SEC Filing | Upwork Inc.

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upwk-20220630

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 June 30, 2022


☐			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/b0761433e0252df4f94d64e5e35d4e37-upwk-20220630_g1.jpg

UPWORK INC.

(Exact Name of Registrant as Specified in its Charter)

________________________________________________


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

(650) 316-7500

(Registrant’s telephone number, including area code)

_______________________________________________

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


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

_______________________________________________

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of June 30, 2022, there were 130,530,889 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS


		Page
Special Note Regarding Forward-Looking Statements		1

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 6.	Exhibits	85
Signatures		86

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.


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

UPWORK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share and per share data)	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	135,370	$	187,205
Marketable securities	532,258		497,566
Funds held in escrow, including funds in transit	188,445		160,813
Trade and client receivables – net of allowance of $8,182 and $3,410 as of June 30, 2022 and December 31, 2021, respectively	69,858		66,826
Prepaid expenses and other current assets	18,374		17,243
Total current assets	944,305		929,653
Property and equipment, net	20,823		21,329
Goodwill	118,219		118,219

Operating lease asset	9,164		10,682
Other assets, noncurrent	1,503		1,178
Total assets	$	1,094,014	$	1,081,061

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,281	$	4,996
Escrow funds payable	188,445		160,813

Accrued expenses and other current liabilities	45,678		45,742
Deferred revenue	23,983		22,083
Total current liabilities	263,387		233,634
Debt, noncurrent	562,780		561,299
Operating lease liability, noncurrent	14,044		16,753
Other liabilities, noncurrent	7,484		9,858
Total liabilities	847,695		821,544

Commitments and contingencies (Note 6)

Stockholders’ equity
Common stock, $0.0001 par value; 490,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 130,530,889 and 129,130,478 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	13		13
Additional paid-in capital	550,711		511,096
Accumulated other comprehensive loss	(4,783)		(528)
Accumulated deficit	(299,622)		(251,064)
Total stockholders’ equity	246,319		259,517
Total liabilities and stockholders’ equity	$	1,094,014	$	1,081,061

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2022		2021		2022		2021
Revenue	$	156,898	$	124,181	$	298,235	$	237,800
Cost of revenue	40,857		33,083		78,773		63,524
Gross profit	116,041		91,098		219,462		174,276
Operating expenses
Research and development	35,830		28,124		73,991		54,737
Sales and marketing	63,283		45,817		120,925		85,421
General and administrative	33,324		32,355		62,465		55,886
Provision for transaction losses	6,652		1,197		8,781		2,324
Total operating expenses	139,089		107,493		266,162		198,368
Loss from operations	(23,048)		(16,395)		(46,700)		(24,092)
Interest expense	1,120		110		2,245		309
Other (income) expense, net	(375)		17		(443)		(61)
Loss before income taxes	(23,793)		(16,522)		(48,502)		(24,340)
Income tax provision	(27)		(16)		(56)		(33)
Net loss	$	(23,820)	$	(16,538)	$	(48,558)	$	(24,373)

Net loss per share, basic and diluted	$	(0.18)	$	(0.13)	$	(0.37)	$	(0.19)
Weighted-average shares used to compute net loss per share, basic and diluted	130,061		126,742		129,707		126,011

Other comprehensive loss, net of tax:
Net unrealized holding loss on marketable securities, net	$	(1,405)	$	(2)	$	(4,255)	$	(25)
Total comprehensive loss	(25,225)		(16,540)		(52,813)		(24,398)

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Three Months Ended June 30, 2022		Shares			Amount
Balances as of March 31, 2022		129,651,218	$	13		$	528,516	$	(3,378)	$	(275,802)	$	249,349
Issuance of common stock upon exercise of stock options		147,127	—			556		—		—		556
Stock-based compensation expense		—	—			18,990		—		—		18,990
Issuance of common stock for settlement of RSUs		570,919	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			187		—		—		187
Issuance of common stock in connection with employee stock purchase plan		161,625	—			2,462		—		—		2,462

Unrealized loss on marketable securities		—	—			—		(1,405)		—		(1,405)
Net loss		—	—			—		—		(23,820)		(23,820)
Balances as of June 30, 2022		130,530,889	$	13		$	550,711	$	(4,783)	$	(299,622)	$	246,319


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Three Months Ended June 30, 2021		Shares			Amount
Balances as of March 31, 2021		125,962,107	$	13		$	508,151	$	(4)	$	(202,659)	$	305,501

Issuance of common stock upon exercise of stock options		926,721	—			3,130		—		—		3,130
Stock-based compensation expense		—	—			13,562		—		—		13,562
Issuance of common stock for settlement of RSUs		492,503	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			187		—		—		187
Issuance of common stock in connection with employee stock purchase plan		235,458	—			2,688		—		—		2,688
Unrealized loss on marketable securities		—	—			—		(2)		—		(2)
Net loss		—	—			—		—		(16,538)		(16,538)
Balances as of June 30, 2021		127,616,789	$	13		$	527,718	$	(6)	$	(219,197)	$	308,528


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Six Months Ended June 30, 2022		Shares			Amount
Balances as of December 31, 2021		129,130,478	$	13		$	511,096	$	(528)	$	(251,064)	$	259,517
Issuance of common stock upon exercise of stock options		271,221	—			1,044		—		—		1,044
Stock-based compensation expense		—	—			35,734		—		—		35,734
Issuance of common stock for settlement of RSUs		967,565	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			375		—		—		375
Issuance of common stock in connection with employee stock purchase plan		161,625	—			2,462		—		—		2,462

Unrealized loss on marketable securities		—	—			—		(4,255)		—		(4,255)
Net loss		—	—			—		—		(48,558)		(48,558)
Balances as of June 30, 2022		130,530,889	$	13		$	550,711	$	(4,783)	$	(299,622)	$	246,319


(In thousands, except share amounts)	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Deficit
Six Months Ended June 30, 2021		Shares			Amount
Balances as of December 31, 2020		124,795,222	$	12		$	494,103	$	19	$	(194,824)	$	299,310

Issuance of common stock upon exercise of stock options		1,675,117	1			5,726		—		—		5,727
Stock-based compensation expense		—	—			24,826		—		—		24,826
Issuance of common stock for settlement of RSUs		910,992	—			—		—		—		—
Tides Foundation common stock warrant expense		—	—			375		—		—		375
Issuance of common stock in connection with employee stock purchase plan		235,458	—			2,688		—		—		2,688
Unrealized loss on marketable securities		—	—			—		(25)		—		(25)
Net loss		—	—			—		—		(24,373)		(24,373)
Balances as of June 30, 2021		127,616,789	$	13		$	527,718	$	(6)	$	(219,197)	$	308,528

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

UPWORK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(In thousands)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(48,558)	$	(24,373)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for transaction losses	8,310		1,907
Depreciation and amortization	4,025		5,748
Amortization of debt issuance costs	1,481		39
Amortization of premium of purchases of marketable securities, net	800		22
Amortization of operating lease asset	1,518		1,774
Tides Foundation common stock warrant expense	375		375
Stock-based compensation expense	35,715		24,760

Impairment expense	—		7,389
Changes in operating assets and liabilities:
Trade and client receivables	(10,861)		(16,835)
Prepaid expenses and other assets	(1,206)		(2,871)
Operating lease liability	(2,614)		(861)
Accounts payable	280		2,168
Accrued expenses and other liabilities	(3,465)		(273)
Deferred revenue	2,278		3,451
Net cash provided by (used in) operating activities	(11,922)		2,420
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(231,350)		(29,967)
Proceeds from maturities of marketable securities	191,607		64,500
Purchases of property and equipment	(602)		(334)
Internal-use software and platform development costs	(2,824)		(3,581)
Net cash provided by (used in) investing activities	(43,169)		30,618
CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in escrow funds payable	27,632		30,040
Proceeds from exercises of stock options	1,044		5,727



Proceeds from employee stock purchase plan	2,462		2,688

Repayment of debt	—		(3,786)





Net cash provided by financing activities	31,138		34,669
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(23,953)		67,707
Cash, cash equivalents, and restricted cash—beginning of period	352,058		232,463
Cash, cash equivalents, and restricted cash—end of period	$	328,105	$	300,170
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest	$	785	$	283
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Property and equipment purchased but not yet paid	$	46	$	39
Internal-use software and platform development costs incurred but not yet paid	$	157	$	36

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

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

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. In March 2022, the Company suspended business operations in Russia and Belarus, announcing that contracts with talent or clients in Russia or Belarus would be 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 and six months ended June 30, 2022, at this time the Company is unable to fully assess the aggregate impact the Russian war against Ukraine will have on its business 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.

Summary of Significant Accounting Policies

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

Recent Accounting Pronouncements Not Yet Adopted

The Company has reviewed the accounting pronouncements issued during the six months ended June 30, 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 June 30, 2022, the Company had approximately $30.7 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 June 30, 2022, the Company expects to recognize approximately $24.0 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.

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)	June 30, 2022		December 31, 2021
Trade and client receivables, net of allowance	$	69,858	$	66,826
Contract liabilities
Deferred revenue	23,983		22,083
Deferred revenue (component of other liabilities, noncurrent)	6,728		6,349

During the three and six months ended June 30, 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 and six months ended June 30, 2022 that was included in deferred revenue as of March 31, 2022 and December 31, 2021 was $8.6 million and $13.1 million, respectively. Revenue recognized during the three and six months ended June 30, 2021 that was included in deferred revenue as of March 31, 2021 and December 31, 2020 was $6.1 million and $9.6 million, respectively.

Note 4—Fair Value Measurements

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

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

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

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

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

The Company’s financial instruments that are carried at fair value consist of Level I and Level II assets as of June 30, 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) June 30, 2022	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	16,230	$	—	$	—	$	16,230	$	16,230	$	—
Level I
Money market funds	119,140		—		—		119,140		119,140		—
Treasury bills	114,508		—		(457)		114,051		—		114,051
U.S. government securities	117,354		—		(2,214)		115,140		—		115,140
Total Level I	351,002		—		(2,671)		348,331		119,140		229,191
Level II
Commercial paper	109,347		—		(293)		109,054		—		109,054
Corporate bonds	147,576		—		(1,386)		146,190		—		146,190
Commercial deposits	11,137		—		(61)		11,076		—		11,076
Asset-backed securities	30,458		—		(298)		30,160		—		30,160
Yankee bonds	6,657		—		(70)		6,587		—		6,587
Total Level II	305,175		—		(2,108)		303,067		—		303,067
Total	$	672,407	$	—	$	(4,779)	$	667,628	$	135,370	$	532,258


(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 funds	108,204		—		—		108,204		108,204		—
Treasury bills	89,992		1		—		89,993		15,000		74,993
U.S. government securities	94,839		—		(285)		94,554		—		94,554
Total Level I	293,035		1		(285)		292,751		123,204		169,547
Level II
Commercial paper	171,918		—		—		171,918		29,544		142,374
Corporate bonds	183,303		1		(217)		183,087		17,861		165,226

Asset-backed securities	13,749		—		(11)		13,738		—		13,738
Yankee bonds	6,693		—		(12)		6,681		—		6,681
Total Level II	375,663		1		(240)		375,424		47,405		328,019
Total	$	685,294	$	2	$	(525)	$	684,771	$	187,205	$	497,566

Unrealized Investment Losses

The following table summarizes, for all debt securities classified as available for sale in an unrealized loss position as of June 30, 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 June 30, 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 Months				Total
Duration of unrealized losses	Fair Value		Unrealized loss			Fair Value		Unrealized loss
Money market funds	$	119,140	$	—		$	119,140	$	—
Commercial paper	109,054		(293)			109,054		(293)
Treasury bills	114,051		(457)			114,051		(457)
U.S. government securities	115,140		(2,214)			115,140		(2,214)
Corporate bonds	146,190		(1,386)			146,190		(1,386)
Asset-backed securities	30,160		(298)			30,160		(298)
Yankee bonds	6,587		(70)			6,587		(70)
Commercial deposits	11,076		(61)			11,076		(61)
Total	$	651,398	$	(4,779)		$	651,398	$	(4,779)

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 June 30, 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 June 30, 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 and six months ended June 30, 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 June 30, 2022 and December 31, 2021:


(In thousands)	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	135,370	$	187,205
Restricted cash	4,290		4,040
Funds held in escrow, including funds in transit	188,445		160,813
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statement of cash flows	$	328,105	$	352,058

Property and Equipment, Net

Property and equipment, net consisted of the following:


(In thousands)	June 30, 2022		December 31, 2021
Computer equipment and software	$	6,044	$	5,493
Internal-use software and platform development	28,631		25,738
Leasehold improvements	11,644		11,644
Office furniture and fixtures	3,365		3,365
Total property and equipment	49,684		46,240
Less: accumulated depreciation	(28,861)		(24,911)
Property and equipment, net	$	20,823	$	21,329

For the three months ended June 30, 2022 and 2021, depreciation expense related to property and equipment was $0.8 million and $1.0 million, respectively. For the six months ended June 30, 2022 and 2021, depreciation expense related to property and equipment was $1.6 million and $2.0 million, respectively.

For the three months ended June 30, 2022 and 2021, the Company capitalized $1.7 million and $1.3 million of internal-use software and platform development costs, respectively. For the six months ended June 30, 2022 and 2021, the Company capitalized $2.9 million and $3.4 million of internal-use software and platform development costs, respectively.

For the three months ended June 30, 2022 and 2021, amortization expense related to the capitalized internal-use software and platform development costs was $1.2 million and $1.6 million, respectively. For the six months ended June 30, 2022 and 2021, amortization expense related to the capitalized internal-use software and platform development costs was $2.4 million and $3.1 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


(In thousands)	June 30, 2022		December 31, 2021
Accrued compensation and related benefits	$	9,032	$	23,047
Accrued vendor expenses	12,467		7,728
Operating lease liability, current	6,410		6,315
Accrued indirect taxes	11,628		4,137
Accrued payment processing fees	2,407		2,085
Accrued talent costs	2,260		1,417
Other	1,474		1,013
Total accrued expenses and other current liabilities	$	45,678	$	45,742

Note 6—Commitments and Contingencies

Letters of Credit

In conjunction with the Company’s operating lease agreements, as of June 30, 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 June 30, 2022 and December 31, 2021.

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 June 30, 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 June 30, 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 June 30, 2022 and December 31, 2021:


(In thousands)	June 30, 2022			December 31, 2021
Convertible senior notes	$	575,000		$	575,000




Less: unamortized debt issuance costs	(12,220)			(13,701)
Balance	562,780			561,299
Debt, current	—			—
Debt, noncurrent	$	562,780		$	561,299
Weighted-average interest rate	0.77		%	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

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

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

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

•during the five consecutive business day period after any five consecutive trading day period, which is referred to as the Measurement Period, in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

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

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

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

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

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

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

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

For the three months ended June 30, 2022, interest expense was $0.4 million and amortization of the issuance costs was $0.7 million related to the Notes. For the six months ended June 30, 2022, interest expense was $0.7 million and amortization of the issuance costs was $1.5 million related to the Notes. As of June 30, 2022, the if-converted value of the Notes did not exceed the outstanding principal amount. As of June 30, 2022, the total estimated fair value of the Notes was $443.9 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.

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 June 30,				Six Months Ended June 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Numerator:
Net loss	$	(23,820)	$	(16,538)	$	(48,558)	$	(24,373)


Denominator:
Weighted-average shares used to compute net loss per share, basic and diluted	130,060,694		126,742,452		129,707,197		126,010,689

Net loss per share, basic and diluted	$	(0.18)	$	(0.13)	$	(0.37)	$	(0.19)

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 June 30,
	2022	2021
Options to purchase common stock	3,992,597	4,636,338
Common stock issuable upon exercise of common stock warrants	350,000	400,000
Common stock issuable upon vesting of restricted stock units	7,695,246	5,066,960
Common stock issuable in connection with employee stock purchase plan	1,149,219	287,448
Common stock issuable in connection with convertible senior notes	8,701,935	—
Total	21,888,997	10,390,746

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 June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Marketplace
Basic, Plus, Client Marketplace(1) and other	$	132,029	$	105,963	$	250,696	$	203,676
Enterprise	12,296		8,497		23,054		15,454
Managed services	12,573		9,721		24,485		18,670
Total revenue	$