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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________________________

FORM 10-Q

_____________________________________________

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-38678

________________________________________________

UPWORK INC.

(Exact Name of Registrant as Specified in its Charter)

________________________________________________

Delaware						46-4337682
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
475 Brannan Street, Suite 430
San Francisco,			California			94107
(Address of principal executive offices)						(Zip Code)

(650) 316-7500

(Registrant’s telephone number, including area code)

_______________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol			Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share			UPWK			The Nasdaq Stock Market LLC

_______________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No ☒

As of September 30, 2023, there were 136,109,497 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS

						Page
Special Note Regarding Forward-Looking Statements						1
PART I—FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)
			Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			2
			Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022			3
			Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022			4
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			5
			Notes to Condensed Consolidated Financial Statements			6
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.			Controls and Procedures			34
PART II—OTHER INFORMATION
Item 1.			Legal Proceedings			35
Item 1A.			Risk Factors			35
Item 2.			Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			76
Item 3.			Defaults Upon Senior Securities			76
Item 4.			Mine Safety Disclosures			76
Item 5.			Other Information			76
Item 6.			Exhibits			77
Signatures						78

Unless otherwise expressly stated or the context otherwise requires, references in this Quarterly Report on Form 10-Q, which we refer to as this Quarterly Report, to “Upwork,” “Company,” “our,” “us,” and “we” and similar references refer to Upwork Inc. and its wholly owned subsidiaries.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, active clients, future research and development, sales and marketing and general and administrative expenses, provision for transaction losses, our plans with respect to our share repurchase program, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections as of the date of this filing about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report and in other documents we file from time to time with the Securities and Exchange Commission, which we refer to as the SEC, that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Quarterly Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report and the documents that we reference herein and have filed with the SEC or incorporated by reference as exhibits to this Quarterly Report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

UPWORK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)			September 30, 2023						December 31, 2022
ASSETS
Current assets
Cash and cash equivalents			$	146,827					$	129,384
Marketable securities			408,417						557,230
Funds held in escrow, including funds in transit			177,970						161,457
Trade and client receivables – net of allowance of $5,216 and $12,464 as of September 30, 2023 and December 31, 2022, respectively			60,262						64,888
Prepaid expenses and other current assets			16,537						17,947
Total current assets			810,013						930,906
Property and equipment, net			26,659						22,063
Goodwill			118,219						118,219
Operating lease asset			5,168						7,603
Other assets, noncurrent			1,379						1,454
Total assets			$	961,438					$	1,080,245
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable			$	1,747					$	7,549
Escrow funds payable			177,970						161,457
Accrued expenses and other current liabilities			52,111						53,611
Deferred revenue			21,237						25,075
Total current liabilities			253,065						247,692
Debt, noncurrent			355,626						564,261
Operating lease liability, noncurrent			6,932						11,177
Other liabilities, noncurrent			2,876						8,236
Total liabilities			618,499						831,366
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 136,109,497 and 132,368,265 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively			14						13
Additional paid-in capital			654,754						592,900
Accumulated other comprehensive loss			(393)						(3,085)
Accumulated deficit			(311,436)						(340,949)
Total stockholders’ equity			342,939						248,879
Total liabilities and stockholders’ equity			$	961,438					$	1,080,245

The accompanying notes are an integral part of these condensed consolidated financial statements.

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UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands, except per share data)			2023						2022						2023						2022
Revenue			$	175,733					$	158,641					$	505,202					$	456,876
Cost of revenue			43,273						40,470						124,582						119,243
Gross profit			132,460						118,171						380,620						337,633
Operating expenses
Research and development			43,419						38,898						131,146						112,889
Sales and marketing			47,308						63,171						171,377						184,096
General and administrative			28,652						31,407						86,922						93,872
Provision for transaction losses			1,615						10,137						10,863						18,918
Total operating expenses			120,994						143,613						400,308						409,775
Income (loss) from operations			11,466						(25,442)						(19,688)						(72,142)
Interest expense			711						1,117						2,525						3,362
Other income, net			(6,477)						(1,772)						(55,273)						(2,215)
Income (loss) before income taxes			17,232						(24,787)						33,060						(73,289)
Income tax provision			(895)						(40)						(3,547)						(96)
Net income (loss)			$	16,337					$	(24,827)					$	29,513					$	(73,385)
Net income (loss) per share:
Basic			$	0.12					$	(0.19)					$	0.22					$	(0.56)
Diluted			$	0.12					$	(0.19)					$	(0.06)					$	(0.56)
Weighted-average shares used to compute net income (loss) per share
Basic			135,450						130,830						134,152						130,083
Diluted			137,291						130,830						135,184						130,083
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on marketable securities, net			$	472					$	166					$	2,692					$	(4,089)
Total comprehensive income (loss)			$	16,809					$	(24,661)					$	32,205					$	(77,474)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)												Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Three Months Ended September 30, 2023																		Shares									Amount
Balances as of June 30, 2023																		134,883,597						$	13					$	635,548					$	(865)					$	(327,773)					$	306,923
Issuance of common stock upon exercise of stock options and common stock warrants																		346,988						—						1,005						—						—						1,005
Stock-based compensation expense																		—						—						18,013						—						—						18,013
Issuance of common stock for settlement of RSUs																		878,912						1						—						—						—						1
Tides Foundation common stock warrant expense																		—						—						188						—						—						188
Unrealized gain on marketable securities																		—						—						—						472						—						472
Net income																		—						—						—						—						16,337						16,337
Balances as of September 30, 2023																		136,109,497						$	14					$	654,754					$	(393)					$	(311,436)					$	342,939

(In thousands, except share amounts)												Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Three Months Ended September 30, 2022																		Shares									Amount
Balances as of June 30, 2022																		130,530,889						$	13					$	550,711					$	(4,783)					$	(299,622)					$	246,319
Issuance of common stock upon exercise of stock options																		81,115						—						291						—						—						291
Stock-based compensation expense																		—						—						20,446						—						—						20,446
Issuance of common stock for settlement of RSUs																		730,478						—						—						—						—						—
Tides Foundation common stock warrant expense																		—						—						188						—						—						188
Unrealized gain on marketable securities																		—						—						—						166						—						166
Net loss																		—						—						—						—						(24,827)						(24,827)
Balances as of September 30, 2022																		131,342,482						$	13					$	571,636					$	(4,617)					$	(324,449)					$	242,583

(In thousands, except share amounts)												Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Equity
Nine Months Ended September 30, 2023																		Shares									Amount
Balances as of December 31, 2022																		132,368,265						$	13					$	592,900					$	(3,085)					$	(340,949)					$	248,879
Issuance of common stock upon exercise of stock options and common stock warrants																		621,081						—						1,940						—						—						1,940
Stock-based compensation expense																		—						—						56,787						—						—						56,787
Issuance of common stock for settlement of RSUs																		2,743,136						1						—						—						—						1
Tides Foundation common stock warrant expense																		—						—						563						—						—						563
Issuance of common stock in connection with employee stock purchase plan																		377,015						—						2,564						—						—						2,564
Unrealized gain on marketable securities																		—						—						—						2,692						—						2,692
Net income																		—						—						—						—						29,513						29,513
Balances as of September 30, 2023																		136,109,497						$	14					$	654,754					$	(393)					$	(311,436)					$	342,939

(In thousands, except share amounts)												Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total Stockholders’ Deficit
Nine Months Ended September 30, 2022																		Shares									Amount
Balances as of December 31, 2021																		129,130,478						$	13					$	511,096					$	(528)					$	(251,064)					$	259,517
Issuance of common stock upon exercise of stock options																		352,336						—						1,335						—						—						1,335
Stock-based compensation expense																		—						—						56,180						—						—						56,180
Issuance of common stock for settlement of RSUs																		1,698,043						—						—						—						—						—
Tides Foundation common stock warrant expense																		—						—						563						—						—						563
Issuance of common stock in connection with employee stock purchase plan																		161,625						—						2,462						—						—						2,462
Unrealized loss on marketable securities																		—						—						—						(4,089)						—						(4,089)
Net loss																		—						—						—						—						(73,385)						(73,385)
Balances as of September 30, 2022																		131,342,482						$	13					$	571,636					$	(4,617)					$	(324,449)					$	242,583

The accompanying notes are an integral part of these condensed consolidated financial statements.

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UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Nine Months Ended September 30,
(In thousands)			2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	29,513					$	(73,385)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for transaction losses			6,806						18,412
Depreciation			5,641						6,007
Amortization of debt issuance costs			1,637						2,221
Amortization of premium (accretion of discount) of purchases of marketable securities, net			(9,832)						485
Amortization of operating lease asset			2,435						2,295
Tides Foundation common stock warrant expense			563						563
Stock-based compensation expense			56,148						56,119
Gain on early extinguishment of debt			(38,945)						—
Changes in operating assets and liabilities:
Trade and client receivables			(2,638)						(17,764)
Prepaid expenses and other assets			1,487						380
Operating lease liability			(4,375)						(3,994)
Accounts payable			(5,802)						278
Accrued expenses and other liabilities			(1,077)						2,202
Deferred revenue			(9,001)						4,285
Net cash provided by (used in) operating activities			32,560						(1,896)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities			(449,180)						(398,259)
Proceeds from maturities of marketable securities			451,047						371,879
Proceeds from sale of marketable securities			159,575						—
Purchases of property and equipment			(558)						(893)
Internal-use software and platform development costs			(9,179)						(5,160)
Net cash provided by (used in) investing activities			151,705						(32,433)
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in escrow funds payable			16,513						9,153
Proceeds from exercises of stock options			1,941						1,335
Proceeds from employee stock purchase plan			2,564						2,462
Net cash paid for early extinguishment of debt			(171,327)						—
Net cash provided by (used in) financing activities			(150,309)						12,950
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			33,956						(21,379)
Cash, cash equivalents, and restricted cash—beginning of period			295,231						352,058
Cash, cash equivalents, and restricted cash—end of period			$	329,187					$	330,679
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest			$	1,314					$	1,520
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid			$	—					$	107
Internal-use software and platform development costs incurred but not yet paid			$	40					$	75

The accompanying notes are an integral part of these condensed consolidated financial statements.

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UPWORK INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Description of Business

Upwork Inc., which is referred to as the Company or Upwork, operates a work marketplace that connects businesses, which are referred to as clients, with independent talent. Independent talent on the Company’s work marketplace, which are referred to as talent, and, together with clients, as users, include independent professionals and agencies of varying sizes and are an increasingly sought-after, critical, and expanding segment of the global workforce. The Company is headquartered in San Francisco, California.

Unless otherwise expressly stated or the context otherwise requires, the terms “Upwork” and the “Company” in these notes to the condensed consolidated financial statements refer to Upwork and its wholly owned subsidiaries.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, which is referred to as U.S. GAAP, and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which is referred to as the Annual Report, filed with the SEC on February 16, 2023.

The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by U.S. GAAP.

The condensed consolidated financial statements include the accounts of Upwork and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of the financial position, results of operations, changes in stockholders’ equity and cash flows for the interim periods, but do not purport to be indicative of the results of operations or financial condition to be anticipated for the full year ending December 31, 2023.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods presented. Such estimates include, but are not limited to: the useful lives of assets; assessment of the recoverability of long-lived assets; goodwill impairment; standalone selling price of material rights and the period of time over which to defer and recognize the consideration allocated to the material rights; allowance for expected credit losses; liabilities relating to transaction losses; stock-based compensation; and accounting for income taxes. Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The Company evaluates its estimates, assumptions, and judgments on an ongoing basis using historical experience and other factors and revises them when facts and circumstances dictate.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities. These estimates may

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change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Summary of Significant Accounting Policies

The significant accounting policies applied in the Company’s audited consolidated financial statements, as disclosed in the Annual Report, are applied consistently in these unaudited interim condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

The Company has reviewed the accounting pronouncements issued during the nine months ended September 30, 2023 and concluded they were either not applicable or not expected to have a material impact on the Company’s condensed consolidated financial statements.

Note 3—Revenue

Disaggregation of Revenue

See “Note 9—Segment and Geographical Information” for the Company’s revenue disaggregated by type of service and geographic area.

Remaining Performance Obligations

As of September 30, 2023, the Company had $23.7 million of remaining performance obligations. The Company’s remaining performance obligations primarily consist of the transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with talent subject to tiered service fees. In May 2023, the Company retired its tiered service fee structure for talent and introduced a simplified flat service fee of 10%. This change took effect for new contracts and existing contracts that would have otherwise been subject to a 20% fee under the former tiered service fee model. Contracts with a 5% fee under the former tiered service fee model will retain that rate for those contracts through the end of 2023. With this change to the Company’s tiered service fee structure, the Company no longer allocates a portion of the transaction price to unexercised material rights. As of September 30, 2023, the Company expects to recognize $21.2 million over the next 12 months, with the remaining balance recognized thereafter. The remaining transaction price allocated to other performance obligations is immaterial.

The Company has applied the practical expedients and exemptions and does not disclose the value of remaining performance obligations for: (i) contracts with an original expected length of one year or less; and (ii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation under the series guidance.

Contract Balances

The following table provides information about the balances of the Company’s trade and client receivables, net of allowance and contract liabilities included in deferred revenue and other liabilities, noncurrent:

(In thousands)			September 30, 2023						December 31, 2022
Trade and client receivables, net of allowance			$	60,262					$	64,888
Contract liabilities
Deferred revenue			21,237						25,075
Deferred revenue (component of other liabilities, noncurrent)			2,451						7,614

During the three and nine months ended September 30, 2023, changes in the contract liabilities balances were a result of normal business activity and deferral, and subsequent recognition, of revenue related to arrangements with talent subject to tiered service fees and related allocation of transaction price to material rights.

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Revenue recognized during the three and nine months ended September 30, 2023 that was included in deferred revenue as of June 30, 2023 and December 31, 2022 was $9.9 million and $20.6 million, respectively. Revenue recognized during the three and nine months ended September 30, 2022 that was included in deferred revenue as of June 30, 2022 and December 31, 2021 was $7.0 million and $16.6 million, respectively.

Note 4—Fair Value Measurements

The Company defines fair value as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance describes three levels of inputs that may be used to measure fair value:

•Level I—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets;

•Level II—Observable inputs other than Level I prices, such as unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level III—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

The categorization of a financial instrument within the fair value hierarchy is based upon the lowest level of input that is significant to its fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the assets or liabilities.

The Company’s financial instruments that are carried at fair value consist of Level I and Level II assets as of September 30, 2023 and December 31, 2022. The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized

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losses, and fair value by significant investment category reported as cash and cash equivalents or marketable securities as of September 30, 2023 and December 31, 2022:

(In thousands) September 30, 2023						Amortized Cost						Unrealized Gain						Unrealized Loss						Fair Value						Cash and Cash Equivalents						Marketable Securities
Cash						$	72,707					$	—					$	—					$	72,707					$	72,707					$	—
Level I
Money market funds						64,821						—						—						64,821						64,821						—
Treasury bills						245,658						16						(12)						245,662						4,481						241,181
U.S. government securities						28,558						—						(166)						28,392						—						28,392
Total Level I						339,037						16						(178)						338,875						69,302						269,573
Level II
Commercial paper						35,863						—						—						35,863						—						35,863
Corporate bonds						62,558						4						(62)						62,500						4,818						57,682
Commercial deposits						5,492						—						—						5,492						—						5,492
Asset-backed securities						20,133						—						(108)						20,025						—						20,025
Foreign government and agency securities						2,720						—						(2)						2,718						—						2,718
U.S. agency securities						17,087						—						(23)						17,064						—						17,064
Total Level II						143,853						4						(195)						143,662						4,818						138,844
Total						$	555,597					$	20					$	(373)					$	555,244					$	146,827					$	408,417

(In thousands) December 31, 2022						Amortized Cost						Unrealized Gain						Unrealized Loss						Fair Value						Cash and Cash Equivalents						Marketable Securities
Cash						$	27,528					$	—					$	—					$	27,528					$	27,528					$	—
Level I
Money market funds						85,302						—						—						85,302						85,302						—
Treasury bills						172,500						13						(131)						172,382						5,096						167,286
U.S. government securities						106,167						—						(2,025)						104,142						—						104,142
Total Level I						363,969						13						(2,156)						361,826						90,398						271,428
Level II
Commercial paper						120,360						—						—						120,360						8,038						112,322
Corporate bonds						85,639						3						(639)						85,003						3,420						81,583
Commercial deposits						28,945						—						—						28,945						—						28,945
Asset-backed securities						33,261						31						(306)						32,986						—						32,986
Foreign government and agency securities (1)						8,176						—						(10)						8,166						—						8,166
U.S. agency securities (1)						21,785						38						(23)						21,800						—						21,800
Total Level II						298,166						72						(978)						297,260						11,458						285,802
Total						$	689,663					$	85					$	(3,134)					$	686,614					$	129,384					$	557,230

(1) Prior period has been reclassified to conform to the current period presentation as of September 30, 2023.

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Unrealized Investment Losses

The following tables summarize, for all debt securities classified as available for sale in an unrealized loss position as of September 30, 2023 and December 31, 2022, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position.

(In thousands)			Less Than 12 Months												12 Months or Longer												Total
Duration of unrealized losses September 30, 2023			Fair Value						Unrealized loss						Fair Value						Unrealized loss						Fair Value						Unrealized loss
Treasury bills			53,749						(12)						—						—						53,749						(12)
U.S. government securities			13,484						(79)						14,907						(87)						28,391						(166)
Corporate bonds			48,521						(53)						2,630						(9)						51,151						(62)
Asset-backed securities			15,072						(65)						4,953						(43)						20,025						(108)
Foreign government and agency securities			2,718						(1)						1						(1)						2,719						(2)
U.S. agency securities			14,574						(10)						2,490						(13)						17,064						(23)
Total			$	148,118					$	(220)					$	24,981					$	(153)					$	173,099					$	(373)

(In thousands)			Less Than 12 Months												12 Months or Longer												Total
Duration of unrealized losses December 31, 2022			Fair Value						Unrealized loss						Fair Value						Unrealized loss						Fair Value						Unrealized loss
Treasury bills			$	132,995					$	(131)					$	—					$	—					$	132,995					$	(131)
U.S. government securities			21,214						(63)						82,927						(1,963)						104,141						(2,026)
Corporate bonds			18,274						(120)						58,235						(519)						76,509						(639)
Asset-backed securities			23,515						(285)						1,707						(20)						25,222						(305)
Foreign government and agency securities (1)			5,576						(8)						2,591						(2)						8,167						(10)
U.S. agency securities (1)			9,478						(23)						—						—						9,478						(23)
Total			$	211,052					$	(630)					$	145,460					$	(2,504)					$	356,512					$	(3,134)

(1) Prior period has been reclassified to conform to the current period presentation as of September 30, 2023.

For available-for-sale marketable debt securities with unrealized loss positions, the Company does not intend to sell these securities, nor does it anticipate that it will need to or be required to sell the securities. As of September 30, 2023 and December 31, 2022, the decline in fair value of these securities was due to increases in interest rates and not due to credit-related factors. As of September 30, 2023 and 2022, the Company considered any decreases in market value to be temporary in nature and did not consider any of the Company’s marketable securities to be impaired. The Company did not record any impairment charges with respect to its marketable securities during each of the three and nine months ended September 30, 2023 and 2022.

In March 2023, the Company sold $138.2 million of available-for-sale marketable securities to enable the repurchase of a portion of the Company’s outstanding 0.25% convertible senior notes due 2026, which are referred to as the Notes. For additional information regarding the Notes, refer to “Note 7—Debt.”

Note 5—Balance Sheet Components

Cash and Cash Equivalents, Restricted Cash, and Funds Held In Escrow, Including Funds In Transit

The following table reconciles cash and cash equivalents, restricted cash, and funds held in escrow that are restricted as reported in the condensed consolidated balance sheets as of September 30, 2023 and

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December 31, 2022 to the total of the same amounts shown in the condensed consolidated statement of cash flows for the nine months ended September 30, 2023:

(In thousands)			September 30, 2023						December 31, 2022
Cash and cash equivalents			$	146,827					$	129,384
Restricted cash			4,390						4,390
Funds held in escrow, including funds in transit			177,970						161,457
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows			$	329,187					$	295,231

Property and Equipment, Net

Property and equipment, net consisted of the following:

(In thousands)			September 30, 2023						December 31, 2022
Internal-use software and platform development			$	43,094					$	33,273
Leasehold improvements			11,644						11,644
Computer equipment and software			6,778						6,514
Office furniture and fixtures			3,475						3,475
Total property and equipment			64,991						54,906
Less: accumulated depreciation			(38,332)						(32,843)
Property and equipment, net			$	26,659					$	22,063

For the three months ended September 30, 2023 and 2022, depreciation expense related to property and equipment was $0.7 million and $0.8 million, respectively. For the nine months ended September 30, 2023 and 2022, depreciation expense related to property and equipment was $2.2 million and $2.4 million, respectively.

For the three months ended September 30, 2023 and 2022, the Company capitalized $3.4 million and $2.3 million of internal-use software and platform development costs, respectively. For the nine months ended September 30, 2023 and 2022, the Company capitalized $9.8 million and $5.2 million of internal-use software and platform development costs, respectively.

For the three months ended September 30, 2023 and 2022, amortization expense related to the capitalized internal-use software and platform development costs was $1.1 million and $1.2 million, respectively. For the nine months ended September 30, 2023 and 2022, amortization expense related to the capitalized internal-use software and platform development costs was $3.4 million and $3.6 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(In thousands)			September 30, 2023						December 31, 2022
Accrued compensation and related benefits			$	17,669					$	17,239
Accrued indirect taxes			13,650						14,102
Accrued vendor expenses			9,390						8,858
Operating lease liability, current			6,372						6,502
Accrued payment processing fees			2,034						2,425
Accrued talent costs			1,748						2,352
Other			1,248						2,133
Total accrued expenses and other current liabilities			$	52,111					$	53,611

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Note 6—Commitments and Contingencies

Letters of Credit

In conjunction with the Company’s operating lease agreements, as of both September 30, 2023 and December 31, 2022, the Company had irrevocable letters of credit outstanding in the aggregate amount of $0.8 million. The letters of credit are collateralized by restricted cash in the same amount. No amounts had been drawn against these letters of credit as of September 30, 2023 and December 31, 2022.

Contingencies

The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Potential contingencies may include various claims and litigation or non-income tax matters that arise from time to time in the normal course of business. Due to uncertainties inherent in such contingencies, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability or damages. Any claims, litigation, or other contingencies could have an adverse effect on the Company’s business, financial position, results of operations, or cash flows in or following the period that claims, litigation, or other contingencies are resolved.

As of September 30, 2023 and December 31, 2022, the Company was not a party to any material legal proceedings or claims, nor is the Company aware of any pending or threatened litigation or claims, including non-income tax matters, that could reasonably be expected to have a material adverse effect on its business, operating results, cash flows, or financial condition. Accordingly, the amounts accrued for contingencies for which the Company believes a loss is probable were not material as of September 30, 2023 and December 31, 2022.

Indemnification

The Company has indemnification agreements with its officers, directors, and certain key employees to indemnify them while they are serving in good faith in their respective positions. In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to clients, business partners, vendors, and other parties, including, but not limited to, losses arising out of the Company’s breach of such agreements, claims related to potential data or information security breaches, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s products and services or its acts or omissions. In addition, subject to the terms of the applicable agreement, as part of the Company’s Upwork Enterprise and certain other premium offerings, the Company indemnifies clients that subscribe to worker classification services for losses arising from worker misclassification. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the facts and circumstances involved in each particular provision.

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Note 7—Debt

The following table presents the carrying value of the Company’s debt obligations as of September 30, 2023 and December 31, 2022:

(In thousands)						September 30, 2023						December 31, 2022
Convertible senior notes						$	360,998					$	575,000
Total debt						360,998						575,000
Less: unamortized debt issuance costs						(5,372)						(10,739)
Debt, noncurrent						$	355,626					$	564,261
Weighted-average interest rate						0.77		%				0.76		%

Convertible Senior Notes Due 2026

In August 2021, the Company issued, at par value, $575.0 million aggregate principal amount of the Notes. The issuance included the full exercise of an option granted by the Company to the initial purchasers of the Notes to purchase an additional $75.0 million aggregate principal amount of Notes. The Notes were issued pursuant to and are subject to the terms and conditions of an indenture between the Company and Computershare Trust Company, National Association (as successor in interest to Wells Fargo Bank, National Association), as trustee, which is referred to as the Indenture. The Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

In March 2023, the Company entered into separate, privately negotiated repurchase agreements with a limited number of institutional holders of the Notes to repurchase for cash an aggregate of $214.0 million principal amount of the Notes, which are collectively referred to as the Repurchases. The Company paid $170.8 million in cash to consummate the Repurchases. As a result, during the nine months ended September 30, 2023, the Company recognized a gain on the early extinguishment of debt of $38.9 million, which is net of $3.7 million related to the pro-rata write-off of unamortized issuance costs associated with the sale of the Notes in August 2021, and $0.6 million of other fees incurred to effect the Repurchases. The resulting gain on early extinguishment of debt is included in other income, net in the Company’s condensed consolidated statement of operations and comprehensive income (loss). As of September 30, 2023, $361.0 million aggregate principal amount of the Notes remain outstanding.

The Notes are senior, unsecured obligations of the Company and bear interest at a rate of 0.25% per year. Interest will accrue from August 10, 2021 and is payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2022, and the principal amount of the Notes will not accrete. The Notes will mature on August 15, 2026, unless earlier redeemed, repurchased, or converted in accordance with the terms of the Notes.

Holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount at the option of the holder (i) on or after May 15, 2026, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date, and (ii) prior to the close of business on the business day immediately preceding May 15, 2026, only upon satisfaction of certain conditions and during certain periods specified as follows:

•during any calendar quarter commencing after the calendar quarter ending on December 31, 2021, if the last reported sale price of the Company’s common stock is greater than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter of the conversion price on each applicable trading day;

•during the five consecutive business day period after any five consecutive trading day period, which is referred to as the Measurement Period, in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the Measurement Period

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was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

•if the Company calls such Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; and

•upon the occurrence of specified corporate events described in the Indenture.

Upon conversion, the Notes may be settled in shares of the Company’s common stock, cash or a combination of cash and shares of the common stock, at the election of the Company. The Notes have an initial conversion rate of 15.1338 shares of common stock per $1,000 principal amount of Notes, which is subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of approximately $66.08 per share of the Company’s common stock. The conversion rate is subject to customary adjustments under certain circumstances in accordance with the terms of the Indenture. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) occur or if the Company issues a notice of redemption with respect to the Notes prior to the maturity date, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Company may redeem for cash all or any portion of the Notes (subject to a partial redemption limitation), at the Company’s option, on or after August 20, 2024, if the last reported sale price per share of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.

Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders have the right to require the Company to repurchase for cash all or a portion of their Notes at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest thereon, if any, until, but excluding, the fundamental change repurchase date.

The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The net proceeds from the issuance of the Notes were approximately $560.1 million, after deducting debt issuance costs. The total debt issuance costs incurred and recorded by the Company amounted to $14.9 million, which were recorded as a reduction to the face amount of the Notes and will be amortized to interest expense on a straight-line basis, which produces a materially consistent amount as the effective interest method over the contractual term of the Notes.

For the three months ended September 30, 2023, interest expense was $0.2 million and amortization of the issuance costs was $0.5 million related to the Notes. For the three months ended September 30, 2022, interest expense was $0.4 million and amortization of the issuance costs was $0.7 million related to the Notes. For the nine months ended September 30, 2023, interest expense was $0.8 million and amortization of the issuance costs was $1.6 million related to the Notes. For the nine months ended September 30, 2022, interest expense was $1.1 million and amortization of the issuance costs was $2.2 million related to the Notes. As of September 30, 2023, the if-converted value of the Notes did not exceed the outstanding principal amount. As of September 30, 2023, the total estimated fair value of the Notes was $300.3 million and was determined based on a market approach using actual bids and offers of the Notes in an over-the-counter market on the last trading day of the period. The Company considers

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these assumptions to be Level II inputs in accordance with the fair value hierarchy described in “Note 4—Fair Value Measurements.”

Capped Calls

In connection with the pricing of the Notes on August 5, 2021 and in connection with the full exercise by the initial purchasers on August 9, 2021 of their option to purchase additional Notes, the Company used approximately $49.4 million of the net proceeds from the issuance of the Notes to enter into privately negotiated capped call transactions, which are referred to as the Capped Calls, with various financial institutions.

Subject to customary anti-dilution adjustments substantially similar to those applicable to the Notes, the Capped Calls cover the number of shares of the Company’s common stock initially underlying the Notes. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event a conversion of the Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the Notes its common stock price per share exceeds the conversion price of the Notes, with such reduction subject to a cap based on the cap price. If, however, the market price per share of common stock, as measured under the terms of the Capped Calls, exceeds the cap price of the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of common stock exceeds the cap price of the Capped Calls. The initial cap price of the Capped Calls is $92.74 per share of common stock, which represents a premium of 100% over the last reported sale price of the common stock of $46.37 per share on August 5, 2021, and is subject to certain customary adjustments under the terms of the Capped Calls; provided that the cap price will not be reduced to an amount less than the strike price of $66.08 per share.

The Capped Calls are separate transactions and are not part of the terms of the Notes. The Capped Calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.

The Capped Calls remain in effect notwithstanding the Repurchases.

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Note 8—Net Income (Loss) per Share

The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share for the periods presented:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands, except share and per share data)			2023						2022						2023						2022
Numerator:
Basic: net income (loss)			$	16,337					$	(24,827)					$	29,513					$	(73,385)
Gain on early extinguishment of debt, net of tax			—						—						(38,525)						—
Interest expense related to convertible senior notes, net of tax			—						—						389						—
Diluted			$	16,337					$	(24,827)					$	(8,623)					$	(73,385)
Denominator:
Weighted-average shares used to compute net income (loss) per share, basic and diluted
Basic			135,449,848						130,830,411						134,152,107						130,082,683
Options to purchase common stock			1,358,272						—						—						—
Common stock issuable upon exercise of common stock warrants			299,758						—						—						—
Common stock issuable in connection with employee stock purchase plan			182,757						—						—						—
Common stock issuable in connection with convertible senior notes			—						—						1,032,059						—
Diluted			137,290,635						130,830,411						135,184,166						130,082,683
Net income (loss) per share:
Basic			$	0.12					$	(0.19)					$	0.22					$	(0.56)
Diluted			$	0.12					$	(0.19)					$	(0.06)					$	(0.56)

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The following potentially dilutive shares were excluded from the computation of diluted net income (loss) per share because including them would have been anti-dilutive:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Options to purchase common stock			1,922,248						3,911,482						3,280,520						3,911,482
Common stock issuable upon exercise of common stock warrants			—						350,000						300,000						350,000
Common stock issuable upon vesting of restricted stock units and performance stock units			10,305,551						8,573,146						10,305,551						8,573,146
Common stock issuable in connection with employee stock purchase plan			1,595,436						1,070,071						1,778,193						1,070,071
Common stock issuable in connection with convertible senior notes			5,463,045						8,701,935						5,463,045						8,701,935
Total			19,286,280						22,606,634						21,127,309						22,606,634

Note 9—Segment and Geographical Information

The Company operates as one operating and reportable segment for purposes of allocating resources and evaluating financial performance.

The following table sets forth total revenue by type of service for the periods presented:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Marketplace
Basic, Plus, Client Marketplace(1) and other			$	149,625					$	132,647					$	428,609					$	383,343
Enterprise			12,114						12,496						37,849						35,550
Managed Services			13,994						13,498						38,744						37,983
Total revenue			$	175,733					$	158,641					$	505,202					$	456,876

(1) In April 2022, the Company combined its Upwork Basic and Upwork Plus client offerings into its Client Marketplace offering. In April 2023, the Company introduced a contract initiation fee for clients on the Client Marketplace offering—up to $4.95 per contract.

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The Company generates its revenue from talent and clients. The following table sets forth total revenue by geographic area based on the billing address of its talent and clients for the periods presented:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Talent
United States			$	24,796					$	21,607					$	69,239					$	64,286
India			12,918						11,337						36,387						34,764
Philippines			11,781						9,981						32,965						29,668
Rest of world (1)			45,569						39,296						130,626						121,865
Total talent revenue			95,064						82,221						269,217						250,583
Clients
United States			59,570						56,897						174,444						153,369
Rest of world (1)			21,099						19,523						61,541						52,924
Total clients revenue			80,669						76,420						235,985						206,293
Total revenue			$	175,733					$	158,641					$	505,202					$	456,876

(1) During the three and nine months ended September 30, 2023 and 2022, no single country included in the Rest of world category had revenue that exceeded 10% of Total talent revenue, Total clients revenue, or Total revenue.

Substantially all of the Company’s long-lived assets were located in the United States as of September 30, 2023 and December 31, 2022.

Note 10—Subsequent Events

In November 2023, the Company’s board of directors authorized the repurchase of up to $100.0 million of shares of the Company’s outstanding common stock, or the Share Repurchase Program. Repurchases of the Company’s common stock under the Share Repurchase Program may be made from time to time on the open market (including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), in privately negotiated transactions, or by other methods, at the Company’s discretion, and in accordance with applicable securities laws and other restrictions. The Share Repurchase Program has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason. The Share Repurchase Program does not obligate the Company to repurchase any dollar amount or number of shares.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Risk Factors” and the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, as well as assumptions that may never materialize or that may be proven incorrect. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors,” and in other parts of this Quarterly Report.

Overview

Independent talent is an increasingly sought-after, critical, and expanding segment of the global workforce. We operate the world’s largest work marketplace that connects businesses with independent talent from across the globe, as measured by gross services volume, which we refer to as GSV. GSV represents the total amount that clients spend on both our Marketplace offerings and our Managed Services offering as well as additional fees we charge for other services. We define talent as users that advertise and provide services to clients through our work marketplace, and we define clients as users that seek and work with talent through our work marketplace. Talent includes independent professionals and agencies of varying sizes. Clients on our work marketplace range in size, from individuals and small businesses to Fortune 100 companies.

Financial Highlights

For the three months ended September 30, 2023, Marketplace revenue benefited from a number of pricing changes implemented in 2023. In the first half of 2023, we increased the number of virtual tokens, which we refer to as Connects, needed by talent to bid on projects and ads products on our work marketplace for a limited number of categories. In the third quarter of 2023, we expanded this change across all categories. We also implemented a simplified flat service fee structure in May 2023 and introduced contract initiation fees for clients in April 2023. For the nine months ended September 30, 2023, Marketplace revenue also benefited from changes to client fees in April 2022. As a result of these pricing changes, Marketplace revenue increased 11% during each of the three and nine months ended September 30, 2023, as compared to the same periods in 2022.

During the three and nine months ended September 30, 2023, GSV remained relatively flat at $1.0 billion and $3.1 billion, respectively, as compared to the same periods in 2022, primarily due to the lapping of strong growth in the prior periods, and the number of active clients increased 2% as of September 30, 2023, as compared to September 30, 2022, driven by improvements to our client retention, as well as improvements in acquisition of new clients. As a result, our GSV per active client decreased 1% as of September 30, 2023, as compared to the same period in 2022.

During the three months ended September 30, 2023, we generated net income of $16.3 million and adjusted EBITDA of $31.2 million, as compared to a net loss of $24.8 million and adjusted EBITDA loss of $2.9 million during the same period in 2022. During the nine months ended September 30, 2023, we generated net income of $29.5 million and adjusted EBITDA of $42.7 million, as compared to a net loss of $73.4 million and adjusted EBITDA loss of $5.2 million during the same period in 2022. These improvements were primarily a result of cost-saving measures we implemented in the second quarter of 2023, including reducing our investments in brand marketing, vendor spend, and other non-personnel costs, and reducing the size of our workforce. We expect these measures will continue to positively impact net income and adjusted EBITDA for the full year 2023. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with generally accepted accounting principles in the United States, which we refer to as U.S. GAAP. See “Key Financial and Operational Metrics—Non-GAAP Financial Measures” below for a definition of adjusted EBITDA and for information regarding our use of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure prepared under U.S. GAAP.

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Key Financial and Operational Metrics

As of and for the three and nine months ended September 30, 2023 and 2022, our key financial and operating metrics are as follows:

			Three Months Ended September 30,																					% Change						Nine Months Ended September 30,																					% Change
(In thousands, except percentages)			2023						2022																					2023						2022
GSV			$	1,030,321					$	1,027,325														—		%				$	3,070,174					$	3,074,713														—		%
Marketplace revenue			$	161,739					$	145,143														11		%				$	466,458					$	418,893														11		%
Marketplace take rate			15.9		%				14.3		%													1.6		%				15.4		%				13.8		%													1.6		%
Net income (loss)			$	16,337					$	(24,827)														*						$	29,513					$	(73,385)														*
Adjusted EBITDA			$	31,228					$	(2,868)														*						$	42,664					$	(5,166)														*

*Not meaningful

			As of September 30,																		% Change
(Active clients are in thousands)			2023						2022
Active clients			836						818												2		%
GSV per active client			$	4,906					$	4,958											(1)		%

We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. For a discussion of limitations in the measurement of our key financial and operational metrics, see “Risk Factors—We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics may not accurately reflect certain details of our business, are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business” in Part II, Item 1A of this Quarterly Report.

Gross Services Volume (GSV)

GSV includes both client spend and additional fees charged for other services. Client spend, which we define as the total amount that clients spend on both our Marketplace offerings and our Managed Services offering, is the primary component of GSV. GSV also includes fees charged to users, such as for transacting payments through our work marketplace, user memberships, purchases of Connects, and foreign currency exchange. GSV is an important metric because it represents the amount of business transacted through our work marketplace.

Marketplace Revenue

Marketplace revenue, which represents the majority of our revenue, consists of revenue derived from our Marketplace offerings. Marketplace offerings consist of all offerings other than our Managed Services offering, including our Client Marketplace and Enterprise offerings and, for periods prior to the introduction of our Client Marketplace offering in April 2022, our former Upwork Basic and Upwork Plus offerings.

We generate Marketplace revenue from both talent and clients. Marketplace revenue is primarily generated from fees charged to talent as a percentage of their billings to clients, which we refer to as talent service fees, and to a lesser extent, fees charged to clients through our Client Marketplace offering, which we refer to as client marketplace fees. Additionally, Marketplace revenue includes revenue from our Enterprise offering, which we refer to as Enterprise Revenue, including all client fees, subscriptions, and talent service fees. We also generate Marketplace revenue from fees for premium offerings, including talent memberships, purchases of Connects, and other services, such as foreign currency exchange when clients choose to pay in currencies other than the U.S. dollar, and our Upwork Payroll offering.

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In April 2023, we introduced a contract initiation fee for clients on our Client Marketplace offering—up to $4.95 per contract. Additionally, in May 2023, we retired the tiered service fee structure for talent working with clients on our Client Marketplace offering—ranging from 5% to 20%—in favor of a simplified flat service fee of 10%. This change took effect on new contracts and existing contracts that would have otherwise been subject to a 20% fee under the tiered service fee model. Talent that have existing contracts with a 5% fee under the tiered service fee model will retain that rate for those contracts through the end of 2023.

Marketplace Take Rate

Marketplace take rate measures the correlation between Marketplace revenue and Marketplace GSV and is calculated by dividing Marketplace revenue by Marketplace GSV. We define Marketplace GSV as GSV derived from our Marketplace offerings. Marketplace take rate is an important metric because it is the key indicator of how well we monetize spend on our work marketplace from our Marketplace offerings.

Active Clients and GSV per Active Client

We define an active client as a client that has had spend activity on our work marketplace during the 12 months preceding the date of measurement. GSV per active client is calculated by dividing total GSV during the four quarters ended on the date of measurement by the number of active clients on the date of measurement. We believe that the number of active clients and GSV per active client are indicators of the growth and overall health of our business. The number of active clients is a primary driver of GSV and, in turn, Marketplace revenue.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, adjusted EBITDA is a non-GAAP measure that we believe is useful in evaluating our operating performance.

We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense; depreciation and amortization; interest expense; other (income) expense, net; income tax (benefit) provision; and, if applicable, certain other gains, losses, benefits, or charges that are non-cash or are significant and the result of isolated events or transactions that have not occurred frequently in the past and are not expected to occur regularly in the future. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP.

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The following table presents a reconciliation of net income (loss), the most directly comparable financial measure prepared in accordance with U.S. GAAP, to adjusted EBITDA for each of the periods indicated:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Net income (loss)			$	16,337					$	(24,827)					$	29,513					$	(73,385)
Add back (deduct):
Stock-based compensation expense			17,811						20,404						56,148						56,119
Depreciation			1,763						1,982						5,641						6,007
Interest expense			711						1,117						2,525						3,362
Other income, net (1)			(6,477)						(1,772)						(55,273)						(2,215)
Income tax provision			895						40						3,547						96
Other (2)(3)			188						188						563						4,850
Adjusted EBITDA			$	31,228					$	(2,868)					$	42,664					$	(5,166)

(1) During the nine months ended September 30, 2023, we recognized a gain on the early extinguishment of debt of $38.9 million, which is included in other income, net.

(2) During each of the three and nine months ended September 30, 2023 and 2022, we incurred $0.2 million and $0.6 million, respectively, of expense related to our Tides Foundation warrant.

(3) During the nine months ended September 30, 2022, in response to Russia’s invasion of Ukraine, we incurred certain incremental expenses associated with our humanitarian response efforts. These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the nine months ended September 30, 2022. These expenses consisted of (i) $1.4 million of special one-time bonuses to our team members in the region impacted by Russia’s invasion of Ukraine, (ii) $1.5 million of expenses incurred in connection with the relocation of our team members in the impacted region, (iii) $1.1 million of donations made to humanitarian aid organizations to support initiatives related to humanitarian response efforts in the impacted region, primarily to Direct Relief International, a humanitarian aid organization, and (iv) $0.4 million of payments of one-time service award bonuses (and associated taxes) to certain of our team members paid in recognition of contributions made by such team members to our humanitarian response efforts in the impacted region.

We use adjusted EBITDA as a measure of operational efficiency. We believe that this non-GAAP financial measure is useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

•adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense; depreciation and amortization; interest expense; other (income) expense, net; income tax (benefit) provision; and, if applicable, certain other gains, losses, benefits, or charges that are non-cash or are significant and the result of isolated events or transactions that have not occurred frequently in the past and are not expected to occur regularly in the future, all of which can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired;

•our management uses adjusted EBITDA in conjunction with financial measures prepared in accordance with U.S. GAAP for planning purposes, including 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; and

•adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our core operating results, and also facilitates

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comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their U.S. GAAP results.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:

•adjusted EBITDA excludes stock-based compensation expense, which 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;

•although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized 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;

•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; or (c) tax payments that may represent a reduction in cash available to us; and

•other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of this measure for comparative purposes.

Because of these and other limitations, you should consider adjusted EBITDA along with other financial performance measures, including net income (loss) and our other financial results prepared in accordance with U.S. GAAP.

Components of Our Results of Operations

Marketplace Revenue

Marketplace revenue represents the majority of our revenue and is generated from our Marketplace offerings. Under these Marketplace offerings, we generate revenue from both talent and clients.

Managed Services Revenue

Through our Managed Services offering, we are responsible for providing services and engaging talent directly or as employees of third-party staffing providers to perform services for clients on our behalf. Under U.S. GAAP, we are deemed to be the principal in these managed services arrangements and therefore recognize the entire GSV of managed services projects as Managed Services revenue, as compared to recognizing only the percentage of the client spend that we receive, as we do with our Marketplace offerings.

Cost of Revenue

Cost of revenue consists primarily of the cost of payment processing fees, amounts paid to talent to deliver services for clients under our Managed Services offering, personnel-related costs for our services and support personnel, third-party hosting fees, and the amortization expense associated with capitalized internal-use software and platform development costs. We define personnel-related costs as salaries, bonuses, benefits, travel and entertainment, and stock-based compensation costs for employees and the costs related to other service providers we engage.

Research and Development

Research and development expense primarily consists of personnel-related costs. Research and development costs are expensed as incurred, except to the extent that such costs are associated with internal-use software and platform development that qualifies for capitalization.

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Sales and Marketing

Sales and marketing expense consists primarily of expenses related to advertising and marketing activities, as well as personnel-related costs, including sales commissions, which we expense as they are incurred.

General and Administrative

General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, and operations functions; outside consulting, legal, and accounting services; impairment expense; and insurance.

Provision for Transaction Losses

Provision for transaction losses consists primarily of losses resulting from fraud and bad debt expense associated with our trade and client receivables balance and transaction losses associated with chargebacks. Provisions for these items represent estimates of losses based on our actual historical incurred losses and other factors.

Interest Expense

Interest expense consists of interest on our outstanding borrowings.

Other Income, Net

Other income, net consists primarily of interest income that we earn from our deposits in money market funds and investments in marketable securities and gains and losses from foreign currency exchange transactions. Additionally, during the nine months ended September 30, 2023, we recognized a gain on the early extinguishment of debt of $38.9 million, which is included in other income, net. For additional information about the gain on early extinguishment of debt, see the section below titled “—Convertible Senior Notes Due 2026.”

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Results of Operations

The following table sets forth our condensed consolidated results of operations for the periods presented:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Revenue
Marketplace			$	161,739					$	145,143					$	466,458					$	418,893
Managed Services			13,994						13,498						38,744						37,983
Total revenue			175,733						158,641						505,202						456,876
Cost of revenue(1)			43,273						40,470						124,582						119,243
Gross profit			132,460						118,171						380,620						337,633
Operating expenses
Research and development(1)			43,419						38,898						131,146						112,889
Sales and marketing(1)			47,308						63,171						171,377						184,096
General and administrative(1)			28,652						31,407						86,922						93,872
Provision for transaction losses			1,615						10,137						10,863						18,918
Total operating expenses			120,994						143,613						400,308						409,775
Income (loss) from operations			11,466						(25,442)