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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 March 31, 2022
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
________________________________________________
https://cdn.kscope.io/c9321d66f4dc4f4db1558c119f48ea89-upwk-20220331_g1.jpg
UPWORK INC.
(Exact Name of Registrant as Specified in its Charter)
________________________________________________
Delaware46-4337682
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
475 Brannan Street, Suite 430
San Francisco,California94107
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.0001 par value per shareUPWKThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 March 31, 2022, there were 129,651,218 shares of the registrant’s common stock outstanding.



TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements
PART I—FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II—OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
Signatures

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.



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 objectives for future operations, potential impacts of the ongoing COVID-19 pandemic, potential impacts of Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus, or expectations regarding actions we may take in response to the pandemic or to the war in Ukraine, 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 and the impact of the ongoing COVID-19 pandemic and ongoing Russian war against Ukraine. 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. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. 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 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.

1


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
UPWORK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
March 31, 2022December 31, 2021
ASSETS
Current assets
Cash and cash equivalents$121,174 $187,205 
Marketable securities551,781 497,566 
Funds held in escrow, including funds in transit196,379 160,813 
Trade and client receivables – net of allowance of $4,031 and $3,410 as of March 31, 2022 and December 31, 2021, respectively
62,048 66,826 
Prepaid expenses and other current assets18,152 17,243 
Total current assets949,534 929,653 
Property and equipment, net20,930 21,329 
Goodwill118,219 118,219 
Operating lease asset9,930 10,682 
Other assets, noncurrent1,663 1,178 
Total assets$1,100,276 $1,081,061 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$10,327 $4,996 
Escrow funds payable196,379 160,813 
Accrued expenses and other current liabilities33,033 45,742 
Deferred revenue23,548 22,083 
Total current liabilities263,287 233,634 
Debt, noncurrent562,040 561,299 
Operating lease liability, noncurrent15,412 16,753 
Other liabilities, noncurrent10,188 9,858 
Total liabilities850,927 821,544 
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 129,651,218 and 129,130,478 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
13 13 
Additional paid-in capital528,516 511,096 
Accumulated other comprehensive loss(3,378)(528)
Accumulated deficit(275,802)(251,064)
Total stockholders’ equity249,349 259,517 
Total liabilities and stockholders’ equity$1,100,276 $1,081,061 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended
March 31,
(In thousands, except per share data)
20222021
Revenue$141,337 $113,619 
Cost of revenue37,916 30,441 
Gross profit103,421 83,178 
Operating expenses
Research and development38,161 26,613 
Sales and marketing57,642 39,604 
General and administrative29,141 23,531 
Provision for transaction losses2,129 1,127 
Total operating expenses127,073 90,875 
Loss from operations(23,652)(7,697)
Interest expense1,125 199 
Other income, net(68)(78)
Loss before income taxes(24,709)(7,818)
Income tax provision(29)(17)
Net loss$(24,738)$(7,835)
Net loss per share, basic and diluted$(0.19)$(0.06)
Weighted-average shares used to compute net loss per share, basic and diluted129,359 125,279 
Other comprehensive loss, net of tax:
Net unrealized holding loss on marketable securities, net$(2,850)$(23)
Total comprehensive loss(27,588)(7,858)

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

3


UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share amounts)
Common StockAdditional Paid-in CapitalAccumulated
Other Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Three Months Ended March 31, 2022SharesAmount
Balances as of December 31, 2021129,130,478 $13 $511,096 $(528)$(251,064)$259,517 
Issuance of common stock upon exercise of stock options124,094 — 488 — — 488 
Stock-based compensation expense— — 16,744 — — 16,744 
Issuance of common stock for settlement of RSUs396,646 — — — — — 
Tides Foundation common stock warrant expense— — 188 — — 188 
Unrealized loss on marketable securities— — — (2,850)— (2,850)
Net loss— — — — (24,738)(24,738)
Balances as of March 31, 2022129,651,218 $13 $528,516 $(3,378)$(275,802)$249,349 
(In thousands, except share amounts)
Common StockAdditional Paid-in CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Three Months Ended March 31, 2021SharesAmount
Balances as of December 31, 2020124,795,222 $12 $494,103 $19 $(194,824)$299,310 
Issuance of common stock upon exercise of stock options748,396 1 2,596 — — 2,597 
Stock-based compensation expense— — 11,264 — — 11,264 
Issuance of common stock for settlement of RSUs418,489 — — — — — 
Tides Foundation common stock warrant expense— — 188 — — 188 
Unrealized loss on marketable securities— — — (23)— (23)
Net loss— — — — (7,835)(7,835)
Balances as of March 31, 2021125,962,107 $13 $508,151 $(4)$(202,659)$305,501 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


UPWORK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(In thousands)20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(24,738)$(7,835)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for transaction losses1,919 901 
Depreciation and amortization2,009 3,194 
Amortization of debt issuance costs740 19 
Amortization of premium of purchases of marketable securities, net537 10 
Amortization of operating lease asset751 911 
Tides Foundation common stock warrant expense188 188 
Stock-based compensation expense16,735 11,226 
Changes in operating assets and liabilities:
Trade and client receivables2,990 (5,584)
Prepaid expenses and other assets(1,394)(1,542)
Operating lease liability(1,292)(401)
Accounts payable1,150 5,540 
Accrued expenses and other liabilities(12,734)(6,291)
Deferred revenue1,663 1,540 
Net cash provided by (used in) operating activities(11,476)1,876 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities(160,251)(20,976)
Proceeds from maturities of marketable securities106,634 31,000 
Purchases of property and equipment(193)(70)
Internal-use software and platform development costs(1,233)(2,298)
Net cash provided by (used in) investing activities(55,043)7,656 
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in escrow funds payable35,566 26,360 
Proceeds from exercises of stock options488 2,597 
Repayment of debt (1,893)
Net cash provided by financing activities36,054 27,064 
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(30,465)36,596 
Cash, cash equivalents, and restricted cash—beginning of period352,058 232,463 
Cash, cash equivalents, and restricted cash—end of period$321,593 $269,059 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest$763 $105 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid$302 $173 
Marketable securities purchased but not yet paid$3,985 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


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 currently 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, 2021, which is referred to as the Annual Report, filed with the SEC on February 15, 2022.
The condensed consolidated balance sheet as of December 31, 2021 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 to present fairly 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, 2022. Prior period amounts have been reclassified to conform with the current period presentation.
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 doubtful accounts; 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
6


change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Risks and Uncertainties
Due to Russia’s invasion of Ukraine, which began in February 2022, and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. On March 7, 2022, the Company announced the suspension of its business operations in Russia and Belarus, with contracts with talent or clients in Russia or Belarus required to wind down by May 1, 2022.
Although the Russian war against Ukraine did not have a material adverse impact on the Company’s revenue or other financial results for the three months ended March 31, 2022, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business in future periods due to various uncertainties, which include, but are not limited to, the duration of the war, the ability of talent based in Ukraine to continue working, the war’s effect on the economy, its impact to the businesses of the Company’s clients, and actions that may be taken by governmental authorities related to the war.
Recently Adopted Accounting Pronouncements
The 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 all other accounting pronouncements issued during the three months ended March 31, 2022 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 March 31, 2022, the Company had approximately $30.1 million of remaining performance obligations. The Company’s remaining performance obligations primarily consist of transaction price that has been allocated to unexercised material rights related to the Company’s arrangements with talent subject to tiered service fees. The remaining transaction price allocated to other performance obligations is immaterial. As of March 31, 2022, the Company expects to recognize approximately $23.5 million over the next 12 months, with the remaining balance recognized thereafter.
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.
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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)
March 31, 2022
December 31, 2021
Trade and client receivables, net of allowance$62,048 $66,826 
Contract liabilities
Deferred revenue23,548 22,083 
Deferred revenue (component of other liabilities, noncurrent)6,547 6,349 
During the three months ended March 31, 2022, 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.
Revenue recognized during the three months ended March 31, 2022 that was included in deferred revenue as of December 31, 2021 was $7.7 million. Revenue recognized during the three months ended March 31, 2021 that was included in deferred revenue as of December 31, 2020 was $6.2 million.
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.
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The Company’s financial instruments that are carried at fair value consist of Level I and Level II assets as of March 31, 2022 and December 31, 2021. The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy:
(In thousands)
March 31, 2022
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair
Value
Cash and
Cash Equivalents
Marketable
Securities
Cash$13,542 $— $— $13,542 $13,542 $— 
Level I
Money market funds97,633   97,633 97,633  
Treasury bills94,457  (132)94,325  94,325 
U.S. government securities107,329 1 (1,809)105,521  105,521 
Total Level I299,419 1 (1,941)297,479 97,633 199,846 
Level II
Commercial paper157,646   157,646 9,999 147,647 
Corporate bonds168,120 1 (1,183)166,938  166,938 
Commercial deposits3,585   3,585  3,585 
Asset-backed securities27,340  (195)27,145  27,145 
Yankee bonds6,675  (55)6,620  6,620 
Total Level II363,366 1 (1,433)361,934 9,999 351,935 
Total$676,327 $2 $(3,374)$672,955 $121,174 $551,781 
(In thousands)
December 31, 2021
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair
Value
Cash and
Cash Equivalents
Marketable
Securities
Cash$16,596 $— $— $16,596 $16,596 $— 
Level I
Money market funds108,204   108,204 108,204  
Treasury bills89,992 1  89,993 15,000 74,993 
U.S. government securities94,839  (285)94,554  94,554 
Total Level I293,035 1 (285)292,751 123,204 169,547 
Level II
Commercial paper171,918   171,918 29,544 142,374 
Corporate bonds183,303 1 (217)183,087 17,861 165,226 
Asset-backed securities13,749  (11)13,738  13,738 
Yankee bonds6,693  (12)6,681  6,681 
Total Level II375,663 1 (240)375,424 47,405 328,019 
Total$685,294 $2 $(525)$684,771 $187,205 $497,566 
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Unrealized Investment Losses
The following table summarizes, for all debt securities classified as available for sale in an unrealized loss position as of March 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. As of March 31, 2022, there were no securities in a continuous unrealized loss position greater than 12 months. Unrealized losses as of December 31, 2021 were immaterial.
(In thousands)Less Than 12 MonthsTotal
Duration of unrealized lossesFair ValueUnrealized lossFair ValueUnrealized loss
Treasury bills$94,325 $(132)$94,325 $(132)
U.S. government securities103,055 (1,809)103,055 (1,809)
Corporate bonds164,390 (1,183)164,390 (1,183)
Asset-backed securities27,145 (195)27,145 (195)
Yankee bonds6,620 (55)6,620 (55)
Total$395,535 $(3,374)$395,535 $(3,374)
For available-for-sale marketable debt securities with unrealized loss positions, the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the securities. As of March 31, 2022 and December 31, 2021, the decline in fair value of these securities was due to increases in interest rates and not due to credit related factors. As of March 31, 2022 and 2021, 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 other-than-temporarily impaired. As such, the Company did not record any impairment charges with respect to its marketable securities during each of the three months ended March 31, 2022 and 2021.
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 to the total of the same amounts shown in the condensed consolidated statements of cash flows as of March 31, 2022 and December 31, 2021:
(In thousands)March 31, 2022December 31, 2021
Cash and cash equivalents$121,174 $187,205 
Restricted cash4,040 4,040 
Funds held in escrow, including funds in transit196,379 160,813 
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows$321,593 $352,058 
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Property and Equipment, Net
Property and equipment, net consisted of the following:
(In thousands)March 31, 2022December 31, 2021
Computer equipment and software$5,843 $5,493 
Internal-use software and platform development26,957 25,738 
Leasehold improvements11,644 11,644 
Office furniture and fixtures3,365 3,365 
Total property and equipment47,809 46,240 
Less: accumulated depreciation(26,879)(24,911)
Property and equipment, net$20,930 $21,329 
For the three months ended March 31, 2022 and 2021, depreciation expense related to property and equipment was $0.8 million and $1.0 million, respectively.
For the three months ended March 31, 2022 and 2021, the Company capitalized $1.2 million and $2.1 million of internal-use software and platform development costs, respectively.
For the three months ended March 31, 2022 and 2021, amortization expense related to the capitalized internal-use software and platform development costs was $1.2 million and $1.5 million, respectively.
Intangible Assets, Net
All of the Company’s identifiable intangible assets were fully amortized as of March 31, 2022 and December 31, 2021. For the three months ended March 31, 2021, amortization expense of intangible assets was $0.7 million.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
(In thousands)March 31, 2022December 31, 2021
Accrued compensation and related benefits$9,422 $23,047 
Accrued vendor expenses9,021 7,728 
Operating lease liability, current6,364 6,315 
Accrued indirect taxes3,656 4,137 
Accrued payment processing fees2,163 2,085 
Accrued talent costs1,642 1,417 
Other765 1,013 
Total accrued expenses and other current liabilities$33,033 $45,742 
Note 6—Commitments and Contingencies
Letters of Credit
In conjunction with the Company’s operating lease agreements, as of March 31, 2022 and December 31, 2021, the Company had three 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 March 31, 2022 and December 31, 2021.
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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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021.
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.
Note 7—Debt
The following table presents the carrying value of the Company’s debt obligations as of March 31, 2022 and December 31, 2021:
(In thousands)March 31, 2022December 31, 2021
Convertible senior notes$575,000 $575,000 
Less: unamortized debt issuance costs(12,960)(13,701)
Balance562,040 561,299 
Debt, current  
Debt, noncurrent$562,040 $561,299 
Weighted-average interest rate0.78 %0.76 %
Convertible Senior Notes Due 2026
On August 10, 2021, the Company issued, at par value, $575.0 million aggregate principal amount of 0.25% convertible senior notes due 2026, which are referred to as 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, which is referred to as the Indenture, between the Company and Wells Fargo Bank, National Association, as trustee. The Notes were offered and sold in a
12


private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
The Notes are senior, unsecured obligations of the Company and will bear interest at a rate of 0.25% per year. Interest will accrue from August 10, 2021 and will be 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) 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 below, and (ii) 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:
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 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.
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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 March 31, 2022, interest expense was $0.4 million and amortization of the issuance costs was $0.7 million related to the Notes. As of March 31, 2022, the if-converted value of the Notes did not exceed the outstanding principal amount. As of March 31, 2022, the total estimated fair value of the Notes was $469.5 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 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 $66.08 per share.
The Capped Calls are separate transactions and are not part of the terms of the Notes. The Capped Calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.
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Note 8—Net Loss per Share
The following table sets forth the computation of the Company’s basic and diluted net loss per share for the periods presented:
 Three Months Ended
March 31,
(In thousands, except share and per share data)20222021
Numerator:  
Net loss$(24,738)$(7,835)
Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted129,358,872 125,279,109 
Net loss per share, basic and diluted$(0.19)$(0.06)
The following potentially dilutive shares were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive:
 As of March 31,
 20222021
Options to purchase common stock4,139,974 5,578,018 
Common stock issuable upon exercise of common stock warrants350,000 400,000 
Common stock issuable upon vesting of restricted stock units7,752,697 5,849,692 
Common stock issuable in connection with employee stock purchase plan300,130 498,084 
Common stock issuable in connection with convertible senior notes8,701,935  
Total21,244,736 12,325,794 
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
March 31,
(In thousands)20222021
Marketplace
Basic, Plus, and other$118,667 $97,713 
Enterprise10,758 6,957 
Managed services11,912 8,949 
Total revenue$141,337 $113,619 
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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
March 31,
(In thousands)20222021
Talent
United States$20,763 $18,115 
India11,421 9,587 
Philippines9,636 7,073 
Rest of world40,823 33,689 
Total talent82,643 68,464 
Clients
United States43,839 33,261 
Rest of world14,855 11,894 
Total clients58,694 45,155 
Total revenue$141,337 $113,619 
Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2022 and December 31, 2021.
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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, 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 to talent 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. The clients on our work marketplace range in size from small businesses to Fortune 100 companies.
Recent Events
Due to Russia’s invasion of Ukraine and the resulting sanctions and other actions against Russia and Belarus, there has been uncertainty and disruption in the global economy. On March 7, 2022, we announced the suspension of business operations in Russia and Belarus, with contracts with talent or clients in Russia or Belarus required to wind down by May 1, 2022. The first step was shutting down support for new business generation in each country. Shortly following the announcement, talent and clients in Russia and Belarus were no longer able to sign up for new accounts, initiate new contracts, or be visible in search on our work marketplace. Contracts with talent or clients in Russia or Belarus that were in place as of the date of the announcement are allowed to remain open until May 1, 2022.
Approximately 10% of our total revenue in 2021 was derived from work where either the talent or the client was located in the region. Nearly all such revenue was derived from work performed by talent inside the region for clients located in other parts of the world. At the beginning of the invasion in late February 2022, we experienced immediate reductions in activity from talent across the entire region, but since that initial impact, we have seen activity from users in Ukraine rebound to almost pre-war levels. During the three months ended March 31, 2022, we estimate that the loss of revenue resulting from Russia’s invasion of Ukraine and our resulting suspension of business operations in Russia and Belarus was approximately $1.0 million. We expect to see a larger impact to revenue in the second quarter due to the winding down of all contracts with talent and clients in Russia and Belarus by May 1, 2022 and also because all three months of the quarter will be affected by Russia’s invasion of Ukraine.
Additionally, while approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in the region, thus far, we have not experienced a material impact to client spend from, or other activity levels related to, this category. Given the complex nature of our business and two-sided nature of our work marketplace, and with talent on our work marketplace located in over 180 countries, we are monitoring the impact on client spend from clients that have historically engaged talent in the impacted region and the extent to which those clients engage talent in other regions. As users in Russia and Belarus are able to relocate to regions where we operate, we will be eager to support them in continuing their work on our work marketplace.
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During the three months ended March 31, 2022, we incurred approximately $4.3 million of expenses associated with our humanitarian response efforts related to the war against Ukraine, including a $1.1 million donation to Direct Relief International in support of the Ukrainian population and providing our team members with financial and other forms of support and paying certain expenses for those team members seeking to relocate from the affected region. In addition, we have implemented ways for clients to purchase projects from talent in Ukraine as a donation, meaning the clients do not expect any work in return and we waive the talent service fees. We have also initiated a number of product enhancements to make it easier for Ukrainian talent to preserve their careers.
Although the Russian war against Ukraine did not have a material adverse impact on our revenue or other financial results for the three months ended March 31, 2022, at this time we are unable to fully assess the aggregate impact it will have on our business in future periods due to various uncertainties, which include, but are not limited to, the duration of the war, the ability of talent based in Ukraine to continue working, the war’s effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the war, and other factors identified in Part II, Item 1A, “Risk Factors” in this Quarterly Report, including the risk factor titled “Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations.”
Additionally, the ongoing COVID-19 pandemic and the resulting restrictions intended to prevent its spread have continued to accelerate the secular shift toward remote and independent work, and, with our unique, remote-based business model, the COVID-19 pandemic has not impacted our clients’ access to highly skilled talent to complete short- and long-term projects on our work marketplace. While we have not incurred significant disruptions to our business thus far from the ongoing COVID-19 pandemic, we continue to actively monitor the impact on all aspects of our business.
Key Financial and Operational Metrics
As of and for the three months ended March 31, 2022, our key financial and operating metrics are as follows:
 Three Months Ended
March 31,
%
Change
 (In thousands, except percentages)20222021
GSV$1,001,375 $786,777 27 %
Marketplace revenue129,425 104,670 24 %
Marketplace take rate13.1 %13.5 %(0.4)%
Net loss$(24,738)$(7,835)(216)%
Adjusted EBITDA1
$(433)$6,911 (106)%
 
As of March 31,
%
Change
(Active clients are in thousands)20222021
Active clients793 685 16 %
GSV per active client$4,742 $4,016 18 %
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,
1Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with 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 loss, the most directly comparable financial measure prepared under U.S. GAAP.
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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 talent, such as for transacting payments through our work marketplace, user memberships, and purchases of “Connects” (virtual tokens that allow talent to bid on projects and paid promotional products on our work marketplace), and foreign currency exchange. GSV is an important metric because it represents the amount of business transacted through our work marketplace.
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.
Marketplace Revenue
Marketplace revenue, which represents the majority of our revenue, consists primarily of revenue derived from our Upwork Basic, Plus, and Enterprise offerings. We generate marketplace revenue from both talent and clients. Revenue from our Upwork Basic and Plus offerings are primarily comprised of talent service fees, and to a lesser extent, payment processing and administration fees charged to clients. Revenue from our Upwork Enterprise offering, which we refer to as Enterprise Revenue, includes all client fees, subscriptions, and talent service fees. We also generate marketplace revenue from fees for premium offerings associated with our Upwork Basic, Plus, and Enterprise 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.
In April 2022, we will be combining our Upwork Basic and Plus client offerings into our new Client Marketplace Plan, which simplifies our client pricing model for non-Enterprise clients. This model makes available the most popular features of the current Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients.
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. 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 Upwork Basic, Plus, Enterprise, Payroll, and other premium offerings, which we refer to as our marketplace offerings.
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, other non-cash transactions. Additionally, in response to Russia’s invasion of Ukraine, during the three months ended March 31, 2022, we incurred certain incremental expenses
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associated with our humanitarian response efforts, and we may continue to incur such expenses as the war continues to unfold. These expenses are not representative of our ongoing operations, and, as a result, we excluded these costs from adjusted EBITDA for the three months ended March 31, 2022 and, to the extent we continue to incur these expenses, intend to continue to do so in future periods. Adjusted EBITDA is not prepared in accordance with, and is not an alternative to, financial measures prepared in accordance with U.S. GAAP.
The following table presents a reconciliation of net 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
March 31,
(In thousands)20222021
Net Loss$(24,738)$(7,835)
Add back (deduct):
Stock-based compensation expense16,735 11,226 
Depreciation and amortization2,009 3,194 
Interest expense1,125 199 
Other income, net(68)(78)
Income tax provision29 17 
Tides Foundation common stock warrant expense188 188 
Humanitarian response efforts4,287 — 
Adjusted EBITDA$(433)$6,911 
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, other non-cash transactions that 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 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
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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 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.
In April 2022, we will be combining our Upwork Basic and Plus client offerings into our new Client Marketplace Plan, which simplifies our client pricing model for non-Enterprise clients. This model makes available the most popular features of the current Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible 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 and third-party hosting costs related to development. 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.
Sales and Marketing
Sales and marketing expense consists primarily of expenses related to personnel-related costs, including sales commissions, which we expense as they are incurred, and advertising and marketing activities.
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General and Administrative
General and administrative expense consists primarily of personnel-related costs for our executive, finance, legal, human resources, corporate development, 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) Expense, Net
Other (income) expense, net consists primarily of gains and losses from foreign currency exchange transactions and interest income that we earn from our deposits in money market funds and investments in marketable securities.
Results of Operations
The following table sets forth our condensed consolidated results of operations for the periods presented:
 Three Months Ended
March 31,
(In thousands)20222021
Revenue  
Marketplace$129,425 $104,670 
Managed services11,912 8,949 
Total revenue141,337 113,619 
Cost of revenue(1)
37,916 30,441 
Gross profit103,421 83,178 
Operating expenses
Research and development(1)
38,161 26,613 
Sales and marketing(1)
57,642 39,604 
General and administrative(1)
29,141 23,531 
Provision for transaction losses2,129 1,127 
Total operating expenses127,073 90,875 
Loss from operations(23,652)(7,697)
Interest expense1,125 199 
Other income, net(68)(78)
Loss before income taxes(24,709)(7,818)
Income tax provision(29)(17)
Net loss$(24,738)$(7,835)
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(1) Includes stock-based compensation expense as follows:
 Three Months Ended
March 31,
(In thousands)20222021
Cost of revenue$239 $201 
Research and development5,615 3,297 
Sales and marketing2,265 1,278 
General and administrative8,616 6,450 
Total stock-based compensation$16,735 $11,226 
Comparison of the Three Months Ended March 31, 2022 and 2021
Revenue
Three Months Ended March 31,
(In thousands, except percentages)20222021Change
Marketplace$129,425 $104,670 $24,755 24 %
Percentage of total revenue92 %92 %
Managed services11,912 8,949 2,963 33 %
Percentage of total revenue%%
Total revenue$141,337 $113,619 $27,718 24 %
In the first quarter of 2022, we continued to execute on our strategic initiatives, including investing in research and development to build new product features, prioritizing our advertising efforts to reach new and existing clients seeking to engage independent talent, and investing in marketing to accelerate the acquisition of new clients and drive brand awareness. As a result, the number of active clients increased 16% as of March 31, 2022 compared to the same period in 2021. We believe that the decline in the year-over-year growth rate of active clients since the second quarter of 2021—when it reached the highest level since our initial public offering—is in large part due to the lapping of prior periods during which we experienced an acceleration of active client growth as a result of the COVID-19 pandemic. As a result, in the coming quarters, we expect the growth rate of active clients to return closer to pre-pandemic levels. Additionally, our GSV per active client increased 18% as of March 31, 2022, compared to the same period in 2021, driven by increased spend from existing clients. The growth in active clients and GSV per active client contributed to the growth of GSV and marketplace revenue. For the three months ended March 31, 2022, GSV increased 27%, as compared to the same period in 2021. Marketplace revenue was driven by client spend, which for the three months ended March 31, 2022, drove increases in talent service fees of 22%, as compared to the same period in 2021, and client payment processing and administrative fees of 28%, as compared to the same period in 2021.
Additionally, during the three months ended March 31, 2022, we continued our efforts to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs through our Upwork Enterprise and other premium offerings. As a result, Enterprise Revenue increased 55% to $10.8 million, which fueled marketplace revenue for the three months ended March 31, 2022. Marketplace revenue represented 92% of total revenue and increased by $24.8 million, or 24%, compared to the same period in 2021. Marketplace revenue grew more slowly than GSV from our marketplace offerings in the first quarter of 2022, and for the three months ended March 31, 2022, our marketplace take rate was 13.1%, as compared to 13.5% for the same period in 2021. This trend was primarily a result of existing clients maturing into higher value clients and continuing to increase their spend with particular talent, which resulted in a higher mix of talent at the lower rates of our tiered service fee structure, partially offset by increases in marketplace take rate from increased activity related to our Upwork Enterprise offering.
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In March 2022, we announced the suspension of business operations in Russia and Belarus, with contracts with talent or clients in Russia or Belarus required to wind down by May 1, 2022. The first step was shutting down support for new business generation in each country. Shortly following the announcement, talent and clients in Russia and Belarus were no longer able to sign up for new accounts, initiate new contracts, or be visible in search on our work marketplace. Contracts with talent or clients in Russia or Belarus that were in place as of the date of the announcement are allowed to remain open until May 1, 2022.
Approximately 10% of our total revenue in 2021 was derived from work where either the talent or the client was located in the region. Nearly all such revenue was derived from work performed by talent inside the region for clients located in other parts of the world. At the beginning of the invasion in late February 2022, we experienced immediate reductions in activity from talent across the entire region, but since that initial impact, we have seen activity from users in Ukraine rebound to almost pre-war levels. During the three months ended March 31, 2022, we estimate that the loss of revenue resulting from Russia’s invasion of Ukraine and our resulting suspension of business operations in Russia and Belarus was approximately $1.0 million. We expect to see a larger impact to revenue in the second quarter due to the winding down of all contracts with talent and clients in Russia and Belarus by May 1, 2022 and also because all three months of the quarter will be affected by Russia’s invasion of Ukraine.
Additionally, while approximately 25% of client spend from our web, mobile, and software development category in 2021 was derived from work where either the talent or the client was located in the region, thus far, we have not experienced a material impact to client spend from, or other activity levels related to, this category. Given the complex nature of our business and two-sided nature of our work marketplace, and with talent on our work marketplace located in over 180 countries, we are monitoring the impact on client spend from clients that have historically engaged talent in the impacted region and the extent to which those clients engage talent in other regions. As users in Russia and Belarus are able to relocate to regions where we operate, we will be eager to support them in continuing their work on our work marketplace.
Although the Russian war against Ukraine did not have a material adverse impact on our revenue or other financial results for the three months ended March 31, 2022, at this time we are unable to fully assess the aggregate impact it will have on our business in future periods due to various uncertainties, which include, but are not limited to, the duration of the war, the ability of talent based in Ukraine to continue working, the war’s effect on the economy, its impact to the businesses of our clients, actions that may be taken by governmental authorities related to the war, and other factors identified in Part II, Item 1A, “Risk Factors” in this Quarterly Report, including the risk factor titled “Russia’s invasion of Ukraine and our decision to suspend our business operations in Russia and Belarus have affected and may continue to affect our business and results of operations.”
Additionally, in April 2022, we will be combining our Upwork Basic and Plus client offerings into our new Client Marketplace Plan, which simplifies our client pricing model for non-Enterprise clients. This model makes available the most popular features of the current Upwork Plus offering, while eliminating the monthly client subscription fees and moving to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients. As a result of these client fee increases, we expect marketplace revenue and marketplace take rate to increase in future periods.
For the three months ended March 31, 2022, managed services revenue grew at a faster rate than our marketplace revenue as a result of increased spend from existing clients of our managed services offering.
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Cost of Revenue and Gross Margin
Three Months Ended March 31,
(In thousands, except percentages)20222021Change
Cost of revenue$37,916 $30,441 $7,475 25 %
Components of cost of revenue:
Cost of talent services to deliver managed services8,959 7,208 1,751 24 %
Other components of cost of revenue28,957 23,233 5,724 25 %
Total gross margin73 %73 %
For the three months ended March 31, 2022, cost of revenue increased primarily as a result of increases in payment processing fees of $5.2 million, as compared to the same period in 2021, primarily due to increased client spend, as well as increases in cost of talent services to deliver managed services resulting from increases in managed services revenue for the three months ended March 31, 2022, as compared to the same period in 2021.
We expect cost of revenue to increase in absolute dollars in future periods as we continue to support growth on our work marketplace. Amounts paid to talent in connection with our managed services offering are tied to the volume of managed services used by our clients. The level and timing of these items could fluctuate and affect our cost of revenue in the future. Additionally, we will be combining our Upwork Basic and Plus client offerings into our new Client Marketplace Plan, which simplifies our client pricing model for non-Enterprise clients. This model eliminates the monthly client subscription fees and moves to a client marketplace fee of 5% on each transaction—or 3% if paid via ACH for eligible clients. We expect this change in pricing structure to positively impact gross margin in future periods. While we expect gross profit to increase in absolute dollars in future periods, because our managed services revenue and marketplace revenue grow at different rates, gross margin, expressed as a percentage of total revenue, may vary from period to period.
Research and Development
Three Months Ended March 31,
(In thousands, except percentages)20222021Change
Research and development$38,161 $26,613 $11,548 43 %
Percentage of total revenue27 %23 %
For the three months ended March 31, 2022, research and development expense increased primarily due to our ongoing investments to build new product features, launch new offerings, and enhance the user experience. Specifically, investments we made to increase the size of our research and development workforce resulted in increases in personnel-related costs of $7.8 million, as compared to the same period in 2021, as well as increases in software licenses of $1.2 million. Additionally, for the three months ended March 31, 2022, we incurred approximately $2.7 million of research and development expense related to our humanitarian response efforts related to the war against Ukraine.
We believe continued investments in research and development are important to attain our strategic objectives, and we expect research and development expense to increase in absolute dollars in future periods, although this expense, expressed as a percentage of total revenue, may vary from period to period.
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Sales and Marketing
Three Months Ended March 31,
(In thousands, except percentages)20222021Change
Sales and marketing$57,642 $39,604 $18,038 46 %
Percentage of total revenue41 %35 %
For the three months ended March 31, 2022, sales and marketing expense increased primarily due to increases in marketing and brand awareness campaigns of $11.7 million, as compared to the same period in 2021, as well as increases in personnel-related costs of $5.2 million. Additionally, for the three months ended March 31, 2022, we incurred approximately $0.3 million of sales and marketing expense related to our humanitarian response efforts related to the war against Ukraine.
In an effort to continue evolving our offerings, products, brand positioning, and marketing to better address large enterprise and other clients and prospects with larger, longer-term independent talent needs, during the three months ended March 31, 2022, we continued our investments in marketing to acquire new clients and drive brand awareness, and we expect to continue these investments throughout 2022. Beginning in the fourth quarter of 2021, we increased our investment in sales by expanding our sales team, and we expect this investment to continue throughout 2022 as we increase our efforts to acquire clients for our Upwork Enterprise offering. As a result, we expect this expense to increase in absolute dollars in future periods, although this expense expressed as a percentage of total revenue may vary from period to period.
General and Administrative
Three Months Ended March 31,
(In thousands, except percentages)20222021Change
General and administrative$29,141 $23,531 $5,610 24