Upwork (UPWK) Q1 2023 Earnings Call Transcript

Upwork (UPWK -0.18%)
Q1 2023 Earnings Call
May 03, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to Upwork's first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speakers' presentations, there'll be a question-and-answer session. [Operator instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to your host, Mr. Evan Barbosa, vice president of investor relations. Please go ahead, sir.

Evan Barbosa -- Vice President, Investor Relations

Thank you. Welcome to Upwork's discussion of its first 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 laws. Forward-looking statements include all statements other than statements of historical fact. 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 on our Investor Relations website, as well as the risks and other important factors discussed in today's shareholder letter. Additional information will also be set forth in our quarterly report on Form 10-Q for the three months ended March 31st, 2023, when filed. 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 first quarter of 2023 are to the first 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 Chief Executive Officer

Thanks, Evan, and thank you all for joining us today for our first quarter 2023 earnings call. Before we dive into our results, I would like to take a moment to introduce all of you to our new CFO, Erica Gessert. She started her new role last week, and I'm thrilled to welcome Erica to Upwork. Erica joins us from PayPal, where she previously served as chief transformation officer, and before that, SVP of finance and analytics.

She has had an extensive track record of driving operational and financial excellence and is a tremendous addition to our team.

Erica Gessert -- Chief Financial Officer

Thank you, Hayden, and hello, everyone. Let me start by saying I'm delighted to join Upwork at such an important time in the company's history. I'm inspired by Upwork's mission and vision, and I'm deeply compelled by the tremendous growth potential ahead of us. My first week has been busy and energizing.

There's clearly a lot going on in the business, and we're not immune to the macroeconomic environment affecting so many companies right now. At just a weekend, I've been very impressed by Hayden and the team here and their commitment to making the difficult-but-responsible decisions for the business in this environment. I spent a lot of time over the past week diving into the details of our business and engaging with the organization on key growth and profitability initiatives. There's a lot of important work ahead of us, but the long-term opportunity is significant, and Upwork is well-positioned and committed to delivering sustainable and profitable growth.

I look forward to partnering with Hayden and the rest of the leadership team, as well as continuing our transparent relationship with our investors, analysts, and other key stakeholders. Now, I'll hand it back over to Hayden.

Hayden Brown -- President and Chief Executive Officer

Thanks, Erica. I'm looking forward to partnering with you as we continue to innovate, evangelize, and scale our work marketplace. We spent the first quarter of 2023 moving swiftly to adapt to new realities as we saw the economy further impact our customers and our business. We delivered a better-than-expected first quarter with GSV exceeding $1 billion for the fifth straight quarter and first-quarter revenue growth of 14% year over year to $160.9 million.

We had adjusted EBITDA of negative $2.9 million in the first quarter. We also surpassed an exciting milestone in the first quarter, $20 billion in lifetime freelancer earnings on Upwork, which doubled from $10 billion in only three years. This milestone is a testament to the incredibly diverse, high-value work happening on our platform every day, as well as the abundance of highly skilled talent with which hundreds of thousands of clients build long-term trusted relationships on Upwork. We're building this business to achieve the next milestone of $40 billion in freelancer earnings and beyond.

At the same time, we saw some unanticipated deterioration in certain client metrics due to macroeconomic uncertainty, which was most pronounced with our Enterprise customers and large businesses in the self-service marketplace. This caused us to lower our top-line revenue growth expectations and proactively take cost-reduction measures to increase our profitability outlook for the remainder of the year and significantly accelerate our progress toward long-term profitability. The opportunity ahead of Upwork continues to be significant, and we are moving aggressively and intentionally to advance both our profitability and growth goals via a three-part framework. First, running a lean and efficient organization.

We remain unwavering in our commitment to building an efficient, profitable business. Steps we have taken to streamline our operations include a workforce reduction, a pause on our second-half brand media investment, considerable revisions to our hiring plans, and a reduction of vendor-related expenses. We reduced our workforce by 137 roles or approximately 15% of full-time employees and have also reduced positions of independent team members. We're also pausing our brand media investment indefinitely and reducing our brand working media spend by more than $22 million in the second half of 2023, representing a reduction of 94% versus the prior plan for the second half of 2023.

Our team has done a phenomenal job increasing our unaided brand awareness, and our brand campaign is resonating with customers. However, in the current macroeconomic environment, we do not have enough visibility into exactly when we will see brand awareness translate into client conversion to continue prioritizing the investment at this time. In total, the measures announced today are expected to drive over $80 million of annualized net cost savings and deliver approximately $40 million of net cost savings in 2023. Our second quarter 2023 adjusted EBITDA guidance of $0 to $2 million, representing a 0% to 1% adjusted EBITDA margin, includes approximately $4 million of nonrecurring severance-related costs.

Excluding these nonrecurring severance-related costs, our second quarter 2023 adjusted EBITDA margin would have expected to be 3% to 4%. These actions put us on a course to deliver fourth quarter 2023 adjusted EBITDA margin of approximately 15% while remaining consistent with our ongoing commitment to drive durable growth and invest for strong returns. Our cost discipline, agility, and focus on cost optionality in our operations will continue under Erica Gessert, who we are thrilled to announce as our new CFO during the first quarter. We will share more about our long-term outlook and targets over the next several quarters as Erica settles into the role.

We were also pleased to announce Sunita Solao as our new chief people officer shortly after quarter-end and look forward to her leadership of our people team. Second, optimizing our growth portfolio. Growth continues to be a major priority, and we are focused on two main areas right now. Over the last few years, we bolstered our product lineup considerably with key enhancements and expansions, including integral improvements to our Enterprise Suite, the addition of new products like Project Catalog Consultations, and our recently announced end-to-end solution to support full-time hiring.

As the category leader in our space, we know that our opportunity to offer customers a singular destination capable of serving the full breadth of their hiring and work needs is critical for client spend, lifetime value, and retention. Now that we have such a robust product lineup, we are in a strong position to drive the adoption of our product portfolio and deliver even more delightful experiences to customers. This means we are going deeper rather than broader with our R&D, narrowing the scope and focus of the projects on which our team will work. Another major focus area for us continues to be generative AI.

We are establishing Upwork as a preeminent option for finding and hiring specialized skilled talent for the full range of generative AI-related work. We have identified and are pursuing multiple dimensions of this opportunity for talent, clients, and our own teams through our own product development, unique research, and partnerships. Both supply and demand for work and talent related to generative AI tools and technology implementations continue to climb. The average weekly number of search queries related to generative AI in the first quarter increased over 1,000% compared to the fourth quarter of 2022 and the average number of weekly job posts related to generative AI increased more than 600% over the same time period.

To serve this explosive demand, we have continued updating our Talent Marketplace to reflect exciting new skills and roles like prompt engineers and added new project catalog categories of work, bringing the total number of categories on Upwork to over 125. Our own development teams have also been innovating and testing new interfaces and experiences made possible for our customers by generative AI technology and large language models. We are testing generative AI-powered solutions for transforming core customer experiences like getting started, posting jobs, receiving support, and having questions answered. We are working around the clock to bring the benefits of these new technologies to talent on Upwork in every category we serve.

Generative AI's emergence into the mainstream has us excited. We know that it is going to be a force-multiplying tool for talent and a cost-saving advantage for clients, and we are committed to fully exploring and harnessing its power and efficiency. And third, tuning our sales approach to where we win in this macro environment. In the fourth quarter of 2022, trends in Enterprise suggested we could achieve our quarter-over-quarter growth goals in land productivity and expand client spend for 2023.

These indicators included expected strength or stability in key metrics like sales cycle length, new deal close rates, client retention, and spend levels from some of our largest customers. Those expectations did not materialize, and headwinds in these metrics in the first quarter and early in the second quarter shifted our expectations. So, we've acted accordingly in announcing personnel changes today that put our sales team back on sound economic footing. As part of today's changes, Eric Gilpin, our chief sales officer, and current GM, Enterprise, will be stepping down.

He has contributed so much building our business and team to this point and is leaving a strong legacy. He will stay on in an advisory role through the end of the second quarter. We also spent time in the first quarter analyzing our data and testing to identify key insights about where our products and our sales reps are performing best. We're using those insights to refine our sales strategy, focus on the most productive areas of opportunity in this environment and drive stronger results with the leaner team we will have, bringing our productivity back in line with our ROI targets.

To support our objectives, as underscored in the three-part framework, we continue to focus on capital structure and allocation. In the first quarter, we repurchased at a discount over $200 million in principal amount of our outstanding convertible senior notes. Despite some of the short-term turbulence we face, we continue to operate the business in a nimble and proactive manner given our confidence that our massive long-term opportunities continue to be intact. As our financial results demonstrate, we continue to grow, albeit at a more moderate rate.

Our established strategy and investments are sound, and we will continue to be prudent and disciplined with our spend in the here and now, taking actions aimed at delivering profitability as we progressively unlock durable growth and position the business to capitalize on recovery in the macroeconomic environment. Throughout 2023, we are focused on the things we can control, innovating, evangelizing, and scaling a work marketplace that delivers cost-effective, unparalleled workforce solutions and an exceptionally deep and diverse pool of skilled global talent to meet our customers' work needs. Thank you. We'll now open the call to your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] We do ask that you please limit yourself to one question and a follow-up, and then please feel free to rejoin the queue. Thank you. One moment for our first question.

Our first question comes from the line of Eric Sheridan of Goldman Sachs. Your line is open.

Eric Sheridan -- Goldman Sachs -- Analyst

Thank you so much for taking the questions. Maybe two if I could. First, in terms of the larger clients where you're still seeing very good growth, could you contrast the behavior of some of your larger clients and the growth you're seeing there versus some of the small- or medium-sized clients and why we might be seeing more of a macroeconomic impact there versus the larger clients will be one. And then on the back of the efficiency program, how should we think philosophically about allowing elements of that increased profitability to drop and stay at the bottom line in terms of margin versus eventually possibly redeploying and reinvesting it behind your growth initiatives over the medium to long term? Thanks so much.

Hayden Brown -- President and Chief Executive Officer

Thank you, Eric. To your first question around the spend trends that we've seen in the last couple of months emerging, we still feel really excited about the Enterprise opportunity for this business. It's clear that this is evident, unlocked for us over time with our TAM. But in this macro environment, we've definitely seen some of our larger customers really feeling under budgetary pressure.

And the way that translates through is some of them are just maintaining the existing budgets that they've had with us instead of expanding that spend as they might have in a normal macro environment. And that's really clear on the Enterprise side of our offering. Others are going through budget cuts themselves or layoffs and things like that. And those customers might be reducing the size of their spend with us, whereas, again, in an ordinary environment, they would be maintaining or expanding their spend.

So, that has been showing through in our Enterprise business and has contributed to more than half of the reduction in our guidance outlook for this year. On the marketplace side of the business, where we talked about our smaller customers, they've been incredibly resilient. And while we do see some smaller average spend per client than what we would probably normally see outside of this macro, that business is trending really well and has contributed much less to our takedown in the guidance outlook. To your second question around philosophically thinking about margins in the bottom line, we've always been very committed to driving profitable growth in this business.

That has not changed. But in this environment, which has changed, we're really demonstrating that we can drive that profitable growth and have reordered some of our priorities so that we are investing again right now in the places where we see a good line of returns and are excited about things like R&D and where that can take us and are rightsizing our sales effort based on what we see in the environment. So, exiting this year with Q4 at 15% approximate EBITDA margin, I think, is a good indicator of where we think we can take this business, but I think it's early to say what we would do in 2024 and beyond.

Operator

Thank you. One moment, please. Our next question comes from the line of Brent Thill of Jefferies. Your line is open.

John Byun -- Jefferies -- Analyst

Hello. This is John Byun for Brent Thill. Thank you. I wanted to get maybe a little bit more color on the macro side, what you were seeing different maybe by industry or by geography.

I mean, you mentioned tech was weak, but just wondering about some of the other industries. And then maybe as a follow-up, if you could talk about how April trends were different in any way versus what you saw in Q1, that would be great. Thank you.

Hayden Brown -- President and Chief Executive Officer

Hi, John. In terms of industry and geo trends, we did see toward the end of Q1, I'd say, more of a show-through in terms of tech -- from an industry sector, we've seen the layoffs. We've seen the impact of the tech industry at large, and I think that goes through with some of our customers more prominently than what we've seen earlier in Q1 or even in 2022. So, that was a bit more evident, although we still see tech companies as some of our strongest vendors and great adopters of Upwork.

So, by no means has that opportunity gone away, but I think they are feeling the pain of this environment, and that was more evident with our larger customers this quarter than in the past. And we have factored that into our outlook. At the same time, we did see a lot of positive activity in terms of technical categories on our site with huge growth in job post and demand for gen AI. And so, I think, again, we serve tech buyers across the landscape regardless of the industry of those client companies.

And that's something that we saw with the increase in 10x of searches for talent in those categories and a 600% quarter-to-quarter increase in job posts for that type of talent. So, we continue to serve both technical talent and technical customers in a variety of ways, which I think is going to be very enduring. From a geo perspective, I think the trend that we started to see in Q3 of last year kind of late Q2, Q3, where the European customer base on the client side has felt, I think, more of an economic slowdown than customers in the U.S. has continued to be true.

So, our clients in the U.S. have continued to be a bit stronger than European-based clients. But I wouldn't say that there was new noticeable separation more recently than currently.

Operator

Thank you. One moment, please. Our next question comes from the line of Nat Schindler of Bank of America. Your line is open.

Nat Schindler -- Bank of America Merrill Lynch -- Analyst

Yes. Hi, Hayden. Thank you. The CEO of IBM recently said that they could see 30% of back-office jobs replaced by AI in the next five years.

Obviously, we've heard all kinds of predictions like this before and from other people, but it was an interesting one that just came out. And a lot of people are thinking about AI disruption in the market in the last two days. On the one side, you can help companies find AI contract work. But on the other side, you have a lot of contractors who do what would be often called back-office work or short-term labor that would be in that category.

What do you think happens to the entire staffing industry, online and offline competitors, as this evolves?

Hayden Brown -- President and Chief Executive Officer

Yeah. Nat, thank you for the question. I think it's a really interesting sea change that's happening in the environment right now with the advent of AI and this announcement from IBM because, frankly, we all know that the old ways we're working are out the window. And this started before AI.

Even, I mean, as we've gone through the pandemic, with the advent of remote work, companies absolutely need to be rethinking their workplace and workforce strategies, and we are a part of that. The fact that IBM is rethinking their workplace and workforce strategy with AI is actually a huge opening for a company like Upwork because in the past, when they weren't thinking big about having need to redesign work and who and how work is getting done, including the technology and the tools to deliver that work, it was a lot harder for a company like us to get into that conversation and have a really strategic conversation about how they need to shift from full-time employees to fractional work, to project-based work, and a different model is just really what we deliver. In a world where they are now really rethinking things and shifting to AI and alternative models of working and old staffing models and old full-time employee models are out the window, it is a lot easier for us to have the conversation that we should be having with the IBMs of the world about how we can help them with the flexibility, the cost savings, the on-demand model that we offer them. So, I think the advent of companies really shifting their entire thinking about how work is delivered and what tools are critical for that is an enormous opening for Upwork now and in the future.

Nat Schindler -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

Thank you. One moment, please. Our next question comes from the line of Matt Farrell of Piper Sandler. Your line is open.

Mr. Farrell, your line is open.

Matt Farrell -- Piper Sandler -- Analyst

Hey, thanks for taking my question. You made the move to cut the second-half brand spending almost entirely due to the macro. I guess where does brand spending fit into the picture longer term now that we've accelerated the path to profitability? And what are you looking for in the market to potentially reinstitute the brand spend maybe at the size and the scale that you have been over the last couple of quarters?

Hayden Brown -- President and Chief Executive Officer

Matt, our marketing team has done a phenomenal job increasing our awareness. We saw a 45% increase in unaided awareness among business decision-makers overall since the start of the campaign that we released at the end of last year, and I think at this moment, we don't have enough visibility into exactly when we will see the brand awareness that we've been building translate into client conversion, particularly just because in this environment, companies are really in this mode of cutting budgets, kind of cut now, ask questions later about how they're going to deal with some of the things that they're trying to deliver on. So, I think your question is a good one. I think for us, we've got to drive some of our results around some of the more immediate-term opportunities we see where we know we can invest and deliver strong returns from a growth perspective and then come back to this question about brand over time, knowing also that in the meantime, we can execute on other more targeted ways that we can elevate our brand awareness with the right audiences, as well as deliver on performance marketing and other channels that in this environment are doing really well for us.

Matt Farrell -- Piper Sandler -- Analyst

And maybe a second question. You all announced the change in the fee structure to a more simplified dynamic. I guess as we think about the marketplace take rate as we move through 2023 and 2024, how should we be thinking about the tailwinds or the uptick in Marketplace take rate due to the fee structure change? Thank you.

Hayden Brown -- President and Chief Executive Officer

Sure. I think the take rate expectations we have for this year are around something kind of similar from an expansion perspective to what we probably saw last year. And I'd underscore that the pricing changes that we're making really are founded in marketplace health and ensuring that we're both capturing value and we're creating value and we're driving the right incentives on the platform around, first and foremost, unlocking client demand because, at the end of the day, we are a demand-constrained business. And so, that's really the needs -- all of the changes we're making to pricing both last year and this year.

Operator

Thank you. One moment, please. Our next question comes from the line of Brad Erickson of RBC Capital. Your line is open.

Logan Reich -- RBC Capital Markets -- Analyst

Hey, thanks for taking the question. This is Logan on for Brad. Maybe one for Erica. Just as you've been in the business for about a month now, what are the kind of big initiatives and things you'll be working on in the next six to 12 months?

Erica Gessert -- Chief Financial Officer

Yes. Sure, Logan. Nice to meet you. And just to correct you, I'm actually on Day 8 right now, so a little less than a month.

But I do feel like I've had an opportunity to dig in, although I'm really just scratching the surface here. First and foremost, obviously, learning the business and the team. I do want to dig into the growth strategy of the road map of which I see many. I just want to emphasize in my first eight days, as I said in my prepared remarks, we're not immune from the kind of broader macroeconomic environment in this business.

But that by no means, in my mind, diminishes the opportunity ahead for this business. I think it's tremendous, and I'm going to be working together with the rest of the management team to really dig into those growth opportunities and make sure that we're -- right now, we are absolutely making the right responsible moves in order to show that we can produce profitable growth. But this is both a top- and bottom-line growth company. I think we all have that conviction here as a management team, and I'm going to be working with everyone to work on the road map to deliver that.

Logan Reich -- RBC Capital Markets -- Analyst

Great. Thanks. And then just one quick follow-up. In the past, you guys have said that, obviously, SMB was a little bit weak.

I think last quarter, you guys called them out specifically and also mentioned that they're a little bit quicker to react to changes in the macro environment. I saw you return to growth on active clients. So, is there any sort of signs you guys are seeing in terms of the SMB inflecting relative to what you're seeing in terms of the larger customer weakness? Thanks.

Hayden Brown -- President and Chief Executive Officer

You know, the SMBs, I think it shows the resiliency of the business even through this macro. It's interesting because it has been the larger customers who seem to be a bit more impacted right now. And when we look at the delta between our expectations last quarter versus this quarter, you're right that basically, the difference we've seen is not on the volume side in terms of client activity or even contracts or job postings like that on the site. The only place where we've been somewhat surprised has been just the spend per contract or the GSV per client, which you can see in some of our published numbers.

And I think that's just attributable to some of the factors and the pressures we see in the macro and also the fact that our Talent Marketplace has become so at scale that there's a lot of wage pressure for talent. And so, it's a very competitive, attractive marketplace for clients, and clients are finding that great value, which is driving that SMB activity because people are seeing that they're getting great quality talent and great work done in this ecosystem. So, those SMBs, as we said, have that fast switch. They responded quicker last year, and now we're seeing some strength there in terms of volume and activity, which is great.

Logan Reich -- RBC Capital Markets -- Analyst

Great. Thanks.

Operator

Thank you. One moment, please. Our next question comes from the line of Bernie McTernan of Needham. Your line is open.

Bernie McTernan -- Needham and Company -- Analyst

Great. Thank you for taking the questions. Hayden, I guess demand looking for people who can do AI jobs is, I think, a bit counterintuitive. I think part of the allure of AI is not having to hire as many people.

So, can you maybe just describe what you're seeing from the demand perspective?

Hayden Brown -- President and Chief Executive Officer

Sure. I think some of the growth we're seeing is definitely in categories like data science and analytics, which you can imagine why that would be applicable in this environment. In that area, we saw job postings growing 33% year over year and 22% sequentially as one example. We've also been adding new skills and categories to the platform, which got us to over 125 job categories, including some areas that are very relevant to the work that people are undertaking to implement, train, and do other AI-based modeling work.

So, I think that's a piece of it. And then I think the other thing I would mention in this area is as we drop off the tail for this new job in this area, we also have additional categories like writing, which you might think, to your point, is going to be more at risk. It's a very small category for us today. I mean, it's pretty tiny.

But even in that category, we actually saw sequential growth quarter over quarter. So, I would just underscore, we're not seeing any negative impacts from AI today. And as we look across the work that's happening in the platform, some of the more interesting things we see is in pretty much every category we serve, talent are using AI tools to augment their workflows. And I think this is where they're now delivering better value and better solutions for their clients.

And so, I think to the extent that that's happening, we can also help that happen because we can give them insight into what tools to be using, give them access to tools and things like that. That's improving their outcomes, improving satisfaction for the clients that are buying work from them, potentially driving our prices but also just getting the clients to come back to the platform again and again. So, with all of that happening, I think that's a plus. And then the final thing I'd add on this is 85% of our GSV today actually comes from longer, complex projects and jobs on the platform.

So, again, I think the thing we see here is AI augmenting the work over time more so than displacing the work altogether. So, we're very excited about what that's going to unlock for our customers. I think directly with talent using the tools, as well as us embedding a lot of the AI functionality directly into the site, we're executing on all fronts to really take advantage of this exciting opportunity.

Bernie McTernan -- Needham and Company -- Analyst

Thank you very much.

Hayden Brown -- President and Chief Executive Officer

Absolutely.

Operator

Thank you. One moment, please. Our next question comes from the line of Marvin Fong of BTIG. Your line is open.

Marvin Fong -- BTIG -- Analyst

Great. Thanks for taking my question. I guess just to build on some previous questions. So, a question on the take rate change or the commission fee change that, I think, is starting today.

So, I guess by definition, the 5% tier are your most valuable relationships since that's a $10,000 cutoff. So, they'll be seeing a fee increase. And I guess just maybe drill down a bit deeper into your thought process about the trade-off of simpler, higher fee structure and the potential that some of your most valuable projects might be -- might see some pressure from your -- from the change in the fee structure.

Hayden Brown -- President and Chief Executive Officer

Marvin, the change for the folks that are already at 5% tier with their existing projects actually doesn't go into effect until the end of this year. So, for those relationships and contracts, there's a really good grace period before any of that impact happens. And probably a lot of those relationships or contracts may have already rolled off or reached a natural endpoint before that time anyway. So, I think that helps derisk part of what you're asking about.

I think on the other side, we've seen a lot of data over the many years that we've kind of monitored and examined our pricing in this platform. And we approach this change with extreme care and thoughtfulness based on the data we have going back to 2016, what we had in our previous pricing, which was a flat 10% fee. And based on looking at all that data and the experimentation and testing we've done to really understand the dynamics around pricing and how it drives incentives and behaviors, we did conclude that the new flat fee structure is both simpler, which has a huge benefit for customers, and also has a really positive impact in terms of reducing pricing for the vast majority of talent and relationships that actually will unlock and stimulate further client demand, which is the No. 1 thing that freelancers care about other than making sure that they get paid.

Like those are the two things that people want, more jobs and making sure that they get paid for the work they're doing. So, with all of that taken together and understanding the puts and takes at a very deep level based on all the data we have from many years of looking at this, we are very confident that the one-time risk around switching that fee structure, both the 20 to 10 at the front end of relationships and the five to 10 for relationships that get to that $10,000 earning level, is definitely a positive change for the marketplace for the long term.

Marvin Fong -- BTIG -- Analyst

Great. That makes perfect sense. And then just to build on all the questions about AI, and I imagine that this will be difficult for you to pinpoint, but you've already -- you're giving us full-year guidance. Would you say that AI factored at all as a stand-alone phenomenon in your annual revenue guidance? And if so, is it a positive, negative, or neutral?

Hayden Brown -- President and Chief Executive Officer

AI did not factor into our full-year guidance at all because we're not seeing any impact of that on the business. I think the benefits for sure outweigh the opportunity -- sorry, outweigh the negatives here. And so, I think as we're executing through this, we're excited to take advantage of the tailwinds and the things that we're executing in the future, but we didn't factor anything specific into the guidance around that.

Marvin Fong -- BTIG -- Analyst

OK. Appreciate the color. Thank you.

Operator

Thank you. One moment, please. Our next question comes from the line of Andrew Boone of JMP Securities. Your line is open.

Andrew Boone -- JMP Securities -- Analyst

Good afternoon, and thanks so much for taking my questions. You talked in the letter about narrowing the focus for R&D. Can you flesh that out a little bit and help us understand what on the product road map is being emphasized versus maybe being put on the back burner? And then on the Enterprise sales force, it sounds like there are significant changes going on there. Can you help us understand, as we get to the other side of that transformation, what changes about Enterprise and kind of what's your longer-term vision there? Thanks so much.

Hayden Brown -- President and Chief Executive Officer

Sure. So, on the R&D side, we're taking this opportunity to really hone in on -- we have a really robust product portfolio and cover the fantastic breadth of use cases for our customers across the Work Marketplace. We built that out substantially over the last three-plus years. And now we're really just going deeper in terms of driving product quality and adoption for the products that we're serving customers with rather than going broader and adding new products to the lineup.

So, that's really the opportunity for us. And as we go through that exercise over the next month and quarters and continue to go deeper and really continue to drive performance in those products, I think we will continue to evaluate other places where we can sunset feature/functionality aspects of the product portfolio to, again, continue to make sure that our resources are focused on delivering where we have the best results. So, that's Part 1 of what we're capturing on the R&D side. And obviously, Part 2 is with all the exciting work happening around AI, which we talked about on this call, that's a big opportunity as well.

And in key places, we are moving resources from less exciting areas of our product road map and portfolio into those opportunities. On the Enterprise side, again, this is a huge long-term opportunity for us. The sales team is really just shifting focus into the most high-value and high-performing areas of our portfolio, and we have amazing data on what that is. So, it's pretty easy and evident for us to take our leaner team that we have today and redirect them to those high-performing opportunities.

And so, I think the long-term vision here is absolutely unchanged. We know we can serve larger customers, whether it's the Fortune 100, the Microsofts of the world, and others, as we have always done with a really compelling best-in-class offering and continue to graduate customers who come into our self-service marketplace and start to scale up into our Enterprise offering over time. So, broadly speaking, it's not about changing the strategy or the vision. It is more about tuning some of our focus areas and the efforts of the sales team to go after the places that in this macro environment are most evident.

So, nothing is diminished about the opportunity. The strategy is broadly unchanged, but we are tuning the approach to be really tailored for this market.

Andrew Boone -- JMP Securities -- Analyst

Thank you.

Operator

Thank you. One moment, please. Our next question comes from the line of Ron Josey of Citi. Your line is open.

Unknown speaker

This is Jake on for Ron. I just wanted to touch on the full-time opportunity. Now that we're a quarter in, could you kind of give us an update on adoption reception of that offering and whether the headwinds on macro change anything in terms of pushing this offering to clients? Thanks.

Hayden Brown -- President and Chief Executive Officer

Absolutely. The full-time offering continues to be something that -- as I mentioned, a key part of our product lineup that we just launched a quarter ago. So, in terms of adoption reception, very positive. We see strong signals in the current marketplace that customers on both the client side and the talent side are very interested in things like contract-to-hire, which was a piece of that offering, as well as intrigued that they can now use Upwork to do things like payrolling solutions from the Talent Marketplace, which historically was something only available to our Enterprise customers.

But I'd also note that it is only a quarter-end. And so, we always knew that this type of new offering would be something that would take time to socialize, to ramp, to tune, given that this is not something that most of our customers have historically expected to do with us. And so, I wouldn't say that there's anything notable about macro headwinds. It's more about socializing and introducing this type of a new offering to a customer base that has been historically accustomed to getting other types of things from us.

So, we're very excited to continue pursuing that.

Operator

Thank you. One moment, please. And the last question comes from the line of Rohit Kulkarni of ROTH. Your line is open.

Rohit Kulkarni -- ROTH Capital Partners -- Analyst

Hey, thanks for taking my questions. On the revenue outlook for the rest of the year, maybe talk about like the level of visibility or the confidence that you have today versus where you were at the beginning of the year. You talked about these three phases and the first phase being cost-cutting and freezing hiring budgets in your customers, and you're still in that phase. So, given that probably there is a little bit more time for the second phase to kick in, maybe just talk about how confident do you feel about the remaining eight to nine months of the year, as well as just the visibility that you have versus where you were at the beginning of the year.

Hayden Brown -- President and Chief Executive Officer

Well, we're a quarter closer to the end of the year, Rohit. So, I guess we have a little more visibility than we did three months ago. And I'd say what's changed is we definitely have a perspective now that more of our larger customers and targets are sitting still in that first phase that we talked about rather than having moved to the second or third phase. So, that is more information that we didn't have previously.

In terms of where we see the rest of the year shaking out, I think what we removed from our guidance outlook was previous expectations that we had about our normal seasonality that we would have in the business in a nonmacro-impacted year where the back half of the year would be seasonally stronger due to kind of the ordinary things we see on our platform. So, with our revised outlook, based on seeing more of these customers in that Phase 1 impacted by the macro environment, we now do not expect to see that normal seasonal behavior in the second half of the year. We do expect to see a step-up in the second half of the year versus the trough we're in, in Q2 because of the dynamics around the rollout of our pricing changes and the lapping effects relative to last year in -- what we'll see in Q3 and Q4. But I think that is a shift in perspective versus what we had last year.

I'll also note, we didn't bake in a specific macro perspective about things getting worse or things getting better, but we did remove from our outlook the normal seasonality improvement that we would see absent what we're now seeing in the macro.

Rohit Kulkarni -- ROTH Capital Partners -- Analyst

OK. That's helpful. And then a question on AI. I guess there is this growing debate that structurally, AI is going to drive more efficiency, and the first leg of efficiency would come into most of the tech companies that would be early adopters of those AI tools internally and just to drive better discipline.

So, maybe talk about your thoughts on that. Do you feel structurally speaking, a year or two years from now, Upwork could be a much more profitable company if you are adopting AI internally? Just broadly, not specifically to Upwork, where do you think about applying AI for internal productivity gains, not just for your customers?

Hayden Brown -- President and Chief Executive Officer

This is a huge opportunity for us and every tech company. And certainly, we've been testing these new tools as well because I think the productivity gains are very real. And so, I can't tell you how that will translate exactly into profitability outlook one or two years out, but I think it's the responsibility of me and every CEO who has engineers in their business to be really pushing on how we can use these tools to improve efficiency and also to improve developer satisfaction. I mean, I can tell you that as our engineers try out these tools, it unleashed extremely exciting conversations and, frankly, unlocked their skills and expertise to be doing other things that they're really excited about kind of layering on in their work.

So, I think there's going to be big questions about as our teams get more productive, what then do you do with the resources that you're freeing up? And so, I think those are questions that all of us will navigate as we move forward. But again, AI is a huge opportunity, and we're really excited to be taking advantage of it.

Rohit Kulkarni -- ROTH Capital Partners -- Analyst

Thank you.

Operator

Thank you. That does conclude the call. I can turn the call back over to Evan Barbosa for any closing remarks.

Evan Barbosa -- Vice President, 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 [email protected]. This concludes our call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Evan Barbosa -- Vice President, Investor Relations

Hayden Brown -- President and Chief Executive Officer

Erica Gessert -- Chief Financial Officer

Eric Sheridan -- Goldman Sachs -- Analyst

John Byun -- Jefferies -- Analyst

Nat Schindler -- Bank of America Merrill Lynch -- Analyst

Matt Farrell -- Piper Sandler -- Analyst

Logan Reich -- RBC Capital Markets -- Analyst

Bernie McTernan -- Needham and Company -- Analyst

Marvin Fong -- BTIG -- Analyst

Andrew Boone -- JMP Securities -- Analyst

Unknown speaker

Rohit Kulkarni -- ROTH Capital Partners -- Analyst

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