Upwork Reports Third Quarter 2020 Financial Results

November 4, 2020
  • Revenue grew 24% year-over-year to $96.7 million, exceeding guidance
  • Marketplace revenue grew 26% year-over-year to $88.0 million
  • Marketplace take rate improved from 13.3% to 13.6% year-over-year

SANTA CLARA, Calif., Nov. 04, 2020 (GLOBE NEWSWIRE) -- Upwork Inc. (Nasdaq: UPWK), the world’s largest work marketplace that connects businesses with independent talent, as measured by gross services volume (“GSV”), today announced its third quarter 2020 financial results.

“Our third quarter performance was fueled by strength from both existing and new clients, who adopted Upwork in record numbers. As the world’s largest work marketplace that connects businesses with independent talent, as measured by gross services volume, we have been building capabilities and tools for a world now increasingly ready to use them,” said Hayden Brown, President and CEO of Upwork. “Our vision is to place independent talent at the heart of every business; everything we do is, and will continue to be, focused on powering our customers’ progress. This quarter we continued to expand our platform to serve our customers with Project Catalog, a curated collection of pre-scoped projects that provides a new click-and-buy way for clients and freelancers to instantly begin working together on the Upwork marketplace.”

Third Quarter 2020 Financial Results

  • Gross services volume (GSV) increased by 23% year-over-year to $654.5 million;
  • Revenue grew 24% year-over-year to $96.7 million;
  • Marketplace revenue grew 26% year-over-year to $88.0 million;
  • Marketplace take rate was 13.6%, up from 13.3% a year ago;
  • Gross margin increased two percentage points year-over-year to 73%;
  • Net loss was $2.7 million, or $(0.02) per share, compared to a net loss of $3.5 million, or $(0.03) per share, in the third quarter of 2019;
  • Non-GAAP net income was $5.0 million, or $0.04 per share, compared to non-GAAP net income of $1.1 million, or $0.01 per share, in the third quarter of 2019; and
  • Adjusted EBITDA, a non-GAAP financial measure, was $6.7 million compared to adjusted EBITDA of $2.0 million in the third quarter of 2019.

Note: Reported figures are rounded; unless otherwise noted, comparisons of the third quarter of 2020 are to the third quarter of 2019. All financial measures are GAAP unless cited as non-GAAP. Certain operating metrics used here, including “GSV” and “marketplace take rate,” are defined in our Annual Report on Form 10-K for the full year ended December 31, 2019 and our most recently filed Quarterly Report on Form 10-Q.

A reconciliation of GAAP to non-GAAP financial measures has been provided at the end of this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Guidance
The fourth quarter guidance we are providing today factors in the expected impacts of the COVID-19 pandemic that are available to us as of today.

As of November 4, 2020, Upwork is providing the following guidance for its fourth quarter and full year 2020 as follows:

For the fourth quarter of 2020, Upwork expects to report:

  • Revenue in the range of $96 million to $98 million
  • Weighted-average shares outstanding in the range of 122 million to 124 million

For the full year 2020, Upwork expects to report:

  • Revenue in the range of $363 million to $365 million
  • Weighted-average shares outstanding in the range of 118 million to 122 million

Third Quarter 2020 Financial Results Conference Call and Webcast

Upwork will host a conference call today at 2 p.m. Pacific Time/5 p.m. Eastern Time to discuss the company’s third quarter 2020 financial results. An audio webcast archive will be available following the live event for approximately one year at investors.upwork.com. The prepared remarks corresponding to the information reviewed on today’s conference call will also be available on our Investor Relations website, once the call has concluded.

We use our investor relations website (investors.upwork.com), our Twitter handle (twitter.com/Upwork) and Hayden Brown’s Twitter handle (twitter.com/hydnbrwn) and LinkedIn profile (linkedin.com/in/haydenlbrown) as a means of disseminating or providing notification of, among other things, news or announcements regarding our business or financial performance, investor events, press releases and earnings releases and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The content of our websites and information that we may post on or provide to online and social media channels, including those mentioned above, and information that can be accessed through our websites or these online and social media channels are not incorporated by reference into this press release or in any report or document we file with the SEC, and any references to our websites or these online and social media channels are intended to be inactive textual references only.

Safe Harbor Statement

This press release includes forward-looking statements, which are statements other than statements of historical facts, and statements in the future tense. These statements include, but are not limited to, statements regarding the future performance of Upwork and its market opportunity, including expected financial results for the fourth quarter of 2020 and full year 2020, expectations regarding the impact of the COVID-19 pandemic on our business and industry, and expectations for capturing market share and regarding the changing landscape of work, as well as statements regarding our planned investments to support growth. Accordingly, actual results could differ materially or such uncertainties could cause adverse effects on our results. Forward-looking statements are based upon various estimates and assumptions, as well as information known to Upwork as of the date of this press release, and are subject to risks and uncertainties, including but not limited to: the impact and duration of the COVID-19 pandemic on our business and global economic conditions; the impact, severity and duration of safety measures put in place to mitigate the impact of the COVID-19 pandemic; our ability to attract and retain a community of freelancers and clients; our limited operating history under our current business strategy and pricing model; our focus on the long-term and our investments in sustainable, profitable growth; our ability to develop and release new products and services, and develop and release successful enhancements, features, and modifications to our existing products and services; the impact of new and existing laws and regulations; our ability to generate revenue from our marketplace offerings and the effects of fluctuations in our level of client spend retention; our ability to develop, maintain, and enhance our brand and reputation cost-effectively; competition; challenges to contractor classification or employment status of freelancers on our platform; the possibility that the market for freelancers and the services they offer will develop more slowly than we expect; user circumvention of our platform; our ability to sell to mid-market, large enterprise, and global account clients; the success of our investments in our enterprise sales organization and our related marketing efforts, and expectations for the ability for enterprise sales to drive incremental revenue and GSV growth; changes in the amount and mix of services facilitated through our platform in a period; changes in our level of investment in sales and marketing, research and development, and general and administrative expenses, and our hiring plans for sales personnel; the market for information technology; future changes to our pricing model; payment and fraud risks; security breaches; privacy; litigation and related costs; changes in management; and other general market, political, economic, and business conditions. Actual results could differ materially from those predicted or implied, and reported results should not be considered as an indication of future performance. Additionally, these forward-looking statements, particularly our guidance, involve risks, uncertainties and assumptions, including those related to the impacts of the COVID-19 pandemic on our clients’ spending decisions. Significant variation from the assumptions underlying our forward-looking statements could cause our actual results to vary, and the impact could be significant.

Additional risks and uncertainties that could affect our financial results are included under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 2, 2020, our Quarterly Report on Form 10-Q filed with the SEC on August 4, 2020, and our other SEC filings, which are available on the Investor Relations page of our website at investors.upwork.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the three months ended September 30, 2020 when filed. All forward-looking statements contained herein are based on information available to us as of the date hereof, and we do not assume any obligation to update these statements as a result of new information or future events.

Undue reliance should not be placed on the forward-looking statements in this press release. These statements are based on information available to Upwork on the date hereof, and Upwork assumes no obligation to update such statements.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared in accordance with GAAP, we present non-GAAP cost of revenue (and as a percentage of revenue), non-GAAP gross profit (and as a percentage of revenue), non-GAAP operating expenses (total and each line item, and total and each non-GAAP operating expense item as a percentage of revenue), non-GAAP income (loss) from operations (and as a percentage of revenue), non-GAAP net income (loss) (and as a percentage of revenue and on a per share basis), and adjusted EBITDA in this press release. Our use of non-GAAP financial measures has limitations as an analytical tool, and these measures should not be considered in isolation or as a substitute for analysis of financial results as reported under GAAP.

We use these non-GAAP financial measures in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including in the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. These measures provide consistency and comparability with past financial performance, facilitate period-to-period comparisons of core operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. In addition, adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance. We exclude the following items from one or more of our non-GAAP financial measures: stock-based compensation expense (non-cash expense calculated by companies using a variety of valuation methodologies and subjective assumptions), depreciation and amortization (non-cash expense), interest expense, other (income) expense, net, income tax (benefit) provision, and, if applicable, other non-cash transactions, which in the periods presented consists of expense associated with the common stock warrant that we issued to the Tides Foundation.  

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, (1) stock-based compensation expense has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy, (2) although depreciation and amortization expense are non-cash charges, the assets subject to depreciation and amortization may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements, and (3) adjusted EBITDA does not reflect: (a) changes in, or cash requirements for, our working capital needs; (b) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; (c) tax payments that may represent a reduction in cash available to us; or (d) expense from our common stock warrant issued to the Tides Foundation, which is recurring and will be reflected in our financial results for the foreseeable future. The non-GAAP measures we use may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP items excluded from these non-GAAP financial measures. A reconciliation of these non-GAAP measures has been provided in the financial statement tables included in this press release and investors are encouraged to review the reconciliation.

About Upwork

Upwork is the world’s largest work marketplace that connects businesses with independent talent, as measured by gross services volume (“GSV”). We serve everyone from one-person startups to 30% of the Fortune 100 with a powerful, trust-driven platform that enables companies and freelancers to work together in new ways that unlock their potential. Our talent community earned over $2 billion on Upwork in 2019 across more than 8,000 skills, including website & app development, creative & design, customer support, finance & accounting, consulting, and operations. Learn more at www.upwork.com and join us on LinkedIn, Twitter, and Facebook.

Upwork is a registered trademark of Upwork Inc. All other product and brand names may be trademarks or registered trademarks of their respective owners.


UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
Revenue       
Marketplace$88,040  $69,912  $241,286  $196,095 
Managed services8,708  8,103  26,189  24,179 
Total revenue96,748  78,015  267,475  220,274 
Cost of revenue26,596  22,494  75,489  65,207 
Gross profit70,152  55,521  191,986  155,067 
Operating expenses       
Research and development20,833  16,209  60,728  47,705 
Sales and marketing33,577  25,322  98,695  70,319 
General and administrative18,047  16,468  52,973  46,193 
Provision for transaction losses724  1,214  2,654  2,706 
Total operating expenses73,181  59,213  215,050  166,923 
Loss from operations(3,029) (3,692) (23,064) (11,856)
Interest expense152  317  640  1,047 
Other (income) expense, net(452) (462) 31  (1,773)
Loss before income taxes(2,729) (3,547) (23,735) (11,130)
Income tax provision(18)   (57) (28)
Net loss$(2,747) $(3,547) $(23,792) $(11,158)
        
Net loss per share, basic and diluted$(0.02) $(0.03) $(0.20) $(0.10)
Weighted-average shares used to compute net loss per share, basic and diluted120,681  111,163  117,121  108,844 


UPWORK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 September 30, 2020 December 31, 2019
ASSETS   
Current assets   
Cash and cash equivalents$88,436  $48,392 
Marketable securities67,051  85,481 
Funds held in escrow, including funds in transit128,131  108,721 
Trade and client receivables, net39,853  30,156 
Prepaid expenses and other current assets8,487  7,885 
Total current assets331,958  280,635 
Property and equipment, net27,680  21,454 
Goodwill118,219  118,219 
Intangible assets, net1,334  3,335 
Operating lease asset20,662  21,908 
Other assets, noncurrent1,784  829 
Total assets$501,637  $446,380 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities   
Accounts payable$5,708  $652 
Escrow funds payable128,131  108,721 
Debt, current7,576  7,584 
Accrued expenses and other current liabilities28,766  18,342 
Deferred revenue15,892  13,799 
Total current liabilities186,073  149,098 
Debt, noncurrent5,021  10,699 
Operating lease liability, noncurrent21,693  21,186 
Other liabilities, noncurrent7,276  5,973 
Total liabilities220,063  186,956 
    
Stockholders’ equity   
Common stock12  11 
Additional paid-in capital477,311  431,370 
Accumulated deficit(195,749) (171,957)
Total stockholders’ equity281,574  259,424 
Total liabilities and stockholders’ equity$501,637  $446,380 


UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:       
Net loss$(2,747) $(3,547) $(23,792) $(11,158)
Adjustments to reconcile net loss to net cash provided by operating activities:       
Provision for transaction losses1,048  1,040  2,654  2,078 
Depreciation and amortization2,658  1,671  7,444  4,498 
Amortization of debt issuance costs17  13  43  39 
Amortization of discount on purchases of marketable securities(54) (283) (311) (948)
Amortization of operating lease asset982  882  2,927  3,059 
Tides Foundation common stock warrant expense188  62  564  439 
Stock-based compensation expense6,856  3,932  19,527  10,858 
Changes in operating assets and liabilities:       
Trade and client receivables(7,717) 22,875  (12,490) (7,103)
Prepaid expenses and other assets684  (822) (284) (1,407)
Operating lease liability(495) 19  (1,420) (979)
Accounts payable684  1,286  5,087  697 
Accrued expenses and other liabilities3,216  1,289  10,448  (799)
Deferred revenue1,430  1,410  3,015  2,727 
Net cash provided by operating activities6,750  29,827  13,412  2,001 
CASH FLOWS FROM INVESTING ACTIVITIES:       
Purchases of marketable securities(22,467) (45,383) (70,215) (131,950)
Proceeds from maturities of marketable securities25,000  47,700  89,000  72,500 
Purchases of property and equipment(583) (2,795) (6,210) (10,230)
Internal-use software and platform development costs(2,008) (1,872) (5,567) (4,054)
Net cash provided by (used in) investing activities(58) (2,350) 7,008  (73,734)
CASH FLOWS FROM FINANCING ACTIVITIES:       
Changes in escrow funds payable(1,423) (3,709) 19,409  16,407 
Proceeds from exercises of stock options and common stock warrants7,333  3,634  23,343  13,974 
Proceeds from borrowings on debt    18,000  50,000 
Repayment of debt(1,943) (26,893) (23,729) (53,786)
Proceeds from employee stock purchase plan    2,661  3,577 
Net cash provided by (used in) financing activities3,967  (26,968) 39,684  30,172 
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH10,659  509  60,104  (41,561)
Cash, cash equivalents, and restricted cash—beginning of period209,048  187,997  159,603  230,067 
Cash, cash equivalents, and restricted cash—end of period$219,707  $188,506  $219,707  $188,506 

The following table reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows as of September 30, 2020 and December 31, 2019 (in thousands):

 September 30, 2020 December 31, 2019
Cash and cash equivalents$88,436  $48,392 
Restricted cash3,140  2,490 
Funds held in escrow, including funds in transit128,131  108,721 
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows$219,707  $159,603 


UPWORK INC.
COST OF REVENUE AND GROSS MARGIN
(In thousands, except percentages)
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 Change 2020 2019 Change
Cost of revenue$26,596  $22,494  $4,102  18% $75,489  $65,207  $10,282  16%
Components of cost of revenue:               
Cost of freelancer services to deliver managed services7,093  6,745  348  5% 21,327  20,143  1,184  6%
Other components of cost of revenue19,503  15,749  3,754  24% 54,162  45,064  9,098  20%
Total gross margin73% 71%     72% 70%    


UPWORK INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except for percentages and per share data)
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
GAAP Net Loss$(2,747) $(3,547) $(23,792) $(11,158)
Add back (deduct):       
Stock-based compensation expense6,856  3,932  19,527  10,858 
Depreciation and amortization2,658  1,671  7,444  4,498 
Interest expense152  317  640  1,047 
Other (income) expense, net(452) (462) 31  (1,773)
Income tax provision18    57  28 
Tides Foundation common stock warrant expense188  62  564  439 
Non-GAAP Adjusted EBITDA$6,673  $1,973  $4,471  $3,939 
        
Cost of Revenue Reconciliation:       
Cost of revenue, GAAP$26,596  $22,494  $75,489  $65,207 
Stock-based compensation(203) (109) (579) (326)
Cost of revenue, Non-GAAP$26,393  $22,385  $74,910  $64,881 
% of revenue, GAAP27% 29% 28% 30%
% of revenue, Non-GAAP27% 29% 28% 29%
        
Gross Profit Reconciliation:       
Gross profit, GAAP$70,152  $55,521  $191,986  $155,067 
Stock-based compensation203  109  579  326 
Gross profit, Non-GAAP$70,355  $55,630  $192,565  $155,393 
% of revenue, GAAP73% 71% 72% 70%
% of revenue, Non-GAAP73% 71% 72% 71%
        
Operating Expenses Reconciliation:       
Research and development, GAAP$20,833  $16,209  $60,728  $47,705 
Stock-based compensation(2,567) (1,503) (7,286) (4,569)
Research and development, Non-GAAP$18,266  $14,706  $53,442  $43,136 
% of revenue, GAAP22% 21% 23% 22%
% of revenue, Non-GAAP19% 19% 20% 20%
        
Sales and marketing, GAAP$33,577  $25,322  $98,695  $70,319 
Stock-based compensation(1,212) (635) (3,452) (1,860)
Sales and marketing, Non-GAAP$32,365  $24,687  $95,243  $68,459 
% of revenue, GAAP35% 32% 37% 32%
% of revenue, Non-GAAP33% 32% 36% 31%
        
General and administrative, GAAP$18,047  $16,468  $52,973  $46,193 
Stock-based compensation(2,874) (1,685) (8,210) (4,103)
Amortization of intangible assets(667) (667) (1,334) (1,334)
Tides Foundation common stock warrant expense(188) (62) (564) (439)
General and administrative, Non-GAAP$14,318  $14,054  $42,865  $40,317 
% of revenue, GAAP19% 21% 20% 21%
% of revenue, Non-GAAP15% 18% 16% 18%
        
Loss from Operations Reconciliation:       
Loss from operations, GAAP$(3,029) $(3,692) $(23,064) $(11,856)
Stock-based compensation6,856  3,932  19,527  10,858 
Amortization of intangible assets667  667  1,334  1,334 
Tides Foundation common stock warrant expense188  62  564  439 
Income (loss) from operations, Non-GAAP$4,682  $969  $(1,639) $775 
% of revenue, GAAP-3% -5% -9% -5%
% of revenue, Non-GAAP5% 1% -1% %
        
Net Loss Reconciliation:       
Net loss, GAAP$(2,747) $(3,547) $(23,792) $(11,158)
Stock-based compensation6,856  3,932  19,527  10,858 
Amortization of intangible assets667  667  1,334  1,334 
Tides Foundation common stock warrant expense188  62  564  439 
Net income (loss), Non-GAAP$4,964  $1,114  $(2,367) $1,473 
% of revenue, GAAP-3% -5% -9% -5%
% of revenue, Non-GAAP5% 1% -1% 1%
        
Net Loss per Share Reconciliation:       
Weighted-average shares outstanding120,681  111,163  117,121  108,844 
Net loss per share, GAAP$(0.02) $(0.03) $(0.20) $(0.10)
Net income (loss) per share, Non-GAAP$0.04  $0.01  $(0.02) $0.01 
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