity to leverage what this can do for existing customers that are already in our marketplace. But certainly, we have our eyes on both of those things, and we'll be moving on both of those opportunities when the time is right. In terms of the net adds for the quarter, certainly, there are a couple of things impacting those metrics. We've seen a few headwinds in acquisition last year, particularly in the performance marketing area of the business. The other channels actually performed really well, but that one was softer than we would have seen, largely due to issues around just what was available to us in that environment, and we've been moving to really realign some aspects of our performance marketing strategy, knowing what we know now that we didn't know at the back half of last year. The other factors around active clients have really been just lapping issues around larger cohorts that were very strong from tailwinds that we had in previous quarters. And now that's kind of flowing through the business as we've had some smaller acquisition customer cohorts more recently, meaning that in aggregate, there's a larger base of eligible customers to churn. And as you know, this is a trailing 12-month metric. So those are some of the key things I'd highlight on there. We are lapping just more challenging comps there. But we will be focused this year on both new client acquisition as well as getting existing customers to be even more successful with things like the full-time offering we talked about.

Our next question comes from the line of Ron Josey of Citi.

Hayden, I'd like to ask for more details about the enterprise sales. In the letter, you mentioned that the land team would be fully productive by Q3. Does this mean you've met your hiring goals by the end of last year, and now you're in execution mode? Typically, it takes about 2 to 3 quarters to achieve overall efficiency? Also, we've been discussing brand marketing for a while and increasing awareness of Upwork. Can you update us on how that awareness is progressing as you pursue these initiatives?

Yes. Thanks, Ron. The enterprise side, I'd say, it's helpful to unpack kind of the two pieces that drive that business. There's land and there's expand. And you touched on the land team a little bit. What I'd say there is, our land number, which is reflected in our new customer count that we report, is a function of the newly hired reps that are still ramping, and those reps will be fully ramped by the middle of this year. It's also a function of the operational fixes that we deployed at the end of Q3 and into Q4, which have been returning the expected improvements. And now those have to flow through our sales cycle. And then we are also seeing in this macro, demand is still there for our product. But what we are seeing is that at the contracting stage of closing deals, we've seen elongation there, and that's what pushed a very large number of deals out from closing in Q4 into Q1. And so as all of this is happening, we do expect that those things will roll through our sales cycle, and our team is adapting to things like process changes we need to make to close deals faster in this new environment. And that will mean that we can achieve that fully productive outcome for our team by Q3. And I would underscore that's not dependent on any specific macro conditions. These are just things that we are driving through our business. On the other hand, the expand business does have a little bit more of the kind of two drivers coming from it. One is the success of our land team in closing new deals. And so some of that resulted in a little bit softer numbers in Q4 because we hadn't done as much hiring earlier in the year, and that productivity just wasn't there for the team to execute against. And then the macro, we are seeing a little bit of customer pullback in some cases where they have budgetary concerns that they need to manage, and that is impacting certain accounts. So with that, we're really focused on driving activity in the accounts that have the biggest opportunities, and continue to execute against the demand signals that we are seeing, which are very strong in the market. And all of this supports our view that the long-term opportunity is very much still intact, even if near-term revenue growth in the enterprise area is a bit more tempered. To your second question, which I think was about brand awareness overall, I would say we did see some of those really positive improvements on awareness across different customer cohorts that are really important for us from an acquisition perspective. And that is, I think, giving us confidence that the creative that we're developing, the media strategies that we've been deploying, and the measurability that we put in place over the course of the last year plus is giving us the insights around how to continue to build on those strengths and optimize our campaigns this year to have even more effect on the audiences we care about most. And so what's, I think, exciting about that is we are able to bring down our brand marketing investment on the media side by 12%, in line with achieving our profitability goals and other objectives we have in the business, while also continuing to execute around that broader awareness strategy, which is about bringing a bigger umbrella to all of our sales and marketing efforts to make them all more efficient and productive over time. And we knew this would take some time to play out. This is a year where we're going to see a lot more of the data coming in as data sets mature and as these campaigns continue to be executed to give us visibility into how those brand awareness numbers are translating into client performance deeper in the funnel.

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

We really appreciate the framing around the phases and how we should be thinking about that for the business. With that as a backdrop, was there any differential you want to call out in either certain pockets of the economy or certain geographies, where maybe there were little differences in behavior between the Phase 1 type of impact or the Phase 2 type of impact that we should be keeping in mind from a business mix standpoint as we get deeper into 2023? And then maybe I've got a quick follow-up after that.

Sure, Eric. I would say the trends we observed in Q3 largely continued into Q4, with more noticeable softness in Europe, although there was also some impact in the U.S., which was again more concentrated in Europe. We saw this slowdown not just in the SMB part of the business, but also in the Enterprise sector, where new deals experienced a slowdown due to a more prolonged contracting phase in our deal cycle. These are some of the key elements that showed slight differences or a continuation, with a few nuances, from what we observed in Q3.

And maybe just one follow-up on Ron's question there on the brand marketing side. How quickly should we think about you going from sort of being more balanced on brand marketing to maybe leaning back into the marketing from going sort of a neutral stance to an offensive stance, if you see more clients moving into Phase 2 and beyond? How should we be thinking about the ability to turn that back on and get some of the return you're highlighting from some of the elements you feel good about that have been tested and proven out on the brand marketing side?

We feel that we are on an offensive stance now with the investments that we're making and that it is going to give us the ability to reach the audience that we're seeking to reach with the frequency we want at the investment levels that we are deploying this year. So I think I'm very comfortable that we are seizing the opportunity right now in that area. I think what will be different about where we'll be at the end of this year is the insights that we will have garnered through the progression of the next few quarters will put us in a much stronger position because we'll be able to connect some of these metrics together around what's happening with awareness and how that relates to traffic and registrations and also reactivation of existing customers who might have registered before and now see an ad and become more active. All of that is going to be much more informed for us due to the experimentation framework and the measurement that we have this year. And so at that point, at the end of this year, we'll be in a very strong position to connect the dots even more precisely around ROI for the business and make a call then around what is the right level of investment going forward.

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

This is John Byun for Brent Thill. I had maybe a little bit more regarding the guidance and what's embedded in it from a macro standpoint. I mean looking at details, you guided to 12% growth or so in Q1 and 13% for the full year. So it seems like you'll be fairly flat throughout the year. But wondering how you're assuming in terms of macro progression. And a couple of details around that, any contribution at all from the full-time hiring, and how to think about the dynamics of the client marketplace plan anniversarying in Q2?

Sure, John. What we are observing regarding the guidance and its macroeconomic context is largely based on the trends from the latter half of last year. You may recall that we had expected a negative impact of $10 million to $15 million during that period, and that is exactly what occurred. We are currently using similar trends to shape our expectations for the upcoming year, including how customer behavior is evolving post-holiday. We are not factoring in any specific changes in macro conditions; instead, we're relying on existing trends and our historical understanding of seasonality and annual patterns, along with our strategies to drive business forward. Regarding full-time hiring, I wouldn't expect it to significantly contribute this year as we are still in the early stages of this product. Our focus is on optimizing the customer experience rather than making assumptions about potential revenue right now. Thus, it is just one component within our overall strategy for this year.

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

Just a question on this reorg from a functional to a business unit org structure. Just maybe just draw out your thinking there, like why now? And over the next year, what sorts of observable results do you hope to achieve from having this reorg done in late last year?

Yes. This is an exciting change we made, something we've been contemplating for a long time as we look at how to most effectively drive this business. And I realized last year that we could be more effective putting leaders in charge of very discrete parts of the business with accountability to both revenue and, over time, cost components of their business. And these leaders have full stack ownership of different levers to drive those outcomes, whether it's product, marketing levers, sales levers, et cetera. So this is a big shift for us and is really intended to drive greater alignment internally around the key priorities that we're delivering against. Certainly, it gave us a chance to be more efficient with kind of how we're deploying resources across the business in those key priority areas. And ultimately, I think, gives us a structure for giving different leaders the independence to be risk-taking, forward-thinking, and really kind of big picture-owning as they move forward in their respective business areas. And it's different than what we had in a functional model. So this was the right time to do it. I think especially as we're heading into a more complex product mix, different customers that we're serving between enterprise and SMB, we just looked at the total picture and I felt like this is the time to give different types of ownership and responsibility to different leaders in the business.

Okay. And just a follow-up on the pricing change you did and the GSV trend that we are seeing and the take rate trend that we are seeing. Is there a point from the price increase that you did? Was your hope that, at some point, GSV would start to stabilize while you start to get pricing leverage? And if so, at what point do you feel that the headwind or the incremental headwind that you're seeing because of the pricing change starts to diminish in the future?

Sure. So we feel the pricing change was definitely very successful, and the outcomes were in line with our expectations. Customers have gotten a better benefit in terms of the features and functionality that they're receiving. The pricing is working for them, although we do see, for a period of time until we anniversary this change, some of that GSV headwind even as we've seen a big uptick on the revenue side that has yielded a higher marketplace, a higher overall take rate for the business. So that is kind of the overall, I think, observation of what we've seen with the pricing change. We do expect that the GSV headwind that we saw coming out of that change will be something that once we anniversary the change, which was late April of last year, will fade out and will be kind of in a new situation around that.

Our next question comes from the line of Logan Reich of RBC Capital Markets.

Just one quick one on artificial intelligence. Obviously, ChatGPT has gotten a lot of buzz recently. On a more long-term basis, how do you view the advent of artificial intelligence as a headwind or a tailwind for the business just given there would probably be some categories that could be fulfilled through AI and also some categories that would pop up as a result of artificial intelligence? So just want to get a sense of how you're thinking of that on a more long-term basis.

Our perspective is that the opportunities presented by artificial intelligence are tremendously exciting for both our customers and Upwork, with the benefits significantly outweighing any potential risks. I'm particularly enthusiastic about several aspects of AI and its anticipated impact on our customers and business. Firstly, we can already observe how existing applications serve as remarkable productivity tools that enhance the effectiveness of all talent on Upwork, enabling them to work better, faster, and more economically. This aligns perfectly with the reasons individuals seek Upwork services, and we are witnessing talent harnessing these tools to improve their performance, which provides substantial value. Secondly, we recognize that companies developing AI platforms and infrastructure, which has been a hot topic in recent headlines, require skilled workers to manage various stages of creating, implementing, and commercializing these models. We are already collaborating with prominent firms in this field, supplying them with the necessary talent, and we can continue to grow this partnership as the market expands. It's important to note that while AI technology is advanced, the models do not develop themselves. Human talent is essential for managing workflows in multiple capacities to facilitate this process. The third opportunity I'm excited about involves companies adopting new AI tools and applications within their services, whether via website integration or customer offerings. Again, they rely on skilled professionals to handle this integration process, as well as to customize and deploy these solutions as they gain widespread acceptance in the market. Upwork talent is already actively participating in this area and can continue to support the market's needs moving forward. Notably, we've experienced a 3,900% increase in searches for AI-related services on our platform over the last four months, and job postings for these services have surged by 1,400% in recent months. This is just the start of how AI will positively influence our business and provide our customers with valuable options as they navigate the evolving technology landscape.

Our next question comes from the line of Maria Ripps of Canaccord.

So I just wanted to go back to your point about sort of different phases of recovery. And so if you look at the clients that have moved into the second phase, are there any sort of common characteristics or perhaps even verticals that are represented in that group? And then I have a quick follow-up.

I wouldn't say there's a specific trend in clustering that activity by industry. At Upwork, we serve a range of tech-enabled businesses, and we observe that different parts of our business are affected by macroeconomic conditions. Some companies are in an initial phase and facing more turbulence, while others feel confident and are ready to increase their spending. Both scenarios are happening simultaneously within our customer base. Additionally, when analyzing industry data, we don't see clear distinctions that influence this behavior. It appears highly specific to each company, as they progress through these stages at their own pace. Thus, we are not observing this by industry.

Got it. And then secondly, I appreciate all the color sort of on brand spend and sort of understanding that you're targeting to reduce brand spend this year versus last year. Can you maybe just talk about how you're thinking sort of about prioritizing brand spend relative to other investment opportunities this year?

Sure. We think about the brand spend as umbrella driver that brings the awareness of the market that then our sales team, our other market channels, whether it's performance marketing, digital marketing, other kinds, et cetera, can pick up and take advantage of because we've created more of that headroom and awareness space for ourselves in the market. So for that reason, it is right now something we're deploying as a kind of underpinning strategy that's meant to lift all those other activity in the business. I think if we have to make trade-offs later in the year around profitability for some reason or something else due to unexpected or unforeseen things, clearly, the brand area and others will be up for evaluation. I mean I think we'll just look at where are we getting the best return and is it from brand or is it something else. And that will be a conversation we would have then. But I think right now, we have prioritized the brand spend because of the results that we shared and because of the belief that this is a moment when companies absolutely resonate with our value proposition, and yet the vast majority of them aren't aware of Upwork and aren't aware of what we offer. So we have to connect those dots for them and then all of the rest of our sales and marketing and product work will work harder in that environment when we have more of that awareness.

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

A couple of questions. Just first on the 13% revenue guidance for 2023. Just wondering if you could maybe look at it through the lens of enterprise versus SMB. Do you expect both of them to be kind of similarly weak year-on-year? Obviously, enterprise is going to outgrow SMB, we would all guess. But just maybe just add some color about how you're thinking about those two end markets relative to your guidance.

Sure. I'd say SMBs are the faster twitch part of our business, so they tend to slow down faster when conditions get rocky and then pick up faster once they get comfortable or once conditions change. Enterprises are the slower twitch part of the business. So they behave through a slightly different arc. But the good news is we are still seeing strong demand in that environment. A lot of the things I mentioned earlier in the call are more timing issues of us getting reps ramped and the flow-through from the improvements we made last year on operations and things like that. So I think that's why there are some different dynamics on each side. But for both sides, we are baking in an expectation based on the numbers and the trends we're seeing right now, that these parts of the business will both grow and they will both grow in a way that's in line with what we're seeing from the end of last year heading to this year. So we're basically expecting some consistency there based on our execution and everything that we've done to date.

That's great. My next question is about the net adds. This seems to be the first quarter with a sequential decline since you started sharing the active client metric, and I appreciate the reasons for this. I'm curious if you could provide some insight into the clients who are leaving the platform. Were they mainly experimenters who didn't engage much in business, and are we really not concerned about their departure? Additionally, does your experience suggest that clients who churn can be recaptured in the future?

Yes, I'd say the reason we're seeing a decrease in client net adds quarter-over-quarter is related to smaller acquisition groups in recent periods compared to the larger groups we had over the past 18 months. This has created a substantial base of active customers. Recently, our new cohorts have contributed less significantly. While there haven't been notable changes in churn that concern us, when analyzing churn over various time periods, we notice that customer behavior can be quite erratic. For instance, customers may become inactive for three to nine months before returning, often with multiple needs. To address this, we are enhancing our product solutions and focusing on initiatives like full-time hiring to re-engage existing users who may have lapsed, as well as continuing our efforts to acquire new customers to ensure those cohorts remain strong.

Our final question comes from the line of Bernie McTernan of Needham & Company.

Just lastly, I guess on the end-to-end solution for full-time hiring, just what provides you the confidence that this is going to be incremental to the business or to the talent marketplace instead of cannibalizing it?

I don't think it matters, Bernie. I think if we're giving solutions to customers that are better than the previous solutions that we're giving to customers, then that's part of our job is to continue to innovate into the spaces where we can offer something better, faster, superior, and that really meets their needs better. So I don't think we look at this as a cannibalization type of situation. It's much more this is additive. It gives them an alternative. Some people will want to do one thing; some people will want to do one other. We see this all the time in talking to customers. They have a range of needs that need to be met in a lot of different ways. Previously, we didn't have a perfect solution for them in this space. Now we do. And so I think this is additive overall. But certainly, if some people take a relationship that was previously worked on one way in Upwork and then move it over to this offering, we see that as a win.

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 [email protected]. This concludes our call.

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