Earnings Call Transcript - UPWK Q4 FY2025

Operator

Hello and thank you for standing by. Welcome to Upwork fourth quarter 2025 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask the question during the session you will need to press start one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press start one one again. I will now like to hand the conference over to Gary Fugis, Vice President of Investor Relations. You may begin.

Gary Fuges, Head of Investor Relations

Thank you and welcome to Upwork's discussion of its fourth quarter and full year 2025 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, they will be happy to take your questions, but first I'll review the Save Harbor Statement. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. Forward-looking statements include all statements other than statements of historical fact. These statements are not guaranteed future performance, but rather are subject to a variety of risks, uncertainties, and assumptions, and 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 on our Investor Relations website, as well as of risks and other important factors discussed in today's earnings press release. Additional information will also be available on our annual report on Form 10-K for the year ended December 31, 2025, when filed. In addition, reference will be made to certain non-GAAP financial measures. Adjusted EBITDA, adjusted EBITDA margin, and free cash flow are non-GAAP financial measures, and all other financial measures are GAAP unless cited as non-GAAP. Information regarding non-GAAP financial measures, including reconciliations to their most directly comparable gap financial measures, can be found in the press release that was issued this afternoon on our investor relations website at investors.upwork.com. Finally, unless otherwise noted, reported figures around it, comparisons to the fourth quarter of 2025 are to the fourth quarter of 2024, and comparisons of the full year 2025 are to the full year 2024. With that, I'll now turn

Hayden Brown, CEO

the call over to Hayden. Good afternoon and welcome to Upwork's fourth quarter and full year 2025 earnings call. In 2025, we completed a three-year journey to fundamentally transform the business and position Upwork to extend our leadership in the AI era. We reinvented our product, customer experience, and operations to enable Upwork to become the human plus AI solution for the market. Today, we're seeing the early benefits of the new Upwork in our full-year 2025 financial performance, which included over $4 billion in GSV, $788 million in revenue, and $226 million in adjusted EBITDA. Both revenue and adjusted EBITDA were at record levels, with revenue growth of 2.4% and adjusted EBITDA margin of 29%. And we finished the year with a strong Q4 that included year-over-year growth of 3% in GSV, 4% in revenue, and a 27% adjusted EBITDA margin. We're entering the year well positioned to accelerate growth and generate strong margins in 2026 and beyond by capitalizing on the $1.3 trillion market opportunity in front of us. In this new era of work, reshaped by AI, Upwork is positioned to lead the shift toward flexible, skills-based talent. I'll unpack our fourth quarter operating achievements across the three growth pillars we shared at our November Investor Day, AI, SMB, and Enterprise, and share our 2026 goals for each. Erica will discuss our Q4 and full year 2025 financial performance and 2026 guidance, and then we'll take your questions. There's no doubt that AI is reshaping how work gets done. From what we see every day on our platform, AI and humans do their best work together. Our research published in November shows that human plus agent collaboration increases job completion rates by up to 70% compared to agents working alone. And we're not an outlier. Third-party reports from Anthropic, LinkedIn, and Workday further support Upwork's vision for a future of work that keeps humans at the center, with AI amplifying their results. We're evolving the Upwork marketplace to harness this reality. In Q4, we embedded more AI functionality in the marketplace that helped clients and talent work together more easily, generated more than 50% GSV growth from AI-related work on the platform, and laid the foundation to integrate agents to deliver work outcomes. With respect to Upwork's AI-native marketplace, We continue to advance our search and recommendation functionality, and UMA, Upwork's AI agent, to help clients hire faster and more effectively. In total, we estimate that these improvements contributed $100 million in incremental GSV in 2025. In Q4, we introduced AI-generated work summaries to give clients a richer, multidimensional view of a freelancer's experience and to enable more confident and better fit hiring decisions. this new feature is already delivering an increased spend per client. By continuously adding AI functionality to our marketplace, we're removing friction between talent and clients and improving monetization in our platform. We're also seeing strong, durable growth in AI-related work as companies move from AI experimentation to execution. As business leaders work to translate AI promises into tangible business impact. Many are turning to independent professionals to help with strategy, integration, and implementation. GSV from AI-related work surpassed $300 million on an annualized basis in Q4, up more than 50% from the prior year. This performance was driven by categories like generative AI and creative production, and AI integration and automation, which nearly doubled year-over-year in Q4. Further, in Q4, we saw the number of clients engaging in AI work increase over 50% year-over-year, with GSV from these clients exceeding our average spend per client by about three times. While this is still a minority of the total work done in the Upwork marketplace, AI work is becoming more material every day and is an exciting indicator of our AI tailwind. Finally, on agents. In Q4, we outlined our AI agent strategy and introduced the Human and Agent Productivity Index, or HAPI, the first-of-its-kind real-world evaluation framework, measuring agent performance with humans in the loop. Early learnings validated that human plus agent collaboration delivers superior outcomes to agents alone, and this is shaping our next phase with agent-human pairs already in testing in our product today and rolling out to all customers by year-end. Turning to our second growth pillar, SMBs remain a major growth driver for Upwork, and we're seeing strong traction here with Business Plus, our purpose-built SMB solution. Since launching at the end of 2024, Business Plus has scaled quickly, demonstrating the strength of the product and its fit with this segment. In Q4, we kicked off new targeted marketing efforts with the launch of our first dedicated campaign, Going After Small Businesses. This campaign highlights how Business Plus addresses SMB's most pressing needs, from access to top talent, to team-based hiring, and credit-based payment terms. In Q4, active Business Plus clients grew 49% sequentially, with 38% of these clients being new to Upwork. Business Plus is one of our fastest growing products ever, and its clients spend almost two and a half times more than our marketplace average. These results position Business Plus as a scalable, high-value growth engine at the center of our SMB strategy. Turning to enterprise, 2025 was a pivotal year with the introduction of Lifted. Enabled by the acquisition of two companies, Lifted's offering is designed to support every major contingent work contract type and integrate directly into the workflows used by the world's largest companies. Enterprise customers tell us they want these capabilities and can't get them from anyone else in the market today. In Q4, we focused on bringing teams and platforms together and finalized and launched the first phase of a go-to-market strategy to expand with existing customers and pursue a focus set of about 3,000 prioritized enterprise accounts, each with more than $50 million in annual contingent spend. Today, Lyfted has built a strong pipeline, including dozens of existing and new logos, and is already seeing early success. Lyfted has already won two new clients. Given that enterprise sales cycles can take a year or more, we're encouraged by this early progress and remain confident in our ability to execute on the ambitious growth targets for lifted that we outlined in our investor day. Looking ahead to 2026, we're continuing to build on the progress we made last year across our three growth pillars. In AI, we're taking our AI native marketplace to the next level. In 2025, UMA was like Tesla's self-driving mode, powerful, capable, and ready to take the wheel. In 2026, UMA will become a Waymo chauffeur for clients and talent, transforming a client's goals into job requirements, postings, and recruiting plans, coordinating with talent and AI agents, and managing projects from inception to delivery. We're launching a fundamentally different customer experience, powered by our growing data moat. This means customers can get more complex, higher value work done even more easily on the platform, leveraging the data and insights we've built over time. We're also continuing to nurture growth in our AI work categories. Demand for AI skilled talent continues to increase. Our recent in-demand skills report found that demand for top AI-enabled skills more than doubled year over year, and that human expertise commands a premium across work categories. We're helping talent develop and deploy deeper AI skills, including through our partnership with OpenAI to offer AI training, certifications, and upskilling to global independent professionals on Upwork. Through a range of ecosystem partners like OpenAI, we see an opportunity to continue to extend our reach in new ways. With respect to AI agents, in 2026, we will deepen human-agent collaboration across the marketplace. Our work with third-party agent developers will enable us to offer a differentiated human and AI experience for delivering high-quality work outcomes. Our unique human and AI agent benchmark provides both a critical training ground for agents and a quality bar for ensuring great work outcomes. With spend on AI agents projected to reach $120 billion by 2028, we're positioning Upwork to capture a meaningful share of this emerging market. For SMB, 2026 is about expanding and scaling our offering. We're doubling down on SMB-specific features for onboarding, team hiring, and AI-driven curation, and running targeted marketing programs for Business Plus to drive broader adoption. As we said in our November Investor Day, our goal for Business Plus is to double in GSV to represent over 5% of our total annual GSV in 2026. At the end of Q4, we're already pacing ahead of plan to reach these 2026 targets, underscoring our early progress in capturing more of the $530 billion SMB market. Finally, in enterprise, our 2026 playbook also remains consistent with what we shared at our investor day. Our focus of the first half of the year is on integration and implementation of the lifted platform as we continue to nurture the growing pipeline of enterprises interested in this solution. On the back of sales efforts that are already underway, we expect ramping the lifted business in the second half of this year and then driving scale in 2027 as we unlock the $650 billion enterprise market opportunity. In parallel, we'll look to accelerate our roadmap and time to market through targeted acquisitions. Through thoughtful M&A over the last two and a half years, we successfully raised our game in AI and enterprise. We'll continue to look for strategic investments that further accelerate our AI, SMB, and enterprise growth initiatives. 2025 marked the capstone year in our transformation of Upwork. We rebuilt the company for the age of human plus AI work while demonstrating strong financial performance. Now we're positioned to lead as the operational backbone for customers navigating this new era. The opportunity ahead is massive, and we're entering 2026 prepared to build on our momentum. With that, I'll turn it over to Erica. Thanks, Hayden.

Erica Gessert, CFO

Before reviewing our Q4 and full year 2025 results, I would like to take a minute to say how proud I am to be a part of the fantastic Upwork team. Our teams executed relentlessly over the past three years, working with discipline and speed to transform Upwork, preparing us to lead in the future of work. We grew GSB to over $4 billion in 2025, with fourth quarter GSB accelerating to 3% growth year-over-year at over $1 billion. We continue to evolve the Upwork and Lifted platforms to serve the highest value customers and use cases, which is showing up in key leading indicators on our platform. In addition to the AI and Business Plus growth metrics Hayden shared, average DSV per active client increased throughout the year, growing 7% year-over-year in Q4 to a record level of over $5,100. And overall spend per contract increased 10% year-over-year, resulting in the highest ever average spend per contract over any 12-month period at Upwork. While Marketplace GSV growth was relatively flat in the fourth quarter over last year, this was driven primarily by fewer low-value, high-volume contracts. Given the positive fundamentals around larger clients, we expect positive GSV and revenue growth in each quarter of 2026. We ended the quarter with 785,000 active clients. GSV per new client increased 5% year-over-year and 3% quarter over quarter, representing our sixth consecutive quarter of annual growth for this key value signal. Our churn rate declined over the course of 2025, with fourth quarter churn reaching its lowest level in over eight quarters. Churn in Q4 was over 130 basis points lower than the churn rate in Q4 2024. These improving churn rates, as well as growing yields in our acquisition marketing, mean that we expect to resume sequential active client growth in Q1. Our Q4 results reflect the success of several key customer experience improvement initiatives, starting with GSV from Business Plus, which increased 24% quarter over quarter. Revenue from Freelancer Plus grew 29% year over year, helping to drive total ads and monetization revenue growth of 24% year over year. These and other enhanced value proposition strategies enabled us to grow our marketplace take rate to 19.0% in Q4 2025, up from 18.1% in Q4 2024, which helped drive 5% year-over-year growth in Q4 2025 marketplace revenue. Enterprise revenue decreased 3% year-over-year in Q4 as anticipated, following our 2025 pause in selling our legacy enterprise plans as we shifted to our new strategy with Lifted. As discussed at Investor Day, we are targeting 25% GSV growth for our enterprise business this year, with significant acceleration in the second half, when integration is complete and we onboard and ramp customers onto the new Lifted platform. As Hayden discussed, we are seeing strong signals of customer interest, and we're focused on executing on our integration plans with speed to capture this opportunity. As such, we continue to expect LIFTED to ramp in the second half of 2026 and to be meaningfully accretive to GSV, revenue, and adjusted EBITDA in 2027. Gross margin was 78.0% in Q4 and a record high at 77.8% for the full year 2025, as we continue to execute disciplined cost management across every part of our business. Non-GAAP operating expense was $107 million in the fourth quarter, or 54% of revenue, on par with Q4 2024, even as we absorbed approximately $6 million in incremental operating expenses and integration costs from the two acquisitions supporting the lifted strategy. For the full year, non-GAAP operating expense was $405 million, or 51% of revenue, compared to 57% of revenue in 2024, reflecting our strong execution and cost management with our business. Adjusted EBITDA was $53 million in the fourth quarter, exceeding the high end of our Q4 guidance range, and reaching a record fourth quarter adjusted EBITDA margin of 27%. For the full year, adjusted EBITDA was a record $226 million and reached our highest-ever annual EBITDA margin of 29%. Free cash flow for the fourth quarter was $57 million. We generated a record $223 million in free cash flow in 2025, which we expect to use to support organic growth initiatives, M&A to accelerate our growth strategies, and additional share repurchases. In the quarter, we used $34 million in cash to buy back approximately 2 million shares, and used a total of $136 million in 2025 to purchase more than 9 million shares, as part of our commitment to driving long-term shareholder value. Cash, cash equivalents, and marketable securities were approximately $673 million at the end of the year. Now, turning to guidance. For the full year 2026, we continue to expect GSV growth in the range of 4 to 6 percent and revenue growth in the range of 6 to 8 percent, or between $835 to $850 million. Starting in Q2, we expect GSV, total take rate, and revenue to increase sequentially throughout the remainder of 2026, driven in part by LIFTED completing its integration efforts and beginning to ramp GSV and revenue in the second half of the year. We also continue to expect full-year 2026 adjusted EBITDA margin of approximately 29%, or between $240 to $250 million. While we were incurring about two percentage points of margin dilution from investments in the lifted growth strategy in 2026, we are maintaining our margin rate on a year-over-year basis. We expect to exit 2026 at a margin in the low 30s, as the number of longer-term cost optimization strategies start to bear fruit in the back half of the year. We expect full year 2026 non-GAAP diluted EPS to be between $1.43 and $1.48. For the first quarter of 2026, we expect to generate revenue in the range of $192 to $197 million. In 2025, we delivered major platform improvements and a return to growth through our focus on higher value clients and more complex work. The key long-term growth levers we've identified on our Upwork platforms, AI, SMB, and enterprise, are all progressing well, including the growth metrics across Business Plus, the AI category, and other leading growth indicators that Hayden and I shared today. This gives us confidence in achieving our top-line growth outlook for the year, while also continuing to invest in growth and optimize our cost base. For adjusted EBITDA in the first quarter, we are guiding to a range of $45 to $47 million, which represents an adjusted EBITDA margin in the range of 23 to 24%. Our margin outlook in Q1 is lower than is typical for our business due to the rapid pace of our lifted integration projects, investments to support growth on the lifted platform, and some incremental marketing investments to support additional growth opportunities in the marketplace. With the long-term cost optimization initiatives we have implemented, We have strong confidence in our 29% margin outlook for the year and in our ongoing progress toward our long-term 35% margin target. We expect Q1-2026 non-GAAP diluted EPS to be between $0.26 and $0.28. In closing, Upwork is well-positioned for accelerating multi-year growth starting this year. I'm excited about the growth opportunities ahead and look forward to building on our current momentum in 2026. We are entering the year with strong progress on our key growth levers, on a highly profitable foundation, and with a very strong track record of producing operating leverage. We have proven our commitment to growing shareholder value, and our strong balance sheet and tremendous free cash flow yield give us flexibility to maximize value and continue to solidify our market leadership. I know I speak for everyone at Upwork when I say we are excited about 2026 and the great growth prospects for our business. And with that, we would be happy to take your question.

Operator

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Eric Sheridan, Analyst — Goldman Sachs

Thank you so much for taking the question. maybe one just putting a finer point on the way you're framing 2026. When you think about the investments you're making exiting 2025 and moving into the front half of 26, whether it be AI features on the platform or business plus expansion or even lifted, how should we think about those investments scaling as you move deeper into 2026? But more importantly, how should we think about some of the contributions to GSB and revenue growth building and momentum as you get deeper into 2026 and the exit velocity of 2026. Thanks so much.

Erica Gessert, CFO

Thanks, Eric. This is Erica. You know, we've always anticipated, when we got into, you know, the 4% to 6% GSV growth and 6% to 8% revenue growth at our investor day, we always anticipated, you know, a ramp throughout the year in kind of both GSV and revenue. As we mentioned on the call, you know, the investment side of Lyfted we're, you know, engaging in right now really moving as quickly as possible with our you know integration that includes your kind of initial investments in kind of sales and marketing there as well as finalizing our international entity structure we expect to onboard and ramp new customers and existing customers onto the lifted platform in the back half of the year and so we're going to see some acceleration there on the enterprise side similarly on the marketplace side you know we have very strong you know kind of growth trajectory of of our of our growth levers a category growing you know over 50% year over year business plus growing 24% and actually it's ramped into into Q1 it is even stronger than we expected when we when we planned for the year so we feel very very good about those the growth trajectory of these growth levers and expect them to ramp throughout the year and exit at our high point for growth rates on both lifted and the

Operator

thank you thank you please stand by for our next question our next question comes from the line of

Ron Josey, Analyst — Citi

ron josey with city your line is open great thanks for taking the question i wanted to ask a little bit about the search and recommendation functionality that hayden i think you talked about on on from an ai perspective just wanted to hear about the early benefits here and help us understand how these search and recommendation functionalities can you know improve overall visibility. And then on Erica, back to sort of Eric's question on visibility on the margin side, talk to us about the sales and marketing initiatives that you're running from a business plus perspective and the results you've seen thus far. Thank you. From the AI and search

Speaker 11

side, we've made a few types of investments here that already started having impact for us last year and will continue to ramp this year, both in terms of features that are live and new features will be shipping. To give you a little bit of color on that, we launched Umar Recruiter as one example, which is a key feature currently in the business plan that's really accelerating time to hire by getting clients to a short list of really high fit candidates very quickly. We've also been launching some features around things like conversational search and messaging where we can get a much richer idea of a client's goals and needs and then go into our tremendous counsel and kind of target the right prospect for that based on that more enriched search experience. So some of those things are already live and having impact and will continue to ramp across our customer base this year. And then of course we're also doing more this year to take investments in the UMA platform and really make some changes to the user experience both on the side of pre-hire, so the search and match side, as well as the collaboration and project management area. Those are places where we're investing this year, we're shipping new experiences that really are transformative and are much more AI powered with UMA at the center of those experiences and what we're seeing in early testing is they really are having a positive impact for customers as they go through our funnel and are able to offload more of the work to UMA and move more quickly towards their goals. So that's work that's ongoing and is definitely going to propel our results this year.

Erica Gessert, CFO

And hey Ron, to your question on marketing and specifically on business Plus, we did start to, you know, have some Business Plus dedicated campaigns launching in Q4 and have continued some of those into Q1. The great thing about Business Plus is these customers spend, you know, two and a half times the platform average in GSB, and, you know, new customers who onboard onto Business Plus have a higher spend profile than the average. And so these are very good investments for us, and one of the reasons we're stepping our, you know, kind of marketing up a little bit around the marketplace side in Q1 is because we are seeing some very nice yields in terms of the spend that we've been doing. And so, you know, the great thing about, you know, kind of how we've been managing our cost space is we will have capacity this year to spend a little bit more on the sales and marketing side because we have other longer term, you know, kind of cost optimization projects coming through that we expect to benefit the back half of the year. That includes some back-end automation we've been working on for a couple of years now as well as a location strategy to hire and kind of lower cost locations. So all those things will benefit us in the back half, enable us to kind of continue to grow our margins and invest in marketing.

Ron Josey, Analyst — Citi

That's great. Thank you, Erica. Thank you, Hayden.

Erica Gessert, CFO

Thank you.

Hayden Brown, CEO

Please stand by for our next question.

Operator

Our next question comes from the line of Brent Deal with Jeffries. Your line is open.

John Beyond, Analyst — Jefferies

Hi, thank you. This is John Beyond for Brent Sale. Maybe two questions. One, in terms of the Q1 guide on maybe revenue and GSV, are there any special seasonal factors there given I think people expect a little more in Q1? Excuse me, excluding the ramp and lifted, especially I guess in the marketplace segment. And then second, on the top of the funnel, if you could talk about any impact from SEO versus GEO and performance marketing, that'd be great.

Erica Gessert, CFO

great. Thank you. John, I'm sorry. Could you repeat the question? We were having some technical

John Beyond, Analyst — Jefferies

difficulties on our end. Okay. Yeah, I did hear the echo. Yeah, the first question was on the Q1 guide for GSP and revenue. I mean, wondering if there are any special seasonal factors given, I think people expect a little more. I mean, I know you're ramping lifted more in the second half, but I don't know if there's any other factors in the marketplace segment. And then for at the top the funnel, I don't know if you've seen any impact still in SEO versus GEO and the different performance marketing channels. Thank you. Q1 guide. For the first question on the Q1 guide,

Erica Gessert, CFO

and I apologize, we're having a little bit of audio difficulty here on our end, but hopefully everyone can hear me. On the Q1 guide, look, Q1 is manifesting as we expected when we guided at our investor day in November. This was always going to be a little bit of a bridge quarter for first and foremost, as you referenced on the enterprise side with the investments up front and lifted and really the acceleration revenue and GSB coming when we start to transfer people onto the platform. On the marketplace side, we have been focusing on growing these larger customers with longer term relationships. And that's been extremely successful for us. It's showing up across our platform and our lowering churn rates and other things like that. But there is some ramp to the spend with these customers. And so, you know, if there's been, you know, kind of any kind of smaller impacts on the margins to volumes, it's really been at the very lowest and smallest contract types, kind of sub $100 contracts. Every leading indicator on our platform for future growth, including GSV per active up 7% year over year, spend per contract of 10% year-over-year, and importantly, spend per new customer continues to grow, which is a very important value signal for us. So we feel really good about the underlying growth trajectory of our business and are confident in our guide for the year. On the top of the final question on SEO and GEO, I think, you know, we actually have seen some very, very good initial yields on the GEO side, but it's super early days. You know, these are very, very new channels for everyone. And I also think there's some interplay still between SEO and GEO. So we feel really confident and positive about, you know, what we're seeing from a signal point of view on that side of the house, but it's also very early days.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Maria Rips with Canaccord. Your line is open.

Maria Ripps, Analyst — Canaccord

Great. Thanks so much for taking my questions. First, can you expand a little more on active client trends in Q4? And I guess what are some of the dynamics that you are seeing that should drive active client growth starting this quarter? I think you mentioned marketing campaign, but is there anything else to highlight?

Erica Gessert, CFO

So obviously, you know, we talked on the call. Our churn rate's been coming down, you know, kind of sequentially throughout 2025. and, you know, down 130 BIFs, you know, throughout the year, year-over-year in Q4. So, you know, the ongoing benefits to churn rate, this is if you, you know, the active client number is a trailing 12-month number. So those are going to continue to compound and benefit us as we go into 2026. So that is one of the dynamics helping us, as well as the fact that, you know, we are seeing some good top of funnel yields as we go into Q1. And so we're feeling pleased with also the kind of top of funnel acquisition, which is going to benefit us and help to resume

Maria Ripps, Analyst — Canaccord

active client growth. That's helpful. And then so given expanding demand for AI work, do you feel like you have sufficient AI talent on the platform? I guess is that a bottleneck in any sense? And are you doing anything different to maybe attract AI platform to the platform?

Speaker 11

Sure, Maria. We are really pleased with the AI category growth that we've already seen. You know, over 50% every year. This is our fastest run category and subcategories within the AI group are, you know, really on fire, which is exciting for us. We expect this to be a trend throughout this year and into the future years. We are not seeing, you know, strong indications of talent gaps on the platform. However, we're always looking at making sure we have exactly the right talent to do this work, you know, augmenting the pool we have of 250,000 AI experts already working with our clients in the last year alone. And that's where we're doing things like the partnership with OpenAI, where, you know, we're helping them on the side of certifying 10 million talent that they're committed to with their OpenAI for Jobs initiative. And we're definitely excited to be a place where those talented individuals can come and find work. So, you know, we're not seeing a bottleneck here. We're excited about the growth. We think it's extremely terrible based on, you know, what we're seeing in the ecosystem and our investments. Got it. Thank you so much. Thank you. Please stand by for our next question.

Operator

Our next question comes from the line of Matt Cundon with Citizens. Your line is open.

Bernie McTernan, Analyst — Needham

Thank you so much for taking my questions. My first one is just, it's great to see the two new clients on the enterprise side of the business, but is there any color you can give on just existing clients' demand that you're seeing from them, whether it be test budgets or any other signal that would give us confidence as we move into the back half of the year? And then my second one is just on the variable freelancer free. Just wanted to see how that's progressing as you roll that out more broadly across the marketplace.

Speaker 11

Thank you so much. Sure, Matt. On the lifted side, we are very pleased that we're tracking to plan with this work. And, yes, we've seen both the new client interests, including the two clients we referenced, which, you know, given the sales cycle and enterprise is so long, we're very pleased to already have those two clients coming on board with us. But you're right. We're also in conversations with our existing customers who are looping us in for RFPs and contracts that we would not have been in contention with before. And so, you know, our funnel is quite healthy, and that's a mix of both new demand and folks that are really new to our story, but also existing customers who now are considering us for work that was previously really not in the card for us. So all the signs there are extremely promising in terms of the green shoots, and we see a really clear path of celebrating this business over the course of the year.

Erica Gessert, CFO

Yeah, and then just on the variable freelancer fee, Matt, you know, we are really excited about the strategy. We had some real success with the very early testing that we did in 2025. We are going to be rolling out the variable freelancer fee to more categories starting in Q1 and, you know, kind of doing more of a gradual rollout throughout the year. And so that's another reason that, you know, we have a lot of confidence in the ramp for the year from a revenue point of view and GSB because, you know, we are kind of rolling this out gradually and will continue to test. But this has been a super successful strategy for us and actually really speaks to the strength of our data science bench here, which has been really creative and come up with something that is, you know, using the supply and demand dynamics on the platform to drive both GSB and revenue.

Bernie McTernan, Analyst — Needham

Thank you so much.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Bernie McTiernan with Needham. Your line is open.

Bernie McTernan, Analyst — Needham

Great. Thanks for taking the questions. Appreciate it. Maybe just to start on Business Plus, it was the large number, 38% of clients are actually being new to Upwork. I was just surprised. It seems like it's a pretty strong acquisition tool. I thought it might be more of an existing sell-in. So maybe you just talk to the go-to-market there and what you're seeing that's successful. And then just a clarification on the fourth quarter, given the marketplace take rate of 19%, I think it implies the enterprise GSV was up a lot year over year. So, basically, should we expect a step down in one QB4 ramp back up throughout the year or just how to think about the shape of the GSV trends on enterprise?

Speaker 11

On the side of business plus, you're right. This has actually proven to be an extremely effective client acquisition strategy, and I think we're still very early in fully deploying the opportunity around that. And we did this first targeted SMB marketing campaign in Q4. We saw some really positive results in that. We are seeing, you know, great acceleration both in terms of client volume, 49% client growth quarter and the spend which is really important because this is a key part of our strategy for moving up market to larger small businesses. You know, those that maybe have 50 plus employees have much more sustaining spend, are looking to get more complex work done. This is really the sweet spot for that product and we're already ahead of plans as we enter Q1 in terms of the contribution of business plus to GSD against the target we have So all signs are really showing that this is something that's appealing to both new and existing customers. And I think there's a lot of front room for us to continue to both expand the value proposition, but also execute the marketing and other things behind that growth that's going to be durable this year and beyond.

Erica Gessert, CFO

Yeah, and on the GSB trends on enterprise, you know, there obviously is some contribution from, you know, the acquisitions in terms of the year-over-year growth. But, you know, overall, you know, overall kind of enterprise revenue, you know, we are in sort of a holding pattern right now in terms of the revenue that we're recognizing from our legacy business. You know, just to remind everyone, we stopped selling new enterprise plans, and actually we stopped both the land and expand motion on legacy enterprise at the beginning of 2025. And so to the extent there is some minor churn at the low end on enterprise right now, we don't have new customers coming on the platform right now to replace it. So in Q1, we do expect there to be some kind of slight decline in overall enterprise revenue sequentially, but that's all in anticipation of the build on lifted and really ramping up very quickly once we put the new platform, light up the new platform.

Bernie McTernan, Analyst — Needham

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Rohit Koukarni with Roth Capital Partners. Your line is open.

Rohit Koukarni, Analyst — ROTH Capital Partners

Hey, thanks. This data point on AI clients spending three times your average spend per client, can you comment on what's specifically driving that higher spend? Is it higher rates, longer duration, more scope, of projects, more projects at the same time. And then just to clarify on this, when we reconcile your first quarter and full year guide, it implies a path where revenue growth exits this year in possibly mid-teens from where you are right now. So pretty significant back-end loaded acceleration. Can you talk about whether that's a fair way to think about it? And apart from enterprise, is there something that gives you confidence to that stronger second-half growth?

Erica Gessert, CFO

Yeah, sure. In terms of the AI category, Rohit, you know, so several of the factors you mentioned are true about the spend on the AI category. First and foremost, the average kind of hourly rate or wage in the AI category is about 40% higher than, you know, kind of average, you know, kind of tech wages on the platform. So it is significantly higher rate. There is also just higher volume of work. So if you think about some of the spend and actually where we're seeing very fast growth, it is in kind of AI infrastructure work, also generative AI kind of prompt engineering type work. And some of these are quite big or long-term projects. So, yeah, so overall there's a good reason to believe that this is going to continue to grow. And we really see no end in sight to the growth in that category. But in terms of, sorry, what was, oh, I think the other question was the exit rate for revenue growth. Yeah, enterprise is a big factor here because, you know, the 25% year-over-year GSB growth that we're targeting for enterprise, that's really all in the back half of the year. So that is ramping quickly in the back half of the year, like we said, once that platform lights up. But, you know, we also have a lot of confidence, and we do expect that marketplace GSV and revenue will continue to ramp from a growth rate point of view throughout the rest of this year. And the reason for that is that we are, you know, all of these kind of growth drivers in the platform are scaling up. Business Plus continues to grow and scale every single quarter. You know, the AI category growing 50% year over year, you know, we have visibility into that and expect that to, you know, at least continue the current growth rates. throughout 2026. And then, like I said, things like the variable freelancer fee, which we'll also be ramping. All of these are drivers to enable the growth of GSV and revenue throughout the year.

Rohit Koukarni, Analyst — ROTH Capital Partners

Okay, and if I could ask a question, like a big picture question to Hayden on agents, fascinating stuff in the prepared remarks. When you say human-agent collaboration, can you elaborate what does the workflow actually look like in practice, as in upward, where do you see humans add value and where do you see agents fully automate tasks, and how does an upward actually end up benefiting on either of those two sides?

Speaker 11

So, you know, there's this, I'd say, like, raging debate about is it AIs or humans, or is it AI and human? And we are looking at the data on our platform on this every single day, and it is very clear that the solutions that are winning the market today bring together the facts of what agents can do with human judgment, with human as an overlay and a supplement to what the AI agents are capable of, even the most powerful ones. We launched this benchmark last year called the Happy Benchmark, which really is benchmarking humans and agents together. And that really shows that when you bring a human into the mix, agents are able to complete work with a 70% or more success rate than when they're just operating alone. So there's a big step up when you bring humans into the equation. So all of that is a backdrop for our strategy, which is really about bringing our incredible asset in terms of a talent network that is skilled, that is capable, that is AI-equipped alongside agents, whether they are our own agents like Uma, but also the huge and growing ecosystem of third-party agents, so that those humans and agents can collaborate seamlessly to deliver outcomes for our clients. And you're right, Rohit, this is not a user experience that exists anywhere else, and we are really building it from the ground up here at Upwork. We have a product in testing today where clients can submit jobs or submit work they're trying to get done, and human and agent pairs collaborate on delivering those results. That's the experience that we are using as kind of the initial framing for what we'll be rolling out over the course of this year, where we bring humans and agents together as collaborative workers inside of our ecosystem, delivering work for customers. But our view is that this is, you know, we're in the early innings of a huge opportunity. I think it's supposed to be $130 billion of agentic spend by 2028. And we believe we can participate in a meaningful part of that by enabling third-party agents and our talent to collaborate together to deliver incredible work outcomes right here on our platform.

Rohit Koukarni, Analyst — ROTH Capital Partners

Thank you both.

Operator

Thank you. Our next question comes from the line of Josh Chan with UBS. Your line is open.

Josh Chan, Analyst — UBS

Hi, good afternoon. Hayden and Erica. Just two questions from me. I guess the first question is on EBITDA. I was wondering if you could bridge us from the 59 to almost 60 million of EBITDA you did in Q3 to the $53 million in Q4 and then the Q1 guide. I know that revenue is a little bit lower, but just curious to hear what moving pieces are leading to that EBITDA cadence over the last couple of quarters. And then I guess secondly on enterprise, what are some of the milestones that you are looking forward to achieve in order to hit your kind of 2026 aspirations? I know you mentioned winning two clients. So how many clients do you need to win by mid-year to get there? Just something to help us understand the pace of what we should be looking for would be helpful on that side.

Erica Gessert, CFO

Yeah, Josh, on the EBITDA bridge, you know, in Q4 is when we really, you know, Q3, we closed the Ascend deal and so had only about, I think, a half a quarter of their cost base in our results. So we had a full quarter of the two cost bases, but more importantly, we incurred in Q4, you know, we started to incur a number of kind of integration costs that are temporary in nature in order to kind of enable that business largely on the kind of platform enablement side. And similarly in Q1, I think we're projecting about $6 million of investment in Q1, much of which is temporary in nature as we kind of invest in the final international entity structure and other things for the lifted platform. Also in Q4, it tends to be a slightly lighter adjusted EBITDA quarter, and that's largely because of kind of bonus accruals and other things that happen in that quarter.

Speaker 11

On the side of the enterprise milestones, Josh, we feel great about where the pipeline is right now in order to achieve those growth goals that we have for later in the year. Just to give you the sense, we're going after a target set of about 3,000 enterprise customers who all spend each one $50 million or more on contingent labor. And so the shift in our strategy now that Listed is coming into fruition really lets us go after much bigger customers with much bigger contracts than what we were eligible for in the past. And so to hit our growth goals, we don't need hundreds of customers to onboard. We need a small number of high-quality clients who are ramping their contingent programs with us, and that's what we're very focused on, and we see the signs that that's happening. So key milestones we look at across the year, the first one will be launching and migrating clients onto the listed platform once our integration work is complete, and we're targeting the middle of the year for that. And then, of course, on the back of those migrations and turning on both new and existing customers with that functionality, we will see those step up in GSM revenue that we're expecting in Q3 and Q4.

Josh Chan, Analyst — UBS

Great. Thank you both for the color.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Brad Erickson with RBC Capital Markets. Your line is open.

Brad Erickson, Analyst — RBC Capital Markets

Hey, guys. Two for me. One, you shared, you know, you talked a lot today about all the ways AI is driving growth, GSB, active customers, et cetera. So, you know, when we kind of put that in the context of GSB up 3% in Q4, what are the parts of the marketplace business that are still kind of seeing headwinds and any help if you can give us there about kind of the persistence of that, and then I have a follow-up.

Speaker 11

You know, we are really excited about the momentum we see in the AI categories, and I would say, you know, we continue to see on the flip side, you know, a minor impact from categories like writing and translation, which for many quarters and now even years, you know, have been declining due to automation broadly and AI more recently. So that's one small factor, But I'd actually say the bigger factor behind, you know, some of our more modest growth rates in the immediate term is really just like it's a transition quarter for us. You know, we've really been launching our enterprise sales strategy, fast ramping, the SMB strategy around business plus, fast ramping. Those things are really coming into effect over the course of this year. And at the same time, I say on the margin, you know, this is a labor market that's not great and certainly hasn't improved. We saw in December the lowest BLS data on job openings since September of 2020. And I think that's just indicative of the slowness in the market overall, which of course tracks through to our platform to an extent, even though we're going faster than competitors, even though we're growing when folks like staffing firms are reporting negative growth numbers still. So I think the comparison is we're taking share, we're positioned well with our growth strategies. A lot of these tailwinds are going to be very durable like AI. and we're very focused on executing a plan that's already working.

Erica Gessert, CFO

I would just add, Brad, real quick to this, which is that if we're seeing headwinds, it's not so much on a category level aside from writing and translation, which has been consistent on our platform for a while, but we see a little bit of negative growth on these very, very small, very transactional projects, kind of sub $300 or more or less. And so, honestly, that just reinforces the power of our strategy to focus on these longer-term relationships, which are durable. They ramp over time. They improve our churn rates, and we maintain these relationships for a long time. So I think this is going to be the winning strategy. It's really been working for us, and you can see it in the leading indicators in our base with GSB per client, GSB per contract, GSB per new customer, all of these things going up and to the right. So we feel good about it.

Brad Erickson, Analyst — RBC Capital Markets

Yep, that's great. That makes a lot of sense. And then second, I think you mentioned M&A. in your prepared remarks. Just curious kind of what's interesting there between maybe product type of acquisitions or maybe better access to certain channels or maybe something else strategic. Just help us kind of what do you guys spitball as a management team around potential M&A?

Speaker 11

Sure. So our guidance and our outlook for this year is definitely not predicated on any additional M&A. We are going to achieve our plans just based on our organic levers that are written for us. However, we have done some fantastic and very beneficial M&A over the last two and a half years. That includes AI-related acquisitions and enterprise-related acquisitions. And so we will continue to run a playbook that's working for us. And if we see targets out there that are really lined up against our AI, our SMB, or enterprise strategies, those are the places where we would get more interested.

Brad Erickson, Analyst — RBC Capital Markets

Got it. Thanks, guys.

Operator

Thanks, Brad. Can you stand by for our next question? Our next question comes from the line of Marvin Fong with BTIG. Your line is open.

Marvin Fong, Analyst — BTIG

Hi, Greg. Thank you for taking my questions. Maybe to start, you know, on the two new listed customers, you know, it's a great sign of validation of the strategy. Just very early days, I understand. But we'd love to hear anything you could say about these two clients. I mean, to the extent you're able to speak to, you know, how much they spend on contingent labor or just how many employees they have in general? Or even if you can't give us that, just anything on, you know, how that sales process evolved? Did the deal close as you'd expect it on the timeline you'd expect? And then I have a follow-up.

Speaker 11

So, you know, we can't disclose too many specifics on these customers, but I can tell you they're really in the sweet spot of that ideal customer profile we have, you know, with, you know, tens of millions of dollars of contingent work spend with programmatic work happening through this part of their business, the contingent work program. And I'd say they, like many of the other customers that are in our funnel, you know, they have really lit up when we pitched them on this listed proposition and the fact that we could provide a differentiated solution that gave them, you know, compliant contracting across all five different types of contingent work through a single platform with the highest quality talent that's out there. So they really were, I think, indicative of the product market fit that we've been building towards with a listed strategy. And we have, you know, many more customers like them in our funnel, which, you know, we're pleased to be nurturing over the year. We know this is a long sales cycle. Some of these buyers only make a decision once annually around, you know, going with a vendor in the space. So we're nurturing those relationships. It's working. And we're very excited about what that's going to do in the back half of the

Brad Erickson, Analyst — RBC Capital Markets

Thank you.

Marvin Fong, Analyst — BTIG

And my follow-up, just on the Q1 guidance, just trying to square all the points being made. I think you said clients would be up sequentially, yet the revenue guide is down sequentially. Is there something going on with the GSV per client? Or I know you also said enterprise revenue would be down sequentially. Any more color on the moving parts would be great. Thank you.

Erica Gessert, CFO

Yeah, so enterprise revenue, we do expect to be done sequentially. And again, this is really as we kind of invest for the future and make the lifted platform kind of transaction ready. Overall, I think we're very comfortable with the guide for Q1. And the reality is that when customers join us on the platform, right, as new customers come on, they spend ramps over time. So, you know, we do expect that our, you know, kind of new customer count will resume growth sequentially in Q1, but it takes time for those customers to kind of dip their toes in the water and then ramp with us. So we don't get as big of an impact in Q1 from, you know, kind of increasing new customer

Marvin Fong, Analyst — BTIG

Okay, perfect. Thank you both.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. That does conclude today's conference call. Thank you for your participation. You may now disconnect.