UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________
FORM 8-K
_______________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 2024
_______________________________________________________
(Exact name of Registrant as Specified in Its Charter)
_______________________________________________________
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |||||||||
(Address of Principal Executive Offices) | (Zip Code) | ||||||||||
Registrant’s Telephone Number, Including Area Code: (650 ) 316-7500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
_______________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨
Item 2.02 Results of Operations and Financial Condition.
On August 7, 2024, Upwork Inc., or the Company, will hold a conference call regarding its financial results for the quarter ended June 30, 2024. The Company issued a press release announcing its financial results for the quarter ended June 30, 2024. The full text of the press release is attached as Exhibit 99.1 to this report.
The information furnished with this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
The Company is making reference to certain financial measures not prepared in accordance with generally accepted accounting principles in the United States, or GAAP, in the press release and the conference call. A reconciliation of GAAP to these non-GAAP results is provided in the press release attached as Exhibit 99.1 to this report.
The Company uses its Investor Relations website (investors.upwork.com), its blog (upwork.com/blog), its X handle (twitter.com/Upwork), Hayden Brown’s X handle (twitter.com/hydnbrwn) and LinkedIn profile (linkedin.com/in/haydenlbrown), and Erica Gessert's LinkedIn profile (linkedin.com/in/erica-gessert) as means of disseminating or providing notification of, among other things, news or announcements regarding its business or financial performance, investor events, press releases, and earnings releases, and as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. The content of the Company's websites and information that the Company may post on or provide to online and social media channels, including those mentioned above, and information that can be accessed through the Company's websites or these online and social media channels are not incorporated by reference into this report or in any other report or document the Company files with the Securities and Exchange Commission, and any references to the Company's websites or these online and social media channels are intended to be inactive textual references only.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit Number | Description | |||||||
| 99.1 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UPWORK INC. | |||||||||||
Date: August 7, 2024 | By: | /s/ Erica Gessert | |||||||||
| Erica Gessert Chief Financial Officer | |||||||||||
Exhibit 99.1
Upwork Reports Second Quarter 2024 Financial Results
Second-quarter GAAP Net Income of $22.2 million, Upwork’s highest ever
Second-quarter GAAP Diluted EPS of $0.17
Second-quarter Adjusted EBITDA of $40.8 million
SAN FRANCISCO, Calif. – August 7, 2024 – Upwork Inc. (Nasdaq: UPWK), the world’s largest work marketplace that connects businesses with independent talent from across the globe, today announced its financial results for the second quarter of 2024.
“We produced strong revenue growth of 15% year-over-year and our highest-ever net income amid a challenging and dynamic macroeconomic environment,” said Hayden Brown, President and CEO, Upwork. “The strength of our model and our market leadership position enable us to continue outperforming traditional incumbents across the hiring industry while investing in the quality of our marketplace. Our confidence in the long-term growth prospects for our business continues as we innovate work solutions for customers harnessing the AI transformation of work.”
“Upwork continues to deliver durable growth on the top and bottom lines, driven by disciplined cost management and improved operating efficiencies,” said Erica Gessert, CFO, Upwork. “Our profit margin was 12% in the second quarter, while our adjusted EBITDA margin was 21%, more than double our adjusted EBITDA margin in the second quarter of 2023. We also returned $33.1 million to shareholders through share repurchases, representing nearly 100% of the free cash flow generated during the second quarter. I am confident that we can grow profitability and free cash flow and achieve 35% adjusted EBITDA margins within the next five years.”
Second Quarter Financial Highlights
•Revenue grew 15% year-over-year to $193.1 million in the second quarter of 2024
•Active clients grew 6% year-over-year to over 868,000
•Net income was $22.2 million in the second quarter of 2024, compared to net loss of $(4.0) million in the second quarter of 2023
•Diluted earnings per share was $0.17 in the second quarter of 2024, compared to diluted loss per share of $(0.03) in the second quarter of 2023
•Adjusted EBITDA* was $40.8 million in the second quarter of 2024, compared to adjusted EBITDA of $14.4 million in the second quarter of 2023
•Cash provided by operating activities was $37.3 million in the second quarter of 2024, compared to cash provided by operating activities of $4.3 million in the second quarter of 2023
•Free cash flow* was $33.5 million in the second quarter of 2024, compared to free cash flow of $1.0 million in the second quarter of 2023
•Repurchased 2.9 million shares of Upwork stock in the second quarter of 2024
* Explanation of non-GAAP measures and reconciliations to their most directly comparable GAAP measures can be found in the “Non-GAAP Financial Measures" section and the subsequent tables at the end of this press release.
Second Quarter Operational Highlights
Artificial Intelligence
•GSV from AI-related work grew 67% year-over-year in Q2
•Number of clients engaging in AI-related projects grew 50% year-over-year in Q2
•Daily active users of Upwork Chat Pro, powered by Uma™, Upwork’s Mindful AI, grew 68% quarter-over-quarter
•Freelance professionals working on AI-related work earned 47% more per hour than freelancers working on non-AI-related work in Q2
Ads & Monetization
•Revenue from ads & monetization products grew 75% year-over-year, continuing to be one of Upwork’s fastest-growing revenue streams
•Revenue from Connects, virtual tokens for talent to bid on projects and ads products on Upwork’s work marketplace, grew 81% year-over-year
Partnerships
•Expanded ecosystem of distribution channels for skilled talent on Upwork by more than doubling number of partner deals quarter-over-quarter
•Delivered Upwork’s highest monthly revenue derived from partnerships to date in May
Enterprise
•Successfully tested a modified Enterprise offering, resulting in increased sales team win rates and adding 27 new logos through the new offering
•Added 46 total new Enterprise clients, including Builders FirstSource, Guidepoint, and Labelbox
•Announced a new VMS partnership with Beeline, extending Upwork’s market penetration to more than 60% of businesses using VMS platforms
Financial Guidance & Outlook
Upwork’s guidance for revenue, adjusted EBITDA, diluted weighted-average shares outstanding, and non-GAAP diluted EPS for the third quarter of 2024 is:
•Revenue: $179 million to $184 million
•Adjusted EBITDA: $36 million to $39 million
•Diluted weighted-average shares outstanding: 139 million to 141 million
•Non-GAAP diluted EPS: $0.23 to $0.25
Upwork’s guidance for revenue, adjusted EBITDA, diluted weighted-average shares outstanding, non-GAAP diluted EPS, and stock-based compensation expense for full year 2024 is:
•Revenue: $735 million to $745 million
•Adjusted EBITDA: $140 million to $150 million
•Diluted weighted-average shares outstanding: 139 million to 143 million
•Non-GAAP diluted EPS: $0.90 to $0.94
•Stock-based compensation expense is expected to average slightly less than $20 million per quarter for 2024
UPWORK INC.
Key Financial and Operational Metrics
(In thousands, except percentages)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Change | 2024 | 2023 | % Change | ||||||||||||||||||||||||||||||
GSV(1) | $ | 1,008,267 | $ | 1,036,507 | (2.7) | % | $ | 2,017,063 | $ | 2,039,852 | (1.1) | % | |||||||||||||||||||||||
Marketplace revenue(1)(2) | $ | 166,786 | $ | 142,308 | 17 | % | $ | 331,116 | $ | 278,984 | 19 | % | |||||||||||||||||||||||
Enterprise revenue(1)(2) | $ | 26,343 | $ | 26,303 | — | % | $ | 52,950 | $ | 50,485 | 5 | % | |||||||||||||||||||||||
| Gross profit | $ | 149,277 | $ | 127,729 | 17 | % | $ | 296,021 | $ | 248,160 | 19 | % | |||||||||||||||||||||||
| Gross profit margin | 77 | % | 76 | % | 1 | % | 77 | % | 75 | % | 2 | % | |||||||||||||||||||||||
| Operating expenses | $ | 131,496 | $ | 133,845 | (2) | % | $ | 265,191 | $ | 279,314 | (5) | % | |||||||||||||||||||||||
| Net income (loss) | $ | 22,220 | $ | (3,991) | * | $ | 40,662 | $ | 13,176 | * | |||||||||||||||||||||||||
Adjusted EBITDA(1)(3) | $ | 40,835 | $ | 14,362 | * | $ | 74,160 | $ | 11,436 | * | |||||||||||||||||||||||||
Profit margin | 12 | % | (2) | % | 14 | % | 11 | % | 4 | % | 7 | % | |||||||||||||||||||||||
Adjusted EBITDA margin(3) | 21 | % | 9 | % | 12 | % | 19 | % | 3 | % | 16 | % | |||||||||||||||||||||||
| Cash provided by (used in) operating activities | $ | 37,290 | $ | 4,309 | * | $ | 42,946 | $ | (4,392) | * | |||||||||||||||||||||||||
Free cash flow(1)(3) | $ | 33,543 | $ | 963 | * | $ | 36,534 | $ | (10,599) | * | |||||||||||||||||||||||||
As of June 30, | |||||||||||||||||
| (In thousands) | 2024 | 2023 | % Change | ||||||||||||||
Active clients(1) | 868 | 822 | 6 | % | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2024 | 2024 | ||||||||||
New enterprise clients(1) | 46 | 74 | |||||||||
(1) See Key Definitions in our second quarter 2024 earnings presentation.
(2) In order to conform to the current period presentation as of June 30, 2024, we present revenue from Enterprise Solutions and Managed Services together as Enterprise revenue in prior periods and no longer report revenue from our Enterprise Solutions offering, previously referred to as Upwork Enterprise, in Marketplace revenue.
(3) Explanation of non-GAAP measures and reconciliations to their most directly comparable GAAP measures can be found in the “Non-GAAP Financial Measures" section and the subsequent tables at the end of this press release.
Second Quarter 2024 Financial Results Conference Call and Webcast
Upwork will host a conference call today at 2:00 p.m. Pacific Time/5:00 p.m. Eastern Time to discuss the company’s second quarter 2024 financial results. An audio webcast archive will be available following the live event for approximately one year at investors.upwork.com. Please visit the Upwork Investor Relations website at investors.upwork.com/financial-information/quarterly-results to view Upwork’s second quarter 2024 earnings presentation.
Disclosure Information
We use our Investor Relations website (investors.upwork.com), our Blog (upwork.com/blog), our X handle (twitter.com/Upwork), Hayden Brown’s X handle (twitter.com/hydnbrwn) and LinkedIn profile (linkedin.com/in/haydenlbrown), and Erica Gessert’s LinkedIn profile (linkedin.com/in/erica-gessert) as 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 means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD.
About Upwork
Upwork is the world’s largest work marketplace that connects businesses with independent talent from across the globe. We serve everyone from one-person startups to large, Fortune 100 enterprises with a powerful, trust-driven platform that enables companies and talent to work together in new ways that unlock their potential. Our talent community earned over $3.8 billion on Upwork in 2023 across more than 10,000 skills in categories including website & app development, creative & design, data science & analytics, customer support, finance & accounting, consulting, and operations. Learn more at upwork.com and join us on LinkedIn, Facebook, Instagram, TikTok, and X.
Contact:
Investor Relations
investor@upwork.com
Safe Harbor:
This press release of Upwork Inc. (the “Company,” “we,” “us,” or “our”) contains "forward-looking" statements within the meaning of the federal securities laws. Forward-looking statements include all statements other than statements of historical fact, including any statements regarding our future operating results and financial position, including expected financial results for the third quarter and full year 2024, information or predictions concerning the future of our business or strategy, anticipated events and trends, potential growth or growth prospects, competitive position, technological and market trends, including artificial intelligence, industry environment, the economy, our plans with respect to share repurchases, and other future conditions.
We have based these forward-looking statements largely on our current expectations and projections as of the date hereof 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. As such, they are subject to inherent uncertainties, known and unknown risks, and changes in circumstances that are difficult to predict and in many cases outside our control, and you should not rely on such forward-looking statements as predictions of future events. We make no representation that the projected results will be achieved or that future events and circumstances will occur, and actual results may differ materially and adversely from our expectations. The forward-looking statements are made as of the date hereof, and we do not undertake, and expressly disclaim, any obligation to update or revise any forward-looking statements, to conform these statements to actual results, or to make changes in our expectations, except as required by law. Additional information regarding the risks and uncertainties that could cause actual results to differ materially from our expectations is included under the caption "Risk Factors" in our Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed with the SEC on May 1, 2024, and in our other SEC filings, which are available on our Investor Relations website at investors.upwork.com and on the SEC’s website at www.sec.gov. Additional information will also be set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended June 30, 2024, when filed.
All third-party trademarks, including names, logos, and brands, referenced in this press release are property of their respective owners. All references to third-party trademarks are for identification purposes only and shall be considered nominative fair use under trademark law.
UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
Marketplace (1) | $ | 166,786 | $ | 142,308 | $ | 331,116 | $ | 278,984 | |||||||||||||||
Enterprise (1) | 26,343 | 26,303 | 52,950 | 50,485 | |||||||||||||||||||
| Total revenue | 193,129 | 168,611 | 384,066 | 329,469 | |||||||||||||||||||
| Cost of revenue | 43,852 | 40,882 | 88,045 | 81,309 | |||||||||||||||||||
| Gross profit | 149,277 | 127,729 | 296,021 | 248,160 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | 52,465 | 43,246 | 105,381 | 87,727 | |||||||||||||||||||
| Sales and marketing | 47,333 | 59,069 | 95,184 | 124,069 | |||||||||||||||||||
| General and administrative | 29,924 | 28,983 | 61,925 | 58,270 | |||||||||||||||||||
| Provision for transaction losses | 1,774 | 2,547 | 2,701 | 9,248 | |||||||||||||||||||
| Total operating expenses | 131,496 | 133,845 | 265,191 | 279,314 | |||||||||||||||||||
| Income (loss) from operations | 17,781 | (6,116) | 30,830 | (31,154) | |||||||||||||||||||
| Other income, net | 5,620 | 3,982 | 12,342 | 46,982 | |||||||||||||||||||
| Income (loss) before income taxes | 23,401 | (2,134) | 43,172 | 15,828 | |||||||||||||||||||
| Income tax provision | (1,181) | (1,857) | (2,510) | (2,652) | |||||||||||||||||||
| Net income (loss) | $ | 22,220 | $ | (3,991) | $ | 40,662 | $ | 13,176 | |||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | 0.17 | $ | (0.03) | $ | 0.30 | $ | 0.10 | |||||||||||||||
| Diluted | $ | 0.17 | $ | (0.03) | $ | 0.30 | $ | (0.18) | |||||||||||||||
| Weighted-average shares used to compute net income (loss) per share | |||||||||||||||||||||||
| Basic | 131,436 | 134,142 | 133,809 | 133,492 | |||||||||||||||||||
| Diluted | 138,266 | 134,142 | 140,798 | 135,049 | |||||||||||||||||||
(1) In 2023, we changed the name of our Upwork Enterprise offering to Enterprise Solutions. Concurrently, to align with customer needs and internal decision-making, we combined Enterprise Solutions and Managed Services into a suite of Enterprise offerings. In order to conform to the current period presentation as of June 30, 2024, we present revenue from Enterprise Solutions and Managed Services together as Enterprise revenue in prior periods and no longer report revenue from our Enterprise Solutions offering, previously referred to as Upwork Enterprise, in Marketplace revenue.
UPWORK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 182,803 | $ | 79,641 | |||||||
| Marketable securities | 314,941 | 470,457 | |||||||||
| Funds held in escrow, including funds in transit | 218,656 | 212,387 | |||||||||
| Trade and client receivables, net | 116,522 | 103,061 | |||||||||
| Prepaid expenses and other current assets | 22,743 | 17,825 | |||||||||
| Total current assets | 855,665 | 883,371 | |||||||||
| Property and equipment, net | 28,149 | 27,140 | |||||||||
| Goodwill | 118,219 | 118,219 | |||||||||
| Intangible assets, net | 2,258 | 3,048 | |||||||||
| Operating lease asset | 2,627 | 4,333 | |||||||||
| Other assets, noncurrent | 1,645 | 1,430 | |||||||||
| Total assets | $ | 1,008,563 | $ | 1,037,541 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 5,863 | $ | 5,063 | |||||||
| Escrow funds payable | 218,656 | 212,387 | |||||||||
| Accrued expenses and other current liabilities | 49,811 | 58,192 | |||||||||
| Deferred revenue | 10,766 | 17,361 | |||||||||
| Total current liabilities | 285,096 | 293,003 | |||||||||
| Debt, noncurrent | 357,008 | 356,087 | |||||||||
| Operating lease liability, noncurrent | 4,835 | 6,088 | |||||||||
| Other liabilities, noncurrent | 528 | 1,288 | |||||||||
| Total liabilities | 647,467 | 656,466 | |||||||||
| Stockholders’ equity | |||||||||||
| Common stock | 13 | 14 | |||||||||
| Additional paid-in capital | 615,012 | 674,918 | |||||||||
| Accumulated other comprehensive income (loss) | (529) | 205 | |||||||||
| Accumulated deficit | (253,400) | (294,062) | |||||||||
| Total stockholders’ equity | 361,096 | 381,075 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,008,563 | $ | 1,037,541 | |||||||
UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||||||
| Net income (loss) | $ | 22,220 | $ | (3,991) | $ | 40,662 | $ | 13,176 | |||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||||||||||
| Provision for transaction losses | 1,637 | 1,730 | 2,433 | 5,442 | |||||||||||||||||||
| Depreciation and amortization | 3,629 | 1,854 | 6,775 | 3,878 | |||||||||||||||||||
| Amortization of debt issuance costs | 461 | 461 | 921 | 1,177 | |||||||||||||||||||
| Accretion of discount on purchases of marketable securities, net | (3,283) | (2,667) | (8,159) | (6,154) | |||||||||||||||||||
| Amortization of operating lease asset | 859 | 811 | 1,706 | 1,611 | |||||||||||||||||||
| Tides Foundation common stock warrant expense | 187 | 187 | 375 | 375 | |||||||||||||||||||
| Stock-based compensation expense | 19,238 | 18,437 | 36,180 | 38,337 | |||||||||||||||||||
| Gain on early extinguishment of convertible senior notes | — | — | — | (38,945) | |||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||
| Trade and client receivables | (3,769) | (8,947) | (16,158) | (6,957) | |||||||||||||||||||
| Prepaid expenses and other assets | (3,004) | (104) | (5,133) | (1,464) | |||||||||||||||||||
| Operating lease liability | (1,580) | (1,447) | (3,129) | (2,866) | |||||||||||||||||||
| Accounts payable | (81) | 9 | 701 | (3,371) | |||||||||||||||||||
| Accrued expenses and other liabilities | 4,050 | 1,714 | (6,847) | (5,141) | |||||||||||||||||||
| Deferred revenue | (3,274) | (3,738) | (7,381) | (3,490) | |||||||||||||||||||
| Net cash provided by (used in) operating activities | 37,290 | 4,309 | 42,946 | (4,392) | |||||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
| Purchases of marketable securities | (44,423) | (97,991) | (194,299) | (254,119) | |||||||||||||||||||
| Proceeds from maturities of marketable securities | 190,074 | 139,994 | 321,846 | 307,410 | |||||||||||||||||||
| Proceeds from sale of marketable securities | 8,485 | 6,150 | 35,394 | 149,859 | |||||||||||||||||||
| Purchases of property and equipment | (598) | 23 | (775) | (135) | |||||||||||||||||||
| Internal-use software and platform development costs | (3,149) | (3,369) | (5,637) | (6,072) | |||||||||||||||||||
| Net cash provided by investing activities | 150,389 | 44,807 | 156,529 | 196,943 | |||||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
| Changes in escrow funds payable | (4,281) | (1,766) | 6,269 | 16,197 | |||||||||||||||||||
| Proceeds from exercises of stock options | 664 | 177 | 770 | 935 | |||||||||||||||||||
| Proceeds from employee stock purchase plan | 2,917 | 2,564 | 2,917 | 2,564 | |||||||||||||||||||
| Repurchase of common stock | (33,124) | — | (100,000) | — | |||||||||||||||||||
| Net cash paid for early extinguishment of convertible senior notes | — | (575) | — | (171,327) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | (33,824) | 400 | (90,044) | (151,631) | |||||||||||||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 153,855 | 49,516 | 109,431 | 40,920 | |||||||||||||||||||
| Cash, cash equivalents, and restricted cash—beginning of period | 251,994 | 286,635 | 296,418 | 295,231 | |||||||||||||||||||
| Cash, cash equivalents, and restricted cash—end of period | $ | 405,849 | $ | 336,151 | $ | 405,849 | $ | 336,151 | |||||||||||||||
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 the following (in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Cash and cash equivalents | $ | 182,803 | $ | 79,641 | |||||||
| Restricted cash | 4,390 | 4,390 | |||||||||
| Funds held in escrow, including funds in transit | 218,656 | 212,387 | |||||||||
| Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows | $ | 405,849 | $ | 296,418 | |||||||
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), we present certain non-GAAP financial measures in this press release, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow.
We define adjusted EBITDA as net income (loss) adjusted for stock-based compensation expense; depreciation and amortization; other income (expense), net, which includes interest expense; 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. Free cash flow is defined as cash provided by (used in) operations less purchases of property, plant and equipment and cash outflows from internally developed software.
We use non-GAAP financial measures in conjunction with financial measures prepared in accordance with 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. These measures provide consistency and comparability with past financial performance, facilitate period-to-period comparisons of our 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 without regard to certain items that can vary substantially from company to company, and free cash flow allows investors to evaluate the cash generated from our underlying operations across periods.
Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as analytical tools, and investors should not consider them in isolation or as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. In particular, (1) 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, (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; or (c) tax payments that may represent a reduction in cash available to us. In addition, the non-GAAP measures we use may be different from non-GAAP financial measures used by other companies, including companies in our industry, 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. Reconciliations of the non-GAAP measures presented in this press release to their most directly comparable GAAP financial measures have been provided below, and investors are encouraged to review the reconciliations and not rely on any single financial measure to evaluate our business.
We have not reconciled our adjusted EBITDA guidance to GAAP net income or non-GAAP diluted EPS guidance to GAAP diluted EPS because certain items that impact GAAP net income and GAAP diluted EPS are uncertain or out of our control and cannot be reasonably predicted. In particular, stock-based compensation expense is impacted by the future fair market value of our common stock and other factors, all of which are difficult to predict, subject to frequent change, or not within our control. The actual amount of these expenses during the third quarter of 2024 and fiscal year 2024 will have a significant impact on our future GAAP financial results. Accordingly, a reconciliation of adjusted EBITDA guidance to GAAP net income and non-GAAP diluted EPS guidance to GAAP diluted EPS is not available without unreasonable effort.
UPWORK INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except for percentages and share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income (loss) | $ | 22,220 | $ | (3,991) | $ | 40,662 | $ | 13,176 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Stock-based compensation expense | 19,238 | 18,437 | 36,180 | 38,337 | |||||||||||||||||||
| Depreciation and amortization | 3,629 | 1,854 | 6,775 | 3,878 | |||||||||||||||||||
Other income, net (1) | (5,620) | (3,982) | (12,342) | (46,982) | |||||||||||||||||||
| Income tax provision | 1,181 | 1,857 | 2,510 | 2,652 | |||||||||||||||||||
Other(2) | 187 | 187 | 375 | 375 | |||||||||||||||||||
| Adjusted EBITDA | $ | 40,835 | $ | 14,362 | $ | 74,160 | $ | 11,436 | |||||||||||||||
| Profit margin | 12 | % | (2) | % | 11 | % | 4 | % | |||||||||||||||
| Adjusted EBITDA margin | 21 | % | 9 | % | 19 | % | 3 | % | |||||||||||||||
| Cost of revenue, GAAP | $ | 43,852 | $ | 40,882 | $ | 88,045 | $ | 81,309 | |||||||||||||||
| Stock-based compensation expense | (497) | (490) | (963) | (910) | |||||||||||||||||||
| Cost of revenue, Non-GAAP | 43,355 | 40,392 | 87,082 | 80,399 | |||||||||||||||||||
| As a percentage of total revenue, GAAP | 23 | % | 24 | % | 23 | % | 25 | % | |||||||||||||||
| As a percentage of total revenue, Non-GAAP | 22 | % | 24 | % | 23 | % | 24 | % | |||||||||||||||
| Gross profit, GAAP | $ | 149,277 | $ | 127,729 | $ | 296,021 | $ | 248,160 | |||||||||||||||
| Stock-based compensation expense | 497 | 490 | 963 | 910 | |||||||||||||||||||
| Gross profit, Non-GAAP | 149,774 | 128,219 | 296,984 | 249,070 | |||||||||||||||||||
| Gross margin, GAAP | 77 | % | 76 | % | 77 | % | 75 | % | |||||||||||||||
| Gross margin, Non-GAAP | 78 | % | 76 | % | 77 | % | 76 | % | |||||||||||||||
| Research and development, GAAP | $ | 52,465 | $ | 43,246 | $ | 105,381 | $ | 87,727 | |||||||||||||||
| Stock-based compensation expense | (8,106) | (6,903) | (15,476) | (14,532) | |||||||||||||||||||
| Intangible amortization | (398) | — | (797) | — | |||||||||||||||||||
| Research and development, Non-GAAP | 43,961 | 36,343 | 89,108 | 73,195 | |||||||||||||||||||
| As a percentage of total revenue, GAAP | 27 | % | 26 | % | 27 | % | 27 | % | |||||||||||||||
| As a percentage of total revenue, Non-GAAP | 23 | % | 22 | % | 23 | % | 22 | % | |||||||||||||||
| Sales and marketing, GAAP | $ | 47,333 | $ | 59,069 | $ | 95,184 | $ | 124,069 | |||||||||||||||
| Stock-based compensation expense | (3,393) | (2,998) | (6,329) | (6,566) | |||||||||||||||||||
| Sales and marketing, Non-GAAP | 43,940 | 56,071 | 88,855 | 117,503 | |||||||||||||||||||
| As a percentage of total revenue, GAAP | 25 | % | 35 | % | 25 | % | 38 | % | |||||||||||||||
| As a percentage of total revenue, Non-GAAP | 23 | % | 33 | % | 23 | % | 36 | % | |||||||||||||||
| General and administrative, GAAP | $ | 29,924 | $ | 28,983 | $ | 61,925 | $ | 58,270 | |||||||||||||||
| Stock-based compensation expense | (7,242) | (8,046) | (13,412) | (16,329) | |||||||||||||||||||
Other (2) | (187) | (187) | (375) | (375) | |||||||||||||||||||
| General and administrative, Non-GAAP | 22,495 | 20,750 | 48,138 | 41,566 | |||||||||||||||||||
| As a percentage of total revenue, GAAP | 15 | % | 17 | % | 16 | % | 18 | % | |||||||||||||||
| As a percentage of total revenue, Non-GAAP | 12 | % | 12 | % | 13 | % | 13 | % | |||||||||||||||
| Total operating expenses, GAAP | $ | 131,496 | $ | 133,845 | $ | 265,191 | $ | 279,314 | |||||||||||||||
| Stock-based compensation expense | (18,741) | (17,947) | (35,217) | (37,427) | |||||||||||||||||||
| Intangible amortization | (398) | — | (797) | — | |||||||||||||||||||
Other (2) | (187) | (187) | (375) | (375) | |||||||||||||||||||
| Total operating expenses, Non-GAAP | 112,170 | 115,711 | 228,802 | 241,512 | |||||||||||||||||||
| As a percentage of total revenue, GAAP | 68 | % | 79 | % | 69 | % | 85 | % | |||||||||||||||
| As a percentage of total revenue, Non-GAAP | 58 | % | 69 | % | 60 | % | 73 | % | |||||||||||||||
| Income (loss) from operations, GAAP | $ | 17,781 | $ | (6,116) | $ | 30,830 | $ | (31,154) | |||||||||||||||
| Stock-based compensation expense | 19,238 | 18,437 | 36,180 | 38,337 | |||||||||||||||||||
| Intangible amortization | 398 | — | 797 | — | |||||||||||||||||||
Other (2) | 187 | 187 | 375 | 375 | |||||||||||||||||||
| Income from operations, Non-GAAP | 37,604 | 12,508 | 68,182 | 7,558 | |||||||||||||||||||
| Net income (loss), GAAP | $ | 22,220 | $ | (3,991) | $ | 40,662 | $ | 13,176 | |||||||||||||||
| Stock-based compensation expense | 19,238 | 18,437 | 36,180 | 38,337 | |||||||||||||||||||
Gain on early extinguishment of convertible senior notes (1) | — | — | — | (38,945) | |||||||||||||||||||
| Intangible amortization | 398 | — | 797 | — | |||||||||||||||||||
| Tax effect of non-GAAP adjustments | (6,815) | (1,111) | (12,387) | (155) | |||||||||||||||||||
Other (2) | 187 | 187 | 375 | 375 | |||||||||||||||||||
| Net income, Non-GAAP | 35,228 | 13,522 | 65,627 | 12,788 | |||||||||||||||||||
| Weighted-average shares outstanding used in computing earnings (loss) per share, GAAP | |||||||||||||||||||||||
| Basic (in millions) | 131.4 | 134.1 | 133.8 | 133.5 | |||||||||||||||||||
| Diluted (in millions) | 138.3 | 134.1 | 140.8 | 135.0 | |||||||||||||||||||
| Basic earnings (loss) per share, GAAP | $ | 0.17 | $ | (0.03) | $ | 0.30 | $ | 0.10 | |||||||||||||||
| Diluted earnings (loss) per share, GAAP | $ | 0.17 | $ | (0.03) | $ | 0.30 | $ | (0.18) | |||||||||||||||
| Weighted-average shares outstanding used in computing earnings per share, Non-GAAP | |||||||||||||||||||||||
| Basic (in millions) | 131.4 | 134.1 | 133.8 | 133.5 | |||||||||||||||||||
| Diluted (in millions) | 138.3 | 135.7 | 140.8 | 136.8 | |||||||||||||||||||
| Basic earnings per share, Non-GAAP | $ | 0.27 | $ | 0.10 | $ | 0.49 | $ | 0.10 | |||||||||||||||
| Diluted earnings per share, Non-GAAP | $ | 0.26 | $ | 0.10 | $ | 0.48 | $ | 0.09 | |||||||||||||||
(1) During the six months ended June 30, 2023, we recognized a gain of $38.9 million on the early extinguishment of a portion of our 0.25% convertible senior notes due 2026, which is included in other income, net.
(2) During each of the three and six months ended June 30, 2024 and 2023, we incurred $0.2 million and $0.4 million, respectively, of expense related to our Tides Foundation warrant.
UPWORK INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED EBITDA
(In thousands)
(Unaudited)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 | ||||||||||||||||||||||||||||||
| Net income (loss) | $ | 22,220 | $ | 18,442 | $ | 17,374 | $ | 16,337 | $ | (3,991) | $ | 17,167 | |||||||||||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 19,238 | 16,942 | 18,047 | 17,811 | 18,437 | 19,900 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 3,629 | 3,146 | 3,808 | 1,763 | 1,854 | 2,024 | |||||||||||||||||||||||||||||
Other income, net (1) | (5,620) | (6,722) | (7,389) | (5,766) | (3,982) | (43,000) | |||||||||||||||||||||||||||||
| Income tax (benefit) provision | 1,181 | 1,329 | (1,557) | 895 | 1,857 | 795 | |||||||||||||||||||||||||||||
Other (2) | 187 | 188 | 187 | 188 | 187 | 188 | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 40,835 | $ | 33,325 | $ | 30,470 | $ | 31,228 | $ | 14,362 | $ | (2,926) | |||||||||||||||||||||||
(1) During the three months ended March 31, 2023, we recognized a gain of $38.9 million on the early extinguishment of a portion of our 0.25% convertible senior notes due 2026, which is included in other income, net.
(2) For all periods presented, we incurred $0.2 million of expense related to our Tides Foundation warrant.
UPWORK INC.
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Cash provided by (used in) operating activities | $ | 37,290 | $ | 4,309 | $ | 42,946 | $ | (4,392) | ||||||||||||||||||
| Less: purchases of property, plant & equipment and cash outflows from internally developed software | (3,747) | (3,346) | (6,412) | (6,207) | ||||||||||||||||||||||
| Free cash flow | $ | 33,543 | $ | 963 | $ | 36,534 | $ | (10,599) | ||||||||||||||||||