Earnings Call Transcript - UPWK Q3 2023

David Anhalt, Manager of Investor Relations

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 three 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, and comparisons of the third quarter of 2023 are 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, President and CEO

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 pre-eminent 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 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 revenue 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 app 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 features 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 the Upwork 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 rose 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 operation, 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, CFO

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 a 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 actions 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 a 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 a 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 across 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 overperformance 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 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 our 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 has approved a share repurchase program with authorization to purchase up to $100 million of our outstanding shares of 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 results 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 overperformance we saw in the third quarter, particularly around our ads and monetization product. 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 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 and 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

Thank you. We will now begin the question-and-answer session. Our first question comes from Matt Farrell of Piper Sandler. Your line is now open.

Matt Farrell, Analyst

Thanks for taking my question and congrats on the really strong results. You highlighted throughout the shareholder letter the continued innovation on the AI front. I 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, President and CEO

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 CodeWhisperer, Miro, ClickUp, and others. So we're seeing Upwork talent is the first in the forefront of all of these AI adoptions because freelancers know this is what puts the foot on the burner and enables 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 is just, I think, a lot of excitement there on both the client side and the talent side.

Matt 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 outsize growth? Anything you could highlight will be great. Thanks.

Hayden Brown, President and CEO

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 at Upwork were up 34% quarter-over-quarter in Q3. We're seeing AI 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 pre-eminent 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 to talent so they can be effective. We're going to continue to innovate around the product and solutions on our own platform so both clients and talent can leverage generative AI powered features and functionality on Upwork. And we'll continue 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 Upwork Business after all.

Erica Gessert, CFO

And hey, 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 remain consistent. We are committed as a business to year-upon-year improving our revenue growth rate 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, Operator

All right. Thank you. One moment for our next question. The next question comes from the line of Kunal Madhukar of UBS. Your line is now open.

Jason Park, Analyst

Thank you. This is Jason filling in for Kunal from UBS. I have a couple of questions. First, regarding operating expenses, could you provide insights on the new run rate for sales and marketing expenditures for the fourth quarter and for 2024, if possible? I’ve noticed that as a percentage of revenue, it has been steadily declining over the last few quarters to around 39% to 38%. Additionally, the Q3 figure was significantly lower than we anticipated. Could you elaborate on the factors contributing to the efficiency of marketing spending in Q3? Thank you.

Hayden Brown, President and CEO

Certainly, Jason. At the start of the year in Q1, when we announced the reductions in our brand spending, we mentioned that this would be a gradual decrease throughout the year. The reductions in Q3 are in line with that plan. We also observed favorable efficiencies in our performance marketing during Q3, achieving a more effective yield on that spending, which helped us cut costs. However, we are not providing guidance for 2024, so we won't update you on any specific run rates for that year. From an EBITDA margin perspective, as we promised earlier this year, we expect to finish Q4 of 2023 with approximately a 15% EBITDA margin. We will offer more precise guidance for 2024 when we provide our outlook for the year.

Jason Park, Analyst

Thanks a lot. Yeah. So that's sort of my next question which is on EBITDA. You said before EBITDA margin typically peaks in Q4, but drops sequentially in Q1 in the vicinity of 200 basis points 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 15% Q4 guide?

Hayden Brown, President and CEO

Yeah. Sure. So look, as I talked about last quarter, listen, when I came into the business in Q1, we committed to reductions 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 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 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 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.

Jason Park, Analyst

Thank you so much.

Operator, Operator

Thank you. One moment for our next question. The next question comes from the line of Logan Reich of RBC. Your line is now open.

Logan Reich, Analyst

Hey. Good afternoon. Thanks for taking the question and congrats on the strong quarter. Just want to ask the macro question on just what you guys are sort of seeing on the macro backdrop in trends with your clients as it pertains to both active clients and then also spend per client. Just wondering if there is anything to call out there on a geography basis or like size client basis, and then also just sort of impact from the conflict in the Middle East. Thanks.

Erica Gessert, CFO

This is Erica. I'll take this one, and Hayden can add anything. We haven't seen significant improvement in the macro environment during Q3, and the external trends remain uneven and difficult to predict, sometimes even changing monthly. This causes customers to be more cautious with their spending, particularly on the larger business side. Despite this, we're focused on what we can control. As mentioned in the prepared remarks, we continue to see a 2% year-over-year and quarter-over-quarter increase in active clients, along with a 21% rise in new enterprise logo growth from quarter to quarter. We're pleased with our execution in what we view as a persistently uneven environment. Additionally, we're increasing our revenue through monetization strategies like advertising products, including Boosted Proposals and subscription products like Freelancer Plus. These strategies are not only boosting revenue and customer lifetime value for Upwork but also enhancing efficiency on the platform and helping talent secure jobs more quickly. For instance, talent using Boosted Proposals have a 25% higher chance of getting a job. We've stated for several quarters that we aim to lessen our dependence on the macro environment, and I believe our results demonstrate our success in achieving this. I'm proud of what we've accomplished and we're dedicated to both improving year-over-year revenue growth rates and expanding our EBITDA margin.

Hayden Brown, President and CEO

Logan, in response to your question about geography and client side, there isn't anything significant to note this quarter. Our very small business clients are actually performing the best, but there's nothing specific to highlight. Regarding the conflicts in the Middle East, it's truly heartbreaking, and our thoughts are with everyone affected by this tragedy. It's shocking and deeply saddening to witness these devastating events affecting civilians. We have very few team members in the region, and we are focused on their safety and well-being. We do not expect any impact on our business, as our gross sales value from that area is minimal.

Logan Reich, Analyst

Thank you very much. Appreciate it.

Operator, Operator

All right. Thank you. One moment for our next question. The next question comes from the line of Bernard McTernan of Needham and Company. Your line is now open.

Bernard McTernan, Analyst

Great. Thank you for taking the question. Just wanted to double-click on the ads marketplace. Can you go a little bit deeper into this opportunity? The shareholder letter spells out 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 upward 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 two in terms of the sequential growth in the take rate this quarter?

Hayden Brown, President and CEO

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 really starting to see their fruits. 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 factor in the marketplace. So we're seeing data such as talent using Availability Badges. We're seeing 50% more invites than those who were not. Clients are 62% more likely to actually get their invoice accepted or invite those or work with those who are badged talent. Boosted Proposals is another feature here that is increasing professionals' likelihood to get hired 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 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 efficiency, the equity ability, 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, CFO

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 expect it to get accretion from take rate over the next four 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 would get around about a point of total accretion. And that kind of remains consistent.

Bernard McTernan, Analyst

Perfect. Thank you both.

Operator, Operator

Thank you. One moment for our next question. The next question comes from the line of Brent Thill of Jefferies. Your line is now open.

John Byun, Analyst

Hi. This is John Byun for Brent Thill. Thank you. Wanted to go back maybe a little bit on the macro, and you mentioned it's been hard to predict month by month. Is there anything you've seen in terms of monthly linearity including through, I guess, the first week of November so far? I mean, anything notable other than maybe for seasonality?

Hayden Brown, President and CEO

Yeah. Sorry. Can you — 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?

John Byun, Analyst

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

Hayden Brown, President and CEO

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 sort of the environment of uncertainty is affecting all types of businesses spend in this environment. Maybe I can give you a little color on some of the underlying trends in the platform. One example we're seeing is that new clients coming onto the platform. We have seen good growth like we said after clients growing, more and more growth coming in enterprise side. But 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 kind of hours per contract are up slightly quarter-over-quarter. And actually when we look at even the year-over two-year trends, hours per contract are up about 10%. So I think that shows that there is good strong robust growth happening on the platform.

John Byun, Analyst

Okay. Great. That's helpful color. Maybe — and then on the — in the AI skillset and so on, I think you shared one metric. Is there anything else to share in terms of how that's ramping in terms of projects and talent putting out skills, and — I mean, I guess, the average rate is always a much higher as well, but anything else you could add there will be great. Thank you.

Hayden Brown, President and CEO

Thank you, John. So in terms of how project 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 machine learning, which is up 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 impacts, 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 a mix shift around that work actually evolving and things that talent themselves upskilling and again adding tools to their toolkit which again goes back to the strategy you see us deploying around sort of the partnership. So we're seeing the growth in specific categories as well as talent across categories is really evolving, how they're working and getting the benefits of these new tools as we go.

John Byun, Analyst

Very helpful. Thank you.

Operator, Operator

Thank you. One moment for our next question. Next question comes from the line of Rohit Kulkarni of Roth MKM. Your line is now open.

Rohit Kulkarni, Analyst

Hey. Thank you. A couple of questions. One on Enterprise net adds. Anything you had flagged that leads you to believe that this kind of inflection of uptick that we're seeing in new client additions is — this trend is sustainable perhaps due to the team productivity of reps or maybe it is macro that you think you are now in a new sustainable cadence of growing net adds in enterprise. And then a quick clarification on Erica's comments. I guess regarding '24, were you trying to say that you are committed to improving revenue growth rate which means accelerating growth rate from '23 to '24? Just want to clarify that.

Hayden Brown, President and CEO

Yeah, Rohit. So on the enterprise side, the continued improvement we are 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 margin. It's certainly continuing under Zoe's leadership of the enterprise business unit. 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 continue 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 and can bring that demand.

Erica Gessert, CFO

Yeah. And on the question on 2024, really appreciate the clarifying question to make sure everyone understands it. And 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 — like I say, we will give more detailed guidance on 2024 in the Q4 call. But it's really on a full-year versus full-year growth rate and margin that we are making the comparison.

Rohit Kulkarni, Analyst

Great. Thanks, Erica. If I could add one more on GSV. What could it take for the GSV to kind of start to grow beyond the zip code that it has been in the last, call it, three quarters, four 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, CFO

Yeah. We're not guiding to GSV right now, nor have we traditionally done so. And look, I would say that there is really no doubt that GSV is being affected by the macro environment. Like I've said to some of the earlier questions, there really isn't a lot of uncertainty and trends in sentiment can kind of change month to month these days. And what we're seeing is that that translates to some 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 to kind of sequential increase on hours per contract. We do see some very good dynamics there on kind of a year-over two-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.

Rohit Kulkarni, Analyst

Okay. Thanks, Erica. Thanks, Hayden.

Operator, Operator

Thank you. One moment for our next question. The next question comes from the line of Andrew Boone of JMP Securities. Your line is now open.

Andrew Boone, Analyst

Good afternoon, and thanks for taking my questions. I wanted to go back to sales and marketing. Erica, is the 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 which expands? Or do you have a framework in which we should apply?

Erica Gessert, CFO

We are very pleased with the effectiveness of our performance marketing spending, and we are observing some improvements in yield. We will continue to balance our EBITDA margin growth with investments aimed at driving growth, particularly in research and development. Since we reduced our brand spending at the beginning of the year, we have made targeted investments in brand spending for new products and feature launches, and we plan to continue this strategy next year. Therefore, you can expect occasional brand spending investments. Beyond that, it is too early to make definitive statements. However, we believe that over time, while managing EBITDA margin growth, we can achieve a good return on brand investments as macroeconomic conditions improve.

Hayden Brown, President and CEO

Yeah. 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. Understood this is basically the first version of the product. How did you see AI tools evolving as you guys help freelancers be more efficient on the platform?

Hayden Brown, President and CEO

This is definitely the 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 in Q3, and Q4, we 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 lifecycle 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 — with Chat Pro, clearly there is a lot we can do to smooth out the workflows, to give them even better experience for the work delivery through the pieces of the puzzle that we serve them as 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 excited to be pushing things forward, innovating on the forefront and getting a ton of customer feedback along the way that will continue to guide product roadmap as we go.

Andrew Boone, Analyst

Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Eric Sheridan of Goldman Sachs. Your line is now open.

Eric Sheridan, Analyst

Thanks for taking the question and hope everyone on the team is well. And I'll just ask maybe one big picture one is as we've gone 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 of the efficiency of your go-to-market strategy over the medium to long term? Thanks so much.

Hayden Brown, President and CEO

Yeah. Thanks, Eric. We're doing a number of different types of partnerships right now and we 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 moats. And so to your question about return on the investment and the go-to-market strategy medium to long-term, there is a bucket of partnerships we're doing around client acquisition, which really is about — if you saw the open ad partnership we did 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 through open eye in this case to get to their end customers and give them the talent they need right here on Upwork. And that is — it's really early and yet exciting opportunity for us to replicate that model with other partners who we have lined up and are very eager to work within that kind of capacity so they can get 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're doing around tools for talent, which really are around driving our flywheel around the value of talent on 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 delivering this work, the higher value they are and that really describes again our flywheel, which helps with all of the metrics and characteristics of what Upwork is. And then the third category is around the education partnerships so things like Coursera and Udemy which again is around enabling talent to upskill themselves 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 so many of our metrics over time as that strategy delivers. So again, it's early days on all of this, but that's how it can connect to our broader vision for the existing business, our existing flywheel and things like client acquisition, in particular.

Eric Sheridan, Analyst

Thank you.

Operator, Operator

Thank you for your questions. Our next question comes from Maria Ripps of Canaccord. Your line is now open.

Maria Ripps, Analyst

Great. Thanks for taking my questions. 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?

Hayden Brown, President and CEO

Sure. Again, we're not giving any specific guidance on it. Look, I think that it's probably a combination of all those things. I think we've been really, really pleased with the progress on sales productivity specifically, and 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 good. Again, a combination of that, the benefits we're seeing on the performance marketing side and just level of CAC (ph) 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 it.

Maria Ripps, Analyst

Got it. That's very helpful. And then is there any data that you track sort of demonstrate 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, President and CEO

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 and I think it's — our — the point — 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 the business around our size, our scale, our data asset, our incredible customer base, the product innovation we've already built or alone 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 strength in Upwork and are eager to be part of our ecosystem.

Maria Ripps, Analyst

Got it. Thank you so much, and congrats on the strong quarter.

Erica Gessert, CFO

Thank you.

Hayden Brown, President and CEO

Thanks so much, Maria.

David Anhalt, Manager of Investor Relations

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 investor@upwork.com. This concludes our call.

Operator, Operator

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